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

Saturday, December 26, 2015

week ending Dec 26

Mission Accomplished  - The image of George W on the flight deck of the USS Abraham Lincoln comes to mind in much of the reaction to this week's decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a "concluded experiment" and the "dawning of a new era," few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq. In its initial story of the day's events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is "ending an era of easy money that helped save the nation from another Great Depression." Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page. Historically, the Fed has begun its tightening cycles during the early stages of expansions, when the economy had enough forward momentum to absorb the headwinds of rate increases. But that is not at all the case this time around. Prior to the recent Great Recession, there had been six recessions since 1969, and over those episodes, on average 13.3 months passed from the time the recession ended to when the Fed felt confident enough in the recovery to raise rates.  But after the recession of 2008 - 2009, the Fed waited a staggering 78 months to tighten the monetary levers. Those prior tightening cycles also occurred at times when GDP was much higher than it is today. Over the prior six occasions GDP, in the quarter when the Fed moved, averaged a robust 5.3%. While the current quarterly GDP is still unknown, the data suggests that we will get a figure between 1% and 2% annualized.

Christmas Present - Kunstler -- Turns out that the vehicle the Federal Reserve’s Open Market Committee was driving in its game of “chicken” with oncoming reality was a hearse. The occupants are ghosts, but don’t know it. A lot of commentators around the web think that the Fed “pulled the trigger” on interest rates to save its credibility. Uh, wrong. They had already lost their credibility. What remains is for these ghosts to helplessly watch over the awesome workout, which has obviously been underway for quite a while in the crash of commodity prices (and whole national economies — e.g. Brazil, Canada, Australia), the janky regions of the bond markets, the related death of the shale oil industry, and the imploding hedge fund scene. As it were, all credit these days looks shopworn and threadbare, as if the capital markets had by stealth turned into a swap meet of previously-owned optimism. Who believes in anything these days besides the allure of fraud? Capital is supposedly plentiful these days — look how much has rushed into the dollar from the nervous former go-go nations with their wobbling ziggurats of bad loans and surfeit of production capacity — but what actually constitutes that capital? Answer: the dwindling faith anyone will pay you back next Tuesday for a hamburger today. We now enter the “discovery” phase of financial collapse, where things labeled “capital” and “credit” turn out to be mere holograms. Fed Chair Janet Yellen herself had a sort of hologramatic look last Wednesday when she stepped onto her Delphic platform to reveal the long-heralded interest rate news. Perhaps Mrs. Yellen is a figment conjured by George Lucas’s Industrial Light & Magic shop (now owned by Disney). What could be more fitting in a smoke-and-mirrors culture? Anyway, the rude discovery that capital is not what it has appeared to be is now underway, with the power to derail political systems and societies.

The Fed Has Delivered Far More Than Just A Lump Of Coal This Time -- If one meme has been constant these subsequent years since the great financial melt down of 2008 it’s been: BTFD (buy the dip) Not just some dips – but every dip. And why not? Wall Street didn’t need any secret decoder ring to read the hidden message that laid within. i.e., “The Fed’s got your back so buy, buy, buy!” And they did horns-over-hooves tripling the values of many of the major indexes sending them to never before seen in the history of mankind highs. Even the dot-com era highs were taken out. And all of it, and I do mean – all of it – on fairy-tale reporting of economic measurements. The problem with all of this is that it’s now becoming apparent to everyone. The amount of mal-investment along with just how intertwined all the subsequent carry trades and more is becoming frightfully obvious and can no longer be hidden from view. The real problem now facing the Fed. which I believe they themselves did not fully comprehend was the extent in which all of this was: so blatantly obvious. Again: to anyone who truly wanted to look. Without the Fed’s interventionism – there is (and was) no market. And now with the raising of rates; no one will be able to miss or avoid that fact any longer. No matter how hard they try. This past Wednesday they unwittingly threw back their own curtain and implied, “See, we fixed it. Nothing to see here. The economy is just fine. So – we’re raising rates” to what appeared to be thunderous applause. However, what that motion truly revealed was not some blank or empty space. No, what they unknowingly revealed was a caged monster whose door just came unhinged. The resulting consequences began to bear its teeth Thursday and Friday. Yet, figuratively, that monster is still within the theater. The ensuing days is probably when this beast actually hits the streets, as in Wall Street. Then, all bets are off on exactly what mayhem we’ll see as a result. However, what we do know is this: It ain’t gonna be a present anyone wanted under their tree. Suddenly we’re finding out (much like cockroaches) when you see one nasty issue – there’s many more just hidden from view. No where is this analogy more fitting then what is currently taking place in the High Yield space. e.g., junk bonds. First there were signs of stress just weeks ago. Then almost overnight (literally) many woke to the news that their “investments” were suddenly gated. Gated as in: Want your money? Sorry, maybe later, if not much later along with maybe not worth that much at all. Thanks for investing!

Is This The Real Reason Behind Yellen's Rate Hike: An $11 Billion Handout To Foreign Banks By The Fed - As a result of the Fed's balance sheet expanding to $4.5 trillion over the past 7 years, the most direct consequence has been the increase in excess reserves held at various banks to just over $2.5 trillion. This, as we have shown before using the Fed's H.8 data, means that cash held by various commercial banks has risen proportionately, and as shown in the chart below, there has been a direct correlation between the amount of excess reserves in the system (shown by the black line) and bank cash holdings. One thing that stands out in the chart above is that while $1.4 trillion of this cash can be found at domestic US banks, both large ($1.06 trillion) and small ($370 billion), a whopping $1.15 trillion remains parked at foreign banks operating in the US. This differential can be seen in the chart below. While the reasons for disproportional allocation of cash within foreign banks has been discussed over the years ("Where The Fed's Excess Reserves Are Going: 51% Foreign Banks; 49% Domestic"), and is largely driven by the FDIC's decision several years ago to levy a 15bps deposit insurance assessment from large US bank holding companies, the outcome is clear: nearly half of all Fed excess reserves are parked with foreign banks.Who benefits from this? Almost exclusively, the banks who continue to park their excess reserves at the Fed (whether or not they use the collateral as risk assets to corner markets like JPM did with its London Whale is irrelevant) and collect 0.5% on said cash. Nobody more so, however, than foreign banks.

Big Winners as Fed Raises Rates: Foreign Banks - WSJ: Some of the biggest beneficiaries of the Federal Reserve’s recent interest-rate increase will be foreign banks. Units of foreign banks this year received nearly half the roughly $6.25 billion in interest the Fed paid banks on the money, called reserves, they park with the Fed, the central bank’s data show. Those institutions control just about 15% of all bank assets in the U.S. The Fed’s interest payments to banks are likely to roughly double next year because in mid-December it raised the rate it pays on reserves to 0.50% from 0.25%. The amounts could rise even more in coming years if the central bank continues lifting the rate, called the interest on excess reserves rate or IOER. Foreign banks receive a disproportionate share of the interest payments because they own an outsize share of total reserves. U.S. branches and agencies of foreign banks had $881 billion of reserves as of June 30, according to Fed data, accounting for about 35% of total reserves. Look at the figures away from month-end financial-reporting dates, and the total is even higher: For the week ended Dec. 2, foreign firms had parked closer to $1.2 trillion at the Fed, or 47% of total reserves.   Both foreign and domestic banks can borrow money overnight at low short-term rates and park them at the Fed at a higher rate, earning a profit or “spread.” But for some foreign firms, the spread can be larger because they often don’t have to pay the FDIC fees.

Implementing monetary policy in 2016 -- On Wednesday the Federal Reserve announced that it is increasing its target for the fed funds rate to a new range of 25 to 50 basis points (0.25% to 0.5% annual rate). How does the Fed plan to accomplish this, and what does it mean for other interest rates?  Instead of open-market operations, one of the key new tools of monetary policy is the interest rate that the Federal Reserve pays on deposits kept overnight on account with the Fed. This rate had been 25 basis points and was raised to 50 basis points on Wednesday. One’s first thought would be that this interest rate should put a floor under the fed funds rate.  But it’s clear that the system hasn’t worked that way. The average fed funds rate over the last two years has only been around 10 basis points, despite the 25 bp banks could earn just by sitting on the excess reserves.  So in addition to raising the interest rate on reserves, the Fed announced Wednesday that it will offer to pay 25 basis points on reverse repurchase agreements to an expanded list of counterparties that includes the Home Loan Banks, Fannie, Freddie, and a host of money market funds. The Fed intends to keep the fed funds rate within a given target range (currently 25 to 50 basis points) by setting the interest on reserves to the upper end of the range (now 50 basis points) and the offer rate on reverse repos to the lower end (now 25 basis points).  Is it going to work? As seen in the first graph above, the changes certainly seemed quite effective on the first day of operation, with the average rate on fed funds loans jumping from 15 basis points on Wednesday to 37 bp on Thursday. But other interest rates actually fell on Thursday, with the yield on 3-month Treasuries falling from 27 to 23 bp and that on 10-year Treasuries falling from 2.30% to 2.24%. Was this some kind of perverse market reaction to the change? The answer is not at all. Financial markets are forward looking. Wednesday’s move by the Fed caught no one by surprise.

The Fed doesn't have a magic wand - Suppose I put a digital sign outside my house, with "Sumner's fed funds rate target" and a number. And suppose I adjusted the target rate from 0.25% to 0.5% last week, right at 2pm on Wednesday. Would I have caused the fed funds rate to increase? Obviously not. So why do people assume the Fed controls market interest rates?The Fed has tools that I don't have, which allow it to influence market interest rates. They can adjust the size of the monetary base, or they can influence the demand for base money. The latter can be done via changes in interest on reserves or changes in reserve requirements. But prior to October 2008 IOR did not exist, and the Fed found reserve requirements to be too clumsy to use as an effective policy tool. That simplified things, as it means that prior to October 2008, the only way that the Fed could directly influence market interest rates was by adjusting the supply of base money. One way we know this to be true is that the Fed asked for permission to adopt IOR precisely because in October 2008 they wished to target interest rates at a level that would have required a much smaller monetary base than they preferred.  So obviously the Fed does not have complete control over interest rates---other forces will move them around even if the Fed is not doing anything to the monetary base. Now here's where people get confused. Because the Fed can influence rates, they assume that any movement in rates is caused by the Fed, as if it had a magic wand. I suppose there is a sense in which that is true, as there is always some counterfactual policy that would have produced a different path of interest rates. But it's not true in the sense that people assume.  The Fed doesn't lower rates to make more money available, they (sometimes) make more money available to lower rates. But at other times rates fall because of market forces, as there is no increase in the amount of money in circulation. Here are the monetary base and interest rates on August 1, 2007:

Wait A Minute... Why Is The Fed Continuing QE? - As expected, the interest rate was hiked by 0.25% citing better circumstances on the US labor market, and this move was widely anticipated and expected. What’s more important than the effective rate hike, are the comments surrounding this decision. The Federal Reserve has acknowledged the inflation rate hasn’t reached the eyed 2%  yet (well, at least not officially), and it will continue ‘to monitor actual and expected progress toward its inflation goal’. The choice of words is pretty important as the Federal Reserve also said it expects the economic conditions to remain ‘evolve in a manner that will only gradual increases in the federal funds rate’. In other words, the American economy isn’t ready yet for more rate hikes, and that’s the main reason why the markets were so enthusiast right after the announcement was published. Maybe even more important was the statement in the final paragraph, which was a real ‘aha-erlebnis’. Despite increasing the interest rate, pretending the situation of the American economy is much better now, the Federal Reserve said it would continue to reinvest the proceeds of the maturing agency debt and mortgage backed securities as well as the income on existing securities into new ones. This basically is a continuous ‘soft’ Quantitative Easing, something we already pointed out in a previous column, published in October 2014.  As you can see on the previous image, the total value of the mortgage-backed securities on the balance sheet of the Federal Reserve continues to increase. Yes, it has slowed down, but if you’d zoom in on the one-year chart, you’ll clearly see the Fed’s balance sheet is still expanding and since the first week of May, the amount of MBS’ on the balance sheet has increased by an additional 2%. And if you’d look at the size of the total balance sheet of the Federal Reserve, you’ll clearly see the balance sheet hasn’t been reduced but actually has increased in the past few months. Granted, the increase is less outspoken, but the total balance sheet has expanded by roughly 1% in the past six months. Not exactly a clear sign the Federal Reserve ‘really’ believes in the US economy.

Fed's Balance Sheet 23 December 2015 Grows Marginally: Fed's Balance Sheet week ending balance sheet was $4,458 trillion.. This ending balance is down from the record $4.476 trillion for week ending 14 January 2015 and is up from the $4,452 trillion for last week. Note that on the 29 October 2014, the Federal Reserves governing board (FOMC) stated that .... ...the Committee decided to conclude its asset purchase program this month [October 2014].  The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows - continue reading >>

Repo Experts Stumped: How Could Fed Hike Without Draining ANY Liquidity: "This Is A Market By Decree" -- While it took the equity markets over 24 hours to wake up to the realization that the first Fed tightening in 9 years is actually just that, and that not only monetary conditions will progressively get more constrictive especially if the Fed is intent on 4 more hikes in 2016, but that P/E multiples will contract by at least 3% according to a still optimistic Goldman Sachs, something far more interesting happened in repo markets, where the consensus expectation was that the Fed's rate would be accompanied by a major liquidity drain via reverse repos. Recall that two weeks ago we cited repo-market expert E.D. Skyrm who calculated that moving general collateral higher by 25bps would require the Fed draining up to $800 billion in liquidity: "In 2013 on my website, I calculated that QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity."Then on Wednesday morning Citigroup opined that the liquidity drain could be substantially greater:  So what happened? As we reported a little after 1:15pm on Thursday when the details of the Fed's first post-hike reverse repo operation were revealed, something very strange and unexpected happened: not only did the Fed not drain $1 trillion, or $800 billion, or even $310 billion, the Fed did not drain any incremental liquidity at all!

Fed Watch: What Is The Fed's Expectation For Financial Markets? -- David Keohnae at FT Alphaville points us toward a JPM research note raising the prospect of a reappearance of Former Federal Reserve Chair Alan Greenspan’s “conundrum.” From the note:  If long-term interest rates matter more than short-term interest rates, will Fed’s current and prospective rate hikes matter much? The answer is yes if long-term interest rates respond to these short-term rate hikes. But this transmission is far from given, especially given the Fed’s decision that reinvestments would not be halted until the normalization of the funds rate is “well under way” The lack of transmission or “bond conundrum” during the previous hiking cycle of 2004-2006 was attributed to global saving forces emanating from DM corporates and EM economies. Could these saving forces prevent once again rate hikes from transmitting to longer-term interest rates?  Keohane links to fellow Alphaville write Matthew Klein, who describes the “conundrum” as bogus. Klein draws attention to the shape of the yield curve:   What happens to the yield curve, and how the Federal Reserve responds, is one of my big questions for 2016. Almost always, the yield curve flattens after the Fed begins a tightening cycle. Within a year, the spread between the 10- and 2-year treasuries is a mere 50bp or so:

The rate increase - So far, it looks like we have dodged a bullet.  Since the zero lower bound probably causes distortions even in forward rates, I thought there was a chance that when the rate hike was implemented, pulling forward rate expectations up off the zero lower bound, it would be associated with a relative decline in forward rates.  So, either there was no distortion as I had speculated that there might be, or the change in the distortion had been priced in before the hike announcement, or forward expectations are strong enough to counter it. I think the next concern to watch for is the discovery process as credit markets react to the higher interest rate on reserves.  If the rate hike has created a contractionary response in currency, bank credit, or excess reserve levels, we will learn this over time, and I would expect forward rates at the terminal end of the yield curve to decline.  Trends in mortgage lending are probably more important than any of this. In this graph, we can see that when the Fed backed off its rate hike plans in the first half of 2015 and the economy looked reasonably strong, the rising portion of the yield curve moved forward in time, in conjunction with expectations, and the monetary accommodation led to a general rise in the terminal end of the yield curve.  I would have liked to have seen the rate hike moved back to March or June.  I would hope that continued patience from the Fed would have pulled the long end of the curve up to 4% or 5%.  That would be normalization, if that's what we are going for.

The Fed Never Solved The Mystery Of The "Missing Inflation", And Now It Has A Big Problem –- Back in June, this website first "solved" the "mystery" behind America's missing inflation, when we showed that a record number of US renters are unable to afford housing, suggesting that record amounts of "disposable income" were being diverted for use as a shelter "tax" instead of being spent on true discretionary goods and services, leading (together with the Obamacare tax) to the broad and distressing decline in not only traditional retail sales and moribund consumer spending, and the "secular" economic slowdown observed over the past several years. We followed this in September with another expose titled  "The Mystery Of The "Missing Inflation" Solved, And Why The US Housing Crisis Is About To Get Much Worse" explaining why the Fed is about to make a historic mistake and unleash an even more acute housing crisis if it hikes into an economy where the only core inflationary "impulse" if that from rent inflation, at a time when median real household incomes have tumbled to levels last seen in 1989. As we explained in July, one major problem is that the Fed's measures of inflation are wrong, if not with malicious intent, then purely due to definitional purposes. But a bigger problem for the the Fed's measures of how the overall economy is doing (and/or overheating) is that the Fed telling the vast majority of Americans that inflation is negligible, leads to riotous laughter. The reason for this is a simple, if dramatic, one: the U.S. transformation from a homeownership society, to one of renters.

Bernie Sanders: We Need A "Full And Independent Audit" Of The Federal Reserve -- 2016 Democratic presidential candidate and U.S. Senator from Vermont Bernie Sanders wrote an op-ed for The New York Times on Wednesday calling for the Federal Reserve to be audited independently by the Government Accountability Office on an annual basis.  Meanwhile, Senate Majority Leader Mitch McConnell (R-Ky.) has scheduled a historic Jan. 12 vote on a bill, colloquially referred to as “Audit the Fed,” which was introduced by Sen. Rand Paul (R-Ky.). The bill would authorize the GAO to perform full audits of the Federal Reserve System. “To rein in Wall Street, we should begin by reforming the Federal Reserve, which oversees financial institutions and which uses monetary policy to maintain price stability and full employment. Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates,” wrote Sen. Sanders. He added, “What went wrong at the Fed? The chief executives of some of the largest banks in America are allowed to serve on its boards. During the Wall Street crisis of 2007, Jamie Dimon, the chief executive and chairman of JPMorgan Chase, served on the New York Fed’s board of directors while his bank received more than $390 billion in financial assistance from the Fed.  Next year, four of the 12 presidents at the regional Federal Reserve Banks will be former executives from one firm: Goldman Sachs.” Sanders called for the Glass-Steagall Act to be reinstated, a Depression-era banking regulation that created a wall of separation between consumer and investment banks prior to its repeal by former President Bill Clinton. He also suggested that the Fed should be prevented from providing incentives to encourage banks to sit on cash reserves.

The 6 major adverse shocks that have hit the U.S. macroeconomy since 2005 - DeLong - Talk to people at the Federal Reserve these days about how they feel about the institution’s performance during the seven very lean years from late 2008 to late 2015, and they tend to be relatively proud of how the institution performed. Almost smug. Why? Well, let me pull out my old workhorse-graph of the four salient components of U.S. aggregate demand since 1999: And let me run through the six major adverse shocks to the U.S. macroeconomy since 2005:  (1) The collapse of residential investment after the end of the mid-2000s housing bubble, in order of their size (-3.8% of potential GDP): (2) The wave of austerity–mostly state-and-local, but considerable at the federal level as well–hitting government purchases (-3.0% of potential GDP): (3) The collapse of business fixed investment in the aftermath of the financial crisis (-2.9% of potential GDP): (4) The blockage of the credit channel that prevented there from being much significant bounce-back to normal in residential construction (-1.8% of potential GDP): (5) The (closely-associated with (3)) collapse of exports as the effects of the financial crisis spread beyond U.S. borders (-1.8% of potential GDP): And (6) on a different graph (since it is not one of the four salient components), and also closely-associated with (3), the adverse shock to consumption as it became clear first that there was going to be a deep and then a long downturn (-1.8% of potential GDP):

Did the Great Recession Lead to the Great Vacation? - Dean Baker -Those of us unhappy with the Fed rate hike this month frequently point to the sharp drop in employment rates (EPOP) compared with the pre-recession level. The overall employment rate (the percentage of the adult population with jobs) is still down by more than 3.0 percentage points from pre-recession peaks. Even if the unemployment rate is not far above the pre-recession level, there remains a very large gap in the percent of the population that is working. This doesn't show up in the unemployment rate because many people have dropped out of the labor force and are not looking for work, and therefore are not counted as unemployed.   One response is that because of the aging of the population many baby boomers are now retired and have no interest in working. A way to get around this issue is to restrict the comparison to the prime age population, people between the ages of 25–54. These people are not likely to be retired. This gives us pretty much the same story: the EPOP for prime age workers was down by 2.9 percentage points in November compared with its peak pre-recession level. The next argument is that we have many prime age workers who have dropped out because they don't have the skills needed to find work in today's economy. This one might seem peculiar because these workers apparently did have the skills back in 2007 and the economy has not changed that much in the last eight years. But we can also test this one fairly easily. If the drop in labor force participation was explained by less-skilled workers leaving the labor force then we should see most of the drop in employment rate among less-educated workers, with little or no change in employment rates for more educated workers. That is not what the data show.

Chicago Fed: "Index shows Economic Growth Slowed in November" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows Economic Growth Slowed in NovemberLed by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to –0.30 in November from –0.17 in October. Two of the four broad categories of indicators that make up the index decreased from October, and three of the four categories made negative contributions to the index in November.The index’s three-month moving average, CFNAI-MA3, decreased to –0.20 in November from –0.18 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Slowed in November - "Index shows economic growth slowed in November." This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to –0.30 in November from –0.17 in October. Two of the four broad categories of indicators that make up the index decreased from October, and three of the four categories made negative contributions to the index in November.  The index’s three-month moving average, CFNAI-MA3, decreased to –0.20 in November from –0.18 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index, which is also a three-month moving average, increased to –0.20 in November from –0.25 in October. Thirty-seven of the 85 individual indicators made positive contributions to the CFNAI in November, while 48 made negative contributions. Thirty-nine indicators improved from October to November, while 44 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised downward from -0.04 to -0.17. The Chicago Fed's National Activity Index (CFNAI) is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.

Chicago Fed: US Economic Growth Eased In November - US economic growth in November remained below the historical trend rate for the second month in a row, according to this morning’s update of the Chicago Fed National Activity Index. Revised data for the benchmark’s three-month moving average (CFNAI-MA3) slipped to a negative 0.20 reading last month–down slightly from -0.18 in the previous month and the lowest since March. Although US economic activity decelerated in November, CFNAI-MA3’s current reading is still above the -0.70 tipping point that marks the start of recessions, according to Chicago Fed guidelines. Looking at the numbers before averaging, the Chicago Fed National Activity Index’s monthly value weakened to -0.30, the lowest since May. The monthly numbers are noisy, however, which is why the Chicago Fed recommends focusing on the three-month average for monitoring the business cycle. By that standard, the economy is still trending positive, albeit at a relatively subdued pace. Analyzing the updated CFNAI-MA3 data with a probit model shows that the probability is low (roughly 8%) that a recession started in November. The current risk estimate in the chart below is based on a probit regression that reviews the historical record of NBER’s business cycle dates in context with CFNAI-MA3. The low-recession-risk estimate aligns with last week’s update of business-cycle risk via The Capital Spectator’s proprietary indexes.

November 2015 CFNAI Super Index Declined Marginally. Well Below Expectations.: The economy's growth declined marginally based on the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average - and remains below the historical trend rate of growth (but still well above levels associated with recessions). The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - declined from -0.18 (originally reported as -0.20 last month) to -0.20. Three of the four elements of this index are in contraction. NOTE:

  • This index IS NOT accurate in real time (see caveats below) - and it did miss the start of the 2007 recession.
  • The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event.
  • The market (from Bloomberg) expected the monthly index value between -0.20 to 0.25 (consensus 0.15) versus the -0.30 reported.
  • This index is a rear view mirror of the economy.

Q3 GDP Revised Down to 2.0% Annual Rate --From the BEA: Gross Domestic Product: Third Quarter 2015 (Third Estimate)Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 2.0 percent in the third quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9 percent.The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.1 percent. With the third estimate for the third quarter, the general picture of economic growth remains the same; private inventory investment decreased more than previously estimated ...Here is a Comparison of Third and Second Estimates. PCE growth was unrevised at 3.0%. Residential investment was revised up from 7.3% to 8.2%.

Q3 GDP Third Estimate at 2.0%, Little Changed from the Second Estimate  -- The Third Estimate for Q3 GDP, to one decimal, came in at 2.0 percent, little changed from the 2.1 percent for the Second Estimate. Today's number was on par with most mainstream estimates, with forecasting 1.9% and forecasting 2.1 percent. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 2.0 percent in the third quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9 percent. The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment, and exports that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory investment and decelerations in exports, in PCE, in nonresidential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports. Real gross domestic income (GDI), which measures the value of the production of goods and services in the United States as the costs incurred and the incomes earned in production, increased 2.7 percent in the third quarter, compared with an increase of 2.2 percent in the second. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.3 percent in the third quarter, compared with an increase of 3.0 percent in the second. [Full Release] Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. We've also included recessions, which are determined by the National Bureau of Economic Research (NBER). Also illustrated are the 3.25% average (arithmetic mean) and the 10-year moving average, currently at 1.43 percent.

Q3 GDP 2.0% as Investment in Inventories Declined  - Q3 GDP has been revised to 2.0%.  This is a smidgen, a 0.1 percentage point lowering than the last estimate.  Most factors which make up GDP did not change much from the primarily estimate.  Changes in private inventories was where the revision occurred as they were revised from -0.59 to -0.71 percentage points of GDP.  Consumer spending and domestic demand are still muddling along with moderate growth.  The trade deficit subtracted over -0.36 GDP percentage points .  Local and State governments contributed a small amount of growth to GDP.  Investment in equipment added 0.57 percentage points to GDP. As a reminder, GDP is made up of: Y= C + I + G + (X-M)  where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the GDP component comparison in percentage point spread from Q3 to Q2.  Consumer spending, C was fairly healthy with a 2.04 percentage point GDP contribution.  Below is a percentage change graph in real consumer spending going back to 2000. Goods contributed 1.08 percentage points to GDP and within goods, durables was 0.47 percentage points.  Services was a 0.96 percentage point contribution, a significant revision downward from the advance report. Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon).  Imports and Exports, M & X were a -0.26 percent point contribution.  Trade activity remains at similar levels to Q2. Government spending, G contributed 0.32 percentage points to Q3 GDP with almost all of it, 0.30 percentage points, contributed by state and local governments spending and investment. Investment, I is made up of fixed investment and changes to private inventories.  The change in private inventories alone was a -0.71 percentage point contribution.  While revised downward from the primarily estimate, the advance Q3 GDP estimate was much worse, with a horrific -1.44 percentage point contribution.  Below are the change in real private inventories and the next graph is the change in that value from the previous quarter. Fixed investment is residential and nonresidential and was 0.60 percentage points of GDP contribution.  Nonresidential was a 0.33 individual percentage point contribution. Residential fixed investment was 0.27 percentage points to GDP.  The below graph shows residential fixed investment.  Nominal GDP:  In current dollars, not adjusted for prices, of the U.S. output,was $18,060.2 billion, a 3.3% annualized increase for Q3 from Q2.   In Q2, current dollar GDP increased 6.1%.

Third Estimate 3Q2015 GDP Revised Slightly Down. Corporate Profits Down.: The third estimate of second quarter 2014 Real Gross Domestic Product (GDP) was revised marginally downward to 2.0 %. This "decline" was mainly due to private inventories decreasing more than previously estimated.  Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 3Q2015, the year-over-year growth is 2.1 % - significantly down from 2Q2015's 2.7 % year-over-year growth. So one might say that GDP decelerated 0.6 % from the previous quarter. This third estimate released today is based on more complete source data than were available for the "second" estimate issued last month. (See caveats below.) Real GDP is inflation adjusted and annualized - the economy declined on a per capita basis. The table below compares the 2Q2015 third estimate of GDP (Table 1.1.2) with the advance, second and third estimate of 3Q2015 GDP which shows:

  • consumption for goods and services declined.
  • trade balance degraded
  • there was significant inventory change removing 0.7 % from GDP
  • there was slower fixed investment growth
  • there was little change in government spending

The arrows in the table below highlight significant differences between the second and third estimates (green is good influence, and red is a negative influence). [click on graphic below to enlarge]

What Changed in the Third-Quarter U.S. GDP Report – At A Glance -- The U.S. economy expanded at a 2.0% rate in the third quarter, a tad slower than a previously reported 2.1% gain, the Commerce Department said Tuesday. Economists surveyed by The Wall Street Journal forecast a 1.9% growth rate. The number is in line with the slow but unspectacular growth that has been a hallmark of the current recovery. The first estimate of fourth-quarter growth is due Jan. 29.The shift in the latest GDP reading once again came down to a volatile reading of business inventories. Tuesday’s report showed companies let their stockpiles dwindle more than previously estimated. That shaved 0.71 percentage points off the 2.0% growth rate from July to September. But it means businesses have likely had to place new orders in recent months, which could boost fourth-quarter GDP. Strong Dollar, Cheap Oil Weigh on Trade The stronger dollar, weak global demand and tumbling commodity prices weighed on trade in the third quarter slightly more than previously estimated. The report showed exports rose 0.7% from July to September, down from the first estimate of 0.9%, while imports rose 2.3%, up from the previous reading of 2.1%. Overall, net exports subtracted 0.26 percentage point from third-quarter, compared with an previous estimate of 0.22 percentage point. Underlying Domestic Demand Appears Steady A broader measure of economic output, highlighted by Fed Chairwoman Janet Yellen earlier this month and updated in Tuesday’s GDP report, suggests the U.S. economy is doing better than broader measures of output suggest. Final sales to private domestic purchasers, which measures spending and investment by U.S. businesses and households, strips out government spending, inventory swings and exports. That gauge advanced 3.2% in the third quarter, up from an earlier estimate of a 3.1% gain. Business Investment Revised Higher Businesses spent more than previously estimated in the third quarter. Nonresidential fixed investment–a proxy for business spending on structures, equipment and intellectual-property products–increased 2.6%, an upward revision to a previous reading of 2.4% though still much slower than the second-quarter’s 4.1% pace. The upward revision was largely thanks to a jump in investment in equipment, which rose 9.9%, the most since the third quarter of 2014.

US Economy Grew At 2.0% In Q3 In Final Estimate; Massive Inventory Overhang Remains A Risk For Future Growth - In today's anticlimatic economic print of the day, moments ago the BEA reported that Q3 GDP declined from 2.1% as per the first revision reported a month ago to 1.97%, fractionally higher than the 1.9% expected, as a result of a modest decline in Personal Consumption Expenditures as well as Private Inventories and Net Trade, offset by a fractional pick up in Fixed Investment, a category which will see far more downside in the quarters to come unless oil prices rebound, and the smallest possible increase in government spending. As the detailed breakdown chart below shows, there were no material changes among the key GDP categories. PCE printed at 3.0% in the final revision, same as a month ago, and above the 2.9% expected. Looking at the personal consumption components shows where the changes were: while Financial Services and Insurance saw an annualized drop of $9.4 billion to $729.5 billion, this was offset by another increase in recreation services ($3.1BN), Furnishings and Durable Household Equipment ($2.9BN), and Gasoline and energy goods which rose $1.5 billion. That said, the biggest risk remains in the one category we have flagged since the summer: Private Inventories, which while revised modestly lower from a change of $100BN in Q3 to $95.3BN, still suggest there is a massive inventory overhang heading into Q4 and 2016, one which will likely impact GDP by at least 1.5%-2% if not more once this long overdue inventory liquidation takes place.

U.S. economy set to grow less than 3% for the 10th straight year - The economy expanded a touch slower in the third quarter than previously reported, revised government figures show, but the path of growth is still the same: The U.S. running well below the historical norm more than six years into a recovery. Gross domestic product — the sum of all the activity in an economy — increased at a 2% annual pace from July to September, according to the government’s latest update. Previously the Commerce Department had said the U.S. grew at a 2.1% rate after a 3.9% increase in the second quarter. The slight downgrade was triggered by a larger trade deficit and a smaller buildup in inventories than earlier estimates showed. The U.S. expanded at a 2.2% rate through the first nine months of the year, and the economy is projected to grow at a similar pace in the fourth quarter that ends on Dec. 31. If so, the economy will have failed to reach 3% growth for the 10th straight year, marking the slowest stretch since the end of World War II. Historically the economy has expanded at a 3.3% rate. The government’s second update on GDP growth reflected a somewhat worse trade picture in the late summer and early fall. Exports rose a slower 0.7% instead of an earlier 0.9% estimate. And imports climbed 2.3% instead of 2.1%. Companies also rebuilt inventories somewhat less than the government had tallied. The value of inventories increased $85.5 billion, down from a prior $90.2 billion estimate. Inventories had jumped by $113.5 billion in the second quarter when the economy expanded at a much faster 3.9% clip. Spending on home construction rose at a faster 8.2% pace in the third quarter instead of 7.3%, the revised Commerce Department figures show. Most other figures in the GDP report were little changed. The increase in consumer spending stayed at 3%, for example, while business investment in structures such as office buildings was nudged up to 2.6% from 2.4%

Atlanta Fed Q4 GDP Forecast Tumbles To Lowest Yet, Sliding To 1.3% -- Moments ago, after the latest disappointing durable goods report, the Goldman economist team was the first to cut its Q4 GDP forecast from 2.2% to 1.9% (and down from 2.4% yesterday), saying "the durable goods report implied weaker capital spending and inventory accumulation for the quarter; details on November consumer spending were also slightly weaker than we had projected." But even with this downward revision by the traditionally optimistic sellside, it was clear the real number would be even lower: after all 1.9% was the Atlanta Fed's most recent "nowcast" as of December 16, before the latest disappointing data. Sure enough, according to the just revealed latest forecast by the most accurate forecaster of GDP, the Atlanta Fed, with all the latest data in hand, the US economy is now estimated to have grown just 1.3% in the fourth quarter, down from 1.9%, and the lowest print it has had throughout the forecast period which started in late October. From the Atlanta Fed: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.3 percent on December 23, down from 1.9 percent on December 16. After yesterday's third-quarter GDP revision and this morning's personal income and outlays release, both from the U.S. Bureau of Economic Analysis, the nowcast for fourth-quarter real consumer spending growth fell from 2.6 percent to 2.1 percent. The nowcast for real residential investment growth fell from 8.0 percent to 0.9 percent after yesterday's existing-home sales release from the National Association of Realtors.

4th Quarter GDPNow Forecast Plunges to 1.3% Following Housing and Other Data; What's Next? -- In the wake of recent data, the 4th quarter GDPNow Forecast dipped to 1.3% from 1.9% on December 16. From the Atlanta Fed: "After yesterday's third-quarter GDP revision and this morning's personal income and outlays release, both from the U.S. Bureau of Economic Analysis, the nowcast for fourth-quarter real consumer spending growth fell from 2.6 percent to 2.1 percent. The nowcast for real residential investment growth fell from 8.0 percent to 0.9 percent after yesterday's existing-home sales release from the National Association of Realtors."  I took one look at recent housing data and concluded GDP would take a big hit vs. prior expectations. And that's precisely what transpired given the oversized plunge in residential growth from 8% to 0.9%. But sometimes things do not turn out as appears intuitively obvious.  Such was the case following strong a construction report on December 1 in which the GDPNow model forecast took a dive only to recover on other data later, then plunge as we have seen today. For an explanation as to how this happens, please see Why Does GDPNow Model Sometimes Move Counter to Economic Releases? If Christmas sales are weak, 4th quarter GDP will be flirting with zero.

Atlanta Fed’s Q4 GDP Growth Estimate For US Tumbles To 1.3% -- Yesterday’s upbeat data for US personal income and spending delivered some holiday cheer, but the gains didn’t help the Atlanta Fed’s fourth-quarter GDP estimate. The fed bank’s widely followed GDPNow forecast for Q4 growth tumbled to a weak 1.3% (seasonally adjusted annual rate) in yesterday’s revision (Dec.23),down from the previous 1.9% projection. The update is a reminder that US economic growth appears on track to end 2015 with a whimper. If the new forecast holds, growth in the final three months of this year will continue to decelerate, slipping well below the already sluggish 2.0% pace in Q3:2015 and Q2’s strong 3.9% increase. The Atlanta Fed’s weaker revision follows The Capital Spectator’s soft Q4 GDP estimate of 1.5%, which as of this past Monday (Dec. 21) was below the GDPNow model’s forecast. It’ll be interesting (for all the wrong reasons) to see if other forecasters lower their estimates in the days to come. By some accounts, however, the current macro trend still looks upbeat. “The economy is not too cold, and not too hot, it is just right, Chris Rupkey, chief economist at MUFG Union Bank, tells Reuters. “The Fed can stay the course [for slow increases in interest rates] … no need to depart from a gradual pace given what we know currently about the economy.” The latest GDPNow estimate begs to differ. Nonetheless, it’s still not obvious that US recession risk has jumped into the danger zone. This week’s November updateof the Chicago Fed National Activity Index, for instance, signals that last month wasn’t the start of an NBER-defined recession in the US. Ditto for The Capital Spectator’s Dec. 18 profile of US business-cycle risk.

US Recession Callers Are Embarrassing Themselves - Through a combination of quackery, charlatanism, and inadequate utilisation of mathematics, callers for US recession in 2016 are embarrassing themselves. Again. The most prominent reason for recession calling may well be the Institute of Supply Management’s Manufacturing Purchasing Manager Index. The problem with this recession forecasting methodology is that it doesn’t work. The first problem is statistical. The squared correlation coefficient between recessionary state and ISM PMI is 0.33 (33%) with a standard error of 0.29 (29%). This means that, when you calculate the recession probabilities from ISM PMI, they are only good within +/- 29%. Ouch. The second problem is that of false positives. We can easily eyeball nine prior examples of the present implied recession probability being matched or eclipsed, but generating no recession. Ergo, using ISM PMI to forecast a recession is a Type I error. Finally, when the standard error of the model (29%) is most of the useful threshold for determining recessionary state (43%). And, of course, the last reading of the model (26.5%) is less than the standard error. If anyone tries to talk to you about recession probabilities using ISM PMI as data to back their argument, they’re doing it wrong.

Does The U.S. Government Create Money Just By Deficit Spending? -- Every sovereign nation can pass laws and enter agreements by which the public's sovereign power to issue the nation's money (the national money power) is legally delegated to a separate, autonomous system of money-issuers. It is autonomy over money that is negotiated away, not sovereignty itself. Sovereignty cannot be negotiated without surrender. Autonomy here is the keyword. There is an implication among certain monetary theorists today that no such delegation of the "money power" has been made in this country. This, despite the proof that the same government these theorists claim to be the 'monopoly - issuer' of the nation's money is $17 Trillion in debt to a consortium of private bankers who have legally claimed and execute the autonomous 'monopoly' issuing power. So, it just stands to reason that there can't be a sovereign government (public) monopoly over something (money) if that government has to borrow that something (money) from an existing private issuing monopoly. In the U.S. that is the Federal Reserve System, or to be more exact, the designated member banks of that system. Legislative Action Needed Of course, for most people, the logic outlined above simply implies a needed fix to restore the autonomy over the money system back to the sovereign that we empower to make our laws and govern. That is what today's modern monetary 'reformers' are trying to do. The reform we are trying to advance is a "public monopoly" over money issuance. This modern proposal is today as designed over twenty years by the American Monetary Institute (AMI) , and as proposed in 2011 as a Bill in Congress by Dennis Kucinich and John Conyers, The National Emergency Employment Defense Act (The NEED Act HR 2990 - 112th Congress). This 'public monopoly issuance' is also precariously close to what some of the smartest kids in the room believe happens now, under Modern Monetary Theory (MMT).

Congress' spending binge: $700 billion in unpaid tax cuts - Rand Paul thinks the national debt is the “greatest threat” to America’s future. Donald Trump warns that the nation is at risk of becoming “a large-scale version of Greece.” And Marco Rubio says the debt will “shackle future generations.” But on Capitol Hill this week, just hours before they jet away for the holidays, the GOP-led Congress is going on a $680 billion spending spree — none of which will be paid for by budget cuts or other tax offsets. And all of which will be added to the national debt, according to budget watchdogs. Story Continued Below “We are doing damage to the fiscal health of the country by borrowing this mind-boggling amount at a time when the debt is so high,” said Maya MacGuineas, president of the bipartisan anti-debt nonprofit Committee for a Responsible Federal Budget. “It’s absolutely at odds with the priority Republicans are making — the debt — when they’re campaigning, and with the Republican budget that was passed out of the House.” For the GOP presidential candidates, the $18 trillion national debt remains a central campaign talking point. But after years of relative fiscal austerity, including enactment of relatively modest spending rollbacks, GOP lawmakers are steaming toward passing a mammoth $680 billion tax package without offsets. It would make permanent a host of temporary tax breaks commonly called “extenders” — and is also chock-full of goodies for specific business interests and constituents.

U.S. Corporations Don’t Need Tax Breaks on Foreign Profits -- Many Americans have expressed outrage over Pfizer’s plan, through its merger with Allergan, to move its tax home from the United States to Ireland. Now, in a New York Times op-ed, Carl Icahn, the billionaire corporate raider turned hedge fund activist, has joined the chorus. He labels the Pfizer-Allergan deal a “travesty,” blaming the U.S.’s “uncompetitive international tax system.” The purpose of Icahn’s article is to promote a proposal by Sen. Chuck Schumer, D-NY, and Sen. Rob Portman, R-OH, to lower the U.S. tax rate on profits that U.S. companies repatriate from abroad, from 35% to 10% or lower. U.S. corporations are holding $2.6 trillion beyond our borders, waiting for a tax break before bringing the money home. The proposal, according to Icahn, would generate an estimated $200 billion in federal tax revenues on those holdings. That, he says, “would allow companies to reinvest the nontaxed portion in the United States, creating thousands of jobs.” That does not sound like too much job-creation bang for $2.6 trillion in repatriated bucks, but don’t believe for a moment that job creation is what Icahn has in mind. All the evidence says that the proposed Schumer-Portman tax break on repatriated profits would be used to further enrich people like Icahn, who make their fortunes by extracting value from companies, not by creating value in them.  We’ve seen this movie before. In 2003, the Bush Administration pushed through the Homeland Investment Act, which provided a one-year-only tax break on repatriated profits, with the stipulation that these profits had to be used in the U.S. for investments that create jobs. U.S. corporations responded by bringing back $299 billion in profits in 2005, compared with an average of $62 billion from 2000 to 2004 and a subsequent decline to $102 billion in 2006.

Hindering the S.E.C. From Shining a Light on Political Spending - The omnibus budget agreement adopted by Congress includes a provision that prevents the Securities and Exchange Commission from issuing a rule next year that would require public companies to disclose their political spending.  This unusual Congressional intervention in S.E.C. rule-making is a troubling development both for investors and for the agency.  The S.E.C. has long had broad authority to decide what information public companies must disclose to their investors. When Congress first mandated such disclosure authority in 1934, it expressly chose to give the agency wide discretion to make such decision.  In recent years, investor interest in receiving information regarding whether, and how, public companies spend shareholder money on politics has been growing. Shareholder proposals requesting disclosure of such information have been the most common type of shareholder proposal at public companies. In response to investor concerns, many companies in the Standard & Poor’s 500-stock index have begun to disclose information on their political spending voluntarily. Still, for investors to obtain information about the large number of existing public companies, and to receive such information in a uniform and consistent manner, an S.E.C. rule would clearly be necessary.

Right Wing Vendetta Legislated Into Law in New Omnibus Spending Bill - Corporate front groups got a big fat Christmas present in the recently passed Omnibus spending bill. Congress is hoping that voters are too distracted with holiday preparations to look at the fine print in its more than 2,000 pages. Somehow this so-called “spending” bill has legislated into law a right-wing vendetta against the Internal Revenue Service. For example, the IRS is effectively stripped of its ability to writes new rules on 501(c)(4) organizations. Those organizations are increasingly being used as corporate-funded political front groups masquerading as social welfare organizations: The new Omnibus law reads as follows: “During fiscal year 2016: (1) none of the funds made available in this or any other Act may be used by the Department of the Treasury, including the Internal Revenue Service, to issue, revise, or finalize any regulation, revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code of 1986 (including the proposed regulations published at 78 Fed. Reg. 71535 (November 29, 2013)); and (2) the standard and definitions as in effect on January 1, 2010, which are used to make such determinations shall apply after the date of the enactment of this Act for purposes of determining status under section 501(c)(4) of such Code of organizations created on, before, or after such date.” This new legislation now provides legal certainly to these tax-exempt groups that corporate donors will not have to be disclosed and massive amounts of political money can sluice through their operations to mount major television political ad campaigns heading into the Presidential election of 2016. Three individuals that you can bet are cheering this new legislation are Charles and David Koch and Cleta Mitchell.

