by ilene - March 7th, 2014 9:18 am
Submitted by Tyler Durden.
We have discussed the sword of Damocles that is hanging over the heads of the Ukrainian (and European for that matter) people for some time. The dominant role that Russia plays in providing energy is becoming critical, however, as Gazprom notes:
- *GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
- *NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES: GAZPROM
- *GAZPROM SAYS NAFTOGAZ ISN'T OBSERVING CONTRACT
- *GAZPROM: UKRAINE DEBTS CREATE 'RISK OF RETURN TO SITUATION AT BEGINNING OF 2009' (when Gazprom cut off Ukraine gas supplies)
Of course, the US agreed to $1b bailout yesterday – but that's not supposed to be used as a direct transfer payment to the Russians
The debt that Ukraine's Naftogaz Ukrainy owes for Russian natural gas has risen to $1.89 billion, Gazprom CEO Alexei Miller told journalists.
"In fact, this means that Ukraine has stopped paying for gas," Miller said.
"This is completely at odds with the provisions of the contract and international trade practice. For our part, we have always met and will meet our contractual obligations. But we can't supply gas free of charge. Either Ukraine repays its debt and pays for current deliveries or the risk of returning to the situation at the beginning of 2009 will appear. We will notify the Russian government concerning the situation that is taking shape," Miller said.
"Today, March 7, was the payment deadline for February's deliveries of gas to Ukraine. Gazprom has not received payment on the debt. Including the price discount in effect in the first quarter, the overdue debt for gas has increased significantly and now totals $1.890 billion," he said.
It would appear this is the most important map in Europe once again…
and what happened in 2009…
Gazprom demanded a price hike to $400-plus from $250, Kiev flatly refused, and on New Year's day 2009, Gazprom began pumping only enough gas to meet the needs of its customers beyond Ukraine.
Again, the consequences were marked. Inevitably, Russia accused Ukraine of siphoning off supplies meant
by ilene - March 7th, 2014 7:05 am
Courtesy of Larry Doyle.
I inadvertently overlooked a recent commentary written by a Sense on Cents favorite, Simon Johnson, that ran at Project Syndicate.
Johnson writes a fabulous piece entitled Truth From the Top highlighting the work of former Fed governor Thomas Hoenig about just how fragile our banking system truly is and how the politics of promoting the ‘too big to fail’ model have persisted. Let’s navigate.
It is unusual for a senior government official to produce a short, clear analytical paper. It is even rarer when the official’s argument both cuts to the core of the issue and amounts to a devastating critique of the existing order.
In a speech delivered on February 24, Thomas M. Hoenig, Vice Chairman of America’s Federal Deposit Insurance Corporation (FDIC), did exactly that. These four pages are a must-read not only for economic policymakers around the world, but also for anyone who cares about where the global financial system is heading.
Hoenig, former President of the Federal Reserve Bank of Kansas City, has spent his career working on issues related to financial regulation. He communicates effectively to a broad audience – and understanding the technicalities of finance is not needed to grasp his main points.
One of those points is that the world’s largest financial firms have equity that is worth only about 4% of their total assets. As shareholders’ equity is the only real buffer against losses in these corporations, this means that a 4% decline in their assets’ value would completely wipe out their shareholders – taking the companies to the brink of insolvency.
In other words, this is a fragile system. Worse, the current regulatory treatment of derivatives and of funding for large complex financial institutions – the global megabanks – exacerbates this fragility. Perhaps we are moving in the right direction – that is, toward greater stability – but Hoenig is skeptical about the pace of progress.
As he points out, the relevant studies show that the megabanks receive large implicit government subsidies, and this encourages them to stay big – and to take on a lot of risk. In principle, such subsidies are supposed to be phased out through measures being taken as a result of the 2010 Dodd-Frank financial-reform legislation. In practice, these subsidies – and the politics that makes them possible
by ilene - March 7th, 2014 12:56 am
Courtesy of SoberLook
1. The ISM non-manufacturing PMI came in at the lowest level in years.
The detail behind the decline shows the big hit to employment in the service sector, which is what we see in the ADP private payrolls today.
