Archives for November 2014

Italy’s Unemployment Rate Unexpectedly Hits Record High 13.2%

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Picture by pcdazero at Pixabay

Courtesy of Mish.

The string of unexpectedly bad news in the eurozone continues unabated as Italian Unemployment Rate Rises to Record, Above Forecasts.

The unemployment rate rose to 13.2 percent from a revised 12.9 percent the previous month, the Rome-based national statistics office Istat said in a preliminary report today. That’s the highest since the quarterly series began in 1977. The median estimate of seven economists surveyed by Bloomberg called for an unemployment rate of 12.6 percent in October.

The youth unemployment rate for those aged 15 to 24 rose to 43.3 percent last month from 42.7 percent in September, today’s report showed.

Expectations vs. Reality

Economists expected a drop in unemployment of 0.3%. Instead unemployment rose 0.3%.

Italian Prime Minister Matteo Renzi blamed the rise on an increase in the participation rate, with more people looking for a job.

Similar to the setup in the US, those who want a job but do not look for one are not considered unemployed. Instead, they are considered “discouraged workers”.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Visit Mish here. 

Dollar Consolidation Coming to an End, Poised for New Leg Up

Courtesy of Marc To Market

The US dollar has been consolidating for the past couple of weeks, and that phase appears to be coming to an end. Next week's economic data and events will likely underscore the divergent theme, which works in the dollar's favor.  

We do not expect the ECB to announce a sovereign bond purchase program at next week's meeting, the last of the year. Recall that with Lithuania joins EMU on January 1, the ECB reduces its policy making meetings from once a month to once every six weeks, like the Federal Reserve.  It also introduces a rotating voting scheme, which means that all member central banks, including the Bundesbank, will not vote at every meeting.    

Many important ECB decisions have taken place over the objections of the Bundesbank, like the initial bond buying program SMP and OMT (which the Bundesbank has argued against before the European Court of Justice), and the recent covered bond and asset-backed securities purchase plans. Nevertheless, many observers still see the Bundesbank as having some sort of veto over ECB action, even though such veto power has not been tested.  Others argue that the rotating voting is of little consequence in the ECB's deliberative process.  It is not as if,  they say, the ECB will be able to take action just because the BBK did not have a vote at a particular meeting.  

The biggest development has been a breakdown in oil prices. It will add to the divergent theme.  Even though US oil output surpassed Saudi Arabia in recent weeks, American policy makers will view it as a net stimulative for the US economy.  It is tantamount to a modest tax cut.  In terms of the impact on inflation, the Federal Reserve puts more emphasis on the core rate.  

In contrast, the drop in energy prices will be seen exacerbating the disinflationary/deflationary headwinds in the euro area.  This, more than the small stimulus that BBK's Weidmann acknowledged, will be the focus of the ECB.  While the Bank of Japan places greater weight on the core measure of inflation, excluding the sales tax, its core measure includes energy.  

The euro has largely been confined to a $1.24-$1.26 trading range through November. The lower end has been frayed a bit, but the breaks were not sustained.  Technical indicators are not generating strong signals presently, however, ahead of the ECB meeting on December 4 the risk is on the downside.  The message from ECB officials appears to be that they want to see how the existing initiatives pan out over the coming weeks before taking new action. 

However, it will emphasize that all its options are open, including sovereign bond purchases.  Moreover, ECB officials cannot be very happy that the new EC Commission, like the old, is not insisting forcefully enough on structural reforms.  The combination of ECB meeting and the US employment data at the end of next week gives the euro potential toward its cyclical low recorded on November 7 just below $1.2360.  A surprise move by the ECB could send it lower still.  The next key target is $1.20.  

Sterling is pointing the way.  It has been in a four cent range this month, mostly between $1.56 and $1.60.  Since the middle of the month it has, with one brief exception, stayed in the lower half of that range. The precipitous drop in oil prices is yet another factor pushing the market in the direction it was going in any event, and that is to defer the first rate hike.  Ahead of the weekend the December 2015 short-sterling futures contract set a new high for the year (which implies lower interest rate).  A break of $1.56 targets $1.5540 then $1.5500.  We see near-term potential extending toward $1.5425.  

The range for dollar-yen last week was set over the last two sessions.  The dollar had eased to JPY117.25 on Thursday before OPEC's announcement and rallied to hit a high near JPY118.80 on Friday. The dollar is poised to rise through the previous high set just below JPY119.  The JPY120 level is likely to be a more formidable obstacle.   While officials seem more concerned about the pace than the level, there have been some officials (like Finance Minister Aso) and former officials (like Sakakibara) who are getting more concerned about the level.   Despite claims by some journalists that Japanese monetary policy is tantamount to a shot in a currency war, few countries have objected to the BOJ's course.  

Within the dollar-bloc, we had liked the Canadian dollar over the Australian dollar.  That worked out fine until the OPEC meeting.  In fact, the day before OPEC met, the Australian dollar had fallen to its lowest levels against the Canadian dollar since January.  However, despite higher than expected October inflation, a stronger than expected Q3 GDP, and a more dynamic US economy (judging from Q3 GDP's unexpected upward revision), the drop in sharp drop in oil prices proved too much for the Canadian dollar. There is room for the Aussie to extend its correction against the Canadian dollar.  That said, we are cognizant that both central banks meet next week and that the RBA presses harder than the BOC against their respective currencies.   

The US dollar is challenging the multi-year high set on November 5 just below CAD1.1470.  A move through there targets CAD1.1670-CAD1.1725.   Technical indicators are generally supportive of the US dollar.  However, its sharp two-day gain leaves it just below the upper Bollinger Band (~CAD1.1440). This suggests buying a modest dip is preferred to chase the market.  For its part, the Australian dollar is also flirting with its (lower) Bollinger Band just below $0.8500. The Aussie's price action is a bit more constructive than for the Canadian dollar, especially given that the $0.8480 multi-year low set at midweek held on the retest at the end of the week. To be clear, the downtrend still seems to be intact.  

The Mexican peso cracked under the weight of the political woes and the drop in oil prices.  The peso fell each day last week for a cumulative loss of 2.3%, the most since September 2013.  Only the Norwegian krone of the major currencies lost more (3.1%).  Within Latam, the Brazilian real (-2.4%) and the Colombian peso (-3.2%) lost more than Mexico.  Mexico's stock market fared better than the other two markets as well (Brazil's Bovespa  -2.1% and Colombia's COLCAP -5%, with Mexico's Bolsa off about 0.6%).

Turning to other market, the US 10-year yield slipped through the 2.20% level. With Q4 growth tracking around 2.5% and the drop in oil prices, inflation expectations will likely soften further.  The risk is that the 10-year yield eases to 2.13%, and possibly to 2.06% in the period ahead.  Energy accounts a larger component of the S&P 500 than the Dow Industrials and NASDAQ.  This could hold back this key benchmark, which staged a key reversal before the weekend (it set a new record high before falling and closing below the previous session's low).  

The S&P 500 gapped higher on November 21.  The gap has not been filled yet, but the technical condition is such that the gap could be filled in the week ahead.  The gap is found between 2053.84 and 2056.75.  In last week's technical note, we had suggested that the Dow Jones Stoxx 600 could begin outperforming the US S&P 500.  This  was the case (1.65% to 0.7%), and the technical case for this continues. 

In terms of oil prices themselves, the downside beckons.  We are using a light sweet futures continuation contract to determine downside targets.  The next target is the spike low from 2010 which was near $64.25.  Below there, is the $59.50-$60.00 band that could slow the descent. That said, the January contract closed more than three standard deviations below the 20-day moving average (Bollinger Band is set at two standard deviations). Given the speed of the descent that was fundamentally driven, it is difficult to have much confidence in the magnitude of a corrective bounce. We suspect it will be shallow and capped around $70 a barrel.  

(Due to the holiday, the latest CTFC Commitment of Traders report is unavailable)

Top picture by Geralt at Pixabay.

OPEC Presents: QE4 And Deflation

Courtesy of Raúl Ilargi Meijer of Automatic Earth

NPC Thanksgiving turkeys for the President Nov 26 1929

Thinking plummeting oil prices are good for the economy is a mistake. They instead, as I said only yesterday in The Price Of Oil Exposes The True State Of The Economy point out how bad the global economy is doing. QE has been able to inflate stock prices way beyond anything remotely looking fundamental, but energy prices have now deflated instead of stocks. Something had to give at some point. Turns out, central banks weren’t able to inflate oil prices on top of everything else. Stocks and bonds are much easier to artificially inflate than commodities are.

The Fed and ECB and BOJ and PBoC may of course yet try to invest in oil, they’re easily crazy enough to try, but it will be too late even if they did. In that sense, one might argue that OPEC – or rather Saudi Arabia – has gifted us QE4, but the blessings of the ‘low oil price stimulus’ will of necessity be both mixed and short-lived. Because while the lower prices may free some money for consumers, not nearly all of the freed up ‘spending space’ will end up actually being spent. So in the end that’s a net loss as far as spending goes.

The ‘OPEC Q4? may also keep some companies from going belly up for a while longer due to falling energy costs, but the flipside is many other companies will go bust because of the lower prices, first among them energy industry firms. Moreover, as we’re already seeing, those firms’ market values are certain to plummet. And, see yesterday’s essay linked above, many of eth really large investors, banks, equity funds et al are heavily invested in oil and gas and all that comes with it. And they are about to take some major hits as well. OPEC may have gifted us QE4, but it gave us another present at the same time: deflation in overdrive.

You can’t force people to spend, not if you’re a government, not if you’re a central bank. And if you try regardless, chances are you wind up scaring people into even less spending. That’s the perfect picture of Japan right there. There’s no such thing as central bank omnipotence, and this is where that shows maybe more than anywhere else. And if you can’t force people to spend, you can’t create growth either, so that myth is thrown out with the same bathwater in one fell swoop.

Some may say and think deflation is a good thing, but I say deflation kills economies and societies. Deflation is not about lower prices, it’s about lower spending. Which will down the line lead to lower prices, but then the damage has already been done, it’s just that nobody noticed, because everyone thinks inflation and deflation are about prices, and therefore looks exclusively at prices.

It’s like a parasite can live in your body for a long time before you show symptoms of being sick, but it’s very much there the whole time. A lower gas price may sound nice, but if you don’t understand why prices fall, you risk something like that monster from Alien popping up and out.

I had started writing this when I saw a few nicely fitting articles. First, at MarketWatch, they love the notion of the stimulus effects. They even think a ‘consumer-spending explosion’ is upon us. They’re not going to like what they see. That is, not when all the numbers have gone through their third revision in 6 months or so.

OPEC Has Ushered In QE4

Welcome to the new era of QE4. As if on cue, OPEC stepped in just as monetary policy (at least the Fed’s) has dried up. Central bankers have nothing on the oil cartel that did just what everyone expected, but has still managed to crush oil prices. Protest away about the 1% getting richer and how prior QE hasn’t trickled down to those who really need it, but an oil cartel is coming to the rescue of America and others in the world right now.

It’s hard to imagine a “more wide-reaching and effective stimulus measure than to lower the cost of gas at the pump for everyone globally,” says Alpari U.K.’s Joshua Mahoney. “For this reason, we are effectively entering the era of QE4, with motorists able to allocate more of their money towards luxury items, while firms are now able to lower costs of production thus impacting the bottom line and raising profits.” 

The impact of that could be “bigger than anything that has come before,” says Mahoney, who expects that theory to be tested and proved, via sales on Black Friday and the holiday season overall. In short, a consumer-spending explosion as we race to the malls on a full tank of cheap gas. Tossing in his own two cents in the wake of that OPEC decision, legendary investor Jim Rogers says it’s a “fundamental positive for anybody who uses oil, who uses energy.” Just not great if you’re from Canada, Russia or Australia, he says. Or if you’re the ECB, fretting about price deflation. Or until it starts crushing shale producers.

