Not Even a Dead-Cat Bounce: Russia Sanctions, Whiff of Reality Sink ‘Economic Expectations’ in Germany

Wolf Richter

Germany is expected to pull the Eurozone out of its funk by stimulating internal consumption. It is expected to allow the ECB to print money and stir up inflation so that other Eurozone countries like Spain or France can leverage that inflation to cut real wages, impoverish their people, devalue mountains of debt, make exports cheaper, and push imports beyond the reach of the poor.

The Eurozone is mired down, and it’s holding back the global economy. Germany would have to do its job. Not German exporters, for crying out loud – they’re causing all the problems, the official thinking goes. But German consumers, the same ones whose dour mood can last for years. They’d have to pull the Eurozone, and by extension the global economy, out of their funk.

But those consumers are getting cold feet, after businesses and investors have gotten cold feet months ago.

The Ifo Business Climate Index fell to its lowest level since April 2013. Business Expectations fell to their lowest level since December 2012. In manufacturing, expectations dropped into the negative for the first time since January 2013, dragged down by flagging exports. Construction hit the lowest level since December 2012, and wholesaling hit the lowest level since March 2010. The Ifo Employment Barometer backed off as well. The German economy is sputtering.

The sentiment of “financial experts” has been diving for nine months in a row. The ZEW Indicator, whose the long-run average is 24.6, now sits at 6.9, the worst level since December 2012, when markets were climbing out of the debt crisis debacle (ugly chart). The report blamed the “sanction spiral with Russia” and “disappointing” economic activity in the Eurozone.

For months, German consumers had been blissfully oblivious to the fretting by businesses and financial experts. “Extremely optimistic economic outlook,” is how GfK, which conducts the monthly consumer survey, described it at the time. But now, for the second month in a row, their mood soured. In the forward-looking GfK survey, the overall index fell to 8.3 for October, from 8.6 in September and from 8.9 in August – after a spectacular uninterrupted rise going back to January 2013. So on the surface, they’re still feeling pretty good.

But beneath the surface, oh my!

In late 2007, another one of those rare periods when Germans were feeling high, the index had hovered above 9. A year later, during the financial crisis, the index plunged below 2. And it took until early 2014, to get it back above 8.

Then last month, GfK reported that the sub-index for economic expectations, “in light of the intensified state of international affairs, completely collapses.” It had plunged over 35 points to 10.4, the worst plunge since the beginning of the survey in 1980. GfK cited the escalation of unrest around the world, particularly in Ukraine, and “the faster rotating sanctions spiral with Russia,” which have hit exports and could become “a real danger for the German economy.”

After that historic plunge last month, you’d expect some sort of bounce. Things don’t deteriorate that fast. It must have been an overreaction. Not even the financial crisis had come close. Or maybe it was a statistical fluke. At least, you’d expect a dead-cat bounce.

But heck no. Consumers’ economic outlook dropped again, this time by six points to 4.4, the lowest level since July 2013. GfK explained the phenomenon this way:

Consumers feel that the ongoing tense geopolitical situation and the economic weakness in a number of Eurozone countries will have a greater impact on the German economy. The economic development is showing the first signs of skid marks.

In Q2, GDP fell 0.2%. In Q3, the economy is expected to stagnate or, according to wishful thinkers, improve slightly. Consumers rode through the Q2 debacle without pause, but now they’re worried.

In the wake of swooning economic expectations, income expectations, after hitting an all-time record high in August, fell 4.6 points for September and 6.7 points for October to 43.3. The “continued high level,” as GfK called it, was a reflection of the “stable” labor market and the fact that “real income is rising as a result of very low inflation. These are decisive pillars for income expectations.”

The all-important phrase in Germany: “real income is rising as a result of very low inflation.” Very low inflation is keeping income expectations from heading south even faster! More on that in a moment.

The willingness-to-buy indicator dropped 6.8 points to 42.4, now below the level of a year ago, beaten down by plunging economic expectations and deteriorating income expectations. Last month, GfK called the level “relatively robust.” Now it’s less so, but it is still propped up by rising real wages, low inflation, and low interest rates. For the moment, consumers are still “more inclined to consumer rather than save their money.”

Someone should tell ECB President Mario Draghi and inflation mongers in the French government and elsewhere what German consumers, on whom the salvation of the Eurozone apparently depends, will do with their wallets when they see inflation eating into their wages and scarce savings. They’ll close that wallet! And they’ll go on one of their infamous buyer strikes that can last for  years.