IRS gains power to get tax scofflaws' passports revoked: It might be wise to pay your overdue income taxes before packing for that European river cruise. A new enforcement provision passed by Congress and signed into law earlier this month allows the government to revoke the passports of seriously delinquent tax scofflaws — people who owe more than $50,000 to Uncle Sam. "You could be on your honeymoon and they could revoke your passport," said Tom Wheelwright, a certified public accountant and chief executive officer at ProVision Wealth Strategists in Tempe, Ariz. Some details still need to be worked out, but the new passport rule indicates the government wants to get serious about collecting unpaid tax debts. The IRS reported 12.4 million delinquent accounts owing nearly $131 billion in assessed taxes, interest and penalties in 2014. In addition to going after delinquent taxpayers by revoking their passports, the FAST Act highway-transportation bill signed by President Obama on Dec. 4 also gives private debt collectors a shot at forcing taxpayers to make good on their debts. The act includes a mandate that the Internal Revenue Service turn over certain unpaid tax delinquencies to private debt collectors. The passport-revoking provision allows the Department of the Treasury and the IRS to authorize the State Department to take away U.S. passports from individuals with seriously delinquent tax liabilities. That's defined as those greater than $50,000 and for which the IRS has filed a lien or levy, according to Matthew D. Lee of law firm Blank Rome. In a blog, he described the passport-revoking provision as a "powerful tool to force tax compliance." Affected taxpayers would receive written notice.

When Wikileaks Works: Comparing the Leaked Draft of the IP Section of the TPP to the Official USTR Text and the Consequences to Termination Rights in “Phonograms” - With the recent official release by the U.S. Trade Representative of the long-awaited full text of the Trans-Pacific Partnership deal, the American public was finally able, if willing, to delve into its over 6,000 pages to see if the previously-Wiki-leaked draft language had made it into the final version. In a previous post, I cited and discussed a paragraph in the intellectual property section of one such leaked draft that would contravene U.S. copyright law to specifically include sound recordings in the limited list of works that could be created as works made for hire under the U.S. Copyright Act of 1976. The significance of such a provision involves its effect on recording artists’ rights to terminate a transfer of copyright in a sound recording, which I’ve discussed in another previous post. As it turns out, the versions match up; well, almost. First, the heading, “Contractual Transfers” has been added to the section. This is interesting because ownership of a work arising out of a work-made-for-hire situation is not a transfer at all; rather, authorship vests in the employer or contract-hirer, and never in the creator. Second, paragraphs in the leaked version had contained parenthetical notations which documented objections or supplemental language submitted by the representatives of individual nations. Section QQ.G.9 of the leaked draft had included one such proposal, with Chile as its sole sponsor. Interestingly, that modifying language ended up in the final draft as a footnote.

The Trans-Pacific Trade Scam -- Last spring, President Barack Obama got downright crabby about people criticizing the mammoth Trans-Pacific Partnership he’s trying to sell to Congress and the public. More and more Americans are learning that the TPP would undermine America’s very sovereignty, giving multinational corporations direct access to secretive tribunals that could roll back any consumer, labor, or environmental laws that global corporate giants don’t like. Yet an irked Obama denies that this is true: “They’re making this stuff up,” hehe cried. “No trade agreement is going to force us to change our laws.”Perhaps he was misinformed. Perhaps he hasn’t actually read the deal he’s pushing. Or — dare we say it? — perhaps he’s lying. In unmistakable language, the TPP does indeed create the private, corporate-run mechanism for changing our laws. Moreover, surely Obama knows that foreign corporations are already doing this indirectly. Through little-known provisions in past trade scams, powerful corporations in other countries have pressured their governments to challenge our laws in similar tribunals. From Canada to Malaysia, many countries have — on behalf of their corporate powers — successfully forced Congress and U.S. agencies to weaken or eliminate everything from environmental protections to consumer right-to-know laws. In fact, this very year, Obama’s own administration has been told by the World Trade Organization that it must alter or repeal America’s laws on labeling foreign agricultural products.

Bad News for Democracy Is Great News for TV Profits - Bill Moyers - Television news has gone off its rocker and turned our politics into the equivalent of a freak show’s hall of mirrors.The networks have grasped Donald Trump to their collective bosom like the winner of one of those misogynistic, televised beauty pageants he owns. Each pronouncement from the Sultan of Slur is treated as epic, no matter how deeply insulting, bigoted or just plain ridiculous.You may have seen by now that recent Tyndall Report analysis of the nightly news shows on ABC, CBS, and NBC. It found that from January 1 through November, the big three had devoted 234 minutes of reporting to Donald Trump but only ten to Bernie Sanders. At ABC,World News Tonight had given the Trump campaign 81 minutes of coverage while Bernie Sanders has received less than a minute. A minute! Big surprise, the problem is money. Tons of it. Trump brings ratings and ratings raise advertising revenue. What’s more, in an insane election cycle like this one, cash already is pouring in from the production, sale and placement of political TV advertising, cash that also makes television executives and political strategists wealthy.  Here’s CBS chief executive Les Moonves at an investor presentation last week, cheering on Trump and the other Republican candidates: “The more they spend, the better it is for us… Go Donald! Keep getting out there. And you know, this is fun, watching this, let them spend money on us… We’re looking forward to a very exciting political year in ’16.” Fun? Exciting? Only if you enjoy getting rich, as Moonves apparently does, while watching the country go collectively bonkers. This is the same Les Moonves who declared during the 2012 campaign, “Super PACs may be bad for America, but they’re very good for CBS.”

The world of threats to the US is an illusion - When Americans look out at the world, we see a swarm of threats. China seems resurgent and ambitious. Russia is aggressive. Iran menaces our allies. Middle East nations we once relied on are collapsing in flames. Latin American leaders sound steadily more anti-Yankee. Terror groups capture territory and commit horrific atrocities. We fight Ebola with one hand while fending off Central American children with the other. In fact, this world of threats is an illusion. The United States has no potent enemies. We are not only safe, but safer than any big power has been in all of modern history. Advertisement Geography is our greatest protector. Wide oceans separate us from potential aggressors. Our vast homeland is rich and productive. No other power on earth is blessed with this security. Our other asset is the weakness of potential rivals. It will be generations before China is able to pose a serious challenge to the United States — and there is little evidence it wishes to do so. Russia is weak and in deep economic trouble — not always a friendly neighbor but no threat to the United States. Heart-rending violence in the Middle East has no serious implication for American security. As for domestic terrorism, the risk for Americans is modest: You have more chance of being struck by lightning on your birthday than of dying in a terror attack. Promoting the image of a world full of enemies creates a “security psychosis” that misshapes our view of the world. It tempts us to interpret defensive steps taken by other countries as threatening. In extreme cases, it pushes us into wars aimed at preempting threats that do not actually exist.

Newly discovered hack has U.S. fearing foreign infiltration - A major breach at computer network company Juniper Networks has U.S. officials worried that hackers working for a foreign government were able to spy on the encrypted communications of the U.S. government and private companies for the past three years. The FBI is investigating the breach, which involved hackers installing a back door on computer equipment, U.S. officials told CNN. Juniper disclosed the issue Thursday along with an emergency security patch that it urged customers to use to update their systems "with the highest priority." The concern, U.S. officials said, is that sophisticated hackers who compromised the equipment could use their access to get into any company or government agency that used it. One U.S. official described it as akin to "stealing a master key to get into any government building." The breach is believed to be the work of a foreign government, U.S. officials said, because of the sophistication involved. The U.S. officials said they are certain U.S. spy agencies themselves aren't behind the back door. China and Russia are among the top suspected governments, though officials cautioned the investigation hasn't reached conclusions. Read More It's not yet clear what if any classified information could be affected, but U.S. officials said the Juniper Networks equipment is so widely used that it may take some time to determine what damage was done.

 SEC to Retrench Case Against SAC’s Steven A. Cohen - WSJ: The Securities and Exchange Commission said it pared back its case against Steven A. Cohen and disclosed settlement talks with him, a reversal that reflects a major shift in the legal landscape since the government declared victory in its long pursuit of the hedge-fund billionaire’s firm. After a 2½-year pause, the SEC said it would amend its civil case against Mr. Cohen, in what is likely the last attempt to hold him liable in connection with allegations of insider trading at the firm he founded, SAC Capital Advisors LP. Prosecutors and regulators have investigated Mr. Cohen and his firm for the better part of a decade, eventually winning a guilty plea from the firm in 2013, but the SEC action against Mr. Cohen is the only instance in which he was personally accused of wrongdoing.When the SEC sued Mr. Cohen in July 2013 on charges that he failed to supervise two senior traders who were later convicted of insider trading, it sought to bar Mr. Cohen for life from managing other people’s money, people close to the agency said at the time. But in October, prosecutors were forced to drop one of those convictions and six others after an appeals court ruled that a related case didn’t count as insider trading.

Wolf Richter: IPO Window Suddenly Closes, “Worst Year Since 2009,” Worst December Since 2008 - The two measly IPOs in the US in December brought the total for the year to 170, down 38% from 2014, according to Renaissance Capital. By that measure, it was the worst year since 2012.  In terms of dollars, only $28.7 billion in IPOs were booked in the US in 2015, down 48% from 2014, and by that measure, according to Thomson Reuters, “their worst year since 2009.” Numerous IPOs were pulled or shelved this fall due to “turbulent markets,” as it’s called. They included some LBO queens, owned by private equity firms, such as supermarket Albertson and Texas-based luxury retailer Neiman Marcus that had gotten hit by oil bust contagion [read… Retail Sales in Texas Plunge].  A number of IPOs were pushed through by lowering their IPO prices, like the erstwhile hero of the year, payments systems provider First Data, another LBO queen that KKR acquired in 2007. Initially, the IPO price range was $18 to $20. But there wasn’t enough appetite. So the IPO price was lowered to $16. That was in mid-October. On Monday, it closed at $15.60. “We expected a big IPO class emanating from 2007 and 2008 private equity investments, some of which represented the last investments in people’s funds, and they ended up not pricing in the second half,” explained Credit Suisse global head of equity capital markets, David Hermer. But he hasn’t given up hope. There’s always next year. “There is a tremendous backlog of IPOs, so we expect a big year in the U.S. market,” he said. And he threw in the magic words: “pent-up supply.”

The Big Short: "Every American Should See This Movie & Be F##king Pissed Off"“The truth is like poetry, and most people fucking hate poetry.” The Big Short opens nationwide today. But it happened to have one showing last night at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman and Talledaga Nights handle a subject matter like high finance seemed odd. The choice of Adam McKay as director turned out to be brilliant. The question was how do you make a movie about the housing market, mortgage backed securities, collateralized debt obligations, collateralized debt swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations. Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P, Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators was to get a high paying job with banks they were supposed to regulate. He skewers the faux financial journalists at the Wall Street Journal who didn’t want to rock the boat with the truth about the greatest fraud ever committed. What makes the movie great are the characters, their motivations, their frustrations, their anger at a warped demented system, and ultimately their hollow victory when the entire edifice of fraud came crashing down on the heads of honest hard working Americans. The movie does not glorify the men that ended up making billions from the demise of the housing bubble. But it clearly defines the real bad guys.

Despite Lifting Of Export Ban, Moody's "Bombshell" Sparks Panic In Energy Credit Markets --The Senate and House passed the spending bill this week, which the President signed into law on the same day. Embedded in the law is a provision to lift the 40-year old crude export ban. The lifting of the crude export ban is a historic milestone, but seemingly less relevant for US E&Ps, Midstream and Oilfield Services as compared to a year and a half agowhen WTI-Brent spreads were close to $9.00/bbl vs. the current spread of $0.80/bbl.Nevertheless, there is still a negative long-term impact on refiners should spreads re-widen. As BofAML notes, Moody’s dropped a bombshell on the market this week as it lowered its oil and natural gas price deck and subsequently placed 29 investment grade and BB rated US E&P companies under review for possible downgrades. The review reflects Moody’s expectations that industry fundamentals will remain weak through at least 2017. Moody's expects to conclude most reviews over the next several months. Companies may be downgraded 1-2 notches and some ratings could be confirmed as well. Moody's continues to assess single B and lower rated companies. We believe the price deck outlook will also have ramifications for Oilfield Service Ratings. Looking into 2016, we expect additional downgrades, which could lead to $30bn+ of Investment Grade Energy bonds falling into the High Yield Index if prices remain weak. Notably S&P and Fitch would have to take similar actions for falling angel scenario to play out.

US banks hit by cheap oil as Opec warns of long-term low -- US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector. The Organisation of the Petroleum Exporting Countries on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest. In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand. Crude oil's price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books. The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system.

After Math Error, Fitch Doubles Student-Debt Downgrade Estimate - The bond market’s student-debt headache just got bigger -- almost twice as big, in fact, at least for investors who relied on an initial estimate from Fitch Ratings. The credit-ratings company warned last week that $37.5 billion of securities tied to loans made under the Federal Family Education Loan Program face downgrades due to slow repayments that could push the bonds into technical default. There’s only one problem: the number was wrong. In a corrected estimate, Fitch now says the value of bonds on review for downgrade is actually $71.2 billion, according to a release from spokeswoman Hannah James. "The original announcement misstated the number, there was no impact on the ratings," James said. The new estimate represents over 40 percent of the entire universe for bonds outstanding tied to government-backed FFELP student loans, and approximately 46 percent of those that Fitch grades, Investors have scrambled this year as Fitch and Moody’s Investors Service warned that slow borrower repayments may force them to cut ratings on some bonds from AAA to below investment grade because of the risk that maturities will be breached. Estimates of the size of the problem have grown since the warnings. 

‘All of a sudden being a CTO at a bank is sexy’: This technology could revolutionize finance -- Banks are going bananas for blockchain, the technology that underpins bitcoin.  Blockchain can revolutionize mainstream finance by ripping out huge amounts of processing cost, and millions of dollars are flowing into companies building the technology.  A working group of 42 world-leading banks has been set up to establish standard practices, and top banks like UBS, Santander, and Barclays are tinkering with the technology themselves behind closed doors. Blockchain is technology that uses a distributed ledger and complex cryptography to regulate bitcoin transactions. What that means in practice is if people want to trade or transact with each other online they can do it directly, rather than go through a middleman like a clearing house. Cutting out the middle man makes things faster and cheaper, so banks are desperate to find a way to adapt the technology to traditional finance. Goldman Sachs says the technology has the potential to change "well, everything."  "The market for private blockchain 24 months ago was zero," . "Now we're at a stage in the market where it has already gone into specialisation. This is a market that's poised to scale incredibly rapidly."

Obama Abruptly Waives 1980 Foreign Investment in Real Property Tax Act - FIRPTA was implemented during a better era for Americans in response to international investors in the late 1980s and early 1990s buying U.S. farmland, as well as the more publicly visible buying of trophy U.S. property by the Japanese.  The US government has now expediently waived FIRPTA. Bloomberg reports: President Barack Obama signed into law a measure easing a 35-year-old tax on foreign investment in U.S. real estate, potentially opening the door to greater purchases by overseas investors, a major source of capital since the financial crisis. Contained in the $1.1 trillion spending measure that was passed to avoid a government shutdown is a provision that treats foreign pension funds the same as their U.S. counterparts for real estate investments. The provision waives the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA. “FIRPTA has historically made direct investment in U.S. property a non-starter for trillions of dollars worth of foreign pensions,” said James Corl, a managing director at private equity firm Siguler Guff & Co. “This tax-law modification is a game changer” that could result in hundreds of billions of new capital flows into U.S. real estate.Foreign investors have flocked to U.S. real estate since the global economic meltdown, drawn by the relative yields and perceived safety of assets from office towers and shopping centers to apartments and warehouses. The demand has helped drive commercial real estate prices to record highs. Many foreign investors structured their purchases to make themselves minority investors and bypass FIRPTA.

Home is where the cartel is - Steve Randy Waldman - Housing is a bitch.  A case can be made that divisive hot-button issues like inequality and immigration ultimately derive from housing dysfunction. Kevin Erdmann eloquently tells the tale. Matt Rognlie has famously argued that the increase in capital’s share of income, often blamed for inequality, is due largely to housing, once depreciation is taken into account. All of this reinforces the thesis of people like Ryan Avent, Edward Glaeser, and Matt Yglesias who have argued for years that housing supply constraints are to blame for high rents in powerhouse cities, and may constitute an important drag on productivity growth and a cause of macroeconomic stagnation. (See also Paul Krugman, quite recently.) Several of these writers argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem. My view is that the “market urbanist” diagnosis of the problem is more persuasive than its prescription for addressing it.  [T]here is a fundamental contradiction at the heart of housing capitalism. We encourage people to take on highly leveraged, undiversified exposure in homes with promises that they are good “investments”, meaning they will increase or at least retain their values over time. We also claim that housing is a consumption good that should be efficiently provided, a good for which competitive markets should expand supply to drive prices down to a technologically declining marginal cost of production. Housing cannot be both of those things at once.

Black Knight's First Look at November Mortgage Data, "Fewer than 700,000 Active Foreclosures Remain"  -- From Black Knight: Black Knight Financial Services’ “First Look” at November 2015 Mortgage Data, Foreclosure Starts Hit Nine-Year Low; Fewer than 700,000 Active Foreclosures Remain According to Black Knight's First Look report for November, the percent of loans delinquent increased 3% in November compared to October, and declined 18.3% year-over-year. The percent of loans in the foreclosure process declined 3% in November and were down 21% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.92% in November, up seasonally from 4.77% in October.The percent of loans in the foreclosure process declined in November to 1.38%.  The number of delinquent properties, but not in foreclosure, is down 546,000 properties year-over-year, and the number of properties in the foreclosure process is down 185,000 properties year-over-year. Black Knight will release the complete mortgage monitor for November in early January.

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey, Purchase Applications up 37% YoY -- From the MBA: Refinance, Purchase Applications Both Up in Latest MBA Weekly Survey Mortgage applications increased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 18, 2015. ...The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 37 percent higher than the same week one year ago.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.16 percent from 4.14 percent, with points increasing to 0.47 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Refinance activity remains low. 2014 was the lowest year for refinance activity since year 2000, and 2015 was low too. Refinance activity will probably stay low in 2016. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 37% higher than a year ago.

Existing Home Sales declined in November to 4.76 million SAAR -- From the NAR: Existing-Home Sales Suffer Setback in November, Fall to Slowest Pace Since April 2014 Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 10.5 percent to a seasonally adjusted annual rate of 4.76 million in November (lowest since April 2014 at 4.75 million) from a downwardly revised 5.32 million in October. After last month's decline (largest since July 2010 at 22.5 percent), sales are now 3.8 percent below a year ago — the first year-over-year decrease since September 2014. ... Total housing inventory at the end of November decreased 3.3 percent to 2.04 million existing homes available for sale, and is now 1.9 percent lower than a year ago (2.08 million). Unsold inventory is at a 5.1-month supply at the current sales pace, up from 4.8 months in October.

Existing-Home Sales Decline from Last Month -- This morning's release of the November Existing-Home Sales shows a decline from last month to a seasonally adjusted annual rate of 4.76 million units from a revised 5.32 million in October. The consensus was for 5.35 million. The latest number represents a 10.5% decrease from the previous month and an 3.8% decrease year-over-year. Here is an excerpt from today's report from the National Association of Realtors. Lawrence Yun, NAR chief economist, says multiple factors led to November's sales decline, but the primary reason could be an anomaly as the industry adjusts to the new Know Before You Owe rule. "Sparse inventory and affordability issues continue to impede a large pool of buyers' ability to buy, which is holding back sales," he said. "However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it's highly possible the stark sales decline wasn't because of sudden, withering demand." [Full Report] For a longer-term perspective, here is a snapshot of the data series, which comes from the National Association of Realtors. The data since January 1999 is available in the St. Louis Fed's FRED repository here.

November 2015 Existing Home Sales Headlines Say Sales Again Declined. Sales Now Contracting Year-over-Year.: The headlines for existing home sales say "existing-home sales dropped off considerably in November to the slowest pace in 19 months, but some of the decrease was likely because of an apparent rise in closing timeframes that may have pushed some transactions into December". Our analysis of the unadjusted data shows that home sales declined. Econintersect Analysis:  Unadjusted sales rate of growth decelerated 0.2 % month-over-month, unchanged 0.0 % year-over-year - sales growth rate trend declined using the 3 month moving average.Unadjusted price rate of growth decelerated 0.5 % month-over-month, up 4.0 % year-over-year - price growth rate trend is modestly improved using the 3 month moving average.The homes for sale inventory declined again this month, remains historically low for Novembers, and is down 1.9 % from inventory levels one year ago). NAR reported:

  • Sales down 10.5 % month-over-month, down 3.8 % year-over-year.
  • Prices up 6.3 % year-over-year
  • The market expected annualized sales volumes of 5.100 to 5.500 million (consensus 5.32 million) vs the 4.76 million reported.

Existing Home Sales Collapse - Worst November In History -- The 10.5% crash in existing home sales is the worst November drop ever. Against expectations of a mere 0.2% drop, this is the largest miss in history asnd tumbles SAAR sales to the weakest since March 2014. The collapse in sales was across all regions, and ironically was accompanied by a rise in median home prices across all regions. Of course there was plenty of blame to go around, from inventory constraints to weather but most of all - paperwork - as new regulations - Know Before You Owe initiative, has meant longer closing times. In other words, wait til next month, it will all be great!?  The biggest MoM drop since July 2010.. and worst November ever...Pushing the Annualized sales rate near 2 year lows... As home prices rose... Regionally, the weakness is home prices rose everywhere... November existing-home sales in the Northeast declined 9.2 percent to an annual rate of 690,000, but are still 1.5 percent above a year ago. The median price in the Northeast was $254,800, which is 3.2 percent above November 2014. In the Midwest, existing-home sales descended 15.4 percent to an annual rate of 1.10 million in November, and are now 2.7 percent below November 2014. The median price in the Midwest was $169,300, up 5.3 percent from a year ago. Existing-home sales in the South decreased 6.2 percent to an annual rate of 1.98 million in November, and are now 5.7 percent below November 2014. The median price in the South was $189,400, up 6.3 percent from a year ago. Existing-home sales in the West dropped 13.9 percent to an annual rate of 990,000 in November, and are now 4.8 percent lower than a year ago. The median price in the West was $319,700, which is 8.3 percent above November 2014.

US existing home sales plunge: new rules seen as drag - U.S. home resales posted their sharpest drop in five years in November, a potential warning sign for the health of the U.S. economy although new regulations on paperwork for home purchases may have driven the decline.  The National Association of Realtors said on Tuesday existing home sales plunged 10.5 percent to an annual rate of4.76 million units. That was the sharpest decline since July 2010. October's sales pace was revised slightly lower to 5.32 million units.  NAR economist Lawrence Yun said most of November's decline was likely due to regulations that came into effect in October aimed at simplifying paperwork for home purchasing. Yun said it appeared lenders and closing companies were being cautious about using the new mandated paperwork. Also potentially weighing on home sales, the median price for a U.S. existing home rose to $220,300 in November, up 6.3 percent from the same month in 2014. Yun said the steep rise in prices and shrinking inventories could also be constraining home purchases.

Existing Home Sales Plunge 10.5%, NAR Blames "Know Before You Owe"; What's the Excuse for Last Month? --Existing homes sales plunged 10.5% this month which the NAR attributes to an initiative called "Know Before You Owe".  Economists, apparently unaware of "Know Before You Owe", came up with a consensus estimate of 5.320 million sales, SAAR ( seasonally adjusted annualized rate), the same as last month.  New closing rules appear to have depressed sales of existing homes in November which fell 10.5 percent to a much lower-than-expected annualized rate of 4.760 million. The year-on-year rate, for the first time since September last year, is suddenly in the negative column, at minus 3.8 percent. The National Association of Realtors, which compiles the report, attributes the weakness to the "Know Before You Owe" initiative which is lengthening closing times and which likely makes November an outlier. The NAR suspects that the sales delays in November are likely to give a boost to December's totals.Weakness in the month is centered in single-family sales, down 12.1 percent to a 4.150 million rate. Condos rose 1.7 percent to a 610,000 rate. All regions show declines for total sales with the Northeast, at a modest plus 1.5 percent, the only one to show a year-on-year gain. Low supply is a problem in the market, at 2.040 million vs 2.110 million in October. Relative to sales, supply is at 5.1 months which, because of November's sales weakness, is up slightly from prior months. For a balanced market, supply is generally pegged at 6.0 months.

A Few Random Comments on November Existing Home Sales -- First, the decline in existing home sales was not a surprise, see: Existing Home Sales: Take the Under Tomorrow Second, a key reason for the decline was the new TILA-RESPA Integrated Disclosure (TRID). In early October, this new disclosure rule pushed down mortgage applications sharply - however applications have since bounced back. Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974.  The impact from TRID will sort out over a few months. Third, there are probably some economic reasons too for the decline (not just a change in disclosures).  Low inventory is probably holding down sales in many areas, and weakness in some oil producing areas (see: Houston has a problem) are also impacting sales.  I expected some increase in inventory this year, but that hasn't happened.  Inventory is still very low and falling year-over-year (down 1.9% year-over-year in November). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.Also, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.  So some slowing for existing home sales is not be a big deal for the economy. The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Manhattan Luxury-Home Prices Drop For 8th Straight Month Amid "Glut In Overpriced Apartments" - The poor are getting poorer but the rich, it appears, are no longer getting richer. Withapartment vacancies at 9-month highs, Bloomberg reports that Manhattan's luxury-home market is rapidly losing its luster. Prices have been dropping every month since February, when they reached their highest point on record, and, as one analyst notes, "the downward trend in that decline hasn’t abated, and we haven’t seen it wavering in any way." As we detailed previously, The vacancy rate in November was 2.87 percent, up from 2.31 percent a year earlier and the highest since August 2006, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Landlords eager to fill empty units lured tenants with the most concessions since 2011. The rise in vacancies suggests tenants are reaching the upper limits of what they’re able to pay after more than four years of almost continuous rent growth, according to Jonathan Miller, president of Miller Samuel. In November, the median monthly apartment rent climbed 3.9 percent from a year earlier to $3,361. Leasing costs have jumped more than 18 percent since the end of the recession in June 2009. “We’re reaching the point where things can’t go up as much,” Miller said in an interview. “The economics don’t make much sense anymore.”

New Home Sales increased to 490,000 Annual Rate in November --The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 490 thousand.  The previous three months were revised down by a total of 36 thousand (SAAR).  "Sales of new single-family houses in November 2015 were at a seasonally adjusted annual rate of 490,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.3 percent above the revised October rate of 470,000 and is 9.1 percent above the November 2014 estimate of 449,000" The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply. The months of supply decreased in November to 5.7 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of November was 232,000. This represents a supply of 5.7 months at the current sales rate."Starting in 1973 the Census Bureau broke inventories down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales Rise Less Than Expected From Revised Lower October --November new home sales came at a seasonally adjusted annualized rate (SAAR) of 490,000 vs. an economic consensus of 503,000. Worse yet, October's big gain was revised sharply lower from 495,000 to 470,000. This is going to take a hit out of GDP estimates. Nonetheless Bloomberg manages to spin this as a big positive.  Rising construction is bringing supply into the housing sector and helping to lift new home sales, which rose 4.3 percent in November to what is still however a lower-than-expected annualized rate of 490,000. The month-to-month gain follows a very strong 6.3 percent rise in October which, however, has been revised sharply lower to 470,000 from an initial 495,000. Houses for sale rose 5,000 in the month to 232,000 which is up from 210,000 in November last year. At the current sales rate, supply is at 5.7 months which, because of the rise in sales, is down slightly from October. Still, rising permit data point to more homes coming into the market. Price data are also constructive, up 6.3 percent in the month to a median $305,000 with the year-on-year, which had been negative, up 0.8 percent. Still, this is a modest year-on-year rate and, relative to the very strong 9.1 percent year-on-year sales gain, points to discounting. Prices in this report appear to have room to move higher.Regional sales data have the West up more than 20 percent in the month with the year-on-year rate at plus 4.7 percent. Sales in the South, which is by far the largest region, rose 4.5 percent in the month for an outstanding year-on-year gain of 19.4 percent. The Midwest and Northeast both show monthly and yearly declines.Sales of existing homes have been limping along but sales of new home sales, despite all the monthly volatility which is routine for this report, are solid and look to remain solid.

November 2015 New Home Sales Improve But Rolling Averages Still Decline.: The headlines say new home sales improved from last month (however the last few months data was revised downward). The rolling averages smooth out much of the uneven data produced in this series - and this month there was a deceleration in the rolling averages. As the data is noisy, the 3 month rolling average is the way to look at this data. This data series is suffering from methodology issues. Econintersect Econintersect analysis:

  • unadjusted sales growth accelerated 9.7 % month-over-month (after last month's revised acceleration of 10.8 %).
  • unadjusted year-over-year sales up 9.7 % (Last month was up 0.0 %). Growth this month average for the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth decelerated 1.8 % month-over-month - is down 0.9 % year-over-year.

Comments on November New Home Sales -- The new home sales report for October was somewhat below expectations, and sales for August, September and October were revised down. Sales were up 9.1% year-over-year in November (SA).  Earlier: New Home Sales increased to 490,000 Annual Rate in November.  Even though the November report was somewhat disappointing, sales are still up solidly year-to-date.  The Census Bureau reported that new home sales this year, through November, were 461,000, not seasonally adjusted (NSA). That is up 14.5% from 402,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for 2015 through November. This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate). The year-over-year gains were stronger earlier this year, but the overall year-over-year gain should be solid in 2015. The comparisons in early 2016 will be more difficult. Overall this was a solid year for new home sales. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales. However, this assumes that the builders will offer some smaller, less expensive homes.

The Number Of Young Adults Living With Their Parents Has Never Been Higher (But It Could Be Worse) -  Back in 2012, the bullish thesis for US housing (the one everyone was hoping for, instead of the fake housing "recovery" driven by the parking of dirty foreign oligarch money in NYC triplexes aka the new Swiss bank account, the private equity distressed rental property bid, and bank subsidies courtesy of the delay in the foreclosure pipeline) was that all those millions of young Americans aged 18-34 would finally move out of their parents' houses and start households of their own. We mocked the idea for one simple reason: those very Millennials, who as everyone now knows can't find any well paying jobs and have zero job security and on whose back the housing recovery was supposed to take place, couldn't afford rent let along to buy a house, and as such would be stuck living in their parents' basements well into their 30's, if not 40's, and why not forever. Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air. As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher:  And since the ivory towers of your 200 West headquarters do not allow you to visit the world of the mere mortals, let us clue you in on a big secret: one can't buy - or rent - anything on minimum wage, the same wages which the "booming" sectors of the US job market are getting. In fact, it is precisely due to the abysmal jobs market for young people (those 55 and over have nothing to worry about) which, together with millions of young Americans raking in tens of thousands of dollars in unrepayable college loans, is precisely what is forcing so many young men and women to pay rent to their mom and dad.

Sued Over Old Debt, and Blocked From Suing Back -- Clifford Cain Jr., a retired electrician in Baltimore, was used to living on a tight budget, carefully apportioning his Social Security and pension benefits to cover his rent and medication for multiple sclerosis.  So Mr. Cain was puzzled when he suddenly could not make ends meet. Months later, he discovered why: A debt collector had garnished his bank account after suing him for about $4,500 the company said he owed on an old debt. Mr. Cain said he never knew the lawsuit had been brought against him until the money was gone. Neither did other Baltimore residents who were among the hundreds of people sued by the collector, Midland Funding, a unit of the Encore Capital Group, in Maryland State Court. Some of them said they did not even owe any money, or their debt had long expired and was not legally collectible, according to a review of court records. In any case, the Encore subsidiary was not licensed to collect debt in Maryland. Yet when Mr. Cain brought a class action in 2013 against Midland Funding, the company successfully fought to have the lawsuit dismissed. If the plaintiffs wanted to try to recover their money, they would have to do so in private arbitration. And because class actions are banned in arbitration, Mr. Cain and the others would have to fight the unit of Encore — one of the largest debt buyers in the country with vast legal resources — one by one.

Commerce Department Releases Consumer Spending Data Early - Worst YoY Growth Since May 2013 - In yet another government SNAFU, the US commerce department has released spending data prematurely. Instead of tomorrow morning, its website released the data at 1923ET.. and it is not good. Despite a 0.3% rise in November, thanks to downward revisions, the YoY growth in Spending was just 2.9%. May 2013 was the last time YoY growth was weaker than this and corresponds with spending weakness seen in each of the last 3 recessions. The figure, which was to be made public Wednesday with the agency’s report on personal income and spending, was released early on the Bureau of Economic Analysis’ website Personal consumption in Nov. rose to $12.43t, up 0.3% from a revised $12.39t in Oct. That constitutes a 2.94% rise YoY...

US Consumer Spending Rises Most In 3 Months, Data Leaked Early Show - Household spending perked up in November as American consumers loosened their purse strings ahead of the holiday season, according to official data inadvertently released late Tuesday. Consumer spending, which accounts for about 70 percent of the U.S. economy, rose by the most in three months, the data showed. Spending rose 0.3 percent to $12.43 trillion compared to same period last year, matching the consensus forecast of a Bloomberg survey, according to the U.S. Department of Commerce report. The figures were released more than 12 hours ahead of schedule on the Bureau of Economic Analysis (BEA) website. “There has been an inadvertent release of some of BEA’s personal consumption expenditure data for November as well as for previous months via BEA’s API (application programming interface),” the bureau said in a statement on its website Tuesday, though it did not elaborate on how the gaffe occurred. The November rise in consumer spending was reportedly propelled by steady hiring, cheap gas prices, purchases of cars and strong retail sales. “The numbers are a little bit stronger, and supportive of at least 2 percent growth in the fourth quarter,” . The U.S. economy, which is expected to grow at a rate of 2 percent this year, recorded a gross domestic product expansion marginally below 2 percent in the July to September quarter, revised GDP estimates released separately on Tuesday showed.  “Consumption is a big piece of it, and it’s chugging along,”

US Consumer Spending & Income Post Solid Gains In November - There’s no shortage of macro risks facing the US economy, but personal income and spending aren’t among them, at least not in today’s update. Both measures increased at healthy if unspectacular rates in November vs. the previous month, the Bureau of Economic Analysis reports. The upbeat data delivers an optimistic round of figures after a string of disappointing releases from other corners of the economy—manufacturing in particular. As a result, the economic outlook looks a bit brighter. Thanks to the outsized influence of consumer spending in the US economy, today’s news implies that the macro trend overall will remain positive. The year-over-year growth rates through last month continue to post middling results relative to recent history, but the income and spending trends still align with expectations for an expanding economy. Disposable personal income ticked lower, rising 3.9% for the year through November—the slowest since June. Meanwhile, consumer spending held steady at an annual increase of 2.9%. Nonetheless, the fact that income continues to rise at a faster pace than spending in year-over-year terms suggests that consumption’s growth rate will remain steady and perhaps tick higher in the new year.

Personal Income and Outlays December 23, 2015: The consumer is solid though price pressures are still mostly dormant. Personal spending rose an as-expected 0.3 percent in November in data released last night by mistake. Income, data not released early, also rose 0.3 percent and the wages & salaries component is very strong for a second month, up 0.5 percent in November following a 0.6 percent gain in October. Turning to inflation, core PCE prices rose only 0.1 percent in the month which was expected keeping the year-on-year rate, as it has been nearly all year, at plus 1.3 percent and showing no movement yet toward the Fed's 2 percent target. Total prices are unchanged though the year-on-year rate, getting a lift from an easy comparison with this time last year, is moving higher but from a very low level, up 2 tenths to plus 0.4 percent which is still the largest gain since December last year. The low rate of inflation in this reading shows the effect of oil prices. The 0.3 percent gain for spending, though positive, doesn't quite offset October's no change reading (downwardly revised from plus 0.1 percent). The fourth-quarter spending data are running at an annualized rate of just 1.6 percent which doesn't point to outstanding fourth-quarter strength. But the holidays are still underway and last minute shopping could give a boost to fourth-quarter GDP. And the outlook for future spending does look positive with the savings rate, boosted by job availability and low gas prices, still very solid at 5.5 percent though down 1 tenth in the month. The consumer is getting a boost on the income side but is still holding back a bit on the spending side. The spending data along with the inflation data in this report won't be raising expectations for Federal Reserve rate hikes.

Personal Income increased 0.3% in November, Spending increased 0.3% -- Note: Some of this data was inadvertently released early. The BEA released the Personal Income and Outlays report for November:  Personal income increased $44.4 billion, or 0.3 percent, ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $40.1 billion, or 0.3 percent....Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in November, in contrast to a decrease of less than 0.1 percent in October. ... The price index for PCE increased less than 0.1 percent in November, compared with an increase of 0.1 percent in October. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of less than 0.1 percent. The November PCE price index increased 0.4 percent from November a year ago. The November PCE price index, excluding food and energy, increased 1.3 percent from November a year ago.   The following graph shows real Personal Consumption Expenditures (PCE) through November 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Real disposable personal income growth: not too shabby -- This morning's release of personal income and outlays for November pretty much puts the last nail in the coffin for those Doomers who have been claiming we would go into recession in 2015.  First, here is real disposable personal income per capita from 1959 - present, in log scale best to show the actual trend: You can see the big increase was in the 1960-73 boom. The trend moderated from 1974-2006, and appears much flatter since. Unsurprisingly, this shows that it has been harder and harder for Americans of each successive generation to make progress. Now let's take a look at the same metric measured YoY. As of November 2015, the YoY% gain in real disposable personal income per capita was 2.72%, so the graph subtracts that so that equivalent YoY gains show at the "0" line [Note that the big reversal in 2012-13 was due to the temporary 2% decrease in Social Security withholding]: While the present gains aren't fantastic, they aren't too shabby either. Outside of the 1960-73 era, the only times that there were sustained significantly better YoY gains were several boom years in the 1980s and late 1990s. I hasten to add that the gains in the last year have primarily been due to the big declines in gas prices, rather than a surge in nominal income.

Personal Income, Spending Increase By 0.3% In November As Savings Rate Dips To 5.5% -- While we already knew last night courtesy of a leak by the BEA that personal spending in November rose by 0.3%, in line with expectations and up from a 0.1% increase the month before, moments ago we got the missing component, which was personal income, and at 0.3%, it too rose 0.3% in October, just above the 0.2% expected, but down from the 0.4% increase in October. The total personal income for November, which hit a record $15.618 trillion, an increase of $44.4 billion, was primarily driven by a $37 billion increase in wages, of which $20 billion came from service producing industries, and $14 billion from goods-producing. The government added another $3 billion. The offset was a $40 billion increase in Personal Consumption Expenditures, which rose as a result of  a $24 billion jump in spending on goods and $16 billion on services. The end result was that in November personal savings was $748 billion, a $9.4 billion decline from the $757 billion a month ago, which translates into a 5.5% savings rate, down from last month's 5.6%, however well above the average rate seen over the past 12 months as consumers continue to be unwilling to dip into their savings despite the so-called "gas" tax cut.

Some demographic trends that might explain the stagnation and decline in US household income - The two charts above show some interesting patterns in several data series over time and provide some possible demographic explanations for the stagnation and decline in real median US household income since around the year 2000. Here are some observations and comments:

  • 1. The top chart above shows that the decline in real median household income in the US from the peak of $57,843 in 1999 to $53,627 last year (in 2014 dollars, data here in Table H-12) was accompanied by a gradual increase in the share of US households with no earners, which increased from less than 20% in 1999 to 24% in 2014. A regression analysis over the 1999-2014 period shows that every one percent increase in the share of US households with no earners is associated with a decrease in median annual household income of slightly more than $1,200. (Note: The R-squared of that regression was 89.3% and the t-statistic for the independent variable was -10.83.) Over that same period, the share of US households with two or more earners declined from slightly more than 45% in 1999 to 39.2% in 2014, which is another demographic factor that could explain the decline in median household income over the last decade.
  • 2. What would explain the fact that the share of US households with no earners has steadily risen over the last 15 years to an all-time of 24% last year? The bottom chart above provides one explanation: the rising share of the US adult population represented by: a) retired workers and b) disabled workers. According to Social Security Administration data, the number of retired workers plus the number of disabled workers remained stable at about an 18% share of the US adult population (18 years and over) between 1993 and about 2000 before gradually rising to an all-time high of 21.3% by 2014.

U.S. retailers at risk of missing modest holiday sales goals | Reuters: Retailers are struggling to meet even modest forecasts for the holiday shopping season this year after the "Super Saturday" before Christmas failed to live up to its nickname, industry research groups said. The last Saturday before Christmas often sets the annual record for retail sales, vying with Thanksgiving weekend's Black Friday. In recent years, last-minute shopping has determined the success of the season, and a relatively weak final weekend bodes poorly for retailers. This year Super Saturday weekend sales in stores and online rose 4 percent to $55 billion, after a 2.5 percent gain last year, according to retail consultancy and private-equity fund Customer Growth Partners. That puts overall store and online sales from the start of November through Dec. 22 on track to rise 3.1 percent, below the 3.2 percent pace the firm forecast and down from 4.1 percent growth in the same period last year. "Sales have been sluggish so far this year as most consumers are still buying close to need," "What's worse is the marked deceleration from a year ago," he said. Last year, last-minute sales gained in the final 10 days of the holiday season, driven by savings from lower gasoline prices. If sales, spurred by gift card redemptions, hold up in the week after Christmas this year, retailers could move closer to meeting performance forecasts, consultants and retail experts said.

Malls Reel as Web Roars With Holiday Shopping - WSJ: The stampede of shoppers to the Web grew more thunderous during the final days before Christmas, testing the limits of delivery services and pushing retail chains into deeper, longer promotions than their e-commerce rivals. Even as the margin of error to have gifts comfortably arrive before the holiday melted, shoppers chose the Internet over a trip to the mall. Sales at physical stores fell 6.7% over the most recent weekend, while traffic declined 10.4%, according to RetailNext, which collects data through analytics software it provides to retailers. That is worse than the 5.8% decline in sales and the 8% drop in traffic recorded from Nov. 1 through Dec. 14. The shift to online shopping is straining retailers and delivery networks. A few chains, including Eddie Bauer and Pacific Sunwear, PSUN 0.56 % warned customers this week that their holiday packages were delayed and blamed what they said were broader problems at FedEx Corp. FDX -0.71 % FedEx said Wednesday it is running operations round-the-clock to “accommodate additional unforeseen volume from some customers,” but that its delivery network is “performing as designed for the forecasted volumes from our major retail and e-tail customers."

The Effect of Fed Funds Rate Hikes on Consumer Borrowing Costs  - NY Fed -- The target federal funds rate has hovered around zero for nearly a decade, and observers are questioning what effect an increase could have on both the financial markets and the real economy. In this post, we examine the historical reaction of loan rates to target rate increases. Specifically, we examine the interest rates that banks offer on residential mortgages and home equity lines of credit (HELOCs).  We begin by examining the effect of a target fed funds rate increase on loans of varying maturities, using a panel of loan rates advertised by bank branches during the period from January 2000 to September 2013, as tracked by RateWatch. The chart below shows the percentage change in the interest rate quoted to prime borrowers—for one-, three-, and five-year adjustable-rate mortgages (ARMs), and thirty-year fixed-rate mortgages (FRMs)—relative to the levels quoted the week before a target rate increase. Although ARMs are typically thirty-year loans, the quoted interest rate applies only to the initial period of the loan during which the rate is fixed. After that designated period, ARMs change at a fixed spread over a benchmark rate. Hence, newly issued ARM interest rates are relevant for shorter durations of one, three and five years.  We see that the interest rate response to a change in the target rate decreases as the duration of the loan increases. This is intuitive: For loans of short duration, a change in the target rate has a substantial effect because the target rate has historically anchored the short-term funding costs of financial institutions and yields on other short-term securities, such as Treasury bills. For loans of longer duration, the interest rate incorporates expectations of the future path of the target federal funds rate; thus, changes to the current target rate have a smaller effect.

POLA and POLB volumes are strong in November - Strong November volumes were apparent at both the Port of Los Angeles (POLA) and the Port of Long Beach (POLB). POLA and POLB are the two largest North American ports, and they collectively account for more than 40 percent of U.S. imports. As previously reported, West coast port volumes, especially in first half of the year, had been uneven, as ports had to work through the backlog caused by the nine-month West Coast port labor dispute between the Pacific Maritime Association and the International Longshore & Warehouse Union, which reached a resolution in the form of a new contract agreement that was reached earlier this year. Total POLA November volumes were up 7 percent at 709,968 TEU (Twenty-Foot Equivalent Units) compared to November 2014. POLA imports, which are primarily comprised of consumer goods, were up 7.6 percent to 358,423 TEU, and exports declined 5.7 percent to 142,020 TEU. Empties increased 16.5 percent to 209,525 TEU. “We’ve seen container volumes at and above 700,000 TEUs for the past six months, which demonstrates consistency and the strength of our supply chain partners,” said Port of Los Angeles Executive Director Gene Seroka in a statement. “With larger vessels coming into the transpacific trade this month, including the CMA GGM Benjamin Franklin, we can further show the gains we have made this year in terms of effectively moving greater volumes through our port.”

Pennsylvanians urged to utilize programs for heat - More than 24,000 Pennsylvania homes lack heat-related utility service, and nearly 2,000 of them rely on potentially dangerous sources of warmth such as kerosene or electric space heaters and kitchen ovens, a report released Tuesday showed. The number of homes without service is down about 5 percent from a year ago but still 22 percent higher than the average in the four years prior, the state Public Utility Commission’s Cold Weather Survey report said. “We urge those residents to take advantage of the numerous programs available to help them restore utility service in order to stay connected, warm and safe this winter,” said PUC Chairwoman Gladys Brown. The report said 15,006 homes are without natural gas heating because service to them has been terminated, and 1,451 of those homes are using unsafe heating sources instead. Likewise, 9,169 homes are without electric heating because service has been terminated, and 414 of them are using unsafe alternatives. In Western Pennsylvania, 1,764 homes without heat-related utility service are occupied by Peoples Natural Gas customers, down 19 percent from a year ago; 1,078 by Columbia Gas customers, down 4 percent; 632 by Duquesne Light customers, down 37 percent; 469 by West Penn Power customers, up 18 percent; and 178 by Penn Power customers, up 9 percent. “We do everything we can to help folks before they reach a termination point,” Columbia Gas spokeswoman Jennifer DuBois said.