Bloomberg, talking about Europe, has a less cheery tone.

Eurozone Inflation Slows as Draghi Tees Up QE Debate

Eurozone inflation slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program. Consumer prices rose 0.3% from a year earlier, the EU statistics office said today. Unemployment held at 11.5% in October [..] While the slowdown is partly related to a drop in oil prices, President Mario Draghi, who may unveil more pessimistic forecasts after a meeting of policy makers on Dec. 4, says he wants to raise inflation “as fast as possible.” [..]

“The only crumb of comfort for the ECB – and it is not much – is that November’s renewed drop in inflation was entirely due to an increased year-on-year drop in energy prices,” said Howard Archer at IHS. The data are “worrying news” for the central bank, he said. Data yesterday showed Spanish consumer prices dropped 0.5% this month from a year ago, matching the fastest rate of deflation since 2009. In Germany, Europe’s largest economy, inflation slowed to the weakest since February 2010. [..] 

Bundesbank President Jens Weidmann, a long-running opponent to buying government bonds, today highlighted the positive consequence of low oil prices. “There’s a stimulant effect coming from the energy prices – it’s like a mini stimulus package,” he said in Berlin.

Sure, there’s a stimulant effect. But that’s not the only effect. While I’m happy to see Weidmann apparently willing to fight Draghi and his pixies over ECB QE programs, I would think he understands what the other effect is. And if he does, he should be far more worried than he lets on.

But then I stumbled upon a long special report by Gavin Jones for Reuters on Italy, and he does provide intelligent info on that other effect of plunging oil prices. Deflation. As I said, it eats societies alive. I cut two-thirds of the article, but there’s still plenty left to catch the heart of the topic. For anyone who doesn’t understand what deflation really is, or how it works, I think that is an excellent crash course.

Why Italy’s Stay-Home Shoppers Terrify The Eurozone

Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes, and skeptical the government can improve their economic fortunes, Italians are hoarding what money they have and cutting back on basic purchases, from detergent to windows. Weak demand has led companies to lower prices in the hope of luring people back into shops. This summer, consumer prices in Italy fell on a year-on-year basis for the first time in a half-century ..

Falling prices eat into company profits and lead to pay cuts and job losses, further depressing demand. The result: Italy is being sucked into a deflationary spiral similar to the one that has afflicted Japan’s economy for much of the past two decades. That is the nightmare scenario that policymakers, led by European Central Bank chief Mario Draghi, are desperate to avoid.

The euro zone’s third-biggest economy is not alone. Deflation – or continuously falling consumer prices – is considered a risk for the whole currency bloc, and particularly countries on its southern rim. Prices have fallen for 20 months in Greece and five in Spain, for example. Both countries are suffering through deep cuts in salaries and state welfare. Yet Italy, a large economy with a huge public debt, is the country causing most worry. [..]

Like Japan, Italy has one of the world’s oldest and most rapidly aging populations – the kind of people who don’t spend. “It is young people who spend more and take risks,” says Sergio De Nardis, at thinktank Nomisma. In recent years, young people have been the hardest hit by layoffs, he says. Many have left the country to seek work elsewhere. People tend to spend more when they see a bright future. Italian confidence has steadily eroded over the past two decades … In Italy, as in Japan, the lack of economic growth has become chronic.

Underpinning economists’ worries is Italy’s biggest handicap: a huge national debt equal to 132% of national output and still growing. Rising prices make it easier for high-debt countries like Italy to pay the fixed interest rates on their bonds. And debt is usually measured as a proportion of national output, so when output grows, debt shrinks. Because output is measured in money, rising prices – inflation – boost output even if economic activity is stagnant, as in Italy. But if activity is stagnant and prices don’t rise, then the debt-to-output ratio will increase. [..]

Sebastiano Salzone, a diminutive 33-year-old from the poor southern region of Calabria, left with his wife five years ago to run the historic Cafe Fiume on Via Salaria, a traditionally busy shopping street near the center of Rome. Salzone was excited by the challenge. But after four years of grinding recession, his business is struggling to survive. “When I took over they warned me demand was weak and advised me not to raise prices. But now, I’m being forced to cut them,” he says. [..] Despite the lower prices, sales have dropped 40%, or 500 euros a day, in the last three years.

For hard-pressed individuals, low and falling prices can seem a godsend; but low prices lead to business closures, lower wages and job cuts – a lethal spiral. Since Italy entered recession in 2008 it has lost 15% of its manufacturing capacity and more than 80,000 shops and businesses. Those that remain are slashing prices in a battle to survive.

Home fixtures maker Benedetto Iaquone says people are now only changing their windows when they fall apart. To hold onto his €500,000-a-year business, Iaquone says he is cutting prices. By doing so, he is helping fuel the chain of deflation from consumers to other companies. 

In Italy’s largest supermarket chains, up to 40% of products are now sold below their recommended retail price, according to sector officials. “There is a constant erosion of our margins,” says Vege chief Santambrogio. 

What Italy would look like after a decade of Japan-style deflation is grim to imagine. It is already among the world’s most sluggish economies, with youth unemployment at 43%. As a member of a currency bloc, Rome’s options are limited [..] Italy’s budget has to follow European Union rules.

Lasting deflation would force more companies out of business, reduce already stagnant wages and raise unemployment further [..] The inevitable rise in its public debt could eventually lead to a default and a forced exit from the euro.

Many in southern Europe say the EU should abandon its strict fiscal rules and invest heavily to create jobs. They also say Germany, the region’s strongest economy, should do more to push up its own wages and prices. Mediterranean countries need to price their products lower than Germany to make up for the fact that their goods – particularly engineered products such as cars – are less attractive. But with German inflation at a mere 0.5%, maintaining a decent price difference with Germany is forcing southern European countries into outright deflation

Italy’s policymakers are trying to stop the drop. Prime Minister Matteo Renzi cut income tax in May by up to €80 a month for the country’s low earners. But so far the emergency measures have had little effect – partly because Italians don’t really believe in them. A survey by the Euromedia agency showed that, despite the €80 cut, 63% of Italians actually think taxes will rise in the medium-term. Early evidence suggests most Italians are saving the extra money in their paychecks. If so, it will be reminiscent of similar attempts to boost demand in Japan in the late 1990s. The Japanese hoarded the windfalls offered by the government rather than spending them.

That same process plays out, as we speak, in a lot more countries, both in Europe and in many other parts of the world: South America, Southeast Asia etc.

Deflation erodes societies, and it guts entire economies like so much fish. Deflation is already a given in Japan, and in most of not all of southern Europe. Where countries might have saved themselves if only they weren’t part of the eurozone.

If Italy had the lira or some other currency, it could devalue it by 20% or so and have a fighting chance. As things stand now, the only option is to keep going down and hope that another country with the same currency Italy has, i.e. Germany, finds some way to boost its own growth. And even if Germany would, at some point in the far future, what part of that would trickle down to Italy? So what’s Renzi’s answer? An €80 a month tax cut for people who paid few taxes to begin with.

Deflation is not lower prices. Deflation is people not spending, then stores lowering their prices because nobody’s buying, then companies firing their employees, and then going broke. Rinse and repeat. Less spending leads to lower prices leads to more unemployment leads to less spending power. If that is not clear, don’t worry; you’ll see so much of it you own’t be able to miss it.

And don’t think the US is immune. Most of the Black Friday and Christmas sales will be plastic, i.e. more debt, and more debt means less future spending power. Unless you have a smoothly growing economy, but that’s not going to happen when Europe, Japan and soon China will be in deflation.

And yes, oil at $50-60-70 a barrel will accelerate the process. But it won’t be the main underlying cause. Deflation was baked into the cake from the moment that large scale debt deleveraging became inevitable, and you can take any moment between the Reagan administration, which first started raising debt levels, to 2008 for that. And all the combined central bank stimulus measures will mean a whole lot more debt deleveraging on top of what there already was.

We’ll get back to this topic. A lot.

Black Friday And The ‘Ferguson’ Effect

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Of the 10 days on which the FBI has conducted the most background checks since December 1998, two are the last two Black Fridays.

As WaPo reports, it's not just Best Buy and JCPenney that sees throngs of Americans herding hungirly in anticipation of a 'deal', many hope for a discounted firearm at stores like Cabela's – and guns make popular gifts. However, the flood of demand on Black Friday is actually a problem for the oh-so-efficient government…

In 2013, 186,000 people were allowed to buy weapons without a background check at all, according to the AP, after the FBI was unable
to process their applications within the legal window of three days
. This year demand is even higher…

*  *  *

Nothing to see here, move along.

Crude Oil Slides to Multi Year Lows and What to Expect

Crude Oil Slides to Multi Year Lows and What to Expect

oilwtiCourtesy of Chris Vermeulen

Looking back to 2007 (seven years ago) we have seen the price of crude oil perform incredible price swings. No matter the time frame in which we observe price when an extreme price spike takes place due to news/event, statistics show that half if not all the event driven price spike will eventually be negated in the future.

The perfect example of this is the rubber band affect. If you pull an elastic band in one direction, eventually when it breaks or it’s released, the band will retrace back to the norm and then go in the opposite direction. You can see this on the chart from 2008 high of nearly $150 to the 2009 low of $40. Price then lost is momentum and has been somewhat range bound from 2011 – 2014 right in the middle at $95 per barrel.

Observing the price chart of oil below there are many technical indicators and patterns at play. The first important pattern to identify is the series of higher lows shown with the green trend line sloping upwards.

A rising trend line that has multiple pivot lows (bounces up the trend line) the price of oil creates what I call a perfect storm for waterfall type selloff. This is exactly what we have seen over the past 3 months.

Each time one of the pivot lows are breached, the stop loss orders are triggered for investors. This causes a flood of sell orders forcing price lower to fall below the next pivot low etc… This may look and sound easy to trade, but keep in mind this is a monthly chart, and short term traders are not trading this long term time frame. Only investors would be focusing on a move that would take months to a year to unfold.

The second key indicator to look at is the 61.8% Fibonacci retracement level. This level typically acts as a support level for a small bounce usually. Because the 61.8% level is also in alignment with a previous consolidation, and a pivot low, both which have been highlighted on the chart, I suspect a bounce around the $65 level should take place.

The final potential bottom could take place near the 2009 low. It is a long way away but anything is possible and what we think is most unlikely to happen is exactly what the market does sometimes.

 

crudeoil

Crude Oil Conclusion

In short, I think what crude oil is doing is healthy and needed for several reasons. I feel the big oil and gas companies have been taking advantage of us with their ridiculously high gas prices over the last seven years. The multi-billion dollar, cash rich corporations need a little wakeup call. And the hair cut in their share price should be great for investors. This allows them to build or re-enter new positions at a better price with a higher dividend yield. I will be watching the hourly and daily charts for a bottoming/bounce formation in the next week. But any bounce could be short lived as sellers appear to be aggressive still.

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Italy’s Temporary “Glass Half Full” Insanity

 

Picture by Alois_Wonaschuetz at Pixabay

Italy's Temporary "Glass Half Full" Insanity

Courtesy of ZeroHedge. View original post here.

Yesterday it was the French, with record high unemployment and record low bond yields. Today, it is the turn of the Italians as the unemployment rate rose to 13.2% – the highest since records began – as bond yields continue to plumb new "lower rates will spur lending which will spur economic growth which will create jobs" lows…

As Bloomberg reports,

Renzi said today’s increase in the unemployment rate is partly due to more people starting to look actively for a job. The so-called “discouraged” workers who are not looking for work are not counted in the Istat jobless data.

