week ending Feb 20

(preview)

Bullard Admits It's "Unwise" To Continue Rate Hikes, Says "If Needed" Will Do More QE -- For the latest confirmation of just how trapped in a corner of its own making the Fed now finds itself, look, or rather read no further than the presentation given moments ago by St. Louis Fed president James Bullard before the CFA Society in St. Louis which was circular, confusing, illogical, and thus a splendid summary of the Fed's "thinking" from beginning to end. In it Bullard, who one month ago said he favors 4 rate hikes in 2016, said that it would now be "unwise" for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility, in comments that mark a stark change of direction for one of the Fed's more hawkish inflation foes.  What he really meant is that having digested the Fed's policy error which was the decision to hike rates in December in the middle of a global recession (as warned here quite explicitly) not only did global markets tank, but so did inflation expectations (the 5Y5y inflation outlook for the US was lower than that for Europe as recently as one week ago) with the market now pricing in not only a halt to rate hikes, but a return to ZIRP if not Negative rates in the U.S.

Fed Watch: FOMC Minutes and More - The Fed is in risk management mode, which means they will leave rates on hold until they see clear evidence that markets are stabilizing, growth remains on track, and they are even leaning towards needing to see the white in the eyes of the inflation beast. This has the makings of a significant strategic shift. To date, the Fed has argued for early and modest action toward "normalizing" policy with the ultimately goal of staying ahead of the inflation curve. We are moving to a new strategy where Fed policy lags the cycle. The cost of a Fed pause now is the risk of more aggressive policy later. The minutes of the January FOMC meeting revealed that policymakers struggled to reconcile market volatility with their economic outlook: In discussing the appropriate path for the target range for the federal funds rate over the medium term, members agreed that it would be important to closely monitor global economic and financial developments and to continue to assess their implications for the labor market and inflation, and for the balance of risks to the outlook. Members expressed a range of views regarding the implications of recent economic and financial developments for the degree of uncertainty about the medium-term outlook, with many members judging that uncertainty had increased. Members generally agreed that the implications of the available information were not sufficiently clear to allow members to assess the balance of risks to the economic outlook in the Committee's postmeeting statement. That said, they could agree on the following:  However, members observed that if the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks. And they had plenty of reasons to fear the downside risks: It is very unlikely that these fears will be ameliorated by the March meeting, or even the April meeting, and Fed speakers are signaling as much. See, for example, remarks by Philadelphia Federal Reserve President Patrick Harker and Boston Federal Reserve President Eric Rosengren.

Global downturn spurred Fed to consider changing rate path: minutes | Reuters: Federal Reserve policymakers worried last month that a global slowdown and financial market selloff could hurt the U.S. economy and considered changing the central bank's planned interest rate hike path for 2016. Although most of the policymakers still expected to raise rates this year and even discussed a hike at the Jan. 26-27 policy meeting, they were divided over how to interpret the financial market volatility, according to the minutes from the meeting released on Wednesday. That suggested the Fed was backing away from the four rate hikes that were signaled for this year in December, when it hiked rates for the first time in nearly a decade. The policymakers discussed "altering their earlier views of the appropriate path for the target range for the federal funds rate," but most judged it "premature" to make big changes to their outlook, according to the minutes. They added that they would closely monitor global economic developments as well as oil and stock prices. "A number of participants were concerned about the potential drag on the U.S. economy from the broader effects of a greater-than-expected slowdown in China and other (emerging market economies)," according to the minutes. Wall Street's skepticism that the Fed would raise rates at all this year increased after the release of the minutes. Prices for fed funds futures implied investors saw a roughly 30 percent chance of a hike in December and less than that at prior meetings, according to CME Group. Bets on a December hike were about 40 percent before the minutes were released.

Fed's next move much more likely a rate hike than a cut - survey | Reuters: The Federal Reserve's next policy move is much more likely to be a rate hike than a rate cut, although over the next two years a return to zero rates is a rising possibility, according to a New York Fed survey of primary dealers published on Thursday. The regular survey, done last month before the Fed's Jan. 27 decision to keep interest rates on hold, found that primary dealers see about a 75 percent chance that the Fed's next policy move will be to increase that rate, with just over half expecting that rate hike to take place at the Fed's March meeting. The 22 primary dealers, or those that do direct trading with the Fed, saw about an 8 percent chance that the Fed's next move would be a rate cut and put the chances of no rate move at all in 2016 at about 17 percent. The survey showed economists assigned a 14 percent chance of the U.S. falling into recession in the next six months and thought there was about a one in four chance that U.S. interest rates would be back at zero at some point over the next two years. Both of those probabilities were at the highest level in at least a year, based on a review of prior surveys.

The Fed's Flirtation With Negative Rates Signals Its Rush Toward Irrelevance - What is an interest rate? At its very plain core it’s the market price that brings borrowers and savers together so that they can transact. When we borrow “money” we’re borrowing access to the economy’s actual resources. By resources we’re talking about borrowing dollars in order to procure tractors, trucks, computers, labor and everything else available at a price in the real economy. What the actual truth about credit tells us very explicitly is that in the real world there’s no such thing as “cheap money,” zero rates of interest, and most of all, there’s no such thing as a negative rate of interest. Accession of resources comes at a cost. Individuals and businesses know this well. In the real economy, attaining access to economic goods remains very expensive. That’s why, for instance, that Silicon Valley start-ups must offer large portions of their companies to venture capitalists in return for credit, along with stock options to potential employees. Labor is credit personified. It comes at a cost.All of which brings us to present discussions within the Federal Reserve about mimicking other central banks through the imposition of negative rates of interest. What might the Fed have in mind? About this, the Fed interacts with banks which represent a rapidly shrinking portion of total lending within the U.S. economy. That the Fed has long pursued the oxymoron that is “easy credit” is impossible to separate from the shrinking relevance of banks and their top overseer, the Fed. The Fed is in pursuit of what’s not real, and it shows as the traditional bank limps toward economic irrelevancy.

Is this the week central banks lost their market credibility? -- Has the “Yellen put” finally expired?  Financial markets are in the grips of a global rush to safety. Central banks, whose flood of liquidity have been given much of the credit for the sharp postcrisis rise in stocks and other asset prices, seem unable to stem the tide.  “This week may go down in financial history as the week when central bank planning died—the 2016 version of the fall of the Berlin Wall. It sounds worse than it is, as this was always coming,” said Steen Jakobsen, chief economist at Saxo Bank, in a Thursday note. Markets took little comfort in two days of testimony by Federal Reserve Chairwoman Janet Yellen. The S&P 500  and Dow Jones Industrial Average posted their fifth straight decline Thursday. The yen, meanwhile, has soared despite the Bank of Japan’s easing efforts.  It was the Bank of Japan’s surprise decision in late January to impose a negative rate on some deposits that appeared to rock investor faith. As MarketWatch noted at the time, the move was viewed by many economists as desperate. Moreover, with central banks continually undershooting inflation targets despite extraordinarily loose policy, there are growing fears that the ability of monetary policy to affect the real economy has been impaired.   The ability of central banks to steer the market—or vice versa—was first dubbed the “Greenspan put,” then renamed the “Bernanke put,” and, finally, the “Yellen put.” A put option gives an investor the right to sell the underlying security at a preset strike price. In other words, bullish stock investors could count on central bankers to keep a floor under the market. That’s what some think is finally coming to an end.

Markets Hand Verdict to Central Banks———-Stay Out Of Sub-Zero Rates - It seemed like a good idea at the time: Cut interest rates below zero to revive growth.  But as policy makers from Tokyo to Stockholm embrace the notion, investors are close to panic mode. Far from buoying financial markets this year, negative rates have helped global stocks enter a bear market, sent the cost of protection against corporate defaults soaring and driven investors to havens such as U.S. Treasury bonds and gold. Fueling the turmoil is fear that negative rates will slam the world’s banks. In theory, they could be the panacea to cure sluggish global growth: by charging lenders fees for parking money at central banks, policy makers hope banks will use that cash to make loans, jump-starting their economies. In practice, investors worry it may squeeze bank profits and rattle money markets. “We’re here in an environment where central banks have to learn one message, and that is that negative interest rates are not desirable and they are not workable,” Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London, said in a Bloomberg Television interview. “When you cut into negative interest rates you have to think about the profitability of the banking sector.” About a quarter of the world economy is now in negative-rate territory with more than $7 trillion of government debt offering yields less than zero.

Not to be negative, but…a critical comment on negative interest rates. | Jared Bernstein --With most economic variables, I think we make too big a deal about crossing zero on the number line. I don’t feel great if real GDP’s growing at 0.2% and horrified if it’s at -0.2%. Deflation with price growth at -0.5% isn’t terribly worse than disinflation with price growth at +0.5%. But with nominal interest rates, crossing zero is a big deal. Negative interest rate are a true oddity, if not a pathology. Lenders paying borrowers is problematic, and not just because those of us who write about the threat of the zero lower bound now have to add an asterisk every time we say “nominal rates cannot, of course, go below zero.” They can and they do, as Neil Irwin points out in the NYT. Central banks have set rates below zero in the eurozone, Sweden, and Switzerland (see figure). As Irwin reports, Fed chair Yellen, who recently oversaw and supported a small rate increase, is not inclined to go to the negative place, but you can be sure Fed economists are noodling over what this all means (apparently, they’re not even sure if negative rates are legal here). On that, read Irwin, who raises many reasons why this particular crossing of the river zero is so tricky. To the extent that negative rates work like a tax on banks who store reserves at the central bank, they’ll try to pass the charge onto their customers. And why not just sit on cash if depositing it (or lending it through a bond) costs you? Leaving money in the bank is a lot less enticing when you have to pay to do so.

Frances Coppola on negative interest rates -- Negative rates are effectively a tax on deposits, and as such are intrinsically contractionary. They are a form of financial repression. As long as banks choose to absorb that tax themselves, those who pay that tax will effectively be bank shareholders and employees. But if banks choose to pass that tax on, it will be savers and borrowers who pay the tax. Would the increased economic activity that negative interest rates may generate be sufficient to offset the effect of this tax?  Alternatively, if we think of negative rates as a monetary operation rather than a tax, we can say that the central bank drains back a small proportion of the reserves it adds to the system through QE. This is monetary tightening. Again, would the increased economic activity generated by negative rates be sufficient to offset this effect?  There is more at the link, perhaps the best exposition of this argument I have seen to date.  Here is also Jared Bernstein on negative rates.  And Scott Sumner comments.  And Izabella Kaminska comments.

Quantitative easing is not a superpower - If there is one thing traders fear more than nasty macroeconomic shocks, more than central banks doing something crazy, and more even than their Bloomberg terminals breaking, it is each other. Specifically, they live in dread of moments when fear and loathing take hold of markets, when “other” market participants lose their cool (they never recognise it in themselves). When that happens, it doesn’t matter how right you are about a position, there is nowhere to hide. We had some hints of that in the opening weeks of 2016, first centred around oil, and then, quick as a flash, on bank stocks. Ever since this year started with a bang, and not in a good way, sage old-timers have been calling for sanity. The collapse in the price of oil should be seen as at least partly a good thing, they say. It helps oil-importing countries and it is a boon for consumer and retail stocks. Time to snap up some overly beaten-up bargains, they say. But la la la, can’t hear you. All those supposed beneficiaries have been caught up in the markets funk. Every step lower in the black stuff triggered similar drops in “risky” assets.Intense correlations between oil and other markets are not a good sign. Seemingly unrelated assets move in lockstep like this only when investors have the heebie-jeebies. Before the oil obsession had even come close to fading, along came the banks obsession. Deutsche Bank shares crashed out of bed. Right now, beyond tinfoil-hat wearing gold bugs and conspiracy theorists, few think Deutsche is the new Lehman, despite the thumping 35 per cent decline in the bank’s stock so far this year that rattled other financial shares across the region. The echoes are there, though, superficially at least. Goldman Sachs, for one, has noted that the wobble in financials shows that “systemic risk, recently dormant, is stirring”. Be afraid.

The Fed and the dollar shock - Gavyn Davies -- The dismal performance of asset prices continued last week, despite a rebound on Friday. There are many different forces at work, but recently the focus has turned to the weakening US economy. This weakness seems to be in direct conflict with the continued determination of the Federal Reserve to tighten monetary policy. Janet Yellen’s important testimony to Congress on Wednesday acknowledged downside risks from foreign shocks, but overall her attitude was deemed by investors to be complacent about US growth. (See Tim Duy’s excellent analysis of her remarks here.) Why is the Federal Reserve apparently reluctant to respond to the mounting recessionary and deflationary risks faced by the US? It is human nature that they are reluctant to admit that their decision to raise rates in December was a mistake. Furthermore, they believe that markets are often volatile, and the squall could yet blow over. But I suspect that something deeper is going on. The FOMC may be underestimating the need to offset the major dollar shock that is currently hitting the economy. The broad dollar effective exchange rate has risen by about 20 per cent since mid 2014, the greatest dollar shock in recent decades. Because the US is a relatively closed economy, with exports accounting for only 13 per cent of GDP, the FOMC often pays little more than lip service to foreign trade shocks. Yet, this one is large enough to disturb the underlying growth rate of the entire economy. Unless the recent dollar strength substantially reverses – which probably requires the Fed to take rate rises off the table for a while – US economic growth could continue to disappoint.

Strong Dollar Blues - Paul Krugman --  Gavyn Davies joins the chorus of those worried that the Fed is in denial about its interest-rate misstep: It is human nature that they are reluctant to admit that their decision to raise rates in December was a mistake.  But he adds a possibly deeper reason, failure to think sufficiently about the international side: But I suspect that something deeper is going on. The FOMC may be underestimating the need to offset the major dollar shock that is currently hitting the economy. Two thoughts. First, there’s a close although not perfect match between what’s going on now and what I warned about a year ago: So, what’s actually happening? The dollar is rising a lot, which suggests that markets regard the relative rise in US demand as a fairly long-term phenomenon – which in turn should mean that a lot of the rise in US demand ends up benefiting other countries. In other words, the strong dollar probably is going to be a major drag on recovery.  And there’s an even closer match to the worries Lael Brainard expressed about global impacts back in October: Over the past year, a feedback loop has transmitted market expectations of policy divergence between the United States and our major trade partners into financial tightening in the U.S. through exchange rate and financial market channels. Thus, even as liftoff is coming into clearer view ahead, by some estimates, the substantial financial tightening that has already taken place has been comparable in its effect to the equivalent of a couple of rate increases.

Larry Summers Launches The War On Paper Money: "It's Time To Kill The $100 Bill" - Yesterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe's tax on money known as NIRP. That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on. We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note "would be negative for the currency", to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB "scraps" the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard "scholar" and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would "deter tax evasion, financial crime, terrorism and corruption." Well, not even 24 hours later, and another Harvard "scholar" and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled "It’s time to kill the $100 bill" in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that "a moratorium on printing new high denomination notes would make the world a better place."

Why $100 bills and €500 notes may soon be killed off - The $100 bill has always had a complicated relationship with the public. Now, former Secretary of the Treasury Lawrence H. Summers has called for the $100 bill's execution, just as the Financial Times reported that the European Central Bank is planning on killing another big bill overseas, the €500.  In an op-ed for the Washington Post, Summers cites a new study from Harvard's Kennedy school by banker Peter Sands—he's President Emeritus of Harvard—that made a strong case for the elimination of the £50, the €500, the Swiss CHF 1,000, as well as the $100 because large currency notes such as these 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." This is apparently an enormous problem. According to the study, only 1% of shady transactions are seized by authorities, and this has a massive effect on the world by way of tax evasion, corruption, terrorism, and garden-variety money laundering for criminal enterprise. The dubious use of high-denomination bills has actually even earned the €500 note a nickname: the "Bin Laden."

Can a central bank eliminate its highest value banknote? -- Peter Sands has adeptly made the case for eliminating high denomination banknotes. The rough idea is that if all central banks were to eliminate their highest value banknotes, then criminals would have to fall back on smaller denominations or more volatile media of exchange like gold. Since both of these options are more cumbersome than large denomination notes, storage and handling expenses will grow. This means the costs of running a criminal enterprise increases as does the odds of being apprehended.  Elimination of cash is a polarizing topic. For now I'm going to sidestep that debate because I think there's a more interesting topic to chew on: might a central bank be unsuccessful in its attempt to withdraw its own high denomination notes? Put differently, what happens if everyone just ignores a central banker's demands to retire the biggest bill?  Say that the Federal Reserves wants to hobble criminals by cancelling all 10.8 billion $100 notes. It announces that everyone holding $100s has until January 1, 2018 to trade them in for two $50s (or five $20s). After that date any $100 notes that remain in circulation will no longer be considered money. Specifically, they will cease to be recognized by the Fed as a liability.  Will this demonetization work? Consider what happens if everyone simply ignores the proclamation and continues to use $100s in trade. Say that by the January 1, 2018 expiry date, only $300 billion of the $1 trillion in $100 bills in circulation have been tendered leaving the remaining $700 billion (or 7 billion individual notes) in peoples' pockets.

When Cash Is Outlawed... Only Outlaws Will Have Cash --  Harvard economist Larry Summers is a reliable source of claptrap. And a frequent spokesman for the Deep State. To bring new readers up to speed, voters don’t get a say in who runs the country. Instead, a “shadow government” of elites, cronies, lobbyists, bureaucrats, politicians, and zombies – aka the Deep State – is permanently in power. 22_summers_560x375 Larry Summers – the man with a plan for everyone. An economist whose economic theorizing is truly abominable crap (more on this in an upcoming post), a reliable, crypto-fascist, bought and paid for evil intellectual in the service of the Deep State. His “policy proposals” all have one thing in common: they are apodictically certain to restrict economic progress and individual liberty. Put simply, it doesn’t matter which party is in power; the Deep State rules. Want to know what the Deep State is up to now? Read Larry Summers. “It’s time to kill the $100 bill,” he wrote in the Washington Post (another reliable source of claptrap). The Deep State wants you to use money it can easily control, tax, and confiscate. And paper currency is getting in its way. France has already banned residents from making cash transactions of €1,000 ($1,114) or more. Norway and Sweden’s biggest banks urge the outright abolition of cash. And there are plans at the highest levels of government in Israel, India, and China to remove cash from circulation. Deutsche Bank CEO John Cryan predicts that cash “probably won’t exist” 10 years from now. And here is Mr. Summers in the Washington Post: “Illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds, as would be the case if the $20 bill was the high denomination note.” He proposes “a global agreement to stop issuing notes worth more than say $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years.”

This Is The Real Reason For The War On Cash - These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency. Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin.  The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them.  Criminals will find a way, large bills or not. The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession. Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

Don’t use this crisis to ban cash and banknotes -- There is no better time to test an economic theory than during a period of financial turmoil. Take the old view that interest rates couldn’t fall below zero: we now know that this was nonsense, for better or for worse. The Swedish central bank has just slashed its bank lending rate from -0.35pc to -0.5pc, intensifying its negative interest rate policy. Switzerland has gone even further, and the European Central Bank is at -0.3pc. The Japanese stunned the markets by going negative earlier this year. In all these markets, commercial banks must now pay to keep their cash at the central bank; in turn, negative rates will eventually be passed on to consumers and firms.   That said, the fact that interest rates of -0.5pc or so are manageable doesn’t mean that interest rates of -4pc would be. At some point, the cost of holding cash in a bank account would become prohibitive: savers would eventually rediscover the virtues of stuffed mattresses (or buying equities, or housing, or anything with less of a negative rate).  The problem is that this will embolden those officials who wish to abolish cash altogether, and switch entirely to electronic and digital money. If savers were forced to keep their money in the bank, the argument goes, then they would be forced to put up with even huge negative rates. They would have no choice - and central banks would be able to engage in monetary easing even in a world of zero or negative inflation. They would not be forced to resort to quantitative easing or “helicopter money”.   But abolishing cash wouldn’t actually work, and would come with terrible side-effects. For a start, people would begin to treat highly negative interest rates as a form of confiscatory taxation: they would be very angry indeed, especially if rates were significantly more negative than inflation.

Key Measures Show Inflation close to 2% in January -- The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.9% annualized rate) in January. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.4% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was unchanged (0.3% annualized rate) in January. The CPI less food and energy rose 0.3% (3.6% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for January here. Motor fuel was down 44% annualized in January.

Fed Doves Cry As Core Consumer Prices Jump At Fastest Pace Since August 2011 - This must be transitory, right? Core Consumer Prices surged 0.3% MoM - the biggest jump since August 2011 - and is up 2.2% YoY (the most since June 2012). We assume this will be ignored for a data-dependent Fed that needs to keep the easing dream alive (as long as stocks are off the highs)...Chart: Bloomberg As detailed in the breakdown... this is a 2.2% YoY rise As the details show, inflation is picking up...quickly... The index for all items less food and energy increased 2.2 percent over the past 12 months. This is its highest 12-month change since the period ending June 2012, and exceeds the 1.9 percent average annualized increase over the last 10 years. The index for shelter has risen 3.2 percent over the span, and the medical care index has increased 3.0 percent. In contrast, the indexes for apparel and for airline fares have declined over the past 12 months. The index for all items less food and energy rose 0.3 percent in January. The increase was broad-based, with most of the major components rising, but increases in the indexes for shelter and medical care were the largest contributors. Furthermore, Shelter costs surged 3.7% YoY - the most since October 2008. Wages may be barely growing, but at least rents are soaring - good job Janet.

Atlanta Fed’s US Q1 GDP estimate ticks lower to +2.6% | Atlanta Fed -  The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our new GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release. Recent forecasts for the GDPNow model are available here. More extensive numerical details—including underlying source data, forecasts, and model parameters—are available as a separate spreadsheet. Latest forecast — February 17, 2016:  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 2.6 percent on February 17, down from 2.7 percent on February 12. The forecast for first-quarter real residential investment growth decreased from 16.5 percent to 13.6 percent after this morning's housing starts release from the U.S. Census Bureau.

Leading Indicators February 18, 2016: The index of leading economic indicators fell 0.2 percent in January following a revised 0.3 percent decline in December. Four of this index's 10 components track the factory sector which offers some explanation for the weakness. But the stock market is also tracked and has also been a negative factor. A positive has been the rate spread which remains favorable due to the Fed's still low policy rate though the decrease underway in long rates will limit this component's strength for February. A special negative factor for January was the month's rise in unemployment claims though this component for February looks to be a major positive given the decrease underway this month. Building permits were also a negative for January.

Convinced of the Secular Stagnation Hypothesis -- Larry Summers -- Foreign Affairs has just published my latest on the secular stagnation hypothesis. I am increasingly convinced that it captures what is going on in the industrialized world and that the risks of long term weakness on the current policy path are growing.  Unfortunately since I put forward the argument in late 2013, the data have been all too supportive. Despite monetary policy being much more expansionary than was expected and medium term interest rates falling rapidly, growth and inflation throughout the industrial world have been much lower than anticipated. This is exactly what one would expect if structural factors were increasing saving propensities relative to investment propensities. ... If I am right in these judgments, monetary policy should now be focused on avoiding an economic slowdown and preparations should be starting with respect to the rapid application of fiscal policy. The focus of global coordination should shift from clichés about structural reform and budget consolidation to assuring an adequate level of global demand. And policymakers should be considering the radical steps that may be necessary if the US or global economy goes into recession. Of course, real time economic theorizing is problematic and I cannot be certain that I am reading the current situation accurately. If the Fed succeeds in significantly raising rates over the next two years without a growth slowdown and if inflation accelerates to 2 percent, I will conclude that the secular stagnation hypothesis was overly alarmist in confusing cyclical elements with long term problems. If on the other hand, the economy turns down even at current interest rates, secular stagnation will have to be taken more seriously by policymakers than is currently the case.

Why Would Anyone Want to Make the US More Like Europe? Here are Some Reasons -- Writing in The New York Times, David Brooks expresses amazement that so many millennials are supporting Bernie Sanders, an open admirer of the European model. Why would anyone in their right mind favor “sluggish” Europe over “vibrant” America?  If we focus on data rather than snappy sound bites, the attraction of the European model is clear: European countries, especially the high-income democracies of Northern Europe, make better use of their wealth in supporting a good life for their citizens.  Here is a chart that gives the big picture. The horizontal axis shows GDP per capita. (GDP here is measured at purchasing power parity (PPP) to remove distortions caused by over- or undervalued exchange rates.) The vertical axis shows a measure of human wellbeing called the Social Progress Index (SPI). Unlike some other broad indexes of human welfare, the SPI does not explicitly include income, wealth, or GDP. Instead, it regards them as “inputs” that support the production of “outputs” like health, security, and personal freedoms. Several features stand out in the chart. First, as shown by the black trend line, higher GDP does, on average, contribute to human welfare, although the relationship is far from linear. At low levels of income, growth of real GDP has a strong payoff in quality of life. For middle- and upper-income countries, higher GDP is still associated with improvements to human welfare, but the relationship is not as tight and the payoff to an extra dollar of economic output is less. New Zealand, the country with the highest SPI index of all, has a relatively modest per capita GDP of just over $30,000. Second, we see that the wealthy countries of Northern Europe, shown by the blue dots, all lie above the trend line. . Third, we see that the somewhat less prosperous southern and eastern members of the EU, shown by the red squares, also perform rather well. All of them except Romania, Greece, and Italy lie above the trend line. Some of them, including Estonia, Portugal, the Czech Republic, and Slovenia, have SPI scores nearly as high as the United States despite having only about half the GDP per capita.

Foreign Officials Sell A Record $48 Billion In U.S. Treasurys In December -- There has been much speculation whether foreign official institutions (central banks, SWFs, reserve managers and so on) are selling Treasurys or equities, or both as part of the Quantitative Tightening phenomenon. Moments ago, courtesy of the latest TIC data we have an answer: based on the monthly flow report breaking down Treasury transactions between foreign official and private entities, in December the far more important, former, group sold $48.1 billion in US Treasurys: the highest single monthly outflow on record. This was partially offset by a $12.2 billion purchase by Private buyers, however as the chart below shows, on an LTM basis, December saw a total of $20.3 billion in selling, and was the third consecutive month of net selling by foreigners. This was the first such occurrence in 15 years.

The ‘Downton Abbey’ Generals -- If there is one refrain that officials at the Department of Defense repeat with dogged persistence, it is that our military is underfunded. DOD testimony to Congress brims over with references to budget cuts. This meme has spread to the point where many in the public think that we spend too little on defense. Republican presidential candidates certainly talk as if they believe it. This is despite the fact that the Pentagon’s budget has nearly doubled since 9/11. Adjusted for inflation, we are spending substantially more on the military than the average Pentagon budget during the Cold War.  A related complaint is a purported lack of military personnel. As the saying goes, the military is “stretched thin” and has to “do more with less.” Accordingly, several candidates would increase the “end strength” (the congressionally authorized personnel numbers) of the various services. After hearing this unremitting dirge about military austerity, it may come as a surprise to learn that the Army is soliciting its troops to become full-time aides to generals. What does this involve? According to the Army Times, “duties typically include:

• Maintaining the general’s uniforms.
• Planning and executing official military social events.
• Daily meal preparation, to include menu development, shopping and storing of rations.
• Administrative requirements and record-keeping of finances.
• Household management, to include the upkeep of a general’s assigned quarters.
• Perform other tasks that assist the general in the performance of his or her official duties.”

A National Infrastructure Program Is a Smart Idea We Won’t Do Because We Are Dysfunctional - America’s roads and bridges are in horrible shape. We could fix them up and provide lots of jobs in the process. But we won’t! A new annual survey of our nation’s bridges, out today, finds that one in ten of our nation’s bridges—about 58,000 total—are “structurally deficient,” meaning they are in pressing need of repair. The good news is that that’s 2,500 fewer structurally deficient bridges than in 2014. The bad news: “The current pace of investment would take 21 years to replace or upgrade all the deficient bridges.” It is safe to say that our roads and bridges are going to be in use for a while. For many decades to come. We are not all going to be flying in hovercars in the next five years. These roads and bridges will need to be fixed. The money to fix them will need to spent. The longer we wait to fix them, the worse condition they will be in, the more money it will take to fix them, and the more accidents and transportation delays will be caused by their failures. Interest rates are very low right now on a historical basis. If you ever wanted to, say, borrow a trillion bucks to finance a national infrastructure program to repair our crumbling roads and bridges, this would not be a bad time to do it. Oil prices are extremely low right now. If you ever wanted to, say, impose a gas tax that could be used to fund a national infrastructure program to repair our crumbling roads and bridges, this would not be a bad time to do it. While the official unemployment rate is relatively low, certain demographic segments of our society—particularly young people and minorities—are suffering from high unemployment. If you ever wanted to, say, borrow a trillion bucks to finance a national infrastructure program to repair our crumbling roads and bridges, this would not be a bad time to do it. Oil prices are extremely low right now. If you ever wanted to, say, impose a gas tax that could be used to fund a national infrastructure program to repair our crumbling roads and bridges, this would not be a bad time to do it.

President Obama Sides with U.S. Corporate Tax Cheats - William K. Black -- I have been planning to respond to a January 26, 2016 article in the Wall Street Journal entitled “Washington’s Corporate Purge” that begins with the claim that “Bernie and Hillary compete to drive more U.S. companies overseas.”  My title was going to be:  “WSJ Shills for Tax Cheats and Cheers Race to the Bottom.”  The context was a typical WSJ claim that “A CEO obliged to act in the best interests of shareholders cannot ignore this competitive reality.”  The idea that CEOs “act in the best interests of shareholders” as opposed to the best interests of the CEO is contrary to economic logic and reality, but let’s focus on the claim that as soon as any competitor engages in the race to the bottom on taxes all U.S. CEOs have a “moral” duty to race to the bottom by avoiding paying U.S. taxes.  If that is true, then it is essential to either impose a new form of taxation that corporations cannot evade through such inversion scams.  If a CEO owes a “duty” to evade taxation, surely all couples and parents owe a duty to their spouse/partner and their children to evade taxation.  We can destroy almost any civilization under this “logic” in which tax cheats are the new “normal” and “new moral” exemplars. But as I was preparing to write that article I read with shock (OK, I admit that I was naïve to be shocked at this late date) that the Obama administration is siding with the massive corporate tax cheats.  Instead of cooperating with other governments to end the suicidal race to the bottom or imposing other taxes and penalties on the tax evaders, the administration is demanding that the EU cease cracking down on tax evasion scams by U.S. corporations.  The same Wall Street Journal reported on February 11, 2016 that “U.S. Treasury’s Lew Challenges EU on Corporate Tax Investigations.”  Watching the Obama administration join Murdoch in shilling for U.S. corporate tax evaders and demanding that the EU not attempt to stop the race to the bottom on corporate taxation rather than supporting that EU effort is painful, but no longer surprising.  Hillary Clinton says that we must not point these facts out because doing so is “disloyal” to Obama.  Obama is being disloyal to the American people and the stated principles of his Party when he shills for wealthy corporate tax evaders.  We do any official our greatest service as citizens when we hold them accountable, not when we self-censor.  The President is an elected official, not a saint, and he or she needs us to always speak truth to power.

The Pious Attacks on Bernie Sanders’s “Fuzzy” Economics -- Dave Dayen - Far too much of the Democratic primary has been consumed with determining the boundaries of what is and is not serious. Four former chairs of the Council of Economic Advisers under Presidents Clinton and Obama provided the latest example this week, writing an open letter to castigate a fellow economist, Gerald Friedman of the University of Massachusetts-Amherst. Friedman conducted a study of how the economy would react over the next ten years if Bernie Sanders’s entire program—free college, universal health care, new infrastructure spending, an expanded Social Security, the works—were adopted. And it included some very optimistic numbers: the creation of 26 million jobs over the next ten years, annual economic growth of 5.3 percent, and a return of the labor force participation rate back to 1999 levels. The Sanders campaign didn’t appear to solicit the Friedman study, but it has been citing it to the media. The Democratic CEA chairs—Laura D’Andrea Tyson, Christina Romer, Austan Goolsbee, and Alan Krueger—believe these numbers undermine their efforts “to make the Democratic Party the party of evidence-based economic policy.” They add: “These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.” I don’t feel it necessary to defend Friedman, though it’s worth pointing out that his economic growth numbers would simply eliminate the GDP gap that was created by the Great Recession and was never filled in the subsequent years of slow growth—which should be the goal of public policy, however “extreme” it sounds. What I do want to challenge is the idea that there’s one serious, evidence-based way to perform economic forecasting.

Krugman: too pessimistic about Sanders´ ideas about the economy? -- Will, as Paul Krugman states while trying to debunk the economic ideas of Bernie Sanders, 3,8% unemployment necessarily lead to runaway inflation? I do not mind the debunking (I´m not too interested in USA politics) but I do mind the economics. And the economics 101 answer is ´No, not necessarily´. After 1975 unemployment in Germany was 4% or lower for several years in a stretch. And inflation did not go up. It went down. Notice also that German inflation was quite a bit lower than USA inflation during the entire seventies (graph below), despite lower German unemployment. While inflation in France was higher than in the USA, despite levels of unemployment comparable with German ones. Also, extreme unemployment after 1980 did not lower German inflation that much. Inflation clearly does not just depend on unemployment (or for that matter: money). It is also influenced by the development of productivity and the institutional set up of labour markets. And social-demographic developments, like the very large influx of women into the labour market after 1970 (in South Europe: after 1980 and even later). It´s complicated. The economy is a moving target. Misunderstanding the nature of the unemployment trade off is not the only mistake Krugman makes in his blogpost.He also states that it is bonkers to assume, like Sanders does, that the USA participation rate can return to the 1999 level. But Sanders might in fact be not too optimistic but too pessimistic.  Why should the participation rate not be higher than in 1999? The US of A were about the only country which, after 2008, experienced a large drop in the participation rate. In many other countries this rate is increasing.

In Praise of the Wonk: Dissecting the CEA Letter and Sanders's Other Proposals - Mike Konczal -- There are three points to keep in mind about policy debates: Policy specifics are only one of many considerations voters have when evaluating a candidate, and they’re unlikely to mobilize the base in a polarized age; ideological constraints often determine policy positions; and wonk policy “discussions” can easily become a barrier to exclude people and ideas from the conversation. This has become relevant in the Clinton versus Sanders race, which, as Matt Yglesias notes, is an ideological battle like “Ronald Reagan’s battle with Gerald Ford,” one in which wonks have less of a role to play. That said, I will defend the wonk. I think the wonk analysis is an essential part of the ideological work currently being done and is capable of advancing the progressive project in crucial ways. Working the numbers and the specifics creates clarity, and it forces people to put their cards on the table. In this specific moment, the work of the wonk forces one to justify constraints, lets you know if you are looking in the correct places, gives you a sense of whether the scope and scale of your changes is sufficient, and lets you know the obstacles and enemies you’ll face. And it can be fun! Or fun enough. Let’s go through each of these points with specific examples. We’ll begin with the letter from former CEA chairs attacking economist Gerald Friedman’s estimates of the impact of Sanders’s plan, and then look at some cases where wonk analysis would help the Sanders campaign.

The Goldman Sachs Theory of Capitalism -- Goldman Sachs is at the heart of American capitalism, at the pinnacle of Wall Street. So when the investment bank’s economists start questioning the “efficacy of capitalism,” many people take note. The fretting about capitalism appears in a recent analysis on the US economy’s profit levels, which are at near-record highs. According to GS, the margins — the amount of profit in each unit of national output after the unit cost of labor and raw materials is removed — are sky high for both good and bad reasons. In the first category, they list improved efficiency from new technology and rising profits from overseas investment (as US companies produce more things using cheap labor in so-called emerging markets). They view “financial engineering” less positively. Rather than investing in new technology, corporations have increasingly borrowed money at cheap rates and bought back their own shares to raise their stock price. They have also boosted their speculation in financial securities because the returns on stocks or bonds have exceeded those for investing in new plants or offices or projects. Purchasing another company to suck up profits has proved much more lucrative than greenfield investment. But, the GS economists maintain, the efficiency of capitalist markets will limit this profit bonanza. Under mainstream economics’ law of diminishing returns, or “marginalism,” the more you have of something now the less you will get in the future. So the high profit margins should gradually decline and profit margins should revert to some mean average as new competitors enter the market looking for windfall gains.

Only the Fed can save stocks now: Deutsche Bank: The prolonged sell-off in risk assets across the globe will only abate if the U.S. Federal Reserve changes its path and begins to loosen its monetary policy once again, according to strategists at Deutsche Bank. Chinese growth fears, stress in the U.S. energy sector and fragile balance sheets in European financial companies have all been credited in the last week for fueling the sell-off. However, there's only one real cure for this current bout of weakness, according to a team of European equity analysts at the German bank, led by Sebastian Raedler. "Without policy intervention, there is more downside risk for equities," the bank said in a note entailed "The smell of default" on Monday.A major focus for the analysts has been rising bond yields on riskier corporate debt in the U.S.. This has been seen as a sign of an end of the current credit cycle, which in turn could that could pave way for a number of defaults in the country, the bank noted. Raedler said that U.S. high-yield spreads – the difference between investment grade and non-investment grade bonds - have risen above their 2011 peak and warned of the potential for a self-fulfilling "full default cycle." He highlighted the stress had started with energy firms - that have been hit by the oil price plunge – but added that it wasn't confined to this sector "To avoid a further rise in U.S. defaults, we will likely need to see a Fed relent, leading to a sustainable drop in the dollar, higher oil prices and reduced energy balance sheet stress," the bank said in the report.

Beware Economists Bearing Multiple Reasons - "If you have more than one reason to do something, just don't do it. It does not mean that one reason is better than two, just that by invoking more than one reason you are trying to convince yourself to do something. Obvious decisions (robust to error) require no more than a single reason." ― Nassim Nicholas Taleb, ​  Not only do people use multiple reasons for doing something to convince themselves, but also to convince others.  Recently Bloomberg borrowed my work (without citing) to discuss the Crypto-E-dollar. My piece was a warning, but Bloomberg portrayed the E Dollar as a viable solution strictly for economic reasons.  Today they ran a new story on banning high denomination cash to aid law enforcement.  They cited a paper done by a Harvard economist, Peter Sands, entitled Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes.   One should be immediately suspicious, why would an economist write a paper about law enforcement?  Wouldn't this plea have been better suited to a criminal justice professor?  My mind went back to Nassim's quote.  This paper is not to present facts but to convince the reader of something.  The range of bills he uses as an example have a current value ranging from $74 to $1010.  Quite a range isn't it?  The supposed goal of this paper is to make cash so cumbersome that it is not viable as a criminal medium of exchange.  A stack of fifties, of the same value, would take up only twice the room as a stack of hundreds, hardly a deterrent.  Google "tens and twenties unmarked bills" and you will find countless references to criminals using these denominations as well.  For reference a $10,000 stack of ten dollar bills would be 4.3 inches high.  Now consider that  criminals have little choice but to use cash, at what point would they decide to use a different medium of exchange?  I'm guessing if the ten dollar bill were to be eliminated criminals would opt to use something else such as gold.   Maybe not so ironically, when economist Willem Buiter discusses banning cash he allows the caveat of leaving denominations five dollars and below for older people who don't feel comfortable with electronic payments.

A Contagious Crisis Of Confidence In Corporate Credit - Credit is not innately good or bad. Simplistically, productive Credit is constructive, while non-productive Credit is inevitably problematic. This crucial distinction tends to be masked throughout the boom period. Worse yet, a prolonged boom in “productive” Credit – surely fueled by some type of underlying monetary disorder - can prove particularly hazardous (to finance and the real economy). Fundamentally, Credit is unstable. It is self-reinforcing and prone to excess. Credit Bubbles foment destabilizing price distortions, economic maladjustment, wealth redistribution and financial and economic vulnerability. Only through “activist” government intervention and manipulation will protracted Bubbles reach the point of precarious systemic fragility. Government/central bank monetary issuance coupled with market manipulations and liquidity backstops negates the self-adjusting processes that would typically work to restrain Credit and other financial excess (and shorten the Credit cycle). A multi-decade experiment in unfettered “money” and Credit has encompassed the world. Unique in history, the global financial “system” has operated with essentially no limitations to either the quantity or quality of Credit instruments issued. Over decades this has nurtured unprecedented Credit excess and attendant economic imbalances on a global scale.This historic experiment climaxed with a seven-year period of massive ($12 TN) global central bank “money” creation and market liquidity injections. It is central to my thesis that this experiment has failed and the unwind has commenced. The U.S. repudiation of the gold standard in 1971 was a critical development. The seventies oil shocks, “stagflation” and the Latin American debt debacle were instrumental. Yet I view the Greenspan Fed’s reaction to the 1987 stock market crash as the defining genesis of today’s fateful global Credit Bubble.

High risk of bankruptcy for one-third of oil firms: Deloitte | Reuters: Roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt, according to a study by Deloitte, the auditing and consulting firm. The report, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs. The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday. "These companies have kicked the can down the road as long as they can and now they're in danger of kicking the bucket," said William Snyder, head of corporate restructuring at Deloitte, in an interview. "It's all about liquidity." While 95 percent of oil producers can produce crude for less than $15 per barrel - a testament to cost savings and technological improvements since mid-2014 when only 65 percent of producers could produce near that level - that may not be enough for some, Deloitte found. Producers are on track to slash budgets again this year, the first time that has happened consecutively since 2016, though many have said prices must rise further to boost profitability.

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High - At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.  Record high US Energy credit risk... The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs. The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday. "These companies have kicked the can down the road as long as they can and now they're in danger of kicking the bucket," said William Snyder, head of corporate restructuring at Deloitte, in an interview. "It's all about liquidity." Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.  "2016 is the year of hard decisions, where it will all come to a head," John England, vice chairman of Deloitte, said in an interview.

Cheap Oil and the Stock-Market Freakout - Since December, there’s been a nearly ninety-per-cent correlation between oil prices and stock prices. When oil has dropped, stocks have followed, and when oil prices have stabilized, stocks have tended to rise. This is historically unusual, and it’s confusing, too. There are only a few parts of the stock market where cheap oil is legitimately bad news—oil producers and suppliers, obviously, and also banks that have lent money to American shale-oil drillers. For most companies, though, cheap energy is a boon. It lowers operating costs and gives consumers more money to spend. Yet even companies that reap huge benefits from cheap oil are currently taking a beating. Airline stocks have tracked the price of oil almost perfectly, even though cheap oil saved the four major American carriers more than eleven billion dollars last year. So why does the market see cheap oil as a curse rather than as a blessing? There are a couple of reasons. First, investors fear that oil prices are telling us something important about the state of the global economy. The idea is that oil is cheap because global demand—and, in particular, demand from China—is weak. This sounds plausible, but the oil market is an incredibly cloudy crystal ball. Take the summer of 2008. At the time, the global economy was already in recession, thanks to the bursting of the housing bubble. Yet, week after week, oil prices kept climbing, peaking at a record hundred and forty-seven dollars a barrel. Oil prices revealed nothing at all about future demand, which was about to collapse; they were disconnected from what was happening in the global economy. One could tell a similar story about 1986, when oil prices tumbled by almost seventy per cent in the space of four months. Was that decline a harbinger of an economic downturn in the U.S.? No: the U.S. economy continued to motor along for years afterward.

Sudden Death? Junk-Rated Companies Headed for Biggest “Refinancing Cliff” Ever – Moody’s  - Wolf Richter - Most of the defaults, debt restructurings, and bankruptcies so far this year and last year were triggered when over-indebted cash-flow negative companies could not make interest payments on their debts.  During the crazy days of the peak of the credit bubble two years ago, they would have been able to borrow even more money at 8% or 9% and go on as if nothing happened. But those days are gone. Now the riskiest companies face interest costs of 20% or higher – if they’re able to get new money at all. Hence, the wave of debt restructurings and bankruptcies.  But that’s small fry. Now comes the wave of companies whose debts mature. They will have to borrow new money not only to fund their interest payments, cash-flow-negative operations, and capital expenditures, but also to pay off maturing debt.  That “refinancing cliff” is going to be the biggest, steepest ever, after the greatest credit bubble in US history when companies took on record amounts of debt, and it comes at the worst possible time, warned Moody’s in its annual report.  In its report a year ago, Moody’s had already warned that the refinancing cliff for junk-rated US companies over the next five years – at the time, from 2015 through 2019 – would hit $791 billion. Of that, $349 billion would mature in 2019, the largest amount ever to mature in a single year. Since then, the refinancing cliff has gotten a lot bigger, according to Moody’s new annual report. The amount in junk-rated debt to be refinanced over the next five years, from 2016 through 2020, has surged nearly 20% to a record of $947 billion. This is an increasingly steep cliff, with the largest portions due in the later years of the period, including $400 billion to mature in 2020, the highest amount of rated debt ever to mature in one year. Moody’s Senior Analyst Tiina Siilaberg warned that there would be “a significant wave of new issuance in late 2016 and 2017.” At the worst possible time – because “a range of macroeconomic factors will make it more difficult for lower-rated companies to tap the debt capital markets in order to refinance their debt obligations.”

Bank of America: "Corporate Balance Sheets Are The Most Unhealthy They Have Ever Been" -- BofA's HY credit strategist Michael Contopoulos, whose work we have recently presented on several occasions, has been rather dour over the past year on the future of HY debt, as the junk bond market first descended into purgatory, and then right into the 9th circle of hell, courtesy of a collapse in the energy sector unlike anything seen in history.... a collapse which virtually everyone admits will spread into all other sectors and products: it's just a matter of time. However, rarely if ever have we heard Contopoulos as downright apocalyptic as he is in his latest note, "A Minsky Moment", which has to be read to be believed, if only for the selected excerpts below: With a view that the market will eventually price in a much worse default environment than it is currently, we are left trying to determine when peak spreads will occur and for how long they will last. Unfortunately, when peak spreads are reached is not consistent across time periods, making it difficult to time the optimal entry. For example, in 1989 spreads peaked 178 days before the default rate peaked, in 2002 it was 165 days after, and in 2008 it was 290 days before (Chart 2). Convoluting the picture today is that the Energy default rate has the potential to skew that of the overall market. For example, if high yield E&P companies realize a 50% default rate this year and the rest of Energy experiences a 25% default rate, the Energy component of the market default rate could be nearly 6ppt. If the rest of the market experiences just a 4ppt rate, the market could realize double digit default rates in 2016, despite a relatively benign  non-commodity contribution.

The Financial Times’ Revisionist History on Hedge Funds’ Failure to Deliver Manager Outperformance, or Alpha -- Yves Smith - A remarkable airbrushing of the state of knowledge about hedge fund returns unwittingly demonstrates how long it takes investors who are desperate for a free lunch, in terms of outperformance without taking commensurate outsized risk, to give up on fantasies. It appears to take eight to nine years.   Let’s be clear about the implications of the Financial Times story: Either by accident or design, it makes it sound as if investors just woke up to the fact that hedge fund performance is not what it is cracked up to be, and are embracing new products that offer some of the desired attributes of hedge funds (having performance not correlated much with that of other asset classes) at lower cost.  Earth to Financial Times: this was old news as of when I started blogging, in 2006,as NC archives attest. And those supposedly newfangled products existed back in the pre-crisis stone ages too. Here’s the claim in the Financial Times article: Hedge fund managers are arguably the celebrity chefs of the money management industry. They are best able to whip up returns that make investors drool. But financial engineers are unpicking their secret sauce and finding new ways to sell it by the bottle… In contrast, hedge fund managers attempt to deliver “alpha”, the returns over and above the market itself, through a staggering array and diversity of strategies, ranging from betting on global currency movements to surfing on the corporate acquisitions boom.That story line is a complete crock. Hedge fund managers, well before 2008, were widely acknowledging that they did not deliver alpha, or manager outperformance, and were explicitly marketing the idea that they still provided something worth paying for, which they called “synthetic” or “alternative” beta. Not only did we point out then that investors could construct these exposures for far less money than the prototypical hedge fund “2 and 20” performance fees (2% annual management fee, 20% of the upside performance over a specified benchmark), but we noted that there were established funds back then doing precisely that.

Victims of the Mexican Drug War Are Suing the Banks that Handled the Cartel's Money -- A group of families in the United States whose relatives were killed by Mexican drug cartels filed a lawsuit against the large financial institution HSBC this week, alleging that the bank's admitted laundering of roughly $881 million for the Sinaloa, Juárez, and Los Zetas cartels played a key role in the deaths of their loved ones. "Money laundering is the lifeblood of the Mexican drug cartels, enabling them to construct a façade of legitimacy through which they establish, continue, and grow their global enterprises," the families' lawyers wrote in the complaint filed in federal court, alleging that cartels use that money to buy the weapons, vehicles, and the public officials needed to operate. "Thus, by facilitating the laundering of billions of dollars of drug cartel proceeds through its banks, HSBC materially supported the terrorist acts of the cartels, including the terrorist acts committed against the [families]. "The suit was brought on behalf of four families who are all US citizens: the Zapata family, the Avila family, the Redelfs family, and the Morales family. Each lost at least one family member to cartel violence and, in some cases, two. . "During the time period leading up to the attacks on the [victims], HSBC knowingly laundered billions of dollars for the Mexican cartels who committed the attacks, including the Sinaloa, Juárez, and Los Zetas Cartels, knowing or deliberately disregarding the fact that said funds would be used to support the Mexican cartels and their terrorist acts against Mexican and U.S. citizens," the complaint alleges.

Are Asset Managers Vulnerable to Fire Sales? - NY Fed - According to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete and then explore some of the systemic risk consequences of investment funds’ vulnerabilities to fire-sale spillovers.

NY Fed warns asset managers are vulnerable to ‘runs’ - Financial Times -- The New York Federal Reserve has warned that asset managers are vulnerable to quasi-bank runs that can cause “significant negative spillovers” across financial markets. The combination of deteriorating trading conditions — especially in corporate bonds — combined with the swelling of the US mutual fund industry that promises investors the ability to redeem money at a moment’s notice has become an increasing concern for some policymakers, fund managers and analysts.While the NY Fed’s researchers have argued that bond market “liquidity” is not as bad as many traders and analysts maintain, they have examined the vulnerability of mutual funds to a sudden spurt of investor withdrawals, and concluded that they are indeed susceptible to “runs” despite not using leverage. “The price dislocations that follow after large redemptions and liquidations are quite significant and have market-wide implication,” the NY Fed’s researchers said on the central bank’s Liberty Street Economics blog. “Investors seem to have become more skittish since the crisis and are quicker to redeem shares, and in larger amounts, for a given degree of underperformance.” The analysts simulated a scenario where Treasury bond yields suddenly and permanently rose by 1 percentage point across all maturities, and the investor redemptions that might cause the knock-on impact on markets. The concern is that while most funds have cash buffers to deal with redemptions when they suffer smaller losses, big hits can cause withdrawals that overwhelm these cash reserves and force asset managers to sell hard-to-trade securities. That may in turn require them to sell at fire sale prices, hurting the fund’s performance further. This means that investors have an incentive to withdraw their money early — triggering a similar dynamic as in a bank run and hurting markets more widely. “The market-wide price impact of liquidations, in turn, can produce spillovers,” the NY Fed article warned. “Any investors holding the assets that were forcibly sold will suffer mark-to-market losses even if they had nothing to do with the funds that sold the assets in the first place, or with the initial redemptions.

Banks are still the weak links in the economic chain - FT.com  - Why have the prices of bank shares fallen so sharply? A part of the answer is that stock markets have declined. Banks, however, remain the weak link in the chain, fragile themselves and able to generate fragility around them. Between January 4 and February 15 2016, the Standard & Poor 500 index fell 7.5 per cent while the index of bank stocks fell 16.1 per cent. Over the same period, the FTSE Eurofirst 300 fell 9.5 per cent, while the index of bank stocks fell 19.5 per cent. The decline of European stocks was a little bigger than that of US ones but the underperformance of the European banking sector was similar. Relative to the overall US market, the index of shares in US banks fell 9.1 per cent, while that of European banks fell 11 per cent relative to European markets — and so only a bit more. The dire performance of European banks becomes more evident if one takes a longer view. Bank stocks have failed to recover the huge losses they suffered in the wake of the financial crisis of 2007-09. On February 15 2015, the S&P 500 was 23 per cent higher than on July 2 2007 but the US banking sector was still 51 per cent below where it had been then; the FTSE Eurofirst was 21 per cent below its 2007 level, reflecting the botched European recovery, but its banking sector was down by 71 per cent. In the European case a decline of 40 per cent in the value of bank stocks would return them to the 2009 nadir. So what might explain what is going on? The short answer is always: who knows? Mr Market is subject to huge mood swings. Yet a vital consideration, particularly in the US market, is that Robert Shiller’s cyclically adjusted price-earnings ratio is at levels substantially exceeded only in the stock market bubbles that peaked in 1929 and 2000. Investors might simply have realised that the downside risks to stocks outweigh the upside possibilities. Plausible worries could also have triggered such a realisation. Of such worries, there is no lack.

Fed's Kashkari Says "We Won't See Next Crisis Coming", Compares Banks To Risky Nuclear Reactors -- Coming as a replacement to perhaps the biggest dove in Fed history, few were expecting former Goldman and Pimco staffer Neel Kashkari to be as vocally outspoken on a topic that is so near and dear to regulators everywhere: their own cluelessness, and more importantly, the topic of "too big to fail" banks, which according to the Fed are a pillar of stability in an unstable world, and which according to Kashkari are anything but. It is doubly surprising because it was none other than Kashkari himself who served as one of the key architects of the bank bailout plan in the aftermath of the financial crisis. As MarketNews reports, "having seen the financial crisis first-hand while at the U.S. Treasury Department, the Federal Reserve's newest regional bank president Neel Kashkari Tuesday said he is concerned that the largest banks are still too big to fail and perhaps should be broken up into smaller units."  Kashkari, who assumed the leadership of the Minneapolis Federal Reserve Bank in November, said his bank is drafting a plan by the end of the year to end the threat he sees posed by the largest banks to bring down the financial system.  If anyone should know, Neel it is: he worked at two of the most systematically important firms in history: first Goldman, then Pimco. Kashkari also oversaw the Treasury Department's Troubled Asset Relief Program, known as the TARP, which parceled out bail-out funds to recapitalize many banks large and small, even to some critics said did not need the help. Originally an aerospace engineer, Kashkari lost his bid to unseat Jerry Brown as governor of California in 2014.

Former Goldman Sachs’ Guy Is Channeling Bernie Sanders -  Pam Martens -- What is it about Goldman Sachs that makes so many people want to go rogue? There is the brilliant Nomi Prins, a former Managing Director at Goldman, who called the firm an “autocratic and hypocritical organization” in her groundbreaking 2004 book Other People’s Money: The Corporate Mugging of America. On March 14, 2012, Goldman Sachs VP Greg Smith tendered his resignation with a scorching oped in the New York Times, lamenting “how callously people talk about ripping their clients off,” and noting that he had witnessed “five different managing directors refer to their own clients as ‘muppets.’ ” After Carmen Segarra made 46 hours of secret recordings at Goldman and handed those recordings to ProPublica and public radio’s This American Life, the U.S. Senate hauled the President of the New York Fed, Bill Dudley, into a hearing for some answers.  Segarra says she was fired in retaliation for refusing to change her findings on Goldman Sachs.Against that backdrop, along comes Neel Kashkari, a former Vice President of Goldman Sachs who became Assistant Secretary of the Treasury during the financial crisis and oversaw the Troubled Assets Relief Program (TARP). On January 1, Kashkari became President of the Federal Reserve Bank of Minneapolis and is calling for the same outcome as Senator Bernie Sanders: breaking up the biggest banks that are still too-big-to-fail and would require another taxpayer bailout if they went under.  In a speech yesterday at the Brookings Institution, Kashkari said a bold range of options should include:

• Breaking up large banks into smaller, less connected, less important entities;
• Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant);
• Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.

Ex-Goldmanite , Now Minneapolis Fed President Neel Kashkari Calls for “Transformative” Changes to Banks, Ending TBTF, Even Regulating Them as Utilities -- Yves Smith - What does one make of it when someone whose career has been based on having powerful friends and contacts at the top levels of the financial services industry appears to be acting as a traitor to his class? In this case, the apparent turncoat is one Neel Kashkari, ex Goldman, ex Treasury, ex Pimco employee, now the new President of the Minneapolis Fed, who in his first speech in his new job, said all sorts of unpleasant truths: the financial crisis imposed huge costs on society as a whole, Dodd Frank didn’t go far enough, the authorities won’t be willing to risk using untested new powers in a financial meltdown and will bail out banks again. He also argued that the financial system was now stable enough to make (by implication overdue) transformative changes to end the “too big to fail” problem, such as breaking up banks and regulating them like utilities. Kashkari plans to come up with a comprehensive plan by year end and is seeking public input, including having expert discussions that will be webcast. Now readers might think I’ve gone soft in the head by virtue of having an insider advocate some of our pet ideas, like treating banks like utilities, when I tell you there are reasonable odds that Kashakri is serious. As much as there was a great deal to like in his speech, I feel compelled to comment on a couple of issues before turning to the big question of “What to make of this?”

Fed President and Assistant Treasury Secretary Says What Everyone Knows: We Need to Break Up the Big Banks -- The President of the Federal Reserve Bank of Minneapolis – who oversaw the Troubled Asset Relief Program (TARP) as Assistant Secretary of the Treasury for Financial Stability (Neel Kashkari) – says that the nation’s biggest banks remain too big to fail and pose significant risk to the economy. Kashkari joins the following top economists and financial experts who believe that the failure to rein in the “too big to fail” banks is unacceptable:

• Current chair of the Federal reserve, Janet Yellen (and see this)
• Former chairman of the Federal Reserve, Ben Bernanke
• Former chairman of the Federal Reserve, Alan Greenspan
• Former chairman of the Federal Reserve, Paul Volcker
• Former Secretary of the Treasury Secretary, Hank Paulson
• Former Secretary of Labor, Robert Reich
• Current Vice Chair and director of the Federal Deposit Insurance Corporation – and former 20-year President of the Federal Reserve Bank of Kansas City – Thomas Hoenig (and see this)
• Nobel prize-winning economist, Joseph Stiglitz
• Nobel prize-winning economist, Ed Prescott
• Nobel prize-winning economist, Paul Krugman
• Chief Stability Officer at the Bank of England, Andrew Haldane (and see this and this)
• Former Federal Reserve Bank of New York economist and Salomon Brothers vice chairman, Henry Kaufman
• Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
• Former chief economist for the International Monetary Fund, Simon Johnson (and see this)
• Former President of the Federal Reserve Bank of Dallas, Richard Fisher (and see this)
• President of the Federal Reserve Bank of St. Louis, James Bullard
• Deputy Treasury Secretary, Neal S. Wolin
• The Congressional panel overseeing the bailout (and see this)
• The former head of the FDIC, Sheila Bair
• The head of the Bank of England, Mervyn King
• The Bank of International Settlements (the “Central Banks’ Central Bank”)
• The International Monetary Fund
• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
• Economics professor and senior regulator during the S & L crisis, William K. Black
• Leading British economist, John Kay
• Economics professor, Nouriel Roubini
• Economist, Marc Faber
• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
• Economics professor, Thomas F. Cooley
• Economist Dean Baker
• Economist Arnold Kling
• Chairman of the Commons Treasury, John McFall
• The Director of Research at the Federal Reserve Bank of Dallas, Harvey Rosenblum
• Director, Max Planck Institute for Research on Collective Goods, Bonn, and Professor of Economics, University of Bonn, Martin Hellwig

And the head of the New York Federal Reserve Bank – and former Goldman Sachs chief economist – William Dudley says that we should not tolerate a financial system in which certain financial institutions are deemed to be too big to fail. Federal Reserve Board governor Daniel Tarullo also backs a cap on the size of banks, and Former Treasury secretary under Reagan and George H.W. Bush, Nicolas Brady, says that we need to put a cap on leverage.

Monetary Policy and Ending Too-Big-To-Fail - Narayana Kocherlakota - My successor as Minneapolis Fed President, Neel Kashkari, gave his first speech in his new role today. I congratulate him on a well-worded and stimulating set of remarks. He argued passionately in favor of imposing much tighter restrictions on the nation’s largest financial institutions, including possibly requiring them to hold a lot more capital or breaking them up. In this post, I’ll comment on two monetary policy aspects of his proposals. The first is how they would interact with the effective lower bound on nominal interest rates. The second is that monetary policymakers need to get even better at “cleaning up” after crises, given how hard crises are to prevent. My first comment is that adopting President Kashkari’s proposals when interest rates remain near their lower bound would have adverse macroeconomic consequences. Almost by design, higher capital standards mean that banks face higher financing costs (in part because debt is subsidized by the tax code). At least some of those higher financing costs would be passed along in the form of lower rates of return to savers and higher interest rates to borrowers. To compensate for these effects, the Fed would have to target a lower range for the fed funds rate. That would not be a problem if the fed funds rate were well into positive territory. But it could create distinct macroeconomic challenges when the Fed is constrained in terms of the stimulus that it can provide..

Fed’s Kashkari: 25% Capital Requirement May Be Right for Banks - WSJ -- The Federal Reserve Bank of Minneapolis’s new president, Neel Kashkari, called on Tuesday for policy makers to consider breaking up big banks, among other options, to prevent future government bailouts. Mr. Kashkari—a former Treasury Department official, unsuccessful Republican candidate for governor of California and alumnus of Goldman Sachs Group Inc. and Pacific Investment Management Co., or Pimco—met later in the day for a conversation with reporters and editors of The Wall Street Journal. Here is a transcript of the interview, lightly edited for length and clarity.

Kashkari’s Nuclear Option: Turn Wall Street Mega Banks Into Public Utilities -  Pam Martens - Neel Kashkari, the newly installed President of the Federal Reserve Bank of Minneapolis, shook things up earlier this week by suggesting options to deal with Wall Street’s too-big-to-fail banks that include breaking them up, as Senator Bernie Sanders has suggested, or regulating them like public utilities such as nuclear power plants. The nuclear power plant regulatory regime analogy was not a good one. In fact, that’s how we’ve been regulating the complex, high-risk banks with the same kind of catastrophic outcomes to the public in terms of economic impact: think Chernobyl disaster in 1986; Fukushima Daiichi nuclear disaster in 2011; versus global financial meltdown in 2008 resulting from inept regulatory oversight.  In fact, just ten days before Kashkari spoke on February 16, CNN was reporting that radioactive tritium was leaking into groundwater at the Indian Point nuclear power plant in Buchanan, New York.  Kashkari is not the first to suggest regulating the mega Wall Street banks like public utilities. In 2011, while President of the Kansas City Fed, Thomas Hoenig suggested something similar. After Hoenig became Vice Chairman of the Federal Deposit Insurance Corporation, he delivered an address at the Levy Economics Institute in 2013 where he said that the banks had not been tamed since the crisis, were taking on ever greater levels of risks and that he believed “ever-more complex regulations will follow in an attempt to control these banks’ actions and the risk to the safety net that protects them.  Over time I suspect the industry will be treated like and eventually become public utilities.”

