M0 Money Supply Hints At Rate Hikes Later This Year -- There’s no chance that the Federal Reserve will announce a rate hike at its monetary meeting next week, according to the Fed funds futures market. The implied probability that the central bank will lift the current 0.25%-to-0.50% range at the Apr. 27 FOMC confab is effectively nil via CME data (as of Apr. 19). It’s another story, however, when we look at the year-over-year change in the real (inflation-adjusted) monetary base (M0). By this measure, the central bank’s shift to a policy tightening stance continued in March. Real M0 fell 4.6% in year-over-year terms last month vs. the year-ago level. That’s the third decline in the last four months. A rate hike may be an unlikely scenario at next week’s FOMC meeting, but behind the scenes it appears that the groundwork is being laid for squeezing policy in the months ahead. Note, too, that US financial stress has increased substantially this year, according to the Cleveland Fed Financial Stress Index. This daily multi-factor benchmark has recently been printing at four-year highs–levels that reflect a “significant stress period,” as of Apr. 18. But another broadly defined measure of liquidity in the economy begs to differ. The weekly data for the Chicago Fed National Financial Conditions Index shows that financial conditions have become looser since February. Huh? How is the Treasury reacting? For the moment, a wait-and-see stance prevails, which isn’t surprising. With so many conflicting signals in the economic numbers, comments from Fed officials, and monetary data, it’s hardly a shock to find that the bond market’s less than decisive these days. The 2-year yield—considered the most sensitive on the yield curve for rate expectations—is more or less holding at a middling level relative to recent weeks—0.77% as of yesterday (Apr. 19), based on daily data from Treasury.gov.
Boston Fed Says "Markets Are Wrong," Rates Are Going Higher, Sooner -- Gold and bond prices dropped and stocks popped as yet another open-mouth operation went underway this evening from none other than Boston Fed president Eric Rosengren. Ahead of next week's FOMC meeting, and just days after another Fed president said no April hike, Rosengren spewed firth that "I don't think financial markets have it right." Of course, what this preacher means is that while stock markets are perfectly efficient (and correct), bonds and rate futures arec learly inefficient and "investor outlooks for Fed rate hikes are too pessimistic," because "the US economy is fundamentally sound." Seriously!! Of course, after a day of oil/stock rebounds on dismal disappointment in Doha, this makes perfect sense... Federal Reserve Bank of Boston President Eric Rosengren issued a stark warning to markets Monday, telling traders and investors they are seriously underestimating how many rate rises the U.S. central bank is likely to deliver over the next few years. "I don't think the financial markets have it right," Mr. Rosengren said in a speech given in New Britain, Conn., at Central Connecticut State University. "While I believe that gradual federal-funds rate increases are absolutely appropriate, I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets," he said.
Boston Fed's Rosengren: Outlook Does Not Justify Mkts FFR View (MNI) - While a gradual pace of increases in the fed funds rate is appropriate, Boston Federal Reserve Bank President Eric Rosengren said Monday financial markets are too pessimistic in their view of rate increases over the next few years. "While I believe that gradual federal funds rate increases are absolutely appropriate, I do not see that the risks are so elevated, nor the outlook so pessimistic, as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets," Rosengren said in a speech prepared for the American Savings Foundation Distinguished Lecture at Central Connecticut State University. Rosengren, a voter this year on the policymaking Federal Open Market Committee, elaborated on an idea he put forth in an April 4 speech on cyber and economic risks. He also warned Monday of the need to hike faster if the FOMC waits too long to raise rates, sounding like some of his more hawkish colleagues. "In my view the very shallow path of rate increases implied by financial futures market pricing would likely result in an overheating that necessitates the Fed eventually raising interest rates more quickly than is desirable, which could endanger the ongoing recovery and continued growth," he said. Federal funds futures currently reflect the expectation of approximately one-quarter of a percentage point increase in each of the next three years, he said. On Monday, futures showed only about 12% expected rate hike at the June meeting, and the odds of a hike at the December meeting were only about 50%. The fact that the federal funds futures market does not price a 25 basis point increase in the federal funds rate with near-certainty until 2017 "is even more striking," Rosengren said. "In my view, such dour interest rate projections do not seem consistent with the outlook for the economy that I and many others share."
A Decelerating Economy Puts The Fed On Hold: The world has changed since late last year. When the Fed met recently in March, it noted that risks stemming from overseas conditions were among the significant factors contributing to the decision to take no action (i.e., not to raise interest rates) at that meeting. Recently, Fed Chair Janet Yellen further telegraphed in a recent speech that these worries about overseas markets and economies may perhaps keep the Fed from any aggressive tightening schedule - but, as always, indicated the Fed is data dependent. The Fed anticipates raising rates twice this year, but Fed funds futures from the CME indicate that the markets are uncertain of even one. These worries aren't misplaced. Indeed, conditions here at home paint a portrait of decelerating economic activity, visible through a variety of metrics. What's more, these signals show declining growth rates occurring over the course of the past several years - this is not a new, sudden development. Note that a declining rate of growth does not mean the economy is actually contracting, and nor does it necessarily signal any incipient recession. What it does mean, though, is that the economy isn't likely strong enough to warrant higher rates right now. Let's explore using a graphical expression of economic data, covering consumer spending, construction, and manufacturing. The outlier, though, is continued employment gains, which have even accelerated while consumer spending growth slowed. This presents a puzzle to policymakers: If more consumers are working, and they are earning more, and they enjoyed a sharp drop in fuel prices, why aren't they spending it?
Chicago Fed: US Economic Output Continued To Slow In March - US economic activity continued to decelerate in March, according to this morning’s update of the Chicago Fed National Activity Index (CFNAI)—a multi-factor benchmark that tracks dozens of indicators. The index’s three-month average (CFNAI-MA3) eased to -0.18, a three-month low. That’s still well above the tipping point (-0.70) that marks the start of new recessions. Yet today’s update reaffirms the view that US growth slowed in the first quarter—a slowdown that’s expected to deliver a disappointing Q1 GDP report when the Bureau of Economic Analysis publishes its “advance” report next week. Meantime, the negative print for CFNAI-MA3 reflects economic growth that’s below the historical trend. Today’s revised numbers show that CFNAI-MA3 has been at or below zero for the past 14 months. In other words, US output overall has been relatively weak for more than a year. And it may get even weaker, or so the monthly data implies. Note that the monthly reading of CFNAI for March tumbled to -0.44—the lowest in more than two years. Although the monthly data tends to be noisy vs. the comparatively reliable three-month values, last month’s value emphasizes that the sluggish macro trend of late deteriorated sharply at the end of the first quarter.
Chicago Fed: "Index shows economic growth below average in March" -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth below average in March The Chicago Fed National Activity Index (CFNAI) edged down to –0.44 in March from –0.38 in February. Three of the four broad categories of indicators that make up the index decreased from February, and all four categories made nonpositive contributions to the index in March. The index’s three-month moving average, CFNAI-MA3, decreased to –0.18 in March from –0.11 in February. March’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.
March 2016 CFNAI Super Index Declined. Well Below Expectations.: The economy's growth worsened based on the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average - and remains well below the historical trend rate of growth (but still above levels associated with recessions). The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - declined from -0.11 (originally reported as -0.07 last month) to -0.18. Four of the four elements of this index are in contraction. The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event. There was no market expectations from Bloomberg. This index is a rear view mirror of the economy. A value of zero for the index would indicate that the national economy is expanding at its historical trend rate of growth, and that a level below -0.7 would be indicating a recession was likely underway. Econintersect uses the three month trend because the index is very noisy (volatile).
GDPNow Holds Steady at 0.3% as Low Inflation Adds to GDP, Housing Subtracts - The Atlanta Fed GDPNow Forecast remained at +0.3% following recent economic reports. Today’s grim housing report subtracted a bit from GDP, but the CPI which only rose 0.1% for the month added to GDP. The net effect of the two cancelled out. Latest forecast: 0.3 percent — April 19, 2016 - The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.3 percent on April 19, unchanged from April 13. After last Thursday’s Consumer Price Index release from the U.S. Bureau of Labor Statistics, the forecast for first-quarter real consumer spending growth ticked up from 1.8 percent to 1.9 percent. After this morning’s report on new residential construction from the U.S. Census Bureau and the Department of Housing and Urban Development, the forecast for real residential investment growth declined from 9.0 percent to 8.5 percent.
The Conference Board Leading Economic Index® (LEI) for March increased - The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in March to 123.4 (2010 = 100), following a 0.1 percent decline in February, and a 0.2 percent decline in January. “With the March gain, the U.S. LEI’s six-month growth rate improved slightly but still points to slow, although not slowing, growth in the coming quarters,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Rebounding stock prices were offset by a decline in housing permits, but nonetheless there were widespread gains among the leading indicators. Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016.” The Conference Board Coincident Economic Index® (CEI) for the U.S. was unchanged in March, remaining at 113.3 (2010 = 100), following a 0.1 percent increase in February, and a 0.3 percent increase in January. The Conference Board Lagging Economic Index® (LAG) for the U.S. increased 0.4 percent in March to 120.9 (2010 = 100), following a 0.5 percent increase in February, and a 0.1 percent increase in January.
March 2016 Leading Economic Index - Slow Growth in the Coming Quarters: The Conference Board Leading Economic Index (LEI) for the U.S marginally improved this month - and the authors believe it "still points to slow, although not slowing, growth in the coming quarters". This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index's value at 0.1 % to 0.5 % (consensus 0.5 %) versus the +0.2 % reported. ECRI's Weekly Leading Index (WLI) is forecasting very slow growth over the next six months. Additional comments from the economists at The Conference Board add context to the index's behavior. The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.2 percent in March to 123.4 (2010 = 100), following a 0.1 percent decline in February, and a 0.2 percent decline in January. "With the March gain, the U.S. LEI's six-month growth rate improved slightly but still points to slow, although not slowing, growth in the coming quarters," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "Rebounding stock prices were offset by a decline in housing permits, but nonetheless there were widespread gains among the leading indicators. Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016." The Conference Board Coincident Economic Index® (CEI) for the U.S. was unchanged in March, remaining at 113.3 (2010 = 100), following a 0.1 percent increase in February, and a 0.3 percent increase in January.
Gerald Friedman: Why “Liberal” Economists Dish Out Despair Orthodox macroeconomics has become a place where visions die and hopes are banished, for both liberals and conservatives. When I conducted an assessment of Senator Bernie Sanders’ economic proposals and found that they could produce robust growth, the negative reaction among powerful liberal economists was swift and vehement. How much, I wondered, did this reflect personal disappointment being rationalized into a political economy of despair? Professional economists tend to embrace an economic theory that government can do little more than fuss around the edges. From that stance, what do they have to offer ordinary people for whom the economy is not working? Not a whole lot. How Gerald Friedman’s assessment of Bernie Sanders economic proposals prompted a rare public political spat among economists. It has certainly been a rough seven years for the liberal economists in the Obama Administration. Economic recovery has been slow, the slowest in the post-World War II era. Ambitious programs for reform of social insurance programs (such as unemployment insurance) and for public investment have been scaled back, and back. Yes, there is much that these economists who served Obama can be proud of: more people have health insurance, and the economy did not collapse. But the constant slog must have taken a toll. Having experienced so many compromises and disappointments, perhaps it is easier to say to those who expect more that it just can’t happen. There is comfort in the Thatcherite phrase: There Is No Alternative (TINA). The angry reaction to my report revealed that by some combination of rationalization and the dominance of neoclassical microeconomics since the 1970s, liberal economists have virtually abandoned Keynesian economics, which supported the notion that governments can and must intervene in the economy to ensure the best results for society. These economists went back to pre-Keynesian thinking, where price fluctuations are supposed to equilibrate supply and demand at full employment with an optimal distribution of good and services. The very suggestion that government action can result in increases in growth rates or wages is now taken to be obviously wrong. Adopting the language of neoclassical micro welfare economics, everything is already as good as can be — all that government can do is to make it worse. Criticisms of the orthodox model and its policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe to rationalize failure.
Caught in the Aftermath of a Minsky Moment by a Credibility Trap: This comment [quoted below] from someone I consider to be an ethical and intelligent mainstream economist was so eloquently put that I am using it on my site. It expresses almost perfectly why we have the broad movement growing in the US that rejects all the establishment candidates from both parties And it goes without saying that the words I put in front of it are completely my own, and most likely go far beyond what this person said so well.I think it is time for all of us to take a deep breath and seriously consider where our passions are taking us, and what our spirit of contentiousness and will to power is causing us to say and do. The ultimate irony is when we become that which we have hated. I do not seek to persuade you all. The kind of greed and lust for power and revenge we are seeing is driven not by normal desire but rather a pathology. Rather, I would wish all of us to step back, take a deep breath, and see what we may become before this goes too far. Saturday, April 16, 2016 at 05:32 AM (in reaction to the two recent PK columns on Sanders): "Paul Krugman has decided that if there is any way to destroy a decent, humble, caring, thoughtful candidate for president, a candidate who offers the possibility of actual change in domestic and foreign policies that have created so many problems for so many people for so long, if there is any way, any word that can be used, to destroy that candidate then destruction there will be. What Krugman has done however is show me what wild intolerance, what authoritarian political thinking in an American context amounts to, and the attempts by Krugman at destruction of a decent person and candidate will with me turn me completely away from the desired effect. Were I a student of Paul Krugman, I would smile and nod as if in agreement and very quietly go in the opposite direction. After all, I fortunately learned early on which teachers always had to be agreed with. I have no idea where this disdain for a truly decent person and candidate comes from, obviously not from the person, nor do I care about the psychology on where the disdain comes from. Krugman is being as fierce as can be, harsh as can be. I record the fierceness and harshness, know such an anti-intellectual posture can never be for me and move away. "As you know, I’m only saying these things because I’m a corporate whore and want a job with Hillary.
Saudi Arabia wants US to kill 9/11 bill, threatens to dump US assets worth $750 bn - report -- Saudi Arabia appears to be blackmailing the US, saying it would sell off American assets worth a 12-digit figure sum in dollars if Congress passes a bill allowing the Saudi government to be held responsible for the 9/11 terrorist attacks. The warning was delivered by Saudi Foreign Minister Adel al-Jubeir last month during a visit to Washington, the New York Times reported. He said his country would sell up to $750 billion in US treasury securities and other assets before the bill puts them in jeopardy. The newspaper said Riyadh's resolve to actually deliver on the threat is dubious, since selling off those assets would be technically challenging and would damage the dollar, against which the Saudi national currency is pegged. Under the current US law, foreign nations have a degree of immunity from being sued in American courts. The Foreign Sovereign Immunities Act of 1976 is one of the reasons why families of the September 11, 2001 terrorist attacks largely failed to bring to court the Saudi royal family and charities over suspicion of financially supporting the attacks. The bill introduced in the Senate would waiver the immunity for cases involving terrorist attacks that kill US citizens on US soil. Introduced by Republican Senator John Cornyn and Democrat Senator Chuck Schumer, it managed to overcome partisan divisions in the US legislation and passed without dissent through the Judiciary Committee in January.
Saudi King And Princes Blackmail The U.S. Government: What Happens Next -- Saudi Arabia, owned by the Saud family, are telling the U.S. Government, they’ll wreck the U.S. economy, if a bill in the U.S. Congress that would remove the unique and exclusive immunity the royal owners of that country enjoy in the United States, against their being prosecuted for their having financed the 9/11 attacks, passes in Congress, and becomes U.S. law. As has been well documented even in sworn U.S. court testimony, and as even the pro-Saudi former U.S. Secretary of State Hillary Clinton acknowledged privately, "Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.” She didn’t name any of those “donors” names, but the former bagman for Osama bin Laden, who had personally collected all of the million-dollar+ donations (all in cash) to Al Qaeda, did, and he named all of the senior Saud princes and their major business-associates; and, he said, "without the money of the — of the Saudi you will have nothing.” So, both before 9/11, and (according to Hillary Clinton) since, those were the people who were paying virtually all of the salaries of the 19 hijackers — even of the four who weren’t Saudi citizens. Here’s that part of the bagman’s testimony about how crucial those donations were:
- Q: To clarify, you’re saying that the al-Qaeda members received salaries?
- A: They do, absolutely.
So: being a jihadist isn’t merely a calling; it’s also a job, as is the case for the average mercenary (for whom it doesn’t also have to be a calling). The payoff for that job, during the jihadist’s life, is the pay. The bagman explained that the Saud family’s royals pay well for this service to their fundamentalist-Sunni faith. Another lifetime-payoff to the jihadists is that, in their fundamentalist-Sunni culture, the killing of ‘infidels’ is a holy duty, and they die as martyrs. Thus, the jihadist’s payoff in the (mythological) afterlife is plenty of virgins to deflower etc. But, the payers (the people who organize it, and who make it all possible) are the Saud family princes, and their business associates — and, in the case of the other jihadist organizations, is also those other Arabic royal families (the owners of Qater, UAE, Kuwait, Bahrain, and Oman). However, 9/11 was virtually entirely a Saudi affair, according to Al Qaeda’s bagman (who ought to know).
Saudi Threats to Sell Assets Loom Over Obama Trip: President Barack Obama will travel to Riyadh, Saudi Arabia on Wednesday amid turmoil over the Saudi government's threats to sell off hundreds of billions of dollars in assets the kingdom holds if Congress goes through with a bill that would allow American courts to hold the Middle Eastern nation responsible for any part in the 9/11 attacks. The Obama administration objects to the bill, reports The New York Times, and has been lobbying to block it, with State Department and Pentagon officials warning senators that there will be both economic and diplomatic issues if the legislation passes. Last month, Saudi Foreign Minister Adel al-Jubeir, personally delivered a message from the kingdom to Washington, saying his nation would have to sell as much as $750 billion in treasury securities and other assets it holds in the United States, before they can be frozen by the courts if the bill is passed. There is no indication that Obama, who will meet with Saudi King Salman and other officials, will discuss the dispute over the 9/11 bill, but his objections are angering not only lawmakers, but families of the attack victims, who blame the administration for blocking information about the part they say some Saudi officials had in the attacks.
Secret 28 Pages of 9/11 Report Under New Scrutiny - NBC News - When the president leaves for a trip to Saudi Arabia on Tuesday an unresolved issue will go with him: did the Saudis play some role in supporting the hijackers responsible for the attacks on September 11th? The question is being raised in the wake of a renewed push to declassify 28 pages of a 838-page congressional report on the worst terror attack on American soil. The so-called "28 pages" are locked away in a secure basement room at the Capitol and although they can be read by members of Congress, the pages remain classified. That the two of the hijackers involved in the September 11th attacks landed in Los Angeles, moved to San Diego and obtained housing, language lessons and identification is widely known. However, those 28 pages could shed more light on the money and connections used to do so and are said to include information "suggesting specific sources of foreign support for some of the September 11 hijackers while they were in the United States," according to the chapter's introduction in the report. Former Senator Bob Graham told "60 Minutes" in an interview, "I think it is implausible to believe that 19 people, most of whom didn't speak English, most of whom had never been in the United States before, many of whom didn't have a high school education — could've carried out such a complicated task without some support from within the United States."
The Saudi 9/11 Blackmail Explained: The K-Street Lobby Racketeers Have It Covered -- Although scores of us in the alternative media world have been discussing the obvious links between Saudi Arabia and the attacks of 9/11 for many years, this reality has only now started to enter the mainstream consciousness due to a recent report on 60 Minutes. But that’s not the only reason Saudi Arabia has been in the news as of late. In an extraordinary act of blackmail, Saudi officials have warned the U.S. government that it could be forced to sell $750 billion in U.S. assets if a specific piece of legislation currently circulating in Congress becomes law. The New York Times covered the threat on Friday: — Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks. The Obama administration has lobbied Congress to block the bill’s passage, according to administration officials and congressional aides from both parties, and the Saudi threats have been the subject of intense discussions in recent weeks between lawmakers and officials from the State Department and the Pentagon. The officials have warned senators of diplomatic and economic fallout from the legislation. Read that last part again. U.S. officials have warned of “diplomatic and economic fallout from the legislation.” So what sort of economic fallout do they envision? Part of the concern is no doubt related to the impact on global financial markets from a Saudi fire sale, but there’s a potentially even bigger concern at play. Specifically, Saudi Arabia pays Washington insiders an exorbitant amount of money to put the monarchy’s interests ahead of what’s best for the American people. It does this via an elaborate propaganda network, which we first learned about in last year’s post, A Look Inside Saudi Arabia’s Elaborate U.S. Propaganda Machine. Here are a few excerpts:
Does Saudi Arabia Have $750 Billion In Assets To Sell? -- As we reported over the weekend, based on NYT info, the Saudi finance minister said the kingdom would sell up to $750 billion in Treasury securities and other assets if Congress passed a bill that would allow the Saudi government to be held responsible for any role in the September 11, 2001 terror attacks. Senators Chuck Schumer of New York and John Cornyn of Texas introduced the "Justice Against Sponsors of Terrorism Act (JASTA) last fall, but the legislation seemed to gain some new traction after a related segment on 60 Minutes earlier this month. The punchline, of course, was that Saudi officials indicated they would sell its dollar-denominated assets if the law passed to avoid having those assets frozen by American courts.But does Saudi Arabia even have $750 billion of assets to sell? For the answer we go to Stone McCarthy who note that while they can't answer that question definitively - recall that the exact amount of Saudi Treasury holdings remains a mystery as it is not broken out separately - here's what they do know from the Treasury International Capital (TIC) data. First, the Treasury doesn't specifically report Saudi Arabia's holdings of U.S. securities. Instead, Saudi Arabia's holdings are combined with the holdings of the following countries into a category called Asian exporters: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar and United Arab Emirates. At the end of January, Asian oil exporters held $563.6 billion of U.S. securities, with Treasuries and U.S. equities accounting for 92.2% of the total. Treasury holdings totaled $268.2 billion.
Obama Responds To Saudi Threat To Dump Treasuries If Its Role In Sept 11 Is Probed –-- This weekend's biggest, and most shocking story, was the report that in response to a proposed Congressional Bill that would allow a probe into the Saudi role behind the Sept 11 terrorist attack, Saudi Arabia had threatened the US with dumping its roughly $750 billion in Treasury holdings. What was curious about the story is that while Saudi Arabia implicitly admitted it had a role in the September 11, the Obama administration was actively doing everything in its power to prevent the Bill from passing, and thus to keep the truth under wraps, leading many to wonder if Obama was more concerned about his own people or a handful of uber-wealthy Saudi princes. Moments ago White House spokesman Josh Earnest chimed in, and validated all of those fears.
- EARNEST: BILL WOULD OPEN U.S. TO GLOBAL LEGAL VULNERABILITIES
- WHITE HOUSE SAYS IT IS CONFIDENT THAT SAUDIS RECOGNIZE THE SHARED INTEREST WITH THE U.S. IN PROTECTING STABILITY OF INTERNATIONAL FINANCIAL SYSTEM
And the punchline:
- EARNEST: OBAMA WOULDN'T SIGN SUE-SAUDI BILL AS DRAFTED
In short: whether due to the Saudi threat, or just because of its default position on the matter, Obama will block the Bill and no further probes into Saudi involvement in the Sept 11 tragedy will be allowed.
Obama Succumbs To Saudi Pressure, Will Veto Sept 11 Lawsuit Bill -- Following Saudi threats to destabilize the financial system if the US were to enact a Bill that would allow an investigation into Saudi Arabia's support of September 11 terrorist attacks, many were watching closely how Obama would react. The president made it clear last night when as CNN reports, the White House threatened to veto the bipartisan bill to let families victimized by the 9/11 terrorist attacks sue Saudi Arabia while a GOP senator privately sought to block the measure. The White House and State Department are bluntly warning lawmakers not to proceed with the legislation due to "fears" it could have dramatic ramifications for the United States and citizens living abroad to retaliatory lawsuits. The President lands in Riyadh Wednesday for talks with Saudi Arabia over ISIS and Iran at a time of strained relations between the countries, making the bill's timing that much more sensitive. The move comes as presidential candidates from both parties are seizing on the legislation to score points with New York voters ahead of Tuesday's critical primary there. As reported over the weekend, one of the biggest supporters of the bill is none other than New York democrat Chuck Schumer, the likely next Senate Democratic leader, who has found himself pitted squarely against the Obama administration. As CNN adds, the stepped-up lobbying against the legislation comes as it faces fresh roadblocks on Capitol Hill, with party leaders learning that a GOP senator is objecting to taking up the bill, according to a source familiar with the legislation. The senator's identity has not yet been revealed publicly.
9/11 families hit Obama for 'siding with Saudi Arabia,' want secret report declassified -- Saudi Arabia has threatened to sell some $750 billion in US assets if the bill passes, fearing it could leave the country vulnerable in US courts, the New York Times reported. Many relatives of 9/11 victims believe Riyadh played a role in the attacks, particularly since 15 of the 19 hijackers were Saudi citizens. Officially, the 9/11 Commission Report “found no evidence that the Saudi government as an institution or senior Saudi officials individually funded the organization.” However, a previous Congressional report, which the Commission followed up on, features 28 pages that more closely detail the hijackers’ sources of money and funding, and those documents have been kept classified for more than a decade. Families of 9/11 victims have tried to sue Saudi Arabia in court over the country’s possible role in the attacks before, but US law grants foreign governments protection in domestic courts. Last year, a federal judge dismissed a lawsuit claiming that the country had provided material support to the terrorists, ruling that Riyadh had sovereign immunity. Saudi attorneys argued in court that there was no evidence directly linking the country to 9/11. “If someone you loved was murdered and the person was just able to go away Scott free, would you be okay with that? I don’t think anybody would,” Loria Van Auken said to CBS News. Van Auken’s husband Kenneth worked in the North Tower of the World Trade Center and died in the attacks.
When Media Shill For Saudi Money - A timely Washington Post piece looks at how the Saudis bribe left, right and center: Saudi government has vast network of PR, lobby firms in U.S. The Saudi government and its affiliates have spent millions of dollars on U.S. law, lobby and public relations firms to raise the country’s visibility in the United States and before the United Nations at a crucial time. ... Five lobby and PR firms were hired in 2015 alone, signaling a stepped-up focus on ties with Washington. The firms have been coordinating meetings between Saudi officials and business leaders and U.S. media, ... The Saudis are getting some bang for their money.
- This recent NYT Saturday profile was conspicuous sympathetic - Artist Nurtures a Creative Oasis in Conservative Saudi Arabia
- The lowbrow whores at the Brookings Institute are always willing to take Gulf money - Mr. Obama goes to Riyadh: Why the United States and Saudi Arabia still need each other
- Newsweek couldn't resist the bribes - Learning to Love the Unlovable Saudis
And just today these three well-paid-for pieces appeared. Notice how they have a common, lobby induced theme:
U.S. trade policy: Populist anger or out-of-touch elites? -- The presidential primary campaigns of both political parties have exposed widespread voter anger over U.S. global trade policies. In response, hardly a day has recently gone by without the New York Times, the Washington Post and other defenders of the status quo lecturing their readers on why unregulated foreign trade is good for them. The ultimate conclusion is always the same—that voters should leave complicated issues like this to those intellectually better qualified to deal with them. Trade experts, according to Binyamin Appelbaum of the Times have been “surprised” at the popular discontent over this issue. Their surprise only shows how disconnected the elite and the policy class that supports it is from the way most people actually experience the national economy. The United States has always been a trading nation. But until the 1994 North American Free Trade Agreement, trade policy was primarily an instrument to support domestic economic welfare and development.Starting with NAFTA, pushed through not by a Republican president, but by the Bill Clinton in 1994, it became a series of deals in which profit opportunities for American investors were opened up elsewhere in the world in exchange for opening up U.S. labor markets to fierce foreign competition. As Jorge Castañeda, who later became Mexico’s foreign minister, put it, NAFTA was “an agreement for the rich and powerful in the United States, Mexico and Canada, an agreement effectively excluding ordinary people in all three societies.” For 20 years, leaders of both parties have assured Americans that each new NAFTA-style deal would bring more jobs and higher wages for workers, and trade surpluses for their country. It was, they were told, an iron law of economics.
Betrayal is at the heart of U.S. politics: A powerful sense of betrayal is driving the 2016 campaign. The Donald Trump campaign has always been angry. We are now beginning to see the same anger in the Bernie Sanders campaign. No candidate left in the race is echoing Barack Obama’s 2008 message of hope and optimism. Senator Marco Rubio (R-Fla.) and former Florida Governor Jeb Bush tried it — and look where it got them. On the Republican side, the sense of betrayal started long before the Trump campaign. It emerged with the Tea Party movement in 2010, which claimed that Republicans in Washington were failing to do what Republicans elected them to do — namely, stop Obama, particularly his Obamacare policies. The Tea Party accused GOP party leaders like former House Majority Leader Eric Cantor and former House Speaker John Boehner of selling out the conservative cause. The Trump campaign does not come out of the conservative movement, which favors Senator Ted Cruz of Texas. Trump’s support among Republicans is broader than ideological conservatives. He appeals to a lot of white working-class voters, who feel intensely alienated from the GOP. Republican leaders got elected with their support, and they then ignored them on issues like trade, immigration, entitlement spending and isolationism. Trump amplifies their complaints.
Corporate World Takeover Through Trade - Paul Craig Roberts - The new trade deals Trans-Atlantic & Trans-Pacific “Partnerships” complete the corporate world takeover As I have emphasized since these “partnerships” were first announced, their purpose is to give corporations immunity from the laws in the countries in which they do business. The principle mechanism of this immunity is the granting of the right to corporations to sue governments and agencies of governments that have laws or regulations that impinge on corporate profits. For example, France’s prohibitions of GMO foods are, under the “partnerships,” “restraints on trade that impinge on corporate profits. The “partnerships” set up “tribunals” staffed by corporations that are outside the court systems of the sovereign governments. It is in these corporate tribunals that the lawsuits take place. In other words the corporations are judge, jury, and prosecutor. They can’t lose. The “partnerships” set up secret unaccountable governments that are higher and have power over the elected governments. You can ask yourself how much money the representatives of the countries who “fasttracked” this system were paid by the corporations and how much the bribes will be to get the agreements approved by the legislators. As you witness American, British, German and other government officials agitate in behalf of corporate rule, you will know that they have been well paid. Peter Liley, Minister of Trade and Industry in Margaret Thatcher’s Conservative government and currently a Conservative member of the British Parliament took the trouble of looking at the Trans-Atlantic partnership and is warning against it. As a politician he cannot speak as forcefully as he might like, but he gives you the picture. Here is Eric Zuesse’s report and Mr. Liley's quote:
The People’s Verdict on Globalization - The similarities in the electoral appeals of businessman Donald Trump and Senator Bernie Sanders have been widely noted (see, for example, here, here and here). Both men attract voters who feel trapped in their economic status, unable to make progress either for themselves or their children. Moreover, both men have assigned the blame for the loss of manufacturing jobs in the U.S. on international trade agreements. Regardless of who wins the election, globalization, which was seen as a irresistible force in the 1990s after the collapse of the Soviet Union and the entry of China into the world economy, is now being reexamined and found to be detrimental in the eyes of many. Trump and Sanders have been particularly vociferous about the North American Trade Agreement, which they hold responsible for the migration of U.S. jobs to Mexico. But those who blame the foreign sector for a loss of jobs should also finger capital flows. The investment of U.S. firms in overseas facilities that then ship their products back to the U.S. represents outward foreign direct investment (FDI), and thus in this story is also responsible for the disappearance of manufacturing jobs. Moreover, Lawrence Summers of Harvard has pointed out that firms that have the option to relocate will be less inclined to invest in new capital in their home country, which leads to lower productivity and wages for their workers.
A Great Awakening: Public Support For Fake "Free Trade" Deals Plunges - Public opposition to the sovereignty killing corporate giveaway marketed as a free trade deal known as the Trans Pacific Partnership (TPP) has become so widespread that all the leading candidates for the U.S. Presidency are publicly against it. Specifically, Donald Trump and Bernie Sanders are virulently opposed, while Hillary Clinton is pretending to be against it in order to harvest votes. Essentially, the more time the American public has to learn about this scam, the more they are against it. Which is precisely why the Obama administration wants to push it through as quickly as possible. – From the post: Obama to Push Passage of TPP Trade Deal Despite Rising Public Opposition. One of the key themes here at Liberty Blitzkrieg over the past year or so, has been to highlight the fact that the plethora of “free trade” deals (TPP, TTIP and TISA) being promoted by the global robber barons in power are nothing more than fascist corporate handouts (links at the end). Calling them “free trade” deals is purely for PR, and primarily serves as a means for marketing these scams to the ignorant masses. Fortunately, I have some good news to share. The public is not as ignorant as it used to be. There’s a massive awakening happening, and it’s sweeping these United States as well as Europe. As Reuters reports in the article, Survey Shows Plunging Public Support for TTIP in U.S. and Germany: Support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact. The survey, conducted by YouGov for the Bertelsmann Foundation, showed thatonly 17 percent of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55 percent two years ago.In the United States, only 18 percent support the deal compared to 53 percent in 2014.
It’s not a puzzle if American workers oppose trade agreements - Josh Bivens - Yesterday, NPR’s Chris Arnold wrote the latest in what has become a very long line of “explainer” pieces about economic globalization and the presidential campaigns. Nearly all of these pieces seek to resolve an alleged puzzle: nearly all reputable economists argue that policy efforts to boost trade are good for the U.S. economy, yet many (if not most) American workers strongly oppose trade agreements signed in recent decades. Arnold puts forward a pretty common solution to this alleged puzzle: “trade’s benefits are diffuse, but the pain is concentrated.” In this view, the only losers from trade are those workers directly displaced by imports. Every other consumer in the economy benefits from lower prices. But because the losers are small and concentrated, they can organize to oppose trade agreements. And while the winners are numerous and widespread, the benefits (e.g., slightly more affordable clothing and DVD players) are hard to notice, so no one organizes to support these agreements. This is a common way of describing the effects of using policy to expand trade, but on the economics, it is certainly not correct. In textbook trade models, using policy levers (lower tariffs, for example) to boost trade with poorer countries will indeed cause total national income in the United States to rise. But these same textbooks also predict that the resulting expansion of trade will redistribute far more income than it creates. And the direction of this redistribution is upward. So it is perfectly possible to have policy efforts to expand trade lead to higher national income yet leave the majority of workers worse off. Importantly, the losers in these textbook models are not just workers directly displaced by imports—they’re all the workers in the entire economy who resemble the trade-displaced in terms of education and credentials.
Senate Finance Committee cuts tax return preparer regulation - Linda Beale - As most tax practitioners realize, many people who hold themselves out as "tax return preparers" actually know nothing about the tax laws and may even assist their clients in cheating on their taxes by inventing home offices, travel-away-from-home expenses, or other fictional deductions. The U.S. Department of Treasury sought to deal with this by amending regulations governing "practice before the IRS" in Circular 230 to require those who prepare returns for payment to acquire an identification number and pass certification requirements. The ABA Tax Section has been supportive of these requirements, because it is clear that both individual taxpayers whose returns are not accurate and the U.S. government suffer when scams are perpetrated by shady tax return preparers. But some of those regulated under Circular 230 objected and brought suit. They got the D.C. Court of Appeals, in Loving, to hold that the longstanding provision that permits the Treasury to regulate tax practitioners that 'practice before the IRS' covered only litigation-like controversies. This is, in my view, patently absurd. If anything constitutes practicing before the IRS, the preparation of taxpayers' tax returns must. It is the core interaction of a taxpayer with the IRS/Treasury, and is something that we must do. If an 'adviser' prepares the return for us, that adviser is representing us to the government. That clearly should constitute "practice before the IRS." So once the Loving court ruled against the government on its ability to regulate these maverick 'tax return preparers' who do not have to know or follow the law, many tax practitioners and others pushed Congress for legislation to permit the Treasury to regulate tax return preparers. The ABA Tax Section wanted the Big ABA (the American Bar Association that includes all of the various "sections") to support a resolution urging Congress to pass legislation allowing the regulation of tax return preparers. But the Big ABA was not willing to even consider the resolution.
Should simplicity be a primary goal of tax reform? - Linda Beale - I was at a housewarming party last Saturday and talked to quite a few people I didn't know. One was an economics professor at a regional school. Naturally, economists and tax professors gravitate towards talk about the economy and tax policies, so it isn't surprising that our talk got there fairly quickly. I will add that his views were not too surprising, either: he suggested that corporate inversions and other forms of corporate tax planning and abusive transactions would disappear if only we made the tax code "simpler." Not surprisingly, that is the issue I hear most insistently from many of the economists that I talk to-- especially those who have bought into Milt Friedman's free marketarianism: they suggest that the entire problem of the tax code--or the problem of the unprecedentedly low percentage of GDP we raise from corporate taxes in particular--could be solved if only we made the tax code simpler. One thing they don't seem to realize is that the neoliberal approach has led to corporations treating their employees as just another number to be crunched for the benefit of the bottom line, their obligation to community and people as just another PR element, and their obligation to pay a fair share of their income to support the many levels of legal stability and benefits that they receive from government --including the benefits from basic research supported by government funding--as just another expense to get rid of in any way possible. If the statutory rate is 35% even though the ACTUAL EFFECTIVE RATE is near zero for 75% of corporations and no higher than 20-26% for many corporations, they will still argue that the statutory rate should be 25%. If it is lowered to 25% (and the effective rate for almost all corporations is near zero with a few paying around 10%), they will argue for a statutory rate of 10%. And so on. The argument from simplicity is, these days, mostly another example of class warfare being waged on behalf of the wealthy, corporatist elite against ordinary American workers. And Congress today--controlled as it is by a majority in both the Senate and House that is generally much farther right than the nation's people--tends to use the complexity of the tax code exactly in that way--as a flagwaver to fool ordinary Americans into thinking that the corporatist, wealth-favoring tax changes the right wants to enact are "reforms" that will aid economic growth and ordinary Americans.
Another Right Wing Propaganda Tank Piles On Tax Complexity Bandwagon - Linda Beale - As noted in my last post, part of the fanaticism that is surging in the current obstructionist Congress relates to taxes (quel surprise...). The JEC ran a hearing on Wednesday targeting "complexity" in the tax code as a source of humongous problems. The clear intent of the GOP in control is, and has been for some time, to pile in on the "blame the IRS" and "get rid of the government beast" bandwagon in order to keep money rolling in to the hands of the rich and prevent any action on public or human capital infrastructure, climate change, or any other reasonable programs that our government should be developing to deal with the many problems in today's world. But as I also noted in that post, holding up "simplicity" as a reasonable goal for tax policy is intended to deceive. Simplicity is generally important only for tax provisions that are most likely to impact the poor or near poor; it is for all practical purposes an unimportant target for thinking about the appropriate tax provisions for the wealthy and corporate/business elite. That is because (as I said in that post): The reason the tax provisions of most concern to big businesses and those with international investments and those with multiple types of investments (CDOs, hedge funds, private equity, partnerships of one kind or another, S Corporations, etc.) are complex is that new, detailed, specific language has to be developed to counter the loophole exploitation by those who apply hyperliteralism and avoid contextual meaning and purpose of the laws in order to have an arguable defense for a tax planning transaction designed to exploit loopholes. But just as the Walton and other rich families' money has been spent for years to make ordinary Americans believe that family farms are threatened by the federal estate tax (a fallacious myth); so too has considerable money from wealthy families, spent through the conduit of various propaganda tanks, been used to convince ordinary Americans that it is government, the IRS, and a complex tax code that form the core of their problems in making a decent living in today's society. That, too, is a fallacious myth...
IRS Urges Americans: Come Clean Now, Before We Read Panama Papers: U.S. officials revealed to NBC News that they have taken part in two global meetings about the Panama Papers to plan how to use the huge trove of leaked documents to catch criminals — and urged Americans to come clean now before illegal activity is discovered. Last week's discussions in Paris and Washington between IRS and Treasury officials and their counterparts from around the world are the first evidence of U.S. involvement in the growing international coalition eager to analyze and use the data about more than 214,000 offshore companies listed by Panamanian law firm Mossack Fonseca.In a statement to NBC News, the IRS acknowledged participating in a "special project meeting" of JITSIC, the Joint International Tax Shelter Information and Collaboration network, about the papers in Paris last week. The IRS also encouraged any U.S. citizens and companies that may have money in offshore accounts to contact the agency now before any possible illegal activity on their part is identified. According to media reports, the documents contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. Many other firms provide similar services, and the Treasury Department estimated last year that more than $300 billion dollars of illicit proceeds are generated in the United States annually, with criminals using such companies here and abroad to launder funds.
Capuchin monkeys punish those who have more -- There is a new paper by Kristin L. Leimgruber, et al, here is the abstract: Punishment of non-cooperators is important for the maintenance of large-scale cooperation in humans, but relatively little is known about the relationship between punishment and cooperation across phylogeny. The current study examined second-party punishment behavior in a nonhuman primate species known for its cooperative tendencies—the brown capuchin monkey (Cebus apella). We found that capuchins consistently punished a conspecific partner who gained possession of a food resource, regardless of whether the unequal distribution of this resource was intentional on the part of the partner. A non-social comparison confirmed that punishment behavior was not due to frustration, nor did punishment stem from increased emotional arousal. Instead, punishment behavior in capuchins appears to be decidedly social in nature, as monkeys only pursued punitive actions when such actions directly decreased the welfare of a recently endowed conspecific. This pattern of results is consistent with two features central to human cooperation: spite and inequity aversion, suggesting that the evolutionary origins of some human-like punitive tendencies may extend even deeper than previously thought.
Is the 1% Really the Problem? -- Lynn Paramour --“We are the 99 percent” is a great slogan, but is it distracting our attention from a sinister reality? There’s strong evidence that it’s not the 1 percent you should worry about—it’s the 0.1 percent. That decimal point makes a big difference. The 99 percent would do well to find common ground with bulk of the 1 percent if we can, because we are going to need each other to tackle this mounting threat from above. To make it into the 1 percent, you need to have, according to some estimates, at least about $350,000 a year in income, or around $8 million accumulated in wealth. At the lower end of the 1 percent spectrum, the “lower-uppers,” as they have been called, you’ll find people like successful doctors, accountants, engineers, lawyers, vice-presidents of companies, and well-paid media figures. …Some lower-uppers are beginning to realize that their natural allies are not those above them on the economic ladder. They are getting the sense that the 0.1 percent is its own hyper-elite club, and lower-uppers are not invited to the party.
The U.S. government Loses Up To $111 Billion Annually Due to Corporate Tax Dodging - The U.S. government is losing as much as $111 billion each year due to corporations “shifting” profits to offshore tax havens, according to a recent paper by Kimberly A. Clausing of Reed College. Clausing found that by 2012, the annual revenue cost to the US government due to corporate tax dodging had amounted to $77-111 billion. For the world as a whole, she estimated revenue losses to be above $280 billion. (Last year, IMF economists Ernesto Crivelli, Ruud De Mooij, and Michael Keen estimated that developing countries lose $105 billion each year due to tax base erosion). Clausing writes that “erosion and profit shifting is a larger problem today than even before,” and concludes that it “must result in lower government spending, higher tax revenues from other sources, or increased budget deficits.” This week, Clausing’s figures were the basis of a new report released by anti-poverty charity Oxfam, which estimated that the 50 largest corporations in the United States have hidden more than $1.4 trillion in offshore tax havens, all the while collecting trillions of dollars in taxpayer subsidies. The report, a financial analysis of America’s 50 largest public companies—multinational corporations like Alphabet, Apple, Goldman Sachs, and Disney—details an “opaque and secretive network” of 1,608 disclosed subsidiaries based in tax havens like the Cayman Islands, in addition to thousands of additional subsidiaries that these companies “may have failed to disclose to the Securities and Exchange Commission due to weak reporting requirements.”
Apple should pay more tax, says co-founder Wozniak - BBC News: All companies, including Apple, should pay a 50% tax rate, Apple co-founder Steve Wozniak has told the BBC. He said he doesn't like the idea that Apple does not pay tax at the same rate he does personally. Apple, Google and Amazon have been criticised for not paying enough in tax and the firm is currently the subject of a European Commission tax inquiry. Mr Wozniak, who left Apple in 1985, was also ambivalent at the prospect of the UK leaving the European Union. Mr Wozniak - widely known as Woz - founded Apple along with Steve Jobs and Ronald Wayne 40 years ago. It has grown to become one of the most valuable businesses in the world, worth around $600bn. He told BBC Radio 5 live: "I don't like the idea that Apple might be unfair - not paying taxes the way I do as a person. "I do a lot of work, I do a lot of travel and I pay over 50% of anything I make in taxes and I believe that's part of life and you should do it." When asked if Apple should pay that amount, he replied: "Every company in the world should." He said he was never interested in money, unlike his former partner Steve Jobs. "Steve Jobs started Apple Computers for money, that was his big thing and that was extremely important and critical and good." Apple channels much of its business in Europe through a subsidiary in the Republic of Ireland, which has a corporation tax rate of 12.5% compared to the UK's 20%.
Panama Papers: US launches criminal inquiry into tax avoidance claims - The US Department of Justice has launched a criminal investigation into the widespread international tax avoidance schemes exposed by the Panama Papers leak, published by the Guardian and other journalistic partners. Preet Bharara, the US attorney for Manhattan, said he had “opened a criminal investigation regarding matters to which the Panama Papers are relevant”. Bharara has written to the International Consortium of Investigative Journalists (ICIJ), which coordinated the unprecedented leak of 11.5m files from offshore law firm Mossack Fonseca, to ask for further information to assist with his criminal investigation.The inquiry comes after Barack Obama described the revelations from the leaks – which have caused political tumult across the world – “important stuff” and global tax avoidance as a “huge problem”. “There is no doubt that the problem of global tax avoidance generally is a huge problem,” Obama told reporters in an unscheduled appearance in the White House briefing room earlier this month. “The problem is that a lot of this stuff is legal, not illegal. “A lot of these loopholes come at the expense of middle-class families, because that lost revenue has to be made up somewhere.”
Inside Panama Papers: Multiple Clinton connections - Hillary Clinton recently blasted the hidden financial dealings exposed in the Panama Papers, but she and her husband have multiple connections with people who have used the besieged law firm Mossack Fonseca to establish offshore entities. Among them are Gabrielle Fialkoff, finance director for Hillary Clinton’s first campaign for the U.S. Senate; Frank Giustra, a Canadian mining magnate who has traveled the globe with Bill Clinton; the Chagoury family, which pledged $1 billion in projects to the Clinton Global Initiative; and Chinese billionaire Ng Lap Seng, who was at the center of a Democratic fund-raising scandal when Bill Clinton was president. Also using the Panamanian law firm was the company founded by the late billionaire investor Marc Rich, an international fugitive when Bill Clinton pardoned him in the final hours of his presidency.
The Real Reason Hillary Clinton Refuses To Release Her Wall Street Transcripts -- “It was pretty glowing about us,” one person who watched the event said. “It’s so far from what she sounds like as a candidate now. It was like a rah-rah speech. She sounded more like a Goldman Sachs managing director.” – From the post: What Clinton Said in Her Speeches – “She Sounded More Like a Goldman Sachs Managing Director” We’ve seen bits and pieces emerge from Hillary Clinton’s infamous $225,000 speech to Goldman Sachs in October 2013, but an article published by the Huffington Post yesterday adds some additional perspective. In a nutshell, the author believes that a release of these transcripts would be so damaging it would end her bid for the presidency. Here are a few excerpts from the Huffington Post piece: The reason you and I will never see the transcripts of Hillary Clinton’s speeches to Wall Street fat-cats — and the reason she’s established a nonsensical condition for their release, that being an agreement by members of another party, involved in a separate primary, to do the same — is that if she were ever to release those transcripts, it could end her candidacy for president. In fact, it appears they’d cause enough trauma that Clinton would rather publicly stonewall — to the point of being conspicuously, uncomfortably evasive — in public debate after public debate, to endure damning editorial after damning editorial, and to leave thousands and thousands of voters further doubting her honesty and integrity, all to ensure that no one outside Goldman Sachs, and certainly no voter who wasn’t privy to those closed-door speeches, ever hears a word of what she said in them.
Robert Reich: Why Is One of Sanders’ Most Important Proposals Being Ignored? - naked capitalism Yves here. I want to clarify one key issue about a transaction tax. Its purpose is not to raise revenue. Its purpose is to discourage excessive trading, which is socially unproductive. Recently, many studies have found that an outsized financial sector is as drag on growth. The finer-grained ones have identified too many resources devoted to secondary market trading as the cause. “Secondary market trading” is all the buying and selling that happens after a company raises money, as in among investors, not sales of newly-issued securities from a company to investors to raise money. A certain level of secondary market trading is necessary and desirable so that an investor can sell if he wants to (as in he needs liquidity). But overly cheap liquidity makes it attractive to trade for purely speculative purposes, as the collapse in average holding times of NYSE stocks attests. Now a transaction tax may indeed raise a lot of revenue. But the intent is to discourage undesirable activity, and it’s hard to estimate in advance how much trading volumes would fall with a well-designed transaction tax.
The House Financial Services Committee repeals Title II of Dodd-Frank - AEI -- Last week, the Wall Street Journal summed up the recent difficulties of the Dodd-Frank Act this way: Across Washington deep cracks are appearing in the foundations of the Dodd-Frank law Mr. Obama enacted in 2010. A federal judge has knocked down a major decision from Mr. Obama’s Financial Stability Oversight Council. Also, a federal appeals court panel is questioning the constitutionality of Mr. Obama’s Consumer Financial Protection Bureau. On Wednesday regulators officially declared that most of the nation’s banking giants are still too big and too complicated to fail. These are important steps, to be sure. In particular, it is doubtful that any other designations of systemically important financial institutions (SIFIs) will occur until the appeal process has run its course, and this includes any effort to impose restrictions on activities as well as designating firms as SIFIs.But the Journal, and many others, missed an important symbolic event that also occurred during the past week. In a markup at midweek, the House Financial Services Committee voted to repeal Title II of the act, the so-called Orderly Liquidation Authority (OLA), and sent the repeal legislation to the House floor for inclusion in the budget reconciliation process that is now underway.This was significant because, when the Dodd-Frank Act was passed, Title II was celebrated as the heart of the act. It would, in the inflated language of its supporters and sponsors in the administration and Congress, put an end to problem of Too-Big-To-Fail (TBTF) by providing a mechanism through which the FDIC could take over and resolve the largest nonbank financial firms without the use of taxpayer funds.
Treasury, Fed officials tell senators liquidity is fine in bond markets - Antonio Weiss of Treasury and Federal Reserve Governor Jerome Powell on Thursday fended off repeated pleas by Republican leaders of the Senate Banking Committee that they blame Dodd-Frank regulations for recent fixed income markets stress. Weiss and Powell insisted, in a hearing on Thursday morning, there is neither dispositive nor compelling evidence of a broad-based deterioration in liquidity in fixed income markets as a result of increased regulation such as Dodd-Frank. Weiss testified that, based on most traditional measures such as bid-ask spreads and measures of the price impact of trades on the market, liquidity is “well within historical levels,” despite the persistent concerns expressed by some market participants to their legislators. Weiss is the banker from boutique investment firm Lazard that President Barack Obama wanted for a high ranking job at Treasury in early 2015, only to have that nomination blocked by Banking Committee member Sen. Elizabeth Warren, the Democrat from Massachusetts. At that time Warren questioned Weiss’s close ties to the financial services industry. Now, on board as Counselor to the Secretary of the Treasury, Warren teed up Weiss to reiterate the Obama administration’s position, at one point giving him an opening to elaborate on why regulators need more data to decipher events like the “flash rally” in Treasuries on October 15, 2014. That’s when the yield on 10-year Treasury notes experienced a 37-basis point roundtrip over a span of roughly 12 minutes. Powell had remarked earlier in the hearing that it took five agencies nine months to produce a report about what happened in October 2014 but that the report was still only based on partial data. Agencies charged with regulating these markets, said Weiss, need “more robust access” to data.
What’s behind the March Spike in Treasury Fails? - NY Fed - U.S. Treasury security settlement fails—whereby market participants are unable to make delivery of securities to complete transactions—spiked in March 2016 to their highest level since the financial crisis. As noted in this post, fails delay the settlement of transactions and can therefore lead to illiquidity, create operational risk, and increase counterparty credit risk. Fails in the Treasury market attract particular attention because of the market’s key role for global investors as a pricing benchmark, hedging instrument, and reserve asset. So what drove the March spike? In this post, we show that much of it reflected sequential fails of benchmark ten-year notes and thirty-year bonds, but that fails in seasoned issues—which have been trending upward for several years—were also elevated.
Days After Wells Fargo Admits Defrauding The Government, The NY Fed Gives It A Reward -- Back on April 9 we described the latest example of how criminal Wall Street behavior leads to zero prison time and just more slaps on the wrist, when Warren Buffett's favorite bank, Wells Fargo, admitted to "deceiving" the U.S. government into insuring thousands of risky mortgages. According to the settlement, Wells Fargo "admits, acknowledges, and accepts responsibility" for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance. In short: it admitted that is deceived and defrauded the government. Its "punishment" - a $1.2 billion settlement of a U.S. Department of Justice lawsuit, the highest ever levied in a housing-related matter. And now, having suffered so much trauma which led to precisely nobody going to prison, less than two weeks later it's time for Wells to get its reward: as Bloomberg reported earlier, the "bond market’s most exclusive clubs got a new member" when the NY Fed granted the criminal Wells Fargo Primary Dealer status. The brokerage arm of Wells Fargo & Co., the third-biggest U.S. bank by assets, was designated a U.S. primary dealer by the Federal Reserve Bank of New York on Monday. It’s the first addition to the list since February 2014, when the U.S.-based brokerage of Toronto-Dominion Bank was included. The roster of primary dealers has grown to 23 firms from as low as 17 in 2008, although it remains below its 1988 peak of 46.
Investigating Deutsche Bank’s €21 Trillion Derivative Casino In Wake Of Admission It Rigged Gold And Silver - Deutsche Bank has admitted it rigged both the Gold market and the Silver market. ZeroHedge has the details in his report Deutsche Bank Agrees To Expose Other Manipulators. Many asked me to comment. I am shocked? No. In the wake of admissions of rigged LIBOR and rigged Euribor (bank to bank interest rates in dollars and euros respectively), one would really have to wonder “What isn’t rigged?” While some think gold would have “gone to the moon” without this rigging, I wonder if it got as high as $1900 an ounce because of rigging. The same applies to silver when it topped over $40. It’s logical to believe riggers don’t much care about the direction as long as they make money. Hopefully we get more details from Deutsche Bank soon. This could get interesting. What Isn’t Rigged? While pondering the above question, let’s dive into Deutsche Bank’s 2015 Annual Report to investigate other bid-rigging opportunities.
GAO: JPMorgan Chase Customers Lost $5.4 Billion to Madoff -- Pam Martens -- Buried in a report released yesterday by the Government Accountability Office (GAO) was a stunning piece of news. Customers of JPMorgan Chase, the bank that Wall Street analyst Mike Mayo has preposterously called the “Lebron James of banking,” were major victims of Bernie Madoff’s Ponzi scheme – to the tune of $5.4 billion – because of negligence on the part of the bank. The report states the following: “In 2014, DOJ [Department of Justice] assessed a $1.7 billion forfeiture – the largest penalty related to a BSA [Bank Secrecy Act] violation – against JPMorgan Chase Bank. DOJ cited the bank for its failure to detect and report the suspicious activities of Bernard Madoff. The bank failed to maintain an effective anti-money-laundering program and report suspicious transactions in 2008, which contributed to their customers losing about $5.4 billion in Bernard Madoff’s Ponzi scheme.” The JPMorgan Chase settlement with the Justice Department came in January 2014, more than two years ago, but thus far, according to the GAO, Madoff victims haven’t seen a dime of the money. According to the Special Master for the Justice Department, he’s still wading through 64,000 claim forms. The Justice Department’s Madoff Victim Fund functions separately from the victims fund being operated by the bankruptcy trustee, Irving Picard. That fund has already distributed $8.6 billion out of $11.1 billion recovered to date. The forfeiture laws under which the Justice Department’s fund will be operated allowed Madoff victims who invested through feeder funds, as well as through a direct account with Madoff, to submit a claim. JPMorgan Chase and banks it had purchased had held the Madoff business account for more than two decades. According to the Securities Investor Protection Corporation (SIPC), the Justice Department prosecutors who settled the criminal case against JPMorgan Chase in the Madoff matter used the investigative material that Picard had already unearthed. That investigative material showed that JPMorgan Chase had relied on unaudited financial statements and skipped the required steps of bank due diligence to make $145 million in loans to Madoff’s business.
Why the S.E.C. Didn’t Hit Goldman Sachs Harder - In the late summer of 2009, lawyers at the Securities and Exchange Commission were preparing to bring charges in what they expected would be their first big crackdown coming out of the financial crisis. The investigators had been looking into Goldman Sachs’s mortgage-securities business, and were preparing to take on the bank over a complex deal, known as Abacus, that it had arranged with a hedge fund. They believed that Goldman had committed securities violations in developing Abacus, and were ready to charge the firm. While the S.E.C., as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains: Why did no top bankers go to prison? Some have pointed out that statutes weren’t strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play. During a year spent researching for a book on this subject, I’ve come across case after case in which regulators were reluctant to use the laws and resources available to them. Members of the public don’t have a full sense of the issue, because they rarely get to see how such decisions are made inside government agencies. James Kidney, a longtime S.E.C. lawyer, was on the inside at a crucial moment. Now retired after decades of service to the S.E.C., Kidney recently provided me with a cache of internal documents and e-mails about the Abacus investigation. The agency holds the case up as a success, and in some ways it was: Goldman had to pay a five-hundred-and-fifty-million-dollar fine, and a low-ranking trader was found liable for violating securities laws. But the documents provided by Kidney show that S.E.C. officials considered and rejected a much broader case against Goldman and John Paulson & Company.
These SEC Insider Emails Reveal Why No Bankers Have Gone To Jail -- Back In April 2010, the world was stunned when in what would be the first major case dealing with the fallout from the endemic fraud prevalent during the last housing and credit bubble, the SEC charged Goldman Sachs and Paulson with securities fraud over the infamous Abacus CDO, which was subsequently featured in Michael Lewis' Big Short book and movie. There was also hope that for the first time, bankers - ostensibly from the company that does "God's work" - would go to prison. None of that happened, and instead just a few months later Goldman walked away with a $550 million slap on the wrist, while a young Goldman banker, French citizen Fabrice Tourre, who was in his late 20's when Goldman was quietly colluding with Paulson to package a "time bomb" CDO it knew would explode in just a few months, was the only Goldman banker prosecuted. In 2013, Fabrice Tourre, a low-ranking trader, was found liable for violating securities laws and ordered to pay more than $850,000. He also avoided prison time and is now a Ph.D. candidate at the University of Chicago. He was the only banker who was named in the entire Abacus fraud, something which we laughed at long and hard in 2010 because according to the SEC, this meant the 20-year old was the mastermind behind all of Goldman wrongdoing; nobody else at the firm was aware of what had been going on. But what was most appalling and what made it clear that the SEC is a captured organization, was not only that no other banker at Goldman was named, but that absolutely everyone avoided prison time setting a disastrous precedent which demonstrated that when it comes to criminal liability, Wall Street will henceforth have a permanent get out of jail free card. Earlier today, ProPublica's Jesse Eisinger published a story that looks at the evolution of the SEC's collapse, and how from a regulatory agency meant to defend investors, it instead mutated into a captured, crony, revolving door (whose employees all too frequently end up working for the same companies they should be prosecuting) farce, whose only purpose is to protect criminal bankers from prison while handing out paltry fines which ultimately are paid by the company's shareholders while management walks away free.
