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

Saturday, February 27, 2016

week ending Feb 27

Fed Watch: Not All Fed Presidents On Board With March Pause - The Fed will almost certainly pause in March. But not all Fed presidents are leaning that way. And at least one seems to be shifting closer to March than further away. At the end of January, San Francisco Federal Reserve President John Williams had this to say, via Reuters:..."Standard monetary policy strategy says a little less inflation, maybe a little less growth ... argue for just a smidgen slower process of normalizing rates," Williams said.  "We got a little stronger dollar, some mixed data on the economy, some weakness in (fourth-quarter U.S. GDP growth), all of those coming together kind of tell me that we probably need a little bit more monetary accommodation this year than I was thinking in the middle of December." But yesterday, the LA Times reported: Williams, in an interview with the Los Angeles Times, said the recent global developments certainly need to be closely monitored. But he said the “big picture for me hasn’t changed,” and his view on U.S. employment and inflation — the two key areas determining the Fed’s monetary policy — remains sanguine. Sounds like Williams is backing down from his "smidgen" slower pace of rate hikes. Of course, really the only way to have just a "smidgen" slower pace is to skip the March meeting and acquiesce to at most three rate hike this year. So if Williams is backing down, he is saying that March remains an open question.  What would have changed his position? Data would be my guess. Since Williams spoke with reporters in January, the data has been fairly supportive. As he notes in his most recent speech, unemployment has fallen below 5%, his estimate of the natural rate of unemployment, and wage growth is starting to accelerate. Moreover, he still expects inflation will accelerate. I would add that initial unemployment claims turned back

Fed Watch: Lacker, Kaplan, Fischer - Today Richmond Federal Reserve President Jeffrey Lacker argued that the case for rate hikes remains intact, arguing that monetary policy remains quite accommodative: So at this point, estimates of the natural real rate of interest do not suggest that the zero lower bound is impeding the Fed’s ability to attain its 2 percent inflation objective. In fact, this perspective would bolster the case for raising the federal funds rate target. And in he is quoted by Reuters adding: Ongoing strength in the U.S. job market could give the Federal Reserve justification for multiple interest rate increases this year, Richmond Fed President Jeffrey Lacker said on Wednesday... .."I still think prospects for rate increases this year is the logical" view, Lacker said in a presentation to a business school in Baltimore, adding that economic data did not indicate that a recession was imminent in the United States. If Lacker were still voting this year, he would likely be a serial dissenter. On the opposite side of the table sits Dallas Federal Reserve President Robert Kaplan. In an interview with the Financial Times, Kaplan leans very dovish: Now was a time for patience as the Federal Reserve seeks to understand the impact of financial market turbulence and slowing growth in other economies, said Mr Kaplan, who does not vote on Fed rates this year but takes part in the debate. “In order to reach our inflation objective we may need to be more patient than we previously might have thought,” he said. “If that means we take an extended period of time where we stop and don’t move, that may also be necessary. I am not prejudging that.” Pure wait-and-see, risk management mode, and the most likely direction the Fed will take in March and April. Federal Reserve Vice Chair Stanley Fischer remains less-moved by recent developments. Instead, low unemployment rates capture his attention "most estimates of the full employment rate of unemployment are close to 5 percent. The actual rate of unemployment is now slightly below 5 percent, and the median view of the members of the FOMC is that it will decline further, perhaps even to the vicinity of 4.7 percent."

Is US Monetary Policy Dangerously Tight? -- US monetary liquidity in January contracted at the sharpest rate in decades, according to the real (inflation-adjusted) year-over-year trend in base money (M0). It’s debatable if this alone is a warning sign for the macro outlook, but it’s an indicator that just went ballistic.   It’s always dangerous to reason from one set of numbers—even a crucial one like monetary policy. But neither is it wise to ignore a critical indicator when it goes to extremes. That certainly characterizes M0’s annual change through January. Indeed, real base money (the St. Louis Adjusted Monetary Base deflated by the consumer price index) contracted by 7.2% last month vs. the year-earlier level—the lowest since 1948! The good news is that last month’s economic profile for the US looks encouraging. Yesterday’s update of three-month average of the Chicago Fed’s National Activity Index rose to a four-month high in the kick-off to 2016. Although the macro trend continues to roll along at a pace that’s below the historical trend, the odds are low that a new recession started in January, according this benchmark. That offers some comfort for thinking that the moderately positive bias will spill over into months ahead. But there are still reasons to be cautious, and you can add monetary policy by way of base money to the list.

Negative interest rates: More bad news for savers - When a central bank embraces a policy of negative rates—that is, charging banks rather than paying them to stash their reserves at the central repository—the policy can trickle down to individual savers in the form of lower interest rates on savings, higher bank fees, higher deposit requirements and other barriers to opening an account. Thanks to weakening economies, the European Central Bank, the Bank of Japan and Sweden’s central bank, among others, have embraced negative rate policies. Generally, the aim is to push banks to lend money and thus to stimulate economic growth by encouraging businesses to invest and consumers to spend. Those policy moves overseas prompted some questions for U.S. Federal Reserve Chairwoman Janet Yellen at a congressional hearing earlier in February. Yellen said the Fed would need to investigate the legal issues of a pushing rates into negative territory, but that she didn’t think there would be “any restriction” on doing so.  Keep in mind that in the U.S., this is all simply talk at the moment. And even if the Fed did adopt such a policy, there would plenty of advance warning. “We’re not in that economic environment at this point,” said Greg McBride, chief financial analyst at Even if the economy does decline precipitously, the Fed would first have to unwind the rate hike that took effect in December, he said. “This isn’t something that’s going to be sprung on us overnight.” Still, the talk has some people worried...

Use of Fed’s Foreign Repo Program Grows - WSJ: Foreign central banks have sharply increased their overnight deposits in a Federal Reserve program that pays more than some prevailing money-market rates, the latest shift to reverberate through short-term global lending markets. Use of the Fed program, known as the foreign repo pool, has doubled over the past year to $250.8 billion as of the week ended Feb. 17, central bank figures show, reflecting growing balances held by overseas government-related institutions. Analysts and traders said that a recent increase in one-month Treasury-bill rates was likely driven in part by increasing use of the program. As foreign institutions that use it move some of their dollars out of Treasurys and into the facility, the price of Treasurys falls and the yield rises. The influx is striking for a decades-old Fed facility—run by the Federal Reserve Bank of New York—that for years hovered in the tens of billions of dollars and captured little attention as foreign central banks used it to manage their daily investments. The program now seems to be at the center of how they are building a liquidity cushion at a time of heightened market uncertainty and relatively unattractive rates on bank customer deposits. “The sheer size of the facility makes it noteworthy,”

Don’t Panic Over Falling Inflation Expectations - Alarms are ringing over how much expected inflation has fallen in recent months. Bond markets are betting that five to 10 years from now, inflation will be roughly half the Fed’s 2% target. The University of Michigan reports on household expectations today; its last survey found long-term expectations hit an all-time low earlier this month. This has unsettled some Federal Reserve policy makers and many outside analysts, because low expectations can be self-fulfilling. It’s fueled calls for the Fed to stop raising rates, or even cut them. But the drop may be misleading: It is heavily driven by falling oil and gasoline prices. While inflation is too low, the reality is not nearly as bad some in the market think, and they could be in for an unpleasant surprise if oil prices stabilize or head higher. A one-time change in the price of oil can push inflation up or down in the short run but in theory those effects should fade over time. That’s why central bankers monitor measures of expected inflation some years in the future. Yet contrary to theory, oil prices do affect long-term expectations. The daily correlation between oil prices and the market’s expected inflation rate in five to 10 years’ time is 30%, according to Michael Feroli of J.P. Morgan , and statistical tests strongly suggest that isn’t just random noise. “We are talking about a pretty strong relationship that can only be rationalized…with some very extreme (arguably bizarre) stories about what oil tells us about the 2020-25 inflation outlook,” he says. Perhaps investors assume that whatever is driving oil down is going to have a lasting effect on all other prices and wages, such as the deflationary impact of a China slowdown. But underlying inflation trends are not deteriorating. Core inflation, according to the consumer-price index, reached 2.3% in January, the highest in three and a half years. Earnings growth has moved up gradually in the last year.

Important new findings on inflation and unemployment from the new ERP | Jared Bernstein - In economic policy, new findings can sometimes break through the noise based on their timing, relevance, and importantly, who finds the findings. For example, when the President’s Council of Economic Advisors (CEA) publishes highly relevant results on a very hot topic in the annual Economic Report of the President (ERP), it matters. This year’s ERP, out today, has a series of figures in it that may well become important. At least, I hope so, because the CEA is presenting vital information about the evolving constraints on our ability to track a relationship at the core of macroeconomics: that between unemployment and inflation. And that, in turn, suggests the natural rate of unemployment is both lower than commonly thought and a lot harder to accurately pin down. The Fed works off of this correlation to calibrate monetary policy designed to balance the competing goals of full employment and stable inflation. The larger the negative correlation, the greater the competition. If a mere tick down in unemployment led to a sharp tick up in price growth, the Fed would have to strike quickly and firmly by raising interest rates to stop unemployment from falling and prices from spiraling upwards. Instead, these three figures from the new ERP, out this morning, tell the opposite story, showing a much diminished correlation over time.

Chicago Fed: US Economic Growth Strengthens In January -- US economic output in January posted a modestly stronger trend vs. the previous month, according to this morning’s update of the Chicago Fed National Activity Index. This macro benchmark’s three-month average (CFNAI-MA3) rose to -0.15 last month, matching The Capital Spectator’s projection that was posted on Friday.  Today’s update deals another blow to the implied recession warning that’s been bubbling in financial markets in recent weeks. Last week’s monthly US macro profile dispensed a similar message of modestly stronger growth, which suggests that the NBER is unlikely to declare the first month of this year as the start of a new recession. CFNAI-MA3’s current print puts the index well above the -0.70 tipping point that marks the start of new recessions, based on Chicago Fed guidelines. In fact, the latest rise marks a four-month high for CFNAI-MA3, which reflects a broad sweep of 85 indicators. Nonetheless, the modestly negative value continues to indicate a below-trend pace of growth for the fourth straight month.  “January’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend,” the Chicago Fed said in a press release today. “The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.” Note that the monthly value for the index posted a stronger rebound, rising well into positive territory. The +0.28 value for the January level of CFNAI indicates the highest reading for a single month since last July. For the moment, at least, there’s a bit more evidence for arguing that Mr. Market’s dark expectations for the economy this year have been excessive.

Chicago Fed: "Index shows economic growth picked up in January" -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth picked up in January Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.28 in January from –0.34 in December. Two of the four broad categories of indicators that make up the index increased from December, and two of the four categories made positive contributions to the index in January. The index’s three-month moving average, CFNAI-MA3, increased to –0.15 in January from –0.30 in December. January’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

January 2016 CFNAI Super Index Improves: The economy's growth improved based on the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average - but remains below the historical trend rate of growth (but still well above levels associated with recessions). The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - declined from -0.30 (originally reported as -0.24 last month) to -0.15. Three of the four elements of this index are in contraction. This index IS NOT accurate in real time (see caveats below) - and it did miss the start of the 2007 recession. The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event. A value of zero for the index would indicate that the national economy is expanding at its historical trend rate of growth, and that a level below -0.7 would be indicating a recession was likely underway. Econintersect uses the three month trend because the index is very noisy (volatile).

Q4 GDP Revised Up to 1.0% Annual Rate -- From the BEA: Gross Domestic Product: Fourth Quarter 2015 (Second Estimate) Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 0.7 percent. With this second estimate for the fourth quarter, the general picture of economic growth remains the same; private inventory investment decreased less than previously estimated ... Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 2.2% to 2.0%. Residential investment was revised down from 8.1% to 8.0%.  This was above the consensus forecast.

Second Estimate 4Q2015 GDP Revised Upward to 1.0%: The second estimate of fourth quarter 2015 Real Gross Domestic Product (GDP) is a positive 1.0 %. This is a moderate increase from the advance estimate's +0.7 % if one looks at quarter-over-quarter headline growth. Year-over-year growth declined from the previous quarter. The major reason for the improvement in GDP growth from the advance estimate was an improvement in the contraction of inventories.  Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 4Q2015, the year-over-year growth is 1.9 % - down from 3Q2015's 2.1 % year-over-year growth. So one might say that GDP decelerated 0.2 % from the previous quarter. The table below compares the 3Q2015 third estimate of GDP (Table 1.1.2) with the second estimate of 4Q2015 GDP which shows:

  • consumption for goods and services declined.
  • trade balance degraded
  • there was inventory change removing 0.14% from GDP
  • there was slower fixed investment growth
  • there was reduction in government spending

The arrows in the table below highlight significant differences between 3Q2015 and 4Q2015 (green is good influence, and red is a negative influence).  What the BEA says about the second estimate of GDP: Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 1.0 percent in the fourth quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 0.7 percent. With this second estimate for the fourth quarter, the general picture of economic growth remains the same; private inventory investment decreased less than previously estimated The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from exports, nonresidential fixed investment, state and local government spending, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased. The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in state and local government spending, and in exports that were partly offset by a smaller decrease in private inventory investment, a downturn in imports, and an acceleration in federal government spending. Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 1.2 percent in the fourth quarter, compared with an increase of 2.2 percent in the third.

What Changed in the Fourth-Quarter U.S. GDP Report – At A Glance - The U.S. economy expanded at a 1% rate in the final three months of 2015, better than a previously reported 0.7% gain, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal forecast gross domestic product to have advanced at a 0.4% rate for the fourth quarter. U.S. businesses pared back inventories much less than initially estimated in the fourth quarter. The revised inventory estimate essentially entirely accounts for the upward revision of fourth-quarter growth to a 1% pace from a previously estimated 0.7% gain. The change in private inventories accounted for a 0.14 percentage point drag on growth, rather than the 0.45 point drag estimated a month ago. While the result is a better growth result in final months of 2015, it’s not entirely positive. With larger stockpiles, businesses might not need to increase production this year to meet demand, a factor that could be a headwind to future growth.  Hidden behind upgraded economic growth in the fourth quarter was a slowdown in consumer spending. Personal-consumption expenditures advanced at a 2% pace in the fourth quarter. That’s a downward revision from the initial estimate of a 2.2% advance and a deceleration from the third quarter’s 3% annualized gain. Consumer spending on long-lasting goods such as cars, appliances and furniture was not as strong as previously thought in the final three months of 2015.  Imports to the U.S. fell in the fourth quarter, a reversal from the government’s initial estimate. U.S. imports fell at a 0.6% pace in the final three months of 2015. That’s revised from the initial reading of a 1.1% advance. Imports subtract from GDP because they reflect overseas production consumed in the U.S. Exports, which also declined in the fourth quarter, add to the measure of domestic output. Most of the import revision reflected a slowdown in goods shipments to the U.S. That’s consistent with a slowdown in consumer spending.   Spending by state and local governments declined at a 1.4% annualized pace in the fourth quarter. That’s a deeper decline than the initially estimated 0.6% decrease. Meanwhile, growth in federal outlays was slightly less robust, but still clearly positive at a 2.2% growth rate. Overall government spending was essentially a neutral factor for GDP last quarter. The first output estimate showed the government to have added 0.12 percentage point to overall growth.

Q4 GDP Revised Higher To 1.0% Thanks To Less Inventory Liquidation Even As Consumption Disappoints - With Wall Street consensus expecting the poor first Q4 GDP estimate of 0.7% to be revised even lower to 0.4%, and with Wall Street's biggest former permabull Joe LaVorgna expecting a number as low as 0.1%, instead it received a surprising jolt to the upside when the BEA reported that instead of a decline, Q4 GDP was actually revised higher to 1.0%. But, as usual, the devil is in the details, because while the same consensus was expecting Personal Consumption to remain unchanged at 2.2%, instead it declined to 2.0% Q/Q, providing 1.38% of the 1.00% GDP bottom line, down from 1.46%. So what provided the upside kicker? The full breakdown is shown below. In case it is not clear fromthe chart above what happened, the answer is simple: instead of the substantial, and much needed, inventory liquidation that supposedly took place in Q4 as of the last GDP estimate, when the change in private inventories declined from $95.3 billion to $75.8 billion, subtracting 0.45% from the GDP print, this number was revised much higher, to a $90.6 billion change, which subtracted just 0.14% from the print and in effect contributed +0.31% to last month's GDP estimate, or in other words, all of the upside revision. What this means is that while Q4 GDP was "saved" due to the lower than expected inventory decline, instead the inventory liquidation will now seep into Q1 2016 GDP and subtract from first quarter growth. Add in collapsing CapEx from the energy sector, and suddenly the weakness which was supposed to have been "kitchen sinked" in the last quarter of 2015 will be carried over to 2016.

GDP, Revised 4Q15 And Forecast 1Q16 -- February 26, 2016  -- From Financial Times: The US economy ended the year on a stronger footing than expected, providing some reassurance as the global outlook falters.  Expansion was unexpectedly revised to a 1 per cent annualised pace in the fourth quarter from 0.7 per cent, the Commerce Department said on Friday in its second estimate of how the economy performed. A downward revision to 0.4 per cent had been forecast.  A robust jobs market and still rising house prices are providing the ballast for an economy that’s facing weaker growth overseas, a sharp contraction in its manufacturing sector and retrenchment in the once booming oil industry.  The bulk of the surprise revision was down to companies accumulating stockpiles at a faster pace than estimated in the reading – a typically powerful variable in revisions. Maybe Yellen can raise rates again. GDPNow, latest forecast, 2.1%, February 26, 2016: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.1 percent on February 26, down from 2.5 percent on February 25. The forecast for first-quarter real consumer spending growth increased from 3.1 percent to 3.5 percent following this morning’s personal income and outlays release from the U.S Bureau of Economic Analysis (BEA). This was more than offset by a downward revision of the contribution of inventory investment to first-quarter real GDP growth from 0.2 percentage points to -0.4 percentage points after this morning's GDP release from the BEA.  Yes, I think she can. 

Economists React to the Fourth-Quarter GDP Report: ‘Less Than Meets the Eye’ - The U.S. economy expanded at a 1% rate in the final three months of 2015, better than a previously reported 0.7% gain, the Commerce Department said Friday. Here’s what economists had to say. “In short, the details of the upward revision to GDP were negative, with inventories less of a drag than before. That probably means more of a drag going forward at some point. Overall, though, the report is unlikely to affect forecasts significantly. Data available so far for the first quarter suggest a pickup from the 1.0% overall pace, even if inventories are still a bit of a drag. Our first quarter forecast is for a 2.3% pace.” —Jim O’Sullivan, High Frequency Economics “The net trade deficit was…reduced, resulting in that segment of the economy subtracting less from growth than previously estimated, -0.25 percentage points versus the prior estimate of -0.47 percentage points. On the other hand, the estimate for consumption activity was lowered to 2.0% from 2.2%, suggesting a weaker-than-expected showing in this key segment of the economy than previously thought…..Overall, despite the better than expected headline print, the underlying tone of this report was less than meets the eye…The downgrade in consumption activity speaks to a softening in a key component of GDP and the sharp upward revision to inventories will result in a weak handoff to first-quarter GDP tracking.” —Millan Mulraine, TD Securities “The upward revision to equipment investment was also notable. This component was revised to -1.8% from a very weak -2.5% in the advance report. With the energy sector still struggling, a significant rebound in equipment investment still may be several quarters away.” —Dana Saporta, Credit Suisse “In sum, real final demand turned out to be marginally weaker than the preliminary print. The subpar 1.4% gain in real domestic demand, however, likely will not be repeated,

US GDP Growth Is Expected To Rebound In Q1 - The US economy’s stall speed expansion in last year’s fourth quarter is on track to accelerate in Q1, according to a variety of estimates. There’s disagreement about the strength of the revival, but a diverse set of forecasts are in agreement that Q1 economic activity will strengthen in the “advance” estimate that the Bureau of Economic Analysis will publish on Apr. 29. Among the stronger forecasts: yesterday’s revised Q1 outlook from the widely followed nowcast via the Atlanta Fed. The bank’s GDPNow model is currently projecting a 2.5% increase (seasonally adjusted annual rate) in output for the first three months of this year, based on the Feb. 25 update. If the forecast holds, the US macro trend will post a solid acceleration in growth over the tepid 0.7% rise in last year’s final quarter. Even the comparatively pessimistic estimates at the moment see some improvement in the Q1 data, if only on the margins. Wells Fargo’s latest prediction (Feb. 19), for instance, is currently looking for a slightly stronger pace: 1.0%. Economists overall are expecting a healthy revival in growth. This month’s survey data via The Wall Street Journal points to a 2.0% advance in Q1 GDP, based on the average estimate among analysts polled by the newspaper.  The Capital Spectator’s average econometric estimate is relatively soft in comparison with the crowd’s expectations, although here too the current outlook is pointing to a modestly stronger rate of expansion: 1.4%.

The US Economy Has Not Recovered And Will Not Recover -- The US economy died when middle class jobs were offshored and when the financial system was deregulated. Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits. However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders. The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits. Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low interest rate policy made possible. The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized. Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer.  A relatively few rich people are an insufficient number to drive the economy.

Fiscal Stimulus of Consumption - The global financial crisis (GFC) has been in temporary recess since its break in 2008, but has recently metastasized into a more dangerous form. Extreme real-time experiments are being forced on many economies without sufficient scientific justification. The extreme measures, apart from constant fiscal stimulus, now including negative interest rates and banning or restricting the use of cash, have been designed and implemented, in Europe, Japan and elsewhere, to prevent saving and force spending, and also to protect a flawed financial system. The slow recovery from the GFC has been blamed on insufficient consumer spending. As a past US Secretary of the Treasury and now a Harvard professor, Summers (2011), has said and has repeated on several occasions:…the central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending and they’re solved by more confidence, more borrowing and more spending. Apart from Summers, Yellen (2014), Stiglitz (2015), Sen (2015), many others and the media generally have been united in voicing the need for more consumer spending to boost economic growth. Indeed, there have been decades of economic stimulation in America consisting of: generally falling official interest rates since 1980 from 19 percent to near zero now; and increasing government budget deficit spending from post-war zero balances, on average, to over 10 percent of gross domestic product (GDP) in 2009. Cognitive dissonance has been blind to the fact that US consumer spending has been very responsive to economic stimulation, as private consumption and total consumption both rose in secular trends since the Second World War (WW2).

GAO: Federal Government Flunks Its Audit – Pam Martens - The country that has delivered epic accounting frauds like Enron, Worldcom, Tyco, and Bernie Madoff just flunked its own audit. Yesterday, the Government Accountability Office, the nonpartisan investigative arm of Congress, released a thumbs down report on how the U.S. government keeps its books. The GAO said it could “not render an opinion on the federal government’s consolidated financial statements for FY 2015 because of persistent problems with the Department of Defense’s (DOD) finances, the federal government’s inability to account for and reconcile certain transactions, an ineffective process for preparing the consolidated financial statements, and significant uncertainties.” How big of a deal is this? According to the GAO, what it was unable to effectively audit amounted to about “34 percent of the federal government’s reported total assets as of September 30, 2015, and approximately 19 percent of the federal government’s reported net cost for fiscal year 2015….” In simple terms, more than a third of your government is a black hole. The two words that no one ever wants to see attached to an audit report are these: “material weaknesses.” But those two words crop up in GAO’s findings. It says the following: “Material weaknesses, including those underlying these three major impediments, continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost, as well as the financial and nonfinancial performance of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an efficient and effective manner.”

45% Of Americans Pay No Federal Income Tax -- As The Burning Platform's Jim Quinn notes, this isn’t actually a shocker. When 40% of the working age population doesn’t work and another 10% only hold part-time jobs, they aren’t paying any Federal Income taxes.They are paying sales taxes, gasoline taxes, excise taxes, toll taxes, phone taxes, etc. If it was up to me, I’d scrap all income taxes and replace it with a consumption tax. The politicians would lose a tremendous amount of corruptible power. The more you spend, the more you pay. Savers would be rewarded. I do favor a High Frequency Trading tax on the Wall Street criminals, just like Bernie. We could use it to build Trump’s wall.As MarketWatch's Catey Hill details, 77.5 million households in America do not pay Federal individual income tax...Many Americans don’t have to worry about giving Uncle Sam part of their hard-earned cash for their income taxes this year. An estimated 45.3% of American households — roughly 77.5 million — will pay no federal individual income tax, according to data for the 2015 tax year from the Tax Policy Center, a nonpartisan Washington-based research group. (Note that this does not necessarily mean they won’t owe their states income tax.) Roughly half pay no federal income tax because they have no taxable income, and the other roughly half get enough tax breaks to erase their tax liability, explains Roberton Williams, a senior fellow at the Tax Policy Center.

We've lost sight of how wildly irresponsible the Republican tax plans are - Vox: You know what hasn't gotten enough attention in this election? How utterly ridiculous the Republican tax plans have become. Marco Rubio, Ted Cruz, and Donald Trump are the top three contenders for the Republican nomination. Rubio has promised tax cuts amounting to $6.8 trillion, Cruz $8.6 trillion, and Trump a whopping $9.5 trillion, according to the Tax Policy Center (and that's not including interest on the debt they would rack up!). To put that in perspective, the tax cuts George W. Bush proposed during the 2000 campaign were $1.32 trillion — which would be $1.82 trillion in today's dollars. And taxes were higher in 2000 than they are today, and the country was running surpluses rather than deficits. It gets worse. Rubio and Cruz both support a Balanced Budget Amendment, so they can't just add their tax cuts to the national debt. They also support spending more on the military — up to $1 trillion for Rubio, about $2.4 trillion for Cruz.  Trump supports more military spending and has also promised to avoid cuts to Social Security and Medicare. All this talk of trillions of dollars can melt the brain. So let's get more specific. We worked with Marc Goldwein of the Center for a Responsible Federal Budget and reams of Congressional Budget Office numbers to come up with some illustrative examples of how much the Republicans would have to cut to pay for their tax plans.  These aren't their only paths, of course — but for every FBI they want to save, they would need to cut other spending of equal value. As you'll see, it gets very hard, very fast.

Donald Trump Has New Reason for Not Releasing Tax Returns: I.R.S. Is Picking on Him -  Under pressure from the last Republican presidential nominee to release his tax returns, Donald J. Trump used the debate stage Thursday night to debut a new reason for why he can’t do so right now, and might not even be able to release them at all during the campaign: He’s been the target of curious audits for many years. “Because of the size of my company, which is very, very large, I’m being audited,” said Mr. Trump, adding that these audits have taken several years to conclude. “For many years, I’ve been audited every year,” Mr. Trump said. “Twelve years or something like that,” he added, which would technically mean it stretched back to the era of President George W. Bush. He said that he will “absolutely” release the returns but that he was currently being audited “so I can’t.” Senator Ted Cruz, standing to Mr. Trump’s left on stage, suggested he was afraid of releasing them. In an interview with the CNN host Chris Cuomo after the debate, Mr. Trump, playing into mistrust among some Republican voters about the I.R.S., said he thought he was being intentionally targeted for audits because he’s a “strong Christian.” Mr. Cuomo sounded dubious, but Mr. Trump insisted, and said that he has friends who are also wealthy but do not get audited.

In "Unprecedented, Historic" Move, Senate GOP Will Deny Obama Supreme Court Nominee Hearings - One day after a 1992 video clip emerged of vice president Joe Biden emerged when the then-senator from Delaware said the Senate should not consider a Supreme Court nominee by president George H.W. Bush during an election year, this afternoon Senate Republicans went "all in" on a Supreme Court gamble, in which they vowed to deny holding confirmation hearings for any nominee from President Obama.  'this Committee will not hold hearings on any Supreme Court nominee' until 1/20/17 — Mike DeBonis. The unprecedented decision, made before the president has named a nominee, marks a new chapter in Washington’s war over judicial nominations according to The Hill. In a battle of superlatives, CNN adds that the "historic move outraged Democrats and injected Supreme Court politics into the center of an already tense battle for the White House." "I don't know how many times we need to keep saying this: The Judiciary Committee has unanimously recommended to me that there be no hearing. I've said repeatedly and I'm now confident that my conference agrees that this decision ought to be made by the next president, whoever is elected," Senate Majority Leader Mitch McConnell said Tuesday.

Would Donald Trump or Bernie Sanders Supercharge Growth? Obama’s Economists Think Not -- How fast can the economy grow over the long term? Better than 5%, claims an economist who analyzed Democratic presidential candidate Bernie Sanders’s platform. Up to 6%, boasts Donald Trump, the Republican front-runner. To that, President Barack Obama’s economists respond: No way. Mr. Obama’s Council of Economic Advisers thinks the U.S.’s long-term growth rate is 2.3%, roughly its recent trend, and that’s if every policy he thinks would help has been enacted. Long-term growth is the sum of the growth of the workforce and each worker’s hourly output, that is, productivity. Jason Furman, chairman of the council, noted that the economy grew 3.1% on average from 1953 through the third quarter of 2015. It falls to 2.3% in the next decade because of an aging population and sluggish expansion of the labor force as the baby boom becomes a retirement boom. “That’s something that for the most part you can’t do anything about,” he said. The Council’s Economic Report of the President, released Monday, sees private-sector productivity growth averaging 2.1% in the coming decade, the same as its long-run trend. By contrast, Gerald Friedman, an economist at the University of Massachusetts at Amherst (though not a part of Mr. Sanders’s team) says Mr. Sanders’s plan would raise that growth rate to 3.2%, a rate last achieved on a sustained basis in the 1950s and 1960s. Mr. Trump hasn’t provided any economic analysis to back up his claims. Mr. Furman noted that their projections assume many of Mr. Obama’s proposals aimed at lifting long-term labor force and productivity growth are enacted: increased immigration, ratification of the 12-nation Trans-Pacific Partnership trade agreement, increased federal infrastructure investment, reduced corporate tax rates, and a smaller deficit. All these policies add 0.3 to 0.5 percentage points per year to economic growth. Long-term growth would be even lower without them.

The Sanders Case for More Spending and Faster Growth - Noah Smith - Stimulus, in other words, is part of a short-term strategy to fill in the gaps in the economy caused by the business cycle. That’s the basic idea promoted by the inventor of the concept, John Maynard Keynes. It is also the story embraced by most modern proponents of stimulus, such as Paul Krugman. However, in the recent debate surrounding the economic proposals of presidential candidate Bernie Sanders, a small number of economists have started suggesting a very different justification for stimulus. Their idea: Stimulus does something more fundamental to the economy by raising long-term productivity.  It started with a paper by economist Gerald Friedman of the University of Massachusetts-Amherst, which analyzed Sanders' economic plans. Sanders wants a lot more government spending; Friedman says that this spending will raise growth so much that the proposals will pay for themselves. Though Paul Krugman, Austan Goolsbee and other economists have ridiculed this plan as beingimplausible -- the mirror image of failed Republican promises that tax cuts would be self-financing -- there have been a number of defenses as well, including some from very unlikely sources. If Friedman and others are right, it would upend most of mainstream macro, and would force a dramatic reconsideration of economic policy. But Friedman’s paper seems far-fetched because the normal action of stimulus -- putting unemployed people back to work -- wouldn't be nearly enough to create the kind of growth Friedman projects. In addition, we would need a huge boost to the growth rate of productivity. Usually we think of productivity gains as coming mainly from technological advancements, something that is very hard for government policy to affect.

No: We Can't Wave a Magic Demand Wand Now and Get the Recovery We Threw Away in 2009 -  Brad DeLong - The estimable Mike Konczal writes:  Dissecting the CEA Letter and Sanders's Other Proposals:"I would have done Gerald Friedman’s paper backwards... ...He gives a giant headline number and then you have to work into the text and the footnotes to gather all the details. But a core assumption within the paper is that we are capable of getting back to the 2007 trend GDP through demand. We can get the recovery we should have gotten in 2009... He is wrong. We cannot get back to the 2007 trend GDP through demand alone. For one thing, demand for investment spending has now been low for almost a decade. Since 2007, we have foregone relative to the then-trend:

  1. 16%-point-years of GDP of housing investment.
  2. 6%-point-years of GDP of equipment investment
  3. 5%-point-years of government purchases--of which roughly half have been investments.
  4. 4% of our labor force from their attachments to the labor market.
  5. A hard-to-quantify amount of development of business models and practices.

Realistic Growth Prospects - Paul Krugman - I should talk a bit about what a progressive reasonably can say about prospects for economic growth under a better policy regime.  There are, I would argue, three numbers that are relevant. First, there’s the rate of growth of the economy’s supply-side potential — the rate it can grow at a constant rate of unemployment. Second, there’s the size of the output gap — the amount of extra output we could gain by getting up to full employment. Third, there’s the extent to which we can accelerate the rate of growth of potential. On the first number, look at the chart: over the past five years US growth has fluctuated around 2 percent, while unemployment — both the conventional number and the broader U6 number — has gradually declined. This strongly suggests potential growth under 2 percent. Why so slow? Productivity has been sluggish, and the working-age population is growing much more slowly than it used to as baby boomers hit retirement age. What about the output gap? Wage growth is still weak and inflation fairly low, suggesting that unemployment can go significantly lower from here — maybe down to the 4 percent of the late 1990s, possibly even lower. The standard Okun’s Law relationship would say that bringing unemployment down another percentage point would add 2 percent to real GDP. Maybe, maybe we could argue for an extra-large pool of discouraged workers that raises this to 3. That’s a lot of foregone output in an absolute sense. However, it doesn’t make a huge difference when we’re talking about longer-term growth prospects. Closing a 3-point output gap over 10 years raises the 10-year growth rate by only 0.3 percent. 2016 isn’t like 1933, when the output gap was probably around 30 percent, making a huge growth rate over the next decade possible when wartime mobilization finally brought full employment and then some.

Jamie Galbraith's Letter to Former CEA Chairs - I was highly interested to see your letter of yesterday’s date to Senator Sanders and Professor Gerald Friedman. I respond here as a former Executive Director of the Joint Economic Committee – the congressional counterpart to the CEA. You write that you have applied rigor to your analyses of economic proposals by Democrats and Republicans. On reading this sentence I looked to the bottom of the page, to find a reference or link to your rigorous review of Professor Friedman’s study. I found nothing there. You go on to state that Professor Friedman makes “extreme claims” that “cannot be supported by the economic evidence.” You object to the projection of “huge beneficial impacts on growth rates, income and employment that exceed even the most grandiose predictions by Republicans about the impact of their tax cut proposals.”  So, let’s first ask whether an economic growth rate, as projected, of 5.3 percent per year is, as you claim, “grandiose.” There are not many ambitious experiments in economic policy with which to compare it, so let’s go back to the Reagan years. What was the actual average real growth rate in 1983, 1984, and 1985, following the enactment of the Reagan tax cuts in 1981? Just under 5.4 percent. That’s a point of history, like it or not. It is not fair or honest to claim that Professor Friedman’s methods are extreme. On the contrary, with respect to forecasting method, they are largely mainstream. Nor is it fair or honest to imply that you have given Professor Friedman’s paper a rigorous review. You have not. What you have done, is to light a fire under Paul Krugman, who is now using his high perch to airily dismiss the Friedman paper as “nonsense.” Paul is an immensely powerful figure, and many people rely on him for careful assessments. It seems clear that he has made no such assessment in this case. Instead, Paul relies on you to impugn an economist with far less reach, whose work is far more careful, in point of fact, than your casual dismissal of it. He and you also imply that Professor Friedman did his work for an unprofessional motive. But let me point out, in case you missed it, that Professor Friedman is a political supporter of Secretary Clinton. His motives are, on the face of it, not political.

Krugman and the Gang of 4 Need to Apologize for Smearing Gerald Friedman  - William K. Black -- If you depend for your news on the New York Times you have been subjected to a drumbeat of article attacking Bernie Sanders – and the conclusion of everyone “serious” that his economics are daft.  In particular, you would “know” that four prior Chairs of the President’s Council of Economic Advisers (CEA) (the Gang of 4) have signed an open letter to Bernie that delivered a death blow to his proposals.  Further, you would know that anyone who dared to disagree with these four illustrious economists was so deranged that he or she was acting like a Republican in denial of global climate change.  The open letter set its sights on a far less famous economist, Gerald Friedman, of U. Mass at Amherst.  It unleashed a personalized dismissal of his competence and integrity. But why did Paul Krugman need to “tag in” to try to save the Gang of 4 from being routed?   Krugman claimed that anyone who disagreed with the Gang of 4 must be beyond the pale (like Friedman and Bernie).  Indeed, Krugman was so eager to fend off any analysis of the Group of 4’s attacks that he competed with himself rhetorically as to what inner circle of Hell any supporter of Friedman should be consigned.  In the 10:44 a.m. variant, Krugman dismissed Bernie as “not ready for prime time” and decreed that it was illegitimate to critique the Gang of 4’s critique.   Paul doesn’t explain what “the problem” is, but he sure makes it sound awful.  Logically, “the problem” has to be progressives supporting Bernie. Two hours later, Paul decided that his poisoned pen had not been toxic enough, he now denounced Sanders as a traitor to the progressives who was on his way “to making Donald Trump president.”  To point out the problems in the Gang of 4’s attack on Friedman was to treat them “as right-wing enemies.”  Paul was eager to use “authority” raised to the second power (the Gang of 4 plus both barrels – two hours apart – The “Full Krugman”) to prevent anyone actually looking at the Gang of 4’s letter and Friedman’s study.  Indeed, as I was finishing this first article in a series on their smear I found that Krugman has tripled down on his smear of Friedman with a Sunday column.

Krugman Triples Down on His Smear of Friedman and Bernie -- William K. Black --- Paul Krugman is plumbing new depths of moral obtuseness, arrogance, and intellectual dishonesty in what is now his third smear of the well-respected economist Gerald Friedman in two days.  It is clear that Krugman realized almost immediately after his morning post on February 17, 2016 that the Gang of 4 and he had been caught red-handed in a smear of Friedman and Sanders.  His second post, two hours later, admitted that the Gang of 4’s smear was devoid of any logical criticism of Friedman.  As Krugman phrased it, the open letter “didn’t get into specifics.”  Yes, that’s part of what makes it a smear.  You call an economist’s work garbage ginned up to support his favorite candidate – and you never provide a logical explanation with a single specific of what the economist supposedly did so wrong that he should be, not corrected, but publicly humiliated.  And no, they did not leave the specifics out of their open letter in order to avoid humiliating Friedman while sending him a detailed private email detailing his grievous specific errors.  The truth is that the Gang of 4 and Krugman launched their smear of Friedman without pointing out a single error in his work.  Indeed, that only begins to reveal the truth, for Krugman plainly did not evaluate the accuracy of Friedman’s modelling before he chose to smear Friedman.  Two of the economists, Austan Goolsbee,and Laura D’Andrea Tyson do not do macro modelling and Alan Krueger is overwhelmingly a labor economist.  Christina Romer is the only true macroeconomist.  Goolsbee and Tyson would not have been able to critique Friedman’s modeling and even with Alan Krueger’s econometric skills he would have had to invest a great deal of time to be able to do so.  I would love to take the deposition of each member of the Gang of 4 and Krugman.  Journalists need to ask just how long each spent reading Friedman’s studies and obtain the contemporaneous notes they made during their reading an analysis of the studies before they wrote the letter.  I guarantee that the answers will shock readers.

Sanders’ ambitious growth plan might not be so crazy after all - Thoma - Controversy erupted last week when University of Massachusetts Professor Gerald Friedman produced estimates showing that under the Sander’s economic plan, “The growth rate of the real gross domestic product will rise from 2.1 percent per annum to 5.3 percent so that real GDP per capita will be over $20,000 higher in 2026 than is projected under the current policy.”  The reaction from critics is exemplified by a letter from four former heads of the Council of Economic Advisors under Democratic presidents, Alan Krueger, Austan Goolsbee, Christina Romer, and Laura D’Andrea Tyson:  “As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic.” Defenders such as Jamie Galbraith, an economist at the University of Texas, argued that there is nothing “magical” or outlandish about the estimates, Professor Friedman used a defensible model to obtain his results:  “What the Friedman paper shows, is that under conventional assumptions, the projected impact of Senator Sanders' proposals stems from their scale and ambition.When you dare to do big things, big results should be expected. The Sanders program is big, and when you run it through a standard model, you get a big result.” Is it possible for the economy to reach such a high rate of economic growth? To answer that question, this graph from University of Wisconsin Professor Menzie Chinn is helpful. The graph shows the actual path of real GDP, the expected trend for potential real GDP based upon pre-recession data, and updated estimates of the trend from the CBO in light of the Great Recession.  Our ability to grow over the next few years depends upon the size of the gap between actual output and potential (trend) output. The bigger the gap, the more room there is for short-run growth.

A Simple Explanation Of the Infrastructure Investment Idea So Simple Even A Stupid Jackass Could Understand It -- I'm going to make this as easy as possible for the simply minds to understand.
1.) The US infrastructure is in terrible shape.
2.) The US 10-year bond is STILL really cheap.
3.) For those of you who claim to be business savvy: in order to determine if an investment is worth it, we compare the rate of return to the cost of the project.  So, here's a chart of the difference between the 10 year CMT treasury and 10 year inflation adjusted CMT treasury: So, the cost of the project, at current rates, would be a little over 1.2%.  And, just to give us a margin of latitude, let's use the 10 year CMT-10 year inflation adjusted difference for the duration of the latest expansion.  Eyeballing the chart,  we get a ~2.2%.  That means that, over the of the project, we need to make more than 2.2% on an annual basis.  That is, literally, the lowest bar to jump on planet earth.

So: we borrow money to increase government spending on stuff we really, really, really, really, really, really, really, really, really, really, really, need. As in BADLY. We hire a large number of blue collar folks who have seen their income stagnate. We invest in something we desperately need. Actually, I realize that most stupid jackasses won't get this, largely because it involves thinking and a basic knowledge of econ and finance. But our readers will get the idea.

Bernie Sanders and the Case for a New Economic-Stimulus Package - Earlier this week, the White House Council of Economic Advisers released its annual Economic Report of the President. “Claims that America’s economy is in decline or that we haven’t made progress are simply not true,” President Obama wrote in the foreword. In the body of the report and the accompanying statistical tables, however, the authors acknowledged that, in terms of output, productivity, and wage growth, the recovery, which began in the middle of 2009, has been a disappointment. Over the past six years, G.D.P. growth has risen at an annual rate of 2.1 per cent. That compares to average growth rates of 4.6 per cent during the six years after the recessions of 1980–1982, 3.6 per cent in the six years after the recession of 1990–1991, and 2.7 per cent after the recession of 2001. One reason why the economy isn’t growing as much as it did after past recessions is that the labor force isn’t expanding as rapidly as before.  Productivity growth, which is the ultimate source or rising wages and incomes, has also slowed down—a lot. Since the end of 2007, the peak of the last business cycle, output per hour has grown at an annual rate of just 1.4 per cent. That compares to an average growth rate of 2.2 per cent between business-cycle peaks in the period from 1953 to 2007. In the past five years, productivity growth has been even more disappointing. Since the fourth quarter of 2010, the President’s report says, it has averaged just 0.7 per cent, barely a third of the historical average. Since productivity and wages often move together, it is not surprising that wages have also been stagnant.  It is worth keeping this picture in mind when considering the brouhaha over Bernie Sanders’s economic program, which has been engaging the economics blogosphere for the past week or so. In case you’ve missed it, a number of prominent economists, including four previous chairs of the Council of Economic Advisers, have poured scorn on a paper by Gerald Friedman, an economist from the University of Massachusetts, Amherst, which suggested that Sanders’s tax and spending policies, if enacted, would produce a huge leap in output, wages, and productivity.

'My View on the Controversy over Sander's Economic Plan' - Mark Thoma -  I do not believe that we can sustain 5% growth over the next eight years. In the short-run -- over the next two to four years -- the situation is different. In that timeframe, our ability to achieve rapid growth depends upon the size of the output gap, the effectiveness of monetary and fiscal policy at boosting the economy (fiscal policy in particular), the difficulty in overcoming the factors that caused the recession in the first place, and the responsiveness of potential output to policy measures and the recovery itself (i.e. how much of the decline in potential output is permanent, and how much is cyclical). The main point of emphasis is familiar: it would be a bigger mistake not to try and increase output if there actually is more room to expand than we think than it would be to push for expansion and find the gap is small. In the first case, we’d have people who could be employed remaining idle, a costly error, in the second inflation which the Fed can reverse fairly quickly. So it’s the same asymmetric cost tradeoff many of us have been pounding the Fed about. I’m worried people will accept without question that the gap is small due to the pushback against Friedman's analysis of the Sander's plan, and that will justify policy passivity when we need just the opposite. So let's stop arguing, put the policies we need in place, and push as hard as we can to increase employment until inflation reveals that we have, in fact, hit capacity constraints. Maybe that happens quickly, but maybe not and we owe it to those who remain unemployed, have dropped out of the labor force but would return, or took a job with lousy wages to try. People who had nothing to do with causing the recession have paid the costs for it, and if we experience a short bout of above target inflation I can live with that. We've been wrong about this before in the 1990s, and we may very well be wrong about this again.

Policy as Mock UN - Steve Randy Waldman - Ezra Klein offers a response to my previous post, and there’s a lot that’s good it in. I appreciate Klein’s characteristic effort to provide a nuanced and balanced take. Nevertheless, I can’t say that I am persuaded. Before going into the substance of Klein’s piece, I want to clarify that my prior post was not a response to the controversy that has arisen following a letter from four former CEA chairs about Gerald Friedman’s projections of the effects of Sanders’ proposals. My piece was written last Monday, the CEA letter was published Wednesday, I promise you I have no moles on Mount Olympus. I do have an opinion about the “kerfuffle” provoked by that letter, and maybe I’ll express it in a future post. (Or maybe not.) But my post on theories of politics was not addressed to that controversy. Anyway. Klein and I agree, I think, that “in a democratic polity, wonks are the help”. Elections are where voters set the interests and values in service of which wonks’ technical expertise will later be deployed. But Klein is quite correct to point out that we don’t elect disembodied interests and values, we elect people, and the competence of those people along myriad dimensions will determine whether they are capable of translating the interests and values they represent into meaningful social outcomes. I agree with Klein that voters are called upon to evaluate not candidates’ competence, but their competences, to trade off weaknesses against strengths, and sometimes to trade off evaluations of competence against their preferences with respect to interests and values.As Klein very aptly puts it, “debating the details of campaign proposals is, on some level, fantasy football for wonks.” But, he argues Watching a candidate run his campaign’s policy processes is one of our best ways of predicting how he would run his White House.

Economic Forecasting Models and the Sanders' Controversy - James Galbraith - The Romer/Romer letter to Professor Gerald Friedman marks a turning point. It concedes that there are indeed important issues at stake when evaluating the proposed economic policies of Presidential Candidate Bernie Sanders. These issues go beyond the political debate and should be discussed seriously between and among professional economists.  All forecasting models embody theoretical views. All involve making assumptions about the shape of the world, and about those features, which can, and cannot, safely be neglected. This is true of the models the Romers favor, as well as of Professor Friedman’s, as it would be true of mine. So each model deserves to be scrutinized.  In the case of the models favored by the Romers, we have the experience of forecasting from the outset of the Great Financial Crisis, which was marked by a famous exercise in early 2009 known as the Romer-Bernstein forecast. According to this forecast (a) the economy would have recovered on its own, in full and with no assistance from government, by 2014, (b) the only effect of the entire stimulus package would be to accelerate the date of full recovery by about six months, and (c) by 2016, the economy would actually be performing worse than if there had been no stimulus at all, since the greater “burden” of the government debt would push up interest rates and depress business investment relative to the full employment level.  It’s fair to say that this forecast was not borne out: the economy did not fully recover even with the ARRA, and there is no sign of “crowding out,” even now. The idea that the economy is now worse off than it would have been without any Obama program is, to most people, I imagine, quite strange. These facts should prompt a careful look at the modeling strategy that the Romers espouse.  I attach here the manuscript version of Chapter 10 from my 2014 book, The End of Normal, “Broken Baselines and Failed Forecasts,” which discusses these issues in (I hope) accessible detail.

Robert Reich: Are We Witnessing the Death of America’s Political Establishment? - Robert Reich. Step back from the campaign fray for just a moment and consider the enormity of what’s already occurred. A 74-year-old Jew from Vermont who describes himself as a democratic socialist, who wasn’t even a Democrat until recently, has come within a whisker of beating Hillary Clinton in the Iowa caucus, routed her in the New Hampshire primary, and garnered over 47 percent of the caucus-goers in Nevada, of all places. And a 69-year-old billionaire who has never held elective office or had anything to do with the Republican Party has taken a commanding lead in the Republican primaries.Something very big has happened, and it’s not due to Bernie Sanders’ magnetism or Donald Trump’s likeability. It’s a rebellion against the establishment. The question is why the establishment has been so slow to see this. A year ago – which now seems like an eternity – it proclaimed Hillary Clinton and Jeb Bush shoe-ins. But even now that Bush is out and Hillary is still leading but vulnerable, the establishment still doesn’t see what’s occurred. They explain everything by pointing to weaknesses: Bush, they now say, “never connected” and Hillary “has a trust problem.” A respected political insider recently told me most Americans are largely content. “The economy is in good shape,” he said. “Most Americans are better off than they’ve been in years. The problem has been the major candidates themselves.”  I beg to differ.

“It’s the corruption, stupid”: Hillary’s too compromised to see what Donald Trump understands - In 1992, “It’s the economy, stupid” became a meme because it nailed the issue that drove that election. One overarching issue drives this election, but neither Hillary Clinton’s campaign nor the Democratic Party got the memo. Any swing voter could tell them what it says: It’s the corruption, stupid. Donald Trump got the memo. What you notice first about Trump is his xenophobia, but he also speaks more about corruption than immigration. For example: when he falsely claims to self-fund his campaign, blames Bush’s donors when he gets booed, shames his opponents for crooking the knee to the Kochs, or belittles the Clintons for attending his wedding. He brags of buying influence as if buying it were less corrupt than selling it. He gets away with it because few in the press see the issue’s centrality to the race — or would know what questions to ask if they did. Deep in their unconscious, even Trump’s most ardent fans must know that such a colossal liar couldn’t possibly be a reformer. Asked to explain their enthusiasm, they invariably cite his independence. Doubtless many are also drawn to his racism — but corruption is what Trump and his backers talk most about. In any event, the only real reformer in the race is Bernie Sanders. Even he must broaden his message beyond cracking down on Wall Street and repealing Citizens United. All Democratic candidates call for repealing Citizens United. Democratic audiences cheer when they do. Other audiences doze off, and for good reasons. One reason is that people don’t know what they mean. If you talk about Citizens United or Glass Steagall, you must tell us what they are. The key to campaign finance is discussing how much money flows into the system, where it comes from and how it’s spent. For financial regulation, talk about how without it, banks can bet their depositors’ money — and if they lose big enough, even with Dodd Frank, we taxpayers end up bailing them out.

These Are the Wrong Gatekeepers to Clean Up the Culture of Wall Street: In a feeble public relations move, Bill Dudley, the President of the Federal Reserve Bank of New York and FINRA, the self-regulatory body on Wall Street, are making noises about cleaning up the culture on Wall Street. It’s always dangerous to make any predictions when it comes to Wall Street but in this case we can confidently predict that when it comes to the New York Fed and FINRA, the only possible impact they could have on the culture is to make it worse. The New York Fed didn’t see a problem for Bill Dudley’s spouse to collect $190,000 a year in deferred compensation from JPMorgan Chase while the New York Fed served as the bank’s main regulator. The New York Fed didn’t see a problem for Citigroup’s CEO, Sandy Weill, or JPMorgan CEO, Jamie Dimon, to sit on its Board of Directors as their banks embarked on a serial reign of abuses against the investing public. In 2013, Carmen Segarra, a lawyer and former Bank Examiner at the New York Fed, filed a lawsuit alleging that Relationship Managers at the New York Fed obstructed her investigation of Goldman Sachs and attempted to bully her into changing her negative findings. When Segarra refused, she was fired by the New York Fed according to the lawsuit. Segarra later produced internal tape recordings backing up the toothless regulation of Goldman by the New York Fed.  In 2012, Wall Street On Parade reported on how a Barclays’ bank employee revealed to a Senior Financial Economist at the New York Fed that his bank was not “posting um, an honest Libor.”  That conversation provided an early window into one of the biggest cartel frauds in history. The conversation occurred in April 2008 and yet no one at the New York Fed saw any reason to alert the U.S. Justice Department that a key interest rate benchmark was being rigged.

House Speaker Paul Ryan Demands TPP Be Renegotiated; Neglects To Mention It Was His Bill That Makes That Impossible -- House Speaker Paul Ryan is apparently none too pleased about the Trans Pacific Partnership (TPP) agreement. We're not very pleased with it either and think large sections of it should be dumped -- but for very different reasons than Ryan I imagine. Ryan is saying that there aren't enough votes in the House to ratify the TPP, while suggesting that the USTR has to go back and renegotiate the deal in an interview he gave on Fox News:  When asked where TPP stands now, Ryan said, “Right now I don’t see the votes there for TPP, because I think the administration negotiated an agreement that has some problems in it, has some flaws in it, and they’re going to have to figure those out and work those out if they want to get the votes to pass it through Congress, which I just don’t see the votes there right now.”  Ryan said TPP is not dead, “but right now they have a lot of work to do. If we brought it to the floor today, it wouldn’t pass.”  And then when the host, Maria Baritoromo challenges him on this, pointing out that if they don't have the votes now, how will they have the votes later, he raises a bunch of issues (including intellectual property -- which probably means he wants those provisions to be even worse and more ridiculous than they are now) and basically says the USTR needs to go back to the negotiating table:  I won’t go into all the details, but cross-border data flows, dairy, there are biologics, intellectual property rights protections. I can go into all the details if you’d like, but the point I’m trying to make is I don’t see the votes for this agreement now. That’s why I think they need to go back and work on this agreement.

Debunking the Administration’s TPP = 18,000 Tax Cuts on U.S. Exports Talking Point: U.S. Sold Nothing in More than 10,600 of Those Categories…  Without compelling jobs or economic growth data to sell the Trans-Pacific Partnership (TPP), the Obama administration is trying to shift focus to an impressive-sounding number with its mantra about TPP delivering “18,000 tax cuts for Made in America exports.” But that is just the raw number of tariff lines cut by the five TPP nations with which the United States does not already have free trade agreements. The United States only sold goods to those nations in less than 7,500 of the 18,000 categories. Indeed, the United States exports no goods to any nation under some of the touted 18,000 tariff lines. The 18,000 figure is a misdirect. The relevant question is not the number of tariff cuts other countries listed but whether the TPP would lead to net U.S. job creation, higher wages, an improved trade balance and higher U.S. growth rates.

  • The United States exported nothing for more than half of the 18,000 categories to the five relevant nations – Japan, Malaysia, Vietnam, New Zealand and Brunei – in 2014, the last year for which annual data is available. U.S. exporters already have “tax cuts” for their goods under previous trade deals with the other six TPP nations, including Canada and Mexico – our second and third largest trade partners.
  • For the nearly 7,500 categories of goods out of the 18,000 for which we sold anything to the five nations without previous FTAs, almost 50 percent of the categories had sales under $500,000. And the TPP is not likely to transform that reality. Brunei (annual GDP $17.1 billion) is a tiny market. New Zealand (annual GDP $200 billion – smaller than San Diego) and Vietnam (annual GDP $186.2 billion – close to that of Denver) are not big markets. And, consumer demand is limited by Vietnam’s extremely low $2,052 per capita income. Malaysia’s per capital income is one fifth of that in the United States and its GDP is $338.1 billion, about the size of Atlanta. Japan is a huge market. But, with the exception of some agricultural goods, tariffs have not been the main barriers to U.S. exports to Japan. (GDP data from the World Bank)
  • Almost 2,000 of the tariff reductions in the categories of products the United States does sell won’t be realized for over a decade. This includes some of those, such as beef and pork to Japan, where tariff cuts could make a difference. But because the TPP does not have enforceable disciplines against currency manipulation, by the time these cuts finally go into effect they could effectively have been erased if Japan devalues the yen.

TPP trade and jobs -- Economic Policy Institute - maps and tables of job losses from trade

“The argument that eliminating the $100 [bill] will automatically reduce crime is, at best, suspect” -- Izabella Kaminska -  In a world plagued by low productivity, inequality, negative interest rates and deflation, the idea that something as simple as a physical cash ban might magically turn things around is, understandably, a tempting proposition. Furthermore, there are many convincing arguments for why this would be the case.  Most simply, cash is the means by which the criminal and tax-dodging grey economy get to have their cake and eat it: i.e. retain a right to claim the fruits of a collaborative and productive society supported by a social welfare system funded by taxes, without having to contribute their share of the bill (or in the case of the criminal element, despite actively disrupting the collaborative structure). Without cash, then, crime doesn’t pay, because there’s no way to protect the proceeds of a criminal lifestyle. As a consequence, the argument goes, criminals would simply pack it in. On a nerdier finance level, banning cash seems a neat way to break through the zero lower bound. If there isn’t a bearer cash-out option, after all, everyone’s current liquid wealth becomes subject to an equal amount of tax whether they like it or not. More pertinent still, unless a person is prepared to transfer their cash to productive ventures (with some personal risk), everyone’s risk-free liquid capital turns into a depreciating asset. And that, in turn, sends a larger message to society that if you’re not prepared to take risk or pay your taxes, you don’t get the right to long-term par value protection for your wealth. In other words, keep what you need for consumption’s sake in liquid form, but be forced to share some fraction of it with the wider welfare state or — if you have more than you need — get a move on with investing it in our collective future prosperity. Put that way, it’s fair to assume the productive and tax-paying members of society would see logic in a cash ban.

Buyer Beware: The Vulnerability of One Complex Debt Investment - The market turmoil triggered by a risky new type of bank debt has sent its investors scrambling to understand the bonds’ terms and raised questions about who should be holding these complex securities. Contingent convertible bonds, or CoCos, ended up at some of the world’s largest investment funds, from Pacific Investment Management Co. to BlackRock Inc. But some bonds were also bought by retail investors and on behalf of high-net-worth individuals, stoking concerns about whether all investors knew what they were getting into. The sharp drop in prices brought back unwelcome memories of the credit crisis, when poorly understood securities spread and amplified risks throughout the financial system. How investors react to the recent mauling will determine European banks’ ability to meet regulatory targets at a time when parts of the sector still need to boost capital levels.  It’s an “emperor’s new clothes moment” for CoCos, said Paola Binns, a fund manager at Royal London Asset Management, which owns the CoCo bonds of some U.K. banks. Despite a small rebound, last week CoCo bonds were trading at an average of around 90% of their face value, according to J.P. Morgan Chase & Co.

NYSE Short Interest Nears Record, Pre-Lehman Level - In the last two months, NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months). There are two very different perspectives on could take when looking at this data...

  • Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or
  • Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner.

The correct answer will be revealed in the coming weeks or months... but we know what happened last time...

The Next Shoe Just Dropped: Equity NAVs Of 348 CLOs Slide Below Zero; "Market Changed Dramatically In 6 Weeks" -- At the peak of the last financial crisis, as the credit liquidation wave was jumping from one highly levered product to the next, one of the hardest hit sectors was Collateralized Loan Obligations (CLO) space, where the rout and massive P&L losses across most tranches led to a revulsion for new issuance, which effectively shut down the sector for the next 3 years. However, as central banks pumped trillions into the market, it ultimately found its way back into the new and improved, or 2.0, CLO market, where the resurgent euphoria led  to a record $124.1 billion in new CLO issuance in 2014, with 2015 tailing modestly with $97.3 billion as the second busiest year for CLO issuance in US history and surpassing the last bubble peak. The problem is that with much of loan issuance in recent years going to the lately very troubled energy companies, it now appears that the second CLO explosion in 10 years may be on deck. As Reuters reports, downgrades to energy companies' credit ratings are weighing on Collateralized Loan Obligations (CLO) funds' portfolios, in another hit to a market already facing a drop of more than 50% in issuance this year. According to a report issued by S&P, the credit quality of CLO assets is deteriorating, the result of 45 energy borrower downgrades this month as oil prices remain around all-time lows. S&P notes that the credit ratings of around 1.4% of assets held by US CLOs have been downgraded or placed on credit watch with negative implications this year. To be sure, the S&P report comes well after the market itself has figured out the latent risk in CLOs, as the following performance chart clearly shows:

N.Y. Fed Having A Little Fun At Expense Of Money Managers - With a federal judge trying to decide if one of the largest financial services companies in the world qualifies as too big to fail—or, at least, whether it can be so deemed at a regulator’s whim—now might seem a strange time for other regulators to be spitballing about what else might be slapped with the dreaded ‘systemically important financial institution’ tag, especially about something that just about everyone agrees is not systemically important. But spitballing is what economists do, and so if you are a large asset manager, allow those at the New York Fed to scare the bejesus out of youAccording to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete…. Our macroprudential stress test reveals that mutual funds can, in fact, be subject to a “run”—despite the fact that they have no significant leverage and a floating NAV. In addition, the test shows that such a run can produce significant negative spillovers in asset markets through forced liquidations…. Now that they’ve got your attention: JK! They saved the punchline for the next day’s blog post. If all $280 billion of funds in our sample suffered the 50 percent redemption shock, spillover losses would amount to almost $9 billion for the whole open-end mutual fund sector. In this set of funds, no particular fund seems capable—by virtue of its size or asset holdings—to impose significant large fire-sale spillovers on its own…. Are Asset Managers Vulnerable to Fire Sales? [N.Y. Fed Liberty Street Economics blog]
Quantifying Potential Spillover from Runs on High-Yield Funds [N.Y. Fed Liberty Street Economics blog]

The New Shadow Banks: Private Equity Becomes Private Credit  -- As regulators have sought to curb bank instability, in many cases, the result hasn’t been risk reduction, but merely the transfer of the same risks to different players. Increasingly, the new risk takers are investors. One place this has occurred on a large scale, yet gotten very little notice, is how private equity funds, whose business model depends on high levels of borrowing, have gone into the shadow banking business to supplant banks as their debt suppliers.   A combination of regulatory intervention and residual memory of the 2007-2008 buyout frenzy has restrained some of the worst behavior. Yet a new source of risk, that of PE groups “diversifying” their fee-earning activities by building private debt businesses, is now almost entirely outside regulatory reach. Whilst several of these investors had arguably been very active on the credit side for years and can claim real expertise, others piled on opportunistically as their levered portfolio companies were in dire need of balance-sheet restructuring. And frankly the initial nibbling quickly turned into a feast, so discounted were some of these companies’ LBO loans. In 2009 and 2010, a vast array of mega-buyout debt tranches were trading well below par, with high-profile transactions like Caesars and TXU seeing their unsecured loans hit 20 cents on the dollar or less. It was too tempting an occasion for some PE groups to resist.

