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For 20 of the last 21 weeks, US oil rig count has declined as it tracked the lagged oil price lower. That changed today as oil rigs were unchanged week-over-week perfectly syncing with the lagged lows in oil. Total rigs dropped 2 (thanks to gas rigs) to a new record low but even that pace has slowed dramatically. Oil prices are fading modestly on the news…
And oil prices are giving up earlier gains…
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Submitted by Michael Shedlock via MishTalk.com,
New accounting rules show Chicago has understated its pension liabilities by $11.5 billion.
At the end of 2015 the stated liability was $7.1 billion. Today it’s $18.6 billion. That’s a jump in net liabilities of 168%.
Mayor Rahm Emanuel has hopes pinned on union concessions and help from the state legislature. Neither is likely.
Bloomberg reports Chicago’s Pension-Fund Troubles Just Became $11.5 Billion Bigger.
Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Court and new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to an annual report presented to the fund’s board on Thursday. The fund serves some 70,000 workers and retirees.
Decisions that are now adding hundreds of millions of dollars to its annual bills have left Chicago with a lower credit rating than any big U.S. city but once-bankrupt Detroit.
The latest estimate for the municipal fund, one of Chicago’s four pensions, will add to what had been an unfunded liability estimated at $20 billion.
A key driver was the court ruling striking down Mayor Rahm Emanuel’s plan that cut benefits and boosted city and employee contributions. Without it in place, the fund is now set to run out of money within 10 years.
That triggered another change. New accounting rules, adopted to keep governments from using overly optimistic investment-return forecasts to mask the scale of their liabilities, require them to use more modest assumptions once pension plans go broke. As a result, the reported liabilities jump.
Under the traditional way of estimating the municipal fund’s obligations, which is how annual contributions are set, the shortfall rose to $9.9 billion as of Dec. 31, based on market value of its assets, according to the actuaries report. That’s up from $7.1 billion a year earlier. The pension is only 32 percent funded — meaning it has 32 cents for every dollar it owes — compared to 42 percent last year, according to the actuaries.
Emanuel claims to have “very good discussions” with the unions. That means one of two things.
In retrospect, those are the same thing.
Meanwhile, Jim Mohler, executive director of the fund, told board members on Thursday that it’s a “fluid situation.”
Mohler cited pending legislation in the Illinois legislature to bail out Chicago.
The only thing fluid is the exact timing of the bill followed by Governor Bruce Rauner’s immediate veto.
The Democrat controlled legislature has a super-majority that could in theory override Rauner’s veto. However, the legislature could have passed anything they wanted all year long. Yet, Illinois still does not have a budget.
In practice, there are a few “blue dog Democrats” that have a bit of fiscal sense.
And in this case, add in a bunch of downstate legislators who won’t relish hiking taxes to bail out bankrupt Chicago pensions.
Will downstate legislators and “blue dog” Democrats vote to bail out that mess?
It’s possible, but color me skeptical. Is Emanuel going to get union concession?
That idea sounds even sillier.
The Chicago pensions are 32% funded despite the biggest bull market in history. What happens if the market has negative returns for even a few years?
The answer is the pension plans will go bust before 10 years pass.
The sorry state of affairs is stock and bonds have such lofty valuations that negative returns are likely not for a few years, bit seven to ten years.
I side with Milton Berg, founder and CEO of MB advisors says “One Big Worldwide Bubble”: Cusp of 30-Year Bear Market in Stocks and Bonds.
Please click on the above link for a fantastic interview with Berg.
The pension mess and the Chicago public school mess cannot be placed on the backs of Illinois taxpayer.
Mayor Emanuel already passed the biggest tax hike in history. Here are some links for discussion:
If Mayor Emanuel really wanted to do something for the city and city taxpayers, he would be begging House Speaker Michael Madigan for the one and only thing that can help the city: legislation that would allow Illinois municipal bankruptcies.
Let’s stop pretending there is another solution, because there isn’t.
