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Authored by Paul Craig Roberts,

When one looks at the deplorable state of the world, one cannot help but wonder at the insouciance of the American people. Where are they? Do they exist or are they a myth? Have they been put to sleep by an evil demon? Are they so lost in The Matrix that they cannot get out?

Ever since Clinton’s second term the US has been consistently acting internationally and domestically as a criminal, disregarding its own laws, international laws, the sovereignty of other countries, and the US Constitution. A worse criminal government has never existed. Yet, Americans remain subservient to the criminals that they have placed in power over themselves.

According to polls, Hillary Clinton and Senator Bernie Sanders are splitting the Democratic vote 50-50 as preferred Democratic presidential candidate. This is extraordinary.

Hillary Clinton represents the interests of Wall Street and the mega-banks, the Israel Lobby, and the interests of the military/security complex. These interests are totally opposed to the interests of the American people.

In his book, What’s the Matter with Kansas, Thomas Frank raised the question of why Americans vote against their own interests? Why do Americans go to the voting both and do themselves in?

Whether you agree with Thomas Frank’s answer or not, Americans do, on a regular basis, harm themselves by voting for people who are agents of vested interests diametrically opposed to the interests of American citizens.

How is it possible, if Democrats are informed people, that half of them prefer Hillary Clinton? Between February 2001 and May 2015 Bill and Hillary collected $153 million in speaking fees. The fees averaged $210,795 per speech.

I can remember when Bill and Hillary were in public office when their speeches were free. No one wanted to listen to them when the speeches were free. Clearly, Bill is being paid off for his past services to the powerful interest groups that control the United States, and Hillary is being paid off for her future service to the same groups.

How then is it possible that half of Democrats would prefer Hillary? Is it because she is a woman and women want a woman president more than they want their civil liberties, peace, and employment for themselves, their spouses and their children?

Or is it because, given the presstitute character of the American media, the people haven’t a clue?

If you vote for Hillary, you are voting for someone who has been paid off to the tune of $153 million by powerful vested interests who have no concern whatsoever for your interests. In addition, Hillary has the necessary campaign funds from the powerful interest groups for her presidential nomination campaign. As if this isn’t damning enough, Hugh Wharton writes that the National Democratic Committee is in league with Hillary to steal, if necessary, the nomination from Sanders and the voters.

In contrast, the interest groups who rule America are not contributing to Sanders.

Therefore, the choice of Sanders is obvious, but 50% of Democrats are too braindead to see it.

Although Hillary is a substantial threat to America, the threat of nuclear war is much greater, and the Democratic Obama regime in the hands of neoconservatives has just greatly amplified the threat of nuclear war.

The United States government, or perhaps we should say the exploiter and deceiver of the American people, has announced a three-fold increase in its military presence on Russia’s borders. The excuse for this great boost in the profits and power of the US military-security complex is “Russian aggression.”

But there is no sign of this aggression. So Washington and its servile presstitutes in the Western media make it up. They proclaim a lie.

“Russia invaded Ukraine” proclaims the propaganda. No mention is made of Washington’s coup in Ukraine that overthrew a democratically elected government and began a war against the Russian populations of eastern and southern Ukraine, former provinces of Russia added to the Ukrainian Soviet Republic by Soviet leaders. In the presstitute media, no mention is made of Washington’s intention of seizing Russia’s only warm water port in Crimea on the Black Sea. http://ift.tt/1L0hj9r

Having created a nonexistant Russian invasion in place of the real US coup in Ukraine in the minds of the indoctrinated Americans, Washington now claims that Russia is going to invade the Baltics and Poland. Nothing could be further from the truth, but this lie from the Obama regime now determines that the US military presence on Russia’s borders will increase three-fold.

The escalation of the US/NATO threat on Russia’s borders forces a Russian response. Considering that the Russophobic governments in Poland and the Baltic States have unstable judgement, military buildups bring risks of miscalculations.

There is a limit to the level of threat that the Russian government can tolerate. The impotent Obama is in the firm grip of the neoconservatives and the military-security complex. The neoconservatives are motivated by their ideology of American world hegemony. The military-security complex is motivated by power and profit. These motives bring the United States and its vassals into conflict with Russia’s (and China’s) sovereign existence.

Within the councils of American foreign policy there is not sufficient weight to counter the neoconservative drive to war with Russia and China. In conventional war, the US is not a military match for the Russian/Chinese strategic alliance. Therefore, the war would be nuclear. The power of hydrogen bombs is immensely more powerful that the atomic bombs that the US dropped on Japan. Nuclear war means the end of life on earth.

Americans can know that democracy has failed them, because there is no check on the neoconservatives’ ability to foment war with Russia and China.

The neocons control the press, and the press portrays Russia as “an existential threat to the United States.” Once this fiction is drilled into the brains of Americans, it is child’s play for propagandists to create endless fears that deplete taxpayers of income in order to create profits for the military-security complex by relaunching the Cold War and an armaments race.

