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

Saturday, February 13, 2016

week ending Feb 13

 Turbulent Exit Redux -  A lot of people have speculated about what would happen when the Fed raised rates, and almost all of them have been surprised. One of them is Zoltan Pozsar, who boldly went on record with the view that corporate cash pools of various kinds would shift out of bank deposits into government-only mutual funds, which would invest the funds in the new Fed RRP facility, so shifting the balance of Fed liabilities from reserves to RRP. So far that hasn’t happened, and in an important new paper Pozsar tries to understand what did happen instead, and why. There has been $100 billion shift out of bank deposits, but that is much smaller than expected, and most importantly it hasn’t shown up in the new Fed RRP facility at all. Pozsar’s main question is, Where did those funds go?  Another thing we know is that the balance of Fed liabilities has shifted, out of reserves and into both the Treasury General Account and the RRP facility that the Fed offers to foreign central banks. Most the former happened before the hike, but the latter is a new thing to the tune of $220 billion. Pozsar’s idea is that we should connect these dots.  Corporate cash pools, he thinks, are shifting out of bank deposits as expected, but they are shifting into Treasury bills not government-only mutual funds. And the source of those Treasury bills is first the Treasury itself (issuing bills to fund its TGA account) and second foreign central banks who are shifting out of Treasury bills into Fed RRP.  So far as I can see, this is a guess not a fact, since we don’t have contemporaneous data on cash pool holdings, only on the Fed balance sheet numbers.  And it should be said that there are other things that could be causing the numbers we observe, for example flows rather than portfolio shifts. 

The Political Economy of Interest Rates Revisited - Paul Krugman - A few months back there was a debate over the sources of pressure on the Fed to raise rates; part of what drove that debate was the clear division between Fed insiders, like Stan Fischer, who seemed eager to raise rates, and outsiders, like Larry Summers and myself, who were strenuously against a rate hike.  I argued that it had a lot to do with the way central bankers talk all the time to private bankers — and that bankers are hurt a lot by low interest rates. Others, however, questioned the premise, arguing that there was no good reason to believe that low rates were especially bad for bank profits. May I say that recent events seem to have settled that argument in my favor? Banks are now howling — and genuinely suffering — as negative rates spread around the world. Tim DuyBut the collapse in banking stocks suggests strongly that negative interest rates are not compatible with our current economic institutions. The system relies on the banks, and the banks need to make money, and they struggle to do so in a negative rate environment. Should it be any surprise that the threat of global negative rates is slamming the financial sector?  And surely the adverse effects don’t begin precisely at zero; low rates must already put a squeeze on banks. So I think we have an explanation of rate-hike bias: it’s the influence of the financial industry. At the same time, however, we also see that we’re talking about influence, not complete control or anything like it. The Fed has, I’d argue, been swayed by banks’ interests — not by crude corruption, but by the fact of who they talk to all the time. But that influence hasn’t stopped the Fed and other central banks from pursuing policies that the banks really hate in an effort to pursue their primary job, which is stabilizing the economy. At most we’re talking about a tilt in policy.  The relevance of this discussion to current Democratic politics — and to today’s column — seems obvious.

Federal Reserve Won’t Backpedal on Interest Rates, Janet Yellen Says - The Federal Reserve and financial markets are having a difference of opinion.The Fed expects the domestic economy to keep chugging along. Investors fear a global downturn.The Fed says it is still thinking about raising its benchmark interest rate again as soon as March. Investors are betting the Fed will not move before 2017.The split-screen divide was on display Thursday, as the Fed’s chairwoman, Janet L. Yellen, delivered a relatively upbeat assessment to the Senate Banking Committee while investors were dumping stocks and shoveling money into safe havens like government debt and gold. The Dow Jones industrial average finished the day down nearly 255 points, or 1.6 percent.“A lot has happened” since December, when the Fed predicted it would spend 2016 gradually raising rates, Ms. Yellen acknowledged. And risk-averse investors could disrupt slow-and-steady economic growth, she allowed.But her tone was far from bleak. Asked about the risk of a recession, Ms. Yellen responded that anything is possible but “expansions don’t die of old age.” She made clear that Fed officials were still debating when, not whether, they should raise rates again. “We will meet in March, and our committee will carefully deliberate about what impact these developments have had,” Ms. Yellen told Congress and the cameras, referring to the market turmoil and next month’s meeting of the Federal Open Market Committee. “Today I think it’s premature to render a judgment.” But economic jitters are shaping the questions Ms. Yellen is facing, as retirement accounts shrink and investors’ stomachs churn. Pressed by Senator Dean Heller, Republican of Nevada, Ms. Yellen said she did not think the Fed had contributed significantly to the convulsions in financial markets by its December decision to raise its benchmark interest rate for the first time since the financial crisis.

Yellen: Negative rates not "off the table" - Federal Reserve Chair Janet Yellen told Congress Thursday the central bank has not ruled out imposing negative interest rates if the economy takes a downward turn but is investigating their viability. “I wouldn’t take them off the table but we would have work to do to make sure they would be workable,” she told the Senate Banking Committee in her semiannual monetary policy report to Congress. Yellen testified before the House Financial Services committee Wednesday. The Fed raised its benchmark interest rate in December for the first time in nine years -- from near zero to 0.4% -- amid strong job growth and near-normal unemployment. But global economic troubles and a market selloff have raised concerns about a U.S. slowdown and even recession. Still, Yellen said Thursday she doesn't expect the economy to wobble enough to warrant a cut in interest rates, let alone a drop into negative territory.

Janet Yellen Says Fed Could Slow Interest Rate Hikes --Federal Reserve Chair Janet Yellen said the U.S. economy faces a number of global threats that could derail growth and compel the Fed to slow the pace of future interest rate hikes.In her semiannual report to Congress Wednesday, she noted the widening fallout from concerns over China’s weaker currency and economic outlook, which is rattling financial markets around the world.While the Fed expects to raise interest rates gradually, they are not on any preset course, she said. The Fed would likely move slower “if the economy were to disappoint.”Yellen did mention in her prepared comments to the House Financial Services Committee that it was possible that the recent economic weakness could prove temporary, setting the stage for faster economic growth and a stronger increase in inflation than the Fed is currently forecasting. Should that occur, the Fed will be ready to hike rates more quickly than currently anticipated. “The actual path of the (Fed’s key interest rate) will depend on what incoming data tell us about the economic outlook,” Yellen said.In her most extensive comments on the situation in China, Yellen said that various economic indicators do not suggest that the world’s second largest economy was undergoing a sharp slowdown. But she added that recent declines in the country’s currency have intensified concerns about China’s future economic prospects. “This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.  Yellen noted that the sharp declines in U.S. stock prices, rising interest rates for riskier borrowers and further strength in the dollar has translated into financial conditions that are “less supportive of growth.”  “These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices could provide some offset,” she said.

Even The Fed's "Owners" Aren't Buying What Janet Is Selling -- Despite a collapse in yields and implicit plunge in the odds of a rate-hike anytime soon, asset-gathering, commission-taking talking-heads continue to spew unrealities about the economy and where it goes next as excuse after excuse (low oil is good, services trump manufacturing etc) are discarded. What is worse is that none other than The Fed's "owners" - the primary dealers - refuse to play along with The Fed's transitory narrative as their Treasury Bond position is the longest since 2013. Of course, as Bloomberg notes, the buildup in the 22 primary dealers’ Treasuries holdings, concentrated in maturities less than six years, may also signal more sales by central banks, said Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA.  “This gels well with what we are seeing with China selling Treasuries, as dealers typically have to disintermediate the stress so they take these securities on their books,” she said. A similar spike occurred last year following China’s August currency devaluation and the subsequent drop in its reserves.  Although it appears that only the greatest fools are left holding the bag on a rising-rates, commodities-have-bottomed, stocks' secular bull is still in place narrative.

Interest Rate Increases Are Hard to Undo? - Narayana Kocherlakota - During her Congressional testimony today, Chair Yellen made the following statement, ”I do not expect that the FOMC [Federal Open Market Committee] is going to be soon in the situation where it is necessary to cut rates.” In this post, I argue that her statement suggests that the FOMC’s policy moves will be inappropriately insensitive to adverse information about the evolution of the economy. The FOMC is clearly leaving open the possibility that it will not raise rates in March. (Markets seem to see that as the most likely outcome right now.) That means that there’s some set of economic conditions for which a range of a quarter to half a percent for the target range for the fed funds rate is appropriate. Under an appropriately data-sensitive approach to policy, the FOMC should slightly lower the fed funds rate target range if it confronts a slightly worse set of economic conditions. There is a sense in which the above is exaggerated - after all, the Committee doesn’t (and probably shouldn’t) make moves smaller than a quarter percentage point. For that reason, it requires more than slightly worse economic conditions to lower rates by the requisite quarter percent. But - as we heard from many commentators in December - a 25 basis point move is still pretty small. With that in mind: If a move of zero is highly likely, surely a downward move of a quarter percent point should be more than a little possible? But Chair Yellen’s statement suggests that this isn’t the way that the FOMC is thinking about the situation. Instead, she seems to be saying that it will take a pretty bad turn of events for the FOMC to be willing to reverse its December move. Such an approach means that the FOMC’s December has created a new higher floor for the interest rate on excess reserves. That new floor is certainly softer than the old one - but it’s a floor nonetheless.

Goldman's Take: "Additional Hikes Remain FOMC Baseline" -- This is probably not what the bulls wanted to hear. Moments ago Goldman released its take on Yellen's testimony set to begin momentarily, and contrary from a dovish take the bank which has spawned more central bankers in world history than any other, said that her prepared remarks "suggest additional hikes remain FOMC baseline "  Goldman's full take: BOTTOM LINE: Chair Yellen’s prepared remarks to the House Financial Services Committee contained little new information on the monetary policy outlook, and were roughly in line with comments made by Vice Chair Fischer and New York Fed President Dudley over the past couple weeks. She continued to highlight the FOMC’s expectation for “gradual” increases in the federal funds rate.

  • 1. Regarding recent turmoil in financial markets, Chair Yellen acknowledged that “Financial conditions in the United States have recently become less supportive of growth”, and that “if they prove persistent, could weigh on the outlook for economic activity and the labor market”.
  • 2. There was little new information regarding the monetary policy and economic outlooks. In terms of monetary policy, she continued to note that “The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
  • 3. Chair Yellen recognized the potential for negative spillovers from international developments, noting that “Foreign economic developments, in particular, pose risks to U.S. economic growth.” She also attributed recent market volatility to foreign developments, highlighting that “declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth”.
  • 4. Chair Yellen acknowledged the recent declines in measures of inflation expectations, but we did not detect a broader shift in Fed officials' assessment of these developments. Regarding survey based measures, she noted that they are “at the low end of their recent ranges; overall, however, they have been reasonably stable”.

Fed Watch: Fed Yet To Fully Embrace A New Policy Path - The Fed will take a pause on rate hikes. An indefinite pause. The sooner they admit this, the better off we will all be. Indeed, the sooner they admit this, the sooner financial markets will calm and the the sooner they would be able to resume hiking rates. Federal Reserve Chair Janet Yellen had two high profile opportunities this week to make such an admission. Yet she failed to do so. She gave some ground on March, to be sure. But overall, the Fed just isn’t ready to stop talking about rate hikes later this year. The framework from which I consider the Fed’s current predicament begins with this chart: Beginning in 2013 and extending through most of 2015, the domestic side of the US economy surged as consumer spending accelerated, investment stabilized, and government spending gained. The trade deficit acted as a pressure valve, widening to offshore some of the domestic demand. On net, economic activity was sufficient to collapse the output gap. By the end of 2015, the economy was near full-employment. At full-employment, a combination of factors would work in tandem to slow activity to that of potential growth. I think of it as a new constellation of prices consistent with sustained full-employment. I can’t tell you exactly what the new constellation would look like other than the most likely combination: A mix of higher dollar, higher inflation, higher wages, and higher short term interest rates (tighter monetary policy). How much monetary policy tightening is consistent with the new equilibrium depends on the evolution of the other prices. A reasonable baseline at the end of last year was that 100bp of tightening would be consistent with achieving full-employment. That was the Fed’s starting point as well.

Negative interest rates - For an economy with underutilized resources or too low a rate of inflation the traditional prescription for monetary policy is to lower the interest rate. Central banks around the world tried to do that in response to stubbornly weak economies, bringing the overnight interest rate in many countries all the way to zero. But when that didn’t seem to be getting the job done, the Bank of Japan last week decided to go negative, charging banks 0.1% interest for excess reserves. With this step Japan now joins the Euro system, Switzerland, Denmark, and Sweden, all of whom have had negative interest rate policies in place for over a year. Here I describe how negative interest rates work, what they are intended to accomplish, and some of the limitations of using this policy to try to stimulate the economy.

The Mechanics Of NIRP: How The Fed Will Bring Negative Rates To The U.S. -- So now that talking about NIRP in the US is no longer anathema but a matter of survival for market participants for whom frontrunning the Fed's policy failure has emerged as a prerequisite trade, the question is: what are the mechanics of NIRP, what are the implications of negative rates for US markets. Here is the answer courtesy of Bank of America's Marc Cabana: Negative interest rates have generally been employed after a central bank has already lowered their deposit rate to zero and they either desire to (1) further ease monetary policy to fight the growing threat of deflation, i.e. ECB, BoJ, Riksbank policies, and / or (2) reduce capital inflows that were resulting in undesired currency strength, i.e. SNB and DNB policies. To implement negative rates, central banks set their “deposit rate” or rate at which banks can deposit funds with monetary authority at a negative level. This results in banks paying a fee for holding their reserves with the central bank. Most countries that have adopted negative rates do not apply them to required reserves but only apply them to all or some of the deposits at the central bank, Table 1. So why don’t banks holding excess reserves just move them off of their balance sheet via lending or asset purchases to avoid the fee? Recall, monetary policy generally runs through a closed system and the central bank is the only entity that can permanently change the amount of reserves outstanding. Funds loaned by one bank or used to purchase securities will eventually end up re-deposited at another, which means that reserves can only be re-allocated within the system but not independently withdrawn from it. Banks could convert their excess reserves to cash but storage costs generally make this unattractive unless rates are deeply negative.

JPMorgan Unveils The "Bogey" For NIRP In The US -- Ever since early 2015, we have repeated that with the world caught in a negative rate "race to the bottom", which even S&P now admits, it is inevitable that the US will join the rest of the DM central banks, especially after the flawed and much delayed attempt to hike rates into what is at least a quasi recession. Now, with sellside chatter that it is only a matter of time before the Fed will likewise join the fray despite stern warnings by the likes of Deutsche Bank that more easing will only exacerbate conditions for global financial firms, JPM's Michael Feroli has set the "bogey" or the catalyst for what will be needed for the Fed to finally admit defeat and go not only back to zero but below it. To wit: While we earlier mentioned that negative nominal rates should affect the economy no differently than ordinary policy easing, there is some evidence that the exchange rate channel is particularly pronounced in the case of NIRP. The leadership role of the Federal Reserve in the global monetary system may lead to some hesitancy to engage in what may be uncomfortably close to a skirmish in the currency wars. Lastly, there is the political issue. To be sure, political concerns about NIRP are not unique to the Fed; presumably one reason central bankers abroad sought to limit the pass-through to retail depositors was to avoid pushback from the political establishment. Even so, it seems reasonable to judge that the Fed’s current political situation is more parlous than is the case among its overseas counterparts. For all of the above reasons, we believe the hurdle for NIRP in the US is quite high, and we would need to see recession-like conditions before the Fed seriously considered this option. So the "hurdle is quite high", but all that will be needed for Yellen and co. to surpass this hurdle is for "recession-like" conditions to emerge.

Four Legal Questions the Fed Would Face If it Decided to Go Negative - Federal Reserve Chairwoman Janet Yellen fielded questions in Congress on Wednesday about whether negative interest rates are legal. Aside from a 2010 memo released last month, and her testimony today, the Fed has been all but mum on the topic.“This is too important for the legal issues to be argued only in an opaque way within the Federal Reserve system,” said Miles Kimball, an economist at the University of Michigan who has advocated for negative rates. Leaving aside for now the question of whether it’s appropriate economic policy, there are four key considerations at stake:

  • 1. Can You “Pay” a Negative Amount?  The 2006 law that authorized the Fed to pay interest directly to banks never contemplated negative rates. The precise wording says depository institutions “may receive earnings to be paid by the Federal Reserve.” A negative interest rate, however, would have the Fed collecting a levy from deposits, rather than paying interest on them.
  • 2. Could the Fed Be Sued?Dating back to the 1920s, U.S. courts have a well-established precedent not to litigate monetary policy. Raising and lowering interest rates clearly causes financial losses, but nobody has standing to sue the Fed over those losses.
  • 3. Could Institutions Get Around the Negative Rate? Even if the Fed ultimately prevails, as Mr. Conti-Brown thinks it would, a third challenge awaits. The Fed cannot charge interest on reserves to some nondepository financial institutions, namely Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
  • 4. Would the Benefits Outweigh the Legal Hassle? - The final question is whether all the potential legal hurdles would pass a legal cost-benefit analysis. Is the policy so powerful that it would be worth the effort and the legal battle, or is the Fed better off sticking with its current tool kit of quantitative easing?

JPM's Striking Forecast: ECB Could Cut Rates To -4.5%; BOJ To -3.45%; Fed To -1.3% -- One week ago, in the aftermath of Japan joining the NIRP club, we wondered how low Kuroda could cut rates if he was so inclined. The answer was surprising: according to a Nomura analysis the lower bound was limited by gold storage costs: "theoretically, negative interest rates' lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates' lower bound, but it is hard to directly quantify. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe." Which, in conjunction with Kuroda's promises that "Japan will cut negative rates further if needed", raised flags: once the global race to debase accelerates, and every other NIRP bank joins in, will global rates be ultimately cut so low as to make a "gold standard" an implicit alternative to a world drowning in NIRP? Well, according to a just released report by JPMorgan, the answer is even scarier. According to an analysis published late on Tuesday by economists at JPMorgan Chase & Co., the answer is that negative rates could go far lower than not only prevailing negative rates, but well below gold storage costs as well. According to JPM, the solution to a NIRP world where bank net interest margins are crushed by subzero rates, is a tiered system as already deployed by the Bank of Japan and in some places of Europe, whereby only a portion of reserves are subjected to negative rates. The shocker: JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to minus 4.5%. Alternatively, if the ECB were to concentrate on 25 percent of reserves, it would be able to cut as low as -4.64%. That compares with minus 0.3% today and the minus 0.7% JPMorgan says it could reach by the middle of this year as reported yesterday. In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%. Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%.

China's Coming Devaluation: Another Consequence of the Fed's Mistake of 2015 -- I recently argued that the Fed did not make a mistake in December 2015 by raising interest rates. Rather, it made a mistake by talking up interest rate hikes the year and a half leading up to December 2015. This signalling that future monetary policy would be tightened got priced into the market and affected decisions well before the December rate hike. In so doing, the Fed got ahead of the recovery and helped precipitate a slowdown in U.S. economic activity in the second half of 2015.  That is the domestic side of this story. There is also an international side that I want to revisit here. Specifically, the Fed's tightening leading up to December 2015 catalyzed two important developments in the global economy: the reversal of capital flows to emerging markets and the turning of the Chinese economy into an explosive tinder box.   Consider first the reversal of capital flows from emerging markets. According to the International Institute of Finance, emerging markets in 2015 experienced net capital outflows for the first time in almost three decades. They saw approximately $735 billion in net capital outflows in 2015, of which about $637 billion came from China. So to explain the sudden reversal of capital flows from emerging markets, one really has to explain what happened in China.  One striking manifestation of China's capital outflow is the decline in China's foreign reserves. They peaked in June 2014 near $4 trillion and since then has declined almost $663 billion. Currently, Chinese monetary authorities are burning through about $100 billion of reserves a month. This dramatic turn can be seen below:

Unconventional Fed Tools Can Control Inflation - Narayana Kocherlakota - The Federal Open Market Committee (FOMC) targeted a federal funds rate near zero from December 2008 through December 2015. Since September 2008, it has expanded the value of its liabilities by around five times. Yet, inflation has remained below the FOMC’s official target of 2% for most of this period and is expected to remain below 2% for several more years. These observations suggest to many that monetary policy has been impotent or ineffective over the past seven years. In this post, I argue that this negative conclusion is inconsistent with available data. I document that from 2008-10, the FOMC deliberately aimed to keep inflation well below 2% over the medium term. (See here for a similar use of these same data.) In this important sense, there is little sign of monetary policy ineffectiveness: inflation outcomes were, in fact, largely consistent with the Committee’s relatively modest inflation objectives. To make this point, I use the individual-level data from the Summary of Economic Projections submitted by FOMC participants at the end of each calendar year 2008-2010. (As yet, we don’t have individual-level data available after 2010.) Despite their name, these projections aren’t true forecasts. Each participant bases their submission on his/her individual assessment of appropriate monetary policy. Hence, a particular participant’s medium-term inflation projection represents that person’s medium-term goal for inflation.

The distinction is clear between helicopter money and quantitative easing - One must certainly agree with Martin Wolf that the world’s central banks would be well advised to start preparing now for the next economic recession given the rising risks in the global economy (“Prepare for the next recession”, February 5). However, it is to be regretted that he does not draw a clear distinction between quantitative easing and helicopter money. Rather, he regards the latter as the equivalent of permanent QE. By now we know all too well that aggressive QE easing by the Federal Reserve and the world’s other major central banks spawns asset price inflation and excessive risk taking. In turn, that sets up the stage for sharp asset price corrections when central banks start trying to normalise monetary policy, which has the real potential to deal a body blow to the global economy. By contrast, helicopter money of the variety proposed by Milton Friedman some three decades ago does not involve central bank asset purchases. Rather, it involves permanent central bank financing of a government cash grant to the general public. As such, it seeks to promote economic recovery by directly stimulating aggregate demand rather than by working indirectly through asset price inflation and through encouraging risk-taking. By so doing, it would spare us from yet another destructive round of asset price booms to be followed by asset price busts.

The Fed shouldn’t accept the “new normal” without a fight -- Federal Reserve Chair Janet Yellen is testifying before Congress today and tomorrow, where she will be fielding questions about the state of the economy following the Fed’s recent rate hike. Despite steady progress on some fronts, the economy is far from healthy. Yes, the unemployment rate fell below 5 percent for the first time since 2008 in January. But wage growth is still far below what a healthy target would be, and a glaring new weakness has appeared in the economic data in recent years—a significant slowdown in the pace of productivity growth. Productivity is essentially the value of income and output produced in an average hour of work in the U.S. economy—it provides the ceiling on how high living standards can rise. Productivity growth also provides a buffer against inflationary pressures. If American workers can produce 2 percent more income and output in a given hour of work from one year to the next, this means their hourly wages can rise 2 percent without putting any upward pressure on costs at all (to walk through the intuition, remember that while labor costs per hour have risen 2 percent, output per hour has also risen 2 percent, so labor costs per unit of output hence remain flat). These effects on living standards and inflation make productivity slowdowns particularly worrisome.

Yellen: "Financial conditions in the United States have recently become less supportive of growth"  - From Fed Chair Janet Yellen: Semiannual Monetary Policy Report to the Congress. Excerpt:  Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.  As is always the case, the economic outlook is uncertain. Foreign economic developments, in particular, pose risks to U.S. economic growth. Most notably, although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China's exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.

Our Dysfunctional Monetary System - -- The great tragedy of the global economic malaise is that it is caused by a shortage of something that is essentially costless to produce: money. Both banks and governments can produce money at physically trivial costs. Banks create money by creating a loan, and the establishment costs of a loan are miniscule compared to the value of the money created by it—of the order of $3 for every $100 created. Governments create money by running a deficit—by spending more on the public than they get back from the public in taxes. As inefficient as government might be, that process too costs a tiny amount, compared to the amount of money generated by the deficit itself. But despite how easy the money creation process is, in the aftermath to the 2008 crisis, both banks and governments are doing a lousy job of producing the money the public needs, for two very different reasons. Banks aren’t creating money now because they created too much of it in the past. The booms that preceded the crisis were fuelled by a wave of bank-debt-financed speculation on some useful products (the telecommunications infrastructure of the internet, the DotCom firms that survived the DotCom bubble) and much rubbish (the Liar Loans that are the focus of The Big Short). That lending drove private debt levels to an all-time high across the OECD: the average private debt level is now of the order of 150% of GDP, whereas it was around 60% of GDP in the “Golden Age of Capitalism” during the 1950s and 1960s—see Figure 1.

Treasury Market’s 10-Year Inflation Forecast Falls To 7-Year Low -- Yesterday’s tumble in US equities fueled another leg down in Treasury yields. As the bear market in stocks rolls on, the crowd continued to rush into the safe-haven trade, pushing the 10-year yield down to 1.75% yesterday (Feb. 8)–the lowest level in about a year, based on daily data via Meanwhile, the 2-year yield—considered the most sensitive spot on the yield curve for rate expectations—tumbled to 0.66%, the lowest in nearly four months.  The acceleration in the risk-off sentiment is raising more doubts about the Federal Reserve’s previously stated plans to continue raising interest rates this year. Not surprisingly, Fed funds futures are now assigning a near zero probability for a rate hike at next month’s FOMC meeting, based on CME data as of yesterday.  For the moment, the latest effective Fed funds rate (EFF) shows no sign of capitulation. EFF’s 30-day moving average was at a relatively elevated 0.36% as of Feb 5. Given the ongoing risk-off bias in markets, the crowd will be monitoring this rate for any signs of downside weakness. According to some analysts, the Fed will likely be forced to delay rate hikes in the months ahead and perhaps even reverse the mild 25-basis-point hike in December, which marked the first increase in Fed funds since 2006. There are also more calls for the nuclear option for US monetary policy: negative rates.

What’s Holding Back the World Economy? by Joseph E. Stiglitz -  Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 2015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis. More worryingly, advanced countries’ growth rates have also become more volatile. This is surprising, because, as developed economies with fully open capital accounts, they should have benefited from the free flow of capital and international risk sharing – and thus experienced little macroeconomic volatility. Furthermore, social transfers, including unemployment benefits, should have allowed households to stabilize their consumption. But the dominant policies during the post-crisis period – fiscal retrenchment and quantitative easing (QE) by major central banks – have offered little support to stimulate household consumption, investment, and growth. On the contrary, they have tended to make matters worse. In the US, quantitative easing did not boost consumption and investment partly because most of the additional liquidity returned to central banks’ coffers in the form of excess reserves.  The Financial Services Regulatory Relief Act of 2006, which authorized the Federal Reserve to pay interest on required and excess reserves, thus undermined the key objective of QE.  Indeed, with the US financial sector on the brink of collapse, the Emergency Economic Stabilization Act of 2008 moved up the effective date for offering interest on reserves by three years, to October 1, 2008. As a result, excess reserves held at the Fed soared, from an average of $200 billion during 2000-2008 to $1.6 trillion during 2009-2015. Financial institutions chose to keep their money with the Fed instead of lending to the real economy, earning nearly $30 billion – completely risk-free – during the last five years.

Why a Recession Could Arrive Without a Yield Curve Warning - WSJ: Investors may not be able to count on a once-reliable economic warning bell to ring before the next recession. Before every one of the past seven U.S. recessions, long-term interest rates fell below short-term rates, producing what economists call a yield curve inversion. Historically, the slope of the yield curve has been such a reliable predictor of economic conditions that economists at New York and Cleveland Federal Reserve banks use it to calculate the probability of recession. Ultralow yields on short-term bonds, however, may prevent the yield curve from inverting even if the economy is about to contract.The yield curve is a graph of interest rates arranged in order of bond maturities. Normally, it slopes upward because long-term interest rates are higher than short-term rates to compensate investors for accepting increased risk. Long-term bond yields are thought to reflect the average of future short-term interest rates expected over the life of the bond plus this so-called term premium. When the yield curve steepens, it usually reflects expectations of higher short-term rates in the future, signaling economic growth. A flattening curve indicates expectations that rates will tumble. That typically happens because the market anticipates the Federal Reserve will ease monetary policy to stimulate a slowing economy. An inverted yield curve implies the market expects short-term rates to fall sharply and stay persistently low, signaling an economic contraction.

Smelling the Recession - There is little evidence that the USA is in recession - except in the goods producing sectors and business sales which are marginally in a decline. Even in the contracting goods producing sectors, the recession evidence is far from overwhelming. What triggered this post is continued unwavering assertions by some that the USA is NOT in a recession. Understanding the data, historical movements, and data gathering / methodologies - the wise pundit would not assert anything with conviction. Take manufacturing's historical movements, manufacturing can be growing, flat or declining going into a recession. Simply one cannot use goods production as a single litmus test of a recession. And this is not to mention that goods production data is revised for six months to YEARS after the initial data release. There is no way for ANYBODY to use most data sources with any confidence. Data collection systems remain in the 20th century - and real time systems have been possible for almost 20 years - with the USA continuing to use sampling, extrapolation, voodoo seasonality adjustments, and wild guesses in data building. This week personal income data was released for December. As a side note, personal income is one of the four elements used to mark recessions. Here, personal income looks strong - but depending on what causes a recession - personal income's growth rate may be accelerating going into a recession. I repeat, there is NO convincing evidence that the USA is in a recession. And I am NOT arguing the USA is in a recession yet. But recession signs are flashing - slowing growth literally across the board and contraction in many data points in the transport sector - and trade rate of contraction is now close to the days of the Great Recession.

Will the Economic Recovery Die of Old Age?. SF Fed Economic Letter: Recent economic indicators show that U.S. economic growth has slowed considerably. After adjusting for inflation, aggregate output increased little during the final three months of 2015. Is this the start of a serious stumble by an aging economy with creaky knees? Are we due for a recession? Or is the slowdown just part of the normal ups and downs of a healthy, dynamic economy?  Recessions are notoriously difficult to forecast. However, much conventional wisdom views an aging expansion as increasingly fragile and more likely to end in recession. The associated predictions of recession—proclaiming that “it’s about time” for a downturn—have become more prominent lately because the current recovery, which started six and a half years ago, is relatively long already. ...The notion that business expansions are more likely to end as they grow older was especially common before World War II. Nowadays, the underlying rationale for this view follows an analogy to human mortality: As the expansion ages, assorted imbalances and rigidities accumulate that hobble the economy and make it more fragile. Thus, the recovery could be jeopardized by ever smaller shocks, and it becomes more likely over time that the economy will fall into recession.  However, the historical record since World War II does not support the view that the probability of recession increases with the length of the recovery. The earliest statistical investigation of the issue by Diebold and Rudebusch (1990) found that postwar expansions were not more likely to end as they endured. This Economic Letter updates that analysis. The results concur with Yellen’s view that, all else equal, longer expansions are no more likely to end than shorter ones. ...

Barclays note on distillates showing US recession is near - The US economy is flashing warning signs, particularly in the industrial and manufacturing sectors. Demand for oil, and particularly so-called distillates — which are refined oil products such as jet fuels and heating oils — is crashing. Here's the Barclays commodities team on the indicator (emphasis added): January US demand for the four main refined products came in at -568k b/d (-3.9% y/y), compared with January 2015. Distillates were the weakest sector, down 18% y/y. Whether or not the data itself point to much weaker underlying growth in the US economy is still open to question, but not much. As illustrated in Figure 4, the scale of the decline in distillates demand in January has only ever been seen before during full-blown US recessions. And here's that chart:  Barclays does cite some mitigating factors, such as unusually warm winter weather and the fact this is based on preliminary data that may get revised upward later on. But it doesn't look great.

Philly Fed ADS Index: No Recession - The battle between macro and markets rages on. Yesterday’s update of the ADS Index—a US business-cycle metric published by the Philadelphia Fed—remained comfortably in growth territory, in part due to yesterday’s upbeat report on jobless claims (one of the index’s six components). A markets-based estimate of the US economic trend, by contrast, continues to price in a new recession, based on the Macro-Markets Risk Index (MMRI), which aggregates four corners of the financial and commodities realm in an effort to gauge the crowd’s outlook. (See here for MMRI’s design details.)  The standoff leaves investors with a difficult question: embrace the market’s grim forecast or reserve judgment and wait for confirmation—or rejection—via the hard economic data? Most of the time the two sides of this coin are in alignment. But current conditions have dispensed an awkward state of affairs. Indeed, the MMRI’s implied recession probability via a probit model ticked higher yesterday, reaching nearly 72%–the loftiest reading since 2009, when the previous downturn was winding down.

Bill Black on CCTV - Bill appeared on CCTV America discussing the American economy with Rachelle Akuffo. You can view it here.

 A Shifting Picture of U.S. Debt—and an Opening for Updated Policy - WSJ - Much debate about the federal debt is impervious to changing circumstances. Some folks took a stance a decade ago and have been repeating the same argument ever since. Some say the debt is a crisis that demands immediate attention; others say it isn’t that big of a problem, at least not now.-  But conditions change. The retirement of the baby-boom generation is closer than it used to be; the oldest boomers turn 70 this year. The U.S. has a heck of a lot more debt than it did a decade ago. And there’s reason to believe that the interest rates at which the Treasury borrows will be low even when the economy returns to normal. What does all that mean for federal budget policy? Doug Elmendorf, the former director of the Congressional Budget Office who is now dean of Harvard’s Kennedy School, and my Brookings colleague Louise Sheiner attack that question in a paper that seeks to reframe the debate over the federal budget. Their simple conclusions: The looming demographic transition (to an era in which a smaller fraction of the population works) and the huge run-up in borrowing during the Great Recession contribute to the need to, eventually, raise taxes and cut spending to restrain the unsustainable increase in the federal debt projected over the next couple of decades. Not much news there.  But the prospect that Treasury borrowing rates will remain, for a long time, lower than historic norms is an unanticipated–and significant–development. In general, lower interest rates imply that the U.S. government can and should carry more debt than would otherwise be the case. But as the paper points out, the strength of that argument turns on precisely why rates stay low for a long time. Persistently low interest rates make the interest cost of carrying the debt lower than it would otherwise be and make the benefits of reducing the debt smaller. Persistently low rates also strengthen the case for federal spending on infrastructure and other investments because the cost of financing them is so low.

Federal budget in black for January — The federal government recorded a budget surplus in January of $55.2 billion, helped by a timing quirk that shifted benefit payments to December. The Treasury Department said Wednesday that the surplus marked an improvement from January 2015 when the government recorded a small deficit of $17.5 billion. Part of the improvement reflected the fact that $42 billion in benefit checks were sent out in December because the regular payment period fell on a weekend. For the first four months of this budget year, the deficit totaled $160.4 billion, below last year’s deficit of $194.2 billion for the same period. Both the Obama administration and the Congressional Budget Office are forecasting this year’s deficit to top last year’s imbalance of $439.1 billion. Obama, in the new budget he released Tuesday, projects that the deficit will jump to $616 billion this year while the CBO is forecasting a deficit of $544 billion. The CBO projects that the deficit will keep rising and top $1 trillion again in 2022 as the costs of Social Security and Medicare climb with the retirement of the baby boomers. Through the first four months of this budget year, which began Oct. 1, government receipts total $1.08 trillion, an increase of 3.2 percent over the same period a year ago. Government outlays total $1.24 trillion, down a slight 0.1 percent from the same period for the 2015 budget year.

Obama to release $4 trillion-plus budget for 2017 (AP) — President Barack Obama is unveiling his eighth and final budget, a $4 trillion-plus proposal that’s freighted with liberal policy initiatives and new and familiar tax hikes — all sent to a dismissive Republican-controlled Congress that simply wants to move on from his presidency. The budget will be released Tuesday morning, the same day as the New Hampshire primary when it’s likely to get little attention. It comes as the deficit, which had been falling over the duration of Obama’s two terms, has begun to creep up, above the half-trillion mark. The White House is countering the worsening deficit outlook with a proposed $10-per barrel tax on oil that would finance “clean” transportation projects. It also is sure to propose taxes on the wealthy and corporations. Long gone are proposals such as slowing the automatic inflation increase for Social Security benefits and other ideas once aimed at drawing congressional Republicans into negotiations on a broader budget deal. Now, Obama has broken out a budget playbook filled with ideas sure to appeal to Democrats: A “moonshot” initiative to cure cancer; increasing Pell Grants for college students from low-income backgrounds; renewed incentives for GOP-governed states to join the expanded Medicaid system established under the health care law, and incentives to boost individual retirement accounts. The budget also pledges to make Americans safe in an increasingly dangerous world through higher military spending to fight the Islamic State terrorist threat and increased support for cybersecurity in the wake of last summer’s hack of government computers that compromised the personal information of 21 million Americans. The administration’s budget askes for a $19 billion increase in spending to upgrade cybersecurity across government agencies, including $3 billion for an overhaul of federal computer systems.

Timing is everything: Obama's budget same day as NH primary (AP) — The main thing to know about President Barack Obama’s final, $4 trillion budget is that it comes on the same day as the New Hampshire primary, ensuring it gets minimal attention with all the focus on the White House contenders. The timing cements the impression that Obama realizes a Republican-led Congress is unlikely to embrace his spending priorities. Typically, the budget is released on a Monday, but White House press secretary Josh Earnest says Tuesday’s release allowed administration employees and journalists a chance to watch the Super Bowl. The 2017 budget for the fiscal year beginning Oct. 1 will combine proposals for new spending on infrastructure, education and combating opioid abuse with tax increases on corporations and wealthy individuals to keep deficits down. This will avoid proposing cuts to popular programs like Medicare, student loans or food stamps.The budget is just a proposal, and the White House gets to assume that it’s enacted in its entirety. That means it always contains lots of things that have no chance of ever making their way through Congress — like a $10 per barrel fee on oil to pay for more than $30 billion in various transportation projects, which landed with a thud on Thursday. The same can be said of Obama’s plans for $6 billion for job training, including $4 billion over three years to teach computer science. Other proposals may have more of a shot, including $1 billion over two years to combat heroin and opioid addictions, additional funding to feed low-income children during the summer, when most lose access to free and reduced-price lunches, and additional money for the administration’s “moonshot” effort to cure cancer.

A look at Obama’s final budget proposal for 2017 - President Barack Obama proposed a record $4.1 trillion budget on Tuesday. Here’s a look at each agency and department:

  • ENERGY DEPARTMENT -  Up 6.8 percent — As part of a pledge following the 2015 Paris climate summit to double spending on clean energy research and development by 2021, the budget would spend $7.7 billion government-wide for a range of clean energy investments, including $5.8 billion in the Energy Department. The figure is a 20 percent increase over current spending money and includes more than $2 billion to boost energy efficiency and renewable energy such as wind, solar and geothermal power. Total spending: $30.8 billion./ Spending that needs Congress’ annual approval: $30.2 billion.
  • AGRICULTURE -  Down 5.3 percent — Obama’s budget for the Agriculture Department includes a proposed $12 billion over 10 years to help feed schoolchildren from low-income families during the summer. Nearly 22 million low-income children receive free and reduced-price meals during the school year, but just a fraction of those kids receive meals when school is out. Benefits under the proposed program would be loaded onto a debit card that can only be used for food at grocery stores. Total spending: $155.4 billion, including spending already required by law. Spending that needs Congress’ annual approval: $24.2 billion.
  • HEALTH AND HUMAN SERVICES -  Up 3 percent — Responding to an epidemic of heroin addiction and abuse of prescription painkillers, Obama’s budget would provide $1 billion in new funding over the next two years for states to help more people get and complete treatment. The money would be allocated to states based on the severity of the epidemic and the strength of their strategy. The budget also includes $500 million in new funding to increase access to treatment for people with serious mental health problems. The numbers: Total spending: $1.15 trillion.  Spending that needs Congress’ annual approval: $78 billion.
  • TRANSPORTATION - Up 25.8 percent — Obama’s 21st Century Clean Transportation Plan includes $400 million a year for 10 years to help speed the deployment of self-driving vehicles, $10 billion a year to boost construction of new transit projects and $7 billion a year on high-speed rail projects. Congress has previously rejected new money for high-speed rail. Total spending: $95.4 billion, including spending already required by law on highway and transit aid to states. Spending that needs Congress’ annual approval: $12 billion

Obama's liberal Republican budget - David Cay Johnston - Finally, President Obama has proposed a federal budget that hints at the optimistic promise of hope and change he rode to election victory in 2008. Still, his last budget does not call for the sweeping remake of federal spending priorities that many Americans, whether they voted for Obama or not, expected in his first budget blueprint. The new plan recognizes the growing threat from cyber warfare as well as the huge future costs from our epidemic of child obesity and the crushing burden of college tuition. But as we have come to expect from Obama, who back in the day would have been called a liberal Republican, it offers modest spending increases to address monumental problems. Both Hillary Clinton and Bernie Sanders would say Obama’s 2017 budget plan does not go nearly far enough to shift taxpayer spending toward investing in people. But Obama's final offering is closer to the cautious vision of Clinton than to Sanders’ call for political revolution. Both Democratic candidates say we need to spend more to make sure American children grow up healthy and educated for the jobs of the 21st century economy. Obama does as well, and proposes modestly expanding Pell Grants for college students. Sanders would go much further, imposing a new tax on Wall Street trading to finance tuition-free college — a policy some states had in place during the New Deal era and which Germany adopted in 2014 to promote economic growth.

What Last Year’s Budget Battle Says About Obama’s Final Fiscal Showdown What happened last year bears watching because it will inform how Congress responds to Mr. Obama’s final budget proposal. Looking back, three moments are instructive: First, the White House cleared an obscure but important hurdle in June when Senate Democrats successfully blocked the annual defense funding bill. This was a politically dicey stand for Democrats because it meant voting against money for the military when threats had gathered abroad. The lesson: Republicans have 54 seats, but without the 60 votes needed to overcome a filibuster, Democrats’ strength in numbers can bring the spending-bill process to a halt. By blocking the spending bill that typically receives the most bipartisan support, Democrats showed that Republicans weren’t going to be able to pass any spending measures without Democratic votes. Second, Democrats turned the surprise departure of House Speaker John Boehner to their advantage in October. Resigning from Congress freed Mr. Boehner to pass a spending blueprint that relied heavily on Democratic votes without fear of reprisal from House conservatives, and it allowed Republican leaders to avoid a government shutdown they feared the public would blame on them. Third, a final hurdle loomed in December, when Congress had to pass spending bills. GOP lawmakers sought scores of unrelated policy measures known as riders to chip away at key White House priorities. In 2014, for example, Republicans repealed a provision of the Dodd-Frank financial-overhaul in the year-end spending bill.The White House avoided most policy riders by making one key concession after Thanksgiving. In exchange for allowing Republicans to repeal the decades-long oil-export ban, Democrats avoided other major riders, clearing the table of efforts to roll back Dodd-Frank or curb environmental regulations.

The Budget the Next President Will Inherit, in Five Charts - President Barack Obama released his final budget Tuesday, the primary purpose of which is to lay out his priorities for his remaining year in office. With few major budgeting changes likely in the president’s final year in office, the document also provides a fascinating look at what the next president will inherit. The next president will take office with spending outpacing revenue, but within ranges that have been typical over the past 50 years. Federal government expenditures today, as a share of the overall economy, are much larger than they were in the 1930s, and somewhat larger than in the 1950s. Revenues are more or less where they’ve been in recent decades. Obviously, expenditures are nothing like they were during World War II. Zooming in just on the past 50 years, the shifting patterns are a little bit easier to see. Neither federal revenues nor expenditures have been below 14% of the economy or above 25%, so only this range is pictured. Government revenues have mostly hovered between 17% and 19% of GDP. Variation from one year to the next is largely driven by the health of the economy. The difference between spending and revenue is the federal deficit. Aside from a few years during the booming economy of the late 1990s, it’s been negative for most of the past 50 years. Without major policy changes or a jolt to the economy, the next president will inherit a deficit of just over 2% of gross domestic product—neither exceptionally high or exceptionally low in comparison to recent decades. While the next president may take office amid moderate deficits, he or she will face a hefty legacy of debt. Total government debt is now above 100% of GDP. It’s worth keeping in mind, however, that large amounts of this debt are owed to other arms of the federal government, mainly the Social Security trust fund. The Federal Reserve also owns a large portion of Treasury bonds that it uses to conduct monetary policies. The public—that is, investors both foreign and domestic—own the remaining debt that amounts to about 60% of GDP.

Dean Baker Exposes How CBO Cooks Inflation Forecasts to Promote Deficit Scaremongering - Yves Smith - We’ve written off and on how the supposedly non-partisan Congressional Budget Office is a major promoter of deficit hawkery, to the extent of violating its own rules for making forecasts and cooking forecasts to produce super-scary outcomes. One of the most egregious was its projection of Medicare spending increases, which was so indefensible that two senior budget forecasting experts at the Fed roused themselves to call out the chicanery. Their paper was written in proper economese but was nevertheless devastating. I’ll feature a long excerpt so you can get a flavor of the sort of tricks that were played and why they matter: A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects”  Dean Baker has been been on the trail of CBO exaggerations for years, and revealed another form of gamesmanship yesterday. The CBO has been providing excessively high inflation forecasts. Those have the effect of increasing government borrowing costs and over time leading to a budgetary feedback loop of rising interest costs constituting a bigger and bigger percent of spending.  Now one can argue that forecasters are often wrong. But one expects them to learn from their experience. But the CBO has been wrong for years, and always in the same manner. One can thus no longer charitably call this an error. It’s a well-established institutional bias.  The CBO clings, despite years of evidence, that deficit spending leads to inflation.

The Pentagon has fired the first shot in a new arms race - As the voters of New Hampshire braved the snow to play their part in the great pageant of American democracy on Tuesday, the US secretary of defence was setting out his spending requirements for 2017. And while the television cameras may have preferred the miniature dramas at the likes of Dixville Notch, the reorientation of US defence priorities under the outgoing president may turn out to exert the greater influence – and not in a good way, at least for the future of Europe. In a speech in Washington last week, previewing his announcement, Ash Carter said he would ask for spending on US military forces in Europe to be quadrupled in the light of “Russian aggression”. The allocation for combating Islamic State, in contrast, is to be increased by 50%. The message is unambiguous: as viewed from the Pentagon, the threat from Russia has become more alarming, suddenly, even than the menace that is Isis. If this is Pentagon thinking, then it reverses a trend that has remained remarkably consistent throughout Barack Obama’s presidency. Even before he was elected there was trepidation in some European quarters that he would be the first genuinely post-cold war president – too young to remember the second world war, and more global than Atlanticist in outlook. And so it proved.

The U.S. Military Bombs in the Twenty-First Century -- Tom Engelhardt: Here’s my twenty-first-century rule of thumb about this country: if you have to say it over and over, it probably ain’t so. Which is why I’d think twice every time we’re told how “exceptional” or “indispensable” the United States is. For someone like me who can still remember a moment when Americans assumed that was so, but no sitting president, presidential candidate, or politician felt you had to say the obvious, such lines reverberate with defensiveness. They seem to incorporate other voices you can almost hear whispering that we’re ever less exceptional, more dispensable, no longer (to quote the greatest of them all by his own estimate) “the greatest.” In this vein, consider a commonplace line running around Washington (as it has for years): the U.S. military is “the finest fighting force in the history of the world.” Uh, folks, if that’s so, then why the hell can’t it win a damn thing 14-plus years later? If you want to get a sense of just how crushing those forces and their Afghan proxies were, read journalist Anand Gopal’s No Good Men Among the Living: America, the Taliban, and the War Through Afghan Eyes, the best book yet written on how (and how quickly) that war on terror went desperately, disastrously awry. One of the Afghans Gopal spent time with was a Taliban military commander nicknamed — for his whip of choice — Mullah Cable, who offered a riveting account of just how decisive the U.S. air assault on that movement was: There were headless torsos and torso-less arms, cooked slivers of scalp and flayed skin. The stones were crimson, the sand ocher from all the blood. Coal-black lumps of melted steel and plastic marked the remains of his friends’ vehicles. “Closing his eyes, he steadied himself. In the five years of fighting he had seen his share of death, but never lives disposed of so easily, so completely, so mercilessly, in mere seconds.” The next day, he addressed his men. “Go home,” he said. “Get yourselves away from here. Don’t contact each other.” “Not a soul,” writes Gopal, “protested.”

The Use of Political Stunts to Attack Social Programs: Today, Budget Committee members Congresswoman Gwen Moore (WI-04) and Congresswoman Barbara Lee (CA-13) sent a letter to Chairman Tom Price expressing their collective concern regarding reports that House Republicans intend to use the budget reconciliation process to attack critical social safety net programs.“Both Congresswoman Lee and I were once recipients of the very social services that are currently being targeted by our Republican colleagues,” said Congresswoman Moore. “Our distinct perspectives and firsthand experiences with these vital public assistance programs add unique and empathetic voices to a debate overpowered by crass sentiments and hostile attitudes. With 46.7 million Americans battling poverty, we should be able to engage in an open debate about these life-saving programs in the light of day, not behind closed doors or with the help of political stunts.” “Today, more than 46 million Americans are living in poverty, including one in five American children. Republican proposals to use the budget process to make misguided and sweeping changes to our nation’s proven anti-poverty programs are destined to repeat the mistakes of the past while furthering eroding our social safety net. Their actions will result in more poverty, more hunger and less hope in America,” said Congresswoman Barbara Lee. “Attempts to use the budget process to push this extreme, Tea Party agenda is frankly disingenuous. Instead of working to demonize struggling families, we should be investing in programs that create more opportunity and build pathways into the middle class.”The full text of letter can be found below...

How Some Americans Hit the Maximum Tax-Refund Sweet Spot -- A new study shows how low-income households frequently report the exact right amount of income to get the maximum refundable tax credit from the Internal Revenue Service. And they follow the tax law from year to year, adjusting their income to fit changes that Congress makes. Consider, for example, a married self-employed couple with two children. They pay payroll taxes, but make too little money to owe income taxes. Instead, they’re eligible to get tax credits designed to encourage work and help them raise children. In 2012, to get the maximum refund of about $5,070, they had to report about $16,200, which happens to be the point where the entire $1,000-per-child tax credit becomes fully refundable. Any additional income wouldn’t yield a bigger tax credit. That led thousands to “bunch” their income around that point, according to the paper from Jacob Mortenson and Andrew Whitten, economics graduate students at Georgetown University who also work at the congressional Joint Committee on Taxation. Then, in 2013, the expiration of a payroll tax cut changed the math, because it raised taxes that self-employed people report on their income-tax returns, reducing the incentive to report more income. That year, to get the maximum credit of about $4,890, the same couple had to report income of about $13,600, which just happened to be the income threshold for the maximum earned-income tax credit, or EITC. That’s what thousands did.

Senate ethics panel has issued no punishments in 9 years: — The Senate Ethics Committee released its annual report this week declaring that for the ninth straight year, it imposed no disciplinary sanctions against anyone in 2015. Since 2007, the committee has received 613 allegations of wrongdoing and has summarily dismissed more than 90% of them. Only 75 have had even a preliminary investigation. The total of the committee's discipline during the nine-year period is a half-dozen letters the committee has written to senators saying, basically, "you should not have done that." The committee did not issue activity reports prior to 2007, and did not respond to a request for comment on this story. The committee's activity reports indicate that in nearly every case, allegations are dismissed because there are not enough facts to prove wrongdoing (13 of 55 cases last year) or there is no Senate rule governing the alleged activity (36 of 55 cases). In seven cases last year, the Ethics Committee carried out "preliminary inquiries;" five of those were dismissed as inadvertent or minor technical violations. None of those cases was made public by the committee.

Obama Celebrates Nine Years of Doing Nothing About Money in Politics - President Barack Obama returned to Springfield, Illinois, on Wednesday, nine years to the day after he kicked off his first presidential campaign there, and, just like in 2007, spoke passionately about his desire to reduce the influence of big money in politics. In 2007, Obama said, “The cynics, and the lobbyists, and the special interests [have] turned our government into a game only they can afford to play. … They think they own this government, but we’re here today to take it back.”  On Wednesday, Obama told the Illinois legislature, “We have to reduce the corrosive influence of money in our politics that makes people feel like the system is rigged.”This time, of course, Obama is president and could actually do something about it. There are many actions he could take on his own, without approval from Congress or the courts. In particular, he could issue an executive order requiring federal contractors to disclose any “dark money” contributions to politically active nonprofits. Obama did mention dark money in his speech, saying that it “drowns out ordinary voices.” He also mentioned the general concept of taking presidential action on his own, but only for comedic value: “I don’t pretend to have all the answers. … If I did I would have already done them through executive action! That was just a joke, guys.”

DNC rolls back restrictions on lobbyist donations | TheHill: The Democratic National Committee (DNC) has dismantled the last of its prohibitions on receiving donations from lobbyists and political action committees. The ban has been in place since 2008, when President Obama became the party’s presumptive nominee.  "The DNC’s recent change in guidelines will ensure that we continue to have the resources and infrastructure in place to best support whoever emerges as our eventual nominee,” Mark Paustenbach, deputy communications director for the DNC, told the Washington Post, which first reported the news. The national committee confirmed the policy change to The Hill but also said that lobbyists and those running PACs are still not able to attend events with the president, vice president, first lady Michelle Obama or Dr. Jill Biden. The DNC, which is chaired by Rep. Debbie Wasserman Shultz (D-Fla.), opened the door to K Street donations earlier this summer, when it announced that lobbyists and corporate PACs would once again be allowed to make donations to the annual nominating conventions. That change was made primarily because Congress in 2013 nixed federal financing for conventions, depriving the parties of roughly $20 million to pay for the events.

The Trade Numbers Game - Dani Rodrik – The Trans-Pacific Partnership (TPP) – a mega trade deal covering 12 countries that together account for more than one-third of global GDP and a quarter of world exports – is the latest battleground in the decades-long confrontation between proponents and opponents of trade agreements. As usual, the pact’s advocates have marshaled quantitative models that make the agreement look like a no-brainer. Their favorite model predicts increases in real incomes after 15 years that range from 0.5% for the United States to 8% in Vietnam. Moreover, this model – developed by Peter Petri and Michael Plummer, from Brandeis and Johns Hopkins Universities, respectively, building on a long line of similar frameworks by them and others – foresees relatively insignificant cost to employment in affected industries. The TPP’s opponents have latched on to a competing model, which generates very different projections. Produced by Jeronim Capaldo of Tufts University and Alex Izurieta of the United Nations Conference on Trade and Development (along with Jomo Kwame Sundaram, a former UN Assistant Secretary-General), this model predicts lower wages and higher unemployment all around, as well as income declines in two key countries, the US and Japan.  There is no disagreement between the models on the trade effects. In fact, Capaldo and his collaborators take as their starting point the trade predictions from an earlier version of the Petri-Plummer study. The differences arise largely from contrasting assumptions about how economies respond to changes in trade volumes sparked by liberalization.

Obama trade deal taking a hit in presidential race - Lawmakers say harsh criticism leveled against President Obama’s Pacific Rim trade agreement from presidential candidates in both parties is further complicating its passage. The stinging rhetoric against the 12-nation Trans-Pacific Partnership (TPP) comes on top of other challenges and could stifle what is already expected to be a difficult process.“We knew once we got into the primary season both for members running in their primaries and the presidential primaries that it was going to make it difficult politically,” said Rep. Charles Boustany Jr. (R-La.), a member of the House Ways and Means Committee who backs the deal. “So we have that and we have the problems we’re trying to resolve in the finalized agreement so it’s all going to delay things,” he added. Rep. Gerry Connolly (Va.), one of the two dozen or so House Democrats backing the deal, also said the rhetoric from the 2016 field is complicating progress on the TPP. “If we had people out there campaigning in favor of it, it would provide some protective cover here, give us a little safe place to go now and then,” Connolly told The Hill. “Beating the drums in opposition out there in any way, shape or form certainly doesn’t help the climate here,” he said.

