Month: June 2016

Over three years ago we wrote “At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World” in which we introduced a bank few until then had imagined was the riskiest in the world.

As we explained then “the bank with the single largest derivative exposure is not located in the US at all, but in the heart of Europe, and its name, as some may have guessed by now, is Deutsche Bank. The amount in question? €55,605,039,000,000. Which, converted into USD at the current EURUSD exchange rate amounts to $72,842,601,090,000….  Or roughly $2 trillion more than JPMorgan’s.”

 

So here we are three years later, when not only did Deutsche Bank just flunk the Fed’s stress test for the second year in a row, but moments ago in a far more damning analysis, none other than the IMF disclosed that Deutsche Bank poses the greatest systemic risk to the global financial system, explicitly stating that the German bank “appears to be the most important net contributor to systemic risks.”

Yes, the same bank whose stock price hit a record low just two days ago.

Here is the key section in the report:

Domestically, the largest German banks and insurance companies are highly interconnected. The highest degree of interconnectedness can be found between Allianz, Munich Re, Hannover Re, Deutsche Bank, Commerzbank and Aareal bank, with Allianz being the largest contributor to systemic risks among the publicly-traded German financials. Both Deutsche Bank and Commerzbank are the source of outward spillovers to most other publicly-listed banks and insurers. Given the likelihood of distress spillovers between banks and life insurers, close monitoring and continued systemic risk analysis by authorities is warranted.

 

Among the G-SIBs, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.

The IMF also said the German banking system poses a higher degree of possible outward contagion compared with the risks it poses internally. This means that in the global interconnected game of counterparty dominoes, if Deutsche Bank falls, everyone else will follow.

Notwithstanding moderate cross-border exposures on aggregate, the banking sector is a potential source of outward spillovers. Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country. 

The IMF concluded that Germany needs to urgently examine whether its bank resolution, i.e., liquidation, plans are operable, including a timely valuation of assets to be transferred, continued access to financial market infrastructures, and whether authorities can ensure control over a bank if resolution actions take a few days, if needed, by imposing a moratorium:

Operationalization of resolution plans and ensuring funding of a bank in resolution is a high priority. The authorities have identified operational challenges (e.g., the timely valuation of assets to be transferred, continued access to financial market infrastructures) and are working to surmount them. In some cases, actions to effect resolution may require a number of days to implement, and the authorities should ensure they can maintain control over the bank during this period, including by using their powers to impose a more general moratorium for a specific bank.

Here is the IMF’s chart showing the key linkages of the world’s riskiest bank:

 

And while DB is number 1, here are the other banks whose collapse would likewise lead to global contagion.

Considering two of the three most “globally systemically important”, i.e., riskiest, banks just saw their stock price scrape all time lows earlier this week, we wonder just how nervous behind their calm facades are the executives at the ECB, the IMF, and the rest of the handful of people who realize just close to the edge of collapse this world’s most riskiest bank (whose market cap is less than the valuation of AirBnB) finds itself right now.

Source

via http://ift.tt/29r3Exh Tyler Durden

Submitted by David Stockman via Contra Corner blog,

Talk about not waiting for the body to get cold. The establishment oracles are out in force today proclaiming that Brexit has already been cancelled. Apparently, like in the case of the first negative vote on TARP, two days of currency and stock market turmoil have taught the rubes who voted for it the errors of their ways.

The argument is that the unwashed masses outside of Greater London have shot themselves in the foot economically based on some atavistic fears of immigrants and cultural globalization. Racism even.

But those are just momentary emotional outbursts. Right soon they will get back to where their bread is buttered, and demand a second referendum in order to re-board the EU’s purported economic gravy train.

Thus, Gideon Rachman, one of the Financial Times’ numerous globalist scolds, professed that his depression about the Brexit vote has already given way to a worldly vision of relief:

But then, belatedly, I realised that I have seen this film before. I know how it ends. And it does not end with the UK leaving Europe.

 

Any long-term observer of the EU should be familiar with the shock referendum result. In 1992 the Danes voted to reject the Maastricht treaty. The Irish voted to reject both the Nice treaty in 2001 and the Lisbon treaty in 2008.

 

And what happened in each case? The EU rolled ever onwards. The Danes and the Irish were granted some concessions by their EU partners. They staged a second referendum. And the second time around they voted to accept the treaty. So why, knowing this history, should anyone believe that Britain’s referendum decision is definitive?

But of course Rachman’s dismissive meme is exactly why Brexit happened. The international financial apparatchiks, who have been controlling the levers of power at the central banks, finance ministries and supra-national official institutions for several decades now, have become so accustomed to not taking no for an answer that they can’t see the handwriting on the wall.

To wit, the rubes are feed up and are not going to take it anymore. In voting to flee the domineering EU superstate domiciled in Brussels, they saw right through and properly dismissed the establishment’s scary bedtime stories about the economic costs.

After all, the UK is a net payer of $10 billion per year in taxes into the EU budget and gets an economically wasteful dose of continental style regulatory dirigisme in return. And that is to say nothing of the loss of control at its borders and the de facto devolution of its law-making powers and judicial functions to unelected EU bureaucracies.

At the same time, increased trade is generally a benefit, but it is not one that requires putting up with the statist tyranny of the EU. That’s because the EU-27, and especially Germany, need the UK market for their exports far more than the other way around.

So after Brexit is triggered, the EU will come to the table for a new trade arrangement with the UK because these faltering socialist economies desperately need the exports. At the same time, the British negotiators will be free for the first time to seek more advantageous trade arrangements with the US, Canada, Australia and others.

It doesn’t take too much investigation to see that the UK has come out on the short end of the trade stick. And contrary to globalist apologists——-persistent and deepening trade deficits are a big problem. If coupled with a weakening savings rate, they mean that a country is getting ever deeper into international debt.

The UK economy exhibits that dual disability to a fare-the-well. Its current account has been plunging further into the red for 20 years. At 5% of GDP its current account deficit—-which includes the favorable benefits of service exports from the City of London and earnings on foreign investments—-is among the highest in the DM world.

To put it bluntly, the UK is slowly going bankrupt.

