Tag: news

Submitted by Claude Salhani of OilPrice.com,

The US Energy Information Administration released on Tuesday an early version of its Annual Energy Outlook for 2014.  The main item being that the United States will continue to develop its own oil and to press for more efficient cars in order to reduce demand on oil.

The report from the federal government forecasts a rise in US oil production of another 800,000 barrels per day for the coming two years, but sees a rise by 2016 with the US reaching about 9.5 million barrels per day.  The previous high was attained in 1970 when production had reached 9.6 million bpd.

Predictions are that the oil boom is temporary and is expected to level off around 2020, but by then there should be a lot more fuel efficient cars on the roads that the drop in production will not be felt.

Another major change is that the federal government report expects that as oil production begins to decrease natural gas will rise, according to the EIA by as much as 56 percent by 2040 reaching 37.6 trillion cubic feet per year.

This news should please the environmentalists as well as politicians who want to see the United States turn away from the Middle East, its oil and its problems.

For the first group, the good news is that the total reading of U.S. energy-related emissions of carbon dioxide by 2040 will be 7 percent under 2005 levels in 2040.

The reduction in consumption will come about as the result of greater importance being given to focus on more energy efficiency in every aspect of our lives; from automobiles to buildings that require less heating to street lighting.

While this new development will no doubt be welcomed by most Americans it will bring additional joy to those who are fed up with the stagnation and violence that is perpetuated in the Middle East and will welcome this news amid hopes that the US will be less dependent on that turbulent part of the world for its fuel, thus less prone to the region’s unstable politics.

But here there is the need for a word of caution. Being less dependent on Middle Eastern oil does not mean the United States should become a political recluse, retrench inside fortress America and damn the rest of the world and their problems.

In the region of the Gulf, for example, the US counts many allies who are becoming extremely nervous at a USA hoping to step back from the region while across the waters they face a more powerful Iran with ever-growing political/religious ambitions. Up until now countries in the region felt somewhat protected largely because of their oil. Case in point was when Kuwait was invaded by Saddam Hussein in 1990 the US raised a powerful multinational coalition to throw him out of the oil producing state.

But recent events, such as the distancing of once extremely close US-Saudi relation have started to cast doubts in the minds of the oil rich sheiks of the Gulf who are truly questioning America’s resolve in the region.

The added danger for the US is the resurgence of Russia as a power to be reckoned with and now China, too.  The United States could be fooled into a false sense of security inside Fortress America and start to lose more and more of its influence.

Indeed, the exploitation of American oil for American consumption may well bring about much wished for independence from foreign oil and foreign intrigue. But one should be careful what one wishes for.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/01gDecytwcU/story01.htm Tyler Durden

Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…

Foreign Exchanges

Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.

 

Energy Trading

Banks have been accused of manipulating energy markets in California and other states.

 

Libor

Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.

 

Mortgages

Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.

 

…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.

As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.

Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously.  It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”

Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…

What are some of the other recent revelations?

Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:

At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.

 

The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.

 

…

 

One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.

 

Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.

And after that came unprecedented hubris and a sense of invincibility:

The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.

 

The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.

Since nobody investigated, next naturally, come the profits and the crimes:

Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.

 

While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.

 

A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.

 

“If nobody is monitoring these benchmarks, and since the gains from movin
g the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”

… along with a lot of banging the close:

Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.

… and much golf and “envelopes stuffed with cash“

On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.

 

Such transactions were common and also took place in tavern parking lots in Essex, the person said.

 

Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.

In short – so simple the underwear gnomes could do it:

1. Create a cartel
2. Corner and manipulate the market
3. Profit.

And that’s why they (and especially Jamie Dimon) are richer than you.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/L-nHMT14Slk/story01.htm Tyler Durden

Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…

Foreign Exchanges

Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.

 

Energy Trading

Banks have been accused of manipulating energy markets in California and other states.

 

Libor

Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.

 

Mortgages

Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.

 

…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.

As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.

Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously.  It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”

Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…

What are some of the other recent revelations?

Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:

At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.

 

The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.

 

…

 

One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.

 

Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.

And after that came unprecedented hubris and a sense of invincibility:

The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.

 

The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.

Since nobody investigated, next naturally, come the profits and the crimes:

Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.

 

While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.

 

A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.

 

“If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”

… along with a lot of banging the close:

Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.

… and much golf and “envelopes stuffed with cash“

On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.

 

Such transactions were common and also took place in tavern parking lots in Essex, the person said.

 

Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.