That is what is currently going on. The inability of Americans to realize that they are being taken into a conflict that benefits only the profits and power of the military-security complex and the ideology of a small group of crazies demonstrates the impotence of American democracy.

Universities and think tanks are replete with ambitious people who, chasing grants and influence, fuel the Russophobic hysteria. For example, on February 9 the Washington Post published an article by Michael Ignatieff, the Edward R. Murrow professor at Harvard University’s Kennedy School, and Leon Wieseltier, the Isaiah Berlin Senior Fellow at the Brookings Institution in Washington. The article is a complete misrepresentation of the facts in Syria and called for US measures that would result in military conflict with Russia. It was irresponsible for the Washington Post to publish the article, but the decision is consistent with the Post’s presstitute nature.

The propaganda line maintained by the US government, the neoconservatives, the military/security complex, the presstitutes, and fiction-writers such as Ignatieff and Wieseltier is that Russia is not bombing the Islamic State jihadists who are attempting to overthrow the Syrian government in order to establish a jihadish state that would threaten the Middle East, Iran, and Russia herself. The official line is that the Russians are bombing the democratic “rebels” who are trying to overthrow an alleged “brutal Syrian dictator.” The conflict that the US government started by sending ISIS to Syria to overthrow the Syrian government is blamed on the Russian and Syrian governments.

Ignatieff and Wieseltier say that the US has put its “moral standing” at risk by permitting the Russians to bomb and to starve innocent women and children, as if the US had any moral standing after destroying seven countries so far in the 21st century, producing millions of dead and displaced persons, many of whom are now overrunning Europe as refugees from Washington’s wars.

The recently retired head of the Defense Intelligence Agency, Michael Flynn, has said that the Obama regime made a “willful decision” to support ISIS and use ISIS against the Assad government in Syria. That the violence in Syria originated in a US/ISIS conspiracy against Syria is ignored by Ignatieff and Wieseltier. Instead, they blame Russia despite the fact that it is Russia’s air support for the Syrian Army that has rolled back ISIS.

Where were Ignatieff and Wieseltier when Washington and its vassals destroyed Iraq, Libya, Somalia, Afghanistan, Yemen, much of Pakistan, overthrew the first democratically elected government in Egypt, overthrew the government in Ukraine and started a war against the Russian population, and supplied Israel with the weapons and money to steal Palestine from the Palestinians? Where were they when Clinton destroyed Yugoslavia and Serbia? Where are they when ISIS murders Syrians and eats the livers of its executed victims?

It would be interesting to know who financed the professorship in Edward R. Murrow’s name and the fellowship in Isiah Berlin’s name and how these positions came to be staffed with their current occupants.

Reagan and Gorbachev brought the Cold War to an end. The George H.W. Bush administration supported the end of the Cold War and gave further guarantees to Russia. But Clinton attacked Serbia, a Russian ally and broke the agreement that NATO would not expand into Eastern Europe to Russia’s border. When the neoconservatives’ plans to invade Syria and to attack Iran were frustrated by Russian diplomacy, the neocons turned on Russia with fury.

In 1961 President Eisenhower warned the American people of the threat posed by the military-security complex. That was 55 years ago. This complex is so strong today that it is able to divert massive taxpayer resources to its coffers while the living standard and economic prospects of the American people decline.

The military/security complex requires an enemy. When the Cold War ended, the “Muslim Threat” was created. This “threat” has now been superceded by the “Russian Threat,” which is much more useful in keeping Europe in line and in scaring people with prospective invasions and nuclear attacks that are far beyond the power and reach of jihadists.

Superpower America required a more dangerous enemy than a few lightly armed jihadists, so the “Russian threat” was created. To drive home the threat, Russia and her president are constantly demonized. The conclusion is unavoidable that the insouciant American people are being prepared for war.

via Zero Hedge http://ift.tt/1PIy7Uo Tyler Durden

The move in gold, up 17% year to date, is important, according to ConvergEx's Nick Colas…

 

We’ll be blunt: most financial asset investors really hate gold.

 

Anything – even leaving money in the bank – is better than owning gold since at least society has access to your capital through the banking system.  Once you buy physical gold, no one has access to that sliver of your portfolio.

 

Of course, that’s actually a feature for the owner since physical gold is no one else’s liability. 

 

So the notable rally in gold is essentially a protest vote against the global financial system, the equivalent of taking your ball and going home.

 

This only happens when investors think central banks have lost their way, and that’s not good news.  Think of gold as a super-duty dive watch.  It can go places humans can’t actually even dive.  The watch will outlive the person wearing it.  Kind of cool, but you don’t necessarily want to test it yourself.

Finally, Colas adds…There are three reliable signs of a market bottom, where things get so bad it is safe to step in.

