Oil’s True Message

Submitted by Michael Pento – Pento Portfolio Strategies

The pervasive narrative on Wall Street is that the collapse in oil prices will, any second now, restore consumers to their profligate spending ways. In fact, financial pundits have been calling for plunging energy prices to imminently rescue the economy for the past 18 months. Most importantly, these same gurus, who love to espouse the benefits of a collapse in oil prices, never connect the dots to what this collapse says about the state of global growth. Instead they argue it is solely a function of a supply glut that is the result of increased production.

West Texas Intermediate Crude (WTI) fell from $105 a barrel in June of 2014, to well below $30 in January of this year. The cratering price of WTI did not occur from a sudden surge in crude supply, but rather due to the market beginning to discount future plummeting demand coming from a synchronized global deflationary recession. According to the U.S. Energy Information Administration, world crude oil production has increased by just 3.3% since June 2014. Therefore, it is sheer quackery to maintain that such a small increase in crude production would result in prices to drop by 75%.

Oil prices are either discounting an unprecedented surge in supply, or a rapid destruction in demand. The Baker Hughes Rig count on an international basis is down by 218 rigs y/y. Therefore, despite any marginal increase in new supply from the lifting of Iranian sanctions, the drop in prices has to be due to the market’s realization that demand for this commodity is headed sharply south.

It’s not just the oil price that has tanked. Stock market cheerleaders have to ignore commodity prices in aggregate and a plethora of economic data to claim the global economy is faring well. Nearly all commodities are trading at levels not seen since the turn of the millennium. It’s not just energy that has crashed but base metals and agricultural commodities as well. In addition, half of US stocks are down more than 25% and the equity market carnage is much greater in most foreign shares. High-yield debt spreads to Treasuries also indicate a recession is nigh. Continue reading

Notes from the Locked Ward

Submitted by James Howard Kunstler  –  The KUNSTLER Blog

The remaining Americans sound-of-mind must view the primary election spectacle with mounting sensations of wonder, nausea, and panic. It’s one thing for the financial system to crack up, and another thing for social norms to disintegrate, and still another for the political system to become a locked ward of obvious psychopathology. Even the neurosurgeon on duty went narcoleptic the other night when his name was called to take the stage.

Last week’s candidate “debates” (or boasting contests) only underscored the human frailty on display. Marco Rubio was unmasked as an android with a broken flash drive. For a few moments I thought I was seeing an clip from the old movie Alien. In fact, the Republican melodrama more and more echoes the tone and plot of that story: a hapless, bumbling crew lost in space. One of these nights, something unspeakable is going to shoot out of Donald Trump’s mouth and there will be blood all over the podiums.

The Democratic boasting contest was not more reassuring. Bernie blew his biggest chance yet to harpoon the white whale known as Hillary when he cast some glancing aspersions on Mz It’s-My-Turn’s special side-job as errand girl of the Too-Big-To-Fail banks. Together, Bill and Hillary racked up $7.7 million on 39 speaking gigs to that gang, with Hillary clocking $1.8 million of the total for eight blabs. When Bernie alluded to this raft of grift, MzIMT retorted, “If you’ve got something to say, say it directly.”

There was a lot Bernie could have said, but didn’t. Such as: what did you tell them that was worth over $200,000 a pop? Whatever it was, it must have made them feel all warm and fuzzy inside. Did it occur to you that this might look bad sometime in the near future? Is there any way that this might not be construed as bribery? And how is some formerly middle-class out-of-work average voter supposed to feel about you getting paid more for 45 minutes of flapping your gums than he or she has earned in the past five years?

Bernie could have found a gentlemanly way to say that directly, but perhaps he experienced a sickening precognitive vision of his jibes being used against the party establishment’s candidate in the fall general election. Of course, if it looked like Hillary was going to get elected, the remaining sound-of-mind in this country might be falling over each other to apply for citizenship in Uruguay. Continue reading

The Era of Bubble Finance

Submitted by William Bonner, Chairman – Bonner & Partners

Debt Curse

NEW YORK – “Not a bad view. That’s the mayor’s house right beneath us.”