Moreover, the source of the abysmal overall current account trend shown above is absolutely attributable to its one-sided trade imbalance with the EU-27. As shown in the graph below, its EU deficit has been widening ever since 2000, while its trade surplus with the rest of the world has actually been steadily growing.

This point is not about mercantilism. The bilateral balance with any particular country or trading bloc does not ultimately matter if the overall current account trend is healthy.

Instead, the point is that the EU-27 needs British markets to the tune of a net $65 billion surplus annually. And more than half of that surplus is attributable to Germany, which earns upwards of 40% of its trade surplus with the rest of the EU from the UK.

Continuation of an open trade arrangement, therefore, does not require the sacrifice of British democracy and home rule to the statist overlords of Brussels; it only requires a trade deal that provides mutual economic benefits and no entangling engagements with the socialist infrastructure of the continent.

These negative trade trends are not ameliorated by a domestic savings frenzy that could finance the outflow in a healthy manner. To the contrary, the British household savings rate has been heading dangerously south for the last quarter-century.

Domestic savers are not financing the UK’s current account; foreign lenders and central banks are.

The same is true of the public sector. The UK has run chronic, deep budget deficits since the early 1990s. Since then, its public debt to GDP ratio has soared from 35% to nearly 85%.

These data make crystal clear, of course, that the UK has a giant problem of living far beyond its means, and that all of the leftist kvetching about the conservative government’s so-called “austerity” policies is a lot of political balderdash.

In fact, the Cameron government has buried British taxpayers in debt, even as it proclaimed its adherence to fiscal rectitude. As is evident from the chart, the only reduction in the spending share of GDP on its watch is due to the end of the global recession. At nearly 44%, state outlays still take a larger share of the economic production than they did under the Labour governments which preceded.

Here’s the point. Staying in the EU can not help ameliorate the UK’s real economic and fiscal problems in the slightest. What it needs is lower taxes, less welfare, and a dramatic reduction of government regulatory intervention. These are not policy directions that stir the juices in Brussels.

So today’s noisy meme that the Brexit voters have done themselves irreparable economic harm is patent nonsense. By contrast, whether they fully understood it or not, they have liberated the UK from what will be the economic disaster of “more Europe”.

Indeed, if there ever was a phrase that encapsulated the idea of an incendiary contradiction, “more Europe” is surely it. What it means to the French and Mediterranean Left is debt mutualization and a common treasury from which to expropriate German prosperity.

By contrast, to the Germans it means the imposition of ever more onerous EU fiscal controls so that it can continue to kick the can of its giant liabilities for the EU bailouts and the ECB’s “Target2” balances down the road.

These German exposures are enormous——with upwards of $75 billion already drawn on the ESM and EFSF bailout funds and Target2 balances of $700 billion at the present time.

Indeed, the latter is a ticking financial bomb and the real reason that Germany’s historic monetary orthodoxy has given way to Draghi’s money printing madness. To wit, Germany cannot afford to permit the euro and ECB’s central banking system to blow-up.

As a consequence, Germany has acquiesced in an insane fiscal transfer system conducted by the ECB in the guise of monetary policy.

But Draghi’s $90 billion per month rate of QE purchases is really not about “low-flation”, private sector credit stimulation, job growth or any of the other macroeconomic variables, anyway. To the contrary, its not so hidden purpose is to flat-out monetize the debt of Italy, Spain, Greece, Portugal, France and the rest of the bankrupts at negligible interest rates, thereby gifting them with deeply subsidized cost of carry on their massive public debts.

Needless to say, these Draghi confected bond rates could never be remotely attained in an honest bond market. Yet they are absolutely necessary to maintain the charade of fiscal solvency in these woebegone practitioners of welfare state socialism.

So the doomsday machine rolls on. Currently Greece’s Target2 balance is negative $100 billion, while Spain’s is negative $325 billion and Italy’s is negative $300 billion. In short, the rest of the EU-18 owes Germany so much that permitting any country to leave is unthinkable in Berlin.

The call for “more Europe”, therefore, does not arise from cosmopolitan enlightenment, as the mainstream media avers; it is a desperate gambit to keep alive an utterly flawed and contradiction-ridden monetary, fiscal and political union that never should have been concocted in the first place, and that is now several decades past its “sell by” date.

By the same token, the forces of Brexit and their populist counterparts throughout the continent are not simply an instance of the rubes venting nationalistic, xenophobic, racist and other dark impulses. To the contrary, the rubes simply want their governments back, and in that impulse they are on the right side of history.

The truth is, it is the “European Project” which represents the darker impulses. The Brussels/Frankfurt rule of the financial elite has little to do with free trade or the maintenance of peaceful relationships among the states of Europe, and nothing at all to do with furthering capitalist prosperity.

Instead, it is a tyranny based on a muddled brew of globalism, statism, financialization and the cult of central banking. It’s days are numbered because even the rubes can see that it doesn’t work, and that its massive internal contradictions are heading for a spectacular implosion.

The British voters have decided to get out of harms’ way. Hopefully, there will soon be many other cases of the rubes in revolt.

via http://ift.tt/295xQPV Tyler Durden

“If Brexit is used as an excuse, the central banks will print more money, QE4 in the U.S. is on the way and the depreciation in the purchasing power of currencies will continue,” warned a vociferous Marc Faber said in a Bloomberg TV interview today from Hong Kong. 

"In that situation, you want to own some gold," he explained, carefully noting that central planners will be forced into this move because, despite all their extreme experimentation, "global growth has contracted, in other words, growth rates have been reduced and many countries are in recession already."

This has nothing to do with Brexit, stated the Gloom, Boom & Doom Report editor, "Brexit is actually not about an end of globalization. On the contrary, it’s about people that rebel against the arrogant elite in the financial centers."

Full Interview:

 

Excerpted Transcript…

On supporting "Leave" in the Brexit campaign…

Yes.  Well, first of all, I'm Swiss, so I'm the wrong person to ask, you see.  We have a constitution, and already in 1291, in other words, in the 13th century, we swore that we would not pay taxes to a foreign leader and we would never accept foreign judges, and that's basically what European countries have done.  They transferred their sovereignty to essentially unelected bureaucrats in Brussels. 