First, when the S&P 500 drops 5% or more in one day.

 

Second, when the CBOE VIX Index tops 40.

 

And third, when everything sells off for a few days and correlations for all equities approaches one.

 

None of these events have yet occurred.

And so we wait…

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

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

What we see happening today is why we called our news overview the “Debt Rattle” 8 years ago. The last gasps of a broken system ravished by the very much cancer-like progress of debt. Yes, it took longer than it should have, and than we thought. But that’s pretty much irrelevant, unless you were trying to get rich off of the downfall of your own world. Always a noble goal.

There’s one reason for the delay only: central bank hubris. And now the entire shebang is falling to bits. That this would proceed in chaotic ways was always a given. People don’t know where to look first or last, neither central bankers nor investors nor anyone else.

It’s starting to feel like we have functioning markets again. Starting. Central bankers still seek to meddle where and when they can, but their role is largely done. It’s hard to pinpoint what exactly started it, but certainly after Kuroda’s negative rate ‘surprise’ fell as flat on its face as it did, and then fell straight through the floor and subsequently shot up through the midnight skies, a whole lot more ‘omnipotence credibility’ has disappeared.

Kuroda achieved the very opposite of what he wanted, the yen soared up instead of down -big!-, and that will reflect on Yellen, Draghi et al, because they all use the same playbook. And the latter so far still got a little bit of what they were shooting for, not the opposite. Still, one could also make a good case that it was Yellen’s rate hike that was the culprit. Or even Draghi’s ‘whatever it takes’. It doesn’t matter much anymore.

Though what should remain clear is that it was in their interference in markets to begin with, as extremely expensive as it has been extremely useless and dumb, that the real guilt resides. Or we could take it even a step further back and point to the credit bubbles blown in the west before 2008. Central banks could have let that one go, and allow it to run its natural course. Instead, they decided they should inflate their own balance sheets. What could go wrong?

Then again, these inane policies concocted by a bunch of bankers and bookworm academics who don’t even understand how their own field works, as Steve Keen once again explained recently, would have blown up in their faces long before if not for China’s decision to join in and then some. Some $35 trillion, that is.

Money, debt, spent on ghost cities and on what now turn out to be ghost factories. Ghost jobs, ghost prosperity,a ghost future. Makes us wonder all the time what people thought when they saw China used as much cement in 2011-2013 as the US did in the entire 20th century. Did anyone think that would continue for decades, even grow perhaps? Have we lost all sense of perspective?

How much cement or steel can one country need, even if it’s that large? How much coal and oil can it burn, let alone store? Blinded as we were, apart from the financial shenanigans, much of what the ‘developed nations’ engaged in since 2008 was overleveraged overinvestment, facilitated by ultra-low rates, in industries that would feed China’s hunger for ever more forever. Blind? Blinded?

And now we’re done. If Elon Musk doesn’t come back soon with a zillion little green Martians to pick up China’s slack, we’re all going to be forced to face just how distorted our media-fed visions of our economic futures have become, and how much pain it will take to un-distort them.

Which is what we’re watching crash down to mother earth now. And the central bankers’ loss of ‘omnipotence credibility’ is not something to be underestimated. It encourages people like Kyle Bass to dare the PBoC to show what it’s got left, even if, as Bass said, he’s got maybe a billion to go up against the multi-trillion Chinese state windmills of Beijing. It shouldn’t matter, but it does. Because the windmills are crumbling.

Bass won’t be alone in challenging global central banks. And that’s probably good. Without people like him, we would never see proper checks and balances on what the formerly omnipotent are up to. Kuroda has next to nothing left -or even less that that. Draghi and Yellen only have negative territory left to plow into, and at the very least that means putting positive spins on any economic numbers becomes exceedingly hard to do -and be believed.

Granted, they can still all go for helicopter money -and some will. But that will be the definite last step, and they know it. Dropping free money into a festering cesspool of debt is as useless and deadly as all previous QEs put together.

As we watch the world crash down to earth in epic fashion -and it ain’t even the 1st inning- people are already looking for a bottom to all of this (a waste of time). But if there’s one law in economics, it’s that when a bubble pops it always ends up below where it started. So look at where levels were before the bubble was blown, and then look out below.

Want to argue that this is not a bubble? Good luck. This is the mother of ’em all.

The Lunar New Year, and the breather it brings for Beijing -though we’re sure there’s not a lot of family time off for PBoC personnel- seems like a good moment to take stock of the multiple crises that simultaneously and in concert accelerated head first into the new year. And boy, the rest of the world decided not to wait for China, did it now? For those who’ve seen this coming and/or have no skin in the game, it’s an amusing game of whack-a-mole. For others perhaps not so much.

To take a few steps back, if you ever believed there was a recovery after 2008, or even that it was theoretically possible for that matter, you’re going to have a much harder time understanding what is happening now. If you’ve long since grasped that all that happened over the past 8 years of QE infinity-and-beyond, was nothing but “debt passed off as growth”, it’ll be much easier.