We were on the 16th floor of a new apartment building, looking out over the East River. With us was President Reagan’s former budget advisor and Wall Street veteran David Stockman – a man who has been closer to the Bubble Epoch than almost anyone.

The Dow rose 183 points on Wednesday – or just over 1% – after starting the day in the red.

SALOMON_3142495bWilliam Salomon in Salomon Bros. & Hutzler’s trading room in 1965. Salomon Bros. sold the first ever mortgage-backed bond on Wall Street in the 1980s

Photo credit: Arthur Brower / The New York Times

“I was there at the creation,” said David.

“After leaving government, I went to Salomon Brothers in the late 1980s. We were just starting to put together packages of mortgage-backed debt.”

Bubble finance has taken many shapes and sizes. Mortgage-backed derivatives. Private equity. Junk bonds. Student debt. Subprime auto loans. Stock buybacks. This debt was a curse to most Americans. But it blessed Manhattan.

The weekend’s Financial Times included real estate listings from New York City. There was a penthouse apartment for sale on the Upper East Side for $60 million. Luxury digs on the West Side were going for $30 million… another for $16 million.

You don’t make that kind of money parking cars… or making them. So, if you want to buy one of these places, you almost have to work in finance. Most people have no idea how the financial world works. They think investments go up or down and you make money depending on your luck or your skill – just like any other game. They don’t know the game is rigged.

Central banks make credit available to the big banks at preferential rates. The banks then earn a fat “spread” by making loans to government, industry, and households. They make money lending… and then, they make money again by packaging and selling the debt to investors, pension funds, and insurance companies.

Everything is fine until the credit cycle turns down. Then marginal debtors can’t pay and marginal (sub-prime or junk) debt loses value. Stocks and real estate go down, too. Everybody loses money. And everyone wants the Fed to “do something.” What can it do? Make credit even cheaper!

JNKYo Fedheads! It’s that time again! Cheaper credit needed! Liquidity junkies are out there dying of thirst! – click to enlarge. Continue reading

HERE ARE THE MEMBER BANKS, SHAREHOLDERS, AND OWNERS OF THE FEDERAL RESERVE SYSTEM

Submitted by J.C. Collins  –  philosophyofmetrics

federal-reserve-bank-of-cleveland-1200xx4288-2412-0-218Over the years there has been much written and discussed surrounding the actual ownership of the Federal Reserve System within the United States.  Vast conspiracy theories have been presented and laborious efforts have been undertaken to expose the actual shareholders and owners of the system.  All of which have been met with the human predisposition for fantasy and misdirection.

The purpose of POM has always been to function within well-disciplined research habits and present a factual thesis on the international monetary framework.  Considering the hegemonic role of the US dollar in this system, it is difficult to write about one while avoiding the other.

As such, avoiding the pit falls of the Federal Reserve conspiracy theories and misinformation is at times a futile effort.  No matter how much factual information is presented there are so many which refuse to believe or accept the reality of the human complexity involved in the machinations of the system itself.

I have always made the case that the faults in the system are the externalization of the faults within all of us.  As such, to blame any particular group, or subgroup, for the calamitous results which Federal Reserve monetary policy has had on the world is futile and counterproductive to developing workable solutions to the challenges in this world of man-made things and systems.

While I have ignored information promoting some sort of Jewish or Rothschild conspiracy surrounding the Federal Reserve, the fact remains that there are international banking interests that manipulate and direct the path of the monetary framework which governs the wealth of nations.  But there is no need for secret cabals and intricate conspiracy theories based on misdirection and fabrication.

We need facts now more than ever.

As most readers will know, the Federal Reserve System is made up of twelve regional districts and banks.  This was covered here on POM recently in the post A Hidden Mystery – The 12+1 Symbolism of the Federal Reserve System.