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Refugees have little or no respite today in the world and that’s a telling tale of the type of world that we have created around us. There are growing numbers of those that are fleeing something in their home country ad all too often they flee to the nearest available space, which in an ever-spiraling knock-on effect ends up with displacing people yet again, forcing them to go somewhere else. The USA has a lot to answer for after having unsettled and destabilized the Middle East in its search for controlling oil and the seeking of material benefit and gain, under the auspices of a fight for some illusive democracy and the savior of those countries from the hands of dictators. That’s called interference or intervention, but the USA gave itself the God-given right to step into the affairs of others and decide what should happen there. Guns-a-blazing and rockets at the ready, parachuting into Iraq and Afghanistan and the list could go on. The USA rarely gets it right. They were the ones that bought Saddam Hussein back from exile, weren’t they? They were the ones that were arming Al-Qaeda against the Russians in their ideological warfare against the super powerful USSR that they were hell bent on destroying, weren’t they? The USA managed to destabilize the entire Middle East in its quest for power and fuel. The USA is the source of the past three decades of the Afghans being the number one country to produce the world’s refugees. Until this year, that is. The Afghans were the world’s top refugees in terms of numbers in the world and 25% of all refugees in the world were Afghans. That figure has been overtaken in the world today by Syrians.
There’s an unprecedented crisis of refugees in the world today and they have increased in numbers by 40% since 2011. 59.5 million people are currently displaced somewhere in the world because of trouble and conflict or persecution in their country of origin. Those displaced people do not all have refugee status since the process is long and arduous; almost as long as the journey to get to the country in which they will be able to apply for that protection. There are only 14 million refugees that possess the status officially in the world today out of the nearly 60 million that are currently living elsewhere. There are ten countries that have opened their borders to 60% of all those that are either officially or unofficially refugees today in the world. The top countries that have hosted them are Turkey, Pakistan and Lebanon.
The United Nations High Commissioner for Refugees is mandated to protect refugees throughout the world and has been since its creation in 1950. Its “mandate is to provide, on a non-political and humanitarian basis, international protection to refugees and to seek permanent solutions for them.”
A refugee is a person who is outside their country of citizenship because they believe that they have well-founded grounds for fear of persecution due to factors such as race, religion or nationality or even political opinion and social group. They are also unable to avail themselves of protection of their home country’s government (as this may also be the source of the persecution, or not). Legally the so-called present ‘migrant’ crisis that is taking place in the European Union is not technically a migrant crisis at all. They are refugees. But, why isn’t that world being used? Perhaps it’s because ultimately migrants are perceived as bad entities that want to take advantage of the society to which they are trying to gain access. They are spongers that will destroy the tissue of lies that is called a national identity, that myth that becomes so engrained in the collective storytelling of a nation that the citizens of that country believe that they have a common destiny together. The migrants of Europe are not migrants at all. They are refugees; or they perhaps may become them one day since they will have to go through the process of asylum seekers first of all before gaining access to that status of protection. Refugee status could take up to five years at times. The UN believes that refugee status is even hereditary for two groups given their current world status: Palestinian refugees and Sahrawi refugees.
The UN Convention Relating to the Status of Refugees considers a refugee as a person who: “owing to well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country; or who, not having a nationality and being outside the country of his former habitual residence as a result of such events, is unable or, owing to such fear, is unwilling to return to it.”
So who are the countries that have provided shelter in the world to the largest number of refugees? They are often countries that are in turmoil and suffering from instability themselves.
Top Countries Hosting Refugees
10. China
The majority of refugees come from Vietnam in this country and the total number of refugees stands at 301,052 for a total population of 1.36 billion people. Very few child refugees are in this country for some unknown reason (27%, whereas the international average is at 57%).
9. Uganda
There are 385,513 refugees in this country that has a total population of 36.8 million people, with the majority coming from South Sudan. In 2014, there was an increase in the number of refugees by 140,000 for this country. 60% of all refugees are children in this country also.
8. Chad
Refugees in this country that has a population total of 11 million stand at 452,897 people. The majority come from the Central African Republic (25% of the population has been displaced already) and the number of refugees has increased for the past 13 years. There are over 34 refugees per thousand of the population in this country and that is the 4th highest figure in the world.
7. Kenya
There are 551,352 (3.8% of the world refugee population) refugees in this country that has a total population of 41.8 million. They too come from South Sudan in the main.
