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

Saturday, February 6, 2016

week ending Feb 6

 The Fed Did Not Make A Mistake In December - Many observers are now viewing the Fed's decision in December to raise interest rates as a "policy error". With volatility in financial markets, falling commodity prices, and a fourth quarter slowdown many believe the Fed got ahead of the recovery with the December interest rate hike. Some even are even calling it a "huge mistake"or a "historic rate hike mistake". One person even called it an "epic mistake". I see things differently. The Fed did not make a mistake in December. It made a mistake all last year by talking up interest rate hikes and signalling a tightening of future monetary policy. Since markets are forward looking, this expectation got priced into the market and affected decision making. The Fed did this even though the economy was not back at full employment. The December rate hike was just a confirmation of these expectations. The Fed, in other words, got ahead of the recovery well before December. Damage was already being inflicted on the economy by the time the actual rate hike occurred, as seen in the figures below. They all show the 12-month ahead expected federal funds rate plotted against various economic indicators.  The first one shows the future federal funds rates alongside the trade weighted value of the dollar. Unsurprisingly, both start rising at about the same time in late 2014.

Fed Watch: Resisting Change? -- Monday Federal Reserve Vice Chair Stanley Fischer offered up a speech and lengthy discussion on recent monetary policy. It was both illuminating and frustrating at once. Although his confidence is fading, I also sense that he is resisting change. Fischer begins by reviewing the December decision: This covers familiar territory, as does his subsequent remarks the even after raising rates, policy remains accommodative: I would note that our monetary policy remains accommodative after the small increase in the federal funds rate adopted in December. And my colleagues and I anticipate that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate, and that the federal funds rate is likely to remain, for some time, below the levels that we expect to prevail in the longer run. This is the first source of my frustration, because his definition of "accommodative" depends upon a specific idea of the neutral Fed Funds rates. From the subsequent discussion: Well, I think we have to wait to see precisely where this process will take us. We expect now that the numbers given in the survey, we can now make projections, the SEP of members of the FOMC, of somewhere around 3 ¼, 3, 3 ½ percent, which is on average a bit lower than in the past. But we’ll be data-dependent and we’ll see what happens. We don’t have to fix a rate that we’ll be at. We can indicate what members of the FOMC believe, which is what the number I’ve just given you is. If you don't know the longer-run rate, how can you know how accommodative policy is? If the longer-run rate is close to 2 percent, then policy is less accommodative than you think it is. The endgame of policy is the dual employment/price stability mandate, not a specific level of interest rates.

Rate cut prospects grow as big central banks adopt a dovish tone | Reuters: The world's central banks have all but given up hopes they can return to conventional monetary policy soon, openly touting more easing and venturing deeper into the untested waters of unconventional policies. With global economic headwinds rising, this time from emerging markets, the world's biggest central banks have all hit a strongly dovish tone in the past day. They pointed to risks from emerging markets, China's economic slowdown and ultra-low inflation emanating from low oil prices. That suggests global interest rates are likely to go even lower. And it raises the risk they will set off a vicious cycle of competitive currency devaluations and fuel growing doubts they can meet their mandates. That is a marked contrast to the start of the year. The U.S. Federal Reserve and the Bank of England both expected to raise rates then, and the European Central Bank said it hoped it was done easing. In marked contrast, New York Fed Governor William Dudley, among the most influential policymakers on the Federal Open Market Committee, on Wednesday poured cold water on any lingering hopes for a rate hike this year. "One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting," when the Fed raised rates for the first time in almost a dcade, Dudley said. "So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision," he added.

Rate Expectations: Not So Fast, Fed - WSJ: Wall Street is increasingly skeptical about the pace of Federal Reserve interest-rate increases this year, the latest blow to the central bank’s yearslong efforts to unwind its easy-money policies and return the economy to a normal footing. At the start of 2016, the market viewed the Fed as likely to deliver another interest-rate increase at its March meeting, following December’s first rise in the federal-funds rate since 2006. Fed officials have pointed to as many as four rate increases this year, while saying they would closely survey economic data before making any decision. But in recent weeks, Credit Suisse, Goldman Sachs and J.P. Morgan Chase all have pushed back their forecasts for the next rate increase to June, while market-based measures of interest-rate expectations have fallen significantly. Several drivers are in play, notably the past year’s increase in the value of the U.S. dollar, the renewed decline this year in oil prices, turbulence in global stock markets, slowing growth overseas and still-soft inflation expectations.

Fed Watch: Solid Jobs Report Keeps Fed In Play (graphs) Just when you think it's safe to jump in the water, reality strikes. While I still think that the Fed passes in March, the solid jobs report is just what is takes to keep the Fed in the game. Back it up with another such report in March and a stronger inflation signal in one of the upcoming price reports and you set the stage for a divisive battle at the next FOMC meeting. Nonfarm payrolls grew by 151k, below consensus but within a reasonable range of estimates. The twelve-month moving average reveals a very modest slowing of job growth over the year: The jobs numbers in the context of data Federal Reserve Chair Janet Yellen pervasively identified as what to watch: Notably, wage growth has accelerated over the past year, suggesting that the Fed's estimate of NAIRU is within range of reality: Prior to the 2001 recession, wage growth typically accelerated at unemployment approached 6%. Now it looks like 5% is the magic number: I suspect the the employment cost index will soon follow the wage numbers higher: There are no signals of recession in this data. For those who will complain that it is lagging data, I suggest watching the temporary employment component: Bottom Line: This jobs report complicates the Fed's decision making process. They are stuck with instability in the financial markets as the economy reaches full employment. They are concerned that in the absence of temporary factors, inflation will quickly jump higher if the economy continues on this trajectory. While they would like unemployment to settle somewhat below NAIRU to eliminate lingering underemployment, they don't want it to settle far below NAIRU. They don't believe they can easily tap the breaks to lift unemployment higher. Recession is almost guaranteed to follow. Hence they would like to be able to rates rates gradually to feel their way around the darkness in which the true value of NAIRU lies. They fear that if they delay additional tightening, they will pass the point of no return in which they are forced to abandon their doctrine of gradualism. The Fed's policy challenge just became a little bit harder today.

Conflicting Economic Indicators Challenge Fed - — The contrast between the improving health of the labor market and the weakness of other economic indicators poses a challenging quandary for the Federal Reserve.  Janet L. Yellen, the Fed’s chairwoman, and other officials have said the Fed must raise its benchmark interest rate as job growth continues to prevent higher inflation down the road. The strength of the January jobs report — including faster wage growth — suggests the Fed’s policy-making committee still could raise rates as soon at its next meeting in March. But the Fed would be betting on a theory. Inflation remains low, growth has slowed and the impact of global economic problems and financial market volatility is unclear. If the Fed presses ahead, it could undermine the economy just as things are getting good for the vast majority of Americans. “My message to the Fed regarding this recent, long-awaited acceleration in wages is ‘Love it and leave it alone,’ ” said Jared Bernstein,  “If we want working people to benefit from the expansion, the last thing you’d want to do is tap the brakes — especially given the absence of inflationary pressures.”The Fed raised its benchmark rate in December for the first time since the financial crisis. It had held rates near zero for seven years to encourage borrowing and risk-taking. Ms. Yellen, speaking after the announcement, said the Fed planned to raise rates gradually, reducing those incentives because the economy no longer needed quite as much help.  In the intervening two months, the economic outlook has deteriorated. Financial conditions have tightened and the dollar has gained strength, weighing on American exporters and delaying any rebound in inflation. The January jobs report, however, reflects considerable strength in other parts of the economy. Stronger wage growth is particularly likely to grab the Fed’s attention, suggesting that employers are finally being forced to compete for workers by raising pay. The Fed is less likely to worry about the slower pace of job creation in January, as officials have predicted that slower population growth would weigh on job creation. In keeping with those expectations, the unemployment rate still fell to 4.9 percent.

Dollar tumbles as Fed rescues China in the nick of time - Telegraph: The US dollar has suffered one of the sharpest drops in 20 years as the Federal Reserve signals a retreat from monetary tightening, igniting a powerful rally for commodities and easing a ferocious squeeze on dollar debtors in China and emerging markets. The closely-watched dollar index (DXY) has fallen 3pc this week to 96.44 and given up all its gains since late October. This has instant effects on the world’s inter-connected financial system, today more geared to the US exchange rate and Fed policy than at any time in modern history. David Bloom, from HSBC, said the blistering dollar rally of the past three years is largely over and may go into reverse as weak economic figures in the US force the Fed to pare back four rate rises loosely planned for this year. A more dovish Fed and a weaker dollar is a bitter-sweet turn for the Bank of Japan and the European Central Bank as they try to push down their currencies to stave off deflation. Their task has become even harder. The euro has rocketed by more than 3pc this week to $1.12 against the dollar. In trade-weighted terms the euro is 5pc higher than it was in March, when the ECB began quantitative easing, showing just how difficult it has become for authorities to drive down their exchange rates. Everybody is playing the same game. Yet a halt to the dollar rally is a huge relief for companies and banks around the world that have borrowed a record $9.8 trillion in US currency outside the US, up from $2 trillion barely more than a decade ago.

Negative Interest Rates Already In Fed’s Official Scenario - Over the past year, and certainly in the aftermath of the BOJ's both perplexing and stunning announcement (as it revealed the central banks' level of sheer desperation), we have warned repeatedly that next in line for the grand negative rates experiment is the Fed itself, whether Janet Yellen wants it or not. Today, courtesy of Wolf Richter, we find that this is precisely what is already in the small print of the Fed's future stress test scenarios, and specifically the "severely adverse scenario" where we read that: The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities. As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario. And so the strawman has been laid. The only missing is the admission of the several global recession, although with global GDP plunging over 5% in USD terms, we wonder just what else those who make the official determination are waiting for. Finally, we disagree with the Fed that QE4 is not on the table: it most certainly will be once stock markets plunge by 50% as the "severely adverse scenario" envisions, and once NIRP fails to boost economic activity, as it has failed previously everywhere else it has been tried, the Fed will promptly proceed with what has worked before, if only to make the true situation that much worse. Until then, we sit back and wait.  Here is Wolf Richter with Negative Interest Rates Already in Fed’s Official Scenario

Fed stress-tests negative interest rate idea-— The Federal Reserve started raising official interest rates in December. But in the stress tests that large U.S. banks have to undergo, the central bank is hypothesizing that short-term Treasury yields could drop below zero. The European Central Bank and, since Friday, the Bank of Japan are trying it with policy benchmarks. Though negative U.S. interest rates are for now only in the Fed's worst-case scenario, they are becoming a plausible downturn assumption.The stress tests are required each year under the Dodd-Frank Act, and the 2016 parameters for big financial institutions were announced last week. They come in "baseline," "adverse" and "severely adverse" flavors. The last is supposed to represent a severe global recession, and that's where the Fed has told banks to model negative yields on short-term Treasury securities – emphasizing that it's a hypothetical scenario, not a forecast. Yet it's no longer looking outlandish. There's plenty for now to keep the Fed on a gradual path toward higher rates, including healthy U.S. employment and relatively steady growth. Even the uninspiring first estimate for GDP last quarter, which indicated a 0.7 percent annualized pace, still showed year-on-year expansion of 1.8 percent.

Is The Fed "Seriously Considering" Negative Interest Rates? -- The Fed may "seriously consider" negative rates after moving rates back to zero, reintroducing forward guidance and making "stronger pleas" to Congress for fiscal policy action as there are complications for money markets, according to BofAML strategist Mark Cabana. This would not be a total surprise as Mises Institute's Joseph Salerno warns recent Fed commentary suggests they want to test-drive negative interest rates... In 2016, the Fed's annual stress test on banks will include a scenario in which the interest rate on the three-month U.S. Treasury bill becomes negative in the second quarter of 2016 and then declines to -0.5%, remaining at that level until the first quarter of 2019.  According to the Fed, "The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities."  In other words, including this scenario in its stress test is not supposed to signal that the Fed is contemplating adopting a deliberate policy of negative interest rates.  It is simply testing the resilience of big banks in the face of  a severe recession that precipitates a "flight to safety" which spontaneously drives rates on short-term Treasury securities into negative territory.  Or so they would have us believe. Recent remarks by those associated with the Fed, however, seem to suggest otherwise.   In mid-January, New York Fed President William Dudley denied that policy makers were "thinking at all seriously of moving to negative interest rates."  However, he conceded, "I suppose if the economy were to unexpectedly weaken dramatically, and we decided that we needed to use a full array of monetary policy tools to provide stimulus, it’s something that we would contemplate as a potential action."  Most tellingly, just this past Monday, Fed Vice Chairman Stanley Fischer gave a talk to the Council on Foreign Relations in New York in which he approvingly discussed negative interest rates in some detail. 

Does the Fed lack the technical means to dive into negative rate waters? --The Federal Reserve may be in a bit of a bind. With the Bank of Japan reducing rates to -0.1%, many commentators are calling on the Fed to reverse its policy of rate normalization and follow Japan into negative territory.  The problem is this. Thanks to the rules laid out in the Federal Reserve Act, the Fed may lack the technical means to dive into negative rate waters. Let me restate this in different terms. If the Federal Reserve were to reduce the rate at which it pays interest on reserves (IOR) to -0.25% or so, the overnight rate may not follow into negative territory. Monetary policy is useless. Why this odd effect? As Nick Rowe says in this delightful post, in a world with negative interest rates everything old is new again, only it's a mirror image. And in a world of negative U.S. rates, the mirror image of the Fed's leaky floor is a sticky ceiling. And just like the leaky floor (more on this later) dragged the overnight rate down to 0% when IOR was positive, the sticky ceiling effectively pulls the overnight rates back up to 0% when IOR is negative. To see why, we need to take a quick tour of the legal and technical history behind IOR.

Counterparties and Collateral Requirements for Monetary Policy - NY Fed -  What types of counterparties can borrow from or lend to a central bank, and what kind of collateral must they possess in order to receive a loan? These are two key aspects of a central bank’s monetary policy implementation framework. Since at least the nineteenth century, it has been understood that an important role of central banks is to lend to solvent but illiquid institutions, particularly during a crisis, as this provides liquidity insurance to the financial system. They also provide liquidity to markets during normal times as a means to implement monetary policy. Central banks that rely on scarcity of reserves need to adjust the supply of liquidity in the market, as described in our previous post. In this post, we focus on liquidity provision related to the conduct of monetary policy.

How Do Central Bank Balance Sheets Change During Crises? - NY Fed -  The 2007-09 financial crisis, and the monetary policy response to it, have greatly increased the size of central bank balance sheets around the world. These changes were not always well understood and some were controversial. We discuss these crisis-induced changes, following yesterday’s post on the composition of central bank balance sheets in normal times, and explain the policy intentions behind some of them.

The Core PCE Price Index Inches Higher But Remains Well Below Target - The Personal Income and Outlays report for December was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate is 0.58%, up from the previous month's 0.44%. The latest YoY Core PCE index (less Food and Energy) came in at 1.41%, little changed from the previous month's 1.38%, but the trend has inched higher from its interim low of 1.26% five month earlier. The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since Early 2013, the Core PCE Price Index has hovered in a narrow YoY range around 1.5%. For six months beginning in April 2014 it rose to a plateau slightly above the range, but it has since dropped to a lower range around the 1.3% level. The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low. The second string highlights the lower range of the past 14 months.The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

E Dollar Concept is Being Pursued by The BOE, PBOC, and Yes, The Fed - Central banks are planning to implement a new form of currency that has the potential of being an even more profound change than 1913, 1933, 1945, or 1971.  Back in early 2014 I wrote what is now The History and Introduction.  In it I discussed an option that the government and banks might use to get us out of the monetary mess we find ourselves in, it was called the E Dollar. The E Dollar is simply a digital currency that has an exchange rate with cash. The central bank would set a rate at which old paper dollars would lose value against E Dollars held in a bank account. Under an E-Dollar system any physical cash removed from the banking system would lose value against the E Dollars retained in an account, this would effectively eliminate the zero lower bound.  Central banks would be free to implement significantly negative rates.  The E Dollar would also a carry the added optional benefit of a gradual debt jubilee if the powers that be decided to allow old debt to remain denominated in old dollars.

Q4 2015 GDP Comes in at a Paltry 0.7% --The initial Q4 GDP estimate is an ominous 0.7%.  Consumer spending was the only dimly lit bright spot,with changes in inventories removing 0.45 percentage points from GDP.  The trade deficit didn't help either as exports were less than imports and the end result was a -0.47 percentage point drain on Q4 real GDP.  Both government and fixed investment GDP contribution was next to nil. As a reminder, GDP is made up of  Y= C+I+G+(X-M)  where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the GDP component comparison in percentage point spread from Q3 to Q4.   Consumer spending, C was the bright spot, yet that's not saying much. With a 1.46 percentage point increase, that is not as strong as Q3 or Q2. Below is a percentage change graph in real consumer spending going back to 2000.Goods contributed 0.53 percentage points to GDP and within goods, durables was 0.32 percentage points. Services was a 0.93 percentage point contribution. Within services, health care was a 0.43 percentage point contribution to Q4 GDP. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X show some imploding with a –0.47 percent point contribution. This is the advance GDP estimate, hence actual trade data hasn't come in yet and imports are almost always revised upward, even with petroleum imports declining as a trend.Government spending, G contributed 0.12 percentage points to Q4 GDP with0.14 percentage points contributed by national defense. Investment, I is made up of fixed investment and changes to private inventories. The change in private inventories alone was a -0.45 percentage point contribution. Below are the change in real private inventories and the next graph is the change in that value from the previous quarter. Fixed investment is residential and nonresidential and was just 0.03 percentage points of GDP contribution. Nonresidential was a -0.24 individual percentage point contribution. Within nonresidential, both structures and equipment were -0.15 GDP percentage points.Residential fixed investment was 0.27 percentage points to GDP. The below graph shows residential fixed investment.Nominal GDP: In current dollars, not adjusted for prices, of the U.S. output,was $18,128.2 billion, a 1.5% annualized increase for Q3 from Q4. In Q3, current dollar GDP increased 3.3%, showing Q4's growth was less than half of Q3.

“I’ll have the wage mash-up with a side of low inflation” -- Jared Bernstein - So, with the productivity data out this AM–such as it was–I’ve now got the five wage and compensation series I need for the latest version of our patented wage mash-up (details here). I added a trend this month so you could see the bit of acceleration at the end of the series. That’s good to see as it suggests the tightening job market is likely delivering a bit of bargaining power to workers who’ve seen way too little of that for way too long (some parts of the country are clearly already at full employment). Inflation’s very low so even these modest 2%’ish gains translate into faster real wage growth. And from the Fed’s perspective, that’s the key point.  In case they’re busy, I’ve taken the liberty [street] to make my friends over there a handy checklist:

Tighter job market, check;
Slight nominal wage acceleration, check;
Inflationary pressures, NOT CHECK!

Feet off of brakes, double-check!

Morgan Stanley: This Is What a World Without Oil Looks Like - Much ink has been spilled over the leakage of collapsing crude prices into wider markets. A note from Morgan Stanley analysts led by Chief Cross-Asset Strategist Andrew Sheets demonstrates the degree to which the fortunes of the energy sector are currently driving stocks and bonds, while emphasizing that the correlation is "overstated." Stripping out the impact of the energy sector reveals a far different picture for industrial production, corporate earnings, and inflation around the world. "Oil’s role in driving hour-by-hour market moves is overstated. But its place in the broader macro debate remains central," write the analysts. "Energy companies are no longer leading equity or credit indices higher or lower. In our view, oil and markets are moving together because they are driven by similar things: concerns over growth, a lack of risk appetite, [and] a relentlessly strong trade-weighted dollar." U.S. industrial production has slipped in recent months, with some economists interpreting the decline as a sign of impending recession. Remove the effect of energy, however, and the fall in industrial production disappears faster than a West Texas jackrabbit. "Lower oil prices have clearly not been the economic boon many had previously assumed," notes Morgan Stanley. "But it is also important to recognize that many 'broad' measures of economic health, such as U.S. industrial production, can be significantly affected by weakness in oil."

Here’s What Oil and Gas’s Ugly 2015 Did to Business Investment - In the final quarter of 2014, business investment related to oil, gas and other mining hit an all-time high. One year later, that’s dropped by more than half. It’s the second-biggest yearlong drop in inflation-adjusted investment seen by any of the major categories in more than 50 years. (Which is how long we’ve had comparable data.) Even by standards set by previous swings in the relatively small, volatile mining and gas sector, this one’s a humdinger. Here’s what it’s meant for U.S. business investment, in four charts. The Commerce Department data includes investment in all of the types of structures, equipment and software that produce goods and services, and is thus a barometer of firms’ outlook as well as a measure of their spending. That barometer has lagged behind the rates seen in previous recoveries, but much of its recent weakness can be blamed on the historic drop in mining and petroleum.. From the final quarter of 2014 to the final quarter of 2015, overall business investment grew an anemic 1.6%. But when you exclude the disastrous decline in mining and petroleum, that number leaps to 5.1%. The disparity is even sharper when you focus on investment in structures, which fell 3.6% over the same period. Without mining and petroleum, it actually grew 16.2%, buoyed by investment in manufacturing and commercial structures, as well as those devoted to health care. Mining and petroleum is one of the smallest categories of business investment, especially after that brutal four-quarter stretch lopped off half its size, but it has still caused some of the biggest swings in the distribution of business investment in the modern era. The other major culprits are the well-documented rise of investment in intellectual-property categories such as software and research and development, and investment in transportation equipment.

More real and (inflation-adjusted) fun with the NIPA tables -- In our previous post, we looked at which sectors of the US economy tend to be responsible for contractions in real output. After toiling away in table 1.5.2 of the National Income and Product Accounts, we produced this chart: Despite accounting for less than a fifth of economic activity on the eve of the last downturn, changes in spending on residential construction, business investment in equipment, and household consumption of durable goods accounted for basically all of the decline in real GDP, just as they did in 1973, 1980, and 1990. The chart below uses the same colour scheme to show which components of GDP have historically contributed to the recoveries in each cycle from the trough to the previous peak: You’ll notice there is often a mismatch between what went down and what comes back up. The “other” category, which includes business spending on software and R&D, as well as government spending and household consumption of services, plays a much more important role in the recoveries than it does in downturns. This fits with what Alan Greenspan has described as the “downsizing” of the US economy.Even so, you can see how durable goods consumption, inventory accumulation, and — except for the most recent recovery — housing have been instrumental in getting American output back to where it had been. (Just as shifts in the trade balance usually ameliorate reductions in GDP during recessions, they also tend to hold back the economy during recoveries. Downturns, at least in a big closed economy like America’s, are home-grown affairs, so imports will generally contract more than exports as domestic demand sinks. As the economy recovers, imports snap back more than exports.)

Atlanta Fed Sees Q1 GDP Growth At Just 1.2%, 50% Below Wall Street Consensus - Compared to the Wall Street Consensus, which had originally expected Q4 2015 GDP to rise as much as 3% only to admit Q4 was a total bust (and this time not even the weather was to blame) when last Friday the BEA's first estimate of Q4 growth revealed GDP had risen a minimal 0.7% - a number which will be reduced following today's big construction spending miss - the Atlanta Fed's 1.0% pre-announcement estimate seems like a bulls eye. Which is why the fact that according to the Atlanta Fed's just launched Q1 GDP tracker the US economy will grow another barely above-recession 1.2%, more than 50% below the Wall Street consensus of 2.3%, should be very troubling, as it suggests there will barely be any growth in the quarter in which the 2015 inventory liquidation was supposed to have taken place, and instead the economic weakness will persist well into the year in which the Fed has signalled it will hike rates 4 times, a number which the market which sees just one rate hike in the next 11 months, vigorously disagrees with. This is what the Altanta Fed said: The initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.2 percent on February 1. The final model nowcast for fourth-quarter real GDP growth was 1.0 percent, 0.3 percentage points above the advance estimate of 0.7 percent released last Friday by the U.S. Bureau of Economic Analysis.

"Blue Chip" Optimism vs. GDPNow 2016 Q1 Initial Forecast; Strengths and Weaknesses of GDPNow --The Atlanta Fed initial GDPNow Forecast for first quarter 2016 starts of will an anemic 1.2% whimper."The initial GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.2 percent on February 1."  The Atlanta Fed "Final" GDPNow Estimate for the 4th Quarter was posted on January 28. The 4th quarter "Blue Chip" consensus at that time was about 1.9%. The actual BEA release was 0.7%. The strength of the Atlanta Fed GDPNow model is that it mimics BEA calculations, thus providing an advance look as to what the BEA will report.  The inherent and unavoidable weakness in the GDPNow model is BEA revisions. GDPNow mimics a model in which data is revised, revised, and revised again.  Late last year the BEA announced it made a major "processing error" in regards to construction spending. The error affects GDP all the way back to 2005.  We will not know the total effect until July 2016. We do know the biggest errors pertain to 2014 GDP which will rise, and 2015 which will fall.  Moreover, GDP is notoriously wrong around economic turns, like now. It's highly likely the GDPNow model has mimicked bad data from the BEA that will be revised substantially lower in the future.

Economists See 20% Chance of US Recession this Year. A Financial Times survey of 51 economists, conducted in the days after the Fed’s January meeting, underscores the impact of the past month’s severe market turbulence and a string of lacklustre economic reports out of the US and China.  The fear that the world’s largest economy — considered the lone engine of global growth — is on the verge of recession has intensified. In the FT’s December survey economists had put the odds of a US recession at 15 per cent during the next two years. Now, they see a one-in-five chance of recession in the next 12 months. Economists surveyed by the FT emphasised that while the odds of a recession had climbed, a large majority still expected the US to escape one. Several who have fielded increased investor calls on the subject said that the conversation had been skewed because of the near obsession with the price of oil — a point that they argued had more to do with supply than global demand. Mr Gapen, who put the odds of a recession between 10 and 15 per cent, said that he still thought strong consumption trends would keep the US economy from contraction.

What might the next US recession look like? We can’t answer whether a recession is around the corner, although the probability of another downturn necessarily rises with time since the last one. Instead, we want to lay out some of the main arguments and think through what various downside scenarios might look like. The credible case for concern goes something like this (we’re paraphrasing): Following the collapse of the credit bubble, central banks tried to get people to spend by encouraging savers to invest in riskier assets than they otherwise would have. The hope was that rising stock prices and home values would boost consumer spending power and get businesses to hire workers and expand capacity. Instead, the main impact was through the “portfolio balance channel”, which pushed savers to load up on junk bonds, leveraged loans, and liabilities issued by companies and governments based in emerging markets. At the same time, China’s initial response to the crisis was a wholesale switch from an “export-led” growth model to one centred on domestic investment in infrastructure, real estate, and industrial capacity. Whether or not this was the best response to the global downturn, it was a huge boon for producers of industrial commodities — at least until China began switching yet again towards a more “sustainable” development model sometime around 2011. (Look at the prices of iron ore, copper, and coal if you want to quibble about the date.) One consequence is that more than all of the increase in investment since 2008 has come from emerging markets. From the Jerome Levy Forecasting Center:  Another, related, effect is the distribution of global capex spending by sector. Essentially all of the growth since the pre-crisis peak has come from energy and materials. From Citi:America looks similar. According to the Levy Center’s analysis of Compustat data, half of the total increase in capex spending by US-listed nonfinancial companies since the trough has come from energy firms:

Random thoughts on energy, debt and economic growth --There has always been a direct correlation between economic growth and the cost of energy: The cheaper the cost of energy, the greater the economic growth. While it is true that low oil prices will negatively affect companies that deal directly in them, the opposite is true for the rest of the economy. If the price of oil remains low for the next few years, there will inevitably be an increase in economic growth throughout the world. This is because there is a "ripple" effect whereby lower oil prices translate into cheaper goods and services - cheaper transport costs a) allow producers to sell their goods at a higher profit margin, and b) allow consumers to have more disposable income left after purchasing them. In short, cheap energy (which means plentiful energy in reality), is a win-win for the entire economy. As for the "debt supercycle", I am getting more and more convinced that the economy is actually about goods and services that people and businesses produce and consume. Debt and money are simply numbers which affect how much a person/business/government can purchase or produce something. If there is cheap and plentiful energy available to an economy, the numbers involving debt and money will tend to balance each other out more quickly. The Energy part of the equation here is important because obviously a market economy that is dependent upon fossil fuels is more likely to experience peaks and troughs as oil levels move from plentiful to scarce. If the world economy was a game, and if global warming did not exist, it would be far better to pump out oil continually at a pace beyond demand, ensuring that a large reservoir of ready-to-refine oil exists above ground rather than below it, and by doing so keep energy flowing into the economy at a stable pace. But because energy is in the hands of market forces, this doesn't happen.

Total U.S. Debt Surpasses $19 Trillion; Rises $8.4 Trillion Under President Obama - Two months ago, when we calculated that the US would need a new debt ceiling of $19.6 trillion to last until after Obama's tenure, we may have been overoptimistic: since the hard limit of $18.15 trillion which was raised at the end of October, the US appears to be growing its debt at a far faster pace than we had originally expected, and according to the latest public debt data, as of the last day of January, total US debt just hit 19,012,827,698,417.93. This means that if the nominal US GDP as of December 31 which was $18.12 trillion grows at the 1.4% rate expected by the Atlanta Fed, total debt to GDP is now on pace to hit 105% at the next GDP tabulation, and rising fast. It also means that since his inauguration in January 2009, the US debt has now risen by a whopping 78.9%, or $8.4 trillion. It was $10.6 trillion when Obama came into office.

US Treasury Yields Are Tumbling Again -- Treasury yields continue to fall, making mincemeat of the idea that the Federal Reserve will continue to raise interest rates this year. Everything could change, of course, if the incoming economic data turns out to be stronger than expected. The main event for this week: January payrolls, starting with today’s preliminary estimate for the private sector via ADP’s data, followed by Friday’s official numbers from the US Labor Department. Meanwhile, Mr. Market has been slashing rates across the Treasury curve in the wake of revived worries about economic growth. The 2-year yield—considered the most sensitive for rate expectations—has fallen sharply this year, decreasing to a three-month low of 0.75% yesterday (Feb. 2), based on daily data from The benchmark 10-year yield’s tumble is even more dramatic, sliding to 1.87%–the lowest level since last April. There’s a bit of good news in that the market’s five-year inflation expectations remain relatively stable, albeit at subdued levels vs. recent history. Future inflation implied by the yield spread for the nominal 5-year yield less its inflation-indexed counterpart is currently 1.14% as of Feb 2. That’s a middling rate in the context of the last several months, but for the moment it’s encouraging to see that it’s not collapsing. The 10-year inflation forecast, however, looks weaker in context with its recent range and so there’s still plenty of uncertainty about what happens next.

Lacy Hunt – "Inflation and 10-Year Treasury Yield Headed Lower" - Mish - video - No one has called long-duration treasury yields better than Lacy Hunt at Hoisington Management. He says they are going lower. If the US is in or headed for recession then I believe he is correct. Gordon Long, founder of the Financial Repression website interviewed Lacy Hunt last week and Hunt stated "Inflation and 10-Year Treasury Yield Headed Lower".

10-year T-note yield sinks, dollar weakens as Fed hike fears fade: U.S. long-term government bonds are in demand again and the dollar is losing some of its luster as Wall Street downgrades its views on interest rate hikes. With markets experiencing turbulence and the global economy facing myriad headwinds, investors are again flocking to the perceived haven of bonds issued by Uncle Sam. The reason: Wall Street is pretty much ruling out a March rate hike by the Federal Reserve and thinks the U.S. central bank may remain on hold for the remainder of the year. That shift in thinking about U.S. interest rate policy is pushing the value of the dollar down, a development that is positive for commodities and for U.S. multinationals that do a lot of business abroad. On Wednesday, the yield on the 10-year Treasury note, which moves in the opposite direction of price, hit an intraday low of 1.79%, its lowest yield since Feb.5, 2015 — or a 12-month low. The yield has since crept back up to 1.90% in early trading Thursday but the sub-2% yield is a sign rate hikes are no longer a big fear on Wall Street -- at least for now. The dollar also weakened Wednesday, a trend that remains in place in early trading Thursday.

10Y Treasury Yield Crashes To 10-Month Lows, Down 40bps Since Fed Rate-Hike - Since The Fed hiked rates mid-December, 10Y Treasury yields have plunged around 40bps with today's 6bps drop taking out 1.9015% Black Monday lows, all the way back to April 2015 lows.  1.8965% lows today is the lowest since April 21st 2015.  Policy-Error?

U.S. Treasury expects to borrow $250 billion in first quarter | Reuters: The U.S. Treasury said on Monday it would borrow more during the January-March period than it had previously estimated, due to an increase in the cash balance and a larger financing need. The Treasury said in a statement it expects to issue $250 billion through credit markets during the period, up from an initial estimate of $165 billion. The department said it expects to pay down $112 billion in net marketable debt during the second quarter of 2016.

Explaining Why Federal Deficits Are Needed -  Most MMT advocates probably took months to get comfortable with it.  But like a personal computer, one need not understand its innards to use its power.  The great power of MMT is its lesson that the federal government can create new dollars by running deficits to do things that should be done.  But the lesson is counterintuitive and will be rejected by voters unless it can be explained convincingly in a few minutes.  This paper offers five nuggets for explaining it quickly. NEP readers are asked to suggest ways to make the explanation simpler and better.  Most Americans believe the federal government is like a family or business that must live within its income.  On the surface, that makes sense and the reasons why it is wrong are complex.  Here are five nuggets, or simple ways to explain why it is wrong to voters who will never be economists.  They show why federal deficits are necessary.  They can be adapted and used as appropriate.

Explaining Why Federal Deficits Are Needed - naked capitalism Yves here. To this useful post, I wanted to add a comment from Clive about one of the favorite deficit scaremonger arguments, which he recently debunked in comments: I wish I had a pound for each time I heard an asset holder defending some perfectly idiotic policy response on the basis that it would “help their pension”.   It cannot be stated often enough (please everyone, tell your friends as often as they’ll put up with it):  All pensions are residual claims on future prosperity. Wrecking the present, such as:

* by degrading the installed asset base in areas like transport, power or potable water supply and distribution
* by neglecting health and social care services
* by crapifying education
* by tolerating unemployment, especially youth unemployment

… is lowering the baseline for prosperity in the present which means a lower base to draw on in the future. These are not potential, theoretical problems which might emerge in the future; they are happening today. They represent legitimate areas where state intervention is perfectly justified. I am not a disinterested party here. I am long on both financial asset and residential real estate exposure. These are judged by the people who manage my fund the least-worst asset classes for long-term investment — I have limited (virtually zero) influence over their strategies for investment. I fully expect these assets to be subject to write downs with the knock-on effect to the returns I have been promised in retirement. While deficit terrorism precludes state action which would limit the damage, the persistence of policies which make a sudden stop (disorderly defaults and massive dislocations) far more likely is enabled. In short, it gets worse the longer it goes on for.

Ryan moves to quell Freedom Caucus anger on budget - Speaker Paul Ryan is meeting with House Freedom Caucus members late Tuesday night as an uprising simmers in the conservative rank-and-file over government spending levels and increased deficits. The late-night "budget and beer" get-together, which is being hosted by Ryan in his Capitol office, is intended to discuss House Republican spending plans. Just before that meeting, the Freedom Caucus will privately meet without Ryan, according to several sources with knowledge of the gathering. Story Continued Below Freedom Caucus members Monday night overwhelmingly said they would oppose a 2017 spending plan being crafted by Budget Committee Chairman Tom Price (R-Ga.), Ryan and other party leaders unless they agree to tens of billions of dollars in additional spending cuts, Rep. Mick Mulvaney (R-S.C.) said. Mulvaney informed Ryan at a closed-door meeting earlier on Tuesday, and the Freedom Caucus will repeat the message tonight. "I hope to hear that maybe we hear that we're going to spend less money, maybe passing a budget at a lower number," Mulvaney said of HFC gathering with Ryan. "I had a chance this afternoon to convey to Paul the consensus of the [Freedom Caucus] last night, which was unanimous in opposition to a budget at the higher levels of the Boehner budget agreement last fall." However, rewriting the spending plan would violate an agreement GOP leaders reached with President Barack Obama and Democrats last year as part of the omnibus budget deal. The White House, Democrats and some Republicans — notably defense hawks — would object to further cuts.

Pentagon budget includes $13 billion for new submarines — along with billions more for bombers and missiles: he Pentagon’s next five-year budget proposal seeks over $13 billion in funding for a new submarine to carry nuclear ballistic missiles, plus orders for more Boeing Co and Lockheed Martin Corp fighter jets, according to sources familiar with the plans. The plan also shifts the Navy’s strategy for a new carrier-based unmanned drone to focus more on intelligence-gathering and refueling than combat strike missions, said the sources, who were not authorized to discuss it publicly before the budget’s release. U.S. Defense Secretary Ash Carter plans to map out his spending priorities for the $583 billion 2017 defense budget on Tuesday ahead of the official budget release on Feb. 9. The Pentagon’s plan will also underscore the need to fund all three legs of the U.S. strategic deterrent “triad” — a new Air Force bomber, a replacement for the Ohio-class submarines that carry nuclear weapons, and new nuclear-armed intercontinental ballistic missiles, said one of the sources. The Navy’s proposed fiscal 2017 budget will fund procurement of materials for the new submarines that take a long time to acquire, with funding for construction of the first full new submarine to follow in fiscal 2021, said one of the sources. Over the next five years, the Navy would spend over $4 billion on research and development of the new submarines, plus over $9 billion in procurement funding, the sources said.

Peterson Institute study shows TPP will lead to $357 billion increase in annual imports - Dean Baker - A new study published by the Peterson Institute projects that the TPP will lead to an increase of $357 billion in annual imports when its effects are fully felt in 2030. This increase in imports will be equal to 1.4 percent of projected GDP in that year. You probably didn’t see this projection in the write-ups of the analysis in the Washington Post, NYT, or elsewhere. That is likely because the study’s authors chose not to highlight it. Instead, in their abstract they told readers that they projected the TPP would increase exports by $357 billion. If you were curious about what happened to imports you had to go to page 7 to find: “The model assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries.” In other words, by design the model assumes that trade balance for the United States is not changed as a result of the TPP. This means that whatever changes we see in exports, according to the model, will be matched by an equal change in imports. Unfortunately the implied projection for imports is never mentioned in the study, so some reporters may have missed this implication of the model. There are several other important issues that may have been missed. First, the model is quite explicitly a full employment model. This means that, by assumption, the model rules out the possibility of the TPP leading to a larger trade deficit that reduces output and increases unemployment.

Yet More TPP Studies Predict Slim Economic Gains, Highlight Dubious Underlying Assumptions -- It's striking that from a situation where there were very few studies of the likely effects of the TPP agreement, we've moved to one where they are appearing almost every week. Recently Techdirt wrote about a World Bank study, and one from Tufts University; now we have one from the Peterson Institute for International Economics, which calls itself "a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy." Here's its summary of the resultsThe new estimates suggest that the TPP will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030, when the agreement is nearly fully implemented. Annual income gains by 2030 will be $492 billion for the world. While the United States will be the largest beneficiary of the TPP in absolute terms, the agreement will generate substantial gains for Japan, Malaysia, and Vietnam as well, and solid benefits for other members.  That figure of 0.5% cumulative GDP gain by 2030 is in line with the other studies discussed previously here on Techdirt. But there are various issues with both that figure and the study itself, which are highlighted by Dean Baker, co-director of the Center for Economic and Policy Research, in a post on Medium. One of the most serious is something we've noted before: despite attempts to present them as otherwise, the predicted gains are extremely small. Baker explains this well:   The study's projection of a cumulative gain to GDP of 0.5 percent by 2030 implies an increase in the annual growth rate of 0.036 percentage points. This means that if the economy was projected to grow by 2.2 percent a year in a baseline scenario, it will instead grow at a 2.236 percent rate with the TPP, assuming the Peterson Institute projections prove correct.

Economists Sharply Split Over Trade Deal Effects - — Lawmakers and presidential candidates are having their say about the 12-nation Pacific Rim trade accord that is President Obama’s top economic priority in his final year in office. But lately the liveliest debate over the deal is among blue-ribbon economists.On Monday, it was the critics’ turn: Economists from Tufts University unveiled their study concluding that the pact, called the Trans-Pacific Partnership, would cause some job losses and exacerbate income inequality in each of the dozen participating nations, but especially in the largest — the United States.Supporting the authors at the National Press Club was Jared Bernstein, who was the top economic adviser to Vice President Joseph R. Biden Jr. during Mr. Obama’s first term. The conclusions of the Tufts economists contradict recent positive findings from the Peterson Institute for International Economics and the World Bank about the trade pact, which would be the largest regional accord in history and would bind nations including Canada, Chile, Australia and Japan. Each side in the economists’ debate has criticized the economic model that the other used to reach its results, while opponents and supporters of the trade accord have quickly seized upon whichever analysis buttressed their own views. Michael B. Froman, Mr. Obama’s trade representative, plans to join other trade ministers in Auckland, New Zealand, on Thursday for the formal signing of the trade deal, which they finished in October after years of negotiations. The future of the deal, however, depends on the approval of a sharply divided Congress. The administration is believed to lack enough support for passage, though votes are not expected until after the November election. Some other nations are delaying their own ratification processes pending American action.

The latest and probably best estimate for TPP -- From Peter A. Petri and Michael G. Plummer (pdf):This Working Paper estimates the effects of the Trans-Pacific Partnership (TPP) using a comprehensive, quantitative trade model, updating results reported in Petri, Plummer, and Zhai (2012) with recent data and information from the agreement. The new estimates suggest that the TPP will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030, when the agreement is nearly fully implemented. Annual income gains by 2030 will be $492 billion for the world. While the United States will be the largest beneficiary of the TPP in absolute terms, the agreement will generate substantial gains for Japan, Malaysia, and Vietnam as well, and solid benefits for other members. The agreement will raise US wages but is not projected to change US employment levels; it will slightly increase “job churn” (movements of jobs between firms) and mpose adjustment costs on some workers.  I know plenty of people who don’t like parts of this deal, but not any who have produced a better net estimate of what it will do.

US, Japan, Canada, Australia and 8 Other Countries Sign Trans Pacific Partnership Agreement - The Trans Pacific Partnership (TPP) would be horrible for Americans and the people of the world. But most politicians are thoroughly corruptNeither the Democratic or Republican parties represent the interests of the American people. Elections have become nothing but scripted beauty contests, with both parties ignoring the desires of their own bases.  So today, 12 countries – Brunei, Chile, New Zealand, Singapore, Australia      Canada, Japan, Malaysia, Mexico, Peru, United States and Vietnam – signed the TPP. They never followed through on their promise of an open and lively debate. Only by raising hell can we stop this monster.

White House warns Congress to not delay TPP deal -  The White House warned Congress Wednesday (Feb 3) that delaying ratifying a vast trans-Pacific trade deal will cost the US economy. Ahead of the formal signing of the Trans Pacific Partnership (TPP), US Trade Representative Michael Froman expressed confidence that Congress would endorse the deal in coming months, despite the US presidential campaign that has made trade issues a frequent hot potato. The deal between 12 Pacific Rim countries is scheduled to be signed Thursday at 11.30 am (6.30am, Singapore time) in Auckland, New Zealand. The ambitious pact - agreed in October after marathon negotiations in Atlanta, Georgia - aims to break down trade and investment barriers between countries comprising about 40 per cent of the global economy. But the signing will come with barely a year left in the term of its principal proponent, President Barack Obama, and many speculate that members of Congress will not want to risk alienating voters by approving it ahead of the November national elections. Froman, though, said that putting off ratification will come with costs.

Warren: Congress should reject Obama trade deal -- Sen. Elizabeth Warren (D-Mass.) is pushing her Senate colleagues to reject a Pacific Rim trade deal that's considered a key pillar of President Obama's second term. "I hope Congress will use its constitutional authority to stop this deal before it makes things even worse and even more dangerous for America's hardest-working families," Warren said Tuesday.She added that the agreement "would tilt the playing field even more in favor of a big multinational corporations and against working families." Warren's comments come as the countries involved in the Trans-Pacific Partnership (TPP) are expected to sign the agreement on Wednesday. The Massachusetts lawmaker was one of 38 senators who voted against a bill last year allowing the president to "fast-track" trade agreements through Congress on a simple majority vote, with senators unable to amend the deals. The administration argued that the fast-track bill was crucial to finishing TPP negotiations. But the months-long trade battle has divided Democrats, pitting liberal senators publicly against the president. Warren added Tuesday that Congress's inability to amend the TPP is why she's opposing it, saying lawmakers "won't have a chance to strip out any of the worst provisions."

60 Minutes Raises the Question: Are Dirty Lawyers Running the U.S. -- Pam Martens -- Wall Street, based in New York City, collapsed the U.S. financial system under the weight of its own corruption in 2008. We’ve just come off another year of unprecedented corruption on Wall Street, topped off with two major U.S. banks, Citigroup and JPMorgan Chase, pleading guilty to felony counts for rigging foreign currency trading. Elsewhere in the state of New York, the heads of both legislative branches, Dean Skelos, the Senate Majority Leader, and Sheldon Silver, Speaker of the Assembly, were convicted on corruption charges in the waning days of 2015. Last evening, the CBS investigative news program, 60 Minutes, produced video evidence that 15 out of 16 lawyers in New York City were willing to discuss strategies with a potential client for laundering dirty money into the U.S. financial system through shell companies. In short, New York State is facing an epidemic of corruption and it’s long past the time to bring in a Justice Department Taskforce to clean up the mess. In 2013, we warned in an article at CounterPunch that New York was drowning in corruption; that both lawyers and judges were fixing court cases. Five years earlier, reporter Wayne Barrett wrote the following in the pages of The Village Voice, following an in-depth investigation: “It wasn’t just that a case could be fixed. The darker secret was that the bench itself had been bought, that its polyester black robes were on a perpetual special-sale rack, that smarmy party bosses, ensconced at 16 Court Street across from the supreme court they ruled, demanded cash tribute to ‘make’ a judge. The district attorney, Joe Hynes, who first heard the rumor 36 years ago when he was a young prosecutor running the office’s rackets bureau, said in 2003 that he’d have to be ‘naive to think it didn’t happen,’ that it was ‘common street talk that this has been going on for eons.’”

The Democracy Of The Billionaires -- Nomi Prins - Speaking of the need for citizen participation in our national politics in his final State of the Union address, President Obama said, “Our brand of democracy is hard.” A more accurate characterization might have been: “Our brand of democracy is cold hard cash.” Cash, mountains of it, is increasingly the necessary tool for presidential candidates. Several Powerball jackpots could already be fueled from the billions of dollars in contributions in play in election 2016. When considering the present donation season, however, the devil lies in the details, which is why the details follow. With three 2016 debates down and six more scheduled, the two fundraisers with the most surprising amount in common are Bernie Sanders and Donald Trump. Neither has billionaire-infused super PACs, but for vastly different reasons. Bernie has made it clear billionaires won’t ever hold sway in his court. While Trump... well, you know, he’s not only a billionaire but has the knack for getting the sort of attention that even billions can’t buy. Regarding the rest of the field, each candidate is counting on the reliability of his or her own arsenal of billionaire sponsors and corporate nabobs when the you-know-what hits the fan. And at this point, believe it or not, thanks to the Supreme Court’s Citizens Uniteddecision of 2010 and the super PACs that arose from it, all the billionaires aren’t even nailed down or faintly tapped out yet.  In fact, some of them are already preparing to jump ship on their initial candidate of choice or reserving the really big bucks for closer to game time, when only two nominees will be duking it out for the White House.  For your amusement and mine, this being an all-fun-all-the-time election campaign, let’s examine the relationships between our twenty-first-century plutocrats and the contenders who have raised $5 million or more in individual contributions or through super PACs and are at 5% or more in composite national polls. I’ll refrain from using the politically correct phrases that feed into the illusion of distance between super PACs that allegedly support candidates’ causes and the candidates themselves, because in practice there is no distinction.

Wall Street’s Donor Role Expands as Money Flows Into 2016 Election - WSJ: Wall Street is emerging as a particularly dominant funding source for Republicans and Democrats in the presidential election, early campaign-finance reports filed with the Federal Election Commission show. So far, super PACs have received more than one-third of their donations from financial-services executives, according to data from the nonpartisan Center for Responsive Politics. The super PAC backing Republican Sen. Marco Rubio of Florida drew more than half its funds in the second half of 2015 from financial-industry donors, a Wall Street Journal analysis found. Its two largest donors were hedge-fund billionaires Paul Singer and Ken Griffin, who gave the group $2.5 million apiece in the final two months of the year. Hedge-fund manager Cliff Asness and Florida-based investor Mary Spencer each gave $1 million. Wall Street also provided more than half of the $5 million raised by the super PAC backing New Jersey Gov. Chris Christie in the second half of 2015. The group’s fundraising was largely fueled by a $2 million donation in December from hedge-fund billionaire Steven Cohen and his wife, who also collectively gave $2 million to the group in the first half of 2015. The super PACs backing Texas Sen. Ted Cruz raised at least $11 million from billionaire hedge-fund founder Robert Mercer and $10 million from private-equity firm founder Toby Neugebauer. The super PAC backing Democratic front-runner Hillary Clinton drew $15 million of the $25 million it raised in the second half of the year from Wall Street sources, nearly half of which came from billionaire investor George Soros. Mr. Soros gave the group, Priorities USA Action, $6 million in December, bringing his total donations to the group to $7 million. Priorities also received $3 million from billionaire entertainment-industry investor Haim Saban and his wife, Cheryl, who also gave $2 million earlier in the year.

The Populist Revolution: Bernie and Beyond - Ellen Brown - The world is undergoing a populist revival. From the revolt against austerity led by the Syriza Party in Greece and the Podemos Party in Spain, to Jeremy Corbyn’s surprise victory as Labour leader in the UK, to Donald Trump’s ascendancy in the Republican polls, to Bernie Sanders’ surprisingly strong challenge to Hillary Clinton – contenders with their fingers on the popular pulse are surging ahead of their establishment rivals. Today’s populist revolt mimics an earlier one that reached its peak in the US in the 1890s. Then it was all about challenging Wall Street, reclaiming the government’s power to create money, curing rampant deflation with US Notes (Greenbacks) or silver coins (then considered the money of the people), nationalizing the banks, and establishing a central bank that actually responded to the will of the people.Over a century later, Occupy Wall Street revived the populist challenge, armed this time with the Internet and mass media to spread the word. The Occupy movement shined a spotlight on the corrupt culture of greed unleashed by deregulating Wall Street, widening the yawning gap between the 1% and the 99% and destroying jobs, households and the economy. Donald Trump’s populist campaign has not focused much on Wall Street; but Bernie Sanders’ has, in spades. Sanders has picked up the baton where Occupy left off, and the disenfranchised Millennials who composed that movement have flocked behind him.

Half A Loaf, Financial Reform Edition - Paul Krugman -- A lot of the debate over the Sanders insurgency hinges on whether you see Obama-era reforms as trivial, utterly inadequate to the problems, or as a half loaf that’s a lot better than none. On healthcare, people like me and most of the health wonks I know believe that Obamacare represents a huge step forward, while the Sanders wing tends to dismiss it as nothing much. I’ve been making the case that Obama energy policy is going to have a much bigger impact on climate change than many people think. But what about financial reform?  Well, it partly depends on what you consider the problem. I’ve been on record since early days saying that too-big-to-fail is not the key issue, so that the fact that big banks remain big is, um, no big deal. The real question — or so I’d argue — is leverage within the financial sector, and in particular the kind of leverage with no safety net that characterizes shadow banking.So Matt O’Brien weighs in with evidence that leverage has in fact declined substantially, and continued to decline even as the economy expanded — probably because of Dodd-Frank. This is certainly right; the same decline shows up in other measures, as in the chart above showing financial sector debt securities as a percentage of GDP.  Should we have had a stiffer financial reform? Definitely — required capital ratios should be a lot higher than they are. But Dodd-Frank’s rules — especially, I think, the prospect of being classed as a SIFI, a strategically important institution subject to tighter constraints, have had a real effect in reducing risk. The reality of the Obama era, for progressives, is a series of half loaves. But after all the defeats over the previous 30 years, aren’t those achievements something to celebrate?

Hillary, the Banksters Committed “Fraud” not “Shenanigans” - Bill Black - Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their "shenanigans." The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires. She had every incentive, therefore, to demonstrate how tough she would be on Wall Street.  In that context, the best she could muster was the pusillanimous "shenanigans." Here is a typical definition of that word with examples.

1. : a devious trick used especially for an underhand purpose
2. 2a : tricky or questionable practices or conduct --usually used in pluralb : high-spirited or mischievous activity --usually used in plural

Examples of SHENANIGAN
1. students engaging in youthful shenanigans on the last day of school
2. an act of vandalism that went way beyond the usual shenanigans at summer camp

Hillary cannot bring herself to use the "f" word in the context of Wall Street CEOs leading the largest and most destructive fraud epidemics in history - frauds that made them spectacularly wealthy. A few minutes later, Bernie said that "fraud" was Wall Street's business model. Hillary then said that we should end systemically dangerous institutions (SDIs) "if" they posed "systemic risk" and praised President Obama for supporting Dodd-Frank provisions that provide a convoluted process for doing so that a new president likely could not use effectively. There can be disputes on the margins as to whether the 25th largest U.S. bank is systemically dangerous, but there is no question but that the largest 20 banks in the U.S. pose a systemic risk. There is no question but that President Obama has not, and will not, force a single one of them to shrink to the point that they no longer pose a systemic risk.

Did Financial Giant Goldman Sachs Just Admit the System is Rigged? --Bill Black explains why one of world’s largest investment firms Goldman Sachs is questioning the “efficacy of capitalism” and why its CEO is terrified of a Sanders presidency. You can view it here on the Real News (includes transcript).

New OECD tax agreement improves transparency -- but the US doesn't sign and the US press won't tell you- Kenneth Thomas  Last week 31 countries signed a new Organization for Economic Cooperation and Development (OECD) agreement providing for country-by-country corporate information reporting and the automatic exchange of tax info between countries under the Multilateral Competent Authority Agreement (MCAA). Country-by-country reporting, the brainchild of noted tax reformer Richard Murphy,* is a principle that makes it possible to detect tax avoidance by requiring companies to list their activities in each country (nature of business, number of employees, assets, sales, profit, etc.) and how much tax they pay in each country. A company with few employees yet large profits is probably using abusive transfer pricing to make the profits show up in that country rather than another one, to give one obvious example of how the idea works. In the OECD agreement, the procedure is that beginning in 2016 each company will file a report to every country where it does business, then all the countries receiving such reports will automatically exchange them with each other, meaning each of these countries will then have a full view of how much business Google, for example, does in every jurisdiction. The shortcoming to this is that while governments will have this data, the public will not have it (a fact criticized by the Tax Justice Network) due to alleged concerns about confidentiality. However, the European Commission, including its Luxembourgian president Jean-Claude Juncker, is now talking about requiring publication of the country-by-country data for each EU Member State.

Central Counterparties: The New Locus of Systemic Risk? --  Yves Smith - John Dizard of the Financial Times sounded an alarm over the weekend. Central clearinghouses, also known as central counterparties (“CCP”), which were implemented on a large-scale basis to reduce the risk of clearing standard derivatives, may not be working as advertised.  The high concept was that by having dealers all interact with a single counterparty, it would reduce the opacity and complexity of counterparty risk, thus making it easier to manage.* This chart which the Chicago Fed cribbed from the Reserve Bank of Australia illustrates how the world of central clearing is perceived to be an improvement over the old regime: The theory of the advantage of central counterparties was that it reduces risk by reducing opacity. And a further assumption was that because the central counterparty would be owned by the entities for which it was providing clearing services, their incentives would be aligned.  However, those assumptions may not be as valid as the proponents of central clearing believed, or to put it another way, they appear to have overestimated the amount of risk reduction that would result. From the Chicago Fed primer (emphasis original):  As pointed out in CPSS-IOSCO (2012): A CCP has the potential to reduce its participants’ risks significantly by multilaterally netting trades and imposing more-effective risk controls on all participants. Furthermore, A CCP’s risk reduction mechanisms can also reduce systemic risk in the markets it serves depending on the effectiveness of the CCP’s risk controls and the adequacy of its financial resources. Nevertheless, the CPSS-IOSCO also recognizes that CCPs and other financial market infrastructures concentrate risk: If not properly managed, [CCPs] can be sources of financial shocks, such as liquidity dislocations and credit losses, or a major channel through which these shocks are transmitted across domestic and international financial markets. Reading between the lines, there are still credit and counterparty risks that remain with centralized clearing. If one side of a trade fails, the central counterparty has to have the wherewithal to step into the breach. In addition, while the central counterparty will make the exposures to it more transparent and hence amenable to better risk management, there are credit risks that are part of this type of arrangement that remain opaque.