Break up big banks? Why size isn't the real issue – Thoma -  Banks that were "too big to fail" came into public consciousness during the Great Recession, but despite some legislative and regulatory effort to eliminate that problem, they haven't really gone away. And now with the 2016 presidential campaign in full swing, both Bernie Sanders and Hillary Clinton are once again calling for an end to banks that are too big to fail. And they've found an ally in the Minneapolis Federal Reserve Bank's new president, Neel Kashkari, even though he's a Republican. Kashkari made waves this week by starting his new job with a pledge to urge Congress to tackle what he sees as a major flaw in the U.S. financial system: giant banks that need breaking up. Still, the overarching question remains: Will breaking up American's biggest banks make the financial system safer? Let's examine some of the issues involved. During the Great Depression, banks were relatively small compared to today, yet that didn't stop a wave a small bank failures from inducing a bank panic and financial meltdown. The failure of a large number of small banks can be just as problematic as the failure of a few large banks. When banks are highly interconnected, the failure of one institution can cause a wave of subsequent failures. This type of arrangement is common in the nontraditional banking system, which includes investment banks, hedge funds, mutual funds, mortgage companies and other such institutions. If the first bank can't make its payments because the loan didn't pay off, the second bank will find itself short of funds and in trouble as well. And that trouble can be passed down the line, inducing a "domino effect" of bank failures. Thus, regulations that limit the degree of interconnectedness between banks can do more to prevent bank failures than simply breaking big banks into smaller pieces.

Too Big To Fail: What Breaking Up the Banks Wouldn't Fix - Chris Arnade - Nearly a decade ago, as the entire financial system was collapsing, the bank where I worked, Citibank, was deemed too big to fail. Many other banks were also in the same situation, and also bailed out and allowed to live. And live on they do. Today Citibank, and the other banks, are just as big. This is causing some policy makers to worry. Neel Kashkari, who helped structure the bailout, is now president of the Federal Reserve Bank of Minneapolis. On Tuesday he gave a speech, stating that those big banks pose an “ongoing risk to our economy.” It was an impressive speech and surprising given his past as both a Goldman Sachs banker and as a “free-market” Republican. It also angered many bankers and politicians, because he voiced a secret of Wall Street: Despite Dodd-Frank, despite claims to the contrary by some politicians, “the largest banks are still too big to fail (TBTF).” One of his proposed solutions—breaking up the banks—puts him in the same company as Bernie Sanders and a handful of other politicians. Doing so would go some of the way toward improving bank governance: If the government turns Citibank into ten smaller Citibanks, they will probably be better managed, since too big to fail is also too big to manage. Additionally, some might start doing things differently from the rest, even innovating. But it wouldn’t address the other major ongoing failure of our financial system, namely that banks are taking on too much risk, and in the process endangering the entire economy and necessitating occasional bailouts. When the economy gets into trouble those 10 smaller Citibanks will probably all get into trouble exactly at the same time, requiring 10 smaller bailouts, or one large bailout of the “markets.”

The Fed’s interest payments to banks - Ben Bernanke and Don Kohn -- At Janet Yellen’s recent hearing before the House Financial Services Committee, a few representatives expressed concern that the Federal Reserve is making interest payments to banks. Specifically, the Fed uses authority granted by Congress in 2008 to pay interest on the reserves that banks hold with it. Total payments to banks last year were about $7 billion. Why is the Fed paying such sums to banks? Are they “giveaways” to the financial sector, as some have implied? We’ll argue in this post that the interest payments the Fed is making are well-justified. In particular, they are essential to prudent monetary policy in current circumstances and do not unduly subsidize banks.

Money and Banking – The Fed and Monetary Policy - naked capitalism Yves here. Get a cup of coffee. This is a very readable, information-rich post on what the Fed does and does not do, with emphasis on the nitty-gritty of monetary policy. If you are time-pressed, read the last item in the FAQ first, which is a terse item-by-item debunking of widely made, inaccurate statements about the Fed.  By Eric Tymoigne. Originally published at New Economic Perspectives. Previous posts studied the balance sheet of the Fed, definitions and relation to the balance sheet of the Fed, and monetary-policy implementation. In this post, I will answer some FAQs about monetary policy and central banking. Each of them can be read independently.

Cyber Security and the Financial System – What Do Governments Want from the Banks?  - naked capitalism Yves here. I want to amplify Clive’s point below about “the War on Terror has been around for a while, so why all the noise-making about bank “cybersecurity” now? A contact was a consultant to the Treasury Department on “terrorist finance” in the Bush Administration. This was seen as such a big issue that he could get the head of the ECB, Claude Trichet, on the phone.  With all the predictability of night following day, governments are – in the way that only our governments can – combining both aggressive, ambitious talk with a curious helplessness in warning banks (that’s the aggressive bit) they really should be Doing Something about (that’s the helpless bit) the risks posed by terrorists, rogue states and badly behaved dogs (okay, I made that last one up) to the stability and availability of the finance system. Here, for example, is the Financial Times taking to the fainting couch “Cyber attacks set to jump in 2016 after Iran deal, Israel warns” (you may need to search on the title) after having an Israeli-induced attack of the vapours over the possibility that the financial system may be targeted by countries and groups which the US has annoyed.  That august body the IMF got in on the act too in their most recent Financial Sector Assessment Program note which wagged its finger thusly (pg. 20): Operational risks: Cybersecurity threats, infrastructure vulnerabilities, and other operational risks remain a top priority for the (Financial Stability Oversight Council (FSOC)), and regulators should continue to take steps to improve financial institutions’ ability to prevent operational failures and improve resiliency. If reports like that one in general, and paragraphs like that one in particular, have the same effect on you as they do on me, you may well have glossed over the details of this quote but please do summon your strength and study the language used carefully despite its attempts to make heavy the eyelids. This item was “number 3” in the IMF’s threat hit parade so we (and the FSOC) are presumably meant to take it seriously. But it is very light on prescriptive action.  You cannot work out who is supposed to be getting whom to do what, and how. There’s a reason for that which we’ll elaborate on in our concluding section of this article.

Cyber Security and the Financial System – Why Technology Snake Oil Sells naked capitalism - Part 2 of 2 – If Only There was Something We Could Do… In Part 1, we examined how US and European governments – mindful of the fragility and vulnerability of the global financial system to threats from cyberterrorism – nevertheless still stood for the most part passively by, like the princess trapped in her tower looking out wistfully waiting for rescue. Her very own Prince Charming came, too, riding on a white horse, bearing a trusty sword and carried her off to safety where they both lived Happily Ever After. Well, I hate to be the one to break this to you sweethearts, but the big banks (the Too Big to Fails, or TBTFs) are no one’s Prince Charmings. In fact, they’re about the worst cads out there. The nub of this is that old problem of, on the one hand, the banks like to pretend that they’re just like Starbucks or Macy’s and can safely be left to their own devices without any of that annoying government interference – but then something comes along that makes politicians realise that simply isn’t true and finance (especially money transmission) is important to the functioning of modern societies. In this case, that “something” is the necessity to provide system resilience – and even hardening – and a degree of survivability in the event of an attack. Or to protect the system from failures caused by the incompetence of the system operators.  From my vantage point inside the industry, the latter is much more of a threat than scary-sounding but fairly improbable sophisticated large-scale multi-target cyberattacks.

Fannie Mae at risk of needing a bailout - Fannie Mae, the state-sponsored US mortgage backer, is at risk of needing a government bailout that could shake confidence in the housing finance market, senior officials have warned. Fannie Mae’s chief executive and its regulator are sounding the alarm on a decline in the institution’s capital cushion, which is on course to vanish in 2018, when it would have to ask the US Treasury for emergency funds. Their warnings highlight Washington’s inaction on housing policy and its failure to reform the institution, which guarantees nearly $3tn of securities and enables 30-year fixed rate loans, following the last financial crisis. Since 2008 Fannie Mae has been in the post-crisis limbo of state-sponsored “conservatorship”, neither fully nationalised nor private, following several unsuccessful attempts by Congress to overhaul it. Because the government does not let Fannie Mae retain profits, Tim Mayopoulos, its chief executive, told the Financial Times on Friday that its capital buffer, which has dwindled from $30bn before the crisis to $1.2bn today, was on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership. So far investors who own Fannie Mae’s mortgage-backed securities have not been spooked, Mr Mayopoulos said, but he added: “We are a major source of liquidity to the mortgage markets and it would be better to avoid testing the market as to what the breaking point is well in advance of us getting to that point.”

Why Commercial Real Estate Is Next: 'Challenging Technicals' Are About To Become 'Weak Fundamentals' -- Whoever said that real estate is all about location, location, location didn’t really have to worry about financing. Of course location matters for real estate investing, but the post-crisis evolution of the US real estate markets – both commercial and residential – says a lot about the role of financing, or more broadly, financial conditions in markets. In fact, the moral of this tale of two markets has broader ramifications for the economy. The role of the real estate bubble in what became the Great Financial Crisis (GFC) is now too well known to be rehashed. It is worth highlighting that though prices of both US residential and commercial real estate fell hard, the post-crisis recovery that followed evolved very differently. Residential real estate recovered much later and more slowly. Commercial real estate bottomed in January 2010 after falling 40%. In the six years since, commercial real estate prices have risen 96% and now sit 17% above pre-crisis peaks. On the other hand, residential real estate didn't find a bottom until over two years later in February 2012 after falling a more modest 27%. Since that bottom, residential real estate prices have only climbed 31% and are 5% below pre-crisis peaks. The residential real estate recovery faced three major headwinds. First, the crisis created a large supply of distressed properties from the spike in mortgage delinquencies and foreclosures.  Second, the regulatory environment for residential mortgage lending changed dramatically, imposing onerous new restrictions on lenders. Third, lenders faced an onslaught of fines, settlements and litigation related to different aspects of pre-crisis mortgage origination, securitization and foreclosure processing. We estimate that for the industry as a whole, related payments to state and federal regulators, investors, the GSEs and others since the crisis now exceed US$250 billion.  The private label RMBS market, which accounted for over a third of all mortgage lending pre-crisis and specifically catered to less creditworthy borrowers, currently constitutes less than 1% of lending volumes.

The Negative Mortgage Rate Program - In the summer of 2016, US and global economic growth rates are nowhere close to estimates.  In fact, a global recession, or worse, is imminent.  At home, student loan defaults are now close to 100%.  The unemployment rate is climbing, as minimum wage workers finally realize that the financial pain of working or not working is identical.  In Euro-land, as the weather warms up, the never-ending flotillas from Northern Africa resume swamping the Southern shores. By now, the Treasury has long given up on the idea of privatizing the agencies.  Freddie and Fannie will soon be part of HUD, surviving for the sole purpose of providing affordable housing for all – whatever that is supposed to mean.  Policymakers have determined that the real estate market is stalling.  Desperate times require desperate measures.  Something needs to be done. After an intense pow-wow between the administration, Congressional leaders and the Federal Reserve, the Negative Mortgage Rate Program (NMRP) is born. The program is simple.  Homeowners will be paid to borrow.  The Federal Reserve declares that the NMRP is a brilliant extension of NIRP (negative interest rate policy), because it will benefit everyone, not just the 1%ers.

Siding With Foreclosure Victim, California Court Exposes Law Enforcement Failure - Dave Dayen - The California Supreme Court on Thursday ruled unanimously in favor of a fraudulently foreclosed-upon homeowner in a case that should serve as a wake-up call to state and federal prosecutors that mortgage companies continue to use false documents to evict homeowners on a daily basis. “A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands,” the justices wrote. But maddeningly, practically nobody in a position of authority has stepped up to prevent those injurious invasions. The case, Yvanova v. New Century Mortgage Corporation, sends a powerful signal from the nation’s biggest state that the massive false document scandal, first discovered nearly a decade ago, is not over, despite mortgage company promises to the contrary.In this case, Tsvetana Yvanova purchased a $483,000 mortgage in 2006 from New Century, a company that went bankrupt in 2007. Four years later, in December 2011, New Century somehow transferred the mortgage to a trust, from which thousands of pooled mortgages had created mortgage-backed securities. But by law, the mortgages placed in that pool had to be put in it by January 27, 2007. The eventual trustee, Western Progressive, foreclosed on Yvanova and sold her house at auction in September 2012. Yvanova later argued that her foreclosure was illegal because a bankrupt company (New Century) could not have transferred the deed of trust, and because the trust had closed to new loans four years before the transfer was executed. Therefore, the assignment document was false, and the foreclosure void.

Wenatchee man dies after refusing to leave foreclosed home: -- A major police operation Sunday to get a 66-year-old Wenatchee man to vacate his foreclosed home that had been sold ended in the man's death by an apparently self-inflicted gunshot wound. Police responded to the Marilyn Street home at 1 p.m., after the home's new owners arrived outside and were trying to make contact with the man when they heard two gun shots.

MBA: Mortgage Delinquency and Foreclosure Rates Decrease in Q4 -- From the MBA: Mortgage Foreclosures and Delinquencies Continue to Drop The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 4.77 percent of all loans outstanding at the end of the fourth quarter of 2015. This was the lowest level since the third quarter of 2006. The delinquency rate decreased 22 basis points from the previous quarter, and 91 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey, released today at the association's National Mortgage Servicing Conference and Expo 2016 in Orlando, FL. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.36 percent, a decrease of two basis points from the previous quarter, and down 10 basis points from one year ago. This foreclosure starts rate was at the lowest level since the second quarter of 2003.  The percentage of loans in the foreclosure process at the end of the third quarter was 1.77 percent, down 11 basis points from the third quarter and 50 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the third quarter of 2007.  The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.44 percent, a decrease of 13 basis points from last quarter, and a decrease of 108 basis points from last year. This was the lowest serious delinquency rate since the third quarter of 2007.  This graph shows the percent of loans delinquent by days past due. The percent of loans 30 and 60 days delinquent are at the lowest level since at least 2000. The 90 day bucket peaked in Q1 2010, and is about 85% of the way back to normal. The percent of loans in the foreclosure process also peaked in 2010 and and is about 85% of the way back to normal.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 30% YoY --From the MBA: Refinance Applications Drive Increase in Latest MBA Weekly Survey Mortgage applications increased 8.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 12, 2016...The Refinance Index, Conventional Refinance Index and Government Refinance Index increased 16 percent from the previous week, reaching their highest levels since January 2015. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 30 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, 3.83 percent, from 3.91 percent, with points decreasing to 0.36 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.  The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity 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 30% higher than a year ago.

FNC: Residential Property Values increased 6.2% year-over-year in December -- In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.   FNC released their December 2015 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.4% from November to December (Composite 100 index, not seasonally adjusted).    The 10 city MSA increased 0.1% (NSA), the 20-MSA RPI increased 0.2%, and the 30-MSA RPI increased 0.4% in December. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.  The index is still down 14.2% from the peak in 2006 (not inflation adjusted).

Housing Starts declined to 1.099 Million Annual Rate in January -- From the Census Bureau: Permits, Starts and Completions. Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,099,000. This is 3.8 percent below the revised December estimate of 1,143,000, but is 1.8 percent above the January 2015 rate of 1,080,000. Single-family housing starts in January were at a rate of 731,000; this is 3.9 percent below the revised December figure of 761,000. The January rate for units in buildings with five units or more was 354,000. Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,202,000. This is 0.2 percent below the revised December rate of 1,204,000, but is 13.5 percent above the January 2015 estimate of 1,059,000. Single-family authorizations in January were at a rate of 720,000; this is 1.6 percent below the revised December figure of 732,000. Authorizations of units in buildings with five units or more were at a rate of 442,000 in January.The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in January. Multi-family starts are down 2% year-over-year. Single-family starts (blue) decreased in January and are up 3.5% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), Total housing starts in January were below expectations.

Housing Construction Weakens As Industrial Output Rebounds -- One step forward, one step back. Residential construction activity was softer than expected in January while industrial production rocketed skyward after falling in each of the previous three months, according to this morning’s updates from the US Census Bureau and Federal Reserve, respectively. Today’s economic data overall offers a mildly upbeat message. Considered in context with previous releases for January, the data du jour suggests that last month wasn’t the start of a new NBER-defined recession. The near-term outlook is still wobbly, but this morning’s reports hint at the likelihood that the US economy will continue to muddle through the recent rough patch and avoid a new downturn.  Let’s take a closer look at the new numbers, starting with housing starts. Residential construction activity dipped last month, falling to 1.099 million units (seasonally adjusted annual rate)—a three-month low. Economists were looking for a modest increase. The January update weighed on the year-over-year trend, pushing the annual growth rate for starts down to a thin 1.8% increase—the slowest since last October. Note, however, the newly issued building permits were largely unchanged last month, slipping fractionally vs. the previous month while ticking up to a healthy 13.5% rise vs. the year-earlier level. Considering starts and permits together implies that housing construction will continue to expand a modest pace in the months ahead. Moving on to the industrial sector, today’s update delivered sharply stronger-than-projected results. Output surged 0.9% in January—the biggest monthly gain in five years. But the month-to-month changes are noisy, particularly in recent history, and so it’s necessary to look to the annual pace for a more reliable measure of the trend. There’s some improvement in the latest year-over-year change, but only in the sense that the contraction eased. Industrial output fell 0.7% in January vs. the year-earlier level. Although that’s a relatively modest decline vs. the previous two months, the downturn in annual terms rolls on. Last month marked the third straight month of year-over-year contraction—the longest run of red ink for the annual comparison since the last recession.

January 2016 Residential Building Continues Growth.: Be careful in analyzing this data set with a microscope as the potential error ranges and backward revisions are significant. Also the nature of this industry variations from month to month so the rolling averages are the best way to view this series - and the data remains in the range we have seen over the last 3 years. This month was better than last month to a large part due to downward revision in permits issued. The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is a +6.7 % this month. Construction completions are lower than permits this month for the 13th month in a row (when permits exceed completions - this sector is growing).. Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is 14.8 % (permits) and 9.8 % (construction completions): The 2015 rate of growth of this sector was equal to pre-recession levels.

• The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is a +6.7 % this month.
• Construction completions are lower than permits this month for the 13th month in a row (when permits exceed completions - this sector is growing)..
• Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is 14.8 % (permits) and 9.8 % (construction completions):
• The 2015 rate of growth of this sector was equal to pre-recession levels.

Housing Starts, Permits Drop For Second Month As Homebuilding Activity Remains Far Below Prior Peak -- Today's batch of housing data, namely the January update of housing starts and permits, which as a reminder has a quite substantial "confidence interval" of between 10.5% and 28.3%, was largely uneventful. Total housing starts of 1099K was the second consecutive drop from last month's downward revised 1,143K, and a miss to the 1,173K expected. This was due to a drop in both 1-unit structures, which declined from 761K to 731K in all regions led by the Midwest, as well as a decline in multi-family, or rental, units which dropped from 363K to 354K. Can't blame the weather this time.The silver lining to the Starts miss was the small Permits print, which at 1,202K beat expectations of 1,200K, but like with starts was the second consecutive drop from the substantially downward revised January number of 1.204MM (down from 1.232MM) and November's 1.282MM. And while rental unit permits rose by a modest 1.1% to 442K, the single-family permits declined by 1.6% to 720K, below the What goes without saying is that both starts and permits remain well below their 2007 highs, and what is more troubling is that as the Y/Y change chart shown below demonstrates, the growth rate is rapidly approaching the X-axis if not sliding below it.

Comments on January Housing Starts -- Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).  These graphs use a 12 month rolling total for NSA starts and completions.  The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Multi-family completions are increasing sharply year-over-year. I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics). The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions. Note the exceptionally low level of single family starts and completions. The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions. The housing recovery continues, but I expect less growth from multi-family going forward. This third graph shows the month to month comparison between 2015 (blue) and 2016 (red). The year-over-year comparison will be easier in February and March.

Quarterly Housing Starts by Intent -- In addition to housing starts for January, the Census Bureau also released the Q4 "Started and Completed by Purpose of Construction" report this week.  It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction  We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series. However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.   The quarterly report released yesterday showed there were 119,000 single family starts, built for sale, in Q4 2015, and that was above the 111,000 new homes sold for the same quarter, so inventory increased slightly in Q4 (Using Not Seasonally Adjusted data for both starts and sales).  The first graph shows quarterly single family starts, built for sale and new home sales (NSA). Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations, but it does suggest the builders are keeping inventories mostly under control. The second graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Slight Contraction in Architecture Billings Index - The American Institute of Architects: Following a generally positive performance in 2015, the Architecture Billings Index has begun this year modestly dipping back into negative terrain. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 49.6, down slightly from the mark of 51.3 in the previous month. This score reflects a minor decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 55.3, down from a reading of 60.5 the previous month. Key January ABI highlights:

• • Regional averages: West (50.8), Northeast (50.4), South (50.3), Midwest (48.9),
• • Sector index breakdown: multi-family residential (51.9), commercial / industrial (50.5), institutional (49.9), mixed practice (49.0)
• • Project inquiries index: 55.3
• • Design contracts index: 50.9

AIA: "Slight Contraction in Architecture Billings Index " -- Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Slight Contraction in Architecture Billings Index Following a generally positive performance in 2015, the Architecture Billings Index has begun this year modestly dipping back into negative terrain. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI score was 49.6, down slightly from the mark of 51.3 in the previous month. This score reflects a minor decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 55.3, down from a reading of 60.5 the previous month. “The fundamentals are mostly sound in the nonresidential design and construction market,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “January was a rocky month throughout the economy, with falling oil prices, international economic concerns, and with steep declines in stock market valuations in the U.S. and elsewhere. Some of the fallout of this uncertainty may have affected progress on design projects.”
• Regional averages: West (50.8), Northeast (50.4), South (50.3), Midwest (48.9)
• Sector index breakdown: multi-family residential (51.9), commercial / industrial (50.5), institutional (49.9), mixed practice (49.0)

Housing 'Recovery' Hope Humbled As Billings & Purchases Plunge -- Following this morning's weak Starts and Permits data, even homebuilders are starting to lose faith in the recovery meme but there is a long way to go before that is priced in. Perhaps the follwoing two data points will help to wake up the rest of the investing public that all is not as well as hoped. For the 3rd week in a row mortgage applications for purchases slid(reflecting the 'now')... and even more worrying, Architecture Billings tumbled into contraction (below 50) throwing doubt on the imminent future as the inquiry index plunged from 60.5 to 55.3.

NAHB: Builder Confidence declined to 58 in February --The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 58 in February, down from 61 in January (revised up). Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Drops Three Points in February Builder confidence in the market for newly-built single-family homes fell three points to 58 in February from an upwardly revised January reading of 61 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). “Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “Of note, they expressed optimism that sales will pick up in the coming months.” “Builders are reflecting consumers’ concerns about recent negative economic trends,” said NAHB Chief Economist David Crowe. “However, the fundamentals are in place for continued growth of the housing market. Historically low mortgage rates, steady job gains, improved household formations and significant pent up demand all point to a gradual upward trend for housing in the year ahead.”...The HMI component measuring sales expectations in the next six months rose one point to 65 in February. The index measuring current sales condition fell three points to 65 and the component charting buyer traffic dropped five points to 39. Looking at the three-month moving averages for regional HMI scores, all four regions registered slight declines. The Midwest fell one point to 57, the West registered a three-point drop to 72 and the Northeast and South each posted a two-point decline to 47 and 59, respectively.

Homebuilder Confidence Tumbles To Lowest In 9 Months - Current sales and buyer traffic tumbled in February for homebuilders who downgraded their confidence index to 58 (from 61) missing expectations and at its worst level since May 2015. While futures sales hope rose very modestly, NAHB shows buyer traffic plunged to its lowest since March 2015 with every region seeing weakness (most notably The West). All this is odd given the surge in new and existing home sales...

Update: Real Estate Agent Boom and Bust -- Way back in 2005, I posted a graph of the Real Estate Agent Boom. Here is another update to the graph.The graph shows the number of real estate licensees in California. The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006). The number of salesperson's licenses is off 32.8% from the peak, and may be starting to increase again (but up less than 1% year-over-year). The number of salesperson's licenses has fallen to April 2004 levels. Brokers' licenses are off 11.3% from the peak and have only fallen to April 2006 levels, but are still slowly declining (down 1.5% year-over-year). So far there been no significant pickup in the number of real estate agents!

 These Renters Were Hit Hardest by the Financial Crisis -- The financial crisis turned a lot of Americans into renters, because they couldn’t keep paying their mortgage, or because high unemployment and stagnant wages in the ensuing years forced them to put off home ownership. A new report from real estate website Trulia seeks to identify the groups that lost the most purchase on the dream of home ownership during the recession. The answer, by one measure: affluent Hispanic millennial men. In 2006, 32 percent of those households were renters. By 2014, the share had nearly doubled to 63 percent. The above table can be read through a handful of intersecting trends. Millennials have been slower to buy their first homes than members of previous generations. The wealth gap widened along racial lines following the recession, partly because white workers' incomes recovered more quickly, and partly because white households were more likely to own such financial assets as stocks. More affluent households were more likely to own homes in 2006, meaning their home ownership rate had further to fall. By another measure—the share of income spent on housing—poor renters were hardest hit by the recession. Among renters, the bottom 25 percent of wage earners spent 63 percent of income on housing in 2014, up from 56 percent in 2006, the Trulia study found. Rents increased 22 percent over the course of the study, and the average household spent a larger percent of its income on rent in 41 out of 50 metro areas the report looked at. Geography also played a role: Las Vegas, Phoenix, and Ft. Lauderdale, all hotbeds for foreclosures, were the metropolitan areas with the largest increases in the percentage of households that rent.

A Modest Proposal for an Efficient Rental Market - Inefficiencies abound in our society. One major instance of such inefficiency is the residential housing rental market. As Paul Krugman wisely explained many years ago:  Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go — and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended?* This is, of course, correct; unfortunately, our usually excellent guide to the world underplays just how inefficient the rental market is. My modest proposal for making the rental market efficient is thus this: I understand that we can’t cancel all the property deeds (on the other hand…) and all leases unilaterally. Still, what we can do is, starting the first calendar day of next year, charge all those individuals a monthly sum equal to the difference between the rental value they are/did pay and the market rental value (as estimated by a citywide index of similar apartments or ”going rents”). Those who can’t afford market rents will sell their leases to their landlords /deeds back to the city at the prices they purchased them at, minus of course the imputed rent they’ve already received by living there. Once these people leave the city, the vacancy rate will rise and rents will fall. Since we all agree rent control property rights distort the rental market, and we all agree all market distortions are bad, I’m sure my modest proposal will be quickly and speedily taken on by the Economics profession. I can’t think of a reason it wouldn’t be.

Here Are The States With The Highest Household Debt Burdens --Americans are in debt. And massively so. In fact, the US is laboring under $1.1 trillion in auto loan debt and $1.3 trillion in student loan obligations.  This massive burden may well be holding back the beleaguered consumer in the US, a country which depends on consumer spending for three quarters of economic growth.  According to the New York Fed, total indebtedness is now $12.12 trillion and while mortgage debt accounts for the lion's share of the burden, student debt is on the rise, as are auto loan obligations. "How much does the average household owe?," Bloomberg asks. "Nationwide, the per-capita debt is about $46,170." Most of that is mortgage debt, although in Texas, where the jobs market has been hit especially hard by the sharp decline in crude prices, auto loan debt has spiked of late.

U.S. Consumer Sentiment Unexpectedly Deteriorates In February - Consumer sentiment in the U.S. has unexpectedly deteriorated in the month of February, according to a report released by the University of Michigan on Friday. The report said the preliminary reading on the consumer sentiment index for February came in at 90.7 compared to the final January reading of 92.0. The decrease came as a surprise to economists, who had expected the consumer sentiment index to inch up to a reading of 92.5. Richard Curtin, the survey's chief economist, said, "Consumer confidence continued its slow decline in early February, with its current level just below the average recorded during the 2nd half of 2015." "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," he added. The report said the index of consumer expectations fell to 81.0 in February from 82.7 in January, while the current economic conditions index edged down to 105.8 from 106.4. On the inflation front, one-year inflation expectations held at 2.5 percent, while five-to-ten year inflation expectations fell to a record low 2.4 percent in February from 2.7 percent in January.

Gasoline Is Trading as If U.S. Nearing Recession, Goldman Says -- Gasoline futures are trading as if the U.S. economy is about to hit the brakes, according to Goldman Sachs Group Inc. Contracts for delivery in the summer months are currently priced less than $20 a barrel higher than crude oil. If those premiums were realized, they would be the smallest since 2010, when the U.S. unemployment rate was above 9 percent. That’s too low, Goldman analyst Damien Courvalin said in a research note Wednesday. Last year, gasoline’s premium fluctuated from $23 to $33 a barrel above crude as American drivers drove a record number of miles. Gasoline’s premium has slipped this year as record production boosted inventories to highest level since at least 1990. Refineries have already started cutting back output, though, and several will soon temporarily shut down for maintenance. That should boost gasoline enough that the only way summer premiums could be as low as they’re currently priced is if the U.S. economy began to shrink, causing driving demand to fall, Courvalin said. “The demand implied by such margins would be consistent with a U.S. recession, which our U.S. economist team estimates has only a 15 percent to 20 percent probability of occurring,” Courvalin said in the note.

Energy expenditures as a percentage of consumer spending -- Here is a graph of expenditures on energy goods and services as a percent of total personal consumption expenditures through December 2015. This is one of the measures that Professor Hamilton at Econbrowser looks at to evaluate any drag on GDP from energy prices. Data source: BEA Table 2.3.5U. The huge spikes in energy prices during the oil crisis of 1973 and 1979 are obvious. As is the increase in energy prices during the 2001 through 2008 period.  When data for February is released - WTI oil futures are currently at $29 per barrel, down from $37 in December - we will probably see energy expenditures as a percent of PCE at all time lows.

Walmart in worst sales result in 35 years - Walmart reported its first annual sales decline since at least 1980, underlining the stiff challenges it faces competing against Amazon in ecommerce while coping with the impact of the strong dollar and a loss of share at its UK Asda stores. The 0.7 per cent decline in revenue to $482.1bn* for the year ended January was due mainly to the strong dollar, without the impact of which sales would have risen 2.8 per cent. The fall, the worst in at least 35 years according to S&P Capital IQ data, came as the world’s largest retailer said that ecommerce sales growth slowed for the fifth consecutive quarter to 8 per cent in the final three months of the year. The company blamed the deceleration on its UK, Chinese and Brazilian markets. By contrast Amazon’s quarterly growth was 26 per cent despite its much larger base. The company reduced its sales growth outlook for this fiscal year to flat from between 3-4 per cent, reflecting a worse than expected impact from currency fluctuations and loss of revenue from its store closures. Shares slid 3.1 per cent to $64.09 by close of trading in New York. The 54-year-old company, which grew into the world’s largest retailer from a single store in rural Arkansas, is undertaking its biggest transformation since its inception as it tackles intensifying competition amid rapid shifts in the way consumers shop. While it remains a dominant force in the US economy with 9.2 per cent of all retail sales, that figure has slipped from 9.9 per cent five years ago, said Neil Saunders, an analyst at research firm Conlumino. “For the past 10 years, Walmart appeared to be on the back foot in terms of rethinking its business model for this new landscape. And, as the evidence attests, the impact on it has been negative,” Mr Saunders said. “Given that online is where the growth is, Walmart needs to play far harder in that space if it is to retain its retail crown over the longer term.”

The Myth Of The Resilient Consumer -  The premise of incomes powering a consumer-driven pickup in U.S. economic growth is demonstrably false. And for people renting their homes the squeeze is even greater. One clue is the extent of the increase in health care spending in recent years. Renters' expenditures on health care as a percentage of after-tax income - after hovering around 4¾% for over a quarter century through 2011 - rose to 6.1% in 2013 before easing a bit in 2014 (top line). Homeowners also saw an analogous rise in health care spending as a percentage of after-tax income (not shown). Similarly, spending on rent as a percentage of after-tax income - after staying fairly stable around 22% for over a quarter-century through 2012 - soared well above 25% in 2013 before slipping slightly (bottom line). It follows that, on average in 2013-14, renters spent an extra 4½% of their after-tax incomes on rent and health care combined than in the previous quarter-century or so. Judging by the surge in consumer spending for health care, as well as the steady uptrend in rental inflation, renters' share of spending on health care and rent would have risen even higher during 2015. Rent and health care expenses are essentially non discretionary expenditures. Spending more on these items by an extra 5% or so of after-tax incomes puts a serious dent in discretionary spending budgets. This holds especially true given the double-digit declines in real average household income for the lion's share of households since the turn of the century.   In the context of this structural squeeze on family budgets, the current cyclical downturn in consumer spending growth is unwelcome news for anyone relying on the U.S. consumer to power economic growth in 2016.

Consumer Price Index February 19, 2016: Consumer prices are on the rise and the Fed's December rate hike doesn't look misplaced at all. Core prices jumped 0.3 percent in January which beats Econoday's top-end estimate with the year-on-year rate up 1 tenth to plus 2.2 percent. The Bureau of Labor Statistics notes a "lack of declines" across core readings. When including energy, however, and also food, total prices were unchanged in the month though the year-on-year rate literally surged, up 7 tenths to plus 1.4 percent. Services are the center of the economy's strength and prices are rising, led by medical care which jumped 0.5 percent in the month for a year-on-year plus 3.0 percent. The subcomponent for prescription drugs also rose 0.5 percent. Shelter rose 0.3 percent in the month as did rent while owner's equivalent rent rose 0.2 percent. Away-from-home prices jumped 2.0 percent. Goods prices are mixed with apparel jumping 0.6 percent in the month but with energy down 2.8 percent and gasoline down 4.8 percent. Food prices were unchanged. The only core reading showing any contraction was home furnishings and only at minus 0.1 percent. New vehicles rose 0.3 percent with used vehicles up 0.1 percent. Airfares were especially hot, up 1.2 percent in the month. These results may prove to be a game changer for the FOMC, pointing to pressure for next week's PCE price data and perhaps reviving chances for a March FOMC rate hike.

CPI Index Shows Overall Inflation Had No Change for January 2016 -- Robert Oak - The Consumer Price Index had no change for January as energy prices declined once again.  Gasoline alone plunged by -4.8% for the month.  Inflation without food or energy prices considered increased 0.3% with shelter and medical costs leading the charge.  From a year ago overall CPI has increased 1.4%, which is double the annual rate of last month.  Without energy and food considered, prices have increased 2.2% for the year.   CPI measures inflation, or price increases.  Yearly overall inflation is shown in the below graph. Core inflation, or CPI with all food and energy items removed from the index, has increased 2.2% for the last year.  This is the highest annual core inflation increase since July 2012.  For the past decade the annualized inflation rate has been 1.9%.  Core CPI's monthly percentage change is graphed below.  This month core inflation increased 0.3%.  Within core inflation, shelter increased 0.3%, with monthly rental costs increasing more than home ownership, 0.3% vs. 0.2%.  Apparel prices increased 0.6%, used cars increased 0.1%, new vehicles 0.3% and and airfare increased 1.2% for the month.  Auto insurance increased again, this time 0.4% for the month. The energy index is down 6.5% from a year ago.   The BLS separates out all energy costs and puts them together into one index.  For the year, gasoline has declined -7.3%, while Fuel oil has dropped -28.7%.  Fuel oil dropped -6.5% for the month alone.  Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only as gas-guzzlers continue their merry 4 by 4 dance. Core inflation's components include shelter, transportation, medical care and anything that is not food or energy.  The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels.   Shelter increased 0.3% and is up 3.2% for the year.  Rent of a primary residence just keeps increasing and this month by 0.3% and is up 3.7% for the year.  Graphed below is the rent price index. Food prices had no change for the month.  Food and beverages have now increased just 0.8% from a year ago.  Groceries, (called food at home by BLS), dropped -0.2% for the month, and are down -0.5% for the year.  The meats, poultry, fish, and eggs index declined by -1.3%.  The eggs index had it's largest monthly drop since October 2010, -8.4%.   Graphed below are grocery price increases, otherwise known as the food at home index.

CPI unchanged in January, Core CPI up 2.2% YoY -- From the BLS:  The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment. An increase in the index for all items less food and energy offset a decline in the energy index to lead to the seasonally adjusted all items index being unchanged. The energy index fell 2.8 percent as all of its major component indexes declined. The index for all items less food and energy rose 0.3 percent in January. The increase was broad-based, with most of the major components rising, but increases in the indexes for shelter and medical care were the largest contributors. ... The all items index rose 1.4 percent over the last 12 months, compared to the 0.7-percent 12-month increase for the period ending December. ... The index for all items less food and energy increased 2.2 percent over the last 12 months, a figure that has been gradually rising over the last several months.  I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was above the consensus forecast of a 0.1% decrease for CPI, and also above the forecast of a 0.1% increase in core CPI.

Inflation flat in January, but some price pressure on consumers is building - MarketWatch: — Cheaper gasoline and moderating grocery prices kept inflation in check in January, but expenses for medical care and housing are rising. The consumer price index was flat last month, the government said Friday. Economists polled by MarketWatch had expected a seasonally adjusted 0.1% decline. Over the past 12 months the main CPI has risen by an unadjusted 1.4%, double the rate in December. That’s the fastest pace since late 2014. Core prices are up 2.2% in the same span, the biggest increase since the summer of 2012. Energy prices fell 2.8% in January, led by another drop in gasoline. Fueling up is cheaper than it has been in years, with gas costing less than $2 a gallon in many parts of the country. Food prices were unchanged in January as the cost of most staples fell, the Labor Department said. The cost of groceries is rising at a much slower rate after spiking in late 2014 and early 2015. Yet excluding food and energy, so-called core consumer prices jumped 0.3% to mark the biggest gain since August 2011. Higher medical care and housing expenses, the two largest costs for many Americans, were behind the increase. The cost of medical care jumped 0.5% in January and it’s risen 3.3% in the past 12 months, the highest rate in three years. The cost of shelter — owning a home or renting an apartment — has climbed 3.2% in the past year. And rental costs are rising at the fastest pace since 2007.

PPI-FD February 17, 2016: Producer prices showed life in January, at least outside of energy. Overall, producer prices inched 0.1 percent higher, low but 3 tenths above the Econoday consensus, with the ex-food and energy reading at a much stronger-than-expected 0.4 percent. Services are a plus in the report, excluding which and also excluding food and energy, prices rose an as-expected 0.2 percent. Service prices rose a very solid 0.5 percent with the year-on-year rate at plus 0.9 percent. Compared to other year-on-year rates, this is very solid and compares with minus 0.2 percent overall. Energy continues to be the center of price weakness, down 5.0 percent in the month for a year-on-year decline of 11.5 percent. Gasoline is down a year-on-year 15.7 percent with home heating oil down a very severe 43.3 percent. Other readings include a modest 0.1 percent gain for export prices with the year-on-year rate still in the negative column at minus 2.5 percent in a reminder that global factors are the economy's main headwind. But it is the service sector that is the center of the economy's strength and today's report, though modest, is pointing in the right direction for the FOMC's 2 percent inflation goal.

January 2016 Producer Prices Year-over-Year Deflation Continues - But Just Barely.: The Producer Price Index year-over-year deflation was less this month. The intermediate processing continues to show a large deflation in the supply chain - but the amount of deflation also decreased. The PPI represents inflation pressure (or lack thereof) that migrates into consumer price. The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate dropped from -1.0 % to -0.2 %.. In the following graph, one can see the relationship between the year-over-year change in crude good index and the finish goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower.  Removing food and energy (core PPI) was originally done to remove the noise from the index, however the usefulness in the twenty-first century is questionable except in certain specific circumstance. Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI). This YoY change implies that the CPI, should continue to come in well below 1.0% YoY.  The price moderation of the PPI began in September 2011 when the year-over-year inflation was 7.0%.

Core Inflation Spikes Most In 15 Months -- Producer Prices (ex food and energy) jumped 0.4% MoM - the biggest rise since Oct 2014 (and dramatically hotter than the 0.1% rise expected). Rubbing salt into Fed mandate wounds still further is last month's print was also revised higher and YoY (+0.6%) is the highest since Sep 2015. Across the range of PPI data, all items came hotter than expected in January (despite a 5% drop in Energy) with Food rising most in 20 months.

January 2016 Sea Container Counts Begin the Year In Expansion: 2016 has started with container counts showing expansion - a better showing than what was seen in 2015. Imports had the best January since 2007, but the export improvement was only relative to the terrible 2015 levels. This series is a physical count and not monetary based - so inflation adjustments are not required. This data set is based on the Ports of LA and Long Beach which account for much (approximately 40%) of the container movement into and out of the United States - and these two ports report their data significantly earlier than other USA ports. Most of the manufactured goods move between countries in sea containers (except larger rolling items such as automobiles). This pulse point is an early indicator of the health of the economy. There is no question that the trend lines had been generally improving (even though exports were showing negative growth year-over-year in 2015). So in this sense, the current data is showing improvement. But also consider that growth is being compared to a relatively dismal 2015 for trade. Bottom line, at this point it seems trade is beginning to recover which could signal some economic improvement months from now. Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. For this month:

LA area Port Traffic Increased YoY in January, Busiest January in LA Port History  -- Note: There were some large swings in LA area port traffic early last year due to labor issues that were settled in late February. Port traffic slowed in January and February last year, and then surged in March 2015 as the waiting ships were unloaded (the trade deficit increased in March too).  This will impact the YoY changes for the first few months of 2016. From the Port of Los Angeles: Port of Los Angeles January Volumes increase 33%; 704,398 TEUs Busiest January in Port History The Port of Los Angeles handled 704,398 Twenty-Foot Equivalent Units (TEUs) in January 2016, an increase of 33 percent compared to January 2015. It was the busiest January in the port’s 109-year history. ... "Record January volumes is a very encouraging way to start 2016, particularly after the slow start that West Coast ports experienced last year," said Port of Los Angeles Executive Director Gene Seroka. Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.  On a rolling 12 month basis, inbound traffic was up 2.2% compared to the rolling 12 months ending in December. Outbound traffic was up 0.3% compared to 12 months ending in December. The recent downturn in exports is probably due to the strong dollar and weakness in China. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were up sharply year-over-year in January; exports were up 5% year-over-year. This suggests a larger trade deficit with the Far East in January.

Congress wants to privatize US air traffic control, but what does it mean for flyers? -- As part of the reauthorization for the FAA, Congressional Republicans are proposing a big change to the way America's air traffic control system works. Currently, a federal agency, the Federal Aviation Administration, oversees the air traffic control (ATC) of the nation — but HR 4441, the Aviation Innovation, Reform, and Reauthorization (AIRR) Act of 2016 has a provision that would spin off the air traffic control system into a separate, private, non-profit entity. That's not as crazy as it sounds. Many countries have done something similar, including Canada and the United Kingdom. The benefits, say House members who sponsored it, include removing ATC from the governmental budget process — instead, the country's control towers would be funded through user fees (that is, taxes tacked on to commercial airline tickets). A few years ago, during the government shutdown and sequester, ATC budgets were cut, causing delays throughout the system. Oh, and it'll move some 30,000 employees out of the government, which is a nice way for House Republicans to say they reduced the size of government. But not everyone is on board. The National Business Aviation Association, a lobbyist group for business-focused general aviation (think private jets), says that because airlines and their employees (like pilots unions) will hold a majority of seats on the board of the new non-profit, they will have priority to make "decisions over access to airports and airspace" in their own interest, rather than the interest of the entire public. In other words, the NBAA appears to be concerned that privately owned aircraft could get banned from large airports like JFK or Newark in favor of commercial jets.

"Truck-ocalypse" Hits Main Street As Daimler Fires 1,250 Amid Collapsing Demand -- If you were looking for signs that US trade may be collapsing on itself, a good place to start would be Class 8 truck orders which, as we first documented in early December, have posted sharp y/y declines of late. In November for instance, orders collapsed 59% y/y. In December, the drop was 37%, and in January, Class 8 orders dove 48% from the year ago period. This is all consistent with the trend towards broadly lower global growth and trade, something which at this point looks to be structural and endemic rather than transient and cyclical. To be sure, the writing has been on the wall for quite a while. Have a look, for instance, at Morgan Stanley’s Dry Van TLFI: As you can see, things haven’t been this bad since the crisis. And expectations aren’t looking so hot either: Speaking of trucking and expectations, Daimler pretty clearly shares the rather dour outlook expressed by Morgan Stanley’s survey respondents because on Monday, the company laid off 1,250 people in North Carolina. "We see a fall in demand of about 10 percent for heavy trucks in North America this year,” a spokeswoman said. “This is a response to lower demand," she added, flatly.

Industrial Production February 17, 2016: A sharp gain in motor vehicle production underpins a very strong industrial production report where the headline surged 0.9 percent in January which is far above Econoday's plus 0.4 percent consensus and 0.6 percent high-end estimate. The gain lifts capacity utilization to 77.1 percent for a strong 7 tenths gain from a downward revised December. Vehicle production surged 2.8 percent in the month and drove the manufacturing component up by 0.5 percent, a gain that compares with a plus 0.2 percent consensus and a high-end estimate of 0.4 percent. But manufacturing was also supported by capital goods, an area that has been weak but which did gain 0.3 percent in the month. The utilities component, up a monthly 5.4 percent and reflecting a temperature swing from a warm December to a more seasonably cold January, is the major factor behind the headline gain. Mining, hit by low energy and commodity prices, continues to lag, coming in unchanged in the month for a year-on-year decline of 9.8 percent. Total year-on-year industrial production also remains in the negative column, at minus 0.7 percent, a disappointment but a contrast to manufacturing where the year-on-year rate is modest but accelerating, at plus 1.2 percent. A negative in the report is a downward revision to December, to minus 0.7 percent from minus 0.4 percent. But the revision doesn't take much away from the January surprise where strength, based in manufacturing and underscoring January's rise in retail auto sales, should help ease concern over the economy's first-quarter performance.

Fed: Industrial Production increased 0.9% in January -- From the Fed: Industrial production and Capacity Utilization Industrial production increased 0.9 percent in January after decreasing 0.7 percent in December. A storm late in the month likely held down production in January by a small amount. The index for utilities jumped 5.4 percent; demand for heating moved up markedly after having been suppressed by unseasonably warm weather in December. Manufacturing output increased 0.5 percent in January and was 1.2 percent above its year-earlier level. Mining production was unchanged following four months with declines that averaged about 1 1/2 percent per month. At 106.8 percent of its 2012 average, total industrial production in January was 0.7 percent below its year-earlier level. Capacity utilization for the industrial sector increased 0.7 percentage point in January to 77.1 percent, a rate that is 2.9 percentage points below its long-run (1972–2015) average. This graph shows Capacity Utilization. This series is up 10.2 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 77.1% is 2.9% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production increased 0.9% in January to 106.8. This is 22.5% above the recession low, and 1.5% above the pre-recession peak. This was above expectations of a 0.4% decrease, as production bounced back from the decline in December (mostly due to weather).

January 2016 Industrial Production Remains In Contraction Year-over-Year But Improved Relative To Last Month: The headlines say seasonally adjusted Industrial Production (IP) improved. However, the year-over-year data remains in contraction. Our analysis is similar to the headline view. Headline seasonally adjusted Industrial Production (IP) increased 0.9 % month-over-month and down 0.7 % year-over-year. Econintersect's analysis using the unadjusted data is that IP growth accelerated 1.4 % month-over-month, and is down 0.7 % year-over-year. The unadjusted year-over-year rate of growth decelerated 0.5 % from last month using a three month rolling average, and is down 1.3 % year-over-year.

Headline seasonally adjusted Industrial Production (IP) increased 0.9 % month-over-month and down 0.7 % year-over-year.

Econintersect's analysis using the unadjusted data is that IP growth accelerated 1.4 % month-over-month, and is down 0.7 % year-over-year.

The unadjusted year-over-year rate of growth decelerated 0.5 % from last month using a three month rolling average, and is down 1.3 % year-over-year.

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was up 0.5 % this month (up 1.2 % year-over-year), mining unchanged (down 9.8 % year-over-year), and utilities were up 2.0 % (down 2.8 % year-over-year). Note that utilities are 10.6 % of the industrial production index, whilst mining is 15.5 %.

Industrial Production Surges on Utilities (Bad Weather), and Autos | MishTalk: Once again, economists have a damn hard time figuring out when it’s cold and when it’s not, even weeks after the weather has come and gone. Industrial production surged 0.9% in January vs. Econoday Expectations of a 0.4% gain. The biggest part of the rise was utility production. In December, weather was unseasonably warm, and in January seasonably cold. The January surge follows a December downward revision from -0.4% to -0.7%. A negative in the report is a downward revision to December, to minus 0.7 percent from minus 0.4 percent. But the revision doesn’t take much away from the January surprise where strength, based in manufacturing and underscoring January’s rise in retail auto sales, should help ease concern over the economy’s first-quarter performance.  Actually, the revision does take away quite a bit from the report. Had December not been so weak, January would not have risen as much. By the way, the surge in autos comes on the heels of two consecutive negative months. Vehicles production fell 1.7% in December and 1.5% in November.The above chart from today’s Federal Reserve report on Industrial Production and Capacity Utilization. Note the negative revisions in manufacturing (light blue highlights). Four out of the last five months are lower vs. previous estimates. Also note the long strings of poor economic data (orange highlights).

Industrial Production Post Third Consecutive Annual Decline: 90% Chance Of Recession -- In 17 of the 19 times in the last 100 years that Industrial Production has contracted for 3 consecutive months, the US economy has entered recession. Today 0.7% drop YoY is the 3rd month of declines. The only times in the last 100 years that 3 months of US Industrial Production contraction has not coincided with a recession was in 1934 and 1952...While the MoM rise of 0.9% (against a revised 0.7% drop in December) was the "strong US economy" headline du jour, a simple scratch below the surface shows most of the surge was from Utilities:

Industrial production: Why the US is not in a recession -- This morning's industrial production numbers clarify why the US economy is not in a recession. Although the rubric of two quarters of negative GDP is common, the NBER defines a recession as a widespread downturn in production, sales, income, and employment. This simple fact is, while our current slowdown might produce a negative GDP reading, it is simply not a widespread downturn. Let's begin with the consumer side of the economy, and then turn to the producer side. Employment has continued to steadily increase: So has income: And both personal consumption expenditures and real retail sales have also continued to increase: So, as I said last week, the consumer is alright. Turning to production, here are total business sales broken down by manufacturers (blue), retailers (red), and wholesalers (green): While manufacturing and wholesale sales are down, retailers sales are not. Now let's look at industrial production (blue in the graphs below) . Production is broken down into manufacturing (red), mining (green), and utilities (purple): Although mining turned down a full year and a half ago, and utilities have suffered (in part because autumn and December east of the Mississippi remained unseasonably warm), manufacturing has continued to increase, tying its all time high in January. There has been an intense and focused severe downturn in the sector of the economy having to do with commodity extraction and exports. The rest of the economy has continued to improve. That's why the US is not in a recession.

NY Fed: "Business activity continued to decline for New York manufacturers" in February  From the NY Fed: Empire State Manufacturing Survey Business activity declined for a seventh consecutive month for New York manufacturing firms, according to the February 2016 survey. After dropping to its lowest level since the Great Recession in January, the general business conditions index edged up three points to -16.6. The new orders index climbed twelve points to -11.6, indicating that orders fell, though at a slower pace than last month... The index for number of employees rose twelve points to -1.0, indicating that employment levels were flat, and the average workweek index held steady at -6.0, signaling that the average workweek shortened.  This was below the consensus forecast of -10.0, and indicates manufacturing continued to contract in the NY region.

February 2016 Empire State Manufacturing Index Improved But Remains Deeply In Contraction: The Empire State Manufacturing Survey improved but continues deeply in contraction.

• Expectations were for a reading between -16.00 to -7.50 (consensus -10.0) versus the -16.6 reported. Any value above zero shows expansion for the New York area manufacturers.
• New orders and unfilled orders sub-index of the Empire State Manufacturing Survey are in contraction.
• This noisy index has moved from +7.8 (February 2015), +6.9 (March), -1.2 (April), +3.1 (May), -2.1 (June), 3.9 (July), -14.9 (August), -14.7 (September), -11.4 (October), -10.7 (November), -4.6 (December), -19.4 (January 2016) - and now -16.6.

As this index is very noisy, it is hard to understand what these massive moves up or down mean - however this regional manufacturing survey is normally one of the more pessimistic. Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know. From the report: The February 2016 Empire State Manufacturing Survey indicates that business activity continued to decline for New York manufacturers. The headline general business conditions index edged up three points, but remained firmly in negative territory at -16.6. The new orders and shipments indexes indicated an ongoing decline in both orders and shipments. Price indexes suggested a slight increase in input prices and a small drop in selling prices. Employment levels steadied, while the average workweek index pointed to a decrease in hours worked. The six-month outlook remained weak, with the index for future general business conditions up only slightly from last month's multi-year low.

Empire Fed Contracts For 7th Straight Month, Hovers At 7-Year Lows -- The Empire Fed Manufacturing survey has been in contraction (below 0) since July 2015 and while February's -16.64 print was above January's -19.37, it was dramatically worse than the expected -10.0. New Orders and Shipments remain in contraction as both prices paid and received tumbled. Hope improved modestly but remains markedly below December levels, as CapEx spending expectations weakened once again.

Philly Fed Manufacturing Survey showed modest contraction in February -- From the Philly Fed: February 2016 Manufacturing Business Outlook Survey Firms responding to the Manufacturing Business Outlook Survey reported continued weakness in business conditions this month. The indicator for general activity remained slightly negative this month, edging up only marginally from its reading in January. Other indicators offered mixed signals: The shipments index remained positive, but new orders and employment indexes remained negative and declined modestly. The survey’s price indexes suggest that both input prices and selling prices fell this month. With respect to the manufacturers’ forecasts, the survey’s future indicators remained overall positive but showed continued weakening. ... The diffusion index for current activity increased from a reading of -3.5 in January to -2.8 in February and has now been negative for six consecutive months ...  The survey’s labor market indicators suggest continued weak employment conditions. The employment index decreased 3 points, from -1.9 to -5.0. This was close to the consensus forecast of a reading of -2.5 for February. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January.  The average of the Empire State and Philly Fed surveys increased slightly in February, but was still solidly negative.  This suggests another weak reading for the ISM survey.

February 2016 Philly Fed Manufacturing Remains Contraction. -  The Philly Fed Business Outlook Survey continued in contraction. Key elements went deeper into contraction. Both manufacturing surveys released so far for this month are in contraction, This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The index improved from -3.5 to -2.8. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -7.5 to 2.8 (consensus -2.5). Firms responding to the Manufacturing Business Outlook Survey reported continued weakness in business conditions this month. The indicator for general activity remained slightly negative this month, edging up only marginally from its reading in January. Other indicators offered mixed signals: The shipments index remained positive, but new orders and employment indexes remained negative and declined modestly. The survey's price indexes suggest that both input prices and selling prices fell this month. With respect to the manufacturers' forecasts, the survey's future indicators remained overall positive but showed continued weakening.

This Chinese Company Moved Production to South Carolina to Save Money - - South Carolina officials have fished successfully in foreign waters for investment over the past decade. Now they’re even reeling in catches from China, a nation blamed throughout the state for battering South Carolina’s economy over the past two decades. “No one could have imagined five years ago that China would look at the cost structure in South Carolina and say it’s more profitable to locate in South Carolina than in China,” says Auggie Tantillo, a South Carolina native who heads the National Council of Textile Organizations. For years, South Carolina’s business leaders were at loggerheads with China. Roger Milliken, the former chief executive of textile giant Milliken & Co., bankrolled unsuccessful efforts to block China’s entry into the World Trade Organization because he believed Chinese competition would undermine U.S. firms. Former Sen. Jim DeMint, who won office as a free trader, says that many people in his home state believed they were losing their jobs because of low-cost Chinese competition. But now Chinese investment in the state, although now at modest levels, is starting to build. Chinese investors are buying golf courses near Myrtle Beach, and setting up yarn, plastic and chemical companies elsewhere. In one of the biggest investments, Chinese-owned Volvo Car Corp. last year said it would invest $500 million to build a new vehicle plant near Charleston.

Textile Production Moving from China Back to United States: . -- Twenty-five years ago, Ni Meijuan earned $19 a month working the spinning machines at a vast textile factory in the Chinese city of Hangzhou. Now at the Keer Group's cotton mill in South Carolina, which opened in March, Ms. Ni is training American workers to do the job she used to do. "They're quick learners," Ms. Ni said after showing two fresh recruits how to tease errant wisps of cotton from the machines' grinding gears. "But they have to learn to be quicker." Once the epitome of cheap mass manufacturing, textile producers from formerly low-cost nations are starting to set up shop in America. It is part of a blurring of once seemingly clear-cut boundaries between high- and low-cost manufacturing nations that few would have predicted a decade ago. Textile production in China is becoming increasingly unprofitable after years of rising wages, higher energy bills and mounting logistical costs, as well as new government quotas on the import of cotton. At the same time, manufacturing costs in the United States are becoming more competitive.

The TPP would be the final death blow to American manufacturing – The United States was a brawny country that would intervene to help win World War I and later quickly retool factories to serve as munitions mills to win World War II.  Now, though, as America’s tool makers and freight car builders are furloughed, their factories shuttered and offshored, America is wasting. Ill-conceived free trade deals are reducing it to a nation of stooped shoulders. The newest proposed deal, the Trans-Pacific Partnership (TPP), signed in New Zealand last week by representatives of its 12 member states, would further enfeeble American manufacturing. The first of the ilk, the North American Free Trade Agreement (NAFTA), devastated U.S. manufacturing. Allowing China into the World Trade Organization and the bad trade deals that followed NAFTA all pummeled American manufacturing when it was already down. From cookies to car parts, factories fled America for places like China and Mexico. There, corporations pay workers a pittance and pollute virtually penalty-free. CEOs and shareholders roll in the resulting royal-sized profits. Meanwhile, formerly middle-class American workers and their families suffer.  Communities bereft of sustaining mills collapse. And the United States atrophies, losing more and more of those once-bulky industrial shoulders.

Weekly Initial Unemployment Claims decrease to 262,000 --The DOL reported: In the week ending February 13, the advance figure for seasonally adjusted initial claims was 262,000, a decrease of 7,000 from the previous week's unrevised level of 269,000. The 4-week moving average was 273,250, a decrease of 8,000 from the previous week's unrevised average of 281,250.  There were no special factors impacting this week's initial claims.  The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Did The "Bartender & Waitress" Jobs 'Recovery' Just End?  In the new bifurcated normal US economy, with the manufacturing sector unofficially in recession, it has been the growth of the services sector, and, as we detailed here, implicitly the surge in "bartenders & waiters" jobs, has saved the government's "recovery" statistics in the last few years. Given the recent performance of the National Retail Association's Restaurant Performance Index, the jobs recovery 'party' just ended. Since December 2007, it is clear where the jobs gains have been... But judging by the lagged effect of the collapse of the Restaurant Performance Index, that party is over... Just like it was in 2008... We are sure this is nothing that some double-seasonal-adjustments can't fix, but for those who don't believe in unicorns, the lagged impact of a collapsing manufacturing economy have now hit the services sector... and with that knocked the last leg of the "recovery" stool out from under The Fed.

More Americans Should Be Working - Justin Fox - The chart shows the employment-to-population ratio of U.S. civilians 16 and older. For decades it rose, driven in large part by women entering the workforce. It peaked in April 2000, at 64.7 percent, and it's way down since. The Congressional Budget Office thinks the ratio will keep declining, mainly because more and more aging baby boomers will drop out of the workforce. Friedman, who is dubious that demographics are the main reason for the decline, thinks the tax and spending changes that Sanders hopes to introduce could cause a big bounceback. Friedman's projections, which include a claim that real gross domestic product growth would rise to 5.3 percent a year (from 2.4 percent in 2015) under the Sanders plan, have come under fire. Four former chairmen of the White House Council of Economic Advisers during Democratic administrations wrote Wednesday that "no credible economic research supports economic impacts of these magnitudes." This was the kind of dodgy stuff that Republicans do to justify budget-busting tax-cut plans, they complained, and prominent Democratic economists Brad DeLong and Paul Krugman agreed. A leap of the sort that Friedman envisions seems unlikely. I took a look at the ratios in a few other countries, though, and it turns out it's not unprecedented. Here's what the past quarter century has looked like for men in the U.S. and four other wealthy countries with aging populations: And here it is for women: I've separated men from women because the trajectories are so different. Also, note that these percentages (from the Paris-based rich-countries club, the Organization for Cooperation and Economic Development) just cover the working-age population, not all adults as in Friedman's chart. Among both men and women, the U.S. started out at or near the top in 1990 and stayed there during that decade, but is now at the bottom. The difference in direction between the U.S. and other countries since 2000 is striking. Despite job gains over the past few years, then, the labor market in the U.S. seems to be malfunctioning in a way that labor markets in other rich countries aren't.

What’s Holding Back U.S. Apprenticeships -  You would think the number of apprenticeships in the U.S. would have recovered since the recession. Economic output surpassed its previous peak more than four years ago. Many businesses complain about a shortage of skilled workers. College costs look increasingly daunting. And yet, they haven’t. Why not? “The numbers are climbing back up,” said Sean McGarvey, president of North America’s Building Trades Unions. “But like any business, we don’t recruit people for jobs that don’t exist.” The building-trades group coordinates and supports construction unions around the country. As with many apprenticeship programs, organized labor only takes on new recruits when it’s sure there will be enough work to keep them occupied. It seems like there should be plenty of opportunity in trades like plumbing and carpentry. The Commerce Department reported that nationwide construction spending last year rose to the highest level since 2007. And while the construction industry has been hiring at a steady clip over the past year, employment is still about 14% below its prerecession peak. Many workers left the industry for good after the housing bust and there are no ready replacements.

Are Paychecks Picking Up the Pace? -- Atlanta Fed's macroblog -- From the minutes of the January 26–27 meeting of the Federal Open Market Committee, it's clear that many participants saw tightening labor market conditions during 2015:In their comments on labor market conditions, participants cited strong employment gains, low levels of unemployment in their Districts, reports of shortages of workers in various industries, or firming in wage increases. Based on the Atlanta Fed's Wage Growth Tracker (WGT), the median annual growth in hourly wage and salary earnings of continuously employed workers in 2015 was 3.1 percent—up from 2.5 percent in 2014 and 2.2 percent in 2013. That is, the typical wage growth of workers employed for at least 12 months appears to be trending higher. However, wage growth by job type varies considerably. For example, the WGT for part-time workers has been unusually low since 2010. The following chart displays the WGT for workers currently employed in part-time and full-time jobs. For those in part-time jobs, the WGT was 1.9 percent in 2015, versus 3.3 percent for those in full-time jobs. The part-time/full-time wage growth gap has closed somewhat in the last couple of years but is still large relative to its size before the Great Recession. Note that full-time WGT is similar to the overall WGT because most workers captured in the WGT data work full-time (81 percent in 2015).

