Month: September 2023

Authored by Tsvetana Paraskova via OilPrice.com,

• The G7 has no immediate plans to review its price cap on Russian oil, with the last review having taken place in March of this year.

• The recent oil price rally has driven Russian oil above the G7 price cap, with its flagship Urals blend averaging $72 in August.

• There were some talks in June or July to do a review, but that review never happened and there are no immediate plans to do another.

Despite the fact that Russia’s oil is now trading above the G7 price cap due to the oil rally in recent weeks, the group of the world’s top economies and its allies have shelved the regular reviews of the price ceiling, Reuters reported on Wednesday, quoting sources familiar with the matter.

At the end of last year, G7, the EU, and allies including Australia imposed a price cap of $60 for Russia’s crude oil if Russian crude shipments to third countries outside the EU are to use Western insurance and financing.

For most of this year, most Russian crude grades – including Urals – have traded below the price cap as international benchmark prices were trading in a narrow range of around $75-$80 per barrel.

However, with recent rises in Brent prices and narrowed discounts of Russian crude oil, Moscow’s crude has moved above the price cap.

Despite the rise in prices, the G7 group hasn’t reviewed the cap since March this year and has no immediate plans to do so, four sources with knowledge of the G7 policies told Reuters.

“There were some talks in June or July to do a review, or at least talk about it, but it never formally happened,” a diplomatic source told Reuters.

“The share of tankers covered by the price cap in crude oil shipments out of Russia stayed around 50–55% in July, dropping by around 5% compared to the prior month. For oil products & chemicals, the coverage of the price cap coalition has remained more stable at around 65% in July,” the Centre for Research on Energy and Clean Air (CREA) said in its latest monthly snapshot for July.

The price of Russia’s flagship crude grade, Urals, averaged $74 per barrel in August, slightly down from August 2022, but way above the G7 price cap of $60 and higher than the July average of $64.37 a barrel, data released by the Russian Finance Ministry showed last week. Between January and August 2023, the average price of Urals was $56.58 per barrel, compared to an average of $82.13 a barrel for the same period of 2022.

[ZH: Perhaps even more entertaining is the Biden administration’s insistence that the price cap is working.]

As Bloomberg reports, Eric Van Nostrand, acting Assistant Secretary for Economic Policy said during a Bloomberg TV interview that “nine months into implementation, the cap is working,” adding that the policy has reduced Russia’s revenue, and any breaches will be looked at by enforcement agencies from the US and allies.

“We don’t measure its success just by how many molecules of oil travel under the cap specifically,” Van Nostrand said.

“We view it as a market mechanism for changing the oil market’s incentives.”

The US is happy to see Russia keeping the market well-supplied, and it doesn’t want to “disrupt the global oil market in a way that could lead to instability.”

None of that sounds like ‘success’ to us?

Vice President Kamala Harris is ready to serve word salad to the world as POTUS, should Joe Biden – the oldest president in US history at 80, croak or is otherwise unable to effectively govern (so, now?).

“Joe Biden is going to be fine, so that is not going to come to fruition,” Harris told AP in an interview published Wednesday. “But let us also understand that every vice president — every vice president — understands that when they take the oath they must be very clear about the responsibility they may have to take over the job of being president.“

“I’m not different,” Harris added.

According to a Monday Wall Street Journal poll, 60% of registered voters don’t think Biden is “mentally up for the job” of being president, while 73% say Biden is just too old to be president. Meanwhile, a Harvard Caps/Harris poll from May found that 61% of voters don’t think Biden would even make it through another term in office.

If Biden wins reelection, he will be 82 at the time of his second inauguration and 86 at the conclusion of his term. The current oldest president at the end of his term was Ronald Reagan, who left office in 1989 at the age of 77.

In the AP interview, Harris argued that Biden “delivers” when he’s in the Oval Office.

“I see him every day. A substantial amount of time we spend together is in the Oval Office, where I see how his ability to understand issues and weave through complex issues in a way that no one else can to make smart and important decisions on behalf of the American people have played out, she said. “And so I will say to you that I think the American people ultimately want to know that their president delivers. And Joe Biden delivers.”

According to Boston University professor emeritus Tobe Berkovitz, “The problem with Biden being 80 is that he is acting more and more like a senior citizen without all of his faculties,” who added that Biden’s general demeanor “reinforces that he is an old 80-year-old, not a spry, competent 80-year-old.”

[T]he age issue will be eagerly amplified by political opponents and their media allies if Biden makes any slip-ups during a taxing election campaign.

