Friday, December 26, 2014

Today's Links

1-- Japan's Economy Implodes, zero hedge


Japan..real consumer spending dropped 2.5% yoy in November. While this was less than the 4.0% fall in October, this still marked the eighth straight month that real consumer spending has dropped yoy since the consumption tax hike....


Real disposable income of workers’ households in November slid 3.9% yoy, declining further from a -2.4% yoy decline in October. On a seasonally adjusted basis, real disposable income came in at -1.3% (October: +3.1%). The continuous yoy decline in real income and its instability is restraining household spending. ...


real wages (nominal wages less the CPI inflation) came in at -4.3% yoy (October: -3.0%), as the extent of the decline widened in step with the fall in nominal wages. This was the largest decline since the 4.8% recorded in December 1998. That's right: Abenomics is now responsible for the biggest drop in Japanese wages on record....


Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Abe is trying to revive from recession


In energy markets, oil prices rose modestly as dealers reacted to a surprise Islamist attack on Libya's main oil terminals that left 22 soldiers dead.  Since fresh clashes between government forces and the jihadists erupted on December 13, Libya's oil production has dropped to nearly 350,000 barrels per day compared with 800,000 previously, according to industry experts.


2--Russia says ruble crisis over as reserves dive, inflation climbs, Reuters
Those measures included a hike in interest rates to 17 percent from 10.5 percent, curbs on grain exports and informal capital controls.
"The key rate was raised in order to stabilize the situation on the currency market. ... That period has already, in our opinion, passed. The rouble is now strengthening," Finance Minister Anton Siluanov told the upper house of parliament on Thursday.
He added that interest rates would be lowered if the situation remained stable.
Standard & Poor's credit ratings agency said this week it could downgrade Russia to junk as soon as January due to a rapid deterioration in "monetary flexibility".


Keen to avert a downgrade, Russia said it had started talks with ratings agencies to explain the government's actions. Siluanov said the budget deficit next year would be "significantly more" than the 0.6 percent of gross domestic product originally planned.
The ruble slumped to 80 per dollar in mid-December from an average of 30-35 in the first half of 2014. It has strengthened in the last few days to trade as strong as 52 per dollar on Thursday, in part thanks to government pressure on exporters to sell hard currency.


Russians have tracked the exchange rate closely since the collapse of the Soviet Union, when hyper-inflation wiped out their savings over several years in the early 1990s. The central bank had to spend heavily in recent months to prop the currency.
Last week, Russia's gold and foreign currency reserves dropped by as much as $15.7 billion to below $400 billion for the first time since August 2009 and down from over $510 billion at the start of the year...


But he added that the bank had seen depositors returning in large numbers after most lenders ramped up their deposit rates, some offering as much as 20 percent in annual interest.


3--Trouble in Libya sends oil higher, Reuters


Oil edged further above $60 a barrel on Friday as unrest in Libya cut supplies, offsetting a growing supply glut in top consumer the United States and weak imports by Japan.
Fighting in Libya has cut output there to 352,000 barrels a day, a state oil company spokesman said on Thursday, or about half November's average. This countered the U.S. Department of Energy's (DOE) report showing a big stockbuild


4---Russia's South Stream move empowers Turkey, al monitor


The idea to empower other crucial regional states to create a multipolar world has long been on Russia's global agenda, and it has recently signed milestone deals with China, Turkey and India during visits by President Vladimir Putin......


The calculations were by no means emotional. In its original form, the South Stream was going to be an extremely costly, technically complicated project engaging too many states with diverging policies and interests. By "outsourcing" the project to Turkey, Moscow is making the Europeans deal with Ankara — a much tougher negotiator....


With several crucial pipelines running through Turkish territory, including those from the Caspian basin, it is Turkey that is now becoming an energy superpower without having vast energy resources itself. If the deals to increase supply to Europe by purchasing gas from Iran and Iraqi Kurdistan go through, Turkey will be Europe’s primary energy hub. In fact, it will cover the whole southern flank, accumulating energy resources from Russia, Central Asia and the Middle East. This will make Turkish influence on the European energy market equal to that of Saudi Arabia on the global one....


In general, Russia’s decision has greatly increased Turkey's geopolitical significance, from Europe to the Middle East. If China was the biggest winner of what Putin once called the "Crimean spring," Turkey is the biggest winner in the "South Stream autumn."


