Category Archives: Other Views

Global Oil Inventory Glut Biggest In Last Decade, by Grant Smith

Posted on November 13, 2015 | Leave a comment

It is becoming clearer by the day, looking backwards, that oil launched what will soon be, if it is not already, a global recession, as SLL said way back in December, 2014 (“Oil Ushers in the Depression,” 12/1/14). What will be clear a year from now is that it will be a long time before there is a there a sustained increase in the price of oil. From Grant Smith at bloomberg.com:

Surplus in developed economies exceeds level of 2009 crisis

Slowing non-OPEC supply may help `alleviate the overhang’

Surplus oil inventories are at the highest level in at least a decade because of increased global production, according to the Organization of Petroleum Exporting Countries.

Stockpiles in developed economies are 210 million barrels higher than their five-year average, exceeding the glut that accumulated in early 2009 after the financial crisis, the organization said in a report. Slowing non-OPEC supply and rising demand for winter fuels could “help alleviate the current overhang,” enabling a recovery in prices, it said. The group’s own production slipped last month because of lower output in Iraq.

“The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand,” OPEC’s Vienna-based research department said in its monthly market report.

Oil prices have lost about 40 percent in the past year as several OPEC members pump near record levels to defend their market share against rivals such as the U.S. shale industry. While inventories peaked in early 2009 before OPEC implemented record production cuts, this time the group has signaled it won’t pare supplies to balance global markets and U.S. output is buckling only gradually in response to the price rout.

To continue reading: Global Oil Invetory Glut Biggest In Last Decade

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The “Bloodbath” in Canada Is Far From Over, by Justin Spittler

Posted on November 13, 2015 | Leave a comment

Our neighbor up north is hurting, too. From Justin Spittler at caseyresearch.com:

The oil price crash continues to claim victims…and many of them are in Canada.

The price of oil hovered around $100 for most of last summer. Today, it’s trading for less than $45.

Weak oil prices have pummeled huge oil companies. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks the performance of major U.S. oil producers, has declined 36% over the past year. The Market Vectors Oil Services ETF (OIH), which tracks U.S. oil services companies, has declined 30% since last November.

Weak oil prices have even pushed entire countries to the brink. Saudi Arabia, which produces more oil than any country in the world, is on track to post its first budget deficit since 2009 this year. If oil prices stay low, the country could burn through its massive $650 million pile of foreign reserves within five years.

• Oil’s collapse is also creating big problems for Canada’s economy…

Canada is the world’s sixth largest oil producer. Oil makes up 25% of its exports.

Last month, The Conference Board of Canada said it expects sales for Canada’s energy sector to fall 22% this year. It also expects the industry to record a net loss of about C$2.1 billion ($1.6 billion) in 2015. That’s a drastic change from last year, when the industry booked a C$6 billion ($4.5 billion) profit.

Major oil firms are slashing spending to cope with low prices. Last month, oil giant Royal Dutch Shell plc (RDS.A) said it would stop construction on an 80,000 barrels per day (bpd) project in western Canada. The company had already abandoned another 200,000 bpd project in northern Canada earlier this year.

The Canadian Association of Petroleum Producers estimates that Canadian oil and gas companies have laid off 36,000 workers since last summer. Most of these layoffs happened in the province of Alberta…

To continue reading: The “Bloodbath” in Canada Is Far From Over

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Four Stories From Debt Contraction Epicenter China

Posted on November 13, 2015 | Leave a comment

Click the underlined headlines for the full stories.

China’s Troubled Credit Swells to Sweden-Sized $628 Billion

by Bloomberg News

Banks’ profit growth for first 9 months slumps to 2% from 13%

Latest bank data coincides with Shanshui Cement debt crisis

Chinese banks’ troubled loans swelled to almost 4 trillion yuan ($628 billion) by the end of September, more than the gross domestic product of Sweden, according to figures released by the industry regulator.

Banks’ profit growth slumped to 2 percent in the first nine months from 13 percent a year earlier, according to data released on Thursday night by the China Banking Regulatory Commission.

The numbers come as a debt crisis at China Shanshui Cement Group Ltd. prompts lenders including China Construction Bank Corp. and China Merchants Bank Co. to demand immediate repayments and as weakness in October credit growth shows the risk of a deeper economic slowdown.

CHINA’S DEMAND FOR CARS HAS SLOWED

by Bloomberg News

For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. That provided a welcome bounce to Western carmakers such as Volkswagen and General Motors and fueled the rapid expansion of locally based manufacturers including BYD and Great Wall Motor. Best of all, those new Chinese buyers weren’t as price-sensitive as those in many mature markets, allowing fat profit margins along with the fast growth.

