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

Saturday, July 16, 2016

week ending Jul 16

6 Regional Feds Voted To Hike The Discount Rate In Early June, Up From 4 In April -- Back in April, when the world was still reeling from the China devaluation inflicted market slump, the Fed's discount rate minutes for the months of March/April showed that 4 regional Feds wanted a 25 bps rate hike, up from just two  - the Richmond Fed and Kansas City - in the Feb/March meeting. Moments ago the Fed released its latest May/June Discount Rate Minutes which revealed that both the (Jim Bullard's) St. Louis and Boston Feds joined four other regional Feds, Cleveland, Richmond, Kansas City and San Francisco, in seeking a quarter point increase in Fed discount rate to 1.25 percent prior to the June 14-15 FOMC meeting.  Obviously, there was no rate hike, as the Fed chose to maintain its primary credit rate at 1%. What is more surprising is that Bullard's St. Louis Fed was among the "hawks", even though just a few weeks later, the same James Bullard infamously flipflopped and now predicts just one rate hike until 2019.  The regional directors who supported a rate hike increase did so “in light of actual and expected strengthening in economic activity and their expectations for inflation to gradually move toward the 2 percent objective.” However, it is worth noting that Boston, Richmond, St. Louis, New York, Philadelphia, and Minneapolis voted on June 2, just a day ahead of June 3 report which revealed the abysmal May U.S. payrolls report and which ground the Fed's rate hike cycle to a halt. From the minutes: Subject to review and determination by the Board of Governors, the directors of the Federal Reserve Banks of New York, Philadelphia, and Minneapolis had voted on June 2, 2016, and the directors of the Federal Reserve Banks of Atlanta, Chicago, and Dallas had voted on June 9, to reestablish the existing rate for discounts and advances (1 percent) under the primary credit program (primary credit rate). The directors of the Federal Reserve Banks of Boston, Richmond, and St. Louis had voted on June 2, and the directors of the Federal Reserve Banks of Cleveland, Kansas City, and San Francisco had voted on June 9, to establish a rate of 1-1/4 percent (an increase from 1 percent). At its meeting on May 23, the Board had taken no action on requests by the Cleveland, Richmond, Kansas City, and San Francisco Reserve Banks to increase the primary credit rate.

Helicopter money 'the next step' in monetary policy says Fed official Loretta Mester - : A top official from the US Federal Reserve has said "helicopter money" could be considered to stimulate America's economy if conventional monetary policy fails. Dr Loretta Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option if interest rate cuts and quantitative easing fail. "We're always assessing tools that we could use," Dr Mester told the ABC's AM program. "In the US we've done quantitative easing and I think that's proven to be useful.  Dr Mester's qualified support for the use of "helicopter money" - when stimulus is directly pumped into the real economy, not through the banking system - comes amid expectations that the Bank of Japan is poised to unleash a major fiscal stimulus package of at least 10 trillion yen ($130 billion) to kickstart its flat-lining economy.

Helicopter Money: The Biggest Fed Power Grab Yet --David Stockman -- The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in its Keynesian groupthink and institutional arrogance ever since. So it’s not surprising that she was out flogging — albeit down under in Australia — the next step in the Fed’s rolling coup d’ etat. We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful. “So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative. This is beyond the pale because “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt — that is, purchase of government bonds with central bank credit conjured from thin air. It’s the ultimate in “something for nothing” economics. That’s because most assuredly those government bonds originally funded the purchase of real labor hours, contract services or dams and aircraft carriers.  As a technical matter, helicopter money is exactly the same thing as QE. Nor does the journalistic confusion that it involves “direct” central bank funding of public debt make a wit of difference. The only thing different technically about “helicopter money” policy is the suggestion by Bernanke and others that the treasury bonds could be issued directly to the Fed. That would just circumvent the dwell time in dealer (or “investor”) inventories but result in exactly the same end state. In that event, of course, Wall Street wouldn’t get the skim.

George Will and the Fed: Do Low Interest Rates Redistribute Upward - Dean Baker -- George Will used his column to complain that the Federal Reserve Board is redistributing upward with its low interest rate policy. Since this is a source of confusion that extends well beyond Will, it is worth taking a few minutes to address this issue directly. The essence of the argument is that low interest rates drive up asset prices like stock and assets, thereby increasing the wealth of people who own these assets. Since the rich own most of these assets, especially stock, the argument is that the higher asset prices are helping the rich at the expense of the rest of us. For those keeping score, the federal funds rate was 5.0 percent in October of 2007 and the 10-year Treasury rate was 4.5 percent. That compares to today’s rates of around 0.3 percent for federal funds and 1.6 percent for 10-year Treasury bonds. If the argument is that low interest rates have given us a stock bubble, the Fed has not bought itself much for its efforts.  Of course people do borrow against their homes, so there is something to this story. There is also the fact that it will be harder for non-homeowners to become homeowners if they need a larger down payment. On the other hand, the extraordinarily low mortgage interest rates will make the monthly payment for the same house considerably less. (Do the arithmetic if you don’t believe me.)   In short, there is certainly a modest upward redistribution from non-homeowners to homeowners associated with the interest rate induced run-up in house prices. This is not particularly a one percent story, since almost two-thirds of households are homeowners, but it is nonetheless a redistribution of claims to resources from those who have less to those who have more.  In the case of stocks, the ownership is much more concentrated among the one percent, but there is not much of a case for an interest rate induced increase in prices. Stock prices, adjusted for the size of the economy, are somewhat higher than their pre-recession level, but there just is not much of a story here.

Fed Watch: Data Dump: Interesting mix of data today that will give monetary policymakers plenty of food for thought. My guess is that it will probably drive a deeper division in the Fed between those who looking to secure two hikes this year rather and those good with just one or none at all. Retail sales came in stronger than expected, although prior months were revised down. Various measures of sales excluding gas are perking up compared to last year: While prior expansions churned out some better spending numbers, the consumer is clearly not in some kind of recessionary free-fall. Remember, 2% growth is the new 4%. These data will help reassure the Fed that the bulk of economic activity - that directed by consumers - remains solid. Industrial production rose, albeit on the back of autos. Compared to a year ago, factory activity remains in negative territory. Still, softness in the sector does not exhibit the degree of dispersion typically experienced in recessions: Still looks to me more like a mid-cycle slowdown like the mid-80s and 90s rather than a recession. Containing such a slowdown argues for keeping rates low for now. Inflation as measured by the consumer price index continues to firm. Core CPI inflation came in at 0.2 percent m-o-m and 2.3 percent y-o-y. Of course, the Fed targets PCE inflation, and there the core number is weaker: See Calculated Risk for more measures of inflation. The key point here is that the Fed's preferred measure is tracking lower than other measures. Watch for the hawks to press their case on those higher measures; the doves should keep a focus on PCE. The doves should win this battle. If they don't win, the Fed will be effectively targeting a different inflation rate than stated in their long-run policy objectives. That would then render those objectives and likely future similar missives essentially worthless.

Key Measures Show Inflation close to 2% in June - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also rose 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.6% annualized rate) in June. The CPI less food and energy rose 0.2% (2.1% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for June here. Motor fuel was up 48% annualized in June.

Cheap Money Talks, by Paul Krugman -- What with everything else going on, it’s hard to focus on developments in financial markets — especially because we’re not facing any immediate crisis. But extraordinary things have been happening lately, especially in bond markets. Specifically, there has been an extraordinary plunge in long-term interest rates. Late last year the yield on 10-year U.S. government bonds was around 2.3 percent, already historically low; on Friday it was just 1.36 percent. German bonds, the safe asset of the eurozone, are yielding minus — that’s right, minus — 0.19 percent. Basically, investors are willing to offer governments money for nothing, or less than nothing. What does it mean? Some commentators blame the Federal Reserve and the European Central Bank, accusing them of engineering “artificially low” interest rates that encourage speculation and distort the economy. These are, by the way, largely the same people who used to predict that budget deficits would cause interest rates to soar. In any case, however, it’s important to understand that they’re not making sense. For what does “artificially low” mean in this context? Compared to what? Historically, the consequence of excessively easy money — the way you know that money is too easy — has been out-of-control inflation. That’s not happening in America, where inflation is still below the Fed’s target, and it’s definitely not happening in Europe, where the central bank has been trying to raise inflation, without success.  So what’s going on? I think of it as the Great Capitulation.  A number of economists — most famously Larry Summers, but also yours truly and others — have been warning for a while that the whole world may be turning Japanese. That is, it looks as if weak demand and a bias toward deflation are enduring problems. So why not borrow money at these low, low rates and do some much-needed repair and renovation? This would be eminently worth doing even if it wouldn’t also create jobs, but it would do that too.Write A Comment   I know, deficit scolds would issue dire warnings about the evils of public debt. But they have been wrong about everything for at least the past eight years, and it’s time to stop taking them seriously.  They say that money talks; well, cheap money is speaking very clearly right now, and it’s telling us to invest in our future.

Age is more than just a number - Yields on 10-year U.S. Treasuries hit an all-time low yesterday. Before you spin a story using recent events: remember long rates have been trending down for thirty odd years. And that's true in most advanced economies. So think bigger than jobs day or Brexit or liftoff. And while I've got you thinking in decades not data releases ... also consider that the share high-growth young firms, aggregate productivity growth, and general satisfaction have all been trending down since early 2000s. And again not unique to the United States. No single factor has a chance at explaining all these trends ... Still I think a common thread of population aging and reduced risk taking is worth exploring. The idea that aging can change individual behavior is nothing new but sometimes the gradual and the familiar are easy to discount. Also, and a bit more provocatively, I want to argue that effects of population aging go well beyond the behavior and views of older individuals. This chart from a recent UN report shows how widespread population aging has been across much of the world and is expected to be in the coming decades. In numerous studies, including my job market paper, older individuals are less willing to take risks than younger ones. In fact, I was able to see how much risk tolerance changed with age (and other factors) in decade-long panel study of older adults. Aging by a decade led to a 17 percent decline in risk tolerance. For comparison, women were 14 percent less risk tolerant than men, on average, even after taking into account several other observables including age. My main takeaway from this work was that persistent differences across individuals create more variation in the willingness to take risks than the changes within person over time. However, of the factors that seem to cause risk preferences to change, aging was by far the most robust in my data and shows up in other studies, including those with younger adults.

Fed's Beige Book: "Economic activity continued to expand at a modest pace" in most Districts -- Fed's Beige Book "Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before July 1, 2016." Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand at a modest pace across most regions from mid-May through the end of June. Business contacts in Cleveland reported a steady level of activity, while Minneapolis reported that activity increased at a moderate pace. Labor market conditions remained stable as employment continued to grow modestly since the previous report and wage pressures remained modest to moderate. Price pressures remained slight. Consumer spending was generally positive but with some signs of softening. Manufacturing activity was mixed but generally improved across Districts. Residential real estate activity continued to strengthen since the previous period. Single-family home sales increased at a moderate pace overall, with Boston, Cleveland, and St. Louis reporting strong growth. Many Districts indicated that inventories continue to be low. Despite this persistent inventory issue, Boston, Atlanta, Kansas City, and Dallas all report that contacts have a positive outlook for the market in the next few months.  Commercial sales and leasing activity remained stable or improved in almost all Districts. Absorption rate and rent increases were documented in Atlanta and Kansas City. Improving industrial real estate markets were noted in New York, Richmond, and Dallas. Several contacts in Richmond also reported robust retail leasing activity.

Beige Book Gems: Frozen Fish, Rainy Days and Pork Exports -- Every six weeks or so, Federal Reserve-watchers pore over the central bank’s Beige Book report for clues about how policy makers see the economy performing at the ground level across the U.S. That doesn’t mean it’s always a dry exercise.  The report, formally the Summary of Commentary on Current Economic Conditions, rounds up anecdotal evidence on the state of the U.S. economy and often contains odd, unexpected or otherwise eye-catching pieces of information. Here are some gems from the latest report, released Wednesday and based on information collected through July 1.

  • Weak frozen-fish sales in the Boston district: “A manufacturer of frozen fish reports weak retail sales in the second quarter, attributed partly to unseasonably warm weather which led people to eat out more. … The frozen fish manufacturer reduced its workweek to deal with slower sales.”
  • Political uncertainty in the Dallas district: “Outlooks were generally positive but more cautious, with the upcoming presidential elections and the Brexit vote driving some of the uncertainty.”
  • Cheaper Broadway tickets in the New York district: “Attendance at Broadway theatres has picked up somewhat since mid-May. However, average effective ticket prices are down somewhat relative to a year earlier, keeping overall revenues below comparable 2015 levels.”
  • Rainy days in the Philadelphia district: “Convenience store operators noted that 20 days of rain in May hurt sales.”

How a Surprise Upturn in U.S. Growth Could Trigger the Next Recession - Could the cause of the next U.S. recession be too much growth? That is one risk of an unprecedented environment in which investors are betting heavily on a perpetually weak economic expansion. If markets are wrong–and the economy surges instead of sputters–the bad bets could roil the financial system, some economists are increasingly warning. “Ironically, one can think of a scenario where a stronger-than-expected expansion leads to financial trouble, which in turn puts into question the expansion itself,” said former International Monetary Fund chief economist Olivier Blanchard. Mr. Blanchard is the latest prominent economist to warn that a surprise upturn in growth may force the Federal Reserve to raise rates faster than investors expect. A jump in borrowing costs could catch many off guard, given that much of their portfolios are based on lower rates. “If the economy were to pick up faster than markets think, which I think has substantial probability, it could lead to some financial turmoil,” Mr. Blanchard, now a senior fellow at the Peterson Institute for International Economics, said in an interview.  June’s strong jobs numbers helped tame growing fears of a U.S. contraction. Many investors see a major compression of the yield curve on U.S. treasuries—the difference between near-term and long-term government interest rates—as signaling an imminent recession.

Q2 GDP Forecasts -- From the Altanta Fed: GDPNow  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.3 percent on July 12, down from 2.4 percent on July 6.  From the NY Fed Nowcasting Report The FRBNY Staff Nowcast stands at 2.1% and 2.3% for 2016:Q2 and 2016:Q3, respectively.  From Merrill Lynch:  Wholesale inventories increased 0.1% mom in May, down from a 0.7% mom increase in the prior month (revised from 0.6% mom initially) and lower than consensus expectations of a 0.2% mom change. The data were a bit above our own expectations, which added 0.2pp to our GDP tracking estimate for 2Q, bringing us to 2.8% qoq saar.CR Note: Looks like real GDP growth in the 2% to 2.5% range.

The Diminishing Contribution of U.S. Government Spending to GDP - After visualizing how U.S. GDP has evolved since the first quarter of 1947, both with and without the contribution of the federal government and also state and local governments, we couldn't help but notice that the U.S. federal government's contribution to GDP in recent years was far below the amount of money that it spends.  So today, we're digging deeper into the data and going the extra mile to illustrate the amount of federal spending that actually ends up going to a productive end, as determined by the U.S. Bureau of Economic Analysis. Our first chart shows the U.S. government's nominal total spending along with the nominal amount the BEA indicates contributes positively to the nation's Gross Domestic Product.  In our next chart, we've calculated the percentage of GDP that is generated for every dollar of the U.S. federal government's spending for each quarter from 1947-Q1 through 2016-Q1.  Over this period, we see that in the years immediately following World War 2, around 65% of the U.S. government's spending added to the nation's GDP. After briefly dipping in 1950, the U.S. government became a powerhouse contributor to the nation's GDP in the 1950s, as it began rebuilding the U.S. military and launched the U.S. interstate highway system, where suddenly, as much as 97.3% of the U.S. government's spending contributed to the nation's productive output.  After that initial surge, the contribution of U.S. government spending to GDP began declining. Slowly at first, it declined steadily to 74.8% in 1967, after which it began to deteriorate much faster, plunging to 44.8% in 1975, as the U.S. government implemented the Medicare and Medicaid welfare programs. Although it leveled out somewhat after 1975, it continued declining until bottoming in 1981 at 42.8%.

Government Holds the Promise of Faster Growth - One of the U.S.’s biggest economic challenges is the slump in productivity. After climbing steadily for many decades, productivity has slowed dramatically since 2011:   Productivity is the key to long-term prosperity. It represents a hard ceiling on the amount of valuable things that a society is able to produce. If productivity flatlines, it means that the pie isn’t growing, and there will be less to divide up among us. So finding the cause of the slowdown is a big, important task.   Some pessimistic economists such as Robert Gordon believe that technological progress itself is simply slowing down -- that we’ve discovered most of the major life-improving inventions out there -- and so there’s not much left to do. Let’s hope that isn’t the case. And in the meantime, we might as well look for policies to address the problem, instead of sitting on our hands waiting for inventors to get lucky.   In past decades, we would probably have turned to libertarian solutions. The obvious answer in the 1980s would have been to cut taxes and regulation, unleashing the forces of the private sector to innovate, build and invest. Some, such as the Hoover Institute’s John Cochrane, still believe that’s the secret. Many Republican politicians would no doubt agree.  But many economists have slowly been warming to the idea that government, far from being “the problem” (as Ronald Reagan put it), might actually be a big part of the solution. This often manifests in calls for increased infrastructure spending, or for fiscal stimulus to blunt the impact of recessions. But recently, some economists have suggested that government can play a vital role in innovation, technological progress and productivity growth.

CBO: Federal debt to pass historic high in 2035 | TheHill: The United States is less than two decades away from exceeding its highest recorded level of federal debt, according to the non-partisan Congressional Budget Office (CBO).  The CBO projects that U.S. federal debt will pass 106 percent of the country's gross domestic product (GDP) by 2035, in its second long-term budget outlook report of 2016. That level was recorded once before, in 1946, shortly after World War II. The current federal debt is worth 75 percent of the country's GDP. It’s expected to reach 86 percent by 2026, and 141 percent by 2046. Ballooning federal debt raises questions about U.S. economic stability and the country's capacity to pay its loans. If left unchecked, that debt could trigger a national or international economic crisis, according to the CBO. “No one can confidently predict whether or when such a fiscal crisis might occur in the United States," the CBO said. “The debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent.” “However, the larger a government’s debt, the greater the risk of a fiscal crisis," the CBO report added. To stabilize debt at the current level compared to the GDP, lawmakers would need to reduce spending or raise revenues by 1.7 percent of the GDP. That's roughly $330 billion in 2017, or $1,000 for every U.S. resident. The CBO projected in January that the deficit would rise by $544 billion, $105 billion more than in 2015. The current deficit is roughly 2.9 percent of the GDP, the highest level since it peaked at 8.9 in 2009.

April 2016 CBO Monthly Budget Review: Total Receipts Were Less Than Expected: The federal budget deficit was $352 billion for the first seven months of fiscal year 2016, the Congressional Budget Office estimates - $69 billion more than the shortfall recorded in the same span last year. Outlays were 4 percent higher than they were at this time last year and receipts were 1 percent higher. If not for shifts in the timing of certain payments (which otherwise would have occurred on a weekend), the deficit for the first seven months of fiscal year 2016 would have been $28 billion larger than it was last year. Total Receipts: Less Than Expected Receipts for the first seven months of fiscal year 2016 totaled $1,917 billion, CBO estimates— $25 billion more than those in the same period last year. But those receipts were roughly $50 billion, or 2.5 percent, smaller than CBO expected when it published its March 2016 report Updated Budget Projections: 2016 to 2026. The bulk of that shortfall reflects payments of individual income taxes—both final payments with tax returns (net of refunds) for 2015 and, to a lesser extent, amounts withheld from paychecks for 2016 taxes. Corporations' estimated payments of income taxes for 2016 also have been smaller than anticipated. The sources of the shortfall in receipts for final payments of 2015 taxes will be better understood once data from tax returns start to become available later this year. Smaller-than-expected receipts could continue in coming months, further reducing revenues for the fiscal year relative to CBO's March projections. The changes between last year and this year were as follows:

White House: 2016 budget deficit to register $600B, increase of $162B - The White House predicted Friday that the federal government’s budget deficit for current fiscal year will hit $600 billion, an increase of $162 billion over last year’s and a final sour note on President Obama’s watch. While the figure was expected, the increase represents a reversal from previous years, in which budget deficits had steadily declined from the massive $1.4 trillion annual deficit early in Mr. Obama’s first term during the recession. In March, the non-partisan Congressional Budget Office projected a $534 billion deficit in fiscal 2016, which ends on Sept. 30. Shaun Donovan, director of the White House Office of Management and Budget, said the new projection is actually $16 billion lower than the $616 billion deficit estimated by the administration in February. He said deficits are expected to remain below 3 percent of gross domestic product through the next decade. “Even as the administration made critical investments to support economic growth, it also succeeded in putting the nation on a sound fiscal path,” Mr. Donovan said. “Since 2009, federal deficits have fallen by nearly three-quarters as a share of the economy — the most rapid sustained reduction since just after World War II.”

The Looming Shortage in Government Bonds -- Ever since the 2008 financial crisis, there has been a persistent shortage of high-quality government debt. More than just a safe haven in times of financial stress--- the so-called 'flight to quality' --   the supply of  high- quality sovereign debt has been steadily shrinking. This shortage became acutely apparent with the results of the Brexit referendum as investors worldwide bid up bond prices to the point where most long term bond yields reached historic lows in the US, UK , Germany and Japan. Brexit only exacerbated a shortage problem that bond investors have had to contend with for nearly a decade. The current  squeeze in supply is just the latest manifestation of this wider issue in today's financial markets.   To claim that there is a shortage of government debt must seem counter-intuitive to many readers. After all, there is no end of studies demonstrating that major economies have record high  government debt-to- GDP ratios, signifying that there is too much debt, not too little. Many critics call for governments everywhere to issue less debt, arguing that such high levels of debt ratios contribute to sluggish growth, if not, outright stagnation. European governments continue to exercise spending restraints and, in general, austerity is the byword throughout the industrialized world. Governments have been very reluctant to open up their coffers by issuing more debt to fund expenditures. However, a case can be made for more government debt. In a recent article, The World Needs More U.S. Government Debt  former FOMC member, Narayana Kocherlakota  argued this case, succinctly:  To better understand how bonds became scarcer, we begin by looking at who is buying government debt and why.

Failed Spending Bills Pile Up in Senate Amid Dispute Over Budget Deal - — After years of warfare over fiscal cliffs, government shutdowns and the debt ceiling, congressional Republicans pledged in January to work diligently through the dozen regular spending bills needed to finance the federal government — and Democrats promised to cooperate.But as Congress prepares to recess until September, it has become clear that a presidential election year was not the ideal time to get back to so-called regular order.Failed appropriations bills are now piled up in the Senate like a multicar crash on the highway. The annual military spending bill has been derailed over a core disagreement on spending policy. The The military construction and veterans affairs bill has stalled, in part, because of a clash over money to combat the Zika virus. The commerce, justice and science bill hit a wall after a bitter fight over amendments  on gun control.So far, only one Senate spending bill, for water and energy programs, has not been sabotaged by Washington’s acidic politics.Democrats have accused the Senate majority leader, Mitch McConnell of Kentucky, of backtracking on a deal reached last fall that, in hopes of avoiding another last-minute showdown, set top-line spending limits. Mr. McConnell and other Republicans say they have abided by the agreement all along, but Democrats accused the Republicans of trickery and said in effect that they were ending negotiations on the individual spending bills. “What you saw was the appropriation process falling apart once and for all for the year,” said James P. Manley, a former aide to the Senate Democratic leader, Harry Reid of Nevada, and now a political consultant in Washington. Such an outcome could not be avoided in a big election year, he added.“I, for one, am surprised that they made as much progress as they did,” he said. “But at some point, it was going to fall apart — and it did.”

Pentagon threatens veto as defense bill conference kicks off | TheHill: Defense Secretary Ash Carter sent a warning to Congress on Thursday that the president would veto its pending defense policy bill if major changes aren't made. "If a bill is presented to the President in the current form of either version of the NDAA, I will join with the President's other senior advisors in recommending that he veto the legislation," Carter said in letters to Senate and House Armed Services Committee chairs Sen. John McCain (R-Ariz.) and Rep. Mac Thornberry (R-Texas).  Some of its provisions amount to "excessive micromanagement," he charged. While the Obama White House has threatened vetoes on the National Defense Authorization Act every year, making this objection letter public is a rare, if not unprecedented, move by the administration. It comes a day after House and Senate members formally began a conference process where they will merge their respective bills together for final passage. Carter said his "most urgent concern" was the House bill's redirection of $18 billion from the Pentagon's war fighting fund into its base budget. The money would pay for retaining troops the Pentagon had planned to cut, a troop pay raise, and equipment requested by the services but not included in the administration's defense budget request. House Republicans have argued that the incoming administration would make up for that shortfall with a war supplemental when war funds run out in April 2017, as the Obama administration did when it entered office in 2009.

U.S. arms sales approvals on track to reach nearly $40 billion | Reuters: The U.S. government is on track to approve nearly $40 billion in foreign military sales in the 2016 fiscal year that ends October 1, down from $46.6 billion last year, a top Pentagon official said on Wednesday. "We're tracking toward $40 billion. We're tracking toward our forecast," U.S. Navy Vice Admiral Joe Rixey, who heads the Pentagon's Defense Security Cooperation Agency (DSCA), told Reuters at the Farnborough International Airshow. Rixey said the total could still fluctuate, depending on what happened in the fourth quarter.  Global demand for U.S. helicopters and other weapons remained strong, Rixey said. Rixey has launched 40 separate initiatives to streamline the foreign arms sales approval process and respond to criticism about delays in handling a sustained high volume of requests. U.S. industry officials and top military officials have become increasingly vocal in expressing concerns about delays in approving fighter jet sales to U.S. allies in the Gulf and other deals. Rixey said he was working closely with industry officials to understand their concerns, but it was important to look at each case individually. He said his agency does not make policy determinations, but simply facilitates sales once they are approved by the U.S. State Department, Pentagon and White House.

Share buybacks, our investment deficit, and bad tax ideas | Jared Bernstein - A quick note with more pictures than words.

  • –Investment, both private business investment and public investment (infrastructure), have been weak of late. Source: BEA, CBPP
  • –In fact, as a share of GDP, business investment has consistently hit lower peaks over the last few business cycles. Source: BEA–Yet we know corporate profitability is high and the cost of capital is rock-bottom cheap. If they’re not investing their retained earnings in future growth, what are firms doing with the money? A: Share buybacks. Source: WSJ
  • –This hurts productivity and boosts inequality. It is, I believe, a source of the capital misallocation that’s in part responsible for one of our most significant economic problems: historically slow productivity growth.
  • –What to do? Republicans have an idea that’s showing up in all their tax plans: cut the cost of capital by allowing full expensing of new equipment purchases. But as stressed, the cost of capital isn’t the constraint. All full expensing will do is increase the budget deficit, making it increasingly difficult to take the obvious step:

Conservatives May Force Vote on Impeaching IRS Commissioner: A handful of House Freedom Caucus members are considering forcing a vote on a resolution to impeach IRS Commissioner John Koskinen before Congress adjourns for a seven-week recess, members said Tuesday. "We're still hopeful that it will go through committee, still hopeful that there's a potential for judiciary to act on this particular issue,"  "There's lots of questions about procedural motions. Those things are still all on the table but no decisions have been made."   Since House leaders have offered no commitment that the chamber will vote on the impeachment resolution, members of the conservative caucus have discussed offering a privileged motion to force a floor vote on the matter.  The effort to impeach Koskinen follows years of congressional investigations into allegations that the IRS targeted conservative political groups that applied for tax exempt status. Oversight and Government Reform Chairman Jason Chaffetz of Utah introduced a resolution in October to impeach Koskinen that was co-sponsored by most of the Republican members of his panel, including several Freedom Caucus members. The resolution argued that Koskinen failed to comply with a subpoena requesting certain IRS documents and that he provided false and misleading information to Congress about missing emails sent to and from former IRS official Lois Lerner, a lead figure in the targeting scandal.

Oligarchs of the Treasure Islands -- The “Big Four” global accounting firms – PwC, Deloitte, KPMG and Ernst & Young – are the masterminds of multinational tax avoidance, the architects of tax schemes which cost governments and their taxpayers more than $US1 trillion a year. Although presenting as “the guardians of commerce” they are unregulated and unaccountable; they have infiltrated governments at every level and should be broken up. This is the view of George Rozvany, Australia’s most published expert on transfer pricing, which is one of the principal ways large corporations pursue cross-border tax avoidance. Rozvany stepped down last year as head of tax in Australia for the world’s biggest insurance company, Allianz. Formerly, he was an insider at Ernst & Young, PwC and Arthur Andersen. “The Big Four have, under a Rasputin-like cloak of illusion strayed from their original and critical role of verifying the accuracy of financial accounts for all stakeholders, to be “accountants of fortune” merely representing the accounting position for multinationals and developing aggressive international tax avoidance practices,” he told Rozvany is writing a series of books on corporate tax ethics. “This is not a victimless crime,” he says. “While Western governments have been cutting back their aid to the most underprivileged in society, from the homeless to orphaned children in Africa, multinational companies have been diverting ever larger profits into tax havens”.

Foreign Investment in the U.S. Soars, Partly Because of a Tax Loophole - New foreign direct investment figures for the U.S. skyrocketed last year as overseas companies snapped up firms and American companies maneuvered to lower-tax jurisdictions. Expenditures by foreign investors to acquire, establish or expand U.S. businesses reached $420.7 billion in 2015, a 68% jump from the prior year, the Commerce Department’s Bureau of Economic Analysis said in a report out Wednesday. But the figures were distorted by corporate inversions—the process through which a U.S. company takes a foreign address, typically via a merger with a smaller firm, to lower its tax bill. “Using publicly available information, such as commercial databases and press reports, BEA estimates that newly inverted U.S. corporations account for approximately 20% of first-year expenditures for acquisitions in 2015,” the agency said. Underscoring the the impact of inversions, relatively tiny Ireland ranked as the top source of new direct investment last year at $176.5 billion. By gross domestic product, Ireland’s economy is the world’s 43rd largest, placing it between Chile and Finland, according to World Bank data.

Donald Trump and Kids Named in $250M Tax Scam - Four Donald Trump-licensed real-estate developments are at the center of a huge income tax evasion scheme, according to allegations in a lawsuit unsealed Thursday afternoon by a judge in Manhattan. The presumptive Republican nominee is not personally accused. He is described as a “material witness” in the evasion of taxes on as much as $250 million in income. According to the court papers, that includes $100 million in profits and $65 million in real-estate transfer taxes from a Manhattan high rise project bearing his familiar name. However, his status may change, according to the lawyers who filed the lawsuit, Richard Lerner and Frederick M. Oberlander, citing Trump’s testimony about Felix Sater, a convicted stock swindler at the center of the alleged scheme. Trump received tens of millions of dollars in fees and partnership interests in one of the four projects, the Trump Soho New York, a luxury high rise in lower Manhattan. His son Donald Junior and his daughter Ivanka also were paid in fees and partnership interests, the lawyers said, and are also material witnesses in the case. Trump and Sater traveled extensively together and were photographed and interviewed in Denver and Loveland, Colorado, Phoenix, Fort Lauderdale, and New York. The two Trump children were also with Sater in Moscow, Alan Garten, the Trump Organization general counsel, has said.

House GOP Super PAC Raises $4.6 Million in Second Quarter - The primary outside spending group supporting House Republicans announced on Wednesday that it raised $4.6 million in the second quarter of this year, signaling rapidly growing interest in vulnerable House races. The Republican super PAC, Congressional Leadership Fund, began July 1 with $6 million cash on hand, nearly five times the amount the group held at the same time in 2014. “Donors understand how important it is to have a functioning majority in the House that is as large as it is,” said Mike Shields, the group’s president. “Even after the fundraising deadline passed, we’ve continued to see an uptick in our fundraising.” Congressional Leadership Fund was founded in 2011 with the endorsement of House leadership. In 2014, it spent over $12.6 million across competitive House districts – a pace the group is hoping to surpass this year.The group’s recent haul set a record for its second-quarter fundraising. In second-quarter 2012, the group brought in $1.3 million, while in 2014 – a midterm election year without a Democratic draw at the top of the ticket – it raised just $600,000.

Guccifer 2.0 releases new DNC docs | TheHill - Guccifer 2.0, the hacker who breached the Democratic National Committee, has released a cache of purported DNC documents to The Hill in an effort to refocus attention on the hack. The documents include more than 11,000 names matched with some identifying information, files related to two controversial donors and a research file on Sarah Palin. “The press [is] gradually forget[ing] about me, [W]ikileaks is playing for time and [I] have some more docs,” he said in electronic chat explaining his rationale. The documents provide some insight into how the DNC handled high-profile donation scandals. But the choice of documents revealed to The Hill also provides insight into the enigmatic Guccifer 2.0. The hacker provided a series of spreadsheets related to Norman Hsu, a Democratic donor jailed in 2009 for running a Ponzi scheme and arranging illegal campaign contributions. The DNC responded by assembling files to gauge the exposure from Hsu to its slate of candidates. Similar files on Paul J. Magliocchetti, a lobbyist closely associated with the late Rep. John Murtha (D-Pa.), provide a quick reference document outlining Magliocchetti’s donations to Republicans. Magliocchetti pleaded guilty in 2010 to involvement in a pay-for-play campaign finance scheme. Guccifer 2.0 has claimed to be a Romanian hacker with no strong political leanings. Guccifer 2.0’s choice to release documents from Magliocchetti and Hsu, whose cases are now six and seven years old, shows a detailed knowledge of American politics seemingly at odds with the backstory provided by the hacker.

Jill Stein Just Promised To Pardon Snowden, Appoint Him To Cabinet If Elected -- Presumptive Green Party presidential nominee Dr. Jill Stein promises to grant NSA whistleblower Edward Snowden - whom many describe as a true American hero - not just a full pardon, but a promotion to the upper echelons of government should she win the White House. “[Snowden] has done an incredible service to our country at great cost to himself for having to live away from his family, his friends, his job, his network, to basically live as an expatriate,” Stein asserted during a town halllive-streamed to supporters on her Facebook page, US Uncut reported. “I would say not only bring Snowden back, but bring him into my administration as a member of the Cabinet,” she continued, “because we need people who are part of our national security administration who are really, very patriotic. If we’re really going to protect our American security, we also have to protect our Constitutional rights, and that includes our right to privacy.” Stein said her pardons wouldn’t stop with Snowden, but would extend to others,including CIA whistleblower John Kiriakou, who first revealed proof of U.S. government employment of waterboarding and other torture tactics, as well as Chelsea Manning.

Sanders Team Loses Testy Fight on Trade Pact, Heads for Fracking Vote - Bernie Sanders's delegates to the Democratic platform committee failed to secure enough votes to approve amendments blocking the Trans-Pacific Partnership after a tense debate that pitted Sanders and the party’s left flank against Hillary Clinton’s supporters and President Barack Obama.  The vote came as delegates wrapped up two days of wrangling in Orlando, Florida, on the final draft of the 2016 platform -- a non-binding and largely symbolic document -- which will be officially presented at the party's convention in Philadelphia later this month.  The committee began by considering an amendment submitted by Lee Saunders, president of the American Federation of State, County and Municipal Employees, which set out several of the left’s specific complaints against trade deals and said TPP will be held to a similar standard. That amendment passed.  Sanders surrogate and former NAACP president Ben Jealous sought to add a comment: “That’s why we oppose the TPP.” “We have the unity that we have in this room against the TPP because we know that we cannot afford for Vietnam and all the other countries in the TPP to finish the job that NAFTA started, and destroy manufacturing in the United States,” Jealous said. His amendment failed. The Sanders campaign’s primary amendment, written by surrogate Jim Hightower, would have prevented the trade deal from ever coming to a vote in Congress. Hightower called the TPP a "little shop of corporate horrors." Other Sanders delegates held up boxes, passed out by the campaign, filled with an estimated 700,000 signatures for petitions against the TPP. The amendment failed, prompting boos from audience members, some of whom walked out of the meeting room. 

Anti-TPP Amendment Fails at Heated Dem Platform Meeting - When Democratic Party platform committee members arrived at the committee's final session in Orlando, Florida, on Saturday morning, 700,000 signed petitions against the Trans-Pacific Partnership (TPP) trade agreement had been delivered there to meet them. "We want unity, but we want it real. We do not want it on the backs of working people," said Dr. Cornel West, who was selected to serve on the committee by Bernie Sanders. "We want opposition to the TPP in this platform." Yet despite such passionate arguments and widespread public opposition to the deal, the committee voted down an amendment that would have opposed a Senate vote on the agreement. The amendment was introduced by activist and author Jim Hightower, who called the TPP "manure" in his argument for his amendment:  A chorus of boos erupted as the votes came in, and Sanders supporters turned their backs to speakers in protest. Opposition to the TPP is a cornerstone of Sanders' presidential campaign. While Hillary Clinton campaigned for the deal in her role as secretary of state, she switched her position several months ago and now publicly opposes the TPP.  "Hillary Clinton opposes the TPP so strongly that her apparatchiks at the Democratic platform meeting voted down language to oppose it. Integrity!" commented The Intercept reporter Zaid Jilani in response to the platform committee's decision. Prominent environmentalist Bill McKibben, a Sanders appointee to the committee, described Clinton supporters' speeches as "Orwellian."

Trump, GOP merge views on trade : The Republican Party appears to be taking some of the bite out of Donald Trump’s fiercest trade criticism, crafting a platform closer to its traditional trade views but taking a neutral position on President Barack Obama’s signature trade achievement, the TPP. Story Continued Below “It’s always better to have calm words instead of table pounding, but it’s still disappointing,” said Bill Reinsch, a trade policy specialist at the Stimson Center, responding to developments in the Republican Platform Committee on Monday in Cleveland. “While it’s a step back from [Trump’s] rhetoric, it’s a step in the direction of his position.” Party officials were caught in an awkward spot because of Trump’s attacks on both NAFTA and the proposed TPP pact with Japan and 10 other countries in the Asia-Pacific. The first deal was concluded during the administration of George H.W. Bush, while the second was started by his son, George W. Bush. But Trump’s harsh critique of the pacts resonated with Republican primary voters and helped him gallop to victory in state contests, particularly in the industrial Midwest. “The party is split over this,” said Dan Ikenson, director of trade policy studies at the Cato Institute, a libertarian think tank that supports TPP. “The people in Washington tend to be more pro-trade than the people they represent.” The intricate dance resembles the one taking place in the Democratic Party, where Hillary Clinton and Bernie Sanders both oppose TPP but Obama still hopes to win approval of the agreement before leaving office.

What’s the Problem With Protectionism? - Barry Eichengreen --  One thing is now certain about the upcoming presidential election in the United States: the next president will not be a committed free trader. The presumptive Democratic nominee, Hillary Clinton, is at best a lukewarm supporter of freer trade, and of the Trans-Pacific Partnership in particular. Her Republican counterpart, Donald Trump, is downright hostile to trade deals that would throw open US markets. Breaking with modern Republican tradition, Trump envisages a 35% tariff on imported cars and parts produced by Ford plants in Mexico and a 45% tariff on imports from China. Economists are all but unanimous in arguing that the macroeconomic effects of Trump’s plan would be disastrous. Repudiation of free and open trade would devastate confidence and depress investment. Other countries would retaliate by imposing tariffs of their own, flattening US exports. The consequences would resemble those of the Smoot-Hawley Tariff, enacted by the US Congress in 1930 and signed by an earlier, disgraced Republican president, Herbert Hoover – a measure that exacerbated the Great Depression.  But just because economists agree doesn’t mean they’re right. When the economy is in a liquidity trap – when demand is deficient, prices are stagnant or falling, and interest rates approach zero – normal macroeconomic logic goes out the window. That conclusion applies to the macroeconomic effects of tariff protection in general, and to the Smoot-Hawley Tariff in particular. This is a point I demonstrated in an academic paper written – I hesitate to admit – fully 30 years ago.

The Trans-Pacific Partnership is Inherently Anti-Human -- The Trans-Pacific Partnership is free trade in the same way the Donner Party was a party. The end is the same: The strong sup well, the rest get eaten. The TPP is not really about exchanging goods between the peoples of the earth. Rather, it is an investor-rights agreement. That means it’s protectionism for companies, not people. The TPP gives rich multinationals even more power to do what they please, where they please, to whomever they please, without much interference from the rest of us. The Democrats are currently debating whether or not to denounce the TPP in their official party platform (they’ve decided “no” twice, though there’s a theoretical third chance at the convention itself). They should oppose it. The TPP is inside baseball of the highest order, and it is time the game ended.It’s being sold to us as a serious opener of markets — it will ring in prosperity and possibly the millennium, increase wages, bring better products, more jobs, and … Oh man, I can’t keep a straight face. Look, this agreement is going to absolutely kneecap us. I know this seems just like a dry document and who cares, but it’s not dry, it’s about so much more: how people will work and where they will live, basic questions of existence which will collide with the day-to-day life of literally billions of people. The TPP’s stated goal is to promote economic growth, much as Sauron’s stated goal was to enforce border security, when his actual interests lay more in line with the cooking and serving of Hobbit. This stuff comes across as tedious, and explaining free trade has probably, secretly, killed more people than James “King of the World” Cameron. But trade is like law. The moment you throw up your hands and say “Oh, this is too complex for me to understand,” you’re underrating yourself and overrating the professionals. The reason people think trade is dishwater-level dull is because trade and finance are 1) the job of an elite priesthood who 2) have never cared to communicate the crucial ideas to everyone else.

Hillary Clinton’s Outsourcing of Top Secret Government Documents: The Untold Story - Pam Martens - Since FBI Director James Comey’s press conference on July 5 and his House Oversight Committee testimony two days later, Hillary Clinton has come under withering attack for gross misrepresentations to the American people about her handling of classified material while she served as Secretary of State. Now, new questions are arising over what role her attorney, David Kendall of law firm Williams & Connolly, played in misleading Congressional investigators. There are also questions as to whether Comey himself has come clean about the full extent of Clinton’s negligence.  Over the past week, multiple newspaper opinion writers have weighed in on FBI Director James Comey’s failure to recommend criminal charges in Hillary Clinton’s blatant violations of the Federal Records Act and egregious mishandling of above Top Secret government records. While serving as Secretary of State, and without State Department approval, Clinton outsourced the transmittal and storage of the classified records from the safety of U.S. government control to a private server in the basement of her New York home, and later to a private firm, Platte River Networks, which was overseen by people lacking the proper security clearance. Clinton’s private server was also backed up by a madcap group of lip-syncing 20-somethings at Datto, Inc., who also lacked the requisite security clearances. Comey testified to the House Oversight committee that “more than two, less than 10” people without security clearance had access to Clinton’s server. Based on Platte River employing approximately 30 people and Datto, Inc. employing approximately 15 employees (based on the video linked above), there would appear to be far more than ten people who might have gained access to the records. That doesn’t include the secretaries, attorneys and photocopy room staff who may have had access to the documents at the law firm Williams & Connelly after Clinton handed over 60,000 emails on a tiny thumb drive to her lawyers there.

Picking Up James Comey’s Pieces — What He Did, What He Should Have Done & Why by Gaius Publius -  naked capitalism - Yves here. This post is detailed and carefully argued, so get a cup of coffee. If you want a companion piece as to why Comey’s arguments for letting Clinton off the hook were indefensible, the best one-stop shopping is 5 Reasons The Comey Hearing Was The Worst Education In Criminal Justice The American Public Has Ever Had. Please send this post and that link to Clinton defenders.  By Gaius Publius: It’s going to be a while before the jury of informed comment returns a verdict regarding James Comey’s pre-emptive declaration of “no prosecution” for Hillary Clinton. But let’s see what a first look gets us. I want to start with a couple of points made by Marcy Wheeler, then amplify them from other sources. The questions at issue are:

  • Should James Comey have made the call not to prosecute?
  • Should Clinton be prosecuted at all?
  • If she should be prosecuted, why?
  • If she should have been prosecuted, why wasn’t she? 

Some of these questions we can answer now. Others will have to wait until the people who specialize in this material discuss it more fully, which could take a while. We can start with something we’re sure of. From Marcy Wheeler, in a piece called “Does Jim Comey Think Thomas Drake Exhibited Disloyalty to the United States?” we find this initial point: Before we get into his argument, consider a more basic point: It is not Jim Comey’s job to make prosecutorial decisions. Someone else — whichever US Attorney oversaw the prosecutors on this case, Deputy Attorney General Sally Yates, or Loretta Lynch — makes that decision. … [H]e has no business making this decision, and even less business making it public in the way he did (the latter of which points former DOJ public affairs director Matthew Miller was bitching about).

AG Lynch refuses to answer questions over 74 times - Congressman David Trott came to the conclusion that Loretta Lynch’s testimony was one big waste of time. Trott’s staff counted up the number of times the attorney general said she couldn’t answer a question or refused to give an “appropriate” response, and they had added up at least 74 instances prior to Trott’s questioning, during a hearing today of the House Judiciary Committee.  “I knew you weren’t going to answer our questions today and I apologize for wasting so much time here because it’s really not been very productive,” Trott said. “It’s one of two things: Either you’re saying that to avoid the appearance of impropriety in which case you should have recused yourself, or you’re trying to protect Hillary Clinton,” he concluded.

Majority Disapprove of Decision Not to Charge Clinton on Emails (POLL) - ABC News -  A majority of Americans disapprove of the FBI's recommendation not to charge Hillary Clinton with a crime over her handling of email while secretary of state, and a similar number in a new ABC News/Washington Post poll say the issue leaves them worried about how she would handle her responsibilities as president if elected. Most also say the email controversy won't affect their vote in the presidential election. But 28 percent say it leaves them less likely to support her, versus 10 percent who say it makes them more likely to do so. See PDF with full results here. Reactions to the decision are highly political, with partisanship factoring heavily in people's views. Yet Democrats don't back Clinton up on the issue nearly as much as Republicans criticize her, and independents side more with Republicans. Overall, 56 percent disapprove of FBI Director James Comey's recommendation not to charge Clinton, while just 35 percent approve. Similarly, 57 percent say the incident makes them worried about how Clinton might act as president if she is elected, with most very worried about it. Just 39 percent feel the issue isn't related to how she would perform as president.

Democrats Approve Stricter Financial Crime Language in Platform - Democratic platform committee members approved several amendments Saturday promising a tougher stance against financial crimes committed by corporations or Wall Street. The committee approved language saying Democrats “support extending the statute of limitations for prosecuting major financial fraud” as well as an amendment stating Democrats will “support stronger criminal laws and civil penalties to be applied to Wall Street criminals who prey on the public trust” The committee also approved an amendment saying the party will“protect and defend the Federal Reserve’s independence to carry out the dual mandate assigned to it by Congress -- for both full employment and low inflation -- against threats from new legislation” Democrats closely rejected an amendment that would have banned public officials from working for the industries they regulated for four years, as well as banned Wall Street officials from taking public sector job at agencies that regulated them Language was retained from the draft in support of a financial transactions tax to curb excessive speculation and high-frequency trading, while acknowledging a “diversity of views” on a broader transactions tax

Warren's no-bankers push makes it into Dem platform - POLITICO: Elizabeth Warren just scored a victory in her battle to keep bankers out of Washington jobs. Tucked into the Democrats’ draft party platform is a pledge long promoted by the liberal Massachusetts senator that could limit Wall Street’s influence in a Hillary Clinton administration.  Under the header of fixing the financial system, Democrats adopted Warren’s mantra that “personnel is policy,” vowing to only appoint officials “who are not beholden to the industries they regulate." The language could give progressives ammunition to oppose any prospective agency officials who they do not think will act in the public interest. The move follows years of pushback by Warren and other liberal Democrats against President Barack Obama's appointment of financial industry insiders to key economic posts. Now, Democrats as a party are signaling that they want to make it harder for Wall Street sympathizers to get top jobs in Washington. They say they are seeking ”people with a track record of standing up to power and safeguarding the public trust." "That commitment is a huge deal, as it means that Clinton embraces the idea that hiring skeptics of corporate misbehavior is a key metric to assess her administration,” said Jeff Hauser, director of the Revolving Door Project, a nonprofit that scrutinizes executive-branch appointments. "The high-profile nature of this platform fight and this specific language makes it much more consequential than little-noticed language in past platforms."

Justice Department Overruled Recommendation to Pursue Charges Against HSBC, Report Says - WSJ: U.S. Justice Department officials overruled their prosecutors’ recommendation to pursue criminal charges against HSBC HSBC 1.48 % Holdings PLC over money-laundering failings, according to a House committee report prepared by Republicans that sheds new light on the bank’s 2012 settlement. The report, which was reviewed by The Wall Street Journal ahead of its release Monday morning and was prepared by the Republican staff of the Financial Services Committee, concluded that former Attorney General Eric Holder overruled the internal recommendation and subsequently misled Congress about the Justice Department’s decision not to prosecute the U.K. bank. “Rather than lacking adequate evidence to prove HSBC’s criminal conduct, internal Treasury documents show that DOJ leadership declined to pursue [the] recommendation to prosecute HSBC because senior DOJ leaders were concerned that prosecuting the bank ‘could result in a global financial disaster,’ ” the 282-page report stated. The report also said the Justice Department refused to respond to subpoenas from the committee about the settlement, so committee staff based its findings on documents turned over by the Treasury Department, which was also involved in the settlement. Spokesmen at the Justice Department and Treasury Department declined to comment. In December 2012, HSBC agreed to pay a then-record $1.9 billion to the Justice Department to settle allegations it failed to spot the laundered proceeds of drug trafficking in Mexico and failed to flag transactions with countries subject to economic sanctions, such as Iran. But the bank avoided entering a guilty plea, a costly outcome that could have sparked collateral consequences including the revocation of the bank’s U.S. charter. Instead, it entered into a deferred prosecution agreement.

Congress Exposes That DoJ Overruled Recommendation to Charge Money Launderer HSBC Over Too Big to Fail Worries - Yves Smith -  The House of Representatives released a bombshell today out of its three-year investigation as to why the UK-based bank HSBC got off lightly for money laundering, both for with states subject to economic sanctions like Iran and Sudan, as well as narcotics traffickers. The report found that Attorney General Eric Holder “misled” Congress about the evidence against the bank, and that staff prosecutors had recommended indictment but were overruled by Holder. In addition UK regulators interfered in the case, and argued that criminal sanctions would lead to a financial nuclear winter. That was demonstrated to be false in 2014, when BNP Paribas, which apparently had fewer friends in court, pled guilty to criminal money laundering charges and paid $8.9 billion in fines.   . Multiple units of the bank were involved. Either top management was well aware of what was going on or there was a major breakdown in controls. The latter would be a criminal violation under Sarbanes Oxley, the law passed after the Enron bankruptcy and designed to end the “I’m the CEO and I know nothing” defense.  And let us not kid ourselves as to how well orchestrated the HSBC money-laundering machine was. As Matt Taibbi wrote:[“Longtime Bill Clinton pal Lanny”] Breuer this week signed off on a settlement deal with the British banking giant HSBC that is the ultimate insult to every ordinary person who’s ever had his life altered by a narcotics charge. Despite the fact that HSBC admitted to laundering billions of dollars for Colombian and Mexican drug cartels (among others) and violating a host of important banking laws (from the Bank Secrecy Act to the Trading With the Enemy Act), Breuer and his Justice Department elected not to pursue criminal prosecutions of the bank, opting instead for a “record” financial settlement of $1.9 billion, which as one analyst noted is about five weeks of income for the bank. The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

Eric Holder’s Longtime Excuse for Not Prosecuting Banks Just Crashed and Burned -Eric Holder has long insisted that he tried really hard when he was attorney general to make criminal cases against big banks in the wake of the 2007 financial crisis. His excuse, which he made again just last month, was that Justice Department prosecutors didn’t have enough evidence to bring charges. Many critics have long suspected that was bullshit, and that Holder, for a combination of political, self-serving, and craven reasons, held his department back. A new, thoroughly-documented report from the House Financial Services Committee supports that theory. It recounts how career prosecutors in 2012 wanted to criminally charge the global bank HSBC for facilitating money laundering for Mexican drug lords and terrorist groups. But Holder said no. When asked on June 8  why his Justice Department did not equally apply the criminal laws to financial institutions in the wake of the 2008 economic crisis, Holder told the platform drafting panel of the Democratic National Committee that it was laboring under a “misperception.” He told the panel: “The question you need to ask yourself is, if we could have made those cases, do you think we would not have? Do you think that these very aggressive U.S. attorneys I was proud to serve with would have not brought these cases if they had the ability?” The report — the result of a three-year investigation — shows that aggressive attorneys did want to prosecute HSBC, but Holder overruled them.

Congress: “Too Big to Jail: Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable” | Wolf Street: The US House of Representatives today released the results of its three-year investigation – hampered along the way by the Department of Justice and the Department of the Treasury – into why HSBC and its executives weren’t prosecuted. Empirical evidence has told us for years that in the US a bank and its executives cannot be prosecuted if the bank is big enough. We’ve come to call this type of bank “Too Big to Jail.” Empirical evidence has also told us that a bank can do essentially whatever it wants to, given that, if caught, it may have to pay a fine that then becomes just part of the cost of doing business. Wall Street doesn’t care about fines. They’re “extraordinary items” that banks and analysts systematically exclude from their “ex-items” per-share earnings. Fines matter under GAAP reporting. But they don’t matter in the rosy picture that Wall Street paints of the banks. And so they don’t matter. But now comes the House Financial Services Committee and offers evidence beyond our “empirical evidence”: a 288-page report, “Too Big to Jail: Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable.” And below is the Committee’s galling summary. Enjoy!

U.S. House of Representatives Passes Appropriations Bill with CFPB Reforms - The U.S. House of Representatives passed the $21.7 billion Financial Services and General Government Appropriations Act late Thursday by a 239-185 party line vote. However the bill reportedly will face a veto threat from President Barack Obama, according to PoliticoPro. The final bill includes provisions that will bring funding for the Consumer Financial Protection Bureau under the Congressional appropriations process and replace the single director leadership structure with a five-member bipartisan commission. The bill, which also provides funding for the Internal Revenue Service, Federal Communications Commission, Small Business Administration and General Services Administration, is $1.5 billion less than the current level. IRS funding is cut by $236 million and the FCC is losing $69 million in funding, The Hill reports.  “We also put the Dodd-Frank-created Consumer Financial Protection Bureau under the annual appropriations process so that the people through their representatives retain ultimate control over their government,” House Majority Leader Kevin McCarthy (R-Calif.) said in a statement issued Thursday. In addition to the CFPB funding and leadership reforms, the final bill prevents the CFPB from implementing a rule for the payday lending industry. The House Appropriations Committee approved the bill with the CFPB reforms by a 30-17 vote in June and the House Financial Services and General Government Appropriations Subcommittee approved the bill in May. The U.S. Senate Appropriations Committee approved its version of the spending bill June 16 with $22.4 billion in funding across several federal agencies. PoliticoPro reported that the Senate version of the bill does not include any policy provisions related to Dodd-Frank regulations including any measures related to the CFPB funding appropriations and leadership structure.