Machines may replace half of human jobs - In just 30 years, intelligent machines could replace about half of the global workforce. That was the message Moshe Vardi, a computer science professor at Rice University and Guggenheim fellow, shared during a presentation at the American Association for the Advancement of Science annual meeting on Saturday in Washington D.C. "We are approaching the time when machines will be able to outperform humans at almost any task," Vadri said, according to a report from The Guardian. "Society needs to confront this question before it is upon us: if machines are capable of doing almost any work humans can do, what will humans do?" From drivers to sex workers, no job is safe, Vardi and other scientists warned. "Are you going to bet against sex robots? I would not," Vardi added.

Tension Simmers as Cubans Breeze Across U.S. Border - NYT— They are crossing the border here by the hundreds each day, approved to enter the United States in a matter of hours.Part of a fast-rising influx of Cubans, they walk out to a Laredo street and are greeted by volunteers from Cubanos en Libertad, or Cubans in Freedom, who help them arrange travel to their American destination — often Miami — and start applying for work permits and federal benefits like food stamps and Medicaid, available by law to Cubans immediately after their arrival. The friendly reception given the Cubans, an artifact of hostile relations with the Castro government, is a stark contrast with the treatment of Central American families fleeing violence in their countries. And it is creating tensions in this predominantly Mexican-American city, where residents saw how Central American migrants, who came in an influx in 2014, were detained by the Border Patrol and ordered to appear in immigration courts. “The people here are starting to feel resentment,” said Representative Henry Cuellar, Democrat of Texas, whose congressional district includes the city. “They are asking, is it fair that the Cubans get to stay and the Central Americans are being deported?”

American Hispanics are doing better than we had thought -- Many of the more successful individuals start identifying as “white,” which biases the measured results downward for the Hispanic category: Because of data limitations, virtually all studies of the later-generation descendants of immigrants rely on subjective measures of ethnic self-identification rather than arguably more objective measures based on the countries of birth of the respondent and his ancestors. In this context, biases can arise from “ethnic attrition” (e.g., U.S.-born individuals who do not self-identify as Hispanic despite having ancestors who were immigrants from a Spanish-speaking country). Analyzing 2003-2013 data from the Current Population Survey (CPS), this study shows that such ethnic attrition is sizeable and selective for the second- and third-generation populations of key Hispanic and Asian national origin groups. In addition, the results indicate that ethnic attrition generates measurement biases that vary across groups in direction as well as magnitude, and that correcting for these biases is likely to raise the socioeconomic standing of the U.S.-born descendants of most Hispanic immigrants relative to their Asian counterparts. Here is the NBER paper by Brian Duncan and Stephen J. Trejo

Nickel and Dimed in 2016 -- A few years ago, I wrote about my experience enmeshed in the minimum-wage economy, chronicling the collapse of good people who could not earn enough money, often working 60-plus hours a week at multiple jobs, to feed their families. I saw that, in this country, people trying to make ends meet in such a fashion still had to resort to food benefit programs and charity. I saw an employee fired for stealing lunches from the break room refrigerator to feed himself. I watched as a co-worker secretly brought her two kids into the store and left them to wander alone for hours because she couldn’t afford childcare. (As it happens, 29 percent of low-wage employees are single parents.) At that point, having worked at the State Department for 24 years, I had been booted out for being a whistleblower. I wasn’t sure what would happen to me next and so took a series of minimum wage jobs. Finding myself plunged into the low-wage economy was a sobering, even frightening, experience that made me realize just how ignorant I had been about the lives of the people who rang me up at stores or served me food in restaurants. Though millions of adults work for minimum wage, until I did it myself I knew nothing about what that involved, which meant I knew next to nothing about twenty-first-century America. I was lucky. I didn’t become one of those millions of people trapped as the “working poor.” I made it out. But with all the election talk about the economy, I decided it was time to go back and take another look at where I had been, and where too many others still are.

Welfare Reform Killed People: A 20th anniversary reminder that an authentic randomized control trial proved beyond all conventional statistical significance levels and all reasonable doubt that welfare reform killed people. I will just note a very crude calculation. The experimental point estimate is that Florida’s welfare reform caused death rates to increase by 16%. This is a huge gigantic immense estimated effect. A silly assumption is that the increase was proportionally the same at all ages. If that were true, welfare reform would reduce life expectacy by a factor of 1.16 or about 11 years. The available evidence suggests that welfare reform is like smoking a pack of cigarettes a day or like morbid obesity. A crude estimate of the number of US deaths caused by welfare reform dwarfs US deaths caused by al Qaeda, plus the decision to invade Iraq, plus murder. Defenders of welfare reform must critique the study to which I link or argue that human lives don’t matter. There is no third choice.

‘Let Us Inspect Your Home For Dirty Dishes – Or We’ll Get A Warrant,’ City Says - Via: Off The Grid News: A Minnesota city is asking a court for a warrant to enter a rental home in order to check to see if the place is clean. If the city wins the case, then inspectors apparently would be able to enter such a building anytime they wish. The renters and tenants say they have nothing to hide but are opposing the city’s move based on principle. If they want to leave dirty dishes in the sink, they say, they it should be perfectly legal. “Your home is your castle—irrespective of whether you rent it or own it,” said Anthony Sanders, an attorney for Institute for Justice, which is representing the renters and tenants. “What we do in our home is our business, not the government’s. The mere fact that someone rents a home, rather than owns it, should not give the government the right to disrupt their life, invade their privacy and search every nook and cranny of their home—all without providing a shred of evidence that anything is wrong. It is a fundamental violation of the Minnesota Constitution’s protection against illegal searches.”

In 6 States, A Felony Drug Conviction Prompts Lifetime Food-Stamp Ban - In early February, a council appointed by Georgia’s Republican Gov. Nathan Deal recommended the state lift its lifetime ban on food stamps for people with felony drug convictions. If a vote from Georgia’s General Assembly lifts the prohibition, the state would follow Alabama’s recent repeal and Texas’ modification of the ban, which is a waning holdover from President Bill Clinton’s 1996 welfare reform law that restricted benefits for drug felons but not for people with other felony convictions. According to Pew Charitable Trust data compiled by The Marshall Project, 18 states have abandoned the federal prohibition, and 26 other states have partially eased restrictions, providing benefits if the recipient meets certain requirements, including parole and drug treatment compliance. That leaves just six states that fully enforce the 20-year-old ban: Alaska, Georgia, Mississippi, South Carolina, West Virginia, and Wyoming. “This specific law has always irked me,” said Lauren Johnson of Reentry Roundtable, a nonprofit in Austin, Texas, that provides support for people coming out of the prison system. Johnson, who has four felony drug convictions herself, has been called a powerhouse advocate for criminal justice reform on the level of Erin Brockovich. “It irked me before it affected me, but it really irked me after it affected me.”

Puerto Rico government cites substantial doubt about solvency | Reuters: Puerto Rico's government "believes that there is substantial doubt" about its ability to continue as a going concern, it said in a draft of its long-delayed Fiscal Year 2014 financial report. The draft, released on Tuesday night, reported a $49.2 billion deficit as of June 30, 2014, which was $2.5 billion higher than in 2013. The island is mired in economic crisis and trying to resolve a $70 billion debt load. The report also said the island's fiscal agent, the Government Development Bank, is at risk of missing debt payments and falling below legal reserve requirements in fiscal year 2016.

Illinois governor readies FY 2017 budget despite political impasse | Reuters: Never in Illinois' modern history has a governor proposed a budget for an upcoming fiscal year without a current spending plan in place, but that odd political reality confronts Republican Governor Bruce Rauner as he delivers his second budget address on Wednesday. Rauner, a former private equity investor, will lay out his spending priorities for fiscal 2017, which begins on July 1. Yet there is little sense that the 7-1/2-month-long impasse between the governor and Democrats who control the Illinois General Assembly shows any signs of abating. "I don't look for a breakthrough to come from (the governor's) speech," said State Representative Dan Brady, a Republican. "I look for the breakthrough to come because the pressure has been turned on all of us from those affected from this budget impasse." About 90 percent of state government is being funded through court orders, an enacted spending bill for K-12 schools, and continuing appropriations for pensions and bonds. Spending is largely at fiscal 2015 levels when revenue was higher before temporarily raised income tax rates rolled back on Jan. 1, 2015, making Illinois' shaky finances even shakier. Rauner has blocked any budget deal unless Democrats make concessions on his so-called Turnaround Agenda. His plan would weaken collective-bargaining rights, limit workers injured on the job from obtaining compensation from employers, freeze property taxes and change how legislative district boundaries are drawn.

The State Of Illinois Is Bankrupt - There seems to be no limit to the amount of relevant news about the U.S. economic and financial system that the mainstream media keeps off the radar screen.  I truly believe the technically insolvent status of the country’s fifth largest State is a lot more relevant to our collective lives than is the latest episode of The Jerry Springer Show Trump vs. Rubio vs. Cruz vs. Clinton “reality” TV show. Illinois sports a $111 billion unfunded State pension, it has $8 billion in unpaid bills, tax revenues are declining, spending is accelerating and it has yet to approve a FY 2017 budget. If this were a private corporation, it would have been taken through bankruptcy court and emerged with new owners at this point. But the true financial condition is even worse than advertised.   Let’s examine that underfunded pension estimate for a moment.  That number would be based on the existing actuarial assumed liabilities vs. the allegedly marked to market value of the assets.   I can say with 110% certainty that the total value of the assets are over-estimated by at least 10% and probably more.  Included in its cesspool of investments would be items like private equity tech investments, high yield-turned-distressed bonds, overvalued real estate and energy investments and, of course, derivatives.   There’s no way that the people running the fund have properly marked to market any of the above toxic assets. The now-Senator and supremely corrupt Michael Bennett plugged the Denver Public Employee pension fund for a cool $250 million of losses on interest rate derivatives that he bought from his former colleagues at JP Morgan.   Denver’s pension fund is tiny compared to Illinois’ grotesque public employee entitlement monstrosity.I don’t rely on the mainstream media for updates on the Illinois financial saga.  But every time I run across updates on the situation it has become worse.

Majority of U.S. public school students are in poverty - For the first time in at least 50 years, a majority of U.S. public school students come from low-income families, according to a new analysis of 2013 federal data, a statistic that has profound implications for the nation. The Southern Education Foundation reports that 51 percent of students in pre-kindergarten through 12th grade in the 2012-2013 school year were eligible for the federal program that provides free and reduced-price lunches. The lunch program is a rough proxy for poverty, but the explosion in the number of needy children in the nation’s public classrooms is a recent phenomenon that has been gaining attention among educators, public officials and researchers. “We’ve all known this was the trend, that we would get to a majority, but it’s here sooner rather than later,” said Michael A. Rebell of the Campaign for Educational Equity at Teachers College at Columbia University, noting that the poverty rate has been increasing even as the economy has improved. “A lot of people at the top are doing much better, but the people at the bottom are not doing better at all. Those are the people who have the most children and send their children to public school.” The shift to a majority-poor student population means that in public schools, a growing number of children start kindergarten already trailing their more privileged peers and rarely, if ever, catch up. They are less likely to have support at home, are less frequently exposed to enriching activities outside of school, and are more likely to drop out and never attend college. It also means that education policy, funding decisions and classroom instruction must adapt to the needy children who arrive at school each day.

Anti-Common Core measure could do away with AP, IB programs in Kansas | The Wichita Eagle: Kansas lawmakers are making another attempt at repealing Common Core standards, a measure that could affect and possibly do away with Advanced Placement classes and International Baccalaureate programs. Substitute House Bill 2292, formerly House Bill 2676, would compel Kansas school districts to develop new standards for reading, math, science and other subjects that would replace the Common Core-inspired Kansas College and Career Ready Standards that have been in place since 2010. Rep. Ron Highland, R-Wamego Courtesy of kslegislature.org i The bill passed out of the House Education Committee on Wednesday, shortly after committee members heard a presentation from Duke Pesta, a Wisconsin professor known for his outspoken opposition to Common Core. The bill could be heard on the House floor as early as next week. Before advancing the bill, the committee took its contents and stuffed them into Substitute House Bill 2292. The procedural move, known as a “gut and go,” speeds up the legislative process. The measure – similar to one proposed last year– calls for AP, IB and similar courses and tests to be aligned with new, non-Common Core Kansas standards. Educators say that directive would be difficult, if not impossible, because such courses are modeled on national or international frameworks.

The Every Student Succeeds Act and what lies ahead - AEI: In December, after years of false starts, Congress passed the Every Student Succeeds Act (ESSA). The new law rewrote the 2001 No Child Left Behind Act (NCLB) and served as a long-overdue course correction to an era of steady federal encroachment into K-12 education. While hardly ideal, the new law gets the big things mostly right and points federal policy in a more promising direction.  ESSA was intended to clean up the various messes that came in NCLB’s wake: a capricious accountability system, a nonsensical series of mandates around school improvement, an unhealthy obsession with testing, and states that felt blackmailed by the U.S. Department of Education. ESSA did a remarkable job of getting most of the big things right. ESSA did a far better job than NCLB of separating the baby from the bathwater. ESSA retains NCLB’s requirement that states test once a year in reading and math (in grades 3-8 and once in high school) and science (once in elementary, middle, and high school). Meanwhile, ESSA gets Washington (mostly) out of the business of judging whether schools are failing and (wholly) out of the business of mandating school improvement strategies. The result should help to cool test mania by allowing states to develop accountability systems that are less reliant on once-a-year reading and math scores. It requires that state accountability systems continue to base more than half of school ratings on achievement measures, but permits states to incorporate other measures as they see fit.  While ESSA got these big things mostly right, even those of us who regard it as a clear conservative triumph have noted that it’s no more than three-quarters of a loaf. There is still plenty of work yet to do.  Five opportunities for improvement particularly stand out:

School of Debt: How to Bankrupt Public Education, Chicago-Style -- Most people in Chicago’s City Hall probably recall a moment of clarity, a little voice whispering, this can’t last. Maybe it came in 1979, when the city’s schools nearly went broke. Maybe it came in the late 1990s, when no one funded the teachers’ pensions. Or maybe, finally, it came this month, when the nation’s third-largest public school district, with almost 400,000 students, once again slid toward the brink. Today the Chicago public schools are in such dire straits that officials from the Illinois governor down wonder aloud about its solvency. Yes, a few other big-city systems, like Detroit’s, are in worse shape. But nowhere else in American public education have local mismanagement and Wall Street engineering collided so spectacularly. The numbers tell the story. The teachers’ retirement fund is short about $9.6 billion. The school system owes more than $6 billion to its bondholders. On Wall Street, Chicago schools have the makings of following the same path as Puerto Rico, which is struggling with a $70 billion debt crisis. “They’ve run out of road,” How did it come to this? Among the many culprits, real or perceived, are recalcitrant unions, inept administrators, feckless politicians and self-interested bankers. But, in the end, the simple answer is this: too much debt. The budget math is sobering. Since 2007, actual district spending has soared by more than a third, even as enrollment has fallen 4 percent.

Protesters show support for Chicago teachers before classes - (AP) - The Chicago Teachers Union held several protests that had dozens of parents and children holding signs outside schools before classes started. Union officials said the Wednesday morning "walk-ins" were meant to show support for increased education funding and a fair contract for its teachers. Instead of students walking out of schools, supporters planned to walk in. CPS sent a letter to parents and staff Tuesday saying principals shouldn't let strangers inside buildings. About 50 to 60 parents protested outside a Hyde Park school. They held signs calling for an elected school board. CTU recording secretary Michael Brunson spoke on a loud speaker, asking district officials to develop financial solutions to keep schools from suffering. The CTU and Chicago Public Schools are amid months-long negotiations for a contract, which expired June 30.

Illinois launches financial probe into Chicago Public Schools | Reuters: The Illinois State Board of Education initiated an investigation Thursday into the “financial stability” of the Chicago Public Schools (CPS), a move that builds off Republican Governor Bruce Rauner’s call for a state takeover of the cash-strapped district. In a letter to CPS officials, Rauner’s appointed chairman of the state education panel, former state Senator James Meeks, and Illinois state Superintendent of Education Tony Smith set a March 4 deadline for the district to provide a litany of financial records, including three years worth of audits and financial projections, payroll data and “major contracts” that have received annual increases, among other things. “Our sincere hope is that the forthcoming investigation will identify opportunities for actions to be taken that will improve the financial condition of Chicago Public Schools…and, most importantly, result in fiscal stability,” Meeks and Sanders wrote in their letter to CPS Chief Executive Officer Forrest Claypool and Chicago Board of Education Chairman Frank Clark. The nation's third-largest public school system, which is controlled by Mayor Rahm Emanuel, has a $1.5 billion structural deficit and has asked Illinois' gridlocked state government for $480 million to help pay the system’s pension contribution for this fiscal year, which ends June 30. But the request has languished amid the nearly eight-month budget stalemate between Rauner and Democrats who control the state legislature. Before the school system borrowed $725 million in the municipal market earlier this month, Rauner and his GOP legislative allies called for legislation that would authorize a state takeover of CPS, which is not permitted under existing state law. The governor also backs legislation to permit the district to declare bankruptcy, which would enable it to restructure many of its debts. Democrats have vowed to block those initiatives.

Bankruptcy unlikely prescription for DPS troubles: With Detroit Public Schools on track to run out of cash by spring, threats of another Chapter 9 spectacle are coming again from leading Republicans in Lansing. They’re idle threats. A financial restructuring of the district in federal court would not implement academic reforms or address chronic governance issues. Nor would bankruptcy relieve the district’s debt because it is backed by the taxpayers of Michigan, a sharp difference from the Chapter 9 case the city completed in roughly 15 months. “Without these serious reforms, the option of bankruptcy must remain on the table,” House Speaker Kevin Cotter, R-Mount Pleasant, said in a statement. “Cutting a check without reforms does nothing but buy time for us to fall further behind.” He may be exactly right about the cutting-a-check-without-reforms part. But officially bankrupting the state’s largest district risks imposing a remedy just as bad as the disease it is allegedly intended to cure — and leaving Detroit’s kids essentially to fend for themselves. “I see no way that they would ever file for bankruptcy,” says John Rakolta, the chairman of Detroit-based Walbridge Co. who closely studied DPS’s finances as a co-chair of the Coalition for the Future of Detroit Schoolchildren. “There are no easy solutions here. There has to be structural reform of the district, how they teach, where they teach.” Chapter 9 would expose the state to at least $1.5 billion in liabilities accumulated by DPS and backed by the state, more than double the $715 million price-tag (payable in 10 annual installments of nearly $72 million) attached to Gov. Rick Snyder’s DPS restructuring proposal.

Louisiana governor says state's finances in dire situation -- Louisiana Governor John Bel Edwards presented a dire picture of the state's fiscal situation on Thursday, urging lawmakers to consider a set of budget cuts and revenue-raising measures, including tax increases. Edwards made his remarks before state legislators convene for a special session on Sunday to hash out how to fix the budget woes. The state is contending with a $940 million budget deficit for the current fiscal year and a $2 billion projected deficit for the next fiscal year starting in July. "This is a historic fiscal crisis, the likes of which our state has never seen," Edwards said during Thursday's televised address. He warned that the state's public colleges and universities will face "catastrophic cuts over the next four months." Louisiana is at risk of not being able to pay student scholarships that have already been awarded, and some campuses will be forced to cancel classes, even file for bankruptcy. "If you are a student attending one of these universities, it means that you will receive a grade of incomplete, many students will not be able to graduate," said Edwards.

The Koch “Center for Free Enterprise”: A Slippery Slope Indeed  - naked capitalism - Yves here. As this post demonstrates, the Koch brothers see academia as yet another activity that adheres to the Golden Rule: he who has the gold sets the rules. Originally published at Angry Bear. Mark Jamison has been a guest columnist of the Smoky Mountain News on several occasions now arguing against the addition of the Koch sponsored Center for Free Enterprise. This is another well written expose of why this addition should not be allowed at Western Carolina University.  To give this the attention needed both Yves Smith at Naked Capitalism and Angry Bear have been covering this issue. “UnKoch My Campus” has also picked up on Western Carolina University.  Schulman relates how Koch and other trustees meddled in hiring decisions and caused the abrupt resignation of a well-liked headmaster. “Incensed parents threatened to pull their children from the school; faculty members quit; students wore black in protest. Charles stepped down from the board of trustees citing, among other reasons, the school’s refusal to integrate his management style. But in a sign of just how much influence he exerted over the school; Richard Fink, one of Charles’s key advisors and an architect of Market-Based Management was installed as Collegiate’s interim head. The outrage ran so deep that, as Fink tried to tamp down the uproar, he was hung in effigy around campus.” Simply providing funding for the promotion of his libertarian ideology was not enough for Charles Koch though, “the management began to do things like increasing the size of student seminars, packing them in, and then giving the students a political questionnaire at the beginning of the week and another one at the end, to measure how much their political beliefs shifted over the course of the week. (Woe betide any student who needs more than a week to mull new ideas prior to conversion.) They also started running scholarship application essays through a computer to measure how many times the ‘right names’ (Mises, Hayek, Friedman, Rand, Bastiat, etc.) were mentioned – regardless of what was said about them!”

India's Crackdown on 'Anti-Nationalism' on Campus and How It Can Affect Universities Here: Police have now taken control of one of the premier universities in India and charged its student leadership with sedition, provoking statements of support for the students and faculty from at least 40 other universities in India as well as a worldwide protest from international scholars. But why should we in the US see this as more than a denial of free speech elsewhere, far far away? What possible connection might this have with our own universities? What is happening both in India and in the US is that Indian nationalism is exerting undue force in pushing certain ideas and silencing others, all in the name of nation and religion. In India this has taken the form of attacking dissident scholars as traitors; in the US we find outside organizations attempting to determine who gets hired at American universities -- setting conditions as to their religion, ethnicity, and intellectual beliefs.  The fusion of religion and nationalism provides a potent means by which the government can argue for the hegemony of one state based on religion and oppress other religions and political movements at once, labeling them "anti-Hindu," "anti-India," and "anti-national," which are used as synonymous. In December Inside Higher Education featured a story which told of possible interference with academic appointments here in the US.The story explains: "In May, UC Irvine celebrated a $1.5 million gift from the Thakkar Family and Dharma Civilization Foundation to establish a chair in Vedic and Indian Civilization studies. The university subsequently announced another $4.5 million in gifts to establish three additional endowed professorships, one on modern India and India diasporic studies funded by the Dharma Civilization Foundation and two additional chairs on Jain and Sikh studies funded by individual families. All four gifts are under review."

How to Help More College Students Graduate - The New York Times -- The United States has a dropout crisis. Sixty percent of people go to college these days, but just half of the college students graduate with a bachelor’s degree. Some people earn a shorter, two-year associate’s degree. But more than a quarter of those who start college drop out with no credential.    The financial prospects for college dropouts are poor, for two reasons. First, dropouts earn little more than people with no college education. Second, many dropouts have taken on student loans, and with their low wages, they have difficulty paying off even small balances. Dropouts account for much of the increase in financial distress among student borrowers since the Great Recession. The dropout problem is particularly acute for students whose parents did not attend college. First-generation students beat enormous odds by even enrolling in a four-year degree program. Yet 30 percent of first-generation freshmen drop out of school within three years. That is three times the dropout rate of students whose parents graduated from college.   Critically, first-generation students miss out on the advice, support and voice of experience provided by parents with firsthand experience of higher education. There is only so much information that overburdened guidance counselors can cram into students during a few short meetings. First-generation students, who don’t have a de facto college adviser at home, would benefit from some extra support. Details matter. In one counseling program, professional advisers periodically called students who were in academic difficulty. The counselors worked with students on the “soft skills” that college requires, like time management and organization. The discussions were personalized and concrete: “Don’t you need some extra time to study for midterms? Perhaps you should you cut back on your work hours this week.” Coached students were more likely to stay in college and graduate.

Debt Slavery in Action – Texas Man Arrested for Not Paying Student Loan Debt - What a cute little Banana Republic this America has become. Our government can’t put a single bank executive in jail for destroying the global economy, but when a mere peasant is caught not paying back his student debt, a team of U.S. Marshals arrive at his door to arrest him at gunpoint. Land of the thief, home of the slave, indeed. Fox26 reports: Believe it or not, the US Marshals Service in Houston is arresting people for not paying their outstanding federal student loans. Paul Aker says he was arrested at his home last week for a $1500 federal student loan he received in 1987. He says seven deputy US Marshals showed up at his home with guns and took him to federal court where he had to sign a payment plan for the 29-year-old school loan. Congressman Gene Green says the federal government is now using private debt collectors to go after those who owe student loans. Green says as a result, those attorneys and debt collectors are getting judgements in federal court and asking judges to use the US Marshals Service to arrest those who have failed to pay their federal student loans. Our reliable source with the US Marshal in Houston say Aker isn’t the first and won’t be the last.

Student debt protests planned after armed marshals arrest man for old loans - Seven US marshals armed with automatic weapons turned up at Paul Aker’s home in Houston, Texas, last week to arrest him over a $1,500 student loan debt dating back to 1987.  “It was totally mind-boggling,” Aker said. “I was wondering, why are you here? I am home, I haven’t done anything ... Why are the marshals knocking on my door? It’s amazing.” Aker said he was arrested, shackled and taken to federal court. “I was told: ‘You owe $1,500.’ I just couldn’t believe it,” he told Fox 26. “I was taken before a judge surrounded by seven marshals.” Texas representative Gene Green, a Democrat, said it was unacceptable that US marshals are being used to collect decades old student loans. “There’s bound to be a better way to collect on a student loan debt that is so old,” he told the station. Aker is unlikely to be the only person to be surprised by marshals collecting on student loans. A source at the marshal’s office told Fox 26 that it is planning to serve warrants on 1,200 to 1,500 people over student loan debts.  Student debts are at a record high, with 2015 graduates saddled with an average debt of $35,000, according to analysis of government data by Edvisors, a student finance advice site. That level of debt is more than twice the amount US graduates had just two decades earlier, even adjusted for inflation. About 40 million Americans have outstanding student loans. The reports come as students and graduates are preparing for a series of meetings on the Capitol demanding action over escalating student debt. Students from Corinthian Colleges, a for-profit college company that went bankrupt last year, will on Wednesday be joined by students from other for-profit colleges including the Art Institutes, ITT Tech, and the University of Phoenix in a “fight back against educational debt” protest.

Falling stocks squeezing pension funds: With stocks falling last week to 2013 levels, it's a good time to count what this is costing taxpayers. We're all in the markets - even if we don't have retirement plans - through our massive communal investment in public-worker pension funds. Philadelphia lost 3.06 percent on its pension investments in calendar-year 2015, city records show. Neighboring Montgomery County's plan squeezed out a profit of just 0.29 percent. The city's 2015 earnings were dragged down by money-losing investments in junk bonds, hedge funds, foreign stocks, and real estate. (Its corporate buyout funds did better.) Montgomery County stuck mostly to plain-vanilla indexed stock and bond funds from Malvern-based Vanguard Group. But the bottom line is not so different: Both city and county fell far behind their target returns of more than 7 percent a year. Since Philadelphia is already paying about $600 million a year - one-sixth of the city budget - to keep its deeply underfunded pension system from evaporating, weak returns keep city pension subsidies high for years to come. Montgomery County says its smaller plan is in better shape. At the giant Pennsylvania state workers' (SERS) and public school (PSERS) pension plans, which face multibillion-dollar long-term deficits, profits are expected to fall short, too, when they are presented to the General Assembly in next month's budget hearings.

"I Guess It's Food Stamps": 400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts - Dale Dorsey isn’t happy. After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school. Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade. “A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.” “What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member. Jay is probably correct. Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher. Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations.

Obamacare Hits 12.7 Million Enrollments––But Only Grows 8.5%: Today the administration announced that 12.7 million people signed up for coverage in the Affordable Care Act's insurance exchanges. Said the HealthCare.gov CEO, "We knocked the lights out this year. We did a great job." Let's take a closer look. In 2015, the exchange enrollment totaled 11.7 million. By year-end 2015, that had shrunk to 9.1 million––a 22% decrease. The administration has said their goal is to have 10 million insured through the exchanges by the end of 2016. If all 12.7 million of these enrollments complete their enrollment and pay for their coverage––those who signed up for March 1 effective dates have until the end of February to pay––and the same lapse occurs as occurred in 2015, they would have 9.8 million still covered at year end. Again presuming all 12.7 million end up completing their enrollments, the Obama administration achieved an 8.5% growth over the 2015 open-enrollment. According to an October Urban Institute study, by the end of June 2015, only 35% of those eligible for a subsidy in the Obamacare exchanges had enrolled. If the administration can increase that by 8.5% this year, the Obamacare take-up rate for those subsidy eligible would be about 38%. Historically, insurers want to see a 75% participation rate to ensure they have enough healthy people signed up to pay for the sick.

ObamaCare: How Is It Doing? – DeLong - There have been three very surprising things with respect to Obamacare implementation so far. The first is the surge in enrollment in employer-sponsored insurance. The fear was that people and employers would find the coverage offered on the exchanges irresistible, and that there would be a great deal of disruptive churn as the exchanges started up. The penalty for large employers who did not offer health insurance was constructed to guard against this. Yet it seems to have been needless. . The second surprising thing is the failure of national health expenditures to rise as ObamaCare has been implemented more rapidly than was projected in the baseline. There was, everyone agreed, a great deal of pent-up demand for medical care from people who had been unable to get affordable insurance. When this wave hit, everybody expected, spending would surge--especially as, while ObamaCare did a great deal to expand demand for medical services, it did little to expand supply.  And there is, of course, the third surprising thing about ObamaCare implementation.  The money to finance Medicaid expansion was more than free to the states: everybody who could do the arithmetic knew that as the federal government paid for the Medicaid expansion, other ancillary draws on state treasuries would decline, leaving states in a better fiscal position. One-third of the Medicaid expansion money would provide more employment in healthcare, as people without affordable access to medical care gained it. One-third would beef up the shaky finances of those healthcare providers who do treat Americas poor. And one-third would flow into the medical industrial complex which would no longer be informally taxed to pay for services that the federal government was now willing to pay for. How could you turn this down? Unless, that is, you are a psychopath or a madman for whom treating the poor and paying those who do treat the poor is a minus, Medicaid expansion was and is a no-brainer. And even if you are a madman and a psychopath, you are also a politician. You draw heavily upon the medical-industrial complex for your campaign contributions. Would you seek to anger the MIC over real money, for nothing except a symbolic declaration that all of the works of the hated Kenyan-Muslim-socialist were rotten?  The answer is: yes.

Health-insurance costs rise by nearly 5%, latest CPI data shows - Health-insurance costs climbed sharply, according to the latest inflation data released Friday, evidence insurers were able to pass along big premium hikes. According to the Labor Department, health-insurance costs rose 4.8% in the 12 months ending in January, the fastest rise since April 2013 and much faster than the broader rate of inflation. The data reflect both rising premiums as well as increased co-payments, according to Richard Moody, chief economist at Regions Financial, in a note to clients. That said, it’s worth noting the CPI calculation on health insurance is a complex one. The Labor Department says it can’t get reliable data on changes in quality, so it uses the indirect method of looking at changes in the prices of medical-care items covered by health-insurance policies as well as the cost of administering policies. But the CPI data seems to be reflective of reality. A number of state regulators had approved big premium increases. In Tennessee, for instance, BlueCross BlueShield hiked average premiums by 36%, and Humana increased rates by 5.8%.  According to the Kaiser Family Foundation, the weighted percentage change in the cost of silver plans offered under the Affordable Care Act this year is 3.6%.  Most people don’t actually get their coverage using the ACA, or Obamacare as it’s commonly known, but the trends appear to be similar for employer-based plans. The Congressional Budget Office says premiums on employment-based coverage will grow by about 5% each year over the next decade, or roughly 2 percentage points faster than income. UnitedHealth Group UNH, +0.13% and other insurers have complained that people are gaming Obamacare by using special enrollment periods to get coverage when they need medical care.

Dirty little secret: Insurers actually are making a mint from Obamacare - For months now, headlines about the Affordable Care Act have focused on complaints from big insurers that they haven't been making money from individual insurance plans mandated by the act.  The big insurer UnitedHealth Group has even whined about losing so many millions it'sthinking about withdrawing from the Obamacare marketplace as soon as next year. Others, including Anthem and Aetna, have mentioned that their exchange business isn't yet profitable, though they're not talking about pulling the plug. Here's what they haven't been saying so loudly: They're making scads of money from Obamacare — so much that almost universally, they're expanding their participation.  What's the catch? The big profits have come not from the insurance exchanges, but via the ACA's Medicaid expansion, in which the largest insurers have been playing a major role. The same insurance executives who go out of their way to badmouth the ACA's individual exchange plans talk as though they can't get enough of the Medicaid business, especially its managed care component.  "Managed Medicaid continues to emerge as the ultimate long-term sustaining solution for states," United CFO Dave Wichmann told investors last month, adding that his company expected to compete for that business aggressively.

Left-Leaning Economists Question Cost of Sanders’s Plans - — With his expansive plans to increase the size and role of government, Senator Bernie Sanders has provoked a debate not only with his Democratic rival for president, Hillary Clinton, but also with liberal-leaning economists who share his goals but question his numbers and political realism.   The reviews of some of these economists, especially on Mr. Sanders’s health care plans, suggest that Mrs. Clinton could have been too conservative in their debate last week when she said his agenda in total would increase the size of the federal government by 40 percent. That level would surpass any government expansion since the buildup in World War II. The increase could exceed 50 percent, some experts suggest, based on an analysis by a respected health economist that Mr. Sanders’s single-payer health plan could cost twice what the senator, who represents Vermont, asserts, and on critics’ belief that his economic assumptions are overly optimistic.   His campaign strongly contests both critiques, defending its numbers and attacking prominent critics as Clinton sympathizers and industry consultants.

Corporations Killed Medicine. Here’s How to Take It Back - Between the 15th and 19th centuries, the rich and the powerful fenced off commonly held land and transformed it into private property. Land switched from a source of subsistence to a source of profit, and small farmers were relegated to wage laborers. More recently, a similar enclosure movement has taken place. This time, the fenced-off commodity is life-saving medicine. Playing the role of modern-day lords of the manor are pharmaceutical corporations, which have taken a good that was once considered off-limits for private profiteering and turned it into an expensive commodity. Instead of displacing small landholders, this enclosure movement causes suffering and death: Billions of people across the globe go without essential medicines, and 10 million die each year as a result.   Many people curse the for-profit medicine industry. But few know that the enclosure erected around affordable medicines is both relatively new and artificially imposed. For nearly all of human history, attempting to corner the markets on affordable medicines has been considered both immoral and illegal.  It’s time now to reclaim this commons, and reestablish medicines as a public good.  Most of us define public goods broadly.  Economists narrow down that definition somewhat, saying that public goods are non-rivalrous and non-excludable in their consumption.  Non-rivalrous means that any one person can benefit from a good without reducing others’ opportunity to benefit as well.  Non-excludable means what it sounds like: A person cannot be prevented from consuming the good in question. Clean air is a good that can be enjoyed by all without the possibility of denying access to those who don’t register or pay a fee. But access to a private swimming pool is an excludable good.

One-Third of Clinical Trial Results Never Disclosed, Study Finds - One-third of clinical trials conducted at 51 major U.S. universities and academic hospitals were never published in a peer-reviewed journal or in a government registry online, according to a new study in the BMJ, formerly the British Medical Journal.The researchers looked at 4,347 trials that were completed between October 2007 and September 2010. Of those, only 29 percent had results published within two years of finishing data collection, and 13 percent were posted on the government database ClinicalTrials.gov within the same period, the study found. Overall, about 67 percent of the studies disclosed their results by July 2014.Researchers examined the publications rates at academic medical centers, including Stanford University, Dana-Farber Cancer Institute and Cornell University. Results varied widely among the institutions, from 11 percent of trial results at the University of Nebraska being published in medical journals to 40 percent at Yale University within 24 months after tests had finished.

Health chief slams statins: Millions face terrible side effects as prescription escalates  -- LEADING doctors are demanding an end to the widespread prescription of statins, warning that one in four Britons will soon be at risk of terrible side effects from the controversial heart drugs.   Those sounding the alarm include Dr Kailash Chand, deputy chairman of the British Medical Association, who suffered “awful” muscle pains while taking statins and claims that plans to prescribe them to millions more adults will “only benefit drug companies”.  The drugs are currently offered to patients with a 20 per cent risk of developing heart disease to help keep their cholesterol levels in check.   Around seven million adults take the drugs. Under guidance to be published later this month by Government drug watchdog the National Institute for Care and Health Excellence (NICE), the threshold will be cut to a 10 per cent risk.  This will see millions more adults routinely prescribed the drugs. Aseem Malhotra, a cardiology specialist registrar, and Dr Malcolm Kendrick, a GP and cholesterol expert, will write to Nice next week, urging it to reconsider the move. They will ask the watchdog not to rely on evidence from drug company sponsored trials, which have been shown to play down the risk of side effects including diabetes, impotence, cataracts, muscle pains, mental impairment, fatigue and liver dysfunction.  Dr Chand last night warned that giving the drugs to low-risk patients was “a commercialisation device” and not in their interests. Many experts say it is unnecessary to “medicalise” a problem which could be controlled with simple dietary changes, pointing to a study showing that eating an apple a day cuts cholesterol levels as effectively as taking statins.

'Smoking kills more people than Obama' poster appears in Moscow - A Moscow advert declaring that “smoking kills more people than Obama” has gone viral, becoming the latest in a string of actions condemning the US president as a mass killer.  Dmitry Gudkov, the sole liberal opposition MP in Russia’s parliament, on Tuesday posted a photograph of the large poster, which was in a metal-and-glass frame at a bus shelter on Moscow’s third ring road.  “Smoking kills more people than Obama, although he kills lots and lots of people,” the poster read, showing an illustration of the president smoking the last dregs of a cigarette. “Don’t smoke, don’t be like Obama.”

Congress Finally Gives A Damn About Heroin Addiction: -- Suddenly, heroin is the hottest political issue in Washington, but it doesn't sound anything like your grandfather's war on drugs. Over the past few years, Capitol Hill has gradually toned down its martial rhetoric around drugs, even if it hasn't found the will to actually pass any legislation. Last week, however, the shift in rhetoric hit a new gear, with lawmakers in the unusual position of trying to outflank each other -- in Congress and on the campaign trail -- over just how passionate they are about dealing with the heroin crisis as a public health issue. There was a remarkable focus on heroin all week. More than a dozen senators -- including the top leaders in each party -- brought up the topic in discussions on the Senate floor and in committee rooms. It even surfaced repeatedly when intelligence officials briefed lawmakers on the threats facing the United States in 2016, and included opioids. It's a dramatic shift for a slow-to-change Congress, which for decades beat a get-tough-on-crime drum when it came to drugs. The most significant legislative signal of change came in the advancement of a bill that would formally authorize the federal government to take a less prosecutorial approach to addiction. The bill,  the Comprehensive Addiction and Recovery Act, sponsored by Sens. Rob Portman (R-Ohio) and Sheldon Whitehouse (D-R.I.) passed the Judiciary Committee. It essentially would authorize federal officials to change drug strategy from punishment to prevention, combined with a reform of the broken treatment industry.

What Tasers Do to the Brain -- Tasers aren’t known to be the gentlest things, to put it mildly. The devices deliver 50,000 volts of electroshock, and though deaths after use of electroshock weapons — Taser is the brand name — are relatively rare, in 2015, at least 48 people died during interactions with police who used Tasers. Now, a team of scientists at Drexel University and Arizona State University set out to investigate — what are Tasers doing to the brain? Their results, published recently in the journal Criminology & Public Policy, suggest that the electroshock can impair a person’s cognitive functioning for up to an hour after being Tased, which “questions the ability of … suspects to waive their Miranda rights knowingly, intelligently, and voluntarily within 60 minutes of a Taser exposure,” the authors write. For their study, the researchers separated 142 students into four groups. Two of the groups received five-second shocks, one with no preparation, the other after punching a bag, to simulate the high intensity of a police encounter. One of the other remaining groups did nothing, and the other also hit the punching bag. The groups that had undergone the shocks fared worst, with a quarter of them scoring below average on verbal and memory tests — rates that were equivalent to 79-year-olds. Concentration issues were reported frequently; others mentioned feeling heightened senses of anxiety. They were tested again one hour after the shocks, and the results persisted. "Being shocked had a traumatic effect on some participants," Robert Kane, a Drexel University professor of criminology and one of the co-authors of the study, said in a statement. "Some were emotionally debilitated by the experience." This study is not the first to find Tasers potentially dangerous or damaging: A 2014 Circulation article found that in eight examined cases of people being Tased, seven died from cardiac complications resulting from the delivered shocks.

The food we eat influences our genes: A new study suggests human genes are influenced by the food that is eaten. This is based on a microbiological study, examining genetics and metabolism.Because the function of cells is affected by the activity of cellular genes and metabolism, researchers have been assessing the scope of the interactions. Metabolism concerns the breakdown of molecules to generate energy for the body as well as the production of the chemical compounds needed by the cells.  With metabolic functions, the genes can influence differences within individual cells. Here one gene can switch on or switch off another gene and this can be influenced by external stimuli (what are called epigenetic changes.) One such influencer is the food we eat — the combination of sugars, amino acids, fatty acids and vitamins affects genes. Researchers looked at yeast for the study because the single-celled fungi can be used to model different processes. Yeasts grow fast, allowing multiple studies to be run in relatively quick succession. With yeast it was found that varying nutrients, and thus metabolic processes and the metabolites produced, influenced nine out of 10 genes. Some of these changes were significant, leading to genes behaving very differently.

Expiration Dates on Your Food Mean Nothing -- Sell by, best if used by, expires on, display until; the shelf life of food seems like it’s a well regulated, concrete affair, but it’s not: It differs by region and type of food. In the end, those labels mean almost nothing, which leads to both food waste and an assumption of safety. The origin of expiration dates is a classic life hack. By the 1970s, Americans had moved away from buying food from farms and small grocers and purchasing the bulk of their edibles from grocery stores. At the time, manufacturers started using special codes like the one above that told supermarkets when to rotate stock. As you’d expect, someone deciphered these codes and released a small book, called Blind Dates: How to Break the Codes on the Foods You Buy. As the name suggests, the book walked consumers through how the codes worked so they could buy the freshest food.  As more and more consumers cracked the codes, more people started asking for some type of freshness label on their food. As they did, supermarkets and food suppliers voluntarily started including sell by dates on their food. As time went on, sell by dates became common, but consistency didn’t.  With the exception of infant formula, the federal government never stepped in to regulate expiration dates. Because of that, we have different terminology that all means different things. In most cases, those labels describe food quality and have nothing to do with food safety. As an example, let’s break down some of the most common terms:

You Can Taste the Need for Regulating Corporations When Parmesan Cheese Is Fake --Before you sprinkle that bowl of rigatoni with a dusting of Parmesan cheese, you might want to reconsider. That's because a February 16 article in BloombergBusiness warns, "Some brands promising 100 percent purity contained no Parmesan at all."  Here you were, just about to savor steaming pasta with a tasty flavoring of traditional Parmesan cheese, only to learn that the company who is supplying the cheese to your food mart is using less expensive cheeses - not to mention wood pulp - to create falsely-labeled Parmesan. BloombergBusiness explored the wood pulp additive issue: How serious is the problem? Bloomberg News had store-bought grated cheese tested for wood-pulp content by an independent laboratory. Essential Everyday 100% Grated Parmesan Cheese, from Jewel-Osco, was 8.8 percent cellulose, while Wal-Mart Stores Inc.’s Great Value 100% Grated Parmesan Cheese registered 7.8 percent, according to test results. Whole Foods 365 brand didn’t list cellulose as an ingredient on the label, but still tested at 0.3 percent. Kraft had 3.8 percent. However, the issue of wood pulp in grated Parmesan cheese - and other grated and shredded cheeses - as disgusting as it may strike one, is overshadowed by the reality, mentioned above, that some cheeses labeled Parmesan don't include an iota of Parmesan...

Showdown: Sheriff Blocks FDA Inspectors From Raw Milk Farm -- Federal agents subjected a farmer to harassment and warrantless searches simply for producing raw milk, but a county sheriff took the farmer’s side and blocked federal agents from the property – and the sheriff is now speaking out. The US Food & Drug Administration (FDA) and Department of Justice (DOJ) took the actions four years ago simply because the farmer was providing raw milk to an organic food co-op. The story is receiving renewed coverage because the Indiana sheriff, Elkhart County’s Brad Rogers, wrote a 600-word explanation for a local newspaper as part of his “Ask The Sheriff” series. Off The Grid News previously reported on the dispute. Participants paid money into the co-op and, in return, received raw milk. “It appeared to be harassment by the FDA and the DOJ, and making unconstitutional searches, in my opinion,” Rogers wrote of Uncle Sam’s treatment of the farmer in a column for the Goshen News. Rogers said he became involved in the case in 2011 when the farmer complained to him. “Specifically, the FDA was inspecting his farm without a warrant as much as every two weeks,”   “My research,” Rogers added, “concluded that no one was getting sick from this distribution of this raw milk. It appeared to be harassment by the FDA and the DOJ, and making unconstitutional searches, in my opinion. The farmer told me that he no longer wished to cooperate with the inspections of his property.”

Ecological Eating -  As farmers, we enjoy conversations about soil, water, animal husbandry, horticulture and every other kind of production nuance. That’s as it should be. But all of this production is meaningless without someone to use it. Obviously the industrial food system has a lot of users. Whether those users are lazy, ignorant, evil or just plain unconscious is anybody’s guess. But if we’re ever going to get ecological farming more widely practiced, we obviously need more ecological eaters. How do we move ecological farming forward fastest? Is it by converting farmers, or converting people who buy our stuff? Certainly both need attention, but I’ll submit that we don’t put enough responsibility on customers. While we farmers shoulder the brunt of accusations regarding depleted soils, tasteless food, animal abuse, and pathogen-laden fare, by and large consumers escape with excuses. Part of our marketing as ecological farmers, both corporately and individually, is to put some onus on our constituency to drive demand for a different farming paradigm. Farmers and the food system have always risen to market demand. Letting our customers off the hook as just victims of advertising is an excuse that doesn’t serve our soil well. Those of us who understand the problems and the solutions need to articulate this responsibility on our advertising fliers, to our farm visitors, and in our collective voice. Factory farming exists because people buy factory farmed stuff. Hot Pockets exist because people buy them. Genetically Modified Organisms (GMOs) exist because people buy them.

FDA to Start Testing Monsanto’s Glyphosate in Food -- The Food and Drug Administration (FDA) will begin testing food for glyphosate, the world’s most commonly used pesticide, according to Civil Eats. This marks the first time that a U.S. agency will routinely test for glyphosate residue in food. It comes after the Government Accountability Office released a report condemning the FDA for failing even to disclose its failure to test for glyphosate in its annual pesticide residue report.  The World Health Organization (WHO) found that glyphosate, commonly known as Roundup, was a probable human carcinogen and glyphosate has been named as a leading cause of massive declines in monarch butterflies. “In the wake of intense scrutiny, the Food and Drug Administration has finally committed to taking this basic step of testing our food for the most commonly used pesticide. It’s shocking that it’s taken so long, but we’re glad it’s finally going to happen,” Dr. Nathan Donley, a scientist with the Center for Biological Diversity, said. “More and more scientists are raising concerns about the effects of glyphosate on human health and the environment. With about 1.7 billion pounds of this pesticide used each year worldwide, the FDA’s data is badly needed to facilitate long-overdue conversations about how much of this chemical we should tolerate in our food.”

India’s Food Supply at Risk of GMO Contamination After Lifting 16-Year Corn Import Ban -- India, which currently does not allow the growing of genetically modified (GMO) crops, is preparing to lift its import ban on corn for the first time in 16 years which could potentially open the doors to GMO contamination in its food supply.  India will receive 250,000 tonnes of non-GMO corn from South Korea’s Daewoo International via Ukraine, however as experts warned to Reuters, it is difficult to ensure that the supply is 100 percent non-GMO.  It only takes a few GMO seeds to mix with local varieties and enter India’s food supply chain, an Indian government scientist explained to the news agency. “The biggest risk of accepting anything less than 99, or 100, percent is that the imported GM corn may eventually get mixed with conventional seeds that farmers sow in India,” the scientist, who asked to not be named, told Reuters. “If, God forbid, any GM seed gets mixed here, it’ll spoil the entire Indian agriculture.”

Interactive Map Shows Where Monsanto’s Roundup Is Sprayed in New York City -- New York City residents can now find out if Monsanto’s Roundup is sprayed on their corners, parks, playgrounds and picnic areas.The interactive map below will be presented to Mitchell J. Silver, commissioner of the New York City Department of Parks and Recreation at a meeting Tuesday by the the Black Institute, Reverend Billy and The Stop Shopping Choir, Stop The Spray and other members of the Coalition Against Poison Parks. The groups will demand an end to the use of Roundup and glyphosate, the active ingredient in Roundup, in New York City and full public disclosure. The groups are pursuing legal options to force the city to reveal all locations where glyphosate is sprayed. According to the Pesticide Use by New York City Agencies in 2014, published in May 2015, New York City applied glyphosate 2,748 times. Through a Freedom of Information Law request, the city has revealed only 2,000 locations of glyphosate in 2014. Data from Central Park and other areas managed by non-profit conservancies has not been shared with the public.

French Ecology Minister Calls for Ban on Glyphosate Formulations  Ségolène Royal, France’s minister of ecology, sustainable development and energy, has called for a ban on glyphosate mixed with certain adjuvants (additives) due to its perceived risks to human health. On Feb. 12, Royal called for ANSES—France’s food, environment and health agency—to withdraw authorizations on herbicides containing glyphosate mixed with the adjuvant tallow amine, according to French newspaper Le Monde (via Google translate). Although it wasn’t explicitly said, one can only conclude that this measure was directly targeted at Monsanto and other herbicide makers.  Tallow amine, or polyethoxylated tallow amine, aids the effectiveness of herbicides such as glyphosate. The chemical is contained in Monsanto’s widely popular weedkiller Roundup, according to the Northwest Coalition for Alternatives to Pesticides, which published a letter from Monsanto listing the ingredients. Roundup’s ingredients are as follows:

• Isopropylamine salt of glyphosate (active ingredient)
• Water
• The ethoxylated tallow amine surfactant
• Related organic acids of glyphosate
• Excess isopropylamine

In Europe, there has been a great deal of controversy surrounding glyphosate since November when the European Food Safety Authority (EFSA) rejected the World Health Organization’s International Agency for Research on Cancer’s (IARC) infamous classification of the chemical as a possible carcinogen in March 2015.

Bee bandits: Hive theft in California spikes before almond season - California beekeepers have reported "unprecedented levels" of hive theft in recent months, just in time for the state's almond pollination season. As the US bee population continues to decline, the hives have become much more valuable. The state's hundreds of thousands of acres of almond orchards – which produce about 80 percent of the world's almonds – are served by hives that are rented and trucked in on easy-to-steal pallets by beekeepers from all over the US. Mobile hives are increasingly important, and valuable, as the bee population in the US has decreased rapidly in recent years. The exact cause of the mass deaths is ambiguous and subject to fierce debate, as various camps blame the overuse of neonicotinoid insecticides or the bee-ravaging varroa mite parasite, among other causes. There is even a White House Pollinator Health Task Force, which aims to reduce honeybee colony collapse over the next decade. Amid these high stakes for crops like almonds in an important agricultural state like California, beekeepers and investigators have reported record hive thefts this season, according to the Washington Post and the California State Beekeepers Association. Average hive rental prices have hit $200, up from $130 in 2010, according to the Post.  Butte County, California, Detective Jay Freeman said theft has shot up this year, as 280 stolen hives, for instance, represents about $100,000 in losses for a beekeeper.

Farmers Key to Bringing Monarch Butterflies Back From the Brink of Extinction  - Over the past two decades, the population of monarch butterflies—one of this nation’s most iconic species—has plummeted from more than one billion to about 50 million today. That’s a 95 percent decline, bringing the butterfly that much closer to extinction. But the monarch’s story is not over, yet. With an unlikely ally on board, new solutions are emerging with the potential to bring the monarch back from the brink. My colleagues and I are working to build a conservation program for the monarch butterfly that works efficiently and effectively to protect and restore vital milkweed habitat, which monarchs need to lay their eggs and for larvae to feed on. Unfortunately, milkweed is in decline across the U.S., accounting for a significant portion of the population decline. Milkweed has long found a foothold in both native habitats and in disturbed habitats like roadsides, ditches, cemeteries and even in the middle of cornfields. But it’s losing that foothold due largely to increased use of highly effective herbicides and climate change poses additional threats. The vast majority of monarch habitat exists on private lands. Since farmers, ranchers and forestland owners manage much of the habitat appropriate for milkweed, we are working to develop a tool, called habitat exchanges, to accurately determine the value of habitat and allow incentive payments to be directed to the right places at the right time, ensuring maximum bang for the buck and for the butterfly.

The Beetles: Eighty-Nine Million Acres of Abrupt Climate Change -- We were awash for 19 days in a tumultuous sea of mountains and forests, drifting a course through the heart of the US Rockies on a 6,000-mile journey of observation. Our film, What Have We Done, the North American Pine Beetle Pandemic, was released in 2009. It was the story of what is now 89 million acres of forest across the North American West that have been attacked by native insects. These insects had been driven to unprecedented numbers by warming that is twice or more the global average. Most of the trees in impacted forests were killed in the wake of the beetles.  It has been four years since the Climate Change Now Initiative's last post-film observation in 2010. Our epic crossing was different on that final journey. The mountainsides of impacted forests were not predominantly bright red. Some were red. Some were brown. And ghost forest of gray needleless conifers at times spread to the horizon.  The mountain pine beetle - a single species of native beetle - had attacked an area that was 20 times larger than ever recorded. From 60 to nearly 100 percent of the trees in those forests were killed. It began in the late 1990s and was widespread from New Mexico to British Columbia. The reasons for the attack were many but largely, warming has virtually eliminated the cold temperatures that have previously kept beetle populations under control. Lodgepole pine, the original target, once made up about 20 percent of western North American forests. They haven't disappeared, but their ecosystem is in shambles and warming will very likely preclude the maturation of new lodgepole forests to take their place.

Lyme disease–carrying ticks are now in half of all U.S. counties - AAAS The ticks that transmit Lyme disease, a debilitating flulike illness caused by Borrelia bacteria, are spreading rapidly across the United States. A new study shows just how rapidly. Over the past 20 years, the two species known to spread the disease to humans have together advanced into half of all the counties in the United States.Lyme disease cases have tripled in the United States over the last 2 decades, making it the most commonly reported vector-borne disease in the Northern Hemisphere. The disease now affects around 300,000 Americans each year. If diagnosed early—a rash commonly appears around the site of the tick bite—Lyme can be effectively treated with antibiotics, but longer term infections can produce more serious symptoms, including joint stiffness, brain inflammation, and nerve pain.To get a comprehensive map of where the two species—the blacklegged tick (Ixodes scapularis) and the western blacklegged tick (I. pacificus)—were living, Rebecca Eisen and colleagues from the U.S. Centers for Disease Control and Prevention (CDC) in Fort Collins, Colorado, combined data from published papers with state and county tick surveillance data going back to 1996. They counted reports of tick sightings in each of the 3110 continental U.S. counties to determine whether those counties hosted an established population or just a few individuals. Ticks were considered “established” when sightings of at least six ticks, or two of the three life stages, had been reported in a year.Their results, published in the Journal of Medical Entomology, show that the blacklegged tick has undergone a population explosion, doubling its established range in less than 2 decades. It is now reported in 45.7% of U.S. counties, up from 30% in 1998. Blacklegged ticks are found in 37 states across the eastern United States. The rarer western blacklegged tick, restricted to just six states, has shown only modest increases in established populations, from 3.4% to 3.6% of counties. Combined, these two Lyme disease vectors are now found in half of all U.S. counties.

A New Culprit in Lyme Disease -  Mosquitoes may be receiving all the attention amid the Zika virus epidemic, but they are hardly the only disease vectors to worry about. Researchers at the Mayo Clinic in Rochester, Minn., have discovered a new species of tick-borne bacteria that causes Lyme disease.The new species, provisionally named Borrelia mayonii, after the clinic, has been found only in the upper Midwest but may be present elsewhere.Six patients with the infection were identified by the researchers. The patients had symptoms similar to, but not precisely the same as, those caused by Borrelia burgdorferi, until now the only species known to cause Lyme disease in North America.Lyme disease was diagnosed in the patients with available tests. But available diagnostic screens may be missing others infected with the newly discovered bacteria, the scientists acknowledged.Dr. Bobbi Pritt, the medical director of the microbiology laboratory at the Mayo Clinic, where the new strain was first detected, recommended that patients with exposure to ticks in Minnesota and Wisconsin receive antibody and polymerase chain reaction testing to detect B. mayonii if they are concerned about Lyme infection but do not have the telltale bull’s-eye rash.Because the symptoms vary slightly from those normally seen in B. burgdorferi infection, doctors may not even think to test for Lyme disease, she said.

Argentine and Brazilian doctors name larvicide as potential cause of microcephaly -- A report from the Argentine doctors’ organisation, Physicians in the Crop-Sprayed Towns,[1] challenges the theory that the Zika virus epidemic in Brazil is the cause of the increase in the birth defect microcephaly among newborns.   The increase in this birth defect, in which the baby is born with an abnormally small head and often has brain damage, was quickly linked to the Zika virus by the Brazilian Ministry of Health. However, according to the Physicians in the Crop-Sprayed Towns, 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 poison, Pyriproxyfen, is used in a State-controlled programme aimed at eradicating disease-carrying mosquitoes.  The Physicians added that the Pyriproxyfen is manufactured by Sumitomo Chemical, a Japanese "strategic partner" of Monsanto. Pyriproxyfen is a growth inhibitor of mosquito larvae, which alters the development process from larva to pupa to adult, thus generating malformations in developing mosquitoes and killing or disabling them. It acts as an insect juvenile hormone or juvenoid, and has the effect of inhibiting the development of adult insect characteristics (for example, wings and mature external genitalia) and reproductive development. It is an endocrine disruptor and is teratogenic (causes birth defects), according to the Physicians. They also noted that Zika has traditionally been held to be a relatively benign disease that has never before been associated with birth defects, even in areas where it infects 75% of the population

Doctors Think Microcephaly Caused by Pesticide Pyriproxyfen, Not Zika Virus -- Via: Ecologist: With the proposed connection between the Zika virus and Brazil’s outbreak of microcephaly in new born babies looking increasingly tenuous, Latin American doctors are proposing another possible cause: Pyriproxyfen, a pesticide used in Brazil since 2014 to arrest the development of mosquito larvae in drinking water tanks. Might the ‘cure’ in fact be the poison? Argentine doctors: it’s the insecticide. 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. Pyriproxyfen is a growth inhibitor of mosquito larvae, which alters the development process from larva to pupa to adult, thus generating malformations in developing mosquitoes and killing or disabling them. It acts as an insect juvenile hormone or juvenoid, and has the effect of inhibiting the development of adult insect characteristics (for example, wings and mature external genitalia) and reproductive development.

Brazilian State Suspends Larvicide Used to Combat Zika, Monsanto Slams ‘Rumors’ Regarding Virus  - Rio Grande do Sul, Brazil’s southernmost state, has suspended the use of the pyriproxyfen—a pesticide that stops the development of mosquito larvae in drinking tanks—to combat the spread of the Zika virus, according to a report from Fox News Latino. The state government’s move came after separate reports from the Argentine group Physicians in the Crop-Sprayed Towns (PCST) and Brazilian Collective Health Association (Abrasco) suggested that the larvicide, not the Zika virus, was responsible for the alarming spike in microcephaly. In its report, PCST claims that 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. As it happens, the northeastern state holds roughly 35 percent of the total microcephaly cases across the country. Abrasco’s report also linked the pesticide to the abnormality.  The PCST report said that the larvicide, known by its commercial name SumiLarv, is manufactured by Sumitomo Chemical, a “Japanese subsidiary of Monsanto.” As word spread of the report, the St. Louis-based agribusiness giant clarified its relationship to Sumitomo, calling them “one of our business partners in the area of crop protection.” According to Fox News Latino, Rio Grande do Sul government officials said Sunday that “the suspension was communicated to the 19 Regional Health Coordinating Authorities, which in turn will inform the respective Municipal Monitoring services” in all cities in the state.  The state’s health secretary, Joao Gabbardo dos Reis, said that the “suspicion” of the larvicide’s link to microcephaly led the organizations to decide to “suspend” the use of the chemical, even though the relationship between the larvicide and microcephaly has not been scientifically proven.

Warming World Spreads a Wider Welcome Mat for Zika-Carrying Mosquitoes - When the mosquito now infamous for spreading the Zika virus suddenly showed up thousands of miles from anywhere it would usually call home, a California insect abatement officer was confounded. Steve Mulligan and his equally puzzled colleagues first encountered the Aedes aegypti mosquito in 2013, in their work for the Consolidated Mosquito Abatement District in California's Central Valley. Until then, no one had ever reported seeing the mosquito in the area. Most puzzling to Mulligan, the agency's manager: why had the mosquito popped up around Fresno? "It was way out of its range," he said. As Mulligan searched for an explanation, he kept coming back to the warmer temperatures blanketing the state's prime agricultural region year after year. "We started to realize climate change was probably a part of the reason why we were seeing this mosquito," he said. As world health officials scramble to combat the spreading virus, which could infect as many as 4 million people this year, scientists and public health officials see the outbreak as an omen in a world steadily warming under the effects of climate change. "[Zika] is the virus of the moment but can be taken as an indicator of a future where changes in temperature provide a more hospitable environment for viruses to replicate and be transmitted," .  The World Health Organization has designated the Zika virus a global public health emergency, assigning it the highest level of urgency. The most alarming outbreak of the Zika virus erupted in Brazil in May, and has since spread to 25 countries and territories in Latin America and the Caribbean. In the United States, at least 48 cases of Zika have been reported in nearly a dozen states, including Florida, where a health emergency has been declared in four counties.