Cultural Capture in Black and White - James Kwak - A few years back I wrote a paper on “cultural capture” in financial regulation. The basic idea is that the industry can achieve the practical result of regulatory capture—industry-friendly policies—not just by bribing regulators (legally or illegally) and not just by providing useful “information” to agencies, but by cultivating other types of influence such as social relationships status advantages. The response was decidedly mixed. Some people said, “Yes, that’s exactly right!” while others said, “Nice idea but how can you prove that it actually happens?” I completely concede the identification problem. Regulatory decisions are always overdetermined, and it’s hard to find data on, say, how many regulators’ kids go to school with lobbyists’ kids. But sometimes it just hits you between the eyes. Yesterday the invaluable Jesse Eisinger published the backstory of the SEC’s ABACUS investigation (which will always have a special place in my heart, since the complaint was filed shortly after the publication of 13 Bankers, getting Simon and me a full-hour interview on Bill Moyers and boosting the book up the charts). Eisinger’s story is based on information provided by James Kidney, a veteran SEC lawyer who thought the agency should pursue Goldman senior executives on a broader theory of liability—but was opposed by other insiders and, ultimately, Enforcement Director Robert Khuzami. And here’s the smoking gun, in an email by Reid Muoio, then head of the team investigating complex mortgage securities (that is, most of the financial crisis):
Bankers in the Age of Bernie: Do They Need Camouflage? -- He came, he lost, but his rhetoric continues. I am speaking, of course, of Senator Bernie Sanders, who may have ceded the Democratic primary in New York to Hillary Clinton on Tuesday, but who has made a very visible part of the city into the punching bag of the presidential campaign. Put simply: Bankers are having a tough time in the public discourse these days. Mr. Sanders has built a platform on their villainy. Over the weekend, at a block party in Brooklyn, Mrs. Clinton called out “the greed and recklessness of Wall Street,” and declared, “I take a back seat to no one in taking them on.” Senator Ted Cruz, the Republican candidate who used a hefty loan from his wife’s former employer, Goldman Sachs, to finance his 2012 Senate race, has labeled the institution a hotbed of “crony capitalism.” And so on. You would think it would be enough to have them — whomever this mythic “them” may be — don sackcloth and ashes and sneak around in the shadows so no one could identify them by the uniform of their profession. Which, if you accept the premise that we use our wardrobe to signal our allegiance to a group (personal, political or professional), raises the question: What does it mean to look like a banker in the age of Bernie? After all, the last time the financial world was so loudly derided — during the recession of 2008 and 2009 — there was a knock-on effect in the men’s wear world, and certain obvious totems of Wall Street style (the broad, structured shoulders; the patterned ties; the Ferragamo shoes) fell out of favor. There was a sense that it was unseemly (and sometimes, in the Occupy Wall Street days, maybe dangerous) to represent the 1 percent.
Profits in Finance - James Kwak -- Noah Smith on one reason why financial sector profits have remained high as the industry has grown: Why haven’t asset-management charges gone down amid competition? In a recent post, I suggested one answer: people might just be ignoring them. Percentage fees sound tiny — 1 percent or 2 percent a year. But because that slice is taken off every year, it adds up to truly astronomical amounts. … If many investors pay no attention to what they’re being charged, more competition can’t push down those fees. I think that’s basically right, but there’s a smidgeon more to it. Expense ratios on actively managed mutual funds have remained stubbornly high. Even though more people switch into index funds every year, their overall market share is still low—about $2 trillion out of a total of $18 trillion in U.S. mutual funds and ETFs. Actively managed stock mutual funds still have a weighted-average expense ratio of 86 basis points. Why do people pay 86 basis points for a product that is likely to trail the market, when they could pay 5 basis points for one that will track the market (with a $10,000 minimum investment)? It’s probably because they think the more expensive fund is better. This is a natural thing to believe. In most sectors of the economy, price does correlate with quality, albeit imperfectly. It’s also natural to believe that some people are just better than others at picking stocks, just like Stephen Curry is better than other people at playing basketball. Finance and economics professors can talk all they like about nearly-efficient markets, the difficulty of identifying the people who can generate positive alpha, and the fact that you have to pay through the nose to invest your money with those people (like James Simons), but ordinary investors just don’t buy it.
Investors Dump Hedge Funds Due to Lousy Performance, High Fees -- Wolf Richter - The wrath of investors: worst capital outflows since 2009. Big public pension funds are slow-moving apparatuses. So dramatic shifts in investment decisions take a long time to be discussed and decided, and even longer before they’re felt by the investment community. But now they’re being felt – painfully. In September 2014, the $300-billion California Public Employees’ Retirement System, the nation’s largest pension fund, announced that it would liquidate over the following year its investments totaling $4 billion in 24 hedge funds and six funds-of-funds; they were too complicated and too expensive. Calpers interim CIO Ted Eliopoulos said at the time that, “at the end of the day, when judged against their complexity, cost and the lack of ability to scale at Calpers’ size,” the hedge fund program “doesn’t merit a continued role.” Hedge funds were supposed to help pension funds fill in their funding holes with higher returns. They were supposed to help pension funds fulfill their lofty promises to the retirees. Instead, hedge funds have deepened those holes with below-par returns – and some with spectacular losses. And to make the bitter fare go down better, they’ve decorated it with dizzying fees. Calpers is the model for many pension funds. And its decision soon began to reverberate through the industry. Other pension funds chimed in. For example, last Thursday, the New York City Employees Retirement System voted to liquidated its entire $1.5 billion hedge fund program, a trustee told Reuters, “as soon as practicable in an orderly and prudent manner.” Letitia James, public advocate for NYCERS, lambasted hedge funds for their “exorbitant fees” and lashed out at managers who “balk at negotiations for investor-favorable terms,” thinking they “could do no wrong, even as they are losing money.” “If they were truly fiduciaries and cared about our members, they would never charge large fees for failing to deliver on their promises,” she told the Financial Times. “Let them sell their summer homes and jets, and return those fees to their investors.” Hope, lousy returns, and high fees. A toxic mix. And now it has trickled down to the numbers – the worst numbers for hedge funds since 2009.
Sun Capital Ruling: Private Equity Investors on the Hook for Shuttering Underfunded Pensions - Yves Smith - Public pension funds are going to get dinged when their private equity fund “partners” engage in the form of looting known as withdrawing from underfunded pension plans. One thing that has always seemed astonishingly short-sighted is the way public pension funds have helped finance the elimination of private pension funds. Admittedly, there are not all that many defined benefit plans left standing, but the project has been underway for some time. Now that government employees are virtually the only people in the US who have defined benefit plans, the calls keep increasing to have them eliminated so as to put public workers on the same perilous footing as private sector workers. That of course ignores the fact that people in the private sector could have sought work in the public sector but didn’t and that the pensions of government workers are part of a total compensation package, as in their wages are lower by virtue of having retirement goodies. In a ruling last month, Judge Douglas Woodlock ruled that two Sun Capital funds that had jointly purchased a company, Scott Brass, that went bankrupt, were subject to withdrawal liability of their pension fund. We’ve embedded a short memo by Wilkie Farr on the ruling as well as the decision itself at the end of the post. The short version is that if a “controlled group” that owns more than 80% of a company terminates an underfunded pension plan, it is responsible for withdrawal liability under ERISA. The Department of Labor did not want investors being able to close underfunded plans without incurring a serious cost; otherwise, it would be common for pension plans to be shut down any time they became underfunded, leaving beneficiaries in the lurch. Sun Capital had sought to get around that by having two Sun Capital funds invest in a company that bought Scott Brass, with one owning 70% and the other 30% so as to fall below the 80% trigger. The Teamsters and Sun Capital sued each other, and the judge’s initial ruling in favor of Sun Capital was overruled in part and returned to Judge Woodlock to determine two issues key to deciding the case: whether the funds were engaged in a trade of business, and whether they were under “common control”.
Corporate defaults rising at their fastest pace since 2009 - Companies around the world have defaulted on $50 billion of debt so far, according to a study by credit rating agency Standard & Poors. Defaults are rising at their fastest pace since the financial crisis. Five companies missed payments last week, taking the total to 46 for the year. The trend has been led by energy and mining companies, with a collapse in the oil price at the start of the year leading to panic in the market for high-yield (or junk) bonds.. Peabody Energy, the world's largest privately owned coal producer filed for US bankruptcy protection last week after a sharp fall in coal prices that left it unable to service a recent debt-fueled expansion into Australia. The company listed both assets and liabilities in the range of $10 billion (£7 billion) to $50 billion (£35 billion), according to a court filing. But according to Deutsche Bank, this is just the beginning. The default cycle will peak in 2017 and 2018 at 4%, or one in 25 debt issuances, for the high-yield market, rising to 9% to 11% for oil and commodities companies. That's still way lower than past default peaks at as much as 15%. The prerequisites for another default cycle are there – high outstanding debt, an external shock to companies' business models and the chance of rising interest rates. Here are the charts:
Defaults hit highest level since '09 bust: The number of companies defaulting on their debt is hitting levels not seen since the financial crisis, and it's not just a problem for bondholders. So far this year, 46 companies have defaulted on their debt, the highest level since 2009, according to S&P Ratings Services. Five companies defaulted this week, based on the latest data available from S&P Ratings Services. That includes New Jersey-based specialty chemical company Vertellus Specialties and Ohio-based iron ore producer Cliffs Natural. Of the world's defaults this year, 37 are of companies based in the U.S. Meanwhile, coal producer Peabody Energy (BTU) and surfwear seller Pacific Sunwear (PSUN) this week filed plans for bankruptcy protection. Shares of Peabody have dropped 97% over the past year to $2 a share and Pacific Sunwear stock is off 98% to 4 cents a share. The implosion of oil prices is the top reason for the rise in defaults as it makes it harder for energy companies to repay debt. The Federal Reserve's decision to hike short-term interest rates last year along with slowing global growth are also putting pressure on companies' ability to service their debt. Defaults are clearly an issue for bondholders, since these events mean they no longer receive payments on money lent to these companies. But the situations can be brutal for stock investors, too, as restructuring after a default can leave shares essentially worthless as the bondholders often become the new owners of the company.
Deal Scrapheap Starts to Fill Up As Mega-Mergers Fall Apart - The deal junkyard is getting crowded. Of the $3.2 trillion in deals announced in the past eight months, about nine percent -- worth $294 billion -- have already fallen apart, according to data compiled by Bloomberg. That's close to double the amount in the same period a year earlier, despite overall deal volumes only ticking up about 23 percent. Much of that is due to the collapse of the biggest pharmaceutical deal of all time (see below), but several other multi-billion dollar transactions have also failed to make it over the finish line. We take a look at some of the biggest. . The drugmakers walked away from their $160 billion merger earlier this month, after U.S. officials cracked down on deals designed to reap tax savings for the companies involved. Had it succeeded, the planned mega-merger would have been the largest-ever deal in the pharmaceutical industry. It would also have allowed Pfizer Inc. to shift its tax address to Ireland, which has a much lower corporate tax rate than the U.S. Cancelling the deal cost Pfizer about $150 million in termination fees -- and meant financial advisers to the companies missed out on $236 million payday, according to estimates from consultants Freeman & Co. Canadian Pacific Railway Ltd. abandoned its bid to buy Norfolk Southern Corp. after five months of public wrangling over the deal. Valued at $27 billion, it would have been the biggest railroad deal since regulators changed the rules on mergers for the industry in 2001. Canadian Pacific investor Pershing Square Capital Management -- led by Bill Ackman -- was keen on a combination but Norfolk said its offer was inadequate, and unlikely to pass regulatory scrutiny. “We effectively saw a deck stacked against us,'' Canadian Pacific Chief Executive Officer Hunter Harrison said in a Bloomberg Television interview.
Goldman posts weakest results in four years, revenue tumbles 40 percent | Reuters: Goldman Sachs Group Inc reported the worst quarterly results in more than four years on Tuesday as volatile markets kept clients from trading, investing or issuing new securities. Goldman's report wrapped up a dismal quarter for big U.S. banks. The previous day, its most comparable rival, Morgan Stanley, also said its profit fell by more than one-half due to tough markets. Goldman's first-quarter revenues tumbled 40 percent, hit by sliding commodity prices, worries about the Chinese economy and uncertainty about U.S. interest rates. Profit fell even more sharply, emphasizing Goldman's reliance on the capital markets business, particularly bond trading which can be volatile. Analysts peppered Chief Financial Officer Harvey Schwartz with questions about Goldman's commitment to bond trading as well as its unusually low returns during the quarter, and his outlook for the rest of the year. Goldman executives have repeatedly said they believe difficulties in trading are short term and that the business will come back. But as Wall Street approaches its sixth year of weak volumes and unexpected price swings that are hurting results, some investors are wondering how long the pain will last.
When Lies Are Allowed in a Business Deal - The United States Court of Appeals for the Seventh Circuit in Chicago overturned the conviction of David Weimert, a former vice president of AnchorBank in Wisconsin. He was charged with wire fraud for his role in the sale of the bank’s share of a commercial real estate development in Texas in which he took a minority position in the deal along with the buyers. It turns out that Mr. Weimert misled both sides about his role in the deal. He told the buyers that AnchorBank wanted him to take a piece of the transaction, while informing the bank that the buyers insisted he come in as a partner in the deal. When the sale closed, the bank got about a third more than it expected to make.That’s a pretty nice outcome, but once the bank learned about Mr. Weimert’s deception, it fired him. To make matters worse, AnchorBank had received federal bailout funds during the financial crisis, so the Justice Department pursued the case because of the potential misuse of taxpayer money.He was convicted of five counts of wire fraud at trial and sentenced to 18 months in prison. But the appeals court concluded there was not enough evidence to show any fraud despite his not telling the truth to either side, taking the rare step of ordering that Mr. Weimert be acquitted of the charges.The appeals court focused on the fact that there were ongoing negotiations between the bank and the buyers, so that “it is not unusual for parties to conceal from others their true goals, values, priorities, or reserve prices in a proposed transaction.” In other words, no one tells the truth when they are negotiating a deal.
FSOC Urges Stronger Liquidity Practices for Mutual Funds | American Banker: — The Financial Stability Oversight Council on Monday released an update of its examination of the asset management industry, providing new details on areas the council says warrant greater scrutiny, such as mutual fund liquidity and the leverage of hedge funds. But the new document stopped short of regulatory proposals to restrict asset manager activities. In the update, the FSOC noted that its nearly two-year inquiry into the asset management industry has been narrowed to certain discrete areas that need to be studied further or where data is lacking. In general, the council deferred regulatory action to the Securities and Exchange Commission, which has regulatory authority over much of the industry and has begun issuing new rules. "Our job is to ask questions which may or may not lead to the conclusion that action is required, and to be driven by data and analysis in forming our judgements," said Treasury Secretary Jack Lew, the FSOC's chairman. "While not a primary regulator, the council has a clear mandate to look across the system for potential threats to financial stability, so it's important that the work of the council and the work of the other regulators — particularly, in this case, of the SEC — are complementary." The document highlighted liquidity and redemption as the area that required the greatest share of ongoing attention from the council. The update centered primarily on potential mismatches between fund investor redemption rights and the liquidity of the underlying assets.
US regulators query banks on their 'Brexit' contingency plans: Sources: U.S. financial regulators are demanding regular updates from Wall Street banks about their contingency plans should Britain vote to leave the European Union, banking and regulatory sources told Reuters. Scenarios under scrutiny range from how their London operations would handle lengthy uncertainty if Britons opt to quit the bloc in a June 23 referendum, to whether they could still offer financial services in continental Europe from a non-EU Britain. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), which share responsibility for supervising U.S. banks, have told the lenders to present specific plans for their businesses in the event of a "Brexit", three sources said. "We've been actively asked to do this within the last six weeks. It involves scenario planning, stress testing different outcomes," said one banking source. "You pick a highly impactful, negative scenario that's bad but plausible and you work through the implications for the business."
Bill Black: Andrew Ross Sorkin Makes a Hash of Met Life “Too Big to Fail” Decision -- Andrew Ross Sorkin has written a column lamenting that “For a Generalist, ‘Too Big to Fail’ May Be Too Tricky to Judge” about the district court opinion finding in favor of MetLife on the question of whether it would pose a system risk were it to fail. Sorkin runs the NYT’s “Deal Book,” which is supposed to represent the paper’s specialized expertise with regard to Wall Street. His column demonstrates that one of the areas of expertise required to understand Wall Street is legal, and that it is beyond his understanding despite having “read hundreds of pages of legal briefs from both sides, and talked to company and government officials and outside experts….” I will start with his description of the judge, Rosemary M. Collyer, which ignores vital information and misinterprets other information. She’s also a member of the United States Foreign Intelligence Surveillance Court and once worked as the general counsel of the National Labor Relations Board. In other words, she’s a legal rock star. Well, no. It does mean her specialty is employment law. Her appointment to the FISC by Chief Justice Roberts means (1) she was appointed to the federal judiciary by a Republican president (Roberts appointed only Republicans to the FISC, which is outrageous) and (2) Roberts thinks she is disposed to vote to allow the mass surveillance of Americans by the NSA. Republican appointees to the judiciary are materially more hostile to government actions – except in the case of supposed national security. Similarly, Sorkin gives a naïve description of a scholar who claims that specialized economic courts are desirable.
Why the Big Banks Can’t Imagine Their Own Demises - Dan Davies -- The living-will process has proved almost as controversial in finance as it is in health-care policy, in part because the question of whether a credible one can be created for any particular bank is intertwined with whether it’s too big to fail. If regulators consistently find the plans wanting, they have the power, under Dodd-Frank, to require the banks to begin selling off assets—effectively, to begin breaking up. Thus far, the eight U.S. banks that have been designated “global systemically important” aren’t scoring well. First, in 2013 and 2014, the Federal Reserve and F.D.I.C. rejected preliminary plans submitted by the banks. These were broadly understood to be trial runs, in fairness, but the experience didn’t appear to have helped them with the 2015 submissions. Regulators rejected the plans filed by three of the biggest banks in the country—JPMorgan Chase, Bank of America, and Wells Fargo—as well as by B.N.Y. Mellon and State Street, two “trust banks” that are regarded as systemically important because of their role in managing securities transactions. Another two banks failed to have their plans fully accepted; Goldman Sachs’s living will was rejected by the F.D.I.C., and Morgan Stanley’s by the Fed. There are a few possible explanations for why the banks have collectively failed, thus far, to file credible living wills. The banks themselves say (with qualified support from the Government Accountability Office) that the living wills are unprecedentedly big and difficult compliance exercises and that the requirements weren’t made clear enough. Another possibility is that the big banks are obfuscating, in the belief that the political will won’t really be there to break them up. (Why provide regulators with the recipe for hemlock juice when champagne will be back on the menu once election season is over?) But there is, too, the existential question of contemplating one’s own mortality: the notion that the banks might find it hard to acknowledge and address the conditions under which they might need to be broken up. In some respects, this is the most distressing of the three, because it suggests an endemic and intractable cultural problem, in which the banks are trying to comply but aren’t able to do so.
Kashkari: Higher Capital Is Better Remedy than TLAC | American Banker: — Two weeks after holding the first in a series of symposia on the state of "too big to fail," Minneapolis Federal Reserve President Neel Kashkari said he still has doubts about the workability of bail-in rules and resilience of the largest banks. In a speech prepared for Monday in Minneapolis, Kashkari said he was unsure whether post-crisis reforms for the biggest banks "go far enough." He focused particularly on a plan requiring behemoths to hold enough unsecured debt in order to recapitalize a failed bank. Under the Federal Reserve Board's proposed "total loss absorbing capacity" rule, unsecured debt would be converted into equity in a successor bank — essentially acting like a built-in bailout to avoid the need for taxpayer funds. TLAC "has not worked in practice in prior cases, and I doubt it will work in the future," Kashkari said in remarks prepared for the Minnesota Chamber of Commerce. Although unsecured creditors could have an equity piece in a TLAC scenario, Kashkari said, he argued that regulators may resist imposing haircuts on creditors out of concern for the reputational risk to a new company emerging from a government resolution. Kashkari said policymakers faced similar complications in the crisis when it came to whether the government should haircut creditors to the government-sponsored enterprises. Similarly, even banks themselves could have let their legally independent "structured investment vehicles" fail during the crisis, but they preserved them for fear of the effect on the banks' reputations.
Europe Fixed Its Too-Big-to-Fail Problem. Why hasn't America followed the lead of the British and Swiss? - Yves Smith - In one of their angrier exchanges before Tuesday’s New York primary, Bernie Sanders and Hillary Clinton squabbled in Brooklyn over who would do a better job of containing the giant banks across the river, the ones that nearly destroyed the U.S. economy in 2008. Only a few days before the debate between the two Democratic candidates, five of the eight banks tasked to write “living wills” as mandated by the Dodd-Frank law—JP Morgan, Bank of America, State Street, Bank of New York Mellon and Wells Fargo—got failing grades. That meant they couldn’t convince regulators they were capable of liquidating themselves in an orderly way in the event of a crisis like 2008—indicating, in turn, that absent a government bailout, the economy would take a huge hit again. The idea that this debate remains so unresolved nearly eight years after the Wall Street-generated crisis that nearly sank the world economy is a danger sign, especially since U.S. regulators are still not reckoning with the peril in the financial sector realistically, even as other countries have done a much better job than we have in fixing things. Story Continued Below The boldest has been Switzerland, with an economy far more dependent on banking than ours. As part of its rescue of UBS, the Swiss National Bank required UBS to conduct an independent investigation of how it got itself in such a mess. The report was made public, an unparalleled measure of forensics and accountability that should have been a universal practice. In 2010, Switzerland implemented new rules requiring its two banking behemoths, UBS and Credit Suisse, to have total risk-weighted capital of 19 percent,
In banking, it’s all other people’s money - Anat Admati Heavy borrowing is addictive. Distressed homeowners may be tempted to take a second mortgage. Similarly, heavily indebted corporations often continue borrowing even if doing so depletes their assets, because it benefits their shareholders and managers, who control the decisions and benefit from the full upside of risk. To protect their interest, prudent lenders monitor and set harsh terms when lending to distressed borrowers, which makes heavy borrowing unattractive for corporations. In contrast, debt addiction is especially intense in banking, and this addiction is not properly countered by market forces in part because banks tend to have passive creditors. Insured depositors, or lenders entitled to seize some of the banks’ assets ahead of depositors if the bank fails to pay them, don’t monitor banks’ risk or impose harsh terms. Deposit insurance guarantees, access to central bank supports and the possibility of government bailouts, combined with the tax subsidization of debt, perversely feed and enable debt addiction. Only effective regulations can correct the resulting harm and inefficiencies of this situation.Excessive borrowing by lenders such as banks is a key source of financial instability. Those who feed credit booms by lending too much, however, both the institutions and the key decision-makers within them, tend to suffer least in the bust. Deposit insurance, central banks and governments often protect banks and their creditors, especially in a crisis. When lenders become distressed or insolvent “zombies,” they can become reckless and dysfunctional. Yet, policymakers routinely tolerate weak banks, which can harm economic recovery. Key regulations that are meant to make banks safer and healthier remain inadequate, and the flawed design of existing regulations adds further distortions. Bankers and policymakers provide false reassurances about the health of institutions and of the system. Many flawed and misleading claims are made about the costs and benefits of making the system safer, muddling the policy debate and confusing the public. Institutions considered too big to fail are especially dangerous, as their implicit guarantees enable and encourage them to become inefficiently large, complex and reckless. The risks they take are often obscured from investors and regulators. Implicit subsidies to the entire financial sector may cause it tobecome too large, distorting markets and competition.
One Firm Getting What It Wants in Washington: BlackRock - WSJ: In 2014, BlackRock Inc. executives obtained a copy of a confidential Federal Reserve PowerPoint presentation that argued part of the giant money manager could pose the same financial-system risk as big banks. “If it looks like a bank, quacks like a bank...” read the title of two slides, according to a copy of the presentation reviewed by The Wall Street Journal. The presentation—which BlackRock told members of Congress contained wrong information—galvanized the firm around a crusade to elude more aggressive oversight from the Fed. The latest public confirmation of its escape came Monday when a U.S. panel advocated a closer examination of certain asset-management activities and products but not new scrutiny of large fund managers—a stance BlackRock has long endorsed. The guidance affirmed what regulators have signaled for two years. BlackRock and rivals Vanguard Group and Fidelity Investments will dodge for now the “systemically important” label that would draw them in for greater oversight by the Fed. BlackRock is by far the largest asset manager, with $4.7 trillion under management. A lot is at stake for any company that receives the systemic tag since it means tougher rules and potentially higher capital requirements from U.S. regulators.
US finance professionals face fresh pay crackdown - Thousands of US finance professionals from Wall Street traders to brokers and investment bankers face new restrictions on pay after regulators put forward long-delayed plans to restrict bonuses. Watchdogs on Thursday unveiled proposals to rein in remuneration excesses in one of the final pieces of the Dodd-Frank reforms, drawn up to prevent another financial meltdown. The measures include provisions to defer bonuses and to claw back payouts if financial sector employees are found to have acted fraudulently or are guilty of misconduct. Schemes that put executives on the hook for future losses are already standard practice on Wall Street for senior managers at large US banks. However, the proposed rules would make arrangements a formal requirement and could toughen existing provisions — putting leading executives on the hook for losses for up to seven years. Perhaps more significantly, said corporate governance experts, restrictions would apply to a wider pool of employees at large banks — not just top executives — as well as those that work for other types of institutions. The rules affect so-called “significant risk takers”, who include the top 5 per cent of earners at the largest banks or those able to put at risk material amounts of the institution’s capital. Investment advisers, brokers and credit union employees would also be caught by the changes. Clawback provisions could be triggered if the employee fails to comply with regulatory requirements, triggering an enforcement or legal action, or is guilty of other misconduct. The proposed requirements are linked to the size of the institution, which are divided into three tiers depending on the size of their assets, as well as the role of the individual. Top executives at the largest institutions — those with at least $250bn of assets — would face the toughest restrictions. They would have three-fifths of their bonuses deferred for four years. Those at groups with between $50bn and $250bn of assets would have half of their bonuses delayed for at least three years. Lesser restrictions apply to financial companies with between $1bn and $50bn of assets.
The Party Is Over: Regulators Propose To Cap, Defer And Clawback Wall Street Bonuses - Coming off a year in which Wall Street experienced the lowest average bonus since 2012, it now has to brace itself for new regulation on incentive compensation. One of the last pieces of Dodd-Frank to be written and implemented, regulators are looking to firm up the rules surrounding incentive pay for banks. The final regulation, once agreed upon, will not just apply to banks, it will also apply to investment advisers, broker dealers, credit unions, and executives at mortgage finance companies Fannie Mae and Freddie Mac according to the Wall Street Journal. Six agencies have joint responsibility for rewriting the original government plan on Wall Street pay: FDIC, the OCC, the NCUA, the Federal Reserve, the SEC, and the Federal Housing Finance Agency. The National Credit Union Administration plans to meet today to unveil their latest proposal, with the rest of the regulators expected to follow shortly thereafter. At the heart of the NCUA proposal are three main components: Bonus deferrals, Bonus clawbacks, and Risk Management and Controls. These are all slightly different for each level, defined by total assets of the firm. Here are the three levels, according to the NCUA proposal:
- Level 1: Greater than or equal to $250 billion
- Level 2: Greater than or equal to $50 billion and less than $250 billion
- Level 3: Greater than or equal to $1 billion and less than $50 billion
Below is a quick summary of the key takeaways from each component.
Cheat Sheet: How Regulators Changed Their Exec Comp Plan | American Banker: — The banking regulators made several critically important changes in their new plan released Thursday to restrict executive pay at financial institutions after their first attempt flopped in 2011. For starters, the revised proposal casts a much wider net than the initial proposal. Rather than simply applying to C-suite executives, the plan additionally takes aim at "significant risk-takers" — a new designation designed to target employees who have the ability to place large bets for a firm or owe much of their pay to incentive-based compensation. The regulators "are much smarter about how people get paid than they were five years ago," said Marc Trevino, a partner at Sullivan & Cromwell. "They really understand a lot more about how pay programs work, and I think the rule tries to set limits, but in a world that is much more complicated than the world they were imagining in 2011." The new proposal also adds an additional tier to its structure, replacing the original plan's two levels with a third category that includes just the biggest banks with more than $250 billion of assets. Those institutions will be subjected to the proposal's toughest standards, while smaller banks face less onerous restrictions (banks with less than $1 billion of assets are exempted altogether). That reflects a notable shift toward "tailored" rules by the financial regulators — a refrain meant to concentrate the brunt of regulatory requirements on the largest institutions and to lessen the burden on smaller ones.
CFPB Finds 'Steep Hidden Costs' from Online Payday Loans | American Banker: The Consumer Financial Protection Bureau has found that borrowers pay a "steep, hidden cost" in the form of unanticipated bank penalty fees and closed checking accounts when taking out online payday loans. In a study to be released early Wednesday, the agency said that one third of consumers have their checking accounts closed involuntarily because of repeated attempts by online lenders to collect payment. Half of consumers who take out online payday loans pay an average of $185 in bank penalties because at least one attempt to debit payment overdrafts or fails, the study found. The CFPB is expected soon to issue a proposal on payday lending, which would be the first federal regulation of the small-dollar lending market. The research report, which excluded storefront payday lenders, provides insight into the bureau's thinking about how it might regulate online lenders. CFPB Director Richard Cordray said taking out an online payday loan can result in "collateral damage" to a consumer's bank account. "Bank penalty fees and account closures are a significant and hidden cost to these products," Cordray said in a press release. "We are carefully considering this information as we continue to prepare new regulations in this market."
How the Court Could Rule in the CFPB Constitutionality Case | American Banker: Despite a tough public grilling of the Consumer Financial Protection Bureau last week by two D.C. Circuit judges, several legal experts said a ruling against the agency and its director, Richard Cordray, may have a limited impact. While there are important constitutional and legal issues at play, the most likely decision is that the court could strike down language in the Dodd-Frank Act that only allows the CFPB's director to be removed "for cause." As a result, a CFPB director – either Cordray or a successor – could be removed for any reason, most likely when a new administration takes office. Other options, such as striking down the agency and every rule or enforcement action it has taken, are probably too draconian, experts said. "It's not the end of the world if Cordray is removable without cause," said Jon Eisenberg, a partner at K&L Gates. "Courts are practical, and I can't see the court saying everything the CFPB has done to date is invalid because the agency is not constitutional. That could call into question its extensive rulemaking as well – I just can't picture that." At issue is PHH Corp.'s lawsuit against the CFPB, which, among other things, claims the "for cause" provision violates the Constitution's separation of powers doctrine. During oral arguments last week, Judge Brett M. Kavanaugh appeared receptive to removing the "for cause" provision as a possible remedy, citing a 2010 Supreme Court decision. Several experts said the three-judge D.C. Circuit panel is unlikely to push further.
White House Makes a 'Moral Case' for Stopping Payday Abuse | American Banker: Senior members of the Obama administration posted a blog advocating "a moral case" for putting an end to payday lending abuses, citing support from a variety of religious leaders. "We have a moral obligation as a country to do something to stop payday lenders from preying on consumers by trapping them in an endless cycle of debt," said the blog, which had three bylines: Valerie Jarrett, a senior adviser and assistant to the president for intergovernmental affairs and public engagement; Cecilia Munoz, assistant to the president and director of the domestic policy council; and Jeffrey Zients, the director of the National Economic Council and assistant to the president for economic policy. The blog was posted Thursday after officials and religious leaders met at the White House to discuss stronger consumer protections. The White House appears to be ratcheting up its rhetoric ahead of a proposed payday lending rule that the Consumer Financial Protection Bureau is expected to issue in May or June. A payday lending plan would be the first federal law regulating the industry. The short blog included a video of President Obama's speech last month at Lawson State Community College in Birmingham, Ala., where he spoke about abusive payday lending practices.
How to Keep Credit Flowing Under CFPB's Payday Plan | Bank Think: There are far more payday lending stores than McDonald's restaurants in almost every state in the nation. But unlike McDonald's burgers, payday lending is rarely affordable and generally not digestible. A mission impossible has been requested of the Consumer Financial Protection Bureau: clamping down on unaffordable payday loan debt traps while still ensuring access to much-needed credit for the typical McDonald's customer base — the 70% of Americans who live from paycheck to paycheck, according to our data. It is indisputable that the majority of those who work from paycheck to paycheck, including the overwhelming majority of our nation's 130 million minorities, need access to credit that is not presently supplied by our regulated financial institutions. It is also indisputable that none of the present viable and profitable payday lending centers is willing to lend even at or below 36% interest rates annualized. Therefore, it is difficult to see how the underserved's primary champion, CFPB Director Richard Cordray, can solve the problem of affordable access. Supporting our mission impossible thesis are the many experiences of Americans who utilize payday lending at military bases. For instance, near one of our San Diego offices, which is also in the vicinity of a marine base, are four payday lenders. When we had a public hearing on payday lending there, more than half of the attendees — mostly immigrants — said they are not in favor of removing payday lending until there's an alternative.
How the Court Could Rule in the CFPB Constitutionality Case | American Banker: Despite a tough public grilling of the Consumer Financial Protection Bureau last week by two D.C. Circuit judges, several legal experts said a ruling against the agency and its director, Richard Cordray, may have a limited impact. While there are important constitutional and legal issues at play, the most likely decision is that the court could strike down language in the Dodd-Frank Act that only allows the CFPB's director to be removed "for cause." As a result, a CFPB director – either Cordray or a successor – could be removed for any reason, most likely when a new administration takes office. Other options, such as striking down the agency and every rule or enforcement action it has taken, are probably too draconian, experts said. "It's not the end of the world if Cordray is removable without cause," said Jon Eisenberg, a partner at K&L Gates. "Courts are practical, and I can't see the court saying everything the CFPB has done to date is invalid because the agency is not constitutional. That could call into question its extensive rulemaking as well – I just can't picture that." At issue is PHH Corp.'s lawsuit against the CFPB, which, among other things, claims the "for cause" provision violates the Constitution's separation of powers doctrine. During oral arguments last week, Judge Brett M. Kavanaugh appeared receptive to removing the "for cause" provision as a possible remedy, citing a 2010 Supreme Court decision. Several experts said the three-judge D.C. Circuit panel is unlikely to push further.
Judge Rules CFPB Lacks Jurisdiction to Investigate College-Accrediting Firm - WSJ: A federal judge ruled Thursday that the consumer finance regulator stepped “well outside” its authority, and stopped it from pursuing an investigation of an organization that accredits for-profit colleges. The decision marks the first time a court has found that the Consumer Financial Protection Bureau, which has been under intensifying political and legal challenges, exceeded its bounds. Just last week, the young agency was in the spotlight at the U.S. Court of Appeals for the District of Columbia Circuit where a judge called its structure—a single director with the power to override decisions by the agency’s own administrative law judges—“very problematic.” That case, brought by mortgage lender PHH Corp. challenges a decision by CFPB Director Richard Cordray to increase fines for violating home buying laws to $109 million from the $6 million initially ordered by an administrative law judge. On Thursday, Judge Richard Leon of the U.S. District Court for the District of Columbia ruled the CFPB lacked jurisdiction to proceed with an investigation of the Accrediting Council for Independent Colleges and Schools (ACICS), a nonprofit group that accredited hundreds of for-profit schools some of which are being investigated by the CFPB for possible violations of fair lending practices. Judge Leon wrote that the CFPB lacked authority to issue a so-called civil investigative demand seeking information from ACICS because the group isn't involved in the lending decisions made at for-profit schools. “Put simply, this post-hoc justification is a bridge too far!”
CFPB Rebuked by Judge for Exceeding Authority | American Banker - A federal district judge on Thursday dismissed a lawsuit brought by the Consumer Financial Protection Bureau against the embattled accreditor of for-profit colleges, saying the agency lacked the authority to investigate. The ruling by Judge Richard J. Leon of the U.S. District Court for the District of Columbia marks the first time a court has said the bureau has no jurisdiction and overreached its statutory authority. Leon denied CFPB Director Richard Cordray's request to investigate the Accrediting Council for Independent Colleges and Schools, whose president and CEO separately resigned on Monday amid increased scrutiny. The judge rejected the CFPB's theory that it has the power to examine the for-profit college accreditation process. "Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress," Judge Leon wrote in an eight-page opinion. It is unclear whether the CFPB will appeal or drop the case. A spokeswoman for the agency declined to comment.Cordray has sought to play an active role in the student loan debt crisis largely by policing for-profit colleges. But in trying to investigate the accreditor of such colleges, the bureau may have gone too far."It's really the first time a court has determined that the CFPB lacked jurisdiction," said Alan Kaplinsky, a partner and leader of the consumer financial services group at the law firm Ballard Spahr. "Hardly ever does a court tell a federal agency that a [civil investigative demand] is invalid. To get rebuked as sharply as they did was a surprise."
Goldman Settlement Shows Some Banks Still Too Big to Punish | Bank Think: With the Department of Justice announcing its latest multibillion-dollar settlement with a too-big-to-fail bank — Goldman Sachs this time — the question we all must be asking is, "Does this mean that real accountability has finally come to Wall Street?" Unfortunately, we already know the answer is a clear "no." Too big to fail not only means "too big to jail" but also "too big to punish." Like in previous DOJ settlements, Goldman's appeared to be carefully crafted to look meaningful without actually imposing significant accountability. The $5 billion payment sounds big, but that figure is the equivalent of pennies for Goldman, no more than the regular cost of doing business on Wall Street. Three fundamental problems plague DOJ's approach. First, the multi-billion-dollar payments are as misleading as teaser-rate mortgages. For all of Goldman's predatory activities covered by this deal — its peddling of toxic assets to unsuspecting investors from 2005 to 2007 — what was Goldman's profit? What were the investors' losses? The settlement documents contain no such details, let alone any admissions, so no one can say whether the punishment fits the crime. Second, who is paying? Today's shareholders; they might have benefited from Goldman's dealings but they certainly did not commit the company's fraud. Who else pays? Once again, the taxpayer. More than half of Goldman's deal, $2.675 billion, comprises "cash payments" of $875 million and "consumer relief" of $1.8 billion, which are all tax-deductible expenses. Less than half of the total settlement, $2.385 billion, is a civil penalty that Goldman cannot write off. If Goldman were to pay the nominal 39% total corporate tax rate on $2.675 billion, Goldman would save — and taxpayers would lose — more than $1 billion.Third and most importantly, once again not a single responsible individual at Goldman is even named, let alone held accountable. It's as if the bank buildings were unoccupied when the building itself committed the crimes.
Obama Administration Trying to Keep 11,000 Documents Sealed - Taibbi - Rolling Stone: It's not quite the Panama papers, but one hell of a big pile of carefully guarded secrets may soon be made public. For years now, the federal government has been quietly fighting to keep a lid on an 11,000-document cache of government communications relating to financial policy. The sheer breadth of the effort to keep this material secret may not have a precedent in modern presidential times."It's the mother of all privilege logs," explains one lawyer connected with the case. The Obama administration invoked executive privilege, attorney-client and deliberative process over these documents and insisted that their release would negatively impact global financial markets. But in finally unsealing some of these materials last week, a federal judge named Margaret Sweeney said the government's sole motivation was avoiding embarrassment. "Instead of harm to the Nation resulting from disclosure, the only 'harm' presented is the potential for criticism," Sweeney wrote. "The court will not condone the misuse of a protective order as a shield to insulate public officials from criticism in the way they execute their public duties." So what's so embarrassing? Mainly, it's a sordid history of the government's seizure of mortgage giants Fannie Mae and Freddie Mac, also known as the government-sponsored enterprises, or GSEs.
Obama Administration Trying to Throw Massive Secrecy Veil Over Past and Future Pilfering of Fannie and Freddie -- Yves Smith - Matt Taibbi tonight has an important story that is likely to be lost in reporting on the New York primary: an unheard-of effort to keep 11,000 government documents hidden. They aren’t terrorism or surveillance state related; they are instead about the state secret of what the government has done and intends to do with the the government sponsored enterprises Fannie and Freddie now that they’ve gone from being walking wounded to cash machines. As Taibbi recaps, the basis for the row is minority shareholder suits over how the rescues were handled. The original rescue had the government taking an 80% stake and the right to future dividends. The GSE overseer, the Federal Housing Finance Agency, changed the deal willy-nilly in 2012, after Fannie and Freddie were generating tons of profits, to keep all of the dividends. The excuse was that the housing giants were still basket cases facing a “death spiral”. But that’s clearly nonsense, since the funds were hoovered up by Treasury rather than retained by Fannie and Freddie to strengthen their capital bases. As Taibbi writes: It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment… Remember, the other bailout recipients after 2008 were mostly all allowed to pay off their debts as quickly as possible, to get out from under restrictions imposed upon them by the government. Firms that took bailout money were allowed to pay far earlier than expected, in less than a year in some cases, allowing companies like JP Morgan Chase, Goldman Sachs and Morgan Stanley to get out from under executive compensation restrictions and other temporary reforms.
U.S. Government Is Now a Major Counterparty to Wall Street Derivatives - Pam Martens -- According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.” This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story. The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail. The New York Fed’s staff report of March 2015 concedes the following: “Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.”Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos?
Black Knight's First Look at March Mortgage Data: Delinquency rate lowest in 9 Years -- From Black Knight: Black Knight Financial Services’ First Look at March 2016 Mortgage Data: Delinquencies at Lowest Level in Nine Years; 30-Day Delinquency Rate Lowest Since Pre-2000
• National delinquency rate fell 8 percent in March; at 4.08 percent, it is at its lowest point since March 2007
• At just under 2 percent, the rate of 30-day delinquencies is at lowest level in over 15 years
• Spurred by declining interest rates, prepayment speeds (historically a good indicator of refinance activity) were up 46 percent from one month ago
• Foreclosure starts were down 14 percent from February; still driven primarily by repeat foreclosure activity
According to Black Knight's First Look report for March, the percent of loans delinquent decreased 8.4% in March compared to February, and declined 12.4% year-over-year. The percent of loans in the foreclosure process declined 3.7% in March and were down 25.6% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.08% in March, down from 4.48% in February. This is the lowest delinquency rate since March 2007. The percent of loans in the foreclosure process declined in March to 1.25%. The number of delinquent properties, but not in foreclosure, is down 287,000 properties year-over-year, and the number of properties in the foreclosure process is down 215,000 properties year-over-year.
Lawler: Preliminary Table of Distressed Sales and All Cash Sales for Selected Cities in March -- Economist Tom Lawler sent me a preliminary table below of short sales, foreclosures and all cash sales for a few selected cities in March. On distressed: Total "distressed" share is down in all of these markets. Short sales and foreclosures are down in all of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.
Still Not Deleveraging American Homeowners - The Federal Housing Finance Agency has finally announced a program to reduce principal balances of distressed home mortgages held by Fannie Mae and Freddie Mac, eight years into the foreclosure crisis. Too little, too late would be an understatement to describe this initiative. According to the agency’s announcement, they expect about 33,000 homeowners to be eligible to have their mortgage debt reduced to the value of their homes. According to the Zillow negative equity report, more than 6 million homeowners have mortgage debt exceeding their home value, and almost a third of all homeowners are effectively underwater, meaning that their equity is less than 20% of the home value, making it difficult to sell or refinance. Aggregate value of homes in the US rose from $10.9 trillion in 1998 to $28.3 trillion in 2006, then declined to $19.5 by the beginning of 2012, recovering somewhat in the past three years. This one-third decline in home values was not accompanied by a one-third decline in mortgage debt. Residential mortgage debt peaked at 10.6 trillion in 2006, and then declined to 9.5 trillion by the end of 2012, just a 10% easing. The overhang of home mortgage debt remains a huge impediment to consumer spending, wealth accumulation and the closing of the racial wealth gap in the United States. It is regrettable that the FHFA continues to take such a narrow view of its role as the regulator of our secondary mortgage market utilities and fails to pursue the social values that our taxpayer-backed housing finance system ought to advance.
MBA: "Mortgage Applications Increase in Latest MBA Weekly Survey" --From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 1.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 15, 2016. ...The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 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) increased to 3.83 percent from 3.82 percent, with points decreasing to 0.32 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity is picking again with lower rates. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 17% higher than a year ago.
Existing Home Sales increased in March to 5.33 million SAAR From the NAR: Existing-Home Sales Spring Ahead in March Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 5.1 percent to a seasonally adjusted annual rate of 5.33 million in March from a downwardly revised 5.07 million in February. Sales rose in all four major regions last month and are up modestly (1.5 percent) from March 2015. ... Total housing inventory at the end of March increased 5.9 percent to 1.98 million existing homes available for sale, but is still 1.5 percent lower than a year ago (2.01 million). Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 months in February. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in March (5.33 million SAAR) were 5.1% higher than last month, and were 1.5% above the March 2015 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 1.98 million in March from 1.87 million in February. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.
Existing Home Sales Rise 5.1% From February’s Revised -7.3% Plunge -- Existing home sales bounced 5.1% from February’s steep decline of 7.3%, originally reported as -7.1%. Sales came in at a 5.330 million seasonally adjusted annualized rate (SAAR), better than the Bloomberg Econoday consensus estimate of 5.286 million. Highlights Existing home sales rose more than expected in March, up 5.1 percent to a 5.330 million annualized rate that, however, fails to reverse a downwardly revised 7.3 percent drop in February. And the year-on-year rate, at only 1.5 percent, is decidedly weak. But looking at the first quarter as a whole, which is important for housing data given their volatility, existing home sales are up a much more respectable 4.8 percent. March’s gain is led by the most important component, single-family homes where the rate rose 5.5 percent in the month to 4.760 million. Year-on-year, single-family homes are up 2.6 percent. The showing for condos is less convincing, up only 1.8 percent in the month for a year-on-year decline of 6.6 percent. Prices in this report are up, a monthly 5.0 percent for the median for a year-on-year rate of plus 5.7 percent which closely tracks rates in FHFA and Case-Shiller data. The median price for an existing home is $222,700 which, outside of last year’s Spring selling season when the median peaked above $230,000, is the best of the recovery. Higher prices help pull in more homes into the market, at 1.980 million in March for a sharp 5.9 percent gain from February. Yet year-on-year, supply is still weak, down 1.5 percent. Looking at supply relative to sales, supply is at 4.5 months which is up slightly from 4.4 months in February and down slightly from 4.6 months in March last year.
U.S. home sales rebound signals strong spring selling season | Reuters: U.S. home resales rebounded more than expected in March as supply improved, suggesting the housing market recovery remained intact despite signs that economic growth probably stalled in the first quarter. The sales surge at the start of the spring selling season was a sign of confidence in the economy, and the momentum is expected to be sustained given low mortgage rates, recent stock market gains and a firming labor market, analysts said. "There cannot be too much wrong with the economy if consumers keep buying new homes. It shows confidence," said Chris Rupkey, chief economist at MUFG Union Bank in New York. The National Association of Realtors said on Wednesday that existing home sales surged 5.1 percent to an annual rate of 5.33 million units last month, beating economists' expectations for a 3.5 percent increase. Sales were up 1.5 percent from a year ago. Existing home sales rose in all four regions in March, jumping by 11.1 percent in the Northeast and 9.8 percent in the Midwest. Single-family home sales vaulted 5.5 percent, while purchases of condominiums rose 1.8 percent. Sales were concentrated in the middle part of the market, with lack of inventory constraining transactions in the low-end segment.
March 2016 Existing Home Sales Improved?: The headlines for existing home sales say "closings came back in force last month as a greater number of buyers - mostly in the Northeast and Midwest - overcame depressed inventory levels and steady price growth to close on a home". Our analysis of the unadjusted data shows that home sales declined, and the rolling averages degraded. Sales price rate of growth was mixed. Econintersect Analysis:
- Unadjusted sales rate of growth decelerated 2.7 % month-over-month, up 3.7% year-over-year - sales growth rate trend decelerated using the 3 month moving average.
- Unadjusted price rate of growth accelerated 0.4 % month-over-month, up 3.4 % year-over-year - price growth rate trend declined using the 3 month moving average.
- The homes for sale inventory marginally grew this month, but remains historically low for Marchs, and is down 1.5 % from inventory levels one year ago).
- Sales up 5.1 % month-over-month, up 1.5 % year-over-year.
- Prices up 5.7 % year-over-year
- The market expected annualized sales volumes of 5.190 to 5.400 million (consensus 5.268 million) vs the 5.33 million reported.
A Few Comments on March Existing Home Sales -- I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. I've seen reports calling the February sales rate "dismal" and the March sales rate "a strong rebound". Nah. This is just normal volatility. Sales in Q1 are up almost 6% from Q1 2015, and that is solid start to the year. Going forward, there are some economic reasons for some softness in existing home sales in certain areas. Low inventory is probably holding down sales in many areas, and there will be weakness in some oil producing areas (see: Houston has a problem). As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale. Inventory is still key. I expected some increase in inventory last year, but that didn't happened. Inventory is still very low and falling year-over-year (down 1.5% year-over-year in March). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. The following graph shows existing home sales Not Seasonally Adjusted (NSA).Sales NSA in March (red column) were the highest for March since 2007 (NSA). Note that January and February are usually the slowest months of the year and March is the beginning of the "selling season". This is a solid start to the year.
FHFA House Price Index April 21, 2016: The FHFA house price index failed to show much lift in February, up 0.4 percent which hits the Econoday consensus but is still the softest gain since August. The year-on-year rate, which has been trying to hold at the 6.0 percent rate, fell back sharply to plus 5.6 percent. The housing market has been chilly this year, occasionally showing signs of strength but, like Tuesday's starts & permits report, more times than not moving backwards. Home price appreciation, during a time of weak wage growth, is central to household wealth and today's report will not be raising expectations for a rebound in consumer spending. Watch for Case-Shiller price data on next week's calendar.
Housing Starts decreased to 1.089 Million Annual Rate in March -- From the Census Bureau: Permits, Starts and Completions -- Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,089,000. This is 8.8 percent below the revised February estimate of 1,194,000, but is 14.2 percent above the March 2015 rate of 954,000. Single-family housing starts in March were at a rate of 764,000; this is 9.2 percent below the revised February figure of 841,000. The March rate for units in buildings with five units or more was 312,000. Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 1,086,000. This is 7.7 percent below the revised February rate of 1,177,000, but is 4.6 percent above the March 2015 estimate of 1,038,000. Single-family authorizations in March were at a rate of 727,000; this is 1.2 percent below the revised February figure of 736,000. Authorizations of units in buildings with five units or more were at a rate of 324,000 in March. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in March compared to February. Multi-family starts are down 2% year-over-year. Single-family starts (blue) decreased in March, but are up 23% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), Total housing starts in March were below expectations, however combined starts for January and February were revised up.
US Housing Starts In March Deliver A Downside Surprise - If the Federal Reserve needed another excuse to postpone a second interest-rate hike, today’s March report on residential housing construction fits the bill. Housing starts slumped last month, dealing a downside surprise to market expectations for a modest bump. The news follows last week’s disappointing data on retail spending and industrial activity at the end of the first quarter. The outlook for next week’s initial estimate of Q1 GDP is already dangerously low–at a stall-speed 0.3%, according to the Atlanta Fed’s Apr. 13 nowcast. Today’s release certainly doesn’t offer any reason to think that the tepid GDP projection is set to rise ahead of the official GDP numbers on Apr. 29. Newly issued building permits for housing also retreated last month. There’s still a decent year-over-year growth trend, particularly for starts. But today’s numbers don’t paint a flattering profile for the housing sector. Looking past the monthly noise still leaves for optimism. Housing starts advanced 14.2% last month vs. the year-earlier level (via seasonally adjusted annualized data). That’s a decent pace but it’s middling at best relative to recent history. Newly issue building permits, however, look substantially weaker. Considered a leading indicator for starts, permits in March climbed a soft 4.6% vs. the level from a year ago—the weakest gain in five months. Is the weak housing recovery a problem for the macro outlook? Not yet, but the April figures could be telling. Meantime, the economy’s soft patch rolls on. The numbers overall aren’t yet fatal for calling a new NBER-defined recession, as noted in this past week’s update of The US Business Cycle Risk Report. But the updates of late have been lackluster to negative–industrial production and retail sales fell in March, for instance.
Housing starts, Redbook retail sales - Starts and permits down and below expectations. I see this as removing any hope of any kind of sustainable growth. The traditional sources of private sector credit expansion- housing, vehicles, and general investment are continuing to decelerate when acceleration is needed just to replace the capital expenditures that were being generated by $100 oil. And even then GDP growth was modest, at best. United States : Housing Starts Highlights Data on the housing sector are slowing going into the key spring season. Housing starts fell a very sharp 8.8 percent in March to a 1.089 million annualized rate which is well below Econoday’s consensus for 1.167 million and below the low estimate for 1.120 million. Permits are showing similar weakness, down 7.7 percent at a 1.086 million rate which is likewise below both the consensus and low estimate. Weakness in starts is split roughly evenly between single-family and multi-family components with weakness in permits concentrated in multi-families. Nevertheless, there is fundamental strength in the year-on-year rates, at plus 14.2 percent for starts and a less spectacular plus 4.6 percent for permits. Regional data show declines throughout except for starts in the Northeast with ongoing work tied to a rush last year in permits (on a changes in New York City real estate law). Turning to permits, the Midwest is showing the most strength with a 24.2 percent year-on-year gain followed by the South at 11.3 percent. Not favorable is weakness in the West, a key region for new housing where permits are down a year-on-year 6.1 percent. Permits in the Northeast are down 21.7 percent.
March Housing Starts, Permits Plunge As Single-family Units Crash - US Housing Starts tumbled 8.8% in March (missing -1.1% expectations by the most since Feb 2015) as both single-family (-9.2%) and multi-family units (-7.9%) tumbled. The biggest drop was in The West (-16% overall with a 26.9% MoM plunge in single-family units). Worst still, Permits (forward-looking), plunged 7.7% (agsinst expectations of 2% rise) - this is the 2nd biggest MoM crash since Jan 2011. As the Spring-selling season starts, the housing 'recovery' appears to be stalling. Regionally it was very mixed: Permits in Northeast declined 17.9%, Midwest down 3.1%, South down 3.2%, West down 15.4% Starts in Northeast rose 61.3%, Midwest down 25.4%, South down 8.4%, West down 15.7% As both Single- and Multi-family starts tumbled... And it's not going to get any better as multi-family permits continue to plunge (but single-family dropped more MoM)... All suggesting higher rents and less affordability is coming - just in time for The Fed to hike rates as Rosengren said was looming faster than the market expected.
March 2016 Residential Building Situation Is Mixed.: Be careful in analyzing this data set with a microscope as the potential error ranges and backward revisions are significant. Also the nature of this industry variations from month to month so the rolling averages are the best way to view this series - and the data remains in the range we have seen over the last 3 years. The slowing of building permits this month is attributable to softness in multiple family dwellings.
- The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is a +7.9 % this month.
- Construction completions are lower than permits this month for the 15th month in a row (when permits exceed completions - this sector is growing)..
- Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is 7.9 % (permits) and 20.2 % (construction completions):
- The 2015 rate of growth of this sector is similar to pre-recession levels.
- Building permits growth decelerated 1.2 % month-over-month, and is up 7.9 % year-over-year.
- Single family building permits grew 17.7 % year-over-year.
- Construction completions accelerated 8.0 % month-over-month, up 28.6 % year-over-year.
- building permits down 7.7 % month-over-month, up 4.6 % year-over-year
- construction completions up 3.5 % month-over-month, up 31.6 % year-over-year.
February housing revisions are a big postive silver lining: Last month I wrote that i was very close to going on recession watch for 2017. Since then, two of the longer leading indicators have continued to be negative. First, the Labor Market Conditions Index - an indicator with a good 40 year history - was negative for the third month in a row: Second, real retail sales, even before adjusting for population growth, declined again: That left housing permits as the last bulwark. This morning, they just barely hung on. While the overall figure for permits was quite negative, with the worst reading since one full year ago: Permits for single family homes were revised upward for February, making that a new post-recession record: Here is the complete history for permits overall (blue, left scale) vs. single family permits (red, right scale): Historically, permits for single family homes have generally peaked contemporaneously with, or just slightly before, permits as a whole. The downdraft in March was caused by a steep and anomalous decline in multi-unit permits:Because March of last year was also the poorest reading of the year, I do wonder if there is some unresolved hidden seasonality behind the numbers. Typically multi-unit permits are the last to peak, as buyers frozen out by increasing prices for single family homes turn to apartments and condos as a replacement. That single family permits made a new peak in February, together with the big decline in corporate bond yields albeit not to a new low: along with very positive real money supply, gives me just enough to not to negative through at least on the first quarter of next year.
Comments on March Housing Starts --The housing starts report this morning was below consensus, however there were upward revisions to the prior two months (combined). Still a decent report. Starts were up 14.2% from March 2015, but March was weak last year (see the first graph). The key take away from the report is that multi-family is slowing, and single family growth is ongoing year-over-year. Total housing starts were up 14.2% year-over-year, and single family was up 22.6%. This graph shows the month to month comparison between 2015 (blue) and 2016 (red). The comparison for March was easy, however the year-over-year comparisons will be more difficult going forward. Year-to-date starts are up 14.5% compared to the same period in 2015, but that will clearly slow with the more difficult comparisons for the remainder of the year. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Multi-family completions are increasing sharply year-over-year. I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics). The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.
NAHB: Builder Confidence unchanged at 58 in April -- The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 58 in April, unchanged from 58 in March. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Holds Firm in April Builder confidence in the market for newly-built single-family homes remained unchanged in April at a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). “Builder confidence has held firm at 58 for three consecutive months, showing that the single-family housing sector continues to recover at a slow but consistent pace,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “As we enter the spring home buying season, we should see the market move forward.” “Builders remain cautiously optimistic about construction growth in 2016,” said NAHB Chief Economist Robert Dietz. “Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months ahead.” ... The HMI components measuring sales expectations in the next six months rose one point to 62, and the index gauging buyer traffic also increased a single point to 44. Meanwhile, the component charting current sales conditions fell two points to 63. Looking at the three-month moving averages for regional HMI scores, all four regions registered slight declines. The Northeast and West each fell two points to 44 and 67, respectively. Meanwhile, the Midwest and South each posted respective one-point losses to 57 and 58.