GfK blames the international crises that are “slowing down the consumer climate.” Consumers are already showing “the signs of uncertainty.” And there is “a danger that private consumption could no longer play its role as an important pillar of the economy.”

And that would be the final nail. Investor sentiment has been tanking for nine months. The business climate has been deteriorating for six months. GDP in Q2 fell. Q3 doesn’t look promising. And this is the vaunted economy whose consumers are supposed to pull the Eurozone, and by extension the global economy, out of its funk. Prost!

And now a true debacle is unfolding, just when we thought the euro was finally safe. Read…. Standard & Poor’s Warns on Germany Triggering the Next Debt Crisis, Investors Would Lose their Shirts

via Zero Hedge testosteronepit

Goldman Sachs Moral Compass


Courtesy of the SlealthFlation Blog


There is no question that some of the most astute and ambitious individuals on the planet are attracted to the wealth generation which takes place on Wall Street.  On that score, those that stake their claim at the hub for global capital formation are no different than any of us in their thirst to make money.  After all, the craving to quench parched lips has always been precisely what drives the American success express.

The desire to better one’s lot in life is the fuel that advances the free market locomotive.  The primal quest for cash greases the skids which make the capitalist wheels go round and round, without that deep embedded human need to succeed the free market express would slow to a comatose crawl.

The unapologetic harnessing of man’s innate ambition and aspiration is fundamental to what makes America the most dynamic and prosperous nation to have ever lifted humankind.  So no, I have no problem with enterprise motivated by personal gain, I vigorously applaud it!

However, unlike Wall’s Street’s perennial poster board, Gordon Gekko, I do have a distinct problem with avarice and greed.  To privately succeed from one’s hard fought achievements in the private sector is to be commended and a great triumph to be proud of.  On the other hand, to be part of a firm which conspicuously and relentlessly siphons funds off of the public trust is a deplorable disgrace and decidedly un-American.

Friday’s revelation’s by the internal tape recordings of Carmen Segarra, a Goldman Sach’s embedded Fed regulator who was simply doing her job, once again demonstrates for all to see just how far we have fallen down the ravenous rabbit hole.  Ask yourselves. Why was her viable investigation thwarted by the Federal Reserve itself?  The institution who’s stated mission is to monitor Wall Street simply scuttled the very notion of legitimate inquiry.

The country requires change. We demand the enlightened capitalism that our forefathers manifested, not the crony capitalism that Goldman Sach’s espouses and deploys with ruthless duplicitous abandon.  And no, it certainly can not be characterized as doing God’s work.  The time for substantive change beckons………….haven’t you seen and had enough yet?

via Zero Hedge Bruno de Landevoisin

Russia Discovers Massive Arctic Oil Field Which May Be Larger Than Gulf Of Mexico

In a dramatic stroke of luck for the Kremlin, this morning there is hardly a person in the world who is happier than Russian president Vladimir Putin because overnight state-run run OAO Rosneft announced it has discovered what may be a treasure trove of black oil, one which could boost Russia’s coffers by hundreds of billions if not more, when a vast pool of crude was discovered in the Kara Sea region of the Arctic Ocean, showing the region has the potential to become one of the world’s most important crude-producing areas, arguably bigger than the Gulf Of Mexico. The announcement was made by Igor Sechin, Rosneft’s chief executive officer, who spent two days sailing on a Russian research ship to the drilling rig where the find was unveiled today.

The oil production platform at the Sakhalin-I field in Russia,
partly owned by ONGC Videsh Ltd., Rosneft Oil Co., Exxon Mobil
Corp. and Japan’s Sakhalin Oil and Gas Development Co. on June 9, 2009.

Well, one person who may have been as happy as Putin is the CEO of Exxon Mobil, since the well was discovered with the help of America’s biggest energy company (and second largest by market cap after AAPL). Then again, maybe not: as Bloomberg explains the well was drilled before the Oct. 10 deadline Exxon was granted by the U.S. government under sanctions barring American companies from working in Russia’s Arctic offshore. Rosneft and Exxon won’t be able to do more drilling, putting the exploration and development of the area on hold despite the find announced today.”

Which means instead of generating billions in E&P revenue, XOM could end up with, well, nothing. And that would be quite a shock to the US company because the unveiled Arctic field may hold about 1 billion barrels of oil and similar geology nearby means the surrounding area may hold more than the U.S. part of the Gulf or Mexico, he said.

For a sense of how big the spoils are we go to another piece by Bloomberg, which tells us that “Universitetskaya, the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels, a trove worth more than $900 billion at today’s prices.

The only way to reach the prospect is a four-day voyage from Murmansk, the largest city north of the Arctic circle. Everything will have to shipped in — workers, supplies, equipment — for a few months of drilling, then evacuated before winter renders the sea icebound. Even in the short Arctic summer, a flotilla is needed to keep drifting ice from the rig.

Sadly, said bonanza may be non-recourse to Exxon after Obama made it quite clear that all western companies will have to wind down operations in Russia or else feel the wrath of the DOJ against sanctions breakers. Which leaves XOM two options: ignore Obama’s orders (something which many have been doing of late), or throw in the towel on what may be the largest oil discovery in years. 

And while the Exxon C-suite contemplates its choices, here is some more on today’s finding from Bloomberg:

“It exceeded our expectations,” Sechin said in an interview. This discovery is of “exceptional significance in showing the presence of hydrocarbons in the Arctic.”


The development of Arctic oil reserves, an undertaking that will cost hundreds of billions of dollars and take decades, is one of Putin’s grandest ambitions. As Russia’s existing fields in Siberia run dry, the country needs to develop new reserves as it vies with the U.S. to be the world’s largest oil and gas producer.


Output from the Kara Sea field could begin within five to seven years, Sechin said, adding the field discovered today would be named “Victory.”


The Kara Sea well — the most expensive in Russian history — targeted a subsea structure named Universitetskaya and its success has been seen as pivotal to that strategy. The start of drilling, which reached a depth of more than 2,000 meters (6,500 feet), was marked with a ceremony involving Putin and Sechin.


The importance of Arctic drilling was one reason that offshore oil exploration was included in the most recent round of U.S. sanctions. Exxon and Rosneft have a venture to explore millions of acres of the Arctic Ocean.

But what’s worse for Exxon is that now that the hard work is done, Rosneft may not need its Western partner much longer:

“Once the well is plugged, there will be a lot of work to do in interpreting the results and this is probably something that Rosneft can do,” Julian Lee, an oil strategist at Bloomberg First Word in London, said before today’s announcement. “Both parties are probably hoping that by the time they are ready to start the next well the sanctions will have been lifted.”

And here is why there is nothing Exxon would like more than to put all the western sanctions against Moscow in the rearview mirror: “The stakes are high for Exxon, whose $408 billion market valuation makes it the world’s largest energy producer. Russia represents the second-biggest exploration prospect worldwide. The Irving, Texas-based company holds drilling rights across 11.4 million acres in Russia, only eclipsed by its 15.1 million U.S. acres.”

Proving just how major this finding is, and how it may have tipped the balance of power that much more in Russia’s favor is the emergence of paid experts, desperate to talk down the relevance of the Russian discovery:

More drilling and geological analysis will be needed before a reliable estimate can be tallied for the size of the oil resources in the Universitetskaya area and the Russian Arctic as a whole, said Frances Hudson, a global thematic strategist who helps manage $305 billion at Standard Life Investments Ltd. in Edinburgh. Sanctions forbidding U.S. and European cooperation with Russian entities mean that country’s nascent Arctic exploration will be stillborn because Rosneft and its state-controlled sister companies don’t know how to drill in cold offshore conditions alone, she said.


“Extrapolating from a small data sample is perhaps not going to give you the best information,” Hudson said in a telephone interview. “And because of sanctions, it looks like there’s going to be less exploration rather than more.” In addition, the expense and difficulty of operating in such a remote part of the world, where hazards include icebergs and sub-zero temperatures, mean that the developing discoveries may not be economic at today’s oil prices.

Maybe. Then again perhaps the experts’ time is better suited to estimating just how much longer the US shale miracle has left before the US is once again at the mercy of offshore sellers of crude.

In any event one country is sure to have a big smile on its face: China, since today’s finding simply means that as Russia has to ultimately sell the final product to someone, that someone will almost certainly be the Middle Kingdom, which if the “Holy Gas Grail” deal is any indication, will be done at whatever terms Beijing chooses.

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via Zero Hedge Tyler Durden