Trans-Pacific Partnership: Written by and for the rich to further enrich themselves at our expense - The basic problem facing the corporate and political powers that want you and me to swallow their Trans-Pacific Partnership deal is that they can’t make chicken salad out of chicken manure. But that reality hasn’t stopped their PR campaign, pitching their “salad” as good and good for you! For example, a recent article touted a study blaring the happy news that TPP will increase real incomes in the U.S. by $133 billion a year. Even if that were true (and plenty of other studies show that it’s not), it’s a statistic meant to dazzle rather than enlighten, for it skates around the real bottom line for the American public: An increase in income for whom? In the past 15 years or so, and especially since 2008, it’s been made perfectly clear to the workaday majority of people that the corporate mantra of “income growth” benefitting everyone is a deliberate lie. Practically all of the massive annual increases in U.S. income, which every worker helps produce, now gushes up to the richest 1 percent, with millionaires and billionaires (the richest 10 percent of 1-percenters) grabbing the bulk of it. Economists have a technical term for this: “stealing.” TPP is written specifically to sanction and increase the robbery of the many by the world’s moneyed few, including provisions that give additional incentives to U.S. manufacturers to ship more of our middle-class jobs to places such as Vietnam with wages under 65 cents an hour (or around $155 a month).

How the US Congress Hands US Corporate Taxes To Europe: The American Congress is so incompetent that it is arbitrarily handing billions of dollars of U.S. tax revenues to Europe. The issue involves tax manipulation by America's top IT and pharmaceutical companies, including Google, Apple, Amazon, Microsoft, Gilead and others. These companies should be paying U.S. taxes that instead are increasingly being collected by European countries thanks to Congressional (and IRS) gross negligence. The issue is simple and yet hopelessly muddled in U.S. tax policy. Tech companies engage in R&D. When successful, they sell products at prices far above marginal cost. Indeed, sometimes the marginal cost of their products is zero. Their profits are a kind of rent or return on intellectual property (IP). When Google or Apple or Amazon or Gilead earns international profits, the profits are the returns to prior R&D. That R&D was undertaken in the United States, or almost all of it was. The stream of earnings, therefore, is properly viewed to be the return to intellectual property that should reside in, and be taxed in, the United States. Yet here is the absurdity of the present-day U.S. corporate tax system. The Congress and IRS have allowed the U.S. companies to relocate their intellectual property abroad through arcane and non-transparent accounting maneuvers, typically to some combination of Ireland, Caribbean tax havens such as Bermuda and the Cayman Islands, the Netherlands, Luxembourg, and other tax and secrecy havens. It is only by this absurd accounting fiction that Google's IP (initially funded by the National Science Foundation, no less) is actually claimed by the company to reside in Bermuda, out of the reach of the IRS.

Sanders Is Late to the Wall Street Revolution - Noah Smith - If there is one presidential candidate who embodies the nation’s lingering post-2008 rage at Wall Street, that surely has to be Bernie Sanders. No other candidate has argued as strenuously for financial reform, or used rhetoric that so forcefully paints a struggle between the financial industry and the rest of the economy. Whether that narrative is accurate, Sanders’ concrete proposals give the impression that he hasn't carefully evaluated the policy landscape.  Some of the things Sanders is suggesting have largely been done. For example, he recently declared that in its first 100 days, his administration would “create a list of too-big-to-fail banks and insurance companies.” Such a list already exists. Under the Dodd-Frank Act of 2010, the Financial Stability Oversight Council -- a branch of the Treasury Department -- must maintain a list of systemically important financial institutions (SIFIs) -- that is, banks, brokerage firms and insurance companies that are considered too big to fail because their collapse would endanger the financial system. So Sanders’ proposal is already reality. Other proposals don’t seem like they would address the problems Sanders thinks they will address. For example, he recently tweeted:  Real Wall Street reform means…re-establishing firewalls that separates risk taking from traditional banking. Here Sanders is talking about re-implementing the Glass-Steagall Act -- a Depression-era rule that separated investment banking from commercial banking -- which was repealed in 1999. The problem is, there is no indication that Sanders really understands what Glass-Steagall does. All aspects of banking involve risk-taking. Investment banks underwrite and sell securities for corporations, which entails the risk that these companies will not be able to repay their obligations. Commercial banks take deposits and make loans, thereby incurring the risk that the loans will not pay off. Separating these two activities will do very little, if anything, to make banks less risky.

Bill Black: The Inaugural Financial Fraud Lemons of the Week Award Goes to DOJ - The Bank Whistleblowers United announce the inaugural Financial Fraud Lemons of the Week award. There can be no more fitting recipient than the ironically named Department of Justice (DOJ). The “lemon” is used in the economics and criminology literature to refer to a car of surpassingly terrible quality. The quality is so bad that the car can only be sold through fraud. We will award it each week to an example of dishonesty or cowardice about financial fraud that is worthy of public ridicule. We want to leave room in our scale for truly spectacular examples, so this first award will only receive Four Lemons. The first award is for what has become a routine example of dishonesty and cowardice by DOJ. Its conduct should be a scandal of national proportions, but by now everyone expects DOJ to embarrass our Nation when it deals with elite bankers. DOJ wins the inaugural award for picturing its humiliating settlement with Morgan Stanley as a triumph. This first column in a series we will do on DOJ’s refusal to prosecute the scores of senior bankers that led Morgan Stanley’s criminal enterprise will focus on DOJ’s press release. In the course of the series we will see that state and federal investigators, the Financial Crisis Inquiry Commission, and Clayton’s (not very) “due diligence” reviews have repeatedly documented that Morgan Stanley was one of the largest criminal enterprises in the world and committed tens of thousands of acts of fraud that cost the American people billions of dollars in losses.

The Scandal is What's Legal -- If you haven’t seen The Big Short, you should. If you’re like most people we know, you’ll walk away delighted by the movie and disturbed by the reality it captures. ... But we’re not film critics. The movie—along with some misleading criticism—prompts us to clarify what we view as the prime causes of the financal crisis. The financial corruption depicted in the movie is deeply troubling (we’ve written about fraud and conflicts of interest in finance here and here). But what made the U.S. financial system so fragile a decade ago, and what made the crisis so deep, were practices that were completely legal. The scandal is that we still haven’t addressed these properly. We can’t “cover” the causes of the crisis in a blog post, but we can briefly explain our top three candidates: (1) insufficient capital and liquidity reflecting poor risk management and incentives; (2) the ability of complex, highly interconnected intermediaries to take on and conceal enormous amounts of risk; and (3) an absurdly byzantine regulatory structure that made it virtually impossible for anyone, however inclined, to understand (let alone manage) the system’s fragilities. ...[long explanationss of each]...To say that this is a scandal that makes the system less safe is to dramatically understate the case. Now, we could go on. There are plenty of other problems that policymakers have ignored and are allowing to fester (how about the government-sponsored enterprises?). But we focused on our top three: the need for financial intermediaries to have more capital and liquid assets; the need to improve the ability of both financial market participants and authorities to assess and control risk concentrations through a combination of central clearing and better information collection; and the need to simplify the structure and organization of the U.S. regulatory system itself.

As Madoff Airs On TV, Two Anonymous Whistleblowers Are Pounding On The SEC's Door Again - Last night ABC began its two-part series on the Bernie Madoff fraud. Viewers will be reminded about how investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings. Today, there are two equally erudite scribes who have jointly been flooding the SEC with explosive evidence that some Exchange Traded Funds (ETFs) that trade on U.S. stock exchanges and are sold to a gullible public, may be little more than toxic waste dumped there by Wall Street firms eager to rid themselves of illiquid securities. The two anonymous authors have one thing going for them that Markopolos did not. They are represented by a former SEC attorney, Peter Chepucavage, who was also previously a managing director in charge of Nomura Securities’ legal, compliance and audit functions. We spoke to Chepucavage by phone yesterday. He confirmed that two of his clients authored the series of letters. Chepucavage said further that these clients have significant experience in trading ETFs and data collection involving ETFs. Throughout their letters, the whistleblowers use the phrase ETP, for Exchange Traded Product, which includes both ETFs and ETNs, Exchange Traded Notes. In a letter that was logged in at the SEC on January 13, 2016, the whistleblowers compared some of these investments to the subprime mortgage products that fueled the 2008 crash, noting that regulators and economists were mostly blind to that escalating danger as well.

Wall St. Whistle-Blowers, Often Scorned, Get New Support - Becoming a whistle-blower by reporting wrongdoing on Wall Street or in a federal agency that regulates Wall Street takes lots of guts. And a strong argument can be made that whistle-blowers should be celebrated and rewarded for their courage. Incredibly, though, all too often the opposite occurs, and Wall Street whistle-blowers are shunned, ostracized and ignored. Often, they are fired from their jobs and blackballed from the industry.  Take the much-discussed case of Alayne Fleischmann, a former associate at JPMorgan Chase who, as I have written before, was one of the people responsible in the years leading up to the financial crisis for making sure that the mortgages that the bank was buying from third parties — and then packaging into securities and selling off as investments around the world – met the bank’s credit standards. In late 2006 and early 2007, she told her bosses that the bank was manufacturing and selling mortgage-backed securities that did not meet its own credit requirements, but she was ignored. Then, in February 2008, she was fired, and effectively blackballed from the industry.  Now, four former whistle-blowers who have suffered fates similar to Ms. Fleischmann’s – all fired and blackballed after reporting wrongdoing — have banded together to form Bank Whistleblowers United, an advocacy group that aims to improve the status of Wall Street whistle-blowers and change the way Wall Street is regulated. Among its goals is to try to force the presidential candidates to agree that they will not take donations from any financial firm (or more than than $250 from any of its officers) that has been charged with committing “legal elements of fraud,” in other words, virtually all of them.  The group’s manifesto, released Jan. 29, pledges to hold “the elite financial leaders who led the fraud epidemics that caused the financial crisis and the Great Recession personally accountable” and to help “to implement the urgent changes necessary to prevent or at least reduce the frequency and harm of future crises.”

CFTC Likely to Charge Multiple Banks for Libor Rigging -- American banks have so far escaped the billions of dollars in fines that have been levied by U.S. and British regulators leading a global seven-year probe into interest-rate rigging. That is likely to change. The U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority are working on a final round of civil charges against several banks for alleged manipulation of a benchmark underpinning interest rates on trillions of dollars of financial contracts world-wide, according to people close to the probe.  The firms being targeted by the regulators include Citigroup Inc., the nation’s third-largest bank, as well as London-based HSBC Holdings, the people close to the investigation said. J.P. Morgan Chase & Co., the biggest U.S. bank by assets, is still being investigated by the CFTC although this may not lead to enforcement action, the people said. The U.K. regulator dropped its rate-rigging probe into J.P. Morgan, the bank said in a filing last year.  Representatives of the banks declined to comment.

Capital Requirements: Another Odd Attempt to Declare Victory on Dodd-Frank --  David Dayen -- I suppose we’re going to have to deal with half-truths and logical stretches about Dodd-Frank right through until November, but Bernie Sanders’ laser focus on Wall Street has ramped this up of late. The trajectory appears to be: a show of proof of some sort, followed by a blog link from Paul Krugman, at which point the citation hardens into conventional wisdom. This one got rolling by Wonkblog’s Matt O’Brien, and while it has a level of truth to it, I don’t think it reveals exactly what its endorsers think. O’Brien keys off of the following chart, to show that leverage (I suspect everyone reading this knows what that means, but to be brief, the percentage of the balance sheet funded through borrowing) throughout the financial sector decreased during the recession and kept falling through the recovery. OK, take a closer look at that chart. The part I bolded for emphasis isn’t true. It has happened at another time in recent memory. It happened, in fact, in 1998, as the chart shows. The chart bizarrely attributes this to the adoption of Gramm-Leach-Bliley, but really it can be explained by a credit crunch, from the East Asian and Mexican crises and the collapsed of Long Term Capital Management, which caused skittish market participants to reduce leverage. The general truism of this chart is that credit crunches cause rapid pullbacks in leverage, whether the economy is in expansion or not (indeed the ’98 leverage reduction came during the best economic growth period of the past 30 years). I should add that I got Matt to admit this on Twitter last Wednesday, and he never updated the post to reflect that, nor did he changed the sentence “That hasn’t happened at any other time in recent memory.” It’s not even fatal to Matt’s point, but the inability to clean up the hyperbole kind of shows what the priority is here: to cheerlead for Dodd-Frank. The thing is, you don’t need this chart to tell a story about leverage, and its close cousin, risk-based capital. A Boston Fed report out last week shows largely the same thing; capital and leverage ratios have nudged up since 2010.

Harvard Economist Demands Ban On Big Bills To Make It "Harder On The Bad Guys" -- Last week, we were dismayed - although not entirely surprised - to learn that Germany’s Social Democrats have proposed a €5,000 limit on cash transactions and the elimination of the €500 note. The rationale: if you’re paying in cash for something that costs more than €5,000, you’re probably a terrorist or a “foreign criminal.” Of course that’s nonsense but it’s a reflection of a changing world. Put simply: if you ban cash, you can centrally plan the the entire economy by forcing people to spend. You either spend it, or watch as deeply negative rates eat away at your savings.Of course policy makers and the influential economists who inform their decisions won’t tell you that. They’ll say it’s all an effort to fight crime. On Monday we get the latest cash ban call, this time from Peter Sands, the former chief executive officer of Standard Chartered who’s now an academic at Harvard Kennedy School. “High denomination banknotes such as the 500-euro ($556) note and the $100 bill should be eliminated to make it harder for criminals, terrorists, tax evaders and corrupt officials to transfer funds,” Bloomberg writes, referencing a new paper by Sands entitled “Making it Harder for the Bad Guys.” Here’s what Sands has to say about high-denomination bank notes: “High-value notes are the preferred payment mechanism of those pursuing illicit activities, given the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved. They play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy. The irony is that they are provided to criminals by the state.”

Bonds on the Run - Paul Krugman -- While we obsess over domestic politics — not that there’s anything wrong with that, since a lot depends on whether the next leader of the world’s most powerful nation is a racist xenophobe, a sinister theocrat, an empty suit, or all of the above — something scary is going on in financial markets, where bond prices in particular are indicating near-panic. I know, Paul Samuelson famously quipped that the stock market had predicted nine of the last five recessions; the wisdom of crowds is often overrated. Still, bond markets are a bit less flighty than stocks, and also more closely tied to the economic outlook. (A weak economy has mixed effects on stocks — low profits but also low interest rates — while it has an unambiguous effect on bonds.) What plunging rates tell us is that markets are expecting very weak economies and possibly deflation for years to come, if not full-blown crisis. Among other things, such a world would be a very bad place into which to elect a member of a party that has spent the past 7 years inveighing against both fiscal and monetary stimulus, and has learned nothing from the utter failure of its predictions to come true.

Stock Market Investors Abandon Private Equity, Expect No Profits Overall From Companies Now Owned  -- Yves Smith - If you had to guess who was closer to being right about how private equity firms value their unsold deals, as in the companies currently in their portfolios, whose estimates would you prefer those of the private equity firms, who have a history of overvaluing them at predictable points in time (around fundraising time, in weak equity markets, and for deals they’ve held a long time) or of public market investors? The reason this matters is that the private equity returns being reported by all investors included a significant proportion of what amount to “mark to model” profits. Anyone who has worked on a company valuation will tell you is that jiggering key assumptions, like the discount rate, margins, revenue growth, reinvestment requirements, within ranges that are plausible, results in a very large range of possible values. It’s not uncommon to find that changing the assumptions would result in a valuation of ten times what you’d get using conservative inputs.  Remember, there are no independent third party valuations in private equity. All valuations are essentially general partner opinions.  Let us look at the dim view public investors in private equity firms are taking of these yet-to-be-earned profits. Keep in mind that public investors in general greatly prefer steady income; they are thus less keen about trading profits as well as the part of income that private equity firms get from carry fees, which depend on their investment success, as opposed to management fees and the charges they extract from portfolio companies. From the Financial Times Since peaking in early 2014, shares in Apollo and Carlyle have fallen by two-thirds, while KKR’s stock has halved and Oaktree’s has declined 30 per cent. Blackstone — the largest group by assets, with $336bn — has dropped nearly 40 per cent since hitting a record $42.92 a share last May…. However, the share price falls of the five buyout groups mean that investors are effectively entirely discounting their future performance fees, or the share of profit the groups take alongside investors in their funds when they exit successful deals, underlining extreme scepticism about the companies’ value.

Goldman Sachs Abandons Five of Six ‘Top Trade’ Calls for 2016 - Goldman Sachs to clients: whoops. Just six weeks into 2016, the New York-based bank has abandoned five of six recommended top trades for the year. The dollar versus a basket of euro and yen; yields on Italian bonds versus their German counterparts; U.S. inflation expectations: Goldman Sachs Group Inc. was wrong on all that and more. The fumbles underscore the volatility that has beset global markets, accelerating price swings across currencies, stocks and bonds. Signs the world economy is suffering amid a slowdown in China have fueled unease about the creditworthiness of banks and other corporations, spurring a bid for haven assets such as the yen and the euro. “Markets have started out this week by aggressively de-risking, apparently owing to fears that the recent slowdown in global growth could descend into recession,” Charles Himmelberg, chief credit strategist, wrote in a note to clients Tuesday. “Financial credit spreads are spiking, especially in Europe, possibly signaling a reactivation of systemic risk concerns.” Neither Himmelberg nor Francesco Garzarelli, Goldman Sachs’s London-based co-head of fixed-income strategy, could immediately be reached for further comment, when contacted by phone and e-mail. The New York-based bank closed its call for dollar strength versus an equally weighted basket of the euro and yen on Tuesday, recording a potential loss of about 5 percent, Himmelberg wrote in his note. Goldman Sachs also ended a bet on five-year five-year forward Italian sovereign yields versus their German counterparts for a loss of about 0.5 percent, he wrote.Goldman Sachs was forced out of three of its top picks for the year last month: a bet on large U.S. banks against the Standard & Poor’s 500 Index, a wager on 10-year break-evens, and a call on the Mexican peso and Russian ruble strengthening versus the South African rand and Chilean peso. The latter closed on Jan. 21 for a potential loss of 6.6 percent.

Companies lose billions buying back their own stock (AP) — If you think your stocks are doing poorly, check out the performance of some of the most sophisticated investors, the ones with more knowledge about what’s going on inside businesses than anyone else: Companies that buy their own shares. The companies losing money on these bets are down a collective $126 billion over the past three years, a decline of 15 percent. Many corporations would have been better off investing that cash in an index fund instead of their own stock. The overall market rose 39 percent over the same period. The companies could also have distributed that cash as dividends to shareholders, allowing them to spend what is, in the end, their money. And it’s not just a few big corporate losers accounting for all the pain. The group includes 229 companies in the Standard and Poor’s 500 index, nearly half of the companies in the study prepared by FactSet for The Associated Press. When a company shells out money to buy its own shares, Wall Street usually cheers. The move makes the company’s profit per share look better, and many think buybacks have played a key role pushing stocks higher in the seven-year bull market. But buybacks can also sap companies of cash that they could be using to grow for the future, no matter if the price of those shares rises or falls.

Another Data Point To Ignore: Dividend Cuts Have Surpassed 2008 -- Being "paid to wait" in high-yielding stocks last year was a death by 394 cuts. As Bloomberg reports, the number of dividend reductions far surpassed 2008, almost 100 more than at the outset of the Great Recession - a time when the implosion of Lehman caused equity markets to plummet in the later stages of the third quarter. Just ignore it - it's transitory!! As Bloomberg reports, The ratcheting down of payouts to shareholders is a function of weak commodity prices, sluggish growth dampening corporate profits, and a tightening of credit conditions. This combination—and in particular the stingier lending—could exacerbate the carnage already seen this year in financial markets, further dampening economic activity. Because of the stigma associated with cutting dividends, management is loath to go down that path unless the need is dire. The trend toward trimmed payouts hasn't let up so far in 2016, especially among companies under stress from soft commodity prices. In recent days, ConocoPhillips slashed its dividend by 66 percent and Potash Corp. of Saskatchewan Inc. reduced its payout by 34 percent.

Investors flock to CDS amid fear over banks’ bonds - Investors have rushed to buy protection against banks’ declining bond prices, amplifying concerns over the health of financial companies. A popular credit derivatives index that tracks the likelihood of default of investment-grade debt of European companies and banks was trading at 118 basis points on Tuesday, near its highest level since June 2013. The value of the contract should increase as the value of the debt it references falls, protecting investors from losses. The surge in the cost of credit default swaps reflects growing investor anxiety about the health of Europe’s banks and highly indebted companies, feeding into concerns over the fall in oil prices and turmoil in global equity markets. “It’s a recipe for a lot of volatility,” . “Fear is prevalent right now.” US banks have also been hit hard with the S&P financials sector the worst-performing area of the broad market. Global exchange traded funds that track the financial sector have recorded outflows of $3.2bn so far this quarter. That puts them on track for the worst quarterly outflow in six years, according to data from Markit, the research group. Deutsche Bank and Credit Suisse’s poor results have fuelled concerns over the health of the European banks, sending their shares and bonds lower.

Financial Chaos, Junk Bond Edition - Wolf Richter: It’s not contained. There are over $1.8 trillion of US junk bonds outstanding. It’s the lifeblood of over-indebted corporate America. When yields began to soar over a year ago, and liquidity began to dry up at the bottom of the scale, it was “contained.” Yet contagion has spread from energy, metals, and mining to other industries and up the scale. According to UBS, about $1 trillion of these junk bonds are now “stressed” or “distressed.” And the entire corporate bond market, which is far larger than the stock market, is getting antsy.  The average yield of CCC or lower-rated junk bonds hit the 20% mark a week ago. The last time yields had jumped to that level was on September 20, 2008, in the panic after the Lehman bankruptcy, as we pointed out. Today, that average yield is nearly 22%! Today even the average yield spread between those bonds and US Treasuries has breached the 20% mark. Last time this happened was on October 6, 2008, during the post-Lehman panic: At this cost of capital, companies can no longer borrow. Since they’re cash-flow negative, they’ll run out of liquidity sooner or later. When that happens, defaults jump, which blows out spreads even further, which is what happened during the Financial Crisis. The market seizes. Financial chaos ensues. It didn’t help that Standard & Poor’s just went on a “down-grade binge,” as S&P Capital IQ LCD called it, hammering 25 energy companies deeper into junk, 11 of them into the “substantial-risk” category of CCC+ or below.  Back in the summer of 2014, during the peak of the wild credit bubble beautifully conjured up by the Fed, companies in this category had no problems issuing new debt in order to service existing debt, fill cash-flow holes, blow it on special dividends to their private-equity owners, and what not. The average yield of CCC or lower rated bonds at the time was around 8%. Today the scenario is punctuated by defaults, debt restructurings with big haircuts, and bankruptcy filings. These risks had been there all along. But “consensual hallucination,” as we’ve come to call the phenomenon, blinded investors, among them hedge funds, private equity firms, bond mutual funds for retail investors, and other honorable members of the “smart money.”

Mark Cuban on what has gone wrong - When private companies can’t or won’t go public, they become easy pickings for their competitors to buy them…In my not so humble opinion, this is the ultimate productivity and investment killer in the USA today.  And this: One of the reasons today’s 3700 public companies hoard cash is because they know that rather than investing in uncertain R&D and productivity enhancements to protect them against the “Innovators Dilemma”, upstart companies that could disrupt them and their industries, they can simply buy those companies. Finally: It is undeniably destructive to our economy and future when many of our most innovative and exciting companies are bought by their competition.  It is a “Precognitive Anti-Trust Violation” I know that sounds laughable in so many ways. But at its heart, it’s true. It’s also incredibly destructive to our standing in the world and our economy. Speculative, but worth a ponder.  The full post is here

Battered Bank Stocks Reflect Not Just Jitters, but Mistrust -  The bear market in big United States financial stocks has many people wondering: Are we headed for another banking crisis?The KBW Bank Index, made up of 24 money-center institutions and top regional banks, certainly signals pain for this industry. The index has tumbled 19 percent this year and 26 percent since its peak in July.Some individual stocks have fared even worse. In recent days, shares of Bank of America, Citigroup and JPMorgan Chase have hit 52-week lows. Bank of America has lost around 29 percent and Citi around 27 percent, year to date, while JPMorgan is down 13 percent.Clearly, the decline in bank shares reflects turmoil in the commodities markets, the economic downturn in China and renewed banking troubles in Europe. How much these woes will damage big banks’ balance sheets and income statements remains uncertain.Investors seem to believe steep loan losses lie ahead. This message comes through loud and clear when you compare some banks’ market capitalizations with their book values, or their net worths. When investors anticipate loan losses, they price bank shares below their corresponding book values.That uncomfortable position is where some of the nation’s largest banks currently stand. For example, Citigroup shares are trading at 61 percent of its tangible book value, a measure of a bank’s equity that excludes items that are difficult to assess, like good will. And Bank of America stock trades at 75 percent of its tangible book value, down from a slight premium late last year. Even the mighty JPMorgan trades at 19 percent above its tangible book; at year’s end, the stock represented a 38 percent premium.

Fining Bankers, Not Shareholders, for Banks’ Misconduct - Gretchen Morgenson - Ho-hum, another week, another multimillion-dollar settlement between regulators and a behemoth bank acting badly.  The most recent version involves two such financial institutions, Barclays and Credit Suisse. They agreed last Sunday to pay $154.3 million after regulators contended that their stock trading platforms, advertised as places where investors would not be preyed on by high-frequency traders, were actually precisely the opposite. On both banks’ systems, investors trying to execute their transactions fairly were harmed.  As has become all too common in these cases, not one individual was identified as being responsible for the activities. Once again, shareholders are shouldering the costs of unethical behavior they had nothing to do with. It could not be clearer: Years of tighter rules from legislators and bank regulators have done nothing to fix the toxic, me-first cultures that afflict big financial firms.  Regulators are at last awakening to this reality. On Jan. 5, for example, the Financial Industry Regulatory Authority, a top Wall Street cop, announced its regulatory priorities for 2016. Among the main issues in its sights, the regulator said, was the culture at these companies. “Nearly a decade after the financial crisis, some firms continue to experience systemic breakdowns manifested through significant violations due to poor cultures of compliance,” said Richard Ketchum, Finra’s chairman. “Firms with a strong ethical culture and senior leaders who set the right tone, lead by example and impose consequences on anyone who violates the firm’s cultural norms are essential to restoring investor confidence and trust in the securities industry.” But changing behavior — as opposed, say, to imposing higher capital requirements — is a complex task. And regulators must do more than talk about what banks have to do to address their deficiencies.

The Case for Breaking Up Too-Big-To-Fail Banks - Ed Dolan - The presidential campaign has brought new attention to the problem of banks that are too big to fail (TBTF). As everyone agrees, the largest banks are bigger than ever. As the following chart shows, the share of all bank assets held by the four largest banks rose from 33 percent in 2007 to 41 percent by 2015. Over the same period, the combined assets of the four largest banks, as a share of GDP, grew from 28 percent to 40 percent.  The major candidates disagree, not on whether the largest banks are too big to fail, but on what to do about it. Senator Bernie Sanders has made breaking up the banking giants a centerpiece of his campaign. Hillary Clinton favors a continuation of the regulatory approach embodied in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The GOP candidates favor an approach that combines deregulation with market discipline. Sanders’ anger at the banks seems to resonate well with voters, but influential voices in the media skeptical. The Editorial Board of the Washington Post has argued against breaking up the big banks. The New York Times has done likewise, prominently featuring an opinion piece written by Steve Eisman, a managing director of the investment firm Neuberger Berman. Politico also thinks breaking up the banks would be a bad idea. I find the arguments of these critics unpersuasive. In what follows, I will examine the three approaches to dealing with the problem of TBTF and explain why I think Sanders is right to think that a reduction in the size and influence of the largest banks should be a part of any comprehensive plan to improve the stability of the financial system.

Breaking Up the Big Banks is Easy -- Dean Baker -- Steve Eisman, the hedge fund manager of Big Short fame, argued against breaking up the big banks in a NYT column today. His basic argument is that we now have things under control because the regulators have effectively limited the banks’ ability to leverage themselves. He also says that even if we wanted to break up the banks, we don’t know how to do it: “Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.” Hmmm, “no advocate of a breakup has come forward with a plan,” sounds a bit like nobody saw the housing bubble.   Okay, first Eisman raises a good point in that regulation is much better today than it was before the crisis. But those of us who are in favor of downsizing the behemoths question whether that will always be the case. After all, there is a lot of money to be gained from being able to outmaneuver the regulators.  But let’s leave aside the merits of breaking up the banks and ask whether it could be done. There is in fact a simple way to break up the banks; let the banks do it themselves.  The idea is that the banks would be given sliding targets, say an asset cap of $1 trillion in three years, $600 billion in five years, and $200 billion in ten years. They would face large and growing fines on the amount of assets they held in excess of these caps.   For example, after three years they could face a penalty of 1 cent for every dollar in assets they held in excess of $1 trillion. This sort of penalty structure would give J.P. Morgan and the other big banks enormous incentive to downsize themselves. They would presumably know how to break themselves up in a way that maximized the value to shareholders, minimizing the risk of disruptions to the economy.

Hollywood Glorifies Bankers, Ignores Unsung Whistleblowers -- Bill Black reviews the highlights and holes of the film The Big Short in 2 parts on The Real News. You can view part 1 here and part 2 is here. Both have transcripts. “Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.” [S&P 2001] [emphasis in original]

Of Morality Plays and Technocratic Assessments - Menzie Chinn - Or, breaking up the big banks might provide some visceral joy, but it’s not clear to me that solves the key problem of financial fragility in modern capitalist systems.  I recently talked on C-SPAN’s BookTV about my book, Lost Decades, coauthored in Jeffry Frieden. In it, I recounted the story of how, by hubris and ignorance of the basics of finance, we mired ourselves in the biggest financial crisis in living memory.  It strikes me it is useful to place assessments of the cause of the global financial crisis, over-simplistically for sure, into two categories: (1) moral hazard due to implicit government guarantees incentivizes financial entities to become overly large (aka Too Big Too Fail); or (2) government deregulation and/or financial innovation to circumvent existing government regulations such that leverage rises. While elements of both are no doubt part of the story, apportioning the relative blame is critical for determining what are the most appropriate public policies. If you believe the former, then breaking up the banks is the way to go. If you believe the latter, then measures to reduce leverage, either by implementing higher capital levies on systemically important financial institutions, and/or by making all financial institutions hold more capital against assets (and correctly risk-weighting assets) is the more efficacious route. In Lost Decades, Jeffry Frieden and I document how hubris and ideological blinders led the G.W. Bush Administration to pursue deregulation of banking, and allowed other policymakers to ignore the hazards of high leverage (based on arguments that self-interest would induce sufficient capital holdings). The argument that it’s all “too big too fail” fails to explain why in the past massive crises of the 2008 variety did not appear (big institutions have always existed), and why the collapse of a relatively small financial institution — Lehman Brothers (not a commercial bank, by the way) — sparked such a calamity. It also fails to explain why the losses associated with many bankruptcies among many often-small savings and loan institutions necessitated such a large US government-financed bailout in the early 1990’s. So don’t focus too much on Glass-Steagall’s repeal, such as in this set of proposals. Instead, we should focus on leverage. It’s leverage that kills.

Should we nationalize banks? --Should banks be nationalized to protect shareholders? What I mean is that banks are risk-magnifiers. When they lose money, credit to the whole economy gets choked off, thus causing recession. Banks are critical hubs in a network economy.  Put it this way. In the 2008 financial crisis, the US’s biggest financial institutions lost between them less than $150bn. But during the tech crash of 2000-03 investors in US stocks lost over $5 trillion. The former led to a great depression, the latter to only the mildest of downturns. Why the difference? One big reason is that losses are easier to bear if they are spread across millions of (mostly unleveraged) people, but cause real trouble if they are concentrated in a few leveraged strategically important institutions. One reason why non-financial stocks have fallen recently is that investors fear a repeat of 2008 – a fear which is all the greater because banks are so opaque. Yes, the bosses of Deutsche and Credit Suisse claim that they are sound – but nobody believes bosses these days. As Nicholas Taleb said, bankers are “not conservative, just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.” I suspect the CAPM has got things backwards. It says that banks fall a lot when the general market falls because they are, in effect, a geared play upon the general market. But sometimes, the market falls because banks fall. Which leads me to the case for nationalization. This wouldn’t prevent banks losing money: these are inevitable sometimes because of complexity, bounded rationality and limited knowledge. However, when banks are nationalized, their losses would create only a very minor problem for the public finances as governments borrow money to recapitalize them*. That needn’t generate the fears of a credit crunch or financial crisis that we’ve seen recently.

Charge senior bank bosses, says former commissioner - - Phil Angelides uncovered evidence of widespread fraud and corruption in the US mortgage market as chairman of the commission which produced the government report on the global financial crisis. Five years on, he is asking the Department of Justice why it has yet to call any senior bank executives to account. Since his report appeared in February 2011, America’s biggest banks have paid tens of billions of dollars in fines for misconduct in the packaging and sale of mortgage-backed securities, while the DoJ has gone after thousands of borrowers, brokers and appraisers for lying on mortgage applications. But no senior bank executive has been charged with wrongdoing. In a letter to Loretta Lynch, US Attorney General, Mr Angelides has challenged the DoJ to take action before the ten-year statute of limitation expires. “I ask a simple question: how could the banks have engaged in such massive misconduct and wrongdoing without a single individual being involved? In a sense, it’s the immaculate corruption,” he told the FT. “It defies common sense, and the people of America know this.” The campaign by Mr Angelides, a former state treasurer of California, comes as reform of the big banks is occupying centre stage in the US presidential election, with candidates on both sides accusing rivals of having too-strong ties to Wall Street. Hillary Clinton, the Democratic frontrunner under fire for accepting millions of dollars from banks in speaking fees, has said she will push for stronger enforcement, holding individuals — rather than their firms — accountable for misconduct. Ms Lynch, too, has taken a tougher line since succeeding Eric Holder last April, signalling in September that she wanted to go after individuals, rather than corporate entities. A batch of new rules, issued in a memo to federal prosecutors around the country, were seen as a tacit acknowledgment that the DoJ under President Barack Obama had been too lenient on executives involved in the financial meltdown and other corporate scandals.

Time to Jail the Bankers and Take Back Control over Money - Randy Wray and Bill Black appear on “Clearing the Fog.” You can listen to the podcast here. Bill, of the newly formed Bank Whistleblowers United, speaks about the plan they have outlined to instill the rule of law on Wall Street and end fraud with the hope of mitigating the effects of the next financial crisis. Randy, an expert in financial instability and macroeconomics, speaks about alternatives to the current financial system that would bring greater stability.

Morgan Stanley to Pay $3.2 Billion Over Flawed Mortgage Bonds - Morgan Stanley will pay $3.2 billion to strike a settlement with state and federal authorities over the Wall Street firm’s creation of mortgage-backed bonds before the financial crisis.Nearly a year ago, Morgan Stanley announced that it expected to pay $2.6 billion to federal authorities in the settlement. Since then, though, Morgan Stanley was pushed to offer more money. Much of the additional money will go to New York State.The settlement, which was announced Thursday morning, is one of the last that is expected to come out of a working group that President Obama helped form in 2012 to deal with the flawed mortgaged-backed bonds that banks put together before the financial crisis. In the go-go years that preceded the crisis, Wall Street banks purchased subprime mortgages and packaged them into bonds that ended up suffering significant losses.  Because Morgan Stanley did not originate mortgages itself, its settlement is much smaller than those struck by large consumer banks like Bank of America, which paid $16.6 billion in its 2014 settlement. Morgan Stanley said on Thursday that it had set aside legal reserves to cover the agreement and would not take any additional charges in its coming financial results. Morgan Stanley relied on a few subprime mortgage originators, especially New Century, to feed its bond pipeline. In the settlement this week, Morgan Stanley agreed to a statement of fact that includes revealing details about its relationship with New Century. The statement says that Morgan Stanley employees frequently tried to increase the “pull-through rate” of New Century loans getting into securities, even when the loans were lower quality than expected.

Mortgage Fraud and Growing Worries - Modern psychology has not, I think, fully come to grips with the death drive in financial e-mails. People know they are not supposed to mention illegal stuff in their e-mails and instant messages and chat rooms and recorded phone calls. You can tell because, when they mention the illegal stuff in those electronically preserved records, they regularly also mention the fact that they're not supposed to mention it. What are they thinking? If you say illegal stuff in an e-mail at a bank, there is a good chance that it will end up quoted in a multibillion-dollar settlement, but if the same e-mail also discusses how you shouldn't put the illegal stuff that you just put in writing, in writing, then your chances increase dramatically. Like this person: In a May 31, 2006 email, the head of Morgan Stanley’s team tasked with doing due diligence on the value of properties underlying the mortgage loans asked a colleague, “please do not mention the ‘slightly higher risk tolerance’ in these communications. We are running under the radar and do not want to document these types of things.”  Where do you think the radar is? The radar is an e-mail search program that looks for phrases like "we are running under the radar." I have to believe that at some deep unconscious level this person wanted to get caught.  Anyway, the point here is that Morgan Stanley sold some residential mortgage-backed securities with a, shall we say, "slightly higher risk tolerance" than it advertised, those bonds went bad, there was a financial crisis, eight years passed, and now Morgan Stanley has settled with the Justice Department for $2.6 billion, New York for $550 million and Illinois for $22.5 million. With previous settlements, "Morgan Stanley will have paid nearly $5 billion to members of the RMBS Working Group in connection with its sale of RMBS." Here are the Justice Department settlement and statement of facts, though I assume that all of the funniest e-mails are quoted in New York Attorney General Eric Schneiderman's announcement.

New mortgage companies have ties with subprime lenders — PennyMac, AmeriHome Mortgage and Stearns Lending have several things in common. All are among the nation’s largest mortgage lenders — and none are banks. They’re part of a growing class of alternative lenders that now extend more than 4 in 10 home loans. All are headquartered in Southern California, the epicenter of the last decade’s subprime-lending industry. And all are run by former executives of Countrywide Financial, the once-giant mortgage lender that made tens of billions of dollars in risky loans that contributed to the 2008 financial crisis. This time, the executives say, will be different.Unlike their subprime forebears, the firms maintain that they adhere to strict new lending standards to protect against mass defaults. Still, some observers worry as housing markets heat up across the country and in Southern California, where prices are up by a third since 2012. So-called nonbank lenders are again dominating a riskier corner of the housing market — this time, loans insured by the Federal Housing Administration (FHA), aimed at first-time and bad-credit buyers. Such lenders now control 64 percent of the market for FHA and similar Veterans Affairs loans, compared with 18 percent in 2010. A Los Angeles Times analysis of federal-loan data shows that FHA mortgages from nonbank lenders are seeing more delinquencies than similar loans from banks. Just 0.9 percent of FHA-insured loans issued by banks from October 2013 to September 2015 were seriously delinquent compared 1.1 percent of nonbank loans. Put another way, nonbank FHA and VA loans are about 23 percent more likely to go bad than those issued by banks. Consumer advocates worry that the new crop of mortgage companies may again take advantage of borrowers.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 25% YoY - From the MBA: Rates Drop, Refi Applications Surge in Latest MBA Weekly Surve Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 5, 2016. ..The Refinance Index increased 16 percent from the previous week. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 25 percent higher than the same week one year ago... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since April 2015, 3.91 percent, from 3.97 percent, with points unchanged at 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity 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 25% higher than a year ago.

Mortgage News Daily: "Lenders quoting 30yr fixed rates of 3.65%" - Mortgage rates increased today, but are still very low. From Matthew Graham at Mortgage News Daily: Mortgage Rates Jump Higher From Long-Term Lows The average lender is now back to quoting conventional 30yr fixed rates of 3.625%, up from 3.5% yesterday. A few of the less-aggressive lenders are back to 3.75% already. But again, factoring out the past 3 days, today would be the best day for mortgage rates in more than a year.  Here is a table from Mortgage News Daily: Home Loan Rates  View More Refinance Rates

Home-Price Growth Sped Up Last Year, Realtors Say - Home-price growth accelerated late last year, according to a report released Wednesday by the National Association of Realtors, as a lack of supply continues to drive up prices despite cooling demand. The national median existing single-family home price grew nearly 7% to $222,700 in the fourth quarter, compared with the same time last year, Realtors said. Prices increased 5.4% in the third quarter compared with a year earlier. That price bump came despite the fact that the pace of sales slowed. Total existing home sales, including single-family properties and condos, declined 5.4% to a seasonally adjusted annual pace of 5.18 million from nearly 5.5 million in the third quarter. Fewer metro areas saw price gains, but those that did were much more likely to see big double-digit increases. Prices increased year-over-year in 81% of markets measured by NAR, compared with 87% in the third quarter. But 30 metro areas saw double-digit increases, compared with 20 metro areas in the third quarter. Western and sunbelt markets continued to see some of the biggest gains, with several Florida markets posting some of the largest, including Punta Gorda with a 20.7% increase, Palm Bay with a 18.7% increase and the Cape Coral-Fort Myers area with a more than 16% increase. Toledo, Ohio, a chilly midwestern market, was an outlier with a 21.2% increase. The five most expensive markets in the county were San Jose, Calif., where the median existing family home price was $940,000, San Francisco at $781,600 and Honolulu at $716,600.

The Eviction Epidemic - Even in the most desolate areas of American cities, evictions used to be rare enough to draw crowds. Eviction riots erupted during the Depression, though the number of poor families who faced eviction each year was a fraction of what it is today.  These days, evictions are too commonplace to attract attention. There are sheriff squads whose full-time job is to carry out eviction and foreclosure orders. Some moving companies specialize in evictions, their crews working all day long, five days a week. Hundreds of data-mining companies sell landlords tenant-screening reports that list past evictions and court filings. Meanwhile, families have watched their incomes stagnate or fall as their housing costs have soared. Today, the majority of poor renting families spend more than half their income on housing, and millions of Americans are evicted every year. In Milwaukee, a city of fewer than a hundred and five thousand renter households, landlords legally evict roughly sixteen thousand adults and children each year. As the real-estate market has recovered in the wake of the foreclosure crisis and the ensuing recession, evictions have only increased. But there are other ways, cheaper and quicker than a court order, to remove a family. Some landlords pay tenants a couple of hundred dollars to leave by the end of the week. Some take off the front door. Nearly half of the forced moves of renting families in Milwaukee are “informal evictions,” which, like many rentals, involve no paperwork, and take place in the shadow of the law. Between 2009 and 2011, more than one in eight Milwaukee renters were displaced involuntarily, whether by formal or informal eviction, landlord foreclosure, or building condemnation. In 2013, nearly the same proportion of poor renting families nationwide was unable to pay all of their rent, and a similar number thought it was likely that they would be evicted soon.

AIA Forecast: 8% increase in Nonresidential Construction in 2016  -- Note: This does not include spending for oil and gas (that sector will be down in 2016).  From the AIA: Nonresidential Construction Market Momentum to Continue Construction spending greatly exceeded expectations in the nonresidential market in 2015, and this year should see healthy growth levels as well. There continues to be significant demand for hotels, office space, manufacturing facilities and amusement and recreation spaces.  The American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is projecting that spending will increase just more than eight percent in 2016, with next year’s projection being an additional 6.7% gain.  “While rising interest rates could pose a challenge to the U.S. economy, lower energy prices, improved employment figures and an enacted federal budget for 2016 are all factoring into a very favorable outlook for the construction industry,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “And after several years of challenging economic circumstances the institutional project sector is finally on very solid footing.”

NY Fed: Household Debt Increased "Modestly" in Q4 2015, Delinquency Rates Declined  - The Q4 report was released today: Household Debt and Credit Report.  From the NY Fed: Household Debt Grows Modestly Household debt increased moderately and repayment rates improved during the last three months of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit. The $51 billion increase put total household indebtedness at $12.12 trillion as of the end of last year. Additionally, only 5.4 percent of outstanding debt was in some stage of delinquency, the lowest rate since the second quarter of 2007. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.  Modest aggregate debt growth was partially attributable to flat mortgage balances. Balances on home equity lines of credit continued a decline that began more than four years ago, falling last quarter by $5 billion. In contrast, auto debt, which has steadily advanced every quarter since mid-2011, increased again by $19 billion. ...  Overall delinquency rates improved last quarter, a development driven largely by mortgages. Just 2.2 percent of mortgage balances were 90+ days delinquent, a slight improvement from the third quarter’s 2.3 percent. Overall 90+ day delinquencies dropped to their lowest level since the beginning of 2008.

Baby Boomers Are Drowning In Loans: Debt Of Average 67-Year-Old Soared 169% In Past 12 Years -- For those who follow the monthly consumer credit report released by the Fed there was nothing surprising in today's release of the latest Household Debt and Credit Report by the New York Fed. It reports that total household debt rose to $12.12 trillion in Q4, up from $11.83 trillion a year ago... ...mostly as a result of soaring student and auto debt, both trends we have observed on various occasions in the recent and not so recent past.  There is more in the report (a notable discussion focuses on why housing credit has stagnated as much as it has with the Fed seemingly unable to grasp that the bulk of housing purchases in the US in recent years have been by offshore oligarchs using all cash transactions to park money in US luxury housing), but what is the topic of this post is another finding by the Fed, namely that Americans in their 50s, 60s and 70s - the Baby Boom generation - are carrying unprecedented amounts of debt, a shift which according to the WSJ "reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations." Debt held by Americans aged 50-80 increased by 59% from 2003 to 2015 — New York Fed News. Incidentally, those debt "retention" are entirely thanks to the Fed which has only itself to thank for: with deposits yielding nothing, an entire generation of Americans 50 and older has been fored to resort increasingly to more and more debt, until this happens:

Hotel Occupancy: 2016 Tracking Record Year --Interesting tidbit: Even though January is one of the weakest periods of the year, average weekly hotel occupancy in 2016 is already above the average for all of 2009 (the worst year for hotels since the Depression)! Here is an update on hotel occupancy from STR: US results for week ending 6 February In year-over-year measurements, the industry’s occupancy decreased 1.9% to 56.6%. However, ADR for the week was up 5.2% to $119.03 and RevPAR rose 3.3% to $67.33. In year-over-year measurements, the industry’s occupancy decreased 1.9% to 56.6%. However, average daily rate for the week was up 5.2% to US$119.03, and revenue per available room rose 3.3% to US$67.33. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate should continue to increase for the next couple of months.

Retail Sales increased 0.2% in January  - On a monthly basis, retail sales were up 0.2% from December to January (seasonally adjusted), and sales were up 3.4% from January 2015. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $449.9 billion, an increase of 0.2 percent from the previous month, and 3.4 percent above January 2015. ... The November 2015 to December 2015 percent change was revised from down 0.1 percent to up 0.2 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline were up 0.4%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 4.5% on a YoY basis. The increase in January was at expectations, and retail sales for December were revised up from a 0.1% decrease to a 0.2% increase. The headline number was decent, and sales ex-gasoline are up a solid 4.5% YoY.

Headline Retail Sales Improved In January 2016?: Retail sales improved according to US Census headline data. Our view is that this month's data was weaker than last month, There was a small decline in the rolling averages. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems. Backward data revisions were generally upward. Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 1.6 % month-over-month, and up 1.4 % year-over-year.
  • unadjusted sales 3 month rolling year-over-year average growth decelerated 0.1 % month-over-month, 2.0 % year-over-year.
  • unadjusted sales (but inflation adjusted) up 2.0 % year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - auto sales, sporting goods, non-store retailers, and food services were strong. Gas stations, appliance stores and department stores were weak.
  • seasonally adjusted sales up 0.1 % month-over-month, up 3.4 % year-over-year (last month was 2.1 % year-over-year).

Retail Sales Beat Expectations, Control Group Rises Most Since May Delaying "Fed Relent" -- There was much at stake in today's retail sales report, because had the Census reported another miss in the headline, ex auto and control group data, it would have made the Fed's job of maintain the illusion of a recovery into a rate hike cycle virtually impossible. Luckily for Yellen, the numbers came out and they were were beats across the board.

  • Retail sales rose to $449.904b in January, up from $449.1b in December
  • Retail sales rose 0.2%, higher than the estimated 0.1% rise
  • Retail sales less autos rose 0.1% in Jan., also better than the 0.0% estimate
  • Retail sales ex-auto dealers, building materials and gasoline stations rose 0.4% in Jan., better than the 0.3% estimate

Finally, the ‘control group’ rose 0.6% in Jan., well above the 0.3% estimate, and most notably the highest increase since May. Adding to the optimistic results was that every data point was revised higher.

The Curious Case Of The "Strong" January Retail Sales: It Was All In The Seasonal Adjustment - There was hardly a blemish in today's retail sales report: the January numbers not only beat expectations across the board, including the all important control group which printed at 0.6% or the highest since May, but the December data was also revised notably higher. At first glance, great news for those who hope consumer spending is finally getting some traction from collapsing gasoline prices. And yet, even a modestly deeper look below the strong retail sales headline numbers once again reveals just how this "across the board beat" was accomplished. It was all in the seasonal adjustment, something which plagued the January non-farm payrolls report as well as numerous sellside analysts lamented. The thing about seasonally adjusted retail sales is that while they are supposed to smooth out month-to-month changes in any given data series, they should be virtually identical to the non-seasonally adjusted retail sales on a annual, year-over-year basis. After all the same "seasonal" adjustment that was applicable this January, was applicable last January, the Januarybefore it, and so on, unless of course, something changed.To the best of our knowledge nothing changed, even though while seasonally adjusted sales rose modestly by $800 million to $449.9 billion, on an unadjusted basis retail sales actually dropped by $112.7 billion with a "B."  And indeed, when looking at the annual change in headline retail sales data we find that, as expected, the seasonally-adjusted (blue) and unadjusted (red)retail sales series are almost identical.… but not quite…

No Sign Of Recession In US Retail Spending Data In January - US retail sales rose a moderate 0.2% in January, the Census Bureau reports. The gain offers another clue for thinking that the stock market’s plunge this year may be a false warning about the near-term macro outlook. In fact, when you look at retail spending’s year-over-year rate, today’s release shows a modest acceleration in the trend. To be fair, the early data for the January economic profile had been previously hinting at the probability that this year’s first month would escape the clutches of an NBER-defined recession. Today’s report strengthens that view. February, of course, remains a mystery in terms of the available hard data at this point. Meanwhile, reviewing a broad set of indicators that reflects activity through last month—excluding market data—still aligns with an assumption that US economic growth will roll on. The retail sector is certainly on board with an optimistic bias. As you can see in the chart below, the annual pace of growth for the headline data picked up, rising 3.4% in January vs. the year-earlier level. That’s the strongest increase in a year. Stripping out gasoline sales, which are fading in dollar terms, juices the year-over-year increase even more, to a healthy 5.3%. In short, there’s no sign of recession risk in the retail sales report for January. Even at the peak of pessimism in recent days via the stock market’s plunge it was reasonable to assume that the January economic profile writ large would remain sufficiently positive to avoid a recession signal. I’ve been making this point for weeks in The US Business Cycle Risk Report (including yesterday’s update). Consider, for instance, the Economic Trend and Momentum indexes (ETI and EMI, respectively), based on data published through Feb. 10 (the chart below appeared in yesterday’s edition of BCRR).

The consumer is alright -- This morning's retail sales report gives us confirmation that the consumer economy - about 70% of the entire US economy - is alright.  While we don't know what the CPI for January is yet, we do know that gas prices continued to decline smartly, so I am not expecting a number over +0.1%, and truth be told, I am not expecting a positive number at all. Not only was January a positive both including and excluding autos, but December was revised significantly higher, from -0.1% to +-.2%.  For what it's worth, YoY real retail sales for January will probably wind up near +2.5% (since last January's decline of -0.3% in retail sales falls out of the comparison. Here's the bottom line:
1..Workers/consumers have more jobs, and are making and spending more money.
2.  Producers of commodities, and utilities and transporters of commodities are experiencing a very intense downturn, that so far has not dragged down non-commodity industrial production at all.

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

  • unadjusted sales rate of growth decelerated 2.1 % month-over-month.
  • unadjusted sales year-over-year growth is down 4.2 % year-over-year
  • unadjusted sales (but inflation adjusted) down 4.7 % year-over-year
  • the 3 month rolling average of unadjusted sales decelerated 0.2 % month-over-month, and down 4.1 % year-over-year. There has been a general deceleration trend since late 2014.
  • unadjusted inventories up 1.8 % year-over-year (deceleration of 0.4 % month-over-month), inventory-to-sales ratio is 1.27 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales down 0.3 % month-over-month, down 4.5 % (last month was reported down 3.7 %) year-over-year
  • inventories down 0.1 % month-over-month, inventory-to-sales ratios were 1.24 one year ago - and are now 1.32.
  • the market (from Bloomberg) expected inventory month-over-month change between -0.4 % to 0.1 % (consensus -0.1 %) versus the -0.1 % reported.

December 2015 Business Sales and Inventories Remain Bad. - Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales declined compared to the previous month - and there was a decline of the rolling averages. With inflation adjustments, business sales is now in contraction. The inventory-to-sales ratios remain at recessionary levels. Econintersect Analysis:

  • unadjusted sales rate of growth decelerated 0.8 % month-over-month, and down 2.4 % year-over-year
  • unadjusted sales (but inflation adjusted) down 0.9 % year-over-year
  • unadjusted sales three month rolling average compared to the rolling average 1 year ago decelerated 0.2 % month-over-month, and is down 2.7 % year-over-year.
  • unadjusted business inventories growth shrunk 0.5 % month-over-month (up 1.6 % year-over-year with the three month rolling averages improving), and the inventory-to-sales ratio is 1.44 which is at recessionary levels (well above average for this month). However, these ratios may be distorting the real picture as inventory values may not be properly revalued for inflation (first in, first out).

    US Census Headlines:

    • seasonally adjusted sales down 0.6 % month-over-month, down 2.7 % year-over-year (it was reported down 2.8 % last month).
    • seasonally adjusted inventories were up 0.1 % month-over-month (up 1.7 % year-over-year), inventory-to-sales ratios were up from 1.33 one year ago - and are now 1.39.
    • market expectations (from Bloomberg) were for inventory growth of -0.2 % to 0.3 % (consensus 0.1 %) versus the actual of +0.1 %.

    Business Inventories Jump, Sales Tumble Sending Ratio To Recession-Warning Cycle Highs -- After some stabilization into mid-2015, the ratio of business inventories-to-sales has surged as sales have disappointed and mal-investment-driven dreams have over-stocked. Business inventories rose 0.1% MoM in December (retail up 0.4%) and sales tumbled 0.6%. Year-over-year, Inventories are now up 1.7% (led by retailers up 5.4%) while Sales are down 2.4% (led by Manufacturers down 5.1%)  Recession? At 1.39x, the current ratio is flashing a warning that a deep de-stocking recession looms.