 

And I believe that countries function better if they're small countries.  I always believed the U.S. would be a better functioning economy if it would consist of say 50 different states.  There's just one federal government running the place.

On the stock market's rebound post-Brexit…

Basically, we became very oversold the day before yesterday, and now we are rebounding.  I don't think markets, by and large, will make new highs.  But you understand, we have to be very careful when we talk about markets because there's so many different markets.  So this year, for instance in dollar terms, Brazil us up 30 percent.  The S&P is still down.  Thailand is up close to 15 percent this year, Vietnam, 9 percent, Indonesia, the Philippines, 11 percent.  So depending on which market you're talking, the performance is very different.  The bond market over the last twelve months and this year has been very strong.  Gold share market, all the gold shares are up 100 percent or more over the last 6 months, so we have to look at different sectors and we'll have to look at different countries.

On Global growth…

 Well, global growth has contracted — in other words, the growth rates have been reduced, and many countries are in recession already.  That has nothing at all to do with Brexit. 

 

The global economy has begun to slow down 18 months ago.  The U.S. economy began to slow down at the end of 2014.  That's why bonds have been so strong in 2015, because the bonds market knew the economy was weakening. 

On what happens next?

[A UK recession] is possible — but it could be possible that it would be in recession without Brexit, in other words, if they had remained in the E.U.  Growth has slowed down everywhere and I'm telling you why.  Basically, the growth that we had post-2009 has been very artificial.  It's been driven by money printing by central bankers that lifted asset prices.  And when asset prices, stocks and bonds and real estate, goes up, there's the so-called trickle down effect.  And Brexit is actually not about an end of globalization.  Quite on the contrary.  It's about people that rebel against the arrogant elite in the financial centers. 

 

Because if you go to England, London is doing well.  The financial sector in London is doing well.  The asset economy is doing well.  But ordinary people aren't doing well.  It's the same in Hong Kong.  Why did we have demonstrations here?  The people that owned the assets, like you and me, were doing well, for people that work at Bloomberg.  But ordinary people, they're not doing well.  The cost of living have gone up.  Look at the rents and the rest.  So there is dissatisfaction with the system, and this is what the vote is about.  And I believe it would be better if the arrogant bureaucracy in Brussels would be contained and reduced in size.

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By the SRSrocco Report,

This could be the year that the mainstream investor finally pushes the gold market over the edge.  While a fraction of investors continue to acquire a lot of physical gold, the mainstream investor is the key to driving the gold market and price going forward.

Why?  Because the diehard precious metal investors don’t have the sort of leverage as do the mainstream investors, which account for 99% of the market.  I have stated several times in articles and interviews that it will be the surge of gold buying by the mainstream investor that will finally overwhelm the gold market.

This next chart shows just how much leverage the mainstream investor has on the gold market.  When the Dow Jones Index fell a lousy 2,000 points during the first quarter of 2016, mainstream investors flooded into Gold ETF’s & Funds.  This continued into the second quarter, including the surge in buying after the BREXIT “Leave Vote” this past Friday:

According to the data put out by Nick Laird at Sharelynx.com, total transparent global gold holdings increased nearly 20 million oz (Moz) since the beginning of 2016.  Nearly half of that figure, 9.7 Moz (supposedly) went into the GLD ETF.  This is an amazing amount of gold as it represents 41% of total global mine supply.

For those investors who don’t trust the amount of gold backing these Gold ETF’s, I don’t either.  However, I could care less if the GLD has all the gold it reports.  What is more important is the mainstream investor LEVERAGE on the market and price.  This is the Key.

This next chart shows the annual net flows of gold into ETF’s & Funds:

The record amount of flows into Gold ETF’s & Funds took place in 2009.  The majority of the 645 metric ton (mt) figure took place during the first quarter of 2009 when the broader markets were crashing to their lows.  In Q1 2009, a record 465 mt of gold flooded into Gold ETF’s & Funds that quarter, accounting for 72% of the year’s total.

I explain this phenomenon in more detail in my Bullet Report: The Gold Report: Investment Flows

Something has seriously changed in the gold market this year and I believe that most investors are unaware of how explosive this shift could impact the price of the yellow metal going forward.

 

The Gold Report: Investment Flows is a digital report that provides up-to-date information on the gold market that is invaluable for analysts and investors to presently understand.

 

While many precious metals analysts publish articles that focus on individual aspects of the gold industry, this report combines all of the relevant investment flows to show how significant trend changes are now putting serious strain on global gold supply, elevating gold’s average global value.

 

CLICK HERE to read more about the GOLD REPORT.

However, the first half of 2016 is turning out to be one hell of a strong start as global gold holdings have already increased 622 mt.  Part of this amount includes an approximate 68 mt build (2.2 Moz) in the Comex Gold Inventories.  As we can see, the mainstream investor Gold ETF & Fund demand has driven flows in the first half of 2016 to 96% of the record 645 mt set in 2009.

And this was on the back of a lousy 15% correction in the broader markets in the first quarter of the year.  What happens as the BREXIT contagion continues to spread pushing the broader stock markets lower?

Again, according to the data at Sharelynx.com, an approximate $25 billion of mainstream funds went into Gold ETF’s, Funds and Exchanges in the first half of the year:

While this is most certainly a large surge of mainstream investor demand in Gold ETF’s & Funds, it’s still only a fraction of the overall market.  Matter-a-fact, the top 400 World’s Richest people lost $127 billion on Friday after the BREXIT vote to leave the European Union.

Now, what’s even more interesting than that tidbit, is that a ONE DAY loss of $127 billion by the wealthiest people could have purchased ALL of the Global Gold & Silver ETFs and Funds in the entire world.

Currently, all the Gold ETF’s & Funds are valued at $108 billion while the Silver ETF’s & Funds represent a mere $16 billion.  Thus, all the Global Gold-Silver ETF’s & Funds equal $124 billion.  Basically, the richest of the rich lost more in one day than the entire Gold & Silver ETF and Fund Market.