Trade Representative Touts Shark-Killing Trade Deal at Aquarium - Sierra Club -- U.S. Trade Representative Michael Froman and Congressman Sam Farr (CA-20) held a publicity event at the Monterey Bay Aquarium Research Institute to tout the supposed environmental benefits of the Trans-Pacific Partnership (TPP) trade deal yesterday. The Sierra Club has reported on how the TPP would disrupt wildlife and marine life, including sharks. A leading driver of the worldwide depletion of shark populations is the international trade in shark fins, which are used in soups and alternative medicines in some Asian nations, including TPP countries. By eliminating tariffs, or import taxes, on shark fins in TPP countries, the trade pact would actually encourage further shark finning and spur the increased killing of sharks. See more on how the TPP would encourage increased shark hunting here. In response, Ilana Solomon, director of the Sierra Club’s Responsible Trade Program, released the following statement: “After signing the risky Trans-Pacific Partnership in, of all places, a casino, Ambassador Froman traveled to another ironic location -- an aquarium -- to tout the supposed environmental benefits of the TPP. This ill-advised photo op backfired badly -- the TPP would actually pose serious threats to one of our ocean’s greatest treasures, sharks. “The TPP not only fails to meaningfully address the problem of shark fin trading, but it could actually lead to the slaughter of more sharks. We call on Representative Farr to stand with his constituents, stick up for marine wildlife, and say no to the TPP.”

Air Pollution Kills Millions Worldwide, New Research Says - While air pollution has long been known to harm people’s health, scientists have for years tried to narrow down on what this means to the world as far as costs, disease, and deaths. Now new research has found that air pollution is the leading environmental risk factor for disease, and the fourth highest risk factor for death. The data is the newest addition to the Global Burden of Diseases, Injuries, and Risk Factors Study, the most comprehensive international effort to measure epidemiological trends worldwide. About 5.5 million people prematurely died in 2013 because of indoor and outdoor air pollution, according to data presented Saturday during the annual American Association for the Advancement of Science. The data, which researchers say is intended to help policy-making decisions, comes days after the Supreme Court put a stay on the Clean Power Plan, which calls for reductions in carbon emissions from the electricity sector. It is likely to resonate with other major air polluting countries like India or China. India for instance, is starting to experiment with emission policies and China pushes to move away from coal amidst reaching record air pollution levels.

Peak paper - John Quiggin - I’ve recently published a piece in Aeon, looking at the peak in global paper use, which occurred a couple of years ago, and arguing that this is an indication of a less resource-intensive future. Since the dawn of history (literally, of written records), civilisation has depended critically on paper. As living standards have risen, so has the volume of paper produced, printed and read. The more knowledge we have and the wider its distribution, the more paper is needed.  At least, that was true until the end of the 20th century. With the rise of the Internet, the correlation between paper and information broke down. Increasingly, information is created and manipulated in electronic form, with paper serving mainly as an official record of the process. In 2013, the world reached Peak Paper. World production and consumption of paper reached its maximum, flattened out, and is now falling. In fact, the peak in the traditional use of paper, for writing and printing, took place a few years earlier, but was offset for a while by continued growth in other uses, such as packaging and tissues.  China, by virtue of its size, rapid growth and middle-income status is the bellwether here; as China goes, so goes the world. Unsurprisingly in this light, China’s own peak year for paper use also occurred in 2013. Poorer countries, where universal literacy is only just arriving, are still increasing their use of paper, but even in these countries the peak is not far away.

3 Reasons Flint’s Water Is Poisoned - Let’s begin with a simple number. Properly treating the raw water flowing through Flint’s pipes to prevent corrosion and lead pollution—a step required by federal law—would have cost about $100 day, to protect the health of a city of 100,000 people, a tenth of a penny a day per person. Here’s a second fact. Almost immediately after the switch to a more corrosive water source, water in city taps began to run brown. Residents complained that there was a problem. But state and federal water officials kept refusing to take the water quality seriously, in spite of the well known reality that old industrial cities like Flint are plagued with lead water pipes extremely susceptible to corrosion and poisoning. The Problem went unaddressed for two years. And the third fact. When independent researchers and doctors took the initiative and discovered the poisonous lead levels in resident’s drinking water, the state government denounced the researchers as trying to create a panic and insisted that the water was safe—even after they knew it was not. So is Flint simply the story of a callous, politically motivated and irresponsible group of state and federal officials looking the other way? Is this story a one-off? Unfortunately, no. Flint was created by the intersection of three crises in American society:

• 1. An investment crisis, in which we have steadily starved vital public services of needed maintenance and enhancement in the name of “fiscal responsibility.”
• 2. An equity crisis, in which the quality of the air and water and the safety of the surroundings, to which poor, brown and black Americans have access is simply assumed to be substandard, because they do not have the resources to obtain the quality assumed by America’s upper income residents.
• 3. A democracy crisis, most advanced in Michigan, but metastasizing elsewhere, in which the ability of local residents to hold locally public officials accountable for criminal mismanagement on the scale of Flint is being corroded almost as rapidly as Flint’s ancient lead pipes.

Flint residents paid America's highest water rates: -- Flint residents paid the highest water rates in America even as their water was tainted with lead, according to a national study released Tuesday by the public interest group Food and Water Watch. A survey of the 500 largest water systems in the country, conducted last year, found that on average, Flint residents paid about $864 a year for water service, nearly double the national average and about three-and-a-half times as much as Detroiters pay. The figure is based on an annual household consumption of 60,000 gallons. "It far exceeds what the United Nations designates as affordable for water and sewer service," said Mary Grant, one of the study's authors. The United Nations recommends that water and sewer service shouldn't exceed 3% of a household income. In Flint, the charges totaled about 7%, Grant said. A Flint lawyer who sued to reduce the rates says they are high in part because city officials and state-appointed emergency managers have tapped water and sewer money for other needs.

Flint: A Tale of Two Cities -- Working people in Flint, Michigan are suffering mightily from the poisoning of the city’s water supply that resulted from callous decisions by government officials—from the unelected emergency city manager, on up to the governor and the federal Environmental Protection Agency.  All of these officials acted in the name of austerity and cutting costs.  But as is so often the case, the tragedy in Flint is not merely the result of individual bad actors but flows from an economic system that pits the wealthy few at the top against the vast majority who work for a living. Despite the fact that global wealth and U.S. labor productivity per capita have both been increasing exponentially for more than a generation, the small unelected handful of financiers and industrialists that own and control our economic and political systems—the so-called one percent—have been promoting the narrative that times are hard and we must all tighten our belts.  By “all”, they mean everyone except those “indispensible” titans of capital who are presently calling the shots. But in reality, the wealth created for each man, woman and child in the U.S (as measured by GDP per capita) increased from $13,933 in 1981 to $54,629 in 2014 (in constant 2015 dollars.)  That’s an increase of 292 percent!  For Tunisia, the increase in the same period was 244 percent; for Greece it was 300 percent. Similar gains can be cited for other countries.  (Source: World Bank) Collectively, the planet is awash in wealth. Nevertheless, the false narrative of scarcity has been used to justify austerity in Greece, Spain, Portugal, Ireland, France, elsewhere across Europe and all throughout the U.S.  And now we have Flint.

Bernie Sanders: ‘If We Can Rebuild Villages in Iraq, We Can Damn Well Rebuild Flint, Michigan’ --Speaking at a campaign stop in Michigan on Monday, Sen. Bernie Sanders said that the embattled community of Flint is the “canary in the coal mine” in a country that has seemingly endless money to spend on wars in the Middle East, but cannot afford to protect its citizens or rebuild its aging infrastructure. “It is beyond my comprehension that in the year 2016 in the United States of America we are poisoning our children,” he told a crowd of more than 9,300 people at Eastern Michigan University after meeting with a number of Flint residents earlier in the day.  “Can you imagine being a mother, seeing your own baby’s, your own child’s intellectual development, deteriorate in front of your very eyes?” he asked the crowd during a mid-afternoon rally. “That is happening all over that city.” The remarks were met with chants from the crowd for arrest of Gov. Rick Snyder, whose resignation Sanders had previously demanded. “I’ve called for Snyder’s resignation, that’s fine,” the Vermont senator said again on Monday. “But if the local government cannot protect those children, if the state government cannot protect those children, then the federal government better get in and do the right thing.”He also said that Flint “may be the worst example of a collapsing infrastructure, but it is not the only example.” Sanders contrasted those who question the expense of replacing Flint’s damaged pipes and water infrastructure to the “trillions” spent on waging war in Iraq and Afghanistan. “When we went to war in Iraq, the trillions we spent there, not a problem,” Sanders said.

Chicago residents sue ‘criminal’ city for not warning of high lead levels in water supply  -- Chicago residents have filed a lawsuit against the city for failing to warn them that they would be drinking lead-contaminated water for the last eight years as a result of a pipe maintenance plan. Just months after news of polluted water in Flint, Michigan hit the headlines, Chicago residents claim their city knew as far back as 2008 that by modernising thousands of lead pipes and sewer lines there would be increased levels of lead in the water.   The plaintiffs alleged that they only received one leaflet in September 2013 which advised residents with new pipes to run the taps for three to five minutes to flush out “sediment and metals”. But according to the American Water Works Association, residents should run cold water at full flow for at least 30 minutes. The lawsuit said: “[…] city projects have been contaminating residents’ drinking water with lead and the City has been doing nothing to address the problem." In replacing the pipes, the anti-corrosion material coating the old lead pipes was reportedly disturbed, leading to the leakage of lead into the water. The lawsuit claimed that nearly 80 per cent of Chicago properties get drinking water via “outdated, brittle lead pipes” built in the 1800s. Dr Marc Edwards, the researcher at Viriginia Tech university who exposed the water pollution in Flint, Michigan, has claimed that drinking Chicago tap water is “like a game of Russian roulette”. One of the plaintiffs, Yuri Ropiy, experienced “heart-attack like” symtpoms - shortness of breath and fluctuating blood pressure - during and after the city carried out major works near his home. His wife Tatjana Blxotkevic said she believes the symptoms were as a result of the polluted water. “It’s the kind of thing you just assume – that your tap water is safe to drink and that your city has done its due diligence to prevent a health hazard like toxic levels of lead,” she said in a statement.

The History of Lead Poisoning in the U.S. - By the 1920s, lead was an essential part of the middle-class American home. It was in telephones, ice boxes, vacuums, irons, and washing machines; dolls, painted toys, bean bags, baseballs, and fishing lures. Perhaps most perniciously, it was in gasoline, pipes, and paint, the building blocks of urbanization and a growing housing stock. That was precisely how the lead industry wanted their product to be seen. Despite the fact that lead was known to be toxic as early as the late 19th century, manufacturers and trade groups fiercely marketed it as essential to America’s economic growth and consumer ideals, especially when it came to their walls. Latching onto the nation’s post-Depression affection for clean, bright colors, they were successful.But pressures on the industry began to mount by the 1950s, by which time millions of children had been chronically or acutely exposed. Federal public-health officials had documented lead’s irreversible effects for young people who ingested even trace amounts. Newspapers and public-health departments began regularly reporting new cases linked to water and wall paint. If the lead industry had stepped up then (or if it had been forced to by government), maybe lead poisoning would have been treated like any other major childhood disease—polio, for example. In the 1950s, “[F]ewer than sixty thousand new cases of polio per year created a near-panic among American parents and a national mobilization that led to vaccination campaigns that virtually wiped out the disease within a decade,” write Rosner and Markowitz. With lead poisoning, the industry and federal government could have mobilized together to systemically detoxify the nation’s lead-infested housing stock, and end the epidemic right there.

Battle Lines Are Drawn as Congress Reforms the 40-Year-Old Toxic Substances Control Act --Signed into law in 1976, the Toxic Substances Control Act (TSCA) has been sharply criticized for failing at what it was meant to do: protect public health and the environment from the tens of thousands of chemicals that saturate the marketplace and the hundreds of new ones that are introduced every year. Adding to the concern is the fact that the law hasn’t been significantly updated since it was enacted, during which time some 22,000 new chemicals have entered American commerce, with around 700 new ones rolled out each year. Many of these chemicals—most of which did not previously exist in nature—have been widely dispersed throughout the environment, into the air, soil and water where some will persist for decades or even centuries. The figures are staggering. Every year, around 4 billion pounds of toxic chemicals are released by American industries. In 2011 alone, 16 new chemicals accounted for nearly 1 million pounds.  Only a fraction of the nearly 3,000 high-production-volume (HPV) chemicals—chemicals that have an annual production run of at least one million pounds—have been studied for their potential toxicity. According to the Environmental Protection Agency (EPA), the agency has “only been able to require testing on a little more than 200 existing chemicals” out of the 62,000 that have been introduced since the TSCA’s enactment. The EPA has banned just five. It has been a long time in coming, but after several years of negotiations, two bills seeking to overhaul the TSCA have finally been passed in both houses of Congress. And while one might assume a federal effort to improve the TSCA would receive widespread popular support, the legislation has been met with fierce opposition—and not from the chemical industry.

Is Oil Wastewater A Cure For California’s Drought? -- As California grapples with a historic four-year-long drought, and farmers skimp on water for crops in the face of fines, oil wastewater is becoming both a laudable and uncomfortable answer to water woes. Depending on who you ask, California’s drought may be over this spring. It may also never be over, with some scientists questioning whether groundwater reserves can ever reach pre-drought levels. California isn’t the only U.S. state dealing with drought. As of right now, much of the western United States is experiencing some level of drought as well as parts of the upper mid-west. Water is a precious resource, and restrictions on water usage are becoming more and more common. A recent national survey shows that nearly 75 percent of Americans believe that the agriculture industry should be first in line for water during a drought. It makes sense. Farmers grow our food and raise our meat. However, record fines being levied against farmers who pull too much water in California has the agriculture industry questioning what the future holds. Could the answer really be held deep underground in oil wastewater reservoirs?  Before you turn your nose up at the thought of wastewater being used on the crops you eat; you should probably know that it is already being done. In fact, Chevron pumped 8 billion gallons of treated wastewater to farmers in California last year.  Recent figures estimate that about a third of oil wastewater is reused in some way. That means there is a large, unused source of water that could render aid to farmers. However, the cost of treating oil wastewater for use on crops is a major hurdle for producers to overcome. But first, we have to know if the wastewater is even safe for use on crops. Legitimate concerns have been brought forward regarding the safety of treated oil wastewater. How effective is the treatment? Could the wastewater be harmful to people, plants, and animals? Water Defense, an environmental group, has been at the forefront of voicing these concerns.

We may have just seen a truly ominous new weather record -- Hurricanes have long been a potent symbol — maybe the most potent — of a changing climate. Not only do these storms release destructive energy on a scale that’s staggering to contemplate, but how much they can do so depends on the heat contained in ocean water — their power source. That’s what makes it so striking to find Jeff Masters, a hurricane expert and co-founder of the Weather Underground, declaring that late October’s Category 5 Hurricane Patricia wasn’t just the strongest hurricane ever seen in the Western hemisphere. No, Masters asserts that Patricia was the strongest tropical cyclone ever reliably recorded by humans, at least when measured by its wind speeds. “I regard Patricia as unmatched for the strongest winds of any tropical cyclone in recorded history,” Masters wrote on Monday. He later continued: “Now that ocean temperatures are considerably warmer than they were a few decades ago, the maximum potential intensity a hurricane can reach is higher, and we should expect to see a few Patricias sprinkled among the inevitable phalanxes of major hurricanes that will assault our shores in the coming decades.” We’d already known, of course, that Patricia was a remarkable hurricane. On Oct. 23 of last year, when the storm reached its peak intensity, the National Hurricane Center (NHC) judged Patricia to have achieved maximum sustained wind speeds of 175 knots (201 miles per hour) and a minimum central pressure of 880 millibars.  “This makes Patricia the strongest hurricane on record in the National Hurricane Center’s area of responsibility (AOR) which includes the Atlantic and the eastern North Pacific basins,” . And this is why, in immediate press coverage of the storm, Patricia was often referred to as the strongest hurricane on record in the Western hemisphere.

Carbon Pollution Fuels Superwarm January, Hottest 12 Months On Record - Hot on the heels of the hottest year on record globally, NASA reported Saturday last month was the hottest January on record — by far. January 2016 blew out the previous record for hottest January (2007) by nearly 0.3°F. In January the Arctic averaged a staggering 13.5°F (7.5°C) above average, leading to a new record low of Arctic sea ice extent for the month. There has never been as hot a 12-month period in NASA’s database as the previous 12 months (February 2015–January 2016). This is using a 12-month moving average, so we can “see the march of temperature change over time,” rather than just once every calendar year.  Significantly, January had the single biggest recorded monthly temperature anomaly (deviation from the 1951-1980 average temperature) — a whopping 2°F above the average January temperature. This means it’s even more likely that 2016 will not just be one of the hottest years on record, but very possibly even hotter than 2015, which itself was the hottest year on record since … 2014. If you detect a pattern here of human-caused global warming, you are in the company of more than 97 percent of climate scientists. True, every year is not going to be warmer than the next — but we do appear to be in the long-awaited global warming speed up. And a recent analysis of 2015’s record warming by Climate Central makes clear that virtually all of the warming — some 95 percent — is due to human activity.

Global Warming Crushes Records. Again. - For the surface of planet Earth, 2015 was the hottest year on record by a stunning margin. But already, 2016 is on track to beat it. Last month was the hottest January in 137 years of record keeping, according to data released Wednesday by the National Oceanic and Atmospheric Administration. It's the ninth consecutive month to set a new record. To be sure, some of the recent extremes are the result of a monster El Niño weather pattern that still lingers in the Pacific Ocean. But the broader trend is clear: We live in a world that's warming rapidly, with no end in sight. Since 1980, the world has set a new annual temperature record roughly every three years. Fifteen of the hottest 16 years ever measured are in the 21st century. The chart below shows earth's warming climate, measured from land and sea dating back to 1880. If the rest of 2016 is as hot as January, it would shatter the records set in 2014 and 2015. Results from the world’s top monitoring agencies vary slightly, but NASA, NOAA, and the Japan Meteorological Agency all agree that January was unprecedented. The El Niño weather pattern that started last year produced some of the hottest temperatures ever witnessed across great swaths of the equatorial Pacific. Bysome measures, this may now be considered the most extreme El Niño on record. The map below shows a few purple spots of cooler-than-average temperatures and plenty of record-breaking red. The blob of crimson in the Pacific Ocean is the footprint of El Niño. Some of the most unusual warmth swept the Arctic, where ice levels fell to the lowest on record for this time of year.

Tracking the 2°C Limit - January 2016: January gave us yet another record anomaly in the GISS data, coming in at 1.13C. If we apply this to our preindustrial baseline that puts the monthly anomaly at 1.382C. (Click here for a full size version of the graph below). While we're clearly seeing a strong El Nino signal in the surface station data, the satellite data continues to lag. On my chart tracking the current El Nino compared to the 1997/98 El Nino I've decided to try switching to the RSS data. There's not a lot of difference between the two and I'm continuing to track both data sets. (Full size image here.) Best guess from these comparisons suggest that it's likely the anomaly for satellite data will exceed that of 1998 before all is said and done. It also seems likely the peak in the satellite record is still about 5 months away. We should have a good idea how the satellite data responded to the El Nino sometime around June of this year.

El Niño Is Causing A Global Food Crisis -- This year’s El Niño, which forecasters are calling one of the strongest ever, may have passed its peak strength, but changes in global weather will continue to wreak havoc on food supplies across Africa, Asia, and Latin America for months to come, according to the United Nations’ World Meteorological Organization (WMO). Severe droughts and floods triggered by this year’s El Niño have already had a devastating effect on food security throughout the world, leaving some 100 million people with food and water shortages. Zimbabwe has declared a state of disaster in some parts of the country as drought has decimated crop harvests. According to reports, as many as 2.4 million people, or more than a quarter of the population, are in need of food aid. Countries across southern Africa — from South Africa to Botswana — are also in the midst of drought, after suffering through the driest rainfall season in 35 years. Officials in Mozambique, which has suffered through more than two years of drought, expect that 400,000 people will be in need of food aid by March.  “The situation is critical in Mozambique,” Abdoulaye Balde, the World Food Program’s Mozambique director, told the Guardian. “We are at the point of no return. Even if it rains now it will be of limited use for growing maize. There are just a few weeks for the rains to potentially fall this year.” According to UNICEF, an estimated one million children in eastern and southern Africa are suffering from severe acute malnutrition due to food shortages.

Strong El Niño Will Weaken and Could Transition to La Niña This Fall, NOAA Says -- El Niño is forecast to weaken through the spring with conditions in the equatorial Pacific Ocean potentially transitioning to La Niña next fall, according to the latest monthly outlook issued Thursday by NOAA. Sea-surface water temperatures (SST) in the equatorial east and central Pacific Ocean were still well above average during January, indicating strong El Niño conditions remained in place. Water temperatures appeared to reach their peak in mid-November, but have been cooling slowly the last couple of months, according to fine-resolution weekly SST data from NOAA's Climate Prediction Center. Citing the latest model guidance, NOAA/CPC said Thursday El Niño, as it typically does, will continue to weaken through the spring, eventually disappearing by late spring or early summer. This means sea-surface water temperatures in the equatorial central and eastern Pacific Ocean will return to near-average levels (neutral conditions) from their current above-average state. Though El Niño is forecast to weaken, NOAA said that we will continue to see temperature and precipitation impacts through late winter and into spring in the United States and elsewhere.  After transitioning to neutral conditions, it's possible that sea-surface water temperatures in the equatorial east and central Pacific Ocean could continue to cool to the point that La Niña may emerge in the fall, NOAA said. However, they cautioned that much uncertainty remains, though there is computer model and physical evidence that La Niña conditions could develop. La Niña is the opposite of El Niño, namely, a cooling of the equatorial east-central Pacific Ocean.

Over half the world’s population suffers from ‘severe’ water scarcity, scientists say - Alarming new research has found that 4 billion people around the globe — including close to 2 billion in India and China — live in conditions of extreme water scarcity at least one month during the year. Half a billion, meanwhile, experience it throughout the entire year. The new study, by Mesfin Mekonnen and Arjen Hoekstra of the University of Twente in the Netherlands, uses a high resolution global model to examine the availability of “blue water” — both surface and underground freshwater — in comparison with the demand for it from agriculture, industry and human household needs. The model — which zoomed in on areas as small as 60 kilometers by 60 kilometers in size at the equator — also took into account climatic factors, ecological ones (how much water is needed to sustain a river ecosystem or lake) and other causes of depletion such simple evaporation. “We find that 4 billion people live in areas that experience severe water scarcity at least part of the year, which is more than previously thought, based on those earlier studies done on an annual basis,” says Hoekstra, who published the work in Science Advances Friday. “You have to look really month by month, in order to get the scarcity.” Those prior studies had given totals of about 1.7 to 3.1 billion, rather than the current 4 billion. The new total includes 120 million people living in the United States, principally in California as well as other western states.

NASA: 4 Billion People at Risk as ‘Water Table Dropping All Over the World’ --  A new analysis reveals that global water scarcity is a far greater problem than previously thought, affecting 4 billion people—two-thirds of the world’s population—and will be “one of the most difficult and important challenges of this century.” Previous analyses looked at water scarcity at an annual scale and had found that water scarcity affected between 1.7 and 3.1 billion people. The new study, published Friday in the journal Science Advances, assessed water scarcity on a monthly basis, more fully capturing the specific times of year when it could be an issue. “Water scarcity has become a global problem affecting us all,” study co-author Arjen Hoekstra, a professor of water management at the University of Twente in the Netherlands, said. The study found that almost half of the 4 billion affected by severe water scarcity for a month or more are in India and China. Millions of others affected live in Bangladesh, Nigeria, Pakistan and Mexico. The U.S. is far from immune to the problem, with 130 million people affected by water scarcity for at least one month a year, mostly in the states of Texas, California and Florida. And among the rivers the study notes that are fully or nearly depleted before reaching their end is the Colorado River in the West. There are also half a billion people who face severe water scarcity year round, the analysis found.

Water table dropping all over globe — 4 billion people at risk: Water is a precious resource the world cannot do without, yet water scarcity is growing faster than previously thought. A new study shows that today, over four billion people are at risk from water shortages. A new analysis reveals that because of a steadily increasing demand, freshwater scarcity is becoming a threat to the sustainable development of human society, and has become “one of the most difficult and important challenges of this century.” Previous studies covered in Digital Journal in 2014 looked at water scarcity on an annual scale, showing that over 1.2 billion people around the world were already affected by water scarcity, and an additional one-fourth of the world's people were already facing an economic water shortage. This means the countries they live in don't have the economic infrastructure to harvest water from lakes and aquifers. The new study assessed water scarcity on a monthly basis, more fully capturing the times of year when water scarcity would be an issue. “Water scarcity has become a global problem affecting us all,” study co-author Arjen Hoekstra, a professor of water management at the University of Twente in the Netherlands, said, according to EcoWatch. The researchers discovered that almost half the four billion people affected by water scarcity for a month or more are located in India and China. Millions of others affected live in Bangladesh, Nigeria, Pakistan, and Mexico.  The study also found the U.S. is not immune to the problem of not having enough water. About 130 million people in the states of Texas, California, and Florida are affected by water scarcity for at least one month annually. And additionally, among the rivers noted in the study that are fully or nearly depleted before reaching their end is the Colorado River.

Water stored on land stopped recent sea level rise being up to 22% higher - Sea levels are rising more than twice as quickly as they did for most of the 20th century. Scientists put this increase down to greater melting of glaciers and ice sheets and the oceans continuing to expand as they warm. A new study, published in Science, says that this acceleration would have been even greater had it not been for an increase in the amount of water being stored on land.  Every year, around 6tn tonnes of water cycles through Earth’s land surface. When rain falls on land it gets held up in the soil, wetlands, groundwater, lakes and reservoirs on its journey back to the oceans. This is collectively referred to as “land water storage”. Humans speed up this cycle by extracting groundwater and draining wetlands, as well as slow it down by building and filling reservoirs. Overall, we extract more water from the ground than we collect in reservoirs. This water has ended up in the oceans, adding 0.38mm per year to global sea levels over the past two decades. But variations in rainfall and evaporation also affect how much water is deposited onto land each year. When rainfall increases, there’s more water to fill up groundwater, lakes and reservoirs, so less makes it back into oceans. The new study finds that changes in rainfall and evaporation over the past decade have increased the amount of water stored on land. And without this boost to storage, the rate of sea level rise would have been as much as 22% greater, the researchers say.

Just a half Degree of Separation - The planet is a lot closer to 2 degrees Celsius of warming than official temperature records indicate. In 2015, the hottest year on record, the average annual temperature was a full 1 degree C (1.8 degrees Fahrenheit) warmer than in pre-industrial times. That’s halfway to the limit of 2 degrees C (3.6 degrees F) that world leaders set in Paris in December to prevent potentially catastrophic warming. But what if we’re already effectively well beyond 1 degree C of warming? The physics of Earth’s climate system means that warming continues long after greenhouse gases enter the atmosphere. That’s because the oceans continue to warm up for decades in response to greenhouse gases already in the atmosphere, creating a lag in the climate system.  As a result, we’re committed to about 0.5 degrees C of additional warming even if we could immediately stabilize levels of carbon dioxide in the atmosphere, research has shown. The extra warming means that the planet is effectively three-quarters of the way to the 2-degree C target. “The system will keep warming for a while even if greenhouse gas concentrations could suddenly freeze at current levels,” said NCAR senior scientist Jerry Meehl, who led a 2005 study into the additional warming. “So keeping within the 2-degree target is even harder to do because we not only have to stabilize concentrations but start to reduce them.” Scientists refer to the continued warming as thermal inertia. It’s part of the reason that experts have warned that the emissions cuts proposed during the Paris negotiations, while critical for lessening future climate change, may not be sufficient.

Climate change driving species to the Earth's poles faster than predicted, scientists say - Warming temperatures are pushing land and sea creatures closer to the north and south poles and to cooler altitudes at rates faster than first predicted, scientists say. Scientists from 40 countries are gathering in Hobart for a four-day conference about how climate change is forcing species to move, including humans. Professor Camille Parmesan from Plymouth University in the UK said around the world animals and plants were moving towards the Earth's poles, and it is happening faster than scientists had originally predicted. "For the species that we have really good data on where they've lived historically over the past 100 years, we're seeing about half of those have actually moved where they live, which is an astonishing number given we've only had one degree centigrade warming," she said. The East Australian Current has moved 350 kilometres further south in the past 60 years. Tasmania's east coast is a global hotspot for marine species that are moving south. Ecology Professor Hugh Possingham from the University of Queensland said sometimes humans needed to intervene and move species in order to save the plants and animals from extinction. "We've fragmented a lot of habitats and so many of these species might've moved through moving towards the poles as they do with the warming temperatures," he said. "And they could've moved towards the poles, but we've fragmented their habitats so much with cities and roads and agriculture that they need help moving a bit faster."

Melting Greenland ice changing ocean circulation, Earth's gravitational field - The melting of the Greenland ice sheet due to climate change is having an impact on ocean circulation and rising sea levels, according to new studies from university researchers across North America. "It was well known that Greenland's ice was melting, it was well known that that melting was accelerating, and it was well known that extra melting was changing the salinity of the North Atlantic Ocean," said Tim Dixon, a Canadian professor in the department of geophysics at the University of South Florida, who recently co-authored a study published in Nature Communications. Dixon said that when ice melts, it deposits fresh water into the ocean that dilutes the salt in the North Atlantic. "What was not known is what effect if any that would have on ocean circulation," he said.Previous studies had suggested that the impact of the melting Greenland ice on North Atlantic circulation would be minimal, at least for the next 50 years, Dixon said, because the amount of fresh water going into the North Atlantic was thought to be too small to disrupt the ocean circulation. "The accelerated melting of Greenland is adding so much fresh water to the North Atlantic that it's starting to affect the basic ocean structure in the Labrador Sea." But it's not just the Labrador sea that is affected. "We think those changes are big enough that they're starting to affect the overall global circulation pattern of the ocean," Dixon said. Altering the circulation pattern of the ocean can have drastic long-term implications, Dixon said. "In the extreme case of a breakdown in this global ocean circulation pattern, equatorial regions could become much hotter than they are today and polar regions could become much colder than they are today, and significant fractions of the globe might become unlivable."

Sea-level rise 'could last twice as long as human history' - Huge sea-level rises caused by climate change will last far longer than the entire history of human civilisation to date, according to new research, unless the brief window of opportunity of the next few decades is used to cut carbon emissions drastically. Even if global warming is capped at governments’ target of 2C - which is already seen as difficult - 20% of the world’s population will eventually have to migrate away from coasts swamped by rising oceans. Cities including New York, London, Rio de Janeiro, Cairo, Calcutta, Jakarta and Shanghai would all be submerged. Populations at risk from sea-level rise “Much of the carbon we are putting in the air from burning fossil fuels will stay there for thousands of years,” said Prof Peter Clark, at Oregon State University in the US and who led the new work. “People need to understand that the effects of climate change won’t go away, at least not for thousands of generations.” “The long-term view sends the chilling message of what the real risks and consequences are of the fossil fuel era,” said Prof Thomas Stocker, at the University of Bern, Switzerland and also part of the research team. “It will commit us to massive adaptation efforts so that for many, dislocation and migration becomes the only option.” The report, published in the journal Nature Climate Change, notes most research looks at the impacts of global warming by 2100 and so misses one of the biggest consequences for civilisation - the long-term melting of polar ice caps and sea-level rise.  This is because the great ice sheets take thousand of years to react fully to higher temperatures. The researchers say this long-term view raises moral questions about the kind of environment being passed down to future generations.

Trans-Pacific Partnership to stall climate change action - Tony Abbott offers a slender list of achievements to justify his two-year occupancy of the prime ministership. He frequently cites the triumph of his campaign to “stop the boats”, and the manifold bounty to be delivered by trade agreements that have been signed off by minister Andrew Robb. Then there’s… err. Let’s stick with the trade agreements, the most recent of which is the Trans-Pacific Partnership – a pact of 12 nations on the Pacific rim. Whether the agreement will actually deliver more trade is a moot point. It is seriously doubted by the World Bank, whose staff recently produced a study that found the Trans-Pacific Partnership would boost Australia’s economy by a miserable 0.7 per cent by 2030. No sooner is the ink dry on the TPP than the trade minister announces his retirement from politics – but not before setting his sights on a new cohort of countries to form another Asia-Pacific trade club, the Regional Comprehensive Economic Partnership. The aim here is to replace the “noodle bowl” of bilateral agreements with a massive piece of overarching trade “architecture”. Also coming is the Trade in Services Agreement, with 23 parties – including Australia, the United States and the European Union – hitching a ride on the cross-border pollination of service providers such as lawyers, dental hygienists and life coaches. The legal profession is blissfully happy with the TPP, which opens the possibility for conquest of neglected areas of human activity not yet fully colonised by lawyers. Others, including heaps of American politicians on both sides, have complained bitterly that the TPP is a setback for humanity and a hindrance to policies seeking to address global warming – something that Robb can’t understand. “Study the 16,000 pages of the TPP text,” he said. “You will see we’ve made every possible effort to recognise the concerns people have had and to ensure we have addressed them.”

Interesting Times - As we conclude yet another week of mass delusion in the United States, Arctic climate researcher Jennifer Francis spoke of living in an "interesting time."“We’ve got this huge El Niño out there, we have the warm blob in the northeast Pacific, the cool blob in the Atlantic, and this ridiculously warm Arctic,” says Jennifer Francis, a climate researcher at Rutgers University who focuses on the Arctic and has argued that Arctic changes are changing mid-latitude weather by causing wobbles in the jet stream. “All these things happening at the same time that have never happened before”...  “I think this winter is going to get studied like crazy, for quite a while,” says Francis. “It’s a very interesting time.” It surely is an interesting time when we see that ... for the week beginning on February 7, 2016, the Mauna Loa Observatory measured 403.76 carbon dioxide molecules per million in the atmosphere (ppm). One year ago this week, it measured CO2 levels at 400.05 ppm. Ten years ago, the Observatory measured levels at 382.43 ppm.  It appears to me that humans are seriously underestimating total emissions. Or maybe one of the large carbon sinks (oceans, terrestrial) is weakening fast. Nothing humans do or say they will do matters if CO2 continues to rise at >3 ppm/year.

California's New Methane Rules Would Be the Nation's Strongest - California proposed new regulations to curb methane from the oil and gas industry last week, adding momentum to a state and federal push to reduce emissions of the powerful greenhouse gas. If enacted, California's rules would be the strongest in the country, outpacing similar efforts from the Obama administration and several other states, said Dan Grossman, an expert on state oil and gas programs at the Environmental Defense Fund. The regulations would require regular inspections for leak detection and repair, and apply to many parts of the supply chain including storage facilities, processing plants, wellheads and related equipment. The rules for underground storage are particularly important, given the leak at the Aliso Canyon storage facility in Los Angeles. The leak, spewing methane for three and a half months, prompted the evacuation of thousands of residents, mostly from the affluent Porter Ranch neighborhood. David Clegern, a spokesman for the California Air Resources Board (the agency behind the proposed rules), said the methane released from Aliso Canyon was equal to half a percent of the state's annual greenhouse gas emissions. Clegern said the new methane rules weren't inspired by Aliso Canyon. They've been in the works for years, he said, and grew out of AB32, California's landmark climate change law that passed in 2006.

India, US inch closer to settling 3-year old solar case at WTO - India and the US are close to solving a 3-year old WTO dispute over domestic content requirement in India's solar power programme. A top government source said that India and the US are talking over this issue and leaders from both the countries are handling it in a "mature way". "There seems to be a willingness from both the sides that this issue should be resolved in a way that it leads to strengthening of relations between the two countries," the source said. WTO's dispute settlement panel last year ruled that India's domestic content requirements under its solar power programme were inconsistent with the international norms. India has appealed the ruling. "WTO is expected to come out with its ruling early this week on the appeal filed by India, but it is likely that this will be delayed by the international body as both India and the US are trying to resolve this issue through talks," another official said, conforming the developments. The US dragged India to WTO in 2014 for its solar mission plan alleging that the programme discriminates against the US solar equipment players by requiring energy producers here to use locally manufactured cells and by offering subsidies to those who use domestic equipment. It also alleged that forced localisation requirements restricted US exports to Indian markets.

Utilities Getting Regulatory Support for Screwing Solar Customers -- Now that solar power is reaching prime time, the fossil fuel industry is doing all that it can to stop its growth.  For many years solar was on the periphery, installed by early adopters and helped along by government subsidy. But over the last several years, solar has emphatically become mainstream. It is still growing from a low base, but it is now one of the most preferred sources of new electricity generation.  But the backlash from incumbent industries has also sprung to life. With solar and wind suddenly eclipsing fossil fuels as a preferred option for new power plant capacity, utilities and other fossil fuel interests are moving quickly to disrupt the progress of clean energy.  The industry argues that homeowners with solar must pay fees to cover their costs of using the grid. Solar proponents dismiss that argument, pointing to the costs saved by not needing to build new power plants. However, the threat that solar poses to the utility industry is deeper than customers no longer needing to purchase electricity. Building new power plants and other large infrastructure is at the core of utility industry’s business model. Since those costs can be passed onto the ratepayer in the form of regulated rates, building expensive infrastructure is actually a source of profit. Customers switching to solar ends up hitting the utility’s bottom line twice by no longer buying as much electricity and upended the utility’s case for costly new power plants and transmission lines. That is why utilities have become much more aggressive in beating back solar. One of the most high-profile cases is in Nevada, where a NV Energy, subsidiary of Warren Buffet’s Berkshire Hathaway, convinced the Nevada Public Utilities Commission to abruptly and harshly alter the rules of the game for solar power in the state.

Next Supreme Court Justice Will Be Crucial to Climate Change -  The United States sure knows how to throw cold water on international harmony.Just two months have passed since the world’s top diplomats cobbled together the best plan we’ve ever had to start curbing emissions of heat-trapping greenhouse gases.  . And yet the Supreme Court’s temporary stay of the administration’s Clean Power Plan — the last decision of global consequence of the right-leaning court on which Justice Antonin Scalia had sat since the Reagan administration — underscores just how far the United States remains from its climate goals.Consider the administration’s own assessments. Even as the American delegation in Paris offered to cut emissions to 26 to 28 percent below their 2005 levels by 2025, the Energy Information Administration of the Department of Energy was offering a different outlook. Its reference case, based on federal policies on the books at the end of 2014, forecast that emissions of carbon dioxide from energy use (the United States’ main source of greenhouse gases) would not decline but remain flat through 2025 and beyond.  Methane emissions, which account for under 10 percent of greenhouse gases spewed into the atmosphere but trap much more heat than CO2, could increase 6 percent over the next 10 years, according to the Environmental Protection Agency. Emissions of highly potent hydrofluorocarbons could increase by half. What’s more, the carbon storage of American forests, which offset as much as 13 percent of the nation’s total greenhouse gas emissions in 2013, could start declining as early as 2020.

Obama's Clean Power Plan May Be on Hold, Coal's Fate Is Not -  The U.S. Supreme Court’s decision putting on hold President Barack Obama’s most aggressive plan to curb power-plant emissions won’t save coal from a shrinking market, or stop some states and utilities from moving forward with their own measures. The Environmental Protection Agency had projected that coal’s share of America’s power mix would shrink to 27 percent in 2030 under the historic Clean Power Plan. It was already down to 29 percent in November, based on government data, as cheap natural gas and renewables stole market share. U.S. rules including one regulating pollution across state lines and local renewable energy policies will continue to force coal-fired power plants into retirement. “This might buoy sentiment for coal, but I don’t think there are any practical market implications,” said Cheryl Wilson, an energy policy analyst for Bloomberg Intelligence. “I don’t think you would see a utility change their decisions based on this ruling.” The 5-4 Supreme Court decision freezes in its tracks a policy at the center of Obama’s energy and environmental legacy. It would require states and utilities to use less coal and employ more wind, solar and natural gas-fired power to achieve carbon emissions cuts of 32 percent by 2030 from 2005 levels.

Warning to Fossil Fuel Investors: Coal and LNG Markets Shrinking Due to Competition From Renewables -- Investors in fossil fuels are being warned that they may risk losing their money, because the markets for coal and liquefied natural gas are disappearing. In both cases it is competition from renewables, principally wind and solar power, that is being blamed for the threat.  Two separate reports on coal and gas were published at the same time as a round of annual financial reports from oil companies showed that this third fossil fuel could be in serious trouble too.  The first report, Stranded Assets and Thermal Coal, found that Australian and U.S. coal assets were the most vulnerable. Australian mines were particularly at risk because of their heavy reliance on exporting coal to markets that were rapidly shrinking. A separate report, on liquefied petroleum gas (LPG), also raises the possibility that investors may lose their money. The trade is based on the fact that gas is cheap in the U.S. and expensive in Europe, so the expense of liquefying it and transporting it to Europe is offset. Large investments are being made in the pipelines, ships and ports required to transport it. There are two problems outlined in the report, LNG and Renewable Power. The first is that the price of gas, which is tied to that of oil, has dropped in Europe, squeezing the margins of the companies that are spending large sums setting up the supply line.  The second is that the market for gas is itself shrinking as the output of the solar panels and wind farms increases. Unless gas investors can see a long-term return from a stable market they will not make a profit and LPG becomes high-risk.

The Decline Of The Coal Industry Is “Long-Term” And “Irreversible” - Demand for thermal coal is declining, a trend that appears to be “irreversible.” That is the conclusion from Goldman Sachs, which published a new report on the global coal and gas trade on February 15, and reported and reported on by SNL. For coal producers, this is the latest in a long line of grim warnings, all of which point to a future of shuttered power plants, mine closures, and bankruptcies. Last fall, Goldman Sachs made headlines when it predicted that “peak coal” was drawing near. “The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues,” the investment bank wrote in September 2015.  The reaffirmation of that belief in its latest report will make less of a splash, if only because there is a growing realization that the coal industry is dying. Nevertheless, Goldman offers some new insights about the direction for the industry. For much of the last decade, with coal consumption flat or declining in most of the industrialized world, there was still a massive lifeline for coal producers. China’s explosive growth led to a seemingly endless appetite for coal, despite bleak and deteriorating air quality in many of its cities. But, after years of blistering growth, China’s coal burning came to a screeching halt, likely hitting a peak in 2013.

James River Association challenging Virginia coal ash permit  (AP) — The James River Association signaled its intent Wednesday to legally challenge a state permit allowing Virginia’s largest utility to discharge millions of gallons of treated coal ash wastewater into the James River. The decision is the second challenge of a January decision by the State Water Control Board. The board approved the discharges at former coal plants owned by Dominion Virginia Power. The Potomac Riverkeeper Network is contesting the board’s permit for the Possum Point Power Station in northern Virginia. The Southern Environmental Law Center, which is representing both river protection groups, plans to argue in Richmond Circuit Court that the discharges violate the federal Clean Water Act. It argues the wastewater contains heavy metals above levels intended to protect human and aquatic life. The association said the section of the river near the Bremo Power Station, located in Fluvanna County, is a popular smallmouth bass fishery and home to an endangered species of mussels. Brad McLane, an attorney for the environmental group, said the state Department of Environmental Quality permit “sets lax standards that fail to protect the James.” The Water Control Board accepted the recommendations of agency staff in approving discharge permits involving hundreds of millions of gallons of wastewater and stormwater at both power plants. A spokesman for the department declined to comment, citing the pending civil action.

CEO Behind West Virginia’s Historic Chemical Spill Gets 1 Month In Prison -- After a lengthy criminal trial, the former president of the company that contaminated drinking water for 300,000 West Virginians has been sentenced to one month in prison — the minimum sentence allowed for the crimes at hand.  The Charleston Gazette-Mail’s Ken Ward Jr. reported the sentencing of Freedom Industries’ former president Gary Southern on Wednesday. In addition to one month of prison time, Southern was also given a $20,000 fine for charges related to the January 2014 spill. Under federal guidelines, the recommended sentence was 24 to 30 months and a fine of up to $300,000. “This defendant is hardly a criminal,” U.S. District Judge Thomas E. Johnston said after handing down the sentence, according to Ward. “I stand by that statement.”  In August of last year, Southern pled guilty to environmental crimes, including violating a Clean Water Act permit and negligent discharge of a pollutant. That pollutant, a coal-cleaning chemical called crude MCHM, spilled from one of the company’s rusty, neglected tanks into the Elk River in January 2014, contaminating drinking water for 300,000 people. More than 100 people sought medical treatment for issues they believed were related to coming in contact with contaminated water.  In late 2014, Southern was also charged with bankruptcy fraud, wire fraud, and lying under oath during Freedom Industry’s eventual bankruptcy proceedings following the massive spill. FBI Special Agent James F. Lafferty said in a sworn affidavit that Southern, in an attempt to protect his personal fortune of nearly $8 million and shield himself from lawsuits, developed a scheme to distance himself from the company and “deflect blame” to other parties.  Southern lives in a $1.2 million, 4,133-square-foot mansion in Marco Island, Florida, according to documents on the West Virginia Secretary of State’s office. Following his sentencing on Wednesday, Southern was given permission to fly back to Florida on a private plan, Ward reported.

Feds seek borehole test for potential hot nuclear waste burial — The federal government plans to spend $80 million assessing whether its hottest nuclear waste can be stored in 3-mile-deep holes, a project that could provide an alternative strategy to a Nevada repository plan that was halted in 2010. The five-year borehole project was tentatively slated to start later this year on state-owned land in rural North Dakota, but it has already been met with opposition from state and local leaders who want more time to review whether the plan poses any public danger. “It should be a statewide decision,” said Jeff Zent, spokesman for North Dakota Gov. Jack Dalrymple, adding that a resolution from state legislators is a possibility. The Department of Energy wants to conduct its work just south of the Canadian border on 20 acres near Rugby, North Dakota — in part because it’s in a rural area not prone to earthquakes — but is prepared to look elsewhere if a deal can’t be reached. Some sites in West Texas and New Mexico have expressed interest in becoming interim sites for above-ground nuclear waste storage, but it’s not clear if they would be considered for borehole technology.

Radioactive Leak at Indian Point Nuclear Plant Shows ‘We Are Flirting With Catastrophe’  New York Gov. Andrew Cuomo has called for Indian Point nuclear power plant to be shut down after officials discovered that a radioactive material known as tritium was leaking into the groundwater. On Feb. 6, Cuomo ordered an investigation into the leak after Entergy, the company that operates the plant, reported “alarming levels of radioactivity at three monitoring wells, with one well’s radioactivity increasing nearly 65,000 percent,” according to a statement from the governor. Last week, Cuomo called for a more thorough investigation after officials found the leak had spread by 80 percent. Now the governor and lawmakers across the Hudson Valley have called for the plant to close. “Officials believe the leak occurred after a drain overflowed during a maintenance exercise while workers were transferring water containing high levels of radioactive contamination,” New York Daily News reported. Entergy has repeatedly insisted there is no threat to public health or safety, as the contaminated groundwater did not leave the site. However, nuclear activists remain adamant that the plant should close. “The news just keeps getting worse,” Paul Gallay, president of the nonprofit Riverkeeper, told New York Daily News. “Our concerns go beyond the spike in tritium levels. This is about a disturbing recurrence of serious malfunctions—seven over the last eight months.” Indian Point sits on the Hudson River, 25 miles north of New York City. Nuclear activists have called for years for the plant to close, calling it “Chernobyl on the Hudson” and warning of a Fukushima-like disaster.

Indian Point Contaminates the Hudson River With Uncontrollable Radioactive Flow: For more than a decade, it has been impossible for operators of the Indian Point nuclear power plant to stop highly radioactive reactor and spent fuel pool coolant from leaking into the groundwater and migrating to the Hudson River. And despite assurances from Entergy that this time will be different, there is no indication that the company has developed the ability to prevent the latest uncontrolled leaks from following the underground waterway into the Hudson. And because the river is a tidal estuary flowing as much as 20 miles above and below the nuclear site, radioactive contaminants may be sucked into the drinking water systems of several river towns. While Entergy focuses attention on tritium, a radioactive form of water and the predominant contaminant leaking from the plant's cooling system, the actual leak contains a basket of radioactive elements, including Strontium-90, Cesium-137, Cobalt-60, and Nickel-63 according to an assessment by the New York Department of State as part of its Coastal Zone Management Assessment. The Coastal Zone Assessment, released November, 2015, expressed concern about the periodic leaks into the Hudson River because it serves as a direct water source for cities downstream. It is also a backup water source for some 9 million residents of New York City and Westchester County. "Tritium," explained David Lochbaum, nuclear safety expert at the Union of Concerned Scientists, "is just the first item reported. It tends to be the leading edge of any spill since it is the lightest and most mobile of the radioactive contaminants. The other isotopes slow down as they go through the soil. That other stuff is on its way, however. Tritium just wins the race."

Addicted to Los Alamos - The production of plutonium pits—the fissile cores required to detonate the explosion in a nuclear weapon—is said to be the chokepoint of America’s nuclear program: when the pit assembly line shuts down, the clock on the arsenal’s shelf life starts ticking.  But there are an estimated 15,000 pits of various age in government storage, and experts insist an untold number of them have lifespans in excess of 100 years. Given that the United States has pledged to reduce its nuclear arsenal (now at 7,100 warheads, with approximately 1,635 deployed), there would appear to be no reason to re-engage the production of plutonium pits.  Think again. Just in the last few years, the Obama administration, once keen on nuclear disarmament, has instead reversed course with plans not only to maintain but to modernize the existing nuclear fleet. As the New York Times reported in 2014, the administration “is engaging in extensive atomic rebuilding while getting only modest arms reductions in return.” This was borne out in the release of the White House budget on February 9. According to analysts, Obama is going out with a bang, proposing to build new weapon systems for each leg of the nuclear triad: allocating roughly $3.2 billion to modernize and recapitalize nuclear submarines, bombers, Intercontinental Ballistic Missiles, and nuclear-equipped cruise missiles, and putting nuclear weapon modernization on track for an estimated $1 trillion price tag over the next 30 years.

Nuclear Fuel Storage in South Australia Seen as Economic Boon -- The storage and disposal of nuclear waste in South Australia would probably deliver significant economic benefits to the state, generating more than A$5 billion ($3.6 billion) a year in revenue, according to the preliminary findings by a royal commission. Such a facility would be commercially viable, with storage commencing in the late 2020s, the Nuclear Fuel Cycle Royal Commission said in its tentative findings released Monday. It doesn’t make economic sense to generate electricity from a nuclear power plant in the state in the “foreseeable future” due to costs and demand, the report found. “The storage and disposal of used nuclear fuel in South Australia would meet a global need and is likely to deliver substantial economic benefits to the community,” the commission said. “Such a facility would be viable and highly profitable under a range of cost and revenue assumptions.” South Australia, where BHP Billiton Ltd. operates the Olympic Dam mine, set up the commission last year to look at the role the state should play in the nuclear industry -- from mining and enrichment to energy generation and waste storage. While Australia is home to the world’s largest uranium reserves, it has never had a nuclear power plant. Concerns over climate change have prompted debate about whether to reverse Australia’s nuclear policy. Longer term, “Australia’s electricity system will require low-carbon generation sources to meet future global emissions reduction targets,” the commission said in its report. “Nuclear power may be necessary, along with other low carbon generation technologies.”

Dynegy Jumps into FirstEnergy, AEP ‘Bailout’ Fray - “In response to the exorbitant and counter-productive subsidies currently under consideration for FirstEnergy and American Electric Power (AEP),” Houston-based Dynegy announced that it is offering two counter-proposals to the Public Utilities Commission of Ohio (PUCO) that it claims “will save the state’s ratepayers billions of dollars over the next eight years, promote and protect Ohio jobs, aid in Ohio’s compliance with the Clean Power Plan, and encourage consumer and business growth.” Dynegy is owns and operates 35 power plants in eight states nationwide – California, Connecticut, Illinois, Ohio, Massachusetts, Maine, New York, and Pennsylvania – all of which are natural gas-fired or coal-fired.. The company is jumping onto the bandwagon after Exelon Generation intervened (Docket No. 14-1297-EL-SSO) in the ongoing, contentious FirstEnergy rate case late last month – asserting that it could offer ratepayers a better deal. The first proposal would, the company said, save Ohio consumers and businesses $5 billion by providing the same amount of power promised under the FirstEnergy and AEP power purchase agreements (PPAs) at lower prices –$2.5 billion each in the FirstEnergy and AEP territories – over the eight-year term of the proposed PPAs. The power provided under this proposal “would be generated by Ohioans, at Ohio plants, for Ohioans,” Dynegy said, adding that it “owns about 5,400 MW at 10 different sites in Ohio – more than FirstEnergy’s 5,300 MW –employs hundreds of Ohio workers, and is the third largest retail electric provider in the state.” Furthermore, Dynegy said, its power plants “use the region’s vast fuel supplies, including its abundant and clean natural gas, providing further benefits to the state.”

Ohio Senate candidate in GOP primary wants to raise fracking taxes - Columbus Dispatch - A Republican Senate candidate in Franklin County says it’s time for legislative action to increase the severance tax on fracking, an issue that remains contentious for Ohio leaders. Aaron Neumann, a management consultant running for the open 16th district seat currently occupied by term-limited Sen. Jim Hughes, is proposing an incremental increase in Ohio rates until they are “on par with neighboring states'.”“We want to and will keep our markets competitive, but the current severance rates as dictated by the legislature are unsustainably low and we only have one shot to get our money’s worth for these precious resources,” Neumann said. “A modest increase and smart investments will ensure that the whole state benefits while the communities who put in the effort receive their fair share of the reward.” Lawmakers and Gov. John Kasich have been butting heads for three years over the severance tax, which Kasich has repeatedly tried to raise, calling the current rate a "total and complete rip-off to the people of this state."

Injection well appeal rejected by Franklin County court - athensnews.com: The Athens County Fracking Action Network had another appeal of the K&H Partners injection well near Torch ruled against in a Franklin County court last week. Frankin County Common Pleas Judge Patrick Sheeran ruled that the Ohio Oil & Gas Comission lacks jurisdiction over a permit ACFAN was appealing. The permit had been issued by the Ohio Division of Oil and Gas Resources Management in 2013 for a second injection well by K&H Partners at its site in Troy Township in eastern Athens County. ACFAN appealed that permit to the Ohio Oil & Gas Commission. The commission asserted that the permit was a drilling permit and not an injection permit and so the commission lacked jurisdiction to consider an appeal of its issuance. A drilling permit allows the creation of the well while an injection permit allows oil-and-gas horizontal hydraulic fracturing wastewater to be injected into it. The Franklin County court upheld the commission’s stance that the permit appealed was for drilling the well only. Sheeran said that the state Legislature had not given the Oil and Gas Commission authority to hear drilling permit cases. ACFAN’s next legal move could be to appeal Sheeran’s decision to the 10th District Court of Appeals in Franklin County. The group has not indicated yet whether they intend to do so.

Here's The New Study The Fracking Industry Doesn't Want You to See - Though fracking industry proponents scoff at any intimation their so-called vital industry poses even scant risks to the public, a new study published in Toxicology and Applied Pharmacology just proved those critics right — fracking wastewater causes cancer. Using human bronchial epithelial cells, which are commonly used to measure the carcinogenesis of toxicants, researchers confirmed fracking flowback water from the Marcellus Shale caused the formation of malignancies. After conducting further tests on live mammalian subjects, researchers found five of six mice“injected with cells transformed from well water treatments developed tumors as early as 3 months after injection,” including a tumor in one mouse that grew to over 1 cm in size in just five months. A control group did not develop any tumors for the six months of the study period. According to the study, performed by scientists from the Department of Environmental Medicine, as well as Biochemistry and Molecular Pharmaceutical at New York University, the Robert Wood Johnson Medical School at Rutgers, and esteemed partners from universities in China — results indicate fracking flowback water causes cancer. Implications of the report’s findings would be difficult to overstate considering how fracking wastewater is generated, stored, and treated, and how often spills, leaks — and even the wastewater injection process, itself — can lead to contamination of the potable supply. A concise but thorough explanation of the fracking process can be found in the introduction to the report, “Malignant human cell transformation of Marcellus Shale gas drilling flow back water,” which states: HVHHF is an advanced technology that creates fractures in the rock that extend out as far as 1000 ft away from the well. The pressure is reduced after the fractures are created, which allows water from the well to return to the surface, also known as flow back water [or flowback]. The flow back water contains complex proprietary chemical mixtures, but also naturally occurring toxins such as metals, volatile organics, and radioactive compounds that are destabilized during gas extraction. On average, 5.5 million gallons of water is used … to hydraulically fracture each shale gas well, and 30% to 70% of the volume returns as flow back water.”

Marcellus jobs market takes another beating -- Low natural gas prices just keep hitting oil and gas industry workers in the Marcellus Shale. The state Department of Labor figures show 2,262 fewer oil and gas jobs when comparing quarter two of 2015 to 2014.  Cabot Oil and Gas announced in a press release a 58 percent reduction to $325 million as opposed to $774 in 2015. The company plans to drill about 30 wells in 2016. Cabot plans to drill 25 wells in the Marcellus Shale and 5 in the Eagle Ford Shale and complete a total of 55 wells. By mid-February of this year it is expected the rig count will be reduced to one total rig in the company. According to StateImpact and Stephen Beck, a US oil and analyst for IHS, Cabot’s reduction is significant because the company operates in an area of the Marcellus that is most economically productive. Other companies that report layoffs include Southwestern energy, with nearly 40 percent of their workforce, and Range Resources, with a reduction of 55 jobs.  Energy industry stocks dropped as Chesapeake Energy Corporation hired lawyers to restructure, Anadarko Petroleum Corporation announced a dividend reduction and Whiting Petroleum Corp’s credit was downgraded by Moody’s. Director of the Office of Energy Markets and Financial Analysis for the US Energy Information Administration (EIA) Lynn Westfall explains a few reasons why production is declining: Low prices challenge the justification for running rigs, as production from wells decreases at an increasing rate. The lower rig count does not allow companies to keep up with the declined rate causing decreased production In addition, logistically there is not enough pipeline to remove the oil.

Pennsylvania family fails in court to save sugar maples from pipeline (Reuters) - A federal judge ruled on Friday that a Pennsylvania family that runs a maple syrup business cannot stop most of their trees from being cut down to make way for a shale gas pipeline, but he stopped short of charging them with contempt of court.Judge Malachy Mannion of the U.S. District Court in Scranton said his previous order allowing the tree-cutting could not be challenged in court.But he said lawyers for the company building the Continental Pipeline failed to prove the five defendants who own the property were guilty of obstructing the tree cutting.  "But I'm going to direct that U.S. Marshals are empowered to arrest or detain anyone who obstructs the felling of trees," he said. "Then they will be brought before me for a contempt hearing."  Monty Morgan, a former Ohio state trooper who is regional security director for Constitution Pipeline Co, was unable to identify any of the defendants as those who have blocked workers from cutting the maples this month. The $875 million Continental Pipeline, due to be operational this autumn, would run 124 miles (200 km) from Montrose, Pennsylvania, to Albany, New York. It would bring gas from fracking wells to the New York and New England markets."I think this is the most realistic outcome we could have expected," said Megan Holleran, spokeswoman for North Harford Maple, a family-run syrup business in New Milford.  Her mother, Catherine Holleran, is one of the defendants. Three others - Michael W. Zeffer, Maryann Zeffer, and Patricia Glover - are aunts or uncles. Dustin Webster, the fifth defendant, is a cousin. The family has owned the land since moving from Long Island in the early 1950s.

Landowners win case against Bluegrass Pipeline (AP) — Landowners who had opposed efforts to put a natural gas pipeline across 13 counties have been victorious in the Kentucky Supreme Court. The court decided Thursday not to review a May 2015 ruling from the Kentucky Court of Appeals that said Bluegrass Pipeline LLC did not have the power of eminent domain because it was not a utility regulated by the state, according to multiple media reports. Because the Supreme Court didn’t review the appeal, the appellate court’s decision stands, said Kentuckians United to Restrain Eminent Domain attorney Tom FitzGerald. “Today is a good day for Kentucky landowners and for freedom,” FitzGerald posted on his Facebook page. The pipeline would have snaked across nearly 200 miles of Kentucky, carrying natural gas liquids from fields in Ohio and Pennsylvania to refineries and ports along the Gulf Coast. Natural gas liquids are used by the petrochemical industry to make plastics, adhesives, fuels and other products for domestic and foreign markets. Many residents opposed the project due to environmental concerns. In 2014, the companies proposing to build the pipeline halted the project because it hadn’t received the necessary customer commitments.

Virginia justices hear appeal involving natural gas pipeline (AP) — The Supreme Court of Virginia is considering the arguments of a group of southwest landowners in the path of a natural gas pipeline. Justices heard an appeal Tuesday in Richmond involving the Mountain Valley Pipeline. Its route covers 300 miles in West Virginia and Virginia. The landowners from Giles (jyls) County objected to surveyors coming on their land to plot a path for the pipeline. A Circuit Court judge rejected the case, but Appalachian Mountain Advocates took the appeal to the Supreme Court. They are questioning a state law that allows pipeline surveyors on their land under Virginia’s eminent domain law. Appalachian Mountain Advocates says it successfully prevented Mountain Valley Pipeline from entering private property in West Virginia. Justices typically rule in a month to six weeks.

Dominion outlines new national forest route for pipeline — Energy companies behind the Atlantic Coast Pipeline have carved a new proposed route through parts of West Virginia and Virginia in response to federal concerns about the national gas pipeline’s initial path through sensitive national forest areas. The alternate released Friday by Dominion Resources Inc. would reduce by one-third the pipeline’s footprint through the George Washington and Monongahela national forests, but add 30 miles to the 550-mile project. The alternate route would also affect 249 new landowners in both states, Dominion said. Dominion said it worked extensively with the U.S. Forest Service to select the new route after foresters rejected the initial plan, in part because of fears it would harm a salamander that lives in high elevations in the Shenandoah Mountains and is found nowhere else in the world. Aaron Ruby, a spokesman for the energy company, said Dominion believes the new path will satisfy Forest Service concerns. Dominion is the lead company proposing the 42-inch pipeline from West Virginia, through Virginia and into North Carolina. While politically popular, the energy project has found scattered opposition along its route from landowners, environmental groups and conservation officials.

New Gas Pipeline Route Tries To Spare Nature But Affects More Landowners -  Less than a month after a federal agency rejected the route of an interstate gas pipeline for wanting to cut through two national forests, the company returned with a longer route that put more landowners at risk of having land seized through eminent domain. “There is no good place to put this thing,” said Ernie Reed, president of Wild Virginia, in an interview with ThinkProgress.  The Atlantic Coast Pipeline, unveiled in 2014, would transport 1.5 billion cubic feet of natural gas per day. If approved by the Federal Energy Regulatory Commission, the builders would seize any land necessary via eminent domain to build an interstate line that would carry gas from the Marcellus Shale basin — one of the largest natural gas reservoirs in the world — to supply power stations in Virginia and North Carolina.  The companies involved were told last month to amend the existing proposed route as it lacked “minimum requirements” to safeguard both the Monongahela and the George Washington National Forests. After that, the companies announced they had come up with an alternative path that is about 30 miles longer than the original 550-mile route. It would affect more landowners than before, but avoid sensitive wildlife. Dominion, which partnered with Duke Energy, Piedmont Natural Gas, and AGL to develop the project, said it’s submitting a preliminary analysis of the route to FERC this week. In a statement, it noted the new plan would affect about 249 new landowners in Randolph and Pocahontas counties in West Virginia, as well as others in Highland, Bath, and Augusta counties in Virginia.