    Michigan Consumer Sentiment: February Preliminary Continued Slow Decline - The University of Michigan Preliminary Consumer Sentiment for February came in at 90.7, a 1.3 point decrease from the 92.0 January Final reading. had forecast an even 92.0. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumer confidence continued its slow decline in early February, with its current level just below the average recorded during the 2nd half of 2015 (91.0). The small early February decline was due to a less favorable outlook for the economy during the year ahead, while longer term prospects for the national economy remained unchanged at favorable levels. While slowing economic growth was anticipated to slightly lessen the pace of job and wage gains, consumers viewed their personal financial situations somewhat more favorably due to the expectation that the inflation rate would remain low for a considerable period of time. Indeed, consumers anticipated the lowest long term inflation rate since this question was first asked in the late 1970's. No one would have guessed forty years ago, when high inflation was the chief cause of pessimism, that consumers would someday base their optimism on ultra-low inflation transforming meager wages into real income gains. The Fed's goal of pushing the inflation rate upward must be simultaneously accompanied by comparable gains in wages to prevent declines in real incomes and living standards. Overall, the data indicate that real consumption expenditures can be expected to advance by 2.7% in 2016.  [More...] See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

    Low Inflation, Which Complicates Fed Plans, Cheers Consumers - U.S. consumers are feeling pretty good about low inflation. The Federal Reserve, not so much. The University of Michigan  consumer sentiment survey out Friday showed Americans expect inflation to register 2.4% over the next five years, the lowest long-term rate since the institution first started asking the question in the late 1970s. For households, tame price increases should help small wage gains translate into real income growth, potentially boosting spending. But the Fed targets a 2% inflation rate, something it hasn’t seen in more than three years. The price index for personal-consumption expenditures, the central bank’s preferred inflation gauge, was up only 0.6% from a year earlier in December. Policy makers expect inflation to head up as oil prices and the dollar stabilize. “Of course, inflation expectations play an important role in the inflation process and the committee’s confidence in the inflation outlook depends importantly on the degree to which longer-run inflation expectations remain well anchored,” Fed Chairwoman Janet Yellen told lawmakers this week. That anchor may be drifting, a complication for the Fed as officials plot their next move on monetary policy.

    Update: Framing Lumber Prices down Sharply Year-over-year --Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs. The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).   Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand).  In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts. Overall the decline in prices is probably due to more supply, and less demand from China.

    Could Gasoline Drop Below $1 Per Gallon? - Retail gasoline prices have dipped below $2 per gallon across the United States. But gas might drop below $1 per gallon soon in some places of the country. Aside from the financial crisis, when gasoline prices dropped below $2 per gallon for just a few months, retail gasoline prices have not been below $2 since 2004. Gas prices are at their lowest levels in many years. But things could soon get even crazier. GasBuddy says that gasoline supplies are rising in the Midwest, which could result in localized gluts for product, pushing prices down to $1 per gallon or even lower. With access to heavily discounted Canadian crude, Midwest refiners are churning out cheaper and cheaper gasoline. “That could trigger fire sales—very quick and low price sales,” Patrick DeHaan of GasBuddy told the WSJ. There is a “strong possibility” that refiners, trying to offload excess winter fuel blends, could discount prices down to 99 cents per gallon for a brief period of time. Oklahoma appears to be enjoying the cheapest gasoline in the country. According to GasBuddy’s website, the cheapest gas right now can be found in Oklahoma City, where one station was selling gas for $1.09 per gallon on February 9. A 7-Eleven in Norman, OK sold gas for $1.10 per gallon on the same day.

    Import and Export Price Year-over-Year Deflation Continues in January 2016.: Trade prices continue to deflate year-over-year, and energy prices again drove this month's decline. Import Oil prices were down 12.4 % month-over-month, and export agricultural prices decreased 1.1 %.

    • with import prices down 1.1 % month-over-month, down 6.2 % year-over-year;
    • and export prices down 0.8 % month-over-month, down 5.7 % year-over-year.

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

    US exports fell in 2015 for first time since recession -  The U.S. trade deficit rose in December as American exports fell for a third straight month, reflecting the pressures of a stronger dollar and spreading global weakness. Those factors contributed to the first annual drop in U.S. export sales since the Great Recession shrank global trade six years ago. The December deficit increased 2.7 percent to $43.4 billion, the Commerce Department reported Friday. Exports fell by 0.3 percent, driven by sales declines of civilian aircraft, autos and farm products. Imports increased 0.3 percent as Americans bought more foreign-made cars and petroleum. For all of 2015, the deficit rose 4.6 percent to $531.5 billion. Exports fell 4.8 percent, the first setback since 2009 when the world was in the grips of recession. Imports also retreated 3.1 percent. American exporters have been hurt by global economic weakness and a stronger dollar, which makes their products more expensive on overseas markets. A wider trade deficit is a drag on economic growth because it means fewer overseas sales by American producers and larger imports of foreign goods. The deficit subtracted about one-half percentage point from growth in 2015, a year when the economy, as measured by the gross domestic product, grew by a modest 2.4 percent.

    Trade between U.S. and Mexico grows using Ports‐to‐Plains Alliance  - Mexico is the No. 2 export market for U.S. goods. In 2014 the U.S. exported over $75.5 billion in goods by truck to the entirety of Mexico. Ports‐to‐Plains Alliance Corridor connects Mexico with Texas and beyond. Three border crossings serve the Ports‐to‐Plains Alliance Corridor: Del Rio/Acuña; Eagle Pass/Piedras Negras; and Laredo/Nuevo Laredo. These three crossings will be referred to as the PTP crossings. The data summarized below all address movement by truck. The PTP crossings accounted for over $28.5 billion in exports to Mexico from the nine states in the Ports‐to‐Plains Alliance region. Since 2004, the exports through the PTP crossings have increased by 118.8 percent or $15.5 billion. This increase outpaces the 94.4 percent increase in all U.S. truck exports to Mexico. This represents 37.6 percent of all U.S. exports to Mexico in 2014. So in terms of the market share of total exports from the U.S. to Mexico, the PTP crossings have gained 4.2 percent of the market share. The U.S. imported over $67.1 billion in goods from all of Mexico in 2014. The PTP crossing processed over $34.1 billion or 50.9 percent of those imports. Again, the PTP crossings accounted for an increase of 91.2 percent or $16.2 billion since 2004. Mexico is a growing market for various commodities. Exports of live animals from the nine Ports‐to‐Plains states to Mexico have grown 81 percent to $89.2 million since 2004. In the same period, meat exports have grown 206 percent to $2.1 billion. Manufactured products classified as Electrical Machinery; Equipment and Parts have grown 71 percent to $18.3 billion.

    Ford to More Than Double Mexico Production Capacity in 2018 - WSJ: Ford Motor Co. F 0.92 % will build a new assembly plant in Mexico and sharply increase factory output from that country, representing the latest shift of investment abroad by a Detroit auto maker following the signing of a costly new labor deal. The No. 2 light-vehicle seller in the U.S. plans to add 500,000 units of annual Mexican capacity starting in 2018, more than double what it built in 2015, according to people briefed on the plan. The plan mirrors General Motors Co. GM -0.30 % ’s $5 billion investment to double Mexican capacity by 2018. Ford will build a new assembly complex in San Luis Potosí, and expand an existing factory near Mexico City. The moves will make room for several models, including a yet-to-be-disclosed hybrid vehicle that is described as a Toyota “Prius fighter,” and will allow Ford to focus its U.S. factories on higher-profit trucks and sport-utility vehicles.

    The global trade slowdown hits the Northwest - Washington's long run of rising exports came to an end last year. The rest of the Northwest did no better. Share story After rebounding from the Great Recession in 2010, U.S. exports have been mostly falling. But Washington and much of the Northwest had bucked the trend. No more. According to the U.S. Commerce Department, state merchandise exports totaled $86.4 billion last year compared with $90.5 billion in 2014. It was the first time since 2009 that exports declined year over year. Oregon’s goods exports fell back less severely, to a little more than $20 billion vs. $20.9 billion the previous year. Idaho dropped to $4.3 billion vs. $5.1 billion. Alaska exported $4.7 billion last year compared with $5.1 billion in 2014. Washington’s exports still more than doubled from their 2005 levels, adjusted for inflation. Last year, China, Canada and Japan remained the state’s largest export markets but each saw a decline. Exports to No. 1 China totaled $19.5 billion vs. $20.7 billion in 2014.

    Rail Week Ending 06 February 2016: Contraction Continues But Short Term Improvement Continues: Week 5 of 2016 shows same week total rail traffic (from same week one year ago) only marginally declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic continued to improve year-over-year, which accounts for approximately half of movements but the weekly railcar counts remained in contraction.A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 504,510 carloads and intermodal units, down 1.4 percent compared with the same week last year. Total carloads for the week ending Feb. 6 were 241,680 carloads, down 11.7 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 262,830 containers and trailers, up 10.5 percent compared to 2015. Four of the 10 carload commodity groups posted an increase compared with the same week in 2015. They included motor vehicles and parts, up 24.6 percent to 19,216 carloads; miscellaneous carloads, up 20.4 percent to 8,904 carloads; and grain, up 5 percent to 22,257 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 30.3 percent to 73,298 carloads; petroleum and petroleum products, down 16.8 percent to 11,980 carloads; and metallic ores and metals, down 8.7 percent to 18,737 carloads. For the first 5 weeks of 2016, U.S. railroads reported cumulative volume of 1,209,722 carloads, down 15.7 percent from the same point last year; and 1,302,451 intermodal units, up 4.8 percent from last year. Total combined U.S. traffic for the first 5 weeks of 2016 was 2,512,173 carloads and intermodal units, a decrease of 6.2 percent compared to last year.

    Big Companies Pull Back After Rough Quarter WSJ -  After a tough end to 2015, big companies are starting the new year with a tight rein on capital spending, and in some cases layoffs, as they seek to cope with sluggish industrial demand and uncertainties about the continued resilience of the American consumer. A half-dozen large companies from medical-products giant Johnson & Johnson and tobacco maker Altria Group to Internet portal Yahoo Inc. have announced plans to cut about 14,000 jobs in recent weeks. Others, including railroad Norfolk Southern Corp. and oil producer Chevron Corp. are pulling back on their spending plans. “We know this is a tough environment in which to talk about growth,” Norfolk Southern CEO James Squires recently told investors. “That’s why we are so focused on cost reductions.”The cautious approach suggests that executives remain wary as the strong dollar and weak growth in developing markets hurts their foreign sales, and the stock market’s slide and fears of a downbeat economy unsettle investors and consumers at home, despite improvements in housing and employment.“The U.S. is basically relying on one sector to generate most of the growth, which is consumer,”  “When you don’t have breadth, you’re vulnerable to a shock.” Overall, companies in the S&P 500 index are on track to report adjusted fourth-quarter profits down 4.1% from a year earlier, and sales down 3.5%, according to Thomson Reuters. That would mark two consecutive quarters of shrinking earnings for the first time since 2009, and four straight quarters of falling sales.

    NFIB: Small Business Optimism Index decreased in January -- From the National Federation of Independent Business (NFIB): After Modest Gain Last Month, Small Business Optimism Takes a Stumble The Index of Small Business Optimism fell 1.3 points from December, falling to 93.9. ... Reported job creation improved in January, with the average employment gain per firm rising to 0.11 workers per firm from -0.07 workers in December. ... Fifty-two percent reported hiring or trying to hire (down 3 points), but 45 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent reported using temporary workers, down 1 point. The percent of owners citing the difficulty of finding qualifed workers as their Single Most Important Business Problem was unchanged at 15 percent, number 3 on the list of problems behind taxes and regulations and red tape, the highest reading since 2007. This suggests that employers will face continued wage and benefit cost pressure in order to attract and keep good employees..Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 1 point and at the highest level for this expansion. This is a solid reading historically and is suggestive of a reduction in the unemployment rate. This graph shows the small business optimism index since 1986. The index decreased to 93.9 in January.

    January 2016 Small Business Optimism Index Declines: The National Federation of Independent Business's (NFIB) optimism index fell 1.3 points to 93.9 in January as a result of two important Indices declining. The NFIB says the Index is well below the 42-year average of 98. The market was expecting the index between 93.8 to 95.6 with consensus at 94.9 - versus the actual at 93.9. NFIB chief economist Bill Dunkelberg states: Neither the tumultuous stock market nor the Federal Reserve's rake hike had much of an influence on this month's drop in small business owner optimism. Most of the decline was accounted for by expected business conditions in the next six months and the expected real sales. These expectations are important determinates of decisions to hire, to expand business operations and to order new inventory, all drivers of the economy. The labor market continues to show strength that is driven by the core growth in the economy that results from a growing population. But uncertainty continues to cloud the future," Dunkelberg continued. "The current administration offers little promise that serious economic problems will be dealt with while the avalanche of regulations for small businesses continues. Overall, it is unlikely that anything will occur to raise the spirits of small business owners and rekindle their fire that is needed to spur economic growth.

    Companies Where More Women Lead Are More Profitable, a New Report Says -  Having female executives is good for a company’s bottom line. That’s the finding of a report released Monday by the Peterson Institute for International Economics, a nonpartisan policy outfit. The institute surveyed 21,980 publicly held firms from 91 countries to determine how the gender makeup of companies’ upper ranks is related to their financial performance. Researchers found that having more women in overall executive positions was tied to greater profitability at companies. Those with more women on the board of directors also performed modestly better. But having a female chief executive had no relationship to a company’s earnings. Past studies have presented a mixed picture on whether gender diversity improves corporate performance. The Peterson report stands out because it cuts across dozens of countries while previous research generally focused on a single nation. Peterson’s findings also highlight the continued dearth of women atop the global corporate ladder. Almost 60% of the firms surveyed have no female board members, and just over half have no female upper-level executives.

    Technology and the Future of Work -  Yves Smith -- The latest fear factor to hit the world relates to the disappearance of jobs. Everywhere now the buzz is about how technology is going to transform work – and reduce it dramatically. The Davos World Economic Forum CEO Klaus Schwab (whose book The Fourth Industrial Revolution was released this week) is just the latest in a long line of recent predictors of this gloomy possibility. From 3-D printing to robots that will perform not just some basic services but even more skilled activities like those of accountancy and so on, the fear is that human labour will be increasingly displaced by machines, and so there will simply not be enough work to provide employment to all the people who need jobs. But there is some confusion in all this doomsaying about the future (or lack of it) of work. Let’s distinguish first between two types of technological change: productive and disruptive. The first describes those changes that increase productivity and change the nature of economic activities. They certainly include increasing automation, as well as a host of new developments in biotechnology and other areas, which clearly reflect the “creative destruction” inherent in a lot of technological change. There is little point fighting against such advance of technology or even trying to slow it down in some way, because that simply would not work and in any case is not really desirable. But that does not mean that we should be in despair simply because it would displace a lot of human work – in fact, where it replaces arduous work full of drudgery, or makes doing things more easily, we should celebrate it.

    Unemployment Report Starts the Year By Breaking the 5% Unemployment Rate Barrier, Big Deal  Robert Oak - The January 2016 unemployment report is being reported as nothing but good news.  The official unemployment rate is 4.9%, a rate not seen since February 2008.  This is the weird month where annual population adjustments are applied and not backwards adjusted.  Therefore January to December comparisons are not valid.  Still, there are some trends to look at.  The labor participate rate is a very low 62.7% and those not counted in the unemployment rate who say they want a job is almost six million.  Overall, this month's CPS report shows a mediocre unemployment situation for most, in spite of the official unemployment rate breaking five percent.  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  The CPS survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of sampling error.  This part of the employment report is not about actual jobs gained but people and their labor status. Those employed now stands at 150,544,000.  From a year ago, the ranks of the employed has increased by 2.44 million. Those unemployed number 7,791,000.  From a year ago the unemployed has decreased by -1,129,000.  Those not in the labor force is 94.062 million.  The below graph are the not in the labor force ranks.  Those not in the labor force has increased by 1,363,000 in the past year.  The labor participation rate is 62.7%,  Recent upward movement is taken as a very good sign, yet this is still a low not seen since February 1978.Below is a graph of the labor participation rate for those between the ages of 25 to 54.  The rate is 81.1%, a level not seen since January 1985.   The civilian labor force, which consists of the employed and the officially unemployed, stands at 158,335,000.  The civilian labor force has grown by 1,310,000 over the past year.  Those not in the labor force now grows less the population which has the potential to work, a very recent trend reversal.  Below is a graph of those not in the labor force, (maroon, scale on the left), against the noninstitutional civilian population (blue, scale on the right). 

    Core Employment (Age 25-54) Still Below January 2000 Level, 3 Million Below 2007 -- With the mainstream media going gaga over the headline unemployment rate of 4.9%, let’s put a spotlight on actual employment with a focus on those aged 25-54.  Age group 25-54 ought to be out of school, not retired, not on disability, and working somewhere. Here are some charts that show what has actually happened.

    • Core employment first surpassed the level we are at today in January of 2000, 16 years ago.
    • Core employment hit a peak in January 2007 at 100.716 million.
    • Today, core employment is 3,133,000 below January 2007.
    • Today, core employment is 796,000 below the level 16 years ago.
    • Today, core population is 5,284,000 above the level 16 years ago

    These awful numbers do not account for part-time workers. If you work as little a 1 hour a week selling trinkets on eBay, you are considered “employed”.

    The employment to population ratio, revisited -- Many of us think this diagram shows there has been some kind of structural break in the labor market, and/or that recovery is proceeding slowly.  Paul Krugman, very recently, suggests that structural factors play little role because the measured unemployment rate is now below five percent. But in fact labor market indicators are quite mixed, and furthermore the best and latest research out of MIT indicates the structural story does indeed carry real weight.  See also Alan Krueger’s work, or recent research from the AER.  And there are plenty of markers of a more persistent shift in economic activity, as reflected in CBO markdowns of expected productivity growth, based partly on trends which preceded the recession.  That all might be wrong, but the mere citation of the current 4.9 unemployment rate doesn’t persuade me otherwise.Let’s not forget what Krugman wrote in 2012: My current favorite gauge of the jobs picture is the employment-population ratio for prime-age adults (25-54). EP ratio instead of unemployment rate, because U may be distorted by workers dropping out…Everything else is just noise. At least as of yesterday, the preferred labor market indicator was once again the unemployment rate, no mention of 2012.  That was then, this is now, I suppose.

    The Conference Board Employment Trends Index™ (ETI) Inched Up in January -- The Conference Board Employment Trends Index™ (ETI) increased in January. The index now stands at 128.93, up from 128.71 in December (a downward revision). The change represents a 1.9 percent gain in the ETI compared to a year ago. "The Employment Trends Index rose for the second month in a row, reducing the likelihood of further slowing in employment growth," said Gad Levanon, Managing Director of Macroeconomic and Labor Market Research at The Conference Board. "However, the temporary help industry component declined sharply in January, and because it is one of the best leading indicators of employment growth, we will monitor it closely in the coming months." January's increase in the ETI was driven by positive contributions from five of the eight components. In order from the largest positive contributor to the smallest, these were: the Percentage of Respondents Who Say They Find "Jobs Hard to Get," Industrial Production, Real Manufacturing and Trade Sales, Percentage of Firms With Positions Not Able to Fill Right Now, and the Ratio of Involuntarily Part-time to All Part-time Workers.  The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out "noise" to show underlying trends more clearly.

    Here’s another sign U.S. jobs market has gotten softer - Just days after a mediocre U.S. jobs report for January, the Federal Reserve’s own tool to judge the health of the labor market fell to the lowest level in almost a year. The Fed’s so-called labor market conditions index slowed to 0.4 in the first month of 2016 from 2.3 in December. That’s the smallest reading since last March. The index tracks 19 indicators and was created at the prompting of Chairman Janet Yellen to give the Fed an even deeper look at hiring trends. Short-term weakness in the index is not necessarily a sign the labor market is getting worse, however. Job creation last year was pretty strong even though the LMCI briefly turned negative in the early spring.  Still, the index is much lower now compared to 2014, when it peaked at 8.1. The U.S. created the most new jobs in 2014 — more than 3.1 million — since 1999. The lower readings shouldn’t come as a complete surprise, either. The U.S. has created more than 12.6 million new jobs in the past five years, reducing the unemployment rate to 4.9%. The pace of hiring typically slows the longer an economic expansion goes on. A higher than normal number of Americans, however, say they want a full-time job but still can’t find one, suggesting the labor market is not quite as strong as the 4.9% jobless rate implies. There’s still room for more strong job gains, some economists say.

    Labor Market Conditions Index forecasts further job softness - Last summer I wrote that the Labor Market Conditions Index, a measure based on 19 components which was just reported just barely up +0.4 for January, was a useful addition to the forecasting toolbox. Sprecifically, it has a 40 year history of signaling a turn in the economy.  Here is the entire history of the index:  The index has with one exception (1981's double-dip) always failed to make a new high for at least 12 months before the next recession, sometimes much longer than that. Further, it has always dropped below 0 and stayed negative for 6 months or somewhat more before the onset of the next recession. Here is the Index over the last 5 years: The Index appears to have made its cycle high at the beginning of 2012, with a secondary high in early 2014. But it has not turned negative. Further, when the Index consistently leads the YoY% growth in jobs by 6 - 12 months, but YoY job growth (red) is a much smoother measure: Thus job growth serves as an important confirmation for the long leading part of the Index.  Average growth for the last 6 months has been 218,000 per month. with 3 months upnder 200,000. The LMCI forecasts that the decelerating trend in job growth will continue, which means I expect average jobs growth during the next 6 months to continue to average under 225,000.

    BLS: Jobs Openings increased in December -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings increased to 5.6 million on the last business day of December, the U.S. Bureau of Labor Statistics reported today. Hires and separations were little changed at 5.4 million and 5.1 million, respectively. Within separations, the quits rate was 2.1 percent, and the layoffs and discharges rate was 1.1 percent. ... ..Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 3.1 million quits in December, up from November. The number of quits is now higher than in December 2007 (2.8 million), the first month of the recession. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December, the most recent employment report was for January.  Jobs openings increased in December to 5.607 million from 5.346 million in November. The number of job openings (yellow) are up 15% year-over-year compared to December 2014. Quits are up 13% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is a solid report. Job openings are just below the record high set in July 2015, and Quits are up 13% year-over-year.

    December 2015 JOLTS Job Openings Year-over-Year Growth Rate Again Marginally Improved: The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings marginally improved from last month. The growth rate trends marginally improved in the 3 month averages, but the 2015 year-to-date averages continue to decline. There was no market expectations published by Bloomberg this month. The number of unadjusted PRIVATE jobs openings - which is the most predictive of future employment growth of the JOLTS elements - shows the year-over-year growth marginally accelerated. The year-over-year growth of the unadjusted non-farm private jobs opening rate (percent of job openings compared to size of workforce) also marginally improved. The graph below looks at the year-over-year rate of growth for job opening levels and rate. The relevance of JOLTS to future employment is obvious from the graphic below which shows JOLTS Job Openings leading or coincident to private non-farm employment. JOLTS job openings are a good predictor of jobs growth turning points.

    Voluntary Job-Quitting Hits Highest Level in Nine Years - The number of Americans who voluntarily quit their jobs climbed to a postrecession high in December, suggesting workers are confident about their employment prospects despite financial-market turmoil and a slowdown overseas. The Labor Department’s monthly Job Openings and Labor Turnover Survey, or Jolts, showed the number of voluntary quits rose to nearly 3.1 million, the highest level since December 2006. Hires, meanwhile, increased to nearly 5.4 million workers, also a postrecession best. Taken together, the figures signal a strong finish to the year for the U.S. labor market. Americans are more likely to voluntarily leave one job if they think they can do better elsewhere, and companies appeared ready to absorb them. The more closely watched Labor Department jobs report last week showed the U.S. economy added 280,000 jobs in November, 262,000 in December and 151,000 in January. The unemployment rate hit an eight-year low and wage growth accelerated last month. While the monthly employment summary shows net job gains or losses, Jolts offer additional detail: the monthly pace of hiring, separations and job openings. The latest report on the economy’s churn shows a labor market that has in some respects returned to prerecession levels. There were 5.6 million job openings in December, the second-highest level on record (July 2015 was higher; records date back to December 2000 and aren’t adjusted for population growth). And layoffs dropped to 1.6 million, the lowest level in more than a year.

    When quitting is a good thing -- This morning’s Job Openings and Labor Turnover Survey (JOLTS) report came in pretty much in line with other economic indicators that suggested a solid finish the 2015 labor market. Most notably, the hires and quits rates saw small upticks in December, a positive sign for an economy continuing to recovery. Unfortunately, those stronger results were somewhat tempered by January’s employment numbers, so the big question will be whether the upticks in today’s report will hold or will return back to their lower values. If these trends continue, it will mean we are still on the road towards full employment. Regardless, we need to stay on that road by encouraging the Federal Reserve to keep their foot off the brakes and encouraging policymakers at all levels of government to abandon austerity in favor of boosting local and state economies through increased investments and public sector employment. While jobs day brings a whole series of great measures to analyze labor market slack, from the prime-age employment-to-population ratio to nominal wage growth, my favorite indicator on JOLTS day is the quits rate. A high quits rate is important because it means that workers feel confident enough in the economy to quit jobs that are not right for them and search for ones that are. It means a stronger labor market, where job opportunities abound and workers can find a better match. We often talk about all those workers who have been discouraged by economy, who aren’t seeing opportunities for them in the labor market or getting the hours they want. The quits rate is a similar measure. In a stronger economy, we should see the underemployment rate tick down while the quits rate ticks up. As you can see in the figure below, the quits rate has recently been moving up, but it’s still below a fully recovered rate and certainly below a full employment rate.

    The Pent-Up-Demand for Quits - Dean Baker -- Yesterday the Labor Department released data from its December Job Openings and Labor Turnover Survey (JOLTS). One of the items that got lots of attention was a rise in the quit rate to its highest level of the recovery. In fact, it is now pretty much back to pre-recession levels. (This is especially true of workers in the public sector -- interesting story for another day.)   While it is good news if workers feel they can leave a job where they are unhappy or which does not fully utilize their skills, the news may not be as good as it first appears. The weak labor market of the last seven years led to very low quit rates. This means that many people who would have left their jobs in a more normal labor market stayed at their job because they were worried about finding a new one. As a result, we should expect there are many more people at jobs they would like to leave in early 2016 than would be the case say in 2007 before the recession hit. The implication would be that quit rates should not just be returning to their pre-recession level, but rather they should rise substantially above their pre-recession level, at least for a period of time. I’m not sure whether this makes sense or not. We don’t have data on quit rates prior to 2000, so we can’t look back at what happened after prior recoveries from a steep downturn. Anyhow, it seems plausible to me that the quit rate should be elevated for a period of time to compensate for the unusually low quit rate of prior years. If someone wants to tell me why this is wrong, I’m listening.

    Weekly Initial Unemployment Claims decrease to 269,000 -- The DOL reportedIn the week ending February 6, the advance figure for seasonally adjusted initial claims was 269,000, a decrease of 16,000 from the previous week's unrevised level of 285,000. The 4-week moving average was 281,250, a decrease of 3,500 from the previous week's unrevised average of 284,750.   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.The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 281,250.

    Watch a corporate executive turn a room full of workers into Bernie Sanders and Donald Trump supporters - The past few years have been very good for United Technologies. The contractor does billions of dollars a year in business with the federal government. CEO Gregory Hayes pulled down nearly $10 million in 2014, and over $20 million the year before. On Thursday, the company reported $7.6 billion in profits, up from $6.2 billion the year before, and $5.7 billion the year before that. In October, United Technologies even expanded its stock buyback program to $12 billion. Spending the company's money to purchase its own stock elevates the value of its share prices. United Technologies was so flush with cash that it could burn money to boost returns for its investors. Surely this largesse would trickle down to its rank-and-file employees, right?  Not exactly.   On Wednesday, Carrier, the air conditioner manufacturing wing of United Technologies, told workers at its Indianapolis plant that it would be outsourcing their jobs to Monterrey, Mexico. "Throughout the transition, we must remain committed to manufacturing the same high-quality products," an executive can be heard insisting in a video of the announcement."Yeah, fuck you!" a member of the crowd responds."Please quiet down," the official says. "This was an extremely difficult decision.""Was it?!" Watch the reaction in the video below. The United Technologies official delivering the bad news explicitly tells workers that they are not being laid off due to any failure on the job or lack of productivity. It's just business.

    For First Time In Years, Labor Resistance Is on the Rise in America  - Industrial unrest in the United States was more frequent and widespread last year, according to annual data released Wednesday by the Bureau of Labor Statistics.  There were twelve “major work stoppages” measured by BLS, up from eleven the year before. The disputes involved about 47,000 workers—a year-over-year increase of 13,000. It was the first year since 2011 that saw the number of major work stoppages increased in the US, and the first year since 2012 to see the number of workers involved in industrial disputes go up. The number of days lost to disagreements between management and unionized labor was also up by almost 400 percent. In 2015, 740,000 workdays were lost to strikes or lockouts–up from 200,000 in 2014.   The increase in idle days can be attributed mostly to two disputes involving the United Steelworkers Union (USW). A four-month strike by USW against Shell Oil saw all days lost to contract fights increase by 322,100. A lockout involving USW and the Pittsburgh-based steel manufacturer Allegheny Technologies accounted for 206,800 days idle. It started in August and is still ongoing. BLS defines major work stoppages as “both worker-initiated strikes and employer-initiated lockouts that involve 1,000 workers or more.” They need to last at least one shift to be counted by the Labor Department statistical arm.  Since BLS started collecting the data in 1947, the frequency and size of major work stoppages peaked in 1952, when 2.7 million workers participated in 470 industrial disputes. The United States population then was less than half of what it was in 2015.

    Bargaining power and the wage curve - Jared Bernstein - What with billions of people increasingly interacting in the global economy, economics can get very complicated. So when a few important variables can be meaningfully boiled down to a simple but revealing relationship, we should take notice, where “we” means everyone from workers who draw a paycheck to voters in an election year and officials at the Federal Reserve, especially Chair Janet Yellen, who is heading to Congress this week to testify on the Fed’s take on the economy and forthcoming monetary policy. The variables in question are labor market slack and wage growth. Put them together, and you get what Dartmouth econ professors Danny Blanchflower and Andy Levin (B&L) call the “wage curve.” Before we get to some new and welcome movements along this curve, let’s clarify definitions. “Labor market slack,” in this context, is not just the unemployment rate. Because of various factors biasing down that measure these days, you can’t look at the 4.9 percent jobless rate and conclude there’s no more slack in the job market, i.e., that we’re at full employment. You need to consider the fact that the underemployment rate, which includes the 6 million part-timers who want full-time jobs, is still elevated, stuck at around 10 percent for the past six months. Also, while our depressed labor force participation rate partly reflects retirees leaving the labor force, a non-trivial part — I’d say a third to a half — reflects working-age people who could, and I’d guess would, get back into the job market if enough decent opportunities presented themselves. B&L’s “gap” measure includes all of these factors. At its peak, back in late 2009, the gap was 7 percent of the potential labor force. Now, it’s down to 1.5 percent. That’s good movement in the right direction, but it’s not full employment, which corresponds to a gap of zero.

    The story on real wages: four measures showing actual improvement - In the last several years, I have written a number of posts documenting the stagnation in average and median wages, for example here and here.  Courtesy of the crash in gas prices and the decline in underemployment below 10%, there has been a change in the last 16 months. We have a variety of economic data series to track both average and median wages:

    All of these have now been updated through the fourth Quarter of 2015.  Let's take a look at them.  The first graph tracks monthly average (mean, not median) hourly wages (blue), median wages from the employment cost index (red), real compensation per hour (brown), and median usual weekly earnings (green). All are adjusted for inflation.  Since the quarterly index of median wages only started in Q1 2001, I have normed the indexes to 100 at that time:

    One Solution for the Federal Minimum Wage: Five Minimum Wages - Presidential candidates are pushing the debate around the federal minimum wage to extremes—but a new paper suggests a policy idea that offers room for compromise. In a newly released paper, Third Way policy adviser Joon Suh advocates for establishing five tiers of federal minimum wages based on the cost of living in metropolitan areas.  “The cost of living for workers and cost for employers in Mobile, Ala., are very different” from the costs faced in Washington, D.C., or San Francisco, he said. “A single federal minimum wage makes less and less sense.”  Minimum wages already greatly vary across the country because most states, and some cities, set levels above the federal rate.  The minimum wage in Seattle, for example, is $13 an hour for some businesses, and will be $15 an hour for all employers by 2021. In contrast, some of the largest cities in the country, including Houston, Atlanta and Philadelphia, mandate only the federal minimum. But those differences are entirely due to state and local laws. Mr. Suh said the federal government should maintain a role in setting basic wage standards. Otherwise some states may opt to set no wage floor at all. Already states such as Mississippi, Alabama and Tennessee don’t have state wage mandates, but follow the federal law by default. His proposal would create wage tiers ranging from $11.90 an hour in the most expensive places, such as Honolulu and New York, to $9.30 an hour in the least expensive towns, such as Rome, Ga., and Danville, Ill. The goal would be to create roughly equal purchasing power for a minimum-wage worker everywhere in the country.  Right now, that varies widely. A $9-an-hour minimum wage in New York has the purchasing power of $7.36, based on the average cost of living in the country, according to the paper. In contrast, the $8.25-an-hour minimum in Danville is equivalent to $10.42 elsewhere in the country.

    A majority of low-wage workers earn so little they must rely on public assistance to make ends meet -- There is an enduring myth that people who rely on public assistance are unwilling to work. However, there are 41.2 million working Americans (nearly 30 percent of the workforce) who receive public assistance—and nearly half of these workers (19.3 million) have full-time jobs. Not surprisingly, these workers are concentrated in jobs paying low hourly wages. A majority (53.1 percent) of workers earning less than $12.16 per hour—the bottom 30 percent of wage earners—earn so little on the job that they must rely on public assistance to make ends meet. When corporations pay wages so low that working people must rely on public assistance, taxpayers are effectively subsidizing these companies to make up the difference between what workers make and what they need to support themselves and their families. Meanwhile, corporations continue to post extraordinarily high profits and CEOs’ salaries continue to climb. Of the many policies that would lift wages, raising the minimum wage is the simplest way to help millions of low-paid workers pay the bills and ensure that businesses are doing their fair share to provide working families with the means to a decent life. Higher wages would also free up billions of dollars that could be used to strengthen anti-poverty programs, fund new education initiatives, or make economy-boosting investments.

    Workers, and honest employers, need a strong OSHA -- Every day, events remind us why Congress created and continues to fund the Occupational Safety and Health Administration (OSHA).  Cranes collapsing in New York and Cincinnati, mill explosions in Georgia, a foundry worker crushed in Ohio, construction workers falling to their deaths throughout the United States. When OSHA was created in 1970, 14,000 workers were killed on the job. Today in a much larger workforce, the number of on-the-job fatalities is less than 5,000 a year. Workplaces are undeniably safer today, in large part because of the training and education OSHA has provided and required employers to provide, its grants to union and non-profit worker safety training programs, the mandatory health and safety standards and guidance it issues, and its enforcement efforts. But they aren’t safe enough. In addition to the toll of deaths, nearly 4 million work-related injuries and illnesses are reported each year, and many more go unreported. Enforcement is essential because standards and rules mean nothing if they aren’t followed, and a stubborn minority of businesses just don’t care enough about their employees to work safely and protect them from known hazards. Even hazards we’ve known about for a thousand years are routinely ignored by greedy contractors trying to cut corners and squeeze more profit out of their employees’ work. Nothing better illustrates why workers need a strong enforcement effort from OSHA than trenching violations, such as putting workers into ten-foot deep trenches in loose soil without shoring the sides or protecting them with a metal trench box. Year after year, two to three dozen workers are killed when trench walls cave in, burying them in tons of dirt and rock, crushing their lungs. A single cubic yard of soil can weigh up to 3,000 pounds, and a worker caught by a cave-in can die even when his head is not buried.

    One in 10—Or Is it One in Two?—Americans Has Access to Paid Family Leave -- Democrats have been harping on the campaign trail about the U.S. being the only industrialized country that doesn’t mandate a single day of paid leave for new mothers. As of 2015, 12% of private-sector workers had access to paid family leave, according to the Labor Department. But in 2011, another government report found that 48% of workers said they could access paid leave for “family” reasons. (Though fewer workers—only 39%—reported access to paid leave for the birth of a child.) What’s behind the gap? The disparity starts with who one asks: The latter figures come from the 2011 American Time Use Survey, which asks workers about their access to leave. The former, smaller figure comes from the National Compensation Survey, which asks employers about the benefits they offer.   That suggests that a significant share of workers feel they can make informal arrangements with employers to take paid time off when they need it. That’s how Republicans, who uniformly oppose a federal mandate for universal paid family leave, say it should be: up to businesses to decide. But the trend appears to be heading toward more, not less, paid leave, especially for higher-skilled workers. In recent years, a growing list of employers, many of them in the technology sector or the Fortune 500, are boosting their paid-leave offerings to attract and retain talent. Cities and counties are pushing for paid leave, too, meaning that 12% figure could climb by the next time it’s measured. But it will still be far from 100%—and both surveys show that paid leave goes disproportionately to more educated and higher-earning workers.

    Financial despair, addiction and the rise of suicide in white America  The 56-year-old former salesman’s struggle with chronic pain is bound up with an array of other issues – medical debts, impoverishment and the prospect of a bleak retirement – contributing to growing numbers of suicides in the US and helping drive a sharp and unusual increase in the mortality rate for middle-aged white Americans in recent years alongside premature deaths from alcohol and drugs. A study released late last year by two Princeton academics, Anne Case and Angus Deaton, who won the 2014 Nobel prize for economics, revealed that the death rate for white Americans aged 45 to 54 has risen sharply since 1999 after declining for decades. The increase, by 20% over the 14 years to 2013, represents about half a million lives cut short. The uptick in the mortality rate is unique to that age and racial group. Death rates for African Americans of a similar age remain notably higher but continue to fall. Neither was the increase seen in other developed countries. In the UK, the mortality rate for middle-aged people dropped by one third over the same period. “This change reversed decades of progress in mortality and was unique to the United States; no other rich country saw a similar turnaround,” the study said. Deaths from poisonings by drugs or alcohol have risen dramatically to push lung cancer into second place as the major killer with a sharp increase in suicides now a close third.

    Christie signs bill easing sale of municipal water systems to for-profits -  Governor Christie signed a controversial bill Thursday that will make it easier for towns to sell their aging drinking water systems to for-profit companies by eliminating a public vote on such sales. The bill pitted large for-profit water companies against an unusual alliance of groups opposing the proposal, including environmentalists and the state advocate for utility ratepayers, who say the bill could bring higher water rates. Advocates of the bill, including state Sen. Paul Sarlo, D-Wood-Ridge, said the changes would help towns escape the financial burden of making costly upgrades to systems that routinely leak up to 25 percent of treated water before it reaches customers. The bill comes as towns try to figure out how to pay for upgrades to old water pipes, some of which were installed a century ago. The federal government estimates it will take $4.7 billion to upgrade New Jersey's water infrastructure over the next 20 years. New Jersey American Water was among the for-profits that supported the bill. "The investment made in these failing systems will lead to significant job creation and ensure sustainable water … service for future generations," said company spokesman Richard Barnes.

    Oil prices plunge, North Dakota sees budget deficit -- North Dakota, one of the few states that saw a budget surplus during the Great Recession and an oil boom that earned attention both nationally and internationally, is now feeling a $1 billion budget deficit, according to an article by Bloomberg. All of this due to the rise and dramatic fall of crude oil prices. As of Feb. 1 Gov. Jack Dalrymple must order budget cuts from every agency. Additionally, he is the third governor in 127 to dip into the Budget Stabilization Fund, better known as the “rainy day fund.” His plan for 4 percent budget cuts from state agencies requires $500 million out of the fund leaving less than $75 million, or about 13 percent of the fund. How did fiscally conservative ND manage to create a mess like this? The simple answer is oil prices fell. During the budget draft it was conservatively assumed oil would stay about $50 per barrel. Today WTI crude oil is trading at about $31 per barrel and hit a 10-year low of $28 in Jan. 2016.  In 2004 oil and natural gas made up just 2 percent of the ND state economy, but 10 years later the significance of oil dramatically increased, making up about 16 percent of the economy. Revenues from oil into the state budget only make up about 5 percent, but as workers from ND leave after being laid off and disposable income decreases, and less money is spent by fracking companies, sales tax revenues take a plunge. Pam Sharp, ND state budget director, says that sales tax revenue was forecasted to be $700 million greater than actual revenues.

    How Free Electricity Helped Dig $9 Billion Hole in Puerto Rico - — To understand how Puerto Rico’s power authority has piled up $9 billion in debt, one need only visit this bustling city on the northwest coast.Twenty years ago, it was just another town with dwindling finances. Then, it went on a development spree, thanks to a generous —some might say ill-considered — gift from the Puerto Rico Electric Power Authority.Today, Aguadilla has 19 city-owned restaurants and a city-owned hotel, a water park billed as biggest in the Caribbean, a minor-league baseball stadium bathed in floodlights and a waterfront studded with dancing fountains and glimmering streetlights.Most striking is the ice-skating rink. Unusual in a region where the temperature rarely drops below 70 degrees, the rink is complete with a disco ball and laser lights.And that is the catch. What most likely would be the biggest recurring expense for these attractions — electricity — costs Aguadilla nothing. It has been provided free for years by the power authority, known as Prepa. In fact, the power authority has been giving free power to all 78 of Puerto Rico’s municipalities, to many of its government-owned enterprises, even to some for-profit businesses — although not to its citizens. It has done so for decades, even as it has sunk deeper and deeper in debt, borrowing billions just to stay afloat. Now, however, the island’s government is running out of cash, facing a total debt of $72 billion and already defaulting on some bonds — and an effort is underway to limit the free electricity, which is estimated to cost the power authority hundreds of millions of dollars. But like many financial arrangements on the island, the free electricity is so tightly woven into the fabric of society that unwinding it would have vast ramifications and, some say, only worsen the plight of the people who live here.

    The AEI and Brookings Sell Marriage as the Solution for Poverty naked capitalism - Yves here. This post by Bill Black merits a serious read for several reasons. First, it shows how a bend-owver-backwards effort to sell conservative values is depicted both as having “progressive” and right wing input, when it doesn’t. Second, it shows the strained effort to tell an updated story of the “undeserving poor”. The reason the poor are poor is not due to a lack of decent-paying jobs and inferior eduction in low-income neighborhoods. Heavens no. It’s all those unmarried woemn…who by implication are slutty or just not willing to subordinate themselves to manly men. This is the worst sort of ham-handed propaganda dressed up as policy thinking.  By Bill Black: This is second article in my series on the AEI and Brookings report on how to fight poverty.  In my first article I dealt with their plan to oppose any material increase in the minimum wage being hyped by Eduardo Porter in the New York Times as a “bipartisan” plan to “champion an increase in the minimum wage.”  Indeed, Michael Strain, an AEI member of the group continues to attack the minimum wage on the AEI web pages after the release of the report.  I explained that the group was chosen to ensure that it was dominated by New Democrats and hard right Republicans who shared a core belief that poverty was caused by the poor choices of poor people, that it was verboten to even discuss how the economic and political system was rigged, and that a “new paternalism” aimed against the poor was essential.  The word “rigged” never appears in the report though it is a dominant feature of any progressive critique of poverty.

    Two-Thirds Of America’s Science Teachers Are Misinformed About Climate Science  - A nationwide survey of 1,500 middle school and high school science teachers released Thursday found that nearly two-thirds of educators are not relying on scientifically sound information when teaching students about climate change. Researchers determined that teachers spend only about one or two hours over the course of the school year on climate change, and the information they give students is often contradictory or wrong. For example, one of every three middle and high school teachers surveyed said that he or she emphasized that “global warming is likely due to natural causes.” Yet 97 percent of climate scientists say overwhelming evidence shows that global warming is a result of the burning of fossil fuels. Only 30 percent of middle school teachers and 45 percent of high school science teachers know that a scientific consensus on climate change even exists, according to the survey, which was published in the journal Science.

    Online Public Schools Are a Disaster, Admits Billionaire, Charter School-Promoter Walton Family Foundation  -- A new political strategy: throw online charters overboard to save the rest of the school privatization industry. For the second time in three months, the Walton Family Foundation—which has spent more than $1 billion to create a quarter of the nation’s 6,700 public charter schools—has announced that all online public school instruction, via cyber charter schools, is a colossal disaster for most K-12 students. “If virtual charters were grouped together and ranked as a single school district, it would be the ninth largest in the country and among the worst performing,” co-wrote Walton’s Marc Sternberg and Marc Holley, respectively the foundation’s director of educational giving and its evaluation unit director, in a recent Education Week commentary. “Online education must be reimagined. Ignoring the problem—or worse, replicating failures—serves nobody.” Last fall, the giant foundation, which has pledged to spend its second billion to expand charter public schools nationally between now and 2020, simultaneously released three detailed comissioned studies finding more than two-thirds of America’s 200,000 charter students receiving all of their instruction over the Internet were barely learning the basics. “The majority of online charter students had far weaker academic growth in both math and reading compared to their traditional public school peers,” their experts’ press release said, after noting that kindergarten-through-high school students need to be in classrooms with live teachers, not occasional faces on computer screens. “To conceptualize this shortfall, it would equate to a student losing 72 days of learning in reading and 180 days of learning in math, based on a 180-day school year.”

    Fighting “corporate control of education”: A millennial education wonk goes to war against neoliberal reform - When it comes to the world of elite education reform — the land dominated by the Bill and Melinda Gates Foundation, the Broad Foundation; your Arne Duncans and Michelle Rhees — there is no shortage of young and optimistic millennials, eager to explain why the brave new future of standardized testing, pay-for-performance, “grit” and Common Core will help public (and pseudo-public) education fix many of our society and economy’s ills. They’re often called thinkfluencers, or something equivalently silly; and the scene is lousy with ’em. Nikhil Goyal, a young education activist and author, comes from an entirely different angle — which is why his upcoming book, “Schools on Trial: How Freedom and Creativity Can Fix Our Educational Malpractice,” which will be released on Feb. 16, makes for bracing reading. In the book, Goyal rejects some of the most foundational aspects of not only the reform movement, but the public education system that preceded it. And he argues that “progressive education” is not only a better alternative in the abstract, but a better match for the 21st century economy. Recently, Salon spoke over the phone with Goyal about his book, as well as his views on how education policy factors into the 2016 presidential campaign. Our conversation can be found below and has been edited for clarity and length.

    Colleges Cheapen Instruction as Enrollment Booms - A new working paper from the National Bureau of Economic Research shows that higher education in America is changing in more ways than one. Colleges and universities are increasingly hiring adjunct or part-time faculty instead of full-time professors, according to economists Liang Zhang, Ronald Ehrenberg, and Xiangmin Liu. Since 1993, the part-time share of faculty at four-year universities has risen from 30 percent to 38 percent, while full-time professors’ ranks have fallen from 60 percent to 51 percent. Private institutions now employ part-time faculty and full-time professors in equal proportions. The less-flexible nature of public universities keeps full-time professors in the majority, but the trend is still clear. Adjuncts are rapidly becoming the new normal. Hiring adjuncts makes financial sense for colleges. While full professors earn upwards of $75,000 per year, and often much more, part-time professors frequently earn less than $20,000. The pay gap, though large, does make sense, because part-time instructors are much less likely to hold an advanced degree. But why now? Why have colleges accelerated towards using adjuncts to meet their teaching needs over the past two decades? Though the authors of the paper do not delve too deeply into potential reasons, the answer is likely booming student enrollment, driven by federal policy that subsidizes higher education. Over the 18-year study period, full-time equivalent student enrollment rose by 58 percent, compared to just 17 percent over the previous 18 years. All pistons are firing at American colleges.

    Where the Candidates Stand on Higher Education - After a nail-biter finish in Iowa, the New Hampshire primary ended up being a blowout, with Bernie Sanders and Donald Trump each finishing about 20 points ahead of their closest rivals. As the race moves to South Carolina and Nevada, it is worth pausing for a moment to understand what might come to pass in the world of higher education during each candidate’s presidency. As one might expect, the contenders have quite a range of ideas.  On the left, Bernie Sanders promises to abolish tuition at public colleges and universities, while on the right Marco Rubio supports expanded options for private finance of college education. Encouragingly, several of the proposals endorse expanding higher education options beyond the traditional four-year model—recognizing that a college degree is not for everyone at that public policy should not discourage alternative education arrangements. This column looks at the proposals on higher-education from the four candidates who have put forward detailed plans: Jeb Bush, Hillary Clinton, Marco Rubio, and Bernie Sanders. I have divided the candidates’ proposals into several areas of reform: student loans and grants, college accountability, tuition fees, private investment options for college finance, accreditation reform and alternative education, information access, new revenues, and other major proposals. While the following is not an exhaustive list of the candidates’ ideas, it conveys the essence of each plan.

    African-Americans are Overrepresented in Lower-Paying College Majors - Graduating from college is supposed to be a surefire path to higher lifetime earnings—but how much higher can often hinge on what one chooses to study. Although African-Americans are more likely to go to college than in the past, they are overrepresented in majors that lead to lower-paying careers, according to a new report by Georgetown University’s Center on Education and the Workforce that examined their share of bachelor’s degrees in 137 detailed majors. African-Americans make up 12% of the U.S. population, but represent 8% or less in some of the highest-paying majors, such as engineering, pharmacy and computer science. By contrast, they make up 17% or more in the lowest-earning majors, including human services and community organization and social work. “It’s the right church but the wrong pew,” said Anthony Carnevale, an author of the report and the director of the center, noting that these choices are “still very much a factor” contributing to the racial wage gap. Even choosing a potentially high-earning major isn’t a guarantee of better wages, Mr. Carnevale added. Other factors, such as social and family networks, channel people with the same degrees in different directions following graduation. “If you’re an African-American who majors in math, you’re more likely to become a school teacher. If you’re a white male who majors in math, you’re more likely to go on to grad school in business, or to seek out higher education opportunities,” he said.

    Harvard is one step closer to offering free tuition -- Harvard alumnus Ron Unz — the former publisher of The American Conservative — received some good news on Wednesday. Harvard University sent word that he had qualified to be a candidate for the Board of Overseers. "Given those very hectic and intense couple of weeks, this is a huge relief," Unz told Business Insider in an email. Unz is running with four other alums — including Green Party presidential nominee Ralph Nader — on a ticket to eliminate undergraduate tuition. The group had the hurdle of collecting more than 200 handwritten signatures from Harvard alumni and submitting them to the Board of Overseers before it would be allowed on the ballot. Eliminating tuition will make the school more diverse, as low-income (predominantly minority) students will be more drawn to a school that's free, according to Unz. Unz says to look no further than to Harvard's massive endowment as the source of free tuition for students. The school's endowment was $37.6 billion at the end of last year, making it the largest university endowment in the world. For the 2015-2016 school year, Harvard College reports 6,700 students and a tuition price of $57,200.

    Christian college professor to step down after saying Muslims worship same god - A professor at an evangelical university near Chicago who got into trouble after saying Muslims and Christians worship the same god will leave the school, according to a joint statement released by Wheaton College on Saturday night.  Larycia Hawkins, a tenured political science professor, had been scheduled for a disciplinary hearing in five days’ time, to determine whether she would be allowed to remain at Wheaton. A joint statement said Hawkins and the college had “found a mutual place of resolution and reconciliation” and that the two sides “will part ways” after reaching a confidential agreement. The controversy began on 10 December, when Hawkins wrote on Facebook that she would don the hijab headscarf during the period of advent before Christmas as a sign of solidarity with Muslims. “We worship the same god,” she said in her post. The post drew criticism amid a broader debate regarding the role and treatment of Muslims in the US following the November mass shooting in San Bernardino, California, which authorities have said was inspired by the militant group Islamic State. The college placed Hawkins on administrative leave as a result. Last month, the school’s provost recommended Hawkins be fired.

    Can universities persuade professors to act like employees? Should they even try? -- As university employees, professors have a fiduciary obligation to act in their employer's best interests. The number one interest of a university is financial survival, and the key to survival is reputation, because reputation attracts students, faculty, and donors.  A university's reputation, to the extent that it is at all malleable, can be enhanced by serving students well, and by moving up various university rankings. These rankings are, in turn, driven by metrics such as student/faculty ratios, research funding, journal publications, citations of journal articles, and - because this is all somewhat circular - reputation.  Research that leads to highly cited journal articles is valuable, because it enhances the university's reputation; research published in outlets not measured by external ranking agencies (for example, book chapters) is of little value from a reputational perspective, thus does little to further the employer's interests. Refereeing, acting as an external evaluator on a tenure file, serving on professional committees - these only matter to the extent that they enhance reputation. But no external university ranking counts the number of referee reports a professor writes. These professional service activities don't even enter into university rankings indirectly, through the "reputation" component of the ranking. The reputational data used in external university rankings is typically gathered by surveying, for example, high school guidance counsellors, CEOs, and recruiters (the Macleans rankings), or asking distinguished scholars to name the ten best universities in their field (Times Higher Ed rankings). None of those people knows or cares about the referee report you spent all of last Sunday crafting so carefully.

    “Trust Me,” Said the 401(k), “A Sucker Is Born Every Day.” - As early as 1999, while I cold-called my way into a meager existence my first few years at Morgan Stanley, it was obvious 401(k) plans were going to be worthless for workers and an eventual money grab for Wall Street, if not already. I don’t claim any special prescience. I’m just a guy educated at a state school in Houston, born in the Texas Hill Country, and a bit of a world traveler. But my bullshit detector is world class. That said, we Americans want everything on the cheap. Down here in Texas, we say cheapskates are “penny wise, but pound stupid.” Said cheapness, plus an unfortunate tendency to conflate gambling and investing, which blossomed during the Reagan and Clinton eras, has created an American system of finance that is galactic in its boundless stupidity–stupidity that is only matched by how far its influence reaches into the nether regions of our government. Aside from the riveting debates between Byron Wien and Barton Biggs, what little non-sales time I had I spent researching the ins and outs of Wall Street. The first big scheme of bovine excretions I investigated were corporate sponsored 401(k)s with claims of cheap cost ratios and even greater returns. The price for both assumptions were out-sized in 2001, but on the day the last Boomer passes will end up in the trillions.

    Drug Industry Launches Ad Campaign Aimed at Lawmakers - WSJ: The pharmaceutical industry, under fire this election season for rising drug prices, is ramping up a new advertising campaign designed to improve its reputation with lawmakers as it lobbies against any effort to rein in prescription costs. The sector’s largest trade group, the Pharmaceutical Research and Manufacturers of America, or PhRMA, says it intends to spend several million dollars this year, and 10% more than in 2015, on digital, radio and print ads that emphasize the industry’s role in developing new drugs and advancing medical science. Many of the ads are running on social-media sites like Facebook, LinkedIn and Twitter because PhRMA wants to target federal and state lawmakers, policy analysts and other political “influencers,” said Robert Zirkelbach, senior vice president of communications at PhRMA, which represents nearly three dozen of the largest drugmakers, including Pfizer Inc. and Amgen Inc. Websites like Facebook promise to deliver ads to specific audiences based on characteristics including their location, occupation and keyword search history. The campaign is primarily directed at policy makers in Washington, but ads will also run in some select states that have yet to be determined, Mr. Zirkelbach said.

    Insurers Under Pressure to Improve Margins on Health Plans - WSJ: After most health insurers racked up financial losses on Affordable Care Act plans in 2014, many companies’ results for last year worsened, creating heavy pressure to improve performance this year. An analysis of filings by not-for-profit Blue Cross and Blue Shield insurers—among the biggest players in the law’s exchanges for buying individual insurance—shows the challenge facing the industry as it seeks a turnaround in the individual business. They paid out more for health care in the first three quarters of 2015 than they took in from premiums on their individual plans. On Wednesday, Humana became the latest of the big publicly traded companies to flag problems, saying its losses on individual plans deepened last year. Humana included in its 2015 results $176 million in losses it expects to incur on such plans in 2016.Though the health law has added customers to many insurers’ rolls, much of that growth has been unprofitable, reflecting medical costs that have often run ahead of what insurers projected when they set premiums, among other factors. Blue Cross and Blue Shield of Louisiana, which estimated it had a loss of $77 million on individual plans for 2015, compared with a $66 million loss in 2014, said the “overall risk of people buying insurance on the exchanges is much higher than planned for,” in part because the law hasn’t attracted enough healthy enrollees. The insurer said such losses “cannot be sustained long-term.”