It’s stunning to see for everyone at first blush that the “book value” of global proven oil reserves is down by $120 trillion or so since summer 2014. And it certainly is a big number; the S&P has lost ‘only’ $2 trillion in 2016. But what counts is the speed with which that number sinks in, and that speed depends on one’s reference frame. In the same vein, what’s perhaps most important about all the seemingly separate crises developing before your eyes is how they feed on each other.

Or, rather, how they all turn out to be the same crisis, kind of like in the perfect whack-a-mole game, where there’s only one mole and you still can’t catch it. So try and whack these. Or better still, try and imagine central bankers doing it, or finance ministers, spin doctors. They’re all so out of their leagues it would be funny if they didn’t have the power to make you pay for their incompetence.

via Zero Hedge http://ift.tt/1Te9sM3 Tyler Durden

After repeated warnings about China’s soaring non-performing loans on this site (here, here and here), which have underscroed the basis of Kyle Bass’ “big trade for 2016”, namely shorting China’s currency in the bet it will have to massively devalue in order to address its incipient default cycle, virtually everyone is aware that China has a big Non-Performing Loan problem, a problem whose size we first quantified as much as $3 trillion, or the same amount as all of China’s FX reserves.

However, very few know that while the rest of the world is assuming that China will simply sit there and hold in its imploding NPLs which could well rip it apart from the inside in a massive wave of defaults, some of these bad loans have quietly found their way to the US, where they hope to find a buyer courtesy of the DebtX platform.

The offering:

DebtX is pleased to announce the sale of a RMB 556 million non-performing loan relationship. The offering includes two non-performing loans secured by real estate in Southern China. The collateral includes a petrochemical wharf and an office building that serves one of China’s largest petroleum storage houses, as well as land use rights and additional business assets of the borrowing entities. The loans have strong loan to values, an in-place lease through 2025, and a full guaranty.

 

The details:

 

So, to summarize, a Chinese loan worth RMB556 billion collateralized by RMB1.2 trillion in the form of a petrochemical wharf, or a paltry 46% LTV, and which has a tiny cost of capital of 4.5%, is not only no longer performing in China, but is hoping to find a buyer in the U.S.

Incidentally, this is what a typical Sinopec oil wharf looks like:

One can’t help but wonder how many trilions (in US dollars) of assets are about to be wiped out when the NPL wave is finally recognized, and more to the point, since Chinese bad loans are already quietly trying to find a buyer in “long investment horizon” hands, does this mean that the trillions (in US dollars) in NPLs are about to finally flood the mainland?

To all those who miss this opportunity to own a piece of Chinese “assets”, fear not – many more such NPLs are rapidly coming your way.

via Zero Hedge http://ift.tt/1mxMLp7 Tyler Durden

Submitted by Dalan McEndree via OilPrice.com,

Do the Saudis have an oil market strategy beyond pumping crude to defend their market share? Are they indifferent to which countries’ oil industries survive? Or, alternatively, are they targeting specific global competitors and specific national markets? Did they start with a particular strategy in November 2014 when Saudi Petroleum and Mineral Resources Minister Ali al-Naimi announced the new market share policy at the OPEC meeting in Vienna and are they sticking with it, or has their strategy evolved with the evolution of the global markets since?

And, of course, what does the Saudi strategy beyond pumping crude portend for the Saudi approach to some OPEC members’ calls for coordinated production cuts within OPEC and with Russia?

Conventional Wisdom

Conventional wisdom has it that the Saudis are focused primarily on crushing the U.S. shale industry. In this view, the Saudis blame the U.S. for the supply-demand imbalance that began to make itself felt in 2014. U.S. production data seems to support this. Between 2009 and 2014, U.S. crude and NGLs output increased nearly 4 million barrels per day, while Saudi Arabia’s increased only 1.64 million barrels per day, Canada’s 1.06 million, Iraq’s 0.9 million, and Russia’s 0.7 million (Saudi data doesn’t include NGLs).

In addition, the Saudis, among many others, believed that U.S. shale would be the most vulnerable to Saudi strategy, given relatively high production costs compared to Saudi production costs and shale’s rapid decline rates and the need therefore repeatedly to reinvest in new wells to maintain output.

Yet, if the Saudis were focused on the U.S., their efforts have been unsuccessful, at least in 2015. As the table below shows, U.S. output growth in 2015 outstripped Saudi output growth and the growth of output from other major producers in absolute terms. In addition, many observers also came to believe that U.S. shale production will recover more quickly than production in traditional plays once markets balance due to its unique accelerated production cycle and that this quick recovery will limit price increases when markets balance.

Is the U.S. Really the Primary Target?

