Tuesday, January 20, 2015

Today's Links

1--Look Who’s Dragging Down the Global Economy Though No One Is Allowed to Say it ,  wolf street




As if they’d coordinated this, Oxfam, a non-profit that works in over 90 countries, published a research report on Monday that found that the richest 1% have been on a global wealth-grab. In 2008, the 99% still owned 56% of global wealth, based on data from Credit Suisse, whereas the 1% owned 44%. Then the Financial Crisis happened. It impacted both groups in similar proportions, and there was no change in 2009. But 2010 was the “inflection point,” when the 1% started grabbing an ever larger share of global wealth, while the 99% began to lose their grip. By 2014, the 99% was down to 52% of global wealth, the bottom 80% owned a measly 5.5%, but the top 1% had squirreled away 48%.
The report projected that if this trend continues, the 1% will own more of the global wealth by 2016 than everyone else put together...In 2009, the richest 80 people, based on the Forbes list of billionaires, sat on just under $1 trillion in net wealth, the report found. By 2014, their pile had doubled to $1.9 trillion.


Since 2008, central banks have printed $10.7 trillion, BofA Merrill Lynch pointed out. Some central banks have imposed negative-interest-rate policies. ZIRP is now so wide-spread that it covers 83% of the global free-float stock market capitalization. These days, 52% of all government bonds yield less than 1%. In the Eurozone, Switzerland, and Japan there are $7.3 trillion in government bonds with a “negative” yield....


Fed Chairman Ben Bernanke himself explained the “wealth effect” in an editorial in 2010. The Fed’s “strong and creative measures” – that’s what he called QE and ZIRP – would lead to higher stock prices. “And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”


2--Crushing The U.S. Energy Export Dream, NC
proven oil
In other words, the U.S. is a fairly minor player among the family of major oil-producing nations


the U.S. is a fairly minor player among the family of major oil-producing nations. For all the fanfare about the U.S. surpassing Saudi Arabia in production of crude oil, we are not even players in reserves. What that means is that we may temporarily pass Saudi Arabia in production because it chooses to restrict full capacity, and U.S. production will fade decades before Saudi Arabia’s production begins to decline.


Let’s put all of this together.


• The U.S. will never be oil self-sufficient and will never import less than about 6 million barrels of oil per day.
• U.S. total production will peak in a few years and imports will increase.
• The U.S. is a relatively minor reserve holder in the world.
How does this picture fit with calls for the U.S. to become an exporter of oil? Very badly. For tight oil producers to become the swing producers of the world? Give me a break.


3--The Golden Age of Black Ops: Special Ops Missions Already in 105 Countries in 2015, Nick Turse


During the fiscal year that ended on September 30, 2014, U.S. Special Operations forces (SOF) deployed to 133 countries -- roughly 70% of the nations on the planet -- according to Lieutenant Colonel Robert Bockholt, a public affairs officer with U.S. Special Operations Command (SOCOM). This capped a three-year span in which the country’s most elite forces were active in more than 150 different countries around the world, conducting missions ranging from kill/capture night raids to training exercises. And this year could be a record-breaker. Only a day before the failed raid that ended Luke Somers life -- just 66 days into fiscal 2015 -- America’s most elite troops had already set foot in 105 nations, approximately 80% of 2014’s total.


Despite its massive scale and scope, this secret global war across much of the planet is unknown to most Americans. Unlike the December debacle in Yemen, the vast majority of special ops missions remain completely in the shadows, hidden from external oversight or press scrutiny. In fact, aside from modest amounts of information disclosed through highly-selective coverage by military media, official White House leaks, SEALs with something to sell, and a few cherry-picked journalists reporting on cherry-picked opportunities, much of what America’s special operators do is never subjected to meaningful examination, which only increases the chances of unforeseen blowback and catastrophic consequences.
      
The Golden Age
“The command is at its absolute zenith. And it is indeed a golden age for special operations.” Those were the words of Army General Joseph Votel III, a West Point graduate and Army Ranger, as he assumed command of SOCOM last August. ...


The command, and especially JSOC, has also forged close ties with the Central Intelligence Agency, the Federal Bureau of Investigation, and the National Security Agency, among others.


4---The Fed's Game in a Nutshell: QE isn’t dying, it’s morphing , Nomi Prins


According to call report data compiled by the extremely thorough website www.BankRegData.com, nearly 97% of all bank trading assets (including US Treasuries) are held by just 10 banks, led by JPM Chase with 43.80% and followed by Citigroup at 24.51% of all bank trading assets.

Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt.

Just seven banks comprised nearly all ($70.5 billion) of this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the third quarter of 2014, Citigroup, with $95 billion, was the largest holder of US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at $37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds $25.3 billion and JPM Chase holds $15 billion US Treasuries...

But, the recent timing here is key. Banks only started buying US Treasuries in earnest when the Fed announced its tapering plans. Thus, not only are they participants in the ZIRP game as recipients of cheap money, they are complicit in effecting monetary policy. As the data analyzed so expertly by Bill Moreland at www.BankRegData.com makes clear, there has been no taper.  Thus, the publicized reason for tapering – better job and economic growth – is also bogus.