Pipeline opponents ask board to consider new US oil exports (AP) — Opponents of a proposed pipeline project in Iowa want the state utilities board to take additional evidence that crude oil produced in the United States is now being shipped overseas, which would bolster their argument that North Dakota oil to be shipped through the so-called Bakken pipeline may have no benefits for Iowa. It’s been more than two months since the Iowa Utilities Board ended hearings and gathering documents on the project, which would stretch diagonally across 1,300 parcels of land and 18 counties in Iowa at a cost of $1 billion. Board members began deliberations last week on whether to grant a hazardous liquid pipeline permit to Dakota Access, a Texas-based company owned by major petroleum industry players, and whether the company can use eminent domain to force owners of 296 parcels of land to allow the pipeline to be buried on their property. At issue is a 2006 law that prohibits private development of agriculture land without the owner’s consent — unless the developer is a utility. The board must decide whether Dakota Access meets the definition of a utility, such as an electricity or telephone provider. Opponents say it isn’t because it provides no service directly to Iowa residents. Pipeline opponents claim it is not because there is no assurance the project will provide even an indirect service to Iowa residents, much less be a “public convenience and necessity” as required by law. But Dakota Access has said the consumers will benefit by helping to reduce U.S. reliance on imported oil, stabilizing prices and improving national security. The company said the project creates jobs and provides an economic benefit to local communities during construction. It also contends that moving oil via pipeline is safer than rail or truck transportation.

Texas cities ask federal officials to cancel drilling leases — Some North Texas cities and environmental groups have asked federal officials to halt plans to allow gas drilling under a lake that’s a drinking water source for millions and has a dam cited by the U.S. Army Corps of Engineers as being in hazardous condition. As many as 259 acres are up for auction for natural gas leases at Lewisville Lake, according to the Bureau of Land Management. Nearby residents fear possible drinking water contamination and earthquakes that could further threaten stability. Protesters want the BLM to remove the property from an April 20 auction in Santa Fe, New Mexico, and commission a new environmental study of gas drilling. “These direct impacts from oil and gas activities have not been adequately studied and represent an unacceptable level of risk to DWU,” director of Dallas Water Utilities Jody Puckett wrote in a letter to BLM. Dallas Water Utilities provides drinking water to 2.4 million people in the city and surrounding communities. But Ed Ireland, the executive director of the Barnett Shale Energy Education Council, told the Dallas Morning News that there has been extensive gas drilling in Texas — including under Lewisville Lake — with no evidence of drinking water contamination.

Fracking fears prompt protests over leasing near lake — North Texas cities, from Highland Village, population 15,500, to Dallas, are protesting plans to auction federal lands for gas-well exploration around a lake that supplies drinking water to millions. The plans to auction several hundred acres around and under Lake Lewisville, about 35 miles northwest of Dallas, threaten both drinking water for about 2 million consumers and the integrity of the earthen dam that the U.S. Army Corps of Engineers consider the nation’s eighth-most-hazardous, local officials and environmental groups say. There are no gas wells in Highland Village, but the city does own five water wells, and threat of contamination to them and to the lake, prompted the city to file a written complaint with the Bureau of Land Management, which is offering the 259 acres for lease. The 10-year mineral-lease auction is set for April 20 in Santa Fe, New Mexico. “We are not opposed to gas drilling and the process that goes along with it,” Michael Leavitt, Highland Village city manager said in a statement. “Our concern is the potential harm that could be caused to our potable water supply if there is drilling under Lewisville Lake. “It is for that reason the council directed us to submit a protest letter.”  Highland Village’s northern boundary is formed by the lake, which holds about 2 million acre feet, or 2.5 billion tons of water. The corps of engineers owns the land on which the lake is built and the cities of Dallas and Denton own the water, said Thomas Taylor, executive director of the Upper Trinity Regional Water District. The water district wholesales Lake Lewisville water to 25 cities and about 250,000 customers.

Methane in Texas water wells likely natural, report says - A report from the University of Texas further contributes evidence that hydraulic fracturing has not contaminated drinking water with methane in Parker County, or anywhere else in Texas.The research reaffirmed findings from the Railroad Commission of Texas, which showed through nitrogen fingerprinting that water contamination was naturally occurring. The main objective of the project was to improve understanding of shallow natural gas, which is sometimes found in groundwater wells. During the project, researches took more than 900 samples from aquifers in the footprint of major Texas plays. A detailed chemical analysis was then performed on the water samples.Throughout the study area, researchers reached similar conclusions: the presence of high dissolved methane concentrations from 784 freshwater wells in the Barnett, Eagle Ford, Haynesville and Delaware Basin shale plays was likely natural and not related to fracking.The study states a number of natural pathways could explain the presence of methane in aquifers.“There is no need to invoke gas leakage to explain field observations. Structural and stratigraphic features explain the presence of thermogenic methane in shallow groundwater in the Haynesville and Barnett shale plays.” Researchers said oil and gas-related sources of contamination cannot be ruled out, but contamination from well integrity failure is not likely to occur.

EDITORIAL: Fracking fluids should be identified for safety - Beaumont Enterprise: Most places in Texas are OK with fracking, a few aren't. One thing they should share in common, however, is an understanding of which chemicals are being injected underground in their communities to understand any potential threats to water supplies. Unfortunately, state law allows drilling companies to withhold the identity of chemicals if they consider them to be proprietary. But the law doesn't require drillers to release specific formulas for drilling fluids or the quantities of various substances. All it mandates is a general listing of them. That's fair. Most frackers use similar types of fluid mixtures to inject underground so that inaccessible pockets of oil and gas can be extracted. Even if an unusual ingredient is listed, competitors won't know if a driller uses it by the ounce or the ton. No drilling company will cancel a project because it has to disclose all the components of its fracking fluids. The overriding goal here should be accountability and public safety.

Marathon Oil to focus on Eagle Ford assets - Marathon Oil detailed its diminished drilling strategy on Thursday, with most resources focused on Eagle Ford shale. The Houston-based company announced a 2016 capital program of $1.4 billion dollars, down more than 50 percent from 2015 and more than 75 percent below 2014. Approximately $600 million in capital spending is set aside for Eagle Ford, of which $520 million is for drilling and completions. The 2016 drilling program will continue focusing on co-development of the Upper and Lower Eagle Ford horizons, as well as the Austin Chalk . However, Marathon said its Eagle Ford rig count will be reduced to five in the first quarter. In 2015, the company operated an average of 11 rigs in Eagle Ford shale. Marathon will continue to work in Oklahoma Resource Basins, allocating $204 million for drilling in the Sooner State. Bakken shale projects will receive slightly less, with a $193 million budget.

Anadarko to build man camp in West Texas --  Anadarko Petroleum will open a new housing facility in West Texas near El Paso, according to the Houston Business Journal. The 77,190-square-foot man camp, located in Mentone, will be able to support 200 Anadarko employees and contractors, according to Target Logistics. The facility will include a basketball court, movie theater, game room, laundry facilities and a convenience store. A ribbon-cutting was held Feb. 10. Constructing a new man camp goes against the trend of vacancies in similar facilities in Bakken and Utica shale plays. According to a Bloomberg report, vacancy rates in Williams County, North Dakota reached 70 percent. The struggle to house numerous migrant workers during the boom had reversed. Many buildings sat vacant or unfinished. Anadarko, however, sees opportunity in the Delaware Basin, a formation stretching from West Texas to New Mexico. The  Woodlands-based company holds about 600,000 gross acres with an estimated 1 billion barrels of recoverable oil.

New Export Supply from Down Under and the U.S. Demand for liquefied natural gas has been flat recently, but liquefaction/LNG export capacity is on the rise. The resulting supply/demand imbalance along with the crash in crude oil prices has sent LNG prices to unexpectedly low levels, and raises questions about the competitiveness of all the new Australian and U.S. projects coming online in 2016-20. Today, we continue our examination of the fast-changing international market for LNG with a look at the new capacity being added to an already saturated LNG market, and how U.S. LNG exporters might fare in a hyper-competitive world.  This is Episode 3 in our series about recent developments in the international LNG market. The series’ aim is to describe the market’s changing supply/demand dynamics, and how they are likely to affect U.S. natural gas producers and LNG exporters in particular. In Episode 1, we recapped how the decisions to convert four U.S. LNG import terminals to liquefaction/LNG export terminals (and to build a greenfield liquefaction/export terminal in Corpus Christi, TX) were spurred by expectations that gas from the Marcellus, the Eagle Ford and other prolific shale plays would be so plentiful (and so inexpensive) that the U.S. could help meet a significant share of what was then seen as fast-growing worldwide LNG demand.  We also laid out several factors that will help determine how U.S. players—gas producers, midstream companies and LNG exporters—will fare in the very different market (low oil and LNG prices, flat LNG demand, too much liquefaction capacity) that emerged instead.

5.1 and 3.9 magnitude earthquakes recorded in Oklahoma — A magnitude 5.1 earthquake shook northwest Oklahoma and was felt in seven other states on Saturday (Sunday, PH time), the U.S. Geological Survey said, the third-largest temblor ever recorded in the state where the power and frequency of earthquakes has dramatically increased in recent years. A magnitude 5.1 earthquake shook northwest Oklahoma and was felt in seven other states on Saturday. The earthquake centered about 17 miles (27 kilometers) north of Fairview in northwestern Oklahoma occurred at 11:07 a.m. and was reportedly felt across Arkansas, Iowa, Kansas, Missouri, Nebraska, New Mexico and Texas, the USGS said. A second quake measured at magnitude 3.9 struck 10 minutes later, followed at 11:41 a.m. by a magnitude 2.5 quake. Both were in the same area of the larger temblor and about 100 miles (160 kilometers) northwest of Oklahoma City. The strongest earthquake on record in Oklahoma is a magnitude 5.6 temblor centered in Prague, about 55 miles (90 kilometers) east of Oklahoma City, in November 2011 that damaged 200 buildings and shook a college football stadium in Stillwater, about 65 miles (105 kilometers) away.  Oklahoma’s stronger and more frequent earthquakes have been linked to the injection of the briny wastewater left over from oil and gas production underground. Regulators have recommended reducing the volume or shutting down some of the disposal wells. Oil and gas operators in Oklahoma, where the industry is a major economic and political force, have resisted cutting back on their injections of wastewater.

Several earthquakes, including a 5.1-magnitude quake, reported in Fairview - A 5.1-magnitude earthquake rocked the Oklahoma late Saturday morning. At 11:07 a.m., the U.S. Geological Survey reported that the earthquake was centered 17 miles northwest of Fairview. Several aftershocks and smaller earthquakes were recorded in Fairview. Quakes of 3.9, 3.5, 3.1, 3.0, 2.8, 2.7, 2.5 and 2.5 were reported Saturday morning and afternoon.  A 3.7-magnitude quake was reported at 6:30 p.m. Saturday. The KOCO 5 newsroom received several phone calls from people who felt the earthquake throughout Oklahoma. We also have heard reports of the earthquake being felt in Kansas and Texas.  No major damage has been reported, but cracks appeared in homes after Saturday morning's earthquake.  A 3.1-magnitude earthquake was reported Saturday afternoon about 5 miles north-northwest of Medford, according to the USGS.   The Oklahoma Corporation Commission released an advisory Saturday afternoon stating a full plan to address the continuing earthquakes in areas like Fairview, Cherokee and Medford.  The plan's full details will be announced Tuesday, but a general summary shows it will involve a "large-scale regional reduction in oil and gas wastewater disposal for an approximately 5,000 square mile area in western Oklahoma." The advisory also stated more than 200 Arbuckle disposal wells will be impacted.

Oklahoma sees dramatic spike in earthquakes - CBS News: -- The third most powerful earthquake in Oklahoma's recorded history jolted the northern part of the state this weekend. The magnitude 5.1 quake -- centered near Fairview -- was felt in seven states overall. Oklahoma has recently seen a dramatic spike in earthquakes. The ground keeps shaking in Oklahoma, and more violently. This year has already seen 140 quakes 3.0 or larger. That's an average of 2.5 earthquakes per day. Before 2008, the average was one and a half per year.  The small town of Fairview is quickly gaining a big reputation for large quakes. It was the epicenter of Saturday's five point one. And just last month, a 4.8 quake. "It just kind of rattled, rattled, rattled, and got stronger and got stronger," said Susie Kidd Marten. Geologist Todd Halihan teaches at Oklahoma State and believes water disposal wells used after hydraulic fracturing is linked to the quake increase. "Unfortunately, a side effect, now we are generating seismicity due to the injection wells," he said. "These are pretty startling when you feel them. There's now a lot of people experiencing them on a pretty broad scale." Homeowner Kathy Matthews said the state has mixed up its priorities.  "There's a greater impact on the economy when you have hundreds of millions of dollars of damage worth of real estate that's been damaged by that activity," she said. So far Oklahoma has no plans to stop hydraulic fracturing.

State Rep: Earthquakes, not budget, most important state issue  -- The 5.1 magnitude earthquake that shook Oklahoma Saturday came as Rep. Richard Morrissette prepares for a public forum on earthquakes. "Every hour of everyday they're talking about it," Rep. Morrissette said of his constituents. Morrissette, D-Oklahoma City, wanted to give residents another chance to hear from the experts on the topic. He's hosting the public forum on February 23, at UCO. Among the guests who will speak is activist Erin Brockovich. "This is absolutely the issue of the moment. I know the budget, every body's swirling around it, but when our homes, business and our lives maybe at stake here, I think that probably takes precedence," he said. Contrast Morrissette's viewpoint to Gov. Mary Fallin's response when FOX 25 asked why she didn't bring up earthquakes in Oklahoma's State of the State Address. "I didn't put earthquakes in there because I wanted the budget and our challenges as a state and how we're going to overcome this to be our biggest topic of discussion," she said but added "I also felt like earthquakes were so important that I had a stand-alone press event the week before my State of the State because it is an issue that concern families, with their homes, their largest investment, for the most part."

Despite Extra Earthquake Funding, State Still Lacks Lead Seismologist --Despite a $1 million transfer from the state’s emergency fund to the Oklahoma Geological Survey, the agency still has not replaced its top seismologist. Austin Holland worked for OGS for years, often working 80-hour weeks investigating causes of an unprecedented increase in Oklahoma’s earthquakes. But he left the agency last year, taking a job in New Mexico, a state that shakes far less frequently than Oklahoma. Not long after Holland left OGS, so did Amberlee Darold, the agency’s only other full-time seismologist. The number of earthquakes in Oklahoma jumped from 50 in 2009 to more than 5,800 last year, making the state the most seismically active in the lower 48 states, according to NPR’s State Impact. Records indicate the heavy workload may not have been the sole reason the two left. As reported by EnergyWire, Bloomberg and other media outlets, OGS and its scientists were pressured to downplay connections between the state’s earthquakes and oil and gas activity. The agency and state officials, once reluctant to connect earthquakes with the energy industry, have since acknowledged most of the quakes are “very likely” caused by injection wells, as years of studies have concluded.

Oklahoma Earthquake Comes Ahead of Plan to Reduce Fracking - AboutLawsuits.com - A 5.1 magnitude earthquake that hit Oklahoma over the weekend highlights recent concerns about geological instability due to hydraulic fracturing operations, as the state prepares to issue a plan this week to reduce large-scale “fracking” operations. The epicenter of the earthquake was 17 miles northwest of Fairview, and was not linked to any immediate reports of serious injuries or significant damage. However, it is part of a disturbing trend of instances of “induced seismicity”, or earthquakes caused by human activity. Hydraulic fracturing, commonly known as fracking, is a controversial gas extraction process, where a mixture of water, sand and fluids that the gas industry has fought to keep secret is injected into the ground at extremely high pressure, cracking shale deposits and freeing trapped natural gas, which can then be removed. Those fluids are then sucked from the ground and often disposed of in wastewater wells. As fracking operations have increased, researchers have noted a dramatic increase in the number of earthquakes in the central and eastern United States over the past few years, including Oklahoma. The Oklahoma Corporation Commission (OCC) has indicated that it will release a plan tomorrow that is designed to reduce large-scale fracking operations in the western part of the state, including the Fairview area hit by this latest earthquake. The area has been so prone to earthquakes that it required special attention from the OCC, which directly links the quakes to fracking operations. The plan calls for a reduction in disposal volume of 27 wastewater disposal wells.

Oklahoma agency calls for wastewater cuts to stem earthquakes (AP) — Oklahoma oil-and-gas regulators on Tuesday issued their most far-reaching directive yet in response to a surge in earthquakes by asking the operators of nearly 250 injection wells to reduce the amount of wastewater they inject underground by 40 percent. The Oklahoma Corporation Commission wants operators over the next two months to reduce injections by more than 500,000 barrels of wastewater daily in an area that covers more than 5,200 square miles of northwest Oklahoma. The commission’s plan has been in the works since late October and was not influenced by a 5.1-magnitude quake that hit the area Saturday, said commission spokesman Matt Skinner. People reported feeling Saturday’s quake, the third-strongest in state history, in as many as 13 other states, including in Georgia, 900 miles away.  As the Corporation Commission was preparing to announce its move, the Sierra Club filed a lawsuit asking that three major Oklahoma energy producers reduce wastewater volume. The number of earthquakes with a magnitude 3.0 or greater has risen in Oklahoma from a few dozen in 2012 to more than 900 last year. Recent peer-reviewed studies suggest injecting high volumes of wastewater could aggravate natural faults. In Oklahoma’s six most earthquake-prone counties, the volume of wastewater disposal increased more than threefold from 2012 to 2014. Most operators comply with commission directives, though one — SandRidge Energy Inc. — initially refused to comply before reaching an agreement with the agency last month. Oklahoma House Speaker Jeff Hickman, whose home is 20 miles from the epicenter of Saturday’s quake, is pushing a bill to make clear the Corporation Commission has the power to order wells to shut down or reduce volume.

Environmental groups sue oil companies over Oklahoma earthquakes –  – As Oklahoma leaders continue to contemplate what to do about the rise in earthquakes in the Sooner State, a pair of environmental groups have filed a lawsuit. Sierra Club and Public Justice filed a federal lawsuit against three energy companies that use hydraulic fracturing in the state. The groups say the production waste from fracking have contributed to an alarming increase in earthquake activity over the past few years. “The number of earthquakes in Oklahoma has increased more than 300 fold, from a maximum of 167 before 2009 to 5,838 in 2015. As the number of earthquakes has increased, so has their severity. For example, the number of magnitude 3.5 earthquakes has increased one hundred fold from 4 in 2009 to 220 in 2015. These waste-induced earthquakes have toppled historic towers, caused parts of houses to fall and injure people, cracked basements, and shattered nerves, as people fear there could be worse to come,” the lawsuit states. The lawsuit demands that New Dominion, Chesapeake Operating and Devon Energy Production Company “reduce, immediately and substantially, the amounts of production waste they are injecting into the ground.” The lawsuit was filed following a 5.1 magnitude earthquake that was recorded near Fairview. The quake was the third strongest ever recorded in the state. “The science laid out in our case is clear,” Paul Bland, the executive director of Public Justice, said. “Oklahoma may be on the verge of experiencing a strong and potentially catastrophic earthquake. All evidence points to alarming seismic activity in and around fracking operations, and that activity is becoming more frequent and more severe. This lawsuit, which we filed after the three companies named in our suit refused to take steps of their own, is an action brought by residents of Oklahoma in an attempt to protect their property, their communities and their lives.”

Earthquakes Trigger Sierra Club Lawsuit Against Fracking Companies - AboutLawsuits.com - The Sierra Club and Public Justice have filed a lawsuit against a number of oil and gas companies they accuse of contributing to earthquakes in Oklahoma and throughout the country, due to the use of injection wells related to hydraulic fracturing gas mining operations, more commonly known as “fracking”. According to a Sierra Club press release issued on February 16, the complaint was filed on Tuesday in federal court in Oklahoma. It names Chesapeake Operating LLC., Devon Energy Production Co. and New Dominion LLC as defendants, indicating that their injection wells triggered earthquakes there and in Kansas.The fracking lawsuit (PDF) comes after a 5.1 magnitude earthquake that shook central Oklahoma this weekend; the third strongest quake recorded in the state’s history.  As fracking operations have increased, researchers have noted a dramatic increase in the number of earthquakes in the central and eastern United States over the past few years, including Oklahoma. “The dangers associated with fracking and its related processes has never been more clear than it is here in Oklahoma,” Johnson Bridgwater, Director of Sierra Club’s Oklahoma Chapter, said in the press release. “The lawsuit notes that the latest quake was one of a string of earthquakes that have shook the state since the beginning of the year. “Oklahoma City residents were awakened on January 1 with a 4.1 magnitude earthquake” the lawsuit notes. “Six days later, 4.3 and 4.8 magnitude earthquakes occurred back-to-back.”By January 16, the state had been hit by 131 earthquakes this year alone, ranging in magnitude from 2.01 to 4.8, the lawsuit indicates. The lawsuit calls for substantial reduction in production waste and calls for the companies to reinforce vulnerable structures and for the establishment of an independent earthquake monitoring and prediction center.

Central Oklahoma shale crude oil still attracting new investors -- Crushing oil prices are hitting U.S. shale producers hard and the outlook for 2016 shows little sign of a let-up. Production has continued to prove resilient but the odds are that something has to give at these prices. However there are still sweet spots in U.S. shale plays where producers are increasing acreage and drilling new wells. The headline plays that many analysts talk about are the Delaware and Midland basins in the West Texas Permian but as we outline in today’s blog there is also continued interest in the relatively less well-known central Oklahoma SCOOP and STACK plays.   The Anadarko basin covers approximately 60,000 square miles centered in the western part of Oklahoma and the Texas Panhandle and extending into western Kansas and southeast Colorado. Like the Permian Basin in West Texas, the Anadarko is certainly not a “new” oil and gas basin but has been extensively and successfully exploited since the 1920s using conventional vertical drilling technology. Over the past four years the basin has been successfully targeted by producers using horizontal drilling and fracturing technology to extract unconventional oil and condensates from shale. The Anadarko basin is also similar to the Permian Basin in that it contains multiple layers of oil-bearing formations that can be exploited by drilling at different depths.   The Anadarko basin encompasses four main shale era plays - the Mississippian Lime to the northeast, Cana Woodford to the southeast, Granite Wash to the southwest and Cleveland/Tonkawa to the northwest. The Anadarko shale is less consistent and harder to “unlock” hydrocarbons from as compared with the bigger plays like the Bakken or the Eagle Ford. However - as we have discussed in previous blogs – it has been the subject of much excitement in the drilling community with huge wells coming in that promise rich rewards. We talked about some of these opportunities back in December 2012. We also referred to the ingenuity of Anadarko producers in cracking the code back in October 2013.

Bernie Sanders’ Fracking Ban Is an Economic Disaster for Energy-Producing States - Many energy-producing states are currently struggling in the wake of falling oil and natural gas prices. Thousands of people are losing their livelihoods in the energy sector, and lower severance tax payments are projected to produce numerous state budget shortfalls, which could end up reducing state spending on social programs. But as bad as the situation in many states now looks, it would be far worse if Sen. Bernie Sanders (I-VT) gets his way and ends up successfully banning fracking, a plan he recently proposed as a way to reduce the carbon dioxide emissions Sanders says is causing global warming. A ban on fracking would be disastrous for everyone. It would drive up energy prices (don’t forget gasoline cost more than $4.00 per gallon a few years ago), and it would cripple the economies of numerous states, including New Mexico and Ohio. New Mexico has the fifth largest proven oil reserves and the seventh largest reserves of natural gas in the nation, and many of these sources are accessible only through fracking. Oil and gas production are vital to the economy in New Mexico. The average annual wage paid in the energy industry is about $63,000, more than 57 percent higher than the average wage in the state. Nearly 22 percent of New Mexico’s population is living beneath the poverty line, a figure that’s sure to decline should fracking be banned.

Colorado anti-fracking measures: 1 down, 10 remain - Denver Business Journal: A ballot proposal asking Colorado voters to ban fracking will be pulled from consideration for the 2016 ballot, according to a member of the group that filed the proposal in December. But the other 10 proposals filed by Coloradans Resisting Extreme Energy Development (CREED) remain on the table, said Karen Dyke, who’s listed in state documents as the contact person for the 11 initiatives. “We’re going to pull the one that’s the ban, not the other ones,” Dyke told the Denver Business Journal on Friday. “We’re down to 10, but we still have plenty to work with." Tricia Olson, a spokeswoman for CREED, said in an email: "While we didn’t want to eliminate any proposals, we always knew that we could only run one to two. At this point, it’s a process of elimination to get down to one or two." But while a proposal to ban fracking statewide may be off the table, the other initiatives backed by CREED are just as bad, said Karen Crummy, a spokeswoman for Protecting Colorado's Environment, Economy and Energy Independence, an issues committee formed by the industry in 2014 to oppose anti-fracking initiatives. “They withdrew it (the fracking ban proposal) because they know the vast majority of Coloradans support responsible oil and natural gas development and are against banning an entire industry,” Crummy said via email.

Colorado Supreme Court Considers Legality of Fracking Bans | Heartlander Magazine: Colorado is on the front lines of a battle between states and local communities who want to ban or impose moratoria on fracking, overriding state control of the oil and gas industry. On December 9, the Colorado Supreme Court heard challenges brought by the cities of Longmont and Fort Collins. The cities claim they should have the power to ban fracking, regardless of decisions made by state agencies. In 2012, voters in Longmont approved an amendment to its city charter banning fracking. In 2013, voters in Fort Collins approved a five-year moratorium on fracking. Lower courts overturned both limits, citing prior Colorado Supreme Court decisions determining the state, not localities, have control over oil and gas development. The courts found state regulators were solely authorized to regulate fracking. ‘Fracking is Beneficial’ Jonathan Lockwood, executive director for Advancing Colorado, a pro-environment, free-market advocacy group, says Colorado is the epicenter of attacks on the energy industry from out-of-state anti-fracking groups seeking to evict the energy industry from the state, despite the fact the industry is one of the bright spots in the state’s economy.  “Out-of-state special-interest groups with extreme views have flooded our state with anti-energy campaigns, preyed on vulnerable communities, and tried to confuse voters,” Lockwood said. “Protesters in the past have been organized by the same people who organize minimum wage hike protests. The chants are even the same. At one demonstration, a protester held a sign that said, ‘Burn cop cars, not tar sands,’ showing how out-of-control these anti-energy activists really are.

Hoping for a Price Surge, Oil Companies Keep Wells in Reserve - — The price of oil keeps dropping. But that didn’t stop a work crew from drilling a well recently on what was once a cornfield, carefully guiding the last sections of 13,000 feet of pipe spiraling into the hard Niobrara shale with a diamond-tipped bit.Their well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado’s Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly.Many constitute a new form of underground storage, a new well inventory strategy for an industry in distress, one that has been forced to lay off tens of thousands of workers, decommission most of its rigs and write down assets. For individual companies like Anadarko, the deferred completions — known in the oil business as D.U.C.s (an acronym for drilled but uncomplete) — are a bet on higher oil prices than the current level of about $38 a barrel, which is about 60 percent lower than in summer 2014. They are viewed by oil executives as a way to hoard cash as service costs plummet and are a flexible lever to rapidly increase production whenever oil rises again.

Anadarko drills Colorado high schoolers on fracking (Slideshow) - Denver Business Journal: Chemistry students at Windsor High School got a close look at the mechanics of hydraulic fracturing this month, courtesy of Anadarko Petroleum Corp. Representatives of Anadarko (NYSE: APC) -- one of Colorado's largest oil and gas operators -- and a contractor visited the school in the heart of Colorado's energy country to talk about fracking and to show how it's done. And Bloomberg News photographer Matthew Staver was on hand for the class. See his photos above. The school visit was part of an effort by Anadarko and others in the energy industry to more broadly discuss the widely used technique to extract oil and gas trapped in rock deep underground. The push comes as the industry faces as many as 10 possible Colorado ballot initiatives that could tighten regulation. Staver says that Anadarko "has deployed 160 landmen, geologists and engineers to Rotary clubs, high schools and mothers' groups. They demonstrate how drilling works and try to convince people that the technique and the accompanying chemicals and geological effects don’t harm the environment or public health."

Climate change activists disrupt Utah oil and gas auction  (AP) — Utah environmentalists hope their disruption of a federal oil-and-gas lease auction and the purchase of development rights on a small stretch of land by an author and activist bring attention to a nationwide push to halt fossil fuel extraction on Western lands. But oil and gas industry officials say environmental writer Terry Tempest Williams’ bid on at least 800 acres is insignificant. And, they say the group’s refusal to stop singing that led them to be escorted from the Tuesday auction in Salt Lake City will give the industry fuel to push the BLM to hold online auctions in the future. The events evoke memories of climate change activist Tim DeChristopher, who served 21 months in prison for sabotaging a 2008 Utah auction to thwart drilling near Utah’s national parks by bidding on $1.8 million of lands he couldn’t pay for. But, Williams is not expected to face any consequences as long as she pays several thousand dollars she’ll owe for the rights. Tempest Williams’ made her bid after nearly 100 protesters were escorted peacefully out of the auction when they refused to stop singing, said Bureau of Land Management spokesman Ryan Sutherland. There were no arrests or confrontations. Holding signs that said, “Our lands, our future” and “#KeepItInTheGround,” they marched to the convention center and took their seats in the gallery before breaking into song with the refrain, “I hear the voice of my great granddaughters saying, keep it in the ground.”

North Dakota crude production continues to climb - Last week state energy officials announced that North Dakota crude production in November rose slightly, despite low oil prices.  However, as reported by The Wall Street Journal (WSJ), North Dakota Department of Mineral Resources Director Lynn Helms warned oil and gas companies that current production rates are not sustainable at current prices. “We need $50 oil to keep production flat. We cannot sustain production at sub-$30 prices,” Helms said at a news conference. November production rates, the latest data available, increased by 0.4 percent, or 1.17 million barrels per day, compared to October figures. The state’s natural gas production rate, meanwhile, increased 0.67 percent from the previous month and reached a record high of 1.67 billion cubic feet of gas per day, as reported by the North Dakota DMR. According to state data, North Dakota sweet crude is currently priced at around $20 per barrel after accounting for its discounted trade. There are currently 41 drilling rigs operating in the state compared to the 200 operating this same time in 2012. Helms added that if benchmark West Texas Intermediate prices continue to hover around the $30 per barrel mark, Bakken shale output will likely decline. Oil production in North Dakota peaked at 1.23 million barrels per day in December 2014.

North Dakota has 'big concern' with hedge funds buying oil assets | Reuters -  North Dakota's energy regulator said on Wednesday he is worried about hedge funds and other investment groups buying oil assets in the state and conducts background checks on potential acquirers. Billions of dollars in investment capital have started to flow toward the oil industry, with fund managers and others sensing a long-term buying opportunity for wells, pipelines and other energy assets. Lynn Helms, head of North Dakota's Department of Mineral Resources, said he is worried some buyers might have a lack of experience running oil or natural gas facilities, which normally pose safety risks. "It is a big concern," Helms said on a conference call with reporters to discuss monthly oil production. Under North Dakota law, producers must bond their wells so the state has insurance to pay to plug wells in case an operator abandons an oil field. Because the state regulator has control over those bonds, Helms or his supervisors at the North Dakota Industrial Commission could block potential asset sales by not approving a bond transfer, a nightmare scenario for an industry eager for any kind of cash infusion.

New rules aimed at North Dakota's oil industry — North Dakota regulators are proposing new rules aimed at the oil industry. A slate of proposed rules were unveiled Tuesday, including a requirement that would require bonding for all crude and saltwater pipelines. Another new rule would require berms of at least a foot high to be built around a well site. Department of Mineral Resources Director Lynn Helms says public hearings on the proposals will be done in several cities in April. He says October is the earliest the rules could be in place. North Dakota Petroleum Council President Ron Ness says his group has not had a chance to study the proposals. He says subjecting the oil industry to more rules adds costs to companies that already are dealing with depressed crude prices.

Governor urges oil company to preserve ‘viewscape’ - Gov. Jack Dalrymple urged the oil company developing a massive drilling unit to preserve Little Missouri State Park as the company continues working in the area. Dalrymple’s comments came Tuesday after the Industrial Commission received an update on the Corral Creek-Bakken Unit, a 30,000-acre oil development near Killdeer that includes the state park. “I hope that we do let people know out there, including ConocoPhillips, that we would like to continue to stay back from the Little Missouri as much as possible and continue to preserve the viewscape as much as possible,” Dalrymple said. ”I think they know that. But let’s keep reminding them that remains the same.”When the unit was proposed, ConocoPhillips planned to drill 81 wells in addition to 12 wells that were already drilled in the unit. The timeline was anticipated to be 3½ years. But the company added more wells targeting the Three Forks formation, and now expects to continue drilling until at least 2019, a ConocoPhillips representative told the Oil and Gas Division in January. As of last month, the unit had 120 producing wells, 14 wells that were drilled or partially drilled and ConocoPhillips planned to add 60 more.

North Dakota oil drops by 29.5K barrels daily in December -— North Dakota’s Department of Mineral Resources says the state’s oil production decreased by about 29,500 barrels a day in December, while natural gas production slipped below a record level set a month earlier. The agency says the state produced an average of 1.15 million barrels of oil daily in December. The December production was about 75,200 barrels per day less than the record set in December 2014. North Dakota also produced 1.67 billion cubic feet of natural gas per day in December, down slightly from the previous record set in November. The December tally is the latest figure available because oil production numbers typically lag at least two months. There were 41 drill rigs operating in North Dakota’s oil patch on Wednesday. That’s down from an average of 64 rigs in December.

Low-volume North Dakota oil wells may suspend production (AP) — Hoping to help North Dakota’s struggling oil industry, state regulators on Tuesday decided to allow owners of low-volume “stripper” wells to suspend production while they await a rebound in crude prices. After being idle for 12 months, a North Dakota oil well has to resume production or be abandoned and plugged. North Dakota’s Industrial Commission agreed to extend that another year. Gov. Jack Dalrymple, Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring — all Republicans — make up the commission. Lynn Helms, director of the commission’s oil and gas division, said the extension would allow companies to “wait for better oil prices” and give hope that the low-volume wells could eventually come back on line instead of being forever plugged. North Dakota has about 3,100 stripper wells, which are also called marginal wells. They are broadly defined as those that produce fewer than 40 barrels of crude daily, though industry and state officials say most produce fewer than 10 barrels each day. Helms said there are currently about 1,180 idle wells. Ron Ness, president of the North Dakota Petroleum Council, said the extension would give the owners of low-producing wells much-needed time. “We don’t want to walk away from these,” he said. It’s the second time since 1999 that state regulators have agreed to extend the time before idle oil wells must be plugged.

Oh-Oh -- February 18, 2016

Bakken oil was selling for $16 / bbl yesterday.
The oil producers are adding as much as three million bopd of excess crude oil, globally.
Iran has yet to hit its stride.
Russia says that even if the "production freeze" is agreed to, by the rules laid out, Russia would be allowed to increase output.
It was just reported today that the crude oil output from the federal Gulf of Mexico will hit a record high in 2017.
And today the EIA provides us this graphic (via John Kemp over at Twitter):

State order means delays for oil pipelines  - Two proposed oil pipelines through northern Minnesota have been delayed by two years. Enbridge Energy has proposed building the Sandpiper line from North Dakota through northern Minnesota to its facility in Superior, Wis. The Canadian company also wants to replace an aging line from the Alberta oil sands region. Last month the Minnesota Public Utilities Commission said the company can't proceed with permitting until an environmental analysis is completed. Enbridge has challenged that order. "We've always agreed with undertaking a thorough environmental analysis of these projects," said Lorraine Little of Enbridge. "It's just a matter of what's the fair way to do that." If the order stands the pipelines wouldn't be completed until 2019, Little said. Several environmental groups and Indian tribes oppose the proposed pipeline routes. They say they threaten pristine waterways in northern Minnesota. But they're supported by many local governments and unions.

Enbridge pushes back pipeline projects -  Another delay on the time table of two oil pipeline projects in northern Minnesota has opponents of the projects declaring victory. Enbridge Energy, the company behind the proposed Sandpiper and Line 3 projects, announced this week both pipelines won’t be ready until early 2019. December’s decision by the Minnesota Public Utilities Commission to require a fully completed environmental impact statement to be done by state agencies before either project gets approved is likely to drive the cost of both projects higher, according to an Enbridge press release. Spokeswoman Lorraine Little confirmed costs were likely to rise, although the release nor she were able to state exactly what the new price tags would be. The Sandpiper project was originally scheduled to come online this spring. The 616-mile pipeline from the North Dakota Oil Patch to Superior, WI, and was expected to cost $2.6 billion. The Line 3 replacement would run from northern Alberta to Superior. The 1,031-mile project was estimated to cost $7.5 billion, with the American portion costing $2.6 billion.

Enbridge says Sandpiper pipeline won't start up until 2019 - (AP) — Enbridge Energy Partners said Wednesday that it expects to push back until 2019 the start-up dates for both its proposed Sandpiper crude oil pipeline across northern Minnesota and a replacement for its existing Line 3 pipeline because of the need for an environmental review. Company executives told analysts during a quarterly earnings call that their “preliminary assessment” is that the pipelines won’t go into service until early 2019. Enbridge had projected that date as sometime in 2017. President Mark Maki said the company also expects costs will be “a little bit higher,” but declined to predict how much. Enbridge had pegged the cost at $2.6 billion. The 616-mile Sandpiper would carry North Dakota crude oil across northern Minnesota to Enbridge’s terminal in Superior, Wisconsin. The 1,097-mile Line 3 carries Canadian crude from Alberta. It was built in the 1960s and is operating at reduced capacity for safety reasons. The fate of its proposed replacement is tied up with Sandpiper because they would share much of the same route across Minnesota. Environmentalists have fought the projects, saying they threaten ecologically sensitive areas. The Minnesota Court of Appeals ruled in August that Sandpiper requires a full environmental review before the state Public Utilities Commission can grant it a certificate of need. The PUC had planned to a somewhat less extensive review later. That forced the PUC to restart the process so the full review can be conducted first. Maki said he expects the permitting process to last into 2017.

Why the federal government agreed to halt offshore oil fracking in California: For years fracking in waters off California was quietly approved without public notice or studies on potential risks to human and environmental health from tons of toxic chemicals used in the intense oil-extraction process. But no more. The first federal study of offshore hydraulic fracturing, or fracking, which uses greater quantities of hazardous chemicals than traditional oil extraction methods, is now underway because of a lawsuit brought by an environmental organization with offices in Los Angeles and Oakland. In its suit filed last year against the U.S. Department of Interior’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement, the Center for Biological Diversity argued that the government illegally failed to study the environmental and human health dangers that could arise from fracking. Specifically, the group said the lack of studies violated the Coastal Zone Management Act, the National Environmental Policy Act and the Outer Continental Shelf Lands Act. Government officials initially denied the claims, but then agreed to settle the case on Jan. 29 under the environment organization’s terms. They are now working on a thorough environmental assessment of offshore fracking that is scheduled for completion in May. The assessment includes public comment periods, which will open when once draft and final reports are released.

Energy secretary says California gas leak a symptom of age (AP) — A major gas leak near Los Angeles has brought attention to the nation’s aging energy infrastructure and points to a need for new gas storage regulations, the U.S. energy secretary said Tuesday. Secretary Ernest Moniz visited the site of the Southern California Gas Co. well blowout to learn lessons to help frame a multiagency approach to improving safety at energy facilities nationwide. Moniz provided no details on what might be done from a federal perspective. But he said several themes emerged after meeting with state and local officials about the leak at Aliso Canyon, the largest gas storage facility in the West. “Regrettably, there’s a broader theme than Aliso Canyon,” Moniz said. “We have a lot of very old infrastructure in energy that we have to address for the 21st century.” The well that ruptured was more than 60 years old and was originally drilled to pump oil from deep underground. It was reused in the 1970s to pump natural gas into the empty oil wells for storage and withdraw it when demand spiked. Moniz said infrastructure needs to be improved so it’s smarter and more resilient. He also said regulations need a fresh look, including requirements for stronger monitoring. “These are issues which I want to emphasize have come to light particularly strongly here in Aliso Canyon and obviously are justifiably a huge local concern,” he said. “But they also tell us about a problem we have to study more generally across the country.”

Shockingly, authorities arrest activists instead of people responsible for the Aliso Canyon methane gas leak - Inhabitat - The California State Patrol has arrested two people in connection with the massive methane leak in Southern California’s Aliso Canyon, but many residents who had to leave their homes near the leaking underground gas storage site think the wrong people are in custody. Instead of busting company executives and engineers who are responsible for the massive methane gas leak, the CSP arrested two protesters who draped banners on the headquarters of the California Public Utilities Commission. The protesters draped banners to highlight the lax regulatory environment that enabled the spill — similar to the political culture that enabled the water poisoning in Flint. But unbelievably, the activists are now the ones going to jail.

Alaska governor, partners to look at gas-project options - (AP) — Gov. Bill Walker said Wednesday that the state and its partners on a proposed mega-liquefied natural gas project will look at different options for moving forward amid low oil prices. More details are expected in early March, Walker’s office said. In a letter last month to officials with project partners BP, ConocoPhillips and Exxon Mobil, Walker said he wanted agreements reached on eight areas before the end of the regular legislative session, which is scheduled to conclude in mid-April. The administration had been targeting a spring special session for lawmakers to consider contracts and a constitutional amendment to support long-term tax and royalty terms sought by the companies. But the parties have said talks are difficult. Lawmakers also have heard from the companies about the challenges in the current price environment.“At this point in time, with challenging oil prices, we want to see all of us coming together to look for ways to keep this thing on track,” said Janet Weiss, president of BP Alaska. Alaska needs this project, and it’s an important project in BP’s portfolio, Weiss said. During a news conference with company representatives Wednesday, Walker said the good news is that the parties are motivated to develop and make money off North Slope gas. The project is on track for concluding the current preliminary engineering and design phase this fall, he said. Then, the parties would have to decide whether they want to move to the next stage.

Army Corps to review North Slope oil project by Spanish firm (AP) — A federal agency will conduct an environmental assessment of a Spanish company’s plans to develop what it says could be a significant oil field on Alaska’s North Slope. The U.S. Army Corps of Engineers announced last week that it will prepare an environmental impact statement for Repsol’s Nanushuk project near the village of Nuiqsut. Repsol estimates that the project could yield 120,000 barrels of oil there per day, The Alaska Dispatch News reported. Kuukpik Corp., the village’s Native corporation, owns land in the area and called for the environmental assessment. The corporation’s chief executive, Lanston Chinn, has voiced concerns with the project’s impact on subsistence hunting and the environment. “Subsistence resources and the subsistence lifestyle have to be protected to our liking for oil and gasdevelopment to move forward,” Chinn said. Jan Sieving, Repsol’s vice president of public affairs in North America, said the company supports the Corps’ decision to review the proposal and that it will continue to work with the village and regulatory agencies. “We are committed to environmental and subsistence protections,” Sieving said.

Oil production in federal Gulf of Mexico projected to reach record high in 2017 - Today in Energy - U.S. (EIA): U.S. Gulf of Mexico (GOM) crude oil production is estimated to increase to record high levels in 2017, even as oil prices remain low. EIA projects GOM production will average 1.63 million barrels per day (b/d) in 2016 and 1.79 million b/d in 2017, reaching 1.91 million b/d in December 2017. GOM production is expected to account for 18% and 21% of total forecast U.S. crude oil production in 2016 and 2017, respectively. Production in the GOM is less sensitive than onshore production in the Lower 48 states to short-term price movements. However, decreasing profit margins and reduced expectations for a quick oil price recovery have prompted many GOM operators to pull back on future deepwater exploration spending, reduce their active rig fleet by scrapping and stacking older rigs, and restructure or delay drilling rig contracts. These changes added uncertainty to the timelines of many GOM projects, with those in the early stages of development at greatest risk of delay or cancellation. Contributing to the forecasted production growth are 14 projects: 8 that started in 2015, 4 starting in 2016, and 2 anticipated to start in 2017.  During 2015, eight fields in the Gulf of Mexico came online. With the exception of Anadarko's Lucius field, each of the fields was developed as a subsea well that is tied back to nearby existing production facilities. The use of subsea tiebacks allows producers to reduce both project costs and start-up times. The Lucius field produces oil using a type of floating production platform that supports drilling, production, and storage operations known as a truss spar. The Lucius spar is the largest in Anadarko's fleet. It consists of a large, hollow, weighted cylinder supporting a deck and is connected to an anchor on the seabed through a mooring system. Its design provides increased stability in harsh offshore conditions.

Oil Companies See Profits Fall by $57.4B - - Largely due to significantly lower oil and natural gas prices, Exxon Mobil and Chevron saw their profits drop by nearly $31 billion from 2014 to 2015, while fellow driller Royal Dutch Shell will cut about 10,000 employees from its operations due to a $15.2 billion drop in earnings.  Another one of the world's largest oil companies, ConocoPhillips, saw profits fall by $11.3 billion last year, as the firm actually reported a loss of $4.4 billion for 2015. Collectively, the four firms, known in the industry as "supermajors," watched earnings plummet by $57.4 billion compared to 2014.  According to the New York Mercantile Exchange, the price for a barrel of oil is now less than $32, a significant drop from the $105 range reached in summer 2014. Natural gas prices are also down, as a 1,000 cubic-foot unit is now about $2, compared to about $6 in early 2014. Exxon Mobil maintains significant operations in Bellaire and Shadyside areas via its XTO Energy subsidiary, while Chevron operates wells in Marshall County.  Shell, meanwhile, continues contemplating whether to build a giant ethane cracker near Monaca, Pa. "The scale and diversity of our cash flows, along with our financial strength, provide us with the confidence to invest through the cycle to create long-term shareholder value," Exxon Chairman and CEO Rex W. Tillerson said in emphasizing the firm's continued strength.

More Cuts Loom as Oil Nears $25 - WSJ: As crude prices slide toward $25 a barrel, many oil companies have little choice but to start making the steep cost cuts they have avoided up until now, jettisoning every well that can’t break even or isn’t needed to keep the lights on. “Folks are coming to grips with the reality,” said Dennis Cassidy, managing director at consulting firm Alix Partners, of the 20-month-and counting oil bust that many now fear will wipe out profits in 2016. U.S. and Canadian producers are losing at least $350 million a day at current prices, according to an AlixPartners analysis. Some Canadian companies are now warning they may be forced to shut down older oil-sands sites if prices fall even further. “For the month of January we did not make any money on our oil sands,” said Brian Ferguson, CEO of Canadian producer Cenovus Energy Inc.,Daniel Yergin, vice chairman of energy consulting firm IHS Inc., said sub-$20 oil shouldn’t happen unless crude storage tanks are completely filled, leaving producers no place to stash the fuel they pump. He said many in the market are more bearish than he is. In the U.S., more than 500 million barrels of oil are in storage now, near levels not seen at this time of year since the Great Depression, according to the latest federal data.  Globally, nearly $1.5 trillion worth of oil spending will be canceled between 2015 and 2019, according to IHS estimates, which should eventually mean global oil output will fall.

Low Oil Prices Claim New Victim, an Offshore Drilling Company From Texas -  Yet another oil company has filed for bankruptcy, as the energy industry and its lenders brace for a prolonged slump.  Paragon Offshore, which operates offshore drilling rigs from the Gulf of Mexico to the North Sea, filed for Chapter 11 bankruptcy protection Sunday evening, the latest filing in a painful shakeout buffeting the oil industry.Over the last 16 months, about 60 oil and gas companies have filed for bankruptcy as commodity prices slide, and that figure is expected to double in the coming months if prices remain low. All told, analysts say as much as a third of the sprawling oil and gas industry in the United States could be consolidated as a result of the downturn.Paragon, based in Houston, was one of the more fortunate companies that has contemplated bankruptcy. The company was able to negotiate a deal with its lenders — a mix of bondholders and banks — ahead of its bankruptcy filing. The so-called prepackaged bankruptcy agreement sealed last week allowed Paragon to cut its $2.7 billion of debt by about $1.1 billion and to keep operating. Unlike other recent oil restructurings, which have all but wiped out equity holders, Paragon’s existing equity investors will retain 65 percent of the company.

Devon Energy cutting 1,000 jobs, slashing dividend --: Devon Energy became the latest oil and gas producer to cut everything from its dividend to jobs to spending as it tries to weather the worst price slump in a generation. The shale driller, the leading producer in the Barnett Shale, is reducing its workforce by 20 percent in the first quarter, while slashing its quarterly dividend to 6 cents a share from 24 cents, according to a statement released late Tuesday. It expects 2016 capital spending between $900 million and $1.1 billion, down 75 percent from a year earlier. Cimarex Energy also said it’s cutting investment. “Devon’s top priority in 2016 is to protect the balance sheet,” Chief Executive David Hager said in the statement. “We are tailoring activity to current market conditions and are prepared to adjust capital plans throughout the year to ensure we balance capital investment with cash inflows.“ Devon and peers from ConocoPhillips to Anadarko Petroleum have turned to asset sales and spending cuts to weather the steep drop in crude prices. The Oklahoma City-based company previously said it seeks to raise $2 billion to $3 billion from divestitures. Devon plans to dismiss about 1,000 employees in February, according to a company filing. An additional 600 employees will be affected by asset sales. The company expects to incur about $225 million to $275 million in restructuring costs. The producer reported fourth-quarter earnings exclusive of one-time items of 77 cents a share, compared with the 71-cent average of 31 estimates compiled by Bloomberg. The oil and gas company posted a net loss of $4.53 billion, or $11.12 a share, compared with a loss of $408 million a year earlier.

Devon Energy Announces Sale Of $1 Billion In Stock, Dilutes Existing Shareholders By 13% -- Congratulations to Devon Energy: moments ago it announced that with Goldman as underwriter, it became the first company to successfully access the equity offering window in a long, long time sell equity in the form of 55 million shares in stock, or just over $1 billion in proceeds assuming today's closing price of $20.33.  The proceeds will be used "for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program." In other words, Devon is rusing to sell equity while it still can sell equity. Devon Energy Corporation (DVN) ("Devon" or the "Company") announced today that it intends to commence a registered public offering of 55,000,000 shares of its common stock, subject to market conditions. The Company also expects to grant the underwriters an option to purchase up to 8,250,000 additional shares of stock at the underwriters’ election. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program. Goldman, Sachs & Co. is acting as book-running manager for the offering. And while we congratulate management for confirming that this bounce in oil is to be faded (as otherwise Devon would not be selling shares when its stock price is pennies away from a decade low), we offer our condolences to anyone who bought DVN stock on the recent bounce higher. As of this moment, DVN was down 5% and will likely continue to slide lower, making future equity raises once the just raised $1 billion runs out, that much more dilutive. Finally, if equity investors are so desperate that they will buy equity offerings by E&P companies, that means that the war of attrition between shale and Saudi Arabia will be far longer than most expect.

Chesapeake Energy Corporation (CHK) Liquidity Problems on the Rise, Share Plunges: Chesapeake Energy Corporation  has been facing liquidity problems since last year, as oil and gas markets are in a downtrend. Chesapeake’s stock fell to as low as $1.51 on February 8 amid a news that the company hired a law firm, Kirkland and Ellis, to restructure its $9.8 billion debt. The liquidity problem for the gas producer is posing a real threat to the company’s existence, which has forced the credit rating agencies to cut down on its credit ratings. Standard & Poor (S&P) has reduced its credit rating for the company twice since January to CCC. The rating was cut because the rating firm feels that the company’s debt is “unsustainable.” The report remains bearish over the company’s performance ahead of its fourth quarter of fiscal 2015 (4QFY15) results, which is to be announced on February 24. The bearish stance in the research report comes amid the worries over the company’s solvency as oil crisis is likely to extend into 2017. The investment firm expects cash position for the gas producer to decline 45% to $970 million in FY15. Furthermore, the analyst foresees that “Chesapeake is enroute to chew through $3.9 billion of liquidity, and risks having its credit facility reduced and business impaired from under-investment.” The research report views the second-largest gas producing company to erode its liquidity as its $1.255 billion debt is maturing by 2017 and an additional $439 million litigation risk is expected from the company’s July 2015 ruling.

Anadarko Cuts Dividend 81 Percent to Weather Oil-Price Crash -- Anadarko Petroleum Corp. slashed its dividend by 81 percent, joining a parade of oil and natural gas drillers cutting investor payments as they struggle to preserve cash with prices below $30 a barrel. The cut, the first in the company’s history, reduces payments payable March 23 by 22 cents to 5 cents per share, the company said in a statement Tuesday. The move will save about $450 million a year for Anadarko, the third-biggest U.S. gas producer. Anadarko followed the lead of drillers such as ConocoPhillips and Marathon Oil Corp. in slashing dividends in the wake of a 70 percent crash in crude prices since June 2014. Companies are also cutting back spending on exploration to maintain cash as losses mount and prices are seen remaining lower for longer. With borrowing costs also rising and their share prices diving, companies are looking to save money wherever they can. “More dividend cuts will be coming in the next few weeks,"  . “These companies are trying to hunker down and weather the storm and you do what you have to do in tough times." Anadarko last week said it would cut spending by almost half as The Woodlands, Texas-based company tries to recover from its worst year of earnings since spinning off from Panhandle Eastern Pipe Line in 1986. Anadarko fell 7 percent to $37.24 at the close of trading in New York on Tuesday. The shares have slid 55 percent in the past year. Crude oil futures on the New York Mercantile Exchange sank 5.9 percent to close at $27.94 a barrel.

If Oil Stays At $35, This Is What Energy Company Leverage Will Look Like - With the market enjoying its biggest three-day short-squeeze since 2011, one can be forgiven to forget, if only briefly, that nothing has been fixed. Furthermore, if the OPEC meetings of the past two days have demonstrated anything, it is to confirm that not only is OPEC finished as a cartel, but that OPEC has no power over the marginal oil producers in Texas, aside from bankrupting them by pressuring prices lower. Which is precisely what it will do. And going back to the original point of how nothing has been fixed, here is a chart from DB showing what will happen to the average oil and gas company net debt/EBITDA ratio if oil rises to and remains at $35/bbl.Why is $35 important? Becase as a recent Wood MacKenzie study found, less than 4% of the world's oil supply is actually in the red at that price. Here's Platts: Citing up-to-date analysis of production data and cash costs from over 10,000 oil fields, Wood Mac said it believes 3.4 million b/d, or less than 4% of global oil supply, is unprofitable at oil prices below $35/b. Even the majority of US shale and tight oil, which has been under the spotlight due to higher-than-average production costs, only becomes cash negative at Brent prices "well-below" $30/b, according to the study. This is what is sure to make the Saudis very frustrated:Despite widespread fears of a major supply collapse, the US' shale oil output since late 2014, sharp deflation in service sector costs and greater drilling efficiencies have seen shale oil output remain more resilient to lower prices than first thought.Wood Mac said falling production costs in the US over the last year have resulted in only 190,000 b/d being cash negative at a Brent price of $35/b. The latest study contrasts with a similar report from the research group a year ago when it estimated that up to 1.5 million b/d of output -- focused in the US -- was vulnerable to being shut in at $40/b Brent.

A Third Of Oil And Gas Companies Are At High Risk Of Bankruptcy -- About a third of U.S. oil and gas production and exploration companies are at high risk of going bankrupt in 2016, according to a new report.   The report, published Tuesday by consulting and business services firm Deloitte, looked at more than 500 oil and natural gas exploration and production companies worldwide. It found that 175 of the companies — or nearly 35 percent — were at high risk of going bankrupt, due largely to low oil prices. Together, these companies have more than $150 billion in debt.  “2016 will be the year of hard decisions. We could see [energy and production] bankruptcies surpass Great Recession levels as companies struggle to remain solvent,” John England, vice chairman and U.S. oil and gas sector leader for Deloitte, said in a statement. “Access to capital markets, bankers’ support and derivatives protection, which helped smooth an otherwise rocky road for the industry in 2015, are fast waning.” Oil prices have dropped over the last few years, and are now down to about $29 a barrel for crude oil. The drop in oil prices has caused a slowdown in some oil-producing states. North Dakota, for instance, has been riding a boom in oil production for the past eight or so years — now, new drilling is getting scarcer, and the man camps that popped up to house oil field workers are starting to empty.  According to the New York Times, 60 oil and gas companies have declared bankruptcy over the last 16 months. That number could double if oil prices stay where they are.

A Third of Oil Companies Could Go Bankrupt This Year -- About a third of the world’s publicly-traded oil companies are at high risk of going bankrupt this year, according to a new report out Tuesday.Consulting and audit firm Deloitte put out its findings after closely examining 500 publicly-traded oil and natural gas exploration and production companies worldwide. The threat these companies face is a result of crude prices hovering near 10-year lows, which has already prompted firms to slash their budgets and staff.  The 175 or so companies most at risk have more than $150 billion in debt, according to Reuters’ report on the Deloitte study, and they’re having trouble generating cash given the decreased value of secondary stock offerings and asset sales.  Rumors of impending bankruptcies in the U.S. shale patch have become commonplace in recent weeks. Last week, Chesapeake Energy Corp., one of the U.S.’s biggest shale gas producers, was forced to issue a statement denying it was planning to file for Chapter 11 protection, after its stock fell 50% in a day. Moreover, while many firms were able to cushion the blow of collapsing prices last year by virtue of having sold their output forward, the forward curve in futures markets this year offers no such comfort. Brief hopes that the world’s largest producers, Russia and Saudi Arabia, would cooperate to cut output and end the glut were dashed early Tuesday after a meeting between their respective ministers ended without a binding agreement.

Shale Faces March Madness With $1.2 Billion in Interest Due The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts. Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI Ltd. said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge Energy Inc. announced that it didn’t make a $21.7 million interest payment. "You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due," . Energy XXI may not be able to meet its commitments in the next 12 months, raising "substantial doubt regarding the Company’s ability to continue as a going concern," according to a company filing with the U.S. Securities and Exchange Commission. . SandRidge "has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders," the company said in a statement released Wednesday.   Oil has tumbled about 70 percent since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt.  That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion. Deloitte LLP said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession. The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

The Stressed-Out Oil Industry Faces an Existential Crisis - The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them. Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference -- often dubbed the Davos of the energy industry -- a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink? After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers. Insiders say it’s not too hard to visualize what markets might look like after the storm -- say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads. Seeking clarity at closed-door sessions, cocktail hours and water-coolers in Houston will be some of the industry’s biggest players, from Saudi Petroleum Minister Ali al-Naimi to Royal Dutch Shell Plc Chief Executive Officer Ben Van Beurden. In a less volatile year, the long-term viability of fossil fuels might have been high on their agenda after December’s breakthrough climate deal in Paris. But within the industry, that debate has “fallen into the abyss of $27 oil,” “It seems like it’s never a good time,” she said. “You can’t have these conversations when oil is $125 because then you can’t get it out of the ground quickly enough. And you can’t have it at $27 because you’re just trying to survive.”

Platts launches new US crude assessments to reflect oil exports: On Feb. 8, Platts debuted new assessments to reflect the on-ship export value of US crude oil and condensates along the US Gulf Coast and answer the industry's call for pricing transparency in the wake of the Dec. 18, 2015, action by the US government to lift all restrictions on crude oil exports. The new assessments were created after extensive research and a series of consultations with the industry. Platts' Matt Cook, associate editorial director for crude and residual fuels for the Americas, and Luciano Battistini, managing editor for Americas crude oil, describe the US oil industry's recent changes and elaborate on the suite of new assessments. For more details, view the subscriber note here and read the press release here. For a wider look at the US crude exports, read the oil special report "US crude exports: Rebalancing the global market" here

Initial Production Rates in Tight Oil Formations Continue to Rise --Tight oil production in the United States increased from 2007 through April 2015, based on estimates in EIA's Drilling Productivity Report (DPR), and accounted for more than half of total U.S. oil production in 2015. Tight oil growth has been driven by increasing initial production rates from tight wells in regions analyzed in the DPR. As drilling techniques and technology improve, producers are able to extract more oil during the initial months of production from new wells. Eagle Ford - Bakken – Niobrara  Source: U.S. Energy Information Administration, Drilling Productivity Report The average new well in each of these regions produces more oil than previous wells drilled in the same region, a trend that has continued for nine consecutive years. The increasing prevalence of hydraulic fracturing and horizontal drilling, along with improvements in well completions and the ability to drill longer laterals, has greatly improved well productivity. This trend can be seen in the continued increase in initial production rates since 2007, and it has allowed production in major shale basins to be fairly resilient despite high decline rates common to drilling and producing in tight formations and, since 2014, the declining number of rigs drilling for oil. As falling global oil prices led to significant reductions in rig counts and well completions in all DPR regions, remaining rigs are concentrated in high-producing areas. The total number of rigs in DPR regions has fallen from a high of 1,309 rigs in October 2014 to 475 in December 2015, a decrease of 64%, while the production levels in those months have declined by only 8% from their peak in March 2015. Production estimates in DPR regions represent a subset of total U.S. crude oil production. More comprehensive data are available in EIA's Petroleum Supply Monthly.

Tanks Topped, Refiners’ Dumping Crude, 3mth WTI in Super-Contango -- 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. And now, given the “super-contango” in 3-month it is extremely clear that storage concerns are at their highest in 5 years… Simply put, as one trader noted, speculators are now “making the leap to Cushing storage never being more full… will actually overfill, or even stop taking crude oil deliveries outright.”

Shale boom leads US to first annual trade surplus with OPEC  -- In 2015, the United States recorded an annual trade surplus with the Organization of the Petroleum Exporting Countries. For the first time ever in trading with OPEC, exports exceeded imports. The United States finished $6.6 billion in the black, according to the U.S. Bureau of Economic Analysis data. More than $72 billion worth of goods were exported to OPEC countries, while $66.15 billion worth of goods were imported. The United States posted a positive trading balance in all but three months of the year. Reversing decades of trading, the surplus can be attributed to the rise of hydraulic fracturing in the United States. Since 1985, the U.S. depended on oil from OPEC, creating large trade deficits. But that trend began to change in 2011 during the shale boom. U.S. crude production trimmed away at quarterly deficits in 2014 until a surplus was reached in the first quarter of 2015.  During that time, U.S. oil production skyrocketed, increasing by about one million barrels per day. By 2014, energy companies produced more than 8.7 million barrels of oil per day. Multiple factors contributed to the trade surplus with OPEC. Falling crude prices paired with lower imported oil volumes helped to decrease the trade deficit.