Banks are hiring former CIA agents to spy on their employees - Some of the world's biggest banks are hiring former spies to try to prevent the rise of any more so-called rogue traders and generally ensure that banks are put on the hook for fewer fines. According to a report from Bloomberg, banks including HSBC, Deutsche Bank, and JPMorgan have hired ex-spies from the likes of the UK and US militaries, the CIA, and GCHQ to watch the activities of bank employees and try to prevent misconduct. Bloomberg cites information provided by recruitment firms, executives, and compliance officers to show that banks are using former spooks to keep tabs on activity as varied as cigarette breaks and texting with a significant other, all to spot the early signs of rule breaking. In recent years, bank employees including Jerome Kerviel, Kweku Adoboli, and Tom Hayes have been jailed for their roles in big banking scandals. In 2008, Kerviel lost €4.9 billion (£3.7 billion) at Societe Generale, and Adoboli's trades left UBS on the hook for $2 billion (£1.4 billion) in 2011. Hayes was involved in the fixing of the Libor rate, though his sentence was reduced after an appeal. Not only are these sort of scandals hugely embarrassing for banks, but they can also be incredibly costly. The Libor scandal, for instance, cost six banks a combined total of about $6 billion (£4.15 billion), with Barclays alone footing a bill for $2.2 billion (£1.5 billion). Increased scrutiny on the banking sector, thanks in large part to stricter stances from regulators like the US Securities and Exchange Commission and the UK Financial Conduct Authority, has led many financial institutions to take big steps to try to keep such scandals from occurring again and costing them billions.

JPMorgan Just Sounded a $500 Million Alarm Bell On America's Dying Oil Patch -- Back on January 14, we noted that JPMorgan did something they haven’t done in 22 quarters: the bank increased its loan loss provisions. The "reserve build of ~$100mm [is] driven by $60mm in Oil & Gas and $26mm in Metals & Mining within the commercial banking group,” the bank said. That led us to ask of JPMorgan the same thing we’ve asked of Wells Fargo, BofA, and every other TBTF that’s gotten itself overextended in America’s soon-to-be bankrupt O&G space: "if a regional bank like BOK Financial was slammed by just one loan (to what we can only assume was a smaller energy firm), where does the buck stop, and how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans?" Most importantly, we said, are these follow up questions: “How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how underreserved is JPM for that eventuality?” Today, just over a month later, we got the answer ahead of JPM's investor day, when JPMorgan said it will increase its reserves for oil and gas loans by 60% in Q1. As you can see from the following slide, provisions will rise by $500 million from $815 million the bank had set aside as of the end of last year. Metals and mining reserves will also rise, by $100 million.

Panic Below The Surface: "Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival" -- One week ago, when we commented on the latest weekly update from Credit Suisse's very well hooked-in energy analyst James Wicklund, one particular phrase stuck out when looking at the upcoming contraction of Oil and Gas liquidity: "while your borrowing base might be upheld, there will be minimum liquidity requirements before capital can be accessed. It is hitting the OFS sector as well. As one banker put it, "we are looking to save ourselves now."  In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn't rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS "It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months." From the latest Things we've learned this week   Some comments that stood out to us during earnings include, "We are in a period of unprecedented uncertainty." "We are managing our business week-by-week, crew-by-crew and unit-by-unit." "We are in a generational downturn." “We are very bearish for the first half of the year.” “In the second half [of 2016], every tank and swimming pool in the world is going to fill…”  Oilfield Service companies have reduced headcount by as much as 35% in some cases and the reductions continue as oil prices not only continue their decline but the argument for a strong price comeback gets more and more difficult to rationalize. It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months. People who had been saying that this is the worst downturn since the 1980’s are now thinking that this is a return to the 1980’s. There are reports of banks selling loans at cents on the dollar to try and ensure their own survival and bankruptcy courts and workout specialists are seeing their best market in decades.

Here’s the Real Reason Wall Street Bank Stocks Tank When Oil Prices Dive -- What knocked the wind out of JPMorgan’s sails yesterday is at the heart of why the banks keep tanking when oil prices swoon. In a nutshell, the market doesn’t think these banks are coming clean about their exposure to oil – whether it’s in loans to beleaguered oil companies or whether it’s derivatives it sold to its corporate clients and hedge funds to make wagers on the declining price of oil. In addition, the market thinks these banks have not taken adequate reserves to cover their potential losses and that they are waiting until the last possible moment in order for executives to boost their own pay and bonuses.  JPMorgan Chase poured some gasoline on the fire of these suspicions yesterday when it held its annual investor day and announced that it will be beefing up its reserves to cover potential losses in the energy sector to $1.3 billion by the end of this quarter. The bank noted further that if oil stays in the $25 range for over a year, it would have to put aside an additional $1.5 billion. JPMorgan Chase has owned up to $44 billion in exposure (loans and commitments) to the energy sector with $19 billion of that being rated below investment grade. A reserve of $1.3 billion represents just 3 percent of total exposure. That amount of reserves stands in contrast to data provided by the Federal Reserve on November 5, 2015 from the findings of the Shared National Credit Program (SNC), an annual review conducted by bank regulators to examine syndicated loans of $20 million or more that are shared between three or more banks.  According to the SNC, “Oil and gas commitments to the exploration and production sector and the services sector totaled $276.5 billion, or 7.1 percent, of the SNC portfolio. Classified commitments — a credit rated as substandard, doubtful, or loss — among oil and gas borrowers totaled $34.2 billion, or 15.0 percent, of total classified commitments, compared with $6.9 billion, or 3.6 percent, in 2014.”

Speculative Half-Cycles Tend To Be Completed Badly - John Hussman - Last week, the Cleveland Fed Financial Stress Index climbed to 1.92 (measured as standard deviations from the mean); a level associated with severe financial distress, and previously observed only during the 2011 market retreat, the 2008-2009 financial crisis, and the Asian crisis of 1998. This spike has been driven by widening credit spreads and other measures of systemic market-perceived risk. In 1998, a similar spike shortly preceded the collapse of Long Term Capital Management. In 2008, the spike shortly preceded the failure of Bear Stearns and Lehman Brothers. In each case, the condition of market internals was the primary indicator of whether these crises would escalate or would be resolved. If market internals were to improve markedly (we’re nowhere near that outcome at present), the immediacy of our downside concerns would ease significantly. Here and now, a measurable spike in financial stress has occurred despite an S&P 500 that is still within 10% of its all-time high, but in the context of wicked overvaluation, poor market internals, and weakness in leading economic data. All of those, as I observed at both the 2000 and 2007 peaks, are features that have historically been associated with market collapses.  Now, understand that the reason that ‘financial conditions have tightened is that low-grade borrowers were able to issue a mountain of sketchy debt to yield-seeking speculators in recent years, encouraged by the Federal Reserve’s deranged program of quantitative easing, and that debt is beginning to be recognized as such. As default risk emerges and investors become more risk-averse, low-grade credit has weakened markedly. The correct conclusion to draw is that the consequences of misguided policies are predictably coming home to roost.

US Financial Stress Increases To 4-Year High - Financial stress in the US continues to trend upward, according to four benchmarks published by Federal Reserve banks. The numbers overall suggest that stress in the financial system is at the highest level in three to four years, depending on the index. One benchmark—the Cleveland Financial stress Index—is currently signaling “significant stress” for the first time since early 2012. In other words, another risk factor for the US economy is at or near the critical level. As a result, the economy has a lesser capacity for absorbing a new shock. That alone doesn’t mean that there’s trouble brewing, but there’s a greater degree of macro fragility due to heightened financial stress, according to the Cleveland Financial Stress Index. Note that the other three Fed stress indexes are currently indicating lesser degrees of risk, although that may be due to the fact that these benchmarks are lagging the higher-frequency updates for the Cleveland index.  Let’s take a closer look at all the numbers via the St. Louis Fed’s FRED database that collects the data on four indexes that quantify stress across a range of factors. Each benchmark uses a different methodology and dataset and so reviewing all of the indexes offers a relatively robust, diversified profile of risk in the US financial system. Here’s a summary of current readings, based on figures collected this morning (Feb. 24).

Canary, Meet Coal Mine: These Are The Tranches Where The CLO 2.0 Meltdown Begins -- It was just three days ago when we brought you what we called “the next shoe to drop:” CLOs. The market for collateralized loan obligations dried up completely in the wake of the crisis, as just about the last thing anyone wanted anything at all to do with was paper “secured” by leveraged loans.  But Wall Street (not to mention investors) never learn and supply came storming back in 2012. Within two years, issuance was running at a $124 billion per year clip. For reference, that’s about the same amount of supply that came to market last year in the auto loan-backed ABS space. Issuance slipped in 2015 and in Q1 2016, it’s fallen off the map. Why? Simple: the collateral pools are littered with the kind of "assets" you might not want in the current environment. Like exposure to US energy companies whose prospects are increasingly bleak. According to S&P, the credit ratings of some 1.4% of assets held by US CLOs have been downgraded or placed on credit watch negative this year. Similarly, Moody's notes that 12.6% of CLO assets carry a negative outlook - that's up 2.2% in just three months.  As we noted on Sunday, performace is suffering mightily - especially in certain buckets. "Based on our sample, we estimate that the median total return for US CLO 2.0 (2014-15 vintage) BBs is -9.2%, and for single-Bs is -20.9%," Morgan Stanley wrote, in a recent report."Investment-grade US CLO tranches performed better but still within negative total return territory, except for AAAs." Performance woes are compounding the problem for a space that was already facing a looming regulatory headache in the form of the 5% risk retention rule which, in an effort to ensure managers have "skin in the game" so to speak, will effectively cause a third of CLO managers to either attempt to consolidate with bigger players with deeper pockets, or else curb issuance. The is made all the worse by the fact that compelling managers to take a 5% stake in the first loss tranche effectively forces them to have more than 5% skin in the game. After all, it's the first loss tranche. And all of that is on top of soaring funding costs:

"Credit Risk Is Growing," FDIC Warns As Loss Provisions Jump $3.8 Billion In 3 Months --On Tuesday, we got the answer (or at least a partial answer) to the question we posed last month when we asked the following: “How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how under reserved is JPMorgan for that eventuality?” We were of course referring to JPMorgan’s exposure to America’s dying oil patch where a rash of defaults and bankruptcies are just around the corner once the bevy of cash flow negative producers see their credit facilities cut by 10-20% when RBL is reevaluated in April. What prompted us to ask specifically about JPMorgan’s exposure was the fact that in Q4, the bank did something it hasn’t done in 22 quarters: it increased loan loss provisions. That very likely had to do with the worsening prospects for its energy book where O&G exposure is a whopping $44 billion against which the bank said yesterday it will now provision an extra $500 million in Q1 of 2016. That brings total provisions against JPMorgan's energy exposure to $1.3 billion, or around 3%. Of the total $44 billion in energy exposure, $19 billion is HY or, junk.

The $400-billion U.S. money-fund exodus with banks in its crosshairs - Banks and other companies that have seen borrowing costs rise in the past year are about to feel more pressure in a $1-trillion (U.S.) market for short-term IOUs. Investors are poised to pull as much as $400-billion from U.S. money-market funds that buy such debt, known as commercial paper, JPMorgan Chase & Co. predicts. The looming exodus, a consequence of steps to make money markets safer after the financial crisis, is set to accelerate before October. That’s when Securities and Exchange Commission rules take effect mandating that so-called institutional prime funds, among the main buyers of commercial paper, report prices that fluctuate. Traditionally, those funds have stuck to $1 per share. Wall Street strategists say investors may already be shifting from prime funds to those focused on government debt, which will keep a fixed share price. The diminished appetite for commercial paper is a potential headache for banks and other issuers, which saw the cost of the IOUs climb to an almost four- year high in recent weeks. The companies use the instruments for everything from loans to payrolls. Commercial-paper “issuers will either have to find other investors to fill in the gap, or may have to raise the rate they are offering to get additional interest,” said Gregory Fayvilevich, an analyst in the fund and asset management group at Fitch Ratings in New York.  The move by investors is the next big wave of cash to leave prime funds because of the new rules. It would come on top of about $250-billion of assets that U.S. money-fund companies have already converted over the last year from prime funds to those that only hold government securities like Treasury bills. The SEC measures will force institutional prime funds to tell clients daily whether their investments gained or lost value.

When Earnings Fall Short, Banks Fudge Losses - WSJ: Back during the financial crisis there were many complaints that banks were holding off on writing down bad loans to create a phony picture of their financial health. Bank executives denied doing any such thing, of course. But a new study has found evidence banks were understating loan-loss provisions even after the financial crisis. This creates a double-edged danger for investors. If banks understate loan-loss provisions to boost earnings, it creates the risk of bigger write-downs in the future. And if markets don’t trust banks to properly report their loan quality, valuations will suffer. That could explain some of the steep discounts to book values in the share prices of many of the biggest banks. J.P. Morgan Chase ’s shares trade at 96% of book, Goldman Sachs Group is at 82%, Morgan Stanley at 69%, Bank of America 54% and Citigroup  around 55%. The study, “Income Smoothing Practices of U.S. Banks Around the 2008 Financial Crisis,” appears in the International Journal of Business and Financial Research. Its author is Burka Dolar, an accounting professor at Western Washington University. Mr. Dolar examined a large data set built from the call reports banks filed with the Federal Deposit Insurance Corp. from 2007 to 2010. Using regression analysis, Mr. Dolar found strong evidence that during the recession banks underestimated loan losses when they expected earnings to be low.

Here's what will happen to your bank account if Federal Reserve interest rates go negative - Since the European Central Bank and the Bank of Japan moved their interest rates negative, a debate has swirled over the practical and theoretical impacts of the move. But according to the CEO of a major US bank, if the US Federal Reserve were to do the same, it would have a serious practical impact on customers' bank accounts. Analysts at Deutsche Bank hosted meetings with PNC Bank's chairman and CEO, Bill Demchak, last week and addressed the possibility of negative rates. The answer was simple: "If rates go negative, consumer deposit rates go to zero and PNC would charge fees on accounts." This means that customers who hold accounts at the bank would have to pay PNC, the 10th-largest bank in the US by assets, a fee to hold the money in the bank instead of vice versa. And while today's interest rates may be paltry, customers can at least earn something for parking their cash at the bank. For example, a PNC savings account with under $2,500 earns 0.01% interest monthly, according to the company's website. In terms of fees, a PNC savings account with under $300 in average monthly assets is charged a $5-a-month service fee. This is waived if the balance is above that threshold. But based on Demchak's remarks, however, these fees seem likely to increase.

Even Bank Bailout Architect Says Time To Break Up Banks -- As a purportedly liberal presidential candidate named Hillary Clinton mocks the idea of breaking up the Too Big To Fail Wall Street banks, one of the bank bailout’s chief architects is championing the idea from inside the Federal Reserve System. This week, Neel Kashkari, president of the Minneapolis Federal Reserve, called for breaking up the TBTF banks to prevent future bailouts during a speech at the Brookings Institution. “Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all,” he said. Kashkari claimed he was skeptical that current policy tools “will be useful,” in preventing the next crisis. Kashkari came into the public eye when former Treasury Secretary Hank Paulson brought him into government and ultimately assigned him to the team at Treasury responsible for dealing with the 2008 financial crisis. Kashkari was one of many Paulson staffers who came from Goldman Sachs. He previously worked in investment banking, with a focus on software companies, at their San Francisco office. The $700 bank bailout plan Kashkari helped author, known as the Troubled Asset Relief Program (TARP), stopped the Wall Street firms that caused the crisis from going bankrupt. A parallel process, undertaken by New York President Timothy Geithner along with the Treasury Department, pressured the Wall Street banks to merge and get even bigger in hopes that size would increase confidence in the financial system. In 2015, Kashkari became the president and CEO of the Minneapolis Federal Reserve Bank, and, in 2017, he is set to join the most powerful committee in the Federal Reserve System. Known as the Federal Open Market Committee (FOMC), it plays a central role in U.S. monetary policy and could even take some measures to push for a breakup.

Fannie and Freddie: REO inventory declined in Q4, Down 34% Year-over-year - Fannie and Freddie reported results this week. Here is some information on Real Estate Owned (REOs). From Fannie Mae: Fannie Mae Reports Net Income of $11.0 Billion and Comprehensive Income of $10.6 Billion for 2015 Fannie Mae reported annual net income of $11.0 billion and annual comprehensive income of $10.6 billion in 2015. For the fourth quarter of 2015, Fannie Mae reported net income of $2.5 billion and comprehensive income of $2.3 billion. The company reported a positive net worth of $4.1 billion as of December 31, 2015, resulting in a dividend obligation to Treasury of $2.9 billion, which the company expects to pay in March 2016.Fannie Mae reported the number of REO declined to 57,253 at the end of 2015 compared to 87,063 at the end of 2014. And from Freddie Mac: Freddie Mac Reports Net Income of $6.4 Billion for Full-Year 2015; Comprehensive Income of $5.8 Billion Freddie Mac today reported net income of $6.4 billion for the full-year 2015, compared to net income of $7.7 billion for the full-year 2014. The company also reported comprehensive income of $5.8 billion for the full-year 2015, compared to comprehensive income of $9.4 billion for the full-year 2014.Freddie Mac reported the number of REO (Real Estate Owned) declined to 17,004 at the end of 2015 compared to 25,768 at the end of 2014.Here is a graph of Fannie and Freddie Real Estate Owned (REO).  REO inventory decreased in Q4 for both Fannie and Freddie, and combined inventory is down 34% year-over-year.   For Freddie, this is the lowest level of REO since Q4 2007.  For Fannie, this is the lowest level since Q2 2008. Delinquencies are falling, but there are still a large number of properties in the foreclosure process with long time lines in judicial foreclosure states.

Fannie, Freddie May Need Another Bailout As Washington Drags Feet On Housing Finance Reform -- Back in March of last year, the FHFA warned that Fannie and Freddie may well go bankrupt at which point taxpayers would once again be on the hook for subsidizing their own bad mortgage debt. As you might recall, the Treasury changed the rules when it came to the GSEs a while back. Whereas previously, the companies paid a dividend to the government on the preferred stock Washington owned, the Feds decided instead to implement a quarterly profit sweep. AsBloomberg notes, “the payments count as a return on the U.S. investment and not as repayment of the aid, leaving no existing mechanism for them to exit government control.” That’s irked equity investors who swear they’re being illegally swindled by the government. On Thursday, we learned that Fannie was set to pay the Treasury some $3 billion after reporting $2.5 billion in profit for Q4. The company - which has received more than $116 billion from US taxpayers since 2008, has paid the government $147.6 billion to date. "Fannie Mae’s 2015 net income was $11 billion, down from $14.2 billion in 2014," Bloomberg wrote on Thursday. "One reason for the decline was higher income in 2014 following settlement agreements on lawsuits related to private-label mortgage-related securities." Because of the arrangement which prevents Fannie from holding onto its profits, the company's capital buffer could be completely wiped out by 2018, CEO Tim Mayopoulos warns. "At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership."So ironically, the government's attempt to extract payments from the GSEs in perpetuity has left them without a capital cushion which in turn will force them to ... wait for it... ask for another government bailout.

Freddie Mac, Bank Of America Launch Another 3% Down Mortgage Program --  In what the companies billed as “a new effort dedicated to building a better American housing system,” Quicken and Freddie announced what they called an “innovative solution” to “meet the needs of emerging markets, including millennials, first-time homebuyers and middle-class borrowers.” What’s “innovative” about Quicken and Freddie’s “solutions”, you ask? Well for one thing,they’re willing to give millennials a home loan with just 3% down. That’s great if you’re a struggling graduate waiting tables and having a hard time saving enough money for a down payment, but it’s not so great for the stability of the US housing market and/or the financial system which got itself into all kinds of trouble making just these kinds of loans nine years ago. You might recall that earlier this year, House Financial Services Committee Chairman and Yellen detractor Jeb Hensarling lambasted FHFA chief Mel Watt’s announcement that Fannie Mae and Freddie Mac will seek to back loans with down payments as low as 3%. "I am extremely concerned about Director Watt's efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as 3%," Hensarling said in a statement. Obama cut mortgage-insurance premiums on FHA loans last January and in September, originations of FHA-backed mortgages were up 54% from a year earlier, Bloomberg reported last month. "By December, the FHA insured 22 percent of all loan originations, up from 17 percent a year earlier."

Freddie Mac: Mortgage Serious Delinquency rate increased slightly in January -- Freddie Mac reported that the Single-Family serious delinquency rate increased in January to 1.33% from 1.32% in December. Freddie's rate is down from 1.86% in January 2015.  Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".    Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.53 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of this year. I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Black Knight's First Look at January Mortgage Data -- From Black Knight: Black Knight Financial Services’ First Look at January Mortgage Data: Delinquencies Up Sharply; Prepayment Rate Drops

- Delinquency rate up 6.6 percent in January; back above 5 percent nationally for the first time in 11 months
- Prepayment rate (historically a good indicator of refinance activity) dropped 29 percent to its lowest level since February 2014
- Foreclosure sales (completions) up nearly 16 percent following holiday moratoriums
- Active foreclosure inventory continues to decline; down 26 percent from last year
According to Black Knight's First Look report for January, the percent of loans delinquent increased 6.6% in January compared to December, and declined 7.1% year-over-year.The percent of loans in the foreclosure process declined 4.5% in December and were down 25.7% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.09% in January, down from 4.79% in December. The percent of loans in the foreclosure process declined in January to 1.30%.  The number of delinquent properties, but not in foreclosure, is down 229,000 properties year-over-year, and the number of properties in the foreclosure process is down 226,000 properties year-over-year. Black Knight will release the complete mortgage monitor for January in early March.

A comment on the January Black Knight Mortgage Delinquency Data -- This morning I posted some mortgage delinquency data from Black Knight (formerly LPS). The data showed an increase in delinquencies in January to 5.09%. Several people asked me if this is a leading indicator of a potential problem. The answer is no. Here is what I wrote in 2012 when the delinquency rate was at 8%At the current rate of decline, the number of delinquent lonas will be back to "normal" in about three years (around 4.5% to 5% of loans are delinquent even in good times). However the number of loans in the foreclosure process hasn't change year-over-year - although that will probably change soon with the mortgage servicer settlement (around 0.5% of loans in foreclosure is "normal").  The percent of loans in delinquency is now close to the normal range, although there are still an excessive number of seriously delinquent loans.  As the delinquency rate approaches normal, it will not be unusual for the rate to increase in some months - no worries.  Note that the number of loans in the foreclosure process is still way above normal at 1.30% in January 2016; the lenders are still working through the backlog.

Whither Mortgages? - New York Fed -  Our most recent Quarterly Report on Household Debt and Credit showed that although total household debt has increased somewhat since 2012, that growth has been driven almost entirely by nonhousing debt—credit cards, auto loans and student loans. The largest category of household debt—mortgages—has been essentially flat since 2012, in spite of a substantial rise in housing prices over that period. In this post, we explore the sources of the sluggish growth in mortgage debt using our New York Fed Consumer Credit Panel, which is based on Equifax credit data.  The chart below illustrates the puzzle. Between 2000 and 2006, home prices (in blue) roughly doubled and so did mortgage debt (in red). Prices then began to fall and, after about two years, so did mortgage debt. Persistent recovery in home prices began in early 2012, and as of last fall prices had risen by more than a third. Yet mortgage debt hasn’t really grown at all and ended 2015 just 1 percent above where it stood in the first quarter of 2012. What has caused the relationship between mortgage debt and home prices to change so completely?

MBA: Mortgage Applications Decreased in Latest Weekly Survey, Purchase Applications up 27% YoY --From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 4.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 19, 2016. This week’s results include an adjustment to account for the President’s Day holiday. ..The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 27 percent higher than the same week one year ago. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.85 percent from 3.83 percent, with points increasing to 0.42 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity has picked up recently as rates have declined. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 27% higher than a year ago.

Market for Fixer-Uppers Traps Low-Income Buyers - — Hundreds of broken-down houses still dot the streets of this onetime tire capital of the world, a scar from the financial crisis and housing bust.The wood has rotted in some; others have black mold, broken windows or failing foundations. Many lack working electrical systems or are missing water pipes and furnaces. The unpaid property taxes mount.Dozens of these houses were scooped up after the financial crisis by investors, who then make deals with low-income home buyers unable to get traditional mortgages. The arrangement is something like buying a home on an installment plan, with a high-interest, long-term loan called a contract for deed, or land contract.But for buyers lured by the dream of homeownership, these seller-financed transactions can become a money trap that ends with a quick eviction by the seller, who can flip the home again. Before the housing crisis, low-income buyers got too much of a house that they couldn’t afford. Now, they are getting too little of a house that they can’t afford to repair. It is a scene playing out across the Midwest and the South, where many of the derelict houses have been sold to private investors by government mortgage firms at knockdown prices. Nationwide, more than three million people are estimated to have bought a home through a contract for deed. After the financial crisis, as banks retreated from lending to those with poor credit, this odd corner of the housing market began to draw interest from deep-pocketed investors who sometimes sell the homes for four times the price they paid. “There is this whole other way that people buy homes. It is very much under the radar and hidden,” “Homeowners go into this without knowing that this is such a high-risk contract fraught with perils.”

Existing Home Sales increased in January to 5.47 million SAAR -- From the NAR: Existing-Home Sales Inch Forward in January, Price Growth Accelerates Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, inched 0.4 percent to a seasonally adjusted annual rate of 5.47 million in January from a downwardly revised 5.45 million in December. Sales are now 11.0 percent higher than a year ago – the largest year-over-year gain since July 2013 (16.3 percent).... Total housing inventory at the end of January increased 3.4 percent to 1.82 million existing homes available for sale, but is still 2.2 percent lower than a year ago (1.86 million). Unsold inventory is at a 4.0-month supply at the current sales pace, up slightly from 3.9 months in December 2015. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in January (5.47 million SAAR) were 0.4% hgiher than last month, and were 11.0% above the January 2015 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 1.82 million in January from 1.76 million in December. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory. Inventory decreased 2.2% year-over-year in January compared to January 2015. Months of supply was at 4.0 months in January.

January 2016 Existing Home Sales Improved. -- The headlines for existing home sales say "existing sales kicked off 2016 on solid footing, rising slightly to the strongest pace since July 2015". Our analysis of the unadjusted data shows that home sales did improve, and the rolling averages improved. Econintersect Analysis:

  • Unadjusted sales rate of growth accelerated 1.9 % month-over-month, up 7.5% year-over-year - sales growth rate trend improved using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.3 % month-over-month, up 4.7 % year-over-year - price growth rate trend is modestly improved using the 3 month moving average.
  • The homes for sale inventory marginally grew this month, but remains historically low for Januarys, and is down 2.2 % from inventory levels one year ago).

NAR reported:

  • Sales up 0.4 % month-over-month, up 11.0 % year-over-year.
  • Prices up 8.2 % year-over-year
  • The market expected annualized sales volumes of 5.130 to 5.555 million (consensus 5.32 million) vs the 5.47 million reported.

NAR Warns Of Overheating Home Prices As Existing Home Sales See Biggest Annual Jump Since 2013 - While it may not be quite the Vancouver-type feeding frenzy for Chinese money launderers, the US existing home sales market (at least until its inevitable downward revision courtesy of the permabullish NAR) continued to chug higher in January, when the number of existing homes sold rose to a 5.47MM annual rate, up 0.4% from the 5.45MM in December, and the strongest pace since the 5.48MM sold last July, beating expectations of a -2.5% drop; in fact the print was higher than the top estimate in the range. This follows the torrid December surge when existing homes sales soared 12.1%. On a year over year basis, sales rose 11.0% – the largest year-over-year gain since July 2013 (16.3 percent).  Suggesting that the majority of buyers are anyone but ordinary middle class Americans was the the jump in the median existing-home price which in January was $213,800, up 8.2% from January 2015 when it was $197,600. Last month's price increase was the largest since April 2015 (8.5%) and marks the 47th consecutive month of year-over-year gains. With the pace of appreciation rising at more than 4 times the average US wage growth, one wonders at what point will ordinary Americans be able to afford housing in their native country.

A Few Comments on January Existing Home Sales -- The January existing home sales report was stronger than expected, and even slightly stronger than the December report (that included a rebound from the decline in November related to the new TILA-RESPA Integrated Disclosure (TRID)).   Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974. Going forward, there are some economic reasons for some softness in existing home sales in certain areas. Low inventory is probably holding down sales in many areas, and there will be weakness in some oil producing areas (see: Houston has a problem).  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 2.2% year-over-year in January). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. The following graph shows existing home sales Not Seasonally Adjusted (NSA).Sales NSA in January (red column) were the highest since January 2007 (NSA). This is a solid start to 2016.

Lawler on Existing Home Sales, Table of Distressed Sales for Selected Cities in January  -- From housing economist Tom Lawler: Yesterday the National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 5.47 million in January, up 0.4% from December’s downwardly-revised (to 5.45 million from 5.46 million pace, and up 11.0% from January’s upwardly-revised (to 4.93 million from 4.82 million) seasonally adjusted base. The NAR’s unadjusted sales estimate for January was up 7.5% from a year ago. The January release incorporated annual seasonal adjustment revisions, which, as shown in the table below, worked to increase adjusted sales in the early part of the year (especially January and February), and decrease adjusted sales from late Spring through earl Fall.The NAR’s seasonally-adjusted sales estimate for January was above consensus and slightly higher than my projection, but that was solely attributable to the larger-than-expected downward revision in January seasonal factors. The NAR also estimated that the inventory of existing homes for sale at the end of January was 1.820 million, up 3.4% from December’s downwardly-revised (to 1.76 million from 1.79 million) level and down 2.2% from last January. The NAR’s estimate was somewhat higher than my projection based on local realtor/MLS reports available about a week ago, though reports released suggest that the NAR’s estimate is “reasonable.” Finally, the NAR estimated that the median existing SF home sales price last month was $215,000, up 8.2% from last January. This YOY increase was slightly higher than my projection. CR Note: Tom Lawler also sent me the table below of short sales, foreclosures and all cash sales for a several selected cities in January. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

Connecting the NAR’s dots -- On Tuesday, the National Association of Realtors (NAR) released its monthly update on Existing Home Sales for January 2016. According to the update, sales were up 0.4% in January compared to the previous month, and up 11.0% compared to a year ago. Lawrence Yun, the NAR’s chief economist, warned: The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand.  Home prices ascending near or above double-digit appreciation aren’t healthy – especially considering the fact that household income and wages are barely rising. The January release also cited plenty of evidence for Mr. Yun’s assessment: The median existing-home price for all housing types in January was $213,800, up 8.2 percent from January 2015 ($197,600). Last month’s price increase was the largest since April 2015 (8.5 percent) and marks the 47th consecutive month of year-over-year gains.” Total housing inventory at the end of January increased 3.4 percent to 1.82 million existing homes available for sale, but is still 2.2 percent lower than a year ago (1.86 million). Unsold inventory is at a 4.0-month supply at the current sales pace, up slightly from 3.9 months in December 2015. Yet, in diagnosing the problem, Mr. Yun and the NAR missed the crucial link. What is really driving prices is a demand-supply imbalance.  Greater leverage, fueled by low interest rates and combined with looser underwriting especially from FHA, is pushing demand higher and higher. Supply has not been able to keep up and is now at lows last seen eleven years ago, at the height of the housing boom. With supply constrained and demand rising, prices will only move in one direction. It’s not rocket science, it’s economics 101. Yet, connecting the dots might be against the NAR’s self-interest. It is after all a trade association that thrives on sales commissions. Advocating for more prudent lending would take away the leverage punch bowl, on which the NAR’s business model depends. And so the NAR ended up supporting the wrong policy – again. The release quoted NAR President Tom Salomone, praising recent House legislation that reduces “Federal Housing Administration restrictions on condominium financing.”

FHFA House Price Index February 25, 2016: Home-price appreciation is solid but did slow going into year end. The December FHFA index rose 0.4 percent, which is at the low end of expectations, while the year-on-year rate slowed 2 tenths to plus 5.7 percent. These results compare with greater strength in Tuesday's Case-Shiller report where, however, the year-on-year also slowed to 5.7 percent. Home prices had been inching up toward 6 percent last year and many homeowners have been counting on greater appreciation for this year. The housing sector is uneven, putting home prices at risk where appreciation, given limited wage gains, is a key source of homeowner wealth.

Case-Shiller: National House Price Index increased 5.4% year-over-year in December - S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: Home Prices Marginally Increased in December According to the S&P/Case-Shiller Home Price Indices The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.4% annual increase in December 2015 versus a 5.2% increase in November 2015. The 10-City Composite increased 5.1% in the year to December compared to 5.2% previously. The 20-City Composite’s year-over-year gain was 5.7%, the same as November....Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in December. The 10- City Composite decreased by 0.1% and the 20-City Composite remained unchanged in December. After seasonal adjustment, the National and 20-City Composites Index both recorded a monthly increase of 0.8%. The 10-City Composite increased 0.7% month-over-month in December. Ten of 20 cities reported increases in December before seasonal adjustment; after seasonal adjustment, all 19 cities increased for the month.  The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 12.4% from the peak, and up 0.7% in December (SA). The Composite 20 index is off 10.8% from the peak, and up 0.8% (SA) in December. The National index is off 3.7% from the peak, and up 0.8% (SA) in December. The National index is up 30.1% from the post-bubble low set in December 2011 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 5.1% compared to December 2014. The Composite 20 SA is up 5.7% year-over-year.. The National index SA is up 5.4% year-over-year. Prices increased (SA) in 19 of the 20 Case-Shiller cities in December seasonally adjusted. (Prices increased in 10 of the 20 cities NSA) Prices in Las Vegas are off 38.2% from the peak. The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

Case-Shiller Home Price Index December 2015 Unchanged: The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was unchanged from last month's 5.7% (last month revised downward from 5.8%). Still, the authors of the index say "continued increases in prices of existing homes, as shown in the S&P/Case-Shiiller Home Price Indices, should encourage further activity in new construction."

  • 20 city unadjusted home price rate of growth accelerated 0.0 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
  • Note that Case-Shiller index is an average of the last three months of data.
  • The market expected:

Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index - and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of more higher value homes.

Real Prices and Price-to-Rent Ratio in December - In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 3.7% below the bubble peak.   However, in real terms, the National index is still about 18% below the bubble peak. The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through December) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to October 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to April 2005 levels, and the CoreLogic index (NSA) is back to June 2005. Real House Prices The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter).  In real terms, the National index is back to December 2003 levels, the Composite 20 index is back to September 2003, and the CoreLogic index back to December 2004. In real terms, house prices are back to 2003 levels. Note: CPI less Shelter is down 0.6% year-over-year, so this has been pushing up real prices recently. On a price-to-rent basis, the Case-Shiller National index is back to August 2003 levels, the Composite 20 index is back to April 2003 levels, and the CoreLogic index is back to July 2003. In real terms, and as a price-to-rent ratio, prices are back to 2003 levels - and the price-to-rent ratio maybe moving a little sideways now.

New Home Sales decreased to 494,000 Annual Rate in January - The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 494 thousand.  The previous three months were revised up by a total of 28 thousand (SAAR). "Sales of new single-family houses in January 2016 were at a seasonally adjusted annual rate of 494,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.2 percent below the revised December rate of 544,000 and is 5.2 percent below the January 2015 estimate of 521,000."  The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply. The months of supply increased in January to 5.8 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of January was 238,000. This represents a supply of 5.8 months at the current sales rate."  Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

January 2016 New Home Sales Contract. Weather?: The headlines say new home sales significantly declined from last month - and is in contraction year-over-year. The rolling averages smooth out much of the uneven data produced in this series - and this month there was a decline in the rolling averages. Likely it was the weather BUT new home sales have been on a declining trendline. As the data is noisy, the 3 month rolling average is the way to look at this data. This data series is suffering from methodology issues. Econintersect analysis:

  • unadjusted sales growth decelerated 13.7 % month-over-month (after last month's deceleration of 1,1 %).
  • unadjusted year-over-year sales down 5.1 % (Last month was up 8.6 %). Growth this month was well below average for the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth decelerated 2.9 % month-over-month - is up 4.8 % year-over-year.
  • seasonally adjusted sales down 9.2 % month-over-month
  • seasonally adjusted year-over-year sales down 5.2 %
  • market expected (from Bloomberg) seasonally adjusted annualized sales of 505 K to 550 K (consensus 520 K) versus the actual at 494 K.
  • The quantity of new single family homes for sale remains well below historical levels.

January New Home Sales Collapse Most Since 2009 As Prices Plunge To 2-Year Lows -- Against expectations of a 4.4% drop, New home sales collapsed by 9.2% in January. This is the biggest January drop since 2009 dragging the SAAR to 494k (back at December 2014 levels).Here is the absolute value of new home sales: And the more disturbing annual change, showing we have now peaked: Worse still, home prices tumbled - from $295,800 to $278,000 (lowest since April 2014), and down 4.5% year-over-year as it appears the inventory fears have disappeared with months-supply surging from 5.1 to 5.8. If this converges, we have a major problem. Yet another leg of the "recovery" collapses.

Comments on January New Home Sales -- The new home sales report for January was below expectations at 494,000 on a seasonally adjusted annual rate basis (SAAR), however combined sales for October, November and December were revised up. Sales were down 5.2% year-over-year (YoY) compared to January 2015.   However, we have to remember January 2015 was a pretty strong month at 521,000  SAAR.  Sales for all of 2015 were 501,000 (up 14.5% from 2014) - and since January (and February) were especially strong months last year, the YoY comparison is difficult. This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate). The comparisons in early 2016 are difficult.  And I also expect lower growth this year. Houston (and other oil producing areas) will have a problem this year. Inventory of existing homes is increasing quickly and prices will probably decline in those areas. And that means new home construction will slow in those areas too. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

The Black History of Housing in America - --If you want to understand the black-white wealth gap, it helps to know the story of William J. Levitt. The son of a real estate attorney, Levitt grew up in Brooklyn and went to New York University. In the first year of the Great Depression, his father started a real-estate development company and put William in charge. This inheritance would be providential. When the United States entered World War II, William Levitt joined the Navy. He served honorably and came home to the family business. There had never been a better time to build middle-class houses. Young veterans flooded into the market, ready to start their own families, and the government supported them with home loans guaranteed by the G.I. Bill, the FHA, Fannie Mae, and other programs created by the Roosevelt and Truman administrations. The Baby Boom created a demand for bigger homes, and postwar prosperity made it possible for millions of Americans to afford them. Levitt seized the opportunity. The first “Levittown” appeared in 1947 on Long Island. It featured nearly identical houses built in assembly-line fashion. It was efficient and affordable, and it worked. Thousands of Americans bought up Levitt homes from New York down through Pennsylvania and New Jersey. Years later, Levitt would be called “the father of modern suburbia.” William Levitt took over sole control of Levitt & Sons in 1954, and until that point, it didn’t seem to be a problem that he refused to sell a single house to a black family.

1 in 4 Americans on verge of financial ruin - According to a survey released Tuesday by of more than 1,000 adults, nearly one in four Americans have credit card debt that exceeds their emergency fund or savings. And that’s partially because many people, in addition to their debt, don’t have a dime in their emergency fund at all: another Bankrate survey released earlier this year found that 29% of Americans have no emergency savings at all. These numbers mean that many Americans are “teetering on the edge of financial disaster,” says Greg McBride,’s chief financial analyst — thanks to the fact that they might be hard-pressed to pay for an emergency should one arise. “Not only do most of them not have enough savings, they’ve all used up some portion of their available credit — they are running out of options.” That’s particularly problematic considering that emergencies happen more often than you might think. A 2014 survey by American Express found that half of all Americans had experienced an unforeseen expense in the past year — some of which could be considered an emergency. Indeed, 44% of those who had an unforeseen expense(s) had one for health care and 46% for car trouble — two items that for many Americans are must-pay items, as you need a car to get to work and your health expenses are usually not optional. Some groups — for example, the 30 to 49 age group — are in worse off than others when it comes to credit card debt and savings. This group is in particularly rough shape, likely it faces child-related and mortgage expenses.

The Graying of American Debt - NY Fed -- The U.S. population is aging and so are its debts. In this post, we use the New York Fed Consumer Credit Panel, which is based on Equifax credit data, to look at how debt is changing as baby boomers reach retirement age and millennials find their footing. We find that aggregate debt balances held by younger borrowers have declined modestly from 2003 to 2015, with a debt portfolio reallocation away from credit card, auto, and mortgage debt, toward student debt. Debt held by borrowers between the ages of 50 and 80, however, increased by roughly 60 percent over the same time period. This shifting of debt from younger to older borrowers is of obvious relevance to markets fueled by consumer credit. It is also relevant from a loan performance perspective as consumer debt payments are being made by older debtors than ever before.   The chart below depicts U.S. aggregate debt balances by the age of the borrower in 2003 and 2015. Balances are reported in 2015 dollars throughout this post, for ease of comparison.

Personal Income and Outlays February 26, 2016: There's plenty of life in the consumer. Personal income jumped 0.5 percent in January as did consumer spending, both readings higher than expected. Also higher than expected are the report's inflation readings especially the core PCE which rose 0.3 percent for a year-on-year plus 1.7 percent. Details are solidly positive with components on the income side led by wages & salaries, up a very strong 0.6 percent for the third large gain of the last four months. And consumers didn't draw from savings on their January shopping spree, with the savings rate unchanged at a very solid 5.2 percent. Components on the spending side are led by durable goods which jumped 1.2 percent and reflect strong vehicle sales in the month. Spending on services rose 0.6 percent in the month. But the big story of the report is the core PCE, especially the year-on-year rate which is up from 1.4 percent to 1.7 percent and is pointing confidently toward the Fed's 2 percent line. Total prices, which include food and energy, rose only 1 percent but the year-on-year rate for this reading has been on a tear, moving from about zero late last year to plus 1.3 percent in January.

US Personal Income & Spending Growth Accelerated In January -- The US economic trend looks a bit firmer in the wake of today’s update on personal income and spending for January and revised numbers for last year’s fourth-quarter GDP data. Notably, the year-over-year trend for income and spending kicked higher at the start of 2016. Macro risk is still elevated relative to the broad trend six months ago, especially from a global perspective. But for the moment there’s a modestly stronger tailwind blowing in the published numbers for the US—news that eases fears for assuming that the world’s largest economy is sliding into a new recession. Personal consumption expenditures (PCE) increased 0.5% in January, the strongest monthly rise in eight months, the Bureau of Economic Analysis reports. Disposable personal income (DPI) also advanced 0.5% last month, the most since last May. Meanwhile, last year’s Q4 GDP growth rate was revised up to 1.0% from 0.7% previously, the government advises in today’s second round of estimates for the quarterly numbers in last year’s final three months. That’s still a sluggish pace, but the modest improvement—combined with expectations for a considerably stronger gain for this year’s Q1 rate—offers fresh support for thinking that the US macro trend will remain comfortably positive for the near term. The sight of conspicuously stronger annual increases for income and spending is particularly noteworthy for spinning the numbers with an optimistic edge. After flat-to-lower readings in the annual comparisons since mid-2015, the pop in year-over-year data for January is a welcome change for the better.

Personal Income increased 0.5% in January, Spending increased 0.5% -- The BEA released the Personal Income and Outlays report for January:  Personal income increased $79.6 billion, or 0.5 percent ... in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $63.0 billion, or 0.5 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in January, compared with an increase of 0.2 percent in December. ... The price index for PCE increased 0.1 percent in January, in contrast to a decrease of 0.1 percent in December. The PCE price index, excluding food and energy, increased 0.3 percent, compared with an increase of 0.1 percent. The January PCE price index increased 1.3 percent from January a year ago. The January PCE price index, excluding food and energy, increased 1.7 percent from January a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through January 2016 (2009 dollars). The dashed red lines are the quarterly levels for real PCE. The increase in personal income was above consensus expectations. And the increase in PCE was also above the consensus. A solid start for 2016. On inflation: The PCE price index increased 1.3 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.7 percent year-over-year in January. 

U.S. Consumer Confidence Index Drops Much More Than Expected In February: With turmoil in the financial markets rattling consumers, the Conference Board released a report on Tuesday showing a much bigger than expected drop by U.S. consumer confidence in the month of February. The Conference Board said its consumer confidence index tumbled to 92.2 in February from a downwardly revised 97.8 in January. Economists had expected the consumer confidence index to dip to 97.2 from the 98.1 originally reported for the previous month. Consumers' assessment of present-day conditions declined during the month, with the present situation index falling to 112.1 in February from 116.6 in January. The percentage of consumers saying business conditions are "good" decreased to 26.0 percent from 27.7 percent, while those saying conditions are "bad" climbed to 19.8 percent from 18.8 percent. Consumers' appraisal of the labor market was also less positive, with those saying jobs are "plentiful" falling to 22.1 percent from 23.0 percent and those saying jobs are "hard to get" rising to 24.2 percent from 23.6 percent. The Conference Board also said the expectations index dropped to 78.9 in February from 85.3 in January, as consumers were more pessimistic about the short-term outlook.

U.S. Economic Confidence Index Remains Level at -11 -- Americans' views of the U.S. economy's strength remain largely unchanged since September, with the public continuing to evaluate the economy more negatively than positively. Gallup's U.S. Economic Confidence Index averaged -11 for the week ending Feb. 21, in line with most weekly averages since last fall. The U.S. Economic Confidence Index was slightly more positive than negative in January and February 2015. However, confidence fell in the spring and summer after gas prices slightly increased and as international markets grew volatile. The index held firmly in negative territory, reaching a 2015 low score of -17 in late August. Since then, confidence -- while negative -- has stabilized. Index scores have ranged between -10 and -15 in recent months, apart from a slightly higher reading of -7 in late January after President Barack Obama's last State of the Union address. Still, Americans' confidence in the economy remains greater than it was during the Great Recession and immediate post-recession years, from 2008 to 2011. Gallup's U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. Since March 2015, Americans' outlook for the economy has scored more negatively than their view of current conditions. Both components, however, have been fairly steady since the beginning of September, and the most recent readings are no exception.

February Consumer Sentiment at 91.7 -- The University of Michigan consumer sentiment index for February was at 91.7, up from the preliminary reading of 90.7, and down from 92.0 in January:  "Consumer confidence nearly recovered the entire small loss it recorded at mid month, with the Sentiment Index finishing February just 0.3 Index-points below January. Although consumers are not as optimistic as at the start of last year, the Sentiment Index is just 6.5% below the cyclical peak of 98.1 set in January 2015. Such a small decline is hardly consistent with the onset of a downturn in consumer spending. .....Most of the decline from last year’s peak has been in how consumers view year-ahead prospects for the economy, while the outlook for their personal financial situation has improved to its best level in ten years." This was above the consensus forecast of 91.0.

Vehicle Sales Forecast: Sales to Reach 15-Year High for a February  The automakers will report February vehicle sales on Tuesday, March 1st.  There were 24 selling days in February, unchanged from 24 in February 2015. From WardsAuto: Forecast: February Sales Set to Reach 15-Year High A WardsAuto forecast calls for U.S. automakers to deliver 1.34 million light vehicles in February, a 15-year high for the month. The forecasted daily sales rate of 55,868 over 24 days represents a 7.1% improvement from like-2015 (also 24 days). The report puts the seasonally adjusted annual rate of sales for the month at 17.50 million units, compared with year-ago’s 16.32 million and January’s 17.45 million mark.nAnd from J.D. Power: New-Vehicle Sales in February Expected to Increase 8.1% New-vehicle sales in February 2016 are expected to increase 8.1% from a year ago, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. The SAAR for total sales is projected to reach 17.7 million units in February 2016, up 1.4 million units from 16.4 million a year ago and the highest rate since 2000 (18.9 million). Looks like another strong month for car sales.

More Subprime Borrowers Are Falling Behind on Their Auto Loans - More borrowers with spotty credit are failing to make monthly car payments on time, a troubling sign for investors who have snapped up billions of dollars of securities backed by risky auto debt. Delinquencies on subprime auto loans packaged into bonds rose in January to 4.7 percent, a level not seen since 2010, according to data from Wells Fargo & Co. Rising delinquencies come as a warning sign that more loans may end up in default down the road, said John McElravey, an analyst at the bank. What may be most troubling, however, is that the default rate is already climbing, up to 12.3 percent in January from 11.3 the prior month. That is the highest rate since 2010, the data show. Securities backed by auto loans are structured to absorb a portion of anticipated defaults, but concerns have mounted over the last year that cumulative losses on auto loan securitizations may end up exceeding initial estimates, thanks to declining underwriting standards. Loan performance may be worsening because of a number of factors, including a rise in initial jobless claims, said McElravey. He identified an auto finance company in Texas, for example, that began experiencing a noticeable increase in net losses six months ago. The increase coincided with a rise in unemployment in Texas, where the oil industry has been hit hard by prolonged low prices, he said. .”

Delinquencies rev up in US subprime auto -  So how are US car loans doing these days? Well, from Fitch on Thursday: Delinquencies on U.S. subprime auto ABS have reached a level not seen since 2009 with underperforming loans from recent vintages driving the increase, according to Fitch Ratings. Subprime delinquencies of 60 days or more hit 4.98% in January, marking the highest level since September 2009 (4.97%). Despite the rise in delinquencies, subprime annualized net losses (ANL) leveled off at 8.72%. Subprime ANL were still up 6.5% year-over-year and are expected to trend higher in 2016 closer to the 10% range. Weaker performance in the subprime sector is being driven mainly by the weaker credit quality present in the 2013-2015 securitized pools, along with marginally lower used vehicle values. This isn’t the first time we have heard about changing conditions in American auto credit, which smashed through the $1 trillion barrier in outstanding debt late last year. For example, here’s Bloomberg picking up a Wells Fargo report earlier this week, which used data from Intex, a structured finance analytics company, to show that “delinquencies on subprime auto loans packaged into bonds rose in January to 4.7 percent, a level not seen since 2010″. Last month, the Wall Street Journal reported the following: More than 2.6% of car-loan borrowers who took out loans in the first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since 2008, when such delinquencies rose above 3%, according to an analysis of data performed for The Wall Street Journal by Moody’s Analytics.

DOT: Vehicle Miles Driven increased 4.2% year-over-year in December --With lower gasoline prices, driving has really picked up!  The Department of Transportation (DOT) reported today: Travel on all roads and streets changed by 4.2% (10.6 billion vehicle miles) for December 2015 as compared with December 2014.  Travel for the month is estimated to be 264.2 billion vehicle miles. The seasonally adjusted vehicle miles traveled for December 2015 is 268.5 billion miles, a 4.0% (10.4 billion vehicle miles) increase over December 2014. It also represents a 1.4% change (3.7 billion vehicle miles) compared with November 2015.  The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors. The rolling 12 month total is moving up - mostly due to lower gasoline prices - after moving sideways for several years.

Motor gasoline consumption expected to remain below 2007 peak despite increase in travel - Based on estimates in the most recent Short-Term Energy Outlook (STEO), vehicle travel in the United States in 2015 was almost 4% above its 2007 level, but motor gasoline consumption has not exceeded its previous peak in 2007. Improvements in light-duty vehicle fuel economy are largely responsible for this outcome.  STEO forecasts motor gasoline consumption to average 9.23 million barrels per day (b/d) in both 2016 and 2017, about 0.6% below its 2007 level. In contrast, vehicle travel is expected to grow to levels 5% and 7% above the 2007 level in 2016 and 2017, respectively.  Lower gasoline prices and changes in the economy affect growth in vehicle travel. Projected growth in vehicle travel remains consistent with increases in macroeconomic indicators such as nonfarm employment and real disposable income. The combination of an increasing share of the baby-boomer generation reaching retirement and continued increases in vehicle fuel economy is expected to limit growth in motor gasoline consumption for the forecast interval and beyond.

Economic Outlook Has A Glimmer Of Sunshine: I read tea leaves which are constantly in motion. It not hard for me to paint a doom-and-gloom picture one week, and the next week say that everything is coming up roses. Every analysis starts with a clean piece of paper. I happen to be a fan of using non-monetary data - especially data which is not subject to revision. This makes trending much more accurate as the trends are not changed when later data releases revise the previous months' data. One of my favorite data sources is container counts from the Los Angeles ports where final data is normally issued within 15 days of period ending. This makes container counts a particularly a good forecasting tool as import final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. There has been fairly good correlation between container exports / imports and economic activity. There is no such thing as a perfect data source (or correlations) but container counts seem better than most. [Note of caution: It is dangerous to base any conclusions on a single data set]. I use a data set based on the Ports of LA and Long Beach which account for much (approximately 40%) of the container movement into and out of the United States - and these two ports report their data significantly earlier than other USA ports. Most of the high value cargo move between countries in sea containers (except larger rolling items such as automobiles). For January, there was improvement over January 2015.

Strong U.S. durable goods orders offer hope for manufacturing | Reuters: New orders for long-lasting U.S. manufactured goods in January rose by the most in 10 months as demand picked up broadly, offering a ray of hope for the downtrodden manufacturing sector. While other data on Thursday showed new applications for unemployment benefits increased last week, they remained below levels associated with a tightening labor market. The reports should help calm fears of a recession that have spooked investors on the stock market. "The manufacturing malaise that plagued the U.S. is not broad-based. You don't get a recession when capital spending is at worst, moving sideways, and jobless claims are near cycle lows on a trend basis," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York. The Commerce Department said orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, surged 4.9 percent last month, reversing December's 4.6 percent plunge. January's increase was the largest since March and beat economists' expectations for only a 2.5 percent rise. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 3.9 percent after tumbling by a revised 3.7 percent in December. These so-called core capital goods orders were previously reported to have decreased 4.3 percent in December. The durable goods report was the latest indication that the worst of the manufacturing downturn was probably over. Manufacturing output rose solidly in January and factory payrolls that month increased by the most since August 2013. The report also added to data on retail sales, employment, existing home sales and industrial production in suggesting that the economy regained its footing at the start of the year after stumbling in the fourth quarter.

Durable Goods New Orders Improved in January 2016: The headlines say the durable goods new orders improved. The three month rolling average improved this month and now is slightly in expansion. . Econintersect Analysis:

  • unadjusted new orders growth accelerated 1.8 % (after decelerating an upwardly revised -3.5 % the previous month) month-over-month , and is up 0.6 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 0.6 % month-over-month, and up 0.6 % year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are up 0.1 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth accelerating 0.5 % month-over-month, up 0.8 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..

Durable Goods Stage Strong January Rebound After December Collapse; CapEx Shipments Continue To Drag -- After imploding by 5% in December (revised to -4.6%), moments ago the Census department reported that January Durable Goods orders rose by 4.9%, far higher than the 2.9% rebound expected, driven mostly by the traditionally volatile transportation sector. Durable goods ex transports rose a more modest 1.8%, which was also higher than the 0.3% expected, and offsetting last month's 0.7% decline. A big factor for the rebound appears to have been the 84.8% surge in new orders for Defense Aircraft and Part, which rebounded drastically after last month's 66.8% drop, while aircraft carried the capital goods orders, which rose by 21.6% at the headline level. Indeed, non-defense aircraft also soared by 54.2% in January, offsetting a 29% decline the month prior. A less exuberant picture emerges when looking at the data on an annual basis however, as can be seen in the chart below showing durable goods Y/Y which have flatlined since the end of 2014: The annual change in durable goods ex transports shows an even more troubling picture: As for core capex, or durable goods orders nondefense ex-aircraft, we are a little skeptical about the number which in January rose by 3.9%, well above the 1.0% expected, and also netting out last month's 3.7% drop. On an annual basis, however, core capex has now declined for 12 consecutive months. Finally, one place where January's exuberance did not materialize was in the actual shipments of core capital goods which once again declined, dropping -0.4% in January after a 0.9% rebound in December, and on an annual basis are near the worst level record since the official end of the recession.

The Curious Case Of "Strong" January Durable Goods: It Was All In The Seasonal Adjustment -- As we reported earlier in the day, the numbers on the surface, were strong, with one of the largest monthly jumps in years even if the annual change continued to underwhelm, while core capex shipment remained negative. And then something caught our attention: according to a report by Mitsubishi UFJ's John Hermann, one of the most important, if volatile, series in the overall monthly update, that of commercial aircraft orders made absolutely no sense. As he notes, in January Boeing reported a 70% drop in actual aircraft unit orders (the same in dollar terms), and yet according to the Department of Commerce, the matched series of nondefense aircraft orders soared by 54% in January. How could this be? Simple: seasonal adjustments. Which made us curious: was this "strong" Durable Goods report nothing than more seasonal adjustment slight of hand? The answer, in a word, yes. The chart below shows the difference between the actual and adjusted series. We are almost surprised to learn that in January, the monthly adjustment hit a record high $14 billion. But maybe on an annual basis the difference was not quite as gaping? To account for that we repeated the analysis we did with retail sales, only with durable goods excluding transports: after all we already knew that the aircraft number was a complete farce. What we found was that just like with the retail sales report two weeks ago, so all of the upside in the durable goods report was from seasonals. As shown in the chart below, while adjusted core durable goods barely declined from a year ago - and keep in mind that seasonal adjustments only affects month to month variance, not year over year - dropping a fractional -0.6%, on an unadjusted basis, the drop was a material -2.5%, by far the biggest since 2009.

Durable Goods New Orders Improved in January 2016: The headlines say the durable goods new orders improved. The three month rolling average improved this month and now is slightly in expansion. . Econintersect Analysis:

  • unadjusted new orders growth accelerated 1.8 % (after decelerating an upwardly revised -3.5 % the previous month) month-over-month , and is up 0.6 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 0.6 % month-over-month, and up 0.6 % year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are up 0.1 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth accelerating 0.5 % month-over-month, up 0.8 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..

PMI Manufacturing Index Flash February 22, 2016: Weak orders and a drop in selling prices are among the striking negatives in the February flash PMI which, at 51.0, is still in the plus-50 expansion column but only barely. This is the lowest reading in three years and is below Econoday's low estimate. Production is slowing and growth in new orders and employment have only been marginal so far this month. And, in a special negative that points to more trouble ahead for employment, backlog orders are contracting at the steepest pace since September 2009. Respondents are blaming lack of demand for the trouble, specifically delays in customer spending. The report says weather is not a factor in the readings. Export sales are down the most since April last year, the result respondents say of the drop in the dollar and less favorable global economic conditions. Input buying is down, inventories of finished goods are up, and supplier deliveries are shortening, all indications of weak conditions. Turning finally to prices, costs are down and price discounting is up with prices for finished goods dropping at the fastest rate since June 2012. This is a broadly negative report and, together with February's Empire State and Philly Fed reports, do not point to an extension of the strength seen in last week's manufacturing component of the January industrial production report.

PMI Plunges - The Last Time US Manufacturing Was This Weak, Bernanke Hinted At QE3 -- On the heels of weakness in the rest of the world's PMIs, US Manufacturing just printed 51.0 (missing expectations of 52.4) and tumbling to its lowest since October 2012... followed rapidly by Bernanke hinting at QE3. While Markit does 'blame the extreme weather', it notes however that "every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy." Not good... Chris Williamson, chief economist at Markit said: “US factories are reporting the worst business conditions for over three years.Every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy. “Output and order books are growing at one of their slowest rates since late-2012, with exports falling amid weakened global demand and the strong dollar. Hiring has weakened as a result. With backlogs of work slumping to the greatest extent since the height of the recession in 2009 and inventories rising for the third successive month, it’s likely that firms will come under increasing pressure to cut payroll numbers and production in coming months unless demand revives. “Prices are meanwhile falling at the fastest rate since mid-2012 as firms compete to win or retain customers.