AIA: "Architecture Billings Index Ends the First Quarter on an Upswing" Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment. From the AIA: Architecture Billings Index Ends the First Quarter on an Upswing The Architecture Billings Index reflects consecutive months of increasing demand for design activity at architecture firms. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the March ABI score was 51.9, up from the mark of 50.3 in the previous month. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.1, down from a reading of 59.5 the previous month. “The first quarter was somewhat disappointing in terms of the growth of design activity, but fortunately expanded a bit entering the traditionally busy spring season. The Midwest is lagging behind the other regions, but otherwise business conditions are generally healthy across the country,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “As the institutional market has cooled somewhat after a surge in design activity a year ago, the multi-family sector is reaccelerating at a healthy pace.”
• Regional averages: South (52.4), Northeast (51.0), West (50.4), Midwest (49.8)
• Sector index breakdown: multi-family residential (55.7), commercial / industrial (51.8), mixed practice (50.0), institutional (48.0)
NMHC: Apartment Market Tightness Index declined in April Survey -- From the National Multifamily Housing Council (NMHC): Apartment Markets Mixed in the April NMHC Quarterly Survey Apartment markets appeared mixed in the April 2016 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions, with two of four indexes landing below the breakeven level of 50. The Market Tightness (43) and Equity Financing (45) indexes showed declining conditions for the second quarter in a row, while Sales Volume (53) and Debt Financing (50) indicated improving and steady conditions, respectively. “We continue to see some softening in the market relative to one of the strongest runs in recent memory for the apartment industry,” . “As new apartment construction catches up with demand, we expect to see moderation from record rent growth as well as more selectivity from equity and debt financing sources.” Consumer demand for apartments declined in the Market Tightness Index, dropping four points to 43. After seven quarters reporting tighter conditions, this marks the second quarter indicating a looser market.
Hotels: Occupancy Rate Tracking close to Record Year -- From HotelNewsNow.com: STR: US hotel results for week ending 9 April The U.S. hotel industry recorded mostly positive results in the three key performance metrics during the week of 3-9 April 2016, according to data from STR. In year-over-year comparisons, the industry’s occupancy remained flat at 68.2%. Average daily rate for the week was up 3.9% to US$122.90, and revenue per available room increased 3.9% to US$83.83. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. The occupancy rate should mostly move sideways for the next couple of months, and then increase further during the Summer travel period. 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.
Consumer Expenditures Survey: incomes rose sharply from June 2014-June 2015 --A major piece of data came out last week that has been totally unreported in the media and econoblogosphere: the Consumer Expenditures Survey (CES) for June 2014- June 2015. This is the first CES report to include the period of rapidly declining gas prices. And at least on initial examination, to my nerdy eyes, it's a stunner. The CES income data has been the source of most of the reporting over the last few years indicating that the vast majority of workers have seen a real decline in wages. For example, using the CES data, the NELP reported last August that real wages had declined across the board since the end of the recession in June 2009: And in a report just a few weeks ago, the Pew Foundation showed the inflation-adjusted CES income and expenditures through June 2014 iinto this graph: This has been in stark contrast to the Consumer Population Survey, which is the source of the monthly unemployment rate and labor participation numbers, which has shown an increase since 2013, including a sharp increase in the last 18 months, and virtually all other measures of labor compensation: According to last year's CES report, from June 2009 through June 2014 median wages had declined -3.9%, as shown in the below chart: This year's report shows that, as of June 2015, workers had made it all, or virtually all, back. According to my calculations, after falling nearly -7% from June 2009 through June 2014, in 2015 incomes in real terms were only 1% below their 2009 high ($62,138 vs. $62,857 in 2009 dollars). The bullet points:
- average annual expenditures up +5.9% YoY (up +5.7% after inflation)
- average annual income up +6.6% YoY (up +6.4% after inflation)
Here are income and by quintiles as shown in the CES table:
The new parsimony: I came across the below graph showing that relationship of average household net worth with average debt vs. the personal savings rate from the NY Fed last week. The important point was that the relationship has changed since the Great Recession. Even though there has been a big increase in average household net worth thanks in particular to the rebound in house prices, the personal savings rate remains elevated compared with its prior history. This is evidence of something President Obama said during a recent interview, namely, that “Some people are still recovering from the trauma of what happened in 2007-2008,” That traumatic fundamental change in behavior, a new parsimony, is also apparent in the ratios of household debt to disposable personal income: The Great Recession caused households to deleverage away a 30 year rise in obligations in just 5 years, and there is no sign of debt levels increasing even now. A similarly dramatic reversal appears when we measure household (and business) debt against GDP: Household, business, and non-financial debt all rose as a share of GDP for at least 50 years (!) before abruptly reversing course during the Great Recession — and as of the last measure, both household debt and non-financial debt were still declining. This is a new behavior, and I believe it is fair to say that it has been induced by trauma. Further, just as the generation scarred by the market crash of 1929 and the Great Depression remained savers for the rest of their lives, I expect the generation that has learned this behavior to remain parsimonious for a long time to come. If anything, debt levels compared with GDP will probably continue to decrease until the post-Millennial generation that does not remember the Great Recession becomes the dominant cohort several decades from now.
The Secret Shame of Middle-Class Americans -- The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47 percent. Americans weigh in on financial shame Read more I know what it is like to have to juggle creditors to make it through a week. I know what it is like to have to swallow my pride and constantly dun people to pay me so that I can pay others. I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs. I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them. And I know what it is like to have to borrow money from my adult daughters because my wife and I ran out of heating oil. You wouldn’t know any of that to look at me. I like to think I appear reasonably prosperous. Nor would you know it to look at my résumé. I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation. You wouldn’t even know it to look at my tax return. I am nowhere near rich, but I have typically made a solid middle- or even, at times, upper-middle-class income, which is about all a writer can expect, even a writer who also teaches and lectures and writes television scripts, as I do. And you certainly wouldn’t know it to talk to me, because the last thing I would ever do—until now—is admit to financial insecurity or, as I think of it, “financial impotence,” because it has many of the characteristics of sexual impotence, not least of which is the desperate need to mask it and pretend everything is going swimmingly. In truth, it may be more embarrassing than sexual impotence. Silence is the only protection.
US Redbook Text: Tax Deadline, Weather May Have Slowed Sales (MNI) - The following is the text of the weekly same-store sales report released by Johnson Redbook Tuesday for the second week of the April retail month: The Johnson Redbook Retail Sales Index was up 0.5% in the second week of April following a 1.1% gain the prior week. Month-to-date, April was up 0.8% compared to April of last year (relative to a target of a 0.9% gain). Month-over-month showed a 3.1% drop versus March (relative to a target of a 3.0% drop). April is a four-week month on the retail calendar, ending on April 30th. Retailers reported slow store traffic in the second week. Presidential campaigns and debates as well as last minute tax filing may have kept shoppers home. Weather conditions were varied across the county, sunny and warm in some regions with spring snow, rain and floods in others. Stores relying on spring driven apparel sales reported mixed results for the week, depending on their regional weighting. Sales at heavily weighted discount stores were lifted on business in food and basic household supplies on top of sales promotions
U.S. Economic Confidence Index Stable at -12- Galllup -- After reaching its 2016 low point two weeks ago, Gallup's U.S. Economic Confidence Index edged up to -12 for the week ending April 17. While the change from -14 to -12 is not statistically significant, it is a positive sign that Americans' confidence in the economy did not get any worse. Americans' confidence in the U.S. economy has generally stabilized after a turbulent few days in early April. The index average of -14 for the week ending April 10 was slightly lower because of daily index ratings of -18 in the middle of that week amid volatility in the U.S. stock market. By April 8-10, confidence was back to -12 and has stayed near that level in the days since. The latest score is close to the average of -11 so far this year, and the 2016 weekly averages have held within a five-point range of -9 to -14, with the exception of a -7 reading in January. Gallup's U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans say the economy is doing poorly and getting worse.
Low interest rates neuter oil windfall -- One of the great non-events in the global economy over the past 18 months has been the failure of consumers in the developed world to spend enough of the windfall from a falling oil price to generate a powerful boost to growth. In the US and Japan households have saved much of the increase in income stemming from cheaper oil. The potency of the windfall in the eurozone has not been enough to obviate the need for extreme monetary ease, including negative interest rates.Explanations are not hard to find. With a large energy sector, the US has sustained a significant hit to investment. At the same time, deleveraging in the aftermath of the financial crisis and worries about an uncertain future have blunted Americans’ urge to spend.In Japan, the increase in the consumption tax in 2014 took away more from consumers than the oil windfall delivered. As for the eurozone, austerity still reigns and animal spirits are at a low ebb. Economists at the International Monetary Fund, meantime, argue that what brought about past windfalls was not the oil price alone but a combination of a falling oil price and falling interest rates. The trouble today is that interest rates had already fallen to extremely low levels before the oil market caved in. With interest rates low, the incentive to spend the windfall is reduced because consumers do not fear prices are about to rise. They may also seize the opportunity to save more because, in a low interest world, a bigger pot of savings is needed to achieve a given target return on investment. Is it possible that the windfall effect has simply been delayed and that the dynamics of the transfer of resources from oil producers to consumers is about to change?
Google’s Remarkably Close Relationship With the Obama White House, in Two Charts - David Dayen - When President Obama announced his support last week for a Federal Communications Commission plan to open the market for cable set-top boxes — a big win for consumers, but also for Google — the cable and telecommunications giants who used to have a near-stranglehold on tech policy were furious. AT&T chief lobbyist Jim Cicconi lashed out at what he called White House intervention on behalf of “the Google proposal.” He’s hardly the first to suggest that the Obama administration has become too close to the Silicon Valley juggernaut. Over the past seven years, Google has created a remarkable partnership with the Obama White House, providing expertise, services, advice, and personnel for vital government projects. Precisely how much influence this buys Google isn’t always clear. But consider that over in the European Union, Google is now facing two major antitrust charges for abusing its dominance in mobile operating systems and search. By contrast, in the U.S., a strong case to sanction Google was quashed by a presidentially appointed commission. It’s a relationship that bears watching. “Americans know surprisingly little about what Google wants and gets from our government,” said Anne Weismann, executive director of Campaign for Accountability, a nonprofit watchdog organization. Seeking to change that, Weismann’s group is spearheading a data transparency project about Google’s interactions in Washington.
BOOM: Surging Gun Sales Create Thousands of High-Paying Jobs » Record-breaking gun sales under Obama’s watch have created tens of thousands of jobs with good wages. Jobs related to the manufacturing and sale of guns increased 73% since 2008 to a nationwide total of 287,986, the National Shooting Sports Foundation revealed. “These are good jobs, paying an average of $50,180 in wages and benefits, and today every job is important,” the foundation reported. “Not only does the manufacture and sale of firearms and hunting supplies create good jobs in the United States but the industry also contributes to the economy as a whole.” “In fact, in 2015 the firearms and ammunition industry was responsible for as much as $49.29 billion in total economic activity in the country.” Ironically, California is second only to Texas in firearm job growth, and another anti-gun state, Illinois, is also in the top 10. And considering that the surge in gun sales resulted from President Obama’s war on the Second Amendment, the president can finally claim he has indirectly created jobs in the U.S. – although that wasn’t his intent. “He’s been the world’s best gun salesman,” said Michael Cargill, owner of Central Texas Gun Works. “Everything’s up compared to last year due to the threats of executive actions President Obama has made.” “When he steps up to the microphone to talk about gun control and the legislation he thinks Congress should approve, gun sales actually soar.”
Auto Sales Set to Downshift: This week's chart focuses on U.S. auto sales, an important determinant of U.S. economic strength and a key employment sector. If you look at the graph, you can see that auto sales peaked in about 2005, at just about 17 million annualized units. You can see we had a slow decline into the Great Recession, and then the collapse when sales fell by more than 21% in 2009. You can see we went down to 10.4 million units at the worst period. Since then we've begun a slow but steady recovery, and by 2015 the actual auto purchases were just about back to where they were in 2005. So, a lot of what we've seen is just recovering what we lost in the recession, not any kind of great new growth. Take a look at the overall growth rates, and you can see kind of a similar situation, where growth was relatively OK and then fell apart in the Great Recession. And then we've had these really great-looking growth numbers for auto sales that have everybody so excited. For example, in 2012, we grew as fast as 13%. Well, that was related to the recovery, not to some great new demand for automobiles, and since then we've fallen back a little bit and growth in 2015 was about 5.5% or so. Well, now, looking ahead, we don't see any particular reason for automobiles to grow any faster than overall population growth and maybe a little business growth. So, we expect 1% to 3% growth out of the auto industry in the years ahead, not the same big 13% we got in 2012. Nothing to worry about, but again, a slower growth rate than people have been anticipating.
ATA Trucking Index decreased in March -- From the ATA: ATA Truck Tonnage Index Fell 4.5% in March American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 4.5% in March, following a 7.2% surge during February. In March, the index equaled 137.6 (2000=100), down from 144 in February. February’s level is an all-time high. Compared with March 2015, the SA index was up 2.2%, which was down from February’s 8.6% year-over-year gain. Year-to-date, compared with the same period in 2015, tonnage was up 3.9%. ..As expected, tonnage came back to earth in March from the jump in February,” said ATA Chief Economist Bob Costello. “These things tend to correct, and March took back more than half of the surprisingly large gain in February.“The freight economy continues to be mixed, with housing and consumer spending generally giving support to tonnage, while new fracking activity and factory output being drags,” he said. “In addition, freight volumes are softer than the overall economy because of the current inventory overhang throughout the supply chain.”Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.
Trucking Tonnage Declined in March 2016: Truck shipments are reported down in March - with one index showing year-over-year growth whilst the other showing year-over-year contraction. The American Trucking Associations' (ATA) trucking index fell 4.5 % in March, following a revised 7.2 % improvement in February. The decrease is the largest monthly contraction for the index since September 2012 (-5.3%). From ATA Chief Economist Bob Costello: As expected, tonnage came back to earth in March from the jump in February. These things tend to correct, and March took back more than half of the surprisingly large gain in February. The freight economy continues to be mixed, with housing and consumer spending generally giving support to tonnage, while new fracking activity and factory output being drags. In addition, freight volumes are softer than the overall economy because of the current inventory overhang throughout the supply chain. FTR's Trucking Conditions Index (TCI) continued to soften in February due to a weakening of the freight environment early in 2016. The current reading at 8.27 reflects FTR's forecast for a slowdown in truck loadings from an average of 4% thus far in the recovery to 2% for full year 2016. There are still positive indicators for trucking including high capacity utilization and positive rate assumptions. The TCI is expected to begin a steady rise heading into 2017 due to expected regulatory capacity constraints and will continue to be positive into 2018 save for the risk of recession or the possibility of temporary spikes in fuel prices reacting to weak U.S. production. Cass: Freight shipments slowed to only a 1.4 percent rise in March, following an 8.3 percent jump in February. Expenditures for freight declined 1.0 percent in March—reversing a portion of the 6.3 percent increase in February. Manufacturing and building construction have been on an upward trend and have just started showing up in the supply chain.
Rail Week Ending 16 April 2016: 4 Week Averages Improve But Data Remains Very Soft: Week 15 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. All rolling averages are in decline. The deceleration in the rail rolling averages began one year ago, and now rail movements are being compared against weaker 2015 data. There were port labor issues one year ago which affected intermodal movements - which skew the results both positively and negatively (this week again negatively as it is being compared to the shipping surge at the end of the strike). HOWEVER, one can ignore the strike which only affects intermodal - and concentrate on carloads - the data looks very soft.A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 499,779 carloads and intermodal units, down 10.1 percent compared with the same week last year. Total carloads for the week ending Apr. 16 were 240,462 carloads, down 12.9 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 259,317 containers and trailers, down 7.4 percent compared to 2015. Five of the 10 carload commodity groups posted an increase compared with the same week in 2015. They included miscellaneous carloads, up 22.8 percent to 9,823 carloads; grain, up 14.3 percent to 20,784 carloads; and chemicals, up 3.4 percent to 32,355 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 36.5 percent to 63,090 carloads; petroleum and petroleum products, down 27.7 percent to 10,887 carloads; and forest products, down 7.5 percent to 9,963 carloads. For the first 15 weeks of 2016, U.S. railroads reported cumulative volume of 3,613,417 carloads, down 14.1 percent from the same point last year; and 3,848,344 intermodal units, up 0.2 percent from last year. Total combined U.S. traffic for the first 15 weeks of 2016 was 7,461,761 carloads and intermodal units, a decrease of 7.3 percent compared to last year.
Industrial Production Grim With a -2.2% Q1 Decline -- Robert Oak - The Federal Reserve Industrial Production & Capacity Utilization report declined -0.6% in March. Worse, this is the second month in a row for a -0.6% decline. More ominous is a first quarter annualized -2.2% contraction. Mining by itself had the biggest monthly decline since September 2008. It is not just energy production that is the culprit dragging down industrial production. Manufacturing factory output also declined in March. The G.17 industrial production statistical release is also known as output for factories and mines. Total industrial production has now decreased -2.0% from a year ago. Currently industrial production is now 3.4 percentage points above the 2012 average. Below is graph of overall industrial production's percent change from a year ago. Notice the grey recession bars in the FRED graph and how closely industrial production follows those bars. Here are the major industry groups industrial production percentage changes from a year ago. The percentages for mining and utilities are now just horrific. For the month manufacturing overall declined by -0.3%. For the first quarter of 2016, manufacturing output is an annualized 0.6%, which in essence erases it's Q4 2015 decrease. Manufacturing output is 3.1 percentage points above its 2012 Levels and is shown in the below graph. Within manufacturing, durable goods had a -0.4% monthly decline. Motor vehicles dropped -2.8% for the month. Nondurable goods manufacturing declined by -0.1 percentage points for the month with across the board decreases. Strangely oil and coal products increased 1.0%. Mining decreased -2.9% and is now down -12.9% for the year. This is the largest drop since September 2008 but the reason for that 2008 drop was hurricanes, so this is worse since there is no environmental event. For the past seven months, mining production has declined by an average of -1.6% per month. Mining includes gas and electricity production and the Fed have a special aggregate index for oil and gas well drilling. Oil and gas well drilling decreased -8.5% for the month and for the year is down -55.4%. Coal by itself declined by -12.2% for the month. Below is oil and gas well drilling and one can see the boom and bust cycle with the amazing downturn now. Utilities decreased by -1.2% for the month on warm weather and is down -7.7% for the year. Utilities are volatile due to weather and why the below graph shows the wild swings.
Philly Fed Manufacturing Survey showed Slight Contraction in April -- Earlier from the Philly Fed: April 2016 Manufacturing Business Outlook Survey Firms responding to the Manufacturing Business Outlook Survey reported no improvement in business conditions this month. The indicator for general activity, which rose sharply in March, fell to a slightly negative reading in April. Other broad indicators suggested a similar relapse in growth that was reported last month. The indicators for both employment and work hours also fell notably. Despite weakness in current conditions, the survey’s indicators of future activity showed continued improvement, suggesting that the fallback is considered temporary.... The diffusion index for current activity decreased from 12.4 in March to -1.6 this month. The index had turned positive last month following six consecutive negative readings ...The survey’s indicators of employment corroborate weakness in the other broad indicators this month. The employment index decreased 17 points and registered its fourth consecutive negative reading. This was below the consensus forecast of a reading of 9.0 for April. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through April. The ISM and total Fed surveys are through March. The average of the Empire State and Philly Fed surveys remained positive in April (yellow). This suggests the ISM survey will probably be above 50 again this month.
Philly Fed Dead-Cat-Bounce Dies, Plunges Back Into Contraction - Remember March and all those hopefull regional fed survey bounces? They are over! Philly Fed just printed -1.6, back into contraction for the 8th month of last 9, missing expectations of a +9.0 print. Every subcomponent weakened (aside from prices paid and received) but what saved the headline from further collapse was an unexpected surge in optimism for six-months ahead (right after the election?).The full breakdown shows everything weaker (except for prices paid) The diffusion index for current activity decreased from 12.4 in March to -1.6 this month. The index had turned positive last month following six consecutive negative readings. The current new orders and shipments indexes also fell this month. The percentage of firms (23 percent) reporting a rise in new orders was exactly offset by the percentage reporting a decline. The current new orders index decreased from 15.7 to zero this month, while the current shipments index fell precipitously, from 22.1 to -10.8. The unfilled orders and delivery time indexes suggested weakness, as both indexes were in negative territory this month. Firms continued to report overall declines in inventories. The survey’s indicators of employment corroborate weakness in the other broad indicators this month. The employment index decreased 17 points and registered its fourth consecutive negative reading. Nearly 62 percent of the firms reported no change in employment this month, but the percentage reporting decreases rose from 17 percent in March to 27 percent this month. Firms reported a notable decline in average work hours: The index decreased 22 points and returned to negative territory after last month’s first positive reading in three months.
PMI Data Points To A Weak Start For US Manufacturing In Q2 -- The prospects for a rebound in US manufacturing in the second quarter took a hit today with the initial April estimate of Markit’s Purchasing Managers’ Index (PMI) for the sector. The sentiment benchmark eased to its lowest reading in more than six-and-a-half years. The data is still reflecting growth, but at a sluggish rate. “The survey data are broadly consistent with manufacturing output falling at an annualized rate of over 2% at the start of the second quarter, and factory employment dropping at a rate of 10,000 jobs per month,” said Chris Williamson, chief economist at Markit. The PMI update follows mixed news for two regional updates of manufacturing activity in the US for this month. The New York Fed’s Empire State Index jumped to its highest level in a year in April, prompting some analysts to predict that the manufacturing sector was finally reviving after a long run of weakness. But yesterday’s update of the Philly Fed’s manufacturing index took a dive in April, returning to a contractionary reading after posting a solid gain in March.
Weekly Initial Unemployment Claims decrease to 247,000 --The DOL reported: In the week ending April 16, the advance figure for seasonally adjusted initial claims was 247,000, a decrease of 6,000 from the previous week's unrevised level of 253,000. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The 4-week moving average was 260,500, a decrease of 4,500 from the previous week's unrevised average of 265,000. There were no special factors impacting this week's initial claims. This marks 59 consecutive weeks of initial claims below 300,000, the longest streak since 1973. The previous week was unrevised. Note: The following graph shows the 4-week moving average of weekly claims since 1971.
U.S. jobless claims hit 42-1/2-year low as labor market firms -- The number of Americans filing for unemployment benefits unexpectedly fell last week, hitting its lowest level since 1973, suggesting an apparent sharp slowdown in economic growth in the first quarter could be temporary. While another report on Thursday showed a mild weakening in factory activity in the mid-Atlantic region in April, manufacturers were fairly upbeat about business prospects in the next six months. This, together with labor market buoyancy bodes well for a pick-up in economic growth in the second quarter. "The labor market continues to improve. If the apparent slowing in GDP in the first quarter was truly a sudden change in trend, we should have seen something happen in claims by now," . Initial claims for state unemployment benefits declined 6,000 to a seasonally adjusted 247,000 for the week ended April16, the lowest reading since November 1973, the Labor Department said. Economists polled by Reuters had forecast claims rising to 263,000 in the latest week. Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 59 weeks, the longest stretch since 1973. Labor market strength comes despite signs that growth stumbled in the first quarter.
The best measure of labor market recoveries: March 2016 update In my opinion the best measure of how average Americans are doing in an economic expansion isn't jobs, and it isn't wages per hour. Rather, it is real aggregate wage growth. This is calculated as follows:
- average wages per hour for nonsupervisory workers
- times aggregate hours worked in the economy
- deflated by the consumer price index
This tells us how much more money average Americans are taking home compared with the worst point in the last recession.This graph shows *aggregate* real wages. It is not divided by households or per capita, so this measure doesn't try to convey how much improved individuals' lots might be. It conveys how much more income has become available to the middle/working class as a whole. For that, we can divide by population to see real wage growth per capita: how does the current expansion compare with past ones? Here is the graph, normed to 100 at the post-recession bottom in real aggregate wages in October 2009: To compare, here is a chart I created last year showing the real aggregate wage growth in every economic expansion beginning with 1964: Four of the past 7 recoveries have been better. Three were worse. Wage growth per month is still anemic, although better than the George W. Bush expansion, . This recovery has been helped by a big increase in the total number of additional hours worked. Finally, here is how it compares with the much-vaunted labor recovery of St. Ronald Reagan: Currently the Obama labor market recovery has almost completely equalled the Reagan recovery 77 months in. If there is continued improvement for the next 6-12 months, it is likely to surpass Reagan's record.
The U.S. Occupations at Greatest Risk of a Labor Shortage -- The U.S. is at risk of running out of occupational therapists, railroad engineers, mathematicians, machinists and other workers, potentially leaving the economy in a long-term slump. “In the next 10 to 15 years, we expect U.S. employers to demand more labor than will be available, which will, in turn, constrain overall economic growth,” the Conference Board said in a report to be released Tuesday. It may seem premature to talk about a labor shortage while the Great Recession and its 10% unemployment rate are a recent, painful memory. Meanwhile, the share of Americans in the labor force is historically low and wages are barely showing signs of picking up. But the corporate-research organization believes the U.S. is fast approaching full employment and sees few signs the population of working-age Americans will grow enough to fill the ranks left by retirees and rising demand from employers. The Conference Board examined and ranked 457 occupations in its analysis. The full set and subindices are available at the group’s website.
Worth repreating: Boomer retirements and wage growth -- In case you haven't already seen this elsewhere, the below report comes from the San Francisco Fed: Here is the average of 4 measures of wage growth for the last 10 years, showing that while there has been improvement off the bottom a few years ago, it is still pretty patheric: The SF Fed says:While elevated flows out of full-time employment to not being in the labor force normally contribute positively to median wage growth, this contribution is being attenuated by the retirement of the baby boom. As baby boomers have begun to retire, the fraction of exits occurring from above the median wage has gotten larger, reflecting the relatively high earnings of older workers. The exits from full-time employment of older, higher-paid retirees have also pushed down wage growth. Furthermore, with so many of this generation still to retire, the so-called Silver Tsunami will be a drag on aggregate wage growth for some time. Overall, our results suggest that changes in the composition of employment have had a significant impact on wage dynamics over the past seven years.... As the labor market has recovered, ... [c]ompositional changes are now a drag on aggregate wage growth. Decomposing this drag, we show [that] the size of the Great Recession and the addition of the aging of the baby boom mean this time is different.Here is their graph showing the regular cyclical effects of wage growth, and the depression in growth caused by the "silver tsunami" of retirments:
From Verizon to McDonald's, the Worker Strikes Back | Alternet: Last week workers struck back—and just plain struck—against the squeeze on pay and benefits that has become C-suite occupants’ modus operandi for increasing returns and padding their bonuses. On Wednesday nearly 40,000 Verizon workers walked off the job in the Northeastern United States, protesting a management contract offer that they say will offshore and outsource jobs, increase their health-care costs and reduce their ability to preserve wages and benefits in future contracts. The following day, the Fight for 15 organized its biggest job action ever, as service-industry workers in 320 U.S. cities picketed and demonstrated for a living wage. The two strikes are very different: One is the traditional type of work stoppage that once built working-class power and income, but has faltered as the share of union membership in key industries has been gutted over the decades; the other is a more limited alternative that has become a favorite tactic for non-union workers to achieve workplace gains through legislation. But the tale of the two strikes embodies the central challenge of the labor movement. In order to survive, labor must balance the interests of its existing membership in established (and sometimes shrunken) sectors with those of new organizing ventures in sectors previously thought impossible to organize.
Uber says gave U.S. agencies data on more than 12 million users - (Reuters) - Uber Technologies on Tuesday released its first ever transparency report detailing the information requested by not only U.S. law enforcement agencies, but also by regulators. The ride-sharing company said that between July and December 2015, it had provided information on more than 12 million riders and drivers to various U.S. regulators and on 469 users to state and federal law agencies. (http://ubr.to/1WpJwyX) The privately held company, valued at more than $60 billion, said the agencies requested information on trips, trip requests, pickup and dropoff areas, fares, vehicles, and drivers. Uber said it got 415 requests from law enforcement agencies, a majority of which came from state governments, and that it was able to provide data in nearly 85 percent of the cases. A large number of the law enforcement requests were related to fraud investigations or the use of stolen credit cards, according to the report. Uber said it had not received any national security letters or orders under the Foreign Intelligence Surveillance act. The company has not disclosed such requests for information from other countries.
Overtime Pay: A Lifeline for the Overworked American - THIS summer the Department of Labor is expected to introduce new rules to restore overtime pay to millions of Americans — rules that require no congressional approval. From the fearful protests coming from Republican leadership, you’d think the sky was falling. “This mandate on employers will hurt the lowest paid American workers the most, by reducing their opportunities for a promotion or a better job,” said Senator Lamar Alexander of Tennessee, the chairman of the Health, Education, Labor and Pensions Committee.In fact, far from the right’s end-of-the-world, Chicken-Little economics, restoring time-and-a-half overtime pay would return to American workers a protection they long had, one that made them more secure and productive.Half a century ago, overtime pay was the norm, with more than 60 percent of salaried employees qualifying. These are largely the sorts of office- and service-sector workers who never enjoyed the protection of union membership. But over the last 40 years the threshold has been allowed to steadily erode, so that only about 8 percent qualify today. If you feel as if you’re working longer hours for less money than your parents did, it’s probably because you are.Today, if you’re salaried and earn more than $23,600 dollars a year, you don’t automatically qualify for overtime: That means every extra hour you work, you work free. Under the new proposed rules, everyone earning a salary of $50,440 a year or less would be eligible to collect time-and-a-half pay for every hour worked over 40 hours a week.According to the Economic Policy Institute, it would give 13.5 million more workers a new or stronger right to overtime pay — substantially increasing both middle-class incomes and employment.
Memo to Hot Air and Powerline: The US Textile Industry Was Dying Long Before the California Wage Hike -- The Hot Air and Powerline blogs have latched onto an LA Times story that notes clothing manufacturers are leaving the area due to the increase in the minimum wage. Both argue this fact is demonstrable proof that a minimum wage increase is bad. What this really shows is the complete ignorance of Steve Hayward and Jazz Shaw. First, a very brief history of the US Textile industry: it started to die a slow and painful death about 50 years ago when Taiwan and other Asian countries started their respective "export our way to growth" programs. Starting in the 1960s, Taiwan opened up its borders to capital investment. They requested only two concessions from their investors: that Taiwanese be trained in the new industries and that the invested capital remain in the country. Thanks to their then lower standard of living, they were easily able to offer cheaper goods which were then exported to the U.S.. To the uninitiated (like Mr. Shaw and Hayward) this is called "comparative advantage), and it's a very basic concept in international economics -- yet another economic subject area both are completely ignorant of. The only reason there is any textile industry left in the US is due to some level of protectionism and political favoritism. Want proof? Here's a chart from the FRED system showing textile employment at the national level: Total textile employment dropped by 50% during Bush IIs tenure (gee -- I wonder if Mr. Shaw or Hayward ever wrote about that?). And here are two charts from the BLS showing textile employment for Los Angeles:
Driver's license claim could put the brakes on U.S. immigration case | Reuters: One of the pivotal issues in the closely watched battle over President Barack Obama's executive action on immigration to be argued before the U.S. Supreme Court on Monday is the rather banal subject of the money Texas pays for driver's licenses. To bring the case and have legal standing, the state of Texas, the lead plaintiff in the case, must show that it has been hurt in some way. In its filing, Texas argues that it would take a hefty financial hit for processing driver's licenses for immigrants in the country illegally whose deportation would be deferred under Obama's executive action. The Texas attorney general's office said Obama's action "would cause a spike in driver's license applications, thus making those licenses much more costly to issue." But the numbers cited by Texas in its claim far exceed what the state currently pays annually for all its driver's license services. "It is kind of dry, legal stuff, but it is of great consequence," said Bill Beardall, executive director of the Equal Justice Center in Texas, which provides legal help for low-income families and immigrants. Beardall, also a University of Texas Law School professor, said the claims Texas makes of harm are tenuous. "It has been regarded by almost all legal scholars as a very thin basis for claiming the kind of irreparable harm that would support a temporary injunction, or the kind of serious harm that would support standing," Beardall said.
Did welfare reform lead some American families to work less? - The landmark US welfare reform of 1996 provided strong incentives for poor women to work while receiving assistance – but it also provided incentives for some women to reduce their earnings to qualify for benefits. This research develops a new approach to detecting this ‘welfare opt-in’ effect and uses it to analyze data from a large randomized evaluation of welfare reform in Connecticut: the “Jobs First” program. The results reveal that the Jobs First program induced a substantial fraction of the women who were capable of lifting their families out of poverty without assistance to opt for welfare instead. ... While our findings are specific to the sample of women in Connecticut’s Jobs First experiment, the welfare opt-in results indicate that sharp provisions for phasing out benefits can significantly depress the earnings of disadvantaged people even when the net effect of the program is to get more people working. These earnings reductions are inefficient insofar as they cost taxpayers money and trap low-skilled workers in jobs that they otherwise wouldn’t want. An important question for policy-makers is whether these inefficiencies can be diminished by adopting smooth benefit phase in and phase out provisions such as those specified by the Earned Income Tax Credit (EITC). By phasing benefits out more gradually, such schemes replace a large distortion concentrated over a small number of relatively high earners with a small distortion spread over a larger number of people.
Top Infrastructure Official Explains How America Used Highways To Destroy Black Neighborhoods -- It’s time for America to reckon with the role that highway projects too often play in ripping apart underprivileged communities around the country, Transportation Secretary Anthony Foxx said Wednesday at the Center for American Progress. In the first 20 years of the federal interstate system alone, Foxx said, highway construction displaced 475,000 families and over a million Americans. Most of them were low-income people of color in urban cores. It was Foxx’s second speech in as many days about how federal infrastructure projects contribute to inequality and poverty, and how the agency wants to make up for it now. What the Secretary is doing “appears unprecedented,” the Washington Post notes. Foxx, only the third African-American to ever hold the top federal transportation policy job, is explicitly acknowledging and condemning a history of destroying black communities and stealing wealth from their residents through intentional decisions. Foxx grew up in Charlotte, North Carolina, in a neighborhood that had been hewn apart by expressway projects before he was born. “I grew up living with those barriers, even though I had no idea how they came to be or what they really meant,” he said. Foxx cited the case of a now-vanished Charlotte neighborhood called Brooklyn, where black families of both blue collar and professional means thrived in the early and middle 20th century. “First came Independence Boulevard, which cut a gash through the community,” the Secretary said. “Later, an inner beltway, I-277, which remains to this day,” stabbed fork-like into the neighborhood’s heart. As the interstate system routed into and around Charlotte’s downtown over the coming decades, the city’s old identity of interlocked rich and poor neighborhoods devolved. Today, poverty clings to the freeways like a shadow. Brooklyn’s invisible today, but it’s far from alone.
Across races, women bolster family economic security - Over the past half-century, the rise in women’s employment and earnings in the United States have boosted family incomes up and down the income ladder. Women’s increased time spent in paid employment means that families have lost time inside the home for caregiving, leaving many struggling to cope with the competing demands of work and life. Despite the time squeeze at home, however, women’s additional earnings have not meant that family incomes have increased faster than in earlier eras. Changes in how women spend their time and its effect on family earnings look different based on where a family sits in the income distribution. Over the period from 1979 to 2013, women’s additional earnings made up for men’s declining earnings within middle-class families. Among low-income families, while women’s earnings helped, they were not enough to completely offset lower men’s earnings. The view is different at the top, where women’s earnings helped pull professional families to an even higher standard of living. The United States is a nation where income trends also differ markedly across racial ethnic groups; families of color have lower incomes, on average, than white families. This issue brief explores the role that women’s added hours and earnings play in families across income and race and ethnicity.
Unlikely Alliances - James Surowiecki : When you think about the role that big corporations play in American life, fighting for social justice is probably not the first thing that comes to mind. Yet many corporations are doing precisely that in the ongoing struggle over the rights of lesbian, gay, bisexual, and transgender people. This year, legislators in at least twenty-five states have proposed more than a hundred bills limiting L.G.B.T. rights, often under the guise of protecting religious freedom; North Carolina, Georgia, and Mississippi have passed laws that, in various ways, make anti-L.G.B.T. discrimination legal. In an effort to roll back these laws, and prevent new ones from being enacted, some of America’s biggest companies are pushing a progressive agenda in the conservative heartland.Last month, executives at more than eighty companies—including Apple, Pfizer, Microsoft, and Marriott—signed a public letter to the governor of North Carolina urging him to repeal the state’s new law. Lionsgate Studio is moving production of a new sitcom out of the state, Deutsche Bank cancelled plans to create new jobs there, and PayPal has cancelled plans for a global operations center. In Mississippi, G.E., Pepsi, Dow, and others attacked the law there as “bad for our employees and bad for business.” Disney said that it would stop making movies in Georgia, which has become a major venue for film production, if the governor signed the bill. Something similar happened last year in Indiana, after the state passed a religious-freedom law allowing businesses to discriminate against L.G.B.T. customers and employees. At least a dozen business conventions relocated. . Last month, Georgia’s governor vetoed its religious-freedom bill, implicitly acknowledging that the state could not afford to lose Disney’s business, and South Dakota’s governor, citing opposition from Citigroup and Wells Fargo, vetoed a law that would have required people to use the bathroom that corresponded to their biological sex at birth. Last year, Indiana and Arkansas amended their religious-freedom bills after a corporate backlash (led, in Arkansas, by Walmart).
MacArthur Foundation Bails Out Jurisdictions That Jail Too Many-- -- The MacArthur Foundation named the jurisdictions this week to which it will distribute millions of dollars in an effort aimed at reducing jail populations. The number of people held in American jails has tripled over the past few decades. Many people stay locked up ahead of their court date simply because they can't afford to pay bail. The Chicago-based foundation sees jails as the starting point in the country's cycle of over-incarceration and therefore the place to begin decreasing the numbers. Eleven different jurisdictions will receive between $1.5 million and $3.5 million each over a period of two years as part of MacArthur's Safety and Justice Challenge. The initiative launched last year when a larger group received smaller sums to develop reform plans. The recipients of the latest grants range from major cities like New York to more rural locations like Pima County, Arizona. Several of the recipients -- such as Charleston County in South Carolina, which includes North Charleston, and St. Louis County in Missouri, which includes Ferguson -- have come under heavy scrutiny in recent years following high-profile police killings. Also on the list for million-plus grants are New Orleans; Philadelphia; Harris County, Texas; Lucas County, Ohio; Milwaukee County, Wisconsin; Spokane County, Washington; and the state of Connecticut. Nine other jurisdictions will receive $150,000 grants and access to experts to help them keep up their reform efforts.
Why Mass Incarceration Doesn’t Pay - -- THE growth in the nation’s prison population has been nothing short of staggering. The United States’ incarceration rate is now more than four times the world average, with about 2.2 million people in prisons and jails. Of those, roughly 200,000 are federal inmates, double the number from 20 years ago. This substantial increase occurred even as violent crime was falling sharply.Now Congress is considering bipartisan legislation to loosen tough sentencing laws. The bill faces resistance from some lawmakers. Our sentencing rules are failing and need to be changed.On the benefit side of the equation, prisons and jails play an essential role in managing violent criminals and reducing crime, particularly helping people in poor communities who are the most likely to be victims of murder, robbery or other violent crimes. Research finds that more incarceration has, at best, only a small effect on crime because our incarceration rate is already so high. As the prison population gets larger, the additional prisoner is more likely to be a less risky, nonviolent offender, and the value of incarcerating him (or, less likely, her) is low.The same general principle applies to the length of prison sentences, which in many cases have gotten longer as a result of sentence enhancements, repeat-offender laws, “three strikes” laws and “truth-in-sentencing” laws. Longer sentences do not appear to have a deterrent effect; one study finds, for example, that the threat of longer sentences has little impact on juvenile arrest rates. Other studies have found that sentencing enhancements have only modest effects on crime. They are unlikely to meaningfully affect the overall crime rate or generate meaningful gains in public safety.
Philly Fed: State Coincident Indexes increased in 41 states in March -- From the Philly Fed: The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2016. In the past month, the indexes increased in 41 states, decreased in seven, and remained stable in two, for a one-month diffusion index of 68. Over the past three months, the indexes increased in 42 states and decreased in eight, for a three-month diffusion index of 68. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed: The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Puerto Rico's Bondholders Divided in Fight Over Federal Rescue - Puerto Rico bondholders are lining up on different sides of the battle in Congress over legislation to rescue the island from financial collapse as lawmakers rewrite the bill in an effort to overcome opposition from Democrats and Republicans. Hedge funds that own about $5 billion of Puerto Rico’s general-obligation bonds, which are guaranteed under the island’s constitution, are fighting the House measure that would give the U.S. territory ability to write off some of its $70 billion in debt. Firms that own securities backed by sales taxes are working to ensure its passage, seeing it as a way to protect their investment from a cascading series of defaults. The fracture is adding to the political discord over the broadest effort yet in Washington to address the Puerto Rican debt crisis, which has been building over the past 10 months as the island’s government runs out of cash and can no longer borrow money to remain afloat. After members from both parties bristled at aspects of the bill, the House Natural Resources Committee last week abruptly canceled a planned vote so legislators could revise it. Representative Rob Bishop, who heads the committee, said Tuesday he thinks most Republicans will ultimately support the measure. “The conflicting messages that lawmakers are getting from investors is making them less likely to want to be seen picking one creditor group over another,” said Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer. “There are disagreements among House members over which credits are strongest and what’s the right way to proceed.”
Puerto Rico files to sell debt before possible default -- The US territory's primary fiscal agent, the Government Development Bank of Puerto Rico, has filed with regulators to issue taxable one-year debt as it faces an impending default on May 1. The Fiscal Times reported that the filing with the Municipal Securities Rulemaking Board made listing of the size of the possible agreement or the coupon. It is said that the potential sale could happen on Wednesday. A website entry in the rulemaking board's online database said that GDB received an identification number of the securities it propose to sell; however, the issuance number does not guarantee the securities will actually be sold. On May 1, GDB owes creditors $422 million, a debt which Puerto Rico's governor, Alejandro Garcia Padilla, said it cannot afford to pay. The default at GDB would be the island's most significant default to date. According to Yahoo News, the government of Puerto Rico plans to swap $49 billion of debt into up to $28 billion of base bonds, and almost $2 billion of tax-exempt capital appreciation bonds. The officials said that the voluntary exchange would permit creditors to recover the full principal which they invested regardless of the economic growth rates in the future. The proposal also encompasses a special measure for those who live in Puerto Rico and hold specific bonds. Officials said in a statement that the group could receive up to $8 billion of local holder base bonds that could repay the whole amount of the principal they previously invested at an interest rate of 2 percent.Governor Padilla declared a state of emergency at GDB this month and signed an emergency bill which allows him to declare a moratorium on the May 1 payment if no restructuring is achieved before the said date. The US House is also working on a measure targeted at resolving the financial crisis of Puerto Rico, but the process also has its own share of roadblocks, reports Reuters.
Some pushing bankruptcy as solution to troubled Illinois public budgets - In Illinois, increasing pension obligations are consuming more of its taxpayers’ dollars, pushing cities and towns to cut core services and raise property taxes just to keep up with the payments, policy experts say. It’s led a Republican lawmaker to float the idea of allowing municipalities and other agencies to declare bankruptcy. Rep. Ron Sandack even introduced a bill specific to allowing the financially troubled Chicago Public Schools system - whose teachers are preparing to strike - to use the bankruptcy system, but he has no plans to attempt to further it. And a recent Chicago Tribune editorial says if CPS isn't considering bankruptcy, it should be. “What’s important about Chapter 9, it’s not a get-out-of-jail-free card, it’s not a silver bullet, you don’t throw the keys to the town across the table to creditors,” Sandack said. “Rather, it’s one access, one convenient point, where all interested stakeholders can meet together to try to restructure and reformulate debt.” The Illinois Policy Institute pointed out in a recent report that the state’s 2016 budget was out of balance by $4 billion, its credit rating fell to within four notches of junk status and its pension shortfall reached $111 billion.
Report: Illinois Public School Districts Have Amassed Nearly $20 Billion In Debt - Public school districts across Illinois have collectively accumulated nearly $20 billion in long-term debt, according to reporting by the Chicago Tribune. The $19.7 billion in debt amassed by the state's 857 public school districts breaks down to be $10,000 for each Illinois public school student in pre-K through 12th grade. At the national level, school district debt averages out to $8,459 per student. Of that $19.7 billion debt total, $6.3 billion comes from the Chicago Public Schools. Debt-limit exemptions approved by Illinois lawmakers have partly contributed to the debt accumulation among local public school districts, according to the newspaper. Among other examples cited in the report, Ford Heights School District 169 has $21 million in debt. The school district's debt limit, however, is roughly $2.1 million. Another school district, Prairie-Hills Elementary School District 144, has a borrowing limit of $16 million, but hit $50 million in debt as of last summer. In an interview with the newspaper, a school official from Prairie-Hills Elementary School District 144 in Markham claimed that "nothing happens" when a school district exceeds its debt limit.
Debt payments sinking Detroit Public Schools: transition manager | Reuters: Nearly $64 million in debt payments are sinking the Detroit Public Schools (DPS), underscoring the need for a long-term state legislative fix, according to a report released on Monday by the district's state-appointed transition manager. Steven Rhodes, a former federal bankruptcy judge who began running the district in March, said while Michigan lawmakers approved $48.7 million last month to keep DPS operating for the rest of the school year, action on legislation to deal with the district's debt is needed by mid-June. "The alternative is another year, or more, of increasing deficits and debt, and more yearly requests for supplemental appropriations," Rhodes said in his initial financial and operating plan. Michigan's largest public school system, which serves 45,786 students, has been under state control since 2009. Rhodes said annual debt payments are "sucking revenues away from our classrooms at the rate of approximately $1,394 per student." Rhodes had warned last month that without an immediate infusion of state cash, the district would not be able to pay teachers and staff and would close after April 8.
At schools with sub-par Internet, kids face a poor connection with modern life - Monroe Intermediate, a K-8 school in rural Alabama, is a tech dinosaur only because it has little choice, sitting in an impoverished community of churches and trailer homes that telecom companies have little financial incentive to wire. Over the past decade and a half, corporations including AT&T, Comcast and Verizon have laid cabling that is capable of transmitting high-speed Internet across much of urban and suburban America. But educators say there is a problem: The companies have essentially finished building in every area where they believe they can profit. And several thousand of America’s schools sit outside these zones, according to EducationSuperHighway, a nonprofit organization that measures Internet access in classrooms.The experience of students at Monroe Intermediate shows how the financial decisions of telecom companies have put rural students at a disadvantage, leaving some without basic digital abilities that many in America take for granted. Federal regulators are working toward a fix for these out-of-reach of schools, but it’s unclear to what extent these efforts will solve the problem.The schools with sub-par Internet are scattered around the country, spanning from the far-flung communities of Alaska to the desert towns of New Mexico. The danger is that students who attend these schools will struggle for years with the critical tasks that now require online fluency: applying to colleges, researching papers, looking for jobs.
Colorado school district to equip security workers with semiautomatic rifles (+video) - In the latest development surrounding the debate over school safety, Douglas County School District in Colorado has elected to arm its security staff with semiautomatic rifles in a bid to deter and defend against a school attack or other violent incident. The move steers the conversation a step beyond the usual arguments over whether school staff should be armed at all, instead adding high-powered weaponry to the arsenal of school security workers. An emotive issue, proponents of arming those who work in schools have long insisted such is the only defense against those who would seek to do harm, while detractors label such moves as themselves introducing unnecessary dangers. Each time a school shooting takes place, the debate flares."We want to make sure they have the same tools as law enforcement,” Richard Payne, director of Douglas County School District security, told The Denver Post. Payne, who said the decision had been his and the Douglas County school board had not been consulted, explained that the weapons would be kept locked in patrol cars and that officers will have to complete a 20-hour training course prior to being issued with a rifle. The first of 10 Bushmaster “long guns” – which cost a total of $12,000 – will likely be deployed next month, with the remainder coming in August.
The ‘Idleness Rate’ for Young High-School Graduates Is 15.5% - For the majority of Americans, the years after high school are marked by entering the labor market or heading to college. But about one out of every six recent high-school graduates got that diploma and went on to…nothing. That’s 1.4 million people ages 17 to 20 who are neither enrolled in a college or university, nor working. Instead of the unemployment rate, call it the idleness rate. The figures are from a new report from the Economic Policy Institute, on the outlook for the Class of 2016. The number of people who do nothing after high school closely tracks the health of the overall economy. While even in the best of times, some people don’t immediately get a job or go to college, the numbers swell during a weak economy. The number of idled young people was also elevated after the recession in 1990-91 and climbed during the 2001 recession. During the subsequent economic recoveries it improved.Even though the overall unemployment rate has fallen to 5%, getting close to its precrisis levels, the number of young high-school graduates who are stalled out is much higher than before the recession. That idleness remains so elevated shows the U.S. economy is far from fully healed.This rise of idleness has increasingly afflicted young men. In the most recent recession, their idleness rate soared above 19%. By contrast, in previous recessions, their rate of idleness climbed to about 14%—lower than it is now. In other words, idleness for young male high-school graduates has been higher for the past six years than it was for a single month during the previous two recessions.
Good Jobs for Non-College Grads -- It’s good to see that Katherine Newman has spoken up for really investing in kids who aren’t going on to college, which will always be a substantial chunk of them, no matter what. If there’s any sort of social contract worth defending, it has to include them. This means high quality technical programs in high school, staffed by teachers who are well respected and remunerated. Read her op-ed piece. But that’s only one side of the story, the supply side. The demand side, the willingness of firms to hire well-trained young people to good jobs with long-term career possibilities, is the other. Newman makes a passing reference to Germany’s apprenticeship system, which has become fashionable. But German firms find places for these apprentices, actually paying them to learn the ropes—unlike the unpaid internships that are proliferating over here. Companies design jobs to be staffed by skilled, committed workers, so the requirement of a credential is not just a formality. And behind it all, the reason why these commitments are still (mostly) honored, is codetermination—worker participation in management—in large firms and the central role played by public financial institutions in financing small and medium size enterprises. The German labor movement has been saying out loud that this system is under attack, and a major reason for the decline of the SPD is the criticism that they are not standing up for workers at a critical moment. Even so, however, the role of production workers in German firms is light years ahead of the situation in the US. It’s necessary but not sufficient to promote widespread technical training; there have to be jobs that take advantage of skill and reward it accordingly. That means a politics of changing who runs firms and for what purposes.
Teach for America applications fall again, diving 35 percent in three years - WaPo -- Applications to Teach for America fell by 16 percent in 2016, marking the third consecutive year in which the organization — which places college graduates in some of the nation’s toughest classrooms — has seen its applicant pool shrink. Elisa Villanueva Beard, TFA’s chief executive, announced the figures in an online letter to supporters Tuesday morning, describing the steps that the organization is taking to stoke interest and reverse the trend. “Our sober assessment is that these are the toughest recruitment conditions we’ve faced in more than two decades,” she wrote. “And they call on us all to reconsider and strengthen our efforts to attract the best and most diverse leaders our country has to offer.” TFA received 37,000 applications in 2016, down from 57,000 in 2013 — a 35 percent dive in three years. It’s a sharp reversal for an organization that grew quickly during much of its 25-year history, becoming a stalwart in education reform circles and a favorite among philanthropists. Teach for America now boasts 50,000 corps members and alumni; some have stayed in the classroom and others have gone on to work in education in other ways, joining nonprofits, running for office and leading charter schools. Its alumni include some of most recognized names in public education, including D.C. Schools Chancellor Kaya Henderson and her predecessor, Michelle Rhee.
Education Reform, Teachers' Unions - California Appeals Court Upholds Teacher Tenure -- There is no more inexcusable American couple than Kevin Johnson and Michelle Rhee. He's the former NBA All-Star and all-star urban corruption specialist with a luxurious taste for public money. She's the queen of the education "reform" grifters with a taste for luxurious corporate money. Between them, they are probably the nation's most gifted surgeons at cutting corners to enrich themselves. And, Thursday, a California appeals court gave Rhee a serious smackdown on one of her signature issues—that is, blowing up the concept of teacher tenure in public schools. The appeals panel did not challenge evidence that many students are ill served in California public schools. But, the judges said, the laws being questioned were not necessarily responsible. "The evidence at trial firmly demonstrated that staffing decisions, including teacher assignments, are made by administrators, and that the process is guided by teacher preference, district policies, and collective bargaining agreements," For all this president's accomplishments, his sweet-tooth for the education "reform" griftapalooza, from Arne Duncan, his Secretary of Education, to his prolonged slow dance with Johnson and Rhee, is a conspicuous exception. (As the linked article makes clear, Duncan was a big cheerleader for the anti-union decision that the appeals court overturned.) And the attack on teacher's unions was the thin edge of the propaganda wedge against unionized public employees, from Scott Walker's Wisconsin to the Supreme Court's decision in the Friedrichs case. That wedge has been used to create openings for everyone from Michelle Rhee to Tea Party whackaloons to come marching into the nation's classrooms. Nobody deserves to be slapped down more than those people.
Prison Inmates Argue Their Way to a Win Against West Point - WSJ -- They did it again. The debate team of New York prison inmates who beat Harvard College last fall had another triumph Friday, this time against the U.S. Military Academy at West Point. A spokesman for the state corrections department confirmed that all three judges voted for the men in a maximum-security prison. They are students in the Bard Prison Initiative, which offers a rigorous college program at the Eastern New York Correctional Facility in the Catskills. “The success of this team reveals the potential and the capacity of incarcerated people,” said Max Kenner, founder of the initiative. It shows “how much more has to be done to rethink college admissions, access and opportunity in prison and otherwise.” Maj. Adam Scher, assistant professor of politics at West Point and the academy’s debate coach, said before the competition that it would be “a hard-fought battle on both sides.” The resolution: American corporations should not have constitutional rights. The Bard team argued that corporations should have such rights, while West Point’s team argued they shouldn’t. Each side had four members representing a bigger team. Judge Jessica Bullock said both sides were prepared but Bard had a more cohesive approach. “What was beautiful was the clash around the central question—which team created a better world for individual rights,” she said.
Can Bernie Sanders’s Tax Plan Fund Free College? -- Bernie Sanders says the U.S. can easily afford free college tuition at state universities by levying a small tax on Wall Street trading. The Tax Policy Center, a leading think tank on tax issues, says his revenue estimates from such a tax are vastly overstated. If the TPC is right, forget about that free college. Figuring out how both sides come up with their estimates is crucial to understanding whether Sen. Sanders is economically deluded or a visionary. Mr. Sanders’s economic advisers and the TPC have been fighting over these estimates since at least last fall, and have fired recent salvos. The tax proposal at issue is called a financial transactions tax. Under Mr. Sanders’s plan, stock trades would be taxed at 0.5%, bonds at 0.1%, and financial derivatives at 0.005%. Other countries have FTTs, but they have never come close to becoming law in the U.S., due to the opposition of Wall Street and of many economists who believe even a small trading tax would batter the economy. Mr. Sanders relies on economists at the University of Massachusetts at Amherst, particularly Robert Pollin, who estimates that the Sanders plan could rake in $300 billion a year, or roughly $3 trillion over 10 years—far more than the $750 billion that Mr. Sanders says he needs for the tuition plan. But a TPC critique of the Sanders plan says it would raise just $52 billion the first year—$248 billion less than the Sanders camp argues. Over 10 years, TPC estimates the Sanders FTT would raise $592.4 billion.
CalPERS sets higher pension contribution rates | The Sacramento Bee: CalPERS approved another round of rate increases Thursday, requiring higher contributions from state agencies and school districts for the 2016-17 fiscal year. The state’s contribution will increase by an estimated $602 million, to $5.4 billion a year. School districts will be charged an additional $342 million, to a total of nearly $1.7 billion a year. While teachers are covered by CalSTRS, other school employees get their pensions from CalPERS. It’s the latest in a series of rate hikes implemented by the California Public Employees’ Retirement System in recent years, primarily to cover longer retiree lifespans, salary increases and the growing pool of state and school district employees. CalPERS is also dealing with lingering financial fallout from the 2008 financial crash, which cost the pension fund tens of billions of dollars. CalPERS is 76 percent funded, which means it has 76 cents on hand for every $1 of long-term obligations. The latest rate increase is smaller than originally projected, CalPERS said. Pension fund officials said steps they’ve taken in the past few months to scale back investment risks should eventually pay off in terms of moderating rate hikes.
One of the nation's largest pension funds could soon cut benefits for retirees -- More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money.Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the country’s largest multi-employer pension plans.The potential cuts are possible under legislation passed by Congress in 2014 that for the first time allowed financially distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund. The law weakened federal protections that for more than 40 years shielded one of the last remaining pillars that workers could rely on for financial security in retirement.For many workers, the promise of a guaranteed income stream for life — a benefit now nearly extinct for younger generations — was at times strong enough to convince them to sacrifice pay raises or other job opportunities. But after decades of challenges that left many pension funds in tough financial straits, some people are learning in retirement that the promises made to them may have to be broken.The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, was the first plan to apply for reductions under the new law.Consumer advocates watching the case say the move could encourage dozens of other pension plans across the country that are facing financial struggles to make similar cuts.
Bill That Obama Extolled Is Leading to Pension Cuts for Retirees - Dave Dayen - One of the many obscure provisions jammed into a last-minute budget bill in 2014 endorsed and signed by President Obama is leading to what would be the first cuts in earned pension benefits to current retirees in over 40 years. The Washington Post reports that the Treasury Department is on the verge of approving an application from the Central States Pension Fund – a plan that covers Teamster truckers in several states – to cut worker pensions by an average of 23 percent, and even more for younger retirees. Over 250,000 truckers and their families would be affected. The bill that enables this — known as the “CRomnibus” because it was partially a continuing resolution to fund the government (CR) and partially an omnibus spending package to fund other parts of the government for a full year — was littered with riders, nonbudget changes in law that attached themselves to the legislation like barnacles to a ship. Despite the riders, Obama endorsed the bill and even whipped for its passage, assisted by JPMorgan Chase CEO Jamie Dimon. The pension changes in the CRomnibus enable trustees of multi-employer plans — union-negotiated pension benefit funds that cover employees across entire industries like trucking or construction — to apply to the Treasury Department to cut benefits for current retirees in order to stretch the fund’s resources. There were no public hearings on this change to pension law, and the details were only made available days before the vote. But Michael Hiltzik of the Los Angeles Times warned in 2014 that “panicky trustees — usually union and employer representatives — could act prematurely, cutting the income of retirees who can’t make it up from other sources.”
Elizabeth Warren chides Goldman Sachs, Northern Trust over Teamsters pensions - Sen. Elizabeth Warren on Wednesday took aim at the managers of the pension fund of Teamsters truck drivers for receiving millions of dollars in fees while presiding over losses. In a series of tweets, and a video clip of a speech she delivered to the union’s rally, Warren highlighted the $41 million in fees that Goldman Sachs and Northern Trust received while presiding over investments in the Central States Pension Fund. Wall St broke our economy — not Central States Pension Fund workers. @USTreasury should reject their pension cuts. https://t.co/G5vMtGGfe2 — Goldman Sachs & Northern Trust got $41M to manage workers’ pension funds, & they recklessly gambled it on junk bonds & toxic mortgages. The Treasury Department is weighing Central States’ application to cut the retirement benefits. “Should the workers pay the price one more time for Wall Street’s greed?” Warren, a Massachusetts Democrat, said at the rally. While part of the Teamsters issues have to do with a declining union workforce — resulting in fewer employers contributing into the fund — Smith says the financial market collapse and the riskier-than-average investments made by the fund contributed to losses. Central States saw a 42% drop in assets — and a loss of about $11.1 billion in seed capital — in just 15 months during 2008 and early 2009.