The NIM force awakens - Izabella Kaminska -- FT Alphaville’s Death of Banking series was started in May 2014, not to warn of the upcoming rise of fintech… but rather to warn of the upcoming collapse in bank net interest margins, also known as NIM — the lifeblood of the banking sector. Also, of course, how this links into the phenomenon of negative carry. Without NIM, there is no banking. Negative rates eat NIM. They also encourage all sorts of bad banking practices. The Fed’s rate hike was supposed to help the banks with the NIM problem. It was even said that the rate hike would destroy the NIM problem, not make it stronger. Indeed, it was supposed to bring balance to interest rates, not leave them in negativity, and flat. Paul Krugman (and others) urged us to question the motives of the central bankers (who ultimately represent the interests of the banking sector) in raising rates at all: …it really is in bankers’ interest to demand monetary tightening, even when it’s inappropriate given the state of the economy.Wednesday’s bank sector sell-off suggests otherwise. The brutal possibility coming into play: increasing the cost of borrowing in a global economy which isn’t ready for it, but rather one which still depends hand-to-mouth on cash distributions and cash burn to stay afloat, isn’t likely to generate the sort of positive feedback loops that bank shareholders enjoy in profit terms. Cash burn-through risk is not an option for bank investors. But neither is negative NIM. Both result in a similar level of capital destruction. To wit, the eurostoxx banks index on Wednesday: And here’s Barclays over the last year: Tie that in with this piece from Joe Weisenthal at Bloomberg on Goldman questioning whether capitalism is fundamentally working and you begin to see the pickle we’re in.

Moody's: US corporate defaults to hit six-year high in 2016 as commodity fallout continues -- The US speculative-grade default rate rose to 3.2% from 2.7% in the fourth quarter of 2015 and will likely climb to a six-year high of 4.4% this year, as the drop in prices continues to pressure cash flows in commodity sectors, says Moody's Investors Service. "On the back of the oil price slump, defaults were the most concentrated in the oil and gas industry in 2015 due to weakening cash flows," said Moody's Senior Vice President John Puchalla. "We expect oil and gas, along with other commodity sectors, to continue to push the default rate higher in 2016." According to the report, "US Corporate Default Monitor -- Fourth Quarter 2015: Default Rate to Reach Six-Year High in 2016," oil and gas companies contributed 25 defaults in 2015, pushing the total US non-financial corporate default count to 56, the highest level since the 2009 recession. In the fourth quarter specifically, nine of the 15 US non-financial corporate defaults were oil and gas companies. Metals and mining had the second highest sector default count at seven in 2015, further demonstrating that falling prices are straining the cash flow and liquidity of commodity-based companies. Defaults in non-commodity sectors were up only slightly to 24 in 2015 from 21 in 2014. Positive economic growth, modest 2016 maturities, and a lack of widespread covenant issues continue to support liquidity and contain the number of defaults. "Liquidity pressures and negative rating trends are modest but edging up outside of commodity sectors, which raises the possibility of a sharper rise in the default rate if economic growth slows or credit losses in energy and tighter monetary policy further increase investor risk aversion and speculative-grade borrowing costs," added Puchalla. "This would hurt corporate cash flow and make it more difficult for low-rated borrowers to resolve liquidity issues."

US junk debt rated triple C yields 20% --  An investor exodus from the lowest-quality US corporate bonds has sent yields to their highest levels since the world’s largest economy emerged from recession in 2009. Yields, which move inversely to prices, on debt issued by US companies that carry a rating of triple C or lower hit 20 per cent for the first time in more than six years this week, a watershed for investors who had piled into the asset class over the past three years in the hunt for yield. The sharp drop in commodity prices and a rising expectation of defaults by highly indebted companies have shaken investors and closed the door on new debt sales. Investors say the dearth of liquidity has made it even more difficult to own paper rated triple C. Late last year several bond funds closed that held high amounts of low-rated and unrated debt. “You are seeing a lack of appetite in the new issue market for these types of issuers,” said Matthew Mish, credit strategist with UBS. “[Funds] have outflows and the Federal Reserve is no longer printing money. “The tide is going out and you would expect the lowest-quality borrowers who benefited the most . . . to suffer first.” Portfolio managers are also experiencing a wave of redemptions from investors. US junk bond mutual and exchange traded funds have counted more than $20bn of withdrawals since mid-November, according to Lipper. Investors have instead turned to US government paper, with funds invested in Treasuries counting more than $9bn of inflows over the past eight weeks. “We expect a shakeout this year in the US oil and gas market, as highly leveraged companies will be forced to declare bankruptcy,”

Banks On The Hook For Bad Energy Loans - Energy sector bankruptcies are mounting as we detox from the high of the shale boom, but while junk-rated energy bonds are experiencing staggering losses, and without any reprieve in site for low oil prices, some banks are still unwilling to throw in the towel—betting on a reversal of fortunes. In 2015 alone, 42 oil companies filed bankruptcy proceedings, according to law firm Haynes and Boone. Total secured and unsecured energy sector debt moved into bankruptcy stood at a whopping $13.1 billion. According to Standard and Poor’s Rating Services, 50 percent of these oil and gas debts are considered distressed. With oil prices expected to remain low, the numbers could get much worse before they get better. But banks aren’t necessarily viewing this in terms of dire straits, and they aren’t necessarily tightening the reigns on lending. In fact, some banks are holding out hope that the current crude oil crisis will force the industry to reduce production costs, allowing debt-laden companies to survive low prices and repay the mounds of debt taken on when times were good.How much debt are we talking about, exactly? According to Barclays, the amount of bond debt owed by junk-rated energy producers expanded eleven fold to $112.5 billion at the height of the shale boom from 2004 through 2014. Perhaps a few will adapt to the changes and endure. Unfortunately, there will be many others who will be unable to compete at today’s prices, creating a problem for banks that continue to lend to companies rated BB and lower.

U.S. regulators expected to classify more energy loans as high risk | Reuters: U.S. regulators are likely to classify more oil and gas loans as high risk when they start a new bank portfolio review in early February due to the fall in crude prices to a 12-year low since the last review, which will cut credit access and escalate defaults for cash-starved energy companies, analysts and investors said. The Shared National Credit (SNC) review of bank loan underwriting standards is stepping up to twice a year in 2016 from the usual annual exam as regulators crack down on lending practices that could pose systemic risk, including loans extended to troubled oil and gas companies. This closer look by the Federal Reserve, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp could force banks to further increase reserves to buffer losses on these loans, while providing less debt to these struggling energy companies, sources said. The new review period began February 1, an OCC spokesman said. “It will likely prompt further risk rating downgrades in their (banks') SNC portfolios, which may lead to further provisioning,”

Energy loans likely to cause further losses for big banks — The nation’s six largest banks have hit an oil slick. They have tens of billions of dollars of exposure to risky energy loans that won’t all be paid back because low oil prices have sapped the profits of oil companies. The value of those loans will have to be written down even further, and bank profits are going to take a hit, the credit agency Moody’s said in a report issued Friday. The loans on the balance sheets of the biggest banks on Wall Street — JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley, Wells Fargo and Bank of America — represent only a small percentage of these firms’ overall loans, but the losses will be noticeable. “While the banks’ exposure are not outsized, these loans have already resulted in banks taking loan-loss provisions and we expect that if oil prices remain low for longer these firms are going to take additional losses,” said David Fanger, senior vice president at Moody’s who wrote the report. Oil prices have fallen by more than 70 percent over the course of the last 19 months, to a recent $31 a barrel. Energy analysts expect that prices will be extremely slow to rise again because there is an enormous global oversupply of crude. The troubled energy loans, while sizable, do not pose nearly the same threat to the banks or the financial system that mortgage loans did when the housing market collapsed leading up to the financial crisis. Wells Fargo is more exposed to these risky energy loans than the other big banks. Moody’s estimates that Wells Fargo’s total energy exposure is heavily weighted toward loans to oil exploration and production companies, as well as oil field services companies, which have been hardest hit by the decline in oil prices. Moody’s estimates that nearly 40 percent of Wells Fargo’s energy loan portfolio are at what Moody’s considers to be a heightened risk of facing delinquent payments.

US Financial Stress Trending Higher In 2016 - Financial stress in the US has been creeping up this year, based on four benchmarks published by Federal Reserve banks. One of the indexes is now signaling a “moderate” stress level for the US, although the other three metrics have yet to confirm the change. As such, the composite reading for all the indexes still reflects stress that’s average to below average. The St. Louis Fed’s FRED database collects the data on four indexes that quantify stress in the financial system across a range of factors. . Here’s a summary of current readings, based on figures collected this morning (Feb. 4).

  • Cleveland Fed US Financial Stress Index - This daily index from the Federal Reserve Bank of Cleveland has been trending up lately, reaching its highest levels since 2012 in recent days. The +1.22 reading for Feb. 3 is considered a “moderate” stress level. A value at or above +1.82 for the index would be labeled “significant” stress.
    St. Louis Fed US Financial Stress Index - This weekly measure of financial stress is trending higher too, reaching -0.34 for the week through Jan. 22—the highest since late-2011. Nonetheless, the current level isn’t threatening–readings below zero reflect “below-average market stress,” according to the St. Louis Fed.
    Chicago Fed National Financial Conditions Index The Chicago Fed’s weekly measure of US financial stress has climbed recently and is currently at the highest reading in over three years. The latest update shows the index at -0.55 for the week through Jan. 29. Despite the uptrend of late, the current level still reflects “loose” conditions, as per readings below zero. Only values above zero indicate financial conditions that are tighter than average.
    Kansas City Fed US Financial Stress Index =This monthly benchmark of financial stress ticked higher in December, close to a three-year high. Reviewing the latest data in context with the last several business cycles, however, suggests that the current reading is still below levels that have previously signaled high risk.

‘Dark Pool’ Settlements Bring Tangled Relationships to Light - WSJ The latest round of penalties over “dark pools” highlights how reliant banks and exchange operators have become on business from high-frequency traders—even on platforms that promised to blunt their advantage. Dark pools were advertised to mutual funds and other traditional money managers as a place where they could trade in secret and avoid giving away their moves to computer-driven traders. New settlements with two of the biggest dark-pool operators, Credit Suisse Group and Barclays, showed that the banks were quietly catering to high-frequency traders at the same time.The reality beneath those practices is that high-frequency traders account for the bulk of bids and offers that keep the market running—about two-thirds of the total—a source of business that can be hard to pass up. Credit Suisse and Barclays catered to them by concealing the role of speedy traders on their platforms and going back on promises to protect clients from predatory trading, according to the settlements with the Securities and Exchange Commission and New York Attorney General.   The often opaque ties between exchanges, dark pools and high-speed firms have been one of the most perplexing issues facing investors and regulators. In recent years, firms accused of masking their links to superfast trading outfits have been hit with a series of escalating fines.  In 2011, the Securities and Exchange Commission fined Pipeline Trading Systems LLC $1 million for failing to disclose to clients that they were often trading with an in-house high-speed firm. BATS Global Markets Inc. last year agreed to pay $14 million to settle allegations that two exchanges it ran failed to disclose certain details about their markets that the SEC said gave advantages to some high-speed traders. UBS Group AG a year ago agreed to pay $14.4 million to settle allegations that it failed to inform all clients about advantages its dark pool gave to some firms, including high-frequency traders. Pipeline, BATS and UBS didn’t admit or deny the allegations.

How Not to Stop Bank Wrongdoing - Teresa Tritch - Another day, another legal settlement over bank wrongdoing that — we are asked to believe — occurred without any human being breaking the law.On Monday, the attorney general of New York and the Securities and Exchange Commission announced settlements with Barclays and Credit Suisse over allegations that the banks misled customers who bought and sold securities through the banks’ “dark pools.” A dark pool is a private electronic trading site where investors are supposed to be able to trade without interference by predatory high-speed traders, who skim fractions of pennies from legitimate transactions and raise costs for everyone in the process.Eric Schneiderman, the New York attorney general, sued Barclays in 2014, alleging that the bank had welcomed high-speed predators into its dark pool, rather than keeping them out, as it claimed it was doing.  .In the course of investigating Barclays, the New York attorney general also focused on the dark pools of Credit Suisse, which settled allegations of wrongdoing with New York and the S.E.C. without being sued.Barclays will pay a penalty totaling $70 million. The bank admitted to the core facts of the lawsuit, including that it misled investors and violated securities laws. Going forward, the bank will install an independent monitor to oversee its dark pool. Credit Suisse will pay a $60 million penalty and $24.3 million to the S.E.C. in disgorgement and interest.No individuals at either bank have been charged in the dark-pool cases with civil violations, let alone crimes – despite the fact that in laying out the case against Barclays, the lawsuit mentions a managing director, a supervisor and department heads by name as being in on what was taking place. If such individuals were prosecuted, they could probably provide valuable information about whether and what their superiors knew. The settlements leave open the possibility of further investigation, but prosecutors’ light touch with banks leaves little reason to believe there will be any follow through.

An Idiot’s Guide to Prosecuting Corporate Fraud --Dave Dayen - Say you’re the newly elected president of the United States, and you want to make prosecuting corporate crime a top priority.  Where do you start? Here would be good.  A new group called Bank Whistleblowers United have just pushed out a comprehensive plan they think would put the executive branch back in the business of enthusiastically identifying, indicting, and convicting financial fraudsters — restoring accountability while protecting the public.  The cumulative credibility of the group’s four founders is extremely strong. Richard Bowen is the Citigroup whistleblower who unsuccessfully warned top management about the rotten condition of loans inside mortgage-backed securities. Michael Winston spoke out about similarly corrupt practices at non-bank mortgage originator Countrywide. Gary Aguirre, a Securities and Exchange Commission attorney, was fired for refusing to let a Wall Street banker out of an insider trading investigation. And their ringleader is William Black, an outspoken fraud-fighter and longtime white-collar criminologist who was a two-fisted bank regulator during the savings and loan crisis and now teaches at the University of Missouri–Kansas City (UMKC). “The common theme,” Black said with characteristic bluntness, “is the unbelievably pathetic job of the Department of Justice and the FBI.”One of the first steps the group proposes – echoing the recommendations Senator Elizabeth Warren made last week – involves appointing aggressive leadership at federal agencies with no conflicts of interest with the entities they regulate, and hiring enough staff trained in criminology and financial fraud to attack the problem. “You don’t have to reinvent the wheel,” said Black. “The Justice Department forgot there was a wheel.”

U.S. House Debate on Financial Oversight Bill C-Span - The House debates H.R. 766, the Financial Institution Customer Protection Act. The bill would limit the Justice Department's Operation Choke Point program, which investigates certain banking practices. The House later voted 250-169 to approve the measure. (1:34:37 video)

Big U.S. banks will be rolling out ATMs that take smartphones, not cards - Over the next few months, the nation's three biggest banks will start rolling out ATMs that will let customers withdraw currency using their smartphones instead of debit cards — the latest step toward a future in which phones could replace bank branches and wallets. "My boys are 5 and 6 — I don't think they'll carry around plastic when they grow up," said Michelle Moore, head of digital banking for Bank of America, which plans to make cardless ATMs widely available as early as May. San Francisco banking giant Wells Fargo plans to offer cardless access at a limited number of ATMs by this summer and at all ATMs by the end of the year. Most ofJPMorgan Chase's ATMs will start offering cardless access sometime in the second half of the year. Cash machines that work with a phone instead of a card aren't new, but they are rare. Downtown L.A.'s City National Bank unveiled cardless ATMs in 2013, and a few regional banks have followed suit over the last year, but the number of cardless ATMs now stands in the low thousands nationwide. Soon, they'll be much more common, especially in Los Angeles, where Bank of America, Wells Fargo and JPMorgan Chase each have hundreds of ATMs and hold nearly half of all bank deposits. Nationwide, they have a combined 47,000 ATMs, more than 10% of the nation's cash machines. The banks' entry into cardless ATMs comes as a small but growing number of Americans are using their phones to send money to one another and to make purchases using so-called mobile wallet apps such as Apple Pay and Android Pay

January 2016: Unofficial Problem Bank list declines to 238 Institutions  - This is an unofficial list of Problem Banks compiled only from public sources.Here is the unofficial problem bank list for January 2016.  During the month, the list dropped from 250 institutions to 238 after 12 removals. Assets dropped by $5.52 billion to an aggregate $69.5 billion. This is the largest monthly asset decline since $5.9 billion back in July 2015. A year ago, the list held 388 institutions with assets of $122.5 billion. Actions have been terminated against Sun National Bank, Vineland, NJ ($2.3b Ticker: SNBC); Bridgeview Bank Group, Bridgeview, IL ($1.1b); Malvern Federal Savings Bank, Paoli, PA ($649m); Village Bank, Midlothian, VA ($420m Ticker: VBFC); Heritage Bank, Jonesboro, GA ($395m Ticker: CCFH); Community Shores Bank, Muskegon, MI ($190m); Securant Bank & Trust, Menomonee Falls, WI ($178m); Prairie Community Bank, Marengo, IL ($105m); Auburn Savings Bank, FSB, Auburn, ME ($72m Ticker: ABBB); and The Citizens State Bank and Trust Company, Woodbine, KS ($17m). Two banks found their way off the list by finding merger partners including Mother Lode Bank, Sonora, CA ($70m Ticker: MOLB); and Home Federal Savings and Loan Association of Nebraska, Lexington, NE ($54m).

Wells Fargo to pay $1.2 billion for bad mortgages - Wells Fargo & Co. said Wednesday that it has agreed to pay $1.2 billion to settle a long-running suit that accused the company of "reckless" lending and leaving a federal insurance program to pick up the tab. The agreement settles civil charges with the U.S. Justice Department, two U.S. attorneys and the Department of Housing and Urban Development The government sued Wells Fargo in 2012, accusing the U.S. mortgage lender of engaging in "regular practice of reckless origination and underwriting" of government-backed loans. The action was one of several brought under the Federal False Claims Act against a lender accused of bilking the Federal Housing Administration, which has historically backed loans to first-time buyers and those with low incomes. The government said the mortgages were made under the Federal Housing Administration lending program from 2001 to 2010. As a result of the settlement, Wells Fargo said it has added to its legal accrual for 2015, which it reported results for on Jan. 15. That has reduced its profit for last year by $134 million, or 3 cents a share. The company's 2015 profit is now $22.9 billion, or $4.12 a share.

Bill Black: Lenders’ Lies about Liar’s Loans and “Rigorous Underwriting” - It is time to break out one of our two family rules again – it is impossible to compete with unintentional self-parody.  How fraudulent is finance even now?  The Wall Street Journal reports that “big money managers” want to bring back “liar’s loans.”  I am trying to write much shorter columns, so there will be many columns in this series because the WSJ article so beautifully exemplifies the lies that the industry and the media told about liar’s loans before and after 2008.  Spoiler alert:  liar’s loans, as the name admits, are pervasively fraudulent.  Only fraudulent lenders make liar’s loans as a regular business practice.  These home loans make the officers wealthy through the “sure thing” of the “fraud recipe” for “accounting control fraud.” The WSJ, of course, ignores these facts and presents instead falsehoods provided by fraudulent officers. This column addresses only the lie that invokes our family rule:  “The money managers think that risk is manageable with rigorous underwriting [of liar’s loans]….”  If this were written for The Onion it would have been a stellar example of irony.  Instead, it is an oxymoronic fable devised by someone who things that WSJ reporters and their readers are regular morons.  Because the reporter regurgitated such a clumsy lie about liar’s loans as if it were a great truth, we know that the “big money managers” proved correct about the reporter. The definition of a liar’s loan is that it is designed for the purpose of avoiding not simply “rigorous” underwriting, but rather the most minimal underwriting any property lender must do to have any chance of surviving.  Yes, “rigorous underwriting” is the absolute essential to managing risk in property lending.  Yes, in the case of conventional home lending, rigorous underwriting can reduce credit risk to tiny proportions.  One of the “Four C’s” of minimally competent underwriting for such loans is “Capacity.”  That means that the lender, must at a minimum, verify that the borrower has adequate income to repay the home loan.

Bill Black: How Many Lies Can the WSJ Pack into a Chart on Liar’s Loans? -  -- This is the second article in my series prompted by the Wall Street Journal report that “big money managers” want to bring back “liar’s loans.”  Given that the best study of liar’s loans during the crisis found a fraud incidence of 90% — this is a startling proof of how openly addicted to fraud the “big money managers” remain.  It demonstrates some of the terrible costs of the Department of Justice’s refusal to prosecute the fraudulent loan originators’ controlling officers. In this installment I lay out briefly the lies that the banksters made, and continue to make, about liar’s loans and why those lies are so harmful.  The WSJ chart on liar’s loans faithfully repeated those lies as if they were revealed truth.  The chart is shown below.  Let us count the lies. Lies 1-3: “Dubbed ‘liar loans’ after they were abused during the housing crisis….” That’s actually three lies in a single clause, which may be a record even for the WSJ.  First (and second), they were called liar’s loans well before the 2008 crisis – by the lenders making the loans, not their critics. Third, they were not “abused” – as if they were victims.  They were the fraudulent “ammunition” that optimized the fraud recipe for a home lender.  The WSJ must think a 5.56mm NATO round is “abused” when it enters into a human body at supersonic speeds and is deformed by striking bone and tissue.  The American people, and that includes the borrowers, were “abused” by liar’s loans.  The banksters were made rich by liar’s loans.  Liar’s loans are designed by the lenders’ CEOs to be fraudulent. Lies 4 & 5:  [continuing from the clause quoted above] “Alt-A mortgages ….” “Alt-A” is a double lie.  “Alt” stands for “alternative” and “A” means “prime” quality loan – an ultra-low credit risk home mortgage loan.  Taken together, the claim was that the lender used an “alternative” underwriting process that ensured that the loans made were ultra-low credit risk.  Unless you think “not underwriting” one of the essential “4 Cs” of prudent lending (Capacity) is an “alternative” means of underwriting you know that word is a lie.  As even the WSJ admits “Alt-A” loans had, by 2010, a 90+ day delinquency rate of “26%.”  They were slime, not prime.

How long did it take for the WSJ to Lie about Liar’s Loans? Two Sentences - William K. Black - This is the third column in my series about the Wall Street Journal report that “big money managers” want to bring back “liar’s loans.”  Here are the article’s first two sentences. Wall Street wants to bring back the “low-doc” loan. These mortgages, which are given to borrowers that can’t fully document their income, helped fuel a tidal wave of defaults during the housing crisis and subsequently fell out of favor. The second sentence begins the lies with an important lie.  “Low-doc” is a euphemism for endemically fraudulent “liar’s” loans.  The second sentence repeats a lie that the fraudulent lenders have told for decades – it is their carefully crafted creation myth of liar’s loans.  If the WSJ had done its job and exposed the lie, the creation myth and the fraud scheme would have died decades ago.  Instead, the WSJ endorses the lie.  Liar’s loans were not designed for or “given to borrowers that can’t fully document their income.”  The two keys lies by the fraudulent lenders about liar’s loans arise from their use of the word “can’t.”  As I explained in my second column in this series, the IRS created, decades ago, Form 4506-T, which allows the borrower to give the lender access to transcripts of the borrower’s two most recent tax returns.  This means that the self-employed can easily and cheaply permit the lender to verify their income – and home lenders routinely require borrowers to sign the 4506-T as a mandatory part of the loan application.  The first lie is that there are borrowers that are incapable (“can’t”) document their (purportedly ample) income.

Liar’s Loans, Plus Loan Brokers, Equals Fraud Heaven --William K. Black --This is the fourth part of my series on the lies about “liar’s” loans that suffuse the Wall Street Journal article reporting that “big money managers” want to bring back “liar’s loans.”  This part focuses on the fact, which the WSJ treated as so obviously reasonable that it was unworthy of analysis, that: Money managers want to bankroll the loans while relying on the mortgage firms to handle the process with borrowers, basically acting as a lender, “one step removed from the process,” one of these people said. When the real lender taking the risk of making the home loan employs an agent from a separate for-profit firm to actually recruit the borrowers in return for receiving a sales commission from the real lender (the “big money managers”) we call that agent a loan broker.  The “big money manager’s” plan is (a) to make loans that are endemically fraudulent, (b) by incentivizing de facto loan brokers to find the buyers and handle the loan applications. The “big money managers” in the most recent crisis used loan brokers extensively and designed their incentives in an exceptionally perverse manner.  This ended badly. Critics argued that with this much money at stake, mortgage brokers had every incentive to seek “the highest combination of fees and mortgage interest rates the market will bear.” From 2000 to 2003, the number of brokerage firms rose from about 30,000 to 50,000. In 2000, brokers originated 55% of loans; in 2003, they peaked at 68%. JP Morgan CEO Jamie Dimon testified to the FCIC that his firm eventually ended its broker-originated business in 2009 after discovering the loans had more than twice the losses of the loans that JP Morgan itself originated (FCIC Report 2011: 91). Given that the secondary market collapsed in mid-2007, it is hilarious that FCIC thought that Dimon only “discovered” in 2009 that broker-originated loans were massively toxic.  Recall that in an earlier installment I noted that the overall 90+ delinquency rate on liar’s loans had reached the catastrophic level of 26% by February 2010.  That suggests that if JPMorgan’s experience was typical the 90+ day delinquency rate for broker-originated liar’s loans was above 30 percent – over six times higher than the 5% delinquency rate at which regulators believe a home lender is at a severe risk of failure.

The Return of Alt-A? -- Kirsten Grind writes at the WSJ: Crisis-Era Mortgage Attempts a Comeback These mortgages, which are given to borrowers that can’t fully document their income, helped fuel a tidal wave of defaults during the housing crisis and subsequently fell out of favor. Now, big money managers including Neuberger Berman, Pacific Investment Management Co. and an affiliate of Blackstone Group LP are lobbying lenders to make more of these “Alt-A” loans ... There has also been a rebranding effort: Most lenders prefer to call these products “nonqualified mortgages” due to the stigma attached to the Alt-A category.  Tanta explained Alt-A (and foresaw the name change): Reflections on Alt-A Eventually, after the bust works itself out and the economy leaves recession and the bankers crawl out from under their desks and stretch out those limbs that have been cramped into the fetal position, a kind of "not quite quite" lending will certainly return. I am in no way suggesting that the mortgage business has entered the Straight and Narrow Path and is going to stay on it forever because we have Learned Our Lessons. Credit cycles--not to mention institutional memories and economies like ours--don't work that way. It's just that whatever loosened lending re-emerges après le deluge will not be called "Alt-A." Alt-A is sort of a weird mirror-image of subprime lending. If subprime was traditionally about borrowers with good capacity and collateral but bad credit history, Alt-A was about borrowers with a good credit history but pretty iffy capacity and collateral.

Wall Street Pulls Back From Mortgage Market That Fed Made Boring -  The U.S. Federal Reserve is squeezing a good deal of the profit out of mortgage bond trading, and Wall Street banks are increasingly heading for the exits. Barclays Plc cut 20 jobs in its U.S. government-backed mortgage bond business in January as part of a broader bank reorganization that is cutting 1,200 jobs, according to a person with knowledge of the matter. Deutsche Bank AG and Societe Generale SA have also scaled back in the market in recent weeks, people with knowledge of those moves said. As the Federal Reserve has vacuumed up nearly a third of the government mortgage bonds in the market as part of its quantitative easing program since early 2009, average daily trading volume has plunged by more than 40 percent. Unlike other investors, the central bank rarely trades its mortgage bonds. "What incentive do banks have to stay in the business in a largely price-controlled market?" Eric Kollig, a Federal Reserve spokesman, declined to comment. Some banks are slimming down rather than pulling out of the business entirely. Barclays, for example, is still committed to the most actively traded parts of the U.S. mortgage bond market but is scaling back from less liquid products, said the person who asked not to be named because the matter isn’t public. The British lender and Deutsche Bank were once top-ranked dealers in the market, while the others were more marginal players.Mortgage securities still trade actively, but if more players slim down their businesses, buying and selling large volumes could become harder, and home loan rates for consumers could also edge higher.

Black Knight December Mortgage Monitor -- Black Knight Financial Services (BKFS) released their Mortgage Monitor report for December today. According to BKFS, 4.78% of mortgages were delinquent in December, down from 4.92% in November. BKFS reported that 1.37% of mortgages were in the foreclosure process. This gives a total of 6.15% delinquent or in foreclosure. Press Release: Black Knight's December 2015 Mortgage Monitor: Home Affordability Still Better than Pre-Bubble Average; $64B in Equity Tapped Via Cash-Out Refis During Past 12 Months  Nearly 300,000 were originated in Q3 2015 and roughly 1 million over the past 12 months, marking six consecutive quarters of rising cash-out refi volumes. In Q3 2015, 42 percent of all first lien refinances involved a cash-out component, the highest share since 2008. Likewise, the average cash-out amount – over $60,000 – is the highest since 2007. All totaled, there was $64 billion in equity tapped via cash-out refinances over the past 12 months, the highest dollar amount for any equivalent 12-month period since 2008-2009. Even so, this amounted to less than 2 percent of available equity being tapped. ... Finally, Black Knight looked at the full year of foreclosure activity in review and found that overall foreclosure starts were down 12 percent from 2014. First-time foreclosure starts -- driven lower by the more pristine performance of recent vintages and reduced inflow of severely delinquent loans from crisis era vintages -- were down 19 percent from last year, marking their lowest volume in over a decade. In fact, there were 30 percent fewer first-time foreclosure starts in 2015 than in 2005 during the run up to the housing crisis. The 377,000 foreclosure sales (completions) over the course of the year represented a 17 percent decline from 2014, and a 70 percent drop from the peak of sale activity in 2010. All totaled, there have now been 7.1 million residential homes lost to foreclosure sale since the beginning of 2007. Active foreclosure inventory ended the year below 700,000 for the first time since 2006, less than a third of what it was at the height of the crisis.This graph from Black Knight shows foreclosure starts since 2005.

Fannie Mae: Mortgage Serious Delinquency rate declined in December -- Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in December to 1.55% from 1.58% in November. The serious delinquency rate is down from 1.89% in December 2014, and this is the lowest level since August 2008.  The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". Note: Freddie Mac reported last week that their Single-Family serious delinquency rate declined in December to 1.32%, down from 1.36% in November.The Fannie Mae serious delinquency rate has only fallen 0.34 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017.  The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

MBA: Mortgage Applications Decreased in Latest Weekly Survey, Purchase Applications up 17% YoY -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - Mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 29, 2016. The previous week’s results included an adjustment for the Martin Luther King holiday...The Refinance Index increased 0.3 percent from the previous week to its highest level since October 2015. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 17 percent higher than the same week one year ago. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since October 2015, 3.97 percent, from 4.02 percent, with points increasing to 0.41 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This is the fourth straight weekly decrease for this rate. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity will probably stay low in 2016. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 17% higher than a year ago.

"Mortgage Rates Down to New 8-Month Lows" - From Matthew Graham at Mortgage News Daily: Mortgage Rates Down to New 8-Month Lows Mortgage rates only paused for a brief moment of reflection yesterday before continuing with 2016's trend of improvement. Today's gains bring them easily back to new 8-month lows. Last Friday, that's a designation they shared with a few days in October. Today's rates don't need need to talk about sharing the trophy until we get all the way back to April 2015. The average lender is now easily down to conventional 30yr fixed rates of 3.75%. The stronger lenders have gradually been moving down to 3.625%. Here is a table from Mortgage News Daily:  Home Loan Rates.  View More Refinance Rates

CoreLogic: Home prices maintain pace, increase 6.3% --  Home prices nationwide, including distressed sales, posted similar results to last month, increasing year-over-year by 6.3% in December 2015 compared with December 2014, according to the most recent report from housing data and analytics provider, CoreLogic. On a monthly basis, home prices are up 0.8% in December 2015 compared to November 2015. The below chart shows the home price index going back to 2002.  “Nationally, home prices have been rising at a 5% to 6% annual rate for more than a year,” said Frank Nothaft, chief economist for CoreLogic. “However, local-market growth can vary substantially from that. Some metropolitan areas have had double-digit appreciation, such as Denver and Naples, Florida, while others have had price declines, like New Orleans and Rochester, New York,” said Nothaft. Looking ahead, CoreLogic’s HPI Forecast predicts that home prices will increase by 5.4% on a year-over-year basis from December 2015 to December 2016, and on a month-over-month basis home prices are expected to increase 0.2% from December 2015 to January 2016.

CoreLogic: House Prices up 6.3% Year-over-year in December - This CoreLogic House Price Index report is for December. The recent Case-Shiller index release was for November. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).From CoreLogic: CoreLogic US Home Price Report Shows Home Prices Up 6.3 Percent Year Over Year in December 2015 Home prices nationwide, including distressed sales, increased year over year by 6.3 percent in December 2015 compared with December 2014 and increased month over month by 0.8 percent in December 2015 compared with November 2015, according to the CoreLogic HPI. ...“Nationally, home prices have been rising at a 5 to 6 percent annual rate for more than a year,” said Dr. Frank Nothaft, chief economist for CoreLogic. “However, local-market growth can vary substantially from that. Some metropolitan areas have had double-digit appreciation, such as Denver and Naples, Florida, while others have had price declines, like New Orleans and Rochester, New York.”

Construction Spending increased 0.1% in December, Up 10.5% in 2015 vs 2014 - The Census Bureau reported that overall construction spending increased slightly in December compared to November: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2015 was estimated at a seasonally adjusted annual rate of $1,116.6 billion, 0.1 percent above the revised November estimate of $1,116.0 billion. The December figure is 8.2 percent above the December 2014 estimate of $1,031.6 billion. The value of construction in 2015 was $1,097.3 billion, 10.5 percent above the $993.4 billion spent in 2014. Private spending decreased and public spending increased in December:  Spending on private construction was at a seasonally adjusted annual rate of $824.0 billion, 0.6 percent below the revised November estimate of $828.8 billion. ... In December, the estimated seasonally adjusted annual rate of public construction spending was $292.5 billion, 1.9 percent above the revised November estimate of $287.1 billion.This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has been increasing, but is 37% below the bubble peak. Non-residential spending is only 5% below the peak in January 2008 (nominal dollars). Public construction spending is now 10% below the peak in March 2009 and about 11% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is up 8%. Non-residential spending is up 11% year-over-year. Public spending is up 4% year-over-year. Looking forward, all categories of construction spending should increase in 2016. Residential spending is still very low, non-residential is increasing (except oil and gas), and public spending is also increasing after several years of austerity. This was below the consensus forecast of a 0.6% increase for December, but overall growth for construction spending in 2015 was solid, up 10.5% from 2014.

U.S. Construction Spending Rises Much Less Than Expected In December: With a jump in spending on public construction partly offset by a drop in spending on private construction, the Commerce Department released a report on Monday showing that U.S. construction spending rose much less than expected in December. The Commerce Department said construction spending inched up 0.1 percent to an annual rate of $1.117 trillion in December from the revised November estimate of $1.116 trillion. Economists had expected spending to climb by 0.6 percent. The modest increase in construction spending came as spending on public construction surged up 1.9 percent to an annual rate of $292.5 billion. Spending on highway construction jumped 9.4 percent to a rate of $95.4 billion, while spending on educational construction fell by 0.5 percent to a rate of $69.4 billion. Meanwhile, the report also said spending private construction dropped by 0.6 percent to an annual rate of $824.0 billion. While spending on residential construction rose by 0.9 percent to a rate of $429.6 billion, spending on non-residential construction tumbled by 2.1 percent to a rate of $394.4 billion. The Commerce Department noted total construction spending in December was up by 8.2 percent compared to the same month a year ago.

Construction Spending Anemic Despite Warm Weather; Where to From Here? --Economists expecting a huge surge in construction spending thanks to unusually warm December weather were no doubt shocked by today's anemic report.  The Econoday Consensus Estimate was for +0.6% in a range of 0.3% to 1.3%, but not a single economist came close.  Held down by weakness in the nonresidential component, construction spending didn't get a lift at all from the mild weather late last year, rising only 0.1 percent in December following a downwardly revised 0.6 percent decline in November and a 0.1 percent contraction in October. Year-on-year, spending was up 8.2 percent, a respectable rate but still the slowest since March last year. But there is very good news in the report and that's a very strong 0.9 percent rise in residential construction where the year-on-year rate came in at plus 8.1 percent. Spending on multi-family units continues to lead the residential component, up 2.7 percent in the month for a 12.0 percent year-on-year gain. Single-family homes rose 1.0 percent in the month for an 8.7 percent year-on-year gain.  Now the bad news. Non-residential spending fell 2.1 percent following a 0.2 percent decline in November. Steep declines hit manufacturing for a second month with the office and transportation components also showing weakness. Still year-on-year, non-residential construction rose 11.8 percent. Rates of growth in the public readings are led by highway & streets, at a 9.4 percent surge for December and a year-on-year rate of plus 12.0 percent. Educational growth ended 2015 at 9.4 percent with state & local at plus 4.4 percent. The Federal subcomponent brings up the rear at minus 1.4. Lack of business confidence and cutbacks for business spending are evident in this report but not troubles on the consumer side, where residential spending remains very solid and a reminder that the housing sector is poised to be a leading driver for the 2016 economy. Still, the weak December and revised November headlines are likely to pull down, at least slightly, estimates for revised fourth-quarter GDP which came in at plus 0.7 percent in last week's advance report.

Lawler: Home Builder Results: Net Orders Decent, Deliveries Lag a Bit, Order Backlog Jumps -- From housing economist Tom Lawler: Below is a table showing some selected operating statistics from large, publicly-traded home builders for the quarter ending December 31, 2015. Combined net home orders for these seven home builders last quarter were up 11.7% from the comparable quarter of 2014, while home deliveries were up 6.3% YOY. For the group as a whole deliveries were a bit lower (as were revenues and earnings) than one would have expected based on order backlogs, which mainly reflected longer-than-normal construction timelines in several markets (as opposed to sales cancellations, which in aggregate were down slightly from a year ago). The combined order backlog for these builders at the end of last year was up 18.3% from a year earlier. Net orders per active community for the group were up 8.7% YOY.

U.S. Courts: "Bankruptcy Filings Drop 10 Percent in Calendar Year 2015" - From the U.S. Courts: Bankruptcy Filings Drop 10 Percent in Calendar Year 2015 During the 12-month period ending December 31, 2015, 844,495 cases were filed in federal bankruptcy courts, down from the 936,795 bankruptcy cases filed in calendar year 2014—a 9.9 percent drop in filings. This is the lowest number of bankruptcy filings for any 12-month period since 2007, and the fifth consecutive calendar year that filings have fallen.  CR Note: For Q4, bankruptcy filings were down about 8% compared to Q4 2014. At that pace of improvement, fiscal 2016 for the Court system (ends Sept 30th) will see the fewest bankruptcy filings since fiscal 1990.

Personal income and spending, ISM manufacturing, construction spending -- Spending still not good, and GDP *is* spending. Personal income growth remains low, but is higher than spending. I suspect this gets reconciled with downward revisions to income over time, perhaps due to downward revisions to employment. With GDP growth near flat employment growth implies more employees are being hired to produce the same levels of output, which sends up a red flag for downward revisions to employment. Consumers had a healthy December but kept the money to themselves. Personal income rose a solid 0.3 percent with the savings rate moving 2 tenths higher to 5.5 percent, its strongest level since December 2012. Wages & salaries, however, slowed to only plus 0.2 percent in the month but follow outsized gains of 0.5 and 0.6 percent in the prior two months. Service industries lead the pay data with manufacturing pay in contraction. Proprietors’ income rose in the month along with rental income while income receipts were down on lower interest income, the latter reflecting, despite the Fed’s rate hike, the downdraft in rates. Spending, as retailers already know, was very soft, unchanged with only services showing a gain. December spending on both durable and non-durable goods fell 0.9 percent each, the former reflecting weak spending on holiday gifts and also vehicles and the latter reflecting lower hitting bills. A partial offset is a 2 tenths upward revision to November’s spending to plus 0.5 percent.

US personal income rose 0.3% in Dec vs 0.2% expected: U.S. consumer spending was unchanged in December, but a jump in savings to a three-year high suggested consumption could rebound in the months ahead. The Commerce Department said on Monday the unchanged reading in consumer spending followed an upwardly revised 0.5 percent increase in November. Spending on long-lasting manufactured goods such as autos dropped 0.9 percent. Purchases of nondurable goods also declined 0.9 percent. Economists polled by Reuters had forecast consumer spending, which accounts for more than two-thirds of U.S. economic activity, edging up 0.1 percent in December after a previously reported 0.3 percent gain in November. When adjusted for inflation, consumer spending edged up 0.1 percent after a 0.4 percent gain in November.  Consumer spending increased 3.4 percent in 2015 after advancing 4.2 percent in 2014. That data was included in last Friday's fourth-quarter gross domestic product report, which showed consumer spending growth slowed to a 2.2 percent annual rate from the third quarter's brisk 3 percent pace. Moderate consumer spending, weak export growth and ongoing efforts by businesses to reduce unsold merchandise piled up in warehouses helped restrict economic growth to a 0.7 percent pace in the fourth quarter.

Personal Income increased 0.3% in December, Spending decreased slightly -- The BEA released the Personal Income and Outlays report for December:  Personal income increased $42.5 billion, or 0.3 percent, ... according to the Bureau of Economic Analysis.Personal consumption expenditures (PCE) decreased $0.7 billion, or less than 0.1 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in December, compared with an increase of 0.4 percent in November. ... The price index for PCE decreased 0.1 percent in December, in contrast to an increase of 0.1 percent in November. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared to an increase of 0.2 percent. The December PCE price index increased 0.6 percent from December a year ago. The December PCE price index, excluding food and energy, increased 1.4 percent from December a year ago. On inflation: The PCE price index increased 0.6 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.4 percent year-over-year in December.

December Disposable Income Per Capita Rose 0.22%, 0.31% When Adjusted for Inflation -  With the release of today's report on December Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The December nominal 0.22% month-over-month increase in disposable income come in at 0.31% when we adjust for inflation. The year-over-year metrics are 2.94% nominal and 2.35% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000.  Nominal disposable income is up 65.4% since then. But the real purchasing power of those dollars is up only 23.9%.

Savings Rate Surges To Highest Since 2012 As Spending Disappoints - The Keynesians will not be pleased. Despite the holiday season, December spending disappointed with no change MoM (0.0% vs +0.1% exp). This is further sentiment-destructivbe as income data rose more than expected MoM (+0.3% vs +0.2% exp) even asincome growth YoY slipped to its weakest in 9 months.  Perhaps most sadly of all, 42% of December Personal Income gains came from Government Social Benefits, mostly Social Security and Medicare. Vive le recovery.  Spending on Goods, both durable and non-durable, tumbled by $34.6 billion offset by $33.9 billion jump in spending on services. This of course means the personal savings rate rose, pushing to 5.5% - the highest since 2012. Not what the PhDs in The Eccles Building are demanding or their textbooks are predicting. Charts: Bloomberg

Cheap oil won't juice the U.S. economy this time: Reuters poll  U.S. consumers are cautious about spending their windfall from cheap gasoline and are saving more, according to a Reuters/Ipsos poll and official data, suggesting low oil prices are less of a boon for the U.S. economy than in the past. Commerce Department data shows that the crude's 70 percent drop since mid-2014 cut households' annual spending on gasoline and other energy products by $115 billion, equivalent to roughly 0.5 percent of gross domestic product. At the same time, however, savings increased by $121 billion and while the data gives no indication where the money has come from, the survey suggests the windfall accounted for a significant part of the sum. The Reuters/Ipsos poll shows 75 percent of 3,068 Americans who answered questions on gasoline savings said the extra money helped them cover basic needs and the majority have not used their windfall to buy big ticket items. Over 40 percent of respondents said the savings had helped them pay down debts, according to the Jan. 15-27 online poll, which had a credibility interval of plus or minus 1.8 percentage points.

Gas Prices Are Plunging. So Why Is Everyone Freaking Out? -- Oil prices have declined nearly 75% from their recent peak in June 2014, roiling markets and sounding new alarm about the possibility of an economic slowdown.  Wait, what? Weren’t lower gasoline prices supposed to help the U.S. economy? Gas is below $2 a gallon in all but 11 states, reaching the lowest level since 2009. Prices have been cut in half over the last 18 months. When oil plunged in the 1980s, it unleashed strong economic growth, even as Texas, Colorado and Oklahoma slid into recession. So why are people acting as if this is a bad thing for the economy? It’s true that falling gas prices should help the U.S. economy because, even despite a recent boom in domestic energy production, America is still a net importer of oil. Here are five reasons why there’s more concern now:

Consumers have spent about 20% of their gas savings - Real personal consumption expenditures rose 0.1% in December, positive but something of a disappointment compared with the big YoY increase evident in Gallup's consumer spending measure: This means that personal spending slowed down considerably in the 3rd and 4th quarters compared with the previous 4 quarters (blue in the graph below), particularly as compared with the increase in real personal income (red): But a longer term comparison shows that it has been the first 3 quarters of 2015 which were the exception: Over the last 10 years, real personal spending increased on average about 0.15% monthly. In the first 3 quarters of 2015, it increased by closer to 0.3% monthly. This was one of the best rates in the entire 10 year period: Real personal income (red in the above graph) also was above average throughout 2015. So how much of their gas savings have consumers been spending? The big decline in gas prices began in summer 2014. If we norm both spending and income to 100 just prior to that decline, we can compare how much each has increased: Real income has grown by 6%, while real spending has grown by 4.5%. In other words, consumers have spent about 3/4 of their increase in income. But how much of that is gas savings?  In the bar graph above, we can see that in the 12 months before the big decline in gas prices, real income increased by 2.4%, and real spending by 2.7%.  The average annual increase in income has been 3.9%, while spending has averaged 3.0% annualized.  This means that consumers have spent about 20% of their gas savings (+0.3% vs. +1.5%), relatively more in the first half of 2015 vs. the last half.

Post-Holiday U.S. Consumer Spending Averages $81 in January: ​ Gallup  -- Americans' daily self-reports of spending fell to an average of $81 in January, down from $99 in December. This drop is typical of the post-holiday spending patterns Gallup has recorded over the past several years. This year's average January spending ties with January 2015 for the highest average for the month since January 2008. The January 2016 average is based on Gallup Daily tracking interviews with 15,216 U.S. adults. Gallup asks Americans to estimate the total amount they spent "yesterday" in restaurants, gas stations, stores or online -- not counting home and vehicle purchases or normal monthly bills -- to provide an indication of Americans' discretionary spending. While December spending is often among the highest of the year, January spending is often among the lowest. The regular December surge and January decline are likely related to holiday spending patterns. This year's daily spending average in January was $18 lower than in December 2015, which is about average for December-to-January drops in spending. Historically, the seasonal decrease was largest between December 2008 and January 2009, when the spending average fell $25. It was smallest between December 2012 and January 2013, when it fell only $3.

US consumer is the last defense against strong dollar drag on the economy - We continue to receive questions about the impact of the recent dollar strengthening on the US economy. The most immediate impact of course is on trade, which has created an immediate drag on the GDP growth.  We know that the impact on US industrial production in particular has been terrible. On the other hand this currency appreciation, combined with weaker energy prices, is supposed to improve consumption as imports become cheaper. The chart shows US import price index And of course all the cheap fuel (combined with a warmer winter) should be providing material support to US households. US average gasoline price Will that be enough to give US consumer spending a boost? Goldman outlines two potential scenarios, the second one of which leads to a contraction in US gross output. Source: Goldman Sachs The full impact of the US dollar rally thus depends very much on the behavior of the consumer in the months to come. From a balance sheet perspective US households certainly don't seem to be "stressed", as the Financial Obligations Ratio remains near multi-decade lows.

How Much Debt Is Too Much?– Is there a “safe” debt/income ratio for households or debt/GDP ratio for governments? In both cases, the answer is yes. And in both cases, it is impossible to say exactly what that ratio is. Nonetheless, this has become the most urgent macroeconomic question of the moment, owing not just to spiraling household and government debt since 2000, but also – and more important – to the excess concern that government debt is now eliciting. According to a 2015 report by the McKinsey Global Institute, household debt in many advanced countries doubled, to more than 200% of income, between 2000 and 2007. Since then, households in the countries hardest hit in the 2008-2009 economic crisis have deleveraged somewhat, but the household debt ratio in most advanced countries has continued to grow. The big upsurge in government debt followed the 2008-2009 collapse. For example, British government debt rose from just over 40% of GDP in 2007 to 92% today. Persistent efforts by heavily indebted governments to eliminate their deficits have caused debt ratios to rise, by shrinking GDP, as in Greece, or by delaying recovery, as in the UK. Before modern finance made it easy to live on borrowed money, getting into debt was considered immoral. “Neither a borrower nor a lender be,” Shakespeare’s Polonius admonishes his son Laertes. The expectation of uninterrupted economic growth brought a new perspective. Mortgage debt, unknown a century ago, now accounts for 74% of household debt in developed countries (43% in developing ones). Banks have been lending, and households borrowing, as if tomorrow was sure to be better than today. Likewise, governments used to be expected to balance their budgets, except during wartime. But they, too, came to expect continually rising revenues at unchanged, or even falling, tax rates. So it seemed prudent to borrow against the future. Today, with many households and governments facing severe financing problems, that no longer appears to be true. But the only certainty is that the “safe” debt ratio depends on the context.

America's #1 Import: Deflation -It seems that everyone these days is exporting deflation to the US. The drop in commodity prices and the US dollar rally versus a broad basket of currencies in recent years had a big impact of course, but the magnitude of the decline of US import prices has been very significant indeed. And this matters for many reasons. Competition for the all-important US consumer remains fierce, as exporting countries devalue their currency and/or further reduce their costs to maintain market share.While imports represent a relatively small percentage of US GDP (typically <17%), the technocrats at the Federal Reserve will now have to work harder to fan the flames of inflation across the economy (hint: not by continuing to raise interest rates...). Moreover, these price patterns suggest that all is certainly not well in the global economy.The graph above shows the evolution of selected US import price indices by country of origin since January 2009 (=100), when the world was in the throes of the great recession, as provided by the US Bureau of Labor Statistics. The dotted line shows total import prices excluding oil, to isolate the direct impact of the recent collapse in crude oil prices. After staging a post-crisis rally, prices of overall imports pretty much remained in a range between mid-2011 and mid-2014. But then something happened: the US dollar started to rally hard and that price index quickly went the other way. How the major industrial exporters have responded is where things get really interesting. The price index of the three majors peaked at different times: Chinese import prices peaked in early 2012, the Japanese later that year and the Europeans kept raising their US dollar prices until mid-2014. While the composition of the imports varies from country to country, it were the diverging policy responses that largely dictated what followed.

Hotel Occupancy: Solid Start for 2016 -  Here is an update on hotel occupancy from STR: US results for week ending 23 January The U.S. hotel industry reported mixed results in the three key performance measurements during the week of 17-23 January 2016, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy decreased 1.9% to 56.2%. Average daily rate for the week rose 2.5% to US$116.51, and revenue per available room increased 0.5% to US$65.51. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are currently in the weakest part of the year; December and January. The red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  2015 was the best year on record for hotels. So far 2016 is tracking close to 2015. A solid start to the year.

Amazon Plans Hundreds of Brick-and-Mortar Bookstores, Mall CEO Says - WSJ: After dipping its toes into brick-and-mortar retailing last year with its first physical bookstore, online giant Inc. AMZN -3.95 % is poised to dive into the deep end. The Seattle company plans to open as many as 400 bookstores, Sandeep Mathrani, chief executive of mall operator General Growth Properties Inc., GGP 2.07 % said on an earnings call on Tuesday. “You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400,” said Mr. Mathrani in response to a question about mall traffic. That plan compares to the 640 stores Barnes & Noble Inc. operates and the 255 locations Books-A-Million Inc. said it had as of last summer. Both companies spent years building their retail presence. In addition to its one bookstore, Amazon also has a presence in Westfield Corp. malls, where it has set up permanent kiosks selling devices, cases and branded apparel. It wasn’t clear where Mr. Mathrani got Amazon’s store figure, but he could have spoken with Amazon’s real-estate executives about their plans. Spokesmen for Amazon and GGP declined to comment. If Amazon were to open hundreds of stores, it would take years to pick locations, reach leasing deals, and hire staff. Physical stores would give Amazon customers a place to leaf through books before buying them.

U.S. Light Vehicle Sales at 17.46 million annual rate in January --Based on an estimate from WardsAuto, light vehicle sales were at a 17.46 million SAAR in January. That is up about 5% from January 2015, and up about 1.4% from the 17.2 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for December (red, light vehicle sales of 17.46 million SAAR from WardsAuto). This close to the consensus forecast of 17.5 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. This was at expectations, and vehicle sales in 2016 are off to a solid start.

U.S. January auto sales stronger than expected | Reuters: U.S. auto sales fared better than expected in January as the industry continued to benefit from low gasoline prices, easy credit and moderate economic growth, major automakers said on Tuesday. Sales were down 0.3 percent at 1.15 million vehicles, Autodata Corp said, better than the expected decline of between 0.5 percent to 5 percent forecast by analysts polled by Reuters before Tuesday. January U.S. sales were 17.58 million on a seasonally adjusted annualized basis, Autodata said. WardsAuto, which the U.S. government uses for economic analysis, said the annualized rate was 17.46 million and that monthly sales fell 0.4 percent from a year ago. The same trends that boosted sales in 2015 helped blunt the challenges of two fewer selling days and a massive East Coast snowstorm. General Motors Co (GM.N), the top-seller in the U.S. market, said its sales were up 0.5 percent, while it increased its share of the retail market, which does not include fleet sales to rental agencies.

How Auto Sales May Dent U.S. Growth - What goes up usually comes down. Record auto sales in 2015 lent a big boost to overall economic output, but Americans’ appetite for autos and trucks is falling from those highs. That slowdown hurt GDP in the fourth quarter, and it’s set to dent first-quarter output, too. “That number can’t go up to infinity,” Conditions that superfueled the boom may now be cooling: There had been a lot of old cars on the road, Mr. Blitz said, and cheap financing plus many Americans’ more optimistic view of the economy prompted drivers to replace their vehicles. In the December quarter, Americans still bought autos and trucks at a healthy pace, . But real spending on motor vehicles and parts fell a seasonally adjusted $5.2 billion—wiping 0.58 percentage point off fourth-quarter GDP after adding about a percentage point to output over the first three quarters of the year. Excluding motor vehicle output, the Commerce Department said GDP rose 1.3% in the fourth quarter. Because of the seasonal factor, it’s not unusual for the category to be weak in the final quarter of the year. But this time it’s more meaningful because of the unseasonably warm winter. Bad weather didn’t keep people from dealers’ lots like it sometimes does. And the decline was steeper than in prior—and colder—fourth quarters. What’s more, some indicators suggest the slowdown will continue. The fourth-quarter decline came as the inventories-to-sales ratio was at its highest during the current business cycle, according to Mr. Blitz, potentially signaling a pullback in auto manufacturing as dealers try to clear some inventory. And there was evidence on Tuesday that vehicle sales were more modest in January.

Factory Orders February 4, 2016: Factory orders sank a very sharp 2.9 percent in December after falling a sizable and downwardly revised 0.7 percent in November. Orders for durable goods fell 5.0 percent in December (revised from minus 5.1 percent in last week's advance release for this component) while the first reading for non-durable goods orders is down 0.8 percent reflecting declines for petroleum and coal. Headline swings for order data are the norm but details inside the report point straight at weakness. Core orders for capital goods fell a very steep 4.3 percent in the month reflecting wide declines for machinery especially mining & oil field machinery. Computers including communications equipment also show wide declines. Turning to other readings, shipments fell a very steep 1.4 percent with shipments for core capital goods rising only fractionally following steep declines in both November and October. Unfilled orders fell 0.5 percent in December, which is another warning sign, while inventories rose 0.2 percent in what definitely looks to be an unwanted build given the declines in orders and shipments. Inventories, where the rise lifts the inventory-to-shipment ratio to a much heavier 1.38 from 1.35, look to be a major headwind for the first quarter, cutting into factory output and also employment. The declines for capital goods point to declining ambitions in business plans. Weak global demand and falling demand from the energy sector remain major negatives for the nation's factory sector.

December 2015 Manufacturing Again Declines: US Census says manufacturing new orders declined. Our analysis says sales did decline. Unadjusted unfilled orders' growth remains in CONTRACTION year-over-year - but this is due to deflation in this sector.. Part of the reason for the poor growth is that the data is not inflation adjusted (deflation is occuring in this sector). Civilian and defence aircraft was the major headwind - but most of the data was soft.. US Census Headline:

  • The seasonally adjusted manufacturing new orders is down 2.9 % month-over-month, and down 6.6 % year-to-date (last month was down 6.8 % year-to-date)..
  • Market expected (from Bloomberg) month-over-month growth of -3.7 % to 0.2 % (consensus -2.8 %) versus the reported -2.9 %.
  • Manufacturing unfilled orders up 0.5 % month-over-month, and down 2.0 % year-over-year.

    Econintersect Analysis:

  • Unadjusted manufacturing new orders growth decelerated 0.7 % month-over-month, and down 4.3 % year-over-year
  • Unadjusted manufacturing new orders (but inflation adjusted) up 0.0 % year-over-year - there is deflation in this sector.
  • Unadjusted manufacturing unfilled orders growth accelerated 0.3 % month-over-month, and down 2.0 % year-over-year As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production growth decelerated 0.1 % month-over-month, and up 0.7 % year-over-year.

