“Greece will neither want to leave the euro nor threaten to do so”

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

Interview with J. LUIS MARTIN in OpenDemocracy

When the leader of a political party about to win government offers you the opportunity to implement policies you have been advocating for years, it is pure cowardice to shirk the task. An interview with a new Syriza candidate. Yanis Varoufakis University of Athens Economics Professor, Yanis Varoufakis, is widely recognized as one of Greece’s most prominent and respected advocates for change in European economic policy. Since the outbreak of the Euro crisis, Varoufakis has taken his pedagogic skills outside the classroom into the world’s leading news media outlets and think tanks to promote a different way to handle Europe’s woes: from fervently criticizing the bailout programs in Greece, which he describes as “cynical attempts to shift losses from private banks to the weakest shoulders of the weakest taxpayers in Europe,” to co-authoring “A Modest Proposal”, a toolbox of economic guidelines aimed at overcoming the Euro crisis.

“Europe needs a jolt”, Varoufakis said when endorsing Alexis Tsipras’ candidacy for the presidency of the European Commission in the spring of 2014. Last week, the outspoken university professor announced it was time to actually join the team of people driving the action to effect that jolt: he is now officially running for a seat in Greece’s Parliament under the Coalition of the Radical Left political party (SYRIZA), “with a view to play a role in Greece’s negotiation with Berlin, Frankfurt and Brussels.”

The US Hasn’t “Decoupled” And There Ain’t No Giant “Oil Tax Cut”

Submitted by David Stockman – The Contra Corner Blog

The buy-the-dip crowd went on a rampage last Thursday, lifting the Dow by 300 points in the first hour of trading. So doing, it got the stock averages back into the green for 2015—-thereby making short shrift of another 4-5% “dip” at the turn of the year.

But don’t think we are off to the races once again. This year may be different, finally

Indeed, this time the Wall Street touts have got the narrative so dead wrong that the day-traders and robo machines who track them are likely to be smacked-down on the dips over and over—– until there are no more dips left, only an honest-to-goodness plunge.

The false narrative is an old standby that is usually revived when worrisome clouds form on the global horizon. Namely, that the US economy has “decoupled” from the troubles brewing abroad; and that this time the collapse of crude oil amounts to a giant “tax cut” that will send US consumers into a frenzy of new spending, thereby fueling a surge of hiring, income and growth.

Nice theory—but it’s not going to happen. In the first place, the plunge in oil prices is not a “tax cut” and its doesn’t put a dime into the pockets of any consumer. That whole notion is just one more example of ritual incantation—–a baseless repetitive refrain that flows from Keynesian doctrine and Wall Street bullhorns.

What will happen is that total “spending” in the US economy will be reallocated, not increased. And now that net petroleum imports have dropped to a 40 year low, the math is pretty straight forward; and its not indicative of a windfall boon to the domestic economy, at all.

At the present time, total US petroleum product consumption—including gasoline, heating oil, jet fuel, chemical feedstocks and the rest of the refinery slate—is about 19 million barrels/day or just about 7 billion barrels annually. Assuming we get an average $60 per barrel price reduction in 2015—from the previous $100 trend to about $40—-the indicated annualized “savings” is about $420 billion.

Either Crude or Copper

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The primacy of the monetary pyramid in 2015 is not really about money as it is all ideology. If you believe that monetary policy provides “stimulus” then you immediately remove all thoughts of any economic decline during times when monetarism is most active. Since “it works” then all else must fall into place. Contrary indications are thus given extraordinary lengths to maintain logical consistency.

Economic commentary as it exists is incredibly short-sighted, though there is no reason to believe that is anything other than exactly what I stated above. The state of economics even as a discipline has internalized Keynes so deeply that all that matters is what happens month-to-month. That makes it easier to maintain the status quo of opinion about “stimulus” – in the short run it is very easy to find a suggestion for something behaving “unexpectedly.”

That was certainly the case with crude oil prices these past few months, as the initial impulse was uniformly and incessantly prodded to over-supply. Again, the reasoning behind that was simply since “stimulus” works and it was being practiced and replicated all over the world there was no possible means by which “demand” might drop, and so precipitously. After a few weeks of oil “unexpectedly” falling further, re-assurances were more difficult and increasingly derivative by nature.

The parallel excuse was that oil prices were oil prices and that very little else “important” was behaving as was crude. And whatever commodity prices were falling in parallel fashion, that was distilled as being nothing more than either an oil “echo” or supply everywhere. This was written in November 2014:

The simple reason for the dip in commodities prices, these experts say, is that we have too much of a good thing: too much gold; a bumper crop of corn; a glut of iron ore because the big three producers, Rio Tinto, Vale and BHP Billiton have all increased output. In crude oil, members of the Organization of Petroleum Exporting Countries keep pumping out oil, while US production is at its highest level since 1986…
That lack of demand is why the commodity markets aren’t forecasting bad times in the future; they’re mirroring the current dark “mood” of the commodity investor, said analysts at Citi Research in a research note from 16 November.

Gold is Getting Frisky

Submitted by Pater Tenebrarum  –  The Acting Man Blog

The Bull Market is Back – at Least in Non-USD Terms

The gold price most traders are focused on is the dollar price of gold – this is no wonder, as the COMEX is the most important price setting market for gold, and gold is internationally mainly traded in dollars. It is often useful to abandon this dollar-centric view, as for the rest of the world’s population gold’s trend in local currencies is obviously of greater importance.

Since gold is primarily a monetary asset, the main question for someone residing in a European or Asian country is whether the purchasing power of gold is increasing against the purchasing power of the domestic fiat currency. Interest rates (better: real interest rates) naturally play an important role in this, as their height determines the greatest portion of the opportunity cost of holding gold (the remainder is related to storage costs and where applicable, insurance costs).

As the chart further below shows, due to the recent combination of dollar and gold strength, gold has broken out, respectively entered an uptrend, in euro and yen terms over the past year. In dollar terms, a similar breakout over lateral resistance has yet to occur. However, experience shows that the gold price in foreign currency terms often leads the US dollar gold price, which is why it makes sense to keep an eye on such developments.

The Value of Wealth

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Ann Rosener Reconditioning spark plugs, Melrose Park Buick plant, Chicago 1942

We need to do a lot more thinking, and take a far more critical look at ourselves, than we do at present. We’re not even playing it safe, we’re only playing it easy. And that’s just not enough. The marches in Paris and numerous other cities today were attended by people who mean well, but who should ask themselves if they want to be part of what was predictably turned into a propaganda event by ‘world leaders’. One thing is for sure; the murdered Charlie Hebdo staff would not have approved of it.

The leaders hark back to usual suspect slogans like we defend ‘Liberty’, ‘Freedom of Expression’ and ‘Our Values’. But we can’t turn our backs on the fact that ‘our values’ these days include torture and other fine ‘tactics’ that make people in other parts of the world turn their backs on us. We might want – need – to march to express our feelings about torture executed in our name, as much as to express our horror at cartoonists we never heard of being the target of automatic weapons.

There are major armed conflicts going on in 6 different Arab countries, and ‘we’ play a part in all of them. We get up in the morning and prepare to march against violence in our own streets, but we should perhaps – also – protest the violence committed in our name on other people’s streets just as much. We may feel innocent as we’re marching, but that’s simply because we refuse to look at ourselves in the mirror. And we must be able to do better than that. Both to be the best we can be (which is still a valid goal), and to prevent future attacks.

And that’s not nearly the entire story. Our governments play ‘divide and rule’ both domestically and abroad. They play nations against each other in far away parts of the globe, and poor vs rich and generation vs generation at home. If you want a better world, don’t look at your leaders to make that happen. They like the world the way it is; it got them where they are. Moreover, they’re all beholden to numerous supra-national organizations that are the real power behind the throne across the globe; NATO, IMF, EU, World Bank et al.

The Scariest Chart For America’s Shale Industry

Submitted by Tyler Durden  –  ZeroHedge

Back in early November, when we posted “If WTI Drops To $60, It Will “Trigger A Broader HY Market Default Cycle“, it was greeted with the usual allegations of conspiracy theorism, tin-foil hattery and pretty much everything else, except rebutting facts.

Two months later, it was none other than Goldman which threw in the towel on its call from July 28 of 2014 when it said that “the long-awaited global recovery appears to be getting on track, lifting commodity demand” and scrambled to explain overnight that nothing short of a mass default wave within the shale space will end the ongoing collapse in prices, which are driven not by supply/demand fundamentals but by ZIRP, and a generation of junk bond BTFDers, who can’t wait to invest in the latest 10%, 15%, 20% or higher “yielding” opportunity (ignoring that the issuer may default before even one coupon is paid). In other words, those bond holders who wish to blame someone for the collapsing prices of junk bonds, feel free to address them to Ben Bernanke and his successor, who have enabled insolvent companies to live long beyond their viable lifecycle thanks to a zero cost of capital and a generation of traders who no longer know risk.

This is how Goldman’s Currie tongue-in-cheekly explained this dilemma:

[U]nlike physical stress, how low prices need to go is dependent upon the producer’s view of the future and the persistence of the current low price environment. The lower and more persistent the producer views the future pricing outlook, the quicker the restructuring. Given the optimistic nature of the oil drilling business, producer views are unlikely to change until the environment becomes extremely hostile with prices low enough such that survival becomes questionable.

The Clash of Civilizations

Submitted by James Howard Kunstler  –  www.kunstler.com

The big turnout in Paris was bracing but it also might reveal a sad fallacy of Western idealism: that good intentions will safeguard soft targets. The world war underway is not anything like the last two. Against neo-medieval barbarism, the West looks pretty squishy. All of the West is one big fat soft target.

Recriminations are flying — as if this was something like a Dancing with the Stars contest — to the effect that the Charlie Hebdo massacre should not be labeled as “France’s 9/11.” It’s a matter of proportion, they say: only 12 dead versus 2977 dead, plus, don’t forget, the shock of two skyscrapers pancaking into the morning bustle of lower Manhattan. Interesting to see how the West tortures itself psychologically into a state of neurasthenic fecklessness.

The automatic cries for “unity,” only beg the question: for or against what? The same cries went up in the USA after the Ferguson, Missouri, riots and the Eric Garner grand jury commotion, pretty much disconnected from the reality of ghetto estrangement, as if unity meant brunch together. The demonstrators quickly reminded everybody that Homey don’t play brunch. If French politicians think that some magical overnight state of fraternité will congeal between the alienated Islamic masses and the rest of the citizenry, they’re liable to be disappointed. If anything, mutual distrust is only hardening on each side, and, anyway, I think that is not the kind of unity they have in mind. Over in Germany, they don’t have to travel very far psychologically to recall the awful efficiency of Hitler in purifying the social scene according to some dark cthionic principle that remains essentially unexplained even after all these years and ten thousand books on the subject. It happened that he picked on a group that wasn’t disturbing the peace in any way; if anything, the Jews were busier than anyone contributing to Western culture, knowledge, and science.

Enjoy the Ride on the Inflation/Deflation Rollercoaster

Submitted by Michael Pento – Pento Portfolio Strategies

Politicians and central bankers are desperately trying to convince investors that the economy has returned to what they deem as a “pre-crisis normality”. But the truth is the global economy has never been in a more fragile condition. In an example of just how precarious the Fed-engineered asset bubbles have become, all of the 2014 U.S. equity market gains were wiped out by just a few really bad trading days in October.

That’s correct, the Dow Jones, S&P 500 and the NADAQ averages were all negative after the first 10 months of last year. Investors were better off sitting on the sidelines in cash, waiting for the better entry point that appeared in mid-October. The so described strength of markets and the economy is completely illusory.

Investors need to strategically allocate their portfolios for volatility like we’ve never seen before, because government manipulations of formerly-free markets have caused equities to repeatedly lose half their value. That’s what happened in 2000 and in 2008-’09. We are due for just such another crash in the very near future. The investing rollercoaster ride that results from the building and bursting of asset bubbles is becoming more extreme as central bank intervention grows ever more intrusive.

We have now reached the point where central banks can never stop buying bonds because they cannot risk the normalization of interest rates. The best example of this is Japan. Allowing interest rates to mean revert would now cause nearly all of Japanese government revenue to be used for debt service. Once a market becomes aware that all of a nation’s revenue must be used to pay interest on current outstanding debt, it becomes a mathematical certainty that it must default on the principal. This condition has always led to a currency, bond, equity and economic crises.

Throughout economic history this has only really occurred in isolation, and/or in small banana republics. However, presently most major economies face the same fate concurrently. Japan, China, Europe and the United States cannot allow rates to rise…ever.

On the Charlie Hebdo Carnage

Submitted by Dmitry Orlov  –  The ClubOrlov Blog

The killing of the staff at the French satirical publication Charlie Hebdo by Moslem assailants who said that they wanted to die as martyrs, and the subsequent killing of the assailants, together with their hostages, by the French police, could not have failed to produce strong emotions. For instance, my friend Bruno had this to say.  I don’t entirely disagree, especially about the undue haste of the French police, but I do want to make a few points about methods.

No matter how difficult it is, what’s needed in such a situation, at least on the level of those aspiring to any sort of social adequacy, is a dispassionate look, with an eye toward what would qualify as a political fix that can win the peace, rather than some combination of police/military/judicial action that is virtually guaranteed to lose the war, by making the situation worse. You see, police/military/judicial action is only effective when the enemy could potentially admit defeat, surrender and make amends. When the enemy wishes to be martyred, police/military/judicial action is akin to combating alcoholism with bottles of booze.

What Bruno proposed—capture, torture, public humiliation, public execution—worked very well for Jesus Christ. Here we are over 2000 years later, and he is still the world’s best-known, most widely celebrated martyr. If, by the standards of one of the world’s greatest religions, poking fun at prophet Mohammed is a sin, and if the perpetrators of the Charlie Hebdo can be said to have died for that sin, then that, by a rather simple calculus, does qualify them as martyrs, even in the Christian tradition.

Frenzied Dollar Speculation

Submitted by Pater Tenebrarum  –  The Acting Man Blog

New Positioning Extremes

We recently discussed the astonishing surge in net long positions in the US dollar, and the lopsided reading of associated sentiment surveys, which have broken all previous records (See “How Much Further Will the Dollar Rally?” for details). Here is a brief update in light of last week’s quite noteworthy commitments of traders report, which has seen an enormous additional increase in speculative net long positioning.

The chart below shows the net hedger position, which is the inverse of the net speculative position. Last week the net speculative long position in DXY futures rose by 21,749 contracts, which to our knowledge is one of the largest one-week surges in history, possibly even the largest.

Public sentiment (Optix, an amalgamation of all important surveys) continues to be stuck at 89% bulls. However, the short term oriented DSI (daily sentiment index) compiled by tradefutures.com recently clocked in at a reading of 98% bulls, which not surprisingly is an all time high as well and suspiciously close to the never before attained 100% barrier.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Why Falling Oil Prices Won’t Delay Fed Rate Increases (MarketWatch)
• Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned (Bloomberg)
• UK Oil Firms Warn Osborne: Without Big Tax Cuts We Are Doomed (Telegraph)
• As Oil Plummets, How Much Pain Still Looms For US Energy Firms? (Reuters)
• Oil’s Plunge Wipes Out S&P 500 Earnings (Bloomberg)
• How Falling Gasoline Prices Are Hurting Retail Sales (MarketWatch)
• Mind The Gap In Multi-Speed World Economy After Oil Plunge (Reuters)
• $50 Oil Kills Bonanza Dream That Made Greenlanders Millionaires (Bloomberg)
• Saudi Prince Alwaleed: $100-A-Barrel Oil ‘Never’ Again (Maria Bartiromo)
• Here’s What Happens When Oil Prices Crash – Not Pretty For Producers (Guardian)
• Greek PM Stuns Creditors With Election Promise To Ease Austerity (Guardian)
• Banks Ready Contingency Plans in Case of Greek Eurozone Exit (WSJ)
• ECB Plans QE According To Paid-In Capital (CNBC)
• European Central Bank’s Bond-Acquiring Plans Face Doubt (WSJ)
• Europe’s Economic Madness Cannot Continue (Joseph Stiglitz)
• Japan Readies Record $800 Billion 2015-16 Budget (Reuters)
• Steen Jakobsen Warns “Things Are About To Take A Different Turn In 2015” (ZH)
• Kerry to Visit France After US Faulted for Rally Presence (Bloomberg)
• The Curious Case Of New York’s Zero Crime Wave (Independent)
• Birmingham, UK A ‘Totally Muslim’ City: Fox News ‘Terror Expert’ (Ind.)
• The Economics Of Happiness Can Make For Sad Reading (Guardian)

Continue Reading: Debt Rattle January 12 2015 – TheAutomaticEarth.com