“Unemployment data are worrying,” said Renzi, whose comments on the sidelines of an event in Catania were broadcast by SkyTG24. “We cannot deny the problems out there, still we shouldn’t see the glass half empty either.”

Is this worrying?

As we asked – entirely rhetorically – before – just what is it that ECB sovereign QE supposed to achieve?

As Reuters reports, deflation looms…

Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes, and skeptical the government can improve their economic fortunes, Italians are hoarding what money they have and cutting back on basic purchases, from detergent to windows.

"I see an enormous danger that we will still be in this situation in six months' time, and the longer it lasts the harder it is to get out," says Gustavo Piga, an economics professor at Rome's Tor Vergata University.

"I always tell myself that if we can get through this period we will come out very strong, but I'm honestly not optimistic about the future."

But it is considerably more worrisome than that…

Fully 70% of new jobs in Italy in the third quarter of this year were filled by temporary contracts, according to labour ministry statistics released Friday that highlighted the precariousness of the employment picture.

*  *  *

All Europe needs is bond-buying-backed lower rates and it will reach escape velocity… right?

“An Unstoppable Zombie Holiday” – Humanity Shudders As America Exports Black Friday To the World

Courtesy of ZeroHedge. View original post here.

Because nothing gives "Thanks" like Americans fighting over things they don't need…

Exhibit 1: Doorbuster deals at a Wal-Mart in Michigan City, Indiana, had shoppers literally stealing items from other people’s carts.

Things appeared to get a little out of hand Thursday night, as shoppers swarmed the Wal-Mart in Michigan City, pushing and shoving as they fought to grab heavily discounted merchandise.

A shopper named Rich grabbed his cell phone camera and filmed as one man tried to grab what appeared to be a home theater system from another man in a Bears jersey. The Bears fan was able to wrestle it away, and get out of the scrum.

Some bystanders seemed amused by the chaos, others looked a little frightened.

It appeared the scene was about to repeat itself, with a woman as the victim, but she also managed to get away with her prize.

Exhibit 2: 2 Women Fight At Norwalk Walmart Over Barbie Doll

Authorities said two women got into a pushing and shoving match — with at least one of them reportedly throwing a punch — over a Barbie doll on Thanksgiving evening.

Sheriff’s Deputies has to be called to the Walmart store in the 11700 block of Imperial Highway after reports of the fight broke out.

Witnesses said the two women began fighting over a Barbie doll just before 7 p.m.

Deputies were able to diffuse the situation and said no one was arrested.

Officials also said no one was injured in the altercation.

“The whole thing was pretty stupid,” said a shopper named Sonia, “that was very dumb.”

But it's not just America, it appears the UK as caught the post 'Thanksgiving Day'? bug…

Exhibit 3: Girls fight over cheap panties…

 

Exhibit 4: Americans celebrating Thanksgiving in Britain may have felt right at home as Black Friday shopping chaos caused disruptions.

The practice of offering bargain basement prices the day after Thanksgiving has spread across the Atlantic, with some retailers opening overnight to lure shoppers.

Police were called early Friday morning to help maintain security at some supermarkets and shopping outlets that offered deep discounts starting at midnight.

As Liberty Blitzkrieg's Mike Krieger notes,

Greater Manchester Police said two arrests were made and injuries reported as police closed some stores to prevent more severe problems. One woman was injured by a falling television set.

The force tweeted “Keep calm, people!” at one point.

There were problems in many parts of Britain, including Wales and Scotland.

– From the Associated PressBlack Friday Chaos Hits Britain

Black Friday is one of those days when all the hope and optimism one possesses for the future of humanity is threatened by the gross, primal, in-your-face reality. I’ve written about the holiday before, specifically, in the piece, The SDR: The Same Demented Regime. Here’s an excerpt:

The great game is of course the never-ending global struggle for power and dominance.  The current entrenched powers that be have been in their positions for a very long time and they have no intention of giving up that role.  What the moral and decent percentage of humanity need to understand in no uncertain terms is that these folks and their minions have no conscience.  They could care less how many starve to death, get blown to bits in war or waste their lives away in front of the television set watching Snookie on the Jersey Shore.  In fact, I am certain that they totally get off on these things.  Degrading humanity into an animal-like state clearly appears to be their aphrodisiac.  Notice how the media encourages people to go out and trample each other for a $2 waffle maker on Black Friday.  The scenes of people running into Wal-Mart or Best Buy in the early morning hours when they should be at home with their families having conversation after Thanksgiving dinner reminds me of scenes of cattle being shuffled into a sorting pen. 

It was always a uniquely American embarrassment. A day when the rest of the world could smugly and confidently sneer at the their consumption-obsessed, overweight, and violent brothers and sisters abroad; secure in the fact that were distinctly different.

Well, as Bob Dylan sang, “The Times They are a Changin’,” and the highest-holy day of the American religion of consumerism is coming your way whether you like it or not. Naturally, it is gaining its most robust foothold in the United Kingdom. I thought Arriana Huffington summarized it well in the following tweet:

Here are some of the observations from that article:

LONDON (AP) — Americans celebrating Thanksgiving in Britain may have felt right at home as Black Friday shopping chaos caused disruptions.

The practice of offering bargain basement prices the day after Thanksgiving has spread across the Atlantic, with some retailers opening overnight to lure shoppers.

Police were called early Friday morning to help maintain security at some supermarkets and shopping outlets that offered deep discounts starting at midnight.

Some of the worst problems were in the Manchester area in northwestern England where police were summoned to seven Tesco supermarkets after disturbances.

Greater Manchester Police Chief Peter Fahy said he was “disappointed” that stores did not have enough security personnel on duty for the after-hours shopping.

“This created situations where we had to deal with crushing, disorder and disputes between customers,” he said.

Fights broke out at some stores and major websites stopped functioning because of too much traffic as shoppers sought online bargains.

But that’s just the tip of the iceberg. As Glenn Greenwald notes, the Black Friday virus has also infected his adopted home country of Brazil. See below:

Think you’re safe in Africa? Think again. Check out this piece from MarketWatch:

NEW YORK (MarketWatch) — Funmi Adeyemi has been saving all year for Black Friday. Since October, she’s been surfing U.S. websites and has picked out $300 worth of merchandise, including Ralph Lauren apparel for her two-and four-year-old kids and shoes from Neiman Marcus for herself.

And she’s made her selections from the comfort of home — in the Nigerian capital, Abuja.

Black Friday “is when I wait to do most of my shopping,” Adeyemi said. “I can buy everything in one day. I buy whatever catches my eye and whatever is the right price. It’s a big thing here and has gone viral. A lot of people are waiting for (U.S.) Black Friday sales.”

The 32-year-old project manager is waiting until Friday to see what discounts she can get before placing final online orders. And she’s a pro. This is the fifth Black Friday that she has spent shopping for U.S. deals from Nigeria with the help of mobile shopping app, MallforAfrica.

Major U.S. retailers do not ship directly to Nigeria, so MallforAfrica acts as middleman, shipping the goods bought on U.S. websites to the West African country. MallforAfrica CEO and founder Chris Folayan, a Nigerian who lives in the U.S., said there has been a spike in signups to the app in the past two days.

And Adeyemi and her fellow Nigerians aren’t alone. While Black Friday, the day after Thanksgiving that traditionally kicks off the U.S. holiday shopping season, may be losing its sizzle in its home market, it’s gaining ground overseas.

“We’ve certainly exported the Black Friday madness to the world,” said Borderfree CEO Michael DeSimone. “It’s become a big shopping day around the world. We don’t just see (orders) from Canada and Australia but also the Middle East and China.”

Here’s a billboard from Nigeria:

Screen Shot 2014-11-28 at 11.58.37 AM

Just in case you needed further proof that the religion of consumerism knows no borders.

The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela

 

Courtesy of ZeroHedge. View original post here.

In the aftermath of OPEC's failure to cut oil production, Russia has been acting surprisingly sanguine, perhaps as a result of less leverage in its system as compared to America's own high yield-funded shale complex – now that it is a race to who will default first and be forced to take production offline – with Putin today saying "Russia will cope with the rout in crude oil",  and adding that “we are satisfied overall with the situation and do not see anything so extraordinary in what is happening. Winter is coming and I am sure that the market will come into balance again in the first quarter or toward the middle of next year." Maybe it will, or maybe not, if indeed as those with a working frontal cortex suggest the plunge in crude prices is merely a function of a collapse in global demand now that the worldwide slowdown which has gripped Japan, Europe and China. In that case, the race to the bottom between Russia with its higher cash costs, and the US shale sector, loaded to the gills with billions in junk bonds, will be an epic one to watch.

But one country whose fate is now virtually assured – with a happy ending now sadly out of the picture – is the same one that stormed out furious at yesterday's failure by OPEC's cartel members to carve out a consensus leading to higher oil prices: Venezuela.

Here pretty much everything is about to go unhinged, with what now looks like an almost inevitable sovereign default as the endgame, coupled with the removal of a few million barrels of oil from the global supply chain, something which all the other OPEC members will be delighted by.

For confirmation one can merely look at the Venezuela bolivar, which earlier today feel to a record low of 150.76 VEF/USD on the black market according to dolartoday.com, which tracks rate at Colombian border, and as reported by Bloomberg moments ago. Indicatively, the official rate is 6.3 VEF/USD; the first unofficial rate that based on Sicad I, is 12 VEF/USD, while the second unofficial rate, per Sicad II is 50 VEF/USD.

But what best shows that for Venezuela it is essentially game over, is that as the chart below shows, Venezuela’s international reserves declined $1.3 billion in the week after President Nicolas Maduro transfered $4 billion of Chinese loans to the central bank. In other words, the scrambling oil exporter was forced to burn one third of its Chinese bail-out loan to keep itself solvent.  The country’s reserves dropped to $22.2 billion today, according to central bank data.

As Bloomberg also notes, Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading.

If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview. But while Venezuela's bondholders will be livid, Venezuela's "friends" from the OPEC cartel will be delighted: after all its default means one less producer on line, and a natural increase in the price of oil.

Trading in Venezuela’s dollar bonds was closed today for a U.S. holiday. It will reopen on Monday at which point we expect the market to be as close to "offer-only" as possible, because burning through over $1 billion in reserves in 1 week with crude plunging to under $70 means that Venezuela now may have about 6 months of liquidity left at best, since one thing is certain: China will not throw more good money, as in Venezuela bailout loans, after bad.

The only thing that is uncertain is how long until some army general figures out what is going on and decides to go "Kiev" on that paragon of best efforts socialism, Venezuela's soon to be ex-president Nicolas Maduro.

How Bloomberg’s Algo-Writers Serve The Cult Of Keynesian Central Banking

Courtesy of David Stockman via Contra Corner blog

If you ever needed proof that the financial press has been completely indoctrinated in the cult of Keynesian central banking consider the attached Bloomberg note on the recent tiny decline in Chinese industrial company profits. Without breaking for anything more than a comma, its hapless Hong Kong stringer, one Malcolm Scott, conjoined the fact of less profits with the imperative for moar……money.

Industrial profits in China fell the most in two years, underscoring the need for looser monetary conditions as the world’s second-largest economy slows.

Perhaps Bloomberg is no longer using carbon units to post its news stories and has gone straight to algo-writers designed to directly feed algo-readers without the bother or cost of human intercession. But regardless of whether “Malcolm Scott” is carbon or silicon based, the attached is clearly presented as a news story and the above excerpt as a declarative sentence. Accordingly, by the lights of Bloomberg and the rest of the mainstream financial press which it echoes, it is now the job of central banks to print money to ensure that at no point in time do profits—-and therefore their stock market capitalizations—-fall by even so much as 2.1% over prior year.