    U.S. December factory orders post biggest drop in a year - New orders for U.S. factory goods fell in December by the most in a year as manufacturing continued to reel from the headwinds of a strong dollar and weak overseas demand. The Commerce Department said on Thursday new orders for manufactured goods dropped 2.9 percent, the largest drop since December 2014, after a downwardly revised 0.7 percent fall in November. Economists polled by Reuters had forecast factory orders falling 2.8 percent in December after a previously reported 0.2 percent dip in November. Factory orders fell 6.6 percent in 2015. Manufacturing, which accounts for about 12 percent of the economy, is also being pressured by an inventory overhang and cuts in capital spending by oil firms as they try to adjust to a collapse in oil prices. But the factory downturn could be close to bottoming, though dollar strength and weak overseas demand could remain a challenge. A survey on Monday showed that although manufacturing contracted in January for a fourth straight month, activity ticked up as new orders rebounded. The dollar has gained 22.2 percent against the currencies of the United States' main trading partners since June 2014. Oil prices have plunged about 70 percent in the last 18 months, hit by a growing glut and cooling economic growth in China and other emerging markets. In December, orders for transportation equipment fell 12.6 percent, mostly reflecting a drop in aircraft orders. Orders for automobiles and parts rose 1.4 percent. The Commerce Department also said orders for durable goods, items meant to last three years or more ranging from toasters to aircraft, fell 5.0 percent in December instead of the 5.1 percent plunge reported last month.

    Orders to US factories fell sharply in December — Orders to U.S. factories fell sharply in December, closing out a year in which demand for American manufactured goods retreated for the first time in six years. Factory orders dropped 2.9 percent in December, the fourth decline in the past five months, the Commerce Department reported Thursday. Orders were down 6.6 percent for the full year, marking the first annual fall since 2009, a year when the country was struggling to emerge from the Great Recession. The 2015 decline underscores the problems American manufacturers are facing from spreading global weakness and the rising strength of the dollar. The big December decline was led by a plunge in demand for commercial aircraft, a volatile category. But orders in a key category that tracks business investment also fell sharply. Orders for durable goods, items intended to last at least three years such as cars and home appliances, dropped 5 percent in December. The figure was revised slightly from an advance report last week that pegged the drop at 5.1 percent. Demand for nondurable goods, items including chemicals, paper and petroleum products, dropped 0.8 percent in December. It was the latest in a string of declines that have been influenced in part by the falling price for energy products. The key category of nondefense capital goods excluding aircraft, which serves as a proxy for business investment plans, dropped a sharp 4.3 percent in December after a 0.9 percent decline in November. Business investment has been held back this year by the steep drop in oil prices, which has triggered big cutbacks in at energy companies. For December, orders for mining and oil field machinery plunged 78.2 percent.

    US Factory Orders Plunge Most In 2 Years, 14th Consecutive Drop - With the Services economy now catching down to Manufacturing's demise (in its lagged - not decoupled - manner), this morning's news that US Factory Orders tumbled 2.9% in December (worse than expected and the biggest MoM drop since Dec 2014) offers little hope for any bounce anytime soon. This is the 14th monthly drop in YoY factory orders -something has not happened outside of a broad US economic recession.

    "It's Probably Nothing": January Truck Orders Collapse 48% - We have previously shown just how bad the situation in the US heavy trucking space - trucks with a gross weight over 33K pounds - was most recently in "US Trucking Has Not Been This Bad Since The Financial Crisis" in which we looked at November data and found, that "Class 8 truck net orders at 16,475, were 59% below a year ago and the lowest level since September 2012.  This was the weakest November order activity since 2009 and was a major disappointment, coming in significantly below expectations.  All of the OEMs, except one, experienced unusually low orders for the month." For those who missed the proverbial wheels falling of the heavy trucks, so to speak, the charts below do the situation justice:

    Rail Week Ending 30 January 2016: Contraction Continues But With a Short Term Improvement - Week 4 of 2016 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic improved year-over-year, which accounts for approximately half of movements but the weekly railcar counts remained deeply in contraction. A summary of the data from the AAR: Carload traffic in January totaled 968,042 carloads, down 16.6 percent or 192,747 from January 2015. U.S. railroads also originated 1,039,621 containers and trailers in January 2016, up 3.4 percent or 34,523 units from the same month last year. For January 2016, combined U.S. carload and intermodal originations were 2,007,663 down 7.3 percent or 158,224 carloads and intermodal units from January 2015. In January 2016, four of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with January 2015. This included: miscellaneous carloads, up 45.2 percent or 7,409 carloads; chemicals, up 2.1 percent or 2,615 carloads; and motor vehicles and parts, up 3.9 percent or 2,435 carloads. Commodities that saw declines in January 2016 from January 2015 included: coal, down 33.3 percent or 150,658 carloads; petroleum and petroleum products, down 19.4 percent or 12,037 carloads; and crushed stone, gravel, and sand, down 10.3 percent or 8,475 carloads. Excluding coal, carloads were down 5.9 percent or 42,089 carloads from January 2015.

    More Bad News in the Shipping Data -- Various measurements of goods shipped around the world are flashing warning signals about the outlook for global growth, I argued last week. But it turns out the data are even richer than I realized. Some readers have pointed out, for example, that slumping volume is a more reliable indicator than falling prices, because prices are unduly influenced by supply dynamics (more ships). But the deeper I dig, alas, the more worried I get about growth. Let's start with goods carried by train in the U.S. Since the middle of last March, carloads of agricultural products, chemicals, coal, metals, autos and other goods have declined every week: Last week, Warren Buffett's BNSF Railway, the biggest player in North American carloads, announced it will cut investment by 26 percent this year, its first reduction in capital expenditures since 2010; that suggests an industry bracing for a further downturn. What's more, it seems fairly intuitive that if companies are moving fewer carloads on the tracks, the economy is heading for a slowdown. . Here's the survey numbers compiled by the Materials Handling Industry trade association shows about shipments in the materials handling business: Industry shipments barely scraped into expansion last month; 48 percent of the survey respondents reported month-on-month decreases in shipments. The same percentage reported a slowdown in new orders for January, while the balance anticipating future new orders has dropped to 67 percent from 84 percent in December. Schenker's thinking is that companies that make the cranes, hoists, racks and rails used to move materials "should prove to be a leading indicator of material handling equipment demand -- and a leading indicator of U.S. economic growth." Given the accompanying contraction in manufacturing, "the U.S. is likely to be in a recession soon -- if it has not already entered a recession," he says.

    Trade Deficit Increased in December to $43.4 Billion -- Earlier the Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.4 billion in December, up $1.1 billion from $42.2 billion in November, revised. December exports were $181.5 billion, $0.5 billion less than November exports. December imports were $224.9 billion, up $0.6 billion from November.  The trade deficit was slightly larger than the consensus forecast of $43.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through December 2015. Imports increased and exports decreased in December. Exports are 9% above the pre-recession peak and down 7% compared to December 2014; imports are 3% below the pre-recession peak, and down 7% compared to December 2014. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $36.60 in December, down from $39.24 in November, and down from $82.92 in December 2014. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China decreased to $27.9 billion in December, from $28.1 billion in December 2014. The deficit with China is a substantial portion of the overall deficit.

    Your Trip to Mexico Is Weighing on the Trade Balance -- Hope that spur-of-the-moment trip to Mexico last year was lots of fun. Because it’s wreaking havoc on the U.S. trade balance. It all comes down to services, the part of the economy where the U.S. is the undisputed global leader. Some services—often intangible things like financial advice and royalties—are traded between countries, and in the U.S. the exports of services reliably exceed imports. That’s a very important silver lining in the trade story, since on the goods side of the equation it’s the opposite—imports of products from China and other countries overwhelm U.S. exports. Policy makers are keen to boost services exports even further, and a recent trade agreement with Pacific countries—the Trans-Pacific Partnership—could unlock some services trade blocked by U.S. trading partners, assuming the deal is ever approved in Congress and other parliaments.What officials aren’t so happy about are services imports. On Friday, the Commerce Department reported that the services trade surplus—the amount by which exports exceeded imports—shrank last year, since services imports rose at a faster clip than exports. U.S. imports of all services rose by $11.6 billion to $489 billion last year, about twice the increase that services exports saw. That’s bad news for the trade balance, since imports subtract from gross domestic product.And that’s where the trip to Mexico comes in. The category of services imports with the biggest increase was travel, which climbed $9.7 billion last year. As the dollar rose against the euro and other countries, Americans increased their foreign travel, making 66.7 million trips abroad in the first 11 months of last year, compared with 61.9 million in the same period in 2014.

    December 2015 Trade Data Continues To Show Weakness.: A quick recap to the trade data released today continues to paint a relatively dismal picture of global trade. The unadjusted three month rolling average value of exports and imports decelerated,. Many care about the trade balance which degraded. Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth deceleration of 3.8 % month-over-month (unadjusted data) - down 7.8 % year-over-year (up 0.4% year-over-year inflation adjusted). The rate of growth 3 month trend is decelerating but in expansion. Exports of goods were reported down, and Econintersect analysis shows unadjusted goods exports growth acceleration of (not including services) 0.4 % month-over month - down 10.4 % year-over-year (down 3.8% year-over-year inflation adjusted). The rate of growth 3 month trend is decelerating and in contraction.

  • The decline in seasonally adjusted (but not inflation adjusted) exports was almost across all export categories. Import increase was also broad based. Pretty much all the movement was insignificant.
  • The market expected (from Bloomberg) a trade deficit of $-44.2 B to $-41.0 B billion (consensus $-43.0 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $43.4 billion.
  • It should be noted that oil imports were up 43 million barrels from last month, and up 8 million barrels from one year ago. The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

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

    Despite seemingly stable U.S. trade balance, rapidly growing trade deficits in non-oil goods could lead to American job losses   - The U.S. Census Bureau reported that the annual U.S. trade deficit in goods and services increased from $508.3 billion to $531.5 billion from 2014 to 2015, an increase of $23.2 billion (4.6 percent). The slow growth of the overall U.S. trade deficit hides massive underlying shifts in the trade deficit in petroleum products (which declined $157.3 billion, or 55.3 percent), compared with the trade deficit in all other goods, which increased from $547.7 billion to $655.9 billion—an increase of $108.2 billion, or 19.8 percent. In other words, the sharp decline in the petroleum trade deficit masked a large increase in the non-oil goods trade deficit, which could result in substantial U.S. job losses in the future.  Most U.S. goods trade consists of manufactured products. In 2015, manufacturing constituted 86.9 percent of total U.S. goods trade, and 94.3 percent of total trade in non-oil goods. Because manufacturing is such a large employer, rapidly growing trade deficits in non-oil goods are a threat to future employment in this sector. The growing trade deficit in manufactured products rose to 3.8 percent of GDP, only 0.7 percent (7 tenths) of a percentage point below the maximum reached in 2005. The manufacturing trade deficit also reached a record high of $681 billion in 2015, well in excess of the previous peak $619.7 in 2007. Rapidly growing manufacturing trade deficits were responsible for most, if not all, of the 4.8 million U.S. manufacturing jobs lost between December 2000 and December 2015, and there’s every reason to believe that these job losses will continue if the non-oil trade deficits keeps growing.  This analysis is primarily concerned with shifts in goods trade. The U.S. balance of trade in services declined slightly in 2015, falling from a trade surplus of $233.1 billion in 2014 to $227.4 billion in 2015. Trade in goods continues to dominate overall trade flows for the United States—trade in services totaled only 24.1 percent of total U.S. goods and services trade in 2015.

    PMI Manufacturing Index February 1, 2016: Highlights: The manufacturing PMI runs hot compared to other data on the sector and, at a solidly plus 50 reading of 52.4 in January, may be overstating the momentum of the sector. New orders picked up steam in the month driven by stronger growth in domestic demand than foreign demand and despite continued contraction for energy equipment. Production also rose in the month. Job creation slipped amid caution on the outlook with inventories steady to slightly lower and input buying, in a telling sign of defensiveness, near a 2-year low. Price data show life for finished goods, up only moderately but still the best showing since August. Input costs slipped further, offsetting higher costs for wages, the latter another positive for inflation. This report shows welcome life and hints at perhaps a 50 reading for the ISM index.

    ISM Manufacturing index increased to 48.2 in January -The ISM manufacturing index indicated contraction in January. The PMI was at 48.2% in January, up from 48.0% in December. The employment index was at 45.9%, down from 48.0% in December, and the new orders index was at 51.5%, up from 48.8%. From the Institute for Supply Management: January 2016 Manufacturing ISM® Report On Business® "The January PMI® registered 48.2 percent, an increase of 0.2 percentage point from the seasonally adjusted December reading of 48 percent. The New Orders Index registered 51.5 percent, an increase of 2.7 percentage points from the seasonally adjusted reading of 48.8 percent in December. The Production Index registered 50.2 percent, 0.3 percentage point higher than the seasonally adjusted December reading of 49.9 percent. The Employment Index registered 45.9 percent, 2.1 percentage points below the seasonally adjusted December reading of 48 percent. Inventories of raw materials registered 43.5 percent, the same reading as in December. The Prices Index registered 33.5 percent, the same reading as in December, indicating lower raw materials prices for the 15th consecutive month. Comments from the panel indicate a mix ranging from strong to soft orders, as eight of our 18 industries report an increase in orders, and seven industries report a decrease in orders."Here is a long term graph of the ISM manufacturing index. This was close to expectations of 48.3%, and suggests manufacturing contracted in January.

    ISM Survey Says Manufacturing Still In Contraction - Robert Oak - The January 2016 ISM Manufacturing Survey is yet month of awful.  Manufacturing is in a 4th month of contraction.  This time is a smidgen better than December.  PMI was 48.2%, 0.2 percentage points higher than the previous revised month.  New orders did come out of contraction, but barely, while employment continued to plunge.  Only eight sectors showed any growth according to the survey.  A contracting manufacturing sector four months in a row is not a good sign and this survey is highly correlated to other economic metrics.   The ISM Manufacturing survey is a direct survey of manufacturers.  Generally speaking, indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments, which are part of their survey.  This month the comments were mixed and seemed to be more about technological disruptors for some fractions like computers and electronics.  Low energy prices was a boon for some and a bust for producers.  While some say low gas prices are hurting them, most talked about weak demand and cutting their inventories.  New orders increased by 2.7 percentage points to 51.5% and moved out of contraction.  This is the best news in this month's survey.The Census reported December durable goods new orders plunged by -5.1%, where factory orders, or all of manufacturing data, will be out later this week.  Note the Census one month behind the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. Below is the ISM table data, reprinted, for a quick view.

    ISM Negative 4th Month, Employment Shows Significant Declines - Manufacturing in January continues its dismal track record with the latest ISM reading. Econoday reports ...  Employment sank the ISM index in January which could muster no better than a 48.2 for what, following annual revisions to 2015, is the fourth sub-50 reading in a row. This is by far the worst run for this closely watched indicator since the Great Recession days of 2009. Employment fell a very steep 2.1 points to 45.9 to signal significant contraction for manufacturing payrolls in Friday's employment report, which however would not be much of a surprise given the sector's prior payroll contraction. This is the third sub-50 reading for employment of the last four months and the lowest reading since, once again, 2009. There is good news in the report and that's a snapback for new orders, to 51.5 for only the second plus 50 reading of the last five months and which points to overall improvement in the coming reports. But backlog orders, at only 43.0, remain in deep contraction, and what strength there is in orders isn't coming from exports which are in contraction for the seventh of the last eight months. Manufacturers have been working down backlogs to keep production up, which came in at 50.2 to signal fractional monthly growth. Inventories remain steady and low but the sample still say they are too high, sentiment that points to lack of confidence in the business outlook. Confirming the weakness is breadth among industries with 10 reporting composite contraction against eight reporting monthly growth. If it wasn't for strength in new orders, January's data would be almost entirely negative. This report is a downbeat opening to 2016 which follows a definitively downbeat year for the factory sector in 2015. Let's further dive into the numbers straight from the ISM Report.

    Another sign the industrial recession is bottoming: ISM inventories orders   The overall most important economic question this year is whether the industrial recession caused mainly by the strong US$ will end, and if so, when? I have suggested that there are signs of a bottoming out in the spot price of the trade wieghted US$ and industrial commodity prices. Yesterday we got a third indication in the ISM manufacturing report. As an initial matter, the inventories component of the ISM index is an excellent coincident indicator for YoY real GDP. Here are three graphs covering the last 70 years to show that: Besides being a more timely sign of a Quarter's GDP, as you hopefully can see in those graphs, the ISM inventories index also bottoms out sometime between the middle of a recession to a few months after its end. Most often the bottom is wihin one month of the bottom of the recession. The inventory index in 2015 made a bottom in October. Usually - but not always - there is no lower bottom. Just as important is the relationship between the ISM new orders index and the inventory index. As you can see in the below graphs covering the last 70 years, typically late in a recession the new orders index spikes higher, into expansion, while the inventories index is still contracting, near the index's ultimate low: The same pattern holds true for downturns that do not sink all the way into recession. Here is 1966:

    PMI Services Index February 3, 2016: Growth is respectable but slowing in the nation's service sector, based on Markit's sample where the composite index came in at 53.2 for final January. This is 5 tenths under both Econoday expectations and the mid-month flash and is a sizable 1.1 points below final December. Growth in new orders, reflecting general business caution, is at a 12-month low while backlog orders are in contraction for a 6th straight month. Solid hiring, however, is part of the reason for the drawdown in backlogs though how long employment can continue to rise while new orders are weak is an open question. Overall business confidence in the sample did rise in the month but remains close to a 3-1/2 year low. Price data remain subdued but, in what would be a positive for the Fed's efforts to lift inflation, the report does note signs of rising wage pressure. This report hints at another quarter of subdued growth for the economy. The ISM non-manufacturing report, which samples not only the service sector but also mining and construction, has been showing greater strength. ISM's January data will be posted later this morning at 10:00 a.m. ET.

    January 2016 ISM Services Index Declines But Remains in Expansion: The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 55.8 to 53.5 (above 50 signals expansion). Important internals likewise declined, however, and remain in expansion. Market PMI Services Index was released this morning, also is in expansion, and also declined. This was below expectations (from Bloomberg) of 53.0 to 56.5 (consensus 55.5). For comparison, the Market PMI Services Index was released this morning also - and it weakened marginally. Here is the analysis from Bloomberg: Growth is respectable but slowing in the nation's service sector, based on Markit's sample where the composite index came in at 53.2 for final January. This is 5 tenths under both Econoday expectations and the mid-month flash and is a sizable 1.1 points below final December. Growth in new orders, reflecting general business caution, is at a 12-month low while backlog orders are in contraction for a 6th straight month. Solid hiring, however, is part of the reason for the drawdown in backlogs though how long employment can continue to rise while new orders are weak is an open question. There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - both have good track records in spotting an incipient recession - both remaining in territories associated with expansion. This index and its associated sub-indices are fairly volatile - and onande needs to step back from the data and view this index over longer periods than a single month. The Business Activity sub-index declined 5.6 points and now is at 53.9.

    Manufacturing Recession Spills Over Into Services After Dismal PMI, ISM Data -- In the words of Markit's chief economist, "the US upturn has lost substantial momentum over the past two months," as the golden child of any current bullish narrative - the Services economy - drops to its weakest since October 2013 (PMI 53.2, missing expectations). Plunging backlogs suggest hiring will slow notably and then ISM Services hit at a 23-month low, plunging back towards manufacturing's weakness, with employment at its weakest sicne April 2014 and unadjusted new orders at their weakest since Jan 2014.  Services PMI plunges back towards Manufacturing..

    Strong Dollar Batters Earnings for U.S. Tech Firms - WSJ -- Currency headwinds for more than a year have dogged the biggest names in the sector—including Apple Inc., Microsoft Corp. and International Business Machines Corp. —and once again loomed large in the current quarterly earnings season. The problem, which is increasingly defying traditional solutions, is also expected to weigh down the numbers expected Monday from Google’s parent Alphabet Inc.  Silicon Valley is suffering disproportionately because of its unusual success in hawking hardware, software and services abroad. S&P Dow Jones Indices estimates that U.S. information technology companies generated 59% of sales overseas in 2014, the latest annual numbers available, compared with 48% for companies in the broader S&P 500 index. Currency headaches are becoming more pronounced as tech companies run into economic weakness and other issues that are slowing demand for their products. Apple provided a striking example last week. The consumer electronics company, which gets 66% of its revenue from outside the U.S., said last week that the strong dollar had cost it nearly $5 billion in revenue in the quarter ended in December. Apple, if currency moves were excluded, said it would have generated $80.8 billion in revenue in the most recent quarter versus its reported $75.9 billion, knocking an 8% increase down to 2%.

    Weekly Initial Unemployment Claims increase to 285,000 -- The DOL reported: In the week ending January 30, the advance figure for seasonally adjusted initial claims was 285,000, an increase of 8,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 278,000 to 277,000. The 4-week moving average was 284,750, an increase of 2,000 from the previous week's revised average. The previous week's average was revised down by 250 from 283,000 to 282,750.  There were no special factors impacting this week's initial claims. The previous week was revised down to 277,000. The following graph shows the 4-week moving average of weekly claims since 1971.

    US layoffs hit 75,114 in Jan, surging to 6-month high: Challenger: Layoffs surged in January to the highest levels since July as employers in the retail and energy sectors pulled out the pink slips, according to a private survey out Thursday. U.S.-based companies announced 75,114 planned job cuts last month, up more than 200 percent from a 15-year low in December, according to global outplacement firm Challenger, Gray & Christmas. That figure was also 42 percent higher from a year ago.  Retailers were the biggest job cutter, despite a nearly 8 percent bump in U.S. holiday sales in 2015. The sector slashed 22,246 positions, a seven-year high. Wal-Mart accounted for much of the payroll reductions. The nation's largest retailer said it plans to close 269 stores and expects to let go 16,000 workers. Macy's said it will also shutter some locations this year, costing 4,820 employees their jobs. Challenger, Gray & Christmas CEO John A.Challenger said the shift from in-store selling to online transactions is playing a major part in the scaling back of retail work forces.

    Gallup U.S. Job Creation Index February 3, 2016: U.S. workers' reports of hiring activity at their place of work remained positive in January, though they have fallen from the high point in Gallup's eight-year trend measured last year. The job creation index measured plus 29 in January, essentially unchanged from plus 30 in December, but down from the record high of plus 32 registered each month from May through October 2015. Workers in the eastern part of the country continue to report a slightly worse hiring situation than do workers in the other regions of the country. And nongovernment workers' perceptions of hiring at their workplace continue to be more positive than those of government employees. Workers' assessments of hiring activity in their workplaces remain upbeat, but not quite as positive as last year. Although hiring activity generally declines in the winter months compared with the summer months, there haven't been obvious seasonal differences in Gallup's Job Creation Index to date. Job creation varied significantly by state last year. Minnesota had the highest job creation index of the 50 U.S. states in 2015 as a whole, while Alaska had the lowest. Low gas prices appear to have hurt employment in many energy-producing states, like Alaska. However, these same low gas prices are good for consumers and can boost spending, which could lead some stores and retailers to hire more workers.

    ADP: Private Employment increased 205,000 in January -- From ADP: Private sector employment increased by 205,000 jobs from December to January according to the January ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Goods-producing employment rose by 13,000 jobs in January, well off from December’s upwardly revised 30,000. The construction industry added 21,000 jobs, which was roughly in line with the average monthly jobs gained during 2015. Meanwhile, manufacturing neither added nor lost jobs.  Service-providing employment rose by 192,000 jobs in January, down from an upwardly revised 237,000 in December. The ADP National Employment Report indicates that professional/business services contributed 44,000 jobs, down from 69,000 in December. Trade/transportation/utilities grew by 35,000, up slightly from a downwardly revised 33,000 the previous month. The 19,000 new jobs added in financial activities were the most in that sector since March 2006...Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth remains strong despite the turmoil in the global economy and financial markets. Manufacturers and energy companies are reducing payrolls, but job gains across all other industries remain robust. The U.S. economy remains on track to return to full employment by mid-year.”  This was above the consensus forecast for 190,000 private sector jobs added in the ADP report. 

    ADP: Slower But Still Healthy US Job Growth In January -- US companies added 205,000 workers last month, according to the ADP Employment Report. As expected, the gain was well below December’s advance, which was revised up to a 267,000 increase. The numbers still show that the labor market is expanding at a healthy pace, so let’s not lose sight of this fact. But it’s also clear that the trend is slowing, based on the latest downtick in the year-over-year change. Private payrolls increased 2.0% in January vs. the year-earlier level. That’s still a solid gain, but the latest annual increase marks the lowest year-on-year advance since the summer of 2013. The key takeaway: the annual growth rate continues to decelerate. It’s a slow descent, virtually undetectable in the latest round of numbers. Nonetheless, the slide is ongoing. Today’s release marks the 13th consecutive month of slightly slower growth in annual terms. The persistent deceleration isn’t particularly troubling at this point, but it’s a reminder that the strongest phase of job growth has probably peaked for this cycle. It’ll be interesting to see if Friday’s official data from the Labor Department for January reveals otherwise, but analysts are expecting a similarly slower but still respectable gain. The good news is that the numbers still betray few signs of stress for the labor market for the immediate future. “Job growth remains strong despite the turmoil in the global economy and financial markets,” says Mark Zandi, chief economist at Moody’s Analytics, which co-produced today’s ADP data. “Manufacturers and energy companies are reducing payrolls, but job gains across all other industries remain robust. The US economy remains on track to return to full employment by mid-year.”

    January 2016 ADP Job Growth at 205,000 - Above Expectations: ADP reported non-farm private jobs growth at 205,000. The rolling averages of year-over-year jobs growth rate remains strong but the rate of growth continues in a downtrend (although insignificant again this month) again this month)

    • The market expected 160,000 to 219,000 (consensus 190,000) versus the 205,000 reported. These numbers are all seasonally adjusted;
    • In Econintersect's January 2016 economic forecast released in late December, we estimated non-farm private payroll growth at 110,000 (based on economic potential) and 170,000 (fudged based on current overrun of economic potential);
    • This month, ADP's analysis is that small and medium sized business created 78 % of all jobs;
    • Manufacturing jobs grew by zero.
    • 94 % of the jobs growth came from the service sector;
    • December report (last month), which reported job gains of 257,000 was revised up to 267,000;
    • The three month rolling average of year-over-year job growth rate has been slowing declining since February 2015 - it is now 2.00% (statistically unchanged from last month's 2.02%)

    ADP changed their methodology starting with their October 2012 report, and ADP's real time estimates are currently worse than the BLS. Per Mark Zandi, chief economist of Moody's Analytics: Job growth remains strong despite the turmoil in the global economy and financial markets. Manufacturers and energy companies are reducing payrolls, but job gains across all other industries remain robust. The U.S. economy remains on track to return to full employment by mid-year

    ADP Employment Growth Tumbles From Miraculous December Bounce - Following December's miraculous surge in employment (to the biggest improvement in a year),ADP Employment tumbled back a more "normal" 205k in January (still beating expectations of 195k). Services dominated (192k vs 13k for goods). Once again manufacturing disappoints with no change in employment as large business hiring slows notably. ADP employment change dropped notably but still beat expectations... The "recovery" continues to be all Services, little Goods:

    • Goods-producing employment rose by 13,000 jobs in January, well off from December’s upwardly revised 30,000. The construction industry added 21,000 jobs, which was roughly in line with the average monthly jobs gained during 2015. Meanwhile, manufacturing neither added nor lost jobs.
    • Service-providing employment rose by 192,000 jobs in January, down from an upwardly revised 237,000 in December. The ADP National Employment Report indicates that professional/business services contributed 44,000 jobs, down from 69,000 in December. Trade/transportation/utilities grew by 35,000, up slightly from a downwardly revised 33,000 the previous month. The 19,000 new jobs added in financial activities were the most in that sector since March 2006.

    Labor Dept: US Job Growth Slows Sharply In January -- US companies added substantially fewer jobs last month than analysts expected, according to this morning’s update from the Labor Dept. The 158,000 increase in private payrolls is a decent gain, but it’s well below’s consensus forecast for a 180,000 pop. Meantime, the slow grind lower for the year-over-year gain rolls on, echoing yesterday’s numbers from ADP. The labor market still has a fair amount of forward momentum, but the evidence is building that the peak has passed. That’s a concern at a time when the broad trend for growth has hit some turbulence.  The good news: using the latest data point as a guide still reflects a solid gain for private payrolls via the annual change. The 2.18% increase in January is a healthy advance in context with the historical record over the past two decades. The worry is that the persistent and ongoing deceleration in the trend that’s been in play for the past year is a signal that the recovery’s internal momentum may be fading. To be fair, a similar downshift unfolded during the 12 months through the first quarter of 2013. It turned out to be a false alarm, although the real-time numbers suggested otherwise until well after the fact. For perspective, that downshift cut the year-over-year increase in private payrolls to roughly 1.8% as of March 2013–down from the previous peak of nearly 2.5% a year earlier.  By that standard, the current 2.2% year-over-year increase through last month still looks encouraging. The question is whether there’s more deceleration to come? Today’s update offers a slightly stronger case for answering “yes”. The current 2.2% annual increase is only moderately below the previous peak of 2.6% from a year ago, but gravity appears to be in control, albeit modestly so.

    January Employment Report: 151,000 Jobs, 4.9% Unemployment Rate (Graphs Included) -- From the BLSTotal nonfarm payroll employment rose by 151,000 in January, and the unemployment rate was little changed at 4.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Employment declined in private educational services, transportation and warehousing, and mining. ... The change in total nonfarm payroll employment for November was revised from +252,000 to +280,000, and the change for December was revised from +292,000 to +262,000. With these revisions, employment gains in November and December combined were 2,000 lower than previously reported...In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent. ... [Annual Benchmark Revision] The total nonfarm employment level for March 2015 was revised downward by 206,000 ... The effect of these revisions on the underlying trend in nonfarm payroll employment was minor. For example, the over-the-year change in total nonfarm employment for 2015 was revised from 2,650,000 to 2,735,000, The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 151 thousand in January (private payrolls increased 158 thousand). Payrolls for November and December were revised down by a combined 2 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In January, the year-over-year change was 2.67 million jobs. A solid gain. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate increased in January to 62.7%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased to 59.6% (black line).  The fourth graph shows the unemployment rate. The unemployment rate was declined in January to 4.9%.

    January Payrolls Miss Big, Adding Only 151,000 Jobs, But Hourly Wages Jump And Unemployment Slides To 4.9% -- A quick glimpse at the big miss in the January payrolls report, which just reported only 151,000 jobs gains well below the 190,000 expected and below most big banks' expectations, if precisely on top of the whisper number, would have been sufficient to send futures soaring in the pre market: after all it would mean the economy has topped out and no more hikes are necessary. However, one glance below the headline and things get troubling because if indeed the Fed is most focused on the growth in hourly wages then we may have a problem: average hourly wages jumped by 0.5% - and 2.5% from a year ago - far above last month's unchanged print, and quite a bounce to the expected 0.2%, suggesting wage inflation is indeed starting to heat up and putting the Fed in a very uncomfortable place.Then there was the household survey which allegedly added 615,000 jobs, even if the pace of annual increase remains below the benchmark, at just 1.6% Y/Y. Finally, the unemployment rate dropping to a cycle low of 4.9% is surely not going to help the "there is slack in the work force" argument. From the report: Total nonfarm payroll employment increased by 151,000 in January. Employment rose in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Private educational services and transportation and warehousing lost jobs. Mining employment continued to decline. (See table B-1 and summary table B. See the note at the end of this news release and table A for information about the annual benchmark process.) Retail trade added 58,000 jobs in January, following essentially no change in December. Employment rose in general merchandise stores (+15,000), electronics and appliance stores (+9,000), motor vehicle and parts dealers (+8,000), and furniture and home furnishing stores (+7,000). Employment in retail trade has increased by 301,000 over the past 12 months, with motor vehicle and parts dealers and general merchandise stores accounting for nearly half of the gain. Employment in food services and drinking places rose in January (+47,000). Over the year, the industry has added 384,000 jobs. Health care continued to add jobs in January (+37,000), with most of the increase occurring in hospitals (+24,000). Health care has added 470,000 jobs over the past 12 months, with about two-fifths of the growth occurring in hospitals. Manufacturing added 29,000 jobs in January, following little employment change in 2015. Over the month, job gains occurred in food manufacturing (+11,000), fabricated metal products (+7,000), and furniture and related products (+3,000).

    70% Of Jobs Added In January Were Minimum Wage Waiters And Retail Workers -- For those curious where the big jump in earnings came from, the answer appears rather simple: the reason, according to the BLS' breakdown of jobs added in January (per the Establishment survey), of the 151,000 jobs added in the past month, retail trade added 58,000 jobs in January, while employment in food services and drinking places, aka waiters and bartenders, rose by 47,000 in January.  In other words, 70% of the job gains in January went to minimum wage workers.  So how does one explain the snap higher in January wages?  Simple: state regulations demanding higher wages for minimum wage workers starting January 1, which as discussed previously will promptly lead to employers passing on wage hikes costs to consumers in the form of 10% higher food prices starting in NYC and soon everywhere else. This is the full breakdown of January job gains:

    • Retail Trade: +58K
    • Leisure and Hospitality, which includes food workers: +44K
    • Professional and business service workers, excluding temp workers: +34K
    • Manufacturing workers posted a curious rebound, rising by +29K. We are confident this number will be revised promptly lower.
    • Construction +18K
    • Wholesale Trade: +9K
    • Education and Health saw a big and unexplained drop from 54K to 6K
    • Information services added just 1K workers
    • As for sectors losing workers included Temp Help workers, Transportation and Warehousing (courtesy of the truck and train recession), Mining and Logging, and Government workers.

    Bottom line: the big sequential bounce in wages was driven entirely by the January minimum wage increase, and the low December base effect. Expect this sequential increase to renormalize in February when the base now reflect higher minimum wages.

    January Jobs Report – The Numbers - WSJ: - Friday’s job report showed the pace of hiring slowed in January. Here are the highlights. U.S. employers added a seasonally adjusted 151,000 jobs in January. That was the weakest gain since the economy added 149,000 in September 2015. Economists forecast an increase of 185,000. Some analysts cited the weak September gain for giving the Federal Reserve pause about increasing interest rates. The central bank held off on its first move until December.  Last month’s gain still extended the streak of consecutive months of job creation to 64.  The unemployment rate was 4.9% in January, the lowest rate since the recession. Economists had expected the rate to hold steady from December at 5%. The headline number has fallen sharply from its recent 10% peak in October 2009, a few months after the recession ended. The current reading is near the rate many economists consider full employment.   A broader measure of unemployment that includes Americans stuck in part-time jobs or too discouraged to look for work was 9.9% last month. The rate was the same as the prior month and is little changed from the fall.  Average hourly earnings for private-sector workers were $25.39 in January, a 12-cent increase from December. From a year earlier, wages are up 2.5%. With the unemployment rate falling, many economists are looking for signs of stronger pay gains this year.  There were 105,000 fewer jobs in the U.S. at the end of 2015 than previously estimated, according to the Labor Department’s annual comprehensive revision released Friday. The new figure, which reflects a comprehensive look at tax records through last March, alters calculations for seasonal adjustments and other estimating tools.

    January jobs report: Any signs of a looming recession? - Not bad at all. The January jobs report — 115,000 net new payrolls, 4.9% unemployment rate — contained lots of good news: the lowest jobless rate since February 2008, a higher labor force participation rate, a higher employment rate, and average hourly earnings up 2.5% from a year earlier with the monthly jump the best since July 2009. It’s also worth nothing that using the new jobs data, the Atlanta Fed upgraded its first-quarter GDPNow model forecast to 2.2% from 1.2% — a good sign that the US economy is not about to sink into recession after that zero-handle fourth quarter. And this from John Silvia of Wells Fargo: ” … growth in the residential and nonresidential construction sectors remains evident in the 18,000 gain in construction jobs last month. These gains represent solid trends supporting continued economic growth and certainly do not signal recession.” Not everything was great: job gains far short of 185,000 expectations (though averaging 231,000 the past three months), U-6 unemployment-underemployment rate unchanged at 9.9%, long-term unemployment worsened, labor force participation and employment rate still way below pre-recession levels, wages gains short of what you would expect to see in a full-throttle economy. Particularly vexing for Barclays was job weakness in the service sector. So where is the US labor market right now, a month into 2016? How far from full employment, if we are not there already? A recent Goldman Sachs report made some good points on this. The bank’s economic team noted, for instance, how population aging and prolonged unemployment after a recession can affect the “unemployment gap”– the difference between the actual unemployment rate and the estimated structural rate. You can’t just look at what employment and participation rates were in 2007 — almost a decade ago! — and wait for a reversion. GS’s estimate of remaining slack:

    The January Jobs Report in 12 Charts - Employers added 151,000 jobs in January, a slowdown from the pace of growth in recent months, but the details under the hood of Friday’s job report paint a more nuanced picture. Here’s a look at some key marks: The U.S. economy has added 2.67 million jobs over the last 12 months. That’s the lowest level of annual job growth since June 2014. The headline unemployment rate fell to 4.9%, but broader gauges of unemployment and underemployment did not decline. Average hourly earnings are now running around 2.5% above their year-earlier levels, the first sign in years that wages are advancing at an annual rate faster than 2%. The labor-force participation rate—that is, the share of the population either working or actively looking for work—has fallen in recent years even as many labor market indicators have improved. This past month, the labor-force participation rate climbed to 62.7% from 62.6% in December. The rate has now climbed in three of the past four months, although this has done little to erase the declines of the past 15 years. The employment-to-population ratio climbed for the third month in a row. From ages 25 to 54, most people are out of school but have not yet begun to think about retiring. Labor-force participation and employment-to-population ratios rose for this age group. The share of people in this age group working has now risen to the highest since November 2008. Using a three-month average, job growth is still running ahead of levels seen last fall. The median duration of unemployment has gradually fallen in recent years, but not this past month, when jobless spells climbed slightly to 10.9 weeks from 10.5 weeks in December. The share of unemployed Americans who have been looking for work for more than six months is still higher than it was when the last recession began. The share of people who became unemployed through layoffs has fallen in recent years, a trend that continued last month. By contrast, a growing share of the unemployed are people who voluntarily left their previous job or who began searching for employment after some time away from the labor force, such as for education or for taking care of family. The unemployment rate for college graduates has remained far lower than for those with some college or only a high school diploma. Those with less than a high school education face the highest unemployment rates. Unemployment has fallen for all races and genders, but substantial race and gender gaps remain. While white men and white women have similar unemployment rates, black men have higher unemployment rates than black women. For Hispanics, the pattern is reversed, with a generally higher unemployment rate for women than for men. Around 4.6% of those who weren’t in the labor force over the past year found a job. This share has climbed steadily since 2014, but its progress has slowed in recent months.

    BLS Jobs Situation Was Disappointing in January 2016.: The BLS job situation headlines were disappointing. Jobs growth decelerated this month, some economic internals were weak, continued inconsistency between the household and establishment surveys - all while the establishment survey was re-benchmarked and the household survey reflected updated population estimates. The rate of growth for employment decelerated this month (red line on graph below).

  • The unadjusted jobs decrease month-over-month was above normal for times of economic expansion.
  • Economic intuitive sectors of employment were mixed.
  • This month's report internals (comparing household to establishment data sets) was inconsistent with the household survey showing seasonally adjusted employment growing 615,000 vs the headline establishment number of growing 151,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey added 502,000 people to the workforce.

    A summary of the employment situation:

  • BLS reported: 151K (non-farm) and 158K (non-farm private). Unemployment rate declined from 5.0% to 4.9%.
  • ADP reported: 205K (non-farm private)
  • In Econintersect's January 2016 economic forecast released in late December, we estimated non-farm private payroll growth at 110,000 (based on economic potential) and 170,000 (fudged based on current overrun of economic potential);
  • NFIB comments on this Jobs Report is towards the end of this post.

    Weak Employment on the Heels of weak GDP « U.S. Economic Snapshot (11 graphs) Reading through today’s release of the employment situation from the BLS one is struck by how many times the phrase “little changed” shows up. Employment gains from the establishment survey were weak, up 151,000. Revisions over the past two months were almost off-setting, up 28,000 for November and down 30,000 for December, so, little change there. Employment in mining and logging continues to decline, down 7,000 and down 29,000 over that past three months. Manufacturing was up 29,000 and services up 118,000. However, temporary services declined 25,200. Health care and social assistance as well as leisure and hospitality rose by 44,000. Average weekly hours were up to 34.6 but have bounced between 34.5 and 34.6 since March of 2014. Average hourly earnings rose from $25.27 to $25.39, up 2.5% over the year. The household survey also showed very little change in most headline numbers. The unemployment rate remained at 4.9% and the unemployment rate including marginally attached workers remained at 9.9%. Here are the numbers for the unemployment rate since September, with a lot of digits: Given the amount of vacancies out there, however, the unemployment rate remains somewhat high, as can be seen in the Beveridge Curve. There has been no significant change in the employment to population ratio or the labor force participation rate, those unemployed 27 weeks and longer, or those working part time for economic reasons. Output per hour fell 3.0% at an annual rate in the fourth quarter of 2015 and has not shown any upward trend over the recovery. Indeed, it is only about 7% higher today compared to the peak before the great recession, by far the slowest rate of growth across all recessions and recoveries since the 1960’s, except for the 1973 recovery.  The BLS also undertook the annual revision to earlier data based on a more complete set of data. The annual revisions lowered December payrolls by 105k. The total nonfarm employment level for March 2015 was revised downward by 206,000 but this left a boost for job growth as the over-the-year change in total nonfarm employment for 2015 was revised from 2,650,000 to 2,735,000.

    Comments: A Solid Employment Report -- Bill Mcbride - My initial reaction was this was a "decent" employment report. However, with some further analysis, I think this should be characterized as a "solid" report.  The unemployment rate declined to 4.9% even as the participation rate increased (a strong household survey). Sure the headline number was below the consensus forecast, but this follows several months of above trend job gains (job gains averaged 279 thousand over the previous three months). With current demographics, the unemployment rate would decline with job gains under 100 thousand, so 151 thousand is still solid. And another positive sign is that wage growth picked up and was above the consensus forecast.  From the BLS: "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent." A few more numbers:  Total employment is now 4.9 million above the previous peak.  Total employment is up 13.6 million from the employment recession low. Private payroll employment increased 158,000 in December, and private employment is now 5.2 million above the previous peak. Private employment is up 14.0 million from the recession low.  In January, the year-over-year change was 2.67 million jobs. The 25 to 54 participation rate increased in January to 81.1%, and the 25 to 54 employment population ratio increased to 77.7%. The participation rate for this group might increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s. Average Hourly Earnings This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees. Nominal wage growth was at 2.5% YoY in January - and although the series is noisy - wage growth is trending up. This was stronger than most forecasts and is a sign the labor market is tightening. CPI has been running under 2%, so there has been real wage growth.

    What’s Behind January’s Higher Wage Growth -- Hourly pay for U.S. workers leaped last month, raising hopes that the long-awaited breakout in wage growth is here, despite a slowdown in hiring in January. Average hourly earnings increased by 0.5% to $25.39, the Labor Department said Friday. That marked the second-best one-month gain of the current expansion. From a year earlier, hourly wages are up 2.5%, a slight slowdown from the prior month’s 2.7% annual advance, but again one of the best performances since the recession ended. But before you blow your paycheck celebrating the economy’s turnaround, there are a few things to consider. First, the best gain for wages this expansion occurred last January. In fact, January is generally a pretty good month for pay increases. Its average gain is 3 cents higher than the average in all other months since the recession ended in June 2009. Seasonal adjustments should smooth monthly variance, but a beginning-of-the-year bump may reflect cost-of-living increases. Second, the minimum wage rose in 14 states to start the year. The pay floors in California and Massachusetts increased by a dollar to $10 an hour. The minimum wage in New York increased by a quarter to $9 an hour. But the effect is limited. About 4.6 million people realized an increase in their first paycheck of the year because they made below their state’s new minimum or close to it, according to the left-leaning Economic Policy Institute. No doubt that’s a welcomed boost for those workers, but it represents just 3% of the workforce. What’s more, even at $10 an hour, state minimums are well below average wages, so it’s difficult for a higher minimum wage in a handful of states to drive overall pay increases. Third, there is some evidence that managers caused the recent gain. Hourly pay for all workers advanced 12 cents an hour last month from December. But pay for only production and nonsupervisory workers—rank-and-file Joes and Jills—increased just 6 cents last month. (The Labor Department doesn’t break out managers’ wages.)

    Last Year’s Job Growth Was Stronger Than We Thought, But Previous Years a Bit Weaker - Job creation in the U.S. was stronger last year than previously estimated, but gains earlier in the expansion were less robust, according to the Labor Department’s benchmark annual revisions released Friday. U.S. employers added 2.74 million workers to payrolls in 2015, better than the prior reading of 2.65 million. The average monthly gain was a robust 228,000, though the year’s increase was still weaker than 2014—the strongest year for job creation since 1999. The economy added 3.02 million jobs in 2014, a slight downward revision from 3.12 million. Job gains for 2013 and 2012 were also recast lower. The changes reflect the new employment benchmark figure established for March 2015, which showed the U.S. had 206,000 fewer total jobs than previously estimated. The new figure takes into account a comprehensive look at tax records and alters calculations for seasonal adjustments and other estimating tools. Strong job creation in the second half of last year narrowed the downward revision for December’s total employment to 105,000. Friday’s revisions caused small changes to employment data back several decades.The largest downward revision came in the professional and business services category, which includes attorneys, accountants and temporary workers. That field has 110,000 fewer employees as of March than previously estimated. Leisure and hospitality, including restaurant workers, had 45,000 fewer employees in March. Employment counts for the transportation and warehousing was 65,300 more in March the previously thought. Jobs at all levels of government were revised up by 60,000.

    Robust Job Growth Doesn't Make Sense And The Numbers Show Why - With the BLS’s release of Q4 productivity figures, we get to check the BLS’s estimates just in time for today’s increasingly irrelevant payroll report. That much has become thoroughly apparent especially since the middle of last year as the Establishment Survey and unemployment rate only diverge with the overall breadth of economic indications. With GDP no longer corroborative, the labor reports have been in a world all their own. Far too many economists still rely upon them as their sole window for economic interpretation and these productivity numbers show further why they should not.  You have to understand what productivity means as both an economic concept and the statistic as it is constructed and presented. No economy will grow with low or even zero productivity; it’s plain common sense. Yet, the BLS’s numbers say that productivity growth has been zero or near it for five years. It has puzzled economists only because they take the calculations at face value. The fact that productivity is and remains so confusing already suggests that further investigation on all those accounts within the figure is warranted, and even demanded.  Any way you want to present the productivity estimates, clearly “something” is amiss starting around the beginning of 2011, flowing into and out of the 2012 slowdown. It has persisted at an alarmingly low state for years now, meaning that this is not simple statistical variation that will converge on its own to the mean. I have chosen to focus on the latter two years because that encompasses the “best jobs market in decades”, which serves really to highlight the major discrepancy here. In terms of economic common sense, why would businesses be hiring so robustly and getting so little out of their employees overall? In the statistical sense, the BLS tells us that productivity since the start of 2011 is just slightly positive; during the “best jobs market in decades” it is even less so – essentially zero.

    4Q2015 (Preliminary): Headline Productivity Contracts, Labor Costs Up: A simple summary of the headlines for this release is that the growth of productivity contracted while the labor costs grew (headline quarter-over-quarter analysis). The year-over-year analysis says agrees. I personally do not understand why anyone would look at the data in this series as the trends are changed from release to release - and significantly between the preliminary and final release.. The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity was up 0.3 % year-over-year, and unit labor costs were up 2.8 % year-over-year. Bottom line: the year-over-year data is saying that costs are rising faster than productivity. Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvement are productivity improvements. [read more on this statement] Further, the productivity being measured is "capital productivity" - not "labor productivity". [read more on this statement here] Even though a decrease in productivity to the BLS could be considered an increase in productivity to an industrial engineer, this methodology does track recessions. [The current levels are well above recession territory. Please note that the following graphs are for a sub-group of the report nonfarm > business.

    The full employment productivity multiplier - Jared Bernstein - I have often written on these pages, in separate posts, about full employment and productivity growth. Today, I’d like to try to convince you of what I believe is a critically important linkage between these two mega-important economic concepts. First, definitions:

    • Full employment means a very tight matchup between the number of job seekers and the number of job openings. It corresponds to a very low unemployment rate. Nobody knows exactly how low, but it’s certainly under the current 5 percent, and you’ll know you’re there when employers have to raise pay to get and keep the workers they need. Hold on to that last bit; it’s going to be important below.
    • Productivity growth is equal to real output or GDP per hour of work, so it’s a measure of how efficiently businesses and factories are making outputs from labor inputs. It’s also the main way we increase our living standards, though in the age of inequality, that’s complicated by the fact that productivity growth doesn’t reach middle and low-income people the way it used to.

    Advanced economies, here and abroad, have been having big problems with both of these variables. Here in the U.S., our labor market has been at full employment only 30 percent of the time since 1979. No wonder workers have had very little in the way of bargaining clout. In recent years, slow productivity growth has surfaced as another fundamental problem throughout the “G-7” countries. This fact should disabuse you of some country-specific policy problem. It’s hard to blame our tax code, e.g., when this slowdown is occurring across all these different countries with very different tax regimes.

    Explaining Today's Collapse In US Worker Productivity -- Nonfarm Productivity collapsed by 3% QoQ, notably worse than expected as labor costs jump.  Economists are gnashing their teeth to explain this "plunging productivity paradox" - we think it is rather simple... While only modestly tongue in cheek, here is what is really going on... Just under two years ago, when Bank of America's economic team still produced meaningful commentary instead of blaming the growth slowdown on the snow (especially after it said not to blame the growth slowdown on the snow), it pointed out that the real reason the US recovery was aging (this was in the summer of 2013) was the tumble in worked productivity. This is what BofA said then: "what we show below is that, outside of the tech boom in the late 1990s, productivity tends to slow as business expansions mature. Our current 'expansion' is now thoroughly mature." This time, Bank of America was absolutely right. And finally, here is Eugen Bohm-Bawerk explaining how US productivity is now on par with Agrarian slave economics...monetary policy has become slave to the service sector as it has become linked to the much touted wealth effect (capital consumption) that is now an integral part of the American business cycle.Now it is time to take a closer look at productivity measured in terms of GDP per capita. While this is not an entirely correct way to measure productivity, it does adhere to new classical growth model theories which posit that in a developed economy, reached steady state, the only way to increase GDP per capita is through increased total factor productivity. In plain English, growth in GDP per capita equals productivity growth. The reason we use this concept instead of more advanced productivity measures is to get a long enough time series to properly understand the underlying fundamental forces driving society forward. In our main chart we have tried to see through all the underlying noise in the annual data by looking at a 10-year rolling average and a polynomial trend line.

    Baby boomers’ retirements could cripple professions like air traffic controller, farmer, and geriatrician. -- On Aug. 5, 1981, in response to a massive strike that threatened to ground all of American air travel, President Ronald Reagan fired 11,345 air traffic controllers at airports across the United States. In the immediate aftermath, military controllers filled in, but ultimately, the seasoned, striking controllers were replaced by a group of young upstarts.  Now those upstarts are retiring, and once again we’re facing a drastic shortage of trained air traffic controllers. Last month, the U.S. Department of Transportation’s inspector general issued an alarming report arguing that, in the coming years, it will be difficult for the Federal Aviation Administration to keep fully trained and adequately experienced eyes on radar screens at some of the nation’s busiest airports. The “FAA has not yet established an effective process for balancing training requirements with pending retirements,” the Office of Inspector General says in a statement—even though prior reports had highlighted the same issue in 2012, 2002, and 1986. Even in 1981, when Reagan first lowered the ax, anyone capable of simple math could have seen the issue coming: New hires, all roughly the same age, would eventually retire at roughly the same time. But then and now, very little was done.  The FAA has a staffing plan in place for its critical facilities through 2017, but as the Office of Inspector General has pointed out, because trainees often count as full-fledged controllers at air traffic facilities, many are effectively understaffed at this very moment. And, as many control tower managers report, “on-the-job training requirements for trainees limit their contribution.”

    Trade deal will bring more misery to region -  History, unfortunately, is about to take another deadly run at America’s Rust Belt, including Buffalo Niagara, with the proposed signing of President Obama’s Trans-Pacific Partnership. It’s a free-trade treaty among us and 11 other rim nations. Participants are scheduled to sign it Thursday in New Zealand. The TPP is one of those Obama legacy issues, which oddly – to the folks back home – merges with the dearest desires of globalist Republicans and the horde of lobbyists who actually run this town. Under our Constitution, it cannot become law until Congress approves it. That approval appeared in doubt when Senate Majority Leader Mitch McConnell, R-Ky., said the Senate probably would not take it up until after the November elections. The White House cried GOP obstructionism after McConnell spoke. Now that the provisions of the 5,600-page treaty are accessible, Schumer said: “The sad truth is that past trade deals have tended to undermine middle-class wages and spurred the export of family-supporting middle-class manufacturing to nations that have lower wages and working standards. Sen. Schumer cannot support any trade deal that does not improve the current economic conditions of middle-class workers in Buffalo, upstate New York and beyond.”

    Worse than the Roaring Twenties: What even Thomas Piketty underestimates about American income inequality - Lynn Parramore interview & transcript - A  new paper  by economist Lance Taylor for the  Institute For New Economic Thinking  takes on the way economists have looked at wealth and income inequality. Taylor’s research challenges some conclusions about what’s driving inequality made by Thomas Piketty and Joseph Stiglitz. What’s really causing the startling gap between haves and have-nots? Is it mechanical market forces? Outsourcing? Real estate? As Taylor sees it, economists have gotten the answer wrong. Worker exploitation and outsized business profits are factors, but even more key are the unjustified payments to the wealthy generated by our outsized financial sector. This hasn’t just “happened.” Flawed economic theory and politicians beholden to the rich lead to policies that make it happen. We can fix the problem, but it will take bold steps.*A version of this interview originally appeared on the Institute’s blog.

    Too poor to retire and too young to die -  At the wise age of 79, Dolores Westfall knows food shopping on an empty stomach is a fool’s errand. On her way to the grocery store last May, she pulled into the Town & Country Family Restaurant to take the edge off her appetite. After much consideration, she ordered the prime rib special and an iced tea — expensive at $21.36, but the leftovers, wrapped carefully to go, would provide two more lunches.The problem, she later realized, was that a big insurance bill was coming due. How was she going to pay it? Was she going to tip into insolvency over a plate of prime rib?She endures what is for many aging Americans an unforgiving economy. Nearly one-third of U.S. heads of households ages 55 and older have no pension or retirement savings and a median annual income of about $19,000. A growing proportion of the nation’s elderly are like Westfall: too poor to retire and too young to die. Many rely on Social Security and minimal pensions, in part because half of all workers have no employer-backed retirement plans. Eight in 10 Americans say they will work well into their 60s or skip retirement entirely.Today, Westfall is one of America’s graying nomads. Although many middle-class retirees ply the interstates in Winnebagos as a lifestyle choice, for Westfall and many others, life on the move is not as much a choice as a necessity. Her seven-year journey has taken Westfall to 33 states and counting. She’s worked as a cavern tour guide, resort receptionist, crowd control officer, hustling clerk at an Amazon warehouse. Others like her have cleaned toilets, picked beets, plucked chickens. Her monthly income consists of $1,200 in Social Security and a $190 pension, plus pay from her seasonal jobs. She owes $50,000 on her credit cards. There’s also a $268 monthly loan payment for her aging rig.

    "They Want Us Dead & Gone" - Homelessness Surges Across The US  -- While federal, state and local programs aimed at securing permanent housing for certain groups, such as veterans and the chronically homeless, have helped bring down the number of homeless people nationally, but amid Federal-Reserve-"wealth"-fueled gentrification, WSJ reports many cities are seeing the number of homeless soar. In New York, the homeless population increased nearly 42% to 75,323 from 53,187 and though the roots of the clashes vary, a common theme runs through many: The conflict between established homeless populations and new residents drawn by redevelopment. As once derelict or sleepy downtown districts in U.S. cities evolve into thriving hot spots, The Wall Street Journal reports, officials are grappling with what to do about homeless populations that have long inhabited them. The tension is “all over the country,” said James Wright, a sociology professor at the University of Central Florida who has researched the issue. “Its major effect is just to displace them to other places in the city.”

    How the Homeless Population Is Changing — and Becoming Much More Vulnerable -- On any given night in the United States, according to the Department of Housing and Urban Development, over half a million people are without a home. That number may have decreased nationwide in the past few years, but California remains on the forefront of the problem, accounting for 20 percent of the country’s homeless in 2014. With the winter’s freezing temperatures and El Niño’s massive rainstorms, what to do about the thousands living in our city streets has been making headlines on both the East and West coasts. What policymakers and the general public need to recognize is that the homeless are aging faster than the general population in the U.S. This shift in the demographics has major implications for how municipalities and health care providers deal with homeless populations. In the early 1990s, only 11 percent of the adult homeless population was aged 50 and over. That percentage was up to 37 by 2003. Today half of America’s homeless are over 50. In fact, people born in the second half of the baby boom (1955-1964) have had an elevated risk of homelessness compared to other age groups throughout their lives. So how have people aged 50 and over become homeless? And what happens to them and their health after they are homeless? These are the questions my research team, funded by the National Institute on Aging, has been asking 350 participants in a study we’ve been conducting since July 2013 in Oakland, California.

    One million people in 21 states could lose food stamps: Time is running out for more than a million low-income residents in 21 states who could lose their federal food stamp benefits if they fail to meet work requirements that kicked in this month. Now that January is about over, that leaves two more months of getting help with the grocery bills, and for unemployed adults to find a job or lose food assistance. The federal Supplemental Nutrition Assistance Program or SNAP, was once known as food stamps and has been tied to employment for the past 20 years. Based on the way the program works, unless an adult is caring for children or is on disability, they need to have a job in order to receive three months of SNAP benefits, according to After the start of the recession, the three-month cap on eligibility requirements was waived in most areas as state and federal officials agreed that employment was hard to find. But now that the economy seems to be improving, especially with the unemployment rate going down, the federal government and some states have reinstated the three-month cap. The Associated Press is reporting this is the largest reinstatement of the three-month cap since the recession ended.The AP points out that of the 45 million people receiving food assistance in the U.S., only about five million are considered to be able-bodied adults age 18 through 49 and without children or other dependents.