The above considerations imply the Saudis—if indeed they primarily were targeting U.S. shale—embarked on a self-defeating campaign in November 2014 that could at best deliver a Pyrrhic victory and permanent revenues losses in the US$ hundred billions.

Is the U.S. the primary target? U.S. import data (from the EIA) suggests the U.S. is not now the Saudis’ primary target, if it ever was. Like other producers, the Saudis operate within a set of constraints. Domestic capacity is one. In its 2015 Medium Term Market Report (Oil), the IEA put Saudi Arabia’s sustainable crude output capacity at 12.34 million barrels per day in 2015 and at 12.42 million in 2016. Export capacity—output minus domestic demand—is another.

Rather than maintaining crude output at 2014’s level in 2015, the Saudis steadily increased it after al-Naimi’s announcement in Vienna as they brought idle capacity on line (data from the IEA monthly Oil Market Report):

This allowed them to increase average daily crude exports by 460,000 barrels in 2015 over 2014 average export levels—even as Saudi domestic demand increased—and exports peaked in 4Q 2015 at 7.01 million barrels per day (assuming the Saudis keep output at average 2H 2015 levels in 2016, and domestic demand increased 400,000 barrels per day, as the IEA forecasts, the Saudis could export nearly 7 million barrels per day on average in 2016):

The Saudis did not ship any of their incremental crude exports to the U.S.—in other words, they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output, and did not seek to increase U.S. market share. Based on EIA data, Saudi imports into the U.S. declined from 1.191 million barrels per day in 2014 to 1.045 million in 2015—and have steadily declined since peaking in 2012 at 1,396 million barrels per day. (OPEC’s shipments also declined from 2014 to 2015, from 3.05 million barrels per day to 2.64 million, continuing the downward trend that started in 2010). Canada, however, which has sent increasing volumes to the U.S. since 2009, increased exports to the U.S. 306,000 barrels per day in 2015:

Also, the Saudi share of U.S. crude imports declined 1.9 percentage points in 2015 from 2014, and has declined 2.6 percentage points since peaking at 16.9 percent in 2013; during the same two periods, Canada’s share increased 4.5 and 9.9 percentage points respectively (and has more than doubled since 2009):

Other Markets

The Saudis presumably exported the incremental 606,000 barrels per day (460,000 from net increased export capacity plus 146,000 diverted from the U.S.) to their focus markets. Since other countries’ import data generally is less current, complete, and available than U.S. data, where these barrels ended up must be found indirectly, at least partially.

In its 2015 Medium Term Market Report (Oil), the IEA projected that the bulk of growth from 2015 to 2020 will come in China, Other Asia, the Middle East, and Africa, while demand will remain more or less stagnant in OECD U.S. and OECD Europe:

The Saudis find themselves in a difficult battle for market share in China, the world’s second largest import market and the country in which the IEA expects absolute import volume will increase the most through 2020—1.5 million barrels per day (it projects Other Asia demand to increase 2.0 million). The Saudis are China’s leading crude supplier. However, their position is under sustained attack from their major—and minor—global export competitors. For example, through the first eleven months of 2015, imports from Saudi Arabia increased only 2.1 percent to 46.08 million metric tons, while imports from Russia increased 28 percent to 37.62 million, Oman 9.1 percent to 28.94 million, Iraq 10.3 percent to 28.82 million, Venezuela 20.7 percent to 14.77 million, Kuwait 42.6 percent to 12.68 million, and Brazil 102.1 percent to 12.07 million.

As a result of the competition, the Saudi share of China’s imports has dropped from ~20 percent since 2012 to ~15 percent in 2015, even as Chinese demand increased 16.7 percent, or 1.6 million barrels per day, from 9.6 million in 2012 to 11.2 million in 2015. Moreover, the competition for Chinese market share promises to intensify with the lifting of UN sanctions on Iran, which occupied second place in Chinese imports pre-UN sanctions and has expressed determination to regain its prior position (Iran’s exports to China fell 2.1 percent to 24.36 million tons in the first eleven months of 2015).

Moreover, several Saudi competitors enjoy substantial competitive advantages. Russia has two. One is the East Siberia Pacific Ocean pipeline (ESPO) which directly connects Russia to China—important because the Chinese are said to fear the U.S. Navy’s ability to interdict ocean supplies routes. Its capacity currently is 15 million metric tons per year (~300,000 barrels per day) and capacity is expected to double by 2017, when a twin comes on stream. The second is the agreement Rosneft, Russia’s dominant producer, has with China National Petroleum Corporation to ship ~400 million metric tons of crude over twenty-five years, and for which China has already made prepayments. Russia shares a third with other suppliers. Saudis contracts contain destination restrictions and other provisions that constrain their customers’ ability to market the crude, whereas those of some other suppliers do not.