The template has already been established in the extensive coverage given to Biden’s fall at a U.S. Air Force Academy graduation event in Colorado in early June.

Verbal misfires — as when he twice in 24 hours referred to the war “in Iraq,” when he meant “in Ukraine” earlier this year — deepen the perception problem. –The Hill

That said, Biden biographer Franklin Foer has stirred controversy over Biden’s age, depicting Biden complaining about his staff scrambling to do damage control after the president suggested regime change in Moscow, a comment his aides quickly walked back.

“Rather than owning his failure, he fumed to his friends about how he was treated like a toddler. Was John Kennedy ever babied like that?” wrote Foer.

Biden also lied in 2022 when confronted about it.

Doocy: “The big things you say on the world stage keep getting walked back.”

Biden: “What’s getting walked backed?”

Biden: You told troops they are going to Ukraine, the U.S. would use a chemical weapon, and called for regime change in Russia.

Biden: “None of the 3 occurred.” pic.twitter.com/cwZPzANIoC

— Greg Price (@greg_price11) March 28, 2022

On Tuesday in the White House media briefing, Fox News’ Peter Doocy asked White House spox Karine Jean-Pierre, “Why does White House staff treat him like a baby?”

To which Jean-Pierre responded, “No one treats the president of the United States, the commander in chief, like a baby. That’s a ridiculous claim.”

DOOCY: “President Biden is the oldest President in American history. Why does White House Staff treat him like a baby?” 🤣

pic.twitter.com/xBu9AOR7Op

— Benny Johnson (@bennyjohnson) September 5, 2023

On Monday, Biden defended his age, telling a Labor Day crowed in Philadelphia;

“Someone said, ‘You know, that Biden, he’s getting old,” he said. “Well guess what, guess what … the only thing that comes with age is a little bit of wisdom. I’ve been doing this longer than anybody, and guess what, I’m going to continue to do it, with your help.”

Via SchiffGold.com,

Peter Schiff recently appeared on Fox Digital and poured a bucket of cold water on those who believe the Federal Reserve is winning the inflation fight. In fact, the Fed isn’t making any progress at all.

Peter started the interview by noting that the Bureau of Labor Statistics (BLS) has revised the nonfarm payroll numbers down for all seven months this year.

If we’ve done something seven times in a row, it doesn’t seem very random. Because if these were random numbers, sometimes they’d be too high, sometimes they’d be too low. Like, it’s difficult to toss heads seven times in a row. So, if you toss it seven times in a row, maybe the coin is not fair.”

Peter said he thinks the BLS is biased in its assumptions and thinks the labor market is stronger than it actually is.

Obviously, unemployment picked up. So, that’s a sign of weakness. Average hourly earnings — up less than expected, which is problematic because prices continue to rise.”

Peter also noted there was a big spike in spending last month, but a very small gain in incomes.

The way consumers handled that was raiding their savings.”

The savings rate plunged to 3.5%.

In fact, American consumers have blown through nearly all of the excess savings they accumulated during the government pandemic lockdowns. Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.

That’s a sign that the economy is weak because consumers need that rainy day fund, right? Because it’s raining. They’re having a hard time.”

And Peter said it also shows the Fed isn’t making any progress in its inflation fight.

Consumers keep spending and reducing their savings in spite of the rate hikes. The rate hikes are supposed to reduce spending and increase savings. That’s how they bring down inflation. But nothing has worked, and so inflation is going to get worse.”

When you boil it all down, this is stagflation.

The economy is weakening, the labor market is weakening, but consumer prices are strengthening.”

Peter said he thinks we’ve bottomed out on headline CPI and noted that we really haven’t seen much of a reduction in core CPI.

So, now we’re bending back up again and the Fed is at five-and-a-half. They’re no closer to getting 2% inflation than when they had rates at zero.”

Meanwhile, federal budget deficits continue to spiral upward. The government is spending more instead of less.

Nothing has worked, and the markets are completely wrong on their benign outlook for future inflation.”

Peter said the “proper response” would be for the Fed to continue to raise rates while the federal government cuts spending. Of course, the Biden administration isn’t going to cut spending. And while you might see another quarter-point rate hike in September, it’s not going to be enough.

We actually need much higher interest rates. The problem is we can’t afford them. So any interest rate high enough to fight inflation is too high for the markets. And in fact, not only does the Fed create a recession. But it creates a financial crisis, and that financial crisis will be considerably worse than the one we had in 2008.”