    Corporate Interests Take Aim at Local Democracy - PR Watch  - Across America, corporate interests are taking aim at local government. With Congress gridlocked and a majority of state legislatures controlled by right-wing interests, cities have become laboratories of democracy for progressive policies like a higher minimum wage, LGBTQ protections, or parental leave. In response, corporate interests and groups like the American Legislative Exchange Council (ALEC) have increasingly been turning to state "preemption" measures—some of them unprecedentedly aggressive--to override an array of progressive policy gains at the city or county level."2015 saw more efforts to undermine local control on more issues than any year in history," said Mark Pertschuk, director of the watchdog group Preemption Watch.Last year, state legislatures in at least 29 states introduced bills to block local control over a range of issues, from the minimum wage, to LGBTQ rights, to immigration, according to Preemption Watch. Seventeen states considered more than one preemption bill. And just a few weeks into 2016 state legislative sessions, it's clear that ending local authority will continue to be the go-to strategy for state legislators and their special interest allies, as a means of blocking earned sick days, minimum wage hikes, tobacco and fracking bans, pro-worker policies, or anti-discrimination laws.

    DeVos family responsible for HALF of campaign contributions to Michigan House Republicans in last quarter of 2015 - In the fourth quarter of 2015, Michigan Republicans received a whopping 50% of their campaign contributions from members of the DeVos family. Four vulnerable Republican House members, Holly Hughes, Brandt Iden, Tom Barrett, and John Bizon all received $9,000 each for a total of $36,000 which is nearly the median income for Michigan residents according to analysis done by the Pew Charitable Trusts. In fact, these rich individuals, in their effort to purchase the best state legislature money can buy, gave 75% of the median Michigan family income in just a single quarter.  On top of that, DeVos family members also dropped another $340,000 on the House Republican caucus’s PAC bringing the total to $376,000, exactly half of the campaign contributions received by ALL House Republicans in Michigan in the fourth quarter.  My sources tell me that the DeVos’s conditioned their Q4 contributions on the passage of four key pieces of legislation: the atrocious road funding plan that lets wealthy individuals and corporations off the hook entirely, a 3rd grade reading bill (not yet passed), the elimination of straight ticket voting, and the odious Senate Bill 571 which Gov. Snyder signed into law in early January (which, by the way, doubled the amount of money PACs can give to lawmakers for the second time in as many years, effective quadrupling the limit since 2013.) With the passage of three out of these four priority laws, the Devos family got out their checkbooks to reward their compliant minions in the state House.

    North Dakota's Economy Has Been "Completely Devastated" By Oil's Collapse -- Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.  Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market.  As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”  North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes. “Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.  Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit. “Many people are probably wondering how this is possible, given legislators met just six weeks ago to approve a plan to close a nearly $500 million gap that was projected by state analysts,” The Times-Picayune wrote in late December. Louisiana officials had assumed oil prices around $62 a barrel when calculating projected tax revenue. Needless to say, their projections were slightly off the mark. Meanwhile, in Alaska, Governor Bill Walker is looking at a $3.5 billion deficit, prompting the state to consider implementing an income tax for the first time in three decades. The new tax would generate about $200 million, based on estimates provided by Walker's office.  And then there’s North Dakota which, as Bloomberg recalls, “has been the economic envy of every state in America for most of the past decade.”. “Now, amid the worst bust in a generation, North Dakota’s economy is shrinking, employment is falling fast, and the state is imposing the deepest spending cuts in its history to help plug a $1 billion budget deficit.” Here’s more:

    Puerto Rico offers plan to restructure its debt - Puerto Rico has proposed a plan to ease its crushing debt burden that would give major creditors new bonds worth an average of 54 percent of their existing ones, but also would give bondholders an unusual way to receive additional money if the commonwealth’s economy grows at unexpectedly rapid rates. The proposal was made Friday at a meeting between advisers to the Puerto Rican governor and advisers to creditors that hold $49 billion of the island’s more than $72 billion worth of debt, according to a person briefed on the proposal. The proposal comes as Congress and the Obama administration are wrestling over what legislation could help Puerto Rico restructure its debt, force recalcitrant creditors to sign onto a plan, and ensure that the island maintains fiscal discipline so that it does not end up in a similar fix in the future. The plan presented Friday, and which the creditors are weighing, would cut Puerto Rico’s debt service from 36 percent of the commonwealth’s budget to 15 percent, a level equal to that of Hawaii, which has the highest rate of any U.S. state. Creditors must now choose whether to accept the deal, negotiate, or pursue lengthy litigation while waiting for possible congressional action. Under the proposal, Puerto Rico would issue $26.5 billion worth of new “base bonds” to replace $49 billion in existing bonds issued by 17 government entities. Investors holding the highest quality bonds would be able to exchange their existing bonds for new ones at a more favorable rate.

    Puerto Rico "Generously" Offers To Repay 54 Cents On The Dollar To Creditors Owed $70 Billion Height Securities’ Daniel Hanson, in a note out late last week, said Governor Alejandro Padilla was “significantly unlikely” to present a “credible” plan and that the commonwealth’s offer to creditors may be “laughably low.” As a reminder, Puerto Rico defaulted on some of its non-GO debt last month, presaging more missed payments this year as creditors come calling in May and July. So far, the island has been able to avoid a messy default on its GO debt by utilizing a revenue "clawback" mechanism that effectively allows the commonwealth to divert money earmarked for non-GO debt, a move decried by the monolines. In December, the market thought there might be a light at the end of the tunnel when creditors and the island's power utility managed to get the bond insurers to go along with a $8 billion restructuring for PREPA, but that fell apart a week ago when lawmakers failed to vote on a new tax. Ultimately, the deadline to pass the bill was extended to February 16, but the fraugh negotiations underscore how precarious the situation has become.  "Puerto Rico on Monday announced a major exchange offer to creditors that could reduce its debt by about $23 billion, the opening salvo in efforts to resolve the island's crippling $70 billion debt crisis," Reuters reports, adding that "the new plan would reduce a $49.2 billion chunk of Puerto Rico's debt by about 46 percent, to $26.5 billion, by offering creditors payout reductions under a new, so-called "base bond" with better legal protections."

    Chicago sees January murder surge as Emanuel's poll numbers fall | Reuters: The number of homicides in Chicago increased 76 percent in January compared to last year as Mayor Rahm Emanuel's approval rating slumped to a record low in the aftermath of the release of a video showing a white police officer killing a black teen. The nation's third-largest city usually sees more violence in the summer months but 51 homicides were reported this January, up from 29 in 2015. It was the most January homicides since 2000, according to a Chicago Tribune analysis of police statistics. The total number of shooting victims in the city in January more than doubled to 292, compared to January 2015. The Chicago police said in a statement on Monday that the spike in shootings has been driven by gang conflicts and "retaliatory violence" and that the vast majority of incidents originated from "petty disagreements." Also on Monday, the Tribune released a poll that found Emanuel's job approval rating has dropped to 27 percent, the lowest in his administration. This is a drop from 52 percent in late March 2015, before his April re-election.

    Chicago Public Schools Gets Sale Done at Big Penalty - Battered by negative headlines about its solvency, labor troubles, and a state takeover threat, the Chicago Board of Education returned to the market Wednesday after a one-week delay to price a scaled-down deal that offered a hefty high yield of 8.50%. The district initially planned last week to offer $875 million of general obligation paper, including $795 million in a tax-exempt tranche and $80 million of taxable securities. The final offering run by JPMorgan was sized at $725 million and came entirely as tax-exempt. CPS [Chicago Public Schools] appeared to have dropped the taxable piece while the yield on the deal’s long bond shot up by 75 basis points over what CPS had been aiming for last week. “The numbers suggest they are on the brink of losing market access,” said Richard Ciccarone, president of Merritt Research Services. “The numbers suggest there is a lot of doubt about whether CPS can find a method and means to solve its financial problems. Can this be a catalyst to bring together what looks like a polarized political situation?”

    Chicago Schools Pay Bigger Bond-Market Penalty Than Puerto Rico - If municipal-debt investors want further evidence that Chicago’s schools are in financial distress, its $725 million bond deal this week is all the proof they need. After delaying the sale when some investors balked, the district issued 7 percent debt for as little as 84 cents on the dollar, signaling that investors have doubts they’ll be repaid in full. No municipal borrower -- not even cash-strapped Puerto Rico -- has had to offer such a steep discount on a bond deal of that magnitude since at least the 2008 financial crisis, data compiled by Bloomberg show. “The only time you’re going to see this big of a discount is when it’s a distressed situation,” “The ultimate buyers want to minimize the pain if it stops paying interest, so if they have the bonds at a discount, that would help offset that.” The nation’s third-largest district, with almost 400,000 students, is on the brink of insolvency after years of skipping pension payments, drawing down reserves and borrowing to cover operating costs, pushing its $6 billion of outstanding debt deeper into junk. While Mayor Rahm Emanuel, a Democrat, has pushed for more aid, Republican Governor Bruce Rauner has called for a state takeover and changing the law so the district could file for bankruptcy.

    Rich Kids Stay Rich, Poor Kids Stay Poor - On Friday, a team of researchers led by Stanford economist Raj Chetty released a paper on how growing up in poverty affects boys and girls differently. Their core finding: Boys who grow up in poor families fare substantially worse in adulthood, in terms of employment and earnings, than girls who grow up in the same circumstances. (The Washington Post has a good write-up of the paper and its implications.) But beyond its immediate conclusions, the paper, like much of Chetty’s recent work as part of his Equality of Opportunity Project, points to a deeper truth: In the U.S., where you come from — where you grow up, how much your parents earn, whether your parents were married — plays a major role in determining where you will end up later in life. Take, for example, the chart below, a version of which was Figure 1 in the recent paper. It shows how likely someone is to have a job at age 30 (the y-axis) based on how much money his or her parents made when he or she was in high school (the x-axis). In this paper, Chetty focused on the difference between men and women, which is striking; men from middle-class and affluent families are more likely to work than women, but among the poor, the opposite is true.1  But perhaps even more striking is the strength of the relationship between parental and adult income for both sexes. Children from poor families are much less likely to work in adulthood than children from middle-class families. Only about 60 percent of children from the poorest families are working at age 30, compared with 80 percent of children from median-income families.2 And the relationship extends beyond the very poor; the higher a person’s parents were on the earnings ladder, the more likely he or she is to work as an adult — at least until the very top, when employment rates dip again.

    DNA Got a Kid Kicked Out of School—And It’ll Happen Again -- A FEW WEEKS into sixth grade, Colman Chadam had to leave school because of his DNA. The situation, odd as it may sound, played out like this. Colman has genetic markers for cystic fibrosis, and kids with the inherited lung disease can’t be near each other because they’re vulnerable to contagious infections. Two siblings with cystic fibrosis also attended Colman’s middle school in Palo Alto, California in 2012. So Colman was out, even though he didn’t actually have the disease, according to a lawsuit that his parents filed against the school district. The allegation? Genetic discrimination. Yes, genetic discrimination. Get used to those two words together, because they’re likely to become a lot more common. With DNA tests now cheap and readily available, the number of people getting tests has gone way up—along with the potential for discrimination based on the results. When Colman’s school tried to transfer him based on his genetic status, the lawsuit alleges, the district violated the Americans With Disabilities Act and Colman’s First Amendment right to privacy. “This is the test case,” says the Chadam’s lawyer, Stephen Jaffe.

    Parental depression worsens school performance -- From JAMA Psychiatry, “Associations of Parental Depression With Child School Performance at Age 16 Years in Sweden“: I’ve written about depression many times before. Besides its devastating consequences to people who, themselves, are depressed, it also impairs their children. Prior work has shown that parental depression is associated with many detrimental consequences in early childhood, from a behavioral, social, and emotional standpoint. Long-term outcomes are less well understood.This study sought to investigate the relationship between parental depression and school performance at 16 years of age in Sweden. Researchers examined a cohort of more than 1.1 million children born between 1984 and 1994. They gathered data from medical records from 1969 onward to see if their parents had a diagnosis of depression. The main outcome of interest was the decile of school grades (1-10) at the end of compulsory education. They controlled for many things, like child characteristics including sex, birth year, birth order, and whether the child was part of a multiple birth. They accounted for pregnancy characteristics including maternal  and paternal age, and maternal smoking during pregnancy. Family characteristics controlled for included parental education, disposable family income, parental region of birth, and parental alcohol abuse. Both maternal and paternal depression at any time before the final compulsory school year were associated with worse school performance. Even after adjusting for all covariates, depression was associated with a reduction of almost half a decile. The effect was greater for girls than for boys.

    Colleges Fail Two-Thirds of Students -- Presidential candidates have talked up college as an important pathway to the middle class. Sen. Bernie Sanders has even called for making public colleges and universities tuition-free. But these ideas ignore a harsh reality in the American higher-education system: Only one-third of college enrollees graduate within six years and then get jobs requiring college degrees. That is the conclusion of my new report in the Manhattan Institute's Issues 2016 series. Only 59 percent of four-year college students graduate within six years. Those who graduate face an additional hurdle — only 56 percent of recent college graduates work in a job that requires a college degree (though the figure for all college graduates is 67 percent, suggesting some underemployed graduates move up later in their careers). Multiplied together, these numbers suggest that only 33 percent of students who enter college emerge with both a degree within six years and a relevant job soon after graduation. This is the true crisis in higher education, and one policymakers must address before they offer up more taxpayer money to colleges. Encouraging more students to attend college may worsen the already-poor graduation rate. The new students attracted by free college are likely to attend institutions where graduation rates are lower, such as community colleges (where 40 percent graduate) or four-year colleges with open enrollment (where just 34 percent do).

    January 2016 Student Loan Borrower Survey - LendEDU -- Here are the highlights from our survey of current college students:

    • 92.87 percent of students surveyed do not know the difference between subsidized and unsubsidized loans
    • 97.90 percent of students surveyed do not know which loans accumulate interest in-school or during deferment
    • 71.07 percent of students surveyed do not know the basic risks of a cosigner
    • 75.89 percent of students surveyed with private student loans do not know the major differences between private and federal student loans
    • 7.90 percent of students surveyed know their current interest rates
    • 6.10 percent of students surveyed know their repayment terms
    • 11.94 percent of students surveyed "Strongly Agree"that they will be able to fully pay off their student loans borrowed
    • 85.11 percent of students surveyed rely on their parents for financial aid and student loan information
    • 89.94 percent of students surveyed have heard of FAFSA
    • 1.88 percent of students surveyed know what FAFSA stands for
    • 75.05 percent of students surveyed know how interest rates work
    • 72.95 percent of students surveyed thought Sallie Mae was a person, not a company
    • 58.90 percent of students surveyed thought the total amount of outstanding student loan debt was in the millions (not billions or trillions)
    • 96.02 percent of students surveyed did not know that student loan refinancing was an option after graduation

    CalPERS is underfunded and unrealistic. Can it save itself?  - If you think the stock market's steep slide this month hammered your personal portfolio or 401(k), imagine what it's done to California's state pension system, CalPERS. Years of overoptimistic stock purchases and inadequate contributions have left it terribly vulnerable, and just a few years of down markets could leave it insolvent. Financial statements released last month (for the fiscal year ending June 30, 2015) showed that the pension system was only 77% funded — and that percentage has certainly dropped alongside all the stock indices in recent weeks. If taxpayers are going to avoid having to bail out CalPERS, the system needs an overhaul.  Two state laws are to blame for the system's financial struggles. Proposition 21, passed in 1984, allowed CalPERS fund managers to move its investments from safe and predictable bonds to risky and volatile stocks and hedge funds to try to generate a higher return. SB 400, passed in 1999, increased pension payouts by 50% for California Highway Patrol employees, a move quickly replicated at other state agencies and local governments. In the midst of a bull market such as the late '90s tech bubble, perhaps that seemed fine. But it was irresponsible. At the top of a market cycle, a healthy pension system should be overfunded — and then should hold onto the excess to ride out bear markets. CalPERS didn't do that, and so market corrections suddenly become an existential threat. CalPERS actuaries rely on earning a 7.5% annual return on investment to meet the current and future pension obligations to 1.8 million participants. But current stock market conditions make achieving that goal much harder — if not impossible — over the next several years. And that will leave taxpayers on the hook for billions.

    CalPERS Takes on Risk Where Federal Government Fears to Tread: Provides Credit Lines to a Central Counterparty on the Cheap – Yves Smith - As we’ll unpack below, CalPERS has engaged in one of the most bone-headed moves I can recall reading about, the financial equivalent of trying to pick up pennies before a steamroller.  The giant California pension fund has signed up to take on systemic risk at a bargain basement price, by providing a credit line to one of the central counterparties for over-the-counter derivatives, the Options Clearing Corporation. This is a flagrant violation of any sensible notion of risk management. As derivatives expert Satyajit Das, who has written extensively about central counterparties, said via e-mail: “Why would you want to take the risk of having to finance or recapitalise an entity at precisely the moment when they are in trouble, especially when the compensation is inadequate?” Yet this is precisely what CalPERS has agreed to do. From Pensions & Investments:CalPERS this month renewed its agreement to participate in a fully committed repurchase facility with derivatives clearinghouse Options Clearing Corp. and securities lending agent eSecLending. The $278.4 billion California Public Employees’ Retirement System, Sacramento, will provide contingency liquidity in the event of a counterparty default, under terms of the repurchase facility to which it originally agreed last year. eSecLending serves as the agent for CalPERS.

    Common Ground Between Left and Right Not Necessarily Shared - Dean Baker -- Eduardo Porter had a piece this morning about how a group of academics on the left and right came together around a common agenda. It is worth briefly commenting on two of the items on which the “left” made concessions. The first is agreeing that Social Security benefits for “affluent Americans” should be reduced. There are three major problems with this policy. The first is that “affluent Americans” don’t get very much Social Security. While it is possible to raise lots of money by increasing taxes on the richest 1–2 percent of the population, the rich don’t get much more in Social Security than anyone else. This means that if we want to get any significant amount of money from reducing the benefits for the affluent we would have to reduce benefits for people that almost no one would consider affluent. Even if we went as low as $40,000 as the income cutoff for lowering benefits, we would still only save a very limited amount of money.  The second problem is that reducing benefits based on income is equivalent to a large tax increase. To get any substantial amount of money through this route we would need to reduce benefits at a rate of something like 20 cents per dollar of additional income. This is equivalent to increasing the marginal tax rate by 20 percentage points. As conservatives like to point out, this gives people a strong incentive to evade the tax by hiding income and discourages them from working.  Finally, people have worked for these benefits. We could also reduce the interest payments that the wealthy receive on government bonds they hold. After all, they don’t need as much interest as middle-income people. However no one would suggest going this route since the government contracted to pay a given interest rate.

    Blue Cross of Alabama predicts $135 million loss in 2015, mostly due to Obamacare | Executives at Blue Cross Blue Shield of Alabama are predicting losses of $135 million in 2015, mostly due to the costs of insuring patients who gained coverage under Obamacare. The insurance company has already tallied losses of $109 million through the end of October. The final results will be available at the beginning of March, according to a statement released by the company. "Beginning in 2014, the ACA eliminated health underwriting and waiting periods for pre-existing conditions allowing individuals to buy healthcare coverage regardless of their health condition," read a statement from spokeswoman Koko Mackin. "Company data indicates that many of our new individual ACA customers have used an extensive amount of medical services, which is causing total claims paid and their related operating expenses to exceed premiums." Customers who became insured through the Affordable Care Act have been older and sicker than average. According to Blue Cross, they have drug costs that are 25 percent higher than other customers, and costs that are 50 percent higher for outpatient surgeries and hospitalizations. Blue Cross Blue Shield of Alabama joins several other Blue Cross plans across the country that have reported steep losses in the last two years. Blue Cross Blue Shield of North Carolina reported losses of $400 million in the first two years of the Affordable Care Act. That insurer has cut sales commissions and advertising for Obamacare plans. Blue Cross Blue Shield of New Mexico pulled individual plans from the health insurance exchange after regulators denied a 53 percent rate increase.

    4 Out of 5 Americans Prescribed Antibiotics Each Year:  Via: CBS: Skyrocking rates of antibiotic prescriptions now suggest that as many as four out of five Americans may be getting antibiotics annually, according to a new study by the Centers for Disease Control and Prevention. It’s is concerning officials, especially because overuse is one reason antibiotics are losing their punch and making infections harder to treat. … The report released Wednesday gives the first detailed look at usage of these medicines in every state and finds it highest in the South and Appalachia. West Virginia had the highest rates at 1.237 prescriptions per person, followed by Kentucky at 1.232 and Tennessee at 1.199. The lowest rates were found in California (0.6 per person), Oregon (0.595) and Alaska (0.529).

    Martin Shkreli All but Gloated Over Huge Drug Price Increases, Memos Show - Martin Shkreli anticipated huge profits from raising the price of a decades-old drug for an infectious disease, belying any notion that helping patients was foremost in his mind, according to information released by congressional investigators on Tuesday.The investigators also provided evidence showing that Valeant Pharmaceuticals International carefully pondered how much it could raise the price of two old heart drugs, Isuprel and Nitropress, before buying them a year ago and increasing their prices overnight, by 525 percent for Isuprel and 212 percent for Nitropress.Mr. Shkreli practically gloated about the potential profits in an email he sent last August, just after his company, Turing Pharmaceuticals, had paid $55 million to acquire the drug Daraprim, and had raised its price more than fiftyfold to $750 a pill, or $75,000 for a bottle of 100. “So 5,000 paying bottles at the new price is $375,000,000 — almost all of it is profit and I think we will get three years of that or more,” Mr. Shkreli wrote in the email to someone the congressional staff identified only as an outside contact.“Should be a very handsome investment for all of us. Let’s all cross our fingers that the estimates are accurate.”

    The CRISPR patent battle: A case of big money shaping science - - The 21st century is still young, but it may already have its era-defining patent fight.   The contestants are the University of California and the Broad Institute, a Harvard- and MIT-affiliated research foundation endowed by Los Angeles billionaire Eli Broad. At stake are the rights to a breakthrough gene-editing technology known as CRISPR — and more precisely, to billions of dollars in royalties and license fees likely to flow to whichever claimant prevails before the U.S. Patent and Trademark Office (and in the almost inevitable appeals in court). "This is a monumental event for patent attorneys, molecular biologists, the PTO, and the world," patent expert Jacob Sherkow wrote recently on Stanford's Law and Biosciences blog.  CRISPR — an acronym for the pattern in DNA strands that forms the basis of the technique — allows the cutting and splicing of DNA sequences with unprecedented precision and speed. Applied to animal and plant cells in the lab, researchers have spliced away mutations that cause blindness, made cells resistant to the HIV virus, cured muscular dystrophy in mice, and created wheat strains resistant to fungal diseases.  But that work is just a prelude for potential applications in human biology. These could include cures for complex genetic-related conditions such as Alzheimer's, diabetes and cancer, along with the more equivocal prospect of making heritable changes in the human genome, "editing" human embryos to eliminate genetic deficiencies or promote desirable traits, with unpredictable long-term ramifications for the species.

    IVF Linked To Birth Defects And Childhood Leukemia: (Reuters Health) - Women who use in vitro fertilization (IVF) and other reproductive technologies may be more likely to have children with certain cancers or developmental delays than their peers who conceive the old-fashioned way, two new studies suggest. The increased risk of complications may be due at least in part to advanced maternal age and other health factors that lead women to try assisted reproductive technology (ART) in the first place, say authors of both studies published today in Pediatrics. They also caution that the findings are too preliminary to deter women from trying to conceive this way. “At this point in time, we don’t believe the weight of the available evidence is strong enough to suggest that women should not proceed with ART,” Melissa Bondy, an oncology researcher at Baylor College of Medicine in Houston who wrote an editorial accompanying the cancer study, said by email. That’s because the cancer study, like a lot of other research exploring the roots of birth defects and childhood disease, couldn’t randomly assign some women to try ART just to see how their children turned out. Instead, the researchers mined data from birth records for all children born in Norway between 1984 and 2011, pairing it with cancer registry data. The study included more than 1.6 million kids, including almost 26,000 conceived with ART. Out of about 4,500 cancers, 51 occurred in ART-conceived children. Overall cancer risk wasn’t significantly greater for the ART kids, but the technology was linked to 67 percent higher odds of leukemia. It was also tied to nearly four times the risk of Hodgkin’s lymphoma, though this was based on just three cases among the ART kids.

    Biden’s cancer bid exposes rift among researchers: Joe Biden’s proposal for a cancer moon shot has struck a deep nerve in the research community, where cutting-edge scientists blame an entrenched medical establishment for hoarding the data needed to make breakthroughs. Biden, whose son Beau died of brain cancer in May, said earlier this month that vast troves of research were “trapped in silos, preventing faster progress and greater reach to patients.” While few researchers disagree, many are still reluctant to share the raw data used in their research, posing big obstacles to the vice president’s initiative. Story Continued Below The tension boiled over this month when Jeffrey Drazen, editor of the New England Journal, and co-author  Dan Longo, wrote in an op-ed that while sharing was all well and good, it had to be done collaboratively, not by “data parasites” who stole or misused work that might have taken bench scientists decades to assemble. The editorial did not mention Biden’s initiative, but many commenters noted its relevance. Over a snowbound weekend, the Twittersphere exploded with angry attacks on the Journal, which gave the impression of an ivory tower beset by flame-throwing iconoclasts. Geneticist Michael Eisen, at the University of California, Berkeley, decried the editorial (which Drazen toned down four days later) as “one of the most shockingly anti-science things ever written.” The debate, which revolves around how fast researchers should have to share results from government-funded clinical trials, aired biomedicine’s dirty laundry in public.

    No Alcohol for Sexually Active Women Without Birth Control, C.D.C. Recommends -  Sexually active women who are not using birth control should refrain from alcohol to avoid the risk of giving birth to babies with fetal alcohol spectrum disorders, even if those women are not yet known to be pregnant, the Centers for Disease Control and Prevention has recommended.The C.D.C. report, released on Tuesday, estimated that 3.3 million women between the ages of 15 and 44 who drink alcohol risk exposing their infants to the disorders, which can stunt children’s growth and cause lifelong disabilities. The report, which appeared to refer exclusively to heterosexual sex, also said that three in four women who intend to get pregnant do not stop drinking alcohol when they stop using birth control.“The risk is real. Why take the chance?” Anne Schuchat, principal deputy director of the C.D.C., said in a statement.Alcohol consumption during pregnancy has been widely linked to stunted physical, mental and behavioral development of children. In October, a report by the American Academy of Pediatrics declared that “no amount of alcohol should be considered safe to drink during any trimester of pregnancy.”About half of pregnancies are unplanned, and most women do not know they are pregnant until four to six weeks into the pregnancy, the C.D.C. noted. The only way to ensure that the effects of alcohol would not be passed on to a child, then, would be alcoholic abstinence.

    Peak "Sharing Economy" - Syphilis Rates Soar To Record Highs -- "What's mine is yours, for a fee," is the mantra of the new normal "sharing economy," as various segments of our heretofore under-utilized assets are 'rented' out for the enjoyment of others. However, as The LA Times reports, perhaps we are sharing just a little too much. As we previously noted, sexually transmitted diseases are on the rise across the nation, but the problem is particularly acute in Los Angeles County with health officials pointing the finger at casual sex arranged through social media as "the perfect storm." Not only does the county have the most cases, it also has some of the highest rates of chlamydia, gonorrhea and syphilis in California and the nation. Some public health experts have blamed the heavy use of online dating apps, arguing that they lead to more casual sex among people 25 and younger, who are the most likely to be infected and also the least inclined to seek testing. STDs spread in large part because people don't get tested enough, so undiagnosed infections are unknowingly transmitted from one person to another. As technology improves, Gaydos thinks people will eventually be able to pick up an STD test from a drugstore and get results immediately, much like a pregnancy test. "But in the meantime, they need to be tested." Dozens of organizations now offer STD tests that can be ordered online and mailed to homes. The customer provides a sample, sends it back to a lab and receives results within a few days. But as these tests become more popular, experts warn that they may not always be accurate. "We don't know — they could be doing [the testing] in their garage, they could be doing this on their kitchen table," said Dr. Charlotte Gaydos, an STD expert and professor at Johns Hopkins University School of Medicine.

    Healthcare Triage: What is Zika? What Should You Do About It? - Dr Aaron Carroll - We try not to fall into the trap of discussing the “panic du jour” on Healthcare Triage, but sometimes people are concerned about things they should be concerned about. But it’s still important for that level of concern to mirror the actual threat. For many viewers, the Zika virus hold pretty much no threat at all. But not all. It’s really a problem, and we want you to be informed. The Zika virus is the topic of this week’s Healthcare Triage: What is Zika? What Should You Do About It? - YouTube. For those of you who want to read more:

    Zika virus spreads fear among pregnant Brazilians | Reuters: For scores of women in the epicenter of the Zika outbreak in Brazil, the joy of pregnancy has given way to fear. In the sprawling coastal city of Recife, panic has struck maternity wards since Zika - a mosquito-borne virus first detected in the Americas last year - was linked to wave of brain damage in newborns. There is no vaccine or known cure for the poorly understood disease. In about four-fifths of cases, Zika causes no noticeable symptoms so women have no idea if they contracted it during pregnancy. Test kits for the virus are only effective in the first week of infection and only available at private clinics at a cost of 900 reais, more than the monthly minimum wage. At Recife's IMIP hospital, dozens of soon-to-be mothers wait anxiously for ultrasound scans that will indicate whether the child they are carrying has a shrunken head and damaged brain, a condition called microcephaly. The hospital has already had 160 babies born there with the deformity since August. "It's very frightening. I'm worried my daughter will have microcephaly," says Elisangela Barros, 40, shedding a tear behind her thick-rimmed glasses. "My neighborhood is poor and full of mosquitoes, trash and has no running water. Five of my neighbors have Zika." Women like Barros, who live in crowded, muddy slums of Brazil's chaotic cities, have little defense against the Aedes aegypti mosquito that carries Zika, as well as other diseases such as dengue and yellow fever. They often cannot afford insect repellent and have little access to family planning. Shocking images of babies with birth defects have made many women think twice about getting pregnant.

    Zika Virus Threatens "Disaster In Rio" Olympics As WHO Declares Global Emergency -- From the initial discovery in the heart of Ugandan forest darkness to mysterious genetically-modified Mosquitoes in Brazil, the newest threat to human health (most notably pregnant women) is the ominous-sounding Zika virus. The epidemic is spreading from its epicenter in Brazil - threatening disaster at the Olympics with "female athletes to consider participation "very carefully"", to Colombia (with 2100 pregnant women infected), and further north in America with CDC confirming 6 cases in Texas. As we previously introduced, The World Health Organization is convening an Emergency Committee under International Health Regulations today, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said: “A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions. “WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […]

    Brazil warns pregnant women to avoid Rio Olympics over risk of catching Zika virus: regnant women should not travel to Brazil for the Olympics because of the risk posed by the Zika virus, suspected of causing fetal brain damage, President Dilma Rousseff’s chief of staff said Monday. “The risk, which I would say is serious, is for pregnant women. It is clearly not advisable for you (to travel to the Games) because you don’t want to take that risk,” said cabinet chief Jaques Wagner. The unprecedented warning, issued just over six months from the opening ceremony in Rio de Janeiro, came after the World Health Organization declared an emergency over the mosquito-borne virus, suspected of causing microcephaly, or abnormally small heads, in babies. Wagner said Rousseff viewed the WHO’s move as “positive” because it “alerts the whole world, including the scientific world, to the danger of the new virus.” He sought to downplay fears for any travelers who are not expecting mothers. “If you’re an adult, a man or a woman who isn’t pregnant, you develop antibodies in about five days and (the disease) passes,” he said. “I understand that no one needs to be afraid if you are not pregnant.” However, some health officials have also blamed the Zika virus for causing Guillain-Barre syndrome, a rare disorder in which the immune system attacks the nervous system, causing weakness and sometimes paralysis.

    First Case Of Sexually Transmitted Zika Virus Confirmed In Texas - There have been nearly 4,000 cases of microcephaly in Brazil since the start of last year and the WHO has now declared “a public health emergency of international concern.” For her part, President Dilma Rousseff signed a decree authorizing health officials to essentially break into Brazilians’ homes even if no one is home in an effort to uncover mosquitoe breeding grounds. As a reminder, the Aedes mosquito is taking the blame on this particular pandemic.  On Tuesday afternoon, we’re reminded that you don’t have to be bitten by a South American mosquito to get Zika as Dallas officials confirmed the first Zika virus case in Dallas County acquired through sexual contact. "Dallas County Health and Human Services confirmed the case Tuesday afternoon and said the patient was infected after having sexual contact with an ill individual who returned from a country where the virus is known to be present," NBC reports, adding that "Dallas County health officials said there are no reports of the Zika virus being transmitted locally by mosquitoes [but] imported cases of the virus make local spread possible.  “Now that we know Zika virus can be transmitted through sex, this increases our awareness campaign in educating the public about protecting themselves and others,” said Zachary Thompson, DCHHS director.  As NBC dryly notes, because there's no vaccine and there are no available treatments, your best bet is to "avoid mosquitoes" and abstain from having sex with the infected.

    Why you can’t just wipe out mosquitoes to get rid of the Zika virus - Insecticide spraying was the solution of choice for many decades. In the 1930s the Brazilian government used the Paris Green larvicide to kill off the malaria-carrying Anopheles gambiae species; Brazil was malaria-free by 1940. In the mid-1940s the United States used DDT to combat malaria and typhus; the EPA banned it domestically in 1972. In June the World Health Organization said that DDT “probably causes cancer,” with scientific As an alternative to insecticides, scientists are now turning to genetics. The British biotech firm Oxitec has created genetically modified males of the Zika- and dengue-carrying Aedes aegypti species. When these genetically modified males mate with wild females of the same species, they create offspring that don’t live to become adults. Another effort, funded partly by the Bill & Melinda Gates Foundation, transfers a natural bacteria called Wolbachia into the Aedes aegypti species — where it otherwise doesn’t occur. The Wolbachia mosquitoes are less likely to transmit dengue; researchers believe the method has the potential to work on other insect-transmitted diseases as well. The challenge is scaling these efforts. Spraying tons of insecticide in a targeted area is a more straightforward approach than getting every female mosquito to breed with genetically modified males, in the case of Oxitec’s strategy. And despite the millions of people affected by mosquito-borne diseases, they remain, to many, the developing world’s problem. For drug companies balancing R&D budgets with projected profits, there’s a financial disincentive to conducting research on diseases of the poor. There’s also a risk that wiping out an entire species could have unintended consequences, and a negative impact up and down the food chain. Mosquitoes are a food source for birds and bats; frogs, fish and turtles consume their larvae. If they’re eradicated, some scientists fear, they could be replaced by an even worse species. Additionally, by helping to make some regions — like rain forests — inhabitable for humans, mosquitoes have actually helped to protect and conserve some fragile parts of the world.

    Zika: Outbreak worse than predicted because virus has no symptoms, warns Brazilian health minister -- The Zika outbreak in Brazil is worse than previously feared because the virus shows no symptoms, a health official has said. The warning from Brazil’s health minister came after the World Health Organisation declared on Monday that Zika is a global emergency. The body previously said that the mosquito-borne virus will likely spread “explosively” in the region, and could infect four million people in the Americas. A relatively harmless fever when it manifests itself in the body, Zika is most feared for its links to microcephaly: a condition where babies develop brain damage and their heads can appear shrunken. However, the majority of people infected show no symptoms, meaning pregnant women can be unaware they are infected and that their babies are potentially vulnerable to microcephaly. What is Zika virus? Pregnant women, who have been urged to protect themselves from mosquito bites, must instead wait until they undergo an ultrasound to discover whether their baby has been affected by the condition. Marcelo Castro, the health minister of the country understood to be the worst affected by Zika, told Reuters: “Eighty per cent of the people infected by Zika do not develop significant symptoms. An estimated 1.5million Brazilians have caught Zika since 2014, but suspected and confirmed cases of microcephaly have shot up since October 2015 to 3,700.  "The microcephaly cases are increasing by the week and we do not have an estimate of how many there will be. The situation is serious and worrying," Castro said.

    First U.S. Zika virus transmission reported, attributed to sex | Reuters: The first known case of Zika virus transmission in the United States was reported in Texas on Tuesday by local health officials, who said it likely was contracted through sex and not a mosquito bite, a day after the World Health Organization declared an international public health emergency. The virus, linked to severe birth defects in thousands of babies in Brazil, is spreading rapidly in the Americas, and WHO officials on Tuesday expressed concern that it could hit Africa and Asia as well. Zika had been thought to be spread by the bite of mosquitoes of the Aedes genus, so sexual contact as a mode of transmission would be a potentially alarming development. The U.S. Centers for Disease Control and Prevention confirmed it was the first U.S. Zika case in someone who had not traveled abroad in the current outbreak, said CDC Director Dr. Tom Frieden on Twitter. However, the CDC has not investigated how the virus was transmitted. After this case, the CDC advised men to consider using condoms after traveling to areas with the Zika virus. Pregnant women should avoid contact with semen from men exposed to the virus.

    World Succumbs To Zika Panic: Puerto Rico Declares Emergency; Plane Cabins Sprayed; CDC Says "Use A Condom" -- Just like the global panic that gripped the world in October 2014 when the Ebola virus had spread from western Africa to many nations around the globe, including several isolated cases in the US, so a year and a half later, the world is urgently scrambling to unleash a sense of panic surrounding the Zika virus which, just like Ebola, came out of nowhere and is fast becoming the latest scapegoat for collapsing global commerce this year's invisible bogeyman. Here are some of the latest developments. At Least 54 People Infected in the U.S. There are at least 54 people infected with the Zika virus in the U.S. In all except one case, the infection was acquired while out of the country, according to health officials. In one case in Dallas, Texas, the virus is believed to have been transmitted through sexual contact from an infected traveler to a partner. Florida has the highest number of cases in the U.S., with 12 people infected. Florida Gov. Rick Scott has declared a state of emergency in five counties and ordered thousands of tests that will help identify the disease. Use a Condom to Avoid Zika, CDC Tells Travelers: According to the Centers for Disease Control, men who have traveled to Zika-affected zones should use a condom if they want to be absolutely sure they don't infect sex partners, federal health officials advised Friday. And men with a pregnant sex partner who have been to Zika-affected zones should just use a condom or abstain from sex until the baby is born, the Centers for Disease Control and Prevention said."Our priority here is to prevent a pregnant woman from becoming infected with Zika," CDC chief Dr. Tom Frieden told repor ters. "The bottom line for most people in the U.S. is that pregnant women should postpone travel to Zika-affected areas. Our new guidance is that pregnant women should use condoms during sex or abstain if their partner has traveled to an area where Zika has been spreading."

    Zika virus conspiracy theory -There's a wacky rumor going around about the Zika virus. It centers around the bogus idea that genetically modified mosquitoes are to blame for the recent Zika outbreak across the Americas. A number of articles cite a Redditor who seems to have jump-started the discussion about GM mosquitoes as a possible reason for the high number of cases in Brazil. Not surprisingly, infectious disease experts think this idea is... well... laughable.  When we chatted with Alex Perkins, a Notre Dame biological sciences professor, about the Zika mosquito conspiracy, he told us nothing could be farther from the truth. In fact, "It could very well be the case that genetically modified mosquitos could end up being one of the most important tools that we have to combat Zika," Perkins said. "If anything, we should potentially be looking into using these more." Also unsurprisingly, Oxitec thinks the rumors are bogus as well. Oxitec CEO Hadyn Parry said it's "Simply untrue. All vector control solutions — insecticides, traps, and ‘sterile’ mosquitoes get deployed in areas with a high incidence of disease to help stop the spread of the disease at its source," he said. "The fewer the mosquitoes, the lower the risk of disease. Our approach has proven to be more effective than the alternatives with a lower environmental impact." Plus, the disease has been around longer than the genetically engineered mosquitoes:

    Many white-tailed deer have malaria: Researchers discover first-ever native malaria in the Americas: Two years ago, Ellen Martinsen, was collecting mosquitoes at the Smithsonian's National Zoo, looking for malaria that might infect birds—when she discovered something strange: a DNA profile, from parasites in the mosquitoes, that she couldn't identify. By chance, she had discovered a malaria parasite, Plasmodium odocoilei—that infects white-tailed deer. It's the first-ever malaria parasite known to live in a deer species and the only native malaria parasite found in any mammal in North or South America. Though white-tailed deer diseases have been heavily studied—scientist hadn't noticed that many have malaria parasites. Martinsen and her colleagues estimate that the parasite infects up to twenty-five percent of white-tailed deer along the East Coast of the United States. Their results were published February 5 in Science Advances. "You never know what you're going to find when you're out in nature—and you look," . "It's a parasite that has been hidden in the most iconic game animal in the United States. I just stumbled across it."

    Declining Life Expectancy: Brought to You by Washington - Consider the dark news Health Affairs delivered this month. Mexico saw a “decline in life expectancy from 2005 to 2010 among men nationwide,” mainly from “large increases in homicide mortality” dating to 2006. That was the year Felipe Calderón won an “election marred by allegations of voter fraud,” Kristin Bricker explained. In his six-year term, he deployed 45,000 troops per year throughout Mexico—more than doubling his predecessor’s annual average of 19,293, according to George W. Grayson. Battling drug traffickers was the stated aim of the surge, which soon yielded other results. Two years later, Human Rights Watch reported that Calderón’s policies had “resulted in a significant increase in killings, torture, and other abuses,” like abductions. “Torture and ill treatment during detention are generalized in Mexico, and occur in a context of impunity,” the UN special envoy on torture, Juan Méndez, stated last March. “There’s a very clear correlation between the increased deployment of the military and increased human rights violations,” Center Prodh, a Mexican human rights group, emphasized. “The United States was an eager participant in the militarization of Mexico’s counterdrug policy, prompting and supporting it every step of the way,” wrote Laurie Freeman and Jorge Luis Sierra. They were describing the decades before Calderón. Then in 2005, the U.S., Mexican and Canadian governments arranged the Security and Prosperity Partnership (SPP). This plan, Peter Watt explains, “was neither a treaty nor a legal agreement”—thus “never debated publicly”—but was a means of “armoring NAFTA,” as Assistant Secretary of State Thomas Shannon put it.

    Quagga, Zebra cousin, recreated 100 years after extinction: Scientists in South Africa have recreated the quagga, a relative of the zebra that once roamed South African plains in herds of thousands, but went extinct by 1883 due to excessive hunting. Quaggas, which resembled zebras in the front and horses in the back, once roamed South Africa in large herds, specifically in the Karoo and southern Free State. European settlers did not want quaggas sharing grass with their livestock and the animals were ruthlessly hunted. When the last quagga in Amsterdam Zoo died on 12 August 1883, it was not immediately realized that the species had gone extinct. South Africa's government even passed a legislation to protect the animal in 1886 not knowing that the last quagga in the world died nearly three years before. A team of scientists based at the University of Cape Town led by Professor Eric Harley have recreated an animal that is genetically similar to quagga with the help of DNA and selective breeding. The scientists have so far bred six Rau quaggas — animals with attributes of the original quagga. They are named " Rau quaggas" after Reinhold Rau, one of the project's founders 30 years ago.

    Britain gives scientist go-ahead to genetically modify human embryos | Reuters: Scientists in Britain have been give the go-ahead to edit the genes of human embryos for research, using a technique that some say could eventually be used to create "designer babies". Less than a year after Chinese scientists caused an international furore by saying they had genetically modified human embryos, Kathy Niakan, a stem cell scientist from London's Francis Crick Institute, was granted a licence to carry out similar experiments. "The Human Fertilisation and Embryology Authority (HFEA) has approved a research application from the Francis Crick Institute to use new 'gene editing' techniques on human embryos," Niakan's lab said on Monday. It said the work carried out "will be for research purposes and will look at the first seven days of a fertilised egg's development, from a single cell to around 250 cells". Niakan plans to carry out her experiments using CRISPR-Cas9, a technology that is already the subject of fierce international debate because of fears that it could be used to create babies to order. CRISPR can enable scientists to find and modify or replace genetic defects, and many of them have described it as "game-changing".

    Why is Cornell University hosting a GMO propaganda campaign? - The Ecologist: Cornell, one of the world's leading academic institutions, has abandoned scientific objectivity, writes Stacy Malkan - and instead made itself a global hub for the promotion of GM crops and food. Working with selected journalists and industry-supported academics, Cornell's so-called 'Alliance for Science' is an aggressive propaganda tool for corporate biotech and agribusiness.  It is difficult to understand how these ideals are served by a unit of Cornell operating as a public relations arm for the agrichemical industry. Yet that is what seems to be going on at the Cornell Alliance for Science (CAS), a program launched in 2014 with a $5.6 million grant from the Bill & Melinda Gates Foundation and a goal to "depolarize the charged debate" about GMOs. A review of the group's materials and programs suggests that beneath its promise to "restore the importance of scientific evidence in decision making", CAS is promoting GMOs using dishonest messaging and PR tactics developed by agrichemical corporations with a long history of misleading the public about science. CAS is a communications campaign devoted to promoting genetically engineered foods (also known as GMOs) around the world. This is made clear in the group's promotional video. CAS Director Sarah Evanega, PhD, describes her group as a "communications-based nonprofit organization represented by scientists, farmers, NGOs, journalists and concerned citizens" who will use "interactive online platforms, multimedia resources and communication training programs to build a global movement to advocate for access to biotechnology." In this way, they say they will help alleviate malnourishment and hunger in developing countries, according to the video.

    Monsanto’s Glyphosate Most Heavily Used Weed Killer in History - Glyphosate, the main ingredient in the Monsanto’s flagship product Roundup, is now the “most widely applied pesticide worldwide,” according to a report published today in the peer-reviewed journal Environmental Sciences Europe. The paper, Trends in glyphosate herbicide use in the United States and globally, reveals that since 1974, when Roundup was first commercially sold, more than 1.6 billion kilograms (or 3.5 billion pounds) of glyphosate has been used in the U.S., making up 19 percent of the 8.6 billion kilograms (or 18.9 billion pounds) of glyphosate used around the world.  Globally, glyphosate use has risen almost 15-fold since “Roundup Ready” crops were introduced in 1996, the paper noted. These crops, such as soy, corn, canola, alfalfa and cotton, are genetically engineered to withstand direct applications of Roundup, as the product kills only the weeds. “Genetically engineered herbicide-tolerant crops now account for about 56 percent of global glyphosate use,” agricultural economist Charles M. Benbrook, PhD, and author of the study wrote in his paper. “In the U.S., no pesticide has come remotely close to such intensive and widespread use.”

    GMOs Increase Pesticide Use and Have Made Cancer-Causing Glyphosate the World’s #1 Pesticide - Charles Benbrook has published a new study quantifying the skyrocketing use of glyphosate since the introduction of GM crops engineered to resist it. Use skyrockets because of the spread of Roundup Ready GMOs and the equally prodigious spread of Roundup Resistant weeds, requiring more frequent and heavier applications of glyphosate to have any effect at all. This of course only accelerates the development of resistance. From the Abstract: “Globally, glyphosate use has risen almost 15-fold since so-called “Roundup Ready,” genetically engineered glyphosate-tolerant crops were introduced in 1996.” The report finds that GMOs account for 56% of global glyphosate use. This was the result fully intended by Monsanto and the US government. A weed control regime based on Roundup was supposed to eradicate crop rotation, cover cropping and other elements of a sane, agronomically sound weed control system, and instead commit the entire system to ever-increasing, ever more brainless and stupid slathering of poison. This is because corporations and corporate governments have a pro-poison ideological bias and impose upon themselves a policy mandate to maximize the production and use of poison. They do this because they see it as increasing their control and power, including in the form of profit. GMOs were designed to greatly increase pesticide use. It was always self-evidently absurd from any point of view to believe the Big Lie that GMOs were ever designed to reduce this, or that they could do so even if anyone had ever wanted them to. It was never possible to be in doubt that weeds and pests would consistently develop resistance, and at an accelerating rate, since the phenomenon of the pesticide treadmill goes back many decades prior to the advent of GMOs. In the same way, all sane people know that the exact same result will overtake GMOs based on 2,4-D, dicamba, or any other herbicide, and the same for all Bt and RNAi insecticidal GMOs. There’s zero doubt about any of this. This was built into the plan from the start as standard planned obsolescence, both for conventional profiteering reasons and to continually aggrandize the poison-driven corporate system thereby increasing its agronomic control, and from there its control over the economy and politics in general.

    Bayer rejects EPA request to pull insecticide from U.S. market | Reuters: The agricultural unit of German chemicals company Bayer AG said on Friday it will fight a U.S. Environmental Protection Agency (EPA) request to pull one of its insecticides from the marketplace amid concerns that it could harm organisms in streams and ponds. Bayer CropScience will instead ask for an administrative law hearing from the EPA's Office of General Counsel to review the registration of flubendiamide, the active ingredient in Bayer's Belt pesticide. The registration, granted in 2008, was a limited-time conditional registration that could be canceled if additional studies found the chemical to be damaging, the EPA said in a statement. "EPA concluded that continued use of the product will result in unreasonable adverse effects on the environment," the agency said. Flubendiamide products are used to control yield-damaging moths and worms in more than 200 crops including almonds, oranges and soybeans. Bayer's own tests have found that the pesticide is toxic in high doses to invertebrates in river and pond sediment. The organisms can be an important food source for fish. However, the company's field studies showed that doses in waters near agricultural fields never reached high enough levels to be toxic. But the EPA's risk assessment disagreed so the agency sent Bayer the request on Jan. 29.

    A "Good" Anthropocene? --Yesterday I read Elizabeth Kolbert's What’s Causing Deadly Outbreaks of Fungal Diseases in World’s Wildlife? (Environment 360, January 18, 2015). The word "anthropocene" does not appear in Kolbert's report, but that's what the report was all about. Consider the causes of recent fungal outbreaks.  Still, the question arises: why now? Why are we seeing a growing number of fungal diseases of wildlife? Experts offer two possible explanations, both of which may be valid. Here are the two explanations. Read Kolbert's essay for the details.The first is the increase in global trade and global travel. Between 1990 and 2013, the tonnage of cargo transported in ships more than doubled, to over 9 billion metric tons. During that same time, passenger air travel tripled, to more than 3 trillion passenger miles. As the sheer volume of global trade and global travel rises, so, too, do the number of opportunities for pathogens of all sorts to disperse. Because fungi don’t need a host to survive, they may be particularly well-suited to intercontinental travel. And when a pathogen is let loose in a new place, the results can be spectacularly deadly. And the second reason for fungal outbreaks? Fungal diseases tend to be opportunistic; in humans, usually they affect those with compromised immune systems. Climate change, habitat loss, heavy metal pollution, competition from invasives — these are just a few of the forces that may be lowering animals’ resistance. “I think it’s very likely that habitat in general is degraded, and so you have greater problems with disease,”  “Everything is more stressed.” When people carry animals around the world, often the animals suffer. If they’re carrying any sort of pathogen, that pathogen is likely to thrive. This means imported species are apt to be carrying particularly heavy pathogen loads.

    Lead and Race In Flint—And Everywhere Else -- Marcy Wheeler comments today on the lead disaster in Flint: "Think about how effects of lead poisoning feeds the stereotypes about race and class used to disdain the poor." Yep. Lead poisoning is equally bad for everyone, but certain groups were far more exposed to lead poisoning than others. Here's a chart showing the percentage of children who displayed elevated blood lead levels over the past four decades. The data is taken from various studies over the years that have reported data from the CDC's long-running NHANES program: All the rest of the data on lead poisoning is exactly what you'd expect. Not only is it higher among blacks than whites, but it's higher in inner cities and it's higher among low-income families. And of course, this is on top of all the social problems these kids already have from being black, poor, and living in rundown neighborhoods. Needless to say, lead didn't cause institutional racism. But lead sure made it worse. White children were severely affected by the postwar lead epidemic, but it produced nothing less than carnage among black kids. Before we finally got it under control in the late 80s, lead poisoning had created nearly an entire generation of black teenagers with lower IQs, more behavioral problems in school, and higher rates of violent behavior—which, as Wheeler says, feeds into already vicious stereotypes of African-Americans and the poor. big problem with lead is that it does its damage in children, and once the damage is done the brain never recovers. We're seeing lower levels of violent crime today because most crime is committed between the ages of 17-25—and that age cohort was all born after 1990, when atmospheric lead had dropped close to zero. But the effects of lead continue to dog people in their 40s and 50s. Once it's there, it's there. This is what makes Flint so scary: if elevated lead levels damage young children, they'll be damaged forever. So how much damage was actually done? And how much damage is still being done?

    Poisoned water forces some Flint residents to flee home -  The marks of the Flint water crisis are mostly internal. They’re hidden in the water mains underground, in the bathtubs and kitchen sinks and hot water heaters inside residents’ homes, in their children’s blood. But from the outside, Flint looked like a disaster zone long before President Obama declared a federal emergency over lead contamination in the water supply. The vacant lots and crumbling houses that line a vast majority of the city’s streets are evidence of Flint’s descent from the home of General Motors — a bustling company town with a population of close to 200,000 — into the country’s murder capital, with a population down by roughly half from its peak in 1960, and a poverty rate of more than 41 percent. In recent years, Flint has only continued to become more like a shell of its former self. Over the last decade, more than 20 schools have joined Flint’s collection of abandoned buildings. In March 2015, the last remaining supermarket within the city limits closed its doors.  Like other Flint natives, Richardson has watched his hometown become less and less recognizable. His childhood home, at one time worth $80,000, sold for $9,000. Across the street are two vacant houses, one of which is burned down. But now, Richardson said, the city’s contaminated water supply has made him “extremely” concerned about the health of his children, ages 22, 18, and 9, so much so that he’s thinking about starting fresh somewhere like North Carolina, or maybe West Virginia — places he’s passed through while on the road for his job as a telecommunications engineer. 

    FBI Joins Flint Drinking Water Investigation -- The FBI is joining the investigation into the water contamination crisis in Flint, Michigan, the Detroit Free Press reported on Monday. Gina Balaya, a spokesperson for the U.S. Attorney’s Office in Detroit, told the Detroit Free Press that federal prosecutors are “working with a multi-agency investigation team on the Flint water contamination matter, including the FBI, the U.S. Postal Inspection Service, Environmental Protection Agency’s (EPA) Office of Inspector General and EPA’s Criminal Investigation Division.” Balaya did not specify whether the inquiry was civil or criminal, but announced the FBI’s involvement late Monday in response to a concern over the EPA leading the investigation when the agency had been criticized for its response to the crisis. As Common Dreams has previously reported, the EPA’s region 5 office knew as early as April 2015 that Flint’s public drinking water was contaminated with high levels of toxins, particularly lead. The EPA’s regional director stepped down in late January.  Balaya’s announcement also comes just as the U.S. House Oversight Committee prepares to hold its first hearing on the crisis Wednesday. Former Flint emergency manager Darnell Earley has reportedly been asked to testify, but is expected to decline.

    FBI joins probe of Flint, Michigan's lead contaminated water | Reuters: The Federal Bureau of Investigation said on Tuesday it was joining a criminal investigation of lead-contaminated drinking water in Flint, Michigan, exploring whether laws were broken in a crisis that has captured international attention. Federal prosecutors in Michigan were working with an investigative team that included the FBI, the U.S. Postal Inspection Service, the U.S. Environmental Protection Agency's Office of Inspector General and the EPA's Criminal Investigation Division, a spokeswoman for the U.S. Attorney's Office in Detroit said. An FBI spokeswoman said the agency was determining whether federal laws were broken, but declined further comment. EPA Administrator Gina McCarthy met with officials and community leaders in Flint and told reporters she could not give a timeline for fixing the problem. She said the agency was examining where it may have fallen short, but declined to address the criminal probes. The city, about 60 miles (100 km) northwest of Detroit, was under the control of a state-appointed emergency manager when it switched the source of its tap water from Detroit's system to the Flint River in April 2014. Flint switched back last October after tests found high levels of lead in blood samples taken from children. The more corrosive water from the river leached more lead from the city pipes than Detroit water did. Lead is a toxic agent that can damage the nervous system. Michigan Governor Rick Snyder, who extended a state of emergency in Flint until April 14, has repeatedly apologized for the state's poor handling of the matter.