That’s right. In the land of red capitalism, where corporate accounting and reporting are so advanced that profit results are published on a monthly basis, the doctored number for all of China’s industrial companies in October came in at 2.1 percent less than last year’s fictional number.

Once upon a time, even journalists recognized that accounting profits are the swing residual after all fixed and variable costs have been accounted for and that in every capitalist economy known to history profits have been violently cyclical. But now, apparently, a 2% change in the bottom line results of China’s cooked corporate books is straight-away proof of the need for “looser monetary conditions”.

Well, here is the balance sheet trend for the People’s Printing Press of China. It has expanded by a stunning 9X since the year 2000, thereby fueling the greatest sustained explosion of new credit in recorded history. In fact, total credit owed by China’s household, business, financial and government sectors has risen from $1 trillion to $25 trillion over the same period. Exactly how can you get any “looser” than that?

Historical Data Chart

Needless to say, this immense explosion of credit did not disappear quietly in the night. Instead, it funded the greatest construction and investment boom ever recorded. That’s why China produced 2.2 billion tons of cement in 2013, for example, or 29X more than the 77 million tons produced in the US last year. Or, even more dramatically, why it produced more cement on an average day that year than did the UK during the entire year!

Likewise, that’s why China has 1.1 billion tons of steel production capacity, but hardly 600 million tons of sustainable “sell-through” requirements for consumer durables and capital replacement. The difference represents the monumentally bloated one-time production of plate steel for ships, rails for transit lines and structural steel and rebar for a vast building binge. The latter, in turn, has bequeathed China with 70 million empty apartments, scores of ghost cities and dramatically under-utilized office towers, shopping malls and other commercial real estate facilities throughout the length and breadth of the land——but most especially in the second and third tier cities where Beijing’s approach to GDP manufacturing reached its most absurd parody.

Stated simply, China allocates GDP targets from the center and cascades them down through the party and governmental apparatus (essentially the same thing) to regional, county and city units. The latter, in turn, dutifully achieve their GDP targets by building things. Anything. Everything.

Needless to say, of the many dubious gifts that the West has supplied to the Middle Kingdom, surely Keynesian GDP accounting is among the most unfortunate. How does building pyramids increase a society’s wealth, exactly?

The least that Simon Kuznets and his merry band of Keynesian pioneers might have done 80 years ago is to measure annual economic output based on the market value of buildings, machinery and tools actually consumed during the current year—not mere spending for fixed assets that might never be used.

In any event, China and much of its EM supplier base is inundated in excess capacity for everything—cement, steel, aluminum, silicon based solar panels, refrigerators, automobiles and every manner of industrial fabrications and machinery, such as backhoe loaders and construction cranes; and also, vast excess capacity to export goodies and trinkets to the rest of the world including toasters, sneakers and socks.

This means that unless the construction and fixed asset boom is fueled with ever greater amounts of freshly minted credit, the house of cards known as red capitalism will eventually collapse. And it doesn’t matter whether the latter occurs all at once with a thud, or more gradually in the manner of a tire going flat. The result will be the greatest deflationary swoon the world has ever known.

It will manifest itself first in falling industrial prices such as currently underway for iron ore, coal and crude oil.

The deflation from this crack-up boom will inexorably move upstream, of course, to the pricing of everything made from these commodities owing to both lower materials costs; and also due to the fact that artificially cheap credit resulted in vast excess capacity in these fabrication and manufacturing sectors, as well. And, yes, the bloated wage bill of this overbuilt supply chain will also shrink.

Stated differently, “fiat credit” fuels the generation of “fiat wages” and especially “fiat profits” during the boom phase of over-investment and runaway construction. Consequently, when the credit tsunami finally crests—as even the leaders in Beijing are now resigned to—- fiat wages and fiat profits are also liquidated.

Indeed, what gets hit first during the bust phase is the accounting residual. That is, net profits and apparently so, even under Chinese accounting.

In short, the global economy is cooling rapidly and profits are already falling sharply in the primary sectors of mining and energy extraction. And that is only a foretaste of things to come down the industrial food chain.

Yet contrary to the Bloomberg algo-writer, this nascent profits collapse is not a result of too little money now; it is a consequence of way too much money over the past decade or two – and not only in China but in the entire central bank dominated world wide economy.

So Mises was right. “Moar” fiat credit always leads to a crack-up boom. Someone needs to reprogram the algos.

 By Malcolm Scott Bloomberg News

Industrial profits in China fell the most in two years, underscoring the need for looser monetary conditions as the world’s second-largest economy slows.

 

Total profits of China’s industrial enterprises fell 2.1 percent from a year earlier in October, the National Bureau of Statistics said today in Beijing. That compares with September’s 0.4 percent increase and is the biggest drop since August 2012, based on previously reported data.

The People’s Bank of China, which last week cut benchmark interest rates, refrained from selling repurchase agreements in open-market operations today for the first time since July, loosening monetary policy further. Mired by a property slump, overcapacity and factory-gate deflation, China is headed for its slowest full-year economic expansion since 1990.

Data released Nov. 13 showed the economy’s slowdown deepened in October. Factory production rose 7.7 percent from a year earlier, the second weakest pace since 2009, while investment in fixed assets such as machinery expanded the least since 2001 from January through October. Retail sales gains also missed economists’ forecasts last month.

Conflicting Shopping Headlines: NY Times “Brisk Sales”, Yahoo “Black Friday Shopping Crowds Thin”

 

Picture by William Banzai 7

Conflicting Shopping Headlines: NY Times "Brisk Sales", Yahoo "Black Friday Shopping Crowds Thin"

Courtesy of Mish.

Here's a pair of conflicting stories regarding Black Friday shopping.

Crowds Thin

Yahoo!Finance reports Black Friday Shopping Crowds Thin After Thanksgiving Rush.

Mall crowds were relatively thin early on Black Friday in a sign of what has become the new normal in U.S. holiday shopping: the mad rush is happening the night of Thanksgiving and more consumers are picking up deals online.

"It just looks like any other weekend," said Angela Olivera, a 32-year old housewife shopping for children's clothing at the Westfarms Mall near Hartford, Connecticut. "The kind of crowds we usually see are missing and this is one of the biggest malls here. I think people are just not spending a lot."

Brisk Sales

The New York Times reports Black Friday Sales Are Brisk, Retailers Say, Bolstered by Online Deals.

Parking lots at some shopping malls filled up around the country on Friday, as shoppers kept up the tradition of scouring stores for holiday deals even though some retailers had been open on Thanksgiving and even overnight.

Big retailers, many of whom kicked off sales Thursday evening, reported brisk traffic overnight. Walmart said that 22 million shoppers streamed through stores across the country on Thanksgiving Day, more than the number of people who visit Disney’s Magic Kingdom in an entire year, the retail giant pointed out.

Still, as retailers jump-start their deals earlier and more sales move online, Black Friday itself is starting to fade in importance.

Target said its best-selling goods in store were the Element 40” TV, the Xbox One, iPads and Nikon’s L330 camera. In the first hour of stores opening, Target sold 1,800 TVs per minute and 2,000 video games per minute, the retailer said in a release. Keurig’s K40 brewer and Dyson’s DC50 vacuum were other top sellers, Target said.

Economists are closely watching whether retailers can entice shoppers to spend during what retailers consider the biggest shopping weekend of the year, especially after a year of lackluster sales so far. A brightening economic outlook, and ever-cheaper gas prices, are starting to lift consumer confidence. But there are also signs of lingering wariness among consumers, after what has been an uneven economic recovery marked by anemic wage growth, especially for low-income households.

And online, which makes up a bigger share of holiday sales each year, retailers have been offering Black Friday deals for many days now, stretching what was once a one-day shopping frenzy into a week or more of sales.

Continue Here

 

Japan Household Spending Down 4%, CPI Drops to 0.9%; Bankruptcies Soar in Yen Collapse

Courtesy of Mish.

In spite of the Yen falling 35% since 2011, Japan once again borders on deflation. Please consider Japan’s CPI falls to 0.9%.

Japanese core inflation last month fell below 1 per cent to a 13 month low, just weeks before prime minister Shinzo Abe heads to the polls to garner fresh support to push back a scheduled rise in sales tax.

Core consumer prices, all prices excluding fresh food, slowed to an annual pace of 2.9 per cent growth year-on-year in October, in line with forecasts. Stripped of any impact of the sales tax rise in April, core prices are up 0.9 per cent.

Highlighting the scale of the challenges facing the Abe administration, data released on Friday also showed households further tightening their purse-strings.

Household spending fell 4 per cent year-on-year, the seventh consecutive decline since the national sales tax was raised from 5 to 8 per cent in April. Retail sales dropped 1.4 per cent, reversing two months of gains.

The drop in core inflation comes not even 10 days after Haruhiko Kuroda, Bank of Japan governor, warned that a fall below 1 per cent was “possible”, in a reversal of comments made just four months ago.

Bankruptcies Soar in Yen Collapse

Here’s an interesting note regarding bankruptcies that I picked up from ZeroHedge: As Japanese Bankruptcies Soar, Goldman Warns “Further Yen Depreciation Could Be A Net Burden”

According to a recent bankruptcy survey by Tokyo Shoko Research, there were 214 bankruptcies due to the weak yen in January-September 2014, which is 2.4 times the 89 seen in January-September 2013. Far more of the bankruptcies were in the nonmanufacturing sector—81 in transport, 41 in wholesale trade, 19 in services, and 11 in retail—than in the manufacturing sector (44), which is consistent with our analysis based on the input/output tables.

Surprisingly, the number of bankruptcies since 2013 due to yen depreciation far surpasses the number of bankruptcies in 2009-2011 due to yen appreciation.

Bankruptcies Caused by Falling Yen

The Japanese consumer is faced with a falling yen, much higher taxes, and counting taxes prices much higher. The only saving grace for Japan has been falling energy prices.

Yet, prime minister Shinzo Abe Wants inflation and more of it. It’s madness.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Continue Here

Crude Plunges Following OPEC Decision to Not Cut Production

Courtesy of Mish.

For five consecutive months OPEC produced over its alleged quota. Nonetheless, and in spite of falling prices and pleas from Venezuela to restrict production, OPEC decided to take no action.

In the wake of the news, West Texas Intermediate plunged nearly 7% and Brent fell over 8%.

WTI Crude Futures

Brent Crude Futures

Please consider OPEC Fails to Take Action to Ease Glut as Crude Plunges.

OPEC took no action to ease a global oil-supply glut, resisting calls from Venezuela that the group needs to stem the rout in prices. Futures slumped the most in more than three years.

The group maintained its collective production ceiling of 30 million barrels a day, Ali Al-Naimi, Saudi Arabia’s oil minister, said yesterday after the 12 nations met in Vienna. Brent crude dropped as much as 8.4 percent in London, extending this year’s decline to 34 percent.

Canada’s producers big and small will have to tighten their belts to prepare for declining profits.

“This is a pretty big shock,” said Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary. “There’s no question there’s going to be a slowdown. Even the big guys will have to look at their capital spending plans.”

Western Canada Select, the Canadian benchmark, has lost more than a third of its value since June, in step with declines for West Texas Intermediate and the international gauge Brent. WCS traded yesterday at $55.94 a barrel, the lowest in the world.