Hard-Hit Farmers Get Brief Respite in Low Oil Prices - Low fuel prices helped the nation’s farmers bounce back in the third quarter, as farm earnings rose by more than 25% across half a dozen Plains states. Farm earnings grew 17.5% nationally in the third quarter from the second quarter, the Bureau of Economic Analysis said Monday. Farm earnings had fallen 4.5% in the second quarter. Nationally, earnings increased 1.4% in the third quarter, a slight acceleration from the second quarter’s 1.2% rise. Earnings in mining continued their slide, falling 1.9% in the third quarter after a steep 5.5% drop in the second. Health care, professional services and finance all posted earnings growth of 1.5% or above in the third quarter. State personal income, a wider measure of income that includes property income and benefits, grew 1.3% in the third quarter, the same pace as in the second quarter. Consumers, refiners and some manufacturers have all been enjoying the low price of oil and its by-products. But farmers typically buy inputs like fuel for tractors and fertilizers derived from oil three to six months in advance, so they’ve been slower to capitalize on the benefits of low oil prices. While savings on gasoline haven’t translated yet to robust retail sales, consumers have been spending more on cars and big-ticket items like furniture this year. Refiners, for whom crude oil is their primary input, have had stellar earnings. Now it’s farmers’ turn—at least for the moment. The BEA said the jump in farm earnings “primarily reflected lower production expenses, including lower fuel and livestock costs” in the third quarter.

Gas Is So Cheap You Could Drink It (But Don’t) -  The decline in fuel costs over the past year returned gasoline prices to their rightful place: cheaper than a gallon of milk. The national average price for a gallon of regular gasoline fell below $2 on Monday for the first time since 2009, AAA said. In several states, the average price was below $1.80 a gallon. While shoppers are finding gasoline for less than $2 a gallon this holiday season, they would be unlikely to find a quickie mart selling milk for less than $3 a gallon. (Not that we’d encourage you to put petrol on your Cheerios tomorrow.) The average price for a gallon of whole milk in the U.S. last month was $3.30, according to the Labor Department. A gallon of regular gasoline cost $2.19, a price that has fallen further in recent weeks. In the past 20 years, the time the government has tracked specific, noninflation-adjusted prices for each product, milk has almost always cost more than gasoline. That changed briefly when gasoline prices topped $4 a gallon in the middle of the last decade. The jump was reversed during the recession. But through most of the current expansion, the two must-have suburban liquids traded the lead back and forth, until fuel prices plunged late last year. Thanks to giant signs displaying the price everywhere one drives, many Americans can quickly tell you the cost for a gallon of gasoline. They’d be more challenged to produce accurate prices for even common grocery goods, and likely have no idea that gasoline is cheaper than nearly any other liquid they buy.

Don't Look Now But Gasoline Is Up 10% In 3 Days -- After a year of proclamations from mainstream media (and Wall St. economists) that low oil prices mean low gas prices at the pump which means "bonanza" for US consumers, it appears none of that happened. Confidence is fading fast despite what some suggest is $550 average savings this year as 'gains' flooded into soaring rent and healthcare costs. But, more recently, as stock markets celebrate a soaring oil price (off decade lows), wholesale gasoline prices have soared 10% in a little over 48 hours... If lower gas prices was "unequivocally good" for the consumer, what are higher gas prices?  Charts: Bloomberg

Rail Week Ending 19 December 2015: Rail Sliding Deeper Into Recession: Week 50 of 2015 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic remains in contraction year-over-year, which accounts for approximately half of movements and weekly railcar counts continued deeply in contraction. A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 525,555 carloads and intermodal units, down 9.5 percent compared with the same week last year. Total carloads for the week ending Dec. 19 were 262,070 carloads, down 14.9 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 263,485 containers and trailers, down 3.5 percent compared to 2014. Four of the 10 carload commodity groups posted an increase compared with the same week in 2014. They included miscellaneous carloads, up 38.3 percent to 10,718 carloads; motor vehicles and parts, up 12.9 percent to 19,773 carloads; and chemicals, up 6.1 percent to 31,187 carloads. Commodity groups that posted decreases compared with the same week in 2014 included coal, down 29.9 percent to 85,021 carloads; metallic ores and metals, down 25.3 percent to 20,647 carloads; and petroleum and petroleum products, down 20.7 percent to 13,137 carloads. For the first 50 weeks of 2015, U.S. railroads reported cumulative volume of 13,851,558 carloads, down 5.6 percent from the same point last year; and 13,338,522 intermodal units, up 1.6 percent from last year. Total combined U.S. traffic for the first 50 weeks of 2015 was 27,190,080 carloads and intermodal units, a decrease of 2.2 percent compared to last year.

Chemical Activity Barometer "Chemical Activity Barometer Ends Year with Modest Uptick"  - Here is an indicator that I'm following that appears to be a leading indicator for industrial production. From the American Chemistry Council: Chemical Activity Barometer Ends Year with Modest Uptick The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), strengthened slightly in December, rising 0.2 percent following a similar gain in November. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.5 percent over this time last year, a marked deceleration of activity since the second quarter...Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.

The Great Disconnect Is Palpable -- The Fed’s industrial production series also includes estimates on total motor vehicle assemblies. Auto sales in general have been one of the only bright spots in the economy, especially since the 2012 slowdown (even though it has been boosted artificially via credit far, far more than income gains). Given that trend, it is still difficult to assess whether activity in recent months is meaningful. After surging in July, auto activity in terms of industrial production has slumped – now pushed into a fourth month. Auto production is quite volatile, even where the Fed has attempted to “smooth out” that tendency via its seasonal adjustment factors, so more analysis is needed to establish some confidence about interpretation. Still, at the very least, it raises concerns expressed in the growing (surging) inventory of autos counted in manufacturer’s numbers but stuffed (unsold to end users) on dealer lots and in wholesale limbo. Furthering those concerns, economic reports out of Canada today showed not just broad-based wholesale sales declines but also a four-month slide also in auto sales at that wholesale level. Canada being a primary exporter of autos to the US, the coincidence of further weakening is not likely to be random and yet another negative commentary on the state of US “demand.” The agency also released October data for wholesale trade, which fell 0.6 per cent to $54.7 billion — its fourth-straight monthly drop. It said lower trade figures were recorded in four areas that, when combined, represent 64 per cent of all sales. Sales fell by three per cent to $10.5 billion in the food, beverage and tobacco category — its third decrease in four months. The category of motor vehicle and parts registered a 2.1 per cent drop to $9.5 billion, its fourth-straight tumble.

Orders for durable goods flatline in November - — Businesses remain skittish about making big investments: Orders for durable or long-lasting U.S.-made goods such as computers and heavy machinery softened again in November. Orders for durable goods were flat last month following a 2.9% increase in October, the Commerce Department said Wednesday. Wall Street was expecting a 1.1% decline. Yet orders would have fallen a sharp 1.5% if not for an large increase in bookings from the Pentagon. Demand was robust in some industrial segments. Orders for new cars and trucks, for example, rose 1.5%. That was more than offset by a 22.2% drop in bookings for commercial jets, a category that can be extremely jumpy from month to month because of the expense involved. Stripping out those categories, orders minus transportation fell 0.1% in November. A key measure of business investment, meanwhile, faltered again. Orders for so-called core capital-goods, which strip out aircraft and defense, dropped 0.4% in November after two straight gains. “Unless we see a big rebound in December or upward revisions, it appears that investment in equipment contracted in the fourth quarter,”. What’s more, business investment has fallen 1.8% over the past 12 months, keeping the economy from reaching its full growth potential. A strong dollar and soft global economy has hurt American exporters while cheap oil has forced huge spending cuts by domestic energy producers. Slower business investment is one of the reasons economists predict the economy will stick to around 2% growth in the final three months of the year.

Durable Goods New Orders Unchanged in November 2015?: The headlines say the durable goods new orders were unchanged. The three month rolling average improved this month but remains in contraction. Last months data was revised upward. Our view of this data is better than the headlines. Econintersect Analysis:

  • unadjusted new orders growth accelerated 3.5 % (after accelerating an upwardly revised 2.5 % the previous month) month-over-month , and is up 2.5 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 1.7 % month-over-month, and down 0.7 % year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are up 0.9 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth decelerated 0.2 % month-over-month, up 0.5 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..

"Core" Durables Goods Orders Plunge For 10th Consecutive Month As Defense Spending Soars Most In 8 Years - If it wasn't for America's war machine, the economy would be deep in recession. Defense spending (aircraft and parts) soared 148% in the last 3 months - biggest such rise since 2007 managing to squeeze Durable Goods Orders overall to unchanged in Nov (vs -0.6% exp). That's the good news. Everywhere else you look... terrible. Core Capex fell 1.93% YoY - the 10th consecutive YoY drop - something not seen before outside of recession. Defense Spending New Orders has soared 148% in the last 3 months... the biggest rise since 2007  The spike in defense spending dragged YoY Durable Goods Orders into the green But in the core... we are flashing recession... YoY, it's a disaster almost everywhere... Charts: Bloomberg

2015 U.S. Reshoring Index Indicates Manufacturing Reshoring Trend Has Subsided - In 2015 the A.T. Kearney U.S. Reshoring Index dropped to -115, down from -30 in 2014, and represents the largest year-over-year decrease in the last 10 years. Even if the effect of raw material price declines is discounted by, conservatively, holding manufacturing input values constant relative to 2014 while ignoring that same effect on the value of offshore manufactured goods, the U.S. Reshoring Index would drop to -26, still supportive of the view that the widely predicted reshoring trend seems to be over before it started. Patrick Van den Bossche, A.T. Kearney partner and co-author of the study, stated, “The U.S. Reshoring phenomenon, once viewed by many as the leading edge of a decisive shift in global manufacturing, may actually have been just a one-off aberration. The 2015 data confirms that offshoring seems only to be gathering steam, while the U.S. reshoring train that so many predicted has yet to leave the station.”

Tim Cook: Apple products aren’t made in China because it’s cheaper -  “It’s skill,” Apple CEO Tim Cook said in response to a question on “60 Minutes” Sunday from Charlie Rose as to why the company’s products are made in China. Rose clearly wasn’t buying it. “They have more skills than American workers? They have more skills than German workers?” he pressed. “The U.S., over time, began to stop having as many vocational kind of skills,” Cook explained. “I mean, you can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in. In China, you would have to have multiple football fields.” Earlier in the interview, the conversation heated up just a bit when the subject turned to allegations that Apple is a “tax avoider” and is “engaged in a sophisticated scheme” to shelter the $74 billion in revenue parked overseas. “That is total political crap,” Cook fired back. He said he’d “love to bring it home” but doesn’t because “it would cost me 40%... and I don’t think that’s a reasonable thing to do. This is a tax code, Charlie, that was made for the industrial age, not the digital age. It’s backwards. It’s awful for America. It should have been fixed many years ago. It’s past time to get it done.”

Weekly Initial Unemployment Claims decrease to 267,000 -- The DOL reported: In the week ending December 19, the advance figure for seasonally adjusted initial claims was 267,000, a decrease of 5,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 271,000 to 272,000. The 4-week moving average was 272,500, an increase of 1,750 from the previous week's revised average. The previous week's average was revised up by 250 from 270,500 to 270,750.  There were no special factors impacting this week's initial claims. The previous week was revised up to 272,000. The following graph shows the 4-week moving average of weekly claims since 1971.

Lower Jobless Claims Don’t Point to Robust Labor Market - WSJ: The fewest Americans since 1973 will seek new unemployment benefits this year, but that doesn’t mean the labor market is back to full health. In total, less than 15 million American will make first-time requests for government assistance this year—about half as many claims as were made in 2009—and far fewer than the number filed during the 1980s and 90s when the economy was expanding at a stronger clip. But “the labor market is certainly not the healthiest it’s been since 1973,” said Goldman Sachs economist Zach Pandl. “Broader measures of slack in the economy have not improved as much as jobless claims.” The greatest concern in the labor market now aren’t those who recently lost their jobs, but the persistently large number out of work for months or years, and those stuck in low-paying and part-time jobs. At the same time, a larger portion of those newly laid off isn’t seeking benefits. .Initial claims are seen as a proxy for layoffs, but other separation measures show that layoffs have plateaued, or even increased this year. The Labor Department recorded 17.4 million layoffs and discharges during the first 10 months of the year, nearly unchanged from the same period in 2014.

Philly Fed: State Coincident Indexes increased in 40 states in November --From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2015. In the past month, the indexes increased in 40 states, decreased in five, and remained stable in five, for a one-month diffusion index of 70. Over the past three months, the indexes increased in 44 states, decreased in five, and remained stable in one, for a three-month diffusion index of 78. Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP. This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).  In November, 44 states had increasing activity (including minor increases). Five states have seen declines over the last 6 months, in order they are North Dakota (worst), Wyoming, Alaska, Montana, and Louisiana - mostly due to the decline in oil prices.

Texas jobless rate for November increases to 4.6 percent — The Texas unemployment rate for November rose to 4.6 percent, the third straight month of statewide higher jobless figures, the Texas Workforce Commission reported Friday. The October jobless rate in Texas was 4.4 percent. Texas in September had 4.2 percent unemployment, according to TWC figures. The nationwide jobless rate for November was 5 percent. “Texas employers added 179,300 jobs over the past year, highlighting the diversity of the Texas economy and job market,” said Andres Alcantar, commission chairman. Amarillo had the lowest unemployment rate in Texas last month at 3.2 percent. The Austin-Round Rock area was also on the low end for jobless rates, at 3.3 percent. The McAllen-Edinburg-Mission area had the highest jobless rate statewide at 8.0 percent, the TWC said. Texas employers expanded their payrolls last month by adding 16,300 seasonally adjusted nonfarm jobs. More than half, about 9,000 jobs, were in the construction industry, a commission statement said.

Employment is growing more slowly in states that drastically cut unemployment benefits -- A common argument claims that cutting the length of time that people can collect unemployment benefits forces people to find jobs faster. If this were the case, we would expect to see the share of people with jobs increase after cuts went into effect in states that cut unemployment insurance. Instead, the share of people employed actually lagged the national average in the three states that most drastically cut unemployment insurance benefits after the Great Recession—Florida, Georgia, and North Carolina. While North Carolina’s prime-age employment-to-population ratio started out above the national average, it fell to more than 2 percentage points below the national average after drastically cutting unemployment insurance. Both Florida and Georgia started out below the national average when they made cuts to their programs, and they have continued to fall further below the average in the meantime. This casts serious doubts on the theory that a more restricted unemployment insurance system boosts a state’s labor market.

Splitting Jobs From Benefits Has a Long Way to Go -   Good jobs come with benefits, Americans have been taught for the past 65 years. But what if things were differentImagine a world in which employers or employer-like entities were responsible for a high standard fair wage, for humane and adequate scheduling, for non-discrimination, for safe workplaces and nothing else. Then imagine a more robust social contract, actually owned by workers and citizens -- portable, universal, prorated -- that provided a tremendous amount more flexibility and more choice than anything we saw attached to the institutional economy of the 20th century. That was David Rolf, president of the Service Employees International Union Local 775 in Seattle and one of the most interesting figures in the modern American labor movement. He was speaking at an Aspen Institute conference on “portable benefits for independent workers” that I attended last week. Would the world that Rolf describes be better than the one we have now? For some Americans, absolutely. For a lot of others, though, it isn’t so clear -- because they get pretty good benefits already through their jobs. Here’s one view of the breakdown, from the Bureau of Labor Statistics’ most recent Employee Benefits in the United States survey:

Economic opportunity may have a significant effect on health behaviors and risks --- A new study led by Massachusetts General Hospital (MGH) investigators has found evidence that economic opportunity - the prospect that individuals may be able to improve their economic status - may have important effects on the health of a community. In an American Journal of Public Health report that has been published online, the researchers found that mortality rates were higher and that risk factors like obesity and smoking and the prevalence of hypertension and diabetes were greater in areas with the lowest levels of economic opportunity, based on a nationwide database. . "Our findings - that people living in counties with lower economic opportunity on average had worse health behaviors, poorer overall health and were more likely to die younger - suggest that economic opportunity is important for good health as well as for economic well being."  While much attention has been given lately to issue of income inequality, economic opportunity is a different concept. Income inequality represents unequal distribution of resources at the present time, while economic opportunity reflects prospect for future social mobility.  Economic opportunity is usually determined by comparing income differences between generations. For this study, the researchers used information from the Equality of Opportunity Project Database - compiled by investigators from Harvard University, Stanford University, and the University of California, Berkeley - which computes intergenerational economic mobility by comparing the 2010 to 2012 tax records of 10 million young adults with those filed 10 to 15 years earlier by their parents. Levels of economic opportunity were determined on a county-by-county basis based on the extent of income improvement experienced by the average individual whose parents had reported incomes in the lowest 20 percent. The researchers then examined how the level of economic opportunity in a county related to the overall mortality rate and the prevalence of health behaviors and risk factors as reported by the Centers of Disease Control and Prevention.

‘Cash Only’ Small Business Targeted By IRS: The Case Of Nick’s Roast Beef - Nick’s Roast Beef celebrated 40 years of being in business, an amazing accomplishment for small business owners/partners Nicholas Koudanis and Nicholas Markos.  Its single location in North Beverly, MA (about 20 miles north of Boston) is as noted for its sliced roast beef sandwiches as it is for the arduous navigation of its tight parking lot.  On December 10, things took a bad turn for the restaurant’s owners. They were indicted on 17 federal criminal counts. Koudanis, his wife, his son and Markos were arrested for diverting cash to themselves and not paying taxes to the Internal Revenue Service (IRS).  Based on the indictment, not only were they paying themselves in cash, but also suppliers and employees.  Over the past seven years the government said that Koudanis and Markos avoided paying nearly $2 million in taxes.  An IRS audit in 2013 showed sales of about $1 million when the government claims that it was really over $2.3 million.  There were similar ratios of real income versus the alleged doctored amounts in other years. While everyone should play by the rules, the rules seem to be enforced more on those who can least afford to fight.  Defending a criminal case is expensive and the U.S. government has the resources to go as long as it takes to get a conviction.  The charges, in the case of Nick’s filing false tax returns and obstruction, do not carry long prison terms, but prosecutors are known for adding more charges later in order to pressure defendants into a guilty plea.  In cases involving large amounts of cash, that could mean money laundering charges and that could lead to more than a decade in prison.  “Nobody should cheat,” Androphy said, “but the rich and large corporations can fight the government in a way the small businessman cannot.”

U.S. plans raids to deport families who surged across border -- The Department of Homeland Security has begun preparing for a series of raids that would target for deportation hundreds of families who have flocked to the United States since the start of last year, according to people familiar with the operation. The nationwide campaign, to be carried out by U.S. Immigration and Customs Enforcement (ICE) agents as soon as early January, would be the first large-scale effort to deport families who have fled violence in Central America, those familiar with the plan said. More than 100,000 families with both adults and children have made the journey across the southwest border since last year, though this migration has largely been overshadowed by a related surge of unaccompanied minors. The ICE operation would target only adults and children who have already been ordered removed from the United States by an immigration judge, according to officials familiar with the undertaking, who spoke on the condition of anonymity because planning is ongoing and the operation has not been given final approval by DHS. The adults and children would be detained wherever they can be found and immediately deported. The number targeted is expected to be in the hundreds and possibly greater. The proposed deportations have been controversial inside the Obama administration, which has been discussing them for several months. DHS Secretary Jeh Johnson has been pushing for the moves, according to those with knowledge of the debate, in part because of a new spike in the number of illegal immigrants in recent months. Experts say that the violence that was a key factor in driving people to flee Central America last year has surged again, with the homicide rate in El Salvador reaching its highest level in a generation. A drought in the region has also prompted departures.

Stopgap budget equals state employee layoffs, lots of them, administration analysis says - State employees have managed to escape most of the hardship caused by the six-month state budget impasse but enactment of a stopgap budget may change that. According to Gov. Tom Wolf's budget office analysis, about 8,000 employees would be furloughed if the $28.2 billion stopgap budget that the House is planning to vote on Wednesday were to be enacted. That is because without additional funding, there would not be enough money available to pay those employees for the remainder of the fiscal year. The analysis obtained from an administration source indicates the largest number of furloughs are slated to occur in the public safety and human service areas.  Specifically, it indicates:

  • 4,074 furloughs would fall within the Department of Corrections and Board of Probation and Parole
  • 1,281 in the Pennsylvania State Police
  • 952 in the Department of Human Services
  • 352 in the Department of Revenue
  • 174 in veterans' homes across the state
  • 1,200 furloughs sprinkled across other state agencies

An administration source said no timeline has been set for when the furloughs would need to begin or how those positions would be divided between management or union ranks.

Food-stamp rolls still trump payrolls in Illinois - As 2015 comes to an end, Illinois remains the only state in the Midwest to have added more people to food-stamp rolls than to employment rolls during the recovery from the Great Recession. At year’s end, after nearly six full years of recovery from the Great Recession’s job losses, food-stamp enrollment still outpaces job creation in the Land of Lincoln. Illinois has added 340,000 jobs on net since the recession bottom in January 2010, while food-stamp enrollment has increased by 400,000 in the same period. Food-stamp growth in Illinois has outpaced job creation by a 7-6 margin through October 2015, the most recent month of data for both metrics. The lone bright spot is that in November 2015, Illinois reported having fewer than 2 million residents on food stamps for the first time since February 2014. Food-stamp enrollment dropped by 90,000 in the first 11 months of 2015. Despite this small decrease in enrollment, in May 2015, Illinois surpassed Michigan as the Midwestern state with the highest portion of its population dependent on food stamps.During the recovery since January 2010, the number of Illinoisans on food stamps increased by 400,000 people. Meanwhile, the number of Michiganders on food stamps decreased by 200,000 over the same time period. Why such a big difference? One reason is that middle-class manufacturing jobs have been recovering in Michigan, while Illinoisans have barely seen a manufacturing-jobs recovery. Since January 2010, Illinois has gained 13,000 manufacturing jobs on net, while Michigan has added a net of 140,000 manufacturing jobs over the same time period.

Inside the Billion-Dollar Battle for Puerto Rico’s Future - There were plenty of reasons for the hedge funds to like the deal: They would be earning, in effect, a 20 percent return. And under the island’s Constitution, Puerto Rico was required to pay back its debt before almost any other bills, whether for retirees’ health care or teachers’ salaries.But within months, Puerto Rico was saying it had run out of money, and the relationship between the impoverished United States territory and its unlikely saviors fell apart, setting up an extraordinary political and financial fight over Puerto Rico’s future.On the surface, it is a battle over whether Puerto Rico should be granted bankruptcy protections, putting at risk tens of billions of dollars from investors around the country. But it is also testing the power of an ascendant class of ultrarich Americans to steer the fate of a territory that is home to more than three million fellow citizens.The investors with a stake in the outcome are some of the wealthiest people in America. Many of them have also taken on an outsize role in financing political campaigns in the aftermath of the Supreme Court’s 2010 Citizens United decision. They have put millions of dollars behind candidates of both parties, including Hillary Clinton and Jeb Bush. Some belong to a small circle of 158 families that provided half of the early money for the 2016 presidential race. To block proposals that would put their investments at risk, a coalition of hedge funds and financial firms has hired dozens of lobbyists, forged alliances with Tea Party activists and recruited so-called AstroTurf groups on the island to make their case. This approach — aggressive legal maneuvering, lobbying and the deployment of prodigious wealth — has proved successful overseas, in countries like Argentina and Greece, yielding billions in profit amid economic collapse. 

Private Prison Exec Waves Off Criminal Justice Reform, Predicts More Profits -- A senior executive with the second-largest for-profit prison company in America assured investment bankers last summer that despite talk of drug policy and criminal justice reform, the country will continue to “attract crime,” generating new “correctional needs.” “The reality is, we are a very affluent country, we have loose borders, and we have a bad education system,” said Shayn March, the vice president and treasurer of the Geo Group. “And all that adds up to a significant amount of correctional needs, which, thankfully, we’ve been able to help the country out with and states with by providing a lower cost solution.” The previously unreported remarks were made during a presentation at the Barclays High Yield Bond & Syndicated Loan conference in June. While students and activists have protested private prison corporations, scoring a recent victory last week with the decision by the University of California system to divest from firms like Geo Group and Corrections Corporation of America, the firms have largely avoided the spotlight. Private prison companies are a controversial player in America’s criminal justice system. In the 1990s, private prison firms pushed for tougher sentencing laws at the state level and have been tied to efforts in recent years to compel local law enforcement officers to enforce immigration laws. Geo Group has also been faulted for multiple incidents of abuse, ranging from inmates who have died in their facilities to employees charged with sexual assault.

School lunch lady fired for giving girl free meal: -- A lunch lady in Pocatello is out of a job after giving a middle school student a free meal. The situation has stirred an uproar on social media, and community members are not happy. But Dalene Bowden said despite being fired, she doesn't regret what she did for the student. "My heart hurts," she said. "I truly loved my job, and I can't say that I wouldn't do it again."  Bowden lost her job at Irving Middle School last week. She said she was working as a server last Tuesday when a 12-year-old girl told her she didn't have any money and was hungry. "So I handed her the food, and said 'here, we'll take care of it in a minute,'" she said. Bowden's supervisor saw what happened and reported her. "He said I was on permanent leave until he called me - I should not call them, he will call me," she said. "And they never called me... then I got the letter." The letter, signed and written by school district 25's director of human resources, informed Bowden that she was being terminated for theft. The cafeteria worker said she thought the decision was "ridiculous."

Arizona GOP taps creationist chemtrail truther to lead Senate education committee: An Arizona lawmaker who believes the earth is only 6,000 years old and that the U.S. government regularly sprays its citizens with mind-controlling chemtrails has been selected to lead an Arizona legislative committee overseeing education.  Sen. Sylvia Allen (R-Snowflake), was selected by fellow Republican and Senate president Andy Biggs to chair of the Arizona Senate Education Committee, according to 12News. The committee acts as a gatekeeper for education-related laws, including Common Core and spending. “She understands what Arizona students and parents need in our education system,” Biggs told reporters in a prepared statement. According to AZCentral, Allen attended high school but did not go to college. She helped found a charter school in her home town of Snowflake. In March, Allen made national news when she derailed a discussion about gun legislation to suggest a law that forces Americans to go to church on Sundays. In March 2013, she wrote an addled Facebook post about her belief the government was purposely poisoning its citizens with chemicals sprayed by airplanes, confusing white contrails left by aircraft with chemical trails.

Subsidies Increase Tuition, Part XIV - In a new NBER paper, Accounting for the Rise in College Tuition, Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies.  With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks— which consist mostly of changes in financial aid—account for the lion’s share of the higher tuition. Specifically, with demand shocks alone, equilibrium tuition rises by 102%, almost fully matching the 106% from the benchmark. By contrast, with all factors present except the demand shocks (column 7), net tuition only rises by 16%. These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition. Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay. In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks. Furthermore, the students who do enroll take out $6,876 in loans compared to $4,663 in the initial steady state….Lastly, the model predicts that demand shocks in isolation generate a surge in the default rate from 17% to 32%. Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.

Economists Confirm Financial Aid Is Inflating Student Loan Bubble -- A paper recently published by the National Bureau of Economic Research confirms that a large percentage of the increase in college tuition can be explained by increases in the amount of available financial aid. Peter Schiff was saying this as far back as 2012. That summer, Peter appeared on CNBC and debated an economist with the Progressive Policy Institute. Peter insisted that colleges are “basing their prices on the fact that students can borrow money with government guarantees.” Economists Grey Gordon and Aaron Hedlund wrote their paper for the NBER after creating a sophisticated model of the college market. When they crunched the numbers, it confirmed exactly what Peter said in 2012. The demand shock of ever-increasing financial aid accounted for almost all of the tuition increase: Specifically, with demand shocks alone, equilibrium tuition rises by 102%, almost fully matching the 106% from the benchmark. By contrast, with all factors present except the demand shocks, net tuition only rises by 16%. These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition.”George Mason University economist Alex Tabarrok pointed out that Gordon and Hedlund revealed the inevitable outcome of government financial aid policy in his analysis of their paper for the Foundation for Economic Education:"Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay.”According to Gordon and Hedlund, the spike in tuition driven by increased financial aid actually crowds out additional enrollment. But students who do enroll end up taking out $6,876 in loans compared to $4,663 absent the increased availability of financial aid. The end-result, a surging loan default rate from 17% to 32%:  "Essentially, demand shocks lead to higher college costs and more debt,

"Most Liberal" US College Unleashes Demands For "Deconstructing The White Supremacist, Patriarchal, Capitalist System" --The manifesto for the micro-aggressives has been unleashed on an unknowing "safe-space"-seeking, politically-corrected, American public. Students at no lesser liberalist college than Oberlin, Ohio, have released 14 pages of full social-justice-warrior-tard warning that they are "not polite requests, but concrete and unmalleable demands." As reports, the list, which bubbled up online over the past three days, is no less than 14 pages in length, and includes a staggering 50 demands, many of which divide into several sub-demands. Not only are the demands numerous, but they are quite severe and are paired with stern rhetoric. The document opens as follows:  Oberlin College and Conservatory is an unethical institution. From capitalizing on massive labor exploitation across campus, to the Conservatory of Music treating Black and other students of color as less than through its everyday running, Oberlin College unapologetically acts as [sic] unethical institution, antithetical to its historical vision. In the 1830s, this school claimed a legacy of supporting its Black students. However, that legacy has amounted to nothing more than a public relations campaign initiated to benefit the image of the institution and not the Africana people it was set out for...After continuing in this manner for a while and outlining some broad goals (such as “the eradication hegemony in the curriculum”), the document begins to reel off demands, warning that they are “not polite requests, but concrete and unmalleable demands.” If Oberlin doesn’t capitulate, the document warns of a “full and forceful response,” though, despite the detailed demands, what the “response” would be remains entirely undefined.

3 Questions to Ask About the New Student Loan Repayment Program - With the federal government’s new income-based student loan repayment program now open for business, some counselors are advising caution. The lower monthly payments under this option may have long-term costs that could hurt you financially, if you don’t plan ahead.The REPAYE program (Revised Pay As You Earn), which launched December 16, gives every American with a federal student loan the option of capping monthly payments at 10% of disposable income. The most flexible and generous of the government’s income-based programs, it streamlines what is now a confusing menu, though it will not replace all other options.The new lower cap of 10%, widened to include all outstanding federal student loans, includes a forgiveness feature. Any loan balance remaining after 20 years of payments will be wiped away for undergraduate loans. If you borrowed money for graduate school, the forgiveness comes after 25 years.No question, REPAYE is a great option for those who are struggling with monthly bills. This year someone earning $30,000 would see payments capped at about $103 a month, according to the National Foundation for Credit Counseling. But choosing flexible loan terms can have long-term consequences. To make sure you know the trade-offs, here are three questions to ask before you jump into REPAYE:

At 108 US Colleges, More Than Half Of Students Haven't Paid Even $1 On Their Student Loans -- That the student loan bubble is one of the many "subprime" crises (because as of this moment there are just too many asset bubbles to count thanks to 7 years of global ZIRP, NIRP and QE) has been documented here ever since 2012. We also explained that the main reason for soaring college costs is the cheap and easily accessible government-funded student debt, which at last check was over $1.2 trillion and rising exponentially.  Today, the WSJ had an article on just this, titled "U.S. Helps Shaky Colleges Cope With Bad Student Loans" in which it explained in fine detail what our readers knew already, namely that it is the government's direct intervention with trillions in "aid" that is making the debt default problem far more acute than it would have otherwise been, and leads to keeping millions more "students" in college where they end up learning no marketable skills in a job market that rewards mostly waiters and bartenders, yet loads them up with untenable debt. Like we said: nothing new. There was however one stunning fact buried deep in the article. While we knew that overall student loan default rates for all US colleges were in the 8-10% range based on the Fed's quarterly consumer credit data, what was stunning is that the "non-repayment" rate, or the percentage of students who haven't made a single dollar toward their loans within three years of leaving college is a crisis-worthy 21.3%. This means that of the millions in college graduates from the 2010 and 2011 cohort (and since then the job market for recent graduates has gotten worse), more than a fifth don't have either the means or the intention to repay even one of the tens of thousands of dollars they owe...

Pension risks point to higher 2016 borrowing costs for some U.S. cities - Some U.S. cities may have to pay higher interest rates to borrow money in 2016 as they contend with a host of new pressures on their underfunded public pensions, including new reporting rules and the impact of this year's tepid investment returns. The recession-era ghost of public pensions problems will continue haunting the $3.7 trillion U.S. municipal bond market next year, investors and analysts told Reuters. Investors are expected to demand greater compensation, especially for financially weak municipalities that for the first time will have to move unfunded pension liabilities from the footnotes of financial statements to their balance sheets. "A lot of local (general obligation bonds) don't have, in my opinion, the cheapness to compensate for this new information flow we're going to get," said R.J. Gallo, senior portfolio manager at Federated Investors in Pittsburgh. When interest rate spreads widen on a city's general obligation (GO) debt, its existing debt underperforms and usually leads to higher rates for new borrowing. Investment losses during the last U.S. recession - which ended in 2009 - laid bare the fact that many states and cities shortchanged their public employee retirement systems for years. In the third quarter of 2015, unfunded liabilities rose nationally to a near three-year high of $1.71 trillion combined, according to Federal Reserve data.

California Pension Won’t Force Wall Street To Disclose All Fees Charged To Retirees - Earlier this month, the nation’s largest public pension fund roiled the financial world: Officials overseeing $300 billion of California public employees’ retirement savings disclosed that the fund had paid $3.4 billion in fees to private equity firms over the last two decades. The news of the fees -- and a call by California Treasurer John Chiang for legislation requiring more ongoing disclosure -- seemed to herald a new trend toward greater transparency at a time when the Securities and Exchange Commission has warned that private equity investors may be getting hit hard by hidden fees. That momentum toward transparency at the California Public Employees' Retirement System (CalPERS), however, appeared to abruptly halt last week when pension overseers quietly rejected a measure that would have required Wall Street firms to disclose all possible levies before they get their hands on the retirement savings of the system's 1.7 million members. Some CalPERS board members said they were concerned the measure might alienate private equity firms, thereby denying pensioners the benefits of those investments.  The initiative, introduced on December 14 by CalPERS board member J.J. Jelincic, would have blocked the pension fund from signing any new deals with private equity firms that do not disclose “any and all types of types of fees, carry, discounts, rebates and/or any other forms of economic rent” charged to investors. The move came after Jelincic compelled a top CalPERS official to publicly admit that the state does not know the total amount in fees pensioners are now paying to firms in its $28 billion private equity portfolio.

CalPERS: Stockholm Syndrome and Cowardice on Private Equity Fee Disclosure -- Yves Smith -CalPERS’ board and staff should be concerned about the reactions of Naked Capitalism readers to what they can discern about how the pension fund operates. The site has a sophisticated and not-easily-scandalized audience. The members of the commentariat, when they see how CalPERS’ officers and Investment Committee members rush to defend the private equity industry and are clearly loath to do anything that they think will upset their “relationship” with private equity firms, conclude corruption is at work. Comments from different individuals on CalPERS posts regularly say that CalERS staff and board members have to be on the private equity meal ticket somehow to be behaving this way, be it revolving door, political contributions, payoffs, or other forms of palm-greasing. And they reach these conclusions despite CalPERS’ efforts to make its board meetings sessions as dull and unrevealing as possible via active stage management through illegal (under Califonia’s open meeting laws) pre-board meeting briefings, and having successfully indoctrinated the board to be passive. Even with those measures, the agency keeps providing juicy material despite itself on the private equity front. And let us not forget that CalPERS’ conduct is revealing, not just for itself, but as illustrative of the behavior of a lot of public pension funds. If CalPERS, the biggest, most powerful, and most sophisticated, behaves this way, just imagine what the others are like.

An Aging Society Changes the Story on Poverty for Retirees - One of the great success stories of the 20th century was the decline in poverty among the elderly. That story, however, is starting to change.   A typical American worker in the middle rung of the earnings ladder — whose career pay averaged out at about $46,000 a year in today’s money — could retire this year at age 65 with a Social Security benefit worth 39 percent of the career average. But unless something is done to replenish Social Security’s shrinking trust funds, by 2035 the first pension check for such a worker might amount to as little as 27.5 percent of her career wage, according to calculations published last year by the chief actuary of the Social Security Administration. This is not merely an American trend. A preliminary analysis by economists at the Organization for Economic Cooperation and Development, the official research and policy arm of the world’s advanced industrial nations, suggests that the gross replacement rates of public pension systems in a number of European countries are likely to decline over the next half century or so. Though there are big differences among nations, according to Stefano Scarpetta, director of employment labor and social affairs at the O.E.C.D., “in a majority of countries, the replacement rate probably will be lower than the one people have experienced so far.” It is a consequence, of course, of a broad, inexorable trend: aging. That has raised the dependency rate across industrial societies. In 1950 there were 14 people aged 65 and over in O.E.C.D. countries for every 100 people of working age. Today there are 28. The trend is expected to continue for at least the next 50 years.

Dean Baker: “An Aging Society Is No Problem When Wages Rise” -- The argument behind MJ.ABW in relation to Social Security (More Jobs. At Better Wages) by real economist and mentor Dean Baker of CEPR. Also an implicit underpinning of the Northwest Plan for a Real Social Security Fix. The whole thing is short if you want to read through: An Aging Society Is No Problem When Wages Rise The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.

Cheap credit, yield chase fuel buybacks, leave workers sidelined: It begins with pension funds like the one Egli relies on. These big institutional investors are in a bind. To keep sending checks to rising numbers of retiring baby boomers, they are chasing higher returns than they can get from traditional fixed-income investments like U.S. Treasury securities. At the same time, they are wary of relying heavily on stocks after the market rout during the financial crisis bit deep into their reserves. So they are turning to fixed-income investments. More than buying bonds directly, they are investing in private equity and hedge funds, which use borrowed money to increase returns on debt while also chasing higher-risk, higher-return investments such as junk bonds. Egli’s retirement fund, the Iowa Public Employees’ Retirement System, or IPERS, is among the many pension funds that have emerged as major investors in these alternative investments. The demand from pension funds is helping to finance record levels of corporate debt. The low interest rates that have crimped returns on investments also make it dirt cheap for companies to borrow, and many of them are doing just that, often to buy back their own shares. As reported in earlier installments in this series, corporate America is pouring unprecedented amounts into buybacks. Using debt to finance buybacks can produce tax or accounting benefits. The buybacks provide an alternative to capital investment or research spending when business conditions don’t justify making long-term bets. Instead, buybacks return profits to shareholders – and often enhance executive pay – even when a company hits lean times and is laying off workers. In fact, buybacks have become the fuel powering the more-than twofold increase in the stock market since the depths of the financial crisis in 2009. Together, U.S. non-financial companies have spent $2.24 trillion on buybacks since 2009, while borrowing an extra $1.9 trillion to help finance those purchases, according to a Reuters review of Federal Reserve data.

How prefunding retiree health benefits impacts the Postal Service’s bottom line – and how Brookings got it wrong  -- In October, the Washington Post ran a column by Lisa Rein entitled Should the Postal Service be sold to save it?” The article was about a recent paper by Elaine Kamarck published on the Brookings Institute’s website. Kamarck is the Founding Director of the Center for Effective Public Management at Brookings, as well as being a Senior Fellow in Brooking’s Governance Studies. Her paper is entitled “Delaying the inevitable: Political stalemate and the U.S. Postal Service.”  Kamarck’s thesis is that the Postal Service is going through a “crisis of obsolescence,” its financial losses are unsustainable, and “the political system is stuck and unable to do anything about it.” The thing to do now, concludes Kamarck, is split the Postal Service in two. One organization would fulfill the universal service obligation by delivering market-dominant mail. The other part would be privatized and take over competitive products (Priority Mail and package shipping); it would also be given the freedom to expand into new areas of business now prohibited for the Postal Service. The article prompted several critical responses, including pieces by Dave Johnson in Crooks & Liars and Zaid Jilani in AlterNet. Rein also did a follow-up article in the WaPo — “Why sell off the Postal Service if it’s making money?” — in which she goes more deeply into the conflicting explanations for the Postal Service’s financial problems.  The critics of Kamarck’s paper (and Rein’s column about it) argue that were it not for the RHBF prefunding established in 2006 by the Postal Accountability and Enhancement Act (PAEA), the Postal Service would not have been posting huge losses. The core of the financial problem facing the Postal Service is the requirement to fully fund decades of future retiree health costs with ten annual payments of about $5.6 billion, an obligation imposed on no other business or government agency..

Medicare Drug Spending Dashboard - CMS fact sheet -  Prescription drugs are a major contributor to improving patient health as well as a major driver of health care spending. Spending on prescription drugs in the U.S. grew by 12 percent in 2014, faster than in any year since 2002. The Centers for Medicare & Medicaid Services (CMS) is one of the largest purchasers of prescription drugs in the US. As part of its effort to provide additional information, increase transparency, and address the affordability of prescription drugs, CMS is releasing a new online dashboard to look at Medicare prescription drugs for both Part B and Part D. These categories include drugs with high spending on a per user basis, high spending for the program overall, and those with high unit cost increases in recent years. CMS intends to update this list on a regular basis and release a similar list for Medicaid next year. To create this list, CMS identified 80 drugs using 2014 data that met the criteria described below: 40 drugs provided through the Medicare Prescription Drug Program under Part D and 40 drugs administered by physicians and other professionals in the Medicare fee-for-service program under Part B. Products have been selected from each respective program area based on the following criteria:

  1. the drug is ranked in the top 15 in terms of total program spending (for either Part B or D);
  2. the drug is associated with a high annual per user spending based on claims data analyses (e.g., greater than $10,000 per user) and is ranked in the top 15 by overall program spending (if a drug already is selected based on (a) it is not eligible to be selected based on (b) criteria); or
  3. the drug is ranked among the top 10 high unit cost increases (if a drug already is selected based on (a) or (b) it is not eligible to be selected based on (c) criteria).

Checking Up On Obamacare - Paul Krugman - One of the remarkable aspects of the politics of health reform is the way conservatives — even relatively mild, seemingly informed conservatives — have managed to keep believing that Obamacare is unraveling, despite the repeated failure of disaster predictions to come true. Part of the way this works is that captive media and the right’s pet “experts” hype every bit of bad news, but go silent when the news is good (and, often, when the bad news turns out to have been a false alarm.) How many will even hear about the news that enrollments are once again running above expectations, and the pool is getting younger? Anyway, it’s really helpful to have this new report from the Commonwealth Fund comparing actual performance with pre-implementation predictions. Premiums came in far below expectations; part, but only part, of this positive surprise was given back by 2016 premium hikes, with overall costs still looking very good.  On enrollments: fewer people than expected signed up for the exchanges, but an important reason was that fewer employers than expected ended coverage and moved their employees into the individual market. Meanwhile, Medicaid expanded more than expected — and the overall reduction in the number of uninsured was pretty much in line with forecasts:

Obamacare's 'Cadillac tax' will swamp municipalities: The Affordable Care Act will impose a 40 percent excise tax on employer-sponsored health coverage that costs more than $10,200 for single and $27,500 for family coverage. This "Cadillac tax" will also hit cost-control measures that have become increasingly popular with employers and employees alike: flexible spending arrangements, health savings accounts, and on-site employer health clinics. Private employers might be able to avoid the tax by unilaterally reducing employee health benefits. But state and local governments, which have negotiated robust benefits in lieu of higher wages, are facing a fiscal tsunami. Though recent congressional action has the tax on course to start in 2020 instead of 2018, that is woefully insufficient. A permanent reform is needed. At a 6.5 percent annual inflation rate for health insurance premiums, the Cadillac tax alone would have added at least 12 percent to the cost of health coverage for the average Southeastern Pennsylvania municipality in 2018. And that burden will grow over time because the "excess benefit" thresholds rise with the Consumer Price Index and ignores regional differences in benefit costs. This "one size fits all" approach means that an HMO in Pennsylvania - which costs 10 percent to 15 percent more than one outside the Northeast - will be taxed like a Cadillac even though it's just a nicely appointed Chevy Malibu.

Why medicine costs so much in America - Vox: America's soaring drug prices are suddenly getting lots of attention. For that, you can thank Martin Shkreli, the much-loathed CEO of Turing Pharmaceuticals who recently raised the price of an anti-parasitic drug by 5,500 percent. Overnight, a single tablet went from $13.50 to $750, making an essential medicine unreachable for some. Many people have wondered how Shkreli could do something like this. But to understand that story, you first have to understand how the US system of drug pricing actually works — and why it's so wildly different from other countries.