2. The Markit PMI measure paints a similar picture.
Markit: – Adjusted for seasonal influences, the final Markit U.S. Services PMI™ Business Activity Index dipped sharply to 53.3 in February, from 56.7 in the previous month. Although the index was above the 50.0 no-change mark and signalled a solid pace of expansion, the latest reading was the lowest since October 2013 [US government shutdown]
Most analysts blame this weakness in the service sector and the resulting softness in the labor markets on the weather.
ISI: - There’s hardly a lamer excuse than weather, but that’s probably the case for ADP’s +139k for Feb. It presents downside risk to our best guess for payroll employment of +185k.
Markit: – With the exception of last October, when the government shutdown hit the economy, the service sector grew at its slowest rate since March of last year. This time, the extreme weather was to blame for the slowdown.
If that is indeed the case, as temperatures cimb, we should see a material rebound in service oriented businesses and therefore some big improvements in the jobs picture later this spring. That would mean more Fed taper and higher yields.
by ilene - March 7th, 2014 12:54 am
Courtesy of SoberLook.com
1. Shanghai Chaori Energy Science and Technology is about to miss a coupon payment on its bond (see story).
2. As a result, Suining Chuanzhong Economic Technology Development and 2 other companies scrapped their bond offerings – demand for new issue corporate bonds has dried up.
3. Secondary corporate bond trading has also slowed materially. This is fairly new for China since it has never really experienced large scale credit problems in its nascent bond markets.
4. There are indications that banks are cutting back lending as a result. In particular lines have been cut to natural resource wholesalers, traders, and importers (iron ore, steel, cement, etc.). These borrowers in turn are forced to sell inventory that is ofren used as collateral for these loans. Inventory sales depress prices of some of the raw materials, generating further losses for these businesses. This is compounded by the nation's slack industrial demand, with steel mills now running at 50-70% of capacity.
|Iron ore April futures contract (source: barchart).|
5. With banks cutting back on lending, demand for interbank funding fell materially, sharply lowering China's money market rates. Both 7-day repo and the 1-week SHIBOR are at lows not seen in quite some time. While lower money market rates are good for banks, at this point there is ample liquidity in the system with far less demand.
|7-day repo rate (source: chinamoney)|
|1 week SHIBOR|
These developments are quite negative for China's economy. Confidence in the nation's credit markets – both bank lending and corporate bonds – has taken a hit. It remains unclear however just how pervasive these problems could become – some think this is just the tip of the iceberg (see story).
It’s So Cold … Polar Bears Taken Inside; Hundreds of Students Arrested Protesting Keystone Pipeline; Global Warming or Global Cooling?
by ilene - March 6th, 2014 9:51 pm
Courtesy of Mish.
Seriously misguided students are up in arms over the possible revival of the Keystone Pipeline project from Canada to the US. Their concern is greenhouse gas and global warming.
The notion that global warming is caused by man-made greenhouse gasses is questionable enough. The globe has gone through periods of glaciation and melting over hundreds of millions of years. Scientists think they can model changes over a period of hundreds or thousands of years when even 100,000 years may be insufficient.
Anything that happened in the last 100 or 1,000 years can be nothing more than a random fluctuation given the million-year cycles in play.
Trilobite Mass Extinction
I have a fossil of a trilobite on my desk.
They are now extinct, wiped out in a mass extinction about 250 million years ago. Trilobites flourished for 270 million years before that.
Climate change may have been a cause of extinction. Rest assured it was not man-made. Nor could there have been a man-made solution.
It’s So Cold … Polar Bears Taken Inside
To pretend we can track global warming over the last 100 years and attribute that to man-made global warming is ludicrous.
Indeed, scientists are now scrambling to explain why there has been global cooling for the last 17 years.
Global warming is nowhere to be found. The mean global temperature has not risen in 17 years and has been slowly falling for approximately the past 10 years. In 2013, there were more record-low temperatures than record-high temperatures in the United States.
