Month: December 2014

Just when industry experts were eying zee stabilittee in oil prices in the last 12 hours, this happens…

*SAUDI ARABIA SAID TO SEE OIL AROUND $60/BARREL: WSJ

And crude oil prices begin to dip once again.

 

As The Wall Street Journal reports,

Oil may stabilize around $60/barrel, WSJ reports, citing unidentified people familiar.

 

Suggests Saudis won’t push for supply cuts in near-term, even if oil prices fall further

*  *  *

And the reraction…

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London Property Bubble Primed To Burst – Consequences For UK Economy and Sterling

The ongoing slump in oil prices looks set to take their toll on London’s “super prime” property markets with attendant consequences for the rest of the London property market. Foreign money that had been flooding into the UK from a whole array of international sources and parking in London real estate is drying up.

City AM

These sources included Chinese billionaires and U.S. beneficiaries of the Fed’s QE largesse and Russian and Middle-East energy tycoons.

Western sanctions on Russia have led to a shuddering hault to Russian money entering the UK.  Since Xi Jinping came to power in China in November 2012 there has been a crack-down on corruption in China and the amount of Chinese cash being funnelled through tax-havens and into London property has been greatly reduced. The Fed’s QE has come to an end, for now at least, so U.S. sources of capital have waned.

Now the plummeting oil price is leading to a drop in demand from wealthy Middle Eastern elites. Many Gulf States are having difficulty financing their social programs due to the very low price of oil. Control over their countries restless populations is becoming more tenuous. So providing “bread and circuses” is a higher priority than pet investment projects in the UK.

The loss of these investment flows to the UK is creating a perfect storm for a crash in “super prime” property.

According to a report from City AM – citing statistics from Halifax and Britain’s ONS – since 2009 certain sectors of the British property market have fallen by as much as 20% (most of Scotland and Wales and parts of northern and south-western England) while others (in pockets of central London) have risen by as much as 61%.

The median UK wage is £22,044. This sum of money would currently buy 2 square meters of real estate in the plushest London boroughs of Kensington or Chelsea. Spreading out from the centre to Brent, Merton, Greenwich or Waltham Forest the same sum will yield slightly more space at between 5 and 6 square meters. On the other end of the spectrum – in parts of Wales, such as Merthyr Tydfil, the median wage would acquire 24 meters squared.

Central London has generally seen a rise in prices of between 40% and 60% in the last six years. Southern England has mainly seen rises of between and 15% and 30%. Whereas south west England has seen declines of around 4% in the same timeframe – with West Devon losing 13% of it’s property values.

In Wales there have been modest declines in some areas (1 -5%) and more severe in others (down 10% in Swansea) with some others showing a rise in price. Most of northern England has seen declines in price or in some clusters such as around Manchester or York seeing slight rises.

The consequences of these high prices on the working people of Britain have been harsh. The Telegraph reports today that a person in their mid-twenties in the UK can expect to pay £66,800 in rent by the time they are thirty.

On Sunday night Channel 4 aired a documentary on the current bubble showing miserable properties with asking prices ten times greater than the median wage. The Guardian reports today that the “young” are moving out of London in droves.

Clearly, the average British worker is being squeezed just to put a roof over his head.

Today the Telegraph reports that, “Borrowing on credit cards and demand for personal loans increased by 6.4pc in October compared with a year earlier, according to the Bank of England, representing the fastest annual increase since July 2006.”

Sky news report that, “households with a single breadwinner spent more than they earned last year.”

The British taxpayer is mired in debt and struggling to make ends meet. So neither the British public nor foreign investors look likely to buoy the vastly overvalued London property market in the coming months.

It is worth remembering that many of the reasons cited for London’s extraordinary house price growth were also cited in Dublin prior to the crash.

A housing correction or crash will likely lead to more negative equity among London property buyers and the many British mortgage-holders who are struggling. The nascent recovery in the national UK property market would be snuffed out.