  • 1) In the United States, drug prices are set by the market — unlike elsewhere In other countries with single-payer systems, governments exert much more influence over the entire health care process. That allows them to negotiate directly with drugmakers. The government sets a maximum price that it will pay for a drug, and if the company doesn't agree, it simply loses out on the entire market. This puts drugmakers at a disadvantage, driving down the price of drugs.
  • 2) Drug companies consider a number of key factors in setting prices There's no magic formula for how drug companies decide on prices, and since pricing information is considered proprietary, it's largely hashed out in private, usually in negotiations between drug companies and insurers.
  • 3) Americans pay more for drugs than those in other countries

The War on Big Pharma - Last September Senator Bernie Sanders introduced legislationThe Prescription Drug Affordability Act of 2015 — to stop soaring increases in pharmaceutical prices. He and Hillary Clinton are both running for the Democratic nomination to be President in 2016; and both offer up their own plan for controlling the high cost of rising prescription drug prices on their websites. However, Hillary has received more campaign cash from drug companies than any other candidate — in either party — even as she proudly declares the industry is one of her biggest enemies. In stark contrast Bernie, received zero contributions from drug companies, and received most of his campaign financing from individual donors and labor unions. So which candidate will launch the most genuine war on Big Pharma? (embedded)  According to government data released this week, significantly higher drug prices contributed to higher Medicare spending in 2014. At least five drugs covered under Medicare Part D had increases of 100% or more. A report based on a new online database released by the Center for Medicare Services (CMS) this week showed that one of the most egregious examples is the pain reliever Vimovo. Its price increased more than 500 percent after it was sold by AstraZeneca to another company (Pfizer attempted to by out AstraZeneca last year). The 2014 drug-price information was part of a new online database called the Medicare Drug Spending Dashboard, which details 80 drugs that ranked the highest by total Medicare spending. CMS said the drugs account for 33% of all Medicare Part D spending, and 71% of all spending on prescriptions by Medicare Part B, which covers drugs administered in doctor’s offices and outpatient clinics. Robert Roach, President of the Alliance for Retired Americans, said "More than 35 million people didn’t fill a prescription last year because they could not afford to." The Alliance is closely tracking what the candidates for President and Congress are pledging to do about prescription drug prices — and are pressing policymakers for change.

Nursing Homes Are Struggling to Care for the Obese Elderly - Chism is severely obese, unable to leave her bed without a mechanical lift and a team of nurses. She has not walked in years. Her life is circumscribed by the walls of her room. Obesity is redrawing the common imagery of old age: The slight nursing home resident is giving way to the obese senior, hampered by diabetes, disability, and other weight-related ailments. Facilities that have long cared for older adults are increasingly overwhelmed—and unprepared—to care for this new group of morbidly heavy patients. “The population is shifting faster than the ability of nursing homes to deal with them,” said Cheryl Phillips, a senior vice president at LeadingAge, an association of nonprofit providers of services for older adults. “We don’t have adequate staff. We don’t have adequate equipment. We don’t have adequate knowledge.” The percentage of those entering American nursing homes who are moderate and severely obese—with a body mass index of 35 or greater—has risen sharply, to nearly 25 percent in 2010 from 14.7 percent in 2000, according to a recent study, and many signs suggest the upward trend is continuing. But as demand from severely obese patients surges, nursing-home administrators say they cannot afford to care for them, because Medicaid, which covers more than 60 percent of all nursing-home residents, does not reimburse them for the specialized equipment required: motorized lifts; larger wheelchairs, bedside commodes and shower chairs; and longer intramuscular needles and blood-pressure cuffs. The devices are expensive: $10,000 for a mechanical lift, for instance, and $5,000 for an extra-wide bed.

FDA overturns 30-year ban on blood donations by gay men | Reuters: The United States government on Monday overturned its 30-year ban on blood donations by gay men, saying they can now donate 12 months after their last sexual contact with another man. The Food and Drug Administration said its decision to reverse the policy was based on an examination of the latest science which shows that an indefinite ban is not necessary to prevent transmission of HIV, the virus that causes AIDS. "Ultimately, the 12-month deferral window is supported by the best available scientific evidence, at this point in time, relevant to the U.S. population," Dr. Peter Marks, deputy director of the FDA's biologics division, said in a statement. The move brings the United States in line with countries such as the United Kingdom, Australia and New Zealand which also have 12-month deferrment periods. Gay rights advocates said the updated policy reamins discriminatory. "It is ridiculous and counter to the public health that a married gay man in a monogamous relationship can't give blood, but a promiscuous straight man who has had hundreds of opposite sex partners in the last year can," said Jared Polis, a Democratic congressman and co-chair of the Congressional LGBT Equality Caucus, a caucus of openly gay members of Congress.

Superbug Bacteria Resistant to All Antibiotics Found in the UK -- Following the discovery in the UK of bacteria that resist the most common antibiotic of last resort, a leading British expert is warning it is “almost too late” to stop a global superbug crisis. News outlets reported Monday that UK government scientists have found a gene, known as mcr-1, that gives bacteria resistance to colistin, often used by doctors when other antibiotics fail. Such resistance was first discovered last month in China and in the past few weeks, the resistance gene has also been found in Denmark, France, the Netherlands, Portugal and in several Asian and African countries.  The rise of the so-called post-antibiotic era is widely linked to over- and misuse of antibiotics in industrial agriculture.  Public Health England found colistin-resistance in 15 of the 24,000 bacterial samples it keeps on record from cases between 2012 and 2015, including samples of salmonella and E. Coli.  According to the Soil Association’s Alliance to Save Our Antibiotics campaign, scientists found the mcr-1 gene in E. coli from two pig farms, in samples from a pig and two separate patients. The E. coli from the human patients were also resistant to the critically important cephalosporin antibiotics, the Alliance noted. Meanwhile, the colistin gene was also found in 10 human salmonella infections and in salmonella from an imported sample of poultry meat.The gene is reportedly found on mobile pieces of DNA, which means it can jump from farm-animal bacteria into bacteria causing human infections.

Meet the Scientist Who Injected Himself with 3.5 Million-Year-Old Bacteria -  If you met Anatoli Brouchkov on the street, you’d never guess that he once injected himself with a 3.5 million-year-old strain of bacteria, just to see what would happen. The bacteria in question is known as Bacillus F, which Brouchkov pulled out of a permafrost sample from Mammoth Mountain in the northern Siberian region of Yakutsk in 2009. (You might remember Yakutsk as the location Motherboard contributor Ben Makuch visited last year in our documentary, “Cloning the Wooly Mammoth.”)  Brouchkov believes that this bacteria was not merely preserved for millennia, but actually thrived under these conditions. According to Brouchkov, Bacillus F has a mechanism that has enabled it to survive for so long beneath the ice, and that the same mechanism could be used to extend human life, too—perhaps, one day, forever. In tests, Brouchkov says the bacteria allowed female mice to reproduce at ages far older than typical mice. Fruit flies, he told the Siberian Times, also experienced a “positive impact” from exposure to the bacteria.  The problem is, he still doesn’t know what, exactly, that mechanism is.  Brouchkov isn’t the only scientist analyzing ancient bacteria pulled from the frozen depths of the northernmost regions of the world, though he may be one of the only few doing so in search of eternal life. For decades, scientists have been recovering bacteria from the Siberian permafrost and analyzing their properties. The CDC analyzed a giant prehistoric virus (“giant,” because it’s observable with a regular microscope) recovered from permafrost in a secret lab back in September, for example. Last year, researchers from the Russian Academy of Sciences sequenced the genome of a drug-resistant plasmid isolated from bacteria found in permafrost.

DNA Manufacturing Enters the Age of Mass Production - IEEE Spectrum: Emily Leproust, CEO and cofounder of the buzzy biotech startup Twist Bioscience, is an industrialist on the nanoscale. “I remind everyone at Twist, we are a manufacturing company,” she says. “We manufacture DNA.” Twist is part of the young industry of synthetic biology, in which living organisms are the product and a biology lab is the factory floor. By manufacturing strands of DNA—assembling the genetic code of life from its basic components—scientists are creating organisms the likes of which the world has never seen. And these new life forms can be decidedly useful: Biologists have produced yeast cells that excrete pharmaceuticals and algae that brew jet fuel. This burgeoning business sector has been hampered by the labor-intensive nature of DNA assembly, a painstaking process requiring trained personnel. Now, nimble startups are competing to fashion automated DNA assembly lines that would make Henry Ford proud, using techniques copied from the fabs that make computer chips. As their innovations bring down the cost of constructing DNA strands, these entrepreneurs are aiming for a low price point, which they say will cause a market boom. Twist Bioscience, which will begin commercial operations at its San Francisco headquarters in 2016, is a leading contender in that race to the bottom. Genetic material is composed of molecules called nucleobases; the four types of bases in DNA are identified by the letters A, C, G, and T. The order of these letters serves as a code that instructs an organism how to build its cells and carry on the functions of life. In human beings, this code is about 3.2 billion letters long, while the yeast used in baking and beer brewing has a code of about 12 million letters. If you tweak the order of the letters, you tweak the organism’s instructions. Synthetic biologists have written new snippets of code and inserted them into yeast DNA, causing the microbe to churn out, for example, the omega-3 fatty acids found in fish oil supplements or the aromatic oils normally produced by roses.

Why Human Genetics Research Is Full of Costly Mistakes - For Heidi Rehm, it looked like a straightforward case. Her lab at Partners Healthcare offers tests for genetic diseases. They had received a blood sample from a fetus after a doctor conducting an ultrasound spotted signs of Noonan syndrome—an inherited disorder involving heart problems and stunted growth. The fetus turned out to have a mutation in PTPN11, a gene that affects the risk of Noonan syndrome. Rehm found that another team of scientists had published on that very same mutation before. (Not every mutation of PTPN11 increases the rick of Noonan syndrome.) They found that it was more common among Noonan patients than in healthy people, and had billed it as “pathogenic”—that is, likely to cause disease. Rehm reported it as such to the doctor who sent her the sample. Sometime later, she was listening to a talk by a colleague who had found the same mutation in a patient with Noonan syndrome and, based on the same published study, had also classified it as pathogenic. But this time, the patient—an adult—had contacted the researchers behind the paper. And they had admitted that their conclusions were wrong. In later work, they had found that the mutation is so common in certain ethnic groups that it couldn’t possibly be responsible for a rare disease like Noonan syndrome. It wasn’t pathogenic after all.  “I immediately contacted the physician to find out the story with that baby,” Rehm says. “And that’s when I found out that the parents had terminated it.” This story is unusual only in that Rehm is uncommonly open about it. Many geneticists have similar tales where mistakes in the scientific literature have led to wrong—and sometimes harmful—diagnoses.

Congress Bans Plastic Microbeads, Bill Heads to President Obama’s Desk -- The U.S. Senate unanimously approved a bill Friday phasing out the manufacturing of plastic microbeads by July 1, 2017 and the sale of beauty products containing plastic microbeads by July 1, 2018. Similar to California’s historic microbead ban signed into law earlier this year, the Microbead Free Waters Act (H.R. 1321) bans all plastic microbeads, including those made from so-called “biodegradable plastics,” the majority of which do not biodegrade in marine environments.  The Microbead Free Waters Act, introduced by Reps. Frank Pallone (D-N.J.) and Fred Upton (R-Mich.), will prevent 1.4 trillion plastic microbeads from entering U.S. waterways each year. Plastic microbeads—designed to be washed down the drain and too small to be reliably captured by wastewater treatment facilities—pollute lakes, rivers and oceans.  Once in the environment, plastic microbeads concentrate toxins such as pesticides and flame retardants on their surface, which may then transfer to the tissue of fish that mistake microbeads for food. A recent study found that one quarter of fish found at California fish markets had ingested plastic. One tube of exfoliating facewash can contain more than 350,000 microbeads.

New NASA Satellite Maps Show Human Fingerprint on Global Air Quality - NASA - Using new, high-resolution global satellite maps of air quality indicators, NASA scientists tracked air pollution trends over the last decade in various regions and 195 cities around the globe. The findings were presented Monday at the American Geophysical Union meeting in San Francisco and published in the Journal of Geophysical Research. "These changes in air quality patterns aren't random," "When governments step in and say we're going to build something here or we're going to regulate this pollutant, you see the impact in the data." Duncan and his team examined observations made from 2005 to 2014 by the Dutch-Finnish Ozone Monitoring Instrument aboard NASA's Aura satellite. One of the atmospheric gases the instrument detects is nitrogen dioxide, a yellow-brown gas that is a common emission from cars, power plants and industrial activity. Nitrogen dioxide can quickly transform into ground-level ozone, a major respiratory pollutant in urban smog. Nitrogen dioxide hotspots, used as an indicator of general air quality, occur over most major cities in developed and developing nations. The science team analyzed year-to-year trends in nitrogen dioxide levels around the world. To look for possible explanations for the trends, the researchers compared the satellite record to information about emission controls regulations, national gross domestic product and urban growth. "With the new high-resolution data, we are now able to zoom down to study pollution changes within cities, including from some individual sources, like large power plants,"

Fearing pollution, Chinese families build 'bubbles' at home - Liu Nanfeng has five air purifiers, two air quality monitors and a water purification system in his Beijing apartment. He buys organic. But still he worries for his 2-year-old daughter's health. "I feel safe at home, but when we go out to the mall, the indoor and outdoor air are the same," the 34-year-old screenwriter said. "It feels hopeless." China's persistent pollution and regular product safety scandals are driving an increasing number of consumers to build bubbles of clean air, purified water and safe products at home and in their cars. Beijing's city government has twice this month issued pollution "red alerts", the first time it has triggered its most severe smog warning. While there is no official data on their numbers, market analysts say Liu's tastes reflect the concerns of a large and growing group of well-heeled urban consumers. Foreign and domestic companies are starting to take notice of what could be called "bubble families", a demographic whose emergence has been fueled by new technologies and the rapid spread of e-commerce. Though air quality data has been available for years from the Chinese government - as well as the U.S. embassy and consulates around the country - public awareness of environmental threats is on the rise, especially since the February online release of journalist Chai Jing's environmental documentary "Under the Dome".

Montreal residents will have to register their fireplaces and wood-burning stoves — or face a $500 fine - Dec. 22 is the deadline for Montreal residents to register all fireplaces or wood-burning stoves (or anything that burns solid matter, as opposed to fuel or electric). It’s part of a plan adopted by the city of Montreal to implement stricter air-pollution regulations by 2018. Dorval recently adopted similar measures. Montreal sent out 47,000 letters to residents it suspects has the appliances, based on records of municipal home evaluations. As of late November, the city had compiled 23,000 online responses. The penalty for residents who have not registered wood-burning fireplaces or stoves is a fine of up to $500. Starting in 2018, wood-burning appliances will be banned unless they meet the rigorous new emission standards of 2.5 grams of fine particles or less per hour. The bylaw is among the strictest in North America, said Réal Ménard, the city’s executive committee responsible for the environment. Presently, transforming a stove or fireplace with inserts so that it is in compliance with the coming regulations costs between $2,000 and $8,000.

Mexico’s monarch butterfly reserve lost 24 acres to logging this year - - Studies found that illegal loggers clear-cut at least 24 acres in the monarch butterflies’ wintering grounds in central Mexico this year, a Mexican environmentalist said Friday. Writer and activist Homero Aridjis said the illegal logging went on unchecked between April and August and occurred in one of the most important areas of the reserve.  Earlier, Mexican officials had said that the reserve lost about 22 acres due to illegal logging in one area this year and that a number of arrests were made. Illegal logging had fallen to almost zero in 2012. The butterflies depend on the pine and fir forests west of Mexico City to shelter them against cold and rain. Aridjis called on authorities to stop all illegal logging in the butterfly reserve.

First-Ever National Wild Bee Map Shows Major Decline in Crucial Agricultural Regions -- A team of researchers at the University of Vermont (UVM) created the first national study, which mapped wild bee populations. Their findings, which were published in the Proceedings of the National Academy of Sciences, confirm that native pollinators are in major decline in crucial agricultural regions of the U.S. They estimate that between 2008 and 2013, wild bee abundance declined in 23 percent of the contiguous U.S.  “If losses of these crucial pollinators continue, the new nationwide assessment indicates that farmers will face increasing costs—and that the problem may even destabilize the nation’s crop production,” the researchers said. The study found that 39 percent of U.S. croplands that depend on pollinators face a “threatening mismatch between rising demand for pollination and a falling supply of wild bees.” They propose setting aside 7 million acres of land for pollinators over the next five years.  They identified 139 counties where this “mismatch” is most striking. These counties included agricultural regions of California such as the Central Valley, Pacific Northwest, upper Midwest and Great Plains, west Texas and the southern Mississippi River valley. Crops such as pumpkins, watermelons, pears, peaches, plums, apples and blueberries are most at risk because they are most dependent on pollination.

California Passes Neighborhood Food Act -- As surprising as it may seem, you actually don’t have the right to grow your own fruits and vegetables on your own private property. In some states- Florida, namely- people have been fined thousands of dollars for planting vegetable gardens and even gone to prison for trying to live off the grid. Last week, though, the state of California took a stand against the tyranny of the suburban lawn by passing the Neighborhood Food Act. That’s huge. The Neighborhood Food Act, AB 2561, is just one of several sustainable foods bills signed into law by California Gov. Jerry Brown last week. Designed to removes barriers to growing food for personal consumption, the bill ensures that people have the right to grow food for themselves regardless of their housing status, and includes provisions that would completely overturn local zoning ordinances that prohibit growing food in front yards, back yards, or otherwise vacant lots (assuming they’re owned by the grower) in “residential” areas and other types of zones. Furthermore, the Neighborhood Food Act guarantees tenants’ and members of homeowner’s associations’ rights to grow food for personal consumption by voiding contrary language in existing lease or homeowner’s associations agreements.

Agrichemical Industry ‘Attack Dog’ Hired to Discredit Teenage Anti-GMO Activist  -- The U.S. agrichemical lobby targeted a Canadian teenager as part of its “increasingly nasty and divisive public relations war over GMOs,” according to new reporting from Global News. Rachel Parent was 14 years old when her activism around labeling genetically modified organisms (GMOs) in food caught the eye of pro-GMO corporations and lobby groups.  According to emails and thousands of other pages of documents released in a freedom of information request by U.S. Right to Know (USRTK), a non-profit advocacy group funded by the Organic Consumers Association, these industry forces conspired to think of ways to discredit Parent and counter her message.“It’s mostly scientists that they attack, but Rachel is a standout,” Gary Ruskin, the co-director of USRTK, told Global News. “The agrichemical industry is plainly quite threatened by this teenage schoolgirl, so that’s why they’re after her.”Among other things, the news outlet reports that University of Florida professor Kevin Folta—whom Ruskin describes as “one of the principal attack dogs of the agrichemical industry”—was hired by public relations firm Ketchum to make a video about Parent.According to Global News:The video discussed Parent’s activism, her belief that all GMO food products should be labeled and addressed her apparent lack of scientific knowledge.

Earth Is Losing Soil Faster Than It Can Replenish It, Which Could Mean Trouble For Food And Climate With all that’s going on in the world — from record-breaking warm spells to rapidly melting ice sheets — it’s easy to ignore something so seemingly mundane as dirt. But scientists at the University of Sheffield’s Grantham Center for Sustainable Futures suggest that we ignore dirt at our own peril. Nearly a third of the world’s arable land has been lost over the past four decades, according to a new report, released to coincide with the Paris climate talks earlier this month. Experts at the the University of Sheffield called this soil loss “an unfolding global disaster” that directly threatens the agricultural productivity of the planet. But soil erosion isn’t just a problem for food security — which is expected to become even more pressing as the world’s population booms and land available for food production wanes. Soil erosion is also tied to the climate, as the world’s soils represent a massive carbon storage system, containing three times the amount of carbon that is currently in the atmosphere. Soil is lost rapidly but replaced over millennia, and this represents one of the greatest global threats to agriculture “If the soil carbon reserve is not managed properly, it can easily overwhelm the atmosphere,” The University of Sheffield report places most of the blame for soil erosion on what it calls unsustainable farming practices, which require large amounts of fertilizers and tilling to boost crop yields. Switching to a more sustainable model of intensive agriculture, the report urges, can help offset soil loss.

Paper estimates widespread tree death in Southwestern forests under global warming scenarios: --A research paper published today in Nature Climate Change predicts widespread death of needleleaf evergreen trees (NET) within the Southwest United States by the year 2100 under projected global warming scenarios. The research team that conducted the study, which includes University of Delaware’s Sara Rauscher, considered both field results and a range of validated regional predictions and global simulation models of varying complexity, in reaching this grim conclusion. “No matter how we investigated the problem, we got the same result. This consensus gives us confidence in this projection of forest mortality,”  The Southwest U.S. is a semi-arid region that includes Arizona and parts of New Mexico, California, Colorado, Utah and Texas, among other states. According to the U.S. Department of Agriculture Forest Service, it is home to 11 national forests spanning more than 20 million acres in Arizona and New Mexico, alone. Loss of broad-scale forest cover over the Southwest could contribute additional carbon to the atmosphere, creating additional warming. This is because trees and understory vegetation, such as shrubs and bushes, sequester carbon from the atmosphere. Less vegetation means less carbon capture, which can create a negative feedback loop that can accelerate climate change, Rauscher said. Recent droughts over the Southwest have caused substantial tree death, even among drought-resistant species. The most recent example is in 2002-03, when Los Alamos scientists and colleagues noticed a high rate of die-off in area drought resistant trees like piñon pine and juniper. This, coupled with similar reports from around the world indicating increasing tree death, prompted the current group of scientists to look at whether this was related to climate change.

Greenhouse Gas Emissions from Agriculture and Forestry - k.m. - (infographic) This information from the FAO breaks down greenhouse gas emissions for agriculture, forestry, and other land uses. Note that at the bottom, there is a breakdown of emissions from energy used in agriculture.

Pumped beyond limits, many U.S. aquifers in decline: Jay Garetson’s phone buzzed on the bedside table. He picked it up and read the text: “Low Pressure Alert.” He felt a jolt of stress and his chest tightened. With the water table dropping, another well on his family’s farm was starting to suck air. The Garetson family has been farming in the plains of southwestern Kansas for four generations, since 1902. Now they face a hard reality. The groundwater they depend on is disappearing. Their fields could wither. Their farm might not survive for the next generation.“It’s just a question of how much time is left.” Time is running out for portions of the High Plains Aquifer, which lies beneath eight states from South Dakota to Texas and is the lifeblood of one of the world’s most productive farming economies. The aquifer, also known as the Ogallala, makes possible about one-fifth of the country’s output of corn, wheat and cattle. But its levels have been rapidly declining, and with each passing year more wells are going dry. As less water pours from wells, some farmers are adapting by switching to different crops. Others are shutting down their drained wells and trying to scratch out a living as dryland farmers, relying only on the rains. In parts of western Kansas, the groundwater has already been exhausted and very little can be extracted for irrigation. In other areas, the remaining water could be mostly used up within a decade. The severe depletion of the Ogallala Aquifer is symptomatic of a larger crisis in the United States and many parts of the world. Much more water is being pumped from the ground than can be naturally replenished, and groundwater levels are plummeting. It’s happening not only in the High Plains and drought-ravaged California but also in places from the Gulf Coastal Plain to the farmland of the Mississippi River Valley, and from the dry Southwest to the green Southeast.

Europe’s oldest lake faces destruction to make way for tourists --- They call it Europe’s Galapagos. Lake Ohrid in Macedonia is the most biodiverse lake of its size in the world, home to more than 350 species found nowhere else and listed as a UNESCO World Heritage Site based on its natural value. It is also Europe’s oldest lake, having survived for more than a million years. But none of that may save it. For a tourist boom is coming to Ohrid, the town on its shores. From April, British holidaymakers can take a cheap flight with Wizz Air from Luton to holiday in Ohrid. To meet their needs, the lake’s most critical ecosystem is set to be concreted over to make space for apartments and a marina.  “Lake Ohrid is a Holy Grail for biologists from all over the world,” says Christian Albrecht of the University of Giessen in Germany. “But it faces a biodiversity crisis.” “The lake is not as old as the famous big lakes of the world, such as Baikal or Tanganyika,” says Albrecht. “However if you take its size into account, it is the most biodiverse lake in the world. I am seriously concerned about the future of its endemic species. Many are restricted to a few square metres of the lake.”The majority of the lake’s fish and snails are found only here, as are many of its sponges and worms. These species often live around underwater springs that bubble up from the surrounding limestone geology and create ecological niches

Lakes Are Heating Up, Putting Food And Water Supply At Risk -- While pretty much every aspect of the global ecosystem has been heating up, freshwater lakes are warming faster than the oceans or the air, according to a new study from NASA and the National Science Foundation. Researchers looked at 235 lakes around the world over the past 25 years and found that, on average, they are gaining a third of a degree (Celsius) every decade. The study, which used onsite measurements and satellite temperature data, found that warming was most pronounced in northern and tropical regions. “These results suggest that large changes in our lakes are not only unavoidable, but are probably already happening,”  Disturbing the ecosystem of lakes could have huge impact on human life. The lakes in the study, which spanned the six inhabited continents, contain more than half the world’s fresh water. Earlier research has found that rising temperatures have decreased fish productivity in lakes.“Lakes are important because society depends on surface water for the vast majority of human uses — not just for drinking water, but manufacturing, energy production, irrigation and crops,” . “Protein from freshwater fish is especially important in the developing world.”

Large permanent reserves required for effective conservation of old fish: Permanent marine protected areas and wilderness—places where fish can grow old—are critical to the effective conservation of marine ecosystems according to a new study.  Unlike previous research focused primarily on the weight or biomass of fish as a measure of reef recovery, this study evaluated the life histories of fish communities. In doing so, the researchers found much slower change—well beyond the 20 years that it took for biomass to recover—and some factors like growth rate were expected to change for more than 100 years. The findings underscore the importance of permanent marine protected areas and wilderness in the effective protection of marine fishes. The study titled "Marine reserve recovery rates towards a baseline are slower for reef fish community life histories than biomass" appears in the online version of Proceedings of the Royal Society B. "Fish biomass has been the common way to evaluate fish communities, but what our research shows is that it does not tell the entire story," said Dr. McClanahan, Senior Conservationist for WCS and co-author of the study. "Analyses based primarily on fish biomass produces an incomplete and somewhat misleading scenario for fast recovery from overfishing. What we found was a slow and continuous reorganization of the fish community well past the stabilization of biomass. A full evaluation of marine reserves needs to look at the species and their life histories and, when we do that, we see the importance of protecting ocean wilderness and making permanent and large reserves."

Bottlenose Dolphins Endure Brutal Capture and Slaughter in Taiji’s Infamous Cove  - A large pod of approximately 85-90 bottlenose dolphins driven into Taiji, Japan’s infamous cove on Dec. 20 (Japan time) was held for two nights by the dolphin hunters, without food or shelter, and forced to endure brutal captive selection and slaughter that claimed the freedom of 30 dolphins and the lives of 28-30 others.The pod was located by the hunters of the Taiji Fisherman’s Union and as the dolphins fought to escape the hunting boats, they were pushed toward shallow waters in three separate drives, until the entire pod was netted within the cove. The frightened bottlenose—including babies and juveniles, clinging to their mothers’ sides—were left in the cove overnight without food or shelter, to face continued horrors the following morning. On Dec. 21 (Japan time), the hunters and trainers returned to the cove and began a violent captive selection process that saw a staggering 25 dolphins taken for captivity. Some did not survive the horrific ordeal and drowned in the cove. The newly captive dolphins will soon face a lifetime of imprisonment in captivity in facilities in Japan or overseas. Those remaining in the cove were left exhausted and searching for their missing family members throughout the night. Captive selection resumed today, Dec. 22 and five additional dolphins were taken for captivity as others were slaughtered under the tarps or died during the captive selection. In total, 28-30 dolphins were killed over the two days, between the slaughter and those who succumbed during the violent captures. Sea Shepherd Conservation Society’s Cove Guardians witnessed hunters heartlessly consuming fresh dolphin meat outside the Taiji butcher house following these atrocities.

Daffodils in bloom, the warmest ever December: how worrying is the world’s strange weather? - December temperatures in London have been warmer than July’s. Scotland is balmier than Barcelona. Artificial snow covers European ski slopes. Africa faces its worst food crisis in a generation as floods and droughts strike vulnerable countries. With unusual weather from Britain to Australia, scientists are blaming climate change – but also the natural phenomenon called El Niño, which is raising temperatures and disrupting weather patterns. A double whammy then, but how disturbed should we be as the records tumble? According to the UK Met Office, the exceptional warmth in Britain and northern continental Europe is linked to the strongest El Niño ever recorded. “What we are experiencing is typical of an early winter El Niño effect,” said Adam Scaife, head of Met Office long- range forecasting. The cyclical event, named after the birth of Christ because it traditionally occurs in Latin America around Christmas, sees temperatures in the equatorial Pacific rise several degrees. The consequences in years like this are dramatic. Monsoons and trade winds are disrupted, leading to cyclones, droughts, floods and food shortages across the world. Friday night was one of the warmest recorded in the UK in December. With the warm spell due to continue over Christmas, it is almost certain that more records will be broken. According to Scaife, “we cannot attribute the recent floods [in Britain] to the El Niño, but in early winter [during El Niño years] we tend to have a strong jet stream which brings us mild conditions. In late winter, January and February, we tend to get a weak jet stream which brings more wintry conditions.”

After Warmest Christmas Day on Record, Freakish Warmth Continues in East, South - Weather Underground: Record-breaking warmth will continue to grip much of the East and South after a Christmas Eve and Christmas Day that were warmer than any on record for countless cities in those regions. It was the warmest Christmas Day on record in New York City, though not many creatures may have been stirring when the new record of 66 degrees was established just 31 minutes after midnight. This followed a record-shattering Christmas Eve that brought the city's warmest daily low temperature ever recorded in the month of December; the low of 63 for Dec. 24 was also warmer than lows on 30 of the 145 Independence Days (July 4) on record in the Big Apple since 1871. Dozens of other cities established record highs for Christmas Eve and Christmas Day, and many also had daily lows warmer than any previously measured for those dates. The mild weather meant that most areas east of the Rockies did not experience a white Christmas. Below we have a look at the forecast, followed by perspective on how warm this December has been so far.

'The Warning Bells are Deafening': Super El Niño Threatening Global Hunger Crisis - As many as 50 million people across the world face potential hunger, disease, and water shortages by early 2016 if countries do not act immediately, declared Oxfam International on Monday, addressing those nations predicted to be ravaged by this year's Super El Niño as well as wealthy governments indebted to those most vulnerable to climate change. "The warning bells are deafening," said Meg Quartermaine, humanitarian manager with Oxfam Australia, which issued the warning on the same day that the powerful Typhoon Melor made landfall in the Philippines, forcing the evacuation of 725,000 people. The Philippines is among the countries that the global anti-poverty group has previously identified as having a food supply already threatened by the impacts of climate change. The typhoons and other extreme weather events that are being predicted under, what could be "the most powerful El Niño on record" are expected to drive millions of people in the Pacific rim region, and across the globe, into even more dire straits. Monday's report (pdf) said that Papua New Guinea will likely bear the brunt of this season's "super charged weather phenomenon," with the country’s National Disaster Committee estimating that as many as 3 million people are at risk of starvation, "as crop failures force many people to cut back to eating just one meal a day." While that nation—along with Vanuatu, Fiji, the Solomon Islands, Samoa, and Tonga—are "experiencing worsening drought, central Pacific countries like Kiribati and Tuvalu will likely see intense rain causing flooding and higher sea levels," the report states. What's more, the warning comes on top of a recent scientific study which found that heightened greenhouse gas emissions will likely exacerbate the naturally-occurring El Niño phenomenon and drive global temperatures to record highs.

Will Global Warming Heat Us Beyond Our Physical Limits?: If greenhouse gas emissions are not reduced, rising temperatures and humidity wrought by global warming could expose hundreds of millions of people worldwide to potentially lethal heat stress by 2060, a new report suggests. The greatest exposure will occur in populous, tropical regions such as India, Southeast Asia, the Middle East, and Africa. But even in the northeastern United States, as many as 30 million people might be exposed at least once a year to heat that could be lethal to children, the elderly, and the sick, according to the new study. It’s the first study to look at future heat stress on a global basis, says Ethan Coffel, a PhD candidate in atmospheric sciences at Columbia University, who presented the results on Monday at the American Geophysical Union meeting in San Francisco. Coffel and his colleagues used climate models and population projections to estimate how many people could face dangerous heat in 2060—assuming that greenhouse gas emissions continue to rise sharply on a “business-as-usual” course. The findings are based on forecasts of “wet bulb” temperatures, in which a wet cloth is wrapped around a thermometer bulb. Whereas standard thermometer readings measure air temperature, a wet bulb measures the temperature of a moist surface that has been cooled as much as possible by evaporation.

AGU 2015: Scientists offer latest update on worsening state of Arctic - Scientists at this year’s American Geophysical Union conference in San Francisco, the largest coming together of earth and space scientists in the world, have issued their latest health-check for the Arctic. Compiled by more than 70 authors in 11 countries, the annual Arctic Report Card put together by the US National Oceanographic and Atmospheric Administration (NOAA) is considered the most comprehensive overview of the state of the polar north. This year’s instalment tells the familiar story of an Arctic in serious decline. Temperatures are rising and ice is retreating, with knock-on effects for Arctic ecosystems and wildlife.  Arctic temperatures are rising more than twice as fast as the rest of the world, today’s report begins. For the 12-month period between October 2014 and September 2015, temperatures were 1.3°C above the long-term average, the highest since 1900. In all four seasons, temperatures over large parts of the region exceeded 3C above the pre-industrial era. These latest figures represent a warming of 2.3°C since the 1970s and 2.9°C since the start of the 19th century. And while the surface temperature of the globe as a whole has risen more slowly in the past decade than previous ones, there has been no such slowdown in the Arctic, the report notes. Compare the blue line in the graph below, which shows the average annual temperature since 1900, with the red line, which shows the same but for the whole globe.

Centuries of Melting Already Locked in for Polar Ice, Scientists Say -- The melting of polar ice sheets and mountain glaciers will likely continue for thousands of years, causing irreversible sea level rise, even if global warming is limited to 2 degrees Celsius, according to a new report published last week during the climate negotiations in Paris. Sea levels could rise 13 to 33 feet or more unless far more ambitious steps are quickly taken to reduce greenhouse gas emissions, according to the report issued by the International Cryosphere Climate Initiative, a nonprofit research and policy organization based in Burlington, Vermont. "Even if we stopped all warming today and we stayed at this level, we are looking at about 1 meter [3.3 feet] of sea level rise by 2300," said Pam Pearson, lead author of the report and director of the ICCI, who presented her findings on the sidelines of the Paris talks. "The temperatures that we are reaching even today, let alone in two or three or four decades, could lock in changes that aren't going to be reversible on a human timescale." The findings show that achieving the ambitious goals set by the historic Paris Agreement won't be enough to avert catastrophic sea level rise and severe water shortages in areas dependent on glaciers. The global climate accord set a goal of reducing greenhouse gas emissions enough to hold global warming "well below" 2 degrees Celsius since the preindustrial period, setting a preferred limit of 1.5 degrees. Earth has already warmed by more than 0.8 degrees Celsius (1.4 degrees Fahrenheit) since the 1850s.

The oceans are coming for us: how should we plan for dire sea level forecasts? -- You may have seen recent maps showing how sea level rise may effect coastlines worldwide, including Australian cities. These maps have been produced by US-based website Climate Central.  For instance the video below shows what they forecast sea level rise would be like in Melbourne with 4℃ and 2℃ of warming. This is not necessarily sea level rise that will occur over the coming century, but the eventual sea level locked in under particular temperature scenarios. It could take under 200 years or up to 2,000 for sea levels to reach these levels.  Maps such as these have triggered heated debate and discussion in different places in Australia (for instance Eurobodalla and Ballina andByron Bay in New South Wales ) as individuals and organisations wrestled with the implications for property values, policy, long term planning and future risk management of our coastlines. This mapping helps us realise that coastlines are not static like property boundaries. They are in fact incredibly dynamic and continue to adjust to changes in sea level. The ambulatory nature of coastlines is a point worth remembering.  It is incredibly important to emphasise that the geomorphological, geological, ecological (i.e. dunes or reefs), or built characteristics of your local coastal environment have a huge influence on how coastlines respond to changing sea levels. The rate of sea level rise is important in this regard. The point is, these maps cannot be taken at face value because they mask locally relevant environmental processes that will impact how sea level rise is experienced at any one place.

Guest Contribution: “The Paris Agreement on Climate Change, C’est Bon” - How should one evaluate the agreement reached in Paris December 12 by the 21st Conference of Parties to the UN Framework Convention on Climate Change (UNFCCC)? Some avid environmentalists may have been disappointed in the outcome. The reason is that the negotiators did not commit to limiting global warming to 1 ½ degrees centigrade by 2050, nor will the new agreement directly achieve the 2 degree limit.  But such commitments would not have been credible. What came out of Paris was in fact better, because the negotiators were able to agree on meaningful practical near-term steps. In four key respects, the agreement is a good one, for those who see global climate change as an important problem and who want down-to-earth steps to address it.  First, and most salient, is comprehensive participation. More than 186 countries offered individual commitments, called Intended Nationally Determined Contributions (INDCs), to go into effect in 2020.  Second is the agreed process of future assessment and revision of targets. The decision was to take stock and renew the commitments every five years. Third is transparency in monitoring, reporting and verifying each country’s progress. Countries are to report every five years, starting in 2023, how well they have done compared to what they had said they would do. Fourth are mechanisms to facilitate international linkage, including scope for firms operating in rich countries to finance emission reductions in poor countries. This is important in order to achieve the environmental goals in an economically efficient way: it is cheaper to pay a poor country to refrain from building new coal-fired power plants than to shut down plants that are already operating in rich countries.

Why zero is a better climate target than 2 degrees - Vox: One important element of the Paris climate accord has been somewhat overshadowed in all the press coverage. Before the whole thing fades from the news cycle, I want to take a moment to celebrate it. I'm talking about the shared goal, endorsed by 195 nations, to reduce net global greenhouse gas emissions to zero by the end of the century. Zero. Zilch. Nada. Let that roll around in your mindgrape for a moment. It has a ring to it. To my mind, zero is a much more compelling and evocative goal than the longer-standing and better-established climate goal of limiting temperature rise to 2 degrees or less. The 2 degrees target has the advantage of being "science-based," at least insofar as science is capable of putting a hard number on the amount of warming that qualifies as "dangerous." But it is difficult to explain to the uninitiated. It doesn't sound like much extra heat, even when you translate it to Fahrenheit (3.6 degrees). It's not a target you want to achieve, but a threshold you want to avoid, which makes it difficult to talk about aspirationally. Above all, it means almost nothing to the public. (The goal of atmospheric CO2 at 350 parts per million — where got its name — has the same problems, and more.) Zero, on the other hand, is intuitive and easy to explain. It offers a bracing clarity of vision. It settles the question of what will happen to the fossil fuel industry and investments that rely on fossil fuels. They will go away. It might be soon, it might be later, but the end state is determined. They are slated for extinction.

John Kerry rejects leading climate scientist's claim Paris talks were 'fraud' -  John Kerry has rejected criticism from prominent climate scientist James Hansen that the Paris climate talks were a “fraud” and insisted the resulting deal will spur a global transition from fossil fuels towards renewable energy. The Paris accord, the culmination of 20 years of often fraught climate talks, has been hailed as a success by various world leaders after 195 countries agreed to curb greenhouse gas emissions in a bid to hold global temperatures to 1.5C above preindustrial levels. The 31-page agreement, thrashed out following two weeks of talks on the outskirts of Paris, also sets out the transfer of $100bn to poorer countries to help them adapt to the consequences of climate change. But Hansen, a former Nasa scientist considered the father of wider public understanding of climate change, tempered optimism by telling the Guardian on the eve of the deal that the talks were a “fraud” and a “fake” because they would not result in a carbon tax that would drive down fossil fuel use. Asked about Hansen’s comments by ABC, in an interview broadcast on Sunday, Kerry, who led US negotiators in Paris, said he disagreed. “Look, I have great respect for Jim Hansen and I was there in 1988 when he first warned everybody climate change was happening,” the secretary of state said. “But with all due respect to him, I understand the criticisms of the agreement because it doesn’t have a mandatory scheme and it doesn’t have a compliance enforcement mechanism. That’s true. “But we have 186 countries, for the first time in history, all submitting independent plans that they have laid down, which are real, for reducing emissions. “And what it does, in my judgment, more than anything else, there is a uniform standard of transparency. And therefore, we will know what everybody is doing.

Govt awards new oil permits straight after COP21 - The New Zealand government has awarded nine new oil and gas exploration permits, almost immediately following the Paris climate change conference, COP21.The Green Party says this is an early suggestion that the National government has no intention of heeding the calls of the historic Paris Agreement to fight climate change.Green Party energy spokesperson Gareth Hughes had extensive criticism for the government's allocation of additional oil and gas permits:"National couldn't even wait a week after world leaders agreed on a plan to stop climate change before giving out new permits for foreign companies to drill for fossil fuels in New Zealand waters."Today's oil and gas permit block offer is the smallest ever in terms of area allocated, which shows that global action to halt climate change and low oil prices are undermining National's fossil fuel agenda - not that Simon Bridges seems to have noticed. "Oil is last century's fuel and we simply cannot afford to drill for more of it if we're going to achieve the goal agreed to in Paris, which is to drastically cut climate pollution caused by burning fossil fuels. "New oil drilling permit areas less than 20 km off our coast could endanger some of the most treasured summer holiday spots in Golden Bay and the Marlborough Sounds.

India says Paris climate deal won't affect plans to double coal output -- India still plans to double coal output by 2020 and rely on the resource for decades afterwards, a senior official said on Monday, days after rich and poor countries agreed in Paris to curb carbon emissions blamed for global warming. India, the world's third-largest carbon emitter, is dependant on coal for about two-thirds of its energy needs and has pledged to mine more of the fuel to power its resource-hungry economy while also promising to increase clean energy generation. "The environment is non-negotiable and we are extremely careful about it," Anil Swarup, the top bureaucrat in the coal ministry, told Reuters. "(But) our dependence on coal will continue. There are no other alternatives available." While India has plans to add 30 times more solar-powered generation capacity by 2022, there were limitations to clean energy and coal would remain the most efficient energy source for decades, he said. Minister for Power, Coal and Renewable Energy, Piyush Goyal, said India's contribution to global greenhouse gases emissions was just 2.5 percent with 17 percent of the world's population, while developed countries contributed a fifth of emissions with just 5 percent of the world's population.

ExxonMobil, Peabody Coal Lobbying for Bill Preventing Climate Change Accounting in US Trade Deals - The day before global leaders and diplomats passed a climate change deal in Paris at the United Nations climate summit, the U.S. House of Representatives — in a 256-158 vote — authorized the final text of a bill that has a provision preventing climate change to be accounted for in all U.S. trade deals going forward. That bill, the Trade Facilitation and Trade Enforcement Act of 2015 (H.R.644), now may proceed for full-floor votes in both the House and the U.S. Senate after its conference report was agreed upon. A DeSmog review of lobbying records shows the bill has received heavy fossil fuel industry support.  The language in the bill originally dictated that “trade agreements do not require changes to U.S. law or obligate the United States with respect to global warming or climate change.”According to National Journal, Congress changed that language in the conference report to “greenhouse gas emissions” and took “global warming or climate change” off the table.

Mitch McConnell and the Coal Industry's Last Stand - A ballad called “Coal Keeps the Lights On” took singer-songwriter Jimmy Rose of tiny Pineville, Ky., all the way to the finals of America’s Got Talent in the summer of 2013. Almost exactly a year later, the singer’s minor celebrity took him to a less likely venue: the ornate main hearing room of the Environmental Protection Agency, where he testified at the invitation of Mitch McConnell as part of the Senate majority leader’s defense of coal. . Rose went on to outshine McConnell with a passionate condemnation of EPA regulations he said are turning eastern Kentucky into “a war zone.” “You won’t come to this poverty-stricken area,” he lectured EPA officials. “You won’t come and look my people in the eye.” Rarely dramatic, McConnell read his testimony in a characteristic drone. Even though he’s from Kentucky, the lawmaker doesn’t claim long-standing ties to coal. Before coming to the Senate, he says, “as a lawyer in Louisville, was I paying attention to coal? Not much.” But since President Obama took office in 2009, vowing to combat climate change, McConnell has positioned himself as coal’s bulwark—a central element of his across-the-board campaign to thwart the president politically.“It’s a last stand; the forces arrayed against coal are too powerful to resist. Even more damaging than pressure from environmentalists has been competition from plentiful, inexpensive natural gas—a cleaner-burning source of electricity increasingly favored by utilities. Coal provides 39 percent of the nation’s power, down from 50 percent a decade ago. Some 8,000 jobs have disappeared just from the coalfields of eastern Kentucky since 2010. Says Rose: “A lot of people are counting on Senator McConnell to figure something out.”

Ted Cruz Vows Not To Honor Global Climate Deal As President - The United States will break its recent promise to approximately 200 countries to join in the fight against climate change if Sen. Ted Cruz (R-TX) is elected president.That’s according to Cruz himself, who on Tuesday said he would withdraw the U.S. from the historic climate agreement reached in Paris earlier this month. That non-binding agreement saw nearly 200 leading nations unanimously embrace a plan that would leave most of the world’s fossil fuels unburned, thereby limiting global warming “to well below 2°C [3.6°F] above preindustrial levels.” According to the Washington Post, Cruz said the international agreement was disingenuous — not really to fight climate change, but to gain “more and more government power.” “Barack Obama seems to think the SUV parked in your driveway is a bigger threat to national security than radical Islamic terrorists who want to kill us. That’s just nutty,” Cruz said. “These are ideologues, they don’t focus on the facts, they won’t address the facts, and what they’re interested [in] instead is more and more government power.”