    Uninsured Rate Ticks Up a Bit at End of 2015 - Every quarter I take a look at the CDC's survey of the uninsured to see how Obamacare is doing. So far it's doing pretty well. However, the CDC data is always six months behind, and a few days ago I noticed that Gallup's more timely survey showed an increase in the uninsured rate over the last two quarters of 2015. I figured I'd have to wait another month to see if the CDC confirmed this, but their latest data came out earlier than I expected. Sure enough, in the third quarter they show a small increase in the uninsured. Unfortunately, I don't have anything trenchant to say about this. The data is a little noisy, and this might be nothing more than the usual bouncing around. Or it might represent a normal uptick at the end of the year, as people lose insurance before the new signup period. It's probably not really possible to say until we have quite a bit more data. And it's worth noting that the uninsured rate is still more than a percentage point below the original CBO projection. But the raw data is the raw data. Good or bad, it's here for everyone to noodle over.

    Tax Breaks for Big Pharma on Top of Unreasonable Price Hikes -- Big Pharma is under increasingly bitter attacks by people from all sides, outraged by enormous increases in drug prices. Notorious price-hikers include Martin Shkreli ond his company, Turing Pharmaceuticals, and Valeant Pharmaceuticals. Shkreli and the two companies were called before a House Oversight Committee hearing by the Republican Jason Chaffetz of Utah and Ranking Member Elijah Cummings of Maryland. The hearing can be viewed here, and there is a partial transcript. Shkreli pled the Fifth, and left after acting like a jerk. The price hikes are outlandish even by the standards of this money-sucking industry. According to Truveris, a health-care data company, drug prices increased more than 10% in 2015, “… with branded drugs up 14.77 percent, specialty drugs up 9.21 percent and even generic drugs rising 2.93 percent.“ That’s massively higher than the inflation rate of 0.7% for the same period. Big Pharma has standard responses to this hostility. It claims that Turing and Valeant are bad actors, leaving the implication that all other companies are fabulous corporate citizens.  There’s something like a new marketing plan, described by Stat, which specializes in pharmaceutical issues.  But, at the top of the list is that old stand-by: We need the money so we can do expensive Research and Development. Ian Read, the CEO of Pfizer, was on CNBC with Brent Saunders, CEO of Allergan. You can watch part of the interview here. Asked about the increase in prices of 105 drugs, Read gets outside the standard talking points and tries to pass price hikes off as some kind of market-driven thing, which is facially stupid, since many of the drugs with price hikes are protected by patents and others are generics which have no competition. He also said drug prices are a drop in the bucket, that they account for only about 10% of total health care spending, which comes to about $310 billion, a bit less than $1000 per person in the US. So, a 10% hike costs each of us an average of about $100.

    Cancer Patient Lays Bare the Danger of TPP and the "Pharma Bro" Problem: Last week, on World Cancer Day, the fatal greed of Big Pharma was spotlighted in unexpected ways. Smirking "Pharma Bro" Martin Shkreli, who had unapologetically jacked up medicine prices from $13.50 to $750 per tablet, invoked his right against self-incrimination when hauled before Congress in a fraud investigation. Meanwhile, two cancer patients - Zahara Heckscher and Hannah Lyon - were arrested at the headquarters of the Pharma lobby protesting another unconscionable act of Pharma greed: the 'death sentence' clauses the industry pushed into the Trans-Pacific Partnership (TPP). Doctors Without Borders says that the TPP would be "worst-ever trade agreement for access to medicines." If passed, the TPP would lock in policies that not only allow price gouging, but essentially require all TPP-signatory governments to provide monopoly rights allowing drug companies to charge whatever they want. This would block access to essential life-saving medicines for many people with cancer. I asked Zahara Heckscher, a mother, writer and breast cancer patient, to share her reasons for getting arrested in protest of the TPP death sentence. Her story is moving and compelling, and illustrates why members of Congress who oppose Shkreli's actions should also oppose the TPP:

    Everyone Hates Martin Shkreli. Everyone Is Missing the Point - On Thursday morning, the most reviled person in America arrived on Capitol Hill for a short but memorable engagement with the most reviled institution in America. The institution was the U.S. Congress, which Americans say they hate—though not quite enough, apparently, to stop reëlecting its members. And the person was Martin Shkreli, a pharmaceutical executive who loves to play the villain, and who can’t decide whether to be amused or outraged when he is treated accordingly. Donald Trump can rightly be called polarizing, but Shkreli cannot: he seems to have precious few fans to balance out his innumerable detractors. Shkreli achieved notoriety when his company, Turing Pharmaceuticals, bought a drug called Daraprim, which is used to treat toxoplasmosis, a disease that can be fatal to H.I.V. patients. After buying the drug, Turing raised its price from less than twenty dollars per tablet to seven hundred and fifty dollars. This was too high, in the judgment of many people who knew the industry, and many more who did not. Experts called the increase “unjustifiable,” while those discussing the situation online used less measured language. Shkreli at first said he would lower the price, which scarcely mollified his critics. (One headline: “Martin Shkreli Lowers Drug Price, Is Still an Asshole.”) Then he said he wouldn’t, which increased the outrage—people were calling him “pharma bro,” the personification of a medical industry gone bad. The anti-Shkreli argument asks us to be shocked that a medical executive is motivated by profit.

    Elizabeth Warren asks CDC to consider legal marijuana as alternative painkiller - Massachusetts senator Elizabeth Warren has asked the Centers for Disease Control and Prevention (CDC) to consider the role legal marijuana could play in the prescription opioid epidemic.  Warren asked for more research into medical marijuana and painkiller addiction in a letter to the CDC director, Thomas Friedan. “Opioid abuse is a national concern and warrants swift and immediate action,” Warren wrote.  Her request comes as politicians, including the presidential nominees, search for the best response to the opioid epidemic.  The use of prescription opioids doubled between 2000 and 2014, according to the CDC. And Massachusetts experienced its highest number of unintentional opioid overdose deaths in 2014, with nearly 1,100 people succumbing to overdose deaths.

    Americans Have Never Been Fatter: Obesity Rate Rises To Highest Level On Record - Americans are fat. And they’re getting fatter all the time.  It was just last month when we showed you a series of graphics that demonstrated how it came to this. In short, average calories available to Americans jumped 25 percent to 2500, between 1970 and 2010. And it wasn’t because the US added a fourth meal to the day. It was all added fats and grains (which include oils and fats in processed foods and flour) which used to make up 37% of America’s diet, but now comprise something like 46%. The biggest contributor to the trend was cost. The increasingly more caloric foods have become progressively cheaper which means lower and middle class people are more inclined to eat them, leading directly to a worsening obesity epidemic.

    Does this mean doctors are going to start recommending smoking to their overweight patients?: This paper aims to identify the causal effect of smoking on body mass index (BMI) using data from the Lung Health Study, a randomized trial of smoking cessation treatments. Since nicotine is a metabolic stimulant and appetite suppressant, quitting or reducing smoking could lead to weight gain. Using randomized treatment assignment to instrument for smoking, we estimate that quitting smoking leads to an average long-run weight gain of 1.5-1.7 BMI units, or 11-12 pounds at the average height. These magnitudes are considerably larger than those typically estimated by studies that do not account for the endogeneity of smoking. Our results imply that the drop in smoking in recent decades explains 14% of the concurrent rise in obesity. Semi-parametric models provide evidence of a diminishing marginal effect of smoking on BMI, while subsample regressions show that the impact is largest for younger individuals, females, those with no college degree, and those with healthy baseline BMI levels. via

    Disparity in Life Spans of the Rich and the Poor Is Growing - Experts have long known that rich people generally live longer than poor people. But a growing body of data shows a more disturbing pattern: Despite big advances in medicine, technology and education, the longevity gap between high-income and low-income Americans has been widening sharply.  The poor are losing ground not only in income, but also in years of life, the most basic measure of well-being. In the early 1970s, a 60-year-old man in the top half of the earnings ladder could expect to live 1.2 years longer than a man of the same age in the bottom half, according to an analysis by the Social Security Administration. Fast-forward to 2001, and he could expect to live 5.8 years longer than his poorer counterpart. New research released on Friday contains even more jarring numbers. Looking at the extreme ends of the income spectrum, economists at the Brookings Institution found that for men born in 1920, there was a six-year difference in life expectancy between the top 10 percent of earners and the bottom 10 percent. For men born in 1950, that difference had more than doubled, to 14 years. For women, the gap grew to 13 years, from 4.7 years. “There has been this huge spreading out,” said Gary Burtless, one of the authors of the study. “This may be the next frontier of the inequality discussion,” said Peter Orszag, a former Obama administration official now at Citigroup, who was among the first to highlight the pattern. Over all, according to the Brookings study, life expectancy for the bottom 10 percent of wage earners improved by just 3 percent for men born in 1950 compared with those born in 1920. For the top 10 percent, though, it jumped by about 28 percent. (The researchers used a common measure — life expectancy at age 50 — and included data from 1984 to 2012.)

    BUYING SCIENCE – How Industry Corrupts The “System”  Evan Nelson of the law firm Tucker Ellis & West needed a scientist willing to publish his theory in a medical journal.. Nelson defended companies that had exposed people to asbestos, a heat-resistant, fibrous mineral. Asbestos causes several deadly diseases, including mesothelioma, a rare cancer that often drowns the lungs in fluid. Nelson had expressed frustration with the argument that asbestos is the only known cause of mesothelioma. After scouring the scientific literature and applying his own logic, Nelson came up with a new culprit: tobacco. Nelson sent a typo-ridden email to Peter Valberg, a former professor at the Harvard School of Public Health.  Valberg was by then a principal at the environmental consulting firm Gradient Corporation, with offices in Harvard Square. “We can collaborate to publish several key, revolutionary articles that you will see unfold as I present this stuff to you,” the lawyer wrote in the 2008 email.“It is amazing that no one has pout [sic] this together before me, but I am confident that you will agree it is solid science that proves tobacco smoke causes mesothelioma — you just have to look at the tissue [sic] through the proper lense [sic].”  Valberg wrote back within hours, calling Nelson’s scientific theory “very intriguing.” He was game to try to disseminate it in peer-reviewed journals.. In the meantime, Valberg would adopt Nelson’s theory as an expert witness in lawsuits, using it against mesothelioma victims such as Pam Collins of Bellevue, Ohio. The emails offer a rare glimpse into a world where corporate interests can dictate their own science and scientists for hire willingly oblige. It’s a phenomenon that’s grown in recent decades as government-funded science dwindles. Its effects are felt not only in courtrooms but also in regulatory agencies that issue rules to try to prevent disease.

    Coffee Farmers Sue Monsanto for Hiding Cancer-Causing Impact of Glyphosate  -- Monsanto is facing another lawsuit alleging that exposure to glyphosate, the primary ingredient in the company’s flagship product Roundup, causes cancer. Christine and Kenneth Sheppard, the former owners of Dragon’s Lair Kona Coffee Farm in Honaunau, Hawaii, have accused the multinational agribusiness of falsely masking the carcinogenic risks of glyphosate and is responsible for causing the woman’s cancer, non-Hodgkins lymphoma, the Hawaii Tribune-Herald reported.  According to the complaint, Christine Sheppard had used Roundup on her commercial coffee farm in Hawaii in or around 1995 and continued to use the herbicide until 2004. She said she was diagnosed with cancer in 2003 and, as a result, was forced to sell her farm and move to California to undergo treatment. “She’s been diagnosed with non-Hodgkin’s lymphoma, a very serious form of cancer that’s gone to Stage 4,” attorney Michael Miller told the Hawaii Tribune-Herald. “She’s had enormous treatment and now is in remission, but is in fear of it coming back. So, we’re seeking a fair amount of damages—her medical expenses, her pain, her suffering and her mental anguish. And we’ll ask a jury to put a number on that at an appropriate time.” The filing states Monsanto “knew or had reason to know that its Roundup products were defective and were inherently dangerous and unsafe when used in the manner instructed and provided by defendant.”

    Organic Farmer Dealt Final Blow in Landmark Lawsuit Over Monsanto’s GMO Contamination - Steve Marsh, an organic farmer in Western Australia, has lost his final bid in his landmark genetic modification contamination lawsuit against his neighboring farmer, Michael Baxter, who planted Monsanto’s genetically modified (GMO) canola. Marsh claimed that he lost organic certification on approximately 70 percent of his property in Kojonup, Perth after winds carried his neighbor’s Roundup Ready canola seeds onto his farm in 2010. Australia has a zero-tolerance organic standard concerning GMO contamination on organic lands and Marsh sought $85,000 in damages against his neighbor and former childhood friend. Marsh lost the lawsuit in a May 2014 ruling from the Supreme Court of Western Australia and was ordered instead to pay court costs of about $804,000. He appealed the decision to the West Australian court of appeal but in September, the court instead ruled in favor of Baxter. Today, after six years of legal wrangling, the High Court rejected Marsh’s bid for leave to appeal against that ruling.

    Imports of Genetically Engineered Salmon Blocked Until Labeling Requirements Are Established -- The Food and Drug Administration (FDA) announced earlier this month it would block all imports of AquaBounty’s recently approved genetically engineered (GE) salmon until the agency had determined how to label the novel product. The agency approved the salmon in October without any mandatory labeling indicating that the product is engineered with DNA from another species.In approving the AquaBounty transgenic salmon, the FDA ignored millions of Americans and more than 40 members of Congress who have expressed vocal opposition.   In December’s congressional spending bill, Alaska Sen. Lisa Murkowski succeeded in including a provision directing the agency to develop a label for the GE salmon. Now the agency must act on that directive in order to better inform consumers about the product they are buying.  “This GE salmon should not have been approved in the first place. But thanks to the efforts of Senator Murkowski, along with millions of Americans who have voiced their opposition, the FDA is finally addressing at least one of the primary concerns with this product,” Jaydee Hanson, senior policy analyst at Center for Food Safety, said.

    Top U.S. Intelligence Official Calls Gene Editing a WMD Threat  - Via: MIT Technology Review: Genome editing is a weapon of mass destruction.  That’s according to James Clapper, U.S. director of national intelligence, who on Tuesday, in the annual worldwide threat assessment report of the U.S. intelligence community, added gene editing to a list of threats posed by “weapons of mass destruction and proliferation.”  …It is gene editing’s relative ease of use that worries the U.S. intelligence community, according to the assessment. “Given the broad distribution, low cost, and accelerated pace of development of this dual-use technology, its deliberate or unintentional misuse might lead to far-reaching economic and national security implications,” the report said. …Clapper didn’t lay out any particular bioweapons scenarios, but scientists have previously speculated about whether CRISPR could be used to make “killer mosquitoes,” plagues that wipe out staple crops, or even a virus that snips at people’s DNA.

    Hawaii Island Declares Dengue Fever State Of Emergency -- The mayor of Hawaii's Big Island declared a state of emergency on Monday amid the state's largest outbreak of dengue fever since the 1940s.  The move comes more than three months after the state Department of Health confirmed the first cases of locally acquired dengue, and less than a week after state and county officials defended the ongoing response against criticism that they had been slow to act.  Much like Zika virus, dengue fever is a viral illness spread by mosquitoes. While it is not endemic to Hawaii, the state does have the mosquito species capable of transmitting the disease. As of Monday, the Hawaii Department of Health had confirmed 251 cases of dengue on the Big Island, including 227 infected Hawaii Island residents and 24 visitors. Symptoms include fever, rash, joint or muscle pain, headache, or pain behind the eyes. Though often debilitating, the symptoms can be effectively managed if recognized and treated. The virus, nicknamed "breakbone fever," can develop into a more severe form called dengue hemorrhagic fever that can be fatal if left untreated.

    Zika nations should allow access to contraception, abortion: UN: The United Nations on Friday urged countries hit by the dangerous Zika virus to let women have access to contraception and abortion. The UN human rights office said the South American countries now urging women to hold off getting pregnant over Zika fears had to offer them the possibility of controlling their fertility. "How can they ask these women not to become pregnant, but not offer... the possibility to stop their pregnancies?" spokeswoman Cecile Pouilly told reporters. Many of these countries are conservative Catholic and have very restrictive abortion and contraceptive laws. An exploding number of cases of Zika virus -- believed to cause a condition called microcephaly in which babies are born with abnormally small heads -- have prompted several countries and territories in Latin America to warn women to avoid getting pregnant. But UN human rights chief UN rights chief Zeid Ra'ad al-Hussein said this warning meant little in countries that ban or heavily restrict access to reproductive health services like contraception and abortion. "The advice of some governments to women to delay getting pregnant ignores the reality that many women and girls simply cannot exercise control over whether or when or under what circumstances they become pregnant, especially in an environment where sexual violence is so common," Zeid said in a statement. "In situations where sexual violence is rampant, and sexual and reproductive health services are criminalised, or simply unavailable, efforts to halt this crisis will not be enhanced by placing the focus on advising women and girls not to become pregnant," he said. Instead, he insisted that governments must "ensure women, men and adolescents have access to comprehensive and affordable quality sexual and reproductive health services and information, without discrimination."

    Colombia sees Guillain-Barre syndrome spike amid Zika cases: More than 22,600 cases of the Zika virus have been confirmed in Colombia, which is seeing a sharp increase in a rare neurological disorder linked to the disease, authorities said Saturday. The news comes one day after Colombia, the country hit the second-hardest by the mosquito-borne disease after Brazil, announced three deaths which it blamed on Zika. The patients died after contracting the virus and developing the rare neurological condition called Guillain-Barre syndrome, according to Colombia's National Health Institute (INS). On Saturday, after a meeting with health officials, President Juan Manuel Santos said that cases of Guillain-Barre were up 66 percent. Although most Guillain-Barre patients recover, the syndrome sometimes causes paralysis and can even be deadly. Meanwhile, while Brazil has seen a surge in babies born with Zika-linked microcephaly, or abnormally small heads and brains, Colombia has not, Santos reported. "There is not a single case of a baby with microcephaly coming from a woman who has Zika," he said. A report released by the INS indicated that "25,645 cases of the Zika disease were reported across the entire country" as of the fourth week of January. Of these, 22,612 have been confirmed and 3,033 are only suspected cases. The World Health Organization, which has declared the rise in Zika-linked birth defects an international emergency, warns that Zika could infect up to four million people in the Americas and spread worldwide.

    More Than 3,100 Pregnant Colombian Women Have Zika Virus: Gov't: (Reuters) - More than 3,100 pregnant Colombian women are infected with the mosquito-borne Zika virus, President Juan Manuel Santos said on Saturday, as the disease continues its rapid spread across the Americas. Brazil is investigating the potential link between Zika infections and more than 4,000 suspected cases of microcephaly, a birth defect marked by an abnormally small head size that can result in developmental problems. Researchers have identified evidence of Zika infection in 17 of these cases, either in the baby or in the mother, but have not confirmed that Zika can cause microcephaly. There are so far no recorded cases of Zika-linked microcephaly in Colombia, Santos said. The government is now uncertain about a previous projection for up to 500 cases of Zika-linked microcephaly, based on data from other countries battling the disease, he said. Much remains unknown about Zika, for which there is no vaccine. An estimated 80 percent of those infected show no symptoms, and those that do have a mild illness, with a fever, rash and red eyes. There are 25,645 people infected with Zika in Colombia, Santos said during a TV broadcast with health officials. Among them are 3,177 pregnant women.

    Exclusive: U.S. athletes should consider skipping Rio if fear Zika - officials - Reuters: The United States Olympic Committee told U.S. sports federations that athletes and staff concerned for their health over the Zika virus should consider not going to the Rio 2016 Olympic Games in August. The message was delivered in a conference call involving USOC officials and leaders of U.S. sport federations in late January, according to two people who participated in the call. Federations were told that no one should go to Brazil "if they don't feel comfortable going. Bottom line," said Donald Anthony, president and board chairman of USA Fencing. The USOC’s briefing to sport federations is the latest sign that Olympics officials are taking the Zika threat to the games in Rio de Janeiro seriously, and acknowledging that at least some athletes and support staff could face a tough decision over whether to attend. The United States won most medals at the last Olympics in London in 2012, so any disruption to its presence would be important for the Rio games. Global health authorities suspect the mosquito-borne Zika virus has caused a spike in Brazil of microcephaly, a birth defect marked by an abnormally small head. As a result, the World Health Organization declared an international health emergency Feb. 1, and the U.S. Centers for Disease Control and Prevention (CDC) is advising pregnant women or those considering becoming pregnant to avoid travel to places with Zika outbreaks.

    The Zika Virus Is Harmless – Who Then Benefits From This Media Panic? - The media are currently creating a panic about the allegedly dangerous Zika virus: There is absolutely no sane reason for this panic campaign. The virus is long known, harmless and the main current scare, that the virus damages unborn children, is based on uncorroborated and likely false information. A recent Congressional Research Service report (pdf) about Zika notes: Zika transmission has also been documented from mother to child during pregnancy, as well as through sexual intercourse, blood transfusions, and laboratory exposure. Scientists first identified the virus in 1947 among monkeys living in the Ugandan Zika forest. The thing is just one of many thousand viruses that can effect humans. It is known. It is rather harmless. It effects, if there are any at all, are very mild: A relatively small proportion (about 1 in 4) of infected people develop symptoms. The virus is only detectable for a few days in infected people's blood. [..]  Zika typically causes mild symptoms, including fever, rash, and conjunctivitis, which usually last up to one week. The CRS report says: Health experts are uncertain whether Zika causes microcephaly, a potentially severe birth defect involving brain damage. Since October 2015, Brazilian officials have reported more than 4,000 cases of microcephaly in areas with ongoing Zika transmission, up from roughly 150 cases in previous years. Health officials are concerned that this may be a result of infection in the fetus when a pregnant woman is infected.Synopsis: We do not know if the virus harms unborn children children at all. But that number of 4,000 cases looks suspiciously high. The number is misleading because it does not give any real base like the total number of birth to which those 4,000 cases relate. According to a 2009 paper published in Neurology and quoted here: “Microcephaly may result from any insult that disturbs early brain growth [...] annually, approximately 25,000 infants in the United States will be diagnosed with microcephaly .." Hundreds of children are born with microcephaly every day. That is sad. But it also tells us that the "big number" of 4,000 is not really that high.

    What Would It Take to Prove the Zika–Microcephaly Link? - Scientific American - Zika virus has been grabbing headlines because of its links to an alarming birth defect called microcephaly. The data to provide evidence linking the relatively mild mosquito-borne disease and babies born with small heads and potential brain damage, however, are not yet conclusive. A top official from the U.S. Centers for Disease Control and Prevention told reporters today that to firm up the connections between the two conditions researchers must study the documented microcephaly cases, the case history of pregnant women and conduct case-control studies of babies born in affected areas such as Brazil to get further insights. Only then, following careful analyses, can scientists solidify the Zika–microcephaly links and the required preventative steps. Although the Brazilian government has said there are almost 4,000 cases of microcephaly in the country, only six of the cases have been strongly linked to Zika virus via laboratory testing that confirms genetic material from the virus is present in the infant,  The director general of WHO, Margaret Chan, however, said that although that causal relationship has not been proved, it is “strongly suspected.” That is due, in part, to other research that has shown the virus is capable of crossing the placental barrier and showing up in amniotic fluid. Retrospective analysis of an earlier outbreak of Zika in French Polynesia also separately suggests that there, too, was an increase in cases of neurological impairment, according to the CDC.  Another key plank to proving the microcephaly link will be following women during their pregnancy to document what they are exposed to and their future health outcomes, she says. That type of work would require massive resources and logistical coordination and is not yet underway, she says. Finally, proving these links would require case-control studies that compare microcephalic babies with those born around the same time and area.

    Proving that the Zika virus causes microcephaly - When the Zika virus was first discovered in Uganda in the 1940s, it was thought to be harmless. But in the past few months in Brazil, it has been linked with something far worse: microcephaly (an abnormally small brain and head) in newborn babies. In adults an increased incidence of a rare neurological disorder called Guillan-Barre syndrome has also been linked with Zika infection. This is associated with muscles weakness, paralysis and can be fatal. Zika is anything but harmless. The World Health Organisation (WHO) has declared Zika a global emergency and predicted up to 4m Zika infections in the Americas alone in 2016.   Microcephaly rates in Brazil were about five cases per 100,000 live births before the Zika outbreak, but in the past six to nine months this has reached 200 per 100,000. . We already know that some viral infections during pregnancy can cause birth defects. Perhaps the best example is German measles (rubella), which in early pregnancy can cause damage to the heart, ears and brain.  We know that flaviviruses related to Zika cause microcephaly in newborn animals following an infection during pregnancy. What is frightening is the huge increase in numbers of microcephaly cases in Brazil since the Zika outbreak. There is a strong correlation between the spread of Zika in Brazil and the growing number of babies born with microcephaly. While this does not prove that the Zika virus is the direct cause of the microcephaly, genetic material from the virus has been detected in both mothers and in their amniotic fluid (a pregnant woman’s “waters”), indicating Zika has the potential to infect an unborn baby while in the womb.

    U.S. to study Zika link to Guillain-Barre in Puerto Rico | Reuters: Experts from the U.S. Centers for Disease Control and Prevention are heading to Puerto Rico this week to study whether the mosquito-borne Zika virus will cause an increase in cases of a rare neurological disorder known as Guillain-Barre syndrome as the outbreak intensifies in this U.S. territory. The World Health Organization last month predicted that Zika would spread to all countries in the Americas except for Canada and Chile. "Right now we're focusing on Puerto Rico, where we've just started seeing cases of Zika as well as cases of Guillain-Barre syndrome," Dr. James Sejvar, a neuroepidemiologist at the CDC, told Reuters in an interview. "In order to get ahead of the curve, we're going to try to rapidly establish active surveillance for Guillain-Barre in Puerto Rico in the hopes that we're catching the outbreak early." On Feb. 5, the government of Puerto Rico declared a state of emergency as confirmed Zika cases climbed to 22. In addition to thousands of cases of birth defects in Brazil thought to be linked to Zika, health officials have noted a significant increase in Guillain-Barre, a rare syndrome in which the body's immune system attacks part of the nervous system. It usually occurs a few days after exposure to a virus, bacteria or parasite.  Guillain-Barre causes gradual weakness in the legs, arms and upper body, and in some cases, total paralysis.

    CDC Finds New Zika Virus Link To Microcephaly - Scientists have found the strongest evidence to date linking the Zika virus to the birth defect microcephaly, Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention, said Wednesday in testimony before a congressional hearing on the virus. The data, released by the CDC Wednesday, was based on findings from four cases in Brazil. Two involved fetuses that miscarried at 10 and 11 weeks of pregnancy, and the two others were babies that were born with microcephaly and died within 24 hours. In those babies' brain tissue, a CDC laboratory working with Brazilian scientists identified the DNA of the Zika virus, Frieden said.  “This is the strongest evidence to date that Zika is the cause of microcephaly,” Frieden said, but he cautioned that the findings did not prove that the virus causes the birth defect. "It's still not definitive," he added. The CDC's findings were released two days after the White House asked Congress for $1.8 billion to combat the Zika virus. An outbreak of the little-understood mosquito-borne virus has already struck about two dozen countries and territories, from the Americas to the Pacific Islands, and travel-related cases are on the rise in the United States.

    Latin American Doctors Suggest Monsanto-Linked Larvicide Cause of Microcephaly, Not Zika Virus -- As the Zika epidemic “spreads explosively” around the world, pregnant travelers have been put on pause due to the virus’s suspected association with microcephaly, the congenital condition in which a baby’s head is abnormally small. While the link between the mosquito-borne virus and microcephaly has yet to be scientifically proven, Argentinian and Brazilian doctors have suggested an alternate culprit: pesticides. The report, written by the Argentine group Physicians in the Crop-Sprayed Towns (PCST), suspects that pyriproxyfen—a larvicide added to drinking water to stop the development of mosquito larvae in drinking water tanks—has caused the birth defects. The authors said that the pesticide, known by its commercial name SumiLarv, is manufactured by Sumitomo Chemical, a Japanese subsidiary of Monsanto. According to PCST, in 2014, the Brazilian Ministry of Health introduced pyriproxyfen to drinking-water reservoirs in the state of Pernambuco, where the proliferation of the Zika-carrying Aedes aegypti mosquito is very high. “Malformations detected in thousands of children from pregnant women living in areas where the Brazilian state added pyriproxyfen to drinking water is not a coincidence, even though the Ministry of Health places a direct blame on Zika virus for this damage, while trying to ignore its responsibility and ruling out the hypothesis of direct and cumulative chemical damage caused by years of endocrine and immunological disruption of the a acted population,” PCST said.

    Argentine and Brazilian doctors suspect mosquito insecticide as cause of microcephaly - One of the key scientific papers, by A S Oliveira Melo et al in the journal Ultrasound in Obstetrics & Gynecology, found Zika virus in the amniotic fluids and other tissues of the affected babies and their mothers. But only two women were examined, far too small a number to establish a statistically significant link.  The New York Times also reported on 3rd February on the outcome of analyses by Brazil's Health Ministry: "Of the cases examined so far, 404 have been confirmed as having microcephaly. Only 17 of them tested positive for the Zika virus. But the government and many researchers say that number may be largely irrelevant, because their tests would find the presence of the virus in only a tiny percentage of cases." And last weekend, the most powerful indicator yet that the microcephaly may have another cause altogether was announced by Colombia's president, Juan Manuel Santos, as reported by the Washington Post. Colombian public health officials, stated Santos, have so far diagnosed 3,177 pregnant women with the Zika virus- but in no case had microcephaly been observed in the foetus. Now a new report has been published by the Argentine doctors' organisation, Physicians in the Crop-Sprayed Towns (PCST), [1] which not only challenges the theory that the Zika virus epidemic in Brazil is the cause of the increase in microcephaly among newborns, but proposes an alternative explanation. According to PCST, the Ministry failed to recognise that in the area where most sick people live, a chemical larvicide that produces malformations in mosquitoes was introduced into the drinking water supply in 2014. This pesticide, Pyriproxyfen, is used in a state-controlled programme aimed at eradicating disease-carrying mosquitos. The Physicians added that the Pyriproxyfen is manufactured by Sumitomo Chemical, a Japanese 'strategic partner' of Monsanto. - a company they have learned to distrust due to the vast volume of the company's pesticides sprayed onto Argentina's cropland.

    Tyson Foods Dumps More Pollution Into Waterways Each Year Than Exxon -- As shareholders of Tyson Foods, Inc. prepare to vote on a resolution that would require the food giant to institute a “water stewardship” policy, new data shows the company regularly dumps a higher volume of pollution into waterways than companies like ExxonMobil and Dow Chemical.  The Environment America analysis shows Tyson and its subsidiaries released 104 million pounds of pollution to surface waters from 2010 to 2014, nearly seven times the volume of surface water discharges by Exxon during those years. “Tyson is dumping a huge volume of pollution into our waterways,” John Rumpler, senior attorney with Environment America, said. “That’s why Tyson’s shareholders should vote to ensure that the company cleans up its act.” Filed by the American Baptist Home Mission Societies, with four investor co-filers from the Interfaith Center on Corporate Responsibility, the resolution considered at Tyson’s annual meeting in Springdale, Arkansas would require the company to “reduce risks of water contamination” from its thousands of facilities, suppliers and contractors across the U.S. “  The data by Environment America comes from the Toxics Release Inventory, the federal government’s database of self-reported releases of pollutants into the nation’s waterways.

    America’s Next Top Polluter > Download Report (PDF) Corporate agribusiness is emerging as one of the biggest threats to America’s waterways – contributing to dead zones from the Chesapeake Bay to the Gulf of Mexico and even threatening our drinking water. Tyson Foods, Inc. is “one of the world’s largest producers of meat and poultry.” The company’s pollution footprint includes manure from its contract growers’ factory farm operations, fertilizer runoff from grain grown to feed the livestock it brings to market as meat, and waste from its processing plants. While comprehensive data on Tyson’s share of factory farm and fertilizer runoff require some calculation, the company is required to report pollution from its processing plants to U.S. EPA’s Toxic Release Inventory (TRI). Tyson Foods Inc. and its subsidiaries dumped 104 million pounds of pollutants into waterways from 2010 to 2014 – the second highest volume of toxic discharges reported to TRI for those years. (table)

    Hope — and clean water — remains elusive for the people of Flint - Washington Post -- The residents of this battered city have lived for years under some of the worst conditions in urban America: soaring levels of violent crime, poverty, unemployment and blight. Now, for many, the catastrophe of a water supply that may be poisoned indefinitely appears to be the final insult. Many are desperate to escape the city, but some don’t have the means to do so. The old and poor, especially, are stuck. Meanwhile, a small band of civic and political leaders is trying to chart a way forward amid the wreckage of a disaster often compared to Hurricane Katrina — which at least eventually led to some redevelopment in New Orleans. “I’m going to give the city maybe six months,” said Brittny Giles, a 25-year-old single mother who is raising three young children next door to the home where she grew up. She bathes her 9-month-old daughter in bottled water and can recite her children’s blood lead levels from memory. Relatives in Georgia are begging her to move there. “I don’t want to leave,” she said. “But if there is no water or schools for my children, I have to give them a better future.” Less than a month after Michigan Gov. Rick Snyder (R) declared a state of emergency, only one thing is clear: Resolving the crisis will be very expensive. Mayor Karen Weaver has estimated the cost of removing lead service lines from 15,000 homes at about $45 million. Combating the potential impact of lead poisoning in the 9,000 children exposed to tainted water starts at $100 million, according to Mona Hanna-Attisha, the pediatrician who is proposing the multifaceted program. Overhauling Flint’s water­distribution system, if necessary, could cost more than $1 billion, a tab only the federal government could pay.

    Michigan governor says to request another $195 million for Flint water | Reuters: Michigan Governor Rick Snyder on Wednesday will ask the state legislature for another $195 million to restore safe drinking water in Flint and help residents affected by lead-contaminated water, a spokesman confirmed on Tuesday. The new funding request is in addition to $37 million that has already been appropriated this year by the Republican-led legislature, said Snyder spokesman Dave Murray. "That's a significant investment in the people of Flint," Murray said. The city of some 100,000 people was under control of a state-appointed emergency manager in 2014 when it switched its source of water from Detroit's municipal system to the Flint River to save money. That move has provoked a national controversy and prompted several lawsuits by parents who say their children are showing dangerously high blood levels of lead, which can cause development problems. Lead can be toxic and children are especially vulnerable.

    As Flint Fought to Be Heard, Virginia Tech Team Sounded Alarm - — The young scientists, mostly in their 20s and counting the semesters until their next degree, were explaining to students, members of the faculty and guests how they were at first laughed off by government regulators about 550 miles northwest of here in Flint, Mich., when they detected alarming amounts of lead coming from residents’ taps. Flint’s public health problem stemmed from a failure to properly treat water from the Flint River, which resulted in pipe corrosion and elevated levels of lead. The crisis is at best a tale of neglect and incompetence. At worst, critics say, it is criminal conduct that imperiled the public’s well-being. Already state and federal agencies, including the F.B.I., have opened investigations. But as government officials were ignoring and ridiculing residents’ concerns about the safety of their tap water, a small circle of people was setting off alarms. Among them was the team from Virginia Tech. The team began looking into Flint’s water after its professor, Marc Edwards, spoke with LeeAnne Walters, a resident whose tap water contained alarming amounts of lead. Dr. Edwards, who years earlier had helped expose lead contamination in Washington, D.C., had his students send testing kits to homes in Flint to find out if the problem was widespread. Lead exposure can lead to health and developmental problems, particularly in children, and its toxic effects can be irreversible. Their persistence helped force officials to acknowledge the crisis and prompted warnings to residents not to drink or cook with tap water. Officials are now scrambling to find a more permanent solution to the problem than trucking in thousands of plastic jugs, and are turning to Virginia Tech for advice.

    Jim Hightower: What Really Poisoned the Water in Flint, Michigan - The mantra of every Koch-headed, right-wing politico is that government should be run like a business, always focused on cutting costs. Welcome to Flint, Michigan. This impoverished, mostly African-American city has indeed been run like a private corporation since Republican Gov. Rick Snyder appointed his “emergency manager” to seize control of Flint’s heavily indebted local government. Snyder’s coup d’etat usurped the people’s democratic voice and effectively imposed a corporate-style autocracy over them, run by his unelected CEO-like manager who answers only to Snyder. Flint’s emergency manager holds authoritarian budgetary power and is focused not on serving the people but on the bottom line. His mandate from the governor was to slash costs ruthlessly, so bankers and other holders of the city’s debt could be paid off. Snyder was delighted that his appointed czar proved to be an enthusiastic slasher, including a cleaver move in 2014 to cut a couple million dollars from the budget by shifting the source of the city’s drinking water from Lake Huron to the Flint River. Sure, some scaredy-cats worried about contaminants in that river, but Snyder’s health officials pooh-poohed them — and, besides, the beauty of one-man rule is that you can ignore the people and take bold, decisive action. That’s what corporate CEOs do, and even if there is some collateral damage, it’s the bottom line that matters.

    Poisoned Kids in Flint Are Just the Tip of the Toxic Iceberg The price tag for replacing the lead pipes that contaminated its drinking water, thanks to the corrosive toxins found in the Flint River, is now estimated at up to $1.5 billion. No one knows where that money will come from or when it will arrive. In the meantime, the cost to the children of Flint has been and will be incalculable. As little as a few specks of lead in the water children drink or in flakes of paint that come off the walls of old houses and are ingested can change the course of a life. The amount of lead dust that covers a thumbnail is enough to send a child into a coma or into convulsions leading to death. It takes less than a tenth of that amount to cause IQ loss, hearing loss or behavioral problems like attention deficit hyperactivity disorder and dyslexia. The Centers for Disease Control (CDC), the government agency responsible for tracking and protecting the nation’s health, says simply, “No safe blood lead level in children has been identified.  But the city’s children are hardly the only ones threatened by this public health crisis. There’s a lead crisis for children in Baltimore; Herculaneum, Missouri; Sebring, Ohio; and even the nation’s capital, Washington, DC and that’s just to begin a list. State reports suggest, for instance, that “18 cities in Pennsylvania and 11 in New Jersey may have an even higher share of children with dangerously elevated levels of lead than does Flint.”  Today, scientists agree that there is no safe level of lead for children and at least half of American children have some of this neurotoxin in their blood. The CDC is especially concerned about the more than 500,000 American children who have substantial amounts of lead in their bodies. Over the past century, an untold number have had their IQs reduced, their school performances limited, their behaviors altered and their neurological development undermined. From coast to coast, from the Sun Belt to the Rust Belt, children have been and continue to be imperiled by a century of industrial production, commercial gluttony and abandonment by the local, state and federal governments that should have protected them. Unlike in Flint, the “crisis” seldom comes to public attention.

    We’re Heading Toward a National Water Crisis -- Mark Ruffalo - Flint’s man-made water disaster is an outrageous tragedy and a human health crisis. And unfortunately, it’s not an isolated case. It’s one instance in a pattern of government failures to take water testing seriously and respond to evidence of water pollution. In 2009, federal data revealed that water being delivered to tens of millions of Americans contained illegal concentrations of dangerous chemicals. That contamination has led to widespread ill-effects such as rashes and elevated risk of various diseases and hundreds of thousands of Clean Water Act violations. President Obama promised to turn a new leaf. Sadly, there have since been numerous high-profile cases of contamination, such as in Toledo, Ohio, in 2014, where agricultural runoff and crumbling infrastructure led to an algal bloom in Lake Erie that made the city’s drinking water unsafe. Also in 2014, in West Virginia, a chemical spill contaminated the Elk River, the tap water supply for hundreds of thousands of people. This past August, 3 million gallons of contaminated water were released into the Animas River in Colorado, resulting in lead levels 3,500 times normal and arsenic levels 300 times normal, affecting many communities and farms.

    165 Million Plastic Particles Are Floating in Waters Surrounding New York City  -- NY/NJ Baykeeper has released the results from a plastic collection study detailing the sizes, types and concentrations of plastic pollution within New York-New Jersey Harbor Estuary waters. The Harbor Estuary encompasses the Ports of New York and New Jersey, as far north as the Tappan Zee Bridge and as far south as Sandy Hook Bay. NY/NJ Baykeeper’s results represent one of the first examinations of plastic pollution within waters surrounding New York City. Based on NY/NJ Baykeeper’s estimates, at least 165 million plastic particles are floating within New York-New Jersey Harbor Estuary waters at any given time. The average abundance of plastic particles is 256,322 per square kilometer. Eighteen samples were collected from New York City and New Jersey waters including the East River, the Upper New York Bay, Newtown Creek, the Lower Harbor near Perth Amboy, New Jersey, the Passaic River, the Morris Canal, the Arthur Kill, the Lower Newark Bay and the Upper Newark Bay. Based on results from the sites sampled, the average plastic quantity per square kilometer from New York City samples was approximately twice the average of New Jersey samples.  “With a population of more than 8 million, New York City must take aggressive policy action like phasing out foam and plastic bags to reduce damage caused by plastic pollution,” Sandra Meola, communications and outreach associate at NY/NJ Baykeeper, said. “Coupled with consumer education, legislation should be a priority, especially in the ‘to-go’ city. We can’t keep using throwaway products that are used for a few minutes but take decades to break down.”

    Californians Fight Over Whether Coast Should Be Rugged or Refined - — It has been one of the most powerful governmental agencies in the nation, with sweeping powers to determine what gets built, or does not get built, on the 1,100 miles of cliffs, mountains and beaches along the Pacific Ocean, one of the country’s great destinations.The California Coastal Commission, created 45 years ago, is an independent entity whose authority has been likened to that of Robert Moses, the powerful New York City planner. It has scrutinized projects large and small, from adding a deck to a home to building an oceanfront luxury hotel. It has mediated the often clashing agendas of two of the most influential forces that help to define this state: environmentalism and the drive for growth.But now, with the roaring California economy fueling demand for luxury housing, these conflicting priorities have burst into a dispute that could redefine the role and power of this agency — and, more important, the way the state manages its revered and majestic coastline. A bloc of commission members, backed by developers frustrated with a commission staff they see as stifling legitimate growth, has moved to try to oust the agency’s executive director, Charles Lester.But given the high stakes — the aesthetics of the California coastline and who has access to it — the action against Mr. Lester, which will come to a head at a public hearing on Wednesday, has created a firestorm. The commission had received 14,000 letters demanding that it cease trying to remove Mr. Lester, a sentiment echoed by a number of newspaper editorials. “It’s a power grab to undermine crucial protections for one of California’s most precious jewels, the 1,000-mile coastline stretching from Eureka to San Diego,” The San Jose Mercury News said as it demanded that Gov. Jerry Brown block what it called a “coup.”

    Gov. Brown’s Cozy Ties to Oil & Gas Is a Threat to California’s Coast and Democracy -- Gov. Jerry Brown has been quietly maneuvering to oust the California Coastal Commission’s outspoken director, Dr. Charles Lester, during the commission’s quarterly meeting in Morro Bayon tomorrow. Brown’s campaign to unseat Dr. Lester is an unsheathed assault on that agency’s integrity and a dire threat to the California coast. It is also an audacious display of industry power. The coastal commission has a regulatory authority over all permits, licenses and funding approvals for projects impacting coastal resources, including offshore oil and gas development. For 40 years the coastal commission has brought balance to the struggle between advocates of clean water, healthy wetlands, unspoiled vistas, unpaved agricultural farms and broad public access against the real estate and energy tycoons who now seek Dr. Lester’s ouster. Dr. Lester has been the commission’s most vocal champion for safeguarding California’s public trust assets and preserving the coast from unwise and shortsighted development. Industry launched its campaign to topple Dr. Lester shortly after he expressed skepticism over the proposed Banning Ranch development, which would place nearly 1,400 homes with resort and retail space on environmentally sensitive coastal habitat and wetlands. Aera Energy, a jointly owned affiliate of Royal Dutch Shell PLC and ExxonMobil Corp, is a leading project promoter.

    Humans Are Pushing The Southwest Into An Even Drier Climate -- A new study finds that the semi-arid U.S. Southwest has begun to enter the “drier climate state” that had been long-predicted from climate models. These findings match ones from September documenting an expansion of the entire world’s dry and semi-arid climate regions in recent decades because of human-caused climate change.  The new study from the National Center for Atmospheric Research (NCAR) concludes that “The weather patterns that typically bring moisture to the southwestern United States are becoming more rare, an indication that the region is sliding into the drier climate state predicted by global models.”Weather systems that bring moisture to the southwest U.S. are forming less often, which is drying out resulting in a drier climate. This map depicts the changes in precipitation that can be attributed to these weather changes. The gray dots are areas where the results are statistically significant. Note that the data in this chart ends in 2010 — so it doesn’t even include the devastating drying seen recently in large parts of the Southwest, such as the worst drought California has seen in over a thousand years! The fact that climate scientists have turned out to write about this drying trend means we must take seriously their current projections of widespread global megadroughts in the coming decades on our current CO2 emissions pathway — including in the U.S.’s own breadbasket. Here, for instance, is a 2015 NASA projection of what the normal climate of North America will look like unless we keep taking stronger and stronger measures to slash carbon pollution. The darkest areas have soil moisture comparable to that seen during the 1930s Dust Bowl.

    Analysis: How much did El Niño boost global temperature in 2015? -- Almost as soon as the news broke that 2015 was the hottest year in the modern record, the conversation quickly turned to how much of the record-breaking warmth was down to climate change and how much to the Pacific weather phenomenon known as El Niño. Carbon Brief has spoken to climate scientists working on this question, who all seem to agree El Niño was responsible for somewhere in the region of 10% of the record warmth in 2015. But while the science seems pretty clear, these numbers got somewhat lost in the media coverage. So, too, did the fact that 2015 was far hotter than the last big El Niño year in 1997 – and that 2015 would still have been a record year even had the El Niño never occurred.  All three of the world’s major meteorological agencies came to the same conclusion last week. NASA, the US National Oceanic and Atmospheric Administration (NOAA) and the UK’s Met Office all confirmed 2015 was the warmest on record and the first year in which global temperature rose 1C above the preindustrial era.Yesterday, the World Meteorological Organisation – which combines all three agencies’ data into a single definitive statement – agreed that 2015 was a record-breaking year. As Carbon Brief and many others have noted, it isn’t so much the setting of a new record that is remarkable, but the margin by which 2015 took the top spot. Combining the three global datasets, global temperature in 2015 was 0.16C above the next warmest year in 2014, a gap the WMO called “strikingly wide”. Why such a leap? As all the major meteorological agencies noted, in addition to the climb in global temperature caused by greenhouse gases, 2015 was an El Niño year.

    El Niño warmth continued during January 2016 -- As they were in December, waters across the tropical Pacific Ocean continued to be much warmer than average in January 2016, suggesting* that El Niño still had a grip on the basin. This image shows satellite sea surface temperature departure for the month of January 2016. Colors show where average monthly sea surface temperature was above or below its 1981-2010 average. Blue areas experienced cooler-than-usual sea surface temperatures while areas shown in red were warmer than usual. The darker the color, the larger the difference from the long-term average. The unusual warmth is coupled with a slowdown of the easterly trade winds, increased rainfall in the central tropical Pacific, and a drop in surface air pressure there. These disruptions to the normal air movements in the tropics affect the mid-latitude jet streams, which is how El Niño can affect the weather in the United States and other parts of the world. This high-resolution map is based on a dataset that combines in situ measurements with near-real-time satellite observations. A map like this one provides a detailed, up-to-date view of what oceans look like at any point in time, which is helpful for monitoring how an event is evolving and for providing starting data to (scientists say initialize) forecast models. These data are not, however, the best choice for producing historical rankings of event strength because satellite data from different eras can have subtle differences that are hard to account for. Instead, scientists use carefully pieced together historical data sets.

    El Niño means glaciers in the Andes are melting at record rates -- Tropical glaciers in the Andes are melting at their fastest rate for 12 years, thanks to the record-breaking El Niño that is warming up the area, according to new data analysed for New Scientist. This is compounding the already high melting rates from global warming that will consign many glaciers to history within decades.“The lower-level glaciers in the Andes, below 5500 metres, are really endangered now and probably only have a couple of decades left,” says Michael Zemp, director of the World Glacier Monitoring Service in Zurich, Switzerland. The organisation recently found that the first decade of the 21st century saw the greatest decadal loss of glacier ice ever measured, with melting rates two to three times higher than in the 20th century. This glacier loss will lead to water and hydropower shortages, the destruction of unique habitats home to endemic species, as well as the loss of a unique record of Earth’s past recorded in layers of ice (see box, below). Doug Hardy, a climate scientist at the University of Massachusetts, has recorded the lowest snow accumulation in the 12 years he has been monitoring the Quelccaya Ice Cap in Peru (pictured above) – the largest glacier in the tropics. “We’re seeing 40 per cent more melting than any other year since measurements started in 2002,” he says. Similarly, the Conejeras glacier in Colombia has lost 43 per cent of its volume over the last two years, according to Jorge Luis Ceballos Liévano and his colleagues in Bogotá. More than two-thirds of that loss has taken place since the onset of the current El Niño.

    Understanding the 2015–16 El Niño and its impact on phytoplankton -- The above ClimateBits video shows and describes El Niño. Because El Niño is a disruption to the normal circulation pattern in the tropical Pacific, the first data displayed in the video are ocean currents color-coded by sea surface temperatures produced by the NASA Scientific Visualization Studio from ECCO2 model output. Following global ocean circulation patterns, the concept of equatorial upwelling is introduced along with an explanation of how upwelling brings nutrients from depth to the sunlit surface waters. To illustrate the phytoplankton blooms that result, monthly composites of their green pigment or chlorophyll concentrations follow; these have been measured by MODIS Aqua since 2002. Focusing on the equatorial Pacific, the El Niño events are highlighted as times when sea-surface chlorophyll concentrations decline along the equator due to the loss of the normal nutrient supply from deep water. This decrease in primary productivity is felt by species up the highest levels of the marine food web. The video concludes with 2015 sea-surface temperature anomalies measured by NOAA AVHRR and NASA AMSR-E satellites, and produced as daily images by the Environmental Visualization Lab at NOAA. Here the west Pacific warm pool can be seen spreading eastward along the equator as the El Niño strengthens. Below the ocean’s surface, the warm pool deepens the thermocline—the level that separates warmer surface waters from cooler deep ocean waters—curtailing the usual upwelling of deep water nutrients to the east Pacific surface waters and resulting in less sea surface chlorophyll. This video was created in October, prior to the peak of the event, yet the chlorophyll concentrations had already declined compared to the previous year and other neutral years. The image below shows the December 2015 El Niño at its peak compared to neutral and La Niña conditions.

    The Atlantic Ocean Is Acidifying at a Rapid Rate - Over the past 10 years, the Atlantic Ocean has soaked up 50 percent more carbon dioxide than it did the decade before, measurably speeding up the acidification of the ocean, according to a new study. The paper, published Saturday in the journal Global Biogeochemical Cycles, “shows the large impact all of us are having on the environment,” Ryan Woosley of the University of Miami said in a statement. “Our use of fossil fuels isn’t only causing the climate to change but also affects the oceans by decreasing the pH.”  The burning of oil, coal, and natural gas for energy and the destruction of forests are the leading causes of the carbon dioxide emissions driving climate change. The amount of carbon dioxide in the atmosphere has risen from 355 parts per million in 1989 to just over 400 ppm in 2015. Decreasing pH in seawater can harm the ability of shelled organisms, from microscopic coccolithophores to the oysters and clams that show up on our dinner plates, to build and maintain their bony exteriors.   Researchers reported last year that acidification is also threatening to wipe out large populations of phytoplankton, the tiny ocean plants at the base of food webs that support fish, dolphins, whales, and other marine life.

    Phytoplankton rapidly disappearing from the Indian Ocean - A rapid loss of phytoplankton threatens to turn the western Indian Ocean into an “ecological desert,” a new study warns. The research reveals that phytoplankton populations in the region fell an alarming 30 percent over the last 16 years. A decline in ocean mixing due to warming surface waters is to blame for that phytoplankton plummet, researchers propose online January 19 in Geophysical Research Letters. The mixing of the ocean’s layers ferries phytoplankton nutrients from the ocean’s dark depths up into the sunlit layers that the mini plants inhabit. The loss of these microbes, which form the foundation of the ocean food web, may undermine the region’s ecosystem, warns study coauthor Raghu Murtugudde, an oceanographer at the University of Maryland in College Park. “If you reduce the bottom of the food chain, it’s going to cascade,” Murtugudde says. The phytoplankton decline may be partially responsible for a 50 to 90 percent decline in tuna catch rates over the last half-century in the Indian Ocean, he says. “This is a wake-up call to look if similar things are happening elsewhere.” In the 20th century, surface temperatures in the Indian Ocean rose about 50 percent more than the global average. Previous investigations into this ocean warming’s impact on phytoplankton suggested that populations had increased. But those studies looked at only a few years of data — not long enough to clearly identify any long-term trend.

    Rising CO2 in the ocean will make fish ‘intoxicated,’ scientists predict - Quartz: Rising levels of carbon dioxide (CO2) are wreaking havoc on our natural environment, causing increases in global temperatures, sea levels and seawater acidity. Now scientists are predicting that unless something drastic changes, the concentration of CO2 in our oceans may have the effect of “intoxicating” fish, impacting their ability to survive in the wild. Researchers from the University of New South Wales (UNSW) in Sydney studied seasonal CO2 fluctuations in oceans over the past 30 years, which, combined with predicted future emissions, allowed them to predict the global effects of rising carbon dioxide on marine life. Their study, published in Nature, found that in some oceanic regions, the annual fluctuations in CO2 concentration will increase tenfold by the end of the century if CO2 output by humans continues at its predicted rate. As a result, fish in the Southern, Pacific and north Atlantic oceans are expected to increasingly suffer from a phenomenon called “hypercapnia,” a build-up of CO2 in the blood which occurs when the concentration of carbon dioxide in the ocean is higher than 650 parts per million. Hypercapnia interferes with neuroreceptors in brains of fish, causing them “to become intoxicated,” the study’s lead author, Dr Ben McNeill of UNSW, said in a statement. “Essentially, the fish become lost at sea. The carbon dioxide affects their brains and they lose their sense of direction and ability to find their way home. They don’t even know where their predators are.” Precisely predicting hypercapnia is a challenge, due to the limited data on global CO2 concentrations in oceans, and so the paper’s authors are calling on scientists to help refine the predictive model they calculated in their study.

    Arctic Sea Ice Levels Hit Record Low After Unusually Warm January -- January Arctic sea ice extent was the lowest in the satellite record, attended by unusually high air temperatures over the Arctic Ocean and a strong negative phase of the Arctic Oscillation (AO) for the first three weeks of the month. Meanwhile in the Antarctic, this year’s extent was lower than average for January, in contrast to the record high extents in January 2015. Arctic sea ice extent during January averaged 13.53 million square kilometers (5.2 million square miles), which is 1.04 million square kilometers (402,000 square miles) below the 1981 to 2010 average. This was the lowest January extent in the satellite record, 90,000 square kilometers (35,000 square miles) below the previous record January low that occurred in 2011. This was largely driven by unusually low ice coverage in the Barents Sea, Kara Sea and the East Greenland Sea on the Atlantic side, and below average conditions in the Bering Sea and Sea of Okhotsk. Ice conditions were near average in Baffin Bay, the Labrador Sea and Hudson Bay. There was also less ice than usual in the Gulf of St. Lawrence, an important habitat for harp seals.