In short – so simple the underwear gnomes could do it:

1. Create a cartel
2. Corner and manipulate the market
3. Profit.

And that’s why they (and especially Jamie Dimon) are richer than you.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/L-nHMT14Slk/story01.htm Tyler Durden

US equity markets were the first to move yesterday on the news of the tapering which is a loosening and not a tightening move by the Fed. Overnight and today has seen stocks stabilize as the rest of the world wakes up to what this slowing of flow actually means… From EM FX to precious metals to collossal flattening in the US Treasury term structure, things are making major moves…

 

And as a bonus, here are some just released thoughts from Goldman on Emerging Market currencies – arguably the biggest wildcard in a post-taper world:

Some EMs are adjusting, others are less clear

 

We have seen higher yields and weaker currencies across most of the troubled EMs; both developments accommodate economic adjustment. But not all economies are responding to these shifts in a similar way. External balances remain challenging for Turkey, Brazil, Indonesia and South Africa. Even though a temporary rally is not out of question, the ZAR, TRY, IDR and BRL remain risky currencies with scope for further depreciation. In contrast, India’s impressive current account improvement is driven both by import restraint and by export growth and, in our view, the INR is likely to remain broadly stable or even strengthen on the margin (Exhibit 3). Given this more positive view, the wide FX forwards, the elevated implied volatility and the skew towards depreciation in FX options create attractive carry opportunities in the INR. Alternatively, long INR positions can help offset the negative carry in short TRY, ZAR or BRL positions.  

 

Equities and credit in ‘DMs of EMs’ offer better risk-reward than EM FX or bonds

 

From a medium-term perspective, a global backdrop where US growth accelerates, US medium-term yields rise (but gradually) and the front end is anchored at exceptionally low levels (but is subject to upside risks) should benefit equities and credit more than bonds or currencies. And, by extension, EM currencies (vs the USD) and bonds are likely to offer inferior risk-reward ratios compared with EM equities and credits (Exhibit 4). As we have argued recently, EM sovereign credit from the ‘DMs of EMs’ (those countries with the stronger institutional set-ups in the EM world) can continue to perform strongly along with US high yield credit (‘’DMs of EMs’ not underperforming significantly despite the rally’, EM Macro Daily, October 28, 2013). That said, for global investors, we still see a better balance of reward and risk in DM equities and credit relative to EM counterparts.  

 

For now, anchored front-end DM rates should help certain ‘risky receivers’

 

Immediately after the September FOMC dovish surprise we argued that EM central banks were likely to respond with dovish responses. Since then, we have seen a slew of such surprises (rate cuts in Chile, Mexico, Thailand and Hungary are among the primary examples). Over the last few days we have seen dovish shifts both in Colombia and in India, while expectations for rate hikes have also moderated in Brazil.

 

South Africa is one of the clearest sources of opportunity in EM front ends relative to our forecasts (Exhibit 5). We expect no hikes by the SARB next year, while the FRAs are pricing in an increase in policy rates from 5% to 6.3% in one year, and to 7.3% two years from now. There is also space for Brazilian DI rates to decline towards the 10.30 area, in line with our Latam Economists’ view of one last hike of 25bp for BACEN. But unless one is ready to position for no further hikes in the near term in Brazil, the risk-reward below that level becomes less appealing. Lastly, the inverted curve in India is a result of the elevated near-term money market rate – a result of tight liquidity measures, which may be eased as the economy continues to show signs of adjustment. 

 

But, at some point, strong US data may test the Fed’s resolve

 

The substantial decline in US (and by extension G3) front ends suggests that the market views the Fed’s commitment to low rates for longer as credible, given the current data flow. However, as activity picks up in 2014 (in our forecasts), there is room for periodic upside data surprises. A few months of meaningfully strong growth data could prompt the market to front-load some tightening premium (Exhibit 6). In other words, there are upside risks to front-end rates next year, stemming primarily from US data strength.

 

This means that bouts of EM pressure driven by US rates are likely to resurface. And the momentum in US data will determine how quickly this occurs. The uncertainty around timing makes it hard to position for such an eventuality via shorting high-carry EM instruments. Instead, low-yielding currencies from economies in need of economic adjustment, such as the THB and MYR, can offer ways to hedge against a Dollar rally vs EM, driven by higher front-end rates. In rates markets, ILS 1-year rates are pricing more than 10bp of policy rate cuts in the year ahead. Our view is that the BoI is more likely to hike by 50bp (see ‘A shift in the Bank of Israel’s ‘policy mix’ in 2014’, EM Macro Daily, December 18, 2013). Israel rates are correlated with US front-end yields and they can offer a way to hedge against such risks, earning positive carry and benefiting from local fundamental drivers that may prompt the central bank to hike next year.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nkbsvTj05BU/story01.htm Tyler Durden

US equity markets were the first to move yesterday on the news of the tapering which is a loosening and not a tightening move by the Fed. Overnight and today has seen stocks stabilize as the rest of the world wakes up to what this slowing of flow actually means… From EM FX to precious metals to collossal flattening in the US Treasury term structure, things are making major moves…

 

And as a bonus, here are some just released thoughts from Goldman on Emerging Market currencies – arguably the biggest wildcard in a post-taper world:

Some EMs are adjusting, others are less clear

 

We have seen higher yields and weaker currencies across most of the troubled EMs; both developments accommodate economic adjustment. But not all economies are responding to these shifts in a similar way. External balances remain challenging for Turkey, Brazil, Indonesia and South Africa. Even though a temporary rally is not out of question, the ZAR, TRY, IDR and BRL remain risky currencies with scope for further depreciation. In contrast, India’s impressive current account improvement is driven both by import restraint and by export growth and, in our view, the INR is likely to remain broadly stable or even strengthen on the margin (Exhibit 3). Given this more positive view, the wide FX forwards, the elevated implied volatility and the skew towards depreciation in FX options create attractive carry opportunities in the INR. Alternatively, long INR positions can help offset the negative carry in short TRY, ZAR or BRL positions.  

 

Equities and credit in ‘DMs of EMs’ offer better risk-reward than EM FX or bonds

 

From a medium-term perspective, a global backdrop where US growth accelerates, US medium-term yields rise (but gradually) and the front end is anchored at exceptionally low levels (but is subject to upside risks) should benefit equities and credit more than bonds or currencies. And, by extension, EM currencies (vs the USD) and bonds are likely to offer inferior risk-reward ratios compared with EM equities and credits (Exhibit 4). As we have argued recently, EM sovereign credit from the ‘DMs of EMs’ (those countries with the stronger institutional set-ups in the EM world) can continue to perform strongly along with US high yield credit (‘’DMs of EMs’ not underperforming significantly despite the rally’, EM Macro Daily, October 28, 2013). That said, for global investors, we still see a better balance of reward and risk in DM equities and credit relative to EM counterparts.  

 

For now, anchored front-end DM rates should help certain ‘risky receivers’

 

Immediately after the September FOMC dovish surprise we argued that EM central banks were likely to respond with dovish responses. Since then, we have seen a slew of such surprises (rate cuts in Chile, Mexico, Thailand and Hungary are among the primary examples). Over the last few days we have seen dovish shifts both in Colombia and in India, while expectations for rate hikes have also moderated in Brazil.

 

South Africa is one of the clearest sources of opportunity in EM front ends relative to our forecasts (Exhibit 5). We expect no hikes by the SARB next year, while the FRAs are pricing in an increase in policy rates from 5% to 6.3% in one year, and to 7.3% two years from now. There is also space for Brazilian DI rates to decline towards the 10.30 area, in line with our Latam Economists’ view of one last hike of 25bp for BACEN. But unless one is ready to position for no further hikes in the near term in Brazil, the risk-reward below that level becomes less appealing. Lastly, the inverted curve in India is a result of the elevated near-term money market rate – a result of tight liquidity measures, which may be eased as the economy continues to show signs of adjustment. 

 

But, at some point, strong US data may test the Fed’s resolve

 

The substantial decline in US (and by extension G3) front ends suggests that the market views the Fed’s commitment to low rates for longer as credible, given the current data flow. However, as activity picks up in 2014 (in our forecasts), there is room for periodic upside data surprises. A few months of meaningfully strong growth data could prompt the market to front-load some tightening premium (Exhibit 6). In other words, there are upside risks to front-end rates next year, stemming primarily from US data strength.

 

This means that bouts of EM pressure driven by US rates are likely to resurface. And the momentum in US data will determine how quickly this occurs. The uncertainty around timing makes it hard to position for such an eventuality via shorting high-carry EM instruments. Instead, low-yielding currencies from economies in need of economic adjustment, such as the THB and MYR, can offer ways to hedge against a Dollar rally vs EM, driven by higher front-end rates. In rates markets, ILS 1-year rates are pricing more than 10bp of policy rate cuts in the year ahead. Our view is that the BoI is more likely to hike by 50bp (see ‘A shift in the Bank of Israel’s ‘policy mix’ in 2014’, EM Macro Daily, December 18, 2013). Israel rates are correlated with US front-end yields and they can offer a way to hedge against such risks, earning positive carry and benefiting from local fundamental drivers that may prompt the central bank to hike next year.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/nkbsvTj05BU/story01.htm Tyler Durden

 

 

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Northern Koreans are queer

The life that they live draws a tear

Games are all banned

Except Missile Command

They need it to fire their gear

The Limerick King

 

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/OSiKkVROXk8/story01.htm williambanzai7