Tag: news

Who knows the average joe American people better than bailout-boy and former Treasury Secretary Hank Paulson? Speaking with BloombergTV this morning, he excised his opinion on the "angry American" people and why, despite "being ripe for populism," Paulson forecasts that "I don't think we're going to see a President Trump."

 

 

Full transcript:

MICKLETHWAIT:  Would a President Trump be a useful ingredient to that long term stability?

 

PAULSON:  Listen, you know the answer to that as well as I do, and I don't think we're going to see a President Trump.

 

RUHLE:  You don't think we will?  What do you think we will have here?

 

PAULSON:  I don't — listen, I shouldn't even have made that comment, because I'm — I've got to tell you, I'm seeing things today that I never expected to see from either party.  Never expected to see, and things that are very disappointing and disturbing to me, the level of the discourse, and I think what we have is, when you have the American people as angry as they are, that this is — this makes them ripe for populism, and I think what we're seeing is rooted in that populism, so, but I'm not going to make a prediction on who our president's going to be.  But I will stick my neck way out and say, I don't think it's going to be Donald Trump.

via Zero Hedge http://ift.tt/25PIvV5 Tyler Durden

Submitted by Arthur Berman via OilPrice.com,

Natural gas prices should double over the next year.

Over-supply plus a warm 2015-2016 winter have resulted in low gas prices. That is about to change because supply is decreasing (Figure 1).

(Click to enlarge)

Figure 1. EIA U.S. natural gas supply balance and forecast. Production, consumption and supply balance values are 12-month moving averages. Source: EIA and Labyrinth Consulting Services, Inc.

Total supply–dry gas production plus net imports–has been declining since October 2015* because gas production is flat, imports are decreasing and exports are increasing. Shale gas production has stopped growing and conventional gas has been declining for the past 15 years. As a result, the supply surplus that has existed since December 2014 is disappearing and will move into deficit by November 2016 according to data in the EIA March STEO (Short Term Energy Outlook).

During the last supply deficit from December 2012 to November 2014, Henry Hub spot prices averaged $4.05 per mmBtu. Prices averaged $1.99 per mmBtu in the first quarter of 2016 so it is reasonable that prices may double during the next period of deficit.

EIA forecasts that gas prices will increase to $3.31 by the end of 2017 but that is overly conservative because it assumes an immediate and improbable return to production growth once the supply deficit and higher prices are established (Figure 1).

Production companies are in financial distress and are unlikely to return to gas drilling at the $2.75 price that EIA forecasts for November 2016. The oil-field service industry is in disarray and is probably unable to reassemble drilling and fracking crews and equipment in less than 6 to 12 months after demand resumes.

There are currently on 92 rigs drilling for gas. That is 150 rigs less than the previous record-low set in 1992 (Figure 2). Production cannot be maintained at this level despite unrealistic faith in drilling efficiency and spare capacity from uncompleted wells.

(Click to enlarge)

Figure 2. U.S. gas-directed rig count, 1987-2016. Source: Baker Hughes and Labyrinth Consulting Services, Inc.

A Tale of Two Price Cycles

Storage and production patterns for 2015 – 2016 appear quite similar to patterns observed in 2011 – 2012. Both periods are characterized by exceptionally high storage and comparative inventory levels, and record-low spot gas prices.

The storage and comparative inventory surplus of October 2011 – March 2012 disappeared as gas supply fell in response to low prices (Figure 3). By April 2013, gas prices were near $4.20 because the surplus had become a deficit. A cold winter sent prices above $6.00 in February 2014.

A similar pattern may be occurring in 2016.

The monthly average Henry Hub price for gas in March 2016 was $1.71 per mmBtu. That is the lowest CPI-adjusted monthly price (February 2016 dollars) in 40 years (Figure 3 shows 1999-present). The previous record low price was $2.01 in April 2012. The 2012 low coincided with a comparative inventory peak followed by an inventory deficit and gas prices that exceeded $4.00 by December 2013. The current 2016 price low must be near the latest comparative inventory peak.

(Click to enlarge)

Figure 3. U.S. natural gas storage and CPI-adjusted Henry Hub spot price in February 2016 dollars per mmBtu. Source: EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.

Comparative inventory is a measure of gas storage volume compared to a moving average of inventory values for the same time period over the 5 previous years. Comparative inventory (CI) provides an excellent negative correlation with natural gas spot prices.

Absolute storage levels were nearly the same for the last week of March 2016 (2,468 Bcf) and the last week of March 2012 (2,472 Bcf), and 2016 appears to be trending lower relative to 2012 (Figure 4).

(Click to enlarge)

Figure 4. Comparison of U.S. natural gas storage levels, 2012-2016. Source EIA and Labyrinth Consulting Services, Inc.