The British citizens voting to leave the European Union is the straw that finally breaks the CAMEL’s BACK.  It doesn’t matter if the politicians force England to stay in the EU, because the MINDSET of the public has been changed.  It’s just a matter of time before the inertia grows to a level that finally overwhelms the establishment.

I got a kick out of Zerohedge’s article today, President Of The European Parliament: “It Is Not The EU Philosophy That The Crowd Can Decide Its Fate”.  This is the epitome of FASCIST 101, where an UNELECTED Parliament can decide the fate of the British or any other European country.

We are experiencing the same thing in the United States as Donald Trump goes against the DEMO-PUBLICAN Establishment Cronies.

At some point in time, the DEBT & LEVERAGE in the system will take down the markets in a serious way, quite quickly.  If you are the 99% of Americans who believe, “You need to stay in your 401K for the long-term”, you can’t blame Wall Street when you lose it all as you had plenty of chances to WAKE UP.

Please check out our new PRECIOUS METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE page.

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In the aftermath of the successful Brexit referendum, many expected France, Italy, maybe Catalonia, and the Netherlands to demand a referendum next. Instead, the loudest call for a referendum over the weekend came from an odd source: the Niger Delta Avengers, who as we profiled recently, “hold the price of oil in their hands” by mothballing Nigerian production and exports for the past two months.

President Buhari borrow a leaf from PM David Cameron, call for a referendum and let Nigerians decides like they did to vote you into Power.

— Niger Delta Avengers (@NDAvengers) June 25, 2016

As All Africa adds,the group  which has been attacking Nigeria’s oil infrastructure since early this year  urged President Muhammadu Buhari to call the vote, in a post on Twitter at the weekend. “It’s probably not going to happen,” says Ryan Cummings, a political analyst at Signal Risk. “The Niger Delta Avengers is not the first group to agitate for a seperate state in Nigeria. It’s a common place used by other groups in the country, most notably Boko Haram itself.”

The attacks have so far cut oil production by some 600,000 barrels a day. This, and the global oil prices remaining low, has sent Nigeria’s economy into a tailspin. “[The government] should be concerned that they have a group that seems quite capable to strike targets in defiance of Nigeria’s naval capabilities,” says Chris Ngwodo, a security specialist of the region. “In my view, they should not be answering to the requests of this group, because doing so would be a signal that violence is a tool of political engagement and that would be disterous for the nation”.

 

Abuja has offered to talk with the Avengers but the militant group has denied reports it has met government representatives. The group also this weekend called for Buhari to visit the Niger delta region.

That may not be the case. According to a new note just out of Goldman, a recent tentative ceasefire between the Nigerian government and the NDA has created upside risk to local production and ownside risk to Goldman’s $50/bbl H2 price target. Here is Damien Courvalin with the details:

In a region with a history of violent interruptions, the oil infrastructure in the Niger Delta is suffering through another string of attacks by local militias. Mostly carried out by a group called the Niger Delta Avengers (NDA), these attacks likely reduced crude production by mid-June by 400 kb/d in addition to 200 kb/d of non-militia related disruptions. On June 20, the government announced a 30-day ceasefire with a number of militias including the NDA. And while the NDA commented that it “does not remember having [such] an agreement”, there have been no attacks since June 16 and on Monday June 27, the government announced that production had recovered by 200 kb/d to 300 kb/d. If sustainable, this ceasefire would pave the way for higher output, with the government optimistically aiming for a return to normal production by end-July. A normalization in production, even over several more months, would create downside risk to our $50/bbl 2H16 price forecast as it would bring the global oil market close to balance over that time period.

 

Admittedly, the path of future Nigerian production remains uncertain in the absence of a sustainable agreement and for now we cautiously continue to assume that production will be reduced by 350 kb/d in 2H16. Despite this uncertainty, it is noteworthy that the current geopolitical setup and the fiscal hit to the Nigerian government are quite similar to 2009 when the Nigerian authorities first put in place the amnesty and payments which stabilized the Delta and allowed for a sharp rise in production. With oil representing 60% of government revenues, this suggests that, while not necessarily imminent, a sustainable resolution to the current uprising is quite possible in coming months. Of course, the path to such a resolution may see further disruptions and should attacks resume and continue to target inland or shallow water fields connected to onshore terminals, we see the potential that at their peak, disruptions could reach 1.1 mb/d (vs. 0.6 mb/d in mid-June). Such a hit to production would create upside risk to our 2H16 price forecast, although the upside would continue to be limited by high global inventories and would likely accelerate a resolution of the current conflict.

 

Nigeria’s disruptions have played an important role in helping end the global oil market oversupply in 2Q16

Oil production disruptions (thousand barrels per day)

Some background on the emergence of the Niger Delta Avengers:

Production stood at 1.8 mb/d in 2015, the year President Muhammadu Buhari succeeded President Jonathan by popular vote. Unlike President Jonathan, who was from the Niger Delta, President Buhari was born in the northern part of the country, and demonstrating his limited popularity in the Niger Delta, President Buhari received just 18% of the region’s vote. Making matters more difficult, President Buhari inherited a federal budget 65% funded by oil sales just as crude prices were declining. Blaming in part this decline in income, in May the government cut spending on the stipends and training programs offered to ex-militants by two-thirds, in line with the budget proposed last December. Also, in an effort to fight corruption, President Buhari ended the practice of hiring former Delta militants to guard oil infrastructure in the Delta.

 

These decisions led to the arrival of new militant groups in the region. The Niger Delta Avengers (NDA) emerged as the most destructive to oil production, disrupting supply out of Nigeria with dozens of attacks since February leading to a loss of 400 kb/d of production by our estimates with an additional 200 kb/d of disruptions driven by local theft and pipeline leaks (Exhibit 2). The group’s demands are broad and include the departure of foreign IOCs from the Niger Delta, increased government spending on local infrastructure, and the local redistribution of oil rights. According to Stratfor, an intelligence company, the NDA’s attacks have been well-planned and were performed on strategic targets, which have resulted in a much more rapid decline in production than that in the late 2000’s.