Obamacare Exodus Accelerates: After Georgia And Arkansas, Biggest Health Insurer Exits Michigan And Oklahoma - Two weeks ago we reported that after its November warning that it may exit certain Obamacare markets as a result of substantial losses, the largest U.S. health insurer UnitedHealth, did just that when it announced it would no longer sell plans for next year in Georgia and Arkansas. Then over the weekend, UnitedHealth also added Michigan to the list of states whose Obamacare market it would no longer service. As Bloomberg reported, "the insurer won’t sell policies through Michigan’s ACA exchange for next year, according to Andrea Miller, a spokeswoman for the state’s Department of Insurance and Financial Services. Georgia and Arkansas said last week that UnitedHealth will quit their exchanges for 2017." And then, moments ago in the latest hit to Obamacare, United added Oklahoma as the 4th state to the growing list of Obamacare markets it refuses to service. What will the consequences of this exodus be? According to Bloomberg, "while Michigan and Arkansas can probably weather UnitedHealth’s move, some consumers in Georgia and Oklahoma may feel a lack of choices, according to a Kaiser Family Foundation analysis of UnitedHealth’s offerings across the U.S." Michigan should be able to endure the loss of United because the insurer only participates in seven of the state’s 83 counties, and it’s not among the cheapest in any of those counties, according to the Kaiser analysis. United also wasn’t offering cheap plans in Arkansas. In Georgia, however, the loss of UnitedHealth will cut the number of insurers to just one or two in about half of the state’s counties, though those counties account for just 11 percent of the state’s population. The insurer offered one of the cheapest plans in 34 of the state’s 159 counties. Worse, on the current trend, UnitedHealth will likely announce the exit of more states in the coming days.
UnitedHealth to trim ACA exchanges to 'handful' of states - UnitedHealth, the nation's biggest health insurer, will cut its participation in public health insurance exchanges to only a handful of states next year after expanding to nearly three dozen for this year. CEO Stephen Hemsley said Tuesday that the company expects losses from its exchange business to total more than $1 billion for this year and last. He added that the company cannot continue to broadly serve the market created by the Affordable Care Act's coverage expansion due partly to the higher risk that comes with its customers. The state-based exchanges are a key element behind the Affordable Care Act's push to expand insurance coverage. But insurers have struggled with higher than expected claims from that business. UnitedHealth Group Inc. said it now expects to lose $650 million this year on its exchange business, up from its previous projection for $525 million. The insurer lost $475 million in 2015, a spokesman said. UnitedHealth has already decided to pull out of Arkansas, Georgia and Michigan in 2017, and Hemsley told analysts during a Tuesday morning conference call that his company will not carry financial exposure from the exchanges into 2017.
UnitedHealthcare’s Exit Augurs Badly for Obamacare --With Congress limiting the bailouts of insurance companies for two years in a row, business is not looking good for the industry that lobbied for Obamacare. The latest casualty is United Healthcare, which announced that it is withdrawing from most of its 34 Obamacare exchanges next year. Due to congressional limits on insurance company bailouts, in October the Department of Health and Human Services transferred $362 million to loss-making insurance companies, rather than the $2.9 billion that they requested. The Health Insurance Association of America, under the leadership of Karen Ignagni, lobbied heavily in favor of the Affordable Care Act. But now the pool of insured is smaller and sicker than they anticipated. UnitedHealthcare and other insurance companies thought that they would have a captive market of young, healthy people who would be forced to sign up for expensive policies with the threat of penalties. The premiums from these young people, who do not use much health care because they are rarely sick, would be used to pay for the care of the old and the chronically-ill.The Affordable Care Act was unfairly structured so that younger healthy Americans would to pay for everyone else—even though the young have higher unemployment rates, less disposable income, more student loans, and fewer assets.Little did these insurance companies know that enrollment would fall far short of predictions. Enrollment in the exchanges is estimated by Health and Human Services Secretary Sylvia Burwell to be 12.7 million in 2016, compared with 22 million predicted by the Congressional Budget Office in May 2013. Insurance companies are not getting enough premiums to cover the costs of treating enrollees.
Cancer Research Is Broken - The U.S. government spends $5 billion every year on cancer research; charities and private firms add billions more. Yet the return on this investment—in terms of lives saved, suffering reduced—has long been disappointing: Cancer death rates are drifting downward in the past 20 years, but not as quickly as we’d hoped. Even as the science makes incremental progress, it feels as though we’re going in a circle.. In February, the White House announced its plan to put $1 billion toward a similar objective—a “Cancer Moonshot” aimed at making research more techy and efficient. But recent studies of the research enterprise reveal a more confounding issue, and one that won’t be solved with bigger grants and increasingly disruptive attitudes. The deeper problem is that much of cancer research in the lab—maybe even most of it—simply can’t be trusted. The data are corrupt. The findings are unstable. The science doesn’t work. The resulting waste amounts to more than $28 billion: That’s two dozen Cancer Moonshots misfired in every single year.In other words, we face a replication crisis in the field of biomedicine, not unlike the one we’ve seen in psychology but with far more dire implications. Sloppy data analysis, contaminated lab materials, and poor experimental design all contribute to the problem. Last summer, Leonard P. Freedman, a scientist who worked for years in both academia and big pharma, published a paper with two colleagues on “the economics of reproducibility in preclinical research.” After reviewing the estimated prevalence of each of these flaws and fault-lines in biomedical literature, Freedman and his co-authors guessed that fully half of all results rest on shaky ground, and might not be replicable in other labs. These cancer studies don’t merely fail to find a cure; they might not offer any useful data whatsoever. Given current U.S. spending habits, the resulting waste amounts to more than $28 billion. That’s two dozen Cancer Moonshots misfired in every single year. That’s 100 squandered internet tycoons.
U.S. Suicide Rate Surges to a 30-Year High - — Suicide in the United States has surged to the highest levels in nearly 30 years, a federal data analysis has found, with increases in every age group except older adults. The rise was particularly steep for women. It was also substantial among middle-aged Americans, sending a signal of deep anguish from a group whose suicide rates had been stable or falling since the 1950s.The suicide rate for middle-aged women, ages 45 to 64, jumped by 63 percent over the period of the study, while it rose by 43 percent for men in that age range, the sharpest increase for males of any age. The overall suicide rate rose by 24 percent from 1999 to 2014, according to the National Center for Health Statistics, which released the study on Friday.The increases were so widespread that they lifted the nation’s suicide rate to 13 per 100,000 people, the highest since 1986. The rate rose by 2 percent a year starting in 2006, double the annual rise in the earlier period of the study. In all, 42,773 people died from suicide in 2014, compared with 29,199 in 1999. Researchers also found an alarming increase among girls 10 to 14, whose suicide rate, while still very low, had tripled. The number of girls who killed themselves rose to 150 in 2014 from 50 in 1999. “This one certainly jumped out,” said Sally Curtin, a statistician at the center and an author of the report. American Indians had the sharpest rise of all racial and ethnic groups, with rates rising by 89 percent for women and 38 percent for men. White middle-aged women had an increase of 80 percent.
Don't count on strangers in a medical emergency - So long, good Samaritans. In the first study of its kind, Cornell sociologists have found that people who have a medical emergency in a public place can’t necessarily rely on the kindness of strangers. Only 2.5 percent of people, or 1 in 39, got help from strangers before emergency medical personnel arrived, in research published April 14th in the American Journal of Public Health. For African-Americans, these dismal findings only get worse. African-Americans were less than half as likely as Caucasians to get help from a bystander, regardless of the type of symptoms or illness they were suffering – only 1.8 percent, or fewer than 1 in 55 African-Americans, received assistance. For Caucasians, the corresponding number was 4.2 percent, or 1 in 24. People in lower-income and densely populated counties were also less likely to get help, the researchers said. Conversely, those in less-densely populated counties with average socioeconomic levels were most likely to get assistance. Here is more, via Charles Klingman.
166 Million Americans Live With Unhealthful Levels of Air Pollution -- The American Lung Association’s 2016 State of the Air report found continued improvement in air quality, but more than half (52.1 percent) of the people in the U.S. live in counties that have unhealthful levels of either ozone or particle pollution. The annual, national air quality “report card” found that 166 million Americans live with unhealthful levels of air pollution, putting them at risk for premature death and other serious health effects like lung cancer, asthma attacks, cardiovascular damage, and developmental and reproductive harm.
Criminal charges today in Flint water crisis: — Michigan Attorney General Bill Schuette will announce criminal charges today in connection with his ongoing investigation of the Flint drinking water crisis, three sources familiar with the investigation told the Free Press on Tuesday. Officials believe the city got artificially low lead readings because they didn't test the homes most at risk — those with lead service lines or other features putting them at high risk for lead. Among those to be charged is a City of Flint official who signed a document saying the homes Flint used to test tap water under the federal Lead and Copper Rule all had lead service lines — a statement investigators allege was false. Schuette is to announce felony and misdemeanor charges against at least two, and possibly as many as four people, according to two other sources familiar with the investigation. The investigation is ongoing and more charges are expected, sources said. The charges, which will be brought against individuals connected with the Michigan Department of Environmental Quality and the City of Flint, relate to the lead contamination of Flint's drinking water and not to the possible link between Flint River water and an outbreak of Legionnaires' disease that is tied to the deaths of 12 people, one of the sources said. Schuette, a Republican who is widely expected to run for governor in 2018, opened an investigation in January, tapping former Detroit FBI Director Andrew Arena and Royal Oak attorney Todd Flood to head the probe.
3 charged in Flint lead-tainted water crisis: - Two state regulators and a Flint employee were charged Wednesday with evidence tampering and other felonies and misdemeanours, for the first time raising the lead-tainted water crisis in the Michigan city to a criminal case. Months after officials conceded that a series of bad decisions had caused a disaster, charges were filed against a pair of state Department of Environmental Quality employees and a local water treatment supervisor and stem from an investigation by the Michigan attorney general's office. For nearly 18 months, the financially troubled city of Flint, where the majority of residents are black, used the Flint River for tap water as a way to save money — a decision made by a state-appointed emergency manager — while a new pipeline was under construction. But the water wasn't treated to control corrosion. The result: Lead was released from aging pipes and fixtures as water flowed throughout the city of 100,000 residents. Gov. Rick Snyder, a Republican, didn't acknowledge the problem until last fall when tests revealed high levels of lead in children. A task force appointed by the governor recently said the crisis was a "case of environmental injustice." Michael Prysby, a DEQ district engineer, and Stephen Busch, who is a supervisor with the DEQ's Office of Drinking Water, were both charged with misconduct in office, conspiracy to tamper with evidence, tampering with evidence and misdemeanour violations of water law. They're both accused of failing to order chemicals to control corrosion. Flint utilities administrator Michael Glasgow also was charged Wednesday with tampering with evidence for changing lead water-testing results and wilful neglect of duty as a public servant.
Flint mother, one of first to sue over water, found shot to death - A 19-year-old Michigan mother who was one of the first to file lawsuits on behalf of the thousands of children poisoned by water in Flint was found shot to death this week. The body of Sasha Bell was discovered Tuesday night at Ridgecrest Village Townhouses in Flint, authorities said. The body of a second woman, Sacorya Reed, was also found in the home. Cops have not made any arrests or determined a motive.An infant was found uninjured in the apartment, but it's not clear if that was Bell's son. Sasha Bell's lawsuit alleges that her 16-month-old son suffers from lead poisoning because of "corporate and government misconduct." "She just wanted what was best for her son," her New York-based lawyer Corey Stern told the Daily News on Friday. "She loved her son." Stern said that Bell's lawsuit will go on, despite her death. "It's really her son's case," he told The News.
Woman in leading Flint water crisis lawsuit slain in twin killing | MLive.com: – A woman at the center of a bellwether Flint water crisis lawsuit was one of two women who were shot to death inside a townhouse earlier this week. Sasha Avonna Bell was one of the first of a growing number of people to file a lawsuit in connection to the Flint water crisis after she claimed that her child had been lead poisoned. Bell was found dead April 19 in the 2600 block of Ridgecrest Drive at the Ridgecrest Village Townhouses. Sacorya Renee Reed was also found shot to death in the home. An unharmed 1-year-old child was also found inside of the Ridgecrest home when Bell's body was discovered and was taken into custody by child protective services. Police declined to confirm if it was Bell's child discovered in the home. "Sasha was a lovely young woman who cared deeply for her family, and especially for her young child," said her attorney Corey M. Stern. "Her tragic and senseless death has created a void in the lives of so many people that loved her. Hopefully, her child will be lifted up by the love and support from everyone who cared deeply for Sasha." Bell's case was one of 64 lawsuits filed on behalf of 144 children by Stern's firm, New York-based Levy Konigsberg, and Flint-based Robinson Carter & Crawford. The Bell case, however, played an important role in determining the future of the more than five dozen other lawsuits that were filed.
Antibiotics Have Given Us Untreatable Gonorrhea -- Gonorrhea is like an extremely persistent garden weed. As far as sexually transmitted diseases go, it’s relatively easy to get and requires a multipronged offensive to annihilate. And even if you’ve thwarted it once already, you’re still left vulnerable to reinfection. So far, doctors have been pretty damn good at treating the disease, which is partially why England’s public health agency has just sounded the alarm over a rise in “super-gonorrhea” among Brits.According to an incident response this week from Public Health England, reported cases of an extremely drug-resistant type of gonorrhea have recently spiked. The bacterial strain first emerged in Leeds and the north of England, and has since spread outward, as far as London. Gonorrhea is caused by an infection of the Neisseria gonorrhoeae bacterium, and is one of the four most common STDs worldwide, next to chlamydia, syphilis, and trichomoniasis. The US Centers for Disease Control and Prevention estimates that 820,000 new gonorrheal infections occur in the United States each year, with 570,000 of those instances appearing in people ages 15 to 24. It affects the cervix, uterus, and fallopian tubes in women, and the urethra, mouth, throat, eyes, and anus of both men and women. Leaving gonorrhea untreated can result in pelvic inflammatory disease, pregnancy complications, infertility, and an increased risk for HIV infection.Like many other disease epidemics, gonorrhea has been kept under relative control over the years thanks to “wonder drugs,” or antibiotics. But as evolutionary theory predicted long ago, the bacteria we suppressed with cocktails of antimicrobial cure-alls have found ways to return, stronger than ever before.
Prescription meds get trapped in disturbing pee-to-food-to-pee loop - Through vegetables and fruits, the drugs that we flush down the drain are returning to us—though we’ll ultimately pee them out again. In a randomized, single-blind pilot study, researchers found that anticonvulsive epilepsy drug carbamazepine, which is released in urine, can accumulate in crops irrigated with recycled water—treated sewage—and end up in the urine of produce-eaters not on the drugs. The study, published Tuesday in Environmental Science & Technology, is the first to validate the long-held suspicion that pharmaceuticals may get trapped in infinite pee-to-food-to-pee loops, exposing consumers to drug doses with unknown health effects. While the amounts of the drug in produce-eater’s pee were four orders of magnitude lower than what is seen in the pee of patients purposefully taking the drugs, researchers speculate that the trace amounts could still have health effects in some people, such as those with a genetic sensitivity to the drugs, pregnant women, children, and those who eat a lot of produce, such as vegetarians. And with the growing practice of reclaiming wastewater for crop irrigation—particularly in places that face water shortages such as California, Israel, and Spain—the produce contamination could become more common and more potent, the authors argue.“The potential for unwitting exposure of consumers to contaminants via this route is real,” the authors wrote, adding that their study provides real world data that proves exposure occurs.
Zika virus: 2.2 billion people in 'at risk' areas - - More than two billion people live in parts of the world where the Zika virus can spread, detailed maps published in the journal eLife show. The Zika virus, which is spread by Aedes aegypti mosquitoes, triggered a global health emergency this year. Last week the US Centers for Disease Control and Prevention confirmed that the virus causes severe birth defects.The latest research showed mapping Zika was more complex than simply defining where the mosquito can survive.One of the researchers, Dr Oliver Brady from the University of Oxford, told the BBC: "These are the first maps to come out that really use the data we have for Zika - earlier maps were based on Zika being like dengue or chikungunya. "We are the first to add the very precise geographic and environmental conditions data we have on Zika."By learning where Zika could thrive the researchers could then predict where else may be affected. The researchers confirmed that large areas of South America, the focus of the current outbreak, are susceptible. In total, 2.2 billion people live in areas defined as being "at risk". The infection is suspected of leading to thousands of babies being born with underdeveloped brains. The at-risk zones in South America include long stretches of coastline as well as cities along the Amazon river and its tributaries snaking through the continent. And in the US, Florida and Texas could sustain the infection when temperatures rise in summer. Dr Brady added: "Mosquitoes are just one condition needed for Zika to spread but there's a whole range of other ones.
Yellow fever outbreak ‘straining vaccine supply’ | IOL: - The worst yellow fever outbreak in decades has killed 250 people in Angola and is straining global vaccine supplies, posing a dilemma for health officials who fear it could spread further in Africa and possibly into Asia. Some experts have called for a radical switch in strategy to use just one-tenth of the usual vaccine dose to conserve scarce stocks but the World Health Organisation (WHO) says it can't be sure this would work. Yellow fever is transmitted by the same mosquitoes that spread the Zika and dengue viruses, although it is a much more serious disease with death rates as high as 75 percent in severe cases requiring admission to hospital. The condition, which takes its name from the jaundiced colour of some patients, has spread to the Democratic Republic of Congo and there is concern it could gain a foothold for the first time in Asia. The WHO says cases of yellow fever imported into China, which has close commercial ties with oil-rich Angola, show that “this outbreak constitutes a potential threat for the entire world”. And it is warning that further spread elsewhere in Africa and Asia would increase the squeeze on vaccine supplies and could interrupt routine immunisation.
Deadly animal prion disease appears in Europe - A highly contagious and deadly animal brain disorder has been detected in Europe for the first time. Scientists are now warning that the single case found in a wild reindeer might represent an unrecognized, widespread infection. Chronic wasting disease (CWD) was thought to be restricted to deer, elk (Cervus canadensis) and moose (Alces alces) in North America and South Korea, but on 4 April researchers announced that the disease had been discovered in a free-ranging reindeer (Rangifer tarandus tarandus) in Norway. This is both the first time that CWD has been found in Europe and the first time that it has been found in this species in the wild anywhere in the world.A key question now is whether this is a rare — even unique — case, or if the disease is widespread but so far undetected in Europe.“If it’s similar to our prion disease in the United States and Canada, the disease is subtle and it would be easy to miss,” says Christina Sigurdson, a pathologist at the University of California, San Diego, who has shown that reindeer can contract CWD in a laboratory environment1. Like both bovine spongiform encephalopathy — also known as mad-cow disease — and variant Creutzfeldt-Jakob disease in humans, CWD occurs when cellular proteins called prions bend into an abnormal shape, inducing neighbouring, healthy proteins to do the same. The misfolded proteins aggregate in the brain and sometimes in other tissue, causing weight loss, coordination problems and behaviour changes. There is no cure or vaccine; as far as scientists know, CWD is always fatal.
How The Government Decides What You Eat - For months, members of Congress had admonished Agriculture Secretary Tom Vilsack and Sylvia Mathews Burwell, the secretary of Heath and Human Services, about how their agencies had handled the Dietary Guidelines for Americans—the government’s sweeping and hugely influential nutrition advice to the public about what to eat, which was due to be released within the year. Now the lawmakers had their chance to chastise the secretaries, face to face. The guidelines have always been as much a political document as a scientific one. The October hearing was ostensibly about a general dissatisfaction with the way the guidelines are generated. But the real flashpoint was a report issued eight months earlier by an advisory panel charged with evaluating the latest nutrition science and making recommendations for what the guidelines should say. Among the panel’s many recommendations was that the guidelines should consider the environmental consequences of food production. More specifically, the report suggested that a diet lower in red meat and processed meat was not only more healthful, but better for the planet. That report raised hackles in the livestock industry, already under fire for the environmental toll of its operations. Lobbyists, especially those working for cattle producers and meat processors, launched a full-scale offensive on Capitol Hill, with calls and letters to livestock-friendly lawmakers imploring them to quash the sustainability recommendation.
Is the Seafood You Eat Caught by Slaves? - Democracy Now! videos -- Is seafood on the menu tonight? Well, there’s a chance it might have been caught by a slave. That’s what the Associated Press uncovered when reporters traveled to the remote island of Benjina, Indonesia. They found workers trapped in cages, whipped with toxic stingray tails for punishment and forced to work 22 hours a day for almost no compensation. We speak to two of the Associated Press reporters who broke this remarkable story, Robin McDowell and Martha Mendoza. We caught up with them last week in Los Angeles just before they headed to the University of Southern California to receive the 2016 Selden Ring Award for Investigative Reporting for this remarkable series. Watch here:
GMO Mushroom Sidesteps UDSA Regulations -- The U.S. Department of Agriculture (USDA) said it will not regulate the potential cultivation and sale of a genetically modified (GMO) mushroom the same way it regulates conventional GMOs because the mushroom was made with the genome-editing tool CRISPR-Cas9. This is the first time the U.S. government has cleared a food product edited with the new and controversial technique. The USDA announced in a letter last week that it had approved Pennsylvania State University plant pathologist Yinong Yang’s common white button mushroom (Agaricus bosporus) that’s engineered to be more resistant to browning. As the USDA’s Animal and Plant Health Inspection Service (APHIS) wrote on April 13: The anti-browning trait reduces the formation of brown pigment (melanin), improving the appearance and shelf life of mushroom, and facilitating automated mechanical harvesting. Based on the information cited in your letter, APHIS has concluded that your CRISPR/Cas9-edited white button mushrooms as described in your letter do not contain any introduced genetic material. APHIS has no reason to believe that CRISPR/Cas9-edited white button mushrooms are plant pests. According to Nature, the mushroom was created by targeting the family of genes that encodes the enzyme polyphenol oxidase that causes browning. “By deleting just a handful of base pairs in the mushroom’s genome, Yang knocked out one of six PPO genes—reducing the enzyme’s activity by 30 percent,” Nature reported.
A loophole is letting genetically modified foods sidestep American GMO regulations - A rather standard-looking white button mushroom has just planted itself at the center of the debate over genetically modified foods in the US. In a letter published on April 13 (pdf), the US Department of Agriculture (USDA) announced that it won’t regulate a genetically modified mushroom as it does other “genetically modified organisms” (GMOs). The mushroom was developed by Yinong Yang of Pennsylvania State University using a revolutionary new technology called CRISPR. The technology allows modification of genes with greater precision than ever before. Yang used CRISPR to change two letters of the mushroom DNA code to create a variant that is more resistant to browning from oxidization. Despite being directly and purposely genetically modified, USDA has allowed Yang’s mushroom to sidestep the regulatory system. The reason? Yang’s method does not contain “any introduced genetic material” from a plant pest such as bacteria or viruses. Conventional GMOs, the ones that the USDA’s rules are designed to deal with, are created by introducing foreign genes—for example, those of a bacteria might be introduced to give the crop some pest resistance. CRISPR’s use is fundamentally changing how scientists approach genetic engineering. Instead of introducing genes, CRISPR allows scientists to dream up new ways of modifying the genome without the help of foreign genes. Yang’s mushroom is the first one to use the much-discussed CRISPR system to sidestep the USDA regulations. However, in the past five years, some 30 new crops have used this loophole, with gene-editing techniques similar to CRISPR, that modify the already existing genome to give the crop new abilities.
Glyphosate Found in Popular Breakfast Foods -- Today, the Alliance for Natural Health-USA released the results of food safety testing conducted on an assortment of popular breakfast foods. Enzyme-linked immunosorbent assay (ELISA) testing revealed the presence of glyphosate—the most widely used agricultural herbicide—in 11 of the 24 food samples tested. Glyphosate is an herbicide developed in 1970 by Monsanto, who began developing genetically modified (GMO) crops designed to withstand high doses of Roundup. Today, these seeds account for 94 percent of all soybeans and 89 percent of all corn being produced. The prevalence of these crops means that hundreds of millions of pounds of glyphosate are dumped onto the land every year. “We expected that trace amounts would show up in foods containing large amounts of corn and soy. However, we were unprepared for just how invasive this poison has been to our entire food chain.” Analysis revealed the presence of glyphosate in oatmeal, bagels, eggs (including the organic variety), potatoes and even non-GMO soy coffee creamer. Glyphosate was recently named a probable carcinogen or cancer-causing agent, by the World Health Organization (WHO).“Glyphosate has been linked to increases in levels of breast, thyroid, kidney, pancreatic, liver and bladder cancers and is being served for breakfast, lunch and dinner around the world,” said DuBeau. “The fact that it is showing up in foods like eggs and coffee creamer, which don’t directly contact the herbicide, shows that it’s being passed on by animals who ingest it in their feed. This is contrary to everything that regulators and industry scientists have been telling the public.”
Earth Day: Poisoner News Summary April 22nd, 2016 -- If a god created this world, this ecology, the beauty of it all, the intricacy and logic of it all, it’s inconceivable this god would have wanted humans to trash it, to defile it, to desecrate it. This, I believe, is the incontrovertible a priori for any meaningful theology or philosophy, whatever one’s personal state of faith. The much abused translation “dominion” in Genesis can mean only stewardship, if it has any meaning at all. This perception is reinforced by the fail-safe mechanism God created, the way nature imposes a correction wherever, on account of whatever temporary environmental circumstance, a species runs out of control. From any point of view including that of secular biology, Homo sapiens is certainly out of control. The circumstance enabling this has been the temporary availability of cheaply extractable fossil fuels. When we factor in humanity’s moral character, we must also recognize the rogues of the species, those who seek to poison us all, as evil..The stewardship model has been proven unanimously, on every level from the religious to the most nuts-and-bolts secular, to create the best life and greatest happiness for all even as it preserves and enhances the ecology at every level from the local to the global.. This is the only true religion, the only true philosophy, the only true science. This is the one and only Truth. Do we still dream of the Garden of Eden? But this Earth is the one and only Garden of Eden, because it is humanity’s one and only home. Time’s up, and we must choose.
Why the fight for GMO labeling is (possibly) over - Ever since it became clear that Vermont's law for mandatory labeling of foods containing genetically engineered ingredients would actually go into force this summer, the big question has been how many food companies would choose to label their products and how many would choose simply not to sell in Vermont. There is a third choice which purveyor of canned fruits and vegetables, Del Monte Foods, announced recently. The company will eliminate all genetically engineered ingredients from its foods, obviating the need for special labeling. This won't be too difficult since there are very few genetically engineered fruits and vegetables.While the Vermont law is huge victory for the proponents of labels, the U.S. Congress could still pre-empt state labeling laws, something it failed to do earlier this year. But as more and more of the public demands to know which products have so-called genetically modified organisms or GMOs in them and as the number of products on grocery shelves with non-GMO verified labels increases, growers and processors may have no choice but to acquiesce. They may be forced by circumstances either to label their products (or automatically be suspected of trying to hide something for not doing so) or to eliminate GMO crops and ingredients for fear of losing customers regardless of what happens in Congress or in other states.
50 Billionaires Receive $6.3 Million in Federal Farm Subsidies -- Think federal farm subsidies only help out struggling family farmers? Think again. Fifty members of the Forbes 400 list of the richest Americans—banking tycoon David Rockefeller Sr., Microsoft co-founder Paul Allen, stockbroker Charles Schwab and dozens of other billionaires—received at least $6.3 million in farm subsidies between 1995 and 2014, according to an Environmental Working Group (EWG) analysis. And these fat cats likely received even more subsidies through the federal crop insurance program. EWG matched EWG’s Farm Subsidy Database with the Forbes 400 list. We found that the billionaires who received farm subsidies between 1995 and 2014 have a collective net worth of $331.4 billion, based on Forbes’ estimates of their wealth. Some of the other notable members of the 1 percent who got farm subsidies include Commerce Secretary Penny Pritzker, the owners of three professional sports teams and the founder of the Bass Pro sporting goods empire. Of the 50 billionaires, 46 grow corn, soybeans, sorghum, cotton, rice and barley—commodities that are eligible for both traditional farm subsidies and crop insurance subsidies. Only two of the billionaires exclusively raise livestock, which aren’t eligible for subsidies but qualify for disaster assistance.
Who Owns The Earth? - For me, like my ancestors, the Montana landscape is part of who I am. It’s beyond price. Love is the one thing about land that cannot be measured by use, real estate markets, or commodity prices. It makes a deep sense of home possible. Once established through the surety of knowing that the land you live on cannot be taken, it then spills out beyond its borders to encompass the surrounding lands. Private property might be the birthplace of husbandry and true sustainability as well as of self-sufficiency and self-determination, but ownership of land also allows us to invest in a community, including public lands and resources owned by all, with a sense of interdependence and mutual cooperation. We live on and in the commons, even if we don’t recognise it as such. Every time we take a breath, we’re drawing from the commons. Every time we walk down a road we’re using the commons. Every time we sit in the sunshine or shelter from the rain, listen to birdsong or shut our windows against the stench from a nearby oil refinery, we are engaging with the commons. But we have forgotten the critical role that the commons play in our existence. The commons make life possible. Beyond that, they make private property possible. When the commons become degraded or destroyed, enjoyment and use of private property become untenable. A Montana rancher could own ten thousand acres and still be dependent on the health of the commons. Neither a gated community nor high-rise penthouse apartments can close a human being from the wider world that we all rely on.
Colombia to Resume Use of Glyphosate in Cocaine Fight --A government official in Colombia announced that the country will once again use the controversial herbicide glyphosate to destroy illegal coca plantations, the crop used used to make cocaine. But instead of aerial fumigation by American-piloted crop dusters, glyphosate will be applied manually by eradication crews on the ground, the Associated Press reported. “We’ll do it in a way that doesn’t contaminate, which is the same way it’s applied in any normal agricultural project,” Defense Minister Luis Carlos Villegas told La FM radio. The move is a sharp turn from President Juan Manuel Santos’ decision less than a year ago to suspend glyphosate due to the weedkiller’s infamous link to cancer. “The recommendations and studies reviewed by the Ministry of Health show clearly that yes, this risk exists,” he added, referring to The World Health Organization’s International Agency for Research on Cancer’s (IARC) classification of glyphosate as “probably carcinogenic.” Following the decision to end aerial spraying, the United Nations’ Office on Drugs and Crime reported a sharp increase in Colombian coca cultivation. Villegas did not explain why the government reversed its stance, however he pointed out that increased coca production would affect the entire cocaine supply chain in Colombia and abroad.
A bitter sugar story - Rains fall from the sky, but drought is “made” on the ground, at least in Maharashtra. The prevailing water crisis in the state is not about the unavailability of water resources. It’s all about criminal mismanagement of available resources. For the record: Yes, rains were deficient last year. In regions like Marathwada, which is facing an acute water scarcity, the shortfall was as much as 40 per cent. Yes, it is also true that it was the second consecutive year that rains were scanty in some regions, including Marathwada. But that cannot be the sole reason for the situation the state finds itself in. For, if one considers the average rainfall across the state, the blame-it-on-nature argument would get turned upside down. Last year, Maharashtra’s average rainfall was around 1,300 mm, which was more than the national average of 1,100 mm. Compare this with one of India’s most arid regions, the desert state of Rajasthan, where average annual rainfall is never more than 400 mm. So why is Rajasthan not in as dire a state as Maharashtra? The answer to this question will make clear the state’s gross and criminal negligence in water management. If there is one point in common with all governments that have ruled the state since its inception in 1960, it is their complete apathy towards water issues. No government of the state — including that of the BJP-Shiv Sena between 1995-99 — has attached importance to issues such as water conservation, drip irrigation or rejuvenating ground water. Why?
Year 5: It Never Rains in California -- El Niño was a bust this winter in California. Although the state received more precipitation than the previous four years - that isn't saying much. Here are a few resources to track the drought. These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 56% of normal for this date. And here are some plots comparing the current and previous years to the average, a very dry year ('76-'77) and a wet year ('82-'83). This winter was close to an average year in the North and Central Sierra, but below average in the southern section.For Pacific Crest Trail and John Muir Trail hikers, I recommend using the Upper Tyndall Creek sensor to track the snow conditions. This is the fifth dry year in a row along the JMT - although more snow than the previous four years. There will probably be adequate water and not too much snow on the passes. This graph shows the snow water content for Upper Tyndall Creek for the last 20 years. There is more snow than the previous four years, but that isn't saying much. I hiked the trail in September 1998 - a very wet year - and there was snow all year on Whitney.
Thirsty cities begin to eye water from the Great Lakes: Nearly a decade ago, eight governors shook hands on an extraordinary agreement to erect a legal wall around the largest source of fresh water on Earth — the Great Lakes. The unusual bipartisan compact, signed by the heads of the states that border the massive basin, aimed to keep the increasingly valuable water right where it is for the 40 million people who rely on it for their jobs, their homes and their vacations. Now they face the first test. Waukesha, Wis., a suburb of Milwaukee, has asked for the right to pull drinking water from Lake Michigan. In coming weeks or months the current eight governors, will have to make a critical decision on how to share — or not — one-fifth of the world's fresh water. The question arises against a backdrop of increasing national conflicts over water and growing concerns about the way pollution and climate change are threatening the world's water supply. Yet the eight governors, none of whom were in office when the compact was signed, will also have to live with the precedent they establish. Some of their own communities may someday face the same water problems that Waukesha has now — declining and increasingly contaminated supplies. Minnesota, for one, has a dozen communities with water problems that are close enough to Lake Superior to ask for an exemption under the compact. "The real reason many of us care is not because of that one straw into the Great Lakes," . "If we don't set a strong precedent, it could be too easy for other cities to stick a straw into the Great Lakes." The first critical meeting is April 22 in Chicago, home of the Conference of Great Lakes Governors, with representatives from each state.
March temperature smashes 100-year global record - The global temperature in March has shattered a century-long record and by the greatest margin yet seen for any month. February was far above the long-term average globally, driven largely by climate change, and was described by scientists as a “shocker” and signalling “a kind of climate emergency”. But data released by the Japan Meteorological Agency (JMA) shows that March was even hotter. Compared with the 20th-century average, March was 1.07C hotter across the globe, according to the JMA figures, while February was 1.04C higher. The JMA measurements go back to 1891 and show that every one of the past 11 months has been the hottest ever recorded for that month. Data released released later on Friday by Nasa confirmed last month was the hottest March on record, but the US agency’s data indicated February had seen the biggest margin. The Nasa data recorded March as 1.65C above the average from 1951-1980, while February was 1.71C higher. The World Meteorological Organisation, the UN body for climate and weather, said the March data had “smashed” previous records.
March 2016 Was Hottest on Record by Greatest Margin Yet Seen for Any Month - Earth is on a roll. Adding “yet another month to a new mountain chain of extreme global temperature peaks,” March 2016 was the warmest since at least 1891, according to the Japan Meteorological Agency (JMA). Not only that, but, as February did, March broke the previous record by the greatest margin yet seen for any month. Compared to the 20th-century average, March was 1.07°C hotter across the globe, according to the JMA figures, while February was 1.04°C higher. If April also sets a monthly record—and there’s no reason to think it won’t—”the Earth will have had an astonishing 12 month string of record-shattering months,” writes Andrew Freedman for Mashable. The JMA’s findings are likely to be confirmed by forthcoming reports from the UK Met Office as well as NASA and NOAA, whose satellite data indicates last month was the warmest March in records dating to 1979. Scientists have pinned the record warmth to a combination of human-caused climate change and this year’s strong El Niño event. Responding to the news, professor Michael Mann, a climate scientist at Penn State University, told the Guardian: “Wow. I continue to be shocked by what we are seeing.”
March was Earth's 11th-straight warmest month on record - NASA's March temperature data was released Friday, showing that it was the planet's second-most unusually mild month on record, only somewhat cooler than February 2016. The NASA data shows the monthly global average temperature was 1.28 degrees Celsius, or 2.3 degrees Fahrenheit, above the 20th century average. According to NASA, six straight months from 2015 into 2016 have had a temperature anomaly of at least 1 degree Celsius. That had not happened in any month prior to this record warm stretch. Data released on Thursday shows that March 2016 was the warmest March since at least 1891, making it the planet's 11th consecutive month to set a global temperature milestone. The cause of the record warmth, scientists say, is a combination of a record strong El Niño event in the tropical Pacific Ocean and the increasingly apparent effects of long-term human-caused global warming. The world was already setting more and more warm temperature records without the El Niño's assistance, but what El Niño has done was dial up the already elevated temperatures to damaging levels.
2016 Already Shows Record Global Temperatures - This year is off to a record-breaking start for global temperatures.It has been the hottest year to date, with January, February and March each passing marks set in 2015, according to new data from the National Oceanic and Atmospheric Administration.March was also the 11th consecutive month to set a record high for temperatures, which agencies started tracking in the 1800s.With the release on Tuesday of its global climate report, NOAA is the third independent agency — along with NASA and the Japan Meteorological Association — to reach similar findings, each using slightly different methods.The reports add a sense of urgency at the United Nations, where world diplomats are gathered this week to sign the climate accord reached late last year in Paris, when 195 nations committed to lower greenhouse gas emissions and to stave off the worst effects of climate change. Since the initial agreement was reached, other global anomalies have been reported that punctuate the threat of climate change, including troubling trends on Arctic sea ice, floods, drought and carbon dioxide levels in the atmosphere. Some of these — warm temperatures and heavy rains in particular — can be explained in part by this year’s El Niño phenomenon, which scientists predicted would release large amounts of heat from the Pacific Ocean into the atmosphere, causing irregular weather patterns across the globe. But the effects of the current El Niño have been exacerbated by global warming, a result of emissions of greenhouse gases by humans, said Jessica Blunden, a climate scientist with NOAA and lead author of the report. El Niño is on its way out, and ocean temperatures in the tropical Pacific peaked in November, said Kevin Trenberth, a senior scientist at the National Center for Atmospheric Research.
Earth’s Temperature Just Shattered the Thermometer -- The Earth is warming so fast that it's surprising even the climate scientists who predicted this was coming. Last month was the hottest March in 137 years of record keeping, according to data released Tuesday by the National Oceanic and Atmospheric Administration. It's the 11th consecutive month to set a new record, and it puts 2016 on course to set a third straight annual record. Now, it might seem premature to talk about setting a new yearly record after just three months of data, but these months have been such an extreme departure from the norm that Gavin Schmidt, who directs NASA's Goddard Institute for Space Studies, has already made the call. "I estimate [a greater than] 99 percent chance of an annual record in 2016," Schmidt wrote on Twitter last week, after NASA released its own record climate readings. A month ago—following the release of February's data—Schmidt wrote, simply, "Wow." Since 1980, the world has set a new annual temperature record approximately every three years, and 15 of the hottest 16 years ever measured are in the 21st century. The chart below shows earth's warming climate, measured from land and sea, dating back to 1880.
New Milestone: Earth Sees 11 Record Hot Months in a Row - The past 11 months have been the hottest such months in 135 years of recordkeeping, a streak that has itself set a record and puts in clear terms just how much the planet has warmed due to the buildup of greenhouse gases in the atmosphere. New global temperature data released on Friday by NASA put March at 2.3°F (1.28°C) above the 1951-1980 average for the month, making it the warmest March on record. It beat out the previous warmest March, from 2010, by 0.65°F (0.36°C) — a handy margin. It also marked the 11th month in a row to set such a record, beating out the previous such streak of 10 months set back in 1944. March also marked six straight months with temperatures that were more than 1°C above average, a notable mark given the stated goal of international climate talks to keep warming in the 21st century below 2°C (with some talk of even aiming for 1.5°C).
El Niño: Feeling the heat - The current El Niño, which began in early 2015 and should peter out in the next few months, is one of the most intense in history. Its effect is stretching around the globe and prompting academics, aid agencies and insurers to warn of the need for countries and corporations to make greater efforts to curb greenhouse gas emissions and invest in measures to make them more resilient to severe weather events. “The impact of a strong El Niño is massive, global in reach and likely to occur more frequently into a warmer future,” says Agus Santoso, a senior research associate at the Climate Change Research Centre at University of New South Wales. “It affects marine environments, agricultural crop yields, society and perhaps even politics.” El Niño helped to make 2015 the hottest year on record, according to Nasa. The US space agency said it marked the first time global average temperatures were 1C or more above the 1880-99 average, the point when modern record-keeping began. Even as the weather pattern weakens, its effect will continue to hit communities and prices for commodities from palm oil to natural gas. The UN warns that up to 60m people in developing countries are at risk from the effects of drought, fire and flooding linked to El Niño, which is also likely to lead to food insecurity and outbreaks of disease. It is urging governments and donors to act to strengthen health systems, adaptation measures and responsiveness to severe weather.
Many Meteorologists Still Doubt Human-Driven Climate Change --An all-time high of 65 percent of Americans now believe that human activities (as opposed to natural climate shifts) are responsible for global warming over the past century, according to the most recent Gallup survey. This number has increased steadily (though still depressingly slowly) since Gallup started asking about it, in 2001. Of course, this is low compared to scientific consensus. (More than 97 percent of actively publishing climate scientists agree that humans are responsible for most if not all or even more than all of climate change—that last bit a reference to the analysis that without us, the world would be cooling slightly.) But it’s right on par with one group of scientists: meteorologists. Last month, a new survey of members of the American Meteorological Society confirmed as much. It turns out that just about an equal percentage of meteorologists accept that human activity is the primary cause climate change (67 percent) as the general public (65 percent, from the similarly worded Gallup poll). That new survey found just 29 percent of AMS members agreed with the stricter wording of the scientific consensus that climate change has been caused “largely or entirely by human activity.” This intense skepticism is worrying: Some of these meteorologists have big audiences that trust them for life-and-death advice during extreme weather. That they choose not to link those events, when appropriate, to human actions is a disservice to their science and to those who depend on them—and in fact, it may partially explain the public’s lack of acceptance of climate science.
Climate Change Hits Hard in Zambia, an African Success Story - — Even as drought and the effects of climate change grew visible across this land, the Kariba Dam was always a steady, and seemingly limitless, source of something rare in Africa: electricity so cheap and plentiful that Zambia could export some to its neighbors.The power generated from the Kariba — one of the world’s largest hydroelectric dams, in one of the world’s largest artificial lakes — contributed to Zambia’s political stability and helped turn its economy into one of the fastest growing on the continent.But today, as a severe drought magnified by climate change has cut water levels to record lows, the Kariba is generating so little juice that blackouts have crippled the nation’s already hurting businesses. After a decade of being heralded as a vanguard of African growth, Zambia, in a quick, mortifying letdown, is now struggling to pay its own civil servants and has reached out to the International Monetary Fund for help.On a continent especially vulnerable to the effects of climate change, Zambia’s rapid fall shows how the phenomenon threatens economic development across Africa, and how easily it can contribute to wiping out the fragile gains made in recent years. Advertisement Continue reading the main story While the global drop in commodities prices has devastated Africa, drought and other weather patterns related to climate change over decades have also undermined some of the biggest economies across the continent, from Nigeria in the West to Ethiopia in the Horn of Africa to South Africa at its bottom tip. Over the next decades, Africa is expected to warm up faster than the global average, according to the Intergovernmental Panel on Climate Change. Despite an agreement reached in Paris in December, which committed nearly every country in the world to lowering greenhouse gas emissions, it is far from clear how much money African nations will have to mitigate climate change and adapt to it.
Climate-Related Death of Coral Around World Alarms Scientists - Kim Cobb, a marine scientist at the Georgia Institute of Technology, expected the coral to be damaged when she plunged into the deep blue waters off Kiritimati Island, a remote atoll near the center of the Pacific Ocean. Still, she was stunned by what she saw as she descended some 30 feet to the rim of a coral outcropping.“The entire reef is covered with a red-brown fuzz,” Dr. Cobb said when she returned to the surface after her recent dive. “It is otherworldly. It is algae that has grown over dead coral. It was devastating.” The damage off Kiritimati is part of a mass bleaching of coral reefs around the world, only the third on record and possibly the worst ever. Scientists believe that heat stress from multiple weather events including the latest, severe El Niño, compounded by climate change, has threatened more than a third of Earth’s coral reefs. Many may not recover.Coral reefs are the crucial incubators of the ocean’s ecosystem, providing food and shelter to a quarter of all marine species, and they support fish stocks that feed more than one billion people. They are made up of millions of tiny animals, called polyps, that form symbiotic relationships with algae, which in turn capture sunlight and carbon dioxide to make sugars that feed the polyps.An estimated 30 million small-scale fishermen and women depend on reefs for their livelihoods, more than one million in the Philippines alone. In Indonesia, fish supported by the reefs provide the primary source of protein. reading the main story “This is a huge, looming planetary crisis, and we are sticking our heads in the sand about it,” said Justin Marshall, the director of CoralWatch at Australia’s University of Queensland.
Just 7% of Australia's Great Barrier Reef escapes bleaching - BBC News: An extensive aerial and underwater survey has revealed that 93% of Australia's Great Barrier Reef has been affected by coral bleaching. This follows earlier warnings that the reef was experiencing its worst coral bleaching event on record. Prof Terry Hughes from the National Coral Bleaching Taskforce told the BBC the link between bleaching and global warming was "very well established". Rising water temperatures cause corals to drive out colour-giving algae. The corals can die if conditions do not return to normal. The taskforce's survey shows that the extent of the damage is most severe in the northern section of the 2,300km (1,429 mile)-long reef, which lies off the coast of Queensland state. Only 7% of the reef showed no signs of bleaching, Prof Hughes said. The effects of El Nino, as well as climate change, are being blamed for the rise in sea temperatures that causes the bleaching. More than 900 individual reefs were surveyed using a light plane and a helicopter, with the accuracy of the aerial survey then checked by teams of scuba divers. "I'm inherently an optimist, but I think we have a rapidly narrowing window of opportunity to save the Great Barrier Reef," Prof Hughes said. "If we don't take action on global warming it will become more degraded. "After three bleaching events the mix of coral species has already changed."
Scientists Confirm: 93% of Great Barrier Reef Now Bleached -- The Great Barrier Reef is under siege from climate change and coal, with scientists confirming that 93 percent of the world heritage area is now suffering from severe coral bleaching. The unprecedented event, caused by climate change warming the ocean, is being called “an environmental assault on the largest coral ecosystem on Earth.” Only around 50 percent of the impacted corals are expected to survive, and in some areas, only a mere 10 percent may recover. So heavy is the toll, 56 scientists have once again called on the Australian government to phase out coal, and are taking ever greater message to their warnings are heard. The expansion of Australian coal is already having dire impacts on the Reef, and will continue to drive the climate impacts that are killing Australia’s famous heritage site. Yet despite the government’s willingness to pick up the phone about the parlous state of the reef, they seem unwilling to acknowledge that it’s way past time Australia ditched coal.
Why dead coral reefs could mark the beginning of ‘dangerous’ climate change -- A recent expedition has revealed that the reefs around Kiritimati have suffered a catastrophic mass die-off — an event that epitomizes what may be an ugly truth about the ability of coral reefs around the world to adapt to the growing threat of climate change. Abnormally warm water temperatures have plagued the region for months, and as recently as November, research expeditions had observed widespread coral bleaching, disease and even some coral death as a result. But Baum, who has studied coral in the area for years, was not wholly prepared for the devastation she met with upon arrival. She and her team estimate that about 80 percent of all the coral around the island are now dead. Another 15 percent appear to be bleached, but still alive — and Baum estimates that only around 5 percent are actually healthy. “It was a horror show,” Baum said. “Rationally I know what’s happened, but emotionally it’s very hard to accept it. It seems like it can’t possibly be real that this vibrant, healthy reef that I’ve been working on so long and studying so intensely — specifically because it was one of the healthiest reefs in the world — that it could just be dramatically transformed in a matter of months into this graveyard.” Scientists believe that the mass die-off around Kiritimati — also known as Christmas Island — is one of the worst casualties in a larger coral bleaching event that’s taking place all over the world. And now, some experts are saying the events could signal an even more disturbing revelation — the idea that we’re reaching a point where many coral reef ecosystems may not be able to adapt to the relentless progression of climate change.
Watch Racing Extinction: It Will Change the Way You View the World - On Dec. 2, 2015, Discovery Channel premiered Louis Psihoyos’ new film, Racing Extinction, in 220 countries around the world. This riveting film covers the planet’s sixth and currently ongoing mass extinction, named the Anthropocene Extinction, which is largely the result of mankind. Psihoyos details what many scientists and experts believe are the causes behind this vast dying off of the world’s species—the international wildlife trade and the fossil fuel industry. His goal is to unveil the horrific events damaging our planet’s health and wildlife, but boiled down to digestible bites to promote education and action. Psihoyos won an Oscar for his 2009 film, The Cove, a feature-length documentary that goes undercover to expose the yearly killing of dolphins in Taiji, Japan. In order to document the dolphin hunt, they had to employ tactics and technology never before used in a documentary. The film sparked worldwide reaction, but most importantly, Taiji’s annual cull of 23,000 dolphins is believed to have dropped to 6,000. This was the first film for Psihoyos’ Oceanic Preservation Society, which he cofounded in 2005. In their second film, Racing Extinction, special focus is brought to marine life again but on a wider scale, exposing China’s shark fin and manta ray gill trade as well as the greater threat of oceanic acidification, the evil twin of climate change, contributed to by the burning of fossil fuels. In order to uncover the truth behind the wildlife trade, he and his team go undercover in life-threatening situations, using covert-operations and false identities to infiltrate an enormous Chinese seafood wholesaler and to bust a Los Angeles restaurant for illegally selling whale meat.
Image of the Day: Early ice breakup of Beaufort Sea due to early warm temperatures - (NASA) – This image of early ice breakup of the Beaufort Sea, north of Alaska, was taken by the Suomi NPP satellite's Visible Infrared Imaging Radiometer Suite (VIIRS) instrument infrared channel, at around 1148 UTC on 13 April 2016. Every year, the cap of frozen seawater floating on top of the Arctic Ocean and its neighboring seas melts during the spring and summer and grows back in the fall and winter months, reaching its maximum yearly extent between February and April. On March 24, Arctic sea ice extent peaked at 5.607 million square miles (14.52 million square kilometers), a new record low winter maximum extent in the satellite record that started in 1979.
Sinking Atlantic Coastline Meets Rapidly Rising Seas | Climate Central: The 5,000 North Carolinians who call Hyde County home live in a region several hundred miles long where coastal residents are coping with severe changes that few other Americans have yet to endure. Geological changes along the East Coast are causing land to sink along the seaboard. That’s exacerbating the flood-inducing effects of sea level rise, which has been occurring faster in the western Atlantic Ocean than elsewhere in recent years. New research using GPS and prehistoric data has shown that nearly the entire coast is affected, from Massachusetts to Florida and parts of Maine. The study, published this month in Geophysical Research Letters, outlines a hot spot from Delaware and Maryland into northern North Carolina where the effects of groundwater pumping are compounding the sinking effects of natural processes. Problems associated with sea level rise in that hot spot have been — in some places — three times as severe as elsewhere. On average, climate change is causing seas to rise globally by more than an inch per decade. That rate is increasing as rising levels of greenhouse gases in the atmosphere trap more heat, melting ice and expanding ocean waters. Seas are projected to rise by several feet this century — perhaps twice that much if the collapse of parts of the Antarctic ice sheet worsens.
Humans and El Niño Team Up to Create a Record Jump in CO2 Pollution - Remember 2016—it is the infamous year that has already recorded the largest annual change on record in the makeup of the air you breathe. Fueled by people's pyromania and the El Niño global weather phenomenon, carbon dioxide concentrations reached 409.44 parts per million on April 9 at an air-sampling station atop Hawaii’s Mauna Loa, a rise of more than five ppm since the same date last year. And it could get worse. “Where you assign the peak will depend on whether the focus is on daily, weekly or monthly averages. The monthly peak is certainly still ahead of us," says Ralph Keeling, a geochemist at Scripps Institution of Oceanography in California who measures atmospheric CO2 every day at Mauna Loa and other stations, carrying on the work his father started in 1958. “The recent daily values were extraordinarily high, however, so perhaps [they] won't be overtaken.” The previous record year-on-year increase was 3.7 ppm in 1998. CO2 concentrations typically peak in spring, just before trees, plankton and other plants across the Northern Hemisphere awaken from their winter slumber and begin to greedily suck CO2 out of the sky to fuel photosynthesis and the growth of leaves and cells. But even that titanic greening will not be enough to pull CO2 below 400 ppm ever again, Keeling suspects. The fall of 2015 could be the last time the reading dipped below that mark at Mauna Loa—which has become a kind of global bellwether as the first place where CO2 concentrations were actively monitored—and, perhaps, at the 12 other sites where Keeling’s program now makes the same measurements from the Arctic to the Antarctic.
EPA Underestimates Methane Emissions - The Environmental Protection Agency (EPA) recently released it’s annual report to the United Nations, Inventory of U.S. Greenhouse Gas Emissions and Sinks. The report is an emissions inventory that looks at the U.S.’s anthropogenic sources of greenhouse gas (GHG) emissions as well as its carbon (CO2) sinks since 1990. A CO2 sink is a source that absorbs more CO2 than it releases. For example, a forest is a carbon sink because it retains more CO2 than it emits through photosynthesis. The EPA’s annual report on GHG emissions is an important document and it plays a major role in the development of future U.S. regulations and policy. A 9 percent drop in GHG emissions since 2005 was reported, but there was an increase of 1 percent in 2014 from 2013 levels due to additional fuel use during the winter. Power plants were found to be the biggest emitters of CO2 emissions and are responsible for 30 percent of total U.S. GHG emissions. The transportation sector came in a close second at 26 percent. Those are all very important findings, but perhaps the most significant was the discovery that methane (CH4) emissions from the oil and gas sector were underestimated in previous EPA reports. CH4 is one of the seven key GHGs that the EPA includes in the inventory. Although it has a shorter half-life in the atmosphere than CO2, CH4 is 25 times better at trapping heat and significantly impacts climate change. Human sources of CH4 include natural gas production, animal agriculture, coal mining, wastewater treatment and other activities. The previous 2015 GHG emissions inventory reported that the oil and gas sectors were the second largest anthropogenic source of CH4, with animal agriculture as the largest source at 25.9 percent of total CH4 emissions. The new GHG emissions inventory now places that percentage at 22.5 percent.
Breaking Free from Fossil Fuels– There has never been a better time to break free from fossil fuels. Record-breaking global temperatures, plummeting fossil-fuel prices, historic investments in renewable energy, and global pressure to honor climate pledges are all coming together to create the ideal setting for this world-changing shift. The shift could not be more urgent. The United Nations climate agreement forged in Paris last December reconfirmed the level of 2°C above pre-industrial levels as a hard upper limit for global warming, beyond which the consequences for the planet become catastrophic. But it also included commitments to “pursue efforts” to limit warming to 1.5°C. Judging by the latest data published by NASA, achieving that lower limit should be viewed as an imperative.The new data confirm that 2015 was the hottest year on record, and show that the global run of record-breaking temperatures continued through the first two months of this year. According to NASA, global temperatures in February were 1.35°C above average, based on a 1951-1980 baseline. Fortunately, the privileged position of fossil fuels already seems to be weakening. In fact, according to the International Energy Agency (IEA), global greenhouse-gas emissions and economic growth have already decoupled, with global energy-related CO2 (the largest source of human greenhouse-gas emissions) having remained at the same level for the second year in a row. This means that fossil fuels are no longer the lifeblood of our economy. It seems that the precipitous decline in oil prices – by two-thirds over the last 18 months – has not, as many feared, encouraged increased consumption. What it has done is deal a major blow to the profits of fossil-fuel giants like Shell, BP, and Statoil.
We Can Phase Out Fossil Fuels Within a Decade, Study Says - As we stare down the barrel of a world totally transformed (read: destroyed) by climate change in the not-so-distant future, a lot of the brightest minds around the world are spending a good deal of time trying to figure out how to mitigate its effects. Considering that fossil fuel use is the primary driver of climate change, it makes sense that a lot of the proposed climate change solutions involve phasing out fossil fuels entirely. While some have derided this fossil fuel divestment plan as unattainable, others think it’s entirely possible—so long as we have 20 to 80 years to make it happen. Unfortunately, ridding ourselves of fossil fuels by 2100 (a plan the G7 leaders were all too happy to pat themselves on the back about last year) will be too little, too late. If we keep burning fossil fuels at the current rate, some have predicted that we will cross a threshold into “environmental ruin” as early as 2036—but it doesn’t have to be this way. In fact, according to a new study released last week by a major energy think tank in the UK, we could completely phase out fossil fuels within a decade...if we really wanted to. Published in Energy Research and Social Science, the study was led by Benjamin Sovacool, the director of the Sussex Energy Group at the University of Sussex. As Sovacool notes in the introduction to his study, “transitioning away from our current global energy system is of paramount importance” and “the speed at which a transition can take place—its timing, or temporal dynamics—is a vital element of consideration.” The reason why Sovacool is so concerned about how fast we can move away from our current energy paradigm is due to something that has been called the “climate paradox,” or the idea that by the time humans realize they need to divest their economies of fossil fuels, they will have passed the point of no return for climate catastrophe.
China, U.S. pledge to ratify Paris climate deal this year | Reuters: China and the United States, the world's top producers of greenhouse gas emissions, pledged on Friday to formally adopt by the end of the year a Paris deal to slow global warming, raising the prospects of it being enforced much faster than anticipated. The United Nations said 175 states took the first step of signing the deal on Friday, the biggest day one endorsement of a global agreement. Of those, 15 states also formally notified the United Nations that they had ratified the deal. Many countries still need a parliamentary vote to formally approve the agreement, which was reached in December. The deal will enter into force only when ratified by at least 55 nations representing 55 percent of man-made greenhouse gas emissions. China and the United States together account for 38 percent of global emissions. "China will finalize domestic legal procedures on its accession before the G20 Hangzhou summit in September this year," China's Vice Premier Zhang Gaoli told the U.N. signing ceremony, attended by some 55 heads of state and government. U.S. Secretary of State John Kerry, who signed the deal with his 2-year-old granddaughter Isabelle on his lap, said the United States "looks forward to formally joining this agreement this year." President Barack Obama will formally adopt the agreement through executive authority.