Gas production was flat from February 2012 through December 2013 in response to the price collapse that culminated in April 2012 (Figure 5). The price minimum coincided with a supply surplus maximum that disappeared and became a supply deficit by February 2013.

(Click to enlarge)

Figure 5. Dry gas production, Henry Hub prices and total supply surplus or deficit. Supply surplus and deficit values represent 12-month moving averages as in Figure 1. Source: EIA and Labyrinth Consulting Services, Inc.

Gas production has been flat since September 2015 (Figure 5). Total dry gas production in March 2016 was 0.7 bcfd less than in September 2015 and the latest EIA data indicates that production for April is 1.2% (-0.83 bcfd) less than a year ago. EIA’s supply forecast (Figure 1) suggests that the present surplus will become a deficit later in 2016.

Why Natural Gas Prices Will Double

I used the EIA March 2016 STEO inventory forecast to calculate comparative inventory for the rest of 2016 and 2017. This data indicates a fall in comparative inventory beginning in April or May 2016 (Figure 6).

(Click to enlarge)

Figure 6. U.S. natural gas comparative inventory, Henry Hub price and forecast. Source: EIA and Labyrinth Consulting Services, Inc.

That should result in a return to higher gas prices. The price estimate based on comparative inventory (shown in red) is more bullish than EIA’s price forecast (shown in orange) but both indicate a substantial percentage increase in prices.

EIA forecasts $3.20 gas prices in January and February 2016, and $3.41 in December 2017. My forecast based on comparative inventories is about 15 percent higher overall than EIA’s but peak prices are 20-30 percent higher. It calls for winter prices in the $4-range for 2016 and 2017.

Putting Prices In Perspective

A doubling of gas prices to $4.00 per mmBtu may seem too optimistic based on current price levels that have averaged about $2.00 since the beginning of 2016. Yet average prices since 1976 are $4.61 in 2016 dollars and the modal price for that period is $3.50 (Figure 7).

(Click to enlarge)

Figure 7. CPI-adjusted Henry Hub price and forecast (February 2016 dollars per mmBtu. Source: EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.

Moreover, the average price since January 2009 is $3.80 (2016 dollars) and the long-term trend-line since 1976 is more than $5.00 per mmBtu

All the data presented in this analysis suggests that present gas prices represent the low point in a price cycle similar to October 2011-January 2015 in which $2 gas was the bottom in an overall cycle whose average price was $3.65. That price is consistent with average prices since 2009 and the long-term modal price. The average of 2011-2015 peak prices (November 2013-December 2014 period of negative comparative inventory–Figure 6) was $4.34 per mmBtu.

My forecast for gas prices to average $3.65 in 2017 (Figure 6) is in fact conservative. It is based on the dubious EIA assumption that producers will immediately respond to an increase in gas prices to about $2.35 per mmBtu (their forecast price) with renewed drilling and that production will increase strongly throughout the rest of 2016 and 2017.

That is what happened in early 2014 (Figure 5) but then, gas prices were more than $6 and external capital was readily available before the oil-price collapse that began later that year. Although capital is still available, companies are more likely use it to pay down debt than to resume drilling especially for gas at least for the rest of 2016 and possibly longer.

The days of pure gas players are pretty much over and liquids are a more attractive drilling target than natural gas at any price. Having said that, the best operators in the Marcellus Shale play need $3.50 to $4.00 gas prices to break even and most need $4.25 to $5.50. In the Utica and Woodford plays, most operators need at least $5.00 to $6.00 prices to break even.

February gas production has declined 0.7 bcfd from its peak in September 2015. EIA’s production forecast calls for a 1 bcfd increase by December 2016 and an almost 3 bcfd increase by December 2017. It is difficult to imagine that either price forecast shown in Figure 6 would result in the drilling resurgence necessary to realize those higher rates.

That is why it is probably conservative to suggest that gas prices may double in the next year or so.

via Zero Hedge http://ift.tt/1S7Quc6 Tyler Durden

The US Oil rig count continues to track lagged oil prices perfectly, falling 8 rigs in the last week to 354 – its lowest since Nov 2009. Oil rigs have now declined 15 of the last 16 weeks. While gas rigs rose by 1 this week, the total rig count slipped 7 to 443 – yet another fresh record low. While the reaction was delayed, crude prices are sliding from their exuberant rally highs.

Oil Rigs dropped to Nov 2009 lows…

 

As the total US rig count plunged to fresh record lows…

 

And oil prices are sliding after the data…

via Zero Hedge http://ift.tt/1Xlzs8t Tyler Durden

When trying to time the next US recession, most economists – as one would expect – look at economic data. The problem with such “data” as last year’s farcical double seasonal GDP adjustments have shown, is that if the government is intent on putting lipstick on the pig that is US GDP, it will do just that over and over, unleashing non-GAAP GDP if it must, to avoid revealing the truth until it is prepared to do so.