No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times. The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales, according to estimates by Bloomberg Intelligence. New Chinese factories are forecast to add a further 10 percent in capacity in 2016—despite projections that sales will continue to be challenged.

China Panics: Sends Fiscal Spending Through The Roof As Credit Creation Tumbles

Earlier this week, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. That would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.

“One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI reported.

Given that, and given what we know about rising NPLs and a lack of demand for credit as the country copes with a troubling excess capacity problem, none of the above should come as a surprise.

CHINA’S TRADE DATA SIGNAL MORE ECONOMIC PAIN COMING

Recessions Are Underway

China drove the recent economic boom, just as it is behind the recent malaise. A turnaround in Chinese demand would certainly change things but the current data does not look promising.

For China’s trade partners, it means recession today. Only Germany and the US look positioned to weather the storm. Expect the next macroeconomic leg down to start in January. Between now and then, data will continue to weaken incrementally. Expect urgent Central Bank intervention in Taiwan, Korea, Brazil, and Australia.

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When High-Risk Loans Blow Up, by Mike Larson

Posted on November 13, 2015 | Leave a comment

It’s not just bonds that are flashing red, so too is the leveraged loan market. From Mike Larson at moneyandmarkets.com:

Ever heard of the S&P/LSTA U.S. Leveraged Loan 100 Index? Probably not. But as an investor who cares about building or preserving wealth, you should definitely pay attention to the message it’s sending out.

To briefly explain: This index tracks the performance of 100 large, higher-risk, higher-yielding loans. They have a term of at least one year, are denominated in U.S. dollars and are issued on a senior secured basis.

These kinds of loans are typically used to finance leveraged buyouts, mergers and acquisitions or other corporate actions, all of which soar at the tail end of a credit cycle. They’re usually taken out by higher-risk companies with a lot of existing debt and lower credit ratings. As a result, they’re among the first loans to sour when the economy starts breaking down, credit conditions start tightening and easy money drains out of capital markets.

With that preamble out of the way, take a look at this chart of the index …

You can see that it topped out in mid-2014 — before the recent stock market struggles. You can also see it made a “lower high” in early 2015, and has done nothing but fall since then. As a matter of fact, it just hit the lowest level in more than three years.

To continue reading: When High-Risk Loans Blow Up

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Last Two Times this Happened, it was Mayhem, by Wolf Richter

Posted on November 13, 2015 | Leave a comment

Today’s theme: The global economy is going to hell in a handbasket. This week’s stock market action made October’s glorious rally a distant memory (see “Crisis Progress Report (13): Time for the Crash,” SLL, 11/8/15). It may be awhile before we see a substantial rally, and rom much lower levels. It’s been like a light switch going on (or, more aptly, off). Nothwithstanding oodles of central bank fiat debt creation, interest rate suppression, and financial asset purchases, the real world, tangible economy is deteriorating alarmingly. From Wolf Richter at wolfstreet.com:

Moody’s Warns about Credit Crunch, Unnerves with Parallels to 2008!

The US bond market has swollen to $40 trillion. Over $8 trillion are corporate bonds, up a mind-boggling 50% from when the Fed unleashed its zero-interest-rate policy and QE seven years ago.

So far this year, $1.34 trillion in new corporate bonds have been issued, up 6.8% from last year at this time, which had already been a record year, according to the Securities Industry and Financial Markets Association (SIFMA). Bond issuance in 2012, 2013, and 2014 set ever crazier records; 2015 is on track to set an even crazier one: close to $1.5 trillion.

That’s a lot of newly borrowed moolah. Much of it is being used to pay for dividends, stock buybacks, M&A, and other worthy financial engineering projects designed to inflate stock prices, though that strategy has turned into a sorry dud this year.

Junk bonds now make up $1.8 trillion of this pile of corporate debt, nearly double the $944 billion in junk bonds outstanding at the end of 2008 before the Fed saved the economy, so to speak.

But what happens when this flood of cheaply borrowed money begins to dry up as an ever larger percentage of that $1.8 trillion in junk bonds begins to default, while ever more high-grade bonds get downgraded to junk?

That’s the end of the credit cycle – and the beginning of financial nightmares. It’s the phase the bond market has already entered, according to a report by John Lonski, Chief Economist at Moody’s Capital Markets Research.

One metric that marks turning points in the credit cycle is the credit upgrade ratio. In Q2 this year, the ratio of ratings upgrades to total ratings revisions for junk bonds was still 49%. By Q3, this upgrade ratio had fallen to 39%, the worst level since Q2 2009 when it was 30%. Halfway into Q4, there have been 18 upgrades and 57 downgrades, a ratio of 24%, the worst since Q1 2009.