    Threat of Sea Level Rise Intensifies as Antarctica’s Melting Ice Sheet at ‘Point of No Return’ -- British researchers have reinforced recent evidence that melting in the Antarctic caused by the warming of the Southern Ocean could ultimately lead to global sea levels rising by around 3 meters or nearly 10 feet. Their findings are in line with the results of a study that said six more decades of ocean warming could destabilize the ice beside the Amundsen Sea, starting a cascade of ice loss that would continue for centuries.  That 2015 study, which used computer simulations, was the work of scientists from the Potsdam Institute for Climate Impact Research in Germany. But the UK scientists used a much more direct method of assessing the landscape to establish how the West Antarctic ice sheet might respond to increasing global temperatures. They just examined the mountain tops that stick up above the ice. In what they say is the first study of its kind, the researchers were able to work out how the levels of ice covering the land have changed over hundreds of thousands of years by examining the peaks protruding through the ice in the Ellsworth Mountains, on Antarctica’s Atlantic flank. The scientists report in Nature Communications that their results show how, during previous warm periods, a substantial amount of ice would have been lost from the West Antarctic ice sheet by ocean melting. But it would not have melted entirely, which they say suggests that ice would have been lost from areas below sea level, but not on upland areas.

    Rubio, Bush Agree To Meet With Florida Mayors Concerned About Climate Change -  Republican presidential candidates Marco Rubio and Jeb Bush should be getting an education in climate change soon.  The two GOP candidates agreed last week to meet with a group of 15 South Florida mayors concerned about climate change’s impact on their state and on the country as a whole. The mayors had sent letters to Rubio and Bush in late January, urging the candidates to “acknowledge the reality and urgency of climate change” and asking them to take meetings with them to discuss climate change. One of the mayors — Cindy Lerner of Pinecrest, Florida — journeyed to New Hampshire last week, and questioned both candidates about the letters during town hall events. “I know that they know the science we are relying on,” Lerner told ThinkProgress of the two candidates, both of whom have political histories in Florida. Bush served as governor of the state from 1999 to 2007, and Rubio is a U.S. senator from Florida. Florida’s university system is heavily involved in climate science, so these two candidates should have a good understanding of the issue, Lerner said. “To have especially Marco, who is in such denial, ignore the very academic institutions that he has supported, funded, and worked with for more than a decade is really ridiculous, quite frankly,” she said.

    No climate conspiracy: NOAA temperature adjustments bring data closer to pristine  - Congressman Lamar Smith (R-TX) has embarked upon a witch-hunt against climate scientists at NOAA, accusing them of conspiring to fudge global temperature data. However, a new study has found that the adjustments NOAA makes to the raw temperature data bring them closer to measurements from a reference network of pristinely-located temperature stations.  Before delving into the new study, it’s worthwhile to revisit the temperature adjustments that Lamar Smith disputes. Volunteers have been logging measurements from weather stations around the world for over 150 years, and climate scientists use that data to estimate the Earth’s average surface temperature. But over a 150-year period, things change, as the authors of this study explainStations have moved to different locations over the past 150 years, most more than once. They have changed instruments from mercury thermometers to electronic sensors, and have changed the time they take temperature measurements from afternoon to morning. Cities have grown up around stations, and some weather stations are not ideally located. All of these issues introduce inconsistencies into the temperature record. To find out how much actual temperatures have changed, scientists have to filter out these changes in the way the measurements were taken. Those are the adjustments under attack from Lamar Smith. They’re important, scientifically justified, and documented in the peer-reviewed literature. Scientists make adjustments to account for changes in the way both land and ocean temperature measurements have been made over the past 150 years. The ocean adjustments make the biggest difference, and in fact they actually reduce the measured amount of global surface warming over the past century, as compared to the raw data.

    Which Presidential Candidates are Most Friendly to the Energy Industry?  - As the 2016 presidential race starts to heat up it is time to take a look at the remaining serious candidates and what each one might mean for energy policies and energy companies in the U.S. While a lot can happen in the next couple of months, the current leaders for the Republican Party are Donald Trump, Ted Cruz, and Marco Rubio. For the Democrats, the race will likely come down to a long brawl between Hillary Clinton and Bernie Sanders. As a bonus, it’s also worth looking at what Michael Bloomberg might do for energy if he enters the Presidential race and wins.

    New CO2 rules threaten North Dakota prosperity — North Dakota’s “continued prosperity” is at stake and the state’s $4 billion lignite industry is in “mortal danger” due to new federal rules mandating a significant reduction in carbon dioxide emissions from coal-fueled power plants, an industry official told lawmakers Tuesday. “The magnitude of this problem is greater than anything we’ve ever dealt with,” Lignite Energy Council President Jason Bohrer told the Legislature’s Taxation Committee. President Barack Obama last August unveiled new federal rules designed to cut greenhouse gas emissions from U.S. power plants. Under the new standards, North Dakota must cut its emission rate by almost 45 percent by 2030. North Dakota and more than 20 other states sued the Environmental Protection Agency over the new standards. North Dakota officials argue the new rules go beyond EPA’s authority and will drive up the cost of electricity at the expense of ratepayers and hurt the state’s economy. The EPA says the rules are an important step on climate change to reduce carbon pollution from power plants. North Dakota has seven electric power plants that are fueled by lignite, an abundant but low-grade coal that is mined in the state. Bohrer said 55 percent of the power produced from those factories is exported to nine surrounding states, including Minnesota, which is backing the EPA’s new rules. Bohrer said the North Dakota plants are in danger of being shuttered because there is no cost-effective technology commercially available at present to remove carbon dioxide.

    Supreme Court blocks Obama carbon emissions plan - (Reuters) - The U.S. Supreme Court on Tuesday delivered a major blow to President Barack Obama by blocking federal regulations to curb carbon dioxide emissions from power plants, the centerpiece of his administration's strategy to combat climate change. On a 5-4 vote, the court granted a request made by 27 states and various companies and business groups to block the administration's Clean Power Plan. The move means the regulations will not be in effect while litigation continues over whether their legality. The brief order from the justices said that the regulations would be on hold until the legal challenge is completed. The court's five conservatives all voted to block the rule. The order noted that the four liberals would have denied the application. A U.S. appeals court in Washington had turned away a similar request on Jan. 21. The states, led by coal producer West Virginia and oil producer Texas, and several major business groups in October launched the legal challenges seeking to block the Obama administration's plan. More than a dozen other states and the National League of Cities, which represents more than 19,000 U.S. cities, filed court papers backing the Environmental Protection Agency's rule. The appeals court still must hear oral arguments on June 2 and decide whether the regulations are lawful.

    Supreme Court deals blow to Obama on climate change - The Supreme Court on Tuesday struck a damaging blow to President Barack Obama’s effort to leave a legacy of action on climate change by ordering a halt to implementing the centrepiece of his plans. The US’s top court told the administration to stop working on landmark rules to cut carbon dioxide emissions from the power sector, the country’s single biggest source of greenhouse gases. The order does not signal the demise of the power plant rules, but leaves their fate hanging in the balance as a District of Columbia appeals court weighs their legality following a flurry of legal challenges. The decision will resonate beyond the US, as the boldness of Mr Obama’s plans — which were finalised last August — helped build the international momentum that led to the sealing of a global climate deal in Paris in December. Senior administration officials sought to reassure the rest of the world on Tuesday night, calling it a “temporary procedural determination” and insisting the US would still meet its long-term climate targets. The rules, known as the Clean Power Plan, demand that the US power sector cuts carbon emissions by 32 per cent from 2005 levels by 2030. Josh Earnest, the White House spokesman, said: “We disagree with the Supreme Court’s decision to stay the Clean Power Plan while litigation proceeds. The Clean Power Plan is based on a strong legal and technical foundation . . . We remain confident that we will prevail on the merits.” The Supreme Court decision was cheered by power companies, which sued to block the rules while arguing that they would push up energy costs, and by states that said the rules infringed on their rights by telling them how to behave. The rules’ final fate may not now be determined until after Mr Obama leaves office next January. The Democrats vying to replace him have vowed to defend the rules while every Republican presidential candidate wants to repeal them.

    The Supreme Court Just Gave The Finger To Obama’s Plan To Slow Climate Change --The five Republican members of the Supreme Court handed down a series of unexpected orders Tuesday night, halting environmental regulations that were expected to “avoid thousands of premature deaths and mean thousands fewer asthma attacks and hospitalizations in 2030 and every year beyond,” according to the Environmental Protection Agency. As ThinkProgress has previously explained, these regulations “represent the most significant thing America has ever done to combat climate change.”  The justices cast their vote along party lines — all four of the Court’s Democrats voted to allow the rules to go into effect. The Court offered no insight into its reasoning beyond its party line vote. Under Tuesday evening’s orders, “the Environmental Protection Agency’s ‘Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,’ is stayed pending disposition of the applicants’ petitions for review in the United States Court of Appeals for the District of Columbia Circuit and disposition of the applicants’ petition for a writ of certiorari, if such writ is sought.” In effect, this means that the rules will remain suspended until a federal appeals court rules on this challenge to the regulations, the parties challenging the rules seek Supreme Court review, and the justices decide how they wish to handle that request.  Given the complexity of this case and the Supreme Court’s schedule, Tuesday evening’s order could easily delay the rule until after President Obama leaves office — if the rule gets to go into effect at all.

    What Are States Going To Do Now That The Supreme Court Has Weighed In On Obama’s Climate Plan? -  A plan to decrease emissions from coal-fired power plants was delayed by the Supreme Court this week. Across the country, hundreds of state employees woke up Wednesday to find the rug pulled out from under their jobs. They are the people of the environmental departments, many of whom have been working for months, or even years, on plans that will decrease the amount of carbon coming from the electricity sector. Now, the Supreme Court has thrown that mission — and its timeline — into uncertainty, by issuing a stay to the implementation of the EPA’s Clean Power Plan until legal challenges are decided. Experts estimate that could be sometime next June. “There are a lot of unanswered questions, I guess,” Craig Wright, director of the New Hampshire Air Division, told ThinkProgress. New Hampshire was one of the states already working on a plan to meet the requirements of the Clean Power Plan. The state is a member of the Northeast’s Regional Greenhouse Gas Initiative (RGGI), a multi-state, cap-and-trade emissions reduction program. RGGI is expected to be the primary compliance mechanism for its member states, and it is undergoing a scheduled review in 2016. It’s made everyone more nervous. There is no question about that “Obviously, I think, we need to take a look at how this impacts what we do moving forward,” Wright said. He pointed out that the draft compliance plans were — until Tuesday — due to the EPA in September. That gives states another 16 months until they know what their electricity generation mix should look like. “I think we’ll have to obviously talk not only to our legal staff here, but also our partners on RGGI,” Wright said. “We’re somewhat surprised and disappointed, as a state that is already trying to implement a plan.”

    North Dakotans laud Supreme Court move to halt CO2 rules  (AP) — A U.S. Supreme Court move to suspend federal rules aimed at reducing carbon dioxide emissions from coal-fueled power plants is good news for North Dakota, state officials said. Justices have put the rules on hold while a legal challenge led by the state proceeds. The White House issued a statement saying it disagreed with the decision and that “we remain confident that we will prevail on the merits.” President Barack Obama last August unveiled rules designed to cut greenhouse gas emissions from power plants. Under the new standards, North Dakota must cut its emission rate by almost 45 percent by 2030 — a reduction that state and industry officials believe could jeopardize North Dakota’s seven coal-fueled power plants and $4 billion lignite industry. North Dakota and nearly 30 other states sued the Environmental Protection Agency over the new standards. Attorney General Wayne Stenehjem said in a statement late Tuesday that North Dakota now need not comply with what he calls “this radical rule” until court action concludes, “at which time North Dakota expects the courts to declare EPA’s Clean Power Plan rule unlawful.” Members of North Dakota’s congressional delegation — Sens. John Hoeven and Heidi Heitkamp and Rep. Kevin Cramer — all issued statements late Tuesday praising the Supreme Court decision.

    Montana suspends work of Clean Power Plan panel after ruling  (AP) — Montana Gov. Steve Bullock on Tuesday suspended the work of a panel appointed to address new federal carbon dioxide emissions rules after the U.S. Supreme Court temporarily blocked the key component of President Barack Obama’s climate change plan. Montana is one of 27 states suing to halt implementation of Obama’s Clean Power Plan. The Supreme Court ruled Tuesday to block enforcement of the plan while the litigation is pending. Under the federal plan, Montana faced the steepest cuts to its emissions rates of any state — 47 percent compared to 2012 — to meet the target set by the Environmental Protection Agency. Nationwide, the Clean Power Plan aims to cut emissions by 32 percent by 2030. The Democratic governor has previously said the Montana cuts were unfair, but the state had to move ahead with planning for them. In November, he appointed an advisory council to begin shaping a plan and to justify extending to 2018 the deadline for submitting that plan. On Tuesday, Bullock said he was putting the advisory council’s work on hold.

    Delay of clean power plan stokes worries about Paris treaty — The Obama administration asserted Wednesday that a Supreme Court order delaying enforcement of its new clean-power rules will ultimately have little impact on meeting the nation’s obligations under the recent Paris climate agreement. But environmentalists and academic experts are more nervous. They are concerned that any significant pause in implementing mandated reductions in carbon dioxide emissions from coal-fired power plants will imperil the credibility of the Unites States to lead on climate change, while increasing worries both at home and abroad that the whole international agreement might unravel if a Republican wins the White House in November. Nearly 200 countries agreed in December to cut or limit heat-trapping greenhouse gases in the first global treaty to try to limit the worst predicted impacts of climate change. The goal is to limit warming to no more than an additional 1.8 degrees Fahrenheit. Each nation set its own goals under the treaty, and President Barack Obama committed the United States to make a 26 to 28 percent cut in U.S. emissions by 2030. The Clean Power Plan is seen as essential to meeting that goal, requiring a one-third reduction in carbon dioxide emissions from existing power plants over the next 15 years. Even before the Environmental Protection Agency released the plan last year, a long list of mostly Republican states that are economically dependent on coal mining and oil production announced they would sue.

    Obama says climate rule on 'strong legal footing' — President Barack Obama says he is very confident his administration is on “strong legal footing” in its defense of a key piece of his climate-change agenda. Obama is telling political donors in California that the Supreme Court’s decision to freeze a new rule reducing power plant emissions is only a temporary setback. The power plant rule would aim to reduce carbon dioxide emissions at existing power plants by about one-third by 2030. But the court this week put it on hold until after legal challenges are resolved. The decision signaled that the justices believe opponents have made strong arguments against it. Speaking at a fundraiser, Obama told donors not to “despair.” He says fighting climate change is going to be “an enormous generational challenge.”

    Chilling Warning on Warming's Future Effect — Humanity is taking a huge risk of causing irreversible damage for untold millions of people in future generations by treating climate change as simply a short-term problem, according to an international team of scientists.. They warn that the window of opportunity for reducing emissions is now small, and that the speed at which we are currently emitting carbon into the atmosphere could result in the Earth suffering damage lasting for tens of thousands of years. Writing in Nature Climate Change journal, they say too much of the climate policy debate has focused on the past 150 years and their impact on global warming and sea level rise by the end of this century. “Much of the carbon we are putting in the air from burning fossil fuels will stay there for thousands of years—and some of it will be there for more than 100,000 years.” Co-author Thomas Stocker, former co-chair of Working Group I of the Intergovernmental Panel on Climate Change (IPCC), warns of “the essential irreversibility” of greenhouse gas emissions. He writes: “The long-term view sends the chilling message of what the real risks and consequences are of the fossil fuel era. It will commit us to massive adaptation efforts so that, for many, dislocation and migration becomes the only option.” The authors say sea level rise is one of the most graphic impacts of global warming, yet its effects are only just starting to be felt. The latest IPCC report, for example, expects that likely sea level rise by the year 2100 will be no more than one metre.

    White House: Scrap drilling revenue sharing with Gulf states -— Louisiana’s U.S. senators and environmental groups are blasting the White House for proposing to help Alaska deal with rising seas by taking money away from similar efforts along the Gulf Coast. In its proposed budget for 2017, the White House said Tuesday that it wanted to repeal a 2006 provision that establishes a formula for sharing revenues from offshore drilling in the Gulf of Mexico with four Gulf states. The vast majority of those revenues now go to the federal government, but starting next year Louisiana, Alabama, Mississippi and Texas are slated to begin receiving a large portion of those funds, estimated at about $375 million with Louisiana getting the lion’s share at $176 million a year. Those funds are designed to go toward coastal restoration for states supporting offshore drilling. The funds are central to plans for restoration in Louisiana, where land loss is a crisis. The state has lost about 1,900 square miles of coast since the 1930s and continues to lose about 17 square miles a year. In its new budget proposal, the White House called for “repealing” those payments, saying they were “unnecessary and costly.” The White House also questioned revenue sharing because the payments go to a “handful of states.” The White House proposal faces stiff opposition in the Republican-controlled Congress, and the likelihood of success appears small. Louisiana’s senators have even proposed raising the amount Gulf states get.

    UN agency proposes greenhouse gas emissions rules for planes — A U.N. panel on Monday proposed long-sought greenhouse gas emissions standards for airliners and cargo planes, drawing praise from the White House and criticism from environmentalists who said they would be too weak to actually slow global warming. The International Civil Aviation Organization said the agreement reached by the agency’s environmental panel requires that new aircraft designs meet the standards beginning in 2020, and that designs already in production comply by 2023. There is also a cutoff date of 2028 for the manufacture of planes that don’t comply with the standards. The standard must still be adopted by the agency’s 36-nation governing council, but substantive changes aren’t expected. The standards would be the first ever to impose binding energy efficiency and carbon dioxide reduction targets for the aviation sector. When fully implemented, the standards are expected to reduce carbon emissions by more than 650 million tons between 2020 and 2040, equivalent to removing over 140 million cars from the road for a year, according to the White House. The standards would require an average 4 percent reduction in fuel consumption during the cruise phase of flight starting in 2028 when compared with planes delivered in 2015. However, planes burn the most fuel during takeoffs and landings, while cruising at high altitudes is already the most fuel-efficient period.

    U.S. Farm Statistics for Renewable Energy, No-Till, Internet, and More - Big Picture Agriculture -  infographic - The last U.S. agriculture census was completed in 2012. This infographic that resulted from that census breaks down agricultural practices by number... for irrigation, renewable energy, no-till, and more.

    The Koch Brothers' Dirty War on Solar Power - After decades of false starts, solar power in America is finally poised for its breakthrough moment. The price of solar panels has dropped by more than 80 percent since President Obama took office, and the industry is beginning to compete with coal and natural gas on economics alone.  But the birth of Big Solar poses a grave threat to those who profit from burning fossil fuels. And investor-owned utilities, together with Koch-brothers-funded front groups like American Legislative Exchange Council (ALEC), are mounting a fierce, rear-guard resistance at the state level – pushing rate hikes and punishing fees for homeowners who turn to solar power. Their efforts have darkened green-energy prospects in could-be solar superpowers like Arizona and Nevada. But nowhere has the solar industry been more eclipsed than in Florida, where the utilities' powers of obstruction are unrivaled. The Sunshine State has the best solarity east of the Mississippi, and the third-best rooftop solar potential in America. Yet measured by solar production, it ranks just 16th in the nation. It's dwarfed by solar giants like California. Florida even lags behind Northern states like New Jersey, Massachusetts and New York. "It defies logic," says former Florida Gov. Charlie Crist. "It's absolutely absurd." The solar industry in Florida has been boxed out by investor-owned utilities (IOUs) that reap massive profits from natural gas and coal. These IOUs wield outsize political power in the state capital of Tallahassee, and flex it to protect their absolute monopoly on electricity sales. "We live in the Stone Age in regard to renewable power," says state Rep. Dwight Dudley, the ranking Democrat on the energy subcommittee in the Florida House. "The power companies hold sway here, and the consumers are at their mercy."

    Why The Secular Stagnationists May Be Wrong: Rapidly Falling Solar And Wind Prices - The voices of pessimistic secular stagnationists have been growing louder and louder.  Robert Gordon's recent book has been the poster boy recently, emphasizing technological stagnation, productivity slowdowns, and a lack of likely new products of any real value to humans.  He and Tyler Cowen focus on the relationship between IT and the rest of the economy, seeing a slowdown in productivity improvements in the economy coming from this important sector.  Lawrence Summers emphasizes demand side stagnation, but sees his view as complementary to the supply-side technological pessimism coming from Gordon and others.  A particular reason from the supply-side that these forecasts of increasing stagnation may prove to be oveblown comes from a sector that none of these doomsayers ever mention, but which remains fundamental to the world economy: energy.  In particular, both solar and wind energy have been experiencing dramatic declines in costs, which many are projecting will continue in the foreseeable future. For one among several sources on solar energy see Ramen Naam, from August, 2015.    On wind a report from the US Department of Energy, also in August 2015, makes no projections, but reports costs in the low-cost interior of the US falling from $70/MWh in 2009 to $23/MWh in 2014.  Anything like this continuing would be important.  Their prices are now competitive with conventional sources. If  indeed we see dramatic further reductions in costs that put theses sources far lower in cost than current ones, we may well see massive investments in shifting to them that could substantially transform the energy sector of the world economy and the world economy itself more broadly, including allowing for major productivity increases and an acceleration of growth in the real economy, irrespective of whatever is going on in  the IT sector or whether wonderful new products that make the indoor toilet look boring and unimportant will be discovered. 

    France To Build 621 Miles Of Solar Roads -- Roads have been mostly the same for a thousand years. Different types of vehicles traveled on them, and the surfaces might have been made with different materials, but the basic function of a road has been the same since the Romans built the world’s first highways. All that might be about to change. Building on the Climate Accord reached in Paris last December, France’s minister of Ecology and Energy recently announced that it will pave 621 miles of road with solar panels over the next five years. The goal of the project is to provide enough energy to power homes for 5 million people – roughly 10 percent of the country’s population. The project is called the Wattway and is going to be a collaboration between French road builder Colas and the National Institute of Solar Energy. The remarkable thing about the project is that the 1,000 km of road will be paved with solar panels embedded into the road itself. The panels are about a quarter of an inch thick and supposed to be able to withstand highway traffic without making roads more slippery. There are a couple of other projects that are similar in concept including a 229 foot bike path in the Netherlands that is using a similar principle and a research-stage project in Idaho involving the research and development of solar panels for use in road applications in the future. Needless to say, neither of these projects is in any way comparable to paving more than 600 miles of road with panels. France’s effort is truly unparalleled.

    Leak in California turns focus on underground gas storage -- When gas started spewing in October from a well that’s part of the Aliso Canyon underground natural gas storage field in California, it turned a spotlight on a little-considered part of the nation’s oil and gas industry. That is resulting in scrutiny about the condition of storage fields and the adequacy of regulations pertaining to underground gas storage. “That (leaking Southern California Gas Co.) field in particular has raised some questions about fields across the country, so we’re now trying to dig into them and say, ‘OK, are they all like Aliso Canyon or are some of them in better shape than others?’ I don’t think we have an answer yet, to be fair,” said Bruce Baizel. He’s the Durango-based director of the energy program for the conservation group Earthworks, which partnered with the Environmental Defense Fund to do aerial infrared imaging of the California leak. In Colorado, the question resonates even more locally because of the existence of a storage field in the Thompson Divide area southwest of Glenwood Springs, an area a Roaring Fork Valley coalition has been seeking to protect from new oil and gas development. For years, activists have been monitoring environmental conditions at the SourceGas Wolf Creek storage field there, and more recently they’ve worried about what threat might be posed by a proposal by SG Interests to drill through that field to produce gas from the Mancos shale formation lying below it. As Silt resident Peggy Tibbetts recently put it on her blog,, “The Wolf Creek storage area is as old as Aliso Canyon. If and when SGI drills and fracks through that storage field to access the gas in the Mancos formation, there is just as much risk of a blowout as there was and is at Aliso Canyon.”

    China just hit a nuclear fusion milestone -- Just last week, we reported that Germany’s revolutionary nuclear fusion machine managed to heat hydrogen gas to 80 million degrees Celsius, and sustain a cloud of hydrogen plasma for a quarter of a second. This was a huge milestone in the decades-long pursuit of controlled nuclear fusion, because if we can produce and hold onto hydrogen plasma for a certain period, we can harness the clean, practically limitless energy that fuels our Sun.  Now physicists in China have announced that their own nuclear fusion machine, called the Experimental Advanced Superconducting Tokamak (EAST), has produced hydrogen plasma at 49.999 million degrees Celsius, and held onto it for an impressive 102 seconds. While this is nowhere near the hottest temperature that’s been produced by an experiment — that honor goes to the Large Hadron Collider, which hit a whopping 4 trillion degrees Celsius (250,000 times hotter than the center of the Sun) back in 2012 — the team from China’s Institute of Physical Science in Hefei managed to recreate solar conditions for well over a minute.  Sustaining these incredibly high temperatures for long enough to harness the energy produced by the reaction is key to achieving controlled nuclear fusion, as it allows for more stable alignment of the magnetic fields that are used to maneuver the plasma away from the walls of the machine, and the collection of high-energy particles and heat energy that are produced as part of the reaction.

    SC sues Energy Dept over unfinished nuclear fuel project — South Carolina has again sued the federal government over an unfinished project to convert nuclear weapons components into reactor fuel, saying in a lawsuit filed Tuesday that the administration has acted unconstitutionally in failing to complete the mixed-oxide facility by a Jan. 1 deadline. “The federal government has a responsibility to follow through with its promises,” state Attorney General Alan Wilson said in a statement provided to The Associated Press. “The Department of Energy has continually shown disregard for its obligations under federal law to the nation, the state of South Carolina and frankly the rule of law.” Federal officials didn’t immediately return a message seeking comment. The program is intended to turn weapons-grade plutonium into commercial nuclear reactor fuel to fulfill a nonproliferation deal with Russia. Under the agreement, Russia and the U.S. agreed to dispose of at least 34 metric tons apiece of weapons-grade plutonium, enough material for about 17,000 nuclear warheads, which would then be turned into commercial nuclear reactor fuel. The project at the Savannah River Site, along the South Carolina-Georgia border, is years behind schedule and billions over its original budget. Because the facility wasn’t operational by a Jan. 1 deadline, the federal government was supposed to remove 1 metric ton of plutonium from South Carolina or pay fines of $1 million a day for “economic and impact assistance” — up to $100 million yearly — until either the facility meets production goals or the plutonium is taken elsewhere for storage or disposal. The suit also seeks daily fines of $1 million and the plutonium removal.

    "Fukushima Class Disaster" - L.A. Gas Leak Spewing Lethal Levels Of Breathable Nuclear Material -- In a breaking development that has been completely ignored by mainstream news sources, the leaking natural gas well near Los Angeles, California is now reportedly spewing lethal levels of radioactive material, according to a report from Steve Quayle and a group with expertise in nuclear material. A leaking natural gas well outside Los Angeles is spewing so much naturally-occurring Uranium and Radon, that “breathable” radiation levels have hit “lethal levels” according to a Nuclear Expert group. Hal Turner of Super Station 95 reports that the well is releasing 1.91 Curies (Ci) of radiation per hour. This rogue well is spewing huge amounts of natural gas and about 1.91 curies an hour of natural radioactive material in the natural gas… 1.91 curies an hour is about 45.9 curies per day… It’s a really, really big leak.  A curie is a unit of measure in the U.S. to describe very large radioactive releases. The French utilize a unit of measure called a Becquerel to measure radiation levels. A single Becquerel measures the activity of a quantity of radioactive material in which one nucleus decays per second.  To put things into perspective, Turner explains that a single Curie is equivalent to about 37 Billion Becquerels (Bq) of radiation: A Becquerel is a much more human sized unit of measure… it’s one radioactive burst of energy per second… One Curie is 37 billion Becquerels per second. That’s 1.7 trillion Becquerels per day coming out of that natural gas well.

    Official: Massive LA-area gas leak could be capped in a week — A California official outlined a plan Thursday to cap a massive Los Angeles-area gas leak by the end of next week. The final phase to intercept the ruptured Southern California Gas Co. well is expected to begin Monday, said Wade Crowfoot, an adviser to Gov. Jerry Brown. If all goes according to plan, it should to take contractors about five days to permanently seal the well that has been leaking since October. The announcement at a public meeting is ahead of the company’s worst-case prediction that it would be plugged by the end of the month.  The well blowout at the largest natural gas storage facility in the West has uprooted thousands of residents and spewed more than 2 million tons of climate-changing methane in what environmentalists have said is the worst crisis since the BP oil spill in the Gulf of Mexico in 2010. Residents have complained of headaches, nausea, nosebleeds and other symptoms. The governor declared an emergency last month, and several public agencies are investigating the leak and have ordered the company to stop it. Crowfoot said that once the leaking well is intercepted a mile-and-a-half underground, mud and fluids will be pumped into it to stop the gas that is gushing out. When no gas is leaking, cement will be pumped down the old well to permanently plug it, Crowfoot said. It should take a couple days for the cement to cure. When state regulators determine the plug is solid and the well is not leaking, they will declare it killed, he said.

    After 16 Weeks, The Massive Methane Leak In California Is Finally Plugged - The 16-week-long gas leak at California’s Aliso Canyon Storage Facility, located about 30 miles northwest of downtown Los Angeles, has been temporarily stopped, an important first step towards permanently capping what has become the largest single release of methane into the atmosphere ever recorded. The leak has been called the largest environmental disaster since the 2010 BP oil spill, and thousands of families have been forced to evacuate their homes due to public health concerns. “We have temporarily controlled the natural gas flow from the leaking well and begun the process of sealing the well and permanently stopping the leak,” Jimmie Cho, senior vice president of gas operations and system integrity at Southern California Gas Co. (SoCalGas), the utility that manages the storage facility, said in a statement released Thursday.  The process to begin stopping the leak began in early December, when the utility began drilling a relief well. On Thursday, workers successfully intercepted the base of the leaking well, and began diverting “heavy fluids to temporarily control the flow of gas out of the leaking well,” according to the SoCalGas release. The relief is only temporary, however, and the utility notes that permanently stopping the leak could take several days, as cement needs to be pumping into the leaking well to seal it indefinitely. Once the well is sealed, displaced residents will have eight days to relocate back to their homes. 

    65,000% Spike In Reported Radioactivity After Tritium Leaks At Indian Point Nuclear Power Plant - Two years after being fined for falsifying safety records, nine months after a transformer exploded at the Indian Point Nuclear Reactor just 37 miles from midtown Manhattan, and two months after Entergy - the plant's operator - shut down the Unit 2 reactor after a major power outage cut power to several control rods (when the company assured that no radioactivity was released into the environment), this afternoon NY Governor Andrew Cuomo said he learnedthat "radioactive tritium-contaminated water" had leaked into the groundwater at the nuclear facility in Westchester County. Cuomo, in a letter Saturday to the state Health Department and the Department of Environmental Conservation, called for the probe into the Indian Point NPP after he said Entergy, the plant's owner, reported "alarming levels of radioactivity" at three monitoring wells, with one well’s radioactivity increasing nearly 65,000 percent. It is unclear if the facility was taking a page out of the Fukushima "crisis response" book, or was being honest when it said that the contamination has not migrated off site "and as such does not pose an immediate threat to public health." For the sake of millions of downriver New Yorkers, we hope it was the latter.  From Cuomo's statement: “Yesterday I learned that radioactive tritium-contaminated water leaked into the groundwater at the Indian Point Nuclear facility.  The company reported alarming levels of radioactivity at three monitoring wells, with one well’s radioactivity increasing nearly 65,000 percent. The facility reports that the contamination has not migrated off site and as such does not pose an immediate threat to public health. “This latest failure at Indian Point is unacceptable and I have directed Department of Environmental Conservation Acting Commissioner Basil Seggos and Department of Health Commissioner Howard Zucker to fully investigate this incident and employ all available measures, including working with Nuclear Regulatory Commission, to determine the extent of the release, its likely duration, cause and potential impacts to the environment and public health.”

    Critics decry radioactive leak at New York nuclear plant — Watchdogs say a leak of radioactive material into the groundwater below a nuclear power station in New York City’s suburbs highlights a chronic problem with the nation’s atomic plants. New testing has shown that the amount of tritium below the Indian Point power plant in Buchanan is about 740 times the amount allowed in drinking water. Officials say there’s no immediate health risk from the leak because the village gets its drinking water from the Catskill mountains. But critics of nuclear plants say the leak is cause for concern, partly because investigators had yet to pinpoint how it happened. An Associated Press investigation in 2011 found that three quarters of commercial nuclear power plants in the U.S. had reported tritium leaks. Those spills were often linked to corroded, underground pipes.

    Japan: Fukushima clean-up 'may take 40 years' - Cleaning up Japan's Fukushima Daiichi nuclear plant, which suffered catastrophic meltdowns after an earthquake and tsunami hit in 2011, may take up to 40 years. The crippled nuclear reactor is now stable but the decommissioning process is making slow progress, says the plant's operator Tokyo Electric Power Co, better known as TEPCO. "If I may put this in terms of mountain climbing, we've just passed the first station on a mountain of 10 stations," said Akira Ono, head of the Fukushima plant. It's almost five years since the earthquake and the tsunami it triggered killed more than 15,000 people and destroyed coastal towns on March 11, 2011. TEPCO has attracted fierce criticism for its handling of the disaster.The biggest obstacle to closing down the plant permanently is removing all the melted nuclear fuel debris from three reactors, Ono told reporters after a press tour of the plant this week. But TEPCO says it is in the dark about the current state of the debris. Though radiation levels have fallen, they still prevent workers from accessing the reactor buildings, making it hard to survey the condition of the destroyed facilities and molten fuel debris. What to do with the large volume of contaminated water now stored at the plant is another problem. Around 300 to 400 tons of contaminated water is generated every day as groundwater flows into the plant filled with radioactive debris. To contain the tainted water, TEPCO pumps up the water and stores it in tanks, adding a new tank every three to four days. There are 1,000 tanks today containing 750,000 tons of contaminated water.

    Duke Energy Fined $6.6 Million For Massive Coal Waste Spill ---North Carolina environmental regulators fined Duke Energy $6.6 million this week for the company’s role in a 2014 coal ash spill that sent millions of gallons of contaminated water into the state’s Dan River.  The fine covers violations Duke Energy pleaded guilty to in federal court last year. In February of 2014, 39,000 tons of coal ash — a toxic byproduct of coal burning that can contain lead, mercury, and arsenic — and 27 million gallons of contaminated water leaked from a storage pond at a closed Duke power plant in North Carolina into the Dan River. It was later discovered that Duke was warned about the potential for leaks from the storage pond before the spill occurred, but the company ignored these warnings.  Monday’s fine was handed down to the company by North Carolina’s Department of Environmental quality, and joins the $2.5 million settlement Duke agreed to with the state of Virginia, which was also impacted by the spill. It also joins the $102 million in fines and restitution related to the spill Duke agreed to pay in May of last year. We really are not interested in fines. We’re interested in preventing disasters so that no fines will ever have to be assessed.

    Environmentalists fight $7M Duke Energy pollution deal  (AP) — Environmentalists are challenging in court a surprise deal in which North Carolina regulators settle decades of suspected groundwater pollution at Duke Energy’s coal ash pits for $7 million. A state Superior Court judge is scheduled to hear arguments Friday as opponents seek to overturn the deal between Gov. Pat McCrory’s former employer and the state Department of Environmental Quality. The deal cut the $25 million fine over groundwater pollution at a Wilmington plant that regulators had promoted as the largest penalty for environmental damage in state history. The agreement also claimed to settle groundwater pollution claims at not one, but all 14 power plants storing coal ash. Duke Energy and environmental regulators pointed to a 2011 policy that favored correcting groundwater problems over fines as prompting the settlement.

    Coal Waste Water Was Dumped Into A Virginia Creek Last Year And Groups Are Furious -  Dominion Virginia Power, a utility company, dumped more than 30 million gallons of coal ash water into Quantico Creek last May. The state environmental agency said the action was lawful but county officials and environmental advocates are skeptical.  Allegations of dubious practices are mounting against a Virginia state agency that last month approved the disposal of millions of gallons of partially-treated coal ash water in two Virginia Rivers. This time, however, harsh comments are not coming from environmentalists alone.  Just days after Dominion Virginia Power, a utility company, confirmed it released 33.7 million gallons of coal ash water into a tributary of the Potomac River last spring, county officials say they distrust the Virginia Department of Environmental Quality and the company alike.  “They did not let the public know they were going to do that. They did not let the county know they were going to do that. And it just looks very, very, shady,” said Corey Stewart, chairman of the Prince William County Board of Supervisors, in an interview with ThinkProgress.  Last month, the Virginia Water Control Board gave Dominion the permits it needed to start closing some of its coal ash ponds. That entails draining the less-polluted top water from coal ash ponds at the Possum Point power plant, located by Quantico Creek, and the Bremo power plant, located by the James River. That plan and the newly awarded permits have been questioned, however, because the wastewater would be only partially treated before it’s flushed into Quantico Creek and the James River.

    Costs of closing, cleaning toxic coal ash pits grows clearer (AP) — Giant earthmoving machines beep and grind as they drop 17-ton scoops of coal ash and dirt into dozens of railroad cars lined up for two-thirds of a mile at a site along the Virginia-North Carolina border, where the country’s largest electricity company was responsible for one of the worst spills of the toxic, liquefied waste in U.S. history. Duke Energy Corp. will ship 1.5 million tons of residue from decades of burning coal for electricity to a contracted landfill about 130 miles away in central Virginia. The utility built 2 miles of railroad track just to connect existing rail lines with the excavation site. Once the contents of the pit roughly a quarter mile from the Dan River are emptied, it’ll be lined with waterproof material so heavy metals won’t filter into water underground or the river. Then it will be refilled with much of the 1.5 million tons of liquefied coal ash taken from two other pits closer to the river’s edge. A burst pipe at one of them triggered the disaster two years ago this week and led officials to re-examine how they plan to cope with similar dangers at basins around the country. The nation’s cleanup price tag, which utility customers may be asked to pay, already is pushing into the billions.

    The Coal Decline Is Now Irreversible - There was a lot of talk last year about coal resources needing to be left in the ground if the world was to reach its 2-degree-celsius reduction environmental targets. The suggestion was that legislation was required to force power generators to switch to less polluting energy sources and, while in the meantime tougher emissions standards have played their part, the market has been much more active than government in encouraging change. A recent US Energy Information Administration report covered by Reuters states that generators produced 101.86 million megawatt hours (MWh) of electricity with gas in November versus just 87.78 million MWh with coal, the lowest monthly level since May 1980 when monthly coal use was 84.88 million MWh.  After more than one hundred years during which coal was the dominant fuel for power generation, some analysts think that when the final data for December is in, 2015 will prove to be the year natural gas took over. Coal has been declining since its peak in 2007 due to a number of factors, but the low cost of natural gas has been a major element. Gas prices at the Henry Hub benchmark in Louisiana fell as low as $1.53 in December, Reuters reports, and averaged $2.61 for all of 2015, the lowest level since 1999.

    Study: FirstEnergy’s Ohio Plan Would Cost Ratepayers $4 Billion; Proposal Aims to Protect Company Shareholders and Outdated Plants - — A proposal by Akron-based FirstEnergy Corp. to keep four aging electricity generation plants alive will cost ratepayers in Ohio almost $4 billion through 2024, a new study by the Institute for Energy Economics and Financial Analysis concludes. The report, A $4 Billion Bailout in the Buckeye State,” is an independent analysis of FirstEnergy’s proposal, which is being considered by the Public Utilities Commission of Ohio (PUCO). The study details energy market trends that put coal-fired and nuclear-powered electricity generation plants at a growing disadvantage to other energy sources. It also shows how FirstEnergy is pursuing approval of the plan as part of a larger corporate strategy to shift risk to ratepayers and how the proposal before the PUCO would guarantee shareholders a 10.38 percent return on the plants regardless of their performance. “The goal of FirstEnergy in putting forth this ratepayer-subsidized plan is to prolong the life of outdated plants in Ohio, put customers on the hook for the escalating costs of these plants and ensure future profits for FirstEnergy shareholders,” said Sandy Buchanan, IEEFA’s executive director. “The PUCO should reject it.”

    New Report Confirms FirstEnergy’s $4-Billion Boondoggle: FirstEnergy’s plea to keep four aging power plants alive will cost Ohio customers almost $4 billion, according to a new study out today by the Institute for Energy Economics and Financial Analysis (IEEFA). The proposal is currently in front of the Public Utilities Commission of Ohio (PUCO). The report, entitled A $4 Billion Bailout in the Buckeye State, outlines in clear terms how the utility giant hopes to force Ohioans to subsidize the continued operation of its outdated power plants, put customers on the hook for those plants’ escalating costs, and ensure future profits for FirstEnergy executives and shareholders.FirstEnergy executives know economics are not on their side Specifically, FirstEnergy’s Ohio utilities have proposed what they call a Retail Rate Stability Rider (otherwise known as a “bailout”) through which the costs and risks of three coal-fired plants (named Sammis, Clifty Creek, and Kyger Creek) and one nuclear reactor (named Davis-Besse) would be passed on to the utility’s captive customers. According to the IEEFA report, These plants were all spun off to a deregulated affiliate created in 2000, when FirstEnergy expected that it would be able to earn substantial profits by selling energy and capacity into the competitive wholesale PJM markets. However, FirstEnergy clearly does not believe that the units are currently profitable. Nor does it believe that expected market conditions will make the units profitable in the coming years.”

    Ohio fracking tax not on legislative leaders' agenda: Republican and Democratic leaders of the state legislature say now is the not the time to change Ohio's tax on oil and gas drillers, saying it could be problematic to the industry. A severance tax increase has been a priority of Republican Gov. John Kasich (KAY'-sik) for years. He contends the tax is too low, and he's wanted to use proceeds of a tax hike on hydraulic fracturing, or fracking, to help cut the state's income-tax rate. Speaking Thursday at a forum in Columbus hosted by The Associated Press, Republican House Speaker Cliff Rosenberger said his chamber would not be taking up a severance tax adjustment this year. Republican Senate President Keith Faber also says revisions to the tax aren't a good idea until market conditions improve.

    Ohio legislators say no immediate plans to raise gas, oil severance tax: -- Ohio's legislative leaders said Feb. 11 they won't increase taxes on oil and gas produced via horizontal hydraulic fracturing, or fracking, while oil prices remain low. "Until market conditions improve, it's something that we should stay away from," said House Speaker Cliff Rosenberger (R-Clarksville), paraphrasing a study released by lawmakers last year on the subject. "I'll just be pointed: North Dakota and Oklahoma are two great states to point out. I've talked to the legislative leaders in both states. North Dakota's decreasing their severance tax And Oklahoma is having issues huge issues with the fact that they've tied their severance tax to [the state general revenue fund] and now [they're] facing a structural imbalance." Rosenberger and others offered comments on the severance tax issue during an Ohio Associated Press forum in Columbus. The severance tax increase has been a point of contention between Republican legislative leaders and Gov. John Kasich, who has pushed for an increase in rates for several sessions. The governor reiterated his support for an increase in December, saying an outside group could opt to place an even larger rate increase before voters. But Rosenberger and Senate President Keith Faber (R-Celina) said now is not the time to raise rates, with Ohio's fracking industry facing a downturn due to declining oil and natural gas prices.

    Ohio groups rally against injection wells, schedule screening -   Frackfree Mahoning Valley has learned, as of February 9, 2016, the Ohio Department of Natural Resources (ODNR) has not yet given permission for fracking waste injection to begin at a newly drilled injection well located in Vienna, Ohio, near family homes and the airport. This new information came to Frackfree Mahoning Valley from Teresa Mills of Buckeye Forest Council, who received it as a result of a public records request.  Teresa Mills also uncovered, via a public records request dated January 29, 2016, that it seems that Oklahoma-based KTCA Holdings LLC is the new owner of the airport-area Vienna injection well, previously listed as owned by KDA. KDA’s Vienna, Ohio injection well operation is associated with an April, 2015 toxic waste release that resulted in destruction of two wetlands and other adverse impacts.  Saying that the injection well is close to an “ area of known seismic activity,” Buckeye Forest Council and Frackfree Mahoning Valley are calling for the Ohio Department of Natural Resources (ODNR) to deny the injection permit for the Vienna, Ohio injection well near Vienna residences. The groups are also calling for two Weathersfield/ Niles injection wells to remain closed. One of these wells has been linked in news reports and a scientific study with man-made earthquakes.

    Court rejects appeal filed on K&H injection well - A Franklin County judge has ruled against Athens County Fracking Action Network’s appeal of an earlier decision related to a K&H Partners injection well in Troy Twp. Judge Patrick Sheeran of Franklin County Common Pleas Court filed his decision Tuesday. After the Ohio Division of Oil and Gas Resources Management issued a permit in 2013 for K&H Partners’ second injection well in Troy Twp., the Athens County Fracking Action Network (ACFAN) took the matter to the Ohio Oil and Gas Commission in an effort to overturn the permit. Injection wells are used to dispose of brine and other waste from oil and gas production wells. The commission, however, agreed with the division and K&H that the permit was a drilling permit, not an injection permit, and therefore the commission lacked jurisdiction to hear the matter. That decision was appealed by ACFAN to the Franklin County court. In his ruling, Sheeran agreed that the permit ACFAN appealed was a drilling permit over which the commission lacks jurisdiction. He said the commission only has powers given it by the General Assembly, and the legislature has not given authority for the commission to hear drilling permit cases.

    Drillers using more water to frack Ohio shale - The amount of water that companies use to drill for oil and gas in Ohio shale increased steadily from 2011 to 2015, according to a Dispatch analysis.  The numbers show that water use in Ohio increased by about 10 percent from 2013 to 2014, according to the analysis of the FracFocus Chemical Disclosure Registry, a website sponsored by the oil and gas industry that collects information about drilling and the hydraulic fracturing of shale to release oil and gas. Companies used nearly 36 million more gallons to frack wells in 2015 than they did in 2014, the Dispatch analysis shows. The average amount of water used per well also increased. Environmental advocates and some villages and cities in eastern Ohio were concerned when the fracking boom started several years ago that drillers would use excessive amounts of water from area watersheds.  The Ohio Department of Natural Resources, the state agency that regulates oil and gas activity, analyzed FracFocus data and found that the average volume of water used per well also increased from 2014 to 2015. But the department's analysis shows that the overall amount of water used decreased. The agency could not explain the discrepancy. Matt Eiselstein, a spokesman for the Ohio Department of Natural Resources — the state agency that regulates the oil and gas industry — said in an email that companies have gotten more efficient as fracking has grown in Ohio. That efficiency, he said, allows companies to drill fewer wells while creating longer laterals — the horizontally drilled holes that allow companies to access oil and gas in shale deep below ground. "In Ohio, we are fortunate to have abundant water resources," Eiselstein said

    Ohio anti-fracking activists miss the mark on climate change, methane regulations: Jackie Stewart, Energy In Depth-Ohio -  -- Ohio's anti-fracking activists, inspired by December's Paris Climate Conference, have been eager to push misinformation about fracking and greenhouse gas emissions and champion increased regulations on the oil and gas industry. But what they fail to acknowledge is that it's precisely because of fracking, and the increased use of natural gas, that the United States has achieved dramatic reductions in greenhouse gas emissions. Even the Intergovernmental Panel on Climate Change, which activists have called the "gold standard" for climate science, has said, "the rapid deployment of hydraulic fracturing and horizontal drilling an important reason for a reduction of GHG emissions in the United States." In fact, thanks to natural gas, carbon emissions from electricity production have declined to a 20-year low in the United States. Natural gas has reduced nearly 60 percent more carbon dioxide emissions than renewables since 2005. It's no surprise that Environmental Protection Agency (EPA) administrator Gina McCarthy said, "Responsible development of natural gas is an important part of our work to curb climate change." Activists have tried to push the claim that methane emissions during oil and gas production cancel out the climate benefits of natural gas, but that's not what the science tells us. Dozens of recent reports have found that oil and gas methane emissions are very low – far below the threshold for natural gas to have significant climate benefits.

    Chesapeake Plummets Over 20% On Report It Has Hired Bankruptcy Attorneys -- The saga of the gas giant Aubrey McClendon's built, Chesapeake Energy, enters its endgame, when moments ago following a Debtwire report that the company has hired Kirkland and Ellis as its restructuring/bankruptcy attorney - typically a step taken just weeks ahead of a formal Chapter 11 filing - the stock has plunged 22% to $2.40, the lowest price in the 21st century, and for all intents and purposes, ever.  In a few weeks we will see just how many banks were properly "provisioned" for this now imminent bankruptcy that may just unleash the default wave so many have been waiting for.

    Chesapeake’s Stock Plunges on Bankruptcy Fears - Chesapeake Energy, the second largest natural gas producer in the United States, came under severe pressure on Monday after rumors surfaced that the company was near bankruptcy. Over the weekend, the publication Debtwire reported that Chesapeake sought the help of Kirkland & Ellis to help it with its debt, fueling speculation that Chapter 11 bankruptcy was not far away. When the markets opened on Monday, Chesapeake paid the price. Its share price tumbled by more than 50 percent. Trading was briefly halted, but by midday, the company’s stock was down 33 percent. Chesapeake dismissed the concerns, saying that it "currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders." Chesapeake has $10 billion in debt and only $1.8 billion in cash on hand. The company’s stock is down by more than 93 percent over the past 12 months.

    If Chesapeake Does Not Go Bankrupt In Just Over One Month, This Could Be The Trade Of The Year - Back in March 2013, when nat gas, and pretty much everything else, was trading far higher than where it is today, investors who believed in the vision of Chesapeake's now long gone CEO Audrey McClendon had no problem writing a check for $500 million of other people's money to the Oklahoma gas giant, hoping to generate a "whopping" 3.25% return by the time the bonds matured on March 15, 2016.  Sadly, since then things changed.  Chesapeake - as we previously reported - is now on the verge of bankruptcy having hired K&E as a restructuring advisor, and these bonds (maturing March 15, 2016) are currently trading at 80.5 cents on the dollar.  As the chart below shows, this results in a yield that is about 100 times where it was at issue, or just shy of 300%.Which brings up an interesting trade opportunity: yes, Chesapeake will default, but the question is when. For those who think the company will somehow survive for a more than a month without filing Chapter 11 or arranging some prepackaged bankruptcy, and actually repays the $500 million issue, this could be the trade that makes someone's full year, because with a yield of 299%, and a cash on cash return of 25% (being paid par on March 15 for a bond that can be purchased today for 80 cents), it does look somewhat attractive, especially if hedged with a short on CHK stock, which at last check was trading at an implied market cap of $1.3 billion.

    Bills would halt Michigan fracking, require chemical cocktail disclosure | House Democrats want Michigan to dump high-volume hydraulic fracturing, or fracking, a controversial oil and gas extraction practice that some lawmakers want to temporarily halt until updated regulations are passed in the wake of a failed petition drive last year to place a statewide ban on the 2016 ballot. Democrats say that, while vertical fracking has been used for years in Michigan, the newer technique of horizontal fracking requires updated regulations that better address the chemicals and massive volumes of water used in the process. In a tongue-in-cheek press conference on Thursday, Feb. 11, bill sponsor Sarah Roberts, D-St. Clair Shores, framed the state's relationship with fracking as something akin to a thrill-is-gone romance in need of a Valentine's Day break-up. Fracking "has become needy, sucking up a lot of resources and has taken too much control," said Roberts. "We think its time to take a break, re-evaluate our relationship and start fresh with some new rules." The eight-bill package introduced Thursday afternoon would place a moratorium on new fracking permits, require fracking wells be at least 5,000 feet from "sensitive" locations like schools, hospitals, homes, and public parks, and require full disclosure of all chemicals used in the process.

    New Pennsylvania drilling regulations up for review | On Feb. 3, the Environmental Quality Board (EQB) passed oil and gas drilling regulation revisions, according to . The new regulations will be sent to the Independent Regulatory Review Commission, the State House and Environmental Resources and Energy Committees for review. Amendments to the regulations include improved transparency, protection of water resources, protection of public health and safety, as well as additional public resource and landowner considerations. Specifically, open-air waste storage pits would require minimum distances from schools and playgrounds, as well as rules for monitoring and cleaning up spills. According to an article by, “Unconventional” operations such as hydraulic and horizontal drillers would face their own separate rules, which would cost $73.5 million initially and $31.1 annually, according to Scott Perry, Department of Environmental Protection (DEP) deputy secretary for oil and gas. Alternatively, conventional drillers would pay $28.6 million annually to meet the new regulations. These costs come at a time when oil prices are low, the industry is fighting to survive and the state could use the income tax revenue to fund their newly increased proposed budget. The Oil & Gas Journal also reports allegations that the Wolf administration is deceptive in their refusal to vote separately on the regulations for conventional and unconventional drilling. Also, the administration claims that calls for a severance tax on oil and gas will only result in more unemployment, a reduction of tax revenue for the state and will smother the industry with costs it cannot afford. In the meantime, EE Publishing reports that Democratic Pennsylvania Senate candidates routinely argue about hydraulic fracking and have used energy campaign contributions against each other.

    Antero Resources files permit with DEP to build landfill in Doddridge County - Antero Resources filed a permit Thursday to build a Class F landfill in Doddridge County, said Kelley Gillenwater, communications director for the state’s Department of Environmental Protection. The landfill will be built next to the company’s new wastewater treatment facility on 635 acres of Antero property located just off the Greenwood/Sunnyside exit of U.S. 50.That’s according to Al Schopp, the company’s vice president of finance and administration. The wastewater facility will take up about 11 acres, and the first phase of the landfill about 37 acres. Schopp said no radioactive sludge will be placed in the landfill. “It’s going to be benign commercial salt,” Schopp said. “Our permit is 100 percent for salt.”Flowback and produced water are two common names industry professionals apply to the mixture of water, salt and radioactive particles left after the fracking process. Antero’s new wastewater treatment facility — slated to become operational in late 2017 — will separate the three components of that mixture. The plant is designed to process 60,000 barrels of produced water each day, creating 45,000 barrels of freshwater, 2,000 tons of salt and 180 tons of radioactive sludge,

    Sourcewater – Helping SWDs stay afloat in turbulent times - Among the many challenges operators face in this down-market, produced water management remains their single largest operating expense. Across the board, onshore E&P’s have significantly reduced capital investment – rig counts are down and operators have high-graded assets. Yet, while ongoing declines in the price of oil further suppress drilling and completion activity, the constant stream of produced water from continuing operations may be sufficient to sustain some players in the water-services ecosystem. In times like these, only the lean will survive.  While the Marcellus is well known for regulatory constraints that limit saltwater disposal options within Pennsylvania, market forces have driven a very competitive landscape for hauling and disposal within the neighboring state of Ohio. However, today only 31 rigs are operating in the Marcellus, down almost 60% from last year. As a result, the total volumes of drilling muds, flowback and produced water generated in this region is significantly lower, creating an unprecedented over-supply of water-management, hauling and disposal services. In this corner of the Marcellus, the future growth potential for produced water management remains inextricably linked to the price of crude oil and natural gas. At the time of print, oil prices settled below $28 per barrel, and natural gas is stable around $2.10 per million cubic feet. With most wells in the play reporting break-even prices around $3.00 per million cubic foot of natural gas, many operators have shut-in wells or wells awaiting completion. Driven primarily by the need to maintain leasehold agreements, a handful of operators have maintained some drilling and completion activity. However, recently Cabot Oil & Gas Corporation, Consol Energy, EQT Corporation, Seneca Resources and Southwestern Energy Company have all indicated plans to either halt new drilling or at a minimum further reduce active rigs. The impact of this on the water service sector in SW Marcellus is, quite frankly, devastating.