At the end of the first week in January, a brutal spell of cold weather settled over most of the country. Multiple cold-temperature records were shattered across the country. Some sites experienced frigid conditions not seen since the 19th century. Chicago and New York City broke temperature records set in 1894 and 1896, respectively. These extremes were not singular, but exemplary of conditions throughout much of the continent. Temperatures in Chicago were so cold that a polar bear at the Lincoln Park Zoo had to be taken inside.
by ilene - March 6th, 2014 8:58 pm
Submitted by Tyler Durden.
Core inflation, which excludes the effect of food and energy prices and is how every self-respecting economist measures price increases, is up 8.75% over the past five years. However, as ConvergEx's Nick Colas notes, this is a poor indicator for the true cost of living for many Americans.
Having scrubbed the data, Colas has found the top 10 items that appreciated the most from 2008 to 2013 and the 10 items that became substantially less expensive, according to the government's Consumer Price Index (CPI). The data is deceiving though, as the CPI's "hedonic quality adjustment" distorts the amount of money people actually spend. Even more importantly, Colas warns, things that have a relatively low weighting in the CPI and that people use selectively – such as healthcare and education – don't have a big impact on the core number, but represent considerable expenses for many Americans. Thus we must use caution when using one figure to make policy decisions for an entire nation, and consider what happens to inflationary expectations if and when the still-sluggish economic recovery finally finds second gear.
Via ConvergEx's Nick Colas,
Note from Nick: For something that policymakers essentially think is a non-issue, we regularly get more questions about inflation than any other economic topic. The most common observation is that “Real world” prices are rising far faster than the benign CPI readings used by the Federal Reserve to make decisions about interest rate policy. Moreover, Treasury prices – essentially the market’s take on future inflation – may not be telling the whole story due to continued risk aversion among some investors. Today Beth takes on the topic head on, looking at how the CPI gets calculated and why so many Americans are losing faith in this index as a measure of inflation.
I can easily go through Costco’s 4-pound “family pack” of bacon in a week; nowadays it goes on and in everything – cupcakes, ice cream, muffins, scallops… and best of all smothered in brown sugar and baked to candied bacon perfection. But fellow bacon lovers beware. In the past five years the price of bacon has jumped more than 32%, according to the Consumer Price Index (CPI). This places it at number seven on our list…
by ilene - March 6th, 2014 8:44 pm
Courtesy of Michael Snyder of The Economic Collapse
Is the U.S. economy steamrolling toward another recession? Will 2014 turn out to be a major "turning point" when we look back on it? Before we get to the evidence, it is important to note that there are many economists that believe that the United States never actually got out of the last recession. For example, data compiled by John Williams of shadowstats.com show that the U.S. economy has continually been in recession since 2005.
So if anyone out there would like to argue that America is experiencing a recession right now, I certainly would not have a problem with that. In fact, that would fit with the daily reality of tens of millions of Americans that are deeply suffering in this harsh economic environment. But no matter whether we are in a "recession" at the moment or not, there are an increasing number of indications that we are rapidly plunging into another major economic slowdown. The following are the top 12 signs that the U.S. economy is heading toward another recession…
#1 We recently learned that the number of new mortgage applications in the United States had fallen to the lowest level that we have seen in nearly 20 years.
#4 Obamacare is really starting to hammer the U.S. health care industry…
"The Affordable Care Act is creating significant financial uncertainty to health care organizations," said a survey respondent from the health care and social assistance industry.
"With little warning, the negative impact on revenue has been unprecedented."
by ilene - March 6th, 2014 5:52 pm
Courtesy of Lance Roberts of STA Wealth Management
Earlier this week I discussed the expectations for an increase in reported earnings of 50% over the next two years:
"Currently, according to the S&P website, reported corporate earnings are expected to grow by 20.26% in 2014, and by an additional 20.28% in 2015. In total, reported earnings are expected to grow by almost 50% ($100.28/share as of 2013 to $147.50/share in 2015) over the next two years."