6. Jordan
The total refugee population stands at 654,141 people and the country has a total population of 6.5 million. The majority of refugees come from Syria today and there was an increase in applications to the tune of 119,000 in 2014. Just a few years ago (2013), there were fewer than 100,000 refugees in the country. There are 87.2 refugees per one thousand of the Jordanian population and that is the 2nd highest ration in the world.
5. Ethiopia
There are 659,524 refugees in this country and the total Ethiopian population stands at 88.9 million people. The majority of refugees come from South Sudan. 58% of all refugees here are under 18 years of age.
4. Islamic Republic of Iran
This country of 77 million citizens hosts 982,027 refugees today and the majority is from Afghanistan. Iran currently hosts 6.8% of the world refugee population. Sanctions imposed on Iran have considerable and consistently made it difficult for the United Nations to provide aid to Iran to assist refugees, unfortunately.
3. Lebanon
There is a total population in this country of 4.5 million Lebanese and there is a total of 1,154,040 refugees in the country. The majority comes from Syria and there was an increase in the numbers in 2014 that worked out to over 400,000 applications. It currently has the highest ration of refugees in the world (232 per one thousand of the population).
2. Pakistan
There is a total population of 182.6 million people in Pakistan and they have a total number of refugees that stands at 1,505,525, with the majority coming from Afghanistan.
1. Turkey
Turkey has a total population of 76 million and there are 1,587,374 refugees in this country. 1.2 million were admitted in 2014 alone, with the vast majority coming from neighboring Syria. 11% of worldwide refugees come to Turkey.
The crisis that has been going on in Syria has been the source of the most refugees in the world for the last year now. Pakistan has been the top destination of most refugees for the last 22 years out of a total of 36 that have been monitored. Most of Pakistan’s refugees come from Afghanistan. It was due to the Taliban that they fled their country. But, why were the Taliban ever in power in Afghanistan? Return to the USA and their sole object of desire: destroy the influence of the USSR in the country and so arm the enemies of the Soviets for decades until they become so powerful that you can’t control them.
There’s that wonderful and yet at the same time disappointing joke that when you take the names of Osama Bin Laden and Saddam Hussein and you write down the letters that are in common in their two names, then you get to spell out ‘Made in the US’. Certainly a coincidence and nothing more. But, an interesting explanation to exactly what happened in the region. Yes, they were made in the USA and made by the USA in the American combat against the Soviets, regardless of the consequences.
Half of refugees in the world are children today (57%) and ultimately only 1% ever get to return to their home country because the conflict last for decades. Countries that do open their borders fid complicated ways of halting the tide of refugees that are applying in their countries for status. Pakistan refused in 2014 to renew the cards of nearly 150,000 refugees and so they are now living illegally in the country. Lebanon has made the process an administrative nightmare that is even more difficult than conflict itself in the country of origin.
In the USA, there is only 1 refugee per 1,000 Americans and that makes a total of 267,000. What will happen if countries close their borders that are fleeing persecution? They will probably end up (having lost everything that they could have lost already) resorting to anything in order to gain status or at least the ability to stay in the host country. They will resort to the even more dangerous options of fleeing their country that might be available to them. These are the people that have no home and no place to welcome them; the unwanted millions in the world.
What would you do with the refugees in the world?
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Less than a month after a still unexplained suicide took place inside a conference room at Apple headquarters, there seems to be more trouble in Silicon Paradise. According to CBS, an incendiary device ignited a fire late Thursday night at the offices of digital giant Google, damaging a Google Earth demo car and leaving a large singe mark on one of the buildings, authorities said.
Mountain View firefighters were called to the massive complex on Salado Drive at about 10:52 p.m.
Arriving firefighters were met by Google security personnel and guided to an area where the car, used in Google’s Street view project, was parked and the grass and building were singed.
The blaze only caused minor damage to the car and building.
Mountain View Police PIO Katie Nelson told KPIX 5 that two incendiary devices were found at the scene and have been sent to a lab for testing.
The incident remains under investigation.