Venezuela Burns Through Currency Reserves

Continue Here

“Panicking” Ukrainians Face Soaring Prices, Warn “Inflation Is War”

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

With Ukraine, according to President Poroshenko, on the verge of World War III, it appears the people of the divided nation face another all too familiar war… on their living standards. As Hyrvnia continues to collapse to record-er lows, Ukraine's Central Bank warns of further stress and FX (think USDollar or EUR) demand because the "population is in panic." With a 19.8% inflation rate last month and a 48% devaluation in the currency this year, Bloomberg reports the costs of imported goods from gasoline to fruit and from medicine to meat is soaring. One store-owner reflected that she "feels the hryvnia devaluation everywhere," and another noted "I can't imagine how people survive on a single pension. We can’t even go to the drug store. We try to use herbs instead."

The Central bank expects inflation to keep rising (having previously peaked at 10,256% in 1993 as the Soviet economy was dismantled). "Inflation is the same as the war," warns one analyst, "it may lead to protests if people blame the authorities for failing to conduct proper policies."

Bloomberg reports,

[Ukrainians] are cutting back because of this year’s 48 percent plunge in the hryvnia, a decline that’s eroded purchasing power. The inflation rate spiked to 19.8 percent last month as the currency’s slide boosted the costs of imported goods from gasoline to fruit.

Valentyna is thankful for the two pensions she and her husband share, even if Ukraine’s inflation shock means they’re no longer enough to buy medicine and meat.

“We have some potatoes, tomatoes and cucumbers from our dacha,” said the 72-year-old pensioner as she made her way through the city of Zhytomyr, a two-hour bus ride west of Kiev. “I can’t imagine how people survive on a single pension. We can’t even go to the drug store. We try to use herbs instead.”

“I watch the dollar rate all the time because for me it’s the best indicator of poverty,” said the 29-year-old mother of a son in first grade. “I buy less sweets and fruit because of the astronomical costs. We used to save some money. Now, we can’t save anything.”

It's gonna get worse…

Inflation will probably speed up to 25 percent this year, compared with the 19 percent forecast earlier, central bank Governor Valeriya Gontareva said today.

Ukrainians are no strangers to inflation. Price growth peaked at 10,256 percent in 1993 as the Soviet economy was dismantled. Having subsided, the rate jumped to 31.3 percent in 2008, shortly before the hryvnia last sank.

“I’m ready to tolerate the current economic situation as long as the war is on,” said Hanna Hryhoriyeva, 67, a teacher at a culinary college who backed the protests’ anti-corruption message. “I won’t go onto the streets tomorrow because of inflation and the devaluation but my patience isn’t infinite.”

Others are less understanding.

Valya, a pensioner who declined to give her last name, said she’d just bought 2 kilograms (4.4 pounds) of grain that should last a month, along with potatoes and beetroot from the market. While she doesn’t drink alcohol or smoke, she can’t afford the bus to visit relatives’ graves in the Lviv region.

“Glory to Ukraine?” said Valya, 76, referring to a slogan of the street uprising. “Glory for what? Higher prices? The war? We’re just tolerating the authorities.”

And may end badly…

“Inflation is the same as the war,” Valchyshen said. “It may lead to protests if people blame the authorities for failing to conduct proper policies.”

*  *  *

Is it any wonder Poroshenko is talking up the war and hoping for more aid/loans from The West to subordinate his nation…

And then this happens…

  • *MEDVEDEV, YATSENYUK TALKED ABOUT FINANCIAL-ECONOMY TIES
  • Russian Prime Minister Dmitry Medvedev on Thursday held a phone conversation with Ukrainian Prime Minister Arseniy Yatsenyuk, the Russian government press service reported Thursday.
  • “Medvedev and Yatsenyuk discussed issues of financial-economic cooperation between the two countries,” the statement said.

5 Things To Ponder: Tryptophan Induced Coma

Courtesy of Lance Roberts of STA Wealth Management

Since this is Thanksgiving, I want to offer my thanks to you for your readership over the past year. Your comments, suggestions, and debates have been a great source of education and affirmation for me. Thank you.

As we prepare for the annual food fest, and post-Thanksgiving tryptophan-induced food coma; I thought this weekend's reading list should be a bit of a smorgasbord of interesting topics to stimulate your brain cells between naps and football.

Have a happy and safe, if you are traveling, Thanksgiving holiday and many blessings to you and your families.


1) Q3 GDP Upside Revision Was Nonsense

I have written for some time that the real economy has diverged from the governmental reports which have been subjected to mass torturing of the underlying data. The latest report on GDP was just the latest example of the impact of statistical data revisions and seasonal adjustments.

The latest quarter was sharply boosted by an undisclosed Revision to Prior Quarter. The Bureau of Economic Analysis (BEA) reported its second estimate of third-quarter gross domestic product (GDP) growth at 3.9%, up from initial reporting of 3.5%. This was against an unrevised 4.6% pace of second-quarter growth. Importantly, once the third estimate of any quarter is in place, the number is not revised again except for annual benchmark revisions.

That restriction, however, does not apply to the GDP’s accounting-equivalent counterpart, gross domestic income (GDI), which goes through three revisions. The majority of the latest headline growth in GDI was due to a sharp-downside revision to second-quarter growth, which is suggestive that second quarter GDP was also likely sharply slower than previously estimated.

GDI-112614

This would correspond with much of the recent economic data such as industrial production, personal spending, and durable goods which have all been consistently weaker than estimated.

The Mystery Of Surging Q3 GDP – Americans Are $80 Billion "Poorer" via ZeroHedge

"The final major datapoint of the day was the Consumer Income and Spending data from the US Dept of Commerce's Bureau of Economic Analysis, the same outfit that yesterday shocked everyone with just how much better US GDP was. Well, today, we learned just where the offset came from. Because while on the surface, both income (+0.2%) and spending (+0.2%) missed expectations of a 0.4% and 0.3%, respectively.

There are some rather massive variations between what the BEA reported a month ago, and what it reported today, as relates to all the data issued since March. To wit:

Zero-hedge-DPI-112614

Essentially, the just reported Disposable Personal Income print of $13.109 trillion as of the end of October, is where according to the old, unrevised data US household income was sometime in August. Whatever happened to two months of income? In order to 'suggest' that the US economy had grown by a far greater than expected run-rate, the BEA was forced to revise away personal income, and "assume" these had instead been invested in the US economy, in the form of a surge of durable goods purchases."

The problem with the assumption by the BEA that savings went into durable goods purchases is that just reported durable goods ex-transportation just collapsed by -0.9% in October. Core capital goods fell by 1.3% in October after falling 1.32% in September. As shown in the chart below, the decline in durable goods will likely be reflected by a downwardly revised Q3-GDP number next month.

Durable-CoreCapital-Goods-112614

 

2) 2015 Is Shaping Up To Be A Turkey by Paul Kasriel via The Econotrarian Blog

"If relatively robust growth in thin-air credit was a major factor accounting for 2014’s bountiful U.S. economic harvest, as I believe it was, then 2015’s “harvest” is likely to be considerably less bountiful. Growth in thin-air credit has already begun to decelerate and is on course to further decelerate in 2015. As mentioned above, the Fed curtailed its purchases of securities more aggressively than I had reckoned a year ago and ended its purchase program in October 2014. Although bank credit has grown considerably faster than I had anticipated, it is not fast enough to compensate for the slowdown in the growth of Fed thin-air credit.

Plotted in the chart below are actual and projected monthly observations of year-over-year percent changes in the sum of commercial bank credit and reserves held by these banks and other depository institutions at the Federal Reserve.

But the dominant factor affecting the U.S. economy in 2015 will be below-normal growth in U.S. thin-air credit. So, as you gather your family around you on Thursday, November 27, to give thanks for our bountiful 2014 economic harvest, bear in mind that next year’s harvest is likely to be a 'turkey' in comparison."

Econotrarian-112614

3) The Mistakes We Make And Why We Make Them by Meir Statman via WSJ

  •  Goldman Sachs Is Faster Than You
  • The Future Is Not The Past & Hindsight Is Not Foresight
  • Take The Pain Of Regret Today And Feel The Joy Of Pride Tomorrow
  • Investment Success Stories Are Misleading
  • Neither Fear Nor Exuberance Are Good Investment Guides
  • Wealth Makes Us Happy, Wealth Increases Make Us Happier
  • I've Only Lost My Childrens Inheritance
  • Dollar-Cost Averaging Is Not Rational

Also Read: 7-Simple Things that Most Investors Don't Do by Ben Carlson via Wealth Of Common Sense

4) Humorous: How Turkey's Predict Global Market Crashes via Political Calculations

"As you can see in our carefully calibrated chart above, whenever the value of the MSCI World index has exceeded the equivalent live weight of an average farm-raised turkey in the U.S., the index went on to either stagnate or crash. And in 2014, the value of the the MSCI World Stock Market Index has once again exceeded that key threshold, which can only mean one thing…. The climate for investors has changed, and it's time to sell!"

Political-Calc-Turkeys-112614

"And if they try to tell you that doesn't make any real sense, you should hold firm and tell them that the correlation is really strong (the R² is 0.9616), which means that the science is settled and that they really shouldn't want to be some kind of climate change science denier."

5) Another Year Of Christmas "Cold Feet" by Jeffrey Snider via Alhambra Partners

"The current release from Gallup shows exactly that, another collapse in spending plans, this year from $781 all the way down to just $720; an 8% drop. That wasn’t all that much better than 2013, which saw an October/November drop from $786 down to that $704."

Gallup-Spending-112614

"Instead, that optimism is cast directly against the sinking tide of the post-2012 slowdown that is not an anomaly but a global trend that does exist even inside the US. The fact that Brazil and China are in such desperate positions is not independent of a US recovery, but very much related, as shown by this persistent and persisting drag of consumption, to faltering US growth. That is unfortunately sharpened by price changes in 2014 which are more severe than both 2013 and what is being measured by official metrics. When revenue is expanding solely on price changes (or more dependent on prices), volume is thus axiomatically shrinking. To some that looks like recovery, but in the real global economy that is growing trouble."

After Pumpkin Pie Read: Did The Fed Save Us From A "Liquidity Trap?" by Comstock Partners

"There have been a number of very sophisticated economists who recently made some presentations on the financial networks discussing just how effective the Federal Reserve was in being able to avoid a “liquidity trap”. One economist in particular used the avoidance of a 'liquidity trap' a number of times as he praised the Fed.

This global deflationary environment has resulted in a Central Bank “bubble” that we believe will end badly both here and abroad! The reason for this difficult deflationary environment all over the world is explained very well in The Geneva report titled "Deleveraging, What Deleveraging?"  It explains that, most believed that the 2008 crash (caused by the debt explosion) would result in deleveraging. But, instead, due mostly by government spending, worldwide debt grew rapidly.

According to the report, global debt as a percentage of GDP has risen 36 percentage points since 2008, to a record 212%."

After A Second Slice Of Pumpkin Pie Read: Millenial Investors Shouldn't Trust The Market by Meb Faber

"Is that because Millenials are slacker morons?  Or are they actually justified in their distrust?

The article mentions the benefit of time to starting early as an investor, as well as the fact that the market has returned about 6.8% real per year since 1871 as a reason investors should stay the course with stocks (since 1900 the number is 5.8% and worldwide closer to 5%)

But here’s the problem – it greatly matters what you pay when you start.

The problem is, of course, where we are now with a CAPE ratio of 26.5.  I would argue Millenials are actually smarter than they look and that they are correct in avoiding stocks.  That is depressing but is the unfortunate reality."

"I celebrated Thanksgiving the old-fashioned way. I invited everyone in my neighborhood to my house, we had an enormous feast, then I killed them and took their land” ~ Jon Stewart

Happy Thanksgiving!!

Irrational Exuberance – Descriptive Superlatives’ Exhaustion Point Is Reached

Irrational Exuberance – Descriptive Superlatives' Exhaustion Point Is Reached

Courtesy of Pater Tenebrarum of Acting Man

Positioning Indicators at New Extremes

We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPXup by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (as opposed to “barely noticeable dip”).

