Monthly Archives: November 2014
By Michael T. Snyder
Americans are going to spend more than 600 billion dollars this Christmas season, and on Friday we got to see our fellow citizens fight each other like rabid animals over foreign-made flat screen televisions and Barbie dolls. As disgusting as this behavior is to many of us, there may soon come a time when we will all fondly remember these days. Most Americans are completely unaware of what is currently happening in the financial world, but right now there are deeply troubling signs that we could be on the verge of another major global financial collapse. If the next great economic downturn does strike in 2015, that could mean that we may have just witnessed the last great Black Friday celebration of American materialism. As you read this, stock prices are approximately double the value that they should be, margin debt is hovering near all-time record highs, and the “too big to fail” banks are being far more reckless than they were just prior to the last major stock market implosion. So many of the exact same patterns that we witnessed back in 2007 and 2008 are repeating right now, and as you will see below, this includes a horrifying crash in the price of oil. Anyone with half a brain should be able to see the slow-motion financial train wreck that is unfolding right before our eyes.
Every year, it has been my tradition to write an article about the mini-riots that erupt in retail stores all around the country on Black Friday. This year things were a bit calmer because so many stores opened up on Thanksgiving itself, but there was still plenty of chaos.
But instead of launching into another diatribe about how we are committing national economic suicide by buying hundreds of billions of dollars of foreign-made goods with money that we do not have, I want to focus on what is coming next.
You see, I believe that in the not too distant future many of us will be wishing for the days when the debt-fueled U.S. economy was healthy enough for people to be wrestling with one another on the floor over good deals in our retail establishments.
The next great financial crash (which many have been anticipating for years) is rapidly approaching. So many of the same things that happened last time are happening again. As I noted above, this includes a crash in the price of oil.
In the months prior to the last stock market collapse, the price of oil began plummeting dramatically in the summer of 2008. This was an “early warning signal” that something was deeply amiss in the financial world…
Many people assume that a lower price for oil is good for the economy, but the exact opposite is actually true. The oil industry has become absolutely critical to the U.S. and Canadian economies. And in recent years, the “shale oil boom” has been one of the only bright spots for the United States. If the shale oil industry starts to fail because of lower prices, a lot of the boom areas all over the nation are going to go bust really quickly and a lot of the financial institutions that were backing these projects are going to feel an immense amount of pain.
Unfortunately for us, the “shale oil revolution” simply does not work at 80 dollars a barrel.
And it certainly does not work at 70 dollars a barrel.
As I write this, U.S. crude is sitting at about 66 dollars a barrel due to OPEC’s recent decision to not cut output.
That is the lowest price for U.S. crude since September 2009.
So just like we saw during the summer of 2008, crude oil prices are collapsing once again. The chart below comes from the Federal Reserve, but it is a few days out of date. Now that the price of crude is down to about 66 dollars, you have to imagine the price actually going below the bottom of this chart…
Needless to say, this price collapse is having a huge impact on the stock prices of oil companies. The following information about what happened in the markets on Friday comes from Business Insider…
Here were some of the biggest losers on Friday:
- BP Plc (NYSE:BP), down 5%
- Royal Dutch Shell A (NYSE:RDSa), down 6%
- Total SA (NYSE:TOT), down 5%
- Statoil ASA (NYSE:STO), down 14%
- Exxon Mobil Corporation (NYSE:XOM), down 5%
- ConocoPhillips (COP), down 9%
- Marathon Oil (NYSE:MRO), down 13%
- Occidental Petroleum (NYSE:OXY), down 7%
- Anadarko Petroleum (NYSE:APC), down 14%
- Linn Energy (NASDAQ:LINE), down 13%
- Whiting Petroleum (NYSE:WLL), down 28%
- Oasis Petroleum (NYSE:OAS), down 32%
- Kodiak Oil & Gas Corp (NYSE:KOG), down 28%
And this list goes on.
But this could just be the beginning of the oil price declines.
The most powerful oil official in Russia believes that the price of oil could fall below $60 next year…
Russia’s most powerful oil official Igor Sechin said in an interview with an Austrian newspaper that oil prices could fall below $60 by mid-way through next year.
Sechin, chief executive of Rosneft (MCX:ROSN), Russia’s largest oil producer, also said U.S. oil production would fall after 2025 and that an oil market council should be created to monitor prices, the same day the OPEC cartel met in Vienna and left its output targets unchanged.
“We expect that a fall in the price to $60 and below is possible, but only during the first half, or rather by the end of the first half (of next year),” Sechin told the Die Presse newspaper.
And one oil industry analyst just told CNBC that he believes that the price of oil could ultimately plunge as low as $35 a barrel…
“When you look at the second half of 2015, that’s when you see oil beginning to dwarf demand by about a million, a million and a half barrels a day,” he said. “Thirty-five dollars is a possibility if they don’t get an agreement next spring because that’s when the oil really starts to build and you can have a billion barrels of oil with really no place to put it.”