Great News! Americans Don't Really Care About Climate Change: There is a preventable calamity out there, purportedly the root cause of nearly all wars, refugee crises, sickness, misogyny, terrorism, hunger, poverty, and everything else troubling mankind these days. The world is perpetually on the precipice of catastrophe—despite much evidence to the contrary—if we don’t act right now. Tomorrow is always too late. So after being bombarded with this anxiety-ridden dogma for a couple of decades, it’s unsurprising that upwards of 75 percent of Americans claim to believe climate change is a problem in need of fixing. And most of them say they are willing to do absolutely anything necessary to stop this impending disaster. Except carpool. Or ride a bike. Or skip a vacation. According to a new Pew Research Center poll, the percentage of cars that run purely on gas has increased over the past three years. Fewer than three percent of all cars, SUVs, pickup trucks, and light-duty vehicles run on anything other than gas or diesel. The market for heavily-subsidized alternative-fueled vehicles has fallen.. After years of subsidizing unproductive sectors and constantly bolstering the idea that inefficient electric cars are the future, no one really wants them. Even the use of hybrid cars is down from 2013.In 1980, 64 percent of Americans who commuted to work did would do so alone in their car. Today, even after massive publicity effort cajoling people to get out of their cars and billions of dollars spent on public transportation projects like light rail, 74 percent of Americans who commute to work do so alone in a car. The percentage of commuters who carpool has fallen by more than half.

Congress earns praise for permanent R&D tax credit, extended solar ITC - SEMI, IPC, and SIA all praised the U.S. Congress for voting to make the federal R&D tax credit permanent. Congress also voted to extend the solar-energy investment tax credit (ITC), which had been set to be reduced to 10% at the end of 2016. Under the legislation passed Friday, the 30% credit will be extended until 2019 and then gradually phased down to 10% at the end of 2021, where it will remain. “There’s no way to overstate this—the extension of the solar ITC is the most important policy development for U.S. solar in almost a decade,” said MJ Shiao, director of solar research at GTM. GTM also reports that the legislation includes a production tax credit (PTC) extension for wind, geothermal, landfill gas, marine energy, and incremental hydro. SEMI, which represents semiconductor equipment and materials suppliers, said it has been working to make the R&D tax incentive a permanent part of the tax code since the R&D credit was first established in 1981. SEMI noted that in the past 34 years, the credit had expired 17 times, and on more than one occasion, was expired for almost an entire tax year before being retroactively reinstated. “SEMI members invest and average of 15% of their revenues back into R&D activities every year,” said SEMI president and CEO Denny McGuirk. “Being able to count on the R&D tax credit is immensely important to our members, which are some of the most innovative companies in the world.”

As marijuana industry expands, power demand taxes U.S. grids  -- The $3.5 billion U.S. cannabis market is emerging as one of the nation's most power-hungry industries, with the 24-hour demands of thousands of indoor growing sites taxing aging electricity grids and unraveling hard-earned gains in energy conservation. Without design standards or efficient equipment, the facilities in the 23 states where marijuana is legal are responsible for greenhouse-gas emissions almost equal to those of every car, home and business in New Hampshire. While reams of regulations cover everything from tracking individual plants to package labeling to advertising, they lack requirements to reduce energy waste. Some operations have blown out transformers, resulting in fires. Others rely on pollution-belching diesel generators to avoid hooking into the grid. And demand could intensify in 2017 if advocates succeed in legalizing the drug for recreational use in several states, including California and Nevada. State regulators are grappling with how to address the growth, said Pennsylvania Public Utility Commissioner Pam Witmer.   The corporatization of what was once off-the-grid narco-agriculture is taxing electrical systems even as the nation prepares to comply with the Paris climate accord and the Environmental Protection Agency tries to reduce greenhouse gases from coal-fired power plants, which is considered the single largest domestic source of emissions that create global warming.

AP Investigation: US power grid vulnerable to foreign hackers — Security researcher Brian Wallace was on the trail of hackers who had snatched a California university’s housing files when he stumbled into a larger nightmare: Cyberattackers had opened a pathway into the networks running the United States power grid. Digital clues pointed to Iranian hackers. And Wallace found that they had already taken passwords, as well as engineering drawings of dozens of power plants, at least one with the title “Mission Critical.” The drawings were so detailed that experts say skilled attackers could have used them, along with other tools and malicious code, to knock out electricity flowing to millions of homes. Wallace was astonished. But this breach, The Associated Press has found, was not unique. About a dozen times in the last decade, sophisticated foreign hackers have gained enough remote access to control the operations networks that keep the lights on, according to top experts who spoke only on condition of anonymity due to the sensitive nature of the subject matter. The public almost never learns the details about these types of attacks — they’re rarer but also more intricate and potentially dangerous than data theft. Information about the government’s response to these hacks is often protected and sometimes classified; many are never even reported to the government. These intrusions have not caused the kind of cascading blackouts that are feared by the intelligence community. But so many attackers have stowed away in the largely investor-owned systems that run the U.S. electric grid that experts say they likely have the capability to strike at will.

International Energy Agency sees 'peak coal' as demand for fossil fuel crumbles in China - China’s coal consumption has been falling for two years and may never recover as the moment of "peak coal" draws closer, the International Energy Agency (IEA) has said. The energy watchdog has slashed its 2020 forecast for global coal demand by 500m tonnes, warning that the industry risks unstoppable decline as renewable technologies and tougher climate laws shatter previous assumptions. In poignant symbolism, the peak coal report came as miners worked their final shift at Britain’s last surviving deep coal mine at Kellingley in North Yorkshire, closing the chapter on the British industrial revolution. Mines around the world are at increasing risk as prices slump to 12-year lows of $38 a tonne, and the super-cycle gives way to a pervasive glut. The IEA said the $40bn Galilee Basin project in Australia may never become operational. There is simply not enough demand, even for cheap, open-cast coal. "The golden age of coal seems to be over,” said the IEA’s medium-term market report. “Given the dramatic fall in the cost of solar and wind generation and the stronger climate policies that are anticipated, the question is whether coal prices will ever recover.” “The coal industry is facing huge pressures, and the main reason is China,” said Fatih Birol, the agency’s director. The IEA reported that China’s coal demand fell by 2.9pc in 2014 and the slide has accelerated this year as the steel and cement bubble bursts. The country produced more cement between 2011 and 2013 than the US in the entire 20th century, according to one study. This will never happen again.

Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown -- Fukushima radiation just off the North American coast is higher now than it has ever been, and government scientists and mainstream press are scrambling to cover-up and downplay the ever-increasing deadly threat that looms for millions of Americans.  Following the March 2011 meltdown at Japan’s Fukushima Daiichi nuclear power plant, reactors have sprayed immeasurable amounts of radioactive material into the air, most of which settled into the Pacific Ocean. A study by the American Geophysical Union has found that radiation levels from Alaska to California have increased and continue to increase since they were last taken. reports: The highest levels yet of radiation from the disaster were found in a sample taken 2,500 kilometers (approx. 1,550 miles) west of San Francisco. The researchers track Fukushima radiation by focusing on the isotope Cesium-134, which has a half-life of only two years. All Cesium-134 in the ocean likely comes from the Fukushima disaster. In contrast, Cesium-137 – also released in huge quantities from Fukushima – has a half-life of 30 years, and persists in the ocean, not just from Fukushima, but also from nuclear tests conducted as far back as the 1950s.The most recent study added 110 new Cesium-134 samples to the ongoing studies. These samples were an average of 11 Becquerels per cubic meter of sea water, a level 50 percent higher than other samples taken so far.

America's "Most Polluted" Nuclear Weapons Site To Become National Park --On Sunday, we brought you “Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown,” in which we highlighted a piece from Sean Adl-Tabatabai. who worries that perhaps Americans are getting a sugar-coated version of story thanks to the fact that the Woods Hole Oceanographic Institution has received millions in government funding, he may be overestimating the public’s interest in the dangers of being exposed to nuclear waste because as AP reports, “thousands of people are expected next year to tour the Hanford Nuclear Reservation, home of the world's first full-sized nuclear reactor, near Richland, about 200 miles east of Seattle in south-central Washington.” Here’s more:  The nation's most polluted nuclear weapons production site is now its newest national park. [Visitors] won't be allowed anywhere near the nation's largest collection of toxic radioactive waste. The Manhattan Project National Historic Park, signed into existence in November, also includes sites at Oak Ridge, Tennessee, and Los Alamos, New Mexico. The Manhattan Project is the name for the U.S. effort to build an atomic bomb during World War II. At Hanford, the main attractions will be B Reactor - the world's first full-sized reactor - along with the ghost towns of Hanford and White Bluffs, which were evacuated by the government to make room for the Manhattan Project.The B Reactor was built in about one year and produced plutonium for the Trinity test blast in New Mexico and for the atomic bomb dropped on Nagasaki, Japan, that led to the surrender of the Japanese.

U.S. Cold War Nuclear Target Lists Declassified for First Time - The SAC [Strategic Air Command] Atomic Weapons Requirements Study for 1959, produced in June 1956 and published today for the first time by the National Security Archive, provides the most comprehensive and detailed list of nuclear targets and target systems that has ever been declassified. As far as can be told, no comparable document has ever been declassified for any period of Cold War history.The SAC study includes chilling details. According to its authors,  their target priorities and nuclear bombing tactics would expose nearby civilians and “friendly forces and people” to high levels of deadly radioactive fallout.  Moreover, the authors developed a plan for the “systematic destruction” of Soviet bloc urban-industrial targets that specifically and explicitly targeted “population” in all cities, including Beijing, Moscow, Leningrad, East Berlin, and Warsaw.  Purposefully targeting civilian populations as such directly conflicted with the international norms of the day, which prohibited attacks on people per se (as opposed to military installations with civilians nearby).The SAC document includes lists of more than 1100 airfields in the Soviet bloc, with a priority number assigned to each base.  With the Soviet bomber force as the highest priority for nuclear targeting (this was before the age of ICBMs), SAC assigned priority one and two to Bykhov and Orsha airfields, both located in Belorussia. At both bases, the Soviet Air Force deployed medium-range Badger (TU-16) bombers, which would have posed a threat to NATO allies and U.S. forces in Western Europe.  A second list was of urban-industrial areas identified for “systematic destruction.”  SAC listed over 1200 cities in the Soviet bloc, from East Germany to China, also with priorities established.  Moscow and Leningrad were priority one and two respectively.  Moscow included 179 Designated Ground Zeros (DGZs) while Leningrad had 145, including “population” targets.  In both cities, SAC identified air power installations, such as Soviet Air Force command centers, which it would have devastated with thermonuclear weapons early in the war.

Brazil dam disaster: judge freezes assets of miners BHP and Vale - A judge has frozen the Brazilian assets of mining giants BHP Billiton and Vale SA after determining their joint venture Samarco was unable to pay for widespread damage caused by the bursting of a dam at its mine last month.   In a ruling issued late on Friday, the judge in the Brazilian state of Minas Gerais determined that Vale and BHP could be held responsible for the disaster at the iron ore mine, for which the government is demanding 20bn reais ($5bn) in compensation. The dam rupture , which turned into Brazil’s worst ever environmental disaster, killed 16 people, left hundreds homeless and polluted a river 800km (500-miles) long that flows across two states.   Despite the scale of the crisis, Vale had argued Samarco, as an independent legal entity and a sizeable company in its own right, was wholly responsible for the accident and the subsequent damage and fines.  But federal judge Marcelo Aguiar Machado disagreed. “I understand to be correct the allegation that Vale and BHP, as controllers of Samarco, can be classified as indirect polluters and as such responsible for the environmental damage caused,” he wrote in his 19-page judgment. The judgment did not specify the value of assets that had been blocked, but mentioned prosecutor estimates that Samarco did not have the funds to cover more that half of the 20 billion reais being sought in damages

In the Year's Final Indignity, Slime Coats Brazil's Pristine Beaches -- The dam holding back mining waste at a iron-ore venture controlled by Vale SA and BHP Billiton Ltd. collapsed in November, burying entire communities and devastating national parks. Now, 50 million metric tons of sludge is spreading off the coast between Rio de Janeiro and Bahia states, turning the pristine blue waters brown along an expected 30 miles of beaches, according to Brazil’s environmental agency, Ibama. Samarco, the Vale-BHP joint venture, is in talks with the government of Minas Gerais state and tourism officials, according to an e-mailed statement from the business. It’s still assessing the effect of the disaster and will present an “action plan” soon. Some coastal hotels and restaurants, which rely on the New Year’s holiday as a major source of revenue, have seen cancellations surge because of the accident. Reservations for the New Year’s holiday plunged by more than half at the Arana bed and breakfast in Regencia Village. “Nobody is going to pay 2,000 reais for a holiday package to go to a place where people say the mud is,” said owner Dulce Mendonca. While the water supply hasn’t been affected, the ocean is thick and brown with sludge, she said. Fishermen aren’t allowed to fish, and people are being cautioned to stay out of the water.

Judge throws out challenge to fracking on public land in Ohio - A federal judge in Ohio has derailed a suit accusing the Muskingum Watershed Conservancy District of defrauding the federal government by allowing hydraulic fracturing on land it acquired from the U.S. Army more than 65 years ago.U.S. District Judge Sara Lioi of Akron ruled that the challengers failed to provide evidence that the conservancy district acted fraudulently when it leased natural gas, oil and mineral rights to energy businesses.And she rejected the challengers’ argument that land transferred from the U.S. Army to the district should automatically revert to federal ownership because it’s no longer used exclusively for “recreation, conservation and reservoir development purposes” as the deed states.An appeal is likely, according to the challengers’ lawyer, Thomas Connors of Akron.The Muskingum Watershed covers about 8,000 square miles in 32 counties and is the largest watershed fully within the state.At issue are four leases for oil and natural gas rights that the conservancy district awarded between 2011 and 2014. The leases with “horizontal drilling companies” are worth more than $173 million to the district, plus royalties, according to the court decision.

Fracking opponents place holiday spin on protest -- Ten anti-fracking carolers sang altered versions of Christmas tunes at the Wayne National Forest headquarters near Nelsonville Monday afternoon, presenting officials with a letter in opposition to opening up area national forest land to fracking activity. “Fire bells ring, are you listening,” the carolers sang to the melody of a Christmas classic. “In the lane, oil is glistening. A terrible sight, the gas drills at night. Walking in a fracked-up wonderland.” Wayne National Forest officials are currently working with the federal Bureau of Land Management to consider whether to lease 31,900 acres of mineral rights for oil-and-gas development in the 241,000-acre Wayne forest. Most of the land considered for leasing is in Washington and Noble counties, though about 3,150 acres is located in far northern Athens County and adjoining Monroe County, with 10,000 acres to the south in Lawrence County.  A public meeting held in Athens last month on the matter was shut down early after protesters and counter-protesters clashed and the informational session was overtaken by activist activity. The Wayne National Forest boundaries contain 834,000 acres, though actual federally owned land is about 241,000 acres. It’s interspersed with private land, and in some cases, those landowners have been advocating for national forest oil-and-gas leasing, which would allow them to lease their own land as well. It remains uncertain, however, whether there’s any developable oil and gas underlying the Wayne sections in Athens County. 

Ohio's oil and gas industry is ready to boom once prices improve, analyst says - —While slumping energy prices are devastating Pennsylvania's once-booming shale drilling industry, Ohio's nascent fracking industry could be primed to take off once the market improves, according to a prominent industry analyst. Oil and gas drilling activity this year has fallen off across the Marcellus and Utica shale formations that lie underneath eastern Ohio and much of Pennsylvania, according to DrillingInfo, a Texas-based energy analytics firm. That has led to economic problems in Pennsylvania. But in Ohio, which last year produced about one-eighth as much natural gas as the Keystone State, there haven't been nearly as many jobs to lose. As of June – the most recent time that statistics are available – Ohio's oil and gas industry directly employed 2,085 people, down from 2,367 at the same time last year, according to the U.S. Bureau of Labor Statistics. In Pennsylvania, oil and gas employment nudged up slightly from 6,422 in June 2014 to 6,486 last June, though Pennsylvania Department of Labor and Industry spokeswoman Sara Goulet said there's been a dropoff in jobs to set up new drilling sites. Local businesses that cater to drillers have also seen sales drop off recently. But when prices inevitably rebound, Ohio will be in an enviable position, said DrillingInfo CEO Allen Gilmer. It's already been proven that Ohio sits atop a world-class reservoir of oil and gas, he said, but unlike Pennsylvania, it still hasn't been heavily exploited. "I'd say it's about different expectations," Gilmer said. "In a recovery, Ohio's actually in a position to benefit better than anybody else."

On the wrong track: Regulators miss real problem in rail-car explosions – 1st of three parts - Track defects caused fiery crude-oil derailments that forced 1,100 people from their homes in the Appalachian village of Mount Carbon, West Virginia, this year and killed 47 people in a Canadian town in 2013. In fact, a Dispatch analysis of federal records shows that track defects and human error are to blame for most railway incidents.Yet U.S. regulators continue to focus on tanker cars instead of the rails that support the cars and millions of gallons of Bakken crude, a type of highly volatile oil from North Dakota and Montana that crisscrosses the country on the way to refineries each week. Bakken trains pass through the hearts of hundreds of cities and towns and past millions of their residents, among them neighborhoods in Stark County. After dozens of crashes and spills in the past five years, U.S. rail authorities have zeroed in on tanker cars, propelling regulations that will cost an estimated $1.7 billion in upgrades designed to make those cars safer. But a Dispatch analysis of rail incidents shows that cars cause relatively few derailments and other rail incidents. Two-thirds of rail problems occur because of human error and track defects. “The first question you always ask is not how to reduce the consequences of the accident, but how do you keep the accident from happening in the first place. That means looking at what causes the derailments.” Reports that railroads have fought to keep secret show that 45 million to 137 million gallons of Bakken crude roll through Ohio each week. Trains carrying Bakken crude have derailed in cities across North America, dangling over a bridge in downtown Philadelphia, contaminating water in Lynchburg, Virginia, and, in one case, killing 47 people and incinerating the downtown in Lac-Megantic, a small town in Quebec. After several train derailments, The Dispatch began analyzing federal records and reviewing hundreds of reports about crude-train incidents.

Derailments more dangerous, but no increase in inspectors - Columbus Dispatch: Months before a CSX train carrying crude oil derailed and exploded in Mount Carbon, W.Va., polluting the air and water and forcing more than 1,100 people from their homes, inspectors missed a problem with the track there. Inspection reports compiled by a railroad contractor and CSX showed evidence of the defect, but the track wasn’t repaired or replaced. In fact, CSX officials and federal regulators didn’t find out about the defect until it was too late. About 140,000 miles of train tracks crisscross the nation, carrying hazardous cargo past houses, hospitals and schools every day. And hundreds of trains derail or crash each year because of problems with those tracks. One-third of all incidents — about 17,000 since 1995 — are blamed on problems with track.For the most part, railroads are responsible for inspecting their own tracks, but they don’t report those inspections to regulators. Federal inspectors see those reports only if they audit railroads or investigate a crash. And as trains have gotten longer, heavier and started carrying more Bakken — the most volatile crude oil in the world — the number of federal inspectors conducting those audits and their own checks has remained nearly the same. In 2006, before hydraulic fracturing opened up new shale-oil fields, the Federal Railroad Administration employed 344 inspectors. Today, it has 346 — one inspector for every 400 miles of track in the United States. States also employ their own inspectors, but it’s unclear how many monitor tracks. Some estimates peg the total number of state inspectors nationwide at about 180. Ohio has three. “It’s clear that (the Federal Railroad Administration) does not have the manpower, nor do they really have the charge to go out and do the inspection,” said Rick Inclima, safety director for the Brotherhood of Maintenance of Way Employees Division, the union that represents track inspectors. Federal railroad officials declined an interview for this series.

First responders often unprepared for derailments - Columbus Dispatch  - Flames licked the tanker just outside the state fairgrounds on July 11, 2012. Thousands of gallons of ethanol heated up inside the car. As pressure mounted, the intense heat weakened its shell, less than an inch thick.  The Norfolk Southern train had derailed in the right place at the right time. Few people were out at 2:04 a.m. when the first 911 calls about a plane crash or a trash fire were reported. The Ohio State Fair wouldn’t begin for a month, and the nearby Central Ohio Transit Authority garage was quiet.  Trains carrying hazardous materials — from chlorine and hydrochloric acid to ethanol and crude oil — roll through neighborhoods and business districts nationwide every day. Most of them go unnoticed, and nearly all reach their final destination without incident. But when they crash, the consequences can be dire. About 1.4 million Ohioans live within a half-mile of rail lines where Bakken crude is transported.   A broken rail also was to blame for a Bakken crude-oil derailment this year in Mount Carbon, W.Va., near a bend in the Kanawha River, which incinerated a house, forced about 1,100 people out of their homes and tested first responders.Inspections two months before the Mount Carbon derailment revealed a track defect that was not repaired before it broke under the weight of the 107-car CSX train that had earlier rolled through Downtown Columbus.Some of the firefighters who rushed to the derailment site had been trained in how to deal with crude-oil derailments: Just five months earlier, firefighters from the nearby Montgomery Fire Department had undergone CSX training on Bakken crude oil.But that didn’t make it any easier. Smoke and fire blocked one major road, making it impossible for some firefighters to reach the scene.Those who did make it through the heavy snow and thick, toxic smoke had another problem: Oil fires must be treated with foam, and this fire was huge.“The amount of foam we’d have needed — there’s not enough in West Virginia,”

States, feds keep train-derailment reports from public - Columbus Dispatch: Information that state and federal government agencies collect about train derailments, particularly those that cause crude-oil spills, is hard to find. Huge amounts of data about collisions, derailments and other accidents that happen along railroads in the United States are collected every year. Some of it is compiled by the industry and distributed directly to the public upon request. But some is buried in databases that government officials are slow to release, if at all. For example, the U.S. Department of Transportation requires railroads to submit annual reports to state emergency-response officials estimating how many trains carrying crude oil from the Bakken shale region pass through each county. Yet in many states, the public is not allowed to see those reports. A request by The Dispatch to see reports for Ohio went unanswered for months. When the request was answered, only reports from two of three railroads that move crude oil from the Bakken oil fields were provided by the State Emergency Response Commission. The third was supplied only after The Dispatch pointed out the discrepancy. In some instances, railroads have sued to try to keep reports secret. Some states allow the public to review only limited information from those reports. In Illinois, for example, the state emergency-response commission provided to The Dispatch railroad reports that included the number of crude-oil trains traveling through each county but redacted the specific rail lines. In the report West Virginia officials released, counties where crude oil moves by rail were blacked out, as were specific rail lines, and amounts of crude oil hauled. Melissa Cross, coordinator of West Virginia’s State Emergency Response Commission, said the state lets the railroad decide what information should be made public.

Fracking brings steep drops in some home values -- Home values decline steeply when fracking occurs in neighborhoods that use well water, says new research from Duke University. But the outcome differs in neighborhoods that rely on piped water, where home values rise slightly after shale-gas drilling occurs. The study, conducted in Pennsylvania, found that in areas using well water, home prices dropped by an average of $30,1676 when shale drilling occurred within a distance of 1.5 kilometers. Meanwhile, homes using piped water gained an average of $4,800 in value after shale wells opened nearby. Hydraulic fracturing, or “fracking,” is a relatively new technology in which gas is extracted by drilling into a shale formation and then applying a high-pressure mixture of water, sand and chemicals to create cracks from which the underground gas stores are released.The paper is among the first to quantify the impact of fracking on property values in a wide geographic area, said lead author Christopher Timmins, a Duke economics professor who specializes in environmental economics. It appears online in the December issue of the American Economic Review. “Our results show clearly that housing markets are responding to homeowners’ concerns about groundwater contamination from shale gas development,” Timmins said. “We may not know for many years whether these concerns are valid or not. However, they are creating a real cost to property owners today.” The study comes at a time when shale gas development is expanding across the country. The research was conducted in Pennsylvania, which is home to one of the nation’s largest natural gas reserves and where fracking activity has greatly increased in recent years.

Grandparents take to rocking chairs to protest fracking near schools - Monday, six Butler County grandparents tried to prove you're never too young, or old, to try and make a difference. "We're all grandparents, and we're worried about our grandchildren," said Ping Pirrung, a protester. The group tried to block Rex Energy's access to its own drilling operation off Route 228 in Adams Township. • A Rex Energy spokesman says the company has already completed the first phase of its drilling operation and will start work on the second phase in the coming weeks and months. Rex has already gotten all the local, state and federal permits necessary for its operation and placards indicating as much are at the entrance to the well.At issue with the grandparents protesting Monday; the proximity of the drilling to nearby schools. "We oppose this activity completely; fracking in general, but especially by the schools," said Laurel Colonello, another protester. The Mars Area Middle and High schools are both within a half mile of the Geyer Well Pad. "Fracking is not appropriate near schools. At all. Period," Pirrung said. Pat Creighton is a spokesman for Rex Energy. "Rex has no higher priority than the safety of our employees and the communities where we operate. At this specific site, Rex has provided regular operational updates to the Mars Area School Board," Creighton said.

Pipeline review to be co-led by NY environmental agency — Oversight of a new oil pipeline between the Port of Albany and New Jersey refineries will be led jointly by New York’s Department of Environmental Conservation and Thruway Authority, the agencies announced Monday. The announcement followed weeks of letters and resolutions from local officials and environmental groups opposing the Thruway Authority’s request for sole lead agency status. In a Dec. 16 letter to DEC, Scenic Hudson, Riverkeeper, Catskill Mountainkeeper, Sierra Club and Environmental Advocates of New York said DEC “is in the best position to conduct the necessary and thoroughgoing environmental review that this project demands.” Four counties, three cities and 21 towns and villages in the project’s path also objected to the Thruway Authority’s request for lead status in the review. Pilgrim Pipeline Holdings LLC, based in Canton, Connecticut, is developing a 178-mile project with two parallel underground pipelines between supply and distribution terminals in Albany and Linden, New Jersey. Crude oil will be delivered south to refineries, and gasoline and home heating oil will be shipped north to consumers. The project will occupy 116 miles of Thruway right of way through the Hudson Valley. Scenic Hudson objected to the decision to give the Thruway Authority joint lead agency status with DEC, saying that could undermine the thoroughness of the environmental and public health impact review. Environmental groups said the Thruway Authority stands to benefit from fees it would collect from the pipeline, creating a conflict of interest in the environmental review.

National Grid seeks to build 85-foot wall around Providence gas tank — As it moves forward with a plan to install a system to liquefy natural gas at its existing gas storage tank on the Fields Point waterfront, National Grid is preparing to file a proposal with federal regulators to build a giant wall around the steel tank as protection from spills. The concrete wall would stand 85 feet tall, about half the height of the 172-foot-high storage tank, and would extend approximately 754 feet around it in a full circle. There is an earthen berm around the tank already but the wall would be much higher. A spokesperson for National Grid said the wall is not required under federal or state laws and described it as a “voluntary safety enhancement.” “We are going above and beyond existing requirements to ensure that our facilities are using the most up-to-date safety infrastructure available,” Darlene Masse said. “The planned enhancements at Fields Point are part of National Grid’s commitment to continuously improve the safety and reliability of its infrastructure so that we can continue providing our customers with the level of service they deserve and expect.” The project, she said, is in the early stages of engineering, and National Grid has yet to finalize a cost estimate or calculate how much ratepayers in Rhode Island and Massachusetts would pay for the proposed wall.

What It Will Take to Balance the Gas Market in 2016 --The U.S. natural gas market is facing an ultimatum. Natural gas storage inventories are carrying such a daunting surplus, that prices already at 21-year lows for December, seem primed to go even lower should supply or demand fail to cooperate and balance the market. A warm winter so far and the very real prospect of hitting a storage celling before next winter mean that something has to give.  Today we wrap up our series on the gas supply/demand balance with a look forward to how 2016 could pan out.  Total U.S. storage inventory reached an all-time record high of 4,009 Bcf on November 20, 2015, and has been racking up an ever-growing surplus versus year-ago and five-year average levels ever since because warmer weather so far this winter has meant lower withdrawals than usual. The latest Energy Information Administration (EIA) weekly storage report for the week ended Dec. 11 showed inventories at 3,846 Bcf, 541 Bcf higher than last year, and weather forecasts suggest that could keep growing over the next few weeks to over 600 Bcf. If the market were to carry that surplus forward, inventories would theoretically be upwards of 4,500 by November 1, 2016. However, that can’t happen realistically because the known physical capacity limit for storage is lower than 4,500 Bcf. True, the total working gas design capacity for U.S. storage is around 4,665 Bcf, according to the EIA. But if you take the highest observed inventory level for each individual storage facility as reported to the EIA over the last five years and add them all up, it comes to a total of only 4,336 Bcf. That number represents the demonstrated maximum working gas storage capacity in the U.S. However, those facility-specific peak inventory levels are non-coinciding, meaning they have never before all peaked simultaneously in order to reach that total. So in reality the actual demonstrated storage capacity is much less than 4,336 Bcf. In other words if the current surplus of production (supply) over demand continues we would hit the theoretical storage “ceiling” sometime before next winter.  That is pretty unlikely.  In reality, the market will  find some other way to balance apart from storage.

Local officials from six states want local control of fracking - – As state legislatures and state supreme courts around the country are barring local governments from preventing or even regulating drilling in their communities, Environment America announced broad support for local control of fracking from more than 250 mayors, county commissioners, city councilors, state legislators and other local elected officials from six states.  Many of fracking’s impacts – from air and water pollution to earthquakes and ruined roads – are felt most heavily at the local level, prompting communities from Texas to North Carolina to seek to restrict the practice. But the oil and gas industry and their allies in state governments are fighting back.

  • Fort Collins and Longmont, Colorado are the latest communities in the spotlight, with the state supreme court hearing oral arguments on the towns’ fracking restrictions last week.
  • In Ohio, state law hands exclusive authority to the Ohio Department of Natural Resources to regulate and permit oil and gas wells, and attempted bans by local communities were rejected in the state courts earlier this year.
  • In Texas, the legislature adopted a law in May to bar local regulations of fracking, invalidating measures in Denton and other Texas communities.
  • In North Carolina, the General Assembly has prevented municipalities from placing any permanent regulations on fracking, prompting more than half a dozen local governments to pass temporary restrictions.

“In the rush to attract gas drillers to North Carolina, the State Legislature has ruled that this one industry is more important than a local government’s responsibility to protect the health and welfare of citizens,” said Chatham County commissioner Diana Hales.

Space Oddity – Congestion On The Colonial Refined Products Pipeline -- While recent analysis has raised concerns crude oil pipelines are running half empty the opposite is true for many of the nations’ refined product distribution pipes. Take the huge Colonial Pipeline system that delivers as much as 2.7 MMb/d of refined products from Gulf Coast refineries to destinations up the East Coast as far as New York. The southern stretch of the pipeline from Pasadena near Houston to Greensboro, NC has been running full since 2012 - meaning that shipper volumes are subject to rationing or apportionment. Today we start a two-part series explaining why the Colonial pipeline is so congested and how it operates.  We previously detailed the woes of East Coast refineries back in June of 2012 when plants had been shuttered due to poor refining margins (see Don’t Let The Sun Go Down On Me). Since then refinery fortunes in the region that the Energy Information Administration (EIA) calls Petroleum Administration for Defense District (PADD) I - have recovered somewhat – starting with the “rescue” purchase by Philadelphia Energy Solutions of a former Sunoco refinery in Philadelphia (see Beginning To See The Light). This refinery renaissance was in large part due to processing cheaper domestic crude railed from the Bakken instead of more expensive imports. In the case of two refineries in Delaware City and Paulsboro, NJ owned by PBF Energy – the revival formula also involved railing in heavy crude from Canada (see Masterpiece Refining). But despite the fact that refiners have done well in the shale era because of access to cheaper “advantaged” crudes (see Living With A Material Surge), East Coast refineries still don’t produce enough refined product to meet local demand – particularly heating oil during the peak winter season (see New York State of Contango) and gasoline in the summer. The shortfall is made up by a combination of shipments from the nation’s largest refining center – the Gulf Coast (PADD III - which hosts just over 50% of U.S. refinery capacity – 9.4 MMb/d) and imports, mostly from overseas.

St. Tammany Parish fracking opponents lose another round in court - St. Tammany Parish fracking opponents lose another roun: Fracking foes in St. Tammany Parish have lost another round in court. A federal judge rejected the town of Abita Springs' assertion that the Army Corps of Engineers improperly awarded a wetlands permit for a controversial oil drilling project northeast of Mandeville. U.S. District Court Judge Carl Barbier ruled Wednesday (Dec. 23) in favor of the corps and Helis Oil & Gas Co. The company received a wetlands permit in June to drill an exploratory vertical well on undeveloped land just north of Interstate 12. "Helis is very pleased with this ruling, which soundly rejected all of the town's legal arguments and attempts to stonewall the drilling of our conventional vertical well," Helis spokesman Greg Beuerman said. "We look forward to the next steps in the process and to drilling this well as proposed." Abita Springs' attorney, Lisa Jordan of the Tulane University Environmental Law Clinic, could not be immediately reached for comment Thursday. Though Helis scored a victory in federal court, the proposed project, which many residents oppose because of environmental concerns, remains on hold while a state appeals court considers a separate lawsuit. The federal case began when Abita Springs sued the corps in February. The town said the corps failed to follow federal regulations in issuing the permit. The suit alleged the corps erred in refusing the town's request for a public hearing and a new public comment period to respond to about 500 pages of information that Helis submitted to the corps on Jan. 2 — after the comment period closed. It also maintained Helis' application did not meet a requirement that the company study and consider other sites that don't include wetlands.

Just About Every Part Of The Permian Basin Is Unprofitable At $30 Per Barrel - Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices. Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief. To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the U.S. is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen. The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.

Fracking Earthquake Injury Lawsuit Allowed to Move Forward in Oklahoma - An Oklahoma judge has rejected another attempt by energy companies to dismiss a fracking lawsuit filed by a woman who alleges she was injured by an earthquake caused by the controversial drilling technique. The complaint was filed by Sandra Ladra has against Spess Oil Co., New Dominion, LLC and 25 other unnamed defendants for injuries suffered in a 2011 earthquake in Prague. The 5.6-magnitude quake was the largest in Oklahoma history, and has been linked to hydraulic fracturing injection wells associated with oil and gas production. Last week, Lincoln County District Judge Cynthia Ferrell Ashwood denied a motion to dismiss the lawsuit based on the statute of limitations. Judge Ashwood previously threw out the case in 2014, but the decision was overturned by the Oklahoma Supreme Court.  Recent research has linked fracking wells to an unprecedented increase in powerful earthquakes across the South and Midwest. U.S. government geologists now say that Oklahoma suffers more earthquakes than California, due entirely to fracking and oil and gas wastewater disposal wells. Ladra first attempted to sue the companies in district court, but the companies filed a motion to dismiss, arguing that the case should be decided by the Oklahoma Corporation Commission (OCC), which is seen as highly favoring oil and gas industry in that state. The case made its way to the highest court in the state, which shot down the industry’s attempt to bar the fracking lawsuit.

Intensity of man-made earthquakes from fracking is on the rise - - It may only be a matter of time before we cause a 'mega-quake'.  This is according to a new study that claims fracking is increasing the intensity of tremors.  Pumping millions of gallons of wastewater increases pressure in the basement rock layer, which sits below a sedimentary cover and often contains oil and other exploitable gas reserves. The longer wastewater is injected into a site, the higher the magnitude of the resulting quake, it claims. Pumping millions of gallons of wastewater increases pressure in the basement rock layer, which sits below a sedimentary cover and often contains oil and other exploitable gas reserves WHAT IS FRACKING? Stanford University geophysicists created a reservoir simulation model, and found a linear relationship between frequency and magnitude of manmade quakes. They analysed a sequence of earthquakes in Guy, Arkansas. These quakes ran along an unmapped basement line between 2010 and 2011. Over a nine-month span, 94.5 million gallons of wastewater were injected into two nearby Arkansas wells, which extended into the basement layer. Injecting such high amounts of water increases pressure and adds stress to fault lines, triggering an earthquake when a stress fault slips and releases seismic waves. 'It's an indication that even if the number of earthquakes you experience each month is not changing, as you go further along in time you should expect to see larger magnitude events,'

Porter Ranch Methane Leak Does Not Bode Well for Climate - (video) Have you ever seen methane? What about benzene? Or the chemical the gas company adds to make your stovetop gas stink, mercaptan? I asked residents at a Save Porter Ranch meeting in northwest Los Angeles if they had seen the pollution they knew was in their community, pouring down from the SoCal Gas storage facility on the hill behind town. No one responded. For months now, methane pollution has been billowing from the breached facility into their community. Families have reported bad odors resulting in headaches and nosebleeds. Over 1,000 families have already chosen to relocate and the school district recently authorized the two local schools to move out of the area. But no one had actually seen the pollution. When an oil spill happens, you see it. At a coal fired power plant, you can often see the pollution blowing in the wind. But when a natural gas storage facility pollutes, what do you see?  Until now, you saw nothing. That's because much oil and gas air pollution is normally invisible. My colleague Pete Dronkers and I traveled to the community of Porter Ranch to show them the pollution they knew was there, but couldn't see. Earthworks uses a FLIR (Forward Looking InfraRed) Gasfinder 320 camera that is specially calibrated to expose otherwise invisible air pollution from oil and gas operations. Methane, the primary component of natural gas, is one of about 20 gases it can detect. It also recognizes known carcinogens like benzene and other toxins like volatile organic compounds.

Erin Brockovich: Porter Ranch Gas Leak Is Worst Environmental Disaster Since BP Oil Spill --Since October, residents of Porter Ranch, California, have been exposed to dangerous contaminants from a massive natural gas leak that continues to seep into the air, causing a catastrophe the scale of which has not been seen since the 2010 BP oil spill. After only a week of visiting families in Porter Ranch, I am already experiencing the headaches, nausea and congestion that have plagued this community living at the center of one of the most significant environmental disasters in recent history. Southern California Gas Co. or SoCalGas, has essentially ignored the impact to victims and its actions have instead added to their suffering. The company has refused to release air quality data that could be used to protect its residents, it has made relocation very difficult and it has forged ahead with plans to expand its facility before the leak has even been contained. The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground and it shows no sign of stopping. As the pressure from weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area. According to tests conducted in November by the California Air Resources Board, the leak is spewing 50,000 kilograms of gas per hour—the equivalent to the strength of a volcanic eruption. At this rate, in just one month, the leak will have accounted for one-quarter of the total estimated methane emissions in the state of California.

"Unstoppable" California Gas Leak Now Being Called Worst Catastrophe Since BP Spill --Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes,"the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane - a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide - has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. New infrared footage exposes the massive leak..  Infographic of leak (and potential solution)  As's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site — at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.    This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it. This methane disaster is worse than can be sufficiently described in words, because while it’s estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can’t be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix — which remains a dubiously open question. According to the California Air Resources Board, methane — a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide — has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons — adding “approximately one-quarter to the regular statewide methane emissions” during that same time frame.

California gas leak forces relocation of thousands since October - A massive natural gas leak has forced the relocation of more than 2,000 families in a California community, with many reportedly falling ill from the noxious fumes spewing into the air since October.Under a court-ordered settlement reached this week between the gas company and Los Angeles city attorneys, Southern California Gas (SoCal Gas) must find temporary housing within 72 hours for any residents of Porter Ranch who ask to be relocated. As of Wednesday, the company said it had relocated 2,147 families in temporary housing, while hundreds more have left the area on their own. The gated community, located some 30 miles (48 kilometers) northwest of downtown Los Angeles, sits near one of the largest natural gas storage fields in the United States, where a leak was detected on October 23. SoCal Gas says it would take several more months to repair the leak at its Aliso Canyon site, while insisting that it poses no danger to human health as methane dissipates quickly into the air. But many families report falling ill from the fumes -- with symptoms including nose bleeds and nausea -- and have filed a class action suit against the company and pulled their children from area schools.  The Los Angeles city attorney earlier this month filed suit against SoCal Gas saying that no community "should have to endure what the residents of Porter Ranch have suffered from the gas company's continued failure to stop the leak." "It's not only the odor, it's the potential health consequences from the long-term exposure to chemicals like benzene," attorney Mike Feuer added. According to the California Air Resources Board, the leak is releasing between 44,000 and 58,000 kilograms (97,000 and 127,000 pounds) of methane into the air per hour.

New infrared video reveals growing environmental disaster in L.A. gas leak - A runaway natural gas leak from a storage facility in the hills above Los Angeles is shaping up as a significant ecological disaster, state officials and experts say, with more than 150 million pounds of methane pouring into the atmosphere so far and no immediate end in sight. The rupture within a massive underground containment system — first detected more than two months ago — is venting gas at a rate of up to 110,000 pounds per hour, California officials confirm. The leak already has forced evacuations of nearby neighborhoods, and officials say pollutants released in the accident could have long-term consequences far beyond the region. Newly obtained infrared video captures a plume of gas — invisible to the naked eye — spouting from a hilltop in the Aliso Canyon area above Burbank, like smoke billowing from a volcano. Besides being an explosive hazard, the methane being released is a powerful greenhouse gas, more potent than carbon dioxide in trapping heat in the lower atmosphere. Scientists and environmental experts say the Aliso Canyon leak instantly became the biggest single source of methane emissions in all of California when it began two months ago. The impact of greenhouse gases released since then, measured over a 20-year time frame, is the equivalent of emissions from six coal-fired power plants or 7 million automobiles, environmentalists say. “It is one of the biggest leaks we’ve ever seen reported,” said Tim O’Connor, California climate director for the Environmental Defense Fund, a nonprofit group that obtained the video. “It is coming out with force, in incredible volumes. And it is absolutely uncontained.”

Fracking, wastewater take center stage at hearing - Nebraska lawmakers are examining the Nebraska Oil and Gas Conservation Commission and its monitoring of a salt wastewater injection well in the northwestern corner of the state. Researchers, residents and drilling company representatives testified Tuesday before the state's Natural Resources Committee. Discussion centered on a Colorado company's controversial proposed salt wastewater injection well in Sioux County. Gering Sen. John Stinner estimated 80 trucks carrying more than 10,000 barrels of wastewater could be disposed at the site daily. The dry well could become the state's largest disposal site. Disposed wastewater would come from Wyoming, Colorado and Nebraska, according to the resolution. Such wastewater could contain chemicals from fracking, a process of injecting liquids under high pressure into rocks to release oil and gas. The committee invited representatives from the Environmental Protection Agency and the Groundwater Protection Council to testify. Both representatives expressed some level of trust in the Oil and Gas Conservation Commission's efforts.  Mike Nickolaus of the Groundwater Protection Council said the Oil and Gas Conservation Commission often exceeds federal minimum environmental standards, including its decision to review conditions a half-mile around wastewater sites rather than the required quarter-mile. A handful of people opposed fracking and the commission's dual role as the state's industry oversight agency, and promoter.

Shale gas hit a few peaks in 2015, but drillers mostly pulled back -  Shale gas companies pumped the brakes in 2015 after years of rapid increases in the amount of natural gas they pulled from Pennsylvania’s Marcellus and Utica shales, new production data released by the state shows. Unconventional gas production in Pennsylvania this year hit its highest point in March then dipped to its lowest point in June during a three-month slide, according to monthly figures that shale operators reported to the Department of Environmental Protection. Production rose in July, August and September before dropping off again in October. The October figures, the most recent available, were released by DEP last week. Average gas production in October — 12.5 billion cubic feet per day (Bcf/d) — was 1 percent lower than September and roughly on par with January. The stuttering production volumes are evidence of companies drilling and completing fewer wells, and choking back the flow of gas at wells already connected to pipelines. Several companies announced their intentions to curb production in response to low prices, oversupply and tepid demand amid warmer-than-normal temperatures. “By our estimates, there is up to almost 1.5 billion cubic feet of choked production in the Northeast alone,”“A lot of producers are saying, we’re going to wait until the first quarter of 2016 to come back into the game. They are just waiting for better demand, better prices to bump it out again.” Chesapeake Energy, Cabot Oil and Gas, and Southwestern Energy — shale operators focused on the dry gas region in Pennsylvania’s northeastern counties — led production for the first 10 months of 2015, although Chesapeake and Cabot both showed signs of pulling back after years of nearly uninterrupted production increases. Both companies reported producing less gas in October than they did in January.

Hoping for a Price Surge, Oil Companies Keep Wells in Reserve - —  This well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado’s Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly.Many constitute a new form of underground storage, a new well inventory strategy for an industry in distress, one that has been forced to lay off tens of thousands of workers, decommission most of its rigs and write down assets.For individual companies like Anadarko, the deferred completions — known in the oil business as D.U.C.s (an acronym for drilled but uncomplete) — are a bet on higher oil prices than the current level of about $38 a barrel, which is about 60 percent lower than in summer 2014. They are viewed by oil executives as a way to hoard cash as service costs plummet and are a flexible lever to rapidly increase production whenever oil rises again.  But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, about the same amount of oil that Iran is expected to add to the glutted global market after it complies with the recent nuclear deal by the end of next year. Some analysts say oil companies like Anadarko, EOG Resources and Continental Resources may collectively risk suffocating the very price revival they anticipate by releasing abundant new supplies once prices inch up. Others say the eventual impact would be small and short-lived, but since the industry has never used this strategy before, no one can be sure. Today there are 1,300 horizontal wells — typically the most productive drilled in shale fields that will offer the biggest output their first year — that were drilled at least six months ago that remain incomplete in the nation’s major shale oil fields. That is more than three times last year’s average, according to Rystad Energy, a Norwegian consultant firm that tracks world oil fields.