While a number of positioning and survey data show a bullish consensus that easily dwarfs anything that has been seen before, this consensus is not reflected in expressions of exuberance by the broader public. “Anecdotal” sentiment seems more cautious and skeptical than the quantitatively measurable kind. Most likely this is because the vast bulk of the middle class has been so thoroughly fleeced in the last two boom-bust sequences that it finds itself in dire straits in spite of the reemergence of major asset bubbles across a wide swathe of assets. This includes by the way an astonishing revival of the bubble in real estate prices – see e.g. this 330 square foot shack in San Francisco, which recently sold for $765,000:

expensive SF shack

Yes, that tiny dark-brown thingy situated on a steep road sold for $765,000. The real estate bubble is back.

(Photo credit: SFARMLS)

Moreover, with the broad US money supply (TMS-2) having nearly doubled since 2008 and other major central banks inflating their money supply as well at breakneck speed, there has been more than enough “tinder” provided the world over to drive asset prices higher. This by the way makes a complete mockery of the constant refrain of central bankers that we are allegedly threatened by “deflation”. The inflationary effects of their monetary pumping are simply showing up in asset prices rather than consumer goods prices – ceteris paribus, a rapid inflation of the money supply always leads to prices rising somewhere in the economy.

Bubble Trouble

There is of course a “danger” that this asset price bubble will burst rather spectacularly once monetary inflation slows down sufficiently (it will probably never be reversed again in our lifetime, but a slowdown is already underway). In light of the current rare extremes in positioning, sentiment and leverage, the eventual denouement of the current bubble should be a real doozy. Note that in every respect one can possibly think of – with the sole exception of household debt – systemic leverage is at new all time highs (not only in absolute terms, but relative to everything, including the size of the known universe), and is likewise positively dwarfing anything that has occurred before.

Specifically relevant for financial markets are record highs in margin debt, record highs in hedge fund leverage, as well as record issuance of junk debt in recent years, which in turn has given rise to systemic leverage once again vastly increasing in the credit markets on the part of investors as well. To the latter point, note that financial engineering that is specifically aimed at enabling the taking of extremely leveraged positions is back with a vengeance as well – however, at the same time, the markets for the underlying debt instruments have become quite illiquid due to new banking regulations that hinder proprietary trading activities by banks (for a more detailed discussion of these topics see “A Dangerous Boom in Unsound Corporate Debt” and “Comforting Myths About High Yield Debt”).

In light of all these considerations, it is truly remarkable how little concern there is. Even former skeptic Hugh Hendry is these days talking about the alleged “omnipotence of central banks” which money managers are forced to surrender to (this view strikes us actually as an example of the “potent directors fallacy” – see also this comment by EWI on the topic). While we certainly have some understanding for his perspective – after all, as a fund manager, he cannot afford to “miss” an asset boom, or he will soon be out of a job – we do think he may be underestimating the potential for a capsizing of the happy ship that could well happen in an unseemly hurry, for currently unanticipated reasons. With “reasons” we actually mean “triggers” – thereasons are already discernible and perfectly clear: we listed most of them above. All that is still needed is a trigger that alters the perceptions of a critical mass of observer-participants.

In short, bubbles don’t burst because of a “black swan”: rather the swan – often a combination of events that makes it impossible to identify a single trigger – is a diffuse trigger mechanism that sets into motion what is already preordained. It is the famous “one grain too many” that is put atop a giant sand pile – however, it is the sand pile that is the problem, not the one grain. This is also why precise timing of a bubble’s demise is so difficult – it is unknowable what exactly will actually lead to the change in perceptions that ultimately provokes the unwinding of the leverage that has been built up.

At some point down the road, a Zimbabwe or Venezuela type very rapid devaluation of money may emerge. In this case asset prices would become solely a function of monetary debasement. It is important though to keep in mind that things don’t just move from the present state to the Venezuela type state from one day to the next – not to mention that it may not happen at all, if central banks in developed nations alter their policies in time. Assuming for argument’s sake though that it does eventually happen, there will still be an interim phase during which monetary debasement will e.g. alter the perceptions of stock market investors regarding the multiples they should pay for corporate earnings. This is what happened e.g. in the 1970s: multiples contracted into single digit territory, because market participants decided that the future stream of earnings would be less valuable in real terms, and thus deserved a commensurate discount.

Sentiment Data

Let us move on now to our suite of data. We have on purpose decided to follow a number of data points that relatively few people usually look at, in the hope that they may therefore be slightly more meaningful. Below we show three different views of Rydex data. The first chart shows the Rydex ratio in the form (bear+money market fund assets)/bull assets, as well as the disaggregated bear, MM fund and bull assets. It is noteworthy that the ratio of bears plus fence sitters to bulls has now also declined to a new all time low (the chart is inverted).

The second chart shows a more detailed view of money market and bear assets, plus the “pure” bull/bear asset ratio. The latter has made a remarkable move in recent weeks – it has gone straight up without even the slightest correction, as assets deployed in bull funds have exploded higher. In terms of this data series it represents the most extreme expression of a bullish consensus ever.

Next comes the leveraged bull/bear fund ratio, which compares assets in Rydex funds that employ leverage. Almost needless to say, it is at an all time high as well, but what is most remarkable about it is that it has spent more than a year in “excessive optimism” territory. This by the way goes to show that these data arenot very useful for timing purposes. What they are useful for is this: the more time they spend in extreme territory, the more profound the move in the opposite direction is likely to be once it gets going.

Similar considerations apply to the Investor’s Intelligence survey and the mutual fund cash-to-assets ratio which come next. We show a very long term chart of the latter – what is noteworthy is the big difference in fund manager positioning and sentiment during the period beginning in 2000 compared to the secular bear market that lasted from 1968 to 1982. The latter was characterized by extreme fear and caution, while the period since the 2000 tech mania peak shows a remarkable degree of complacency (again, we think this is quite meaningful for the long term outlook).

Lastly we also update the still growing divergences between junk debt ETFs and credit spreads versus the SPX.

Click on picture to enlarge

Rydex: the (bear + MM funds)/bull funds asset ratio has now also hit a new all time low. This was mainly due to a huge surge in bull assets (which have increased roughly by one third in the 6 weeks since the October correction low).

Click on picture to enlarge

A closer look at money market funds, bear assets and the “pure” bull/bear asset ratio. The latter has just made a truly stunning move. Nothing comparable has ever happened before.

Click on picture to enlarge

The leveraged Rydex bull/bear asset ratio – in “extreme optimism” territory for more than a year, and currently at a new all time high.

Click on picture to enlarge

The Investor’s Intelligence survey. The bull/bear ratio has failed to return to the 27 year high hit earlier this year twice in succession, but the bear percentage has fallen back to 14.9% – only slightly above the all time low of 13.3% recorded earlier this year.

Click on picture to enlarge

The mutual fund cash-to-assets ratio. Compare the secular bear market of 1968-1982 with the period since the year 2000 tech bubble peak. Fear and caution have been replaced by utter complacency. This is likely telling us something about what to expect in the long term.

Click on picture to enlarge

Junk debt (represented by the JNK ETF) compared to government debt and the SPX. Credit spreads are widening and the divergence with the stock market keeps growing.

Conclusion – Real Wealth Undermined

As noted in the title to this post, in some respects we’re in danger of running out of appropriate descriptive superlatives for the current bout of “irrational exuberance” (we’re open for suggestions). The current asset bubble is in many respects reminiscent of the late 1990s tech bubble, but it also differs from it in a number of ways. One of the major differences is that the exuberance recorded in the data is largely confined to professional investors, while the broader public is still licking its wounds from the demise of the previous two asset bubbles and remains largely disengaged (although this has actually changed a bit this year).

A few additional remarks regarding the alleged “omnipotence” of central banks: monetary pumping certainly has the power to distort prices across the economy, which includes inflating the prices of titles to capital. However, at some point there will be a stark choice – either the pumping is abandoned voluntarily, or one risks the destruction of the underlying currency system.

Moreover, there is another limiting factor in play, which doesn’t get as much attention as it probably deserves. Monetary pumping merely redistributes existing real wealth (no additional wealth can be created by money printing) and falsifies economic calculation. This in turn distorts the economy’s production structure and leads to capital consumption, thus the foundation of real wealth that allows the policy to seemingly “work” is consistently undermined. At some point, the economy’s pool of real funding will be in grave trouble (in fact, there are a number of signs that this is already the case). Widespread recognition of such a development can lead to the demise of an asset bubble as well.

Charts by: StockCharts, SentimenTrader

The American Winship Goes On and On

Joshua Brown has a Happy T. Day message for his readers, which includes us. 

The American Winship Goes On and On

Courtesy of 

WSJ:

The economy expanded at its fastest pace in more than a decade during the spring and summer, showing the U.S. has strengthened its economic footing despite increasing global uncertainty.

Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 3.9% in the third quarter, the Commerce Department said Tuesday.

The upward revision from a first estimate of 3.5% put the combined growth rate in the second and third quarters at 4.25%, affirming the best six-month pace since the second half of 2003. The output figures are inflation adjusted.

This Thanksgiving, I’m thinking about the economy and the improvement that now seems to be picking up speed. I’m thinking about the fact that stocks and 401(k) balances are all-time highs, unemployment is rapidly dropping toward decade-lows and innovation is exploding everywhere I look. I’m thinking about how fortunate we are to live in a country that reinvents itself for every generation – even though the transition period always looks bleak while we’re trudging through it. I’m thinking about the fact that, all things considered, the American capitalist system is still the envy of the world.

My blog turned six this month. I’m really fortunate that each year my audience has grown and readers have stuck with me. I’m proud that I’ve been able to influence people’s thinking in some small way and to have been a constructive voice when so many others were offering noise, pessimism and deliberate confusion in the guise of advice. I’m glad that I’ve met a thousand amazing people through my work here that I never would have crossed paths with otherwise. I’m grateful for my partners and clients and colleagues and friends.

The nation is healing. It hasn’t been easy and it hasn’t always been fair. There’s been plenty of room for dissent about this solution or that. The medicine was unconventional, controversial and slow to take effect, but it’s now undeniably producing the desired effect. Our economy and capital markets are starting to roar again. Participation throughout various regions and economic strata has thus far been uneven, but that’s beginning to change. I’m thankful for the opportunity to benefit from the comeback, the chance to contribute to it and to be a part of a country that I believe is the greatest sociological experiment in the history of mankind.

The American Winship goes on and on.

Happy Thanksgiving to everyone who’s pulling their weight and serving as a force for growth. Your efforts will not go unrewarded.

turkey

 

Big Banks Take Huge Stakes In Aluminum, Petroleum and Other Physical Markets … Then Manipulate Their Prices

Big Banks Take Huge Stakes In Aluminum, Petroleum and Other Physical Markets … Then Manipulate Their Prices

Courtesy of Washington's Blog

Giant Banks Take Over Real Economy As Well As Financial System … Enabling Manipulation On a Vast Scale

Top economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy.  They say we need to break up the big banks to stabilize the economy.  They say that too much interconnectedness leads to financial instability.

But – as shown below – the big banks are getting bigger and bigger … and getting into ever more interconnected markets.

Indeed, big banks aren’t even really acting like banks anymore.  Big banks do very little traditional banking, since most of their business is from financial speculation. For example, we noted in 2010 thatless than 10% of Bank of America’s assets come from traditional banking deposits.

The big banks are manipulating every market.   They’re also taking over important aspects of thephysical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. More from Matt TaibbiFDL and Elizabeth Warren.

A 2-year bipartisan probe by the Senate Permanent Subcommittee on Investigations has shined a light on this problem, culminating in a new 400-page report.