    Bluegrass Pipeline loss big win for landowners - The Kentucky Supreme Court has let an appeals court decision stand that only regulated utilities can use the power of eminent domain to get land for pipelines. "Today is a good day for Kentucky landowners and for freedom," Louisville attorney Tom FitzGerald posted on his Facebook page. The decision deals another blow to efforts by companies seeking to move natural gas liquids in pipelines through Kentucky from oil and gas fields in Ohio and western Pennsylvania to the refineries and ports along the Gulf Coast. The case involved the Bluegrass Pipeline, which was to be developed by the Williams company. That pipeline would have snaked across nearly 200 miles of Kentucky, but the company put it on indefinite hold in April 2014, saying that it did not have enough customers for the liquids it sought to move. A legal battle continued, however, in the case of Kentuckians United To Restrain Eminent Domain v. Bluegrass Pipeline.  The Court of Appeals ruling last May was by a unanimous three-judge panel of James H. Lambert, Janet L. Stumbo and Jeff S. Taylor. They agreed with Franklin Circuit Judge Phillip Shepherd that only pipeline companies that are or will be regulated by the state's Public Service Commission can use the courts to force a purchase of property or easements.

    East Coast blizzard raised gas inventory withdrawals, spot prices: EIA - Natural Gas - The massive blizzard that hit the East Coast in late January prompted the largest withdrawal of natural gas inventories from storage this winter but had little impact on electricity demand, the US Energy Information Administration said Tuesday. People generally battened down at home during and after the storm so many businesses were closed. While this increased residential electricity usage, total electricity demand was offset by lower commercial consumption, EIA explained in its February Short-Term Energy Outlook. There were also power outages, most notably in North Carolina and New Jersey, that had a limited effect on demand as well, EIA said. But the agency noted that despite the snowstorm, average heating degree days for the first quarter of 2016 are projected "to be 12% lower than in the same period last year, contributing to first-quarter electricity sales to the residential sector that are 6% lower." Total US electricity generation is expected to edge up by 0.3% in 2016 and then by 1.6% in 2017, but the generation mix will continue to shy away from coal as market dynamics and environmental regulations make less carbon intensive resources more appealing.

    Warm Winter and Surging Production Push Gas Storage Surplus Higher (And Prices Lower). As of the weekly EIA natural gas storage report due out today (Thursday) for the week ending February 5, 2016, the U.S. gas inventory surplus is likely to grow to near 600 Bcf above levels at the same time last year. Current weather forecasts suggest the surplus over 2015 will soar to near 800 Bcf by the end of February. With outright inventory levels already exceptionally high, this surplus growth kicks the market’s oversupply problem further down the futures curve – meaning prices could stay lower for longer. Today we look at the winter 2015-16 fundamentals leading to this surplus and what it means for the rest of 2016.  The gas market started this winter (November 2015 to March 2016) oversupplied, with a record high inventory and a surplus of nearly 400 Bcf versus the previous year. At the time a cold hard winter presented the best chance to correct the supply/demand imbalance through increased heating demand. But weather forecasters instead predicted an exceptionally warm winter due to the effects of El Nino. And sure enough, winter has been largely a no-show so far. Meanwhile, on the supply side, gas production has not given up any ground, and in fact, has even experienced another surge to record levels in recent weeks. This mixture of lower demand and higher supply has meant not as much gas has been withdrawn from storage to meet winter peak needs as usual this year.  As a result, the storage surplus has continued to grow.

    NatGas, Oil Production Slipping in Big Seven Shale Plays, EIA Says  -- Total natural gas and oil production from the nation's seven largest unconventional plays will continue to decline at least through next month, the Energy Information Administration (EIA) said.  Total natural gas production from the plays will be an estimated 44.23 Bcf/d in March, a 451 MMcf/d decline from 44.71 Bcf/d this month, EIA forecast in its latest Drilling Productivity Report (DPR), which was released Monday. The Marcellus and Eagle Ford shales will be responsible for the bulk of the decline, according to EIA estimates. The agency expects 15.70 Bcf/d to come out of the Marcellus in March, compared to 15.90 Bcf/d in February, and 6.44 from the Eagle Ford in March, compared to 6.60 this month. EIA also expects to see month-to-month declines out of the Bakken (1.58 Bcf/d, compared to 1.60 Bcf/d in February), the Haynesville (6.20 Bcf/d, compared with 6.23 Bcf/d), and the Niobrara formation (4.15 Bcf/d, compared to 4.22 Bcf/d). The Permian Basin will experience a marginal decrease while the Utica should see a 32 MMcf/d increase, according to the DPR. EIA also expects slight declines in oil production, with the seven-basin total for March estimated at 4.92 million b/d, compared to 5.02 million b/d in February. Oil production will be lower in five basins: the Bakken (1.10 million b/d, from 1.13 million b/d in February), Eagle Ford (1.22 million b/d, compared to 1.27 million b/d), and Niobrara formation (389,000 b/d, compared to 404,000 b/d), along with marginal declines in the Haynesville and Marcellus. Oil production is expected to increase slightly in the Permian Basin and will be unchanged in the Utica, EIA said. EIA released the first DPR more than two years ago (see Shale Daily, Oct. 22, 2013) but didn't forecast month-to-month declines until September (see Shale Daily, Sept. 15;April 13).

    EIA sees 2016 U.S. natgas production, consumption at record highs | Reuters: The U.S. Energy Information Administration on Tuesday said domestic natural gas production in 2016 was expected to reach 79.69 billion cubic feet per day, up a shade from the 79.68 bcfd it forecast last month. That forecast production would top 2015's record high of 79.13 bcfd and would be the sixth consecutive annual record high for U.S. gas production, according to the EIA's Short Term Energy Outlook (STEO) in February. The EIA forecast U.S. gas consumption meanwhile will ease to 76.44 bcfd in 2016, down a bit from the 76.57 bcfd it forecast in January. That would top the 2015 record high for gas demand of 75.38 bcfd and would be the seventh annual record high in a row. For 2017, the agency forecast more record highs with production expected to rise to 81.26 bcfd and consumption up to 77.29 bcfd. Consumption will rise in 2016 and 2017 primarily as industrial demand increases as new fertilizer and chemical plants enter service. Growth in production will slow in 2016 as low gas prices and declining rig activity begin to affect output. In 2017, the EIA forecast production growth will increase as prices rise, industrial demand grows and liquefied natural gas (LNG) exports increase. The EIA projects LNG gross exports will increase to an average of 0.5 bcfd in 2016, with the start-up of Cheniere Energy Inc's Sabine Pass LNG liquefaction plant in Louisiana planned for late February or early March.

    Fracking gas leaks are no worse than conventional wells - Fracking, enabled by the technology to drill oil and gas wells that turn horizontal to follow specific layers of rock, has driven a boom in US natural gas production. But how much of that natural gas (which is mainly the potent greenhouse gas methane) is leaking into the atmosphere before making it to a power plant or your furnace? It's not just an idle question. When natural gas displaces the use of coal, it results in significant reductions in CO2 and other pollutants. Leak enough, however, and that climate benefit might just disappear. Despite its problems, the fracking boom is still better than burning coal.The public debate has treated this leakage issue as specific to the process of fracking. But “conventional” natural gas wells—vertical wells drilled through porous rocks that give up natural gas without the need for new fractures—have always leaked. A study by a Carnegie Mellon University group led by Mark Omara measured leakage at both conventional and fracked wells in Pennsylvania and West Virginia. The results are a little complicated. The researchers visited 18 conventional natural gas sites and 17 fracked sites (including 88 fracked wells, which are commonly drilled down from a central pad before splaying out horizontally). Between 100 meters and a kilometer downwind, they made methane and ethane measurements. To control for the dilution of the leaked gas as it spread and swirled in the wind, they added a leak of their own. Right next to the gas wells, they set up tanks of nitrous oxide and acetylene and opened the valves to leak at a constant rate. By checking their measurements of those gases downwind, they could calculate the true natural gas leak rate.

    Connecticut towns raise concerns about fracking waste; Branford could become 4th to ban it - The Connecticut Department of Energy and Environmental Protection has more than a year to re-write regulations concerning the possible import of waste from hydraulic fracturing for natural gas that takes place in neighboring states, but some Connecticut municipalities are taking action ahead of schedule.  Branford officials discussed a proposed ordinance earlier this month that would ban any waste generated in the process of hydraulic fracturing — either liquid or solid — from being used for any purposes within town limits. If the ordinance were to pass, Branford would be the fourth municipality in Connecticut, joining Washington, Coventry and Mansfield, to impose its own law about a substance that the federal government does not classify as a hazardous waste. The General Assembly’s moratorium banning fracking waste in Connecticut defines fracking as the use of drilling and injection of materials to extract natural gas. Fracking waste generated from oil extraction is not included in the moratorium.  The proposed Branford ordinance seeks to ban wastewater from “manmade fluid-driven techniques for the purpose of stimulating oil, natural gas, or other subsurface hydrocarbon production.”  Fracking, while contributing to domestic energy production, has also caused concerns about toxicity of waste generated during the process, whether it is the resurfacing of the water that was injected or other ground water that surfaces with the natural gas. A recent Yale School of Public Health study found that most of the more than 1,000 chemicals often used in fracking have been known to cause developmental and reproductive health problems. The study also found that the leftover chemicals in fracking waste include arsenic and lead.

    Florida Senate could derail fracking bill - Industry backed bills introduced by Southwest Florida legislators that would create regulations around fracking in Florida may have sailed through the House, but they’re facing more scrutiny, if not outright opposition, in the Senate. And it’s not just coming from Democrats. Sen. Charlie Dean, R-Inverness and chairman of Senate Committee on Environmental Preservation and Conservation, voted against the Senate bill earlier in the session. Sen. Anitere Flores, R-Miami, recently tweeted “fracking isn’t the way. #BanFracking #FrackIsWhack.”  Sen. Tom Lee, the powerful chairman of Senate Appropriations, told reporters he has questions about how fracking would work in Florida given its unique limestone geology. He also expressed concern over a provision in the bill that would override local government control of fracking. Lee complained the Florida Department of Environmental Protection was “nowhere to be seen” when the Senate bill, sponsored by Sen. Garrett Richter, R-Naples, came up earlier in the session. Lee supported the bill at the time, with reservations, he said. But he vowed his committee will not hear the bill until DEP appears before it to provide on-the-record testimony. “I think that’s the appropriate way for this institution to be backed up,” he said Wednesday. “And we want credible, scientific responses to questions, not special interest responses. But I suspect that we will ultimately agenda the bill here in committee and we’ll hear it."

    $30 oil? Texas says bring it on -  Some parts of the Eagle Ford and Permian Basin are profitable with oil below $30 a barrel, according to analysis by Bloomberg Intelligence. Wells in DeWitt County can be profitable with benchmark crude at a price as low as $22.52, which is $4 below its lowest price this year. Crude oil settled at $26.55 on Jan. 20, its weakest price since May 2003. The reports show seven Texas counties that can break even with oil at or below $30 per barrel: Martin, Midland, Howard, Reeves, Loving, Ward and DeWitt. Wells that have already been drilled, but not yet hydraulically fractured, can be profitable at even lower prices. Hydraulic fracturing, or fracking, is the last step before production begins. In Reeves County, fracking an already-drilled well can be profitable with oil prices hovering near $14 a barrel. But not all producers can weather the storm. According to the report, drillers in Dimmit County need $58 oil to break even. On Monday, West Texas Intermediate crude oil traded at $29.87. Since the price of oil began falling in June 2014, oil producers have cut costs any way they can to keep business afloat. Two-thirds of all drilling rigs in the country have been idled. Thousands of oilfield workers have been laid off, and companies continue experimenting with new techniques to boost output and keep wells competitive. Even with low prices, crude output remains high. Oil companies produced 9,214,000 barrels of oil in the week ending Jan. 29. That’s the highest level of output since 1971 and just 5 percent below last year’s peak, according to the Energy Information Administration.

    Many chemicals used in Texas fracking remain a mystery - For the past five years, biochemist Zac Hildenbrand has investigated potential links between unconventional drilling and water quality, collecting thousands of samples throughout the major shale plays in Texas. Some of the results, he said, are worrisome. As part of a collaboration with researchers at the University of Texas at Arlington, Hildenbrand has identified water wells with high levels of chlorinated solvents, alcohols and compounds commonly found in petroleum products.Hildenbrand also has come across more “exotic” molecules in his research, he said. But his efforts to identify some of them have been hampered by what critics describe as a “loophole” in a state law requiring companies to publicly disclose the ingredients in their hydraulic fracturing fluid. The Texas law allows companies to withhold specific chemicals by labeling them as proprietary. Operators in Texas have invoked the exemption to shield, at least partly, the identities of more than 170,000 ingredients from when the law took effect in February 2012 through April, an analysis of the disclosure records shows. Hydraulic fracturing involves injecting a cocktail of fluid, typically about 99 percent water, down a wellbore and into tight rock formations to help release oil and gas. The practice has revolutionized the American energy industry, but some environmentalists and public health officials have expressed concern about potential public exposure.A provision in Texas law requires the disclosure of chemicals listed as trade secrets to emergency personnel, but not to toxicologists or academics. That has left researchers like Hildenbrand frustrated with FracFocus, the Internet clearinghouse used by Texas and at least 20 other states for public disclosure of ingredients in fracking fluid. “More often than not, the information is either labeled as a ‘trade secret’ or ‘proprietary,’ ” he told the Houston Chronicle ( ). The law leaves researchers like Hildenbrand powerless to challenge exemptions.

    Arlington Gaswells SPEW Ave 14 lbs of Benzene per DAY city-wide! - If someone told you “sign here to be exposed to 5,000 pounds of Benzene per year city-wide (not including the 10-20 years worth of truck traffic emissions nor the two compressor stations emissions, nor the other town’s fracking emissions blowing to us)” would you have signed? Averaging a quarter pound of Benzene per day per padsite times 55 padsites here in Arlington gasland Texas is 14 lbs day/city-wide. Note like radionuclides, there is no “safe” amount of exposure to Benzene…. and granted we drive stinky Benzene spewing cars and trucks…did we really need to industrialize our neighborhoods with gas mining production sites? These BenZene emission estimates whiling including compressor engine blowdowns (planned MSS maintenance), they do NOT include new activity (like workovers or new wells being added which fall under the NSPS quad o rules) and they do not include the Truck Fracking Traffic emissions daily coming and going from these sites to take away that toxic produced (flashing water) liquids to injection wells (that can later frack up our property & drinking water with frackquakes) …we didn’t sign up for that ya’ll!

    EIA revises Oklahoma oil production up 100,000 barrels a day - Fuel Fix: – The U.S. Energy Information Administration has found a “significant discrepancy” between the oil-production data provided by the state of Oklahoma and the results of its new approach to gauging production, surveys of the state’s biggest oil producers. The EIA said Friday it has revised its estimate of Oklahoma oil production up by 100,000 barrels a day after an in-depth review of how it collects data from drillers in the state and the state data it previously relied on to estimate production. That has increased the EIA’s estimate of Oklahoma’s oil production by a quarter to about 400,000 barrels a day. It’s not an insignificant amount of crude given the belief that sinking U.S. shale oil production could be the key this year to realigning global oil demand and the oversupply. Domestic output has already proven more resilient than investors expected. U.S. crude production has fallen less than 5 percent as the nation’s rig count has plunged about 70 percent since the downturn began, according to data compiled by the Federal Reserve Bank of Dallas on Friday. The Organization of Petroleum Exporting Countries recently said it believes crude production outside its 13-member cartel will decline by 700,000 barrels a day, led by a drop in U.S. production, while the International Energy Agency says the decline will be closer to 600,000 barrels a day. The EIA, which had relied on state data for years, now surveys the top oil producers in 15 major energy states. “After review of these data and discussions with other operators, purchasers, Oklahoma state officials, and commercial data vendors,” the EIA decided its new method was more accurate, it said.

    Even President Obama is freaking out about these fracking earthquakes - President Obama signed an executive order last week that has gone largely unnoticed by the mainstream media. The order amended the Earthquake Hazards Reduction Act of 1977 which was originally intended “to reduce the risks of life and property from future earthquakes” in all 50 states. This was before hydraulic fracturing or “fracking” became a common practice for oil and natural gas drilling. Since fracking has become more popular, earthquakes have increased from single digits in the early 2000s to 584 quakes in 2015 alone. Cushing, Oklahoma might be home to fewer than 10,000 people but it has an exponentially higher quantity of gallons of oil. The only place in the United States that has a larger supply of oil is the U.S. Strategic Petroleum Reserve. The massive tanks are so large that some can fit a Boeing 747 inside of them. The city has so much oil that it “props up the $179 billion in West Texas Intermediate futures and options contracts traded on the New York Mercantile Exchange,” according to a Bloomberg Business report. While the area has always been a potential threat for terrorism, as any federal facility, the oil tanks in Cushing face another major threat: earthquakes. While the earthquakes in Oklahoma rarely spike above 5.0 on the Richter scale, the frequency and increase in severity could lead to instability in the structures that store and help transport oil. That presents an entirely new threat to these federal facilities. President Obama’s executive order gives these federal buildings “owned, leased, financed, or regulated by the Federal Government” 90 days to comply with heightened structural requirements. The order acknowledges minimum standards that are already in place, but seems to believe they aren’t sufficient.

    Minimizing the risk of bankruptcy with efficient oilfield water management - For many years the industry has discussed the importance of the Energy-Water Nexus. This term highlights the interconnection and critical nature of water in energy production and conversely the requirement of energy for water production. Professionals in the upstream energy sector live and work within this Nexus on a daily basis. Water is both the largest input and output within oil and gas operations, and therefore optimization of water management has one of the biggest potential impacts on fiscal performance. According to Xylem, a global water technology company, “…for an industry focused on improving margins, solving water challenges may be the best opportunity to reduce costs [and] improve profitability…” A recent review of 59 North American-focused Independent E&Ps by Oil Pro highlighted the massive $200 billion debt that the industry has accrued in pursuit of tight-oil and shale-gas resources over the past 10 years. In recent months, oil prices have dropped to historically low values, creating a significant financial burden on many operators. Some operators have cut capital budgets, high-graded assets and pushed for efficiencies throughout all components of their supply chain. Others have not – and as many as 38 E&Ps have subsequently filed for Chapter 11 bankruptcy protection. As water often accounts for as much as 80 percent of a producer’s operating cost, the continued evolution of more efficient water management practices is critical to surviving this economic downturn.

    California Farmers Irrigate Crops With Chevron’s Oil Wastewater in Drought-Stricken Central Valley - A new documentary web series, Spotlight California, wants to show viewers the California you don’t see on postcards.  The five-part series, hosted by actress and comedian Kiran Deol, is investigating the impact of drought, water and air pollution, and gas price gouging in California. The goal is to “raise awareness of these issues, give voice to the Californians being directly impacted and create an opportunity for people to join together and to take positive actions in communities across the state,” explained NextGen Climate, which is funding the project.“With this project, I want to shed some light on the powerful players who have tilted the economic tables in their favor, profiting at the expense of our families,” Tom Steyer, president of NextGen Climate, said. “But I also want to highlight stories from people working hard to balance the scales; folks who maintain a positive attitude during tough times, while making a big difference.”The first episode, which aired Jan. 26, took viewers into the heart of the drought, where half the residents of the low-income community of East Porterville in the Central Valley struggle to find fresh water.  Watch here: The second episode, which aired last week, highlighted another aspect of the drought. It shows how farmers are using treated oil wastewater to irrigate their crops, despite the fact that nobody has tested the wastewater to see if it’s safe.

    Confirmed: California Aquifers Contaminated With Billions Of Gallons of Fracking Wastewater - The problems with California's underground injection control program are far worse than originally reported. It has now been revealed that California regulators with DOGGR permitted hundreds of wastewater injection wells and thousands more wells injecting fluids for “enhanced oil recovery” into aquifers protected under the federal Safe Drinking Water Act. Original post: After California state regulators shut down 11 fracking wastewater injection wells last July over concerns that the wastewater might have contaminated aquifers used for drinking water and farm irrigation, the EPA ordered a report within 60 days. It was revealed yesterday that the California State Water Resources Board has sent a letter to the EPA confirming that at least nine of those sites were in fact dumping wastewater contaminated with fracking fluids and other pollutants into aquifers protected by state law and the federal Safe Drinking Water Act.  The letter, a copy of which was obtained by the Center for Biological Diversity, reveals that nearly 3 billion gallons of wastewater were illegally injected into central California aquifers and that half of the water samples collected at the 8 water supply wells tested near the injection sites have high levels of dangerous chemicals such as arsenic, a known carcinogen that can also weaken the human immune system, and thallium, a toxin used in rat poison. Timothy Krantz, a professor of environmental studies at the University of Redlands, says these chemicals could pose a serious risk to public health: “The fact that high concentrations are showing up in multiple water wells close to wastewater injection sites raises major concerns about the health and safety of nearby residents.”

    Oil Drillers Exposed in Three-Way Hedges as Crude Dips Below $30  -  Rigzone -- Oil at $30 a barrel is blowing a hole in the insurance that U.S. shale drillers bought to protect themselves against a crash. Companies including Marathon Oil Corp., Noble Energy Inc., Callon Petroleum Inc., Pioneer Natural Resources Co., Rex Energy Corp. and Bonanza Creek Energy Inc. used a strategy known as a three-way collar that doesn’t guarantee a minimum price if oil falls below a certain level, company records show. While three- ways can be cheaper than other hedges, they leave drillers exposed to sharp declines. "At the time people hedged, they did it without thinking that oil would go to $28," said Thomas Finlon, director of Energy Analytics Group LLC in Jupiter, Florida. "They didn’t have a realistic view about whether the market would crumble or not." The three-way hedges risk worsening a cash shortfall for companies trying to survive the worst oil crash in 30 years. The insurance is all the more important after oil plummeted 43 percent in the past year to $26 a barrel in January, exacerbating the pressure on debt-burdened producers. "In 2015, everyone was given a hall pass and had a little protection from hedges," said Irene Haas, an analyst with Wunderlich Securities. "But as we roll into 2016, the hedges aren’t as attractively priced anymore and the hedges aren’t going to exactly bail you out." The U.S. shale boom was built on high oil prices and low- cost financing, which enabled drillers to spend more than they earned while making up the difference with debt. With oil at a 12-year-low, financing is much harder to come by. Locking in a minimum price for crude reassures investors and lenders that companies will have the cash to pay their debts.

    New Mexico officials support proposed methane rules (AP) — A group of local and state elected leaders is supporting a federal proposal that would clamp down on oil and gas companies that burn off natural gas on public land. The 40 elected officials sent a letter Friday to the head of the Bureau of Land Management. They say New Mexico is among the states with an economy tied closely to the taxes, royalties and other fees earned from oil and gas development and the proposed rules would allow local governments to recoup what would otherwise be lost revenue. They also say the rules would help reduce methane emissions and pointed to a methane hot spot identified over the Four Corners region. Those who signed the letter include 19 Democratic state lawmakers, county commissioners and mayors from around New Mexico.

    17 House Democrats Introduce ‘Keep It In the Ground Act’ to Prohibit New Fossil Fuel Extraction on Public Lands  - Congressman Jared Huffman (D-San Rafael) and 16 other members of Congress introduced today the Keep it in the Ground Act. If passed, the bill would reduce carbon emissions by permanently barring new fossil fuel leases on all federal public lands and in federal waters. “Our nation’s capacity to transition towards clean energy sources is expanding at a record pace,” said Rep. Huffman. “However, there is still much to be done to break our unhealthy dependence on fossil fuels. Our oceans and our public lands—including the fossil fuel deposits beneath them—belong to the American people, not to the oil and gas industry, and it’s time that the law reflects that fact.” Specifically, this legislation would:

    • Stop new leases and end nonproducing leases for coal, oil, gas, oil shale and tar sands on all federal lands.
    • Stop new leases and end nonproducing leases for offshore drilling in the Pacific and Gulf of Mexico.
    • Prohibit offshore drilling in the Arctic and the Atlantic.

    “Anyone who does the math of climate change knows we need to keep most fossil fuel underground,” co-founder of Bill McKibben said. “Public lands—as multiple presidential candidates have pointed out—are the logical place to start, and this is even more obvious in the wake of the Supreme Court stay on the president’s Clean Power Plan. In a record hot world, let’s hope Congress acts on this at record speed; we will do all we can to make it happen.”

    Company slows work on controversial Utah tar sands project  — Environmentalists are celebrating after the Canadian company behind a controversial tar sands development in eastern Utah announced it is scaling back work on its project. Calgary-based U.S. Oil Sands Inc. announced plans Thursday to cut back on construction on its PR Spring project, which is located in the Book Cliffs about 170 miles from Salt Lake City and is 85 percent complete. The company said low oil prices forced two of its major contractors to shutter operations in Utah, and said it didn’t have all the financing it needed. “The oil industry is facing one of the most challenging environments it’s ever seen and it is prudent for us to adjust our construction plan accordingly,” said US Oil Sands CEO Cameron Todd, adding that the cutback would be designed so it can restart quickly when conditions improve. “The company’s actions today help ensure US Oil Sands will be a future industry leader.” While companies extract petroleum from sand in Canada and Venezuela, the $60 million Utah project would be the first commercial effort of its kind in America. U.S. Oil Sands says it uses natural citrus extract to safely process the sand, but opponents say it will contaminate water and destroy wildlife habitat. Conservation groups have challenged the permits authorizing the project and have been arrested for chaining themselves to equipment in an effort to thwart construction. But the biggest obstacle appears to be crude oil prices that have tumbled to about $31 a barrel, down from a peak of $147 a barrel in 2008.

    Wyoming regulators approve tougher well flaring rules (AP) — Wyoming oil and gas regulators approved new rules Tuesday to limit how much and for how long natural gas petroleum developers may vent or burn off gas from newly drilled wells. Companies would need approval to vent or flare longer than six months under the rules approved by the Wyoming Oil and Gas Conservation Commission in Casper. Lower volumes of gas could be vented, or released without burning. Higher volumes would need to be burned off for safety and to limit air pollution. Gas vented or flared from a well couldn’t exceed 45 million cubic feet, or 600 times more gas than an average U.S. household uses in a year, without commission approval. The commission made up of the governor, state lands director, state geologist and two others oversees a state oil and gas regulatory agency also known as the state oil and gas commission. Petroleum developers routinely vent or flare gas before they install pipelines that can move the gas to market. The practice was much more common in eastern Wyoming before last year’s oil bust, which has only deepened amid low oil prices.

    Keystone XL May Be Dead, But Oil Companies Are Still Trying To Seize Americans’ Land For Pipelines --  The thought of a massive pipeline moving crude oil some 60 inches underneath his farmland troubles Richard Lamb.  That’s why Lamb said he’s declining an offer of about $175,000 from Dakota Access, a subsidiary of Dallas-based Energy Transfer Partners, to gain access to a strip of his land. As it first announced in 2014, the company wants to build a pipeline that would transport oil from North Dakota’s oil-rich Bakken Formation, to a market hub located near Patoka, Illinois. The project, commonly called the Bakken Pipeline, would cross four states and 50 counties, cutting the Midwest with an almost straight diagonal line. Most of the affected land is farmland, but the project does run through wildlife areas and major waterways like the Mississippi, and the Missouri, the longest river in North America.  But before Dakota Access can build it needs the approval of various state and federal agencies, including the Army Corps of Engineers. The U.S. Fish and Wildlife Service is involved, too, and it’s now working on an environmental assessment of the project. A draft report so far says the Bakken Pipeline avoids “critical habitat.” Meanwhile, the company has sought to buy out landowners along the pipeline’s path. It is widely known that the company has been largely successful in this endeavor, yet in Iowa, as well as in other states, some property owners have pushed back.  Knowing this could happen, the company early on requested the use of eminent domain, arguing that the project will benefit the public in myriad ways. This isn’t unprecedented. Other major projects like the Keystone XL, which President Obama rejected, followed similar measures that put landowners in a tough situation: take the money and hope for the best on the risks, or challenge the industry and potentially the state.

    Iowa meets for 4th day on Bakken crude pipeline permit — Iowa utilities regulators are meeting for the fourth day to consider whether to allow a Texas company to bury 346 miles of crude oil pipe under Iowa farmland and whether to give the company authority to force unwilling landowners to sign easements using eminent domain laws. The three-member Iowa Utilities Board is considering a hazardous pipeline permit for Texas-based Dakota Access to build the so-called Bakken pipeline. The 2½-foot diameter pipe would carry a half-million barrels of oil per day from North Dakota across South Dakota and Iowa into Illinois. Environmental and property rights groups oppose it. Owners of 296 land parcels refusing to sign easements could sue to challenge the use of eminent domain. Pipeline advocates say it’s the safest way to transport oil, and it will create jobs.

    Eminent domain possible issue in pipeline's passage in Iowa (AP) — Iowa utilities regulators are considering whether to allow a Texas company to bury 346 miles of a crude oil pipeline under farmland and give it authority to use eminent domain to force unwilling landowners to sign easements. Iowa is the only state yet to approve the permit for the $3.78 billion Bakken pipeline, which will carry about a half-million barrels of oil per day from North Dakota to Illinois, crossing through Iowa and South Dakota. The pipeline, to be built by Dakota Access, would stretch diagonally across 1,300 parcels of land and 18 counties in Iowa at a cost of $1 billion. Thursday was the fourth day of meetings for the three-member Iowa Utilities Board, and it has set additional meetings for next week and into March. Environmental and property rights groups have spoken out against the pipeline, coordinating most of the 3,700 letters to the board opposing the project. Among the concerns are that pipeline leaks could harm farmland and waterways, hurt land values, disrupt land productivity and damage timber areas. Dakota Access also wants to use eminent domain for 296 parcels, but a 2006 Iowa law prohibits agricultural land from being taken by eminent domain for private projects or private development, which raises legal questions about whether Dakota Access — owned by Phillips 66 and Energy Transfer Partners, both publicly traded companies based in Texas — can force landowners to sign easements. If the pipeline is approved by the utilities board, it’ll certainly lead to lawsuits, said Wallace Taylor, a Cedar Rapids attorney who represents the Sierra Club, an environmental group that opposes the project.

    Iowa board struggles with pipeline decision: The Iowa Utilities Board concluded its fourth day of deliberations Thursday without reaching a decision on a request for a state permit to construct the Bakken pipeline, which would transport North Dakota crude oil through 18 Iowa counties en route to an Illinois distribution hub. Chairwoman Geri Huser said deliberations will resume Feb. 19, and the board has reserved March 9 and March 10 for additional meetings if necessary. The three-member state panel appeared to struggle at times this week as it weighed evidence in what a board lawyer described as a first-time regulatory case. Dakota Access LLC, a unit of Dallas-based Energy Transfer Partners, is seeking permission to construct a 30-inch diameter oil pipeline stretching 346 miles across Iowa. The company also wants eminent domain authority to take 296 parcels of land from private property owners, mostly Iowa farmers, in exchange for fair market compensation. The board members debated issues Thursday ranging from global climate change to whether they should consider the pros and cons of the pipeline in states outside of Iowa. They also examined specific parcels of land along the proposed route where property owners have refused to voluntarily grant easements to Dakota Access.Another topic focused on the pipeline's potential contribution to U.S. energy security.

    BP: US Shale Oil Output To Double By 2035  (Reuters) - U.S. shale oil production will double over the next 20 years as drillers that became more efficient amid a slump in oil prices unlock new resources, British energy giant BP said on Wednesday. In its industry benchmark 2035 Energy Outlook, BP forecast global demand for energy to increase by 34 percent, driven by growth in the world population and economy, with the share of oil declining in favour of gas and renewables. U.S. shale or tight oil production using fracking technology was a key driver behind global supply growth in recent years. The sector, with relatively expensive production costs, has nevertheless been hard hit by a 70 percent decline in oil prices over the past 18 months to around $30 a barrel. But in the longer term, shale production is set to grow from around 4 million barrels per day (bpd) today to 8 million bpd in the 2030s, accounting for almost 40 percent of U.S. production, according to the report. "We see U.S. tight oil falling over the coming years but thereafter tight oil picks up," BP Chief Economist Spencer Dale said. U.S. onshore production in the lower 48 states has declined by around 500,000 bpd since last spring and is expected to fall further in the near term as the global market readjusts before rebounding, Dale said. According to the report, "technological innovation and productivity gains have unlocked vast resources of tight oil and shale gas, causing us to revise the outlook for U.S. production successively higher".

    TransCanada takes 4Q hit after Obama blocks Keystone XL — Energy company TransCanada Corp. says it lost US$1.79 billion (CA$2.5 billion) in the fourth quarter, mostly because of its stalled Keystone XL pipeline proposal. The Calgary-based company reported Thursday that it took a US$2.08 billion (CA$2.9 billion) non-cash charge related to Keystone XL, which President Barack Obama blocked late last year. The loss amounted to US$2.48 (CA$3.47) per share for the quarter. TransCanada has launched a challenge to the U.S. government’s rejection of Keystone XL. The company says it intends to file a claim under Chapter 11 of the North American Free Trade Agreement in response to the decision, which it called arbitrary.

    Refined Product Pipelines Secure U.S. Supplies As Mexican Refinery Upgrades Begin -- Mexican production of gasoline, diesel and jet fuel continues to fall and Mexico’s imports of these refined petroleum products from the U.S. are rising fast to keep pace with increasing demand. Longer term upgrade projects to increase Mexican refinery transport fuel are finally underway. But before refinery upgrades make a dent in imports, two ambitious refined-products pipeline/terminals projects will make it easier and more efficient to move large volumes of gasoline, diesel and jet fuel from Texas refineries into Mexico.  Today, we update our coverage of fast-moving developments in Mexico-U.S. hydrocarbon trading.   In the past few months we’ve talked a lot about Mexico’s energy sector, particularly it’s evolving relationship with the U.S. regarding oil, natural gas, natural gas liquids (NGLs) and refined petroleum products. In several blogs—including The Gas All Went to Mexico and As We Send Gas Through the Streets of Laredo—we discussed Mexico’s growing dependence on U.S.-sourced natural gas, which is fueling more and more of the country’s power plants and industries. We also considered all the gas pipelines being built to move that gas south. In our Enciende Mi Fuego (Light My Fire) series, we described Mexico’s need for increasing amounts of liquefied petroleum gas (LPG, e.g., propane/butane) from the U.S., and again we looked at the pipelines being installed to move LPG to Mexican consumers. And then, in our With a Little Help From My Friends series and Drill Down report, we looked at the big picture, namely the growing energy interdependence of Mexico and U.S. in everything from oil to natural gas and NGLs.  In the past few weeks though, three significant developments have occurred, giving us an opportunity to revisit the topic.

    Fighting Fracking in Brazil: Images From an Ongoing Struggle - Last December, the anti-fracking movement celebrated an important victory in Brazil. A federal judge in the city of Cruzeiro do Sul, State of Acre, ordered the suspension and cancellation of all oil and gas exploration activities, including fracking, in Juruá Valley, a region recognized as the most important stronghold of the last uncontacted indigenous peoples in the planet. The following photo series was made during a visit activists from the Não Fracking Brasil campaign made to the Juruá Valley in 2015 to share with indigenous and non-indigenous people the risks that fracking represents to their traditional way of life and the environment they rely on to thrive. The judge’s decision concludes the Public Civil Action initiated last October against the Brazilian Federal Government, IBAMA (Brazilian Institute of Environment), ANP (National Petroleum and Gas Agency) and PETROBRAS, one of many legal battles brought about by the efforts of the Não Fracking Brasil Campaign. This ruling also clears all the projects already implemented and in operation, ensuring the preservation of the environment and security of indigenous peoples and the region’s population.

    Friends of the Earth defends its record on lobbying against fracking - Friends of the Earth (FoE) has defended its record on lobbying against shale gas fracking, after accusations from one of the companies involved in drilling that it had acted contrary to its charitable status. The green campaigning organisation sent out a press release last December, applauding the Labour party’s decision to call for a moratorium on fracking, which was posted automatically through its systems to its website. Subsequently, the organisation said, this was discovered to be a mistake. The press release was understood as coming from the charitable arm of FoE, whose ability to lobby on political issues is restricted by government rules, rather than the separate arm, a limited company, which is permitted to do so. Friends of the Earth said it had amended the misattribution after being alerted by the Charity Commission. The Times newspaper on Tuesday quoted the chief executive of the fracking company Cuadrilla, Francis Egan, claiming that FoE had “misled” the Charity Commission. “We have long been concerned about the myth-peddling and scaremongering by Friends of the Earth on shale gas and fracking. Now we discover they have misled their own regulator,” he was reported as saying. Mike Childs, head of policy at FoE, said: “These repeated attempts to silence and discredit those opposed to fracking is a ploy to distract from the well-documented risks of fracking to our beautiful countryside, to the health of local people and to our climate.”

    84 per cent fear fracking - AN overwhelming majority of voters in Darwin hold concerns about the risk of fracking on water supplies and pastoral stations, according to a new ReachTel poll obtained by the NT News. It also showed nearly 70 per cent of respondents support a ban on fracking in the NT while more research is done. The poll of 634 respondents across Darwin shows 83 per cent of respondents were ­either “very concerned” or “somewhat concerned” about the effect of fracking on the Territory’s water resources. Lock the Gate Northern Territory, who commissioned the poll ahead of a crucial debate at the Labor Territory conference, said yesterday the results show it the issue will become a major campaign matter in the lead up to this year’s Territory election. “The poll delivers a clear message for all candidates hoping to win a seat this ­August: ban gas fracking in the Territory,” said Naomi Hogan. “There is an avalanche of concern about risks to water supplies and pastoral stations if gas fracking goes ahead.”

    Anadarko Slashes Dividend By Over 80% -- Just days after ConocoPhilips became the first major to slash its dividend, moments ago Anadarco followed suit and announced, just one week after it reported earnings that, it too would virtually halt distribution to shareholders, when it said that it would cut its dividend - the first such action in decades - from 27 cents to just 5 cents per share, an 81% cut, and far above the more modest expected reduction of 14 cents. The Board of Directors of Anadarko Petroleum Corporation (APC) today declared a quarterly cash dividend on the company's common stock of 5 cents per share, payable March 23, 2016, to stockholders of record at the close of business on March 9, 2016. The quarterly dividend represents a 22-cent reduction from the prior level of 27 cents per share. "We believe this adjustment to our dividend is the appropriate action to take in the current environment," said Al Walker, Anadarko Chairman, President and CEO. "On an annualized basis, this action provides approximately $450 million of additional cash available to enhance our operations and financial flexibility. Our Board will continue to evaluate the appropriate dividend on a quarterly basis." Expect most other energy companies to follow suit, citing the "current environment" as the reason for halting distributions to shareholders.

    Obama's $319 Billion Oil Tax Plan Raised to $10.25 a Barrel  |  Rigzone-- President Barack Obama proposed Tuesday to raise $319 billion over the next decade for transportation and other needs with a $10.25-per-barrel tax on crude - up from $10 that was announced last week. The higher amount, along with other details, were released Tuesday as part of the president’s $4.1 trillion budget request to Congress, including a proposed increase in the oil tax that Republicans swiftly rejected. While major questions still remain unanswered, including how and when the fee would be charged, the White House envisions collecting the tax from an estimated 4 billion barrels of domestic and imported oil in 2022, once it is fully phased in. The money would be steered to a "21st Century Clean Transportation Plan to upgrade the nation’s transportation system, improve resilience and reduce emissions," according to budget documents released Tuesday. Exported petroleum products would not be subject to the fee, and home heating oil would be temporarily exempted. After a five-year phase in, the fee would apply to all petroleum produced or imported beginning Oct. 1, 2021. The White House Office of Management and Budget did not explain the higher fee or share details on the modeling and assumptions it used to estimate money it would raise - as much as $319 billion from fiscal 2017 to fiscal 2026. But the $41 billion estimated to come in during fiscal 2022 would reflect about 10.9 million barrels per day of oil.

    Is Oil Becoming Stranded?    – The conventional wisdom regarding the recent plunge in the price of oil is that we are seeing a repeat of the 1985-1986 collapse, when Saudi Arabia ramped up production as part of a dispute with other members of the OPEC cartel. This time, the thinking goes, Saudi Arabia is doing the same in response to its loss of market share to shale-oil production in the United States. But there is another parallel that is even more relevant – with important implications for the long-term price of oil. The recent collapse is reminiscent of a similar dive in the price of coal – which crashed from a brief high of $140 a ton in 2008 to about $40 a ton today – which led some deposits to become “financially stranded,” meaning that the cost of developing them outweighs potential returns.  The drop was the result of long-term environmental policies, including programs aimed at mitigating climate change, which undercut demand for coal. Efforts to improve air quality in China, US carbon and mercury emissions standards, cheaper natural gas, and growing investments in renewable energy have all eroded coal’s share of the energy market. A similar mechanism may be at work in the oil market. As pressure grows on governments to take action to combat climate change, demand for fossil fuels is likely to drop, which could result in prices remaining depressed for longer than the industry anticipates – perhaps forever.

    U.S. running out of space to store oil - The U.S. now has nearly 503 million barrels of commercial crude oil stockpiled, the Energy Information Administration said on Wednesday. It's the highest level of supply for this time of the year in at least 80 years.  The sky-high inventories are the latest sign that the U.S. oil boom is still alive and kicking. U.S. oil production is near all-time highs despite the epic crash in oil prices from $107 a barrel in June 2014 to just $30 a barrel now. Sure, domestic oil production has slowed -- but just barely. Oil stockpiles are so high that certain key storage locations are now "bumping up against storage and logistical constraints," according to Goldman Sachs analysts. In other words, these facilities are nearly overflowing. Cushing, Oklahoma is the delivery point for most of the oil produced in the U.S. This key trading hub is currently swelling with 64 million barrels of oil. That represents a near-record 87% of the facility's total storage capacity as of November, according to the EIA. "There is a fear of tank topping in Cushing. We're seeing it get to its brims," said Matthew Smith, director of commodity research at ClipperData. Cushing has had to ramp up its storage capabilities in recent years just to deal with all this oil. If this key hub ran out of room to stockpile oil, that crude would have to be diverted elsewhere -- and that would hurt oil prices. "There would be a ripple effect across the U.S. that would impact prices everywhere,"

    How Full Is Cushing Crude Oil Storage Capacity, Really? - The Mid-Continent trading and storage hub at Cushing, OK is the nation’s largest commercial crude tank farm – with an estimated 73 MMBbl of working storage capacity according to the Energy Information Administration (EIA). The latest weekly EIA Petroleum Supply report (January 29, 2016) indicated inventory levels at Cushing just over 64 million barrels – 24 thousand barrels below the all-time high set two weeks previously. That is only 88% of working capacity by some calculations that indicate there is still room in the tanks for more crude. Yet market sources report that some storage operators are turning away incoming barrels. Today we examine what may be happening. {...} So with less heavier Permian crude available at Cushing to help blend the rising volumes of light shale crudes from the Rockies, the Williston Basin and shale production in Oklahoma and Kansas – many storage operators may be turning prospective customers away. Not because they don’t have available capacity but because they don’t have enough heavier crude to make WTI lookalike blends with incoming light shale grades. The long-term consequences of this blending congestion at Cushing are unclear. Even if commercial storage at Cushing is not actually full the congestion issue is making it look that way. With the crude market still in contango there is an incentive to store crude today and sell it for higher prices later. If Cushing storage is not available then the contango should increase – meaning today’s spot prices could be squeezed lower to pay for more expensive alternative options. None of which is good news for long suffering producers.

    Excess Oil Supplies Lead to Rising Crude Oil Storage Capacities - Record supplies in the global market lead to the need for more storage because of the normal demand. We covered how lower oil prices influence the gasoline market in the last part of the series. Lower demand for refined products leads to a fall in the refinery demand. So, it leads to a fall in the crude oil demand. It also leads to a rise in the crude oil inventory due to rising US production despite lower oil prices. As production rises and demand is normal or less, oil markets need large oil storage hubs or increased storage hub capacity. Cushing, Oklahoma, is the largest crude oil storage hub in the US. It’s also the futures delivery point for NYMEX-traded crude oil futures contracts. Cushing contains 13% of the total US crude oil inventory capacity. The US Gulf Coast region contains 55% of the US storage capacity. The long-term oil oversupply and record production from the US led to the rise in Cushing and Gulf Coast’s storage capacities by 56 MMbbls (million barrels) and 25 MMbbls, respectively, since 2011. The current US crude oil inventory is at record levels.

    BP's Stunning Warning: "Every Oil Storage Tank Will Be Full In A Few Months" -- It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut. “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.  Finally, we went on to present two alarm bells that offer the best evidence yet that inventories are reaching nosebleed levels: 1) some counterparties are experiencing delays in delivering crude due to unspecified "terminalling and pump" issues (basically, it’s hard to move barrels around at this point because there’s so much oil sitting in storage); 2) the cash roll is negative. On Wednesday, BP CEO Robert Dudley - who earlier this month reported the worst annual loss in company history - is out warning that storage tanks will be completely full by the end of H1. "We are very bearish for the first half of the year," Dudley said at the IP Week conference in London Wednesday. "In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in," he added. "The market will start balancing in the second half of this year.” Maybe. Or maybe excess supply will simply be dumped on the market once all the "swimming pools" are full. If that happens, don't be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market. Earlier this week, the IEA called any respite for crude prices "a false dawn." Here's why (via The Guardian):

    • a deal between Opec and other oil producing countries to cut production is unlikely
    • with Iran increasing production in preparation for the lifting of sanctions, Opec’s production could rise as strongly this year as in 2015
    • there is little prospect falling prices encouraging a pick-up in the rate of demand for oil
    • the US dollar is likely to remain strong, limiting the scope for falls in the cost of imported oil
    • the predicted large fall in US shale production is taking a long time to materialise

    Whatever Happened to Peak Oil? - John Michael Greer - To understand what happened instead, it’s necessary to keep two things in mind that were usually forgotten back when the peak oil scene was at white heat, and still generally get forgotten today. The first is that while the supply of petroleum is ultimately controlled by geology, the demand for it is very powerfully influenced by market forces. Until 2004, petroleum production worldwide had been rising steadily for decades as new wells were brought on line fast enough to more than offset the depletion of existing fields. In that year, depletion began to catch up with drilling, and the price of oil began to rise steadily, and two things happened as a result.   The first of these was a massive flow of investment money into anything that could make a profit off higher oil prices. That included a great many boondoggles and quite a bit of outright fraud, but it also meant that plenty of oil wells that couldn’t make a profit when oil was $15 a barrel suddenly looked like paying propositions when the price rose to $55 a barrel. The lag time necessary to bring oil from new fields onto the market meant that the price of oil kept rising for a while, luring more investment money into the oil industry and generating a surge in future supply.   The problem was that the same spike in oil prices that brought all that new investment into the industry also had a potent impact on the consumption side of the equation. That impact was demand destruction, which can be neatly defined as the process by which those who can’t afford something stop buying it. Demand destruction also has a lag time—when the price of oil goes up, it takes a while for people to decide that higher prices are here to stay and change their lifestyles accordingly The result was a classic demonstration of one of the ways that the “invisible hand” of the market is a good deal less benevolent than devout economists like to pretend. Take the same economic stimulus—the rising price of oil—and factor in lag times on its effects on both production and consumption, and you get a surge in new supply landing right about the time that demand starts dropping like a rock. That’s what happened in 2009, when the price of oil plunged from around $140 a barrel to around $30 a barrel in a matter of months. That’s also what happened in 2015, when prices lurched down by comparable figures for the same reason: surging supply and plunging demand hitting the oil market at the same time, after a long period when everyone assumed that the sky was the limit.

    Oil supply seen outpacing demand, capping price (AP) — The International Energy Agency says oil supply is set to outpace demand this year, keeping a lid on any expected price increases. The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 2 million barrels per day during the first quarter, and a further 1.5 million barrels a day in the second quarter. Further stock-building of 300,000 barrels a day is forecast in the second half of the year. The IEA said “if these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term.” After heavy losses Monday, the U.S. benchmark for crude was up 61 cents at $30.30 a barrel.

    IEA Warns Oil Prices Could Fall Further as Oversupply Worsens - WSJ: Crude-oil prices could fall even further as the world’s vast oversupply of petroleum is only getting worse with a surge in production from OPEC, according to some of the world’s top oil-market observers. The past month featured the return of Iranian oil after European sanctions were lifted and the failure of the Organization of the Petroleum Exporting Countries to agree on production levels. The cartel flooded the market with an additional 280,000 barrels a day last month, said the International Energy Agency, which tracks oil and gas data for industrialized countries. The new oil from OPEC almost offset significant declines in production around the rest of the world in January, the IEA said. Non-OPEC supplies slipped by 0.5 million barrels a day, the IEA said, as lower oil prices forced North American producers to shut down some of their productionCrude prices plunged on Tuesday, with the U.S. benchmark hitting $28.25 a barrel and Brent crude, the international benchmark, falling more than 7% to $30.57. Overall, prices have fallen more than 60% since November 2014, when OPEC first said it wouldn’t pull back its own production in response to a surge in output from the U.S. “It is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its closely watched monthly oil-market report. The IEA’s report was released as a host of oil traders converged on London for a conference this week, where the outlook was bleak. Ian Taylor, the chief executive of the world’s largest oil trader, Vitol Group PLC, told Bloomberg TV Monday that prices would likely never reach $100 a barrel again, staying between $40 and $60.

    How Much Global Oil Output Halted Due to Low Prices? Just 0.1% - After a year of low oil prices, only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience. The analysis suggests that oil prices will need to drop even more -- or stay low for a lot longer -- to meaningfully reduce global production. OPEC and major oil companies are betting that low oil prices will drive production down, eventually lifting prices. That’s taking longer than expected, in part due to the resilience of the U.S. shale industry and slumping currencies in oil-rich countries, which have lowered production costs in nations from Russia to Brazil. The Wood Mackenzie analysis provides an estimate for the amount directly impacted by low prices -- to the tune of 100,000 barrels a day since the beginning of 2015 -- rather than output affected as new projects build up and aging fields decline. Canada, the U.S. and the North Sea have been affected the most by closures related to low prices.  “Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report. The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.” For major oil companies, a few months of losses may make more sense than paying to dismantle an offshore platform in the North Sea, or stopping and restarting a tar-sands project in Canada, which may take months and cost millions of dollars. “There are barriers to exit,”

    Video: Greenpeace opens fracking site in Parliament Square - Anti-fracking campaigners Greenpeace have installed a ten-metre high mock drilling rig in Parliament Square, in protest at the Government's support for the controversial process. The rig, complete with a 'flare' that fires up every hour, was erected to a public inquiry into Cuadrilla's proposals to frack for shale gas at two sites in Lancashire. .  The plans were thrown out by councillors last summer but Cuadrilla appealed against the decision and Greg Clark, the communities secretary, has said he will intervene to take the final decision on the applications. A Cuadrilla drilling rig in Lancashire (Cuadrilla) Research conducted by Populus for Greenpeace shows that 62 per cent of people think local councils should decide on fracking applications in their area. Interactive: Fracking NEW But ministers have defended intervening in order to speed up the search for shale gas, which they argue is in the national interest. Hannah Martin, a campaigner at Greenpeace, said: "Ministers are pushing aside local democracy to bulldoze through their unpopular fracking plans. We have installed a life-like fracking rig and drill at Parliament Square to show them what people in Lancashire and beyond will have to endure if so-called communities minister Greg Clark forces fracking on a reluctant nation." A rally is also taking place outside Blackpool Football club where the inquiry is being held.

    UK North Sea could lose 150 oil platforms within 10 years: Report -  With oil price plummeting, nearly 150 uneconomic oil platforms in the UK North Sea are expected to be scrapped over the next 10 years, according to industry analysts. Of all the decommissioning over the next 25 years, more than half is likely to take place between 2019 and 2026. The estimate, from Douglas-Westwood, takes account of the fall in the price of oil. Crude prices have plunged around 70 per cent over the past 18 months to around $ 35 a barrel. The estimate said this will result in many oil fields in UK waters, including the North Sea, becoming uneconomic. Another consultancy, Wood Mackenzie, reported on Friday that, at recent prices, one in seven barrels of oil being produced in UK waters is at a cash loss. It said the UK is the country third most likely to see oil fields permanently shut down as a result of low prices, the BBC reported. Canada and Venezuela have more production at a cash loss.The estimate for decommissioning 146 offshore platforms in the seven years to 2016 is part of forecast expenditure of nearly 35 billion pounds over the next 25 years. Wood Mackenzie's report drew on data from 10,000 oil fields around the world. It found that one barrel in every 30 is being produced at a loss - in that production is more expensive than revenue. That rises to one in seven for the UK offshore sector. Wood Mackenzie calculates that some 220,000 barrels per day are produced at a loss, out of around 1.5 million in total. It says the global picture is of a low level of oil field shut-ins, despite the low oil price. Only around 100,000 barrels of oil per day have been lost due to such decisions.

    A quarter of North Sea oil platforms 'could be scrapped in 10 years' - Almost 150 oil platforms in UK waters could be scrapped within the next 10 years, according to industry analysts. Douglas Westwood, which carries out market research and consultancy work for the energy industry worldwide, said it anticipated that “146 platforms will be removed from the UK during 2019-2026”, around 25% of the current total. The North Sea has been hit hard by plummeting oil prices, with the industry body Oil and Gas UK estimating 65,000 jobs have been lost in the sector since 2014. But Douglas Westwood said that decommissioning could provide an opportunity for the specialist firms involved in the work. Later this month, it will publish its decommissioning market forecast for the North Sea – covering Denmark, Germany, Norway and the UK – over the period 2016 to 2040. Ahead of that, a paper on its website predicted that the “UK will dominate decommissioning expenditure”. This is due to the “high number of ageing platforms in the UK, which have an average age of over 20 years and are uneconomic at current commodity prices, as a result of high maintenance costs and the expensive production techniques required for mature fields”.

    US oil production to fall 92,000 b/d in March in key plays: EIA - Oil production will fall by 92,000 b/d from February to March in key US onshore plays, the US Energy Information Administration said Monday. The biggest forecast drop will be in the Eagle Ford, where EIA sees supply falling 50,000 b/d to 1.222 million b/d in March from 1.272 million b/d in February. The Bakken, where EIA expects production to fall to 1.1 million in March from 1.125 million b/d in February, and the Niobrara, where production is forecast to fall to 389,000 b/d in March from 404,000 b/d in February, are also expected to see substantial drops. In addition, production in the Permian will climb to 2.04 million b/d in March, just 1,000 b/d more than the play's estimated production this month. Permian supply, which has grown despite declines in other US plays, appears to be nearing its first month-to-month decline since the EIA began tracking drilling productivity in late 2013. The EIA has forecast month-to-month production declines in the Bakken, Eagle Ford and Niobrara since March 2015, but the projected drops appear to be more modest than those forecast by EIA late last year, despite persistent low prices and planned spending cuts by US producers.In November, EIA forecast Eagle Ford production would fall by 78,000 b/d from November to December and in May EIA forecast Bakken production would fall by 31,000 b/d from May to June. The new estimates Monday were included in the EIA's monthly Drilling Productivity Report, which looks at supply in seven onshore regions that have seen the most prolific growth recently. The report does not, for example, look at Gulf of Mexico or Alaska production.