This week, the ADP Research Institute, the research arm of the payroll processing firm, released a new report about a ‘real-time way’ to measure worker motivation. What they found is that a majority of workers aren’t motivated, and this might impact long-term productivity. 

Researchers said, “We designed the Employee Motivation and Commitment Index as a tool to help define optimal functioning for employees and specific roles within an organization. The score measures how employees feel about their place at work and whether they’re thriving and growing.” 

ADP researchers survey 2,500 workers each month and have noticed the EMC index has slid throughout 2023:

 “In August 2023, the EMC Index fell from 108 to 100, its lowest point since June 2022. The index peaked in December 2022 at 121 after a year of robust pay growth, strong hiring, and the rise of remote work.” 

They said, “We found a strong relationship between output and worker motivation and commitment.” And noted, “A person’s industry might influence their level of motivation and commitment.” 

Workers in transportation and warehousing, education, and healthcare industries were the least motivated, while technology, information, and construction workers were the most motivated. 

The biggest takeaway is that most workers aren’t motivated at work, which could soon impact productivity. There was no clear explanation as to why workers are slacking off, whether they believe their labor is worth much more (look what’s happening with the unionized workforce) or if these folks are spending too much time on TikTok.

Workers who are unmotivated in low-skilled/low-paying jobs must understand automation and artificial intelligence will displace them by the end of the decade. Now is the time to get retrained in a field less likely to be replaced by robots (here’s a tip: become an airline pilot). 

Sliding motivation at work is yet another ominous sign ‘Bidenomics’ is a failure. 

Authored by David Waugh via AmericanMind.org,

An independent alternative to financial repression…

After Silicon Valley Bank failed, President Biden told Americans they “can rest assured that our banking system is safe. Your deposits are safe.” Yet, for many, it is increasingly clear that this is not the case.

Across the Western world, banks are unsafe for those holding views that diverge from state-approved media narratives. Banks routinely close accounts of depositors with views that diverge from the accepted narrative, often without notice, a practice called “debanking.”

Even a cursory review of recent debanking incidents makes it clear that conservatives and conservative groups are disproportionately affected. And the advent of a cashless economy fueled by central bank digital currencies (CBDC) will exacerbate this trend. With CBDCs, governments will be able to directly control access to financial services.

Though it has accelerated, debanking is not uniquely American, nor is it new. Across the West, digitized banking has resulted in a top-down politicization of financial services, enabling the debanking of individuals and large enterprises.

A decade ago, the Obama Administration’s “Operation Choke Point” pressured banks to cease relationships with businesses perceived to hold unacceptable ideological views. The trend has only picked up steam since then.

JP Morgan Chase has been shutting down conservative accounts since at least 2019, and though shareholders are fighting back, there is no guarantee they will succeed. 

Last year, the Canadian government famously used emergency powers to freeze accounts and seize the assets of a group of truckers protesting vaccine mandates. 

British politician Nigel Farage recently made headlines when Coutts, a private bank founded in the seventeenth century, decided to close his account even though he had been a customer for over 40 years. The bank decided, in private memos, that their account holder was a “disingenuous grifter” and that there could be “reputational” harms in continuing their relationship with him.

Farage used his media influence to wage a public relations battle against Coutts and its parent company NatWest, the CEO of which was forced to resign—not for terminating Farage’s account, but for revealing client details to a reporter. In any case, regular people don’t have the ability to draw public attention to the problem of debanking.

Are financial apps any better? Unfortunately, no.

PayPal and other payment providers regularly shut down the accounts of customers who engage in wrongthink—demonstrating how hard it is to access any financial services once you have been blacklisted.

Making matters worse, calls for a “cashless society” and the introduction of central bank digital currencies will streamline the government’s ability to control access to finance.

We’ve already seen the state work behind the scenes to control what you are allowed to read and hear; imagine if the woke controllers get to decide if you can buy groceries this month.

Once money takes the form of a CBDC, it becomes fully programmable, allowing governments to decide what purchases can be made with it. Money can even be given an expiration date to incentivize spending and penalize savers. As economist Jonathan Newman put it, “programmable money means programmable citizens.”

A group of state-level officials is calling on banks to change their practices. Florida Governor Ron DeSantis and some Republicans have enacted anti-CBDC legislation, but their work would not stop implementation at the federal level.

Americans can restore their sovereignty from banks and their allies by owning a decentralized cryptocurrency like Bitcoin. When you own Bitcoin, you remove a portion of your finances from the discriminatory banking system, and hold repressive institutions accountable by forcing them to compete with an alternative.