This may lead to defaults and further stress on the fragile banking system. It also has ramifications for sterling and UK gilts, both of which are likely to come under pressure.

Get Breaking News and Updates On Gold Markets Here

MARKET UPDATE
Today’s AM fix was USD 1,203.25, EUR 975.24 and GBP 768.95 per ounce.
Yesterday’s AM fix was USD 1,197.00, EUR 962.68 and GBP 761.60  per ounce.

Gold fell $14.30 or 1.18% to $1,198.30 per ounce yesterday. Silver slipped $0.02 or 0.12% to $16.45 per ounce.

The gold price hovered above $1,200 per ounce in early morning London trading, with no clear immediate catalyst  to move prices up or down for now.

Silver at $16.40 is trading within a tight 36 cent intraday range. In the PGMs, which have been strengthened following good U.S. car sales yesterday, platinum was $7 up at $1,219/1,225, while palladium was also up $7 at $806/811.

Spot gold was last seen up 0.2% or $3.10 at $1,200.50/1,201.30 per ounce after reaching a high of $1,208.50, despite the dollar being firm. Some gold buyers see the recent price action as indicative of a possible bottom and are dollar cost averaging into position in anticipation of gains in 2015.

Due to fears that Russia will fall into a recession this year, currency wars and the strength of the US dollar, the Russian Central Bank was forced to intervene to stem the decline of the plummeting ruble.  The ruble hit record lows at 54.87 to the dollar and the Russian Central bank was forced to sell off $700 million of foreign currency reserves earlier this week.

The plummeting ruble is likely to lead to an even greater increase in the Bank of Russia’s demand for gold and exacerbate the already tight physical gold market.

Investors will look for guidance from the U.S. non farm payrolls number for November which comes out on Friday. A weaker than expected number after disappointing retail sales this week would lead to a safe haven bid. A better than expected number, would likely see traders sell positions or go short.

With stocks continuing to reach new record highs and the Dow Jones Industrial Average at 17,800, gold, after its 40% fall, looks better value versus stocks today. The Dow Gold ratio is now at 15 (Dow at 17,800 and gold at $1,200/oz – see chart above) which is quite high from a historical perspective. We expect a reversion to the mean in the coming years and the ratio to fall below 5 as gold outperforms U.S. stocks.

Essential Guide to  Storing Gold Bullion In Switzerland

www.GoldCore.com

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Venezuela CDS is surging once again this morning, even as oil prices stabilize on the day, to its highest since January 2009 as traders increase hedges or speculation that the nation will be forced to default on its bonds. Current prices imply around an 85% chance of default (likely not helped by President Maduro’s insistence that all is well and that he will try to destrout the black market for dollars that implies a massive devaluation is afoot for the Bolivar)

Highest default risk since Jan 2009…

 

And it appears since 2008, Venezuela has become entirely dependent on the ticks in oil prices…

 

Charts: Bloomberg

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An hour ago, Swedish Prime Minister Stefan Loefven failed to get enough government votes to support his latest budget, despite threats he may resign if the budget did not win majority support. This follows after Sweden’s Democrats, the third-largest party, “plunged the Nordic nation into a crisis” yesterday after vowing to oppose any government budget that promoted immigration. Loefven, 57, in late night talks with the four-party Alliance opposition was then unable to reach any agreement on a way forward for his budget of tax increases and higher welfare spending.

Cited by Bloomberg, Loefven said that “There was no will to have a dialog on the budget issue” – which sounds about as “compromising” as Barack Obama. He may now go down in history as Sweden’s shortest-serving premier in about 80 years, having taken control in September elections. The coalition’s proposal was rejected in a formal vote today in parliament, as the Sweden Democrats voted for the Alliance budget.

The former union boss led the Social Democrats back into power by ousting Fredrik Reinfeldt’s center-right coalition in September elections. The premier said last night he will also explore the option of resubmitting his budget to the finance committee in parliament. Another option is for snap elections to be called for the first time since 1958.