House Spending Bill Includes Big Changes to CFPB — The House on Thursday approved a spending bill that would change the structure of the Consumer Financial Protection Bureau and take away the Financial Stability Oversight Council's power to designate nonbanks as systemically important. The bill earmarks $21.7 billion in funding for the Treasury Department and the Securities and Exchange Commission, which represents a $1.5 billion decline from 2016 levels and $2.7 billion less than what President Obama requested. However, language in the bill that would create a five-person commission to oversee the CFPB and subject the bureau to the appropriations process may be of more interest to credit unions. Of course, many bankers likewise would appreciate changes to the CFPB. "The creation of a five-person, bipartisan board at the CFPB will preserve it as a stable, strong and effective regulator, regardless of a President Trump or Clinton," said Consumer Bankers Association President Richard Hunt in a statement following the bill's approval. He also applauded provisions in the bill that would require the CFPB to revisit recent rulemaking proposals. "CBA also appreciates the House requiring the Bureau to take a second look at its arbitration and small-dollar lending proposals before consumers are potentially harmed," said Hunt. But Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee, said the bill undermines the Dodd-Frank Act and would hurt consumers. The bill "so gravely underfunds and undermines Wall Street Reform that it is fair to say it would expose us to another financial crisis," said Waters in opening remarks on the House floor. She added that the CFPB policy riders "stab at the heart" of the bureau tasked with protecting consumers.

The Bad CHOICE Act - Adam Levitin (Credit Slips) - I'm testifying before House Financial Services tomorrow regarding the "CHOICE Act," the Republican Dodd-Frank alternative. My testimony is here. It's lengthy, but it doesn't even cover everything in the CHOICE Act--there are just too many bad provisions, starting with the idea of letting megabanks out of Dodd-Frank's heightened prudential standards in exchange for more capital, then moving on to a total gutting of consumer financial protection, and ending with a very poorly conceived good bank/bad bank resolution system executed through a new bankruptcy subchapter. The only good thing about the Bad CHOICE Act is that it has little chance of becoming law any time soon.

Fight Over Reform Bill Turns into Fight Over Capital Worldviews: The debate over a Republican bill to overhaul the Dodd-Frank Act is increasingly focused on two widely different philosophies about capital regulation, which were both on display at a hearing Tuesday. In one camp, supporters of House Financial Services Committee Chairman Jeb Hensarling's bill think regulators should throw out the complicated and malleable risk-based capital formulas of the Basel Committee in favor of a bare-bones leverage ratio, which no longer uses risk classifications for different types of assets. But lawmakers and others opposed to the legislation say Hensarling's approach, which would exempt banks meeting a 10% leverage ratio from Basel and numerous Dodd-Frank provisions, is too extreme. While a leverage ratio would require several banks to raise significantly more capital, critics warn that taking risk weights out of the equation will encourage riskier activities. In testimony prepared for the hearing, which was the first on Hensarling's bill, Georgetown University law Professor Adam Levitin pointed out that risk weights are "imprecise," "politicized" and "gameable." "A simple leverage ratio avoids all of those problems. On the other hand, a simple leverage ratio incentivizes banks to [take on] riskier — and thus higher-yielding — assets," he said. "The CHOICE Act, unfortunately, would adopt a simple leverage ratio while eliminating the regulatory tools necessary to prevent banks from gaming the simple leverage ratio by seeking out high-risk assets."

Republican Dodd-Frank Replacement Plan Gets a Workout - Republicans showed near unanimous enthusiasm for House Financial Services Committee Chairman Jeb Hensarling’s proposal to replace key elements of the 2010 Dodd-Frank Act at a Tuesday hearing. But Democrats showed up prepared to fight it, making it clear that supporters will need to prepare for rigorous debate on its boldest provisions. The hearing was a preview of the kind of relitigation of the Dodd-Frank debate that could start if Republicans maintain control of Congress and can work with a friendly Republican president. In particular, they are taking aim at the law’s mechanism to wind down failing banks, which has never been tested with a major bank, and its long list of regulations. Republicans cast Hensarling’s solution, known as the Financial CHOICE Act, as a response to the Dodd-Frank rules they say have led to a spike in compliance costs. The panel’s Democrats, meanwhile, said Republicans had the chance to offer amendments or defeat elements of the law that they didn’t like when Congress enacted it six years ago. Hensarling’s proposal would set out the capital requirements for regulatory relief, and take away the Financial Stability Oversight Council’s authority to declare systemically important financial institutions. It would also repeal Dodd-Frank’s “orderly liquidation authority” process — the mechanism to wind down failing banks — in favor of bankruptcy.

Is Dodd-Frank Wall Street Reform Legislation a Hoax? - Pam Martens - For years now, Republicans have been screaming that the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in 2010 by President Obama is a fraud on the public. Few have examined Dodd-Frank’s failed promises as carefully as Wall Street On Parade. The legislation promised to rein in derivatives – it didn’t. It promised to end the future need for taxpayer bailouts of too-big-to-fail banks. It didn’t. It promised to institute the Volcker Rule to prevent banks from gambling with insured deposits. It didn’t. It promised to reform the practices of the ratings agencies that played a pivotal role in the 2008 collapse. It didn’t. Dodd-Frank did two great things: it created the Consumer Financial Protection Bureau (CFPB) which has played a major role in exposing and disciplining companies that abuse consumers in areas like credit cards, auto loans, student loans, and mortgages. Dodd-Frank also created the Office of Financial Research in the U.S. Treasury Department – which has been sending out regular warnings that Wall Street is still a dangerous, toxic brew of interconnectedness while putting a bright light on how the Fed is mismanaging its stress tests of the mega Wall Street banks. But these two agencies which are valiantly working in the public interest are no match for how Wall Street has been allowed by the Obama administration to game the designed-to-be-gamed provisions of Dodd-Frank. Take this morning’s news from Bloomberg News. The so-called Volcker Rule provisions of Dodd-Frank that barred the Wall Street banks holding insured deposits from owning private-equity funds (where they could inflate asset values with little push-back) and hedge funds (where they could dump or hide their own losses) have been repeatedly pushed forward and now are not set to go into effect until July of next year – an outrageous seven years after Dodd-Frank was signed into law. Wall Street is clearly counting on their heavy funding of Hillary Clinton’s campaign to put a friendly ear in the Oval Office, and at the Fed, Treasury and SEC,  so it can individually apply for permanent exceptions to these and various other Dodd-Frank rules.

Pence VP Pick Could Shape Trump's Banking Policy | American Banker: — The selection of Indiana Gov. Mike Pence as Donald Trump's running mate could clarify the presumptive Republican nominee's banking policy views, adding to the ticket a policymaker who has been outspoken about the Dodd-Frank Act and other financial topics. To date, Trump has said very little about banking matters beyond a general pledge to repeal the 2010 financial reform law. But Pence — who served in the House between 2001 and 2012, is well known to bankers, having served as a fierce opponent to both Dodd-Frank and the Bush administration's 2008 bank bailout. He is also closely aligned with House Financial Services Committee Chairman Jeb Hensarling and other conservative GOP lawmakers, giving them a key ally in any future Trump administration. Following is a guide to Pence's past positions.

  • Tarp:  Although the Troubled Asset Relief Program was a program pushed by a Republican president and Treasury secretary, Pence helped lead a GOP revolt against the bill. The then-congressman helped deliver a surprising defeat of the bill in 2008, temporarily spooking the stock market.
  • 'Too Big to Fail': Pence was a strong opponent of the AIG and Goldman Sachs bailout and would likely support a Republican plan spearheaded by Hensarling that would create a new bankruptcy process for megabanks and repeal authority given to the FDIC that would allow it to dismantle a failing banking company.
  • Housing Finance Reform: Pence has also endorsed privatizing Fannie Mae and Freddie Mac, similar to plans pushed by Hensarling.
  • CFPB: When the Consumer Financial Protection Bureau was just a legislative proposal, Pence objected to giving a new agency so much power; he would likely support efforts to reform the structure of the agency. Republicans have been pushing to replace the bureau's single director with a five-person commission and to require that the bureau consider credit availability as well as consumer protection.

U.S. Banking Is a Clone of Society: One-Tenth of One Percent Have the Bulk of the Wealth-  Pam Martens -- Today’s banking system is a perfect reflection of U.S. society. Just six banks (one-tenth of one percent of the 6,000 insured-depository banks in the U.S.) control the bulk of total assets while, as Senator Bernie Sanders regularly reminds his audiences, in American society “the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.” Until the public wakes up to the reality that banking concentration is producing the wealth concentration and restores the Glass-Steagall Act, poverty, despair and the unraveling of social order will continue apace while another epic financial crash hovers just over the horizon. You don’t have to take our word for it. The U.S. Treasury’s Office of Financial Research produced a study in March of this year that made two critical findings. First, that “credit derivatives exposures were at the core of the 2008-09 financial crisis.” Second, the study found that just six banks constitute “the core” of the U.S. financial system. According to a March 31, 2016 report from the Federal Reserve, of the six mega Wall Street banks that make up the core of the U.S. financial system, just four of those banks (JPMorgan Chase, Wells Fargo, Bank of America and Citibank) hold $6.7 trillion in assets out of the $15.9 trillion total held by the other 6,000 commercial banks, or 42 percent of the total. When it comes to derivatives, however, the concentration is exponentially worse. According to the 2016 first quarter report from the Office of the Comptroller of the Currency released last month, all bank holding companies in the U.S. hold $250 trillion in notional (face amount) of derivatives. But just five mega Wall Street banks (Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley) hold $231.4 trillion of the total or a staggering 93 percent of all derivatives in the entire banking universe of the United States.

Credit Union Opposition to CFPB Arbitration Plan Is Baffling | Bank Think: In May, the Consumer Financial Protection Bureau published its proposed rule to prohibit class action bans in forced arbitration clauses. If finalized, this proposal will restore access to remedies for millions of people. Big banks and lenders oppose this otherwise widely-supported and overdue development. However, the surprising reaction comes from credit union associations. Despite statements by credit union representatives and empirical data proving that most credit unions do not use forced arbitration, their lobbyists are decrying the rule. When agreed to by both parties after disputes arise, arbitration can be a worthy tool. However, when arbitration clauses and class action bans are slipped into the fine print of take-it-or-leave-it contracts, consumers are unilaterally stripped of their right to seek remedies for harm in court. Instead, they are steered into closed-door proceedings on an individual basis where the decision-makers have incentive to favor corporations that repeatedly appear before them. Moreover, most consumer financial claims don't make it into arbitration because the amount at stake is often too low to pursue individually. The CFPB's proposed rule to limit these "rip-off" clauses follows its exhaustive study that shows that forced arbitration results in the widespread suppression of customer complaints.  From the CFPB evidence, 97% of credit unions (294 of 304) did not use arbitration clauses in their credit card contracts. By comparison, more than 60% of the largest bank issuers (30 of 50) used forced arbitration in their credit card contracts. So what accounts for this huge difference? "Credit unions, generally speaking, do not have arbitration clauses in their agreements, whether their credit card agreements or deposit account agreements," Vetere said. "We believe in resolving disputes first from a member service perspective. We do not want to deny our members the ability to take us to court, whether it be one-on-one or through class action. We believe they have that right."

CEO compensation grew faster than the wages of the top 0.1 percent and the stock market - CEO compensation in the largest firms dipped temporarily in 2015 and remains 940.9 percent above its 1978 level. This growth in CEO compensation far exceeded the growth of the stock market, which grew forty-two percent less (up 542.9 percent). This shows that executives have done far better than the firms they have led and executive pay cannot be simply attributed to better firm performance. Neither can the spectacular rise in CEO compensation be attributed to the ‘market for talent’ providing more rewards for those at the top. The wages of the top 0.1 percent of wage earners (top one out of a thousand) is a decent proxy for the pay of the most financially successful and grew a remarkable 320.5 percent from 1978 to 2014 (the last year for which data are available).  Yet, CEO compensation grew roughly three times faster than the wages of the top 0.1 percent. The fact that CEO compensation grew so much faster than the pay of other very highly-paid earners, and far faster than stock prices, indicates that unique dynamics are at play and that corporate governance is not adequately restraining executive pay.

NYT Lets $27 Million Man Brag About What He’s Doing for Income Inequality - They must have been high-fiving themselves at JPMorgan Chase’s PR offices this morning.  Chase’s CEO, Jamie Dimon, was given prime space on the New York Times‘ op-ed page today (7/12/16) to declare that his bank was doing something about “wage stagnation” and “income inequality” by “giving thousands of employees a raise”: Our minimum salary for American employees today is $10.15 an hour…almost $3 above the current national minimum wage. Over the next three years, we will raise the minimum pay for 18,000 employees to between $12 and $16.50 an hour for full-time, part-time and new employees, depending on geographic and market factors. “A pay increase is the right thing to do,” declares Dimon. How nice of the Times to give one of our corporate overlords a chance to let us know he’s doing the right thing! Chase is the largest bank in the United States, and in 2015 it made $23.9 billion in after-tax income.  You may have gotten the (intended) impression from Dimon’s op-ed that Chase has 18,000 employees; in fact, it has 241,000. That means for each one of its employees, the company is making $99,000 in profit. By comparison, the prospect of a $1.85-an-hour raise for 7 percent of them over three years is rather small potatoes.

Jamie Dimon’s misguided op-ed, and the right economic lessons of the JPM pay raise - Jamie Dimon’s public request for a back pat opinion piece in the New York Times heralds an upcoming raise for many of the bank’s lower-paid workers: Over the next three years, we will raise the minimum pay for 18,000 employees to between $12 and $16.50 an hour for full-time, part-time and new employees, depending on geographic and market factors. A pay increase is the right thing to do. Wages for many Americans have gone nowhere for too long. Many employees who will receive this increase work as bank tellers and customer service representatives. Above all, it enables more people to begin to share in the rewards of economic growth.It’s obviously great that JP Morgan staffers will soon get a wage bump. If only this would happen at every company — a bit more wage growth and wage-led inflation is exactly what the economy could use.But the rationale offered by Dimon for hiking wages — that it’s “the right thing to do” in response to stagnant outcomes for many Americans, rather than simply because the bank’s employees deserve rising compensation for their work in a tighter labour market — grates more than a little. Here’s page 12 from a presentation in February by JP Morgan’s head of consumer & community banking: The presentation boasts about JPMorgan’s automation of many tasks that were once handled by tellers: “~90% of all teller transactions will be ATM-enabled (up from ~50% historically)”.Here’s a closer look at the bottom right chart, with added commentary:  The bank employs 12,000 fewer transactional staffers than it did in 2012. We’re guessing those staffers didn’t all retire.

Citigroup Has More Derivatives than 4,701 U.S. Banks Combined; After Blowing Itself Up With Derivatives in 2008 -- According to the Federal Deposit Insurance Corporation (FDIC), as of March 31, 2016, there were 6,122 FDIC insured financial institutions in the United States. Of those 6,122 commercial banks and savings associations, 4,701 did not hold any derivatives. To put that another way, 77 percent of all U.S. banks found zero reason to engage in high-risk derivative trading. Citigroup, however, the bank that spectacularly blew itself up with toxic derivatives and subprime debt in 2008, became a 99-cent stock during the crisis, and received the largest taxpayer bailout in U.S. financial history despite being insolvent at the time, today holds more derivatives than 4,701 other banks combined which are backstopped by the taxpayer.  The total notional amount of derivatives sitting at Citigroup’s bank holding company is $55.6 trillion according to the March 31, 2016 report from the Office of the Comptroller of the Currency (OCC), one of the regulators of national banks. (See chart above.) Out of Citigroup’s total notional (face amount) exposure of $55.6 trillion in derivatives, $52 trillion of that is sitting at its insured depository institution, Citibank, which is still decidedly too-big-to-fail and would require a taxpayer bailout again in a collapse. If you add in four other mega Wall Street banks (JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley) to Citigroup’s haul in derivatives, there is a staggering $231.4 trillion in derivatives or 93 percent of all derivatives in the entire FDIC banking universe of 6,122 banks and savings associations.

The Great Market Tide Has Now Shifted To Risk-Off Assets -- In the conventional investment perspective, risk-on assets (i.e. investments with higher risks and higher potential returns) such as stocks are on a see-saw with risk-off assets (investments with lower returns and lower risk, such as Treasury bonds). When risk appetites are high, institutional managers and speculators move money into stocks and high-yield junk bonds, and move money out of safe-haven assets such as gold and U.S. Treasuries. But recently, markets are no longer following this convention. Safe haven assets such as precious metals and Treasuries are soaring at the same time that stock markets bounced strongly off the post-Brexit lows. Risk-on assets (stocks) rising at the same time as safe-haven assets is akin to dogs marrying cats and living happily ever after. What the heck is going on? Why is the market acting so schizophrenic? What’s changed? Before we cover the dynamics that are in play, let’s review the market gyrations so far in 2016.

Black Hole of Negative Rates Is Dragging Down Yields Everywhere - WSJ: The free fall in yields on developed-world government debt is dragging down rates on global bonds broadly, from sovereign debt in Taiwan and Lithuania to corporate bonds in the U.S., as investors fan out further in search of income. The ever-widening rush for yield could create problems if interest rates snap back, which would cause losses on investors’ low-yielding portfolios, or if credit quality falls. And the global yield grab is raising questions about whether rates can prove reliable economic indicators.  Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to nearly a record, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds.  As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt. “What we are seeing is a mechanical yield grab taking place in global bonds,”. “The pace of that yield grab accelerates as more bond markets move into negative yields and investors search for a smaller pool of substitutes.” There is now $13 trillion of global negative-yielding debt, according to Bank of America Merrill Lynch. That compares with $11 trillion before the Brexit vote, and barely none with a negative yield in mid-2014. In Switzerland, government bonds through the longest maturity, a bond due in nearly half a century, are now yielding below zero. Nearly 80% of Japanese and German government bonds have negative yields, according to Citigroup. Now the yield grab is spreading to bonds that have a riskier profile. The more investors search for yield, the more bond yields fall. “It’s a bit self-fulfilling,” Italy, which is in the throes of a banking crisis, has about $1.6 trillion worth of negative-yielding sovereign debt.

Negative rates leading to 'day of reckoning' fear on Wall Street: The reason anyone would buy negative-yielding debt is actually pretty simple: Because they have to. They are central bankers looking to help promote economic growth. They are insurance companies, pension funds and money managers who have to match liabilities with assets. They are not, by and large, retail investors who are so afraid of risk that they're willing to pay for the privilege of lending money to a government. Together, those buyers have helped build a nearly $12 trillion funnel of negative-yielding sovereign debt — unprecedented in world history. Ostensibly, the global race to the bottom was supposed to stimulate growth, and it may just well keep pushing risk assets higher. But what awaits on the other side is adding to the worries of investing professionals. "Ultimately, there will be a day of reckoning," said Erik Weisman, chief economist at MFS Investment Management. "When that will be remains very much to be seen." Weisman spoke as the level of negative-yielding global debt was at $11.7 trillion, according to an estimate in late June by Fitch Ratings Service that no doubt would be higher now. Equity markets were in rally mode Monday, with major U.S. stock market averages touching record highs. Yet there remains a pervasive feeling on Wall Street that the risk rally is built on sand, with a price to pay in a world where owning government debt no longer pays but rather costs.  "There's no doubt that there are and will continue to be unintended consequences, and the further we move away from something conventional into unconventional, the ratio of unintended consequences to intended consequences will rise," Weisman said

Can We Ignore the Alarm Bells the Bond Market Is Ringing? - The financial media tend to report breathlessly about what the stock market did yesterday. But savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.And right now, if the bond market is correctly predicting the economic path ahead, we should all be terrified.The stock market can rise and fall for all sorts of reasons, and sometimes for no apparent reason at all. But the bond market, where trillions of dollars change hands and long-term interest rates are determined, is steadier (normally). Its prices are generally tied closely to the outlook for growth and inflation over the years ahead.The long-term interest rates that currently prevail across all the major advanced economies are consistent with a disastrous economic future. Taken at face value, they imply that the smart money expects inflation will remain extraordinarily low for years to come, and that growth will stay so weak that central banks won’t be able to raise rates for years. It is a shift that has accelerated since Britain’s vote on June 23 to leave the European Union, but one that has been underway for years.Look at the current shape of the American “yield curve,” the chart of how rates compare for short, medium and long-term bonds. It implies a 60 percent chance of a recession in the next year based on historical patterns, according to Deutsche Bank analysts. Long-term interest rates hit record lows last week — which is to say the lowest in the 227-year history of rates in the United States. Prices for inflation-protected bonds suggest that consumer prices will rise only about 1.4 percent a year through 2021 — and only 1.5 percent in the five years after that. They suggest that not only is the Federal Reserve unlikely to find conditions that warrant an interest rate increase in the remainder of 2016, but also that there is only about a 50 percent chance of a rate increase in 2017.Across other major advanced economies, the signals sent by bond prices are even worse. Ten-year bonds are now offering negative interest rates in Germany, Japan, Switzerland, Denmark and, as of Friday’s close, the Netherlands. That means buyers of these securities will get fewer euros, yen, Swiss francs or Danish kroner back than they invested, a development without precedent in hundreds of years of financial history.

Corporate defaults reach 100 — a 50% jump from this time last year - Global corporate bond defaults reached a milestone 100 so far in 2016 with the addition of four defaulters this week, Standard & Poor’s said Thursday. That puts the current tally — a number led by U.S. companies — up more than 50% from the same time last year. In fact, the last time the global count was higher at this point in the year was in 2009, during the financial crisis, when it reached 177. As for S&P-recorded defaults so far in 2016, “67 are based in the U.S., 18 in emerging markets, nine in the other developed nations — Australia, Canada, Japan and New Zealand — and six in Europe,” said Diane Vazza, head of S&P global fixed income research. By comparison, “In 2015, 62 issuers defaulted during this period; 32 were based in the U.S., 14 in emerging markets, 12 in Europe and four in the other developed countries,” she said. S&P Global Ratings withdrew its ratings this week on two issuers, both U.S.-based, prior to their defaulting. Of the remaining defaults, one was from the U.S. oil and gas sector and the other was confidential. In its own U.S.-focused report out this week, rival ratings firm Fitch said struggling energy companies propelled the rate of high-yield bond defaults in the first half of 2016 to their steepest in some six years, and said the rate will climb further because more defaults are imminent.

Great American Oil Bust Rages on; Defaults, Bankruptcies Soar - Wolf Richter - Junk bonds, trading like stocks since February, have skyrocketed and yields have plunged. But that doesn’t mean the bloodletting is over. The trailing 12-month US high-yield bond default rate jumped to 4.9% at the end of June, the highest since May 2010 as the Financial Crisis was winding down, Fitch Ratings reported today. The first-half total of $50.2 billion of defaults already exceeds the $48.3 billion for the entire year 2015.  Energy companies accounted for 56% of those defaults. The energy sector default rate shot up to 15%. Within it, the default rate of the Exploration & Production (E&P) sub-sector soared to 29%! And the default party isn’t over: “Despite the run-up in prices since the February trough, there will be additional sector defaults, with Halcon Resources expected to file imminently,” Fitch reported. Issuance of junk bonds in the first half has plunged 34% from a year ago, to $120.5 billion, according to the Securities Industry and Financial Markets Association (SIFMA), as junk-rated energy companies are having one heck of a time borrowing money and issuing bonds. The fact that investors – who’ve now been burned for nearly two years – are reluctant to extend new credit to teetering oil & gas companies precipitates their default and bankruptcy. Fitch: “The combination of high energy and metals/mining default rates and lower year to date issuance has been a one-two punch for the high yield bond market this year,” So oil prices have surged from their low earlier this year, though they bounced off the apparent ceiling of just over $50 a barrel. Natural gas prices too have surged. Yet, four more E&P companies with $1.5 billion in combined debt filed for bankruptcy in June, according to Haynes and Boone’s Oil Patch Bankruptcy Monitor: This brought E&P bankruptcies tracked by Haynes and Boone in the US and Canada to 43 filings in the first half of 2016, involving $40 billion in debt – of which $30 billion is unsecured.

What's Next for Energy Lenders? Lots of 'Wound-Licking' - American Banker (video) Expect banks to pull back on energy lending in the near term, as regulators step up their scrutiny of oil loans and bankers approach the business with a "different attitude," says Mariner Kemper, chairman and chief executive at UMB Financial in Kansas City, Mo.

Private Equity Industry Offers Intelligence-Insulting Defenses for Long-Standing Grifting Due to Refusal to Register as Broker-Dealers -  Yves Smith - Listen up, because you are about to get another object lesson in how brazen the private equity industry is in defending its dubious looting, um, fee extraction practices. We will also see captured public pension funds, in this case CalSTRS, stand shoulder-to-shoulder with the private equity industry and against the interests of its beneficiaries and California taxpayers.  The private equity industry is up in arms over the idea that the SEC might finally address a long-standing abuse, that of the failure of private equity firms to register as broker-dealers. We alerted readers to this misconduct in 2013: See this Davis Polk discussion for more detail. As we indicated then, this misconduct goes back at major players like KKR to at least the 1980s, and has been widespread since the 1990s* Virtually all the big firms charge transaction fees and financing fees; the only noteworthy exceptions are Hellman & Friedman and Warburg Pincus.** It isn’t as clear if the practice is as universal among smaller general partners, since pulling the same level of fees out of their portfolio companies as the big boys charge would be a bigger drag on returns. Note that the SEC warned in a 2013 speech that it was looking into the issue. The general partners were apparently so confident of their protected position as to ignore the head’s up. Astonishingly, what the general partners are screeching about is the prospect of having to register as broker-dealers. They aren’t even contemplating the idea that the most of the entire industry should be required to disgorge the impermissible fees (which lucky for them are subject to a statute of limitations). If the SEC got out of bed to sanction the private equity industry, it would be hit with billions of dollars in fines.  Bear in mind that the SEC has issued a fine for broker-dealer violations….a mere $3 million for a firm no one ever heard of, Blackstreet Capital Management. Admittedly, Carlyle has also warned in recent SEC filing that it might be charged for broker-dealer violations. But the noise from the industry is mainly over registering going forward.

Warren, Sanders, Brown, Merkley, Reed, 3 Other Senators, Ask the SEC to Get Out of Bed on Private Equity -- Yves Smith - As the letter below shows, eight prominent Senators cleared their throats and asked the SEC why it has yet to produce an investor bulletin on private equity, which they observe is puzzling given that the agency has uncovered plenty of gambling in Casablanca.  It is important to understand that the SEC’s failure to issue any investor bulletins on private equity, which are “focused on topical issues including recent Commission actions,” much the less investor alerts, which are “focused on recent investment frauds and scams,” confirms how half-hearted its enforcement efforts have been. Investor bulletins are a basic tool that the SEC uses to keep investors appraised of abuses and consolidates their work on enforcement actions. As a result, several individuals, such as private equity expert Eileen Appelbaum, have suggested to SEC officials in meetings that they issue an investor alert on private equity. Every time, the staff have made a big show of reacting like they never heard the idea before and that it is certainly worth thinking about. It’s ludicrous for them to have pretended that this was a novel suggestion They can no longer play that game now that these Senators have weighed in. On the one hand, it’s yet another poor reflection on the SEC that eight Senators have had to team up to get the agency to do its job. As their letter makes clear, in bureaucratese, the SEC has no defense for its inaction. One of the excuses that SEC officials have invoked when pressed for their failure to act has been that investors in private equity are big boys (“accredited investors”) and are therefore sophisticated and don’t need this sort of help from the SEC. But as the Senators point out. the SEC has issued investor bulletins for the hedge fund industry, which like private equity, is newly subject to SEC registration as investment advisers under Dodd Frank. And hedge funds, like private equity, target big, professional investors.

Challenges in Measuring Regulatory Capture - ProMarket -- Harvard Business School Professor David Moss and I have, roughly speaking, defined regulatory capture as the result or process by which regulation is consistently directed away from the public interest and towards the interests of the regulated industry. But the “public interest” is hard to define. One possible way to do so is to focus on how the public interest is represented in statutes that Congress has passed and that the President has signed—and which have been upheld by the courts when contested. Capture happens when special interests have shaped policy in ways that advance industry interests rather than statutory intent.  Understood this way, capture is not a binary situation, but rather exists on a spectrum, ranging anywhere from weak, to intermediate, to strong. In strong cases of capture, policy is effectively crafted and implemented by industry. In other cases, capture manifests itself in agency policy being pushed in an overly industry-friendly direction at the expense of statutory intent, but to a lesser extent than with strong capture. In still other instances, capture may be weak, such as with medical device regulation at the U.S. Food and Drug Administration today. To say that an instance of capture is weak or strong, though, does not change the fact that it needs to be addressed. Agencies and their leaders should be constantly on guard against letting themselves become overly influenced by the firms they oversee. However, understanding the extent and nature of capture in any given case will become important for devising solutions for the agency to take to resist the pull of corporate power.

Killing the Durbin Amendment Is a Horrible Idea | Bank Think: Supporters of rolling back the debit swipe fee restrictions in the Dodd-Frank Act often overlook an all-important fact. Unlike other provisions of the 2010 law, which deal with things like supervising large banks or reforming derivatives trades, the interchange fee limitation championed by Sen. Dick Durbin, D-Ill., has an undeniable direct benefit for ordinary people. It protects consumers from exorbitant bank fees that raise the price of everything from clothing to car parts. In June, Rep. Randy Neugebauer, R-Texas, introduced legislation that would repeal the Durbin amendment, and his bill is now included as part of the broader package of Dodd-Frank reforms in House Financial Services Committee Chairman Jeb Hensarling's Financial CHOICE Act. Here's why Congress should shun this legislative idea. Every time you swipe a debit or credit card to buy a meal or a pair of shoes, the bank charges the merchant a swipe fee to process the transaction. Banks love these fees because they're uncompetitive, exorbitant and hard for consumers to see how much the fees raise prices. Every time the issue of these debit card fees comes up — like in the GOP's current effort to gut the Durbin amendment — the banks belch a giant smokescreen as cover for their gouging consumers and merchants. Here are the three points to navigate through the spin:

Could CUs Be Collateral Damage in Supreme Court Battle on ATM Fees? - Credit unions will be keeping a close eye on the U.S. Supreme Court, which recently agreed to hear a fight over automated-teller-machine fees that pit the interests of independent cash machine operators and consumers on one hand against two major card networks and several megabanks on the other. The matter, which joins several related suits, was one of eight cases the court recently agreed to accept, and while credit unions are directly involved the suit, some payments experts have said the outcome could have significant repercussions for the movement. At issue is the ability of Visa, MasterCard and affiliated banks to set out-of-network, or "foreign," ATM fees and the ability of consumers to challenge them under federal antitrust laws. JPMorgan Chase, Bank of America and Wells Fargo were also defendants in the case. A lower court dismissed the claims that Visa and MasterCard's rules prevent some cash machines from charging lower fees for transactions processed on other networks, but the U.S. Court of Appeals for the D.C. Circuit ruled last August that the cases had merit and ordered them to be reheard. Visa and Mastercard appealed to the Supreme Court, arguing that the allegations in the lawsuit aren't specific enough for the case to go forward.

Do You Own Your Own Fingerprints? - These days, many of us regularly feed pieces of ourselves into machines for convenience and security. Our fingerprints unlock our smartphones, and companies are experimenting with more novel biometric markers—voice, heartbeat, grip—as ID for banking and other transactions. But there are almost no laws in place to control how companies use such information. Nor is it clear what rights people have to protect scans of their retinas or the contours of their face from cataloging by the private sector. There’s one place where people seeking privacy protections can turn: the courts. A series of plaintiffs are suing tech giants, including Facebook and Google, under a little-used Illinois law. The Biometric Information Privacy Act, passed in 2008, is one of the only statutes in the U.S. that sets limits on the ways companies can handle data such as fingerprints, voiceprints, and retinal scans. At least four of the suits filed under BIPA are moving forward. “These cases are important to scope out the existing law, perhaps point out places where the law could be improved, and set principles that other states might follow,” says Jeffrey Neuburger, a partner at law firm Proskauer Rose. Under the Illinois law, companies must obtain written consent from customers before collecting their biometric data. They also must declare a point at which they’ll destroy the data, and they must not sell it. BIPA allows for damages of $5,000 per violation. “Social Security numbers, when compromised, can be changed,” the law reads. “Biometrics, however, are biologically unique to the individual; therefore, once compromised, the individual has no recourse, [and] is at heightened risk for identity theft.”

CFPB Fines Santander $10 Million for Illegal Overdraft Fees | American Banker: Santander Bank will pay a $10 million fine for allegedly charging illegal overdraft fees and signing up consumers for overdraft services without their consent, the Consumer Financial Protection Bureau said Thursday. The CFPB's order said that the Wilmington, Del., bank deceptively marketed its overdraft service from 2010 to 2014, using a telemarketer to persuade consumers to "opt in" for the service. The CFPB said the practice violated federal rules that prohibit banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless consumers affirmatively opt in. "Santander tricked consumers into signing up for an overdraft service they didn't want and charged them fees," CFPB Director Richard Cordray said in a press release. "Santander's telemarketer used deceptive sales pitches to mislead customers into enrolling in overdraft service. We will put a stop to any such unlawful practices that harm consumers." The bureau ordered Santander to go back and directly call consumers to provide affirmative consent to its overdraft service. The bank cannot use a vendor to telemarket its overdraft service and must provide additional oversight of vendors. Santander acknowledged that it did not sufficiently supervise its vendor. The $92.3 billion-asset bank declined to name the vendor because the CFPB did not do so

Financial Regulators Should Look Like America | Bank Think: The agencies that regulate our nation's financial institutions have a diversity problem. Our latest analysis of the agencies shows they need to get serious about fixing it. For too long, diversity has been regarded as largely a "politically correct" feel-good initiative in the financial sector — something that might be nice to do, but that is of little consequence to the larger missions of both financial businesses and the regulatory entities that oversee them. The financial crisis of 2008 taught us better. We saw communities of color hit first and worst. We also saw that the financial decision-makers in the period leading up to the crisis, including both banking executives and leaders of the regulatory agencies, were largely white. They simply missed the signals from communities of color about mounting problems with high-cost mortgages and other indicators.  The Dodd-Frank Act of 2010 required eight federal agencies — including the bank, credit union and securities regulators — and the 12 Federal Reserve banks to establish an Office of Minority and Women Inclusion.  When we examined the 2014 diversity data provided by the eight federal agencies — including the Federal Reserve Board, Federal Deposit Insurance Corp. and Securities and Exchange Commission — we found that overall 33.5% of their combined workforce were people of color. That's roughly consistent with demographics of the U.S. civilian and financial sector labor forces. But as you go up the organization food chain, diversity declines sharply. In upper-level management, African-Americans, Asian-Americans and Latinos are seriously underrepresented. Collectively, people of color represent just 17.76% of executive management roles in these agencies. We found a similar pattern in jobs deemed "mission critical" — attorneys, economists, examiners and the like.  Latinos, for example, make up 16.4% of the U.S. workforce, but only 3.49% of the mission-critical workforce in these agencies.

Banks Must Not Let Up in Fight for Regulatory Balance | Bank Think:  Nearly six years after passage of the Dodd-Frank, it is amazing how little has been achieved in figuring out the correct balance in financial regulation — one that keeps institutions in check without undermining their ability to do business. A good example of what is still unresolved is the Financial Stability Oversight Council. With the recent rescission of GE Capital's "systematically important financial institution" status, and with MetLife's legal victory over its SIFI designation, the FSOC right now can count only two firms — AIG and Prudential — as squarely in the SIFI category. (The MetLife decision awaits an appellate court's review.) No doubt that the FSOC does not believe that two SIFI designations solve the systemic-stability issues that Title I of Dodd-Frank intended to address. So whether in this administration or the next, the FSOC will likely refine its approach and goals, which already includes attempts to impose greater prudential regulation on nonbanks such as asset managers and investment funds. Banks and other large nonbank financial companies are also yet to feel the ultimate deployment of some of Dodd-Frank's authorities provided to the Federal Deposit Insurance Corp. and the Federal Reserve. Those new powers include, among other things, the authority to break up large banks and nonbanks that fail to file a credible living will, and to place large financial companies into FDIC receivership, circumventing traditional federal bankruptcy rules. While there may be a sense that this is all just a huge fight between the titans of the financial world and the gods of prudential regulation, history suggests that there is much more at stake. The regulation of large financial companies eventually becomes the regulation of all financial companies to some extent or another, either through the imposition of new regulatory standards or the evolution of best practices. At issue, therefore, is the future regulation of all financial intermediaries: banks, insurance companies, asset managers and fintech firms. And all of them — large and small — should be part of the debate.

Liquidity regulations could help Fed policy transmission, or maybe just non-bank lenders - Obvious statement: Banks are crucial for the transmission of monetary policy into the US economy. Not-so-obvious theory: Bank lending might become more important in that transmission because of post-crisis liquidity requirements. This one is interesting because it comes straight from the blog of the New York Fed, the guys in charge of US monetary policy implementation. Recent questions about policy transmission have focused strictly on money-market mechanics, which has been an exceptionally fertile ground for discussion: How to raise rates when banks have trillions of dollars’ worth of excess reserves, for example, or whether limits on leverage hurt banks’ ability to maintain stable relationships between different short-term rates. But talking about the bank lending channel shifts focus to the asset side of banks’ balance sheets (see this Boston Fed paper for further reading). When monetary policy tightens, banks create fewer deposits that require central-bank reserves, and that forces them to do some combination of the following:

  • 1) shrink their asset base of loans and securities.
  • 2) replace reservable deposits with non-reservable liabilities like wholesale funding.

In previous rate-hiking cycles, the banks seemed to take the second option, tapping wholesale funding in the place of liquid assets: Things have changed since then, thanks to the Basel III liquidity coverage ratio. From the New York Fed, emphasis ours: The LCR assumes higher outflows from wholesale funding than from traditional deposits.  Therefore, large banks can’t mechanically switch to wholesale funding sources when their LCR is binding; they also can’t automatically rely on their liquid asset “cushion,” since that would also lower their LCR. In other words, a monetary tightening could impose additional costs for big banks if they try to smooth their lending when a liquidity requirement is binding.

Reduced Viability? Banks, Insurance Companies, and Low Interest Rates - Almost all major US banks comfortably passed the US Federal Reserve’s stress tests last month. While that’s certainly good news, the purpose of these tests is to determine whether banks “have effective capital planning processes and sufficient capital to absorb losses during stressful conditions,” not whether they can earn a risk-adjusted return even close to what they were accustomed to in previous decades. And there is reason to wonder about that, for both banks, insurance companies, and indeed any institution that generally depends on the spread between short liabilities and longer assets for its profits. Such spreads are largely vanishing as benchmark yields around the world continue to hit new lows. Earlier this month, yields on both Japanese and German 10-year sovereign bonds entered negative territory. The 10-year US Treasury yield hit an all-time low at under 1.4%. The Fed recently released a paper entitled “‘Low-for-Long’: Interest Rates and Net Interest Margins of Banks in Advanced Foreign Economies” that considers precisely this question. The study looked at bank profitability in advanced financial economies during low- and high-rate environments between 2005 and 2013. Though asset and liability composition were similar in both environments, the findings indicated a strong link between interest rates and net interest margins (NIMs). That relationship intensified during low-rate periods:

OCC Zeros In on New Risk Type: Strategic Decision Making -- Offering new products, considering a merger or altering your balance sheet may be just what the doctor ordered in this competitive environment. But material changes in strategy can also bring significant risk. That was a key takeaway of the Office of the Comptroller of the Currency's latest report on assessing the risk landscape. As it has in previous bulletins, the OCC on Monday said strategic risk "remains high" as particularly small and midsize institutions "search for sustainable ways to generate target rates of return or struggle to implement their strategic plans." "Some banks are struggling to find viable business models, while others are increasingly adopting innovative products, services, and processes in response to evolving customer demands and the entrance of new competitors," Comptroller Thomas Curry said in remarks for the release of the semiannual risk perspective. "Doing so often involves assuming unfamiliar risks, including expanded reliance on third-party relationships. Banks may face heightened strategic planning and governance risk if they do not use sound risk management practices that align with their overall business strategies." The report, for the first time, also included a section discussing the growth in marketplace lending. The OCC said it "strongly encourages responsible innovation," but noted that banks that get involved with marketplace lending firms "face potential compliance, BSA/AML, operational, and market risk issues." Curry said the agency has "stressed that banks should have effective risk management to ensure such innovation aligns to their long-term business strategies."

What Wall Street’s Obsession With Blockchain Means for the Future of Banking - Anyone who sends money abroad knows how inconvenient it is. Banks take days, sometimes weeks, to clear payments, and they collect a hefty fee in between. And God forbid, when errors occur, money vanishes into thin air. “Banking now is like sending a letter—you send it [and] you don’t know if it reached [its destination],” observed Chris Larsen, CEO and co-founder of Ripple, a San Francisco-based startup. His vision is simple: Money transfer should be like sending an iMessage, where you immediately know if and when it arrives. It’s a bold, disruptive idea for sure, but it’s a vision eagerly embraced by heavyweights on Wall Street.  Just last month, IBM and Crédit Mutuel Arkéa announced the completion of their first blockchain project. The week before, a group of seven banks had similarly invested in yet another venture, aiming to make real-time money transfer possible. Even JPMorgan Chase, an initial blockchain skeptic, has now joined Citigroup, Bank of America, and Credit Suisse to test out application in the credit derivatives market. Blockchain, a record-keeping technology that powers Bitcoin—the first digital currency—has irrevocably gone mainstream.  Until most recently, Bitcoin was infamously associated with drug dealers, pornography, and the illicit weapons trade. . Little wonder that some observers likened blockchain to an unregulated open field. Jamie Smith, former spokesperson for President Obama, argued for the need to engage policy makers more widely, calling educating regulators a top priority.

Likely hack of U.S. banking regulator by China covered up: probe | Reuters: The Chinese government likely hacked computers at the Federal Deposit Insurance Corporation in 2010, 2011 and 2013 and employees at the U.S. banking regulator covered up the intrusions, according to a congressional report on Wednesday. The report cited an internal FDIC investigation as identifying Beijing as the likely perpetrator of the attacks, which the probe said were covered up to protect the job of FDIC Chairman Martin Gruenberg, who was nominated for his post in 2011. "The committee's interim report sheds light on the FDIC's lax cyber security efforts," said Lamar Smith, a Republican representative from Texas who chairs the House of Representatives Committee on Science, Space and Technology. "The FDIC's intent to evade congressional oversight is a serious offense." The report was released amid growing concern about the vulnerability of the international banking system to hackers and the latest example of how deeply Washington believes Beijing has penetrated U.S. government computers. The report did not provide specific evidence that China was behind the hack. Shane Shook, a cyber security expert who has helped investigate some of the breaches uncovered to date, said he did not see convincing evidence in the report that the Chinese government was behind the FDIC hack. "As with all government agencies, there are management issues stemming from leadership ignorance of technology oversight," Shook said.

Bank Regulator Chief Unaware of Any Hacking Cover-Up: Hearing - NBC News: The head of a U.S. banking regulator on Thursday said he was unaware of any efforts by his staff to cover up hacking of the agency's computers by a foreign government in 2010 and 2011, as outlined by a congressional report. Federal Deposit Insurance Corporation Chairman Martin Gruenberg told a hearing of the committee that published the report that he first learned of the security breach in 2011 when he was the FDIC's acting chairman. Lawmakers questioned Gruenberg about his knowledge of what the report described as a cover-up by a senior FDIC executive who ordered staff not to disclose the hacks for fear of endangering Gruenberg's confirmation to the chairman's post by the U.S. Senate. "I can't speak to the accuracy" of those allegations, Gruenberg said. He said repeatedly he did not know of staff efforts to conceal the intrusions.  The House of Representatives Committee on Science, Space and Technology report issued on Wednesday said the Chinese government appeared likely to have been behind the hacks. It cited an investigation by an internal watchdog of the FDIC, which is a major banking regulator that keeps confidential data on U.S. banks.  Gruenberg said he made personnel changes after receiving a report in 2013 informing him that he was not fully briefed about the hacks.

Regulator Warns Commercial Real Estate Bubble Is Biggest US Bank Risk -- Yves Smith - ZIRP and a flat yield curve are leading to all sorts of imprudent behavior. The latest, flagged by the Office of the Comptroller of the Currency, is profligate commercial real estate lending. The OCC warned that the rise in risky real estate lending is far more dangerous than subprime auto loans, which have been a pet worry of analysts for some time.  The reason commercial real estate lending is so hazardous is banks routinely lose more than 100% of the loan when the projects go bad. Not only do all the loan proceeds go “poof,” but when they foreclose, they are typically stuck with a completed or partially completed project. If it is completely and not fundamentally unsound (say an office building in an up-and-coming area), it’s possible to get a partial recovery. But for a white elephant or a half-finished building, the bank will need to clear the property, which means throwing good money after bad, and is stuck with land plus perhaps some general previous owner improvements (if a subdivision, getting zoning and running in plumbing; in an urban setting, doing the assemblage).  Moreover, commercial properties are idiosyncratic, so liquidating them is also inherently time-consuming.  Finance-savvy readers will notice the signs of froth in the article, such as the far-too-borrower-permissive terms, like interest only loans (!!!) and the fact that the commercial mortgage backed securities market, the normal exit for bank loan originations, was looking toppy a couple of years ago and has recently dried up. From the Financial Times: Thomas Curry, comptroller of the currency, used the watchdog’s twice-yearly report on financial risks published on Monday to warn about looser underwriting standards and concentrations in banks’ CRE portfolios….CRE loans originated by banks in the first quarter leapt by 44 per cent from the same period in 2015, according to Morgan Stanley. Banks’ share of CRE originations has risen from just over a third in 2014 to more than half in the first quarter of 2016 — a record… “Our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices.”…

Wells Fargo’s Mortgage Machine Shows Signs of Vulnerability: Wells Fargo's industry-leading mortgage business helped fuel a remarkable four-and-a-half-year stretch during which the bank's earnings grew each quarter. But more recently, the home-loan segment has acted as a drag on profitability for Wells. During the second quarter, the firm's mortgage fee income fell to $1.41 billion, a 17% drop from the same period a year earlier. One big factor in the decline was a fall in the valuation of the bank's mortgage servicing rights. The bank's top executives also said that Wells Fargo is losing mortgage-servicing customers, as other companies refinance them into new loans. "The servicing book has been getting smaller," Chief Financial Officer John Shrewsberry said Friday during the firm's quarterly conference call. In a follow-up interview, Shrewsberry explained that Wells Fargo has exited some higher-risk parts of its mortgage business, including reverse mortgages. He also noted that the San Francisco bank has chosen to do less business with the Federal Housing Administration, following disagreements over what constitutes a faulty mortgage. The quarterly decline in mortgage income at Wells disappointed analysts. Kevin Barker of Piper Jaffray wrote in a research note that "mortgage banking dropped lower when we expected a very good quarter." Meanwhile, other big banks avoided big declines in mortgage revenue at the start of earnings season.

GOP Grills Castro on Changes to Nonperforming Loan Sales: Republican lawmakers put Department of Housing and Urban Development Secretary Julian Castro on the hot seat Wednesday, criticizing his decision to allow nonprofit community groups to bid on more nonperforming Federal Housing Administration loans. HUD has sold 106,000 nonperforming loans — only 2,000 of which have been bought by nonprofit groups — but House Financial Services Committee Chairman Jeb Hensarling argued a recent decision to expand such sales is a big mistake. HUD "will offer lower-priced preferential bidding options to nonprofits and local governments or, as many of us believe more accurately, to known political allies," Hensarling said at a hearing Wednesday. Democrats fired back by claiming the GOP lawmakers are more interested in ensuring hedge funds and Wall Street investors can monopolize sales rather than helping borrowers to stay in their homes. So far, 98% of the FHA nonperforming loans have been sold to "private investors — the big boys on Wall Street," said Rep. Maxine Waters, D-Calif. This hearing is being held to "maximize Wall Street profits at the expense of struggling homeowners."

FHFA: Freddie on Track to Use Common Securities Platform: Freddie Mac is on track to issue mortgage-backed securities via a common securities platform by the end of this year, according to the Federal Housing Finance Agency. The FHFA on Thursday released an updated timeline for implementing the common securitization platform as well as an update on progress so far. Fannie Mae's use of the common platform is still not expected until 2018. The FHFA launched the initiative to create a common securitization platform and a single security, both based on the features of Fannie's MBS. The goal is to create a single type of security used by both government-sponsored enterprises. To implement the platform, the FHFA and both mortgage giants have been working to align their policies so, for example, Fannie and Freddie securities have consistent prepayment speeds. "Freddie Mac is meeting the milestones that will make the Single Security and a stronger housing finance system a reality," David Lowman, an executive vice president for Freddie, said in a statement. Freddie is expected to use the common platform through an initial release of the platform this year. "Freddie Mac will begin using the CSP's Data Acceptance, Issuance Support, and Bond Administration modules to perform activities related to its current single-class, fixed-rate securities and certain activities related to the underlying mortgage loans in the fourth quarter of 2016," the FHFA said in its implementation update.

Black Knight: "425,000 Borrowers Out from Underwater on Mortgages" in Q1 -- Black Knight Financial Services (BKFS) released their Mortgage Monitor report for May today. According to BKFS, 4.25% of mortgages were delinquent in May, down from 4.91% in May 2015. BKFS also reported that 1.13% of mortgages were in the foreclosure process, down from 1.59% a year ago. This gives a total of 5.38% delinquent or in foreclosure. Press Release: Black Knight’s Mortgage Monitor: Tappable Equity Rose by $260 Billion in Q1 2016, 425,000 Borrowers Out from Underwater on Mortgages This month, the Mortgage Monitor leveraged data from the Black Knight Home Price Index to revisit the U.S. equity landscape in light of 48 consecutive months of annual home price appreciation (HPA). As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, the impact can be observed in terms of both levels of tappable equity available to borrowers as well as the continuing reduction in the number of borrowers who owe more than their homes are worth. . In Q1 2016, 425,000 borrowers who had been underwater on their mortgages regained equity, bringing the national negative equity rate down to just 5.6 percent. That’s a far cry from the nearly 29 percent of borrowers who were underwater at the end of 2012, but still about five times as many as in 2004. The first quarter also saw tappable equity grow by $260 billion – a six percent increase in just the first three months of the year. There are now 38 million borrowers who have at least 20 percent equity in their homes, with an average of $116,000 in tappable equity per borrower. It seems borrowers are still being prudent when it comes to drawing upon that equity, though. Just $20 billion in equity was tapped via cash-out refinances in Q1 2016 -- roughly one-half of one percent of total available equity. Even so, cash-outs still accounted for some 42 percent of all refinance activity in Q1 2016.”

Gretchen Morgenson on covering the mortgage crisis (video) New York Times. A series of monthly interviews with whistleblowers. On Facebook, so not paywalled.

When are people with Foreclosures and Short Sales eligible to borrow again? -- Some information from mortgage broker Solyent Green is People:  For people with foreclosures or short sales on their record, the waiting period depends on if there are "Extenuating Circumstances" EC ( death in family, company relocation/shut down - about 5/10% of cases) or if the foreclosure or short sale was due to "Financial Mismanagement" FM (the majority of cases).
Jumbo loans, Foreclosure: 7 years (FM and EC)
Jumbo loans, Short Sale: 7 years FM, only 4 years EC
Fannie/Freddie, Foreclosure: 7 years FM, 3 years EC
Fannie/Freddie, Short Sale: 4 years FM, 2 years EC
FHA Foreclosure/Short Sale: 3 years (FM and EC)
A large number of the foreclosures were in 2009 and 2010, so those people will be eligible to borrow soon.  Note: Even though people are eligible to borrow, doesn't mean they will. They will have to saved enough for a downpayment, and many of these people are psychological scarred (and will wait longer to buy again).  Soylent Green is People also offered this comment on mortgage rates: "It's possible to get a 30 fixed purchase at 3.125%, but refinance 30 fixed are priced at 3.625% to stave off pipeline runoff. That averages to 3.375ish, giving borrowers the wrong idea that they can refi at these super low rates."

Price Recovery of Foreclosed Homes Nearly Double National Average: Homes that were foreclosed on during the housing crisis have since gained nearly twice as much value when compared with other homes, according to data from Zillow. From the lowest point during the housing crisis to today, the average home value has risen 21.9%, while foreclosed homes have risen 38.9% in value, Zillow said in its report on foreclosures and wealth inequality released Tuesday. Foreclosed homes nationwide lost roughly 40% of their value during the crisis, while other properties lost around 22% of their value. Today, foreclosed homes remain 16% off their pre-crisis peak versus other homes that are just 5% off, Zillow said. These nationwide figures hide the progress made in certain parts of the country, though. Zillow noted that in Denver foreclosed home values dropped 22% in the recession but have grown by 75% since, putting the values roughly 40% above their pre-crisis peaks. "After the national housing market hit bottom, home values started rising quickly again, especially among recently foreclosed, low-tier homes now seen as screaming bargains by investors looking to buy cheap but livable homes and convert them into rentals," Zillow chief economist Svenja Gudell wrote in the report. This situation, Zillow found, has had the effect of making the wealthy wealthier and disadvantaging low-income individuals — many of whom were the homeowners that were foreclosed upon.

Pinklining: The Financial Threat More Women of Color Are Facing --A new report (pdf) highlights how “pinklining,” a term most people have probably never heard, is hurting women and especially women of color.   The term is inspired by redlining, the phenomenon that governments, banks and other lenders used for much of the 20th century to deny African Americans access to mortgages and credit. Those in charge of public policy and lending practices would literally draw a red line around certain neighborhoods with high concentrations of minorities and deny them home loans and other forms of credit if they lived within those red lines.  “The same communities denied access to loans [under redlining] were targeted by lenders for subprime loans,” Suparna Bhaskaran, the independent researcher who wrote the pinklining report, told The Root in a telephone interview. These subprime loans seemed to offer attractive interest rates and low, and sometimes no, mortgage payments for a set time. But once that initial period expired, loan payments would balloon. When the subprime bubble collapsed in 2008, borrowers found themselves unable to renegotiate the suddenly onerous terms of their loans. “A lot of black women were targeted based on their neighborhoods,” Bhaskaran said. The lenders “opened up access to credit, but not to fair credit. It’s reverse redlining: Those once who were denied were suddenly sought after for predatory lending.”

Warren joins call for Airbnb probe | TheHill: Democratic Sens. Elizabeth Warren Elizabeth and Brian Schatz (Hawaii) asked a federal agency on Wednesday to examine the prevalence of commercial websites such as Airbnb that facilitate short-term housing rentals. "In order to assess the use and impact of the short-term rental market, we need reliable data on the commercial use of online platforms," wrote the senators in a letter to Federal Trade Commission (FTC) Chairwoman Edith Ramirez. "We believe the FTC is best positioned to address this data gap in an unbiased manner and we urge the Commission to conduct a review of commercial operators on short-term rental platforms."  The letter, led by Schatz (D-Hawaii), was also signed by Sen. Dianne Feinstein (D-Calif.). An FTC spokesperson confirmed that the agency had received the letter but declined to comment further. Critics have accused Airbnb and similar services of not doing enough to police operators who use their platforms to run larger-scale commercial lodging businesses, as opposed to individuals simply putting their home or room up for rent. The lawmakers are asking the FTC to investigate the scope of this practice on home-sharing platforms."On one hand, these firms have sparked innovation, increased competition, and have provided new means by which our constituents can earn extra income," they said. "On the other hand, we are concerned that short-term rentals may be exacerbating housing shortages and driving up the cost of housing in our communities."

Applications for New Home Purchases Dip in June: MBA: Mortgage applications for new home purchases dropped slightly in June, according to data from the Mortgage Bankers Association. Loan applications fell 0.2% from May, the MBA said Thursday based on data from its Builder Application Survey. The group also estimated that new single-family home sales reached a seasonally adjusted annual rate of 530,000 units in June, an increase of 8.6% from May's rate of 488,000 units. In terms of product mix in June, conventional loans composed 67.7% of loan applications for new homes, with FHA loans coming in second to make up 18.2% of applications. Additionally, VA and USDA loans constituted 13.4% and 0.7% of all applications for new homes, respectively. The average loan size for a new home fell to $326,175 in June from $328,032 in May, the MBA noted. Nonetheless, the three-month moving average loan size was $326,480 in June, which is 2% higher than a year ago, said Lynn Fisher, the MBA's vice president of research and economics.