Among investment-grade bonds, the ratio is even more terrible: 1 upgrade and 11 downgrades. “A convincing negative trend may be emerging,” the report said gingerly.

To continue reading: Last Two Time this Happened, it was Mayhem

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The Republican War — Over War Policy, by Patrick Buchanan

Posted on November 13, 2015 | Leave a comment

From Patrick Buchanan at buchanan.org:

Rand Paul had his best debate moment Tuesday when he challenged Marco Rubio on his plans to increase defense spending by $1 trillion.

“You cannot be a conservative if you’re going to keep promoting new programs you’re not going to pay for,” said Paul.

Marco’s retort triggered the loudest cheers of the night:

“There are radical jihadists in the Middle East beheading people and crucifying Christians. The Chinese are taking over the South China Sea. … the world is a safer and better place when America is the strongest military power in the world.”

Having called for the U.S. Navy to confront Beijing in the South China Sea, and for establishing a no-fly zone over Syria that Russian pilots would enter at their peril, Rubio seems prepared for a confrontation with either or both of our great rival nuclear powers.

Dismissing Vladimir Putin as a “gangster,” Marco emerged as the toast of the neocons. Yet the leading GOP candidate seems closer to Rand.

Donald Trump would talk to Putin, welcomes Russian planes bombing ISIS in Syria, thinks our European allies should lead on Ukraine, and wants South Korea to do more to defend itself.

Uber-hawk Lindsey Graham did not even make the undercard debate. And though he and John McCain are the most bellicose voices in the party, they appear to be chiefs with no Indians.

Still, it is well that Republicans air their disagreements. For war and peace are what the presidency is about.

Historically, Republican presidents appear to line up on the side of Rand and Trump.

To continue reading: The Republican War—Over War Policy

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Malinvestment Run Amuck: Mired In Massive Overcapacity And Pollution, China Approves 155 New Coal Fired Power Plants This Year, by Zachary Davies Boren

Posted on November 12, 2015 | Leave a comment

From Zachary Davies Boren at Energy Desk Greenpeace, via davidstockmanscontracorner.com:

China has given the green light to more than 150 coal power plants so far this year despite falling coal consumption, flatlining production and existing overcapacity.

According to a new Greenpeace analysis, in the first nine months of 2015 China’s central and provincial governments issued environmental approvals to 155 coal-fired power plants — that’s four per week.

The numbers associated with this prospective new fleet of plants are suitably astronomical.

Should they all go ahead they would have a capacity of 123GW, more than twice Germany’s entire coal fleet; their carbon emissions would be around 560 million tonnes a year, roughly equal to the annual energy emissions of Brazil; they would produce more particle pollution than all the cars in Beijing, Shanghai, Tianjin and Chongqing put together; and consequently would cause around 6,100 premature deaths a year.

But they’re unlikely to be used to their maximum since China has practically no need for the energy they would produce.

Coal-fired electricity hasn’t increased for four years, and this year coal plant utilisation fell below 50%.

To continue reading: Malinvestment Run Amuck

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5 Stories the Media Missed While Obsessing over the #StarbucksRedCup, by Claire Bernish

Posted on November 12, 2015 | Leave a comment

From Claire Bernish at theantimedia.org:

When billionaire presidential hopeful Donald Trump inexplicably decided this week that boycotting Starbucks over the ‘de-Christmas-ization’ of their ubiquitous red holiday coffee cup was somehow a matter of national importance, the internet exploded — and American mainstream media fanned the flames.
People from every conceivable walk of life suddenly found themselves with a reason to rise up against the establishment coffee chain and scream in indignation about this newly-neutral — and cheerlessly Grinch-ified — affront to humanity. As if this inane insanity over an innocuous paper cup weren’t an embarrassing enough commentary on the U.S.’ populace’ lack of priorities — by Wednesday morning, the corporatocracy ever-so nobly answered the outrage: Dunkin’ Donuts unveiled its decidedly cheerful, appropriately Christmas-ized version of its holiday cup.
Yes, indeed. Starbucks’ apparent war on Christmas has now fully morphed into a de facto corporate Battle of the Paper Cups. People immediately responded by declaring their undying allegiance to either Team Grinch or Team Santa, conveniently ignoring the fact that these mega-corporations just figured out their most lucrative holiday marketing strategies — weeks before Thanksgiving even crossed people’s minds.

But the passion these warring coffee cup factions have managed to muster is indisputably misplaced, especially considering the bevy of pertinent issues that directly affect us all and are inherently more deserving of outrage. Though the month isn’t yet halfway behind us, there are already myriad concerns in need of your immediate attention — and none have anything whatsoever to do with a commercialized holiday that’s still well over a month away.