Countries Are Signing Up for Sizeable Carbon Prices -- IMFdirect -- With global leaders set to start signing the landmark Paris Agreement on climate change tomorrow—April 22 is Earth Day—at the United Nations in New York, countries will embark on the potentially difficult and contentious issue of setting prices for greenhouse gas emissions, most importantly carbon dioxide (CO2). Our back of the envelope calculations show that most large emitters will need to charge anywhere from $50 to $100 per ton or more (in current prices) by 2030 to meet their commitments to reduce carbon emissions. These are quite sizeable numbers: for example a $50 per ton CO2 charge would add $0.12 cents per litre to the pump price for gasoline. And it would almost triple world coal prices. As discussed in a previous blog, there is widespread recognition (just ask people in business and finance) that on average and over time, CO2 reduction pledges are best met through a robust and predictable emissions price. And the best way to implement CO2 pricing—and provide across-the-board incentives for investments in clean technology—is to charge for the carbon content of fossil fuels. More than 190 countries came together last December to pledge to do their part to halt global warming. They also agreed to procedures for evaluating progress and updating these pledges. A typical commitment is to cut greenhouse gas emissions by around 30 percent by 2030 relative to emissions in some baseline year.
Putting a price on carbon is a fine idea. It's not the end-all be-all - David Roberts- What is the most important policy tool for fighting climate change? Ask just about any economist and the answer will be the same: a price on carbon emissions. Not only is there a robust consensus among economists, but they have been remarkably successful in spreading the gospel to the wider world as well. Climate activists, wonks, funders, politicians, progressives, and even conservatives (the few who take climate seriously) all sing from the same hymnal. It has become conventional wisdom that a price on carbon is the sine qua non of serious climate policy. But it is worth keeping carbon pricing in perspective. It has become invested with such symbolic significance that it is inspiring some unhelpful purism on policy and magical thinking on politics. Slowing climate change will require a suite of policies, regulatory reforms, and investments. Carbon pricing will be an important part of that portfolio. But only a part. It is not the only legitimate climate policy, the one true sign of seriousness on global warming, or a substitute for the difficult and painstaking political work that will be required to transition to a sustainable energy system. This post will be a two-parter. Tomorrow I'm going to get into politics, how it shapes carbon taxes, and what's to be done with the revenue. But first, I want to take a step back. In this post, I'll have a quick look at why carbon pricing has become so central to climate economics and raise some questions about its primacy in policy and political circles.
Senate Takes up Energy Bill After 2-Month Delay for Flint - The Senate on Tuesday revived a bill that would promote a variety of energy sources, from renewables such as solar and wind power to natural gas, hydropower and geothermal energy. The bill also would speed federal approval of projects to export liquefied natural gas to Europe and Asia, update building codes to increase efficiency and strengthen electric-grid safety standards among dozens of provisions. Senate passage is expected as soon as Wednesday. The measure must be reconciled with a House-passed bill that boosts oil and natural gas and speeds completion of environmental reviews for a proposed coal export terminal in Washington state. President Barack Obama has threatened to veto the House measure. If approved by both chambers and signed by Obama, the bill would be first far-reaching energy law in nearly a decade. "Moving forward with this act will help America produce more energy and bring us one step closer to being an energy superpower," said Sen. Lisa Murkowski, R-Alaska, chairwoman of the Senate Energy and Natural Resources Committee and one of the bill's co-sponsors. "At the same time, it will help Americans save more money and save energy with all of the energy-policy provisions." The bipartisan bill is widely popular, but was delayed in early February amid a partisan dispute over sending hundreds of millions of dollars in emergency aid to Flint, Michigan, to fix and replace the city's lead-contaminated pipes. Michigan's Democratic senators dropped the Flint provision last week after a months-long standoff with Sen. Mike Lee, R-Utah. Sens. Debbie Stabenow and Gary Peters said they would seek another way to get the Flint aid package through the Senate.
The surprising things Democrats and Republicans agree on when it comes to energy - Energy policy is a deeply partisan issue. Democrats want to fight climate change and fund huge investments in clean energy; Republicans celebrate our domestic oil and gas booms and decry a “war on coal.” Many still regularly question whether climate change is even a problem. Nonetheless, and somewhat surprisingly, the U.S. Senate could soon vote on a bipartisan piece of energy legislation, the brainchild of senators Lisa Murkowski of Alaska, a Republican, and Maria Cantwell of Washington, a Democrat. And given that the bill passed out of committee by an 18-4 vote, there are good reasons to think it could pass the entire Senate as well. The vast bill, more than 350 pages in a recent version, isn’t easy to characterize, because it isn’t a clean energy bill, a climate bill, or anything so naturally pigeon-holed. Rather, it contains all kinds of measures on some of the less storied aspects of energy: cyber-security, liquefied natural gas exports, energy efficiency in buildings, modernizing the grid. The stuff that most people sleep through. Still, the bottom line is that the Senate can, apparently, agree on a lot of things related to energy – or at least, we’ll be able to say that if the bill does indeed pass. “Assuming it passes, it’s a positive test for the Congress being able to legislate across the bitter partisan divide, and frankly Chairman Murkowski and Senator Cantwell deserve considerable credit,” said Phil Sharp, the president of Resources for the Future and a former member of Congress. As to the legislation itself, Sharp notes that it doesn’t really address the biggest energy problem — the fact that energy use in this country results in the second largest carbon dioxide footprint in the world. But still, that doesn’t mean the bill isn’t important. “Most provisos are very modest, but that doesn’t mean they’re not useful,” Sharp said. Here are some of them:
Senate OKs bill to promote wide variety of energy sources - - The Senate overwhelmingly approved a far-reaching energy bill Wednesday that reflects significant changes in U.S. oil and natural gas production over the past decade and boosts alternative energy sources such as wind and solar power. The bill also would speed federal approval of projects to export liquefied natural gas to Europe and Asia, where prices are higher than in the U.S. following a yearlong boom in domestic gas production. With its 85-12 vote, the Senate backed its first ambitious energy bill in nearly a decade. Sen. Lisa Murkowski, an Alaska Republican and chairwoman of the Senate Energy and Natural Resources Committee, said the bill represented "energy modernization" on a broad scale, reflecting almost a decade's worth of changes in technologies and markets in the energy sector. "Moving forward with this act will help America produce more energy, help Americans save more money and bring us one step closer to becoming a global energy superpower," Murkowski said. The bill would boost renewables such as solar and wind power, as well as hydropower, geothermal energy and even critical minerals such as cobalt, beryllium and lithium that are used in cell phones, computers and other electronics. The bill also would encourage so-called clean-coal technology, including projects to capture carbon dioxide generated by coal-fired power plants, and increase public-private partnerships to develop advanced nuclear technologies. The measure now must be reconciled with a House-passed version that boosts fossil fuels such as oil, coal and natural gas. President Barack Obama has threatened to veto the House measure.
Senate approves wide-ranging energy bill (AP) — The Senate approved a wide-ranging energy bill Wednesday that would promote a variety of energy sources and speed federal approval of projects to export liquefied natural gas to Europe and Asia. Senators backed the measure, 85 to 12, the first ambitious energy bill approved by the Senate in nearly a decade. The bill would boost renewables such as solar and wind power, as well as natural gas, hydropower and geothermal energy. It also would update building codes to increase efficiency, strengthen electric-grid safety standards and reauthorize a half-billion dollar conservation fund that protects parks and other public lands. The bill now must be reconciled with a House-passed version that boosts fossil fuels such as oil, coal and natural gas. President Barack Obama has threatened to veto the House measure. Sen. Lisa Murkowski, an Alaska Republican and chairwoman of the Senate Energy and Natural Resources Committee, said the bill will help America produce more energy “and bring us one step closer to being an energy superpower. At the same time, it will help Americans save more money and save energy with all of the energy-policy provisions.” Sen. Maria Cantwell of Washington state, the senior Democrat on the energy panel, called energy “the lifeblood of our economy,” adding that the Senate bill would help businesses and consumers get more affordable, cleaner and renewable energy.
Senate passes energy bill with overwhelming bipartisan support - Republicans and Democrats united in the Senate today to pass the first large piece of energy legislation since 2007, a bill that seeks to modernize the US energy infrastructure. The Energy Policy Modernization Act received broad approval from both sides of the aisle, ultimately passing 85 to 12. It amends several prior bills, including the Energy Independence and Security Act of 2007, the Energy Conservation and Production Act, and the Energy Policy and Conservation Act. Drafted in response to changing energy standards and technologies, the bill addresses sustainable construction, renewable energy, and cybersecurity for energy infrastructure. Specifically, the bill would promote upgrades in the power grid to respond in energy production changes since 2007, including increasing levels of wind and solar power production. The bill would also authorize the Land and Water Conservation Fund, a victory for environmental groups, and the building of ports for shipping American-sourced natural gas overseas, a victory for the fossil fuel industry. Senators Lisa Murkowski (R) of Alaska, the chair of the Senate Energy Committee, and Maria Cantwell (D) of Washington led the charge on this legislation. Sen. Murkowski says that the bill’s passage is proof that the federal government is capable of being productive, even in politically fraught election years. “Most people thought we couldn’t achieve anything,” The New York Times reports Sen. Murkowski saying, “but we have demonstrated that we can legislate — and we can even legislate, oh my gosh, in an election year.”
The Senate Just Passed An Energy Bill That Would Make Forests A ‘Carbon Neutral’ Energy Source - The first major update to the nation’s energy policy in eight years passed the Senate Wednesday with bipartisan support, as it concentrates on common ground topics like infrastructure improvements, cyber security, and energy efficiency. Yet an amendment in the bill — dubbed the Energy Policy Modernization Act — that would classify biomass as carbon neutral has angered dozens of environmental organizations, who say it puts forests at risk. Environmentalists had for months questioned an amendment from senators Susan Collins (R-ME) and Amy Klobuchar (D-MN) instructing agencies to develop policies that “reflect the carbon neutrality” of biomass, a source of energy that includes trees and other plants. On Tuesday, more than 75 organizations sent a letter to the bill co-sponsors, Sen. Lisa Murkowski (R-AK) and Sen. Maria Cantwell (D-WA), voicing their opposition to the bill because of its “dangerous” biomass provisions. “This is a really horrible precedent,” said Friends of the Earth Climate and Energy Program Director Benjamin Schreiber, in an email to ThinkProgress. “What is next, will they pass a bill telling government scientists that they must deem coal carbon free?” Bioenergy is energy contained in living or recently living organisms. Plants get bioenergy through photosynthesis, and animals get it through plants. To use biomass energy, humans have mostly turned to slashing forests and burning trees in a process that, like coal burning, releases harmful carbon pollution that causes global warming. However, the renewable nature of plants and their capacity to sequester carbon has motivated industry and some lawmakers to consider biomass a carbon neutral source of energy. What is next, will they pass a bill telling government scientists that they must deem coal carbon free?
New Energy Bill Passed by Senate Largely Ignores Climate -- The Senate has passed the first broad energy bill in a decade. The Energy Policy Modernization Act of 2016 is a response to the nation’s changing fortunes in oil and natural gas production. It seeks to help modernize the grid, promote energy efficiency and streamline natural gas exports. While the bill includes provisions that address renewable energy and land conservation, many environmental groups are calling it an uneven compromise that favors industry and ignores rising calls for a low-carbon future. Among other things, it classifies the burning of emissions-producing biomass carbon-neutral. For more News: New York Times, Washington Post, Reuters, UtilityDive, Seattle Times, The Hill, Wall Street Journal, US News & World Report, Science, AP, ABC News, Greenwire
Wind generation growth slowed in 2015 as wind speeds declined in key regions - - U.S. EIA -- U.S. wind generation grew by 5.1% in 2015, the smallest annual increase since at least 1999, as weather patterns in the Western half of the United States lowered wind speeds and dampened wind generation during the first half of the year. The same weather patterns resulted in stronger winds in the central part of the country, where wind generation growth in 2015 was most pronounced. Wind energy produced 191 terawatthours (TWh) of electricity in 2015, accounting for 4.7% of net U.S. electric power generation, up from 4.4% in 2014. Wind was the second-largest source of electricity produced from renewable sources, behind hydroelectricity, and 11 states generated more than 10% of their total electricity generation from wind. Both the absolute amount of wind generation and wind's share of total U.S. electricity generation have risen every year since at least 1999. Wind capacity additions grew by 12.9% in 2015, an increase over the growth over the previous two years. In 2015, 8.1 gigawatts (GW) of wind capacity was installed, representing 41% of total capacity additions and bringing the total U.S. wind capacity to 73 GW. Capacity additions in 2013 were at their lowest point since 1998, when 0.9 GW were installed, due in part to expiring tax credits that have since been extended. Year-to-year changes in wind generation reflect both the changes in wind capacity and yearly variations in the wind resource. Wind resources reflect seasonal wind patterns, which vary based on regional factors and are subject to year-to-year climate variations. At the state level, three states in the Pacific Census division—California, Oregon, and Washington—saw decreases in wind generation in 2015, as did most of the states in the Mountain Census division. Meanwhile, all but 1 of the 12 states in the Midwest region saw increases in generation.
Feds project reduction in eagle deaths at Chokecherry and Sierra Madre wind farm - Chokecherry and Sierra Madre, the largest onshore wind farm planned in the United States, would annually kill 10 to 14 golden eagles, the U.S. Fish and Wildlife Service projected in a draft environmental study released Wednesday. That figure represents a substantial reduction from the 46 to 64 golden eagle fatalities estimated by the U.S. Bureau of Land Management in 2012. Federal officials attributed the decline to several factors. The permit application submitted by the project’s developer, Power Company of Wyoming, only considers the 500 turbines proposed in the project’s first phase. A second phase calls for an additional 500 turbines. But the decrease is also the result of years of planning aimed at reducing eagle deaths, they noted. Power Company of Wyoming had not developed an eagle conservation strategy when the BLM released its projections in 2012. Eagle deaths have emerged as a sizable hurdle for would-be wind developers in recent years. A North Carolina power company was fined $1 million for killing more than 150 species protected under the Migratory Bird Treaty Act over a four-year period at a wind farm outside Glenrock in 2013. Industry officials and environmentalists have also clashed over the length of so called “take permits” granted to wind farms, which enable turbine operators to kill a certain number of eagles annually without being prosecuted. A Fish and Wildlife proposal to grant permits for up to 30 years was reversed by a federal judge last year. The current length is five years. Wind developers have filed a series of applications for take permits in recent years, but only one facility in the country has been permitted to-date.
As Oil Jobs Dry Up, Workers Turn to Solar Sector - WSJ - Instead of driving an 18-wheeler to haul drilling equipment in and out of the oil patch, the Fravels now install solar panel racking systems and perform quality checks on Alamo 6, a solar farm under construction in McCamey, about 300 miles northwest of San Antonio. “If oil booms I’ll send her back to the field,” Mr. Fravel said of his big rig. “I won’t go though. My grandfather always said it’s better to make a slow dime than a fast nickel.” Plunging oil and gas has generated more than 84,000 pink slips in Texas, according to the Texas Alliance of Energy Producers. But many rig hands, roustabouts, pipe fitters and even some engineers are finding a surprising alternative in the utility-scale solar farms rising from the desert near the border with New Mexico. Nearly a dozen solar projects able to generate almost 1,000 megawatts of renewable energy are in the works, enough to power 165,000 homes. The Electric Reliability Council of Texas, which operates the state power grid, expects an additional 12,000 megawatts of solar power to come online by 2030. The 30,000 jobs the U.S. solar sector is projected to add this year are a fraction of the estimated 150,000 American jobs being lost in oil. And it remains to be seen whether such workers will stay in the solar sector if an oil boom returns, and beckons again with the lure of bigger paychecks that can stretch into the six figures.
Another taxpayer-funded solar-energy company fails: – The collapse of a Spanish-based multinational renewable energies company could cause election-year embarrassment not only to President Obama, Hillary Clinton, the Clinton Foundation and the Democratic Party, but also to Republican presidential candidate Ted Cruz and his wife Heidi, through their ties to Goldman Sachs. Announced Tuesday, Seville-headquartered renewables multinational firm Abengoa plans to sell off four solar photovoltaic power plants in Spain for a collective value of $65.13 million, $57.26 million and a net cash flow of $13.9 million, helping the company meet its debt-restructuring targets set out in its feasibility plan.The asset sale announced Tuesday comes after the company sold in February its 20 percent share in the 100MV Shams-1 concentrated solar power plant in the United Arab Emirates to the Abu Dhabi-based renewable energy company Masdar. The Abengoa selloff, which has included selling the company’s office headquarters in Madrid, is part of a non-strategic divestment plan announced after the company went into bankruptcy in November. The move is designed to reap approximately $112 million in operating cash to stay in business until December. The bankruptcy, the largest in Spain’s history, was triggered after Gonvarri, an arm of Spain’s industrial group Gestamp, decided in November 2015 against a plan to invest $371 million into the company.
Will Demand For Electricity Ever Start Growing Again? — The Wall Street View - In this instance, we interview veteran utility banker, Lewis Hart, whose firm, Chappaqua Capital Consultants LLC has, for almost a decade, conducted in depth interviews with the financial community, probing bankers, bond raters, security analysts and investors to determine what they really think about the electricity market, its finances and its strategy. These surveys present an unbeatable look inside the world of money. But should anyone else care? Wall Streeters don’t produce the electricity. But they do determine the cost and availability of capital for this most capital intensive of industries, and Wall Street can change corporate direction with a disapproving phone call or an encouraging report. They have enormous influence and invest both time and money to stay ahead of the curve. Mr. Hart recently completed his latest survey, and we will explore what it says in several installments. First topic: U.S. demand for electricity/ Interviewees expected kWh growth to be slower than GDP growth by a margin of 49 to 6. The mean expectation for future annual kWh growth was a little less than one percent versus a consensus of about two per cent for GDP. In the 2014 survey, I asked, whether interviewees expected growth in kWh sales to continue to be slower than GDP, and they answered yes by a similar 49 to 2 vote. Although the questions were worded differently, the respondents, in effect, gave the same answer.
Koch Brothers Look West, Set Sights on Mining the Grand Canyon: Tax forms reveal that the controversial billionaire Koch brothers are throwing money into an effort to stop conservation efforts in the Grand Canyon. Amid rumors that Charles and David Koch will be withdrawing their presence at the Republican National Convention, it has been revealed the billionaires have been funneling money into an Arizona-based group fighting a plan to ban uranium mining around the Grand Canyon, which would also protect 1.7 million acres of land. The proposal is supported by 80% of Arizona residents, environmental groups, and native tribes, the Guardian reports. Yet, Greg Zimmerman of the Center for Western Priorities has found that a non-profit group, the Prosper Foundation, is fighting to block the move. The group received 83% of their total budget, over $1.5 million, from an organization called American Encore. Zimmerman, digging deeper, found that American Encore is run by one Sean Noble, a man with very close ties to the Koch brothers. A donor from a Koch brothers’ “dark money” funding network has also channeled cash to the group. “Prosper, which was formed in 2013, covers nearly its entire budget with funds from Koch-backed American Encore—formerly known as the Center to Protect Patient Rights. According to tax filings, American Encore has funded 83 percent of Prosper Inc.’s total budget since its creation, donating over $1.5 million to the organization in 2013 and 2014,” Zimmerman wrote for ThinkProgress.
Liberal Biases, Too, May Block Progress on Climate Change - Are liberals impairing our ability to combat climate change? That may sound like a strange question, particularly to readers of The New York Times. Today conservatives are the ones decidedly blocking any effort by the United States to curb its emissions of greenhouse gases.And yet even as progressive environmentalists wring their hands at the G.O.P.’s climate change denial, there are biases on the left that stray just as far from the scientific consensus. “The left is turning anti-science,” Marc Andreessen, the creator of Netscape told me not long ago. He was reflecting broadly about science and technology. His concerns ranged from liberals’ fear of genetically modified organisms to their mistrust of technology’s displacement of workers in some industries. “San Francisco is an interesting case,” he noted. “The left has become reactionary.” Still, liberal biases may be most dangerous in the context of climate change, the most significant scientific and technological challenge of our time. For starters, they stand against the only technology with an established track record of generating electricity at scale while emitting virtually no greenhouse gases: nuclear power. Only 35 percent of Democrats, compared with 60 percent of Republicans, favor building more nuclear power plants, according to a poll by the Pew Research Center. It is the G.O.P. that is closer to the scientific consensus. According to a separate Pew poll of members of the American Association for the Advancement of Science, 65 percent of scientists want more nuclear power too.
Time Out for Some Hippie Punching - The higher wisdom, as we all know, is that the Left and Right are equally enemies of Truth, which resides somewhere in the enlightened Center. Since we might forget this amid the climate denialism of Republicans, the absurd economic claims of austerians and the like, Eduardo Porter is here to remind us in this morning’s New York Times. The poster child for liberal anti-scientism is hostility to nuclear power which, we are told, is an essential component of climate change mitigation. This question has been fully resolved by science, and only the Left’s elevation of emotion over reason prevents it from joining the consensus. Well excuse me. Without going into boring detail, here are a few directions rational thought might take: (1) Nuclear power is way more expensive than the alternatives. (2) Nuclear power’s inflexible output makes it an inefficient supplement to intermittent energy sources like wind and solar. (3) Since its inception, nuclear power has been repeatedly subject to unanticipated safety concerns. It is pure hubris to think that we now know every risk this technology presents to us. (4) Mitigating climate change means keeping fossil fuel in the ground, which is not the same as investing in non-fossil energy sources, since total energy use is not constant. I guess this makes me anti-science, huh?
Zoning appeal hearing set for nuclear plant addition (AP) — The owner of a Pennsylvania nuclear power plant is trying to build a 22,000-square-foot addition to dispose of spent nuclear fuel. The (Scranton) Times-Tribune reports that Talen Generation applied for a permit to build the addition to the Susquehanna Steam plant, but Salem Township zoning officials denied the request. The plant is located in Berwick, about 40 miles southwest of Scranton. Zoning officials say hazardous waste storage isn’t permitted in the plant’s district. Talen has appealed the denial. A hearing is scheduled Tuesday evening. A company spokesman says the plant has stored spent fuel within the plant’s perimeter. The firm wants to modify and expand the existing facility to accommodate storage needs.
Unprecedented: Germany asks Belgium to turn off 2 nuclear reactors over safety concerns - Germany has asked Belgium to take two of its nuclear reactors offline, citing safety concerns. The environment minister said doing so would show that Brussels “takes the concerns of its German neighbors seriously.” Barbara Hendricks urged Belgium on Wednesday to take its Tihange 2 and Doel 3 reactors offline “until open safety questions are cleared up.” German officials have expressed concerns over the safety of the reactor pressure vessels. Taking the reactors offline “would be a strong precautionary signal and would show that Belgium takes the concerns of its German neighbors seriously,” Hendricks said in a statement. Deputy Environment Minister Jochen Flasbarth stressed that such a request has never before been made by Germany to a neighboring state. “This is an unusual procedure,” he told reporters, adding that the decision had not been taken lightly, and that Berlin would give Brussels time to respond. Belgium's nuclear regulator, AFCN, said on Wednesday that it’s surprised by Germany's request, adding that the nuclear reactors meet the most strict safety standards. AFCN said it’s willing to work with its German counterparts so long as there is a willingness to be “constructive,” but that it does not intend to reverse its decision to allow the reactors to operate, Bloomberg reported.
US buys Iranian heavy water as part of nuke deal (AP) — The United States is buying 32 metric tons of Iranian heavy water, a key component for one kind of nuclear reactor, to help Iran meet the terms of last year’s landmark nuclear deal under which it agreed to curb its atomic program in exchange for billions of dollars in sanctions relief. The State and Energy departments said a sales agreement would be signed Friday in Vienna by officials from the six countries that negotiated the nuclear deal. The agreement calls for the Energy Department’s Isotope Program to purchase the heavy water from a subsidiary of the U.N. atomic watchdog, for about $8.6 million, officials said. They said the heavy water will be stored at the Oak Ridge National Laboratory in Tennessee and then resold on the commercial market for research purposes. Heavy water, formed with a hydrogen isotope, is not radioactive but has research and medical applications and can also be used to produce weapons-grade plutonium. Under the nuclear deal, Iran is allowed to use heavy water in its modified Arak nuclear reactor, but must sell any excess supply of both heavy water and enriched uranium on the international market. Iranian news agencies reported in early March that a deal would soon be finalized. Members of Congress on Friday were criticizing the deal as another example of the Obama administration giving Iran more that it is entitled to. Those concerns have been fueled by indications the administration may be preparing to ease financial restrictions on transactions involving Iran.
China could build nuclear plants for South China Sea, paper says | Reuters: China is getting closer to building maritime nuclear power platforms that could one day be used to support projects in the disputed South China Sea, a state-run newspaper said on Friday, but the foreign ministry said it had not heard of the plans. China has rattled nerves with its military and construction activities on the islands it occupies in the South China Sea, including building runways, though Beijing says most of the construction is meant for civilian purposes, like lighthouses. The Global Times, an influential tabloid published by the ruling Communist Party's official People's Daily, said the nuclear power platforms could "sail" to remote areas and provide a stable power supply. China Shipbuilding Industry Corp, the company in charge of designing and building the platforms, is "pushing forward the work", said Liu Zhengguo, the head of its general office. "The development of nuclear power platforms is a burgeoning trend," Liu told the paper. "The exact number of plants to be built by the company depends on the market demand." Demand is "pretty strong", he added, without elaborating.
"This Is Catastrophic" - Thousands Of Gallons Of Radioactive Waste Leak At Washington Nuclear Storage Site -- The ongoing radioactive leak problems at the Hanford Site, a nuclear storage tank in Washington State, are nothing new. We first wrote about the ongoing radioactive leakage at the Hanford Nuclear Reservation, created as part of the Manhattan Project to build the atomic bomb, in 2013. The Hanford site represents two-thirds of the nation's high-level radioactive waste by volume. Today, Hanford is the most contaminated nuclear site in the United States and is the focus of the nation's largest environmental cleanup. The government spends $2 billion each year on Hanford cleanup — one-third of its entire budget for nuclear cleanup nationally. The cleanup is expected to last decades. As AP reported, the expanded leak was first detected after an alarm went off at the Hanford Nuclear Reservation on Sunday, and on Monday workers were preparing to pump the waste out of the troubled area. They were also trying to determine why the leak became worse. It’s unclear exactly how much waste spilled out, but estimates place the amount at somewhere between 3,000 and 3,500 gallons, according to the Tri-City Herald. The problem occurred at the double-wall storage tank AY-102, which has the capacity to hold one million gallons of the deadly waste, and which has been leaking since 2011. At the time, the leak was "extremely small", and the waste would dry up almost right after spilling out between the inner and outer walls, leaving a salt-like substance behind. However, over time the small leak got bigger. In March, the US Department of Energy began pumping what was left in the storage tank, which originally held some 800,000 gallons of waste. However, after leak detector alarms sounded early Sunday morning, crews at Hanford lowered a camera into the two-foot-wide space between the tank's inner and outer walls. They discovered 8.4 inches of radioactive and chemically toxic waste has seeped into the annulus. Taking a page right out of the TEPCO playbook, the U.S. Department of Energy released a statement Monday calling the leak an "anticipated" outcome of an ongoing effort to empty the tank in question. The Washington state Department of Ecology said, "There is no indication of waste leaking into the environment or risk to the public at this time." But one former tank farm worker said the leak should be considered a major problem. "This is catastrophic. This is probably the biggest event to ever happen in tank farm history. The double shell tanks were supposed to be the saviors of all saviors (to hold waste safely from people and the environment),”
Race for Latest Class of Nuclear Arms Threatens to Revive Cold War - The United States, Russia and China are now aggressively pursuing a new generation of smaller, less destructive nuclear weapons. The buildups threaten to revive a Cold War-era arms race and unsettle the balance of destructive force among nations that has kept the nuclear peace for more than a half-century.It is, in large measure, an old dynamic playing out in new form as an economically declining Russia, a rising China and an uncertain United States resume their one-upmanship.American officials largely blame the Russian president, Vladimir V. Putin, saying his intransigence has stymied efforts to build on a 2010 arms control treaty and further shrink the arsenals of the two largest nuclear powers. Some blame the Chinese, who are looking for a technological edge to keep the United States at bay. And some blame the United States itself for speeding ahead with a nuclear “modernization” that, in the name of improving safety and reliability, risks throwing fuel on the fire.President Obama acknowledged that danger at the end of the Nuclear Security Summit meeting in Washington early this month. He warned of the potential for “ramping up new and more deadly and more effective systems that end up leading to a whole new escalation of the arms race.”For a president who came to office more than seven years ago talking about eventually ridding the world of nuclear weapons, it was an admission that an American policy intended to reduce the centrality of atomic arms might contribute to a second nuclear age.
Plan delays Ohio renewable energy targets another 3 years (AP) — An as-yet-to-be-introduced bill that would extend a freeze on Ohio’s renewable-energy requirements for an additional three years is already drawing opposition. State Sen. Bill Seitz, a Cincinnati Republican, said the draft legislation circulated last week tacks another three years onto a current two-year delay in phasing in state targets for use of solar, wind and other forms of renewable energy by Ohio power companies. Seitz tells The Associated Press he sent the bill to interested parties on different sides of the debate and “I’m giving all the Hatfields and all the McCoys the opportunity to comment” before introducing the final bill. The law that’s on hold requires utilities to generate 25 percent of electricity from alternative and advanced sources by 2025 and to meet certain energy efficiency targets. A compromise struck at the urging of Republican Gov. John Kasich prevented a permanent freeze of the law, as some lawmakers wanted. Instead, phase-in was delayed for two years to give lawmakers time to study the issue. If legislators fail to act by 2017, the deal calls for the law to resume as planned. Seitz said the extra three years are needed to allow time for federal regulations to be sorted out. The U.S. Supreme Court has stayed implementation of the federal Clean Power Plan at the request of the state of Ohio and 26 other states. The senator said the legislation supports “a greener energy future for Ohio” with program and incentives, but without mandates.
Pipeline plan drawing little controversy - Toledo Blade - Kinder Morgan, North America’s largest energy infrastructure company, hopes to wrap up negotiations with landowners in 14 Ohio counties this year so it can start building a 240-mile, 12-inch diameter pipeline it calls its Utopia East project.The $500 million venture, while enormous in its own right, is not expected to draw as much controversy as the proposed $2 billion NEXUS Gas Transmission pipeline. Kinder Morgan wants to move ethane and ethane-propane mixtures from eastern Ohio to Windsor, Ont., starting in January 2018. Most construction is expected in 2017. NEXUS, meanwhile, is trying to build a 255-mile, 36-inch diameter pipeline to move natural gas from eastern Ohio to southwestern Ontario. It has proposed a controversial compressor station near Waterville.Even Paul Wohlfarth, one of the region’s most outspoken pipeline activists, said there is “hardly the same risk” between the two projects.“Not the same animal by a long shot,” he said.Ethane, used as feedstock to make plastics, is a byproduct of the process energy companies use to hydraulically fracture shale so they can extract previously untapped reserves of oil and natural gas.The fracking boom in eastern Ohio has led to major pipeline projects. Kinder Morgan is building its pipeline to transport ethane products from the Utica shale region to NOVA Chemicals Corp., a project that will help make use of waste products
Rep. Phillips introduces law to tighten injection-well regulation - Legislation introduced last week by state Rep. Debbie Phillips, D-Albany, seeks to tighten regulations on fracking-waste injection wells in Ohio. “Our state and our region have become a dumping ground for waste produced in other states, exposing our citizens to toxins and carcinogens,” Phillips said announcing the legislation. Last year, Athens became the most heavily injected county in Ohio. With eight fracking-waste injection wells, Athens County took in more than four million barrels of fracking waste in 2015, more than any other county in the state, according to data from the Ohio Department of Natural Resource. That’s an increase of 1.1 million barrels from the previous year, or nearly 40 percent. The number of barrels injected in Athens County represents about 16 percent of the total fracking waste pumped into Ohio injection wells in 2015. Over 90 percent of the waste injected in Athens came from out-of-state oil and gas wells, mostly from Pennsylvania and West Virginia. The bill proposed by Phillips would ban the use of Class II injection wells for fracking waste and instead require the use of Class I injection wells, which are designed for hazardous materials and require monitoring for leaks. “We know the waste going into these wells contains dangerous chemicals and has a troubling history of spills,” Phillips said. While the U.S. and Ohio Environmental Protection Agencies have deemed the Class II injection well regulatory program in Ohio acceptable, concerns remain about oversight and potential contamination of drinking water.
Michigan sand is used in fracking, but details hard to come by - When you think of hydraulic fracturing, Michigan may not be the first state that comes to mind. But according to The FracTracker Alliance in Cleveland, Ohio – a group that studies the global oil and gas industry – Michigan is playing an increasing role in fracking. That’s because the fracking process requires a special kind of sand that’s found near the Great Lakes. Ted Auch is an environmental scientist who works for FracTracker. In a new report, he says the Midwest has become the primary source of silica sand for the oil and gas industry. But trying to figure out how much sand is going where is a daunting task. "We are really in the dark with regard to mine productivity," says Auch. "We know how much is being demanded from these wells but we don't know how much is being produced [and] we don't know the methods by which it's traveling. So there's a lot of unknowns." Auch spoke us during 'All Things Considered' about his efforts to document sand mining in the Midwest.
Pennsylvania, Ohio Could Avoid Oil, Gas 'Resource Curse' by Creating Permanent Trusts, Says Brookings - To avoid the unavoidable price volatility that accompanies oil and natural gas development, states that have become dependent on energy revenues should consider creating permanent trust funds that overcome boom-and-bust price cycles, the Brookings Institution said Tuesday. The Metropolitan Policy Program at Brookings, in the report "Permanent Trust Funds: Funding Economic Change with Fracking Revenues," outlined what states could do -- if they haven't already -- to prepare for the inevitable "resource curse" of unconventional horizontal drilling and hydraulic fracturing. Authors Mark Muro and Devashree Saha reviewed the current bust in unconventional oil and gas extraction and surveyed the resulting budgetary problems in multiple states. For those energy-rich states that have not already, enacting severance taxes and permanent funds help to better navigate future unconventional drilling downcycles, the researchers said. Permanent funds may offer a way to avoid a U.S. version of the third-world "resource curse" by managing revenue to invest in economic diversification. Debates on whether to enact production taxes "are underway in Pennsylvania, Ohio and New Mexico, while multiple states are in bad straits," Muro said. "The boom-bust cycle of unconventional oil and gas development highlights the need for strategic management by state governments of fracking-related revenues, not only to minimize the less desirable aspects of the boom-bust cycle but also to enhance long-term prosperity."States can address these challenges by imposing a reasonable severance (extraction) tax on their oil and gas industry and channeling a portion of the revenue into permanent trust funds. In doing so, states can convert volatile near-term revenues from unconventional oil and gas development into a longer-term and continuous source of investment funds for building sustainable and dynamic economies."
Regulatory reviewers approve major update to Pa. drilling rules: — Pennsylvania’s Independent Regulatory Review Commission approved a wide-ranging update to the state’s oil and gas drilling rules on Thursday, voting 3-2 that the changes proposed by the state Department of Environmental Protection are in the public interest. The divided vote capped a seven-hour-long meeting that demonstrated the deep split between oil and gas industry representatives, who believe the new regulations impose unjustified and costly new burdens, and members of environmental and citizens groups, who support the changes even as they push for greater protections. The long-germinating rules have been in development since 2011 and include separate chapters for the state’s Marcellus Shale operations and smaller, conventional oil and gas companies. The regulations now face another challenge in the Legislature where energy committees in both chambers are expected to advance a resolution that could block the rules from taking effect. If the Republican-controlled House and Senate pass the resolution, it could be vetoed by Democratic Gov. Tom Wolf, who supports the regulations. DEP Secretary John Quigley said he was pleased with the vote. “This validates five years worth of tremendous public service by a tremendous group of public servants,” he said. Scores of representatives from the state’s traditional, shallow oil and gas industry attended the meeting to share their broad disagreement with the substance of the rules and how they were developed. Often flanked by family members who help run their small businesses, they used poster-sized exhibits to illustrate their case that specific aspects of the rules are flawed, harmful or unsupported by facts.
Horses are being born without the ability to swallow — and fracking could be to blame - In New York’s Southern Tier, local newspapers are investigating the connection between a local racetrack owner’s sick foals and the fracking fluids present on his farmland. The Ithaca Journal featured a report by Tom Wilber in which he investigated the ongoing issue with foals being born without the ability to swallow — seventeen of them so far — on the breeding farm of Jeff Gural, owner of the Tioga Downs, Meadowlands Racetrack, and Vernon Downs. The foals have survived, although all of them have had to be transported to Cornell’s School of Veterinary Medicine, located fifty miles north in Ithaca, New York. An earlier study by Cornell professor Robert Oswald and Cornell veterinarian Michelle Bamberger linked the presence of the byproducts of hydraulic fracturing to numerous animal deaths and stillbirths. Their research included twenty-four case studies of multiple farm animals who had either been killed outright by the cocktail of chemicals or later proved unable to successfully reproduce after exposure. The vets are conducting their own study of what may be causing the epidemic of horse birth defects. The veterinary team cite the presence of a gas well adjacent to Gural’s land that was drilled by Chesapeake Appalachia LLC as the “prime suspect” in the Gural farm problems. The Pennsylvania Department of Environmental Protection confirmed that the farm’s water is contaminated, although they failed to cite Chesapeake as the cause.
MYSTERY OF SICK FOALS: Was fracking to blame on PA farm? - From a mile away, Allerage Farm’s magnificent barn can be seen amid rail fences, rolling pastures and red and white outbuildings on a hill rising some 1,500 feet from the Susquehanna River basin. Yet for all its beauty, Gural's horse-breeding farm holds a disturbing mystery health experts and the federal government are working hard to solve. For three years, the mares have been bearing foals with dysphagia — a rare, life-threatening condition preventing them from swallowing properly. Although researchers have yet to pinpoint a cause, a Cornell University veterinary team that saved 17 of Gural's standardbred foals has identified a primary suspect — a gas well drilled directly next to the farm by Chesapeake Appalachia LLC. An investigation by the Pennsylvania Department of Environmental Protection confirmed the farm’s water was contaminated. However, it concluded Chesapeake operations was not the cause. Big money, land rights and health hazards have been salient story lines in Pennsylvania’s shale gas bonanza. The mystery on Gural’s farm, however, represents a new twist in the power play between landowners, regulators and the gas industry. For years, farmers have been dealing with water contamination and illnesses that common sense tells them is caused by nearby shale gas operations. But they generally face a burden of proof requiring legal and scientific resources beyond their means. Regulators, industry and health officials, meanwhile, often explain problems like polluted water wells as resulting from natural and pre-existing phenomenon. But Allerage is not your average farm, and the foals are not your typical animals. With some horses potentially worth six figures, Gural wants answers. His lawyers have filed an appeal with the Pennsylvania Environmental Hearing Board demanding state regulators conduct a more thorough investigation of his farm’s water.
Is Fracking Causing the Epidemic of Horse Birth Defects at Breeding Farm? -- In New York’s Southern Tier, local newspapers are investigating the connection between a local racetrack owner’s sick foals and the fracking fluids present on his farmland. The Ithaca Journal featured a report by Tom Wilber in which he investigated the ongoing issue with foals being born without the ability to swallow—seventeen of them so far—on the breeding farm of Jeff Gural, owner of the Tioga Downs, Meadowlands Racetrack and Vernon Downs. The foals have survived, although all of them have had to be transported to Cornell’s School of Veterinary Medicine, located 50 miles north in Ithaca, New York. An earlier study by Cornell professor Robert Oswald and Cornell veterinarian Michelle Bamberger linked the presence of the byproducts of hydraulic fracturing to numerous animal deaths and stillbirths. Their research included 24 case studies of multiple farm animals who had either been killed outright by the cocktail of chemicals or later proved unable to successfully reproduce after exposure. The vets are conducting their own study of what may be causing the epidemic of horse birth defects. The veterinary team cite the presence of a gas well adjacent to Gural’s land that was drilled by Chesapeake Appalachia LLC as the “prime suspect” in the Gural farm problems. The Pennsylvania Department of Environmental Protection confirmed that the farm’s water is contaminated, although they failed to cite Chesapeake as the cause. Gural is on record as a supporter of gas shale exploration in the Southern Tier. . But he is mad that so far, companies have not had to disclose what comprises fracking fluid because of the so-called “Halliburton Loophole.” “That they don’t have to tell you what chemicals they are using is ridiculous,”
The Scientists Who Are Telling The EPA Fracking Is Safe Have Oil Industry Ties, Groups Say - In the summer of 2015, the Environmental Protection Agency said in a much-anticipated draft report that hydraulic fracturing has not led to “widespread, systemic impacts” on drinking water. That statement was for many as divisive as it was bold, for it invigorated the industry’s position that fracking is safe while angering critics who say it actually creates a long list of environmental problems, including an increase in greenhouse gas emissions.Since that draft report was released, the EPA’s independent Science Advisory Board panel has questioned it twice, most recently saying the panel is “concerned” that major findings “are ambiguous and appear inconsistent with the observations, data, and levels of uncertainty presented and discussed in the body of the draft assessment report.” As the SAB’s final peer review nears, a draft dissent from at least four board members with ties to the oil and gas industry is being challenged by the Americans Against Fracking Coalition. In a letter sent Wednesday to EPA Administrator Gina McCarthy, the advocacy group, which includes Food and Water Watch along with hundreds of other organizations, said dissenting members’ connections with the fracking industry mean they “have clear conflicts of interest.” While urging the EPA to reject the dissent, the coalition claimed members “do not have any scientific basis for their dissent.” “The [EPA’s statement] itself is a political line without scientific basis, and so as a result, it becomes a political statement,”
Frackers Admit: “We don’t frack near rich people.” This is pretty funny. Don’t frack near the fracking 2% Range Resources Exec: “We Don’t Frack Near Rich Neighborhoods” Pittsburgh Post-Gazette Two environmental organizations will ask the state’s Office of Environmental Justice to review Range Resources’ past and future shale gas development practices to determine if the company has avoided drilling in wealthier neighborhoods and targeted poorer areas of the state.The Center for Coalfield Justice and the Pennsylvania Chapter of the Sierra Club raised that question after they said Terry Bossert, Range’s vice president for legislative and regulatory affairs, told a Pennsylvania Bar Institute gathering in Harrisburg earlier this month, that the company tries to avoid siting its shale gas wells near “big houses” where residents might have the financial resources to challenge the industrial-type developments. “We heard Range Resources say it sites its shale gas wells away from large homes where wealthy people live and who might have the money to fight such drilling and fracking operations,” said Patrick Grenter, an attorney and Center for Coalfield Justice executive director, who attended the lawyers’ forum. A handful of attorneys in the audience confirmed that account Joanne Kilgour, an attorney and director of the Pennsylvania Chapter of the Sierra Club, who attended the meeting, said Mr. Bossert’s statements “pose significant environmental justice issues, and raise the question whether the companies coming into communities are really operating in the best interests of those communities.”
Constitution pipeline ready to go, Kinder Morgan project shelved (AP) — While one company has shelved plans for a natural gas pipeline from New York into New England, another project following a similar route is poised to proceed. Constitution Pipeline spokesman Christopher Stockton says Thursday that the pipeline from Pennsylvania’s shale gas fields to eastern New York is supported by firm customer commitments. Project partners include Cabot Oil and Gas Corp. and Piedmont Natural Gas. On Wednesday, Houston-based Kinder Morgan Inc. cited low gas prices and a lack of contracts with gas distribution companies as it announced it was mothballing its Northeast Energy Direct project. Constitution’s construction timetable has been delayed pending New York action on a water quality permit. Both pipelines faced opposition from environmental groups and landowners along their routes. Local pipeline supporters cite construction jobs, tax revenues and access to cheap natural gas.
Sanders opposes Constitution pipeline between Pennsylvania, NY | Reuters: Democratic presidential candidate Bernie Sanders on Monday said he opposes a proposed natural gas pipeline between Pennsylvania and New York and called on New York officials to reject the project. "The possibility of methane leaks from the proposed Constitution Pipeline would be catastrophic to our air and our climate — and if this pipeline were approved, eminent domain would be used to seize land from farmers and homeowners," he said in a statement. U.S. pipeline company Williams has delayed the start up of the pipeline to the second half of 2017 from the fourth quarter of 2016.
Gov. Cuomo Rejects the Constitution Pipeline, Huge Win for the Anti-Fracking Movement -- In a win for climate activists and the anti-fracking movement, and a blow to fossil fuel polluters and the federal regulatory agencies that enable them, the New York State Department of Environmental Conservation (DEC) denied a key permit to companies seeking to build a 124-mile fracked gas pipeline. The Constitution Pipeline Project—a joint venture between four oil and gas companies—was proposed to transport fracked natural gas from Susquehanna County in Pennsylvania through Broome, Chenango, Delaware and Schoharie counties in New York to existing interstate pipelines. The pipeline route would have crossed hundreds of streams and wetlands, including those supplying drinking water to families along the proposed route. Using the power granted under the Clean Water Act, DEC officials rejected the companies’ permit application, citing damage the project would do to water supplies along the pipeline route. The nonprofit environmental law organization Earthjustice has been staunchly opposed to the project and represented a coalition of groups—Catskill Mountainkeeper, Clean Air Council, Delaware-Otsego Audubon Society, Delaware Riverkeeper Network and the Pennsylvania and Atlantic chapters of Sierra Club—in pipeline approval proceedings before the Federal Energy Regulatory Commission (FERC.)
CONstitution Fail: Frackers Mistake Upstate New York for Ohio! - The frackers went about the wholly redundant CONstitution gas line project like they were back in Oklahoma. They clear cut trees, trespassed on people’s property and got way ahead of the regulators – who they routinely ignored. All to export some fracked gas to Brazil ? But they were not in Oklahoma. Nor Texas. They weren’t even in Ohio. They were in Upstate New York, which votes like Vermont: Today, officials from the New York State Department of Environmental Conservation announced the denial of the Clean Water Act Section 401 Water Quality Certification for the proposed Constitution Pipeline. Although DEC has granted certificates for other projects, the application by Constitution for these certificates fails to meet New York State’s water quality standards. The full decision is outlined in a letter by John Ferguson, Chief Permit Administrator with DEC’s Division of Environmental Permits and Pollution Prevention. That letter can be viewed here. In New York State, the project proposed to include new right-of-way construction of approximately 99 miles of new 30-inch diameter pipeline, rather than co-locating within existing rights-of-way. Although DEC requested significant mitigation measures to limit affecting the state’s water bodies, this new right-of-way construction would impact approximately 250 streams across New York State. Many of those streams are unique and sensitive ecological areas, including trout spawning streams, old-growth forest, and undisturbed springs, which provide vital habitat and are key to the local ecosystems. DEC had repeatedly requested that Constitution provide a comprehensive and site-specific analysis of depth for pipeline burial to mitigate the project’s environmental impact – but the company refused – providing only a limited analysis of burial depth for 21 of the 250 New York streams.
Impact of the Current Natural Gas Storage Surplus on Summer Prices The U.S. natural gas market ended the winter withdrawal season with inventories carrying a record high overhang and an enormous surplus versus previous years. Since then, the historic surplus has begun to contract, and the CME/NYMEX Henry Hub futures contract has responded, rallying 11.2 cents since April 1st to settle at $2.068/MMBtu Thursday. Now, well into the third week of injection season, the big questions are whether the recent bullishness can be sustained and what it will take to relieve the surplus in storage. In today’s blog, we assess how the existing surplus will impact summer storage activity and prices. This is Part 2 in our “Carry That Weight” supply/demand update series. In Part 1, we recapped the winter withdrawal season, in which mild weather suppressed demand even as production set new record highs, resulting in oversupply and some of the lowest daily futures settlement prices in 17 years. U.S. natural gas storage inventories ended the winter heating season at a record high of 2,480 Bcf as of April 1, 2016, which translated to a 1,004-Bcf surplus to the corresponding week in 2015. Daily futures prices this winter averaged just $2.05, $1.175 (36%) lower than last winter. As we noted in Part 1, storage inventory levels at the end of the winter season typically set the tone for storage activity and prices through the injection season, which runs from April 1 through October 31. Natural gas storage has a seasonal pattern as regular as clockwork, driven largely by fluctuations in weather. In the winter, daily gas demand is historically higher than daily production, resulting in withdrawals from storage – spurred by contractual obligations of storage capacity holders and higher winter prices that entice gas out of storage to help meet heating demand.
NY organizations call for federal oil rail transport ban - — A coalition of environmental groups and public officials gathered last week to call for a federal ban of oil transport by trains along the shorelines and communities of Lake Champlain and the Hudson River. Up to 30 million gallons of explosive crude oil is transported by train through New York communities and along the shores of Lake Champlain each week. Several organizations, businesses, foundations, cities and community leaders signed a letter to the state’s senators and representatives revealing the dangers of transporting this substance. “I feel this is a bold action,” Plattsburgh City Councilor Rachelle Armstrong said. “We need to stand up.” Explosive crude oil is a danger in itself and can cause “massive damage,” said Jim Murphy, senior counsel for the National Wildlife Federation. Outdated rail cars and aging infrastructure are other concerns. A number of tanker cars date back to the post-Civil War era, each carrying about 30,000 gallons of crude oil, accompanied by up to 100 other cars. Each train carries more than 2 million gallons of oil. “The trains snake miles over Lake Champlain,” said Lori Fisher, executive director of the Lake Champlain Committee. “It’s a huge threat.” Derailments have occurred.
Louisiana and Mississippi driller Goodrich files bankruptcy (AP) — One of the oil companies most active in drilling wells in the Tuscaloosa Marine Shale formation in Mississippi and Louisiana has sought bankruptcy protection. Houston-based Goodrich Petroleum filed for Chapter 11 bankruptcy Friday after securities owners rejected swapping their holdings for common stock to lower debt payments. The company cites $99 million in assets against $507 million in debts. Law firm Haynes & Boone says 60 North American petroleum companies have sought bankruptcy since 2014. Goodrich says it wants to shed $400 million in debt during restructuring, pre-negotiated with creditors owning $175 million in debt. Those secured creditors would get new stock, while the company would pay nothing to owners of $224 million in unsecured debt. The company also has interests in the Haynesville Shale gas fields of northwest Louisiana and east Texas, with a total of 193 wells across eight states. Law firm Haynes & Boone says nearly 60 North American oil and natural gas companies have sought bankruptcy since 2014. Goodrich is a small player in the oil world, and had focused on developing the Tuscaloosa shale formation. Wells in that region of southwest Mississippi and the Florida Parishes of Louisiana were among the highest-cost oil wells being drilled when prices began to fall, and drilling activity quickly dwindled. A number of wells were drilled but not hydraulically fractured, as companies wait for higher prices to start pumping.
Federal Offshore Drilling Plan: From Injury to Insult --- In New Orleans, the Bureau of Ocean and Energy Management (BOEM) hosted a public hearing earlier this week on the proposed Outer Continental Shelf Oil and Gas Leasing Program for 2017-2022. The U.S. Department of Interior is offering up hundreds of millions of acres in the Gulf of Mexico to allow for deeper oil and gas drilling in the region. On a contradictory note, later this week the U.S. is slated to sign the Paris accord acknowledging the need for national action as part of a global imperative to combat the impending impacts of climate change.We already feel the powerful impacts of climate change here in Louisiana. More than 10 years after Hurricane Katrina, we are still haunted by the fact that climate change worsens chronic justice issues and poses a particular threat to the way of life for residents of the Gulf Coast. While BOEM holds its hearing to do more drilling in the Gulf of Mexico, Native American tribes in south Louisiana like the United Houma Nation are relocating from their historical homelands due to sea level rise and historic African American communities in New Orleans like Residents of Gordon Plaza are fighting multi-generational court battles to relocate due to the poisoning of their land and toxic exposure during extreme weather.
Earthquake issue not as easy as flipping switch, Commissioner Murphy says - – Speaking in a soft but firm tone, Oklahoma Corporation Commissioner Dana Murphy is adamant the agency she helps oversee is doing all it can to stop the manmade earthquakes created by wastewater disposal wells. “If there was an earthquake off-switch, we would have already flipped it,” she said in a recent interview with Red Dirt Report. Earthquakes and OCC’s apparent failure to regulate the oil and gas industry in a timely fashion has sparked controversy around most of the state, the agency’s critics contend. Homes from Fairview to Edmond have been damaged, federal lawsuits are pending against some of the state’s largest oil and gas companies and controversial earthquake insurance issues have been raised. “When someone’s house is shaking, they want faster results,” said Murphy, who has spoken to numerous civic groups about the commission’s attempts to deal with the oil and gas industry and reach solutions to the onslaught of earthquakes. “There are others who believe I’ve been too hard on the oil and gas industry. Personally, we could have moved a little faster, but given the data and lack of resources we were unable to do that.” The earthquake dilemma hasn’t been an easy topic to deal with, said Murphy, a Republican who is seeking another full term in office. Murphy is opposed by term-limited legislator Richard Morrissette (D-OKC). Morrissette placed himself at the center of the earthquake issue by hosting two public forums, one in Edmond and another at the state Capitol. In both instances, Morrissette said the Oklahoma Corporation Commission had the power to shut down every wastewater disposal well causing the earthquakes, but failed to take action. “Where was he when we needed funding?” Murphy asked. Murphy contends the issue isn’t as simple as shutting down wells like Morrissette believes. There are a multitude of technical and legal reasons action was delayed, she said. In addition, the commission’s earthquake division didn’t exist until 2013 and funding has been almost non-existent.
New Mexico land commissioner opposes flaring rules (AP) — New Mexico State Land Commissioner Aubrey Dunn isn’t a fan of the Obama administration’s plan to clamp down on oil companies that burn off natural gas on public land. Dunn announced Thursday that his office has submitted comments in opposition of the proposed venting and flaring regulations. Dunn says a committee was formed in New Mexico last year to study flaring reductions and assess the feasibility of capturing gas for new drilling permits. One of the findings was the amount of time required to obtain federal rights of way from the Bureau of Land Management contributed to flaring on federal lands. Dunn argues it’s hypocritical for BLM to fault producers and impose costly new rules when the agency’s own actions have been responsible for a large part of the problem.
Just Months After The Largest Natural Gas Leak In U.S. History, Porter Ranch Is Hit With Another Leak - Porter Ranch already experienced the largest recorded natural gas leak in U.S. history over the winter, when a leak at the Aliso Canyon Storage Facility spewed more than 97,000 metric tons of methane into the atmosphere. Thousands of families were evacuated during the nearly four-month long leak, which was sealed in February. Over the weekend, the neighborhood was hit with another natural gas leak. “This is horrible,” Porter Ranch resident Gabriel Khanlian told ThinkProgress. “This issue is not over with in any way.” Residents had been complaining that the smell of natural gas, recognizable by a potent odorant, was again wafting through their Los Angeles neighborhood. On Saturday, their claims were validated when Southern California Gas (SoCalGas), which owns the facility and the well that failed over the winter, reported that a separate company was responsible for another natural gas leak at Aliso Canyon. Earlier today we become aware that a third party company that operates at the Aliso Canyon site experienced a localized oil spill with gas venting at their petroleum well. This well is not owned or operated by SoCalGas,” the company told residents in an email notification Saturday. A spokesman for Crimson Resource Management told CBS Los Angeles that it was not a significant leak. “It’s something we work very hard at avoiding, but things happen."
5 Million U.S. Homes Near Underground Gas Bombs -- Porter Ranch Home Sales Down 44 Percent in Three Months Following Gas Leak Discovery, Cash Sales Share Up 50 Percent. 4.8 Million Homes Worth $1.3 Trillion Within 10-Mile Radius of 319 Similar Facilities Greenfield Advisors (www.greenfieldadvisors.com), a leading economic and real estate research firm, today released an analysis of the unprecedented gas leak in Porter Ranch, California, on the local housing market, and also calculated the potential impact on other local housing markets from 319 underground natural gas storage facilities across the country. Out of the 117 million homes available for search on RealtyTrac’s property pre-diligence website, www.HomeDisclosure.com, 4,826,374 (4 percent) worth an estimated $1.3 trillion in cumulative market value are within a 10-mile radius of an underground natural gas storage facility like the one that leaked in Porter Ranch. The website allows consumers to find out if a home they own or are interested in buying is within a 10-miles radius of an underground natural gas storage facility and provides detailed information about each of these facilities. The Porter Ranch analysis shows that in the three months following the discovery of the gas leak in late October 2015, home sales in the Porter Ranch zip code (91326) plunged 44 percent while the share of all-cash sales spiked 50 percent during the same time period. Meanwhile, the median home sales price in Porter Ranch in the three months following the discovery of the gas leak dropped 1 percent. “Such a spike in the percentage of cash sales in an area in such a short period of time certainly indicates a market disruption,” said Dr. Clifford A. Lipscomb, Director of Economic Research at Greenfield Advisors. “Market disruption is further signified by the number of families that requested relocation out of the Porter Ranch area as well as the number of health effects reported by area residents. Also, with further research, you might find that lenders are less willing to lend on a property located in the Porter Ranch area.”
Fracking rule in hands of federal judge in Wyoming -- The future of federal rules aimed at protecting land, water and wildlife from energy-production practices including hydraulic fracturing now rests with a judge in Wyoming. U.S. District Judge Scott Skavdahl last year blocked implementation of rules drafted by the U.S. Bureau of Land Management. He acted in response to a legal challenge from the states of Colorado, North Dakota and Utah and Wyoming. The states claim the BLM lacks authority to regulate hydraulic fracturing. The federal rule would require petroleum developers to disclose to regulators the ingredients in the chemical products they use to improve the results of fracking. The BLM and a coalition of environmental groups are arguing in Skavdahl's court that the rules are necessary to protect the environment. The BLM and other rule supporters also have appealed Skavdahl's decision to block implementation of the rules to a federal appeals court in Denver. It's unclear whether the appeals court will act before Skavdahl reaches a decision. Sierra Club Executive Director Michael Brune issued a statement after Skavdahl blocked implementation of the rules. "Our public lands belong to all Americans, and they should be managed under strong national standards that protect our water, land, and wildlife," . "Not just to benefit oil and gas companies." The Ute Tribe stated in its brief that it agrees with the states that the BLM lacks rulemaking authority and also has additional arguments that the BLM lacks authority to regulate fracking on land that the United States holds in trust for the Indian tribes and tribal members.
Montana oil and gas lease cancellation challenged in US court (AP) — A Louisiana company challenged the cancellation of an oil and gas lease in northwest Montana on Friday, after federal officials said drilling would disturb an area sacred to the Blackfoot tribes of the U.S. and Canada. The 6,200-acre lease owned by Solenex LLC of Baton Rouge is in the Badger-Two Medicine area of the Lewis and Clark National Forest. It’s just outside Glacier National Park and the Blackfeet Indian Reservation. Attorneys for the company want U.S. District Judge Richard Leon in Washington, D.C., to reject the Interior Department’s March 17 cancellation of the lease. Leon has been sympathetic to Solenex’s arguments in prior court hearings, lambasting officials for decades of bureaucratic delays since the lease was issued in 1982. It was suspended because of a legal challenge in 1985, and the issue had remained unresolved ever since. Solenex sued the government seeking to lift the suspension in 2013. The lease is within a 165,000-acre area deemed by the government to be a Traditional Cultural District of the Blackfoot tribes. It’s the site of the creation story for the Blackfoot tribes of southern Canada and the Blackfeet Nation of Montana. Attorneys for Solenex say the establishment of the cultural district was simply a pretext to deny the company its right to drill.