 

President Buhari responded to these attacks by saying the militias would be defeated, and military raids in the Niger Delta recently began. This response reflects similar episodes in the past where militarization of the region has been the first line of defense against militia activity. But the Boko Haram insurgency in the north-east continues to stretch military resources, and the decline in oil prices has taken its toll on the Nigerian economy, with the economy falling into a recession. This, combined with the interruptions to oil production, will only serve to further constrain fiscal spending. In addition to increasing military pressure, the government, publicly led by the national petroleum minister Emmanuel Kachikwu, who is from the Niger Delta, pushed for negotiations (another similarity with the 2009 negotiations led by Jonathan, at the time Vice-President). The NDA initially refused to negotiate although on June 21 the government announced it had agreed to a 30-day ceasefire with a number of regional militias including the NDA. And while the NDA responded to the news with the comment that it “does not remember having [such] an agreement”, there have been no attacks since June 16 vs. a rate of one attack every couple days since early May. On June 27, in an interview Kachikwu stated that total oil production had recovered 200-300 kb/d from its lows. If the cease-fire holds, he expects production to return to pre-NDA levels by mid-July upon the repair of the Forcados pipeline although this may prove optimistic given that several oil majors have evacuated non-essential personnel from onshore Nigerian projects. 

 

The path of future Nigerian production remains uncertain in the absence of a sustainable agreement and for now we cautiously continue to assume that production will be reduced by 350 kb/d in 2H16. If sustainable, the current ceasefire clearly leaves risk to higher output and such a resumption in production would create downside risk to our $50/bbl 2H16 price forecast as it would bring the global oil market close to balance over that time period since we currently project a 2H16 average supply-demand deficit of 380 kb/d.

 

We continue to assume that Nigerian production will be curtailed by 350 kb/d in 2H16 although the recent ceasefire creates clear upside to production levels
Nigerian crude production disruptions (thousand barrels per day)

We find it ironic that the fate of the price of oil, and certainly Goldman’s crude price target remains in the hands of a “terrorist” organization, which created its own website using GoDaddy on February 3, 2016, and which on June 5 moved to a .org domain using Cloudflare as registrar, a website that even has its own “Contact Us” section. Those readers curious just who is funding this group of millitants can simply ask them.

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In addition to the recently quite vocal George Soros and Stanley Druckenmiller, one republican hedge fund billionaire who has been warning for years about not only the looming trouble for the market but also a calamitous collapse of the establishment, is Elliott’s Paul Singer, who has been advocating gold as insurance against just this inevitable systemic collapse. Singer has also been an outspoken opponent of Trump,  having supported Florida Sen. Marco Rubio in what was once a 17-person race for the GOP nomination. Singer most recently gave $1 million in April to the Our Principles PAC, which was part of the campaign to stop Trump.

However it was not unti today, one day after Trump revealed the full extent of his trade program, that Singer lashed out and revealed the full extent of his loathing for Trump.

During a discussion at the Aspen Ideas Festival in Colorado, Singer told CNBC that “the most impactful of the economic policies that I recall him coming out for are these anti-trade policies,” Singer said “And I think if he actually stuck to those policies and gets elected president, it’s close to a guarantee of a global depression, widespread global depression.“

Does that make him a Hillary supporter? No. When asked who he would pick between Hillary and Donald, Paul’s response: “none of the above.”

Billionaire Paul Singer: If Trump elected, a “global depression” is “close to a guarantee” https://t.co/OYXmND9wOR http://pic.twitter.com/PqPbI93sDU

— CNBC Now (@CNBCnow) June 29, 2016

Stepping away from politics, Singer also shared his view on Brexit, which differed from most of his peers, and said the UK’s decision was good for Britain because the “EU is a failed experiment.”

Singer: long term, “Brexit” good for Britain, EU is a failed experiment.

— Kelly Evans (@Kelly_Evans) June 29, 2016

Perhaps the question these days, with both neo-Keynesian economics and monetarism failing abjectly, is what isn’t?

via http://ift.tt/296MoQC Tyler Durden

Meet Joe. He used to make a steady income in manufacturing, but the work has disappeared. Now, he is selling everything and moving into his van. 

Joe is one of the 71% of Americans who think the U.S. economic system is “rigged in favor of certain groups,” according to a new poll by Marketplace and Edison Research.  The poll asked a simple question: Which of the following comes closer to your opinion on the economic system in the U.S. People could select between three options:

1. The economic system is rigged in favor of certain groups
2. The economy system is fair to all Americans
3. Don’t know

Most selected rigged economy.

As CNN adds, it didn’t matter if the person was white, black or Hispanic or whether they identified as Republican, Democrat or Independent. The majority feel the American Dream comes with huge asterisk that reads “only for the favored few.”

Americans have good reason to think this way. The typical middle class family is earning about the same amount of money adjusted for inflation, just under $54,000, as they did in 1996.

That means that as the rich get richer, the middle class hasn’t seen an improvement in its way of life in 20 years. On top of that, the Great Recession knocked out many people’s safety net savings as they lost jobs or homes or both. Even people who have jobs say they feel one step away from financial ruin. They fear a life of “dead-end crap jobs with crap wages.”

People like Joe, 60, who lives in a mobile home ith his mother outside of Philadelphia and is desperate. He last held a job in early 2013: “The first seven weeks I was there we were busier than I’ve ever seen a small company be, and then like someone flipped a switch. The work just stopped.”

“I would like to work” he says. “I still have skills and abilities and I still know how to use them. I have two associate degrees, one’s in electrical engineering, one’s in mechanical engineering.”

He then discusses the impossible dream for the lower middle class of which he would like to be part of: “I consider $15/hour to be lower middle class. If i had been able to go permanently with a company, probably I would have reached middle class in a few years. I’d settle for lower middle class right now but even that’s almost the impossible dream.”

So what does Joe’s future hold? “If I don’t hear back from any of these applications, if I’m not working I’ll be out of here. With out last couple of thousand dollar we got the minivan. I’ll have enough room for a sleeping back and some clothes. My mom said if you ever have to sell the house, I want you to take the lamp. I can’t take the lamp either.”