However, as I also noted, the rise in corporate profitability has come from accounting magic and cost cutting along with a healthy dose of share buybacks. Since there is "no free lunch," the drive for greater corporate profitability has come at an economic expense. Since 1999, the annual real economic growth rate has run at 1.94%, which is the lowest growth rate in history including the "Great Depression." I have broken down economic growth into major cycles for clarity.
As I discussed previously:
"Since 2000, each dollar of gross sales has been increased into more than $1 in operating and reported profits through financial engineering and cost suppression. The next chart shows that the surge in corporate profitability in recent years is a result of a consistent reduction of both employment and wage growth. This has been achieved by increases in productivity, technology and offshoring of labor. However, it is important to note that benefits from such actions are finite."
The latest report on unit labor costs and productivity produced the following two charts which underscore this point and suggests that the current rate of economic growth is unlikely to change anytime soon.
I stated previously, that in in 2013 reported earnings per share for the S&P 500 rose by 15.9% to a record of $100.28 per share. Importantly, roughly 40% of that increase occurring in the 4th quarter alone. The chart of real, inflation adjusted, compensation per hour as compared to output per hour shows a likely reason why this occurred. The sharp increase in output per hour combined with the sharp decline in compensation costs is a direct push to bottom line profitability.
by ilene - March 6th, 2014 5:49 pm
In a bizarre twist to a very unusual story, California man Dorian Satoshi Nakamoto has reportedly denied being the found of Bitcoin.
This is according to a tweet from LA Times Deputy Business Editor Joe Bel Bruno, who says he is currently following Nakamoto with a crowd of reporters.
In a feature for Newsweek today, reporter Leah McGrath Goodman said that she had contacted the man behind Bitcoin, the controversial digital currency. Her investigation led to a 64-year-old Japanese-American father of six, who lives in a single-family home in Southern California.
Nakamoto, who had been holed up in his house, emerged this afternoon to a swarm of reporters including Bruno. Nakamoto's denial apparently came as he tried to flee from the reporters.
Here's Bruno's tweet.
Blank Check Proposal for More Tax Hikes Heads for Illinois Legislature; Picking-Your-Pocket Numbers: How Much More Will You Pay?
by ilene - March 6th, 2014 5:46 pm
Courtesy of Mish.
Currently Illinois state constitution requires a flat tax on income. Even with the flat tax, Democrats have hiked taxes again and again, on individuals and corporations.
The results speak for themselves – Illinois population is shrinking. Illinoisans exited the state for Indiana, Wisconsin, and Texas.
For details please see Jobs Bowl: Illinois vs. Texas and Indiana.
Blank Check Proposal for More Tax Hikes
Not content with the damage they have already caused, “Progressives” want even more. Now they want to modify the Illinois constitution to take more out of your pocket.
Via email from Kristina Rasmussen at the Illinois Policy Institute …
Legislators are being asked to consider a constitutional amendment that would replace Illinois’ flat income tax with a progressive tax, sometimes referred to as “graduated” or “variable rate” tax. Others incorrectly call it a “fair tax” – but it is nothing of the sort.
What exactly should these families cut from their household budget to make room for more government? The mortgage payment? Food? Utilities? Retirement savings?
Proponents of a progressive tax hike are deliberately misleading the public by pretending that the current income tax rate of 5 percent, which reverts to 3.75 percent at the end of 2014, continues on in perpetuity.
Of course, the proponents of a tax hike are not interested in an honest policy discussion. They want to minimize perceived costs to deceive voters. The easiest way to do that is to pretend that current law doesn’t give every Illinoisan real tax relief next year.
We won’t let them get away with this illusion.
One thing is for sure: Regardless of the final rate-and-bracket structure, a progressive tax will slam communities like those within DuPage County. This is because they’re “rich” relative to other areas in Illinois in the same way that the owner of a Honda Accord is “rich” compared to the owner of a Ford Focus….