Montana to create rail safety plan after critical audit (AP) — Montana’s Public Service Commission hopes to come up with a rail safety plan within six months after a report criticized the agency for having never written one, even as the train traffic carrying volatile crude from the Bakken oil patch has increased. The commissioners voted unanimously Tuesday to complete a risk assessment and safety plan by November, which would give them enough time to request money from the 2017 Legislature to hire more inspectors, if necessary. A report released in October by the Legislative Audit Division faulted the PSC for not identifying rail safety risks, not having a safety plan, not having enough inspectors to adequately cover the state and not participating in regional safety issues. It said the agency is not actively engaged in rail safety, and its lone goal seems to be meeting a minimum number of inspections each year. The report also found there’s a lack of statewide emergency planning and hazardous-material response capability should an oil spill occur. It recommended more coordination with local, state and national planners, as well as adding a third inspector to check rail lines, cars and engines. Since the audit came out, one of the state’s two inspectors retired. PSC spokesman Eric Sell said the commissioners’ vote Tuesday authorized the agency to replace that inspector, but it will take at least two months to do so. “It’s our goal that we can hire someone already … certified so they can start inspecting on day one,”
North Dakota oil output drops 4K barrels daily in February (AP) — North Dakota’s Department of Mineral Resources says the state’s oil production decreased by about 4,000 barrels a day in February. The agency says the state produced an average of 1.11 million barrels of oil daily in February. The production was about 110,000 barrels per day less than the record set in December 2014. North Dakota also produced a record 1.69 billion cubic feet of natural gas per day in February, up from 1.64 billion cubic feet daily in January. The February tally is the latest figure available because oil production numbers typically lag at least two months. There were 29 drill rigs operating in North Dakota’s oil patch on Friday — the lowest number since October 2005.
Bakken crude sold as export first time since ban lifted - Hess Corp. confirmed last week that it has sold Bakken crude to a buyer in Europe, the first shipment of North Dakota’s light crude since U.S. Congress lifted the decades-old oil export ban last December. As reported by Reuters, the shipment consisted of 175,000 barrels of Bakken crude. In early April the crude was loaded at a terminal in St. James, Louisiana before being transported to a European refinery. Hess declined to name the buyer or the transportation vessel. The announcement came days after Exxon Mobil said it is shipping about 18,000 barrels of crude produced in the Gulf of Mexico to its refinery in Rotterdam, Netherlands. This shipment will be the first export of U.S. offshore oil since the ban was lifted, according to Reuters. Before embarking on its journey across the Atlantic, the Bakken crude was transported over 1,500 miles to the Louisiana coast. The Exxon shipment came from initial tests in the Julia field located about 200 miles south of New Orleans, Louisiana. These wells are expected to come online by mid-year.After the ban was lifted and prior to these shipments, the only U.S. crude exported was light onshore oil. The first export of liquefied natural gas (LNG) left from Cheniere Energy’s Sabine Pass terminal in late February of this year. The fuel was sent to Brazil to be received by Brazilian state-owned Petrobras. At the IHS Energy CERAWeek conference in Houston, Cheniere President of Marketing Meg Gentle said she anticipates that by 2020 the domestic industry will sell nearly half of its volumes on a short-term basis.
U.S. Senate passes bill to bolster power grid, speed LNG exports (Reuters) - The U.S. Senate passed the first broad energy bill in nine years on Wednesday, legislation containing modest measures popular with both Republicans and Democrats to modernize the power grid and speed the permitting process for liquefied natural gas exports. The bill, which passed 85-12, attempts to protect the power grid from extreme weather events such as ice storms and hurricanes, and from cyber attacks. It also aims to spur innovations in storage of power from wind and solar energy. The House of Representatives passed a similar bill last year. The Energy Policy and Modernization Act would increase U.S. exports of liquefied natural gas (LNG), eventually helping to give European consumers alternatives to relying mainly on Russia for gas. After disagreements held the bill up for months, senators last week dropped measures from the bill to aid Flint, Michigan overcome a drinking water crisis, in which children have been exposed to dangerous levels of lead, and on offshore drilling. Lawmakers from both the House and Senate will next iron out differences over the bill. The Senate bill, for instance, requires the Department of Energy to issue a decision on LNG projects within 45 days of an environmental assessment, while the House bill directs the DOE to make the decision on permits after 30 days. Senator Maria Cantwell, a Democrat from Washington state who co-sponsored the bill, said shortly before it passed that she hoped the chambers would move quickly "so that we can realize the opportunity to help our businesses and consumers plan for the energy future."Documents: How IOGCC Created Loophole Ushering in Frackquakes and Allowing Methane Leakage -- Earthquakes caused by injection of shale oil and gas production wastes — and methane leakage from shale gas pipelines — have proliferated in recent years, with both issues well-studied in the scientific literature and grabbing headlines innewspapers nationwide. Lesser-mentioned, though perhaps at the root of both problems, is a key exemption won by the Interstate Oil and Gas Compact (IOGCC) via a concerted lobbying effort in the 1980's. That is, classifying oil and gas wastes as something other than “hazardous” or “solid wastes” under Subtitles C and D of the Resource Conservation and Recovery Act (RCRA), thusexempting the industry from U.S. Environmental Protection Agency (EPA) enforcement. The RCRA exemption has played a front-and-center role in two recent federal lawsuits on both of these issues — the frackquake case just started and the pipeline emissions one recently resulted in a favorable judgment for the industry. Those cases, Sierra Club v. Chesapeake Operating LLC, Et Al and Northern Illinois Gas Company (a Nicor subsidiary) v. City of Evanston, offer an opportunity for a history lesson. At the center of that history, a DeSmog investigation reveals, is theIOGCC. IOGCC, a recent InsideClimate News investigation demonstrated using documents obtained by DeSmog and GreenpeaceUSA, is a constitutionally-authorized interstate compact that more or less has served as a Congress-chartered industry lobbying node since signed into law way back in 1935.
Could a Democratic President End Fracking?: Love it or hate it, hydraulic fracturing, or fracking, has become central to the United States' energy portfolio. Fracking has unlocked vast domestic fossil fuel reserves over the past decade, and plenty of oil and gas still remains in the ground. Whether it stays there or not is the question now facing the politicians scrambling to curb climate disruption, and the debate over fracking has driven a wedge down the middle of the Democratic Party. The scope of fracking in the United States is staggering. Since 2005, the oil and gas industry has used high-volume fracking technology to pump 239 billion gallons of water laced with 23 billion pounds of toxic chemicals underground at 137,000 fracking wells across the country, according to a new report by Environment America. The fracking boom rapidly industrialized rural areas, damaging 679,000 acres of land and bringing controversy along with it. The US Geological Survey now estimates that 7 million people in six states are at risk of experiencing fracking-related earthquakes, and fracking has been linked to water contamination, air pollution and climate-warming methane emissions. Polls show that more people in the United States now oppose fracking than support it, including many Democrats. Obama's decision to put a transition to clean energy on hold in favor of another fossil fuel set the stage for a fierce showdown between Hillary Clinton, who seems content to continue down Obama's path, and Bernie Sanders, who opposes fracking and the fossil fuel industry's powerful influence on politics.
Devon is latest energy company to sell assets to shore up finances - Devon Energy Corp. has agreed to sell northern Oklahoma oil and gas fields to White Star Petroleum for $200 million, the company said Wednesday. Devon is the latest energy company to sell assets to try to improve its balance sheets amid depressed oil prices. Earlier this month, Marathon Oil Corp. said it planned to sell $950 million worth of oil fields and other assets to focus on lower-risk U.S. resources, and other companies have announced similar moves. The company aims to sell $2 billion to $3 billion in assets this year, Devon’s Chief Executive Dave Hager said in a statement. The deal “accelerates Devon’s efforts to focus exclusively on its best-in-class resource plays in onshore North America,” he said.Analysts at Citigroup said Devon may have sold its assets, which included parcels in Oklahoma’s Mississippi Lime oil formation, for cheap. The oil and gas area straddles northern Oklahoma and southern Kansas and has been one of the most adversely affected by lower oil prices, with several producers reducing or eliminating their presence there. The $200 million announced is “significantly below” Citi’s estimate that the assets would be worth $450 million, the analysts said. Management had expected the Mississippi Lime assets would be among the tougher to sell, they said.
Schlumberger Cut Another 2,000 Jobs in First Quarter as Profit Fell 49% - WSJ: Schlumberger Ltd. on Thursday said it laid off another 2,000 employees during the first quarter as it reported that earnings for the period dropped 49% on significantly lower sales. Since November 2014, when the oil bust started to take hold of the energy industry, Schlumberger has cut 36,000 jobs, or 28% of its workforce. The first three months of the year were some of the worst yet in this downturn, as oil company customers continued to slash their spending and drilling and other well work ground to a halt, the company said. Schlumberger, the largest oil-field services outfit in the world, booked a profit of just $501 million amid tumbling revenue as energy producers dialed back their orders for the company’s services drilling and fracking wells. “The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis,” said Paal Kibsgaard, chief executive. Companies that sell oil-field services are considered a bellwether for the health of the oil and natural gas sector, and Schlumberger is the first big firm of the sort to report first-quarter results. Halliburton Co. and Baker Hughes Inc., competitors that have a pending merger deal, are set to report Monday and Wednesday, respectively.
It's A "Full-Scale Cash Crisis" In Oil Schlumberger CEO Admits --For the latest indication of how bad the recession in the US sector field is, we took a look at last night's Schlumberger results which were modestly better than expected, beating expectations of $0.37 by one cent, however as usual the non-GAAP adjusted bottom line did not tell the full story. The Company's net income plunged nearly 50%, to $501 million, or 40 cents a share, from $975 million, or 76 cents, a year earlier. Profit fell in the first quarter as the company, which helps explorers find pockets of oil underground and drill for it, adjusts to shrinking margins in North America as customers scale back work. Customers are slashing spending by as much as 50 percent in the U.S. and Canada. "It’s a weak beat mainly because they guided estimates down," Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none, said in a phone interview. "North America came in weaker than we expected."The world's No.1 oilfield services provider said its costs to do business in North America exceeded the revenue it earned there in the quarter, the first time it had negative margins in the region since oil prices started falling in mid-2014. "North America was the biggest surprise to the downside, with negative margins, which did not occur during 2008-2009 oil drop,"
Halliburton Fires One Third Of Global Staff: "What We Are Experiencing Today Is Far Beyond Headwinds" -- In a brutally frank and painfully honest first quarter operational update, Halliburton president Jeff Miller poured freezing cold water all over the "oil is stabilizing, and everything is going to be awesome" narrative. After explaining that the firm has laid off one-third of its global employees, and pointing to the collapse in sequential revenues across every business unit, Miller exclaimed: "What we are experiencing today is far beyond headwinds; it is unsustainable." Due to the deadline of its merger agreement with Baker Hughes Halliburtion has delayed its earnings conference call until May 3rd and so gave an operational update. The healdlines were horrific:
- *HAL SEES OVER 30% DROP IN YR GLOBAL DRILLING, COMPLETION SPEND
- *HALLIBURTON CUT ABOUT 1/3 OF STAFF GLOBALLY
- *HALLIBURTON CUT OVER 6,000 JOBS DURING 1Q
- *HALLIBURTON SEES ADDITIONAL 50% DECLINE IN NORTH AMERICA SPEND '16
Dave Lesar, Chairman and CEO, began the dismal update... "Life has changed in the energy industry, especially in North America, and over the past several quarters we have taken the steps to adapt to that fact. Operators globally are under immense pressure, and many of our North America customers are fighting to maintain some value for their shareholders. Our. Our customers have taken defensive actions to solidify their finances including significant reductions to headcount and capital spend. While these were necessary actions, it clearly will result in production declines in the back half of 2016. But even when operators feel better about the markets, they will still face issues of balance sheet repair and we believe they will be cautious in adding rigs back." And then President Jeff Miller unloaded... What we are experiencing today is far beyond headwinds; it is unsustainable. My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now.
Seventy Seven Energy Plans to File for Bankruptcy - Oil-field services provider Seventy Seven Energy Inc. said Tuesday that it plans to file for Chapter 11 bankruptcy protection and that it has reached a restructuring agreement with many of its lenders, becoming the latest casualty of the energy-price downturn. Seventy Seven's planned bankruptcy is slated to convert debt into common shares of a new company. Seventy Seven Energy said operations will continue and that suppliers, contractors and employees will continue to be paid throughout the bankruptcy process. Seventy Seven said it has already reached an agreement with some of its lenders. Lenders of a $650 million 2019 note will receive 96.75% of the company's new common stock to be issued, pending a vote by other lenders. Holders of a $450 million 2022 note will vote on whether to accept 3.25% of the company's new common stock and warrants worth up to 15% of the new company's value. The company intends to start a prepackaged Chapter 11 proceeding on or before May 26.
Why Are Bankrupt Oil Companies Still Pumping? -- A central tenet in the thesis by analysts about the oil markets rebalancing has been that as prices declined, oil companies would be forced into bankruptcy. That in turn would lead to declining production, and eventually a rebalancing of supply and demand in the market, followed by higher prices. That process is already taking longer than many expected, and it looks like more time is needed. That additional time to balance the market is being driven by an unexpected factor; bankrupt oil companies are still pumping. Reuters cited Magnum Hunter as a primary example of this reality. Nearly all of Magnum Hunter’s 3000 wells are still producing crude, and that makes sense for several reasons. First, daily costs for operating wells remain well below current spot prices. While drilling new wells is not economical, it is perfectly logical to keep exploiting existing wells. Fracked wells usually start to see a significant decline in production after about two years of operations. So eventually Magnum Hunter and other companies will see their production fall, but two years can be a very long time to pump. Second, creditors want to extract maximum value from the company and the best way to do that in the current environment is to keep the oil flowing. This oil can either be stored leading to a large risk free profit, or it can be sold on the spot market. Either way, Magnum Hunter and other bankrupt producers are acting in the best interests of their creditors by continuing to pump. Third, management at bankrupt producers also have little reason to do anything other than keep the crude flowing. In the current energy market, getting a job is very difficult, especially for top managers coming from a bankrupt producer. As a result, managers rationally want to make sure they stay useful in Chapter 11 and that means trying to convince creditors to keep the company operating rather than converting to a Chapter 7 liquidation. Not all O&G firms should be kept operating – some firms are better off being liquidated – but creditors often lack the necessary industry expertise to be able to distinguish between firms that have a future after emerging from Chapter 11, and those that don’t and are better off in a Chapter 7 sale.
Will the Upheaval in Fossil Fuel Industry Take the Rest of the Economy Down With It? - It’s not looking good for the global fossil fuel industry. Although the world remains heavily dependent on oil, coal and natural gas—which today supply around 80 percent of our primary energy needs—the industry is rapidly crumbling.This is not merely a temporary blip, but a symptom of a deeper, long-term process related to global capitalism’s escalating overconsumption of planetary resources and raw materials.New scientific research shows that the growing crisis of profitability facing fossil fuel industries is part of an inevitable period of transition to a post-carbon era.But ongoing denialism has led powerful vested interests to continue clinging blindly to their faith in fossil fuels, with increasingly devastating and unpredictable consequences for the environment.Bankruptcy EpidemicIn February, the financial services firm Deloitte predicted [3] that over 35 percent of independent oil companies worldwide are likely to declare bankruptcy, potentially followed by a further 30 percent next year—a total of 65 percent of oil firms around the world. Since early last year, already 50 North American oil and gas producers have filed bankruptcy.The cause of the crisis is the dramatic drop in oil prices—down by two-thirds since 2014—which are so low that oil companies are finding it difficult to generate enough revenue to cover the high costs of production, while also repaying their loans.Oil and gas companies most at risk are those with the largest debt burden. And that burden is huge—as much as $2.5 trillion [4], according to The Economist. The real figure is probably higher. At a speech at the London School of Economics in February, Jaime Caruana of the Bank for International Settlements said [5] that outstanding loans and bonds for the oil and gas industry had almost tripled between 2006 and 2014 to a total of $3 trillion. This massive debt burden, he explained, has put the industry in a double-bind: In order to service the debt, they are continuing to produce more oil for sale, but that only contributes to lower market prices. Decreased oil revenues means less capacity to repay the debt, thus increasing the likelihood of default.
Low oil prices don't cut into US production by much - When a commodity costs more to produce than the current market price, producers usually stop producing it. But when it comes to U.S. crude, a global crash in prices hasn't been matched by deep cuts in production. The biggest impact so far has been felt on investment in new wells, as U.S. producers big and small have slashed capital spending and sidelined drilling rigs. As of this month, about 350 rigs were drilling for oil in the U.S. — about a quarter of the peak in October 2014.That pullback has brought economic pain to much of a U.S. oil industry that saw big gains in jobs and wages during a production surge that began in 2012. But while investment in new production has dried up, oil continues to flow from the wells that have already been drilled. Overall output has fallen by about 6 percent since peaking a year ago, but many producers have opted to keep on pumping, even as prices remain stuck at around $40 a barrel — less than half the peak of mid-2014. In the past, when rising surpluses pushed crude prices lower, major producers like Saudi Arabia cut back output to tighten supplies, boosting prices. But as American and Canadian producers have expanded production, Middle East producers continued to pump, hoping the crash in prices would push higher-cost North American producers out of business. With North American production holding up, that strategy backfired. Many oil-producing nations have pushed for an output freeze, but after meeting this weekend in the Qatari capital of Doha, 18 exporting nations, including non-OPEC member Russia, were unable to agree to a deal to stabilize output at January levels
Expected decrease in Lower 48 oil production is partially offset by rising GOM output - Today in Energy - U.S. (EIA) In response to continued low oil prices, onshore crude oil production in the Lower 48 states is expected to decline from an average of 7.41 million barrels per day (b/d) in 2015 to 6.46 million b/d in 2016 and to 5.76 million b/d in 2017. Increased production from the federal Gulf of Mexico (GOM) is not enough to offset those declines, with total projected U.S. production falling from 9.43 million b/d in 2015 to 8.04 million b/d in 2017. The sharp decline in oil prices since the fourth quarter of 2014 has had a significant effect on drilling in the United States. The number of active onshore drilling rigs in the Lower 48 states fell 78% (from 1,876 to 412) between the weeks ending on October 31, 2014, and April 15, 2016, according to data from BakerHughes. The decline in active rigs and well completions is projected to result in month-over-month onshore oil production declines of 120,000 b/d through September 2016. In EIA's April Short-Term Energy Outlook (STEO), the 95% confidence interval for market expectations for prices in December 2017 is relatively wide, with upper and lower limits of $20 per barrel (b) and $100/b, respectively. EIA's April STEO forecasts Brent crude oil prices averaging $35/b in 2016 and $41/b in 2017, with the December 2017 price averaging $45/b. EIA projects that the number of operating rigs in the Lower 48 states will continue to decrease through mid-2016 before beginning to slowly increase. In contrast to the forecast of declining Lower 48 onshore production through 2017, federal Gulf of Mexico oil production is projected to increase from 1.54 million b/d in 2015 to 1.66 million b/d and to 1.82 million b/d in 2016 and 2017, respectively. Alaska's oil production is projected to slightly decrease from 0.48 million b/d in 2015 to 0.47 million b/d in 2016 and to 0.46 million b/d in 2017.
Total U.S. energy production increases for sixth consecutive year - Today in Energy - U.S. (EIA) Total U.S. energy production increased for the sixth consecutive year. According to data in EIA's most recent Monthly Energy Review, energy production reached a record 89 quadrillion British thermal units (Btu), equivalent to 91% of total U.S. energy consumption. Liquid fuels production drove the increase, with an 8% increase for crude oil and a 9% increase for natural gas plant liquids. Natural gas production also increased 5%. These gains more than offset a 10% decline in coal production. The United States saw little change in production from nuclear electric power and renewable energy (across all sectors) in 2015. However, the United States saw shifts in the sources of electricity generation from renewable fuels, as declines in hydroelectric generation were mostly offset by increases in electricity genertation from wind and solar. Other highlights for electricity generation in 2015 include:
- Net imports continued to decline. U.S. primary energy net imports declined for the 10th consecutive year. Imports rose 2%, but that increase was outpaced by a 6% increase in exports. Petroleum products accounted for 71% of U.S. primary energy exports.
- Coal led the decrease in consumption. Primary energy consumption declined 1% between 2014 and 2015. Coal consumption fell 13% over the same period. The decrease was mostly offset by a 3% increase in natural gas consumption and a 1% increase in petroleum consumption.
- Carbon dioxide emissions fell. After increasing in 2013 and 2014, U.S. carbon dioxide emissions from energy consumption fell by 2% in 2015. An increase in natural gas used for power generation, largely replacing coal, was the primary reason for this decrease, as natural gas is less carbon-intensive than coal.
US shale production will shape the future of global commodity markets (video) During my time at Platts, I've seen the US shale revolution gain ground and then dominate much of the conversation around energy in America. Its growth was so rapid and production so prolific that it drew attention around the world, and US shale is again changing as the world's markets seek a new balance. From crude oil to refined petroleum products, from natural gas to LNG and NGLs, from feedstocks to petrochemical products, US shale made a huge impact on many sectors. In this Snapshot video, I share how shale's products are spreading into markets around the world, and where future demand may lie.
Oil majors show interest in Mexico's offshore auction: Mexico’s forthcoming auction of offshore oil and gas fields is drawing significant interest, according to a report by Fuel Fix. So far, 21 companies have asked to review data on fields within Mexico’s territorial waters in the Gulf of Mexico. Major oil companies, such as ExxonMobil, BP, and Chevron, have expressed interest in the available fields. The country will auction 10 blocks of hydrocarbon resources in December. “Deepwater is the big prize,” Pablo Medina, an analyst at Wood Mackenzie said. Four blocks sit on the maritime border with the United States in the Perdido Fold Belt. Several oil majors have explored this area and produced dozens of commercially successful wells. The other sites are located in the Salina Basin along the southern rim edge of the Gulf of Mexico. The sale is a part of Mexico’s historic privatization of its energy sector. For the first time in 75 years, Mexico will open its deepwater reserves to private companies. Previously, state-owned petroleum giant Pemex dominated Mexico’s energy sector. Shallow water and onshore blocks have already been auctioned off to private drillers. Mexico’s energy ministry awards license contracts. The country’s energy reform began in 2013, effectively ending the decades-long monopoly of Pemex.
Hundreds Evacuated After Massive Explosion Rocks Pemex Oil Facility In Mexico -- Hundreds have been evacuated following a blast at a Pemex oil facility in southern Mexico. The blast occurred in in the port city of Coatzacoalcos. According to Bloomberg, the explosion occurred at Clorados 3 petrochemicals unit of Pajaritos complex in the port of Coatzacoalcos in Veracruz state, says co. spokesperson Alfonso Villalobos on phone. First responders are attending the emergency, according to tweet from Veracruz civil protection official twitter account. As Breaking News adds, the explosion happened just before 4 p.m. CT on Wednesday at the Pajaritos complex near the Coatzacoalcos River, according to the Civil Protection agency in Veracruz. It said emergency services were at the scene. Photos from the scene showed huge plumes of black smoke rising from the site, but details about the exact circumstances of the incident were not immediately known. Pemex reported that at least 3 workers had been injured. The cause of the blast is unknown at this time.
24 dead in Mexico petrochemical plant blast, 8 still missing - (AP) — The death toll from an explosion that ripped through a petrochemical plant on Mexico’s southern Gulf coast is now 24, state oil company Petroleos Mexicanos reported. Pemex raised the toll late Thursday from the 13 fatalities previously known and said eight workers remained missing. It also said 19 people remained hospitalized, with 13 of them in serious condition. In a statement, the company said 12 of the bodies had been identified and eight of them delivered to family members. Earlier in the day, President Enrique Pena Nieto toured the facility in the industrial port city of Coatzacoalcos and met with relatives desperate for word on the fate of loved ones still unaccounted for. “I understand the anxiety, the worry, the anguish you are going through,” Pena Nieto said, assuring them that both Pemex and the Mexichem company, which co-operated the plant, would fulfill their responsibilities and compensate those hurt by the accident. About 30 families gathered at a plant entrance road, where a sharp chemical smell still hung in the air about 2 kilometers (a mile) from where the explosion occurred Wednesday afternoon. Many wore facemasks to ward off the pungent odor. Shoving broke out as people unsuccessfully tried to force their way into the installation. Some shouted at marines and soldiers who were called in to guard the facility, and they threw rocks at a white government SUV when it arrived at the scene.
British shale oil may be ready to boom : (UPI) -- The so-called Gatwick Gusher, a shale basin in the United Kingdom, could add as much as $74 billion to the nation's economy, a study finds. U.K. Oil & Gas Investments commissioned Ernst & Young to examine the future potential of oil production from the Weald shale basin. "Assuming it can be extracted from a development site at the volumes projected by U.K. Oil & Gas, has the potential to generate significant economic value to the U.K. economy," the report read. Oil & Gas U.K., the industry's lobbying group, said the North Sea oil sector is in for a long period of decline, with less than $1.4 billion in new spending expected in 2016. Inland shale, meanwhile, has the potential to add between $10 billion and $74.6 billion to the British economy in gross value, the commissioned report said. Operators are working to assess the potential in the shale area by testing the Horse Hill-1 oil discovery. Preliminary estimates made by the company last year put the entire Horse Hill reserve total as high as 100 billion barrels of oil. If its full potential is reached, the future production from the area could provide as much as a quarter of the nation's total oil demand over its lifespan, based on 2014 demand levels.
Warnings on the health effects of fracking - West Sussex Gazette: A meeting on health and fracking was held by health professionals’ charity Medact and Frack Free Sussex at Clair Hall, Haywards Heath, on Saturday. Dr Tim Thornton, a retired GP, came down from Ryedale in North Yorkshire. He spoke of the weight of peer-reviewed science gradually accumulating about the health dangers of unconventional oil and gas exploration. Areas where fracking is taking place in the USA can experience a 27% increase in hospital admissions, he said. Would Sussex hospitals cope with this increase in admissions if fracking came to this area, he asked? He spoke of ‘sacrifice zones’ around well sites, where air pollution would be a serious issue as well as potential water pollution, and he addressed the difficulty if not impossibility of adequately treating the highly toxic fluids that flow back from a fracked well. Children, he said, were particularly at risk, along with the unborn. Over 80% of the scientific papers published on fracking have come out in the last two years, he said, and over 80% of those identified health harms. Problems in children included rashes, nausea, headaches, nosebleeds, wheezing and neurological problems, and in adults increased risk of heart attack and stroke. Workers have also been shown to be at risk. Silicosis, a progressive and incurable scarring of the lungs, is one of the hazards because of breathing in the particular rare kind of sand used to ‘prop open’ the new underground fractures. ‘Don’t put your son on a frack pad, Mrs Worthington!’ he advised.
EU dropped climate policies after BP threat of oil industry 'exodus' -- The EU abandoned or weakened key proposals for new environmental protections after receiving a letter from a top BP executive which warned of an exodus of the oil industry from Europe if the proposals went ahead. In the 10-page letter, the company predicted in 2013 that a mass industry flight would result if laws to regulate tar sands, cut power plant pollution and accelerate the uptake of renewable energy were passed, because of the extra costs and red tape they allegedly entailed. The measures “threaten to drive energy-intensive industries, such as refining and petrochemicals, to relocate outside the EU with a correspondingly detrimental impact on security of supply, jobs [and] growth,” said the letter, which was obtained by the Guardian under access to documents laws. The missive to the EU’s energy commissioner, Günther Oettinger, was dated 9 August 2013, partly hand-written, and signed by a senior BP representative whose name has been redacted. It references a series of “interactions” between the two men – and between BP and an unnamed third party in Washington DC – and welcomes opportunities to further discuss energy issues in an “informal manner”. BP’s warning of a fossil fuel pull-out from Europe was repeated three times in the letter, most stridently over plans to mandate new pollution cuts and clean technologies, under the industrial emissions directive. This reform “has the potential to have a massively adverse economic impact on the costs and competitiveness of European refining and petrochemical industries, and trigger a further exodus outside the EU,” the letter said.
Fracking fears in WA 'food basket' Dandaragan - ABC News -- Farmers in the fertile farmlands of Dandaragan in Western Australia's Mid West are taking on the unconventional gas industry, saying the area should be out of bounds to frackers. The area has been earmarked as a possible agriculture hotspot under the WA Government's $40 million Water for Food program. However it is also covered by a gas exploration permit held by Perth-based company Transerv Energy. Farmer Ian Minty, 77, has argued the two land uses were not compatible. "It's not a big proportion of the state that's arable and good farming land," Mr Minty said. "To consider putting that at risk just to get quick bucks, I just think it's totally ridiculous." Mr Minty and his neighbour, potato farmer Mick Fox, have both refused to give Transerv Energy access to carry out an environmental survey, despite the company saying it had no plans to use the controversial gas extraction technique known as fracking.Their fears come as John Fenton, a farmer from Wyoming in the US, who is touring WA farming communities on behalf of the anti-fracking group, Lock the Gate Alliance. Mr Fenton said he had 24 tight wells on his farm in Pavillion, Wyoming. "We can no longer use our bore water, our groundwater has been contaminated, we now have to ventilate our home anytime we take a shower to prevent the build up of methane in our home," Mr Fenton told 720 ABC Perth. "We've suffered health impacts. My wife has lost her sense of smell, her sense of taste."
Watch: River Explodes Into Flames From Methane Coming From Nearby Fracking Sites -- So much methane gas is now bubbling up through the Condamine River in Queensland, Australia that it exploded with fire and held a large flame. Gas seeping into the river began shortly after coal seam gas operations started nearby and is growing in volume and the stretch of river affected is expanding in length. Greens MP Jeremy Buckingham travelled to Chinchilla in South Western Queensland to investigate the impact of the coal seam gas industry on the environment as part of the Greens’ campaign to ban fracking and unconventional gas in Australia.“I was shocked by the force of the explosion when I tested whether gas boiling through the Condamine River, Qld was flammable,” Buckingham said. “So much gas is bubbling through the river that it held a huge flame for over an hour.” Watch here: Methane was first discovered bubbling through the Condamine River near Chinchilla in 2012 where coal seam gas wells had been drilled by Origin Energy nearby. There are hundreds of wells in the immediate area, with three companies—Origin Energy, QGC and Arrow Energy—all operating coal seam gas fields nearby. Locals say the river has never bubbled like this historically. Government investigations found (page 19) that the source of the gas was “consistent with gas originating from Surat Basin geological formations.” The concern is that depressurising the coal seams for gas extraction has caused methane gas to flow up other cracks, fissures, bores, to the surface—such as through the Condamine River. This is directly polluting the river and the air, but also methane is a potent greenhouse gas and these fugitive emissions are a major concern. Not only is the gas bubbling becoming more intense recently, but it is spreading to a greater length of the river. Origin Energy, which operates wells in close proximity to the gas seep, has installed some monitoring pipework, and the Queensland government has put stakes on the river bank to mark each visible seep.
What Everyone Is Missing In The Oil Supply/Demand Conundrum -- Gail Tverberg -- Oil production can be confusing because there are various “pieces” that may or may not be included. In this analysis, I look at oil production of the United States broadly (including crude oil, natural gas plant liquids, and biofuels), because this is the way oil consumption is defined. I also provide some thoughts regarding the direction of future world oil prices. US oil production clearly flattened out in 2015. If we look at changes relative to the same month, one-year prior, we see that as of December 2014, growth was very high, increasing by 18.0% relative to the prior year. By December 2015, growth over the prior year finally turned slightly negative, with production for the month down 0.2% relative to one year prior. It should be noted that in the above charts, amounts are on an “energy produced” or “British Thermal Units” (Btu) basis. Using this approach, ethanol and natural gas liquids get less credit than they would using a barrels-per-day approach. This reflects the fact that these products are less energy-dense. Figure 3 shows the trend in month-by-month production. The high month for production was April 2015, and production has been down since then. The production of natural gas liquids and biofuels has tended to continue to rise, partially offsetting the fall in crude oil production. Production amounts for recent months include estimates, and actual amounts may differ from these estimates. As a result, updated EIA data may eventually show a somewhat different pattern.Taking a longer view of US liquids production, this is what we see for the three categories separately: Growth in US liquid fuel production slowed in 2015. The increase in liquid fuels production in 2015 amounted to 1.96 quadrillion Btus (“quads”), or about 59% as much as the increase in production in 2014 of 3.34 quads. On a barrels-per-day (bpd) basis, this would equate to roughly a 1.0 million bpd increase in 2015, compared to a 1.68 million bpd increase in 2014. The data in Figure 4 indicates that with all categories included, 2015 liquids exceeded the 1970 peak by 16%. Considering crude oil alone, 2015 production amounted to 98% of the 1970 peak. Figure 5 shows an approximate breakdown of crude oil production since 1945 on a bpd basis.The big spike in production is from tight oil, which is another name for oil from shale.
Draft Doha agreement would freeze oil output until October: A meeting between OPEC and non-OPEC oil producers on an agreement to freeze output ran into last-minute trouble in Qatar on Sunday due to what looked like a new spike in tensions between Saudi Arabia and Iran, sources told Reuters. Oil ministers met with the Qatari emir, Sheikh Tamim bin Hamad al-Thani - who was instrumental in promoting output stability in recent months - in an attempt to rescue the deal designed to bolster the flagging price of crude. According to two sources, Saudi Arabia said it wanted all OPEC members to participate in the talks, despite insisting earlier on excluding its regional arch-rival Iran because Tehran had refused to freeze production. "The Saudis changed everything early this morning," an OPEC source said. "They want all OPEC members to join first." Failure to reach a global deal - the first in 15 years between OPEC and non-OPEC nations - would signal the resumption of a battle for market share between key producers and likely halt a recent recovery in prices. Brent oil has risen to nearly $45 a barrel, up 60 percent from January lows, on optimism that a deal would help ease the supply glut that has seen prices sink from levels as high as $115 hit in mid-2014. Saudi Arabia has taken a tough stance on Iran, the only major OPEC producer to have refused to participate in the freeze. Tehran says it needs to regain market share after the lifting of international sanctions against it in January. Deputy Crown Prince Mohammed bin Salman told Bloomberg that the kingdom would restrain its output only if all other major producers, including Iran, agreed to freeze production.
Doha Oil-Freeze Talks Delayed to Address Saudi-Iran Differences - Talks in Doha between some of the world’s biggest oil producers on freezing production have been delayed until later Sunday amid changes to the wording of the agreement, in part to address differences between Saudi Arabia and Iran. “The general agreement is in place,” . “Now there is some disagreement on the wording and maybe this afternoon we are going to finish,” he said, adding that details on the monitoring of the agreement and a follow-up meeting were also to be finalized. Sixteen nations representing about half the world’s oil output have gathered in the Qatari capital in a bid to stabilize the global market. On April 14, Saudi Arabia’s Deputy Crown Prince said the nation wouldn’t agree to restrain its production unless other producers, including Iran, agree to freeze. Iran, which isn’t attending the meeting, has ruled out joining the accord for now. Crude oil has rallied since the freeze was first mooted in February. If the group were to fail to reach an agreement it would lead to a “severe” drop in prices, Citigroup Inc. predicted before the meeting. . “Discussions are at a very high level between the Saudis, Russians and Gulf countries,” over Iran’s output, said Pastor. The Persian nation is restoring exports after sanctions over its nuclear program were lifted in January. It plans to boost output to 4 million barrels a day in the Iranian year through March 2017, Oil Minister Bijan Namdar Zanganeh said April 6. That would be an increase of about 800,000 barrels a day from March production. Iran’s crude shipments have risen by more than 600,000 barrels a day this month, according to shipping data compiled by Bloomberg.
Oil freeze deal faces trouble as Saudi-Iran tensions spike | Reuters: A spike in tensions between arch-rivals Saudi Arabia and Iran appeared on Sunday to ruin prospects of the first binding oil output deal in 15 years between OPEC and non-OPEC nations, and looked set to prompt another fall in the price of crude. Some 18 OPEC and non-OPEC oil producers, including Russia, had been meant to meet in the Qatari capital of Doha on Sunday morning and quickly rubber-stamp a deal to freeze output at January levels until October 2016. But the meeting was postponed after OPEC's de facto leader Saudi Arabia told participants it wanted all OPEC members to take part in the freeze, according to OPEC sources. Riyadh had earlier insisted on excluding Iran from the talks because Tehran had refused to freeze production, seeking to regain market share after the lifting of Western sanctions against it in January. With the deal running into trouble, oil ministers in Doha met with the Qatari emir, Sheikh Tamim bin Hamad al-Thani - who was instrumental in promoting output stability in recent months. But a new draft seen by sources thereafter contained none of the binding points of the previous outline. Ministers are due to start talks at around 1200-1230 GMT (8:00-8:30 am EDT), according to sources. "I am not sure you can call it a freeze," one OPEC source said. A senior oil industry source said: "The problem now is to come up with something that excludes Iran, makes the Saudis happy and doesn't upset Russia." Failure to reach a global deal would signal the resumption of a battle for market share between key producers and likely halt a recent recovery in prices.
Saudi Insistence on Iranian Input Casts Doubt on Oil Deal - Oil producers that supply nearly half of the world’s output started a day of negotiations over a possible freeze with what participants described as a draft deal. But Sunday’s meeting quickly turned to sniping and confusion after Saudi Arabia’s delegation appeared to step back from any agreement without rival Iran. Ahead of the meeting, delegates circulated a draft accord that calls for freezing output at January levels until October 1, 2016, to gauge its effect on prices. The freeze, first suggested in February by big producers like Saudi Arabia and Russia, is intended to limit global supply and bolster prices. It seems to be playing out pretty much as expected: sniping among the tribes. And confusion. The draft, reviewed by The Wall Street Journal, calls for a monitoring committee comprising members of the Organization of the Petroleum Exporting Countries and other countries that would be charged with ensuring compliance among signatories. Ryadh has publicly signaled it won’t consider a freeze without Iran. Saudi Crown Prince Mohammed bin Salman, the country’s top economic official, repeated that view over the weekend, in an interview by Bloomberg published Saturday. That tone contrasted with the kingdom’s delegation here, led by longtime Saudi Oil Minister Ali al-Naimi. He landed in Doha Saturday and has declined to comment ahead of the meeting. But people familiar with the Saudi delegation’s thinking said Riyadh was willing to sign a deal despite what they described as “political” statements from Prince Salman.
"I Am Not Sure You Can Call It A Freeze" - OPEC Deal In Jeopardy As Saudi-Iran Tensions Spike: All The Latest -- Following last night's leaked draft Doha document, which envisions a non-binding, "gentleman-like" oil freeze agreement, that caps production at January levels until October, with zero enforcement or oversight, moments ago the formal Doha talks started: However, even before the start, things did not look good, when Saudi Arabia delayed the start of the meeting in what seemed to be a redrafting to account for the inclusion of Iran as part of the freeze, something which Iran has clearly said it won't do. Doha oil meeting delayed after Saudis request changes Furthermore, we already know what the next strawman: yet another meeting which will keep the headline scanning algos busy
- OIL PRODUCERS SAID TO PLAN NEXT FREEZE MEETING IN RUSSIA OCT.20
Or as one commentator put it, "more meetings, more jawboning.It's OPEC's OMT program. Freeze won't happen,but they hope pretending it will, will do the trick" which is exactly the point. So where are we now? According to Reuters things are not as "optimistic" as Ecuador, Venezuela and many of the other high-cost, and quite desperate, OPEC producers had hoped ahead of the meeting. According to the wire service, "a spike in tensions between arch-rivals Saudi Arabia and Iran appeared on Sunday to ruin prospects of the first binding oil output deal in 15 years between OPEC and non-OPEC nations, and looked set to prompt another fall in the price of crude."But the meeting was postponed after OPEC's de facto leader Saudi Arabia told participants it wanted all OPEC members to take part in the freeze, according to OPEC sources.Riyadh had earlier insisted on excluding Iran from the talks because Tehran had refused to freeze production, seeking to regain market share after the lifting of Western sanctions against it in January.With the deal running into trouble, oil ministers in Doha met with the Qatari emir, Sheikh Tamim bin Hamad al-Thani - who was instrumental in promoting output stability in recent months.But a new draft seen by sources thereafter contained none of the binding points of the previous outline. Ministers are due to start talks at around 1200-1230 GMT, according to sources. "I am not sure you can call it a freeze," one OPEC source said.
Oil meeting in Qatar collapses without freeze as Iran absent (AP) — A meeting of oil-rich countries in Qatar that had been expected to boost crude prices by freezing production fell apart Sunday as Iran stayed home and vowed to increase its output despite threats by Saudi Arabia. Oil prices, which hit a 12-year low in January by dipping under $30 a barrel, had risen above $40 in recent days, buoyed by the bullish talks surrounding the Doha summit. But instead of a quick approval of a production freeze, the meeting of 18 oil-producing nations saw hours of debate and resembled the dysfunction of an unsuccessful meeting of the Organization of the Petroleum Exporting Countries in December that sent oil prices tumbling. The fact that producers couldn’t agree to a freeze, let alone a production cut, likely means oil prices will drop again as markets open Monday. “Prices will trade lower. Maybe sharply lower,” said Robert Yawger, director of energy futures at Mizuho Securities USA, noting the failure to reach agreement in Doha. He noted that other factors were negatively impacting prices: U.S. crude oil storage remaining at all -time highs, Iran increasing production, and Libya looming on the horizon to boost output.
Saudi Arabia is the OPEC Villain (Video) - Saudi Arabia really should negotiate a Production Freeze agreement where Iran can get back to producing 4 Million Barrels per day. Russia and Saudi Arabia both need to start cutting Oil Production and not just freezing oil production at all time production highs. They should be following what the Shale Industry is doing with regard to production cuts in the United States. It is unreasonable to expect Iran after 20 years of sanctions not to be able to ramp up some production as Saudi Arabia (A fellow OPEC Member) has gained much oil market share at Iran`s expense over the last 20 plus years of international sanctions.
Goldman On Doha: "Bearish For Prices ", Expect "High Price Volatility"; Saudi Oil Production May Jump -- The one piece in the below report that is not pure "duh" (or rather "D'oh") is Goldman's warning that "we view risks to our Saudi forecast as skewed to the upside" - if indeed the warning by the Saudi deputy crown prince Mohammed bin Salman is a hint of what's coming, and Saudi Arabia does boost oil production by 1MM barrels overnight as bin Salman casually hinted earlier in a Bloomberg interview, then watch out below. Here is Goldman's take: OPEC and several non-OPEC producers failed to reach an agreement to freeze production in Doha today, Sunday April 17. Participants commented on requiring more time to reach a dealalthough the key stumbling block appears to be the requirement by Saudi Arabia that Iran participates. Saudi’s stance is consistent with comments by deputy crown prince Mohammed bin Salman during two interviews with Bloomberg this month (April 1 and Thursday April 13) and goes against Iran’s long held goal to quickly increase production to recover market share. On its own, we view this outcome as bearish for oil prices given consensus expectations for a “soft guidance” freeze at January production levels. But this lack of an agreement does not imply that OPEC production will recover in the short-term, as the year-to-date stabilization owes to ongoing disruptions and maintenance rather than coordination. It is further of no impact to our forecasts as year-to-date production of OPEC (ex. Iran) and Russia have remained close to our 2016 average annual forecast of 40.5 mb/d.
Oil price falls after Doha summit of OPEC, other producers ends without output freeze deal:.Oil prices tumbled more than 5 percent, after the world's largest oil-producing countries failed to strike a deal to freeze output. During Asian hours on Monday, U.S. crude futures fell 5.72 percent at $38.05 a barrel, while global benchmark Brent was down 5.22 percent at $40.85. Energy stocks in the region tumbled, with shares of Santos falling 6.95 percent, Oil Search down 5.08 percent and Woodside Petroleum easing by 2.64 percent. Japan's Inpex tumbled 7.39 percent while Japan Petroleum fell 6 percent. A deal between nearly 20 of the world's largest oil exporters, including Saudi Arabia and non-OPEC member Russia, had been hoped to formalize an output freeze at January levels. In February, Russia, Saudi Arabia, Qatar and Venezuela agreed to freeze output if other producers would join them. Optimism of an agreement was hit early after Iran made a last minute decision not to attend, and OPEC's defacto leader Saudi Arabia vowed not to freeze production unless other major producers did the same. Angus Nicholson, a market analyst at IG, pointed to the geo-political dynamic in the Middle East as a contributing factor for the failure to agree to a deal. Nicholson said the Saudis will have little inclination to "freeze their own production and make way for newly sanctions-free Iran to increase their market share," given the proxy wars the two countries are fighting in Yemen and Syria-Iraq. Iran has consistently maintained that it would not consider freezing or reducing production level until it regained its market share, following the lifting of the international sanctions in January.
Oil Prices Fall After Producers Fail to Reach Deal at Doha - WSJ: Oil prices opened sharply lower in Asian trading hours on Monday after major oil producers ended their meeting in Doha, Qatar, over the weekend without reaching an agreement to cap production. Hopes for a deal among major producers, including several from the Organization of the Petroleum Exporting Countries and Russia, were a main driver in a rally that lifted U.S. crude prices more than 50% from their February lows. U.S. crude settled at $41.50 a barrel on Friday. Now, much of those gains could be eroded in a market that has already endured a turbulent year, analysts say. U.S. crude plunged 6.7% at $37.70 a barrel and Brent was down 6.9% at $40.14 a barrel in early Asian trading. “This is an extremely bearish scenario,” said Abhishek Deshpande, oil analyst at Natixis. “Prices could touch $30 a barrel within days.” Steep falls in crude could also weigh on equity markets more generally. Stocks have often moved alongside oil this year. Bank shares, for instance, many of which have large energy portfolios, have been pressured by the declines in oil.
Saudi Arabia says it can flood the oil market with over 1 million extra barrels right away - Saudi Arabia says it can flood the market with a lot more oil. Immediately. Deputy Crown Price Mohammed bin Salman said The Kingdom could increase output to 11.5 million barrels a day right away, and up to 12.5 million within six to nine months "if we wanted to." "I don’t suggest that we should produce more, but we can produce more,” he said. “We can produce 20 million barrels of oil per day if we invested in production capacity, but we can’t produce beyond 20 million," he added. Data compiled by Bloomberg indicates the Saudis produced about 10.2 million barrels a day in March. Mohammed bin Salman's comments come ahead of Sunday's meeting among oil producers in Doha, Qatar to discuss a potential production freeze. It is not clear to what extent his comments reflect the thinking of the Saudi leadership and king, but they could raise tensions ahead of the meeting after several weeks of mostly conciliatory statements from market players. Notably, most analysts aren't getting their hopes up ahead of the talks — especially since the Saudis keep reiterating that they won't cut production unless others (read: Iran) do, too. However, Iran isn't even going to the meeting. "As it stands now, we believe that the most likely outcome is that producers fail to close the deal and announce a freeze on Sunday, but that they instead pledge to continue to conversation and even possibly put an additional OPEC/non-OPEC meeting on the calendar for later in the year," Helima Croft, the head of commodities research at RBC Capital Markets, wrote in a note to clients on Thursday. "Saudi Arabia and Iran do not appear ready to give sufficient ground to get a comprehensive freeze agreement done by Sunday, given current information," she explained.
The Day After Doha -- April 18, 2016 -- It's my understanding that Kuwait did not support a freeze. The Kuwaiti government has financial challenges of its own -- due to low price of oil -- and are cutting back on oil workers' pay/benefits. Those workers go on strike, threatening to take a million bopd off the global export market. ABC News is reporting: Oil workers in Kuwait went on strike Sunday to protest proposed government cutbacks as the OPEC nation grapples with a prolonged slump in crude prices. Thousands of workers gathered for demonstrations at the start of the local workweek in the town of Ahmadi, where the state-run Kuwait Oil Co. has its headquarters, some 40 kilometers (25 miles) south of Kuwait City. Protesters held signs reading "Stop meddling with the rights of the oil sector workers!" and "We will not allow you to take away our rights," witnesses said. Oil worker unions approved the strike last week after failing to reach common ground with Kuwait's Oil Ministry. Kuwait produces, in round numbers, 3 million bopd crude oil and exports 2 million bopd. In round numbers, about 250,000 bopd of Kuwait crude oil ends up in the US.
Volatility Returns to Oil Market After OPEC Deal Fails - It’s back to Square 1 for the oil markets.The failure of major producers to agree on an output freeze at a highly anticipated meeting in Doha, Qatar, this weekend underscored the still long and painful road to stabilize energy markets.The news pushed down oil prices as traders were caught flat-footed by the lack of agreement. The markets had assumed that a deal was close when energy ministers from members of the Organization of Petroleum Exporting Countries as well as Russia met on Sunday.But the last-minute absence of Iran, one of the OPEC’s biggest producers, helped scuttle any deal after Saudi Arabia insisted that the entire group participate in an agreement. Eager to increase oil output to its pre-sanction levels, Iran had ruled out a production freeze and on the eve of the meeting decided not attend the Doha gathering.While the Doha meeting might have helped set the stage for a smooth recovery in energy markets, the road ahead promises to be much more bumpy, given the glut of oil in the system. Energy analysts now expect oil markets to take longer to rebalance, as production ebbs more slowly and demand growth eventually catches up.AdvertisementContinue reading the main story Without a deal, uncertainty weighed on the markets on Monday.Crude oil futures in New York fell 1.4 percent to $39.78 a barrel. In London, Brent crude futures fell almost 7 percent in early trading but recovered most of their losses by the end of the day. Monday’s declines were limited because of an oil workers’ strike in Kuwait that significantly crimped production there.“The weekend headlines will further support the already high level of price volatility,” analysts with Goldman Sachs wrote in a report on Monday.
U.S. oil investors rush for protection at $35 as Doha talks collapse | Reuters: U.S. crude oil investors piled on bearish option bets on Monday, fearing prices may retest 12-year lows as futures prices sank almost 7 percent after talks by major exporters collapsed without agreement, erasing hopes the worldwide glut in oil would be eased. Open interest in the June puts that allow the holder to sell at $35 per barrel hit a record high above 36,000, up 8 percent from Thursday and more than double levels seen in January. Turnover in the contract, the most liquid on the massive U.S. options market, was high, too, with more than 10,000 lots traded by early afternoon, equivalent of 10 million barrels of oil worth about $370 million, as prices sank to as low as $37.61 per barrel. "Whether it's a speculator or a hedger looking to put a floor in place, the $35 strike price makes sense," said John Saucer, vice president of research and analysis at Houston-based Mobius Risk Group. "Given the fact that prices fell as low as $26.05, for people who think those lows might be retested, this gives them a little more wiggle room."
Saudi Arabia targets high-cost oil production: As oil producing countries meeting in Doha debate the possibility of limiting oil production, the fate of independent oil producers lies in the hands of some countries that have been longtime adversaries of the United States, and we are learning that some of our "friends" may not be as friendly as once thought. News emerged recently that a report regarding the Sept. 11 terrorist attack included 28-pages that were classified and have not been released to the public. Most of the airline hijackers came from Saudi Arabia; questions have been raised about the financing of the hijackers and what, if any, role the Saudi government played in the attack. Saudi Arabia, the world's largest oil exporter, led a charge within OPEC to not reduce oil production in 2014. As a matter of fact, Saudi Arabia's oil minister publicly said that they expected oil prices would continue to decline, and they hoped to drive the "high-cost" producer out of business. The U.S. became the largest oil producer in 2015, and since 2008, oil production in the U.S. has increased dramatically because of technological improvements in drilling horizontally and hydraulic fracturing shale. Oil production in the U.S. increased from roughly 4 million barrels per day to more than 9 million barrels per day. All of the new oil created a huge oversupply in the U.S. and throughout the world. Since U.S. oil production peaked at 9.9 million barrels per day in March 2015, production has declined roughly 500,000 barrels per day to 9.4 million barrels per day in January, the most current figures quoted by the Energy Information Administration. Some of the decline has come from a drop in shale production, and some of the drop has come from low producing wells, called stripper wells. In most cases, stripper wells are the highest of the high-cost wells, because they produce less than 15 barrels of oil per day and they are marginal economically.
Saudi's Other Warning Makes Oil Traders Sweat After Doha Failure (BBG) After his comments thwarted supply negotiations in Doha, oil traders are weighing another implied warning from the Saudi deputy crown prince: the threat of an intensifying clash with Iran over market share. It was Mohammed Bin Salman’s repeated assertions that the kingdom wouldn’t join an output freeze without Iran that derailed talks between 16 producing countries on April 17. In interviews with Bloomberg News, the prince cautioned that if other producers increased output, Saudi Arabia could respond in kind. Iran is restoring exports after international sanctions over its nuclear program were lifted in January. Oil prices dropped on Monday after Saudi Arabia resolved that an oil-supply freeze was possible only with the support of all OPEC members, including Iran, causing talks in the Qatari capital to unravel. Tensions between the two regional antagonists have flared as they take opposite sides in bloody conflicts in Yemen and Syria. In an interview published on April 1, Prince Mohammed said that while Saudi Arabia was ready to cap output in concert with other countries, "if there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.” The world’s largest oil exporter could increase output by more than 1 million barrels a day, or about 10 percent, to 11.5 million if there was demand for it, the prince, chairman of the Supreme Council of Saudi Arabian Oil Co., said on April 14. It could increase further to 12.5 million in six to nine months, he added. The country pumped 10.2 million a day last month, according to data compiled by Bloomberg. “This just shows how central the tensions and the rivalry in the region between Iran and Saudi Arabia are,” Dan Yergin, vice chairman at IHS Inc., said in a Bloomberg Television interview. “There’s zero trust between these two countries right now.”
The unpredictable new voice of Saudi oil -- As the fallout from collapsed oil talks in Doha reverberates, Saudi Arabia’s Mohammed bin Salman has emerged as the unpredictable new voice of the kingdom’s energy policy.The 30-year-old deputy crown prince and favoured son of King Salman was not even in the Qatari capital, where many of the world’s biggest oil producers had gathered in hopes of brokering the first global output deal in 15 years in an effort to arrest a prolonged price slide. Still, his message echoed through the marble halls of the Sheraton: there would be no production freeze without Iran.Around 3am on Sunday morning — just hours before the talks were due to begin — Prince Mohammed called the Saudi delegation, according to people briefed on the matter, and ordered them to come home. The Saudis ultimately remained, but the talks were effectively dead.The episode has left Ali al Naimi, the kingdom’s technocratic oil minister for the past 21 years, looking increasingly sidelined. While the Saudi royal family has always had the final say on oil policy, rarely has a member spoken so publicly — or freely — on its direction. Delegates from other countries had been assured Mr Naimi was there to deliver a deal.“Saudi Arabia’s oil policy is now firmly in the hands of Deputy Crown Prince Mohammed bin Salman,” said Sean Evers, managing partner of Gulf Intelligence in Doha. On Monday, Venezuela’s oil minister Eulogio del Pino said the Saudi delegation gave the impression of having “no authority to decide on anything.”
Grand Oil Bargain Is Victim of Saudi Arabia's Iran Fixation - In the end, the outcome of Sunday’s summit of 16 oil ministers at Qatar’s Sheraton hotel turned on one country that wasn’t there. Iran’s decision, on the eve of the meeting, not to attend signaled things wouldn’t go well. When ministers assembled the next day, Saudi Arabia stunned some of them by insisting every OPEC member, including Iran, must subscribe to the deal to freeze oil production. When the meeting finally broke up without a deal just after 9 p.m. local time, it fell to the host minister, Qatar’s Mohammed Al Sada, to announce the result at a press conference for the dozens of reporters who’d flown in to cover the talks. The freeze deal, mooted in February as the first coordinated action between OPEC and non-OPEC producers for 15 years, had fallen victim to tensions between Saudi Arabia and its main regional rival Iran, a relationship soured by proxy conflicts from Syria to Yemen. Mohammed bin Salman, the young Saudi deputy crown prince who’s taken control of economic policy in the world’s top oil producer, had publicly warned twice that no deal was possible without Iran’s participation. In turn, Iran insisted on its right to boost crude production to the level it pumped before it became subject to international sanctions. Iran had no intention of voluntarily sanctioning itself, the nation’s deputy oil minister said on Saturday. The government in Tehran had decided there was no point in turning up to Doha on Friday after Qatari officials contacted Iran to say only countries intending to sign up to the freeze should attend, according to a person with direct knowledge of the deliberations. Unable to meet those terms, Iran took that as a withdrawal of Qatar’s invitation and decided to stay away. Still, ministers gathered on Saturday evening in a positive mood. There was no indication Saudi Arabia had any problems with a draft text committing attendees to keep production at January levels, according to one of the participants. Russian Energy Minister Alexander Novak, who’d spoken to his Saudi counterpart by phone earlier in the week, told reporters he was “optimistic” about a deal.
Russia Frustrated After Doha Breakdown: "How Can Iran Be The Reason For Failure When It Wasn't Even Here?"- After a fierce run of chaotic headlines leading up to the Doha meeting, where speculation of deal or no-deal was enough to make blood shoot out of your eyes, the results of the meeting are finally in. As we learned earlier in the day, despite a leaked draft 24 hours earlier stating that there was in fact at least a gentleman's agreement to freeze production at January levels, the talks broke down, oil futures crashed and crushed those who got long into the weekend, and all participants left the 12 hour session without agreeing on anything except that there is still a lot of work to be done if a deal is ever going to be reached. Aside from setting up a lot of hedge funds for a bloody Monday morning, the breakdown in talks clearly frustrated Russia, who came out and blamed OPEC states for presenting demands on the morning of the talks in Doha and "undoing months of negotiations." As Russia Today reports, Russian Energy Minister Alexander Novak spoke to Russian media following the conclusion of the talks, and it was evident he was quite frustrated. Mr. Novak explained that the 11 OPEC states and seven outsiders present during the meeting had spent two months drafting an agreement that would cap oil production at January levels in an effort to stabilize oil prices, and it was all undone by the fact that Saudi Arabia, Qatar, UAE, and "predominantly other Gulf States" insisted that Iran be included in the deal (Iran did not attend the talks). The official was quoted as saying the following about the situation: "Some OPEC countries decided to change their terms at the last moment, trying to get concessions from countries that are not here. We were insisting on trying to concentrate on the countries which are." "How can Iran be the reason for the talks' failure, when it wasn't even here?"