Today, Bitcoin, the best known cryptocurrency, is commonly associated with speculation in the West. But in countries with unstable or unreliable currencies, it is seen as a way to gain independence from corrupt financial systems. This use case for crypto will become increasingly important with the advent of CBDCs.

As a digital bearer asset, Bitcoin grants the holder independent control, similar to physical-bearer assets like gold or bonds.

Previously, individuals had to use third-party payment rails to transact digitally, allowing banks or governments to stop or reverse transactions. Now, anyone can use Bitcoin (or other cryptocurrencies) to store and transfer wealth without an intermediary’s permission.

It is important to note that not all cryptocurrencies are created equal. Iris scanning schemes like Sam Altman’s Worldcoin or Sam Bankman-Fried’s FTT token are not decentralized. Their creators or governing bodies are susceptible to government pressure.

When you own a digital asset independent from the banking system, you own a hedge against the threat of being debanked. Bitcoin eliminates the ability of banks to freeze all of your wealth and the ability to transact.

With CBDCs on the horizon, a presidential administration that views the banking system as a political weapon, and with banks happy to comply, it is past time for Americans to understand that Bitcoin deserves a place in their toolkit for resisting tyranny.

Last week, just as the stock of recently bankrupt Chinese property giant Evergrande reopened for trading after being halted for two years, and plunged 87% in Hong Kong trading, we said that – as has become the norm in this broken market – a squeeze is imminent.

*EVERGRANDE FALLS 87% IN HONG KONG AFTER STOCK RESUMES TRADING

Just wait for the squeeze

— zerohedge (@zerohedge) August 28, 2023

We didn’t have long to wait, and on Wednesday, the newly bankrupt Evergrande closed up 83%, its biggest surge since its 2009 listing, as a frenzy of speculative retail bets that Chinese authorities will widen support for the property sector sent some of the country’s ailing developers surging by the most on record. For those who waited the 10 days for the squeeze and doubled their money, congrats.

The Bloomberg China builders index gained nearly 10% Wednesday, the most in more than a month as heavily indebted developers, most of them near bankruptcy and with depressed valuations, were among those to rally the most, with Sunac China Holdings Ltd. soaring 68% alongside a spike in trading volume. China Evergrande Group

The sudden upturn comes after a rout in August, when the property sector showed signs of deepening financial problems. As discussed on Monday, authorities introduced bolder measures in recent weeks to put a floor under the crisis, including lower down payments and looser mortgage rules for some homebuyers.

The latest boost came from a Securities Times article, which went a step further to say China should drop home-buying restrictions in most regions other than top-tier cities.

“It’s some hedge funds speculating on more stimulus,” said Xin-Yao Ng, investment manager of Asian equities at abrdn Asia Ltd. “The distressed developers are definitely the speculators’ pick to bet on stimulus as they see the biggest delta to policy news.”  Alternatively, they just read our tweet.

According to Bloomberg “the magnitude of the rally suggests some investors see a glimmer of hope from the government’s latest efforts, though whether the measures will succeed in reviving the sector remains in doubt.” Alternatively, the magnitude of the rally merely shows how many shorts had piled into the sector and were furiously squeezed, especially with prices in the pennies.

A record wave of developer defaults has pushed many of them to mere penny stocks, whose shares trade at around one Hong Kong dollar. Such cheap valuation subjects them to volatile moves on any potential catalysts. The property gauge now trades at a price-to-book ratio of 0.3, compared with a five-year-average of 0.47. Even with this week’s gains, the index remains more than 30% below this year’s high in January.

Shares of Country Garden Holdings Co., once the country’s largest property developer, now trade at around HK$1.2 apiece, about 8% of their peak level. Wednesday’s 21% jump, accompanied by a record trading volume, only added around $750 million in value to the battered company’s market capitalization.

“If you ask me if this sector is worth buying – for investors, it’s a no. For speculators, it’s a yes,” said Kenny Wen, head of Investment strategy at KGI Asia Ltd. “It’s likely that we see other property developers having new crisis through the end of this year. China’s property trouble is not solved completely.”

The punchline came from Steven Leung, executive director at UOB Kay Hian, who – 2 weeks after we said to brace for a brutal squeeze – said that the rally may be driven by short squeeze of some heavily-shorted names. The major gainers are mostly small- and medium-sized developers which tend to have big swings, he said.