While for now Loefven has not resigned, the latter option is precisely what he picked. Follow the key BBG headlines from a just concluded press briefing by the prime minister:

• SWEDISH PM LOEFVEN SAYS SWEDEN IN SERIOUS SITUATION
• SWEDISH PM LOEFVEN SAYS WON’T ACCEPT NEW POLITICAL SITUATION
• SWEDISH PRIME MINISTER LOEFVEN CALLS FOR NEW ELECTION IN 2015
• SWEDISH PM SAYS NEW ELECTION TO BE HELD ON MARCH 22
• SWEDISH GOVT: WILL NEVER ALLOW SWEDEN DEMS TO DICTATE RULES
• SWEDISH PM LOEFVEN WON’T SEEK ANY FURTHER TALKS WITH OPPOSITION

and last but not least:

• SWEDISH PM LOEFVEN SAYS WILL CONTINUE TO TAKE RESPONSIBILITY

How idealistic. We give him a few days before he too succumbs to the siren song of “Get to work Mr. Chairman“, the same song that has made a complete mockery out of America’s own legislative branch.

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The nation’s top CEOs trimmed their forecasts for sales and capital spending, according to the Business Roundtable’s fourth quarter survey, predicting the economy will grow a modest 2.4% next year (well below the forecasts of many economists who expect the nation’s GDP to rise 3% or more in 2015), with only 36% expecting to increase capital spending. Given the roundtable’s urging government to extend corporate tax breaks that are set to expire and pass broader corporate tax changes that would encourage companies to invest in the U.S., we look forward to President Obama explaining to the CEOs why they’ve never had it better…

 

Looks like it’s going to need more than just higher stocks to keep the CEOs happy…

 

President Obama is due to speak at 1115ET  – audio only (plan accordingly)

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The ink on Barack Obama’s Chuck Hagel termination letter hasn’t dried yet but already the US president’s new, and seemingly far more hawkish advisors, are having their warmongering presence felt. Case in point: the Eastern European theater of (Cold) war, where Military.com reports that the new Army commander in Europe plans to bolster the U.S. armored presence in Poland and the Baltic states and keep rotations of U.S. troops there through next year and possibly beyond to counter Russia. Lt. Gen. Frederick “Ben” Hodges, who replaced Lt. Gen. Donald M. Campbell  earlier this month as commander of U.S. Army Europe, said the Army was looking to add about 100 Abrams tanks and Bradley Fighting Vehicles to the forces in Eastern Europe.

These U.S. Army M1A2 Abrams tanks are part of the European Activity Set,
a combined-arms battalion-sized set of vehicles and equipment pre-positioned
at Germany’s Grafenwoehr Training Area. Markus Ruachenberger/U.S. Army

“We are looking at courses of action for how we could pre-position equipment that we would definitely want to put inside a facility where it would be better maintained, that rotational units could then come and draw on it and use it to train, or for contingency purposes,” Hodges said in a briefing from Vilnius, Lithuania.

So “better maintained… or for contingency purposes.” Got it. That probably also explains why as NATO is seeking to deliver 100 tanks to Eastern Europe, it has already added several squadrons of fighter jets just minutes away from Russia’s border. For “contingency purposes.”

Before:

After:

As before, we wonder how the US would react if Russia were to place a few extra fighter jets in Cuba or a few hundred tanks in Mexico. Aside from historical fact of course.

But back to NATO’s tanks whose only mission is “contingency”, and certainly not to intimidate Putin that the NATO ring around the nation is closing.

Hodges visited a training site in Lithuania that could be used to store armor and said he would look at similar sites in Estonia and Poland. “Certainly, I don’t see a need to build infrastructure — a FOB [Forward Operating Base] if you will — or anything like that, that would be used for U.S. forces,” Hodges said.