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Submitted by Daniel Fernandez Mendez via The Mises Institute,
The country of Venezuela is dangerously approaching hyperinflation. At 2015’s year-end, official figures had yearly inflation at or above 180 percent (some private sector sources estimated it at 330 percent). The technical definition of hyperinflation is when inflation is at 50 percent or more per month, meaning that Venezuela is not yet at this point, but does seem to be approaching at an accelerated pace. The South American country finds itself with inflation rates at their worst in its history (1996 saw 103 percent yearly inflation) and the highest in the world (Ukraine is second with 50 percent yearly inflation).
The main effects of hyperinflation are beginning to be felt. In every case in history where there has been hyperinflation, the main cause has been fiscal imbalance, and the case in Venezuela is no different. When there is a surge in the deficit, the same applies for inflation (graph 2).
Normally, moderate inflation follows the path of the deficit with a relatively large delay, because economic agents are unable to anticipate deficit values and monetization with precision. On the other hand, in times of hyperinflation, inflation anticipates the deficit (economic agents overestimate new monetization policies and there is a universal tendency to evade local currency). In Venezuela, we can see that since 2013 (graph 3) inflation has increased at a faster rate than the deficit, and for this reason we can consider the country in a state of hyperinflation as of that date.
This creates a big problem for the government of Venezuela due to the fact that real tax revenues decrease (just as in all cases of hyperinflation). During the time between receipt of tax revenues and actually putting these taxes to use, inflation eats up the real value providing the government with less real revenue.
An inverse relationship exists between inflation in Venezuela and crude oil prices (graph 4). This relationship is such that inflation increases rapidly when the main source of government revenue (revenue from oil) decreases due to the fact that the government does very little to reduce costs when decreases in revenues are experienced (thus deficits are monetized and amounts of currency rise at aggressive rates).
One of the most surprising and paradoxical aspects of hyperinflations is the shortage of money. When rises in prices grow out of control (which is starting to be the case in Venezuela), the amount of new money created is not enough to suffice for these increases in prices. In other words, the real money supply drops (nominal money supply / price levels).
The last phase in all cases of hyperinflation is currency stabilization. This phase is inevitable whether it be because of changes introduced by the government or due to complete rejection of local currency by the population. In order for such a monetary reform to be successful, it is essential that the government first eliminate the main cause of the inflation (the budget deficit). Unfortunately, it does not seem as though the Venezuelan government has any plans to decrease spending, nor does it appear that revenue from oil will be recovering any time soon, meaning that any attempts at currency stabilization will surely fail (just as it did the last time when the bolivar fuerte was introduced in 2008).
In light of this situation, it seems that Thiers’ Law is inevitable. Thiers’ Law is the reverse of Gresham’s Law. Good money eventually takes bad money out of circulation as the latter becomes abandoned. Currently, the US dollar serves as a store of value for Venezuelans, and to a lesser extent, the unit of account. The only function that the bolivar currently serves is as a medium of payments, which is only a matter of time before this function is abandoned, as well (in fact, alternatives to using local currency have begun to spring up in the form of bartering and trade). Seeing that the US dollar is already serving various functions that replace the Venezuelan currency, it is all too possible that it becomes the undesired successor to the bolivar.
Most certainly, Venezuela finds itself in hyperinflation for which there exist only two solutions; drastically reduce spending and the deficit and execute monetary reform or lose the bolivar and adopt the dollar. Both are equally unpopular for the government of Venezuela, but the difference is that if the first option (the deficit) goes unattended, the second (dollarization) is inevitable. Then, one of the most anti-US governments in the world will have to accept the US dollar as its only remedy against hyperinflation.
In Venezuela, despite enormous levels of money creation; money shortages are more and more common (graph 5). While the money supply has doubled since last year, real money supply has decreased 30 percent.
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“I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,”
– Senior European oil trader a day after arriving in the city-state.
Back in November, when the world-record crude inventory glut was still in its early innings, we showed what we then thought was a disturbing image of dozens of oil tankers on anchor near the US oil hub of Galveston, TX, unwilling to unload their cargo at what the owners of the oil thought was too low prices.
* * *
Little did we know that just a few months later this seemingly unprecedented sight of clustered VLCCs would be a daily occurrence as oil producers, concerned by Cushing hitting its operating capacity, would take advantage of oil curve contango to store their oil offshore indefinitely.