Marketing flexibility will be particularly attractive to the smaller Chinese refineries, which Chinese government has authorized to import 1 million-plus barrels per day.
While they fight for market share in China, the Saudis also have to fight for market share in the established, slow-growing or stagnant IEA-member markets (generally OECD member countries). Saudi exports to these markets declined 310,000 barrels per day between 2012 and 2014, and 490,000 barrels per day between 2012 and 2015’s first three quarters. Only in Asia Oceania did Saudi export volumes through 2015’s first three quarters manage to equal 2012’s export volumes. During the same period, Iraq managed to increase its exports to Europe 340,000 barrels per day (data from IEA monthly Oil Market Report).

It is therefore not surprising that the Saudis moved aggressively in Europe in 4Q 2015—successfully courting traditional Russian customers in Northern Europe and Eastern Europe and drawing complaints from Rosneft.

As with China, the competition will intensify with Iran’s liberation from UN sanctions. For example, Iran has promised to regain its pre-UN sanctions European market share—which implies an increase in exports into the stagnant European market of 970,000 barrels per day (2011’s 1.33 million barrels per day minus 2015’s 360,000 barrels per day).

Might the U.S. be an Ally?

Without unlimited crude export resources, the Saudis have had to choose in which global markets to conduct their market share war, and therefore, implicitly, against which competitors to direct their crude exports.

Why did the Saudis ignore the U.S. market?

First, U.S. crude does not represent a threat to the Saudis’ other crude export markets. Until late 2015, when the U.S. Congress passed, and President Obama signed, legislation lifting the prohibition, U.S. producers, with limited exceptions, could not export crude. Even with the prohibition lifted, it is unlikely the U.S. will become a significant competitor, given that the U.S. is a net crude importer. Therefore, directing crude to the U.S. would not improve the Saudi competitive position elsewhere.

 

Second, the U.S. oil industry is one of the least vulnerable (if not the least vulnerable) to Saudi pressure—and therefore least likely and less quickly to crack. Low production costs are a competitive advantage, but are not the only one and perhaps not the most important one. Financing, technology, equipment, and skilled manpower availability is important, as are political stability, physical security, a robust legal framework for extracting crude, attractive economics, and access and ease of access to markets. The Saudis major export competitors—Russia, Iran, and Iraq—are far weaker than the U.S. on all these areas, as are its minor export competitors, including those within—Nigeria, Libya, Venezuela, and Angola—and outside OPEC—Brazil.

 

Third, in the U.S. market, the Saudis face tough, well-managed domestic competitors, and a foreign competitor, Canada, that enjoys multiple advantages including proximity, pipeline transport, and trade agreements, the Saudis do not enjoy.

 

Finally, the Saudis may be focused on gaining a sustainable long term advantage in a different market than the global crude export market—the higher value added and therefore more valuable petroleum product market. Saudi Aramco has set a target to double its global (domestic and international) refining capacity to 10 million barrels per day by 2025. Depressed revenues from crude will squeeze what governments have to spend on their oil industries and, presumably, they will have to prioritize maintaining crude output over investments in refining.

In this Saudi effort, the U.S. could be an ally. The U.S. became a net petroleum product exporter in 2012 (minus numbers in the table below indicate net exports), and net exports grew steadily through 2015. Growth continued in January, with net product exports averaging 1.802 million barrels per day, and, in the week ending February 5, 2.046 million. U.S. exports will lessen the financial attractiveness of investment in domestic refining capacity, both for governments and for foreign investors in their countries’ oil industries (data from EIA).

Saudi Intentions

The view that the Saudi market share strategy is focused on crushing the U.S. shale industry has led market observers obsessively to await the EIA’s weekly Wednesday petroleum status report and Baker-Hughes weekly Friday U.S. rig count—and to react with dismay as U.S. rig count has dropped, but production remained resilient.

In fact, they might be better served welcoming resilient U.S. production. It may be that the Saudis will not change course until Russian output declines, Iraq’s stagnates, Iran’s output growth is stunted—and that receding output from weaker countries within and outside OPEC would not be enough. If this is case, the Saudis will see resilient U.S. production as increasing pressure on their competitors and bringing forward the day when they can contemplate moderating their output.

NOTE: Nothing in the foregoing analysis should be understood as denying that the U.S. oil industry has suffered intensely or asserting that this strategy, if it is Saudi strategy, will succeed.

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

…but this is a list you do not want to be at the top of…

 

 

As The Burning Platform's Jim Quinn so eloquently exclaims…

Thank God for the Department of Education and Common Core.  

 

No child is being left behind in our quest for idiocy.

 

I’m sure paying union teachers more money will solve our problems.

 

Free college for morons who can’t add 2 + 2 will be the answer.

We're gonna need moar free stuff.

via Zero Hedge http://ift.tt/20R18Yw Tyler Durden

By Eddie Zipperer, originally published in The Hill

The complete idiot's guide to being right about Donald Trump

If you operate under the assumption that helium is heavier than the air around you, you're going to lose your balloon. If you're smart, you won't lose many balloons before you change your assumption. If you don't change your assumption, you're going to keep losing balloons and start to look pretty stupid in the process.