MBA: "Mortgage Applications Increase in Latest Weekly Survey "  -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey  Mortgage applications increased 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 8, 2016. This week’s results included an adjustment for the Fourth of July holiday. ... The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. The unadjusted Purchase Index decreased 20 percent compared with the previous week and was 5 percent lower than the same week one year ago. Last year, the Fourth of July fell on the prior week. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since May 2013, 3.60 percent, from 3.66 percent, with points increasing to 0.36 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.   The first graph shows the refinance index since 1990. Refinance activity has increased a little this year since rates have declined. If refinance mortgage rates fell a little further, we might see a significant pickup in refinance activity. The second graph shows the MBA mortgage purchase index. The purchase index is "5 percent higher than the same week one year ago", although "Last year, the Fourth of July fell on the prior week".

On Manhattan's "Billionaire's Row", A Death Knell Just Tolled For Luxury Real Estate--Some will say that it was visible from the 95th floor, so to speak, but even so the metamorphosis taking place in the Manhattan real estate market over the past year has been a stunning development.  Having followed the collapse in the New York luxury housing segment, most recently in "Desperate Sellers Resort To Dramatic Price Cuts In Manhattan's Luxury Real Estate Market", as a result of the sudden halt in inbound offshore hot money mostly of Middle Eastern, Latin American and Chinese origin due to the crackdown on anonymous LLCs, money laundering and just the general drop in offshore ultra high net worth over the past year, we thought that we were prepared for ongoing news of a sharp slowdown in NYC luxury retail sales.  That said, even we were surprised by the following NYT narrative of just how dramatic the slowdown in the most opulent segment of NYC housing has been. In many ways it mirrors, or perhaps precedes, the inevitable bursting of the private tech bubble - both marked by wildly overvalued assets whose prices are not grounded in anything remotely close to reality, exorbitantly expensive only because a handful of the world's uber-wealthiest flip them back and forth to each other, in what is both a game of hubris as well as hopes of finding ever dumber money. This is how the NYT summarizes the tremendous rise and the upcoming fall of NYC luxury housing: Even with every conceivable amenity, the eight- and nine-digit prices attached to trophy homes with helicopter views and high-end finishes never bore much relation to actual value. Rather, a class of superrich investors primarily drove the market, choosing high-priced real estate as their asset of choice, because it was less volatile than other investments and they could use shell companies to hide their identities.But today a four-year construction boom aim ed at buyers willing to spend $10 million or more has flooded the top of the market just as global market turmoil has caused wealthy investors to pull back and the federal government has moved to scrutinize some all-cash transactions.

House Prices to National Average Wage Index --Bill Mcbride - One of the metrics we'd like to follow is a ratio of house prices to incomes. Unfortunately most income data is released with a significantly lag, and there are always questions about which income data to use (the average total income is skewed by the income of a few people).  And for key measures of house prices - like Case-Shiller and CoreLogic - we have indexes, not actually prices.  But we can construct a ratio of the house price indexes to some measure of income. For this graph I decided to look at house prices and the National Average Wage Index from Social Security. This graph shows the ratio of house price indexes divided by the National Average Wage Index (the Wage index is first divided by 1000). This uses the annual average CoreLogic and the National Case-Shiller index since 1976. As of 2015, house prices were somewhat above the median historical ratio - but far below the bubble peak. Prices have increased further in 2016, but house prices relative to incomes are still below the 1989 peak. Going forward, I think it would be a positive if wages outpaced, or at least kept pace with house prices increases for a few years.

Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes | Wolf Street: Commercial real estate has been soaring since March 2009, and that bubble remains intact, though some markets are already causing fear and trembling due to office-space gluts that are now coinciding with withering demand, such as in Houston and in San Francisco. Home prices too have been soaring for years, though in some major cities, the tide has turned. Rents have been rising in parallel. It’s in real estate where an asset bubble becomes a real-life issue for people who don’t even own any assets – they’re paying the price for the bubble. Other asset bubbles abound. Central banks have accomplished a lot. Blowing so many bubbles to such an extent for so long has been an astounding feat. In total, central banks created $24.6 trillion, according to BofA Merrill Lynch estimates. When they bought financial assets with that new moolah, they put $24.6 trillion of cash into the hands of investors and speculators concentrated in the major financial centers of the world. Yet the global economy remains languid. And a good part of American consumers – those on fixed incomes and savers – have seen their incomes transferred to others. So they’ve gutted their consumption.  But economic reality doesn’t matter to stocks and bonds. No one has to live in them. Economic reality matters to housing, however: the market needs to have enough people who can afford to pay the mortgage or rent. So the housing bubble is subject to another force: the reality of incomes. And those incomes have been a dreary sight for the past 16 years. The median annual household income in May, not adjusted for inflation, fell 0.7% to $56,853, the second month in a row of declines, but was still up 2.9% from a year ago, according to Sentier Research, which uses Census data as base for its monthly updates. Adjusted for inflation, “real income” fell 0.9% for the month and rose 1.8% year over year, but remains 1.5% below where it had been in January 2000. This chart by Doug Short at Advisor Perspectives shows the changes in nominal (red) vs. real (blue) median household incomes from January 2000. Note the sudden downturn:

Retailers Lease Warehouse Space at Record Pace - WSJ: Retailers are leasing warehouse space at a record-setting clip, as e-commerce drives companies to locate closer to population centers and keep more products on hand to meet customers’ speedy delivery expectations. Firms leased 70.1 million square feet of industrial space in the second quarter of 2016, the most in over 30 years of data and up 6% from the same quarter last year, real-estate brokerage Cushman & Wakefield Inc. said in a report Monday. In a separate report, brokerage CBRE Inc. said warehouse availability declined for a 25th consecutive quarter to 8.8%. Retailers have been renting warehouses faster than developers can build them, as they race to build infrastructure to fulfill surging online orders. The latest trend of opening smaller distribution centers near cities to improve delivery times and accept returns is driving vacancy rates into the low single digits in some areas. “The good economy and the change in distribution logistics has led to an increased demand,” said Jeffrey Havsy, CBRE’s chief economist in the Americas. “Now it’s more about having the right products near the customer, and that means more points of distribution rather than a single point of distribution.”

Retail Sales increased 0.6% in June -- On a monthly basis, retail sales were up 0.6% from May to June (seasonally adjusted), and sales were up 2.7% from June 2015. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $457.0 billion, an increase of 0.6 percent from the previous month, and 2.7 percent above June 2015. ... The April 2016 to May 2016 percent change was revised from up 0.5 percent to up 0.2 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline were up 0.5%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 3.9% on a YoY basis. The increase in June was way above expectations for the month, however retail sales for April and May were revised down. Overall a decent report.

Retail Sales Up In June 2016. Rolling Averages Marginally Decline.: Retail sales improved according to US Census headline data. Our view of this month's data is similar but there was a decline in the rolling averages - and downward revision to last month's data. Backward data revisions were generally up. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 1.7 % month-over-month, and up 3.1 % year-over-year.
  • unadjusted sales 3 month rolling year-over-year average growth decelerated 0.2 % month-over-month, 2.5 % year-over-year.
  • unadjusted sales (but inflation adjusted) up 3.2 % year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - there was only weakness in clothing and food services
  • seasonally adjusted sales up 0.6 % month-over-month, up 2.7 % year-over-year (last month was originally reported at 2.5 % year-over-year).

Retail Sales Jump On Downward Revisions, Hover At Recessionary Ledge - Having slowed in May after April's spike, US Retail Sales in June jumped notably by 0.6% (much better than the expected 0.1% rise) but a lot of this was due to a considerable downward revision (from +0.5% to just +0.2%). Year-over-year, headline retail sales rose modestly to +2.7% but continues to hover at the recessionary ledge. Vehicle sales rose very modestly (+0.1%) after a 0.5% MoM decline in May but a slide in clothing sales was offset by a surge in building materials sales. 11 of 13 categories saw sales increase with just food/drinking places (umm - isn't that where all the jobs are?) and clothing stores (again - isn't retail where the job creation has been?).  But despite the euphoria, retail sales annual change remains anything but exuberant...It seems retail sales growth just cannot reach escape velocity.

Americans’ appetite for stuff slowing down - Traditional retail is having a tough go of it lately. Declining sales, pressure from online stores, and the fickle tastes of young people have all pressured the old guard of shopping. On Tuesday, Bank of America Merrill Lynch had some more bad news for the mall stalwarts: No one wants to buy goods anymore. Using the aggregated data of those with Bank of America debit cards and credit cards, US economist Michelle Meyer identified a growing trend in customers' spending habits: Instead of purchasing goods, more and more Americans are putting their incomes toward experiences. "We show an assortment of categories in the Chart of the Month and observe the following themes: softness in housing-related items; continued shift away from department stores and teen & young adult clothing; strength in sporting goods; and an increase in spending on travel and restaurants," Meyer and her team wrote in a note to clients on Tuesday.This is certainly something we've pointed out before, but the Bank of America data is especially interesting as it tracks actual spending at point of sale rather than relying on a survey. Based on the data, spending at department stores such as Macy's and Nordstrom has declined 4.0%, reiterating the downward trend for the group. This follows survey data last month from Morgan Stanley finding that retail sales in may were down 3.9% year-over-year. Spending is also down 4.6% at teen and young-adult stores, 3.6% on home goods, and 3.0% on electronics. Meyer pointed to the home-goods sales as particularly interesting considering that the housing market has seen some strength in the past few months, with existing-home sales hitting a nine-year high in May despite supply issues percolating in the market.

US Consumers No Longer "Eating Out" - Restaurant Guest Counts Tumble To Three Year Lows --If one follows the government's retail spending data for "retail food and services sales" segment, the data is not bad. Yes, the annual pace of increases is declining as shown in the following St. Louis Fed chart, but at 2.5% Y/Y, it hasn't moved much over the past two years, suggesting flat overall spending trends. A different tracker of US Restaurant sales, that of the National Restaurant Association's Restaurant performance index, shows a more troubling picture. As the NRA reports for its latest data, restaurant sales softened in May, along with operator expectations, as the industry continued its choppy 2016. The monthly indication of the health of the industry fell 0.9 percent to 100.6 in May, from 101.6 in April. “The RPI continued along a choppy trend line in May, with the index bouncing between moderate gains and losses in recent months,” Hudson Riehle, senior vice president of research for the NRA, said in a statement. “Much of the May dip came from declines in the same-store sales and customer traffic indicators, which softened from their stronger April performance.” The index is comprised of two parts: one that measures the current situation, and another that measures operators’ expectations. The index is calculated using responses to the association’s monthly operator survey.Operators reported a net decline in same-store sales in May — 40 percent said their same-store sales increased in May, while 42 percent said same-store sales fell. By comparison, 58 percent of operators said their same-store sales increased in April.Traffic was worse. Only 27 percent of operators said traffic increased in May, and 46 percent said traffic fell. In April, 52 percent of operators said traffic increased. But the worst news for the restaurant industry came from the closely followed, and only available to subscribers, Knapp-Track index. Knapp-Track casual dining same store sales for the month of June were down 2.3% with guest counts down 4.8%.

Preliminary Consumer Sentiment at 89.5 in July -- The preliminary University of Michigan consumer sentiment index for July was at 89.5, down from 93.5 in June: "The early July decline in consumer sentiment was due to increased concerns about prospects for the national economy that were mainly voiced by high income households. Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers. Nearly one-in-four (24%) households with incomes in the top third mentioned Brexit when asked to identify any recent economic news that they had heard. For these households, the initial impact on domestic stock prices translated Brexit into personal wealth losses. While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded. To be sure, the overall decline in the Sentiment Index was rather minor, and could be anticipated to recover some of those losses in late July or early August. Importantly, the least affected components have been personal finances and buying plans."

Preliminary July 2016 Michigan Consumer Sentiment Worse Than Expected: The University of Michigan Preliminary Consumer Sentiment for July came in at 89.5, a 4.0 point decrease from the 93.5 June Final reading. had forecast 93.5. Surveys of Consumers chief economist, Richard Curtin makes the following comments: The early July decline in consumer sentiment was due to increased concerns about prospects for the national economy that were mainly voiced by high income households. Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers. Nearly one-in-four (24%) households with incomes in the top third mentioned Brexit when asked to identify any recent economic news that they had heard. For these households, the initial impact on domestic stock prices translated Brexit into personal wealth losses. While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded. To be sure, the overall decline in the Sentiment Index was rather minor, and could be anticipated to recover some of those losses in late July or early August. Importantly, the least affected components have been personal finances and buying plans. Real consumer spending can be expected to rise by 2.7% in both 2016 and 2017. See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

More Americans Have Rainy Day Funds, But Savings Remain Skimpy - An improving economy has left Americans feeling more confident about their finances, burdened with less debt and better equipped to confront a crisis. But that hasn’t translated into more savings for the long run, with participation in retirement-savings programs remaining largely flat. Following the steady recovery in the economy and job market since 2009, a new survey on financial capability shows marked improvement in people’s ability to weather short-term financial hardships–even as many still face income declines and medical expenses. A survey of more than 27,000 Americans, released Tuesday by the FINRA Investor Education Foundation, showed the ratio of respondents who have set aside three months of emergency funds rose to 46% last year, compared with 40% for its previous survey in 2012 and 35% in 2009. About 62% said they could certainly or probably come up with $2,000 if an unexpected need arose within the next month, up from 56% in 2012. The increase in rainy day funds reflects improvement in overall financial standing, which in turn reflects gains in the broader economy. The number of respondents who had no difficulty covering expenses and paying bills rose to 48% in 2015 from 40% in 2012 and 36% in 2009. Debt burdens have also declined, with the exception of student loans. More than half the respondents reported they always paid their credit cards in full, while one in three homeowners said their down-payment was more than 20% of the purchase price of their homes, up from less than one in four in 2009.

Consumer Price Index July 15, 2016: Price pressures evident the last two months down the supply chain are not yet appearing in consumer prices where the CPI rose only 0.2 percent in June for a weak year-on-year rate that is not going in the right direction, at plus 1.0 percent vs 1.1 percent in the prior three months. Ex-food & gas, consumer inflation also rose 0.2 percent with this year-on-year rate moving 1 tenth higher to a respectable but still soft 2.3 percent. Strength in service prices was a highlight of yesterday's producer price report and is also a highlight in this report, up 0.3 percent for the third straight month. This gain helps offset weakness in commodity prices which rose only 0.1 percent. Lodging away from home shows an outsized gain for a second month, at plus 0.6 vs May's 0.7 percent, though housing overall is flat at only plus 0.2 percent. Transportation rose 0.6 percent in the month with medical care up 0.4 percent, gains offset by a 0.1 percent decline for food and a 0.4 percent dip for apparel. Energy prices rose 1.3 percent in the month and follow similar gains in the four prior months, pressure reflecting the pass through from the manufacturing and wholesale sectors. For consumer prices in general, however, this effect is still limited, yet today's report does show some signs of new life and may boost confidence among policy makers that the inflation picture is improving.

June 2016 CPI: Year-over-Year Inflation Rate Unchanged: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.0 % - an unchanged from last month's 1.0 %. The year-over-year core inflation (excludes energy and food) rate increased 0.1% to 2.3 %, and remains slightly above the target set by the Federal Reserve.  As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator. The major influence on the CPI was energy prices. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.0 percent before seasonal adjustment. For the second consecutive month, increases in the indexes for energy and all items less food and energy more than offset a decline in the food index to result in the seasonally adjusted all items increase. The food index fell 0.1 percent, with the food at home index declining 0.3 percent. The energy index rose 1.3 percent, due mainly to a 3.3-percent increase in the gasoline index; the indexes for natural gas and electricity declined.  The index for all items less food and energy increased 0.2 percent in June. The shelter index rose 0.3 percent, and a broad array of indexes also increased, including medical care, education, airline fares, motor vehicle insurance, and recreation. In contrast, the indexes for used cars and trucks, apparel, communication, and household furnishings and operations all declined in June. The all items index rose 1.0 percent for the 12 months ending June. This is the same increase as for the 12 months ending May, but smaller than the 1.7 percent average annual increase over the past 10 years. The index for all items less food and energy rose 2.3 percent for the 12 months ending June, a larger increase than the 2.2 percent rise for the 12 months ending May, and above the average annual rate of 1.9 percent over the past 10 years.

Fed Cornered: Core CPI Jumps Near 4 Year Highs As Rent Rises At Fastest Rate In 9 Years -- Just as we warned, the gas price 'base effect' is pressuring consumer price indices higher (Energy +1.3% MoM - up for 3rd month in a row) but even Core CPI rose more than expected (+2.3% vs 2.2% exp) back near its highest since April 2012. Shelter costs rose 0.3% MoM (but 3.5% YoY - the highest since July 2007), along with increases in education, medical care, and airline fares also sent consumer prices broadly higher. Between surging PPI and this, The Fed is increasingly cornered (and as we nopted last night, running out of excuses). “We’re starting to see upward pressure on the inflation numbers,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd., said before the report. “It reinforces the case for the Fed to resume tightening, though they’re highly risk averse right now.” Core Cpi back near cycle highs... Rent inflation at its highest in 9 years!!  And fuel costs are on the rise, which, as we detailed previously, the impact of the energy costs base-effect is so pronounced, that as BofA notes, an extreme bearish scenario is needed for inflation to stall. A far less extreme scenario is needed for inflation to jump dramatically. To wit: Our analysis shows that there is a clear uptrend in CPI ahead, under most reasonable scenarios (Chart 1). CPI would accelerate to 3.5% yoy under our bull case, and rise to 1.6% under our bear case. Supportive base effects are a key driver. It is only under an extreme bear case (year-end wholesale gasoline price of $0.88/gallon, or retail at $1.58/gallon), that we would see CPI inflation flatten out at 1.1%, all else equal.

June 2016 Inflation --We continue down the road I fear this month. Here are graphs of month over month and year over year inflation. Rent inflation continues to strengthen at over 3% and core inflation outside of rent continues to revert back toward the 1% range. And markets react with rising interest rates, due to expectations of Fed tightening. Here is an excerpt from the Bloomberg article: Steadying energy costs and the dissipating influence of the strong dollar will stoke price pressures more broadly and enable companies to regain the ability to charge their customers more. Faster inflation underpinned by an improving economy and a healthy job market would also enable the Fed to resume raising interest rates. “We’re starting to see upward pressure on the inflation numbers,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics Ltd., said before the report. “It reinforces the case for the Fed to resume tightening, though they’re highly risk averse right now.” We have low inflation because of the current tight monetary posture together with high rent inflation because of the current tight credit policy posture, and this is leading us to tighten both even more. There is no housing market to kill this time. If this does lead to a recession, it will probably be much shallower than the last one, maybe without much of a pullback in the stock market. I don't know. I'm looking at my calendar. Looks like it's 1937.

Rail Week Ending 09 July 2016: Rail Decline Affected By A Mismatch Of Holiday Weeks. Still Contraction Trend Is Moderating.: Week 27 of 2016 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The short term rolling average's contraction continues to moderate - but this comparision is affected by the 4th of July being in a different week last year (was in week number 27 in 2015 and week 26 in 2016). The deceleration in the rail rolling averages began over one year ago, and now rail movements are being compared against weaker 2015 data.A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 442,113 carloads and intermodal units, down 17.2 percent compared with the same week last year. Total carloads for the week ending July 9 were 226,615 carloads, down 16.5 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 215,498 containers and trailers, down 17.9 percent compared to 2015. Two of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were miscellaneous carloads, up 12.2 percent to 9,283 carloads; and grain, up 12 percent to 20,746 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 23.4 percent to 72,998 carloads; nonmetallic minerals, down 20.9 percent to 29,069 carloads; petroleum and petroleum products, down 19 percent to 10,432 carloads and motor vehicles and parts, also down 19 percent to 12,399 carloads. For the first 27 weeks of 2016, U.S. railroads reported cumulative volume of 6,521,831 carloads, down 12.5 percent from the same point last year; and 6,928,501 intermodal units, down 2.7 percent from last year. Total combined U.S. traffic for the first 27 weeks of 2016 was 13,450,332 carloads and intermodal units, a decrease of 7.7 percent compared to last year.

Trucking Company Failures on the Rise - WSJ: More and larger trucking companies are failing as fuel prices rebound and demand for freight services remains muted, a new report says. In the second quarter, 120 trucking companies with an average fleet size of 17 tractor-trailers halted operations, according to an analysis by researcher Avondale Partners LLC. That’s up from 70 firms with an average fleet size of 14 big rigs in the same quarter a year earlier. There are more than 168,000 interstate motor carriers with more than 2 million trucks in the U.S., according to the American Trucking Associations, an industry group. The failures are mainly the result of rising fuel prices and weak demand, said Avondale Managing Director Donald Broughton. When gas prices are falling, truckers are able to charge shippers a fuel surcharge based on the price of gas from previous weeks, while filling up their tanks at lower prices. But when fuel prices are on the rise, the opposite happens, leading to a cash shortfall. “When conditions are ideal, only the little guys tend to fail. But as conditions start to deteriorate, it tends to affect even larger trucking fleets,” Mr. Broughton said. Last year, only 310 trucking fleets ceased operations, the lowest number since Avondale started tracking failures in 1986. The average diesel fuel price in 2015 was $2.72 a gallon, its lowest since 2009. Trucking rates began to decline last year amid weakness in the import market and tepid growth in the consumer economy. But the biggest factor, according to many analysts, has been overcapacity.

Wholesale Trade July 12, 2016: Wholesalers held back inventory growth in May, up only 0.1 percent and well under a 0.5 percent rise in sales at the wholesale level. The stock-to-sales ratio is down one notch to 1.35 from 1.36. Inventories of two very large components -- drugs and autos -- fell sharply, making for leaner inventories relative to sales for both. In contrast, wholesale inventories of farm products have been on a sharp climb at the same time that sales have been falling, an unfavorable mix that is lifting the stock-to-sales ratio sharply, to 1.56 vs 1.46 in April and 1.30 in March. But in general, inventories have been held successfully in check in line against no more than moderate rates of sales growth. Business inventories will be released Friday and will combine this report together with factory inventories, which slipped 0.1 percent in May, and yet-to-be released data on retail inventories.

May 2016 Wholesale Sales Improves.: The headlines say wholesale sales were up month-over-month with inventory levels remaining at levels associated with recessions. Our analysis shows an degradation of the 3 month averages but we see acceleration looking at the single month's data. Note that Econintersect analysis is based on the change from one year ago. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 5.7 % month-over-month.
  • unadjusted sales year-over-year growth is up 0.4 % year-over-year
  • unadjusted sales (but inflation adjusted) up 0.2 % year-over-year
  • the 3 month rolling average of unadjusted sales decelerated 0.2 % month-over-month, and down 1,5 % year-over-year.
  • unadjusted inventories up 0.4 % year-over-year (down 0.5 % month-over-month), inventory-to-sales ratio is 1.31 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales up 0.5 % month-over-month, down 2.6 % (last month was reported down 2.5 %) year-over-year
  • inventories up 0.1 % month-over-month, inventory-to-sales ratios were 1.31 one year ago - and are now 1.35.
  • the market (from Bloomberg) expected inventory month-over-month change between 0.1 % to 0.4 % (consensus +0.2 %) versus the +0.5 % reported.

May 2016 Business Sales and Inventories Data Continues Mixed.: Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales improved compared to the previous month - but due to backward revisions the rolling averages declined. Inventory growth was moderate. The inventory-to-sales ratios remain at recessionary levels. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 2.6 % month-over-month, and down 0.3 % year-over-year
  • unadjusted sales (but inflation adjusted) up 0.8 % year-over-year
  • unadjusted sales three month rolling average compared to the rolling average 1 year ago accelerated 2.7 % month-over-month, and is down 1.0 % year-over-year.
  • unadjusted business inventories growth unchanged month-over-month (up 0.9 % year-over-year with the three month rolling averages showing inventory build), and the inventory-to-sales ratio is 1.36 which is at recessionary levels (well above average for this month).

US Census Headlines:

  • seasonally adjusted sales up 0.2 % month-over-month, down 1.4 % year-over-year (it was reported down 1.3 % last month).
  • seasonally adjusted inventories were up 0.2 % month-over-month (up 1.0 % year-over-year), inventory-to-sales ratios were up from 1.37 one year ago - and are now 1.40.
  • market expectations (from Bloomberg) were for inventory growth of 0.1 % to 0.3 % (consensus +0.1 %) versus the actual of -0.2 %.

Business Inventories At Highest Level To Sales Since The Crisis -- Autos and building materials are at their highest levels of inventories relative to sales since the financial crisis leaving overall business inventories-to-sales ratio hovering near cycle highs at 1.40x. A 0.2% rise in inventories (bigger than expected) matched the 0.2% rise in sales MoM but YoY it's a different picture with sales down 0.3% and inventories up 0.9% (with retailers seeing inventories surging 6.1%). This will not end well... no matter how high stocks go!

PPI-FD July 14, 2016: Last month's producer price report showed initial signs of pressure and is followed this month by greater evidence of emerging and very welcome price strength. The producer price index for June is up 0.5 percent with the ex-food & energy reading up 0.4 percent, both 2 tenths higher than expected and 1 tenth higher than May. The rate excluding food, energy & trade services is up 0.3 percent which is 4 tenths higher than a month ago. The rise underway in energy prices is of course a major feature right now of inflation, up 4.1 percent in this report following a 2.8 percent rise in May. But it's a gain for services which is a highlight of today's data, up 0.4 percent in the month which if extended in future months would be the foundation for wider reflation that Federal Reserve policy makers are hoping for. Another foundation may be finished goods where prices, lifted by trucks and cigarettes, jumped 0.8 percent following May's 0.5 percent rise. Finished services, boosted by gains for security brokers, also show strength, at plus 0.5 percent, as do food prices which are up 0.9 percent. Year-on-year rates are subdued but moving in the right direction, rising slightly to plus 0.3 percent overall and 1.3 percent ex-food & energy. The deflationary effects of last year's strength in the dollar and collapse in oil prices may now finally be clearing, providing a new floor from which prices will hopefully begin to rise. Watch for some of these effects to appear in consumer prices which will be posted on tomorrow's calendar.

US producer prices rose in June at fastest pace in 13 months (AP) — Prices charged by U.S. producers rose in June at the fastest pace in 13 months, reflecting a big jump in the price of gasoline and other energy products. The Labor Department says that its producer price index, which measures cost pressures before they reach the consumer, increased 0.5 percent in June. That was the largest one-month jump since a similar rise in May 2015. Energy prices were up 4.1 percent last month while food costs rose 0.9 percent. Core inflation, which excludes volatile food and energy, rose 0.4 percent in June, the biggest uptick since January. Even with the June acceleration, producer prices are up just 0.3 percent over the past 12 months, while core inflation is up a moderate 1.3 percent. Those increases are similar to the moderate inflation being registered at the consumer level. A gauge of consumer prices preferred by the Federal Reserve has stayed below the Fed's 2 percent target for more than four years. The central bank boosted a key interest rate by a quarter point in December and signaled that it planned to raise rates another four times this year. But a weak start for the U.S. economy this year and financial market turbulence stemming from global weakness has so far kept the Fed on the sidelines. With inflation still at low levels, analysts believe the Fed will leave rates unchanged for a fifth time this year when officials next meet at the end of this month. Many analysts believe the Fed will raise rates only once or twice this year, with the first rate increase not coming until September at the earliest. For June, the 4.1 percent rise in energy costs reflected a 9.9 percent jump in the price of gasoline, the biggest increase since a 17.7 percent rise in May 2015.

Producer Prices Come Blistering Hot, PPI Final Demand Surges Most Since September 2012 -- With market participants expecting US inflation to remain subdued for a long time, moments ago the BLS poured cold water of disinflationary expectations when June Producer Prices came blistering hot, rising 0.5% over the prior month, well above the 0.3% expected, and the highest sequential jump since September of 2012. On an annual basis Final demand ex food, energy rose 1.3% y/y vs est. up 1%. Core PPI, exluding food and energy jumped by a whopping 0.4%, far above the consensus estimate of just a 0.1% rise. In June, the advance in the final demand index was led by prices for final demand services, which rose 0.4 percent. The index for final demand goods advanced 0.8 percent. Prices for final demand less foods, energy, and trade services rose 0.3 percent in June after declining 0.1 percent in May. For the 12 months ended in June, the index for final demand less foods, energy, and trade services increased 0.9 percent.  More details from the report:: Final demand services: The index for final demand services advanced 0.4 percent in June, the third consecutive rise. The broad-based June increase was led by prices for final demand services less trade, transportation, and warehousing, which also moved up 0.4 percent. The indexes for final demand trade services and for final demand transportation and warehousing services rose 0.7 percent and 0.5 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.) Product detail: A major factor in the increase in prices for final demand services was the index for services related to securities brokerage and dealing, which rose 7.7 percent. The indexes for automotive fuels and lubricants retailing; machinery, equipment, parts, and supplies wholesaling; traveler accommodation services; airline passenger services; and health, beauty, and optical goods retailing also increased. In contrast, margins for apparel, footwear, and accessories retailing declined 2.6 percent. The indexes for long-distance motor carrying and residential real estate loans (partial) also fell.

Import and Export Prices July 13, 2016: Outside of an upward price surge for petroleum and a gain for foods, there's not much pressure to be seen in the June import & export price report. Import prices, inflated by a monthly 6.4 percent surge in petroleum prices, rose 0.2 percent. When excluding petroleum, prices actually fell and noticeably, down 0.3 percent for the steepest drop since December. Prices on the export side, pulled higher by a 2.5 percent jump in foods and also petroleum-related gains for industrial supplies, rose 0.8 percent with the ex-foods and ex-fuel reading in the negative column, at minus 0.1 percent. Prices of finished goods, whether imported or exported, remain negative to flat across the board including a 0.2 percent price dip for imported consumer goods. Import prices with China, reflecting a drop in computer prices, fell 0.4 percent in the month for the largest drop in more than 3 years. Year-on-year rates, benefitting from easy comparisons with last year's oil collapse, are showing improvement but are still negative, at minus 4.8 percent for import prices and minus 3.5 percent on the export side. There are some signs of life in this report, but none that point to a breakout into consumer prices which remain stubbornly weak and a major risk for policy makers. A new challenge for prices is the post-Brexit jump in the dollar which will pull on import prices in the July report. This week is heavy with inflation data with producer prices to follow on Thursday and consumer prices on Friday, neither of which are expected to have much traction.

Import and Export Price Year-over-Year Deflation Moderated Again in June 2016.: Trade prices continue to deflate year-over-year - although the rate of deflation again declined this month. Import Oil prices were up 6.2 % month-over-month, and export agricultural prices increased 2.4 %.

  • with import prices up 0.2 % month-over-month, down 4.8 % year-over-year;
  • and export prices up 0.8 % month-over-month, down 3.5 % year-over-year..

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

Industrial Production July 15, 2016: Vehicles held down industrial production in May but not in June, making for a big 0.6 percent gain that is just outside Econoday's high-end estimate. The production of motor vehicles & parts surged 5.9 percent in June following a 4.3 percent drop in May. Year-on-year, this component tops the list with 7.8 percent growth compared to only 0.4 percent growth for manufacturing as a whole. Only due to vehicles, manufacturing managed to put in a good showing in June, up 0.4 percent on the month to reverse a revised 0.3 percent decline in May. Headline production also got a big boost from utilities where output rose 2.4 percent in the month. Mining output, which is down 10.5 percent year-on-year, posted a second straight small gain, at plus 0.2 percent which is promising and follows the recovery in energy and commodity prices. Looking at details deeper in the report, the output of business equipment rose a solid 0.7 percent but the year-on-year rate, in what is definitive evidence of weakness in business investment, is in the negative column at minus 0.6 percent. The output of consumer goods, up 1.6 percent on the year, rose 1.1 percent in the month in what is another good showing in this report. The second quarter had been looking soft before this report and especially this morning's retail sales report. A June bounce in the factory sector, facing global weakness and unfavorable currency appreciation, may not extend much into the third quarter but it may make a difference in the final readings of the second quarter.

June 2016 Industrial Production Remains In Contraction Year-over-Year But Trend Lines Improved.: The headlines say seasonally adjusted Industrial Production (IP) improved. The year-over-year data remains in contraction but the trend lines are now pointing towards improvement.

  • Headline seasonally adjusted Industrial Production (IP) increased 0.6 % month-over-month and down 0.7 % year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growth accelerated 1.0 % month-over-month, and is down 0.4 % year-over-year.
  • The unadjusted year-over-year rate of growth accelerated 0.7 % from last month using a three month rolling average, and is down 1.0 % year-over-year.

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was up 0.4 % this month (up 0.4 % year-over-year), mining up 0.2 % (down 10.5 % year-over-year), and utilities were up 2.4 % (up 0.5 % year-over-year). Note that utilities are 10.8 % of the industrial production index, whilst mining also is 10.8 %

Fed: Industrial Production increased 0.6% in June -- From the Fed: Industrial production and Capacity Utilization Industrial production increased 0.6 percent in June after declining 0.3 percent in May. For the second quarter as a whole, industrial production fell at an annual rate of 1.0 percent, its third consecutive quarterly decline. Manufacturing output moved up 0.4 percent in June, a gain largely due to an increase in motor vehicle assemblies. The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning. The output of mining moved up 0.2 percent for its second consecutive small monthly increase following eight straight months of decline. At 104.1 percent of its 2012 average, total industrial production in June was 0.7 percent lower than its year-earlier level. Capacity utilization for the industrial sector increased 0.5 percentage point in June to 75.4 percent, a rate that is 4.6 percentage points below its long-run (1972–2015) average. This graph shows Capacity Utilization. This series is up 8.7 percentage points from the record low set in June 2009 (the series starts in 1967).  Capacity utilization at 75.4% is 4.6% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production increased 0.6% in June to 104.1. This is 19.1% above the recession low, and 1.5% below the pre-recession peak.  This was above expectations of a 0.4% increase.

US Retail Sales & Industrial Output Post Sharp Gains For June -- Retail sales and industrial output bounced back in June, providing more evidence that recession risk remains low for the US. Although both indicators have been wobbly this year, today’s updates suggest that the trend is stabilizing after a rocky first half for 2016. Let’s start with retail spending, which accelerated to a strong 0.6% monthly rise in June—well above May’s 0.2% increase. More importantly, the year-over-year trend is looking stronger. Headline spending ticked up to 2.7% last month vs. the year-earlier level. Although that’s a middling pace relative to recent history, the last several months suggest that the annual trend is recovering after dipping to a worrisome 1.7% annual increase in March. Stripping out gasoline sales from retail spending reflects an even stronger profile. Spending ex-gas jumped 3.9% for the year through June. “There’s a bit more confidence about job security, there’s a bit more confidence about where things are headed in terms of wages and the economy, Omair Sharif, senior U.S. economist at Societe Generale, tells Bloomberg. “All of that is combining to give us the rebound we’re seeing in retail sales.” Industrial output’s June profile looks encouraging as well, at least by recent standards. Production surged 0.6% last month, a sharp U-turn from May’s 0.3% slump. The monthly advance marks the strongest gain since last October. In annual terms, industrial activity is still sinking, but a recovery appears to be underway. Output eased 0.7% in June on a year-over-year basis. But that’s the smallest decline in eight months and roughly half the decline in May.

US Industrial Production Declines For 10th Straight Month - Longest Non-Recessionary Streak In History -- Following a 0.3% decline in May, Industrial Production rose 0.6% in June (better than the 0.3% rise expected) but year-over-year remains lower (-0.7%) for the 10th straight month.This is the longest non-recessionary streak of industrial production declines in US history. Gains on the month were driven by motor vehicle assembly (which is ironic givenm near-record inventories), but Q2 ended with a decline of 1.0% - the 3rd quarterly decline in a row (also not experienced without a recession). The 0.7% decline YoY in June is the 10th in a row - the longest streak without a recession in US history... For the second quarter as a whole, industrial production fell at an annual rate of 1.0 percent, its third consecutive quarterly decline. Manufacturing output moved up 0.4 percent in June, a gain largely due to an increase in motor vehicle assemblies. The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning. The index for business equipment moved up 0.7 percent, as a decrease for information processing equipment was outweighed by gains for transit equipment and for industrial and other equipment. The index for defense and space equipment moved down 0.3 percent. Construction supplies recorded a decrease for a second consecutive month; likewise, the output of business supplies also declined in each of the past two months, though the losses were very small. The production of materials increased 0.6 percent in June, with gains for durable materials and energy materials but a decline for nondurable materials. The improvement in durable materials reflected a sharp advance in the output of consumer parts that resulted from increased output of motor vehicle parts; the other major categories of durable materials recorded decreases.

Empire State Mfg Survey July 15, 2016: Highlights The first anecdotal report on the factory sector for the month of July is not very promising as the Empire State index barely held in the plus column, at 0.55 vs 6.01 in June and minus 9.02 in May. New orders, after jumping to 10.90 in June, are down 1.82 in this month's report. This combined with yet another contraction for backlogs, at minus 12.09, do not point to strength ahead for other readings. Employment is one of these readings and, after coming in at zero last month, is at minus 4.40. The workweek is also negative as are inventories which continue to contract. Price data are mixed, showing steady energy-related pressure for inputs but no life for selling prices. The factory sector has been up and down this year on a trend that is dead flat. Watch for the industrial production report coming up this morning at 9:15 a.m. ET. It will offer the first definitive data on the factory sector for the month of June.

July 2016 Empire State Manufacturing Index Declines. - The Empire State Manufacturing Survey after improving dramatically last month, fell to near the zero growth line. Important internals are in contraction. Expectations were for a reading between 2.00 to 10.20 (consensus +5.0) versus the 0.6 reported. Any value above zero shows expansion for the New York area manufacturers. New orders subindex of the Empire State Manufacturing Survey returned to contraction, whilst the unfilled orders sub-index declined and remains in contraction.

  • Expectations were for a reading between 2.00 to 10.20 (consensus +5.0) versus the 0.6 reported. Any value above zero shows expansion for the New York area manufacturers.
  • New orders subindex of the Empire State Manufacturing Survey returned to contraction, whilst the unfilled orders sub-index declined and remains in contraction.
  • This noisy index has moved from 3.9 (July 2015), -14.9 (August), -14.7 (September), -11.4 (October), -10.7 (November), -4.6 (December), -19.4 (January 2016), -16.6 (February), +0.6 (March), 9.6 (April), -9.0 (May), +6.0 (June) - and now 0.6.

As this index is very noisy, it is hard to understand what these massive moves up or down mean - however this regional manufacturing survey is normally one of the more pessimistic. Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know. From the report: The July 2016 Empire State Manufacturing Survey indicates that business activity flattened out for New York manufacturers. The headline general business conditions index fell five points to 0.6. The new orders index and the shipments index both fell to levels not far from zero—a sign that orders and shipments were little changed. Labor market indicators pointed to a small decline in employment levels and hours worked. The prices paid index held steady at 18.7, suggesting that moderate input price increases were continuing, and the prices received index held near zero, indicating that selling prices remained steady. Firms were less optimistic about future conditions compared to last month.

Empire Fed Unexpectedly Drops As New Orders Tumble, Labor Conditions Deteriorate -- While recent regional Fed manufacturing indices had shown a pickup in recent weeks, moments ago the Empire Fed, aka the New York State manufacturing index, disappointed, declining five points from 6 to 0.55, below the 5.0 expected print. The volatile series has now printed below zero, at zero, above zero, below zero, above zero and at zero over the past 6 months. The breakdown:

  • General business conditions were 6.01 in the last month; Forecast range 0.00 to 10.20 from 46 estimates
  • Prices paid rose to 18.68 vs 18.37
  • New orders fell to -1.82 vs 10.90
  • Number of employees fell to -4.4 vs 0.00
  • Work hours fell to -5.49 vs -5.10
  • Inventory rose to -8.79 vs -15.31
  • Six-month general business conditions fell to 29.24 vs 34.84

According to the NY Fed, the headline general business conditions index fell five points to 0.6.The new orders index and the shipments index both fell to levels not far from zero—a sign that orders and shipments were little changed. Labor market indicators pointed to a small decline in employment levels and hours worked. The prices paid index held steady at 18.7, suggesting that moderate input price increases were continuing, and the prices received index held near zero, indicating that selling prices remained steady. Firms were less optimistic about future conditions compared to last month.

Standards Body Whines That People Who Want Free Access To The Law Probably Also Want ‘Free Sex’ - You would think that "the law" is obviously part of the public domain. It seems particularly crazy to think that any part of the law itself might be covered by copyright, or (worse) locked up behind some sort of paywall where you cannot read it. Carl Malamud has spent many years working to make sure the law is freely accessible... and he's been sued a bunch of times and is still in the middle of many lawsuits, including one from the State of Georgia for publishing its official annotated code (the state claims the annotations are covered by copyright).   But there's another area that he's fought over for many years: the idea that standards that are "incorporated by reference" into the law should also be public. The issue is that many lawmakers, when creating regulations will often cite private industry "standards" as part of the regulations. So, things like building codes may cite standards for, say, sheet metal and air conditioning that were put together by the Sheet Metal and Air Conditioning Contractors National Association (SMACNA), and say that buildings need to follow SMACNA's standards. And those standards may be great -- but if you can't actually read the standards, how can you obey the law. At one point SMACNA went after Malamud for publishing its standards. And while they eventually backed down, others are still in court against Malamud -- including the American Society for Testing & Materials (ASTM), whose case against Malamud is set to go to trial in the fall.  In the midst of all of this, various standards making bodies, along with the American National Standards Institute (ANSI), have been working over time to get the American Bar Association to adopt a proposal that limits publication of standards that are incorporated by reference. ANSI has pushed for a solution it prefers called "reasonable availability," in which the standard-makers decide by themselves how best to make the standards "available."

With Competition in Tatters, the Rip of Inequality Widens - The Justice Department is expected to rule soon on the biggest beer merger ever: a $100 billion-plus combination of Anheuser-Busch InBev and SABMiller into a colossus that will reap some $3 out of every $10 spent on beer around the world. The prospect strikes fear into the hearts of myriad craft brewers in the United States that rely on Anheuser-Busch’s distribution network, the biggest in the country. Will they get their double IPAs and Russian imperial stouts to market if the new leviathan shuts them off to bolster flagging sales of its own Bud and Pilsner Urquell?  The stakes are higher than whether you will be able to find your favorite Belgian-style lambic at the corner store. The new merger amounts to another step in the long decline of competition in many American industries.It is a decline that stunts entrepreneurship, hinders workers’ mobility and slows productivity growth. Slowing this trend has emerged as a tempting new avenue to address the plight of a beleaguered working class. Reviving flagging American competition might even help stop America’s ever-widening inequality.

NFIB: Small Business Optimism Index increased Again in June --From the National Federation of Independent Business (NFIB): Small Business Optimism Sees Third Month of Modest Gains The Index of Small Business Optimism rose seven-tenths of a point in June to 94.5 ... according to the National Federation of Independent Business’ (NFIB) monthly economic survey released today. ... Fifty-six percent reported hiring or trying to hire (unchanged), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem and the highest reading in this expansion. ... Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 2 points, the highest reading in this expansion. This graph shows the small business optimism index since 1986.

June 2016 Small Business Optimism Again Insignificantly Improves.: The Index of Small Business Optimism rose seven-tenths of a point in June to 94.5, a negligible increase showing no real enthusiasm for making capital outlays, increasing inventories, or expanding. At 94.5, the Index remains well below the 42-year average of 98. Four of the 10 Index components posted a gain, three declined, and three were unchanged. The biggest increase was Expected Business Conditions, which rose four points, a good sign, but more owners still expect conditions to be worse than expect improvement. Owners are still reporting that they cannot find qualified workers and cite it as their third "Single Most Important Business Problem." Job openings and capital spending plans both increased to "expansion" high readings, but remain historically low for a growth period. Weak capital spending remains one of the main causes for slow GDP growth. And the political climate continues to be the second most frequently cited reason for why owners think the current period is a bad time to expand. Half of the gain came in the two labor market components, an encouraging development. The market was expecting the index between 93.0 to 94.1 with consensus at 94.0 - versus the actual at 94.5. NFIB chief economist Bill Dunkelberg states: Small business optimism did not go down, which is good, but small businesses are in maintenance mode experiencing little growth. Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicate that there will be no surge from the small business sector anytime soon and prospects for economic growth are cloudy at best.

June Employment Surge (10 graphs) After several months of weakening employment growth the establishment survey from the BLS showed that June payroll employment increased 287,000. The employment number for April was revised up 21,000 for a final reading of 144,000. The weak May employment number was revised down 27,000, however, to a mere 11,000. Private sector employment was up 265,000 and government up 22,ooo. Almost all of the increase was in private service producing, however, up 256,000. Manufactuing employment rose only slightly, up 14,000 and construction employment was unchanged. Mining and logging employment continued to contract, losing another 5,000. Mike Feroli observes that, “The swing between the May and June headline payroll numbers only looks extreme by modern standards. Over the past five years the standard deviation of monthly jobs adds was the lowest in the history of a series going back to the 1930s.” Here is a picture of the monthly changes going back as far as the data permit: Of course that is a lot of data to see, here it goes back to only 1986: And one more from 2010 on: The data do show there appears to be decline in volatility and somewhat of a slowing down in employment growth over the past year and half or so and has likely given the FOMC reasons to not act. The workweek held steady at 34.4 for the fifth straight month and average hourly earnings showed only a slight increase, from $25.59 to $25.61. The household survey saw an increase in employment of only 67,000 however. With an increase in the civilian labor force of 414,000, the participation rate climbed 0.1 to 62.7 , the employment to population ratio fell from 59.7 to 59.6 and the unemployment rate moved up from 4.692% to 4.899%. Productivity for the first quarter fell 0.6% at an annual rate, with output increasing 0.9% and hours up 1.5%. This is the second consecutive quarter of a productivity decline, with 2015 QIV falling 1.7%. Compared to other cycles, while productivity has appeared fairly weak, it had been growing at a pace similar to other cycles for the first several years coming out of the recession but then tapered off to a much more moderate growth rate. The strength of this employment report keeps hopes alive for a rate increase by the FOMC before year end, although later rather than sooner.

Employment Situation Report is a Monthly Statistics Lesson - Ritholtz -Every single month, the Bureau of Labor Statistics releases their update on the Employment Situation. It is based on a model that, as we have painstakingly explained many, many times, is a near-real time, very noisy, error-laden, data series with a huge margin of error, that is subject to repeated revision and further benchmarking. It is imperfect, but it is useful as it applies the same approach — warts and all — to the data, month after month. I should not be surprised by the reaction and overreaction to the monthly series, but it is astonishing. I have beaten this topic to death (see this, this and this).  The month’s data for June 2016 was a very robust 287,000 following last month’s very punk 38,000 for May 2016. The unemployment rate ticked up 0.2 to 4.9 percent in June — offsetting the drop last month by the same amount. The phrase “Assume its noise” should be foremost in your thoughts as you read the BLS release. Also, those 35,000 striking Verizon workers muddied the water both months, but if you have the a PhD. in applied mathematics, you might be able to perform the arithmetic functions of ADD 35,000 to MAY and SUBTRACT 35,000 to June — it should not throw you too much.Let me remind readers (again) that the monthly employment situation report has a margin of error of 100,000 jobs. So last month could very likely have been as high as 173k (38 + 35 + 100) and this months could very likely be as low as 152k (287 – 35 – 100). If you understand this simple math, you should be able to understand why I insist on noting the actual BLS official monthly number ain’t all that.

More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes -- A few more employment graphs ...This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend has been down for all categories, and the "less than 5 weeks", "6 to 14 weeks" and "15 to 26 weeks" are all close to normal levels. The long term unemployed is at 1.2% of the labor force, however the number (and percent) of long term unemployed remains elevated. Unemployment by Education This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and all four groups were generally trending down - although the rate has somewhat flattened out recently. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 1.22 million.The BLS diffusion index for total private employment was at 62.4 in June, up from 48.1 in May. For manufacturing, the diffusion index was at 55.1, up from 39.9 in May. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. Above 60 is very good.

Weekly Initial Unemployment Claims unchanged at 254,000  --The DOL reported: In the week ending July 9, the advance figure for seasonally adjusted initial claims was 254,000, unchanged from the previous week's unrevised level of 254,000. The 4-week moving average was 259,000, a decrease of 5,750 from the previous week's unrevised average of 264,750. There were no special factors impacting this week's initial claims. This marks 71 consecutive weeks of initial claims below 300,000, the longest streak since 1973.  The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

The Labor Market Conditions Index for June Remains Negative - Despite last week's favorable jobs report, today's update of the Labor Market Conditions Index remains negative. The Labor Market Conditions Index (LMCI) is a relatively recent indicator developed by Federal Reserve economists to assess changes in the labor market conditions. It is a dynamic factor model of labor market indicators, essentially a diffusion index subject to extensive revisions based on nineteen underlying indicators in nine broad categories (see the table at the bottom for details).  The LMCI is a relatively recent indicator developed by Federal Reserve economists to assess changes in the labor market conditions. Today's release of the June data came in at -1.9, up from an upwardly revised -3.6 in May (previously -4.8). The cumulative index (discussed below) peaked six months ago in December 2015. had forecast a flat 0.0.  The indicator, designed to illustrate expansion and contraction of labor market conditions, was initially announced in May 2014, but the data series was constructed back to August 1976. Here is a linear view of the complete LMCI. We've highlighted recessions with callouts for its value the month recessions begin and for the latest index value. As we readily see, with the exception of the second half of the double-dip recession in the early 1980, sustained contractions in this indicator is a rather long leading indicator for recessions. It is more useful as a general gauge of employment health. Note that in the most recent FOMC minutes for April 26-27, the phrase "labor market conditions" was used thirteen times. Maximum employment, after all, is one of the Fed's twin mandates.

BLS: Job Openings decreased in May -- From the BLS: Job Openings and Labor Turnover Summary Job Openings decreased in May by 345,000 to 5.5 million. The prior 3-month average change in job openings was +80,000. ... The number of quits was little changed in May at 2.9 million. The quits rate was 2.0 percent. Over the month, the number of quits was little changed for total private and for government. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.   This series started in December 2000.  Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased in May to 5.500 million from 5.845 million in April. The number of job openings (yellow) are up 2% year-over-year. Quits are up 5% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is decent report, although job openings are below the record high set in April 2016.TS hires and separations is similar to the CES (payroll survey) net jobs headline numbers.

May 2016 JOLTS Job Openings Year-over-Year Growth Rate Continues to Slow.: The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings declined from last month. The growth rate trends declined in the 3 month averages.

  • the number of unadjusted PRIVATE jobs openings - which is the most predictive of future employment growth of the JOLTS elements - shows the year-over-year growth significantly decelerated. The year-over-year growth of the unadjusted non-farm private jobs opening rate (percent of job openings compared to size of workforce) also decelerated.
  • The graph below looks at the year-over-year rate of growth for job opening levels and rate.

The relevance of JOLTS to future employment is obvious from the graphic below which shows JOLTS Job Openings leading or coincident to private non-farm employment. JOLTS job openings are a good predictor of jobs growth turning points. The graph below uses year-over year growth comparisons of non-seasonally adjusted non-farm private BLS data versus JOLTS Job Openings - and then compare trend lines.

For Too Many, the Job Market Isn’t Working -- For all the encouraging headlines that the strong June jobs report has generated, it also illustrates a major challenge for the U.S. economy: Too many people are still not working or not even trying to find work. The malaise can be remedied, if we can find the political will. Despite the robust job growth of the past six years, people still aren’t participating in the labor force the way they used to. As of June, just 62.7 percent of the population had a job or was actively seeking one -- up a bit from the previous month, but still almost 5 percentage points below the 2000 peak. One explanation is demographic: As the population ages, a larger percentage will naturally be retired. This explains about half of the decline in participation, and will keeping putting downward pressure on participation -- particularly as the baby-boom generation crosses the retirement threshold. The Congressional Budget Office expects the labor-force participation rate to decline another 2 percentage points by 2026. Still, even if we look at people in the prime working years of 25 to 54, participation is depressed. At the beginning of 2000, 84 percent of prime-age adults were in the labor force. Today, only 81 percent are. So why are so many people not participating? The answer is crucial to figuring out how worried policy makers should be, and what they can do. A recent report from the president’s Council of Economic Advisers offers some useful insight. It finds that the decline in men’s participation is driven primarily by people with less than a bachelor’s degree -- people who have seen very little wage growth for decades, an indication of the weak demand for their services. Such poor opportunities mean that when workers leave or lose a job, they struggle to reenter the labor force. It’s even worse if they’ve been out of work for a long time. Many never return, particularly in the wake of recessions.

Have Labor Costs Slowed the Recovery? - St. Louis Fed -- Many pundits in the media claim that labor market regulations, such as the Affordable Care Act and the increase in the minimum wage, have slowed the recovery from the 2007-09 recession (see, for example, Roy, 2014, and McNickle, 2014). The claim is that recent labor market regulations have increased labor costs and, as a result, employers have been reluctant to hire workers, leading to a slow labor market recovery. In this essay, we compare labor costs after the 2007-09 recession with labor costs after the 2001 recession and also with the long-run trend. We use aggregate data and document employer costs using (i) labor cost per hour and (ii) labor cost per employed person. We measure the former as real total labor compensation divided by total hours worked and the latter as real total labor compensation divided by the total number of employed persons.  Panel A of Figure 1 plots the labor cost per hour for the U.S. nonfarm business sector for both recoveries for 20 quarters.1 After the 2001 recession, labor cost per hour rose approximately 5 percent but after the 2007-09 recession remained essentially flat. As shown in Panel B of Figure 1, a similar pattern holds for labor cost per employed person: It also grew at a slower rate after the 2007-09 recession than after the 2001 recession. . Figure 2 shows total hours worked and total employed persons since 2001:Q4 and 2009:Q2. Both measures grew faster after the 2007-09 recession than after the 2001 recession.  In summary, the increase in labor costs during the recovery from the 2007-09 recession has been smaller than that from the 2001 recession. And, the increase in total hours worked and total employed persons has been larger during the recovery from the 2007-09 recession than from the 2001 recession. Hence, the aggregate data cast doubt on the proposition that an increase in labor costs due to labor market regulations has been the reason for the slow recovery from the 2007-09 recession.

New analysis shows it is more difficult for workers to move up the income ladder: Against a rising chorus of concern about increasing income inequality, some economists are pushing back, suggesting that it is not income inequality we should be concerned with but rather income mobility. Income mobility describes the ability of individuals to move up and down the income ladder over some period of time. As long as mobility is healthy, they argue, society can remain egalitarian in the face of inequality, because the poor can move up and the rich down.But there is little consensus about whether and how income mobility has changed. What little research does exist is inconsistent with regards to findings, methods, and data sources. Equitable Growth grantees Michael D. Carr and Emily E. Wiemers at the University of Massachusetts-Boston used a new dataset to revisit the measurement of earnings mobility, the part of income that comes from work. Their results suggest that lifetime earnings mobility has declined in recent years. The authors construct a snapshot of earnings mobility in two time periods: 1981 to 1996 as well as 1993 to 2008. In each one, workers are observed at the beginning and end of the time period to capture mobility over a 15-year span. Workers are divided into ten income deciles (each representing 10 percent of workers, ordered from lowest to highest paid) and categorized at the beginning and end of the 15-year span. Use the interactive below to explore their results in each of these two time periods.