US Macro Risk Rising Via February PMI Data -- The preliminary numbers for the US economic profile in February are flashing a warning sign, according to Markit’s sentiment data for the manufacturing and services sectors. It’s premature to assume the worst just yet, in part because the nearly complete set of numbers for January still point to growth. Ditto for the Chicago Fed’s January reading of the trend. By contrast, there’s only a handful of data points available at the moment for February. But the early signals for this month suggest that forward momentum will continue to suffer. We’ll know more in the days ahead as new data arrives. Meanwhile, the macro trend appears headed for more deterioration. While we’re waiting for fresh figures, let’s get up to speed on where we stand at the moment for February. The latest data point is the flash Services PMI, which dipped into contractionary territory this month—below the neutral 50 mark–for the first time since Oct. 2013. Chris Williamson, Markit’s chief economist, bluntly noted in the accompanying press release that “the PMI survey data show a significant risk of the US economy falling into contraction in the first quarter. The flash PMI for February shows business activity stagnating as growth slowed for a third successive month. Slumping business confidence and an increased downturn in order book backlogs suggest there’s worse to come.”

Richmond Fed Shows Slowing Regional Manufacturing Activity in February - Tuesday brought yet another weak economic reading. The Federal Reserve Bank of Richmond reported that manufacturing activity in the nation’s Fifth District slowed in February. A reading of -4 was noted in February, with readings above zero representing growth and readings under zero contraction. Its figure for January was left unrevised at 2. Shipments and the volume of new orders have decreased modestly this month. Hiring in the manufacturing sector continued to increase at a modest pace, while average wages grew mildly and the average workweek lengthened slightly. Prices of raw materials and finished goods have risen at a slower pace in February over January. What was interesting about this report was that manufacturers were shown to have remained upbeat about future business conditions despite the current softness in manufacturing conditions. Expectations were said to be for solid growth in shipments and in new orders in the six months ahead. Firms also expected an increase in capacity utilization and anticipated rising backlogs — all with shorter vendor lead times. Producers expected faster employment growth and moderate growth in wages during the next six months. Survey participants looked for modest growth in the average workweek. Looking ahead, manufacturers anticipated faster growth in prices paid and prices received. Looking ahead six months, producers remained upbeat about business conditions and manufacturers expected solid growth in shipments and in the volume of new orders.

Richmond Fed Manufacturing Survey Slipped Into Contraction in February 2016. -- Of the three regional Federal Reserve surveys released to date, all are in contraction.  Fifth District manufacturing activity slowed in February, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders decreased modestly this month. Manufacturing hiring continued to increase at a modest pace, while average wages grew mildly and the average workweek lengthened slightly. Prices of raw materials and finished goods rose at a slower pace this month, compared to January. Despite the current soft conditions, manufacturers remained upbeat about future business conditions. Expectations were for solid growth in shipments and in new orders in the six months ahead. Additionally, firms looked for increased capacity utilization and anticipated rising backlogs. Producers looked for shorter vendor lead times. Producers expected faster employment growth and moderate growth in wages during the next six months. Survey participants looked for modest growth in the average workweek. Looking ahead, manufacturers anticipated faster growth in prices paid and prices received. Current Activity Overall, manufacturing activity slowed in February. The composite index softened six points to a reading of −4. Additionally, new orders and shipments decreased this month. The indicators finished at −6 and −11, respectively. Manufacturing employment grew at the same pace as a month ago; the index remained at 9. Backlogs decreased in February, with the index ending 18 points lower at −14. Capacity utilization also declined this month, pulling the index down to −5. Vendor lead time lengthened slightly, with that indicator gaining two points to end at 6. Finished goods inventories rose at a moderate pace in February;

Kansas City Fed Manufacturing Index February 25, 2016: Highlights Once again minus signs sweep across the Kansas City Fed manufacturing report, coming in at minus 12 for the February headline. New orders improved but remain deeply negative at minus 15 with backlog orders also improving but still at minus 17. Readings on production and shipments show less weakness but not employment where contraction deepened sharply to minus 20. Inventories are going down, which is a positive given the contraction in demand, while prices also continue to go down including selling prices. This is the 12th contraction in a row for this report with only the Dallas Fed, which like Kansas City also covers an energy-dependent sector, posting an even longer and more dismal run. Today's report extends an uninterrupted string of negative regional reports on manufacturing, all for February that cast a cold shadow over strength in today's durable goods report for January.

Kansas City Fed: Regional Manufacturing Activity "declined further" in February ==From the Kansas City Fed: Tenth District Manufacturing Activity Declined Further According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined further. “Factories reported a slightly larger decline in February than in previous months,” said Wilkerson. “Energy-related firms generally had a negative outlook, but firms overall remained slightly optimistic about future factory activity.”..Tenth District manufacturing activity declined further in February, while producers’ expectations for future activity remained slightly positive. Price indexes were mixed, but most remained in negative territory. The month-over-month composite index was -12 in February, its lowest level since 2009, down from -9 in January and December. ... The employment index dropped from -15 to -26, its lowest level in nearly six years. The new orders for exports index fell from -4 to -13, while the capital expenditures index remained stable but weak.  The Kansas City region continues to be hit hard by lower oil prices and the stronger dollar.

PMI Services Flash February 24, 2016: In what could be a chilling indication of trouble ahead, the February flash for the service PMI slipped below breakeven 50 to 49.8 for the weakest reading since the government shutdown of October 2013. New orders are still growing but at the slowest pace in nearly six years with contraction in backlog orders the most severe since early 2014. The 12-month outlook, though still positive, is the least positive in 5-1/2 years. Employment in the sample is still growing but for how long is a question. Price data are not favorable, with inputs down and growth in selling prices at a 5-month low. The breakdown in the service sector, a breakdown however still isolated to this report, would leave the economy without a central point of strength. The declines here do suggest that domestic demand could be on the downswing and falling in line with sinking demand overseas.

Wolf Richter: Is This the Beginning of the Next Recession? - The US economy is largely service based. So when the “manufacturing renaissance” and “on-shoring” that everyone had been waiting for turned into no-shows, and when instead manufacturing started slowing in early 2015, it was no big deal, according to the meme. OK, it was terrible for the folks who lost their jobs. But manufacturing accounts for only 12% of the US economy and employs only about 9% of the workforce. So overall, it’s not the end of the world, we heard constantly. And besides, we could always make it up with fast food. Manufacturing alone can’t drag the US into a recession, we were assured. And the service economy would continue to be strong. That was the meme. Then, a few days ago, Evan Koenig, Senior Vice President at the Dallas Fed, gave a presentation that showed that manufacturing contractions preceded service contractions in the run-up of the past two recessions. When service sector growth begins to dwindle – so still growth, but slower growth – after the manufacturing sector has already begun to shrink, that’s the point he called “prelude to recession.” And when the service sector begins to actually shrink, that event marks what officials will later call the beginning of the recession [read…  “Prelude to Recession”: the Dallas Fed’s Unsettling Charts]. That “prelude to a recession” happened a few months ago. At the time, manufacturing was already shrinking; and the services index had just started heading south. But now the services index entered a contraction as well. So this could mark the beginning of what will much later be officially called a recession. Today we got Markit’s national Flash Services PMI, and it was a doozie. The survey’s respondents – companies in the service sector – said that business activity in February fell, pushing the index to 49.8 (below 50 = contraction). The index has now plunged three months in a row, from 56 in November to 49.8 now. Beyond the one-month Congress-induced scare, the index for the service sector has not been below 50, and therefore in a contraction, since the Great Recession. So this is a significant event.

Weekly Initial Unemployment Claims increase to 272,000 -- The DOL reported: In the week ending February 20, the advance figure for seasonally adjusted initial claims was 272,000, an increase of 10,000 from the previous week's unrevised level of 262,000. The 4-week moving average was 272,000, a decrease of 1,250 from the previous week's unrevised average of 273,250.   There were no special factors impacting this week's initial claims. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

A comment on the Labor Force Participation Rate  -- Bill Mcbride - Yesterday I was a guest on Bloomberg's What'd You Miss? talking about housing. One of the earlier guests was Professor J.W. Mason discussing the labor force participation rate (LFPR).  Professor Mason argued that most of the decline in the LFPR is cyclical.  I've written extensively about the LFPR, and I've argued that most of the decline is due to ongoing trends and demographics.   Dr. Mason said that if you looked at each age group by sex, you could construct an "adjusted" LFPR. He presented the following graph: I believe this approach is incorrect.  This graph from Bloomberg shows the BLS reported LFPR and an "adjusted" LFPR using the 1999 LFPR for each age group and gender - and the current population for each group. As an example, if we look at men in the 40 to 44 age group (these are my calculations using Dr. Mason's method): This is the approach that Dr. Mason used to construct the above graph - and this is incomplete and I believe his conclusion is incorrect. Here is a look at the trend for 40 to 44 year old men (BLS data, only available Not Seasonally Adjusted since 1976). . This graph shows the 40 to 44 year old men participation rate since 1976 (note the scale doesn't start at zero to better show the change). There is a clear downward trend, and a researcher looking at this trend in the year 2000 might have predicted the 40 to 44 year old men participation rate would be about the level as today (see trend line). Clearly there are other factors than "economic weakness" causing this downward trend. I  listed some reasons a couple of years ago, and newer research from Pew Research suggests stay-at-home dads is one of the reasons: Growing Number of Dads Home with the Kids.  Just looking at this graph, I don't think there are many 40 to 44 year old men that will be returning to the labor force - and a careful analysis of each age group by sex shows few "missing workers".

Innovation in the U.S. Relies on Foreigners, New Study Shows - Popular culture portrays innovators in the U.S. as young college dropouts. A more accurate description is older, well-educated immigrants, according to a new study. More than one-third of the U.S.-based innovators—scientists and engineers responsible for the advances that drive tech—were born outside the country, according to recent a survey of about 900 patent holders and award-winning scientists in the U.S., conducted by the Information Technology & Innovation Foundation, a nonpartisan Washington, D.C., think tank. That represents a disproportionately high number of foreigners, since foreign-born people make up 13.5% of all U.S. residents, the study says. “We are dependent on immigrants with science and technology expertise,” says Robert Atkinson, an author of the report and president of the foundation. “They are making it possible for U.S. companies and foreign companies in the U.S. to gain market share and hire more scientists and engineers.” The tech industry, where many of the innovators find a home, has become a major defender of foreign workers in the U.S. Tech companies see these employees as vital to their success because they are well-qualified and fill vacant roles., an immigration lobbying group founded by tech executives including Facebook founder Mark Zuckerberg and Drew Houston, chief executive of Dropbox Inc., has called for more high-skilled workers to be able to work in the U.S., going against proposals to curtail work visas from presidential candidates including Donald Trump. Other Silicon Valley executives are speaking out against a new visa-waiver law that would make it harder for some foreigners to travel to the U.S., impacting populations represented in the tech industry.

Tightening credit heralds more pain in U.S. farming downturn | Reuters: The banker was blunt. Irish was deep in debt from the farm equipment he bought, and needed to pay back the money he owed. So now Irish's tractor, combine and other machinery needed to run a grain farm is up for sale in an online auction. "We had no choice," said Irish, who also lost the lease on most of his rented 450 acres. Without land and equipment, he said, he could not farm. As the U.S. farming sector enters the third year of a downturn caused by a global glut of grains and slumping commodity prices, bankers across the Midwest are starting to tighten lending conditions and even cutting some clients off. Many corn and soybean farmers already are trying to adjust by selling off grain stockpiles, begging landlords to reduce rents and pleading with bankers to restructure debt and give them more time to pay it back. But bankers are worried about the potential of loan defaults as incomes fall, prompting farmers to take on more debt. U.S. farm debt, adjusted for inflation, is now at the highest levels since the nation's agricultural crisis in the 1980s, when scores of rural banks failed. Tightening credit sends a clear message: the hard times are here to stay, and sacrifices are in order to avoid a future of forced land sales, farm equipment repossession and bankruptcies.

What explains the rise in income inequality at the top of the income distribution? - Skill-biased technological change is a prominent explanation for the rise in income inequality over the past few decades, but it is not clear how this theory can explain the differential rise in very top incomes across countries. The theory, argued by Harvard’s Lawrence Katz and the University of Chicago’s Kevin Murphy and recently overhauled by MIT’s Daron Acemoglu and David Autor, states that changes in technology drive increased demand for workers whose skills best complement new production processes. But as Ian Dew-Becker and Robert Gordon explain, “it is difficult to think of what particular skill set would account for the meteoric rise of incomes in the top 1 and 0.1 percentiles.” A purely technological explanation cannot explain all of the variance in the change in top incomes across rich countries. Figure 1 shows the share of national income accruing to the top 1 percent of earners (excluding capital gains) over time for a selection of highly developed countries, from Thomas Piketty’s Capital in the Twenty-First Century. The chart provides a history lesson in its own right. You can see the sky-high inequality of the early 1900s, the remarkable collapse in top incomes following World War II, and the long moderation of income inequality during a period of high growth in the succeeding three decades. After that, we can see the recent explosion in top-end inequality starting during the mid-1980s. Notably, the pace of growth in that inequality is strikingly different among developed countries. Anglo-Saxon countries, such as the United States, the United Kingdom, and Canada, saw their rich run away from the rest of their populations. In the United States, the top 1 percent of earners went from claiming 8 percent of national income in 1980 to nearly 18 percent of national income in 2010. The United Kingdom saw a similar increase over the same time period (from 6 percent to 15 percent), as did Canada (from 8 percent to 12 percent).

An Alarm Goes Off Threatening The "Strong U.S. Jobs" Myth: Withheld Income Taxes Are Stalling - Of all the indicators that the Fed has presented to justify its rate hike mentality and to validate that the US economy remains on a growth path despite clear recessionary signals from both the manufacturing sector and the dramatic tightening in financial conditions in recent months, Yellen's preferred metric also happens to be the most lagging one: nonfarm payrolls and the unemployment rate, both of which supposedly signal the collapsing slack in the labor market and a jump in wages that has been "just around the corner" for years.  The problem is that when shifting away from lagging indicators of the labor market, to coincident ones, a far more different picture emerges. The best example of this is when looking at the growth of federal income and employment tax withholdings, the broadest and most timely read on the health of the job market, which as Jed Graham writes, "has been sinking at an alarming rate." While for most of 2015, tax withholdings rose at a rate of 5% or more from a year ago, on the back of job growth and gains in wages, commissions and other incentive pay, in recent months there has been a substantial dropoff in this key indicator.  As shown in the chart below, revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016.That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16.

7-Eleven workers beaten and forced to pay back wages, Senate inquiry hears: Franchisees are still taking 7-Eleven workers to ATMs to withdraw and pay back wages, and some have resorted to violence and intimidation to deter underpayment claims, a Senate committee has heard. The Fels wage fairness panel investigating the 7-Eleven underpayments scandal reported to the Senate employment committee on temporary work visa holders on Friday that it had made 188 determinations that 7-Eleven was liable to pay workers a total of $4.36m. On average, workers were underpaid $23,000 each. The panel has received 2,169 complaints of underpayment, which it expects will result in 1,500 successful claims. But the panel’s chief, Allan Fels, warned the committee that “there’s no question there’s a problem that people aren’t coming forward in the numbers they should”. Just 60% of stores had been the subject of complaints. That was because many workers faced “a campaign of deception, fear-mongering, intimidation and even actual physical violence”, Fels said. Siobhan Hennessy, from Deloitte, who works for the panel, told the committee an international student was beaten by a franchisee while making an underpayment claim. When he went to the police, he was told it was a matter between him and his employer. Fels said franchisees exploited employees’ lack of knowledge by telling them they would need to prove underpayments in court, warned them they risked deportation and made threats against their families overseas.

In 36 States, Unemployment Rates Still Linger Above Prerecession Levels - The recession is over, but it’s certainly not forgotten across most of the U.S.: Unemployment last year remained elevated compared with 2007 levels in more than two-thirds of the states. The Labor Department reported Friday that average annual jobless rates fell in 2015 from the prior year in 47 states plus the District of Columbia. Unemployment was unchanged in North Dakota and rose slightly in West Virginia and Wyoming. In 2014, unemployment fell in every state and D.C. for the first time since 1984. Even so, the average annual unemployment rates in 36 states plus D.C. in 2015 were higher than the average unemployment rate for those states in 2007. The recession began in December 2007 and ended in June 2009. Unemployment rates in just 14 states had returned to or fallen below their 2007 averages in 2015: Arkansas, Iowa, Kansas, Kentucky, Maine, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, North Dakota, Ohio, Vermont and Wisconsin. The job market’s recovery remains incomplete at the national level, too. The U.S. unemployment rate in January was 4.9%, the lowest level since February 2008—but still up from the recession-eve unemployment rate of 4.7% in November 2007. And to be sure, the unemployment rate doesn’t provide a complete picture of an economy’s health. In some cases, a falling jobless rate can reflect unemployed workers moving away or otherwise leaving the labor force rather than finding jobs.

The Crisis of Minority Unemployment -  : The staggering problem of chronic unemployment among minority men was starkly presented in a report from the Great Cities Institute at the University of Illinois at Chicago. It found that in Los Angeles and New York City about 30 percent of 20- to 24-year-old black men were out of work and out of school in 2014. The situation is even more extreme in Chicago, where nearly half of black men in this age group were neither working nor in school; the rate was 20 percent for Hispanic men and 10 percent for white men in the same age group.In Chicago, as elsewhere, the crisis of permanent joblessness is concentrated in minority neighborhoods where it feeds street violence, despondency, health problems and a socially corrosive brand of hopelessness among the young. The problem extracts a heavy social cost in those neighborhoods and threatens the viability of entire cities.The outrage is that there are strategies, which Congress has rejected, that could help rescue a generation of young men from failure and oblivion. Among these is the employment subsidy program that was passed as part of the Recovery Act in 2009. It created more than 260,000 temporary jobs for young people and adults. Governors and employers were ecstatic. But Republicans in Congress denounced the program as useless a year later and blocked proposals that would have extended it.With that rejection, the country missed a crucial opportunity. The Economic Mobility Corporation, a nonprofit organization, released an analysis in 2013 that looked at the program’s outcomes in California, Florida, Mississippi and Wisconsin. By subsidizing the hiring of temporary employees, the federal government lowered labor costs and kept some employers afloat through the recession. The program made a measurable difference in the lives of workers, 37 percent of whom performed so well that they were hired permanently after the subsidy period ended.

State unemployment rates by race and ethnicity at the end of 2015 show a plodding recovery -- In December 2015, the national unemployment rate was 5.0 percent, down 0.1 percentage point since the end of the third quarter in September 2015. Forty-three states and the District of Columbia added jobs in the fourth quarter. All but seven states gained jobs in 2015, and all but eight ended the year with lower unemployment than in December 2014. Yet even as the recovery moves ahead slowly, conditions vary greatly across states and across racial and ethnic groups. In December, state unemployment rates ranged from a high of 6.7 percent in New Mexico to a low of 2.7 percent in North Dakota. Nationally, African Americans had the highest unemployment rate, at 8.3 percent, followed by Latinos (6.3 percent), whites (4.5 percent), and Asians (4.0 percent). Following is an overview of racial unemployment rates and racial unemployment rate gaps by state for the fourth quarter of 2015. We provide this analysis on a quarterly basis in order to generate a sample size large enough to create reliable estimates of unemployment rates by race at the state level. We only report estimates for states where the sample size of these subgroups is large enough to create an accurate estimate. In the fourth quarter of 2015, the white unemployment rate was lowest in South Dakota (1.5 percent) and highest in West Virginia (6.7 percent), as shown in the interactive map, which presents state unemployment rates by race and ethnicity. South Dakota also had the lowest white unemployment rate in the third quarter, while West Virginia has had the highest white unemployment rate for three consecutive quarters.

Black Workers in Many States Haven’t Seen Much of a Recovery, Analysis Suggests --The lowest state jobless rate for black workers in the country matches the highest rate for white workers in a new analysis. At 6.7%, Virginia’s black unemployment rate was the lowest in the nation in the fourth quarter. That rate happens to be the same as the jobless rate for white workers in West Virginia, the worst in the country, according to a report from the left-leaning Economic Policy Institute. The report, released this month, found that while unemployment rates have fallen across much of the country and the national unemployment rate is now half of its recession-era peak, only a handful of states have seen meaningful improvement in the labor market for African-American and Latino workers. And conditions vary greatly from state to state. In January, black workers faced a seasonally adjusted unemployment rate of 8.8%, compared with 4.3% for whites and 4.9% overall. The worst state for black Americans looking for work? That was Illinois, where the jobless rate was 13.1% in the fourth quarter. Even in Virginia, the unemployment rate for black workers was twice as high as it was for white workers. The largest gaps in black and white unemployment were in the District of Columbia, where the black unemployment rate was 5.4 times that of white workers, and in Michigan, where the rate was 3.4 times higher, the report found. The smallest gap was in New Jersey, where the rate was 1.5 times higher. The black unemployment rate is now at or below its prerecession level in nine states. But many of those states—including Michigan, Ohio and South Carolina—had rates higher than 10% even before the recession, said economist Valerie Wilson, the director of EPI’s Program on Race, Ethnicity and the Economy.

A Clinton Presidency has been/would be a disaster for Black and Brown Communities. Here’s Why. -- Bill and Hillary Clinton used a pragmatic, practical, realistic, racist ‘southern strategy’ to win the White House in 1992.  Hillary Clinton tried unsuccessfully to use the same strategy in 2008 against Barack Obama.  This is history, what’s changed? Hillary Clinton’s pragmatic, practical, ‘realistic’ mantra about how she would operate as president can be boiled down to: ‘Take what you can get’.  In today’s political climate this means the same thing it meant in the political climate of Bill Clinton’s presidency, it means: ‘Take what Republicans give’. The Clinton’s have made a religion of being ‘pragmatic’, a virtue of taking what Republicans give; of embracing Republican positions and making them their own. This is not about how a Hillary Clinton presidency would be a disaster for Black and Brown communities because of what her husband has already done to destroy those communities.  That past is prologue. No, it goes far beyond that. This is about how Hillary Clinton would operate on her own as president; with the same pragmatic, ‘take what you can get’ devotion as Bill Clinton.  Since those who ignore history are destined to repeat it, and we have history as a record; let’s see what we’ve got! From the Clintons. From the record.  On just two issues; welfare reform and mass incarceration.

CA Still Struggling with Unfunded Liabilities -  Despite a concerted effort from Gov. Jerry Brown to keep California from slipping back into the financial abyss, the state’s finances remain threatened by massive unfunded obligations. “It’s California’s debt and liabilities that are concerning financial analysts, particularly the state’s rapidly growing unfunded retiree health care costs, which grew more than 80 percent over the past decade. California has promised $74 billion more in health and dental benefits to current and retired state workers than the state has put aside,” the San Francisco Chronicle reported. Adding to the concern, new reporting rules have cast new light on local debt burdens. Changes issued by the Governmental Accounting Standards Board caused California governments to begin reporting “pension debts differently in their 2015 financial statements, which is becoming a wake-up call,” Reason noted. “Medical costs and other non-pension benefits will be accounted for differently in the 2017-2018 fiscal year. As a result, localities are facing much larger pension debts than previously reported.” Observers have also had their eye on final developments in the case of one of California’s municipal canaries in the pension coal mine. “The bankrupt city of San Bernardino, California, said in a court filing […] it had reached a tentative agreement with the creditor holding its pension obligation bonds on how the debt would be treated in the city’s plan to exit bankruptcy but did not provide details,” according to Reuters.

When a State Balks at a City’s Minimum Wage - Veronica Roscoe, who earns $7.75 an hour working at a Burger King here, thought last August that she had won: This city had become the first in the South to approve a local minimum wage.  But that was before the Alabama Legislature met, and before a showdown between state lawmakers and city leaders about who should have the authority to set wage policy in Birmingham. The dispute is a particularly ferocious version of a divide playing out nationally as cities increasingly move to raise their minimum wages and some states, particularly those controlled by Republicans, try to restrict their ability to set floors on pay.Continue reading the main story Related Coverage States Are Blocking Local Regulations, Often at Industry’s Behest FEB. 23, 2015 The Alabama Senate is expected as soon as this week to consider a proposal, which the House approved overwhelmingly last week, that supporters believe would effectively end Birmingham’s ambitions for its own minimum wage of $10.10 an hour. Birmingham officials have reacted angrily and plan to consider a proposal on Tuesday that would put the city’s wage mandate into effect the next day, before Republicans could complete work on the bill making its way through the Legislature.

Puerto Rico needs restructuring to avoid cascading defaults: Treasury --  U.S. Treasury counselor Antonio Weiss said on Thursday that without a proper restructuring regime, Puerto Rico will default and litigation will intensify, as he pushed Congress to act with legislation to help the island fix its crisis. Weiss, speaking to the House Natural Resources Committee in a hearing about the island's fiscal crisis, outlined the scale of the problems the U.S. territory faces. "As the cascading defaults and litigation unfold, there is real risk of another lost decade, this one more damaging than the last," Weiss said. A legislative solution for Puerto Rico, battling with $70 billion debt, may be edging closer. Legislation to find a fix for the island is expected to be drawn up following two Congressional hearings on Thursday - one in front of the House Natural Resources Committee at which Weiss was the sole witness. House Speaker Paul Ryan has said he wants the Republican-led House to develop a response to Puerto Rico's fiscal crisis during the first quarter of 2016, and Republicans plan to bring a bill addressing the crisis to the House floor by the end of March. Puerto Rico wants access to a bankruptcy-like mechanism to reduce debt - a view backed by President Barack Obama's administration and some Congressional Democrats. But majority Republicans have not supported efforts to extend bankruptcy protection to the island, a strategy which could be detrimental to some creditors, and are keen to put Puerto Rico under strict fiscal oversight.

US Treasury pushes Congress to pass Puerto Rico bankruptcy plan - The US Treasury Department is warning of a potential government shutdown in Puerto Rico and lengthy litigation if Congress does not approve a bankruptcy mechanism for the US territory soon. “The government remains open only because the governor authorized more than $1bn in onerous and unsustainable emergency liquidity actions. Tax refunds have been withheld from citizens. Pension assets, already severely depleted, are being sold to fund government operations. Money dedicated to one group of creditors is being taken to pay other creditors,” US Treasury counselor Antonio Weiss told Congress on Thursday. “The inevitable defaults and lawsuits have already begun. Without action, this crisis will escalate,” he said. In a hearing that lasted more than two hours, Weiss outlined the Treasury’s proposal for debt-restructuring authority paired with fiscal oversight and urged Congress to act to help the island fix its crisis. “This is not a Band-Aid. This is a life-saving procedure we are discussing,” said Weiss, defending Treasury’s solution to Puerto Rico’s $70bn debt.

Homeless ordered to vacate camp they were pressured into before Super Bowl - Residents have been ordered to vacate the San Francisco homeless encampment under a highway overpass after police and public workers pressured the city’s homeless to relocate there from areas of the city slated for Super Bowl 50 festivities. The 21st-century Hooverville became a symbol of the city’s gaping inequality in the run-up to and throughout the week of star-studded Super Bowl festivities in February, rekindling long-running controversies over how the city should address the needs of its nearly 7,000 homeless residents. Then on 23 February, less than three weeks after the championship game, the San Francisco department of public health declared the encampments on several blocks of Division Street a public health hazard due to “accumulation of garbage, human feces, hypodermic needles, urine odors and other insanitary conditions”. Homeless residents were ordered to leave within 72 hours.  “Conditions where multiple tents are congregated have become unsafe,” director of health Barbara Garcia said in a statement. “People are living without access to running water, bathrooms, trash disposal or safe heating or cooking facilities.” Cities all along the west coast are struggling to cope with large homeless populations. California, Oregon and Washington state account for 26% of the nation’s homeless, according to the US Department of Housing and Urban Development.

Illinois GOP bill attacks single moms: No birth certificate or financial aid without the father: A bill sponsored by Republican state lawmakers in Illinois would deny birth certificates to the children of single mothers who do not name a father. The Chicagoist first reported that the bill, HB6064, was filed earlier this month, and is sponsored by Republican state Representatives John D. Cavaletto and Keith Wheeler. The measure, which amends the state’s Vital Records Act, would prevent the child from receiving a birth certificate or financial assistance if the father was not identified. The bill states: “Provides that if the unmarried mother cannot or refuses to name the child’s father, either a father must be conclusively established by DNA evidence or, within 30 days after birth, another family member who will financially provide for the child must be named, in court, on the birth certificate. Provides that absent DNA evidence or a family member’s name, a birth certificate will not be issued and the mother will be ineligible for financial aid from the State for support of the child.” Ed Yohnka of the Illinois American Civil Liberties Union told the Chicagoist that the bill was troubling even though it was not expected to pass the Democratic supermajority in the state House.

Detroit Teachers Face "Payless Paydays" As Dilapidated School District Faces Financial Reckoning -- Today we learn that Detroit's public schools have officially reached their borrowing limit which means absent some manner of intervention from the state government,the district will run out of cash by April. "This month the amount of state aid that’s siphoned off to service debt will jump to roughly what is spent on salaries and benefits, pressuring the district’s ability to pay its bills,"Bloomberg writes, and that means "the district may have to stop paying workers if lawmakers fail to reach an agreement." Detroit's school system is sitting on more than a half a billion in debt to the state loan authority and will be insolvent in less than 60 days. Last month, some schools were forced to close because teachers called in sick to protest poor conditions. Poor conditions like those shown below:"The city began inspecting the buildings last month after the teacher strikes began," Bloomberg goes on to note. "On Feb. 6, the district announced it was reallocating $300,000 from other spending to begin repairs to buildings.""DPS is finally on the brink," State Treasurer Nick Khouri told lawmakers today. “When they run out of cash, sometime in the spring or early summer, without legislative interaction, they will have payless paydays," he warned. In order to "fix" the situation, lawmakers want to split the district into two entities one that will carry the debt burden which the state will help to pay down, and another to administer the schools themselves. "The package of six bills would split the 46,000-student DPS into two entities, creating a new debt-free school district," The Detroit Free Press reported, earlier today. "Two bills already pending in the Senate contains a similar plan, but the House bills have been more controversial because they add collective bargaining restrictions to teachers and don't restore a fully elected school board to the city for eight years."

Illinois governor eyes blocking Chicago school debt | Reuters: Illinois Governor Bruce Rauner said on Monday the state has the power to block any debt offerings by financially distressed school districts, including the cash-strapped Chicago Public Schools (CPS), which has been dependent on borrowing to fund operations. The Republican governor last week launched a financial probe of the nation's third-largest public school system through the Illinois State Board of Education. Rauner, who has called for a state takeover of the school district, said the board has the legal authority to block borrowings by districts found to be in financial duress. “The state board has never chosen to do that for the city of Chicago. I hope that never becomes necessary. But we’ve got to be ready to take action,” Rauner told reporters. Rauner's office pointed to a provision of the school code that it says applies to CPS. The provision prohibits the sale of bonds, notes or other debt by a district certified to be in financial difficulty until a financial plan is approved by the state board of education.

Senate approves voucher plan decried as ‘the end of public education in Arizona’ -- State senators voted Monday to do what foes have argued has been their agenda all along — allow every one of the 1.1 million students in Arizona to attend private and parochial schools with tax dollars. The 17-13 vote starts the process of removing all the restrictions that now exist for vouchers, restrictions that to date limit enrollment in the program to no more than 5,500 students. Current law makes these “empowerment scholarship accounts” available only to students with special needs, those living on reservations and youngsters in schools rated D or F. By the 2018 school year all restrictions would be gone. And the following year, the numerical cap on vouchers, currently 0.5 percent of all students in public schools, self-destructs. The only restriction that would be left is that a student first has to attend a public school. But that need not be for more than 100 days. And it could be in kindergarten. “It’s a huge step forward for school choice for our parents and students throughout the state,” said Sen. Debbie Lesko, R-Peoria, the prime sponsor of SB1279. Sen. Steve Farley, D-Tucson, had a different take. “This is the end of public education in Arizona,” he said, calling it “an abomination.”  He also said the timing could not be worse. Farley pointed out the legislation comes ahead of a May 17 special election for Proposition 123. Voters are being asked to divert money already in an education trust account to make up for the fact that lawmakers failed to comply with a voter-approved law to increase state aid to public schools annually to account for inflation.

Why DeRay Mckesson's Baltimore Campaign Looks Like It Comes Right Out of Teach for America's Playbook - For those who’ve never paid much attention, Teach For America sounds like a benevolent and benign idea: recruit bright college grads, give them some teacher-training and place them in some of the nation’s neediest schools for a two-year commitment to teach kids. The reality behind TFA’s sunny exterior is somewhat more sinister. Education policy experts today consider the nonprofit founded by Wendy Kopp in 1990 to be at the vanguard of the school privatization movement. TFA is also a media juggernaut in its own right, known for deploying a known for deploying a sophisticated public relations arsenal to advance an agenda focused on crushing teachers’ unions and privatizing public school systems. TFA's funders, including the Waltons, Bill and Melinda Gates and top Fortune 500 corporations, all have plenty to gain from the commodification of public goods and the destruction of public service unions, and its 11,000 corps members provide a valuable service to that end. Teach for America’s peculiar brand of social justice was on bold display at its 25th Anniversary Summit the weekend of February 5. The confab drew 15,000 corps members, alumni and supporters to Washington for three days of seminars on lofty issues like, “Allies, Co-Conspirators and Coalition Building: Showing Up for Justice Across Lines of Power.” But one of the biggest draws was the discussion on “The New Civil Rights Agenda and Education,” co-headlined by DeRay Mckesson, the TFA alum and 30-year-old Black Lives Matter activist who received a $10,000 award from TFA last year.

Don’t teach “sensitive topics” or anger students, Houston professors are warned after “campus carry” gun law passed - “Be careful discussing sensitive topics,” professors at the University of Houston were warned in a faculty meeting about the new “campus carry” gun policy.  An unofficial forum of professors suggested that teachers may want to “drop certain topics from your curriculum,” and “not ‘go there’ if you sense anger,” the Houston Chronicle reports. A new Texas law will allow people to carry concealed handguns on university campuses.  Jeffrey Villines, a Ph.D. student in the university’s English department, shared a photo of what he said is a slide from a “recent campus carry dialogue at UH, in response to faculty concerns about dangers from armed students.” Slide from recent campus carry dialogue at UH, in response to faculty concerns about dangers from armed students: —  Reflecting on the presentation, Villines says “teachers cannot forbid firearms in class, or even ask who is carrying one.” He claims the school would be “fined $10k for violations.” A spokesperson at the University of Houston stressed in a message to Salon that this slide was not created by the university’s Campus Carry Workgroup and “is not official policy.” The spokesperson also indicated that the university’s draft policy is expected to be released in the next week. “The University of Houston takes issues surrounding campus safety and guns on campus very seriously and will strive to create policies that comply with the new Campus Carry law, protect the rights of citizens, and address the safety and security of the entire campus,” the spokesperson said. Jeff Villines argued that campus carry policies may have a chilling effect on the freedom of expression, silencing “discourse through fear of violence.” “To be clear,” he wrote, “Step 1 of 3: Terrorism involves the silencing of discourse through fear of violence. Step 2 of 3: Open carry is advertised as a means of resisting or preventing terrorism. Step 3 of 3: Teachers advised that any problems with Open Carry can be resolved by silencing discourse.”

Texas private colleges are saying no to guns on campus (AP) — When the conservative Texas state Legislature passed a law requiring public universities to allow concealed guns on campus, it also gave the state’s private institutions of higher learning the chance to follow suit. None has so far. More than 20 private schools have said they won’t lift their gun bans when the law takes effect this August, including the state’s largest private universities that have religious affiliations and often align with the type of conservative values espoused by the politicians behind the law. The opposition has not surprised top Texas Republicans who championed the law as a matter of constitutional rights and self-defense. But it reflects a widespread belief even among conservative university leaders that guns have no place in the classroom. Baylor, Texas Christian and Southern Methodist universities have all declined to allow guns on their campuses. “My own view is that it is a very unwise public policy,” Baylor President Ken Starr, a former prosecutor and judge best known for his work on the Whitewater investigation, said late last year. The Baptist school announced this month that guns would not be allowed on campus. Previous law generally banned concealed handguns from Texas’ public and private universities. That changed last year, when lawmakers passed the so-called “campus carry” law that requires public universities to allow concealed handgun license holders to bring their weapons into campus buildings and classrooms.

What happens when college is free? The results are underwhelming - AEI - As “free college for all” advocates like Bernie Sanders point out, college in the US used to be free (New York and California) or very low cost in many states. Then again, not many people went to college, so states could afford to charge little or zippo. But enrollments surged after World War II. The Wall Street Journal points out that 2.2 million students attended public colleges nationally in 1959 when Sanders studied at Brooklyn College vs. 15.3 million today. Financial pressures eventually forced states to charge tuition or raise it from relatively nominal amounts. In the WSJ piece. a Pennsylvania State University education professor argues that returning to free tuition would “explode enrollment at state schools that are already having trouble handling current enrollment” and “weak liberal arts colleges would be forced out of business by low-cost competition and elite ones would depend even more on wealthier students who could afford to pay tuition.”  But there is, I think, an even more important point: Do results matter? Do countries with free or low tuition show superior results when it comes to college access, completion, and attainment? Andrew Kelly wrote recently it’s “a mixed bag” and free or supercheap college hardly a panacea. For instance: The US’s 47% enrollment rate is lower than Denmark’s 56% but about the same as rates in Germany, Austria, and Iceland, and above Sweden and Finland. Overall, the US is tied for 12 out of 18 advanced economies with available data, though it does better when it comes to graduation and attainment.

Harvard Launches Free Online Class to Promote Religious Literacy -- Sales of the Quran skyrocketed in the United States following 9/11. Perhaps it was a search for answers, or a desire to parse out certain stereotypes, that made some people turn to the Muslim holy text. But the increased circulation of the Quran due to the recent Paris attacks and rise of the Islamic State has not always helped people to better understand and respect the faith. If anything, fear and prejudice toward Islam has risen.  This is one example of the "widespread illiteracy about religion that spans the globe," said Diane Moore, director of Harvard Divinity School's Religious Literacy Project to The Huffington Post. To combat this illiteracy, Moore and five other religion professors from Harvard University, Harvard Divinity School and Wellesley College are kicking off a free, online series on world religions open to the masses. The courses are being offered via an online learning platform called edX, which Harvard University launched with Massachusetts Institute of Technology in 2012. The timing is ripe for such a course, Moore said. Religious illiteracy "fuels bigotry and prejudice and hinders capacities for cooperative endeavors in local, national, and global arenas,” Moore told HuffPost. The edX series will include six classes on different subjects that will each run for four weeks. Moore is teaching the first course in the series on "Religious Literacy: Traditions and Scriptures," which begins on March 1. The next five will dive into specific faiths, covering Christianity, Buddhism, Islam, Hinduism and Judaism.

Harvard Law School students lose funding over support for Palestinians --  An international law firm has withdrawn its sponsorship of Harvard Law School student events after funds were used for a Justice for Palestine event.  The Milbank corporate law firm, which in 2012 pledged $1 million over five years for the events as long as the firm was acknowledged on promotional material, took back its support in the wake of the October event, the Harvard Crimson student newspaper first reported Feb. 18.   The law firm, which reportedly has several Orthodox Jewish partners, redirected its donations from student events to other Harvard Law initiatives. Up to 100 people affiliated with Harvard attended the lunch event, titled “The Palestine Exception to Free Speech: A Movement Under Attack,” according to the student newspaper. About $500 in funds from Milibank went for pizza and other food, event organizers said. The speakers, two civil rights attorneys, did not charge the group for their appearance. In an Op-Ed published Feb. 16 in the Harvard Law Record, organizers of the Justice for Palestine event said the dean of students requested the day after the event that notice of Milbank’s funding of the event be removed from reports on Facebook and other media.  In January, at the start of the new semester, student groups were informed by the dean’s office that Milbank had discontinued its funding and that the office would grant funds for student group events. Justice for Palestine warned in its Op-Ed about the dangers of such funding.

US Federal Marshals Picking Up Student Loan Defaulters . . . Alan Collinge of the Student Loan Justice Org sent me an email yesterday. Bad Stuff from Texas . . . ! This is a scary story. They are arresting people en masse in Texas over student loan debt. I got on the Thom Hartmann show to talk about it: There’s no direct tie-in with the for-profit prison thing, but for some reason the one reminds me of the other!!!   If you go out on the internet, you are going to see a lot about this with the Washington Post blowing it off and Tyler Durden at Zero Hedge treating this incident as more than just a single occurrence. . Here is what the WP had to say: “If you’ve defaulted on federal student loans, you can breathe more easily. You won’t be arrested for simply failing to make payments.” “Marshals had made several attempts to contact Aker to appear in federal court, according to Hunter. Notices were sent to numerous known addresses. Marshals spoke with Aker by phone and requested that he appear in court, but Aker refused, a statement from officials said. So a federal judge issued a warrant for Aker’s arrest for failing to appear at a December 2012 hearing.” The sum we are talking about here is $1500 before collection agency fees and the costs of federal Marshals contacting the debtor and dragging Paul Akers away to jail. What the WP’s Michelle Singletary misses in this is the case is in federal court with federal Marshals dispatched to pick up Mr. Akers for a debt of $1500.  . So what gives?  29th District Texas Congressman Gene Green: “the federal government has been contracting out student-loan collections to private debt collectors, who are allowed to deploy the U.S. marshals as their enforcement arm.  There’s bound to be a better way to collect on a student loan debt,’ said the congressman. Around Houston, that “better way” involves 1,200 to 1,500 arrest warrants. Student debt is at an all time high in the U.S., where students hold an average of $35,000 in federal debt, according to an analysis of government data on “Edvisors.”.”

Debt Dodgers: Meet the Americans Who Moved to Europe and Went AWOL on Their Student Loans --It's difficult to overstate how crushing America's student loan debt situation is. The amount of money adults in the US owe due to educations is over $1.3 trillion and jumps up by more than $2,000 every second. The average borrower owes $28,000, though some owe much more than that. Many former students, trapped between low wages and the high cost of education, can barely afford to keep up with interest payments, let alone start paying off the principal.  Some people are put in so desperate a spot they have attempted to bail on their loans by fleeing the country and hiding out from the banks and collection agencies that will inevitably start looking for them. . I haven't been able to find any statistics on how many of them there are, but I'm not the only one who's noticed the people fleeing US because of their student loans. "It's a phenomenon that I'm quite familiar with actually," says student loan lawyer and author Adam S. Minsky. "In my experience, people leave because there's a sense of hopelessness and they see greater opportunities overseas, usually through a combination of higher pay and lower living expenses. They think they'll be better positioned to either pay their loans in real time, from abroad, or to save up and be in a better place to address the loans a couple of years from now." Many of the students I talked to fear the possible consequences of this strategy, but so far none of them have faced any repercussions.  If you're living abroad, earning a living from a foreign company, not paying US taxes, and not collecting social security, then loan companies can't touch you, nor will the government chase you after you move abroad.

California Treasurer and CalPERS Board Member John Chiang Introduces Private Equity Transparency Bill --  Yves Smith -Regular readers may recall that as as result of your letters and e-mails to CalPERS board member, State Treasurer John Chiang,* said he would sponsor legislation to require disclosure of all fees private equity firms charge to California public pension funds, including related party fees. CalPERS staff, usurping the board, quickly voiced support for the idea. As much as we were heartened by the news, we warned: While this is indeed progress, it’s also important to recognize that Chiang’s (and CalPERS’ and CalSTRS’) incentives are to do the bare minimum to make the problem of private equity transparency go away. The legislation was introduced on February 19. While the bill is not ideal, it goes a long way towards meeting Ching’s commitment. It requires at least once a year disclosure of the fee information in a public meeting. It included carry fees and portfolio company fees, including those paid to affiliates.  The one big lapse is something we flagged in our November post when Chiang announced his intention to launch a bill: The inclusion of related related party transactions is critically important, since they have been one of the biggest sources of chicanery. For instance, professionals have been presented as part of the private equity “team” for marketing purposes, then being billed to the funds as independent consultants. That makes these consultants expenses to the investors, when the investors assumed those individuals were employees, and hence on the general partner’s dime. Needless to say, this provision needs to be drafted to include transactions with the portfolio companies, and not just at the fund level. The gap here is that the bill stipulates that portfolio company fees be disclosed only if they are paid to the general partner or its affiliates. In fact, as we discussed at length in 2014, the general partners present a team that the limited partners assume are all employees of the general partner, when a significant number are “senior advisors” which are billed out as consultants on an individual basis, and the general partner claims they are not affiliates.

Detroit's pension shortfall raises red flags about bankruptcy plan assumptions - Detroit is already facing an unexpectedly large shortfall in its pension fund. That raises some red flags about assumptions baked into the city’s post-bankruptcy financial plan. The city exited bankruptcy in late 2014. Detroit Mayor Mike Duggan revealed the shortfall in his annual state of the city address Tuesday. He said the fund will be short around $490 million by 2024. The size of the gap and its quick appearance surprised many. “There were concerns coming out of the bankruptcy about the pension system and its impact on the city. So unfortunately it appears those issues have emerged sooner than expected,” said Eric Scorsone, a municipal finance expert at Michigan State University. Scorsone said the city will have to find some way to fill that gap in the next eight years, and that means less money to invest in Detroit’s recovery—something Duggan plans to address during a budget presentation to City Council Thursday. Duggan blames the pension hole on former emergency manager Kevyn Orr, and the various consultants who crunched the numbers during Detroit’s bankruptcy. Duggan said it appears they used outdated life expectancy tables “to make the numbers look more favorable.”

Kentucky pension funds push back against fee disclosure bill | Reuters: Kentucky's troubled public pension funds are fighting a bill requiring them to disclose performance fees paid to outside asset managers and use more transparent methods when selecting those managers. Both the Kentucky Teachers Retirement System (KTRS) and the Kentucky Retirement System (KRS) have lobbied against the bill, which has been passed by the state Senate. They argue more disclosure and additional conditions could slow down the investment process, deter outside fund managers from doing business, and leave the funds at a disadvantage. The bill also stipulates that advisors doing business with the state pension funds would need to adhere to a strict code of conduct, requiring them to disclose potential conflicts of interests such as referral fees paid by third parties. Transparency is becoming a major issue in the severely underfunded $3.5 trillion U.S. public pension sector. Current practices mean some contracts are not available to state auditors or other oversight bodies, including the legislature. Between the two pension funds, according to their official reports, Kentucky's state pension systems have liabilities of at least $30 billion, and are among the worst funded in the nation. However, in December, using a more a conservative calculation, the KTRS' underfunded liability grew by an additional $10 billion.

Nudges Aren’t Enough for Problems Like Retirement Savings - Why don’t Americans save more for old age? Even when their employers promise to match their savings, workers often fail to salt away their earnings for the future, inexplicably leaving money on the table.  Psychology has offered an answer: procrastination. And it has suggested a cure: rather than giving workers the choice to sign up for a 401(k), sign them up automatically and give them the choice to opt out.The switch has led to a sharp increase in workers’ participation in retirement savings plans. It is perhaps the most successful contribution of so-called behavioral economics to public policy. Yet, though lauded by policy makers as a powerful new tool in the policy kit, the approach poses a risk, too. It fosters a belief that tweaks based on an understanding of people’s psychology could lead to a vastly improved society at little or no cost to taxpayers. Given Washington’s political paralysis, it’s no surprise that “nudges” like these are all the rage in the Obama administration, which has brought in some leading behavioral experts. In 2009, the White House hired Cass R. Sunstein — a legal scholar who wrote the book “Nudge” with Richard H. Thaler, a behavioral economist. In September, the administration’s Social and Behavioral Sciences Team issued its first report extolling the many benefits of applying behavioral insights to policy.

White workers have nearly five times as much wealth in retirement accounts as black workers -- Since the rise of 401(k)s in the early 1980s, the retirement gap between black and white workers has widened. Before 401(k)s took off, black and white workers had similar rates of participation in retirement plans. In 1983, 53 percent of white workers and 52 percent of black workers age 32-61 (the age range during which most workers would be expected to save for retirement before becoming eligible for reduced Social Security benefits) participated in an employer-based plan. However, as private-sector employers largely replaced defined-benefit pensions with defined-contribution plans, black workers fell behind their white counterparts. By 2014, only 47 percent of black workers had a retirement plan at work, versus 53 percent of their white counterparts. Black workers are both less likely to be offered a retirement plan and to opt into a voluntary plan—though whether or not they are offered a plan in the first place is the larger factor. The gap in retirement savings is even larger than the gap in retirement plan participation. In 2013, white families between the ages of 32 and 61 had nearly five times as much wealth in retirement accounts as their black counterparts—or nearly $100,000 more in retirement savings. 401(k)s and IRAs do not necessarily encourage people to save more for retirement. Instead, they mostly provide wealthy families with tax shelters for existing savings. Since white families have far more wealth than black families on average, they benefit more from these tax benefits, exacerbating racial disparities in retirement and overall racial-wealth inequality. EPI will release an updated version of the Retirement Inequality Chartbook in early March 2016, showing that most Americans—not just African Americans—have been poorly served by the shift from pensions to 401(k)s and rely more than ever on Social Security.

ObamaCare Open Enrollment Whimpers to a Close, as Exchanges Continue Their Slow Death Spiral  -- Another Obama Open Enrollment period has closed, and of course you know that if the results were good, there’d be parades, dancing in the streets, happy enrollees brought to the White House, etc. None of that. What actually happened: Exchange enrollment remained more or less flat and the exchanges are still not actuarially sound. Medicaid, however, is a success story, at least by the side of the exchanges. On the bright side many reports were generated, by consultants, pollsters, marketers, IT people, strategists, and think tanks, so you can see that ObamaCare — by world standards, the F-35 of health care systems — is doing some people some good. In fact, a lot of good. Ya know, for years I’ve deployed the old saw that “You can’t buff a turd.” What ObamaCare proves is that you can; it’s just very lucrative expensive to do so. And if you’re looking for a picture of what Clintonian pragmatism would look and feel like in practice — “you change the way systems operate” — then slowly and expensively buffing a turd is as good an image as any.  So first I’ll look at the Open Enrollment outcome on the exchanges and take a quick detour through the largest state exchange, Covered California. Then I’ll look at Medicaid, and conclude.

Wall Street Analyst Says Hillary Clinton Would be the Be the Best President for Health Care - Amid a tense battle between Hillary Clinton and Bernie Sanders over competing visions for health care, a leading Wall Street analyst has put out a report saying that Clinton would be the best candidate for health care investors. In a report titled “Healthcare: Our 2016 Outlook,”Jeffrey Loo of S&P Capital’s IQ Healthcare Equity Research writes that Clinton should be the preferred choice for the industry because she will preserve the Affordable Care Act and be unable to pass meaningful drug reform legislation: The report makes clear that it views the gridlock created by a Clinton administration paired with a GOP Congress as the rosiest picture for the health care industry.

Prescription drugs are increasingly facing shortages — and the consequences could be 'disastrous' -- The drugs you need to treat your asthma or migraines could be at risk of running out or being swapped for another medication. That's because hospitals and pharmacies are facing shortages in drugs that lead them to make tough decisions about how to make the most of what's available. C. Michael White, a pharmacist and professor at the University of Connecticut told Business Insider this problem has become more prevalent in the last decade, driven mainly by a decrease in competition among generic companies. And it's not relegated to one disease area: The American Society of Health-System Pharmacists (ASHP) lists 150 compounds that are currently facing shortages. The list includes everything from antibiotics to vaccines to cancer medications. Last month, The New York Times reported an instance at Johns Hopkins Hospital in which pharmacists were faced with the troubling decision of whether they should give smaller doses of medication to multiple children or give the same amount of medication to one adult. "The discussions became, 'Why are two kids more important than one adult?'" Dr. Kenneth Cohen, the clinical director of pediatric oncology at the hospital, told the Times. If drug shortages continue, the results could become even more intense — and would likely affect far more people, from inaccessible medications to others that will come at a much higher cost. "The result could be disastrous," said White. "There would be more shortages, and generic drug costs would not go down as significantly as they had in the past."

The rising price of insulin -- Diabetes is a chronic disease that afflicts 25.8 million Americans. Insulin, one of the primary treatments for diabetes, has been around since the 1920s. Yet, somehow the drug is still priced beyond the reach of many Americans. Medication nonadherence (patients not taking medicine as prescribed) is undeniably related to diabetes-related health complications that result in emergency room visits and lost productivity. Diabetes is an expensive and deadly disease. It is the seventh leading cause of death in the U.S. and cost the country $245 billion last year. A few big pharmaceutical firms dominate the insulin market due to lengthy patents and lack of generic competition. Insulin is a biologic drug, which means that it is made up of living organisms rather than chemical compounds. This makes it more difficult to copy, which biotech companies often use as justification for the exorbitant prices they charge for the drugs. We’ve had anecdotal evidence from a consumer of a big price hike on her Humalog insulin this year. When she was trying to find out further information about the price increase, she was told by her insurance company to expect the drug to go up 25 percent more in December. News reports indicate that the cost of Lantus, a top-selling insulin produced by Sanofi, has gone up twice already this year, first 10 and then 15 percent. In addition, Novo Nordisk has also increased the price of Levemir, another common insulin treatment, by 10 percent.  What’s going on here? Overall drug spending is slightly down due to generic drug utilization being up. And generic competition isn’t too far off for many of these drugs. It looks like we have a classic example of pharma executives raising drug prices just for the hell of it! They are jacking the prices to squeeze the most profit out of the drugs—at the consumers expense.

Insulin shortage could affect 50,000 people with diabetes in the UK -  As many as 50,000 people with diabetes may need to be switched to alternative insulin injections, with supplies of certain insulin products running out fast. Sanofi, the manufacturer of the products in short supply, warned that missing out on insulin treatment can be "life-threatening." Affected products include Sanofi's Insuman Basal 100IU/mL, Insuman Comb 25 100 IU/mL cartridges, and Insuman Basal Solostar 100 IU/mL and Insuman Comb 25 Solostar prefilled pens. Although there will be some stock, supplies could be very limited for the next eight months. Sanofi stated in a letter to the NHS that there could be a "supply shortage in the United Kingdom of some Insuman presentations (recombinant human insulin) from 1 December 2015." The problem, they explained, was due to "limited capacity at the manufacturing site [...] supply is expected to return to normal in July 2016." Many of the 50,000 people treated with this insulin are being switched to alternative insulin injections. For people with type 1 diabetes, going without insulin is simply not an option; a fact recognised in Sanofi's letter. "Interruption of insulin treatment is potentially life-threatening. Therefore replacement with alternative insulin formations is needed to avoid hyperglycemia and serious complications." People on Insuman Basal preparations will be switched to Humulin I and Insulatard. People using Comb 25 products will switch to Humulin M3. Sanofi has retained a small supply of Insuman Basal preparations that will be prescribed on a case-by-case basis. Insuman is one of many drug shortages affecting the NHS at this time of year. It may, however, be one of the most problematic, because it isn't possible to switch to a like-for-like insulin. Doctors will have to work with their patients to make the switch to other forms of insulin safe. "[A] simple switch to an alternative is not possible, and most patients will need input to manage the change safely,"

As heroin epidemic rages, Hep C cases soar - Hepatitis C infections soared in 2015 in Hamilton County, Cincinnati and Northern Kentucky with more than 1,000 new cases reported. The region now has nearly 4,000 cases of hepatitis C, which is costly to treat and can be deadly if untreated. What's worse, the spread of hepatitis C – a direct impact of the raging heroin epidemic – shows no sign of stopping, public health officials say.  Its spread also raises the specter of the potential for an HIV outbreak, since the bloodborne illnesses are typically spread the same ways. Between the five counties and Cincinnati, the local areas together saw a 43 percent jump over 2014 for a disease often associated with intravenous drug use.   Roughly a quarter of those infected with hepatitis C will recover. But at least 75 percent will develop chronic hepatitis C, which can lead to severe liver damage, liver cancer, liver failure and death. The national Centers for Disease Control and Prevention estimate 3.5 million Americans have chronic hepatitis C. Hepatitis C is the leading cause of cirrhosis and liver cancer and the most common reason for liver transplantation in the United States. Approximately 15,000 people die every year from hepatitis C-related liver disease. One course of hepatitis C medication costs $80,000, according to the Northern Kentucky Health Department. To provide an idea of costs the public pays through Medicaid for hepatitis C treatment, the health department provided this example: In 2014, Kentucky's Medicaid program spent more than $50 million to treat just 800 of the people infected with hepatitis C in the commonwealth. Northern Kentucky had been struggling with one of the nation's highest rates of hepatitis C even before its 2015 count of newly diagnosed cases. The region tallied 1,132 such cases, up from 891, or a 27 percent jump from 2014, health records show.

Urging Openness About Superbug Infections, Doctor Omits Cases In Own Hospital | Kaiser Health News: As superbug outbreaks raised alarm across the country last year, a prominent doctor at a Philadelphia cancer center wrote in a leading medical journal about how to reduce the risk of these often-deadly patient infections. Dr. Jeffrey Tokar, director of gastrointestinal endoscopy at Fox Chase Cancer Center, pointed to recent outbreaks from contaminated medical scopes and discussed steps doctors and hospitals should take to ensure patient safety his Sept. 22 article in the Annals of Internal Medicine.  “Health care facilities and providers should strive to establish an environment of open information exchange with patients about what is being done to maximize their safety,” Tokar and his two co-authors wrote. What Tokar didn’t mention was that a tainted device at his own cancer center may have infected three patients with drug-resistant bacteria. In accordance with federal rules, the hospital reported the possibility to the manufacturer, Fujifilm, in May 2015, and the manufacturer filed the information with U.S. regulators. .But the public was none the wiser. The information only came to light last month when a U.S. Senate committee unveiled the results of a yearlong investigation into scope-related infections that sickened nearly 200 patients across the country from 2012 to 2015, including those potential cases at Fox Chase in Philadelphia.

The growing life-expectancy gap between rich and poor - Brookings --There's nothing particularly mysterious about the life expectancy gap. People in ill health, who are at risk of dying relatively young, face limits on the kind and amount of work they can do. By contrast, the rich can afford to live in better and safer neighborhoods, can eat more nutritious diets and can obtain access to first-rate healthcare. People who have higher incomes, moreover, tend to have more schooling, which means they may also have better information about the benefits of exercise and good diet. Although none of the above should come as a surprise, it's still disturbing that, just as income inequality is growing, so is life-span inequality. Over the last three decades, Americans with a high perch in the income distribution have enjoyed outsized gains. Using two large-scale surveys, my Brookings colleagues and I calculated the average mid-career earnings of each interviewed family; then we estimated the statistical relationship between respondents' age at death and their incomes when they were in their 40s. We found a startling spreading out of mortality differences between older people at the top and bottom of the income distribution. For example, we estimated that a woman who turned 50 in 1970 and whose mid-career income placed her in the bottom one-tenth of earners had a life expectancy of about 80.4. A woman born in the same year but with income in the top tenth of earners had a life expectancy of 84.1. The gap in life expectancy was about 3½ years. For women who reached age 50 two decades later, in 1990, we found no improvement at all in the life expectancy of low earners. Among women in the top tenth of earners, however, life expectancy rose 6.4 years, from 84.1 to 90.5. In those two decades, the gap in life expectancy between women in the bottom tenth and the top tenth of earners increased from a little over 3½ years to more than 10 years. Our findings for men were similar. The gap in life expectancy between men in the bottom tenth and top tenth of the income distribution increased from 5 years to 12 years over the same two decades.

Why fighting anti-vaxxers and climate change doubters often backfires | Science -- If there’s a war on science, it’s not just one war. And branding people who disagree with you about vaccines, climate change, or genetically modified organisms (GMOs) as the enemy may be unwittingly fueling the conflicts. Those were some of the arguments made at a session here today at the annual meeting of AAAS (which publishes Science). The presenters included a philosopher, a medical historian, a plant scientist, and a technology historian. Their talks underscored that the people who worry about vaccinating their children are not necessarily doubters of climate change or even against GMOs. . “There’s no overall organized attack going on here.” She said the two sides in each debate might even agree on the facts and the potential risks, but they have difficulty seeing eye to eye on the significance of the risks. Mark Largent, a historian of medicine based at Michigan State University in East Lansing, urged vaccine advocates to stop portraying parents who are reluctant to immunize their children as ignorant and anti-science. “Just the opposite,” Largent says. “They have very high levels of trust in science and physicians, and they have very large knowledge about vaccines.” He says they actually have deep concerns about the pharmaceutical industry, the insurance structure, and government regulations that they believe do not have their children’s interests at heart.  Studies have shown that 40% of parents in the United States have “tremendous anxiety” about vaccinating their children, Largent says, but no more than 3% are actually anti-vaccine. His opinions are informed by surveys he and colleagues are conducting of parents in Michigan, who as of December 2014 are forced to go through a 30-minute vaccine education program if they want to seek a waiver to a child’s required vaccine. Since instituting the program, waiver requests have dropped 39%.