BP’s Rosy Long-Term View Of U.S. Fracking And Tight Gas/Oil | Investing.com: Following on from our post Monday reporting on BP’s forward-looking Global Energy Outlook report we thought, with the current turmoil in the fracking industry bought on by OPEC induced low prices, it would be interesting to look at what the oil major has to say about the prospects for that business model. It may be that BP, still largely an oil and gas major, is looking at energy use through their own rose-tinted lens subscription. Many are heralding recent efficiency improvements in solar cells and the drop in prices as the start of a new golden age in solar power generation that, in a world so focused on rising carbon emissions, will sweep away older, more-polluting forms of power generation. BP doesn’t see it like that, and that does not mean to say they are wrong, but it does challenge us to ask if the current enthusiasm for a carbon-free world is misplaced.   History and the current sources of energy suggest that even by 2035 80% of our energy will continue to come from fossil fuels, that may be not what we want to see but it is what the data is telling us BP’s chief economist said in the presentation. He went on to say disruptive as renewables will eventually become over the next twenty years, it is highly unlikely the integrated technologies will develop far enough or the costs come down sufficiently for a dramatically greater penetration of power generation than BP is already predicting.  Just as surprising is the extent to which the oil major sees the transformational change that fracking will continue to be to the energy markets. Rather than consign tight oil and shale gas to the past, as Saudi Arabia had hoped would be the result of its purposeful depressing of the oil price, BP sees any demise as a temporary phenomena followed by continued growth in a couple of years.

Will Shale 2.0 Lower Oil Prices to $20 Per Barrel? - A paper called "Shale 2.0: Technology and the Coming Big-Data Revolution in America's Shale Oil Fields" was released in May by Mark P. Mills, senior fellow for the Manhattan Institute and faculty fellow at Northwestern's McCormick School of Engineering and Applied Sciences. The Manhattan Institute has a political ideology and the paper argues for certain government policies to be put in place. It is not the intent of this post to discuss policy recommendations, but instead to review the author's discussion on how emerging trends in the oil industry could lead prices lower. The author makes the claim "Shale 2.0 promises to ultimately yield break-even costs of $5-$20 per barrel-in the same range as Saudi Arabia's vaunted low-cost fields." Mills believes that one cannot discount the possibility that oil prices will stay below $60 per barrel for decades. He points out that in the last 150 years, there have only been three periods where oil has risen above inflation adjusted prices of $50 per barrel. View gallery .View gallery .Mill's main thesis is that technological innovation continues to improve in all aspects including logistics, planning, seismic imaging, well-spacing, fluid and sand handling, chemistry, drilling speed, pumping efficiency, instrumentation, sensors and high-power lasers.

Hydraulic Fracturing Market Worth $90.55 Billion By 2020: Grand View Research, Inc - The global hydraulic fracturing market is expected to reach USD 90.55 billion by 2020, according to a new report by Grand View Research, Inc. Hydraulic fracturing enables easier crude oil and natural gas extraction from unconventional reserves such as coal bed methane, shale formations, and tight sand. Government support in the form of financial incentives and tax benefits particularly in Asia and North America is anticipated to drive the market over the forecast period. Shifting focus towards developing unconventional hydrocarbon resources owing to depleting production rates in conventional oil & gas reserves is expected to positively impact industry growth. Growing concern for ground water contamination has led regulatory bodies to ban hydraulic fracturing particularly in European countries including France and Tunisia. This is anticipated to remain a key challenge for industry participants over next six years. Plug & perf was the leading technology segment and accounted for over 80% of total revenue in 2013. This technique is widely used in shale oil and shale gas completions and assists multistage fracturing for cased holes.

The future of oil production in the Gulf of Mexico - Crude oil production in the Gulf of Mexico (GOM) has been riding high in recent months, still surfing the wave of deepwater and ultra-deepwater projects whose development started in the “good ole days” of $100/Bbl oil. Some incremental output is still being added, keeping GOM production levels high even as onshore oil output is declining in response to low crude prices and drilling cutbacks. But exploration and production companies (E&Ps) are cutting their spending on offshore projects, and unless oil prices start to rebound soon the Gulf too will see a leveling off—and after that, a gradual fall--in production. Today, we conclude our series on resilient production levels in the GOM with a look at recent cutbacks and what they may mean for Gulf oil output in 2016 and beyond.  U.S. oil production as a whole has been declining the past few months in response to plummeting prices, but that overall decline in output has come despite gradually rising production in the GOM. As we said in Episode 1, that’s because the incremental gains in output the Gulf has seen over the past few months are the result of investment decisions that E&Ps active in the GOM made a few years ago, We also pointed out that while it may take much longer (and cost much more) to develop new production areas in the deepwater and ultra-deepwater Gulf than in tight oil plays on land, the output of the best GOM wells typically remains relatively high for several years, not just for a couple of years as is the case with shale wells on terra firma. In other words, if all drilling in the Gulf were to stop today, the GOM would still be producing a lot of oil five or even ten years from now; the same couldn’t be said, of course, if all shale drilling were to stop on a dime in the Permian Basin or the Bakken, with their wells’ high initial production rates and rapid production fall-offs.

Higher Costs and Lower Prices Beat Down Canadian Crude Producers - If you think that yesterday’s 13 year-low CME/NYMEX crude settlement price ($26.21/Bbl – February 11, 2016) is bad news for struggling U.S. producers then try putting yourself in Canadian producer’s shoes! The headwinds facing Western Canada’s heavy oil sands these days would try the patience of a saint. Prices for benchmark Western Canadian Select (WCS) blend in Alberta traded as low as $12.50/Bbl in January 2016 – clawing back to $14.06/Bbl on February 10, 2016. But by the time gathering, transport and diluent purchase costs are subtracted, the netback (market price less transport cost) at the lease is negative for many producers – especially when shipping by rail.  To be clear, that’s below zero at the wellhead!  Yet there are few signs that production is falling off – at least in the short term. Today we lament the ongoing plight of Canadian producers.   Most production from our northern neighbors comes not from shale but from heavy oil sands in Western Canada – where output has been increasing steadily for decades. The heavy bitumen produced in this region is extracted using various technologies with some mined at the surface (mostly upgraded in the region to produce light synthetic crudes) and most of the rest extracted underground or in-situ using steam assisted gravity drainage (SAGD). Much of the recent expansion has involved SAGD – that requires high upfront expenditure in plants that produce steam used to heat and extract bitumen underground. These plants produce crude for decades once they are up and running. The bitumen produced is very heavy, which means high viscosity.   Consequently, it only flows when heated mixed with another hydrocarbon that reduces the viscosity. Practically speaking this means that it must be mixed with a lighter diluent hydrocarbon such as condensate or natural gasoline to make blended crudes - known as dilbit - in order to flow to downstream markets in pipelines.

Canadian Heavy Crude Oil Producers Can’t Make It Up on Volume -- Most Canadian oil sands crude production comes from very expensive mining or underground steam heating operations designed to produce consistently for decades that are costly to shutter in a downturn. Right now the crude netbacks (market price les transport costs) for these projects are more or less under water depending on transport routes. Yet production continues and new projects are still coming online. Today we estimate the netbacks (market price less transport cost) that Canadian producers are realizing.  In Episode 1 of this series we reviewed the woes of hard-pressed Canadian producers in the face of ever lower crude prices.Crude prices in the Western Canadian oil sands for benchmark Western Canadian Select (WCS) are currently (11 February 2016) trading at a $12/Bbl discount to WTI in Hardisty, Alberta – reflecting the higher transport cost to get Canadian crude to U.S. refineries and quality differentials for heavier oil sands grades.  That means Canadian producers get $15/Bbl at best ($14.20/Bbl on February 11, 2016) for their crude in Alberta. And some of that $15/Bbl has already been spent to buy the lighter and more expensive hydrocarbon diluent that is required to blend heavy oil sands bitumen at the lease so that it can flow in pipelines.  Since most of the demand for heavy oil sands crude comes from U.S. refiners – in the Midwest or increasingly on the Gulf Coast – producers have to eat high transportation costs to get their crude to market. We also discussed how oil sands extraction plants that use steam assisted gravity drainage (SAGD – used by the majority of recent projects) are difficult to shut down when economics are this bad – because the start up process is very lengthy and expensive and the process of stopping production can damage the resource reservoir.  In the circumstances cash struck producers are selling midstream assets and hunkering down even as – in some cases – they are experiencing a net cash outflow on every barrel produced. In today’s episode we take a look at the economics for a typical oil sands producer to understand just how bad things are in the Canadian oil patch these days.

Get your fracking facts or face the consequences - If you needed a cause for celebration, a slice of cake and a glass of bubbly, tomorrow marks one year since Wales’ moratorium on fracking for shale gas. Carl Sargeant announced a moratorium on fracking 12 months ago The date comes just as another local council, Swansea , voted to become a frack-free zone. The moratorium, which came into force on February 16, 2015, means fracking cannot be carried out in Wales without permission from natural resources minister Carl Sargeant . Companies believe fracking could bring a huge windfall to Wales, saying we sit on top of six times the UK’s annual gas consumption. But as the Welsh Government has made clear its opposition to fracking, Mr Sargeant is unlikely to be moved.   Things are not the same across the border. As fracking is opposed in Wales, there are plans to fast-track controversial schemes in England. England fast tracking fracking While the process could give the UK the chance to reduce reliance on foreign imports of fuel, especially with North Sea oil supplies in decline, why anyone would rush through a system that is still not properly understood should be a concern for all of us.

Oil Thefts Surge In Mexico As Cartels Become Specialized - Already reeling from low prices, officials with Mexico’s state-run Pemex are also fighting an ever intensifying battle against pipeline theft as organized crime tries to gain a foothold in the country’s newly reformed energy sector. From loosely organized groups of locals to feared drug cartels, those who believe there is a significant amount of illicit profit to be made here are coming out of the woodwork—and for starters they are eyeing pipelines. The statistics tell an alarming story of a rapidly increasing number of pipeline thefts year over year. According to a report from Pemex released in November of 2015, incidents of illegal pipeline tapping rose a staggering 43.7 percent in 2014 over the previous year. This amounts to over 4,100 recorded pipeline taps and over 7 million liters of stolen gasoline. Pemex estimates the cost of the thefts to be $1.29 billion. But lost revenue is just part of the story. Fuel theft is incredibly dangerous, and there are increasing reports of injuries and death. Earlier this month, criminals illegally tapped a pipeline, causing an explosion. They were lucky to escape without injury but the pipeline had to be shut down while officials investigated the theft and repaired the damage.

Peruvian Oil Spill Prompts Water Emergency For Thousands - Thousands of residents in the northern Peruvian jungle are facing a water quality emergency following two pipeline ruptures that spilled crude oil into various waterways — including a tributary of the Amazon River — damaging a vast area known for its ecological value.  Peru’s General Directorate of Environmental Health issued the water quality emergency Wednesday, more than three weeks after the first rupture was reported on January 25. The second spill, which came from a different section of the same pipeline, took place on February 3, further extending plumes of oil and affecting the livelihood of communities that rely on fishing and agriculture.“Fish have died, crocodiles have died, plants have died,” said one female resident to a Peruvian television station. “How are we going to live,” added the resident, who was not identified in the footage.  At least 2,000 barrels of oil were spilled in the regions of Amazonas and Loreto, though 90 percent of the spillage has been recovered, Peruvian President Ollanta Humala said this week, according to published reports.

Sanctions failed to take a bite out of Russia’s oil patch -  International sanctions against Russia introduced in 2014 turned out not to be the bogeyman they first seemed to be, and could in fact have played a key role in helping the Russian oil sector to not only handle the sharp price drop over the last year and a half, but make the industry more efficient in the long run. When sanctions were implemented targeting the Russian oil sector’s access to Western financing and key Arctic, shale and deepwater technology, analysts saw them as major blow. Forecasters speculated that Russian oil companies would run into problems trying to maintain drill rates, service loans in foreign currencies, and could struggle to maintain output. At the time the International Energy Agency estimated Russia’s crude production would fall by 80,000 b/d in 2015. And these forecasts came when oil was still trading at over $100/b. Things haven’t quite panned out as predicted — Russia increased crude output in 2015 by 147,222 b/d year on year, to 10.73 million b/d, and energy ministry data for January indicates this trend is continuing into 2016. This is mainly due to a significant increase in drilling, and a drive to concentrate resources on maximizing efficiency at existing projects, rather than invest in new ones that are unlikely to immediately boost output.

Cyprus to go ahead with 3rd gas exploration licensing round (AP) — Cyprus’ government says it will push ahead with a third licensing round to search for potential natural gas deposits off the Mediterranean island nation’s southern shores. Government spokesman Nicos Christodoulides said earlier this week the process will begin as soon as possible, but offered no further details. U.S. company Noble Energy, which received an exploration license in 2007, discovered a field around 100 miles (160 kilometers) south of Cyprus that’s estimated to contain more than four trillion cubic feet ofgas. France’s Total and Italy’s Eni along with its South Korean partner KOGAS have extended by two years exploration licenses they received during a second round in 2012. Eni last year discovered in waters off Egypt what it called the largest gas deposit ever found in the Mediterranean Sea.

Israeli leader defends gas extraction deal in Supreme Court  — Israeli Prime Minister Benjamin Netanyahu made an unprecedented appearance at the Supreme Court Sunday to defend a deal signed in December with U.S. and Israeli developers drilling offshore gas deposits. Israel’s Channel 10 TV reported Netanyahu as telling the court that if Israel were to alter its deal investors could turn away and buy gas from Israel’s enemies instead. Netanyahu said he chose to speak in court because of the strategic importance of the gas deal, which he says will allow Israel to develop ties with Jordan, Egypt and Turkey and significantly boost its economy. Resource-poor Israel announced the discovery of sizeable offshore natural gas deposits about five years ago. A partnership between Noble Energy and Delek Group, which is led by billionaire Yitzhak Tshuva, is the main developer at Israel’s two larger gas fields, Tamar and the heftier Leviathan. After the country’s antitrust commissioner determined the gas companies’ ownership constituted a monopoly, a government committee reached a deal with the firms to introduce competition. Opponents later challenged the deal in court because they said it favored the developers over the Israeli public. Opposition lawmaker Shelly Yachimovich, a leading opponent of the deal, tweeted that Netanyahu’s speech was full of “exaggerations, clichés and general statements without one fact behind them.”

BP Expands Scope of $16 Billion Natural Gas Project in Oman - BP Plc and state-owned Oman Oil Co. agreed to expand an exploration and production sharing agreement of the Khazzan natural gas field to include a second development phase, at an estimated cost of $16 billion for the entire project. Block 61 will add 1,000 square kilometers (386.1 square miles) to the original 2,700 square kilometer area of development, BP said Sunday in an e-mailed statement. The project will produce 1.5 billion cubic feet of gas per day, or 40 percent of Oman’s current output. The new development requires final approval of Oman’s government and BP, which is expected in 2017, the company said. The reservoir is known to have “tight gas,” which is trapped in impermeable rocks and requires techniques including hydraulic fracturing to extract. Oman, an exporter of liquefied natural gas to Spain, Japan and South Korea, is studying options to import LNG to help generate power. Domestic consumption jumped to 774 billion cubic feet in 2013 from 520 billion cubic feet in 2009, according to the U.S. Energy Information Administration. Oman imports gas via a pipeline from Qatar and is in talks to build a link with Iran across the Persian Gulf. “Khazzan is a major resource with the potential to produce gas for Oman for decades," BP Chief Executive Officer Bob Dudley said in the statement. The first phase of the project is expected to deliver gas in 2017 and the second will start in 2020. BP owns 60 percent of the block, with the remaining 40 percent held by Oman Oil. More than 325 wells are planned over 15 years.

Oil Price Fears Weigh on European Banks - WSJ: Among recent concerns hitting European bank stocks is one that has been responsible for wider market mayhem for months: oil. Global bank shares tumbled through much of last week as investors worried about world-wide economic growth, capital buffers and the effects of low and negative interest rates. But in Europe, another worry caught up with the banks as the price of oil plummeted. Fears of energy-sector bankruptcies have long weighed on the U.S. banking sector, which financed the decade long expansion of the shale industry. More recently, investors have asked about exposure in Europe, where it is less well documented. Oil is causing other concerns for banks. The slide in crude prices has hit some of the emerging markets that many banks are exposed to. Meanwhile, cheap oil is feeding into low inflation, prolonging the era of low interest rates that is squeezing banks’ profits. Crude’s hit on banks shows how oil’s fall continues to spread through markets, becoming a leading influence on equity prices. The correlation between oil prices and European banking shares is at its highest since 2012, according to data from UBS.

Main Factors That Are Dragging Global Oil Prices Down: Over the last two years, global oil prices have dropped by nearly two-thirds. Here is a list of the main factors which have transformed the global energy market. In February 2014, price of oil was around $110 a barrel on global commodity exchanges. Today, the Brent benchmark crude extracted from the North Sea is hovering at $30 per barrel. The era of higher priced oil which began in 2011 now seems to be nearing its end. Furthermore, taken in a historic perspective, the recent years are not typical: $20 a barrel was normal in the 1980-90s. In 1999, there were times when the oil price hardly reached $10. Could current events in the oil market be a signal of a similar tendency? While economists and analysts have kept from predicting the future oil prices it is possible to outline the factors which have contributed the most to changing the global oil market.

What's at Stake in an Economy with Low Oil Prices - Harvard Business Review -  In the past, low oil prices have been seen as a boon, particularly at the gas pump. They’ve been credited with boosting economies and stirring growth. But recently oil prices have dropped so low that warning bells rippled through global markets, and they remain volatile. What does all this mean for countries and companies? How big is the risk? For answers, I talked to Ian Bremmer, president of Eurasia Group and author of Superpower: Three Choices for America’s Role in the World. An edited version of our conversation is below.

Oil Advances for a Second Day After Bullish Bets Increase -  Oil advanced a second day, rising briefly above $30 a barrel in New York for the first time in almost a week. West Texas Intermediate futures rose 1.1 percent in electronic trading in New York after surging 12 percent on Friday. Speculators’ long positions in WTI through Feb. 9 rose to the highest since June, according to data from the U.S. Commodity Futures Trading Commission. Iran loaded its first cargo to Europe since international sanctions ended, while Chinese crude imports eased from a record. Oil in New York is down about 20 percent this year. While the outlook for increased Iranian exports threatens to further boost record oil stockpiles, major companies including Chevron Corp. and Anadarko Petroleum Corp. are curbing spending on exploration and development of new resources. Crude surged the most in seven years on Feb. 12 after the United Arab Emirates repeated OPEC’s readiness to engage with other producers. “The oversupply will decrease sharply over the course of the year,” “Developments in supply and demand mean the market will very closely avoid hitting tank-top levels.” WTI for March delivery gained as much as 71 cents to $30.15 a barrel on the New York Mercantile Exchange and was at $29.76 as electronic trading ended at 1 p.m. The New York Mercantile Exchange floor was closed Monday for the Presidents Day holiday, and trades will be booked Tuesday. The contract gained $3.23, or 12 percent, to close at $29.44 on Friday after dropping 19 percent the previous six sessions. WTI prices lost 4.7 percent last week.

Why Tomorrow's "Secret" Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production -- For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia - the world's two largest oil producers - have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC meeting, will come to an end. Tomorrow this endless "headline hockey" will come to an end, following what is now a confirmed "secret" meeting between the two oil superpowers when, as Bloomberg reports, Saudi Arabia’s oil minister will meet with his Russian counterpart in Doha on Tuesday "to discuss the oil market." According to Bloomberg, Ali al-Naimi, the most senior oil official of the world’s biggest crude exporter, will speak with Russia’s Alexander Novak in the Qatari capital, "according to the person, who asked not to be identified because the talks are private." The person didn’t say what the agenda of the meeting will be, which will also be attended by the kingdom’s fellow OPEC member Venezuela. The energy ministries of Russia and Saudi Arabia declined to comment. Going into the meeting, one thing is certain: over the past 15 months Saudi Arabia has never once indicated any interest in curtailing production: after all, that would go against its unstated directive of putting marginal oil producers, read US shale companies, out of business:

Russia and 3 OPEC Members Agree to Freeze Oil Output -  — As prices have dropped ever lower, smaller oil producing nations on precarious financial ground have regularly pushed their bigger brethren to stop pumping at record levels and help calm the markets.Now, even the giants are joining the chorus, with Saudi Arabia and Russia on Tuesday calling for a coordinated effort to freeze production.The plan, which also included Venezuela and Qatar, is a tentative sign that major oil producers are ready to cooperate. And it indicates how deeply prices have fallen, as Russia and Saudi Arabia have previously resisted tempering production.But whether the plan actually goes anywhere — or is just chatter meant to bolster prices — is an open debate. The four countries said they would proceed only if others commit.It is not an easy sell. Iraq has a longstanding policy of seeking to raise production regardless of the price-stabilizing policies of the Organization of the Petroleum Exporting Countries, to which it belongs. And Iran has staked out a policy of increasing oil exports now that sanctions have been lifted as part of its nuclear deal.

Saudi Arabia and Russia ministers agree oil production freeze -- Saudi Arabia has agreed with Russia to freeze oil output if they are joined by other large producers, in the first co-ordinated move to try to reduce a near record supply glut and halt the collapse in prices. After watching oil prices fall 70 per cent since mid-2014, Saudi Arabia’s powerful oil minister Ali al-Naimi said an output freeze by some of the world’s major producers should start to stabilise the market. The speed of the deal between the Opec powerbroker and the world’s largest crude oil producer surprised the market but traders remained sceptical the provisional agreement would gain wider acceptance. Opec member Iran is seen as the biggest stumbling block. The deal was reached at a closed-door meeting in Doha with Opec members Qatar and Venezuela. Mohammad bin Saleh al-Sada, Qatar’s energy minister, said the deal was still contingent on other major producers agreeing to join the freeze, which will probably complicate efforts. In a bid to bring the most reluctant Opec members on board, Venezuela oil minister Eulogio del Pino, who has led the diplomatic push for a deal, will travel to Tehran on Wednesday to meet officials from Iran and Iraq. Bijan Zanganeh, Iran’s oil minister, said the country would not give up its share of the market, according Iranian news agency Shana. The country has only just started raising exports following lifting of sanctions last month. The oil price initially jumped 6 per cent on Tuesday morning after the plans for the Doha meeting leaked overnight. But the market pulled back as traders expressed doubts about a wider agreement being reached. Mr Naimi said after the meeting: “Freezing now at the January level is adequate for the market, we believe . . . We recognise today the supply is going down because of current prices. We also recognise that demand is on the rise.”

Saudi Arabia, Russia to Freeze Oil Output Near Record Levels - Saudi Arabia and Russia agreed to freeze oil output at near-record levels, the first coordinated move by the world’s two largest producers to counter a slump that has pummeled economies, markets and companies. While the deal is preliminary and doesn’t include Iran, it’s the first significant cooperation between OPEC and non-OPEC producers in 15 years and Saudi Arabia said it’s open to further action. Oil pared gains after the accord was announced, signaling traders see no immediate end to the global supply glut. The deal to fix production at January levels, which includes Qatar and Venezuela, is the “beginning of a process” that could require “other steps to stabilize and improve the market,” Saudi Oil Minister Ali Al-Naimi said in Doha Tuesday after the talks with Russian Energy Minster Alexander Novak. Qatar and Venezuela also agreed to participate, he said. Saudi Arabia has resisted making any cuts in output to boost prices from a 12-year low, arguing that it would simply be losing market share unless its rivals also agreed to reduce supplies. Naimi’s comments may continue to feed speculation that the world’s biggest oil producers will take action to revive prices. “The reason we agreed to a potential freeze of production is simply the beginning of a process” over next few months,” Naimi told reporters. “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand. We want a stable oil price.”

OilPrice Intelligence Report: Oil Markets Disappointed By Production Freeze - It is yet another week in which rumors of an OPEC cut swirled around the oil markets. The difference this time, however, is that the rumors are backed up by a bit more substance. OPEC confirmed on Monday that the energy ministers from Saudi Arabia, Russia, Qatar, and Venezuela met in Doha, news that sent oil prices up. On Tuesday, the group emerged with a deal: a freeze on January production levels, but not an outright cut. The deal would also be contingent on all OPEC members agreeing to the plan.  Despite the news, the deal falls short of what the oil markets had been hoping for. Moreover, it is also unclear whether or not all parties will sign on. On the one hand, a production freeze is unambitious – it merely freezes output at near record levels for most countries. Worse, even a weak deal faces hurdles to implementation. The biggest outstanding question is whether or not Iran would agree to limiting its production just as it finally shook off years of sanctions. Iran had previously announced plans to increase production by 500,000 to 1 million barrels per day (mb/d). It is hardly in its interest to cap production now.  Even if Iran adheres to the deal, the production freeze may not ease the glut. Judging by the reaction in the markets – oil prices staged a brief rally but the gains were quickly erased as reality set in – oil traders are disappointed with the outcome. Meanwhile, on Monday, Iran began shipping oil to Europe for the first time in years. Europe was a significant market for Iran before the harsher 2012 sanctions cut off the trade. Iran is looking to claw back some of its old market share that it lost in the intervening years to Saudi Arabia and Russia. Also, the WSJ reports that the CEO of GE Oil & Gas visited Iran recently, which appears to be the first executive from an American energy company to do so. There are still some remaining sanctions from the U.S. government on Iran, which has kept most American companies at bay.. Paragon Offshore, an oilfield services company, became the latest to declare bankruptcy. Last Friday the firm said that it would restructure $2.7 billion of debt. Service companies have been among the hardest hit during the downturn as upstream companies scrapped nearly all of their drilling operations. Paragon had a fleet of 40 rigs, but with a shrinking number of explorers willing to contract them out, the company’s revenues plunged.

Oil loses nearly 4 percent as hopes over Saudi, Russia deal fade - Reuters: Brent oil fell almost 4 percent on Tuesday, erasing early gains after top producers Russia and Saudi Arabia dashed expectations of an outright supply cut by agreeing only to freeze output if other big exporters joined them. Benchmark Brent prices jumped briefly through $35 a barrel after Russia and Saudi Arabia agreed to keep output at January levels, in what could be the first joint OPEC and non-OPEC deal in 15 years. Qatari energy minister Mohammad bin Saleh al-Sada said the step would help to stabilise the oil market, which has experienced price declines not seen since the early 2000s because of a supply glut. Elsewhere, inventories at the Cushing, Oklahoma delivery point for U.S. crude futures rose by nearly 705,000 barrels during the week to Feb. 12, traders said, citing data issued by market intelligence firm Genscape. Brent settled down $1.21 at $32.18 a barrel, after rising earlier to $35.55. U.S. crude settled down 40 cents at $29.04, off the day's high of $31.53. Tuesday's early rally ran out of steam as investors weighed the chances of an output freeze while Iran remained absent from the talks and determined to raise production. Sources familiar with Iranian thinking on supply said Tehran would be willing to consider a freeze once its production had reached pre-sanctions levels.

Historic OPEC-Russia Agreement Will Have Minimal Impact -- Several top OPEC producers made headlines with Russia on Tuesday, revealing that a secret meeting between their respective energy ministers led to a deal to “freeze” production in an effort to boost oil prices. The agreement is monumental in the sense that OPEC and Russia are poised to agree to cooperate, the first OPEC and non-OPEC deal in 15 years. At the same time, the deal is a half-measure and will likely be inadequate to substantially rescue oil prices from their rock bottom lows. Leaving aside the incentives for each individual country to cheat on the commitment, the proposal still faces hurdles. First, Iraq is a bit of a question mark, given its need to increase production. But Iraq produced at a record level in January and boosting production beyond current levels appears to be difficult. Therefore, agreeing to a freeze does not have too much of a downside. Reuters reported that a source from the Iraqi oil ministry said that they were ready to participate if all others did as well. "Iraq is with any decision that contributes to propping up oil prices," the source told Reuters. Russia is probably the most pleased with the emerging deal. Russia is producing at historic highs and didn’t anticipate any more production gains this year. As such, freezing production may not be too much of a sacrifice at all. And of course countries like Venezuela and Qatar would sign on – they have little chance of ramping up production from current levels. Venezuela, in particular, is not only suffering through an economic crisis, but has seen its oil production steadily erode over the past decade. But for others, there is some sacrifice involved. Saudi Arabia’s January production levels of 10.2 million barrels per day (mb/d) were actually a bit down from their high point in 2015 at 10.5 mb/d. Also, Saudi Arabia usually increases production in the summer months to meet higher domestic demand, so freezing output would cause Saudi Arabia to take a hit.

What Saudi Arabia’s Freeze Means for Oil Prices - The more things change in the oil market, the more they stay the same: The agreement Tuesday between Saudi Arabia, Russia, Qatar and Venezuela to freeze oil output falls somewhere between symbolic significance and no change at all. So it shouldn’t be a surprise that Brent crude, which had rallied to north of $35 a barrel as reports of a meeting in Doha surfaced, quickly gave up its gains Tuesday.  The shock-and-awe value of any agreement, after nearly a year and a half where Saudi Arabia had quashed any suggestions of coordinated action to support oil prices, was blunted by several factors. First, a market hungry for cuts got only a freeze at January’s production levels. Second, this freeze is coming at a particularly high-water mark. Russia is producing at a post-Soviet era high and, given natural decline at some fields, output was expected to be about flat this year. Others are already squeezing what they can out of their oil infrastructure: Qatar is producing at capacity, according to the International Energy Agency, and Venezuela is close. Saudi Arabia has spare capacity but likes to keep it that way: its flex is its source of market power. Third, the agreement to keep a lid on production is contingent on other big producers playing ball. Iran, in particular, seems highly unlikely to agree to curtail the ramp up of its output following the lifting of sanctions.  The country is exporting about 1.3 million barrels a day, intends to increase that to north of 1.5 million barrels a day in about the next month and to pre-sanctions levels of about 2 million barrels later this year. Saudi Arabia’s sudden strategic rapprochement with other oil producers certainly puts its regional arch-rival in an awkward position.

Why OPEC deal may not increase oil prices - Gleaning insight into the direction of the Organization of the Petroleum Exporting Countries is a favored parlor game of the oil markets, as evidenced by three separate incidents recently in which oil prices spiked on hopes of a production cut. But faith in OPEC’s ability to prop up oil prices may prove fleeting, as the global energy markets weigh the possibility of an OPEC production deal against the onset of new output by Iran and cash-poor U.S. producers that can’t afford to stop pumping. After reports surfaced Tuesday that Russia, Saudi Arabia, Qatar and Venezuela are poised to freeze oil output at January levels, oil briefly surged before settling down and even dipping into negative territory as reality set in. Stocks also got a lift from the reports with the Dow Jones Industrial rising more than 200 points. The prospect of a freeze didn't light a fuse under the market for crude. Prices are low for a reason: the worldwide surplus of production, a tepid global economy and the inability or unwillingness of producers to agree to cuts. With Iran planning to return oil production to pre-sanctions levels and Saudi Arabia refusing to cut production, crude oil is unlikely to move higher than the $40 to $50 range in 2016, analysts say. The U.S. benchmark crude, West Texas Intermediate, fell 1.4% to $29.04, while Brent crude, the international standard, slipped 3.6% to $32.18.

Saudis, Russians Fail To Cut Oil Production, Agree To Freeze Record January Production; Iran Already Renegs -- Last night when previewing today's main event, the "secret" meeting between the Saudi and Russian oil ministers, we explicitly said this deal would not "lead to a cut in production", and sure enough just two hours ago the meeting between the two oil superpowers concluded and as expected the two failed to agree to any production cut; instead what they did agree on was to "freeze" production at January's already record levels, and furthermore make the agreement contingent on other OPEC members complying, something Iran has already said it would not agree to.  Here is Reuters' take: Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production. The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha - their highest-level discussion in months on joint action to tackle a growing oversupply of crude and help prices recover from their lowest levels in more than a decade.  The Saudi minister, Ali al-Naimi, said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran. "The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Naimi told reporters. "We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said. It was not exactly clear how "freezing" output at a record level will "stabilize and improve" the market but we will cross that bridge in a few months.

Oil Price Volatility Soars Near Record Highs -- Oil prices (and the broader financial markets) have suffered from acute bouts of volatility so far in 2016, with dramatic intraday swings the most worrying feature, and as OilPrice.com's Charles Kennedy warns, this shows no signs of letting up. With realized volatility soaring... The CBOE Crude Oil Volatility Index, that tracks (as it name suggests) the implied volatility of crude oil, has spiked to a level not seen since the global financial meltdown in March 2009. While energy analysts have closely watched the crash of oil prices since mid-2014, only in the past two months – largely since OPEC’s December meeting – has crude oil volatility surged to its highest level in seven years. Oil prices are at their lowest levels in more than a decade, but the daily up and down moves are leaving investors with whip lash. After crashing last week following bearish comments from the Federal Reserve, oil prices surged by more than 12 percent on Friday, the largest percentage gain in seven years, on more credible news that OPEC might be coming around to the idea of coordinated production cuts. What’s more, even after the 12.3 percent gain, crude oil still ended the week lower than it was on Monday. Part of it is due to computerized trading that leads to feedback loops of buying and selling as large volumes of capital get moved around. But computerized trading is not a new phenomenon. What is new is the instability in the financial markets. After nearly a decade of near zero interest rates from the U.S. Fed, the global economy still looks rather unsteady. There is no shortage of factors influencing oil prices today. Just to name a few: China’s growth is slowing; emerging market currencies have crashed; oil supply continues to exceed demand; oil in storage is at record levels; and Fed rate hikes may or may not be forthcoming. This all adds up to a period of incredible volatility. That outlook probably won’t change over the course of 2016.

Oil Tumbles Under $30 As Iran Refuses Doha Proposal, Goldman Warns "Freeze Doesn't Help" - Oil prices limped higher overnight in their ubiquitous carry-driven way, only to tumble quickly this morning as the reality that, as Goldman says "at record levels, this production freeze doesn't help at all") and clear indications from the meetings in Tehran that Iran will do 'whatever it takes' to increase its production to pre-sanctions levels. WTI is back below $30. As Bloomberg notes Any output-freeze agreement among key oil producers is being dismissed out of hand by oil bears. William Edwards, a Katy, Texas-based consultant, who has said since late 2014 prices will go low and stay low for years, says this latest proposal wouldn't even cut production, which he says must happen for price recovery."For OPEC, the sequence is as follows," Edwards tells WSJ. "It spends a year or two saying 'you cut," meaning everyone except OPEC. Then it'll spend another year or two saying 'We all should cut.' Finally, when prices are so low it has no choice, OPEC will say 'we've agreed to cut, starting in six months." And as Goldman's Damien Courvalin warns, keeping output at record levels doesn't help...

Crude Confused - WTI Rallies As Iran 'Supports' OPEC Freeze But Won't Cut Production -- The algos are happy. Headlines proclaim Iran "supports" the Doha proposal to "freeze" oil production levels (at record levels) and oil spikes. However, what they failed to grasp was Iran's lack of commitment to actual production levels... i.e. Iran fully supports production cuts for everyone else... but will not freeze its own production.

WTI Crude Soars To $31 - Erases All "Production Freeze" Disappointment Losses - So let's get this straight. Russia and OPEC 'agree' to consider (not actually act upon) "freezing" production levels (at current record high levels) and the market plunges amid disappointment over no cuts. And today WTI spikes and erases all those losses as Iran supports the "freeze" plan but will not cut its own production plans... As Reuters reports, Iran said on Wednesday it would resist any plan to restrain its oil output as fellow OPEC ministers tried to persuade the country to join the first global oil pact in 15 years. Talks in Tehran between Iranian oil minister Bijan Zanganeh and his counterparts from Iraq, Qatar and Venezuela lasted for nearly three hours. Visiting ministers left without making comment. "Asking Iran to freeze its oil production level is illogical ... when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices." Iran's OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh daily newspaper on Wednesday. "How can they expect Iran to cooperate now and pay the price?" he said."We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level."  And so - Crude rallies??!!

API says crude-oil inventories fell 3.3 million barrels: reports - The American Petroleum Institute on Wednesday said U.S. crude-oil inventories fell by 3.3 million barrels in the latest week, according to news reports. The data from API, an industry trade group, is watched for clues to weekly data from the Energy Information Administration due Thursday morning. Analysts surveyed by The Wall Street Journal produced an average forecast for a 3.1 million barrel rise in oil inventories.

US oil surges after crude stocks fall: U.S.oil prices rose near 8 percent on Wednesday, after an unexpected drop in crude inventories. Crude inventories fell by 3.3 million barrels in the week to Feb. 12 to 499.1 million, compared with analysts' expectations for an increase of 3.9 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub dipped by 175,000 barrels, API said. Refinery crude runs fell by 27,000 barrels per day, API data showed. Oil futures have staged a rebound from their lowest levels in a dozen years, bouncing after Iran voiced support for a move led by Russia and Saudi Arabia to freeze production in an oversupplied market. Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar in Tehran for over two hours on Wednesday, saying the proposed production "ceiling" should be the first step toward stabilizing the market. Zanganeh, quoted by Tehran's Shana news agency, did not say explicitly say that Iran will keep its own output at January's levels, in line with the proposal that major producers including Russia and Saudi Arabia restrict output. But the tacit endorsement from Iran helped pushed global crude benchmark Brent up more than $2 a barrel. Tehran has been the main obstacle to the first joint OPEC and non-OPEC deal in 15 years, after its pledge to recapture market share lost during years of sanctions.

Oil Extends Gains Above $31 After API Reports Surprise Inventory Draw -- Against expectations of a 3.5mm build (following a small draw last week), API reports totalcrude oil inventories shockingly drew down by 3.3 million barrels. Meanwhile Cushing inventories also drew down (by 175k versus expectations for a 700k build and 523k build last week), but we note that Gasoline inventoriers rose (by 750k) for the 14th week in a row. API Breakdown:

• Crude down 3.3 million
• Cushing: up 175,000
• Gasoline up 750,000
• Distillate down 2 million

UAE energy minister refuses to discuss tentative oil cap (AP) — Dodging reporters’ questions, the United Arab Emirates’ energy minister refused Wednesday to discuss a proposed cap to crude oil production agreed to by four oil-producing countries the day before, raising new questions about the proposal aimed at stabilizing global prices. Minister Suhail Mohamed al-Mazrouei’s stance suggests regional rivalries also may be in play, as Russia and Saudi Arabia joined Qatar and Venezuela on Tuesday in agreeing to the deal if other producers go along. The surprise closed-door meeting involving the four countries in the Qatari capital, Doha, apparently did not include an Emirati official. Qatar and the Emirates, both oil and gas powerhouses in their own right, also compete with each other in the aviation industry and cultural pursuits. Al-Mazrouei, who gave a keynote address at the 2016 CIS Global Business Forum in Dubai, mentioned low oil prices in passing in his speech. Afterward, journalists followed him outside. “I will only talk about this conference,” he said, before smiling and walking away from reporters’ shouted questions. Al-Mazrouei then entered a side room at the hotel hosting the event. Security guards later arrived to put up a golden rope to keep journalists away. He left some 15 minutes later, still trailed by shouted questions.

Iran snubs Doha proposal, won't freeze oil output — Iran appeared Wednesday to back a plan laid out by four influential oil producers to cap their crude output if others do the same, though it offered no indication that it has any plans to follow suit itself. The agreement reached in Doha the day before by Qatar, Saudi Arabia, Russia and Venezuela is aimed at stabilizing global oil prices, which recently plunged to less than $30 a barrel, a 13-year low. But Iran is keen to ramp up exports to regain market share now that sanctions related to its nuclear program have been lifted under a landmark agreement. “Iran supports any measure to boost oil prices,” Oil Minister Bijan Namdar Zanganeh said after talks with his counterparts from Iraq, Venezuela and Qatar. “The decision taken to freeze the production ceiling of OPEC and non-OPEC members to stabilize and boost prices is also supported by us,” he added, in comments posted on the ministry’s website late Wednesday. Iran’s envoy to OPEC, Mahdi Asali, had earlier blamed the fall in prices on oversupply, and said it was up to Saudi Arabia and others to cut production. He said the four nations that participated at the Doha gathering could stabilize oil prices on their own — if they cut their production by 2 million barrels a day. “These countries increased their production by 4 million barrels when Iran was under sanctions,” Asali was quoted as saying by the Shargh daily. “Now it’s primarily their responsibility to help restore balance on the market. There is no reason for Iran to do so.”

Iran Balks at Committing to Capping Its Oil Production - WSJ: Iran dented the efforts of other big oil exporters to limit production Wednesday by refusing to curb its own output, demonstrating the limits of OPEC’s power to boost prices amid rising tensions among its members. Iran’s oil minister Bijan Zanganeh’s decision threw into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels. The efforts come as the Organization of the Petroleum Exporting Countries scrambles to find ways to prop up an oil market rocked by surging production that outpaces demand by more than one million barrels on any given day. Prices have fallen by two-thirds since June 2014, throwing global markets into turmoil and ravaging OPEC countries like Venezuela and Nigeria and nonmember Russia.“If Iran is working outside OPEC, the group cannot move. OPEC cannot do anything without Iran.” The broken-down oil talks also added a new layer to the heightening tensions between Saudi Arabia and Iran, longtime rivals who are the Middle East’s dominant powers for the Sunni and Shiite strains of Islam, respectively. Iran and Saudi Arabia are backing opposing sides on several battlefields, including Syria, where Iran supports President Bashar al-Assad and Saudi Arabia supports opposition groups who want to unseat him in the country’s five-year war. Saudi Arabia is also leading a military coalition in Yemen fighting Shiite Houthi rebels whom Iran says it supports politically.

First Iran, Now Iraq Refuses To Commit To Oil Production Freeze -- For all the euphoria about the proposed OPEC oil production freeze deal, the reality is that nothing has been actually decided. As readers will recall, the only "decisions" agreed to between the Saudi and Russian oil ministers were to cap production at already record high levels of output, however contingent on everyone else voluntarily joining said production cap.  Then yesterday, as part of its own meeting, Iran made it clear that while it supports efforts to push the price of oil higher, it would certainly not limit its output at current levels, and instead requires an explicit loophole granting it a production limit from the pre-sanctions period. This put OPEC in a bind: if it grants Iran special treatment, then who else will have a similar request. The answer was revealed just hours later when Iraq earlier today stopped short of saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries. According to the WSJ, Iraq oil minister Adel Abdul Mahdi said his country supports any decision that will serve producers, prop up prices and achieve balance in the crude markets. However, just like Iran he didn’t explicitly say whether Iraq would curb its own output but said any rapprochement between all sides to restrict crude output is a step in the right direction. As the WSJ summarizes, his comments "came a day after Iran’s oil minister didn’t commit to limiting production, throwing into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels." “The deterioration of the oil prices has directly impacted the global economy and the historical responsibly of the producers requires great speed in finding positive solutions that will help prices return to the normal [levels],” Mr. Abdul Mahdi said in a statement. In other words, more of the same, or as we summarized it with a brief tweet one week ago: Everyone wants higher oil prices; nobody wants to cut production

Oil gives up big price gains after Saudi comments, rise in inventories - Oil futures posted a mixed finish Thursday, giving up big gains after an official from Saudi Arabia was quoted as saying the world’s swing producer was “not prepared” to cut oil production. Those comments also came amid a rise in U.S. inventories of crude, gasoline and distillates.. “If other producers want to limit or agree to a freeze in terms of additional production that may have an impact on the market but Saudi Arabia is not prepared to cut production,” Saudi Foreign Minister Adel Al Jubeir told Agence France-Presse in an interview Thursday. The Saudi official’s comments come after the world's top oil producer reached a tentative agreement with Russia earlier this week to freeze production at current levels if other producers went along. Iran on Wednesday welcomed the pact but didn't indicate it would comply.Light, sweet crude futures for delivery in March finished with a gain of 11 cents, or 0.4%, at $30.77 a barrel on the New York Mercantile Exchange, after trading as high as $31.98 earlier in the day. April Brent crude on London’s ICE Futures exchange fell 22 cents, or 0.6%, to end at $34.28 a barrel. Oil futures weakened after the Energy Information Administration said U.S. commercial crude inventories rose 2.1 million barrels in the week ended Feb. 12. That was smaller than the 3.3 million barrel build penciled in by economists surveyed by oil-data firm Platts. It came under additional pressure after the Saudi official’s comments were reported. On the inventory front, both gasoline and distillates showed unexpected rises, with gasoline stocks up 3 million barrels and distillate inventories up 1.4 million. The Platts survey found analysts looking for a 1-million-barrel fall in gasoline stocks and a 1.4 million-barrel drop in distillates.

My Thought Exactly: The Build Was Unexpected, And Other Thoughts; Say What You Want: I Dare You To Find Any Data Points That Reflect US Economy Better Than These Two Data Points -- February 18, 2016  - Bruce Oksol - The "teaser": crude oil / petroleum products / gasoline much greater than expected. Wow. My sentiments exactly. Platts is reporting:

• Imports surged 795,000 barrels per day (b/d), driving stocks higher
• Crude runs rose 338,000 b/d to 15.848 million b/d
• Gasoline, distillate stocks each showed surprise build

  U.S. commercial crude oil stocks rose 2.147 million barrels in the week that ended Friday, Energy Information Administration data showed Thursday.  Stocks have risen nearly 22 million barrels over the last six reporting periods, pushing inventories into record-high territory. At 504.105 million barrels, crude stocks sit 36.3% above the five-year average for this time of year. Analysts surveyed Tuesday by Platts expected a slightly larger build of 3.3 million barrels last week.Crude runs increased 338,000 b/d to 15.848 million b/d, helping offset the size of last week's build. It was the first time the amount of crude processed by refiners rose on a week-on-week basis since late December, raising the possibility that facilities have returned from performing seasonal maintenance. Refinery utilization rose 2.2 percentage points to 88.3% of operable capacity. Analysts expected a decrease of 0.5 percentage point.On the U.S. Gulf Coast, home to more than half of U.S. operable crude distillation capacity, refinery utilization increased 3.1 percentage points to 87.8%. This is quite incredible. There had been expectations that the global crude oil glut could be "burned off" within this calendar year and things would turn a bit "better" by the end of the year. This has to be particularly bad news for everyone but perhaps Saudi Arabia has to be most concerned.

Cushing Is Denying Storage Requests: Some Troubling Data From Genscape And Goldman Yesterday, one of the best-known providers of energy market intelligence thanks to its massive private and patented network of land, sea, and satellite monitors, Genscape, held a webinar titled the "Current state of the global oil market" in which it covered all the core aspects that investors in the oil space find concerning, among which the following:

• Global oversupply of oil
  • OPEC's dilemma with Saudi Arabia keeping up pressure to not cut production
• North American crude oil production forecast
  • Impact of sustained weakness in crude oil prices on U.S. production
  • What does the decline in U.S. production mean for the storage glut and refinery supply?
• U.S. oil storage
  • Cushing, OK, storage record-highs in April 2015 and January 2016
  • Where will the crude oil go?
  • Expectations for additional storage coming online

While some the key topics discussed focused on the most followed issue, namely total US supply and commercial oil stocks, which as can be seen are now at a record high and rising...... and in fact at 504 million as of today's DOE update which saw the addition of another 2.1 mmb last week, pushing total stocks to 78mmb (18%) above year ago levels...

United Arab Emirates backs oil producers' output freeze plan - The United Arab Emirates threw its support on Thursday behind a plan by major oil producers to freeze output levels in an attempt to halt a slide in crude prices that has pushed them to their lowest point in more than a decade. Russia, Saudi Arabia, Qatar and Venezuela announced their willingness to cap output at last month’s levels at a surprise meeting in Qatar this week— but only if other major oil producers join them. OPEC member Kuwait has since said it supports the proposal, and Iran has offered at least tentative backing. The support from the Emirates, a close Saudi ally, does not come as a major surprise but is still significant. The seven-state federation is OPEC’s third-largest oil producer. Energy Minister Suhail Mohammed al-Mazrouei said in a statement to state news agency WAM that the Emirates supports any proposal to freeze output through consensus with OPEC and Russia, which is not part of the oil-producing bloc. “We believe that freezing production levels by members of OPEC and Russia will have a positive impact on balancing future demand based on the current oversupply,” he said. He was also quoted as saying he believes current conditions will prompt producing countries to cap existing output, if not cut supply. The UAE, he said, “is always open for cooperation with everyone in order to serve the higher interests of the producers and the balance of the market.” A day earlier, Iranian Oil Minister Bijan Namdar Zanganeh said after talks with counterparts from Iraq, Venezuela and Qatar that his country “supports any measure to boost oil prices” but stopped short of committing Iran to capping its own output. Iran has previously said it aims to boost production above its roughly 2.9 million barrels a day now that sanctions related to its nuclear program have been lifted.

Oil Rally Stalls As Iran Declines to Commit to Freeze - The oil markets are still trying to digest the implications of the OPEC production freeze announced earlier in the week. Several days of strong gains in oil prices gave way to more cautious skeptical trading sessions on Thursday and Friday. WTI and Brent were down to close out the week.  Iran’s response to the deal, while couched in positive language, was decidedly non-committal. Few expect Iran to participate in the freeze deal, and its top energy officials have said as much in the days leading up to the negotiations. Iran will continue to increase production as much as it can as it seeks to regain ground that it has lost over the past four years. As a result, with participating nations producing pretty much flat out, the freeze deal will have little material effect on the fundamentals of the oil market. The one potential positive is that the freeze might build trust, potentially creating the conditions for further negotiations.  As a result, with supply continuing to outstrip demand for at least half of this year, oil prices may not budget off their lows for a few months. That is very bad news for several oil-producing countries, with Nigeria, Iraq, and Venezuela topping the list of countries in crisis. “You’ve got half of OPEC in existential crisis as to whether they can be viable governments at this point,” Allen Gilmer, CEO of energy consulting firm Drilling Info Inc., told Bloomberg.  Crude oil inventories continued to climb this week (see chart above), defying expectations. The U.S. saw stocks build by another 2.1 million barrels for the week ending on February 12. The key storage hub of Cushing, OK, was flat at 64.7 million barrels, or about 90 percent full. That weighed on the markets following the OPEC-Russia deal as the realization of persistent oversupply regained prominence.

Brent down as U.S. crude build eclipses output freeze plan | Reuters -  Brent settled lower on Thursday after data showing U.S. crude inventories rose to record highs overshadowed production freeze plans by oil major producers that had sharply boosted the market this week. The U.S. government's Energy Information Administration (EIA) said crude stockpiles rose 2.1 million barrels last week, to a peak of 504.1 million barrels in the third week of hitting record highs in past month. [EIA/S] The EIA also cited record high gasoline inventories and higher stocks of distillates that include heating oil and diesel. Brent LCOc1, the global benchmark for crude, settled down 22 cents at $34.28 a barrel, having risen more than $1.20 before the data. It had gained a total of more than $4 between Friday and Wednesday. U.S. crude CLc1 settled up by a modest 11 cents at $30.77 a barrel, after an earlier peak at $31.98. Reuters data showed the daily volume in U.S. crude futures at just over 200 million barrels, down 75 percent from two weeks ago.

US rig count drops 27 this week to 514; Texas down 12  — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 27 this week to 514. The Houston company said Friday 413 rigs sought oil and 101 explored for natural gas amid depressedenergy prices. A year ago, 1,310 rigs were active. Among major oil- and gas-producing states, Texas declined by 12 rigs, Oklahoma and North Dakota each dropped three, Louisiana fell by two, and Colorado, Kansas, New Mexico and Wyoming dropped one apiece. Alaska, Arkansas, California, Ohio, Pennsylvania, Utah and West Virginia were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Oil rig count plummets yet again - Fuel Fix: The number of rigs drilling for oil in the U.S. dropped by 26 this week, leaving just 413 rigs still seeking crude, according to Baker Hughes data. Including gas rigs, the overall rig count of 514 rigs is at its lowest point since the last century, specifically 1999. The total count is rapidly approaching the 1999 low of 488 rigs, which was the lowest point in Baker Hughes’ recorded history. Another drop of 26 rigs would tie the all-time record low. Analysts expect the rig count to continue falling through much of the first half of the year. The U.S. benchmark for oil continues to hover at about $30 a barrel. In the first two months of 2016 alone, drillers have mothballed 123 oil rigs. The natural gas rig count dropped by just one this week down to 101 rigs, which already is at a historic low. Texas is still home to 46 percent of the nation’s operating rigs, but the biggest losses this week came from the Lone Star State. Seven rigs went dark in the Permian Basin and the Eagle Ford shale lost another four rigs. The Permian and Eagle Ford, in that order, are still the most active plays in the country. The oil rig count is now down nearly 75 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

US Oil Rig Count Collapses At Fastest Rate In A Year - Rig counts dropped for the 9th straight week but for the 3rd week in a row, US oil rig counts dropped heavily, down 26 this week after -28, and -31 in the last 2 weeks. The 85 rig drop is a 17% plunge over 3 weeks - the fastest pace since Feb 2015, and 2nd fastest since Feb 2009.

US rig count down 27; firms plan to shed more units - Oil & Gas Journal: The latest drilling dive continued during the week ended Feb. 19, with the US rig count shedding 27 units to bring the current total to 514, Baker Hughes Inc. reported. All but one of those units targeted oil. Over the past 3 weeks alone, the count has plunged 105 units. Compared with the recent peak during Sept. 12-26, 2014, the count is down 1,417 units. Exploration and production firms have entered 2016 with slashed budgets and improved efficiencies, reflected in the double-digit drop-off in rigs in each of the first 7 weeks of the year.  As such, financial services firm Raymond James & Associates Inc. last week further reduced its forecast US rig counts for 2016-18, now projecting an average 2016 count of 500, down nearly half compared with the 2015 average (OGJ Online, Feb. 12, 2016). The new bottom is expected occur in April at 400 units. The nadir of the 1998-99 downturn was 488 units on Apr. 23, 1999, which also represents the low point in BHI data dating back to July 1987. During the 2008-09 downturn, the lowest point was 876 on June 12, 2009. RJA doesn’t see a drilling rebound until late 2016, as many E&P firms are likely to first focus on drawing down their uncompleted well inventories and improving their balance sheets, while waiting for consistently higher crude oil prices and a labor force recovery. US oil-directed rigs, down 26 during the week, now total 413, down 1,196 units since their peak in BHI data on Oct. 10, 2014. Dropping units in 9 straight weeks now, the oil-directed count is at its lowest level since Dec. 18, 2009. Gas-directed rigs edged down a unit to 101, their new lowest total in BHI data dating back to July 1987. All 27 units to go offline this week were on land. Rigs engaged in horizontal drilling continued their dive, shedding 17 units to 416, down 956 units since a peak in BHI data on Nov. 21, 2014, and their lowest point since July 31, 2009.

Oil is now so cheap even pirates aren’t stealing it any more -  Stealing the oil from a ship is no mean feat. Oil tankers are enormous, and ships that carry expensive cargo are designed to be difficult to board. Stealing can mean hijacking the original tanker, disabling its tracking devices, taking it to a location where it can’t be spotted, and transferring thousands of heavy barrels to a different vessel that can then be sailed away. Stealing crude also means finding a buyer for it, or else getting involved in the messy and dangerous business of illegal refining. Over the past six months, the price of oil has plunged due to a global oversupply. And for some pirates, it’s just not worth stealing it any more. “With oil at a low bottom price of below $30 per barrel, piracy is no longer such a profitable business as it was when prices hit $106 a barrel a few years ago,” said Florentina Adenike Ukonga, the executive secretary of the Gulf of Guinea Commission—a regional body that exists to promote cooperation between West African states, many of which export oil via tanker—in an interview with Bloomberg. She said that the drop in oil prices, which have fallen by $100 since July last year, was a factor in reducing piracy in the area. In fact, piracy was falling before the price of oil tanked. In 2013, there were 100 attacks on separate vessels in the Gulf of Guinea (pdf), of which 56 were successful, according to Oceans Beyond Piracy, an American non-governmental organization that tracks maritime crime. By 2014, that had fallen to 67, of which 26 were successful. That fall happened before the price of oil began its downward slide—though OBP estimates that, in any year, 70% of attacks in the region go unreported.

UAE Offers India Free Oil To Ease Storage Woes -- In an oil sector first, the oil-rich United Arab Emirates (UAE) has offered free oil to India in return for a storage deal at India’s planned underground facility as the supply glut worsens and some analysts predict that ‘’peak storage” could sending prices crashing further.  The UAE’s Abu Dhabi National Oil Company (ADNOC) has agreed to store crude oil in India's maiden strategic storage facility, sweetening the deal by saying India could take two-thirds of the oil for free.  It’s a great deal for India, which is almost fully reliant on imports to meet its crude oil needs.  India has lured Abu Dhabi in with the building of a massive underground storage facility system that will be able to take on 5.33 million tons of crude as a bulwark against global price shocks and supply disruptions.  ADNOC is eyeing half the storage capacity at one of the new underground facilities, Mangalore, which has a 1.5-million-ton capacity on its own. Abu Dhabi plans to stock 0.75 million tons, or 6 million barrels of oil, here, and 0.5 million tons will belong to India. The deal is reflective of a wider, global storage panic and talk of what could happen when we reach ‘’peak storage’’. A number of analysts have suggested that oil prices might crash to $20, or even $10 a barrel, if storage tanks become full. Storage is now at the highest level in at least a decade. In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year. According to the U.S. Energy Information Administration (EIA), about 60 percent of the U.S.’ working storage capacity is filled.

U.A.E. Central Bank Foreign Assets Decline $12 Billion - -- The United Arab Emirates central bank’s foreign assets fell by $12 billion in January from the previous month as the Arab world’s second-biggest economy grapples with falling oil prices and bets against its currency. Foreign assets declined to 296.9 billion dirhams ($81 billion) from 341.1 billion dirhams, according to data posted on the central bank’s website. Cash, bank balances and deposits with banks abroad dropped almost 30 percent to 122.2 billion dirhams, while investments in held-to-maturity foreign securities and other foreign assets increased, according to the data. Oil producers in the six-nation Gulf Cooperation Council, which includes Qatar, Kuwait and the biggest Arab economy of Saudi Arabia, are seeing their public finances deteriorate as crude prices hover near 12-year lows. Net foreign assets of the Saudi Arabian Monetary Agency, the kingdom’s central bank, have fallen in the 11 months to December as the country sought to bridge its budget deficit. Twelve-month forward contracts for the U.A.E. dirham, used partly to bet on a devaluation of the currency, climbed to 325 points last month, their highest since 2009. The U.A.E. holds about 6 percent of global crude reserves. Most of the country’s cash reserves are held by its sovereign wealth fund, the Abu Dhabi Investment Authority, whose assets Fitch estimated would decline to $475 billion at the end of this year.

Iran exports first oil shipment to Europe since nuclear deal — Iran says it has exported its first crude oil shipment to Europe since it reached a landmark nuclear deal with world powers, the official IRNA news agency reported Sunday. IRNA quoted Deputy Oil Minister Rokneddin Javadi as saying the shipment was the first in five years and marked “a new chapter” in Iran’s oil industry. He did not elaborate but IRNA said several western tankers have loaded Iran’s oil in recent days. Iran plans to add one million barrels to its oil production following implementation of the nuclear deal, which lifted international sanctions in exchange for Iran restricting its nuclear activities. Iran expects an economic bonanza after the lifting of sanctions, which will allow it to access overseas assets and sell crude oil more freely. Javadi said Iran has already reached agreement to export oil to France, Russia and Spain. The country used to export 2.3 million barrels per day but its crude exports fell to 1 million in 2012. Iran’s total production currently stands at 3.1 million barrels per day. In order to retake its market share, Iran said in January that it will add to its production despite the drop in prices and should not be blamed for the further price drops. Iran’s regional rival Saudi Arabia is OPEC’s largest producer.

Iran could decide fate of first global oil deal for 15 years | Reuters: The fate of the first global oil deal in 15 years could be decided on Wednesday when OPEC members travel to Iran to persuade the country to participate in a deal to freeze output levels, possibly by offering Tehran special terms. Dominant OPEC power Saudi Arabia and non-OPEC Russia, the world's top two producers and exporters, agreed on Tuesday to freeze production levels but said the deal was contingent on others joining in - a major sticking point with Iran absent from the talks and determined to raise production. OPEC members Qatar, Venezuela and Kuwait said they were also ready to freeze output and oil sources in Iraq - the world's fastest-growing producer in the past year - said Baghdad would abide by a global deal aimed at tackling a growing oversupply and helping prices recover from their lowest in over a decade. On Wednesday, Venezuelan Oil Minister Eulogio Del Pino and Iraqi Oil Minister Adel Abdel Mahdi will travel to Tehran for talks with their Iranian counterpart Bijan Zanganeh. OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear programme."Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters. Benchmark Brent oil prices LCOc1 fell 2 percent on Tuesday to below $33 per barrel on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut

Iran defends right to raise oil output -- Iran said it will defend its right to raise oil production to pre-sanctions levels, ahead of a meeting with other Opec members, hoping to convince the country to join a co-ordinated production freeze. Tehran’s position is likely to complicate attempts by the oil ministers of Venezuela and Qatar to reach a deal with Iran’s oil minister Bijan Zanganeh and his Iraqi counterpart on Wednesday. A provisional agreement to freeze oil production at January levels was reached in Doha on Tuesday between Saudi Arabia and Russia, the world’s two biggest exporters, as well as Qatar and Venezuela. The deal is contingent on other big producers taking part. This is the first attempt to restrict output and bolster prices to win backing from Opec’s de facto leader, Saudi Arabia, as well as Russia, the largest oil exporter outside the cartel. Iran wants to maximise production, however, after seeing exports shrink under years of sanctions linked to its nuclear programme, which were only lifted last month. “It is illogical to ask Iran to further decrease its output,” Iran’s Opec envoy Mehdi Asali told local newspaper Shargh. “Under the current circumstances that Iran’s production is much below its quota, it cannot expect us to further decrease our production,” he said. Other countries have already raised output to record levels after the world’s biggest producers embarked on a battle for oil market share almost 18 months ago, with Saudi Arabia leading the push to target higher-cost producers, including US shale and Canadian tar sands. Since then, the oil price has collapsed by 70 per cent and dropped below $30 a barrel at the end of last month, a level far lower than many Opec members expected crude to fall to. Mr Asali blamed Iran’s Opec rivals for “irresponsible” behaviour as they increased production when Iran was under sanctions.