Structure of the Federal Reserve System

Each of the twelve regional Federal Reserve banks are made up from member banks in each region, as well as shareholders and owners.  It is this list which has caused so much discussion and conspiracy surrounding the system itself. Continue reading

Full Wages

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Despite the disappointing headline Establishment Survey estimate, those inclined to believe the payroll report as an overall economic narrative had two fallback issues.

U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but surging wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm. [emphasis added]

The first was the unemployment rate as it supposedly projected the economy at or tantalizingly close to full employment. The fact that even the mainstream conversation has turned more toward recession in 2016 than additional FOMC “rate hikes” makes that an almost impossible assertion right from the start. However, the view behind the unemployment rate leaves no doubt.

As to “surging wages”, that is likewise relatively easy to dismiss and on several fronts. First of all, as noted with the broad account of the CES, monthly variation is rather extreme so any one month of gains should be taken with full caution and skepticism. That is especially true of any purported wage gains in the month of January, particularly January 2016 as somewhat different than January’s past.

As the United States marks more than six years without an increase in the federal minimum wage of $7.25 an hour, 14 states and several cities are moving forward with their own increases, with most set to start taking effect on Friday.
California and Massachusetts are highest among the states, both increasing from $9 to $10 an hour, according to an analysis by the National Conference of State Legislatures…
With Friday’s increases, the new average minimum wage across the 14 affected states rises from $8.50 an hour to just over $9.

As was learned relatively quickly via WalMart’s experience with its wage hike, the more relevant factor to overall economic advance is not the wage rate but the net effect on total income. The true minimum wage is, after all, zero. In some places such as Oakland, individual municipality treatment of the wage mandate seems a likely factor in distributing these basic economics.

The company [Walmart] says either they didn’t perform well enough or they didn’t fit into long term planning. Customers aren’t buying that this location isn’t performing well enough.
“This in [sic] is the busiest one. Everybody I know comes here,” explained Francesca Cataldi, also [sic] avid Walmart shopper.
The Walmart is in City Councilman Larry Reid’s district. He wonders if an increase in the city’s minimum wage is a likely reason for the closure.
“They wouldn’t go into any specific details in terms of their rationale for closing the store. But this store has been very successful for Walmart,” said Reid.

The BLS does not give us any insight into how much minimum wage changes might affect the overall wage rate estimate for each January (or July, as is often the case for statutory implementation), but we have to assume that the inclusion of large states such as California would have at last some minor impact. If that is so, then some part of these wage gains, should they prove anything but just statistical variation, are not the foundation of what the FOMC is expecting. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Deutsche Bank Is Shaking To Its Foundations (SI)
• Why A Selloff In European Banks Is So Ominous (MW)
• Lending To Emerging Markets Comes To A Halt (FT)
• What the Heck is Going On in the Stock Market? (WS)
• Dot Com 2.0 – The Sequel Unfolds (St.Cyr)
• CEOs, Venture Backers Lose Big As Linkedin, Tableau Shares Tumble (Reuters)
• Record Numbers Of Longs And Shorts Are Piling Into Oil (BBG)
• Prolonged Slump Sparks 2nd Wave Of Cuts To 2016 Oil Company Budgets (Reuters)
• World’s Largest Energy Trader Sees a Decade of Low Oil Prices (BBG)
• 150 North Sea Oil Rigs Could Be Scrapped In 10 Years (Scotsman)
• Iran Wants Euro Payment For New And Outstanding Oil Sales (Reuters)
• Fining Bankers, Not Shareholders, for Banks’ Misconduct (Morgenson)
• Volkswagen’s Emissions Lies Are Coming Back To Haunt It (BBG)
• Moody’s Cuts Rating On Western Australia Iron Ore (WSJ)
• British Expat Workers Flood Home As Australia Mining Boom Turns To Dust (Tel.)
• Ukraine: A USA-Installed Nazi-Infested Failed State (Lendman)
• Through The Past, Darkly, For Europe’s Central Bankers (Münchau)
• German, French Central Bankers Call For Eurozone Finance Ministry (Reuters)