However, while the “parking lot” off Galveston has since normalized, something shocking has emerged and continued to grow half way around the world, just off the coat of Singapore. This.
The red dots show ships either at anchor or barely moving, either oil tankers or cargo, which have made the Straits of Malacca, one of the world’s most important shipping lanes which carries about a quarter of all seaborne oil primarily from the Persian Gulf headed to China, into a “bumper to bumper” parking lots of ships with tens of millions of barrels in combustible cargo.
it is also the topic of the latest Reuters expose on the historic physical crude oil glut which continues to build behind the scenes, and which so far has proven totally immune to dissipation as a result of the sharp increase in oil prices over the past three months.
Indeed, as Reuters notes, prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. And yet flying into Singapore, the oil trading hub for the world’s biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70 percent between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market.
“I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,” said a senior European oil trader a day after arriving in the city-state.
As Asia’s main physical oil trading hub, the number of parked tankers sitting off Singapore’s coast or in nearby Malaysian waters is seen by many as a gauge of the industry’s health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region’s coastal waters for use as floating storage facilities.
The glut is not only constant but is rising with every passing week: the tankers are filled with 47.7 million barrels of oil, mostly crude, up 10 percent from the previous week, according to newly collected freight data in Thomson Reuters Eikon.
What is curious is that the glut is persisting despite seemingly relentless demand by China. Earlier today Bloomberg calculated that 74 VLCCs are bound for China, the highest in 3 weeks, and up from 69 a week earlier. Still the inert glut off Singapore is enough oil to satisfy five working days of Chinese demand, suggesting recent supply disruptions – which have mostly occurred in the Americas, Africa and Europe – have done little to tighten supply in Asia as Middle East producers keep output near record volumes in a bid to win market share.
“The volumes of oil stored at sea in South East Asia – predominantly Singapore and Malaysia – appear to have increased significantly,” said Erik Broekhuizen, Global Manager of tanker research and consultancy at New York-based shipping brokerage Poten & Partners. “The current volumes are the highest for at least the last five years.”
What is taking place in the oil market appears to be merely the latest disconnect between the paper and physical markets, something quite familiar to precious metals traders in recent years. As Reuters notes, many participants in the physical market dispute recent notes from financial players like Goldman Sachs that forecast a further rise in crude futures. “There has been quite a bit of bullishness from hedge funds in recent months, betting on higher oil prices, and even the analysts at Goldman Sachs have recently turned more bullish on oil prices,” said Ralph Leszczynski, head of research at ship broker Banchero Costa.
“Prices are unlikely to rise too much as the specter of glut is still there,” he said. However, Leszczynski may be discounting just how powerful algo-driven momentum can be if, or especially when, it is completely disconnected from fundamentals.
* * *
While the sight of tankers at anchor is nothing new, this time something has changed.
Unlike before, when the contango of the oil curve made storing oil offshore profitable, this is no longer the case as contago-funded offshore profits have all but disappeared.
As a reminder, storing oil on ships can be profitable when prices for future delivery of crude are higher than in spot market, a term structure known as contango, as long as future prices are high enough to offset tanker charter costs. However, with the one-year contango for Brent futures collapsing from $7.60 per barrel in January to just $4, far below the $10 that traders say is currently required to make floating storage financially attractive, suddenly parking oil offshore leads to storage losses. The same goes for WTI.
At a charter cost of more than $40,000 a day for a Very Large Crude Carrier (VLCC) that can store 2 million barrels, the contango is nowhere near steep enough to make it profitable to store oil on tankers for sale at a later date.
This has led to a dramatic development in the oil market: debt-funded storage. Reuters writes that the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates.
“We are receiving unusually high amounts of queries to finance storage charters,” said a senior oil trade financier with a major bank in Asia. “These queries come from traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel,” he added.
So why are the traders doing this?
Simple: they hope that oil prices will rise fast and soon enough where the capital appreciation in crude will more than make up for the incurrence of new debt which will be repaid with proceeds from “selling higher.” The risk, of course, is that oil does not rise and should prices tumble, traders will not only have a capital loss on their hands, but be forced to deal with the excess leverage they had hoped would promptly disappear.