To avoid such purposeful obfuscation SocGen’s Albert Edwards looks at places where it is more difficult to fabricate and goalseek data. Conveniently, he has discovered precisely that in what calls a “failsafe recession indicator,” one which has stopped flashing amber and has turned to red. He is referring to whole economy profits data, which in his own words “shows a gut wrenching slump.”

What Edwards is referring to is not that different from what we posted about back in October when we said that on 5 of the past 6 times when corporate profits dropped 60%, the economy entered a recession. This time the drop is far worse, and it’s no longer just energy (the loophole used by many to explain away why in 1985 there was no recession). However, instead of looking at bottom up data, the SocGen strategist instead collapses corporate profits from the top down.

Edwards lays out the reasons why he believes that “a recession now virtually inevitable”, and since this is Albert Edwards after all, he has a jovial follow up: not only will the US economy contract, it “will surely be swept away by a tidal wave of corporate default.”

From his latest Global Strategy Weekly

Despite risk assets enjoying a few weeks in the sun our failsafe recession indicator has stopped flashing amber and turned to red. Newly released US whole economy profits data show a gut wrenching slump. Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided – even more so than the ridiculously overvalued equity market – is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

 

The temper tantrum risk assets threw at the start of the year was sufficient for the Fed to backpedal furiously on rate hikes. Like the Grand Old Duke of York, the Fed marched us up to the top of the hill and then down again – at the behest of the markets. And as more and more contorted excuses are wheeled out to justify its inaction we all surely know by now that the Fed?s articulated ?data-dependent? rate hikes are primarily focused solely on the level of the S&P, i.e., when it slumps they will quickly back off rate hikes and use any excuse necessary  including dismissing surging core CPI inflation. How sad that Central Bank policy should have come to this.

 

I suppose now the S&P has recovered we are about to go through another turn on the monetary/market merry-go-round. Ignore this noise. Recent whole economy profits data show that while the Fed plays its games, the economic cycle is withering and writhing from within. For historically, when whole economy profits fall this deeply, recession is virtually inevitable as business spending slumps. And if I had to pick one asset class to avoid it would be US corporate bonds, for which sky high default rates will shock investors.

 

 

 

We have written extensively in the past as to why sell-side economists almost to a man and woman fail to predict recessions. One of the key reasons ? aside from the obvious wish not to make an unpopular call that might prove wrong and likely fatal to their career – is that they do not place enough importance on the role of profits as a driver of the economic cycle.

My own observation has led me to the conclusion that when whole economy profits begin to fall sharply, this is usually followed shortly after by the overall economy tipping over into recession, driven by the volatile business investment cycle. The national accounts, whole economy profits data give a wider and ?cleaner? estimate of the underlying profits environment than the heavily doctored ?pro-forma? quoted company profits data (the former also often leads the latter). As illustrated below, a longer term chart shows how whole economy profits tend to be a leading indicator of the business investment cycle. It also shows the current profits downturn is notably worse than the 1998 downturn – which is often cited as evidence that a profits recession does not necessarily lead to a full blown economic downturn.

 

At this point Edwards observes that some fellow skeptics like Gerry Minack do not see a recession as imminent (he sees a stagflation). However, he remains adamant: “My own view is that Fed tightening may not be a necessary condition to catalyse a recession and that the deep profits downturn is sufficient in itself. Historically all recessions are effectively caused by slumps in business investment driven by a profits downturn: the chart below shows that whenever GDP growth (dotted line) is negative it is almost totally overlaid by the contribution of GDP growth in business investment (red line).“

Will Edwards be right? Of course, but at that point the government – which needs to preserve confidence in growth at all costs – will simply change the definition on GDP first, and when that fails, of “recession” next. And all shall once again be well.

via Zero Hedge http://ift.tt/1NeePFI Tyler Durden

Submitted by Golem XIV,

“We have broken no laws and cooperated with the government at all times.”

Variations of that statement seem to be the default defence of everyone from bankers to politicians when their names come up in the Panama Papers.

In the UK the latest to resort to some version of it, was first Downing Street on behalf of the Prime Minister David Cameron, and then HSBC on behalf of it’s notorious Swiss subsidiary.  The former because his father who lived in the UK, set up an off-shore company which has never paid any taxes in the UK, and the latter because it turns out HSBC has once again been handling dirty money, this time holding and moving money for off-shore companies owned by relatives of Syrian President Bashar al-Assad.