During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land neutral. With such orchestration to keep rates down and the prices of US Treasury securities up, all the talk about whether the labor force is strengthening or inflation exists or not is mere show. Banks haven’t even propped up the labor market in their own industry. They chopped 11,400 jobs last quarter. In the past two years, they cut 57,236 jobs.  

No successful candidate in either political party mentioned any of this during the mid-term elections. Yet, our political-financial system has gone from the dysfunctional to the failed to the surreal. Speculation, once left to individuals and investors, is now federally sponsored, subsidized and institutionalized.  When this sham finally buckles and the next shoe falls and rates do eventually rise, the stock market will tank, liquidity will die, and the broader economy will plunge into a worse Depression than before. We are not there yet because of these coordinated moves and the political force behind them. But we are on a precarious path to that inevitability.  


In 1994, 66.9 million viewers tuned in to watch President Bill Clinton's State of the Union. This year, 33.3 million Americans watched Obama's latest State of the Union. About the same number of Americans watched the President's September speech on the Islamic State...

A network insider tells Playbook: “There was agreement among the broadcast networks that this was overtly political. The White House has tried to make a comparison to a time that all the networks carried President Bush in prime time, also related to immigration [2006]. But that was a bipartisan announcement, and this is an overtly political move by the White House.”...


When you're already losing revenue, giving the president the spotlight isn't always the best business decision. Or ever the best business decision.


6--Republicans Change Rules; Democrats Change Stripes, Jack Rasmus


Reports leaking in recent days about his forthcoming 2015 address suggest this week he’ll offer proposals that he should have raised six years ago. Now we’ll hear them because there’s no ‘chance in hell’ they’ll ever get passed the next two years with the Congress solidly Republican, and Obama knows it.  But the proposals will make for good campaign material for the Democrats in the next national election cycle, including presidential elections in 2016, which has already begun. And that’s what it’s all about.


With the lowest low voter turnout last November 2014 in over 70 years, at a mere 36%, Democrats are running scared. They’ve earned it.  Last November 2014 their major constituencies voted with their feet. Or perhaps we should say they conducted a sit-down strike, staying home, on their butts, and didn’t turn out to vote for Democrats. The Obama strategy of the past six years of ‘propose little and deliver less’ has cost him and the Democratic Party so far both houses of the US Congress. And polls show it may also cost them the presidency next time, since they’re already in a ‘come from behind’ position for the coming presidential race in 2016.


So the next two years Obama, and what remains of Congressional Democrats, will step up the rhetoric and ‘talk the talk’ after having refused to ‘walk the walk’, as they say, in the previous six years. They’ll put on their phony paper hats and march around holding their placards of progressivism, and start the process and cycle of fooling the people all over again (aka lying). It all starts in earnest with the upcoming SOTU address by the President this week


7--Oil's plunge to siphon Gulf petrodollars from global markets, A business
8--Russia Abandons PetroDollar By Opening Reserve Fund, oil price
9--Petrodollar drought is new risk for markets, Reuters
10--The upcoming petrodollar bifurcation risk?, FT


One of the still to be appreciated side-effects of falling oil prices is a reduction in so-called petrodollar recycling by oil producers.
As we’ve already noted, there are analysts who believe petro-induced liquidity shortages may already be impacting certain eurodollar markets. Furthermore, there’s also the fact that as liquidity shortfalls manifest in external markets, the opposite could become true for internal US markets. So, just as the dollar liquidity tap gets switched off externally, it gets turned on with gusto back at home.
But Bank of America Merrill Lynch’s Jean-Michel Saliba gets to the same point somewhat differently.
As Saliba noted last week (our emphasis):
Lower oil for longer could imply material shifts in petrodollar recycling flows. Petrodollar recycling through the absorption channel has generally been USD negative, helping an orderly reduction of global imbalances though greater domestic investment. Although recycling through the financial account is less well understood, the bulk has likely, directly or indirectly, ended up in US financial markets and has thus been USD-positive. A prolonged period of low oil prices is thus likely to lead to lower petrodollar liquidity with, in time, an allocation shift towards more inward-looking repatriation and financing flows, in our view.