Israeli Researchers Find Mobile Phones Cause Male Fertility Problems -- Men who carry their mobile phone in a trouser pocket or talk on it for just an hour a day risk suffering with fertility problems, scientists warn. Research shows that sperm count can also be reduced by talking on a phone that is charging, or even keeping it close by on a bedside table at night. The quality of sperm among men in Western countries is steadily decreasing, and is considered the factor in 40 per cent of cases in which couples have difficulty conceiving a child. Heat and electromagnetic activity which emanate from a mobile phone are thought to be ‘cook’ sperm, causing them to die. The findings have led to a leading British fertility expert to warn men about the risks of being ‘addicted’ to mobile phones. Israeli scientists monitored 106 men attending a fertility clinic for a year. The study revealed that men who chatted on the phone for more than an hour daily were twice as likely to have low sperm quality as those who spoke for less than an hour, while those who talked on the phone as it charged were almost twice as likely to suffer problems. It also found that 47 per cent of men who kept their phones within 20 inches of their groin had sperm levels that were seriously affected, compared with just 11 per cent of the general population. The findings, published in Reproductive BioMedicine, support a long-feared link between dropping male fertility rates and the prevalence of mobile phones.

Valeant Pharmaceuticals Is Everything That’s Wrong With the Market -- If you ever wonder, as many have during this election cycle, what’s wrong with our system of market capitalism—how far removed Wall Street is from Main Street—take a look at Valeant Pharmaceuticals. I hesitate to write that second word of the company’s name, because Valeant looks much less like a drug research and development company than a private equity firm—the kind that comes in, buys up other firms, strips their assets, then uses dodgy accounting methods to make the whole process look appealing to investors (on paper at least). Valeant has been in the news since last fall, when it shares fell sharply on claims that it was not only jacking up its drug prices in egregious ways (something that Hillary Clinton complained loudly and threateningly about) but also booking phantom sales via a now defunct distribution company called Philidor. After ferociously denying all this, Valeant announced yesterday that it would actually have to restate its earnings for the last two years because $58 million worth of sales to Philidor were wrongly booked when drugs were delivered to the vendor, not to patients, as they should have been. Amazingly, the stock actually rallied on this news. Why does this company and this story matter so much? Because it illustrates so many things that are broken in our capital markets—the things that have created the kind of populist rage that have resulted in Donald Trump becoming the likely Republican nominee for President, not to mention Democratic socialist Bernie Sanders giving Hillary Clinton a real run for her money.

Organic Panty Liners Pulled From Shelves After Traces of Glyphosate Found - The French consumer rights group 60 Million Consumers has released a report warning women that a number of feminine care products such as tampons, sanitary napkins and panty liners may contain trace amounts of potentially toxic substances such as pesticides, dioxins and glyphosate, the main ingredient in Monsanto‘s Roundup weedkiller that has been linked to cancer. The report, published Tuesday in the group’s magazine, said that glyphosate was detected in five of 11 feminine hygiene products they tested, according to The Guardian. Popular brands such as O.B., Tampax, Always and the European brand Nett were faulted in the report. A “surprising” discovery, as the report noted, was the detection of pesticides and insecticides in Always sanitary napkins even though they are made of viscose and cellulose, not cotton. Small amounts of glyphosate were also found in panty liners sold by the brand Organyc, which touts only using organic cotton. Although the traces of chemicals were small, this does not completely reassure the consumer group, which is demanding these brands shed light on the composition and manufacturing process of their products.“It’s not because the rates are low we can guarantee zero risk,”

Johnson & Johnson to Pay $72 Million in Lawsuit Linking Talcum Powder to Ovarian Cancer  --  On Monday, Johnson & Johnson lost a case brought against them by a woman who claimed that her daily use of Johnson & Johnson products caused ovarian cancer. Jacqueline Fox, who lived in Birmingham, Alabama, said that she used the company’s talc-based Baby Powder and Shower to Shower products for more than 35 years. Unfortunately, the Johnson & Johnson-caused cancer took Fox’s life before the ruling on her case could be given. Johnson & Johnson has been ordered by a Missouri state jury to pay a hefty $72 million fine for damages to the family of the woman, but is that enough for the company that knowingly exposed generations of Americans to a dangerous product?  Several studies have been conducted which link talc powder to ovarian cancer and talc is a common ingredient in many Johnson & Johnson products. In 23 case-controlled studies conducted by the International Journal of Gynecological Cancer in May of 2015 found that talc use increased the risk of ovarian cancer by 30-60 percent in “almost all well-designed studies.” While studies had been previously unable to determine whether talc played a role in ovarian cancer, International Journal of Gynecological Cancer concluded that their results “suggest that talc use causes ovarian cancer.” Several other recent studies, including one conducted by the Journal of the National Cancer Institute, confirmed those same results.

Wal-Mart, Kraft Sued Over Selling Parmesan Cheese With Wood Pulp Filler -- Wal-Mart‘s “Great Value 100% Grated Parmesan Cheese” is at the center of new litigation that accuses the brand of, well, not being 100 percent cheese. Tests shows that the big box retailer’s cheese contained as much as 10 percent cellulose, a wood-based additive that prevents clumping in pre-shredded cheese according to a complaint filed yesterday in Manhattan federal court, Bloomberg reported.  The lawsuit—Moschetta v. Wal-Mart Stores Inc.—was filed at the U.S. District Court, Southern District of New York on behalf of customer Marc Moschetta. He claims that the 100 percent representation of the Wal-Mart’s cheese “was false and mis-characterized the amount and percentage of Parmesan cheese in the container.”  Cellulose has been called “wood pulp” because it is extracted from ground-up wood. The additive is OK’d by the U.S. Food and Drug Administration (FDA) for consumption and is actually pretty standard in many shredded cheese varieties and other foodstuffs such as ice cream, puffed snack foods, baked goods and more.

What's in your food? Nobody really knows | Center for Public Integrity -- Why doesn’t government know what’s in your food? Because industry can declare on their own that added ingredients are safe. It’s all thanks to a loophole in a 57-year old law that allows food manufacturers to circumvent the approval process by regulators. This means companies can add substances to food without ever consulting the Food and Drug Administration about potential health risks. Read the investigation. So how do new ingredients get from the lab to your dinner table? When companies create new food additives – to improve their product’s texture, taste, appearance, or to extend their shelf life – they have two choices: The “Food Additive Highway” is a gridlocked route marked by government potholes. Traffic here is policed by the U.S. Food and Drug Administration - the federal agency that regulates 80 percent of the nation’s food supply. Companies traveling this path must submit their food additives to extensive review. Then the FDA may issue its formal approval. This journey can take years -- even decades -- to complete. So it’s no surprise that companies often take an alternative route. This road is paved by a legal loophole that hinges on what counts as a “food additive.” Changes to the law in the fifties created this two-lane system where anything “Generally Recognized As Safe”, or GRAS, travels down a much smoother road to market. These “GRAS” ingredients are not considered food additives and effectively get a pass to the fast lane. This “GRAS” clause means companies can determine on their own that what they’re adding to our food is safe. Then it’s up to the company to inform the FDA if they want to. That’s right. Companies have no legal obligation to tell the FDA what they’re putting in our food.

Under Pressure the FDA Says It Will Test for Glyphosate Residues In Food  The FDA is required by law to test and regulate food additives. As part of the product design and intended use of herbicide tolerant GMOs such as the Roundup Ready system, pesticide residues such as those of glyphosate suffuse the cells of the crops including any eventual food products. These are food additives according to any reasonable definition. The same is true of the insecticidal endotoxins in Bt crops. The FDA has directly flouted the law in refusing to regulate these highly toxic additives or even to require their listing among the ingredients of food. One reason why the FDA has refused to test glyphosate residues is to help give it the pretext of ignorance. A surprisingly common excuse among regulators is to say in effect, “We can’t do anything, because we don’t have any information, because we refuse to test for that information (and reject it when others test for it and offer it to us).” Listen to what the likes of the FDA and EPA say and you’ll come across it frequently. So it is with glyphosate levels in food. But as the political pressure mounts against regulator dereliction and collaboration where it comes to pesticides, glyphosate especially, we see regulators scrambling to make weak or sham concessions. Wherever direct defiance is looking politically ineffective, the goal becomes delay at all costs. So it is with the FDA’s announcement that it will start testing glyphosate levels in food, forced in part by strong criticism from GAO auditors. The FDA’s lack of willingness is clear, given how it calls the matter “sensitive” and only now admits that such testing won’t break the bank.  Although in theory the FDA and USDA split the duty of testing for pesticide residues in food, with USDA testing meat and dairy, FDA fruits and vegetables, in practice neither tests for glyphosate precisely because it’s likely the most prevalent poison in the food, and is certainly the most commonly used in agriculture.

FDA Officially Belongs to Big Pharma With Senate Confirmation of Dr. Robert Califf  -- It is hard to believe only four senators opposed the confirmation of Robert Califf, who was approved Wednesday as the next Food and Drug Administration (FDA) commissioner. Vocal opponent Bernie Sanders condemned the vote from the campaign trail. But where was Dick Durbin? Where were all the lawmakers who say they care about industry and Wall Street profiteers making money at the expense of public health? Califf, chancellor of clinical and translational research at Duke University until recently, received money from 23 drug companies including the giants like Johnson & Johnson, Lilly, Merck, Schering Plough and GSK according to a disclosure statement on the website of Duke Clinical Research Institute. Not merely receiving research funds, Califf also served as a high level Pharma officer, say press reports. Medscape, the medical website, discloses that Califf “served as a director, officer, partner, employee, advisor, consultant or trustee for Genentech.” Portola Pharmaceuticals says Califf served on its board of directors until leaving for the FDA. In disclosure information for a 2013 article in Circulation, Califf also lists financial links to Gambro, Regeneron, Gilead, AstraZeneca, Roche and other companies and equity positions in four medical companies. Gilead is the maker of the $1000-a-pill hepatitis C drug AlterNet recently wrote about. This is FDA commissioner material? Califf has gone on record that collaboration between industry and regulators is a good thing. He told NPR, “Many of us consult with the pharmaceutical industry, which I think is a very good thing. They need ideas and then the decision about what they do is really up to the person who is funding the study.”

Assessing the cumulative risk of pesticides on people: The cumulative risks from exposure to pesticides on people is often discussed, but there is limited information. Now a new European study will consider the impact on the thyroid and nervous systems. The study has been commissioned by the European Food Safety Authority and the objective, when the findings are published early in 2017, will consider the effect on people of long-term exposure to pesticides.  The study will take into account 100 different substances found in a range of common pesticides. These are listed in the European Food Safety Authority Panel on Plant Protection Products and their Residues. The statistical tool used in based on Monte Carlo Risk Assessment and a special database is being generated so that data from member states can be captured. A key focus will be with running mathematical and experimental approaches that allow assessment of the links between the effects of pesticides in individuals and ecological changes in regions where intensive farming is practiced. There will also be an assessment of pesticide residues on food.   Once the report has been published, irrespective of the outcome, the European agency intends to have an annual risk assessment in place that will report on the chronic and acute risks that pesticides pose to consumers. If the outcome requires changes to the maximum residue levels of pesticides in food, this will take the form of a recommendation to the European Commission.

DARK Act Is Back With New Bill in the Senate  - Sen. Pat Roberts (R-Kan.) has released a draft bill that can best be described as the Denying Americans the Right to Know ((DARK) Act. The bill would prevent states from requiring labeling of genetically engineered (GMO) foods and stop pending state laws that require labeling from going into effect.  We urge senators to oppose this bill that will ensure that big food processing companies and the biotechnology industry continue to profit by misleading consumers or any version that would result in anything less than mandatory on-package labeling.  The vast majority of the public wants to know if the food they buy contains GMO ingredients It’s time for Congress to create a mandatory on-package labeling requirement so people can decide for themselves whether they want to eat a food that has been produced using genetic engineering. Instead, Sen. Roberts’s bill would strip away the power of the states to protect the public’s right to know what is in their food.We urge senators not to support this bill. The majority of Americans support labeling for GMOs and will hold their elected officials accountable if they vote to strip away transparency about how their food is produced.

What if They Pass the DARK Act?  What would the preemption of labeling mean in itself? Labeling is not sufficient, and is conceptually flawed if envisioned as a worthwhile goal in itself. It implies the continuation of industrial agriculture and food commodification, and globalization as such. It merely seeks Better Consumerism within that framework. If people saw labeling as a temporary measure within the framework of an ongoing movement to abolish industrial agriculture and build Food Sovereignty, that would be good. If people saw the campaign for labeling as primarily a movement-building action, an occasion for public education, for democratic participation in a grassroots action, and to help build a permanent grassroots organization, that would be good. But labeling never could be a panacea. Especially the claim that we can expect miracles from it: Labeling = the end of Monsanto. This is highly doubtful. GMO labeling only indirectly tells us some things about the pesticide content, which is a far worse crisis. I think the most meaningful labeling campaign would have to fight for pesticide residues to be labeled/listed among the ingredients, since by any objective measure they’re intentionally inserted food additives. Also, just because a labeling initiative or law is passed doesn’t mean it will be enforced with any alacrity. It’s still the same old pro-Monsanto government which would be in charge of enforcement. That’s why getting an initiative or law passed would be just the first and easiest step. Then the real work of vigilance, forcing the enforcers to follow through, would begin. That, too, was a reason why the campaign needs to be, even more than just an intrinsic campaign, the building ground of a permanent grassroots organization.

Epic Drought and Food Crisis Prompts South Africa to Ease Restrictions on GMOs -  In the face of a food crisis and a devastating drought, South Africa is planning to relax its rigid laws over genetically modified (GMO) crops and boost imports of its staple food, maize, from the U.S. and Mexico, government officials told Reuters.Government officials said that South Africa needs to import about 1.2m tonnes of white maize and 2.6m tonnes of yellow maize from the U.S. and Mexico.Despite being the world’s eighth largest producer of GMO crops, South Africa has very strict regulations over GMOs. The nation requires that GMO food carry a label, strains entering the country must be government-approved and imported GMO crops are not allowed to be stored. Instead, the crops must be transported immediately from ports to mills.  Makenosi Maroo, spokeswoman at the Department of Agriculture, told Reuters that the country is planning to allow importers to temporarily store consignments of GMO maize at pre-designated facilities, to allow much bigger import volumes.“In anticipation of the volumes expected to be imported into South Africa, the (GMO) Executive Council has approved the adjustment of a permit condition which relates to the handling requirement,” Maroo told the news agency. “There is therefore no intention to relax safety assessment or risk management procedures prescribed.”Since U.S. crops contain a significantly higher amount of genetically modified strains, South African ports could reject suspect shipments even if the import is slightly contaminated.The country has a “zero tolerance” policy for unapproved GMOs and only allows the cultivation of certain strains of white maize, yellow maize, soy and cotton. GMO fruit or vegetables are not allowed on the market.

Many Of The World’s Pollinators Are Facing Extinction, Report Warns - Bees and other pollinators are in trouble — so much so that many of them are facing extinction, according to a new report. The report, released Friday by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), is a two-year assessment of the threats facing pollinators — both vertebrates, such as birds and bats, and invertebrates, such as bees, butterflies, and other insects. It noted that, in some regions, 40 percent of invertebrate pollinator species are so threatened by myriad environmental impacts that they’re facing extinction, with butterflies and bees seeing the highest risk. Among vertebrates, 16.5 percent of species are threatened by extinction worldwide. Pollinators are a major group: there are 20,000 species of wild bees across the globe, the report notes, and many of them haven’t been identified yet.Pollinators are also a hugely important group of animals. Almost 90 percent of wild flowering plants depend on pollination by animals, and 75 percent of food crops around the world depend on pollination. Globally, $235 – $577 billion worth of global crops are affected by pollinators each year, the report found. “Without pollinators, many of us would no longer be able to enjoy coffee, chocolate and apples, among many other foods that are part of our daily lives,” said Simon Potts, co-chair of the assessment, said in a statement.

Women infected with Zika should continue to breastfeed: WHO: Women infected with the mosquito-borne Zika virus should continue to breastfeed their babies as there is currently no proof of a risk of transmission, the World Health Organization said Thursday. "In light of available evidence, the benefits of breastfeeding for the infant and mother outweigh any potential risk of Zika virus transmission through breast milk." the WHO said in interim recommendations to authorities in countries affected by the outbreak. The WHO noted that the Zika virus had been detected in the breast milk of two infected mothers, but added "there are currently no documented reports of Zika virus being transmitted to infants through breastfeeding." "A systematic review of evidence will be conducted in March 2016 to revise and update these recommendations," it added. Cases of active Zika transmission have been reported in 28 countries and territories in the Americas and Caribbean, with 1.5 million in Brazil, the hardest-hit country. In nearly all Zika cases, symptoms are mild, resembling those of flu. However, the growing belief that Zika can also trigger microcephaly in babies born to mothers infected while pregnant has spread international alarm. Microcephaly is a congenital condition that causes abnormally small heads and hampers brain development. There is currently no cure or vaccine against the Zika virus.

What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst -- Having "nailed it" with the feces-infused water for the Olympics, killed the golden goose of its economy, and unable to crackdown on widespread corruption, Brazil now has a 'great' idea to solve its utterly disastrous Zika epidemic... by zapping millions of male mosquitoes with gamma rays from drones to sterilise them. As The Telegraph reports, Brazil is planning to fight the Zika virus by zapping millions of male mosquitoes with gamma rays to sterilise them and stop the spread of the virus linked to thousands of birth defects. Called an irradiator, the device has been used to control fruit flies on the Portuguese island of Madeira. The International Atomic Energy Agency said on Monday it will pay to ship the device to Juazeiro, in the northeastern state of Bahia, as soon as the Brazilian government issues an import permit. "It's a birth control method, the equivalent of family planning for humans," said Kostas Bourtzis, a molecular biologist with the IAEA's insect pest control laboratory.

Australia's Barrier Reef at greater risk than thought, study says - (AFP) - Australia's Great Barrier Reef (GBR), the world's largest coral bank, is at greater risk than previously thought of dissolving as climate change renders the oceans more acidic, researchers said Tuesday. A decline in aragonite -- the mineral that corals use to build their skeletons -- is likely to accelerate, they found, as oceans absorb carbon dioxide spewed by mankind's burning of fossil fuels. This disturbs ocean chemistry, leading to a drop in the pH level and less aragonite, a crystal form of calcium carbonate. Without this life-sustaining mineral, corals cannot rebuild their skeletons and will disintegrate over time. For the study published in Nature Communications, scientists from Australia and Saudi Arabia created a new model for estimating the level of aragonite saturation -- an indicator of future coral deposits -- at more than 3,000 separate reefs within the larger GBR. Physical measurement of aragonite at each individual reef on the 2,300-kilometre (1,400-mile) structure is an impossible feat. The team used a model of ocean circulation and water chemistry, as well as data from direct observations. They were able to pick up regional differences not observed in previous assessments. Putting it all together, the team estimated that future decline in aragonite saturation "is likely to be steeper on the GBR than currently projected" by the UN's top climate science body, the IPCC. This suggested that even if CO2 emissions are significantly reduced, as countries have pledged to do, it may be too late to prevent "potential losses in coral cover, ecosystem biodiversity and resilience."

Florida Officials Drain Lake Full Of ‘Toilet’ Water To Coast -- Lake Okeechobee, a large inland lake in southern Florida, is experiencing its highest water levels in nearly a century due to heavy rains that fell during the month of January.   But after water levels reached a foot above normal, public officials began to worry that the excess water was putting too much stress on the lake’s aging dike. Officials then made the decision to drain the lake out toward Florida’s coasts. There was one problem: Lake Okeechobee’s waters are toxic.  Local industry has long been using Okeechobee’s waters as a dumping ground for an assortment of chemicals, fertilizers, and cattle manure. David Guest, managing attorney of the Florida branch of the environmental law group Earthjustice, called the lake a “toilet.” While the pollution was once confined to the lake, it now flows toward Florida’s coastal communities via local rivers. The water, which is flowing out of the lake at 70,000 gallons per second, will soon pollute the ocean waters in the Gulf of Mexico and the Atlantic Ocean. This pollution has immediate consequences for southern Florida’s environment and economy. The untreated water contains toxic chemicals and fertilizers that are harmful to local flora and fauna, and the fertilizers and chemicals found in the water are known to cause algal blooms, which are known to poison shellfish and make life difficult for the marine food chain. Dawn Shirreffs, a senior policy adviser at the Everglades Foundation, told ThinkProgress that there have been reports of dead fish being found along the coastline. This is especially concerning since many species will migrate to Florida to seek comfortable water temperatures this time of year.

Congress Takes Up Bundy Copycat Bills To Dispose Of America’s National Forests -  Less than two weeks after the arrest of Cliven Bundy and the armed militants who were occupying the Malheur National Wildlife Refuge in Oregon, the U.S. House of Representatives will consider three bills that would dispose of vast stretches of national forests and other public lands across the country. The bills, which will be heard in a meeting of the House Natural Resources Committee on Thursday, represent an escalation of the political battle being waged by the Koch brothers’ political network, anti-government extremist groups, and a small group of conservative politicians led by the committee’s chairman, U.S. Representative Rob Bishop (R-UT). The first bill, introduced by Representative Don Young from Alaska (R), would allow any state to seize control and ownership of up to 2 million acres of national forests within its borders — an area nearly the size of Yellowstone National Park. A state would then be able to auction off the lands to private ownership or for mining, logging, and drilling. The second bill, written by Rep. Raul Labrador (R-ID), would give states and counties the right to take direct control of up to 4 million acres of national forests across the country for clear-cut logging, without regard to environmental laws and protections. A third bill, written by Rep. Chris Stewart (R-UT), would turn over what the Southern Utah Wilderness Alliance estimates to be 6,000 miles of road right-of-ways on U.S. public lands to counties in Utah, opening the door for road construction and development in protected wilderness areas.  These legislative efforts echo the demands of militant rancher Cliven Bundy and his sons, Ryan and Ammon, that the federal government cede ownership of all national forests and public lands to state, county, and private interests. A federal grand jury in Las Vegas last week indicted the Bundys on conspiracy charges for leading armed standoffs with federal law enforcement officials in 2014 and in Oregon earlier this year. Although Senator Ted Cruz (R-TX), Senator Marco Rubio (R-FL), and Governor John Kasich (R-OH) are making Bundy-inspired pitches on the presidential campaign trail, their proposals to seize or sell public lands are deeply unpopular among most Westerners. Recent public opinion research from Colorado College found that approximately six in 10 voters in the region — including a majority in Nevada — are opposed to the idea.

House Republicans seek to open up national forests to mining and logging - Congress is to consider two bills that would allow states to hand over vast tracts of federal land for mining, logging or other commercial activities – just weeks after the arrest of an armed militia that took over a wildlife refuge in Oregon in protest at federal oversight of public land.  The legislation, which will be presented to the House committee on natural resources on Thursday, would loosen federal authority over parts of the 600m acres (240m hectares), nearly one-third of the land mass of the US, it administers. A bill put forward by Republican Don Young would allow any state to assume control of up to 2m acres of the national forest system to be “managed primarily for timber production” in order to address what Young claims is a decline in national logging rates. A further bill, written by Republican Raúl Labrador, would allow state governors to assign up to 4m acres of land as “forest demonstration areas”, which would allow logging free from any federal water, air or endangered species restrictions. The bills, which will be heard by a Republican-dominated committee, come just two weeks after the dramatic end to the armed militia occupation of the Malheur national wildlife refuge in Oregon. The 41-day occupation, which resulted in the fatal shooting of the militia’s spokesman before the arrest of the rest of the group, was sparked by the group’s anger at federal land use regulations.

U.S. House of Representatives Approves Bill Slashing Wildlife Protections - In a partisan vote, the U.S. House of Representatives today passed the so-called “Sportsmen’s Heritage and Recreational Enhancement Act” that would end federal protection for gray wolves in Wyoming and the western Great Lakes. The bill includes a grab bag of additional special-interest provisions that primarily benefit the livestock industry, National Rifle Association and those who peddle elephant ivory. More than 60 conservation organizations signed an open letter opposing the Sportsmen’s Act. “There’s nothing sporting about wolf slaughter, elephant poaching or lead poisoning,” said Brett Hartl, endangered species policy director at the Center for Biological Diversity. “In the Sportsmen’s Bill, House Republicans have once again ignored science and protected special interests instead of wildlife.” One of the many bad provisions of the bill not only strips protection from wolves but forbids court challenges. The U.S. Fish and Wildlife Service illegally stripped federal protections from gray wolves in Michigan, Wisconsin and Minnesota in 2011 and in Wyoming in 2012. Federal judges overturned both decisions for failing to follow the requirements of the Endangered Species Act, failing to follow the best available science and for prematurely turning management over to state fish and game agencies that are openly hostile to wolves. A provision in today’s bill would preempt those court decisions, stop the current appeal process, and permanently end federal protections for gray wolves in Wyoming and the Great Lakes.A separate provision of the Sportsmen’s Act would stop a proposed regulation from the Fish and Wildlife Service designed to curtail the ivory trade inside the United States, which is the second-largest market in the world for ivory, after China. Elephant populations across Africa have plummeted due to the ongoing poaching epidemic, with forest elephants declining by 60 percent over the last decade.

Thirteen Bald Eagles Mysteriously Drop Dead in Heavy-Handed Symbolic Performance - In what seems to be a bit of politically pointed commentary on the sad state of American politics, thirteen bald eagles unexpectedly fell from the sky to their deaths on Maryland’s Eastern Shore. Frankly, the whole thing feels a little stale to me—I liked it better when Robert Rauschenberg did it 60 years ago and it was called Canyon. According to WBAL reporter George Lettis, a farmer in Federalsburg discovered the bunch of dead birds on his property over the weekend, and the Maryland Natural Resources police believe they may have been poisoned. Police are offering a $10,000 reward for information about the kill.

El Nino-Linked Drought Is Ethiopia's Worst in 50 Years - More than 10 million (10,000,000) people are in need of food aid in Ethiopia amid a drought worse than the one that triggered the haunting 1984 famine, the U.N. has warned. Crops have withered, animals have died and water sources have dried up in parts of northeastern Ethiopia following the failure of the last two rainy seasons. More than 400,000 children are now at risk of acute malnutrition, according to the U.N. "It is the worst drought as compared to the last 50 years," says Mikitu Kassa, the head of Ethiopia's National Disaster Prevention Committee. In 1984, images of emaciated children were beamed around the world inspiring international donors to reach into their pockets as celebrity musicians trumpeted the call through Live Aid concerts and charity singles including "We Are the World" and "Do They Know It's Christmas?" This year's crisis has been blamed on the massive El Nino weather pattern in the Pacific Ocean. The same pattern that has brought extreme wet weather and snowstorms to the United States has delivered blistering heat to much of Africa. However, while the drought might be worse, the country itself is in better shape — this is not the Ethiopia of 1984. Strong economic growth, spurned by development-minded leaders and an influx of foreign aid has better equipped the country to confront the crisis.   But the money only goes so far. The U.N. says $1.4 billion is needed in total humanitarian assistance to support stressed populations in Ethiopia, and has received about half that amount. Aid agencies warn that without emergency funding, existing food stocks could run out by the end of April.

January 2016: Earth still on a hot streak | NOAA -- The planet has been on a hot streak recently. NOAA’s National Centers for Environmental Information reported earlier today that January 2016 became the ninth month in a row to set a new record-warmest monthly temperature. According to the report: A strong El Niño that evolved in 2015 continued to impact global weather and temperatures at the beginning of 2016. The January 2016 globally averaged temperature across land and ocean surfaces was 1.04°C (1.87°F) above the 20th century average of 12.0°C (53.6°F), the highest for January in the 137-year period of record, breaking the previous record of 2007 by 0.16°C (0.29°F).  January 2016 also marks the ninth consecutive month that the monthly temperature record has been broken and the 14th consecutive month (since December 2014) that the monthly global temperature ranked among the three warmest for its respective month.The image at right shows how the January 2016 average surface temperature around the planet compared to the rest of the historical record, which dates back to 1880. Most of the tropics was either “much warmer than average” or “record warmest,” including the tropical Pacific and Indian Oceans and parts of all major tropical landmasses from South America to Indonesia. The warmth was especially intense in Africa south of the Sahara, where Namibia, Angola, Zambia, the Democratic Republic of Congo (labeled DRC on the map), Tanzania, and parts of surrounding countries experienced their record warmest January according to the map.  The graph beneath the map shows how each January since 1880 compared to the twentieth century average temperature, with blue bars showing cooler than average years and red bars showing warmer than average years.  Earth hasn’t had a cooler than average January since 1976.

El Niño has passed peak strength but impacts will continue, UN warns -- The El Niño that caused record temperatures, drought and floods over the last year has passed its peak strength but will continue to have humanitarian impacts for months to come, the UN has said. The World Meteorological Organisation (WMO) said the event, which plays havoc with weather systems around the world, was still strong and its impacts on communities in southern Africa, the Horn of Africa and Central America were becoming increasingly apparent. El Niño is a global climate phenomenon that occurs every few years when a huge warm patch of water forms in the western tropical Pacific Ocean, affecting rainfall from the the western US and South America to Africa, India, Indonesia, and Australia. The UN World Food programme warned earlier this week that 100 million people were facing food and water shortages as a result of the El Niño. The WMO said that although the current episode was closely comparable in strength with the record event of 1997-98, it was too early to say whether the 2015-16 El Niño was the strongest ever. The agency’s confirmation that the peak has passed follows similar recent announcements by national science agencies. The WMO’s new secretary general, Petteri Taalas, said: “In meteorological terms, this El Niño is now in decline. But we cannot lower our guard as it is still quite strong and in humanitarian and economic terms, its impacts will continue for many months to come.”

Earth is warming 50x faster than when it comes out of an ice age -  Recently,  The Guardian reported on a significant new study published in Nature Climate Change, finding that even if we meet our carbon reduction targets and stay below the 2°C global warming threshold, sea level rise will eventually inundate many major coastal cities around the world: Cities including New York, London, Rio de Janeiro, Cairo, Calcutta, Jakarta and Shanghai would all be submerged. The authors looked at past climate change events and model simulations of the future.  The issue is that ice sheets melt quite slowly, but because carbon dioxide stays in the atmosphere for a long time, the eventual melting and associated sea level rise are effectively locked in. As a result, the study authors found that due to the carbon pollution humans have emitted so far, we’ve committed the planet to an eventual sea level rise of 1.7 meters (5.5 feet). If we manage to stay within the 1 trillion ton carbon budget, which we hope will keep the planet below 2°C warming above pre-industrial levels, sea levels will nevertheless rise a total of about 9 meters (30 feet). If we continue on a fossil fuel-heavy path, we could trigger a staggering eventual 50 meters (165 feet) of sea level rise.  However, two other studies just published in the Proceedings of the National Academy of Sciences found that the Antarctic ice sheet could melt more quickly than previously thought, and thus contribute to relatively rapid sea level rise. Over the past century, global sea level has risen faster than at any time in the past two millennia, and most of the recent sea level rise is due to human-caused global warming. The Nature Climate Change study didn’t just look at sea level rise; it also looked at global temperature changes. Earth’s sharpest climate changes over the past half million years have occurred when the planet transitions from a ‘glacial’ to ‘interglacial’ period, and vice-versa.  Right now we’re in a warm interglacial period, having come out of the last ice age (when New York City and Chicago were under an ice sheet) about 12,000 years ago. During that transition, the Earth’s average surface temperature warmed about 4°C, but that temperature rise occurred over a period of about 10,000 years. In contrast, humans have caused nearly 1°C warming over the past 150 years, and we could trigger anywhere from another 1 to 4°C warming over the next 85 years, depending on how much more carbon we pump into the atmosphere.

Sea levels are rising at their fastest rate in 2000 years: Global sea levels appear exquisitely sensitive to changes in temperature and greenhouse gas levels, according to a set of new studies that examines up to 6 million years of climate change data. The four papers, published today in the Proceedings of the National Academy of Sciences (PNAS), illustrate the growing power of computers to simulate complex interactions between climate, polar ice, and the planet’s oceans. They also underscore the effects that rising greenhouse gases and global temperatures could have on future sea level. “The big takeaway is that the modern rate of sea level rise in the 20th century is faster than anything we’ve seen in the previous two millennia (2,000 years),” says Benjamin Horton, a Rutgers University, New Brunswick, in New Jersey geologist who helped direct one of the studies. “This isn’t a model. This is data.” ... They [the studies] also add to a growing body of research that suggests sea level can change more dramatically over a short time than previously suspected, says Andrea Dutton, a University of Florida in Gainesville geologist and a leading expert on reconstructing ancient sea levels. The first study found that small temperature fluctuations have led to measurable changes in ocean levels over the past 3000 years. As the global thermostat turned down just 0.2°C between 1000 and 1400 B.C.E., for example, the world’s seas dropped an estimated 8 centimeters. By contrast, they have risen about 14 centimeters [5.5 inches] in the 20th century. At least half of that increase is due to human-induced climate change, say the researchers, who add that sea levels are very likely to rise another 0.24 [9.4 inches] to 1.3 meters [51.2 inches = 4.3 feet] during this century.

Seas Are Rising at Fastest Rate in Last 28 Centuries - The New York Times: The worsening of tidal flooding in American coastal communities is largely a consequence of greenhouse gases from human activity, and the problem will grow far worse in coming decades, scientists reported Monday.Those emissions, primarily from the burning of fossil fuels, are causing the ocean to rise at the fastest rate since at least the founding of ancient Rome, the scientists said. They added that in the absence of human emissions, the ocean surface would be rising less rapidly and might even be falling.The increasingly routine tidal flooding is making life miserable in places like Miami Beach; Charleston, S.C.; and Norfolk, Va., even on sunny days. Though these types of floods often produce only a foot or two of standing saltwater, they are straining life in many towns by killing lawns and trees, blocking neighborhood streets and clogging storm drains, polluting supplies of freshwater and sometimes stranding entire island communities for hours by overtopping the roads that tie them to the mainland.Such events are just an early harbinger of the coming damage, the new research suggests. “I think we need a new way to think about most coastal flooding,” said Benjamin H. Strauss, the primary author of one of two related studies released on Monday. “It’s not the tide. It’s not the wind. It’s us. That’s true for most of the coastal floods we now experience.” In the second study, scientists reconstructed the level of the sea over time and confirmed that it is most likely rising faster than at any point in 28 centuries, with the rate of increase growing sharply over the past century — largely, they found, because of the warming that scientists have said is almost certainly caused by human emissions. They also confirmed previous forecasts that if emissions were to continue at a high rate over the next few decades, the ocean could rise as much as three or four feet by 2100.

Arctic Sea Ice Is in Record Low Territory (Again) - The winter of discontent in the northern latitudes continues.  Persistent warmth has baked the region, making snow a no show in parts of Alaska and, perhaps more importantly, slowing the growth of Arctic sea ice. Though it’s still likely a month before the Arctic sea ice reaches its maximum, the current trajectory is not a good one. Slow and at times non-existent growth has already led to a record low January extent and preliminary data from February indicate sea ice continues to set daily record lows. It was just last year that Arctic sea ice set its record low winter extent, a record that could be short-lived.  As one of the key indicators of planetary health, the continued disappearance of sea ice raises major concerns about how the planet is faring as the climate warms. The decline continues a long-term trend. Winter Arctic sea ice extent has been decreasing by 3.2 percent per decade since 1979 when accurate satellite measurements began. The region is warming at twice the rate as the rest of the globe, a trend that’s largely responsible for disappearing ice. This year is no different with weirdly warm weather slowing sea ice’s annual growth across the region. Ice is missing in large areas across the Barents, Kara and East Greenland seas in the Atlantic region and the Bering Sea and Sea of Okhotsk in the Pacific side of the Arctic, according to NASA Earth Observatory. All told, sea ice extent was 402,000 square miles below average in January. That’s enough missing ice to cover an area four times the size of Colorado.

Scientists are floored by what’s happening in the Arctic right now -- Coming off the hottest year ever recorded (2015), January saw the greatest departure from average of any month on record, according to data provided by NASA. But as you can see in the NASA figure above, the record breaking heat wasn’t uniformly distributed — it was particularly pronounced at the top of the world, showing temperature anomalies above 4 degrees Celsius (7.2 degrees Fahrenheit) higher than the 1951 to 1980 average in this region.  Indeed, NASA provides a “zonal mean” version of the temperature map above, which shows how the temperature departures from average change based on one’s latitude location on the Earth. As you can see, things get especially warm, relative to what the Earth is used to, as you enter the very high latitudes: Global warming has long been known to be particularly intense in the Arctic — a phenomenon known as “Arctic amplification” — but even so, lately the phenomenon has been extremely pronounced. This unusual Arctic heat has been accompanied by a new record low level for Arctic sea ice extent during the normally ice-packed month of January, according to the National Snow and Ice Data Center — over 400,000 square miles below average for the month. And of course, that is closely tied to warm Arctic air temperatures. “We’ve looked at the average January temperatures, and we look at what we call the 925 millibar level, about 3,000 feet up in the atmosphere,” says Mark Serreze, the center’s director. “And it was, I would say, absurdly warm across the entire Arctic Ocean.” The center reports temperature anomalies at this altitude of “more than 6 degrees Celsius (13 degrees Fahrenheit) above average” for the month. The low sea ice situation has now continued into February. Current ice extent is well below levels at the same point in 2012, which went on to set the current record for the lowest sea ice minimum extent:

Arctic warming: Rapidly increasing temperatures are 'possibly catastrophic' for planet, climate scientist Peter Gleick warns - The rapidly warming Arctic could have a “catastrophic” effect on the planet’s climate, a leading scientist has warned. Dr Peter Gleick, president of the Pacific Institute in California, said there was a growing body of “pretty scary” evidence that higher temperatures in the Arctic were driving the creation of dangerous storms in parts of the Northern Hemisphere. According to a graph on the US National Snow and Ice Data Centre’s website, there were 14.2 million km squared of sea ice on 24 February 2016. On an average year over the last three decades, it would take until about 29 April for there to be as little sea ice as temperatures warm in the spring. Since about 10 February, the area covered by sea ice has been noticeably below any of the last 30 years as the Arctic has experienced record-breaking temperatures of about 4C higher than the 1951-1980 average for the region. Dr Gleick posted the sea ice graph on Twitter with the message: “What is happening in the Arctic now is unprecedented and possibly catastrophic.” And, in emails to The Independent, he explained: “The current trend is below any previous year. What is alarming is how far below any previous ice extent the current data are [and] how early it is for there to be this little ice. “It is certainly possible that the ice extent will track back up if cold enough weather returns, for long enough. It is just very unlikely.”While such changes will have a harmful effect on polar bears, walruses and other elements of the Arctic ecosystem, Dr Gleick said the potential for catastrophe was from “the global implications of those changes.” “The evidence is very clear that rapid and unprecedented changes are happening in the Arctic,” he wrote. “What is much less clear is the complex consequences. We are, effectively, conducting a global experiment on the only planet we have."

The Future is Flooded: Seas Rising Faster Than They Have In 28 Centuries  When it comes to swelling oceans that threaten coastal communities around the world, it's bad, and it's going to get worse. Sea levels are rising faster than they have in the last three millennia, and that rate continues to accelerate due to the burning of fossil fuels, according to new research published Monday.  One study appearing in the journal Proceedings of the National Academy of Sciences states that "almost certainly, more than half of the 20th century rise has been caused by human activity, possibly even all of it." Employing a database of geological sea-level indicators from marshes, coral atolls, and archaeological sites around the world, the paper shows that global sea levels stayed fairly steady for about 3,000 years. Then, from 1900 to 2000, the seas rose 5.5 inches—a significant increase, especially for low-lying coastal areas. And since 1993, the rate has soared to a foot per century. "The new sea-level data confirm once again just how unusual the age of modern global warming due to our greenhouse gas emissions is—and they demonstrate that one of the most dangerous impacts of global warming, rising seas, is well underway," As the Washington Post reports, "[t]he new work is particularly significant because, in effect, the sea level analysis produces a so-called 'hockey stick' graph—showing a long and relatively flat sea level 'handle' for thousands of years, followed by a 'blade' that turns sharply upwards in very recent times."  Meanwhile, a separate study also published Monday warns that without a sharp reduction of greenhouse gas emissions, sea levels worldwide will likely rise by one to four feet by the end of this century.  This study, led by the Potsdam Institute for Climate Impact Research, combined the two most important estimation methods for future sea-level rise to show that "increasingly routine tidal flooding" events, as the New York Times wrote, "are just an early harbinger of the coming damage." Furthermore, it found that "even if ambitious climate policy follows the 2015 Paris agreement," sea levels are still projected to increase by 20 to 60 centimeters by 2100, necessitating coastal adaptation such as building dikes, designing insurance schemes for floodings, or mapping long-term settlement retreat.

That Sinking Feeling: The Politics of Sea Level Rise and Miami's Building Boom - Even from thousands of feet in the air, it’s obvious that Miami is disturbingly low-lying. Luxury sky-high buildings, bridges, and cranes tower over swampy marshlands and the slowly rising sea. The latest development has resulted in a sprawling metropolis on sinking land. Rising seas combine with porous limestone—which is like Swiss cheese—to allow saltwater to infiltrate under the land during floods, and makes the greater Miami area the most climate-vulnerable place in the United States. In Southeast Florida, the sea could rise three feet by 2060, and that doesn’t count temporary storm surges from increasingly intense hurricanes. Seventy-five percent of Florida’s population lives in coastal counties that generate 79 percent of the state’s total annual economy. The infrastructure in these coastal counties had a replacement value of $2 trillion in 2010 and is estimated to increase to $3 trillion by 2030. Of the 2.6 million people who live in Miami-Dade County, nearly 129,000 of them are living less than three feet above sea level. The county alone has more people living less than four feet above sea level than in any other state except Louisiana. The county’s estimated beachfront property value is more than $14.7 billion—not including infrastructure. You might think, therefore, that developers, investors, and homebuyers would be very gun-shy about putting more money into Miami real estate. One good-sized hurricane, or another decade of relentless sea-level rise, and their investment will be washed away. At the very least, values are likely to fall because escalating climate threats will scare off other investors and falling demand will depress property values.

Ocean levels in the Philippines rising at 5 times the global average | Ars Technica: One major threat from climate change is the rising global sea level. At the coast, the rising seas will wipe out infrastructure and threaten wildlife. If ocean water moves deeper into landmasses, the salt will contaminate sources required for drinking water and agriculture. A solid understanding of how quickly the sea level is rising, and the major contributing factors, is critical to developing practical plans to limit the problems and deal with the inevitable. Recently, a team of scientists has dived head-first into this challenge. The main factors influencing rising sea level have been well documented. First, climate change has led to increased global temperatures. As its temperature rises, the sea water expands (a process called steric expansion). In addition, ice sheets and land glaciers all over the world are shrinking through evaporation and melting. All of these factors contribute to rising ocean levels. But the sea level doesn’t rise uniformly across the ocean—variations exist in different regions, and certain areas are more at risk. When assessing regional changes in sea level, the team saw that the contributions of each component differed significantly from those of the global sea level. In the western Pacific and Indian Ocean, the rising sea level was dominated by the volumetric contribution (up to a whopping 75 percent). And it resulted in some dramatic local changes—it was as high as 14.7 ± 4.4 mm/y near the Philippines. The sea level was also strongly affected by the melting of glaciers and ice sheets, despite their distant location. In the central and eastern Pacific, heat-driven expansion contributions had a negative impact (-2.8 ± 11.5 mm/y) on the global sea level, although the margin of error was enormous.

Ocean acidification expected to cause skeletal deformities in 50% of juvenile corals: Tiny juvenile corals face skeletal deformities as ocean acidification gets worse. New research shows that as more atmospheric carbon dioxide is absorbed in the ocean, corals develop deformed and porous exoskeletons, which does not provide the support required for a long and fruitful life.  Ocean acidification – where more and more carbon dioxide is absorbed by the sea –  has already been shown to cause large-scale coral bleaching. However, research published in the journal Science Advances, now shows that it also causes the corals skeletal structure to be smaller, more fragile and oddly shaped. Juvenile corals – small corals that are less than five centimetres long – are important to the health of the entire reef as they help maintain its genetic diversity and also its recovery after natural disasters such as hurricanes and bleaching events.Why advertise with us"The findings show that juvenile corals are particularly vulnerable to the impacts of high CO2," lead author Taryn Foster told IBTimes UK. "Also for the first time we have shown the specific changes to the structure of the skeleton under high CO2."

Coral ‘will not survive into the next century’ because of acidic oceans: study - Scientists unveiled the first smoking-gun evidence Wednesday that growing ocean acidity caused by global warming is already stifling growth of vital coral reefs. The decline of shallow water corals, home to a quarter of the ocean’s species and a lifeline for a billion people, has long been in evidence. Earlier studies had shown that the rate at which living coral reefs calcify, or accumulate mass, had dropped by about 40 percent in just over 30 years. Up to now, however, it was not possible to tease out the impact of acidification from other threats such as pollution, over-fishing and warming water. The world’s oceans are 26 percent more acidic today than at the start of the Industrial Revolution, when mankind started massively burning fossil fuels which give off harmful carbon dioxide (CO2). About a quarter is absorbed by the oceans, changing their chemical composition, and making the water more acidic and corrosive to corals and shellfish. “Our work provides the first strong evidence from experiments on a natural ecosystem that ocean acidification is already slowing coral reef growth,” said Rebecca Albright, a researcher at the Carnegie Institution for Science in Stanford, California. “This is no longer a fear for the future. It is the reality of today.” The findings were published in the science journal Nature.

The key to halting climate change: admit we can't save everything - Climate change, and human resistance to making the changes needed to halt it, both continue apace: 2015 was the hottest year in recorded history, we may be on the brink of a major species extinction event in the ocean, and yet political will is woefully lacking to tackle this solvable problem. Given these dire ecological trends, limited public funding and legislative gridlock, the time is ripe for a budget-neutral, executive-branch approach for managing our natural resources: triage. A science-based triage approach should be used to classify areas and species into one of three categories: not at immediate risk, in need of immediate attention or beyond help.  Refusing to apply triage implicitly assumes that we can save everything and prevent change, which we cannot. Prioritization will occur regardless, just ad hoc and shrouded. This triage system would replace the status quo of inadequately managing our full portfolio of over 1m square miles of public land and 1,589 threatened and endangered species. For areas or species not at immediate risk, we can delay action while monitoring to detect changes in that status. For example, increased temperatures and prolonged periods of drought may increase both wildfires and populations of tree-killing beetles in forests of the Pacific north-west. Knowing this, we can track these variables and explore management options that minimize risk without prematurely devoting disproportionate resources.

How Berkshire Hathaway thinks about climate change -- From their new report (pdf, pp.25-26): …insurance policies are customarily written for one year and repriced annually to reflect changing exposures. Increased possibilities of loss translate promptly into increased premiums. Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather-related events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable. As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries. The pointer is from Joseph Weisenthal.

Why Two Degrees Is So Important—Fossil Fuel Companies Can No Longer Ignore the Need to Act - “Who knows the perfect temperature for humans on this planet? I wouldn’t mind if it were warmer,” argued one businessman at a roundtable on climate change I was hosting at a conservative Christian college. With a foot of snow on the ground that morning, there were nods all around the circle; who wouldn’t want warmer weather? Given the wild weather swings we’ve all experienced, two degrees seems like a small, even potentially negligible temperature rise.  What happens if our own temperature—or that of our child—suddenly spikes up by two degrees Celsius, three and a half degrees Fahrenheit? Most of us would call the doctor, or (if we were a new parent) maybe even head to the emergency room. We know that even with an average temperature of 98oF, an increase of 3.5oF means something’s seriously wrong; and that’s exactly what’s happening to our planet.My research, and that of my colleagues, puts the numbers on how it’s affecting our water resources, our food and crop yields, the economy, and even our health. In a two degree world, record-breaking hot, dry summers could become the norm across the central United States; around the world, corn and wheat yields could drop by an average of 10 to 30%; and faster evaporation and shifting rainfall patterns could decrease runoff across much of the central and western U.S. by 10 to 30%. The intensity and strength of hurricanes scales with global temperature, as does the duration of heat waves, the risk of wildfire, and even the growth of phytoplankton in the ocean, the base of the food web on which hundreds of millions of people depend.

Fossil-fuel industry gets $2,000 in 'subsidies' for each $1 in party donations -- Major political parties have receive $3.7m in donations from fossil-fuel companies since the last election, and will deliver $2,000 in subsidies to the industry for every dollar donated, according to a report. “The ongoing failure of our politicians to tackle climate change is directly attributable to the political influence of the fossil-fuel industry,” said Blair Palese, the chief executive of Australia.  “If we are serious about climate solutions, we must end the cosy relationship between our politicians and the big polluters.” The activist organisation has launched the report alongside a campaign asking individual federal politicians to sign a “pollution-free politics pledge”, where they commit to refuse donations from the fossil-fuel industry. It has already been signed by all federal Greens politicians, independents Cathy McGowan and Andrew Wilkie, and outgoing Labor MPs Melissa Parke and Kelvin Thomson. A  list of those who have signed is being curated by “The corrupting influence of political donations that the Liberal, National and Labor parties receive from the fossil-fuel sector will only stop when these donations are banned,”

Donald Trump warned against scrapping Paris climate deal -- President Obama’s special envoy for climate change has warned Republican presidential hopefuls including Donald Trump and Ted Cruz that any attempt to scrap the Paris climate agreement would lead to a “diplomatic black eye” for the US.  Speaking to journalists in Brussels, Todd Stern also said that a recent supreme court decision to block Barack Obama’s clean power plan would not affect US climate pledges, or plans to formally sign up to the Paris agreement later this year. Republican candidates such as Trump or Cruz who query climate science on the presidential stump would in practice be “very loathe” to set off the storm that would follow any ditching of the Paris accord, Stern argued. “Paris as an agreement has such broad acceptance and support around the world from countries of every stripe and region and Paris itself was seen as such a landmark - hard-fought, hard-won - deal that for the US to turn around and say ‘we are withdrawing from Paris’ would inevitably give the country a diplomatic black eye,” he said.  Trump, the current frontrunner in the Republican race, described President Obama’s speech to the Paris climate summit last December as “one of the dumbest statements I’ve ever heard.” And Cruz, who won the Iowa caucus, has promised to withdraw from the Paris climate agreement, describing Obama’s focus on securing a global accord as “nutty”. EU sources say that there is “significant concern” in Brussels about the possibility of either candidate winning the election in November.

John Kasich: ‘I Know That Human Beings Affect The Climate’ - Republican presidential candidate John Kasich acknowledged humans’ contribution to climate change Saturday, though he stopped short of accepting that humans are the main driver of the global problem.  “I know that human beings affect the climate,” Kasich said at a Vermont town hall event Saturday, in response to a question from a scientist in the audience. “I know it’s an apostasy in the Republican Party to say that. I guess that’s what I’ve always been — being able to challenge some of the status quo.” He added, however, that he didn’t know “how much individuals affect the climate, but here’s what I do know: I know we need to develop all of the renewables, and we need to do it in an orderly way.” Kasich singled out wind and solar, and said the United States also needed to improve battery technology. “We need to be promoting the renewable energies, we need to have more efficiency, and we need to live respecting the resources in our environment.” Kasich’s clarification that he doesn’t know how much people impact climate change has emerged as a common caveat in the presidential race — at least among some of the comparatively moderate Republicans, several of whom have exited the race. Jeb Bush, who dropped out of the presidential race over the weekend, has said that he doesn’t “think the science is clear of what percentage is man-made and what percentage is natural. It’s convoluted.” Chris Christie, who has also dropped out, has similarly said that he thinks climate change is happening, though he’s not entirely sure how much humans contribute.

US Congress backs court challenge to Obama's climate plan (AP) — More than 200 members of the U.S. Congress are backing a court challenge to President Barack Obama’s plan to curtail greenhouse gas emissions. A brief filed Tuesday with the U.S. Court of Appeals in Washington argues that the U.S. Environmental Protection Agency overstepped its legal authority and defied the will of Congress by regulating carbon dioxide emissions. Implementation of the new emissions rules is considered essential to the U.S. meeting carbon-reduction targets in a global climate agreement signed in Paris in December. Obama’s plan also encourages more development of alternative energy sources such as wind and solar by further ratcheting down any emissions allowed from new coal-fired power plants, which the administration and environmental groups say the plan will spur new clean-energy jobs. Led by Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan, both Republicans, those signing on include Republican presidential candidates and senators Ted Cruz of Texas, and Marco Rubio of Florida. Of the 34 senators and 171 House members listed, Sen. Joe Manchin of coal-dependent West Virginia is the lone Democrat. “If Congress desired to give EPA sweeping authority to transform the nation’s electricity sector, Congress would have provided for that unprecedented power in detailed legislation,” the brief says.

States Just Asked The Supreme Court To Halt Another Pollution Rule - If you live in one of these 20 states — Alabama, Alaska, Arizona, Arkansas, Idaho, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, Texas, Utah, West Virginia, or Wyoming — your attorney general just asked Justice John Roberts to let power plants keep putting mercury the environment.  In a petition filed Tuesday, those states asked the Supreme Court to stay the Mercury Air Toxics Standard, which was issued by the EPA in 2014 and has been bouncing around the courts ever since.  The standard, commonly known as MATS, was the culmination of more than two decades of effort to limit the amount of mercury from coal-fired power plants. Methylmercury, the compound that comes from power plants, is a powerful neurotoxin that can affect coordination, impair speech and hearing, cause muscle weakness, and degrade vision. Exposure to methylmercury in utero and for infants and small children can have significant long term health impacts, including cognitive and fine motor impairments. But in June, the Supreme Court ruled that the EPA had not properly considered the regulation’s cost to industry, and kicked the rule back to the D.C. Circuit Court. The EPA is expected to submit new cost analysis to the court in April, but in the meantime, the rule is still in effect.  Apparently unwilling to wait for a final ruling from the D.C. Circuit Court, the states, led by Michigan, are looking to put the rule on hold immediately. They were bolstered, perhaps, by recent Supreme Court actions. Last month, the court issued a stay on the Clean Power Plan, the EPA’s carbon-limit rule.

Trade Rules Trump Climate Action: U.S. Blocks India’s Ambitious Solar Plans -- India has been told that it cannot go ahead as planned with its ambitious plan for a huge expansion of its renewable energy sector, because it seeks to provide work for Indian people. The case against India was brought by the U.S. The ruling, by the World Trade Organization, says India’s National Solar Mission—which would create local jobs, while bringing electricity to millions of people—must be changed because it includes a domestic content clause requiring part of the solar cells to be produced nationally.  The World Trade Organization says that its dispute settlement panel “handed the U.S. a clear-cut victory … when it found that local content requirements India imposed on private solar power producers in a massive solar project violated trade rules, although the two sides are still discussing a potential settlement to the dispute.” One official of India’s Ministry of New and Renewable Energy told India Climate Dialogue that the ruling might make the country’s solar plan more expensive and would definitely hit domestic manufacturing and, consequently, the possibility of creating jobs in the sector. The government-funded program aims to generate 100 gigawatts of solar energy annually by 2022. One gigawatt is enough, for example, to supply the needs of 750,000 typical U.S. homes. Sam Cossar-Gilbert, economic justice and resisting neoliberalism program co-ordinator at Friends of the Earth International, said the ruling “shows how arcane trade rules can be used to undermine governments that support clean energy and local jobs. The ink is barely dry on the UN Paris agreement, but clearly trade still trumps real action on climate change.”

Profit over the planet: WTO’s lawsuit ruling could be a giant blow to the renewable energy movement - A new ruling by the World Trade Organization could be a big blow to the growing renewable energy movement around the world. A WTO tribunal ruled Wednesday that India’s national solar energy program violates trade law, in a lawsuit initiated by the U.S. Almost half of states in the U.S. have programs that are similar to India’s, which subsidize the renewable energy industry and create local, environmentally friendly jobs. Environmental groups say the deal shows that the WTO and U.S. care more about free trade policies and profit than they do about moving toward renewable energy sources. Bill Waren, senior trade analyst at Friends of the Earth, said the organization “is dismayed that climate policy is being made by an international trade tribunal.” “The government of India reasonably provided some preferences for local producers of solar energy in order to convert from a carbon economy to a green economy,” Waren explained, calling the WTO decision “an outrage.” Environmental groups also warned that the WTO ruling could undermine the international agreement reached after two weeks of deliberation at the 2015 United Nations Climate Change Conference in Paris. The Sierra Club called India’s subsidy program “a common-sense solar energy initiative in India that is a core component of the country’s contribution to the Paris agreement to tackle climate disruption.” “Trade law trumps the Paris climate accord,” Friends of the Earth said.

Who’s hitting the EU’s 2020 renewables target — and who’s holding it back? -- The EU has released statistics for 2014, showing its progress in boosting the share of renewables in its overall energy mix.  These figures are broken down by country, showing which ones are transitioning the fastest away from fossil fuels, and which are moving at a slower pace.  Carbon Brief has looked at the numbers to see which countries came out on top in 2014, and which countries were holding back the bloc’s progress on clean energy.  The EU has a target of getting 20% of all its energy – electricity, heat, transport, etc – from renewable sources by 2020.  This target is divided across the bloc, so that wealthier countries that have a higher share of renewables to begin with do more, lifting some of the burden from their EU neighbours who will have a harder time of it. Sweden has a 49% target, for instance, whereas Malta, the country with the lowest renewables target, only has to generate a 10% share of its energy from renewables by 2020. What really matters is that the share of renewables hits an average of 20% across the EU, as a whole. The interactive map below shows how much each country has to achieve as part of this group effort. Despite this effort to place countries on a level playing field, according to their respective capabilities, countries are progressing at different speeds towards their targets.  Some countries have already achieved their 2020 targets and are going beyond them. Others still have yet to hit their 2020 goal. This data shows progress up to 2014, so countries still have six years to make it to their target from this point. The following graph shows which countries have already exceeded their 2020 goals, which have yet to make it, and by how much.

Peak Oil Returns: Why Demand Will Likely Peak By 2030 -  Will global oil demand peak by 2030? Is peak oil demand the new peak oil supply? Many trends now point in the direction of this remarkable possibility:  In December the nations of the world agreed unanimously in Paris to leave most of the world fossil fuels in the ground. Oil demand has been declining in developed countries for over a decade. Electric vehicle sales are exploding around the world, especially China.  Battery prices are continuing their unexpectedly rapid price drop. Tesla and Chevy now say their new 200-mile-range EV could cost Americans $30,000 — a game-changing price. In November, a Bloomberg Business story, “The Oil Industry Has Been Put on Notice,” warned “the transformation of oil markets may be coming sooner than we think.” This recent Bloomberg New Energy Finance chart includes oil forecasts the International Energy Agency (IEA) has made since 1994:  Is it possible that the world is actually going to follow the path of the “Transport Transformation Scenario” and peak in oil demand by 2030 or so? At this point I think is not only possible, but likely. It is increasingly clear that technology will be here to make that possible — indeed, the technology is almost here now (see this recent post, “Tesla And GM Announce Affordable, Long-Range Electric Cars”). Same with the renewables needed to power electric cars carbon-free. The core issue now is whether the nations of the world will embrace the policies needed to accelerate those technologies into the marketplace fast enough to cause demand to actually peak in one to two decades globally — much as oil demand in the industrialized countries appears to have peaked a decade ago.

Could more electric cars mean greater fleet emissions and fuel consumption? -- New CAFE standards that get stricter over time were announced by the NHTSA in 2015. CAFE mandates fleet-wide targets for car makers, with a formula that takes into account the footprint of each model. Bigger cars or light trucks are allowed to get lower fuel efficiency than smaller models, and a car maker's total sales are taken into account to calculate the average across their model range.  At the same time, the EPA has another set of standards for the amount of greenhouse gas emissions across a manufacturer's range (this is separate from the EPA fuel efficiency rating that new cars get, which also differs quite a bit from the CAFE numbers). Failing to meet these targets comes with a set of different consequences. OEMs that don't meet their CAFE target have to pay a fine ($5.50 per 0.1mpg per vehicle sold), which several car makers have historically chosen to accept as cheaper than the alternative. The EPA's emissions standards aren't quite as lenient, however; it's within the agency's power to revoke one's license to sell vehicles inside the US. Built into those greenhouse gas standards are incentives to sell more alternative fuel vehicles—battery electric vehicles (BEV), plug-in hybrid EVs (PHEV), fuel cell vehicles (FCV), and flex-fuel vehicles (FFV), which can use ethanol, methanol, or 85 percent ethanol-gasoline blends. There are various weighting factors and multipliers built in that change over time, so that a BEV or FCV sold in 2017 counts more than one sold in 2020, and a BEV or FCV counts more than a PHEV or FFV. But several analyses of these standards, including the latest study published in Environmental Science and Technology, have found that the incentives can actually have an unintended side effect. The more EVs and other alternative fuel vehicles you sell, the dirtier and less efficient the rest of your cars can be.