5--Make No Mistake, the Oil Slump Is Going to Hurt the US Too, Casey


the US is clearly headed for a recession, because the US owes nearly all the jobs that have been created in the last few years to the shale boom. All those related jobs in equipment, manufacturing, and transportation are also at stake. It’s no accident that all new jobs created since June 2009 have been in the five shale states, with Texas home to 40% of them.
Even if oil were to recover to $70, $1 trillion of global oil-sector capital expenditure—in fields representing up to 7.5 million bbl/d of production—would be at risk, according to Goldman Sachs. And that doesn’t even include the US shale sector!
Unless the price of oil miraculously recovers, tens of billions of dollars worth of oil- and gas-related capital expenditure in the US is going to dry up next year. While US oil and gas capex only represents about 1% of GDP, it still amounts to 10% of total US capex...


There will be spillover into the financial arena, as well. Energy junk bonds may only account for 15% of the US junk bond market, or $200 billion, but the banks are also exposed to $300 billion in leveraged loans to the energy sector. Some of these lenders are local and regional banks, like Oklahoma-based BOK Financial, which has to be nervously eyeing the 19% of its portfolio that’s made up of energy loans.
If oil prices stay at $55 a barrel, a third of companies rated B or CCC may be unable to meet their obligations, according to Deutsche Bank. But that looks like a conservative estimate, considering that many North American shale oil fields don’t make money below $55. And fully 50% are uneconomic at $50.
So if oil falls to $40 a barrel, a cascading 2008-style financial collapse, at least in the junk bond market, is in the cards. No wonder the too-big-to-fail banks slipped a measure into the recently passed budget bill that put the US taxpayer back on the hook to insure any ill-advised derivatives trades!


6--Biderman on CNBC: Global Zero Interest Rates Creating Global Recession


7--Boris Volkhonsky: Yes, but as for the trends in the global politics, I think that really the new centers of power are emerging. China, as you correctly said, has overcome the US in terms of the purchasing power, but not in the absolute figures, of course. I think that the total GDP of BRICS has overcome or is close to overcoming that of the EU. So, that means that the monopoly that the US felt during the second half of the 20th century is coming to an end....


Boris Volkhonsky: Well, we are coming to the issue of war and peace, because many analysts say that the only way for the US to recover is a new global war, which I hope will not happen. So, I wouldn’t like to see that kind of recovery.....


to survive it perhaps it could be a good idea for them to adopt a more conciliatory stance in the global matters.
Boris Volkhonsky: Well, but that doesn’t even depend on who will be the next president in the US. It depends on some other forces which are acting from behind the scene in the US. And those forces are still preserving that inertia of the old way of thinking, I'm afraid. So, I'm not over optimistic about the future of the global relationship.
....
Russia and India are not just establishing or developing the bilateral relationship, but they are the pillars of a new very important and very influential center of power, which is the BRICS. The two countries are equally opposed to the unipolar world order and developing the relationship in the multilateral format is very important to oppose these attempts to retain the unipolar world order.


Also, what is very important is that during the summit Russia expressed its willingness and desire to see India as a permanent member of the Shanghai Cooperation Organization, which is also kind of an alternative to this unipolar world order I was talking about before. So, the BRICS is on the global arena and the SCO is in Eurasia, which also means that it is a global phenomenon....


there is a project called International Northwest Transport Corridor which would connect the Indian sea ports on its western coast to the sea ports in Iran, then by the land routes they will go northwards via the Caucasus and the Central Asia to Russia and to the northern Europe. This project was launched around the year of 2000, I'm not exactly sure which year, but it was about 15 years ago. And its principle initiators were India, Russia and Iran. And now there are more than 15 countries participating in the project, but the project as such has not been realized yet.
The need for activating the project was also stressed in the joint statement. I think this is really a significant fact, if it is added to India joining the Shanghai Cooperation Organization, and Iran is also waiting for a membership in the SCO. So, if the project is launched and is launched in its full capacity, then it will mean that the barriers will be overcome....


 I'm positively sure that the events in Ukraine, it was not a coincidence that they started after the BRICS countries decided to establish a common bank with the interactions in the local national currencies..... this means a severe blow to the monopoly of the US dollar, first of all, and to all the other remnants of the Bretton Woods system.....