Saliba’s view is based on the presumption that the majority of petrodollars have always tended to be repatriated back into onshore US investments via the financial account, supporting the dollar in the long run and sterilising oil receipts domestically. Thus, fewer dollars going out to petrodollar nations most likely means fewer chances of those dollars being reinvested in US financial markets, leading to a weakening dollar effect in the long run.
From Saliba:
Lower oil for longer could imply material shifts in petrodollar recycling flows. Every US$10/bbl drop in oil prices shaves off US$70bn (4.2% of GDP) from GCC current account balances. History suggests GCC fiscal adjustment only occurs with a variable lag, which would imply a sticky absorption channel through still elevated imports in the near-term. The GCC external breakeven oil price currently stands at cUS$60/bbl, which would only make the region a net external creditor to the extent our forecast of a material rebound in oil prices in 2H15 plays out. The regional fiscal breakeven oil price stands at cUS$85/bbl, suggesting the GCC is set to run a fiscal deficit on aggregate, the bulk of which is likely to be financed through a drawdown of foreign assets currently held abroad, we think.
If Saliba is correct then we can expect a drawdown of foreign assets held abroad by GCC states, which should lead to greater dollar absorption via the use of oil export receipts to finance imports of goods and services from DM states. Which means this chart could be begin to adjust the same way it did during the 1980s gluts:

As a reminder this is what the dollar did during that period:

So a pop first, and then a crash.
Whilst there were obviously different variables in place in the early 1980s, the point still stands that before we get any dollar weakness we’re likely to experience an external (eurodollar) dollar liquidity shortage that eats external reserves and pops the dollar on a trade-weighted basis, but at the same time creates an inflationary effect in the domestic US economy.
Cue Volcker?


11--Ukraine opens offensive against pro-Russian separatists in the east, wsws


The Donetsk airport is a strategic foothold in the ongoing fighting between the Kiev regime and separatist forces. The regime in Kiev and the leaders of the self-proclaimed Donetsk People’s Republic both fear that the airport could be used to fly in supplies and reinforcements if either side is able to solidify control. The airstrip is reportedly still in good enough condition to support military supply flights....


On Monday, Zakharchenko told the press that Kiev had broken the Minsk ceasefire agreement and added, “At no point over the course of this conflict have we had to withstand such massive heavy artillery strikes the likes of which Donetsk and the surrounding regions, as well as Gorlovka, have survived over the past 24 hours.”
Ukrainian military forces shelled Donetsk with mortars and Grad rockets, damaging residential buildings, a bus station and a shop, and killing at least five civilians over the weekend. On Monday a mortar shell hit Donetsk’s Central Clinical Hospital No. 3, blowing out the windows. While there were no reported casualties, all of the patients had to be evacuated to other hospitals.


12--The legitimization of Marine Le Pen, wsws


The promotion of Le Pen is part of a broader elevation of fascistic and extreme right-wing organizations internationally. Last year, the United States and Germany worked with the Right Sector and Svoboda—organizations that celebrate the Nazi collaborators in Ukraine during World War II—to overthrow the pro-Russian government of Viktor Yanukovych, an operation that was presented across the political establishment as a movement for democracy....


She then calls for effectively scrapping freedom and human rights in order to wage political war on France’s five-million-strong Muslim population, proposing “a policy restricting immigration,” new policies to strip people of citizenship, and a fight against “communalism and ways of life at odds” with French traditions.
While providing a political platform for Le Pen, the Times does not bother to inform its readers of her political pedigree. The FN was formed in 1972 by former supporters of the World War II Nazi collaborationist Vichy regime and defenders of French colonial rule in Algeria. It is notorious for its anti-Muslim and anti-Semitic racism, its virulent nationalism, and its thuggish attacks on political opponents.


13--Israel's Golan Attack Turns Heights Into An Active Resistance Zone, MOA


14--These are not the dollars you’re looking for, FT


we are, nevertheless, at a point where the fall in oil prices is beginning to stifle an important channel of US dollars to foreign markets, markets which happen to be increasingly exposed to dollar strength due to their acquisition of major dollar denominated liabilities throughout the years when financing in the currency was cheap. Many of which liabilities, we should add, are not captured by BIS capital flow data due to the use of offshore subsidiaries....


From UBS back in June:
In total, the sovereign wealth funds of Norway, Saudi Arabia, Abu Dhabi, Kuwait, Qatar, Algeria and Russia currently hold around $3.5trn of petrodollars. This is less than China’s $4.0trn of foreign exchange reserves. But it is still a large pool of assets whose allocation will affect financial markets and exchange rates.
In short, modest rises in energy prices are likely to support risk assets
...
15--U.S. Won’t Intervene in Oil Market  , Bloomberg


The U.S. won’t intervene in the oil market amid falling crude prices, according to Amos Hochstein, the U.S. State Department’s energy envoy.
The U.S. will let “the market” decide what happens, Hochstein said in an interview at a conference in Abu Dhabi yesterday. Hochstein is special envoy and coordinator for international affairs at the State Department’s Bureau of Energy Resources.


“When people ask the question ‘what will the U.S. do?,’ it’s really the market that’s going to have to decide what happens,” Hochstein said. “This is about a global market that is addressing the supply-demand curve.”


Asked what the U.S. could do about falling prices and instability in oil markets, he said: “We do have mechanisms to work with our partners around the world if something extreme happens, but that’s not where I think we are and I think the markets so far can adjust themselves.”
Oil prices have dropped 53 percent in the past year as growing production from the U.S., Russia and the Organization of Petroleum Exporting Countries overwhelmed demand. The International Energy said last week that the effects on U.S. production are so far “marginal.”


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