    Flint Officials Could Have Prevented Lead Crisis for $80 A Day, Broke Federal Law Instead -- “It’s outrageous that this sort of government-made catastrophe would happen anywhere in the United States,” Representative Justin Amash said Wednesday as he opened his allotted time period to question a panel before Congress about the lead crisis in Flint, Michigan. In his characteristic calm and collected manner, Amash quickly pulled the painful truth from just two members of the decidedly small four-member panel — the lead contamination of the Flint water supply wouldn’t have happened if the city had followed the law.   Without using his name, Amash also noted the“nonsensical” absence from the panel of the “one person probably most culpable in this situation” who “won’t take responsibility for it” — Michigan Gov. Rick Snyder. Turning to Virginia Tech Environmental and Water Resources Professor and Water Interagency Coordinating Committee member Marc Edwards, the scope of governmental culpability in the Flint lead crisis quickly became clear. “We know that not enough phosphates were added to the water to make it less corrosive,”Amash began. “What’s the cost of treating the water with the appropriate amount of phosphates?” “When the switch was made, there was actually no phosphate added at all. No corrosion control. Federal law was not followed,” Edwards stated.“No phosphates at all?” Amash interrupted. “Nothing. Had they done the minimum allowable under the law, which would have been to continue the phosphate dosing — which in Detroit water, it would’ve cost $80 to $100 a day.”  Amash then asked whether Edwards had knowledge of or an opinion about why there were no phosphates added to control the corrosion.“[I]sn’t that a normal step?” he inquired.  Edwards replied: “It’s the law. You have to have a corrosion control plan, and that’s why we have the law. This disaster would not have occurred if the phosphate would have been added — and that includes the legionella likely outbreak, the red water that you see, the leaks . . . In general, corrosion control, for every dollar you spend on it, you save ten dollars. But in Flint’s situation, for every dollar that they would’ve spent on it, they would’ve easily saved $1,000. “So, my only explanation is that it probably did start innocently in the chaos of the turnover, and someone simply forgot to follow the law.”

    Flint Water Crisis Keeps Getting Bigger and More Shocking Each Day -- Democracy Now! -- Congress held its first hearing today on lead poisoning in the water supply of Flint, Michigan. The crisis began after an unelected emergency manager appointed by Republican Gov. Rick Snyder switched the source of Flint’s drinking water to the corrosive Flint River.  Flint’s former emergency manager, Darnell Earley, refused to testify at today’s hearing despite a subpoena from the U.S. House Oversight and Government Reform Committee. On Tuesday, Earley announced he was resigning from his current position as emergency manager of the Detroit Public Schools. One person that will be testifying is Snyder’s handpicked appointee to run the state Department of Environmental Quality, Keith Creagh. According to the Detroit Free Press, Creagh is expected to fault the U.S. Environmental Protection Agency (EPA) for contributing to the Flint crisis, saying it “did not display the sense of urgency that the situation demanded.”  Watch here as Amy Goodman and Juan González interview Thomas Stephens, communications coordinator for Detroiters Resisting Emergency Management, and Tawanna Simpson, elected member of the Detroit Board of Education. Here’s the transcript of the interview:

    Michigan emails show officials knew of Flint water disease risk | Reuters: Emails between high-ranking Michigan state officials show they knew about an uptick in Legionnaires' disease and it could be linked to problems with Flint water long before Governor Rick Snyder said he got information on the outbreak. A spokesman for Snyder rejected the report by the liberal group Progress Michigan on Thursday. Emails obtained by the group show Snyder's principal aide, Harvey Hollins, was made aware of the outbreak and a possible link to the use of Flint River water last March. Snyder said in January he had just learned about the rise in Legionnaires cases. "Are we to believe that a top staffer with years of experience would not inform Governor Snyder of a possibly deadly situation?" Progress Michigan Executive Director Lonnie Scott said in a statement. The group cited an email from March 13, 2015, that showed Hollins and Dan Wyant, the former head of the Department of Environmental Quality (DEQ), were aware of the increase in Legionnaires' disease in Genesee County, where Flint is located, and that a county health official was attributing the cases to the Flint River. State officials on Jan. 13 announced the spike in the disease resulting in 10 deaths possibly linked to the water crisis.

    Could What Happened in Flint Happen Anywhere?: Flint’s crisis with drinking water contamination has been cast as a unique series of fumbles and cover-ups. But the Michigan city’s plight also illustrates a much wider concern: Millions of Americans drink water that flows through lead pipes, fittings, and solder, most installed before the 1970s. Lead pipes can be found in much of the U.S., but surveys show they are concentrated in the Northeast and Midwest. Nobody really knows how extensive they are today: A 1990 study estimated that 3.3 million utility service lines contain lead—plus twice as many connecting pipes, and countless amounts of lead solder. In addition, many homes have plumbing that contains the hazardous metal. If utilities don’t carefully balance water chemistry and treatment methods, and if regulators don’t enforce the rules, lead can leach from utility pipes and household plumbing systems and wind up in people’s water. That’s what happened in Flint. A decade ago, it happened in Washington, D.C., too. About 640,000 District of Columbia residents were exposed to lead when changes in disinfection chemicals allowed lead to leach from pipelines. And health experts warn that the same crisis could happen again elsewhere, especially as local and state public health budgets shrink.

    Untold cities across America have higher rates of lead poisoning than Flint -- Flint has experienced “a man-made disaster,” a press release from the city said last December. But the truly terrifying fact about the water crisis in Flint is invisible. It is the insidious effect of growing up or growing old while unknowingly allowing lead into your bloodstream. According to the World Health Organization, lead creates developmental and behavioral issues in children that are believed to be irreversible. This is the real emergency for which city and state officials are bracing: the rising demand for special education and juvenile corrections programs that will emerge once lead is translated into reduced IQs, shortened attention spans and greater incidences of violence. This is the poisoning that has occurred not just in Flint but all over the country, for decades — and not from water, but (primarily) from the paint that colors old homes. Data collected by the Center for Disease Control and Prevention shows that over 40 percent of the states that reported lead test results in 2014 have higher rates of lead poisoning among children than Flint. In Flint, 4 percent of kids aged five and under tested with blood-lead levels of at least 5 micrograms per deciliter, the threshold of lead intake that necessitates public health action, as defined by the federal government. Elsewhere in the country, 12 states reported that a greater percentage of kids under six years old met or surpassed that threshold. The most egregious example is Pennsylvania, where 8.5 percent of the children tested were found to have dangerously high levels of lead in their blood. Only 27 states (including Washington, D.C.) reported childhood blood lead surveillance results to the CDC’s national database for 2014, the most recent statistical set available.

    Navajo water contamination more horrific than Flint Michigan's -  The water contamination on the Navajo Nation is more horrific than in Flint, Michigan. However, the contamination continues because of the racism in the United States which disregards the contamination in Indian country. The collapsed media in Indian country, and the biased mainstream media, fail to expose it. Today, an Indigenous delegation begins a series of protests and events in Washington D.C. to expose the radioactive pollution in Indian country. The Navajo Nation's water has been poisoned since the 1950s by uranium mining, then by coal mining, and dirty coal-fired power plants. Navajo water has long been contaminated by Peabody Coal mining on Black Mesa, uranium spills, strewn radioactive tailing from the Cold War uranium mining, and recently the EPA's poisoning of the Animas and San Juan Rivers. Further, the US government knew when it relocated Navajos to the Sanders, Arizona, area that radiation from the Church Rock, N.M., uranium spill would poison their water by way of the Rio Puerco wash. In the Four Corners region, three coal fired power plants poison the water in runoffs. Meanwhile, in south central Arizona, Apaches continue their fight against the copper mine which Arizona Sen. John McCain sneaked into the defense bill. McCain's land giveaway to Resolution Copper would desecrate the Apache ceremonial grounds at Oak Flat. The copper mine would result in an environmental disaster, which includes poisoning the water. McCain has long been a member of the US Senate Committee on Indian Affairs, which reveals the true nature of this committee and its role in the theft of Indian lands, and the poisoning of Indian country by corporate polluters. Apaches welcome all to their march at the end of February.

    Mumbai’s Garbage Fire Can Be Seen From Space -  A fire so large it could be seen from space engulfed parts of Mumbai’s biggest landfill site in recent days, forcing schools to shut and raising questions about the city’s waste-management practises. The cause of the blaze in the Deonar garbage dump—where waste is piled 30 meters high in parts—is so far unknown. The fire began on Jan. 27, producing a plume of smoke that was captured by a camera aboard a satellite belonging to the National Aeronautics and Space Administration. AdvertisementFourteen fire trucks and eight bulldozers worked for four days and nights to bring the fire under control. Parts of the landfill site that stretches over 111 hectares still smoldered Tuesday. Rais Shaikh, a municipal official for the suburb of Govandi next to Deonar said local residents had suffered as the smoke billowed over their homes. “There have been lots of cases of breathlessness and suffocation,” he said. “Local schools have been shut for two days.” Air quality monitors near the site registered a steep increase in hazardous particulate matter in the days during the blaze. In one case closest to the dump, levels of fine particulate matter measuring 2.5 micrometers or less, doubled between Jan. 25 and Feb. 1. Such small particles are able to penetrate the lungs and are linked to respiratory diseases.

    World heritage forests burn as global tragedy unfolds in Tasmania -  A global tragedy is unfolding in Tasmania. World heritage forests are burning; 1,000-year-old trees and the hoary peat beneath are reduced to char. Fires have already taken stands of king billy and pencil pine – the last remaining fragments of an ecosystem that once spread across the supercontinent of Gondwana. Pockets of Australia’s only winter deciduous tree, the beloved nothofagus – whose direct kin shade the sides of the South American Andes – are now just a wind change away from eternity. Unlike Australia’s eucalyptus forests, which use fire to regenerate, these plants have not evolved to live within the natural cycle of conflagration and renewal. If burned, they die.To avoid this fate, they grow high up on the central plateau where it is too wet for the flames to take hold. But a desiccating spring and summer has turned even the wettest rainforest dells and high-altitude bogs into tinder. Last week a huge and uncharacteristically dry electrical storm flashed its way across the state, igniting the land. While these events have occurred in the past, says David Bowman, a professor of environmental change biology at the University of Tasmania, they were extremely rare, happening perhaps once in a millennium. “It’s killing trees that are over 1,000 years old; it’s burning up soil that takes over 1,000 years to accumulate,” he says.  “We just have to accept that we’ve crossed a threshold, I suspect. This is what climate change looks like.”

    Folsom Lake rises to 44% of capacity after reaching record low of 14% in 2015: Folsom Lake, the Sacramento metropolitan area’s backyard landlocked king salmon, rainbow trout and black bass fishery, reached its lowest-ever water level in November 2015 when it plunged to only 140,523 acre feet of water, 14 percent of capacity. That surpasses the previous low water level of 140,600 acre feet reached in November 1977. However, over the past month the runoff from the long-anticipated El Niño storms in the American River watershed has improved water conditions at the reservoir dramatically. The lake is now holding 428,716 acre-feet of water, 44 percent of capacity and 84 percent of average. The water level has risen to 407.12 vertical feet in elevation, 58.88 feet from maximum pool. The reservoir has risen over 58 feet since November. Just to be clear, the record low level that the reservoir reached in the fall of 2015 was just not because of drought – it was because of the abysmal management of the reservoir during the drought by the U.S. Bureau of Reclamation in conjunction with the California Department of Water Resources (DWR). During the past three years of drought, the Bureau and DWR systematically emptied Trinity, Shasta, Oroville and Folsom reservoirs to provide water to corporate agribusiness interests expanding their almond tree acreage, Southern California water agencies, and oil companies conducting water-polluting fracking and other extreme oil extraction methods in Kern County.

    A Lake in Bolivia Evaporates, and With It a Way of Life - Overturned fishing skiffs lie abandoned on the shores of what was Bolivia’s second-largest lake. Beetles dine on bird carcasses and gulls fight for scraps under a glaring sun in what marshes remain.Lake Poopó (pronounced po-oh-PO) was officially declared evaporated last month. Hundreds, if not thousands, of people have lost their livelihoods and have left the area.High on Bolivia’s semiarid Andean plains at more than 12,000 feet and subject to climatic whims, the shallow saline lake has dried up before only to rebound to a size twice the area of Los Angeles.But recovery may no longer be possible, scientists say.“This is a picture of the future of climate change,” said Dirk Hoffman, a German glaciologist who studies how rising temperatures from the burning of fossil fuels has accelerated glacial melting in Bolivia.As Andean glaciers disappear, so do the sources of Poopó’s water. But other factors are in play in the demise of Bolivia’s second-largest body of water after Lake Titicaca.  Drought caused by the recurrent El Niño meteorological phenomenon is considered the main driver. Officials say another factor is water diverted from Poopó’s tributaries, mostly for mining but also for agriculture. More than 100 families have sold their sheep, llamas and alpaca, set aside their fishing nets and left the former lakeside village of Untavi over the past three years, draining it of well over half of its population. Only the elderly remain.

    Food prices fall at fastest pace in 7 years amid 'timid demand': Food prices fell in 2015 for a fourth successive year, and at the fastest pace in seven years - led by the biggest drop on record in the value of meat, the United Nations said. Food prices dropped in December by 1.0% month on month to their lowest since April 2009, the UN food agency, the Food and Agriculture Organization, said. The drop took the decline for 2015 to 17.1% - the second biggest fall in values for a calendar year on records going back to 1990. "Abundant supplies in the face of a timid world demand and an appreciating dollar are the main reason for the general weakness that dominated food prices in 2015," FAO senior economist Abdolreza Abbassian said. Meat price tumble For meat prices, the drop of 23% last year was by a distance the biggest drop on record, after a 2014 which had lifted values to a record high. The decline included a 2.2% month-on-month drop in December which the FAO attributed in part to "reduced import demand in the US" for beef, which "intensified competition in other markets" as export supplies backed up. "For pigmeat, a surge in output in the European Union caused both domestic and export prices to fall," the FAO added. Pork prices over 2015 were also undermined by the recovery of the US herd, as the threat from porcine epidemic diahorrea (PEDv) faded.

    As Crop Prices Sink, Farm Subsidies Soar -- The government faces three high-cost years for farm subsidies, beginning with $5.8 billion for this year, says the Congressional Budget Office (CBO), as low commodity prices drive up the cost of programs that stabilize crop revenue. In its latest budget baseline, CBO forecasts that crop subsidies will cost a total of $22 billion for fiscal 2016, 2017, and 2018. That’s a 9% increase from the estimate it made a year ago of $20.1 billion for the period. The major recipients would be corn, soybean, wheat, and peanut growers. Corn, soybeans, and wheat are the three most widely planted crops in the country, grown on 225 million acres while peanuts are planted on around 1.6 to 1.7 million acres annually. Corn farmers were projected to get $10.5 billion from 2016 to 2018, soybean growers $3.5 billion, wheat growers $2.9 billion, and peanuts $1.7 billion. “We’re going to have a fair amount of ARC spending,”  Corn and soybean growers enrolled predominantly in ARC, which shields farmers from the effects of low prices and poor yields. The price guarantees in ARC are based on a rolling five-year average of commodity prices, which were record high in 2012 and strong in 2013 but swooned in 2014 and 2015. “The price guarantee is going to start coming fairly quickly,” said Westhoff. CBO says crop subsidy costs will drop sharply after 2018. Wheat growers mostly signed up for the traditionally styled Price Loss Coverage subsidy, but a sizable minority selected ARC, so both programs will pay sizable amounts on wheat. Peanut growers would collect their payments from PLC.Counterbalancing the rising cost of crop subsidies would be lower spending on federally subsidized crop insurance, projected at $24.1 billion for fiscal 2016 to 2018, or $1.8 billion less than projected a year ago.

    Supply and Demand Fundamentals Weighing on Ag Economy. Production Outpacing Consumption. - Fed. Reserve Bank of K.C., -- The U.S. Department of Agriculture (USDA) forecasted global crop production to remain near record levels in 2015. Following widespread drought that damaged the 2012 crop, production in the U.S. has been strong for three consecutive years (Chart 1). In November 2015, the USDA projected the soybean crop to be the largest in history and expected that the corn harvest could be the third largest ever. Production has also steadily expanded in the rest of the world with reports of near-record harvests in Brazil and the Black Sea region, for example. However, production in the United States since 2012 has expanded faster than consumption. Domestic consumption of key commodity crops has flattened over the last two years, and inventories are expanding across the globe, but particularly in the U.S. (Chart 2). On average, U.S. inventories of corn, soybeans and wheat have increased more than 100 percent since 2013, while use (or consumption) has increased just 7 percent over the same period. In addition to stagnant domestic demand, softening global demand and growing competition are hampering U.S. exports of agricultural products. In fact, exports of food and kindred products, including processed meat products, have declined for 14 consecutive months (Chart 3). Exports of agricultural products, including bulk commodities, also have continued to decline. Exports decreased about 10 percent, on average, each month in 2015 compared to 2014. As of October 2015, the value of U.S. agricultural exports declined from 2014 by more than $6 billion. China accounted for 20 percent of the loss in export value, with other major losses stemming from Canada, Mexico, Brazil, Japan, Egypt and South Korea (Map).

    El Niño parches Asia Pacific, destroying crops and drying up water sources: - Severe El Niño-linked drought has destroyed crops, killed farm animals and dried up water sources across East Asia and the Pacific, aid workers said, and UNICEF appealed for $62 million to assist children impacted by various crises in the region. Humanitarian agencies are monitoring and responding to droughts and food insecurity in an area from Indonesia and the Philippines, southeast to Papua New Guinea and the Pacific Islands. "El Niño is peaking at the moment, and we expect the impacts to come up after the peak," said Krishna Krishnamurthy, a regional climate risk analyst for the World Food Programme. Krishnamurthy visited East Timor earlier this month and saw areas that were parched even though their rainy season was supposed to have started in November. "Rivers are completely dry in several parts of the country," he said, noting some hard-hit areas were deceptively green. "I saw green paddy fields, but it's not rice - it's weeds and grass. It's difficult to monitor remotely (from satellite images). That's why the post-harvest assessment will be quite critical." The El Niño phenomenon, occurring every few years and caused by unusual warming of the Pacific Ocean, triggers heavy rains and floods in South America and dry, scorching weather in Asia and East Africa, and usually lasts about one year.

    India's rice revolution --  Sumant Kumar was overjoyed when he harvested his rice last year. There had been good rains in his village of Darveshpura in north-east India and he knew he could improve on the four or five tonnes per hectare that he usually managed. But every stalk he cut on his paddy field near the bank of the Sakri river seemed to weigh heavier than usual, every grain of rice was bigger and when his crop was weighed on the old village scales, even Kumar was shocked. This was not six or even 10 or 20 tonnes. Kumar, a shy young farmer in Nalanda district of India's poorest state Bihar, had – using only farmyard manure and without any herbicides – grown an astonishing 22.4 tonnes of rice on one hectare of land. This was a world record and with rice the staple food of more than half the world's population of seven billion, big news. It beat not just the 19.4 tonnes achieved by the "father of rice," the Chinese agricultural scientist Yuan Longping, but the World Bank-funded scientists at the International Rice Research Institute in the Philippines, and anything achieved by the biggest European and American seed and GM companies. And it was not just Sumant Kumar. Krishna, Nitish, Sanjay and Bijay, his friends and rivals in Darveshpura, all recorded over 17 tonnes, and many others in the villages around claimed to have more than doubled their usual yields. The villagers, at the mercy of erratic weather and used to going without food in bad years, celebrated. But the Bihar state agricultural universities didn't believe them at first, while India's leading rice scientists muttered about freak results. The Nalanda farmers were accused of cheating. Only when the state's head of agriculture, a rice farmer himself, came to the village with his own men and personally verified Sumant's crop, was the record confirmed.

    China seeks food security with $43 billion bid for Syngenta | Reuters: China made its boldest overseas takeover move when state-owned ChemChina agreed a $43 billion bid for Swiss seeds and pesticides group Syngenta on Wednesday, aiming to improve domestic food production. The largest ever foreign purchase by a Chinese firm, announced by both companies, will accelerate a shake-up in global agrochemicals and marks a setback for U.S. firm Monsanto, which failed to buy Syngenta last year. China, the world's largest agricultural market, is looking to secure food supply for its population. Syngenta's portfolio of top-tier chemicals and patent-protected seeds will represent a major upgrade of its potential output. "Only around 10 percent of Chinese farmland is efficient. This is more than just a company buying another. This is a government attempting to address a real problem," a source close to the deal told Reuters. Years of intensive farming combined with overuse of chemicals has degraded land and poisoned water supplies, leaving China vulnerable to crop shortages. The deal fits into Beijing's plans to modernise agriculture over the next five years. "I was sent to the countyside at the age of 15, so I'm very familiar with what farmers need when they work the land. The Chinese have relied mainly on traditional ways of farming. We want to spread Syngenta’s integrated solution among smallholder farmers," ChemChina Chairman Ren Jianxin told a media briefing.

    Will China Dam Its Last Wild River? - The Nu River is the last remaining major river system in China without a dam. But if the Chinese government gets its way, the country’s last free-flowing river will soon be reduced to a “series of cascading lakes,” NPR’s Marketplace reported.  “This river is vital,” Wang Yongchen, founder of Beijing-based Green Earth Volunteers, told NPR. “If we lose the Nu River, China will no longer be able to have a single reference for comparison between what is natural and what isn’t.”China has a long history of damming its rivers and displacing millions of people in the process, NPR explained. Since 1949, 24 million people have been forced to relocate for 86,000 dams.“It’s a uniquely Chinese phenomenon,” Fan Xiao, a retired geologist, told NPR. “A local government sets up an investment company, attracts investors, approves and builds its own projects with developers. All of them make enormous profits. They claim this helps alleviate poverty, but it only causes common people more problems.”What’s worse, Fan said, is many of these dams aren’t even generating electricity. By his count, 8 percent of the electricity generated by dams in his home province of Sichuan goes to waste. “We call this ‘water abandonment,’” Fan said, “and in China it’s severe. Dozens of large-scale dams are losing money.”

    'The Blob' Disrupts What We Think We Know About Climate Change, Oceans Scientist Says: Deep in the northeast Pacific Ocean, The Blob is acting strangely. When the abnormally warm patch of water first appeared in 2013, fascinated scientists watched disrupted weather patterns, from drought in California to almost snowless winters in Alaska and record cold winters in the northeast. The anomalously warm water, with temperatures three degrees Centigrade above normal, was nicknamed The Blob by U.S climatologist Nick Bond. It stretched over one million square kilometres of the Gulf of Alaska — more than the surface area of B.C. and Alberta combined — stretching down 100-metres into the ocean. And, over the next two years that patch of water radically affected marine life from herring to whales. Without the welling-up of cold, nutrient-rich water, there was a dearth of krill, zooplankton and copepods that feed herring, salmon and other species. “The fish out there are malnourished, the whole ecosystem is malnourished,” ... A change of three degrees is an “extraordinary deviation — something you would expect to happen once in a millennium,” he said. Pink salmon returned last year, after two years in the ocean, weighing about half their usual weight, sea lion pups, seabirds and baleen whales had difficulty finding adequate food, but jellyfish thrived. Now, after more than two years of disruption to marine ecosystems, it looks as if The Blob is dissipating.  Cold winter storms, that have been absent for almost three years allowing the anomaly to develop, swept across the Gulf of Alaska in November and December, finally dispersing the warm surface waters.

    Stranded whales provide new clues on the threats to sea creatures’ survival --  A body washes up on a beach in eastern England. Then another. And another. Soon, people living in two coastal communities have five deaths on their hands. Things take a further macabre twist when it emerges that more than a dozen bodies are littering the shores of the Netherlands and Germany. What could possibly link the deaths? A CSI team, dispatched to hunt for clues, faces a race against time. Scavengers and saltwater will devour the carcasses and destroy potentially vital evidence. No, it’s not a plot lifted from the latest series of The Bridge. This is life at the gory end of zoological research. The CSI team are not crime scene investigators, but members of the Cetacean Strandings Investigation Programme, a specialist team based at the Zoological Society of London in Regent’s Park, whose work was thrown into sharp relief last week when five sperm whales were found stranded on beaches in Hunstanton, Norfolk, and Skegness, Lincolnshire. “We weren’t the ones who gave it the name; it’s entirely fortuitous that the initials are CSI,” said Rob Deaville, the programme’s project manager. “But there is a degree of truth in it. You’re trying to find what happened to bodies on a beach.”In the latest strandings, Deaville and his team were able to examine four of the sperm whales. A fifth was too far out on mudflats which may have been littered with ordnance from a nearby military range. But this was not the only explosive risk to the team, Deaville explained. The whale carcasses, insulated by blubber, were storing a potentially dangerous buildup of gases. “Sperm whales are like pressure cookers; they keep everything locked in. Two of the ones in Skegness were so distended we were concerned about the risk to us and the public.”

    Here is the weather forecast for the next five years: even hotter - Global temperatures will continue to soar over the next 12 months as rising levels of greenhouse gas emissions and El Niño combine to bring more record-breaking warmth to the planet. According to the Met Office’s forecast for the next five years, 2016 is likely to be the warmest since records began. Then in 2017 there will be a dip as the effects of El Niño dissipate and there is some planet-wide cooling. But after that, and for the remaining three years of the decade, the world will continue to experience even more warming. The forecast, which will be released this week, is the first such report that the Met Office has issued since it overhauled its near-term climate prediction system last year. “We cannot say exactly how warm it will get but there is no doubt the overall upward trend of temperatures will continue,” said Doug Smith, a Met Office expert on long-term forecasting. “We cannot say exactly how hot 2018, 2019 or 2020 will be. That will depend on other variables. But the general trend is going to be upwards.”

    Industrial-era ocean heat uptake has doubled since 1997 -- The oceans are by far the largest heat reservoir in the Earth's climate system, so much so that they make up a whopping93% of global warming. Thus global warming is really the story of ocean warming. In many blog posts in recent years (see, here, here and here for example) Skeptical Science has consistently drawn attention to the fact that the oceans are continuing to accumulate heat and therefore, despite short-term fluctuations in both surface and atmospheric temperatures, global warming is proceeding largely as anticipated by the scientific community.  A recent paper, Gleckler et al [2016], manages to put the recent warming of the ocean into a broader, longer-term, perspective. Using ocean temperature measurements obtained from various sources and methods, and utilizing data from the pioneering HMS Challenger expeditions of the late 19th century (Roemmich et al [2012]), the researchers were able to compare the observations stretching back to the mid-1800's with climate model simulations. They found the model simulations were consistent with this diverse collection of ocean temperature data. Perhaps the most startling result of this analysis is just how much the oceans have warmed in recent decades, with the recent acceleration so pronounced that the rate of ocean heat uptake in the industrial-era has doubled since 1997.

    Measuring ocean heating is key to tracking global warming -- Human emissions of greenhouse gases such as carbon dioxide are causing the Earth to warm. We know this, and we have known about theheat-trapping nature of these gases for over 100 years. But scientists want to know how fast the Earth is warming and how much extra energy is being added to the climate because of human activities. If you want to know about global warming and its future effects, you really need to answer these questions. Whether this year was hotter than last year or whether next year breaks a new record are merely one symptom of a warming world. Sure, we expect records to be broken, but they are not the most compelling evidence.  The most compelling evidence we have that global warming is happening is that we can measure how much extra heat comes in to the Earth’s climate system each year. Think of it like a bank account. Money comes in and money goes out each month. At the end of the month, do you have more funds than at the beginning? That is the global warming analogy. Each year, do we have more or less energy in the system compared to the prior year?  The answer to this question is clear, unassailable and unequivocal: the Earth is warming because the energy is increasing. We know this because the heat shows up in our measurements, mainly in the oceans. Indeed the oceans take up more than 92% of the extra heat. The rest goes into melting Arctic sea ice, land ice, and warming the land and atmosphere. Accordingly, to measure global warming, we have to measure ocean warming. Results for 2015 were recently published by Noaa and are available here.

    Arctic sea ice breaking up like it's March or April (image) When we see records being broken and unprecedented events such as this, the onus is on those who deny any connection to climate change to prove their case. Global warming has fundamentally altered the background conditions that give rise to all weather. In the strictest sense, all weather is now connected to climate change. Kevin Trenberth

    Naomi Klein: Climate Change “Not Just About Things Getting Hotter… It's About Things Getting Meaner” - - In a wide-ranging conversation, the journalist and climate activist discusses the recent Paris climate accords, the politics of global warming, climate change denial and environmental justice.

    Naomi Klein: “There are no non-radical options left before us” - So the ‘this’ in This Changes Everything is climate change. And the argument that I make in the book is that we find ourselves in this moment where there are no non-radical options left before us. Change or be changed, right? And what we mean by that is that climate change, if we don’t change course, if we don’t change our political and economic system, is going to change everything about our physical world. And that is what climate scientists are telling us when they say business as usual leads to three to four degrees Celsius of warming. That’s the road we are on. We can get off that road, but we’re now so far along it, we’ve put off the crucial policies for so long, that now we can’t do it gradually. We have to swerve, right? And swerving requires such a radical departure from the kind of political and economic system we have right now that we pretty much have to change everything. We have to change the kind of free trade deals we sign. We would have to change the absolutely central role of frenetic consumption in our culture. We would have to change the role of money in politics and our political system. We would have to change our attitude towards regulating corporations. We would have to change our guiding ideology. You know, since the 1980s we’ve been living in this era, really, of corporate rule, based on this idea that the role of government is to liberate the power of capital so that they can have as much economic growth as quickly as possible and then all good things will flow from that. And that is what justifies privatization, deregulation, cuts to corporate taxes offset by cuts to public services — all of this is incompatible with what we need to do in the face of the climate crisis. We need to invest massively in the public sphere to have a renewable energy system, to have good public transit and rail. That money needs to come from somewhere, so it’s going to have to come from the people who have the money.

    The Impact Of Our Consumption - infographic -- Livestock now use over 30% of the world’s available land. Much of this is used for grazing although there is also a substantial portion which is utilised to grow feed. A need for all this space has been a major contributor to deforestation and with deforestation a further release of CO2 into the atmosphere occurs. This comes about due to two main reasons. First, as the trees are cut down, the carbon dioxide they store is released. Second, fewer trees leads to lower levels of photosynthesis going forward, a process which would normally help to absorb carbon dioxide from the atmosphere. In addition, once land has been cleared if it is then overgrazed it runs the risk of turning to desert. This has already happened on 20% of pastureland.  We often assume that agriculture is natural and therefore can’t be damaging to the environment, but that assessment is wrong.  In fact, if we look at figures published by the Food and Agriculture Organization of the United Nations, agriculture contributes 18% of the total release of greenhouse gases worldwide, a much higher figure than that for transportation. Emissions from cattle are particularly damaging because it is not CO2 that cows are releasing but methane. Every single cow releases between 70 and 120kg of methane per year and while this is a greenhouse gas like CO2, its detrimental impact on the planet is 23 times higher than the negative impact of CO2. In addition, livestock cause over two-thirds of the world’s ammonia emissions, and this greatly contributes to acid rain. When you consider there are over 1.5 billion cattle worldwide the damage quickly adds up.

    Canada Admits There’s No Chance It’ll Reach Its Climate Change Targets — Not Even Close -- In statistics released on Friday evening — a prime time to break bad news — the Canadian government admitted that it was way off its already modest CO2 emission targets. The numbers show that years of environmental efforts in Canada essentially had no impact. The projection, released by Environment and Climate Change Canada, shows that Canada is expected to pump out the equivalent of 768 megatons of CO2 by 2020, and 815 megatons by 2030. Those projections also do not include emissions from the forestry sector.  That's nowhere near the targets Canada set for itself at the Copenhagen climate talks in 2009. There, Ottawa pledged to reduce its CO2 emissions by 17 percent over 2005 levels by 2020. Instead, Canada will likely increase its CO2 emissions by roughly two percent. The numbers say that increase may be as high as five percent. The projections for 2030 are even further off. Canada pledged to reduce its emissions by 30 percent. Instead, it's on track to to increase those emissions by nearly 17 percent.

    The Greenhouse 100  - Regular Triple Crisis contributor James K. Boyce and his colleague Michael Ash, both professors of economics at the University of Massachusetts and researchers at the Political Economy Research Institute (PERI), released the Greenhouse 100 index late last month. The list, including the 100 U.S. companies responsible for the largest total greenhouse gas emissions based on Environmental Protection Agency (EPA) data, shows a stunning concentration of emissions at the very top. “The top ten companies emit 12.5 percent of total U.S. greenhouse gas emissions from all sources, both stationary and mobile,” reports the press release describing the findings. “The Greenhouse 100 together account for 34 percent of emissions nationwide.” The full text of the press release follows, and the full list of the Greenhouse 100 can be found after the jump. In addition, a Real News Network interview, in which Michael Ash discusses the report, is available here. —Eds.Researchers at the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst today released a new edition of the Greenhouse 100 index, ranking U.S. industrial polluters on the basis of their emissions of the gases responsible for global climate change.Topping the list are three electrical power companies: Duke Energy, American Electric Power, and Southern Company. Each of the top three released over 100 million metric tons of CO2 equivalent emissions in 2014. Together, these three alone are responsible for more than five percent of greenhouse gas emissions from all sources combined in the United States – as much as the average annual emissions of about 75 million automobiles. Other companies in the top ten are NRG Energy Inc., Berkshire Hathaway, Dynegy, Xcel Energy, FirstEnergy, and PPL Corporation. The U.S. government ranks sixth on the Greenhouse 100 list, weighing in at almost 75 million metric tons – equivalent to more than 15 million cars. US Steel, ranked number 21, is the top non-energy corporation on the list.

    Geoengineering Would Not Work in All Oceans -- Scientists talk about the iron hypothesis, which means that if someone dumps iron into the global oceans at its most desolate zones, the world could enter a period of rapid cooling. The iron hypothesis does not apply equally in all oceans. Scientists have found that dumping iron in the Antarctic Ocean might work to trigger global cooling, but dumping the element in the equatorial Pacific Ocean would not. The findings, published yesterday in the journal Nature, provides insight into the only guaranteed geoengineering hack scientists have to remove carbon dioxide from the atmosphere and address global warming. It involves dumping iron into the oceans, where phytoplankton need small amounts of the element to grow. These photosynthetic microorganisms grab CO2 from the atmosphere, and when death beckons, their carbon-rich bodies get buried in the depths. Scientists previously thought that iron fertilization could work in all iron-deficient ocean stretches: the subarctic North Pacific Ocean, the equatorial Pacific and the Antarctic Ocean. The new study crosses the equatorial Pacific off that list.

    House Science Committee Thinks Landmark Paris Climate Agreement A Bad Deal For America --  Countries both poor and rich participated in a historic moment on December 2015 as world leaders reached a landmark agreement in Paris to reduce greenhouse gas emissions and mitigate climate change. Representatives from 196 nations signed a pact of commitment to prevent average global temperatures from rising 1 degree Celsius (1.8 degrees Fahrenheit) higher, starting late 2015 up to 2100. United Nations secretary Ban Ki-Moon dubbed the 12-page Paris Climate Agreement as a monumental success for Earth and its inhabitants. "History will remember this day," he said. But not everyone agrees. While Paris delegates were celebrating, politicians in Washington were grumbling about how bad the climate agreement was for the United States. A hearing at the House of Representatives Committee on Science, Space and Technology on Feb. 2. revealed how policy-makers and experts view the matter. As President Barack Obama made a pact to cut the country's greenhouse gas emissions by 28 percent within 10 years, Republicans believe this will have several negative effects. "The president's Paris pledge will increase electricity costs, ration energy and slow economic growth," said Lamar Smith, chairman of the committee and a Republican from Texas. Witnesses of the hearing questioned the legality of the climate agreement, as well as Obama's pledge. Smith said the president's pledge appears to lack constitutional legitimacy because it has not yet been ratified by the Senate.

    Can the WTO Take a Lesson from the Paris - Robert Stavins  - As readers will know from my previous entry at this blog (“Paris Agreement — A Good Foundation for Meaningful Progress”, December 12, 2015), I was busy with presentations and meetings during the 21st Conference of the Parties (COP-21) of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris last December. However, I did have time to reflect on the process that was leading to the then-emerging Paris Agreement, including a series of discussions with my Harvard colleague – Professor Robert Lawrence, a leading international trade economist –who was back in Cambridge. He and I realized that negotiators in a very different realm – international trade – could benefit from observing the progress that was being made in the international climate policy realm in Paris. This led to a co-authored op-ed that appeared in the Boston Globe on December 7, 2015 (“What the WTO Can Learn from the Paris Climate Talks”). For many years, climate negotiators have looked longingly at how the World Trade Organization (WTO) was able to negotiate effective international agreements. But ironically, the Paris climate talks and the WTO negotiations, which were set to take place the following week in Nairobi, lead to the opposite conclusion. Trade negotiators can now emulate the progress made in the climate change agreements by moving away from a simplistic division between developed and developing countries.  For years, global climate change policy was hobbled by this division. Readers of this blog will be familiar with this issue. In the Kyoto Protocol, only developed countries committed to emissions reductions. Developing countries had no obligations. The stark demarcation made meaningful progress impossible, partly because the growth in emissions since the Protocol came into force in 2005 has been entirely in the large developing countries. Even if developed countries were to eliminate their CO2 emissions completely, the world cannot reduce the pace of climate change unless countries such as China, India, Brazil, Korea, South Africa, Mexico, and Indonesia take meaningful action.

    The Paris deal is done, but how credible are the pledges?  - There were many reasons why the Paris Summit succeeded in delivering a sweeping international climate agreement where other conferences had faltered - French diplomacy, President Obama's pursuit of a green legacy, China's renewables boom - but chief amongst them was the adoption of  a system of voluntary national climate targets in the months leading up to the historic meeting. Known as Intended Nationally Determined Contributions, or INDCs, once the deal is signed by almost 200 countries in New York in April, these national climate action plans will become simply Nationally Determined Contributions (NDCs) - providing the solid bedrock of the world's strategy for tackling climate change.  But while attention in the run up to the conference was focused on increasing the ambition of these emissions reduction targets, attention is now beginning to shift to how countries will actually deliver them.  Unlike the Kyoto Protocol, which had some forms of penalties for countries who did not comply with imposed emissions targets - such as being banned from international emissions trading schemes - the Paris Agreement purposefully avoided the threat of putative measures. Instead, it sets up a framework for international assessment of global emissions through a stock taking process to periodically check how countries are doing against their pledges, although the details of exactly how this will be done are yet to be worked out.

    Bending the Global CO2 Concentration Curve? - I look at the black line (which removes the annual cycle) below of global  CO2 concentration over the years 2011 to 2015 and I see a straight line rising over time.  At the start of 2016, the global concentration of carbon dioxide  is roughly 3% higher than it was in 2011.   If this growth rate continues, then in 2021 --- the global concentration will be 414 and in 2026 it will be 426 and in 2040 it will be 439.  If you stare at the black line, you will see that it accelerated in late 2015.  This is a time of slow global economic growth.   The flattest part of the black line took place at the start of 2011.  As the world economy and population grows, how will global emissions decline?  How will emissions decline by 80% of their current levels?    In the absence of a carbon tax, how does this happen?

    Transition to low carbon energy will be “extremely difficult,” energy official says - Fuel Fix: Two months after world leaders made a historic pact in Paris to try and limit climate change comes the work of figuring out how. The shift from a fossil-fuel intensive energy sector to a low-carbon one — without disrupting the flow of energy upon which the world turns — is going to be “extremely critical and extremely difficult,” Melanie Kenderdine, U.S. Department of Energy director of energy policy and systems analysis, warned Wednesday. “I have always worried about the transition space,” she said during a talk at the Atlantic Institute. “You’ve got to be very careful about the policy, so you’re incentivizing the right things.” The comments come as the United States and countries around the world work on cutting greenhouse gas emissions to the point the earth’s temperature does not rise more than two degrees Celsius. Kenderdine pointed to how the U.S. power sector shifted heavily to coal in the 1970s following a nuclear meltdown at the Three Mile Island nuclear plant and a U.S. ban on building natural-gas fired plants — prefaced on what turned out to be an incorrect belief the country was running out of gas. This time, federal policy makers worry about what mechanism to use in pricing carbon and how developing countries with abundant coal resources will comply with the Paris agreement when they’re rushing to expand their electricity grids.

    State of The Transition, mid – late January: Oil oversupply, shale bankruptcies, gas leaks, and a whiff of securities fraud - A Shell veteran of 35 years requests the company pension fund he depends on to divest from fossil fuels and reinvest in clean energy. A geoscientist currently working for an oil and gas major quits to take qualifications in renewable energy. These are the stories the latest two commenters on my website tell. The great global energy transition will play out in countless small dramas like this. But reminders of the over-arching global narrative, that we are in a race against time, are remorseless. And setbacks in the post-Paris world can be expected in parallel with steps forward, as the last fortnight illustrates all too well. The oil price has fallen below $30 now: lower than it has been since 2013. The International Energy Agency warns that the oil market may “drown in oversupply” in 2016. The Saudis keep pumping, the warm weather is depressing demand, Iran is re-entering the global market now that nuclear sanctions are over, and so on. Carbon Tracker has exhorted fossil fuel companies to come clean on climate risks, whatever the oil price, in a short report to the World Economic Forum in Davos. We are far from alone in professing that the post-Paris world requires this. PWC leads the list of those also warning in January of stranded-asset risk in the oil and gas sector. The full disclosures that investors need in order to weight risk of stranded assets and other climate-related downsides should not be long coming. Michael Bloomberg has announced the membership of his elite Climate Risk Disclosure Task Force, which will include Unilever, Axa, Blackrock and JPMorgan. Anyone who reads the last few chapters of The Winning of The Carbon War can have little doubt about the likely tenor of their recommendations, due in March.

    U.S. Economic Growth Decouples From Both Energy And Electricity Use -- Joe Romm --In a stunning trend with broad implications, the U.S. economy has grown significantly since 2007, while electricity consumption has been flat, and total energy demand actually dropped. “The U.S. economy has now grown by 10% since 2007, while primary energy consumption has fallen by 2.4%,” reports Bloomberg New Energy Finance (BNEF) in its newly-released 2016 Sustainable Energy in America Factbook. BNEF’s Factbook, which is chock full of excellent charts and data, cites studies attributing most of this change to improvements in energy efficiency.  Equally remarkable, this “decoupling” between energy consumption and GDP growth extends to the power sector: “Since 2007, electricity demand has been flat, compared to a compounded annual growth rate of 2.4% from 1990 to 2000.” As I discussed in my recent renewables series, this decoupling is an unprecedented achievement in modern U.S. history. It may seem especially remarkable for an economy underpinned by soaring usage of the internet and electronic equipment — but as I wrote in a 1999 report, a true Internet-based economy was always likely to be a more efficient economy. The decoupling of GDP growth from energy and electricity consumption has been a key reason the United States has been able to reduce its overall greenhouse gas emissions since 2005. In particular, flat electricity demand has meant that the explosive growth in renewables and natural gas power has come directly at the expense of dirty coal, as this 2016 Energy Information Administration chart shows:

    This Solar Road Will Provide Power to 5 Million People - The French government plans to pave 1,000 kilometers (621 miles) of its roads with solar panels in the next five years, which will supply power to millions of people. “The maximum effect of the program, if successful, could be to furnish 5 million people with electricity, or about 8 percent of the French population,” Ségolène Royal, France’s minister of ecology and energy, said according to Global Construction Review. France’s Agency of Environment and Energy Management said that 4 meters (14 feet) of solarized road would be enough to supply the electrical needs of one household, excluding heat. One kilometer (0.62 miles) will supply enough electricity for 5,000 residents. The project is the result of five years of research between French road construction company Colas and the French National Institute of Solar Energy. The project, “Wattway,” was introduced last October. The technology consists of extremely thin (7 millimeters) yet durable panels of polycrystalline silicon that can transform solar energy into electricity. The panels are also said to be 15 centimeters wide and heavy-duty skid resistant to reduce auto accidents. “These extremely fragile photovoltaic cells are coated in a multilayer substrate composed of resins and polymers, translucent enough to allow sunlight to pass through, and resistant enough to withstand truck traffic,” Colas said in a press release. The panels are rainproof and have passed snowplow tests “with flying colors,” according to the Wattway FAQ page. The company also boasts that their panels can last as long as conventional pavement, or 10 years depending on the traffic. Wattway panels can last roughly 20 years if the section is not heavily trafficked, such as stadium parking lot. In terms of efficiency, Wattway said its panels have a 15 percent yield, compared to 18-19 percent for conventional photovoltaic panels.

    Wind power critics upset by scale of newly proposed Maine projects -  -- Citizen groups that oppose large-scale wind power development in Maine reacted strongly Tuesday to news that developers were proposing numerous wind farms in the state that would supply clean energy to southern New England. The groups have been fighting several of the projects individually, but were alarmed at the overall scale of the combined proposals. “This will turn Maine into a wind plantation,” said Chris O’Neil, a spokesman for Friends of Maine’s Mountains. Maine figured prominently this week in a multibillion-dollar competition to provide power to Connecticut, Rhode Island and Massachusetts, with companies submitting bids to build giant wind farms in Aroostook County and the western mountains. Together the projects would more than triple the state’s turbine capacity, but the power would not be sold in Maine. O’Neil said southern New England states were shuttering nuclear, oil and coal plants in their quest for cleaner power, but not taking responsibility for replacing the lost generation. “They’re jumping off a cliff and expecting Maine to bail them out,” he said. But energy officials and industry representatives in Maine were tamping down impressions that all or even most of these projects would be built. “I’ve been trying to get the public prepared for this and not think that all of these projects will be developed,” said Patrick Woodcock, Gov. Paul LePage’s energy director. “In fact, under the request-for-proposals, it’s not even possible for all of them to be chosen.”

    Ethanol Mandate, a Boon to Iowa Alone, Faces Rising Resistance - Tim Recker has been growing corn in this state his whole life, and using his crops to make ethanol almost as long, at first by the jar for his trucks, now by the barrel for the nation. That is in large part because Congress in 2005 mandated that oil refiners blend ethanol into gasoline. . Recker, a Republican, said his decision at the presidential caucuses on Monday would be driven by what candidates have said about the 2005 law, which created the Renewable Fuel Standard. But beyond the borders of a state with outsize importance in the selection of presidents, ethanol may be losing its grip on the body politic. Energy policy experts, advocates in the fight on poverty and even other farmers say a law that has been a boon for Iowa has been a boondoggle to the rest of the country. The ethanol mandate has driven up food costs while failing to deliver its promised environmental benefits. Rising domestic oil production and a global energy glut have all but nullified the pitch that ethanol would help wean the country off foreign oil.And now a powerful coalition including oil companies, environmentalists, grocery manufacturers, livestock farmers and humanitarian advocates is pushing Congress to weaken or repeal the mandate. As soon as this week, the Senate could vote on a measure to roll back the Renewable Fuel Standard, just days after the Iowa caucuses close and the issue largely goes to rest for another four years. Even here, as Iowa urbanizes and diversifies, ethanol may be losing its once-powerful hold, some political consultants say. Senator Ted Cruz of Texas, one of the Republican front-runners in Iowa, has called for an end to subsidies for all forms of energy, as well as a five-year phasing out of the renewable fuel mandate that created the ethanol economy here. That position drew an unusual repudiation from Iowa’s governor, Terry E. Branstad, a Republican who has not endorsed any candidate. “It would be a big mistake for Iowa to support him,” Mr. Branstad told reporters at a forum held by the Iowa Renewable Fuels Association. At the same forum, the other front-runner, Donald J. Trump, said he was “100 percent” behind the ethanol mandate and would even support increasing it further.

    A price floor for U.S. gas -- The national average price for gasoline is $1.80 this week, with a minimum of $1.29 in Tulsa, Oklahoma. The external costs for a gallon of gasoline, as estimated in a now classic paper, are approximately $2 per gallon. This means that the average American is currently purchasing gasoline at half of its true social cost.   Michael Anderson and I have a nice paper suggesting that one would need to charge a gas tax somewhere significantly north of $2 to make drivers internalize all of the external costs you spew on your fellow citizens faces while hurling your Dodge Hellcat down I-80 at rush hour. But low gas prices have all kinds of negative effects for a society that does not properly tax gas. People drive more and hence cause more congestion. People purchase less fuel efficient cars, since they think gas prices will always stay where they are any given day, which is rational. (What is not, is that folks buy more convertibles on sunny days.) So we drive our bigger cars more on a road network that is falling apart. Bridges and highways are in terrible condition, as has been documented widely. The smartest energy economist I know and Energy Institute colleague, Severin Borenstein, has suggested a perceived outrageous solution to this problem a while back. A price floor for gasoline. Stop the presses! A neoclassical economist suggests a price floor. My version of the idea goes like this. If the price of oil drops below a certain price, say $70 per barrel, gas prices get frozen at the average local historical price for $70 oil. Yes, we would keep gas prices artificially high. This would discourage consumers from driving more and maintain disincentives to purchase really fuel inefficient cars.

    Think crude's cheap? Biodiesel's going for free in some places -- Biodiesel’s become so cheap in the U.S. that some refiners are being paid to use it. Midwest refiners are paying as little as 64.5 cents a gallon for the fuel after factoring in a $1-a-gallon tax subsidy and other credits. Add further incentives offered by California into the mix and some customers are effectively getting biodiesel for free in the Golden State. The cause is twofold. Crude oil’s 71 percent slump since 2014 has dragged down the price of everything from diesel to gasoline. At the same time, the U.S. has shown a renewed commitment to renewable fuels in the battle against climate change, with the Obama administration mandating their increased use. “They got the tax credit and the higher mandate,” . “They’re coming out looking like roses.” In November, the government raised the amount of biodiesel refiners must use to a record. Congress reinstated a $1-a gallon tax credit for using the fuel a month later. The Environmental Protection Agency tracks compliance with the consumption mandate using certificates that are attached to each gallon of biofuel. The tax credit and the value of those certificates lowers the final costs of the fuel, akin to a rebate. California renewable fuel programs such as the Low Carbon Fuel Standard combine with federal subsidies to bring costs down even more. Theoretically, refiners may be getting money back on every gallon, While a physical gallon of biodiesel goes for free in some contracts, the compliance credits that refiners are mandated to purchase cost Tesoro Corp. $30 million last quarter, the company reported Monday. Oil companies must use 1.9 billion gallons of biodiesel this year.

    Senate Democrats block energy bill in impasse over Flint — Senate Democrats on Thursday blocked the first bipartisan energy bill in almost a decade after majority Republicans balked over sending hundreds of millions of dollars in emergency aid to Flint, Michigan, to fix and replace the city’s lead-contaminated pipes. The impasse hardened an increasingly partisan response to the water crisis in Flint as Democrats press for swift help for a majority African-American city of 100,000 and point to the past, rapid response of Republicans to natural disasters in Texas and Florida. Republicans maintained that it was premature to send money until Michigan figures out what it needs and wrong to stall the energy bill. “One hundred thousand people in Flint, Michigan, have been poisoned, and Republicans do nothing” to help them, said Senate Democratic Leader Harry Reid of Nevada. “Nine thousand little children … have been poisoned. Still, Senate Republicans refuse to help.” The vote was 46-50, short of a number necessary to move ahead on the comprehensive legislation. The bill promotes a wide range of energy, from renewables such as solar and wind power to natural gas and hydropower. The legislation also would speed federal approval of projects to export liquefied natural gas to Europe and Asia and boost energy efficiency. Senate Majority Leader Mitch McConnell, R-Ky., said Republicans and Democrats would continue negotiations through the weekend in hopes of salvaging the energy bill.

    How A New Amendment In The Energy Bill May Cause Deforestation --When the first major update to the nation’s energy laws in nearly a decade began last week in the Senate, environmentalists were cautiously sympathetic to it. The bill didn’t open new land for oil and gas drilling, coal was mostly ignored and the Obama administration’s recent climate change policies were left unscathed. But environmentalists around the country are now incensed over an approved amendment categorizing bioenergy as carbon neutral — a move that groups say puts forests and even portions of the Clean Power Plan at risk.“I think it’s a very dangerous amendment,” said Kevin Bundy, senior attorney for the Center for Biological Diversity, in an interview with ThinkProgress. “It tries to dictate that burning forests for energy won’t affect the climate, that’s what the term carbon neutral is supposed to mean and that’s just not true. You can’t legislate away basic physics.”Bioenergy is energy contained in living or recently living organisms. Plants get bioenergy through photosynthesis, and animals get it by eating plants. To use the energy found in biomass, humans have mostly turned to burning trees in a process that, like coal burning, releases the harmful carbon pollution that causes global warming. In part, the renewable nature of plants and their capacity to sequester carbon has meant that the industry, governmental agencies, and environmentalists have been at odds over this energy’s presumed carbon neutrality. What’s more, whether biomass is considered carbon neutral depends on many factors, including the definition of carbon neutrality, feedstock type, the type of technology used, and time frame examined.

    Federal coal sales moratorium shakes industry stronghold - Gillette has bounced through tough times before and pulled through, thanks to coal.Lately the bumps for an industry that's brought wealth and jobs to this town are getting bigger - bankruptcies of major producers, pollution rules that have made burning coal more expensive and the decline of a once-promising export market.Now, another threat has struck coal's remaining U.S. stronghold: A potential end to relatively easy and cheap access to billions of tons of the fuel held in publicly-owned reserves across the West.President Barack Obama's administration has ordered a three-year moratorium on sales of federal coal reserves, and it's putting a rare mood on folks in Gillette, a ranching-turned-energy town of 32,000: pessimism.Until recently, the Powder River Basin of Wyoming and Montana remained a rare bright spot for the industry. Even as Appalachian mines shut down and cheap natural gas started crowding out coal as a power plant fuel, economies of scale kept the region rumbling. Massive strip mines sprawled across tens of thousands of acres, much of it in the Thunder Basin National Grassland, produce roughly 40 percent of the nation's supply of the fuel. For Gillette and other communities, that means more than 7,000 mining industry jobs. And not just fly-by-night, roughneck gigs, but the sort that sustain families year after year, pointed out Michael Von Flatern, a state senator who has lived in Gillette since the early 1970s.

    China Coal Consumption Drops - Here’s what Fatih Birol, executive director of the International Energy Agency, tweeted this morning:  Looks like China’s coal use fell in 2015 as it did in 2014 after rising for decades. Profound implications for energy & climate if continues January 26, 2016. The key two words here are “if continues.” During the Paris climate summit, researchers from the Tyndall Centre at the U.K.’s University of East Anglia and colleagues in the U.S., Australia and Norway approached 2014 and 2015 coal use and emissions data with cautious optimism. Is it a lasting trend, or an anomaly? It’s still too early to say.  Driven mostly by a need to get local air pollution under control, China has put a 2020 cap on coal emissions. Less economic emphasis is being put on energy-intensive industries such as steel manufacturing and big investment continues in renewables. That, combined with an economic slowdown, has contributed to a shifting to a “new normal,” said Glen Peters from Norway’s Centre for International Climate and Environmental Research. “It’s happening faster than we expected.” Assuming the latest data from China is more than just an anomaly, what does that mean in the battle to rein in global GHG emissions? Answering that question means knowing what will happening in India, which was described by the researchers as the big wild card. India’s actions over the next 20 years could make or break attempts to keep average global temperatures from rising above 2 degrees C – let alone keeping such temperatures “well below” that threshold, a target specified in the Paris agreement.

    Scientists to inject fuel in experimental nuclear fusion device — Scientists in Germany flipped the switch Wednesday on an experiment they hope will advance the quest for nuclear fusion, considered a clean and safe form of nuclear power. Following nine years of construction and testing, researchers at the Max Planck Institute for Plasma Physics in Greifswald injected a tiny amount of hydrogen into a doughnut-shaped device — then zapped it with the equivalent of 6,000 microwave ovens. The resulting super-hot gas, known as plasma, lasted just a fraction of a second before cooling down again, long enough for scientists to confidently declare the start of their experiment a success. “Everything went well today,” said Robert Wolf, a senior scientist involved with the project. “With a system as complex as this you have to make sure everything works perfectly and there’s always a risk.” Among the difficulties is how to cool the complex arrangement of magnets required to keep the plasma floating inside the device, Wolf said. Scientists looked closely at the hiccups experienced during the start-up of the Large Hadron Collider in Switzerland more than five years ago to avoid similar mistakes, he said. The experiment in Greifswald is part of a world-wide effort to harness nuclear fusion, a process in which atoms join at extremely high temperatures and release large amounts of energy that’s similar to what occurs inside the sun. Advocates acknowledge that the technology is probably many decades away, but argue that — once achieved — it could replace fossil fuels and conventional nuclear fission reactors.

    Legal battle in North Royalton over new oil and gas well continues into 2016 - – Almost three years ago, Shirley and Kiril Schewzow signed a contract with Cutter Oil Co., allowing the West Salem firm to use their land for a new oil and natural gas well. Under the deal, the Athena Drive couple and 48 other property owners – including the city of North Royalton – would let Cutter drill on a 24-acre site in the Athena-Saturn Drive neighborhood. In exchange, the landowners would share 12.5 percent of the well's proceeds, and receive a signing bonus or "spud fee." Cutter told property owners they might collect $4,000-$5,000 the first year alone. The Schewzows now wish they had never signed. They later learned that North Royalton residents who had entered into previous drilling contracts, in other parts of town, didn't receive the royalties they were promised. "Then we found out they (Cutter) would be fracking," . "I'm scared because of the chemicals. Who knows? Ten-twenty years down the line, it might affect our health." Also, Cutter would dig a directional well, meaning it would drill about 4,000 feet straight down, then horizontally, possibly under houses and yards. Three of the 49 North Royalton property owners – including the city – have refused to lease their land to Cutter, and the firm needs them all under contract to drill the Athena-Saturn well. In 2013, Cutter applied for a "mandatory-land-pooling" permit, which under state law allows drillers to force property owners to lease land if negotiations with holdouts fail. Later that year, the state granted Cutter both mandatory pooling and drilling permits. But the city appealed that ruling, and since then, an ongoing court battle between Cutter, the ODNR and the city has left the matter unresolved.

    Fracking may be coming to Ohio national forest - The U.S. Bureau of Land Management (BLM) is considering opening 31,900 acres under Wayne National Forest for gas and oil drilling, including portions of Athens, Washington and Galia counties.Fracking, or hydraulic fracturing, is a process that involves horizontal drilling to extract shale energy. But some residents and environmental groups in Athens County and southeastern Ohio expressed concern for air and water quality, if fracking is allowed in the Wayne, while offering only limited business opportunities.The leasing of parcels of land by the BLM for sale has been a contentious issue since the idea was proposed in 2011-2012, when an earlier plan we withdrawn, pending further study and analysis of potential environmental impacts. The greatest concern expressed by those opposed to fracking is the potential for gas pollution, and wastewater contaminating local streams.The BLM, which is the primary federal agency handling the process of determining ownership of mineral rights under the Wayne, plans to conduct Environmental Assessments (EAs), before making any decision regarding the possible lease of parcels or whether to pull back. The bureau has stated that it reserves the option to elevate any EA to a full Environmental Impact Statement (EIS).Anthony Scardina, Wayne National Forest Supervisor, acknowledged that “these parcels do have some level of proximity to the Hocking River, and that is a water supply to the city of Athens, and serves a lot of people, so that’s really an issue we’re going to be paying a lot of attention to.” He added, “it’s going to be a parcel by parcel decision, whether we allow leasing in a given area,” and only after a thorough review of environmental concerns.

    Study shows natural gas drilling not contaminating water wells in Carroll County - A three-year study by the University of Cincinnati has determined that natural gas drilling has had no effect on the quality of water coming from wells in Carroll County. The study looked at water quality in five counties — Carroll, Columbiana, Stark, Harrison and Belmont — with a focus on Carroll County, which has been the epicenter of the Utica Shale boom in eastern Ohio. Water was sampled three to four times per year from 23 wells from 2012 to February 2015. A total of 191 samples were taken. Researchers were trying to determine whether hydraulic fracturing, or fracking, creates dangerous levels of methane in well water. “The good news is that our study did not document that fracking was directly linked to water contamination,” said Dr. Amy Townsend-Small of the University of Cincinnati, who presented the findings Thursday at a meeting of Carroll Concerned Citizens. “That’s just in the samples that we took in our study period.” she said. “That’s not to say contamination has not happened in this area or that it hasn’t happened in some of our participants’ wells since we stopped our study last year.” Previous studies have measured methane concentrations in well water in Pennsylvania, but those studies were done after drilling had begun.  In some cases there, water coming from kitchen taps has caught fire because of high levels of methane in it.

    Obama's EPA to Ohio's Anti-Frackers: You're Wrong - - Heartland Institute (blog) Two recent reports on Ohio’s wastewater injection well program discredit chronic allegations by opponents of hydraulic fracturing. These include claims that the creation of such wells leads directly to earthquakes, and that the Ohio Department of Natural Resources has neglected to establish proper regulations to keep Ohioans safe. The first report, released by the U.S. Environmental Protection Agency, responded to a letter signed by 23 anti-fracking groups in Ohio. They demanded a federal audit of ODNR’s well program and asked the agency to override the department’s regulatory authority. They charged ODNR with violating the Safe Drinking Water Act and providing “inadequate public notice and public participation” in the well permitting process.  Contrary to activists’ claims, the EPA concludes that ODNR runs “a good quality program.” It notes that Ohio has “taken concrete steps to address emerging issues, and in particular has adopted regulations to reduce risk from seismic-related activities.” The second report, issued by StatesFirst, a partnership of the (oil industry's) Ground Water Protection Council and the Interstate Oil and Gas Compact Commission, buttresses the EPA’s findings in Ohio. It praises ODNR’s management and communications operations. The StatesFirst report refutes the claim that fracking often causes earthquakes — one of the knee-jerk, frequently parroted arguments of fracking opponents. It concludes that most injection wells “do not pose a hazard for induced seismicity” and that “only a few dozen … wells are believed to have induced felt earthquakes.”

    Gulfport Energy reports big jump in proved reserves, mostly in Ohio’s Utica Shale - Gulfport Energy Corp. on Tuesday reported a major boost in year-end 2015 proved reserves, mostly in the Utica Shale in eastern Ohio. The Oklahoma-based company reported that year-end reserves grew from 933.6 billion cubic feet of natural gas equivalents to 1.7 trillion cubic feet of natural gas equivalents. That is an increase of 83 percent from 2014 to 2015, the company said. Net production in 2015 averaged 548.2 billion cubic feet of equivalents per day, exceeding the high end of the company’s 2015 guidance, the company said. The daily production in 2015 averaged 78 percent natural gas; 13 percent natural gas liquids including ethane, butane and propane; and 9 percent oil, said Gulfport, one of the biggest players in the Utica Shale. For 2015, the company got an average of $2.08 per thousand cubic feet of natural gas, $42 per barrel of oil and $13 per barrel on natural gas liquids, the firm said. The company is operating four rigs and had, through September, drilled 153 wells in Ohio where it has leased 247,000 acres. Gulfport also announced completion of joint venture with Rice Midstream Holdings LLC, a subsidiary of Pennsylvania-based Rice Energy LLC. Gulfport will own 25 percent of the joint venture and Rice will act as operator and own the remaining 75 percent. Rice will develop gas-gathering assets in eastern Belmont and Monroe counties to support Gulfport’s dry Utica gas drilling. Construction of those lines is underway. A new lateral connecting two existing gas-gathering systems went into service on Monday for Gulfport’s use. The two companies are also discussing joint water services for hydraulic fracturing or fracking of wells in Belmont and Monroe counties. Gulfport also reported that it has arranged transport of additional natural gas from November 2016 through March 2017 because of delays in the ET Rover Pipeline across northern Ohio.

    Natural gas income from Pennsylvania forests takes big fall — A drop in natural gas prices is now also affecting the state of Pennsylvania’s coffers. The state forests department says that lease payments and royalty income from natural gas drilling on state forests dropped by 46 percent. That’s over the first six months of the current fiscal year, compared to the same period a year earlier. The department says royalty and rent income was $68.3 million in the July through December period of 2014. Income dropped to $36.7 million over the same six months in 2015. The money has been used in recent years to both operate and improve the state-owned parks and forests, although its diversion to the Department of Conservation and Natural Resources is the subject of a court challenge.

    Hill Heat : Clinton Goes to Pennsylvania to Reap Windfall from Pennsylvania Frackers -Last night, Hillary Clinton attended a gala fundraiser in Philadelphia at the headquarters of Franklin Square Capital Partners, a major investor in the fossil-fuel industry, particularly domestic fracking. The controversial fracking industry is particularly powerful in Pennsylvania, which will host the Democratic National Convention this July.  Clinton has avoided taking any clear stand on fracking. While she has embraced the Clean Power Plan, which assumes a strong increase in natural-gas power plants, she also supports a much deeper investment in solar electricity than the baseline plan. The pro-Clinton Super PAC Correct the Record, run by David Brock, touts Clinton’s aggressive pro-fracking record. Numerous grassroots groups have risen to oppose the toxic fracking of Pennsylvania and its labor abuses, including Marcellus Protest, No Fracking Way, Pennsylvanians Against Fracking, Keep Tap Water Safe, Stop Fracking Now, and Stop the Frack Attack.  As reported by the Intercept’s Lee Fang, “One of Franklin Square Capital’s investment funds, the FS Energy & Power Fund” the Intercept’s Lee Fang reports, “is heavily invested in fossil fuel companies, including offshore oil drilling and fracking.” The company cautions that “changes to laws and increased regulation or restrictions on the use of hydraulic fracturing may adversely impact” the fund’s performance. Through its fund, Franklin Square invests in private fracking and oil drilling companies across the nation, as well as Canada and the Gulf of Mexico. This includes heavy investment in Pennsylvania frackers.

    Pennsylvania Fracking Water Contamination Much Higher Than Reported -- The U.S. Environmental Protection Agency (EPA) concluded: fracking has had no widespread impact on drinking water. But if you’ve had your ear to the ground in fracking communities, something didn’t sit right with the EPA’s takeaway. Though the gas industry claims fracking is safe and doesn’t harm drinking water, that story doesn’t match what many landowners report from the fracking fields.  At least in Pennsylvania, the reason for this discrepancy comes down to a singular issue: mismanaged record-keeping and reporting by the Department of the Environment (DEP). Based on 2,309 previously unreported fracking complaints unearthed by the non-profit Public Herald, the public can now peek into 1,275 fracking water complaints from 17 of 40 fracking counties.   Contrary to the EPA fracking study’s conclusion, the prevalence of drinking water contamination appears to be much higher than previously reported. Accurate drinking water complaint data is vital to know as Maryland drafts new fracking regulations to potentially welcome the natural gas industry into Western Maryland in 2017.  Officially, Pennsylvania reports 271 confirmed cases of water degradation due to unconventional natural gas operations (a.k.a. fracking). In Pennsylvania, water degradation falls into two camps—reduced water volume or the presence of “constituents” found in higher levels after drilling than before drilling. Constituents can be naturally-occurring, fracking-related chemicals or methane gas than seeps into aquifers and water wells. Homeowners usually know right away if something’s up with their well water. Their tap water’s clarity or color changes, the water smells gross or the well runs dry. What’s harder for homeowners to self-identify is natural gas (methane) migration because methane gas is odorless. Methane is highly flammable and if present at dissolved levels above 28 mg/L requires immediate remediation or the potential for explosions exists.

    Consol Energy misses 4Q profit forecasts, but revenue beats — Consol Energy reported a larger-than expected loss in the fourth quarter, but strong revenue numbers sent shares higher Friday. Like many other energy companies, Consol has had to cut spending on oil production to deal with plummeting oil prices. The coal and natural gas company reported net income of $30.4 million, 13 cents per share, in the fourth quarter, compared with $73.7 million, or 32 cents per share, in the same quarter a year ago. Losses, adjusted for non-recurring gains, came to 11 cents per share. The results did not meet Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for a loss of 5 cents per share. The Canonsburg, Pennsylvania, company said revenue fell 19 percent to $761.9 million in the period, better than the $717.2 million analysts expected. For the year, the company reported a loss of $374.9 million, or $1.64 per share, swinging to a loss in the period. Revenue was reported as $3.11 billion.

    How Marcellus Shale drilling keeps falling in Pa. - As bad as last year was for the Marcellus Shale drilling industry, 2016 is shaping up to be worse. Several major shale-gas operators have announced dramatic cuts in drilling plans for this year. The cuts will inevitably mean less local spending on suppliers, haulers, and construction firms. Seneca Resources Corp., the exploration subsidiary of National Fuel Gas Co., on Friday became the latest operator to tighten its belt. Seneca, which recently operated three drill rigs in northern Pennsylvania, said it planned to cut one of its two remaining drill rigs in March. It also will delay finishing a pipeline from Pennsylvania to western New York to 2017. "For the near term, it's prudent for us to reduce our capital expenditures and maintain the health of our balance sheet," said Ronald J. Tanski, National Fuel's chief executive. Cabot Oil & Gas Corp., whose Marcellus operations are largely in Susquehanna County, also announced plans this week to cut back from two rigs to one. The Houston firm set its 2016 capital budget at $325 million, down 58 percent from last year. EQT Corp., a Pittsburgh producer, said it would cut capital spending to $1 billion from $1.8 billion last year. Southwestern Energy Co. and Consol Energy Corp. earlier announced plans to halt new drilling. Only 19 drill rigs were operating in Pennsylvania on Friday, down 65 percent in the last year, according to the weekly Baker Hughes rig count. Pennsylvania now has fewer drill rigs operating than in 2008, before the shale boom. The culprits are low energy prices, the lack of pipeline infrastructure, and the companies' own zeal for drilling in recent years. Seneca says it has 70 wells drilled but is awaiting hydraulic fracturing before they are done.

    Regulators nix Constitution Pipeline's tree-cutting request — Federal regulators have rejected the Constitution Pipeline Company’s request to cut trees in New York along the proposed route of its 124-mile natural gas pipeline before a critical state permit is issued. The Federal Energy Regulatory Commission notified the company Friday that it could begin tree-cutting in Pennsylvania, which has granted all necessary permits. New York regulators haven’t given a timetable for deciding on a water quality permit. The pipeline would carry natural gas from Pennsylvania’s shale fields to upstate New York. The company said tree-cutting must be done before the end of March to avoid harm to birds and bats during breeding season.

    Deerfield warning Kinder Morgan about trespassing workers - – The Town of Deerfield has issued a warning to Kinder Morgan pipeline employees that they can be arrested. Citing health and safety violations, the Town issued an order for Kinder Morgan to stop all their natural gas pipeline activities. Kinder Morgan has been surveying land in the town. They have asked the state permission to go on private properties, but the Town is saying no. They issued a warning that Kinder Morgan workers will be arrested for trespassing on private property unless they have permission from the land owner. Leigh Wicks of neighboring Montague said that she supports the action of Deerfield’s government. “It’s the right thing to do. First of all, existing laws should cover that. But if they need a sterner message, then it’s up to those of us who oppose the pipeline to let them know how we feel,” Wicks said. Kinder Morgan released the following statement to 22News: We are respectful of private property and landowners’ rights, and do not conduct surveys or other activities without first obtaining advance permission from landowners or an order from an appropriate authority, including the Massachusetts Department of Public Utilities. In issuing its order, Deerfield has exceeded its authority under the applicable federal and state laws.”

    The #1 hit for natural gas markets.  The US natural gas market is in a precarious state. CME/NYMEX futures contract prices have been settling at historic lows for this time of year. Producer returns are dismal in most shale basins.    Yet production volumes remain robust, and the supply/demand balance is way out of whack. The surplus in storage is soaring at more than 500 Bcf above last year and more than 400 Bcf above the 5-year average. It’s clear something has to give. But how will the imbalance get resolved and how will the resolution impact the price of natural gas? To help you navigate market signals and stay ahead of upcoming turning points, today we introduce our new daily NATGAS Billboard: Natural Gas Outlook report featuring storage and price forecasts plus a daily market outlook.  Before we get to our current market outlook, first a bit of background on the new report. We have teamed with our good friends at Criterion Research, including ace gas market forecaster Kyle Cooper to develop NATGAS Billboard – a daily morning update on the U.S. natural gas market. Each morning, we will go through the same exercise that dozens of in-house analysts perform for their trading shops. Taking the latest iterations of the raw fundamental data, (including weather forecasts, pipeline flow data, storage facility postings, weekly electricity demand data, CME/NYMEX price action and the weekly EIA inventory data), we will mesh it all together in our proprietary models and come up with our best interpretation of what it all means for storage and ultimately price. We will then share the answers with you in a clean, concise report. As new data comes in each day, we’ll continue to revise our outlook.

    Highlighting The Report Features - CME/NYMEX Henry Hub gas futures prices are currently struggling to stay above $2.00/MMBtu in the face of milder weather and record high production (closing up slightly at $2.038/MMBtu yesterday February 3, 2016). The market is on edge and at the mercy of daily weather forecast revisions that may signal further downside for prices. At the same time gas demand from power generation could increase in response to lower prices. To help navigate these volatile market conditions, we’ve teamed up with Criterion Research to develop the daily NATGAS Billboard: Natural Gas Outlook report. In today’s blog, we highlight specific features of the report and what they tell us about the market.

    Green groups, residents sue crude-by-rail operator -  A coalition of residents and environmental groups is suing a crude oil transporter, claiming violations of the federal Clean Air Act. The coalition consisting of Albany County, a tenants association and six environmental groups filed the federal lawsuit Wednesday against Waltham, Massachusetts-based Global Partners. The lawsuit claims Global failed to obtain a required air pollution permit and install necessary pollution controls when it modified its permit at the Port of Albany in 2012. The modified permit allowed Global to greatly increase rail shipments of crude oil from North Dakota to Albany for shipment down the Hudson River to refineries. Edward Faneuil, executive vice president of Global Partners, said the company is in compliance with all regulatory and permitting requirements. The coalition includes Earthjustice, Sierra Club, Riverkeeper, Natural Resources Defense Council and others.

    Lawmakers, officials voice opposition to Atlantic drilling — Officials from several New Jersey shore towns joined with some members of the state’s congressional delegation Sunday to oppose federal plans that would allow oil and gas drilling in the Atlantic Ocean. Environmental and tourism groups also took part in the rally on the Asbury Park boardwalk, which drew a crowd of about 200. U.S. Sens. Bob Menendez and Cory Booker and Rep. Frank Pallone, all Democrats, were among those who cited a potential for “catastrophic” oil spills that could cause economic and environmental harm at the Jersey shore and other areas along the East Coast. “The Jersey Shore is one of our most precious natural resources, providing enjoyment for generations of New Jersey families and visitors alike. An oil spill threatens everything we hold dear about the Shore_and we have to do everything in our power to prevent it from becoming a reality,” Menendez said. “Let’s call Atlantic drilling what it is: another handout to the oil industry.” The three federal legislators called on the Obama administration to end its plans to allow oil production off the coast of Virginia, the Carolinas and Georgia. They cited the massive 2010 Deepwater Horizon oil spill in the Gulf of Mexico that caused long-term marine and coastal damage in several Gulf states.

    Collier residents: 'No fracking way' to SB 318 -  As a controversial fracking bill moves forward in the state senate, groups of people lined streets in Naples in protest. Cities would not be allowed to ban oil exploration. A large crowd lined the street in front Senator Garret Richter's office, and their message was clear -- stop fracking and stop Senate Bill 318.  I think if we don't stand up and voice our opinions that we won't be heard," said Collier resident Tiffany Hannett. "Florida's aquifer is a precious resource, and it does not seem like a good idea to put pressurized water and chemicals underneath it. I think it's just asking for disaster." And now Southwest Floridians are taking their voice to the streets with their crosshairs set on the controversial drilling process known as fracking. If SB 318 passes, local ordinances and regulations banning fracking would be replaced with a state permitting. That's not good enough for these people. "It does not push the goals of the people. It does not protect us. It does not give us rights to stand up against the companies and tell them we don't want them doing this where we live," said Hannett. The bill is sponsored by State Senator Garret Richter of Naples. Richter told our news gathering partners at Naples Daily News that the bill would create one uniform set of rules for the state instead of hundreds of local ones. And those rules would consider fracking's impact on the environment.

    Risks trump rewards of fracking  - In a state where the vast majority of drinking water is drawn from the aquifer; in a state whose fresh water is threatened by saltwater intrusion; in a state where overdeveloped areas have sucked up more ground water than is available; in a state famous for sinkholes because of its porous geology, there’s actually serious debate among lawmakers about opening the door to fracking. That state is Florida. The Florida House of Representatives has backed a bill to conduct a fracking study to look at risks and economic benefits of the practice. So exuberant are supporters about the potential benefits, the bill also — if ultimately passed — would bar local governments from imposing moratoriums. That, alone, is reason to call legislative backers on the carpet. The only legislation the state should have regarding fracking is an all-out ban. Fracking — or, hydraulic fracturing — is a process by which tons of fresh water, sand and good-old toxic chemicals are force-fed through rock to extract gas and oil. “Acidization” is the catchy term used for the process. When lawmakers tout the potential for employment opportunities and greater energy independence, realize that their script is being crafted by lobbyists. The United States, as a whole, has made strides toward energy self-sufficiency. The limited areas of Florida where fracking might be effective would be little more than a blip on the national radar. Add to that, grave concerns about the impact of fracking on the environment in states where it is commonplace — states that have suitable geology. Supporters in the Florida House note that while the Department of Environmental Protection would conduct the $1 million study and develop proposed fracking regulations, the rules would have to be ratified by lawmakers. One wonders how many state lawmakers have advanced degrees in geology, hydrology and environmental chemistry.

    Texas Railroad Commission, Mexico Discuss Shale Development  - Mexico energy agencies currently are defining contractual terms for an upcoming auction of contracts related to shale resources to the private sector, the Texas Railroad Commission said in the press statement. The sale is expected to include Mexico’s unconventional assets, just south of the Texas-Mexico border. The portion of the Eagle Ford shale that extends into Mexico is part of the Burgos Basin, where technically recoverable shale gas is projected at 343 trillion cubic feet (Tcf), or two-thirds of Mexico’s technically recoverable shale gas resources. SENER is reviewing key factors that have contributed to the regulatory success of the Texas shale industry. Mexico is estimated to have 545 Tcf of shale natural gas reserves, and unconventional oil reserves of 13 billion barrels. While the initial focus on exploration will likely be on conventional onshore, offshore and deepwater, he three centers of learning conclude that Mexico’s shale resources will play an integral role in the success of Mexico’s energy reform.  However, significant challenges such as oil prices, contract terms offered by Mexico’s government, social license issues and infrastructure must be addressed before shale development can move forward.

    Democrats to propose 2 fracking measures — They haven’t come in yet, but lawmakers on both sides of the political aisle are talking about introducing measures related to the to-do over hydraulic fracturing. Democrats in the Colorado House, where that party has a majority, are expected to introduce two measures later this session, one making it easier for surface property owners to collect damages from mineral rights owners if their properties are damaged, and a second measure to give local governments more regulatory authority over drilling within their jurisdictions. House Speaker Dickey Lee Hullinghorst, D-Boulder, said that second idea is something she highly supports. “I think this bill would be a very reasonable approach,” she said. “I have always felt that’s where you have to get at, the conflict in property rights.” Meanwhile, Republicans in the Senate, where they have control, haven’t said what their plans are yet. Sen. Jerry Sonnenberg, R-Sterling, however, said he is still considering reintroducing an idea he’s proposed before, to bar any locality that bans fracking from receiving any severance tax revenues. On that score, Sen. Ray Scott, R-Grand Junction, has introduced a bill, SB97, to protect severance tax revenues from being grabbed by state lawmakers to balance other parts of the budget, and to increase the amount of direct distributions to local governments.

    Enbridge challenges regulators review of pipeline project — Enbridge Energy and its supporters have accused Minnesota regulators of imposing unreasonable and unlawful procedures that they say will delay construction of a $2.6 billion pipeline to carry North Dakota crude oil across northern Minnesota. Enbridge in a regulatory filing Monday says the Public Utilities Commission’s requirement that a final environmental study be submitted before the pipeline route is formally reviewed will delay the project another four to six months. That would be nearly four years after Enbridge filed its application. The Star Tribune reports the pipeline company cites 17 other projects in which regulators addressed environmental risks in tandem with the permit review. Environmental groups and Indian tribes are concerned the pipeline could damage pristine northern waterways. The Minnesota Chamber of Commerce and labor groups support Enbridge’s challenge.

    Idle Chatter On DUCs And Related Data Points -- I'm going to take a break from blogging in a few minutes. This last note for awhile won't go into much explanation. The audience is intended for those with a pretty good feeling for / a pretty good understanding of the Bakken.  With regard to DUCs, there is a lot of discussion about how fast drillers can bring these DUCs on line. The pessimists suggest with 1,000 DUCs now (and likely to be 1,500 before 2016 is over), and a shortage of frack spreads, it's not going to be easy to get those DUCs on line as fast as some might suggest. I disagree. I think folks will be surprised how fast drillers can get these wells fracked  / clear up the backlog if the price support such action. However, I think there is a much, much bigger "thing" going on. There are two types of drillers out there right now: those with deep pockets, and those with pockets whose change has fallen through the holes.  Those with nearly empty pockets are producing at maximum production; those with deeper pockets are producing just enough to keep things going at the rate they select. As usual, I might be making too much out of this, but I don't think so. I did not cherry pick. I was in the process of updating some things that I had listed earlier as "things to follow up on" and these were the first two items I came across. I am sure there are a hundred similar examples. Bottom line: in addition to fracking DUCs, there are a lot of completed/fracked wells that are being "managed." Those wells can see production surge in less than 30 days. And with all the pad drilling, it will become even more common

    US agrees to environmental review of offshore oil fracking  (AP) — The federal government has agreed to stop approving oil fracking off the California coast until it studies whether the practice is safe for the environment. The agreements filed Friday in Los Angeles federal court settle lawsuits brought by environmental groups that challenged the approval of the practice off Ventura and Santa Barbara. The deals require the Department of Interior to review whether well stimulation techniques such as fracking threaten water quality and marine life. The Environmental Defense Center says the practices have been conducted for years in federal waters with no environmental review and were revealed through the organization’s public records requests. Federal agencies will have to complete the review by the end of May and determine if a more in-depth analysis is necessary.

    In A Victory For Environmentalists, Officials Halt Offshore Fracking Permits In California -- The federal government won’t be issuing any new permits to frack for oil or gas in the waters off California, after a settlement was reached Friday in a case brought by the Center for Biological Diversity. The settlement also directs the U.S. Department of the Interior to analyze the environmental impacts of offshore fracking.   “Every offshore frack puts coastal communities and marine wildlife at risk from dangerous chemicals or another devastating oil spill,” Kristen Monsell, an attorney with the group, said in a statement. “Once federal officials take a hard look at the dangers, they’ll have to conclude that offshore fracking is far too big of a gamble with our oceans’ life-support systems.” In 2013, an investigation by the Associated Press revealed that there were more than 200 instances of fracking operations in state and federal waters off California — which were all unknown to the state agency that oversees offshore oil and gas. The lawsuit alleged the federal regulators were rubber-stamping permit applications.  According to the Center for Biological Diversity, California’s oil industry is allowed to dispose of more than 9 billion gallons of wastewater by dumping it into the ocean off California’s coast every year. The chemicals in fracking can be deadly to marine life, including both fish and California’s beloved, at-risk otter population. “Offshore fracking is a dirty and dangerous practice that has absolutely no place in our ocean,” Monsell said. “The federal government certainly has no right to give the oil industry free rein to frack offshore at will.”

    US to stop approving oil fracking off California coast until review is complete - The federal government has agreed to stop approving oil fracking off the California coast until it studies whether the practice is safe for the environment, according to legal settlements filed Friday. Separate deals reached with a pair of environmental organizations require the Department of the Interior to review whether well techniques such as using acid or hydraulic fracturing, also known as fracking, to stimulate offshore well production threatens water quality and marine life. The practices have been conducted for years in federal waters and were revealed when the Environmental Defense Center filed Freedom of Information Act requests, the organizations said. “These practices are currently being conducted under decades-old plans with out-of-date or nonexistent environmental analysis,” said Brian Segee, an attorney for the Environmental Defense Center. The agreements in Los Angeles federal court apply to operations off Ventura and Santa Barbara counties, where companies such as ExxonMobil operate platforms. Federal agencies will have to complete the review by the end of May and determine if a more in-depth analysis is necessary. They will also have to make future permit applications publicly accessible. A Department of Interior spokeswoman said the agency would comply with the agreement and is committed to safe offshore operations.

    California Attorney General Files Charges Over L.A.’s Natural Gas Leak -- California Attorney General Kamala Harris announced Tuesday that she has filed a lawsuit against Southern California Gas Company, alleging the company failed to report the massive methane leak near Los Angeles in a timely manner.The natural gas, which has been treated with an odorant called mercaptan, is making local residents sick. Since the leak began in October, some 3,000 families have been evacuated from the Porter Ranch neighborhood, about 25 miles northwest of downtown Los Angeles. “The impact of this unprecedented gas leak is devastating to families in our state, our environment, and our efforts to combat global warming. Southern California Gas Company must be held accountable,” Harris said in a statement. “This gas leak has caused significant damage to the Porter Ranch community as well as our statewide efforts to reduce greenhouse gas emissions and slow the impacts of climate change.” So far, the storage well has released more than 91,000 metric tons of methane into the atmosphere. The California Public Utilities Commission was notified of the leak two days after it was discovered, a representative said recently at a public hearing. The suit, which also alleges that SoCalGas has failed to control the leak in a timely manner, claims the company has violated California’s health and safety laws. Harris is acting independently as Attorney General as well as on behalf of the California Air Resources Board.

    Prosecutor smells crime, charges utility for huge gas leak - Top prosecutors in Los Angeles County and the state of California are the latest to make moves against a utility for a massive and still-flowing gas leak, joining a growing group that now includes several levels of government along with parts of the private sector. LA County’s District Attorney Jackie Lacey filed misdemeanor criminal charges Tuesday against Southern California Gas Co. for failing to immediately report the natural gas leak that has been gushing nonstop nearly 15 weeks. Lacey said the charges aren’t a solution to the problem, but the gas company needs to be held responsible for the leak that has uprooted more than 4,400 families. The charges came the same day the state Attorney General Kamala Harris joined a long line of others in suing the gas company for the blowout that has spewed more than 2 million tons of climate-changing methane since October. U.S. senators want the secretary of energy to investigate the leak, and federal regulators are crafting new safety standards for underground natural gas storage facilities. Many nearby residents want the facility — the largest in the West — shut down, and the California Public Utilities Commission is studying what impact that would have on energy supplies. The criminal complaint charges the company with three counts of failing to report the release of a hazardous material and one count of discharge of air contaminants.

    Wrongful Death Lawsuit Filed as SoCalGas Faces Criminal Charges Over Porter Ranch Gas Leak --The Southern California Gas Company (SoCalGas) is under increasing legal fire over the catastrophic Porter Ranch gas leak. The embattled company, which is the primary provider of natural gas to Southern California, is facing potential criminal and civil charges, and now, its first wrongful death lawsuit.  It’s estimated that more than 92,000 metric tons of methane, a powerful climate pollutant, have escaped from the Aliso Canyon natural gas storage facility since the noxious leak was first reported on Oct. 23, 2015. On Jan. 6, California Gov. Jerry Brown declared the leak, which has forced the relocation thousands of residents, a state of emergency. Los Angeles County District Attorney Jackie Lacey announced Tuesday that SoCalGas will face four misdemeanor criminal charges in connection with the gas leak: three counts of failing to report the release of hazardous materials from Oct. 23-26, 2015, and one count of discharging air contaminants, beginning on Oct. 23, 2015, to the present.If convicted in the criminal case, SoCal Gas could be fined up to $25,000 a day for each day it failed to notify state authorities about the leak. An arraignment is scheduled for Feb. 17, Lacey’s office said.Hours earlier, California Attorney General Kamala Harris joined a civil lawsuit filed by the county and city of Los Angeles against the utility. Also on Tuesday, a Pasadena, California family filed a wrongful death lawsuit against SoCalGas on behalf of Zelda Rothman, 79, a longtime Porter Ranch resident who lived less than three miles from the leaking well. The complaint alleges that the leaking gas infiltrated Rothman’s home and surroundings, exacerbating her fragile health. Rothman, who had already been suffering from lung cancer, died on Jan. 25.

    First research links California quakes to oil operations - (AP) — A 2005 spate of quakes in California's Central Valley almost certainly was triggered by oilfield injection underground, a study published Thursday said in the first such link in California between oil and gas operations and earthquakes. Researchers at the University of California at Santa Cruz, the University of Southern California and two French universities published their findings Thursday in a publication of the American Geophysical Union. The research links a local surge in injection by oil companies of wastewater underground, peaking in 2005, with an unusual jump in seismic activity in and around the Tejon Oilfield in southern Kern County. In Oklahoma and other Midwestern states, the U.S. Geological Survey and others have linked oilfield operations with a dramatic surge in earthquakes. Many of those quakes occur in swarms in places where oil companies pump briny wastewater left over from oil and gas production deep underground. "It's important to emphasize that definitely California is not Oklahoma," lead author Thomas Goebel at the University of California at Santa Cruz said Thursday. "We don't really expect to see such a drastic increase in earthquake occurrences" in California given different oilfield methods and geology in the two areas. In Kern County, the shaking topped out on Sept. 22, 2005, with three quakes, the biggest magnitude 4.6, researchers said. Researchers calculated the odds of that happening naturally, independently of the oilfield operations, at just 3 percent, Goebel said. However, the oilfield operation "may change the pressure on ... faults, and cause some local earthquakes" in California, he said.

    Fracking was 'almost certainly' to blame for earthquakes in California in 2005 -

    • Scientists looked at activity near Tejon Oilfield in Kern County
    • Kern County was shaken by three earthquakes in September 2005
    • Increase in oil and gas activity was linked to an unusual jump in tremors 
    • Oil and gas activity also blamed for tremors in areas such as Oklahoma

    A spate of quakes in California's Central Valley was 'almost certainly' triggered by oil and gas activity. Scientists made the discovery after studying a local surge in injection of wastewater underground, peaking in 2005,  The practice, which is used in fracking, was linked to an unusual jump in seismic activity in and around the Tejon Oilfield in southern Kern County. Scientists studied a local surge in injection of wastewater underground, peaking in 2005, The practice was linked to an unusual jump in seismic activity in and around the Tejon Oilfield (pictured) in southern Kern CountyIn Oklahoma and other Midwestern states, the US Geological Survey and others have linked operations with a dramatic surge in earthquakes.Many of those quakes occur in swarms in places where oil companies pump briny wastewater left over from oil and gas production deep underground.The oil and gas industry uses injection wells to get rid of wastewater, which has a high salt content, as well as radioactive material. 'It's important to emphasize that definitely California is not Oklahoma,' lead author Thomas Goebel at the University of California at Santa Cruz said.'We don't really expect to see such a drastic increase in earthquake occurrences' in California given different oilfield methods and geology in the two areas.'

    Crude By Rail Decline Picks Up Pace -- With crude prices below $30/Bbl and the price spread between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent trading in a very narrow range – the economics of moving Crude-by-Rail (CBR) rarely make sense any more.  Rail shipments are down across all regions and railroads are reporting sharply lower revenues from CBR shipments.  Today we start a new series revisiting the regions where CBR traffic boomed a couple of years back and contemplating its future value to shippers and refiners.   We’ve been covering the CBR scene ever since RBN started posting blogs back in 2012 – including our seminal series “Crude Loves Rock’n’Rail” that described how producers turned to rail over pipelines – first in North Dakota and later in other shale basins.  Pipelines have been almost always preferred since then because (once built) their freight costs are generally lower than using rail or trucks. More recently however, surging crude production from shale overwhelmed existing pipeline take-away infrastructure leading to significant constraints and price discounting – particularly in the Midwest – while producers waited for the build out of new pipeline capacity that is typically a relatively slow process taking up to 3 years. As a result, at the end of 2010, producers (led by innovators EOG and railroad BNSF) turned to the rails to deliver crude past congested pipelines to coastal markets where netbacks (crude sales price less transport costs from the wellhead) were considerably higher. The resulting surge saw total U.S. CBR shipments (not including Canadian imports) increase from 33 Mb/d in January 2010 to a peak of 928 Mb/d in October 2014 (as measured by the Energy Information Administration – EIA – see A Look At The Crude By Rail Track Record).

    How to implode an oil train tanker (VIDEO) - If an oil tanker is on the path to destruction, it usually meets its end after a derailment and the [possible] subsequent explosions. But what it would take to make one implode? In their usual tongue in cheek, “don’t try this at home” fashion, the team on the Discovery Channel’s MythBusters recently took on the challenge of destroying an oil train tanker car from the inside out, or outside in — whichever actually proved successful. According to the urban legend under scrutiny, the interior of a crude-by-rail tank car was being steam cleaned when heavy rains hit. The downpour prompted the workers to seal the tank car, trapping the hot steam in the tanker. As the rain cooled the now hot tank car, the air sealed inside compressed, leading to the eventual implosion when the air pressure difference between the inside and out became too great. To test this myth, hosts Adam Savage and Jamie Hyneman practiced some very basic science, but on a monumental scale. . Air is a mixture of gasses that compress with colder temperatures and expand with higher temperatures. If the air pressure within a sealed container is lower than the air pressure on the outside, the pressure from the outside will cause the container to collapse within itself. But to test this effect on an oil tanker required what was dubbed “the largest prop in MythBusters history.” Not only did they need the tank car, but also the railways to move it and a facility large enough to have a portion of it shut down for safety. They found all of the above at the Port of Morrow in Boardman, Oregon. With proper safety measures in place, Savage and Hyneman set out to crush this 67-foot long, 60,000 pound heap of cold rolled steel with half inch walls.

    Oilfield services provider Weatherford to cut 6,000 jobs - (Reuters) - Weatherford International Plc said it would cut about 6,000 jobs in the first half of 2016 as a steep drop in oil prices hurts drilling and exploration activity. The oilfield services provider, which had about 56,000 employees at the end of 2014, cut about 14,000 jobs in 2015. The company also set a capital expenditure target of $300 million for this year, about 56 percent lower than its 2015 spending.

    OPEC’s Serious Decline Forecast For U.S. Shale Is Exaggerated -- OPEC is betting that its price war to reclaim market share, mostly from drillers in North America, will force reduced investment in the region this year, “rebalancing” prices that have fallen dramatically over the past 19 months. But the latest news on American output and consumption is sending mixed messages. OPEC’s latest Monthly Oil Market Report, released Jan. 18, forecasts greater demand for its own oil in 2016 as competitors, hamstrung by low prices, continue to cut back severely on capital expenditures for production, reducing the oil glut caused by the group’s competitors. “It will … be the year when the rebalancing process starts,” the report said. “After seven straight years of phenomenal non-OPEC supply growth, often greater than 2 [million barrels per day], 2016 is set to see output decline as the effects of deep capex cuts [by non-OPEC producers] start to feed through.” OPEC’s forecast may even turn out to be correct, but the closing days of 2015 tell a slightly different story, according to data from the U.S. Energy Information Administration (EIA) and Statistics Canada.The EIA reported Friday that overall production in the United States in November declined by 52,000 barrels per day to 9.32 million barrels per day, the lowest since June. The drop is primarily attributable to a decline of 57,000 barrels per day in the Gulf of Mexico, but this was offset somewhat by a rise of about 3,000 barrels per day in Texas and 5,000 barrels per day in North Dakota, both shale oil sources.  Even though these data may be two months old, they give traders clues to how soon the U.S. shale boom may decline or even bust altogether. Yet shale production in November was much greater than the 9.05 million barrels that IEA had forecast in October. This only adds to the current oil glut.

    Harold Hamm Expects $60 Oil, Says America Will Double Output Again - The fracking tycoon has cut capex at Continental Resources, but refuses layoffs. He says he’ll need all his staff for the new boom to come. Any hope of Russia and Saudi Arabia agreeing to an oil production cut is nothing but a daydream. Industry layoffs are continue. The U.S. rig count has reached a new low, down to 591 from 1,285 at the peak. Even Chevron reported a surprise loss for the fourth quarter — when oil prices were at least a little higher than now. More than $60 billion worth of outstanding oil company debt is already in distress or default, with another $50 billion rated B, or well below investment grade. Particularly disturbing for equity investors: according to Bernstein Research the average U.S. exploration and production company are still priced as if oil prices were $58 a barrel. West Texas Intermediate closed last week at $33.62. At times like this it helps to turn to a reliable bull. So last week  paid a visit to Harold Hamm at the Oklahoma City headquarters of his Continental Resources. Hamm (as detailed in this 2014 Forbes cover story, and this follow-up a year ago) has been one of the true pioneers of the Great American Oil Boom. At the peak of his fortunes Hamm’s controlling stake in Continental was worth upwards of $18 billion. It’s since fallen back to $4.5 billion. We sat down for a chat the day after Hamm announced that Continental would slash its 2016 capital spending to $920 million — a 66% cut from last year’s level. His objective is for Continental to live within its cash flow for the first time in years. Assuming an average oil price of $40 a barrel, Continental expects its new plan to generate excess cash flow of $100 million in 2016.

    Shale Shock: Big Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens - One of the great unknowns facing the US shale industry, and threatening the recurring rumors of its imminent demise, is how it is possible that despite the collapsing number of oil wells, and despite the plunge in crude prices which supposedly are well below all-in shale extraction costs, does production not only refuse to decline, but in fact has been largely increasing in thepast 6 months, with just a modest decline in recent weeks. The answer may come as a surprise not only to industry pundits, but certainly to Saudi Arabia, whose entire strategy has been to keep pressure the price of oil low enough for long enough to put as many "marginal producers" in the US shale space out of business as possible. According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S. E&Ps than analysts originally thought. The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.  The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play. These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up  with a single threshold for U.S. shale producers. The full list of breakevens by county is shown below:

    The US bet big on American oil and now the whole global economy is paying the price - Quartz: Oil has wrong-footed our leading experts—again. At the beginning of 2014, the world was marveling in surprise as the US returned as a petroleum superpower, a role it had relinquished in the early 1970s. It was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investment and millions of new jobs. Two years later, faces are aghast as the same oil has instead unleashed world-class havoc: Just a month into the new year, the Dow Jones Industrial Average is down 5.5%. Japan’s Nikkei has dropped 8%, and the Stoxx Europe 600 is 6.4% lower. The blood on the floor even includes fuel-dependent industries that logic suggests should be prospering, such as airlines. China’s slowing growth is one big reason. Another, according to analysts, is the direct or indirect fault of oil prices, which are still down 5% this year despite a week-long bullish run, and about 70% since their June 2014 peak, with much uncertainty how much they will rise from here in 2016. The misread of the market again illustrates oil’s unfathomability—despite being studied microscopically for 140 years by some of the highest-paid quants and analysts on Earth, oil confounds with maddening regularity. But it also reflects the tendency of analysts to eagerly embrace a new financial trend first, and only later examine what could happen should it proceed to its natural extremes before suffering the seemingly inevitable hit.

    Bernie Sanders Will Ban Fracking. Hillary Clinton 'Sold Fracking to the World' - Nothing illustrates the primary difference between Bernie Sanders and Hillary Clinton better than the following Huffington Post article by Brad Johnson titled On Eve of Caucuses, Clinton Rakes in Fracking Cash: Less than a week before the Iowa caucuses, Hillary Clinton attended a gala fundraiser in Philadelphia at the headquarters of Franklin Square Capital Partners, a major investor in the fossil-fuel industry, particularly domestic fracking. The controversial fracking industry is particularly powerful in Pennsylvania, which will host the Democratic National Convention this July. ... The pro-Clinton Super PAC Correct the Record, run by David Brock, touts Clinton's aggressive pro-fracking record. Clinton's brazen acceptance of funding from interests promoting fracking, and all the hazards that result from fracking, speaks volumes. From an environmentalist's perspective, this is the equivalent of Hillary Clinton's prison lobbyist donors. Bernie Sanders never accepted money from corporations involved in fracking, and certainly never accepted money from prison lobbyists. His challenger, on the other hand, is linked to oil and gas contributions that span across the globe. According to Reuters, "the Wall Street Journal reported that the Bill, Hillary and Chelsea Clinton Foundation and the Clinton Global Initiative have accepted large donations from major energy companies Exxon Mobil and Chevron." Clinton's foundations also accepted money from an office of the Canadian government linked to promoting Keystone XL.  For some reason, many Democrats overlook the fact that Clinton promises to uphold a progressive value system, while simultaneously accepting donations from corporations and governments working to undermine these principles.

    Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun -- The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin. Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal. Energy drives the economy and finance steers it. As I stated several times before, the financial industry is driving us over the cliff.  Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015. Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015: Top-U.S.-Shale-Gas-Fields-Production As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011. Here are the production profiles for each shale gas field:  According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high. The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d. Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year. The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d. This was a huge 50% decline from its peak. Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week. There are only 18 drilling rigs currently working in the Haynesville. The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d. As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year. The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.  Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently. The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

    LNG —A Market in Turmoil Moves to Right Itself --Things are not looking so good in the liquefied natural gas sector. LNG prices--both in the spot market and in contracts linked to oil prices—are very low, LNG demand growth is weak or non-existent, and a flood of new liquefaction capacity is coming online. But as we’re starting to see with crude oil, markets thrown out of whack respond; they try to self-heal. Low LNG prices are spurring demand growth in Europe and attracting some new buyers—Egypt, Jordan and Pakistan among them. The pace of liquefaction-capacity expansions is slowing. And Asia may finally get an LNG hub, which would only improve LNG’s long-term prospects there. Today, we continue our look at the fast-changing international market for LNG with an assessment of demand and destinations.  As we said in Episode 1 of our series, 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 the expectations that natural gas from the Marcellus, the Eagle Ford and other prolific shale plays would be so plentiful (and so inexpensive) that the U.S. could garner a significant share of global LNG trade--and that international LNG demand would be soaring (see our A Whole New World blog series and our LNG Is a Battlefield Drill Down report). The biggest leg-up for prospective U.S. LNG exporters appeared to be the yawning gap between the combined cost of securing gas, liquefying it, and shipping the resulting LNG to Japan, South Korea or China and the (mostly crude oil-indexed) prices that those countries were paying Indonesia, Qatar and other major LNG exporters for their product. The series-opening blog 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, slowing LNG demand, too much liquefaction capacity) that emerged instead.

    Consequences of a lower crude oil to natural gas price ratio - Prices for CME/NYMEX West Texas Intermediate (WTI) have been on a rollercoaster this week – falling under $30/Bbl one minute then jumping back over $32/Bbl the next. Yesterday (February 4, 2016) WTI closed down 56 Cents at $31.72/Bbl. CME Henry Hub natural gas futures fell back under $2/MMBtu to close at $1.972 yesterday. That left the crude-to-gas ratio (WTI divided by Henry Hub) at just over 16 X – a little higher than the 15 X range we’ve been seeing this year. That is nearly half as much again as the 27X average between 2009 and 2014. The futures market implies that low ratios could continue for years – with December 2024 values implying a ratio of 13.3 X. The potential consequences of these low ratios are dramatic for the natural gas liquids (NGL) business as well as the competitiveness of U.S. natural gas in international markets.  Today we describe the implications. [...] Conclusion: A low oil-to-gas ratio squeezes the NGL business and all its downstream dependencies in petrochemicals. It also makes U.S. natural gas less competitive in world markets. Both of these consequences threaten two widely expected benefits from the Shale Revolution – massive domestic investment in petrochemicals and the export of surplus natural gas production. These consequences flow directly from low oil prices and reiterate the challenge facing the U.S. energy industry to prosper in a low price era.

    Army of Lobbyists Push LNG Exports, Methane Hydrates in Senate Bill - The U.S. Senate has put a major energy bill on the table, the first of its sort since 2007. The 237-page bill introduced by U.S. Sen. Lisa Murkowski (R-AK) — S. 2012, the Energy Policy Modernization Act of 2015 — includes provisions that would expedite the liquefied natural gas (LNG) export permitting process, heap subsidies on coal technology, and fund research geared toward discovering a way to tap into methane hydrate reserves. As we saw with the lifting of the U.S. crude oil export ban, which was part of a broader congressional budget bill, a DeSmog investigation reveals that these provisions once existed as stand-alone bills pushed for by an army of fossil fuel industry lobbyists. The list of lobbyists for S. 2012 is a who's who of major fossil fuel corporations and their trade associations: BP, ExxonMobil, America's Natural Gas Alliance, American Petroleum Institute, Peabody Energy, Arch Coal, Southern Company, Duke Energy and many other prominent LNG export companies. An examination of particular provisions within the bill, and who lobbied for them, tells us much about how the legislative “sausage” is made inside the Beltway. Found on page 171 of the bill, Section 2201 calls for U.S. government agencies to perform expedited LNG export permitting processes. More precisely, the language reads that “not later than 45 days after the conclusion of the review to site, construct, expand, or operate” an LNG export facility, the U.S. government should make a permitting decision. Upon introduction of the bill, U.S. Sen. Michael Bennet (D-CO) boasted in a press release that the sub-section is actually based on an earlier bill he co-sponsored with U.S. Sen. John Barrasso (R-WY). That is, the LNG Permitting Certainty and Transparency Act (H.R. 351), a bill lobbied for by the likes of ExxonMobil, BP, Chevron, Chesapeake Energy, America's Natural Gas Alliance, American Petroleum Institute, Berkshire Hathaway Energy and others. “Our LNG exports provision will help grow Colorado's natural gas sector,” Bennet said of the bill's introduction. “And expediting the approval process for LNG exports will support Colorado jobs by helping natural gas producers in our state expand to new overseas markets.”

    Obama Proposes $10/Barrell Oil Tax To Fund Government Transportation Investments --Moments ago, Politico reported that in his final budget, Obama is set to unveil an ambitious plan for a “21st century clean transportation system.” which will be funded by a $10/barrel tax on oil. From Politico: Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion.To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.In other words, while there may be excess supply of about 3 milion barrels daily according to Saudi Arabia, suddenly demand is about to fall off a cliff as the price of oil surges thanks to Obama's latest brilliant intervention in the "free market", one which would result in a roughly 30% tax to E&P companies.The good news: it won't pass...There is no real chance that the Republican-controlled Congress will embrace Obama’s grand vision of climate-friendly mobility in an election year—especially after passing a long-stalled bipartisan highway bill just last year—and his aides acknowledge it’s mostly an effort to jump-start a conversation about the future of transportation. ... at least not in the current congress. But what about next time?

    Obama seeks $10-per-barrel oil tax to fund clean transport — President Barack Obama wants oil companies to pay a $10 fee for every barrel of oil to help fund investments in clean transportation that fight climate change. Obama will formalize the proposal Tuesday when he releases his final budget request to Congress. The $10-per-barrel fee is expected to be dead on arrival for the Republicans who control Congress and oppose new taxes and Obama’s energy policies. Still, the White House hopes the proposal will drive a debate about the need to get energy producers to help fund such efforts to promote clean transportation. The White House said the $10 fee would be phased in over five years. The revenue would provide $20 billion per year for traffic reduction, expanding investment in transit systems and new modes of transportation like high-speed rail. It would also revamp how regional transportation systems are funded, providing $10 billion to encourage investment that lead to cleaner transportation options. The White House said the tax would provide for the long-term solvency of the Highway Trust Fund to ensure the nation maintains its infrastructure. The added cost of gasoline would create a clear incentive for the private sector to reduce the nation’s reliance on oil and drive investments in clear energy technology. The American Petroleum Institute projected that the fee would raise the cost of gasoline by 25 cents a gallon. “At a time when oil companies are going through the largest financial crisis in over 25 years, it makes little sense to raise costs on the industry,” added Neal Kirby, a spokesman for the Independent Petroleum Association of America. “This isn’t simply a tax on oil companies, it’s a tax on American consumers who are currently benefiting from low home heating and transportation costs.

    Obama Proposes $10 Per Barrel Oil Tax To Fund Clean Transportation — Here’s How Republicans Responded - President Obama’s budget request next week will include plans for a $35-billion-per-year clean transportation plan, funded by a $10 per barrel tax on oil, phased in over five years. In a fact sheet about the president’s “21st Century Clean Transportation System,” the White House detailed how this new fee on the oil industry would boost federal funding for clean transportation by 50 percent, and help create “hundreds of thousands of good-paying, middle-class jobs each year.” The priority would be to reduce greenhouse gas emissions from the transportation sector, which is responsible for nearly a third of U.S. emissions. Last year, congress did pass a transportation bill, though the White House called it “merely a first step towards what our economy needs, with only a modest increase in infrastructure funding.” Theoretically, this is an excellent time to raise fees on oil, with the global glut causing the price of Brent crude to fall below $30 per barrel at the end of last year, and Wall Street not predicting that to change much any time soon.  Sen. John Barrasso (R-WY) said “Congress should and will reject it,” according to Politico transportation reporter Lauren Gardner. Industry figures responded the same way. Oil billionaire T. Boone Pickens said on Twitter that it would purposely bankrupt the oil and gas industry. He also tweeted: Don't know where to start. Dumbest idea ever? #crazytalk RT @politico: Obama to propose $10-a-barrel oil tax House Majority Whip Steve Scalise (R-LA) called the plan “Dead on Arrival”: Obama’s worst idea yet? Oil tax that could cost $.25/gallon at the pump  House Speaker Paul Ryan (R-WI) said in a statement that the “president should be proposing policies to grow our economy instead of sacrificing it to appease progressive climate activists,”

    Take 2 Minutes To Learn Why Obama’s $10 Fee On Oil Is So Important -- A forthcoming White House proposal to put a $10 per barrel fee on oil essentially amounts to a partial tax on carbon.  Over the next decade, that fee, to be paid by oil companies, would fund $300 billion of investments in mass transit, high-speed rail, self-driving vehicles and other forms of transportation that reduce dependence carbon, according to Politico. It's long overdue. Companies currently spew carbon emissions into the atmosphere with impunity. Those emissions, largely in the form of carbon dioxide, serve as greenhouse gases that warm the planet and have begun to drastically alter the climate. Without severe intervention by business leaders and governments, the planet is expected to warm by more than 2 degrees Celsius above pre-industrial temperatures. At that point, human civilization -- particularly that which is situated along coastlines -- will be in jeopardy or, to be frank, underwater. One long-proposed solution has been to put a tax on carbon, thereby financially incentivizing polluters to emit less and ultimately wean off fossil fuels.  According to the World Bank, which made the animation above, there are two main types of carbon taxes:

      • An [Emissions Trading Systems] – sometimes referred to as a cap-and-trade system – caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters.
      • A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels. It is different from an ETS in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.

    President Obama's proposal, expected to be made public next week, could provide a third possible option.

    Falling oil prices push Chevron to first loss since 2002 — Chevron suffered its first money-losing quarter since 2002 in the final three months of last year, as plunging crude prices chopped more than one-third from its revenue. Oil traded this month at levels not seen since 2003, although it has rebounded slightly in the last few days. Cheaper energy is great for consumers, who save with every fill-up, but oil-producing nations and big exploration companies like Chevron and Exxon are paying the price. Chevron is cutting spending, laying off workers, and looking to sell even more of its assets. The problem with that strategy: It’s a buyer’s market right now for oil facilities, with too many for-sale signs. The company has sold off $11 billion worth of facilities such as pipelines over the past two years and hopes to raise up to $10 billion more with sales through 2017. Company executives say, however, that they won’t unload assets at fire-sale prices just to get rid of them. Oil prices are down because growth in demand has slowed and cannot absorb a glut of oil on the market. On a conference call with analysts, Chevron CEO John Watson said he thinks energy demand will grow but that supply is a wild card. Watson pointed to forecasts that predict increasing cuts in production by non-OPEC nations could restore the market to balance this year. But until that happens, he said, prices will stay low “and the financial damage to the energy sector seen in 2015 will continue.”

    Anadarko reports $1.25 billion loss in 4Q -- Anadarko Petroleum posted a loss of $1.25 billion in the fourth quarter. The Texas-based company plans to slash nearly half of its budget next year as it weathers plunging oil prices. For the year, Anadarko posted losses of $6.69 billion, or $13.18 per share. Anadarko CEO Al Walker said the company’s decision not to expand drilling programs in 2015 paid off because oil and gas markets have not yet recovered from a prolonged slump. “We did not expect oil prices to recover in 2015 and believed it could take well into 2016 before markets would stabilize on a sustained basis, costs would become more aligned with the new operating environment and investments in short-cycle assets would be more attractive,” Walker wrote in a statement. “Therefore, value enhancement drove our capital-allocation philosophy.” Anadarko expects to spend $2.8 billion in capital this year, about 50 percent less than last year. In 2015, the company cut its capital budget by 40 percent. Since the start of the year, Anadarko shares have fallen 21 percent. Anadarko shares sat at $38.22 on Monday evening, down 53 percent over the past year.

    BP Reports 91% Plunge in 4th Quarter Earnings: — British oil company BP says its fourth-quarter earnings plunged because of a sharp declines in oil prices.The company reported Tuesday that fourth-quarter underlying replacement cost profit fell 91% from the same quarter a year earlier to $196 million. The figures were reported using an oil industry accounting standard that takes into account fluctuations in the price of oil and excludes non-operating items.Oil companies are slashing jobs and delaying investments as crude prices plummet. Brent crude, the benchmark for North Sea oil, fell 34% last year and hit a 12-year low of $27.10 a barrel in January. Brent traded at $34.13 on Monday and traded over $100 a barrel as recently as September 2014.BP says its net loss narrowed to $3.3 billion from $4.4 billion a year earlier.

    BP reports biggest ever annual loss - (Reuters) - BP slumped to its biggest annual loss last year and announced thousands more job cuts on Tuesday, showing that even one of the nimblest oil producers is struggling in the worst market downturn in over a decade. The British oil and gas company, which is still grappling with about $55 billion of costs from the oil spill in the Gulf of Mexico in 2010, said it would cut 7,000 jobs by the end of 2017, or nearly 9 percent of its workforce. BP said it lost $6.5 billion in 2015 and its fourth-quarter underlying replacement cost profit, which is the company's definition of net income, came in at $196 million, well below analyst expectations of $730 million. BP shares fell as much as 8.5 percent and were 8.1 percent lower at 1136 GMT, the worst performer on the pan-European FTSEurofirst 300 index and on track for their biggest one-day fall since June 2010. The company's 2015 loss shows that even its "shrink to grow" strategy adopted after the Macondo rig explosion in 2010, hailed as the best preparation for a weak oil market, was unable to buffer the impact of the lowest oil prices since 2003. "Should low oil prices prevail, they're a quarter or two away from having to cut the dividend, or divest some more assets,"

    Exxon's 4Q and annual profit plunge with oil prices — The big plunge in oil prices is taking Big Oil’s profits down. Exxon Mobil Corp. said Tuesday that fourth-quarter profit fell 58 percent to $2.78 billion. It was the oil giant’s smallest profit since the third quarter of 2002. Exxon’s core exploration and production business lost money in the U.S. and international earnings plummeted by nearly two-thirds. One of the few bright spots, Exxon’s refining operations, was more profitable than a year ago. That helped Exxon avoid the fate of rival Chevron Corp., which lost money in the fourth quarter. Britain’s BP said Tuesday that its profit tumbled more than 90 percent. Exxon shares fell 2 percent to $74.70 in trading before the opening bell. The amount of oil on the market remains is at extraordinarily high levels and producers, with prices so low, continue to drill just to earn what they can. Exxon’s production rose nearly 5 percent. In 2015, the company pumped oil and natural gas equal to 4.1 million barrels a day. CEO Rex Tillerson called it a “challenging environment,” but said the company is generating enough cash to continue investing in the business. Exxon’s profit fell from $6.57 billion a year earlier, when oil prices were already beginning to tumble. The Irving, Texas, company was still able to put up per-share earnings of 67 cents, which was 3 cents better than beat Wall Street had expected, according to a survey by Zacks Investment Research. Revenue fell to $59.81 billion, beating the $50.85 billion according to a poll by the data firm FactSet. For all of 2015, Exxon earned $16.15 billion, or about half what it earned in 2014.

    Shell Reports a 44% Drop in Earnings Amid Oil Price Slump: — Royal Dutch Shell said fourth-quarter earnings tumbled 44% as the collapse in oil prices took its toll on another European oil company.Profit adjusted for changes in the value of inventories and one-time items dropped to $1.83 billion from $3.26 billion in the same period a year earlier, the Anglo-Dutch energy giant said Thursday.The results came days after Shell sealed a 47-billion-pound takeover of BG Group Plc, which will increase the company’s proven reserves of oil and natural gas by 25%. While critics questioned the deal because of the plummeting price of oil, CEO Ben Van Beurden compared it to the bold moves that have defined the industry and promised it would rejuvenate Shell.The BG deal comes as Shell and other oil companies are slashing jobs and postponing investments to adjust the bottom line to the dramatic circumstances.Jobs will also be eliminated in the Shell-BG deal. In a trading statement unveiled just before shareholders voted on the BG merger, Shell said last month that streamlining and integration from the deal would include the loss of 10,000 staff and contractor positions across both companies in 2015-2016.“In 2015, we significantly curtailed spending by reducing the number of new investment decisions and designing lower-cost development solutions,” Van Beurden said. “Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that.”

    ConocoPhillips Reports Fourth-Quarter and Full-Year 2015 Results; Lowers Quarterly Dividend and Revises 2016 Operating Plan Guidance - ConocoPhillips reported a fourth-quarter 2015 net loss of $3.5 billion, or ($2.78) per share, compared with a fourth-quarter 2014 net loss of $39 million, or ($0.03) per share. Excluding special items, fourth-quarter 2015 adjusted earnings were a net loss of $1.1 billion, or ($0.90) per share, compared with fourth-quarter 2014 adjusted earnings of $0.7 billion, or $0.60 per share. Special items for the current quarter related primarily to non-cash impairments due to price impacts and changes to future exploration plans, partially offset by net gains on asset sales.  The company announced that its board of directors approved a reduction in the company’s quarterly dividend to 25 cents per share, compared with the previous quarterly dividend of 74 cents per share. The dividend is payable on March 1, 2016 to stockholders of record at the close of business on Feb. 16, 2016. The company also announced revisions to its previously disclosed 2016 operating plan. The company lowered capital expenditures guidance from $7.7 billion to $6.4 billion and operating cost guidance from $7.7 billion to $7.0 billion. Production in 2016 is expected to be approximately flat with 2015 volumes, adjusted for the full-year impact of 2015 asset divestitures. “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,”

    ConocoPhillips posts 4th-quarter loss, slashes dividend  — ConocoPhillips posted a wider-than-expected loss in the fourth quarter and slashed its quarterly dividend by 66 percent as oil prices continue to drop. The energy company’s stock fell 4 percent before the market open on Thursday. ConocoPhillips said it is lowering its dividend to 25 cents per share from 74 cents per share. The dividend is payable on March 1 to shareholders of record on Feb. 16. The company also reduced its 2016 capital expenditures outlook and operating cost guidance. Chairman and CEO Ryan Lance said the company was taking such steps to safeguard against falling oil prices. “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,” Lance said in a written statement. ConocoPhillips lost $3.45 billion, or $2.78 per share, for the quarter. That compares with a loss of $39 million, or 3 cents per share, a year earlier. Losses, adjusted for one-time gains and costs, came to 90 cents per share.The Houston company’s quarterly revenue totaled $6.77 billion. For the year, ConocoPhillips reported an adjusted loss of $1.40 per share on revenue of$30.94 billion

    Statoil reports larger 4th quarter loss after oil price drop  — Norwegian energy group Statoil posted a net loss of 9.2 billion kroner ($1.08 billion) for the fourth quarter amid the drop in oil prices. Norway’s biggest oil company said Thursday the quarterly results “continue to be severely influenced by low prices,” adding the loss was 3 percent larger than a year earlier. Revenue fell to 109.2 billion kroner from 147 billion kroner. CEO Eldar Saetre said the company was stepping up its cost-cutting program and reining in spending. Average daily production of oil and gas decreased 2 percent to 1.309 million barrels per day in the quarter. Statoil ASA said the drop was “mainly due to expected natural decline on mature fields, lower gas sales and redetermination, partially offset by increased production from several fields and ramp-up of new fields.”

    S&P Just Downgraded 10 Of The Biggest US Energy Companies -- Just 10 days after "Moody's Put Over Half A Trillion Dollars In Energy Debt On Downgrade Review", moments ago S&P decided it wanted to be first out of the gate with a wholesale downgrade of the US energy companies, and announced that it was taking rating actions on 20 investment-grade companies, including 10 downgrades. The full release is below:Standard & Poor's Ratings Services said today that it has taken rating actions on 20 investment-grade U.S. oil and gas exploration and production (E&P) companies after completing a review. The review followed the recent revision of our hydrocarbon price assumptions (see "S&P Lowers its Hydrocarbon Price Assumptions On Market Oversupply; Recovery Price Deck Assumptions Also Lowered," published Jan. 12, 2016). While oil prices deteriorated over the past 15 months, the U.S.-based investment-grade companies we rate had been largely immune to downgrades. However, given the magnitude of the recent reductions in our price deck, most of the investment-grade companies were affected during this review. We expect that many of these companies will continue to lower capital spending and focus on efficiencies and drilling core properties. However, these actions, for the most part, are insufficient to stem the meaningful deterioration expected in credit measures over the next few years. A list of rating actions on the affected companies follows.

    Wood Mac: Producers Continue to Run Loss-making Oilfields - Oil producers around the world are continuing to operate many lossmaking oilfields, according to new research by Wood Mackenzie. Less than 0.1 percent of global production has been halted to date even though 3.5 percent of global supply is currently cash negative, a survey by the research consultancy has found. Wood Mac's survey indicates that 3.4 million barrels per day of oil production is cash negative at a Brent oil price of $35 per barrel, however just 100,000 bpd has been shut-in globally to date. The areas with the largest volumes shut-in so far have been Canada onshore and oil sands, conventional US onshore projects and aging UK North Sea fields. The survey collated oil production data from over 10,000 fields and calculates cash operating costs, identifying the price at which the fields turn cash negative, and the volume of oil production associated with this price level. Wood Mac warns companies holding out in the hope of a price rebound that the number of shut-ins is unlikely to increase at a significant rate. Commenting on the trend, Wood Mac's vice president of investment research, Robert Plummer, said in a company statement: "Being cash negative simply means that production costs are higher than the price that the producer receives and does not necessarily mean that production will be halted altogether. Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons. "Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices. In terms of our current oil price forecast, we have recently revised our annual average to $41 per barrel for Brent in 2016. The operator's first response is usually to store production in the hope that the oil can be sold when the price recovers. For others the decision to halt production is more complex and we expect that volumes are more likely to be impacted where mechanical or maintenance issues arise and operators can’t rationalise further investment at current prices."

    Proposed federal rule costly for Gulf oil operations - Exploratory drilling in the Gulf of Mexico could decline by 55 percent under a proposed federal rule, according to a new study. The proposed Well Control Rule addresses recommendations made after the Deepwater Horizon oil spill. It tightens standards on blowout preventers and puts more controls on how companies drill and monitor wells on the ocean floor. A study by Wood Mackenzie says the proposed governing rule comes at a high cost for oil and gas operations in the Gulf of Mexico. The rule would significantly reduce domestic energy production while also curtailing economic activity, energy supplies and offshore revenues. Under an $80 oil assumption, the Interior Department’s draft rule would:

    • Decrease exploration drilling by 35-55 percent, or up to 10 wells per annum
    • Reduce Gulf of Mexico production by as much as 35 percent by 2030
    • Put 105,000 – 190,000 jobs at risk, mainly in Louisiana and Texas
    • Reduce the country’s GDP by $260 – 390 billion through 2030
    • Reduce the number of rigs by 25 – 50 percent by 2030

    The guidelines may make exploration and development projects too expensive to operate.

    This One Policy Could Open Up Millions of Acres to New Offshore Oil Drilling -- Even at a time when oil exploration makes less environmental and economic sense than ever, the U.S. Bureau of Ocean Energy Management (BOEM)—mandated by the Outer Continental Shelf Lands Act (OCSLA) — is preparing the next Outer Continental Shelf Oil and Gas Leasing Program. In plain English, the Obama administration—the same one that has repeatedly positioned itself as a leader on climate change—is laying out plans to lease offshore oil to the usual suspects like Exxon, Shell, Chevron and others in the coming years. The OCSLA established a program in which the waters of the U.S. outer continental shelf are leased in five year windows, known as the five-year plan. The next five-year window is set to begin in 2017. For it to start on time, the plan has to be delivered by BOEM in 2016. The western and central Gulf of Mexico has historically been the major region for federal offshore oil, with most of the rest of the outer continental shelf under congressional moratorium. But in 2008, President Bush removed almost all restrictions in the waning hours of his administration.  President Obama put many of those restrictions back in place, but left open the possibility of Arctic, Atlantic and new Gulf lease sales. The tragic Deepwater Horizon disaster in 2010 compelled President Obama to put a pause on many of these new areas, but now that some time has passed—not that drilling has become any safer—he seems to think it’s ok to re-open the Atlantic to the oil industry.If you think that sounds contradictory to the president’s lofty rhetoric on climate change in recent months—you’re right. And although President Obama has made some promising moves by protecting all of Bristol Bay, Alaska from leasing and canceling lease sales across the U.S. Arctic, he’s falling short of true climate leadership.

    Signing Polluter-Friendly TPP Trade Deal Is Gambling Away Our Future - For years, the Sierra Club has reported on and campaigned against the TPP’s threats to our air, water, climate, families and communities. The U.S. Trade Representative is gambling away our jobs, our clean air and water, and our future by pushing the polluter-friendly Trans-Pacific Partnership, so it only makes sense that it was signed in a casino and convention center. Signing the TPP is Russian roulette for our economy and our climate. Today’s trade rules are rigged, like a bad game of blackjack, to favor powerful big polluters and other greedy corporations. Just look at TransCanada. That Big Oil company is suing the American people under NAFTA for $15 billion as ‘compensation’ for the Keystone XL decision that spared us the threat of increased climate disruption and dirty, dangerous oil spills. The TPP sweetens the pot for many more foreign fossil fuel corporations, empowering them to follow TransCanada’s bad example of challenging our climate protections in private trade tribunals. Thankfully, it’s not too late to stop this toxic deal. Congress holds the trump card on the widely unpopular TPP, so now is the time to urge our representatives to reject the toxic trade deal and build a new model of trade that puts the health and safety of people before the profits of big corporations that are already polluting our air and water.

    Once Unstoppable, Tar Sands Now Battered from All Sides --  In the summer of 2014, when oil was selling for $114 per barrel, Alberta’s tar sands industry was still confidently standing by earlier predictions that it would nearly triple production by 2035. Companies such as Suncor, Statoil, Syncrude, Royal Dutch Shell, and Imperial Oil Ltd. were investing hundreds of billions of dollars in new projects to mine the thick, highly polluting bitumen. Eyeing this oil boom, Canadian Prime Minister Stephen Harper said he was certain that the Keystone XL pipeline — “a no-brainer” in his words — would be built, with or without President Barack Obama’s approval. Keystone, which would carry tar sands crude from Alberta to refineries along the Gulf of Mexico, was critical if bitumen from new tar sands projects was going to find a way to market. What a difference 18 months makes. The price of oil today has plummeted to around $30 a barrel, well below the break-even point for tar sands producers, and the value of the Canadian dollar has fallen sharply. President Obama killed the Keystone XL project in November, and staunch opposition has so far halted efforts to build pipelines that would carry tar sands crude to Canada’s Pacific and Atlantic coasts. Equally as ominous for the tar sands industry are political developments in Alberta and Canada. In May, Alberta voters ousted the conservative premier and elected a left-of-center government. The new premier, Rachel Notley, is committed to doing something meaningful about climate change and reviewing oil and gas royalty payments to the province, which are among the lowest in the world.In October, Canadian voters tossed out Harper and his Conservative Party government and elected liberal Justin Trudeau as prime minister. Last month, Trudeau vowed not to be a “pipeline cheerleader” and said he would take greenhouse gas emissions into account when evaluating oil pipeline projects

    Cheap oil buoys consumers, shakes up global governments  -- U.S. households have saved hundreds of dollars on gasoline and heating oil.  That’s money they can spend in other areas of the economy. Businesses such as airlines that burn large amounts of fuel have reaped savings in the billions. But energy company profits have plunged, as have their stocks. Layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending. Meanwhile, states like Alaska and North Dakota need to plug big budget gaps. The Energy Department expects a decline in U.S. oil production, but says oil will only average $38 this year. For new mines in Alberta’s oil sands to cover costs, oil needs to be $85 to $95 a barrel, according to IHS Global Insight. Western Canadian Select oil sands crude recently traded around $15. Canadian oilcompanies have slashed budgets, laid off tens of thousands of workers and cut dividends. A Bank of Canada report says companies see dramatic change for the global industry, with weaker companies restructuring or exiting the oil business, while healthier companies buy distressed assets. Canada’s dollar is down 20 percent versus its U.S. counterpart. Prices for imported groceries have risen and Canadians are reconsidering a U.S. vacation. Mexico is better insulated nowadays from an oil collapse. Oil accounts for 20 percent on national revenue, compared with 40 percent up until 2012. However, the country has postponed or canceled some oilprojects, and delayed auctions for deep water exploration and production oil contracts, as part of its historic energy reform.

    Collapse in crude brings North Sea fields near end of production -- As many as 50 North Sea oil and gasfields could cease production this year after a collapse in crude prices to 12-year lows, industry experts have warned. This would accelerate the North Sea’s decline, potentially bringing forward billions of pounds in spending on decommissioning. Dozens of smaller fields with high production costs that are approaching the end of their lives have been identified by energy consultants Wood Mackenzie as prime candidates to be shut. Halting output is the first step towards abandonment. This, in turn, could speed up decommissioning — when operators abandon fields and dismantle decades-old infrastructure, including platforms and pipelines. Wood Mac said oil companies were likely to halt output at 140 offshore UK fields during the next five years, even if crude rebounded from $35 to $85 a barrel. This compares with just 38 new fields that are expected to be brought on stream during the same period. Industry executives believe the decommissioning industry, still in its infancy, will grow. Royal Dutch Shell is preparing to take apart the first of four platforms in its Brent field, while Riverstone-owned Fairfield is to abandon Dunlin. As the sector declines, service providers anticipate that decommissioning may help them plug the revenue gap left by diminishing exploration.

    British opposition to fracking still outstrips support, survey finds - Opposition to fracking continues to outstrip support - particularly among those who know about the controversial process, a survey for the government shows. More than half (53%) of those who said they knew a lot about fracking were against it, compared to a third (33%) who said they were in favour of it, the latest poll tracking attitudes to energy policies has revealed. Among those who thought they knew a little about it, opposition outstripped support by 40% to 26%, the survey for the Department of Energy and Climate Change found. Opposition was also higher than support among all those who were quizzed for the survey, with 29% opposed and 23% backing extraction of shale gas through fracking. Women were more likely to be opposed to it than men, with only 17% backing fracking, compared to 28% of men. The weak support for shale gas is in contrast to the backing the public shows for renewables, which have faced cuts in government support, with 78% in favour of technologies such as wind power, solar and biomass, and only 4% against.  The latest findings of the public attitudes tracker come as the government continues its push to develop a shale industry in the UK, with decisions on schemes being taking out of council hands in the face of strong local opposition.

    We’re drowning in cheap oil – yet still taxpayers prop up this toxic industry | George Monbiot - Those of us who predicted, during the first years of this century, an imminent peak in global oil supplies could not have been more wrong. People like the energy consultant Daniel Yergin, with whom I disputed the topic, appear to have been right: growth, he said, would continue for many years, unless governments intervened. Oil appeared to peak in the United States in 1970, after which production fell for 40 years. That, we assumed, was the end of the story. But through fracking and horizontal drilling, production last year returned to the level it reached in 1969. Twelve years ago, the Texas oil tycoon T Boone Pickens announced that “never again will we pump more than 82 million barrels”. By the end of 2015, daily world production reached 97m . Instead of a collapse in the supply of oil, we confront the opposite crisis: we’re drowning in the stuff. The reasons for the price crash – an astonishing slide from $115 a barrel to less than $30 over the past 20 months – are complex: among them are weaker demand in China and a strong dollar. But an analysis by the World Bank finds that changes in supply have been a much greater factor than changes in demand. Oil production has almost doubled in Iraq, as well as in the US. Saudi Arabia has opened its taps, to try to destroy the competition and sustain its market share – a strategy that some peak oil advocates once argued was impossible.

    Mainland Europe Shale Gas: What Now? - The shale gas boom has proved to be a game changer for the United States economy, bringing about an era of cheap natural gas that has helped to make the country's industry more competitive. Some other countries around the world would like to follow suit, with perhaps Argentina having the best hope of replicating the success seen in North America thanks to its Vaca Muerta shale gas province. Europe has also been seen as a future shale gas region in recent years, but a Wood Mackenzie survey of global shale gas drilling activity highlights only three European countries – Poland, Ukraine and the UK – as having any shale gas wells scheduled for 2016. The key data points from the survey:

    • the UK will lead the way; the country has "well-documented" support for the development of a shale gas industry and six wells are expected to be drilled in the UK in 2016
    • mainland Europe looks bleak after several setbacks in 2015
    • results in Poland were disappointing, and a widespread anti-fracking movement has also hindered shale gas development; last summer COP "gave up the ghost in Poland; CVX, XOM, Total, and MRO all withdrew during the previous three years
    • in the Ukraine, Eni could drill its first shale well in the Lviv Basin, in the west Ukraine, depending on regulatory and security factors
    • Denmark: disappointing
    • Germany: disappointing; some legislative support but members of the coalition government could not agree on the details

    Flood of Oil Asset Writedowns Seen Across Asia on Crude Rout  - Investors in Asian oil and gas companies should prepare for a wave of writedowns after a collapse in crude prices. CNOOC Ltd., Santos Ltd. and Inpex Corp. are among explorers and producers that may report full-year net losses because of writedowns that may be equal to as much as 10 percent of book value, analysts at Sanford C. Bernstein & Co. in Hong Kong wrote in a report Tuesday. “The future value of oil and gas properties has been significantly reduced,” according to the Bernstein analysts, including Neil Beveridge. “The impairment loss will likely be larger than earnings for the year for some companies, pushing several E&P’s in the region into a loss.” Oil prices have tumbled almost 70 percent in the past two years, weighing on earnings and forcing explorers to cut spending. Writedowns at Santos, the Adelaide-based energy company that built the $18.5 billion Gladstone liquefied natural gas project in Australia, may exceed A$3.4 billion ($2.4 billion), according to UBS Group AG. Companies including PTT Exploration & Production Pcl that have been active in mergers and acquisitions over the past five years also are expected to write down the value of assets, the analysts wrote. Writedowns at Chevron Corp. last week pushed the company to its first quarterly loss in 13 years. The market has continued to weaken, with oil sliding 9.2 percent last month amid volatility in global markets, brimming U.S. crude supplies and the outlook for increased exports from Iran after the removal of international sanctions. West Texas Intermediate on Tuesday was down 2.1 percent at $30.97 a barrel at 1:41 p.m. Hong Kong time. Prices lost 30 percent last year.

    Petrobras Slashes Oil Reserves to Lowest Level in 14 Years  (Reuters) - Brazil's state-controlled oil producer Petrobras slashed its oil and natural gas reserves 20 percent on Friday, hit by a plunge in energy prices, a heavy debt load, high costs and a corruption scandal. The bigger-than-expected cut, reported in a securities filing on Friday, highlights how the once soaring potential of big oil discoveries off the coast of Brazil have faded for Petroleo Brasileiro, as the company is formally known. The filing showed Petrobras reduced proven reserves to 10.52 billion barrels of oil and natural gas equivalent (boe) as of Dec. 31, their lowest since 2001, according to standards set by the U.S. Securities and Exchange Commission. Petrobras booked 13.13 billion boe a year earlier. The announcement is one of the strongest statements yet of the sharp reversal of fortune at Petrobras. Reserves are a key factor in determining the company's ability to borrow and provide a return on investment. "Oil prices played a big part, but Petrobras has itself to blame too," said Fadel Gheit, an oil and gas analyst with Oppenheimer Inc in New York. "It's a classic case of mismanagement and government interference. Low oil prices pushed them over the cliff, but they got to the precipice themselves." Petrobras has spent about $350 billion on expansion in the last decade, a period when it made some of the world's largest-ever offshore discoveries. The company, though, now has less commercially viable oil and gas than it did 14 years ago, when as a cash-poor oil producer slowly but steadily increased reserves and output to reduce Brazil's crippling dependence on foreign imports. -

    Global oil production cash negative at current prices- 3.4 Million barrels per day (b/d) of oil produced globally is produced at cash negative number, according to an analysis by Wood Mackenzie. This has resulted in an unexpectedly low rate of stopped production of less than 100,00 b/d globally. Companies continue to pump oil despite these low rates in hopes oil prices will rebound. Restart costs and covering fixed costs also influence the decision to continue production. Globally, Brent oil sells for about $35 USD. Each company has its own breakeven points, fixed costs and operating costs, which determine whether a project is profitable or not. In many cases certain wells are not profitable, while others in the same patch are marginally profitable. As seen in the figure below about 75 million b/d are produced at less than $35/bb. Additionally, the costs of shutting down operations that are in the red occasionally costs more than producing at a loss, especially in the short run. In some cases, such as in older patches in the North Sea a cease production would be a permanent decision. Wood Mackenzie analysts believe the shut in rate to be about 100,000 b/d – 0.1% of global production. Significant locations include Canada, largely due to transportation costs at about 30,000 b/d (Note no major oil sands have been shut-in), and the US, although they are expected to be short lived due to the value of keeping a well long-term given short-term costs which may be as little as a few hundred dollars per month. Locations currently producing in the red are Canada oil sands and small conventional wells at 2.2 million b/d, Venezuela’s heavy oil fields at 230,000 b/d in negative cash flow, the UK with 220,000 b/d and the US producing the 4th largest amount of negative cash 190,000 b/d. To read Wood Mackenzie’s full report, click here.

    Will Non-OPEC Oil Production Collapse In 2016? -- The IEA Oil Market Report, full issue, is now available to the public. Some interesting observations: Non-OPEC oil supplies are sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December’s drop. Production in Vietnam, Kazakhstan, Azerbaijan and the U.S. was also seen easing from both November’s level and compared with a year earlier. Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline. As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.The IEA has every month of 2016 Non-OPEC production below the year over year 2015 production. For the past four years, North America has carried the load as far as the increase in Non-OPEC production is concerned. Now the IEA believes North America will suffer the lion’s share of the decline in 2016. The IEA says U.S. Gulf of Mexico and NGLs will show an increase in 2016 but every other location will show a decline with Texas showing the largest decline. The IEA says Non-OPEC production was up 1.3 million bpd in 2015 but will be down 0.7 million bpd in 2016. Below are their numbers. They do not include biofuels or process gain.

    Oil market spiral threatens to prick global debt bubble, warns BIS - The global oil industry is caught in a self-feeding downward spiral as falling prices cause producers to boost output even further in a scramble to service $3 trillion of dollar debt, the world’s top watchdog has warned. The Bank for International Settlements fears that a perverse dynamic is at work where energy companies in Brazil, Russia, China and parts of the US shale belt are increasing production in defiance of normal market logic, leading to a bad “feedback-loop” that is sucking the whole sector into a destructive vortex. “Lower prices have not removed excess capacity from the market, but instead may have exacerbated it. Production has been ramped up, rather than curtailed,” said Jaime Caruana, the general manager of the Swiss-based club for central bankers. The findings raise serious questions about the strategy of Saudi Arabia and the core Opec states as they flood the global crude market to knock out rivals in a cut-throat battle for export share. The process of attrition may take far longer and do more damage than originally supposed. Oil exporters are embracing austerity and slashing government spending, leading to a form of fiscal tightening that is slowing the global economy.Mr Caruana said the sheer scale of leverage in the oil and gas industry is amplifying the downturn since companies are attempting to eke out extra production to stay afloat. The risk spreads on high-yield energy bonds have jumped from 330 basis points to 1,600 over the past 18 months, amplifying the effects of the oil price crash itself. The industry has issued $1.4 trillion of bonds and taken out a further $1.6 trillion in syndicated loans, driving up the combined energy debt threefold to $3 trillion in less than a decade.

    Bomb attacks on pipelines cause massive oil spill in Nigeria — Multiple bombings of Agip oil pipelines have caused thousands of barrels of oil to pollute waterways, farms and fishing grounds in Nigeria’s southern Bayelsa state, residents said Monday. Oil flowed unchecked for two days, according to fishermen who complained that a clean-up has not yet started. A spokesman for Italian parent company ENI said 16,000 barrels of oil per day were lost and the company Monday began working to resume production. The official, whose job rules do not allow him to be quoted by name, offered no other details. The spill is “massive — the biggest in years,” community leader Eke-Spiff Erempagamo told The Associated Press. He said it covers Orukari, Golubokiri, Kpongbokiri and other communities in the Brass area. Residents blamed the explosions on Thursday and Friday on militants who want the polluted oil producing states to get a bigger share of revenues. Similar attacks a week earlier on gas and oil installations near southern Escravos terminal are costing Nigeria $2.4 million a day in lost power and gas, the government said before restricted supply forced the closure of two of Nigeria’s five refineries. The attacks came after a court ordered the arrest of a former oil warlord accused of corruption. He has denied his henchmen are responsible for the pipeline attacks.

    US-NATO Invade Libya to Fight Terrorists of Own Creation -- Up to 6,000 troops are being sent to invade and occupy Libya, seizing oilfields allegedly threatened by terrorists NATO armed and put into power in 2011. The London Telegraph, almost as a footnote, reports of a sizable Western military force being sent in on the ground to occupy Libya in an operation it claims is aimed at fighting the so-called “Islamic State” (ISIS). In its article, “Islamic State battles to seize control of key Libyan oil depot,” it reports: Under the plan, up to 1,000 British troops would form part of a 6,000-strong joint force with Italy – Libya’s former colonial power – in training and advising Libyan forces. British special forces could also be engaged on the front line.  One would suspect a 6,000-strong foreign military force being sent into Libya would be major headline news, with debates raging before the operation even was approved. However, it appears with no debate, no public approval, and little media coverage, US, British, and European troops, including Libya’s former colonial rulers – the Italians – are pushing forward with direct military intervention in Libya, once again. The Mirror’s “SAS spearhead coalition offensive to halt Islamic State oil snatches in Libya,” claims the West’s 6,000 soldiers face up to 5,000 ISIS terrorists – raising questions about the veracity of both the true intentions of the West’s military intervention and the nature of the enemy they are allegedly intervening to fight. Military doctrine generally prescribes overwhelming numerical superiority for invading forces versus defenders. For example, during the the 2004 battle for the Iraqi city of Fallujah, the US arrayed over 10,000 troops versus 3,000-4,000 defenders. This means large, sweeping operations to directly confront and destroy ISIS in Libya are not intended, and like Western interventions elsewhere, it is being designed to instead perpetuate the threat of ISIS and therefore, perpetuate Western justification for extraterritorial military intervention in Libya and beyond.

    Oversold Oil Markets Rally On Rumors Of OPEC Cut - Oil prices surged last week on speculation that Russian and OPEC might work together to stabilize markets through coordinated production cuts. The latest developments are confusing due to conflicting statements from officials from both sides. Russia’s energy minister said that the country would consider a proposal of a 5 percent production cut, but would wait to discuss the option with OPEC in February. At the same time, top OPEC officials dismissed the speculation. Other Russian officials also downplayed the possibility of a production cut. The markets did not care – WTI and Brent surged to $34 per barrel by Friday, up nearly 10 percent for the week. One worrying sign to keep an eye on: the fundamentals. The EIA reported a sharp uptick in crude oil inventories this week, breaking a new all-time high. U.S. oil in storage has now reached 494.9 million barrels, surpassing the previous record set in April 2015. Saudi Arabia’s foreign exchange reserves continue to dwindle from low oil prices. In December alone, Saudi Arabia exhausted $19 billion from its cash reserve war chest, bringing the estimated total down to $608 billion. The oil kingdom lost $115 billion in 2015 alone. The Saudis are still sitting on one of the largest piles of cash in the world, and they could continue to burn through those reserves at the current rate, at least for a while, but persistent low oil prices only increase the pressure to eventually do something. For now, they are content to continue on the current course. The long-term picture for Saudi Arabia is different. Reuters reported that the government is in talks with an army of consultants to figure out ways to diversify the economy beyond oil, looking into things like tourism, shipbuilding, information technology, etc. Of course, Saudi Arabia has long talked about economic diversification, but the massive budget hole is forcing a much harder look at reforms. In the short run, austerity and a dependency on oil is unavoidable. But Reuters reported that there is momentum towards real reform behind the scenes.

    Crude Sinks To Day Lows After Goldman Explains Why No Oil Production Cuts Are Coming -- Moments ago, following last week's torrid crude oil price rebound driven entirely by now-denied hopes of some production cut consensus between oil suppliers, namely Russia and Saudi Arabia, oil halted its four-day rally as weak Chinese manufacturing data added to economic demand concern. “The risk seems to be the greatest on the downside again” and speculation of OPEC production cuts has “faded fast,” says Saxo Bank head of commodity strategy Ole Hansen. “China and South Korea are both helping the market return to fundamental focus where it is worried about demand."  But the biggest downward catalyst overnight as noted previously, was not demand concerns but a return of oversupply fears following a note by Goldman's Damien Courvalin who warned quite explicitly that "cuts are unlikely" in what Goldman dubs the New Oil Order, and that in the current rebalancing phase, oil prices will "remain between $40/bbl (financial stress) and $20/bbl (operational stress) until 2H16. This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set." But most importantly Goldman writes that "given the likely time necessary to enact such cuts, the continued large builds in US and global inventories and the fast pace at which US Gulf Coast spare storage capacity is filling, it may already be too late for OPEC producers to be able to prevent another large decline in prices." Here's why:The past week featured headlines suggesting that OPEC producers and Russia would meet in February to discuss a potential coordinated cut in production.Despite the sharp bounce in oil prices that these headlines generated, we do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast. This view is anchored by our belief that such a cut would be self-defeating given the short-cycle of shale production and the only nascent non-OPEC supply response to OPEC's November 2014 decision to maximize long-term revenues. As a result, we reiterate our view that prices need to remain low enough to force fundamentals to create the adjustment back towards a new equilibrium.

    Crude Chaotic After API Reports Bigger Than Expected Inventory Build -- Against expectations of a 3.75mm expectation (and following last week's massive build), API reports that crude inventories saw a very slightly bigger than expected 3.8mm build. WTI crude had plunged into the data and went entirely chaotic as it hit (swining in a 50c range) before settling lower. Coming into this week's print, gasoline builds continue to stymie crude (which saw a huge build) but Cushing saw a draw... And then API reported a slightly bigger than expected 4mm build... Oil's reaction was chaotic... And finally, don't forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression. Charts: Bloomberg

    WTI oil ends under $30; gasoline futures sink to 7-year low - WTI oil prices slid again Tuesday to settle under $30 a barrel, as expectations for cuts in crude output from major producers faded and the market readied for weekly data that are expected to show a hefty increase in U.S. supplies. Gasoline was the biggest loser, plunging close to 8% to settle at its lowest level since late 2008, as the recent blizzard in the East was seen contributing to lower demand and an expected fresh record in U.S. stockpiles of the fuel. March West Texas Intermediate crude fell $1.74, or 5.5%, to settle at $29.88 on the New York Mercantile Exchange. That was the lowest settlement since Jan. 21. The April contract for Brent crude fell $1.52, or 4.4%, to $32.72 a barrel on London’s ICE Futures exchange, for its lowest finish in about a week. “The constructive dialogues between the [Organization of the Petroleum Exporting Countries] and non-OPEC countries has broken once again and we have less hopes that we will [have a] happy ending,” . “The fact is that OPEC can see from their lens that their [market-share] strategy is working and BP, the giant oil producer, has confirmed how bad and ugly” it is.

    Oil sinks, pressured by China, OPEC and warmer U.S. weather | Reuters: U.S. crude oil prices slid as much as 7 percent on Monday, pressured by weak economic data from China, a U.S. forecast for mild weather and growing doubts that OPEC and non-OPEC producers would come together to reduce the swelling global supply glut. Chinese manufacturing contracted in January at the fastest pace since 2012, adding to worries about energy demand from the world's largest energy consumer. "China is the last standing consumer of oil outside of the U.S. The problem is that everyone is relying on them," said Carl Larry, director of business development at Frost & Sullivan in Houston. "As long as we keep in this scenario where China is the only real consumer to pick up the pace, we're going to see moves lower every time China has an issue with their economy." A mild U.S. winter has also dented demand for oil. Forecasts for warm temperatures through mid-February sent U.S. New York Harbor heating oil futures down as much as 5 percent. U.S. West Texas Intermediate slid to its biggest daily loss in five months, down 6.9 percent to an intraday low of $31.29 in volatile afternoon trading. That was still 19.5 percent higher than the more than 12-year low of $26.19 hit in mid-January. The contract eventually settled at $31.62, down 5.9 percent or $2. Brent April crude futures settled at $34.24 a barrel, down $1.75, or 4.9 percent.

    Global oil demand growth is slowing going into 2016 | Reuters: The United States was one of the biggest sources of oil demand growth in 2015 but the outlook for 2016 is much more muted, according to official forecasters. The U.S. transportation sector continues to send mixed signals about the strength of fuel demand at the end of 2015 and heading into 2016. U.S. consumers are buying a record number of new vehicles, and more of them are choosing fuel-hungry crossover utility vehicles, according to market intelligence supplier Wards Auto. The volume of traffic on U.S. roads has also hit a new record and is growing at the fastest rate for almost two decades, according to the Federal Highway Administration. But the volume of freight transported by road, rail, air, barge and pipeline has been trending flat or lower since the end of 2014, according to the U.S. Bureau of Transportation Statistics. The amount of freight hauled in November 2015 was actually 1.4 percent lower than in the corresponding month in 2014 ( Rail freight movements were weaker in 2015, with the total number of rail cars and intermodal units moved across the network down 2.5 percent compared with 2014, according to the Association of American Railroads. Road freight was fairly flat last year, ending three years of strong growth, according to the American Trucking Associations.Sales of the heavy-duty Class 7 and Class 8 trucks employed for most freight movements ended last year on a soft note according to Wards, down from the end of 2014. Stocks of unsold heavy duty trucks at manufacturers and dealerships have risen steeply as sales fell toward the end of 2015. At the end of December 2015, there was a 70-day supply of Class 8 trucks, up from 43 days at the end of December 2014, according to Wards.

    WTI Plunges Below $30 As Crude, Gasoline Inventories Surge & Demand Crashes - After initial weakness, crude prices have rallied since last night's across the board inventory build reported by API (especially gasoline). Against headline expectations of a 3.8mm build,DOE reported a huge 7.8mm rise with Gasoline also surging 5.9mm barrels. The overnight ramp gains on OPEC rumors have been erased and WTI is back below $30. API reported:

    • Crude inventories: +3.8M barrels
    • Cushing +0.1M barrels
    • Distillate +0.4M barrels
    • Gasoline +6.6M barrels

    DOE reported:

    • Crude inventories: +7.79M barrels (whisper 3.8m)
    • Cushing +0.75M barrels
    • Distillate -0.78M barrels (whisper -0.26m)
    • Gasoline +5.9M barrels (whisper 5m)

      John Kemp's Weekly Energy Tweets - Link hereJohn Kemp's weekly energy tweets:
      employment in US oil and gas extraction and support activities industry fell by 87,000 between October, 2014, and November, 2015

    • US oil and gas industry shed 100,000 jobs in slump
    • oil market will remain oversupplied this year, making price recovery unlikely
    • COP cuts dividend; OXY holds firm
    • difference in inventory levels for crude oil 
    • US: 36% higher than 5-year average
    • Cushing: 58% higher
    • total distillate fuel oil: 16% higher
    • total motor gasoline: 8% higher 
    • essential reading: the one thing that Saudi Arabia does well is under threat

      Oil jumps 8% as dollar tumbles after US data: Oil prices jumped 8 percent higher on Wednesday, snapping a two-day rout, after investors took advantage of a weaker U.S. dollar and shrugged off data showing an unexpected large surge in U.S. crude inventories to record highs. Comments by Russia's foreign minister reiterating the major producer's willingness to meet if there was consensus among the OPEC and non-OPEC members, also reignited hopes of a deal to trim output and helped to boost prices. The dollar index tumbled to an over seven-week low, making commodities priced in the greenback cheaper for holders of other currencies, amid growing skepticism that the Federal Reserve would be able to hike U.S. interest rates again this year and after data showed the U.S. services industry grew more slowly than expected last month.U.S. crude futures closed with one its biggest gains in five months, rising $2.40, or 8 percent, to $32.28. It was last up 8.5 percent at $32.42. Brent futures settled up $2.32, or 7.1 percent, at $35.04 a barrel, after rising as high as $35.11. It was last up 7.43 percent at $35.15. U.S. heating oil futures finished 6.7 percent firmer after the U.S. weather model called for seasonal cold over the next two weeks. "We're getting the rally in crude oil from the pounding that the dollar is taking,"

      Oil bears closing of $600 million triple-short fund bet seen adding to tumult | Reuters: This week's roller-coaster ride in the global crude oil market was likely fueled in part by the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said on Wednesday. Unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note (ETN) - which offers the ability to make a bearish bet on prices magnified threefold, with gut-churning ups and downs - bailed out early this week after jumping into the fund in January, ETN data show. Some 1.8 million shares worth more than $602 million were redeemed on Tuesday, the largest outflow from the ETN in the past year, according to data from FactSet Research. The selloff suggests that at least some big investors are betting that the worst of an 18-month oil market rout is over after U.S. prices fell to $26 a barrel last month for the first time since 2003. Trading activity has also jumped to the highest levels on record. "Speculators are getting out of the down oil market. People start unwinding these positions because they think they have gotten their juice out of it," The net asset value of the fund - one of a handful of exchange funds that allows investors to trade oil without the complexity of a futures exchange - fell from close to $1 billion to $417 million on Tuesday and to $322 million on Wednesday, according VelocityShares' website. As a result, the mass exodus likely forced the ETN's issuer, Credit Suisse, to quickly buy back short positions as investors redeemed shares.

      US rig count drops 48 this week to 571; Texas down 19 (AP) — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 48 this week to 571. The Houston firm said Friday 467 rigs sought oil and 104 explored for natural gas amid depressed energy prices. A year ago, 1,456 rigs were active. Among major oil- and gas-producing states, Texas declined by 19 rigs, Oklahoma dropped eight, Louisiana dropped five, Pennsylvania lost three, North Dakota, Utah and Wyoming each declined by two and Ohio dropped by one. Alaska, Arkansas, California, Colorado, Kansas, New Mexico and West Virginia were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

      U.S. Oil-Rig Count Declines by 31 - WSJ: The U.S. oil-rig count fell by 31 to 467 in the latest week, according to Baker Hughes Inc., accelerating a recent streak of declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But it hasn’t fallen enough to relieve the global glut of crude. There are now about 64% fewer rigs from a peak of 1,609 in October 2014. According to Baker Hughes, the number of U.S. gas rigs declined in the latest week by 17 to 104. The U.S. offshore-rig count was 26 in the latest week, down two from the previous week and down 24 from a year earlier. Oil prices turned negative Friday on a stronger dollar and concerns that the oversupply of oil will persist. Recently, U.S. crude oil fell 0.03% to $31.71 a barrel.

      U.S. Rig Count In Free Fall: Plunges By 48 In One Week | The U.S. rig count plunged this week, as the deleterious effects of the deeper fall in oil prices since December start to be felt. According to Baker Hughes, the U.S. rig count declined by a shocking 48 rigs for the week ending on February 5, the largest reduction since March of 2015. The total rig count now stands at 571, made up of 467 oil rigs and 104 natural gas rigs. The Permian Basin still accounts for the bulk of the active drilling rigs, with 180 as of this week. West Texas remains profitable to drill, at least in some of the best areas. Still, the Permian had well over 500 rigs a little over a year ago.  The Williston Basin in North Dakota, home of the Bakken formation, now only has 42 rigs, down from nearly 200 in late 2014. Plummeting rig counts have yet to translate into significant cutbacks in oil production, although the sharp increase in output exhibited between 2011 and 2014 came to a screeching halt last year.

      OilPrice Intelligence Report: In Spite Of Plunging Rig Count, Oil Erases Earlier Gains: Another rocky week for oil prices. WTI and Brent bounced up and down throughout the week along with the rise and fall of expectations for a potential OPEC meeting in February. Also, the top official at the New York Federal Reserve hinted at the fact that the latest turmoil in the global financial markets might alter the calculus for interest rate hikes later this year in the United States. That led to a sharp two-day loss for the U.S. dollar, helping to push up oil prices. There are growing fears that the collapse in oil prices is now bleeding over into the broader global economy. We have covered the ongoing deterioration in commodity-exporting countries pretty closely, from Saudi Arabia to Russia, Venezuela, Iraq, Nigeria, and more. Normally cheap energy should bolster consumption, but the drop in commodity prices has been so sharp that questions continue to arise about the creditworthiness of some oil producers. Venezuela tops the list. With billions of dollars in debt due this year a rapidly shrinking ability to deal with the crisis, a debt default may not be too far off. Citigroup added its voice to those concerned about the health of the global economy, citing four interlinked forces – a strong U.S. dollar, low commodity prices, weak trade, and soft growth in emerging markets – for the sudden fragility and potential for a global recession. "It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks," Citigroup analysts warned. "Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon."

      Four Days After Predicting Oil Will Double, T. Boone Pickens Sells All Oil Holdings -- Just four days ago, on Monday afternoon, "legendary" oilman T Boone Pickens said that crude has hit bottom at $26 per barrel, and predicting that prices should double within 12 months. Pickens then doubled-down on his wrong call from last year, telling CNBC's "Squawk Box" that oil prices will rise to at least $52 per barrel by the end of the year. That said, he was at least honest enough to admit that his virtually identical call from last year, when he thought prices would strongly rebound, was wrong.  Whether it's $50 or $70 by the end of 2016 will largely be determined by the global economy, he added reiterating the same flawed thesis he used to justify his bullishness a year ago: "We're still building inventories, and we will for the next several months. And then we'll start to draw," Pickens said. "Once you start to draw, you're not going to start back building again. The draw will come here in the next few months. It'll become pretty clear." He was wrong then, and he will be wrong this time again for the simple fact that while historically OPEC exercised a rational production strategy, as of the 2014 OPEC Thanksgiving massacre, there is no more OPEC, as can be seen by the relentless attempts by roughly half the members to call an OPEC meeting unsuccessfully, confirming what we said in late 2014 - OPEC no longer exists, which means it is every oil producer for themselves.  Yet while being merely wrong is excusable, being a "legendary" hypocrite is not. Earlier today, literally days after he predicted oil would double from its $26 "bottom", Pickens told Bloomberg that he has cashed out. But, but, what happened to oil prices will double from their bottom? And did he just liquidate all his holdings just $4 above this so-called bottom?  Well... yes.

      Oil Prices Could Jump 50% by the End of 2016 - Oil bulls distressed that last week’s rally fizzled can find some comfort in forecasts for a bigger and longer rebound by the end of the year.  Analysts are projecting prices will climb more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show. A global surplus that fueled oil’s decline to a 12-year low will shift to deficit as U.S. shale output falls, according to Goldman Sachs Group Inc. U.S. production will drop by 620,000 barrels a day, or about 7 percent, from the first quarter to the fourth, according to the Energy Information Administration. Meanwhile, the International Energy Agency forecasts total non-OPEC supply will fall by 600,000 barrels a day this year. That may pave the way for a rebound as lower prices have stimulated global demand. Oil is the “trade of the year,” according to Citigroup Inc., which is among banks from UBS Group AG to Societe Generale SA that predict a gain in the second half. “U.S. shale should take the hit, that’s where you will see cuts and supply should start to taper off,” Daniel Ang, an investment analyst at Phillip Futures, said by phone from Singapore. “On top of that, there are bullish demand forecasts for the second half.” West Texas Intermediate and Brent both closed at the lowest level since 2003 on Jan. 20. WTI for March delivery ended the session at $29.88 a barrel on Tuesday and would need to gain 54 percent to reach the median estimate of $46 a barrel. The London contract for April delivery settled at $32.72 and needs a 47 percent boost to hit $48. The median price was taken from estimates provided this year by 17 analysts who gave forecasts for both oil grades. WTI was up 7.3 percent to $32.06 at 2:15 p.m. New York time Wednesday.

      Oil-Price Poker: Why Saudi Won't Fold 'Em - The game being played in the global oil market today bears more than a passing resemblance to poker. Nobody wants to quit while they’re losing.  That is important for investors to keep in mind as they ponder what have become almost daily spikes and drops in the price of crude. So, too, is the role of Saudi Arabia in the game.  It remains within Saudi Arabia’s ability to foster at least a partial recovery in crude prices on its own. A sharp rally in prices last Thursday morning was based on comments from Russia’s energy minister that the Saudis might get the ball rolling on 5% output cuts. That was quickly refuted and oil gave up much of the gains. All major producers are suffering financially at today’s low prices—while oil has bounced from its sub-$30 nadir of January, it is still down nearly 7% in 2016 and nearly 70% from its 2014 peak. And Saudi Arabia hasn’t forfeited only a couple of hundred billion dollars and counting in forgone revenue, but also market share.  That has mainly been to a relative newcomer, U.S. shale producers. But going forward it may be to an old adversary: Iran.  The Shiite powerhouse is ramping up production following the lifting of nuclear sanctions. And its export surge is occurring against the backdrop of ongoing proxy wars in Syria and Yemen. Those make it difficult for Sunni champion Saudi Arabia to take the lead with output cuts.Russia, meanwhile, is pumping the most crude ever, hitting a post-Soviet Union peak. But it may have difficulty maintaining today’s pace given a lack of investment in its aging Siberian fields.  And then there is the additional wrinkle that Russia is actively on Iran’s side in Syria. For those reasons, not only have occasional statements from Russia about nonexistent agreements been something of a bluff, so too might be the country’s willingness to voluntarily curb its own output. In other words, Russia is holding weak cards and the Saudis know it.

      Is The Saudis Market Share Strategy Still Feasible? - Much of the rout in oil prices has been predicated upon the staying power of Saudi Arabia and other OPEC producers. As oil prices have continued to fall, virtually all of OPEC has been pumping oil as fast as possible to generate increased revenues at lower prices. That practice has helped to fuel the oil glut and led to a price that would have been unthinkably low just a couple of years ago. Oil markets have been largely assuming that OPEC producers could go on producing at these levels for years, but what if that’s not the case? Take the strongest of the OPEC producers, Saudi Arabia for instance. Saudi Arabia has very low cost per barrel of production – much lower than any shale producer in the U.S. But as a country, Saudi Arabia also has other significant obligations that it has to meet and oil revenues are effectively its only way of meeting these obligations. The same principle holds true for all other OPEC producers, though most are in worse shape than the Saudis. With oil at these prices, all of OPEC is bleeding fast. The oil revenues that the Saudis and others are bringing in are simply not enough to meet their on-going obligations. As a result, Saudi Arabia and others have been forced to turn to their savings – foreign currency reserves. Saudi Arabia started 2015 with roughly $720B in reserves. By August it was down to $650B. As of December, Saudi Arabia has around $620B in reserves. If oil averages $20 a barrel going forward for the next couple of years, Saudi Arabia will be broke by mid-2018 even after accounting for its recent budget cuts that trimmed internal spending. $30 a barrel oil buys the country about 6 months, tiding it over to early 2019. Libya, Iraq, and Nigeria are all in much worse shape, as of course is Venezuela. Even before Saudi Arabia gets to the point of bankruptcy though, panic may begin to set in for OPEC. Saudi Arabia is the most stable member of OPEC, and other than its rival Iran, who is use to budgetary pressure, the rest of OPEC is largely bloated and ill-prepared for a long period of low oil prices.

      Is the Saudi Market Share Strategy Backfiring? -- Yves here. Stocks around the world took a nosedive today, due to WTI sliding to under $30 a barrel, as well as disappointing earnings announcements from Chevron and BP, along with a warning from Standard & Poors. But the bigger cause of the sour mood which apparently swept from oil stocks into the broader market, was that a rumored deal among Russia, Iran, and the Saudis is nowhere near as imminent as the hype of last week would have investors believe. And there’s an obvious reason why. As we indicated last year, when Saudi Arabia embarked on its oil-price-cutting strategy, which is what refusing to reduce production to support prices amounted to, it looked like a masterstroke. It had several sets of opponents in its crosshairs. The firs was US frackers, who posed an intermediate-term threat if the shale boom and resulting government subsidies supported the construction of LNG transport facilities (which on a cold-blooded economic calculation are not justifiable given that under the old normal, shale production would have peaked around 2022 and started declining gradually, then more sharply around 2030, and that assumed no curbs due to earthquakes or water supply impact). Second was clean energy, which becomes much less attractive if conventional energy becomes cheap. Third was Saudi Arabia’s geopolitical opponents, most important Russia and iran. Recall that the Western media went all in on the story of Russian vulnerability. In 2015, Europe tightened sanctions, and the Western leaders were in barely-veiled terms calling for regime change in Russia, on the premise that Putin could not survive the one-two punch of low oil prices and foreign sanction. Here we are, in 2016, with barely an acknowledgment of that period. Not only did the Europeans overestimate Putin’s vulnerability, but the Saudis badly underestimated theirs.

      Oil price crash: Saudis told to embrace austerity as debt defaults loom - Saudi Arabia faces years of tough austerity as the worst oil price crash in the modern history forces the kingdom to make radical cuts to government largesse, the International Monetary Fund has warned. The world's largest producer of crude oil will need to "transform" its economy away from oil revenues, which make up more than 80pc of the government's wealth, according to Masood Ahmed, head of the Middle East department at the IMF. The Saudi monarchy has already been forced to unveil the largest programme of government austerity in decades as oil prices have collapsed by more than 70pc in 18 months. "This will have to be part of a multi-year adjustment process," Mr Ahmed told The Telegraph. He urged the kingdom to reform its generous system of oil subsidies and introduce a host of new taxes, including consumption levies such as VAT.  "There will have to be a major transformation of the Saudi economy. It is necessary and it is going to be difficult, but it is a challenge which I think the authorities have clearly laid out", said Mr Ahmed. The warning comes as the world's weakest oil producing nations could buckle under the pressure of the price rout.

      Russia Ready to Discuss Oil Production - WSJ: —Russian officials on Tuesday said again that they were ready to talk about coordinating efforts to stabilize the oil market with the Organization of the Petroleum Exporting Countries, but stopped short of saying they would cut production. Russian Foreign Minister Sergei Lavrov raised the stakes of such coordination to a diplomatic level, saying at a news conference after a meeting in Abu Dhabi with the emirate’s crown prince that Russia would meet with OPEC. On the same day, Igor Sechin, the chief executive of Russia’s largest oil company, OAO Rosneft, said he discussed coordination to soothe the markets with Venezuelan oil minister Eulogio del Pino. The renewed talk of Russian coordination comes as the world’s oil producers grapple with a 20-month slump in the price of crude, which has fallen more than 70% since June 2014. Mr. del Pino is visiting Russia, Saudi Arabia and other big producers to drum up support for a coordinated production cut to bring supply and demand back into balance and raise prices. On any given day, oil supply outpaces demand by more than 1 million barrels. “If there is interest in holding a meeting that our Venezuelan friends are talking about—to hold a meeting between OPEC members and countries that are not a part of this organization—we will naturally join such a consensus and will work under these parameters,” Mr. Lavrov said, Interfax reported. “We are interested in having a mutual understanding of what is going on on the global energy markets and are interested in exchanging our estimates [of the situation],” he said, according to Prime news agency.

      These 8 charts show how catastrophic the oil price crash has been for Russia -  Russia's economy and the price of oil are inextricably linked. The country relies hugely on the oil and gas industries, with more than 50% of total government revenues coming from the sector. That means that since the price of oil started to crash in mid- 2014, Russia's economy — which is also feeling the squeeze from Western sanctions — has been in the midst of a battle for survival. The price of of oil doesn't look to be going anywhere soon, despite chatter last week that OPEC and Russia may be considering a production cut sending prices soaring briefly. At the time, Russia's biggest oil company Rosneft, described a rally in the oil price as "idiotic".  Continuing low oil prices can only mean one thing for Russia — more pain.In the latest of a series of notes on the oil crash in non-OPEC nations, analysts from Bernstein Research — led by Dr. Oswald Clint — have shed light on just how much trouble the current oil price crash is causing the Russian government, with a heap of great charts to illustrate that point.The note argues that the government's finances are in their worst position in more than a decade, which is quite some feat given that the country underwent one of the most severe recessions in its history, only six years ago. Things look so bad that Bernstein describes the country's finances right now as "going off a cliff" adding (emphasis ours): It is unlikely that this situation will reverse itself unless there is a significant increase in oil prices or a removal of sanctions which lets the country access international debt markets openly again. None of these scenarios look likely anytime soon.  Check out the charts showing Russia's pain below.

      Six OPEC states ready for emergency meeting with non-OPEC members — Venezuela's minister (TASS) - Representatives of 6 member-states of the Organization of the Petroleum Exporting Countries (OPEC) are ready to participate in an emergency meeting on coordinated reduction of oil production with non-OPEC members, Venezuela’s Oil Minister Eulogio del Pino said during his visit to Tehran on Thursday.  According to the minister, such OPEC member-states as Iraq, Algeria, Nigeria, Ecuador, Iran and Venezuela as well as non-OPEC members Oman and Russia have given their consent. "The idea is not only to hold the meeting but to reach particular results," he was cited as saying by Iran's news agency Shana. The official is expected to discuss the prospects of convening an emergency meeting on oil during his visit to the countries of the Persian Gulf - Qatar, Saudi Arabia and Oman.

      Global gas market braced for price war - Could Gazprom be about to start a price war in the global gas market? With the prospect of a wave of US liquefied natural gas (LNG) supplies starting to hit the market later this year, energy investors fear the Russian state gas giant may adopt the same strategy in the gas market that Saudi Arabia has done in oil. It may seem like a gas price war is the last thing that Russia, already reeling from the impact of low oil prices, needs. But analysts say that such a strategy may be economically rational for Gazprom: already-low prices in the European gas market mean it could relatively easily push prices to a level at which it would be unprofitable to ship LNG from the US — and in doing so defend its market share in a region which accounts for the bulk of its profits. Such a move would have significant repercussions for the global energy markets: a fully-fledged price war in the European gas market could have a ripple effect across other regions and commodities — from Australian LNG to Colombian coal — as well as threatening the viability of the nascent US LNG industry.  The argument in favour of a price war is simple. Just as Saudi Arabia is the main swing producer for the global oil market thanks to its ability to ramp up production if needed, Gazprom is the main holder of spare capacity in the global gas market. According to Gazprom executives, the company has about 100bn cubic metres of spare production capacity equivalent to almost a quarter of its production and about 3 per cent of world output. And just as Saudi Arabia has been unnerved by the prospect of US shale oil producers eroding its market share, Gazprom faces a similar prospect in the gas market. The flood of cheap gas unleashed by the US shale boom has prompted a wave of US LNG projects in recent years, and the total export capacity under construction is equivalent to two-thirds of Gazprom’s exports to Europe.

      BofA: The Oil Crash Is Kicking Off One of the Largest Wealth Transfers In Human History - Economists are still hotly debating whether the oil crash has been a net positive for advanced economies. Optimists argue that cheap oil is a good thing for consumers and commodity-sensitive businesses, while pessimists point to the hit to energy-related investment and possible spillover into the financial system. A new note from Francisco Blanch at Bank of America Merrill Lynch, however, puts the oil move into a much bigger perspective, arguing that a sustained price plunge "will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history." Blanch and his team already see evidence that the fall in the price of crude is having a positive impact on demand, and say that it could accelerate even further if prices don't pick up.  Says Blanch: "Alternatively in a lower oil price scenario, e.g. if prices were to average just $40 over the next five years which is close to the current forward curve, demand would grow by 1.5 million barrels per day, which is 0.3 above our base case. Finally, at $20 oil demand would grow by an explosive by 1.7 per year on average, 0.5 above the base case, on our estimates." Meanwhile, in emerging markets, where much of the story of late has been about disappointing economic growth, Blanch still sees huge upside potential in terms of automobile penetration and consumption. Take China for example, where the strategist sees the oil plunge helping to fuel a boom in SUV sales: "Moreover, the low oil price is encouraging Chinese consumers to buy increasingly larger cars. Sales of SUVs, the heaviest passenger vehicles category, are up 60 percent year-on-year in the last three months, while overall passenger vehicle sales are growing robustly at 22 percent." And it's not just emerging markets where the impact of cheaper gasoline is being seen. After years of stagnation, vehicle miles traveled in the U.S. clearly ticked higher in 2015.