This comes at a time when there are already a whole host of signs that the global economy is slowing down. Three of the ten largest economies on the planet have already slipped into recession, and the economic nightmare over in Europe just continues to get even worse. In fact, we just learned that the unemployment rate in Italy has shot above 13 percent for the first time ever recorded.
In addition, it is important to remember that the “real economy” in the United States is in far worse shape than it was just prior to the last financial crash. Just consider these numbers…
-One recent survey found that about 22 percent of all Americans have had to turn to a church food panty for assistance.
-This year, almost one out of every five households in the United States celebrated Thanksgiving on food stamps.
-The rate of government dependence in America is at an all-time high and approximately 60 percent of U.S. households get more in transfer payments from the government than they pay in taxes.
-According to a report that was just released by the National Center on Family Homelessness, the number of homeless children in the U.S. has soared to a new all-time record high of 2.5 million.
If things are this bad now, what are they going to look like after the next great financial crash?
And without a doubt, the next crash is coming. Hopefully we have at least a couple more months of relative stability, but many experts are now urgently warning that time is quickly running out.
By this time next year, Black Friday may look a whole lot different than it does today.
Obama’s Secret Treaty Would Be The Most Important Step Toward A One World Economic System
By Michael Snyder, on November 12th, 2014
Barack Obama is secretly negotiating the largest international trade agreement in history, and the mainstream media in the United States is almost completely ignoring it. If this treaty is adopted, it will be the most important step toward a one world economic system that we have ever seen. The name of this treaty is “the Trans-Pacific Partnership”, and the text of the treaty is so closely guarded that not even members of Congress know what is in it. Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy. And it is hoped that the EU, China and India will eventually join as well. This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.
Even though Congress is not being allowed to see what is in the treaty, Barack Obama wants Congress to give him fast track negotiating authority. What that means is that Congress would essentially trust Obama to negotiate a good treaty for us. Congress could vote the treaty up or down, but would not be able to amend or filibuster it.
Of course now the Republicans control both houses of Congress. If they are foolish enough to blindly give Barack Obama so much power, they should all immediately resign.
And it is critical that people understand that this is not just an economic treaty. It is basically a gigantic end run around Congress. Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty. If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more. This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all “Buy American” laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.
In other words, it is the treaty from hell.
In addition to imposing Obama’s vision for the world on 40 percent of the global population, it is also being described as a “Christmas wish-list for major corporations”. Of the 29 chapters in the treaty, only five of them actually deal with economic issues. The rest of the treaty deals with a whole host of other issues of great importance to the global elite.
The following list of issues addressed by this treaty is from a Malaysian news source…
• domestic court decisions and international legal standards (e.g., overriding domestic laws on both trade and nontrade matters, foreign investors’ right to sue governments in international tribunals that would overrule the national sovereignty)
• environmental regulations (e.g., nuclear energy, pollution, sustainability)
• financial deregulation (e.g., more power and privileges to the bankers and financiers)
• food safety (e.g., lowering food self-sufficiency, prohibition of mandatory labeling of genetically modified products, or bovine spongiform encephalopathy (BSE) or mad cow disease)
• Government procurement (e.g., no more buy locally produced/grown)
• Internet freedom (e.g., monitoring and policing user activity)
• labour (e.g., welfare regulation, workplace safety, relocating domestic jobs abroad)
• patent protection, copyrights (e.g., decrease access to affordable medicine)
• public access to essential services may be restricted due to investment rules (e.g., water, electricity, and gas)
Why can’t we get this type of reporting in the United States?
And if this treaty is ultimately approved by Congress, we will essentially be stuck with it forever.
This treaty is written in such a way that the United States will be permanently bound by all of the provisions and will never be able to alter them unless all of the other countries agree.
Are you starting to understand why this treaty is so dangerous?
This treaty is the key to Obama’s “legacy”. He wants to impose his will upon 40 percent of the global population in a way that will never be able to be overturned.
Of course Obama is touting this treaty as the path to economic recovery. He promises that it will greatly increase global trade, decrease tariffs and create more jobs for American workers.
But instead, it would be a major step toward destroying what is left of the U.S. economy.
Over the past several decades, every time a major trade agreement has been signed we have seen even more good jobs leave the United States.
And it doesn’t take a genius to figure out why this is happening. If corporations can move jobs to the other side of the planet to nations where it is legal to pay slave labor wages, they will make larger profits.
Just think about it. If you were running a corporation and you had the choice of paying workers ten dollars an hour or one dollar an hour, which would you choose?
Plus there are so many other costs, taxes and paperwork hassles when you deal with American workers. For example, big corporations will not have to provide Obamacare for their foreign workers. That alone will represent a huge savings.