To be sure, while we have warned in the past about the danger of offshore storage becoming unprofitable and being brought back onto the land market, in the process launching a liquidation dumping scramble, it has never been this bad. A trade financier at a European bank said there had been a “spike in interest from oil traders to finance their storage needs” since the start of the year as onshore facilities were almost full.
Still, with record amounts of oil stored offshore and with the profit on such storage now shifting into a loss, many are scratching their heads how much longer this imbalanced, and bank funded, situation can persist.
“Floating storage is unattractive economically, given the current term structure in crude futures,” BMI Research said this week. Despite this, BMI said that “the volume of crude in floating storage has risen sharply in recent months,” adding that the phenomenon was global, with floating storage up 19.5 percent between the first quarters of 2015 and 2016.
“There is clearly still far too much physical crude going around for the glut to be over,” said the European oil trader after flying in to Singapore.
The trader’s conclusion: “And the paper market seems blissfully unaware of it.”
He is right… for now. Because all that will take for even the algos to give up their relentless upward momentum, is for some of these tens of millions of barrels to finally come onshore, which now that contango is no longer profitable, is just a matter of time.
In the meantime, just keep track of the unprecedented parking lot of ships off the coast of Singapore: the larger it gets, the more violent the price drop will be once banks say “no more” to funding money losing charters.
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The situation in Iraq had already become very dangerous, as we reported in earlier in the month, after the Iraq PM ordered arrests in order to disband Green Zone protests.
As Reuters reports, Anti-government protesters are back at it, and have stormed into Baghdad's Green Zone, allegedly reaching the Council of Ministers building.
#BREAKING Protesters enter Iraqi PM's office: AFP photographer
— AFP news agency (@AFP) May 20, 2016
BREAKING: Anti-government protesters storm into Baghdad's green zone as security forces shoot tear gas, live bullets: witness
— Reuters Top News (@Reuters) May 20, 2016
#Iraq 's #Parliament helpless to halt political crisis as clamour 4 radical change continues https://t.co/ed48aUUrA6 http://pic.twitter.com/d9UlSer2W5
— Donatella Rovera (@DRovera) May 20, 2016
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A few months ago, we reported the incredible story of how hackers stole $100 million from Bangladesh Central Bank by way of the New York Federal Reserve. Now, thanks to a little noticed lawsuit, details are emerging that hackers had initially stolen another $12 million from a bank in Ecuador, Banco del Austro, although the bank was able to get back about $2.8 million of the stolen money.
The Ecuadorean bank filed a lawsuit in New York federal court this year, accusing Wells Fargo of failing to notice red flags in a dozen January 2015 transactions, leading to $12 million being transferred from its account, mostly directed to banks in Hong Kong. In addition to Hong Kong, $1.5 million was transferred to an account in Los Angeles, and $1 million was sent to a bank in Dubai the WSJ reports.
While unclear whether or not there is a connection between the Ecuadorean bank and Bangladesh Bank thefts, there are similarities in method. Hackers accessed the bank's system to log onto the SWIFT network after hours and redirected transactions to new beneficiaries with new amounts.
Banco del Austro's lawsuit argues that Wells Fargo should have noticed several anomalies in the transfers and, at a minimum, asked questions about them. The lawsuit points to twelve suspect transfers that were carried out over a 10-day period in January 2015, citing an example of a $3,000 payment order to a company in Miami being altered to send $1.4 million to an account in Hong Kong.
"The unauthorized transfers were made in unusual times of day, in unusual amounts, to unusual beneficiaries in unusual geographical locations. Despite the numerous anomalies in the unauthorized transfers, [Wells Fargo] inexplicably failed to block them and/or alert BDA of the suspicious activity." BDA's lawyers argue in the filing.
Wells Fargo said in a motion to dismiss the case "BDA and Wells Fargo agreed that SWIFT authentication was a commercially reasonable security procedure for verifying SWIFT payment orders."
One major concern is that a spokesman for SWIFT said that the network was never told of the hack.
"We need to be informed by customers of such frauds if they relate to our products and services, so that we can inform and support the wider community. We have been in touch with the bank concerned to get more information and are reminding customers of their obligations to share such information with us."