Meanwhile, the broader equities market was muted, another evidence that investors expect the sector’s rebound to be fleeting. The CSI 300 benchmark of onshore shares was down 0.2%, while the Hang Seng China Enterprises Index climbed 0.1%. Distressed chinese high-yield dollar bonds, mostly issued by developers, were also largely unchanged with little liquidity Wednesday, according to credit traders. Country Garden’s dollar bonds still trade at deeply distressed levels around 9-14 cents on the dollar despite a recent rebound, indicating investors remain on edge about the risk of an eventual default.

Investor attention will likely turn next to any signs of recovery in housing demand, according to Willer Chen, senior analyst at Forsyth Barr Asia.

“The high frequency sales data in the next two weeks is crucial for investor judgment on whether the policy is helpful enough,” Chen said.

By Bas van Geffen, senior macro strategist at Rabobank

In the land of the blind, they say, the one-eyed man is king. We have often accused Europe of being blissfully unaware of the shifting tectonic plates on the geopolitical sphere, but the eye patch that German Chancellor Scholz has to wear following an unfortunate accident while jogging has so far failed to give him the clarity that many of his European counterparts still seem to lack as well. While the Chancellor was busy soliciting memes on X, it is in fact his economy minister whose eyes have been opened.

In a speech to German ambassadors, Habeck went where Chancellor Scholz didn’t dare go. The minister warned that Europe’s external environment is vastly different than it has been over the past decades: Habeck concludes that trade and investment are now drenched in (geo)politics, and that Europe may not be able to continue to deal with both the US and China like it has in the past; Europe may be forced to choose sides.

Asian countries, meanwhile, are increasingly unhappy with the strength of the world’s reserve currency. US dollar strength has sent a number of Asian currencies to multi-month lows, prompting interventions.

The PBOC fixed the yuan at 7.1969, which is a record gap to the spot rate and a record 1,139 pips stronger than a survey conducted by Bloomberg. Regardless of the interventions, CNY is trading around 7.31.

Not only the PBOC sought to stem the bleed from the strong dollar. The Japanese Ministry of Finance warned that they would not shy away from “any options if speculative moves persist”. Masato Kanda told reporters that it is important for the currency to reflect fundamentals. The Ministry of Finance issued a similar warning last month, when USD/JPY rose above the 145 level.

Yet, one can wonder which fundamentals are relevant if not the huge difference between US and Japanese monetary policy, which is likely to persist for some time. Risks are still skewed to a scenario where the Fed may have to tighten further than markets have been anticipating so far. Conversely, Bank of Japan officials continue to reiterate that their policy will have to stay accommodative, although Hajime Takata pointed out this morning that there had been some progress towards achieving the Bank’s inflation goal: “green shoots are finally emerging, [but] we need to continue patiently with large-scale easing as uncertainties are extremely high.”

Similar green shoots are visible in European inflation data, but there are equally red flags. According to the ECB’s Consumer Expectations Survey, expectations of medium-term inflation have risen slightly again. The median estimate of 3-years ahead inflation ticked up from 2.3% to 2.4%. Although consumer expectations are still trending down on a longer-term view, this uptick isn’t what the Governing Council would like to see. That said, it is difficult to attach much value to this survey, given that it is still very new and generally lags a bit. So Council members may prefer to look at other measures of inflation expectations, including the Survey of Professional Forecasters and market-based indicators.

Indeed, the market seemed to look through the survey’s release, arguably supported by further comments from ECB officials as they return from their holiday breaks. Chief Economist Lane focused on the positive elements of the inflation data, and he concluded that core inflation should fall throughout the fall.

Moreover, more hawks seem to be getting on board with a potentially very long hold at current levels. Bundesbank president Nagel cautioned against bets that the ECB would return to rate cuts shortly after the central bank is done hiking, which suggests he also sees the dangers of overshooting the mark. Recall that Ms. Schnabel recently noted that a higher terminal rate does not have the same effect as a longer period of high rates, considering that overdoing the hiking cycle could lead to a bigger economic downturn than necessary and a subsequent undershoot of inflation in the medium term, rather than a durable convergence to 2%.

And odds of a European recession remain fairly high, as re-confirmed by the German data this morning. Factory orders fell by a stunning 11.7% m/m in July, confirming the heavy weather that the manufacturing sector has hit – something that had already been flagged by the PMI surveys.

This sharp decline is the reversal of two months of strong gains, though, so the three month trend is not as bad as the headline print. For example, orders from Eurozone countries fell 24.4%, but that follows a 26.6% gain in June. This softens the July data somewhat, but overall the picture for the German industry remains quite bleak.