And I think that for the US, probably, the main task, the main objective they follow in its dealings with the other countries is to break this unity of BRICS countries. And it adopts different approaches to different members of the BRICS group. With Russia it is a direct confrontation. With China it is more or less concealed threats on some matters that might seem minor, like the intellectual property or something like this, hacking and so on. And with India it has adopted a policy of courting India and trying to bring it into its orbit


8---Lethal US diplomacy in Ukraine, sputnik


This week, US President Barack Obama signed the “Ukraine Freedom Support Act of 2014.” “Lethal” American military aid to Ukraine is the current stage of the ongoing trade war. The modern dispute began with Yanukovych’s decision to forego signing the EU trade agreement, and has escalated into a civil war in Donbas.



In one of the final votes of the year and without general debate, both Houses of Congress passed the “Ukraine Freedom Support Act of 2014.” The legislation is part of a larger effort by the American foreign policy apparatus to dictate policy in Ukraine


9--China To Launch Yuan Swap Trading With Russian Rubles On Monday, zero hedge


So while the US continues to parade with "destroying" the Russian economy, even if it means crushing the shale industry, aka the only bright spot, and high-paying job-creating industry in the US economy over the past 5 years, Russia and China continue to be nudged by the west ever closer monetarily and strategically, until one day, as we have long predicted, China and Russia will announce a joint currency, one backed by both China's "surprising" gold reserves and Russia's commodity hoard. Then things will get interesting.


10--Fleeing their country’s civil war, Ukrainian Jews head for Israel, WA Post


No mention of Nazism


11--Important details on shadow banking, NC


When the central bank starts tightening, what normally gets choked off first is the most speculative activities. Indeed, in 2004, Countrywide predicted that its mortgage originations would fall in 2005. Instead, as prime mortgage originations fell, subprime mortgage originations rose. Why?


The culprit was CDOs. They were insulated from the Fed’s tightening because the bulk of the CDO was rated AAA, which made it less vulnerable to the effects of the Fed’s tightening. Worse, for Eurobanks and even some US firms, retaining an AAA tranche hedging it with an AAA rated counterparty allowed book all discounted future profits in the current period. These were massively profitable trades, and a big reason why so many banks were stuck with so many toxic CDOs when the music stopped. Another big contributor was the heavily synthetic CDOs (as in made largely of credit default swaps) devised by Magnetar, which drove demand to the very worst mortgages.


None of the financial regulators had any idea that this was happening. Indeed, as the crisis was escalating, the authorities were still not looking in the right places for trouble. For instance, it was clear that when Bear Stearns was rescued, one of the big reasons was concerns about its credit default swaps counterparty exposures. As we said at the time, the Fed, in concert with the Bank of England and the ECB, should have gone into overdrive to understand the who was exposed to whom, and in what types of risks. Instead, they went into Mission Accomplished mode.....


And the Fed is as in the dark about shadow banking now as it was in 2006. As the Wall Street Journal wrote earlier this week:
The so-called shadow-banking system is growing again in the U.S. after declining from 2008 through 2011 in the wake of the financial crisis. The value of U.S. financial assets held by money-market funds, hedge funds, trust companies and financial firms other than banks reached $25.2 trillion in 2013, for the first time exceeding the precrisis peak of $24.9 trillion, according to a November report by the Financial Stability Board, an international body of regulators.
U.S. shadow-banking assets accounted for about one-third of the global total of $75.2 trillion in 2013, which was up from $70.5 trillion the year before. And in the U.S., shadow banking is bigger than the more tightly regulated traditional banking system, which according to the FSB had $20.2 trillion in assets as of 2013


12--CBR launches SWIFT alternative for domestic payments, RT


The Central Bank of Russia (CBR) has launched a new SWIFT-style payment service aimed at moving away from Western financial dominance. The system is already operating, and will be fully functional within six months.
"The new service was launched in order to ensure smooth and safe transmission of financial messaging within the country, and is another step towards improving the system of services provided by the Bank of Russia,” said the bank statement Friday.
The regulator said the new service will allow credit institutions to transmit messages in a SWIFT format through CBR to all Russia’s regions without restrictions.
The calls to disconnect Russian banks from the global interbank SWIFT system came amid the deterioration of relations between Russia and the West and the introduction of sanctions...