Did we just witness a shift on immigration policy from Hillary Clinton?  -- On Monday, published an in-depth interview with presidential candidate Hillary Clinton. A wide range of topics were discussed, but of particular interest were Sec. Clinton’s positions on immigration—some of which were, I believe, either new or expressed publicly for the first time—regarding the impact of immigration on the labor market and the major flaws inherent in America’s temporary foreign worker programs.  I was encouraged by the fact that Clinton’s comments on immigration got right to the heart of how the immigration system is used by businesses and corporations to keep migrant workers exploitable and underpaid, which in turn degrades labor standards for U.S. workers who are similarly situated. Clinton rightly pointed out how immigration is good for the American economy, but took what I think was a smart, nuanced perspective—speaking about how the undocumented workforce undercuts labor standards for all workers, because undocumented workers fear deportation and because wage and hour laws haven’t been adequately enforced. It’s also encouraging that Clinton highlighted the problems with one of the main guestworker programs, the H-1B—used mainly for jobs in computer-related occupations—although unfortunately she did not discuss others like H-2B, L-1, or OPT.  In the very recent past Clinton seemed reluctant to acknowledge that there were any real problems when it came to immigration and the labor market, or that there could be negative consequences for U.S. workers who are employed in industries where migrants make up a large share of the workforce.

What racial injustice looks like in America’s economy - Jared Bernstein-- I cannot begin to speak to the many wrenching and challenging emotions and issues raised by the escalation of racial violence and killings. I was deeply moved by the feeling and despair in this reaction to the killings of Alton Sterling and Philando Castile from Lezley McSpadden (the mother of Michael Brown, an unarmed black teenager who was shot and killed by police in Ferguson, Mo., two years ago). But I know I’m an outsider looking in.  One option is to wait for the news cycle to revert back to “normal,” and return to my usual policy analysis. Another option, one I pursue below, is to briefly document some of the systemic racial injustice embedded in the economy. It would be ridiculously reductionist to argue that these data are the same problem that we’ve seen highlighted so vividly in recent years. But these persistent, unequal trends are very much in the mix and, at a time when we need to think deeply about institutional prejudices in all corners of society, they are worth a look.

  • — Black unemployment; white unemployment: For as far back as we have the data, the black unemployment rate has been twice that of the white rate (see first figure). Moreover, as the second figure shows, you can’t dismiss that fact by citing lower levels of education among blacks. Not only does the 2-to-1 ratio roughly hold for each education level, the education explanation for racial differences in unemployment rates ignores the reality of racial educational barriers erected by systemic racism. Also, note that the black/white unemployment ratio is biased down by the disproportionate imprisonment of blacks, as the prison population is left out of the numbers.
  • --- Black pay, white pay: These racial disparities show up in pay, of course, as the work of economistValerie Wilson has shown (Wilson’s work is a national treasure trove of information on racial economic disparities). In this paper, Wilson shows that in periods where labor markets really tightened up, this pumped-up reaction function I just noted is highly operative: “in all periods when median household income for African Americans increased more than that for whites (1982-1990, 1991-2001, and 1995-2000), African American households also experienced a greater increase in hours worked than did white households, especially if the households had lower incomes.” To be clear, neither racial wage nor income gaps closed, but the longer we stay at full employment, the more pressure there is on those gaps.

Meet the Middle Precariat -- Precariousness is not just a working-class thing. In recent interviews, dozens of academics and schoolteachers, administrators, librarians, journalists and even coders have told me they too are falling prey to an unstable new America. I’ve started to think of this just-scraping-by group as the Middle Precariat.  The word Precariat was popularized five or so years ago to describe a rapidly expanding working class with unstable, low-paid jobs. What I call the Middle Precariat, in contrast, are supposed to be properly, comfortably middle class, but it’s not quite working out this way. There are people like the Floridian couple who both have law degrees—and should be in the prime of their working lives—but can’t afford a car or an apartment and have moved back in with the woman’s elderly mother. There are schoolteachers around the country that work second jobs after their teaching duties are done: one woman in North Dakota I spoke to was heading off to clean houses after the final bell in order to pay her rent. Many of the Middle Precariat work jobs that used to be solidly middle class. Yet some earn roughly what they did a decade ago. At the same time, middle-class life is now 30 percent more expensive than it was 20 years ago. The Middle Precariat’s jobs are also increasingly contingent—meaning they are composed of short-term contract or shift work, as well as unpaid overtime. Buffeted by Silicon Valley-like calls to maximize disruption, the Middle Precariat may have positions “reimagined.” That cruel euphemism means they are to be replaced by younger, cheaper workers, or even machines.

Suicide by job: Farmers, lumberjacks, fisherman top CDC's list  — Farmers, lumberjacks and fishermen kill themselves most often among workers in the U.S., according to a large new study that shows enormous differences of suicide rates across jobs. Researchers found the highest suicide rates in manual laborers who work in isolation and face unsteady employment. High rates were also seen in carpenters, miners, electricians and people who work in construction. Mechanics were close behind. Dentists, doctors and other health care professionals had an 80 percent lower suicide rate than the farmers, fishermen and lumberjacks. The lowest rate was in teachers, educators and librarians. Thursday's report from the Centers for Disease Control and Prevention is perhaps the largest U.S. study to compare suicide rates among occupations. But it is not comprehensive. It only covers 17 states, looking at about 12,300 of the more than 40,000 suicide deaths reported in the entire nation in 2012. Because of the limited data, they could only calculate suicide rates for broad occupation categories, but not for specific jobs. The categories, which sometimes seem to group professions that have little to do with each other, like athletes and artists, are based on federal classifications used for collecting jobs-related data.

Innocent Mother Beaten by Cops in Front of Her Children for Reporting Cop’s Rude Behavior --  (a white woman) A shocking video captured the brutal beating of a mother in front of her two children after she merely asked an officer a question.  Cindy Hahn and her children were on their way home when they stopped to use the restroom. During their stop, Hahn asked a Carlsbad police officer a question.  According to Hahn, the officer responded by telling her to mind her own business. Shocked that the officer would address her in such a manner, Hahn called the department to complain. Minutes later, the cop who she reported for being rude pulls her over.   For an alleged seat belt violation, the Carlsbad officer demands that she exit her vehicle. At this point, she is thrown to the ground while two more officers arrive as backup to help assault this dangerous mother of two. Bystanders plead with the cops to stop their assault, but it is to no avail. One woman is thrown back as she attempts to physically stop the attack.  As the two officers pile on top of Hahn, one of them punches her in the face as he yells out the standard "stop resisting" line.  Hahn was then cuffed and booked on charges of resisting arrest and battery. Apparently the officers did not know that their attack was captured on video when they claimed that Hahn battered them.This entire incident looks like it was nothing short of a retaliatory beating for a woman filing a complaint against the officer. After Hahn’s attorney had shown the DA the video of the attack, the charges were immediately dropped.

Don't Just Blame The Cops: Who Is Responsible For America’s Killing Fields? --The latest shootings—in Texas, Minnesota, Louisiana, Illinois, New York, Missouri and every other state in the nation—are symptomatic of a psychotic outbreak by a nation that has been waging a war against its own citizens for too long. We have long since passed the stage at which a government of wolves would give rise to a nation of sheep. As I point out in my book Battlefield America: The War on the American People, what we now have is a government of psychopaths that is actively breeding a nation of psychopathic killers. We’re getting distracted, people. Instead of focusing our ire on the architects of the American police state, who areresponsible for turning the streets into mini-war zones, we’re getting distracted by the many voices eager to play the blame game by pointing their fingers at someone else. Police groups are blaming President Obama and the Justice Department for failing to prosecute “cop killers.” Texas Republicans are blaming the Black Lives Matter movement for fomenting a “war on cops” mindset. Gun control advocates are blaming “gun lovers and their mouthpieces at the National Rifle Association” for America’s gun violence, reasoning that if all Americans were unarmed, police would not have to treat them as potential threats. News outlets such as Rolling Stone and Mother Jones have concluded that racial bias is to blame for the “disproportionately high number of African-Americans among police shooting victims.” The Drug Enforcement Administration has suggested that illegal steroid use could be responsible for “police officers who exhibit rage, aggression and/or poor judgment (all symptoms of possible steroid abuse) in confrontations with citizens.” Human Rights Watch blames police misconduct and excessive use of force on a systemic lack of accountability within law enforcement agencies and the criminal justice system. And civil rights advocates are blaming police militarization and the abundance of laws (overcriminalization) pushed by lawmakers for the nation’s over-policing, over-jailing and over-killing. Yet in the midst of all this finger pointing, no one is stepping forward to take responsibility for the violence that is tearing the nation apart, deepening racial tensions, heightening police tensions, justifying all manner of civil liberties abuses, and pushing us ever closer to a state of lockdown.

Low employment levels affect children too -- One-third of people in poverty in America are children – 15.1 million in 2014. We know that work or the lack of work leads to poverty, but what is the relationship between employment and children in poverty? In my new report, “America’s Work Problem”, I explore children in poverty by the work status of the parents they live with. Most live with a working adult, but full-time, year-round employment was still the least common scenario for poor children. From the report: Although full-time work does not necessarily translate into above-poverty income—given that 32.8 percent of children were in poverty even though a full-time worker was in their family—full-time work offers the best path toward higher income, especially when factoring in work-related benefits for families with children, such as the earned income tax credit. Too many children are residing in nonworking or work-limited families. According to the report, two-thirds of poor children lived in a family with no full-time, year-round worker in 2014 (the most recent data), and 31% lived in a family with no working adults at all. Perhaps unsurprisingly, of the 5.1 million children living with no full-time workers most had a parent who reported that they did not work because of home or family responsibilities.  Only 12.2% of poor children living with nonworking adult(s) had a parent who reported that they could not find work. This raises questions about the work-inducing aspects of our public policies. Research shows that the earned income tax credit (EITC) has been effective at increasing employment, particularly among single mothers. We also know that the EITC lifts millions of children out of poverty each year. But what about those children who reside with nonworking parents who do not receive the EITC?

Where Child-Care Workers and Early Educators Earn the Most and Least - In many states, a worker who cares for a three-year-old earns half (on average) what a worker earns teaching a five-year-old. A caretaker for an infant is likely paid even less. One result of the disparity, according to a new study: Nearly half of child-care workers are part of families participating in at least one public assistance program such as Medicaid or food stamps, compared with about one-fourth of the U.S. workforce. America’s early-childhood workforce, who care for children before they reach Kindergarten, helps shape the future of millions of children in preschools, child-care centers and homes. A new report by the Center for the Study of Child Care Employment at the University of California, Berkeley found that early educators are among the lowest-paid U.S. workers even when their education and certifications are comparable to Kindergarten teachers. “This is a really dysfunctional system,” said Marcy Whitebook, a co-author of the study and director of the center. “We want these early educators to get our kids off to a good start but we don’t necessarily give them the sufficient preparation and pay” they need. The median nationwide wage for child-care workers – people who generally care for infants and toddlers — was $9.77 an hour last year, the report said. The median for preschool teachers, who tend to take the reins when kids turn three, was $13.74. Kindergarten teachers, by comparison, earned a national median wage of $24.83 an hour.

The Lack of High-Quality Early-Education Programs Disadvantages America's Children - -- “He was very angry. He was scratching his face, kicking, and screaming,” Carrie Giddings, a preschool teacher, said of one of her students during his first days in her class at Kruse Elementary School in northern Colorado. The boy’s father had been in and out of jail, Giddings said. She thinks the 3-year-old had witnessed abuse at home before he enrolled in preschool at Kruse. His family was poor. For a while, they had lived with relatives, unable to afford their own place.  “Everything that could happen to a kid, he’d had it all,” Giddings said, asking that the child’s name not be used. “He was a year and a half behind.” A child like this boy will have a tough road ahead. Research has shown that unrelenting stress at a young age, known as toxic stress, causes long-lasting brain damage. The worse the damage, the harder it is for children to pay attention, absorb new information, or trust adults—all skills critical for success in school—as they get older.  In fact, the fate of all children is largely determined by their first years on this planet. Forming healthy relationships with adults early on lays the foundation for future healthy relationships. Exposure to language through stories, songs, and conversations sets the stage for academic achievement. Playing outside to master gross motor skills; creating art to master fine motor skills; pretending to be a doctor, chef, or firefighter to learn teamwork; building a tower of blocks to learn basic physics lessons—all of these activities are critical preparation for a successful school and adult life. The most straightforward way to ensure all children have such experiences is to provide free or affordable high-quality preschool for them when they are 3- and 4-year-olds.

America Can Fix Its Student Loan Crisis. Just Ask Australia. - Americans owe $1.3 trillion in student loans. More than seven million borrowers are in default, and millions more are behind on their payments. Borrowing for college is common across the globe. Even in Sweden, where tuition is free, most students borrow. What’s exceptional about the United States is that so many borrowers are behind on their loans.  So what do other countries do that makes their systems work better than ours? Sweden is often put forth as a softer alternative to the United States. After all, tuition is precisely zero in this Scandinavian welfare state. But according to Christina Forsberg, director of Sweden’s student aid system, 70 percent of Swedish students borrow for college. In the United States, a comparable 70 percent of holders of bachelor’s degrees borrowed to fund their undergraduate studies. And Swedish students borrow a lot. The typical student debt in Sweden is 172,000 kronor, or about $20,000. Even though their tuition is zero, Swedish students borrow to pay living expenses. Yet despite this widespread borrowing, there is no student debt crisis in Sweden, because payments are spread out over 25 years. They also start out low, rising slowly over time. In the United States, the typical repayment period is just 10 years.In Australia, income inequality is much higher than in Sweden. Yet while students borrow about as much as they do in the United States (30,000 Australian dollars, or about $22,000), the system works smoothly because borrowers pay nothing until their earnings reach about $40,000. Above that threshold, borrowers pay 4 percent of their income until the debt is paid off. Payments rise and fall automatically with earnings, just as our Social Security payments do.

Chicago net liabilities triple to $24 billion - The city's reported net liabilities more than tripled last year, soaring to a stunning $23.8 billion, pushed up by new accounting rules that require City Hall to be more transparent in its public balance sheet. That's the bottom line of the city's new comprehensive financial statement for 2015 that was released today, a document that also indicates City Hall actually is beginning to dig out of a mountain of accumulated pension debt but starkly underlines just how high that mountain had become. The Comprehensive Annual Financial Report for calendar 2015 (you can read it below) indicates that the city as of Dec. 31 had $42.1 billion in physical and financial assets, and long-term liabilities of more than $66 billion, a combined net of negative $23.8 billion. That averages out to about $8,800 for each of Chicago's 2.7 million residents. That's an increase from a negative $6.5 billion in 2014. The reason for the growth in net liabilities—in short, money the city is obligated to pay out over time—is almost entirely unfunded liability in the city's four employee pension funds, covering police, firefighters, laborers and white-collar workers. The liability itself didn't increase that much, but under new rules by the Government Accounting Standards Board, a private agency that sets reporting standards local governments generally follow, Chicago had to make two changes in how the liability is reported:

OC Register: CalPERS Expected to Show Multi-Billion Loss for Fiscal Year Ended June 30, 2016 -  Yves Smith - The OC Register (hat tip David W) gives an advance warning that CalPERS is likely to show a loss in the billions on its roughly $300 billion portfolio when it reports its investment results next week. From the story:  The California Public Employees Retirement System – the nation’s largest – lost about 2 percent of its market value in the fiscal year that just ended, according to unofficial numbers published last week on the CalPERS website. This came despite doubled-down efforts to beef up its bottom line. The value of CalPERS investments was $293.7 billion on June 30, down from $301.9 billion one year earlier, according to CalPERS’ daily valuation report. That number accounts for daily movement of some assets but not others, which are updated quarterly.  Yves here. Mind you, CalPERS holds out private equity as its salvation from flagging returns in the rest of its portfolio. But private equity is now at roughly 10% of total assets (it also has 10% allocated to real estate). Even if it showed a 15% year to year gain, that would still only partially offset the losses it is reported on its liquid assets. In other words, CalPERS is almost certain to show a net loss, but we don’t yet know exactly how large. Let us contrast this result with some public market market benchmarks over the same time period. Mind you, these are merely changes in index levels, so they don’t include dividend or interest income (in a world awash with information it’s frustrating not to have ready access to the right databases so I could get either the total return data on the indexes shown or comparable indices. Reader additions in the comments section very much appreciated).

Borenstein: Bad CalPERS earnings worsen $93 billion taxpayer debt -  The nation's largest pension plan continues adding to state and local taxpayers' $93 billion debt. The question now is whether the board of the California Public Employees' Retirement System will stanch the bleeding. Or will it continue to laden our children and grandchildren with higher taxes and reduced public services because of its failure to properly fund the retirement system now? On Monday, Chief Investment Officer Ted Eliopoulos will release CalPERS' investment earnings for the fiscal year that ended June 30. We know roughly what he will say because he foreshadowed it last month. "We're likely to be flat, which is a nice way of saying zero, more or less," he warned the CalPERS board. Goose eggs. Zilch. No return on investment. That's bad news for a pension system predicated on assumed long-term average annual returns of 7.5 percent. That's especially bad for taxpayers who must make up the shortfall. While San Jose's plans are self-financed, most Bay Area counties and cities are in CalPERS

The biggest companies in America have a record $600 billion retirement problem   The future of retirement in America has drawn a lot of worry. Whether the government's massive pension shortfall or the low returns on investments potentially leading to a "crisis," there appears to be a lot of concern about nest eggs coming up short.  Well, here's another worry for the list.  Privately funded pensions at S&P 500 companies are facing their largest deficit ever, according to David Bianco at Deutsche Bank. Because of the lowest yields on corporate bonds since the 1950s, the equity strategist for Deutsche projects a record shortfall for these funds. "The ~130 basis points drop in Baa corp yields YTD likely added roughly $250 billion to the [present value] of liabilities," Bianco said in a note to clients on Friday. "Return on assets, which includes bonds, likely kept pace with the unwinding liability discount rate. Thus, we estimate liabilities to be $2.3 trillion and assets $1.7 trillion right now, for a record deficit of ~$600 billion, up from the $300-400 billion range of recent years." Put another way, because of the low returns on invested assets, companies' income to fund their pension plans simply can't keep up with the promised retirement payments. Bianco says this is an economy-wide issue but is particularly worrisome in the auto, airlines, materials, industrials, and utilities industries where pensions are more common.

The Worsening Pension Problem Nobody Talks About -- In contrast with the well-documented financing shortfalls in Social Security and state/local/Puerto Rican pensions, another pension funding problem generally receives less attention: private sector employer-provided pensions insured by the Pension Benefit Guaranty Corporation (PBGC). Unlike defined contribution (DC) retirement saving plans such as 401(k)s, which are fully funded by definition, defined-benefit (DB) pensions can exhibit sharp differences between benefit promises and funding capability. Whenever DB funding is insufficient to finance promised benefits, someone is in for an unpleasant surprise: very possibly the worker who depends on those benefits, and potentially the taxpayer later called upon to make up the shortfall. Employer-provided pensions are increasingly facing such threats, as the following backgrounder explains.

  • PBGC insures employer-provided pensions. The PBGC is a government-chartered corporation that insures single-employer and multiemployer DB pensions. Many employers promise such pension benefits to their workers and are required by federal law to contribute funding to them under certain rules. These employers are also required to pay premiums to the PBGC to finance insurance for these benefits.
  • Single-employer and multiemployer plans are treated differently under law. A single-employer plan is as the name implies: a pension plan provided by a single sponsor. If such a pension plan becomes insolvent (e.g., because the sponsor goes out of business), the PBGC assumes its assets and liabilities, paying the benefits up to a statutory cap (about $59,000 annually for a 65-year-old). A multi-employer plan is “a pension plan maintained by two or more unrelated employers under collective bargaining agreements with one or more unions.” Notably, “workers accrue pension benefits in the plan even when they change employment from one contributing employer to the other.”

First Look at 2017 Cost-Of-Living Adjustments and Maximum Contribution Base -- The BLS reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.6 percent over the last 12 months to an index level of 235.308 (1982-84=100). CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).
• In 2014, the Q3 average of CPI-W was 234.242. In the previous year, 2013, the average in Q3 of CPI-W was 230.327. That gave an increase of 1.7% for COLA for 2015.
• In 2015, the Q3 average of CPI-W was 233.278. That was a decline of 0.4% from 2014, however, by law, the adjustment is never negative so the benefits remained the same this year (in 2016).
Since the previous highest Q3 average was in 2014 (not 2015), at 234.242, we have to compare Q3 this year to two years ago.  This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year. Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year). CPI-W was up 0.6% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will be positive this year, and will probably be around 1% this year.

Where the Old Will Soon Outnumber the Young -- Two states–Maine and Florida–will likely end the year with more elderly residents than children, a ratio that’s unprecedented in U.S. history but one that’s coming soon to several more states.Newly released Census Bureau estimates pegged to last July showed Maine had just 2% more children under 18 than adults 65 or older. Florida had just 4% more. As recently as 2010, their margins were 30% and 23%, respectively. The U.S. margin was 54% last year, and 84% in 2010.Developed nations spend much of the resources on the young and old, so demographers and planners pay close attention to ratios of their ranks compared to those of the working-age population, typically 18- to 65-year-olds. Because kids can’t vote and the elderly vote more faithfully than any other age group, the ratio of young to old symbolizes the challenge that voters face in balancing past promises, current needs and future potential. The U.S. population has been aging slowly for decades, but a birth rate stuck at post-recession lows has accelerated the generational shift.

Obama’s Big Flip-Flop to Save Obamacare -- The real sign of how Bernie Sanders changed the Democratic Party can be seen not just in shifts in the Democratic Party platform, but in how the party’s current leader, Barack Obama, has altered his own posture. Last month he endorsed the expansion of Social Security, a huge victory for activists pushing the party to improve retirement benefits. And this week, in a special communication to the Journal of the American Medical Association, Obama endorsed a public health insurance option to enhance the Affordable Care Act, his signature legislative achievement. This puts Obama in line with his preferred successor, Hillary Clinton, who recently reiterated her support for a public option and for allowing Americans between 55-65 to buy into Medicare. Both policies tilt toward Sanders’s vision of universal coverage. Obama included the public option in his 2008 campaign platform, and maintains in JAMA that in the original debate over the ACA, “I supported including a Medicare-like public plan.” But he fails to mention that in the summer of 2009 he made a deal with the hospital industry to keep the public option out of the final bill, in exchange for the industry’s support and agreement to $155 billion in payment reductions. We can’t know whether concessions to industry were critical to get the ACA passed, and whether the public option, which had the most grassroots support of any element of health reform, should have been salvaged. But the more important question is: What changed between 2009 and today for the president to view the public option as an essential component of the overall law? The cynical will grumble that Obama is merely making a rhetorical shift for supporters in an election year, at a time when he knows he cannot pass anything resembling a public plan. But I think something is afflicting Obamacare that only a public plan can fix—and the hospital industry may even agree.

Where’s the Drug, FDA? - WSJ: The Food and Drug Administration is sitting on a therapy for Duchenne muscular dystrophy, and the agency may have days to waste but the boys don’t. Bureaucratic malpractice on a safe and effective treatment is corroding the agency’s scientific credibility and the public’s trust. FDA in May delayed a decision on eteplirsen by Boston-based Sarepta Therapeutics.  There is no treatment for Duchenne, a fatal disease that claims a boy’s ability to walk before organ failure in his 20s. Eteplirsen jumps over genetic code to produce a missing protein known as dystrophin. Ten of 12 boys who seemed headed for wheelchairs still walk after four years of treatment; only one of 11 in a control group could walk. FDA reviewers say the drug doesn’t produce “enough” dystrophin or maybe the kids had motivated moms. Yes, the public pays for that analysis. The agency last month asked Sarepta for dystrophin data from an ongoing trial. The results are likely to show that the treatment is delivering on its promise to pump out the protein, as dozens of experts, clinicians and scientists tried to tell the agency at an April meeting. A readout consistent with earlier findings would give Janet Woodcock, the drug evaluation center chief who can overrule her technical staff, ample reason to say yes.

EpiPen costs have soared 450 percent in the past 12 years, for no good reason. -- If you’re one of the 3.6 million people with an EpiPen prescription, you probably paid way too much for it—if you could afford it at all. That’s because, since buying the rights to the device nine years ago, the pharmaceutical company Mylan has pushed a relentless series of price hikes that has seen the cost of the device go from an average of about $50 in 2004 to more than $300 each today. EpiPen is by far the most common brand of devices known as epinephrine autoinjectors, which are premeasured, automatic syringes that contain epinephrine (also known as adrenaline), which helps keep airways open during severe allergic reactions. For many people—including children—it is a potentially life-saving treatment. Thus, the price-gouging can be downright dangerous: A story out Wednesday from Stat details how, in an effort to combat the expense of EpiPens, some users and institutions have started replacing the devices with regular syringes filled with vials of epinephrine. While the effect is the same in theory, this cheaper method introduces a much wider margin of error for administering the medicine correctly, all to cut costs.So why is the EpiPen so expensive? In September, reporting by Bloomberg Businessweek blew open the story about Mylan’s quest to make the EpiPen a cash cow; the device alone now makes up a full 40 percent of Mylan’s profits, thanks to a series of strategic marketing campaigns, public policy changes, and price hikes. For one thing, in 2010, the company decided to sell EpiPens in twin packs and discontinued single EpiPens. Between 2011 and 2014, television advertising skyrocketed from $4.8 million to $35.2 million. In 2013, Congress encouraged schools to carry EpiPens after a 7-year-old in Virginia died of an allergic reaction to peanuts. Following that encouragement, Mylan also contracted with Walt Disney to provide the device at its theme parks and cruise ships (at a cost, of course).

One striking chart shows why pharma companies are fighting legal marijuana - There's a body of research showing that painkiller abuse and overdose are lower in states with medical marijuana laws. These studies have generally assumed that when medical marijuana is available, pain patients are increasingly choosing pot over powerful and deadly prescription narcotics. But that's always been just an assumption.   Now a new study, released in the journal Health Affairs, validates these findings by providing clear evidence of a missing link in the causal chain running from medical marijuana to falling overdoses. Ashley and W. David Bradford, a daughter-father pair of researchers at the University of Georgia, scoured the database of all prescription drugs paid for under Medicare Part D from 2010 to 2013.  They found that, in the 17 states with a medical-marijuana law in place by 2013, prescriptions for painkillers and other classes of drugs fell sharply compared with states that did not have a medical-marijuana law. The drops were quite significant: In medical-marijuana states, the average doctor prescribed 265 fewer doses of antidepressants each year, 486 fewer doses of seizure medication, 541 fewer anti-nausea doses and 562 fewer doses of anti-anxiety medication.   But most strikingly, the typical physician in a medical-marijuana state prescribed 1,826 fewer doses of painkillers in a given year.

U.S. prosecutors launch review of failed FedEx drug case | Reuters: The U.S. Department of Justice has begun a rare internal examination of what went wrong in the prosecution of a controversial drug conspiracy case against delivery service Federal Express (FDX.N), the department's top prosecutor in San Francisco told Reuters. The review plays into a broader debate about how the government prosecutes suspected corporate wrongdoing and could influence its approach to such cases in the future. Prosecutors obtained a grand jury indictment against FedEx in 2014 on charges the courier service had knowingly helped Internet pharmacies ship illegal pills. But four days into a trial in San Francisco last month, the Justice Department abruptly dropped all charges. The judge commended the decision, saying it was clear FedEx was "factually innocent." The U.S. Attorney in San Francisco, Brian Stretch, said he has assigned the office's deputy criminal chief to a review that could take two months. It will examine why prosecutors brought the case, what oversight supervisors provided and what role officials in Washington D.C. played, Stretch said in an interview Wednesday. "This is not a finger pointing exercise," he said. "This is an exercise with the singular purpose to find lessons learned, and apply them to current and future cases." The outcome could hold lessons for government regulators, prosecutors and corporate defense lawyers, said Laurie Levenson, a professor at Loyola Law School in Los Angeles and a former assistant U.S. Attorney. "It can impact policies not just on whether they go after individuals or organizations," Levenson said. "It can impact how aggressive you get with the use of criminal law, as opposed to civil law or regulatory actions."

Sticking germy fingers in your mouth may give you the upper hand on health - Kids who got teased for sucking their thumbs or biting their nails may, after all, get the last laugh.  It turns out that repeatedly sticking grimy digits into your pie-hole as a youngster may help strengthen your immune system and prevent the development of allergies later in life, researchers report in the August issue of Pediatrics. The finding is certainly a score for the underdogs of the schoolyard, but it also lends more support to the “hygiene hypothesis.” This decades-old hypothesis generally suggests that exposure to germs and harmless microbes in childhood can help develop a healthy, tolerant immune system—that is, one not prone to autoimmune diseases and hypersensitive responses such as allergies. “Although we do not suggest that children should be encouraged to take up these oral habits, the findings suggest that thumb-sucking and nail-biting reduce the risk for developing sensitization to common aeroallergens,” the study authors conclude. In that study, parents were surveyed on their kids’ thumb-sucking and nail-biting ways when the kids were 5, 7, 9, and 11 years old. Most of the kids were also given skin-prick allergy tests at ages 13 and 32. Those tests looked for responses to common allergens, such as dust mites, grass pollen, cats, dogs, horses, wool, and mundane molds. The researchers also collected information on other factors that may influence allergy development, including breastfeeding, cat and dog ownership, parental smoking and allergies, crowded living conditions, and socioeconomic status.

Zika-Infected Person Dies in Utah - On Friday, officials at the Salt Lake County Health Department in Utah reported that an elderly resident died last month after contracting Zika. The individual is the second known Zika-associated death in this country, as a man carrying the virus died from complications in Puerto Rico in late April. The person tested positive for the virus and is assumed to have contracted it after traveling to a part of the world where Zika-carrying mosquitoes are known to exist. While the Utah resident had the disease, officials are still unsure of whether it contributed to the cause of death. The individual was elderly and “had an underlying health condition,” according to the press release, which also noted that “it may not be possible to determine how the Zika infection contributed to the death.” Due to privacy laws, no further information about the individual’s underlying condition or travel history will be released, the health department noted. (It also did not reveal the person’s gender.) While the individual contracted the virus elsewhere, there is limited risk that Zika will spread in the area. Salt Lake City is home to neither of the two mosquito species—A. aegypti and A. albopictus—that are known to transmit the Zika virus to humans. Though this is the first Zika-related death in the continental United States, the fact that the individual contracted it while traveling shows confirms that there is little reason to believe that Zika is spreading farther or faster than scientists originally predicted the disease might spread.

Half of all US food produce is thrown away, new research suggests - Americans throw away almost as much food as they eat because of a “cult of perfection”, deepening hunger and poverty, and inflicting a heavy toll on the environment. Vast quantities of fresh produce grown in the US are left in the field to rot, fed to livestock or hauled directly from the field to landfill, because of unrealistic and unyielding cosmetic standards, according to official data and interviews with dozens of farmers, packers, truckers, researchers, campaigners and government officials. From the fields and orchards of California to the population centres of the east coast, farmers and others on the food distribution chain say high-value and nutritious food is being sacrificed to retailers’ demand for unattainable perfection. “It’s all about blemish-free produce,” says Jay Johnson, who ships fresh fruit and vegetables from North Carolina and central Florida. “What happens in our business today is that it is either perfect, or it gets rejected. It is perfect to them, or they turn it down. And then you are stuck.” Food waste is often described as a “farm-to-fork” problem. Produce is lost in fields, warehouses, packaging, distribution, supermarkets, restaurants and fridges. By one government tally, about 60m tonnes of produce worth about $160bn (£119bn), is wasted by retailers and consumers every year - one third of all foodstuffs.

Organic Farmers Leave Organic Trade Association over GMO Labeling Betrayal - OSGATA’s decision was prompted by OTA’s duplicity towards organic farmers and consumers when a small number of OTA board members endorsed a dangerous Senate bill that would immediately preempt existing strong state GMO Labeling laws that are widely supported by the Organic community and ninety percent of consumers. Biotech giant Monsanto is universally recognized within the Organic community as organic’s greatest threat.  Recent revelations have made clear that the OTA has created numerous close partnerships with Monsanto including intensive lobbying efforts by the notorious biotech-linked lobbyist Podesta Group on behalf of the deal brokered by Senators Stabenow (D-MI) and Roberts (R-KS)The Stabenow-Roberts (S.764) is a Senate bill – backed by industrial agriculture and large food conglomerates and whose primary intent are nullifying of historic mandatory GMO Labeling laws passed by huge margins in Vermont, Maine, Connecticut and Alaska legislatures and relieving multinational food companies of the requirement to clearly label products that were produced by genetic engineering. OTA support for the Monsanto-backed bill proved essential for passage. Last week Stabenow-Roberts passed in the Senate by a narrow four-vote margin of victory on a vote of 63-30. “It’s important for the world to understand that it was the Organic Trade Association that killed our state GMO labeling laws by backing Monsanto’s Stabenow-Roberts bill,” said Maine organic seed farmer and longtime OSGATA President, Jim Gerritsen.

GMO industry: The dumbest guys in the room -- I am now convinced the GMO industry has managed to hire the worst public relations strategists in human history. By supporting a deeply flawed GMO labeling bill in the U.S. Congress--some would say intentionally deeply flawed--the industry is about to open a Pandora's Box of PR nightmares for years to come. GMO, of course, means genetically modified organism which more properly refers to genetically engineered crops and animals. GMO industry leader Monsanto and its competitors such as Bayer, Dupont, Dow Chemical and Sygenta have all been fighting a fierce battle in the United States against labeling foodstuffs derived from genetically engineered crops. After defeating statewide labeling referendums in California, Oregon and Washington, they failed to stop the implementation of Vermont's GMO labeling law which went into effect July 1.In desperation the companies have been trying to get the U.S. Congress to pass a nationwide labeling law--one that is considerably less stringent and also riddled with loopholes--that would pre-empt Vermont's law. Just last week the Senate approved its version of the labeling law.  What concerns the industry is that increased consumer awareness could create a movement that would lead to a ban on the cultivation of GMO crops, a ban already implemented by 19 countries in Europe. Opponents of the GMO labeling law currently moving through the U.S. Congress believe it is so poorly drafted that almost no commonly consumed genetically modified foods will actually be covered. In addition, food derived from newer gene-editing techniques as opposed to transgene processes--the ones that transfer genes from one species to another--may be excluded as well. Given what we know now, the final bill is likely to be vague and riddled with exceptions and confusing directives. The GMO-friendly U.S. Department of Agriculture will then be tasked with writing the actual labeling regulations. We are thus assured of months and perhaps years of wrangling over the labeling rules, every step of which will be given wide and probably negative coverage by the anti-GMO activist community. The pending federal labeling law is more likely to assist opponents in sowing mistrust of major food companies than alleviate it.

Genetically engineered crops part and parcel of decline of rural communities - Jim Goodman - The endless miles of dead brown fields are finally gone. Spring in the Midwest should be announced by endless miles of green, but at best, a haphazard patchwork of winter wheat, rye, hayfields and the occasional bit of pasture are the only green that show up after snow-melt. Most of the winter grains planted last fall have been sprayed and killed to make way for endless miles of corn and soybeans. Corn, soy and alfalfa cover the Midwest, a monoculture of genetically engineered crops (GE) that have mostly displaced the small dairy farms and their pastures, the fields of small grain and diverse mixes of clover and grass hay. We are at least partially through the herbicide season. The first wave was last fall's “burn-down,” the nonselective spray application (most notably Roundup®) that kills everything and gives the fields that lovely dead brown look in the spring. The spring “pre-emergence” spray (killing weeds before the corn and soy emerge) is over, the third wave of “post-emergence” spraying is in progress, and of course the forth and even fifth spray applications can come anytime during the summer to hopefully kill any weeds that escaped the first three attempts. Then of course, wheat will need the pre-harvest application of, again, Roundup®, partly to kill any surviving perennials, but mostly to enhance the dry down of the grain. This is done a few days prior to harvest, and while it is quite effective as a desiccant, it also puts a good amount of herbicide directly on grain that will move into our food chain. So, if nothing else, GE crops have clearly changed the appearance of our landscape, the crops farmers grow, and the way they manage weeds and pests. But they have changed the economy as well. The small diversified farms, the cheese factories and the small-town businesses are mostly gone.

How the TTIP Could Make Ethical Meat Harder to Find - The North American Meat Institute, which represents nearly all meat and poultry producers in the U.S., appears eager to see the The Transatlantic Trade and Investment Partnership (TTIP) solidified. “We support free trade, and improved access to EU markets is of great interest to our members as there is strong demand in the EU for high quality U.S. meat and poultry,” the Institute said in a recent statement. “We are hopeful that TTIP would expand trade opportunities and our ability to deliver safe food to the EU market.”And yet it’s precisely this enthusiastic embrace of the trade agreement—and what it means for the continued proliferation of American meat and the practices used to create it—that worries critics of the TTIP. According to  a new report from the Institute for Agriculture and Trade Policy (IATP), a non-profit that works to promote sustainable food, farming, and trade systems, the trade agreement is likely to expand factory faming and corporate control of meat and livestock production. In doing so, the group believes it could undermine existing local animal welfare and food labeling laws. And they fear it could also threaten how the environmental impacts of meat and dairy production are regulated while potentially making it difficult to improve the low wages and dangerous working conditions in the meat processing industry. “It will be a race to the bottom,” IATP advisor and report co-author Sharon Treat told Civil Eats.

Gauging the impact of climate change on U.S. agriculture -  MIT -To assess the likely impact of climate change on U.S. agriculture, researchers typically run a combination of climate and crop models that project how yields of maize, wheat, and other key crops will change over time. But the suite of models commonly used in these simulations, which account for a wide range of uncertainty, produces outcomes that can range from substantial crop losses to bountiful harvests. These mixed results often leave farmers and other agricultural stakeholders perplexed as to how best to adapt to climate change. Now, in a study published in Environmental Research Letters, a research team at MIT and the University of California at Davis, has devised a way to provide these stakeholders with the additional information they need to make more informed decisions. In a nutshell, the researchers complement the results of climate/crop model runs with projections of five useful indices of agriculture/climate interaction — dry days, plant heat stress, frost days, growing season length and start of field operations — that clarify what’s driving projected yields up or down.  Under a scenario in which greenhouse gas emissions are unconstrained, the model projected that the U.S. will experience fewer frosts, a longer growing season, more heat stress, and an earlier start of field operations by the end of the century. When greenhouse gas emissions reduction policies — one aimed at capping the rise in global mean surface temperature between pre-industrial times and 2100 at 2 degrees Celsius, the other targeting a 2.5 C cap — were applied, projected changes in four out of the five indices were cut in half. This suggests that aggressive greenhouse gas mitigation could sharply reduce the effects of climate change — both adverse ones, such as increased heat stress, and beneficial ones, such as a longer growing season.

Expert: Falling power plant emissions reduces corn nutrient  — An Indiana agricultural expert says declining power plant emissions are apparently reducing the amount of an important nutrient corn plants get through rainfall. Purdue Extension soil fertility specialist Jim Camberato says Indiana's rainfall used to contain a lot of sulfur from coal-fired power plant emissions.  But he says the amount of sulfur reaching corn through rainfall or the air has fallen to the point where plants are now apparently not getting enough of the nutrient that way.  The federal government says the amount of sulfur absorbed into the soil from rainfall fell by an average of 62 percent in the eastern U.S. from 1989 to 2013 as pollution controls got tougher. Camberato says corn plants that don't get enough sulfur develop yellow, green-yellow or yellow-white striping on their leaves.

Vanishing Act: What’s Causing Sharp Decline in Insects and Why It Matters - Yale Environment 360: Every spring since 1989, entomologists have set up tents in the meadows and woodlands of the Orbroicher Bruch nature reserve and 87 other areas in the western German state of North Rhine-Westphalia. The tents act as insect traps and enable the scientists to calculate how many bugs live in an area over a full summer period. Recently, researchers presented the results of their work to parliamentarians from the German Bundestag, and the findings were alarming: The average biomass of insects caught between May and October has steadily decreased from 1.6 kilograms (3.5 pounds) per trap in 1989 to just 300 grams (10.6 ounces) in 2014. "The decline is dramatic and depressing and it affects all kinds of insects, including butterflies, wild bees, and hoverflies," Another recent study has added to this concern. . Scientists from the Technical University of Munich and the Senckenberg Natural History Museum in Frankfurt have determined that in a nature reserve near the Bavarian city of Regensburg, the number of recorded butterfly and Burnet moth species has declined from 117 in 1840 to 71 in 2013. "Our study reveals, through one detailed example, that even official protection status can't really prevent dramatic species loss," Declines in insect populations are hardly limited to Germany. A 2014 study in Science documented a steep drop in insect and invertebrate populations worldwide. By combining data from the few comprehensive studies that exist, lead author Rodolfo Dirzo, an ecologist at Stanford University, developed a global index for invertebrate abundance that showed a 45 percent decline over the last four decades. Dirzo points out that out of 3,623 terrestrial invertebrate species on the International Union for Conservation of Nature [IUCN] Red List, 42 percent are classified as threatened with extinction.

How Hydroelectric Power Kills Insects, and Why That Matters -- Hydroelectric power is a well-established and low-cost form of renewable energy that doesn’t produce greenhouse gases. But, like any power source, it also has its dark side: A common hydroelectric power practice known as hydropeaking can be deadly to insects, with serious downstream consequences for a dammed river’s ecosystem, according to a paper in BioScience. This is, of course, not the first time researchers have identified negative environmental impacts associated with damming rivers. Building a big wall across a river interferes with salmon and other fishes’ migration, even with age-old workarounds like fish ladders. But, United States Geological Service biologist Theodore Kennedy and his colleagues point out, the danger to ecosystems could go beyond an immediate threat to fish populations. In particular, no one’s really looked at the consequences of hydropeaking, in which dam operators release more water through the dam during the day to produce more electricity when it’s most in demand. Like the underlying electricity demand, the hour-to-hour changes in river flow are enormous. In some places, river flows change by as much as a factor of 10 over the course of the day, leading to a cycle of drying and re-wetting along the shore of a river. That creates intertidal zones more akin to what you’d see at an ocean beach than a typical river.  The dry phases, Kennedy and his team point out, could be very bad for mayflies, caddisflies, and other insect species that birds and fish rely on for food—in particular, it could be very bad for their eggs. To test that idea, the researchers first collected mayfly and caddisfly eggs from Utah’s Green River, downstream of the Flaming Gorge Dam, and tested them under hydropeaking-like cycles of wet and dry. Very few survived. 

Massive mangrove die-off on Gulf of Carpentaria worst in the world, says expert --Climate change and El Niño have caused the worst mangrove die-off in recorded history, stretching along 700km of Australia’s Gulf of Carpentaria, an expert says.  The mass die-off coincided with the world’s worst global coral bleaching event, as well as the worst bleaching event on the Great Barrier Reef, in which almost a quarter of the coral was killed – something also caused by unusually warm water. And last week it was revealed warm ocean temperatures had wiped out 100km of important kelp forests off the coast of Western Australia. To assess the damage to the mangroves, Norm Duke, an expert in mangrove ecology from James Cook University, flew in a helicopter over 700km of coastline, where there had been reports of widespread mangrove die-offs.  He was “shocked” by what he saw. He calculated dead mangroves now covered a combined area of 7,000 hectares, as was first reported by the ABC on Sunday. That was the worst mangrove mass die-off seen anywhere in the world, he said. “We have seen smaller instances of this kind of moisture stress before, but what is so unusual now is its extent, and that it occurred across the whole southern gulf in a single month.”  The devastated mangrove forests played an essential role in the region’s ecosystem, Duke said. They were nurseries for many fish species.“But we also think of them as kidneys – as water filters and purifiers,” he said. As water from rivers and floodplains runs into the ocean, mangroves filter a lot of sediment, and protect coral reefs and seagrass meadows. That service would be lost in the areas affected by die-off.

Scientists Connect Massive Die-Off Of Australian Mangroves To Climate Change - Earlier this year, scientists were puzzled by a widespread die-off that seemed to plague over 17,000 acres of mangroves along Australia’s northeastern and northern coastlines. Now, a scientist from James Cook University has confirmed that the die-off is likely a product of unusually dry weather and climate change. “We have seen smaller instances of this kind of moisture stress before, but what is so unusual now is its extent, and that it occurred across the whole southern gulf in a single month,” Norm Duke, a research professor at the university, said in a press release. “What we are seeing is a natural process, but nature usually does this incrementally. Not with such severity. We have never seen this before.” Surveys from above the ground show that the die-off has affected more than nine percent of the mangroves in a stretch larger than 400 miles west of Normanton, Queensland, along Australia’s northeastern coast.  The mangrove population in Australia is the third largest in the world after Indonesia and Brazil, according to Mangrove Watch, a monitoring program for mangroves. It represents around 6.4 percent of the world’s mangroves. In the states where the die-off is occurring, there are at least 20 different species of mangroves.   Mangroves can store at least five times more carbon than terrestrial trees. Essentially, every mangrove that is lost is the same as losing five trees which typically grow inland, which means that losing even a few hundred mangroves can have an exponential effect on natural carbon storage.

What's behind Florida's algae bloom? Satellite photos reveal clues. - A toxic algae bloom, so large it is visible from space, has been expanding in Florida’s Lake Okeechobee since May and has spread through the St. Lucie River estuary to the Atlantic Ocean. The algae invasion has made the water unfit for consumption and agriculture and prompted Governor Rick Scott to declare a state of emergency in two south Florida counties, as scientists and politicians dispute just what's to blame. Satellite photos taken on July 2 by NASA’s Operational Land Imager reveal an expanding patch of single-celled organisms called cyanobacteria (colloquially known as blue-green algae, although it is really a bacteria). The bloom covers approximately 33 square miles of the Lake Okeechobee, which at 720 square miles is the second largest lake completely within the United States, after Lake Michigan.  "Human activities have dramatically increased nitrogen and phosphorus inputs into many rivers and lakes that threaten economic and recreational uses of those waters," Hans Paerl, professor of marine and environmental sciences at the University of North Carolina-Chapel Hill Institute of Marine Sciences, told LiveScience. Pollution, warmer lake water caused by global warming, and changes in agricultural practices, including increased use of nitrogen-fertilizer, have all been found to contribute to blooms such as this one. But a new debate has arisen over whether this bloom was caused by sewage, as well. Organizations such as the The South Florida Water Management District are saying sewage, not runoff from the lake, may be causing the problem.

Where will the green slime go? Florida tracks its spreading algae -- The green algae-infested waters lapping Florida’s Treasure Coast like watery guacamole over the last few weeks have angered residents, disgusted visitors and drawn the sort of national media attention that can cripple a region’s tourist-driven economy. The epicenter of slime remains the waterways branching from the St. Lucie River near Stuart, a rich estuary contaminated by a steady flow of foul, nutrient-laden water from Lake Okeechobee. Marinas, waterfront homes and even Atlantic beaches near the St. Lucie Inlet have been hit by waves of rank goo. A handful of samples from the area taken by the Florida Department of Environmental Protection also have contained concentrations of toxic algae that pose public health risks. Now, scientists and the state are keeping an eye on a few other potentially vulnerable areas. At the top of the list: the Caloosahatchee River, which serves as the western relief valve for excess water from Lake Okeechobee. State samples already have shown isolated blooms but any dry spells combined with summer heat potentially could mean more green muck for the southwest coast in coming months. “We don’t see algae typically in flowing river water — it’s more so in sitting water,” said Steve Davis, an ecologist with the Everglades Foundation. For this reason, he said, it will be a delicate balancing act to reduce the flow of the nutrient-rich lake water fueling the algae explosion. If water volumes are reduced too much, that, too, can fuel algae growth.  For now, the algae has been particularly thick in east-side estuaries flushed with lake water that contains high concentrations of nutrients, much of it from farms and cattle pastures. The dumping, primarily aimed at protecting the lake’s dike, has produced bright green waters that have fueled headlines and prompted Gov. Rick Scott to declare a state of emergency in four counties:

2,000 generations of algae foretell future of ocean acidification -- Scientists don’t need a time machine to see the potential future of the planet’s oceans. They can look to a single-celled species of algae, called EHUX. By examining over 2,000 generations of this marine scum over four years, ecologists glimpsed how this essential organism of the sea might react to ocean acidification. The team found the plankton can adapt to the primary cause of ocean acidification — rising carbon dioxide in water — but the organisms eventually lose their form of a skeleton. As a result, the plankton cannot fend off predators or competitors, and on a global scale, this process may threaten the food chain. EHUX (Emiliania huxleyi) phytoplankton is found in most of the world’s oceans, making up a major part of the marine food chain. And because it reproduces so rapidly, researchers can see how environmental factors, like pollution and global warming, could possibly impact this unicellular creature — and the larger marine ecosystem — in the future. “We can have the organisms of tomorrow in the lab today,” . When carbon dioxide levels in the water increase — oftentimes due to air and water pollution — the chemical balance of the ocean changes and it becomes more acidic. The team simulated this process in tanks, exposing the algae to one of three carbon dioxide levels (ambient, medium or high). After four years, one of the longest durations ever recorded for this type of study, they found several changes in the algae, Reusch said. The algae reproduced faster, but their size shrank. The stress from these high-pollution waters also prevented the algae from building a protective skeleton.

Drought makes Lake Mead drop to lowest levels in history | New imagery released by NASA shows the effect of extreme drought on Lake Mead. The lake is actually a reservoir, and is the largest in the United States. It was created with the construction of the Hoover Dam in the 1930s. 16 consecutive years of drought due to climate change have caused the water level to fall to record low levels. Of note in the before-after pictures is the change in size of the Las Vegas Metropolitan area. The population of the city of Las Vegas has grown from 160,000 to 670,000 in just the past thirty years. Not only does the reservoir supply that entire population with water, it is pumped to many cities in Arizona, California, Nevada, and northern Mexico.

A rare “blob” of unusually warm water that did massive damage to California’s marine life has reemerged -- While this year’s El Niño wasn’t as bad as meteorologists were expecting, there’s something else wreaking havoc on North America’s marine ecosystems: a huge mass of warm water off the Pacific Coast nicknamed by University of Washington meteorologist Nick Bond “the blob.”  It’s not a creature from a horror flick, but it might as well be for marine scientists. The blob was first noticed on the surface of the Pacific in 2013 (pdf), and some weather experts declared it dead last December. But the blob isn’t dead—it’s just retreated to deeper parts of the ocean, according to recent findings. The Canadian Coast Guard regularly measures the ocean’s temperature at different depths off the coast of British Columbia, and found that rather than sitting at the surface of the water, the blob is now hovering between 150 and 200 meters (about 500 to 650 feet) below.  The blob’s effects have been anything but benign, according to a new study, published Wednesday in the journal Geophysical Research Letters. The study presents evidence that the blob was responsible for more ecosystem damage off the California coast, including depleted marine food sources and disrupted migration patterns, than the 2015-2016 El Niño weather system. Scientists aren’t quite sure how the blob developed. It isn’t a result of El Niño, or another ocean cycle called the Pacific Decadal Oscillation, which is a pattern of oceanic warming and cooling that occurs on a much larger timescale than other weather patters. What they do know is that its timing with El Niño wasn’t great. While El Niño was weaker along the California coast than meteorologists predicted, it worked in tandem with the blob. “In their wake lies a heavily disrupted ecosystem,” study author Michael Jacox said in a press release.

The world’s clouds are in different places than they were 30 years ago -- In a new study published in Nature on Monday, scientists say they have for the first time thoroughly documented one of the most profound planetary changes yet to be caused by a warming climate: The distribution of clouds all across the Earth has shifted, they say.  And moreover, it has shifted in such a way — by expanding subtropical dry zones, located between around 20 and 30 degrees latitude in both hemispheres, and by raising cloud tops — as to make global warming  worse.  “As global warming occurs, there’s the expectation that the storm track will shift closer to the pole and the dry areas of the subtropics will expand poleward,” The study observed this change, but a northward shifting of storm tracks was not the only effect. The tops of clouds are also now reaching higher into the atmosphere, Norris explained. “An increase of CO2 leads to cooling of the stratosphere, so it’s cooling down, the troposphere underneath is warming up, and so that means, as the clouds rise up they can rise up higher than they did before,” Norris adds.  That these things would happen in theory, based on our understanding of the physics of the atmosphere, has long been expected. The physical reasons for the expectation get complicated fast, involving factors like the atmospheric “Rossby radius of deformation,” and how the Earth’s rotation bends the path of winds — the so-called Coriolis force, Norris explains. But all of this has long been an expectation based on runs of sophisticated climate simulations that embed within their coding the fundamental equations that govern the behavior of the atmosphere.  However, the study painstakingly pieced together images from weather satellites between the years 1983 and 2009 — correcting for the numerous known quirks of these satellites that have also made their measurements of atmospheric temperatures a messy affair — to line up pre-existing theory with observations.

Earth’s 5th Costliest Non-U.S. Weather Disaster on Record: China’s $22 Billion Flood -- A historic flood event continues in China, where torrential monsoon rains along the Yangtze River Valley in central and eastern China since early summer have killed 237 people, left 93 people missing, and caused at least $22 billion in damage, the Office of State Flood Control and Drought Relief Headquarters said on Thursday. According to the International Disaster database, EM-DAT, this would make the 2016 floods China's second most expensive weather-related natural disaster in history, and Earth's fifth most expensive non-U.S. weather-related disaster ever recorded. Only China's 1998 floods, with a price tag of $44 billion (2016 dollars), were more damaging than the 2016 floods. According to the June 2016 Catastrophe Report from insurance broker Aon Benfield, Earth's only deadlier weather disaster in 2016 was an April heat wave in India that claimed 300 lives. Some 147,200 houses have been destroyed by this summer's floods in China, and over 21,000 square miles of farmland had been inundated--an area the size of Massachusetts and Vermont combined. An additional $1.3 billion in flood damage from Typhoon Nepartak occurred in China in July. It's been a severe monsoon season in China this year. As we noted in a June 23 post, the heavy rains in China have occurred along the Mei-yu (or baiu) front, a semi-permanent feature extends from eastern China across Taiwan into the Pacific south of Japan, associated with the southwest monsoon that pushes northward each spring and summer. The Mei-yu rains typically affect Taiwan and southeastern China from mid-May to mid-June, then migrate northwards to the Yangtze River region and southern Japan during June and July (the Mei-yu is known as Baiu in Japan), and then further northward to northern China and Korea (known as Changma in Korea) during July and August. A number of studies have found that the Mei-yu rainfall tends to be particularly heavy in the summer following an El Niño event, as is occurring in 2016--and occurred in 1998, the only year to experience more damaging flooding in China.

U.S. experiencing record hurricane drought, just 4 strikes in 7 years - The U.S. is experiencing a remarkable, record drought from hurricane hits, with only four strikes in the past seven years. That's the fewest in any 7-year stretch since records began a few years before Abraham Lincoln was elected president. One of the only comparably quiet eras occurred in the late 1970s through the early 1980s, according to meteorologist Neal Dorst of the Atlantic Oceanographic and Meteorological Laboratory, which prepared the analysis of weather data for USA TODAY. The record quiet streak comes on the heels of what was among the most active seven years on record. From 2002-2008, 18 hurricanes hit the U.S., tied for the most in a seven-year stretch. The four hurricanes to hit the U.S. since Ike in 2008 were Irene in 2011, Isaac in 2012, Sandy in 2012 and Arthur in 2014. Sandy was technically a "post-tropical cyclone" at landfall. Accurate records for U.S. hurricane strikes go back to 1851. In addition, the nation is also in a 11-year record streak with no strike from a major hurricane, defined as a Category 3, 4 or 5. The last such storm to meet that criteria was Hurricane Wilma, with 120-mph winds that battered Florida and killed 35 people nearly 11 years ago on Oct. 24, 2005. In addition to the USA's major hurricane streak, hurricane-prone Florida is also enjoying an overall quiet stretch, which also started with Wilma in 2005. Several tropical storms lashed the state during the same period of time, however. While luck plays a major role in the dearth of hurricane hits, there's also a meteorological reason behind the trend. Phil Klotzbach of Colorado State University said that for much of the past 10 years, an area of low atmospheric pressure known as a trough set up over the U.S. East Coast during the prime hurricane months of August to October, helping steer the storms away from the coast and out to sea. "It's hard to say which percentage is which, but definitely both luck and steering currents have played a role," he added.