Murray Energy idling West Virginia coal mine — A large West Virginia underground coal mine owned by Murray Energy is halting production for nearly two weeks, and the rest of the company’s mines are running on part-time schedules due to reduced demand from electric utilities, the company’s chairman and CEO said Wednesday. The Marion County mine will be idled until at least March 7, Robert Murray said. The mine employs about 500 workers after laying off 80 people in December. Demand for electric power is down as manufacturing moves overseas, and utilities are increasingly turning to natural gas and other alternative sources to generate electricity, Murray said. “So as a result, even though there are contracts with these utilities for them to take the coal, they abrogate their responsibilities, they don’t take the coal,” Murray said. He said suing over the contracts doesn’t work because “they’re still the customer you have to deal with.” He declined to name the utility companies he has contracts with. Ohio-based Murray Energy is one of the nation’s largest coal producers, and like many coal operators it is feeling the sting of a slumping market. Other major operators, including Arch Coal and Alpha Natural Resources, have filed bankruptcy in recent months. Murray said regulatory enforcement from President Barack Obama’s administration is causing less coal to be mined as well as making coal less palatable for power plants, which must adhere to tougher environmental rules. Electricity generation in the U.S. was down 5 percent in November from the previous November, and coal consumption was down 24 percent in the same period, according to the U.S. Energy Information Administration. Natural gas usage was up 21 percent.

Radioactive waste from Hanford Nuclear Reservation spread across Washington highway -- Fall windstorm spread radioactive contamination across Route 4 north of Richland | 21 Feb 2016 | The Environmental Protection Agency has called the uncontrolled spread of small [?] amounts of radioactive waste at Hanford Nuclear Reservation "alarming" after a Nov. 17 windstorm. Surveys six miles north of Richland after the winds subsided found specks of [radioactive] contamination had spread beyond Route 4, the public highway from Richland out to the Wye Barricade secure entrance to Hanford. The contamination had blown from the 618-10 Burial Ground, which is being cleaned on the west side of the highway. The search also turned up previously undiscovered specks of radioactive waste believed to have been spread by plants or animals outside known contaminated areas.

Fukushima impacts hidden from Japanese public -- The Japanese were kept in the dark from the start of the Fukushima disaster about high radiation levels and their dangers to health, writes Linda Pentz Gunter. In order to proclaim the Fukushima area 'safe', the Government increased exposure limits to twenty times the international norm. Soon, many Fukushima refugees will be forced to return home to endure damaging levels of radiation.  Once you enter a radiation controlled area, you aren’t supposed to drink water, let alone eat anything. The idea that somebody is living in a place like that is unimaginable.   As such, one might have expected a recent presentation he gave in the UK within the hallowed halls of the House of Commons, to have focused on Japan's capacity to replace the electricity once generated by its now mainly shuttered nuclear power plants, with renewable energy.  But Dr lida's passionate polemic was not about the power of the sun, but the power of propaganda. March 11, 2011 might have been the day the Great East Japan Earthquake struck. But it was also the beginning of the Great Japan Cover-Up.

Fukushima – Deep Trouble - The Fukushima Daiichi Nuclear Power Plant disaster may go down as one of history’s boundless tragedies and not just because of a nuclear meltdown, but rather the tragic loss of a nation’s soul.Imagine the following scenario: 207 million cardboard book boxes, end-to-end, circumnavigating Earth, like railroad tracks, going all the way around the planet. That’s a lot of book boxes. Now, fill the boxes with radioactive waste. Forthwith, that’s the amount of radioactive waste stored unsheltered in one-tonne black bags throughout Fukushima Prefecture, amounting to 9,000,000 cubic metresBut wait, there’s more to come, another 13,000,000 cubic metres of radioactive soil is yet to be collected. (Source: Voice of America News, Problems Keep Piling Up in Fukushima, Feb. 17, 2016).And, there’s still more, the cleanup operations only go 50-100 feet beyond roadways. Plus, a 100-mile mountain range along the coast and hillsides around Fukushima are contaminated but not cleansed at all. As a consequence, the decontaminated land will likely be re-contaminated by radioactive runoff from the hills and mountains.Indubitably, how and where to store millions of cubic metres of one-tonne black bags filled with radioactive waste is no small problem. It is a super-colossal problem. What if bags deteriorate? What if a tsunami hits? The “what-ifs” are endless, endless, and beyond.“The black bags of radioactive soil, now scattered at 115,000 locations in Fukushima, are eventually to be moved to yet-to-be built interim facilities, encompassing 16 square kilometers, in two towns close to the crippled nuclear power plant,” Ibid.By itself, 115,000 locations each containing many, many, mucho one-tonne bags of radioactive waste is a logistical nightmare, just the trucking alone is forever a humongous task, decades to come.According to Japanese government and industry sources, cleaning up everything and decommissioning the broken down reactors will take at least 40 years at a cost of $250 billion, assuming nothing goes wrong. But dismally, everything that can possibly go wrong for Tokyo Electric Power Company (“TEPCO”) over the past 5 years has gone wrong, not a good record.

The Radioactive Man Who Returned To Fukushima To Feed The Animals That Everyone Else Left Behind - (photo essay) The untold human suffering and property damage left in the wake of the Fukushima disaster in Japan has been well-documented, but there’s another population that suffered greatly that few have discussed – the animals left behind in the radioactive exclusion zone. One man, however, hasn’t forgotten – 55-year-old Naoto Matsumura, a former construction worker who lives in the zone to care for its four-legged survivors. He is known as the ‘guardian of Fukushima’s animals’ because of the work he does to feed the animals left behind by people in their rush to evacuate the government’s 12.5-mile exclusion zone. He is aware of the radiation he is subject to on a daily basis, but says that he “refuses to worry about it.” He does take steps, however, by only eating food imported into the zone. See more about his work and what he has seen in the exclusion zone below!

Ceramics challenge sand in fracking Utica shale wells - Gas companies exploring potentially high-producing wells in the deep Utica shale while prices remain at multiyear lows face a $2 million question: sand or ceramic? Hydraulic fracturing requires mixing what engineers call a proppant with the water they pump into the well to prop open the cracks created in the shale and release the natural gas or oil it holds. A mile or so under the surface of Pennsylvania, West Virginia and Ohio in the Marcellus shale, natural sand or grains coated in resin generally will do the trick. But the increased heat and pressure of the Utica — which in some places is twice as deep as the Marcellus but believed by some to hold more gas — are sometimes too much for sand to handle, prompting some companies to use a more expensive proppant made from ceramic. “The deeper you get, the higher stress you get. There's that much more rock on top to crush your sand,” said Kirby Walker, director of regional operations for Cecil-based producer Consol Energy, which is exploring Utica wells as deep as 13,000 feet. Consol was the first to use a new high-tech ceramic proppant from Houston-based Carbo Ceramics Inc. in the GH9 Utica well it recently completed in Greene County. It is testing mixes of other ceramics in Utica wells in Ohio. The ceramic particles are stronger and perfectly round, allowing more gas to move around them than irregularly shaped sand grains, advocates say. “In my opinion ... if you use a ceramic, it's always going to produce more,”

Study: Methane in Ohio county’s water from coal beds, not fracking -  A multi-year study has found that coal beds, not fracking, are most likely to blame for methane found in water wells in an Ohio county. But that doesn’t mean fracked wells won’t cause contamination in the future, said geologist Amy Townsend-Small of the University of Cincinnati. She presented the results from Carroll County in eastern Ohio at a February 4 meeting of Carroll Concerned Citizens. Her work in documenting current conditions meshes with comments and recommendations for baseline well testing noted by a panel at the American Association for the Advancement on Science (AAAS) on February 14. That panel asked the question, “Does hydraulic fracturing allow gas to reach drinking water?” “The answer to the question is usually ‘no,’ but there are exceptions,” said Robert Jackson, an ecologist and chemical engineer at Stanford University. The researchers also noted that data provides a useful baseline for measuring any contamination that might result in the future from improperly drilled wells.

U S Chamber of Commerce : Let's See the University of Cincinnati's Hydraulic Fracturing Research - Recently, I wrote about hydraulic fracturing opponents being put in the uncomfortable position of funding a University of Cincinnati research project that found fracturing didn't contaminate groundwater in Ohio's Utica Shale.  New information has surfaced on how its research was funded. Based on this, the university is obligated to do more to publicize the study's findings.  Unfortunately Townsend-Small said her team's research won't be publicized further because the study's funders stopped supporting them because of they didn't like the findings.  'I'm really sad to say this but some of our funders, the groups that had given us funding in the past, were a little disappointed in our results,' Townsend-Small told the audience. 'They feel that fracking is scary and so they were hoping our data could point to a reason to ban it.'  No press releases, no research papers, and no data released for the public or other researchers to dig deeper.  That's not just disappointing; it looks to be in violation of the grant the University of Cincinnati used to fund its research.  The premise of the research project was to see what effects hydraulic fracturing has on drinking water by testing wells before, during, and after fracturing took place. . As Inside Climate News explained in a 2014 story:  Each sample is tested for methane, the main component of natural gas. Townsend-Small's lab uses isotopic analysis to 'fingerprint' the methane to determine if it's 'biogenic methane' (produced by microbes, and unrelated to natural gas drilling) or 'fossil fuel methane' (methane found in oil, gas and coal deposits).   The University of Cincinnati purchased the mass spectrometer to do the testing in 2012 with a $400,000 grant from the National Science Foundation-i.e. taxpayers' dollars. Townsend-Small's team was one group of UoC researchers using the device.  The NSF grant's mandate states unequivocally that findings gleaned from using the instrument be made publically available:

Chesapeake Energy pulls up stakes in PA and Ohio - Chesapeake Energy, one of the state’s largest gas producers with more than 800 active wells in Bradford and Susquehanna counties, has stopped drilling new wells in both the Marcellus and Utica Shale plays. The Oklahoma based oil and gas producer, which also operates in Texas, Louisiana and Wyoming, announced Wednesday a net loss of $14.8 billion in 2015. It put just three new Marcellus wells on production last year, compared to 25 new wells in 2014. Chesapeake also plans to cut its capital expenditures by more than half in 2016 and sell off between $500 million and $1 billion in assets. The company divested $700 million in assets in 2015. In Pennsylvania Chesapeake has racked up about $1.4 million in fines with 428 violations. It’s also facing allegations of cheating Pennsylvania leaseholders out of royalties. While the company denies this, Attorney General Kathleen Kane is investigating. The company is the subject of several class action lawsuits and was also recently subpoenaed by the U.S. Department of Justice, seeking information about its royalty practices.

Chesapeake halts Marcellus and Utica drilling -- Yesterday Chesapeake Energy stock bounced back after its quarterly report was released. Investor confidence increased as assets were sold off and the company’s liquidity increased. Chesapeake should be able to pay its upcoming debts with the cash from the asset sales. Agreements to sell $700 million in gas fields and other assets were made. The company plans to sell between $500 million and $1 billion in properties as well as release at least half of the drilling rigs from their contracts. The Oklahoma City company will further decrease costs by halting further drilling of new wells in the Marcellus and Utica Shale plays, as reported by StateImpact. Chesapeake put in three new wells in the Marcellus in 2015 compared to 25 wells in 2014. According to TribLIVE the only remaining rig in the Marcellus has been released as well as the two in Eastern Ohio. Chesapeake pumps more oil than every US producer other than Exxon Mobil Corp. but has been restructuring, closing offices, selling parts of their portfolio and shrinking its workforce in order to keep its head above water. CEO Doug Lawler said “We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program.” Cheasapeake will have to continue write downs as some 2016 crude is hedged at $47.79 per barrel although currently WTI crude trades at $32.91.

Coast Guard Drops Controversial Proposal to Ship Toxic Fracking Waste -- In a win for clean water and public health, the U.S. Coast Guard quietly dropped its proposal today to allow barges on the nation’s rivers and inter coastal waterways to transport toxic fracking wastewater.  “Shipping thousands of barrels of toxic wastewater down the rivers we drink from was a recipe for disaster,” said Rachel Richardson, director of Environment America’s stop drilling program. “For the sake of our drinking water and our safety, we’re glad to see this bad idea put to rest.”  Fracking creates vast quantities of toxic wastewater often laced with cancer causing chemicals and even radioactive material. An Environment America Research & Policy Center report found that fracking operations produced 280 billion gallons of such wastewater in a single year—enough to cover DC in a 22-feet deep cesspool. Despite its often dangerous contents, fracking wastewater is not considered hazardous by the federal government, and its transport, treatment and disposal is governed by a patchwork of inadequate federal and state regulations. The October 2013 U.S. Coast Guard proposal came in response to a specific request by a tank barge, and was immediately met with widespread criticism. More than 98 percent of the 70,000 public comments submitted on the plan—including over 29,000 collected from Environment America—were opposed.

Coast Guard forgoes policy on shale gas wastewater shipments - The Coast Guard said it will consider requests to barge wastewater from shale gas drilling along rivers on a case-by-case basis instead of instituting a separate policy for permitting the shipments. The decision announced this week in the Federal Register to withdraw the policy that the Coast Guard proposed in 2013 comes nearly five years after getting an initial request to ship the wastewater on a tank barge. When the agency proposed the policy and started accepting public comments, barge companies working along Western Pennsylvania rivers in the Marcellus and Utica shales said they saw potential business in the shipments. The Coast Guard said that was not the case, despite its own expectations. “We have not received significant interest from industry, however, which is one of the reasons we are withdrawing the proposed policy,” the agency wrote in the Federal Register. Low natural gas prices have prompted a slowdown in drilling and other activity in the Marcellus and Utica, reducing the amount of wastewater generated by the industry. Companies also recycle much of the wastewater that is generated during fracking or produced by an operating well for use during the next job. Barge operators seeking to ship the wastewater must request approval under regulations covering hazardous materials “by providing recent detailed chemical composition, environmental analyses, and other information for each individual tank barge load,” the Coast Guard wrote. It left open the possibility of revisiting a more standardized process and policy for permits if it finds the current rules are inadequate to handle requests or protect the environment.

Coast Guard to review applications to ship fracking waste on Ohio River - The Coast Guard announced this week that it is pulling its proposal to allow companies to ship fracking wastewater by barge on the Ohio River. The plan was particularly contentious in southeastern Ohio and prompted more than 70,000 public comments. But the withdrawal does not mean that waste generated in the process of hydraulic fracturing ofoil and gas wells won't be allowed on the river. Instead, the Coast Guard said it will review each application, and do so without much " if any " public input. The Coast Guard probably will not make completed applications available to the public, nor will it notify the public if it approves applications, said Cynthia Znati, the Coast Guard's lead engineer. As part of those applications, Znati said, companies that want to ship fracking waste by barge would have to detail for the Coast Guard the chemicals that could be in that waste. Well drillers mix chemicals and sand with millions of gallons of water and send that deep underground at high-pressure to fracture rock to release oil and gas. When the wastewater returns to the surface,drillers must dispose of it. Many environmental groups, including Environment America, applauded the Coast Guard's decision.Others, including some in Ohio, said the Coast Guard's decision will allow fracking waste on the river. Teresa Mills, program director for the advocacy group Buckeye Forest Council, said the CoastGuard will make it hard for people who live near the river and those who get their drinking water from it to know whether fracking waste is being transported on it. "When they were working on the policy, there was going to be more transparency," she said. "But now that they've given up the policy, we have nothing. So there's no way for us to know what would happen. And that's very disturbing."

Frontline Groups React to Coast Guard Decision to Deregulate Fracking Waste - On February 22, front line community groups throughout the Ohio River valley received notification that the U.S. Coast Guard has determined that no new rules are needed to barge shipments of toxic, radioactive hydraulic fracturing waste. The Coast Guard instead decided to proceed using 40-year-old regulations that fail to address unconventional oil field waste from hydraulic fracturing.   Fracking wastes contain such toxic chemicals as benzene and are laced with radioactive materials like water soluble radium-226, which is linked to leukemia and bone cancers. The Coast Guard will instead allow shipment of waste fluids from hydraulic fracturing to be determined on a case-by-case basis. The proposal being considered by the Coast Guard would have required new rules and guidelines to transport highly flammable, explosive hazardous waste on the Ohio and Mississippi Rivers to currently undisclosed locations.  Members of frontline organizations living along the Ohio River in Pennsylvania, Ohio, West Virginia, Kentucky, Indiana and Illinois have been voicing opposition concerns for several years about the Coast Guard allowing barges carrying 5 million gallons of liquid fracking wastes each to sail without procedures in place to address the hazards.  “We cannot allow the shipment of toxic, radioactive fracking waste fluid on our nation’s drinking waste sources.  The risk to public health and safety is too high,” said Teresa Mills of the Buckeye Forest Council, based in Athens, Ohio. “It is not safe even on a case-by-case basis as is now being propose by the Coast Guard. This is not the waste stream from your 60 year old mom and pop wells. The industry will not tell us what is in this waste, and that is just plain wrong.”

Nuclear waste dumped illegally in Kentucky - After learning that low-level nuclear waste from drilling operations had been dumped illegally in Kentucky last year, state officials this week are warning all landfills to be on the lookout and to not accept any more. Kentucky Division of Waste Management Director Tony Hatton said officials have confirmed that low-level nuclear waste from drilling operations in Ohio, Tennessee and West Virginia was sent to a landfill in Estill County between July and November. Officials are also investigating possible shipments of similar waste to a landfill in Greenup County. He said the waste comes from rock and brine that's brought to the surface during oil and gas drilling. Naturally occurring radionuclides concentrate during the process. A West Virginia company that recycles the drilling further concentrates the radionuclides - and that's the waste that Hatton said made to the Blue Ridge Landfill last year in the small town of Irvine, Kentucky, in Estill County, he said.  It came in 47 sealed boxes, he said. They believe each box contained 25 cubic yards of materials. State officials do not believe the drilling waste sent to the Green Valley Landfill in Greenup County near West Virginia had gone through that recycling process, so it would present less risk to landfill workers or the public, Hatton said. Neither is allowed to be imported into Kentucky from those states, he said.

Oil spill probed in northern West Virginia creek (AP) — Environmental regulators are looking into an oil spill in a northern West Virginia creek. Department of Environmental Protection spokeswoman Kelly Gillenwater tells media outlets that heat transfer oil spilled from a MarkWest Energy’s Mobley natural gas processing plant in Wetzel County on Saturday morning. The cause of the spill is under investigation. MarkWest Energy said in a statement that an undetermined amount of oil got into the North Fork of Fishing Creek and that a water plant seven miles downstream in Pine Grove closed its intake and switched to an alternative source for water. The company it testing the water to determine when it will be safe to drink again. Gillenwater says the facility holds 10,000 gallons. She says booms were deployed in the creek to contain the spill. She said there’s no evidence of aquatic life being harmed in the stream. In Pine Grove, a community of 550 residents about 110 miles southwest of Pittsburgh, officials are asking residents to use water only to flush toilets. Water bottles filled a parking lot at the Robert C. Byrd Center next to the creek, and Pine Grove Mayor Roy Justice said every home was supplied with at least one case of bottled water by Saturday night.

West Virginia Senate OKs bill to limit nuisance lawsuits (AP) — West Virginia senators have cleared a bill to limit nuisance lawsuits by residents, including cases against oil and natural drillers for increased traffic, kicked-up dust, noise and bright lights. Senators favored the measure in a 20-12 vote Tuesday. It heads to the House. The proposal would require rejecting nuisance lawsuits that don’t allege a violation of a law, regulation, ordinance, permit, license or court decision. Residents would have to give 60 days’ notice before filing suit. Opponents have said the bill unfairly strips protections from citizens living near oil and natural gas drilling operations, since environmental permits don’t address issues like smell, noise and dust. They say the bill could have wider implications, ranging from living by oil and gas sites to strip clubs.

State: Coudersport OK to use wells tainted by driller's soap (AP) — The Pennsylvania Department of Environmental Protection says Coudersport is OK to resume using two drinking water wells tainted with soap by natural gas drillers last fall. The DEP is still investigating the soap that tainted the Coudersport wells and several others after leaking from JKLM Energy’s natural gas drilling pad in Sweden Township in late September. Some 55 gallons of soap was used to free a drill bit stuck nearly 600 feet below ground. But some of the soap migrated into the wells. DEP officials said Monday that tests on the water wells used by Coudersport show all contaminants are well below maximum allowable levels, or were not detected at all. Officials with JKLM Energy planned to release a statement later Monday. The DEP hasn’t determined whether the company will be fined.

Company, state working to bring Marcellus drilling sites into compliance  (AP) — An oil and gas operator says it’s trying to bring dozens of its Pennsylvania drilling sites into compliance with environmental laws. A Range Resources spokesman tells that the company is working the Department of Environmental Protection. The agency on Friday said dozens of the company’s Marcellus Shale natural gas drilling pads in Washington and Allegheny counties weren’t cleaned within 9 months after drilling. Marcellus Shale is a sedimentary rock that contains natural gas deposits. An agency spokesman said Monday that most violations began in 2014 and 2015. Some dated back to 2012. An investigation came after the company responded to a letter last summer requesting a status update on the wells’ restorations. State officials tell The Observer-Reporter that the violations aren’t expected to lead to fines.

Jury seated in water contamination trial, Two Pennsylvania families claim that fracking fouled water -Jury selection has started on Monday in a federal court case. The two North-eastern Pennsylvanian families accuse that Cabot Oil & Gas Corporation contaminated their well water with methane when it started fracking for natural gas. According to Reuters, The case initially involved 40 people, but then Scott Ely and Monica Marta-Ely and Ray and Victoria Hubert, the two couples, are the only plaintiffs who remained standing for the allegation that Cabot contaminated the well water. The rest of the claimants already settled with Cabot, which is a major producer in Susquehanna County. Marta Ely stated, while gesturing to her 13-year old son, Jared, at a news conference during a break in the jury selection, "We haven't had clean water since he was in kindergarten." It was also claimed that the process of hyrodraulic fracking, which extracts gas from underground shale formations, has brought a widespread opposition in many parts of the U.S. Yahoo! News also reported that hyrodraulic fractioning is to be blamed for the environmental destruction, noise pollution, as well as earthquakes in the country. But the company's supporters opposed the idea as they claim that the process is proven to be safe. The families who are taking the court in trial live close to Dimock, Pennsylvania, which was made well-known by an Oscar-nominated documentary, "Gasland", to raise anti-fracking movement. The 2010 documentary revealed that tap water in the area that could be set on fire since it contained methane gas. The two families admitted that water in their homes was even flammable in the past. Both families are asking for compensatory and punitive damages from Cabot for the alleged fouling of the water supply. Scott Ely, who lived in Dimock since 1800s, stated that he hauls tankers of water for his family. The family even showed off the bottle of water from the well with the color of coffee and cream, as claimed by Townhall.

Fracking Cases in Pennsylvania Expose the Human Cost of Drilling - The environmental costs of fracking, from earthquakes to an alarming rise in methane emissions, has been well reported. The human cost of fracking, however, is not heard often enough. In Pennsylvania, two recent cases in Susquehanna County have put the controversial drilling process at the forefront. As jury selection kicks off in the notorious fracking water contamination case in Dimock against Cabot Oil & Gas Corp, a family of maple syrup farmers in the same northwestern county will potentially lose their trees, and thus their livelihood, to make way for the company’s latest fracking pipeline project, the 124-mile Constitution Pipeline. The federal lawsuit—Scott Ely, et al. v Cabot Oil & Gas Corporation et al.—involves two couples, Scott Ely and Monica Marta-Ely, and Ray and Victoria Hubert, who claim that Cabot Oil & Gas Corp contaminated their water supply during fracking operations near their homes. Residents in the small village reported health problems with their coffee-colored water, such as rashes, nausea, headaches and dizziness. “We haven’t had clean water since he was in kindergarten,” Marta-Ely, pointing to her 13-year-old son Jared at a news conference during a break in jury selection, Reuters reported. The Dimock case dates back to 2009 when 44 plaintiffs brought a lawsuit against the company. In the five years since initiating litigation, the Elys and Huberts are the only plaintiffs remaining on the case as the vast majority have settled with the company.

Proposed Marcellus Gas Pipeline Sparks Protest At Prized Maple Farm - Plans to build a major Marcellus shale gas pipeline were briefly paused this month by a protest launched by a collection of community and environmental activists who gathered on the Holleran-Zeffer property in New Milford, PA. Pipeline company Williams Partners, LLC plans to start clearing trees on the property as early as this week to make way for a proposed 124-mile pipeline stretching across the Pennsylvania-New York border.  Tree felling for Williams' Constitution pipeline project began in Pennsylvania on February 5, before New York state had finished its regulatory approval process. Environmentalists fear that the company hopes to present New York state with a fait accompli on the Pennsylvania side, which would put pressure on New York regulators to approve the expansion on its side of the border. On February 10, tree-cutting crews arrived at mile 5 of the planned route through Pennsylvania, the Holleran's land, which a federal judge ordered condemned by eminent domain last year. “Our position as landowners was explained and it was made clear that the assembled group intended to prevent tree clearing on the property,” Megan Holleran, a field technician for North Harford Maple and part of the family that owns the property, said in a statement.  The Holleran family operates a roughly 250-tree commericial maple sugarbush directly in the path of the proposed pipeline, and Williams plans to cut down 80 percent of those maple trees, along with other hardwood trees on the family's land. The family has harvested maple sap on the land since the 1950's. “They don't have permission to do the whole pipeline yet. It's not even a done deal,” Maryann Zeffer told Time Warner Cable News. “We can't see cutting trees that take 40 years to grow back or longer when it's not a done deal yet.”

Pennsylvania professor ranks oil, gas producers by environmental impact -- Larger oil and gas producers in Pennsylvania tend to have a larger environmental impact than smaller, local companies, according to a recent study conducted by a professor out of Susquehanna University. Rather than simply ranking producers based on the number of violations they’ve received, John Pendley, a professor of accounting, ranked the environmental impact of the top 20 largest oil and natural gas producers in Pennsylvania, based on the number of violations each company has received in comparison to its production levels in the state between 2006 and June 2013, according to data from the Pennsylvania Department of Environmental Protection.“The smaller, independent companies tend to do a better job environmentally than the larger companies,” Pendley said. “That could be because the smaller companies are more specialized in the work they are doing in Pennsylvania and the larger companies direct their environmental efforts to their offshore operations and may find it more expeditious to simply pay a fine when levied than try to avoid it.” Surrounded by industry giants such as ExxonMobil, Royal Dutch Shell and Chevron Corp., Pennsylvania General Energy Co., which had the fourth-lowest environmental performance score, is the only company to rank in the bottom 12 companies that is based in Pennsylvania and isn’t publicly traded. CONSOL Energy and EQT Corp., which both are publicly traded — although CONSOL didn’t launch its IPO until 2015 — but are also based in southwestern Pennsylvania, ranked first and second, respectively.

Natural Gas Prices Are Unsustainably Low -- Arthur Berman -- Every week, the EIA proclaims a new record for natural gas production. But their own forecasts show that the U.S. will be short on supply by October of this year. A price increase is inevitable beginning later in 2016. Popular Myth vs Reality The popular myth is that gas production will continue to increase and that prices will remain low for years. In the myth, price has no effect on production. The reality is that price matters and production is down 1.2 billion cubic feet per day (bcfd) since September 2015 (Figure 1). The production increases reported by EIA are year-over-year comparisons that don’t reflect declines during the last 4 months. Prices have fallen to less than half what they were in early 2014. The average price for the first quarter of 2016 is only $2.25 per MMBTU (Figure 2). Hedges made when prices were in the $5-range carried many companies through falling prices as they continued to produce like there was no tomorrow. Tomorrow has arrived and the hedges are gone. Over-production in the Marcellus Shale means that producers have to compete for limited pipeline capacity by deeply discounting their sales price. The best core area locations are commercial at $4 per mcf but wellhead prices averaged only $1.75 per mcf in 2015. There is no simple solution to falling supply. That’s because almost half of U.S. supply is conventional gas and it is in terminal decline. Now, shale gas is also in decline (Figure 3).

Natural Gas Prices Slip to Two-Month Low - WSJ: —Natural-gas prices fell to a two-month low Wednesday ahead of weekly inventory data, which is expected to show that the surplus of natural gas in the U.S. grew last week. Futures for March delivery settled down 0.4 cent, or 0.2%, to $1.778 a million British thermal units on the New York Mercantile Exchange. That is the lowest level since Dec. 18. Prices are less than 3 cents above the 16-year settlement low hit in December. The natural-gas market is oversupplied due to continued robust production and mediocre consumption, as the El Niño weather phenomenon has kept temperatures warmer than normal in the eastern U.S. this winter and suppressed demand for natural gas as an indoor-heating fuel. As of Feb. 12, natural-gas stockpiles stood 26% above the five-year average for this time of year, according to the Energy Information Administration. The EIA is due to release its data for the week ended Feb. 19 on Thursday. Analysts expect the agency to report that stockpiles fell by 138 billion cubic feet last week, less than the five-year average drain of 144 bcf for that week. If the storage estimate is correct, inventories as of Feb. 19 totaled 2.568 trillion cubic feet, 30% above levels from a year ago and 28% above the five-year average for the same week. Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $1.805/MMBTU, compared with Tuesday’s range of $1.80-$1.845. Cash prices at the Transco Z6 hub in New York last traded between $1.77 and $1.84/MMBTU, compared with Tuesday’s range of $1.65-$1.75.

NatGas Tumbles To 16-Year Lows -- More "unequivocally good" news. On the heels of a smaller than expected drawdown in natural gas inventories (-117 vs -135bcf), Nattie futures have tumbled to their lowest intraday level since 1999... And while the oil market is "glutted," some are arguing the NatGas market is even more so...'s Nick Cunningham warns, while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning... Building LNG export terminals is a long-term proposition. It can take years to develop a greenfield project, bringing a lump of new capacity online long after the project was initially planned, exposing developers to the possibility that market conditions could change in the interim. It is not unlike a conventional oil project, such as an offshore well, which also can take years (as opposed to a much shorter lead time for shale drilling). But there is a major difference between oil and LNG: the market for LNG is much smaller and less liquid (no pun intended). In other words, a handful of new LNG export terminals can significantly alter the supply/demand balance. That is exactly what is currently unfolding. Several years ago, spot prices in Asia for LNG spiked, particularly following Fukushima nuclear meltdown. Japan’s demand for LNG skyrocketed. At the same time, the shale gas revolution was unfolding in the U.S., and rock bottom prices opened up a window of opportunity to ship American gas to Asia. But it wasn’t just the U.S. – LNG export terminals proliferated around the world, particularly in Australia. There were so many projects planned at the same time, and the first batch started to come online this year, with many more nearing completion in 2016 and 2017. The rush of new supply is hitting the market all at the same time.  Economies in East Asia are slowing, leaving a shortfall in demand. Japan, the largest LNG importer, is seeing its economy stagnate. China’s growth has slowed significantly. As a result, JKM spot prices – the LNG marker for East Asia – are trading at $7.28 per million Btu (MMBtu) for December delivery, down nearly two-thirds from early 2014 prices.

Natural gas just crashed to a 17-year low --  Natural gas prices fell to a 17-year low on Thursday. The drop to that level came after the Energy Information Administration's weekly report on inventories, which showed that inventories fell by 117 billion cubic feet (Bcf) last week from the prior period. But compared to this time last year, gas stockpiles are 615 Bcf higher, and 577 Bcf more than the five-year average. So clearly, there's been a swell in inventories, similar to what we've seen with crude oil, that has helped to push prices to this new low. There's also been pressure from higher-than-normal temperatures, which has reduced demand for heating gas. Natural gas futures for April delivery fell 4% to as low as $1.748. Here's the commodity's decline, going back eight years:

Environmental group threatens lawsuit over Mackinac pipeline  — An environmental group is threatening to sue the federal government over a Great Lakes oil pipeline. The National Wildlife Federation notified the Pipeline and Hazardous Materials Safety Administration on Monday. The group is targeting Enbridge Energy’s Line 5, which runs from Superior, Wisconsin, to Sarnia, Ontario. A nearly 5-mile-long section reaches beneath the Straits of Mackinac, the link between Lakes Huron and Michigan. Enbridge says the underwater section has never leaked and remains safe. Environmentalists want it removed. The wildlife federation says the federal agency had no authority to approve oil transport through pipelines extending through the straits or other navigable waterways in Michigan. It says the agency failed to assess the potential effects on fish and animals. The agency did not respond immediately to a request for comment.

The EPA is Just Another “Captured” Regulatory Agency -- The U.S. Environmental Protection Agency’s (EPA) independent Scientific Advisory Board Members of the Hydraulic Fracturing Research Advisory Panel released today a second review of the U.S. EPA’s draft assessment saying that that they still have “concerns” regarding the clarity and adequacy of support for several findings presented in the EPA’s draft Assessment Report of the impacts of fracking on drinking water supplies in the U.S.  This second draft report is still very critical of the EPA’s top line claim of no “widespread, systemic impacts” on drinking water from fracking and urges the agency to revise the major statements of findings in the executive summary and elsewhere in the draft Assessment report to be more precise, and to clearly link these statements to evidence. In its own words, the EPA SAB “is concerned that these major findings as presented within the executive summary are ambiguous and appear inconsistent with the observations, data, and levels of uncertainty presented and discussed in the body of the draft Assessment Report.” We are confident that this tension between President Obama’s EPA and the EPA’s own independent advisory board of scientists is a direct consequence of political considerations trumping scientific evidence on fracking, which demonstrates many instances and avenues of water contamination and many areas of problems and harms.

Natural Gas Flowing to Sabine Pass LNG Export Plant.  The first U.S. liquefied natural gas (LNG) export cargo from the Lower 48 is now likely within just a week or two of shipping from the Cheniere Sabine Pass, LA terminal. In the meantime, physical flow data is already giving us a first glance at how the terminal will be supplied from U.S. natural gas production. In today’s blog, we begin a look at flows to the terminal, how the gas is getting there and where it’s coming from.  In recent months, there has been a flurry of completion and commissioning activity around Sabine Pass. Filings with the Federal Energy Regulatory Commission (FERC) indicate the terminal has been furiously readying its first two liquefaction trains over the past few months in preparation for loading its first export cargo. As we detailed previously in our blog series Begin the Sabine, Cheniere Energy’s Sabine Pass LNG (SPL) export terminal in Cameron Parish, LA along the Texas-Louisiana border, is one of four such brownfield projects targeting gas exports from the US, and the first to begin operations.  The terminal will ultimately include six liquefaction “trains,” each with the capacity to supercool up to 650 MMcf/d of natural gas into LNG (at -260 oF) for a total capacity to produce 3.8 Bcf/d for loading and shipment overseas. The facility also has 17 Bcf of LNG storage capacity on site. Construction of the first train was completed and commissioning activity began last fall. And just last Friday (February 19, 2016), SPL filed a request for authorization to introduce fuel gas to train 2 “at the earliest date possible, but no later than March 4, 2016” in order to begin commissioning activities for the second train. Additionally, pipeline flow data from our friends at Genscape indicates that more than 3 Bcf of gas has physically flowed to the terminal in just the past two weeks, suggesting the liquefaction process is underway. Reuters is reporting that two LNG tankers in the Gulf of Mexico are at the ready to take the cargo, one having docked at the terminal just this past Sunday (February 21).

ALEC-Tainted Legislation Designed to Block Local Control Over Fracking Bans in Florida: An industry-friendly bill in the Florida statehouse designed to nullify existing fracking bans and sharply curtail local control over oil and gas drilling activity is facing pushback. Floridians are pressuring their state senators to vote against Senate Bill 318, which takes away a community's right to regulate all well-stimulation techniques, including fracking. The pressure is having an impact, as the bill has been temporarily held back. Public disapproval of the bill intensified after the Florida House of Representatives approved a companion bill, HB 191, on January 27. Both bills seek to preempt local ordinances pertaining to well-stimulation techniques and existing bans on fracking at the local level.  Senator Tom Lee, chair of the Appropriations Committee, ended the fasttrack trajectory of SB 318 by delaying a vote until the Florida Department of Environmental Protection (DEP) provides him with "honest answers" about the bill and fracking.  Florida's Republican Governor Rick Scott, who prohibited state employees from using the term "climate change," is responsible for appointing the head of the DEP. Some environmentalists, including Betty Osceola,, a member of the Miccosukee tribe and Panther clan, expressed grave doubt that the DEP will be forthcoming with the answers Senator Lee is seeking. "The DEP can't be trusted because they answer to Governor Scott," Osceola told DeSmog. "Lobbyists for the oil industry and mineral owners are spreading misinformation faster that we can counter it," Jennifer Hecker, director of natural resource policy for the Conservancy of Southwest Florida, told DeSmog. The Miami Herald reported that in the last six months, special interests spent $28 million on Florida legislative campaigns.

Fracking disaster looms, thanks to Tallahassee lawmakers: The oil fracking bill sailed through the Florida House but is meeting some resistance in the Senate — as well it should. Let's hope senators like Charlie Dean, R-Inverness, Anitere Flores, R-Miami, and appropriations chief Tom Lee will continue to oppose putting Floridians' health and safety at risk. Fracking is the process of drilling and then pumping water and chemicals into wells at great depths and pressures to release oil and gas from rock formations. It is water intensive, with millions of gallons of water needed for a single well. Up to 600 chemicals are used in fracking fluid, including known carcinogens and toxins such as lead, uranium, mercury, methanol, hydrochloric acid and formaldehyde. According to the Florida Senate's analysis, the fracking bill (Senate Bill 318):

  • Grants to the state sole authority to regulate the exploration, development, production, processing, storage and transportation of oil and gas.
  • Requires the Department of Environmental Protection to consider the possibility of groundwater contamination when reviewing permits.
  • Requires companies to disclose to DEP chemicals used in the process for disclosure on the public database FracFocus. Chemicals considered trade secrets would not appear on database unless ordered by a court.
  • Appropriates $1 million for DEP to conduct a comprehensive study on fracking.

Florida Senate committee rejects fracking bill (AP) — A bill that would study and create regulations for fracking is all but dead after a Florida Senate committee rejected it. The Senate Appropriations Committee narrowly voted against the bill. It was then kept alive on a procedural move. Opponents’ concerns about the environment and measures that wouldn’t let local governments ban the method of oil and gas drilling won out over supporters’ warnings that fracking is already legal and voting down the bill would let it happen without protections. The House already passed a similar bill that requires the state Department of Environmental Protection to study the effects of fracking and develop regulations.

Florida: Bill to Regulate Fracking Fails to Advance - A bill to regulate fracking, an oil and gas extraction technique that is relatively new to Florida and vigorously opposed across the state, was voted down on Thursday by a pivotal State Senate committee. The Senate Appropriations Committee rejected the measure in a 10-to-9 bipartisan vote. Florida’s extremely porous geology raised fears among environmentalists and Florida residents that well stimulation could more easily lead to contamination of underground aquifers, the source of drinking water for almost all Floridians. The bill, which had passed the House, proposed regulating only two forms of well stimulation in the state but left out a third method, matrix acidizing, that is conducted with low pressure. It also would not require oil and gas companies to reveal all of the chemicals they would put into the ground because some are protected by federal law. The legislation called for a study on the potential effect of well stimulation, but matrix acidizing would not be part of the study. Local governments objected to the legislation because it would prohibit them from banning well stimulation. Nearly 80 counties and cities have passed resolutions or ordinances that banned or opposed fracking. The bill can be called up again in the Senate committee. Well stimulation is not regulated in Florida and does not require a separate permit.

As U.S. shale sinks, pipeline fight sends woes downstream - Within weeks, two low-profile legal disputes may determine whether an unprecedented wave of bankruptcies expected to hit U.S. oil and gas producers this year will imperil the $500 billion pipeline sector as well. In the two court fights, U.S. energy producers are trying to use Chapter 11 bankruptcy protection to shed long-term contracts with the pipeline operators that gather and process shale gas before it is delivered to consumer markets. The attempts to shed the contracts by Sabine Oil & Gas and Quicksilver Resources are viewed by executives and lawyers as a litmus test for deals worth billions of dollars annually for the so-called midstream sector. Pipeline operators have argued the contracts are secure, but restructuring experts say that if the two producers manage to tear up or renegotiate their deals, others will follow. That could add a new element of risk for already hard-hit investors in midstream companies, which have plowed up to $30 billion a year into infrastructure to serve the U.S. fracking boom. "It's a hellacious problem," said Hugh Ray, a bankruptcy lawyer with McKool Smith in Houston. "It will end with even more bankruptcies." A judge on New York's influential bankruptcy court said on Feb. 2 she was inclined to allow Houston-based Sabine to end its pipeline contract, which guaranteed it would ship a minimum volume of gas through a system built by a Cheniere Energy subsidiary until 2024. Sabine's lawyers argued they could save $35 million by ending the Cheniere contract, and then save millions more by building an entirely new system.

Stanford Scientist Finds People Living Near Shallow Fracking Wells at Risk of Drinking Water Contaminated With Methane  -- A Stanford University scientist has found that people who live near shallowly drilled oil and natural gas wells risk drinking water contaminated with methane. A potent greenhouse gas, methane is highly flammable. “The main risk is from chemical spills and poorly constructed wells that leak,” said Rob Jackson, a professor of Earth System Science at Stanford, who presented his findings at the American Association for the Advancement of Science meeting in Washington, DC, last week. “Our research shows that most problems typically occur within half a mile. “In Parker County, Texas, we found homes with very high levels of methane when their water bubbled due to gas. The biggest risk from methane in water is explosions, which could happen in a basement or sheds where gas builds up. Also, a well that leaks methane could be leaking other things into the groundwater.” Such contamination was typically traced to natural gas wells with insufficient cement barriers to separate them from surrounding rock and water or to improperly installed steel casings that allow the gas to travel upward. Hydraulic fracturing wells that were installed at depths of 3,000 feet or less posed a risk for groundwater contamination. Jackson found there were at least 2,600 such shallow fracking wells in the U.S., many of which were drilled directly into freshwater aquifers. In California, Jackson discovered hundreds of wells drilled into aquifers fewer than 2,000 feet from the surface. Regions of the U.S. with the highest risk for groundwater contamination from fracking include California as well as parts of Pennsylvania and Texas where bedrock is naturally fractured. Millions of abandoned oil and gas wells in California, New York, Pennsylvania, Texas and other gas-producing states also pose a threat.

Massive Methane Leaks From Texas Fracking Sites Even More Significant Than Infamous Porter Ranch Gas Leak - After the mammoth methane gas leak that spewed uncontrollably from a damaged well in California’s Aliso Canyon was finally capped last week, residents of nearby Porter Ranch began trepidatiously returning to their homes. Lingering doubts over whether Southern California Gas Company will continue using the underground storage field have left many wondering if concerns for their safety are being considered at all—particularly considering the company has, so far, only been charged with misdemeanor violations. All told, the Aliso Canyon leak thrust an estimated 96,000 metric tons of potent methane—not to mention benzene, nitrogen oxides and other noxious substances—into the atmosphere over a period of months.   California, however, isn’t the only state dealing with mammoth methane leakage.  According to the Texas Observer’s Naveena Sadasivam: “Every hour, natural gas facilities in North Texas’ Barnett Shale region emit thousands of tons of methane—a greenhouse gas at least 20 times more potent than carbon dioxide—and a slate of noxious pollutants such as nitrogen oxides and benzene. “The Aliso Canyon leak was big. The Barnett leaks, combined, are even bigger.” At its peak, the SoCal Gas leak emitted 58,000 kilograms of methane per hour. By comparison, researchers with universities in Colorado and Michigan, partnering with the Environmental Defense Fund, estimate around 60,000 kilograms are spewed every hour by more than 25,000 natural gas wells in operation on the Barnett Shale—with the Dallas/Fort Worth Metroplex at the center. This amounts to around 544,000 tons of methane every year.

The Biggest Oil Leak You’ve Never Heard Of, Still Leaking After 12 Years - Far away from TV cameras and under the radar of the nightly news, oil has been continuously leaking from a damaged production platform located just 12 miles off the coast of Louisiana in the Gulf of Mexico—causing an oily sheens on the surface that stretch for miles and are visible from space.  These underwater oil wells have been leaking since 2004 and as you read this. Unless it is plugged, the government estimates the leak might continue for 100 years until the oil in the underground reservoir is finally depleted. The platform’s owner, Taylor Energy, has no plans to stop the leak and is lobbying behind the scenes for permission to walk away from its mess. In September 2004, Hurricane Ivan slammed into the Gulf and unleashed an underwater mudslide which toppled the Mississippi Canyon 20 (MC20) oil platform. The offshore platform was located in 450 feet of water near the outlet of the Mississippi River. After the mudslide, the platform ended up on the seafloor, 900 feet from its original location and plumes of oil began seeping from the broken well casings of more than 20 wells that had been connected to the platform.  Taylor Energy was more effective at keeping the oil spill under wraps and information about it was not made public until 2010, when BP’s Deepwater Horizon disaster brought added scrutiny to the region. While reviewing satellite imagery of BP’s oil slick, the watchdog group SkyTruth noticed a smaller slick coming from the MC20 location. Measuring the size of the oil slick in satellite images, SkyTruth was able to estimate a leakage rate ranging from 37 to 900 gallons per day. Over the years, that rate adds up to between 300,000 and 1.4 million gallons of oil spilled into the Gulf.

Board member refuses recusal on pipeline over climate change (AP) — A member of the Iowa Utilities Board who has minimized climate change in meetings about the proposed Bakken oil pipeline project has refused to recuse himself from voting on the project. Nick Wagner, a Republican who lost his Iowa House seat to a Democrat in 2012, is one of three board members expected to vote next month on the pipeline. He filed an order Feb. 18 denying the motion to recuse filed by opponents. Wagner has said acknowledging a link between fossil fuels and climate change might hurt his political career. Environmentalists say climate change should be a major consideration and Wagner demonstrated he cannot be impartial and shouldn’t vote. Wagner believes climate change shouldn’t carry great weight and says he’d never put personal interests ahead of public interest.

Environmentalists sue for more rules to protect sage grouse  — Environmental groups sued Thursday to force the Obama administration to impose more restrictions on oil and gas drilling, grazing and other activities blamed for the decline of greater sage grouse across the American West. A sweeping sage grouse conservation effort that the government announced last September is riddled with loopholes and will not be enough to protect the bird from extinction, according to the lawsuit filed in U.S. District Court in Idaho. It follows several legal challenges against the same rules from the opposite end of the political spectrum. Mining companies, ranchers and officials in Utah, Idaho and Nevada argue that the administration’s actions will impede economic development. The ground-dwelling sage grouse, known for their elaborate mating ritual, range across a 257,000-square-mile region spanning 11 states. The new rules and land use policies for federal lands in the region were meant to keep the popular game bird off the endangered species list. They are backed by more than $750 million in commitments from the government and outside groups to conserve land and restore the bird’s range. But the lawsuit from the Western Watersheds Project, Center for Biological Diversity and two other groups said the rules have too many exceptions favorable to industry at the expense of the bird. “Each state had its own specific loophole,” said Erik Molvar with WildEarth Guardians, another plaintiff in the case. “For Wyoming, there are huge loopholes for oil and gas. Nevada has loopholes for geothermal power. In southeastern Oregon, there were loopholes for wind farms. And everywhere there are loopholes for transmission projects.”

Bakken asset sales require background check – regulators -- Last week North Dakota’s top energy regulator admitted he was concerned about investment groups such as hedge funds buying oil assets in the state. According to Reuters media, this concern is prompting Department of Mineral Resources Director Lynn Helms to run background checks on potential buyers. During a monthly conference call Helms said he is worried that some buyers will lack experience managing oil and gas facility operations. “It is a big concern,” he said, due to such facilities’ inherent safety risks. North Dakota law dictates that oil and gas producers must bond their wells, which the state receives as an insurance policy in the event an operator abandons the well and it needs to be plugged. State regulators have control over these bonds, and as a result, Helms or members of the Industrial Commission have the power to block the sale of assets by refusing approval of the bond transfer.

Crude oil train numbers declined last year (AP) — Freight railroads delivered 17 percent fewer carloads of crude oil last year after oil prices collapsed. The Association of American Railroads said Wednesday 410,249 carloads of crude oil were carried across the United States last year, down from 493,126 carloads in 2014. But the number of crude oil carloads remains well above the 9,500 carloads railroads hauled in 2008 before the boom took off in the Bakken region of North Dakota and Montana. Oil prices have been hovering around $30 per barrel instead of the prices above $100 that were common a couple years ago. Tank cars of crude oil have been involved in several fiery derailments in recent years. Rail accidents remain relatively rare compared to the total number of shipments, and the industry is working to reduce them.

Report: Oil train safety violations should be prosecuted (AP) — A government watchdog says federal regulators are failing to refer serious safety violations involving freight rail shipments of crude oil for criminal prosecution. A report by the Department of Transportation’s inspector general also says the Federal Railroad Administration doesn’t have a complete understanding of the risks involving more than 400,000 tank cars of oil shipped across the country annually. The watchdog says the FRA only looks narrowly at operations in specific regions, not the nation as a whole. There has been a series of fiery oil train explosions in the U.S. and Canada in recent years, including one just across the border in Lac-Megantic, Quebec, that killed 47 people. The agency’s complex records system also makes it difficult for inspectors to access safety information on rail operations outside their region.

Continental and Whiting halt new Bakken wells - The two largest oil producers in the Bakken formation of North Dakota, one of the heartlands of the US shale boom, are giving up bringing new wells into production, in a stark illustration of the problems faced by the industry. Continental Resources and Whiting Petroleum are cutting back on well completions as part of steep reductions in capital spending intended to stabilise finances following the fall in crude prices. The moves will lead to significant cuts in their production this year, part of a forecast decline in US oil output that is expected to help curb the oversupply in global crude markets. Continental said it had stopped completing wells in the Bakken in the third quarter of last year and was focused on covering its capital spending from its operating cash flows. Whiting said it planned to stop completing wells in the second quarter of this year in North Dakota and the DJ Basin formation in Colorado. The two companies made their statements as they reported earnings for 2015, showing net losses of $354m for Continental and $2.2bn for Whiting, including a $1.5bn writedown in the value of its oilfields. Leaving drilled but uncompleted wells — sometimes known as DUCs — which need hydraulic fracturing to bring them into production, is a tactic that has been adopted by some companies in the hopes that they can bring production on quickly and relatively cheaply if oil prices recover. Fracturing a well — pumping in water, sand and chemicals to open cracks in the rock, allowing the oil to flow out — can typically account for half to two-thirds of its total cost. Continental said that although it was not completing any wells in the Bakken it planned to have four rigs drilling there all year. It expects its stock of DUCs in the Bakken to rise from 135 at the end of last year to 195 by the end of 2016.

Frack-Stop: CLR And Whiting To Stop Fracking In The Bakken -- From John Kemp, tweeting now: FRACK-STOP: Continental and Whiting to stop fracking and well completions in the Bakken (but drilling goes on). Regular readers of the blog already knew that -- at least with regard to CLR; I haven't seen a CLR completion in months. Whiting has still reported some completed wells recently. Financial Times is reporting: The moves will lead to significant cuts in their production this year, part of a forecast decline in US oil output that is expected to help curb the oversupply in global crude markets.  Continental said it had stopped completing wells in the Bakken in the third quarter of last year and was focused on covering its capital spending from its operating cash flows.  Whiting said it planned to stop completing wells in the second quarter of this year in North Dakota and the DJ Basin formation in Colorado. The two companies made their statements as they reported earnings for 2015, showing net losses of $354m for Continental and $2.2bn for Whiting, including a $1.5bn writedown in the value of its oilfields.    Despite lower crude oil prices, EIA expects Canadian oil production to continue increasing through 2017. Canadian oil sands projects that were already under construction when prices began to fall in 2014 and that are expected to begin production in the next two years are the main driver of production growth…According to EIA's February Short-Term Energy Outlook, production of petroleum and other liquids in Canada, which totaled 4.5 million barrels per day (b/d) in 2015, is expected to average 4.6 million b/d in 2016 and 4.8 million b/d in 2017. This increase is driven by growth in oil sands production of about 300,000 b/d by the end of 2017, which is partially offset by a decline in conventional oil production. -- EIA

The Allure Of Shale Is Wearing Off -  Investment in U.S. shale continues to dwindle, with several large companies raising eyebrows with plans to slow drilling plans much further than expected. Continental Resources, an Oklahoma-based shale company, has announced that it is largely zeroing out all plans to drill in North Dakota’s Bakken this year. Announcing its first annual loss since its inception in 2007, Continental Resources said that it would defer completions on just about all of its wells drilled in the Bakken. Continental will hold onto four rigs in North Dakota, but has no plans to deploy any fracking teams. The company’s production has already started to decline, falling to 224,936 barrels per day in the fourth quarter of 2015, down from 228,278 barrels per day from the third, or about a decline of almost 2 percent. Continental has already said that it could lose about 10 percent of its production this year. But it will still be sitting on more than a hundred drilled but uncompleted wells, which will allow the company to ramp up output when and if oil prices rise. Whiting Petroleum, another shale driller, also announced this week that it was drastically scaling back drilling plans. The Colorado-based announced an 80 percent cut in spending, but more significant was its decision to completely suspend its plans to complete any more wells after the first quarter. That will leave it with 73 drilled but uncompleted wells in the Bakken, plus 95 more in the Niobrara. Just about all of the money that Whiting plans on spending this year will be merely on maintenance to keep existing operations going. On the other end of the spectrum in terms of company size, Royal Dutch Shell revealed its plans to downgrade its emphasis on expensive shale operations, although it was not worded in those terms. The Anglo-Dutch supermajor says that it would fold its “unconventional” unit (i.e. shale) into its broader upstream business. . In 2014, Shell sold off shale acreage in Texas, Colorado, and Kansas, according to Reuters, while also divesting itself of Pennsylvania and Louisiana shale gas assets. Last year, Shell pulled the plug on Arctic drilling after almost a decade of work and billions of dollars wasted. It also scrapped a major oil sands project in Canada in October because of low oil prices. Shell’s oil sands assets will be folded into its downstream refining unit.

Campaign to ban fracking and all new oil drilling in Monterey County takes shape - Hoping to expand on similar bans already in place in Santa Cruz, San Benito and Mendocino counties, environmentalists on Tuesday launched a ballot campaign to prohibit fracking in Monterey County, setting the stage for another expensive battle with the oil industry over the controversial drilling technique. The measure, if approved by voters in November, also would ban all new oil drilling in Monterey County -- California's fourth largest oil-producing county. It would continue to allow the roughly 1,200 existing oil wells there to remain, most of which are located near San Ardo in the Salinas Valley. Supporters said their goal is to reduce the risk of groundwater pollution from oil drilling, including potential future drilling in the Monterey Shale formation, and to push forward a statewide grass-roots movement. "There's a deep concern around the threats from the oil industry, especially to water," said Andy Hsia-Coron, a retired schoolteacher from San Juan Bautista who is one of the measure's organizers. "Polls show Californians are supportive of things to protect their water," he said. "But, unfortunately, the oil industry has had too big a voice in Sacramento and may be too cozy with the governor." Supporters of the new measure have formed a coalition called Protect Monterey County. It includes some of the activists, like Hsia-Coron, who passed a fracking ban in 2014 in neighboring San Benito County, despite being outspent 14-1 by the oil industry. Oil industry officials said Tuesday that they will vigorously fight to defeat the measure.

State natural gas wells exempt from key leak-detection test - He listened for hissing or rumbling nearly 2 miles below the earth, easing his microphone down the natural gas well known as SS 25. Mitch Findlay heard something that caught his attention. Findlay, the owner of a leak-detection company, was testing the well for his client, the Southern California Gas Co. It was November 1991, nearly 25 years before the well above Porter Ranch ruptured and spewed roughly 94,000 metric tons of methane into the atmosphere. It was a “distant noise,” Findlay noted in the typewritten log filed with state regulators.   But annual temperature surveys and the occasional noise test gave an incomplete picture of the well’s integrity, he and other experts say. Another common way to detect leaks, a pressure test, was performed on the well just twice since 1989, according to state records.   California regulators do not require natural gas companies to test the pressure of storage wells, despite the industry’s endorsement and widespread use of the leak-detection method. “These wells should be pressure tested every five years,” Findlay said. Pressurizing the space between interior tube and the surrounding casing of the well, the area called the annulus, “would have found the leak,” he believes. In Texas and Kansas, states with modern underground gas storage regulations, the well indeed would have been required to undergo pressure tests at least every five years. “It’s a common industry practice and the best-regulated states all require it,”

California methane leak was biggest ever in U.S., scientists say | Reuters: The months-long natural gas leak that forced thousands of Los Angeles residents from their homes ranks as the largest known accidental methane release in U.S. history, equal to the annual greenhouse gas emissions of nearly 600,000 cars, scientists reported on Thursday. At its peak, 60 tons per hour of natural gas was spewing from a ruptured underground pipeline at the Aliso Canyon storage field, effectively doubling the methane emissions of the entire Los Angeles metropolitan area, the researchers said. Their study, published in the journal Science, represents the first comprehensive effort to quantify a gas leak that made scores of people ill and prompted the temporary relocation of more than 6,600 households from the northern Los Angeles community of Porter Ranch at the edge of the gas field. The damaged injection well discharged a total of 97,100 tons - or 5 billion cubic feet (142 million cubic meters) - of methane into the environment from the time it was first detected on Oct. 23 until it was plugged earlier this month, the study said. Methane, the chief component of natural gas and a far more potent greenhouse agent than carbon dioxide, persists in the atmosphere for 10 years. The total release from Aliso Canyon is equivalent to the annual energy-sector methane emissions of a medium-sized European Union country, it said.

Damage report reveals LA methane leak is one of the worst disasters in US history - A week after the ruptured natural gas well in Aliso Canyon was finally declared sealed, we have a full account of the environmental damage — and it doesn’t look good. A new paper published in the journal Science declared it to be one of the largest environmental disasters in US history. In total, 97,100 metric tons of methane were released into the atmosphere over the course of 112 days, equal to the greenhouse gas emissions of over half a million cars. The study drew its measurements from a series of research aircraft flights carried out between November 7, 2015, about two weeks after the leak was first reported, and February 13, 2016, two days after the leak was plugged. Scientific aviation specialist Stephen Conley of the University of California, Davis, was asked by the California Energy Commission to conduct the first flyover early on, before anyone realized just how serious the gas leak really was. The levels of airborne methane were so high that the Conley’s team assumed there was something wrong with their instruments — the background concentration of methane in the air is typically about 2 parts per million, but the aircraft registered concentrations as high as 50-60 ppm. It wasn’t until researchers tested levels on the ground using a different instrument that they realized the frightening readings were accurate. Once it became clear just how bad the problem was, Conley began conducting regular flyovers to track the movement of the methane plume as it moved downwind. At its peak in November, about 60 metric tons of methane was gushing from the well every single hour. SoCalGas was able to slow the rate a bit by drawing natural gas from the well to relieve pressure, and delivering it to energy consumers. Though the well has been declared “permanently sealed” by a plug of cement, small amounts of gas are continuing to seep out of the ground. It’s unclear exactly where the methane is coming from — it could be due to gas trapped in the soil, the wellhead, or even potentially an imperfect seal. Conley will have to continue monitoring the site until the flow rate stabilizes.

Gas facility that had blowout will have to play by new rules (AP) — The gas storage facility that spewed methane uncontrollably for almost four months, driving thousands of families from their homes, won’t resume operations until it has undergone tougher tests than ever required before, a process that will take months and perhaps even longer. The massive leak drew attention to the Southern California Gas Co. facility and the larger subject of old energy infrastructure nationwide. It also put heat on the state to speed up tougher new regulations that will outlaw a risky practice that put the well in jeopardy of a blowout. “I wouldn’t say it was a wake-up call. I’d say it was a ‘You need to accelerate that process,'” said Jason Marshall, chief deputy director of the state Department of Conservation. “We’ve moved it to the top of the pile.” In addition to passing emergency regulations, the department’s oil and gas division directed the Aliso Canyon facility to undergo tests expected to last months and operate in a safer manner — changes that could be expanded to statewide regulations, Marshall said. Environmentalists and residents sickened by the foul smell and chemicals have called for the facility to be permanently shut down.