But it looks like you can't teach old pundits new paradigms. After presidential candidate Donald Trump finished in second in the Iowa Republican caucus, the media went straight to work picking out a coffin for his campaign, battling it out to see who could write the most definitive obituary. After months of being wrong about Trump, something finally happened to make them look right: All the Iowa polls were wrong — Trump lost! Sure, he scored more Iowa votes than anyone ever — excepting Sen. Ted Cruz (Texas), who won Iowa — but he lost. Trump is a loser and this proves it.

It's hard to blame them for trying to spike the ball in Trump's face. You’ve seen it before. Your favorite NFL team is down by 50 points. The team finally gets a first down, and the halfback celebrates like he just won the Super Bowl. Everyone except him just laughs and shakes their head. That's what opinion writers like David Brooks — who wrote a piece declaring that "Donald Trump Isn't Real" in the aftermath of Iowa — looked like last week. CNN ran a piece by Michael D'Antonio headlined "Donald Trump is a loser." And the list of similar sentiments is long.

The pressure of being wrong about Trump over and over was building, so when it appeared they were finally right about something, the release was earthshaking.

Last July, I asked a political science professor at an Ivy League university how Trump would appeal to the electorate in a general election. He told me that "It's a moot point" because "Trump has no chance of surviving the primaries."

I predicted Trump's demise more than once myself since last summer. The difference between me and the rest of them is that I threw out my broken election assumptions and started holding tight to the string of my balloon. For anyone interested, below is a guide on how to be right about Trump next time. It all starts with rejecting the bad assumptions and embracing the good ones.

Bad assumption: Manners are of the utmost importance. Every time Trump utters a naughty word, the media go nuts. The story was everywhere on Tuesday (you know the one; he repeated an audience member's use of the word "pussy"). I heard more than one talking head predict that Trump would lose the New Hampshire primary when voters found out. Didn't happen; never will. Trump doesn't do manners, and his supporters don't want him to.

Good Assumption: Every time Trump says something that no other politician ever would, he scores points. Politicians are well-mannered in front of voters and employ others to do their dirty work. Take former Florida Gov. Jeb Bush (R), for instance. He talks a big game about the president being mature and the presidency as being above Trump's behavior. Sounds nice, but then consider the truth lurking behind Bush. According to Larry Sabato, "Jeb Bush is Meaner Than He Looks." Or recall former presidential candidate Sen. Rand Paul (R-Ky.) lecturing us on maturity during the same debate where his communications director, Sergio Gor, tweeted a copy of Carly Fiorina's closing statement that had been left in the hotel copier.

Bad assumption: An ideological misstep will dissolve Trump's support. Most Republican voters despise eminent domain. I despise eminent domain. In Saturday night's debate, Trump defended eminent domain. He didn't try to "Rubio" his way out of it with prepared sound bites. He didn’t try to muddy the water and make people question whether he actually supported it. He was totally straight about it.

Good assumption: Honesty transcends ideology. Voters would rather disagree with a straight-shooter than agree with a political wind-tester. We've seen too many politicians run as conservatives and then prove not to be. Voters have become suspect of politicians with ideologies that try too hard to match the electorate.

Bad assumption: Trump is unelectable in November. Uh-huh. Just like he could never win the primaries. Every time a pundit says Trump is unelectable in November, there's a good chance he or she also wrote him off in the GOP primary a few months ago and at every step along the way. Repeating something over and over doesn't make it true. Just ask Sen. Marco Rubio (R-Fla.).

Good assumption: Trump is a winner.

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

Submitted by SaxoBank's Dembik Christopher via TradingFloor.com,

• Currency stability is a prerequisite for China's economic transition
• Defending the yuan is prohibitively expensive – China cannot beat the market
• Progressive devaluation managed by PBoC is the most probable scenario for 2016
• Remember that the country is on the capitalism learning curve
• Exchange rates will inevitably be a key discussion point at Shanghai G20
• China has moved from being a net importer to a net exporter of capital

Shoring up a currency ad infinitum is impossible. The market always wins.

The undervalued Chinese yuan is nothing but a bad memory. In the context of competitive devaluations throughout the world, the yuan is now significantly overvalued compared to its main counterparts, primarily the dollar and the euro.

If it is to pull off its economic transition, China needs a stable currency, hence its repeated interventions on the exchange markets over the past few months. Over the last year $513 billion was drawn from the foreign exchange reserves without stemming any of the downwards market pressures on the yuan. Over the period is actually lost 5% against the US dollar. This is a significant depreciation for a currency that is used to fluctuating between narrower markers. By way of comparison, the euro, which floats freely on the market, lost almost 6% of its value against the US dollar last year.