And his morbid conclusion: “Poor people have significantly shorter lifespans than more affluent people. In fact I keep having this argument with my doctor. He keeps telling me ‘you have another 30 years.’ I tell him no, I don’t expect to make it past seventy.” In other words, Joe thinks he has another 10 years of working class purgatory before he can finally rest.

In the video below, he is wearing sunglasses to disguise his identity.

via http://ift.tt/291qQ3d Tyler Durden

Following James Traub's mind-numbingly-elitist rebuttal of the democratic rights of "we, the people" in favor of allowing "they, the elite" to ensure the average joe doesn't run with scissors, "It's time for the elites to rise up against the ignorant masses."

The Brexit has laid bare the political schism of our time. It’s not about the left vs. the right; it’s about the sane vs. the mindlessly angry…

The Guardian's David Van Reybrouck, originally posted at The Guardian appears willing to take the fight for elite survival even further…proclaiming "our voting system worked well for decades, but now it is broken. There is a better way to give voice to the people…. you do not ask everyone to vote on an issue few people really understand, but you draft a random sample of the population and make sure they come to the grips with the subject matter in order to take a sensible decision. A cross-section of society that is informed can act more coherently than an entire society that is uninformed."

Brexit is a turning point in the history of western democracy. Never before has such a drastic decision been taken through so primitive a procedure – a one-round referendum based on a simple majority. Never before has the fate of a country – of an entire continent, in fact – been changed by the single swing of such a blunt axe, wielded by disenchanted and poorly informed citizens.

But this is just the latest in a series of worrying blows to the health of democracy. On the surface, everything still seems fine. A few years ago, the World Values Survey, a large-scale international research project, asked more than 73,000 people in 57 countries if they believed democracy was a good way to govern a country – and nearly 92% said yes. But that same survey found that in the past 10 years, around the world, there has been a considerable increase in calls for a strong leader “who does not have to bother with parliament and elections” – and that trust in governments and political parties has reached a historical low. It would appear that people like the idea of democracy but loathe the reality.

Trust in the institutions of democracy is also visibly declining. In the past five years, the European Union’s official research bureau found that less than 30% of Europeans had faith in their national parliaments and governments – some of the lowest figures in years, and an indication that almost three-quarters of people distrust their countries’ most important political institutions. Everywhere in the west, political parties – the key players in our democracies – are among the least trusted institutions in society. Although a certain scepticism is an essential component of citizenship in a free society, we are justified in asking how widespread this distrust might be and at what point healthy scepticism tips over into outright aversion.

There is something explosive about an era in which interest in politics grows while faith in politics declines. What does it mean for the stability of a country if more and more people warily keep track of the activities of an authority that they increasingly distrust? How much derision can a system endure, especially now that everyone can share their deeply felt opinions online?

Fifty years ago, we lived in a world of greater political apathy and yet greater trust in politics. Now there is both passion and distrust. These are turbulent times, as the events of the past week demonstrate all too clearly. And yet, for all this turbulence, there has been little reflection on the tools that our democracies use. It is still a heresy to ask whether elections, in their current form, are a badly outmoded technology for converting the collective will of the people into governments and policies.

We discuss and debate the outcome of a referendum without discussing its principles. This should be surprising. In a referendum, we ask people directly what they think when they have not been obliged to think – although they have certainly been bombarded by every conceivable form of manipulation in the months leading up to the vote. But the problem is not confined to referendums: in an election, you may cast your vote, but you are also casting it away for the next few years. This system of delegation to an elected representative may have been necessary in the past – when communication was slow and information was limited – but it is completely out of touch with the way citizens interact with each other today. Even in the 18th century, Jean-Jacques Rousseau had already observed that elections alone were no guarantee of liberty: “The people of England deceive themselves when they fancy they are free; they are so, in fact, only during the election of members of parliament: for, as soon as a new one is elected, they are again in chains, and are nothing.”

Referendums and elections are both arcane instruments of public deliberation. If we refuse to update our democratic technology, we may find the system is beyond repair; 2016 already risks becoming the worst year for democracy since 1933. We may find, even after the folly of Brexit, that Donald Trump wins the American presidency later this year. But this may have less to do with Trump himself, or the oddities of the American political system, than with a dangerous road that all western democracies have taken: reducing democracy to voting.

Isn’t it bizarre that voting, our highest civic duty, boils down to an individual action performed in the silence of the voting booth? Is this really the place where we turn individual gut feelings into shared priorities? Is it really where the common good and the long term are best served?

By refusing to change procedures, we have made political turmoil and instability defining features of western democracy. Last weekend Spain had to hold its second general election in six months, after the first run did not deliver a government. A few weeks ago, Austria almost elected its first extreme rightwing president, while a Dutch referendum in April voted down a trade agreement between Ukraine and the EU. My country, Belgium, became the laughing stock of Europe a few years earlier, when it failed to form a government for 541 days. But nobody is laughing now that it seems that many western democracies are in the process of turning “Belgian”.

Countless western societies are currently afflicted by what we might call “democratic fatigue syndrome”. Symptoms may include referendum fever, declining party membership, and low voter turnout. Or government impotence and political paralysis – under relentless media scrutiny, widespread public distrust, and populist upheavals.

But democratic fatigue syndrome is not so much caused by the people, the politicians or the parties – it is caused by the procedure. Democracy is not the problem. Voting is the problem. Where is the reasoned voice of the people in all this? Where do citizens get the chance to obtain the best possible information, engage with each other and decide collectively upon their future? Where do citizens get a chance to shape the fate of their communities? Not in the voting booth, for sure.

The words “election” and “democracy” have become synonymous. We have convinced ourselves that the only way to choose a representative is through the ballot box. After all, the Universal Declaration of Human Rights of 1948 states as much: “The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures.”

The words “this will shall be expressed” are typical of our way of thinking about democracy: when we say “democracy”, we only mean “elections”. But isn’t it remarkable that the Universal Declaration of Human Rights contains such a precise definition of how the will of the people must be expressed? Why should such a concise text about basic rights, which is fewer than 2,000 words long, pay particular attention to the practical execution of one of these rights? It is as if the people who compiled the declaration back in 1948 had come to see the specific method as a basic right, as if the procedure was in itself sacred.