Analysts Respond To Doha Meeting Failure: "Blow To Sentiment" - Failure to proceed with crude output freeze plan seen as a "serious blow" to oil-market sentiment by Energy Aspects; Barclays expects mounting tensions between Saudi Arabia and Iran to boost volatility. Separately, Kuwait oil workers strike viewed as price-supportive. Here, courtesy of Bloomberg, is a summary of what analysts have said so far on meeting’s outcome as well as comments on Kuwait:
- Barclays analysts including Miswin Mahesh:Meeting was a “complete failure” in terms of building trust among producers regarding future action; shows how hard it would be to ever coordinate production cuts; Event exposed “political rift” between Saudi Arabia and Iran “The uncertainty in the market with regards to the next meeting and the developing geopolitical backdrop with regards to Iran and Saudi Arabia, will continue to lead to oil market volatility”
- Energy Aspects analysts including Amrita Sen - Failure of talks is “serious blow” to sentiment even if freezing would have had little impact on supply/demand balances. Saudi demands over Iran’s participation in any potential freeze deal “hints at influence from either domestic or regional politics”
- Morgan Stanley analysts including Adam Longson: Saudis can push oil market rebalancing to 2018; Morgan Stanley sees growing risk of higher OPEC supply amid lack of agreement. Rebalancing seen in 2018 if Saudi Arabia boosts output to >11m b/d as “threatened”
- Bloomberg First Word strategist Julian Lee: Saudi Arabia won’t shed tears over breakdown of talks; Surge in supplies from Iran, Iraq just before meeting gave Saudi Arabia perfect excuse to refuse to freeze its own output. Saudi Arabia probably didn’t want oil price to go much higher since that might encourage return of higher-cost production
- Goldman Sachs analysts including Damien Courvalin: Outcome bearish because consensus was for “soft guidance” on a freeze at Jan. levels. Kuwait oil worker strike is bullish; “can lend further support to the recent strength in Brent and Dubai timespreads”
Oil Worker Strike Cuts in Half Kuwait Crude Production - WSJ: Kuwait’s crude production dropped by more than half on Sunday as thousands of its oil industry employees began an open-ended strike over government plans to cut wages. The country’s output fell to 1.1 million barrels a day, Kuwait Oil Co., the state-owned production company, said on its official Twitter account. The Organization of the Petroleum Exporting Countries member usually produces nearly 3 million barrels per day. Exports remain normal and production is “on the rise,” oil ministry spokesman Sheikh Talal al-Khaled said in a post on the Twitter account. Workers are protesting a proposal to cut wages and benefits for all public-sector employees, as the oil-dependent country considers measures to cushion the effect of falling prices on its budget. Kuwait has lagged other oil producers in the Persian Gulf in cutting spending while attempting to make up for a nearly 30% drop in oil prices last year amid a global glut. The strike comes as delegates from more than a dozen oil producing countries who gathered in Doha hoping to freeze crude output failed to clinch a deal, according to ministers leaving the meeting late Sunday. A Kuwaiti oil official said the strike could inadvertently benefit the oversupplied market. State-owned refiner Kuwait Petroleum Corp.’s output fell from 930,000 barrels a day Sunday to 520,000 barrels.
Oil Back On Track As Markets Dismiss Doha: The Doha talks collapsed over the weekend as Saudi Arabia refused to sign on to the production freeze agreement without Iran. The events were bizarre and completely defied everyone’s expectations for the summit. OPEC would have been better off if it had never agreed to stage the negotiations to begin with. Saudi Arabia backed away from the Doha talks after Iran refused to sign on. But Iran was never going to agree, so it seemed odd that Saudi Arabia tentatively agreed to a production freeze deal heading into the Doha negotiations, only to back out at the last second. Other participants, including Russia and Venezuela, had thought they were traveling to Doha to sign a deal that would be merely a formality not a debate. They certainly did not think that the meeting would end in failure. Saudi Arabia’s hostility towards Iran was in full view as it appears that the Saudi government was willing to scuttle a very weak agreement that would involve almost no sacrifice simply to avoid handing Iran a victory through modestly higher oil prices. OPEC’s official announcement was that they needed more time to discuss the agreement and would reconvene at its normally scheduled meeting in Vienna in June.The collapse of the talks illustrate the discord within the cartel, and it is hard to imagine the group taking any controversial decisions together. With Saudi Arabia once again sticking to its strategy of pursuing market share, all OPEC members are more or less left to fend for themselves. On the one hand, this leaves OPEC’s credibility in tatters. On the other, since 2014, the Saudis have put a much higher priority on the strategy to fight for market share and push out high-cost oil production around the world. OPEC’s credibility has been less important. In that sense, Saudi Arabia is not exactly upset to see Doha fall apart. While all OPEC members could be hurt from low oil prices in the interim, the real victims will be U.S. shale companies will continue to bear the brunt of the market “rebalancing,” a process that is gradual but already well underway. Why save U.S. shale now? Saudi Arabia will emerge from the oil bust with its market share intact.
Venezuela Accuses The U.S. Of Blocking Doha Oil Production Freeze -- While much of the blame for the failed Doha agreement (which impacted the price of oil for about 12 hours before another squeeze pushed both Brent and WTI back to unchanged for the day), a new allegations has emerged, this time from the Venezuela oil minister Del Pino who, after saying that he is disappointed with the Doha results (but why - oil is basically unchanged) accused none other than the US for sabotaging the Doha deal, saying that the US acted to block the Doha oil production freeze accord. Perhaps this is just more populist rhetoric; however it is curious that as many noted on Saturday, a tentative deal was effectively concluded, and only a last minute breakdown due to a spike in tensions between Iran and Saudi Arabia led to the failure of the deal. Did the State Department have anything to do with that, and if so why would Saudi Arabia cave to US pressure now that US - Saudi relations appears increasingly stretched, and with Saudi Arabia threatening the US should Obama seek to find the culprit behind Sept 11. In addition to this surprising allegation, the Venezuela minister who just spoke to reported in Moscow, said that Saudi Arabia tried to use Doha meeting to pressure Iran, adding that Saudi representatives in yesterday's meeting didn’t have authority to negotiate (so if not they, then who?) He also said that he sees Venezuela sees Iran’s position as "logical", and said that "we are going to try to recover the trust." Finally, when asked if non-OPEC producers will come to June OPEC meetings, he said that "first, we need to work inside OPEC."
Saudis Mix Politics and Oil Policy - -Saudi Arabia’s decision over the weekend to refuse to freeze oil output without Iran’s participation indicates a heightened willingness in the kingdom to mix politics and oil policy amid tensions with Tehran and Washington. Deputy Crown Prince Mohammed bin Salman’s intervention into the talks among oil-producing countries in Doha was seen by analysts as a surprisingly open display of influence over oil policy that risked being seen as political jab at Iran. Iran refused to participate in the talks and the deputy crown prince reaffirmed during the meeting that the kingdom wouldn’t do a deal without Iran, communicating that both via the media and directly to a Saudi delegation headed by the country’s long-serving oil minister, Ali al-Naimi. That was a move away from what had seemed to be a growing willingness on the part of the Saudis work with Russia and many members of the Organization of the Petroleum Exporting Countries. It comes just days before President Barack Obama’s meeting Wednesday with King Salman bin Abdul Aziz in Riyadh. Riyadh is seeking new assurances that the U.S. hasn’t ditched loyal Gulf allies in favor of Iran. Mr. Obama has made the case that Saudi Arabia and Iran should reduce longtime tensions between their two countries to help tamp down instability in the Middle East. But the kingdom’s decision instead to go it alone on oil-production policy highlighted its increasingly fierce rivalry with Iran. “The signs of tensions within the kingdom and the willingness to politicize oil production, the mixed signals and flip-flopping really have an impact,”
Collapse of Doha talks highlights the rise of Mohammed bin Salman - Ali al-Naimi has been the king of oil for more than two decades. Markets rose and tumbled on the Saudi oil minister’s words. The 81-year-old technocrat always carefully chose the words and his timing. His statements were dissected and widely commented on, as were the occasional leaks which reflected his thinking. As part of the sweeping changes in Saudi Arabia since King Salman took over as head of state last year, the words of another official should be taken most seriously: Mohammed bin Salman, the 30-year-old deputy crown prince, favourite son of the king, and decision maker in chief. For those who had not noticed, the immensely powerful MbS, as he is referred to by foreigners, likes to talk. And in Saudi tradition, a royal’s word is more important than that of any technocrat, however many years he’s been in the job, and however authoritative he has been until now. MbS, moreover, is not your typical royal. King Salman, his father, has essentially handed him the economic keys to the kingdom, including oil policy, which had been run until now by oil ministers answering directly to the king. Had markets listened carefully to MbS, the collapse of the Doha talks to freeze output would not have come as a surprise. Officials in the oil ministry suggested the meeting would end with a freeze on output even if Iran, which is only now ramping up its oil production after the lifting of sanctions, did not join in. MbS, however, told Bloomberg last week— in an interview published on Saturday — that there would be no deal unless all major producers, including Iran, were on board. In Tehran, the government has never wavered in its position that it would not join a freeze. As oil prices slipped on Monday, speculation about what happened in Doha — from a draft agreement in the morning to a collapse in talks in the evening — was rife. Was there a disagreement between the oil ministry and the royal palace? Did the ministry miscalculate the prospect of an Iranian change of heart?
Worldwide Oil Production Outages Bump Up Oil Prices | OilPrice.com -- On Sunday, many thought the collapse of Doha would have provided that catalyst, leading to a sell off when the markets opened on Monday. Instead, prices only moved down briefly before bouncing back up. The most likely reason is that oil traders saw other geopolitical events that more than made up for Doha. First came the news that oil workers in Kuwait knocked off somewhere around 1.5 million barrels of oil production per day (mb/d). The IEA estimated in its April Oil Market Report that the global supply overhang is only set to be 1.5 mb/d through the first half of 2016, and could fall to only 0.2 mb/d in the third and fourth quarters. In other words, Kuwait’s oil workers have temporarily removed the entire worldwide oil glut. The outage in Kuwait may not last long, as the government has ordered replacement workers. The country’s oil production fell from about 2.8 mb/d to 1.1 mb/d over the weekend. Output was back up to around 1.5 mb/d by Tuesday, but according to the latest reports, the strike is still ongoing. A smaller but potentially more permanent outage could be unfolding in another OPEC country. The Financial Times reported that the electrical blackouts plaguing Venezuela, which stems from low water levels at some of the nation’s dams, could cut into its oil production. A dam that provides more than one-third of Venezuela’s electricity might need to be shut down because the water levels are so low. If that occurs, it could not only cut off some oil production, but also force Venezuela to burn some of its oil for electricity, hitting oil exports with a double whammy. “We have to consider that Venezuela is less than 20 days away from a major power production disruption,” Olivier Jakob of Petromatrix wrote in a recent report. “Crude and product production could be negatively impacted and the country might have to increase imports of petroleum products for generators.”
NYMEX crude oil price jumps more than $1/bbl as May contract expires - Light, sweet crude prices for May delivery rose more than $1/bbl on the New York market Apr. 20, which was the last day of trading for that futures contract. Analysts attributed the price support to traders making short-covering transactions before the contract’s expiry and also to a weakening US dollar. Oil trades in dollars, and a declining value in the dollar makes crude less expensive to buyers using other currencies. Meanwhile, Kuwait’s oil workers ended their 3-day strike on Apr. 20. Analysts said the resumption of Kuwait’s crude oil production could cause downward pressure on oil prices in coming days. US natural gas prices fell by the Apr. 20 settlement after hitting a 2-month high of nearly $2.14/MMbtu in earlier trading that same day. The US Energy Information Administration estimated gas levels in underground storage across the Lower 48 at 2.484 tcf as of Apr. 15. This represents a net increase of 7 bcf from the previous week, the Gas Storage Report said Apr. 21. “We see the current storage outlook as more neutral than bullish,” On Apr. 20, EIA’s Petroleum Status Report estimated US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, gained 2.1 million bbl to 538.6 million bbl for the week ended Apr. 15 compared with the previous week.
Oil Shocker: Bulging Inventory Beats Scary Headlines - WSJ: What happens in Doha stays in Doha. The only shocker from last weekend’s summit of major oil exporters in Qatar’s capital was how emphatically Saudi Arabia rejected an output freeze without Iran’s participation. Indeed, oil prices made up their 6% postmeeting plunge within a matter of hours with the help of an actual surprise: A strike by oil workers in Kuwait cut its output by a meaningful 1.7 million barrels a day. Naturally, oil prices then went into reverse on Tuesday eveningU.S. time when the strike was lifted, but even that headline wore off quickly. By midday Wednesday, prices had resumed their climb. Oil supply shocks just aren’t what they used to be. There is a good reason for that: a world awash in petroleum. The developed world alone has well over 3 billion barrels of commercial crude and refined-product inventory on hand, according to the International Energy Agency. And supply still slightly exceeds daily demand of 96.8 million barrels of crude.
API: Strong US gasoline demand continued in March - US petroleum deliveries, a measure of demand, gained 0.4% in March from the same period last year to average 19.3 million b/d, the American Petroleum Institute said. These were the highest March deliveries since 2008. Gasoline demand rose 2.2% from the same time last year. Distillate deliveries in March fell 11.3% to average just below 3.6 million b/d, API said. “Historically low gasoline prices continued to drive strong demand for gasoline in March,” said Erica Bowman, API chief economist. “In fact, demand for gasoline in March was the highest ever recorded for the month.” At just below 9 million b/d, US crude oil production decreased 6.8% from March 2015 but remained the second-highest March production level since 1986. Natural gas liquids production in March averaged nearly 3.4 million b/d—the highest level for the month on record. US total petroleum imports in March averaged nearly 10 million b/d, the highest total petroleum imports level for any month since September 2013. Gasoline production averaged 9.7 million b/d, which was up 1.6% from March 2015 and the highest ever for the month. Production of distillate fuel in March fell 1.2% from year ago levels to average 4.8 million b/d but remained the second highest March output level on record. Refinery gross inputs rose 2.8% from last year to a record high for the month at 16.3 million b/d. Exports of refined products were up from the prior year. The refinery capacity utilization rate averaged 89.5% in March. API’s latest refinery operable capacity was 18.125 million b/d, up 341,000 b/d from last year’s capacity.
March petroleum demand sets record after strong Feb. - Total petroleum deliveries, a measure of demand, rose 0.4 per cent in March from March 2015 to average 19.3 million barrels per day, according to the American Petroleum Institute. These were the highest March deliveries in eight years, since 2008. Total motor gasoline deliveries, a measure of consumer demand, rose 2.2 per cent from March 2015. Distillate deliveries fell 11.3 per cent to average just below 3.6 million barrels per day. Total petroleum deliveries, a measure of consumer demand, rose 2 percent in Feb. from year ago levels to average 19.8 million b/d. These were the highest Feb. deliveries in eight years. Click here for Feb. story. “Historically low gasoline prices continued to drive strong demand for gasoline in March,” said Erica Bowman, API chief economist. “In fact, demand for gasoline in March was the highest ever recorded for the month.” At just below 9 million barrels per day, U.S. crude oil production decreased by 6.8 per cent from March 2015 but remained the second highest March production level in 30 years, since 1986. Natural gas liquids production in March averaged nearly 3.4 million barrels per day, which was the highest level for the month on record.
Crude Slides After Russia Warns Of Production Increase: "Was Never Ready To Cut Output" - Perhaps upset at the weekend's development, Russia has decided to rattle the global crude complex cage. Amid hopes of a freeze, Russia's energy minister Alexander Novak has reversed course and stated that Russia could "in theory" increase oil output and "was never ready to cut production." It appears things are rapidly breaking down between Russia and The Kingdom - which perhaps explains Obama's rapidly arranged trip to kiss the ring in Riyadh. The oil market is not transparent enough, which leads to the demand-supply mismatch, Russia’s Deputy Prime Minister Arkady: "The policy of certain countries regarding diversification of energy sources aimed at supporting local production is sometimes implemented inefficiently as it creates extra costs for consumers and changes the oil and gas market balance. From our viewpoint, the situation is not transparent enough as not the whole information is provided to consumers," he said.
U.S. crude stockpiles rise, distillates post surprise drawdown: EIA | Reuters: U.S. crude oil inventories rose slightly less than expected last week, while distillate stockpiles posted an unexpected and huge drawdown, data from the Energy Information Administration showed on Wednesday. Crude inventories rose 2.1 million barrels in the week to April 15, compared with analysts' expectations for an increase of 2.4 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures fell 248,000 barrels, EIA said. Brent and U.S. crude futures both rose after the data, with Brent reversing losses and turning positive. [O/R] "Distillates are the standout bullish element of the report and gasoline is the disappointment," said Matt Smith, director of commodity research at New York-headquartered energy data provider ClipperData. "Distillate throughput jumped last week, meaning demand is only down 0.7 percent on the 4-week moving average." Distillate stockpiles, which include diesel and heating oil, fell 3.6 million barrels, versus expectations for a 304,000-barrel increase, the EIA data showed. "This pocket of demand might be a bright spot in terms of helping to sop up some of the global glut of diesel,"
Oil Rallies as Distillate Stockpiles Shrink -- Oil prices surged to a five-month high Wednesday after an unexpected and sharp decrease in U.S. distillate stockpiles convinced traders to shrug off a rising crude surplus and the end of a Kuwaiti oil-workers’ strike. The U.S. Energy Information Administration said Wednesday that distillate stocks, which include heating oil and diesel, fell by nearly 3.6 million barrels when analysts expected no change. It was enough to balance out an addition to crude stockpiles and send total oil and petroleum stockpiles lower—though barely—for only the sixth time in 24 weeks dating back to the start of November. Diesel rallied the most on the news, hitting gains of 5.5% on the day and its highest settlement since Dec. 4. U.S. oil ended the day up 3.8%, but the rally was actually much stronger, having started from losses that had been as deep as 3% in overnight trading. The combined stockpiles of crude, gasoline and other petroleum products have become a key indicator for many analysts and traders. Production is retreating from record highs in the U.S. but stockpiles there and around the globe are still at record highs. Prices are unlikely to rebound until the massive supply in those stockpiles starts to drain, signaling that a glut that has lingered for two years is finally about to ease, analysts and traders have said. The change in U.S. stockpiles was barely positive, but maybe enough to keep fueling a rebound in investor interest in commodities, Several markets from natural gas to gold have rallied in recent weeks as investors have started betting that a weaker dollar and slower production make these markets more likely to come into balance than in past years. “It’s not the quantity. It’s the perception,”
WTI Crude Spikes Above $42 As US Production Drops To 18-Month Lows - Following API's 3.1mm reported build overnight, expectations were for a 3mm build and DOE reported a 2.08mm build. Cushing saw a 235k draw from API and was expected to drop 1mm barrels but DOE reported just 248k drop in inventories as Gasoline inventories drewdown just 110k barrels (drastically less than the 1mm exp) and Distillates saw a large 3.55mm draw - the most in 3 months. Production appears more of a focus for now and fell once again last week to 8.953mm barrels (down 4.41% YoY) - lowest since Oct 2014. Crude prices had slipped overnight as Kuwait's strike ended and Russia threatened to increase supply but the production slowdown and lower than expected inventory data sent WTI back above $42. API:
- Crude +3.1mm
- Cushing -235k
- Gasoline -1mm
- Distillates -2.5mm
DOE
- Crude +2.08mm (+3mm exp)
- Cushing -248k (-1mm exp)
- Gasoline -110k
- Distillates -3.55mm
Production fell once again last week to its lowest since October 2014...
OilPrice Intelligence Report: Doha Is A Distant Memory As Oil Rises To Mid $40’s: It has been a wild week for the oil markets, with the collapse of Doha, a workers strike in Kuwait, and the seeming dissolution of any possibility of cooperation within OPEC. But oil prices have jumped to their highest levels in five months, breaking through a key threshold at the low-$40s per barrel. Can prices continue to rally? Prices have surged on news of supply outages from around the world, particularly from Kuwait (more on that below). But can WTI and Brent hold onto the gains? Oil storage levels jumped once again in the U.S., a bearish sign that the glut continues. On the positive side of the ledger, production fell by another 24,000 barrels per day last week, and declines are expected to continue. The supply/demand adjustment continues apace, and the markets appear to be gaining confidence that the worst is over. OPEC to discuss freeze in June. The collapse of Doha has laid bare the degree of infighting in the oil cartel, but a Saudi official said that OPEC members would resume negotiations over a production freeze at its June meeting in Vienna. OPEC’s Secretary-General downplayed that prospect when he responded, “maybe the ministers will discuss it.” It is hard to imagine OPEC rebounding from the failed Doha talks to secure an agreement. The only thing working in favor of improved cooperation is the possibility that Iran reaches its pre-sanctions level of oil production by then. This week, Iran’s deputy oil minister was quoted in Iran’s state news agency, saying that Iran could achieve pre-sanctions oil production levels by June. Since Iran has previously stated that it would not join a freeze deal until it restored output, the comments raise the possibility that it could come around to a deal when the cartel meets in Vienna.
US rig count drops 9 this week to 431, another all-time low - (AP) — The number of rigs exploring for oil and natural gas in the U.S. dropped by nine this week to 431, again reaching an-time low amid depressed energy industry prices. A year ago, 932 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 343 rigs sought oil and 88 explored for natural gas. Among major oil- and gas-producing states, Texas lost seven rigs and Louisiana and Ohio each dropped one. Alaska, Arkansas, California, Colorado, Kansas, New Mexico, North Dakota, Oklahoma, Pennsylvania, Utah, West Virginia and Wyoming were all unchanged. The U.S. rig count peaked at 4,530 in 1981. The previous low of 488 set in 1999 was eclipsed March 11, and has continued to dip.
Oil rig count falls to new 6-year low: The US oil rig count fell by 8 to 343 this week, according to driller Baker Hughes. That was the fifth straight weekly drop. The tally of gas rigs fell by one to 88, taking the total down 9 to 431, a new low. Last week, we saw the combined tally fall to a new low of 440. The oil rig count fell by 3, while the gas rig count was unchanged at 89. Crude oil prices have rallied this week and were headed for a weekly gain of about 11%, even after a meeting of producers to possibly freeze output levels failed. A workers' strike in Kuwait, and a sixth weekly decline in US production, were among bullish catalysts. Here's the latest chart of oil rigs:
BHI: US rig count down 9 in 18th-straight week of losses - The US drilling rig count dropped 9 units to 431 during the week ended Apr. 22, the 18th-straight week in which the count has fallen, according to Baker Hughes Inc. data. Last week’s 3-unit loss was the smallest of the year thus far (OGJ Online, Apr. 15, 2016). The count has declined in 33 of the last 35 weeks, more than halving since a slight rebound during summer 2015, and is down 1,489 units since the overall drilling dive commenced following the week ended Dec. 5, 2014 (OGJ Online, Dec. 5, 2014). Eight of the nine units to go offline this week targeted oil. The new total of 343 is down 1,266 units since its peak in BHI data on Oct. 10, 2014, and its lowest point since Nov. 6, 2009. The current count remains well-above the 2008-09 downturn’s nadir of 179 touched on June 5, 2009. Gas-directed rigs lost a unit to 88, matching their low-point in BHI data last touched 3 weeks ago. Onshore rigs fell 8 units to 401, down 494 year-over-year. Rigs engaged in horizontal drilling decreased 3 units to 332, down 1,040 since a peak in BHI data on Nov. 21, 2014, and their lowest count since Jan. 26, 2007. Directional drilling rigs also lost 3 units, settling at 48. After 3 rigs began operations last week offshore Louisiana, 2 went offline this week, bringing the overall US offshore count to 26. The tally of rigs drilling in inland waters added a unit to reach 4. In Canada, the overall count was unchanged at 40, ending 10 straight weeks of declines. But the oil-directed count gained 2 units for the second consecutive week, bringing its total to 12, still down 122 units since Jan. 22.Gas-directed rigs in Canada lost 3 units for the second straight week to 27. One rig considered unclassified came online. All but two of the units to stop operations in the US were in Texas, which now counts 187 working rigs, down 771 units since a peak in BHI data on Aug. 29, 2008, and the state’s lowest level since the 1990s.
IEA Warns "Saudis, Russians To Pump As Much Oil As Possible" - While the IEA has been urgently pushing an agenda of the oil market "rebalancing" in coming months in order to validate rising oil prices, the reality is that there are two parts to the equation: demand and supply. We will have to say more on demand shortly, because as it turns out most of it may have come from none other than China where commodities are merely the latest speculative bubble while China has been furiously stockpiling oil in what is merely pulling future demand to the present, however on the far more important supply side, where the key variable has become shale production over the coming year, earlier today the head of the Oil Industry and Markets Division at the International Energy Agency, Neil Atkinson, told CNBC that he believed both producers will continue to "pump as much oil as possible." This is what he said:"In the post-Doha world, when we're still in what is essentially a free market for oil, the Russians will pump as much oil out as the market will absorb and the Saudis have said much the same thing." Which incidentally is also what we have been saying for weeks heading into Doha, a meeting which was doomed from the beginning and which saw record oil supply from not only Russia but also Iraq in the last few weeks. This record production is set to continue. Neil Atkinson painted an even bleaker picture saying that "we're back to where we were before Doha where people produce what they can, sell what they can for whatever price they can achieve and the market takes care of the surpluses in time." Atkinson added something else known to regular ZH readers, namely that "as far as the Russians are concerned, even in the run-up to Doha when they were going to be party to an agreement to freeze production, they were actually pumping up production anyway."The IEA staffer noted that Saudi Arabia had spare production capacity (of up to 2 million barrels a day) as well a couple of other Middle Eastern producers such as Kuwait and the UAE but that "apart from that there is no spare production capacity essentially anywhere in the world."
$315B: Forex Reserves Vaporized by Oil Crash - In the run-up to that Doha meeting of oil producers, Bloomberg presented data on just how much oil exporters had used from their rainy-day funds as the price of oil fell earlier this year to nearly a third of what it was in 2013. True, prices have recovered somewhat these past few weeks, but not to the level necessary to stabilize any number of marginal petro-states. In the meantime, those forex reserves are disappearing faster than sane people at a Donald Trump rally: The world’s top oil exporters are burning through their petrodollar assets at an accelerating pace, increasing the pressure to reach a deal to freeze production to bolster prices. The 18 nations set to gather in Doha on Sunday to discuss a production freeze have spent $315 billion of their foreign-exchange reserves -- about a fifth of their total -- since the oil slump started in November 2014, according to data compiled by Bloomberg. In the last three months of 2015, reserves fell nearly $54 billion, the largest quarterly drop since the crisis started. The petrodollar burn has consequences beyond the oil nations, affecting international fund managers like Aberdeen Asset Management Plc and global currencies markets. Oil nations have traditionally held their reserves in U.S. Treasuries and other liquid securities. Nonetheless, the impact in credit markets has been muted as central banks continue to buy debt. The bulk of these reserves have been used by Saudi Arabia:
Saudi Arabia's Post-Oil Plan Starts April 25, Prince Says -- Saudi Arabia will announce a comprehensive plan to prepare the kingdom for the post-oil era on April 25, Deputy Crown Prince Mohammed bin Salman said. The “Vision for the Kingdom of Saudi Arabia” will encompass several developmental, economic, social and other programs, Prince Mohammed said in an interview on Thursday at King Salman’s private farm in Diriyah, the original home of the Al Saud royal family. One component of the plan is the National Transformation Program, which will be launched a month or 45 days after this month’s announcement, said the prince, who is the king’s son and second-in-line to the throne of the world’s top oil exporter. The plan to transform Saudi Aramco from an oil company into an energy and industrial conglomerate, as well as the future of the Public Investment Fund, will also be part of the comprehensive vision, he said. Saudi Arabia is seeking to overhaul the economy to reduce the kingdom’s reliance on oil after the plunge in crude prices. Prince Mohammed said in an interview late last month that the plan involves raising non-oil revenue by $100 billion by 2020 as well as turning the PIF into the world’s largest sovereign wealth fund for the kingdom’s most prized assets. Saudi authorities are weighing measures that include more steps to restructure subsidies, imposing a value-added tax, and a levy on energy and sugary drinks as well as luxury items. The National Transformation Program will also focus on ways to boost economic growth, create jobs, attract investors and hold government offices more accountable.
Saudi Arabia close to securing $10 billion bank loan: sources | Reuters: Saudi Arabia is close to securing a $10 billion, five-year bank loan, the government's first significant foreign borrowing for over a decade, as the world's top oil exporter seeks to fill a record budget gap caused by low crude prices. The kingdom had initially aimed to raise between $6 billion and $8 billion, but the Ministry of Finance increased the amount after drawing substantial demand, sources said on Wednesday. They said the loan was expected to be signed before the end of April with lenders including U.S., European and Japanese banks. Two sources said the pricing was around 120 basis points above the London interbank offered rate (Libor). The size of the loan and its pricing reflect improved investor sentiment toward Saudi Arabia since January, when its currency came under pressure because of concern about the ability of its economy to survive an era of cheap oil. Since January, oil prices have rebounded to around $40 a barrel from under $30, while Saudi officials have been putting together a complex plan to raise more non-oil revenues and diversify the economy. Bankers said institutions also wanted to take part in the loan because that would help them bid to arrange an international bond issue that Saudi Arabia is expected to conduct after the loan, perhaps later this year.
Saudi Arabia takes out $10bn in bank loans: Saudi Arabia is raising $10bn from a consortium of global banks as the kingdom embarks on its first international debt issuance in 25 years to counter dwindling oil revenues and reserves. The landmark five-year loan, a signal of Riyadh's newfound dependence on foreign capital, opens the way for Saudi to launch its first international bond issue. It comes as the sustained slump in crude encourages other Gulf governments, such as Abu Dhabi, Qatar and Oman, to tap international bond markets. The oil-rich kingdom, which last weekend blocked a potential deal among oil producers to freeze output and bolster prices, has burnt through $150bn in financial reserves since late 2014 as its fiscal deficit is set to widen to 19 per cent of gross domestic product this year. Strong interest in the loan, especially from Asian banks, came despite rating agency downgrades on Saudi creditworthiness since the oil price collapsed. The government raised the amount it wanted to borrow from $6bn-$8bn to $10bn after the deal was oversubscribed. "The deal is very successful, with very competitive pricing," said " Saudi Arabia may now raise its first global bond in the wake of the loan deal, bankers said. Institutions that loaned the most would be set to benefit from a mandate to help Riyadh raise the bond. "The loan is a way for Saudi Arabia to test the waters and set up an international borrowing profile," said Ewen Cameron Watt, chief investment strategist at BlackRock, the world's largest asset manager. "This is paving the way for the kingdom to transform from a creditor nation into a debtor nation. It's a significant moment of change in debt markets." The strategy of raising debt overseas aims to slow the drawdown of foreign reserves and reduce pressure on local banks, which have been supporting state related companies and buying Saudi domestic bonds for almost a year.
Saudi Arabia Will Create The Single Largest Public Company In The World - It is no secret that Saudi Arabia's largess of oil is approaching its end. Most officials in Riyadh, Saudi Arabia's capital, see a 30-year window before living off the country's oil wealth becomes untenable. Now, the global energy balance will continue to include oil until at least 2100, especially in rapidly growing regions such as Asia. But oil's portion of the demand mix will begin declining by 2040 (or perhaps even sooner). Saudi Arabia still retains immense reserves of oil and one of the cheapest production costs around. But that simply means that they will have a larger portion of what's likely to be a declining energy source by mid-century. Just like the UAE and Qatar, Saudi Arabia will use its oil and gas surplus as a bridge to diversifying its economy. But where the other two Gulf countries chose global real estate and banking as their end targets, Saudi Arabia is aiming at something quite different... There is a new architect for this mission to end Saudi Arabia's reliance on oil, and he is quickly becoming the heir apparent among the next generation of the House of Saud, the Saudi royal family. If you can recall no other Saudi official, remember this one: Mohammad bin Salman Al Saud will not reach 31 until August. But he is already the power behind the throne (which is currently occupied by his father, King Salman). Deputy Crown Prince, Second Deputy Prime Minister, chief of the royal court, and the youngest Defense Minister in the world, Mohammad is also the chair of the Saudi Council for Economic and Development Affairs. That Council, in turn, will establish the Public Investment Fund (PIF), which will receive a windfall of at least $2 trillion from the initial public offer (IPO) of Saudi Aramco, the giant Saudi state oil company. That $2 trillion, by the way, would come from a sale of just 5% of the company.
Obama Administration Makes Stunning Admission: "Seed Money For Al Qaeda Came From Saudi Arabia" -- Following a dramatic deterioration in official diplomatic channels between the US and Saudi Arabia when over the weekend the Saudis threatened the U.S. with dumping billions in Treasuries if Congress were to pass a bill probing into their alleged support of Sept 11 terrorists in the aftermath of last weekend's 60 Minutes report on the classified "28 pages" from the Septemeber 11 commission, moments ago the Obama administration made a stunning admission, when for the first time it revealed on the record that the Saudis were the original source of funding for Al Qaeda. As Politico reports, Obama's deputy national security adviser, Ben Rhodes, while speaking to David Axelrod in Monday's edition of "The Axe Files" podcast said that the government of Saudi Arabia had paid "insufficient attention" to money that was being funneled into terror groups and fueled the rise of Al Qaeda when he was asked about the validity of the accusation that the Saudi government was complicit in sponsoring terrorism. At first, he tried to tone down what amount to the first official admission of Saudi involvement in September 11, saying "I think that it’s complicated in the sense that, it’s not that it was Saudi government policy to support Al Qaeda, but there were a number of very wealthy individuals in Saudi Arabia who would contribute, sometimes directly, to extremist groups. Sometimes to charities that were kind of, ended up being ways to launder money to these groups." But moments later the truth came out when he said "So a lot of the money, the seed money if you will, for what became Al Qaeda, came out of Saudi Arabia," he added. And then the punchline came out when Axelrod asked if "that happen without the government’s awareness?" To which Rhodes responded that he doesn’t believe the government was “actively trying to prevent that from happening."
Obama Went From Condemning Saudis for Abuses to Arming Them to the Teeth – In the 2002 speech against the Iraq War that helped propel him to the presidency, then-state Sen. Barack Obama denounced not just the looming invasion of Iraq, but also human rights abuses by our “so-called allies” in Saudi Arabia: And he spoke out against the U.S.’ role as weapons supplier to the world: "Let’s fight to make sure … that the arms merchants in our own country stop feeding the countless wars that rage across the globe." Thirteen years later, Obama is making his fourth trip to Riyadh, having presided over record-breaking U.S. arms sales to Saudi Arabia while offering only muted criticism of the kingdom’s human rights violations. And don’t expect the president to speak up while he’s there. Obama last traveled to Saudi Arabia in January 2015, cutting short his trip to India after the passing of the former Saudi king, Abdullah ibn-Abdulaziz al-Saud. During that visit, Obama was criticized for not speaking out against the flogging of prominent Saudi blogger and dissident Raif Badawi. In 2014, Badawi was sentenced to 10 years in prison and 1,000 lashes for “insulting Islam” and “going beyond the realm of obedience,” with the first flogging session taking place weeks before Obama arrived. In January, after a record-setting year for Saudi beheadings, Saudi authorities set off protests by executing Shia cleric and regime critic Nimr al-Nimr. U.S. response was muted. The State Department merely said the execution “risks exacerbating sectarian tensions at a time when they urgently need to be reduced” — and then fell silent on the repression of the following protests.
An Awkward Silence in Riyadh - Barack Obama traveled to Saudi Arabia on Tuesday in what could be his last—and likely most futile—visit as president. It’s not just that there’s bad blood over Congress’ effort to make Riyadh liable for lawsuits from the families of 9/11 victims. These days, when the United States and Saudi Arabia look at the region, they see two completely different landscapes and conflicting sets of interests. Riyadh sees a series of conflicts that the United States must resolve and a series of failing states that it must rehabilitate. The Saudis would like a commitment from Obama to defang Iran, change the balance of power in the Syrian civil war to the detriment of Bashar Assad and resolve the Israeli-Palestinian conflict. Washington's gaze is much more narrow and its ambitions more circumscribed. The United States remains committed to its war on terrorism in the region with its reliance on drones. It is seeking to degrade the Islamic State and prevent it from taking over strategic cities of Iraq. And it is hoping that somehow diplomatic meetings in Vienna can come to an agreement easing the Syrian civil war. Beyond that, Obama comes armed with no real new U.S. Middle East policy, apart from the latest developments in the Iran nuclear deal—which is not anything the Tehran-phobic Saudis want to talk about. Obama, who recently expressed his pique over U.S. allies he called “free riders,” plainly is not eager to get any more embroiled in the region than he already is; he has expressed a vague desire that Iran and Saudi Arabia should “share the neighborhood” without saying how he hopes that will be accomplished.
In "Unprecedented Snub", Saudi Arabia Demands "Recalibration Of Relationship" With U.S. -- As Obama concludes his fourth and supposedly final meeting to Saudi Arabia as U.S. president, the White House was quick to explain where relations with the Saudi Kingdom lay, and as CNN reported this morning, moved to tamp down suggestions that ties with Saudi Arabia are fraying, with administration officials saying that President Barack Obama "really cleared the air" with King Salman at a meeting Wednesday. Which is strange because that is not how the other side saw it: even as White House officials stressed that the leaders made progress, a prominent member of the Saudi royal family told CNN "a recalibration" of the U.S.-Saudi relationship was needed amid regional upheaval, dropping oil prices and ongoing strains between the two longtime allies. There is going to have to be "a recalibration of our relationship with America," former Saudi Intelligence Chief Prince Turki Al-Faisal told CNN's Christiane Amanpour. "How far we can go with our dependence on America, how much can we rely on steadfastness from American leadership, what is it that makes for our joint benefits to come together," Turki said in a significant departure from usual Saudi rhetoric. "These are things that we have to recalibrate." The prince made his "unprecedented" in the words of CNN, comments as Obama landed in Riyadh "to a reception that social media critics termed a snub, but U.S. officials strongly disputed." The Saudi government dispatched the governor of Riyadh and Foreign Minister Adel Al-Jubair to shake Obama's hand, a departure from the scene at the airport earlier in the day when King Salman was shown on state television greeting the leaders of other Gulf nations on the tarmac. A U.S. official said Salman's absence upon arrival was not taken as a snub and noted that Obama rarely greets foreign leaders when they land in the U.S. for meetings. Obama went immediately to the Erga Palace to meet the King shortly after landing, but the perceived slight on his arrival was seen as one more sign that a relationship long lubricated by barrels of oil is encountering friction.
Iran Is Ready To Flood The World With Oil... It Just Has No Ships To Deliver It -- Late last week, just ahead of the Doha meeting, we showed that Iran's existing oil tanker armada which until recently had been on anchor next to the Iranian coast and which according to Windward data was storing as much as 50 million barrels offshore..... had finally started to move. The reason, as Bloomberg reported, was that tankers carrying about 28.8 million barrels of crude, or more than 2 million a day, left the Persian Gulf country’s ports in the first 14 days of April. That compares with a rate of about 1.45 million barrels a day in March. As a result, Iran’s crude shipments have soared by more than 600,000 barrels a day this month, and offsetting the entire production decline by US producers with just half a month's incremental production. However, now that the shipping armada has sailed to its various (most Asian) destinations, it may be difficult to repeat this in the near term. According to Reuters, Iran is struggling to increase oil exports because many of its tankers are tied up storing crude, some are not seaworthy, and foreign shipowners are clearly reluctant to carry its cargoes. The math: Iran has 55-60 oil tankers in its fleet, a senior Iranian government official told Reuters. He declined to say how many were being used to store unsold cargoes, but industry sources said 25-27 tankers were parked in sea lanes close to terminals including Assaluyeh and Kharg Island for this purpose. Asked how many tankers were not seaworthy and needed to go to dry docks for refits to meet international shipping standards, the senior official said: "Around 20 large tankers ... need to be modernised." A further 11 Iranian tankers from the fleet were carrying oil to Asian buyers on Tuesday, according to Reuters shipping data and a source who tracks tanker movements. That was broadly in line with the number consistently committed to Asian runs since sanctions were lifted in January, putting more strain on the remaining available fleet.
ISIS Tries To Sow Chaos In Libya To Scare Oil Workers Away - As Libya wrangles over who is going to control its oil, the Islamic State is closing in, using sporadic attacks designed to rattle nerves and force oil-field evacuations or worker strikes out of fear. In recent months, ISIS has deployed a large number of fighters at several oil fields, and has been planning attacks on foreign workers as well as oil wells. In February 2015, one of the ISIS-inspired attacks on the Mabruk field killed nearly 12 people including four foreign nationals. In early January, ISIS launched an attack on the Es-Sidra and Ras Lanuf oil export terminals in the Libyan coastal province of Sirte, which is now the ISIS stronghold in Libya. The fear tactics are working. By April 10, 2016, at least three oil fields in eastern Libya were evacuated because of fears of further ISIS attacks. The security sources confirmed the complete evacuation at the Wafa field, while the Tibesti and Bayda fields have been partially evacuated. On 11 April, workers at the Zelten oilfield went on full strike over fears of a possible ISIS attack. Their fears were raised by the spectre of cars bearing ISIS flags in their districts. They fear an attack is imminent. So far, ISIS—which claims to have established at least three caliphate provinces in Wilayat Fizzan, Barqa and Tarabulus—has not yet taken control of a Libyan oil field. This has led to speculation over whether the group is seeking control or destruction. Destruction, however, is unlikely to be on the books. Militarily, ISIS does not have the capabilities in Libya to launch all-out offensives on these oil fields to gain control. Instead, the group is relying on scare tactics—and there is every indication that it’s working.
Europe's Inevitable Intervention In Libya Will Add 1.3 Million Barrels To The World Oil Glut -- Europe is planning on recolonizing Libya, and so it will send in armed forces in the coming months to restore order and stem the flow of migrants coming from Africa. If this expedition army succeeds in securing parts of the country and restoring law and order, Italian and German engineers from ENI and Wintershall will follow suit to help resume the country’s oil production, which will add 1.3 million barrels per day (Libya produced 1.7 million barrels per day before Muammar Gaddafi was toppled in 2011) to the world oil glut. Until a couple of weeks ago Libya was governed by three governments:
- The original government just after the ousting of Muammar Gaddafi, formed by the Muslim Brotherhood residing in Tripoli, the Libyan capital.
- The internationally recognized (except for Turkey and Qatar) government in Tobruk. This government, created with the help of the European Union, which organized mock elections, was subsequently driven out of Tripoli;
- A kind of ISIS-run government controlling the area around Benghazi.
The real power of any of these groups does not seem to extend beyond the immediate neighbourhood of their residency; it is the chieftains of particular local tribes that de facto rule the rest of the area.
Analysis: Egypt economy 'entered a vicious circle' - The parliament might contribute positively to the consolidation of a political regime in Egypt [EPA]The Egyptian economy has suffered from a general slowdown since the revolution of January 2011.Political uncertainty, macroeconomic instability and global economic turmoil since the 2008 crisis have all contributed to Egypt's prolonged recession, soaring unemployment and foreign currency shortages.Low growth rates led to a sheer drop in state revenue and to an explosion in the budget deficit and public debt.Foreign currency generating sectors such as tourism and foreign direct investment in the energy and property sectors were hard hit by political and security uncertainty, leading to the consistent dwindling of foreign reserves, which dropped from around $35bn in January 2011, to less than $15bn in December 2012.Ever since, the Egyptian government has been dependent on massive capital inflows in the form of aid and cheap credit from the Gulf countries to fill the ever-widening financial gap.This has failed to introduce a structural remedy to the country's balance of payment deficit, however, given the general economic slump.
Oversupply crashes Asian gasoline cracks, lengthens contango - High refinery runs across Asia and a huge amount of arbitrage cargoes for March and April arrival have created severe gasoline oversupplies that have defied the product's seasonal price patterns. "We may not see a gasoline summer peak this year," a trader in the city state said. The benchmark FOB Singapore 92 RON gasoline crack against front-month Brent futures stood at $7.52/b at the Asian close Friday, 55.82% lower from the year-to-date high of $17.02/b saw on January 12. The sharp downward trend in cracks is highly unusual for the fuel's seasonal price movement, which usually starts picking up towards summer as demand goes up and supplies tighten due to turnarounds. The refinery turnaround schedule is light so far this year with most producers incentivised to run their units at high or full levels to cash in on higher light-ends margins, despite the sluggish middle distillates market.Higher refinery run rates have led to larger export volumes from North Asian countries, with first-quarter shipments up more than 50% year on year from China, about 20% each from Japan and Taiwan, and more than 10% from South Korea, customs data showed.
Soaring oil demand in China rescues OPEC: A dramatic build-up in China’s strategic petroleum reserve and surging demand for imported crude oil are likely to transform the global energy markets this year, regardless of any production freeze agreed by OPEC and Russia this weekend. Chinese credit stimulus and a 20pc rise in public spending has set off a fresh mini-cycle of growth that is already sucking in oil imports at a much faster pace than expected. Barclays estimates that the country will import an average of 8m barrels per day (b/d) this year, a huge jump from 6.7m b/d last year. This is arguably enough to soak up a big chunk of the excess supply currently flooding global markets. Standard Chartered said Chinese imports could reach 10m b/d by the end on 2018, implying a supply crunch and a fresh spike in oil prices as the market is turned on its head. Energy consultancy Wood Mackenzie says $400bn in oil and gas projects have been shelved since the onset of the commodity slump. A great number of depleting fields will not be replaced. Feifei Li, Barclay’s oil analyst, said China is in a rush to fill four new storage sites of its petroleum reserve coming available this year. “It is an urgent priority of the government to fill up the tanks while the price of oil is cheap,” he said. Fresh storage is likely to average 250,000 b/d, five times the level last year. The pace will rise further in the second half of the year. China is building vast underground rock caverns in the interior of the country as a top national security priority, fully aware of the way Japan was squeezed by the US fuel embargo in the late 1930s. It aims to boost reserves to 550m barrels and ensure a 90-day buffer to resist an external supply shock.
China Retaliates In Trade Wars - Increases Steel Output To Record High -- A funny thing happened when US slapped a major tariff on China's steel exports... prices exploded higher. But the almost 50% surge in steel prices since mid-December back to 15-month highs have left traders equally split on what happens next. Will record production levels exaggerate a global glut amid tumbling exports and rising tariffs, or will China's trillion-dollar surge in credit fuel yet more so-called "iron rooster" projects driving domestic demand even higher. For now, it appears the former is more likely as US Trade reps suggested further protectionism looms. Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped...Faced with collapsing exports and a lack of domestic demand (and surging inventories) along with zombie steel mills on the verge of bankruptcy and desperately in need of cash flow or else China's whole red ponzi would fail, the central planners unleashed a trillion dollars of new credit in Q1... Which enabled, among other things, the so-called "iron rooster"-stimulus program: “Mills now have their order books filled till July or onward,”
China’s ‘zombie’ steel mills fire up furnaces, worsen global glut (Reuters) - The rest of the world's steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China. While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even "zombie" mills, which stopped production but were not closed down, have been resurrected. Despite global overproduction, Chinese steel prices have risen by 77 percent this year from last year's trough on some very specific local factors, including tighter supplies following plant shutdowns last year, restocking by consumers and a pick-up in seasonal demand following the Chinese New Year break. China, which accounts for half the world's steel output and whose excess capacity is four times U.S. production levels, has said it has done more than enough to tackle overcapacity, and blames the glut on weak demand. But a survey by Chinese consultancy Custeel showed 68 blast furnaces with an estimated 50 million tonnes of capacity have resumed production. The capacity utilization rate among small Chinese mills has increased to 58 percent from 51 percent in January. At large mills, it has risen to 87 percent from 84 percent, according to a separate survey by consultancy Mysteel. The rise in prices has thrown a lifeline to 'zombie' mills, like Shanxi Wenshui Haiwei Steel, which produces 3 million tonnes a year but which halted nearly all production in August. It now plans to resume production soon, a company official said. Another similar-sized company, Jiangsu Shente Steel, stopped production in December but then resumed in March as prices surged, a company official said. More than 40 million tonnes of capacity out of the 50-60 million tonnes that were shut last year are now back on. "Capacity cuts are off the cards given the price and margin rebound," he said.
The Stunning Chart Showing Where All The Commodity Gains Have Come From -- "The market is moving so quickly, yesterday felt just like the stock market in June last year before the crash," warns one Asian trader reflecting on the chaotic rush of Chinese speculators into the industrial metals commodities market Echoing the frenzy that fueled China's parabolic stock market rise (and subsequent collapse), Bloomberg notes one local China broker admits "we’ve seen a lot of people opening accounts for commodities futures recently," adding rather ominously, "the great ball of China money is moving away from bonds and stocks to commodities." The spikes in everything from rebar to iron ore, however, according to Goldman "is not driven by a sustainable shift in fundamentals." Industrial metals up over 50% year-to-date, amid plunging exports and domestic zombie revival... Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped...
China is one step closer to global gold-price domination - China, the world’s largest gold producer, made a big move to advance its efforts to become a global price leader for the yellow metal. On Tuesday, the Shanghai Gold Exchange, dubbed the largest physical gold exchange in the world, launched the Shanghai Gold Fix—a twice-daily price fixing for the metal per gram, denominated in Chinese yuan. The move is “hugely important,” said Julian Phillips, founder and contributor to GoldForecaster.com. It’s a step toward “China controlling the gold price.” Tuesday’s morning fix was set at 256.92 yuan per gram, or roughly $1,234.05 an ounce, while the afternoon fix was at 257.29 yuan, or about $1,236, according to reports. The Shanghai Gold Exchange listed 18 institutions, including the Bank of China and China Construction Bank, as market makers for the fix. Phillips pointed out that there are “other structural changes that China has made that place them in a position to take control inevitably” over the gold price.
China Retaliates In Trade Wars - Increases Steel Output To Record High -- A funny thing happened when US slapped a major tariff on China's steel exports... prices exploded higher. But the almost 50% surge in steel prices since mid-December back to 15-month highs have left traders equally split on what happens next. Will record production levels exaggerate a global glut amid tumbling exports and rising tariffs, or will China's trillion-dollar surge in credit fuel yet more so-called "iron rooster" projects driving domestic demand even higher. For now, it appears the former is more likely as US Trade reps suggested further protectionism looms. Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped...Faced with collapsing exports and a lack of domestic demand (and surging inventories) along with zombie steel mills on the verge of bankruptcy and desperately in need of cash flow or else China's whole red ponzi would fail, the central planners unleashed a trillion dollars of new credit in Q1... Which enabled, among other things, the so-called "iron rooster"-stimulus program: “Mills now have their order books filled till July or onward,”
The Human Cost of China’s Manufacturing Slowdown - In February, the Chinese government announced that it will cut 1.8 million jobs from its steel and coal sectors, one of the first major steps in Beijing’s plan to transform its industry-heavy economy into a more service-oriented one. The statement has fostered bleak outlooks among those who may find themselves out of work due to this restructuring, including Yang and his factory workers. “Companies in the steel sector are not making money now,” Yang said over the phone. “It’s also hard to be the boss when you can’t afford to pay your employees.” Over the past two decades, China’s investment in its industrial sector has fueled the meteoric rise in the country’s GDP. Yet at the start of 2016, Beijing was entering its sixth consecutive year of slowing economic growth. Official GDP growth contracted to a new low of 6.9 percent last year, although this number is still high by the standards of most large economies. Still, there is widespread skepticism over the reliability of official government-reported statistics, and many economists hold the view that China’s growth is based on unproductive and wasteful investment. Recognizing the dire need to rebalance the economy toward service-oriented industries and promote sustainable growth, the government has already reduced investment in smokestack businesses, alongside announcing future layoffs. Prospective job opportunities for workers currently employed in the manufacturing sectors, however, are suboptimal. The manufacturing industry population comprises approximately 1.5 percent of China’s 800 million-strong urban workforce , which between 2013 and 2014 grew by 13.2 million. In previous economic contractions, such as the financial crisis between 1997 and 2005, manufacturing employment in state-owned companies dropped from 70 million to 37 million workers. Back then, the newly unemployed often returned to their rural homelands, where they could rely on family support and networks, or work in the fields to earn a living.
China Says Q/Q Growth in First Quarter 1.1%, Lowest On Record | MNI - China's economy grew 1.1% q/q in the first quarter from the fourth quarter on a seasonally adjusted basis, the National Bureau of Statistics reported on Saturday, the weakest increase since the data series started in 2011. The Q1 q/q increase compared with a revised 1.5% q/q pace in the fourth quarter, the NBS said in a statement on its website. The NBS reported in January that Q4 q/q growth was 1.6%. Third quarter q/q growth was an unrevised 1.8%, while Q2 q/q growth was revised down to 1.8% from 1.9% and 2015 Q1 q/q/ growth was revised up to 1.4% from 1.3%. The NBS did not release the quarter-on-quarter GDP figures or the revisions to previous quarters when it announced its Q1 data on Friday. Explaining the omission at a briefing in Beijing the same day, NBS spokesman Sheng Laiyun said: "The calculation of the quarter-on-quarter number is work that needs exploration and creativity. The calculation requires us to take into consideration the impact of holidays, which is very complicated. We are still calculating how to reasonably exclude seasonal factors. I don't have this number yet." In its Saturday release, the NBS gave a breakdown of output by industry, which showed the financial sector's growth slumped to 8.1% y/y in the first quarter from 15.9% y/y in the first quarter of 2015 when a surge in the stock market and transaction volumes boosted brokers fees and commission. Growth in the output of the construction sector slowed to 7.8% y/y in the first quarter from 8.8% y/y in Q1 2015, while industrial sector expansion slowed to 5.5% y/y from 6.1%, according to comparisons with previously released data. In contrast, growth in the real-estate sector recovered strongly to 9.1% y/y, compared with a sluggish 2.0% y/y in Q1 2015.
Soros Warns of 2008-Like Debt Growth in China. How Risky are Its Banks? - Yves Smith - The lead story at Bloomberg is George Soros’ dire warnings about China a speech yesterday. He is talking his book; he’s short the renminbi, and pumped for China to float the Chinese currency against a broader basket of currencies, which would also lead it to decline against the dollar. Soros made a doomsday call against Europe in 2012 that did not pan out, and he has been aggressive there in trying to influence policy, both on economics and on Ukraine. And he acknowledged that the timing of ugly end games is uncertain. Key sections from the Bloomberg story: China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on Wednesday. The broadest measure of new credit in the world’s second-biggest economy was 2.34 trillion yuan ($362 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey and signaling the government is prioritizing growth over reining in debt. What’s happening in China “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth,” Soros said… Capital outflows from China are a growing phenomenon driven by the nation’s anti-corruption campaign, which makes people nervous and spurs them to pull money out, Soros said. While China’s reserves swelled by $10.3 billion in March to $3.21 trillion, they’re down by $517 billion from a year earlier. With over $3 trillion in reserves, China would seem to have tons of firepower to support its currency. Some analysts have argued that IMF metrics suggest that below $1.8 trillion would put China at risk, which on the surface seems hard to fathom. The bigger issue with depleting reserves may actually be political: even though the reserves cannot be spent domestically, Chinese citizens regard them as wealth and have gotten upset at US moves that they perceived reduced the value of those holdings. So actual depletion to defend the currency if it continues could become a hot topic for the government.
$1,001,000,000,000: China Just Flooded Its Economy With A Record Amount Of New Debt -- When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China's phenomenal ability to calculate its GDP just two weeks after the quarter ended - not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of "global" instability for the Fed appears to have been neutralized. But what was the reason for this seeming halt to China's incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report. As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans "to keep policy accomodative to underpin the slowing economy" as Reuters put it. This was up from February's 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7 percent by month-end on an annual basis, versus expectations of 14.5 percent. But it wasn't the total loan tally that is the key figure tracking China's credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars! And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China's economic throat. As shown on the chart below, this was an all time high in dollar terms, and puts to rest any naive suggestion that China may be pursuing "debt reform."
China Ocean Freight Index Collapses to Record Low -- The amount it costs to ship containers from China to ports around the world, a function of the quantity of goods to be shipped and the supply of vessels to ship them, just dropped to a new historic low. The China Containerized Freight Index (CCFI) tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. It reflects the unpolished and ugly reality of the shipping industry in an environment of deteriorating global trade. For the latest reporting week, the index dropped 0.6% to 636.14, its lowest level ever. It has plunged 41% from the already low levels in February last year, and 36% since its inception in 1998 when it was set at 1,000. This chart shows the continuing collapse of containerized freight rates from China to the rest of the world: The Shanghai Containerized Freight Index (SCFI), which tracks spot-market rates (not contractual rates) of shipping containers from Shanghai to 15 destinations around the world, dropped 3.6% for the latest reporting week to 472, after another failed price recovery. It’s down 58% from February last year. Rates to Europe plunged $20 per twenty-foot equivalent unit container (TEU) to $271; to the Mediterranean, rates plunged $29 to $409 per TEU. To the US West Coast, rates plunged 9.3% or $79 to $770 per forty-foot equivalent unit (FEU). A year ago, the spot rates to the West Coast had already fallen 10% year-over-year, and there had been a lot of hand-wringing about them. At the time, they were $1,932 per FEU. Now they’re at $770 per FEU. In one year, these spot rates have collapsed by 60%!
China wants ships to use faster Arctic route opened by global warming | Reuters: China will encourage ships flying its flag to take the Northwest Passage via the Arctic Ocean, a route opened up by global warming, to cut travel times between the Atlantic and Pacific oceans, a state-run newspaper said on Wednesday. China is increasingly active in the polar region, becoming one of the biggest mining investors in Greenland and agreeing to a free trade deal with Iceland. Shorter shipping routes across the Arctic Ocean would save Chinese companies time and money. For example, the journey from Shanghai to Hamburg via the Arctic route is 2,800 nautical miles shorter than going by the Suez Canal. China's Maritime Safety Administration this month released a guide offering detailed route guidance from the northern coast of North America to the northern Pacific, the China Daily said. "Once this route is commonly used, it will directly change global maritime transport and have a profound influence on international trade, the world economy, capital flow and resource exploitation," ministry spokesman Liu Pengfei was quoted as saying.Most of the Northwest Passage lies in waters that Canada claims as its own. Asked if China considered the passage an international waterway or Canadian waters, Chinese Foreign Ministry spokeswoman Hua Chunying said China noted Canada considered that the route crosses its waters, although some countries believed it was open to international navigation. In Ottawa, a spokesman for Foreign Minister Stephane Dion said no automatic right of transit passage existed in the waterways of the Northwest Passage.
Korea's exports to China tumble 15.7% in Q1: South Korea suffered a 15.7 percent fall in exports to China in the first quarter this year, data showed Sunday, deepening its overall trade woes. It marks the biggest drop in seven years in South Korea's outbound shipments to China, its single biggest market. China accounts for about 25 percent of South Korea's total exports. Exports to China stood at $28.5 billion in the year's first three months, down 15.7 percent from a year earlier, according to the Korea International Trade Association (KITA). x By item, exports of semiconductors, flat panel displays, petrochemical products, car parts and synthetic resins recorded notable declines. Experts cited a structural problem and suggested a shift in trade strategy. "Over 70 percent of South Korean goods exported to China are intermediate goods. China's demand for those is diminishing," said Park Jin-woo, head of KITA's strategic market research office. "In particular, China is making massive investments and expanding facilities in such sectors as semiconductors, while reducing imports." He stressed the need for targeting the consumer goods market instead. South Korea's exports to the United States also sank 3.3 percent on-year to $16.8 billion in the January-March period and imports were down 4.9 percent to $10.1 billion.