SWIFT is a global banking transaction system used by most international banks. The information the system carries, including payment instructions, is securely exchanged between financial institutions. It began operating in 15 countries in 1973 and is now used in 210 countries




13---Russia’s new military doctrine lists NATO, US as major foreign threats, RT


Domestically, Russia faces threats of “actions aimed at violent change of the Russian constitutional order, destabilization of the political and social environment, disorganization of the functioning of governmental bodies, crucial civilian and military facilities and informational infrastructure of Russia,” the doctrine says.
Moscow sees international cooperation with countries sharing its effort to increase security, particularly members of BRICS, the OSCE, the Shanghai Cooperation Organization and others as the key to preventing military conflicts, the doctrine states.


14--Abenomics 2.0---Austerity Japanese-Style, Jack Rasmus


15--Saudi oil chief: No conspiracy behind oil prices, USA Today


Saudi Arabia maintains it is opposed to cutting production because of fears its market share could erode.
"The best thing for everybody is to let the most efficient produce," Saudi Petroleum Minister Ali Naimi said in the United Arab Emirates capital of Abu Dhabi. He was addressing the Arab Energy Conference, a gathering held every four years....


Earlier this month, Iranian President Hassan Rouhani said the sharp fall in global oil prices was the result of "treachery," a remark interpreted as a reference to Saudi Arabia.
"I want to say from this podium that talk about a Saudi conspiracy has no basis of accuracy at all and points to a misunderstanding," Naimi said.


16---The Islamic State of Iraq and Syria has lopped off the heads of about 20 people as of Nov. 27 — two US journalists, two British aid workers and 16 Syrian soldiers. Meanwhile, Saudi Arabia has beheaded 59 people since January, Newsweek reported, but nary a word of criticism from Western sources.


17---
Historically, oil prices have spiked in a countertrend to a rising dollar only when economic or geopolitical uncertainties have heightened, especially in the Middle East. Today, in spite of the Middle East being affected by wars, militancy and political turbulence, oil prices have fallen steeply. The inconsistency points to manipulation. The probability of a US-Saudi collusion is quite high and nothing new. The world has been at the mercy of this collusion via the petrodollar and the Saudi-dominated OPEC cartel for decades. OPEC does not have to control 100% of the world oil production. With 81% of global crude oil reserves and 43% of world production, it can undercut non-OPEC producers by dumping and underpricing. It is doing both today.
 
 
 there are three main reasons for the oil price collapse: drop in demand, excess supply (especially the surge in US shale oil production) and US-Saudi collusion directed at Russia.

The fall in demand is due to declining economic outputs of major oil consumers like China, India, EU and the US. For the US, this may seem contrary to the rosy GDP growth put out in official statistics. But a disproportionate share of US GDP growth comes from non-oil-intensive activities, e.g., commercial services, finance, insurance, real estate, etc. On the supply side, US shale production has boomed in recent years, due mainly to high international crude prices and ultra cheap credit.

These fundamentals alone do not account for the massive drop in oil prices. The last such collapse was in 2008-2009, when oil prices fell from $147/barrel to $32/barrel in less than a year. There was no supply glut at the time, nor any massive collapse in real demand which would have been indicated by widespread factory closures, layoffs and a dramatic fall in movement of goods and people. These things followed the oil price collapse, they did not lead it. The main reason was the huge drop in dollar liquidity that drove speculators in oil derivatives (paper oil) rushing for the exit door. Along with oil prices, stocks also collapsed for the same reason.

Today, stock markets are at or near all-time peaks in spite of the oil price collapse. Dollar liquidity is not an issue. Changes in real demand and supply have been gradual, so they cannot account for such a swift, steep and selective downturn in oil prices alone. This makes deliberate manipulation very plausible. Call it conspiracy or economic war, this is an engineered move capitalizing on negative fundamentals. The US has an enormous stake in and influence on the price of oil via its petrodollar pact with Saudi Arabia. It is currently waging a kitchen sink economic war against Russia. As Sherlock Holmes observed, "when you have eliminated the impossible, whatever remains, however improbable, must be the truth

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