It would appear that the fundamental cause of democratic fatigue syndrome lies in the fact that we have all become electoral fundamentalists, venerating elections but despising the people who are elected.

Electoral fundamentalism is an unshakeable belief in the idea that democracy is inconceivable without elections and elections are a necessary and fundamental precondition when speaking of democracy. Electoral fundamentalists refuse to regard elections as a means of taking part in democracy, seeing them instead as an end in themselves, as a doctrine with an intrinsic, inalienable value.

This blind faith in the ballot box as the ultimate base on which popular sovereignty rests can be seen most vividly of all in international diplomacy. When western donor countries hope that countries ravaged by conflict – such as Congo, Iraq or Afghanistan – will become democracies, what they really mean is this: they must hold elections, preferably on the western model, with voting booths, ballot papers and ballot boxes; with parties, campaigns and coalitions; with lists of candidates, polling stations and sealing wax, just like we do. And then they will receive money from us.

Local democratic and proto-democratic institutions (village meetings, traditional conflict mediation or ancient jurisprudence) stand no chance. These things may have their value in encouraging a peaceful and collective discussion, but the money will be shut off unless our own tried-and-tested recipe is adhered to.

If you look at the recommendations of western donors, it is as if democracy is a kind of export product, off the peg, in handy packaging, ready for dispatch. “Free and fair elections” become an Ikea kit for democracy – to be assembled by the recipient, with or without the help of the instructions enclosed. And if the resulting piece of furniture is lopsided, uncomfortable to sit on or falls apart? Then it’s the fault of the customer.

That elections can have all kinds of outcomes in states that are fragile, including violence, ethnic tensions, criminality and corruption, seems of secondary importance. That elections do not automatically foster democracy, but may instead prevent or destroy it, is conveniently forgotten. We insist that in every country in the world people must traipse off to the polling stations. Our electoral fundamentalism really does take the form of a new, global evangelism. Elections are the sacraments of that new faith, a ritual regarded as a vital necessity in which the form is more important than the content.

This single-minded focus on elections is actually rather odd. During the past 3,000 years, people have been experimenting with democracy and only in the last 200 have they practised it exclusively by holding elections. Yet we regard elections as the only valid method. Why? Force of habit is at play here, of course, but there is a more simple cause, based on the fact that elections have worked pretty well over the past two centuries. Despite a number of notoriously bad outcomes, they have very often made democracy possible.

However, elections originated in a completely different context from the one that they function in today. When the supporters of the American and French revolutions proposed elections as a way of learning “the will of the people”, there were no political parties, no laws regarding universal franchise, no commercial mass media, and no internet. The forerunners of our representative democracy had no idea that any of these things would come into existence.

Elections are the fossil fuel of politics. Whereas once they gave democracy a huge boost, much as oil did for our economies, it now turns out they cause colossal problems of their own. If we don’t urgently reconsider the nature of our democratic fuel, a systemic crisis awaits. If we obstinately hold on to a notion of democracy that reduces its meaning to voting in elections and referendums, at a time of economic malaise, we will undermine the democratic process.

In the years after the second world war, western democracies were dominated by large mass parties, and they held the structures of the state in their hands. Through a network of intermediary organisations, such as unions, corporations and party media, they succeeded in being close to the lives of individual citizens. This resulted in an extremely stable system, with great party loyalty and predictable voting behaviour.

This changed in the 1980s and 1990s, when discourse was increasingly shaped by the free market. Party newspapers disappeared or were bought up by media concerns, commercial broadcasters entered the field and even public broadcasters increasingly adopted market thinking. Viewing, reading and listening figures became hugely important – they were the daily share price index of public opinion. Commercial mass media emerged as the most important builders of social consensus, and organised civil society lost ground. The consequences were predictable, as citizens became consumers and elections hazardous.

Parties began to see themselves less as intermediaries between people and power, and instead settled into the fringes of the state apparatus. To retain their places there, they had to turn to the voter every few years to top up their legitimacy. Elections became a battle fought out in the media for the favour of voters. The passions aroused among the populace diverted attention from a far more fundamental emotion, an increasing irritation with anything and everything pertaining to politics.

In 2004, the British sociologist Colin Crouch came up with the term “post-democracy” to describe this new order:

Under this model, while elections certainly exist and can change governments, public electoral debate is a tightly controlled spectacle, managed by rival teams of professionals expert in the techniques of persuasion, and considering a small range of issues selected by those teams. The mass of citizens plays a passive, quiescent part, responding only to the signals given them.

The Italy of Silvio Berlusconi came closest to fitting this definition of the post-democratic state but elsewhere too we have seen processes that tend in that direction. Since the end of the 20th century, citizens have started looking like their 19th-century predecessors. Because civil society has become weaker, a gulf has opened up again between the state and the individual.

After the rise of the political parties, the introduction of universal suffrage, the rise and fall of organised civil society and the dominance of commercial media, another factor has now been added: social media.

At the beginning of the 21st century, citizens could follow the political theatre, minute by minute, on radio, television or the internet, but today they can respond to it from second to second and mobilise others. The culture of immediate reporting now has instant feedback, resulting in even more of a cacophony. The work of the public figure, and especially the elected politician, is not made easier by any of this. He or she can immediately see whether new proposals appeal to the citizen, and indeed just how many people the citizen can whip up. New technology gives people a voice, but the nature of this new political involvement makes the electoral system creak at the joints all the more.

Commercial and social media also reinforce one another – picking up each other’s news and bouncing it back to create an atmosphere of perpetual mudslinging. Tough competition, loss of advertising revenue and falling sales prompt the media to produce increasingly vehement reports about increasingly exaggerated conflicts. For radio and television, national politics has become a daily soap opera, and while editors determine to some extent the framing, the script and the typecasting, politicians, with varying degrees of success, try to slant things this way or that. The most popular politicians are those who succeed in altering the script and reframing the debate – in other words, those who can bend the media to their will.