We just broke the record for hottest year, nine straight times - Earth’s record hottest 12 consecutive months were set in each month ending in September 2015 through May 2016.  2014 and 2015 each set the record for hottest calendar year since we began measuring surface temperatures over 150 years ago, and 2016 is almost certain to break the record once again. It will be without precedent: the first time that we’ve seen three consecutive record-breaking hot years.  But it’s just happenstance that the calendar year begins in January, and so it’s also informative to compare all yearlong periods. In doing so, it becomes clear that we’re living in astonishingly hot times.  June 2015 through May 2016 was the hottest 12-month period on record. That was also true of May 2015 through April 2016, and the 12 months ending in March 2016. In fact, it’s true for every 12 months going all the way back to the period ending in September 2015, according to global surface temperature data compiled by Kevin Cowtan and Robert Way. We just set the record for hottest year in each of the past 9 months.  For comparison, 1997–1998 saw a very similar monster El Niño event. And similarly, the 12-month hottest temperature record was set in each month from October 1997 through August 1998. That was likewise a case of El Niño and global warming teaming up to shatter previous temperature records.  The difference is that while September 1997–August 1998 was the hottest 12-month period on record at the time; it’s now in 60th place. It’s been surpassed by yearlong periods in 2005, 2006, 2007, 2009, 2010, 2014, 2015, and 2016. Many of those years weren’t even aided by El Niño events; unassisted global warming made them hotter than 1998.

Earth's Relentless Warming Just Hit a Terrible New Threshold - Bloomberg: The number of climate records broken in the last few years is stunning. But here's a new measure of misery: Not only did we just experience the hottest April in 137 years of record keeping, but it was the 12th consecutive month to set a new record. It's been relentless. May 2015 was the hottest May in records dating back to 1880. That was followed by the hottest June. Then came a record July, August, September, October, November, December, January, February, March—and, we learned from the National Oceanic and Atmospheric Administration on Wednesday—the hottest April. In an age of rising temperatures, monthly heat records have become all too common. Still, a string of 12 of them is without precedent. Perhaps even more remarkable is the magnitude of the new records. The extremes of recent months are such that we're only four months into 2016 and already there's a greater than 99 percent likelihood that this year will be the hottest on record, according to Gavin Schmidt, who directs NASA's Goddard Institute for Space Studies. The chart below shows earth's warming climate, measured by land and sea, dating back to 1880.  If NASA's Schmidt is right, 2016 will be the the third consecutive year to set a new global heat record—the first time that's ever happened. So far, 15 of the hottest 16 years ever measured have come in the 21st century.

U.S. Faces Dramatic Rise in Extreme Heat, Humidity | Climate Central: Across the U.S., we’ve hit the dog days of summer. Most regions are now seeing their hottest temperatures of the year, and the combination of heat and high humidity sends most people running for a cold drink, some shade, or an air conditioner. Heat is the No.1 weather related killer, and as carbon pollution continues, global temperatures will keep climbing, bringing hotter summers and more extreme and dangerous heat. Climate Central's States at Risk project analyzed historic trends in summer temperatures since 1970 as well as projections for future extreme heat for hundreds of metro areas across the lower 48 states. Using several measures, our findings show that most U.S. cities have already experienced large increases in extreme summer heat and absolute humidity, which together can cause serious heat-related health problems. We found that scores of U.S. cities home to tens of millions of people will face dramatic increases in dangerous and extreme heat days by the middle of this century if current greenhouse gas emissions trends continue.  The hottest parts of the country, including Texas, the Southwest, and Florida have already experienced large increases in extreme heat days, including days over 90°F, 95°F, and 100°F, as well as rising levels of humidity that make hot days feel miserable and extremely hot days downright dangerous.  Cities in those same states are facing the biggest projected increases in dangerous heat over the next several decades.

Alaska Bakes In Heat Wave While Arctic Sea Ice Continues To Melt -  The Arctic is experiencing a heat wave. Alaska reached temperatures in the 80s, with Deadhorse reaching a record-high temperature of 85 degrees on Wednesday evening. Other cities including Bettles and Eagle reached 85, Fort Yukon hit 84, and Nenana reported 87. “A pulse of warm air invaded the North Slope of northern Alaska on Wednesday, bringing some of the warmest air ever recorded there,” meteorologist Jeff Masters explained on his blog, Weather Underground. “Even with the 24-hour sunlight it receives during most of July, the North Slope typically experiences highs only in the 50s and lows in the 30s.” Fairbanks also officially reported 87, but one record showed Fairbanks’ airport reaching 96 degrees Wednesday. Meanwhile hundreds of miles south in Orlando, Fl., temperatures reached 94 degrees, according to the National Weather Service. Miami and Daytona Beach only rose to 92 on Wednesday.  Temperatures in Fairbanks could reach 90 degrees on Thursday or Friday, National Weather Service meteorologist Rick Thoman reported to the Alaska Dispatch News.  The new all-time record of 84°F at Deadhorse is also an AK record for any station within 50 miles of Arctic Ocean. Just last month, Deadhorse tied its record-high temperature at 82 degrees. The previous record followed a heatwave — deadly depending what part of the country you were in. Phoenix rose to 118 degrees, Yuma climbed to 120, and Palm Springs, Calif., reached 119 during the heatwave last week.  Alaska’s records are just warming up for another heatwave, which is expected to spread across the rest of the country next week as well. Most states are likely to see temperatures above 90 degrees and into the 100s.

Two Flavors of Record Heat: Deadhorse and Houston --A pulse of warm air invaded the North Slope of northern Alaska on Wednesday, bringing some of the warmest air ever recorded there. Even with the 24-hour sunlight it receives during most of July, the North Slope typically experiences highs only in the 50s and lows in the 30s. Much warmer air can filter into the region on occasion, though, typically as a mild air mass sweeps in aloft and then warms further as it descends (the same process that can produce very mild winter conditions along the east slopes of the Rockies via “chinook” winds). On Wednesday, the tiny town of Deadhorse, AK--located about 200 air miles southeast of Barrow, and just 10 miles from the Arctic Ocean--rocketed to a high of 85°F, which is an all-time high for the Deadhorse/Prudhoe Bay area. Records there only go back to 1968, but climatologist Brian Brettschneider adds that the Deadhorse reading is the highest ever reported at any location within 50 miles of Alaska’s Arctic coast. The COOP station in Kuparuk, a few miles west of Deadhorse, also reported 85°F, according to Brettschneider. Meanwhile, Barrow topped out at 66°F on Wednesday, well short of the daily record of 79°F—which also happens to be its all-time record high, set in 1993.The eye-opener this month in southeast Texas isn’t that it got up into the 80s—it’s that the temperature has had trouble getting below that range. Last week, on July 5, Houston’s Bush Intercontinental Airport tied its all-time warm minimum with a steamy low of just 83°F. This came midway through a five-day stretch of lows at or above 80°F, all of them setting daily records. Weather records at the airport began only in 1969, but the 83°F also tied the all-time record for the entire Houston area for any daily low in July. The only higher daily minimum in the city’s official record is the 84°F low notched more than a century ago, on July 29, 1895. For this month through Wednesday, July 13, Houston has scored a remarkable nine days with low temperatures at or above 80°F. The most such lows in a single month is 14, in August 1964, so the city has a reasonable shot at breaking that record, as noted by Eric Berger at Space City Weather. Houston’s average temperature for the month through Wednesday (counting both highs and lows) is a sweltering 88.3°F, which is running almost a degree higher than the warmest July on record (87.5°F, set in 1980).

Amazon biodiversity at risk despite Brazil's forest protection law - study - Selective logging, road building and fires are threatening biodiversity in Brazil's Amazon despite a requirement that rural landowners maintain at least 80 percent of their forest cover in the world's largest rainforest, researchers said on Wednesday. In 2012, Brazil enacted a law to protect forests and help establish clearer rules for the ranchers, soy growers and other producers who pushed into the Amazon rainforest and other sensitive regions in recent decades. The new code carried over from previous legislation a requirement to maintain forest cover on 80 percent of rural properties in the Amazon, 35 percent in the central savanna region and 20 percent in other areas of the country. But an international team of researchers which assessed forest degradation in northern Brazil's Para region found that areas with the highest levels of protection under Brazil's forestry code, still lost between 46 percent and 61 percent of their conservation value. "Many of the forests that remain standing are shadows of the pristine forests that once stood in their place," said Toby Gardner, a co-author of the study published in the journal Nature. "Brazil's efforts for reducing deforestation deserve praise, but the combined effects of these disturbances are undercutting those efforts," the scientist from the Stockholm Environment Institute told the Thomson Reuters Foundation. The impacts of forest disturbance in Para have resulted in a loss of biodiversity equivalent to clearing more than 92,000 square kilometers of primary forests - an area larger than Austria, the study said.

Drug barons are turning to cattle-ranching to launder their narco-money : To hear the Guatemalan government tell it, the Maya Biosphere Reserve, a sprawling national park in the northern department of Petén, is the crown jewel of the Central American park system. Look on a map, and you’ll see the protected area spreads across the northern fifth of the country like a green carpet. Within those borders lie the famous Mayan ruins at Tikal and El Mirador, as well as huge swaths of the Maya Forest, the Americas’ largest tropical rainforest outside the Amazon, an invaluable storehouse of both carbon stocks and rare plants and wildlife, among them Guatemala’s last population of macaws. But that rosy picture hides a grimmer reality. Journey to these protected areas of northern Guatemala, and you’ll find something resembling an ongoing ecological catastrophe. In Laguna del Tigre National Park, nestled in the heart of the reserve, the tall acacia and mahogany trees have been cut and burned, exiling the macaws to the tiny fringe of forest that remains. You can see this damage on a map included in an annual report published by the National Council of Protected Areas (CONAP), the Guatemalan national park service, in partnership with Western environmental NGOs, and paid for in part by the U.S. Department of the Interior.  As the map shows, the Maya Biosphere Reserve is bisected by what appears to be creeping fungus — illegal cattle ranches, which have cleared about 8 percent of the reserve since 2000. These ranches stand as a parable for the drug war.  According to Guatemalan park guards, U.N. researchers, and prosecutors alike, the unintended cause of the deforestation is a drug war victory: a successful interdiction campaign that redirected billions of dollars of drug cash across Guatemala, funding a trade that threatens to destroy Central America’s greatest forest.

Vast Peat Fires Threaten Health and Boost Global Warming — As forest fires devastated Fort McMurray, Alberta, last month, a different sort of fire may have started beneath the ground. Peat, a carbon-rich soil created from partially decomposed, waterlogged vegetation accumulated over several millennia and the stuff that fueled Indonesia’s megafires last fall, also appears in the boreal forests that span Canada, Alaska and Siberia. With the intense heat from the Fort McMurray fires, “there’s a good chance the soil in the area could have been ignited,” says Adam Watts, a fire ecologist at Desert Research Institute in Nevada. Unlike the dramatic wildfires near Fort McMurray, peat fires smolder slowly at a low temperature and spread underground, making them difficult to detect, locate and extinguish. They produce little flame and much smoke, which can become a threat to public health as the smoke creeps along the land and chokes nearby villages and cities.  And although they look nothing like it, peat fires are the “largest fires on earth,” says Guillermo Rein, a peat fire researcher at Imperial College in the United Kingdom. Since the 1990s, Indonesia’s slash-and-burn practices that clear forests for agriculture have often led to fires that grow out of control because of peat. Indonesia has over 200,000 square kilometers (77,000 square miles) of peatland that is on average 5.5 meters (18 feet) deep and in some places up to 20 meters (66 feet) deep. “They’re very difficult to put out because they’re deep,” says Robert Gray, an independent fire ecologist based in Chilliwack, British Columbia. The boreal forests are thought to contain some 30 times more peat than Indonesia. Because they can smolder for weeks and months, sometimes even staying active underground throughout cold northern winters, peat fires emit on average the equivalent of 15 percent of anthropogenic greenhouse gas emissions per year, according to Rein — carbon that took thousands of years to sequester.

Fires begin to appear en masse as Indonesia’s burning season gets going --Satellites on Wednesday recorded 145 fire-linked hotspots over Indonesia’s main western island of Sumatra, down from 245 on Sunday, according to the country’s disaster management agency. It’s a far cry from last year’s crisis, when thousands of forest and peatland fires raged across the archipelagic country during the extended dry season brought on by El Nino, sending toxic haze pollution billowing across the region. But the uptick in hotspots signaled this year’s burning season may already be getting underway. The province with the most hotspots on Wednesday, with 64, was Riau, whose vast peat swamp zones have been widely drained for palm oil and pulpwood production. The dried peat is highly flammable, and fires set by planters to clear land cheaply often spread out of control. A cluster of hotspots also showed up in North Sumatra province, according to Global Forest Watch. In Kalimantan, the Indonesian part of Borneo island, 43 hotspots were detected on Monday, though the number has since dropped significantly. “Most of the hotspots are a result of intentional burning,” disaster management agency spokesman Sutopo Purwo Nugroho said. In Riau on Monday, authorities arrested a man for using illegal slash-and-burn practices on a small plot of land, part of a joint effort by military, police and environment ministry officials to crack down on firestarters. In neighboring Jambi province, one of the most-burned last year, police said they had transferred four cases against company executives to the attorney general’s office.

Aerosol emissions key to the surface warming ‘slowdown’, study says - In the early 2000s, the rate of warming at the Earth’s surface was slower than scientists expected, despite the continued accumulation of CO2 in the atmosphere. Recent research has shown that natural fluctuations in the Pacific Ocean played an important role in this surface warming “slowdown”.  But a new paper, published in Nature Climate Change, suggests these variations in the Pacific Ocean were actually triggered by changing aerosol emissions from human activity – particularly by increases in China’s burning of fossil fuels. The findings suggest that the slowdown in surface warming could have been predicted, the lead author tells Carbon Brief, and that future cuts to aerosol emissions could prompt rapid warming in the coming years. The overall conclusion from published research suggests there is no single reason for the slowdown, but rather a series of contributing factors. One of the principal causes is thought to be fluctuations in the Pacific Ocean. These fluctuations are usually known as the Pacific Decadal Oscillation (PDO). The PDO has two opposite phases: positive (also known as the “warm” phase) and negative (“cool”), which each affect global weather in different ways.  The prevailing theory amongst scientists is that the extended negative phase of the PDO is just part of its natural cycle. But this might not be the case, says the new paper’s lead author Dr Doug Smith, who heads up the decadal climate prediction research and development at the Met Office Hadley Centre. He tells Carbon Brief “Although the PDO can vary naturally, our results show that changes in anthropogenic aerosol emissions could be largely responsible for the negative phase.”

New Study Finds Most Of Earth’s Oxygen Used For Complaining —Following a multiyear study of atmospheric gases and their role in organic processes on earth, a team of researchers at the University of Washington reported this week that the majority of the oxygen on the planet is used for complaining. “By carefully measuring the processes of gas exchange, the respiratory capacities of living organisms, and resulting metabolic activities, we discovered that most oxygen molecules in Earth’s troposphere are used for the purposes of sighing, whining, and most commonly, complaining,” said the study’s lead author, James Lauderio, who noted that an adult human converts an average of 19 cubic feet of oxygen per day into petty grievances about acquaintances, nitpicking objections about popular media or the weather, criticisms about tasks they are performing, and general fussing with family members. “And while humans are the species most responsible for transforming oxygen into complaints, it’s important to note that other animal life, including mammals, birds, and reptiles, also convert massive amounts of O2 into displeased growls and screeches about their habitats and food sources.” Lauderio added that the research team has not been able to determine a verifiable upper limit to the number of complaints that can be produced from a single inhalation, with many human subjects reportedly producing upwards of 40 or more complaints with each breath.

Food shortages and sea level rise US voters' top climate change concerns - Diminishing food and water security and ruinous sea level rise are the leading climate change concerns of a section of the American electorate that is aghast at the lack of discussion of global warming during the presidential debate. A Guardian US survey of its readers found that pressure on food and water supplies is considered the most important consequence of climate change. Sea level rise, which is set to inundate coastal areas currently occupied by millions of Americans, is second on the list of the most urgent issues.  The online poll, part of the Guardian’s Voices of America project, further highlights frustration among many voters over the tepid level of debate over climate change in the presidential race so far. Readers were asked to rank what they think are the most pressing issues thrown up by climate change. Phasing out fossil fuel, expansion of renewable energy and the unfolding disaster affecting coral and other marine life were all popular picks for the most important category. Deforestation and climate refugees also ranked highly. One reader said: “It’s frightening that neither major candidate is stressing the environment. Both buy into the concept that environmental concerns are bad for the economy. So sad to see Mrs Clinton backpedal on coal.” A separate commenter said: “I fear we have already waited too long for significant stopping action, but I’m still hoping for at least a chance for my grandchildren to live.” Another said: “We have to stop pouring gasoline on the fire. If we don’t address the root causes of all this suffering – our wasteful and destructive practices in all these areas – there is no hope for improvement.”

Scientists: Window for avoiding 1.5C global warming 'closed'  -- Scientists have bad news for people on the front line of climate change impacts. The 1.5C global warming limit vulnerable countries fought hard to include in the Paris Agreement may already be out of reach. There is slim chance of stabilising temperature rise at that level without controversial negative emissions technology, according to a study published in Nature. “The window for limiting warming to below 1.5C with high probability and without temporarily exceeding that level already seems to have closed,” the report found.  It is a blow for those living near the coast of Bangladesh or low-lying islands like Kiribati, which is preparing for an exodus as rising seas swallow homes.  Coral reefs dying and tropical heatwaves are also expected to kick in at moderate levels of global warming, affecting millions of people worldwide.   In the most up-to-date analysis available, researchers found national climate pledges were consistent with temperature rise of 2.6-3.1C above pre-industrial levels. Some poorer nations said they could cut greenhouse gas emissions further with financial support. These conditional targets would cool the planet a further 0.2C.

Bernie Sanders : Democrats Pass Most Aggressive Climate Change Plan in Party History -  Democrats agreed to the most aggressive plan to combat climate change in the history of the party here Saturdaynight. The accord commits Democrats to fight for a price on carbon, methane and other greenhouse gases and for massive investment in renewable energy sources like wind and solar power. It will also further advance the goals of the grassroots environmental movement by applying the formula that was used to evaluate and ultimately oppose the Keystone XL pipeline to all future fossil fuel pipeline projects. All federal decision making should look at the proposal's impact on the climate, according to the new platform language. While the plan does not ban fracking nationally as Sanders has called for, it will significantly limit fracking by forcing companies to disclose the chemicals they pump into the ground by eliminating the Halliburton Loophole. It also protects the right of states and localities to ban fracking. 'I am extremely proud of what we have accomplished tonight. This is the most aggressive plan to combat climate change in the history of the Democratic Party. As a result of this plan natural gas is no longer regarded as a bridge to the future. The future of America's energy system now clearly belongs to sun and wind power. But we are not finished. We have got to follow through on the promise of this agreement, to put people before the profits of polluters and solve the global crisis of climate change before it's too late,' Warren Gunnels, Sanders' policy director said. The amendment to the Democratic Party advances nearly all of the goals Sanders laid out in his platform to address climate change. Below is the amendment to the Democratic platform:

Republican Platform Says Coal Is Clean Energy -- The Republican platform committee met in Cleveland the week before the Republican National Convention to hammer out the party’s policies in a Trump era. Not to be outdone by Democrats, who approved the party’s strongest platform language yet on climate change this weekend, Republicans have gone as far as possible in the other direction—by endorsing coal as clean. After a unanimous vote on Monday, the RNC’s draft platform officially declares coal “an abundant, clean, affordable, reliable domestic energy resource.” David Barton, a delegate from Texas, proposed the single-word edit to the RNC’s already-glowing list of adjectives on coal in its platform draft. “I would insert the adjective ‘clean’ along with coal, particularly because the technology we have now,” was Barton’s reasoning. Watch the clip that Mother Jones pulled together:  For years the coal industry—and at one point, even President Obama—promoted the idea of “clean coal,” that expensive and imperfect carbon-capture-and-storage technology could someday make coal less terrible. But there’s no way it is clean. The RNC language just happens to reflect the same talking points favored by the lobby group, American Coalition for Clean Coal Electricity (ACCCE), which on its website calls coal “an affordable, abundant and increasingly clean domestic energy resource that is vital to providing reliable low-cost electricity.”

GOP Platform Proposes To Get Rid Of National Parks And National Forests -- The Republican platform committee met this week to draft the document that defines the party’s official principles and policies. Along with provisions on pornography and LGBT “conversion therapy” is an amendment calling for the indiscriminate and immediate disposal of national public lands. The inclusion of this provision in the Republican Party’s platform reflects the growing influence of and ideological alliance between several anti-park members of the GOP and anti-government extremists, led by Cliven Bundy, who dispute the federal government’s authority over national public lands.  “Congress shall immediately pass universal legislation providing a timely and orderly mechanism requiring the federal government to convey certain federally controlled public lands to the states,” reads the adopted language. “We call upon all national and state leaders and representatives to exert their utmost power and influence to urge the transfer of those lands identified.” The provision calls for an immediate full-scale disposal of “certain” public lands, without defining which lands it would apply to, leaving national parks, wilderness areas, wildlife refuges, and national forests apparently up for grabs and vulnerable to development, privatization, or transfer to state ownership. "That's a very broad brush to basically say we're going to turn over all federal lands to states; some states don't have the resources to handle it," said West Virginia state Senator and committee delegate Vic Sprouse, who was pushing for a similar provision, but with milder language. He said this more extreme language would instead "willy-nilly" turn over federal property without regard to the type of land or willingness of the state to manage it.

Senators strike deal to move forward on sweeping energy bill | TheHill: The Senate will vote this week on whether to enter formal negotiations with the House toward a compromise energy policy bill. Senate Majority Leader Mitch McConnell (R-Ky.) announced the plan for a conference vote Monday, after weeks of negotiations with Democrats.  The Democrats had resisted going to conference, since the House’s bill is filled with Republican priorities that they say would weaken environmental rules, boost fossil fuels and garner a veto from President Obama. “The Senate will have an opportunity to go to conference with the House to work toward an agreement on the Energy Policy Modernization Act. This reform bill which passed the Senate in April represents the first broad energy legislation to move through the Senate since the Bush administration,” McConnell said. “Going to conference on this measure would put us one step closer to getting a bill and sending it to the president.” A spokeswoman for Sen. Maria Cantwell, top Democrat on the Energy and Natural Resources Committee, said Senate leaders have agreed to restrict the negotiated bill and take out provisions that Obama would veto. Thanks to that agreement, Cantwell is supporting the vote to go to conference, and will urge other Democrats to do the same, the spokeswoman said. That makes it very likely to reach the 60 votes needed to formally start the conference process.

The House Put A Lot Of Stupid Things In The EPA’s Budget Bill  -- The House has finished considering amendments for and is expected to pass a bill that will fund the Department of the Interior, the Environmental Protection Agency, and several other related administrative offices. There is virtually zero chance that the bill will ever become law.  The bill, as written by the Republican-led House, prohibits the EPA from implementing the Clean Power Plan or the Waters of the United States rule, two key administration priorities and also helpful ways to keep our air and water at levels that can sustain human life. Even if the Senate version didn’t face a filibuster, President Obama has already said he will veto a bill that doesn’t allow the EPA to do its job.  This bill would effectively stop the EPA from advancing any new health or safety safeguards.   But the House pushed forward with 130 amendments over the past two days, despite promises last fall that Congress would work together to provide Obama with a poison-pill-free set of appropriations bills.  During the appropriations process, the White House first provides Congress with a proposed budget. Congress then produces a set of appropriations bills — funding, to some degree or another, each of the president’s requests. The trouble comes when when Congress chooses to not simply fund the government, but to use the budgetary process as a way of micro-managing what it is allowed to do.  “The Interior appropriations bill is bloated with destructive, dangerous, even absurd provisions. It makes clear the Republican leadership’s goal: to block environmental progress on any and all fronts,” Scott Schlesinger, legislative director at the Natural Resources Defense Council, said in a statement. “This bill would effectively stop the EPA from advancing any new health or safety safeguards, no matter how great the need.” Just consider some of the amendments House representatives passed Tuesday:

House GOP subpoenas NY, Mass. AGs on climate change probe - (AP) — Escalating a political fight over global warming, a Republican House chairman issued subpoenas Wednesday to two Democratic state attorneys general, seeking records about their investigation into whether Exxon Mobil misled investors about man-made climate change. Texas Rep. Lamar Smith, chairman of the House Science Committee, is pursuing records from New York Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey along with nine environmental, scientific and philanthropic organizations. Smith insisted he acted only after they refused for months to give the panel information lawmakers had requested on the Exxon Mobil case. Smith, who is among a large group of congressional Republicans who reject mainstream climate science, said Schneiderman and Healey were pursuing “a political agenda” on behalf of environmental groups that are fighting Exxon over decades-old research related to climate change. The groups accuse Exxon of hiding early findings showing a link between global warming and the burning of fossil fuels such as oil and gas. Exxon denies that it suppressed findings from its own research that dates back more than 30 years. Smith and other Republicans portrayed the issue as a matter of free speech, charging that Schneiderman, Healey and their allies were trying to intimidate scientists and others who question man-made climate change. “The actions by the attorneys general amount to a form of extortion,” Smith said at a news conference at the Capitol. The two officials and their allies want an out-of-court settlement with Exxon and other companies “so they can obtain funds for their own purposes,” Smith said.

Republican Subpoena Looks for Political Motivations in Exxon Probe -- House Science Committee Chairman Lamar Smith announced Wednesday that he has issued 11 subpoenas to the attorneys general of New York and Massachusetts, eight environmental groups, and one law firm. It is the latest development in an extended back-and-forth over how much ExxonMobil Corp. knew about climate change. The Texas Republican’s subpoenas ask for documents pertaining to communications between the attorneys general and environmental advocates leading up to the states’ investigations into Exxon. Both states have subpoenaed Exxon and others for information on its communications about climate change, investigating whether the company committed fraud by lying about how much it knew about the negative effects of global warming. In response, Smith began sending letters in May asking for state communications with environmental activist organizations. The subpoenas raise the stakes on Smith’s accusations that the efforts are politically motivated. Smith said Wednesday that the state investigations are politically motivated by environmental activists. When asked on Wednesday if he suspected legal wrongdoing by the attorneys general, or just ugly politics, Smith said he wasn’t sure. “I don’t know what we will find,” he said. “It’s possible that we might find an intent to intimidate or possible infraction of laws. We don’t know. That’s why we’re asking.” The subpoena gives the attorneys general and advocacy groups until July 27 to comply. The environmental groups include the Union of Concerned Scientists, the Climate Accountability Institute, the Climate Reality Project, the Rockefeller Family Fund, the Rockefeller Brothers Fund, Greenpeace,, the Global Warming Legal Action Project and the Pawa Law Group.

Did An Entire Region Of The U.S. Just Disincentivize Renewables? This Lawsuit Says Yes. - During the 2014 polar vortex, wind generation saved consumers $1 billion, according to industry estimates.   During the polar vortex of 2014, power companies struggled. There wasn’t enough natural gas power in the pipeline (pun intended), and prices skyrocketed. The shortage was expensive for homeowners — some saw their monthly bill go up five-fold from January to February — but for utilities, it was expensive, dangerous, and scary. No one wants to be on the hook for a bunch of families losing power in the middle of a -7°F night.  Following the prolonged cold snap, PJM, the entity that oversees utilities in the Mid-Atlantic and parts of Appalachia and the Midwest, put a plan into action: It would help the local utilities ensure that power was more reliable. To do this, PJM fast-tracked new rules for capacity resources — an industry phrase for guaranteed electricity supply. The Federal Energy Regulatory Commission (FERC) approved the new rules last May.  The new rules will funnel billions of dollars from electricity consumers to fossil and nuclear power plants.  But now four environmental groups, including the Natural Resources Defense Council and the Sierra Club, have announced a lawsuit against FERC, saying the rules are going to cost consumers and are unduly burdensome to renewable energy.  Under the new rules, renewable energy providers, such as solar and wind companies, will have a hard time participating in PJM’s capacity market, where utilities pay to make sure that they have a certain amount of electricity guaranteed in future years. The new rules require the providers in the market to be able to provide consistent production year-round, whereas wind and solar perform better during different parts of the year.

The Collapse of California's Carbon Cap-and-Trade Market - Back in 2006, the state of California enacted a law to establish a cap-and-trade market for selling carbon emissions. The market covers about 85% of state carbon emissions. The broad idea was that the state would use a mixture of regulatory rules and the carbon market to cut emissions. Moreover, the state would raise money through regular auctions of "allowances" to emit carbon. But in early 2016, the price of carbon allowances being bought and sold in the secondary market fell below the minimum "price floor" that the state of California would charge for these allowances. Because it was cheaper to buy allowances in the secondary market from those who already owned them than from the state, 90% of the available carbon allowances went unsold in the May 2016 auction, and California received about $880 million less than expected.  Danny Cullenward and Andy Coghlan describe what happened in "Structural oversupply and credibility in California’s carbon market," which appears in The Electricity Journal (June 2016, 29, pp. 7-14). (The article isn't freely available on-line, but many readers can probably obtain access through library subscriptions.) But the broader issue here goes beyond the California auctions and should be a concern to anyone who advocates a cap-and-trade approach to reducing carbon emissions. A couple of years ago, prices for carbon allowances in the European Union carbon trading market also dropped dramatically. Is what went wrong in the California cap-and-trade market for carbon emissions related to what happened in the EU--and do these experiences point to an underlying problem with this approach? Here are a couple of figures from Cullenward and Coghlin about the recent California experience. The first figure shows how many carbon allowances remained unsold after each auction since 2011. The solid line shows unsold allowances for current carbon emissions. The auction also sold allowances for emissions up to three years in the future, which are shown with the lighter bars. You can see that in the past, most of the allowances were sold, but not the pattern changes in early 2016.

New UK PM Scraps Department of Energy and Climate Change  - New UK Prime Minister Theresa May has scrapped the Department of Energy and Climate Change (DECC), and added energy policy responsibilities to the government's business department. The renamed Department for Business, Energy and Industrial Strategy will be headed by the Right Honourable Greg Clark MP, who will be known as the Secretary of State for Business, Energy and Industrial Strategy. Clark was previously the government's Communities Secretary. Clark said in a statement he is "thrilled" to lead the new department, which is "charged with delivering a comprehensive industrial strategy, leading government’s relationship with business, furthering our world-class science base, delivering affordable, clean energy and tackling climate change."   Trade association Oil & Gas UK responded to the news Thursday afternoon by issuing a statement in which its chief executive, Deidre Michie, said: "We will be looking to meet with Mr Clark as soon as possible to discuss the challenges our industry is facing and the opportunities the North Sea offers both for business growth and ensuring a secure energy supply for the UK. "We very much welcomed the joined up approach taken by the previous government and we hope ministers will continue to work together across the relevant departments to support our sector. "Offshore oil and gas is one of this country's greatest industrial success stories and must remain a linchpin of a UK industrial strategy. Yet we are at a critical juncture and we need to work with government to address low levels of exploration and development in the North Sea and send a strong message that the UK Continental Shelf is a great place to invest in."

Climate change department killed off by Theresa May in ‘plain stupid’ and ‘deeply worrying’ move  - The decision to abolish the Department for Energy and Climate Change has been variously condemned as “plain stupid”, “deeply worrying” and “terrible” by politicians, campaigners and experts. One of Theresa May’s first acts as Prime Minister was to move responsibility for climate change to a new Department for Business, Energy & Industrial Strategy. Only on Monday, Government advisers had warned of the need to take urgent action to prepare the UK for floods, droughts, heatwaves and food shortages caused by climate change. The news came after the appointment of Andrea Leadsom – who revealed her first question to officials when she became Energy Minister last year was “Is climate change real? – was appointed as the new Environment Secretary. And, after former Energy and Climate Change Secretary Amber Rudd announced in November that Britain was going to “close coal” by 2025, Ms Leadsom later asked the coal industry to help define what this actually meant.  Former Labour leader Ed Miliband tweeted: “DECC abolition just plain stupid. Climate not even mentioned in new deptartment title. Matters because departments shape priorities, shape outcomes.” Greenpeace said it was concerned that the new Government did not view climate change as a serious threat..

Latest Leak Shows How TTIP Puts US-EU Clean Energy Goals in 'Mortal Danger'  -  A new leak provides further confirmation that the pro-corporate TransAtlantic Trade and Investment Partnership (TTIP) between the U.S. and European Union would result in "a giant leap backward in our fight to keep fossil fuels in the ground." As the 14th round of TTIP negotiations started in Brussels on Monday, the Guardian reported that the latest draft of the agreement "could sabotage European efforts to save energy and switch to clean power." The draft energy chapter obtained by the Guardian "shows that the EU will propose a rollback of mandatory energy savings measures, and major obstacles to any future pricing schemes designed to encourage the uptake of renewable energies," wrote reporter Arthur Nelson. According to a Sierra Club analysis of the leak, the TTIP proposal would:

  • Require the U.S. and the EU “to eliminate all existing restrictions on the export of natural gas in trade between” the two parties;
  • Undermine clean energy policies, such as renewable portfolio standards or feed-in tariffs, by stating that electricity utilities in the U.S. and the EU shall not discriminate “between types of energy” in granting access to the electrical grid;
  • Obligate the U.S. and the EU to “foster industry self-regulation” on energy efficiency rather than using mandatory requirements that oblige corporations to boost the energy efficiency of their products; and
  • Threaten protections against destructive extraction of fossil fuels and natural resources in countries outside of the U.S. and EU.

Industry questions German roadmap - -- Germany's new renewable energy law, approved by its parliament this week, is not as ambitious as other EU member states and lacks stability in volumes for offshore wind, according to WindEurope. The law sets an offshore cap, which will apply from 2021–2030, that will vary from year to year to ensure that Germany reaches its 15GW wind energy target in the next 15 years.  It will also replace feed-in tariffs with competitive auctions. Under the plan, 500MW of offshore wind will be supported in 2021 and 2022, which is less than the 730MW annual target initially proposed. WindEurope chief executive officer Giles Dickson said: “The build out rate [for offshore wind] after 2020 will be uneven as the auctions vary in size from year to year. “The volumes are also less ambitious than other member states such as the UK, which has committed to 1GW a year to 2030 and the Netherlands, which will tender 1.4GW this year and then a further 700MW each year to 2020. “The shift from feed-in tariffs to tenders is a trend we are seeing across Europe. Germany's move was to be expected as member states bring their support schemes into line with the European Commission’s state aid guidelines.” Onshore wind auctions are capped at 2.8GW and are expected to increase after 2020 to 2.9GW a year.

Thousands Got Naked and Painted Their Bodies Blue for Climate Change - If you were taking a morning stroll through the British town of Hull over the weekend, you might have been shocked to find a surreal, Smurf-like scene: a crowd of roughly 3,200 completely nude people gathered in the streets, all clustered together and painted bright shades of marine blue. The art installation was the brainchild of U.S.-based photographer Spencer Tunick, who was asked by a local museum to create one of his iconic large-scale works. Tunick put out a call for volunteers to participate in the visual project, which brings attention to the rising sea levels propelled by climate change. “It’s the idea that the bodies and humanity is flooding the streets,” Tunicktold The Guardian. Things got started in the early hours of Saturday morning, as the volunteers stripped and painted their bodies with a collection of four shades selected and distributed by the artist and his team. “I always say that it’s the least sexual thing that I’ve ever seen in my life,” said 80-year-old Stephane Janssen, who has taken part in many of Tunick’s projects. “We are naked, but it is not important. We are equal. Big people, small people, all colors, all walks of life.” The photographs will be ultimately displayed in the local Ferens Art Museum next year, as Hull celebrates its designation as a 2017 U.K. City of Culture. Take a look at some snaps of the surreal scene below.

Oil giant Shell shows its love for millennials in leaked plans to dominate planet's energy  -- Oil giant Royal Dutch Shell wants everyone to talk about transforming the planet’s energy and is seeking out millennials as a key target in its plans to dominate the global conversation, according to a leaked strategy document obtained by international environmental activists at Greenpeace. Although the Shell strategy aims to promote what it described as a path to “net zero emissions” in a world that tackles climate change, Greenpeace is accusing the Dutch oil giant of trying to manipulate public opinion and distract them from the impacts of its fossil fuel business. The Shell strategy identifies “Energy Engaged Millennials” as the key to the company’s future business success and identifies Canada as one of four primary targets for its new message. The so-called "Energy Engaged Millennials" would be “18 to 34 year olds who have an active, passive or latent interest in the subject of energy or in subjects that are heavily reliant on, or related to, energy (eg. social progress, urbanization, technology and innovation),” Shell said in the leaked strategy document. “They are more open-minded (in general and with respect to Shell) than older generations so engaging with them appropriately at this point to develop brand loyalty,” said the leaked document. “Their social connectivity suggests they can potential(ly) influence others and have direct and significant impact on Shell’s business. Helping them to have a more realistic understanding and stronger appreciation of Shell (and equipping them with meaningful and relevant perspectives to share) will potentially result in more positive brand advocacy.” Shell says it has designed its net zero emissions strategy to promote a shift toward a prosperous future with lower carbon pollution, while building its business that is now a major source of the heat-trapping emissions.

Coke fight to go before Detroit zoning appeals board - Crain's Detroit Business: A Detroit business owner may have to spend piles of cash to store piles of an industrial byproduct that was the subject of a furor last fall started by a tweet. In October, former state Rep. Rashida Tlaib notified several thousand followers on Twitter of the piles of what she referred to as "petcoke" on a Detroit riverfront site, 2½ years after a River Rouge-based company came under fire for not properly containing dust from the petroleum refining byproduct at a site near the Ambassador Bridge. A slew of media coverage followed. But it wasn't petroleum coke at the Waterfront Petroleum Terminal Co. site, according to the property owner's attorney, Beth Gotthelf, a shareholder in the Bloomfield Hills office of Butzel Long PC. Now the city is trying to force the owner of the site to build a 100-by-700-foot structure costing an estimated $3.2 million to contain the mounds of metallurgical coke breeze — not petroleum coke — in an area of the city that has been heavily industrial for decades but has long had tensions over pollution.

How the Sierra Club Got Control of a Massive Coal Reserve --  In 2014, Alpha Natural Resources was the fourth-largest coal producer in the U.S., accounting for 80 million tons. But in 2012, the Sierra Club and two other nonprofits, the West Virginia Highlands Conservancy and the Ohio Valley Environmental Coalition, had sued the company on environmental grounds. . In February 2015, Alpha signed a consent decree that would require it to spend about $150 million to clean things up by 2019.  Six months later, in August 2015, Alpha Natural Resources followed several other coal companies into bankruptcy. Once a company files for Chapter 11, lenders, creditors, and other parties to which the company has obligations make deals to convert liabilities into ownership, or to renegotiate terms. And it’s hard for a company to exit bankruptcy and get on with things unless it has resolved all the major issues.  Alpha developed a plan for a new lease in life. It sold off its natural gas assets in May for $340 million, and then effectively decided to split into two. A group of lenders would take ownership of its mines in Wyoming and Pennsylvania, plus assorted assets in other states. This new company would be dubbed Contura Energy. Alpha would hold onto its remaining assets in Appalachia, chiefly to pursue reclamation.  But here’s the thing: Under the consent decree with the Sierra Club and its allies, the reorganized companies, which had lots of resources but not much cash, were supposed to start doing work on the environmental cleanup immediately.  “We gave them a three-year extension on the time to install all those water-treatment solutions and agreed not to oppose the confirmation of Alpha’s reorganization plan,” says Peter Morgan, a staff attorney with the Sierra Club. In exchange, Alpha would donate $7.5 million to groups engaged in reforestation and stream restoration in West Virginia. What’s more, it offered the Sierra Club and its allies something else: control of a 53 million–ton coal reserve in southwestern Pennsylvania.*

'Sleeper issue' of leaking coal seam gas fields may blow hole in emissions goals: Gas has long been touted as cleaner than coal and marketed as a "transition" fuel until the mass take-up of renewable energy becomes viable. But a growing chorus of voices from Australia and overseas is warning that any perceived benefits could easily be lost with just small leakages. Professor Peter Rayner from the University of Melbourne says it takes just 1-2 per cent of gas leakage for any advantage to be lost. Australia's coal seam gas industry claims its leakage is just 0.02 per cent but increased detection of leaks in the US – triggering a flurry of studies – suggest some big changes are in the winds.  US regulators this year lifted their estimate of America's annual emissions of methane – the potent gas that makes up most of natural gas – by 13 per cent with leakage from the oil and gas industry largely blamed.While Australia's gas boom, particularly for coal seam gas, is of a much smaller scale than the US shale bonanza, many of the issues are identical. These include the lack of baseline studies to distinguish the impacts of drilling and fracking of wells from natural methane seepage. The uncertainties around CSG in particular "are really very large", Professor Rayner said. "It's closer to the surface [than conventional gas] ... it's more dispersed, and the chances for something to go wrong are much higher," he said.

China building 200 GW of coal-fired power despite capacity glut: Greenpeace | Reuters: China is building another 200 gigawatts (GW) of coal-fired power capacity despite tough new measures designed to cut the use of fossil fuels and tackle overcapacity, environmental group Greenpeace said on Wednesday. China's coal-dominated thermal power sector has continued to expand rapidly amid an unexpectedly sharp slowdown in energy consumption growth, as well as a state-led effort to tackle smog, cut carbon emissions and encourage cleaner forms of electricity. According to National Energy Administration (NEA) data, China's total thermal capacity grew 7.8 percent in 2015 to 990 GW, outstripping a 0.5 percent increase in consumption. Another 24 GW went into operation in the first five months of 2016. Greenpeace said more than 1 trillion yuan ($150 billion) could be "wasted" on new capacity in the next five years, leading to a surplus of 400 GW. China is currently estimated to have around 200 GW of excess capacity. After utilization rates fell to their lowest point in nearly four decades last year, China said in April that it would speed up the retirement of old plants by raising environmental, efficiency and safety standards. Greenpeace said the measures would see 110 GW of coal-fired power projects suspended and up to 70 GW retired by 2020, but changes to permitting last year meant there were still another 295 units under construction, with a total capacity of 200 GW.

China Pledged to Curb Coal Plants. Greenpeace Says It’s Still Adding Them. - The Chinese government is trying to slow down the approval of new coal-fired power plants because of overcapacity, but projects already in the pipeline, as well as loopholes in policy, mean China is on track to add an average of one new coal-fired plant a week until 2020, according to a report released on Wednesday by Greenpeace East Asia. The construction boom would result in about 400 gigawatts of excess capacity and would waste more than one trillion renminbi, or $150 billion, on building unneeded plants, the report said. China now has 910 gigawatts of coal-fired capacity and is expected to retire 70 gigawatts of that. The new construction means the country would increase capacity at a time when additional coal-fired power is not needed, Greenpeace said. As part of its broad climate change policy, China — the world’s biggest emitter of greenhouse gases — has promised that it would try to make 20 percent of its energy renewable by 2030. But given the planned growth in coal power capacity, some environmentalists question that goal.  Mr. Myllyvirta and other Greenpeace researchers have been trying to calculate the amount of overcapacity of coal-fired power plants in China. Greenpeace East Asia released its first report on the topic in November, noting that 155 projects had received a permit in 2015, equal to 40 percent of operational coal power plants in the United States. In March, Greenpeace revised that number upward, saying 210 new or proposed plants, with a total capacity of 165 gigawatts, had received environmental permits last year. Greenpeace tracked China’s proposed capacity by examining provincial websites for permit approvals

Coal India accused of bulldozing human rights amid production boom -- The bulldozer came to Barkuta village at 10am one February morning. Nirupabai was working in the fields when her neighbours called, telling her to rush home. By the time she reached her house it had been reduced to rubble. “I cried, I screamed, trying to save it,” she says, recalling the eviction now two years on. “All my things, my son’s school books, a year’s worth of rice, everything was scattered, everything in ruins.”  Barkuta is one of seven villages that neighbour the Kusmunda opencast coalmine in the state of Chhattisgarh. In 2005, the government drew up an emergency coal production plan to curb the effects of huge, impending energy shortages in the rapidly industrialising country. Kusmunda was one of 16 mines identified for expansion. In 2014, the bulldozers came, and Nirupabai had no home. According to a report by Amnesty International released on Wednesday, state-owned Coal India and its subsidiaries in the states of Jharkhand, Odisha and Chhattisgarh have neglected both local and international human rights law in the eviction and land acquisition process as mining operations expand. The Ministry of Power has slammed the report as “baseless canards”, which are “part of a conspiracy to derail the development and progress of India”. The brunt of the coalmine expansion, according to Amnesty, is being borne by India’s Adivasi aboriginal communities. Aruna Chandrashekhar, a researcher at Amnesty, said interviews with 124 people in the three states reveal human rights violations.  Coal is India’s main source of power and successive governments have attempted to expand production. In 2015, India consumed 990 megatonnes of coal, second highest in the world after China. According to PricewaterhouseCoopers, this figure will grow by about 7% every year until 2021.

Utility: Keep deal that split costs from closed nuke plant (AP) — Southern California’s largest utility is urging state regulators to uphold a 2014 settlement under which consumers would shoulder most of the nearly $5 billion in costs tied to the closed San Onofre nuclear power plant. In a filing Thursday with the state Public Utilities Commission, Southern California Edison said conclusions reached by the commission at that time remain sound. And the company warns ratepayers could face higher costs if the deal is voided. The commission decided to take a second look at the case after revelations that an Edison executive held closed-door discussions with then-commission President Michael Peevey before the agency endorsed the deal. The agreement requires consumers to cover $3.3 billion in costs, with $1.4 billion going to shareholders. The plant closed in 2013 after a failed equipment swap.

Virginia group says new nuclear plant would be boondoggle (AP) — If Dominion Virginia Power goes ahead with plans to build a $19 billion nuclear plant, it would be one of the biggest ratepayer rip-offs in the history of producing electricity, a consumer group said in comments filed Tuesday. In the comments filed with state regulators, the Virginia Citizens Consumer Council argue that Dominion Virginia Power should stop spending money on a potential new plant because it will unfairly burden the company’s customers while enriching its investors. “The rich get richer and the ratepayers get poorer,” said Mark Cooper, a senior fellow for economic analysis with the Institute for Energy and the Environment at Vermont Law School who was hired by the VCCC as an expert witness. Dominion has argued in filings with state regulators that the option of building a third unit at its North Anna site “is of great value” for customers because of the uncertain future of federal carbon-emission rules. Dominion has not committed to build the new plant, known as North Anna 3, but plans to have spent at least $647 million by next year preparing for a potential build. Ratepayers have already covered $300 million of that, and could wind up paying for all of the preparation costs. The company says ratepayers will benefit from having the option to build a reliable, long-lasting and carbon-free power source. “A diversified energy portfolio of all generation sources is necessary to keep the lights on 24×7 for Virginia’s homes, businesses, the military, hospitals, and 911 centers,” Dominion spokesman David Botkins said in an email.

Radioactive waste and the nuclear war on Australia's Aboriginal people - The Ecologist: Australia's nuclear industry has a shameful history of 'radioactive racism' that dates from the British bomb tests in the 1950s, writes Jim Green. The same attitudes persist today with plans to dump over half a million tonnes of high and intermediate level nuclear waste on Aboriginal land, and open new uranium mines. But now Aboriginal peoples and traditional land owners are fighting back!   From 1998-2004, the Australian federal government tried - but failed - to impose a national nuclear waste dump on Aboriginal land in South Australia.  Then the government tried to impose a dump on Aboriginal land in the Northern Territory, but that also failed.  Now the government has embarked on its third attempt and once again it is trying to impose a dump on Aboriginal land despite clear opposition from Traditional Owners.  The latest proposal is for a dump in the spectacular Flinders Ranges, 400 km north of Adelaide in South Australia, on the land of the Adnyamathanha Traditional Owners. The government says that no group will have a right of veto, which is coded racism: it means that the dump may go ahead despite the government's acknowledgement that "almost all Indigenous community members surveyed are strongly opposed to the site continuing."  The site is adjacent to the Yappala Indigenous Protected Area (IPA). "The IPA is right on the fence - there's a waterhole that is shared by both properties", said Yappala Station resident and Adnyamathanha Traditional Owner Regina McKenzie. The waterhole - a traditional women's site and healing place - is one of many archeological and culturally significant sites in the area that Traditional Owners have registered with the South Australian government over the past six years.

The Grim Task Awaiting Theresa May: Preparing for Nuclear Armageddon - If tradition holds, in her first hours as the United Kingdom’s new prime minister, Theresa May will meet with the British defense leadership and receive an eye-opening briefing about the nation’s nuclear plans. Sir Nicholas Houghton, the 61-year-old chief of the Defence Staff who is due to retire this month to become the constable of the Tower of London, will, as one of his final acts, walk Prime Minister May through the country’s nuclear plans and the damage that could result in the event of nuclear attack on her country. Story Continued Below Then, amidst the all the public pomp and circumstance of assuming her office and determining a course of action for the country following the world-changing “Brexit” vote, one of the first things May will be tasked with doing in her new office is perhaps the most grim duty of any head government official in the world: Handwriting what’s known as a “Letter of Last Resort”—the secret instructions, to be remain sealed until after Armageddon, about what the nation’s submarine commanders should do with the UK’s nuclear weapons, housed on their subs, if the country has been destroyed. Actually, she’ll write four of them—all identical—one to each sub commander in the U.K. fleet.

Ohio's alternative-energy freeze undermines jobs, innovation and investment (Opinion) | -- Ohio has long prided itself as the cradle of American innovation. Unfortunately, the energy policy roller coaster initiated by Senate Bill 310 has effectively frozen the state's market for energy innovation and the local investment that flows from it. In the past two years, Ohio has shut itself off from an advanced-energy industry that generated $200 billion in revenue in the United States last year and employs more than 100,000 Ohioans. In 2015, only $25 million was invested in solar installations in Ohio compared to $100 million in 2013, causing Ohio to fall from its rank as the 16th state for solar installations in 2012 to 29th in 2015, according to GTM Research. Also, no new investments were made or projected for Ohio wind since 2012, according to a 2015 report by The Pew Charitable Trusts.  Stable costs and options for managing them are important when corporations like Facebook and Amazon decide where to locate their facilities. The cost of energy is a major consideration in these decisions. Ohio needs to make sure it is at the forefront of technologies that put customers in control, instead of clinging to old ways of meeting energy needs.  Whether buying or selling, businesses like ours need stable rules to invest with confidence. But Ohio's uncertain energy policy over the last two years has undermined investment in advanced-energy industry companies and products in the state. That's costing us all money.

YSPH Study of Environmental Contaminants Associated with Fracking Underway in Ohio - Yale News - A team of Yale School of Public Health scientists has launched the Ohio Water and Air Quality Study in Belmont County, Ohio. The scientists will collect and analyze water and air samples this summer as well as administer health questionnaires to 100 residents in communities with unconventional natural gas development. The researchers will investigate the potential for exposure to environmental pollutants and whether any health problems have resulted. Unconventional natural gas development (commonly known as hydraulic fracturing or fracking) has expanded dramatically in Eastern Ohio over the past five years. But information on whether the fracking process contaminates water or air in nearby communities remains limited, said Nicole Deziel, assistant professor in the Department of Environmental Health Sciences and the study’s lead researcher. Drinking water can become contaminated from improperly constructed or deteriorating wells near fracking sites or from spills, improper storage, transportation or disposal of the wastewater used in fracking. Air pollution can be generated from well site construction, drilling, increased truck traffic and emissions from waste ponds, compressors, or processing stations. The limited existing health studies suggest an increase in hospitalizations, adverse birth outcomes, such as an increase in congenital heart defects or pre-term births, and respiratory or dermal irritation. Studies measuring concentrations of health-relevant chemicals in drinking water sources are emerging, but data are sparse, particularly in Ohio.

Election board says proposed Athens County charter not valid - In a unanimous vote Friday, the Athens County Board of Elections ruled that a proposed county charter petition is not valid, a decision that will likely result in the issue going to court. The Athens County Bill of Rights Committee filed a petition June 29 with the elections board seeking to have a proposed county charter placed on the November ballot. It was the committee’s second attempt to put a charter before voters. The proposed charter would prohibit the use of water from Athens County for high-volume hydraulic fracturing (fracking) for extraction of oil and gas, and prohibit the disposal of fracking waste in Athens County. A copy of the proposed charter is attached to this article on The elections board had requested a legal opinion from County Prosecutor Keller Blackburn on whether the proposed charter constitutes a valid charter under Ohio law. In response, Blackburn told the board that the charter is not valid — although he also recommended that it be allowed to go before voters. It was Blackburn’s finding that the charter is not valid that the elections board used as the basis of its decision, according to board member Aundrea Carpenter-Colvin. The board sent notification to the county commissioners that the petition contained sufficient valid signatures, but that the petition is not a valid charter. (If the elections board had found the petition valid, the commissioners could have voted to certify it for the ballot.) “Based on what we had to use to decide, that was our decision,” Carpenter-Colvin said after Friday’s meeting. She said the vote was not based on board members’ personal feelings about fracking or whether there should be a charter government. “That had nothing to do with the decision we made,” she said.

Here we go again... Election board rejects BORC's county charter - -- The Athens County Board of Elections voted unanimously for the second time in as many years that a proposed anti-fracking charter for Athens County should not go to county voters because it’s invalid. On June 29, the Athens County Bill of Rights Committee (ACBORC) submitted a proposal to the elections board for the November ballot to turn Athens County into a charter government. The committee’s charter does not propose to alter the structure of Athens County government with regard to officeholders or duties, but does seek to assert local control over regulation of oil and gas hydraulic fracturing and other activities related to oil-and-gas development (including fracking waste-injection wells). The county Board of Elections found that the proposal had enough valid signatures to go on the ballot, with 1,720 valid signatures out of 1,441 needed and 2,392 collected. Nevertheless, after voting 4-0 against putting the charter to voters, the elections board informed the Athens County Commissioners that they had determined that although the petition contained sufficient valid signatures, “the petition is not valid.” “Upon review and in consultation with the Athens County Prosecutor, we find that the petition is not a valid charter,” they wrote to the commissioners, whose role is to certify proposals that are recommended for the county ballot. The ACBORC is now expected to challenge that decision, which will put the matter into the hands of an Athens County Common Pleas Court judge next for consideration. “It does not alter the form of government in Athens County,” the board wrote. “It does not take the powers of the municipalities and townships and vest those powers with the county. It relies on (Ohio) Revised Code to determine qualifications and salaries of elected officials.” Those last three sentences are verbatim from a letter Athens County Prosecutor Keller Blackburn sent to the Board of Elections after being asked to review the charter proposal.

University of Cincinnati Retracts Fracking Study - The University of Cincinnati has retracted a study on pollution caused by hydraulic fracturing or fracking, according to Energy in Depth (EID). The researchers for “Impact of Extraction on PAH Levels in Ambient Air” pulled the study, which showed no contamination from hydraulic fracturing, citing a mistake in their concentration calculations.  Of note, participants in the study were recruited from the group Carroll County Concerned Citizens, an anti-fracking group.  The article in question was published in March of last year and the retraction was issued on June 29th, 2016. EID claims that Dr. Erin Hayes, who was a co-author of the article, has been a participant in anti-fracking events. EID also asserts that the authors of the study admitted that their sample sizes were too small, and that the “chief assumption used for their research model was “totally impractical.” According to EID, among other problems, included the fact that the researchers did not use random testing and did not consider other pollution sources beyond oil and gas. EID states that in cancer hazard assessments, researchers “assumed the worst.” The study looked at levels of Polycyclic Aromatic Hydrocarbon or PAH.

Beshear: No criminal charges for dumping radioactive waste – After his office conducted what he called “an exhaustive four-month investigation,” Kentucky Attorney General Andy Beshear said Friday he had insufficient evidence to seek criminal charges in the disposal of radioactive waste at the Blue Ridge Landfill in Estill County. While Beshear said he could not pursue criminal charges, he believes Advanced TENORM Services and its owners violated civil law. “Because of these flagrant violations and reckless disregard for the safety of the community, my office sought the necessary statutory consent from the Cabinet for Health and Family Services to pursue (civil) damages and penalties to the fullest extent of the law,” Beshear said. “The cabinet declined our request, but has stated it plans to pursue such penalties on its own.” AG investigators reviewed hundreds of documents and held multiple interviews with state officials and with individuals directly involved in the disposal at the landfill of sludge from the oil and gas industry that contained technologically enhanced naturally occurring radioactive materials or TENORM waste. Beshear said his office will provide any support requested by the cabinet from his office’s four-month investigation. “As attorney general, protecting Kentucky families is my top priority,” he said. “I want to therefore reassure our citizens that despite the inability to pursue criminal charges, my office encourages the cabinet to levy the harshest civil penalties available under Kentucky law against those responsible in this troubling case.”

CHFS seeking civil penalties for radioactive waste dumping - (WTVQ) – Kentucky’s Cabinet for Health and Family Services (CHFS,) has announced it is seeking what it calls “significant” civil penalties in connection to the disposal of radioactive waste at landfills in Estill and Greenup counties. “The Cabinet intends to impose the harshest civil penalties available under the law against all those responsible for the illegal dumping of waste in the Commonwealth,” said Secretary Vickie Yates Brown Glisson. “We will not tolerate any actions that threaten the health and well-being of our citizens.” The disposal of the waste was first discovered back in January, when the West Virginia Radiological Health Program notified CHFS about illicit out-of-state dumping by Advanced TENORM Services, LLC. Penalties are also aimed at Fairmont Brine. In addition to imposing penalties, CHFS says they are monitoring and testing exposed areas, performing dose assessments of workers at the landfill, and evaluating the potential for future exposure from the material.Citing insufficient evidence, Attorney General Andy Beshear announced on Friday that, after a four-month investigation, no criminal charges will be filed in the disposal of radioactive waste at the Blue Ridge Landfill in Estill Co. The Attorney General did make the distinction that though criminal charges would not be pursued, he believes civil laws were broken. Beshear said his office will provide any support requested by the cabinet from his office’s investigation.

More On Shell's Plan for a Marcellus/Utica Ethylene Plant - On June 7, 2016, Shell announced that it had made a Final Investment Decision (FID) to move forward with the $6 billion project to build a 1.5 million tonnes per annum (MTPA) ethylene plant and three polyethylene plants that will produce 1.6 MTPA of polyethylene. Polyethylene is used in many products, from food packaging and containers to automotive components.  This FID does not fully “guarantee” that Shell will proceed with the project, but it represents a major commitment, and given the plant’s ready access to locally sourced ethane and Shell’s “first-mover” status (several other crackers have been under consideration in the Marcellus/Utica area), it is reasonable to conclude that the plant is likely to become a reality by 2021 or 2022.  Construction of the cracker could begin as soon as late 2017 or early 2018.  Whether or not Shell Chemicals follows through on its plan to build a $6 billion ethylene plant near Pittsburgh, PA –– and when that steam cracker comes online –– will have a significant impact on the U.S. ethane, ethylene and polyethylene markets. By consuming an estimated 90-100 Mb/d of ethane, the cracker’s operation would reduce the volume of ethane that needs to be moved out of the “wet” Marcellus/Utica production area, trim the amount of ethane available for export from marine terminals, and likely push ethane prices higher than they would otherwise be. Today, we examine what’s driving plans for the Northeast’s first cracker, and what effects the plant will have.

Loneliest Natural Gas Terminal in U.S. Bucks Pipeline Trend - Thanks to the shale revolution, the U.S. has plenty of natural gas of its own. All along the eastern seaboard, a chain of import terminals -- built when the country expected to get its fuel from abroad -- now lie idle. Except one. For reasons that have to do with environmental politics and geology, New England is bucking the trend. Three or four times a month, a police helicopter escorts giant ships through Boston Harbor, as they deliver liquefied natural gas from Trinidad to a terminal on the Mystic River.. Why buy from the Caribbean, when so much cheap gas is pumped out of Pennsylvania and Ohio? One objection is the new pipelines needed to bring it to New England. The Northeast is famously cold in winter, and it sits on beds of granite that make underground fuel storage a problem, so gas and power prices typically spike way above the rest of the country when there’s a freeze. But using shale gas to cut the bills means a longer-term commitment to fossil fuels, and any proposed pipeline route triggers local objections: it will leave a scar along the Catskill Mountains, or pose a safety risk to residential neighborhoods. That’s the dilemma that has given Engie SA’s import facility near Boston, unlike all its peers, a new lease on life. “We’ve been competing with pipelines since we opened,” Once the gas arrives in Boston, some of it goes straight to an adjacent Exelon Corp. power station and the rest is transported via existing pipes or by truck. “It doesn’t make sense to build a pipeline to satisfy demand for 30 to 40 days a year,” Churchill says. That argument has seen off a few potential rivals. Kinder Morgan Inc. scrapped its proposed $3.3 billion Northeast Energy Direct project in April, after failing to sign up enough customers. The Constitution Pipeline, intended to bring Marcellus gas from Pennsylvania, has been held up because New York denied a water permit, amid concern about contamination of the city’s supply.

Power generation projects and natural gas demand in the US southeast - We talk a lot here in the RBN blogosphere about the bearish market effects of the Shale Revolution, and frequently highlight the U.S. Northeast natural gas region — rapidly growing gas production from the Marcellus/Utica; oversupplied, trapped-gas conditions; and resulting regional price discounts. These dynamics are driving massive investments in pipeline reversals, expansions and new capacity to move the gas to market. Northeast producers are counting on that increase in takeaway capacity to relieve price pressure and balance the market.  But all this gas moving out of the region needs a home.  Fortunately, new demand is emerging, from exports (to Mexico and overseas LNG) and into the U.S. power sector.  One of the big growth regions is the U.S. Southeast, where power utilities are investing heavily in building out their fleet of gas-fired generation plants and are banking on this new, unfettered access to cheap Marcellus/Utica gas supply. Today’s blog provides an update on power generation projects coming up in the southern half of the Eastern Seaboard, based on a recent report by our good friends at Natural Gas Intelligence — “Southern Exposure: Gas-Fired Generators Rising in the Southeast; But Will Northeast Gas Show Up?”

Way Down Yonder on the Sabine-ahoochee - A Lot About LNG Exports from Cheniere's Sabine Pass - When we last checked out Sabine Pass in February (2016) in Commencing Countdown, the terminal was in the late stages of commissioning activities for the first train planned for the export terminal. Cheniere’s Sabine Pass LNG (SPL) terminal in Cameron Parish, LA (along the Texas-Louisiana border) is the first of four brownfield projects targeting gas exports from the U.S. The terminal will ultimately include six liquefaction trains, each with the capacity to supercool up to 650 MMcf/d of natural gas into LNG (at -260o F) for a total capacity to liquefy 3.8 Bcf/d for loading and shipment overseas. The facility also has 17 Bcf of LNG storage capacity onsite. After four months of start-up activity beginning in October 2015, including taking delivery of piped natural gas to fuel compressors and to fill its five storage tanks, Train 1 began liquefaction and ultimately loaded and pushed off the terminal’s inaugural commissioning cargo on February 24 — the 3.39-Bcf Asia Vision bound for Brazil’s Petrobras — marking the first LNG export cargo from the Lower 48 since 1959, when the world’s first experimental LNG tanker The Methane Pioneer departed from Lake Charles, LA, with a tiny one-off cargo to the UK. Since the first LNG ship left its dock in February, Cheniere’s Sabine Pass LNG terminal has exported 17 cargoes containing the super-cooled, liquefied equivalent of over 50 Bcf/d of natural gas from the first of six planned liquefaction “trains.” And in a monthly progress report filed with the Federal Energy Regulatory Commission last month, Sabine Pass said it expected to begin loading a commissioning cargo from Train 2 in August, with commercial operation of that facility starting as early as September. In today’s blog we provide an update of Sabine Pass’s export activity, as well as the impact on the U.S. gas flows and demand.

See where fracking is happening off Louisiana's coast | Hundreds of fracking operations approved off the Louisiana coast are threatening key habitat for ocean wildlife and contributing to billions of gallons of wastewater dumped into the Gulf of Mexico each year, according to a new report from the Center for Biological Diversity.  Drilling permits obtained by the Tucson, Ariz.-based group show the federal government approved more than 1,200 fracking operations at some 600 wells in the Gulf of Mexico from 2010 to 2014. The bulk of the permits were for wells off the Louisiana coast. In addition to drilling, the group estimates companies in 2014 were allowed to release more than 76 billion gallons of waste fluid into the ocean based on an analysis of federal wastewater discharge permits. Unlike larger land operations, the public has little-to-no information about where fracking is occurring in the Gulf of Mexico, said Kristen Monsell, a Center for Biological Diversity attorney. There is also little record of the kinds of chemicals in the fluids dumped by companies, she added. Monsell noted hundreds of offshore fracking wells are in sensitive areas, including habitat for the endangered loggerhead sea turtles. But few undergo individual environmental reviews. Offshore fracking operations are moving forward virtually unchecked, she said. "It's far too big of a risk to fragile ocean ecosystems," Monsell said.

As prices rise, shale drillers return to to most profitable sites | Fuel Fix: Shale producers are tapping their crown jewel assets in response to the latest oil price rally, according to Morgan Stanley. The recovery in crude to close to $50 per barrel has encouraged shale producers to double down on their most profitable fields — a process known in oil country as high grading. This new trend threatens to force analysts to revisit calls for declining U.S. production, warned Morgan Stanley Commodity Strategist Adam Longson, and thereby constitutes a downside risk for prompt prices. “The rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak,” writes a Morgan Stanley team led by Longson. “Since May 6, the Midland has added 13 horizontal rigs in top tier counties versus only eight for the entire play.” In other words, capital is returning to the oil patch, and it’s being invested in new projects that will allow firms to boost production in an expeditious manner once the taps are turned on. The collapse in headline oil rig count, as such, continues to provide only a partial picture of the outlook for U.S. production. If this trend towards new fertile plays continues, it could alter the downwards trajectory for U.S. production in about four to six months, said Longson.“It’s also important to consider that the rigs are going into the most prolific areas, the decline curve for shale wells is flattening, and completing drilled-but-uncompleted wells could slow declines in as short as one to two months,” he added.

Texas not seeing big jump in abandoned wells: state official - The oil market downturn has not caused a substantial increase in abandoned oil and gas wells in Texas, a top state oil and gas regulator said Tuesday. "We're monitoring that issue closely, but we have not seen a significant increase in that number of high risk wells," said Lori Wrotenbery, director of the Railroad Commission of Texas' oil and gas division, during a panel discussion at the US Energy Information Administration's annual conference. Texas has roughly 435,900 drilled wells, including 323,500 active wells, including about 280,000 wells producing oil or gas and several service, injection and disposal wells, she said Tuesday. There are about 112,400 inactive wells, which Wrotenbery said was in line with the average over the past 15 years of about 110,000 inactive wells.State officials have identified about 9,500 wells which have either been abandoned or are at risk of being abandoned by operators, she said. About one-third of these, however, could be operators who have been delinquent in filings with the commission and could be remedied shortly, she added. Texas produced nearly 2.49 million b/d of crude oil in April, about 520,000 b/d less than what was produced in April 2015, according to Railroad Commission data. Many US producers, including operators in the Permian and Eagle Ford plays, see breakeven prices at just above $30/b, said Mine Yucel, director of research with the Federal Reserve Bank of Dallas, during the EIA panel. But producers likely will not start drilling new wells until WTI prices average above $50/b, Yucel said.

Scientists study link between U.S. oil drilling and rise in earthquakes - Stopping an earthquake before it starts? It sounds like a feat possible only for a superhero. But in Kansas and Oklahoma state policymakers are showing that insofar as humans are causing earthquakes, they can stop them, too. After restricting oil and natural gas operations in certain hotspots, Oklahoma is feeling an average of about two earthquakes a day, down from about six last summer, and Kansas is feeling about a quarter of the tremors it once did. Using a growing body of research, along with trial and error, scientists and state regulators are gradually getting closer to pinpointing the cause of the startling increase in earthquakes in the Central and Eastern U.S., and preventing them.  The general cause, scientists have found, is not drilling, but what happens after, when operators dispose of wastewater that comes up naturally during the oil and gas extraction process. The operators inject the wastewater into disposal wells that go thousands of feet underground, which can increase fluid pressures and sometimes cause faults underneath or nearby to move. Since March 2015, Kansas and Oklahoma have placed new restrictions on how much wastewater each operator in certain areas can dispose of at a given time. To gather more data, Oklahoma, Pennsylvania and Texas are expanding their seismic monitoring systems this year, placing permanent stations across the states and moving temporary stations to new hotspots. And Oklahoma and Texas hired more staff or are contracting with scientists to study the geology of areas where earthquakes are occurring, the details of the quakes that happen, and the oil and gas activity that may be associated with them.

Oklahoma Corporation Commission investigates Blanchard earthquakes | News OK: A spate of earthquakes in the Blanchard area has Oklahoma regulators scratching their heads, since there's not any active, deep disposal wells in the area. The Oklahoma Corporation Commission said Wednesday it is investigating all oil and gas activity in the area after United States Geological Survey data shows nine recent earthquakes near Blanchard. The earthquakes have been about 5 miles southeast of Blanchard in the old North Dibble Oil Field, according to USGS data. Blanchard is about 30 miles south of Oklahoma City. The largest earthquake, a 3.4-magnitude quake, struck Friday afternoon. The commission said the Blanchard area is outside the 15,000-square mile "area of interest" put in place earlier this year where operators were asked to voluntarily curtail disposal well injections into the deep Arbuckle formation. "Because there are no Arbuckle disposal wells within at least a 20-mile area of the earthquakes, all oil and gas operations in the area are being examined," the commission said in a news release. "Relevant data is being given to the Oklahoma Geological Survey for further analysis." The Corporation Commission has evolved its response to earthquakes linked to the volume of wastewater injected into the Arbuckle formation. After focusing on localized areas around earthquake swarms, the commission earlier this year expanded its focus to large swathes of north central and central Oklahoma. The commission wants to reduce the volume of wastewater injected into the Arbuckle by 40 percent from 2014 totals. The Oklahoma Geological Survey recorded more than 900 earthquakes greater than magnitude 3.0 in 2015, up from 579 in that category in 2014. So far this year, more than 415 earthquakes greater than magnitude 3.0 have hit Oklahoma, including 10 greater than magnitude 4.0.

OCC investigating oil and gas activity around Blanchard -- The Blanchard area has seen its share of earthquakes recently. After several recent earth-shaking events, the Oklahoma Corporation Commission's Oil and Gas Division has decided to investigate all oil and gas activity in the area, according to a release from the OCC. While not giving a specific number, Matt Skinner, Public Information Officer of the OCC did say there has been a lot of recent activity not going on in just Blanchard, but in the surrounding area as well. "There are several new operations. The area, in the past year, has seen an upswing in oil and gas development." The United States Geological Survey data shows nine recent events in the area, a number the OCC considers high, Skinner said. According to the OCC's release, the area is outside of the 15,000 square mile Area of Interest put in place this year in which Arbuckle disposal well have had their activities restricted and requirements placed on their operation. Moreover, because there are no Arbuckle wells within 20 miles of the recent earthquakes, all oil and gas operations are being investigated. 

Fracking Eyed as Culprit in Latest Oklahoma Quakes - As regulators in Oklahoma scramble to figure out what caused a swarm of earthquakes outside an "area of interest" targeting wastewater injection wells, one researcher said there is a possibility the temblors were caused by hydraulic fracturing (fracking) operations. According to U.S. Geological Survey (USGS) data, there have been eight earthquakes measuring 2.5 magnitude or higher on the Richter scale within the last week in the Blanchard area. Four earthquakes ranging from 2.7 to 3.0 magnitude struck on July 7 at distances of 4.3-6.2 miles southeast of Blanchard. That was followed by the largest quake, a 3.4-magnitude temblor that struck 5.6 miles south-southeast of Blanchard last Friday. Two earthquakes, measuring 2.5 and 2.8 magnitude and centered about six miles south-southeast of Blanchard, struck on Sunday. A 3.1-magnitude temblor centered five miles southeast of the town struck on Monday night, according to the USGS. Since the beginning of the year, regulators with the Oklahoma Corporation Commission (OCC) have ordered operators of wastewater injection wells targeting the Arbuckle Formation to cease or curtail their operations. But the OCC's area of interest covers wide areas of the north and central parts of the state, and there are no active disposal wells near Blanchard. Oklahoma Geological Survey (OGS) Director Jeremy Boak told NGI's Shale Daily that the only wastewater disposal well in the area of the recent earthquakes is about 20 miles away, and hasn't been operational for at least 10 years. "Injection doesn't look like a good mechanism for this, but you are on the edge of the SCOOP [South Central Oklahoma Oil Province] play, and so we're interacting with operators in the area to see what's going on nearby," Boak said Thursday.

Nebraska Oil and Gas Conservation Commission: No decision made yet on appealing fracking wastewater case - Local News: Talk in the community has left many residents confused on the state of an appeal to the Nebraska District Court’s ruling on a proposed wastewater well in Sioux County.On Wednesday, June 29, Judge Derek Weimer ruled in the District Court of Cheyenne County that the Nebraska Oil and Gas Conservation Commission (NOGCC) exceeded its authority in April 2015 when it approved the request by Terex. The NOGCC and the attorney general’s office have 30 days in which to file an appeal. As of Friday afternoon, no intent to appeal had been filed, according to online court records. The issue of a deep injection fracking well came to light in November 2014 when an application for converting an abandoned oil well in Sioux County into a deep injection well came before the NOGCC. The The wastewater would have been trucked to the site and injected more than a mile into the ground at the site of an existing Wildcat oil well on a ranch 13 miles north of Mitchell, just east of Highway 29. The site expected to process 5,000 barrels of wastewater per day, which would have been brought in by 80 trucks per day. The wastewater would have been primarily from Colorado and Wyoming with provisions for Nebraska as well. On Thursday, June 30, Bill Sydow, director of the commission, said the NOGCC would be evaluating the ruling with the attorney general’s office and would be making a decision sometime in the future. Suzanne Gage, director of communications with the Nebraska Attorney General’s office in Lincoln, responded late Wednesday afternoon, “We are reviewing the decision and will be conferring with the Oil and Gas Commission and its director.”

More Niobrara Pipeline Capacity, But Growth Prospects Are Dicey - Despite slowdowns in drilling, completions and crude oil production in the Niobrara Shale region in northeastern Colorado and eastern Wyoming, new pipeline takeaway capacity out of the tight oil play is being built, apparently due to the expectations of some that the Niobrara will bounce back more quickly than most other basins if and when crude prices rise –– and stay –– above $55-60/bbl. Later this year, the 340 Mb/d Saddlehorn/Grand Mesa Pipeline to the crude storage and distribution hub in Cushing, OK is expected to begin operation, supplementing Pony Express and White Cliffs, which already move crude from the Bakken and the Niobrara’s Denver-Julesburg and Powder River basins, and giving Niobrara producers more than enough takeaway capacity for the foreseeable future. Today, we look at the possibility of an infrastructure over-build in the eastern Rockies.

Energy companies spend big to fight Colorado ballot initiatives | Reuters: Energy companies in Colorado are spending millions of dollars to derail a push by environmentalists to put measures on November's ballot that would stifle oil and gas drilling in the state, according to a Reuters review of campaign finance records. Environmental groups are now gathering signatures for two statewide initiatives that would transfer regulatory control of oil and gas development to local governments and create more stringent setback requirements to keep oil and gas activities away from occupied structures. The state's Supreme Court this year struck down fracking bans approved by voters in the cities of Fort Collins and Longmont. A study by the Colorado Oil and Gas Conservation Commission, a state agency tasked with encouraging energy development, found that 90 percent of the surface acreage in Colorado would be unavailable for oil and gas development under the new setback laws, which would require all new development facilities to be 2,500 feet from occupied structures and areas of interest, such as parks. In the last three months alone, energy companies including Anadarko Petroleum Corp, Noble Energy and Whiting Petroleum, have together donated more than $6.7 million to Protect Colorado, a industry-backed coalition fighting the initiatives, according to a Reuters analysis of campaign finance disclosures. The heavy spending comes despite a severe crash in oil and gas prices that has forced many energy companies to slash jobs, dividends and investments. Opponents of the proposed ballot initiatives say they would have a calamitous impact on Colorado, which is the country's seventh-largest oil and gas producing state, with vast untapped fields. Anadarko Petroleum since early April has donated nearly $3 million to the group, bringing its total aggregate contribution to more than $4 million.

Flammable tapwater often not because of industry gas leaks, CU study finds -- Methane natural gas has dissolved into groundwater at 64 percent of the sites state regulators tested since 1988 in northeastern Colorado, University of Colorado researchers have found. But more than 95 percent of this gas came from naturally occurring microbial processes, often near shallow underground coal seams — not the oil and gas industry. Methane-tainted groundwater can lead to flammable drinking water pouring out of household taps. The CU study, funded by the National Science Foundation and based on an analysis of Colorado Oil and Gas Conservation Commission records, concluded that the industrial process of hydraulic fracturing, or fracking, is not a primary cause of methane contamination of groundwater. Methane leaking from oil and gas well bores contaminates groundwater about two times a year on average. And the CU researchers found that rate has stayed about the same since 2001. From 2001 through 2014, dissolved methane linked directly to geological formations holding oil and gas reached 42 water wells in 32 cases, the researchers found. The findings have been published in the Proceedings of the National Academy of Sciences journal.

Massive Fracking Explosion in New Mexico, 36 Oil Tanks Catch Fire - This week—as thousands of Americans urge awareness to the destruction caused by oil bomb trains—an oil field in San Juan County, New Mexico erupted in flames Monday night, highlighting the continued and increasing dangers of the fossil fuel industry.  The fire broke out around 10:15 p.m. Monday at a fracking site owned and operated by WPX Energy, setting off several explosions and temporarily closing the nearby Highway 550. Fifty-five local residents were forced out of their homes.  The site—located in the Mancos shale deposit area and known as the 550 Corridor and a part of Greater Chaco Canyon—contains six new oil wells and 30 temporary oil storage tanks holding either oil or produced water. All 36 storage tanks caught fire and burned, the Tulsa, Oklahoma-based energy company said.  The site was still smoldering last night and, now, "only 7 of 36 tanks at production site on fire this morning," the company tweeted.  "The fire is being allowed to burn itself out due to the intensity of the heat, the number of oil tanks involved and to contain petroleum fluids on WPX's five-acre site, predominantly in the storage tankage," WPX said.  According to Albuquerque news station KOAT, WPX stopped drilling for natural gas and oil in the area last May. The company had been producing for about a week before the fire broke out.

Fire From New Mexico Fracking Site Explosion Keeps Burning Three Days Later --A massive fire at a fracking site in rural New Mexico that scorched 36 oil storage tanks and prompted the evacuation of 55 residents is dwindling but still burning Thursday, some three days after the first explosion was reported.  The fire that started Monday night is mostly out, WPX Energy, the Oklahoma-based company that owns the site, reported Wednesday. However, “small fires” remained at four of the 36 tanks, the company said. No injuries have been reported and according to the company no drilling was taking place at the site prior to the storage tanks catching fire. On Thursday morning plumes of smoke continued to billow from the five-acre oil production site located near Nageezi, a Navajo Nation town some 135 miles northwest of Albuquerque, the state capital. The fire has been allowed to burn itself out to prevent the spread of petroleum as fire crews stayed overnight to monitor the site. Some homeowners were allowed to temporarily return to their homes Wednesday to take care of basic needs, according to WPX updates. Meanwhile, the company is conducting air quality monitoring and providing lodging to the displaced families.  Officials said the cause of the fire is still unknown but residents told local media that they heard a series of explosions as the fire started Monday. “It was so loud. Loud pops and explosions. It was tanks exploding. You could see light from the flames reflecting off of the smoke in two giant swirling pillars. It was chaotic,”. The company said 50 firefighters and company personnel kept the fire contained.

Obama moves to undercut greens in drilling fight | TheHill: The Obama administration is fighting back against environmental activists and trying to blunt the impact of a massive campaign against federal oil and natural gas lease sales. Greens have tried to disrupt auctions for drilling rights on federal land and in offshore waters. In response, the government is delaying or relocating lease sales and advancing plans to hold them over the internet to skirt the protests. The fight is putting the Interior Department in the difficult position of defending the industry and congressional Republicans who back the lease sales and denouncing demonstrations from groups that have long supported the administration on other issues.  Both the government and drillers say the protests are turning the usually sleepy process of selling drilling rights into chaos. In one high-profile action in March, hundreds of activists protested a pair of offshore auctions in New Orleans organized by Interior’s Bureau of Ocean Energy Management, yelling over the bid information announcements. “Unlike previous sales, these two had a large and disruptive group of protesters in attendance,” “The protesters ignored the posted rules of behavior, climbed onto the stage, damaged property and attempted to stop the lease sale,” he said. “Although no one was injured and the lease sale continued to a successful conclusion, the situation created a potential safety hazard for all present.” The demonstrations are part of a movement dubbed “keep it in the ground,” largely led and organized by climate activist groups like and the Center for Biological Diversity.

In fracking turf war, Utes 'don't pick fights to lose' - Atop a mesa in Utah's high desert, Tony Small looks out on miles and miles of tribal land -- land that is home to his people, the Ute Indian Tribe.Pumpjacks curtsey in the distance, gathering the oil and gas that fuels the Ute economy. As a member of the tribal business committee, Small helps keep the oil wells pumping safely while regulatory and market forces close in.One of the biggest threats to the Utes' oil-driven economy, he said, is the Obama administration's embattled hydraulic fracturing rule. The fracking rule -- which was struck down by a federal court last month but is headed toward appeal -- aims to beef up environmental standards for fracked oil and gas wells.But according to the tribe, the Bureau of Land Management's rule has a fatal flaw: It lumps together tribal land and public land, making no distinction between the vast acreage managed by federal agencies and the American Indian reservations and other land managed jointly by tribes and the federal government."The government needs to understand that tribal lands aren't public lands," Small said, getting to the heart of the argument that has propelled the Utes into a bitter courtroom brawl over the rule. "These are our lands. We should be able to do as we want."

Dakota Access construction reaches Miner County -  Oil is coming to Miner County. The Dakota Access Pipeline Project, funded by Texas-based Energy Transfer Partners, has begun construction in a stretch of Miner County about 12 miles north of Howard. Workers from Michels Corp., a construction contractor in Brownsville, Wis., are on site this week with equipment, clearing the future pipeline’s path of dirt and growth, including crops. Already planted for the season, corn and soybeans had to be removed from the area so digging could take place, according to one landowner, Johnny Hofer, whose property is affected by the pipeline. Hofer said crews began work for the project on his land about a week ago, but he’s not losing any sleep over it. “We’d just as soon not have an oil pipeline going through our land, but it is what it is,” Hofer said. “Life’s too short to worry.” As for the lost crops, Hofer won’t be affected directly; he rents the land to another farmer, who will be reimbursed for the damage. Hofer reached a deal with Dakota Access that provided him with compensation as well, but he declined to give any dollar figures. The plot of land, located at the intersection of Highway 25 and 221st Street, has been in Hofer’s family for 50 years. He hopes the company won’t have to return for more digging in case of an oil leak, but he’s not worried about the possibility. “That doesn’t happen too often, does it?” Hofer said. “They tell me you won’t even notice it’s there once they have it done and going.”

Bakken Update: Economics Improve As Costs Decrease And Enhanced Completions Improve Production - Summary:

  • Operator breakevens continue lower due to improved costs due to decreased drilling and completion times and better oil service contracts.
  • Production improvements due to better well designs have also made core U.S. unconventional plays more competitive.
  • Although estimates vary, plays like the core Midland and Delaware basins are profitable at today's oil price.
  • High-grading and enhanced completions are improving production between 35% and 60%.

Before the price of oil fell, most thought the average shale focused E&P would need $80/bbl WTI to turn a profit. Now that oil is hovering around $50/bbl, and the US Oil ETF is trading below $11/share, those estimates are much lower.  Estimates are deceiving, as analysts were averaging all acreage. Since most operators are focusing on core leasehold, estimates should do the same. Some acreage still needs oil at $80/bbl, but these fringe areas are not economic. Many fringe players have declared bankruptcy, and this trend is likely to continue. Some analysts have changed estimates to $60/bbl, but some operators are adding rigs and increasing production. It is possible some operators are thinking ahead. It can take months before a rig is put to work and an operator sees a location turned to sales.

About 840 gallons of oil, water mix winds up in Sully Creek — The North Dakota Department of Health says about 840 gallons of an oil and water mixture spilled off a well pad in Billings County and into Sully Creek. The spill happened Monday at a site about four miles west of Fryburg. The well is operated by Hess Bakken Investments II. The company estimates that 8,400 gallons of oil and 9,400 gallons of produced water were released onto the well pad containment area. Health Department personnel are monitoring the investigation.

New Oil Train Rules Would Force Railroad Companies To Plan For The Worst - A little over a month after a Union Pacific train carrying Bakken crude oil derailed outside of the tiny Oregon known of Mosier, the Department of Transportation has announced new rules aimed at ensuring that communities near oil train routes have adequate information and help in the event of an oil derailment.  The new rules would, among other things, require railroad companies that ship oil by rail to come up with response plans in case of a worst-case scenario oil spill — something that most railroad companies are not currently required to do.“Incidents involving crude oil can have devastating consequences to local communities and the environment. We’ve taken more than 30 actions in the last two years to continue to address risk, and we continue to push the industry to do more to prevent derailments from happening,” U.S. Transportation Secretary Anthony Foxx said in a statement Wednesday. “This rule goes one step further to hold industry accountable to plan and prepare for the worst case scenario. It would help to ensure that railroads have comprehensive plans to respond to derailments when they occur and better ensure the safety of communities living near railroads.” The shipment of oil by rail has boomed in the last five years, increasing from less than 1 million barrels shipped via rail in 2010 to around 25 million in 2014, thanks, in large part, to the oil boom in North Dakota.

With Industry Help, Oil Train Regulations May Fall Short Of Protecting Public Safety - In early June, a Union Pacific train carrying Bakken crude oil derailed outside the small Oregon town of Mosier. It was a relatively calm day in the otherwise windy Columbia River Gorge, which prevented the accident from forming a fireball that could have decimated the town. Still, at least four cars caught fire and spilled 42,000 gallons of crude into the Columbia River, forcing the evacuation of several homes and a school near the accident. The derailment was far from the first accident involving oil trains — 2015 was the most expensive year on record for oil train explosions, with damage costing the United States $29.7 million. Three major derailments and explosions occurred that year alone, including one in West Virginia that forced the evacuation of 1,000 residents.  In May of 2015, the Department of Transportation enacted new safety rules aimed at preventing oil trains, which had seen a 25-fold increase in the amount of oil shipped by rail between 2010 and 2014, from derailing and endangering communities alongside the tracks.  In Mosier, however, those safety regulations weren’t enough. The initial findings from the investigation into the accident revealed that broken screws along the track most likely caused the derailment. Those same screws, however, had been cleared by Union Pacific’s own safety inspection just weeks before the derailment.

Oil Spills Are Actually Good For Birds, Fish, And The Economy According To The Oil Industry -- For the past few weeks, the Washington State Energy Facility Site Evaluation Council (EFSEC) has been holding hearings on the matter of a proposed oil-by-rail terminal that could be built in Vancouver, Washington. If approved, it would be the largest oil-by-rail facility in the country, handling some 360,000 barrels of crude oil, shipped by train, every single day. It would also greatly increase the number of oil trains that pass through Washington, adding a total of 155 trains, per week, to the state’s railroads. Environmentalists worry that an increase in oil trains could lead to an rise in oil train derailments, like the kind seen in early June when a Union Pacific train carrying Bakken crude derailed outside the Oregon town of Mosier, spilling 42,000 gallons of oil near the Columbia River. But according to witnesses that testified before the EFSEC on behalf of Vancouver Energy — the joint venture between Tesoro Corp. and Savage Cos. and the entity behind the Tesoro-Savage terminal proposal — oil spills might not actually be that bad for the environment. “The Draft Environmental Impact Statement identifies many economic impacts arising from an accident associated with Project operations, but fails to recognize economic activity that would be generated by spill response,” Todd Schatzki, vice president of Analysis Group — a consulting group that released an economic report on the terminal commissioned by Tesoro Savage — wrote in pre-filed testimony. “When a spill occurs, new economic activity occurs to clean-up contaminated areas, remediate affected properties, and supply equipment for cleanup activities. Anecdotal evidence from recent spills suggests that such activity can be potentially large.”Schatzki’s pre-filed testimony also includes references to both the Santa Barbara and BP oil spills’ role as job creating events. He notes that the Santa Barbara oil spill created some 700 temporary jobs to help with cleanup, while the BP spill created short term jobs for 25,000 workers.

Alameda Poised to Become Next California County to Ban Fracking - Alameda may soon become the fifth county in California to ban fracking and other "extreme oil and gas extraction" measures, according to a proposed new ordinance that the board of supervisors is set to vote on at its July 19 meeting. The count would join the likes of conservative Butte County, where 72 percent voted "yes" on last month's ballot measure to also ban fracking. Butte joined San Benito, Santa Cruz, and Mendocino as no-fracking counties. The movement to ban fracking adopted this county-by-county strategy "because we've seen the failure of Gov. [Jerry] Brown's administration to protect Californians from the dangers of fracking," explained Ella Teevan of Food and Water Watch. Activists learned from a similar, successful strategy that was used in New York State, where the governor banned fracking statewide after 200 local bans were passed, activist Mary Hsia-Coron explained. Environmentalists say bans on fracking are one of the policies needed to accelerate a switch from fossil fuels to clean energy sources.

Alaska independent plans deep Cook Inlet oil test - Alaska gas producer Furie Operating plans to test deep oil prospects in Cook Inlet that lie below gas producing reservoirs, a company official said Monday. The company plans to reenter its KLU-4 exploration well, which has discovered gas, and drill deeper to test a potential oil prospect that has been identified, company Vice President Bruce Webb said. The Randall Yost jack-up rig will be used for the drilling, which is now planned for mid-2017. The jack-up rig is now in Cook Inlet drilling gas production wells for Furie. Furie is now producing gas at its KLU-1 well and the new Julius R gas production platform, which is about six miles from the KLU-4 location. This is also near ConocoPhillips' producing North Cook Inlet gas field and its Tyonek production platform. Webb said KLU-4 encountered gas in several intervals at depths between 6,000 feet and 10,000 feet in the Sterling and Beluga formations when it was drilled two years ago. The plan now is to deepen the well to test for oil in a prospect between 16,000 feet and 18,000 feet in the Tyonek and Hemlock formations, which produce oil in other parts of Cook Inlet.

In World Of $50 Oil, Shale Beats Deepwater | U.S. shale is the lowest cost option for new oil production and is likely to be more competitive than conventional offshore drilling, according to a new report from Wood Mackenzie. The U.S. shale industry has weathered the oil price downturn, tweaking drilling practices and cutting costs in order to stay in business. A new report from Wood Mackenzie finds that the industry is proving to be resilient and flexible in the face of the worst oil market crisis in three decades. The report concludes that U.S. shale companies have managed to cut costs by as much as 40 percent since 2014. Much of that comes from lower costs from equipment suppliers and oilfield services firms. But it also comes from improved productivity from the average shale well. Instead of drilling anywhere and everywhere, U.S. shale companies are getting better at finding the “sweet spots.” Intriguingly, the report finds that conventional oil drillers have not had as much success in reducing costs. Non-shale drilling projects only achieved cost reductions on the order of 10 to 12 percent, Wood Mackenzie found. That means that a lot of large oil projects are not economical with oil prices at $60 per barrel. By comparison, the Eagle Ford has an average breakeven price of $48 per barrel for Brent, and the Wolfcamp in the Permian Basin has a breakeven price of just $39 per barrel. In other words, America’s shale industry is now more competitive than places like the North Sea, West Africa or other deepwater drilling areas, places that have seen high levels of interest and investment for a much longer period of time.

The Democratic Party Didn't Pass a Ban on Fracking—But They Came Very Close - Over the weekend, at a hotel in Orlando, Fla., the Democratic Party’s two factions met to debate how progressive they want the party to be. You too can watch all of the DNC’s Platform Committee Meeting here, but one particularly interesting exchange on fracking stands out. Thoughout the day, Bernie Sanders’ revolution-minded progressives clashed with Hillary Clinton’s be-careful-with-the-applecart followers over everything from the Trans-Pacific Partnership, minimum wage, single-payer health care, marijuana decriminalization and the environment.   But before party compromises were agreed upon, there were some tears, boos and walk-outs. When it came to fracking, the exchange was raucous. Like Sanders, who made a ban on hydraulic fracturing a central part of his environmental policy, many of his supporters believe that the recent natural gas boom isn’t worth the flammable drinking water, earthquakes and climate change that come with it. Hillary Clinton, whose postions on fracking are more "nuanced", appears nowhere near as comfortable saying adios to a lucrative swath of the early 21st century energy industry. At the Platform Committee meeting, the task of conveying the high stakes of fracking went to Josh Fox—the Oscar-nominated filmmaker of Gasland and noted fractivist. Fox knew that Democrats wouldn’t adopt his fracking ban amendment, but he gave this speech to the committee anyway:There is a political revolution going on in this country. And fracking has no place in it. In fact, a lot of it is because of fracking. Because Americans have had enough of being abused by the oil and gas industry in our own backyard.I am a member of a frontline community in the Delaware River Basin. We have a moratorium on fracking. I live one mile from New York State. We have a ban on fracking due to public health concerns. They told us we would never have a ban on fracking, but people rose up and people did not quit and for eight years we badgered every politician in the state and we won that battle, and we can win it here. 

Fracking Foes Put Fake Feces Under Donkey Art Displays - ABC News: Environmental activists have made an unconventional addition to some of the fiberglass donkeys positioned around Philadelphia ahead of the Democratic National Convention.  Food & Water Watch says activists placed fake piles of feces below the behinds of 19 of the 57 donkeys around the city on Tuesday, symbolizing their stance that the Democratic Party's platform on fracking is "crappy." Organizer Sam Bernhardt says citizens oppose the controversial drilling technique that uses high-pressure water and chemicals to extract oil and gas from deep underground rock. He says the Democratic Party could have called for a ban on the practice but failed.  The group also plans to march on the eve of the convention.

Threatened oil industry rethinks climate stance - Facing the increasing likelihood of a Hillary Clinton presidency, growing attacks from liberals and its own divides over a potential carbon tax, the oil industry is rethinking its political strategy on climate change. The American Petroleum Institute is making quiet efforts to revamp its climate messaging, creating a task force that could revisit the industry’s long-held opposition to taxing greenhouse gas emissions. Many in the politically powerful industry believe that such a levy could be on the table if Clinton wins in November, especially if Democrats retake the Senate. The Democratic party's Sunday endorsement of a carbon price in its platform promises to fuel that speculation further. Story Continued Below The API task force — which POLITICO first reported last month— comes as the industry faces a fierce campaign by climate activist groups who want federal regulators to block additional drilling and keep fossil fuels in the ground. That includes an escalating effort to target ExxonMobil, the nation's biggest oil company, which faces investigations by attorneys general in three states and the U.S. Virgin Islands over its public statements on climate change. Also weighing on Big Oil is a two-year collapse in global prices, the Obama administration’s environmental regulations and the international climate agreement that the U.S. negotiated last year in Paris — further signs of how much political ground has shifted under the industry’s feet since the days of "drill, baby, drill" less than a decade ago.

Fossil Fuel Industry Faces $33 Trillion Climate Risk - The fossil fuel industry risks losing $33 trillion in revenue over the next 25 years as global warming may drive companies to leave oil, natural gas and coal in the ground, according to a Barclays Plc energy analyst. Government regulations and other efforts to cut carbon emissions will inevitably slash demand for fossil fuels, jeopardizing traditional energy producers, Mark Lewis, Barclays’s head of European utilities equity research, said Monday during a panel discussion in New York on financial risks from climate change. His comments are part of a growing chorus calling for more transparency from oil and gas companies about how their balance sheets may be affected by the global shift away from fossil fuels. As governments adopt stricter environmental policies, there’s increasing risk that companies’ untapped deposits of oil, gas and coal may go unused, turning valuable reserves into stranded assets of questionable value. “There will be lower demand for fossil fuels in the future, and by definition that means lower prices” Lewis said. The meeting Monday was organized by the Task Force on Climate Related Disclosures, a group established last year by Bank of England Governor Mark Carney. It seeks to bring transparency and consistency to how companies warn investors about dangers they face from climate change. The group, led by Bloomberg LP founder and majority owner Michael Bloomberg, is drafting voluntary guidelines for companies to disclose risks related to coastal flooding, carbon-dioxide emissions and shifting global energy policies. A “child with an abacus” can calculate that there are tremendous amounts of gas and oil that will need to be left in the ground, said Anne Simpson, investment director of global governance at the California Public Employees’ Retirement System, the largest U.S. public pension fund. “Yet we have boards of directors who will not talk to their shareholders about this issue,”

Canada’s Oil-Sands Industry Girds for Leaner Times - WSJ: As the Canadian oil-sands hub of Fort McMurray, Alberta, battles to rebuild after wildfires that ripped through in May, the industry that made it a boomtown is contemplating the end of an era of rapid growth. The wildfires, which roiled global crude markets by temporarily shutting off production of at least a million barrels of oil a day, added to the mounting woes of Canada’s oil-sands producers. High costs, tighter regulations, and tougher competition from shale oil have turned the industry into one of the biggest casualties of a two-year-old swoon in oil prices. “A lot of plans that were based on triple-digit oil prices in the $100s [per barrel] are having to be adjusted in this environment,” said Murray Edwards, chairman of Canadian Natural Resources Ltd.   “All of us are having to look at our models” to assess what makes sense at $50 a barrel, he said in an interview, adding that only the best projects will get built. In a weak energy market, caution about spending has cast a pall over costly oil and gas projects around the world, such as Arctic drilling and deepwater wells. Canada’s oil sands face even stiffer headwinds because they are one of the world’s toughest to extract and most greenhouse-gas-intensive sources of crude. Shale oil, meanwhile, has become much cheaper to produce and offers a faster payback on investment, thanks to technological advances such as hydraulic fracturing and horizontal well drilling.Canadian Natural is building what might be one of the industry’s last megaprojects: a 22.2 billion Canadian dollar (US$17 billion) strip mine called Horizon, on which it broke ground on more than a decade ago. The final phase will start up next year, boosting output to 250,000 barrels of crude a day. But that is just half the 500,000-barrel-a-day capacity originally envisioned for the mine. Nearly two dozen oil-sands projects have been canceled or suspended. European multinationals have been among the quickest to reassess their exposure, including Royal Dutch Shell, Statoil of Norway and Total of France.

CCC: Fracking would breach UK climate goals without tougher conditions   Onshore oil and gas extraction, including fracking, is not compatible with the UK’s climate targets unless it can meet tough standards on emissions, according to the government’s independent advisors on climate change.An eagerly anticipated and much delayed report from the Committee on Climate Change – dated March 2016, but only published today – weighs up the pros and cons of developing a significant fracking industry in the UK.Shale gas exploration and exploitation is the goal of the government. David Cameron, the UK’s prime minister, has said the UK is going “all out for shale”.  But it has little to show for it so far. The report points out that not a single production well has yet been drilled, and that the potential for exploitation remains highly uncertain.  The government’s cheerleading of the industry takes place alongside its legally binding target to reduce emissions by 80% by 2050. But are these two aims compatible?  It is uncertain whether the UK shale industry will really take off, says the report. Its success depends on the economics of production and the productivity of the UK’s geology, as well as the challenges of public opinion. But if an onshore oil and gas industry is established and grows quickly in the UK, it must meet three tests in order to be compatible with climate targets.  The first test is ensuring that emissions during development, production and decommissioning are “strictly limited”. This means limiting methane emissions, banning production in areas where the land-use change would cause significant emissions, such as areas with deep peat soils, and requiring proper decommissioning of wells at the end of their lives.

No chance of contamination to farmers water supplies Fracking company responds to fears: Fracking company Third Energy has responded to a farmer’s fears of water pollution after North Yorkshire County Council controversially gave the go-ahead for shale gas operations near Kirby Misperton in Ryedale. Sarah Houlston, whose farm is just a mile from the drilling site, says she is worried that fracking could lead to the contamination of underground water supplies that she and her cattle rely on, and she says it is impossible to insure against such pollution. She was one of numerous local people who voiced their objections to Third Energy’s application at a planning committee meeting in Northallerton, where councillors gave the go-ahead for fracking to take place in this country for the first time since 2011. There have been reports from the United States, where shale gas extraction has been used for some years, of water supplies being polluted as a result of fracking. Scientific research studies in America have also linked fracking to a number of serious health conditions, including cancer. However, John Dewar, operation director at Third Energy, says it will be different in this country. He says that water supplies will not be polluted because of the measures the company will take to prevent such occurrences and because of environmental regulations in place in the UK.

In the Wake of the Brexit, Spot Prices Dip after Closing in on $3/MMBtu, Rig Counts still on the Rise, but Oil Prices Slide - Great Britain’s recent exit from the EU sent shockwaves through the global economy, but rig counts are up and the Henry Hub closed in on $3 before dropping off Friday. Oil prices haven’t fared quiet as well since our last report, dipping well below $50/bbl before a slight rebound to close out the week. In Appalachia, the royalty legislation dealing with post-production costs made its way back into the news; the unconventional half of Chapter 78 survived a bill that killed regulations targeting the conventional industry; and courts in West Virginia and Ohio grapple with various lease disputes. Elsewhere, the Obama Administration re-upped PHMSA while courts in other plays around the country have been busy dealing with various issues ranging from tax exemptions on production equipment to disputes over royalties. Here’s a roundup of the past several weeks:

  • The national rig count is up to 431. (Source: BakerHughes).
  • The rig count in the Marcellus is flat at 23. (Source: BakerHughes).
  • The rig count in the Utica is flat at 12. (Source: BakerHughes).
  • Natural gas spot prices at the Henry Hub are down at $2.75/MMBtu as of 7/8/2016. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 7/8/2016. At Dominion South in northwest Pennsylvania, spot prices are down at $1.55/MMBtu as of 7/8/2016. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.46/MMBtu as of 7/8/2016. (Source: EIA).
  • Update on Chapter 78: Unconventional Oil & Gas Regs Survive; Conventional Regs are Dead. As noted in our previous report, the legislature passed a resolution disavowing new Chapters 78 and 78a regs targeting both conventional and unconventional oil and gas development in the Commonwealth after regulatory agencies approved both chapters for promulgation.

U.S. gas glut is disappearing: Kemp | Reuters: U.S. natural gas prices have risen by a third since hitting a two-decade low in the first quarter, amid signs supply and demand are rebalancing and excess stocks left over from an unusually warm winter are being worked down. The volume of gas in working storage hit a record 4.01 trillion cubic feet in November 2015 and is still at 3.18 trillion cubic feet, according to the U.S. Energy Information Administration ( Gas stocks are 513 billion cubic feet (19 percent) higher than in the same week in 2015. But the build has shrunk steadily from a record 1.014 trillion cubic feet (69 percent) in March ( In response to the earlier slide in prices, the number of rigs drilling for oil and gas across the United States has fallen to the lowest level since World War Two. By the start of June 2016, there were just 82 rigs drilling for gas, down from over 300 in June 2014, according to services company Baker Hughes. Output from the unusually productive wells drilled into the Marcellus and Utica shale formations underneath Pennsylvania and Ohio has continued to increase. But output from older gas-producing states including Texas, Louisiana and Oklahoma has fallen sharply as drilling activity has dried up. For the United States as a whole, there are no longer enough new oil and gas wells being drilled to replace declining gas output from old wells. Gross withdrawals of gas from wells were down by nearly 2 percent in April 2016 compared with the same month in 2015 ( At the same time, gas consumption is rising, with deliveries to industrial customers and electric power producers sharply up.

Natural Gas Report Analysis 7-14-2016 (Video) -- A Bigger Build in Natural Gas inventories this past week compared to the last couple of weekly reports. We could go down to $2.50 per MMBtu the next couple of weeks if we get milder weather forecasts for the remainder of the summer season.

Power from Natural Gas Expected to Reach a Record High Despite Climate Concerns: Electricity production from natural gas-fired power plants is expected to reach a record high this year, as the fuel source remains cheaper than coal, according to a government report.  In total, natural gas-fired plants will provide 34% of the country’s electricity this year, the Energy Information Administration (EIA) said. Coal-fired plants, nuclear and renewables follow with 30%, 19% and 15%, respectively.The cost of natural gas has dropped dramatically in recent years as a result of new technologies that have opened up vast new areas in the United States to drilling, vastly increasing production. As recently as 2010, 42% of the electricity mix came from coal and 25% from natural gas. Many environmental groups and climate-minded policymakers embraced the transition to natural gas—at least at first. Burning coal produces nearly twice as much of the global warming-causing carbon dioxide, pound per pound, compared with burning natural gas, to the EPA. Many environmentalists have described the natural gas a bridge fuel, not ideal but an improvement over coal. Some recent research has shown that leaks in various spots along natural gas pipelines release enough methane gas—another gas that causes warming—to complicate the equation. The Aliso Canyon gas leak outside of Los Angeles, which released more than 100,000 tons of methane in the four months before it was sealed in February, drew attention to the risk of massive blowouts, but environmental policy experts say the real risk may lie in smaller leaks that can go undetected. When methane gets out it is more than 25 times stronger than carbon dioxide at holding heat in the atmosphere over a 100-year period, according to the EPA.

EIA sees US becoming net natural gas exporter in H2 2017 - With natural gas pipeline exports to Mexico on the rise and the ramp up of US LNG exports from Louisiana, the US Energy Information Administration on Tuesday projected the US will become a net exporter of natural gas in the second half of 2017. EIA's July Short-Term Energy Outlook predicted gross pipeline exports will rise by 0.7 Bcf/d in 2016, then taper off by 0.2 Bcf/d in 2016 to an average of 5.3 Bcf/d. Driving the increase are the growing appetite from Mexico's power sector and flat gas production there. At the same time, following the February kickoff cargo shipments from Cheniere's Sabine Pass LNG liquefaction plant in Louisiana, the agency as well expects a rise in gross LNG exports of 0.5 Bcf/d in 2016, and then 1.3 Bcf/d in 2017 as Sabine Pass ramps up capacity, the EIA outlook said. "For the first time since 1957, the United States is on track to export more natural gas than it imports; this will occur during the second half of next year as more liquefied natural gas export capacity comes online," said EIA Administrator Adam Sieminski. Net imports of natural gas by contrast are expected to decline from 2.6 Bcf/d in 2015 to 0.2 Bcf/d in 2017, EIA said.

Gazprom Neft becomes the first company in Russia to undertake 30-stage multi-stage fracking - Gazpromneft-Khantos, a subsidiary of Gazprom Neft, has completed 30-stage hydraulic fracturing (fracking*) operations at the Yuzhno-Priobskoye field, Khanty-Mansiysk Autonomous Okrug — the first time such an operation has ever been undertaken in the Russian oil and gas industry, completion of which has been made possible thanks to the application of new technologies, which now promise greater effectiveness in the company’s development of its assets. Hitherto, the most extensive such operation undertaken by Gazprom Neft had been an 18-stage fracking operation through a single horizontal well shaft, achieved in March 2016, again at Gazpromneft-Khantos’ Yuzhno-Priobskoye field. The 30-stage fracking operation was undertaken in what is a record horizontal well shaft for the Yuzhno-Priobskoye field, running for 1,500 of the well’s total length of more than 4,600 metres. The oil-bearing strata lies at a depth of more than 2,600 metres. Isolation of those stretches in which fracking has already been completed is achieved through the use of a multi-set packer (a device for ensuring the hermetic sealing of separate well sections), running the full length of the flexible lifting pipe. Managing the 30-stage fracking operation required 1,200 tonnes of proppant**. Another feature of the well involved the cementing of the entire length of the horizontal section, allowing greater efficiency in managing fissures, thanks to the isolation achieved through the cement column. The anticipated operational capacity of the new well is likely to be in excess of 130 tonnes of oil per day, some 20 percent higher than forecast levels following lower-stage fracking operations. The application of non-ball-and-socket technology*** in fracking strata means the company also has the opportunity not just to speed up the launch of the well but also undertake geophysical investigations throughout the entire period of its operation, as well as undertaking investigations in re-fracturing.

Australia's June LNG exports up 18.5% on month at 3.6 mil mt: EnergyQuest - Australia's LNG exports rose to 3.6 million mt in June, up 560,000 mt or 18.5% from May, with many of the country's six projects producing at above nameplate capacity, local consultancy EnergyQuest said Tuesday in a report. Australia's LNG projects shipped 44 cargoes over the course of the month, with half destined for Japan, EnergyQuest said. China took 15 of the cargoes, with two each bound for South Korea, India and Egypt, and one for Taiwan. The Woodside Petroleum-operated North West Shelf project in Western Australia, which has a capacity of 16.3 million mt/year, recorded a full month of production in June, lifting the state's exports to 1.8 million mt in 27 cargoes, according to the consultancy. The North West Shelf's June shipments totaled 1.3748 million mt in 13 cargoes, up from 856,100 mt in May and equating to annualized output of more than 16.5 million mt/year.The eastern state of Queensland, home to three new coalseam gas-to-LNG facilities, exported 1.4 million mt in 22 cargoes in June and ConocoPhillips' Darwin plant in the Northern Territory shipped 300,000 mt in five cargoes. Although Japanese and South Korean LNG imports continue to fall on a year-on-year basis, Chinese imports rose 27% to 1.4 million mt in May, the latest month for which data is available, with Australia its major supplier. Indian imports were up by 450,000 mt in May, up 40% year on year and in line with the strong growth recorded over the first five months of 2016, the consultancy said.

Militants blast pipeline; 1st attack in Nigeria's southwest - (AP) — Police say oil militants have blown up a state-owned gas pipeline in the first such attack reported in Nigeria’s southwest. Oil militants have slashed Nigerian oil production with attacks this year on installations in the south. They seek a greater share of profits for residents who have lost livelihoods to industry pollution that has destroyed agriculture and fishing grounds. Deputy Superintendent Olumuyiwa Adejobi, the police spokesman for Ogun state, told The Associated Press on Thursday that “hoodlums” pretending to carry out repairs planted dynamite that blew up a major gas pipeline of the Nigerian National Petroleum Corp. overnight. Disruptions to gas used to generate power have compounded Nigeria’s chronic electricity shortages. No group immediately claimed the attack. The government is trying to negotiate with the oil militants.

The Bears Are Back – Oil Slides On Negative Sentiment - After oil prices rallied more than 80 percent between February and June, WTI and Brent have fallen back more recently, dropping from above $50 to just $45 per barrel. Oil traders are searching for more clarity on what to expect next, but the cacophony of data pointing in different directions is leading to confusion for analysts and speculators. On the bullish side for oil prices is Citigroup, which published a research note on Monday saying that it is “especially bullish” on commodities in 2017. Citi says that the oil markets continue to balance, and the concerns over global economic growth are not as important as the demand trajectory. Moreover, the crash in oil prices has forced the industry to make cuts that will only sow the seeds of the next boom. That optimistic outlook is countered by an array of voices on the other side worried about a renewed slump for crude oil. Let’s look at just a sampling of a few of the warnings signs. The oil rig count in the U.S. jumped once again on last week, rising by 10 to 351, according to Baker Hughes. Oil rigs are now up by 35 since touching a low at the end of May. The prospect of new drilling is causing some concern in the markets about a return of supply. Also, while the Brexit worries may be overdone, the political uncertainty in Europe is contributing to a rally for the U.S. dollar, which is pushing down oil prices. Meanwhile, Morgan Stanley says that global refiners are overproducing, churning out more refined produce than the world needs. A glut of gasoline or diesel will push down crude prices as refiners will eventually be forced to trim production, which means they will buy less crude. Morgan Stanley is backed up by the stubbornly high levels of gasoline inventories, which have refused to substantially fall in recent months despite widespread expectations of robust demand. This comes on heels of a remarkable downward revision by the EIA of gasoline demand in the United States. The energy agency lowered April demand by 260,000 barrels per day, suggesting American motorists are not consuming gasoline as vigorously as previously thought. Also, storage levels of gasoline, diesel and heating oil in Europe are filling up, causing delays in deliveries. Reuters reported that oil shipments on the Rhine in Germany are having trouble unloading because storage was too full.

Oil jumps 4 percent in technical rebound from 2-month lows - (Reuters) - Oil prices surged 4 percent on Tuesday, buoyed by investors covering short positions and an equities rally that lifted riskier assets globally, helping crude stage a technical rebound from two-month lows hit the previous session. Crude futures also got a lift from expectations that data would show an eighth straight week of declines in U.S. crude stockpiles. "The market's gotten really short over the past two weeks with everyone focused on weaker fundamentals and now you're seeing sudden covering,"  . Brent crude futures were up $2.03, or 4.4 percent, at $48.28 per barrel by 12:22 p.m. EDT (1622 GMT). U.S. crude's West Texas Intermediate futures rose $1.86, or 4.2 percent, to $46.62.Oil prices hit two-month lows on Monday, with Brent sliding under $46 while WTI fell to nearly $44. "This certainly appears to be a technical correction. My call was for WTI to test $44.35 and we had almost gotten there,"  "Also, I think the market is hesitant to move nearer to $40 support so quickly in the middle of summer." The pace of Tuesday's rally stunned some market participants. In early New York trade, Brent and WTI were up only about 2 percent.

Oil settles up 5 percent, trims gains after hours on API report | Reuters: Oil prices surged 5 percent on Tuesday, the biggest daily gain since April, as investors' covering of short positions and a technical rebound helped lift the market from two-month lows. However, crude futures pared gains in post-settlement trade after industry group American Petroleum Institute (API) reported a surprise build of 2.2 million barrels in U.S. crude stockpiles last week. During the regular trading session, a rally in global equity markets to record highs added to the upbeat sentiment in oil. The dollar fell, making greenback-denominated oil more attractive to holders of the euro and other currencies.  API also reported larger-than-expected gains in inventories of gasoline and distillates, which include diesel. A Reuters poll had forecast a crude drawdown of 3 million barrels last week, translating to an eighth straight week of declines. Official inventory data is due from the U.S. Energy Information Administration (EIA) on Wednesday.  "It's another major curveball from the API in terms of expectations," said John Kildulff, partner at New York energy hedge fund Again Capital, referring to huge variances at times between the trade group's numbers and the government's.

OilPrice Intelligence Report: Crude Rebounds Spectacularly On Weaker Dollar -- Oil prices showed weakness on Monday once again after a brutal few days last week. But WTI and Brent moved up in early trading hours on Tuesday. Several news items overnight pushed oil up on Tuesday, including a falling U.S. dollar, a ruling from an international court on the South China Sea (more below), news that an ExxonMobil well was attacked in the Niger Delta (something which Exxon denies), and reports that some oil exports were delayed from Iraq because of a pipeline leak. The markets are awaiting crude inventory estimates from API later today, which could move prices.  Investors with a high tolerance for risk likely profited big time from debt purchased from beaten down E&P companies. Bloomberg reports that “[a]t least a dozen bonds from deeply troubled oil E&P companies more than doubled amid a rebound in crude prices that took hold just after some of them sought court protection from creditors.” Bloomberg Intelligence found that Ultra Petroleum Corp’s 2024 bonds came in first with a 1,400 percent return since February when oil prices bottomed out. Buying up distressed debt is a big gamble, but the payoff is also enormous. “If the worst-case scenario isn’t going to play out, maybe there’s some value in the debt,” Spencer Cutter of Bloomberg Intelligence said. Iranian officials say that they are targeting a doubling of their oil exports from 2 to 4 million barrels per day. Iran is already producing 3.8 million barrels per day, but exports 2 mb/d. In order to ramp up oil production enough to generate 4 mb/d of exports, Iran needs to attract some $100 billion in investment. Many analysts believe that the sharp gains in output Iran has posted this year are likely at their limits until that investment comes pouring in. But a jockeying of power within Iran between hardliners and moderates are creating uncertainty around Iran’s new oil petroleum contract. The power struggle will likely deter investment.

John Kemp's Weekly Energy Tweets -- July 13, 2016; Look At The Surge In US Gasoline Stocks, Especially On The East Coast - Note: on July 6, 2016, I asked, "where is all this gasoline going to go?" See data below. Gasoline stocks continue to grow and set new records.

  • US crude imports slowed to 7.8 million bopd last week from 8.4 million bopd the prior week. This is well below what the US imported in the early 2000's and takes us back to about what we were importing in the mid- to late-1990's.
  • East Coast gasoline imports rose to 722,000 bopd last week compared with 634,000 bopd in same week last year. With stores of gasoline surging on the East Coast, I'm not sure what to make of this.
  • East Coast gasoline stock build still shows little or no sign of clearing.
    East Coast gasoline stocks rose by 200,000 bbls to 72 million bbls and stocks are now 10 million bbls over the 2015 level.
  • US refinery throughput finally dropped below the 10-year high. Throughput was cut 140,000 bopd to 16.5 million bopd and 280,000 bopd below the 215 level.
  • US gasoline stocks are still above the 18 - 22 day range that I like to see. Adjusted for demand, stocks stood at almost 25 days of consumption, up form 23 in 2015 and above the 10-year average of 23.
  • US gasoline consumption averaged a seasonal record 9.7 million bopd over the last four weeks, up 160,000 bopd from 2015.
  • Midwest and Gulf gasoline stocks remain above the 10-year range and show no sign of reducing.
  • US gasoline stocks rose 1.2 million bbls to 240 million bbls last week and are now 22 million bbls over 2015:
  • US commercial crude oil stocks drew more slowly than 2015 and the 10-year average; year-over-year build is up from 58.6 to 60.3 million bbls. 

Oil Extends Losses After Biggest Distillates Build In 6 Months, Production Spike --Following last night's surprising inventory builds (from API), DOE once again totally dismissed the headline with a 2.55mm draw. However, the numbers are all over the place with major builds in gasoline (1.2mm) and distillates (+4.058mm - the biggest in six months). Last week's plunge in crude production (Alaska-driven) was followed by a 0.6% surge in production this week - biggest since Oct 2015. Crude prices had extended their post-API losses into the DOE data, kneejerked higher on the hesadline then plunged on production and distillates. API:

  • Crude +2.2mm (-3mm exp)
  • Cushing -166k (-900k exp)
  • Gasoline +1.5mm
  • Distillates +2.6mm


  • Crude -2.55mm (-3mm exp)
  • Cushing -232k (-900k exp)
  • Gasoline +1.21mm
  • Distillates +4.06mm

Biggest Distillates build in 6 months but the 8th week in a row of crude draws...Last week's big plunge in US crude production (driven by a seasonal collapse in Alaska) was followed by a bounce back biggest rise since Oct 2015... (What we lost last week in Alaska productuion made up for partially this week as total domestic supply grew 57,000 boe/d (alaska +71K)).  The reaction was a kneejerk higher oin the headline crude draw but then plunge on products..

IEA: Gasoline Glut Could Cause Oil Price Rout -- Oil prices have been crushed over the past two years because of a glut of production. With supplies falling off, particularly in the U.S. shale patch, prices have begun to firm up. But another glut that has built up and has stubbornly refused to fall threatens another oil price downturn. In its July Oil Market Report, the International Energy Agency warned about shockingly high levels of refined products sitting in storage. Gasoline, diesel and heating oil are built up to such high levels in so many parts of the world, that a sharp rise in crude oil prices is unlikely in the short run. The IEA said that “the fact that crude oil has in the past two months moved within a range in the high $40s/bbl should be a relief for some producers.” But it went on to caution that “the existence of very high oil stocks is a threat to the recent stability of oil prices.”i  The Paris-based energy agency cited one damning statistic: refinery runs in the first quarter of 2016 ran 60 percent higher than refined product demand growth. That has led to a buildup in inventories. The IEA said that “although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.” Of course, as storage levels reach their limits and refiners begin to cut back on production, the pressure on storage facilities should ease. The flip side of that development is fewer refiners purchasing crude oil, leading to a fall in oil demand.  On cue, the U.S. Energy Information Administration released new weekly figures that backed up the IEA’s conclusions. The EIA found that for the week ending on July 8, gasoline stocks actually rose by 1.2 million barrels, and remain substantially higher than even the upper limit of the long-run average for this time of year. The result? Crude oil prices are down sharply during midday trading today, with WTI down nearly 4 percent and Brent off by more than that amount.

As Chinese Refiners Flood The World, Gasoline Tankers Pile Up In New York City Harbor – Just over a month ago, when we pointed out that that the gasoline curve was about to shift from contango into backwardation, we said that the gasoline tanker armada off the coast of Singapore was about to start offloading as it would soon become uneconomical to hold product in offshore storage. This meant one thing: China was about to unleash a wave of accelerated gasoline exports across the entire world.   We pointed out the unprecedented surge in Chinese gasoline stocks... and added that as China continues to imports tremendous amounts of both crude and product, far greater than actual demand, this would send "China's gasoline stocks to even higher record levels. In other words, the global glut is now not only at the crude and distillate level, but also in global gasoline stocks."  One month later we find out that this was a correct assessment of the situation.  According to the WSJ, while initially China’s demand for oil helped soak up some of the surplus crude sloshing around the world, China is no longer the handy excess supply "buffer" it once was and as a result China's teapot refiners are now flooding markets with products including diesel and gasoline, in the latest example of how surging Chinese exports are shaking the commodities industry. China’s total exports of refined fuels jumped 38% on-year to 4.2 million tons, or roughly 1.02 million barrels a day, in June, according to the latest data released Wednesday by the customs administration. Its refined fuel exports are up 45% overall so far this year. Much of the surge is attributable to a leap in China’s shipments of diesel. In May, China’s exports of the fuel mainly used in heavy industry had quadrupled on-year to 1.5 million tons; detailed data for June is due later this month. The sharp rise is merely a confirmation of what many have said all along: in its relentless bailouts of all enterprises, the Chinese government is unleashing a deflationary wave around the globe, which forces Chine to dump its products to any and every buying around the globe, in the process massively undercutting prices. This mirrors similar increases in China’s exports of processed basic materials like steel in recent months, a trend that has provoked anguished complaints from governments and industry bodies across the world.

Talk Of Oil "Death Spiral" Emerges -- One week ago, we looked at an epic build up of gasoline inventories on the East Coast, also known as PADD1, which had slammed the crack spread to record lows for this time of the year, and asked if "This What Finally Drags Crude Oil Lower." We were referring to the collapsing Crack Spreads, which show that something disturbing is taking place for US refingers who are no longer able to "internalize" the massive crude glut. U.S. gasoline crack spread a proxy for refiner margins, has dropped 34 percent in two weeks. On Wednesday, it hit a five-year low for this time of year below $13 a barrel. That is less than half the crack spread of $28 a barrel at this time last year. As of today, the WTI crack spread was $13.1, largely unchanged from a week ago. We then quoted Andrew Lebow, senior partner at Commodity Research Group in Darien, who summarized it best by saying that “PADD 1 is a holy mess. It is very unusual. If a market becomes extremely oversupplied, like PADD 1, they are going to have to cut runs.” That is another way of saying refiners will have to stay shut, which in turn will force crude to  build up in various on and offshore storage locations. Our summary of the strange events taking place in the US refining industry: with the inventory bottlenecking having reached all the way to the gasoline level, in lieu of refiner buying, crude producers will be forced to start selling oil and dumping prices just to get marginal demand as both onshore and offshore storage is near capacity. Most likely this will happen in the next few weeks, when coupled with the near full Chinese SPR, the slump in Chinese oil demand, the elimination in Nigerian supply overhangs, the resumption of Libyan exports, it will send the price of oil tumbling, and incidentally replaying the summer of 2015 when crude crashed...

North Sea crude Forties spot differential surges to over month high on improved Asia arb  -- Spot differentials for North Sea crude Forties surged to the highest in more than a month Thursday on improved arbitrage prospects to Asia, the weaker contango needed to pay for floating storage costs and renewed local demand, traders said. "It's both [improved arbitrage prospects and improved local demand]," a trader said. The Forties spot differential has rallied 38.5 cents/b since Monday, rising 19.5 cents/b from Wednesday to an almost five week high of Dated Brent minus 28 cents/b. Forties, the largest of the four crude streams that make up the Dated Brent benchmark, has benefitted from improved arbitrage prospects to Asia, which were the best since the end of the June trading cycle, with the narrowest font-month Brent/Dubai Exchange of futures for swaps. Arbitrage of Forties to South Korea was still deemed unworkable against Abu Dhabi grade Murban and Russian export blend ESPO. "Cheap freight [helps the arb]... [but] ESPO is still so cheap," a second trader said. The September Brent/Dubai EFS was trading at $2.81/b in early afternoon trade Friday, having reached highs of around $3.90/b in early June.

OilPrice Intelligence Report: Glut Concerns Return, Upside For Oil Looks Limited- Oil prices bounced around this week, falling back on renewed concerns over a supply glut, but at times regaining ground. The IEA struck a negative tone regarding elevated inventories of both crude oil and refined products, and the high levels of storage will likely prevent a strong price rally in the third quarter. However, at the same time, the IEA said the market is moving closer to balance, and the Paris-based energy agency even issued a seemingly contradicting warning over the sharp cutbacks in upstream investment, which it says will leave the world short on supply in several years’ time. WTI and Brent closed out the week slightly up. But the near-term outlook has turned bearish. The rush of refinery runs around the world has created an “epic overhang” of gasoline stockpiles, as Amirta Sen, the top oil analyst at Energy Aspects, described it. And the return of production from Canada, Nigeria, and potentially from Libya could restore some disrupted supply. There has been a lot of uncertainty surrounding the political situation in Europe following the Brexit, but for oil traders, the focus is shifting back to the crude oil market. “When the macro dust settles, which might take a while, it will become apparent that oil fundamentals are weaker than many realized,” Julius Walker, senior consultant at JBC Energy in Vienna, told Bloomberg. The EIA reported another decent though not enormous decline in oil inventories, but a surprising uptick in gasoline stocks spread pessimism around the market.  China stepped up its refining activity to a record high in June, and since domestic demand continues to come in lower than analysts anticipated for China, some of that product is being dumped onto the international market. Refinery runs hit 11 million barrels per day last month, or 3.2 percent higher from a year earlier. The high levels of processing are pushing down refining margins and leading to a flood of refined products being diverted into storage. That is putting strong downward pressure on crude oil prices.

US rig count up 7 this week to 447 (AP) — The number of rigs exploring for oil and natural gas in the U.S. increased by seven this week to 447. A year ago, 857 rigs were active. Depressed energy prices have sharply curtailed oil and gas exploration. Houston oilfield services company Baker Hughes Inc. said Friday that 357 rigs sought oil and 89 explored for natural gas this week. One was listed as miscellaneous. Among major oil- and gas-producing states, New Mexico gained four rigs and Louisiana three. Colorado, Pennsylvania and Texas were up one each. Alaska, North Dakota, Utah and West Virginia declined by one rig apiece. Arkansas, California, Kansas, Ohio, Oklahoma and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.

U.S. Oil Rig Count Increases For 6th Time In 7 Weeks - The US oil and gas rig count rose by 7 this week, with Baker Hughes adding 6 more oil rigs to the count and one more gas rig, bringing the total operational rigs in the U.S. to 447. Released at 1:00pm EST Friday, the new Baker Hughes weekly rig count shows 357 oil rigs currently active in the U.S., along with 89 gas rigs active. The biggest gains were made in New Mexico, with 4 new rigs, and Louisiana, with 3 new rigs. Last week, the rig count was up 9 rigs in total, with 10 new oil rigs on the scene, with the biggest gains in Texas’ Permian basin, which saw 4 new active oil rigs last week, following by Williston with two new rigs last week. Rigs engaged in exploration and production in the US rose for the third straight week, data showed on Friday. According to oilfield services company Baker Hughes, the number of oil and gas rigs drilling rose by 7 to 447 in the week ended July 15. In the previous period, the gauge rose by 9 to 440. The current nationwide rig count is less than half the prior-year level of 863. The count had peaked at 4,530 in 1981, while an all-time low was recorded in March. Since then the rig count has recovered marginally.

U.S. Oil-Rig Count Rises by Six in Past Week - WSJ: The number of rigs drilling for oil in the U.S. rose by six in the past week to 357, the third straight week of increases, according to oil-field services company Baker Hughes Inc. BHI -0.56 % The U.S. oil-rig count is typically viewed as a proxy for activity in the sector. After peaking at 1,609 in October 2014, low oil prices put downward pressure on production and the rig count fell sharply. The nation’s gas-rig count rose by one in the past week to 89. The U.S. offshore-rig count rose by three rigs from last week at 22, which is nine fewer than a year ago. Demand for oil has been strong this year even as a persistent oversupply of crude has kept prices subdued. . Oil prices rose Friday on better-than-expected economic data in China, the world’s No. 2 oil consumer, boosted expectations for oil demand there. Oil traders have closely watched China for signs of whether the country’s crude consumption is set to slow amid anxiety over its economic growth. U.S. crude oil was up 0.5% recently to $45.91 a barrel.

OPEC Sees Rising Crude Demand in 2017 as Saudis Pump Near Record - OPEC forecast higher demand for its crude next year as the global surplus fades, while Saudi Arabia pumped near-record levels amid peak summer consumption. The 14 members of the Organization of Petroleum Exporting Countries, including new member Gabon, will need to produce about 33 million barrels a day next year, 142,000 a day more than June output, the group said in its first assessment of 2017. Global demand will increase at the same pace as 2016 while production outside OPEC will fall. “Market conditions will help remove overall excess oil stocks in 2017,” the organization’s Vienna-based research department said in its monthly market report. “The contraction seen this year in non-OPEC supply is expected to continue in 2017, but at a slower pace.” Oil prices have recovered more than 70 percent from the 12-year low reached earlier this year as OPEC’s strategy to pressure rivals with lower prices slowly succeeds in eliminating a surplus. Output in the U.S. has retreated to a two-year low as the boom in shale oil production faltered, while Saudi Arabia told OPEC it raised output last month close to a record.  Saudi production increased by 280,000 barrels a day to 10.55 million, the kingdom told OPEC. That’s close to the record 10.564 million pumped last June. The country’s output typically peaks in the summer as domestic power demand for air conditioning surges. A separate set of numbers included in the report that OPEC compiles from external sources showed a lower level for Saudi Arabia in June, at 10.308 million barrels a day. No explanation was given for the discrepancy.

Saudi Ties to 9/11 Detailed in Documents Suppressed Since 2002 -- After years of political wrangling, the suppressed section of a 2002 congressional report that detailed possible ties between the Saudi government and the 9/11 terrorist attacks was released today. The classified documents have been the source of heated speculation for years, as they highlighted alleged links between high-ranking members of the Saudi royal family and the 9/11 hijackers. Many political figures who had previously seen the report led the charge calling for its release, including former Sen. Bob Graham, who said the 28 pages “point a very strong finger at Saudi Arabia,” and Minnesota Congressman Rick Nolan, who said the pages “confirm that much of the rhetoric preceding the U.S. attack on Iraq was terribly wrong.” The suppressed pages, redacted in parts, detail circumstantial evidence of ties among Saudi government officials, intelligence agents, and several of the hijackers. “While in the United States, some of the September 11th hijackers were in contact with or received assistance from, individuals who may be connected with the Saudi government,” reads the report, which added that FBI sources believed at least two of those individuals were Saudi intelligence agents. The report also mentions that numbers found in the phonebook of Abu Zubaydah, a detainee currently held in Guantánamo, could be traced to a company in Denver, Colorado, connected to former Saudi ambassador to the U.S. Prince Bandar bin Sultan. One of the most notable figures mentioned is Omar al-Bayoumi, alleged by the report to have likely been a Saudi intelligence agent. Al-Bayoumi was in close contact with hijackers Nawaf al-Hazmi and Khalid al-Midhar, providing them financial assistance during their time in the United States and even helping them find an apartment. Bayoumi in turn is believed to have been on the payroll of the Saudi Ministry of Defense and was regularly in receipt of large lump sums of money from the Saudi Ministry of Finance and other undisclosed arms of the government.

UK Parliamentary Report Finds US Allies Are Covertly Funding ISIS -- A British parliamentary report released on Tuesday has concluded there is “historical evidence” the Islamic State (IS) group received funding from within Arab Gulf states. In evidence submitted to the foreign affairs select committee, the Ministry of Defence said:“[There] is historical evidence of financial donations to Daesh [IS] from within Gulf states. Furthermore, it is understood that family donations are being made to Daesh, through the unregulated Alternative Value Transfer Systems (AVTS).” AVTS include ways of globally transferring money that includes little information about the individuals involved in the transaction – examples include the open source online currency Bitcoin. The MoD cited as evidence an incident in September 2014 when an IS official was sanctioned by the US Treasury Department after receiving a $2m donation “emanating from the Gulf”. The MoD also said in its evidence that private donations to IS are “minimal” compared to its other revenue streams, which include oil and taxation. The committee said in an assessment of IS finances that Britain should be able to “ask hard questions of close friends” when discussing how donations have reached the Syria-Iraq based militant group. The report concluded that IS has been put under severe financial pressure after a sustained international campaign that has forced the group to turn to “gangsterism and protection rackets” for money. The report argued that plunging oil prices and air strikes on IS in Syria and Iraq have reduced the group’s ability to operate, however, the most controversial part is undoubtedly the section on donations to IS. The MoD said Turkey, Saudi Arabia, Kuwait and Qatar have played an “important role” in the anti-IS coalition, but officials from the Foreign Office said “some governments in the region may have failed to prevent donations reaching ISIL (IS) from their citizens”.

Obama’s Syria plan teams up American and Russian forces – The Obama administration’s new proposal to Russia on Syria is more extensive than previously known. It would open the way for deep cooperation between U.S. and Russian military and intelligence agencies and coordinated air attacks by American and Russian planes on Syrian rebels deemed to be terrorists, according to the text of the proposal I obtained.  Secretary of State John F. Kerry plans to discuss the plan with top Russian officials in a visit to Moscow on Thursday. As I first reported last month, the administration is proposing joining with Russia in a ramped-up bombing campaign against Jabhat al-Nusra, al-Qaeda’s Syria branch, which is also known as the Nusrah Front. What hasn’t been previously reported is that the United States is suggesting a new military command-and-control headquarters to coordinate the air campaign that would house U.S. and Russian military officers, intelligence officials and subject-matter experts.  Overall, the proposal would dramatically shift the United States’ Syria policy by directing more American military power against Jabhat al-Nusra, which unlike the Islamic State is focused on fighting the regime of Syrian President Bashar al-Assad. While this would expand the U.S. counterterrorism mission in Syria, it would also be a boon for the Assad regime, which could see the forces it is fighting dramatically weakened. The plan also represents a big change in U.S.-Russia policy. It would give Russian President Vladi­mir Putin something he has long wanted: closer military relations with the United States and a thawing of his international isolation. That’s why the Pentagon was initially opposed to the plan.  Yet for all this, it’s not at all clear that the plan will be accepted by Putin — or that Russia will fulfill its terms if he does. Administration officials caution that no final decisions have been made and that no formal agreement has been reached between the two countries. Negotiations over the text are ongoing ahead of Kerry’s arrival in Russia.

Egypt Slams Obama: Don’t Tell Us Not To Kill Our Own People When Your Own Cops Do It -- A nation known for brutality against civilians has just slammed the United States for hypocrisy following two police fatal shootings last week in Minnesota and Louisiana — as Egyptian lawmakers phrased it, the U.S. has “an alleged respect for human rights.” As Margaret Azer, deputy chairman of the country’s parliamentary human rights committee, denounced the killings, saying, according to Foreign Policy, the U.S. “was caught red-handed violating human rights and crushing the peaceful protests of black Americans in the city of Dallas and other U.S. cities.” Azer also stated the deaths of civilians at the hands of police “expose the bloody face of the United States and its politicized use of the issue of human rights to extort other nations.”

New IDF Chief Rabbi Says Soldiers Can Rape Arab Women During Wartime to Boost Morale -- Outgoing chief rabbi, Brig. Gen. Rafi Peretz, of the Israeili Defense Forces, who is stepping down after six years in the position is being replaced. And, his successor, Rabbi Col. Eyal Karim’s appointment is being met with backlash — as he is outspoken for allowing soldiers to rape women during wartime. Karim, who was announced on Monday as the intended new IDF chief rabbi, has provoked controversy with previous misogynistic statements, such as opposing female conscription and implying that rape was permissible in times of war.  According to Ynet News, Karim has been serving as the head of the Rabbinate Department in the Military Rabbinate. He is an alumnus of the Bnei Akiva Nachalim and the Ateret Cohanim yeshivas, and he served previously as a combat paratrooper, eventually commanding their elite reconnaissance unit, before taking a break from the military and eventually returning to its rabbinate. In 2012, Karim’s controversy started when the Hebrew religious website KIPA, asked him, in the light of certain biblical passages, if IDF soldiers were permitted to commit rape during wartime despite the general understanding that such an act is widely considered repugnant.  His answer enraged many Israelis.

Chinese oil demand falls 2.7% in May from a year ago: S&P Global Platts - China’s apparent oil demand fell by 2.7% to average 10.88 million barrels per day in May compared to a year earlier, according to a report from S&P Global Platts released early Tuesday. Oil demand has now fallen for four months in a row, with a slowdown in the Chinese economy contributing to decreases in gasoil and fuel-oil consumption. China’s oil demand is expected to grow by less than 2% this year, as “gross domestic product growth slows on the back of economic rebalancing,” the report said. On the New York Mercantile Exchange, August West Texas Intermediate crude traded at $45.59 per bbl, up 83 cents, or 1.9%.

The Chinese Will Need Another Bailout- Here we go again. China is primed for more bailouts as their corporations and State Owned Enterprises (SOE) continue burning through billions of yuan. At the turn of the month we learned Sinopec manipulated revenues. As Reuters reported at the time, some 12 subsidiaries of Sinopec had fake invoices among other faults. Chinese companies are loading up on debt and they are investing it terribly.  Reuters also said 10 state-owned firms had "huge losses" driven primarily from bad investment decisions. Sinopec subsidiaries blew cash on 14 unused chemical plants as well acquiring two dozen fuel stations illegally. "China's national audit department reviewed the financials of the 10 largest state-owned companies including Aluminium Corporation of China (CHALCO), Sinopec and China National Offshore Oil Corporation (CNOOC), exposing huge losses in these firms as a result of low efficiency and bad investment decisions. The auditing office also pointed to wasted investments Sinopec's subsidiaries made, such as 14 unused chemical plants, and raised red flags on two dozen "illegally acquired" fuel stations." Oh yeah, these guys are real winners when it comes to running business and making investments. As Citi pointed out, China's SOE's have Pre-tax Profit Margins and Liability-to-Asset ratios that do not appear to reflect wise decision making:

China exports, imports fall in June amid further signs of weakening demand in slowing economy -- China’s exports fell further last month amid continued weak overseas demand, with analysts warning of a gloomy global economic outlook made even gloomier by Britain’s vote to leave the European Union. We expect external demand to remain weak during rising uncertainties with the Brexit vote and foresee downward pressure for exporters in the second half Liu Tao, Bank of Communications Imports also proved disappointing, although Beijing’s increased sourcing of gold from Hong Kong led to a rise in the city’s overall exports to the mainland. Exports fell 4.8 per cent last month in US dollar terms from the same period a year earlier, according to data released by the General Administration of Customs yesterday. This compared with a drop of 4.1 per cent in May. Imports tumbled a worse-than-expected 8.4 per cent in June, after falling 0.4 per cent in May, the data showed. It was the sixth successive monthly drop in imports this year.The trade surplus shrank to US$48.1 billion in June from May’s US$50 billion. Bank of Communications senior Liu Tao said: “We expect external demand to remain weak during rising uncertainties with the Brexit vote and foresee downward pressure for exporters in the second half.” However, China Merchants Bank said in a research note that things could look brighter in the second half due to a weaker yuan and improving demand from emerging markets.

China’s June Trade Data -- One small thing to remember: For China, the yuan value of its exports matters more than the dollar value of its exports. And the yuan value of China’s June exports was up slightly (buried in the Reuters story: “Exports in yuan terms rose 1.3 percent”). One other thing to remember: China’s export prices are falling. For lots of reasons. But it is clear that Chinese exporters have not held their dollar prices constant and pocketed the gains from a weaker currency. Export prices, in yuan terms, have been running about 5 percent below their 2015 levels.The information that allows the export price index for June to be inferred isn’t yet out, but if you project May prices into June, it is possible to estimate the June rise in export volumes. I get a modestly positive number. And looking at the year-over-year changes in the trailing 3 month averages (all monthly trade data has a lot of noise, so I always try to smooth a bit), China’s exports look to be growing significantly faster than say U.S. exports. As one might expect based on exchange rate moves. And if you like your data pure, without any adjustments, the same basic story shows up in the data showing the year-on-year changes in monthly volumes that China directly reports. The last data point in this series is from May, and I used a 3 month trailing average.

China’s second-quarter growth slows to 6.6 pc | The Indian Express: China’s growth slipped to a new seven-year low of 6.6 per cent in the second quarter, according to a new survey, despite government efforts to spur activity in the world’s second-largest economy. The forecast for expansion in gross domestic product (GDP), based on a poll of 17 economists, represents an easing from 6.7 per cent in the first three months of the year. As the world’s biggest trader in goods China is crucial to the global economy and its performance affects partners from Australia to Zambia. Investors worldwide have been worried by its slowing growth. “Momentum remains downward, so if the government would like to maintain a 6.5 per cent minimum growth rate in the next several years, more aggressive stimulus will be needed,” Brian Jackson, Beijing-based economist at IHS Economics, told AFP. The slowdown comes as policymakers seek to retool the economy, embracing weaker growth as a trade-off for structural reforms to wean the country off cheap exports and massive government spending in favour of domestic consumption. GDP expanded 6.9 per cent in 2015 – its weakest in a quarter of a century – and the government has targeted growth in a range of 6.5-7.0 per cent for this year. The AFP poll forecasts China will just meet the goal, predicting 6.6 per cent. Official Chinese figures are viewed with widespread scepticism, and just days ago the government altered its growth calculation method for the second time in less than a year.

China's bad-loans ratio reaches 1.81 pct in Q2, highest since 2009 | Reuters: Non-performing loans of China's commercial banking sector rose to 1.81 percent of total lending at the end of the second quarter, the highest since the global financial crisis in 2009, the country's top bank regulator said. Shang Fulin, chairman of the China Banking Regulatory Commission (CBRC), urged banks to elevate risk management to a "more prominent" place and take measures to "rein in the rapid rise of non-performance loans" at the regulator's half-year meeting, according to a statement on the CBRC's website. At the end of March, non-performing loans (NPLs) were 1.75 percent of commercial banks' lending. The build-up of troubled credit at Chinese lenders has so far shown no sign of abating as the world's second largest economy continues to battle problems such as high leverage of its corporate sector and excess industrial capacity. Shang also told banks to increase their ability to recover and write-off troubled assets, and said China will expand its pilot scheme of NPL securitization to include more financial institutions. He did not disclose the total volume of NPLs at the end of June.

Ground Zero of China’s Slowdown Leaves Locals Looking for Exit - "Two years ago, everything was fine and I bought whatever I wanted," said Zhang, 29, whose husband’s wages have since halved and her own have stalled. "Then, suddenly, the slump started. The economy went straight down. It’s in free fall."  The home to about 3 million people in the northeast rust-belt province of Liaoning is ground zero in China’s slowdown -- the worst-performing city in the worst-performing province. Ads offering work visas abroad are peppered across hoardings, and billboards offer loans for people in "urgent need." Shuttered car-parts factories flank the highway to the high-speed train station. In the center, a closed wedding-photograph studio has a notice in the window that reads: "Owner is going overseas. Shop for sale." Tieling is among the places hardest hit by a slowdown across the nation of 1.4 billion people triggered in recent years by a commodity-price slump, housing correction and campaign to rein in wasteful investment. The city has seen a triple whammy from the three dynamics, which left the local economy contracting 6.2 percent last year -- compared with national growth of near 7 percent.  Fixed-asset investment in Tieling -- largely property and infrastructure investment -- plummeted 39 percent, steel output plunged 89 percent, industrial output dropped 18 percent and coal production was down almost 8 percent.

A Simple Explanation for the Rise in China’s Reserves in June? --There are plenty of possible explanations for the surprise jump in China’s headline reserves in June. A high allocation to yen (up around 6.5 percent), for example, or a low allocation to pounds (down nearly 8 percent). Headline reserves are reported in dollars, and thus change when dollar value of euros, pounds, yen, and other currencies held in a typical reserve portfolio change. But, absent a much bigger allocation to yen than to pounds, it is hard to see how currency moves in June can explain the $13.5 billion increase in headline reserves. My simple valuation adjustment actually churns out a tiny valuation loss from currency moves, so it implies a slightly higher underlying pace of reserve accumulation than the rise in headline reserves.A two-year Treasury should have increased in value by about half a point, and a five-year Treasury rose by almost two points. I get bond valuation gains of very roughly $15 to $20 billion on a stylized version of China’s U.S. Treasury portfolio,* and there should also be gains on China’s euro portfolio and other fixed income assets. 5 year bunds were up a bit under a point. Extrapolating a bit, across all currencies bond market gains could have added something like $25 billion to the value of a bond portfolio that likely tops $2.5 trillion by a significant margin (not all of China’s reserves are in bonds). Of course, it is also possible China also might have started to buy dollars in the market. This though feels like a stretch — most observers suspect China’s central bank is still selling dollars through the state banks, at least in the offshore market in Hong Kong, as it sought to make sure the CNY’s depreciation against the dollar in June was orderly and that the CNH moved in line with the CNY. This recent Reuters article, for example, hints that China still is selling foreign currency (“further weakness was capped as the central bank was suspected of intervention to offset massive dollar demand from banks’ clients, traders said).

EU says China needs to give EU companies fair market access: (AP) — The EU trade commissioner said Monday that China has to give European companies the same kind of market access that Chinese companies enjoy in Europe before discussions can start on a bilateral free trade agreement. Cecilia Malmstrom said market access and other issues need to be ironed out first in an investment agreement, which is currently being negotiated, to establish "a more level playing field." In a speech at a university in Beijing, Malmstrom said the 28-member EU supported Beijing's path toward a more market-oriented economy promised in 2013, but hadn't seen "much progress." Recently established free-trade zones in China have made "relatively limited progress or been abandoned and there are still concerns about the enforcement of intellectual property rights, (and) discrimination against EU businesses remains a fact," she said. She also said China had made steps backward with laws concerning national security and nongovernmental organizations, and in the field of cybersecurity. Concerns remain "about the predictability and transparency of the legal and regulatory systems." In the past year, Chinese authorities have launched an unprecedented crackdown on lawyers and human rights defenders, passed a law that they said would help NGOs but that subjects them to police supervision, and enacted a national security law that particularly targets online activity. "Moving China to the next phase of development requires that rule of law be part of that," Malmstrom said. She criticized limitations on lawyers and restrictions on online freedom.

EU demands Chinese steel plant closures - The EU has issued an unusually stark warning that Beijing will have to accelerate steel plant closures to improve its chances of winning market economy status.  European Commission President Jean-Claude Juncker insisted on Wednesday that Chinese steel overcapacity was running at twice the level of Europe’s entire production and was fueling a crisis in EU mills, which have lost 20 percent of their workforce since 2008.  “We are saying that market rules have to apply, the Chinese know exactly that this, in concrete terms, means the closing down of steel plants,” he said in remarks following the 18th EU-China Summit in Beijing. “For us there is a clear link between the steel overcapacity of China and the market economy status for China.”  Market economy status within the World Trade Organization is one of China’s most prized international goals and the decision on whether to award it has become a toxic political dispute for the European Commission.  Free traders such as Britain and Sweden support Beijing’s bid, arguing that the move will help promote bilateral investment. But opponents such as Italy fear that the move would trigger heavy job losses in Europe by making it harder to impose anti-dumping duties.  Next week, the Commission will deliver an impact assessment on the effects of designating China as a market economy. A formal proposal is expected by early September and a final decision before the end of the year.  Most trade diplomats expect a compromise in which market economy status is granted but with mitigations for vulnerable sectors, possibly including steel, textiles and ceramics.

China Has No Legal Claim to Most of South China Sea, UN Tribunal Finds -- In a widely anticipated, though purely symbolic decision, just over an hour ago a UN tribunal, the Permanent Court of Arbitration in The Hague, ruled unanimously in favour of the Philippines in its case against China’s extensive claims in the South China Sea. It found that China’s claim to historic rights in most of the South China Sea has no legal basis, dealing a setback to Beijing which, as the WSJ adds, the U.S. fears could intensify Chinese efforts to establish its control by force. And, as was just as expected, China promptly announced it does not accept or recognize the ruling by tribunal, Xinhua reported moments after the decision. The Philippines first brought the case to the International Tribunal for the Law of the Sea at The Hague in 2013, raising 15 instances in which it held China’s claims and activity in the South China Sea had violated international law, writes Hudson Lockett. In 2015 the tribunal decided it had jurisdiction on seven of those, though it said it was still considering the other eight. The tribunal at the Permanent Court of Arbitration in The Hague said China couldn’t claim historic rights to resources in the waters within a “nine-dash” line used by Beijing to delineate its South China Sea claims. That was the most significant element of an unprecedented legal challenge to China’s claims that was brought in 2013 by the Philippines, one of five governments whose claims in the South China Sea overlap with China’s under the nine-dash line.

China Has No Historic Rights to South China Sea Resources, Court Says - China’s prestige as a rising global power suffered a blow as an international tribunal said its efforts to assert control over the South China Sea exceeded the law. The ruling is a rebuff to years of Chinese activity in the waterway. Under President Xi Jinping, China has built a web of artificial islands with runways and lighthouses. It has shooed away planes and ships from other nations, and its coast guard has clashed with fishing boats. At the heart of Xi’s actions is a bid to restore China to great power status and push back against decades of U.S. influence. China boycotted the process and dismissed the ruling. The outcome may empower other claimant states and undercut Xi’s efforts to present China as a responsible player on the world stage. The risk is it now hardens its stance over a waterway that hosts about $5 trillion of trade a year and is a link for global energy shipments.  “There was no evidence that China has historically exercised exclusive control over the waters or their resources,”the Permanent Court of Arbitration in The Hague said Tuesday in a statement. As such there was no legal basis for the country’s claim, it said. The ruling went beyond what analysts had expected, and prompted an immediate response from Beijing.  "The ruling is as bad as was possible," Hu Xijin, editor-in-chief of the Communist Party-run Global Times, wrote in a Weibo post. "This is the worst, the most extreme version of several possible scenarios." The case was brought by the Philippines, arguing that China’s claims of historic rights don’t comply with the United Nations Convention on the Law of the Sea. While the court says the ruling is binding, it lacks a mechanism for enforcement. China’s assertions are based on a 1947 map showing vague dashes -- known as the nine-dash line -- that cover about 80 percent of the waterway.

Global arms race escalates as sabres rattle in South China Sea: The South China Sea has become the most dangerous fault-line in the world. Beijing and Washington are on a collision course over these contested waters, the shipping lane for 60pc of global trade. As expected, the International Court of Justice in The Hague has ruled that China has no “historic title” to areas of this sea stretching all the way to the ‘nine dash line’ - deep into the territorial waters of a ring of South East Asian states. Equally expected, Beijing has dismissed the verdict with scorn, accusing the tribunal of “shamelessly abusing its authority”. The state media said the country “must be prepared for any military confrontation” with the US, and must not flinch from war if provoked. It is the latest in a series ominous developments in Asia and Europe that are rapidly subverting the Western international system and setting off a global rearmament race with strong echoes of the late-1930s. Tensions are flaring up across so many spots in East Asia that global investment funds are actively betting on defence stocks and technology companies linked to military expansion. Nomura has launched an “Asian Arms Race Basket” as a hedge against potential conflicts in the East China Sea, the Straits of Taiwan, and the South China Sea.

China vows to protect South China Sea sovereignty, Manila upbeat | Reuters: China vowed to take all necessary measures to protect its sovereignty over the South China Sea and said it had the right to set up an air defense zone, after rejecting an international tribunal's ruling denying its claims to the energy-rich waters. Chinese state media called the Permanent Court of Arbitration in the Hague a "puppet" of external forces after it ruled that China had breached the Philippines' sovereign rights by endangering its ships and fishing and oil projects. Beijing has repeatedly blamed the United States for stirring up trouble in the South China Sea, where its territorial claims overlap in parts with Vietnam, the Philippines, Malaysia, Brunei and Taiwan. "China will take all necessary measures to protect its territorial sovereignty and maritime rights and interests," the ruling Communist Party's official People's Daily said in a front page commentary on Wednesday.The Philippines reacted cautiously to the ruling late on Tuesday, calling for "restraint and sobriety", but the mood at President Rodrigo Duterte's cabinet meeting on Wednesday was "upbeat", presidential spokesperson Ernesto Abella said. Philippine Defence Secretary Delfin Lorenzana said he had spoken to U.S. counterpart Ash Carter ahead of the ruling who told him China had assured the United States it would exercise restraint, and the U.S. made the same assurance. Carter had sought and been given the same assurance from the Philippines, Lorenzana added. "The ruling can serve as a foundation on which we can start the process of negotiations which hopefully will eventually lead to the peaceful settlement of the maritime dispute in the South China Sea," Charles Jose, a spokesman for the Philippines' Department of Foreign Affairs, said.

'New normal' after South China Sea ruling | Bangkok Post: opinion: However the Philippines-China verdict is viewed and whatever its immediate consequences, the landmark ruling by the dispute-settling Arbitral Tribunal under the United Nations Convention on the Law of the Sea will bring about a "new normal" in Southeast Asia that portends more regional tensions and potential conflict in the longer term. This "new normal" means that the status quo ex ante prior to Philippines' recourse to the Tribunal in January 2013 will not be restored. China will effectively control what it has claimed and constructed in the South China Sea since, even though the Tribunal's ruling indicates otherwise. It behoves Beijing now as an aspiring global leader to be satisfied with getting away with its "sea grab" and start to compromise with the 10-member Asean by working towards a rules-based Code of Conduct for Parties in the South China Sea (CoC). In fact, there has never been a better time in recent years of South China Sea tensions for Beijing to participate in a regional framework because it has more friendly neighbours than in the past. Even President Rodrigo Duterte of the Philippines, the country that took China to the international court, takes a conciliatory stand vis-à-vis China. If China misses this chance to make peace with Asean, it may not get another opportunity with as much promise. For Asean, particularly the Philippines, the favourable ruling may prove counterproductive in the longer term unless the resilient but divided regional organisation can close ranks and put up a united and persuasive stand to rein in China's maritime claims. Asean's unity, in fact, is indispensable to persuade China to play ball in regional agreements.

China’s Challenge to the Law of the Sea -  – China has been trying to bully its way to dominance in Asia for years. And it seems that not even an international tribunal in The Hague is going to stand in its way. China has rebuffed the landmark ruling by the Permanent Court of Arbitration, which knocked the bottom out of expansive Chinese territorial claims in the South China Sea and held that some of the country’s practices were in violation of international law. Recognizing that there is no mechanism to enforce the PCA’s ruling, China does not intend to give even an inch on its claims to everything that falls within its unilaterally drawn “nine-dash line.”  Clearly, China values the territorial gains – which provide everything from major oil and gas reserves to fisheries (accounting for 12% of the global catch) to strategic depth – more than its international reputation. Unfortunately, this could mean more trouble for the region than for China itself.  China is not just aiming for uncontested control in the South China Sea; it is also working relentlessly to challenge the territorial status quo in the East China Sea and the Himalayas, and to reengineer the cross-border flows of international rivers that originate on the Tibetan Plateau. In its leaders’ view, success means reducing Southeast Asian countries to tributary status – and there seems to be little anyone can do to stop them from pursuing that outcome.  Indeed, China’s obvious disdain for international mediation, arbitration, or adjudication essentially takes peaceful dispute resolution off the table. And, because none of its regional neighbors wants to face off with the mighty China, all are vulnerable to Chinese hegemony. . Rather than launch an old-fashioned invasion – an approach that could trigger a direct confrontation with the United States – China is creating new facts on the ground by confounding, bullying, and bribing adversaries.

South China Sea Tensions Surge After Taiwan Deploys Frigate, China Warns Of "Air Defense Zone" --Following the much anticipated ruling by the international court which found yesterday that China does not have a right to claims on the South China Sea, an unexpected supporter for China's position - which has vocally warned it won't comply with the tribunal's ruling - emerged overnight when Taiwan, which shares territorial claims with China in the disputed area - sent a naval frigate to patrol the disputed waterway Wednesday, to show the government’s “determination" to defend its national interest. The order from Taiwan's president Tsai Ing-wen came just hours after the Permanent Court of Arbitration found found that the largest natural feature in the contested Spratly Islands, the Taiwanese-held Itu Aba, was a "rock" rather than an island and didn’t qualify for a 200-nautical mile (370 kilometer) exclusive economic zone. The frigate’s planned patrol included a resupply stop at the feature, which Taiwan calls Taiping, a defense ministry spokesman said.

The depopulation of Japan -- Though demographers have long anticipated the transformation Japan is now facing, the country only now seems to be sobering up to the epic metamorphosis at hand. Police and firefighters are grappling with the safety hazards of a growing number of vacant buildings. Transportation authorities are discussing which roads and bus lines are worth maintaining and cutting those they can no longer justify. Aging small-business owners and farmers are having trouble finding successors to take over their enterprises. Each year, the nation is shuttering 500 schools. “Now, in every area — land planning, urban planning, economic planning — every branch of government is trying to do what they can,” said Reiko Hayashi, a researcher at the National Institute of Population and Social Security Research. And how bad is it likely to be? Now, the country has begun a white-knuckle ride in which it will shed about one-third of its population — 40 million people — by 2060, experts predict. In 30 years, 39% of Japan’s population will be 65 or older.  If the United States experienced a similar population contraction, it would be like losing every single inhabitant of California, New York, Texas and Florida — more than 100 million people. The country may become more like a Miyazaki movie: A bigger issue now is wildlife: The village’s population has become so sparse that wild bears, boars and deer are roaming the streets with increasing frequency.

Japan's ruling bloc wins landslide in upper house election | Reuters: Prime Minister Shinzo Abe's ruling coalition won a landslide victory on Sunday in an election for parliament's upper house, despite concerns about his economic policies and plans to revise the nation’s post-war pacifist constitution for the first time. Final counts showed Abe's coalition, like-minded parties and independents had won the two-thirds "super majority" needed to try to revise the constitution's restraints on the military, a step that could strain ties with China, where memories of Japan's past militarism run deep. Abe's Liberal Democratic Party (LDP) fell one short of winning a simple majority, which would have increased its clout within the coalition. Earlier projections had shown it was within their grasp for the first time since 1989. Nevertheless, the overall victory will still bolster Abe's grip over the conservative party that he led back to power in 2012 promising to reboot the economy with hyper-easy monetary policy, fiscal spending and reforms. Abe's junior coalition partner, Komeito, fared well, winning 14 seats compared with nine before the election. Any attempt to revise the constitution will still be politically fraught and LDP heavyweights have suggested that amending the pacifist Article 9 would not be the first priority. Abe told a TV broadcaster it was too early to talk about specific revisions to the constitution and his No.2 in the party said separately that talks with the opposition were needed.

Abe’s surreal election victory -- On 10 July, Shinzo Abe’s ruling coalition won an impressive victory in Japan’s half-upper house election. Having campaigned on the need to stay the Abenomics course, Abe stated in his victory speech that he would convene commissions on the constitution in both houses of parliament. Welcome to the surreal world of Japanese electoral politics. The dissonance between reality and policy will dictate the parliamentary agenda until the end of Abe’s term as president of the Liberal Democratic Party (LDP) in September 2018. According to Abe, the commissions will commence deliberations on revising the 1947 constitution on the basis of the LDP’s own 2012 draft, as if this document had standing in the legislature (it doesn’t), and as if this was widely understood in the nation at large (it isn’t).  As Abe and his hard right conservative backers know all too well, majority public opinion remains hostile to the notion of constitutional revision; hence why Abe has not made it an electoral issue during any of his past four campaigns, including this latest one.  For the general public, the constitution is known as the ‘peace constitution’, and its signature clause Article 9 has a talismanic status in the postwar nation.  When the words ‘constitutional revision’ are uttered, most people equate this (mistakenly) with the intention to weaken the pacifist clause.

Japan’s Banks Turn Noses Up at Idea of BOJ Paying Them to Borrow - Japan’s major lenders wouldn’t want the central bank to pay them to borrow even if policy makers seeking to kill off deflation made such an offer, according to people familiar with the matter. The idea of setting negative interest rates on loans to lenders surfaced earlier this year after the Bank of Japan adopted a minus-rate strategy in January. According to people familiar with talks at the BOJ in April, discussions on such a plan could happen in conjunction with any decision to make a deeper cut to the current negative rate on reserves. Hideo Hayakawa, a former BOJ executive director, said last month that giving money to lenders to take out loans would be a better stimulus tool than charging them more on central bank deposits. Executives from five financial institutions in Tokyo, who asked not to be identified because they aren’t authorized to speak publicly on the matter, said they doubt lower rates would buoy lending amid slack demand. An improvement in profit margins would be minimal as borrowers seek further cuts to loan rates in line with a drop in funding costs, they said. “It’s an idea that will surely face fierce rejection from banks,” said Yasunari Ueno, the chief market economist at Mizuho Securities Co. in Tokyo. “It could spark further dumping competition for bank lending rates as borrowers see the negative BOJ rate as a subsidy, further aggravating banks’ profitability. Loan rates are falling already because of slack demand.”

Japan rejects Clinton's TPP threat, won't renegotiate trade pact | The Japan Times: Japan does not plan to rework the Trans-Pacific Partnership free trade deal despite U.S. presidential hopeful Hillary Clinton’s suggestion Tuesday that she may try to renegotiate it, Deputy Chief Cabinet Secretary Koichi Hagiuda said on Wednesday. “We are not going to accept any request from the United States, even if it asks us to renegotiate over the TPP,” he told reporters. Hagiuda said renegotiating even part of the accord that was agreed in February would harm it. “I hope all member countries, including the U.S., will carry out domestic procedures with responsibility,” he said. He called for early approval by Congress. The Japanese government aims to approve TPP at an extraordinary Diet session this autumn. On Tuesday, Clinton also said Republican rival Donald Trump’s plan to scrap trade deals could start “trade wars.” She said the agreements should instead be renegotiated if they do not benefit American workers. Clinton said Trump would send the U.S. economy back into recession, warning his “reckless” approach would hurt workers still trying to recover from the economic turbulence stemming from the 2008 global financial crisis.

Japan’s Abe Tells Bernanke He Wants to Speed Up End of Deflation -  Japanese Prime Minister Shinzo Abe told former Federal Reserve Chairman Ben S. Bernanke at a meeting in Tokyo he wants to speed up the nation’s exit from deflation, underscoring his commitment to implementing fresh economic stimulus. "We are only halfway to the exit from deflation," Abe said at the start of the meeting at his residence Tuesday. "We want to be steadfast in accelerating our breakaway from deflation." Abe’s remarks at the meeting, also attended by the Ministry of Finance’s top currency official Masatsugu Asakawa and adviser Koichi Hamada, came before he ordered Economy Minister Nobuteru Ishihara to compile stimulus measures this month. Speaking later, Ishihara didn’t hint at the size of the package, saying it may be funded through the issuance of construction bonds rather than deficit bonds. The government indicated it wants to make full use of the low interest rate environment. Hamada told reporters after the meeting that Bernanke asked Abe to carry on with his economic policies dubbed Abenomics by supplementing monetary policy with fiscal policy. Bernanke told Abe that the Bank of Japan still had the instruments to further ease monetary policy, said Yoshihide Suga, Japan’s top government spokesman.  Bernanke met Haruhiko Kuroda, the central bank governor, for lunch Monday. The BOJ issued no statement on the substance of those talks, which come three weeks before its next policy meeting as it confronts a fresh strengthening in the yen this year that risks undermining inflation and weakening the appetite for investment and wage increases.

Is “Helicopter Money” About to Rain Upon the World? --There’s a chart that lends a certain urgency to the Bank of Japan’s (BOJ) monetary policy meeting late this month. It is this one of the yen: Ever since the BOJ announced a new negative interest rate policy earlier this year (NIRP) the yen has stopped falling and reversed upwards. That is, despite weak Japanese growth, despite an inverted yield curve and deeply negative long bond, and despite still weak inflation, markets have bet on spectacularly easy monetary policy generating even more of all four.  This is what is know as “quantitative failure”, the notion that negative interest rates will not expand the monetary base owing to such phenomenon as crushed bank margins and the hoarding of cash under mattresses, so the currency is therefore going to rise.  Japan may well pick this moment to experiment further with monetary debasement. Just as China has used the post-Brexit environment to accelerate its yuan devaluation, Japan is in a better position than it was a few months ago to try something new after what was a rather cross G20 meeting in Shanghai that swore off competitive devaluations. There is some other movement around the place to support a renewed Japanese monetary experiment. Ben Bernanke will visit the BOJ and Prime Minster Shinzo Abe this week, from Reuters: Senior Japanese policymakers will discuss global market developments on Friday and former Federal Reserve Chairman Ben Bernanke will have talks in Tokyo next week with officials including Prime Minister Shinzo Abe, government sources said.…Bernanke, who led the Fed through the global financial crisis in 2008, will be in Japan next week. It has been arranged for him to meet officials including Abe and Bank of Japan Governor Haruhiko Kuroda, according to a government official speaking on condition of anonymity.Bernanke is expected to discuss Brexit and the BOJ’s negative interest rate policy with Abe and Kuroda, the official said.Some market players speculate Kuroda might decide, in a surprise, to provide “helicopter money” – a term coined by American economist Milton Friedman and cited by Bernanke, before he became Fed chairman, when talking about how central banks might finance government budgets as a way to seek to fight deflation.