California Is Trying To Get Permission To Dump Wastewater In Protected Aquifers - A California regulator is asking the EPA to officially allow oil drilling and wastewater disposal in a protected aquifer near San Luis Obispo. The request is the first of dozens the state is expected to make, after revelations surfaced that the Division of Oil, Gas, and Geothermal Resources had, for years, improperly issued permits to inject wastewater into underground basins protected by the Clean Water Act.  The California Water Board has signed off on its sister agency’s request, saying that the aquifer is separated from local drinking water sources by an “impermeable barrier.” But residents and environmentalists are skeptical. Californians have good reason to be skeptical that the division, known as DOGGR, is protecting their water. In early 2015, DOGGR was found to have issued improper permits for 2,500 injection wells. Some of those wells were immediately shut down following the findings. Others, such as the operations covered in this permit application, were allowed to keep functioning, pending an expedited review and application for exemption.  During the review, technical staff from DOGGR and the California State Water Board found that the local water wells are “geologically separated from the aquifer exemption area,” and it is unlikely, if not impossible, for the wastewater to contaminate drinking and irrigation water.  Still, some are concerned that separation won’t hold up, allowing chemical-laced wastewater to flow into groundwater supplies. Wastewater from oil and gas drilling can contain heavy metals, radioactive material, and chemicals like arsenic and benzene.

Pacific Northwest could become hub for methanol production (AP) — The Pacific Northwest could become a major hub for methanol production if three proposed refineries are built along the Columbia River and Puget Sound. A China-backed consortium, Northwest Innovation Works, has proposed two plants in Washington state and a third in Oregon to convert natural gas to methanol, which would be shipped to China to make plastics and other consumer goods. But those plans are running into opposition. On Friday, the company temporarily put its project in Tacoma on hold, saying it has been “surprised by the tone and substance of vocal opposition.” Washington state Gov. Jay Inslee has embraced the projects as a boost to the state’s clean energy future. He has said the investments — about $7 billion for the three plants — would be one of the largest foreign investments in the U.S. by a Chinese company. Supporters say the projects would create hundreds of jobs and infuse billions to the region. Opponents are concerned about environmental and health impacts. More than 1,000 people attended a hearing this month on the Tacoma project, which would produce 20,000 metric tons a day and dwarf other methanol plants planned or being built in the U.S. A citizens group is sponsoring an initiative to require voter approval for water permits exceeding one million gallons (3.8 million liters) a day. The city of Federal Way passed a resolution opposing the project. “We’re talking about building enormous petrochemical refineries on the shorelines of our most important water bodies. That’s dangerous,” said Eric de Place, policy director for Sightline Institute, a progressive think tank.

United States On Path to Becoming Major Exporter of Natural Gas Despite Climate Impacts - The Sabine Pass LNG terminal owned by Cheniere Energy in southwest Louisiana offers a glimpse of the challenges facing the growing natural gas industry in the United States.  The first cargo of liquefied natural gas (LNG) was scheduled for export from Cheniere Energy’s new export terminal in Cameron Parish, in January, but the company reportedly delayed its plans by up to two months due to faulty wiring. Following the announcement of the export delay, Cheniere Energy sought $2.6 billion to refinance its adjacent LNG import terminal in Cameron Parish which was impacted by extreme fluctuations in the price of oil and gas. The company built the import facility before the U.S. fracking boom took hold, and was therefore saddled with unnecessary import infrastructure in the new age of abundance of domestic gas availability and the prospect of U.S. exports. Cheniere’s $20 billion, multiphase terminal is one of four LNG terminals in the lower 48 states that got the green light from the Federal Energy Regulatory Commission. And the existing Kenai LNG plant in Alaska, an export terminal operated by ConocoPhillips, was recently permitted to restart operations after closing down in 2013, when operations ceased due to a shortage of gas. “The Chenier Energy project, as well as the over 40 proposed or approved LNG export facilities around the United States, are a serious threat to our climate,” Gulf Restoration Network organizer Johanna deGraffenreid told DeSmog. She criticized the massive export infrastructure investment craze for “promoting the use of fossil fuels on an international scale.”

Petrobras Said to Buy Cheniere's First U.S. Shale Gas Export -- Petroleo Brasileiro SA, Brazil’s state-owned energy company, is scheduled to receive the first cargo of shale gas to be shipped from the U.S., according to a person familiar with the deal. The shipment of liquefied natural gas was agreed to Monday, said the person, who asked not to be identified because the information isn’t public. Cheniere Energy Inc.began loading the first tanker at its Sabine Pass terminal in Louisiana, U.S. Coast Guard spokesman Dustin Williams said in an e-mail Tuesday. “The biggest buyer of LNG outside of the winter is Brazil first and Argentina second in the Atlantic Basin," .“They buy LNG for gas-powered, air-conditioned power." Other gas-export projects are expected to come under pressure to secure financing and long-term contracts amid the global commodity rout and shifts in demand overseas, Daniel Yergin, vice chairman of the energy consulting group IHS Inc., said in an interview Feb. 17. Demand is forecast to be higher in South America during the spring, in part due to a drought that has increased Brazil’s dependence on the power-plant fuel. Brazil has increased LNG imports in the past few years after an agreement to buy gas via a pipeline from Bolivia reached its limits. Petrobras bought about 80 LNG cargoes last year. It’s expected to purchase another 50 in 2016, according to Porto Alegre-based Gas Energy consultancy. Petrobras had no immediate comment on the shipment. Cheniere didn’t respond to an e-mail and voicemail.

Port Rejects Plans to Build Oil Refinery and Propane Export Terminal -- In an unanimous vote on Tuesday, Port of Longview commissioners rejected a proposal by Waterside Energy to build the first oil refinery on the west coast in 25 years. The commissioners also rejected Waterside’s plan for a propane export terminal. Longview, Washington residents are celebrating and thanking their elected port commissioners..  “I’ve taught near oil refineries—the smell was hard to live with, but the rate of childhood cancer was devastating.” Today, the port commission did the right thing for Longview’s children,”  In 2010, as fracking boomed and coal companies looked desperately for overseas buyers, a dozen coal, oil and gas export proposals threatened the Pacific Northwest and, particularly, the Columbia River where I work. But one by one, communities are standing up for clean water and air by rejecting dirty fossil fuels. The State of Oregon rejected the Morrow-Pacific coal export terminal because of the impacts on salmon and fishing. Longview rejected Haven Energy’s propane export terminal, primarily because the proposal would create too few jobs per acre. Portland rejected Pembina’s propane terminal for climate and public health reasons and then, for good measure, banned all new fossil fuel exports. Global Partners’ oil terminal near Clatskanie, Oregon, shut down because of the economics of unpredictable crude oil prices. The pattern is obvious, but I’m fascinated by the reasons for rejecting these projects. Salmon. Jobs. Climate. Health. Economy. These values are prevailing over fossil fuel.

Slow Train Coming –Terminal Projects Still Being Built As Rockies Crude-By-Rail Fades - According to the latest Energy Information Administration (EIA) monthly Drilling Productivity Report, crude production from the Niobrara shale in Colorado and Wyoming peaked at 491 Mb/d in April 2015 and is forecast to decline by ~100 Mb/d to 388 Mb/d through March 2016 – in response to falling crude prices and lower drilling activity. Meantime midstream companies are still building new pipeline capacity out of the region with the Saddlehorn and Grand Mesa projects set to add 350 Mb/d of takeaway capacity this year (2016). The pipeline build out has already caused a shift of crude shipments away from crude-by-rail (CBR) that peaked in December 2014. Yet as we describe today - rail terminals and infrastructure are still under construction in the region.  In Part 1 of this series we noted that CBR volumes are falling across the U.S. and Canada. The decline is mostly in response to narrower spreads between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent. The lower the spread between these two, the lower the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines.  . As new pipelines have been built out to provide less expensive options to get stranded crude to market so the WTI discount has narrowed and CBR traffic has declined. After crude oil prices collapsed into the mid-$30s and Congress repealed regulations limiting U.S. crude exports in December 2015, WTI began to trade at a slight premium to Brent that averaged $0.26/Bbl in January 2016. Primarily in response to the narrowing spread - CBR volumes fell during 2015 but not as fast as you might expect – dropping only 20% between January and November 2015 (latest EIA data) even though the economics often made no sense. As we discussed in Part 2 – looking at the epicenter of the CBR boom in North Dakota – the slower than expected decline in rail shipments is mostly because committed shippers and refiners continued to use rail infrastructure that they invested in and because some routes still do not have pipeline access. This time we look at CBR traffic out of the Niobrara shale region in the Rockies.

Oil Rigs Dive To 2009 Levels, But Well Productivity Soars -- Drilling activity has crashed, but efficiencies and American ingenuity have helped make each well far more productive. The number of oil rigs fell by 26 last week to 413, the lowest since December 2009, Baker Hughes (BHI) reported Friday. That’s down 19% over the last four weeks and 59.5% vs. a year earlier.But U.S. oil output, though off peak levels, has held up remarkably well. That’s in large part because Continental Resources (CLR), Concho Resources (CXO) and other shale producers are becoming, well, more productive with every well. They focused on the best wells, kept the best crews, while employing new technical advances and practices. They’ve also been able to squeeze suppliers and services firms such as Baker Hughes, Schlumberger (SLB) and Halliburton (HAL).

  • • Bakken Shale new wells should produce 737 barrels per day in March, up from 558 bpd in March 2015. That’s a 32% increase — 88.5% vs. March 2014.
  • • Eagle Ford new wells are expected to generate 812 barrels per day in March, up from 665 bpd a year earlier. That’s a 22% jump.
  • • Niobrara new wells should produce 741 barrels per day, up 39% from 533 bpd in March 2015.
  • • Permian Basin new wells should produce a 423 barrels per day, a 49% spike from 284 bpd a year earlier.
  • • Utica new wells should generate 309 barrels per day, a whopping 83% increase from 168 bpd in March 2015.

Continental Resources, Concho Resources and other shale firms have been able to concentrate efforts, slashing capital spending and operating costs without a big blow to production. But with oil down to $30 a barrel or lower, these companies are under heavy  strain. Continental and Concho earnings reports are due this week, with the former expected to post a loss and the latter a 96% EPS dive. As for suppliers such as Halliburton, Schlumberger and Baker Hughes, they’ve cut tens of thousands of jobs.  But those oil services giants should emerge stronger after the oil bust, D.A. Davidson said in research reports last week.

Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies -- In less than a month, the U.S. oil bust could claim two of its biggest victims yet Oil PricesEnergy XXI Ltd. and SandRidge Energy Inc., oil and gas drillers with a combined $7.6 billion of debt, didn’t pay interest on their bonds last week. They have until the middle of next month to either pay the interest, work out a deal with their creditors or face a default that could tip them into bankruptcy. If the two companies fail in March, it would be the biggest cluster of oil and gas defaults in a month since energy prices plunged in early 2015. “We’re just beginning to see how bad 2016 is going to be,” . The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers.   Oil prices have now fallen more than 70 percent from a 2014 peak, and banks and bondholders are fighting for scraps. Bond prices reflect investors’ fears. U.S. high-yield energy debt lost 24 percent last year, the biggest fall since 2008, according to Bank of America Merrill Lynch U.S. High Yield Indexes. Investors are now demanding a yield of 19.6 percent to hold U.S. junk-rated energy bonds, after borrowing costs for these companies exceeded 20 percent for the first time ever this month, according to data compiled by Bank of America Merrill Lynch. Both Energy XXI and SandRidge could still reach an agreement with creditors that will give them time to turn their businesses around. SandRidge said last week that it missed a $21.7 million interest payment. The company owes $4.2 billion, including a fully-drawn $500 million credit line. Energy XXI, which owes $3.4 billion, said in a filing last week that it missed an $8.8 million interest payment.

35% Of Public Oil Companies Could Face Bankruptcy --More than one-third of public oil companies globally face bankruptcy, according to a new Deloitte report that paints a fairly gloomy picture of the U.S. shale patch as it struggles to survive under mountains of debt.  The Deloitte report—the first high-profile report on the current financial situation of global oil and gas companies—surveyed 500 companies and found that 175 are facing “a combination of high leverage and low debt service coverage ratios”.  “[…] nearly 35 percent of pure-play E&P companies listed worldwide, or about 175 companies, are in the high risk quadrant,” Deloitte noted, adding that the situation is “precarious” for 50 of these companies due to negative equity or leverage ratio above 100.  Reports about the growing numbers of bankruptcies among U.S. shale producers aren’t new, but the Deloitte findings reinforce the picture.“More than 80 percent of U.S. E&P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges,” according to Deloitte.“However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders’ earlier stipulations and increasing the probability of US E&P company bankruptcies surpassing the Great Recession levels in 2016.” Shale producers amassed huge debts that they are now struggling to service in the oil price downturn. According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada.

Continental Resources Swings to a Loss, Will Cut Capital Spending - Continental Resources Inc. swung to a loss in the December quarter hard-hit by the sharp drop in crude oil prices. To counter the price slump, the Oklahoma City company said it would slash planned capital spending this year by 66% and indicated further cuts could follow if needed. Over all, Continental Resources reported a loss of $139.7 million, or 38 cents a share, compared with a year-earlier profit of $114 million, or 31 cents a share. Excluding asset write-downs and other items, the loss was 23 cents a share, compared with a year-earlier profit of $1.14. Operating costs, meanwhile, fell 30% to $718.3 million. Analysts surveyed by Thomson Reuters had projected a loss of 21 cents a share on $569.3 million in oil and gas revenue. Net production rose 16% from the year earlier, above the company's guidance, and average realized crude sales prices, excluding hedging, dropped to $34.23 a barrel from $61.53 a barrel a year earlier. Crude oil comprised 65% of total production. Continental Resources affirmed its projections of average daily production to reach 200,000 barrels a day in 2016, down from 221,700 in 2015.

Chesapeake Energy announces financial results, outlook  — Chesapeake Energy announced Wednesday it saw a net loss of $2.19 billion for the fourth quarter of 2015, citing the oil and gas downturn as the cause. Chesapeake says for 2016, it plans on more rig completion and less drilling, providing better "economics" amid the oil and gas economy. The company says it plans to put another 330 to 370 wells in production, but will reduce overall production by about 31,000 barrels of oil a day. "Our tactical focus areas remain asset divestitures, of which we are pleased to have approximately $500 million in net proceeds closed or under signed sales agreements, liability management and open market purchases of our bonds. We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program. We have set our initial capital program for the year at $1.3 to $1.8 billion, including capitalized interest, and will remain flexible to raise or lower based on commodity prices."

Chesapeake to slash its capital spending - Chesapeake Energy, the second-largest gas producer in the US, on Wednesday announced a cut of up to 69 per cent in its capital spending for this year, as it seeks to conserve cash amid the commodity price crash. The company set out the plans as it reported a $14.9bn net loss for 2015, compared to a profit of $1.3bn in 2014, following writedowns in the value of its gas and oilfields. Chesapeake was one of the stars of the US shale gas boom of the 2000s, growing rapidly under its founder Aubrey McClendon, who left the company in 2013. Under Doug Lawler, Mr McClendon’s successor as chief executive, Chesapeake has been working to reduce its large debt load and to shift to increased production of crude and other liquids. But the company has been hit hard by the collapse in oil and gas prices. The principal factor behind the loss for 2015 was an $18.2bn pre-tax writedown of Chesapeake’s assets, to reflect those lower prices. The company’s operating cash flow dropped 56 per cent to $2.3bn last year. That cash generation fell short of Chesapeake’s capital spending of $3.2bn in 2015, raising concerns about the sustainability of its finances. Chesapeake’s shares have dropped 86 per cent in the past year. But Chesapeake on Wednesday played down suggestions that it was exploring a possible bankruptcy, saying that it was working on debt exchanges and other moves to reduce its borrowings, and had hired specialist lawyers to advise on that.

Chesapeake Energy shares tumble after company's loss widens, unveils drastic capex cuts - Chesapake Energy Corp. shares  tumbled 9% in premarket trade Wednesday, after the company's fourth-quarter loss widened and it unveiled further capex cuts and asset sales. The company said it had a net loss of $2.23 billion, or $3.36 a share, in the quarter, after earnings of $586 million, or 81 cents a share, in the year-earlier period. Its adjusted loss per share came to 16 cents, a penny less than the 17 cents-per-share FactSet consensus. Revenue declined to $2.65 billion from $5.69 billion a year ago, and matched the FactSet consensus. The company said it is planning to slash capex by 57% in 2016 to $1.3 to $1.8 billion. It expects production to be down 0% to 5%, once adjusted for asset sales. The company is targeting further asset sales of $500 million to $1.0 billion in 2016. "In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet," Chief Executive Doug Lawler said in a statement. Shares have fallen a stunning 89% in the last 12 months, while the S&P 500 has fallen 9%.

Chesapeake's AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls --In its 10-K filed yesterday, Chesapeake announced that it has just reached its own "AIG moment." Recall that one of the reasons for AIG's unprecedented, and rapid collapse, was a series of collateral calls resulting from a series of downgrades of the insurer, which forced it to post increasing amounts of collateral to which it had no access, and which in turn activated a liquidity death spiral which ultimately culminated with its bailout by the US Treasury. The same is now taking place at Chesapeake, as the company's 10-K has just confirmed: Since December 2015, Moody’s Investor Services, Inc. has lowered the Company’s senior unsecured credit rating from “Ba3” to “Caa3”, and Standard & Poor’s Rating Services has lowered the Company’s senior unsecured credit rating from “BB-” to “CC”. The downgrades were primarily a result of the effect of low oil and natural gas prices on our ability to generate cash flow from operations. We cannot provide assurance that our credit ratings will not be further reduced if commodity prices continue to remain low. Any further downgrade to our credit ratings could negatively impact our availability and cost of capital. Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as transportation, gathering, processing and hedging agreements. As of February 24, 2016, we have received requests to post approximately $220 million in collateral, of which we have posted approximately $92 million. We have posted the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with these contractual requests for collateral. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $698 million (excluding the supersedeas bond with respect to the 2019 Notes litigation discussed in Note 3 of the notes to our consolidated financial statements included in Item 8 of this report), which may be in the form of additional letters of credit, cash or other acceptable collateral. Any posting of collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will negatively impact our liquidity. With this warning, energy giant Chesapeake has effectively warned that it may be the the energy-collapse's AIG: a company which was teetering on the edge, until the rating agencies came along and with their downgrades, sprung an ever escalating series of collateral calls.

Chesapeake stocks soar after company announces asset sales  — A Chesapeake Energy financial report detailing plans for aggressive asset sales buoyed the company’s stock Wednesday and helped allay bankruptcy fears that have haunted investors for weeks. Chesapeake stock jumped 50 cents, or 23 percent, to $2.69 Wednesday after the company released its quarterly financial report. Chesapeake, hurt by falling oil prices, reported an annual loss of nearly $14.7 billion, but has cut jobs, trimmed spending and sold assets to save money. This year, the company said it expects to slash spending on drilling and other projects by 57 percent from the year before. It also expects to sell assets worth between $500 million to $1 billion. On Wednesday, FourPoint Energy said it agreed to buy some of Chesapeake’s oil and gas assets in Oklahoma and Texas for $385 million. “In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet,” Chesapeake CEO Doug Lawler said in a statement. Chesapeake’s asset sales leave the company better situated to pay its debts, said Mark Hanson, equity analyst for Morningstar, a Chicago-based investment research firm. In a quarterly conference call Wednesday, Chesapeake also informed investors that the company has sufficient assets to maintain its access to lines of credit, Hanson said. “I don’t think the quarter was nearly as dire as maybe some people thought,” Hanson said. “I mean, this is a company that was trading (a few weeks ago) as if it was going into bankruptcy. It’s still something of a high-wire act. There’s only so low prices can go before this company’s in real trouble, but they did get some relief here in terms of the asset sales.”

EOG Resources Reports Fourth Quarter and Full Year 2015 Results and Announces 2016 Capital Program Focused on Premium Drilling Inventory- EOG Resources, Inc. today reported a fourth quarter 2015 net loss of $284.3 million, or $0.52 per share. This compares to fourth quarter 2014 net income of $444.6 million, or $0.81 per share. For the full year 2015, EOG reported a net loss of $4.5 billion, or $8.29 per share, compared to net income of $2.9 billion, or $5.32 per share, for the full year 2014. Adjusted non-GAAP net loss for the fourth quarter 2015 was $149.5 million, or $0.27 per share, compared to adjusted non-GAAP net income of $431.9 million, or $0.79 per share, for the same prior year period. Adjusted non-GAAP net income for the full year 2015 was $33.9 million, or $0.06 per share, compared to non-GAAP net income of $2.7 billion, or $4.95 per share, for the full year 2014. Adjusted non-GAAP net income (loss) is calculated by matching realizations to settlement months and making certain other adjustments in order to exclude one-time items.  For the full year 2015, while exploration and development expenditures (excluding acquisitions) decreased 42 percent, U.S. crude oil and condensate production remained flat, and overall total company production decreased just 4 percent compared to 2014.  Total worldwide liquids production decreased 2 percent, and total worldwide natural gas production decreased 7 percent versus the prior year. 

Whiting Petroleum Q4 Net Loss, Capex - Whiting Petroleum Corp. (NYSE: WLL) reported fourth-quarter and full-year 2015 results after markets closed Wednesday. For the quarter, the oil and gas exploration and production company posted an adjusted diluted net loss per share of $0.43 on revenues of $423.5 million. In the same period a year ago, the company reported earnings per share (EPS) of $0.44 on revenues of $696.1 million. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for a net loss of $0.30 per share. Whiting said it will suspend all hydraulic fracturing (fracking) and slash capital spending by 80% year over year. The capex budget for 2016 is set at $500 million and the company plans to spend about $440 million to shut down its drilling and completion operations beginning in the second quarter. Whiting said it expects to end the year with an inventory of 73 drilled, uncompleted wells in the Bakken and 95 drilled, uncompleted wells in the Niobrara shale play. Full-year production is projected at 128,000 to 138,000 barrels of oil equivalent per day compared with 155,100 per day in 2015 and 131,260 in 2014. For the full year, Whiting posted a net loss of $0.80 per share and revenues of $2.05 billion compared with 2014 EPS of $4.15 and revenues of $3.09 billion. For the quarter, Whiting took an impairment charge of $10.77 million on its oil and gas assets. For the year impairment charges totaled $1.09 billion.

Whiting Petroleum To Stop Fracking As Budget Slashed  - (Reuters) - Whiting Petroleum Corp, North Dakota's largest oil producer, slashed its 2016 budget by 80 percent on Wednesday, saying it will suspend all fracking operations and reduce output to wait for higher crude prices. Shares jumped 7.7 percent to $4 per share in after-hours trading as investors cheered the decision to preserve capital. Whiting's cut marks one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. Denver-based Whiting said it will stop fracking and completing wells as of April 1. Most of the $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance. Rival producers Hess Corp and Continental Resources Inc have also slashed their budgets for the year, though neither has cut as much as Whiting. "We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices," Whiting Chief Executive Jim Volker said in a statement. Whiting also on Wednesday posted a net loss of $98.7 million, or 48 cents per share, compared with a net loss of $353.7, or $2.68 per share in the year-ago period. Excluding impairment charges, hedging gains and other one-time items, the company posted a loss of 43 cents per share. By that measure, analysts expected a loss of 30 cents per share, according to Thomson Reuters I/B/E/S. The year-ago quarter included impairment charges to write down the value of acreage throughout the United States. Production rose about 18 percent to 155,210 barrels of oil equivalent per day (boe/d), the company said. For the year, Whiting expects to pump 128,000 to 138,000 boe/d. -

US oil companies start curtailing shale fracking fully - ABC.AZ: Strategy of the Ministry of Oil of the Kingdom of Saudi Arabia (KSA) bears real fruits: American companies start declining fully from shale fracking. The foreign media report that yesterday Whiting Petroleum, North Dakota’s largest producer, announced that it would suspend all fracking and that Continental Resources has effectively done the same after reporting that it no longer has any fracking crews working in the Bakken shale. Whiting Petroleum pointed out that it would suspend all fracking and spend 80 percent less this year. It immediately led to Whiting stock jump up to 8%. Investors welcomed the decision to keep the capital, even if it means generation of much less income. “We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices," Whiting Petroleum’s Chief Executive Officer Jim Volker said. Company’s budget will be cut to $160 million to be directed mainly for service of wells. Competitors from Hess Corp. and Continental Resources Inc also reduced their budgets for the year, although not so radically. Observers agree that the moment oil prices rebound even modestly, and according to many the new breakeven shale prices are as low at $40-$50/barrel, the Whitings and Continentals will immediately resume production, forcing Saudi Arabia to go back to square one, boosting supply even higher, and repeat the entire charade from scratch.

In Biggest Victory For Saudi Arabia, North Dakota's Largest Oil Producer Suspends All Fracking - Yesterday, during his speech at CERAWeek in Houston, Saudi oil minister Ali al-Naimi made it explicitly clear that Saudi Arabia would not cut production, instead saying that it is high-cost producers that would need to either "lower costs, borrow cash or liquidate” adding that there is "no need for cuts as marginal barrel will get out of the market." He was right. Today his wish is slowly coming true after news that North Dakota's largest producer, Whiting Petroleum, would suspend all fracking, and that Continental Resources has effectively done the same after reporting that it no longer has any fracking crews working in the Bakken shale. As Reuters reports, Whiting said it would "suspend all fracking and spend 80 percent less this year, the biggest cutback to date by a major U.S. shale company reacting to the plunge in crude prices." It was also confirmation that the Saudi plan to put high-cost producers on ice is working, if only temporarily. After sliding 5.6% to $3.72, Whiting stock jumped 8% to over $4 per share in after-hours trading as investors cheered the decision to preserve capital, even if it means generating far less revenue. Whiting's cut is one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. The cuts will have a big impact in North Dakota, where Whiting is the largest producer. The Denver-based company said it would stop fracking and completing wells as of April 1. Most of its $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance.

Halliburton to cut 5,000 more jobs -- Oilfield services company Halliburton will eliminate 5,000 more jobs – about 8 percent of its global workforce. Ongoing market conditions led to the decision, according to a company statement. As oil prices hover near $30 per barrel, producers struggle to remain .  “We regret having to make this decision but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” Halliburton currently employs about 65,000 workers. At its peak in 2014, Halliburton employed more than 80,000 people. Company shares rose 4 cents Thursday, closing at $32.50. Other major oil and gas companies have struggled to turn profits. Recently, Schlumberger said it will cut 10,000 jobs. Halliburton did not reveal what positions will be affected. Speculation is that U.S. workers will be hit the hardest as demand for hydraulic fracturing wanes. Last week, Baker Hughes reported the number of rigs exploring for oil and gas in the United States dropped to 514. That number could drop below 500 this week. The number of active drilling rigs last fell below 500 in 1999.

Halliburton Cuts 5,000 Jobs, 8% Of Workforce --It turns out oilfield services isn't a good place to be during epic crude downturns. Halliburton - which cut thousands upon thousands of jobs in 2015 - is back it, announcing an additional 5,000 layoffs on Thursdsay. The cuts amount to 8% of the company's remaining workforce. We say "remaining" because as CNN notes, "the latest pink slips bring Halliburton's job cut tally to between 26,000 to 27,000 since employee headcount peaked in 2014." The company will also look to sell assets (because everyone wants the kind of assets Halliburton owns with oil at $30) and is projecting $1.6 billion in capex this year.  "We regret having to make this decision but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment," Emily Mir, a spokeswoman, said Thursday in an e-mailed statement. "We thank all impacted employees for their many contributions to Halliburton." Revenue plunged 42% in Q4 the company said last month hit, of course, by the ongoing oil rout. "Let me sum it up,'' CEO Dave Lesar said on the call, "2016 is shaping up to be one tough slog through the mud." For 5,000 now jobless workers, this year will be a "tough slog through the mud" as well.  On the bright side, the stock is ripping:

Exxon Mobil fails to replace production for first time in 22 years - Exxon Mobil Corp. failed to replace all of the oil and natural gas it pumped last year with new discoveries and acquisitions for the first time in more than two decades. Exxon Mobil’s so-called reserve-replacement ratio fell to 67 percent in 2015, the Irving-based company said in a statement on Friday. Prior to that, the world’s largest oil explorer by market value had achieved ratios of 100 percent or higher for 21 consecutive years. Exxon Mobil held reserves equivalent to 24.8 billion barrels of crude as of Dec. 31, enough to continue current rates of production for 16 years, according to the statement. That is down from 17.4 years or reserves life at the end of 2014, according to data compiled by Bloomberg. The company added reserves last year in Abu Dhabi, Canada, Kazakhstan and Angola. In the U.S., gas reserves declined by the equivalent of 834 million barrels as tumbling prices for the furnace and power-plant fuel made some fields unprofitable to drill. The gas reserves removed from Exxon Mobil’s books probably will be drilled at some point in the future when prices are higher, according to the statement. The reserve-replacement ratio is a key measure for oil producers and the investors and analysts who follow them: it’s one indicator of a company’s long-term ability to maintain or expand crude and gas output. The calculation involves adding together all the new reserves acquired, discovered or achieved through technological innovations and dividing that by the amount of oil and gas pumped that year.

Exxon, Royal Dutch Shell and BP report lower reserves replacement - ExxonMobil announced in a press release Friday, Feb. 19 they added one billion oil-equivalent barrels of proved oil and gas reserves, replacing only 67 percent of production in 2015. This is the first time since 1994 in which Exxon has failed to replace 100 percent of oil reserves. 2015 reserves for Exxon were added in Abu Dhabi, Canada, Kazakhstan and Angola. Natural gas reserves were reduced and liquid reserves increased to 834 million barrels and 1.9 billion barrels respectively. It is expected these reserves will be “proved” in the future. ExxonMobil also made a significant offshore discovery in Guyana and additional discoveries in Iraq, Australia, Romania and Nigeria as well as unconventional resource additions in the Permian Basin, Canada, and Argentina. In the last ten years Exxon has replaced 115 percent of its reserves and has a current reserve life of 16 years at current production rates. The Wall Street Journal reported Royal Dutch Shell and BP also failed to replace 100 percent of their reserves this year. However Chevron and Total SA are reported to have found 107 percent replacement reserves for 2015. Part of the loss of reserves can be accounted for with the oil price crash. As wells no longer become profitable the company must recognize the loss on balance sheets.

EU told ExxonMobil that TTIP would aid global expansion, documents reveal -- The European Union’s trade commissioner told the multinational oil company ExxonMobil that a major free trade deal being negotiated with the US would help remove obstacles to fossil fuel development in Africa and South America, documents obtained by the Guardian reveal. At a meeting in Brussels in October 2013, Karel de Gucht told the firm that the Transatlantic Trade and Investment Partnership (TTIP) could address its concerns about regulations in developing countries that restrict the company’s activities. The news emerged as a Greenpeace barricade delayed the resumption of talks between EU and US delegations on the TTIP deal, which both sides hope can be completed before President Obama leaves office next January. According to minutes of the October meeting, the hour-long conversation focused on shale gas; “geopolitical aspects”; EU plans to label tar sands as high-polluting; and a possible reconversion of ExxonMobil’s liquefied natural gas (LNG) import terminal in the US to export crude to Europe. This would be “costly and may take two-three years,” the minutes said. Heavily redacted records show that two officials from Exxon’s US and EU regions were present in the room with de Gucht, the then-trade commissioner, Claes Bengtsson, his cabinet member, and two other unidentified individuals

Oil patch going through 'pure hell,' but doesn't look to DC for salvation - A battered oil industry is spending its week in Houston commiserating over rockbottom oil prices that have pushed companies over the brink and eliminated tens of thousands of jobs. As Pro's Elana Schor reports from the scene, while the industry struggles to weather the storm, it isn't looking for much from the federal government, a point of pride for some. "Look at the number of layoffs we’ve had in this industry. If that had happened in Detroit, think of the hue and cry in Washington," American Petroleum Institute CEO Jack Gerard told Elana. Besides, Washington already had its shot: All the oil industry wanted for Christmas was a lifting of the crude-oil export ban and it scored. Easing the restriction isn't helping much in the short term because of the global glut in crude, but the industry is confident prices will rise — eventually. ConocoPhillips CEO Ryan Lance said although "today it’s maybe not as big of an issue," but lifting the ban "is going to be important" when prices come back. All that's left for D.C. to do, in the industry's view, is to go easy on new regulation — EPA's proposed methane rule got a lot of attention at the conference — and to lean on OPEC to dial back production. Other than that, the industry just has to ride it out. "At some point we're going to come out of this," Enterprise Products Partners CEO Jim Teague said. "People call it a cycle. I call it pure hell."

Firesale In Energy Assets - Despite the obvious pain in the energy sector for the last 18 months, major asset sales have been few and far between in the sector. The problem has been a classic one in markets – sticky prices leading to a wide gap between supply and demand in assets. Oil companies looking to shed assets either to become more efficient or because of financial distress have been holding out for higher prices under the expectation that oil prices would bounce back soon, creating significant option value in underwater assets. Buyers like private equity firms have been considerably less sanguine though, and have essentially only been willing to pay fire sale prices for most assets. This gap in expectations has hindered asset sales from companies like Chesapeake, Quick Silver Resources, Swift Energy, Magnum Hunter, and others. Even in bankruptcy, many firms have found out that their assets are worth less than the debt on those properties. This has led to banks like JPMorgan and Citi holding the bag on assets that have values far less than what the banks had lent to the bankrupt firm. Related: Venezuela Raises Fuel Prices By More Than 6,000 Percent Those banks are motived sellers and will likely keep the market for energy assets depressed for at least a year. Of course for investors with a long-term time horizon like Blackstone or KKR, this could create a major opportunity. Yet private equity firms are being very disciplined with their capital and are only slowly starting to enter the market for such assets. 2016 could be the year that this reticence on the part of buyers starts to ebb though, as sellers may be forced by bankruptcy conditions to relent and accept whatever price they can achieve. Wood Mackenzie recently put out a report suggesting that M&A activity in the oil patch will ramp significantly this year regardless of what happens to oil prices.

Canada At Risk Of Becoming The Venezuela Of The North -- February 22, 2016 - I always said the western Canadian oil sands would be "the canary in the coal mine." Bloomberg is reporting: The growth engine of Canada’s energy industry is poised to shut off next decade, according to the International Energy Agency.  Production gains from the oil sands in northern Alberta will slow dramatically or come to a halt as crude prices remain low and costs too high for one of the world’s most expensive sources of oil, the agency forecast Monday in a report on the global medium-term crude market. Environmental concerns, a lack of new oil pipelines and uncertainty about policy in Alberta are also causing companies to slow development work.  “We are likely to see continued capacity increases in the near term, with growth slowing considerably, if not coming to a complete stand still, after the projects under construction are completed,” the agency said.  Oil sands producers were pulling out of projects in the face of competition from U.S. shale even before the current global market rout took hold more than 20 months ago. Suncor Energy Inc. and Total SA scrapped the Voyageur upgrader in 2013.  With U.S. crude trading about 70 percent below its mid-2014 high, companies continue to shelve oil-sands work. Royal Dutch Shell Plc made the rare move of canceling a drilling development under construction last October, Carmon Creek. Canada runs the risk of becoming the Venezuela of the north.

Canadian Oil Companies Have Stopped Paying The Rent -- Where possible, we try not to beat dead horses but when it comes to the death of the so called “Alberta dream,” it’s rather difficult to ignore the pace at which conditions continue to deteriorate in Canada’s beleaguered oil patch.   We’ve covered Alberta’s demise extensively over the past twelve months, documenting everything from soaring food bank usage to the alarming spike in property crime in Calgary where vacant office space sits collecting dust and condos go unsold even as housing prices soar in British Columbia and Ontario.  Last year, Alberta logged the most job losses the province has seen in 34 years, as the unemployment rate spiked to 7.1% from just 4.8% at the end of 2014. 2015 turned out to be worse for provincial job losses than 2009. Now, in the latest sign that the seemingly inexorable decline in crude will continue to weigh on Alberta's flagging economy, we learn that O&G companies have simply stopped paying rent for surface access to private property.  "For the past five years, regular as clockwork, an oil and gas company’s cheque for $4,097 has arrived in Allison Shelstad’s mailbox sometime in January, rent paid for surface access to a natural gas well on the farmland southeast of Calgary her family has owned for more than 50 years," The Calgary Herald reports.

That Didn't Work as Planned: Mexico's Oil Monopoly Ends, Then Oil Tanks - The timing couldn’t have been worse. The end of the 76-year Petroleos Mexicanos monopoly was supposed to unleash an investment flood with companies rushing to develop massive oil reserves. It was going to be historic, and then came the rout. “It’s tragic that Mexico waited so long to open the sector and that when an administration finally passed a meaningful energy reform, the bottom just falls out of oil prices,”  “The parade did not last very long.”  Now opponents of President Enrique Pena Nieto, who was accused in some quarters of treason when he denationalized the industry in 2014, are saying they’re being proven right. Some want to bring the monopoly back. “A reform needs to be done to the energy reform,” said Jesus Zambrano, president of the Chamber of Deputies, the lower house of the national legislature, last week. The sweeping energy-sector overhaul was designed to attract major outside investment for the first time since Mexico booted foreign oil and gas companies in 1938. But not as many new players as expected have come in. There’s concern low oil prices may hurt the appetite for deep-water leases to be auctioned later this year.

Russia Losing Dominance In The European Energy Market -- February 26, 2016 - Two interesting data points show up today. The first from the EIA: In Europe, the combination of low winter heating demand, high refinery runs, and increased imports have kept distillate fuel oil inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far above normal. Higher inventories have lowered distillate futures prices in the ARA area to a point where inventories are being held in floating storage and imported cargos are being diverted to longer voyages. --- EIAThe second, from The Wall Street Journal, front page, big story: Europe's energy escape valve -- US Gas -- Gulf Coast exports of liquefied natural gas, or LNG, are expected to loosen Russia's dominance in the European energy market.— After a yearslong effort, a tanker chartered by Cheniere Energy, an American company, left a Louisiana port this week with the first major exports of U.S. liquefied natural gas, or LNG. This shipment isn’t going to Europe, but others are expected to arrive by spring. “Like shale gas was a game changer in the U.S., American gas exports could be a game changer for Europe,” said Maros Sefcovic, the European Union’s energy chief.  Many in Europe see U.S. entry into the market as part of a broader effort to challenge Russian domination of energy supplies and prices in this part of the world. Moscow has for years used its giant energy reserves as a strategic tool to influence former satellite countries, including Lithuania, one of the countries on the fringes of Russia that now see a chance to break away.  Some are building the capacity to handle seaborne LNG, including Poland, which opened its first import terminal last year. In Bulgaria, which buys about 90% of its gas from Russia, Prime Minister Boyko Borissov said last month that supplies of U.S. gas could arrive via Greek LNG facilities, “God willing.”

Repsol S.A. sinks deep into the red in Q4 after oil price hit — Spanish energy company Repsol says it posted a net loss of 2.06 billion euros ($2.26 billion) in the fourth quarter of 2015 due primarily to a write-down of assets related to the slump in oil prices. That’s a big change from the same period the year before when Repsol’s loss stood at only 34 million euros. However, Repsol pointed out Thursday that without the cost of the write-down, net income would have been 24 percent higher at 461 million euros. Over the full-year, Repsol said it made a net loss of 1. 23 billion euros after taking 2.96 billion euros in one-off charges. Without those charges, net profit for the year rose 9 percent at 1.86 billion euros. Repsol shares rose 0.8 percent at 8.6 euros in early Madrid trading.

U.K. North Sea Oil Spending to Drop 40% This Year From 2014 -  Oil and natural gas producers in the U.K. North Sea will spend 40 percent less this year than in 2014 as low crude prices force them to tighten budgets, the industry’s lobby group said Tuesday. The drop in spending could threaten future production, potentially halving it by 2025 from current levels if “fresh investment opportunities” fail to materialize. That would put a brake on the recent increase in production from the U.K. North Sea. Liquids and gas output rose 9.7 percent to 1.64 million barrels of oil equivalent a day last year, the first increase from the region since 2000. That was due partly to efficiency gains from existing assets as well as new projects coming on stream, the lobbying group said. Output is set to reach 1.74 million barrels of oil equivalent by 2018, provided investments keep pace. Oil & Gas U.K. forecast a drop in capital expenditure to 9 billion pounds ($12.7 billion) this year from 11.6 billion pounds last year and 14.8 billion pounds in 2014, a decline that would affect the whole supply chain. Operators will approve less than 1 billion pounds of new projects, down from an average of 8 billion pounds a year in the past five years.

UK oil industry sounds alarm on North Sea amid market drop  (AP) — The number of new investment projects in the North Sea has collapsed amid a fall in oil prices, underscoring fears for the future of the basin and the jobs it creates. Oil & Gas UK, an industry association, said in its annual survey Tuesday that some 1 billion pounds ($1.4 billion) was expected for new projects, compared to the typical 8 billion pounds annually. It argued that the long-term future of the industry is at risk and that the government should reduce taxes “to minimize the loss of capacity in the downturn.” “We are truly trying to fight for our survival,” . Once one of the world’s great oil regions, the North Sea’s resources are being depleted. Production has dropped from a peak in 1999 — when the U.K. pumped 4.6 million barrels of oil equivalents a day — to 1.6 million barrels of oil equivalents a day last year. Oil & Gas UK’s chief executive, Deirdre Michie, said the U.K. Continental Shelf is entering a phase of “super maturity.” That decline is being hastened by a collapse in oil prices, which have been falling for over a year. Brent crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January, having been above $100 a barrel in September 2014. It traded at $34.46 on Monday. The number of oil rigs being de-commissioned — that is, taken out of service and dismantled — is accelerating. The group said the number of fields expected to cease production has risen by a fifth to over 100 between 2015 and 2020. The trade body said that if oil remains at around $30 a barrel for the rest of 2016, nearly half of the U.K.’s offshore fields will likely be operating at a loss, “deterring further exploration and capital investment, and making additional cost improvement imperative.”

Farmers lead protests against ‘dirty’ fracking - Lancashire Evening Post: Residents opposed to fracking in Lancashire packed a public inquiry for a second time to urge a planning inspector to throw out plans to search for shale gas. Scores of objectors flocked to Blackpool Football Club for a public inquiry into Cuadrilla’s plans to frack at sites in Roseacre Wood, near Elswick, and Preston New Road, Little Plumpton. It was the second evening public session arranged by the planning inspectorate to accommodate the large number of members of the public wanting to urge planning inspector Wendy McKay to reject Cuadrilla’s plans. Cuadrilla is appealing against Lancashire County Council’s decision to refuse the firm permission to frack at the two Lancashire sites. Cuadrilla and supporters say the shale gas industry will give Lancashire an economic boom, creating jobs and wealth for the county. But Fylde farmers were among those who voiced great concerns about possible pollution caused by fracking Dairy farmer Robert Sanderson, of Kirkham, said farmers were anxious to protect their livelihood, their families and their land. He was concerned about pollution problems which could result in infertility in cattle, land and health effects on humans. He said: “Surely there are enough green energy solutions out there without us having to go down this dirty road?”

Police 'used sexualised violence against fracking protesters'  -  Police at the Barton Moss anti-fracking camp near Manchester used “sexualised violence” to target female protesters, it is alleged. Protesters told academics from York and Liverpool John Moores universities that officers groped and pressed their groins up against women as they cleared demonstrations against test drilling at the site. They are now calling for a public inquiry to investigate the relationship between police and the fracking firm IGas, the proportionality of police tactics and the use of bail to restrict the right to protest. From November 2013 to April 2014, the camp at Barton Moss campaigned to raise awareness of the environmental dangers of fracking in the area. Protests included “slow walking” in front of vehicles accessing the site, non-violent direct action, and rallies, music events and family days. The report quotes one protester as saying: “A lot of the time it is women on the front line, but not only that we’ve noticed officers specifically targeting women for violence, they’ve inappropriately touched them, groped them. I’ve been inappropriately touched.  “Every single woman on the front line has had some kind of inappropriate physical contact with an officer… sometimes their hand will just go up way too high. Somebody had their breast groped.”

Opec has failed to stop US shale revolution admits energy watchdog - The current crash in oil prices is sowing the seeds of a powerful rebound and a potential supply crunch by the end of the decade, but the prize may go to the US shale industry rather Opec, the world's energy watchdog has predicted. America's shale oil producers and Canada's oil sands will come roaring back from late 2017 onwards once the current brutal purge is over, a cycle it described as the "rise, fall and rise again" of the fracking industry. "Anybody who believes the US revolution has stalled should think again. We have been very surprised at how resilient it is," said Neil Atkinson, head of oil markets at the International Energy Agency. The IEA forecasts in its "medium-term" outlook for the next five years that US production will fall by 600,000 barrels per day (b/d) this year and 200,000 next year as the so-called "fracklog" of drilled wells is finally cleared and the global market works off a surplus of 1m b/d. But shale will come back to life within six months - far more quickly than conventional mega-projects and offshore wells - once crude rebounds to $60. Shale output is expected to reach new highs of 5m b/d by 2021. This will boost total US production of oil and liquids by 1.3m b/d to the once unthinkable level 14.4m b/d, widening the US lead over Saudi Arabia and Russia. Fatih Birol, the IEA's executive director, said this alone will not be enough to avert the risk of a strategic oil crisis later in the decade, given the exhaustion of existing wells and the dangerously low levels of spare capacity in the world. "Even if there were zero growth in demand, we would have to produce 3m b/d just to stand still," he said, speaking at the IHS CERAWeek summit of energy leaders in Texas.

Saudi Arabia Tells American Frackers: You Will Be Crushed - Forbes: For almost two years, it was just a rumor. But now that rumor seems to have been confirmed — Saudi Arabia is in an all out price war to put an end to the American Fracking revolution. For a good reason: the fracking revolution has turned America into the world’s largest oil producer, undermining Saudi Arabia controlled OPEC’s power to set oil prices. In fact Ali al-Naimi, Saudi Arabia’s petroleum minister has told American frackers publicly that they will be crushed. By the market that is. Because they don’t have the cost structure to survive the on-going price war, which may end up taking oil close to $20. That’s Saudi Arabia’s cost of producing a barrel of oil. To be fair, Saudi Arabia has no choice but to fight this war to the bitter end, for two reasons. First, for all sorts of political and economic reasons it is nearly impossible to bring major oil producers to the same table and have them agree and enforce any meaningful production cuts. Second, any production cuts that succeed in pushing oil prices aren’t sustainable, as long as American frackers are still around and can make up for such production cuts. Compounding the problem of precipitous decline in oil prices, American frackers have another problem to reckon with: the prospect of rising US interest rates, which is expected to hurt them in three ways.

Oil supply glut to last into 2017, warns IEA - The global supply glut that has battered the budgets of big oil-producing nations and forced energy companies to slash billions dollars of investment will continue into 2017 as ballooning stocks prevent a recovery in prices, the world’s leading energy forecaster has warned. Without a larger than expected drop in output from non-Opec producers this year or a jump in demand growth “it is hard to see oil prices recovering significantly in the short term”, the International Energy Agency said in its medium-term outlook released on Monday. “The enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the IEA said. It added the prevailing wisdom of just a few years ago that “peak oil supply” would cause oil prices to rise relentlessly was wrong. “Today we are seeing not just an abundance of resources in the ground but also tremendous technical innovation that enables companies to bring oil to the market,” the report said. The Paris-based agency expects US output to hit a new record 14.2m b/d by 2021 as operational efficiencies and cost cutting allow production to resume its upward trajectory. This would make the US the largest contributor to supply growth over the next five years. “Anybody who believes that we have seen the last of rising LTO [light tight oil] production in the United States should think again,” said the IEA. Overall, the IEA sees global oil production rising by a total of 4.1m barrels a day between 2015 and 2021 — a sharp slowdown on the 11m b/d recorded between 2009 and 2015, as low oil prices curtail exploration and production capital expenditure.

High supplies seen capping oil prices until early 2017— A glut of oil will keep prices from rebounding until next year, much later than previously forecast, experts at the International Energy Agency said Monday. A year ago, the IEA, a Paris-based organization of 29 major oil importing nations, had forecast a “relatively swift” recovery. Instead, oil prices have continued to fall, reaching a level below $30 a barrel last seen in 2003, the IEA says in its latest report Monday. IEA chief Fatih Birol blamed “extraordinary volatility” in oil markets that has made forecasting “more difficult than ever” for its changed outlook. “Our analysis of the oil market fundamentals at the start of 2016 is clear that in the short term there is unlikely to be a significant increase in prices,” Birol said in the report. In its report, the agency says oil supplies have surged due to a three-year rise in stocks, a phenomenon last seen in the mid-1990s. Oil prices have collapsed 70 percent since mid-2014. That’s sent gasoline prices plummeting, with the U.S. Energy Information Agency forcecasting an average price of $1.98 a gallon nationwide this year. The last time oil averaged less than $2 for a full year was 2004. The price plunge has led producers to slash spending on exploration and production. Capital expenditure fell 24 percent last year and is expected to drop another 17 percent this year, the IEA said — the first two-year decline since 1986. On Monday, the price of U.S. oil was up $1.02 at $30.66 a barrel.

The Global Oil Glut Is So Great, Tankers Take The Long Route Around Africa To Find A Buyer -- While we have previously observed the massive glut of oil product in the US, which has led to such arcane developments as a "parking lot" of oil tankers outside of Galveston, TX... ... we can now say that things in Europe are just as bad, if not worse. According to the latest "This week in petroleum" blog post by the EIA, European distillate oversupply has results in floating storage and shipping changes, such as tankers taking the long route around Africa (40 days vs 20 days), because they are unable to find a buyer and hoping that demand will spike while ships are at sea. From the EIA: Europe, like the U.S. East Coast, is experiencing a relatively warm winter. In addition to the resulting weak winter heating demand, high refinery runs in Europe and increased imports have kept distillate inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far above normal.  As a result, inventories are being held in floating storage and imported cargos are being diverted to longer voyages. Increased European refinery runs [have] contributing to high distillate inventories in the ARA region. As demand for gasoline in the United States and in West Africa increased last summer and fall, higher gasoline crack spreads led to increased European refinery runs. The increased refinery runs yielded distillate, along with the more profitable gasoline. At the same time, new and traditional sources of distillate have expanded capacity to supply ultra-low sulfur distillate (ULSD) to Europe. In Russia, which is a longtime supplier of distillate to Europe, refineries have been upgraded to produce lower-sulfur distillate fuels that are widely used in Western Europe, and have increased exports to Europe. Elsewhere, several new refineries, including those in Saudi Arabia and India, which are geared toward maximizing ULSD output, have come online in the past few years, further adding to the supply of distillate. These factors — reduced heating demand, increased European refining runs, and increased imports — have pushed independently held distillate inventory levels in the ARA to more than 26 million barrels in recent months, more than 7 million barrels higher than the five-year average (Figure 2).

IEA warns consumers of spike in oil prices - The International Energy Agency (IEA) is warning consumers not to let cheap oil lull them into a false sense of security amid forecasts of a price spike by 2021. In a report, the IEA said it expects prices to start recovering in 2017. But it forecasts that will be followed by a sharp jump in price as supply shrinks following under-investment by struggling producers. Brent crude touched a 13-year low of $28.88 a barrel in January. It has since recovered. On Monday the price was up around 4.9% at $34.62, but still far below a high of $115 in June 2014. Fatih Birol, executive director of the IEA, said: "It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future." The policy advisor expects global oil supply will grow by 4.1 million barrels of oil per day between 2015 and 2021, down from an increase of 11 million barrels of oil per day between 2009 and 2015. It also expects investment in oil exploration and production to fall by 17% in 2016 following a 24% decline last year. The IEA said: "Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks."

Oil rebounds after prediction of declining U.S. shale output --  Oil prices rose 7 percent on Monday after the world's oil consumer body said it expected U.S. shale production to fall this year and next, potentially reducing the glut in supplies that has cut prices by 70 percent in 18 months. A bounce in global stock markets and the after-effect of a fall in the U.S. oil rig count last week also supported prices. International benchmark Brent crude futures were up $1.68, or 5.1 percent, at $34.69 a barrel at 1501 GMT, while U.S. crude futures surged through the $30 a barrel mark, trading up $2.05, or 6.9 percent, at $31.69 a barrel. The International Energy Agency (IEA) said in its medium-term outlook on Monday that U.S. shale oil production was expected to fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017. This fed into data released late last week that showed U.S. drilling rig numbers had fallen to the lowest level since December 2009.

Why Oil Producers Will Be Over a Barrel for a Long Time Yet -- Oil prices may have rallied on a new International Energy Agency forecast for demand to erode the excess supply next year and hopes exporters will soon agree to tighten the spigots, but producers shouldn’t get too excited. Underlying markets factors are likely to ensure the surge is short-lived, just a blip in an era of weak prices. First, the outlook for the global economy has dimmed since the International Monetary Fund last cut its forecast, keeping a tight lid on demand. And second, while producers might slim output, the capacity to pump oil will fall only gradually. As previous supply gluts have shown, a broad gap between demand and capacity puts a ceiling on a strong rebound in prices, often for a long time. Although the IEA spurred hopes the balance between supply and demand will be better balanced next year, it warned in the same breath it could take years for the current glut to fade even if U.S. shale production slumps and major exporters agree to trim output. Leonardo Maugeri says even if producers reach a deal to cut output, they’ll be hard-pressed to abide by it. As warmer weather fuels a seasonal rise in consumption, prices are likely to tick up. Along with signals of lower production by the U.S. and others, that might persuade some the worst is over. “This sort of complacency may act as a brake for more decision actions by oil producers, who may convince themselves that the market is finally working and there is no need to search for a difficult agreement for cutting production,”

The Demand Side to Oil's Decline - David Beckworth  - Why have oil prices declined so sharply since mid-2014? For many observers the answer is obvious: there has been a surge in global oil production and it has pushed down oil prices. It is hard to argue oil supply has not been important, but the slowdown in emerging economies and in the United States also suggests that global demand is playing an important role too. If so, this understanding raises several questions: First, how much of the decline in oil prices since mid-2014 can be attributed to weakened global demand? Second, why did global demand begin falling in mid-2014?  On the first question, Stephen King of HSBC believes that weakened global demand is a key reason for the recent decline in oil prices. Here is what he said to CNBC: "You have a situation where emerging markets in general are extremely weak, that in turn is causing commodity prices to decline rapidly, including oil prices, so rather than saying lower oil prices are a stimulus for the commodity consuming parts of the world, I think you should see lower oil prices as a symptom of weakness in global demand,"  Jens Pedersen, an economist with Danske Bank, shares this view and provides following figure as evidence: This figure is certainly suggestive of a link between global demand and oil prices, but exactly how much does this link explain?  Ben Bernanke had a recent post that attempted to answer this question. In it, he presented evidence from an estimated model for the demand of oil. The model builds upon the work of James Hamilton who estimated a regression where the demand for oil is determined by changes in copper prices, the 10-year treasury yield, and the dollar. Here is Bernanke's explanation for why this model approximates the demand for oil: The premise is that commodity prices, long-term interest rates, and the dollar are likely to respond to investors’ perceptions of global and US demand, and not so much to changes in oil supply. For example, when a change in the price of oil is accompanied by a similar change in the price of copper, this method concludes that both are responding primarily to a common global demand factor. While this decomposition is not perfect, it seems reasonable to a first approximation.

WTI Surges Above $33 Despite IEA 'Glutter'-For-Longer Warnings -- WTI crude prices are up almost 6% this morning with April (the new front-month) trading above $33.50 - testing post-DOE plunge stops. The irony of the ramp is that it comes amid terrible global PMIs (demand), a report from IEA of oil staying in glut for longer than expected (supply), and warnings from Abu Dhabi's biggest bank that $20 oil is possible. Oh well, we are sure the algos know what they are doing... despite veterans of the 1980s oil glut warning it could take 7 to 10 years to emerge from the current slump. On the supply side, as Bloomberg reports, the global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency. While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth. “Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.” The IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment. The agency acknowledged that the industry’s expectations -- and its own predictions -- that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.

IEA: Slashed spending by drillers could lead to price spike - (AP) — Oil prices will more than double by 2020 as current low prices lead drillers to cut investment in new production and gradually reduce the glut of crude, the head of a group of oil-importing countries said Monday. Fatih Birol, executive director of the International Energy Agency, said oil would rise gradually to about $80 a barrel. Oil prices shot to more than $100 a barrel in mid-2014 before a long slide sent them crashing below $30 last month. “There was a rise, there will be a fall, and soon there will be a rise again,” Birol said on the opening day of a huge energy-industry conference that will feature addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz. Birol’s group issued a fresh outlook on energy markets. It forecast that 4.1 million barrels a day will be added to the global oil supply between 2015 and 2021, down sharply from growth of 11 million barrels a day between 2009 and 2015. A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003. Experts underestimated the ability of shale-oil producers in the United States to withstand falling prices — for a time — which, combined with OPEC refusing to cut production, led to a glut. The same experts now think that U.S. production, along with new supplies from Iran, which has been freed from international sanctions, will blunt what otherwise might be a sharper run-up in prices.

Rudderless OPEC Doesn’t Know How To Respond To U.S. Shale: Oil executives, energy market analysts, and government officials have descended on Houston this week for the IHS CERAWeek conference, a top industry conference often likened to oil’s version of the Davos World Economic Forum.. At the forum, the International Energy Agency published its closely-watched Medium Term Oil Market Report, which offers an outlook on oil markets through the end of the decade. The IEA sees oil prices remaining low through 2016, with supply and demand only starting to converge in 2017. On the other hand, the agency also said that U.S. shale will finally start posting more substantial declines this year, dropping by 600,000 barrels per day. As a result, the market will slowly adjust, although incredibly high levels of oil placed in storage will slow the balancing. Oil prices rallied more than 6 percent on Monday following the IEA’s comments, with hopes pinned on declines in shale production.. OPEC’s Secretary-General spoke at the conference, where much of the oil world closely listened to his comments regarding OPEC’s recent production freeze deal announced with Russia. Secretary General Abdalla Salem El-Badri said that the freeze was the “first step,” which could be followed by “other steps in the future.” He also said that everyone will wait and see how the results of the freeze over the course of the next few months. OPEC recognizes role of shale. El-Badri largely admitted OPEC’s waning influence due to the rise of U.S. shale. "Shale oil in the United States, I don’t know how we are going to live together," he said in Houston on Feb. 22. “Any increase in price, shale will come immediately and cover any reduction.” The IEA’s report mostly backed up that sentiment. Although the Paris-based energy agency predicted shale would decline substantially in 2016 and 2017, the IEA also said that shale would bring back 1.3 mb/d of liquids production by the end of the decade. But El-Badri also said that the large cuts to upstream investment today will lead to “a very high price” in the future. “The concern is no investment now, no supply in the future. It’s as simple as that,” El-Badri said. “If there’s no supply coming to the market, prices will go up.”

Saudi Arabia's oil minister is going face-to-face with the people he's putting out of business (Reuters) - This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: US shale oil producers struggling to survive the worst price crash in years. While soaring US shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70% price collapse in the past 20 months primarily on Naimi, seen as the oil market's most influential policymaker. During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing US wildcatters and executives who are stuck in a zero-sum game. "OPEC, instead of cutting production, they increased production, and that's the predicament we're in right now," Bill Thomas, chief executive of EOG Resources, one of the largest US shale oil producers, told an industry conference last week, referring to 2015. It will be Naimi's first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries' shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall. Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom's market share against fast-growing, higher-cost producers. It just so happens that US. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel. "I'd just like to hear it from him," said Alex Mills, president of the Texas Alliance of Energy Producers. "I think it should be something of concern to our leaders in Texas and in Washington," if in fact his aim is to push aside US. shale producers, Mills said. Last week's surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels - near record highs - did not offer much solace and the global benchmark Brent crude ended the week lower at $33 a barrel and US crude futures ended unchanged at just below $30.

Saudi oil minister says market should handle low prices (AP) — Saudi Arabia’s oil minister says production cuts to boost oil prices won’t work, and that instead the market should be allowed to work even if that forces some operators out of business. Ali Al-Naimi said Tuesday that cutting production would mean low-cost producers like Saudi Arabia would be subsidizing higher-cost ones — an apparent reference to U.S. shale oil drillers. Al-Naimi says the global oil glut will end, though he won’t predict when. While rejecting production cuts as unrealistic, Al-Naimi endorses a freeze on production at current levels if major producing countries go along. The freeze idea, floated last week by Saudi Arabia, Russia, Venezuela and Qatar, faces uncertain prospects. Iran, just coming off international sanctions, wants to boost its production. Naimi is speaking at a gathering of energy leaders in Houston.

Oil Erases Yesterday's Gains As Al-Naimi Warns Producers "Cut Costs Or Liquidate" - Live Feed - It appears oil traders are disappointed with Al-Naimi's comments. Suggesting hopefully (for some) that the 'freeze' is the start of a process, al-Naimi then dropped the tape-bomb:


He then added that "not all the countries will freeze; The ones that count will freeze."WTI Crude (April) front-month futures have erasd yesterday's gains.