This collective hysteria has made election fever permanent and has serious consequences for the workings of democracy. Efficiency suffers under the electoral calculus, legitimacy under the continual need to distinguish oneself, while time and again, the electoral system ensures that the long term and the common interest lose out to the short term and party interests. Elections were once invented to make democracy possible, but in these circumstances they seem to be a hindrance.

Since we have reduced democracy to selecting representatives, and reduced representative democracy to mean simply voting, a valuable system is now mired in deep difficulties. Winning the next election has become more important than fulfilling the promises made in the last. Making the best of the system we have is becoming increasingly difficult.

What kind of democracy is appropriate to an era of fast, decentralised communication? How should the government deal with all those articulate citizens who stand shouting from the sidelines?

Imagine having to develop a system today that would express the will of the people. Would it really be a good idea to have them all queue up at polling stations every four or five years with a bit of card in their hands and go into a dark booth to put a mark next to names on a list, names of people about whom restless reporting had been going on for months in a commercial environment that profits from restlessness?

People care deeply about their communities and want to be heard. But a much better way to let the people speak than through a referendum is to return to the central principle of Athenian democracy: drafting by lot, or sortition as it is presently called. In ancient Athens, the large majority of public functions were assigned by lot. Renaissance states such as Venice and Florence worked on the same basis and experienced centuries of political stability. With sortition, you do not ask everyone to vote on an issue few people really understand, but you draft a random sample of the population and make sure they come to the grips with the subject matter in order to take a sensible decision. A cross-section of society that is informed can act more coherently than an entire society that is uninformed.

Experiments with sortition have been successfully applied in the US, Australia, and the Netherlands. The most innovative country so far is certainly Ireland. In December 2012, a constitutional convention began work in order to revise several articles of the constitution of Ireland. Its members were not just a committee of MPs working behind closed doors, but a mixture of elected politicians and ordinary people: 33 elected politicians and 66 citizens, drafted by lot, from both Ireland and Northern Ireland. This group met one weekend per month for more than a year.

An independent research bureau put together the random group of 66 citizens, taking account of age, sex and place of birth. The diversity this produced was helpful when it came to discussing such subjects as same-sex marriage, the rights of women or the ban on blasphemy in the current constitution. However, they did not do all this alone: participants listened to experts and received input from other citizens (more than a thousand contributions came in on the subject of gay marriage). The decisions made by the convention did not have the force of law; the recommendations first had to be passed by the two chambers of the Irish parliament, then by the government and then in a referendum.

By talking to a diverse cross-section of Irish society, politicians could get further than they could have by just talking to each other. By exchanging views with elected officials, citizens could give much more relevant input than they could have in an election or a referendum.

What if this procedure had been applied in the UK last week? What if a random sample of citizens had a chance to learn from experts, listen to proposals, talk to each other and engage with politicians? What if a mixed group of elected and drafted citizens had thought the matter through? What if the rest of society could have had a chance to follow and contribute to their deliberations? What if the proposal this group would have come up with had been subjected to public scrutiny? Do we think a similarly reckless decision would have been taken?

Sortition could provide a remedy to the democratic fatigue syndrome that we see everywhere today. The drawing of lots is not a miracle cure any more than elections ever were, but it can help correct a number of the faults in the current system. The risk of corruption is reduced, election fever abates and attention to the common good increases. Voting on the basis of gut feeling is replaced by sensible deliberation, as those who have been drafted are exposed to expert opinion, objective information and public debate. Citizens chosen by lot may not have the expertise of professional politicians, but they add something vital to the process: freedom. After all, they don’t need to be elected or re-elected.

Juries for criminal trials that are chosen by lot prove that people generally take their task extremely seriously. The fear of a chamber that behaves recklessly or irresponsibly is unfounded. If we agree that 12 people can decide in good faith about the freedom or imprisonment of a fellow citizen, then we can be confident that a number of them can and will serve the interests of the community in a responsible manner.

If many countries rely on the principle of sortition in the criminal justice system, why not rely on it in the legislative system? We already use a lottery like this every day, but we use it in the worst possible form: public opinion polling. As the American political scientist James Fishkin famously remarked: “In a poll, we ask people what they think when they don’t think. It would be more interesting to ask what they think after they had a chance to think.”

Democracy is not, by definition, government by the best, elected or not. It flourishes precisely by allowing a diversity of voices to be heard. It is all about having an equal say, an equal right to determine what political action is taken.

In order to keep democracy alive, we will have to learn that democracy cannot be reduced to voting alone. Elections and referendums become dangerously outmoded tools if they are not enriched with more sensible forms of citizens’ participation. Structured deliberation with a random sample of citizens promises to generate a more vital, dynamic and inclusive form of democracy. In Utrecht, the fourth city of the Netherlands, the city council now drafts by lot 150 citizens to co-create its sustainable energy plan. These processes may become a permanent feature of any modern democracy.

The most common argument against sortition is the supposed incompetence of the those who have not been elected. A body of elected representatives undoubtedly has more technical competencies than a body chosen by lot. But what is the use of a parliament full of highly educated lawyers if few of them know the price of bread?

Besides, the elected do not know everything. They need staff and researchers to fill the gaps in their expertise. In much the same way, a representative body chosen by lot would not stand alone. It could invite experts, rely on professionals to moderate debates and put questions to citizens. Legislation could arise from the interaction between it and an elected chamber.

The arguments put forward against sortition are often identical to the reasons once put forward for not allowing peasants, workers or women to vote. Then, too, opponents claimed it would mark the end of democracy. Do we think Brexit might still have been possible if citizens had been truly invited to express their grievances and search for solutions together with those they had voted for?

If David Cameron had opted for the genuine participation of citizens, he would have obtained a much clearer view of what people really wanted, a powerful list of shared priorities, an agenda for further negotiations, and created much less distrust between the masses and the ruling class. On top of that, he would have gained global admiration for daring to tackle a complex challenge by an innovative process that values people’s voices instead of counting their votes. He could have set a new standard for democracy, rather than serving as its gravedigger.

via http://ift.tt/293BZAW Tyler Durden