It's Official: Bernanke Urges Japan To Unleash Helicopter Money -- According to the WSJ, the former Federal Reserve Chairman Ben Bernanke rejected the notion that the Bank of Japan is short of ammunition when he met with Prime Minister Shinzo Abe Tuesday. Bernanke noted during the face-to-face meeting that Japan’s central bank still has a range of monetary easing measures at its disposal, according to Chief Cabinet Secretary Yoshihide Suga.  This contradicts BOJ executive director, Kazuo Momma, who just yesterday said that the Bank of Japan will need to reduce the pace of its record purchases of government debt as it is approaching the limits of the bond market. "Of course they can’t keep stacking up 80 trillion yen ($784 billion) of bonds forever," said Kazuo Momma, who worked at the BOJ until the end of May. “They are aware they are nearing the limit, whether that is now or later.”“With that awareness, it’s not impossible that they will increase the pace from 80 trillion yen to 100 trillion yen or 120 trillion yen, but it’s incredibly difficult," he said in an interview on Monday in Tokyo. "Based on common sense, you’d think they’d start considering reducing the pace a little bit in the near future.”Alas, common sense was never Bernanke's strong suit who according to rumors urged the BOJ to do precisely the opposite, namely monetize even more debt, however since the BOJ is indeed running out of bonds to buy, it would need to government's assistance and issue even more debt, ostensibly to fund "infrastructure projects", which would then be promptly monetized by the central bank.Sure enough, Bernanke recommended the BOJ coordinate its policy with fiscal measures aimed at shoring up Japan’s economic output to end over a decade of deflation, according to Mr. Suga.

BOJ helicopter triggers full blown reflation panic - Lordy, who’d be a bear! The faintest whiff of the Bank of Japan helicopter has markets in panic buy mode whether they will benefit or not. The US dollar was firm: The yen was pulverised, zombieuro dead, yuan rebounded: Commodity currencies roared: Gold was pounded: Oil rocketed: Base metals flew: Big miners are on the verge of breakout (some have): US high yield debt was bid, EM not so much: US bonds were flogged: Equities just loved it and, at this point, could do anything: Welcome to the age of helicopter money, from the WSJ: Former Federal Reserve Chairman Ben Bernanke rejected the notion that the Bank of Japan is short of ammunition when he met with Prime Minister Shinzo Abe Tuesday.. …Mr. Bernanke recommended the BOJ coordinate its policy with fiscal measures aimed at shoring up Japan’s economic output to end over a decade of deflation, according to Mr. Suga. Brushing aside a view among Japanese economists that BOJ policy has reached its limit, Mr. Bernanke’s assessment added to speculation that Tokyo will unleash new rounds of fiscal and monetary stimulus to reboot Abenomics, Mr. Abe’s growth plan.   Mr. Bernanke visited Tokyo at a time of intense speculation that Mr. Abe may resort to so-called “helicopter money,” a radical form of monetary easing advocated by the former Fed chief. The planned stimulus is not very big at $96bn but I guess that’s not the point. The intellectual and institutional breakthrough is what matters. So where does this leave us? If the helicopter were to spread globally quickly then it would change everything for the MB outlook. Commodities will be in high demand as infrastructure spending surges globally. The Australian dollar will be one massive beneficiary and surge with the terms of trade. Miners will take off. The Budget will be fixed by the income rush. Rebalancing will stall as interest rates rise.

US Futures, Global Markets Storm Higher As More Details Emerge About Japan's "Helicopter Money" --The global meltup continues with the S&P set to open at new all time highs, some 20 points higher from yesterday's close, however the driver for the latest rally is not so much the imminent BOE announcement which is expected to cut rates by 25 bps from 0.50%, but a dramatic surge in the USDJPY just after 1am Eastern when Bloomberg revealed more details about Ben Bernanke's masterplan for Japan's helicopter money. According to Bloomberg, Bernanke, who met Japanese leaders in Tokyo this week, had floated the idea of perpetual bonds during earlier discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers. Abe advisor Etsuro Honda said that during an hour-long discussion with Bernanke in April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation. He noted that helicopter money could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option. The implication, as we said last week when we previewed just this "big thing" is that Japan is indeed set to be the first testing ground of helicopter money in the modern financial system. Though Honda said he thought Japan was already engaged in a strategy that involved helicopter money, he said that he watned to convey the idea to Abe and asked Bernanke to meet with the premier in Japan. While this didn’t happen in the spring, Bernanke joined central bank chief Haruhiko Kuroda over lunch this Monday and on Tuesday he attended a gathering with Abe and key officials, including Koichi Hamada, another influential economic adviser. Honda, 61, said he told Abe about Bernanke’s views after his April meeting. “I told him now is the time for Japan to expand fiscal spending and at the same time, additional monetary easing should be taken,” Honda said. “I told him it is necessary to strengthen the effects of Abenomics” through such a strategy.

Japan may be on route for a soft form of helicopter money | Reuters: Japanese policymakers, who won't go as far as funding government spending through direct debt monetization, might pursue a mix of aggressive fiscal and monetary expansion to battle deflation, say sources familiar with the matter. In the past week, Japanese markets have seen hyped-up speculation that the government will resort to using what's called "helicopter money", where a central bank directly finances budget stimulus through programs such as perpetual bonds. With Prime Minister Shinzo Abe preparing a big spending package to be announced as early as this month, the Bank of Japan will remain under pressure to expand monetary stimulus at its rate review on July 28-29, analysts say. Government and central bank officials say there is no chance Japan will resort to having the central bank monetize debt to fund government spending, such as by buying perpetual bonds to allow the government to boost spending without paying back debt. "It's clear the government won't do helicopter money in the strict sense," said a government official with knowledge of deliberations on what action to pursue. "But it's a different story when you're talking about combining fiscal and monetary expansion. That's possible," said the official, who insisted on anonymity.

Google Plans to Train 2 Million Developers for Android - Google launched a program to train 2 million developers in India for its Android platform as its fires up a race with Apple Inc. for the country’s developers to create innovative mobile apps. The Android Skilling program will be introduced for free across hundreds of public and private universities and training schools through a specially designed, in-person program this year. The program would also be available through the government’s National Skills Development Corporation of India, the company said in a statement. India is expected to have the largest developer population with 4 million people by 2018, overtaking the U.S., but only a quarter are building for mobile, said Caesar Sengupta, vice president of product management at Google. “We believe India is uniquely placed to innovate and shape the internet experience of billions of users who are and will come online on the mobile platform,” he said in the statement. Google plans to make the curriculum accessible to millions for free to help make India a global leader in mobile development. “We are hoping to get in about 2,000 different universities, training about 4,000 faculty to reach in excess of 250,000 students in these universities every year,” Peter Lubbers, head of developer training at Google, said in New Delhi.

The Human Cost of Zoning in Indian Cities -  Years ago, I worked for a magazine in Delhi. I wanted to live near the magazine office, but the rent was too damn high. In a low-rent area nearby, I rented a dingy room my girlfriend named “The Black Hole.” In buildings sitting across the street from mine, rents were many folds higher. This did not make sense. It took me years to realize that I was living in an “illegal colony.”Nearly one-third of the people in Delhi live in illegal colonies where they do not have secure property titles. Illegal colonies violate zoning regulations and master plans. Water connections, sewer lines, electricity, and roads do not function very well because illegal colonies are not even supposed to exist. Some of them are more populous than many American cities. Rents are low, but these properties are expensive because owners expect the government to legalize them. It is difficult to redevelop these dilapidated buildings because the threat of eviction is always there. Hundreds of thousands of people who migrate to Delhi every year settle in such colonies because formal housing is too expensive. Developable land is scarce, and complying with building codes is a luxury they cannot afford. Land Everywhere, but Nowhere to Live Land is not scarce in Delhi, as I learned in one of those days, when a friend drove me around the city. There is enough land for everybody to live in a mansion. Delhi has nearly 20,000 parks and gardens. Large tracts of land remain idle or underutilized, either because the government owns it, or because property titles are weak. Politicians and senior bureaucrats live in mansions with vast, manicured lawns in the core of the city. Some of these political eminentoes farm on valuable urban land while firms and households move to the periphery or satellite cities where real estate prices are lower. So the average commute is long, roads are too congested, and Delhi is one of the most polluted cities in the world.

India's 'Gold Shirt Man' Stoned-And-Sickled To Death By Mob -- Datta Phuge took the interwebs by storm three years ago when we introduced the $250,000 22-karat-gold-shirt-wearing 32-year-old Indian who proclaimed "I know I am not the best looking man but surely no woman could fail to be dazzled by this shirt?" showing the world that gold is much more than a barbarous relic. Sadly, as The BBC reports, "the gold man" was murdered overnight - found stoned-and-sickled to death near his home in Dighi, India. As ABP Live reports, millionaire money-lender, Datta D. Phuge, famous as ‘Pimpri Goldman’ was found clobbered to death near Dighi here on early Friday morning, police said. The high-profile businessman’s vehicle was accosted by some unknown persons on the outskirts of the city late on Thursday night. They reportedly dragged him out, attacked him with a sickle and then pounded him to death with huge stones before fleeing from the spot.

Currency Wars, Coordination, and Capital Controls - Olivier Blanchard -- The strong monetary policy actions undertaken by advanced economies' central banks have led to complaints of "currency wars" by some emerging-market economies and to widespread demands for more macroeconomic policy coordination. This paper reviews cross-border effects of advanced economies' monetary policies on emerging economies, through goods markets, foreign exchange markets, and financial markets, and examines the scope for coordination. Blanchard concludes that, while advanced economies' monetary policies indeed have had substantial spillover effects on emerging-market economies, there was and still is little room for coordination. He argues that, given the limits on fiscal policy, restrictions on capital flows (i.e., capital controls) were and still are the appropriate macroeconomic instrument to advance the objectives of both macro and financial stability.  The panel’s goal was to offer perspectives on global monetary policy informed not only by economic models that give a prominent role to policy rules, but also by what we actually observe today in the world of post-crisis, unconventional, zero and now negative interest rate monetary policies.  “It looks like everybody’s doing it,” you may say, citing the evidence of policies undertaken all around the world, “so global central banks must be cooperating!” But I say, not so fast. While we observe that national monetary policies are often correlated (eras of global monetary easing, global rate hike cycles), and they also appear sometimes to be coordinated (after all, what else are central bankers doing at all those G-7, G-20, IMF and Basel meetings?), rarely (if ever) do major central banks actually respect a commitment to pursue cooperative policies – that is, policies that would differ from non-cooperative policies aimed solely at satisfying their country-specific objectives for domestic inflation and employment. Would the global economy benefit from true cooperation? Would individual countries? In a global macroeconomic environment of generally diminishing returns to generally extraordinary monetary policy, more market observers are raising this question. One observer, European Central Bank President Mario Draghi – speaking just days after the Brexit surprise rattled investors around the world – noted that “In a globalized world, the global policy mix matters – and will likely matter more as our economies become more integrated. So we have to think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across jurisdictions.”

G-20 Says Industrial Overcapacity Has Put Dent in Global Trade - WSJ: Excess industrial-production capacity is a global issue that has depressed international commerce and harmed workers, trade ministers from the Group of 20 industrial and developing nations said Sunday after meeting in China. The declaration cast a spotlight on China’s influence as the world’s largest exporter of manufactured goods such as steel. The Shanghai meeting sought to address what the host, Chinese Minister of Commerce Gao Hucheng, called a “very sluggish recovery” marked by growing protectionism, reduced foreign direct investment and other signs of fragmentation in the global trading system that together risk making 2016 the fifth-straight year that international commerce lags behind global growth. Mr. Gao told reporters that China had made trade negotiations a key plank of its G-20 presidency this year, and that trade ministers over the weekend agreed to a nine-point set of principles aimed at spurring cross-border investment. “We do have the responsibility to stimulate trade and investment as a contribution to a new vitality to the world economy,” he said.  A sign of that friction flared Friday, just as the trade ministers readied to meet, when China’s Ministry of Commerce said it had asked the WTO to establish a panel it hopes would force U.S. to alter policy over a penalty called countervailing duties. Also Friday, the Geneva-based WTO published a new World Trade Outlook Indicator that pointed to expectations of further modest slowing of trade in the third quarter.  It isn’t clear how much progress on trade can be expected from the G-20, a group that gained prominence during the global financial crisis and includes economies from Canada to Indonesia.

The Outsized Impact of the Fall in Commodity Prices on Global TradeGlobal trade has not grown since the start of 2015. Emerging market imports appear to be running somewhat below their 2014 levels. Creeping protectionism? Perhaps. But for now the underlying national data points to much more prosaic explanation.  The “turning” point in trade came just after oil prices fell. And sharp falls in commodity prices in turn radically reduced the export revenues of many commodity-exporting emerging economies. For many, a fall in export revenue meant a fall in their ability to pay for imports (and fairly significant recessions). For the oil exporters obviously, but also for iron exporters like Brazil. Consider a plot of real imports of six major world economies: Brazil, China, India, Russia, the eurozone and the United States, indexed to 2012.  I see five things in this data:

  • (1) The 20-30 percent fall in Brazilian and Russian imports from their 2012 levels, which rather obviously is mostly tied to changes in their terms of trade. Brazil and Russia are fairly large economies, and these are giant falls.
  • (2) An adjustment in India that followed the now almost forgotten taper tantrum (I didn’t adjust for gold imports).
  • (3) A slowdown in import growth in China that started in 2014 and was quite pronounced in 2015.
  • (4) Decent import volume growth, rather surprisingly, from the eurozone.
  • (5) Decent import growth in the United States until 2015 if you remove the impact of the tight oil revolution.

Shipbuilding output at least 30% above underlying demand: Stopford -  News today that Beijing is looking to slimline its shipbuilding capacity further has been welcomed by one of the world’s foremost shipbuilding experts, Dr Martin Stopford, but more will need to be cut back, he warns in an exclusive interview with Splash. Beijing today announced plans to make it harder to be on the nation’s approved white list of yards – those on the list are entitled to easier access to financing. This white list has been the Chinese government’s way of cutting back on shipbuilding capacity. At its peak, China had more than 3,000 yards six years ago. Stopford, president of Clarksons Research, argued today that more yards will need to be shuttered across East Asia. “Shipbuilding output of around 103m dwt in 2016 is at least 30% above the underlying demand for new ships,” he pointed out. With China’s imports hardly growing; the world economy in a trough; and the offshore market in deep trouble, Stopford said current output could only be sustained by “heroic price cutting”. “Cutting capacity makes sense,” he added, “but with the market split 37% China, 35% South Korea and 19% Japan it’s a game of chicken for who cuts first and most.” Stopford also questioned whether the cuts are in capacity or prices. “Don’t rule out some big price cuts,” he told Splash.

Global trade slowdown worse than thought -  The slowdown in world trade has been much worse than previously reported, with global trade volumes plateauing over the past 18 months amid a rise in protectionism, according to a new report.  The analysis illustrates why business leaders such as GE’s Jeff Immelt are anxious about trade and the world economy as politicians such as US Republican presidential candidate Donald Trump rail against “globalism” and promise to erect new barriers to commerce. Policymakers and economists have grown increasingly concerned about a slowdown in global trade growth. But according to the latest report by Global Trade Alert, which monitors protectionism around the world, that growth has disappeared altogether with the volume of goods traded around the world stagnant since January 2015.  Such a prolonged period of no growth is rare in economic history, said Simon Evenett, professor of international trade and economic development at Switzerland’s University of St Gallen and the report’s lead author. “It really doesn’t happen very much outside of recessions,” he said. The report is based on data collected by the Netherlands Bureau for Economic Policy Analysis, which publishes a much-watched monthly report on global trade volumes. Its latest data, for April of this year, shows that both exports and imports globally remain below where they were in January 2015 and have moved very little in the period since then.  Economists remain divided on the causes of the slowdown. While some blame a creeping protectionism that has begun to drag on the world’s economy, others see long-term trends at play such as the shortening of global supply chains and the increasing role of digital trade.

In Africa, the U.S. Military Sees Enemies Everywhere  From east to west across Africa, 1,700 Navy SEALs, Army Green Berets, and other military personnel are carrying out 78 distinct “mission sets” in more than 20 nations, according to documents obtained by The Intercept via the Freedom of Information Act. “The SOCAFRICA operational environment is volatile, uncertain, complex, and ambiguous,” says Brig. Gen. Donald Bolduc, using the acronym of the secretive organization he presides over, Special Operations Command Africa. “It’s a wickedly complex environment tailor-made for the type of nuanced and professional cooperation SOF [special operations forces] is able to provide.” Equally complex is figuring out just what America’s most elite troops on the continent are actually doing, and who they are targeting. In documents from a closed-door presentation delivered by Bolduc late last year and a recent, little-noticed question and answer with a military publication, the SOCAFRICA commander offered new clues about the shadow war currently being waged by American troops all across the continent. “We operate in the Gray Zone, between traditional war and peace,” he informed a room of U.S., African, and European military personnel at the Special Operations Command Africa Commander’s Conference held in Garmisch, Germany, last November.

Venezuela Seizes Control of an American Factory Amid Crippling Shortages of Goods -- The labor minister of Venezuela’s leftist government has announced that a factory run by U.S. multinational Kimberly-Clark has been seized and is “now in the hands of the workers.”The Wall Street Journal reports that the Texas-based diaper and tissue producer’s factory in the northern city of Maracay had ceased production due to a shortage of raw materials. The collapse in global oil prices has crippled Venezuela’s ability to import goods, leading to shortages of food, hygiene products and inputs for industry.Labor Minister Oswaldo Vera said in a televised address Monday that he was signing an order for the factory to be occupied after Kimberly-Clark laid off more than 900 workers. “Kimberly Clark will continue producing for all Venezuelans and is now in the hands of the workers,” he said, according to the Wall Street Journal. Kimberly-Clark has not confirmed the takeover, but said in a statement to the BBC, “If the Venezuelan government takes control of Kimberly-Clark facilities and operations, it will be responsible for the well-being of the workers and the physical asset, equipment and machinery in the facilities going forward.”

Thousands of Venezuelans stream over border to Colombia (AP) — Tens of thousands of Venezuelans streamed across bridges into Colombia over the weekend after Venezuela briefly lifted a year-old border closure to allow people to buy food and medicine. Colombian authorities said 35,000 Venezuelans made the trip Sunday during the 12-hour border opening. The dramatic scenes of the elderly and mothers storming Colombian supermarkets were a stark reminder of how daily life has deteriorated for millions in Venezuela, where the economy has been in a freefall since the 2014 crash in oil prices. Many started waiting before dawn and came back weighed down with flour, cooking oil, diapers and other essentials that have become impossible to find amid 700 percent inflation and severe shortages. The shortages look likely to worsen. Kimberly-Clark Corp. over the weekend announced it was suspending its factory and would stop selling in Venezuela staples like facial tissues and diapers. The government responded by threatening to seize the plant and take over production itself, but its track record for turning around once-thriving private businesses into socialist bulwarks is far from stellar. Magola Penaranda, 60, said she and her two daughters and a grandchild lined up at 6 a.m. for the chance to cross into Colombia. She said she spent about $25 — nearly two months earnings at the minimum wage — buying items like toilet paper and soap that she hasn’t seen for months. “Even if you have lots of money you can’t obtain rice,”

Venezuela army deployed to control food production and distribution - BBC News: Venezuela's military has taken control of five ports in an effort to guarantee supplies of food and medicine. In a decree, President Nicolas Maduro has ordered the army to monitor food processing plants, and co-ordinate the production and distribution of items. Venezuela is going through a deep economic crisis despite having the world's largest oil reserves. Basic products are increasingly hard to find and many say they struggle to feed their families. The Venezuelan Bishops Conference said the rise of the military is a "threat to tranquillity and peace". Mr Maduro says the measure is to fight the "economic war" he claims is being waged against his government by political foes and businessmen, with US backing. But the opposition says the government has mismanaged the economy, and has called for a referendum to oust the president.

Nowhere Fast: Drifting World Economy Skirts Worst But Still Lags - Bloomberg: Supported by a surfeit of central bank liquidity, the world has skirted numerous hazards and grown at a steady, albeit unspectacular, pace since 2010. And it looks set to do it again in the coming year, slowed, though not swamped, by the U.K. vote to leave the European Union. “We might end up losing perhaps a quarter percentage point off” world growth as a result of Brexit, said David Hensley, director of global economics for JPMorgan Chase & Co. in New York. “That’s not enough to knock us out of the 2 to 3 percent channel we’ve been operating in recent years.” Coming after the deepest recession since the Great Depression, the slow-motion expansion has failed to extinguish the lingering anxiety of consumers and companies scarred by the crisis. That’s led both groups to hold back on their spending, in turn retarding the strength of the upswing. “It’s been a disappointing expansion, just drifting along,” said Peter Hooper, chief economist for Deutsche Bank Securities Inc. in New York and a former Federal Reserve official. It has, though, been sufficient to reduce joblessness, especially in the U.S., he noted.The question is how long the lackluster status quo can last. Central banks have already pushed monetary policy to its limits, cutting interest rates below zero in some countries and buying up bucket-loads of government bonds. Populist pressures fed by stagnating living standards are mounting, leading to the June 23 British vote to leave the EU and the rise of the unlikely duo of Donald Trump and Bernie Sanders as candidates for president in the U.S. And financial markets appear flummoxed, with falling bond yields signaling escalating angst among investors about the outlook while buoyant stock prices suggest an absence of much concern.

Something crazy is happening to the Swiss bonds, and it’s a sad sign for the world economy -- The sovereign-debt markets have devolved into a bizarro world of upside-down expectations. Yields on government bonds from all around the world have been plunging thanks to anxious investors buying them for their safety. (Bond yields fall as prices rise.) And in many instances, the returns have cratered below zero. As Quartz reports Thursday, “around a third of all developed-country government debt—or more than $7 trillion, in terms of market value—is now trading at negative yields,” meaning that buyers are willing to pay more for these bonds than they will eventually get back if they hold them to maturity.  Countries like Germany have been selling short- and midterm debt at negative yields for a while, but now it’s happening with bonds dated for 10 years or longer. Investors are basically banging down the door for the guarantee that they will only lose a little bit of money over the next decade or two.  The most mind-blowing example of this trend is Switzerland. Last week, yields on all of its government bonds, out to 50 years, turned negative. Investors are now expected to pay for the privilege of lending money to the Swiss for a half-century at a time. Other countries are getting nearly as good deals. Fifteen-year German and Japanese bond yields have also drifted below zero. Even economically wounded Spain can borrow for a few years at a time and theoretically make a profit.  Why are investors settling for these kinds of terms? For one, they don't see many other safe options. The world economy still feels shaky, especially after the Brexit vote, which sent bond yields even lower.  It may even be a sign that some investors see deflation on the horizon, since a bond with a negative yield could theoretically be profitable if prices fall enough in a country.  All of which is to say: Today's sub-zero bond yields are a sign of how deeply pessimistic investors have become about both the near and somewhat distant future.

Germany’s Bonds Rise as 10-Year Debt Sale Draws Negative Yield - Bloomberg: The country’s finance agency allotted 4.038 billion euros ($4.5 billion) of zero-coupon bunds maturing in August 2026 at an average yield of minus 0.05 percent. This means that investors who buy the bonds now and hold until maturity will receive less money than they paid. Bids totaled 4.783 billion euros, compared with the target amount of 5 billion euros. Even so, the sale shows that as market conditions deteriorate amid concerns over the health of Italy’s banking sector and Britain’s vote to leave the European Union, some investors are choosing the safety of higher-rated sovereign debt over returns. In another sign of investor demand for havens, Switzerland sold bonds due in May 2058 at an average yield of minus 0.023 percent. Around 38 percent of the $25.3 trillion of securities that comprise the Bloomberg Global Developed Sovereign Bond Index have yields that are below zero. Yield starvation is creating a “mass psychosis,” according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital, whose firm manages $102 billion. With market stress starting to ease, the demand for bonds at such low yields could suffer, according to Daniel Lenz, a market strategist at DZ Bank AG in Frankfurt. “Ten-year bund yields below zero percent is of course not attractive for real money investors. Safety could be a key argument” to buy these bonds.

Germany Sells First Ever Negative-Yielding 10Y Treasury, Corporate Bonds --Overnight, we previewed what was about to be a historic for the eurozone bond auction, when this morning Germany sold its first ever 10Y bonds with a zero coupon. As it turned out the issue was historic in another way as well: with the prevailing 10Y bond trading well in negative yield territory, it was largely expected that today's bond auction would likewise issue at a negative yield, and that's precisely what happened, when as the WSJ reports, Germany sold 10-year debt at a negative yield on Wednesday, "becoming the first eurozone nation to do so and setting a further milestone in the relentless fall of government bond yields around the world."To be fair, this was far less exciting than the media makes it out to be as primary issuance always tracks the secondary market and in the case of Bunds, these have been "sub-zero" for several weeks now.  Still, it was an accomplishment for Germany to issue debt which not only does not pay a cash coupon, but which will end up reducing Germany's total debt by the time it matures.While today's 10Y auction was historic, Eurozone countries, including Germany, have sold shorter-dated bonds at a negative yield before, and Switzerland and Japan have issued 10-year bonds at yields below zero. But the 10-year bund is considered the benchmark issue in Europe, a region of sheer monetary insanity. These yields are “symptomatic of serious structural problems with the global economy,”. “Clearly this poses a serious predicament for investors, as investing in [a] negative-yielding instrument is impossible to justify from a buy and hold perspective.” Actually, no. These yields are symptomatic of something far simpler: frontrunning of central banks, and expectations that no matter how high the price paid, the ECB will come back in a few weeks or months and offer you even more. In other words, the ECB is now the "greatest fool" ever in the history of European capital markets.

Deutsche Bank Chief Economist Joins SocGen Chairman in Trying to Foment Banking Crisis to Get Germany, Brussels to Blink --Yves Smith - Consider the new through-the-looking-glass world of banking crises circa 2016: bankers are now actively stoking fears so as to force officials to give bailouts.  In 2008, wobbly banks were all doing their utmost to persuade their counterparties and Mr. Market that they were just fine. By contrast, we now have senior bank executives pushing the story that Italian banks, and now from Deutsche Bank’s chief economist, large European banks generally, are in bad shape. This is hardly news to anyone who has been paying attention. Big European financial firms went into the crisis with lower equity levels on average than their US counterparts.  American regulators were more insistent about having banks boost their capital levels.  Moreover, even though US growth has been lackluster, Europe has teetered on the verge of contraction. That means a worse environment for bank profits even before you get to the impact of zero and increasingly negative interest rates.  So why are prominent banking figures, contrary to the time-honored practice of talking up the Confidence Fairy, conveying bad news to the degree that it looks like they are trying to spook investors? This is what Bini Smaghi, the chairman of Societe Generale, said last week: Italy’s banking crisis could spread to the rest of Europe, and rules limiting state aid to lenders should be reconsidered to prevent greater upheaval, Societe Generale SA Chairman Lorenzo Bini Smaghi said. “The whole banking market is under pressure,” . “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”  And over the weekend, Deutsche Bank’s chief economist, David Folkerts-Landau, told Die Zeit that Europe needed a TARP-style rescue program for its banks. The Google Translate English rendition (see original here): The chief economist of Deutsche Bank calls a multibillion dollar bailout for European banks. The institutions should be equipped American-style with fresh capital. At that time the government had stepped in 475 billion dollars. “In Europe, the program must not be so large. With 150 billion euros can be European banks recapitalize,” said David Folkerts-Landau…

The German balance of payments quandary - Germany’s surplus on the current account of its balance of payments surged to a record level last year, reaching $285bn, or 8.5 per cent of gross domestic product. It is now overtaking the Chinese surplus as the largest trade imbalance in the world. Although the term “crisis” is normally confined to trade deficits, not surpluses, this imbalance is clearly causing major headaches, both inside the eurozone and globally. Not least, the surplus is causing problems for Germany itself. Nevertheless, the Merkel administration follows a longstanding German tradition in viewing it largely as a symptom of economic success, not failure. Both the government and the Bundesbank are resistant to lectures from foreigners on how to fix something that is not, in their view, broken. There is growing pressure from the IMF and the European Commission to take steps to reduce the surplus but, in the main, this has fallen on deaf ears in Berlin. The consequences of ignoring this quandary could be profound. Why is this a problem? Let us start from the global perspective. The German surplus is increasingly difficult to eradicate through lower interest rates, which are already at the zero lower bound, or ZLB. Put simply, Germany’s net exports add to German GDP, while subtracting from GDP elsewhere. In a world characterised by secular stagnation, this can contribute to low global growth rates. One way out of this dilemma in normal circumstances would be for interest rates in the rest of the world to be cut, causing the German exchange rate to rise, and eliminating the trade surplus. But this is being prevented by the ZLB, and also by the existence of the euro, which prevents the German exchange rate from rising as much as it would have done in the old days under the Deutsche Mark. The IMF reckons that Germany’s real exchange rate is now 15-20 per cent undervalued, which is at the heart of the “problem”. Without the euro, Germany’s export sector would already have been hit very hard by a huge rise in the D-Mark.

Can Europe Declare Fiscal Victory and Go Home? - Rules are rules and all. But the application of poorly conceived rules is still a problem. Especially in the face of a negative external shock. The eurozone’s fiscal policy is, more or less, the fiscal policy adopted by its constituent member states. Wolfgang Schauble (do follow the link) should be happy: Europe’s fiscal policy is almost entirely inter-governmental. The eurozone’s big five—Germany, France, Italy, Spain, and the Netherlands—account for over 80 percent of the eurozone GDP. Summing up their national fiscal impulses is a decent approximation of the eurozone’s aggregate fiscal policy. And, building on the point I outlined two weeks ago (and that my colleague Rob Kahn echoed on his Macro and the Markets blog), 2017 could prove to be a real problem. Bank lending now looks poised to contract, and eurozone banks face (yet again) doubts about their capital. And the sum of national fiscal policies—best I can tell—is pointing to a fiscal consolidation. In the face of the Brexit shock, standard (MIT?) macroeconomics says that a region that runs a current account surplus, that has a high unemployment rate, that has no inflation to speak of, that cannot easily respond to a short-fall in growth by lowering policy interest rates (policy rates are, umm, already negative, and negative rates are already, cough, adding to problems in some banks), and that can borrow for ten years at a nominal interest rate of less than one should run a modestly expansionary fiscal policy.

European car sales solid in June despite UK dip -ACEA | Reuters: European car sales remained buoyant in June, except in Britain, where they fell for only the second time in four years amid uncertainty about the country's vote on EU membership. Total registrations of new cars in the European Union and the European Free Trade Association increased 6.5 percent in June on the year, to 1,507,303 vehicles, data provided by the Brussels-based Association of European Carmakers (ACEA) showed on Friday. That was much slower than a 16 percent increase in May, partly due to seasonal factors, but sales in Italy and Spain rose at double-digit rates last month from a year earlier and Germany, Europe's largest new car market, posted 8.3 percent growth despite smaller discounting. Analysts cheered the increases but warned that sales momentum may not continue against a backdrop of economic uncertainty in the wake of Britain's decision to leave the European Union on June 23. "While the European market remains buoyant, we continue to have reservations and see risk with respect to H2 and 2017 in the wake of the UK’s vote to leave the EU," analysts at Evercore ISI said on Friday.

IMF Warns Of "Global Contagion" From Italy's Bank Crisis; Forecasts Two-Decade Long Recession --Piling on to Italy's growing mountain of worries, this evening the IMF itself warned that Europe's third largest economy would grow by less than 1% this year and only marginally faster in 2017, slashing its previous forecasts of 1.1% and 1.25% growth for the next two years, mostly as a result of the most convenient scapegoat available in Europe at the moment: Brexit (which has become to Europe as "cold weather" has been to the US for the past two years). Christine Lagarde's organization said Italy was “recovering gradually from a deep and protracted recession”, but said the healing process was likely to be “prolonged and subject to risks”. It used its article IV consultation – an annual economic and financial health check – to stress that Italy was vulnerable to a cocktail of threats that could have knock-on effects for the rest of Europe and the world. The IMF dour outlook may be overly generous. While economists have been racing to downgrade Italy's outlook since the British referendum, Italy's own employers' lobby Confindustria now sees growth of just 0.8% this year dropping further to 0.6% in 2017.  Italy, long one of Europe's most sluggish economies, will struggle to close the gap with its peers even if recent reforms are fully implemented, the IMF report said.The punchline: only by around 2025 will Italian output return to its 2008 peak before the global financial crisis, according to the IMF. In the same period, growth among Italy's euro zone partners is expected to rise by 20–25% above their pre-crisis levels. In other words, Italy is now in the middle of what will end up being a two-decade recession."The authorities thus face a monumental challenge. The recovery needs to be strengthened to reduce high unemployment faster and buffers need to be built, including by repairing strained bank balance sheets and decisively lowering the very high public debt," the report said.

Italy economy: IMF says country has 'two lost decades' of growth - BBC News: Problems with Italy's banks are not helping the economy Italy's economy will not return to the levels seen before the 2008 financial crisis until the mid-2020s, the IMF has said, implying "two lost decades". By the mid-2020s, it says the economies of other eurozone members will be 20-25% larger than levels seen in 2008. The Fund's comments came as it cut its growth forecasts for the eurozone's third largest economy. It now expects Italy's economy to grow by less than 1% this year, compared with an earlier estimate of 1.1%. The IMF also cut its growth forecast for 2017 to about 1% from 1.25%. Italy has an unemployment rate of 11% and a banking sector in crisis, with government debt second only to that of Greece. Italian banks are weighed down by massive bad debts, and may need a significant injection of funds.  The IMF said any recovery in the Italian economy was likely to be "fragile and prolonged", adding that the authorities faced a "monumental challenge". "The recovery needs to be strengthened to reduce high unemployment faster and buffers need to be built, including by repairing strained bank balance sheets and decisively lowering the very high public debt."

Italy new ‘frontline’ in Europe’s refugee crisis, warns Frontex chief -  -- Italy is once again on the ‘frontline’ of Europe’s refugee crisis, replacing Greece, the head of the EU’s border agency has said. The warning came as nearly 1,000 migrants were rescued off Italy on Tuesday, in six seperate operations by the Italian coast guard. Four migrants were found dead after suffocating below deck on their boat. Laying out fresh plans to strengthen the bloc’s borders Frontex chief Fabrice Leggeri said the agency wanted to conduct checks, so called stress tests, to ensure EU states were doing their part in implementing efficient border policies. ‘‘This is not about punishing any countries, it’s about collectively strengthening the Schengen zone, it’s about making the external border more efficient and stronger,’‘ Leggeri said. But, the UN’s special representative for Migration criticised individual EU countries for failing to take responsiblity for the refugee crisis, accusing them of playing on nationalist sentiments. “The reality is that the UN or the EU even more is blamed for responsibility which is the absolute failure of member states, its governments – governments in the European Union who are in the European context playing up the nationalist card,” Peter Sutherland said.

Europeans Fear Wave of Refugees Will Mean More Terrorism, Fewer Jobs -- Pew Research --The recent surge of refugees into Europe has featured prominently in the anti-immigrant rhetoric of right-wing parties across the Continent and in the heated debate over the UK’s decision to exit the European Union. At the same time, attacks in Paris and Brussels have fueled public fears about terrorism. As a new Pew Research Center survey illustrates, the refugee crisis and the threat of terrorism are very much related to one another in the minds of many Europeans. In eight of the 10 European nations surveyed, half or more believe incoming refugees increase the likelihood of terrorism in their country.  But terrorism is not the only concern people have about refugees. Many are also worried that they will be an economic burden. Half or more in five nations say refugees will take away jobs and social benefits. Hungarians, Poles, Greeks, Italians and French identify this as their greatest concern. Sweden and Germany are the only countries where at least half say refugees make their nation stronger because of their work and talents. Fears linking refugees and crime are much less pervasive, although nearly half in Italy and Sweden say refugees are more to blame for crime than other groups. Most of the recent refugees to Europe are arriving from majority-Muslim nations, such as Syria and Iraq. Among Europeans, perceptions of refugees are influenced in part by negative attitudes toward Muslims already living in Europe. In Hungary, Italy, Poland and Greece, more than six-in-ten say they have an unfavorable opinion of the Muslims in their country – an opinion shared by at least one-in-four in each nation polled.

Islamization Of France: Stabbing Policemen, "Slut-Shaming" & New Death Threats -

  • Muslim perpetrators rationalize their violence by convincing themselves that they live in a racist society that rejects them and their religion. And the government legitimizes them when it asks Parliament to vote for a law that favors "diversity" on public television channels.
  • Islamist terrorist Larossi Abballa, 26, stabbed to death police officer Jean-Baptiste Salvaing and his wife, police administrator Jessica Schneider, in front of their son, at their home in the Paris suburb of Magnanville. The murderer then live-streamed a video on Facebook, in which he pledged allegiance to the Islamic State (ISIS).
  • After the Islamist, anti-gay attack in Orlando, left-wing politician Jean-Luc Mélenchon wrote in his blog that he fears a possible "wave of hatred against Muslims". For many Islamists in France, the Muslim is always the victim, even when he is the killer.

Islamization is gaining ground in the Muslim community of France. For a long time, this trend remained restricted to the cultural sphere and created strong controversies between Islamists and secular intellectuals (such as the ban on face-covering veils in schools and public places). But the debate stopped being a debate. Sometimes Islamic intolerance takes on the appearance of a civil war. The violence, which was mostly concentrated in the suburbs prior to the January 2015 terrorist attack on the satirical magazine, Charlie Hebdo, is spreading now to the heart of French cities. Murders, assaults, death threats and "slut-shaming" happens almost every day here and there. Muslim perpetrators rationalize their violence by convincing themselves that they live in a racist society that rejects them and their religion. And the government legitimizes them when it asks Parliament to vote for a law that favors "diversity" on public television channels. What is interesting is that judiciary system seems in disarray and does not know how to treat these types of conflicts: two jihadists back from Syria are condemned to a suspended sentence of six months in prison and a Muslim who slapped a female waiter because she served alcohol during the Ramadan was sentenced to eight months in prison. The absence of political guidelines spreads fear and aids the rise of the right-wing political party, the Front National.

French Intel Chief's Stunning Warning: Europe Is "On Brink Of Civil War" Due To Migrant Sex Attacks - In a shockingly non-politically-correct outburst, Patrick Calvar, chief of the Directorate General of Internal Security, told members of the French parliamentary commission that thanks to the increasing frequency of sexual assaults by islamic migrants, "Extremism is growing everywhere... We are on the brink of civil war."  As The Express reports, Calver said he feared an inevitable confrontation between the far right and Muslims poses more of a threat than terrorism. He said that the situation in France is on such a knife edge that it could just take one more major Islamist terror attack to lead to a huge right-wing backlash. Speaking to the leading French newspaper, Le Figaro, Mr Calvar said: "This confrontation I think it will take place. "Even another one or two attacks and it will happen. It therefore behooves us to anticipate and block all these groups." "There will be a confrontation between the far right and the Muslim world." At one point, Mr Calvar said: "Europe is in great danger, extremism is growing everywhere."

Britain is changed utterly. Unless this summer is just a bad dream -- Everything is changed utterly. Or about to be, as soon as your new leader is chosen. The country you live in, the parliamentary democracy that ruled it, for good or bad, has been trumped by a plebiscite of dubious purpose and unacknowledged status. From our agriculture to our science and our universities, from our law to our international relations to our commerce and trade and politics, and who and what we are in the world – all is up for a curious, unequal renegotiation with our European neighbours. How did we get to this? What can you do? . The Conservative party needed to settle an old dispute within its ranks. The quarrel once wrecked the sleep of John Major. The schism needed to be healed to shore up the position and sleep of David Cameron. Certain newspaper owners and a large minority of Tory backbenchers had to be appeased. The promise to let the people decide was in the Conservative manifesto, and the country had voted for a Conservative government.  The campaign was conducted by and was an argument between Conservative politicians – at its simplest, Cameron-Osborne against Johnson-Gove. The role of Ukip was merely to make everyone else seem reasonable. The Jeremy Corbyn Labour party was shamefully, or shamelessly, absent until it was too late. The status of the 2015 parliamentary act that enabled the referendum was clear, but we didn’t read it. Was it advisory, like some referendums are, or was it binding? The question didn’t come up. We failed to ask it. No use declaring, as you may keep declaring after it didn’t go your way, that all along it was merely advisory. You should have thought of that earlier. And what was the nation’s democratically tendered advice to our lawmakers? That we’re almost evenly split. One third wants to leave, fractionally less than a third wants to stay, and a third doesn’t know or doesn’t care. Seventeen million against 16 million. Each full of contempt for the other. And on this basis and unlike any other country in the world, we are about to redraft our constitution and much else besides.

The Media Against Jeremy Corbyn -- The British media has never had much time for Jeremy Corbyn. Within a week of his election as Labour Party leader in September, it was engaging in a campaign the Media Reform Coalition characterized as an attempt to “systematically undermine” his position. In an avalanche of negative coverage 60 percent of all articles which appeared in the mainstream press about Corbyn were negative with only 13 percent positive. The newsroom, ostensibly the objective arm of the media, had an even worse record: 62 percent negative with only 9 percent positive. This sustained attack had itself followed a month of wildly misleading headlines about Corbyn and his policies in these same outlets. Concerns about sexual assaults on public transport were construed as campaigning for women-only trains. Advocacy for Keynesian fiscal and monetary policies was presented as a plan to “turn Britain into Zimbabwe.” An appeal to reconsider the foreign policy approach of the last decade was presented as an association with Putin’s Russia. In the months which followed the attacks continued. Particularly egregious examples, such as the criticism of Corbyn for refusing to “bow deeply enough” while paying his respects on Remembrance Day, stick in the memory. But it is the insidious rather than the ridiculous which best characterizes the British media’s approach to Corbyn. One example of this occurred in January when it was revealed that the BBC’s political editor Laura Kuenssberg had coordinated the resignation of a member of Corbyn’s shadow cabinet so that it would occur live on television. Planned for minutes before Corbyn was due to engage in Prime Minister’s Questions, it was a transparent attempt to inflict the maximum damage possible to his leadership.

UK government rejects petition calling for second EU referendum - The British government has rejected an online petition signed by 4.1 million people calling for a new referendum on whether to leave the European Union. Britons voted by 52 to 48%, or 17.4 million votes to 16.1 million, to leave the EU in a June 23 referendum, a result which most politicians have said should be respected but which some who voted "remain" are struggling to accept. The petition called for the government to enact a rule that there should be another referendum if the vote for "remain" or "leave" was less than 60% based on a turnout of less than 75%. The Foreign Office, the ministry that had steered through parliament the EU Referendum Act setting out the rules, responded that the legislation did not set a threshold for the result or for minimum turnout. "The Prime Minister and Government have been clear that this was a once in a generation vote and, as the Prime Minister has said, the decision must be respected," it said. "We must now prepare for the process to exit the EU and the Government is committed to ensuring the best possible outcome for the British people in the negotiations."

David Cameron to resign Wednesday; Theresa May to take reins as British PM - (CNN) British Prime Minister David Cameron is to resign Wednesday, paving the way for Home Secretary Theresa May to take the reins. May was officially named Conservative Party leader and successor to Cameron "with immediate effect" Monday, said Graham Brady, chair of the 1922 Committee, a collection of Conservative members of Parliament key to electing the party leader. She will replace Cameron on Wednesday evening. In remarks shortly after her leadership was affirmed, May said her priorities will be to administer Britain's exit from the European Union, a move approved by voters last month, to unite the country and to create a "strong, new, positive vision for the future," not just for the privileged few, but for everyone. Cameron had already announced he would step down by October after failing to convince the country to remain in the EU in the divisive June 23 referendum that sent shockwaves through Britain's political establishment. But Monday, May's only remaining rival to replace Cameron -- Energy Minister Andrea Leadsom -- pulled out of the race following controversy over comments she made about motherhood and leadership. Read More "Obviously, with these changes, we now don't need to have a prolonged period of transition. And so tomorrow I will chair my last Cabinet meeting. On Wednesday I will attend the House of Commons for Prime Minister's questions," Cameron told reporters Monday outside 10 Downing Street. "And then after that I expect to go to the palace and offer my resignation. So we will have a new prime minister in that building behind me by Wednesday evening."

Theresa May has vowed to unite Britain – my guess is against the poor - The Tory party seemed to have been blown apart by Brexit, but coalesced like the T-1000, this time taking the form of a woman. Andrea Leadsom, a sort of defrosted Theresa May, said that she was withdrawing in the national interest, but the suspicion will remain that she was ordered to stand aside by some blasphemous, tentacled demigod addressing her through a screaming mirror. You would have thought that having two women competing for the job would have gone down well with the Tory cabinet, rekindling fond childhood memories of the trial-by-combat phase of their nanny selections, but May was seen as the safer pair of hooves. She immediately vowed to unite Britain – my guess is against the poor. She will no doubt introduce a cap for migrants. Probably an orange cone with an “M” on the front that gives out an electric shock if they stray too close to a golf course. You’ve got to say that at this crisis point the Labour party should be concentrating on doing what it’s good at, and surely that isn’t elections. Jimmy Savile armed with a cloak of invisibility let loose at Hogwarts would have more self control than the Labour party. A headline in the Guardian quoted a colleague describing Angela Eagle as “tough – in the best possible sense”, although personally when I think of tough in the best possible sense, I’m thinking maybe al dente pasta rather than voting for a war that killed hundreds of thousands of civilians. There are those on Corbyn’s side who suggest this is a struggle between the top-down and bottom-up ideas of parties as social movements. I mean, it might be; it might also just be a struggle between people who don’t really seem to know what they’re doing and people who have some really firm ideas about how to change direction that are terrible. Eagle was widely derided for not putting forward any policies at her campaign launch, but really I think everybody knows the kind of things she stands for.

After ‘Brexit’ Vote, Immigrants Feel a Town Turn Against Them - — A few days after Britain voted to leave the European Union, Monika Baginski was in a supermarket, chatting with a friend on the phone in her native Polish, when a man followed her down the aisle. “You foreigner,” Ms. Baginski recalled him saying. “You’ll be out soon.”Ms. Baginski, 32, said she was stunned. Until that moment, she had never been the target of abuse, even in Boston, a port town on the east coast of England where rancor between longtime residents and the fast-growing population of recent immigrants has been simmering for years.  But since Britain’s referendum vote to leave the European Union, latent hostility toward the new arrivals — most of whom came to Boston from Central and Eastern Europe under rules that let European Union citizens live and work anywhere in the bloc — has burst into the open, many immigrants say. Many in the Latvian, Lithuanian, Polish and Romanian communities in the area are anxiously considering whether they should stay in Britain, or whether they even want to.“Something is broken in this town,” said Paul Gleeson, a Labour Party councilor in Boston, where 76 percent of voters supported leaving the European Union, the highest pro-“Brexit” proportion in the country. “This veneer of propriety has suddenly disappeared.’’In this new environment, some immigrants say they have stopped speaking their native tongue in public. Nervous mothers say they worry about their children being bullied at school. Young immigrants say they fear discrimination over jobs and university admissions.

Merkel throws down gauntlet to May: No free market access with immigration curbs: Angela Merkel has urged Britain to confirm the type of relationship it plans to have with the European Union following its exit. Speaking at an annual diplomatic corps reception in Meseberg on 11 July, the German chancellor pointed out that it would not be possible for Britain to have access to the EU's single market while restricting immigration. Merkel said that although she was hopeful Britain would remain an important partner, it was imperative that London state the terms under which the revised partnership will be made. "But of course the EU and the remaining 27 member states also have to protect their interests," she said according to Reuters. "For example, whoever would like to have free access to the European internal market will also have to accept all basic freedoms in return, including the free movement of people," she explained. Merkel's statements came hours before Theresa May was confirmed to become UK's next prime minister and she said that Britain will only take its next official step once "they have a new prime minister to invoke Article 50". In an interview with ZDF TV on 10 July, the German leader stressed, "I expect that to happen. I deal with reality and I firmly expect that application will be made. We have spoken to Britain and made clear there will be no negotiations with Britain until they have made their application, and there will be no cherry picking."

Brexit Ironies Mount: Belgian Premier Warns EU Won’t Help UK Out of “Black Hole” -- The move to punish the UK picks up steam even though such actions will damage the EU far more than the UK. Belgium is the latest country bounds and determined to punish the UK.  Please consider EU will not help UK out of ‘black hole’, Belgian premier warns. Britain’s vote to leave the EU has opened a political “black hole” in Westminster and Europe’s leaders will not bend to help it out, Belgium’s prime minister has warned.Charles Michel’s caustic views on the unreal “dreams” of Brexiters, outlined in an hour-long interview with the Financial Times, speak to the difficulties Britain faces in reaching an exit trade deal that satisfies all 27 EU leaders and their parliaments.Before the referendum, the liberal leader doggedly resisted giving Britain a special deal on its EU membership terms. He is now showing similar resolve over any Brexit deal, pushing the UK to start the divorce promptly and telling it to expect no big concessions on migration or market access.“The truth is it’s a very negative situation for the UK, there is no doubt,” he said. The truth is Brexit is very bad for the EU, and punishing the UK will make matters worse, possibly even starting a global trade war.

Bank of England's Carney hints again at more stimulus after Brexit | Reuters: Bank of England Governor Mark Carney said on Tuesday that a hit to Britain's economy from last month's decision by voters to leave the European Union could prompt the Bank to act, hinting again that more stimulus is on the way. "If the outlook has worsened, to use that term, in the judgment of the MPC there always could be monetary response if that is consistent with its remit," Carney told lawmakers. Carney and his fellow members of the Bank's Monetary Policy Committee, who have previously warned of a material hit to Britain's economy from a Brexit vote, are meeting this week, meaning they are not supposed to talk about the outlook for interest rates in detail. The Bank is due to announce whether it has cut rates or taken other action on Thursday. Carney has previously given a more explicit signal that the BoE will act to cushion the impact of the vote. A week after the June 23 referendum, he said he expected the Bank to pump more stimulus into the economy over the summer. Sterling, which hit a one-week high against the U.S. dollar earlier on Tuesday buoyed by the quicker-than-expected appointment of a new British prime minister, added to its gains as Carney and other BoE officials spoke on Tuesday. Investors expect the BoE to cut interest rates below their already record low of 0.5 percent as soon as Thursday. However, many economists have said the Bank might wait until its next policy announcement on Aug. 4 when it will have a better sense of the impact of the "Leave" decision on the economy.

BOE’s Possible Rate Cut Won’t Offset All Brexit Ills, Say Economists - WSJ: The U.K.’s central bank is expected on Thursday to cut its benchmark interest rate to a new low, or at the least send a strong signal that a cut is imminent, in a further step aimed at cushioning the British economy after voters’ decision to exit the European Union. But Bank of England officials and many economists are warning households and businesses not to expect monetary policy to fully offset the economic uncertainty following the June 23 vote, in which Britons voted to leave the EU in a referendum that shook financial markets and has triggered weeks of political tumult. Carney played a high-profile role after the referendum, taking to the airwaves within hours of the result to announce that the central bank was on hand with at least £250 billion ($325 billion) in funding for any banks that needed it.  Mr. Carney said some of the risks to financial stability identified before the vote have begun to materialize, citing the tumbling pound and a freeze in real-estate deals.Central-bank officials warned in May that a vote to leave the EU could cast a pall of uncertainty over the economy, slowing spending and investment. The U.K. might even enter “a technical recession,” Mr. Carney said, meaning at least two consecutive quarters of falling output, while rising import prices from a slide in sterling could fuel inflation. Central banks including the U.S. Federal Reserve and the European Central Bank have said they are watching closely for any sign that a shock from Brexit is weighing on the global economy.

Bank of England jolts sterling as it keeps rates on hold, August move expected | Reuters: The Bank of England wrong-footed investors by keeping interest rates on hold on Thursday, but held out the prospect of a stimulus package soon to help the economy cope with Britain's decision to leave the European Union. The battered pound surged by more than 2 percent as the central bank held its Bank Rate at 0.50 percent, contrary to widespread expectations of a first cut in more than seven years. Governor Mark Carney said two weeks ago that he expected the BoE to give the economy more help over the summer. But Carney and his fellow rate-setters said on Thursday they would wait three more weeks to see the intensity of the Brexit hit to the economy before deciding on the need for any stimulus. "In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the committee expect monetary policy to be loosened in August," minutes of the meeting said. "The precise size and nature of any stimulatory measures will be determined" in August, it said. Only one of the Monetary Policy Committee's nine rate-setters - Jan Vlieghe, who has previously floated the idea of more help for the economy - voted for a cut at the July meeting.

'Take a sledgehammer' to Brexit risks with new stimulus, says Bank of England's chief economist: Policymakers will need to deliver a “collective response” in the wake of the Brexit vote, including fresh central bank stimulus, the Bank of England’s chief economist has warned, in his first public comments on the matter since last month’s referendum. Andy Haldane said that the vote had generated a “heady cocktail” of uncertainty about the economy, policy and politics.  In the text of a speech given in Port Talbot, south Wales, and updated since the Bank’s decision to hold interest rates this month, Mr Haldane recommended that the Bank respond “promptly as well as muscularly” to help “protect the economy and jobs from a downturn”. The economist clarified that by “promptly, I mean next month”. Mr Haldane was one of eight members of the nine-strong monetary policy committee (MPC) to vote against central bank action being taken this month. Only Gertjan Vlieghe, the most recent appointee to the committee, voted for interest rate cuts of a quarter of a percentage point this July. Mr Haldane continued: “I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison.” The latter approach could take two decades, Mr Haldane joked, noting that the MPC does not have the “luxury” of this amount of time available to it. He said: “Given the scale of insurance required, a package of mutually complementary monetary policy easing measures is likely to be necessary.”

Known for jokes and insults, Boris Johnson takes helm of British diplomacy (Reuters) - Boris Johnson, Britain's most colourful politician with a long record of gaffes and scandals, was appointed as foreign secretary on Wednesday in a surprise move by new Prime Minister Theresa May that could shake up world diplomacy. The former London mayor, who has never previously held a cabinet post and is known for his undiplomatic language, was the most prominent figure in the campaign for Britain to leave the European Union that culminated in a vote for 'Brexit' on June 23. The appointment of a man who in the run-up to the referendum compared the goals of the EU with those of Adolf Hitler and Napoleon is likely to cause consternation in European capitals. Johnson also drew accusations of racism during the campaign by suggesting in a newspaper article that U.S. President Barack Obama, whom he described as "part-Kenyan", was biased against Britain because of an "ancestral dislike of the British empire". The U.S. State Department was quick to say it looked forward to working with Johnson. But he may face awkward moments in Washington over the Obama comments, as well as a 2007 article in which he likened Hillary Clinton to "a sadistic nurse in a mental hospital" and a more recent quip that he feared going to New York because of "the real risk of meeting Donald Trump".

Bill Black on The Real News – Boris Johnson NEP’s Bill Black appears on the The Real News with Sarmini Peries discussing Boris Johnson. Johnson’s demonization of the EU and virtually all of its leaders in his role as an alleged journalist makes him the worst conceivable person to put in a top diplomatic post. Video below. Transcript available here.

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