    EIA: Record Oil Inventories, Gasoline Prices expected to average $1.98/gal in 2016  -- Oil prices are down today, with Brent at $30.51 per barrel, and WTI at $28.08. Here is an excerpt from the EIA Short-Term Energy Outlook (STEO) released today. Brent crude oil prices are forecast to average $38/b in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in both years. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook. ... The U.S. retail regular gasoline price is forecast to average $1.98/gallon (gal) in 2016 and $2.21/gal in 2017, compared with $2.43/gal in 2015. In January, the average retail regular gasoline price was $1.95/gal, a decrease of 9 cents/gal from December and the first time monthly gasoline prices averaged below $2/gal since March 2009. EIA expects the monthly average retail price of U.S. regular gasoline to reach a seven-year low of $1.82/gal in February 2016, before rising during the spring. ... U.S. crude oil production averaged an estimated 9.4 million b/d in 2015, and it is forecast to average 8.7 million b/d in 2016 and 8.5 million b/d in 2017. EIA estimates that crude oil production in January was 70,000 b/d below the December level, which was 9.2 million b/d.

    Vitol sees weak demand, stock limits prolonging oil price pressure - Vitol, the world's biggest independent oil trader, sees further downward pressure on global oil prices this year amid signs of weaker than expected demand for oil and as storage tanks fill to the brim. Due to a relatively muted demand response to the lower oil price last year, Vitol sees oil demand growing by 800,000-1 million b/d this year, down from an "exceptional" 2015 when demand grew by 1.7 million b/d, Vitol executive member Christopher Bake said Tuesday. "Where we all thought that pricing would hasn't and going forward, the effect of lower prices is not totally clear what that is going to do to incremental demand," Bake told an oil conference in London. "I don't think we can rely on low prices driving much incremental demand at this point," Bake said. Vitol's latest estimate is much lower than the International Energy Agency which Tuesday left its key estimated for oil demand growth unchanged from the previous at 1.2 million b/d this year. As a result of weak demand growth, Bake estimated that some 1.8-2 million b/d of surplus supply is likely to come into the world oil market this year. The supply, partly from Iran's post-sanctions return to the market, is set to add additional price pressure as global stocks are nearing record levels, he said. Some 450 million barrels of crude and products are currently being held in commercial stocks, he said, noting that stocks will build by a further 360 million barrels over the next six months unless the demand/supply balance returns. "It's probably a good time to be a vessel owner because primary and secondary storage now is pretty much full," Bake said referring to the likelihood of additional floating storage being sought out by some producers and market participants.

    Expecting the unexpected: Why the oil price keeps surprising us | VOXEU -- Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission.

    Today, it begins: The reasoning is clear: We know you can’t hold back production to get higher prices later if you have debt to service. Only equity financed production has that luxury. The process is also clear: The highly leveraged producers drown each other with supply in an attempt to be the last man floating, but ultimately all sink. The equity holders get wiped out and the bond holders become the new equity holders in exchange for writing off their debt claims. Sometimes the new equity holders sell their claims to others in the process. Sometimes they hold on. But either way the new owners have made time their friend instead of their enemy. This debt for equity swap is the sine qua non for swing production to begin the long awaited, over forecast pull back in supply. Did you see what just happened to the stock prices of Chesapeake Energy and others producers of its ilk? The process started today. NB: I am not saying buy oil today, that oil will be a moon shot, or that the process will be rapid or clean. In fact, the ability of shale producers with today’s technology to ‘turn the spigots back on’ very quickly should dampen any large upward thrust in the price of crude. ‘L’ is still more likely than ‘V’. But at least it begins the process. And maybe with it we can hope against hope that the correlation between crude oil and other risk assets can begin their process of reverting to their means.

    WTI Plunges Back Below $30 After Goldman "Teens" & IEA Excess-Supply Warning -  WTI keeps dead-cat-bouncing thanks to the algos and crashing thanks to reality. This morning's reality check on the overnight ramp comes courtesy of a double-whammy from Goldman ("wouldn't be surprised to see WTI in the teens") and The IEA which increased its estimate of excess-supply drastically. This has dragged WTI back below $30 once again and where oil goes, stocks go...Goldman Sachs Says No Surprise If Oil Price Drops Below $20/Bbl“I wouldn’t be surprised if this market goes into the teens,” Head of Commodities Research Jeff Currie says in interview on Bloomberg TV. “Once you breach storage capacity, prices have to spike below cash costs” And IEA piled on... The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the International Energy Agency. Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand. Oil volatility remains extremely elevated...

    Crude Confused After API Reports Across-The-Board Inventory Builds - WTI crude had tanked into the NYMEX close (by the most in 5 months) but managed to get back above $28 before fading into inventory data. Against expectations of a 3.6mm build, API reported a 2.4mm barrel crude build (the 5th weekly build in a row). Even more critically, API reported a 3.1mm Gasoline build (notably above the expected +400k build) and Cushing saw a 2nd weekly build of 715k. WTI ignored it initially but then decided to rally modestly before fading to unch.  Builds across the complex..  The reaction... lower...  Charts: Bloomberg

    U.S. crude oil inventories fall unexpectedly as imports slump - EIA: (Reuters) - U.S. crude stockpiles fell unexpectedly last week as imports slumped, while gasoline inventories hit a record high for a second week, data from the Energy Information Administration showed on Wednesday. After two consecutive weeks of record highs, crude inventories fell 754,000 barrels in the week to Feb. 5, compared with analysts' expectations for an increase of 3.6 million barrels. The decline was only the fourth decrease since the end of September. U.S. crude imports fell by 1.1 million barrels per day, the biggest weekly decline since December 2014, to 7.1 million bpd. Crude stocks at Cushing Oklahoma, delivery hub for crude futures, however, rose 523,000 barrels to record 64.7 million barrels, EIA said. "It looks like the unexpected crude draw was due to lower imports," said Scott Shelton, broker and commodities specialist with ICAP. "This is a slight improvement in the oil inventory data, but I don't think this is enough to make people think the lows are in." U.S. crude futures initially rose on the news, topping $29 a barrel, but quickly retreated, and was at $27.85, down 9 cents on the day by 11:03 a.m. EST (1603 GMT). Brent crude rose above $31.70 a barrel, and then pared gains, retreating to $31.06.

    Oil Retreats as Total Stockpiles Keep Growing - WSJ: Oil’s sharp rally quickly deflated Wednesday after traders focused on growing stockpiles of gasoline and distillates as evidence of the stubborn glut in oil markets. Oil prices shot up more than $1 in about two minutes late Wednesday morning after U.S. government data showed domestic crude stockpiles unexpectedly shrank last week. But total stockpiles still grew for the 11th time in 14 weeks, buoyed by unexpectedly large additions to product stockpiles, causing prices to retreat almost as quickly as they rose. Light, sweet crude for March delivery settled down 49 cents, or 1.8%, at $27.45 a barrel on the New York Mercantile Exchange. It has lost 15% in five straight losing sessions, falling to its second-lowest settlement since the 14-year low it landed at Jan. 20. Brent, the global benchmark, held on to gains of 52 cents, or 1.7%, to $30.84 a barrel on ICE Futures Europe. Gasoline posted even bigger gains, its largest in nearly two weeks, settling up 4.36 cents, or 4.9%, at 94.25 cents a gallon. Gasoline surged from the start of trading because of more refinery slowdowns, brokers and an analyst said. Bloomberg reported late Tuesday that Irving Oil shut its St. John refinery in Canada, citing Genscape. Reuters reported Delta cut production rates at its refinery outside Philadelphia, citing an unnamed source.

    Oil Pumps On Unexpected Crude Inventory Draw, Dumps On Building Storage Concerns -- Following last night's across the board build in inventories from API, DOE reported a surprising 750k drawdown (much less than the 3.2mm build expected). However, across the rest of the complex - inventories rose: Cushing +523 build (13th week in a row), Gasoline +1.26mm build, and Distillates +1.28mm build (first in 4 weeks). Having tumbled early on from Yellen's undovishness, crude spiked on the headline draw (back above $29) but is struggling to hold gains. From API:

    • Crude +2.4mm
    • Cushing +715k
    • Gasoline +3.1mm

    From DoE:

    • Crude -754k
    • Cushing +523k
    • Gasoline +1.26mm
    • Distillates +1.28mm

    The minor crude inventory draw is considerably outweighed by the build across products and storage concerns (echoing BP's earlier warnings)...

    As U.S. refiner Phillips 66 dumps Cushing crude, traders spy output cuts | Reuters: U.S. refiner Phillips 66 dumped crude for immediate delivery in Cushing, Oklahoma on Wednesday, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories. The unusual sales of excess oil added pressure to the March/April WTI futures spread, with the front-month discount widening to as much as $2.37 a barrel on Wednesday, the most since November. It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed. A company spokesman said that it does not comment on market rumors or speculation. These deals drew notice among traders, who said the prices were distressed and the timing unusual. The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago. Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.

    For the oil traders - 3 traders confirm deals at negative $2.50 and $2.75 /bbl:  The headline is truncated, they often are. More:

    • U.S. refiner Phillips 66 dumped crude for immediate delivery in Cushing on Wednesday
    • The unusual sales of excess oil added pressure to the March/April WTI futures spread, with the front-month discount widening to as much as $2.37 a barrel on Wednesday, the most since November
    • It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.

    The Most Ominous Warning That Oil Storage Is About To Overflow Has Arrived -- It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut. “Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages. And now with major US refiners dumping crude, as we detailed overnight, those fears are surging. U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.

    An update on oil prices  -- From the WSJ: U.S. Crude Settles at 13-Year Low on Oversupply Fears Oil prices settled at their lowest levels since 2003 as growing stockpiles in the U.S. and continuing worries about falls in the wider financial markets keep oil in the red. Light, sweet crude for March delivery settled down $1.24, or 4.5%, to $26.21 a barrel on the New York Mercantile Exchange, the lowest settlement since May 2003. Brent, the global benchmark, declined 2.5% to $30.06. This graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).  According to Bloomberg, WTI is at $27.08 per barrel today, and Brent is at $30.72 Prices really collapsed at the end of 2014 - and then rebounded a little - and then collapsed again.  Prices are now at the lowest since 2003 (even lower than during the Great Recession). There are many factors pushing down oil prices - more global supply (even as some shale producers cut back), global economic weakness (slowing demand), strong dollar, and warm weather in the US (less heating demand) to mention a few.

    Crushing The "Oil's Just A Supply Issue" Meme In 1 Painful Chart -- Day after day we are told that the plunge in oil prices (just like the collapse in The Baltic Dry freight index) is a "supply" issue... it's transitory and global demand is doing fine thank you very much. Sadly, as everyone really knows deep down inside their Keynesian hearts, this is utter crap and as Barclays shows the shocking 18% YoY crash in distillates "demand" - something that has never happened outside of a recession - blows the one-sided argument of the energy complex out of the water…Still gonna claim "it's a supply issue?"

    OPEC cut rumor halts oil price decline: Oil prices briefly dipped to new 12-year lows Thursday, but a fresh hope of potential production cuts helped the commodity regain some of those losses later in the day. West Texas Intermediate, the U.S. benchmark crude oil, fell 4.5% to $26.21 on Thursday but rebounded above $27 after the Wall Street Journal paraphased a United Arab Emirates Energy Minister as saying that "OPEC members are ready to cooperate on a cut." The commodity hasn't settled below $26 since May 2003, according to the Oil Price Information Service. Production cuts at the Organization of the Petroleum Exporting Countries would help ease the global glut of crude oil that has crushed the commodity in recent months and tipped U.S. gasoline prices into a downward spiral. But rumors of OPEC cuts are not the real thing. Two weeks ago, oil surged briefly after the Russian news agency TASS reported that OPEC and Russia could meet in February to cut production. That hasn't happened yet. In fact, OPEC increased production in January by 280,000 barrels per day to 32.6 million, according to an International Energy Agency report released Tuesday.

    OilPrice Intelligence Report: Oil Rallies Over 12% As OPEC Rumors Reach Markets  It was yet another brutal week for crude oil as global stockpiles continue to build and capital is increasingly looking towards safety.  U.S. Federal Reserve Chair Janet Yellen spoke to Congress on Wednesday, and sounded much less certain about the health of the global economy than she did in December. The downbeat comments contributed to a global sell off on Thursday, with investors increasingly looking to safe-haven investments such as the U.S. dollar, the yen, gold, and other safe bonds.  Meanwhile, in the oil markets, there is little to be excited about. Global stockpiles remain elevated, and U.S. storage levels were unchanged from their 80-year highs. The hub of Cushing in Oklahoma is seeing storage space fill up. The facility’s storage capacity is almost 90 percent full.  The cracks in the economy are helping to push oil down, and WTI fell to $27 per barrel on Thursday. While many market watchers think oil prices will rise later this year, the near-term is still troubling. “We think it’s going to be lousy and nasty for the next three to six months at least,” a trader with TD Securities told the WSJ. Late Thursday and into Friday, oil prices erased some of their losses on yet another round of rumors about an emergency OPEC meeting. The Wall Street Journal reported that the UAE’s energy minister said that OPEC was ready to negotiate. Still, he asserted that the market was taking care of the oil glut by capping production from higher-cost producers. It was unclear if the minister’s comments marked a new commitment from the oil cartel, or if he was reiterating the group’s previously held position. The markets traded up on the news, but as we have noted before, it is better not to trust the OPEC rumors until an actual emergency meeting is announced.  IHS estimates that the industry has cancelled or deferred $1.5 trillion worth of oil and gas investments between 2015 and 2019. At some point figures that large start to lose meaning to the average investor, but it is a staggering sum that will ensure future supplies will be much lower than they otherwise would have been.

    U.S. Crude Sinks to New 13-Year Low, Then Rebounds - WSJ: U.S. oil prices hit a new 13-year low, then rebounded to unchanged in late trading as both oversupply and the threat of coordinated output cuts spooked the market in both directions. Oil prices sank early in the day as part of a broader market selloff and then sank further after news of growing stockpiles at a key U.S. hub. But that selloff reversed quickly and oil pared losses late Thursday after The Wall Street Journal posted translated comments from the United Arab Emirates’ energy minister about whether OPEC members are more open to cutting output. The minister, Suhail bin Mohammed al-Mazroueifirst, was asked by a Sky News Arabia broadcaster if it is true that the Organization of Petroleum Exporting Countries members are more open to the idea of a production cut and, if so, that there will be a coordinated cut. “Everyone (in OPEC) is ready to cooperate” on a cut, Mr. al-Mazrouei said. But, he added, OPEC would only cut back if it got “total cooperation from everyone,” something that hasn’t yet happened despite lobbying from several countries that see production cuts as a way to stop a 20-month swoon in oil prices. Several brokers and traders called Thursday’s rebound unfounded speculation, and accused bullish traders of taking Mr. al-Mazrouei’s comments out of context. Additionally, his comments weren’t much different from those several OPEC leaders have made in recent months and several rallies based on those past comments have failed quickly after other members of OPEC said they wouldn’t participate in any effort to slow production and raise prices.  Light, sweet crude for March delivery settled down $1.24, or 4.5%, at $26.21 a barrel on the New York Mercantile Exchange. That is a new low dating back to May 2003 after six-straight losing sessions cut prices by 19%. It is the largest six-day percentage decline since the financial crisis.

    Energy sector movers, losers, and news: Oil reaches 12-year low - This week oil is down at $28.95 per barrel from 30.89 last Friday, February 5th, a 6.7 percent change. Oil reached $26.21 Thursday, February 11 which is the lowest oil has been since 2003.   Anadarko Petroleum Corporation (NYSE:APC) announced in a press release to its stockholders a 22 cent and 81% reduction to five cents per share on February 9th. The company justifies the change due to $450 million annual cash this change allows the company for financial stability and flexibility in a tight economy. SolarCity Corp. (NASDAQL:SCTY) also released 4th Quarter earnings Tuesday February 9. This caused a reaction from the market, and the stock fell to $18.48 per share (Weds) from $29.57 per share at its close Friday February 5. Opening price February 12 was $17.30. Reports that Chesapeake Energy Corporation (NYSE:CHK) hired lawyers to restructure their debt was met with a drop in stock prices this week. They issued a statement Monday February 8th after the 50.6 percent stock drop, stating they currently hold no intentions of pursuing bankruptcy, but rather plan to use the restructure to increase shareholder value. Cheseapeake stock closed Tuesday at $1.95 per share. Stock prices opened today at $1.86, down $1.20 from its close last Friday, Feb. 5. Whiting Petroleum Corp. (NYSE:WLL) formerly rated at Ba2 was downgraded to Caa1 rating, a five spot move. In a quote, the Street explains the reason for the downgrade reflect cash flow and other leverage metrics for 2016 and 2017. Whiting has a heavy debt paired with ever falling low oil prices. Whiting Petroleum Corp. opened at $5.12 per share this morning and is currently trading at $4.44 (1:40 pm CST) a 9.57% drop.

    Rig Count Plunges Yet Again, Down Another 30 -- The U.S. rig count plunged again this week, falling by an additional 30 rigs for the week ending on February 12. Baker Hughes reported that oil rigs fell by 28 to 439, and the natural gas sector lost 2 rigs, for a total of 102. Combined, there are 541 active oil and gas rigs in the United States.  The dismal numbers follow an even worse report the week before, when the rig count plummeted by 48. Energy analysts have closely watched the active rig count since the beginning of the oil bust more than a year and a half ago. The rig count has fallen by more than 70 percent since a high of over 1,900 rigs in the 3rd quarter of 2014. But the drop off has accelerated once again since oil prices crashed into the low $30s per barrel and below. The U.S. has lost an additional 157 rigs since the start of the year, posting another 20 percent decline in just six weeks. Of course, rig counts are disappearing around the world, it is just that the U.S. has the most reliable data. For example, Ecuador, one of the smallest producers in OPEC, is down to just a single rig. That is a massive problem for a country that depends on oil for 50 percent of its export earnings.

    U.S. Oil-Rig Count Declines by 28 - WSJ: The U.S. oil-rig count fell by 28 to 439 in the latest week, according to Baker Hughes Inc., maintaining a recent clip of elevated declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude. There are now about 66% 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 declined in the latest week by 2 to 102. The U.S. offshore-rig count was 25 in the latest week, down one from the previous week and down 27 from a year earlier. Oil prices rallied on Friday, rebounding from a 13-year low the previous day, on speculation of production cuts among some of the world’s biggest suppliers.  U.S. crude oil climbed 12.29% to $29.43 a barrel.

    US Oil Rig Count Plunges By Most In 10 Months -- Following last week's dramatic 31 rig decline, Baker-Hughes reports another major decline of 28 oil rigs (dropping the total oil rigs to 439 - lowest since Jan 2010 - for the 8th consecutive week). The total rig count dropped 30. On the heels of OPEC rumors overnight and then re-rumored bullshit from Venezuela, oil prices had already surged during the day and the biggest 2-week rig count decline in 10 months after initially being sold, is rallying once again.


    As the rig count continues to track almost perfectly the lagged oil price... The declines were widespread with Texas dropping the most absolutely...

    Oil gains 12.3% in best day since Feb '09: U.S. crude prices jumped as much as 13 percent on Friday after a report once again suggested OPEC might finally agree to cut production to reduce the world glut, while a bounce in stock markets fed appetite for risk. Despite the strong daily gain, oil prices were poised to end the week down with significant losses. But U.S. oil settled up more than 12 percent, for the best one-day gain since February 2009, when WTI gained 14.04 percent. The about-turn came after one of the most volatile weeks for oil, with prices initially falling nearly 14 percent over a four-day stretch before springing back higher. The United Arab Emirates' energy minister said the Organization of the Petroleum Exporting Countries was willing to cooperate on an output cut, the Wall Street Journal reported after Thursday's settlement in U.S. futures. He also said cheap oil was forcing supply reductions that would help rebalance the market. The UAE's comments, coming after vain efforts earlier in the week by Venezuela and Russia to stir Saudi Arabia and other major producers into agreeing to output cuts, was initially greeted with skepticism by many traders.

    OPEC Points To Larger Oil Surplus In 2016, Says Low Prices Hurting Economy (Reuters) - OPEC pointed to a larger oil supply surplus on the world market this year than previously thought as Saudi Arabia and other members pump more oil, helping to make up for losses in non-member producers hurt by the collapse in prices. The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report. A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC's 2014 strategy shift to defend market share and not prices helped deepen the decline. OPEC also cut its forecast for world economic growth in 2016 to 3.2 percent from 3.4 percent and said low oil prices were hurting the economy, in contrast to previous price slides that were supportive of global growth. "It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term," OPEC said. "There seems to be a 'contagious' effect taking place across many aspects of the global economy." OPEC cited factors including the financial strain on producers dependent on oil income, the inability of central banks to lower interest rates and impacts on sectors from manufacturing to agriculture. The report added to signs that the price drop is hitting relatively expensive non-OPEC supply. Companies have delayed or cancelled billions of dollars worth of projects, putting some future supply at risk. OPEC now forecasts supply from non-member producers will decline by 700,000 bpd in 2016, led by the United States. Last month, OPEC predicted a drop of 660,000 bpd.

    OPEC Will Not Blink First - Arthur Berman - An OPEC production cut is unlikely until U.S. production declines by about another million barrels per day (mmbpd). OPEC won’t cut because it would accomplish nothing beyond a short-term increase in price. Carefully placed comments by OPEC and Russian oil ministers about the possibility of production cuts achieve almost the same price increase as an actual cut.  The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) shook the markets yesterday with news that the world’s over-supply of oil has gotten worse rather than better in recent months. IEA data shows that the global liquids over-supply increased in the 4th quarter of 2015 to 2.24 million barrels per day (mmbpd) from 1.62 mmbpd in the 3rd quarter (Figure 1). Supply increased 70,000 bpd and demand decreased 550,000 bpd for a net increase in over-supply of 620,000 bpd. The sharp decline in demand is perhaps the most troubling aspect of IEA’s report. The agency forecasts tepid demand growth of only 1.17 mmbpd in 2016 compared with 1.61 mmbpd in 2015. The weak global economy is the culprit. EIA’s monthly data showed the same trend. Over-supply in January increased to 2.01 mmbpd from 1.35 mmbpd in December, a 650,000 bpd net change (Figure 2). Supply fell by 370,000 bpd but consumption dropped by a stunning 1.02 mmbpd. Figure 2. EIA world liquids market balance (supply minus consumption). Recent comments about a possible OPEC cut were largely responsible for the late January “head-fake” increase in oil prices (Figure 3). WTI futures increased 27 percent from $26.55 to $33.62 per barrel between January 20 and 29. As hopes for a production cut faded, prices fell 8 percent last week and have fallen below $28.00 as reality regains control of market expectations.

    Falling oil prices will bankrupt the likes of Russia, Saudi Arabia - — What might be the next big financial crisis? A bursting of the bubble in tech stocks that has built up over the last two years? A total collapse in the stock market, beyond the selloff that has already marked the start of 2016? Any of those could happen. But increasingly it looks as if it will be national bankruptcies caused by collapsing oil and commodity prices. The International Monetary Fund is discussing a bailout of Azerbaijan, hard hit by tumbling oil prices. Venezuela is out to go bust — again — for the same reason. Ecuador looks about to go the same way. More important countries may follow them — most significantly Russia and Saudi Arabia. Neither of them looks solvent for much longer with commodity prices at these very low levels. We could soon be back in a full-scale sovereign-debt crisis, except this time it will be commodity exporters that are caught up in the maelstrom rather than peripheral eurozone countries. But just like the eurozone crisis, the losses will soon ripple out to the banking system, and before long there may well have to be series of emergency bailouts. The key question will be whether that can be used to drive through reforms — because there is not much point in simply bailing out countries that can’t rely on energy exports any more.

    Six OPEC Members, Plus Russia, Now Open to Emergency Meeting  - Oil prices have whipsawed back and forth over the past two weeks, largely due to the rise and fall of expectations that OPEC might call an emergency meeting. Comments from several Russian oil executives and government officials sent oil prices surging at the end of January. Then prices retraced their gains when officials from OPEC dismissed the stories as just rumors. Nothing had changed, OPEC officials argued, even though some people in Russia were hinting at a meeting. But the rumors persist. The latest fuel to the rumor fire is the fact that now six OPEC member states have said that they would be willing to attend an emergency meeting if one was called, the highest total yet. Venezuela has officially requested an emergency meeting, and the oil minister from the South American OPEC member said that six OPEC members plus two non-members are willing to discuss measures to stabilize oil prices. Related The list includes Iraq, Algeria, Nigeria, Ecuador, Iran, and of course Venezuela. Russia and Oman, two non-OPEC members, would also be willing to attend. “The idea is to not just hold a meeting, but for all the countries to attend with the intention of reaching agreements,” Venezuela’s oil minister Eulogio Del Pino said in the statement. “Current prices are below equilibrium, and that encourages the speculators and market instability.”

    No Agreement on OPEC Meeting After Venezuela Meets With Saudi Arabia -- The prospects for an emergency OPEC meeting to initiate coordinated production cuts took a hit this weekend. Venezuela’s oil minister Eulogio del Pino flew to Riyadh to meet with Saudi officials, which followed a recent trip to Moscow to gin up support from Russia for their cooperation. Venezuela has sent a formal request to OPEC for an emergency meeting, and del Pino has been conducting some shuttle diplomacy to build support to stabilize oil prices. However, after meeting with Saudi Arabia’s oil minister Ali al-Naimi, a very powerful voice in forming OPEC strategy, the meeting adjourned with no agreement. Although al-Naimi said that the meeting was “successful” and had a “positive atmosphere,” the comments were noticeably lacking any mention of an agreed upon strategy or even a confirmation that an emergency meeting would take place. “Nothing really happened at the meeting,” an OPEC official told The Wall Street Journal. That will likely deflate some of the hopes that OPEC would cut production, a possibility that was largely responsible for a brief but sudden rally in oil prices at the end of January. Speculation grew as several major oil producers, including Russia, Iraq, and Iran, gave varying degrees of support for an emergency meeting, all with the caveat that other top oil producers would have to go along for them to do so.

    OilPrice Intelligence Report: Hopes Fall on Emergency OPEC Meeting: Oil prices slumped on Monday as news emerged from Riyadh that the meeting between Venezuela’s oil minister Eulogio del Pino did not succeed in bringing Saudi Arabia on board for an emergency OPEC meeting. Venezuela has been pleading with OPEC members to come together for a production cut, and has at least succeeded in generating some buzz. But thus far, the diplomacy of the country’s oil minister has not resulted in getting a meeting on the calendar. Saudi oil minister Ali al-Naimi said the meeting was “successful,” but in reality, the only thing the markets care about is whether or not OPEC will meet to cut production. In that sense, the meeting as not successful. “Nothing really happened at the meeting,” one OPEC official told the WSJ. WTI briefly below dipped below $30 per barrel on Monday following the news, before closing a few cents above $30.  More spending cuts needed. Even if crude oil averages $40 per barrel this year, the oil and gas industry in North America will need to slash more spending in order to correct their balance sheets. According to IHS Inc., who surveyed a group of 44 prominent oil and gas firms in the U.S. and Canada, spending is still too high. IHS says that the 44 companies will need to cut another 30 percent from their planned expenditures, or an additional $24 billion, in order for them to get spending down to 130 percent of cash flow.  “These spending cuts will be particularly troublesome for the highly leveraged companies,” said Paul O’Donnell, principal analyst at IHS Energy, according to Bloomberg. “These E&Ps are torn between slashing spending further to avoid additional weakening of their balance sheets, and the need to maintain sufficient production and cash flow to meet financial obligations.”

    The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy  - naked capitalism - Yves here. This is an interesting theory, but I’m not sure I buy it. McEndree’s argument is basically that US shale players weren’t the main target of the Saudis because they haven’t succeeded in lowering their production. The fact that the effort so far has not worked as perhaps planned isn’t proof that it wasn’t the Saudis’ aim, particularly since they said at the very outset that they as the low cost producer, should not be the swing producer.  Note I find the “main target” to be a bit of a straw man, since even at the time of the Saudi refusal to cut production to support prices, many observers (including yours truly) argued the Saudis were targeting not just the US but all higher cost producers, including its geopolitical enemies like Russia and Iran.  The mistake of the Saudis (and most oil analysts) was one not made by John Dizard of the Financial Times. Dizard correctly predicted that the shale players would keep pumping as long as they had access to financing. Indeed, as we’ve seen, they are continuing to pump strictly to keep servicing debt. And the need to produce revenues (which is the motivation for most major oil producing nations, since they need oil income to finance their national budgets) means all the producers are locked into a bad equilibrium: they are all going to keep producing at levels higher than the markets can absorb until either a deal or an external force makes them stop. With the frackers, it will be access to financing. And what I believe McEndree also misses, but I welcome informed criticism if I have this wrong, is that fracking won’t be so easily resumed once fracking companies start hitting the wall and/or defaulting. Their old business model presupposed much higher prices and high leverage. I doubt we’ll see prices above $60 a barrel, nor will we see anywhere near as much gearing of shale gas plays as in the past.

    Russia's Biggest Oil Producer Skeptical on Output Deal With OPEC - Russia’s largest oil producer Rosneft OJSC said it will defend traditional markets and expressed doubts over any coordinated action by crude-exporting nations to curb output. “Tell me who is supposed to cut?” Chief Executive Officer Igor Sechin said on the sidelines of a conference in London on Wednesday. “Will Saudi Arabia cut production? Will Iran cut production? Will Mexico cut production? Will Brazil cut production? Who is going to cut?” Venezuela has lobbied Russia, Iran, Saudi Arabia and other producers over its desire for a meeting between OPEC and non-OPEC countries aimed at a global agreement to restore balance to an oversupplied market. Oil prices have collapsed to their lowest levels in 12 years after Saudi Arabia led the Organization of Petroleum Exporting Countries to defend market share rather than cut production amid a global supply glut. “We are working on preserving our traditional markets and we will supply those markets with oil in a competitive battle,” said Sechin, adding that his responsibility is to ensure shareholders don’t lose money as part of any talks on managing global oil markets. Russia, which gets as much as half of its budget revenue from oil and gas, has signaled it would attend any meeting between OPEC and non-OPEC producers, should such a gathering occur. After talks with Venezuelan Oil Minister Eulogio del Pino earlier this month, both Sechin and Russian Energy Minister Alexander Novak agreed to discuss cooperation on global oil markets. Rosneft is taking a wait and see approach, but Sechin said the producers’ policy has played into the hands of financial players willing to test prices even as low as $10 a barrel.

    Iran eyeing refinery acquisitions in Brazil: Brazil says it has started talks with Iran about a possible investment in troubled refinery projects controlled by its state-led oil company Petroleo Brasileiro SA. Reuters on Thursday quoted a Brazilian government official as saying that the talks are still in an early stage and that they concern an ambitious scheme based on which Iran will have its crude oil processed at refineries in Brazil's northeastern region and will then sell it in the country’s market. "For this subject to be considered embryonic it will still need to evolve a lot," said the source who has not been named. Iran has shown interest in investing in the construction of the Premium I and Premium II refineries in Brazil's northeastern states of Maranhao and Ceara, the source said. The refineries are designed to produce low-sulfur fuels. Brazil’s oil major Petrobras – embattled by a domestic scandal as well as the impacts of falling oil prices – has suspended work on both projects which are expected to cost more than $15 billion each, Reuters added. Iran is pursuing similar schemes in at least five other countries including Malaysia, South Africa, Sierra Leone, India and Indonesia. This is seen as part of a policy by Iran to use overseas refineries to have its crude processed and bring back strategic products such as gasoline for domestic consumption as well as exports.

    Iran lifts currency controls with Russia: Iran said on Friday that it had lifted the currency controls with Russia in a bid which is expected to boost commerce between the two countries. The announcement was made by Masoud Karbasian, the head of Iran’s Customs Administration who said the policy is in line with the government’s push to promote trade ties with other countries. On a related front, the media reported also on Friday that Iran is working over the establishment of a direct commercial flight route to Russia’s southern city of Astrakhan in what is expected to help boost trade between the two countries. The Trade Promotion Organization of Iran said the two-way route will be launched through subsidies that will be provided by the government. The first flight from Iran to Astrakhan is expected to take place on 23 February 2016. Planes from Iran’s Taban airline will travel to the Russian city twice a week for a period of six months. Tehran and Moscow are already working over a plan to enable their merchants to trade in rials and rubles instead of euros and dollars. To the same effect, both are going to establish a joint bank to facilitate this. Ali-Akbar Velayati, a top adviser to Iran’s Leader Ayatollah Seyyed Ali Khamenei, said in early February that Iran and Russia have signed contracts worth a total of around $40 billion over different industrial infrastructure projects. Velayati emphasized that the contracts had been signed with Russia over the past few months and are ready to be implemented.

    Iran ready to discuss oil with Saudis: Iran’s Oil Minister Bijan Zangeneh said on Tuesday that Iran is ready to negotiate with Saudi Arabia over the current conditions in international oil markets. “We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia,” Zangeneh told reporters. He said some Persian Gulf countries have announced that they are looking for trying to make economic benefits for themselves by helping to push down oil prices. “But what they want to achieve is not at all for economic gains,” said Zangeneh. “If there were a strong political will, the price of oil would have been balanced within one single week,” IRNA quoted him as saying. The Iranian oil minister had in early January emphasized that the current oil prices harm all producers and certain countries’ insistence on overproduction is politically motivated. “None of the oil producers is happy with the existing prices which will harm suppliers in the long term,” he has emphasized. According to the Iranian minister, “there is a political will behind OPEC indecision over production ceiling in the organization.” OPEC has been producing nearly a million more barrels of oil each day than its 30 million bpd ceiling for the past 16 months. The organization approved a Saudi plan to scrap allocating fixed production quotas to member countries in its December 2011 meeting and introduced output ceiling of 30 million barrels per day (bpd) which does not specify quotas. Zangeneh has described the decision a “historic mistake”, saying “making up for this big mistake and reviving the quota system in OPEC is a very hard task.” 

    Amid Low Oil Prices, OPEC's Divisions Deepen - Oil prices hit new lows in January, but the world's biggest producers still can't seem to agree on how to respond. Venezuelan Oil Minister Eulogio del Pino returned home empty-handed after concluding on Feb. 7 a week of visits to major oil-exporting countries. His aim was to organize an emergency meeting between OPEC members and non-OPEC states. The topic they would have discussed, had del Pino been successful, would have been how to coordinate a cut in global oil production. But his failure shows that a bloc of OPEC's key Gulf members — namely Saudi Arabia, Kuwait, Qatar and the United Arab Emirates — is resisting the pleas of other producers to intervene in the market on their behalf. Since November 2014, Saudi Arabia and its allies have made it clear that they prefer to let the market correct itself. In the meantime, they are not willing to unilaterally slash production without other important producers, including Russia, Iran and Iraq, agreeing to do so as well. Of course, pragmatic cooperation among the world's oil exporters becomes more appealing as oil prices sink and financial crises deepen. However, a substantial production agreement — and one that is actually enforced — will probably remain elusive as geopolitical impediments and fundamental disputes among Saudi Arabia, its allies and other oil-producing countries persist. And with no cohesive bloc at its helm, the global oil market will be at the mercy of market forces, promising further price volatility and uncertainty.

    Is The US Leading Saudi Arabia Down The Kuwaiti Invasion Road? -- For the first time in a long time I feel concerned and worried about the prospect of war.  The reaction of Saudi Arabia to the Russian intervention in Syria has always been the wild card in the shifting geopolitical power base in the Middle East.  Turkey and Israel, along with Saudi Arabia are the three countries with the most to lose because of a strong alliance between Syria, Iran, Hezbollah, and Russia. These three traditional American allies have been accustomed to Western support in regards to their own specific regional goals and ambitions.  This support has been so staunch and counterproductive to regional stability that the growing comfort and alliance between Iran and the US should be both confusing and worrisome to Saudi Arabia and Turkey. On the one hand the US is making agreements with Iran and lifting sanction while on the other hand it is indirectly supporting Saudi Arabia’s and Turkey’s proxy war against Syria. A war which Iran, along with the support of Russia and Hezbollah, are resisting and countering with massive aerial and ground support. This contradiction is suggestive of another and more complex strategy which may be unfolding in the Middle East.  A strategy which is beginning to look familiar.

    The Coming Wave of Oil Refugees– The idea that oil wealth can be a curse is an old one – and it should need no explaining. Every few decades, energy prices rise to the heavens, kicking off a scramble for new sources of oil. Then supply eventually outpaces demand, and prices suddenly crash to Earth. The harder and more abrupt the fall, the greater the social and geopolitical impact. The last great oil bust occurred in the 1980s – and it changed the world. As a young man working in the Texas oil patch in the spring of 1980, I watched prices for the US benchmark crude rise as high as $45 a barrel – $138 in today’s dollars. By 1988, oil was selling for less than $9 a barrel, having lost half its value in 1986 alone. Drivers benefited as gasoline prices plummeted. Elsewhere, however, the effects were catastrophic – nowhere more so than in the Soviet Union, whose economy was heavily dependent on petroleum exports. The country’s growth rate fell to a third of its level in the 1970s. As the Soviet Union weakened, social unrest grew, culminating in the 1989 fall of the Berlin Wall and the collapse of communism throughout Central and Eastern Europe. Two years later, the Soviet Union itself was no more. Similarly, today’s plunging oil prices will benefit a few. Motorists, once again, will be happy; but the pain will be earth-shaking for many others. Never mind the inevitable turmoil in global financial markets or the collapse of shale-oil production in the United States and what it implies for energy independence. The real risk lies in countries that are heavily dependent on oil. As in the old Soviet Union, the prospects for social disintegration are huge.

    Iran Says No Thanks To Dollars; Demands Euro Payment For Oil Sales - As regular readers are no doubt aware, Iran is now set to ramp up crude production by some 500,000 b/d in H1 and by 1 million b/d by the end of the year now that international sanctions have been lifted. In the latest humiliation for Washington, Tehran now says it wants to be paid for its oil in euros, not dollars. “Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief,” Reuters reports. "In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," an National Iranian Oil Co. said. Here’s more: Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram. Switching oil sales to euros makes sense as Europe is now one of Iran's biggest trading partners. "Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,"  Iran's insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month's lifting of most sanctions.

    Iran Signs Oil Deal With Total, Deal Done In Euros - As Airbus and Peugeot finally return to post-sanctions Iran, the trade-off is Iranian oil, with French Total SA taking the plunge in an agreement to buy up to 200,000 barrels per day of Iranian crude--but the catch is that sales will be in euros. Deals signed just over a week ago when Iranian President Hassan Rouhani met his French counterpart, Francois Hollande, in Paris included some 20 agreements and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet. Carmaker Peugeot—which was forced to pull out of Iran in 2012--also agreed to return to the Iranian market in a five-year deal worth $436 million. In the reverse flow of the new deal, Total has agreed to buy between 150,000 and 200,000 barrels of Iranian crude a day, with company officials also noting that Total would be looking at other opportunities as well in oil, gas, petrochemicals and marketing. According to Iranian media, Total will start importing 160,000 barrels per day in line with a contract that takes effect already on 16 February. Total never really left Iran, though. While it stopped all oil exploration and production activities there in 2010, making it one of the last to withdraw, it still maintained an office there. Since 1990, Total has been a key investor in Iranian energy, playing a role in the development of Iran's Sirri A&E oil and South Pars gas projects. Sanctions also halted its planned involvement in the LNG project linked to Iran’s South Pars Phase 11.

    Uncertainty Lingers Over LNG As Chinese Demand Wavers -  Liquefied natural gas (LNG) prices were one of the best performers of the past week. With the Japan-Korea Marker price jumping 17.2 percent in a matter of days — in the wake of a production outage at Russia’s Sakhalin-2 export terminal. But despite that short-term lift, there’s a lot of worry in the LNG sector these days. Which was enhanced by news late last week that the world’s #3 LNG consumer just saw demand drop for the first time ever. That big buyer is China. Where a new report from the U.S. Energy Information Administration showed that LNG imports fell 1.1 percent during 2015 — to 2.6 billion cubic feet per day (bcf/d). As the chart below shows, that’s the first time China’s LNG imports have fallen since the country started bringing in gas, back in 2006. Analysts at the EIA blamed the drop on both a general slowdown in the Chinese economy, and lower prices of competing fuels in the country. They noted for example, that many Chinese factories that use LNG can also run on liquefied petroleum gas (LPG) — a commodity that has become notably cheaper than LNG of late. The new data look to spell trouble for China’s LNG import sector. With EIA pegging the country’s total import re-gasification capacity at 5.4 bcf/d — with another 3.4 bcf/d currently under construction.

    The China-Pakistan economic corridor and Baluchistan's insurgency:  Pakistan has handed over 2,281 acres of tax-exempt land adjacent to Gwadar port to China on a 43-year lease. This is part of the ambitious US $46 billion China-Pakistan Economic Corridor (CPEC) project, which envisages linking China’s trading hub of Kashgar to the Arabian Sea via a network of roads, railways, oil and gas pipelines and fiber optic cables. The project also involves setting up power generation projects and special economic zones (SEZs) en route. The operator of Gwadar port, the China Overseas Port Holding Company, will develop an SEZ on the leased land. The CPEC project has begun to inch forward. However, problems loom. The security situation in Pakistan’s Baluchistan province is volatile. This is of concern to Pakistan and China as Baluchistan holds the key to the project’s success. It is in Baluchistan that Gwadar port, which is the heart of the CPEC project and the gateway to the corridor, is located and it is through this insurgency-wracked province that much of the western route of the Gwadar-Kashgar corridor runs. In a bid to alleviate apprehensions over the fragile security situation in Baluchistan, Pakistani has promised to deploy a 10,000-strong special force to beef up security for CPEC’s infrastructure and workforce. It will also step up military operations against armed groups operating in the province.

    ‘Big Short’ Guy Says China’s Banking System Is Near Implosion - Hayman Capital Management founder Kyle Bass has been ringing the alarm bells about China’s banking system and the yuan for months, and now he says the day of reckoning could be just months away. The premise of Bass’ bet goes like this: China’s banking system has grown to $34.5 trillion, equal to more than three times the country’s GDP. The country is due for a loss cycle as cracks begin to show in its economy. When that happens, central bankers will have to dip into China’s $3.3 trillion of foreign exchange reserves to recapitalize the banks, causing a significant depreciation in the value of the yuan, according to Bass. On Wednesday, he said China’s export-import industry requires China to maintain $2.7 trillion in foreign exchange reserves to continue operating smoothly, citing an International Monetary Fund assessment. “They’ll hit that number in the next five months,” he said in an interview on CNBC’s “Squawk on the Street.” “Those that think they can burn it to zero and they have many years ahead of them, they really only have a few months ahead of them before they get into a real danger territory.” Bass is best known for making a winning bet on the subprime mortgage crisis and later profiting from his call that the Japanese yen would fall in tandem with a projected round of monetary stimulus by the Bank of Japan. Bass confirmed Wednesday he is devoting much of his fund to his bet the yuan will depreciate. He characterized shorts against the currency, including his, as totaling “billions.”

    China’s Exchange-Rate Trap - Barry Eichengreen For months now, China’s exchange-rate policy has been roiling global financial markets. More precisely, confusion about that policy has been roiling the markets. Chinese officials have done a poor job communicating their intentions, encouraging the belief that they don’t know what they’re doing. But criticizing Chinese policy is easier than offering constructive advice. The fact is that China’s government no longer has any good options. No question, the country would be better off with a more flexible exchange rate that eliminated one-way bets for speculators and acted as an economic shock absorber. But the literature on “exit strategies” – on how to replace a currency peg with a more flexible exchange rate – makes clear that the moment when China could have navigated this transition smoothly has now passed. Countries can exit a pegged rate smoothly only when there is confidence in the economy, encouraging the belief that the more flexible exchange rate can appreciate as well as weaken. This may have been true of China once; it is no longer true today. This puts Chinese policymakers in the position of the Irish tourist who asks for directions to Dublin and is told, “Well, sir, if I were you, I wouldn’t start from here.” What, then, is China’s least bad option? The authorities could continue with their current strategy of pegging the renminbi to a basket of foreign currencies, and push ahead with their agenda of restructuring and rebalancing the economy. But convincing skeptical observers that they are committed to this strategy will take time, given recent missteps. Meanwhile, investors will bet against them.

    “Does China’s Capital Flight respond to US Monetary Policy?” -- After 7 years of highly expansionary monetary policy, the Federal Reserve Bank is expected to pursue a new policy stance, which was signaled by its first increase in interest rates in last December. Side effects of this new policy are a reason of concern for policymakers worldwide, in particular in emerging markets with free movement of capital. In this column, we argue that also economies with managed or closed financial accounts may be affected. Focusing on the case of China, we show in a new research article (Cheung, Steinkamp and Westermann, 2016) that illicit capital flows, which at times are as large as the official ones, have been responding to the US monetary policy since the beginning of the 2007/8 global financial crisis.  The starting point of our analysis is the creation of proxies for capital flight. While ultimately an unobservable variable, it has been approximated primarily by two measures in the literature: (i) The World Bank Residual Method, which compares the sources to the uses of funds in the balance of payments statistics and (ii) the measure of Trade Mis-invoicing. The latter is based on the idea that illicit flows can occur when bills of exports and imports are over (or under-) invoiced. For instance an export worth US$1000 may display only a value of US$500 on the bill, while another US$500 are placed into a US bank account. The independent recording of this shipment by two different agencies, the US and the Chinese statistical offices, helps us to uncover this type of capital flight. The graph above shows that the magnitude of capital flight is quite substantial. Although the dynamics differ for different measures of capital flight, they have in common that in net terms they are comparable to the official flows that are recording in the countries financial account.

    The unsolved mystery of falling global trade - South Korean exports fell 18.5 percent in January, the latest sign of a global trade slowdown in the post-recession period. Developing countries have traditionally relied on export-led growth during their development phase, and if the slowdown persists it will be much harder for them to do that and raise their standard of living. This is a also risk for developed countries. Slower growth in developing countries means they'll purchase fewer goods and services from developed countries, hurting their growth as well. The following two charts show export and import growth for the U.S. and illustrate what has happened here and in many other countries in recent years. Trade collapsed during the Great Recession, appeared to bounce back once that slump ended but has been falling ever since.  Why this has happened is unclear. It could be related to the recession, so further recovery could help some, but most analysts believe that it's connected to deeper, structural issues. One hypothesis is that falling trade results from protectionist measures put in place during the recession, but it's hard to find clear evidence for this, leading most observers to reject that hypothesis. Another theory is that globalization is slowing down. Instead of expanding production activities globally, many firms are pulling back, and this decline in "global value chains" helps explain the trade decline.  But a close look at the data suggests the problem is more likely due to a "compositional effect." The ratio of durable goods relative to nondurables has declined, and within China the economy has shifted from investment goods to consumption, both of which can affect trade flows. For example, nondurable consumption goods tend to be traded less than durable investment goods.  Finally, falling trade levels may be related to the end of the integration processes of China and Central/Eastern Europe into the world economy. When these countries opened their doors, it created a sustained burst in trade, but as that process ends, trade is leveling off.

    Japanese 10Y Yield Hits Zero For First Time Ever, Yen Strongest Since 2014, Stocks Crash -- Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs - which were trading 24bps before BoJ NIRP - just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative  rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs). Bond yields are plunging...

    At Diet session Abe denies possibility of TPP renegotiation - “Even if a renegotiation of the Trans-Pacific Partnership (TPP) free trade agreement is demanded in a near future, we will never take a seat at the table,” Prime Minister Shinzo Abe pledged on Jan. 27 at a plenary session of the Diet. Abe made this reply to a question raised by a member of the ruling Liberal Democratic Party, who was concerned that a TPP member country would urge Japan to make further concession possibly at a TPP renegotiation table so as to facilitate approvals for TPP bills from her congress. Abe had delivered his key policy speech for 2016 on Jan. 22, and he was asked various questions including TPP issues by some members of ruling and opposition parties. “Within a framework of the TPP free trade pact, an agreement on a certain field is complicatedly tangled with other deals. It could be compared to a simultaneous equation of the multi-dimension. If one issue is picked up for renegotiation, the whole package will be broken down,” Prime Minister told the policy makers at the Diet session. Abe further emphasized Japan would play a leading role in pursuing an early implementation of the TPP agreement, by saying “TPP deals take effect sooner. This is exactly what promotes our national interests.” Meanwhile, representative members of opposition parties expressed their views objecting to the TPP free trade agreement. They also criticized Abe’s administration particularly for taking a negative stance toward complete disclosures of information on TPP negotiation process as well as details concerning the deals.

    Inflation Expectations Around The Globe Just Hit Record Lows  Having seen what monetary-policy failure looks like in Japan.. and in the US, we now turn our attention to the world. Amid NIRP temptations, growth fears, and faltering faith in central banker control, market-implied inflation expectations have collapsed to record lows. Worse still, even The Fed's own survey of consumer's inflation expectations has slumped to record lows.  Inflation expectations are collapsing... (US and Europe at record lows - worse than the lows in the middle of the last crisis)... As Bloomberg adds, while ECB policy makers have reiterated in recent weeks that they are committed to their mandate of boosting annual inflation rates to just under 2 percent, consumer-price growth is currently only about one-fifth of that level. And The Fed is no better as all the money-printing, jawboning, and promises have left consumer expectations of inflation at record lows...

    Bad loan clean-up takes toll on state banks' earnings | Reuters: Four state-run banks reported a spike in bad loans and provisions for sour debt on Tuesday after a clean-up exercise ordered by their regulator, sending three of them to net losses for the fiscal third quarter. Punjab National Bank (PNB), India's fourth-biggest state-run lender by assets, posted a 93 percent fall in December-quarter profit, and said it expected bad loans to rise further in the current quarter. Central Bank of India, the eighth-biggest state-run lender, smaller lenders Allahabad Bank and Dena Bank all reported net losses in the December quarter. More than two dozen lenders majority owned by the government dominate India's banking sector with two thirds of the assets. These lenders together also account for close to 90 percent of the sector's troubled assets. Indian banks, burdened by their highest stressed-assets ratio in 13 years, have been asked by the Reserve Bank of India (RBI) to treat some troubled accounts as non-performing even if actual default has yet to happen and make adequate provisions. The RBI's directions followed Governor Raghuram Rajan's call for a clean up of bank balance sheets by March 2017. The banks have been asked to make required provisions during the third and fourth quarters of this fiscal year ending in March. "The surgery is not over," PNB Chief Executive Usha Ananthasubramanian told a news conference in New Delhi. "The next quarter as well ... I should say the clean-up process is under way," she said of the three months to March.

    Facebook loses battle over free internet initiative in India  All of Facebook’s huffing and puffing in India seems to have come to naught. Today the country’s telecommunications regulator banned “discriminatory tariffs for data services on the basis of content”, meaning that Facebook and its local partner will no longer be able to offer the social network for free to Indian consumers as part of its Free Basics product. Free Basics is a package of essential web services that Facebook offers for free in developing countries in partnership with local telecoms companies. That package, unsurprisingly, includes Facebook and WhatsApp, and is promoted by local firms not as a way of getting underserved communities online, but as a way to get Facebook for free. The initiative faced opposition in India from activists who view it as a land grab that undermines the internet’s level-playing field. Facebook saw things differently, launched a big lobbying campaign, royally pissed off the telecoms regulator, and ultimately lost. Facebook’s chief operating officer Sheryl Sandberg was blasé about the whole tussle at Davos, telling the conference “if we wanted to spend money to make money, you wouldn’t start here.” A charitable interpretation of that statement is that Facebook has embraced short-termism, but in reality India has hundreds of millions of people who are yet to come online and a good way to secure market share is to ensure your logo is one of the first things they see on the web. What appears to have happened to Facebook in India is a miscalculation about local attitudes to the beneficence of Silicon Valley. We have seen Facebook encounter this problem before with its Safety Check feature. We saw it again in Facebook’s muscular response to the consultation that preceded today’s decision.

    Indonesia's growth in 2015 slows for fifth consecutive year - Indonesia's growth in 2015 slows for fifth consecutive year 5 February 2016From the section Business Image copyright Getty Images Image caption The poor state of much of Indonesia's current infrastructure, particularly in the capital Jakarta, has hampered economic growth Growth in South East Asia's largest economy, Indonesia, has come in at 4.76% for 2015, marking the fifth consecutive yearly decline. Weaker commodity prices and consumer spending, together with a slowdown in its key trading partner, China, has hurt growth. Towards the end of last year, however, the economy expanded by just over 5%, boosted by government spending. President Joko Widodo had promised to lift annual growth to 7% on average. However, the country has seen an average of just under 6% growth over the past decade and analysts have said growth is unlikely to improve for some time. "The fourth quarter data is a positive surprise," economist Tony Nash told the BBC. "But unfortunately the uptick will likely be short lived. We expect deterioration in the first quarter and it'll be tough to regain growth momentum before 2017," he added. Mr Widodo made his promise to raise growth when his five-year term began in 2014, but he has faced problems boosting government spending and has seen several large infrastructure projects delayed.

    Trade Minister Andrew Robb criticised for seeking TPP ratification without independent analysis: Trade Minister Andrew Robb has been slammed for failing to submit the Trans-Pacific Partnership agreement to an independent economic analysis before asking Parliament to ratify it. Mr Robb tabled the text of the TPP in Parliament on Tuesday, warning opponents of the deal that Australia had to sign it. The TPP is a huge trade agreement between 12 countries in the Asia Pacific Region, involving Australia, the US, New Zealand, and Japan, among others."It will assist our further integration in the Asia Pacific - a region that will be a critical driver of global economic growth in the years and decades ahead on account of an exploding middle class." Following protocol, Mr Robb tabled a National Interest Analysis of the trade agreement, along with the agreement itself, which explained why the deal was in Australia's interest. The analysis was not written by an independent economic agency - it was written by the Department of Foreign Affairs and Trade. Opponents of the deal have repeatedly asked the government to submit it to an independent analysis before signing it into law.

    Australia Admits Recent Stellar Job Numbers Were Cooked - Two months ago the Australian media, which unlike its US counterpart refuses to be spoon fed ebullient economic propaganda, called bullshit on the spectacular October job numbers, when instead of adding 15,000 jobs as consensus expected, Australia's Bureau of Statistics reported that a whopping 58,600 jobs had been added.  We covered this in "Australian Media Throws Up All Over 'Stellar' Jobs Report: "Don't Believe The Jobs Figures!"  One month later, the situation got even more ridiculous, when instead of the expected 10,000 drop in November, the "statistical" bureau announced that 71,400 jobs had been added, the most in 15 years, and the equivalent of 1 million jobs added in the US. Once again the local media cried foul as we documented in "Australian Media Throws Up All Over 'Stellar' Jobs Report, Again"  Indicatively, for a sense of how grotesque the jobs "data" was, the chart below shows that while the October report was a 6-sigma beat, the November was an even more laughable 8-sigma.Here's Bloomberg with more: Australia has had some technical issues with its labor data, which “look a little bit better” than would otherwise have been the case, the secretary to the Treasury said, commenting on record employment growth in the final quarter of 2015. John Fraser, the nation’s top economic bureaucrat, told a parliamentary panel in Canberra Wednesday that he held discussions on the employment figures with the chief statistician this week. He didn’t elaborate on the meeting but said the recent strength in the jobs market is encouraging. There were some “technical issues” in October and November that may have made the employment figures “look a little bit better than otherwise would be the case,” he said. The technical issues relate to “rolling off” of participants in the labor survey.  Australia’s economy added 55,000 jobs in October and a further 74,900 in November, before shedding 1,000 in December to produce the record quarterly gain. Questions regarding the accuracy of the data have been raised following acknowledgment by the statistics agency in 2014 of measurement challenges.