      Why Cheap Oil Hurts Its Net Importer, the Philippines  -- There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying: The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan. That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

      The Big-Oil Bailouts Begin  - Despite a bounce this week, low oil prices continue to sow fear, uncertainty, and mayhem across the emerging market complex. On Wednesday, it was leaked that the IMF and World Bank would dispatch a team to oil and gas-dependent Azerbaijan to negotiate a possible $4 billion emergency loan package in what threatens to become the first of a series of global bailouts stemming from the tumbling oil price. In Latin America’s largest economy, Brazil, the government has refused to rule out bailing out Petrobras, once the jewel of the nation’s crown but now a scandal-mired shadow of its former self, weighed down by $127 billion in debt, most of it denominated in dollars and euros. If it is unable to sell the $15 billion in assets it has targeted by the end of this year – a big IF given how the prices of oil and gas assets have deteriorated – Petrobras might need some serious help from Brazil’s Treasury. According to Citi, that help could reach $21 billion – just enough to plug the company’s cash hole and fix the capital structure on a sustainable basis.  The government of Mexico just announced that it quietly injected 50 billion pesos ($2.7 billion) of public funds into the coffers of state-owned oil company Pemex. The timing of the announcement could not have been more convenient, coming just a day before Pemex was due to launch a $5-billion bond issue, which was predictably gobbled up by investors. In all likelihood, it will be the first installment of what could end up being a very large, very costly bailout of Mexico’s oil sector. Pemex is the world’s second largest non-publicly listed company, with $416 billion in assets. But things are looking decidedly grim.

      Iran: $100B in assets 'fully released' under nuclear deal — Iran said Monday it now has access to more than $100 billion worth of frozen overseas assets following the implementation of a landmark nuclear deal with world powers. Government spokesman Mohammad Bagher Nobakht said much of the money had been piling up in banks in China, India, Japan, South Korea and Turkey since international sanctions were tightened in 2012 over Tehran’s nuclear program. Iran’s semi-official ISNA news agency meanwhile quoted central bank official Nasser Hakimi as saying nine Iranian banks are now reconnected to SWIFT, a Belgian-based cooperative that handles wire transfers between financial institutions. No foreign banks operate in Iran, and ATMs in Iran are not yet linked to the global system. SWIFT had no immediate comment. The historic agreement brought about the lifting of international sanctions last month after the U.N. certified that Iran has met all its commitments to curbing its nuclear activities under last summer’s accord. “These assets ($100 billion) have fully been released and we can use them,” Nobakht said. He said much of the money belongs to Iran’s central bank and National Development Fund. He said Iran will not bring all the money back because it can be spent on purchasing goods. Iran expects an economic breakthrough after the lifting of sanctions, which will allow it to access overseas assets and sell crude oil more freely.

      Russian-Iranian relations just got $40 billion stronger - Iran and Russia have initialed contracts worth around $40 billion, including for power-engineering and railway projects, Russian news agencies quoted Ali Akbar Velayati, top adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, as saying on Thursday. Velayati, who is wrapping up a visit to Moscow, said he had discussed some of the projects with Russian President Vladimir Putin. He said Tehran was interested in obtaining a loan from Russia for Iran's railways and nuclear power engineering. He said the package of projects had been signed in the past few months. "They have been initialed and are ready for implementation," Interfax news agency quoted him as saying.

      Iran wants to dump dollar in crude trade – report —Iran wants post-sanctions’ oil contracts denominated in dollars and have buyers pay in euros, Reuters reported. Tehran is also keen to receive money owed to it since the pre-sanctions days in the European currency. The country’s crude deliveries are to be restored soon, with companies such as the French giant Total, Spanish refiner Cepsa and Litasco and the trading arm of Russia's Lukoil already holding contracts. Reuters source at state-owned National Iranian Oil Co (NIOC) told the agency that Tehran wants to receive payment in euros."In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," the source said. Tehran also wants to receive billions of dollars worth of assets frozen under the sanctions in euros, said another source. Iran has an estimated $100 billion in assets and around half of these would be unfrozen under the upcoming sanctions relief. Iranian disdain for the American currency is nothing new. In 2007, it unsuccessfully campaigned at OPEC to switch from the dollar. The role it plays in the oil trade is one of the key reasons the dollar enjoys the status of the world’s leading reserve currency. Iran is not alone in wanting to distance itself from the dollar. Russia has been working towards the same goal, trying to eliminate the US currency from domestic trade and signing deals with its key foreign economic partners to use national currencies in bilateral trade.

      Saudi Arabia: the Devil’s Playground: Global markets continue on a roller-coaster ride two weeks after this column revealed how Saudi Arabia had been unloading at least $1 trillion in US securities, crashing global markets in parallel to its market share/oil price war. The House of Saud may even hold more than $8 trillion in US Treasury bonds and stocks; that depends on how much of the Aramco profits they monopolized, and how well they invested.  A New York investment banker with solid Saudi connections confirms the Saudis coordinate their major oil moves with Goldman Sachs "and others" (he did not specify), so as not to antagonize Wall Street. This would mean the House of Saud share in the profits with Goldman Sachs through derivatives in their oil trades. And this spells out a multi-trillion US dollar bonanza both to the Saudis and to Wall Street — considering some serious action could flow through partners of Goldman Sachs and others offshore to conceal the massive volumes. The only thing that has filtered so far is that Goldman Sachs is not exactly in the business of antagonizing the House of Saud. According to a House of Saud-related source, the share of the roughly 12,000 royal family members absorbs 40% of Aramco's oil profits. Two years ago, according to the source, this would have represented $146 billion a year in today's dollars. Considering the astronomical increase of oil prices in 1973, 43 years ago, that would have yielded $6.2 trillion just for the House of Saud. Then there are the state reserves — 60% of Aramco's profits; $ 219 billion, which times 43 make $9.4 trillion. The key point is the House of Saud may be swimming in a — secret — sea of money, and not being engulfed by the desert of debt default.   The notion that the population of Saudi Arabia, according to the IMF, may have to face serious government austerity — after the House of Saud-provoked "worst oil price crash in modern history", engineered to punish Russia, Iran and US shale producers — is nothing short of ludicrous. 

      Non-Dollar Trading: Emerging Economies Deal a Heavy Blow to Petrodollar  Experts have given the petrodollar a fatal diagnosis. Falling crude prices have accelerated the petrodollar's demise, dealing a heavy blow to the system that has long facilitated the US dollar's world reserve currency status. Emerging economies are abandoning the US dollar as a means of payment for oil, having shifted to national currencies. "Ditching the dollar, Iran and India have agreed to settle all outstanding crude oil dues in rupees in preparation to future trade in their national currencies. The dollar dues — $6.5 billion equaling 55 per cent of oil payment — would be deposited in National Iranian Oil Co account with Indian banks," The Indian Express reported on January 5, 2016. Half a year earlier, Russia's state-owned oil company Gazprom Neft announced that it had started settling shipments of crude to China in the renminbi (yuan). The strategy proved effective and Russia has become Beijing's top oil exporter, outpacing Saudi Arabia. "Interestingly, part of Russia's success in China has been attributed to its willingness to accept Chinese yuan denominated currency for its oil. (And not, as others have suggested, because of any sort of allegiance to the Sino-Russo friendship.)," Elena Holodny of Business Insider noted in one of her latest articles. Incredible as it may seem, experts recommend Saudi Arabia to follow Russia's example and switch from dollars to yuans:

      Iraq Kurd leader: ‘Time has come’ for statehood referendum: Iraqi Kurdish leader Massud Barzani has declared that the “time has come” for the country’s Kurds to hold a referendum on statehood, a move likely to raise tensions with Baghdad. But even if the various political challenges to independence are resolved, the major economic problems the region faces due to low oil prices are another bar to Kurdish independence. “The time has come and the conditions are now suitable for the people to make a decision through a referendum on their future,” Barzani said in a statement released Wednesday. “This referendum would not necessarily lead to (an) immediate declaration of statehood, but rather to know the will and opinion of the people of Kurdistan about their future,” said Barzani, who has remained in power despite the expiration of his term as president. Barzani, who has made similar calls in the past, did not specify when the vote would take place. Iraq’s Kurds are a key US partner in the war against the Islamic State group and have been some of the most effective forces fighting the jihadists. But both the referendum on independence — which Iraq’s federal government opposes — and the issue of which areas it covers will raise tensions between the autonomous Kurdish region and Baghdad, potentially complicating anti-IS efforts. The region officially includes three provinces, but Kurdish forces now hold parts of four more over which the federal government wants to maintain control.

      China January factory activity falls at fastest pace since 2012 - official PMI - China's manufacturing activity contracted at its fastest pace in almost three-and-a-half years in January, an official survey showed, suggesting the world's second largest economy is off to a weak start in 2016 and adding to the case for near-term stimulus. The official Purchasing Managers' Index (PMI) stood at 49.4 in January, compared with the previous month's reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012 and below the median 49.6 forecast from a Reuters poll of economists. The PMI marks the sixth consecutive month of factory activity contraction, highlighting a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy. "The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors,""In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time." The Markit/Caixin factory PMI also showed activity deteriorating, although at a slower pace than in December. The index was 48.4, higher than economists' median forecast of 48.0, and above the December figure of 48.2.

      China Manufacturing Prices Decline 18th Month; China Hoping to Avoid Hard Landing China's manufacturing extended its long slump according to theCaixin China General Manufacturing PMI. Chinese manufacturers signaled a modest deterioration in operating conditions at the start of 2016,  with  both  output  and  employment  declining  at  slightly  faster  rates than in December. Total new business meanwhile fell at the weakest rate in seven months, and despite a faster decline  in  new  export  work.  Nonetheless,  lower  production  requirements  led  companies  to cut back on their purchasing activity and inventories of inputs. On the prices front, both input costs and output charges fell again in January, though at the weakest rates in seven months. Weaker client demand led manufacturers to discount their prices charged again in January, thereby extending the current sequence of deflation to 18 months (although the rate of reduction was the slowest seen since June 2015). Lower selling prices were supported by a further fall in average input costs at the start of the year. In line with the trend for charges, the rate of decline eased to the weakest in seven months. Lower cost burdens were generally linked to reduced raw material prices.Commenting on the China General Manufacturing PMI™ data, Dr. He Fan, Chief Economist at Caixin Insight Group said:"The Caixin China General Manufacturing PMI for January is 48.4, up 0.2 points from December. Sub-indexes show a softer fall in new orders, which contributed the most to the improvement in the overall figure. Recent macroeconomic indicators show the economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results. The pressure on economic growth remains intense in light of continued global volatility. The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing. It also needs to push ahead with existing reform measures to strengthen market confidence and to signal its intentions clearly.”

      China factories continue to lose steam - Official PMI numbers for January show factory activity in China slid to a three year low. The sixth consecutive month of contraction raises concerns about the health of the world's second-biggest economy. China's PMI hit 49.4, where anything below 50 means contraction.  Electricity production remained sluggish and crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors," Zhou Hao, an economist at Commerzbank told Reuters. A private survey by Caixin and Markit showed even worse results for the Chinese economy. The data showed the January PMI contracted for the eleventh straight month. The Markit/Caixin survey tracks smaller companies than the official indicator and gave a figure of 48.4, compared to December's 48.2. "Chinese manufacturers signaled a modest deterioration in operating conditions at the start of 2016, with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months," Markit said in a statement. However, Beijing’s pivot to a consumer-oriented economy domestically has made investors doubt the value of manufacturing activity in China.

      Ground Control to Captain Zhou Xiaochuan --  Kunstler -- Why would anybody suppose that the Peoples Bank of China might want to tell the truth about anything that was within their power to lie about? Especially the soundness of any loan portfolio vested unto the grasp of its tentacles? Of course, most of what China has done in speeding toward the wall of financial crack-up, it learned from watching US bankers slime their way into Too Big To Fail nirvana — most particularly the array of swindles, dodges, and frauds constructed in the half-light of shadow banking to hedge the sudden, catastrophic appearance of reality-based price discovery. When so many loans end up networked as collateral in some kind of bet against previous bets against other previous bets, you can be sure that cascading contagion will follow. And so that is exactly what’s happening as China’s rocket ride into Modernity falls back to earth. Like most historical fiascos, it seemed like a good idea at the time: take a nation of about a billion people living in the equivalent of the Twelfth Century, introduce the magic of money printing, spend a gazillion of it on CAT and Kubota earth-moving machines, build the biggest cement industry the world has ever seen, purchase whole factory set-ups, and flood the rest of the world with stuff. Then the trouble starts when you try to defeat the business cycles associated with over-production and saturated markets. Poor China and poor us. Escape velocity has failed. Which raises the question: escape from what, exactly? Answer: the implacable limits of life on earth. The metaphor for all this, of course, is the old journey-into-space idea, which still persists in the salesmanship of Elon Musk, the ragged remnants of NASA, and even the nightmares of Stephen Hawking. Get off this messed-up home planet and light out of the territories, say Mars. Of course, this is a vain and stupid idea, since we already have a planet engineered to perfection for all the life systems associated with the human project. We just can’t respect its limits.

      China’s growth prospects -- China can be viewed as a convergence success story, in the sense that the strong economic growth over a sustained period led to a level of real per capita GDP that can be characterised as middle income. To put the Chinese accomplishment into international perspective, I calculated all the convergence success stories in the world based on reasonable criteria.  Specifically, I looked first at countries that had at least doubled real per capita GDP since 1990.  Within this group, I defined a middle-income success as having achieved a level of real per capita GDP in 2014 of at least $10,000.  An upper-income success requires a level of at least $20,000 (the numbers are in 2011 US dollars and factor in international adjustments for changes in purchasing power). With these criteria, the world’s middle-income convergence success stories comprise China, Costa Rica, Indonesia, Peru, Thailand, and Uruguay (Uruguay is a surprise, apparently boosted by dramatic migration of human capital out of Argentina.)  The upper-income successes consist of Chile, Hong Kong, Ireland, Malaysia, Poland, Singapore, South Korea, and Taiwan.  A view that has gained recent popularity is the ‘middle-income trap’. According to this idea, the successful transition from low- to middle-income status is typically followed by barriers that impede a further transition to upper income. The data suggest that this trap is a myth.  Moving from low- to middle-income status, as achieved recently by China, is difficult. Conditional on achieving middle-income status, the further transition to upper-income status is also difficult.  However, there is no evidence that this second transition is harder than the first one.

      China’s Antigraft Campaign Isn’t ‘House of Cards,’ People’s Daily Says - If China’s anticorruption crusade is working so well in cleaning up the Communist Party, why is Beijing worried that some think that the campaign is really just a struggle for political power?Two recent authoritative commentaries—one in Chinese, the other in English—reiterated last week what President Xi Jinping insisted during his trip to the United States last fall: That the effort to fight graft shouldn’t be seen as resembling the popular American television series “House of Cards,” which depicts a Machiavellian-like struggle to simply gain power and hold on to it by eliminating potential political rivals. Instead, the essays both argue, China’s anticorruption campaign deserves less doubt and more support than it’s currently receiving.These commentaries are always important indicators of political sentiment in decision-making circles—in this case, signaling concern about the persistent disquiet within the Chinese government about President Xi’s emphasis on cleaning up the Party first and foremost, instead of focusing more effort on the problem of China’s stumbling economic growth. The fact that the editorials appeared in People’s Daily–the Party’s main platform for conveying the sentiments of Chinese leaders on major issues—shows that the anxiety about Xi’s anticorruption efforts hasn’t gone away and may now be getting louder.

      The Great Escape from China - Kenneth Rogoff – Since 2016 began, the prospect of a major devaluation of China’s renminbi has been hanging over global markets like the Sword of Damocles. No other source of policy uncertainty has been as destabilizing. Few observers doubt that China will have to let the renminbi exchange rate float freely sometime over the next decade. The question is how much drama will take place in the interim, as political and economic imperatives collide. It might seem odd that a country running a $600 billion trade surplus in 2015 should be worried about currency weakness. But a combination of factors, including slowing economic growth and a gradual relaxation of restrictions on investing abroad, has unleashed a torrent of capital outflows.  Private citizens are now allowed to take up to $50,000 per year out of the country. If just one of every 20 Chinese citizens exercised this option, China’s foreign-exchange reserves would be wiped out. At the same time, China’s cash-rich companies have been employing all sorts of devices to get money out. A perfectly legal approach is to lend in renminbi and be repaid in foreign currency. A not-so-legal approach is to issue false or inflated trade invoices – essentially a form of money laundering. For example, a Chinese exporter might report a lower sale price to an American importer than it actually receives, with the difference secretly deposited in dollars into a US bank account (which might in turn be used to purchase a Picasso)

      U.S. Treasury Secretary urges China to communicate FX policy clearly - (Reuters) - U.S. Treasury Secretary Jack Lew reiterated to China the importance of transitioning to a market-determined exchange rate in an orderly and transparent way, the Treasury said on Wednesday. During a phone call with Chinese Vice Premier Wang Yang on Tuesday evening, Lew also urged Beijing to clearly communicate its exchange rate policies and actions to financial markets, the Treasury said in a statement. Wang said in the call that China remained capable of keeping the exchange rate of China's currency, the renminbi, "basically stable at a reasonable and balanced level", the official Xinhua news agency reported late on Wednesday. Xinhua added Wang and Lew also discussed how to push forward a bilateral investment treaty, under discussion for much of last year, to help improve business ties between the two countries.

      Chinese Companies Are Shopping Abroad at Record Pace - WSJ: Chinese companies have launched a record wave of foreign acquisitions in the first few weeks of 2016 as they seek inroads into overseas markets amid China’s slowing economy and falling currency. China National Chemical Corp., known as ChemChina, on Wednesday said it would pay $43 billion to buy Swiss pesticide maker Syngenta AG SYT 2.16 % in a deal that, if approved by Syngenta shareholders and regulators, would be the largest foreign takeover by a Chinese company.Including the ChemChina deal, the combined value of China’s outbound mergers and acquisitions has reached about $68 billion so far this year, the strongest volume ever for this period and already more than half of 2015’s record annual tally, according to deal tracker Dealogic. Other Chinese companies, such as Haier Group and China Cinda Asset Management Co., have also been ramping up their foreign-asset purchases in recent years as China looks to bolster its capabilities in industries including agribusiness, real estate and energy. The flurry of deals is providing a jolt of attention to the world’s second-largest economy after the U.S. as it suffers from its weakest growth in 25 years and its volatile stock market panics investors globally. Companies such as ChemChina that are run by China’s government—or state-owned enterprises—are among those buying. A push by President Xi Jinping to boost overseas trade through the “One Belt, One Road” initiative aims to open up new markets from Central Asia to Europe for Chinese companies that previously focused at home.

      Baltic index continues fall to new record low - The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying industrial commodities, continued its fall to close at a fresh record low on Friday. The overall index, which gauges the cost of shipping dry bulk including iron ore, cement, grain, coal and fertiliser, dipped eight points or 2.46 percent to 317 points. A slowdown in the Chinese economy, which grew at its slowest pace in a quarter of a century in 2015, and a huge over-capacity in vessels has kept the index exploring new all-time lows for most of 2016. The index has fallen over 10 percent this week. The capesize index fell five points or 2.31 percent to 211 points. Average daily earnings for capesize vessels, which typically transport 150,000-tonne cargoes such as iron ore and coal, decreased by $66 to $2,785. Freight rates for capesize bulk carriers on key Asian routes are likely to stay flat as vessel volumes outpace cargo demand and the approaching Chinese New Year holiday further dampens chartering activity, ship brokers said on Thursday. The panamax index dropped six points or 2.05 percent to a new record low of 287 points. Average daily earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, fell $49 to $2,299.

      World's Biggest Containership "Hard Aground" As Baltic Dry Crashes Below 300 For First Time Ever -- Before this year the lowest level The Baltic Dry Index had reached was 556 in August of 1986 and the highest was in June 2008 at a stunning 11,612. Today saw the freight index hit a new milestone however, crashing through the 300 barrier for the first time ever - at 298, this is almost 50% below the previous record low.And as Dana Lyons notes, of course much of the input into the BDI comes from the price of raw materials. Considering the deflationary spiral in commodities, the drop in the BDI to all-time lows shouldn’t be a shock. However, the depths that the index is now plumbing is quite alarming and suggests trouble in the global trade picture. It would also suggest perhaps that the deflationary pressure is not just a supply issue. Consider every prior drop in the Baltic Dry Index down to the 500-600 level. Each time, the index immediately jumped as if latent demand was just waiting for those lower prices. That development has not yet occurred this time around, even as prices are reaching 45% below the previous record low.The Baltic Dry Index has become a trendy thing to mention in recent years when discussing global market and economic conditions. The truth is, nobody really ever knows for sure what the broader message is behind the index’s behavior. That said, this recent plunge is making it quite difficult to conceive that it means anything positive in terms of the global economy and deflationary pressures. And finally it's not just commodities and the Baltic Dry that stalled, as gCaptain reports, one of the world’s biggest containerships is hard aground in Germany’s Elbe River leading to the port of Hamburg.

      Global Trade Collapsed In January: Bellwether South Korea Exports Crash "Most Since Lehman" As the first major exporting nation to report each month, all eyes and hopeful speculative capital was glued to tonight's South Korean trade data. After a brief respite in November, December's drop was worrisome, but January's just reported 18.5% crash - the most since the financial crisis - has only been seen during a US economic recession. Worse still, South Korean imports plunged over 20% in January as it appears crashing crude and cliff-diving freight indices are less about supply and more about demand (there is none) after all. Furthermore, with China accounting for around one quarter of South Korean exports - and following a 16.5% YoY plunge in December - tonight's headline data suggests January was a total disaster for the Chinese economy also... though later we will get the PMI data to explain everything.

      Toxic Loans Around the World Weigh on Global Growth - Beneath the surface of the global financial system lurks a multitrillion-dollar problem that could sap the strength of large economies for years to come.The problem is the giant, stagnant pool of loans that companies and people around the world are struggling to pay back. Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising. China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.Official figures show that Chinese banks pulled back on their lending in December. If such trends persist, China’s economy, the second-largest in the world behind the United States’, may then slow even more than it has, further harming the many countries that have for years relied on China for their growth.But it’s not just China. Wherever governments and central banks unleashed aggressive stimulus policies in recent years, a toxic debt hangover has followed. In the United States, it took many months for mortgage defaults to fall after the most recent housing bust — and energy companies are struggling to pay off the cheap money that they borrowed to pile into the shale boom. In Europe, analysts say bad loans total more than $1 trillion. Many large European banks are still burdened with defaulted loans, complicating policy makers’ efforts to revive the Continent’s economy. Italy, for instance, announced a plan last week to clean out bad loans from its plodding banking industry. Elsewhere, bad loans are on the rise at Brazil’s biggest banks, as the country grapples with the effects of an enormous credit binge.

      How Japan sees China's island-building 'problem': China's buildup on islands in the South China Sea is not the act of a responsible member of the global community, a top Japanese official told CNBC.Shinsuke Sugiyama, deputy foreign minister of Japan, said Wednesday that his government views Beijing's seizures and buildup on islands and reefs in the South China Sea as a "problem" for the region. "We see the unilateral change of status quo as not consistent with ... something that a giant and responsible member of the international community should do," Sugiyama said, adding that his government has taken note of China's claims that the islands are not intended for military use. South China Sea tensions have steadily been rising since 2014, when China parked an oil rig near Vietnam and began building a reef into an island featuring a functioning landing strip. Many islands in the region are jointly claimed by some combination of China, Vietnam, the Philippines and Malaysia. Although other countries have built up their own islands in the area, Sugiyama said the establishment of an aircraft-accommodating outpost "is giving us and (neighboring countries) a problem."

      Bank of Japan tries another flavour of QE - Gavyn Davies -- The grisly month of January, 2016 in the global financial markets has ended on a somewhat brighter note. Risk assets bottomed on 20 January, and since then they have recovered almost half of the losses incurred earlier in the month. Nevertheless, global equities still fell by over 5 per cent in the month as a whole. The partial recovery has been triggered by a series of policy adjustments in China, the oil market, and the major central banks, all of whom have shifted in a more dovish direction in recent days. The latest to act is the Bank of Japan (BoJ), which introduced a new flavour of monetary easing on Friday. They have given it a snappy title: “Quantitative and qualitative monetary easing (QQE) with a negative interest rate”. Roughly translated, they are still throwing the monetary kitchen sink at the economy, and have hinted that they might even increase the scale of the stimulus later in the year. Some analysts have described the latest surprise announcement as “a very big regime change”. Compared to what has come before, that is probably an overstatement. On the Richter scale of unconventional monetary policy changes, it is not as significant as the two great Kuroda bazookas in April 2013 and October 2014, both of which had profound market consequences. The BoJ’s official reason for acting this month was a familiar one. The downside risks from global events were deemed to have increased, and the attainment of its 2 per cent inflation objective was delayed by about 6 months into the first half of fiscal 2017. Mr Kuroda mentioned several times that he was concerned that Japan’s “deflationary mindset” should be defeated, once and for all. Furthermore, the BoJ is clearly worried about the consumption tax increase scheduled for April 2017, which is likely to reduce GDP growth by about nearly 1 percentage point. The key to the new arrangement is that negative policy rates will be paid on only a small part of the commercial banks’ holdings of liquid assets at the BoJ. When monetary policy is operating in a conventional framework, the central bank usually changes the interest paid on the entirety of the bank’s holdings of reserve assets, or at least those required under regulatory reserve requirements. The market then adjusts all money market rates accordingly.

      Bank of Japan warms up the potato -- Will the Bank of Japan's negative rates work? Many people say no, among them Louis-Phillippe Rochon: Sadly, they won't. They [negative rates] are based on a faulty understanding of our banking system. The reason banks do not lend is not because they are constrained by liquidity, but because they are unwilling to lend in such uncertain times.Banks lend in the hope of getting reimbursed with interest. But banks are too pessimistic about the ability of the private sector to honour their debt, and so prefer not to lend. Having extra cash courtesy of the central bank imposing negative rates won't change the dark economic narrative. [link] I disagree. Even if the lending channel is closed, a negative rate policy still sets off a hot potato effect that gets the Bank of Japan a bit closer to hitting its inflation targets and stimulating nominal GDP than without that same policy. The moment the BoJ reduces the rate on deposits it creates a hot potato; an asset with a below-market return that its owner is desperate to be rid of. Bank reserve managers will simultaneously try to sell off their BoJ deposits in order to get a better return in short term corporate and government debt. In aggregate, however, banks cannot get rid of reserves, which pushes the prices of these competing short-term assets up and their expected returns back in line with the return on balances held at the central bank, a process that continues until reserve managers are indifferent on the margin between owning BoJ deposits and short term corporate/government debt.

      The Potential Power of Negative Nominal Rates - Narayana Kocherlakota -- Last week, the Bank of Japan (BOJ) lowered its marginal bank deposit rate below zero. Its action followed similar moves by many European central banks. In this post, I’ll discuss how negative nominal interest rates can be a useful tool of monetary policy. I’ll argue that central banks can only achieve the full power of this new tool if they treat it as completely standard, as opposed to a temporary emergency measure. Why might negative nominal interest rates be desirable to a central bank? The general thinking in economics is that the incentives to spend, rather than save, are shaped by the real (that is, net of inflation) interest rate. Negative nominal interest rates allow a central bank to achieve lower real interest rates, without raising inflation expectations.  It has much the same benefits as raising the inflation target, without the costs associated with higher inflation. There have to be limits on how negative nominal interest rates can go. Households and businesses always have the option to switch to cash, which has an apparent nominal yield of zero. But cash is relatively bulky and is not always easy to store or transport safely. These costs mean that the true nominal yield to cash is less than zero. The experience in Europe has suggested that cash’s costs allow central banks to lower nominal interest rates much further below zero than might have been thought. So, negative nominal interest rates give a central bank more policy space. My second - and main point - is that this space will be of little use unless negative nominal interest rates are deployed in conjunction with the right central bank communication.

      Er, what lower bound? And $5.5tn worth of negative nuts  ICYMI, and on the back of the BoJ going negative, “the universe of DM government bonds trading with a negative yield rose to a record high of $5.5tr, or 24% of the JPM Global Government Bond Index,” according to JPM. And it’s probably going to get nuttier, what with yield seekers now leaking out of Japan and into the global bond markets at, presumably, a greater pace. From JPM again, with our emphasis: The BoJ reinforced this year’s decline in global government bond yields even as risky markets rebounded. The rally was not confined to JGBs, but spread across core government bond markets in anticipation that the search for yield will leak out of Japan into European and US government bond markets. That leakage has been strong over the past year. During 2015, Japanese investors bought on average $2bn per week of foreign bonds. Today’s shift in BoJ policy will most likely strengthen Japanese investors’ foreign bond purchases going forward.This expansion of the universe of negative yielding bonds is creating problems for the ECB. The amount of euro area government bonds trading with yield less than -40bps (the assumed ECB depo rate from March onwards) and with maturity greater than two years, increased sharply to above €250bn, of which €200bn are German (Figure 2). At the moment, around 6% of the €4.2tr universe of 2y-30y euro area government bonds and around 19% of the €740bn universe of 2y-30y German government bonds are trading below -40bp, making them ineligible for the ECB’s bond purchase program, even after assuming a depo rate cut to -40bp in March. In other words, the BoJ’s policy actions are effectively forcing the ECB to chase its own tail and extend the duration of its purchases.… because of continued QE-related bond purchases, the portion of reserves subjected to the negative depo rate will likely rise from 1-2% currently towards 15% into 2017

      U.S. says summit with ASEAN nations 'not anti-China' | The Japan Times: – A summit with Southeast Asian leaders that President Barack Obama will host this month is “not anti-China,” a State Department official said Tuesday. The meeting will bring leaders from the 10-nation Association of Southeast Asian Nations at the California resort of Sunnylands on Feb. 15 and 16. “This summit is not about China. It’s about the U.S. and ASEAN,” U.S. Assistant Secretary of State for East Asia Daniel Russel said in an interview with the AP, Reuters and AFP news agencies. “This is not about China, this is not anti-China.” The U.S. administration has focused on bolstering ASEAN as a counterpoint to Chinese regional power. “This is the culmination of a seven-plus-year investment the United States has made first and foremost in the Asia pacific region, but also in ASEAN in particular,” Russel said. “I think it demonstrates that the rebalance has reached cruising altitude,” he added, referring to the Obama administration’s focus on its “pivot” toward Asia since 2009. Several ASEAN states are embroiled in an increasingly bitter spat with China over disputed territory in the South China Sea. The U.S. says it takes no position on ownership of the various reefs and islets under dispute, but insists freedom of navigation in the vital shipping lane must be maintained.

      Pakistan Will Provide 'Special Force' to Defend Chinese Investments -- Pakistan plans to create a “special force” of 10,000 troops to protect Chinese workers and industries along the China-Pakistan Economic Corridor (CPEC), a Pakistani minister said on Wednesday. Pakistan’s Minister of State for Foreign Affairs Syed Tariq Fatemi made the announcement in Beijing, where he held talks with Chinese officials (including State Councilor Yang Jiechi). According to People’s Daily, Fatemi said that Pakistan has decided to create a special force of “highly trained military people” whose “task will be to provide the necessary safety and security of Chinese working in Pakistan and the Chinese companies and industries set up there.” He added that the new force “will be specially equipped and will have special organizations in concerned ministries backing them.” Fatemi said the decision reflects Islamabad’s strong commitment to the CPEC project. He also said that the Pakistani government would take additional security steps as needed, based on regular discussions with China. CPEC is a massive undertaking that will see China pump $46 billion in investments in Pakistan, in sectors from railways to energy to industry (here’s a list of the various projects from Pakistan’s Ministry of Planning, Development, and Reform). China has pegged the CPEC, which links Pakistan’s Gwadar Port with Kashgar in China’s Xinjiang province, as a “flagship project” of its larger “Belt and Road” initiative.

      $4 billion 'misappropriated' from Malaysia, 1MDB investigation reveals - Nearly $4 billion has been "misappropriated" from the Malaysian government, according to the office of the Swiss Attorney General. The findings follow an investigation into the 1 Malaysia Development Berhad (1MDB), a state-owned fund formed in 2009 to invest in property, infrastructure and energy projects. Swiss prosecutors said the misappropriated money was intended for the "economic and social development of Malaysia." Authorities discovered a "small portion" of the funds has been transferred to Swiss bank accounts of Malaysian and United Arab Emirates officials. The affected Malaysian corporations have not yet commented on the suspected losses. The Swiss government is requesting legal compliance from Malaysia in order to confirm that the money is missing. Read More CNN has reached out to 1MDB for comment on the accusations. Malaysia Prime Minister Najib Razak, who founded and is the chair of 1MDB, was accused of siphoning money from the investment fund recently after RM2.6 billion ($681 million) was transferred into his accounts.

      TPP gives no ground for legal disputes: Robb: Trade Minister Andrew Robb is confident the Australian government won't be sued under investor-state dispute clauses in the Trans-Pacific Partnership deal. Mr Robb is in Auckland with counterparts from 11 other nations to put pen to paper on the deal. 'I'm very confident that what is in the TPP which protects public policy on health and environment will ensure that we are safe,' he told Sky News on Thursday.Investor-state dispute settlement clauses allow foreign investors the right to access an international tribunal if they believe actions taken by a host government breach its investment obligations. The opposition holds concerns about the dispute settlement provisions, which allow foreign investors to sue the government if their profits are affected by any Australian law or policy. Mr Robb insists the government has had enough time to examine the 6000 page trade document ahead of Thursday's signing. The deal will then go before the parliaments of participating nations.

      TPP Deal Signed in New Zealand: The controversial Trans Pacific Partnership (TPP) deal has been formally signed in Auckland, New Zealand, despite concerns over the agreement’s transparency and potential to increase income inequality. The US-led initiative was agreed to in October and includes 12 countries across the Pacific Rim, including Singapore, Mexico, Malaysia, Japan, Canada, New Zealand, Brunei, Chile, Australia, Peru, Vietnam, and the US.  The deal still must be ratified by individual governments of the signing countries, as well as the US Congress, and with less than one year left in his term, President Obama is struggling to convince legislators to vote in favor of the hotly-debated pact.

      "Time To Panic"? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up -- Having urged "don't panic" just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after a ll.In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system. In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a "Treasury Single Account" (TSA) at the central bank. The policy is part of new President Muhammadu Buhari's drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa's biggest economy - playing havoc with banks' liquidity ratios. With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria's energy revenues that has hit the naira currency and triggered flows of capital out of the country. Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves. Since taking office in May, Buhari has vowed to rein in Nigeria's dependency on oil exports which account for 90 percent of foreign currency earnings. However, he has faced criticism from investors for failing to appoint a cabinet yet or outline concrete policies.

      Boko Haram burns kids alive in Nigeria, 86 dead: officials — A survivor hidden in a tree says he watched Boko Haram extremists firebomb huts and heard the screams of children burning to death, among 86 people officials say died in the latest attack by Nigeria’s homegrown Islamic extremists. Scores of charred corpses and bodies with bullet wounds littered the streets from Saturday night’s attack on Dalori village and two nearby camps housing 25,000 refugees, according to survivors and soldiers at the scene just 5 kilometers (3 miles) from Maiduguri, the birthplace of Boko Haram and the biggest city in Nigeria’s northeast. The shooting, burning and explosions from three suicide bombers continued for nearly four hours in the unprotected area, survivor Alamin Bakura said, weeping on a telephone call to The Associated Press. He said several of his family members were killed or wounded. The violence continued as three female suicide bombers blew up among people who managed to flee to neighboring Gamori village, killing many people, according to a soldier at the scene who insisted on anonymity because he is not authorized to speak to journalists. Troops arrived at Dalori around 8:40 p.m. Saturday but were unable to overcome the attackers, who were better armed, said soldiers who spoke on condition of anonymity because they were not authorized to speak to the press. The Boko Haram fighters only retreated after reinforcements arrived with heavier weapons, they said.

      Lending to emerging markets comes to halt - The surge in lending to emerging markets that helped fuel their own — and much of the world’s — growth over the past 15 years has come to a halt, and may now give way to a “vicious circle” of deleveraging, financial market turmoil and a global economic downturn, the Bank for International Settlements has warned. “In the risk-on phase [of the global economic cycle], lending sets off a virtuous circle in financial conditions in which things can look better than they really are,” said Hyun Song Shin, head of research at the BIS, known as the central bank of central banks. “But flows can quickly go into reverse and then it becomes a vicious circle, especially if there is leverage,” he told the FT. That reversal has already taken place, according to BIS data released on Friday. The total stock of dollar-denominated credit in bonds and bank loans to emerging markets — including that to governments, companies and households but excluding that to banks — was $3.33tn at the end of September 2015, down from $3.36tn at the end of June. It marks the first decline in such lending since the first quarter of 2009, during the global financial crisis, according to the BIS. The BIS data add to a growing pile of evidence pointing to tightening credit conditions in emerging markets and a sharp reversal of international capital flows. On Thursday, Christine Lagarde, managing director of the International Monetary Fund, warned of the threat to global growth of an impending crisis in emerging markets. The Institute of International Finance, an industry body, said last month that emerging markets had seen net capital outflows of an estimated $735bn during 2015, the first year of net outflows since 1988. In November, the IIF warned of an approaching credit crunch in EMs as bank lending conditions deteriorated sharply. This month, it said a contraction over the past year in the liquidity made available to the world’s financial system by central banks, primarily those in developed markets, now presented more of a threat to global growth than the slowdown in China and falling oil prices.

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

      Contract Law and Ukraine's $3 Billion Debt -- The Russian government has announced announced that it plans to initiate legal proceedings against Ukraine by the end of the month to recover the $3 billion in bond debt now in default. It's not yet clear whether the proceedings will be in English courts or in arbitration. Officials in Ukraine say they expect to win. At first glance, that seems like posturing; after all, Ukraine borrowed $3 billion and didn't pay it back. But as it turns out, Ukraine has some pretty decent arguments, which if successful might excuse (or allow it to defer) the obligation to pay. Some of those arguments involve international law, and I'm a bit skeptical that those will succeed. But as I explain in a short new paper, Ukraine's contract-law arguments might fare somewhat better. Here's the abstract to the paper:  Russia has announced that it will initiate proceedings by the end of January (likely in arbitration) to recover the $3 billion debt owed by Ukraine. The Russia-Ukraine dispute is unique in the annals of sovereign debt litigation. It is a politically and militarily fraught conflict wrapped in a garden-variety, English-law contract dispute. The dispute may settle, and if so its resolution will depend largely on political and economic considerations. Yet the resolution will occur in the shadow of basic contract law, which is surprisingly relevant. Indeed, there are a number of plausible arguments available to Ukraine, which, despite the unusual facts, may excuse (or allow it to defer) its obligations to Russia. It would be understandable for judges and arbitrators to hesitate before weighing in on such a politically-charged dispute, but Russia’s insistence on acting like a private creditor leaves little choice.

      And this is why you don’t screw up post-USSR Russia Ian Welsh - Sigh. These days most Russians regard the loss of the USSR as a negative event. A poll conducted this month by the independent Levada Center found that 63 percent see the collapse “negatively” while just 14 percent think it was a “positive” event. Asked which type of political system they would prefer to live under, 13 percent named “Western democracy,” 23 percent said the present Russian setup was best, while 37 percent said the Soviet system would be most desirable. As the article itself says, the USSR was a superpower, it produced consumer goods Russia does not (produced, not bought from other countries) and it claimed to seek to create a better world. This wasn’t necessary.  But we, the West, deliberately chose to wreck Russia thru shock therapy: we sold everything off as fast as we could, dismantled industries, allowed oligarchs to rise and generally plundered the country.  Russia mortality actually exceeded births, the average of death dropped, and so on. It was a terrible time. The joke back then, was everything the Communists told us about Communism was a lie.  Unfortunately everything they told us about Capitalism was true. Sigh. The stage is now set for a new ideology, claiming to fix the failures of Communism, but keeping its ideals.

      The End of the New Normal? - Mohamed A. El-Erian  – Just when the notion that Western economies are settling into a “new normal” of low growth gained mainstream acceptance, doubts about its continued relevance have begun to emerge. Instead, the world may be headed toward an economic and financial crossroads, with the direction taken depending on key policy decisions. In the early days of 2009, the “new normal” was on virtually no one’s radar. Of course, the global financial crisis that had erupted a few months earlier threw the world economy into turmoil, causing output to contract, unemployment to surge, and trade to collapse. Dysfunction was evident in even the most stable and sophisticated segments of financial markets. Yet most people’s instinct was to characterize the shock as temporary and reversible – a V-shape disruption, featuring a sharp downturn and a rapid recovery. After all, the crisis had originated in the advanced economies, which are accustomed to managing business cycles, rather than in the emerging-market countries, where structural and secular forces dominate. But some observers already saw signs that this shock would prove more consequential, with the advanced economies finding themselves locked into a frustrating and unusual long-term low-growth trajectory.

      New York Times’ Bank-Boosting, Neoliberal-Excusing Story of the Global Debt Hangover  - Yves Smith - The lead story at the New York Times today, Toxic Loans Around the World Weigh on Global Growth by Peter Eavis, gives a one-sided view of the problem of too many bad loans around the world that have yet to be recognized and resolved. It’s an economically warped account that leaves important policy options off the table. The big tell is that the article has nary a mention of the idea of restructuring loans, which is the time-honored way that banks deal with problem loans. A former McKinsey partner who was in charge of workouts at General Electric, which had a huge financial services arm and a boatload of drecky debt in the early 1990s, named one of his conference rooms “Triage” and the other “Don Quixote”. And in some sense, that illustrates the poles of how to deal with an underwater borrower: see if they can survive or not, and deal with them accordingly, or engage in various “extend and pretend” strategies. Another bankers’ saying is “A rolling loan gathers no loss,” meaning you can keep making a hopeless borrower look viable, sort of like propping up a corpse and putting enough perfume on it to hide the stink, by giving new loans so they can keep paying interest (see Greece as a textbook case).

      Euro zone factory growth slows at start of 2016, PMI shows | Reuters: - Factory growth across the euro zone slowed at the start of 2016 as incoming orders failed to show any meaningful increase, even though companies cut prices at the deepest rate for a year, a survey showed on Monday. Markit's Purchasing Managers' Index will be disappointing reading for the European Central Bank, which left policy unchanged in January but hinted more easing more could be coming within months. The manufacturing PMI for the euro zone dropped to 52.3 from December's 53.2. That was in line with an earlier flash estimate and still above the 50 mark that separates growth from contraction. An index measuring output, which feeds into Wednesday's composite PMI, also fell. It registered 53.4 compared with December's 54.5, up from the flash 53.2 estimate. Global markets have been battered since the start of this year, hitting stock markets, commodities and oil prices, as concern grew that the Chinese economy, the world's second largest, is struggling. "The euro zone's manufacturing economy missed a beat at the start of the year. Growth of order books, exports and output all slowed," said Chris Williamson, chief economist at survey compiler Markit.

      Time to heed warnings of Syriza’s ex-finance minister Yanis Varoufakis - The former finance minister of Greece says people must work to save democracy from capitalism, otherwise the voracious economic system will completely devour the fragile political philosophy, he warned in a recent talk.  I was in attendance at a conference in Beirut last year when it was reported that Syriza, the left-wing Greek party, originally founded in 2004, had just done the impossible—or at least what we all thought was impossible. There was talk about ending austerity measures and Greece leaving the Eurozone: Grexit. Surely, a people’s victory in the US was just around the bend? At that moment, I felt hope that Athens would lead Europe and finally the United States in a people-focused policy that rejected neoliberalism and the nostrums of banksters. Indeed, after Syriza surged in Greece, Podemos made its appearance in Spain; Jeremy Corbyn won the nod for leader of the UK Labour Party; a leftist governing coalition was voted into power in Portugal. Suddenly, it seemed that the people finally had austerity on the run. The events in Europe gave me hope for a resurgence of progressive politicians in the US. And then the unthinkable occurred: Syriza dashed my hopes when they sat down at the negotiating table with Germany and the banksters to ease terms on the repayment of Greece’s debts to the EU. Yes, after the Greek people had voted Syriza into power, and then voted a resounding “No” to austerity policies in a referendum, Syriza was now at the bargaining table, agreeing to their demands. I couldn’t believe what I was witnessing: A real-time betrayal of its own values as well as the people by a political party created to be anti-austerity.

      Grexit Risk May Be Back Sooner Than You Think -  Yves Smith - Even though the talk of Grexit has receded from the headlines due to the Troika’s apparent success in reducing Greece to a vassal state, that operation is in fact not complete. Both unresolved elements of the seemingly permanent bailout negotiations, and a new set of confrontations created by the refugee crisis, means that the Greeks and their putative masters may be at loggerheads sooner rather than later. As an article in Politico describes, Greece and its creditors are still at odds over a key point in the funding talks: that of Greece’s supposedly lavish pension system. What the European press has conveniently failed to report is that Greece lacks most elements of the sort of social safety nets that other European countries have, such as disability insurance, and the pensions have wound up serving as one-stop shopping. The IMF actually appeared to appreciate the point, since in the later stages of the seemingly endless negotiations of early 2015, the agency put forward a proposal that would require Greece to create some proper social support programs as it cut pensions.  Here is the current state of play, per Politico: Greece’s creditors are heading to Athens this week to discuss Greece’s first review under the third bailout program.As has been the case many times before in Greece, this review should already have been completed and the funds released.The main sticking point is pension reform. The third bailout program calls for pension cost savings of 1 percent of GDP in 2016. The government has implemented measures achieving two thirds of that the target so far, leaving a gap of roughly €600 million.Syriza’s plans to make up the gap include higher contributions from farmers and the self-employed, an unpopular proposal that has led to widespread protests across the country. Considering that, according to the Small Enterprises’ Institute, more than 50 percent of Greek households relied on pensions as their main source of income in 2015, it’s no wonder pension cuts are a particularly toxic issue in Greek politics

      Large protest against Greek pension reform ends in violence: — Tens of thousands joined anti-government protests in Athens on Thursday as Greece was crippled by a general strike against a bailout-related overhaul of the country's ailing pension system. Police said some 40,000 people joined the demonstrations, which were mostly peaceful before sporadic clashes between anarchist protesters and police outside Parliament and in other parts of the city center. Police used tear gas and stun grenades against the dozens of hooded anarchists. Street vendors, tourists, and onlookers ran to safety as the violence broke out, while a journalist was attacked by rioters and taken to hospital but was not in serious condition, police said. Protests were also held in at least a dozen other Greek cities and towns, where several rallies were joined by protesting farmers driving their tractors. Unions are angry at pension reforms that are part of Greece's third international bailout. The government, which is led by the left-wing Syriza, is trying to overhaul the pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to pay up to three quarters of their income in pension contributions and taxes. Opposition to the reform has been widespread, uniting a disparate group of professions, including farmers, artists, taxi drivers, lawyers, doctors, vets, engineers and seamen. Thursday's general strike is the most significant the government of Prime Minister Alexis Tsipras, which is in coalition with the right-wing Independent Greeks, has faced since coming to power a little more than a year ago.

      Meanwhile In Greece, Familiar Scenes Are Back: General Strike, Molotov Cocktails, Tear Gas - Greece was fixed for a few months, when the so-called "anti-austerity" government of PM Tsipras which came to power just over a year ago did what each on its predecessors did by kicking the can and trading off what little sovereignty Greece has left for promises of more cash from Europe, but it is broken once again. Earlier today, services across Greece ground to a halt Thursday as workers joined in a massive general strike that cancelled flights, ferries and public transport, shut down schools, courts and pharmacies, and left public hospitals with emergency staff. Even the undertakers are striking. Thursday's general strike is the most significant the coalition government of Prime Minister Alexis Tsipras has faced since he initially came to power about a year ago. As an opposition party, Tsipras' radical left Syriza party had led opposition to pension reforms, but he was forced into a dramatic policy U-turn last year when he faced the stark choice of signing up to a third bailout or the country being kicked out of the eurozone. The strike comes as the government negotiates with Greece's international debt inspectors, who returned to Athens this week to review progress on the country's bailout obligations. The central Athens hotel where the inspectors were staying was heavily guarded by police.

      200 Swedes Storm Occupied Stockholm Train Station, Beat Migrant Children -- Sweden is losing its patience with refugees. In the wake of the sexual assaults allegedly perpetrated by men of “Arab origin” in Cologne, Germany on New Year’s Eve, the Swedish press revealed what certainly appeared to be a coverup related to a wave of similar incidents that apparently occurred at a youth festival and concert in central Stockholm’s Kungsträdgården last August. That ruffled the feathers of quite a few Swedes and then, earlier this week, we learned that a 22-year-old asylum center worker was murdered in a knife attack carried out by a 15-year-old Somali migrant named Youssaf Khalif Nuur, shown below.  Stockholm’s central train station has apparently been overrun by Moroccan migrant children who, according to reports, spend their days drinking, stealing, and accosting women.  On Thursday, Interior Minister Anders Ygeman said the country is set to deport some 80,000 of the 163,000 people who entered the country seeking shelter last year, but that wasn't good enough for the "football hooligan scene", who on Friday night "went on a rampage" at the train station in Stockholm where "hundreds" of masked men beat migrant children.  "A mob of black-clad masked men went on a rampage in and around Stockholm's main train station last night beating up refugees and anyone who did not look like they were ethnically Swedish," The Daily Mail reports. "Before the attack, the group of 200 people handed out xenophobic leaflets with the message 'Enough now'." The "thugs" were "allegedly linked to Sweden's football hooligan scene" - whatever that is."I was passing by and saw a masked group dressed in black ... start hitting foreigners," one witness said. "I saw three people molested." Here are the visuals:

      Over 10,000 migrant children missing: Europol - (AFP) - Over 10,000 unaccompanied migrant children have disappeared in Europe, the EU police agency Europol said Sunday, fearing many have been whisked into sex trafficking rings or the slave trade.Europol's press office confirmed to AFP the figures published in British newspaper The Observer, adding that they covered the last 18-24 months. The agency's chief of staff Brian Donald said the vulnerable children had disappeared from the system after registering with state authorities following their arrival in Europe. "It's not unreasonable to say that we're looking at 10,000-plus children," Donald said, adding that 5,000 had disappeared in Italy alone. "Not all of them will be criminally exploited; some might have been passed on to family members. We just don't know where they are, what they're doing or whom they are with." Donald said there was evidence of a "criminal infrastructure" established over the last 18 months to exploit the migrant flow.

      Austria To Pay Migrants €500 To Go Back Where They Came From - Late last month, we noted that Austrian Foreign Minister Sebastian Kurz was set to cut social benefits for refugees who failed to attend “special integration training courses.” Austria, like Germany and multiple other countries in the Schengen zone, is struggling to cope with the influx of asylum seekers fleeing the war-torn Mid-East. Of particular concern is the “integration” process whereby those hailing from “different cultures” are having a decidedly difficult time blending into polite Western society. Austria has sought to ameliorate the problem by providing helpful flyers featuring cartoons that depict acceptable and unacceptable behavior and by offering classes designed to teach migrants “laws and social norms.” Still, policymakers are skeptical. "Let’s not delude ourselves," Kurz said in January. "We have an intensive long lasting integration process ahead of us." That “intensive, long lasting process” will be mitigated by a plan to deport some 50,000 refugees. “Last year Austria had 90,000 asylum applications,” Kurz told Aargauer Zeitung. “This number is too high for a small country, and measured in terms of population, it is the second highest in Europe after Sweden.”

      Multinational corp or mafia? Hard to tell difference, says author - The controversy around Google’s tax deal with British tax officials grabbed headlines this past week, prompting further questions about how overseas criminals launder billions of pounds through the UK. Multinational corporations such as Google and Facebook minimize their European income tax bills through "favorable" tax schemes in countries like Ireland (aka the Double Irish), the Netherlands (aka the Dutch Sandwich), and Luxembourg, which they argue are legitimate. Google’s so-called "sweetheart deal" saw the internet giant pay £130 million, just 2%, to the UK taxman on its reported profits of £6 billion in Britain over the past ten years, which the European Commission says could be a breach of EU competition rules.  SNP wrote to European Commissioner to investigate Google-HMRC 'sweetheart deal'   While the British government has defended the deal, an online survey from YouGov Daily found that 71 percent of respondents believe the deal should be investigated by EU authorities. An author who literally wrote the book at the mafia in Naples, Italy, says the UK exchequer is also losing out on billions of pounds due to money laundering by various "organized crime" groups.

      Crippled EU is no longer the 'anarcho-imperial monster' we once feared - Telegraph: The point of maximum danger for British parliamentary democracy was 13 years ago, the high-water mark of EU hubris and triumphalism. Events moved with lightning speed from the Maastricht Treaty in 1992 until the rapturous closure of the EU's "Philadelphia" Convention in June 2003, and always in the one direction of ever closer union. Whether or not you care to speak of a "superstate", the thrust was entirely at odds with the principle of sovereign and self-governing nation states in Europe. Nobody can say the European elites lacked panache. In a fever of treaties they vaulted from the creation of the euro to a nascent foreign policy and defence union at Amsterdam in 1997. An EU intelligence cell and military staff were created in Brussels, led by nine generals and 57 colonels, with plans for a Euro-army of 100,000 troops, 400 aircraft and 100 ships to project power across the globe. They launched a European satellite system (Galileo) so that Europe would no longer have to be a "vassal" of Washington, in the revealing words of French leader Jacques Chirac. They set up a proto-FBI (Europol) and an EU justice department, replicating the structures of the US federal government one by one. They were equipping the EU with the apparatus of full-blown state.When Ireland voted no to the Nice Treaty - legally rendering it null and void - the Irish were swatted away. Nothing would stop this juggernaut. The furthest reach was the EU Convention gathered to draft “the Treaty to end all Treaties”, the European Constitution. It was supposedly launched in order to bring Europe closer to its citizens after anti-EU rioters set fire to Gothenburg, and as we began to hear the first drumbeats of populist revolt. The forum was immediately hijacked by EU insiders and used for the opposite purpose, a drama I witnessed first-hand as Brussels correspondent. The text asserted in black and white that "the Constitution shall have primacy over the laws of the member states".

      Drug smuggling is HSBC’s raison d’etre - The powerful bank is in the news for attempting to suppress a report into money laundering. This is no surprise as the company’s entire history, right up to the present day, is one of financing drug cartels. HSBC is not known for its transparency. Britain’s wealthiest company, with a stock market valuation of $215 billion, has enough advertising muscle in the British press to ensure that critical investigative pieces have been spiked in both the Sunday Times and the Daily Telegraph – in the latter case, causing that newspaper’s chief political commentator to resign in protest.  Then last year, the bank’s friends in the Swiss government sentenced the whistleblower  who exposed the bank’s massive facilitation of tax avoidance to five years in prison, the longest sentence ever demanded by the country’s public ministry for a banking data theft case. And back in 2011, HSBC was revealed to be the UK financial sector’s most enthusiastic user of tax havens, with no less than 556 subsidiary companies based in offshore jurisdictions. Tax havens, as leading expert Nicholas Shaxson notes, “are characterized by secrecy… what they are fundamentally about is escape – escape from the rules, laws, regulations of jurisdictions elsewhere. You move your money offshore and you can then escape the laws that you don’t like”.

      You can’t have helicopter money and high interest rates, Adair - Prompted by Adair Turner in an exchange on Twitter, I read this paper of his delivered to the IMF.  The paper is one to set current and former central bank pulses racing.It’s a measure of how far the crisis has led some to think the previously unthinkable that a name mentioned as a candidate for the Governorship of the Bank of England is now writing forcefully about the advantages of helicopter money.  Even pushing it as an option to be preferred over debt financed fiscal policy and forward guidance. The exchange with Adair was prompted by him pointing out that helicopter money was a less dangerous option for the economy than negative interest rates.  To my mind, this does not make sense. Helicopter money leads to an increase in the supply of money and liquidity, and this will depress the price of money/liquidity, lowering the interest rate, in other words.  Put differently, the discount at which securities trade below face value will include compensation for the absence of liquidity, or moneyness.  But as money and liquidity become more abundant, money-like assets command less of a premium, and the compensation for its absence falls, raising the price towards the face value of the security, or, equivalently, lowering the interest rate.

      Pens down, class, and debts off the books, please - Readers interested in higher education funding and off-balance sheet sovereign debt might want to take a look at this story from Monday, by the FT’s Thomas Hale: Cardiff University has sold the lowest yielding higher education bond in British history, as the allure of rock bottom borrowing costs continues to entice universities into global capital markets.The £300m bond matures in 2055 and will pay investors 3.1 per cent per year. The borrowing cost was lower than that on any other UK university bond, according to HSBC, which worked on the deal.This sort of fundraising is becoming more and more popular, as cuts in government money has forced UK universities to go cap in hand to the capital markets when they want to build a shiny, new “innovation campus“.In fact, last year was a record, according to Dealogic, with £1.25bn worth of bonds being sold by UK universities The interesting thing about all of this is that universities in the UK, although closely linked to the government through the student loan system and funding bodies, are not strictly part of the public sector and so their finances aren’t included in things like the Office for Budget Responsibility’s public finances forecast.

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