Any basic course in economics will teach you that labor flows from markets where labor costs are high to markets where labor costs are lower. And at this point it costs less to make almost everything overseas. As a result, we have already lost millions upon millions of good jobs, and countless small and mid-size U.S. companies have been forced to shut down because they cannot compete with foreign manufacturers.
Later this month, consumers will flock to retail stores for “Black Friday” deals. But if you look carefully at those products, you will find that almost all of them are made overseas. We buy far, far more from the rest of the world than they buy from us, and that is a recipe for national economic suicide.
We consume far more wealth that we produce, and anyone with half a brain can see that is not sustainable in the long run. The only way that we have been able to maintain our high standard of living is by going into insane amounts of debt. We are currently living in the largest debt bubble in the history of the planet, and at some point the party is going to end.
Please share this article with as many people as you can. We need to inform people about what Obama is trying to do.
If Obama is successful in ramming this secret treaty through, it is going to do incalculable damage to what is left of the once great U.S. economy.
11.11.2014 Author: Viktor Titov
Saudi Arabia has recently witnessed the aggression that should have happened sooner or later due to its short-sighted policy in Syria, Iraq and Iran. As an old saying goes: “If you dig a hole for others, you’re sure to fall in it yourself.”
A few days ago the Saudi town of Dalva, situated in the oil-rich Eastern Province, suffered an attack of a group of armed Sunni terrorists, which resulted in seven civilian deaths. Most of the attackers were citizens of the Kingdom. The promt response of the local security forces allowed the servicemen to detain 20 members of an underground terrorist group, consisting mainly of those who had previously fought under the black banner of ISIL in Iraq and Syria. Law enforcement agencies of Saudi Arabia have managed to capture the head of the armed group, his name is kept secret. The only information that has become available to journalists is that this commander has recently returned from Syria where he was fighting against the pro-Assad forces.
Riyadh is now facing a harsh dilemma: on the one hand, the House of Saud is actively oppressing its Shia citizens, on the pretext of their disloyalty and their alleged attempts to undermine the national security of the kingdom due to the “evil Iranian influence.” On the other – Sunni terrorists, that Saudi Arabia is fighting today alongside with its closest ally – the US, have assaulted Shia civilians on the Saudi soil, and those were virtually enjoying the same rights as the rest of the population, including the right for protection. It is now official: Saudi citizens motivated by religious hatred are commiting manslaughter of their fellow citizens.
The only question is how Riyadh may react when the Sunni terrorists that it had trained and funded will unleash a wave of terror against the Shia population of KSA? A similar course of events has already taken place in the neighboring Bahrain back in 2011, but Saudi regular troops were fast to cross the border in an attempt to prevent the violence from spreading.
It is no coincidence that the events in the city of Dalva are completely ignored by the international media. Should this fact become widely known then the Saudi authorities will be forced to recognize the threat ISIL poses to Saudi Arabia along with acknowledging the underlying instability of Saudi society that can endanger the ruling Wahhabi regime.
Now that the Shia population of the Eastern Province is buzzing with discontent, the House of Saud has found itself in a tight corner. Should the authorities fail to prosecute the terrorists a violent unrest of the Shia population, similar the one that shook Saudi Arabia in 2011 -2012, in the wake of the above mentioned events in Bahrain, will be quick to follow. But if the terrorists are to be punished to the fullest extent of the Sharia law, then the Wahhabis and Salafis will accuse the royal family of “betrayal” of the Sunnis. This course of events will end no better, with a massive wave of violent terror attacks, carried out by ISIL militants all across Saudi Arabia. Now that ISIL thugs have faced harsh resistance in Syria and Iraq, they will be eager to move south to start a “sacred struggle against the corrupt pro-American reign of Al Saud family“. As for the Iraqi Shia population, they can only welcome this U-turn in their ongoing struggle against Islamists. Moreover, it is possible that the indignation of the Saudi Shia population of the Eastern Province will find some form of support in Tehran and Baghdad. This means that the fate of the kingdom’s territorial integrity will be put to the test. The nightmares of the Saudi ruling family seems to be coming true — Saudi Arabia can be split into several parts, which had been joined together to create the kingdom back in 1929. This trend can be accelerated by the fact that a couple of weeks ago the Shia Houthis rebels seized power in Yemen, on the south-western borders of the KSA.
When Riyadh joined the US “anti-terrorist” coalition back in October, along with a number of NATO and GCC countries, political predicted the imminent revenge of ISIL.
So the events of November 4 may only be the first steps. On top of all, Saudi authorities have yielded to the US demands of dumping oil prices in an attempt to undermine Russia’s economy. This led to the narrowing scope of social initiatives being implemented in the Kingdom, since money became scarce in the royal treasury.