Here are five things exponentially more deserving of your indignation than a paper cup — no matter its design (or lack thereof):

1. The Trans-Pacific Partnership (TPP)

Perhaps nothing encapsulates the sickening intrusion of crony-capitalism into our personal affairs more than the insidious, notorious TPP, which was dubbed the corporate power-grab of the century, even before the full text was released this week by the White House. At stake with this trade pact between the U.S. and 11 other countries is an economic coup that will drive 40% of the world’s GDP — at the expense of civilians worldwide.

To continue reading: 5 Stories the Media Missed

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US Freight – Trucking, Rail, all of it – Goes to Heck, by Wolf Richter

Posted on November 12, 2015 | 2 comments

The economy is sliding into recession. From Wolf Richter at wolfstreet.com:

“A drawdown much like the one we saw in 2009 and 2010.”

Transportation is a gauge into how well the real economy is doing. And it just keeps getting worse.

In October, the number of freight shipments in North America fell from September, in line with the patterns of the past few years, but it fell more sharply than before. And year-over-year, shipments dropped 5.3% to hit the worst level for October since 2011, according to the Cass Freight Index, after having already plunged in the prior month to the worst level for a September since 2010.

Cass put it this way:

This month’s decline was much sharper than in recent years and can be directly correlated to falling imports and exports as well as decreased domestic manufacturing levels. Burdened by bloated inventories, and under the shadow of a possible interest rate increase by the Federal Reserve, businesses cut back on new orders placed in the last three or four months. This is resulting in lower import volumes, less freight to move, and faltering industrial production. With the dollar still strengthening, export growth decelerated in the third quarter.

With the exception of January and February, the index has been lower year-over-year every month, which makes for a very crummy year:

The index is broad. It tracks shipment data from all kinds of companies, no matter what mode of shipping they choose, including truck and rail. But it does not cover bulk commodities, such as oil, wheat, coal, etc. It’s based on “$26 billion in freight transactions processed by Cass annually on behalf of its client base of hundreds of large shippers,” as Cass explains. These shippers form a “broad sample” in all kinds of sectors, including consumer packaged goods, food, automotive, chemical, OEM, heavy equipment, and retail.

To continue reading: US Freight Goes to Heck

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Cold sun rising, by Sam Khoury

Posted on November 12, 2015 | 1 comment

From Sam Khoury at nationmultimedia.com:

New studies flip climate-change notions upside down

The sun will go into “hibernation” mode around 2030, and it has already started to get sleepy. At the Royal Astronomical Society’s annual meeting in July, Professor Valentina Zharkova of Northumbria University in the UK confirmed it – the sun will begin its Maunder Minimum (Grand Solar Minimum) in 15 years. Other scientists had suggested years ago that this change was imminent, but Zharkova’s model is said to have near-perfect accuracy.

So what is a “solar minimum”?

Our sun doesn’t maintain a constant intensity. Instead, it cycles in spans of approximately 11 years. When it’s at its maximum, it has the highest number of sunspots on its surface in that particular cycle. When it’s at its minimum, it has almost none. When there are more sunspots, the sun is brighter. When there are fewer, the sun radiates less heat toward Earth.

But that’s not the only cooling effect of a solar minimum. A dim sun doesn’t deflect cosmic rays away from Earth as efficiently as a bright sun. So, when these rays enter our atmosphere, they seed clouds, which in turn cool our planet even more and increase precipitation in the form of rain, snow and hail.

Solar cycles

Since the early 1800s we have enjoyed healthy solar cycles and the rich agriculture and mild northern temperatures that they guarantee. During the Middle Ages, however, Earth felt the impact of four solar minimums over the course of 400 years.

The last Maunder Minimum and its accompanying mini-Ice Age saw the most consistent cold, continuing into the early 1800s.

The last time we became concerned about cooler temperatures – possibly dangerously cooler – was in the 1970s. Global temperatures have declined since the 1940s, as measured by Pacific Decadal Oscillation. The PDO Index is a recurring pattern of ocean-atmosphere climate variability centred over the Pacific Ocean. Determined by deep currents, it is said to shift between warm and cool modes. Some scientists worried that it might stay cool and drag down the Atlantic Decadal Oscillation with it, spurring a new Ice Age. The fear was exacerbated by the fact that Earth has been in the current inter-glacial period for 10,000 years (depending on how the starting point is gauged).

If Earth were to enter the next Ice Age too quickly, glaciers could advance much further south, rainforests could turn into savannah, and sea levels could drop dramatically, causing havoc.

The BBC, all three major American TV networks, Time magazine and the New York Times all ran feature stories highlighting the scare. Fortunately, by 1978 the PDO Index shifted back to warm and the fear abated.

To continue reading: Cold sun rising

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