Oil Bankruptcies Hit Highest Level Since Crisis And There's "More To Come", Fed Warns - “Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.  This week’s gains notwithstanding, and a likely misguided assumption about the impact the lifting of America’s crude export ban will have on WTI aside, the fundamentals here are a nightmare. Iraq is pumping at record levels, Iranian supply is set to ramp up starting next month, once sanctions are lifted, and OPEC is completely disjointed. Furthermore, producers are bumping up against the limits of how many jobs they can cut and how much capex can be slashed (ultimately, you have to retain enough human capital and capacity to remain operational). The takeaway: the bankruptcies are coming.  As the Dallas Fed notes in its latest quarterly energy outlook, bankruptcies in the space are now at their highest levels since the crisis and things look bleak going forward. Below, find excerpts from the report. From The Dallas Fed West Texas Intermediate (WTI) crude oil prices have fallen around 23 percent so far in the fourth quarter. Expectations have shifted toward a weaker price outlook because sanctions against Iran are likely to be lifted in early 2016, the Organization of the Petroleum Exporting Countries (OPEC) has scrapped any pretense of a production ceiling, and U.S. production declines have slowed. Supply Glut Drives Oil Prices to 10-Year Lows The imbalance in global supply and demand has led oil prices to slump to levels last seen over 10 years ago. World petroleum production will exceed consumption by an average of 1.7 million barrels per day (mb/d) in 2015, according to December estimates by the Energy Information Administration (EIA). This excess supply is higher than during the Asian financial crisis and the Great Recession. OPEC supply has bloated markets with nearly 1 mb/d more this year than what the EIA initially predicted in November 2014. In 2016, global supply is expected to exceed demand by 0.6 mb/d on average (Chart 1).

Federal Court Gives Blessing to Covertly Approved Enbridge Cross-Border Tar Sands Pipeline Expansion -  DeSmogBlog -  A federal court has ruled that the Enbridge Alberta Clipper (Line 67) cross-border tar sands pipeline expansion project,permitted covertly and behind closed doors by the Obama Administration, got its greenlight in a legal manner.  The ruling  comes just over a year after several environmental groups brought a lawsuit against the U.S. Department of State for what they said was a violation of the National Environmental Policy Act (NEPA). President Barack Obama and the State Department gave Enbridge its initial Alberta Clipper permit in August 2009, during congressional recess. In November 2012, Enbridge requested an expansion of that pipeline from its initial 450,000 barrels per day capacity to 880,000 barrels per day. Seeing TransCanada's sordid experience with Keystone XL in action, Enbridge decided that a year into the expansion permitting project, it would do what environmental groups have coined a “switcheroo.” That is, they dreamt up the idea to add pump stations on each side of the border to two different pipelines (in name only, but part of the same pipeline system) — Line 3 and Alberta Clipper, respectively — and avoid having to go through the conventional State Department presidential permit process for border-crossing projects. The public did not learn of this “illegal scheme” until it was published in the Federal Register in August 2014,  Alberta Clipper is one piece of the broader Enbridge-owned multi-part pipeline system that DeSmog has called the “Keystone XL Clone,” which does what TransCanada's Keystone Pipeline System does: shuttle diluted bitumen (“dilbit”)from Alberta down to U.S. Gulf coast refineries and in part to the global export market. 

South Dakota regulators reject requests to toss out Keystone XL = — State regulators could make a decision as early as next month on whether to again approve the South Dakota portion of the Keystone XL pipeline. The state Public Utilities Commission denied requests Tuesday to throw out the pipeline project. Opponents argued that President Barack Obama killed the pipeline in November. William Taylor is an attorney for TransCanada Corp. He says TransCanada remains committed to the project, which could be revived under the next president. Critics fear the pipeline could pollute the environment. The pipeline would transport oil from Canada to Nebraska, where it would connect with existing pipelines headed to the Gulf Coast. It also could transport some crude from the Bakken oil field. Commission Chairman Chris Nelson says the panel could decide on the project at its January meeting.

Canadian regulator: 4.6 magnitude quake caused by fracking: British Columbia's energy regulator has confirmed that a 4.6 magnitude earthquake in northeast British Columbia in August was caused by fracking and is likely to be the largest fracking-induced seismic event ever recorded. The earthquake struck on August 17, 2015 about 110 kilometers northwest of Fort St. John in British Columbia. Its epicenter was close to a fracking site operated by Progress Energy Canada Ltd. Workers at the drill site reported their pick-up trucks shook and power poles swayed by the quake prompting the natural gas production company to temporarily halt operations. British Columbia Oil and Gas Commission, which regulates the fracking industry, had launched an investigation into the cause of the quake. It released a report last week stating that the 4.6-magnitude earthquake was caused by fluid injection during hydraulic fracturing from an operator in the area. Ken Paulson, chief operating officer of the OGS, saidProgress Energy Canada Ltd., followed regulations and stopped operations as soon as the magnitude was known.We allowed them to continue operations with a reduced pump rate, but if another event were to occur of 3.5 or greater, you have to shut in again and we’ll try something different.  Honn Kao, a research scientist with Geological Survey of Canada, said that the quake could very likely be the largest fracking-caused earthquake in the world.

Oil Traders Set to Pounce as U.S. Prepares to Lift Export Ban -- Collapsing crude prices, whipsaw volatility and the ability to store and sell oil forward for delivery at higher future prices made 2015 a banner year for the world’s biggest traders. Now things could get even better. The proposed lifting of the 40-year-old U.S. ban on crude exports will be a boon for trading houses as it will open a major new market and create a host of opportunities for the companies that buy, ship, store, blend and sell oil around the world. “Oil traders will love it,” . “It means those flows will be accessible to everybody and traders can apply their expertise to benefit.” Shale oil production has already transformed the U.S. market and in response, the largest independent trading houses, from Vitol Group and Trafigura Pte Ltd. to Mercuria Energy Group Ltd., have been bulking up their trading desks and investing in ports, pipelines and export facilities. Some, including Vitol and Trafigura, are already exporting lightly refined crude oil known as condensate under special licenses.“It provides a bunch of new trading opportunities and it is also a market with lots of access to capital,” Jakob said. “For the traders, it is a very significant new development and opportunity for them.” West African crude bound for Latin America, for example, could be replaced with U.S. oil, reducing shipping costs, said Jakob.

Lifting Oil Export Ban Is Like ‘100 Keystone Pipelines’ - Speaker of the House Paul Ryan (R-WI) said Monday that lifting the oil export ban, which was included in the $1.1 trillion omnibus bill, “is like having 100 Keystone pipelines.”  Unlike the oil export ban repeal, the Keystone proposal finally died this fall.“We hope the speaker is not bragging about making the climate worse,” “Both of those things are bad news for the climate, bad news for people who care about the environment.” By exposing producers to the global economy, lifting the oil export ban is expected to drive investment in domestic oil extraction, particularly in the Bakken oil fields of North Dakota. That, in turn, will increase carbon emissions. It will also continue the devastation some in North Dakota are seeing from widespread flaring, increased truck traffic, and water overuse and pollution. We’re already seeing huge impacts on public health and natural resources “We’re already seeing huge impacts on public health and natural resources,” Jessica Ellis, a senior legislative representative for Earthjustice, told ThinkProgress.  “The air side of things is pretty bad in North Dakota. There is so much flaring going on,” she said. “You also will have oil trains running across the country… I think there will be a lot of other impacts where we don’t know how it will play out.” Exploding oil trains has increasingly become a concern across the United States, as the oil boom outpaced infrastructure to transport petroleum.

The Impact On Corpus Infrastructure Of Lifting Crude Export Restrictions -- Until last week (December 13, 2015), the infrastructure being built to handle crude and condensate in the South Texas Port of Corpus Christi was planned on the assumption that crude exports were restricted to specific locations like Canada and condensate exports required special processing in a stabilization unit. Now that Congress has lifted restrictions on crude exports - the floodgates would appear to be open for surplus Eagle Ford and Permian crude to ship to overseas markets – provided the economics justify such movements (which they don’t at the moment). In the longer term though, exports could be the key to Corpus’ future. Today we continue our look at Corpus’s emerging role as a crude oil/condensate hub in a new world without export regulations.

100% Renewable Bribery : Oil and Solar Lobbyist Both Win in DC - Who drove the harder bargain in the federal budget compromise this week: Republicans who ended the ban on exporting crude oil from the United States, or Democrats who extended tax breaks for wind and solar power?As news of the quid-pro-quo spread, celebration and remonstrance broke out on both sides of the partisan Congressional schism on climate questions.And when neither side is wholly satisfied, it is usually a sign of a square deal. But this time there is good reason to believe that the green side gained more than it gave, assuming the package goes through as expected.“There is a lot to be said, pro and con, about this agreement, but I believe the extension of tax credits for solar and wind energy ‎is a game-changer,” said Sen. Barbara Boxer of California.“Extending the wind and solar tax incentives for 5 years would eliminate over 10 times more carbon emissions than lifting the oil export ban would create.”Her fellow Democrat, Sen. Ed Markey of Massachusetts, saw it differently, as did many environmental campaigners.“Today is a great day to be an oil company in America,” he said scornfully on the Senate floor. “It will be a disaster for our economy, for the climate, for our national security, for our consumers.”Environmentalists have a hard time swallowing the end of the oil export ban, because it is antithetical to the latest climate science that decrees most fossil fuels ought to be left in the ground.

Scant benefit expected from lifting oil export ban - The federal government is preparing to lift its ban on crude oil exports for the first time in 40 years, but most producers and industry analysts expect little benefit, at least in the short to medium term. Congress agreed to suspend the ban in its new omnibus spending bill approved on Friday and since signed by the president. That could pave the way for the first crude exports since 1975, when the federal government originally imposed restrictions to shore up domestic supplies in response to the Arab oil embargo that decade. U.S. producers have lobbied heavily to eliminate the ban, given that modern drilling technologies have opened up vast new U.S. crude reserves. That has pushed domestic output to its highest levels since the early 1970s, contributing to global oversupply and a fierce price war with the Organization of Petroleum Exporting Countries that began last year. To sustain U.S. production, oil companies want to access foreign markets where prices are higher than that paid by domestic refineries. But the battle with OPEC has sharply cut prices across the board, greatly narrowing the gap between what foreign refineries now pay for Brent oil — the international benchmark — and what domestic ones pay for U.S. benchmark West Texas Intermediate. The price differential has shrunk to less than $3 per barrel, down from $20 or more a few years ago, said Tom Kloza, chief petroleum analyst with the Oil Price Information Service in Maryland. As a result, the benefits for accessing foreign markets are now minimal for U.S. producers.

Market won't respond immediately to lifting of export ban - The oil industry received a psychological lift when President Barack Obama last week signed a $1.1 trillion spending bill that also included a provision to allow the U.S. to export crude oil after a four decade ban, but it’s going to take a while for the black gold to begin flowing to the coast and abroad. Petroleum economist Karr Ingham said infrastructure along the Gulf Coast is set up for importing oil, not exporting. It will take some time, he said to get facilities set up to start sending crude oil to the open market. The first thing that needs to happen that would be a game changer in the market, he said, is to start releasing excess crude from the world’s large oil storage facility in Cushing, Oklahoma. Ingham said about 60 million gallons of crude oil is stored at the facility between Oklahoma City and Tulsa. “What this export ban has been is an artificial restriction on the movement of a legitimately produced U.S. domestic product, which is to say we’ve produced it, we’re not using all of it, which means it just goes into storage, which means it pushes prices downward and that’s what’s been going on,” he said. “There is a market for this stuff (oil) out there.” Ingham predicted the stored-up crude should begin to hit the open market by the second half of 2016.  “Most of the producers in Texas are not going to be able to export crude oil. That’s going to be done by a lot of bigger companies and companies that have the expertise to do those type of things to shop it around internationally,” he said. “How we think it’s going to impact the smaller producers in Texas is that we’re hoping this huge oversupply of crude oil that we have will be reduced by being able to export some of that oversupply to other parts of the world to be refined.”

Vitol Said to Plan U.S. Oil Export to Europe After Ban Lifted - - The U.S. restricted most exports of unrefined crude as part of its response to the Arab oil embargo that caused fuel shortages in the earlier 1970s. For decades it didn’t much matter, as declining U.S. oil production and rising demand put the focus on imports. That started changing five years ago, when companies like Continental Resources Inc. and ConocoPhillips began ramping up oil production from shale rock in Texas and North Dakota, raising U.S. output by 65 percent and creating supply gluts that forced producers to offer steep price discounts. U.S. companies were already allowed to export oil to Canada, and boosted shipments to almost 500,000 barrels a day this year. That’s more than some members of the Organization of Petroleum Exporting Countries export. West Texas Intermediate, the U.S. benchmark crude, settled at $37.50 a barrel Wednesday, 14 cents higher than Brent, the international marker. Brent has been more expensive than WTI for most of the past five years, reaching a premium of $27.88 a barrel in 2011.

ConocoPhillips works the system - -  In February, the Obama administration gave oil company ConocoPhilips the right to drill in a formerly pristine part of the Alaskan arctic coast called NPR-A. The area had been protected for 15 years by a deal struck by Bill Clinton-era Interior Secretary Bruce Babbit to allow limited, roadless drilling along with protections for wildlife and the environment there. A POLITICO Magazine story today by Pro Publica's Alec MacGillis goes in detail about how the oil company applied slow, steady pressure to the federal bureaucracy to win a decision that will allow it to start drilling in the area early next year. To reach that point, the company deployed well-connected lobbyists to lean first on the Army Corps of Engineers to overrule a decision by the Bureau of Land Management that was supported by conservationists and native tribes living in the region. “It was so disappointing for the Obama administration, for Sally Jewell, to go down this road,” said Lon Kelly, who has since retired from the BLM office in Fairbanks.

How Obama Let Big Oil Drill in the Pristine Alaska Wilderness - In February, the Obama administration granted the ConocoPhillips oil company the right to drill in the reserve. The Greater Mooses Tooth project, as it is known, upended the protections that Babbitt had engineered, saving the oil company tens of millions of dollars and setting what conservationists see as a foreboding precedent. How ConocoPhillips overcame years of resistance from courts, native Alaskans, environmental groups and several federal agencies is the story of how Washington really works. It is a story that surprised even a veteran of the political machine like Babbitt. As environmentalists, energy companies and politicians brawled over big symbols like the Keystone XL pipeline and offshore drilling in the Arctic Ocean, the more immediate battles over climate change and fossil fuels were being waged over projects like Greater Mooses Tooth—out of the public eye, away from the cable-news shoutfests and White House protests. The fight was unfolding in the real Washington—where influence accrues across election cycles almost without regard to who’s in power. In this Washington, companies bend decisions of major import in their direction by overwhelming a bureaucracy that, after years of budget cuts, outsourcing and inattention, lacks the resources and morale to hold its own. Increasingly, industry spins the revolving door. It brings in people who learn there’s serious money to be made after leaving government jobs by sticking around the capital and making it their career.

Govt opens Mauis dolphin area for oil drilling - The Government has opened up more than 3000 square kilometres of a marine mammal sanctuary for oil and gas drilling, home to the critically endangered Maui's dolphin. It comes less than a week after the International Whaling Commission urged our Government to do more to save the species. The Maui's dolphin is the world's rarest. It is estimated there are only 55 left. "I think primarily once you go from exploration right through to production, you're not jeopardising the wildlife," says Minister of Energy and Resources Mr Bridges. In April, the Government signed off a block offer – the biggest area ever of sea and land for oil and gas exploration. Now official documents obtained by the Green Party reveal the Department of Conservation pointed out that this is the home of the Maui's dolphin, known as the West Coast North Island Marine Mammal Sanctuary. The area the Government has opened up for potential drilling overlaps 3000 square kilometres into the sanctuary, including large areas off the Taranaki coast.

Lender Versus Lender Rears Its Head Again in Canada's Oil Patch -- With crude prices plunging anew, the specter of lenders having to fight each other to get repaid is rearing its head again in Canada’s oil patch. As oil fell below $35 per barrel last week Calfrac Well Services Ltd., which provides rigs to pry crude from shale rock, announced that its banks and its largest shareholder had taken steps to help it avoid a technical default. Normally that would be good news for creditors. But the bond market barely reacted. That’s because the company left open the possibility that it could raise new debt that would rank ahead of the notes and dilute their claim on the company’s assets. Similar tactics, already used by U.S. oil companies to raise capital in the wake of oil’s first leg down at the beginning of the year, have triggered a pair of lawsuits from disgruntled lenders when Lightstream Resources Ltd. brought them to Canada in July. Now with the chances of a rebound in crude prices fading, bond investors are getting wary more companies will seek to set lenders against each other to escape default. "When you’re desperate to survive as a company you’re going to do whatever you can right?" "There will be more of these situations because there’s a lot of unsecured high-yield” debt issued by commodities firms. Calfrac’s $600 million of unsecured bonds traded at about 40 cents on the dollar in the wake of the firm’s announcement last week that its largest shareholder, Matco Investments Ltd., will participate in a C$27.5 million ($19.8 million) share sale.

MPs clear the way for fracking to start under National Parks - Fracking will be allowed under the most beautiful parts of the country after the controversial measures were cleared by a vote of MPs in Parliament. The controversial method of extracting gas can now take place three-quarters of a mile below national parks, areas of outstanding natural beauty and world heritage sites in England. However similar protection is not afforded to sites of special scientific interest and other wildlife conservation sites by the plan. The news came ahead of a new round of fracking licences which are due to be awarded on Thursday. The Government had tried to appease concerns by ruling out fracking in national parks, and straight through drinking water aquifers, but has been criticised for still allowing fracking in the protected areas that feed water into aquifers and under national parks. MPs approved the measure by 298 votes to 261, a majority 37. Four Conservative MPs, including Tory London mayoral candidate Zac Goldsmith and Sarah Wollaston, the chairman of the Health select committee, opposed the plans. Labour and the Liberal Democrats have complained that the measures were not allocated any time for debate in the Commons chamber and the regulations were passed after a deferred vote away from the main proceedings.

Environmentalists hit out over plans for fracking in Barnsley - Thorne and District Gazette: Environmentalists have spoken out against a decision to allow fracking in Barnsley and expressed fears it could leave behind a “trail of environmental damage.” The Government has granted an exploratory fracking license to energy firm Cuadrilla, which covers an area that includes Barnsley town centre, Cudworth, Barugh Green, Dodworth, Hood Green, Worsbrough, Birdwell, Ardsley and Elsecar. It could bring the controversial drilling process to release gas from deep below the earth’s surface to Barnsley for the first time. Both the Barnsley Green Party and Frack Free South Yorkshire condemned the Government for making the decision.A spokesperson for the Greens said: “When fracking moves into an area there may be a promise of quick benefits for local communities, but the reality is often that the few local jobs that are created dry up once the fracking is finished and communities are left to live with the consequences.”

High Levels of Toxic Chemical Found in UK Fracking Site: High levels of a toxic chemical substance have been found in rock samples in an area earmarked for fracking in England. Scientists from the University of Aberdeen's School of Geosciences discovered the element, selenium, in rock samples targeted for shale gas extraction. Fracking involves blasting rocks underground with powerful injections of water, sand and chemicals to fracture the rock in the shale strata to release a gas that can be collected from a well. The British government is behind the controversial technique, while many conservationists, residents and members of the Green Party remain firmly against fracking. UK shale has lots of poisonous selenium scientists warn.    In 2011, it emerged that fracking tests near Lancashire in the north west of England were the likely cause of earthquakes in the area. Energy firm Cuadrila said that shale has test drilling had triggered the earth tremors, which didn't go down well with people living in Blackpool.  In July 2015, the British government was forced to release a heavily redacted report into the impact of fracking in the UK after the Information Commissioner ordered the British government to publish it accusing the Department for Environment, Food and Rural Affairs (DEFRA) of withholding the information. The report divulged that people living close to fracking sites could suffer poor health, financial hardship and pollution. "Noise and light noise and light have also been cited in the US as environmental and health concerns for residents and animals living near drilling operations. Excessive and/or continuous noise, such as that typically experienced near drilling sites, has documented health impacts."

BP Buys New Mexico Oil And Gas Assets From Devon Energy  (Reuters) - BP Plc on Friday said its U.S. onshore unit has acquired all of Devon Energy Corp's oil and gas properties in the San Juan Basin in New Mexico for an undisclosed price. BP expects to take over operation of the 480 wells spread across 33,000 acres in the first quarter of 2016 after receiving required government agency approvals, it said. Battered by a crude downturn that has stretched for more than a year, many independent oil and gas companies are selling assets or contemplating selling assets they no longer consider essential as a way to raise cash. BP, which started operating its Lower 48 onshore unit as a separate business in early 2105, already holds 550,000 acres and has average output of 100,000 barrels of oil equivalent per day in the San Juan Basin which spans New Mexico and Colorado. Shares of Oklahoma City, Oklahoma based Devon rose 4 cents to $29.02 in midday New York Stock Exchange trading. So far this year the stock is down 53 percent. U.S.-listed shares of BP fell 6 cents to $30.29.

Pemex oil production hampered by accidents, budget cuts - Petroleos Mexicanos’s oil production in 2015 will drop to the lowest in 25 years as a series of accidents and budget cuts curbed supply. Pemex, as the company is known, reported preliminary oil output Tuesday of 2.28 million barrels a day through Dec. 20, on pace for a 6.7 percent drop from 2014. Mexico’s 2015 oil production is the lowest since at least 1990, when the government began recording output, and is more than 100,000 daily barrels below the original 2.4 million daily barrels forecast for the year by Chief Executive Officer Emilio Lozoya. Pemex’s output is falling for an eleventh straight year, hampered by a series of accidents. April production sank to a low of 2.2 million barrels a day following a deadly platform blast earlier in the month. The world’s eighth-largest oil producer, which had $87 billion in debt as of September, also had its spending on exploration and production trimmed by $4.1 billion by the Finance Ministry .

Dozens Killed In Huge Nigeria Gas Plant Explosion -- A massive explosion has occurred at an industrial gas plant (owned by Inter Corp Oil) in the southeastern Nigeria town of Nnewi. Local media reports the blast occurred while a truck was discharging its contents, and the ensuing fireball has left over 100 people burned to death. Nigeria's Vanguard reports, Tragedy occurred, Thursday in the industrial town of Nnewi, Anambra state when an industrial Gas plant suddenly exploded and with over 100 persons burnt to death. The explosion rocked the Inter Corp Oil limited(LPG Gas Plant), an subsidiary of Chikason Group. According to an eye-witness, the fire incident which started at about 11am, was caused by an explosion when a truck was discharging its contents. The source hinted that all the customers who went to the gas plant to get a refill were allegedly burnt to death while some of the victims who were in the neighborhood and passers-by also got caught in the inferno. At the scene of the incident, the charred bodies of the victims and other severely burnt persons were taken to Nnamdi Azikwe University Teaching Hospital, NAUTH, Nnewi. It was gathered that the inferno did not allow rescue workers into the factory where hundreds were allegedly trapped.

Steady Eddy -- Refinery Utilization -- Among all the oil and gas data tracked, this has to be the most boring, unchanging, "steady Eddy" graph I've ever seen, weekly US percent utilization of refinery operable capacity: On the other hand, this data shows a significant trend in the amount of crude oil throughput in US refineries over the same period of time:  At the same time US gasoline demand:  Three observations:

  • since around 2000, US gasoline demand has flattened, after reaching a peak in 2006 and 2007
  • crude oil refinery throughput has increased -- on the eye of the beholder, I think -- significantly
  • meanwhile, refinery utilization has remained incredible stable

I realized that I had failed to note one of the top stories this past week. I think the most un-reported or under-reported story this past week was something picked up by Jack Kemp: the surge in US oil imports. With the glut of oil in the US it's absolutely counterintuitive that imports are surging. There is a lag in reporting so we won't know whether it's heavy oil or light oil or both that is contributing to the surge. The most recent import data is from September, 2015: From Reuters, written by Jack Kemp: Crude imports surged to 8.3 million barrels per day (bpd) last week, up from 7.0 million bpd four weeks earlier, according to the U.S. Energy Information Administration ( Imports are running at the fastest rate since September 2013, with almost all the extra crude arriving at ports along the U.S. Gulf Coast. ( Both the timing and the location are unusual because refineries and traders try to minimize stocks held along the Gulf Coast at year-end to avoid storage taxes imposed by Texas and Louisiana.  Faster imports have pushed crude stocks higher even as refiners have boosted the amount of crude they process to a seasonal record 16.6 million bpd.

More Movement In The Global Oil And Gas Industry -- December 22, 2015 -- Yesterday it was announced that BP would buy all of Devon's assets in the San Juan Basin in New Mexico. Today is it being announced the COP is leaving Russia after 25 years. From Seeking Alpha:

  • ConocoPhillips is exiting Russia after more than 25 years as foreign investors are hit by Russian political tensions and the tumble in oil prices, Financial Times reports
  • COP confirms it sold its 50% stake in its Polar Lights JV with Rosneft, which also sold its stake in a deal that valued the business at $150M-$200M
  • Polar Lights, registered in 1992, made COP the largest foreign investor in the Russian energy sector in the early 1990s, but the venture became ensnared in domestic Russian politics, and its tax bill increased sharply; COP first announced it would seek a buyer for its stake last year

Meanwhile, Gazprom Neft is tweeting:  Russia to stand by flat crude oil output strategy; 'ready for battle', according to Gazprom Neft CEO.More and more pressure on President Putin, which takes us to this next article sent in by a reader.  From oiljobsnd: It won’t be long now, until the U.S. Shale Oil Industry will bankrupt Saudi Arabia, and claim victory against OPEC. The war isn’t over yet, but America has already won, it’s just a waiting game now. On Friday, December 18th 2015, President Barack Obama officially signed off on ending the 40 year ban on the export of crude oil. President Obama basically signed the death certificate of OPEC. By passing this new law, the US Shale Oil Industry will crush OPEC in the long-term.

Chevron Agrees Deal to Sell Australian Gorgon LNG to Chinese Firm -  Rigzone: (Reuters) - Chevron Corp on Tuesday said it has agreed to sell up to 1 million tonnes a year of liquefied natural gas (LNG) from its Australian Gorgon project to China Huadian Green Energy Co over 10 years starting in 2020. The non-binding heads of agreement comes amid a deterioration in Asian LNG prices , aggravated by mounting supply from Australia, which aims to overtake Qatar as the world's top producer in coming years. The price has slid two-thirds since 2014 to under $7 per mmBtu. "This is an important step in the commercialisation of Chevron's natural gas holdings in Australia," Pierre Breber, executive vice president of Chevron Gas and Midstream, said in a statement. Chevron in January signed a contract with South Korea's SK LNG Trading Pte Ltd to supply 4.15 million tonnes of LNG from Australia over a five years starting in 2017. The Gorgon Project combines the development of the Gorgon field and the nearby Jansz-Io field and is capable of producing 15.6 million tonnes of LNG a year.

Siberian Surprise: Russian Oil Patch Just Keeps Pumping - In the fight for market share among the world’s oil producers this year, Russia wasn’t supposed to be a contender. But the world’s No. 3 producer has been pumping at the fastest pace since the collapse of the Soviet Union, adding to the flood on an already-swamped market and helping push prices to the lowest levels since 2009. Russia’s unexpected oil bounty this year is the result not of a new Kremlin campaign but of dozens of modest productivity improvements across the sprawling sector.  With a rise of 0.5 percent in the first nine months of 2015, Russia hasn’t boosted production as much as its larger rivals, the U.S. (up 1.3 percent) and Saudi Arabia (up 5.8 percent), according to Citigroup Inc. But having ignored OPEC’s calls earlier this year to join efforts to support prices by pumping less, Russia is keeping up with the cartel. “I know of no one who had predicted that Russian production would rise in 2015, let alone to new record levels,” said Edward Morse, Citigroup’s global head of commodities research. As recently as April, not even the Russian government thought 2015 would break the record.One side effect of falling oil prices -- the 52 percent plunge in the ruble over the last two years -- has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.“I don’t know what the oil price would have to fall to for things to change dramatically,” Stavskiy said. “We’ve been through $9 a barrel and production continued, so if something like that happens, we know what to do.” Relatively high taxes on oil have actually sheltered the industry from much of the impact of the drop in prices. The government takes nearly on crude exports everything above $30-$40 a barrel, so companies don’t feel much impact until prices fall below that.

"I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails -  In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China. Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here's a look at the longer-term trend: You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise. On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China's largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.” This is an annoyance for Riyadh. China was the world's second-largest oil consumer in 2014and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran.

A Saudi-Russian oil splash? - Pepe Escobar - Russia will keep its 2016 oil production level at a staggering 533 million tons – which will translate as an average of 4.76 million barrels a day in exports. Profiting from a stream of more efficient refineries, domestic demand is down and exports are up. Russian oil companies, compared to Western majors, suffer less with low oil prices because of the ruble devaluation and because taxes go down as the oil price goes down. Igor Sechin, president of Rosneft, famously brags that Russian costs are «the lowest in the world» – especially from oil fields in West Siberia. Russia is the top global oil producer alongside the Saudi oil hacienda. And at least three times in 2015 Russia has exported more oil to China than Saudi Arabia. That fits into the key energy angle of the Russia-China strategic partnership in Eurasia. Curioser and curioser, this process is now running in parallel to Russia and Saudi Arabia set to – maybe – become potential allies, even as their oil strategy frontally clash. Russian President Vladimir Putin has alluded to a «multibillion-dollar program» in the military-technical spheres. This may be a sign that the House of Saud has seen the light – as in being seriously hurt by its own strategy of forcing low oil prices. That would imply in the long run a House of Saud more closely aligned with the Russia-China strategic partnership – as China is the Saudi’s top trading partner and, on and off, top oil customer. The House of Saud’s key motivation to force oil prices down in 2014 was to bend Russia’s will over Syria. Now the economic verdict is in – and it boils down to an absolute disaster, featuring a budget deficit of 16% of GDP in 2015 and sovereign credit rating cut to «A+/A-1» from «AA-/A-1+» by Standard and Poor's.  Russia, for its part, kept pumping. And to top it off Moscow sent the Air Force in style to protect Damascus.

Oil Prices Slump to 11-Year Lows in Asia and Europe - — Oil prices hit 11-year lows in Asia and Europe on Monday, as a glut of crude on world markets and the recent global climate accord continue to depress fossil-fuel prices.Brent crude oil, the international benchmark, was trading at $36.50 per barrel in late European trading.Analysts say there is little to restrain continued price declines in the near term. Prices are down about 15 percent so far in December, after an OPEC meeting failed to produce measures to restrain record-high production. That meeting was quickly followed by the United Nations climate accord in Paris, which aims to reduce the world’s reliance on oil and other carbon-emitting fuels.The latest factor weighing on prices has been unusually warm weather in the United States and Europe, which is reducing winter demand for heating oil and leading to rising stockpiles of oil products. The expectation that the American government may soon lift a decades-old ban on exports of crude from the United States may also be affecting prices.“We are probably going to see the weakness run at least through January,” Analysts say that crude oil prices are likely to remain under pressure in the spring, when refineries typically shut down for maintenance, weakening demand. While few analysts had expected OPEC to decide to cut production when the group met in Vienna this month, the signals from the meeting appeared to show that the cartel, which accounts for about 30 percent of world oil production, was not even close to coming up with a plan to try to manage the market.

Crude oil plumbs new post-crisis lows - Brent crude has dropped to its lowest level in more than a decade, surpassing the lows hit at the depths of the financial crisis, as the market groans under the weight of over-abundant supply. The international oil marker dipped 2 per cent to $36.17 a barrel overnight, its lowest level since 2004 and below the $36.20 reached on Christmas Eve in 2008. West Texas Intermediate, the US oil benchmark, was down 1 per cent to $34.37, but still above its financial crisis low of $32.40 hit almost seven years ago. Oil prices have dropped more than 15 per cent since a rancorous Opec meeting earlier this month that exposed the organisation’s inability to tackle a global oil glut, which is growing by as much as 2m barrels a day, according to some estimates. Saudi Arabia and Iran both resisted calls for production restraint and vowed to keep pumping, intensifying a battle for market share that has contributed to record oil inventories and a halving of the oil price over the past 18 months. Data released by the US Energy Information Administration last week showed crude stockpiles across the country increased by 4.8m barrels to 491m barrels. “The unexpected surge in stocks is a worry considering inventories typically fall at this time of year,” said ANZ. An increase in US interest rates and a strengthening dollar have heaped further pressure on oil. Last week’s deal to lift the tight restrictions on US crude oil exports, which have been in place for 40 years, has been another headwind. “The imbalance in the global oil market has been diminishing in the second half of 2015 but the hope for a rebalancing in 2016 continues to suffer serious setbacks,” Higher Opec production, including additional barrels from Iran, is one of the main risks for next year, according to Mr Longson. Higher-than-expected US production is another. In spite of the weakening oil price the US oil rig count increased by 17 to 541 last week, putting an end to a month of declines.

WTI Crude Plunges To $33 Handle Ahead Of Futures Expiration -- While contracts have rolled, we thought it worth noting that January WTI Crude just flushed to a $33 handle for the first time this cycle. Feb crude (the current front-month) is down almost 2% to its series lows around $35.35...The January contract expires today.

Crude oil sinks to 11-year low as oversupply fears intensify - Brent crude dropped to its lowest level in more than a decade on Monday, surpassing lows reached in the depths of the financial crisis, hit hard by a relentless rise in global production that looks set to swamp the market again in 2016. Even though demand has been robust this year crude inventories have continued to rise at more than 1m barrels a day, with storage tanks filling quickly and long lines of ships forming at key ports around the world. Oil stocks in the developed world have ballooned to almost 3bn barrels — or more than a month of global oil supplies, according to the International Energy Agency.  They are expected to keep rising in 2016 with higher exports expected from Iran, once Opec’s second-largest producer, when sanctions linked to its nuclear programme are lifted. At the same time demand growth is likely to slow from this year’s fevered pace.“The hope for a rebalancing in 2016 continues to suffer serious setbacks,”  Brent, the international oil marker, fell by as much as 2 per cent to $36.04 per barrel on Monday, its weakest since 2004 and below the financial crisis low of $36.20 reached on December 24 2008. It settled at $36.35, down 1.4 per cent.On the other side of the Atlantic, West Texas Intermediate, the US oil benchmark, settled up one penny at $34.74 a barrel, still more than $2 above its 2008 intraday low.The number of put options giving holders the right to sell WTI crude below $30 a barrel by June has risen by almost half this month to the equivalent of 12m barrels. Traders also hold about 4m barrels equivalent of puts to sell WTI below $20 by June.On Tuesday in Asia oil prices ticked higher after a pledge by Chinese economic planners of more “proactive” and “flexible” growth policies, with Brent adding 0.2 per cent to $36.43 a barrel and WTI climbing 3.8 per cent to $36.06. But oil prices have dropped more than 15 per cent since a rancorous Opec meeting earlier this month that exposed the organisation’s inability to tackle a global oil glut.

Oil's Road Toward Rebalancing Could Take a Detour in 2016: Morgan Stanley - The year 2016 may prove a time in which the theoretical underpinnings of the old adage that "the best cure for low prices is low prices" is challenged, according to Morgan Stanley.Amid firming demand and plateauing production from nations outside the Organization of Petroleum Exporting Countries, the oil market has made strides toward rebalancing in the second half of 2015 despite hitting fresh 11-year lows: Conventional wisdom holds that low prices spur a pickup in demand and push producers to shutter unprofitable projects. But Morgan Stanley analysts see slower demand growth and risks that supply will rise rather than peter out in 2016. Their view stands in stark contrast to that of such banks as Credit Suisse, whose analysts see improving fundamentals in the crude market driving a more expedient recovery in prices.  Morgan Stanley's duo pointed to continued resilience of U.S. production and the slew of supply from OPEC members in the Middle East as forces that could keep the market from balancing from the supply side. "Most of the U.S. declines thus far have come from legacy production, stripper wells or low tier shale plays, not the core plays," . "Efficiency gains, bad behavior, and a struggle for survival should all help to support U.S. production." Meanwhile, the market will have to digest another 500,000 barrels per day of Iranian oil in the first three months of the new year, with the possibility of production increasing soon thereafter. The potential for peace in Libya could also see more of that nation's output—which is less than one-quarter of its post-recession peak—unleashed in the near future.

Oil getting to be cheaper than dirt - As the price of U.S. crude oil plummets toward its lowest price in the recent past, it may become, as the adage goes, cheaper than dirt. On Monday, U.S. crude futures had fallen to $34.20 a barrel, an apparent result of an oversupply of oil and limited demand. For comparison, the price of U.S. crude two years ago, in December 2013, was $98.42. Dwight DeMeers, a Burkburnett oilman, said the recent plunge in prices has got him concerned. He did a quick calculation showing oil prices may be lower than prices for plain ol’ dirt, after adjusting for production taxes, and presented those findings to the Times Record News. “It’s the oddest business: oil goes through the roof, everybody drills, then they oversupply the market and it crashes,” DeMeers said. An oil barrel measures 5.6 cubic ft., and Smith’s Gardentown sells a cubic foot of topsoil for $4.99. That calculates to $27.94 for the amount of soil needed to fill an oil barrel. At $34.20 a barrel, oil would still appear to be more expensive than dirt, but, according to DeMeers, producers only collect on about 80 percent of a barrel’s sale price once severance taxes and royalty payments are made. DeMeers recalled a recent conversation with a friend in which he joked about switching from oil to dirt. “I told him I was about to have to start sacking up dirt and selling it. It’s a lot easier to find,” he said. “It’d be a hell of a lot better business to sack dirt — if you spill it you don’t get in any trouble. You just shovel it back up.”

Brent-WTI Spread Eliminated; Parity Accomplished - Our good friends in OPEC have finally accomplished the hard fought task of pushing down the price of Brent crude to parity with WTI. This, of course, is bearish for domestic refiners and even worse for producers, as the cheap price of Brent lures our refiners into importing Brent, as opposed to buying domestically. Market “experts” feel this relationship will resolve itself, once WTI supply builds at Cushing, OK, forcing WTI lower. What these experts aren’t concerned about is the pervasive and concerted effort of foreign producers to break the backs of U.S. producers, specifically in the shales. The only way to accomplish a glut in WTI supplies is for our refiners to opt for Saudi oil over domestic. How very joyous.

WTI Crude Trades At Premium To Brent For First Time In Over 11 Months - Just as we warned, since the US export ban 'lift' loomed, so WTI prices have shifted notably, having today converged to Brent's price for first time since January. It may have a lot further to fall as some analysts suggest the lifting of the export ban "is going to end up ultimately being bearish everything." As commented last week, As for the impact on global markets, OPEC’s Secretary-General Abdalla El-Badri said Tuesday that "any change in U.S. oil policy will have 'zero' impact on global mkts because the country remains an importer."  In the grand scheme of things, you're really just shifting inventory around, Virendra Chauhan at Energy Aspects in Singapore says: “The deal to lift the crude ban is a significant change in U.S. policy, but in terms of the near-term impact on prices, we expect that to be blotchy and sentiment driven. All that you’re doing is transferring the glut from the U.S., where most of the storage capacity is, to elsewhere in the world.”  "Large volumes of crude are unlikely to flow out of the US as soon as the restrictions are lifted," FT writes. "The spread between the price of West Texas Intermediate crude, for delivery in Oklahoma, and internationally traded Brent is only about $1.25 per barrel, meaning that any benefit for US producers from selling in world markets would be swallowed up in transport costs."  "WTI would have to be at least $4 below Brent for exports to work, depending on the cost of shipping," Bloomberg wrote earlier this week, citing Energy Aspects analysts. That means spreads would have to widen to make exports economical. "This is going to end up ultimately being bearish everything," Citi's Seth Kleinman says. "You’re losing on the Brent side, and it’s not clear to me what you’re gaining on the WTI side. In oversupplied market, opening up the export arb changes not exactly nothing, but not far off from nothing."

API sees U.S. oil inventories down 3.6 million barrels: reports - The American Petroleum Institute, an industry group, on Tuesday said U.S. crude-oil inventories fell 3.6 million barrels in the latest week, news reports said. API said inventories at the New York Mercantile Exchange delivery point in Cushing, Okla., rose by 1.5 million barrels, according to reports. Traders look to the API data for clues to the closely watched weekly inventory data released by the U.S. Energy Department on Wednesday morning. Analysts surveyed by The Wall Street Journal have forecast a 600,000 barrel rise in oil inventories.

Crude Extends Gains After API Reports Unexpectedly Large Inventory Draw -- Following last week's huge build reported by DOE, crude inventories reported by API tonight dropped 3.6 million barrels (drastically different from the 2.3mm build expected). WTI is rallying on the news, despite a 1.5 million barrel build at Cushing (up notably from last week's 847k) - the 7th weekly build in a row. Total Inventories saw a drawdown... But Cushing saw the 7th weekly build in a row... The reaction was modest as algos came to terms with the 'build' at Cushing, the 'draw' overall, and the strength of the Brent 'arb' Charts: Bloomberg

Twitter Energy Tweets -- Platts, Jack Kemp, EIA -- December 23, 2015; US Natural Gas Reserves Staggering - The tweets:

  • North Sea Brent Blend crude oil loadings down 7,976 b/d at 173,301 b/d in week to Dec 22
  • Global oil market balance will be restored in 2016, says UAE energy minister Mazrouei
  • OPEC assumes average 2015 crude oil price will be $55/b, gradually rising $5/b each year to $80/b in 2020
  • E. Canadian crude oil production doubles, reach highest output since early spring following turnarounds
The East Canadian crude oil story: some data points --
  • 6 million bbls/month of November vs 3 million bbls/month of October (two of the four fields down for maintenance)
  • the four offshore Canadian fields produced 56 million bbls in first 11 months of 2015, vs 72 million bbls in same period of 2014
  • For newbies: North Dakota produced 1.2 million bbls/day; and, unfettered, could produce 2 million bopd

Black box hedge funds lead winners from oil drop  – To make money from the sharp fall in oil prices this year, it helped if you weren’t human. While a handful of big name traders have profited from some of oil’s 35 percent plunge, it has been computer-based or “systematic” funds which have captured much of the spoils. These black box funds use programs to follow various asset classes and look to latch on to market trends. So after crude lost 46 percent in 2014, they were already betting strongly at the start of this year that the trend would continue, largely through oil futures and other energy derivatives markets. Apart from a modest recovery early this year, crude prices have mostly been a one-way bet and now languish 66 percent below their levels around $115 a barrel 18 months ago. “The main beneficiaries have been the systematic, or trend-following guys,” said Anthony Lawler, head of portfolio management at investor GAM. “The stronger the trend, the bigger the position … Since the middle of 2014, oil’s been trending lower, so that’s quite a long trend. As a result, they have meaningful exposure in energy.”

Someone Bets Big On $15 Crude As OPEC Forecasts Oil Demand Slumping Until 2020 -- In OPEC's latest annual World Oil Outlook released on Wednesday, the now defunct cartel said that demand for its crude will slide to 2020, as rival supplies continue to grow. On the supply side, OPEC said it would need to pump 30.7 million barrels a day by the end of the decade, which is 1.7 million barrels more than it projected a year ago but well below, or some 1 million barrels less than the group pumped in November. As Bloomberg notes, this latest forecast underlines the struggle faced by OPEC as it seeks to defend market share against a surge in output from rivals such as the U.S. and Russia. As a reminder, one of the most unexpected outcomes of the recent collapse in oil prices is that while the Saudis had hoped non-OPEC production would plunge, the opposite has happened in the race to the bottom in which Russian oil production just hit a record while US shale production has remained steady even as the number of oil rigs has plunged to multi-year lows. Perhaps it is as a result of "cloudied uncertainty" and ongoing race to the bottom by all oil producers, OPEC and non-OPEC alike, that someone is betting that OPEC will be woefully wrong in its price forecasts, and is buying puts that see oil plunging as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices. The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut. This ties in with the recent forecast by Goldman Sachs which has said $20 oil is not impossible: "We view the oversupply as continuing well into next year," Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.  As the chart below shows, the bearish outlook on oil prices has prompted investors to buy put options at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp. With WTI currently trading at about $36 a barrel, this means someone is wagering on a drop which could be greater than 50% in the coming months. As Bloomberg points out, investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year. The largest open interest across options contracts - both bullish and bearish - for December 2016 is for puts at $30 a barrel.

Oil Is Now Cheaper Than Coffee, Milk, & Water -- While oil may be cheaper... But the rest of these 'staples' still taste a lot better. (infographic)

Crude Oil And Energy Market: Extreme Readings Suggest A Rally Is Coming -- In yesterday’s post about crude oil and energy stocks we showed how both crude oil and energy stocks (represented by XLE) are moving in synch since April of this year. They are both putting in a double bottom (obviously, only if current levels hold). We said that readers would know that “the bottom is in if 57 for XLE holds, as well as 36 for crude oil. If not, we will see another breakdown, although not likely.” Our article triggered quite some interest in social media, so we are following up yesterday’s article with additional data points. According to our methodology, sentiment is key, as well as the futures market structure (only relevant for commodoties), next to one technical indicator (the 90 week moving average). Let’s review those indicators for crude oil and XLE. The long term trend, represented by the 90 week moving average (WMA) on the weekly chart, is down. However, we note extreme readings as evidenced by the deviation from the 90 WMA. Currently, XLE is trading 25% below its 90 WMA. Rarely before have we seen such extremes. Also, from a trend perspective, XLE sits at a huge support area, which was tested several times since 2010, adding value to its importance. Sentiment has also reached extreme readings. As seen on the next chart, crude oil sentiment has been below a reading of 20 ONLY 3 times in the last two decades.  Those extremes do not last long. Although sentiment is not a timing indicator, it tells that current readings are too extreme to hold.