Brazil ditching dollar to boost Iran trade -  Brazil says it will ditch the dollar in trade with Iran to sidestep a US ban which prevents Tehran from using the American financial system.  Trade Minister Armando Monteiro has said Brazil seeks to boost business relations with Iran after the lifting of sanctions on Tehran, even though Washington has opted to maintain its “primary” embargo on the country.  "Everyone is racing after Iran now. The trade potential is very big," Monteiro told Reuters on Tuesday.  He said Brazil will find ways to settle payments and the type of payment and currency in transactions with Iran which President Dilma Rousseff could visit this year. Rousseff lifted sanctions against Iran last week after meeting with the Iranian ambassador, hoping to bolster trade between the two nations, which have enjoyed warm ties for years despite tensions with the West. Latin America's biggest economy aims to triple trade with Iran to $5 billion by 2019, Monteiro said. He said Iran has already contacted Brazil's Embraer, the world's No. 3 commercial plane manufacturer, for the purchase of commercial jets for regional aviation.  Iran is eyeing the four models of Embraer's E1 family of regional jets, because of their low maintenance costs, Reuters said, quoting an official spokesman for the company. "Iran is a very interesting market because there is a lot of repressed demand and it is a huge country so there is great potential for regional aviation," the spokesman said. Monteiro said Iran is also interested in Brazilian cars and trucks as well as machinery to renew its oil refinery network.

Can Pakistan Use Qatar LNG Price Leverage For Better Iran Gas Deal? -- Pakistan has recently negotiated a good bargain with Qatar for importing $16 billion worth of LNG.  LNG arriving in Pakistan from Qatar will fetch 13.37% of the preceding three-month average price of a Brent barrel (considering the present Brent price as a proxy, that would equate to $167.5 per 1000 cubic meters), according to a report in Azerbaijan's Trend News.  It translates to $4.50 per million BTUs.A comparison with Iran's gas deals with Turkey and Iraq indicates that Iranian gas will not be competitive with Qatari LNG on Pakistani market. In 2014 Iran was exporting gas to Turkey at above $420 per 1000 cubic meters, but the figure plunged to $225, or $6 per million BTUs, currently due to low oil price. Iran previously said that the price of gas for Iraq would be similar to Turkey. International Chamber of Commerce (ICC) arbitration court has recently ordered Iran to reduce its gas price to Turkey by 15% after Turkey complained. It's not clear if Iran will comply but even if it does, its price price will still be $5.10 per million BTUS, much higher than the Qatari LNG price of $4.50 per million BTUs for Pakistan.  As recently as two years ago, LNG shipped to big North Asian consumer like Japan and Korea sold at around $15 to $16 a million British thermal units. Late last year, the price hit $6.65 a million BTUs, down 12% from September, according to research firm Energy Aspects. It expects prices to fall further in Asia this year, to under $6 per million BTUs, as a wave of new gas supply in countries from the U.S. to Angola to Australia comes on line, according to Wall Street Journal.  Petronet LNG Ltd, India’s biggest importer of liquefied natural gas (LNG), is saving so much money buying the commodity from the spot market that it’s willing to risk penalties for breaking long-term contracts with Qatar. Will Pakistan be able to negotiate a better price with Iran? It seems difficult given the fact that Iranians have a reputation of being very difficult to deal with.

As ISIS Bears Down On Oil Riches, Libya Makes Last Ditch Effort To Form Government -- Early last month, we outlined the rapidly deteriorating security situation in Libya, which was transformed into a lawless wasteland in the wake of NATO-backed efforts to topple Muammar Gaddafi in 2011. The story is hopelessly convoluted but generally speaking, there are two governments. One in Tripoli and one internationally recognized body operating out of Tobruk, where the House of Representatives remains in exile after efforts to form a unity government in the capital fell apart. The fractured government makes protecting the state’s oil infrastructure virtually impossible in the face of an increasingly aggressive ISIS assault. Fighters loyal to Ibrahim Jadhran - the shady militia leader who effectively controls Libya’s oil exports - are fighting to secure the country’s crude, but ISIS is set to overrun them and even if they weren’t there are very real questions about where Jadhran’s loyalties lie. Russian airstrikes in Syria and an increasingly capable Iraqi military have made Libya look more attractive to ISIS. There’s little in the way of airstrikes, the government is completely incapable of defending itself, and vast stores of oil are there for the taking. It’s against this backdrop that the US and Britain are considering a ground operation as part of an effort to “stabilize” the country, which is ironic because it was NATO that destabilized the country in the first place.

In Unexpected Twist, Oil Exporters Are Buying Treasurys While They Liquidate Stocks -- Long before the mainstream media caught on to the topic of SWF selling of stocks, we warned a month ago that as a result of the collapse in oil, and assuming oil remains priced at roughly $31 per barrel, the world's largest SWFs shown in the chart below...... would be forced liquidate at least $75 billion in equities and the lower the price of oil goes, the more selling there would be. Subsequently, we showed both the equity sector and region allocation of SWF equity exposure, noting that financial stocks located in Western Europe are most exposed, something both DB and CS have found out the hard way. We also warned (ironically, courtesy of a Deutsche Bank analysis) to stay away from European stocks with high EM government ownership such as these: Yet while the wholesale equity selling by SWFs has become manifest just as predicted, in recent months something unexpected emerged when looking at other asset classes in which SWFs are involved, most notably Treasurys. " Unexpected", because US Treasury paper was one of the asset classes many expected would feel the brunt of SWF selling, perhaps much more so than equities. Quite the opposite has not happened. As Stone McCarthy writes, based on TIC data for Asian oil exporters, those countries have been more aggressively selling risk assets than Treasury securities since oil prices began to slide in mid 2014. The chart below shows the cumulative net purchases of U.S. securities since July of 2013, about a year before oil prices began their descent, for the "oil-exporter" group.

The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy -- Do the Saudis have an oil market strategy beyond pumping crude to defend their market share? Are they indifferent to which countries’ oil industries survive? Or, alternatively, are they targeting specific global competitors and specific national markets?   U.S. import data (from the EIA) suggests the U.S. is not now the Saudis’ primary target, if it ever was. Like other producers, the Saudis operate within a set of constraints. Domestic capacity is one. In its 2015 Medium Term Market Report (Oil), the IEA put Saudi Arabia’s sustainable crude output capacity at 12.34 million barrels per day in 2015 and at 12.42 million in 2016. Export capacity—output minus domestic demand—is another. Rather than maintaining crude output at 2014’s level in 2015, the Saudis steadily increased it after al-Naimi’s announcement in Vienna as they brought idle capacity on line (data from the IEA monthly Oil Market Report): This allowed them to increase average daily crude exports by 460,000 barrels in 2015 over 2014 average export levels—even as Saudi domestic demand increased—and exports peaked in 4Q 2015 at 7.01 million barrels per day (assuming the Saudis keep output at average 2H 2015 levels in 2016, and domestic demand increased 400,000 barrels per day, as the IEA forecasts, the Saudis could export nearly 7 million barrels per day on average in 2016): The Saudis did not ship any of their incremental crude exports to the U.S.—in other words, they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output, and did not seek to increase U.S. market share. Based on EIA data, Saudi imports into the U.S. declined from 1.191 million barrels per day in 2014 to 1.045 million in 2015—and have steadily declined since peaking in 2012 at 1,396 million barrels per day. (OPEC’s shipments also declined from 2014 to 2015, from 3.05 million barrels per day to 2.64 million, continuing the downward trend that started in 2010). Canada, however, which has sent increasing volumes to the U.S. since 2009, increased exports to the U.S. 306,000 barrels per day in 2015: Also, the Saudi share of U.S. crude imports declined 1.9 percentage points in 2015 from 2014, and has declined 2.6 percentage points since peaking at 16.9 percent in 2013;

Saudi Arabia's credit rating outlook cut to negative at S&P -- Saudi Arabia, the world’s largest oil exporter, had the outlook on its credit grade cut to negative by Standard & Poor’s while other struggling energy-producing nations had their ratings lowered.  The Saudi kingdom could lose its AA- credit ranking, the fourth-highest debt grade, in two years if its “liquid assets” decline or its fiscal position weaken, S&P said in a statement Monday. The rating company also cut the grades of Oman, Bahrain, Kazakhstan and Venezuela by one step, citing lower oil prices. A 50 percent drop in oil since June is eroding government revenues of energy exporters and dimming their growth prospects. S&P said oil will average $70 a barrel by 2018, down from a forecast of $85 in December, when it lowered Saudi Arabia’s outlook to stable from positive. “Given its high dependence on oil, Saudi Arabia’s currently very strong fiscal position could weaken owing to the oil price decline,” analysts led by Trevor Cullinan at S&P wrote.  Saudi Arabia, which relies on oil and gas for about 90 percent of government revenue and for 85 percent of its exports, may face “sustained” budget deficits over the next few years as lower crude prices persist, the rating company said.

Saudi Rating Gets S&P Jolt as Four Oil-Nation Credits Are Cut -  Saudi Arabia headed a list of oil-producing nations whose credit ratings were cut by Standard & Poor’s on Wednesday amid the collapse in crude prices. The country’s credit grade was cut two levels to A- from A+ as the decline in oil prices will have “a marked and lasting impact” on the economy of the biggest OPEC producer. Oman’s was lowered to BBB- from BBB+, following a reduction in November. Kazakhstan is now rated BBB-, down from BBB, while Bahrain was lowered to BB from BBB-, putting it two steps below investment grade and the only one of the four to be rated junk. The Saudi downgrade comes less than four months after S&P cut the kingdom’s credit rating one level to A+ in late October, when Brent crude was selling for around $50 a barrel. It settled at $34.50 a barrel in London on Wednesday. The agreement made this week among the world’s leading oil producers to curb production and revive prices won’t have a material impact on S&P’s crude price assumptions, the company said in a statement. “The fact that Standard and Poor’s cut the ratings of a number of energy-exporting countries reflects the agency’s outlook on the price of oil,” Steve Hooker, who helps oversee $12.5 billion of debt at Newfleet Asset Management LLC in Hartford, Connecticut, said by phone. “Even though a slump in oil prices isn’t news to anyone, this sends a signal to the markets and adds to the nervousness regarding the prospects for Brent’s performance.” Saudi Arabia’s growth in real per-capita gross domestic product will fall below that of its peers, while the annual average increase in the government’s debt burden could exceed 7 percent of GDP through 2019, according to the S&P statement. The outlook for the rating is stable, reflecting an expectation that the country “will take steps to prevent any further deterioration in the government’s fiscal position” the credit rating company said.

The Curse of Natural Resources -- The NY Times reports on the challenge that young Saudis face as oil prices collapse.  It tells a story of a nation where everyone appears to have a soft life of working for the government.  The piece ends with the following quote:   "Four Saudi workers gathered in a break room said they liked their jobs but worried that they would not be as successful as their fathers, all of whom worked for the government. They knew the government had less money to employ citizens, which meant their generation would have to work harder.  “The government is good, but our generation is spoiled,” said Ahmed Mohammed, 21. “Everyone wants a government job.”  His colleagues agreed. “Everyone wants to sit at home and get paid,” Mr. Alkhelaifi said."  So, the government offered a "free lunch" to the people and created a very unusual nation.  Now that the "good life" is over, how will the people of Saudi Arabia adapt?  Will the young invest in the human capital to be agile in the modern economy?  In the medium term, will there be a silver lining of this natural resource valuation collapse as the people invest in a more sustainable source of wealth (i.e investing in human capital).  With the collapse in oil revenue, will women start to work as the issues that Japan's leader Abe raised a few years ago?  Or, are the people of the Middle East unable and unwilling to make this pivot?  Do you argue that this group has formed an "addiction" to cashing oil checks and now that the money flow is gone that this group won't adapt and might instead turn to violence?   How has Israel achieved great success without oil? Did the absence of oil cause its success as human capital became "the only game in town"?

Russia’s grip on Syria tightens as brittle ceasefire deal leaves US out in the cold - Russia’s economy may be stumbling as oil prices fall, but in a week of extraordinary military and diplomatic turmoil over the war in Syria, President Vladimir Putin has proved that his global influence and ambitions have only been sharpened by financial troubles. For now he seems to be calling all the shots in Syria’s civil war. Russian jets allowed Syrian government troops to break out of a stalemate in Aleppo, cutting supply routes into a city that has been a rebel stronghold for years.  With hundreds of thousands of people facing siege in the ruins of Aleppo, and Europe fearful that thousands more fleeing to the border could trigger a new influx of refugees, top diplomats gathered to agree a flimsy ceasefire deal. Russia wrung so many concessions out of others around the table that the deal seemed more an endorsement of its role in Syria than a challenge to it. Hostilities would not stop for about two weeks and, even when they did, bombing campaigns against “terrorists” could continue. That effectively allows Russia to continue bombing as before, since it has always claimed only to target extremists, while focusing more of its bombs on President Bashar al-Assad’s opposition than on Isis or al-Qaida’s Syrian operation, Jabhat al-Nusra.

Saudi Arabia Enters Syrian Gas Pipeline War  --Directly. With jets and the threat of ground troops. On the behalf of Saudi Arabia.   And on the behalf of their Sunni proxies in Syria that have been fighting for Sunni control over the Arab/ Sunni Pipeline right of way. Who have lately gotten the s–t kicked out of them by the Shiites, and their allies, the Russians – who are fighting to control the Iranian /Shia gas pipeline route through Syria.Or in the case of the Russians, who are probably fighting to keep both gas lines from being built. Update from Zero Hedge: Reports indicate the Turkish army has crossed the border into Syria.“The Syrian government says Turkish forces were believed to be among 100 gunmen it said entered Syria on Saturday accompanied by 12 pick-up trucks mounted with heavy machine guns, in an ongoing supply operation to insurgents fighting Damascus,” Reuters reports. “The operation of supplying ammunition and weapons is continuing via the Bab al-Salama crossing to the Syrian area of Azaz,” the Assad government says.Meanwhile, since all that would take to unleash a full-blown war is for some Russian to be unexpectedly blown up, events like this do not inspire much confidence in the Syrian “ceasefire”: On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC supported, of course, by Russian airstrikes. To be sure, everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly. But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III.

Turkey Says "Massive Escalation" In Syria Imminent As Saudis Set To Launch Airstrikes --Even as all sides - including the US, Russia, Saudi Arabia, and select rebel groups - pretend to be working towards a ceasefire and a diplomatic solution to the five year conflict in Syria, actions speak louder than words, and to put it as succinctly as possible, everyone is still fighting. In fact, the fighting is more intense than ever. Russia and Hezbollah are closing in on Aleppo, the country’s largest city and a key urban center where rebels are dug in for what amounts to a last stand. If the city is liberated by the government (and yes, “liberated” is more accurate than “falls” because occupied territory belongs to the Syrian government, not to Sunni extremists), Assad will have regained control of the country’s backbone in the west.That would effectively mean the end of the rebellion and the Gulf monarchies, not to mention Turkey, are not happy about it. “The main battle is about cutting the road between Aleppo and Turkey, for Turkey is the main conduit of supplies for the terrorists,” Assad said in an interviewwith AFP on Friday. That supply line has been severed and now, it’s do or die time for the rebels’ Sunni benefactors in Ankara, Riyadh, and Doha. Either intervene or watch as Hezbollah rolls up the opposition under cover of Russian airstrikes, restoring the Assad government and securing the Shiite crescent for the Iranians.

Turkey Vows "Harshest Reaction" To Kurdish Advance In Syria As Missiles Hit Hospitals, School - Over the weekend, the biggest story in the geopolitical world was Turkey’s escalation in Syria. With the Sunni-backed opposition on its last legs in Aleppo and under near constant bombardment by Russia from the air and Hezbollah on the ground, Ankara and Riyadh have a decision to make: intervene or allow the rebellion to be crushed. We’ve spilled quite a bit of digital ink explaining why allowing the rebels to be routed really isn’t an option. It would represent a key victory for Iran at a time when the country is already on a roll. International sanctions have been lifted, oil revenue is set to quintuple by year end, and Tehran’s grip on Iraqis military and politicians is stronger than ever. A victory in Syria would be an embarrassment for the Saudis who have funded and armed the opposition and a win at Aleppo would give the Iranians sectarian bragging rights at a time when tensions between Riyadh and Tehran are already running high thanks to the execution of prominent Shiite cleric Nimr al-Nimr. And so, with the stakes high, the Saudis sent warplanes to Turkey’s Incirlik air base and Turkey promised an imminent “escalation.” The problem, we said, is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

At least 7 dead after airstrike hits Doctors Without Borders hospital in northern Syria (Reuters) - Seven people were killed in air strikes in Syria on a hospital supported by Medecins Sans Frontieres (MSF), the charity's France president said on Monday, adding that he believed Russia or Syrian government forces were behind the attack. "There were at least seven deaths among the personnel and the patients, and at least eight MSF personnel have disappeared, and we don't know if they are alive," Mego Terzian told Reuters. The hospital near Murat al-Numan in the northern Syrian province of Idlib was struck earlier on Monday by four missiles. "The author of the strike is clearly ... either the government or Russia," he said, adding that it was not the first time MSF facilities had been targeted in the country. The hospital, which has 54 staff and 30 beds, is financed by the medical charity. MSF also supplies medicine and equipment to the facility.

"We Are In A New Cold War": Russia PM Delivers Stark Warning To NATO -- It was just two days ago when Russian PM Dmitry Medvedev warned that if Saudi Arabia, the UAE, and Qatar invade Syria in a transparent attempt to shore up their Sunni proxy armies currently under siege by Moscow’s warplanes and Hezbollah, a “new world war” would be inevitable.   He also indicated that such a conflict would likely drag on for “decades.”  “Do they really think they would win such a war very quickly? That's impossible, especially in the Arabic world,” Medvedev said. “There everyone is fighting against everyone... everything is far more complicated. It could take years or decades." On Saturday, Medvedev was back at it with the hyperbole (or at least we hope it’s hyperbole) in Munich where more than 60 foreign and defense ministers are gathered for the 52nd Munich Security Conference. In his speech, the PM challenged NATO’s military maneuvers in the Baltics as well as the alliance’s general approach towards relations with The Kremlin. “The political line of NATO toward Russia remains unfriendly and closed,” he said in a speech to the conference. “It can be said more sharply: We have slid into a time of a new cold war.”“NATO on Wednesday approved new reinforcements for eastern Europe, including stepped-up troop rotations on its eastern flanks and more naval patrols in the Baltic Sea,” Bloomberg notes. “In response, the Kremlin dismissed the alliance’s argument that the move was merely defensive.”

US Allies Are Now Fighting CIA-Backed Rebels In Syria – On the same day Syrian President Bashar al-Assad claimed his fighters would retake the entire country “without hesitation,”unnamed American defense officials revealed to the Daily Beastthat the same Iraqi militias who were previously fighting ISIL alongside the U.S. are now actively collaborating with Russian and Iranian forces to “crush” American-backed rebels in Aleppo. According to the report: “At least three Shia militias involved in successful battles against ISIS in Iraq — the Badr Brigade, Kata’ib Hezbollah, and the League of the Righteous — have acknowledged taking casualties in fighting in south and southeast Aleppo province. U.S. defense officials confirmed to The Daily Beast that they believe ‘at least one’ unit of the Badr Brigade is fighting in southern Aleppo alongside other Iraqi militia groups. Those groups are backed by Russian airpower and Iranian troops — and all of whom are bolstering President Bashar al-Assad’s Syrian Arab Army.” Telling of the complex quagmire, the report indicates the same Shia militias fighting with the U.S. to maintain its installed government in Iraq are battling against the U.S.-backed forces - including those armed by the CIA - by bolstering Russian and Iranian efforts to bring control of the Syrian city back to Assad.

Road To World War III: Turkey Shells Syria For Second Day As Saudi Warplanes Arrive - On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC backed, of course, by Russian airstrikes. To be sure everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly. But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III. Officially, Turkey says it’s shelling Kurdish positions in Syria in self defense. It’s all about securing the border against hostiles, Ankara says. Of course the idea that the YPG are set to invade Turkey is laughable. The Syrian Kurds have secured enough space in their own country to declare an autonomous proto-state, and they needn’t aspire to capturing Turkish territory. But for Erdogan, that’s precisely the problem. Ankara fears the YPG’s gains will embolden the PKK militarily and the HDP politically and last June’s elections clearly suggest that an emboldened Kurdish minority has the power to shake up the political scene. And so, Turkey is set to take the fight to Syria in the name of fighting “terrorists”, which for Erdogan, means eradicating the Kurds. As we noted on Saturday, the challenge for Ankara and Riyadh is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

Turkey Will "Definitely" Join Ground Operation In Syria, Accuses Russia Of "War Crimes" -- Turkey shelled Syria for a fourth consecutive day on Tuesday as Ankara steps up efforts to bolster rebels in the face of an advance by the Kurdish YPG. “As many as 150 terrorists were killed during the 4-day-long shelling targeting PYD points,” the pro-government Yeni Safak wrote today, adding that “the PYD, backed by both the US and Russia, is working with President Bashar al-Assad to control areas along the Turkish border.”  The move by Russia and Iran to encircle Aleppo and cut rebel supply lines to Turkey has allowed the YPG to advance on towns near the border, effectively consolidating the group’s grip on northern Syria, where they’ve been highly successful at holding large swaths of territory.That’s an especially undesirable outcome for Ankara where President Recep Tayyip Erdogan is hell bent on rolling back a groundswell of popular support for the pro-Kurdish HDP which, at least in AKP’s mind, is merely the political arm of the PKK.  Erdogan doesn’t distinguish between the PKK (which both Turkey and the US officially designate as a terror group) and the YPG. The US, on the other hand, openly supports the Syrian Kurds and has backed their advances with airstrikes. Ankara fears that if the YPG are allowed to bridge the territory they control east of the Euphrates with territory they control west of the river, they will effectively establish a proto-state on the border which would embolden the PKK to try something similar in southeast Turkey where some Kurds are already pushing for autonomy.

Syria Op-Ed: The US Has No Plan B to Deal with Russia and Iran’s Plan A - With no more than a smile and a shoeshine, Secretary of State John Kerry seeks to persuade Russia to do the right thing by Syria: to force its client Assad regime to lift sieges on a million helpless civilians; to wind down a Russian Air Force campaign stampeding terrified Syrians in the direction of Turkey; and to support all-Syrian negotiations that can produce a transitional governing body to unify the country against the Islamic State. Perhaps Russian President Vladimir Putin will take pity on Syrians and the United States of America. This is what it will take for Washington’s Syria strategy to work. There is no leverage. There is no Plan B. Instead, there is a fundamental asymmetry that has been in place since the start of the Syrian crisis in 2011. Russia and Iran have wanted Bashar al-Assad politically alive far more than Washington has wanted him dead. This might have been a manageable state of affairs if what was happening in Syria had only stayed in Syria. In the summer of 2011, thinking that Assad was finished, President Barack Obama called on him to leave. In the summer of 2012, thinking that the resilient Assad would never defy him, Obama warned of a chemical red line not to be crossed.  In the summer of 2013 after the red line had been defiantly crossed via a major chemical atrocity, thinking that cruise missile strikes against Assad’s instruments of terror would put him on the slippery slope to invasion and occupation and perhaps alienate Iran, the American President panicked, backed down, and permitted Russia to broker a chemical weapons deal that enabled Assad to double down on mass homicide and make a mockery of a February 2014 Geneva peace conference.

How Far Will The U.S. Go If Turkey Invades Syria? --The Government of Turkey has now put itself in a position whereby it must act rapidly and precipitously to avoid moving to an ultimately losing strategic position in the war against Syria, which could result in being forced back to fight a full-scale civil war to prevent the break-up of the State into at least two components, one being a new Kurdish state. Turkey’s leadership, in insisting - in 2011-12 - on sponsoring a proxy war to overthrow Syrian President Bashar al-Assad, has already led to a refugee crisis of irreversible strategic damage to Europe, but Turkish Presisdent Reçep Tayyip Erdogan, the Saudi Arabian military-political leadership, the U.S. Barack Obama administration, and the Qatari Emir now find themselves with nowhere to go except to escalate further in the hope that the Syrian revival, backed by Russia and Iran, will collapse. Clear indications are emerging in Washington, DC, that the Pentagon is preparing to support a direct military invasion of Syria by Turkish Armed Forces, despite the Munich accord in the week ending February 13, 2016, which was meant to bring about a ceasefire in Syrian fighting. US officials have been actively engaged with those of Turkey and possibly Saudi Arabia in the preparations for ground force attacks on Kurd-ish military formations inside northern Syria, and U.S. Air Force Fairchild A-10 strike aircraft have deployed over northern Syrian territory in early February. The planned intervention by Turkey (and possibly other powers, such as Saudi Arabia) is specifically not aimed at countering the activities of ISIS (asad-Dawlah al-Islamiyah  al-‘Iraq wash-Sham/Islamic State), but solely about countering the growing capability of Syrian- and Iraqi-based Kurdish fighters, and to offset the gains which Syrian Government forces, supported by Russian and Iranian/HizbAllah forces, made in and around Aleppo.  The prospect of yet another abandonment of the Kurds is causing considerable division within some U.S. military and intelligence circles, but the fiction is that the Turkish battle is with ISIS.

Turkey Blames Kurds, Assad For Terrorist Attack, Vows Swift Response - Moments after a massive explosion rocked Ankara on Wednesday, we said the following: “Expect this to be pinned on either ISIS or the PKK. If it's the latter, Ankara will once again claim that the group is working in concert with the YPG and that will be all the evidence Erdogan needs to march across the border.” In short, we wondered whether the bombing - which apparently targeted military barracks - would be just the excuse President Recep Tayyip Erdogan needed to launch an all-out ground invasion in Syria. Turkey has been shelling YPG positions for nearly a week in an effort to keep the group (which Ankara equates with the “terrorist” PKK) from cutting the Azaz corridor - the last lifeline between Turkey and the rebels fighting to oust Bashar al-Assad. It’s unlikely that cross-border fire will ultimately halt the YPG advance and so, Erdogan needs an excuse to send in the ground troops. Sure enough, Ankara has blamed the YPG for the attack and is vowing to retaliate.

Russia's Trap: Luring Sunnis Into War -

• Washington should think more than twice about allowing Turkey and Saudi Arabia, its Sunni allies, militarily to engage their Shiite enemies in Syria. Allowing Sunni supremacists into a deeper sectarian war is not a rational way to block Russian expansion in the eastern Mediterranean. And it certainly will not serve America's interests.
• Turkey and Saudi Arabia are too weak militarily to damage Russia's interests. It is a Russian trap -- and precisely what the Russians are hoping their enemies will fall into.

After Russia's increasingly bold military engagement in war-torn Syria in favor of President Bashar al-Assad and the Shiite bloc, the regional Sunni powers -- Turkey and its ally, Saudi Arabia -- have felt nervous and incapable of influencing the civil war in favor of the many Islamist groups fighting Assad's forces.Most recently, the Turks and Saudis, after weeks of negotiations, decided to flex their muscles and join forces to engage a higher-intensity war in the Syrian theater. This is dangerous for the West. It risks provoking further Russian and Iranian involvement in Syria, and sparking a NATO-Russia confrontation.

Russia Demands End To Turkey's Efforts To Undermine Syrian Sovereignty -- Over the past several days, Turkey has been busy putting the world on the course to World War III. The YPG - which Ankara identifies with the “terrorist” PKK- has contributed to the Russian and Iranian effort to cut off the Azaz corridor, the last remaining supply line to the rebels fighting to oust Bashar al-Assad in Syria. The Kurdish effort to unite territory the group holds east of the Euphrates with cities it hold west of the river in Syria has infuriated Ankara, which views the YPG advance as a kind of precursor to Kurdish independence in Turkey. The solution, Turkey says, is a 10 km incursion into Syria, an effort which will establish a “safe zone” for those fleeing the violence that plagues the country’s besieged urban centers. That, of course, is merely an excuse for Ankara to send ground troops into the country, where the Sunni-sponsored effort to overthrow Assad is on its last legs. The deadly bombing in Ankara that claimed the lives of several dozen people on Thursday is predictably being trotted out as an excuse to put Turkish boots on the ground in Syria.

Bilal Erdogan Accused Of Money Laundering In Italy - Bilal is the son of Turkish dictator President Recep Tayyip Erdogan who is on the verge of kicking off World War III by invading Syria in what is sure to be an ill-fated effort to shore up rebel forces and preserve the Azaz corridor, the last remaining supply line for the opposition which is staging what amounts to a last stand at Aleppo.  Erdogan’s family was put under the microscope by the Russian defense ministry in the wake of Ankara’s decision to shoot down a Russian Su-24 on the Syrian border in late November. "What a brilliant family business!," Deputy Minister of Defence Anatoly Antonov remarked, at a press briefing documenting Turkey's connection to Islamic State's illicit oil trafficking operation.  For those who might have missed the backstory, you're encouraged to read the following articles in their entirety:

• The Most Important Question About ISIS That Nobody Is Asking
• Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey's President
• How Turkey Exports ISIS Oil To The World: The Scientific Evidence
• ISIS Oil Trade Full Frontal: "Raqqa's Rockefellers", Bilal Erdogan, KRG Crude, And The Israel Connection

Put simply, there are any number of reasons to believe that AKP and the Erdogan family are complicit in the sale of illicit crude not only from Massoud Barzani and the Iraqi Kurds, but from Islamic State as well. ISIS oil and Erbil's crude are both technically "undocumented" and considering that "the terrorists" are only producing around 45,000 b/d versus the 630,000 b/d the Iraqi Kurds are churning out, it's easy for Islamic State's product to get "lost" or to disappear as a rounding error, as it were. Some say Bilal Erdogan is directly involved in getting ISIS crude to market via the Turkish port of Ceyhan, where tanker rates mysteriously spike around siginificant oil-related events involving Islamic State.

Start Preparing for the Collapse of the Saudi Kingdom -  For half a century, the Kingdom of Saudi Arabia has been the linchpin of U.S. Mideast policy. A guaranteed supply of oil has bought a guaranteed supply of security. Ignoring autocratic practices and the export of Wahhabi extremism, Washington stubbornly dubs its ally “moderate.” So tight is the trust that U.S. special operators dip into Saudi petrodollars as a counterterrorism slush fund without a second thought. In a sea of chaos, goes the refrain, the kingdom is one state that’s stable.But is it? In fact, Saudi Arabia is no state at all. There are two ways to describe it: as a political enterprise with a clever but ultimately unsustainable business model, or so corrupt as to resemble in its functioning a vertically and horizontally integrated criminal organization. Either way, it can’t last. It’s past time U.S. decision-makers began planning for the collapse of the Saudi kingdom. In recent conversations with military and other government personnel, we were startled at how startled they seemed at this prospect. Here’s the analysis they should be working through. Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs that buy political loyalty. They take two forms: cash handouts or commercial concessions for the increasingly numerous scions of the royal clan, and a modicum of public goods and employment opportunities for commoners. The coercive “stick” is supplied by brutal internal security services lavishly equipped with American equipment.  The U.S. has long counted on the ruling family having bottomless coffers of cash with which to rent loyalty. Even accounting today’s low oil prices, and as Saudi officials step up arms purchases and military adventures in Yemen and elsewhere, Riyadh is hardly running out of funds. Still, expanded oil production in the face of such low prices—until the Feb. 16 announcement of a Saudi-Russian freeze at very high January levels—may reflect an urgent need for revenue as well as other strategic imperatives. Talk of a Saudi Aramco IPO similarly suggests a need for hard currency.  What if the price of loyalty rises?

"Highly Dangerous" Radioactive Material Stolen In Iraq, "Could Be Used For ISIS Dirty Bomb" --Just when it seemed that the Syria's proxy war would remain confined within the "comfortable" realm of conventional weaponry, moments ago Reuters gave the first hint of a potential, and radioactive escalation, when it reported that Iraq is searching for "highly dangerous" radioactive material stolen last year, according to an environment ministry document and seven security, environmental and provincial officials. The loss is significant because in already setting the next steps of the narrative, Reuters reports that the same officials "fear it could be used as a weapon if acquired by Islamic State."  It is unclear why a "highly dangerous" radioactive substance was located in Iraq, but as Reuters adds, the material, stored in a protective case the size of a laptop computer, went missing in November from a storage facility near the southern city of Basra belonging to U.S. oilfield services company Weatherford, the document obtained by Reuters showed and officials confirmed (incidentally this is the same Weatherford which two weeks ago fired 15% of its employees after warning of "lower for longer" oil prices). Reuters attempts to probe further were promptly contained: a spokesman for Iraq's environment ministry said he could not discuss the issue, citing national security concerns. A Weatherford spokesman in Iraq declined to comment, and the company's Houston headquarters did not respond to repeated requests for comment.

The Great Iron-Ore Flood Claims Anglo as Biggest Victim  - The giants of the iron-ore industry have claimed their biggest victim yet: Anglo American Plc. The 99-year-old mining company, reeling from a $5.6 billion loss last year, is pulling out of iron ore and Chief Executive Officer Mark Cutifani described a bleak outlook for the material. The exit marks the result of a strategy, employed by the world’s largest producers, of continuing to expand output in the face of plunging prices. BHP Billiton Ltd. has described the tactic as ‘‘squeezing the lemon.” “We’ve watched competitors in iron ore flood the market,” Cutifani, who’s been at the helm of Anglo for three years, said in an interview with Bloomberg Television on Tuesday. “It will be tough on the supply side for some time.” Anglo is considering selling its controlling stake in Kumba Iron Ore Ltd., Africa’s top producer. It may also exit Minas-Rio, one of the world’s largest mining projects and Anglo’s most expensive ever. The company spent $14 billion to buy and build the Brazilian mine. Anglo is giving up on iron ore, the main ingredient used to make steel, with prices down more than 70 percent in five years. In the late 2000s, it followed an industry-wide expansion into iron ore to capture China’s booming appetite for steel and piled on debt to pay for it. About 1.36 billion metric tons of iron ore was shipped around the world last year, according to Morgan Stanley. That’s 73 percent more than 2007. The lowest-cost producers in the world -- BHP Billiton Ltd. and Rio Tinto Group -- have been able to withstand the price slump and are returning multi-billion dollar profits even at current prices.

China again suspends oil price adjustment - China's top economic planner will not adjust domestic retail oil prices as global prices stayed below an official price floor introduced in January, it announced on Monday. Under the current mechanism, prices of refined oil products are adjusted when crude prices translate into a change of more than 50 yuan (over $7.5) per tonne for gasoline and diesel prices for a period of 10 working days. However, the National Development and Reform Commission (NDRC) announced in January that China will not cut its fuel prices when international oil prices fall below $40 a barrel, which immediately triggered a suspension on January 27. The floor aims to buffer the negative effects of price swings, the NDRC said. Global oil prices have experienced sharp changes since the second half of 2014. Brent has dropped to around $33 on Monday, while WTI was only slightly higher than $29. The NDRC is closely watching the operation of the current pricing mechanism and will continue to improve it based on market changes, according to an NDRC notice. Despite the economic slowdown, China remains a major oil importer and consumer, importing nearly 60 percent of what it uses. Its crude oil imports rose 8.8 percent from the previous year to 336 million tonnes in 2015.

First ‘Silk Road’ train arrives in Tehran from China -- The first train to connect China and Iran arrived in Tehran on Monday loaded with Chinese goods, reviving the ancient Silk Road, the Iranian railway company said. The train, carrying 32 containers of commercial products from eastern Zhejiang province, took 14 days to make the 9,500-kilometre (5,900-mile) journey through Kazakstan and Turkmenistan. “The arrival of this train in less than 14 days is unprecedented,” said the head of the Iranian railway company, Mohsen Pourseyed Aqayi. “The revival of the Silk Road is crucial for the countries on its route,” he said at a ceremony at Tehran’s rail station attended by the ambassadors of China and Turkmenistan. The journey was 30 days shorter than the sea voyage from Shanghai to the Iranian port of Bandar Abbas, according to Aqayi. The railway will not stop in Tehran “as we are planning to extend the railway to Europe in future,” generating more income for Iran from passing trains, he added. The train will leave every month and the frequency will be increased if necessary, Aqayi said.

China's Bad Loans Rise to Highest in a Decade as Economy Slows -- Soured loans at Chinese commercial banks rose to the highest level since June 2006 as the nation’s economic expansion slowed to the weakest pace in a quarter century. Nonperforming loans jumped 51 percent from a year earlier to 1.27 trillion yuan ($196 billion) by December, data from the China Banking Regulatory Commission showed on Monday. The bad-loan ratio climbed to 1.67 percent from 1.25 percent, while the industry’s bad-loan coverage ratio, a measure of its ability to absorb potential losses from soured credit, weakened to 181 percent from more than 200 percent a year earlier. The lenders’ core Tier-1 capital ratio improved to 10.91 percent from 10.56 percent, the data show. Concern over borrowers’ ability to service debt has weighed on Chinese lenders, with shares of the nation’s four largest banks trading at valuations at least 35 percent below a gauge of their emerging-nation peers. China’s economy grew last year at its slowest pace since 1990. The CBRC data comes amid speculation that soured loans could be much larger than indicated by official data.  Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in their equity vanish,. Larry Hu, a China economist at Macquarie in Hong Kong, said in a research note on Monday that Bass’s estimate could be too large as it implied a true bad-loan ratio for China banks at 28 to 30 percent.

China's Exports Fall More Than Forecast: China's exports declined more-than expected in January suggesting that the economy has not gained yet from the weaker currency. Data published by the General Administration of Customs showed that exports logged a double-digit annual decline of 11.2 percent in January, much faster than the 2.0 percent fall economists had expected, and December's 1.4 percent drop. Similarly, imports slumped 18.8 percent in January from a year ago, data showed Monday. The expected decrease for the month was only 3.9 percent. The visible trade surplus of the country came in at $63.29 billion in January, which was above a $60.6 billion surplus economists had forecast, and December's $60.1 billion surplus. In yuan terms, exports fell 6.6 percent and imports plunged 14.4 percent in January. Data for January and February are usually viewed cautiously as it turns volatile due to the timing of Lunar New Year holiday. Commodity import volumes remained resilient and we suspect that at least some of the weakness in the data reflects distortions due to Lunar New Year and illicit capital flows, Julian Evans-Pritchard at Capital Economics, said.  The economy had expanded 6.9 percent in 2015, the slowest pace in 25 years as the nation strives to shift its focus to domestic consumption and away from exports.

China trade fares worse than expected - Taipei Times: China’s trade performance last month was worse than expected as tepid demand persisted at home and abroad, raising expectations of further government measures to arrest the slowdown and to quell market jitters. Last month, exports fell 11.2 percent from a year earlier — the seventh straight month of decline — while imports tumbled 18.8 percent — the 15th month of decline, data released by China’s General Administration of Customs showed yesterday. Exports declined even though China has allowed the yuan to weaken nearly 6 percent against the US dollar since August last year, underlining the extent to which global demand has weakened. China posted a record trade surplus of US$63.3 billion last month, partly due to soft demand and falling commodities prices, versus US$60.09 billion in December. “Overall, we believe the sharp drop of trade in January was a reflection of weak external demand, especially given the weak exports of neighboring economies such as [South] Korea and Taiwan,” ANZ economists Liu Ligang (劉力剛) and Louis Lam (林慕爾) wrote in a research note. “The record-level trade surplus indicates that China continued to run a large current account surplus, and this should help offset some of the capital outflow and alleviate some depreciation pressure on the renminbi [yuan],” they said.

China Exports Crash Most In 6 Months Despite "Devalued" Yuan -- Despite the weakening of the Yuan, China exports collapses 6.6% YoY in January (massively missing the 3.6% increase expected). Imports continued their 15 month series of collapses with a 14.4% plunge (again drastically worse than the 1.8% increase expected). This pushed the trade balance to a record surplus CNY406bn. In Yuan terms it's ugly... Both imports and exports were worse than the lowest forecast of all professional economists... Of course, between Japan's disastrous GDP and China's trade collapse, this is great news for those demanding moar as excuses for extreme monetary policy are just piling up in the ashes of previous failed policies. Between ugly Japanese GDP, and miserable Chinese trade data, it is surprising futures aren't up more —  Of course what everyone is really waiting for is the Hong Kong trade data to see just how much capital "leaked"...

China Food Prices Soar Most Since 2013 As Producer Prices Hit 47th Straight Month Of Deflation -- Another month and another massive deflationary print for Chinese Producer Prices. Year-over-year, PPI dropped 5.3% ('better' than the 5.3% drop expected and the 5.9% plunge last month) making this the 47th month in a row of deflation with mining's collapse picking up again to -19.8% YoY. On th emore worrisome side, CPI rose 1.8% YoY, below expectations of +1.9% but still the hottest consumer price rise since August (and this was amid the greatest credit binge in history) driven by the biggest jump in food prices since 2013.

China’s central bank governor Zhou goes on the attack - The long and detailed interview given by the People’s Bank of China governor, Zhou Xiaochuan, to Caixin Weekly on Tuesday is in one sense very un-Chinese. It provides a much more fulsome statement of foreign exchange policy, as viewed from the central bank, than anything available in the past. After months in which the governor has been conspicuously absent from the public fray, he has now chosen to go on the attack. Mr Zhou sees the recent exchange rate crisis as out of line with economic fundamentals in China, and for that reason essentially temporary. He describes a new currency regime that is best characterised as a dirty floating regime, measured against the renminbi basket, not the dollar. “Speculative” attacks on that regime will be opposed and defeated by the central bank. In the longer term, the peg against the basket can be adjusted if fundamentals change, and the links between the two will be explained in more detail in the future. This statement will further reduce the risk of a competitive devaluation of the renminbi in the near term. But does that mean that the China currency crisis is over? That depends on two questions. First, is the PBoC right to view the economy as sound, and capital outflows as temporary? Second, does the governor fully represent those who effectively set exchange rate strategy in China, or is the economics team surrounding President Xi Jinping the ultimate decision maker? Doubts remain on both these counts.The governor’s interview is opaque in parts, so it is worth identifying its main messages. The key point is that the central bank sees no need to contemplate a competitive devaluation of the currency, which Mr Zhou himself describes as a “currency war”. The current rate for the renminbi against the basket is viewed as broadly close to equilibrium. Evidence for this is that economic growth is still seen as healthy, with the current account in sizeable surplus. Long-term capital flows are viewed as balanced, with inflows of foreign direct investment being offset by legitimate diversification of assets by Chinese entities from home to overseas.

Why China’s Credit Boom Might Not Pack a Punch - WSJ: China’s credit monster roared to life in January, but there are reasons this isn’t the powerful force it seems. Total financing in the economy grew strongly in January, led by bank loans and property mortgages. The stock of total social financing, the government’s broadest measure of credit, grew 12.7%, the fastest pace in 10 months and a big jump from December. China bulls—and commodity bulls—might like to think stimulus is finally making its way into the economy.  But credit has been pouring into the economy for some time to little effect. Total social financing arguably understates credit growth since the government launched a local government debt swap last year. That program replaces bank loans to local government financing vehicles, which are counted in total social financing, with bonds, which aren’t included. Take account of these bonds, and credit creation actually started jumping in the middle of last year, notes Capital Economics. That makes January’s number somewhat impressive, since there was no new local government bond issuance last month. Yet the real economy has shown a muted response so far. One reason may be that while real interest rates are falling, they aren’t falling enough for industrial borrowers. The weighted average lending rate, as measured by the People’s Bank of China, was 5.27% in the fourth quarter, a chunky decrease from the 6.78% the year earlier. But factor in plunging producer prices, and real interest rates in the industrial economy remain above 11%. With debt levels now nearly 220% of GDP and rising, much of the new debt is going to pay off old debt, not to generate activity.

China Said to Mull Lower Minimum Bad-Loan Coverage for Banks -  China’s cabinet has discussed lowering the ratio of provisions banks must set aside for bad loans, potentially easing a drag on earnings after soured debts at lenders climbed to the highest in a decade. The China Banking Regulatory Commission would be responsible for deciding the timing and magnitude of any reduction, said people with knowledge of the matter, who asked not to be identified as the deliberations are private. Some big banks have already used a ratio of around 120 percent for their 2016 budgeting, two of the people said. The minimum ratio is currently set at 150 percent. The highest level of soured loans in a decade has hurt bank profits and cut their bad-loan coverage ratios close to the regulatory minimum. That’s prompted lenders including Industrial & Commercial Bank of China Ltd. to urge regulators to ease the requirement, which would give banks more scope to lend and bolster an economy that grew last year at the slowest pace in a quarter century. “The high coverage ratio was set when the asset quality was still great, so that the banks could prepare themselves before things get out of hand,” . “The 150 percent coverage ratio doesn’t really make sense now. A lower coverage ratio would help reflect more realistic asset quality for banks and help with their profit growth.” In cutting the minimum coverage ratio for bad loans, the government would be taking yet another step in making more funds available for the nation’s flagging economy.

China’s central bank injects another 10 billion yuan into system - central bank injected an additional 10 billion yuan ($1.5 billion) in short-term loans into the banking system Wednesday, in a move aimed at ensuring liquidity after the Lunar New Year. The People’s Bank of China pumped 10 billion yuan of seven-day reverse repurchase agreements into the money market, its third such operation this week. It injected a total of 40 billion yuan via similar tools in the previous two days. A net of 595 billion yuan worth of reserve repos will mature this week, according to Wind Information. In addition, China’s central bank set the yuan weaker Wednesday, shifting the daily U.S. dollar-yuan benchmark upward to 6.5237 from yesterday’s 6.5130, representing a 0.16% depreciation of the yuan. The adjustment of Wednesday’s yuan midpoint was the second in a row that weakened the currency.

China’s Debt Binge Goes Full Frontal—-January Debt Issuance Of $520 Billion Exceeded Annual GDP Of Iran - The world let out a collective gasp of shock last night when the PBOC announced that in January, China had created an absolutely gargantuan CNY3.4 trillion in new total debt (Total Social Financing) – or about $520 billion – more than 50% higher than expected, of which CNY2.1 trillion was in the form of new loans. The breakdown of that massive number is shown in the table below: What happened? Here is Goldman’s explanation:  January’s credit data was exceedingly strong. Part of the demand for new RMB loans is from demand to borrow RMB and pay down USD debt, though banks may have also started to behave differently amid profit pressures. The temporary suspension of local government bond issuance also directed more borrowing to bank loans and other channels. Strong mortgage loan growth also contributed (household medium to long term loans increased RMB 478.3bn in January, vs RMB 292.4bn in December). The window guidance meeting held by the central bank around mid-January to rein in rapid credit growth apparently did not have much effect on the behavior of commercial banks. (January loan supply tends to be very front-loaded; one would have expected there to be a more significant deceleration of credit supply if the central bank was sending a really tough message, hence market expectations were only RMB 1.9 tn even when they knew it was already RMB1.7 tn in the first half of the month.) The pace of January credit growth is likely above the comfort zone of the central bank. Should the lending continue to be as strong in February, we think it would likely invite more forceful administrative controls.

China Unleashes A Debt Tsunami: Creates $1 Trillion In Debt In First Two Months Of 2016 - One of the more stunning economic updates this week was China's unprecedented surge in Chinese loan creation, when as reported earlier this week, China unveiled a whopping CNY3.42 trillion in Total Social Financing, its broadest debt aggregate, an amount greater than half a trillion dollars, of which CNY2.51 trillion was in new bank loans. The reason for the surge was largely the result of frontloading loans, as well as lending to government projects in the first year of 13th Five Year Plan, which helped to boost loan growth. Many economists had expected loans to slow sharply in February as lending to government projects wound down. However, it turns out this was just the start of China's latest policy, which is really just a return to its old policy of flooding the economy with debt: as Market News reports expectations that "January's surprisingly strong new loan growth would prove temporary may have been premature as bank officials in a number of Chinese cities say February new loans look to be just as strong, even with a week-long holiday in the middle of the month." According to MNI, new loans so far in February were similar to the levels during the same days of January. The total so far in February is seen at around CNY2 trillion already. MarketNews adds that this was achieved despite fewer working days in February because of the lunar New Year holiday, suggesting even more loans were churned out every working day.

Sensitive financial data ‘missing’ from central bank report on capital flowing out of China’s slowing economy | South China Morning Post: Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank’s foreign exchange operations in the banking system.  Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” ­category, whose January figure was US$243.9 billion – a surge from US$20.4 billion the previous month. Another key item of potentially sensitive financial data was ­altered in the latest report. The central bank also regularly publishes data on the forex purchase position in renminbi, which covers all financial institutions including the central bank. The ­December reading was 26.6 trillion yuan (HK$31.7 trillion). But the January data gave information on forex purchases made only by the central bank, detailing the lower figure of 24.2 trillion yuan.

Chinese Start to Lose Confidence in Their Currency - As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.  To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas.  The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China. Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes.  If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge.The capital flight is already putting significant pressure on the country’s currency, the renminbi. The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets.

Beijing is banning all foreign media from publishing online in China - In the latest sign that China’s long-touted “opening up” is reversing into a “closing down,” a Chinese ministry has issued new rules that ban any foreign-invested company from publishing anything online in China, effective next month. The Ministry of Industry and Information Technology’s new rules (link in Chinese) could, if they were enforced as written, essentially shut down China as a market for foreign news outlets, publishers, gaming companies, information providers, and entertainment companies starting on March 10. Issued in conjunction with the State Administration of Press, Publication, Radio, Film and Television (SARFT), they set strict new guidelines for what can be published online, and how that publisher should conduct business in China. “Sino-foreign joint ventures, Sino-foreign cooperative ventures, and foreign business units shall not engage in online publishing services,” the rules state. Any publisher of online content, including “texts, pictures, maps, games, animations, audios, and videos,” will also be required to store their “necessary technical equipment, related servers, and storage devices” in China, the directive says. Foreign media companies including the Associated Press, Thomson Reuters, Dow Jones, Bloomberg, the Financial Times, and the New York Times have invested millions of dollars—maybe even hundreds of millions collectively—in building up China-based news organizations in recent years, and publishing news reports in Chinese, for a Chinese audience. Many of these media outlets are currently blocked in China, so top executives have also been involved in months of behind-the-scenes negotiations to try to get the blocks lifted.

Why Are China’s Rich Kids heading West? - The West is the plan for many of China’s new rich. In the past decade, they have swept into cities like New York, London, and Los Angeles, snapping up real estate and provoking anxieties about inequality and globalized wealth. Rich Chinese have become a fixture in the public imagination, the way rich Russians were in the nineteen-nineties and rich people from the Gulf states were in the decades before that. The Chinese presence in Vancouver is particularly pronounced, thanks to the city’s position on the Pacific Rim, its pleasant climate, and its easy pace of life. China’s newly minted millionaires see the city as a haven in which to place not only their money but, increasingly, their offspring, who come there to get an education, to start businesses, and to socialize.The children of wealthy Chinese are known as fuerdai, which means “rich second generation.” In a culture where poverty and thrift were long the norm, their extravagances have become notorious. Last year, the son of China’s richest man posted pictures online of his dog wearing two gold-plated Apple Watches, one on each front paw. On Web forums, citizens complain that fuerdai are “flaunting what they haven’t earned” and that “their grotesque displays are a poison to the work ethic of Chinese society.” President Xi Jinping has spoken of the need to “guide the younger generation of private-enterprise owners to think where their money comes from and live a positive life,” and the government recently held an educational retreat for seventy children of billionaires, who were given a crash course in traditional Chinese values and social responsibility.

The China Delusion - INET --  The current bout of exchange rate anxiety is really just a symptom of the fact that China’s transition from an export-led growth strategy to one propelled by domestic consumption is proceeding far less smoothly than hoped.  China’s management of its exchange rate peg continues to rattle global financial markets. Uncertainty about renminbi devaluation is fuelling fears that deflationary forces will sweep through emerging markets and deliver a blow to developed economies, where interest rates are at, or near, zero and thus cannot be lowered to defend against imported deflation. Fiscal gridlock in Europe and the US is heightening the angst. But the current bout of exchange rate anxiety is really just a symptom of the fact that China’s transition from an export-led growth strategy to one propelled by domestic consumption is proceeding far less smoothly than hoped. For some people, visions of the wonders of capitalism with Chinese characteristics remain undiminished. They are certain that, after more than three decades of state-directed growth, China’s leaders know what to do to turn their slumping economy around.The optimists’ unreality is rivalled by that of supply-siders, who would apply shock therapy to China’s slumping state sector and immediately integrate the country’s underdeveloped capital markets into today’s turbulent global financial system. That is a profoundly dangerous prescription. The power of the market to transform China will not be unleashed in a stagnant economy, where such measures would aggravate deflationary forces and produce a calamity.The persistent downward pressure on the renminbi reflects a growing fear that Chinese policymakers have no coherent solution to the dilemmas they face. Floating the renminbi, for example, is a dangerous option. After all, with the Chinese economy undergoing wholesale economic transformation, estimating a long-term equilibrium exchange rate that will anchor speculation is virtually impossible, particularly given persistent doubts about data quality, disclosure, and opaque policymaking processes.

China deploys missiles on disputed island - China has deployed anti-aircraft missiles to a disputed island in the South China Sea, according to satellite images and the Taiwan government, increasing tensions just as US President Barack Obama sought regional support to push back against Beijing’s assertive territorial stance. Taiwan’s ministry of defence said on Wednesday that China had stationed the missiles on Woody island, which is controlled by Beijing but also claimed by Taiwan and Vietnam. The revelations came as Mr Obama concluded a summit with Southeast Asian leaders in which he aimed to corral their support in territorial disputes. During a September visit to the White House, Chinese President Xi Jinping said Beijing did not intend to militarise the facilities it had built in the South China Sea. However, it was not clear whether he was referring to both the Paracel and Spratly Islands, or just the Spratlys — which China calls the Nansha islands. The Taiwanese comments confirmed a report by Fox News, which on Tuesday published civilian satellite images showing several mobile missile batteries were deployed on the island, part of the contested Paracel chain, between February 3 and February 14. It said an unnamed US defence official had confirmed the accuracy of the photographs.

Hong Kong’s popular, lucrative horror movie about Beijing has disappeared from theaters - Quartz: Hong Kong’s movie industry is in the midst of a long-lamented decline. The industry peaked in the late 1980s and early 1990s, making directors like John Woo international stars. Since then, it has suffered a huge drop in output and profits as Hollywood and mainland China drew bigger audiences and lured away Hong Kong’s talent. But a recent, little-advertised Hong Kong film, Ten Years, has been a surprise hit. The movie is a collection of vignettes that imagine a dystopian Hong Kong 10 years in the future, as Beijing’s growing influence over the city entails mandatory Mandarin language for residents, fake, fatal, terrorism incidents to scare the citizens, and a ban of the word “local.” In one segment, a Hong Kong resident self-immolates. Hong Kong viewers tell Quartz they, and many others in the audience, have left packed screenings in tears, because of the frightening similarities between the movie and what’s happening in Hong Kong now. Time Out Hong Kong described it as a “nightmarish,” “frightening” must-see for Hong Kongers. The South China Morning Post said it served as “a reminder of the power of independent, intelligent film-making as a vehicle for social and political critique.” China’s state-backed Global Times, meanwhile, called it a “virus of the mind.” But after just two months, the film is no longer screening anywhere in Hong Kong. Some theater owners say the move (link in Chinese) has nothing to do with self-censorship, but it seems hard to justify for economic reasons.

Slowing Trade Flows Jolt Asia’s Exporting Nations - WSJ: Exports from Singapore’s bellwether economy slumped to near their weakest level since the global financial crisis eight years ago, illustrating new pressures on Asia’s export-dependent economies. The trend has worrying implications for the global economy, which has been roiled this year by market volatility spilling out from China and steep falls in the prices of oil and other commodities. Singapore’s small, export-dependent economy is seen as a proxy for the broader state of Asian trade. Singapore’s non-oil domestic exports fell 9.9% in January from a year earlier, official statistics showed Wednesday, as shipments to China, its largest trading partner, contracted at a faster pace. The data reflect the slowest pace of economic expansion in China for 25 years, as Beijing pursues a bumpy shift from investment to consumption-led growth. South Korea, which sends a quarter of its exports to China, said this month that exports fell 18.8% in January, their biggest fall since August 2009. Indonesia said exports contracted 20.7% last month. Even India, which has strong domestic demand, said exports fell in January for the 14th straight month, down 13.6%. All were compared with the same month a year earlier. China, a voracious consumer on which many Asian economies depend, said exports in January fell 11.2% from the year-earlier period, more than expected. Chinese imports, more than half of which are supplied by other Asian countries, fell 18.8%, more than four times faster than forecast by economists.

South Korea in suspected $2 billion intervention after stern warning | Reuters: South Korean foreign exchange authorities were suspected to have sold around $2 billion to prop up the won KRW=, shortly after issuing a stern warning against herd behavior to curb the local currency's weakness against the dollar. The won hit a 5-1/2-year low, leading weekly losses among regional currencies on Friday, as foreign lenders such as custodian banks dumped it amid bond outflows. The Bank of Korea and finance ministry warned they would take all measures necessary against excessive movements in dollar-won trading, which helped the currency curb early losses, but still, the won slipped lower for a fourth straight session. For the week, the won lost 1.9 percent, its sharpest weekly percentage loss since early January. "Market participants have grown more aggressive about buying dollars recently as the authorities' response to a weakening won had been soft until now," said a bank dealer in Seoul to Reuters who declined to be identified. "What happens next is really up to the authorities' attitude." Another dealer said the won would keep weakening unless the authorities continued intervening.

Japan's economy contracts in fourth quarter - BBC News: Japan's economy contracted in the final three months of 2015, adding to a string of setbacks for the government's economic reform policy. Between October and December, it shrank by 0.4% compared with the previous quarter, official figures show. Expectations for the numbers were for a quarterly contraction of 0.3%. Weaker domestic demand, together with slower investment in housing, contributed to the disappointing numbers. On an annualised basis the economy contracted 1.4% during the period. That compares with expectations for an annualised contraction of 1.2%. The annualised figure is the rate at which the economy would have contracted over a full 12 months had the December quarter been a reflection of the entire year.

Japan's Economy Contracts in Latest Setback for Abe Recovery— Japan’s economy contracted at a 1.4% annual pace in the last quarter as weak consumer demand and slower exports battered the recovery. The latest contraction, the second in 2015, adds to worries that Prime Minister Shinzo Abe’s strategy for reviving the economy through inflation fueled by massive monetary easing is not delivering as promised. The slowdown in China, one of Japan’s biggest export markets, has been a further hindrance. Japan’s central bank has already resorted to imposing negative interest rates on some bank deposits it holds to help spur more lending, though cash-rich companies appear generally uninterested in borrowing. Growth also has been stunted by slow increases in wages, which leave households less inclined to spend. Companies are still drawing down excess capacity built up during decades of fast growth, and have held back on domestic investments, viewing their shrinking and aging home market as less attractive than other faster growing economies in Southeast Asia and elsewhere. Consumer demand fell more than expected in the last quarter, dipping to a four-year low, offsetting moderate growth in business investment, said Marcel Thieliant of Capital Economics. He expects consumer demand to perk up in coming months, in anticipation of a sales tax hike, to 10% from 8%, in April 2017. “However, this should be short-lived, as activity will almost certainly slump once the tax has been raised,” Thieliant said. “The upshot is that the Bank of Japan still has plenty of work to do to boost price pressures.”

Japan's Household Spending Falls 2.7% in 2015 - Japan’s average monthly household spending in 2015 fell 2.7 percent in price-adjusted real terms from the previous year to 247,126 yen for the second straight year of decrease, the government said Tuesday. The drop followed a demand surge in the January to March period in 2014 before the consumption tax increase in April as well as weak sales of clothing due to an unusually warm winter, according to an official of the Internal Affairs and Communications Ministry. The decline compares with a 3.2 percent drop in 2014. In 2015, spending decreased 0.5 percent on food and 6.4 percent on clothing and footwear. Expenditures for furniture and other household items dropped 4.6 percent. Household spending figures are a key indicator of private spending, which accounts for around 60 percent of the nation’s gross domestic product.

Japan exports fall most since 2009 as global slowdown bites - Japan's annual exports in January fell the most since the global financial crisis as demand weakened in China and other major markets, leaving the economy in a precarious position after a fourth-quarter contraction. Ministry of Finance data showed exports fell 12.9 percent year-on-year in January versus a median market estimate for a 11.3 percent drop, with the fourth straight month of declines led by a slump in shipments of steel and oil products. It was the biggest decline since October 2009 when the global financial crisis knocked demand across the world. The latest data adds to growing concerns that Japanese authorities are left with few options to revive a stumbling economy even as the Bank of Japan remains proactive in policymaking, shocking markets last month by adopting negative interest rates to spark momentum. "Exports were dragged down by steel and oil products due to the market situation. Moreover, exporters held off from shipments ahead of Chinese New Year holidays which took place earlier than last year," said a ministry official. The slowdown in China, Japan's biggest trading partner, remains a big drag on the domestic economy as well as globally, hurting exporters of commodities and a wide swathe of consumer products.

Japan slips back to deficit as exports tumble 13 percent (AP) — Japan’s trade balance returned to deficit in January, with a shortfall of 646 billion yen ($5.65 billion) as exports fell 13 percent from the year before, led by an 18 percent plunge in the value of shipments to China. Customs data released Thursday show exports dropped to 5.35 trillion yen ($46 billion) while imports plunged 18 percent to 6 trillion yen ($52 billion). The deficit compared with a surplus of 140.2 billion yen in December. China’s economic slowdown has taken much of the steam out of the recovery, of the world’s third-largest economy. A report by the Japan External Trade Organization, released Wednesday, showed Japan’s total trade with China fell 12 percent last year from the year before. Exports of machinery to China fell 27 percent in 2015 from the year before, reflecting a slowdown in manufacturing investment, while exports of chemicals, iron and steel and vehicles also dropped, the report said.

Japan Goes Full Goebbels: Government Cracks Down On Media Over Negative Economic Reporting -- Their imminent departure from evening news programmes is not just a loss to their profession; critics say they were forced out as part of a crackdown on media dissent by an increasingly intolerant prime minister, Shinzo Abe, and his supporters. Only last week, the internal affairs minister, Sanae Takaichi, sent a clear message to media organizations. Broadcasters that repeatedly failed to show “fairness” in their political coverage, despite official warnings, could be taken off the air, she told MPs.  Momii caused consternation after his appointment when he suggested that NHK would toe the government line on key diplomatic issues, including Japan’s territorial dispute with China. “International broadcasting is different from domestic,” he said. “It would not do for us to say ‘left’ when the government is saying ‘right’.” From the Guardian article: Japanese TV Anchors Lose Their Jobs Amid Claims of Political Pressure

The Bank of Japan Is Moving Too Slowly in the Right Direction - Joseph Gagnon - Bank of Japan Governor Haruhiko Kuroda's bold program to get Japan out of deflation has made enormous progress, but it has fallen well short of its goal of 2 percent inflation within two years. Now is the time for a final big push to cross the goal line and prevent a slow slide back into deflation. On January 29, the Bank of Japan (BOJ) announced a complicated program to pay different rates of interest on tranches of deposits that banks hold with the BOJ. Beyond a certain point, any additional money deposited at the BOJ will earn a negative rate of interest. Financial markets quickly reacted positively: Real bond yields fell, the yen fell, and stock prices rose. But much of these gains were erased in subsequent days, probably because markets came to believe the effects of the new policy would be small. Worryingly, the nominal bond yield fell further even as the real yield rose. Ten-year inflation compensation is now only 0.5 percent, a clear message that markets expect the BOJ to fail to deliver 2 percent inflation. Other measures of expected inflation are also turning down. A shift from 0.1 to -0.1 percent on a small fraction of BOJ deposits is a tiny move. In Switzerland, where deflation also has been a problem, banks face a -0.75 percent interest rate on additional deposits at the central bank, and even larger negative rates may be possible. The BOJ should move to -0.75 percent on future increases in deposits, while paying 0 percent on the current stock of deposits. The BOJ's program of asset purchases since 2013 moved the best measure of core inflation (consumer prices excluding energy and fresh food) from nearly -1 percent to more than 1 percent. This is about two-thirds of the way to its goal of 2 percent, a tremendous achievement. But the BOJ cannot afford to make only tiny adjustments to its policies at this time. The effects of past yen depreciation are diminishing, and wages are not accelerating enough to sustain the current rate of core inflation, let alone push it higher.