Yergin Ahead Of The Conference -- FuelFix is reporting: Prominent energy expert Daniel Yergin believes the energy industry’s day of reckoning is here, amid the sudden and unrelenting rush of crude that has drowned oil markets for a year and a half.  This has happened before. In the 1930s, Texas suddenly overflowed with oil. Twenty years after that, it happened in Russia and the Middle Eastern countries. Then, in the 1980s, a tidal wave of oil from the United Kingdom’s North Sea, Alaska’s North Slope and Mexico presaged a ruinous oil bust. Now, the rapid-drilling shale oil producers in Texas and North Dakota that brought on the bulk of the world’s supply growth in recent years are dealing with the self-inflicted wounds of overproduction and high levels of debt. A new reality which requires a "re-adjustment: Such a cut is still unlikely, Yergin said, because of how shale oil has changed the industry. Unlike virtually every other way to extract crude from the earth, shale drilling doesn’t take longer than a few months. It has an average cycle time of 80 days, according to Goldman Sachs, meaning local oil companies can put oil on the market almost as fast as Saudi Arabian oil can arrive in the United States by ship.  That means if OPEC cut production, it couldn’t support prices for long. Higher-cost shale drillers would have an incentive to restart their rigs in West Texas and soak up any market share left behind. In November 2014, OPEC decided not to curb its production. “OPEC said if there’s going to be some effort to stabilize the market, it’s not just going to be us,” Yergin said. “It was an adjustment to a new reality.” Yergin doesn't have much to add to what has already been written here, there, and everywhere.

Double-Talk In Houston -- February 23, 2016: A Freeze, But No Cut In Production -- Oil & Gas Journal reports on the speech and comments given by Saudi's energy minister. No cut, just a freeze. Maybe: When asked about the recently announced deal reached by Saudi Arabia with three other producing countries to freeze production at January rates, Al-Naimi said it is the beginning of the process to rebalance supply and demand. “Cutting production is not going to happen,” he said. There will be another meeting next month, he said, to get more producing countries to agree to the freeze. On markets: What is different about this most recent and long-running downturn, Al-Naimi said, is that oil prices had reached a high-enough level that “every barrel on earth was being produced regardless of economics.” The solution, he said, is to get back to the marginal cost of development.  No, every barrel on earth was being produced because Saudi let the price of oil spike to $140 making it economically feasible to go after "expensive oil" and in the process learn how to make the process economical even at $30.   And exactly what is the marginal cost of development in Saudi Arabia? About $6.

Saudi oil minister Naimi: Oil production cuts won't happen: Saudi oil minister Ali Ibrahim Naimi said Tuesday producers will hopefully meet in March to negotiate an output freeze, but production cuts will not happen. Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed a freeze that would cap production at January levels. Russian Energy Minister Alexander Novak said Saturday the deal, which is contingent on other producers participating, should be finalized by March 1, Reuters reported. "Freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It's going to take time," Naimi said. "It is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production — they will not deliver. So there is no sense in wasting our time seeking production cuts," he added. There is now less trust than normal among the world's oil exporters, he said. Naimi made his comments following a keynote speech at the IHS CERAWeek conference in Houston, his first U.S. appearance since Saudi Arabia led OPEC's current high production policy more than a year ago. Asked by CNBC whether he believed speculation about an output cut would continue to affect the price of oil, he declined to comment.

Oil price plunges after Saudi oil minister Ali Al-Naimi rules out production cuts | Financial Post: Saudi oil minister Ali Al-Naimi issued a stark warning Tuesday to global oil executives gathered in Houston, many of them North American producers: Lower your costs or “get out.”“The producers of those high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” the minister told a business audience in Houston during a speech at the IHS Ceraweek event on Tuesday. “It sounds harsh, and unfortunately it is, but it is the most efficient way to rebalance markets. Cutting low-cost production to subsidize higher cost supplies only delays an inevitable reckoning.” The minister emphasized that OPEC has not “declared war on shale,” nor is it chasing greater market share and is seeking to cooperate with other producers. But OPEC will not yield and implement production cuts as Saudi Arabia does not believe other countries will comply, the minister said. Instead Saudi Arabia, along with Russia, Iraq and Qatar are looking to freeze their production to January levels, provided other countries including Iran agreed.

Saudis Admit That Their Assault Was Aimed Directly At US Shale Industry -- Bloomberg -- I think we learned everything we needed to know about the currently global oil situation the first two days of the Houston conference. I posted the comments of the energy minister from Saudi Arabia at this post. I suggested that his comments were a lot of double-talk. A reader said it much better: the 81-year-old energy minister spoke with a forked tongue. He's been doing this so long, his tongue is shredded. He's being doing this so long, he could be the energy czar for President Obama. I say all that because Bloomberg wrote their story about the same time. Bloomberg agrees: the Saudi Surge was a direct attack on the US shale revolution as suspected all along.  After first ignoring it, later worrying about it and ultimately launching a price war against it, OPEC has now concluded it doesn't know how to coexist with the U.S. shale oil industry.  OPEC launched a price war against U.S. shale and other high-cost producers, including Canadian oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite a global oversupply.  Since then, oil prices have plunged by more than half, hitting a 12-year low of about $26 on February 11, 2016. In a rare admission that the policy hasn't worked out as planned, El-Badri said that OPEC didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.  US shale oil will not disappear: The International Energy Agency earlier on Monday gave OPEC reason to worry about shale oil, saying that total U.S. crude output, most of it from shale basins, will increase by 1.3 million barrels a day from 2015 to 2021 despite low prices.  While U.S. production from shale is projected to retreat by 600,000 barrels a day this year and a further 200,000 in 2017, it will grow again from 2018 onward, the IEA said.

How Saudis can cut oil production-—commentary: Saudi Arabia is coming under increasing pressure to implement oil production cuts. Last week Russia and Saudi Arabia announced a provisional plan to freeze oil production levels if other major producers went along. But by late in the week, with Iran balking as expected, both the Russians and Saudis were walking the deal back, with the Saudis categorically rejecting production cuts and the Russians averring that a 'freeze' actually allowed Russia to increase output.To all appearances, the Saudis had not thought the matter through and were now sawing the branch off behind the Russians, who were in turn fleeing the scene. The freeze proposal had disintegrated into total chaos, with the Saudis clearly having blundered. To repair fences—or at least provide clarification—Saudi Oil Minister Ali al-Naimi is scheduled to address attendees of IHS CERAWeek in Houston on Tuesday. The minister, who is considered the most influential policymaker in the industry, will face U.S. shale industry producers who have been devastated by the oil price plunge. A production cut is considered a difficult, and perhaps insurmountable, challenge. In reality, the math is pretty simple, and Minister al-Naimi has only three questions to answer. We calculate shale industry breakeven around $65 per barrel and do not believe we would see a material re-start to the industry under $50 per barrel on a WTI basis. WTI has recently been trading around $30 per barrel. Thus, OPEC could increase oil prices by $20 per barrel—60 percent—without risking a material revival of U.S. shale production. Further, any OPEC and Russia production cut would automatically qualify as spare capacity to be called whenever prices rise again. Shale producers would have to take into consideration that OPEC and Russia would seek to preempt a rise in oil price above $50 per barrel by increasing their own production first. Thus, production cuts would not only increase prices now, they would also have a deterrent value later.

Oil Drops After Iran Slams OPEC Production 'Freeze' Proposal As "Ridiculous" - Despite OPEC's El-Badri proclaiming that Iran and iraq "didn't refuse to join the production freeze," oil prices are tumbling this morning on comments from Iran's oil minister that OPEC's call for a production freeze is "ridiculous." Proposal by Saudi Arabia, Russia, Venezuela, Qatar for oil producers to freeze output puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh says, according to ministry’s news agency Shana.

Oil Crashes After API Reports Massive Crude Build - After last week's roller-coaster ride (API "draw" vs DOE "build"), tonight's API data (following Al-Naimi's reality check this morning) was much heralded. After DOE reported builds across the entire complex last week, and expectations of a 3mm barrel build, API reported a massive 7.1mm build and a bigger than expected 307k build at Cushing. Gasoline inventories also rose more than expected (for the 15th week in a row).

  • Crude +7.1mm (3mm exp)
  • Cushing +307k (300k exp)
  • Gasoline +569k (-1mm exp)
  • Distillates -267k (-700k exp)

While this may have been catch up from last week's data, this is still a major build from API...WTI plunged at the NYMEX close and was limping lower into the API print and then collapsed at the massive build hit... Which is pressuring the front-month roll... Charts: Bloomberg

Oil Price Rally Comes Undone As U.S. Crude Inventories Build - One hundred and fifty-nine years after the first shipment of perforated postage stamps was received by the U.S. Government, and the crude complex is posting a loss once more. After the distraction in recent days from rhetoric out of Ceraweek in Houston, focus today shifts to weekly inventories, and current oversupply in the U.S. petroleum complex. Last night’s API report presented a strong build to crude stocks, leading to the same expectation from today’s EIA report. This makes logical sense to us from a ClipperData perspective, as the buildup of vessels offshore in the U.S. Gulf Coast recently means we have seen super-sized imports in the last week. Refinery utilization also likely dropped, ushering crude demand lower still. While on the topic of the Gulf of Mexico, we discussed a couple of weeks ago how Mexican oil production is dropping. OPEC in its latest monthly report expects Mexican oil production to drop by 130,000 barrels per day to 2.47 million bpd, hot on the heels of a 200,000 bpd drop in 2015. The chart below from Bloomberg pegs Mexican production at an even lesser rate:  In terms of our ClipperData, crude exports have held relatively steady for the last couple of years around 1.1 million bpd. While volumes have been fairly static, the destination for these flows has changed quite considerably. This has mostly been to the benefit of Asia and Europe, while U.S. loadings have dropped from 73 percent of total exports in 2013 to 61 percent last year.

Oil below $33 on Saudi comments, report of U.S. inventory rise | Reuters: Oil fell below $33 a barrel on Wednesday after Saudi Arabia ruled out production cuts and an industry report said that U.S. crude stockpiles had hit record levels, underlining the supply glut. Saudi Oil Minister Ali al-Naimi said production cuts would not happen, though more countries would join a deal to freeze output. OPEC and non-OPEC producers who support the idea are planning a mid-March meeting, his Venezuelan counterpart said. "Al-Naimi's remarks punctured an oil-price rally that has lacked substance," said David Hufton of broker PVM. "The market correctly interpreted the presentation as bearish." Brent crude was down 75 cents at $32.52 a barrel at 09:38 a.m. EST. U.S. crude fell $1.16 to $30.71. Both dropped more than 5 percent in intra-day trading on Tuesday. Also pressuring prices, the American Petroleum Institute (API), an industry group, said on Tuesday that crude inventories rose by 7.1 million barrels last week, far exceeding expectations of a 3.4 million barrel rise.   Oil has slid from more than $100 a barrel in mid-2014, pressured by excess supply and a decision by the Organization of the Petroleum Exporting Countries to abandon its traditional role of cutting production to boost prices.

Glut Worsens as U.S. Oil Storage Levels Rise Again - Oil prices soured after Tuesday’s comments from Saudi Arabia’s oil minister Ali al-Naimi, who essentially ruled out the possibility of an OPEC production cuts.  The oil markets received another round of bearish news on Wednesday when the EIA released its latest weekly figures from the oil patch. The data showed that refinery runs declined again, down to 15.7 million barrels per day for the week ending on February 19. That is a drop of 163,000 barrels per day compared to the week before. More ominously was the continued rise in crude oil inventories. Oil stocks jumped by another 3.5 million barrels, leaving the U.S. with 507.6 million barrels of oil sitting in storage, yet another record. The key storage hub of Cushing, OK, saw another slight increase in inventory levels, now topping 65 million barrels. The hub is now about 90 percent full. There were small pieces of good news, however. Gasoline inventories did post a decline, dropping by 2.2 million barrels. Storage levels for gasoline are still at abnormally high levels, but the drawdown is a small sign that consumers are responding to cheap gas. U.S. oil production continued to inch downwards. For the week ending on February 19, total oil production fell by another 33,000 barrels per day to 9.1 million barrels per day. Although production figures always fluctuate from week-to-week, production has remained largely flat since September. The U.S. has now posted six consecutive weeks of declines, albeit in very small increments. The figures add further evidence to the notion that the U.S. will see sizable reductions in oil production this year, mostly from U.S. shale. The IEA on Monday said that the U.S. will lose 600,000 barrels per day of production in 2016.

U.S. crude stocks at record high, first gasoline draw since November - EIA | Reuters: U.S. crude oil stocks rose to a second consecutive record high last week as refinery utilization fell, while gasoline inventories fell for the first time since November, data from the Energy Information Administration showed on Wednesday. Crude inventories rose 3.5 million barrels in the week to Feb. 19, slightly more than forecasts for an increase of 3.4 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures rose 333,000 barrels to 65.1 million, the fourth straight week of hitting record highs, the EIA said. On the Gulf Coast, crude stockpiles also rose to the highest on record, up 4.4 million barrels to 255.6 million barrels, following cuts at refineries from Texas to Philadelphia in response to low margins.. Refinery crude runs fell 163,000 barrels per day as utilization rates dropped fell 1 percentage point to 87.3 percent of total capacity, EIA data showed. As a result, gasoline stocks fell after building to record highs for three straight weeks, drawing down 2.2 million barrels, more than double analysts' expectations, to 256.5 million barrels. U.S. East Coast gasoline stocks, however, rose 1.8 million barrels to 72.2 million barrels, their highest levels on record since at least 1990, EIA data showed.

Crude Spikes On Gasoline Draw & Production Cut (Despite Another Cushing Build) -- Following last night's major build (from API), DOE reported a bigger than expected Crude build (3.5mm vs 3.25 exp). Crude prices jerked higher on this news as it was less than the API print of +7.1mm build and Gasoline and Distillates inventories dropped. However, Cushing inventories rose 333k barrels (the 15th build in the last 16 weeks. Perhaps more importantly, The Lower 48 saw a 196k bbl/day YoY drop in production (the 5th weekly drop in a row) and oil prices are surging.API:

  • Crude +7.1mm (3mm exp)
  • Cushing +307k (300k exp)
  • Gasoline +569k (-1mm exp)
  • Distillates -267k (-700k exp)



The all important commercial stocks rose by 3.5 million to another record high of 507.6MM, 73.5MM barrels, or 16.9%, higher than a year ago. The full breakdown: first drop in gasoline inventories in 15 weeks  So overall crude inevntory was less than API (but API just caught up t last week's miss) and was more than expected. Cushing saw another build - which is a major problem as we already noted that it is denying storage requests. But the 5th weekly drop in production has encouraged some more buying... with production down 196k bbl/day YoY

Oil Tumbles Amid Storage Concerns As Genscape Reports Cushing Build -- What goes up on nothing but a short-squeeze, must come down on fundamentals. Following yesterday's DOE report of a nother build at Cushing (which followed API's report of another build at Cushing), Genscape has just reported another build at Cushing... the storage wars are back. As we detailed previously, Genscape joins the ever louder chorus that the US is approaching the capacity tipping point: Further, Genscape adds that when looking specifically at Cushing, the storage facility is virtually operationally full (or at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades being denied however the silver lining is that there is a lot of open pipeline space from Cushing to gulf coast (their full presentation can be watched here). .. For those interested, the Genscape presentation can be watched in its entirety below

Number of US rigs down to 502; Texas down 5 (AP) – Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 12 this week to 502. The Houston company said Friday that 400 rigs sought oil and 102 explored for natural gas amid depressed energy prices. A year ago, 1,267 rigs were active. Among major oil- and gas-producing states, Texas declined by five, New Mexico dropped by three, Alaska and California each declined by two and Ohio, Pennsylvania, Utah and Wyoming each dropped by one. Louisiana gained two rigs and West Virginia gained one. Arkansas, Colorado, Kansas, North Dakota and Oklahoma were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. Oil-Rig Count Continues to Fall - WSJ: The U.S. oil-rig count fell by 13 to 400 in the latest week, according to Baker Hughes Inc., BHI 2.31 % maintaining a recent clip of sharp declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But the slide hasn’t been far enough to ease the global glut of crude. There are now about 68% fewer rigs of all kinds from a peak of 1,609 in October 2014. According to Baker Hughes, the number of U.S. gas rigs increased in the latest week by 1 to 102. The U.S. offshore-rig count was 27 in the latest week, up 2 rigs from last week and down 24 rigs from a year ago. In total, the U.S. rig count is down 12 from last week at 502. Oil prices gained Friday on expectations that lower production around the world could shrink the global glut of crude. Recently, U.S. crude oil climbed 1.12% to $33.44 a barrel.

U.S. Oil Rig Count Touches 400, Overall Count at 502 - The oil and gas rig count continued to fall this week, but at a slower pace than was seen throughout the rest of February. The U.S. rig count fell to 502 for the week ended February 26, 2016, according to the latest data from Baker Hughes ( The decline represents 12 lost rigs in absolute terms, but a decline of 2% from last week. Every week previous to this one in the month of February saw declines of 5% or more from the previous week’s total. The main source of the falling number of rigs in the U.S. continues to come from the oil patch, with the total number of rigs targeting liquids touching 400 this week, down 13 from a week ago. The main source of the losses came from the Eagle Ford this week, which reported seven fewer rigs. Gas rigs increased by one this week, reaching 102. The Cana Woodford shale reported three additional rigs this week, though that was offset by losses in other plays. The Canadian rig count continued its decline started earlier this month as well. The count for the last Baker Hughes report in February was 175 active rigs in Canada, down 31 from last week’s total.

Watch five years of oil drilling collapse in seconds. The oil crash has taken its toll.: The crash in oil prices has taken its toll. The number of active oil-drilling rigs in the U.S. is plunging toward the lowest level in more than 75 years of records. The animation below shows the deployment of oil and gas rigs over five years, culminating in the collapse of almost 75 percent of the rig count.  These five years represent the fastest expansion of oil production in U.S. history. New technology drove this boom—particularly the deployment of horizontal drilling through shale rock. The three biggest oil-producing shale regions are the Permian basin in West Texas, the Eagle Ford in Southern Texas, and the Bakken in North Dakota. After the plunge in oil prices kicked off in late 2014, producers started shutting down rigs at an unprecedented rate. The number of active rigs is approaching the lowest level since Baker Hughes started tracking rig counts in 1940. Last week the rig count stood at 514, compared with the record-low 488 recorded in April 1999. A corresponding drop in U.S. production hasn’t yet materialized. Today’s rigs are more efficient, and new wells pump oil faster, so raw rig counts are losing some of their predictive power. Despite the declining number of rigs, the U.S. is still pumping oil at a historically high rate. At some point that will have to change change if rig counts continue to tumble.

This Week in Petroleum - EIA - Following the path started in 2015, U.S. commercial crude oil inventories have continued to build in early 2016 and are nearing record highs. Stocks in the Gulf Coast reached 256 million barrels for the week ending February 19, while stocks at Cushing, Oklahoma, reached their highest recorded level of 65 million barrels for the week ending February 19 (Figure 1). U.S. commercial crude oil inventory builds at this time of year are not unusual, as planned maintenance at U.S. refiners typically reduces runs in January and February. However, with inventories already high after generally building over the past 18 months, this turnaround season could push storage capacity use to new highs. The result may be lower crude oil prices and higher price volatility in the near future. According to the  latest survey on working storage capacity, conducted at the end of September 2015, storage capacity in Petroleum Administration for Defense District 3 (PADD 3, or Gulf Coast) and Cushing was 302 million barrels and 73 million barrels, respectively. Using inventory levels from the latest Weekly Petroleum Status Report, utilization in PADD 3 and at Cushing was 84% and 89%, respectively. Since the end of September, however, it is likely that new storage capacity has been built, which would reduce overall utilization. Weekly crude oil inventory numbers also include pipeline fill and lease stocks (oil that has been produced but not yet entered into the supply chain), which are not included in the capacity survey estimates. Current storage conditions, as well as expectations for further builds through 2016, are also affecting U.S. crude oil prices by putting downward price pressure on near-term futures contracts. When inventories are high and building, costs to store crude oil generally increase. In futures markets, where commodities may be purchased for specific delivery times in future months, the the high value of storage often means that long-term deliveries are priced higher than near-term deliveries, a situation known as contango. From February 1 to February 23, the prices for delivery of West Texas Intermediate crude oil (WTI) 13 months into the future exceeded prices for delivery one month into the future by an average of $10.44 per barrel (b). The comparable spread in the Brent futures market, the benchmark for the global waterborne crude oil market, averaged $7.54/b (Figure 2).

"There’s A Feeling Of Bits Of Ice Cracking All At Once" - This Is The 'Big New Threat' To Oil Prices --  One week ago, we reported that even as traders were focusing on the daily headline barrage out of OPEC members discussing whether or not they would cut production (they won't) or merely freeze it (at fresh record levels as Russia reported earlier today) a bigger threat in the near-term will be whether the relentless supply of excess oil will force Cushing, and PADD 2 in general, inventory to reach operational capacity. As Genscape added in a recent presentation, when looking specifically at Cushing, the storage facility is virtually operationally full (at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously,storage requests for specific grades have already been denied. Goldman summarizes the dire near-term options before the industry as follows: The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.

The Danger Of Low Oil Prices For The Global Economy  -- wanted to check in with Dr. John C. Edmunds, a Professor of Finance at Babson College, to get his thoughts on the OPEC deal, oil markets, and some developments in Latin America. He is an expert in international finance, capital markets, foreign exchange risk, and Latin American stock markets. Dr. Edmunds holds a D.B.A. in International Business from Harvard Business School, an M.B.A. in Finance and Quantitative Methods with honors from Boston University, an M.A. in Economics from Northeastern University, and an A.B. in Economics cum laude from Harvard College. He has consulted with the Harvard Institute for International Development, the Rockefeller Foundation, Stanford Research Institute, and numerous private companies. This interview has been edited for brevity and clarity.

What a Saudi Oil-Supply Freeze Would Really Mean for Markets - Saudi Arabia shot down rumors it might cut oil production, but reaffirmed its commitment to an output freeze that could restrict crude flows to market this summer. With the world’s biggest exporter already pumping near-record volumes, that may not matter. Last week’s pledge to cap production at January levels along with Russia, Venezuela and Qatar -- repeated Tuesday in Houston by Saudi Oil Minister Ali al-Naimi -- could mean the Middle Eastern nation refrains from the typical output boost needed to feed the summer increase in domestic demand. Forgoing that surge would, in theory, deprive the market of exports equivalent to about a quarter of the current global crude surplus. “By holding supply at January levels and not increasing when their domestic requirement for power generation is at its peak, there will be about 500,000 barrels a day less Saudi crude making its way to global markets.” Saudi Arabia has on average boosted output by about 360,000 barrels a day from January levels to the seasonal peak in June and July, according to figures going back to 2002. Over the same period, the amount of crude the country burns to generate electricity typically rises by as much as 500,000 barrels a day as citizens turn up their air conditioning, the data show. With Saudi Arabia’s production already at near-record levels, a dip in exports wouldn’t leave the market short. The biggest member of the Organization of Petroleum Exporting Countries ramped output up last year to intensify pressure on U.S. shale producers and mark its territory before Iran’s return to world markets. It was pumping 10.2 million barrels a day in January, according to data compiled by Bloomberg -- a level that already exceeds the summer production peak in all but one of the past 10 years.

About That "Oil Freeze": Russian Crude Production Sets New Post-Soviet Record In February -- As noted earlier, among the catalysts for the overnight leg higher in oil was a statement by Venezuelan Oil Minister Eulogio Del Pino who triggered the headline-scanning algos yesterday when he said, during a television broadcast on TeleSur, that oil producing countries were discussing a March meeting site (which apparently is sufficient to instill confidence in future cuts), and that Venezuela, Russia, Qatar and Saudi Arabia are planning to meet in July. He added that "There’s no capacity to continue putting oil on the market. If this situation continues we’ll have a collapse in oil prices" which is quite clear to everyone and certainly the Saudi oil-minister who a week ago explicitly said that Saudi Arabia would not cut production.  Recall that Ali Al-Naimi threw down the gauntlet at IHS CERAWeek by ruling out production cuts and challenging many of those very same leaders in Houston to "lower costs, borrow money or liquidate." Which brings us to the topic of the production freeze, the catalyst that pushed oil off its 13 year low hit early last week. What is surprising here is that according to calculations by Bloomberg's Julian Lee, released moments ago, Russian crude and condensate production just set new post-Soviet daily record of 10.92m bbl yesterday. He notes that the monthly estimate is based on daily data from Energy Ministry’s CDU-TEK for 1st 25 days, and applies the average rate over last week for final 4 days. And since this compares with a revised 10.91m b/d for January, it means that Russia took the production "freeze" seriously: by freezing at a new record high level of production.

Iraqis Celebrate As Threat Of 3rd Bush Presidency Is Over - Baghdad - Thousands of Iraqis poured out into the streets to celebrate in the early hours of Sunday morning, as the threat of a third Bush Presidency was declared over at last. Iraqis, on edge about the prospect of another Bush in the White House since former Governor Jeb Bush entered the race last year, had been watching returns from the South Carolina primary with a mixture of anxiety and cautious optimism. Moments after the first evidence of Bush’s dismal finish began trickling in, however, Iraqis roared with glee as spontaneous festivities erupted across the country.  Observers were stunned to see Sunnis, Shiites, and Kurds dancing together in the streets, putting aside their enmity to celebrate an outcome that they never dreamed possible. “You must understand, we Iraqis have been living with the fear of a third Bush Presidency for months now,” Sabah al-Alousi, a Baghdad shoemaker, said. “Now we can begin to think about a future, for ourselves and our families.” Asked about the possibility of a Trump Presidency, he waved off the question. “This is the greatest day for my country,” he said. “I will let nothing spoil this day.”

Iraq On The Brink Of Chaos As Oil Revenues Fall -- During a sombre visit to Germany last week, Iraqi Prime Minister Haider al-Abadi urged the international community to help boost his country's crisis economy in the face of plummeting crude oil prices, underscoring a desperate situation in which Iraq has lost 85 percent of its oil revenues.  Iraqi oil revenues have fallen to just 15 percent of what they used to be, the embattled prime minister said, despite a boost in production ordered last year. The surge in production has failed to compensate for the collapse of oil prices, and the situation is dire when oil revenues constitute around 43 percent of Iraq’s gross domestic product (GDP), 99 percent of its exports and 90 percent of all federal revenues.. This has prompted the Al Abadi government to announce strict austerity measures across institutions, including significant salary cuts for middle-class government employees. Protest rallies were held against delayed salaries, which later turned violent in some parts of Iraq, including the Kurdistan region. Under these circumstances, one must question the legitimacy of the deal Baghdad has now offered to the Iraqi Kurds. Earlier this week, Baghdad extended an offer to pay the salaries of the KRG’s public employees in return for a halting of unilateral oil exports by the Kurds. Both sides need this deal. The KRG is struggling to pay salaries, and protests are mounting—threatening the stability of what was not long ago the only peaceful and secure place in all of Iraq. But most significantly, both Baghdad and the KRG need to ensure that the Kurdish Peshmerga fighting forces are being paid, because this is the key bulwark against further Islamic State (ISIS) advancements in the disputed territories of northern Iraq, around Mosul and oil-rich Kirkuk. The Iraqi Kurds have accepted the deal, but they don’t really believe it will happen. Baghdad has consistently failed to make good on deals, and with its oil coffers depleted, it’s unclear how the central Iraqi government can afford this.

ISIS Goes Full-Wall Street, Rigs FX Rates To Generate Extra Profits -- While such things are virtually impossible to verify due to the difficulty of getting “inside the caliphate” so to speak, word on the jihadist circuit is that ISIS is running short on money.  Successive rounds of Russian strikes on crude tankers and on the group’s oil infrastructure have crippled the illicit oil trade and tax revenue has also fallen in the wake of Baghdad’s decision to stop paying the salaries of public sector workers in Islamic State-held Mosul and other militant strongholds.   Additionally, ISIS is now reportedly beginning to release captives for as little as $500 and has moved to accept only US dollars as payment for utility bills,   But perhaps the surest sign yet that the self-styled caliphate is running into financial trouble comes from several on-the-ground sources who told AP last week that ISIS is no longer giving away free Snickers bars and Gatorade to its fighters. Now, we learn that Islamic State has resorted to a tried and true method of generating “a little” extra profits here and there: currency manipulation. “The group earns dollars by selling basic commodities produced in factories under its control to local distributors, but pays monthly salaries in dinars to thousands of fighters and public employees,” currency traders in Mosul told Reuters. “It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars.” It’s a simple concept. ISIS takes in dollars, pays salaries in dinars, and calls the exchange rate whatever Bakr al-Baghdadi wants it to be.   “At the official rate set by the Iraqi government, $100 is currently valued at around 118,000 dinars,” Reuters goes on to note. “In Mosul, the same amount costs 127,500 dinars when purchased with 25,000-dinar notes, the largest bill in circulation, [and] the rate rise to 155,000 dinars when purchased with 250-dinar notes - the smallest bill available.” Presto: magic profits at the expense of the populace.

Iran seeks $45B in foreign investment  — Iran’s economy minister said his country is seeking $45 billion in foreign investment following the implementation of a landmark nuclear deal with world powers last month. Ali Tayebnia told reporters Saturday that Iran expects $15 billion in direct foreign investment alone in the next Iranian calendar year, which begins March 20. The historic agreement brought about the lifting of international sanctions last month after the U.N. certified that Iran has met all its commitments to curb its nuclear activities under last summer’s accord. Iran expects an economic breakthrough after the lifting of sanctions, which has allowed it to access overseas assets and sell crude oil more freely. Iran already has access to more than $100 billion worth of frozen overseas assets and Iranian banks earlier this month were reconnected to SWIFT, a Belgian-based cooperative that handles wire transfers between financial institutions. Tayebnia said Iran’s strategic location, political stability and population of 80 million has made the energy-rich Persian state into an attractive place for foreign investment. “All these factors have led to a capacity to attract more than $45 billion in foreign financial resources for next year, with about $15 billion in direct foreign investment,”

How the United States benefits if Iran’s economy booms -- Since the United States lifted sanctions on Iran in January, part of its commitment under the historic nuclear agreement concluded last year, there has been great temptation to believe that the donkey has made it to the other side. Some 80 million Iranians have high hopes that economic relief is nigh. In fact, though, the lifting of sanctions only marked the beginning of the crossing.  The central promise of the nuclear agreement—the Joint Comprehensive Plan of Action, or JCPOA—was that in return for scaling back its nuclear program, Iran would receive sorely-needed economic relief from the United States and its five negotiating partners. Like any agreement, long-term effectiveness will hinge on both sides getting what they want. But right now, there is a lot standing between the Iranian people and what they want, including members of both countries’ political establishments. In Iran, some candidates running for seats in the February 26 parliamentary elections are quick to criticize President Hassan Rouhani for making nuclear concessions, while in Washington, politicians threaten to undo the JCPOA or impose new sanctions.  Allowing Iranian hopes to be dashed, though, would not only threaten the success of the nuclear deal, but also the long-term effectiveness of sanctions as a foreign policy tool. Delivering economic relief will be a difficult task, given the myriad challenges outside US control that hamstring Iran’s economy, but Washington has a vital role to play by laying the groundwork for Tehran’s reintegration into the global financial system—through adjusting its attitude from one of obstruction to cooperation.

Iran votes: Here’s the break down  - Iran's elections this week are crucial as they will determine whether the Persian-style controlled opening conducted by President Hassan Rouhani – and his premier Javad Zarif – will ensure continuity, supported by a favorable Majlis (Parliament).  Not only have Iran's elections yielded prime political players, such as “dialogue of civilizations” president [Mohammad] Khatami, and the immensely controversial president [Mahmoud] Ahmadinejad; parliamentary elections for their part pit an array of factions involved in complex alliances virtually opaque to outside observers.  At stake this time around are the business fruits to be collected after the Vienna nuclear deal and the end of the UN and EU sanctions (significant US sanctions remain); the progressive integration of Iran into the China-driven New Silk Roads; Iran’s strategy to recover market share in the global oil trade, coupled with the immense investment necessary to upgrade its energy industry; deals after deals clinched with European – not to mention Asian – partners; the full, and not partial re-entry of Iran into global consumer markets; and last but not least a shot at reelection for Rouhani in the next presidential elections.    So forget about proverbially pathetic Western disinformation, especially the usual US neocon and Zionist demonization of all things Iran. Here’s what you need to watch to keep these elections in perspective. 

America Is Now Fighting A Proxy War With Itself In Syria— American proxies are now at war with each other in Syria. Officials with Syrian rebel battalions that receive covert backing from one arm of the U.S. government told BuzzFeed News that they recently began fighting rival rebels supported by another arm of the U.S. government. The infighting between American proxies is the latest setback for the Obama administration’s Syria policy and lays bare its contradictions as violence in the country gets worse.The confusion is playing out on the battlefield — with the U.S. effectively engaged in a proxy war with itself. “It’s very strange, and I cannot understand it,” said Ahmed Othman, the commander of the U.S.-backed rebel battalion Furqa al-Sultan Murad, who said he had come under attack from U.S.-backed Kurdish militants in Aleppo this week. Furqa al-Sultan Murad receives weapons from the U.S. and its allies as part of a covert program, overseen by the CIA, that aids rebel groups struggling to overthrow the government of Syrian president Bashar al-Assad, according to rebel officials and analysts tracking the conflict.The Kurdish militants, on the other hand, receive weapons and support from the Pentagon as part of U.S. efforts to fight ISIS. Known as the People’s Protection Units, or YPG, they are the centerpiece of the Obama administration’s strategy against the extremists in Syria and coordinate regularly with U.S. airstrikes.  Yet as Assad and his Russian allies have routed rebels around Aleppo in recent weeks — rolling back Islamist factions and moderate U.S. allies alike, as aid groups warn of a humanitarian catastrophe — the YPG has seized the opportunity to take ground from these groups, too.

Mideast On The Brink: Three New John Kemp Tweets -- February 22, 2016  Tweeting now:

  • NORTHERN THUNDER: Saudi Arabia plans military drill involving 150K troops and 300 aircraft with allies starting Friday Russian playbook is to use massive military manouevres to cloak mobilisation of forces for offensive operations Mass military manouevres will certainly ratchet up tension across the Middle East at the end of the week
One may want to take a look at this NewChina ( post: Despite Saudi Arabia's official line that an upcoming massive military drill targets no third party or directed at any specific operation, analysts say that the primary aim of the maneuver is to tilt the balance in Syria and Yemen in its favor. The drill, code-named "Ra'ad Al-Shamal" (Northern Thunder), is set to begin on Friday. The three-week event will bring together Gulf Arab countries as well as Jordan, Egypt, Sudan, Tunisia, Morocco, Mauritania, Djibouti, Comoros, Pakistan, Malaysia, Senegal, Chad, the Maldives and Mauritius.  The massive war games will involve some 150,000 troops, 300 aircraft, hundreds of tanks and other advanced weaponry, according to Saudi defense officials. The Saudi state news agency said the drill would send a "a clear message" that the kingdom and its allies "stand united to confront all challenges and maintain peace and stability in the region."

Putin "Prepared to Use Tactical Nuclear Weapons" If Turkey/Saudi Invade Syria - The risk that the multi-sided Syrian war could spark World War III continues as Turkey, Saudi Arabia and U.S. neocons seek an invasion that could kill Russian troops - and possibly escalate the Syrian crisis into a nuclear showdown, amazingly to protect Al Qaeda terrorists. When President Barack Obama took questions from reporters on Tuesday, the one that needed to be asked – but wasn’t – was whether he had forbidden Turkey and Saudi Arabia to invade Syria, because on that question could hinge whether the ugly Syrian civil war could spin off into World War III and possibly a nuclear showdown. If Turkey (with hundreds of thousands of troops massed near the Syrian border) and Saudi Arabia (with its sophisticated air force) follow through on threats and intervene militarily to save their rebel clients, who include Al Qaeda’s Nusra Front, from a powerful Russian-backed Syrian government offensive, then Russia will have to decide what to do to protect its 20,000 or so military personnel inside Syria. A source close to Russian President Vladimir Putin told me that the Russians have warned Turkish President Recep Tayyip Erdogan that Moscow is prepared to use tactical nuclear weapons if necessary to save their troops in the face of a Turkish-Saudi onslaught. Since Turkey is a member of NATO, any such conflict could quickly escalate into a full-scale nuclear confrontation. Given Erdogan’s megalomania or mental instability and the aggressiveness and inexperience of Saudi Prince Mohammad bin Salman (defense minister and son of King Salman), the only person who probably can stop a Turkish-Saudi invasion is President Obama. But I’m told that he has been unwilling to flatly prohibit such an intervention, though he has sought to calm Erdogan down and made clear that the U.S. military would not join the invasion.

Syria: Another Pipeline War - Robert F. Kennedy, Jr. -  As we focus on the rise of ISIS and search for the source of the savagery that took so many innocent lives in Paris and San Bernardino, we might want to look beyond the convenient explanations of religion and ideology and focus on the more complex rationales of history and oil, which mostly point the finger of blame for terrorism back at the champions of militarism, imperialism and petroleum here on our own shores. America’s unsavory record of violent interventions in Syria—obscure to the American people yet well known to Syrians—sowed fertile ground for the violent Islamic Jihadism that now complicates any effective response by our government to address the challenge of ISIS. So long as the American public and policymakers are unaware of this past, further interventions are likely to only compound the crisis. Moreover, our enemies delight in our ignorance. As the New York Times reported in a Dec. 8, 2015 front page story, ISIS political leaders and strategic planners are working to provoke an American military intervention which, they know from experience, will flood their ranks with volunteer fighters, drown the voices of moderation and unify the Islamic world against America. To understand this dynamic, we need to look at history from the Syrians’ perspective and particularly the seeds of the current conflict. Long before our 2003 occupation of Iraq triggered the Sunni uprising that has now morphed into the Islamic State, the CIA had nurtured violent Jihadism as a Cold War weapon and freighted U.S./Syrian relationships with toxic baggage.

Saudi Arabia leads surge in arms imports by Middle East states - The international transfer of weapons to the Middle East has risen dramatically over the past five years, with Saudi Arabia’s imports for 2011-15 increasing by 275% compared with 2006–10, according to an authoritative report. Overall, imports by states in the Middle East increased by 61%; imports by European states decreased by 41% over the same period. Britain sold more weapons to Saudi Arabia than to any other country. Saudi Arabia is also the biggest US arms market and buys more American arms than British, the report shows.  UK companies are estimated to have sold more than £5.6bn of arms to the Saudis since 2010, and more than 100 new export licences have been approved since the bombing of Yemen began a year ago. British Typhoon strike aircraft sold to Saudi Arabia are embroiled in a growing controversy over the bombing of civilian targets in Yemen.The figures are contained in the latest arms sales survey by Sipri, the Stockholm International Peace Research Institute. “A coalition of Arab states is putting mainly US- and European-sourced advanced arms into use in Yemen,” said Pieter Wezeman, senior researcher with Sipri’s arms and military expenditure programme. “Despite low oil prices, large deliveries of arms to the Middle East are scheduled to continue as part of contracts signed in the past five years.”

Arms Sales To Saudi Arabia And Qatar Almost Triple In Four Years - Weapons imports by Saudi Arabia and Qatar have rocketed by over 275 percent over the past four years, a new report found on Monday. Between 2011 and 2015, Gulf states were the most significant market for sales by the United States, the world’s biggest arms exporter, the Stockholm International Peace Research Institute (SIPRI) found. In a new report assessing worldwide trends in arms sales over the last four years, SIPRI found that increased demand from the Middle East had led a 14 per cent global rise in arms transfers. The increase was not marked universally – arms imports to European states fell by 41 per cent between 2011 and 2015. By contrast, arms imports by Middle Eastern states grew by 61 per cent – the largest regional increase – during a period marked by massive internal unrest as well as the rise of Islamic State. At the forefront of this growth were Saudi Arabia – now the world’s largest importer of weapons – and Qatar. Arms purchases by Qatar between 2011 and 2015 jumped by 279 per cent, while Saudi Arabia’s increased by 275 per cent over the same period compared to the previous four years. Despite increased competition from China – whose arms exports increased by 88 per cent – the US has remained the world’s largest arms dealer.

Saudi inflation soars to 5-year high on subsidy cut - Official figures showed the recent reform to energy prices meant that housing and utilities and transport were the main sources of inflation as they accelerated sharply in January. – Reuters pic, February 24, 2016.Saudi inflation soared to a five-year high in January after the kingdom made unprecedented cuts to public subsidies and raised fuel prices, a research report said today. The Consumer Price Index (CPI), which reflects movements in the cost of living, rose 4.3% in January compared with the same month a year earlier. That compared with 2.3% in December, said Riyadh-based Jadwa Investment, citing official figures. "The recent reform to energy prices meant that housing and utilities and transport were the main sources of inflation as they accelerated sharply in January," Jadwa said. Transport sector inflation jumped 12.6% year-on-year last month, the highest level in 21 years, the report said. In a bid to counter a record budget deficit due to sharp declines in oil prices, Riyadh raised fuel prices by up to 80% in December. It also cut subsidies to electricity, water and other services. The world's top crude exporter posted a budget deficit of US$98 billion last year and is projecting a shortfall of US$87 billion in 2016.

U.S. Unable To Halt ISIS March Towards Libyan Oil - The Islamic State (ISIS) is taking on recruits faster than anyone can keep up with, and it’s heading towards Libya’s oil crescent, eyeing billions of barrels that a country at war with itself cannot protect—even with U.S. air strikes. In mid-December, the United Nations brokered a power-sharing agreement between Libya’s rival factions, but there is no chance of implementing this. That means there is no chance that the Libyan government can fight back the advance of ISIS. Things are about to get messy, and U.S. air strikes will put only a small dent in a big problem. According to U.S. intelligence figures, there are an estimated 6,000 ISIS fighters now in Libya, headquartered in the town of Sirte, as has reported in the past.. From here, they control hundreds of miles of coastline. There is nothing in Sirte they want; this is simply a strategic base.ISIS fighters have also been tracked down to Benghazi, but here they have not solidified control yet. Still, Benghazi is an important recruitment venue. More specifically, this is where it can combine forces with it radical brethren in the form of Ansar al-Sharia and other radical factions. Benghazi is where ISIS gets bigger. And its pace of recruitment is faster than anything we’ve ever seen before. It absorbs new radical factions wherever it goes. The more successful its attacks and territory grabs, the more successful its recruiting becomes. In Libya, the former prowess of Ansar al-Sharia has quickly waned. ISIS is more brutal, and more decisive. It’s either join or be killed. ISIS’ ability to launch attacks is not limited to Sirte, which is just the staging ground, or even to Benghazi. It can attack pretty much anywhere using hit-and-runs and suicide bombings. So what is it after? There is a multipronged strategy here. The first is to get closer to Europe. The second is to get closer to Africa. The third is to get closer to more oil revenues to fill quickly depleting coffers in Syria and northern Iraq.

World Bank Woos Western Corporations to Profit From Labor of Stranded Syrian Refugees - Under the guise of humanitarian aid, the World Bank is enticing Western companies to launch “new investments” in Jordan in order to profit from the labor of standed Syrian refugees. In a country where migrant workers have faced forced servitude, torture and wage theft, there is reason to be concerned that this capital-intensive “solution” to the mounting crisis of displacement will establish sweatshops that specifically target war refugees for hyper-exploitation. The World Bank is invoking the destruction of war in justifying its proposal. In a devastating quarterly report released last month, the World Bank described a Middle East whose economies have been ravaged by armed conflict. The financial institution put total losses due to the "war in Syria and spillovers to the neighboring five countries" near $35 billion in “output,” noting staggering levels of damage to physical objects and human beings. As a result, the world is now facing the “biggest forced displacement crisis since World War II,” the report warns, determining the immediate outlook for the region to be “cautiously pessimistic.” Amid mounting warnings of large-scale social harm, the World Bank is pursuing its own solutions, issuing a press statement just weeks after its dire quarterly report in which it declared “support to the Middle East and North Africa will amount to U.S. $20 billion in the next five years.” While the announcement was short on details, one specific example of this help should raise profound concern.

The WSJ's Modest Proposal: The Bank Of Japan Should Buy Oil -- We have joked about it in the past: with equities around the globe all correlating tick for tick with the price of oil (supposedly "lower oil is good for the economy", just don't tell that to the stock market), instead of doing piecemeal interventions and monetizing stocks, something which as even Citigroup has noted no longer works, what central banks should do instead is monetize the source of all market problems: oil itself. Key word, however, in all of the above is "joked." Which is why we were almost surprised when none other than the WSJ proposed that, because "central banks have gone down the rabbit hole... starting with record low interest rates, then purchases of government bonds and mortgage bonds, ultra-accommodative policy progressed in Japan to buying real-estate investment trusts and equity funds" and because "in the looking-glass world of modern central banking, almost nothing is taboo, with even the abolition of cash discussed seriously by top monetary wonks" that it is time to make precisely this joke part of actual monetary policy. The WSJ's modest proposal: "the Bank of Japan should print money to buy oil. It sounds beyond nonsense. But with central bankers believing six impossible things before breakfast, it no longer seems inconceivable, which is informative in itself." The WSJ "explains": Consider the BOJ’s problem. The central bank is creating ¥80 trillion ($700 billion) a year to buy mainly government bonds, one of the biggest programs of money printing in history. It already owns almost a third of the bond market, nearly 2% of equities and about half of exchange-traded funds by value. Nonetheless, Japanese inflation remains quiescent. The yen has been strengthening despite the negative rates introduced last month, making it even harder to push prices up toward the BOJ’s 2% target.

China′s industrial overcapacity is ′wreaking far-reaching damage′ - DW.COM - Overproduction in key industries is damaging both China's economic sustainability and foreign trade relations, a new report has warned. Now is the time for big reforms, it urges, supporting a shift in investments. report released Monday by the European Union Chamber of Commerce in China warns that overcapacity - the ready ability of industry to produce far more than its market demands - is halting China's economic reform and hurting its trade relations.  A number of heavy industries cited by the report, from cement to paper production, are plagued by such inefficient expansion. "In just two years - 2011 and 2012 - China produced as much cement as the US did during the entire 20th century," it notes. China's steel production is a particular sore point, said to now be "completely untethered from real market demand." The report comes a week after steel workers took to the streets of Brussels to demand swift action against Chinese "dumping," alongside a European Commission meeting with industry leaders discussing possible tariff measures.  The EU Chamber of Commerce in China is recognized as the "official voice of European business in China."

China’s Bond Bubble - WSJ: The boom and boost in Chinese stocks taught Beijing a valuable lesson about the dangers of government trying to take the risk out of capital markets. And if you believe that, we have a bond to sell you. China’s bond market is booming, and while the absence of small investors makes this less politically dangerous than last year’s stock bubble, the economic implications are equally worrying. As with stocks, Beijing’s goal of building a mature capital market to finance growth is worthy. But it has reversed the proper order by pushing rapid growth before structural reforms. Last year Beijing began to ease restrictions on the issuance and purchase of corporate bonds and gave the municipal-debt market a boost with new issues to bail out local governments. So when stocks crashed in June, many institutional investors shifted into supposedly safer fixed-income securities. Corporate-bond issues last year totaled 2.94 trillion yuan ($450.6 billion), a 21% increase on 2014. Yet demand was so strong that, even as the supply increased, yields fell to five-year lows. The spread between corporate- and sovereign-bond yields shrank to the lowest level since 2007. That is strange considering the economy is slowing and Chinese companies are adding debt even as their profits fall. Corporate debt hit 134% of GDP in 2014, up from 90% in 2007, according to J.P. Morgan.  In the U.S. it is 70%. Ratings agencies downgraded a record number of Chinese companies last year and banks have become more cautious in lending. So are bond investors irrationally exuberant? Not if one considers that China’s corporate debt appears to be risk-free. With a few minor exceptions, whenever companies are unable to pay bondholders, government entities engineer a bailout. Meanwhile, regulators have given indications that they regard the bond-market boom as a benign way to stimulate the economy with fresh credit without stressing banks’ stretched balance sheets.

China’s Vulnerable External Balance Sheet  --China’s capital outflow last year is estimated to have totaled $1 trillion. Money has been channeled out of China in various ways, including individuals carrying cash, the purchase of foreign assets, the alteration of trade invoices and other more indirect ways. The monetary exodus has pushed the exchange rate down despite a trade surplus, and raised questions about public confidence in the government’s ability to manage the economy. Moreover, the changes in the composition of China’s external assets and liabilities in recent years will further weaken its economy. Before the global financial crisis, China had an external balance sheet that, like many other emerging market economies, consisted largely of assets held in the form of foreign debt—including U.S. Treasury bonds—and liabilities issued in the form of equity, primarily foreign direct investment, and denominated in the domestic currency. This composition, known as “long debt, short equity,” was costly, as the payout on the equity liabilities exceeded the return on the foreign debt. But there was an offsetting factor: in the event of an external crisis, the decline in the market value of the equity liabilities strengthened the balance sheet.  Chinese firms acquired stakes in foreign firms, while also investing in natural resources. The former were often in upper-income countries, and were undertaken to establish a position in those markets as much as earn profits. Many of these acquisitions now look much less attractive as the world economy shows little sign of a robust recovery, particularly in Europe. Moreover, many of these acquisitions were financed with debt, including funds from foreign lenders denominated in dollars.  The Bank for International Settlements estimated that Chinese borrowing in dollars, mostly in the form of bank loans, reached $1.1 trillion by 2014. The fall in the value of the renminbi raises the cost of this borrowing. Menzie Chinn points out that if the corporate sector’s foreign exchange assets are taken into account, then the net foreign exchange debt is a more manageable $793 billion. But not all the firms with dollar-denominated debt possess sufficient foreign assets to offset their liabilities.

Chinese Foreign Currency External Debt - One constraint on devaluation as a means of stimulating the economy comes from the balance sheet. When there is a big stock of external debt denominated in foreign currency, a devaluation increases the amount of debt evaluated in domestic currency terms, potentially driving some firms into insolvency. How does China look in these terms? From Goldman Sachs’ Top of Mind publication (February 9, 2016; “China Ripple Effects”) [not online]: The foreign currency debt expressed as a ratio to GDP does not seem particulary extreme. In addition, Maasry notes: [W]hen offshore borrowings are included, China’s total external debt totals an estimated $2.1tn as of end-2Q15 (latest figures), or 20% of GDP, with 60% of total external debt ($1.28tn), or 12% of GDP, listed in foreign currency. When including onshore FX loans, the total amount of FX debt borrowed by China’s corporate sector as of mid-2015 jumps to $1.8tn. Although this figure is sizeable, net FX debt (after deducting the corporate sector’s FX assets) is only $793bn…

As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush - — This month, Chinese banking officials omitted currency data from closely watched economic reports.Just weeks earlier, Chinese regulators fined a journalist $23,000 for reposting a message that said a big securities firm had told elite clients to sell stock.Before that, officials pressed two companies to stop releasing early results from a survey of Chinese factories that often moved markets.Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country’s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency. The effort to control the economic narrative plays into a wide-reaching strategy by President Xi Jinping to solidify support at a time when doubts are swirling about his ability to manage the tumult. The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party.But the tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country’s slowdown, analysts say. “Data disappears when it becomes negative,” said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy. The party’s attitude has raised further questions among executives and economists over whether Chinese policy makers know how to manage a quasi-market economy, the second-largest economy in the world, after that of the United States.

China Feb official factory PMI seen shrinking for 7th month | Reuters: Activity in China's vast manufacturing sector likely shrank for a seventh straight month in February, a Reuters polled showed, adding to signs that business conditions in the world's second-largest economy are continuing to decelerate. The official manufacturing Purchasing Managers' Index (PMI) is expected to dip to 49.3 in February from 49.4 a month earlier, according to a median forecast of 23 economists in a Reuters poll. January's reading was the weakest since August 2012. A reading below 50 points suggests a contraction in activity, while a reading above indicates an expansion on a monthly basis. The continued weakness comes despite a massive injection of credit from Chinese banks in January, which has been widely attributed to a government push to head off risks of a sharper economic slowdown. Banks dished out a hefty 2.51 trillion yuan ($384.23 billion) of new loans last month, although the full effect of the impetus will not be felt overnight. "Funds injected in January should take some time before making a positive impact on the real economy," said Zhang Cheng, an analyst at GF Development Bank in Shanghai.

Shanghai stocks close down over 6% on economy worries - (AFP) - Shanghai stocks closed down more than six percent on Thursday, slammed by worries over China's slowing economy and tight liquidity, dealers said. The falls came ahead of a meeting of G20 finance ministers in commercial hub Shanghai starting on Friday, with China's slowing growth expected to loom over the high-level discussions. The benchmark Shanghai Composite Index plunged 6.41 percent, or 187.65 points, to 2,741.25 on turnover of 271.8 billion yuan ($41.6 billion). The Shenzhen Composite Index -- which tracks stocks on China's second exchange -- fared even worse, tumbling 7.34 percent, or 137.80 points, to 1,738.67 on turnover of 394.8 billion yuan. "The economy hasn't shown signs of stabilisation and policies are still coming out one after another," Central China Securities analyst Zhang Gang told AFP. China's economy grew 6.9 percent in 2015, its slowest pace in 25 years, and policymakers have been using both monetary and fiscal measures in an attempt to support growth.

China urged to tolerate much higher fiscal deficit - --China's central-bank officials are urging Beijing to tolerate a sharply higher fiscal deficit to help stabilize growth, in an acknowledgment that a reliance on cheap bank loans has run its course as a method to boost the economy. The call comes as central bankers and finance ministers from the Group of 20 major economies are gathering in Shanghai this week to discuss new solutions to support global growth, including a focus on fiscal expansion and long-term reform rather than credit-driven growth. The meeting takes place amid persistent worries about Beijing's ability to manage China's slowdown; on Thursday, the benchmark Shanghai Composite Index tumbled more than 6%, its biggest drop in a month. China's State Council is expected to slightly widen the country's fiscal deficit to about 3% of gross domestic product this year from the current 2.3%, according to Chinese officials and government advisers close to the decision-making process. In a recommendation to China's top policy makers reviewed by The Wall Street Journal, a senior official at the People's Bank of China wrote that the government should let the shortfall reach 4% or so, which could allow authorities to slash taxes on businesses to free up more of their funds for investments. "Fiscal policy hasn't been proactive enough," said Sheng Songcheng, head of the survey and statics department at the central bank and the lead author of the recommendation, in an interview Thursday. "The concern over increasing the fiscal deficit is that it could lead to a fiscal crisis. But our research shows otherwise."

China could raise budget deficit to 4% of GDP: central bank official - -- China could raise its budget deficit to 4 percent of GDP or even higher to offset the impact of reduced fiscal revenue and to support broader reforms, a central bank official wrote on Wednesday. In an article published by "The Economic Daily," director of the central bank's surveys and statistics department Sheng Songcheng said the deficit increase would not incur big insolvency risks for the government. China raised its budget deficit to 2.3 percent of GDP in 2015, up from 2.1 percent in 2014. A 3-percent deficit ratio, as stated in the 1992 Maastricht Treaty, is normally considered a red line not to be crossed. But Sheng said there should not be a universal redline. Rather, the ratio should be determined by a country's debt balance and structure, economic conditions and interest rate levels, he added. "The 3-percent warning line does not fit with China's reality," he said, citing China's relatively small outstanding debt, rational structure, continued growth in fiscal revenues and solid asset of state firms as among the factors backing his conclusion.

Chinese central bank chief hints at more stimulus for slowing economy  - The head of China’s central bank has dropped a strong hint that Beijing is preparing to launch another round of stimulus as he sought to reassure the financial markets about the country’s flagging economy.  China had more room and tools in its monetary policy to tackle downward pressure in the economy, and its fiscal policy would be more proactive, central bank governor Zhou Xiaochuan said on Friday. Zhou, speaking at a conference held by the Institute of International Finance in Shanghai in conjunction with a G20 meeting of central bank governors and finance ministers, also said that the direction of China’s reforms would not change, but that the pace might change. “While the reform direction is clear, managing the reform pace will need windows (of opportunity) and conditions ... The pace will vary, but the reform will be set to continue and the direction is not changed,” Zhou said in English. At the same time, policy makers need to strike a balance between growth, restructuring and managing risks to the economy. Zhou’s comments helped stock markets rise around Asia with Chinese shares rising strongly a day after falling more than 6%.The Shanghai Composite index was up 0.54% at 3.15am GMT on Friday while the CSI300 index of leading Shanghai and Shenzhen shares was up 0.78%.

Market Still Out on Chinese Central Bank’s Charm Offensive - China faces an urgent task of restoring credibility to its exchange-rate policy after it has sowed confusion in global markets and other central banks in recent months. To that end, China’s central-bank chief sought to reassure investors and finance officials in Shangai this week that Beijing has a game plan in place to prevent a sharp fall in the Chinese yuan. Zhou Xiaochuan ruled out China using competitive devaluation to aide exports, repledged its commitment to a more market-oriented currency policy, and at the same time left China plenty of wiggle room for exchange-rate maneuvering. On whether Mr. Zhou succeeds at anchoring market expectations, the jury is still out. “The concern on the yuan remains one of the biggest overhangs over the markets,” said China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank. Most recently, an unexpected weakening of the yuan in early January led investors both inside and outside China to push down the currency even further, fearing that Beijing would sharply devalue the yuan to boost exports. That has forced the central bank to dip into its foreign-exchange reserves to prevent a more significant fall. But many analysts see the intervention-induced stability as unsustainable, chiefly because Beijing can’t afford to keep burning through its stockpile of rainy-day funds to defend the currency. If the reserves continue to drop at the current rate of about $100 billion a month, some say, Chinese authorities would only have a year left before the reserves fall out of their comfort zone.

Here’s Why a Near-Term Yuan Devaluation Is Unlikely - Amid rising vulnerabilities to the global economy, world financial leaders and investors fear a disorderly depreciation of China’s yuan could trigger a much larger global selloff, potentially pushing the global economy back into recession. That’s a key reason why finance ministers and central bankers from the Group of 20 largest economies meeting in Shanghai this weekend want the G-20 to reiterate past vows to avoid competitive devaluation. Some G-20 officials push back against the notion that China will depreciate, saying a devaluation not only goes against the messaging of China’s leaders, but comes with collateral damage. It could send a bad signal to markets, suggesting Beijing was worried the slowdown was metastasizing into a nosedive and that it resorted to a last-chance policy move. Panicked markets could force the yuan to weaken more than Beijing planned. Preventing a depreciation—a costly exercise against large capital outflows and investor selloffs in Hong Kong yuan markets—is partly a message from Beijing’s leadership about their confidence in the economy and their ability to manage their economic transition. A weaker yuan would also undermine Beijing’s efforts to move to a more consumer-oriented economic model by eroding their buying power. And it could exacerbate the country’s mounting debt problems: A hefty portion was borrowed in dollars. A devaluation would make that debt–already strained–that much more difficult to pay off. Still, officials and economists are watching what Beijing does as much as what it says. That’s why even though comments by Chinese officials in the run-up to the G-20 go some way in reassuring that the Asian behemoth won’t revert to currency depreciation to revive growth, the yuan’s recent trading still fuels doubts.

China is buying up American companies fast, and it's freaking people out - Chinese companies have been buying up foreign businesses, including American ones, at a record rate, and it's freaking lawmakers out.  There is General Electric's sale of its appliance business to Qingdao-based Haier, Zoomlion's bid for the heavy-lifting-equipment maker Terex Corp., and ChemChina's record-breaking deal for the Swiss seeds and pesticides group Syngenta, valued at $48 billion. Most recently, a unit of the Chinese conglomerate HNA Group said it would buy the technology distributor Ingram Micro for $6 billion.  And the most contentious deal so far might be the Chinese-led investor group Chongqing Casin Enterprise's bid for the Chicago Stock Exchange. To date, there have been 102 Chinese outbound mergers-and-acquisitions deals announced this year, amounting to $81.6 billion in value, according to Dealogic. That's up from 72 deals worth $11 billion in the same period last year. And they're not expected to let up anytime soon. Slow economic growth in China and cheap prices abroad due to the stock market's recent sell-off suggest the opposite. "With the slowdown of the economy, Chinese corporates are increasingly looking to inorganic avenues to supplement their growth," Vikas Seth, head of emerging markets in the investment-banking and capital-markets department at Credit Suisse, told Business Insider earlier this month.

Beijing now has more billionaires than New York -- Beijing has become the billionaire capital of the world, overtaking New York City for the first time despite the recent sell-off in Chinese stocks and last summer’s devaluation of the yuan.  The number of billionaires in the Chinese capital has more than tripled over the past year from 32 to 100, while the Big Apple gained four billionaires, bringing its total to 95.  Although Americans still account for the world’s wealthiest people, led by Bill Gates and Warren Buffett, and have the highest collective net worth, there are more billionaires residing in China (568) than in the US (535). Hurun's half-year report, released in October, marked the first time that China produced more billionaires than the US.  China lays claim to 568 billionaires, 90 more than a year ago, while two Americans saw their fortunes dip below $1bn, leaving the US with 535 people at the highest level of the rich list. India came third, gaining 14 billionaires to 111, followed by Germany and the UK, tied in fourth place with 82.  The plunge in oil prices particularly hurt Russian billionaires, who lost 13 members and $130bn over the year as the value of the rouble declined by 19pc and the mining and metals industries suffered. However, Moscow is still the third most popular cities for billionaires, with 66, followed by Hong Kong with 64. Shanghai gained 20 billionaires to tie with London in fifth place with 50 billionaires.