Senator Levin – the Chair of Subcommittee – summarizes the findings from the investigation:

“Wall Street’s massive involvement in physical commodities puts our economy, our manufacturers and the integrity of our markets at risk,” said Sen. Carl Levin, D-Mich., the subcommittee’s chairman. “It’s time to restore the separation between banking and commerce and to prevent Wall Street from using nonpublic information to profit at the expense of industry and consumers.”

“Banks have been involved in the trade and ownership of physical commodities for a number of years, but have recently increased their participation in new ways,” said Sen. John McCain, R-Ariz. “This subcommittee’s hearing is an opportunity to examine that involvement, determine whether it gives rise to excessive risk, and identify potential causes for concern that warrant further oversight by Congress and financial regulators.”

One focus for the subcommittee is the management of Detroit-area metal warehouses run by Metro Trade Services International, the largest U.S. warehouse company certified to store aluminum warranted by the London Metal Exchange for use in settling trades. Since Goldman bought Metro in 2010, Metro warehouses have accumulated up to 85 percent of the U.S. LME aluminum storage market.

Since Goldman took over the warehouses, the wait to withdraw LME-warranted metal has increased from about 40 days to more than 600 days, reducing aluminum availability and tripling the regional premium for storage and delivery costs.

The investigation revealed a number of previously unknown details about these deals: that Goldman’s warehouse company paid metal owners to engage in “merry-go-round” deals that shuttled metal from building to building without actually shipping aluminum out of Metro’s system; that the deals were approved by Metro’s board, which consisted entirely of Goldman employees; and that a Metro executive raised concerns internally about the appropriateness of such “queue management.”

Goldman didn’t just store aluminum; it was involved in massive trades of aluminum at the same time its warehouse operations were affecting aluminum availability, storage costs, and prices. After Goldman bought Metro, it accumulated massive aluminum holdings of its own, and in 2012, added about 300,000 metric tons of its own aluminum to the exit queue at its warehouses.

The Subcommittee investigation also examined other instances of Wall Street bank involvement with physical commodities. The Subcommittee report details howJPMorgan amassed physical commodity holdings equal to nearly 12 percent of its Tier 1 capital, while telling regulators its holdings were far smaller; and that at one point it owned an amount equal to more than half the aluminum used in North America in a year. The report also discloses that, until recently, Morgan Stanley controlled 55 million barrels of oil storage capacity, 100 oil tankers, and 6,000 miles of pipeline, while also working to build its own compressed natural gas facility and supply major airlines with jet fuel.

Details are also provided about Goldman’s ownership of a uranium trading company and two open pit coal mines in Colombia. When one of the mines was shut down last year due to labor unrest, Goldman’s Colombian subsidiary requested military and police assistance to end a human blockade — before paying the miners with $10,000 checks to end the protest.

***

The findings and recommendations from the bipartisan report are as follows:

Findings of Fact

(1)        Engaging in Risky Activities. Since 2008, Goldman Sachs, JPMorgan Chase, and Morgan Stanley have engaged in many billions of dollars of risky physical commodity activities, owning or controlling, not only vast inventories of physical commodities like crude oil, jet fuel, heating oil, natural gas, copper, aluminum, and uranium, but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines.

(2)        Mixing Banking and Commerce. From 2008 to 2014, Goldman, JPMorgan, and Morgan Stanley engaged in physical commodity activities that mixed banking and commerce, benefiting from lower borrowing costs and lower capital to debt ratios compared to nonbank companies.

(3)        Affecting Prices. At times, some of the financial holding companies used or contemplated using physical commodity activities, such as electricity bidding strategies, merry-go-round trades, or a proposed exchange traded fund backed by physical copper, that had the effect or potential effect of manipulating or influencing commodity prices.

(4)        Gaining Trading Advantages. Exercising control over vast physical commodity activities gave Goldman, JPMorgan, and Morgan Stanley access to commercially valuable, non-public information that could have provided advantages in their trading activities.

(5)        Incurring New Bank Risks. Due to their physical commodity activities, Goldman, JPMorgan, and Morgan Stanley incurred multiple risks normally absent from banking, including operational, environmental, and catastrophic event risks, made worse by the transitory nature of their investments.

(6)        Incurring New Systemic Risks. Due to their physical commodity activities, Goldman, JPMorgan, and Morgan Stanley incurred increased financial, operational, and catastrophic event risks, faced accusations of unfair trading advantages, conflicts of interest, and market manipulation, and intensified problems with being too big to manage or regulate, introducing new systemic risks into the U.S. financial system.

(7)        Using Ineffective Size Limits. Prudential safeguards limiting the size of physical commodity activities are riddled with exclusions and applied in an uncoordinated, incoherent, and ineffective fashion, allowing JPMorgan, for example, to hold physical commodities with a market value of $17.4 billion – nearly 12% of its Tier 1 capital – while at the same time calculating the market value of its physical commodity holdings for purposes of complying with the Federal Reserve limit at just $6.6 billion.

(8)        Lacking Key Information. Federal regulators and the public currently lack key information about financial holding companies’ physical commodities activities to form an accurate understanding of the nature and extent of those activities and to protect the markets.

Of course, the Federal Reserve – instead of regulating the banks, encouraged them to buy all of these physical assets. As Reuters notes:

[The Senate report] also points the finger at the Federal Reserve, saying the central bank has taken insufficient steps to address the risks taken by financial holding companies gathering physical commodities. The Fed in some cases was unaware of the growing risk, the report said.

Pam Martens points out:

Adding to the hubris of the situation, the Wall Street banks’ own regulator, the Federal Reserve, gave its blessing to this unprecedented and dangerous encroachment by banking interests into industrial commodity ownership and has effectively looked the other way as the banks moved into industrial commerce activities like owning pipelines and power plants.

***

One would think that the mega banks’ regulator, the Federal Reserve, would be the first line of defense against this type of dangerous sprawl by banks. According to the Levin Subcommittee report, the Federal Reserve was actually the facilitator of the sprawl by the banks. The report notes:

“Without the complementary orders and letters issued by the Federal Reserve, many of those physical commodity activities would not otherwise have been permissible ‘financial’ activities under federal banking law. By issuing those complementary orders, the Federal Reserve directly facilitated the expansion of financial holding companies into new physical commodity activities."

The Price Of Oil Exposes The True State Of The Economy

Courtesy of The Automatic Earth


Jack Delano Cafe at truck drivers’ service station on U.S. 1, Washington DC Jun 1940

We should be glad the price of oil has fallen the way it has (losing another 6% today as I write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing, without the multilayered veil of propaganda, spin, fixed data and bailouts and handouts for the banking system.

It shows us the huge extent to which consumer spending is falling, how much poorer people have become as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.

OPEC today decided not to cut production, but whatever decision they would have come to, nothing would have made one iota of difference. The fact that prices only started falling again after the decision was made public shows you how senseless financial markets have become, dumbed down by easy money for which no working neurons are required.

OPEC has become a theater piece, and the real world out there is getting colder. Oil producing nations can’t afford to cut their output in some vague attempt, with very uncertain outcome, to raise prices. The only way to make up for their losses is to increase production when and where they can. And some can’t even do that.

Saudi Arabia increased production in 1986 to bring down prices. All it has to do today to achieve the same thing is to not cut production. But the Saudi’s have lost a lot of cloud, along with OPEC, it’s not 1986 anymore. That is due to an extent to American shale oil, but the global financial crisis is a much more important factor.

We are only now truly even just beginning to see how hard that crisis has already hit the Chinese export miracle, and its demand for resources, a major reason behind the oil crash. The US this year imported less oil from OPEC members than it has in 30 years, while Americans drive far less miles per capita and shale has its debt-financed temporary jump. Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses.

The American shale industry, meanwhile, is a driverless truck, with breaks missing and fueled by on cheap speculative capital. The main question underlying US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow. And the press are really only now waking up to the Ponzi character of the industry.

In a pretty solid piece last week, the Financial Times’ John Dizard concluded with:

Even long-time energy industry people cannot remember an overinvestment cycle lasting as long as the one in unconventional US resources. It is not just the hydrocarbon engineers who have created this bubble; there are the financial engineers who came up with new ways to pay for it.

While Reuters on November 10 (h/t Yves at NC) talked about giant equity fund KKR’s shale troubles:

KKR, which led the acquisition of oil and gas producer Samson for $7.2 billion in 2011 and has already sold almost half its acreage to cope with lower energy prices, plans to sell its North Dakota Bakken oil deposit worth less than $500 million as part of an ongoing downsizing plan.

Samson’s bonds are trading around 70 cents on the dollar, indicating that KKR and its partners’ equity in the company would probably be wiped out were the whole company to be sold now. Samson’s financial woes underscore how private equity’s love affair with North America’s shale revolution comes with risks. The stakes are especially high for KKR, which saw a $45 billion bet on natural gas prices go sour when Texas power utility Energy Future Holdings filed for bankruptcy this year.

And today, Tracy Alloway at FT mentions major banks and their energy-related losses:

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. [..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows. Countries can see their revenues cut by a third and move on, perhaps with new leaders, but many companies can’t lose that much income and keep on going, certainly not when they’re heavily leveraged.

The Saudi’s refuse to cut output and say: let America cut. But American oil producers can’t cut even if they would want to, it would blow their debt laden enterprises out of the water, and out of existence. Besides, that energy independence thing plays a big role of course. But with prices continuing to fall, much of that industry will go belly up because credit gets withdrawn.

The amount of money lost in the ‘overinvestment cycle’ will be stupendous, and you don’t need to ask who’s going to end up paying. Pointing to past oil bubbles risks missing the point that the kind of leverage and cheap credit heaped upon shale oil and gas, as Dizard also says, is unprecedented. As Wolf Richter wrote earlier this year, the industry has bled over $100 billion in losses for three years running.

Not because they weren’t selling, but because the costs were – and are – so formidable. There’s more debt going into the ground then there’s oil coming out. Shale was a losing proposition even at $100. But that remained hidden behind the wagers backed by 0.5% loans that fed the land speculation it was based on from the start. WTI fell below $70 today. You can let your 3-year old do the math from there.

I wonder how many people will scratch their heads as they’re filling up their tanks this week and wonder how much of a mixed blessing that cheap gas is. They should. They should ask themselves how and why and how much the plummeting gas price is a reflection of the real state of the global economy, and what that says about their futures. Happy Turkey.

The Sellside Chimes In On The Crude Crush: “This Will Reverberate For Years”

 

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The sell-side is worried…

SocGen's head of oil research Mike Wittner warns "this will reverberate for years"… (via Bloomberg)

OPEC decision to keep output target is "unambiguously bearish,"

"We are entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC"

"It's huge,” he says by phone from New York. “This is a signal that they’re throwing in the towel. The markets have changed for many years to come"

"The change is that it's no longer Saudi Arabia and OPEC that are going to be managing the supply side of the market. It doesn’t sound like much, but that is so fundamental, it is hard to overstate”: Wittner by phone

"This will reverberate for years," adding, it will "bring on lower prices and let the market do the job of throttling U.S. shale oil growth"

U.S. shale output unlikely to contract for 1-2 yrs amid lower prices

Goldman warns another large leg lower in Brent oil prices to near $60/bbl would not be sustainable beyond a few months (absent significant demand weakness) as it would accelerate the rebalancing of the oil market with Canadian oil sands and US shale oil projects reaching their production variable costs

The call on OPEC becomes the call on US shale

Today, November 27, OPEC announced that it would maintain its production target at its level of 30 million barrels per day. The organization further commented that it would aim to adhere strictly to this quota, although past quotas have only been loosely implemented. Today’s decision came in line with our expectation and our view that it is not in OPEC’s interest to balance the market on its own but that US shale oil production should contribute as well, given its scalability. Further, today’s decision comforts us in our forecast for a large market surplus in 1H15.