Dozens Of Large Earthquakes Strike As Speculation Mounts That Japan's Southern Island May Split - Over the past 48 hours, our planet has been hit by literally dozens of earthquakes of magnitude 4.0 or greater, and scientists are acknowledging that what is taking place is highly unusual. This strange shaking began toward the end of last week when the globe was struck by five major earthquakes over the space of just two days, and over the weekend the seismic activity just continued to escalate. Very early on Saturday, Japan’s southern island of Kyushu was hit by a magnitude 7.3 earthquake, and on Saturday night a magnitude 7.8 earthquake struck off Ecuador’s Pacific coast. It was the worst earthquake that Ecuador had experienced since 1979, and it was followed by at least 163 aftershocks. Unfortunately, there are indications that what we have seen so far may be just the beginning. Because the Ecuador earthquake was bigger, it is getting most of the headlines at the moment,but the truth is that what is going on in Japan is potentially far more dangerous.Over the past week, Japan’s southern Island of Kyushu has been rocked by a series of devastating quakes, including two major ones in less than 48 hours. The following comes from the Guardian…A second major earthquake in less than two days has shaken Japan’s southern island of Kyushu, with at least 34 people thought to have been killed, about 1,500 injured and more feared buried after building collapses and landslides. The 7.3 magnitude earthquake struck at about 1.30am on Saturday, waking people across the island – including the thousands already in crisis centres. It caused widespread damage, with several landslides and a village evacuated over fears a dam might burst.
Japan's Economy Grinds To A Halt After Earthquake Paralyzes Critical Supply Chains -- Earlier today Toyota was one of many Japanese companies to announce that it will suspend most car production across Japan as a result of critical supply chain disruptions caused by the recent destructive earthquake and numerous aftershocks. All of the major assembly lines will be shut down across its four directly-run plants, and Toyota will be halting production in stages at other group companies as well. According to the Nikkei Asian Review, most of the Toyota group in Japan will be effectively shut down through at least the end of this upcoming week, with a production loss of as many as 50,000 vehicles, including brands such as Prius, Lexus, and Land Cruiser. "Decisions regarding recommencement of operations at plants in Japan will be made on the basis of availability of parts," the company said in its announcement. Numerous other manufacturers also announced extended stoppages due to damage to factories. More details from Reuters:
- Honda Motor said it would keep production suspended at its motorcycle plant near the quake-hit city of Kumamoto in southern Japan through Friday, though Nissan Motor Co 7201.T said it would resume operations at its plants north of the epicenter from Monday.
- Sony Corp said production would remain halted at its image sensor plant in Kumamoto, as the electronics giant assessed structural and equipment damage. But the company said it had resumed full operations at its plants in nearby Nagasaki and Oita which also produce the sensors - used in smartphone cameras, including Apple Inc's AAPL.O iPhone.
- Semiconductor manufacturer Renesas Electronics Corp confirmed it had sustained damage to some equipment at its plant in Kumamoto which produces microcontroller chips for automobiles. Having suspended operations following the first earthquake on Thursday, the chipmaker said it would assess damage at the entire facility before deciding when to resume production.
Japan eyes double-barrelled stimulus to ease yen strains | Reuters: Japan looks increasingly likely to fire both fiscal and monetary barrels in the coming weeks to help recovery and arrest unwelcome gains in the yen, with direct currency intervention off the table after a cool reception from its U.S. ally. After the rising yen helped push exports down for a sixth month in March and deadly earthquakes hit southern Japan last week, the Bank of Japan (BOJ) is facing calls from government aides to promptly expand its money-printing stimulus. Prime Minister Shinzo Abe is already set to announce a fiscal stimulus plan of up to 10 trillion yen ($91 billion) extra spending around the time he hosts a Group of Seven summit in late May, which could agree on more government expenditure to boost global growth. And he could top that up with disaster-relief spending after the quakes, say government and ruling party officials involved in the policy-making. Abe's aides also said the economic impact of the quakes raised the chances he would delay a sales tax hike scheduled for next year and increased the need for more central bank action. "If output weakens and consumer sentiment cools as a result of the quakes, the conditions justifying additional monetary easing would all fall into place," said a senior government official with direct knowledge of policymaking.
Japan Keeps Borrowing as Yields Hit Record Low -- For Japan’s bond investors, it seems the bigger the debt burden, the better. Yields on some of Japan’s longest sovereign notes dropped to records as ruling party lawmaker Kozo Yamamoto floated on Thursday the idea of borrowing an extra 20 trillion yen ($182 billion) to fund earthquake relief and bolster a struggling economy. With most of the nation’s bonds offering negative yields and the Bank of Japan cornering a third of the market as part of its unprecedented stimulus, strategists say the government with the world’s biggest debt pile will have no trouble selling more as investors hunt any notes that can be traded and offer a return. Japanese debt yields have slid to record lows as the BOJ buys nearly all the government notes newly issued to the market. All benchmark yields up to 10-years are below zero, and the 30-year yield dropped to an all-time-low of 0.265 percent on Thursday while the 40-year rate fell to a record 0.29 percent a day earlier. An auction of 1.1 trillion yen of 20-year JGBs on Thursday drew the strongest demand since November, in a sign that investors are still keen to acquire Japanese notes with positive yields. Yamamoto of the Liberal Democratic Party, who had been calling for a 10 trillion yen fiscal package before temblors struck Japan’s southwest, also said Thursday that he personally thinks the BOJ should boost monetary stimulus. The central bank’s policy board next meets for two days through April 28.
All Japan Sovereigns Yield Below 0.3% as 40-Year Hits Record Low - Japan’s 40-year bond yield fell to a record low, meaning all the nation’s sovereign bonds yield less than 0.3 percent as investors rush for securities with positive income. The yield on the 1.4 percent government note maturing in March 2055 fell to 0.29 percent in Tokyo Wednesday from 0.415 percent on Friday when the bond had last traded, according to Japan Bond Trading Co. The decline spread to other longer-dated maturities, pushing 30- and 20-year yields to record lows of 0.285 percent and 0.245 percent respectively. Japan’s two-year yield also reached a record minus 0.265 percent. Bond-buying operations for these zones by the Bank of Japan are also tightening market conditions as negative rates have pushed investors seeking positive yields into longer-dated debt. Yields on bonds with maturities as long as 10 years have gone negative since the BOJ announced in January that it would start charging lenders on some of their excess reserves held with the central bank. “With yields up to 10 years sinking below zero, investors will look at zones on the curve with plus yields,” . The 20-year auction scheduled for Thursday is expected to meet healthy demand, he said. “There are investors who have no choice but to buy.” “Strong demand for these bonds is strengthening downward pressure on their yields,” There is also “speculation among some overseas investors of additional easing by the BOJ,” he said.
Japan’s Life Insurers, Stung by Negative Rates, Look Abroad for Assets - WSJ: Japanese life insurers are branching out into higher-return investments overseas such as financing airplanes and power plants to combat falling yields at home. Investment managers at major private-sector insurers on Friday described plans to buy more foreign assets in place of Japanese government bonds, many of which now carry negative yields. “Japanese government bonds virtually aren’t functioning as an asset class today,” said Kazuo Sato, head of finance and investment planning at Japan’s biggest private life insurer, Nippon Life Insurance Co. “We are living in an age when we cannot secure yield unless we improve our asset management and diversified investments.”Japanese life-insurance companies’ investments are closely watched because they together control nearly ¥350 trillion ($3.2 trillion) in financial assets. Life-insurance companies make most payouts in yen, which means they prefer to invest in yen-denominated products with long durations. Traditionally, that meant a heavy dose of longer-term Japanese government bonds, but now the companies are being forced to look overseas.Nippon Life said Friday it had set aside ¥40 billion ($360 million) for new commitments to infrastructure equity funds that put money into power plants, airports, schools and other facilities.Dai-ichi Life Insurance Co. is increasing investments in aircraft leasing and infrastructure to generate stable returns, investment officials at the company said.
Negative Rates Seen Pushing Japanese Farmers Into U.K. Mortgages - In the latest sign negative interest rates are pushing investors into riskier assets, a bank for Japanese farmers and fishermen has bought more than 2 billion pounds ($2.9 billion) of U.K. mortgage-backed bonds, according to people familiar with the matter. Cooperative lender Norinchukin Bank acquired senior-ranking notes in a 6.1 billion-pound deal that priced earlier this month, said the people, who asked not to be identified because they’re not authorized to talk about it. Cerberus Capital Management sold the bonds secured by mortgages from failed U.K. lender Northern Rock Plc, which it acquired last year. Japanese investors are moving into higher risk assets abroad as negative yields erode the appeal of domestic government bonds. Eight of 11 Japanese regional banks surveyed by Bloomberg last month said they’ve begun or are considering asset reallocation, with foreign bonds and real estate investments among the most popular products. “Bond yields are negative but funding costs are not, so Japanese institutions have to buy risk assets,” said Hideaki Kuriki, a Tokyo-based debt investor at Sumitomo Mitsui Trust Asset Management. “They will acquire more foreign assets, but this will occur gradually as Japanese investors are very conservative.” Masahiro Mikami, a Tokyo-based spokesman for Norinchukin Bank, declined to comment on whether the bank had bought the bonds. . The transaction was the largest sale of asset-backed debt in Europe in more than nine years, people familiar with the matter said on April 5.
Japan's trade deficit down 88% in fiscal 2015 on cheaper oil imports | The Japan Times: Japan’s trade deficit in fiscal 2015 through March plunged 88.2 percent from a year earlier to ¥1.08 trillion ($9.9 billion), helped largely by a fall in the cost of crude oil imports, the government said Wednesday. The value of exports fell 0.7 percent for the first decline in three years to ¥74.12 trillion, while that of imports dropped 10.3 percent to ¥75.20 trillion, the Finance Ministry said in a preliminary report. The value of crude oil imports plunged 37.9 percent as average oil prices dropped 45.2 percent from the previous year to $48.90 per barrel. Import values of liquefied natural gas decreased 41.4 percent. Crude oil prices have a major impact on the nation’s trade balance as the country relies heavily on energy imports, especially after the March 2011 Fukushima nuclear disaster, with most of the country’s commercial nuclear reactors remaining offline amid heightened public concern about their safety. Shipments to the United States grew 6.2 percent to ¥15.09 trillion on the back of solid vehicle exports, while imports expanded 2.3 percent to ¥7.87 trillion. Exports to China, another major destination for Japanese products, dropped 3.1 percent to ¥13.00 trillion, while imports fell 0.6 percent to ¥19.06 trillion. Exports to the European Union climbed 5.2 percent to ¥8.10 trillion and imports from the 28-nation bloc gained 8.0 percent to ¥8.73 trillion.
Hundreds detained as Indian caste protest turns violent - Protests by an Indian caste demanding the release of one of its leaders turned violent on Sunday, as police fought running street battles with stone-throwing demonstrators and detained hundreds. Statewide marches in Gujarat calling for the freeing of Hardik Patel, a young leader of the Patel community who has been in jail since last October on sedition charges, turned violent in the town of Mehsana. Police fired tear gas, deployed water cannon and staged baton charges against protesters. The local administrator imposed a curfew in Mehsana. Across the state more than 400 protesters were detained. At least two dozen people were injured in Mehsana, NDTV said in a report that could not immediately be confirmed. "The internet has been jammed so that no rumors are spread through WhatsApp and other social sites," said Mehsana District Collector Lochan Sehra. "Peace should be maintained throughout the city." Hardik Patel, 22, emerged overnight last year as leader of a mass movement demanding more government jobs and college places for the Patel -- or Patidar -- community that makes up 14 percent of Gujarat's 60 million population. Last year's protests caught the state and federal governments off guard, and challenged the promise of new job opportunities made by Prime Minister Narendra Modi, who ran Gujarat for 13 years before winning the 2014 general election.
India expediting efforts to collect $117 billion in tax arrears: India is stepping up efforts to collect tax arrears of about $117 billion to achieve its fiscal deficit target. The government is seeking periodical reports from tax officials to improve collections, according to a Reuters report. However, the amount that can be "realistically" collected is about 15-20 percent of what the government is targeting, the agency said, citing a tax official. "The finance minister asks almost every week how much tax arrears have we recovered," it quoted a senior finance ministry official as saying. The tax-to-GDP ratio in India is 16.6 percent, the lowest among emerging economies. Also, at $117 billion, the arrears are about four times the figure reported six years ago, according to the agency. The government is keen to collect the amount since it has set an ambitious target to rein in fiscal deficit at 3.5 percent of the gross domestic product (GDP) for 2016-2017, besides ambitious plans to spend on upgrading infrastructure. The government has also budgeted to raise Rs. 56,500 crore through disinvestment in the current financial year. Simultaneously, the government's expenditure will be under strain due to the implementation of the 7th Central Pay Commission proposals and the One Rank One Pension (OROP) scheme for ex-defence personnel.
Imagining life/ the RBI after Raghuram Rajan -- Once you’ve had a luddite at the Reserve Bank of India it’s hard to go back… Amongst other things Rajan stabilised the rupee, brought inflation under some sort of control (with some outside help) which has allowed him to cut rates, overseen institutional changes at the RBI, has started to get a grip on India’s problem loans, and was a big part of convincing Delhi to crack down on willful defaulters and others who used to have avenues of political appeal when their loans were being questioned. He also managed to thoroughly woo much of Mumbai’s financial community while doing so. And now he might be off. As in, when his current term ends.Wherever he lands we’ll surely still get to hear him speak (maybe more freely, maybe less so) on those subjects like the externalities of monetary policy which remain close to his heart. The problem is what happens to the RBI and the rupee. Who is out there that can step into his shoes? From Kotak’s Saurabh Mukherjea on the growing fears about his potential departure: In light of a speech made by Raghuram Rajan in Washington, there isgrowing speculation in New Delhi about the possibility that the RBI might have a new Governor come September 2016. For those who missed it, on 15th April 2016, Dr Rajan compared India to a ‘one-eyed king’, saying, “I think we have still to get to a place where we feel satisfied. We have this saying — ‘In the land of the blind, the one-eyed man is king’. We are a little bit that way”.
Bangladesh Bank exposed to hackers by cheap switches, no firewall: Police - (Reuters) — Bangladesh's central bank was vulnerable to hackers because it did not have a firewall and used second-hand, $10 switches to network computers connected to the SWIFT global payment network, an investigator into one of the world's biggest cyber heists said. The shortcomings made it easier for hackers to break into the system earlier this year and attempt to siphon off nearly $1 billion using the bank's SWIFT credentials, said Mohammad Shah Alam, head of the Forensic Training Institute of the Bangladesh police's criminal investigation department. "It could be difficult to hack if there was a firewall," Alam said. The lack of sophisticated switches, which can cost several hundred dollars or more, also means it is difficult for investigators to figure out what the hackers did and where they might have been based, he added. The institute Alam heads includes a cyber crime division. The police believe both the bank and SWIFT should take the blame for the oversight, Alam said in an interview. "It was their responsibility to point it out but we haven't found any evidence that they advised before the heist," he said, referring to SWIFT.
Uganda's only cancer treatment machine broke and now thousands of patients will go untreated (Reuters) - Thousands of cancer patients in Uganda will be left untreated for months after the nation's only radiotherapy machine broke down, triggering public criticism about underfunding in the health system weeks after the president's re-election. The device, bought in 1995 and sited at the main Mulago referral hospital, stopped working early in April, Christine Namulindwa, the cancer unit spokeswoman told Reuters. A new machine was bought in 2013 but the government delayed allocating 30 billion shillings ($8.97 million) for a special building, called a bunker, to house it, she said. About three quarters of the 44,000 new cancer patients seen last year needed treatment, Namulindwa said. "In the next six months, we expect ... the new radiotherapy machine to be installed." Members of the public and activists took to social media saying the government was neglecting health care - accusations that it rejects. "The cruel indifference by government to the health needs of Ugandans is astonishing," said Asia Russell, Uganda-based executive director of Health GAP, a public health pressure group. Government critics say public healthcare has been neglected under President Yoweri Museveni, 71, a former rebel who took power in 1986. They accuse his government of focusing funds on the army and bloated civil service.
Dilma Rousseff: Brazilian congress votes to impeach president - Brazilian president Dilma Rousseff suffered a crushing defeat on Sunday as a hostile and corruption-tainted congress voted to impeach her.In a rowdy session of the lower house presided over by the president’s nemesis, house speaker Eduardo Cunha, voting ended late on Sunday evening with 367 of the 513 deputies backing impeachment – comfortably beyond the two-thirds majority of 342 needed to advance the case to the upper house. As the outcome became clear, Jose Guimarães, the leader of the Workers party in the lower house, conceded defeat with more than 80 votes still to be counted. “The fight is now in the courts, the street and the senate,” he said. As the crucial 342nd vote was cast for impeachment, the chamber erupted into cheers and Eu sou Brasileiro, the football chant that has become the anthem of the anti-government protest. Opposition cries of “coup, coup,coup” were drowned out. In the midst of the raucous scenes the most impassive figure in the chamber was the architect of the political demolition, Cunha. Watched by tens of millions at home and in the streets, the vote – which was announced deputy by deputy – saw the conservative opposition comfortably secure its motion to remove the elected head of state less than halfway through her mandate. There were seven abstentions and two absences, and 137 deputies voted against the move.
Brazil Stocks Soar After Rousseff Impeachment Vote Passes Critical Threshold -- Following Monday's decision by a special committee to commence the impeachment process against president Dilma Rousseff, all attention had been focused on the number of Congressional votes that the pro-impeachment movement would have ahead Sunday's critical vote. As a reminder, impeachment would require two-thirds support, or 342 of the 513 lower-house lawmakers, to send the case to the Senate. And then, following a failed attempt to stall the impeachment process last night when Brazil's Supreme Court allowed the impeachment process to proceed despite Rousseff's protests, moments ago, Brazil's Folha newspaper reported that this critical 342 threshold had been met. The result: Brazilian stocks, which had already surged today, and were up 22% YTD not to mention up 44% from January's lows, extended the rally of what has been this week's best performing market ahead of this weekend's impeachment vote. Citing Ari Santos, a trader at brokerage H.Commcor in Sao Paulo, Bloomberg reports that "the market is anticipating the improvement of the economy with new policies," said "That’s the main driver for Brazil’s stocks today as it has been in the past weeks." However, such an optimistic assessment may be premature: first, not only is Rousseff going to fight the process, which next goes to the Senate, tooth and nail, but a political crisis just 4 months ahead of the Olympics will hardly be beneficial for the Brazilian economy, which as we have been reported for the past year, is now openly in a depression."The view that Sunday’s impeachment vote will be some sort of a denouement is wide of the mark," . "Irrespective of the outcome, it is bound to raise more questions than answers. Markets are far too confident that Brazilian politics is moving in the right direction as far as political stability and economic reforms are concerned." For now, however, as the chart below shows, traders are pushing green first, and asking questions later
Rio Warns of Fiscal Collapse as Brazil States Seek Debt Relief - - Rio de Janeiro said it’s running out of money to pay for basic services months before the Olympic Games while other Brazilian states warned of similar financial crises if the federal government doesn’t provide debt relief. Six state governors and a representative for Rio de Janeiro said on Tuesday their fiscal woes are forcing them to make cutbacks that could lead to a breakdown of social services. Rio has been delaying payment of salaries to public servants since the beginning of the year. The states argued before the Supreme Court on Tuesday that the situation has become so dire that they should be allowed to pay simple rather than compound interest on debts owed to the federal government. The court will rule on the matter April 27. The change would cost the Treasury 313 billion reais ($88 billion) in lost revenue, according to the Finance Ministry. Brazil’s state debt crisis is deepening as the country faces its worst political crisis in decades and austerity measures are put on hold. The high court’s decision will have a profound impact on the finances of both state and federal governments as tax revenues plunge amid the worst recession in decades. The crisis comes as the state prepares to host the Olympic Games in August, possibly making it difficult to carry out basic functions such as fueling police cars and maintaining hospitals. “We’re talking about the image of the country,” he said. “We are nearing a social collapse in our state.”
Dilma Rousseff’s Impeachment Isn’t a Coup, It’s a Cover-Up - BRAZIL took a major step toward the impeachment of President Dilma Rousseff on Sunday when the lower house of Congress voted to send her case to the Senate, which will almost certainly refer her for a trial. It now looks likely that the president will be removed from office and replaced by Michel Temer, her vice president. Very few members of congress based their votes on the charges that have actually been brought against the president: that she violated regulations regarding public finances. Those in the opposition claim that they want to send a message about good governance. But the real reason the president is being impeached is that the Brazilian political system is in ruins. Her impeachment will provide a convenient distraction while other politicians try to get their own houses in order. An enormous corruption investigation, known as Operação Lava Jato, or Operation Car Wash, has exploded in the political system’s face. At first, when the investigation began in 2014, investigators accused members of Ms. Rousseff’s left-wing Workers Party of using Petrobras, the state-run oil company, to trade kickbacks for political favors. There is more and more evidence that this kind of practice was common among Brazilian political parties. The investigation has expanded to include a host of figures across the political spectrum, including roughly 50 politicians and a handful of business leaders. Unlike many Brazilian politicians, Ms. Rousseff isn’t accused of taking bribes or trading cash for favors. But she is a weak and unpopular president. The economy has stagnated, thanks in large part to dropping global commodity prices and economic mismanagement during her first term. She has been forced to cut spending and implement painful austerity measures. In short, she is an easy target for the public’s anger.Bringing down Ms. Rousseff — even on charges unrelated to the original corruption investigation — would be a nice season finale to Operation Car Wash: a catharsis of epic proportions. It would also provide corrupt, right-wing politicians, the largest constituency in Congress, with a reprieve from public scrutiny.
The Guardian view on Dilma Rousseff’s impeachment: a tragedy and a scandal -- The PT was a real party, with a mass base across the country, a coherent ideology, an apparently strong moral sense – characteristics that other political formations largely lacked. Lula’s social policies brought him and the PT immense popularity, re-election for a second term, and helped his successor, Dilma Rousseff, to convincing victories in 2010 and 2014. Since then the story has grown darker and darker until it reached a dismal low point on Sunday when the lower house of Congress voted to impeach her. And it could get worse, because the impeachment, far from helping to resolve Brazil’s political and social polarisation, has already exacerbated both. The steel wall erected along the length of the Esplanada, the parkland strip in the centre of Brasilia, to prevent anti-Dilma and pro-Dilma supporters from physically clashing during the impeachment vote was symbolic of how far such polarisation has already gone. The historian José Murilo de Carvalho said recently that radicalisation and intolerance in the country have reached a very dangerous point. How did things go so wrong? The answer is variously to be found in global economic change, the personality of the president, the PT’s embrace of a corrupt system of party finance, the scandal that exploded as that system was exposed, and the dysfunctional relationship of the Brazilian executive and legislature. The economy went into decline as prices for the commodities that are Brazil’s main exports fell sharply. Growth slowed, then halted, then reversed; employment faltered; prices rose and the social provisions that Lula had introduced became harder to finance. The PT itself, once the country’s least corrupt party, chose to solve its financial problems by dipping into a trough of money diverted from Petrobras, the national oil company. Its coalition allies, and other parties, joined in.
The real reason Dilma Rousseff’s enemies want her impeached - The story of Brazil’s political crisis, and the rapidly changing global perception of it, begins with its national media. The country’s dominant broadcast and print outlets are owned by a tiny handful of Brazil’s richest families, and are steadfastly conservative. For decades, those media outlets have been used to agitate for the Brazilian rich, ensuring that severe wealth inequality (and the political inequality that results) remains firmly in place. Indeed, most of today’s largest media outlets – that appear respectable to outsiders – supported the 1964 military coup that ushered in two decades of rightwing dictatorship and further enriched the nation’s oligarchs. This key historical event still casts a shadow over the country’s identity and politics. Those corporations – led by the multiple media arms of the Globo organisation – heralded that coup as a noble blow against a corrupt, democratically elected liberal government. Sound familiar? For more than a year, those same media outlets have peddled a self-serving narrative: an angry citizenry, driven by fury over government corruption, rising against and demanding the overthrow of Brazil’s first female president, Dilma Rousseff, and her Workers’ party (PT). The world saw endless images of huge crowds of protesters in the streets, always an inspiring sight. But what most outside Brazil did not see was that the country’s plutocratic media had spent months inciting those protests (while pretending merely to “cover” them). The protesters were not remotely representative of Brazil’s population. They were, instead, disproportionately white and wealthy: the very same people who have opposed the PT and its anti-poverty programmes for two decades. Slowly, the outside world has begun to see past the pleasing, two-dimensional caricature manufactured by its domestic press, and to recognise who will be empowered once Rousseff is removed. It has now become clear that corruption is not the cause of the effort to oust Brazil’s twice-elected president; rather, corruption is merely the pretext.
To See the Real Story in Brazil, Look at Who Is Being Installed as President — and Finance Chiefs - It’s not easy for outsiders to sort through all the competing claims about Brazil’s political crisis and the ongoing effort to oust its president, Dilma Rousseff, who won re-election a mere 18 months ago with 54 million votes. But the most important means for understanding the truly anti-democratic nature of what’s taking place is to look at the person whom Brazilian oligarchs and their media organs are trying to install as president: the corruption-tainted, deeply unpopular, oligarch-serving Vice President Michel Temer (above). Doing so shines a bright light on what’s really going on, and why the world should be deeply disturbed. The New York Times’s Brazil bureau chief, Simon Romero, interviewed Temer this week, and this is how his excellent article begins: One recent poll found that only 2 percent of Brazilians would vote for him. He is under scrutiny over testimony linking him to a colossal graft scandal. And a high court justice ruled that Congress should consider impeachment proceedings against him. How can anyone rational believe that anti-corruption anger is driving the elite effort to remove Dilma when they are now installing someone as president who is accused of corruption far more serious than she is? It’s an obvious farce. But there’s something even worse.The person who is third in line to the presidency, right behind Temer, has been exposed as shamelessly corrupt: the evangelical zealot and House speaker Eduardo Cunha. He’s the one who spearheaded the impeachment proceedings even though he got caught last year squirreling away millions of dollars in bribes in Swiss bank accounts, after having lied to Congress when falsely denying that he had any accounts in foreign banks.
Americas - Venezuela to cut power for four hours a day amid electricity crisis - France 24: Recession-hit Venezuela will turn off the electricity supply in its 10 most populous states for four hours a day for 40 days to deal with a severe power shortage, the government said Thursday. It is the latest drastic measure to alleviate a severe electricity crisis which President Nicolas Maduro and his government blame on a drought caused by the El Nino weather phenomenon. Critics say it is the result of years of economic mismanagement. "Each user will have a temporary suspension of four hours a day. The plan will last approximately 40 days" to ease pressure on the country's largest hydroelectric dam, said Electricity Minister Luis Motta. Maduro is under growing pressure from the center-right opposition, which vowed to oust him when it took control of the legislature in January after winning a landslide election victory, blaming him for the crippling economic crisis. Venezuela's economy has plunged along with the price of the oil which it relies on for foreign revenues. Shortages of medicines and goods such as toilet paper and cooking oil are widespread. Maduro blames the collapse on an "economic war" by capitalists. Last week, his government said it was shifting its time zone forward by 30 minutes to save power. Other measures include giving government workers an extra day off each week for the next two months, and Maduro has urged Venezuelan women to stop using their hairdryers.
Venezuela runs up $1 billion debt for late shipping containers: (Reuters) – Venezuelan state agencies have run up close to $1 billion (695 million pounds) in debts with shipping firms due to delays in returning containers, potentially boosting the cost of importing staple goods as the country struggles with product shortages and an economic crisis. The agencies have held containers for months or simply never returned them, at times leaving the truck-sized steel boxes for years in oil industry facilities or on provincial farms even though this costs $100 per day per container, according to industry sources. The debts have piled up over the last six years, coinciding with a steady rise in the role of state agencies in importing goods to Venezuela, particularly food. The country is served by industry giants such as Maersk of Denmark and Hamburg Sud of Germany. The container debts put shipping lines on a long list of industries ranging from international airlines to telecommunications giants that have complained of being unable to collect on billions of dollars in unpaid Venezuelan bills. Like these groups, it is unclear if shipping firms will ever be able to recover the debt. But it adds to the risks for shipping companies serving the Venezuelan market. Freight rates to Venezuela have risen to become among the highest in region, and in some cases are three times higher than other South American destinations, according to documents seen by Reuters.
Canada Revenue Agency struggling to collect taxes as total uncollected debt soars 110 per cent to $38 billion | National Post: The Canada Revenue Agency continues to struggle in collecting taxes it’s owed, with total uncollected tax debt soaring more than 110 per cent in the last decade to $38 billion and the cost of “doubtful accounts” unlikely to be recovered more than doubling to $13 billion. While the CRA announced a series of new measures last week designed to crack down on tax evasion, an Ottawa Citizen analysis shows the problems the agency faces in collecting tens of billions of dollars in assessed taxes and penalties that could help fund federal programs and services. The federal auditor general has flagged the CRA’s challenges twice over the past decade, but it seems the problem is only getting worse. The CRA’s total undisputed tax debt — which includes taxes, penalties and other revenues assessed or estimated over several years by the agency, but not yet collected — increased to $38 billion in the 2014-15 fiscal year from $18 billion in 2004-05.
Yes, Canada Can Safely Take on More Debt. Here’s Why - In my column this week I noted that by pursuing more fiscal and less monetary stimulus, Canada’s new Liberal government was following the formula recommended by the International Monetary Fund, the Group of 20 top economies, and Harvard University’s Larry Summers. It can do this thanks, I noted, to its pristine balance sheet. Federal debt is just 31% of gross domestic product, the lowest of the Group of Seven big economies. The column drew several critical remarks. Some readers noted that Canada’s debt burden is much larger if you include the debts of the provinces, especially Ontario and Quebec. Indeed, that raises its “general government gross debt,” which includes all levels of debt, to 92%, higher than Germany’s and in line with Britain. However, Canada’s “general government net debt,” which adds in central and subnational debt and subtracts financial assets such as pension-plan holdings, is just 28% of GDP this year, still by far the lowest in the G-7. Germany, the next lowest, is at 47%. The U.S. is at 82%. So by most objective measures, Canada’s relative fiscal strength prevails. (These figures are all from the IMF’s latest fiscal monitor.) Some correspondents said Canada has a problem with rising health spending. True, but it’s actually less bad than most countries. The present value of higher health-care spending between now and 2050 equals 40% of Canada’s GDP, which is roughly half the average of the G-7. The present value of higher pension spending equals 24% of GDP, marginally higher than the G7 average. At current contribution rates Canada’s national pension plan is fully funded over the next 75 years, whereas U.S. Social Security will not be solvent without reduced benefits or higher contributions. So while provincial debt and elderly obligations are problems, neither undermines the logic of the relatively modest fiscal stimulus Canada is now employing, especially since unemployment has risen in Canada in the last year while in the U.S., Japan, Britain and the eurozone, it’s fallen. As in most of the world, the interest rates Canada pays on the national debt are lower than the growth of nominal GDP, so it can safely sustain higher levels of debt than when that relationship was reversed.
Panama Papers: More Trouble For The West Than Russia - Forbes: The leaked Panama Papers implicating government officials from more than 50 countries including Vladimir Putin’s insiders, David Cameron and others in Iceland, Ukraine, China and beyond have prompted a series of speculations arguing that the leak was either orchestrated by the CIA and others countering that it could have been Russia. Coming at a time when many EU countries are fraught with domestic, economic and political problems, the Panama revelations could contribute to more instability on the European continent but they will not weaken Putin’s leadership as many initially thought. The leaks largely play into the Kremlin’s narrative of the world—where corruption is equally rampant in the West and where the West does not have “moral authority” vis-a-vis the Russian regime. While the leaks revealed that Putin’s close associates moved up to $2 billion through offshore companies, allegations of wealth and corruption come as no surprise to anyone following Russia. In fact, the evidence against the Russian government and Putin seems underwhelming. That “$2 billion” sounds like pocket change in light of the known Russian wealth and corruption where even the children of Kremlin’s insiders have amassed multi-billion dollar fortunes. One Russian oligarch reportedly spent $1 billion on a wedding for his son just last month. It is no wonder the Panama Papers have caused little outrage in Russia. While they have not received significant media coverage, the public also assumes that the powerful are bound to be rich. Moreover, the Kremlin’s usual storyline that Western governments are equally corrupt particularly because their top leadership were involved in the Panama scandal may gain traction not only among the Russian audiences but also in Europe, the U.S. and beyond—thus weakening Western efforts to discredit the Russian government on the basis of corruption.
Getting Past Slow Growth - Most economists nowadays are pessimistic about the world economy’s growth prospects. The World Bank has, yet again, downgraded its medium-term projections, and economists the world over are warning that we are facing a “new normal” of slower growth. Where there is less consensus – or so it seems – is in accounting for this weakness. Almost three years ago, former US Treasury Secretary Larry Summers revived Alvin Hansen’s “secular stagnation” hypothesis, emphasizing demand-side constraints. By contrast, in Robert Gordon’s engaging and erudite book The Rise and Fall of American Growth, the focus is on long-term supply-side factors – in particular, the nature of innovation. Thomas Piketty, in his best-selling tome Capital in the Twenty-First Century, describes the rise of inequality that is resulting from low GDP growth. Joseph E. Stiglitz’s book Re-Writing the Rules of the American Economy: An Agenda for Growth and Shared Prosperity blames political choices for both slowing growth and rising inequality. These accounts differ in emphasis, but they are not contradictory. On the contrary, while Summers, Gordon, Piketty, and Stiglitz each examines the issue from a different perspective, their ideas are complementary – and even mutually reinforcing. Summers’s Keynesian argument is that the problem is a chronic aggregate-demand shortfall: Desired investment lags behind desired savings, even at near-zero nominal interest rates, resulting in a chronic liquidity trap. Today’s near-zero – even slightly negative – short-term policy interest rates do not mean that longer-term rates, which are more relevant to investment financing, have also hit zero. But the yield curve in the major advanced economies is very flat, with both real and nominal longer-term rates at historic lows.
Central banks feel pain of negative rates - Investors ranging from small German savers to global life insurers have long complained about central banks’ use of negative interest rates. Now, however, another group is feeling the pain from negative rates — central banks themselves. European and Japanese rate cuts are putting pressure on many central banks’ returns — a source of income used to cover running costs and to provide finance ministries with profits on which they have come to rely. A poll of reserve managers from 77 central banks, entrusted with reserves worth $6tn last August, found a clear majority were changing their portfolio management strategy as a result — including taking steps such as buying riskier assets. “Central banks need to preserve capital, so investing in securities that force them to lose money is counterintuitive,” said Christian Deseglise, head of central banks, sovereign wealth and public funds at HSBC. “They are needing to act more aggressively to generate yield and in some cases take more risk.” While central banks are best known for setting interest rates and printing cash, overall they are among the biggest of investors. Total managed reserves were $10.9tn at the end of last year, according to the International Monetary Fund. Now, according to the poll compiled by Central Banking Publications, a trade journal, and HSBC, the bank, central bank reserve managers are making or “seriously considering” buying bundles of loans repackaged as asset-backed securities or switching out of currencies affected by negative rates.
ECB not aiming to weaken euro against dollar: sources | Reuters: The European Central Bank is unhappy with the U.S. dollar's recent fall but accepts it as a natural consequence of the Federal Reserve's cautious economic outlook and sees no reason to act to weaken the euro, three ECB sources told Reuters. A weaker dollar - it has shed 4 percent against the euro EUR= since the beginning of March and 6 percent in the past year - is reducing imported inflation in the euro zone, making it harder for the ECB to boost prices after repeated bouts of negative inflation. But with many big central banks easing monetary policy to stimulate sluggish economies, policymakers risk getting into costly currency wars, one ECB official said on condition of anonymity. "We have to accept that the exchange rate channel is not working like it used to," said an ECB insider who asked not to be named. "With the Fed's lowered rate path comes a weaker dollar and we need to avoid even the impression that we're targeting the exchange rate." "The stronger euro doesn't help inflation, but we're still in a completely acceptable range and oil is finally helping us," the source added.
Schaeuble says zero or negative rates for a long time makes no sense | Reuters: German Finance Minister Wolfgang Schaeuble said on Wednesday it made no sense for interest rates to be held at zero or below for a long time. "A long period with zero and negative interest rates is not a sensible situation," Schaeuble said, adding that more growth via reforms would free the European Central Bank from the "excessive demands" of an incomplete currency union. Several German politicians have recently criticised the ECB, which in March unveiled a large stimulus package that included cutting its deposit rate deeper into negative territory, expanding asset buys and offering free loans to the corporate sector to stimulate growth.
ECB to fire back at Germany in policy defense | Reuters: ECB President Mario Draghi is likely to drive home the case for ultra-loose monetary policy on Thursday, hitting back after a barrage of criticism from German officials who dispute the bank's recipe for tackling the euro zone's economic malaise. Having yet to implement or fully explain some of the measures he announced last month, Draghi is set to give investors more information about the European Central Bank's latest plan to buy corporate bonds. Widely expected to hold interest rates unchanged at record lows, the ECB will want to see how the two stimulus packages announced since December play out before unveiling any new measure, but Draghi will also reaffirm his guidance for low or even lower rates for many years to come. The ECB has been easing policy aggressively, cutting rates deeper into negative territory and expanding asset buys in a bid to prop up inflation after sinking oil prices pushed it into negative territory -- all but erasing hope it can lift it back to its 2 percent target over the next two years. Although market-based inflation expectations have refused to budge, oil prices are rising and the March stimulus package supported both sentiment and financial market conditions, giving the ECB reason for cautious optimism, analysts said. Indeed, the ECB's biggest headache this time may be a nasty spat with Berlin after Finance Minister Wolfgang Schaeuble said that monetary policy was causing "extraordinary" problems for Germany and was in part to blame for the rise of the right-wing anti-immigration Alternative for Germany (AfD).
Hungary to Issue Dim-Sum Bond as It Seeks to Curry Favor With China --Hungary priced the three-year bond at a yield of 6.25%, raising 1 billion yuan ($154 million), a small size for a sovereign deal. Bankers not involved in the transaction estimate that if Hungary issued debt in U.S. dollars and swapped the proceeds into yuan, it would have paid almost 1% less in annual interest costs. The dim-sum market isn’t an appealing market right now. Issuance of offshore yuan bonds has been falling consistently since Beijing’s decision to devalue its currency by 2% in August last year—the prospect of another yuan devaluation has sapped much of the appeal of such bonds for offshore investors. However, Ivan Chung, an associate managing director at Moody’s Investors Service, said selling yuan-denominated sovereign debt promotes Hungary as a yuan hub, partly by establishing a benchmark off which Hungarian firms can issue their own yuan bonds. Bank of China opened a yuan clearing center in Budapest last October, according to China’s Xinhua News Agency, in a ceremony involving the Hungarian Prime Minister Viktor Orban and the Bank of China chairman Tian Guoli. In January this year Hungary mandated Bank of China solely for its offshore yuan bond. Sovereign dim-sum issuance also generates goodwill with China, which wants to see more cross-border finance done in yuan. In November 2013, the Canadian province of British Columbia issued a 2.5 billion one-year offshore yuan bond. The small size and short tenor didn’t do much for the province’s finances, but a banker who ran the deal said the offer promoted B.C.’s trade relations with China.
Greece’s Creditors Weigh Extra Austerity Measures to Break Deadlock - WSJ: Greece’s creditors are considering seeking extra austerity measures that would be triggered if Athens misses its fiscal targets, in a bid to bridge differences between Europe and the International Monetary Fund and break a deadlock threatening to unravel the Greek bailout. Under the proposal, say officials involved in the discussions, Greece would have to sign up to so-called contingency measures of up to about €3 billion, on top of the package of about €5 billion in tax increases and spending cuts Greece and its lenders are already negotiating. The country would only have to implement the extra measures if falls short of targeted budget surpluses for coming years that were set out in last year’s bailout agreement, the officials say. The idea, which has support from the eurozone’s dominant power Germany, hasn’t yet been agreed upon, and officials on the creditors’ side say it would be politically hard for Greece’s embattled government to swallow. Creditors say the contingency-measures idea could finally overcome the monthslong disagreement between European institutions and the IMF about the outlook for Greece’s budget. That disunity has paralyzed talks about what Greece needs to do to secure a new IMF loan program and unlock rescue funding from Europe. Without billions of euros in fresh bailout funds, Greece faces bankruptcy in July, when large debts fall due. Months of talks without agreement have stoked concern in Europe about another Greek debt drama this summer, reviving fears the country could tumble out of the eurozone.
Greece-Troika Train Wreck Shaping Up for July Despite IMF Leak -- Yves Smith - The unresolved conflicts of the “kick the can down the road yet again” interim deal for Greece of last summer are set to come to a head this July. The IMF insists on Greece geting serious debt relief as a condition of its continued participation. The Germans refuse to give debt haircuts yet seem confident they still get a deal done that includes the IMF. In the meantime, Greece is upset with the IMF even though the agency is pushing for less punitive austerity. But the Greeks are right to be outraged even if the Germans and the ECB are more deserving targets for their ire than the IMF. Greece is in no position to suffer more fiscal punishment. Greece mistakenly believes that the friendlier-seeming European Commission has a real say in the matter, and the European Commission is willing to fudge numbers. And the ECB lurks in the background as the real muscle if and when the application of force becomes necessary.It’s essential when looking at what is going on in the Greece-creditor negotiations to identify the real power players and what their constraints and points of leverage are. Sadly, a lot of the US reporting has been imprecise to the point that it’s leading normally sound US commentators astray.
Defending German model threatens European stability -- The business models of German financial institutions depend critically on the presence of positive nominal interest rates. The International Monetary Fund noted in its latest Financial Stability Report that the pre-tax profits of German and Portuguese banks are most affected by negative rates. German life insurers are also vulnerable. They have to guarantee a minimum rate of return, which is now 1.25 per cent a year. This is hard to do when the yield of the 10-year German government bond is only 0.13 per cent. Germany and Sweden are the two EU countries where life insurers face the biggest gap between market rates and guaranteed rates. To achieve the promised returns, the insurers have to take on more risk, for example by buying corporate bonds or tranches of complex financial products. If, or rather when, the next financial crisis arrives and triggers a change in the valuation of these assets, we may find that sections of the German financial sector are insolvent. Of the German banks, the Sparkassen and the mutual savings banks are most affected. They are classic savings and loans outlets in that they lend locally and fund themselves through savings. Credit demand is more or less fixed. So when savings exceed loans, as they now do in Germany, the banks deposit their surplus with the ECB at negative rates — known as “penalty rates” in Germany. They cannot offset the losses by cutting interest rates on savings accounts because of the zero lower bound. Savers would switch from accounts to cash in safe deposit boxes.
Survey shows plunging public support for TTIP in U.S. and Germany | Reuters: Support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact. The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17 percent of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55 percent two years ago. In the United States, only 18 percent support the deal compared to 53 percent in 2014. Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion. TTIP is expected to be at the top of the agenda when Merkel hosts Obama at a trade show in Hanover on Sunday and Monday. Ahead of that meeting, German officials said they remained optimistic that a broad "political agreement" between Brussels and Washington could be clinched before Obama leaves office in January. The hope is that TTIP could then be finalised with Obama's successor. But there have been abundant signs in recent weeks that European countries are growing impatient with the slow pace of the talks, which are due to resume in New York next week. On Wednesday, German Economy Minister Sigmar Gabriel described the negotiations as "frozen up" and questioned whether Washington really wanted a deal.
Greek shipping minister moves against Piraeus port privatisation - Has Greek shipping minister Theodoros Dritsas gone rogue, moving against his government’s move to offer national infrastructure for privatisation in a bid to balance the nation’s debts? The head of China Cosco Shipping flew into Athens 10 days ago to seal the privatisation of Piraeus port in a deal worth more than EUR350m, making it one of the most significant foreign direct investments into the Mediterranean nation ever. However, Dritsas has thrown a spanner in the works with his determination to create an independent port authority at Piraeus which would have, what local newspaper Kathimerini described as “extensive control” over the port, going against the draft agreement inked with China Cosco Shipping. “In practice, this is an attempt to annul the [port] privatisation process or undermine its operation,” a legal source told Kathimerini. Dritsas has been vocal in his condemnation of the sale of Greece’s largest port, a deal that has sparked a number of strikes in Piraeus. A week ago Dritsas said the deal with China Cosco Shipping could still fall through. “The sale of the port is done in order to satisfy the lenders, not development purposes,” he said.
Greece Fails To Reach Deal With Lenders: Lagarde Flip-Flops, Sees "No Need For Greek Debt Haircut" -- Greece was supposed to finalize a deal today with its lenders whereby in exchange for an "agreement" to implement already agreed upon budget cuts it would receive more funds from the Troika. However, as Reuters reports, "there will be no deal between Greece and its lenders on Friday that would unlock loans and enable vital debt relief talks, despite some progress on the reforms Athens must implement in exchange, euro zone and IMF officials said on Friday. "Don't expect any deals today," the chairman of euro zone finance ministers Jeroen Dijsselbloem told reporters, noting however, he was "hearing good news from Athens" on headway made in negotiations on a Greek reform package. "There is more work to be done. We are determined to continue the work. We're not there yet," International Monetary Fund Managing Director Christine Lagarde said. As has been the case since the third Greek bailout which everyone agreed upon after last summer's volatile Greek events, the package of Greek reforms is aimed at producing a primary surplus of 3.5 percent of gross domestic product in 2018 "and beyond." The problem, however, is that Greece has failed to omplement it. As a result, there remains disagreement between Greece, the euro zone and the IMF on whether the measures, which include pension and income tax reform and setting up a privatization fund and a scheme to deal with bad loans, will be enough to reach that number.
Spain to overshoot deficit target... for 8th year running - The government already missed its target last year, with the country's public deficit coming in at 5 percent of gross domestic product, far higher than the 4.2 percent initially predicted by the ruling conservatives. This was the eighth consecutive year that Spain overshot its fiscal target, making it one of the worst performers in the eurozone. Economy Minister Luis de Guindos is due to present Madrid's new economic and budget forecasts to parliament later on Tuesday, but a source at the ministry who refused to be named revealed key data earlier in the day. Madrid has promised the European Commission that it will do its utmost to reduce the deficit, and has already announced two-billion-euro ($2.3-billion) spending cuts to try and deal with it. But according to economists, Spain needs to save some €25 billion in order to respect EU rules stating that the deficit in nations that use the euro should not exceed 3 percent of GDP. Spain has blamed its 2015 fiscal slippage on extraordinary measures like the need to fund an expensive new treatment for hepatitis C, a yawning social security deficit and overspending by regional governments.
Euro zone business growth slows despite discounting - PMI | Reuters: Further price cutting failed to prevent a slowdown in euro zone business growth this month, a survey showed, likely disappointing the European Central Bank which wants inflation to rise. The ECB's swathes of cheap loans and interest rate cuts, alongside a top-up to its monthly bond purchases, appear to have had little effect on inflation or private sector growth. Markit's Composite Flash Purchasing Managers' Index (PMI) for the euro zone, based on surveys of thousands of companies and seen as a good guide to growth, dipped to 53.0 from March's 53.1, matching a 13-month low in February. A Reuters poll had predicted a rise to 53.2. A reading above 50 denotes growth in activity. "April's small fall in the euro zone Composite PMI adds to the evidence that the region's recovery is slowing," said Jack Allen, European economist at Capital Economics. "Overall, the survey suggests that the euro zone's economic recovery is still too slow to generate much upward pressure on inflation. We think that the ECB will eventually need to do more to boost growth and inflation."
Eurozone economy mired in low growth, no inflation - The eurozone economy entered its fourth year of recovery in April, but was mired in a combination of low growth and subdued inflation that it shows few signs of escaping. Surveys of purchasing managers released Friday indicate that private sector activity slowed slightly as the second quarter got under way. A pickup in domestic demand almost offset weakening demand for the currency area's exports. The surveys detected few signs that inflation is heading back toward the European Central Bank's target of just under 2% from zero in March, with businesses continuing to cut prices in April to gain sales even as their own costs rose for the first time in four months. Data provider Markit said a headline measure of activity based on responses from 5,000 companies around the eurozone, known as the composite purchasing managers index, fell to 53.0 in April from 53.1 in March. Economists surveyed by The Wall Street Journal last week had expected a slight rise to 53.2. A reading above 50.0 indicates an increase in activity, while a reading below that level indicates a decline. Markit said the reading was consistent with quarter-to-quarter economic growth of 0.3%, the same rate of expansion recorded in the final two quarters of last year. Economists expect official figures for the first quarter of this year, to be released on April 29, to register a similarly meager growth rate. The ECB has taken measures to support the recovery amid worries that slowing growth in China and other large developing economies could bring growth to a premature halt. Among the ECB's initiatives in March were cuts to all its interest rates, a decision to start purchasing some corporate bonds, increases in the amount of its monthly asset purchases, and the launch of a second round of loans to banks designed to encourage lending to the private sector. The surveys of purchasing managers detected few signs of renewed optimism among businesses in the wake of the ECB's action.
Pope Francis takes refugees back to Rome following provocative and emotional Lesbos visit - For the hundreds of thousands of desperate migrants who have made landfall on this verdant jewel in the Aegean Sea over the past year, there had been only two ways off the island: a ferry bound for a new life deeper in Europe or a deportation order that led straight back across the sea. But that was before Saturday, when Pope Francis whisked in and pioneered a third: a ride with him on a jet bound for Rome. The Pope’s visit to the Greek island of Lesbos had already been emotional, provocative and deeply symbolic before he gave it a dramatic and unexpected twist in its closing minutes on Saturday. But when he boarded his Alitalia return flight along with 12 Syrians — including six children — who had lost their houses to bombs, the gesture offered the most vivid illustration yet in the pope’s quest to prick Europe’s conscience over its treatment of refugees. “May all of our brothers and sisters on this continent, like the good Samaritan, come to your aid in the spirit of fraternity, solidarity and respect for human dignity,” Francis told a group of hundreds of asylum seekers during a visit to the island’s migrant detention facility.
Europe’s rising shame: Islamophobia and de-democratization - Ignorant bigotry these days has become Europe’s daily bread. The very continent which lived in its flesh the infamy and shame of fascism just a few decades ago, stands today to repeat the same violence, and play by the same hate. Friedrich Nietzsche once said: “Whoever fights monsters should see to it that in the process he does not become a monster. And if you gaze long enough into an abyss, the abyss will gaze back into you.” This one quote encapsulates our current predicament. Europe most definitely lost itself in the chasm of radicalism. Or maybe it is Islamic radicalism which mapped itself on the intolerance it found in Europe’s best export: unapologetic imperialism. Regardless of blame, and beyond any admission of guilt, lies a rather bleak reality: Europe no longer plays by the freedom it once cried out for so loudly that kingdoms came tumbling down. Heads rolled in Revolutionary France so that the Republic would rise a new mistress over men; ink flowed so that civil liberties could become enshrined not in stone but constitutions.
EU States Grow Wary as Turkey Presses for Action on Visas Pledge. - European diplomats are agonising over their politically perilous promise to grant visa-free travel to 80m Turks, amid strong warnings from Ankara that the EU migration deal will fold without a positive visa decision by June. The EU’s month-old deal to return migrants from Greece to Turkey has dramatically cut flows across the Aegean, easing what had been an acute migration crisis. But the pact rests on sweeteners for Ankara that the EU is struggling to deliver — above all, giving Turkish citizens short-term travel rights to Europe’s Schengen area. Germany, France and other countries nervous of a political backlash over Muslim migration have started exploring options to make the concession more politically palatable, including through safeguard clauses, extra conditions or watered-down terms. The political calculations are further complicated by looming EU visa decisions for Ukraine, Georgia and Kosovo. One senior EU official said the search for alternatives reflected “growing panic” in Berlin and Paris over the looming need to deliver the pledge. The various options, the official added, were “a political smokescreen” to muster support in the Bundestag and European Parliament, which must also vote on the measures. The Turkish visa issue has even flared in Britain’s EU referendum campaign, forcing David Cameron, the prime minister, to clarify on Wednesday that Turks could not automatically come to the UK if they were granted visa rights to the 26-member Schengen area.
Greece 'could leave eurozone' on Brexit vote: Greece could crash out of the eurozone as early as this summer if Britons vote to leave the European Union in the upcoming referendum, economists have predicted. The uncertainty following a 'yes' vote to Britain leaving the EU would put unsustainable pressure on Greece’s cash-strapped economy at a time when it is also struggling to cope with an influx of migrants escaping turmoil in the Middle East and Africa, according to a report from the Economist Intelligence Unit. The authors of the report say it is highly likely that Greece will be forced to leave the eurozone at some point within the next five years, but that if the UK votes to leave the EU in June, it could happen much sooner. Greece is already under a huge amount of pressure and a so-called Brexit could tip it over the edge. The country has large debt payments due in mid-2016, while structural reforms recommended in Greece's bail-out programme are “slow burners” and unlikely to deliver any significant growth in the short term. Greece's true GDP contracted by 0.3pc last year, while unemployment stands at 24pc. The country's overall debt-to-GDP ratio has hit 171pc. "While the region could probably handle a Brexit, Grexit or an escalation of the migrant crisis individually, it would be unlikely to navigate successfully a situation in which several of those crises came to a head simultaneously," the report, entitled 'Europe stretched to the limit', said.
Greece's 'erratic Marxist' Varoufakis advises Britain's Labour Party, Corbyn says -- Yanis Varoufakis, the self-described "erratic Marxist" who took Greece to the brink of a euro zone exit by battling creditors over the conditions for a bailout, has got a new role: advising Britain's opposition Labour Party. The former Greek finance minister who shuns neckties and says the European Union is falling apart will advise Labour due to his negotiating experience during the euro zone debt crisis, said Labour leader Jeremy Corbyn. "I think the way Greece has been treated is terrible and we should reach out to them," Corbyn, who has taken the party of Tony Blair and Gordon Brown further to the left since he became leader in 2015, told the Islington Tribune. "Varoufakis is interesting, because he has obviously been through all the negotiations [with the ECB, European Commission and the International Monetary Fund]," Corbyn was quoted as telling his local London newspaper. Varoufakis, 54, did not immediately respond to emailed requests for comment about the new role. A spokesman for the Labour Party said Varoufakis would take part in a lecture series to discuss his experiences and offer advice on Labour Party policy "in an attempt to raise the level of public debate on economics and policy making." In six months as Greece's finance minister, the British-educated economist infuriated euro zone colleagues by opposing the terms for a Greek bailout.
Forget Brexit – Italian banks are a bigger worry for Europe - Editor's Blog -: Italy’s debt-to-gross domestic product (GDP) ratio is 132% – more than twice the level set down by the Maastricht Treaty for euro convergence. Italian non-performing loans (NPLs) amount to €360bn, which is 18% of total loans and equal to one-sixth of Italian GDP. This means that the hard-pressed Italian government would struggle to rescue its banks even if it was allowed to do so under the eurozone’s new Single Resolution Board. For some time now analysts have worried about a butterfly effect whereby problems in an Italian bank could set off a chain reaction across the European banking system. The creation of a €5bn backstop fund to bail-out Italy’s weaker lenders if necessary, as reported in the Financial Times, may go some way to assuage these concerns. But it still leaves Italy with one of the weakest banking systems in Europe. The Italian government has also promised to sort out the country’s anachronistic bankruptcy laws whereby recoveries average seven years (against a European average of two or three years) and can take as long as 12 or 13 years. New legislation has been promised within the next 10 days (i.e. by April 22). Even if this happens there is still a long road ahead. Seventy per cent of Italian NPLs relate to small and medium-sized enterprises, are of old vintage and collateral quality is mixed, according to ratings agency Fitch. A state-guaranteed NPL securitisation scheme was launched in February as an alternative to outright sales but, says Fitch, “banks have said the scheme looks overly onerous and this is likely to reduce their willingness to participate”.
EU referendum: National Farmers' Union backs staying in EU - BBC News: Farmers' interests are best served by remaining in the European Union, the National Farmers' Union has said. It passed a resolution following an "overwhelming" vote in favour of staying in the EU, which it said was based on the "balance of existing evidence". The union - which has 55,000 members in England and Wales - announced its position after a vote by its council. However, the NFU said it would not be actively campaigning in the referendum. It said its council members looked at a number of issues, including the impact leaving the EU would have on agricultural trade and the availability of labour. It has also completed 28 roadshows to debate key farming issues in the referendum with members, and sent two reports to its members. The organisation said it was not joining any campaign groups and would not be telling its members how to vote. 'Overwhelming' vote The union has not released how each of its 90 council members voted. However, its president, Meurig Raymond, said there had been an "overwhelming" vote in favour of staying in the EU. "We believe it's for the betterment of the future of British agriculture," he said. "On all the surveys we have done in the NFU, the majority believe that we should stay in." He added: "We have had 28 meetings across the country in the last three weeks. "We have spoken to three or four thousand people. So the delegates here today brought the views from those meetings to our council meeting."
Can we believe what the Treasury says about the cost of Brexit?: There’s a high price to be paid if Britain leaves the European Union, according to the UK’s Treasury forecasts. Leaving the EU would cost the average household £4,300 per year, it is suggested. But Chancellor George Osborne has not done a great job of budget forecasting recently, so why should we believe him on this? It’s important to remember that the Treasury is not predicting household incomes will actually fall by this much. The claim is that they would be higher, on average, by this amount if the UK remained in the EU, due to higher projected levels of growth than for a UK outside the EU. What’s more, this is rather a different exercise for the Treasury than its relatively short-term budget forecasts (which have regularly been over-optimistic about UK productivity growth). These forecasts involve looking over a longer timescale and weighing up hypothetical options. It’s not clear what the UK’s relationship with the EU would be after a Brexit, so the Treasury has modelled three possibilities. One is, roughly speaking, a Norwegian option of membership of the European Economic Area (EEA). This would allow the UK to access the single market but would mean it would have to continue to allow European workers in. Another is a Swiss-style arrangement of negotiating a specific trade agreement with the EU. The third is a wider option which would see the UK reduced to essentially the same relationship with the EU as other members of the World Trade Organization.
UK’s Osborne Exempts Members of Parliament, Other “Politically Exposed Persons” From Money Laundering Oversight -- Yves Smith - You cannot make this up. So much for that rule of law thingie. (video) This was the argument used to justify giving Members of Parliament and their families a free pass from money laundering. Note that the Daily Mail clearly signals its skepticism in this story from January:Britain’s banks have been accused of hounding MPs’ children, parents, grandparents and even in-laws in a crackdown aimed at curbing fraud by corrupt African dictators.They have threatened to shut the bank accounts of MPs and their relatives – on suspicion of being linked to terrorism and international money laundering.And up to 150,000 people – those with any family link to all national and local politicians, civil servants, Army officers, City workers, financiers and diplomats – could have their money seized.That is the remarkable claim made by senior Conservative MP Charles Walker.He led a Commons debate last Thursday to demand action to stop ‘heavy-handed’ British banks using new international anti-money laundering rules to threaten people who happen to be related to someone in public life…Mr Walker said last night: ‘It is ridiculously heavy-handed for banks to treat British MPs and their families in this aggressive way. They should be targeting crooked despots and dictators, not MPs’ grannies.’
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