Staying Positive About Going Negative - Narayana Kocherlakota -- Just over two weeks ago, the Bank of Japan (BOJ) cut the (marginal) deposit rate that it pays to banks from zero to negative one-tenth of one percent. Following the BOJ’s change in policy, Japanese equity indices fell and the yen appreciated against a number of other currencies. In this post, I suggest that these effects are, at least in part, due to the BOJ’s prior negative communications about negative rates. I argue that, in light of the BOJ’s experience, the Federal Reserve should immediately begin to communicate more positively about negative rates. In a press conference in early December 2015, Governor Kuroda said that the BOJ was not intending to use negative rates, even though many observers were concerned about the low Japanese inflation outlook.  On January 21, 2016, Governor Kuroda told the Japanese parliament that the BOJ was not planning to go negative, pointing to unstated “cons” of such a move. Eight days later, the BOJ did in fact go (slightly) negative. The BOJ’s monetary policy statement communicated that it had made this move in order to forestall general risks from abroad, and from the Chinese economy in particular. I see the combination of these negative messages as at least partly responsible for the outsized and adverse changes in Japanese financial conditions over the past two weeks. Even as late as January 21, the BOJ’s words and actions communicated a clear distaste for negative rates. Given that apparent distaste, the Bank’s highlighting of international risks in its monetary policy statement suggested that those risks were, in fact, quite dire. The decision to go negative also seemed to carry a latent message that the BOJ had lost at least some confidence in the efficacy of expanding its quantitative easing program.

India takes China's crown as fastest growing economy  -- Despite the tough times for most emerging markets, India continued its economic expansion becoming the fastest growing economy of 2015. With a growth rate of 7.5 percent India outpaced China's 6.9 percent.  India’s growth was 7.3 percent in the last quarter of 2015, according to official government figures. New Delhi says it expects growth for the fiscal year ending March 2016 to accelerate to 7.6 percent – the highest for five years. Growth of the world’s second-largest economy, on the contrary, slowed to 6.9 percent last year from 7.3 percent in 2014. This was the worst result for China in 25 years. Experts say India's economic growth was boosted by sliding oil prices, investment and demographic factors. India is the third largest importer of crude oil behind China and the US. Energy makes up almost 70 percent of the country’s imports.  The oil effect was the biggest driver of growth, according to India‘s chief economist at JPMorgan Sajjid Chinoy who was cited by the Financial Times. But a boost in investment also made a difference. The country has attracted around $26.5 billion in foreign investments in the first nine months of 2015 which is 18 percent more than in the same period the previous year.  The country’s population is projected to be the world’s youngest by 2020, with a third of Indians aged 15 to 34 years.India’s Prime Minister Narendra Modi has promised to modernize the country, boost manufacturing and infrastructure, and attract more investment. However, some economists remain skeptical about the latest growth figures for Asia's third largest economy, considering weak exports, railway freight, and other financial data.

India plans to inject more funds into state banks as bad loans soar | Reuters: India is preparing to pump in a higher-than-anticipated capital sum into poorly performing state banks, government sources said, a move that could see New Delhi infuse as much as $34 billion additionally and make it harder to hit planned deficit targets. Prime Minister Narendra Modi's government in August pledged to put in 700 billion rupees ($10.2 billion) into state-run banks through four years to March 2019 as part of a broader banking reforms program. It had then said the lenders would raise another 1.1 trillion rupees from the financial markets. But a surge in provisions for bad loans in a central bank-directed balance sheet clean-up exercise has sent several lenders into losses, hammering their stock prices and limiting their ability to secure external funding as the economy wobbles. It also means Finance Minister Arun Jaitley will have to squeeze the national budget to foot the bill. "Indian public sector banks may find it difficult to raise capital, given their currently weak operating performance," Standard & Poor's credit analyst Deepali Seth said in a report, highlighting a risk of further rating downgrades.

India's biggest student protests in 25 years are spreading to campuses across the country (Reuters) - India's biggest nationwide student protests in a quarter of a century spread across campuses on Monday after the arrest of a student accused of sedition, in the latest battle with Prime Minister Narendra Modi's government over freedom of expression. Outrage over the arrest of the left-wing student leader, who had organized a rally to mark the anniversary of the execution of a Kashmiri separatist, has led to demonstrations in at least 18 universities. In the largest protest, thousands of students and academics at New Delhi's prestigious Jawaharlal Nehru University (JNU) boycotted classes and erected barricades for a fourth day in an escalating conflict with the authorities. "The government does not want students to have a say," said Rahila Parween, vice-president of the Delhi unit of the All India Students' Federation, a left-wing student union. "It wants to dictate what students think, understand and say." The incident marks another flare-up in an ideological confrontation between Modi's nationalist government and left-wing and liberal groups that is prompting critics to compare it with Indira Gandhi's imposition of a state of emergency in the 1970s to crush dissent. Members of Modi's ruling Bharatiya Janata Party (BJP) accused the student leader, Kanhaiya Kumar, of "anti-India" sentiment. One BJP lawmaker said the university, which has a tradition of left-wing politics, should be shut down.

‎Massive Anti-Modi Student Protests Spreading Fast Across India -- Students across India are rallying against Modi government's attacks on academic freedoms. Massive protests were triggered when the Modi government arrested Kahaiya Kumar, the student union president at Delhi's Jawaharlal Nehru University (JNU).  Universities across India are ringing with the following slogans: "Geelani bole azaadi, Afzal bole azaadi, jo tum na doge azaadi, toh chheen ke lenge azadi! (Geelani and Afzal demanded freedom. If freedom is denied, we will snatch it!)". "Modi ka Hindutva nahin sahenge, Modi ke Brahmangiri nahin sahenge." (We will not tolerate Modi's Hindutva oppression. We reject upper caste Brahmin domination). Geelani is the separatist leader demanding freedom of Jammu and Kashmir from illegal Indian occupation. Afzal refers to Afzal Guru who was executed by the Indian government on trumped up charges of terrorism. Students also chanted in memory of Ishrat Jahan, a 19-year-old Muslim woman who was gunned down in Gujarat in June 2004 when the current Indian Prime Minister Narendra Modi ran the state as its chief minister. In September 2009, Ahmedabad metropolitan magistrate called encounter fake. CBI , India's federal investigating agency, did not find link between her and LeT as was alleged by Modi's government in Gujarat.

A Smartphone That Costs $4 Is Set to Launch in India -- An Indian company will launch the country’s (and possibly the world’s) cheapest smartphone this week, priced at the equivalent of less than $4. The Freedom 251, manufactured by a company based on the outskirts of the capital New Delhi, will go on sale early Thursday morning, Indian newspaper Economic Times reports. According to its web page, the smartphone uses Android’s Lollipop 5.1 operating system and comes with features such as a 4-in. screen, front and rear cameras of 3 and 3.2 megapixels respectively, and 3G internet compatibility. The phone could be a huge game changer in India, which has close to 300 million people under the global poverty limit but also recently surpassed the U.S. as the world’s second largest smartphone market after China.

The NSA’s SKYNET program may be killing thousands of innocent people -- Last year, The Intercept published documents detailing the NSA's SKYNET programme. According to the documents, SKYNET engages in mass surveillance of Pakistan's mobile phone network, and then uses a machine learning algorithm on the cellular network metadata of 55 million people to try and rate each person's likelihood of being a terrorist.  Patrick Ball—a data scientist and the director of research at the Human Rights Data Analysis Group—who has previously given expert testimony before war crimes tribunals, described the NSA's methods as "ridiculously optimistic" and "completely bullshit." A flaw in how the NSA trains SKYNET's machine learning algorithm to analyse cellular metadata, Ball told Ars, makes the results scientifically unsound.  Somewhere between 2,500 and 4,000 people have been killed by drone strikes in Pakistan since 2004, and most of them were classified by the US government as "extremists," the Bureau of Investigative Journalism reported. Based on the classification date of "20070108" on one of the SKYNET slide decks (which themselves appear to date from 2011 and 2012), the machine learning program may have been in development as early as 2007.  In the years that have followed, thousands of innocent people in Pakistan may have been mislabelled as terrorists by that "scientifically unsound" algorithm, possibly resulting in their untimely demise.

Indonesia export, import slump deepens; central bank may cut rates - Indonesia posted a small trade surplus in January, confounding expectations for a third monthly deficit, due largely to a slump in imports from persistently weak domestic consumption. Sliding prices for oil, gas and other commodities have led to a sharp drop in export earnings for Southeast Asia's largest economy, and deteriorating global demand could push the central bank to cut rates again this week, some economists said. Exports plunged 20.72 percent in January to $10.50 billion, the weakest shipment by value since September 2009 and the 16th straight month of decline. Economists surveyed had expected a 15.40 percent drop. Imports fell 17.15 percent, sharper than economists' estimates of 8.14 percent, data from the statistics bureau showed. Imports of raw material and capital goods were all down, the bureau said, but imports of consumer goods rose. Weaker than forecast exports and imports led to a $50.6 million surplus in January. A Reuters poll of analysts had expected a $360 million deficit for the month, following a revised $161 million deficit in December. "It's a disappointing import number," said Gundy Cahyadi, DBS' economist in Singapore. "For GDP growth to return to 5 percent this year, the economy needs stronger domestic demand, particularly investment. And the monthly import numbers are a good proxy for the strength in domestic demand," he added.

TPP may bankrupt Indonesia, activists say - The Jakarta Post: Indonesia could fall into bankruptcy if the biggest market in Southeast Asia join the Trans-Pacific Partnership (TPP), which would allow investors to sue the government in international arbitration courts through investor-state dispute settlements (ISDS), an activist has warned. Indonesia for Global Justice (IGJ) spokeswoman Rachmi Hertanti said ISDS favored investors’ interests over the national interest. Submitting to the TPP regulations on ISDS would open the country to being sued by foreign investors claiming their investment had been disadvantaged. "According to the United Nations Conference on Trade and Development [UNCTAD], American and Canadian investors most frequently used ISDS to resolve disputes between 2013 and 2015, with the dispute cases worth US$8 million to $2.5 billion," Rachmi said on Monday in Jakarta. She pointed to a dispute in March 2015 brought by Churchill Mining Plc claiming $2 billion in compensation. "That’s more than a year’s worth of food subsidies Indonesia. If Indonesia lost, the effect on the state budget would be unimaginable," she argued. Indonesia's investment laws currently require consent from disputing parties before a matter is taken to international arbitration. The government must first revoke the measure to comply with the TPP before it can join the trade pact of 12 Pacific Rim countries.

Taxes on trial -- Governments must be able to change their tax systems to ensure multinationals pay their fair share and to ensure that critical public services are well funded. States must also be able to reconsider and withdraw tax breaks previously granted to multinationals if they no longer fit with national priorities. But their ability to do so, to change tax laws and pursue progressive tax policies, is limited, thanks to trade and investments agreements. In rapidly developing ‘corporate courts’, formally known as investor-state dispute settlement system (or ISDS), foreign investors can sue states directly at international tribunals. This system has become increasingly controversial thanks to negotiations over the proposed Transatlantic Trade and Investment Partnership (TTIP) deal between Europe and the United States. But access to ISDS is already enshrined in thousands of free trade and investment agreements crisscrossing the globe. Because control over taxes is seen as core to a country’s sovereignty, many states have included tax-related ‘carve-out’ clauses in these trade and investment treaties to limit ability of corporations and other investors to sue over such disputes. But a growing number of investor-state cases have in fact challenged government tax decisions – from the withdrawal of previously granted tax breaks to multinationals to the imposition of higher taxes on profits from oil and mining. Analysis of data and documents on hundreds of ISDS cases filed so far reveals that foreign investors have already sued at least 24 countries from India to Romania over tax-related disputes – including several cases where companies have used this system to successfully challenge – and lower – their tax bills.

The global shipping slowdown hints at a recession around the corner: Instability in China and tumbling commodity prices have devastated the world’s freight providers – a strong indicator of trouble to come.By David Blanchflower Print HTMLThis is beginning to have the feel of 2008 all over again. Policy makers around the world are in denial once again as global stock markets dive. In 2008, the slowing of the world's biggest economy – the US – sent the global economy into a tailspin. The concern now is that the slowing of the second-largest economy, China, may well have similar global effects. Chinese growth, which averaged 10 per cent for three decades through to 2010, has decelerated for five straight years and in 2015 slowed to 6.9 per cent, its lowest rate in a quarter of a century. The IMF is forecasting that Chinese growth will slow further to 6.3 per cent in 2016 and 6 per cent in 2017, which may well be overly optimistic. There is already speculation that China’s banking system may see losses even larger than those suffered by US banks during the last crisis. The bad news from China appears to have already spread to the US, which has seen GDP growth slowing sharply in the last quarter of 2015. US industrial production and core retail sales are both falling, and there have been marked contractions in core capital goods shipments and private non-residential construction. Business fixed investment declined nearly 2 per cent last quarter. Despite the bad news, last week Federal Reserve chair Janet Yellen astonishingly claimed that “the US economy is in many ways close to normal”. By contrast, Ruslan Bikbov from Bank of America Merrill Lynch calculates that there is a 64 per cent probability the US is already in recession. My expectation is the next move by the Fed will be to cut rates.

Too Many Boats, Too Little Cargo: The Monumental Glut In Global Shipping -- When business slows and owners of ships and offshore oil rigs need a place to store their unneeded vessels, Saravanan Krishna suddenly becomes one of the industry’s most popular executives. Krishna is the operation director of International Shipcare, a Malaysian company that mothballs ships and rigs, and these days he’s busy taking calls from beleaguered operators with excess capacity. There are 102 vessels laid up at the company’s berths off the Malaysian island of Labuan, more than double the number a year ago. More are on the way.  “People are calling us not to lay up one ship but 15 or 20.” Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom. Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8 percent in 2015, while its imports tumbled 13.2 percent. The Baltic Dry Index, which measures the cost of shipping coal, iron ore, grain, and other non-oil commodities, has fallen 76 percent since August and is now at a record low. Shipping rates for Asia-originated routes have dropped, too, and traffic at some of the region’s major ports is falling. In Singapore, the world’s second-largest port, container traffic fell 8.7 percent in 2015, the first decline in six years. Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5 percent last year. Beyond Asia, the giant port of Rotterdam in the Netherlands recorded a dip in containerized traffic for the year.  Globally, orders for new vessels dropped 40 percent in 2015, to $69 billion, according to London-based consulting firm Clarksons Research. The demolition rate for unwanted vessels jumped 15 percent.

Danger signs flashing for global economy, years after crisis — Eight years after the financial crisis, the world is coming to grips with an unpleasant realization: serious weaknesses still plague the global economy, and emergency help may not be on the way. Sinking stock prices, flat inflation, and the bizarre phenomenon of negative interest rates have coupled with a downturn in emerging markets to raise worries that the economy is being stalked by threats that central banks — the saviors during the crisis — may struggle to cope with. Meanwhile, commercial banks are again a source of concern, especially in Europe. Banks were the epicenter of the 2007-9 crisis, which started over excessive loans to homeowners with shaky credit in the United States and then swept the globe into recession. “You have pretty sluggish growth globally. You don’t really have any inflation. And you have a lot of uncertainty,” says David Lebovitz, who advises on market strategies for JP Morgan Funds. Some of the recent tumult may be an overreaction by jittery investors. And the rock-bottom interest rates are partly a result of easy money policies by central banks doing their best to stimulate growth in the years since the crisis. Unemployment is low in several major economies, 4.9 percent in the United States and 4.5 percent in Germany. The IMF forecasts growth picking up from 3.1 percent last year to 3.4 percent this year. But that’s still far short of the 5.1 percent growth in 2007, before the crisis. The realization is dawning that growth may continue to underperform, and that recent turmoil may be more than just normal market volatility.

In Venezuela, "Savage Suffering" Takes Hold Amid Frightening "Food Emergency" | Zero Hedge: Venezuelan President Nicolas Maduro has been working on some “measures.” “Now that the economic emergency decree has validity, in the next few days I will activate a series of measures I had been working on,” he said Thursday, in a televised statement meant to address a “food emergency” declared by Congress. The “validity” Maduro references comes from a high court ruling that gives the President expanded powers to tackle a deepening economic crisis that’s left hospitals without medicine and grocery stores bereft of food. “The controversial move by the Supreme Court, which critics say is packed with supporters of Mr Maduro’s socialist government, potentially sets the scene for a bitter institutional crisis amid claims that the national assembly is being undermined,” FT notes, underscoring the extent to which opposition lawmakers - who in December won 99 of 167 seats that were up for grabs in what amounted to the worst defeat in history for Hugo Chavez’s leftist movement - feel as though last year’s election victory may have been a ruse designed to lend legitimacy to a system that is, and likely always will be, deeply undemocratic. “This is a tyranny, which has been very successful in disguising as a democracy, and has even allowed itself to lose an election,” Moisés Naím, a former Venezuelan minister and fellow at the Carnegie Endowment for International Peace said.  With inflation set to soar to over 700% this year, Venezuelans are struggling to persist in the world’s worst performing economy. “I hoped to buy toilet paper, rice, pasta,” 74-year-old Rosalba Castellano, told WSJ. “But you can’t find them.”  “The government is putting us through savage suffering,” she laments.

Venezuela Says Inflation Rose to 180.9% in 2015 - WSJ: —Venezuela’s central bank on Thursday said inflation last year surged to 180.9% and the economy contracted by 5.7%, reflecting the deep crisis here a day after President Nicolás Maduro announced a package of economic adjustments economists say will do little to stabilize the country. The central bank’s release of the figures, rare in Venezuela, underscored the economic difficulties facing ordinary Venezuelans. The bank said prices for food and beverages rose 315%, clothing by 146%, health care by 110.6% and transportation by 129.8% last year. The newly released bank figures are modestly better than the estimates provided by the International Monetary Fund in January, when the fund’s Western Hemisphere director, Alejandro Werner, published a note estimating that inflation hit 275% and the economy contracted by 10% in 2015. Mr. Werner also said that inflation would top 700% this year. Even using official figures, Venezuela has the world’s highest inflation by far, and an economy in disarray, its budget gap having swollen to about 20% of annual economic output. CENDA, an organization close to labor unions that does its own survey of the prices of 60 kinds of foods, said that the monthly cost of supplying a family with basic supermarket staples went up by a factor of three from December 2014 to this past December. “This acceleration of the prices is brutal and explains the impact of [price] controls and scarcity,” said Tamara Herrera, an economist in Caracas with Sintesis Financiera. “The rigid nature of the economic model with its controls continues, which means that scarcity will continue.”

Economists Raise Brazil Inflation Outlook 2016, Cut GDP View, Survey Shows -  --Economists raised their inflation outlook for Brazil for this year, despite the continued expected deterioration of country's economy, as the monetary authority is expected to keep its benchmark interest rate unchanged. Brazil's official consumer-price index, the IPCA, is expected to end 2016 up 7.61%, according to a weekly central-bank survey of 100 economists published Monday, compared with expectations of a 7.56% rise a week ago. It was the seventh straight week that the index was projected to increase. According to the central-bank survey, economists kept their outlook for the year-end Selic rate at 14.25%, which is the rate's current level. They increased their forecast for next year to 12.75% from 12.50%. Meanwhile, Brazil's gross domestic product is expected to shrink 3.33% in 2016, compared with expectations a week ago of a 3.21% contraction. For 2017, the economists now expect the economy to expand by 0.59%, compared with an expectation of 0.60% growth from the previous week's survey. They expect Brazil to post a $36.10 billion trade surplus this year, down from the $36.35 billion expected in the previous week's survey.

Brazil economic activity tanks again as recession deepens | Reuters: Economic activity in Brazil fell for the 10th straight month in December, central bank data showed on Thursday, adding to evidence that the recession in Latin America's biggest country is far from bottoming out. The Brazilian central bank's IBC-Br economic activity index BRIBC=ECI fell 0.52 percent in December from the previous month, the bank said. A Reuters survey of 20 analysts forecast a 0.63 percent decline in the indicator, a gauge of activity in the farming, industry and services sectors. For all of 2015, activity fell a staggering 4.1 percent, the index showed. Economists expect the Brazilian economy to shrink again by more than 3 percent this year. The Brazilian economy is suffering its worst crisis in decades as investors lose confidence in the once emerging-market star, after years of erratic economic policy under President Dilma Rousseff. A sharp drop in commodity prices has also hurt an economy that grew by more than 4 percent a year in the last decade. Brazil was downgraded further into junk territory by Standard & Poor's on Wednesday, after five months after the same rating agency stripped the country of its investment grade.

Brazil's Central Bank Says Economy Shrank 4.08 Pct in 2015 - Brazil's central bank said Thursday the economy contracted 4.08 percent in 2015, the worst performance since the indicator was created in 2003. The data also showed that the economy shrank 0.15 percent in 2014 in non-seasonally adjusted figures. The results were broadly in line with market expectations. The average forecast of 15 financial institutions surveyed by the financial newspaper Valor was a 4.1 percent drop. The bank used a methodology that differs from the one used to calculate the country's official GDP figures. Brazil's official statistics agency will publish its 2015 GDP figures at the beginning of March. Brazil is experiencing its deepest recession since the 1930s. In January, the IMF forecast its economy would shrink by 3.5 percent in 2016. Credit agency Standard & Poor's, meanwhile, said Wednesday it has downgraded Brazil's sovereign credit rating to two notches below investment-grade territory. Standard & Poor's said on its website that it lowered the rating to BB from BB+ and the long-term local currency rating to BB from BBB- on "significant political and economic challenges." "The negative outlook reflects that we believe there is a greater than one-in-three likelihood of a further downgrade because of the risk of potential key policy reversals given Brazil's fluid political dynamics and inconsistent policy initiatives," Standard & Poor's said. The downgrade came five months after the agency downgraded the country's sovereign debt to "junk" status.

Is Rio Ready For The Olympics? (Spoiler Alert: No) -- The Olympic Games are scheduled to begin on August 5. But will Rio de Janeiro be prepared amidst an economic recession, a looming public health crisis, delayed infrastructure developments, increasing crime rates, and numerous other problems that have rapidly developed over the past three years?  The Zika virus made its way into the spotlight lately with a sudden and explosive growth of micro-encephalitis in newborns across Latin America. As a result of Brazil’s climate, inadequate public health system, and poor system for sanitation and water supplies, the virus found an ideal location to develop rapidly. While Zika has a devastating effect on pregnant women, especially in the low-income population, this issue has also brought to light other prevalent concerns regarding the Olympics this summer. Zika looms over the Brazilian population and future tourists traveling from the around the world to watch the Olympic Games. The government’s response has been slow and inadequate; the Brazilian healthcare system has been heavily underfunded in recent years, with many poor areas in Rio de Janeiro lacking even basic infrastructure. In January 2016, hospitals ran out of money to pay for drugs, equipment, and salaries. Some patients died after they were not allowed into underfunded public hospitals. Recently, allegations of bribery against the Brazilian speaker of the lower house, Eduardo Cunha, and five construction companies involved in Olympics projects have emerged. Brazil’s attorney general, Rodrigo Janot, claimed that some construction companies, already under investigation for their ties to the Petrobras scandal, paid bribes totaling USD 475,000 to Eduardo Cunha to help secure contracts for the building of venues and other works for Olympics.

Global Misery Index - The Big Picture (table) click for complete graphic and analysis

Canada government makes clear it can't meet balanced budget goal | Reuters: Canadian Finance Minister Bill Morneau on Tuesday effectively conceded the government could not balance the budget as quickly as promised, saying the return to surplus would be achieved over the long term. The Liberals won power last October on a pledge to run three consecutive budget deficits of no more than C$10 billion ($7.2 billion) a year to help fund spending on infrastructure before balancing the books in 2019/20. Morneau - who says weak commodity prices mean the economic outlook is worse than projected - told reporters the government aimed "to maintain a goal of getting to a balanced budget over the long term. We recognize that's challenging." Prime Minister Justin Trudeau last week said it would be hard to balance the books on time and confirmed that the first deficit would be more than C$10 billion. Morneau said the tough economic times meant it was doubly important to stick to the plan to invest in infrastructure. The opposition Conservatives said Morneau's spending would cause a damaging structural deficit. "He's giving himself permission to fail ... who knows what's going to happen at the end of four years?"

Jobless Benefits Claims Double In Canada's Dying Oil Patch As Construction Jobs Plunge 84% -- 2015 was not a good year for job creation in Alberta. In fact, the net 19,600 jobs the province shed marked the worst year for job losses since 1982. Alberta is of course suffering from the dramatic collapse in oil prices, which look set to remain “lower for longer” in the face of a recalcitrant Saudi Arabia and an Iran which is hell bent on making up for lost time spent languishing under international sanctions.  Suicide rates are up in the province, as is property crime and foodbank usage. The malaise underscores the fact that Canada’s oil patch is dying. WCS prices are teetering just CAD1 above marginal operating costs, and the BoC failed to cut rates last month, meaning it’s just a matter of time before the entire Canadian oil production complex collapses on itself. On Thursday, a new industry report shows that crude’s inexorable decline could end up costing 84% of oilsands construction jobs over the next four years. “The oilsands sector is in danger of losing its reputation as a job-creating machine,” The Calgary Herald writes. “A new industry report shows the sector may require 84% fewer construction workers in 2020 compared to 2015 as project cancellations pile up amid a crippling oil-price environment.” Here's more:

‘Thousands’ missing or killed in Canada - BBC - The number of missing or murdered indigenous women in Canada since 1980 may be as high as 4,000 - far more than previous estimates of 1,200, the federal government has said. The minister for the status of women said there were no accurate figures because of a lack of hard data. But Patty Hajdu said research from the Native Women's Association of Canada (NWAC) put it at more than 4,000. A national inquiry is due to begin shortly. Ms Hajdu and Indigenous Affairs Minister Carolyn Bennett have been speaking to survivors and relatives across Canada. The inquiry was a key election pledge by Prime Minister Justin Trudeau during the campaign last year. The often cited 1,200 figure came from a 2014 Royal Canadian Mounted Police report on the missing women, related to the period between 1980 and 2012. "During those discussions, the ministers have heard from participants that they believe the number of missing and murdered indigenous women and girls is higher than 1,200," Ms Bennett said. In December 2015, Canadian authorities charged a man in the death of one indigenous girl whose murder caused a national outcry. Raymond Cormier, 53, was charged with second-degree murder in the death of Tina Fontaine, 15, who was found dead in 2014 in Canada's Red River. A BBC investigation in April revealed that dozens of aboriginal women disappear each year, with many later found dead in the river.

Rising Productivity, Declining Population Impact Russia's Economy -- nRussia's transition to a market-based economy and a Western-style democracy has been slow. Yet, in recent years, Russia has been playing an increasing role on the international scene. But where exactly does the Russian economy stand relative to that of the United States? And how has this standing evolved over time? In this article, I present a few aggregate statistics to help answer these questions. Let's start with the most basic aggregate indicator of the state of an economy: the real gross domestic product (GDP) per capita. This is a measure of the amount of final goods and services to which the average person has access in a given period of time. Panel A of Figure 1 shows GDP per capita over time in the Russian Federation, the U.S. and the whole world. The figures are normalized to 100 in 1989. Thus, Panel A indicates differences in the growth rate of GDP per capita in Russia, the U.S. and the world as a whole. Notice three subperiods in particular. The first one, lasting from 1989 to 1998, shows a remarkable decline in Russia's GDP per capita. At the trough, in 1998, Russia's real GDP per capita was 56 percent of its 1989 value. In annual terms, this amounts to a 5.6 percent reduction in GDP per capita every year for 10 years.  The second subperiod of note in Panel A runs from 1998 to about 2008. During this time, Russia's GDP per capita was on the rise. In 2007, it exceeded its 1989 level for the first time—GDP per capita was 7 percent above what it was in 1989. In contrast, U.S. GDP per capita in 2007 was 39 percent above its 1989 level. Finally, since 2008, Russia has suffered the consequences of the Great Recession, and its GDP per capita has not exhibited much growth relative to the preceding years. It is too early to assess whether this pause is going to last a long or short time.

Russian Central Bank shutting down banks that staged fake cyberattacks to rip off depositors - The Russian Central Bank has withdrawn licenses from at least three banks who are alleged to have hired hackers to break into their own systems and empty out depositors' account, secretly giving the money back to the bank less a commission. Georgy Luntovsky, first deputy chairman of Russia's Central Bank, alleges that the practice is widespread and "many" banks have done it.  According to data from the Russian Central Bank, in Q4 2015 alone cyber-attacks resulted in the theft of more than 1.5 billion rubles (US$ 20 million) from the accounts of clients at some Russian banks and there is a strong suspicion that these attacks could have taken place with the knowledge of these banks and even with their direct participation. Criminals were able to cash funds using real credit cards, making thousands of anonymous bank transfers and falsifying accounting details of the banks' counterparties. At the same time, according to data provided by the Central Bank to SC, in addition to fake cyber-attacks on Russian banks, this year the number of cyber-attacks on non-credit financial institutions has also increased.

10,000 Greek Farmers Stage Massive Revolt In Athens, Destroy Police Cars - The farmers are understandably upset with Alexis Tsipras and the government for a proposal to triple the social security burden and double income taxes in an effort to appease the powers that be in Brussels who claim Greece has not made enough progress towards fiscal consolidation since the country’s third bailout was agreed last August. Tsipras and Syriza swept to power a little over a year ago with promises to roll back austerity, but prolonged negotiations with creditors and the resulting economic malaise that gripped the country last summer broke the PM’s revolutionary spirit and now, he’s been reduced to something of a technocrat rather than a socialist firebrand. Putting Greece on a sustainable path is a virtual impossibility at this juncture. There are myriad structural problems that cut to the heart of the currency bloc’s woes and on top of that, Athens’ debt burden is simply astounding. In other words, Tsipras and Brussels can raise taxes and cut pension benefits all they want but this problem is never going to be solved. It’s too late. Adding insult to injury, data out Friday shows the country slipped back into recession in Q4. All of this helps to explain why, after the tomato-tossing, stick-waving melee at the Agriculture Ministry, the farmers - joined by some 10,000 of their compatriots as well as union members, massed in Syntagma Square on Friday where tractors could be seen meandering through the crowd.

Athens may face a choice: Bail-out or bail-in? - The government is under pressure from special-interest groups, such as farmers, to succumb to their demands on one hand, and the country’s creditors to reach a comprehensive agreement on fiscal issues and pension reform on the other. However, the deteriorating economic climate and the lack of substantial progress in tackling non-performing loans (NPLs) points to a more difficult choice down the road: Depositors or borrowers? Undoubtedly, the protesting farmers have stolen the limelight lately as they paraded through Athens in a bid to secure most of their tax and pension advantages before they return to their farms in March. The course of the negotiations between the government and the technical teams of the lenders is the second hottest issue in town, with Poul Thomsen adding fuel to the fire by clarifying the IMF’s position on the matter. A relatively smaller number of people paid attention to the shares of Greek banks which have been hammered since the start of the year. Their drop is widely attributed to concerns about the health of the banking sector in Europe and specific Greek issues, such as the first review of the third economic program and the rising political risk. As a result of the drop, the shareholders who participated in last year’s share capital increases, are suffering huge losses. However, there are other implications as well. Greek individuals and entities are among the shareholders who seem to have taken loans from local banks to join in last year’s recapitalization. There is no official estimate but pundits put the total amount at several hundred million euros. This is not a negligible amount and there is a significant risk these loans will become NPLs in the next few quarters as the value of the collateral, namely shares, plummets.

European Steel Workers Protest Cheap Chinese Imports - — Thousands of steel workers marched through Brussels on Monday to demand the European Union maintain its protections against cheap Chinese imports, which industry executives said were destroying jobs and the environment.Some 5,000 protesters packed the European district of the Belgian capital, where many European Union offices are, and their leaders handed an engraved metal plaque with their demands to Jean-Claude Juncker, the president of the European Commission.The commission is scheduled to propose this year whether to grant China market-economy status, which Beijing says is its right 15 years after joining the World Trade Organization.Critics say it would give China license to dump products at unfairly low prices in Europe. They also say up to 3.5 million jobs would be at risk. Commission officials put the maximum job loss at 211,000. Industry executives said surging Chinese imports would undermine global efforts to reduce carbon emissions because much of China’s steel is produced using coal-fired power.“We export in the long term our jobs and we import our CO2,” said Karl-Ulrich Köhler, chief executive of Tata Steel Europe, Britain’s largest steel maker.Tata said last month it would cut 1,050 jobs in Britain, adding to some 4,000 steel jobs cut in October.

Spain’s public debt nears 100% of GDP at end of 2015: Spain’s public debt neared 100 per cent of economic output in 2015, according to data released by the Bank of Spain on Wednesday and preliminary data from the National Statistics Institute. Public debt rose €2 billion to €1.070 trillion by the end of December last year, the Bank of Spain said. Preliminary data published by INE in January showed Spanish GDP expanded 3.2 per cent in 2015 from the year before, rising to a nominal €1.074 trillion according to a Reuters calculation. Final GDP numbers are due on February 25th. That would produce a debt-to-GDP ratio of 99.6 per cent at the end of 2015, up from 99.3 per cent at the end of the third quarter and from the government’s official forecast of 98.7 per cent. In 2014, the ratio was 99.3 per cent. However, it was below a forecast sent to Brussels in October of 99.7 per cent. “This is due to two factors - the reduction of the public deficit and economic growth,” acting economy minister Luis de Guindos told reporters.  Spain’s public finances have been under scrutiny since a property bubble burst in 2008, putting millions out of work, almost tripling public debt as a percentage of economic output and sending the budget deficit soaring to more than 10 per cent of GDP.

Stagnating Italy poses new headache for embattled eurozone - Telegraph: The eurozone's third largest economy stagnated at the end of last year and Greece fell back into a deep recession, raising further questions over the health of the single currency's weakest economies. Despite falling oil prices and stimulative monetary policy, Italian GDP ground to a halt at just 0.1pc in the last quarter of 2015, falling below analyst expectations of a 0.3pc expansion. It means the Italian economy grew by just 0.6pc last year having barely emerged from its worst slump since the Second World War in 2014.slowdown will put further pressure on Italian prime minister Matteo Renzi, who has been battling to save a banking system lumbering under €201bn (£156bn) of bad loans, the equivalent 12pc of the country's entire economic output. Resolving failing banks has put Mr Renzi's reformist government on a collision course with Brussels over new EU "bail-in" rules, which force creditors to take the hit from banking failures. Italy's central bank has called for the laws to be delayed over fears the bail-in regime could damage the economy due to the large number of ordinary Italians and pensioners who would be in line to lose their savings. Four failing Italian banks were wound up at the end of last year, imposing losses of around €789m on junior bondholders, half of which were held by Italian retail investors.

The EU is finished if it doesn’t allow Italy to fix its banks - If you want to know what proper “secular stagnation” looks like, go to Italy. The Italian economy has essentially gone nowhere since the turn of the century, which lest it be forgotten coincided almost exactly with the launch of the euro. Output today is roughly the same as it was then. This might seem shocking enough; not even the Great Depression produced such prolonged misery. Yet the way things are going, Italians can look forward only to years more of the same.  Attention last week focused on the travails of Deutsche Bank, but the true epicentre of the latest leg in the European banking crisis is Italy. Heroic efforts by the Italian prime minister, Matteo Renzi, to lance the boil and give his country at least a fighting chance of resumed economic growth are being stymied in Brussels by pen pushing adherence to new state aid and bail-in rules. Europe won’t allow Italy to bail-out its banks, yet the EU won’t come to the rescue either. It is small wonder that Mr Renzi has taken to referring to the numbskulls of the European high command as like the orchestra on the Titanic. Rome burns, yet they just keep on fiddling as if nothing is wrong. Rarely has European pigheadedness over-ruled reasonable pursuit of the national interest quite so destructively. Greece threatened to be the straw that broke the EU's back; it may yet prove to be Italy. The International Monetary Fund estimates that the Italian banking sector’s non performing loans amount to an astonishing 18pc of GDP. Attempts to set up a “bad bank” along the lines of Ireland and Spain to relieve the system of this giant overhang of rotten lending have fallen foul of the latest adjustments to state aid rules. At the same time, Europe insists on using Italy as a testing ground for new bail-in rules which would require Italian retail investors to accept haircuts on €200bn of subordinated notes they thought to be risk free. Politically, this is bound to be unacceptable.

Italy’s Banking Crisis Spirals Elegantly out of Control -- Wolf Richter -- Back during the euro debt crisis, while the ECB was buying government debt from Member States to keep Italian and Spanish government debt from imploding, German politicians fretted out loud about what exactly the ECB was buying. Among them was Frank Schäffler, at the time Member of the Federal Parliament, who in September 2011 said with uncanny accuracy: “If the ECB continues like this, it will soon buy old bicycles and pay for them with new paper money.” This is now coming to pass. Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known. The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them. Other numbers tossed around are over €300 billion, or 18% of total loans outstanding. The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of all corporate loans, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions.

European banks' risky oil loans make investors edgy | Reuters: Investors are growing increasingly anxious about the exposure of European banks to the oil sector, as a past credit binge threatens to lead to loan losses that could be worth up to $18 billion. Major banks ranging from ING to HSBC and Deutsche Bank put big bets on oil when record crude prices made even the most hazardous project look economically viable. But over the past year and a half, oil has slumped to near 12-year lows, spreading pain across financial markets. Now with some energy projects facing the threat of being shut down, banks may see the pain turning into losses or eating into their capital strength. The problem does not look confined to North America, where energy exposure is greater and big banks such as Citigroup and Bank of America have already disclosed billions in provisions. "Investor concerns have turned to Europe," said Michele Pedroni, fund manager at SYZ Asset Management in Geneva. "The problem could be painful, but even if there is limited visibility for now it seems to be manageable."

Banks cry for central bank help as shares tank, woes persist - Europe's banks are grappling with a combination of tighter regulation and a weak economic climate. Their shares have been pummeled, prompting managers to call on central banks to intervene. Banks' share prices have been hammered in recent weeks, with the benchmark Euro Stoxx banks index down 23 percent so far this year. Credit Default Swaps (CDS), which are used to insure against debt default, have shot up, reflecting a higher risk of default. Credit Suisse, one of Europe's top three banks, last week announced a loss of $5.8 billion ($6.45 billion) for 2015. Deutsche Bank CEO John Cryan was not joking last October when he warned staff and investors "not to expect only sweetness and light in the coming months." At the end of January, the bank reported a staggering loss of 6.8 billion euros for 2015. Deutsche is also mired in no less than 6,000 litigation cases. In Italy, four banks had to be bailed out in November. Italy's banks are sitting on 201 billion euros of bad debt, the highest level in Europe. The country also has far too many banks, which the government has said needs to change. In total, eurozone banks have some 1.9 trillion euros in loans that aren't being paid back on time.

Keiser: Deutsche Bank ‘technically insolvent’, running a ‘ponzi scheme’ -- Max Keiser hit out against Deutsche Bank in the latest episode of his RT program Keiser Report, saying the bank was “technically insolvent” despite assurances from German Finance Minister Wolfgang Schaeuble that he had “no concerns” over his country’s biggest bank.  Deutsche Bank shares are down 40 percent since the beginning of the year, falling below their price at the time of the 2008 financial crisis. The bank suffered record losses of €6.8 billion in 2015.  With a balance sheet now eclipsing JP Morgan’s, Keiser warned that the bank will sooner or later have to admit to insolvency and say “we need either a huge bailout or we gotta close up shop.” The Deutsche Bank crash just got historic. THIS happened today. $DB: https://t.co/mQsbPRkaIdpic.twitter.com/bPFF0PCIqG  However, German Finance Minister Wolfgang Schaeuble dismissed concerns over Germany’s biggest lender, telling Bloomberg he was not worried about its future. Deutsche Bank CEO John Cryan also played down the concerns in a published letter to staff on February 9, describing the bank as “absolutely rock-solid” and “strong”.

Germany's top court to examine if ECB's bond-buying is legal - (AFP) - Germany's constitutional court will from Tuesday examine whether the ECB overstepped its mandate through a scheme to potentially buy unlimited amounts of government debt, as the bank prepared to ramp up its bond purchase programme. The OMT -- or Outright Monetary Transactions -- programme was unveiled in 2012, at the height of the eurozone sovereign debt crisis, as the ECB's weapon to warn off investors from speculating on government bonds. The programme was never implemented, and has since been superceded by a far bigger bond purchasing programme known as QE, although that is aimed now at kickstarting inflation rather than warding off speculation. The German top court's ruling would focus on the now likely defunct measure but could have a bearing over the ECB's ongoing 1.1 trillion euro bond buying programme until March 2017. For critics, such measures are effectively a way of printing money to pay off a government's debt.

Will German Sovereign Debt “Bail In” Scheme Destroy the Eurozone? --  Yves Smith -   It’s important to recall that Germany has imposed boundary conditions that make it impossible for the Eurozone to survive, such as insisting on retaining its trade surpluses with other countries in the currency bloc, yet refusing to finance their purchases, and also stymieing other measures that could finesse the problem, namely, fiscal transfers, like large-scale infrastructure spending in periphery countries financed by an ECB infrastructure bank (one of the mechanisms in Jamie Galbraith’s and Yanis Varoufakis’ Modest Proposal). If Germany and its allies in the creditor nations don’t relax these constraints, the Eurozone is destined to founder. It’s just a matter of time. And the Germans may be accelerating that time of reckoning. Ambrose Evans-Pritchard has a new story on a German sovereign bond bail in scheme that is obviously hair-brained, in that it is guaranteed to blow periphery bond yields sky-high, which was the very problem the Eurozone was struggling to contain through 2012. That meant periphery countries could not finance their budgets or even roll over maturing debt at reasonable prices. It also meant that banks were imperiled, since they were stuffed to the gills with sovereign debt that Mr. Market said was worth a lot less than they’d paid for it. The one big caveat regarding the Evans-Pritchard piece is that my contacts who read German don’t recall seeing any reporting on it, nor did they see any news about it in today’s papers. Evans-Pritchard’s story appears to have been placed by Peter Bofinger, who is apparently a lone and loud dissenter on the five-member German Council of Economic Advisers to the sovereign bail-in plan. From the Telegraph: A new German plan to impose “haircuts” on holders of eurozone sovereign debt risks igniting an unstoppable European bond crisis and could force Italy and Spain to restore their own currencies, a top adviser to the German government has warned….

Major central banks tear up interest rate plans as market turmoil forces them into reverse - The world’s most powerful central banks will be forced to tear up their plans following the carnage that has engulfed financial markets since the beginning of the year. Investors now believe there will not be a single interest rate rise from any of the G7 group of central banks this year, while the number of expected rate cuts this year has increased from zero to six.  The data, compiled by Danske Bank analysts, suggests investors believe monetary policymakers could slash rates and pump up their quantitative easing programmes in a bid to stabilise the economic outlook. Carefully laid battle plans to start tightening monetary policy have been left in tatters. At the beginning of the year the market was pricing in the possibility of two rate hikes by the US Federal Reserve in 2016. Now, after a turbulent week for global stock markets, investors believe there will be no moves at all this year. The big swing in expectations comes after world stock markets fell into “bear market” territory, as money managers fled from stocks to safe haven assets such as bonds and gold. “There’s just so much gloom about everything at the moment,” Central banks have cut their rates 637 times since the collapse of Bear Stearns in March 2008. They have also purchased a combined $12.3 trillion (£8.5 trillion) of assets, according to Bank of America Merrill Lynch.  There were no expectations at the beginning of the year that the European Central Bank would cut interest rates. But now traders believe it will actually reduce its rates, which are already below zero, a further three times. Cuts are also expected from Japan and Canada.

Markets Putting Faith in QE4? - WSJ -  Since the medieval church clamped down on the sale of indulgences, it has been hard to put a price on religious faith. Not so with central banks. The value of trust in the world’s leading policy makers is calculated second by second, and stood at about $1,209 an ounce on Monday. The gold price is far from a perfect measure of belief—or lack of it—in policy makers. But its 14% rise supports one popular explanation for this year’s tumbling markets: Investors have lost faith that the central bankers know what they are doing.The supporting evidence seems pretty convincing. The most obvious comes from moves in currencies and from banks, which suffer when they cannot pass on negative interest rates to most of their customers. Currencies haven’t moved as expected. Negative rates ought to weaken a currency by making it less attractive to hold, one reason that central banks in the eurozone, Japan, Switzerland, Sweden and Denmark are so keen on them. But when the Bank of Japan surprised economists by cutting to negative rates for the first time at the end of January, the yen had just one weak day before strengthening back to be worth more than it was before the cut. Against the dollar, it is now worth 4% more than before the cut. Sweden faced the same problem last week, as its central bank, the Riksbank, cut its main policy rate more than expected to minus 0.5%. By the next morning, the krona was in fact stronger than before the action. Both cases seem to show that investors fear negative rates more than they respect their power to stimulate. Part of this is down to the effect on the banking system, particularly in Europe. Banks haven’t been able to pass on negative rates to customers, hurting their margins even as bondholders worry that corporate defaults are set to rise.

EUR Tumbles As Draghi Admits ECB Will "Buy" Busted Bank Loans -- EURUSD is down over 120 pips this morning and accelerating as Mario Draghi drops all kinds of tapebombs in his Q&A with his Brussels overlords. Most crucially, slamming EURUSD 70 pips and breaking Wednesday lows, was his admission that while The ECB would "not buy" non-performing Italian bank loans, it would (confirmed by Italy's Treasury) allow the busted deals as repo collateral (how close to par?) allowing Italian banks to kick the can just a little further. Is EURUSD tumbling from this apparent "easing" or from the incredulity of Draghi's hubris in destroying any semblance of ECB balance sheet strength? Or both?

German central bank chief on collision course with Draghi over QE - Telegraph: Germany's powerful central bank chief has said quantitative easing is no longer appropriate for Europe, putting Berlin on a collision course with the European Central Bank over expanding stimulus measures to revive the single currency area. Jens Weidmann, head of the Bundesbank and a member of the ECB's governing council, said QE was "no longer necessary" for the eurozone, despite the widespread expectation that more stimulus will be announced as early as next month. However, Mr Weidmann defended the ECB's bond-buying scheme - launched in March last year - at a hearing at the German Constitutional Court on Tuesday, arguing that it did not contravene the principles of the German constitution.  But his resistance to expanding QE suggests the ECB's hawkish members are hardening in their stance against expanding the stimulus programme from its current €60bn a month. Crucially, Mr Weidmann will not be able to take part in the March vote under the ECB's rotating voting rules.  The Bundesbank chief's position is in stark opposition to that of ECB president Mario Draghi, who has repeated the central bank's willingness to "do its part" to revive inflation and growth in the bloc as turmoil has engulfed global markets this year.

Draghi Faces New Dilemma With Pummeling of Eurozone Bank Stocks - WSJ: The battering of European financial stocks is putting heat on the European Central Bank not to slash subzero interest rates even lower next month, but its policy makers say they are considering a further cut. Shares of European banks and insurers have tumbled recently, falling more than broadly slumping markets. Financial firms have been hit in part because negative rates erode their profit. Fears of more rate cuts have worsened the rout, investors say. But ECB policy makers are sending the message that they aren’t swayed by such concerns when reconsidering their €1.5 trillion ($1.7 trillion) stimulus at the next policy-setting meeting on March 10. Negative rates amount to charging a fee on deposits, rather than paying interest. By charging banks to deposit funds, the ECB hopes to spur them to lend more aggressively and bolster the eurozone’s sluggish economy. ECB President Mario Draghi told European lawmakers on Monday that the bank won't hesitate to use all its policy tools at its disposal in its goal of reigniting inflation, trumpeting the success of ultra low rates in bolstering the bloc’s economy. Some members of the bank’s 25-member Governing Council have advocated deep cuts.

Negative interest rates are a calamitous misadventure -  The world's central banks should take a deep breath and step back from the calamitous misadventure of negative interest rates. Whatever theoretical profit can be mined from this thin seam, it is entirely overwhelmed by the slow ruin of the banking system. Huw Van Steenis, from Morgan Stanley, calls negative rates (NIRP) a "dangerous experiment" that undermines the mechanism of quantitative easing rather than reinforcing it, and ultimately induces banks to shrink their loan books - the exact opposite of what is intended.  The market verdict on the Bank of Japan and the European Central Bank speaks for itself. Bank equities have crashed by 32pc in Japan and by 26pc in the eurozone since early December. "Financial markets increasingly view these experimental moves as desperate," said Scott Mather, from the giant bond fund Pimco. The policy blunder is creating a false fear that central banks have run out ammunition. It is distracting attention from the real failings of the global policy regime: lack of willingness to launch a New Deal and inject money directly into the veins of the real economy through fiscal stimulus when needed, and arguably to do so with turbo-charged effect through central bank transfers rather than debt issuance.

Yup, negative rates were a really bad idea --Izabella Kaminska -  It seemed so plausible. Break through the zero lower bound and ta dah! A new scale of economic stimulus can be engineered. And yet, as the likes of us, Frances Coppola and even Downfall Hitler have been warning for a number of years, this was always a silly presumption because negative carry creates an entirely different incentive structure to that of a positive carry world. Notably, it encourages predation, monopolisation, hoarding and in some cases, even contraction as opposed to growth. As Coppola noted in 2013: So, if – say – the ECB imposed negative interest rates on excess reserves in a world which is both risky and risk-averse, how would banks behave? I can’t see any reason at all why they would increase lending. They would be more likely to look for other “safe” investments as an alternative to parking deposits at the central bank. And they wouldn’t have far to look… The inevitable effect would be downwards pressure on the yields on “safe” government debt in much the same manner as QE. Negative rates, especially when legitimised through central bank policy, encourage a zero-sum game and thus become entirely counter-productive. And that remains true, by the way, even if you scrap banknotes. Then the hoarding incentive just migrates into corporate inventory or parallel value markets, with equally drastic implications on depreciation rates. BoAML’s Liquid Insight team headed by Chris Xiao and Vadim Iaralov, in any case, are on to the problem. As they observe on Wednesday about the effectiveness of negative rates:Empirically, negative rates have thus far been ineffective at achieving the central banks’ objectives of curbing currency strength and boosting inflation expectations (Chart of the day). Historically, quantitative easing (QE) has been effective at raising inflation expectations. In our view, the divergence in results may be due to the market interpreting NIRP as over-reliance on monetary stimulus. Here’s the chart:

Mapped: Negative central bank interest rates now herald new danger for the world - Telegraph: Sub-zero rates are becoming the "new abnormal" in a shaky world economy. With fresh panic hitting markets, are we finally hitting the limits of what monetary policy can achieve? Click on the countries to find out. The world's tentative experiment with negative interest rates got off to an unremarkable start. Sweden's Riksbank - the world's oldest central bank - became the first major monetary authority to cross the rubicon and take its main policy rate into the red exactly a year ago to the month (see map above). The Riksbank’s move followed the likes of Switzerland and Denmark, who had turned negative in a bid to stimulate flagging inflation and halt the punishing appreciation of their currencies.  But the introduction of sub-zero rates caused no immediate panic that central bankers were "losing control".  Neither did they seem to produce deleterious economic effects in their host countries, as savers continued to keep their money deposited in banks rather than fleeing for the safety of cash. Commercial lenders, meanwhile, adjusted their business models to help maintain profitability.  In September, Andy Haldane, chief economist at the Bank of England, joined a chorus of influential thinkers in positing that negative rates could be necessary to protect the UK and the other advanced economies from the next global recession.  Bank shares have been in the eye of the selling storm, concentrating minds on just what negative interest rates mean for the financial system.  Jitters were set off by the Bank of Japan's shock decision to join the negative rate club at the end of January. One year into the negative rates experiment, it seemed monetary authorities were getting desperate in their attempts to stimulate growth and inflation with their limited policy tools (see map above).  Like its counterparts in northern Europe, Japan's sub-zero rates were intended to drive down the value of its currency, the yen. It didn't work.

Look on my NIM, ye Mighty, and despair!  --  Izabella Kaminska - Banks and their decaying NIMs… Once so great and too big to fail…(graphs)  Now, as per this chart from Huw Van Steenis at Morgan Stanley this week, subject to a deadly erosion:  To compare, meanwhile, here’s what 20 years of falling Japanese bank NIMs looks like when buttressed by the sands of liquidity: It’s striking. But Van Steenis, who’s been banging the drum about negative rates and NIM decay danger for years, doesn’t think it stops there. In fact, he’s worried that the official negative rate policies initiated by central banks may just exacerbate the carnage. But first, let’s reiterate the team’s long-standing argument, because it certainly still stands (our emphasis): We’ve argued since 2012 that negative rates are a “dangerous experiment” for the banking system as they i) erode bank profits; ii)incent banks to shrink, not grow; iii) provide a disincentive to cross-border Eurozone lending; and iv) risk non-linear effects on bank funding. Given the ECB’s desire to ease credit conditions and support financial stability, we see negative rates as contrary to their policy objectives. Our #1 surprise for 2016 was: “Any expansion of theECB’s QE risks flipping the effect from a positive to a negative for many Eurozone banks – possibly prompting an end to Free Banking in Europe and starting a battle to shift models to commissions.”

Criminals’ ‘currency of choice’ for chop - International terrorists, money launderers and German car buyers will have to rethink their currency options after the European Central Bank moved to make the €500 bill a thing of the past. While many Europeans have never set eyes on the purple notes — and few retailers accept them — they have featured prominently in EU discussions about how to choke off terrorist financing, a key concern since November’s Paris attacks. Rob Wainwright, director of European police agency Europol, has called high-denomination notes the “currency of choice” for criminal and terrorist networks. Speaking to European Parliament lawmakers in Brussels on Monday, ECB governor Mario Draghi gave his clearest indication yet that the note was on borrowed time, saying there was an “increasing conviction in world public opinion” that such notes were used for criminal purposes. Finance ministers last week called for a review of the notes, but the decision on the €500 bill’s future rests with the ECB. Although Mr Draghi stopped short of announcing an end to the note, an informal decision has already been made within the central bank to withdraw the bill from circulation, according to people briefed on the matter. While the withdrawal of the note would be music to the ears of Europol, taking it out of circulation would be politically controversial in Germany, which has a tradition of using high-value notes for big purchases.

Not in my backyard? Mainstream Scandinavia warily eyes record immigration | Reuters: Norwegian officials called the school guards "extra supervision". Critics said the plan to post security personnel near an Oslo school in case of assaults by newly arrived refugees was an ugly euphemism for intolerance. Across the border in the far northern Swedish town of Kalix, a traditional bastion of center-left politics, over 100 residents signed a petition against plans to turn a 19th century country house into a reception center for unaccompanied minors. The debate among these liberal Scandinavian stalwarts would have been unheard of a year ago, underscoring how concern about a record influx of immigrants is percolating into the Nordics' mainstream from the populist fringes. Anti-immigrant, populist parties have gained support since some 250,000 refugees entered the Nordics last year. A record 163,000 refugees arrived in Sweden and the far right is vying for top spot in polls. In Denmark, the anti-immigration Danish People’s Party is the second largest in parliament. But it is a backlash among the mainstream that may be the biggest change. There are signs that voters may be broadly supportive of immigrants but not in their own backyard. From welfare cuts to new ID checks, it is a trend that shows the limits of even some of Europe’s most open societies, and may represent a sea change for politics in Scandinavia.

Sweden To Store 1,800 Migrants On Docked Luxury Cruise Ship -  Sweden has found itself at the center of the refugee debate in Europe.  On the heels of the sexual assaults that allegedly occurred in Cologne, Germany on New Year’s Eve, several Swedish media sources came forward with allegations that authorities conspired to cover up a wave of attacks perpetrated by Arab youths at a festival held at central Stockholm’s Kungsträdgården last August. Additionally, there were multiple reports that Stockholm’s main train station is under siege by Moroccan migrant children, who apparently spend their days drinking, assaulting security guards, and accosting women. Finally, in what likely marked the last straw for many Swedes, a 22-year-old refugee center worker was stabbed to death late last month by a Somali migrant “child” who was later found to be an adult. Exasperated, some members of the “football hooligan” scene ran amok in the Stockholm train station late last month in an effort to wrest the transportation hub from the iron grip of child migrant gangs. According to Interior Minister Anders Ygeman, Sweden now plans to deport 80,000 of the 163,000 migrants it sheltered in 2015, but that won’t stop the flow of refugees, which means the country is going to need to find more innovative ways to house the asylum seekers. Fortunately, Migrationsverket (the Swedish migration agency) has a plan.  They will use luxury cruise ships to store migrants.  "Swedish tabloid Aftonbladet has revealed that one of the contractors which has agreed to provide floating accommodation for the agency, US Shipmanagers, has applied for planning permission to dock the ship, The Ocean Gala, in Härnösand, on the east coast of northern Sweden," The Local reports. "However, local councillors are opposing the bid due to the size of the ship – which would become Sweden's largest accommodation hub for asylum seekers if the plans go ahead."

Many Refugees Facing Eviction in France Worked With British and American Forces -- WHEN THE BULLDOZERS ARRIVED, the refugees had already moved their shacks and damp sleeping bags to other crowded areas of the refugee squat known as the Jungle. Left behind were stiff tangles of clothing, collapsed tents, and scattered food waste — mud-coated debris that had built up over the nine months or so since refugees began streaming into northern France. The machines were flanked by reporters and police, both anxious to catch signs of rioting among the roughly 1,500 migrants who had been forced to clear out of that section of the camp. For now, the eviction zone was calm and hardly any occupied shelters remained. Tear gas would come at night, as it often did, after most of the reporters had gone. One week earlier, a group of community liaisons representing the different ethnic groups of the camp in Calais, France (Afghan, Iraqi, Syrian, Eritrean, Sudanese, and others), sat down to a long-awaited meeting with local French officials. . Instead, the officials took the liaisons for a walk, marking what would become the camp’s new border with pink spray paint and informing them that hundreds of refugees would have three days to clear a 330-foot buffer zone along the highway. Although officials carefully timed the eviction in mid-January with the opening of a new fenced-in section of the Jungle, where immaculate rows of heated shipping containers would hold about 1,500 new beds for refugees, there would not be enough space for all of the newly displaced. Families and people forced to move in an earlier eviction had already claimed many of the beds. The shortage seemed to be according to plan. The local government intended to reduce the camp’s population from approximately 5,000 to 2,000 by convincing some refugees to apply for asylum in France and others to go back to where they came from, and by making life in the Jungle as uncomfortable as politics would allow.

Why the big banks really hate 'Brexit' - Feb. 15, 2016: By the day, analysts at the big banks are trying to out-do each other with scary warnings of Britain exiting the European Union -- the so-called 'Brexit.' Goldman Sachs (GS) said leaving could cause the pound to crash by as much as 20%. The bank has already poured hundreds of thousands of pounds into the "stay" campaign. Nomura (NMR) has warned Brexit could even push the U.K. into recession of about 2% from peak to trough. UBS (UBS) estimated the loss to the British economy would be somewhere between 0.6% and 2.8% of GDP. Banks are worried about Brexit, because they use Britain as a springboard for their business throughout Europe. Leaving the union could disrupt this link. Prime Minister David Cameron has promised the British people a vote on the 'Brexit' question by 2017.  He said he will campaign for the U.K. to stay in, provided the union of 28 states and over 500 million people is willing to reform. He called on businesses to campaign against Brexit.

Open Europe responds to UK-EU agreement | Open Europe: Open Europe has today published its initial response to the outcome of the UK-EU negotiations. The full text of the European Council summit conclusions, including the full UK deal can be found here.  In the coming days, Open Europe will publish its fuller analysis of the UK-EU deal. Open Europe’s Co-Directors Raoul Ruparel and Stephen Booth said:“The reform package being offered to the British public is a step in the right direction. The deal is not transformative, but neither is it trivial. The safeguards against the Eurozone dictating terms to the UK are significant, while the restrictions on EU migrants’ access to welfare would make the current system fairer and help reduce the incentives to move to the UK to perform low-paid, low-skilled work. The changes on ever closer union make it clear that the UK does not want further political integration. It is the largest single shift in a member state’s position within the EU.”“It is unfortunate that EU leaders have not risen to the occasion and taken this opportunity to embrace Europe-wide reform. This has narrowed the scope of the negotiations to British exceptionalism and therefore falls short in many of the areas that Open Europe has identified as ripe for reform. It is not simply the British public that wants a more competitive, democratic and less bureaucratic Union. Even at last night’s summit a number of other states attempted to piggy-back on the UK’s reforms, but this was resisted by others for fear of ‘reform contagion’. The question now is whether the EU will ever be able to embrace radical reform. British voters must not only weigh this question when they go to the polls, they will also consider the wider arguments for and against membership and the alternatives that are put forward.”

Re-electing Madame Lagarde -- An election with only one candidate? Doesn’t sound competitive. But with nominations just closed for Managing Director of the IMF, the one candidate, Madame Lagarde, will be reelected regardless.  To many, this will seem unremarkable. Mme Lagarde is stylish, engaging, and a welcome breath of fresh air among technocrats, politicians, and her predecessors. She’s doing an earnest job that, in the global scheme of things, doesn’t really matter, except to people who don’t really count. And among those who do count, the charge that her credibility is dented by selection bias in exclusive favor of continental Europeans is of little concern. We could do, and have done, much worse. Let it go.

Israel boycott ban: Shunning Israeli goods to become criminal offence for public bodies and student unions -- Local councils, public bodies and even some university student unions are to be banned by law from boycotting “unethical” companies, as part of a controversial crackdown being announced by the Government. Under the plan all publicly funded institutions will lose the freedom to refuse to buy goods and services from companies involved in the arms trade, fossil fuels, tobacco products or Israeli settlements in the occupied West Bank. Any public bodies that continue to pursue boycotts will face “severe penalties”, ministers said.