By agreeing to support the US global ambitions, the House of Saud has clearly shot itself in the foot. Especially now, when Washington has displayed its willingness to sign an agreement on Iran’s nuclear program in two weeks time. This step will force Saudi Arabia to kiss it oil monopoly goodbye along with the role of the main strategic partner of the US in the region. At this point Riyadh couldn’t care less about the US military adventures in Iraq and Syria, it going to try to save its skin
It is clear that the coming days will put the Al-Saud dynasty’s survival skills to the test. Should the KSA authorities fail to keep the situation in the Eastern Province under control — the Kingdom is doomed. With each passing day the Shiite arc becomes more apparent on the political horizon of the Middle East, just like the US miscalculations.
As soon as Washington is trying to project its influence in the region, the Arab regimes are beginning to crumble and fall apart. One can recall the revolutions in Egypt, Libya, Yemen, along with the civil wars in Syria and Iraq to illustrate this statement.
It is now safe to say that Obama has screwed everything up again by putting its strategic partner in danger. It seems that the defeat in the US midterm elections was a failure all right, yet he never stops to surprise his followers. And it is unlikely that the Republicans will be fascinated by the sight of Saudi Arabia going down in flames.
Viktor Titov, Ph.D in Historical Sciences and political commentator on the Middle East, exclusively for the online magazine New Eastern Outlook
by Tyler Durden on 11/03/2014 23:42
Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.
The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, “developed world” status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today’s FT, why China’s Renminbi offshore market has gone from nothing to billions in a short space of time.
And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.
As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.
A consequence of this year’s dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.
This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.
But no more: “this year the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”
In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.
According to BNP, Petrodollar recycling peaked at $511 billion in 2006, or just about the time crude prices were preparing to go to $200, per Goldman Sachs. It is also the time when capital markets hit all time highs, only without the artificial crutches of every single central bank propping up the S&P ponzi house of cards on a daily basis. What happened after is known to all…
“At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out,” said David Spegel, global head of emerging market sovereign and corporate Research at BNP.
Spegel acknowledged that the net withdrawal was small. But he added: “What is interesting is they are draining rather than providing capital that is moving global liquidity. If oil prices fall further in coming years, energy producers will need more capital even if just to repay bonds.”
In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.
Which is hardly great news: because in a world in which central banks are actively soaking up high-quality collateral, at a pace that is unprecedented in history, and led to the world’s allegedly most liquid bond market to suffer a 10-sigma move on October 15, the last thing the market needs is even less liquidity, and even sharper moves on ever less volume, until finally the next big sell order crushes the entire market or at least force the [NYSE|Nasdaq|BATS|Sigma X] to shut down indefinitely until further notice.
So what happens next, now that the primary USD-recycling mechanism of the past 2 decades is no longer applicable? Well, nothing good.
Here are the highlights of David Spegel’s note Energy price shock scenarios: Impact on EM ratings, funding gaps, debt, inflation and fiscal risks.
Whatever the reason, whether a function of supply, demand or political risks, oil prices plummeted in Q3 2014 and remain volatile. Theories related to the price plunge vary widely: some argue it is an additional means for Western allies in the Middle East to punish Russia. Others state it is the result of a price war between Opec and new shale oil producers. In the end, it may just reflect the traditional inverted relationship between the international value of the dollar and the price of hard-currency-based commodities (Figure 6). In any event, the impact of the energy price drop will be wide-ranging (if sustained) and will have implications for debt service costs, inflation, fiscal accounts and GDP growth.
Have you noticed a reduction of financial markets liquidity?
Outside from the domestic economic impact within EMs due to the downward oil price shock, we believe that the implications for financial market liquidity via the reduced recycling of petrodollars should not be underestimated. Because energy exporters do not fully invest their export receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find their way back into bank deposits (fuelling the loan market) as well as into financial markets and other assets. This capital has helped fund debt among importers, helping to boost overall growth as well as other financial markets liquidity conditions.
Last year, capital flows from energy exporting countries (see list in Figure 12) amounted to USD812bn (Figure 3), with USD109bn taking the form of financial portfolio capital and USD177bn in the form of direct equity investment and USD527bn of other capital over half of which we estimate made its way into bank deposits (ie and therefore mostly into loan markets).
More ( here )
And so on, but to summarize, here are the key points once more:
- The stronger US dollar is having an inverse impact on dollar-denominated commodity prices, including oil. This will affect emerging market (EM) credit quality in various ways.
- The implications of reduced recycled petrodollars has significant ramifications for financial markets, loan markets and Treasury yields. In fact, EM energy exporters will post their first net drain on global capital (USD8bn) in eighteen years.
- Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds. For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution to reserves of oil and gas-related export receipts. Together, these will have a significant effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing risks and credit ratings.