    Global growth now fraying at the edges: The growth rate in global activity remains broadly unchanged at around 2.8 per cent, little different from the rates recorded since mid 2015. However, there has been a further slowdown in economic activity in the advanced economies (AEs), which are growing at only 1.2 per cent, down from 1.6 percent late last year.  For the first time since 2012, the growth rate in the AEs is clearly below trend... Furthermore, the US nowcast is now at its lowest since the recovery began in 2009. ... Until now, however, this drag on global activity has been offset by fairly robust growth rates in the Eurozone. Worryingly, Eurozone growth has now sagged to about 1.3 percent. ...  This development reduces our confidence that the bout of American weakness in the industrial sector will be easily shrugged off by the global economy. Significant downgrades to consensus forecasts for US growth in 2016 now seem very likely. Although the risk of an outright recession still seems contained, the Fed must surely sit up and pay attention to this.  We judge that there has been little change in overall activity in the emerging markets this month. The China nowcast has moved down to the lower end of its recent range, but there are clear signs of stabilization in Brazil – by far the weakest of the G20 economies last year – and an up-tick in growth in India. ...

    The World’s Economy Soared Last Year (or Plunged) - Did global output rise or fall last year?It all depends on what currency you use to keep track. Measured in dollars, global growth recorded the first drop since the end of the financial crisis late in the last decade, declining by nearly 5 percent, from $77.3 trillion to $73.5 trillion. That’s largely because of the dollar’s rise, which makes the output of countries with weaker currencies seem smaller when measured in dollars.But if you count in euros, growth soared by 13.6 percent.The International Monetary Fund’s solution to this problem is to use a formula involving purchasing power parity or P.P.P., which adjusts for the relative value of currencies and their purchasing power. The I.M.F. has said world output grew 3.1 percent last year.The I.M.F. has defended its methodology after its numbers were criticized as overly optimistic. Asked to explain its approach, a spokeswoman for the I.M.F. referred to a previous explanation offered by the fund, which said that “the greater stability of real exchange rates implied by using” the P.P.P. formula means an estimate of global growth “is less affected by short-term changes in the relative importance of countries and regions.” Continue reading the main story World G.D.P., Half-Empty View When adjusted for the relative value of currencies, global output rose last year. But in raw dollars, output fell because the dollar rose. The World Bank, which uses a different methodology than the I.M.F., has said global output grew 2.4 percent last year. Some feel that the raw dollar figures shouldn’t be ignored.  “Can one imagine what investors would say if Exxon Mobil announced that everything was fine in the oil industry, as their revenues were actually up if one calculated them in euros or rubles?” said Paul Hodges, chairman of International eChem, a London consulting firm. “Most people believe that the dollar value of global G.D.P. is a critically important indicator of the health of the global economy.”

    Maersk profit plunges amid weak trade, low oil prices - (AFP) - Danish conglomerate A.P. Moller-Maersk on Wednesday reported an 82-percent drop in annual profit as its shipping unit was hit by lower freight rates and its oil business suffered from lower oil prices. Shipping unit Maersk Line, seen as an international trade bellwether as it controls around 15 percent of global sea freight, was hit by a "combination of low demand and high supply increase... in the second half of 2015," the group said in a statement. Net profit plunged to $925 million (821 million euros) from $5.19 billion a year earlier as revenue dropped 15 percent to $40.30 billion. "The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the group's key Europe trades," it said. Copenhagen-based Maersk also wrote down the value of its oil business by $2.6 billion as it posted a loss of $2.1 billion. Maersk Line announced a cost cutting programme in November, saying it would cut 4,000 jobs by the end of 2017 and defer vessel investments to buoy up its dominant position in a falling market. The move came shortly after Maersk Oil announced it would slash its workforce by between 10 and 12 percent in the face of low oil prices.

    "It's Worse Than 2008": CEO Of World's Largest Shipping Company Delivers Dire Assessment Of Global Economy - Earlier today, we highlighted the rather abysmal results reported by Maersk, the world’s largest shipping company. To the extent the conglomerate is a bellwether for global growth and trade, things are looking pretty grim. Maersk Line - the company's golden goose and the world's largest container operator - racked up $182 million in red ink last quarter and the outlook for 2016 isn't pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year. “The demand for transportation of goods was significantly lower than expected,especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels,” the company said, in its annual report. Just how bad have things gotten amid the global deflationary supply glut you ask? Worse than 2008 according to CEO Nils Andersen who last November warned that “the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.” Here’s what Andersen told FT:“It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse but we are better prepared.”

    World Equity Market "Wealth" Crashes $6 Trillion Below 2007 Highs - Global equity market investors have lost a stunning $16.5 trillion of their newfound CB-fueled "wealth" in the last six months. This has erased half of the gains from the 2011 lows(but of course leaves all the debt created still in place). However, what is perhaps more troubling given the unprecedented money-printing since the last crisis peak, is that global equity market "wealth" is now down 10% from its November 2007 prior highs. Trillions of money printed and debt created and equity "wealth" is now down $6 trillion from the 2007 highs... Put another way - your plan failed CBs!

    Global Stocks Enter Bear Market - With stock markets from every continent plunging (Japan most recently), it should be no surprise that MSCI's world index has entered a bear market - dropping over 20% from its April 2015 record highs. However, as Gavekal notes, while much of the drag on global stocks is from collapsing emerging markets, the average developed market stock is down 23% in the past year. The World enters a bear market... at a crucial level...But as Gavekal Capital's Eric Bush notes, the average stock in the developed world is off 23% from its 1-year high... And is down 8% over the past year. 52% of all developed world stocks are in a bear market over the past 200-days (i.e. down 20% from the 200-day high). During the worst of the 2011 drawdown, 65% of stocks were in a bear market. Not a single sector has avoided falling into a correction over the past year. The classic defensive sectors have once again performed better on a relative basis. The average consumer staples company is 12% off its 1-year high, the average utility company is 13% off its 1-year high, and the average telcom company is 18% of its 1-year high.

    Citi's Willem Buiter: we're about to go into global recession - Citi's global chief economist, Willem Buiter, published a note to investors saying he believed it was "likely" that the world was about to sink into a global recession, and it may already be in that recession. Buiter said that if China's growth is actually less than that stated in its official numbers, then the current level of weak growth would not be enough to avoid a global recession. Many people distrust China's official GDP numbers, which place growth at about 7%. China's real level of growth may be as low as 4%.  Buiter's definition of recession is a technical one, and it came as part of a long, thoughtful paper dated October 6 that was mostly devoted to a discussion of how recessions are defined. (He has also made this case before.) Most people define a "recession" as two consecutive quarters of declining GDP growth. But Buiter — along with other economists — prefers a definition which accounts for so-called "growth recessions," when GDP is growing but at a pace slower than population growth, or a pace slower than growth in unemployment. (In other words, if a country grew at 2% GDP but had a population growth of 5%, unemployment would likely increase and the change in GDP per capita would be negative.) When you account for those definitions, and factor in the slowdown in China, then the global economy may be running at "below normal activity" and faces "a significantly negative output gap" or, in other words, a global recession.

    "Jingle Mail" Makes Comeback In Canada As Underwater Borrowers Mail Keys Back To Banks -- We’ve spilled quite a bit of digital ink documenting the trials and travails of Alberta, the heart of Canada’s dying oil patch and ground zero for the pain inflicted by 14 months of crude carnage. At the risk of beating a dead (or at least a “dying”) horse, you’re reminded that violent crime is soaring in the province, suicide rates are up by a third as is food bank usage, and as for unemployment, well, Alberta lost 19,600 jobs last year - the most in 34 years. While it’s not entirely clear where things go from here, it’s a good bet that the situation will deteriorate further given that, at last check, WCS was trading just CAD1 above the marginal cost of production. In other words: Canada’s producers aren’t profitable and thanks to the plunging loonie, the BoC doesn’t look particularly likely to help them. That means more job losses are in the cards and the prospects for the increasingly profitablerepo business look better than ever. We've also documented the soaring cost of homes in Canada, on the way to noting that just about the last thing you want to have is a collapsing economy, a propery bubble, and record high household debt.

    Canada Adjusts to the Oil Price Shock - What does the oil price  collapse mean for Canada?  A simple question with an  the answer  that is anything but simple. As the Governor of the Bank of Canada (BoC), stated  the "oil price shock  is complex because it sets in motion several forces " that will alter the  path of Canada's economic future. The Governor  goes on to argue that "it may take up to three years for the full economic impact to be felt, and even longer for all of the structural adjustments to take place.”  Just what are the structural and time factors that we need to understand as we adjust to the new environment of lower commodity prices?  We start out by considering the structure of the  Canadian economy. This will  help identify how the various sectors of the economy will be impacted in the future. Broadly speaking, Canada is a service-based economy (70% of output) and only selectively a goods-producing  country (30%). The largest component of services is the finance, insurance and real estate (FIRE) which now comprises about 20% of national income. These industries surpass the contribution of mining, oil/gas and energy distribution (17%) and manufacturing (10%). The strength of the services sector blunts much of the pain of falling oil prices. Taking a snapshot of what has happened in the past 12 months, we note in Table 2 that:

  • Oil prices  declined by 40% in 2015, the Canadian dollar sank another 20%, on top of a 20% drop in 2014.  The  currency bore the greatest adjustment ;
  • The currency devaluation did not , however, affect trade picture. The current account balance remained deep in negative territory;
  • National output clocked in at a dismal rate of less than 1%;
  • The rate of inflation accelerated due to the falling currency and its impact on basic imports, especially food products; and,
  • Unemployment remained steady at around 7% for the year 2015.

    Importing people is not like importing apples - Nick Rowe - Remember all the old Canadian nationalists? The ones who said that the (Canada-US) Free Trade Agreement would destroy Canadian culture? The ones we economists defeated back in the 1988 election? I'm beginning to wish we hadn't defeated them quite so thoroughly. They were wrong. But they sorta, kinda, did have a point. Social/economic institutions are endogenous. They are not part of the unchanging geological landscape. Social/economic institutions are part of what people do; they are part of how people interact with each other, and expect others to interact with them. And, at least in principle, there is no reason why those social/economic institutions should be exogenous with respect to our imports and exports. And there is, or there used to be, a whole school of Canadian economics that pushed exactly that idea. So if you could make a reasonable case that the FTA and importing or exporting more apples would cause Canadian social/economic institutions to become, well, like North Korea, then OK. All that guff about comparative advantage and economies of scale and the gains from trade wouldn't be very convincing. Here's Jonathan Portes: "The essence of the economic case for migration is very simple: it is the same as the case for markets in general. If people take decisions on the basis of their own economic self-interest, this will maximise overall welfare. The classic argument for free trade, as advanced by Adam Smith, is not just analogous to, but formally identical to, the argument for free movement. It is easy to see this. In economic terms, allowing somebody to come to your country and trade with you (or work for you, or employ you) is identical to removing trade barriers with their country." Sometimes I am proud of what some people unkindly call economists' "autism". At other times I despair. This is one of those other times. Importing people is not like importing apples. It's not just "labour services" and "consumer demand" that crosses the border; it's people. And there's a lot more to people than just bundles of labour services and consumer demands, where tariffs and transport costs make the only difference to whether they are inside or outside the borders.

    Mexico remittances nearly $24.8B in 2015, topping oil income — The central bank reported Tuesday that remittances, money sent home by Mexicans overseas, hit nearly $24.8 billion last year, overtaking oil revenues for the first time as a source of foreign income. Remittances were up 4.75 percent from 2014 when they totaled $23.6 billion, the Bank of Mexico said. They had never before surpassed petroleum since the Bank of Mexico began tracking them in 1995. Analysts pointed to slumping global prices for oil, which earned Mexico $23.4 billion in 2015, and improved economic conditions in the United States, home to more than 11 million Mexicans and the source of nearly all Mexico’s remittances. “There is an advance in the recovery of the U.S. economy that has a very high correlation to jobs available for immigrants, and that has a very important impact on the amount of money they send to Mexico,” said Alfredo Coutino, Latin America director for Moody’s Analytics. Alejandro Cervantes, an economist with Grupo Financiero Banorte, said remittances’ rise over oil reflects an economy that has diversified since the North American Free Trade Agreement took effect in 1994. “Before NAFTA the flow of petroleum exports represented nearly 80 percent of the total dollar income for the Mexican economy,” Cervantes said, noting that today it is less than 20 percent. “The lesson is that the Mexican economy, on the whole, is no longer so dependent on oil.” Manufacturing exports are currently Mexico’s No. 1 source of foreign income.

    Venezuela Faces Test on Debt - WSJ: For investors in emerging markets, Venezuela has quickly turned from a source of opportunity to a cause for concern. Last year, the South American country delivered impressive, double-digit returns for its debt investors, far better than many other countries’ bonds. But in recent months, investors have soured on Venezuelan debt, as oil-price declines intensified, the country’s currency weakened and its trade surplus turned negative. Venezuelan debt fell nearly 15% in January, according to data from J.P. Morgan. The country, one of the largest borrowers in the developing world, is generally expected to make good on $1.5 billion in debt due later this month. The bigger issue, investors say, is what will happen in the next few years, and whether it’s worth waiting around to find out. “The question is not if Venezuela will default, but when they will default,” said Russ Dallen, a partner at Latinvest Group Holdings, an investment bank. Venezuela hasn’t defaulted on any foreign currency debt since 1982, and President Nicolás Maduro recently reiterated the country’s intention to meet its debt obligations. He said in a national address last month that “Venezuela has ethics, morals” and “commitments that the republic has honored and will continue honoring.” The Venezuelan government and state oil company have issued about $120 billion in debt to overseas investors during the past decade.

    Argentina's Settlement Negotiations and Lifting the Injunction - Argentina faces a complicated task in settling with its remaining holdouts, but there has been recent progress. The country has agreed to settlement terms with a large group of Italian bondholders and, most recently, several US hedge funds. The remaining barrier to complete resolution is the same as the old barrier: Elliott's NML Capital and assorted other holdouts. Bloomberg has two good explanations of the remaining issues here (by Katia Porzecanski and Chiara Vasarri) and here (by Matt Levine). The short version is that NML cleverly bought a subset of Argentine bonds that accrue pre-judgment interest (on principal) at extraordinarily high rates. Because of this, the settlement terms offered by Argentina are less favorable to them than to other holdouts. Elliott et al.'s rejection of Argentina's proposed settlement has prompted some speculation that Judge Griesa might be tempted to lift the injunction (thereby pressuring the remaining holdouts to compromise).  That scenario might become plausible, but it isn't right now. The court can't modify or eliminate the injunction on a whim; the law requires a significant change in the underlying legal or factual circumstances. And so far, the only thing that has changed is that Argentina has made a settlement offer that some creditors have deemed acceptable. The remaining holdouts' reasons for rejecting the offer aren't exactly noble, but they aren't exactly unusual either. It's pretty standard fare for a litigant to take the position that its claims merit more significant compensation than has been offered. Perhaps if the remaining holdouts demonstrate a complete unwillingness to negotiate or compromise, then Argentina (with the tacit support of the special master) might look to the judge for leverage. But we're a long way from that point. It seems increasingly likely that a settlement will be reached--but not, I suspect, through such explicit intervention by the court.

    Fears over new financial crisis come back to haunt global markets as trading turmoil hits -- Global stocks were gripped by a fresh bout of panic selling on Monday, raising fears over the health of the world's banking system for the first time since the financial crisis.  European markets slumped to their lowest level in more than two years amid an unremittingly bleak outlook for the global economy and concerns over the resilience of the world's biggest lenders.  The Euro Stoxx 600 index of leading bank shares fell as much as 6pc in Monday's trading, closing down 5.6pc, plumbing depths not seen since August 2012. The continent's lenders have now lost 17.3pc of their value of the last 30 days.  Volatility forced shares in Barclays to be briefly suspended in late afternoon trading. Barclays, along with BNP Paribas and ING Santander all closed down more than 5pc.

    BIS to EM: worry -- Borrowing isn’t necessarily bad, but you could be forgiven for thinking so, considering all the new research showing what tends to happen after big increases in indebtedness.  The latest comes from a speech by Jaime Caruana, the Bank for International Settlement’s general manager and the former boss of the Bank of Spain. We already discussed the first part of his speech, which explains the basic differences between his framework for economic analysis and the approach popular before the crisis, in a previous post. In this post we’re going to focus on the meat of his speech, which concerns the dangers facing many so-called “emerging market economies”.

    Shanghai G-20 meeting: Capital controls seen on agenda to curb fund outflows-  -- Capital controls and other measures to help stabilize financial markets will be discussed at the Group of 20 meeting in Shanghai late this month amid growing concern over the direction of the global economy. G-20 officials agree that the recent chaos in the world's financial markets is rooted in capital flight from emerging countries. The flow of funds out of those nations, which have been experiencing economic slowdowns, has lowered the value of their currencies. Finance ministers and central bank chiefs from the G-20 countries are expected to discuss this outflow of funds. They likely will explore the idea of curbing transfers of foreign currencies out of emerging countries, as well as restricting investment in foreign bonds by residents of those countries. The meeting is expected to let top G-20 officials decide whether such measures should be enacted. If they agree to proceed, concrete proposals will be discussed later at working-level meetings. Some emerging countries attending the G-20 meeting support the idea of capital controls. European nations are unlikely to object, since more stable emerging economies will benefit them. But the U.S. may oppose capital controls based on free market principles.

    The risk of an unintended war with Russia in Europe, explained in one map -  Russia's aggression in Europe — its invasion of Ukraine, its military flights up the noses of NATO states, its nuclear saber rattling — has faded from the news. But it's still very much a threat, which is why the US is planning to quadruple its military spending in Europe, something NATO's European members have welcomed, to deter Russia. In other words, the dynamics that brought Cold War–style military tension to Europe in 2015 are still with us. And that tension can be dangerous. This summer, I wrote about a small but alarmed community of analysts and experts in the US, Europe, and Russia who earnestly worried that the risk of an unintended war had grown unacceptably high. A survey of 100 policy experts yielded an aggregate assessment of 11 percent odds of war and 18 percent odds that such a war would include nuclear weapons. (A subsequent, larger survey backed this up.) Since then, my informal check-ins with my sources have led me to believe that this concern has not dissipated. And, in late January, scholars with the Zurich-based Center for Security Studies produced a map, as part of a longer report that you can read here, that helps show why this is still a real issue:

    Kiev estimates loss from trade war with Moscow at $1.1bn a year - Ukraine will lose more than a billion dollars every year due to Russia's trade embargo, according to the National Bank of Ukraine Governor Valeria Gontareva.Moscow has banned Ukrainian products, introduced stricter transit rules and cancelled free trade with Kiev in response to the country signing the EU Association Agreement. "Deeper decline in commodity prices could lead to an even greater account deficit than forecast now," she said on Thursday, reports Interfax news agency. The National Bank of Ukraine predicts an increase in the account deficit to $2.5 billion, or three percent of GDP this year. In 2015, it was $200 million. According to Gontareva, the devaluation of Kiev’s key trade partners’ currencies eliminates the advantages, coming from the devaluation of the Ukrainian hryvnia. At the same time, wheat prices were 25 percent lower in January than the same month last year, steel prices fell 31 percent, while iron ore lost 38 percent of its value, she added. Gontareva said these setbacks could be partly compensated by lower energy prices, as Ukraine is a big importer. "We hope that we can get more than $1 billion from privatization this year,” said the head of the NBU.

    French police 'abuse' Muslims under emergency laws - France has carried out abusive and discriminatory raids and house arrests against Muslims under its current state of emergency, traumatising and stigmatising those targeted, including children and the elderly, human rights groups said. Human Rights Watch (HRW) and Amnesty International published separate research on Wednesday, pointing to cases where excessive force had been used, leading to human rights violations including violence. Those targeted said the police burst into homes, restaurants, or mosques; broke people's belongings; threw Qurans on the floor; terrified children; and placed restrictions on people's movements so severely that they lost jobs and income, or suffered physically.  The raids were launched on November 14 in response to attacks in Paris a day earlier that left 130 people dead, and were later claimed by the Islamic State of Syria and the Levant (ISIL) group.  ISIL's claim triggered a backlash - not just in France, but across Europe and elsewhere - as Muslim communities were collectively "punished".  There are between 5.5 million and 6.2 million Muslims in France, or roughly 7.6 percent of the total population - making the group the largest Muslim minority in Europe.

    Anti-Refugee Rallies Sweep Europe As Nationalists Declare "We Will Not Surrender Europe To Islam" - Europe’s worsening migrant crisis is the best thing that ever happened to the PEGIDA movement. The group very nearly faded into obscurity early last year after then-leader Lutz Bachmann posted a picture of himself dressed as Hitler on Facebook with the caption “He’s back.” Then, 1.1 million Mid-East asylum seekers flooded across Germany’s borders. At first the German people welcomed the refugees with open arms. Then, things quickly deteriorated. The Paris attacks instilled fear in the hearts of many Europeans who previously supported Angela Merkel’s open-door policies and then, the wave of sexual assaults that swept through Europe on New Year’s Eve killed whatever goodwill was left. Far-right movements like PEGIDA have flourished amid the turmoil as nationalism - an ideology many assumed died with Hitler and Mussolini - is once again on the rise alongside a creeping sense of xenophobia among the bloc’s increasingly exasperated populace. On Saturday, Europe’s unease was on full display as PEGIDA staged simultaneous protests in multiple cities. "We must succeed in guarding and controlling Europe's external borders as well as its internal borders once again," PEGIDA member Siegfried Daebritz told a crowd on the banks of the River Elbe who chanted "Merkel must go!". Demonstrations were staged in Amsterdam, Prague, Calais (site of the infamous “jungle” migrant encampment), Dublin, and the English city of Birmingham.

    Turkey dismisses EU plan to resettle refugees in return for sealing sea route - European plans to take in hundreds of thousands of refugees a year directly from Turkey in return for Ankara closing the borders to further migration, have been dismissed as unworkable by a senior Turkish official, hampering the EU’s attempts to get to grips with the crisis. The official warned of a new “tsunami” of Syrian refugees hitting Turkey and Europe as a result of the assault on the northern city of Aleppo being waged by the Russians and the Syrian regime. The European commission, meanwhile, called for the deportation of asylumseekers from the rest of Europe to Greece and Turkey, the two pivotal countries bearing the brunt of the influx from the Middle East. The commission proposal is unlikely to have much impact on the crisis because deportations to Greece are banned under court rulings while returns to Turkey would only affect those with little chance of obtaining asylum. The Turkish response to the Dutch-led plan for direct resettlement and the likely minimal impact of the proposals from Brussels highlighted both the poverty and confusion of the EU policy responses to the crisis and its desperation in the quest for answers. The Dutch, currently chairing the EU, are pushing a scheme for EU volunteer countries, including Germany, to take 250,000 refugees a year from Turkey, but only if Ankara succeeds in closing the Aegean sea routes on which hundreds of thousands are travelling to Greece. “Forget it,” said Selim Yenel, Turkey’s ambassador to the EU. “It’s unacceptable. And it’s not feasible.”

    Migrant crisis: Nato deploys Aegean people-smuggling patrols - BBC News: Nato ships are being deployed to the Aegean sea to deter people-smugglers taking migrants from Turkey to Greece, Nato chief Jens Stoltenberg says. The announcement followed a request from Turkey, Germany and Greece at a defence ministers' meeting in Brussels. Mr Stoltenberg said the mission would not be about "stopping or pushing back refugee boats". Nato, he said, will contribute "critical information and surveillance to help counter human trafficking". The decision marks the security alliance's first intervention in Europe's migrant crisis. US defence secretary Ashton Carter earlier said that targeting the "criminal syndicate that is exploiting these poor people" would have the greatest humanitarian impact. The decision was made to help Turkey and Greece "manage a human tragedy in a better way than we have managed to do so far," Mr Stoltenberg, Nato Secretary General, said.

    Unity call as Pope Francis holds historic talks with Russian Orthodox Patriarch - Pope Francis and Russian Orthodox Patriarch Kirill have called for restored Christian unity between the two churches at historic talks in Cuba. The meeting was the first between a Pope and a Russian Church head since the Western and Eastern branches of Christianity split in the 11th Century. In a joint declaration, they also urged the world to protect Christians from persecution in the Middle East. The Pope has now arrived in Mexico for a five-day visit. A crowd of 300,000 braved the cold in Mexico City to welcome him to the country which has the world's second largest Catholic population. The Pope was greeted at the airport by President Enrique Pena Nieto. 'Churches ravaged' The two-hour talks on Friday between Pope Francis and Patriarch Kirill were held at Havana airport. Patriarch Kirill goes on to Brazil and Paraguay. The pair embraced and kissed each other at the start of their talks."I'm happy to greet you, dear brother," the Russian Church leader said. "Finally," the pontiff said. At a news conference after the meeting, Kirill said the discussions were "open" and "brotherly", while Francis described them as "very sincere". "We hope our meeting contributes to the re-establishment of this unity wished for by God," their joint declaration said.

    Media Ignore Pope / Patriarch Meeting, or Completely Misrepresent It: Did you hear about the historic meeting that will occur today between the media superstar Pope Francis and Patriarch Kirill, the leader of the Orthodox Church of Moscow and All Russia? Is there up-front coverage of this in your newspaper this morning? The meeting is taking place in Havana for the expressed purpose of voicing support for persecuted Christians facing genocide in parts of the Middle East, primarily – at the moment – in Syria and Iraq. There is very little that Rome and Moscow agree on at the moment, when it comes to ecumenical matters, but Francis and Kirill are both very concerned about the persecution of Christians and other religious minorities in that devastated region. Have you heard about this in major media? Now, call me naive, but I thought that this meeting would receive major coverage. This is, after all, the first ever meeting – first as in it has never happened before in history – between the leader of the pope of Rome and the patriarch of the world's largest branch of Eastern Orthodox Christianity.There is a possibility that Americans – this is a nation that includes a few Christians who read newspapers – might be interested in a statement by Pope Francis and Patriarch Kirill on the massacre of Christians in Syria and elsewhere. I guess I am naive. It appears that the meeting in Cuba today is not very important at all. I mean, look at the front of The New York Times website. Oh, the pope is there on the front page. There is an advance story on his visit to Mexico. Zero mention of the historic summit with Kirill. Zero mention of the persecution of Christians and other religious minority groups in Syria and elsewhere. Just this, in a standard papal tour piece:

    Can Mass Migration Boost Innovation and Productivity? -- naked capitalism Yves here. This post brings up an important issue, or perhaps to put it another way, looks at historical precedents to see if there is the potential for better outcomes for the exodus from the Middle East to Europe than we are seeing now. But it does not acknowledge a big background problem: weak economic conditions and lousy employment levels in Europe even before the influx took place. That hurts immigrants of all types, but low skilled ones most of all Another factor it ignore is that even highly-skilled immigrants in times of reasonable prosperity usually take a step or two down on the economic ladder when they emigrate, due to lack of connections and credibility (for instance, inability of the locals to evaluate their educational skills and career attainments in their former home), as well as in almost all cases, less than stellar fluency in their new language. Plenty of Jewish professionals fleeing Germany in the 30s wound up in more modest jobs, like doorman or clerk. The article does not address the fact that professionals in warp-torn Middle Eastern states were the first to go. The Australian media reported extensively in 2003 on how the departure of doctors and well-heeled business men from Iraq who decided it was best to get out with what they could since they could see they had nothing to gain and even more to lose by staying, because it increased the damage to Iraq to lose a big swathe of its educated classes. So there has already been migration of the more skilled members of many of these societies, but apparently on a gradual enough basis so as not to register as significant.

    Sweden is so close to being a cashless society that people are charged fees if they use cash - This is what the end of cash looks like, according to HSBC. Sweden has made so much progress toward turning itself into a cashless society that it now has 27% less hard cash in circulation today than it did in 2011 (emphasis added): HSBCHSBC global economist James Pomeroy described the phenomenon in a recent note to investors: "Sweden is slowly becoming a cashless society, with more than 95% of retail sales made with electronic payment." With interest rates for consumers close to zero — and banks adding fees to charge consumers for saving — the logical thing to do is to pull your money out of the bank. There is some evidence that may be happening. In the third quarter of 2015, the Swedish net savings rate fell to zero, according to Statistics Sweden:  That's fairly normal for Q3 — Swedes spend money for the upcoming holidays, rather than saving it. Overall, bank deposits actually rose, according to Statistics Sweden: Households continued to save in bank accounts and deposits minus withdrawals amounted to SEK 24 billion. Net deposits during the first three quarters of the year were SEK 100 billion. This can be compared to SEK 42 billion during the corresponding period last year. This is interesting because it makes no sense. No one should store cash in bank savings if it costs you money to do so. People should be stuffing hard currency under mattresses  (or hiding it in microwaves, as we noted some Swedes were doing back in October).  That isn't happening because Sweden has made using cash even more expensive than saving cash in a bank. The Riksbank wrote in a recent policy discussion that anyone using cash is essentially punished  for doing so:

    Wealthy ‘hand-to-mouth’ households: key to understanding the impacts of fiscal stimulus: Many families in Europe and North America have substantial assets in the form of housing and retirement accounts but little in the way of liquid wealth or credit facilities to offset short-term income falls. This research shows that these wealthy ‘hand-to-mouth’ households respond strongly to receiving temporary government transfers such as tax rebates, boosting the economy through their increased consumption. ... Our research also draws attention to the fact that the aggregate macroeconomic conditions surrounding policy interventions will affect the fraction of the transfer consumed by households in non-trivial ways. In a mild recession, where earnings drops are small and short-lived, it is not worthwhile for the wealthy hand-to-mouth households to pay the transaction costs of accessing some of their illiquid assets (or to use expensive credit) to smooth their consumption. As a result, liquidity constraints get amplified and their consumption response to the receipt of a fiscal stimulus payment is strong. Counter-intuitively, the same stimulus policy may have stronger effects in a mild downturn than in a severe recession Conversely, at the outset of a severe recession that induces a large and long-lasting fall in income, many wealthy hand-to-mouth households will choose to borrow or tap into their illiquid account to create a buffer of liquid assets that can be used to counteract the income loss. Consequently, fewer households are hand-to-mouth when they receive a government windfall. Thus, somewhat counter-intuitively, the effect of the stimulus on consumption can be lower than when the same policy is implemented in a mild downturn.

    $7 Trillion In Bonds Now Have Negative Yields - Just ten days ago, in the aftermath of the BOJ's -0.1% NIRP announcement, we reported that after more than one year after the ECB unleashed NIRP, the total number of government bonds with negative yields to a staggering $3 trillion, a number which nearly doubled overnight to $5.5 trillion. Overnight in a historic event, the latest consequence of the BOJ losing control, the yield on Japan's 10Y JGB dropped below zero for the first time, in the process joining Switzerland as the only other country (for now) with a NIRPing benchmark 10Y treasury. And, as Bloomberg calculates, this means that as of this moment, $7 trillion or about 30% of all sovereign bonds, are yielding negative rates, implying "investors" have to pay governments for the privilege of holding their money. It also means that in the past 10 days a record $1.5 trillion in global treasurys have gone from having a plus to a minus sign in front of their yield.

    World's Negative-Yielding Bond Pile Tops $7 Trillion: Chart - More than $7 trillion of government bonds offered yields below zero globally as of Monday, making up about 29 percent of the Bloomberg Global Developed Sovereign Bond Index. The total is poised to swell further after Japan’s 10-year yield went below zero for the first time on record on Tuesday, as central-bank easing policies push borrowing costs to new depths. A negative yield means investors who buy the debt now and hold to maturity will receive less than they paid.

    Economics Professor: Negative Interest Rates Aimed at Driving Small Banks Out of Business and Eliminating Cash - More than one-fifth of the world’s total GDP is in countries which have imposed negative interest rates, including Japan, the EU, Denmark, Switzerland and Sweden. Negative interest rates are spreading worldwide. And yet negative interest rates – supposed to help economies recover – haven’t prevented Japan and Europe’s economies from absolutely going down the drain. Nor have they even stimulated spending. As ValueWalk points out:Japan has had ultra-low rates for years and its economy has been terrible. Trillions of debt in Europe now trades at negative interest rates and its economy isn’t exactly booming.  Denmark, Sweden and Switzerland all have negative interest rates, but consumer spending isn’t going up there. In fact, savings rates have been going up in lockstep with the decrease in interest rates, exactly the opposite of what the geniuses at the various central banks expected. So what’s really going on? Why are central banks worldwide pushing negative interest rates?  Economics professor Richard Werner – the creator of quantitative easing – notes: As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called ‘quantitative easing’). As a result banks that mainly engage in traditional banking, i.e. lending to firms for investment, have come under major pressure, while this type of ‘QE’ has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.

    Former Central Banker William White on the Failure of QE, Danger of Negative Interest Rates naked capitalism - Yves here. William White (along with Claudio Borio), then of the Bank of International Settlements, is best known for having warned starting in 2003 of frothiness in numerous housing markets around the world and of being blown off by Greenspan.  What is interesting about this short talk isn’t simply the particulars of what White says but the degree of his intellectual migration. White has tended to think like an orthodox economist despite being willing to push at the margins. For instance, even after the crisis, he was a budgetary scold, warning of the dangers of too much government debt. As we’ve stressed repeatedly, excessive private debt, particularly household debt, is the big hazard; government debt is troublesome in and of itself only when the government does not control its own currency and when an economy is at full employment.  This video illustrates how empirically-based economists like White are starting to reject significant elements of mainstream thinking. White at the very top of his short remarks repudiates the over-relliance on monetary policy, and later on, as politely as a Serious Economist can, waves big red flags about the current enthusiasm for negative interests rates. White points out they could result in the perverse result of banks charging more, not less, to borrowers. He still can’t quite stop worrying about government debt, but you’ll see his recommendations at the end, to a very large degree, are for foursquare “fix the real economy” measures to stimulate demand and raise worker incomes.

    "Negative Rates Are Dangerous" OECD Chair Warns "Our Entire System Is Unstable" - William R. White is the chairman of the Economic and Development Review Committee at the OECD in Paris. Prior to that, Dr. White held a number of senior positions with the Bank for International Settlements (“BIS”), including Head of the Monetary and Economic Department, where he had overall responsibility for the department's output of research, data and information services, and was a member of the Executive Committee which manages the BIS. He retired from the BIS on 30 June 2008. Dr. White began his professional career at the Bank of England, where he was an economist from 1969 to 1972. Subsequently he spent 22 years with the Bank of Canada. In addition to his many publications, he speaks regularly to a wide range of audiences on topics related to monetary and financial stability. In the following interview he shares his views in a totally personal capacity on the current state of the global economy and related monetary and fiscal policies.

    Negative interest rates are looking worse -- And eurozone banks down 41% since ECB introduced negative interest rates, notes @johnauthers  The Japanese market has not responded positively either. Of course negative interest rates, while intended as a form of stimulus, or currency depreciation, are also a tax on financial intermediation.  Negative interest rates, even if you agree with them in principle, are also a sign that more straightforward measures are politically impossible.  Here is Landon Thomas Jr. on negative rates in Sweden (NYT): “…many investors saw the rate cut as smacking of desperation and the latest sign that global central bankers are moving toward a round of competitive devaluations — also known as currency wars — as a way to stimulate their economies.” Miles Kimball has written much in favor of negative rates, Izabella Kaminska against, if you wish to survey further opinions.  Here is Matt Rognlie. I don’t see negative rates as the main problem today, but it’s getting harder to see them as a potential remedy.  They’re a sign that economies are trying to solve their core problems on the cheap.

    Negative 0.5% Interest Rate: Why People Are Paying to Save - When you lend somebody money, they usually have to pay you for the privilege.That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.These are some of the key questions, and, where we have them, the answers.

    How negative is negative? Try 4.5 per cent negative - The Riksbank cut its main repo rate by 15 basis points to minus 0.5 per cent as it felt forced to act by “weakening confidence” in achieving its inflation target of 2 per centFT, just now  So this seems an appropriate time to rediscuss the idea of a lower bound.  We’ve looked at the idea of a lower bound based on storage costs, utility costs etc before but now JPM are saying it is really around 4.5 per cent (in Europe with caveats and a little more restrained elsewhere) since the incentive to move into cash is being managed by tiered deposit rates. That too is something we’ve touched on already but which JPM take that bit further, with our emphasis: Switzerland and Denmark have been in the vanguard of the recent move to negative interest rates, with Sweden, the Euro area, and (most recently) Japan following. In both the Swiss and Danish cases, the initial shift to NIRP came alongside efforts to mitigate strength in their currencies. As both central banks sold large amounts of their currency into the market, the reserve balances of their domestic banks grew rapidly. With the prospective costs of NIRP to the domestic banks rising, the amount of reserves they could hold that was exempt from the negative interest rate was raised. There are a number of features of these experiences worth highlighting:The negative policy rate has been passed through to shortterm market and wholesale interest rates, without any systematic signs of rising volatility in those rates (Figure 3). The amount of the reserve stock subject to the negative rate has varied significantly, between 40% and 95% in the Danish case, while 20-30% has been typical in the Swiss case. But, in all cases money markets have continued to function adequately. The direct costs imposed on banks by the negative regime have been small when compared to the size of the balance sheet as a whole. In Denmark, we calculate that the peak annualized interest charge has been just 0.00006% of total assets. In Switzerland, the peak charge has been 0.03% of total assets.

    Something Very Disturbing Spotted In A Morgan Stanley Presentation | Zero Hedge: With central bankers losing credibility left and right, and failing outright to boost the "wealth effect" no matter what they throw at it, the next big question is when will central planners around the world unveil the cashless society which is a necessary and sufficient condition to a regime of global NIRP. And while in recent days we have seen  op-eds by both Bloomberg and FT urging the banning of cash, the most disturbing development we have seen yet in the push for a cashless society has come from the following slide in a Morgan Stanley presentation, one in which the bank's head of EMEA equity research Huw van Steenis, pointed out the following... ... and added this: One of the most surprising comments this year came from a closed session on fintech where I sat next to someone in policy circles who argued that we should move quickly to a cashless economy so that we could introduce negative rates well below 1% – as they were concerned that Larry Summers' secular stagnation was indeed playing out and we would be stuck with negative rates for a decade in Europe. They felt below (1.5)% depositors would start to hoard notes, leading to yet further complexities for monetary policy. Consider this the latest, and loudest, warning on the road to digital fiat serfdom.

    Deutsche Bank Says It Has the Cash for Riskiest Debt Payouts -- Deutsche Bank AG co-Chief Executive Officer John Cryan told employees that Germany’s largest bank is “rock solid” as investor concern about capital and funds drove down the value of its stock and bonds. In a memo on Tuesday, Cryan wrote that the Frankfurt-based lender has a “strong” capital and risk position and “took advantage of this strength to reassure the market of our capacity and commitment to pay coupons to investors” who hold the bank’s additional Tier 1 capital. The comments come just hours after Chief Financial Officer Marcus Schenck told staff that the bank is able to meet obligations on the notes both this year and next. Cryan, 55, has been seeking to boost capital buffers and profitability by cutting costs and eliminating thousands of jobs as volatile markets undermine revenue and outstanding regulatory probes raise the specter of fresh capital measures to help cover continued legal charges. The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while the shares have dropped about 42 percent. “Cryan will do everything in his powers to try and avoid” a capital increase, Christopher Wheeler, an analyst at Atlantic Equities, said in an interview with Bloomberg Television on Tuesday. “It’s really a matter quite frankly of how much more litigation they have to deal with and whether or not they can actually start to generate some core earnings at their investment bank.” . The cost to protect against losses on the bank’s riskiest debt reached the highest level since the height Europe’s debt crisis in 2011, according to data compiled by Bloomberg.

    Why investors are worried about Deutsche Bank - It's never a good look when a major bank has to pipe up and reassure the world that it's still financially sound. But such is the lot this week of Deutsche Bank, which has been getting absolutely savaged by the markets as of late. Its shares, down more than 40 percent this year on the New York stock exchange, are trading at a record low, while the cost of insuring its debt has spiked, a sign investors are becoming more worried that it might default. The beating has been so bad that CEO John Cryan felt compelled to send his employees an upbeat memo on Tuesday promising them that the bank “remains absolutely rock solid.” Its stock kept tumbling. The ups and downs of Teutonic high finance might not seem like a super pressing concern here in the United States, where Donald Trump might still be on the verge of turning the presidential election into a full-on Idiocracy prequel. But given the fragile state of global markets, it's possible that any trouble at Germany's largest bank could spread. What's wrong with Deutsche Bank? In part, it's dealing with the same problems facing banks all across Europe. The combination of sagging global growth and low interest rates have made it difficult to earn money from lending. Loans to energy companies are going bust. Stricter rules designed to make the financial system more stable have made investment banking less lucrative, leading some institutions to shrink that line of business. This has all culminated in a “chronic profitability crisis” among Europe's banks, as the Wall Street Journal puts it. Things have been especially ugly for Deutsche Bank, though, because of its legal rap sheet. Last month, Frankfurt's finest announced a prodigious €6.7 billion annual loss, thanks in large part to the billions of dollars it has had to set aside to pay fines and settle litigation involving all manner of fraud and international sanctions violations. With more law-enforcement trouble potentially looming, investors are worried that Deutsche Bank is one big, unforeseen financial penalty away from serious trouble. Forget turning a profit—the bank might have to stiff some of its bondholders.

    2007 All Over Again, Part 3: Banks Starting To Implode -- So far, each financial crisis in the series that began with the junk bond bubble of 1989 has been noticeably different from its predecessors. New instruments, new malefactors, new monetary policy experiments in response.  But the one that’s now emerging feels strikingly similar to what just happened a few years ago: Banks overexposed to assets they thought were safe but turn out to be highly risky see their balance sheets deteriorate, their liquidity dry up and their stocks plunge.  This time it’s starting in Europe, where bank stocks are down by over 20% year-to-date and credit spreads are exploding. For a general look at this process see Is Another European Bank Crisis Starting? Not surprisingly, the scariest stories are emanating from Italy which, despite inventing the mega-bank concept during the reign of the Medici, seems unable to grasp how money actually works. Check out the following Wall Street Journal chart of non-performing loans. When 16% of an entire country’s borrowers have stopped making their payments, that country is pretty much over.  All eyes are therefore on Italy’s Banca Monte dei Paschi, which has a non-performing loan ratio of 33% and, as a result, a plunging share price. When the Italian economy finally blows up, this will probably be where it starts.  But here the story takes an even more disturbing turn. It seems that the other lender now spooking the markets is none other than Deutsche Bank, pillar of the world’s best-performing economy. Shockingly-bad recent numbers have combined with questions about its mountain of derivatives and exotic debt to put DB in a very uncomfortable spotlight. Excerpts from analysis of the aforementioned debt:

    Why the Market Freakout About Bank Stocks is Well Warranted -  Yves Smith - It’s ugly out there.  The proximate cause of this week’s market wobbles was a sharp selloff in bank stocks in Europe on Monday. That appeared to be triggered by the recognition that energy related dud loans could imposes losses of an additional $100 billion on already wobbly banks. And that’s before you get to the fact that many banks already had corporate loans they had not written down sufficiently and those books can only be getting worse given low growth and borderline deflation in Europe. And on top of that, European banks lent to other commodities players, not just energy concerns, and many were active in lending in emerging markets.  But as bad as this bad loan story is, and the foregoing is already pretty ugly, the underlying structural and regulatory picture is is vastly worse. Central banks have painted the financial system in such a tight corner that it’s not clear how they get them out. First, the current low interest rate environment has been squeezing banks’ bread and butter source of earnings, like risk-free income on float and other sources of net interest margin (“NIM”), as Izabella Kaminska has reported at FT Alphaville. From a post last week: Without NIM, there is no banking. Negative rates eat NIM. They also encourage all sorts of bad banking practices.  The Fed’s rate hike was supposed to help the banks with the NIM problem. It was even said that the rate hike would destroy the NIM problem, not make it stronger. Indeed, it was supposed to bring balance to interest rates, not leave them in negativity, and flat. Low interest rates have already been slowly strangling long-term investors like life insurers and pension funds, although the long-dated nature of their liabilities means they can lumber along in an unhealthy state for far longer than banks can when their usually pretty thin equity capital starts looking too thin.

    Eurozone GDP rises 0.3% on quarter, 1.5% on year - MarketWatch: The eurozone economy grew steadily in the final quarter of 2015, but a darkening global outlook and severe financial-market turmoil mean officials at the European Central Bank are expected to step up their efforts to fuel faster growth in the 19-nation currency union when they meet again next month. The eurozone economy grew at a quarterly rate of 0.3% in the final three months of 2015, the European Union's official statistics agency said Friday, as resilience in Germany, the bloc's largest economy, helped offset weaker-than-expected growth in countries including France and Italy. Fourth-quarter growth matched the 0.3% expansion in the the third quarter of 2015 and was in line with the expectations of economists polled by The Wall Street Journal last week. The eurozone economy expanded 1.5% in 2015 as a whole, according to official figures.

    Europe Struggles To Lift Off -- Fourth Quarter data for 2015 were released this morning by Eurostat. As usual the details for individual countries are lagging behind but the larger picture is clear: the economic recovery in Europe is progressing more slowly than policymakers had hoped, but there are signs of promise. The EU 19 Countries grew at a combined rate of 0.3% which means that the EU grew at roughly 1.5% for the year just past. This is not a hugely encouraging outcome given the aggressive stimulus of the ECB, and the efforts that have been made to improve the soundness of their banks and unify the banking system. But Europe has been beset by terrorist attacks and a refugee crisis as well as a difficult economic environment elsewhere in the world, so slower than expected growth is perhaps not surprising. As has been true for some time, the aggregate growth results reflect some very different experiences with the U.K., Germany, and now at last Spain growing well, while many of the other countries are flat-lining.  Even leaving out the tragedy of Greece, the economic fortunes of the European partners have been very mixed. Europe as a whole has barely returned to 2008 levels, with a number of the peripheral economies still nearly 10 percent below their pre-recession output levels.  Is the recent improvement strong enough to warrant optimism?  The EU’s trade with China is significant – slightly larger than the United States’ trade with China. Exports to China were $211 billion in 2014. With China slowing down and the Yuan falling this presents a gloomier outlook for Europe.  In addition, the recent weakness of the European banks is another danger signal. (6 GDP charts for 13 countries)

    Portugal to prepare extra deficit-cutting steps now: Dijsselbloem | Reuters: Portugal promised euro zone finance ministers it would now prepare additional deficit cutting steps to be ready to implement them, if necessary, to keep the budget in line with EU rules, the head of euro zone ministers said on Thursday. "The Eurogroup welcomes the commitments of the Portuguese authorities to prepare as of now additional measures to be implemented when needed to ensure that the 2016 budget will be compliant with the Stability and Growth Pact," Jeroen Dijsselbloem told a news conference.

    Caught On Tape: 800 Angry Farmers Storm Greek Ministry, Beat Cops With Shepherd's Sticks - On Friday, we got confirmation of what everyone already knew: the Greek economy is still mired in recession. GDP contracted 0.6% in Q4 after shrinking 1.4% in Q3. We also found out that Greek farmers have most assuredly not calmed down since they parked their tractors in the middle of the street blocking traffic late last month. Why are the farmers mad, you ask? Well, they’re not particularly enamored with the idea of having their social security contributions tripled and their income tax doubled as part of PM Alexis Tsipras’ push to satisfy creditors in Brussels who, six months after the country’s third bailout program was agreed, aren’t satisfied with the pace of fiscal consolidation. So what do you do when you’re an angry farmer from Crete hell bent on demonstrating just how frustrated you are with a government which just a little over a year ago, swept to power with promises to roll back austerity? You grab your shepherd's crook and some tomatoes and you storm the Agriculture Ministry in Athens. Below, find the dramatic footage of farmers gone wild.

    French MPs vote for enshrining emergency powers in constitution -  French MPs have voted in favour of François Hollande’s controversial package of measures to change the French constitution in response to the Paris terrorist attacks in November. A clear majority of MPs in the lower house of parliament approved the heavily contested measures that would strip convicted terrorists of their French nationality and enshrine the state of emergency powers in the constitution. But the political rows over Hollande’s deeply divisive security crackdown appear likely to continue, with bitter internal battles on both the left and right. These divisions could make it difficult, perhaps impossible, to finally push through the constitutional change later this year. France’s written constitution is seen as sacrosanct. Any amendment can only be achieved if it wins the backing of three-fifths of Congress – the body formed when both houses of parliament, the National Assembly and the Senate, meet at the Palace of Versailles to vote on revisions to the constitution.

    The UK government moves to purge the public conversation of unwanted voices - I blogged a few months ago about the various moves the UK’s Conservative government has put in place that seek to cement its ability to govern without effective opposition. Since then there have been various developments, including the entirely predictable loss of a million voters from the electoral rolls. Some of those names may be restored, but they will have been absent from the register at the moment used to calculate the size of constituencies with the consequence that MPs from leafy affluent places will represent populations much smaller that poor post-industrial ones. Restrictions on trade unions are steaming ahead (including “reforms” that will deprive Labour of most of its funding), and plans to repeal the Human Rights Act are still on the way. This morning’s atrocity involves government plans to prevent charities and the voluntary sector from using any funding they’ve received from government to lobby for changes in policy or expenditure. The proposal is the result of lobbying from the right-wing think-tank the Institute of Economic Affairs. Charities won’t be completely silenced. If they have funds that are raised from private sources then they can use these for advocacy. It isn’t clear from the reports whether funding from sources like the Big Lottery or local government (what’s left of it) will be covered. The effect of these restrictions will be that there will be fewer voices advocating for the poor and dispossessed in areas like housing, mental health provision, or policy towards refugees and asylum seekers.  Meanwhile, the corporate sector, being “private” can lobby away all it likes.

    Britain should never join this negative interest rate club -- The Bank of Japan a few days ago joined a club which includes Switzerland, Denmark, Sweden and the European Central Bank (for one of its key rates) in pushing the interest rate dial below zero. Three of the world’s biggest central banks have negative rates. I shall come on to the Bank of England in a moment.  After a long period in which interest rates have been close to zero and central banks have engaged – and in some cases are still engaging – in large-scale quantitative easing, it appears that it is still not enough. At least five central banks think negative interest rates are now necessary. Negative interest rates are still a strange phenomenon. The idea that anybody should pay for the privilege of depositing funds runs counter to the normal rule of “time preference”, that any rational person, or business, would rather spend now than later.  Central banks are different. The interest rate they typically set is on the reserves commercial banks hold with them. In most cases, commercial banks have to hold at least some of those reserves, for prudential and other reasons. They are, in that sense, a captive audience – up to a point. What is the point, then, of negative rates? When the Bank of Japan, or another central bank reduces rates below zero, it is trying to do two things. It is sending out a signal to the markets that whatever expectations they may have of future interest rate rises, they can revise them down. And, by penalising commercial banks – effectively taxing them on their deposits at the central bank – it is hoping that they will use any excess reserves (those above what are required by the regulators) will be used more productively; lending them into the real economy. Negative rates are, as I say, still a strange idea. In the crisis, and in the post-crisis period, we have, to paraphrase Lewis Carroll, got used to believing many impossible things. This is just the latest.

    Why Washington Fears Britain Quitting EU -  The countdown begins this week for the momentous question facing Britain: whether to exit the European Union – the so-called Brexit. While the issue seems to be primarily one for British national interests, lurking in the background is a crucial geopolitical concern for the United States. The outcome of the British referendum on Europe could severely undermine Washington’s global hegemonic ambitions and in particular its adversarial agenda towards Russia. British Prime Minister David Cameron launched a diplomatic charm offensive only days after European Council President Donald Tusk published the outline of a deal to retain Britain’s membership of the 28-nation EU bloc. That provisional deal was the product of months of negotiations between the London government and the EU establishment, aimed at giving Britain more national freedom from Brussels. Cameron contends that he has won enough concessions to bolster British sovereignty, and the Conservative government leader is now openly campaigning for continued membership of the EU on that basis.

    Bank of England's recovery policies have increased inequality, finds S&P --  Bank of England policies to help Britain’s economic recovery have made inequality worse and increased the wealth gap between young and old, according to a leading credit ratings agency. A study by Standard & Poor’s has found thatthe low interest rates and quantitative easing used to rescue the economy after the 2008 crash have handed extra wealth to the richest households by propping up stock markets and supporting booming house prices. The report said the wealthiest 10% of households held 56% of all net financial assets in 2008. By 2014 the proportion of the nation’s wealth in the hands of this group had risen to 65%. Without government policies to restrict house price rises and promote greater equality, the report said the situation would only get worse. The finding in the report – QE And Economic Inequality: The U.K. Experience – is likely to wound policymakers in Threadneedle Street who have repeatedly rebutted criticism that the Bank’s policies favoured the rich over the poor.

    This secret UK-Eurotunnel tribunal reveals something disturbing about refugees and TTIP --  It has just been revealed that the UK was forced to pay €8 million to Eurotunnel for costs incurred preventing migrants entering the UK between 1999 and 2002. The figure – revealed in an FOI response to campaign group War on Want – might not seem that much in the grand scheme of government spending, but it is important for several reasons. Firstly the Eurotunnel case was an example of the controversial Investor State Dispute Settlements (ISDS) – secret tribunals where private companies can sue national governments for loss of profits. Other infamous examples of ISDS include Philip Morris, the tobacco giant, suing the Australian government for introducing plain cigarette packaging and Swedish energy company Vatenfall taking the German government to court for phasing out nuclear power. Currently the UK hasn’t suffered too harshly at the hands of ISDS but that could all soon change with the advent of the Transatlantic Trade and Investment partnership or TTIP, the bi-lateral trade agreement currently being negotiated between the EU and US. ISDS will be an integral part of TTIP and could see the UK government involved in many more cases such as the Eurotunnel one, where it could be forced to pay out millions of pounds of taxpayer money to private corporations. The reason the UK hasn’t fallen foul of too many cases like the Eurotunnel one so far is that in most of our bi-lateral trade agreements we are the capital-exporting country. However that won’t be the case if TTIP comes into effect because of the large proportion of US capital stock in the UK. A study by the London School of Economics into the potential effects of TTIP showed that we could expect to face as many ISDS cases as Canada under their similar NAFTA agreement with the US. Canada, by the way, is currently the most sued developed country in the world under ISDS, with cases such as oil company Lone Pine Resources suing the government for issuing a moratorium on fracking. Canada has eight per cent of US foreign direct investment stock compared to the UK’s 13 per cent according to the LSE study, so it is easy to see how we could face an equal if not greater number of ISDS cases against us.

    First Report From Inside Germany's New TAFTA/TTIP Reading Room Reveals Text's Dirty Secret -- Last week we wrote about the only place that German politicians are currently allowed to view the latest texts of TAFTA/TTIP: a tiny room, guarded at all times, and involving all kinds of humiliating restrictions for visitors. Katja Kipping was one of the first to enter, and she has written up her experiences for lesser mortals like you and me, who are not permitted to besmirch this sacred place with our unworthy presence. Even though she is -- of course -- forbidden from speaking about what she read there, a translation of her account, made by War on Want, nonetheless contains some interesting new detailsOnce I'd registered, I was sent the instructions on how to use the room. The first thing that I noticed was that the terms and conditions had already been the subject of negotiations between the European Commission and the USA. Get your head round that: TTIP isn't even signed yet, and already individual countries have lost the right to decide who gets to read the texts, and on what terms. And despite the blanket prohibition on giving things away, she does reveal one dirty secret about the TAFTA/TTIP texts: the documents are simply crawling with typos. The word 'and' is regularly written 'andd' and 'the' often appears as 'teh'. Either the negotiators are really shoddy workers or this is one of those famous security measures we've heard about. She is doubtless right that these errors are fairly unsubtle attempts to create unique copies so that any leaks can be traced back to their source, since visitors to the reading room are directed to a particular computer when reading the text.

  • No comments: