War & Petroleum Reserves

Submitted by JC Collins  –  philosophyofmetrics

Kuwaiti oil firesIn the interest of analytical balance, we would do well to consider the possibility of war strategies when it comes to the global stockpiling of petroleum reserves.  In the years leading up to the German invasion of Poland, the world witnessed dramatic decreases in the price of oil as well as massive increases in petroleum inventories, especially as the Texas fields began to produce.

These shifts in the global oil markets ran parallel to the deflation which had begun in October, 1929, and as such, we can see the same pattern repeating today as oil prices collapse, inventories are growing, and world wide deflation is deepening.

The United States and China are both increasing their Global Strategic Petroleum Reserves, with stockpiling taking place in Cushing, Oklahoma, and in provinces throughout China.  The promoted script is that America is seeking energy independence and China is taking advantage of low oil prices to increase stockpiles, as they are an energy importer.

But other countries around the world are stockpiling oil and petroleum products as well, from the construction of massive storage tanks in Nigeria, to hundreds of oil tanker ships full of crude floating of coastlines.  Crude and petroleum product stockpiles are increasing to record levels.

Oil Storage at Sea

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The Drowning of Innovation As a Mathematical Inequality

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Economics as a discipline has always fancied itself more of a hard science than a social science. That is why economists like to talk like physicists as if there is surety in the figures they use so publicly. It has even infected media coverage of economics, as the nomenclature about economists’ predictions has taken on an air of the definitive – reverence that is simply not matched by actual performance.

This is more than just Stanley Fischer’s assertion last year that economists have to apologize for their overly robust forecasts each and every year, or even the San Francisco Fed’s deeper look into forecasting bias off monetarism’s religious aspects, rather the calculation problems are symptoms of an entirely unrealistic appeal to precision. This is not something recent, as long ago economists, especially those like Simon Newcomb and John Stuart Mill that believed you could measure all “money”, fully expected to be able to quantify everything.

However, there is very little that gets done in a manner that is consistently logical. The most striking example is GDP’s inclusion of “owner imputed rent”, which is to say that the BEA estimates how much you as an owner and occupant of your house would pay yourself to rent out the “shelter.” No money changes hands and no actual transaction takes place, yet it is the single largest sub-component of PCE included in GDP; amounting to more than $1 trillion!

In the context of what ails the economy post-crisis, we have something of a similar problem as economists are desperate to find “lost” productivity. Productivity as a concept is vitally important as gains in true capital are the means by which living standards will rise in the future as they have so persistently risen in the past. The problem now is that such productivity has seemingly disappeared and economists are stumped.

Productivity is probably the most important measure of economic health that policy makers know the least about.
Its pace will help determine how soon Federal Reserve Chair Janet Yellen and her colleagues increase interest rates and how far rates ultimately will rise.

It’s a scary thought especially as those limitations don’t mean they won’t try to forecast it with something like precision:

John Fernald, a senior research adviser at the Federal Reserve Bank of San Francisco, pegs the trend growth rate of productivity at 1.8 percent a year for U.S. businesses and 2.1 percent for the economy as a whole…
“There’s basically an 80 percent chance over the next 10 years that productivity growth will average between 1 and 3 percent,” the Fed official said.

While that sounds an awful lot like objective mathematics, there is so much subjectivity contained within that projection that it doesn’t even amount to a best guess. After all, it was the Federal Reserve that was so stumped by the change in assumed productivity after the end of the dot-com bubble – which they so far refuse to acknowledge played a role in their perceptions of productivity in the first place. In other words, I doubt they can even define productivity enough to actually attempt to measure it crudely, and certainly not accurately.

The way it is done currently is that it is not done directly. The BLS takes a stunted measure of real GDP and combines that with its own estimate of hours worked. The remainder between the two is assumed to be productivity, but if the BEA is off in its count of “inflation”, a major factor here, or the BLS over-estimates employment, then productivity isn’t productivity but a bad combination of bad mathematical inputs. In that case, the resulting numbers won’t make much sense; which I suspect is entirely the point here.

ABOOK Feb 2015 Economy GDP v Hours3

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Tesla: Bonfire Of The Money Printers’ Vanities

The trouble with the money printing madness in the Eccles Building is that it generates huge deformations, misallocations and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century.  The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dotcom bust and $15 trillion during the 2008-2009 financial crisis.

Yes, the Fed has managed to reflate this cheap money bubble for the third time now, but the certainty that it will splatter once again is not the issue at hand. What gets lost in the serial bubble-making process of modern central banking is that vast real resources—labor, capital and materials—- are misallocated owing to mispricing of stock, bonds and real estate during the bubble inflation phase.

During the bust phase, of course, these excesses are written-down on financial statements and often liquidated entirely on an operational basis. But that’s just the problem. These bust-phase corrections amount to deadweight losses to the economy—-a permanent setback to growth and societal prosperity.

The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla—–a crony capitalist con job that has long been insolvent, and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.

Not surprisingly, the speculative mania on Wall Street has reached such absurd lengths that Telsa is being heralded and valued as the second coming of Apple and its circus barker CEO, Elon Musk, as the next Henry Ford. Indeed, so raptured were the day traders and gamblers that in the short span of 33 months between early 2012 and September 2014 they ramped up Tesla’s market cap from $2.5 billion to a peak of $35 billion.

That’s a 14X gain in virtually no time—-and its not due to the invention of a revolutionary new product like the i-Pad. Instead, we’re talking about 4,600 pounds of sheet metal, plastic, rubber and glass equipped with an electric battery power pack that has been around for decades, and which is not remotely economic without deep government subsidies.

Beyond that, the various Tesla models currently on the market carry price tags of $75k to more than $100k. So they are essentially vanity toys for the wealthy—–a form of conspicuous consumption for the “all things green” crowd.

TSLA Chart

TSLA data by YCharts

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The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Yellen Confronts Economists’ Ignorance (Bloomberg)
How The Eurozone Could Tear Apart (Telegraph)
Greece, The Euro And Solomon’s Wisdom (Kathimerini)
Greece Says Eurozone Deal Won Time As Cash Bled From Banks (Reuters)
The Real Battle Over Greece Still Lies Ahead (Bloomberg)
From Greek Warriors To Battered Soldiers – In A Week (Observer)
Germany Set To Approve Greek Deal If Promises Met: Merkel Ally (Reuters)
What Would Happen if Greece Leaves the Euro Zone? (Spiegel)
The 1 Reason Pope Francis Is The World’s Top Capitalist (Paul B. Farrell)
Russians Rally Against Kiev ‘Coup’ (BBC)
Poroshenko Bruised By Ukraine Army Retreat (BBC)
NATO Must Prepare For Russian Blitzkrieg, Warns UK General (FT)
Kerry Warns of More Russia Sanctions as Ukraine Simmers (Bloomberg)
Ousted Ukraine Leader Aims To Return As Rockets Threaten Peace Plan (Observer)
Ukraine, Rebels Swap Dozens Of Prisoners (Reuters)
Modi Bets On GMO Crops For India’s Second Green Revolution (Reuters)

Much more here: Debt Rattle February 22 2015 – TheAutomaticEarth.com

Global economic outlook-update

Submitted by Alasdair Macleod – FinanceAndEconomics.org

As recently as 9th January I wrote an article suggesting that 2015 would turn out to be the year of the slump. The title ended with a question mark, but today we are closer to removing it in favour of a definite statement.

In recent weeks, it has become clear that key economic blocs are indeed heading for a slump, including but not limited to China, the Eurozone and Japan (allowing for the distortions of her aggressive money-printing). Between them they account for nearly 40% of global GDP. We know this because of the collapse in commodity prices, which is reflected in a global shift of preference in favour of the US dollar.

For the avoidance of doubt, money should be regarded as a good, and each currency as a different good. When this point is grasped, the context of the dollar’s rise against both commodities and other currencies becomes clear. Both commodities and currencies are priced in dollars, so markets are showing that banks, consumers and businesses have been changing their preferences in favour of increasing their dollar balances.

Modern macroeconomics fails to adequately explain the importance of these developments. A quick look at the index in Keynes’s General Theory makes no mention of changes in preference for money versus other goods. It lists and defines liquidity preference which is a different topic. Once you accept money is a good, supply and demand will always balance as predicated in Say’s Law, otherwise known as the Law of the Markets. Continue reading