Oil prices edge up from 11-year lows  – Oil prices on Tuesday were just above the lows reached in the previous session, as a bearish outlook for 2016 and weaker profits for refining oil products capped gains. U.S. West Texas Intermediate (WTI) crude futures were 13 cents higher at $35.94 a barrel by 1455 GMT, having touched their lowest level since 2009 at $33.98 in the previous session. Brent futures fell by 19 cents to $36.16 a barrel, rebounding from an 11-year low of $36.04 hit on Monday. “It’s now going to be low-volume days because many market participants are trading less and looking toward the holidays,” Olivier Jakob from Petromatrix consultancy said. Gasoline margins coming off this week and persistently weak middle distillate margins are also weighing on the oil price complex, Jakob added. Expectations of another weekly build-up in U.S. crude stocks are adding to the bearish sentiment. Analysts on average reckon that crude stocks were up 1.4 million barrels in the week ended Dec. 18, according to a Reuters poll taken ahead of weekly inventory reports from industry group American Petroleum Institute (API) and the U.S. Department of Energy’s Energy Information Administration (EIA). Meanwhile Saudi Arabia, the world’s largest oil exporter, said it had shot down a ballistic missile that was heading toward the city of Jizan, where a new refinery and oil terminal are under construction. Saudi Aramco said all its facilities in the area were “in safe and normal operation”.

Oil halts decline as emerging market stocks climb on talk of China stimulus — Oil halted declines as emerging-market stocks gained for a second day and currencies climbed on the prospect of more economic stimulus from China. US equity futures rose after data showed the world’s largest economy expanded at a revised 2 per cent annualised rate in the third quarter. West Texas Intermediate advanced for the first time in five days before weekly US crude inventory and production data, bolstering the currencies of commodity-producing nations. Turkey’s lira weakened after the nation’s central bank unexpectedly left its three main interest rates unchanged. Coffee bounced after reaching the lowest in a month yesterday amid prospects of more supplies from Brazil. China’s government said late yesterday that monetary policy must be more “flexible” and fiscal spending more “forceful” to combat slowing growth in the world’s second-largest economy. The rout in crude prices has pushed oil to the lowest levels since before the financial crisis, damping inflation and boosting the appeal of long-term government bonds. Oil is “slightly higher, partly on some profit-taking”,

Oil up after U.S. crude stocks drop, still close to multi-year lows – Oil prices rose on Wednesday, underpinned by an unexpected fall in U.S. crude inventories, but were still close to multi-year lows as supplies remained abundant and as OPEC lowered the demand outlook for its exports. At 1448 GMT, Brent crude futures were up 87 cents at $36.88 a barrel, while West Texas Intermediate (WTI) futures were up 88 cents at $37.02. A day earlier Brent touched $35.98, its lowest since July 2004. The Organization of the Petroleum Exporting Countries (OPEC) in a report on Wednesday forecast that demand for its crude would be lower in 2020 than in 2016 as rival producers prove more resilient than expected in a low oil price environment. It forecast 2020 demand for OPEC crude at 30.7 million barrels per day (bpd) versus 30.9 million bpd in 2016 and about 1 million bpd less than it is currently producing. OPEC raised its forecast for tight oil output to 5.19 million bpd in 2020, up from 4.50 million bpd in its 2014 report. OPEC failed to agree on a production ceiling at a Dec. 4 meeting in Vienna for the first time in decades. Saudi King Salman said on Wednesday the kingdom was concerned about the stability of the oil market, but added that Saudi Arabia remained committed to further exploration activities in the oil and gas sectors. In a sign of growing competition for market share among OPEC members in Asia, Iraq signed a $1.4 billion deal to supply 160,000 bpd to Indian refiners Reliance and Indian Oil Corp

Crude Holds Gains After Biggest Inventory Draw In 6 Months Offset By Major Build At Cushing -- API's reported huge 3.6mm drawdown in total crude inventories (against expectations of a 2.33mm build) was just the catalyst to send crude prices soaring overnight and DOE just confirmed it with a massive 5.88mm draw - the largest in over 6 months. However, initial exuberance was tempered as Cushing saw a 2.045mm build - its 7th week in a row. And finally, crude production rose for the second week in a row. Huge drawdown overall... But Cushing continues to get more full... Production rose for the 2nd week. Demand is down 0.8% YoY. For now Crude is holding gains...

Oil ends sharply higher as U.S. crude inventories decline -Oil futures continued their rebound off multiyear lows Wednesday, ending sharply higher after data revealed U.S. crude inventories posted an unexpectedly large decline last week. On the New York Mercantile Exchange, light, sweet crude futures for delivery in February rose $1.36, or 3.8%, to end at $37.50 a barrel. February Brent crude on London’s ICE Futures exchange gained $1.25, or 3.5%, to finish at $37.36 a barrel, ending a five-session losing streak. Oil extended gains after the Energy Information Administration said crude stockpiles fell by 5.9 million barrels in the week ended Dec. 18. Analysts surveyed by The Wall Street Journal had penciled in a rise of 600,000 barrels, while the American Petroleum Institute, on Tuesday, reported a 3.6 million barrel decline. At the same time, crude stocks at the Nymex delivery hub in Cushing, Okla., rose by 2 million barrels. Gasoline stocks rose 1.1 million barrels, in line with forecasts, while distillates, including diesel and heating oil, fell by 661,000 barrels versus forecasts for a rise of 2.1 million barrels. Oil maintained gains after Baker Hughes, the oil-field services firm, said the number of U.S. oil rigs fell by three in the latest week. Oil was on the rise ahead of the data. OPEC early Wednesday, in its closely watched World Oil Outlook, said oil prices were set to rise, but that it would be a long slog. The cartel said it expects the price of its basket of crude to recover to $70 a barrel in 2020 and to $95 a barrel in 2040. The “need to develop oil production in more expensive areas will drive long-term oil prices higher,” the cartel said in its report.

US rig count down 9 this week to 700 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by nine this week to 700. The Houston firm said Wednesday 538 rigs sought oil and 162 explored for natural gas amid depressed energy prices. A year ago, 1,840 rigs were active. Among major oil- and gas-producing states, North Dakota and Wyoming each declined by three, Arkansas and Louisiana were down two, and Alaska, Colorado and Texas dropped one apiece. Oklahoma gained two rigs. Kansas and New Mexico were up one each.California, Ohio, Pennsylvania, Utah and West Virginia were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. The count, normally released on Fridays, was early this week because of Christmas.

Rig count tumbles three as oil prices refuse to budge -  Another three rigs went dark this week as producers found little financial incentive to continue chasing crude while prices remain stuck below $40 a barrel. The U.S. oil rig count inched down slightly to 538, resuming a collapse that started more than a year ago when crude first began plummeting, according to data from Baker Hughes. It’s a sudden reversal from the surprise addition of 17 rigs two weeks ago, an announcement that sent oil prices plummeting as traders fretted that U.S. producers would continue flooding the market amid a global crude glut. The latest retreat from the oil patch falls more in line with expectations that extended low oil prices will eventually force drillers to sideline even more rigs and curtail production. After edging higher early Wednesday following a drop in oil inventories, domestic benchmark crude prices slid south again to $37.47 a barrel following the relatively small drop in the rig count. Baker Hughes released the data two days ahead of schedule because of the Christmas holiday. The total rig count now stands at 700, down nine from last week after drillers sidelined three oil rigs and three gas rigs. That’s a 62 percent decline from the same time last year. The losses were spread between four basins — the DJ Niobrara in Northeast Colorado and Southeast Wyoming, the Fayetteville in Arkansas, Haynesville, which is located over Arkansas, Louisiana and East Texas, and the Williston Basin in the Bakken formation. However, the Permian Basin in West Texas remained a stand-out sweet spot for producers, with six new rigs coming online in the past week.

What the Falling Price of Oil Is Telling You - Exactly one year ago today, the headline story here was titled: “Oil Crash: Don’t Believe the Happy Clatter.” We explained that there was a “mushrooming false narrative taking over the business airwaves” predicting that the rapid price decline in oil would lower gas prices at the pump, fueling a healthier consumer with more disposable income and thus a more robust economy for 2015. Our counter prediction was that the oil price collapse “will decidedly not lead to a more robust economy in the United States for very long.” This was our reasoning at the time: “This isn’t a little speed bump in oil prices. This is one of the most dramatic and rapid crashes in a key industrial commodity in history. Since June, the price of West Texas Intermediate (WTI), the domestic crude oil produced in the U.S., is down by 47 percent. The price of the internationally traded crude oil, Brent, is down by a similar figure.“If this price collapse were happening in just crude oil, it could be shrugged off as a supply glut problem attributable to growing shale production in the U.S. and over production among OPEC members. But other industrial commodities are in freefall as well. Iron ore prices are down 49 percent this year while copper has declined 15 percent. The price of natural gas is down 30 percent in just the past month, including a plunge of 9 percent just yesterday. And where are we today in terms of industrial commodity prices? Are prices stabilizing? Surely they must be if the Federal Reserve just hiked interest rates to keep U.S. economic growth from overheating. Unfortunately, according to a report today at the Dow Jones web site, MarketWatch, the U.S. coal industry is in the midst of “serial bankruptcies”; the two major oil benchmarks, West Texas Intermediate and Brent, “have lost more than a third of their value” in 2015; copper is off by over 27 percent, iron ore by over 45 percent, with platinum and palladium each off by over 30 percent. Welcome to the new normal – where the Fed tells us how good things are as the materials used in a growing economy continue to collapse in price from slack demand and growing gluts.

Why Big Oil Should Kill Itself -  Now that oil prices have settled into a long-term range of $30-50 per barrel (as described here a year ago), energy users everywhere are enjoying an annual income boost worth more than $2 trillion. The net result will almost certainly accelerate global growth, because the beneficiaries of this enormous income redistribution are mostly lower- and middle-income households that spend all they earn.  Of course, there will be some big losers – mainly governments in oil-producing countries, which will run down reserves and borrow in financial markets for as long as possible, rather than cut public spending. But not all producers will lose equally. One group really is cutting back sharply: Western oil companies, which have announced investment reductions worth about $200 billion this year. That has contributed to the weakness of stock markets worldwide; yet, paradoxically, oil companies’ shareholders could end up benefiting handsomely from the new era of cheap oil.  Just one condition must be met. The managements of leading energy companies must face economic reality and abandon their wasteful obsession with finding new oil. The 75 biggest oil companies are still investing more than $650 billion annually to find and extract fossil fuels in ever more challenging environments. This has been one of the greatest misallocations of capital in history – economically feasible only because of artificial monopoly prices.  For Western oil companies,the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing (“fracking”) to oil-producing countries. But their ultimate goal should be to sell their existing oil reserves as quickly as possible and distribute the resulting tsunami of cash to their shareholders until all of their low-cost oilfields run dry.

UAE says end of U.S. oil export ban not to affect global market - (Xinhua) -- The United Arab Emirates (UAE) Energy Minister Suhail Al-Mazrouei said Tuesday that the end of an oil export ban in the United States will not affect global oil market, state news agency WAM reported. "As for the decision in the United States, every country has the right to take their own decisions. We don't see this will change the supply and demand balance," Al-Mazroui told WAM in Abu Dhabi after a meeting with ministry officials and strategic partners. The U.S. Congress on Friday voted to repeal the 40-year-old ban on exporting U.S. crude oil. So far, the world's biggest economy was only allowed to export the "black gold" if an oil company received a waiver from U. S. president. For the UAE, a major oil supplier, 29 percent of its gross domestic product is based on the domestic oil industry. Al-Mazrouei stressed the UAE and its partners will carry out a new energy strategy that includes lifting fuel subsidies and rationalising energy consumption. The UAE also plans to cut the use of natural gas in power generation to 70 percent by 2021, down from the current 99 percent, as part of a national strategy to achieve sustainability, the minister said.

Graph of the Day: World oil production, 2002-2015: – I follow the JODI World Oil Database primarily because it is now four months ahead of the EIA international data base. I make some adjustments however. I use the OPEC MOMR “secondary sources” for all OPEC data where JODI also uses the MOMR but uses their “direct communication” data instead. The OPEC portion of the JODI data is “crude only” and will therefore be somewhat less than the EIA reports. I use the Canadian National Energy Base data for Canada instead of the strange numbers JODI has for Canada. And I use the EIA data for the few small producers that JODI does not report. With these Changes I think I have composed an excellent World Oil Database from this composite data. And with the October data just released I have composed the below charts. The data is through October and is in thousand barrels per day. World oil production peaked, so far, in July at 76,702,000 barrels per day and in October stood at 76,128,000 bpd or 574,000 bpd below the peak. [more]

Dubai oil benchmark under growing scrutiny - FT - Royal Dutch Shell has called for tougher regulation of the system that sets the price of crude shipped to Asia as China’s state-owned energy companies exert stronger influence over international markets. During the past decade China has emerged as one of the important forces in the global crude market, vying with the US to be the biggest importer. And Beijing wants a bigger role in pricing the barrels it buys. Several times in the past 14 months the trading arms of PetroChina and Sinopec have dominated the Middle East’s most important pricing mechanism, pushing the region’s oil price up relative to other grades. Traders are concerned about the ease with which the so-called Dubai benchmark can be skewed by one participant amassing a large portion of the three crudes that underpin it. “There need to be safeguards to prevent the risk of distortion and to ensure the Dubai benchmark price mirrors true market supply and demand fundamentals,” said Mike Muller, the top trading executive at Shell, which is one of the world’s biggest oil traders in addition to being one of the largest producer companies. In August Chinaoil, whose parent company is PetroChina, bought more than 90 per cent of all the Oman, Abu Dhabi and Dubai cargoes available in the price-assessment process run by Platts, the price reporting agency. A Dubai benchmark overpriced by $1 a barrel can cost end users — in this case Asian refiners — hundreds of millions of dollars and squeeze margins. Western oil trading companies have come under renewed pressure from regulators in Europe and US, while their freewheeling Chinese counterparts do not have the same obligations.

Azerbaijan Currency Crashes 50% As Crude Contagion Spreads -- OPEC blowback continues to ripple around the world. With Russia's Ruble pushing back towards record lows against the USD, and Kazakhstan's Tenge having tumbled to record lows, the writing was on the wall for Azerbaijan. As Bloomberg reports, the third-biggest oil producer in the former Soviet Union moved to a free float on Monday and the manat crashed almost 50% instantly to its weakest on record with the second devaluation this year. First the Russian Ruble... Then Kazakhstan's Tenge... While Azerbaijan’s former Soviet allies Russia and Kazakhstan have moved to floating currency regimes in the past year, the Azeri central bank has questioned whether the country was prepared for a similar shift. Governor Elman Rustamov said there was no need for another devaluation of the manat, according to a televised interview broadcast on Sept. 25. And now Azerbaijan's Manat crashes 50%... As Bloomberg reports, “It looks like Azerbaijan’s authorities are following Kazakhstan’s devaluation path,” said Oleg Kouzmin, a former Russian central bank adviser who works as an economist at Renaissance Capital in Moscow. “After devaluing the currency once, some time ago, they concluded that the first move was not enough to tackle all the challenges of a weaker oil price environment.” Azerbaijan relies on hydrocarbons for more than 90 percent of its exports and the manat has lost almost half its value against the dollar this year, the worst performance of currencies globally.

OPEC's market share to shrink by 2020 as rivals keep pumping despite oil's collapse – Global demand for OPEC’s crude will be lower in 2020 than next year as supply from rivals proves more resilient than expected, potentially fueling a debate on the merits of its strategy to let prices fall to hurt other producers. The Organization of the Petroleum Exporting Countries, which a year ago refused to cut supply to retain market share against higher-cost rivals, in its 2015 World Oil Outlook raised its global supply forecasts for tight oil, which includes shale, despite a collapse in prices. Demand for OPEC crude will reach 30.70 million barrels per day (bpd) in 2020, OPEC said, lower than 30.90 million bpd next year. The expected demand from OPEC in 2020 is about 1 million bpd less than it is currently producing. Oil has more than halved its price in 18 months and sank to an 11-year low of $36.04 a barrel this week. The drop has helped to boost oil’s medium-term use, although OPEC said the demand stimulus of low crude prices will fade over time. “The impact of the recent oil price decline on demand is most visible in the short term,” OPEC Secretary-General Abdullah al-Badri wrote in the foreword to the report. “It then drops away over the medium term.” OPEC is increasingly divided over the merits of the 2014 shift to a market-share strategy, which was led by Saudi Arabia and its Gulf allies, and at a Dec. 4 meeting failed to agree a production ceiling for the first time in decades. Nonetheless, the report shows that the medium-term outlook – from OPEC’s point of view as the supplier of a third of the world’s oil – has improved. In the 2014 edition, demand for OPEC crude was expected to fall to 29.0 million bpd by 2020.

Oil back at $95 — but it will take 24 years: OPEC - Oil prices will take decades to recover and will still not reach the peak seen in recent years, according to the latest World Oil Outlook (WOO) from OPEC. In the group's latest outlook on supply, demand and prices to 2020 and 2040, OPEC predicted that a barrel of oil would cost (in real terms) around $70 by 2020 and $95 by 2040, a far cry from a high point of $114 a barrel last seen in June 2014 before prices began to plunge on oversupply. On Wednesday, a barrel of benchmark Brent crude cost $36.51, a shade above WTI at $36.47. Price declines were exacerbated by the decision last year by OPEC, the 12-member producer group led by Saudi Arabia, not to cut production. Still, OPEC's Secretary General Abdalla Salem El-Badri said OPEC had been a bastion of stability amid volatile times for the oil industry. "The supply and demand balance in 2015 has been one of oversupply, with stock levels rising to well above the five-year average. Despite this market instability, OPEC has continued to be an efficient, reliable and economic supplier of oil," El-Badri noted in the foreword of report.

It's now becoming clear: there is no grand Opec strategy - About a year ago, Saudi Arabia turned its oil spigots on full in an attempt to maintain market share, the other Opec countries followed suit, and the world was flooded with cheap crude. The received wisdom is that the club of 13 oil-producing countries is trying to squeeze higher-cost producers like the US shale industry. But that theory is looking increasingly fragile in the face of the facts.The most telling of these is that US oil production has almost doubled in the past four years from around 5.5m barrels a day in 2011 to a peak of 9.7m in April this year. The recent oil glut has merely forced shale producers to become more efficient. The increase in output has been achieved, despite a reduction in the number of rigs, thanks to a startling rise in productivity – up by 30pc a year between 2007 and 2014. It is true that there are some signs of strain. The US energy revolution has been financed with cheap debt: the two biggest months for bond issuance by American oil and gas companies since 2014 were February and March this year. And that party could soon come to an end now that the Federal Reserve has slowly started to extricate the punchbowl. Two-thirds of bank loans tracked by the S&P oil and gas index were trading at distressed levels at the end of November, up from 13pc in May. US shale production has also started to tail off a little in recent months (though nowhere near as much as was expected).

As OPEC Tries to Squeeze Rivals, One of Its Own Feels the Pinch  --- Forget the opposition. OPEC is doing more to ruin the holiday season for Venezuela President Nicolas Maduro than any of his rival lawmakers. Maduro stepped up attacks on his opponents this month after they won enough seats in congressional elections to challenge his government. While bonds initially rallied on optimism the opposition victory could lead to more market-friendly policies, Maduro’s comments quickly killed that euphoria. Now, it’s the rout in oil that’s doing the most damage to the prices of the securities. Oil, by far Venezuela’s biggest export, has plunged 17 percent to an 11-year low since the Organization of Petroleum Exporting Countries abandoned production limits at its Dec. 4 meeting. Venezuela’s benchmark bonds due in 2027 are at the cheapest since August, and traders see a 71 percent probability that the country will default in the next 12 months, credit- default swaps show. That’s up from 61 percent the day before the OPEC decision. “The initial reaction to the election results was positive, but then oil just collapsed,” said Phillip Blackwood, a managing director at EM Quest, which advises Sydbank A/S on its debt holdings. “The bills still need to be paid and that comes from oil.” Oil at these levels could prevent Venezuela from meeting its debt obligations as soon as February, Barclays Plc said Friday. The OPEC member relies on income from oil sales for almost all of its hard currency. It may need to sell $20 billion of gold or other assets to meet next year’s commitments, Alejandro Arreaza, Alejandro Grisanti and Sebastian Vargas, analysts at Barclays, said in a report to clients. Venezuela’s crude basket fell to an 11-year low $29.17 last week. “The latest decline in oil may have undermined government confidence, putting even this payment at risk,” they wrote.

Yemeni rebels target Saudi oil installation with ballistic missile - Houthi rebels have targeted a Saudi oil installation near the city of Jizan, in the southwest of the country. Houthis said that they hit the target while Saudis claimed to have intercepted the missile. “The missile precisely hit Aramco Oil Company on Monday night,” Yemeni Army Spokesman Brigadier General Sharaf Luqman said, reported Iran’s semi-official Fars news agency citing Arabic-language media outlets. He added that the attack came in retaliation to the “Saudi-led aggressors' violation of UN-sponsored ceasefire” but did not give any further details about damages that the plant allegedly suffered. Saudi Arabia confirmed the attack but said the missile had been intercepted by the kingdom’s air defense systems, state media report as cited by Reuters. The Saudi Arabian Oil Company also denied a strike on its compound in Jazan Economic City which is located 80 kilometers north of Jizan and about 150 kilometers from the border with Yemen. All the facilities in the area managing “safe and normal operations”, the company said.

Saudi Arabia: The Source Of Islamic Radicalism - When we look at the phenomena of religious extremism and the consequent militancy and terrorism in the Af-Pak region in particular and the Islamic world in general, it is not a natural evolution of religion, some deleterious mutations have occurred somewhere which have negatively affected the whole of Islamic world. There is no denying of this evident fact that the Pakistani security establishment had wantonly nurtured Islamic radicalism and militancy in the Af-Pak region but the Pakistani military’s support for Islamic jihadism during the Cold War is only one factor in an array of factors in order to reach a comprehensive understanding of the phenomena of Islamic radicalism and the agents that are responsible for it; because the phenomena of Islamic extremism is not limited to the Af-Pak region, the whole of Islamic world from Tunisia, Morocco and Algeria to Indonesia, Malaysia and even the Muslim minorities of Thailand, China and Philippines have also become the victims of this phenomena. In my opinion, the real culprit behind the rise of Islamic extremism and jihadism in the Islamic world is Saudi Arabia. The “Aal-e-Saud” (the descendants of Saud) have no hereditary claim to “the Throne of Mecca” since they are not the descendants of the prophet, nor even from the tribe of Quresh (there is a throne of Mecca which I will explain later.) They were the most primitive and marauding nomadic tribesmen of Najd who defeated the Sharifs of Mecca violently after the collapse of the Ottoman Empire in the First World War. Their title to the throne of Saudi Arabia is only de facto and not de jure, since neither do they have a hereditary claim to the Saudi monarchy nor do they hold elections to ascertain the will of the Saudi people. Thus, they are the illegitimate rulers of Saudi Arabia and they feel insecure because of their illegitimacy, a fact which explains their heavy-handed and brutal tactics in dealing with any kind of dissent, opposition or movement for reform in Saudi Arabia.

Obama’s foreign policy goals get a boost from plunging oil prices -- Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States’ adversaries under greater stress.  After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia’s economic and political calculations, and dampening Iranian leaders’ hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year. At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration’s foreign policy goals: pressuring Russian President Vladi­mir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States. The reason for the deep drop in oil prices continues to be Saudi Arabia’s refusal to cut its oil exports in order to prop up prices. Instead, the kingdom is producing crude at close to record levels, helping it hang on to market share and reduce development of high-cost competitors — such as Arctic oil, Canadian oil sands, ultra-deepwater Brazilian offshore fields and U.S. shale oil. The Saudis are also fighting to keep market share as crude output rises in Iraq and Iran, longtime Saudi rivals in the market.In Iran, cheap oil is forcing the government to ratchet down expectations. The much-anticipated lifting of sanctions as a result of the deal to limit Iran’s nuclear program is expected to result in an additional half-million barrels a day of oil exports by the middle of 2016.  But at current prices, Iran’s income from those sales will still fall short of revenue earned from constrained oil exports a year ago.

Iran delusional about its oil potential -- After 37 miserable years of the so-called Islamic Republic and more than $1.6 trillion of oil income, Iran's oil and gas infrastructure has become ineffective and is suffering from poor management and chronic corruption. As a result, the well-respected healthy national oil company, with a 6.3 million b/d crude production prior to the revolution, plunged to a near bankrupt industry with at best a little above 3 million b/d production.  Iranian output has reached a plateau for some time now, and production has been on the wane by over 200,000 barrels/day/per year for the past decade. Pressure dropping in reservoirs and continuous year-to-year decline in production appear to have been triggered by long periods of technical constraints on operations and by natural aging of the Iranian fields. The lack of regular maintenance and application of new technology, and particularly extensive neglect of the fields in the last several years under sanctions, have resulted in further damage to the Iranian reservoirs.According to U.S. EIA, the National Iranian Oil Company (NIOC) needs to inject at least 260 million cubic meters of gas daily to its matured oil fields. But in recent years, NIOC has never had the capability to inject more than half of this volume per day, and recently, since the production of gas is hardly even equal to domestic consumption, no gas remains to be injected. Therefore, EIA concludes that old Iranian oil fields are naturally losing pressure, which causes 8 to 13 percent oil production to deplete each year.

Iran says Russia to begin building two nuclear plant units next week  (Reuters) – Russia will begin building two nuclear power plant units in Iran next week, Mehr news agency quoted an Iranian nuclear official as saying, under a deal signed in Moscow last year between subsidiaries of the two countries’ state atomic agencies. The Mehr report did not elaborate but the comments by Behrouz Kamalvandi, spokesman for the Atomic Energy Organization of Iran, appeared to be referring to extension of the Bushehr nuclear power station, designed and built by Russia. Iran already runs one Russian-built nuclear reactor at Bushehr, its first. Russia signed a deal with Iran in November last year to build up to eight more reactors in the country. The U.N. nuclear watchdog earlier this month closed a long-running investigation of Iran and issued a report strongly suggesting it pursued a coordinated program to devise a nuclear bomb up until 2003 but that there was no credible sign of bomb-related research and development activity beyond 2009. The Bushehr plant itself was never considered by diplomats and experts to be a serious nuclear proliferation risk. Other aspects of Iran’s nuclear program seen as having potential to develop weapons, such as its uranium enrichment activity and a heavy water reactor, will be curbed under a deal Iran reached with big powers in July including Russia.

China, Iraq establish strategic partnership - (Xinhua) -- China and Iraq agreed Tuesday to establish a strategic partnership during the on-going visit by Iraqi Prime Minister Haider al-Abadi to China. The two countries issued a joint statement to the effect in Beijing, saying that the strategic partnership will help deepen bilateral cooperation in various field and promote development and prosperity in both countries. According to the joint statement, the two sides agreed to strengthen high-level engagement, enhance strategic communication on the bilateral ties and international and regional issues of common concern to increase consensus and consolidate strategic mutual trust. The two countries will continue to support each other firmly on issues concerning national sovereignty, independence, territorial integrity and security, it said. The two countries vowed to take into consideration of each other's core interest and major concerns, and not to interfere in each other's domestic affairs, it said. Iraq will abide by the one-China policy and support China's stance on issues related to Xinjiang. China will support Iraq's unity, territorial integrity, sovereignty and independence, said the joint statement. The two sides condemned terrorism of all forms and pledged to support each other's efforts to maintain national security, stability and to fight against terrorism, it said.

Oil price lows prompt Chinese gas pipeline deal - Chinese state-owned oil company China National Petroleum Corp has concluded a complicated asset shuffle that allows state-owned steel mill Baosteel, two Chinese insurers and a number of funds to acquire stakes in three mammoth pipelines carrying gas across China. CNPC has long resisted plans by bureaucrats in Beijing to force it to open the pipeline network. But a sharp drop in oil prices has hit revenues at both the state-owned CNPC and its Hong Kong-listed unit PetroChina. Income at both entities has dropped “dramatically” this year, PetroChina president Wang Dongjin said in a statement on CNPC’s website this month. The sale is the next in a series of steps through which CNPC and PetroChina are consolidating a sprawling pipelines business. Beijing has indicated it could ultimately form a separate pipeline monopoly to encourage the development of China’s domestic natural gas industry which has so far been limited by CNPC’s stranglehold over the majority of the country’s pipeline network. The total value of the pipelines is Rmb281.4bn ($43bn), PetroChina said. Last month, PetroChina sold a portion of its Trans-Asia Gas Pipeline business to state-owned asset holding company China Reform Holdings, for Rmb15bn-Rmb15.5bn.

Another Major Commodity Index Drops To 2009 Lows -- Like the CRB before it, the S&P GSCI Index has dropped all the way back to its 2009 lows; will it find support there? Another index bites the dust of the deflationary spiral. On August 3, we noted that the popular Reuters/Jefferies Commodity Research Bureau Index (CRB) had reached a dubious milestone. The index had gotten bludgeoned so badly that it had lost its entire roughly 85% gain following its 2009 low. Well, it took another 4+ months, but it has now been joined in that distinction by another major commodity index, the S&P GSCI index (GSCI). The GSCI made a low in 2009 at 305. It closed yesterday at 305.013. What do we do with this information? Probably nothing, to be honest. It’s likely more of a trivial tidbit than anything else. Sure, it is quite likely that, looking out several months to a few years, the index has a good shot to be higher than it is now. That is merely a comment on its “oversold” condition, however. As for the potential of this area to provide some sort of support, we’re not going to make that reach. The CRB kept slicing right through its 2009 low once it reached it. One factor that may potentially give the GSCI a better shot at finding support at its prior lows is the fact that more money is tied to this index. That is, more funds, etc. track the GSCI than the CRB. Thus, if there is a technical case to be made for support coming in at the 2009 lows, it is stronger for the GSCI than it was for the CRB. Outside of that long shot, finding a commodity bottom continues to be about as difficult as finding Keyser Soze.

Top Iron Ore Shipper Cuts 2016 Forecast by 19% as Glut Grows -- The world’s biggest iron ore exporter cut its price forecast for next year by 19 percent as supply continues to swell and slowing growth in China hurts demand in the biggest user. Prices will average $41.30 a metric ton in 2016 compared with $51.20 forecast in September, Australia’s Department of Industry, Innovation & Science said in a quarterly outlook Tuesday. The department cut its average price for 2015 by 4.7 percent to $50.40 a ton. Iron ore, the country’s largest export earner, lost 43 percent this year as low-cost miners including Rio Tinto Group, BHP Billiton Ltd. and Vale SA pressed ahead with expansions to defend market share, feeding a glut as demand in China faltered. Exports of Australian iron ore will probably expand a further 13 percent next year after rising about 7 percent this year, according to the government. “Increasing supply from Australia and Brazil is forecast to drive seaborne iron ore spot prices down in 2015 and 2016,” the department said. “Overcapacity in China’s steel industry is expected to exert downward pressure on steel prices and reduce the incentive to increase output.”

Financialisation compounds commodity rout - The current correction is partially cyclical. Low real commodity prices in the 1990s led to significant under-investment in mining assets and infrastructure. A combination of supply constraints and unexpected increases in demand led to a sharp increase in prices. The industry responded by massive investment to increase production, assuming continued high prices and volumes. Increased supply, however, coincided with a slowdown in demand, which was excessively dependent on China. The downturn is exacerbated by increased financialisation, which converted commodities into tradeable equivalents. Cash flows from future sales were monetised to raise large amounts of debt to finance expansion. The collateral value of commodities secured expansion in borrowing and trading. Derivatives allowed new participants, other than consumers and producers, to invest in and trade commodity price expectations. Global lending to the energy sector alone totals around US$2.5tn. Between 2004 and 2014, emerging market corporate debt increased from US$4tn to US$18tn, much of the increase taking place since 2008. A significant portion of this debt — especially in China, Russia, Brazil, Mexico and Chile — is related to commodities. Resource companies now face a testing combination of lower revenues, a shortage of US dollar income to meet debt payments and currency losses on dollar borrowings. The need to maintain cash flow to service debt requires production levels to be maintained, even if it is below cost. This delays the withdrawal of supply and correction of prices. It also destroys the value of equity, making it difficult for firms to raise new capital to reduce debt. For industries like shale gas and oil which were cash flow negative even at high oil prices because of the need to invest in new wells to maintain production, reduction in the supply of capital affects the ability of firms to operate.

China power audit: The hard and the soft - BBC News: It was a typically gritty day of toxic air and toxic politics in the capital of the world's rising power. Plainclothes police were shoving protesters and journalists outside the courthouse; inside a lawyer was on trial. Only hours earlier, Chinese negotiators had basked in praise from an unlikely quarter. US Secretary of State John Kerry said a global deal to limit climate change could not have been won without China's help "to build a working partnership". But that soft power win was of short duration. With the thugs outside Pu Zhiqiang's trial, Beijing was back to form, squandering soft power as if it had no use for it. So what exactly is soft power? Joseph Nye, the political scientist most often associated with the idea, defines it as "the ability to get what you want through attraction rather than coercion or payments". President Xi says soft power is part of his mission. Insisting that China is a civilised country with a rich history, he urges that "the stories of China should be well told". To this end, China has continued its programme of building "cultural aircraft carriers", an expansion of its media and cultural footprint around the world. The most recent acquisition is Hong Kong's most venerable English-language newspaper, the South China Morning Post, the buyer one of China's biggest private companies, Alibaba.  Responding to alarm over the future prospects for editorial independence at the Post, the new owners promised they would not interfere, but also said they wanted coverage of China to be "balanced and fair".

China "Suspends" Another Unofficial PMI Data Release To Make "Major Adjustment" - For the second time in two months, an economic data series that indicate drastically weak performance in China has been "suspended." Having seen Markit/Caixin's flash gauge of China's manufacturing discontinued in October (having plunged notably divergently from the government's official data), Bloomberg reports that the publishers of the alternativeChina Minxin PMI will stop updating the series to make a "major adjustment." As Bloomberg details, Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.  Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1. Minxin’s PMI readings are based on a monthly survey covering more than 4,000 companies, about 70 percent of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year. The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according the the latest release. The factory gauge fell to a record low of 41.9 in August. China’s official PMI from the National Bureau of Statistics fell to a three-year low of 49.6 in November. For September, the now-discontinued flash Markit/Caixin PMI fell to a six-year low, while the official PMI reading showed a modest improvement.

China’s local govt debt to reach $US2.47 trln - China’s local government debt is expected to stand at 16 trillion yuan ($US2.47 trillion) at the end of 2015, matching a ceiling imposed earlier this year, the state-run Xinhua News Agency reported Tuesday, citing data from the nation’s top legislature. China’s local government debt is under control, said the budgetary affairs commission of the National People’s Congress Standing Committee. In August, the legislature placed a 16 trillion yuan cap on local government debt for 2015, on the top of the 15.4 trillion yuan in debt owed by local government as of the end of 2014. The cap doesn’t include indirect liabilities, which officials said in August totalled 8.6 trillion yuan. Beijing has been grappling with a debt overhang after its massive stimulus package to kickstart growth during the global financial crisis. In an annual closed-door meeting called Central Economic Work Conference that concluded Monday, Chinese leaders said the government needs to take more steps to reduce financial risk, including that associated with local-government debt.

China's consumption blues - China has for the past several years been trying desperately to shift the driving force of its economy from investments in infrastructure and real estate to personal consumption in line with President Xi Jingping’s call for “new normal.” In reality, however, consumption is sluggish as there is no sign of an economic recovery, income levels are not rising, the number of children is falling and the overall population is aging rapidly. The government’s recent announcement to abolish the one-child policy, in place since around 1980, is aimed more at stimulating domestic consumption than at turning around the undesirable population demographics. On Nov. 11, which is “Single’s Day” in China, the Internet shopping “T-mall” operated by Alibaba Group, the huge Chinese e-commerce company, recorded a whopping sales total of 91.2 billion yuan (about ¥1.73 trillion) in 24 hours, a 1.6-fold increase from the previous year. Although this may give the impression that consumption in China is still rising, the growth rate of total consumer retail spending on a year-on-year basis started decreasing after hitting a peak of 21.6 percent in 2008 — 17.1 percent in 2011, 14.3 percent in 2012 and 11.4 percent in 2013. Although it rose to 12 percent last year, it fell again to 10 percent in April this year.

China Just Launched the Most Frightening Game Ever — and Soon It Will Be Mandatory: — As if further proof were needed Orwell’s dystopia is now upon us, China has now gamified obedience to the State. Though that is every bit as creepily terrifying as it sounds, citizens may still choose whether or not they wish to opt-in — that is, until the program becomes compulsory in 2020. “Going under the innocuous name of ‘Sesame Credit,’ China has created a score for how good a citizen you are,” explains Extra Credits’ video about the program. “The owners of China’s largest social networks have partnered with the government to create something akin to the U.S. credit score — but, instead of measuring how regularly you pay your bills, it measures how obediently you follow the party line.” In the works for years, China’s ‘social credit system’ aims to create a docile, compliant citizenry who are fiscally and morally responsible by employing a game-like format to create self-imposed, group social control. In other words, China gamified peer pressure to control its citizenry; and, though the scheme hasn’t been fully implemented yet, it’s already working — insidiously well.

The Trade Wars Begin: U.S. Imposes 256% Tariff On Chinese Steel Imports --- Two weeks ago, when looking at the latest import price index data, we showed something disturbing: China has become an all out exporter of deflation. As the chart below shows, In November, import prices from China decreased 1.5% over the past 12 months, the largest year-over-year drop since the index declined 1.7% for the year ended in January 2010. How did this happen? As we explained, with all of its domestic markets fully saturated, China has had no choice but to export its soaring commodity production as we explained in "Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities."  As we noted then, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.  That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

India Plans Price Curbs to Stem Chinese Steel Import Deluge - India plans to step up measures to protect its debt-laden domestic steelmakers by imposing a minimum price on steel imports and studying loan restructuring as the mills struggle under a flood of cheap products from China. The curbs are necessary to ensure a “level-playing field” for Indian companies after restrictions imposed in September failed to stop a decline in prices, Steel Secretary Aruna Sundararajan, the nation’s top bureaucrat for the industry, said in an interview in New Delhi. “We cannot have a situation where after so much investment having gone into our local manufacturing, people are actually having to sell below their cost,” Sundararajan said Monday. India will monitor the quality of steel imported from nations such as China, South Korea and Japan, she said. The measures are expected to be in place by March. Producers including China and Russia are aggressively selling steel at low prices, forcing governments from India to the U.S. to impose protectionist measures. Faced with a glut of domestic production, surging imports and prices trading around a six-year low, Indian steelmakers have sought safeguards against increasingly cheaper imports. The government is also working with banks on “a financial package” for restructuring loans to steelmakers, Sundararajan said, without giving details. “The cost of capital is high in India especially at a time when global markets are down. We need to reduce their financial load. They need some reprieve.”

Something Just Snapped In China  -- While Sweden is over-flowing with excess cash on bank balance sheets, it appears that banks in Hong Kong are desperate to borrow Yuan (or scared to lend) as overnight HIBOR just exploded higher to 9.45% - a record for the interbank offered rate. The HKD and CNY/CNH FX markets remain relatively stable (with Yuan fixed marginally higher again for the 3rd day).  From sub-2% a week ago (before The Fed hiked rates) to 9.45%, the overnight rates has exploded... It appears as though it could be year-end window-dressing-related as 1-week rates also soared - but we do note the extent of the spikes are unprecedented even for year-end liquidty needs.The last time 1-week rates spiked like this, US equity markets crashed...

Capitalism – Not China – Is to Blame for the Current Global Economic Decline  - Capitalism’s recovery now proceeds like another speeding train headed toward contradiction and catastrophe. Capitalists continue to profit from stagnant wages (enabled by the continued excess supplies of labor power relative to demand) coupled with rising labor productivity. Yet they also confront weak and weakening market demands that cannot absorb what capitalist production capacities require for profitability. Mainstream ideology drives the refusal to see capitalism and its contradictions as central to today’s economic dilemmas. The major “recovery” strategies reproduce the same capitalism with its contradiction. China too is both victor and victim in capitalism’s contradiction and its temporary postponement from the 1970s to 2008. On the one hand, the stagnation of wages coupled with the expansion of consumer (and government) credit in North America, Western Europe and Japan provided soaring demands there for relatively cheap consumer goods exports from China. Having bet its industrialization strategy on those export markets, China achieved economic superpower status by selling into capitalism’s contradiction and its postponement via credit. Likewise merchants such as Walmart achieved parallel status by being the retail outlets for Chinese products. Financial enterprises in capitalism’s old centers perhaps benefited the most as they developed extremely profitable ways to securitize the consumer debt, sell it and insure it (credit default swaps etc.). Financial enterprises benefited doubly as they also managed (via hedge funds etc.) the extreme wealth redistributed and concentrated upward by stagnant real wages and the postponement of capitalism’s contradiction via credit. But now China is becoming a victim of the classic capitalist contradiction. China’s exports flag because consumer demand in capitalism’s old centers is falling. Wage stagnation in those centers can no longer be offset by credit expansion. Nor can it be offset by rising demand among what are still the far lower-waged workers in capitalism’s new centers (China’s included). In simplest terms, capitalism’s post-1970s global development substituted lower- for higher-waged workers while it redistributed almost all the wealth created since the 1970s to a top 1 to 3 percent of the world’s wealthy.

Japan govt: stimulus to add 0.6 pct point to GDP over next 3 yrs -- Japan's government said on Tuesday it expects a stimulus package it approved last week to add around 0.6 percentage point to gross domestic product over the next three years due to gains in consumer spending and capital expenditure. The government also raised its economic growth forecast for next fiscal year due to expectations that domestic demand will strengthen. However, the government said it expects consumer prices to rise 1.2 percent in fiscal 2016/17, which is still short of the Bank of Japan's 2 percent inflation target due to falling oil prices. The $27 billion stimulus package features cash handouts for some pensioners, benefits for farmers and incentives to increase capital expenditure but has disappointed many economists who were hoping for far-reaching reforms to raise potential growth. The package, which is worth 3.3 trillion yen, will add around 0.1 of a percentage point to private consumption, 0.2 of a percentage point to capital expenditure and 0.3 of a percentage point to government consumption and fixed-asset investment, forecasts approved by the cabinet showed. Gross domestic product will expand a nominal 3.1 percent in the fiscal year ending March 2017, the government said. That is an increase from its previous nominal growth forecast of 2.9 percent issued in July.

How TPP will change the Japanese economy - Vox EU -- The Trans-Pacific Partnership (TPP) agreement was reached in October following seven years of negotiations. This column examines how Japan can maximise the TPP’s effect on its economy, identifying several additional policies that will be necessary. These include support for Japanese small and medium enterprises seeking to expand operations overseas, and policies that encourage and ease incoming foreign direct investment.

Asian firms face record bond repayments as currencies slump - Southeast Asia’s penchant for overseas borrowing is storing up pain for years ahead with companies facing record bond repayments just as local currencies slump. Thirty-eight percent of bonds sold by Indonesian, Malaysian, Philippines and Thai companies this year have been in foreign currencies, up from 27 percent in 2014, data compiled by Bloomberg show. Companies face $45 billion of bond repayments in greenbacks, euros or yen in the coming five years, breaking records set after the 1997 Asian Financial Crisis, when economists Barry Eichengreen and Ricardo Hausmann coined the term “original sin” to describe the dangers of overseas borrowing.Strategists surveyed by Bloomberg see Indonesia’s rupiah dropping 4.3 percent by the end of next year and Malaysia’s ringgit losing 1.6 percent on higher US interest rates, a Chinese economy that shows no signs of picking up and commodity-price weakness. Bank of America Merrill Lynch’s Original Sin index shows Indonesia’s vulnerability at the highest level in a decade, while Malaysia’s is riding at double the long-term average, after both governments turned to global debt markets to replenish reserves. “We expect the Original Sin index to continue climbing in 2016, as global monetary conditions tighten and capital inflows recede,”

Germany Becomes AIIB's Largest Non-regional Shareholder: As one of the first partners of the Asian Infrastructure Investment Bank, Germany has deposited its instrument of ratification of the bank at the Ministry of Foreign Affairs of China. Germany has contributed 4.5 billion US dollars, and has become the fourth largest capital provider for the AIIB globally and the largest one outside of Asia. Meanwhile, the AIIB executive director from Germany will be based in Beijing. The new international development bank led by China currently has 57 prospective founding countries.

Malaysia’s growth to slow to 4.7pc in 2016, report says - Malaysia’s growth is expected to slow to 4.7 per cent in 2016 and pick up mildly towards five per cent in 2017, helped by strengthening exports. The Deloitte’s report, ‘Malaysia Economic Outlook: Winning in a Changing World’, highlighted the negative impact of China’s continuing economic slowdown on the Malaysian economy, accounting for over nine per cent of total domestic exports. In a statement today, Deloitte Malaysia Country Managing Partner, Tan Theng Hooi, said the Malaysian economy faced a challenging environment due to a continued plunge in commodity export prices, foreign exchange market turbulence, commodity-currency shocks and a slowndon in China’s economy. “On the domestic front, the depreciation of the ringgit, increased federal government and household debts, and rising probability of default present a cloudy economic outlook,” Tan said. Malaysia’s private consumption was expected to face sustained headwinds from lagging consumer confidence, tax on goods and services, declining growth in credit to households and signs of softening in the labour market, he said. “This year, business sentiment has been hurt by dampening prospects for exports, a sharp depreciation of the ringgit, slide in stock prices and spare manufacturing capacity.

Distressed loan buyers muddy India's bad debt picture -- Set up over a decade ago to absorb India's mountain of distressed loans, asset reconstruction companies have done little to recover cash or relieve a debt-choked banking system. Instead, at a time when regulators are pressing the banking sector to clean up balance sheets, the so-called ARCs are striking mostly paper deals that help lenders extend provisioning by years, camouflaging the scale of their woes. "Banks are the risk takers of last resort. It's a vessel that contains all the risk and it has no outlet - that is a problem," said Harsh Vardhan, partner with Bain & Co. "You have to create an outlet which allows at least part of the risk to flow to ARCs." India's central bank has set a clean-up target for the banking sector of March 2017, and has already started cutting off what it calls "forbearance", a sort of benevolent regulatory tolerance, when it comes to bad debts and provisioning. That has placed under close scrutiny any measures or tools seen to allow extra wriggle room for banks. That includes the ARCs, originally designed to foster a much-needed market for distressed debt in India, critical to lowering the cost of capital and boosting investment. The market remains in its infancy, as even ARCs face restrictions on selling on bad loans.

Russia and India sign new defence deals - Russia and India signed a clutch of defence and energy deals on Thursday as prime minister Narendra Modi visited Moscow to reaffirm one of the world’s most valuable military relationships. Following a meeting with Russian president Vladimir Putin, the two leaders announced deals to build Russian-designed Kamov helicopters in India and for the location of a new nuclear power plant to be built by Russian state nuclear company Rosatom. India, the world’s largest importer of defence equipment, is set to spend $250bn over the next decade modernising its antiquated hardware. But Mr Modi has made it a key policy to push for these new weapons systems and other equipment to be made mostly in India rather than abroad. Mr Modi hailed the deal for the production of helicopters as the first major defence project under his “Make in India” programme. Under the deal with Rosatom, some equipment for nuclear power plants would also be built in India. Russia and India have long been one another’s top defence partners, a relationship dating back to Soviet times. But in recent years, India has sought to broaden its diplomatic relations and has also been ordering military hardware from a more eclectic array of supplier, including the US. But Mr Modi has also indicated that he still sees Russia as one of India’s most reliable friends, and has made clear that he wishes to revive and deepen the frayed strategic ties, especially in areas such as nuclear power and defence.

India To Pay $4.5 Billion For Putin's "Jewels" In Largest Defense Deal In A Decade -- Russia’s vaunted S-300 and S-400 missile systems have been in the news quite a bit of late.  Last month, Moscow and Tehran officially revived a long stalled contract worth some $800 million that will see a handful of S-300s delivered to Tehran over the next several months. The deal was initially reached in 2007 but was put on hold in 2010 amid the international sanctions on Iran. Putin lifted the ban earlier this year, citing progress on the Iran nuclear deal.  Needless to say, the US and Israel were not amused. “We made clear time and again our objections to any sale of the S-300 missile system to Iran,” US State Department spokesman Mark Toner said. On Wednesday, the S-400 was back in the news. As Bloomberg reports, India is set to buy five S-400s for some $4.5 billion from Russia as part of a broader initiative by PM Narendra Modi to upgrade the country's military. Here's more: Indian Prime Minister Narendra Modi heads to Moscow after approving what’s set to be his nation’s biggest weapons deal with Russia since 2001, reaffirming a military partnership that newer suppliers like the U.S. will find difficult to dislodge.The S-400 air defense missile systems, which India plans to buy, are among the "crown jewels" of Russia’s defense capability, according to Jon Grevatt, Asia-Pacific defense-industry analyst for IHS Jane’s. The two-day visit starting Dec. 23 will also include a private dinner with Russian President Vladimir Putin and an event at the Kremlin with Russian and Indian chief executives."Russia and India have a very strong partnership that the U.S. can only aspire to," said Grevatt. "Sales from America may ebb and flow, but the sales from Russia will remain strong because there are so many ongoing programs between the two countries."

India's prime minister makes surprise stop over in Pakistan - Asian Correspondent: INDIA’S Prime Minister Narendra Modi made a surprise visit to Pakistan on Friday, the first visit by an Indian head of state in more than a decade. The first inkling of the unexpected visit came when Modi tweeted from Afghanistan that he had sent birthday wishes to the Pakistani Prime Minister Nawaz Sharif. He later tweeted that he would stop by Lahore on his way back from Delhi. Reuters reported that the two men hugged when they met at the airport in Lahore and Modi was taken to Sharif’s family estate for his 66th birthday celebrations. Reuters:“So, you have finally come,” Sharif told Modi, according to a Pakistani foreign ministry official who was at the meeting.“Yes, absolutely. I am here,” Modi replied, according to the official.Modi phoned Sharif earlier in the day to wish him on his birthday and asked if he could make a stop in Pakistan on his way home, Pakistan’s top diplomat, Foreign Secretary Aizaz Chaudhry, told reporters. “And the PM said to him, ‘Please come, you are our guest, please come and have tea with me’,” he said. Zee news reported that Modi was warmly welcomed by Sharif’s family and that Modi touched the feet of the prime minister’s mother, a huge sign of respect.

India's Hindu Nationalists Going Global --India's top Hindu Nationalist group Rashtriya Swayamsevak Sangh (RSS) has gone global with shakhas (branches) in 39 countries, including the United States, the United Kingdom and several Islamic middle eastern nations, according to Indian media reports. In the United States alone, the RSS has 146 active chapters spread over all 50 states, according to Satish Modh who has been associated with RSS work abroad for over 25 years. While shakhas in India take place in open public spaces, most shakhas meet on university campuses on hired parking lots in the US, says Modh.  Most overseas shakhas are held once a week. In London, they are held twice a week. The UK has 84 shakhas. A US report entitled "Hindu Nationalism in the United States: A Report on Non-Profit Groups" disclosed the following findings regarding the strength and nature of the Hindu nationalist movement in the United States:

  • a. Over the last three decades, a movement toward Hinduizing India--advancing the status of Hindus toward political and social primacy in India-- has continued to gain ground in South Asia and diasporic communities.
  • b. Hindu nationalism has intensified and multiplied forms of discrimination, exclusion, and gendered and sexualized violence against Muslims, Christians, other minorities, and those who oppose Sangh violations, as documented by Indian citizens and international tribunals, fact-finding groups, international human rights organizations, and U.S. governmental bodies.
  • c. India-based Sangh affiliates receive social and financial support from its U.S.-based wings, the latter of which exist largely as tax-exempt non-profit organizations in the United States:

China and Africa: Will the Honeymoon Continue?-- iMFdirect -- China’s President Xi Jinping’s recent pledge of US$60 billion in financial support over the next three years illustrates the depth of the partnership between China and Africa. However, China’s shift from an investment-heavy, export led growth strategy to an economic model that relies more on domestic consumption has led to a dramatic decline in commodity prices. Lower commodity prices and lower volumes of trade have hit sub-Saharan Africa’s commodity exporters hard. But over the medium term, this shift may offer sub-Saharan African countries the opportunity to diversify their economies away from natural resources, and create jobs for their young populations, provided they pursue the right policies to foster competitiveness and integrate into global value chains. A remarkable shift in trading partners has taken place in the past twenty years, especially in the past decade. The move away from advanced economies, which represented close to 90 percent of exports in 1995, toward new partners took place relatively fast. In 2014, export destinations such as Brazil, China, and India, accounted for over 50 percent of sub-Saharan African exports, with China accounting for about half of that (Chart 1).  Fuel, metal and mineral products represent 70 percent of sub-Saharan African exports to China. On the other hand, the majority of sub-Saharan Africa’s imports from China is made of manufactured goods, followed by machinery (Chart 2).

“Emerging Markets Facing Higher U.S. Interest Rates: Smooth Sailing or Perfect Storm?” -- In a widely anticipated move, on December 16, 2015 the U.S. Federal Open Market Committee (FOMC) increased the target range of the U.S. federal funds rate by 25 basis points. Expectations around the first interest rate hike in nearly a decade were well managed, and the accompanying communications from Fed policymakers point to a very gradual tightening cycle ahead. Emerging market assets and currencies did not react much to the news, but these have been in liftoff mode ever since the “taper tantrum” in May 2013, so much of the adjustment had already taken place. Should we conclude that the Fed tightening cycle will be a non-event for emerging markets (EM)? Probably not. The first step has undoubtedly been a success so far, but it will be a long process before U.S. interest rates reach a “new normal”. There is considerable uncertainty regarding how EMs will adjust to it. In this blog, we seek to answer three major questions that should help assess whether EMs should expect smooth sailing or brace for stormy waters during this tightening cycle:

  1. How have growth prospects and policies evolved in advanced countries since the taper tantrum?
  2. How have growth prospects and vulnerabilities for EM changed since the taper tantrum?
  3. What are the major risks associated with the tightening cycle?

The Dollar Shortage Has Arrived: Africa Runs Out Of Dollars - Two months ago, when looking at the latest basis spreads, we showed that a disturbing development, first flagged here in March, was getting worse: namely the "Global Dollar Shortage Intensifies To Worst Level Since 2 012." We had expected this shortage to manifest itself synthetically - and gradually - primarily in the form of pressure on asset prices as market participants who found themselves in a dollar-deficit position were forced to liquidate USD-denominated assets. This indeed happened over the year as many emerging markets, and sovereign wealth funds, not to mention China, proceeded to offload USD-denominated reserves. However, in an unexpected turn of events, the disappearance of not just synthetic but very physical dollars has hit one region much harder and much faster than we expected. Africa. According to the WSJ, some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. The implications are dramatic as the lack of dollars for everyday business operations means businesses from Transcorp Hotels to international giants like General Electric Co. and Coca-Cola Co., are all struggling to get the dollars they need for imports or to send profits back home.

Zimbabwe looks to Chinese yuan as legal tender: Zimbabwe plans to make the Chinese yuan legal tender as part of a deal that will see about $US40 million in debt cancelled by Beijing. "Discussions are under way as we speak," finance and economic development minister Patrick Chinamasa said. "It will all happen in the context of the RMB [renminbi, or yuan] being part of our basket of currencies." "Reserve Bank of Zimbabwe governor, John Mangudya, has opened negotiations with the People's Bank of China," Mr Chinamasa said. As part of the deal, China will cancel about $40 million worth of Zimbabwe's debt due to mature this year and Harare hopes to further facilitate use of the yuan currency in its economy as bilateral trade increases, the Southern African country's finance minister said on Monday. China has become the largest investor in Zimbabwe, which has been shunned by the West over its human rights record and is struggling to emerge from a deep 1999-2008 recession that forced the government to ditch its own currency in 2009. The country relies on a basket of currencies including the US dollar, British sterling and the South African rand. It later added the yuan, which under the deal would become a currency of local transaction next year.

Zimbabwe to adopt Chinese yuan as legal tender in debt write-off --The Chinese yuan may soon become a legal currency in Zimbabwe after Beijing confirmed it would cancel the African country’s $40 million debt.  “They [China] said they are cancelling our debts that are maturing this year and we are in the process of finalizing the debt instruments and calculating the debts,” said Patrick Chinamasa, Finance Minister of Zimbabwe. He added that the country plans to increase local use of the yuan which was added to Zimbabwe’s basket of currencies last year. A multi-currency system has been in operation for the last six years, with the South African rand and US dollar in use since hyperinflation in 2009. At the peak of the crisis, the local currency became almost worthless, with 35 quadrillion Zimbabwean dollars equaling one US dollar. The yuan hasn’t been approved yet for public transactions in the Zimbabwean market which is currently dominated by the US dollar. Use of the yuan “will be a function of trade between China and Zimbabwe and acceptability with customers in Zimbabwe,” said Chinamasa. According to the finance minister, Chinese tourists could start paying for services in yuan and Zimbabwe could use the currency to pay its loans to China. The minister added that the central banks of the two countries are already negotiating on a yuan clearance system.

Nigeria expects 2016 deficit to double as Buhari unveils record budget: (Reuters) - Nigeria expects its deficit to double to 2.2 trillion naira ($11 billion) in 2016, President Muhammadu Buhari said on Tuesday, as the government tries to overcome an economic crisis with a record budget and a tripling of capital expenditure. Africa's biggest economy has been hammered by a plunge in oil revenues which has weakened the naira and dollar reserves, and forced companies to fire thousands of staff. Buhari told parliament that total spending would be 6.08 trillion naira, of which 1.8 trillion would be capital expenditure to build badly needed roads or rail systems and ease power shortages -- three times as much as this year. "The 2016 budget ... is designed to ensure that we revive our economy, deliver inclusive growth to Nigerians and create a significant number of jobs," said Buhari, who was elected in March on pledges to tackle the corruption that has left many Nigerians mired in poverty despite the country's enormous energy wealth. Africa's top oil producer, which has foreign currency reserves worth around $30 billion, will borrow as much as 900 billion naira abroad to fund the deficit, which is equivalent to 2.16 percent of gross domestic product, Buhari said. Some 984 billion naira would be borrowed at home. The opposition PDP called the budget a "fraud", saying that the record borrowing requirement was unrealistic.

Brazil loan defaults hit 33-month-high as recession deepens | Reuters: Bank loans overdue for at least 90 days in Brazil rose in November to their highest in almost three years, the central bank said on Tuesday, as the deepest recession in decades and rising credit costs strained borrowers' capacity to stay current on their debts. The so-called 90-day default ratio, a benchmark for delinquencies, rose to the equivalent of 5.2 percent of outstanding non-earmarked loans in November, the central bank said in a report. November's number was the highest for the ratio since February 2013, according to central bank data. In October, the default ratio was a revised 5 percent. The default ratio has grown from about a full percentage point over the past year, as rising unemployment and stubbornly high inflation also eroded the ability of companies and households to pay their debt. Latin America's largest economy shrank by an annual 4.5 percent in the third quarter, the steepest drop since the current data series began in 1996. Consumer defaults were stable last month after a costlier refinancing of revolving credit card and payroll loans offset early debt repayments. Corporate defaults climbed, reflecting increased delinquencies in working capital, trade finance and guarantee letter-backed credits.

One of the Biggest Objections to the TPP Just Went Up In Smoke  - While the TPP was being negotiated back in 2011, Australia decided to take a stand against cigarette smoking. Its parliament passed a law specifying the kind of packaging that producers could use; it had to be plain and feature very prominent health warnings with graphic images. This did not sit well with tobacco companies, of course. They felt they had been wronged. Philip Morris decided to do something about it. It requested arbitration under Australia’s 1993 bilateral investment treaty with Hong Kong. It sought billions of dollars in damages on the grounds that it would suffer substantial losses from its investment in Australia because of the new legislation.  This helped launch the storm. Health activists and others were mortified that a tobacco company could penalize a government billions of dollars for adopting such regulations. It seemed to tilt the playing field entirely in favor of nefarious corporate interests. It cast doubt on the whole system of investor protection in trade agreements. As investment has become a steadily more important part of international trade, such protections have proliferated. A key provision in the TPP and other major U.S. agreements is called “Investor State Dispute Settlement” (ISDS). It is meant to provide investors with some recourse if a host government wrongs them. It is particularly valued by businesses in countries where the judicial system is weak or corrupt. That was never the claim about Australia, but it is far easier to keep this provision in all agreements than to declare on a case-by-case basis that the partner country has a rickety legal system.

America’s Double Standard on Trade  -- Yesterday, U.S. Trade Representative Michael Froman delivered his plenary statement to the trade ministers gathered in Nairobi for the World Trade Organization’s tenth ministerial conference. His statement, which calls for the abandonment of the Doha Development Round in favor of negotiations on new issues of more strategic interest to the United States, deserve a response from a countryman.Mr. Froman calls on trade representatives “to move beyond the cynical repetition of positions designed to produce deadlock.” Yet this is precisely what Mr. Froman has come to Nairobi to repeat: U.S. positions designed to produce deadlock.He decries the lack of progress in the last 15 years of Doha negotiations, yet he fails to acknowledge that the United States has been, and remains, the principal reason for that failure. Since 2008, when negotiations broke down, the U.S. has refused to continue negotiating on the key issues central to the development agenda – reducing agricultural subsidies, allowing developing countries special protection measures for agriculture, eliminating export subsidies and credits, and a host of other issues.Those issues remain critical to developing countries, and U.S. intransigence in addressing those concerns is the main reason Doha has stagnated. In addition, the U.S. has introduced new issues to create further obstacles to progress, such as its objection to India’s ambitious and laudable public stockholding program to provide food security to fully two-thirds of its people.The draft declaration on agriculture in Nairobi offers no progress on resolving this issue, despite the explicit commitment in Bali and later in Geneva to find a permanent solution that can allow India and other countries to pursue such programs.That is not the only developing country issue left unaddressed. The declaration offers nothing to developing countries to allow them to protect sensitive sectors from unfair or sudden import surges, the Special Safeguard Mechanism. It offers no meaningful cuts in U.S. export credits, which have favored U.S. exporters to Africa with some $1.25 billion in credits over the last six years.

It's Officially Over: WTO Kills Doha Round (2001-Never) --During the last WTO meeting, its members decided to discontinue reaffirming the Doha Development Agenda's mandate, effectively killing it off. What's especially notable is that the country which was most adamant in launching it and styling it as a "development agenda" instead of a "round"--the United States--has been wishing to kill it off for quite some time now: The World Trade Organisation is facing the biggest shake-up of its agenda in a generation after its members in effect abandoned the long-stalled Doha round. For the first time since the round was launched amid great fanfare in 2001, the WTO’s 164 members, ending a conference in Nairobi at the weekend, declined to “reaffirm” Doha’s mandate.  They also opened the door to discussing new issues and focusing more on delivering smaller packages of trade reforms. Agreements included a global ban on farming export subsidies that Roberto Azevêdo, the WTO’s director-general, called the “most significant” achievement on agriculture in the organisation’s history. The new line in Nairobi, said one senior trade official, amounted to “the death of Doha and the birth of a new WTO”.  It also marked a victory for the US and EU, who alongside other developed economies have argued that clinging to the long-stalled Doha negotiations was making the institution irrelevant in a changing global econom.  Instead of aiming to complete these vast, cross-cutting rounds like before, the WTO is moving towards more tractable issue-focused negotiations, which probably makes more sense in this day and age when there are so many different parties with differing interests. Moreover, delegates the world over tired of meeting on something which became moribund quite some time ago:

TPP Ratification Process Grinding To A Halt As Canada Launches ‘Widespread Consultations’ On The Deal - As we noted recently, the arrival of a new government in Canada has meant that the corporate sovereignty provisions in CETA, the Comprehensive Economic and Trade Agreement between Canada and the EU, might be re-examined, even if they are unlikely to be dropped completely. The other major trade deal involving Canada, TPP, is much more complex, since there are 11 other nations to consider. Although that limits the Candian government's scope for changing course, it appears that it is nonetheless taking a radically different approach compared to its predecessor. Where Stephen Harper's government was unwilling to involve the public in any way, Justin Trudeau's team seems willing at least to ask for their views:   The Liberal government, under pressure from labour unions fretting about what they fear will be big job losses once TPP comes into effect, have launched widespread consultations on the deal. This could take considerable time, said the government, which strongly advocates the idea of free trade.  As that paragraph from an article in The Globe and Mail makes clear, the Canadian government is still keen on TPP, and aims to pass it, but it does seem that the process is going to take far longer than originally envisaged. According to The Globe and Mail, Canada aims to sign soon, but not ratify it -- the final part of the process. That's in part because it's not at all clear when the US will get around to its own ratification. Doubts about the US timetable have increased after The Washington Post published the following:  Senate Majority Leader Mitch McConnell (R-Ky.) dealt a significant blow to President Obama's global trade agenda Thursday, declaring that a sweeping pact with 11 Pacific Rim nations should not be sent to Congress for approval until after the 2016 elections -- and maybe not until after Obama leaves office.

"Canadians Should Be Concerned" As Energy Sector Job Losses Spike To 100,000 This Year -- It's grim up north... and getting grimmer. Amid soaring suicide rates, Canada's once-booming oil patch is rapidly accelerating its downward trajectory. "Canadians should be concerned in times like these," warned Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, noting that the oil and gas sector will see 100,000 job losses by the end of this year. Even if oil prices rise early and fast next year, Financial Post reports, it may take a while for Canadian oilsands to rebound as the industry has mothballed a number of long-term projects.  Over the past year, we have extensively chronicled the tragic story of Alberta - Canada's once booming oilpatch - disintegrate slowly at first, then very fast, into an economic and financial wasteland:

And, in one of the latest articles of this sad series describing the Alberta "bloodbath", we said that the worst casualty of Canada's recession has been the local commercial real estate market, where office vacancies are about to surpass the aftermath of the (first) great financial crisis.

Alberta’s finance minister says low oil price may delay government programs -- Alberta’s finance minister says low oil prices may force him to hit the brakes on millions of dollars in initiatives promised by the NDP government such as child-care benefits, school fee reductions, student hiring and environmental retrofits. Joe Ceci said in a year-end interview that some or all of a dozen programs set to begin in the 2016-17 fiscal year may be delayed. “We’ve addressed a lot of (our commitments). We’ve done a lot of them,” Ceci told The Canadian Press. “The ones that haven’t been started, they could potentially be delayed or reduced.” The specifics haven’t been ironed out.

Russia, Ukraine and the not so exceptional IMF loan  - It’s official: Ukraine has defaulted on $3bn in bonds it owes to the Russian government. No one, including Russia, should be surprised, because Ukraine could do so confident in the knowledge other creditors, including the IMF, wouldn’t mind. Indeed, while the die was cast when the IMF executive board agreed to change its position on lending to countries that owe money elsewhere, the real conclusion to draw may be about the evolution of an institution conceived to give only brief assistance to government. The IMF opted not to mention Russia and Ukraine in its official explanation, stressing the decision was one the fund had been considering for a while. But choosing to take the plunge 10 days before Ukraine’s highly contentious Russia bond matured was no coincidence. Here’s Ukraine’s finance minister Natalie Jaresko retweeting former Swedish prime minister Carl Bildt on the decision: Side-stepping the question of what Russia might do next (and whether London courts will be sympathetic to a creditor that has annexed a debtor’s territory) what is curious about this landmark IMF rule change is how malleable that policy has been in the past. A paper on the IMF’s 70 year history by Carmen Reinhart and Christoph Trebesch reveals that while the IMF has a policy of not lending to countries in arrears to official bilateral creditors, such as the World Bank or other governments, the practice has actually been fairly common by invoking an awful lot of exceptional circumstances:

Krugman and Blanchard (Video): Saving The World Economy

Inflation expectations in euro zone fall to lowest since October - – A closely followed measure of long-term market euro zone inflation expectations fell to its lowest level since October on Wednesday, pushed down by this week’s sharp fall in oil prices to 11-year lows. The five-year, five-year breakeven forward , a measure of where markets expect 2025 euro zone inflation forecasts to be in 2020, fell to 1.6625 percent, although yields in the broader euro zone bond market were largely steady. Even though the measure has been criticised for being too sensitive to short-term moves in oil prices and for being based on illiquid instruments, it remains closely followed by investors and by the European Central Bank (ECB) itself. While oil prices are above this week’s 11-year low, Brent crude has fallen more than 15 percent this month, renewing focus on a benign outlook for inflation in the euro area that may pave the way for further monetary stimulus in 2016. “The five-year, five-year forward is very much linked to oil-price developments,” DZ Bank strategist Daniel Lenz said. “If the oil trend continues in the coming months, the gap between core and headline inflation that was supposed to close could remain wide, keeping up discussions about whether the ECB should come up with extra easing measures,” he said.

Tsipras pushes for IMF to stay out of next Greek bailout  - Greek prime minister Alexis Tsipras is pushing for the International Monetary Fund to stay out of the country’s €86bn third bailout, leaving the eurozone to take full responsibility for overseeing economic reforms. Mr Tsipras said in an interview with the Financial Times he was “puzzled by the unconstructive attitude of the fund on fiscal and financial issues”. He indicated that the IMF should leave his country’s third bailout to the eurozone when it decides whether to stay involved early next year. “We think that after six years of managing in extraordinary crisis, Europe now has the institutional capacity to deal successfully with intra-European issues.” Mr Tsipras’s assertion is likely to anger the German government, which has always insisted the IMF stay on board. Berlin values the fund’s technical expertise as much as it doubts the European Commission’s resolve. Mr Tsipras also risks alienating the IMF, which is a strong advocate of debt relief for Athens while Germany and other eurozone members are strongly against debt writedowns, although he praised the fund’s support on this issue. Mr Tsipras said his government wanted to implement bailout measures as swiftly as possible with the aim of recovering sovereignty and getting rid of the so-called “troika” of bailout monitors from the commission, IMF and European Central Bank. “We believe the sooner we get away from the [bailout] programme the better for our country,” he said. “If Greece completes the first [progress] review in January, we’ll be covering more than 70 per cent of fiscal and financial measures in the agreement.” Mr Tsipras also sounded confident that Greece would lift all remaining capital controls by March and resume borrowing on international capital markets “before the end of 2016”.

Athens Recalls Ambassador To Prague After Czech President Says He Is "Disappointed Greece Did Not Leave Euro Area" -- A diplomatic incident with unknown outcome has occurred between Greece and the Czech Republic after the provocative statements made against Greece by President Milos Zeman. As consequence to Zeman’s statements, the Greek Foreign Ministry ordered its its Ambassador to the Czech Republic to return back to Athens “for consultations” as it is nicely said in diplomatic language. The Czech President has recently expressed his disappointed “because Greece has not exit the Eurozone yet.”  Speaking to Slovak news agency TASR on December 15h, President Milos Zeman said thathe was "extremely disappointed that the summer negotiations between Greece and creditors did not ultimately lead to Greece’s exit from the euro area, although it looked quite possible.He added that “the Czech Republic will join the euro area on the first day after Greece departs the eurozone.“ Right after Zeman’s statements, the Czech Ambassador to Athens was invited by the office of Greek Foreign Minister Nikos Kotzias for a protest note and a “diplomatic chat” during which the Greek side expressed its discomfort about the unacceptable statements of the highest Czech official.  The Czech Republic was given four days time to refute its President’s statements but Prague decided to insist on the tough line against Athens. The Greek diplomacy could not but proceed to the next step which was to “call its ambassador for consultations.” In practice this means, that Ambassador Panayiotis Sarris has been withdrawn from the Czech Republic and he will remain in Athens until the issue is solved.

China Cosco Is Sole Bidder for Stake in Greece’s Piraeus Port - China’s shipping and port giant China Cosco Holding Co. is so far the sole bidder for a majority stake in the long-delayed privatization of Greece’s main port of Piraeus, two people with direct knowledge of the deal said Wednesday. Two other shortlisted investors—APM Terminals, owned by Danish shipping conglomerate A.P. Moller-Maersk, and Philippines-based port operator International Container Terminal Services Inc.—didn’t submit binding bids by Monday’s deadline, the people said.  The privatization is expected to generate hundreds of millions of euros for cash-strapped Athens. The Hellenic Republic Asset Development Fund, which handles state asset sales, said it would disclose the bids for the port on Jan. 12. APM Terminals and ICTS declined to comment. “It will be complicated for offers to be accepted after the deadline, but since the seller has not officially said who put forward binding bids, it’s not unprecedented that a late entry comes into the fold,” one person said.  Regardless of the number of offers, Cosco is considered the favorite to win the bid as it already operates two container terminals under a 35-year concession it acquired in 2009. Piraeus, just a few miles south of the Greek capital of Athens, is the de facto home of Greece’s giant shipping industry and one of the largest ports in the Mediterranean. As Piraeus is the closest Western port to the Suez Canal, Cosco already is using it as a transshipment hub for Asian exports to Europe coming in on container vessels from China.

People's party wins Spanish election but without absolute majority. The PP and Socialists earned a combined vote share of around 50%, compared to the 70-80% in combined votes in past general elections. “The two-party political system is over and we are entering a new era in our country,” Podemos’ Iñigo Errejón said on Sunday as results began rolling in.  Podemos did notably well in Catalonia, suggesting widespread approval for its campaign promise to hold a referendum on independence for the north-eastern region. Preliminary results suggested a coalition backed by Podemos and Barcelona en Comú was poised to take first place in the region. In order to be able to govern for the next four years, the PP will have to rely on other parties, suggesting a protracted process of negotiations lies ahead for political leaders. Several scenarios are possible. The PP could form a minority government, particularly since Ciudadanos leader Albert Rivera said last week his party would abstain from a vote of confidence in order to allow the party with the most seats to govern. The scenario is a risky one for the PP, as a minority government could fall easily, triggering new elections. “Reaching a deal between the Socialists, Ciudadanos and Podemos is not going to be straightforward ... but if the alternative is leaving the country without a government, the pressure will be on the parties,” Federico Santi, a London-based analyst with the Eurasia Group, told the Associated Press.

Spanish Election: Two-party Dominance Ends; Rojoy's PP Party Fails to Win Majority; Vote Buying Spanish Style; Fragile Coalition Possibilities - Spanish Election Results:  Mariano Rajoy may be the first leader of a country to be re-elected having imposed harsh austerity measures, but he will either need to find a coalition partner, or form what is likely to be a fragile minority government.There are 350 Seats in the Spanish legislature and the results look like this.

  • People's Party (Conservatives): 122 seats, 28% of vote
  • PSOE (Socialists): 93 seats, 22% of Vote
  • Podemos (Eurosceptic, Anti-Austerity Socialists): 69 seats, 20.5% of vote
  • Ciudadanos (Anti-corruption, nationalistic party): 28 seats, 14% of vote

This result complicates things greatly. Many expected PP and Ciudadanos would have enough seats form a majority. Ciudadanos had been polling above 20% with Podemos sinking. Like PP, Ciudadanos is very much against the separatists in Catalonia, and very pro-euro.  But 122 + 28 does not come close to the 176 needed for an outright majority. The socialists and conservatives could form a government, but how stable would that be? PSOE, Podemos, and Ciudadanos could in theory form a coalition but huge philosophical differences abound. Podemos is eurosceptic while Ciudadanos is very pro-Europe. In addition, Podemos is open to separatist elections and Ciudadanos would never go along. A minority government with Rajoy remaining in power is possible but that might not be stable either.

Spain election: Political uncertainty after split result - BBC News: Spain faces political uncertainty after two new movements won nearly a third of the seats in the country's election. Anti-austerity party Podemos and liberal Ciudadanos made big gains as the conservative Popular Party (PP) lost its majority. "Spain is not going to be the same anymore and we are very happy," said Podemos leader Pablo Iglesias. The PP and the Socialists had alternated running the government for more than three decades. The parties must now embark on negotiations to form a coalition. The PP had 28.72% of the vote, the Socialists 22.01%, Podemos 20.66% and Ciudadanos 13.93%.The fact that the conservative PP came first with just 29% of the vote tells you how split this election was. In reality the PP will struggle to find the necessary allies to form another government. Podemos, an anti-austerity movement born during Spain's financial crisis, confirmed its position as a new, powerful political force. It is possible it could form part of a left-wing alliance. Mathematically, such a coalition could reach power with the support of pro-independence Catalan parties. But Spaniards could be guessing for days, or even weeks, about the shape and colour of their next Government. After corruption scandals and austerity, the political landscape here has been dramatically changed.

Times are changing in Spain | European Council on Foreign Relations: Spaniards went to bed on Sunday knowing for sure that an era has ended, but without knowing what the new era will look like. Every time since 1978 that Spaniards have been to the polls, they went to bed knowing that the most voted for candidate would be elected prime minister and that he would enjoy a stable majority in parliament to govern for the next four years. But times have changed. With 28 percent of the vote and 122 seats, prime minister Rajoy and the Partido Popular (PP) have won the elections. But they are well below the 176 seats threshold needed to form a government. And they are unlikely to get there even by reaching out to the new party in the centre-right Ciudadanos, because even the combined 162 seats these two parties could muster still falls short. Rajoy might, therefore, have won the elections, but it is far from sure that he will be able to lead his party into government for a second time. This epochal change is due to the fact that PP and the socialist party PSOE, who’ve swapped power between them since 1982, have gathered just 50 percent of the vote, when in the last election before the crisis (2008), they received a combined 84 percent of the vote. It is in the space left by the main two parties, which for the first time in Spanish democracy have both lost votes, that two new parties, Podemos and Ciudadanos, have been able to insert a very attractive proposal for change. Both have managed to revive democracy with a new and appealing language able to attract disaffected voters and young voters back into politics. The emergence of both parties, and in particular the incredible surge in polls of Podemos during the last week, is the true story of Sunday night.

Disdain In Spain - Paul Krugman -- Defenders of austerity have lately taken to citing Spain as a success story; actually, as I and others have argued, Spain’s recent growth reflects the combination of a leveling off of austerity and the slow effects of very painful internal devaluation. David Rosnick and Mark Weisbrot offer further analysis here.  Furthermore, if you look at levels rather than rates of change, the situation is still terrible — as shown in the chart above. And whaddya know, Spanish voters don’t seem enthused about the situation.   I have no clue how this works out; apparently every possible structure for a new government is impossible, except in comparison with all the others. And meanwhile the euro effectively imposes a straitjacket whatever voters say. But anyway, those getting ready to toast the vindication of austerity after all might want to put the cava back in the fridge.

In the Wake of the Unexpected "Victory" of Podemos; Unsavory Demands  -- Spanish  mainstream political parties are reeling from the unexpected rise of Podemos. The radical left anti-austerity, eurosceptic party was sinking rapidly in the polls with a mere 16% of the projected vote. Instead it received 21% of the vote.  That was enough for third place, and nearly second. The nationalistic party Ciudadanos fell to a distant fourth from a projected second-place finish. With that unprecedented final week swing Podemos Declares Victory and an end to Spain’s two-party domination. Pablo Iglesias, leader of the anti-austerity Podemos party, emerged as the only true winner of Spain’s general election and was quick to claim victory, albeit from third place.  “The era of two parties is done. It no longer exists,” Mr Iglesias said on Monday. Podemos won 69 seats in the 350-seat parliament, behind prime minister Mariano Rajoy’s Partido Popular (PP) on 123 and the Socialists (PSOE) on 90.  It came within a whisker of the Socialists in terms of share of the vote (21 per cent versus 22) and would have won even more seats were it not for an electoral system that favours parties with well established operations in rural Spain.The Podemos "victory" leaves politics in Spain splintered heavily, possibly beyond repair. To highlight the differences, simply take a look at five key Podemos demands that leader Pablo Iglesias laid out today.

  1. More proportional electoral system
  2. Addition of housing, health and education as constitutional rights
  3. Recognition of the right of self-determination for regions such as Catalonia
  4. Depoliticised judiciary
  5. Rules against politicians serving on corporate boards

Political uprising in Spain shatters illusion of eurozone recovery - Telegraph: Spain risks months of political paralysis and a corrosive showdown with Germany over fiscal austerity after insurgent movements smashed the traditional two-party system, leaving the country almost ungovernable. The electoral earthquake over the weekend in one of the eurozone’s ‘big four’ states has echoes of the shock upsets in Greece and Portugal this year, a reminder that the delayed political fuse from years of economic depression and mass unemployment can detonate even once the worst seems to be over.   Bank stocks plummeted on the Madrid bourse as startled investors awoke to the possibility of a Left-wing coalition that included the ultra-radical Podemos party, which won 20.7pc of the votes with threats to overturn the government’s bank bail-out and to restructure financial debt. Pablo Iglesias, the pony-tailed leader of the Podemos rebellion, warned Brussels, Berlin, and Frankfurt that Spain was retaking control over its own destiny after years of kowtowing to eurozone demands. “Our message to Europe is clear. Spain will never again be the periphery of Germany. We will strive to restore the meaning of the word sovereignty to our country,” he said.

Poland's Walesa calls for early election, sees democracy at risk | Reuters: Lech Walesa, leader of the Solidarity trade union that ended communism in Poland, said on Wednesday democracy was at risk and called for a referendum to force the ruling Law and Justice (PiS) party to hold an early election. Though Walesa has no say in government decisions, he does have influence on public opinion in Poland and his remarks coincide with a growing unease among Poles unhappy with PiS' policies, with critics say are undermining democracy. Poland's lower chamber of parliament passed a constitutional court law amendment on Tuesday that the supreme court and activists said would undermine the separation of powers and paralyze the constitutional court. "One should think about organizing (ourselves), press for a referendum, show in a referendum that two third are against such rule and shorten (parliament's) term," Walesa told private Radio Zet. The ruling conservatives won the October general election securing an outright majority in both chambers of parliament on pledges to offer more social benefits for Poles who felt the country's economic success was not equally distributed. "This government acts against Poland, against our achievements, freedom, democracy, not to mentioning the fact that it ridicules us in the world," Walesa said.

Turkey Moves to Clamp Down on Border, Long a Revolving Door - The Turkish Coast Guard has stepped up nighttime patrols on the choppy, wintry waters of the Aegean Sea, seizing rafts full of refugees fleeing war for Europe and sending them back to Turkey.Down south, at the border with Syria, Turkey is building a concrete wall, digging trenches, laying razor wire and at night illuminating vast stretches of land in an effort to cut off the flow of supplies and foreign fighters to the Islamic State.On land and at sea, Turkey’s borders, long a revolving door of refugees, foreign fighters and the smugglers who enable them, are at the center of two separate yet interlinked global crises: the migrant tide convulsing Europe and the Syrian civil war that propels it.Accused by Western leaders of turning a blind eye to these critical borders, Turkey at last seems to be getting serious about shoring them up. Under growing pressure from Europe and the United States, Turkey has in recent weeks taken steps to cut off the flows of refugees and of foreign fighters who have helped destabilize a vast portion of the globe, from the Middle East to Europe.Smugglers who used to make a living helping the Islamic State bring foreign fighters into Syria say that it is increasingly difficult — though still not impossible — to do so now. Border guards who once fired warning shots, they say, now shoot to kill.“Whoever approaches the border is shot,” said Omar, a smuggler interviewed in the border town of Kilis who insisted on being identified by only his first name because of the illegal nature of his work. “And many have been killed.”

Over a million migrants and refugees have reached Europe this year, says IOM - More than a million people have now reached Europe through irregular means in 2015, the International Organisation for Migration has announced, in what constitutes the continent’s biggest wave of mass migration since the aftermath of the second world war. Out of a total of 1,005,504 arrivals by 21 December, the vast majority – 816,752 – arrived by sea in Greece, the IOM said. A further 150,317 arrived by sea in Italy, with much smaller figures for Spain, Malta and Cyprus. A total of 34,215 crossed by land routes, such as over the Turkish-Bulgarian border. The overall figure is a four-fold increase from 2014’s figures, and has largely been driven by Syrians fleeing their country’s civil war. Afghans, Iraqis and Eritreans fleeing conflict and repression are the other significant national groups.  The European migration flow is nevertheless far more manageable than in the Middle East, where roughly 2.2 million Syrian refugees live in Turkey alone. In Lebanon, 1.1 million Syrians form about one-fifth of the country’s total population, while Jordan’s 633,000 registered Syrian refugees make up around a tenth of the total. The denial of basic rights to refugees in those countries, where almost all Syrians do not have the right to work, is one of the causes of Europe’s migration crisis. Refugees who have lived for several years in legal limbo are now coming to Europe to claim the rights bestowed on them by the 1951 UN refugee convention.

21 heartbreaking photos of the ongoing refugee crisis Business Insider

French president’s ‘gift to far right’ is a Socialist’s nightmare before Christmas -- President François Hollande’s call to strip dual nationals of their French citizenship for terror offenses has driven a rift through his ruling Socialist Party, where many deplore a symbolic gift to the far right that will make France no safer.  The hardened stance against dual nationals convicted of terrorism was announced by Prime Minister Manuel Valls on Wednesday as part of a proposed constitutional reform designed to uphold the state of emergency imposed after the Nov. 13 terrorist attacks. It followed days of public debate that saw many prominent Socialists, including the party leader, describe the measure as contrary to Republican and left-wing values. Remarkably, it came less than 24 hours after Algerian media aired an interview with French Justice Minister Christiane Taubira in which she claimed the controversial article had been purely and simply dropped. Sitting alongside a stone-faced Taubira on Wednesday, Valls said the scope of the measure would be “strictly limited” and would only apply to dual nationals “who have been sentenced by a judge for committing crimes against the nation, which include terrorist crimes”. Valls said he was confident lawmakers of all stripes would rally behind the reforms in February when they go before both houses of parliament, where a majority of three-fifths is required. He said he had “no doubt” Socialist MPs would back their government.  Many surely will. But while the latter are keeping a low profile, opponents have made no secret of their disgust at a policy long associated with Marine Le Pen’s far-right National Front

Refugee crisis: Britain can no longer sit out as EU prepares for greater numbers -  The difference in the response from the German chancellor and the British prime minister to the biggest refugee crisis Europe has faced since the second world war could not be more stark. Angela Merkel’s Germany has taken in more than 1 million asylum seekers this year. Her electrifying welcome announcement in August transformed the chancellor’s cautious reputation for leading from behind, to one of a moral pioneer.  It is true that her open door response has provoked a backlash, particularly in Bavaria, through which most refugees and asylum seekers have entered Germany. But the backlash, while real enough in her own CDU party, appears to have been confined to a minority of the wider public.  A French-based IFOP poll of seven countries showed support for the principle of sheltering refugees from war and persecution has dropped in Germany from 79% in September to 75% in October. Fewer than half of Britons, French or Dutch say they feel the same way. While the demand for an upper limit on the number of refugees in Germany has damaged Merkel, it seems far from sweeping her from office. David Cameron and his home secretary, Theresa May, on the other hand, have not only kept the door firmly shut but have made a virtue of it. While Germany accepted 108,000 asylum seekers between September and November, Cameron was boasting last week of resettling just 1,000 Syrian refugees over a longer period.

UK poll finds small majority of Britons in favor of ′Brexit′ - A new opinion poll has found that just over half of Britons questioned wanted their country to leave the European Union. Data showed that the young, the Scots and the Welsh were far keener on staying. According to the survey by ORB International released on Tuesday, 52 percent of the 2,000 respondents said they thought Britain should leave the EU, while 48 percent were in favor of it remaining in the bloc. The poll, which was conducted last week, did not allow respondents to give an undecided response. The result indicates a decline in the number of those wanting Britain to remain an EU member, with an ORB survey last month showing 53 percent in favor of staying. ORB, which is commissioned to conduct surveys by the British paper "The Independent," said it was the first time a poll result had shown a majority wanting the so-called "Brexit" since it began polling on the question six months ago. The poll showed that young people aged 18 to 24 were much more likely to want to remain in the EU than those in the 65-and-over age group, and that support for EU membership was strongest in Scotland and Wales. British Prime Minister David Cameron, who says he supports British membership in the EU despite voicing his dissatisfaction in several areas, has pledged to hold a referendum on the matter by the end of 2017.

Osborne Xmas headache as UK borrowing INCREASES and debt reaches £1.53TRILLION -- BRITAIN'S debt has jumped by £71.9BILLION over the current financial year to reach an incredible £1.536TRILLION, data from the Office for National Statistics (ONS) revealed.It means it's nearly impossible for George Osborne to reach his public finance targets for the year. In a huge blow for the Chancellor, public sector net borrowing INCREASED by £1.3bn compared to November 2014 to reach £14.2bn last month. It takes borrowing over the current financial year to £66.9bn, a decrease of £6.6bn from the same period last year. The figures put George Osborne firmly on track to miss his public finance borrowing targets of £68.9bn over the whole financial year, as set by the Office for Budget Responsibility (OBR) at the Autumn Statement. Paul Hollingsworth, UK economist at Capital Economics, said: "There was no festive cheer for the Chancellor in November’s UK public finances figures. "Indeed, it now looks almost impossible for Mr Osborne to meet the OBR’s forecast for the fiscal year as a whole. "If we assume that the trend seen so far this year continues, then borrowing for 2015/16 as a whole would come in at around £81bn. "The upshot is that, barring a Christmas miracle, the Chancellor looks extremely unlikely to meet his borrowing forecasts this year."

The personal debt time bomb - “Britain’s supposed economic recovery rests on a personal debt timebomb.” I’m sure you have read about this many times. If it often accompanied by the prediction that it will all end in tears at some point, just like it did last time. Now I do not want to flip to the other extreme and suggest everything is hunky dory. For example the UK’s high personal debt levels are in large part because of very high house prices, and high house prices are a real problem for many reasons. But I do want to suggest that the evidence for doom and gloom is not as clearcut as some suggest.  The first, and perhaps most basic, misapprehension is that the financial crisis was the result of UK defaults. It was not. UK banks got into difficulties because of their lending overseas. I discuss this in the context of the so called 2007 boom here. In particular I note that, as the Bank’s Ben Broadbent points out, in the Great Recession UK “losses on most domestic loans have actually been unexceptional. Instead, it is UK banks’ substantial overseas assets that caused much of the damage.” Northern Rock failed because its business model, which relied on it obtaining funds from the wholesale market, failed. Of course for UK banks, this misapprehension that the financial crisis was a result of foolish UK borrowers rather than their lending behaviour may be rather convenient. A second common trait is to quote numbers for debt in nominal terms. Like cinema box office receipts, we are always breaking records. It is a classic example of the kind of bad practice I note here. This chart, from the Bank of England’s latest inflation report, shows the ratio of average household debt to income.