The increasingly credible assumption of a devaluation before this summer:

 

Three possible scenarios exist for the Chinese yuan in 2016:

• The progressive devaluation managed by the People's Bank of China
• Continued defence of the currency on the markets
• New Plaza-type Accord

The progressive devaluation managed by the PBoC is the most probable scenario for 2016. This will not interfere with the process of internationalising the yuan, quite the reverse, since it would make it possible to have an exchange rate that is more in line with Chinese fundamentals. The successive devaluations of last August (1.9% on 11 August, 1.6% on 12 August and 1.1% on 13 August) sent an important signal to the market which will therefore not be taken by complete surprise the next time should China repeat the operation.

If this is to succeed, the PBoC must open communication channels with the market by adopting the methods used by central banks in developed countries. The country is on the capitalism learning curve. Consequently, this revolution will not be without teething problems, but it is certainly a necessary step so that investors can gain a better understanding of China’s monetary policy and its optimal exchange rate.

The G20, due take place in Shanghai on 26 and 27 February, could represent an important step in the yuan’s devaluation. The issue of exchange rates will inevitably be a key discussion point. This forum could be the ideal opportunity to provide China with the necessary expertise and could potentially give it free rein to devalue, as has been the case in the past for Japan. In the short term, the main flaw in this scenario would be an increase in monetary disorder, but the market impact would remain limited and would be nothing like the electric shock precipitated by the Swiss National Bank abandoning the EURCHF ceiling, almost exactly one year ago.

If the yuan is not devalued, the PBoC could be forced to continue to defend the yuan on the markets. This is the counterproductive scenario. The interventions on the forex markets come at a cost that is increasingly prohibitive, given their ineffectiveness in stabilising the yuan. China cannot beat the market. At the current path (close to 100 billion dollars per month), the currency reserves could reach the minimum threshold of 2,800 billion dollars recommended by the IMF by the end of June.

The country cannot afford to let its reserves fall much below this ceiling since it provides PBoC with real flexibility to intervene in the event of an external crisis. Were this to happen, China would sooner or later be forced to throw in the towel and let market forces decide the exchange rate of the yuan. PBoC’s credibility would be permanently damaged. China is therefore aware that such an eventuality is unthinkable, which seems to give even more credence to the scenario of the progressive devaluation of the yuan by this summer.

A new Plaza Accord. This is the dream scenario for economists, but certainly the least likely in the medium term, given the lack of monetary policy coordination between developed and emerging countries. Starting from the premise that exchange rate volatility is too high and competitive devaluations that are not signed off at the global level have recessionary effects on economic activity, new Plaza accords could be signed under the auspices of the G20. These would aim to counter the major problems of the world economy: high exchange rate volatility, overvaluation of the yuan and the strength of the American dollar which heightens the risk of recession due to the debt explosion of market players in USD since 2008.

Following the example of 1985, signatory countries could accept to intervene on the currency markets to depreciate the market price of the dollar and the yuan. Swap agreements between the Fed and the central banks of emerging countries could also be set up, as was the case in 2008, between the main central banks of developed countries, in order to ease tensions on the financial markets. However, for such a scenario to be possible, the countries in question must recognise that they have convergent interests and accept the need to act in concert, which is not yet the case.

The thorny problem of capital outflows:

 
The fall of the yuan is closely correlated with capital outflows. This is difficult to measure precisely given the opaque way in which Chinese statistics are calculated. Our low estimate leads us to conclude that almost 650 million dollars in capital have flowed out of the economy since 2010, based on the change in the "net errors and omissions" in the trade balance. The actual total amount is certainly much higher, but this estimate confirms that contrary to what was commonly admitted, China has moved from being a net importer to net exporter of capital. Despite the 4,000 billion yuan recovery plan presented at the end of 2008, China has not managed to sufficiently strengthen its economy. Regardless of which is PBoC's preferred scenario, when it comes to stabilising the exchange rate for the yuan, capital outflows must inevitably be restricted.

It would not be a good idea to implement the capital controls alluded to, since this would send a very negative message to foreign investors at the worst possible time. In addition, past experience shows that gaps can always be found in such measures in order to transit capital out of the country through indirect means, such as via Hong Kong, in China's case. For true effectiveness, strict controls are required which would result in the economy being completely stifled. This makes absolutely no sense in this case. China will have no other choice in the years to come, but to offer liberalisation guarantees to foreigners for the domestic capital market and strengthen its financial regulations, which are still very inadequate.

This long process does not exclude new significant corrections on the Chinese stock market or even business bankruptcies that will result in reducing the moral hazard. Nevertheless, what is certain is that a stable exchange for the yuan after devaluation could help reassure market players. This is after all, the simplest and quickest way to proceed. China does not have any other credible, effective levers to restore balance to its economy in the short-term.

Curiously, progressive devaluation would actually aid the internationalisation of the yuan.
 

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