Soaring household debt deepens woes: Korea's outstanding household debt topped 1,200 trillion won ($971.6 billion) for the first time last December, up 41.1 trillion won from three months earlier on increasing mortgages and household loans, the Bank of Korea (BOK) said Wednesday. It was the biggest quarterly gain in the time the central bank has been compiling data, starting 2002. The household debt reached 1,207 trillion won at the end of December, up 3.5 percent from the previous quarter. The debt compares with the country's GDP value of 1,464 trillion won. The BOK's household debt tally is the sum of household borrowing from financial firms and unpaid credit card bills. Household borrowing from banks and other financial firms jumped 39.4 trillion won during the fourth quarter to 1,141.8 trillion won. Their unpaid credit card debts rose 1.7 trillion won to 65.1 trillion won during the same period. The BOK's announcement came days after Standard & Poor's (S&P) warned of "high potential credit risks" involving the mounting debt. "We think potential credit risks remain high given highly leveraged households," S&P said in a report. "We saw some pickup in household debt in 2015, which has increased the vulnerability of highly leveraged Korean households to sudden drops in income or spikes in interest rates."

Japan PMI Shows Manufacturing Weakened, Dragged By Drop In Exports To China: Japan manufacturers are less confident than expected this month after China’s slowdown resulted in the biggest drop in exports in three years, dealing another blow to the prime minister’s “Abenomics” plan. Meanwhile, a China report showed business sentiment fell anew there. The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 50.2 in February compared with economists’ expectations of 52 and January’s 52.3, Reuters reported. That’s just barely above the 50-level that indicates growth in purchasing managers indexes, which combine data on new orders, inventories, production, supplier deliveries and jobs. The report is a sign that businessmen aren’t confident that the government and the Bank of Japan’s moves to boost the economy are working or will work, not even the BOJ’s January decision to cut the interest rate it charges banks to below zero. That means banks have to pay the BOJ to park money there, which is meant to encourage them to lend more aggressively instead. A big probable reason for manufacturers’ lack of confidence: exports, which a report last week showed fell 13 percent in January, dragged by an 18 percent decline in sales to China. Shipments to China may not improve soon. A survey of companies listed on the Shanghai and Shenzhen stock exchanges showed business sentiment fell to 49.9 in January  from 52.3 in December. Numbers below 50 indicate pessimism, and probably fewer purchases from Japan and other countries.

Safes Sell Out In Japan, 1,000 Franc Note Demand Soars As NIRP Triggers Cash Hoarding - Negative rates may not have found their way to bank deposits in most locales (yet), but that doesn’t mean the public isn’t starting to see the writing on the wall. At first, NIRP was an anomaly. An obscure policy tool that most analysts and market watchers assumed would be implemented on a temporary basis in a kind of “let’s see if this is even possible” experiment with an idea that, from a common sense perspective, makes no sense. But then a funny thing happened. Central banks from Denmark to Sweden to Switzerland went negative and stayed there. They even doubled down, taking rates even more negative and before you knew it, the public started to catch on. When NIRP failed to resuscitate global growth and trade, the cash ban calls began. The thinking is simple (if crazy): if you do away with physical banknotes, the effective lower bound is thereby eliminated. You can make rates as negative as you like because the public has no recourse as people aren't able to push back by eschewing their bank accounts the mattress.

Japanese institutions spend up big on foreign securities as negative rates bite | Reuters: Japanese financial institutions bought a record volume of foreign securities last week, data from the Ministry of Finance showed on Thursday, as the Bank of Japan's negative interest rates policy crushed domestic bond yields. Capital flows data from the Ministry of Finance showed Japanese investors bought 2.179 trillion yen ($19.44 billion) of foreign bonds and 449.2 billion yen ($4.01 billion) of foreign shares. The combined total of 2.424 trillion yen ($21.62 billion), was the biggest on record, surpassing the 2.187 trillion yen ($19.51 billion) bought in the second week of August 2010. The data covers big market players' investment flows. The BOJ's decision to introduce negative interest rates last month drove down domestic bond yields, with Japanese government bonds (JGBs) of up to 10 years to maturity, or about 80 percent of government debt, having negative yields. That caused a near-panic among Japanese investors as they searched out an alternative to the small but steady income that had come from JGBs. The obvious alternative is foreign bonds, which most Japanese institutional investors prefer to hedge against big currency fluctuations, especially when the yen is strengthening broadly.

Japan Got Paid $464 Million to Borrow Thanks to Negative Yields -- Japan’s government has been paid at least 52 billion yen ($464 million) to borrow money since the yield on its debt first fell below zero at auction in October 2014. While some of the bonds still pay coupons, prices on the securities are so high that the Ministry of Finance sells them for more than it costs to pay interest on the debt. Bloomberg calculations count money made on bills and notes that now have negative yields out to five-year maturities. Japan follows Germany, Switzerland and Sweden in being able to get investors to pay it to raise funds, a windfall that will help Prime Minister Shinzo Abe tackle the world’s largest debt burden. On the downside, Bank of Japan asset purchases and charges on some lenders’ reserves have reduced bond-market activity and squeezed earnings for banks and their customers. “This is a plus for the the nation’s immediate finances,” said Hidenori Suezawa, a monetary and fiscal analyst at SMBC Nikko Securities Inc. “However, it will only slow the pace of increase in the national debt, not actually cut it.” Bloomberg’s calculations totaled the difference between auction prices and what the nation has to return to investors in coupon payments and when the bond matures. It doesn’t include positive-yielding debt or other costs for fundraising.

RBI to conduct Rs 12,000 crore of open market operation purchase | The Financial Express: The Reserve Bank of India (RBI) on Thursday announced an open market operation (OMO) purchase of government securities worth Rs 2,000 crore on March 3, reports fe Bureau in Mumbai. The RBI conducts OMO purchases in order to infuse liquidity into the system whenever there is a deficiency, while it conducts OMO sales to suck excess liquidity from the system. OMOs are also intended to keep the short-term interest rates close to the policy rate. “The Reserve Bank will continuously monitor the evolving liquidity conditions and announce such measures as considered necessary,” the central bank added. A Bank of America-Merrill Lynch report stated that yields are rising, despite rate cuts by the RBI, because delays in RBI OMOs have generated excess supply in the G-sec market. The 7.59% 2026 benchmark government bond yield closed at 7.86% on Thursday, its highest level since it was introduced in January this year. The old benchmark bond yield closed at 8.08%. “We expect the RBI to OMO/buyback Rs200 billion by March as it has supplied only US $14.4bn of the US$30bn of permanent liquidity we estimate needed for FY16,” the BofA-ML report stated.

Fresh riots, arson in deadly north India caste crisis -  Fresh rioting and arson erupted in a north Indian state Sunday in caste protests that have left at least 12 people dead, and New Delhi faced a water crisis after mobs shut down a key supply.Thousands of troops with shoot-on-sight orders were deployed on Saturday in Haryana state after week-long protests turned violent, with rioters setting fire to homes and railway stations and blocking highways. At least 12 people have been killed and about 150 injured in the state since Friday, up from an earlier toll of 10, Haryana additional chief secretary P.K Das told reporters. One person was killed in firing on Sunday and another died in a clash between two protesting groups, he said, without giving details. The Jat rural caste is leading the protests, demanding quotas be set for Jats for highly sought-after government jobs and for university places. Caste members say they are struggling to find places despite India's strong economic growth. Talks were held in Delhi between Jat leaders, national Home Minister Rajnath Singh and the Haryana government run by the Bharatiya Janata Party. ..View gallery Burnt-out buses and fire damage to buildings are pictured at a school in the northern Indian city of …Haryana BJP leader Anil Jain said the state government had now agreed to the community's demands. "We have decided in the meeting that Jats will be given reservation through a law in the next assembly session," Jain told reporters after the talks.

Deadly north India protests lead to New Delhi water crisis - As thousands of members of an underprivileged community in northern India protest to demand government benefits, more than 16 million people in India’s capital are facing a major water crisis as a result of the violent demonstrations, which have left at least 10 dead. The protesters have damaged equipment that brings water from Munak canal in Haryana state to New Delhi, depleting the capital’s water supply. New Delhi gets about 60 percent of its water from the neighboring state. Arvind Kejriwal, Delhi’s chief minister, announced Sunday that schools in the capital would be closed Monday. He also ordered the rationing of water to people’s homes. Sporadic violence was reported in Haryana on Sunday. At least 10 people have died in firing on protesters by Indian security forces since Friday. 

India caste unrest: Ten million without water in Delhi - BBC News: More than 10 million people in India's capital, Delhi, are without water after protesters sabotaged a key canal which supplies much of the city. The army took control of the Munak canal after Jat community protesters, angry at caste job quotas, seized it. Keshav Chandra, head of Delhi's water board, told the BBC it would take "three to four days" before normal supplies resumed to affected areas. All Delhi's schools have been closed because of the water crisis. Sixteen people have been killed and hundreds hurt in three days of riots.  Sixteen million people live in Delhi, and around three-fifths of the city's water is supplied by the canal, which runs through the neighboring state of Haryana. Mr Chandra said that prior warnings meant that people had managed to save water, and tankers had been despatched to affected areas of the city, but that this would not be enough to make up for the shortfall.

The unrest in Delhi shows that caste issues still blight India - It’s now four days since Delhi was paralysed by members of the Jat caste. Unrest is so common in India that I heard one local complain, “At least the protestors could have given us the weekend off,” but the situation has been dire. Most of the city was left without water after rioters vandalised the Munak canal. Schools have been closed. At home, people have had to skip bathing and washing clothes. Roads into the city were blocked, though they are slowly reopening, and there is such demand for flights out that tickets to the nearby city of Chandigarh are fetching £990 instead of the usual £30.  All this must seem baffling to non-Indians. To the outside world, the idea of caste belongs firmly in the past. It is no secret that the dalit caste, once known as “untouchables”, were and still are the victims of shocking discrimination, but the community at the centre of the current disturbances, the Jats, are fairly prosperous landowners. (They come from the northern Indian state of Haryana, which surrounds Delhi on three sides.) Though still fairly prosperous, they are feeling the pinch because of population growth, which has reduced the size of their farm holdings, and two successive years of drought and failed crops. They are now demanding that the government give them the official status of “backward class”. Under India’s system of affirmative action, colloquially referred to as “reservations” or the “quota system”, this would allow Jats access to jobs and university places set aside for those from the lower castes. Independent India inherited a historically rooted caste system that was notorious both for its rigidity and for its efficiency in maintaining the existing power structures. For millennia, an individual’s socio-economic position could only be inherited and never acquired. Even the Hindu concept of karma was used to keep the lower castes in place, with the reasoning that one’s current position was determined by past-life actions. It was to address this long-standing injustice that the Indian constitution, which came into effect in 1950, incorporated a system of affirmative action.

HSBC says SEC is probing its Asia hires - HSBC said on Monday it was being investigated by the Securities and Exchange Commission in relation to hiring practices of candidates with ties to government officials in Asia. In a footnote to its earnings statement, the bank said it had received various requests for information from the SEC, which was also targeting other financial institutions as part of the same probe. "HSBC has received various requests for information and is cooperating with the U.S. Securities and Exchange Commission (SEC) investigation. It would be inappropriate to comment further," HSBC spokesperson Gareth Hewett told Reuters. The SEC opened in 2013 a probe into JPMorgan regarding the hiring of 'princelings', the term used in Asia to refer to the children or younger relatives of China's political leaders or of powerful executives at state-owned enterprises.

FBI gathers clues in massive Goldman Sachs money scandal - Fallout from Goldman Sachs’ involvement with the controversial Malaysian state fund continued last week. US law enforcement officials are gathering sensitive documents — and identifying potential witnesses — in the massive money scandal that has ensnared the bank and one of its regional chairmen in a global probe, an international investigator told The Post. The bombshell case involves Tim Leissner, 45, Goldman’s chairman for Southeast Asia, who recently decamped to Los Angeles to take a personal leave. He’s married to the glamorous businesswoman and former model Kimora Lee Simmons, ex-wife of hip-hop mogul Russell Simmons. The fallout is widespread, and it affected both Goldman and Leissner badly because of their reputed close ties with high-ranking government officials in Malaysia. “My sources within the US government have told me that they are looking into 1Malaysia Development Berhad (1MDB) on all fronts and are actively acquiring documents and identifying witnesses from around the world,” international investigator L. Burke Files, who heads up an antifraud agency, told The Post. “They are not interested in fines this time,” Files added, without elaborating. The fallout escalated as reports and allegations about the tainted 1MDB emerged — from the $681 million in fund money that mysteriously showed up in the bank account of Malaysian Prime Minister Najib Razak, to reports of “exorbitant” fees for transactions charged by Goldman.

Nigeria’s Little Problem: Lying Statistics -- Nigeria’s currency (the naira) has been officially pegged in a range of 197-199 NGN/USD for nearly a year. But, that’s a phony government rate. As shown in the accompanying chart, the black market (read: free market) rate has exploded since October, and currently stands at 350 NGN/USD. And that’s not all. Last week, the Central Bank of Nigeria reported an annual inflation rate of 9.62% for January 2016. The real annual inflation rate was over six times higher. Talk about lying statistics.  The most reliable method for calculating inflation in countries experiencing elevated rates of inflation is to utilize changes in the black market exchange rate data. Application of the Purchasing Power Parity theory (PPP) then allows us to calculate implied inflation rates. At high levels of inflation, this method is extraordinarily accurate. The real tale of Nigeria’s inflation problem is contained in the accompanying chart. Nigeria’s implied annual inflation rate exceeds 60%.

US Treasury Will Ask Governments to Use Fiscal Policy not FX Manipulation at G20 - The United States will call on G20 countries this week to use fiscal policy in order to boost global demand, a senior U.S. Treasury official said on Monday. “We will urge greater use of policy space, including fiscal space, to bolster global demand. That would lead to strengthened confidence and I would expect reduce volatility,” the Treasury official said in a preview call with reporters ahead of a G20 meeting later this week in Shanghai, China. G20 finance ministers, including U.S. Treasury Secretary Jack Lew, and central bank governors will meet on Feb. 26-27, with sagging global growth, divergent monetary policies and currency devaluations set to dominate the agenda. While there, the United States will also urge all members to refrain from manipulating exchange rates for competitive purposes, in line with existing G20 commitments, said the official, who spoke on condition of anonymity. “I see those commitments as being a strong indication from G20 members that they will manage their currencies in ways that are globally consistent. I think that those commitments are very, very important,” the official said.

The Next Big Leg Lower In The Baltic Dry Is On Deck: 360 New Vessels Are About To Be Delivered - One month ago, when looking at the unprecedented, record collapse in the Baltic Dry Index for the latest time, a move which many have brushed away as simply a function of too much supply, we showed a chart by Capital Economics showing the disturbing correlation between the change in the BDIY and global trade volumes, the one metric which we have claimed for over a year is far more important to the global economy than anything central banks can spawn.  Fast forward to today when in the latest update on Dry Bulk shipping fundamentals by Deutsche Bank we find some good news: according to analyst Amit Mehrotra, the "total dry bulk capacity declined by almost 1M tons (net) last week as the pace of deliveries slowed and scrapping remained elevated." The bank adds that it estimates 16 ships were sold for scrap last week totaling 1.6M tons (avg. 100k tons per vessel). This more than offset 9 new deliveries that added 730k tons to the fleet (avg size 81k), translating to a net reduction of 7 vessels (~1M tons). Last week’s scrapping activity represents a nice acceleration from previous weeks and when looked at by itself would represent an annualized pace of 11% of installed capacity, which is almost double the all-time high of 6.3% set in 1986. That's the good news: the bad news is that scrappage has no hope to offset the tremendous orderbook currently being installed in Chinese ship yards. The problem is that the latest order book data shows a whopping 360 dry bulk vessels over 60k tons on order at Chinese ship yards (net of typical non-deliveries). This equates to 37M tons of new capacity or 5% of the fleet! Worse, the vast majority (80%) of this is expected to be delivered this year- likely limiting the scope for cancelations- with only about 20% (65 vessels/6.5M tons) scheduled to be delivered in 2017 and beyond. Assuming an unrealistic scenario of total order book scrappage, it would only translate to 0.8% of the installed fleet. However that won't happen: the DB analysts writes that "while we have seen some one-off examples of newbuilding cancellations in recent months, they have been few and far between." What this means is that while demand will likely drift lower, the fleet may see as much as 60k tons of ships and 37M tons of new capacity come online: capacity which will manifest itself in another major leg lower in BDIY pricing.

World trade in worst slump since crisis - Weaker demand from emerging markets made 2015 the worst year for world trade since the aftermath of the global financial crisis, highlighting rising fears about the health of the global economy. The value of goods that crossed international borders last year fell 13.8 per cent in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The new data released on Thursday represent the first snapshot of global trade for 2015. But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected. Those concerns are casting a shadow over a two-day meeting of G20 central bank governors and finance ministers due to start on Friday. Mark Carney, the Bank of England governor, was set to warn the gathering that the global economy risked “becoming trapped in a low growth, low inflation, low interest rate equilibrium”. His comments will echo the International Monetary Fund, which this week warned it was poised to downgrade its forecast for global growth this year, saying the world’s leading economies needed to do more to boost growth. The Baltic Dry index, a measure of global trade in bulk commodities, has been touching historic lows. China, which in 2014 overtook the US as the world’s biggest trading nation, this month reported double-digit falls in both exports and imports in January. In Brazil, which is now experiencing its worst recession in more than a century, imports from China have collapsed. Exports from China to Brazil of everything from cars to textiles shipped in containers fell 60 per cent in January from a year earlier while the total volume of imports via containers into Latin America’s biggest economy halved, according to Maersk Line, the world’s largest shipping company.

World Trade Plunges 13.8% in US Dollar Terms - The value of goods crossing international borders plunged 13.8% in 2015 according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The start of 2016 sports a similar pattern. Please consider World Trade Records Biggest Reversal Since Great Financial Crisis. Weaker demand from emerging markets made 2015 the worst year for world trade since the aftermath of the global financial crisis, highlighting rising fears about the health of the global economy.The value of goods that crossed international borders last year fell 13.8 per cent in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The new data released on Thursday represent the first snapshot of global trade for 2015. But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected. A pair of charts highlights the massive discrepancy between volume and price.

How Data May Boost the Global Economy More Than Physical Trade - Could the international flow of bits and bytes ever mean more for the global economy than the movement of tangible goods? It already does, according to a report issued Thursday by the McKinsey Global Institute. The merchandise trade that’s driven economic growth since the ancient Phoenicians added about $2.7 trillion to the global economy in 2014.  But the contribution of international data flows is even bigger, at $2.8 trillion that year, according to the study. Think of an ethnic restaurant chain that draws its customers—and investors—from all around the world through social media. Or the British online newspaper that gets most readers from other English-speaking populations. Or the Netflix show that has die-hard fans in Asia. “The Internet is not a luxury for rich people to have, it’s becoming the backbone of the global economy,” . Since the dawn of civilization, traditional merchandise trade contributed to the global economy in very obvious ways. Two countries specialize in different types of production, and both can benefit when they exchange the signature goods they’re efficient at producing. Think Saudi crude traded for German automobiles. . Meanwhile, international flows of finance and services—an older form of exchange than you’d think— aren’t quite as easy to grasp as merchandise trade but can still be measured in a straightforward manner. The U.S. exports tourism services when a foreigner books a tour package, and it exports financial services when a European investor buys a mutual fund that’s managed on Wall Street. Net exports have a direct effect on U.S. gross domestic product.

Citi downgrades 2016 global growth forecast to 2.5 percent | Reuters: - Citi economists on Wednesday marked down their forecast on 2016 global economic expansion to 2.5 percent from 2.7 percent due to slowing activity in developed economies in addition to weakening emerging markets. They said there is a risk the world economy may grow below 2 percent due to a probable "mismeasurement" of Chinese growth data and possibly a more severe than expected deterioration among emerging economies. "Global growth prospects are worsening further, with deterioration across advanced economies alongside previous weakness in emerging markets," Citi economists wrote in a research note. They said they anticipate more policy easing from the European Central Bank and Bank of Japan, but "suspect this will provide only limited stimulus." They noted Britain's referendum on whether to stay in the European Union later this year is "a key extra near term global risk." A "Brexit," if it were to happen, would hurt the U.K. and EU economies, they said, referring to a possible withdrawal of Britain from the European Union.

Moody’s Cuts Brazil’s Rating to Junk - WSJ: —Moody’s Investors Service cut Brazil’s sovereign-credit rating to junk status on Wednesday, making it the third major rating firm to yank the nation’s investment-grade rating since September. Moody’s put Brazil two notches into junk territory, reducing its rating to Ba2 from Baa3 with a negative outlook, highlighting the possibility of further downgrades. Moody’s cited uncertainty over an effort to impeach President Dilma Rousseff and a widening corruption scandal that has paralyzed the nation’s leadership, hampering efforts to shore up its crumbling finances. “Every day it’s something, and you don’t know what the next thing will be,” said Samar Maziad, Moody’s lead analyst for Brazil. “There’s very little visibility on what the future will be.” The move had been widely expected. Moody’s on Dec. 9 put Brazil’s sovereign debt on review for a downgrade, citing the country’s fast-deteriorating economic and political situation. Its decision comes well after major competitors reduced Brazil to speculative grade. Standard & Poor’s cut Brazil to junk in early September and followed with a second downgrade last week; Fitch Ratings reduced Brazil to speculative in mid-December.

Scores Of Dismembered Corpses Found Inside Drain Pipes At Colombian Jails: (Reuters) - Remains of at least 100 dismembered prisoners and visitors have been found in drain pipes at a jail in Colombia's capital that houses drug traffickers, Marxist rebels and paramilitaries, investigators said on Wednesday. Body parts were found at La Modelo jail in Bogota, one of the Andean nation's biggest penitentiaries, as well as in jails in the cities of Popayan, Bucaramanga and Barranquilla, said Caterina Heyck, an investigator at the attorney general's office."The number of victims is unknown, but we know it's over 100 and could be considerably higher," she told reporters in Bogota. "Remains of prisoners, visitors and others were thrown in the drainage system." Colombian jails are among the most overcrowded and violent in Latin America and accommodate leftist guerrillas alongside their right-wing paramilitary enemies.

Economically struggling Venezuela hikes gas prices, devalues (AP) — President Nicolas Maduro announced a currency devaluation and gasoline price hike Wednesday in an attempt to shield Venezuela’s oil-dependent economy from collapse and fend off mounting calls for his ouster. Gas prices will jump more than sixtyfold — the first increase of any kind in about 20 years. Yet drivers will still be able to fill their tanks for pennies in this South American country where gasoline has long been so heavily subsidized that it is virtually free. The price of premium gasoline will rise from 0.1 bolivar a liter to 6 bolivars per liter, and regular gasoline will jump from 0.07 bolivar to 1 bolivar per liter. In contrast, a beer costs around 300 bolivars while a basket of strawberries goes for 800 bolivars. Calculated at the widely used black market currency exchange rate, the price per gallon will be a few U.S. cents. Maduro said the increased gasoline revenue will finance the government’s social programs. “We must charge for gas,” he said. “I ask that the people welcome and support this new system.” Gasoline prices are a touchy issue in Venezuela, where memories are still vivid from 1989 riots in Caracas that erupted after the proposal of a series of austerity measures including a hike in gas prices. Maduro also announced that the strongest of the country’s official exchange rates, used for essential goods like food and medicine, would be changing from 6.30 bolivars to the U.S. dollar to 10 bolivars to the dollar. Meanwhile, the bolivar is worth about 1,000 to the dollar on the black market.

Mexico current account deficit deepest in at least 20 years | Reuters: Mexico's current account deficit swelled last year to its largest in at least 20 years, as a collapse in oil prices widened its shortfall in foreign trade, central bank figures showed on Thursday. The current account deficit widened to $32.38 billion from $24.85 billion in 2014, its biggest since at least 1995. As a proportion of the gross domestic product it rose last year to 2.8 percent, its largest since 1998. It was 1.9 percent of GDP in 2014. The trade deficit in goods mushroomed in 2015 to $14.46 billion dollars from $2.85 billion in 2014. The petroleum component of foreign trade slumped to a $9.9 billion deficit from a $1.1 billion surplus in 2014. Sinking oil prices have pushed Mexico's peso to a series of record lows in recent months, hammering public finances. Earlier this month, Mexico's government announced budget cuts and a surprise rate hike to shield the peso from further slumps and keep inflation expectations from spiking.

Blistering sales pace and prices in Vancouver and Toronto prompt new concerns housing bubble will burst: Surging sales in the piping hot real estate markets of Vancouver and Toronto last month prompted one of Canada’s big banks to express concerns Tuesday that the cities may be at risk of a home price “correction” — defined as a drop in value of at least 10 per cent. The Canadian Real Estate Association (CREA) reported Tuesday that sales of existing homes rose by eight per cent in January compared to a year ago, while the national average home price soared 17 per cent. But the sales figures for Vancouver and Toronto drew the most notice from economists. The average sale price in Greater Vancouver rose 32.3 per cent year-over-year to nearly $1.1 million, while in Greater Toronto it climbed 14.2 per cent to $631,092. The Multiple Listing Service benchmark price — a figure that CREA says is more representative of the market — rose to $775,300 in Greater Vancouver, an increase of roughly 21 per cent compared to January 2015. In Greater Toronto, the benchmark price climbed roughly 11 per cent year-over-year to $578,400.

Why NATO Expected to Lose Most of Europe to Russia -- A recent RAND wargame on a potential Russian offensive into the Baltics brought talk of a “new Cold War” into sharp focus. The game made clear that NATO would struggle to prevent Russian forces from occupying the Baltics if it relied on the conventional forces now available. These wargames have great value in demonstrating tactical and operational reality, which then informs broader strategic thinking. In this case, however, the headlines generated by the game have obscured more about the NATO-Russian relationship than they have revealed. In short, the NATO deterrent promise has never revolved around a commitment to defeat Soviet/Russian forces on NATO’s borders. Instead, NATO has backed its political commitment with the threat to broaden any conflict beyond the war that the Soviets wanted to fight. Today, as in 1949, NATO offers deterrence through the promise of escalation.

Alberta’s 2016 budget deficit could top $10 billion, finance minister reveals - The steep and prolonged collapse of world oil prices has doubled Alberta’s deficit projection for next year to more than $10 billion, Finance Minister Joe Ceci announced Wednesday. Ceci revealed the revised outlook during his third-quarter fiscal update, which showed the drastic drop in oil and gas revenues has made a massive dent in the province’s bottom line. “This is the steepest and most prolonged slide in oil prices in recent history, dropping more than 70 per cent in the last year-and-a-half,” Ceci told a legislature news conference. “Projections for a quick recovery have proven wrong. There’s no minimizing the impact that low oil prices are having on people’s jobs, on our economy and on the government’s fiscal situation. This is a once in a generation challenge and we are now faced with stark choices.” Ceci said the deficit in the upcoming spring budget — which he revealed for the first time will be tabled in early April — will climb significantly.

Is TTIP in crisis? --  Aside from the actual negotiators, Bernd Lange is one of the few who has access to the secret documents of the free trade negotiations between the European Union (EU) and the USA. It is fair to say that Lange is well informed. He chairs the European Parliament's International Trade Committee and is the official rapporteur for the controversial Transatlantic Trade and Investment Partnership (TTIP). This week, the 12th round of negotiations is taking place in Brussels. Lange, a Social Democrat from the German state of Lower Saxony, believes the talks are not making much headway. Of the 25 chapters up for negotiation, the Americans have taken a clear position on less than half, Lange told DW.   "TTIP is in crisis," he said. "But only one of the negotiating partners is sick: the United States. They clearly have to step up their efforts and make a move towards the Europeans." That is not how US Trade Representative Michael Froman sees it. "We have made good progress in the past six months," he said ahead of new negotiations on Monday. The disagreement is likely to continue as they have yet to tackle some of the most contentious issues. For instance, where and how should investors settle disputes with states? Which industry standards will apply, for example in mechanical engineering? And what are the procedures for transatlantic public procurement? All these problems have yet to be solved.

Tariffs dropped to zero – The TTIP negotiations entered a decisive phase on October 15, 2015. That’s when US and EU negotiators laid their cards on the table, exchanging offers for tariff reductions. Up until then, the US had only broached hypothetical reductions; now they were openly offering to remove 87.5 percent of tariffs completely. That was more than the EU expected. European negotiators had to come up with a better offer or risk derailing the deal. A week later, they came up with a new deal: reductions in 97 percent of tariff categories. The EU’s secret offer, which CORRECTIV has seen in its entirety, is made up of 181 pages of densely-printed text and can be found online at It’s got almost 8,000 categories: Every species of fish, every chemical has its own tariff category. Importing a parka? Wool, or polyester? Trade deals are like poker games. Europe’s big offer comes with a big hope: That the US will open up its public bidding process to European firms. That way, European construction companies like Hochtief could bid on contracts to build US highways, or BMW could sell cop cars to American sheriffs. They also indicated in the document that the reduction on certain agricultural products depends on the acceptance of the extension of Geographical Indications by the US side. For the first time, the tariff offer makes clear what TTIP might do for consumers. Remove duties, and prices tend to drop. With tariffs on parts gone, cars could get cheaper. Per part, tariffs add just a few cents on the euro, but altogether European car manufacturers could save a billion Euro each year, according to German Association of the Automotive Industry calculations. Manufacturers could then pass the savings on to consumers.

Eurozone Economic Activity Slows - Eurozone economic activity slowed for the second straight month in February, according to surveys of purchasing managers, while businesses lowered their prices more sharply, both developments that increase the likelihood the European Central Bank will announce fresh stimulus measures. The eurozone economy slowed slightly in the second half of last year as demand for its exports from China and other large developing economies eased. The surveys provide further indications that the already modest recovery is losing momentum as financial markets slide, while the decline in oil prices since the start of the year has weakened the outlook for inflation in the eurozone. Data provider Markit said a headline measure of activity based on surveys of 5,000 companies around the eurozone, known as the composite purchasing managers index, fell to 52.7 in February from 53.6 in January, its lowest level in over a year. Economists surveyed by The Wall Street Journal last week had expected a decline to 53.3. A reading above 50.0 indicates an increase in activity, while a reading below that level indicates a decline. Businesses saw the costs of raw materials and other inputs fall for the second straight month, and cut their own prices at the sharpest rate for a year. "The need to compete on price has become increasingly widespread amid weak demand, leading to an escalation of deflationary pressures that will worry policy makers," said Chris Williamson, Markit's chief economist.

Euro zone February business growth slowed despite price cutting - PMI | Reuters: Euro zone private business growth increased at its weakest pace for over a year in February, much worse than expected, after activity slowed in Germany and contracted in France, a survey showed on Monday. The survey, which also provided further evidence of price cutting, is likely to solidify expectations of more monetary policy easing from the European Central Bank in March. Growth and inflation risks were already on the rise in the euro area, the minutes of the ECB's January meeting showed, and some policymakers are advocating pre-emptive action in the face of new threats. Markit's Composite Flash Purchasing Managers' Index (PMI) EUPMCF=ECI for the euro zone, based on surveys of thousands of companies and seen as a good guide to growth, slumped to a 13-month low of 52.7 from January's 53.6. A Reuters poll had predicted a fall to 53.3. "February's sharp decline in the euro zone Composite PMI supports our view that the region's economic recovery may well have slowed in Q1. The ECB will need to boost its monetary policy support next month," said Jessica Hinds at Capital Economics. Economists polled recently by Reuters saw an even chance the ECB will increase the size of its 60 billion euros a month bond-buying program when it meets in March, with another deposit rate cut seen as almost certain. Suggesting Europe is already suffering the repercussions from a global economic downturn, growth in Germany's private sector slowed for the second month running in February while in France activity contracted for the first time in over a year. Policymakers will also be concerned about the PMI output price subindex for the bloc, which fell to a one-year low of 48.6, further below the 50 mark that separates growth from contraction. It was 48.9 in January.

Germany's Q4 Growth Confirmed At 0.3%: Germany's economic growth remained stable in the fourth quarter, a detailed report from Destatis showed Tuesday. Gross domestic product grew 0.3 percent from the third quarter, when it rose at the same pace. The sequential growth rate matched preliminary estimate. On a calendar-adjusted basis, GDP increased 1.3 percent year-on-year following a 1.7 percent expansion in the previous quarter. The unadjusted GDP grew 2.1 percent annually in the fourth quarter, after 1.7 percent increase in the previous three months. The statistical office confirmed the annual growth figures for the fourth quarter. For the whole year of 2015, GDP climbed 1.7 percent from last year as estimated. On the expenditure-side, household spending growth halved to 0.3 percent from 0.6 percent, while government spending growth doubled to 1 percent from 0.5 percent. Investment climbed 2.4 percent after expanding 0.5 percent a quarter ago. Exports logged a 0.6 percent drop following prior quarter's 0.3 percent increase. At the same time, imports gained 0.5 percent versus 1.1 percent rise in third quarter. Consequently, the balance of exports and imports of goods and services had a negative effect of 0.5 percentage points on GDP growth.

Has The German Manufacturing Juggernaut "Lost Its Mojo?" -- Earlier today, we highlighted the noticeable weakness in European PMIs which largely missed expectations on - what else? - sluggish global demand and generally anemic economic growth. Specifically, Germany’s PMI fell for the second month in a row in February, declining to 53.8 from 54.5 the previous month. Worryingly, the manufacturing PMI slumped 50.2, missing estimates by a wide margin and hitting its lowest level in 15 months. Services looked ok, but as anyone who follows global macro knows, it’s all about manufacturing for the world’s fourth largest economy. The health of Germany’s manufacturing sector serves as a useful barometer not only for the health of the European economy for the pace of global growth and trade in general. Indeed, that’s one of the reasons why the Volkswagen emissions scandal was (and still is) so troubling. It has the potential to dent Germany’s manufacturing juggernaut. In the wake of Monday’s data, Goldman is out asking if perhaps German manufacturing “has lost its mojo.” “German real GDP grew a moderate 0.3%qoq in the fourth quarter of last year, and by 1.5% for the whole of 2015,” Goldman writes, adding that “part of the relative disappointment can be located in the manufacturing sector, which has shown a sub-par performance since 2011.” What’s to blame, you ask? Why sluggish global growth of course:

Germans Cheer As Refugee Center Burns, Crowds Stop Firefighters From Extinguishing Blaze - After demonstrating a remarkable degree of restraint and tolerance in the wake of the attacks that left 130 people dead in Paris in November, the string of sexual assaults that swept Cologne, Germany on New Year’s Eve was the last straw for a German populace that had, until this year anyway, largely remained supportive of Angela Merkel’s “yes we can” approach to settling the 1.1 million asylum seekers that the country took in last year. That’s not to say that there aren’t still large swaths of the German population that support the migrant cause. It’s simply to note that the general consensus is no longer teddy bears, water bottles, and hugs. Discontent with the Iron Chancellor’s approach is growing and the tension is palpable. Renewed support for PEGIDA is emblematic of the direction in which the country is headed and this weekend we got the latest evidence that Germany’s patience with migrants is wearing increasingly thin. Residents of Bautzen (in Saxony) cheered on Saturday night as a planned migrant center burned in what very well may have been an arson. “Some people reacted to the blaze with derogatory comments and undisguised joy,” Deutsche Welle notes, before adding that “the incident in Bautzen comes shortly after a mob shouting anti-migrant slogans blocked a bus full of refugees in Clausnitz, also in Saxony.” Here's the video of the Clausnitz incident:

"We've Reached The Limit": Denmark Central Bank Chief Says Monetary Policy Is Exhausted -  For the likes of Paul Krugman, the Riksbank provides a cautionary tale for central banks wary of committing so-called “policy mistakes.” Back in 2010, the bank started to hike rates. That decision halted a decline in unemployment and shortly thereafter, it became apparent that “the rock star of the recovery had turned itself into Japan." Or so Krugman says. He went on to blame the “error” on "Sadomonetarism,” which he hilariously described as “an attitude, common among monetary officials and commentators, that involves a visceral dislike for low interest rates and easy money, even when unemployment is high and inflation is low.” If these “sadomonetarists” are indeed “common among monetary officials,” then it’s news to us because everywhere you turn, DM central bankers have plunged headlong into the Keynesian abyss as NIRP proliferates and QE continues unabated in Europe, Japan, and yes, in Sweden, where the Riksbank made a U-turn in 2011 on the way to pushing rates deeply into negative territory. Here’s where the world stands as it relates to NIRP.

Negative rates: ECB seeks ways to ease pain for banks Unease about how far below zero the European Central Bank can cut interest rates without ravaging the region’s lenders is set to play an important role in policymakers’ discussions on further monetary loosening, with top officials mooting a change to the way they set borrowing costs. The topsy-turvy world beyond the zero bound became apparent in recent weeks when European bank stocks plunged on fears negative rates have eaten into their profitability. Vítor Constâncio, the ECB’s vice-president, on Friday gave the clearest hint yet that the eurozone’s central bankers are seriously considering an adjustment to their interest rate regime to protect banks from the impact of negative rates. Mr Constâncio said the ECB could cut rates in a way that mitigates the “immediate, direct impact” on lenders that have so far shielded their customers from the cost of the policy, which is imposed on reserves left at central banks. He cited the lead set by the Japanese and other central banks in introducing a tiered system, which protects a portion of banks’ deposits from the cost of negative rates. The central bank is almost certain to do something at its next policy meeting on March 10, with weak purchasing managers’ index figures published on Monday the latest signal that the eurozone’s recovery is under threat from weak global demand and subdued price pressures. Another 10 basis point cut in the deposit rate, now at minus 0.3 per cent, is priced in. Some ECB watchers expect a sharper cut of 20 basis points to the deposit rate. In effect, the ECB would be raising the levy it charges on banks’ deposits.

Negative rates haven’t hit banks all that hard? -  A qualified defense of negative rates effects on banks’ net interest margins, you say? Go on then. From Andrew Garthwaite and team at Credit Suisse… a pessimistic beginning to set the scene, with our emphasis: The sell-off in banks globally accelerated once the BoJ announced their decision to move to a negative deposit rate, with banks tending to underperform their local markets following the introduction of negative deposit rates, as shown in Figure 38. The challenge for banks is that given their reluctance to take deposit rates below zero, any further fall in lending rates pressures net interest margins. On ECB data, net interest income accounts for 51% of banks’ profits, so the pressure on profitability has the potential to be significant.The problem on the liability side is that while wholesale funding costs for banks would tend to adjust down as rates are cut, these account for only c.15% of bank funding across the euro area, with deposits (where rates are approaching the zero bound threshold) accounting for between 40% and 50% of funding. On top of this, euro area banks own around €2.7trn of government debt, representing c.10% of their assets. As rates fall, then income from these holdings also falls.But then they get a little jauntier, using relative measures of NIM decline, where others have been more absolute, to suggest that European bank shares are oversold:… we think that the detrimental impact of negative rates may be overstated for the following reasons:

  • ■ Our European banks team estimate that each 25bp off short rates takes c2% off 2017E EPS for the sector. The magnitude of this fall in earnings is small compared to the scale of recent share price declines…
  • ■ Those banks that have had negative rates the longest have been some of the best performers, and their NIMs have shown signs of resilience.

Negative Rates, Negative Reactions  --As doubts grow about the effectiveness of quantitative easing, monetary policymakers are leaning towards cutting interest rates further into negative territory as their preferred mode of easing. But this begs crucial and untested questions of whether banks will be willing to pass on the cost to their retail depositors, and of how depositors might react if they did so. obvious problem is that we have no experience to go on, since no bank has been brave enough to breach it in a significant way. The banks are clearly concerned that cutting savings rates below zero would lead to a customer backlash and significant withdrawals of deposits. But with loan rates often contractually linked to money market rates, shielding savers from lower rates comes at the cost of bank profitability, capital generation, and willingness to lend. This, in turn, blunts the intended stimulus that the central banks are trying to deliver by lowering rates. So the response of retail customers to negative interest rates remains largely untested. In an attempt to fill this gap, ING commissioned IPSOS to survey around 13,000 consumers across Europe and – for comparison purposes – in the US and Australia to ask them how they have responded to low interest rates and how they might react to negative interest rates (ING 2016).  Such surveys have an obvious drawback: there is inevitably a gap between what people say and what they do – inertia often kicks in. Nevertheless, the results are remarkable. They indicate that zero is a major psychological barrier for savers. No less than 77% said that they would take their money out of their savings accounts if rates went negative. But only 12% would spend more, with most suggesting that they would either switch into riskier investments or hoard cash ‘in a safe place’.

ECB risks running out of bonds to buy unless rewrites rules | Reuters: The European Central Bank could run out of government bonds to buy within a year if it does not relax its own restrictions on purchases, dealing a blow to its mission to boost growth in the euro zone and lift inflation. The central bank may have to consider measures such as scrapping its ban on buying bonds yielding less than its deposit rate or even extending the scheme to include corporate debt, particularly if it increases the size of the 60 billion euros ($66 billion) a month programme, as some analysts expect. Otherwise it risks running out of the bonds it can buy from some countries, including Germany - Europe's biggest economy and the euro zone's lowest-risk borrower. The quantitative easing (QE) scheme, launched in March last year, is restricted by several rules aimed at limiting its risks: as well as the yield limit, the ECB cannot hold more than a third of any country's debt or of any specific bond issue. It also can only buy bonds in proportion to each country's contribution to the ECB's capital, the so-called capital key. The ECB is widely expected to cut its deposit rate by 10 basis points to -0.4 percent on March 10 and economists polled by Reuters say the size of the bond-buying scheme could also be extended by 10-30 billion euros a month.

UBS expects 250-300 bln euro of distressed credit in current cycle | Reuters: UBS analysts said on Thursday that 250 billion to 300 billion euros of euro-denominated bank loans are vulnerable to default in the current credit cycle as energy, metal and mining companies reel from rockbottom commodity prices amid slowing global demand. On Tuesday, Standard Chartered (STAN.L), which is heavily exposed to energy and mining, reported its first annual loss since 1989 as soured loans jumped. Still, European banks' exposure to distressed debt is comparative lower than those of their U.S. counterparts. UBS analysts estimated that $1 trillion in speculative-grade debt, which include junk bonds, leveraged loans, credit lines and private debt securities, face a high risk of default. Earlier this week, JPMorgan (JPM.N) said it increased reserves by $500 million in anticipation of losses on energy loans. They said defaults in the U.S. speculative-grade natural resource sector has been on the rise. Its trailing 12-month default rate was 12.2 percent, up from 6.8 percent six months earlier and 3.0 percent 12 months before. Even if commodity prices were to improve, "we expect significant default realizations ahead," UBS strategists Matthew Mish and Stephen Caprio wrote in a research note.

Helicopter drops might not be far away - The world economy is slowing, both structurally and cyclically. How might policy respond? With desperate improvisations, no doubt. Negative interest rates have already moved from the unthinkable to reality (see charts). The next step is likely to include fiscal expansion. Indeed, this is what the OECD, long an enthusiast for fiscal austerity, recommends in itsInterim Economic Outlook. But that is unlikely to be the end. With fiscal expansion might go direct monetary support, including the most radical policy of all: the “helicopter drops” of money recommended by the late Milton Friedman. More recently, this is the policy foreseen by Ray Dalio, founder of Bridgewater, a hedge fund. The world economy is not just slowing, he argues, but “monetary policy 1” — lower interest rates — and “monetary policy 2” — quantitative easing — are largely exhausted. Thus, he says, the world will need a “monetary policy 3” directly targeted at encouraging spending.  . Why might the world be driven to such expedients? The short answer is that the global economy is slowing durably. The OECD now forecasts growth of global output in 2016 “to be no higher than in 2015, itself the slowest pace in the past five years”. Behind this is a simple reality: the global savings glut — the tendency for desired savings to rise more than desired investment — is growing and so the “chronic demand deficiency syndrome” is worsening. This stage of demand weakness must be seen in its historical context. The long-term real interest rate on safe securities has been declining for at least two decades. It has been near zero since the financial crisis of 2007-09. Before then, an unsustainable western credit boom offset the weakness of demand. Afterwards, fiscal deficits, zero interest rates and expansions of central bank balance sheets stabilised demand in the west, while a credit expansion funded massive investment in China. Loose western monetary policies and loose Chinese credit policies also drove the post-crisis commodity boom, though China’s exceptional growth was the most important single factor. The end of these credit booms is an important cause of today’s weak demand.

Get ready to be showered by helicopter money - First we had Zirp. Then Nirp. The language of central bankers sounds increasingly like the formal medical term for a nasty rash. We have already grown used to a zero interest rate policy over the past year. Over the past few months we have been gradually softened up for a negative interest rate policy. Both now appear to have run out of road. Zero interest rates are not doing enough to stimulate flagging economies, while negative rates, by destroying the profitability of the banking system, may well do more harm than good. But don’t assume that will stop central banks trying to stimulate demand and raise inflation. The next likely option is “Hirp” – or helicopter money. And that is likely to involve some even crazier options, such as putting money into people’s banks accounts, mandating pay rises, or giving them the deposits for a house. None of it will work, of course – but that doesn’t mean we shouldn’t expect it to happen, or indeed position our portfolios to take advantage of it. Only a few years ago, the idea that interest rates would be pushed down to zero would have been too outlandish to contemplate. For centuries, you had to pay something to borrow money, for the fairly obvious reasons that savers had to be rewarded for putting some of their cash aside, and because, if credit didn’t cost anything, there was no reason to limit the amount of debt you ran up. But after the financial crash of 2008, central banks ripped up that rulebook. Interest rates were pushed down to close to zero, as they had been in Japan since the 1990s, and apart from the recent tiny rate rise in the US, have stayed there ever since.

Greek Attempt To Force Use Of Electronic Money Instead Of Physical Cash Fails - While the "developed world" is only now starting its aggressive push to slowly at first, then very fast ban the use of physical cash as the key gating factor to the global adoption of NIRP (by first eliminating high-denomination bills because they "aid terrorism and spread criminality") one country has long been doing everything in its power to ween its population away from tax-evasive cash as a medium of payment, and into digital transactions: Greece. The problem, however, is that it has failed. According to Kathimerini, "Greek businesses are not ready for the expansion of plastic money through the compulsory use of credit and debit cards for everyday transactions." Unlike in the rest of the world where "the stick" approach will likely to be used, in Greece the government has been more gentle by adopting a "carrot" strategy (for now) when it comes to migrating from cash to digital. The government has told taxpayers that they will have to spend up to a certain amount of their incomes via bank and card transactions in order to qualify for an annual tax-free exemption. This appears to not be a sufficient incentive however, as a large proportion of stores still don’t have the card terminals, or PoS (Points of Sale), required for card payments, while plastic is accepted by very few doctors, plumbers, electricians, lawyers and others who tend to account for the lion’s share of tax evasion recorded in the country.

Germany Lays the Foundations for a New Eurozone Debt/Banking Crisis -- In recent weeks, Germany has put forward two proposals for the ‘future viability’ of the EMU that, if approved, would radically alter the nature of the currency union. For the worse. The first proposal, already at the centre of high-level intergovernmental discussions, comes from the German Council of Economic Experts, the country’s most influential economic advisory group (sometimes referred to as the ‘five wise men’). It has the backing of the Bundesbank, of the German finance minister Wolfgang Schäuble and, it would appear, even of Mario Draghi. Ostensibly aimed at ‘severing the link between banks and government’ (just like the banking union) and ‘ensuring long-term debt sustainability’, it calls for: (i) removing the exemption from risk-weighting for sovereign exposures, which essentially means that government bonds would longer be considered a risk-free asset for banks (as they are now under Basel rules), but would be ‘weighted’ according to the ‘sovereign default risk’ of the country in question (as determined by the fraud-prone rating agencies depicted in The Big Short); (ii) putting a cap on the overall risk-weighted sovereign exposure of banks; and (iii) introducing an automatic ‘sovereign insolvency mechanism’ that would essentially extend to sovereigns the bail-in rule introduced for banks by the banking union, meaning that if a country requires financial assistance from the European Stability Mechanism (ESM), for whichever reason, it will have to lengthen sovereign bond maturities (reducing the market value of those bonds and causing severe losses for all bondholders) and, if necessary, impose a nominal ‘haircut’ on private creditors. The second proposal, initially put forward by Schäuble and fellow high-ranking member of the CDU party Karl Lamers and revived in recent weeks by the governors of the German and French central banks, Jens Weidmann (Bundesbank) and François Villeroy de Galhau (Banque de France), calls for the creation of a ‘eurozone finance ministry’, in connection with an ‘independent fiscal council’.

Germany says it lost 130,000 refugees - The German government does not know the whereabouts of around 13 percent of the refugees who entered the country last year. Following a demand from the German Left Party, authorities released a parliamentary document on Friday that said 130,000 people who registered for asylum last year are missing, the AFP reports. "About 13 percent did not turn up at the reception centres to which they had been directed," the document stated, while explaining that some might have returned to their home countries, moved on to other European countries, and some could have also registered more than once. The government announced plans to help address the problem, which include issuing identity documents as soon as a migrant arrives to Germany thus avoiding repeated registration. In 2015, Germany accepted over one million asylum seekers, shouldering most of the refugee crisis hitting Europe. The large numbers of migrants coming into the country have caused Angela Merkel's popularity to drop dramatically as people have started to resent her "open-door" policy. Fears that criminals and terrorists could hide among the crowds of thousands of migrants coming to Europe have also gripped the public, especially since reports have shown that most of the men behind the November 13 attacks in Paris came to the continent with refugees.

This racist backlash against refugees is the real crisis in Europe - A coalition of the inhumane is rising in Europe. A group of political leaders have been meeting this week in Vienna to coordinate how to seal the western Balkan refugee passage. The countries involved, including Macedonia, Croatia and Serbia, don’t want to risk hosting thousands of stranded people in their poor societies. They expect that by intentionally causing a humanitarian disaster in Greece they are going to stop the misery of the world getting in their backyard. Only this week Greece pleaded with Macedonia to reopen its border as 4,000 refugees became stranded. Meanwhile the four Visegrád countries (the Czech Republic, Hungary, Poland and Slovakia) who have not been not invited to join these discussions, are also at the forefront of this ideological campaign to seal the Balkan route. Their motivation is based on an Islamophobic narrative, as advocated by Hungarian prime minister Viktor Orbán, a self-declared enemy of liberal democracy and consolidator of a Christian front against the Islamisation of Europe. Despite having accepted 90,000 people last year, Austria is the latest country to impose quotas on asylum seekers and send refugees towards Germany. Trying to avoid disaster in the forthcoming election against nationalist Heinz-Christian Strache and his Freedom party, its terrified leadership has moved from social-democratic moderation to rightwing extremism within a few months. Chancellor Faymann has been dwarfed by an emerging nationalist star, the 29-year-old minister of foreign affairs, Sebastian Kurz, who lobbied hard for the ringfencing of Greece after failing to force the Greek government into pushing back boats in the Aegean sea. The declaration produced after the meeting yesterday branded the refugee crisis an illegal migration issue, cynically ignoring the suffering of hundreds of thousand of people escaping war.

Ministers 'hiding full scale of EU immigration' - Telegraph: Hundreds of thousands more EU migrants may have come to Britain than disclosed in official records, experts have warned as ministers were accused of hiding the full scale of immigration. Official figures published suggested that 257,000 migrants came to Britain last year, with a significant rise in the number of Bulgarians and Romanians. However over the same period 630,000 EU citizens registered for a national insurance number, which would entitle them to work or claim benefits in Britain.   Experts said that the "massive" disparity cannot be explained by the difference in the way the figures are recorded and voters "deserve to have the facts and data" ahead of the EU referendum. Over the past five years 2.25 million EU nationals have registered for national insurance numbers but official migration figures suggest that just 1 million European citizens have come to this country. The latest official figures suggest that overall net migration levels, including non-EU migrants, have fallen slightly from record levels of 336,000 to 323,000. David Cameron said that the figures are "too high" and insisted that he can still hit his target of reducing net migration levels to "tens of thousands" with the help benefit curbs for foreign workers in his EU deal.

EU has no plan 'B' if Britain votes to quit EU, Moscovici says (Reuters) - The European Commission has no plan "B" in place if Britain votes to leave the European Union, and the executive body will stay on the sidelines of the referendum campaign, European Union Finance Commissioner Pierre Moscovici said on Sunday. Britons will vote June 23 on whether to remain a member of the EU. Asked in an interview on France 5 television whether the EU was planning what to do if they vote to leave, Moscovici said, "No, no and no, there is no plan 'B'. It doesn't help us in any way to envisage disaster scenarios." "The day we start talking about a plan `B' is the day we no longer believe in our plan 'A'. I have just one plan. The United Kingdom in a united Europe," Moscovici said. Moscovici said the EU's executive will not take part in the referendum campaign, saying any involvement could backfire. "For me, it is prudent not to go campaign and try to impose a choice on a sovereign people. Referendums are dangerous, especially for Europe," he said. Asked about the campaign that has kicked off with London Mayor Boris Johnson joining the call for Britain to quit the EU, Moscovici said the move could hurt Johnson's image. "It will not be easy for Mr. Johnson to end up next to Nigel Farage and some other clowns and populists," Moscovici said. He said Europe was facing existential challenges, such as the Greek debt crisis and the current refugee crisis, but that the solutions should be at the European level. "It is a lot of crises, but these are European problems, but they are also international. The idea that you could find national solutions to these problems which are international is a lie," he said.

Brexit: how big an issue? - Just how big an issue is Brexit? Cameron says it is “one of the biggest decisions this country will face”. Gove says it’s “the most difficult decision of my political life.” But is it? The best economic case for exit I’ve seen comes from Patrick Minford, who estimates the gains to leaving at around 10 per cent of GDP: these come from less regulation and freer trade with non-EU countries. On the other hand, John Van Reenen and colleagues think Brexit might cost us up to 10 per cent of GDP, as we face trade barriers with the EU. There are big uncertainties here, such as what sort of trading regimes we’d face outside the EU, and how big are trade multipliers: to what extent does trade (pdf) encourage innovation? Two things make me sceptical about big estimates, however. One is a paper by John Landon-Lane and Peter Robertson. They point out that, give or take a standard error, rich national economies grow at pretty similar rates over the long-run. This, they say, implies that “there are few, if any, feasible policies available that have a significant effect on long run growth rates.” The second concerns the maths of economic growth, described by Dietrich Vollrath. Even if Brexit does raise our potential growth rate, it would take many years for the economy to reap those gains.

Sterling sinks after London mayor joins ‘Brexit’ camp - The sterling sank against the dollar yesterday as the defection of London mayor Boris Johnson to the ‘Brexit’ camp added to concerns that a British departure from the EU is a real risk. After a positive reaction to Prime Minister David Cameron’s sealing of an EU deal on Friday with which to fight a referendum on June 23, the move by Johnson along with a handful of other senior ruling Conservatives drove a wave of selling in Asia. The pound hit a three-week low against the dollar of $1.4175 as European markets came on line, down 1.5 per cent down on the day. If maintained, that would mark its biggest one-day fall in 11 months. The sterling also fell sharply against the euro, losing around one per cent to 78.08 pence per euro. Bets on sterling weakness over the next six months reached their highest in more than four years. “The out camp were struggling to get a figurehead who was popular and Boris has given them that boost,” said Alvin Tan, a strategist with French bank Société Générale in London. “I think there is genuine worry that Britain might vote to leave and the uncertainty is going to rise into the referendum. Apart from the fall in cable, the implied volatility in sterling has moved up sharply.” The pound also dipped below 160 yen for the first time in more than two years.

What a British divorce from the EU would look like If Britain votes to leave the EU, the closing scenes of the 40-year partnership would probably see the UK prime minister sitting in an office, waiting for answers in the dead of night. Along the corridor of Brussels’ European Council building, the remaining 27 EU leaders would be deliberating and voting on the UK’s exit deal, a pact touching on almost every aspect of modern British life, from the price of milk to the freedom to work elsewhere in Europe. While leaving the EU is Britain’s choice, the UK cannot dictate the exit terms. “You become very lonely at that point, once you’re out of the decision making,” said Michel Petite, former head of the European Commission legal service. “Voting is the hard core of EU membership, the red line. You are leaving the club.” How this complex divorce is negotiated and carried out would have a decisive impact on Britain’s economy and its place in the world for generations. It could lead to an orderly transition or a much more unpredictable process, buffeted by political pressure, volatile markets and the clash of national interests. What future relationship would the UK seek? How would the EU react? And when exactly would the exit terms become clear? The mechanics of divorce would determine whether breaking up with the union proves disruptive, risky or rewarding.

‘Worst cash crisis in its history’ facing NHS as deficit rises over £2.2 billion warn MPs – The London Economic: More shocking news on the state of the health service as MPs have warned that the NHS is now in “financial freefall,” after the overspend in nine months was £622 million over what was predicted. The nation’s hospitals are facing huge pressures from soaring demand for care, sky-high costs and patients bed blocking. Numerous trusts are not hitting various national waiting times standards, almost 100,000 people are waiting for more than fours hours to be seen in A&E, caused by reduced availability elsewhere in the trust. In total NHS services announced a deficit of £2.26bn in the nine months leading up to the end of 2015, a report on the state of the NHS has revealed. Heidi Alexander Shadow heath secretary said: “The Tories have caused the worst cash crisis in the NHS’s history. Hospitals were already forecasting a £2.2 billion deficit this year. “However, today’s figures show the black hole in the NHS’s finances is already larger than that with three months of the financial year still left to go.

TTIP deal poses 'real and serious risk' to NHS, says leading QC - The controversial transatlantic trade deal set to be agreed this year would mean that privatisation of elements of the NHS could be made irreversible for future governments wanting to restore services to public hands, according to a new legal analysis. The legal advice was prepared by one of the UK’s leading QCs on European law for the Unite trade union, which will reveal on Monday that it has been holding talks with the government about the Transatlantic Trade and Investment Partnership (TTIP) deal between Europe and the US. Unite believes the government has been keeping Britain in the dark over the impact of the deal and argues the NHS should be excluded from the trade deal. The government dismissed the idea that TTIP poses a threat as “irresponsible and false”. TTIP would give investors new legal rights, which extend beyond both UK and EU law as well as NHS contracts, according to Michael Bowsher QC, a former chair of the Bar Council’s EU law committee who was tasked by Unite to prepare the advice. Bowsher said he had concluded that the deal poses “a real and serious risk” to future UK government decision making regarding the NHS.

The UK’s Money Laundering Mess (III): LLPs, Secrecy Jurisdictions, PSCs, and a Forthcoming Fiasco - Let’s sketchily define a term from our headline. “LLPs”, or in full, “Limited Liability Partnerships”, are a relatively new fangled type of British legal entity, somewhat analogous to Limited Companies or Limited Partnerships, though very different in detail. Why is this vague description at all interesting? From 2013, here is a seven-minute video of Richard Brooks, formerly a tax inspector, and currently a journalist at the UK’s renowned Private Eye magazine (familiarly, the “Eye”), gumshoeing his way round various tatty UK addresses with another investigator, Andrew Bousfield. LLPs are the subject of their investigation: We’ve learnt about a group of offshore companies that are behind thousands of Limited Liability Partnerships formed in offices across the UK. We believe these Limited Liability Partnerships are being used to launder millions of pounds that are the proceeds of crime in the Ukraine and Eastern Europe. The video gives you an idea of the evasiveness of the company agents involved in creating these LLPs for their dubious end users. First up, there’s a Mr Williams, who runs a formation agent called Company Formations Limited. He deflects a phone enquiry and denies all knowledge of the registrations that the official record says his company has performed. He promises a response by email, for what that’s worth.

Thousands told their pension savings could be at risk - BBC News: Thousands of workers who have been encouraged by the government to take out pension plans could be at risk of losing their savings, the industry regulator has told the BBC. It follows fears that dozens of companies providing auto enrolment pensions are too small to survive. The BBC has also uncovered evidence that employers and workers are being deliberately misled by some providers. The government said it was aware of the issue, and was planning to take action. Independent experts claim the problem could affect up to a quarter of a million people a year who are putting their savings into so-called master trust pensions. Such schemes are popular with the 1.8 million small employers with fewer than 30 staff who are currently signing up under the auto enrolment programme. "There is a risk of these schemes falling over; there is a risk that members might lose their money," said Andrew Warwick Thompson, executive director for regulatory policy at the Pensions Regulator. However, he said scheme assets invested through asset managers regulated by the Financial Conduct Authority (FCA) would be safe. This will be "the vast majority of cases", he said. The regulator also raised concerns about some of those in charge of such pension schemes. Some of the small pension providers "may not be run by competent people", said Mr Warwick Thompson. Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes. Worse than that, the BBC discovered that at least one master trust appears to be providing misleading information online.