Since taking command, Hodges has made clear his concerns about Russia, which annexed Crimea last March and has supported the separatists in eastern Ukraine. U.S. Army Europe, which had 280,000 troops at the height of the Cold War, now has 31,000.

The rotations of U.S. troops on training missions in Eastern Europe would provide “deterrence against Russian aggression,” Hodges said.

 

“I don’t think that Russia has any intention of some sort of a conventional attack into NATO territory because they know that would generate an Article 5 response.”

Which is why it is best to provoke Russia first by building up NATO armed forces on Russia borders, something NATO previously express would not happen.

He referred to the NATO treaty article calling on all member states to respond to an attack on any member of the alliance. Poland, Lithuania, Estonia and Latvia are all members of the 28-member NATO alliance.

“I think that what they [the Russians] do want to do is to create that ambiguity, plant the seeds of uncertainty so that the alliance members lose confidence that the rest of the alliance would come to their aid if they were, in fact, attacked,” Hodges said.

Well, no, that’s not what the Russians want. But if NATO keeps piling fighter jets and tanks on its border it will leave Putin no other choice. Which is precisely what the NATO endgoal is here.

In other news, speaking on background, a senior administration official traveling with Vice President Joe Biden on his trip to Ukraine last week said the U.S. has provided more than $100 million in non-lethal assistance “to help the Ukrainians defend themselves.”

The aid included night-vision goggles;protective vests; counter-mortar radars; blankets; vehicles; and Meals, Ready to Eat, the official said. The official said the U.S. had concluded that arming Ukraine would be counter-productive since “no matter how many weapons we provided to Ukraine, they were going to get outgunned by the Russians.”

Well, actually here the US is lying once again. Recall that “Hacked US Documents Said To Reveal Extent Of Undisclosed US “Lethal Aid” For Ukraine Army“, proving once again that the US is just as heavily involved in the Ukraine civil war as is Russia, also implying that the stated NATO reason for intervention is nothing but the red herring NATO wants to brings tensions to a new high, one that preferably breaks out in limited conflict or contained armed combat. Because clearly the global economy has reached its GDP plateau and only war can push it beyond at this point.

And speaking of limited conflict, Germany is already having nightmares about what is sure to be a very, very long recession. As Pravda reported, “the German government prepares for a long conflict with Russia.” German Foreign Minister Frank-Walter Steinmeier said the crisis with Russia could take more than a decade, and Ukraine’s aspirations to NATO only “adds fuel to the fire,” he said in an interview with ZDF television channel on Sunday, November 30th.

“Sometimes, 14 days are enough to start a conflict, but may take 14 years to solve this conflict,” the head of German diplomacy said. When asked whether the conflict with Russia could last for such a long time, Steinmeier responded positively.

 

For the German minister, the issue of Crimea’s future appears to be unsolvable.  According to Steinmeier, international recognition of the Crimea as a part of the Russian territory is impossible. “We can not either ignore the illegal annexation of the Crimea, or forget about it and just ignore this fact. The conflict between us will continue,” the Foreign Minister of Germany said.

Horrible news if you are Europe, right? Well yes… and no. Horrible if you are a member of the soon to be exinct middle-class, i.e., the 99%. If you are lucky enough to be among Europe’s uber-rich, all that the decade long conflict between Europe and Russia will do is provide the ECB with a constant scapegoat to engage in more, more, more easing, be it QE or otherwise, which in turn will crush the middle class like in the US, but make the uber-rich, uber-richer than they have ever been.

Which is ironic: as Europe’s wealthiest wage a war of words against the former KGB spy and current head of Russia through their numerous media holdings, it is they that should be most grateful for his existence.

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Confused? You are not alone…

ISM’s Nieves: “services in strong uplift in recent months”

 

Markit’s Williamson: “moderating growth in the service sector is a sign of domestic demand weakening… services collectively growing at a much reduced rate”

Trade accordingly…

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