Now HSBC is a well known money laundering bank. They have been indicted and convicted of money laundering so many times in so many different countries.  The best known case was in 2012 when HSBC were found guilty of  laundering drug money out of Mexico. HSBC were tried in the US and fined $1.9 billion. They paid and said how sorry they were, and their group Chief Executive Stuart Gulliver accepted responsibility for their past mistakes, but assured everyone they had now put all that behind them and had even,

spent $290m on improving its systems to prevent money laundering,

That was 2012. In 2015 HSBC all that was found to be blather. HSBC were caught laundering  – again. This time it was HSBC’s Swiss subsidiary which had laundered

the proceeds of political corruption and accepted deposits from arms dealers while helping wealthy people evade taxes.

And so I have been thinking about this phrase we keep hearing, about not breaking laws and cooperating with governments.  Now obviously the first part is rubbish for the likes of HSBC, but perhaps not for the origin of the Panama papers themselves the Panamanian Law firm, Mossak Fonseca. I think they probably have been operating within the law. Doing so by having laws with more holes in than a sieve and governments who leave critical areas of compliance in the semi dark of self regulation or even connive with skirting round the rules.  And this connivance is why I am so interested in the second part of the phrase we keep hearing, the cooperating with governments.

You see I think when we hear the whole phrase, in one variation or another, we are meant to think the two halves of the statement are linked. The bank, law firm or individual has never, at least not ‘knowingly’, broken the law and is now cooperating with the government. The cooperating is seen as the antidote and response to the embarrassing lapse in obeying the law.

But let’s tease the two halves apart. The ‘knowingly’ is precisely how HSBC, Wachovia, Citi or Standard Chartered all admit laundering was done at the bank, but are never guilty of having laundered it…not knowingly.  It is always a huge surprise. A discovery which saddens and angers them. Which they then move on from…. with the blessing of their government.

This is how they are fined but never guilty, how dirty money can have engorged their balance sheet but they never lose their banking license.

I think we could be forgiven for getting the sneaking suspicion that governments cover for their banks.

So I look again at the phrase I started with and hear it differently now. Instead of hearing how the  bank, law firm or individual is contrite about an ‘unwitting error’ about which they are now cooperating with the government, I now hear first a lie about not breaking the law, but then a startling truth.  You see, I wonder if we shouldn’t think that the one truth being hidden in plain sight in all this is that the financial world has indeed been cooperating with governments – but doing so all along.

Does it not make more sense to think that what we are seeing is not a few rogue bank employees and lawyers breaking the law and embarrassing their employers and their pathetically useless, regulators, but rather two cooperating parts of a system of finance and government who are suddenly revealed together? It’s not dirty bankers and corrupt lawyers who are – now they have been caught – having to cooperate with government, to clean up. Not at all. I think we should at least consider that the better explanation is that the two, financial/legal world and government have been cooperating all along.

It stretches the limits of credulity to keep imagining that the bankers aren’t well aware who their clients are and how dirty the money is they are accepting. Equally it is ridiculous to think that governments aren’t aware of how oligarchs become wealthy or presidents suddenly become billionaires. And that dirty but hugely wealthy system is there just whispering to our leaders – who let’s face it are mostly drawn from the wealthiest families.

I suggest that what we are seeing with the Panama Papers is two partners in crime who have been caught together – The ‘criminal’ and the inside man/bent cop together. Normally the criminal – or at least the organisation that he works for – look to the bent cop to protect them. Someone will have to do time of course, but the arrangement remains hidden and therefore protected.

But now the arrangement itself might be uncovered. And if the bent cop, the inside man, is revealed, that threatens everything doesn’t it? That is far more serious. And so here they are, both caught in the light, both being questioned in public. The bankers and lawyers must be wondering how far they can trust the politicians.

Normally this sort of thing is covered over by finding some poor low level fall-guy. Who even if he tries to say the corruption goes higher is easy to discredit or shut up. But now big level people on all sides are blinking in the unwelcome lights.

I think we should admit that both the global financial/legal system, and our governments are both systemically corrupt and have been partners in crime – laundering money and evading taxes – as a matter of undeclared policy. It has been and remains just the way the system they profit by, works.  The only people who were not to know is us – The little people of every country, who are told they must pay their taxes, accept cuts because they aren’t paying enough taxes, and obey the laws and respect their betters.

Time to wake up surely?

via Zero Hedge http://ift.tt/1qAu8E8 Tyler Durden

Even with today’s 3% surge – the most in a month – on the heels of Unicredit’s CEO proclaiming that EU banks are “intensely” looking for fundin solutions, European banking stocks have collapsed for a 4th straight week for the worst losses since 2012.

 

 

Following the brief exuberance after Draghi unleashed his latest bazooka – which it seems was all front-run – European banking stocks have collapsed almost 20% – the biggest loss since April 2012.

via Zero Hedge http://ift.tt/20eRoDy Tyler Durden