Potential for further price declines until evidence of a US production growth slowdown…

While we continue to believe that WTI prices in a $70-$75/bbl range are sufficient to incentivize US producers to reduce capex, today’s price sell-off creates potential for further declines in oil prices. In particular, now that OPEC is aiming to maintain production and market share, prices could trade lower until evidence of a pull-back from US E&Ps, when they announce their 2015 capex guidance in January-February (and despite our expectation for an only modest build in 4Q14 inventories). The next OPEC meeting is scheduled for June 5.

…although prices at current levels likely lead to a balanced market by 2H15

Ultimately, we expect US production growth will slow and that OPEC will implement moderate production cuts once this slowdown is apparent. Consequently, we reiterate our 2015 price forecast with Brent prices at $80-$85/bbl and WTI at $70-75/bbl. Importantly, we do not believe that it is in OPEC’s interest to push prices significantly and sustainably lower, and we forecast lower OPEC production starting from 2Q15, as the fiscal strain on non core-OPEC countries would be too large otherwise. Further, we believe another large leg lower in Brent oil prices to near $60/bbl would not be sustainable beyond a few months (absent significant demand weakness) as it would accelerate the rebalancing of the oil market with Canadian oil sands and US shale oil projects reaching their production variable costs.

*  *  *

“Neutrality” Gone Mad: Should GM Have to Promote Toyota?

Courtesy of Mish.

The EU's attempt to breakup Google gets more absurd by the day. I wrote about this just yesterday in Google vs. Sun vs. France: Too Big, Too Powerful, Too Free.

I have a few more EU proposals regarding Google worth discussing, but first I have a few questions:

In the name of neutrality…

  • Should GM have to promote Toyota?
  • Should Target have to promote WalMart?
  • Should Pepsi have to promote Coke?

The idea sounds blatantly absurd, because it is.

Yet EU nannycrats Demand Neutrality From Google.
 

Google was under fire on two fronts in Europe on Wednesday as privacy watchdogs told it to apply the “right to be forgotten” globally and German ministers pushed for laws to make its search engine a “neutral platform”.

 

The developments crown a difficult week for the US technology group, which has already seen Capitol Hill hit out at a European parliament resolution advocating Google’s possible break-up. The non-binding motion is expected to be passed on Thursday

The 11-page paper, whose lead signatory is the German economics minister Sigmar Gabriel, argues it may be necessary to introduce “platform neutrality” to tackle abuses of dominance, either through tough antitrust enforcement or new legislation.

There is mounting unease in Washington that Google is being targeted for political reasons, in part to protect Germany’s corporate champions in media and telecoms. A host of senior politicians – including the chairs of two House and one Senate committee – spoke out on Tuesday against the European parliament resolution and warned of negative consequences for trade and investment.

The broad-ranging German position paper – dated November 13 and co-signed by interior minister Thomas de Maizière, justice minister Heiko Maas and the minister for digital infrastructure, Alexander Dobrindt – underlines the extent to which Germany is driving Europe’s efforts to constrain Google’s power.

The German ministers urge Brussels to use the lure of Europe’s domestic market and its political power to “stand up to global actors”. The ministers write that a joint Franco-German working group has developed proposals aimed at regulating digital platforms that dominate the market.


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The Brutal Monotony of All Time Highs

The Brutal Monotony of All Time Highs

Courtesy of 

There’s only one subtle joke in the film Anchorman and it involves the fact that the San Diego news team’s weather man has a sub-100 IQ. In a city where “72 and sunny” is the forecast 365 days a year, even Brick Tamland has no problem reliably delivering this news to the viewers.

In the chart below, via my firm‘s Research Director Michael Batnick, you’ll see the S&P 500 ETF overlaying a chart indicating new all time high closes (in red). The monotony of fresh records has been brutal for the short and the sidelined – wide red stripes indicate entire weeks full of all time highs at the closing bell. It’s become an everyday occurrence. Brick could take over the business news without a problem.

image

What’s happening here is classic herding behavior and the market isn’t letting you back in if you’ve sold.

The danger here is clear – mass complacency and a moment at which anyone who could buy, would buy or needed to buy throws everything they have at the tape just to end the pain.

My friend Jon Krinsky, technical analyst at MKM Partners, has been keeping track of a very specific dataset that I find to be fascinating. He’s looking at the current streak of days the S&P 500 has spent above its 5-day moving average. As of yesterday’s close, we’re at 28 straight days! Jon notes that this is the longest such streak in the history of the US stock market, surpassing the prior record of 27 days from 1928 – another moment during which there was universal agreement that you had to be in.

Jon’s table below:

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The market has been a wall for the dip-buyers. Impenetrable. They cannot get in unless they’re willing to pay the all-time high. It’s a high barrier of entry psychologically, especially if they’d been counseling caution all this time to their clients. The about-face could be career-wrecking, especially if it happens at a major top.

 

Stock Manipulation 101: Using Stock Buybacks to Mask Deep Business Problems

Connecting the Dots: Stock Manipulation 101: Using Stock Buybacks to Mask Deep Business Problems

By Tony Sagami

Stock buybacks are always a good thing… right? That’s what the mass media has trained investors to believe, but there are times when stock buybacks are a horrible strategy.

Let’s take a look at Herbalife, which has had very visible news items as billionaires like Carl Icahn, George Soros, Daniel Loeb, and Bill Ackman publicly debate the future of the company.

Herbalife shares have lost more than half their value in 2014 because of a Federal Trade Commission investigation and a big drop in profits. 50% is a huge haircut, but I believe Herbalife is poised for even more pain.

Rapidly Disappearing Profits

Herbalife recently reported its third-quarter results and they were just awful. Herbalife earned $0.13 per share in Q3, but that was a whopping 92% decline from the $1.32 it earned last year.

That’s awful, but Herbalife says business will be even worse going forward. The Wall Street crowd expected Herbalife to grow revenues by 7% in 2015, but the company said that its revenues will fall by -1% to -2% instead.

Part of that lower guidance is from the impact of the strong US dollar. Guidance for Q4 includes an unfavorable impact of $0.31 from currency conversions. If you remember, I previously wrote that the strong dollar was going to kill the 2015 profits of companies that do lots of business overseas.

I have to admit, I am skeptical of all the multilevel marketing businesses, but Herbalife is reinforcing that preconceived notion.

FTC and FBI Investigation

The Federal Trade Commission is investigating Herbalife for what could ultimately result in charges that Herbalife is operating an illegal pyramid scheme.

In March, the FTC sent Herbalife a civil investigative demand (CID), which is a subpoena on steroids because all the evidence produced by a CID can be used by other agencies in other investigations, such as the FBI, which is also investigating Herbalife.

The FTC outcome is unknown. Heck, Herbalife could eventually be declared innocent and pure… but I wouldn’t bet on it.

Board Members Gone Bad!

When your company is in the middle of FTC and FBI investigations, the last thing you want is for your company officers to get in trouble with the law. A current Herbalife board member, Pedro Cardoso, has been charged with illegal money laundering by Brazilian prosecutors. Time will tell if the charges are true… but it looks very bad.

That’s not the only problem with the Herbalife board of directors. Longtime Herbalife Board Member Leroy Barnes announced that he is leaving. Board members leave for legitimate reasons all the time, but Barnes is the fourth Herbalife board member to leave in 2014. Talk about rats jumping the ship!

The Smoke and Mirrors of Stock Buybacks

The above issues are all serious and enough to stay away from Herbalife, but the biggest red flag I see is the abusive financial engineering that Herbalife is using to prop up its stock.

Example: In Q2, Herbalife spent over $500 million to buy back its own stock for the purpose of propping up its earnings-per-share ratio. Fewer shares translates into higher earnings per share.

The root of the problem is that Herbalife is using up all its cash AND borrowing money like mad to finance the stock buyback.

In the last year, Herbalife’s debt has exploded by over $1 billion. Herbalife is using every penny of operating cash flow and taking on new debt just to buy back its stock.

Moreover, since Herbalife’s stock has plunged by 50% this year, Herbalife wasted hundreds of millions of dollar of shareholder money by buying stock at much higher prices.

And now that revenue, profits, and free cash flow generated by operations are shrinking, Herbalife is on a collision course with insolvency.

Carl Icahn, who is certainly a much better investor than I will ever be, is a big Herbalife fan and even went as far as to call the shares undervalued. “I would tell you I do believe Herbalife is quite undervalued and it is still a good business model.”

Ahhhh… Carl… sorry, but I think you couldn’t be more wrong.

George Soros, by the way, appears to agree with me because he reduced his Herbalife holdings by 60% after the company reported those disastrous third-quarter results a few weeks ago.

I’m not suggesting that you rush out and buy put options on Herbalife tomorrow morning. As always, timing is everything, but I have very little doubt that Herbalife’s stock will be significantly lower a year from now.

Moreover, the real point isn’t whether Herbalife is headed higher or lower, but that good, old-fashioned fundamental research can help you make money in any type of market environment.

Even during bear markets.

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.

Thanksgiving Travel Nightmare: Over 700 Flights Canceled, Major Storms; Black Friday Ice; Please Drive Safely

Courtesy of Mish.

If you are traveling tonight or tomorrow, please take extra time.

If you are traveling by plane, please check your flight schedule. Hundreds of flights have been cancelled, thousands of other flights delayed.

Thanksgiving Travel Nightmare

Accuweather reports Snowstorm Creates Thanksgiving Travel Nightmare in East

A snowstorm pummeling the East has produced lengthy flight delays and treacherous travel on roadways Wednesday. As snow rapidly exits the Northeast into Thanksgiving Day, there will still be some travel trouble spots in the wake of the storm.

Aircraft displaced and delayed by the storm in the East may lead to additional flight delays and cancellations on Thanksgiving Day across the nation. Passengers may have to schedule a different flight on an alternate route to get to their destination.

In anticipation of delays or cancellations, several airlines, including US Airways, American and Delta, have announced they will waive change fees for passengers scheduled to fly into airports in the line of the storm.

Snowfall Wednesday-Thursday

Accuweather’s Live Blog reports Accidents in Eastern Snowstorm Create a Maze for Thanksgiving Travelers

Over 700 Flights Cancelled

Flight Aware shows over 700 flights cancelled into or within the United States. There have been over 7,000 delays.

Flight Aware Misery Map

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Did Bernanke Really Save The World?

Did Bernanke Really Save The World?

Courtesy of Lee Adler of Wall Street Examiner

Ben Bernanke and his teenaged Wall Street media groupies like to claim that he saved the world with QE. But if QE was such a cure-all why has the “recovery” in Japan and Europe been so weak? The ECB printed money out the wazoo for a while and the BoJ is giving Japan, the US, and everybody else an all-out BoJob. Yet only the U.S. is rising.

The Fed and friends all pump cash into the same banks all around the world. When the Fed prints, the cash goes straight to 22 Primary Dealers, 15 of which are European, Canadian, and Japanese banks. Only 7 are US banks. The Fed is money printer to the world. But so is the BoJ, and so is the ECB. They buy securities from, or lend funds to, the same big fish playing in the same worldwide big fish pond. And those fish like to swim where the waters are warmest. Apparently that’s the US. Its markets and economy are rising faster than anywhere else in the developed world.

So did Bernanke really save the US economy, as the Keynesians and assorted mainstream media windbags claim, or was it something else? Please indulge and allow me to illustrate my thought on the matter.

Frickin Fracking - Click to enlarge

Frickin Fracking!

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