After the hack of Bangladesh, SWIFT officials have been aggressively notifying customers about malicious software on the perimeter of their messaging network, noting that hackers have not penetrated its core network.
So once again, wire transfer anomalies were missed by Wells Fargo, just as the NY Fed had missed similar red flags as $100 million was being stolen from Bangladesh bank. Perhaps some of the recruiting effort spent on getting the brightest mathematicians to come write complex algorithms for the banks can be redirected to IT staffing, because unless measures are taken to enhance cyber security at these banks, these cyber heists will only become more frequent, and much more lucrative.
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Submitted by Eugen von Bohm-Bawerk via Bawerk.net,
The Federal Reserve really wants to raise rates, but they do not dare as the consequence of interrupting an unprecedented level of capital misallocation is too grave to face head on. So our money masters continue their low interest rate policy; pulling society further and further into a capital structure that cannot be sustained long term. In other words, scare capital is consumed in order to feed the present structure of production. Low rates thus cement what cannot be upheld and the suppression of volatility entailed by such policies simply mean internal inconsistencies accumulate without any functioning correction mechanism. Think of it as two continental plates pushing against each other; it is obviously better with thousands unremarkable earthquakes spread over time than a sudden burst of centuries with built up tension. Soviet Union did not have any functioning price system and they manage to run their economy for decades without recessions, until 1989 that is…
Our economic system should optimally experience a recession daily so unremarkable that no one even notice as these tiny corrections will help keep the system sustainable and balanced. Weeding out imbalances before they can do harm. World central bankers on the other hand suppress these corrections and consequently create conditions for massive disruptions. Controlling short term volatility inevitably leads financial dislocations large enough to bring down the whole system.
Today we will show how this may manifest itself for the US federal government as the Federal Reserve is eventually forced to raise rates, possible faster than anyone today imagine possible. In one scenario it is entirely possible that central bank credibility falls among the general public, leading to lower demand for cash and inversely increases demand for goods. In this particular scenario, prices, measured in currency units, spirals out of control and the only thing the central bank can do at this stage is to create the gut wrenching recession needed to tame price inflation. Volcker was forced to do it in the early 1980s from a far better starting point than todays. The latest consumer price inflation report issued by the Bureau of Labor Statistics does indeed show some price pressure in the dollar system with the “core” rate running ahead of target for the fifth month in a row as of April.
For now, assume the FOMC will follow its latest dot-plot, lifting rates to 0.875 per cent by year-end 2016, 1.875 by December 2017, 3.00 in 2018 and 3.25 from there on. Further assume a stable yield curve with longer dated rates following the Fed funds rate smoothly upwards. Needless to say, if the FOMC does lift rates it is highly likely the yield curve will invert as the US economy, on the brink of recession, cannot cope with higher interest rates. However, for the sake of argument assume the future will look like the chart below
The Fed Funds rate is at 3.25 per cent by 2019 while the 10-year is assumed to be a mere 3.8 per cent. In this scenario everything is going according to our money masters plan. Inflation remains low and the US economy grows around 1.5 – 2.0 per cent in real terms and nominal GDP starts out by growing at just over 3 per cent and subsequently falling gently to a rate of 2.3 per cent by 2020. Marketable debt increases slightly faster than historical norms (last 15 years) due to population ageing.
Note that we disregard intergovernmental debt as interest paid on these will only be shifted among departments. However, when looking at debt to GDP they need to be included since principal down payment will necessarily come out from the same tax base as all other government expenditures.
Due to Federal Reserve interest rate suppression, the US government has been able to fund itself on the cheap. Despite the gargantuan size of outstanding marketable debt, the US government pays a mere 2.034 per cent on average.
As the central bank not only suppressed the short end, but also the entire yield curve by incentivizing private investors to change their focus in a so-called portfolio rebalancing channel and outright purchases of notes and bonds, the US Treasury was prudent enough to increase its maturity profile to reduce roll-over risk and lock-in low rates today.
Despite the relatively long maturity profile, higher interest rates will quickly lead to higher debt servicing cost due to the sheer size of the USD13.4 trillion worth of outstanding marketable debt. By 2020 this level could easily reach more than USD20 trillion. We actually think it conservative to assume the Federal Government will be paying more than USD800 billion in 2020 just to service outstanding marketable debt!
While inflation will help nominal GDP grow along with the debt, the Federal Government will still be paying a similar share of its nominal GDP in 2020 as the Greeks and Italians pay to service all their debt today. At this point, it is worth noting how interest rates and hence interest payments suddenly becomes non-linear at crucial inflection points where investor confidence is lost. When the euro crisis first erupted this is exactly what happened to troubled nations. Confidence is easily lost among investors when a nation is on an unsustainable trajectory.
As an FYI, the Italians are paying a fraction of what they would in a free market due to ECB rate suppression. If the Italians were paying according to the average pre-crisis rate on public debt they would have to cough up almost 6.5 per cent of nominal GDP just to service their debt by now.
Some people argue that the interest rate calculation is flawed. We beg to differ. Firstly, the Federal Reserve remits all the interest paid from the Treasury back to the very same Treasury; so in effect the USD2.46 trillion held in marketable debt by the Federal Reserve can be disregarded as debt per se. In 2015 the Federal Reserve remitted almost USD100bn back to the US Treasury in addition to the transfer of USD19bn in capital surplus as part of the Fixing American’s Surface Transportation Act. While this has been true so far, it will not be true when rates start to move higher.
However, as the most overleveraged financial institution in the world are forced to mark-to-market their massive losses on bonds as rates are moving higher, the Federal Reserve must maintain earnings in order to recapitalize itself. In other words, the transition from one interest regime to another makes Fed holdings of US treasuries very real indeed. Fed remittances will no longer be available to the US Treasury.
Secondly, the roll over risk would be greatly increased if the Fed’s RRP is not enough to lift rates (more here) and stem the outflow of excess reserves. This means the Fed need to stop reinvesting maturing bonds to drain excess reserves and put additional pressure on longer dated rates (more here).
In conclusion the Federal Reserve has created a semblance of normality, but by suppressing interest rates they have enabled non-linear, and very possible ugly outcomes, to become entrenched in US public debt dynamics. The euro crisis from 2010 to this day show how difficult it can be to regain investor trust when the unsustainability is first revealed for all to see.
via http://ift.tt/27HOEne Tyler Durden
While earlier today the Egyptian military claimed to have found wreckage, including a body part, seats and suitcases from the crashed EgyptAir airliner, the question of just where the aircraft came down in the Mediterranean remains. Since finding the black box – and the reason behind the crash – requires finding the remains of the fuselage first, this is the current focus of the search mission, now that no survivors are expected.
Moments ago, the effort may have gotten one step closer to its target, when the European Space Agency says one of its satellites has spotted a possible oil slick in the same area of the Mediterranean Sea where EgyptAir Flight 804 disappeared. The agency said its Sentinel-1A radar satellite detected the 2 kilometer- (1.2 mile-) long slick about 40 kilometers (25 miles) southeast of the plane’s last known location. It gave the coordinates as 33 32′ N / 29 13′ E.
ESA says the information was passed to relevant authorities late Thursday to aid their search-and-rescue operations. The agency cautioned that there was no guarantee the slick was from the missing aircraft. It said the sister satellite Sentinel-2A will pass above the same area on Sunday and images will be studied for further clues as to the plane’s fate.
The AP also notes, somewhat surprisingly, that a terror analyst who is in contact with members of the Islamic State group and other jihadist groups says there have been “no credible or even semi-credible” claims of responsibility for the crash of EgyptAir Flight 804.
Shiraz Maher at the International Center for the Study of Radicalisation in London says IS on Thursday released a 20-minute video about how they planned to conquer India. He says “if they had been involved in the crash, it would be very odd for them to have sent that video rather than boasting of the crash.”
Confirming what we said yesterday, Maher added that both the Islamic State and al-Qaida affiliates have been quick to claim responsibility in the past for other plane crashes, though he said the wreckage is a better indicator of whether the crash was terror-related. Maher also said it would be highly unusual to target a plane with mostly Muslim passengers, as EgyptAir’s leaked passenger manifest has suggested.
via http://ift.tt/20fjI8a Tyler Durden