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In Venezuela, “Savage Suffering” Takes Hold Amid Frightening “Food Emergency”

February 13, 2016

In Venezuela, “Savage Suffering” Takes Hold Amid Frightening “Food Emergency”

Venezuelan President Nicolas Maduro has been working on some “measures.”

“Now that the economic emergency decree has validity, in the next few days I will activate a series of measures I had been working on,” he said Thursday, in a televised statement meant to address a “food emergency” declared by Congress.

The “validity” Maduro references comes from a high court ruling that gives the President expanded powers to tackle a deepening economic crisis that’s left hospitals without medicine and grocery stores bereft of food.

“The controversial move by the Supreme Court, which critics say is packed with supporters of Mr Maduro’s socialist government, potentially sets the scene for a bitter institutional crisis amid claims that the national assembly is being undermined,” FT notes, underscoring the extent to which opposition lawmakers – who in December won 99 of 167 seats that were up for grabs in what amounted to the worst defeat in history for Hugo Chavez’s leftist movement – feel as though last year’s election victory may have been a ruse designed to lend legitimacy to a system that is, and likely always will be, deeply undemocratic.

“This is a tyranny, which has been very successful in disguising as a democracy, and has even allowed itself to lose an election,” Moisés Naím, a former Venezuelan minister and fellow at the Carnegie Endowment for International Peace said.

Thanks to the Supreme Court decision, Maduro doesn’t need the assembly’s permission to intervene further in business, to allocate funds for imports, and to introduce new capital controls. The opposition is furious and says it will speed up efforts to usurp Maduro once and for all. “In the next few days we will have to present a concrete proposal for the departure of that national disgrace that is the government,” opposition leader Henry Ramos told reporters on Friday.

…click on the above link to read the rest of the article…

North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse

February 5, 2016

North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse

Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.

Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market.  As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”

“The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state,” Goldman wrote recently, recalling a previous period of low oil prices in a note entitled “How Bad Can Texas Get?”

“Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986,” the bank added.

North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes.

“Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.

Take Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit.

…click on the above link to read the rest of the article…

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

January 31, 2016

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenues. Just as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings.

…click on the above link to read the rest of the article…

Italian Banks Sink As “Bad Bank” Plan Underwhelms

January 27, 2016

Italian Banks Sink As “Bad Bank” Plan Underwhelms

Last week, we noted that Italy is rushing to defuse a €200 billion time bomb in the country’s banking sector as investors fret over banks’ exposure to souring loans.

“Italian banks’ share prices have been volatile YTD, given the market’s renewed fears over asset quality and potential developments on a possible bad bank creation,” Citi wrote, in a note analyzing which Italian banks are most exposed. “Total gross NPLs in Italy have increased by c160% since 2009 and now represents c18% of loans (vs c8% in 2009).”

Essentially, Italy was slow to tackle its NPL problem relative to other countries and the chickens have now come home to roost.

The idea was to create a “bad bank” for the “assets” (because that’s worked so well in other countries), but the plan was stalled by the European Commission due to concerns about whether Italy was set to run afoul of restrictions around when countries can provide state aid to the financial sector.

In short, creditors at Italy’s banks would need to take a hit before PM Matteo Renzi’s government would be allowed to extend state aid. That is unless Italy could devise some kind of end-around, which is precisely what Renzi was attempting to do last week.

As a reminder, this would have been easier had it been negotiated last year before new rules on bank resolutions came into effect in 2016. That’s why Portugal pushed through the Novo Banco bail-in and the Banif rescue in December.

In any event, Italy has indeed managed to strike a deal with Brussels to help alleviate banks’ NPL burden.

Essentially, Italian banks will securitize their souring loans, sell them to investors, and the government will guarantee the senior tranches of the new paper.

…click on the above link to read the rest of the article…

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

January 11, 2016

China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”

In late September, India “surprised” 51 out of 52 economists by cutting rates a larger than expected 50 bps.

Despite RBI Governor Raghuram Rajan’s penchant for catching markets off guard and despite the fact that exports had fallen for eight consecutive months, economists still failed to predict that anything more than 25 bps was in the cards.

“The weakness in India’s exports is striking, not only in terms of past trend, but also from a cross country perspective,” Deutsche Bank wrote at the time. “Indeed, India’s exports performance has been the weakest in the region in 2015.”

In short: in a world gone Keynesian crazy, you live and die by your willingness to engage in competitive easing and with China having just a month earlier moved to devalue the yuan, India had little choice but to cut lest the export picture should darken further.

Since then the malaise has deepened.

Exports have now fallen for 12 straight months and although some of the decline is probably attributable to slumping prices (as opposed to lower volumes), it’s worrisome nevertheless.

“India’s external trade likely fell for second consecutive year in FY16E, with both exports and imports contracting by 18.5%YoY and 17.2%YoY in the period Apr-Nov’15,” Citi notes, adding that “the meltdown in India’s exports and imports was even sharper than the global tradewhich contracted by 12- 13%YoY.”

On Friday, in the wake of China’s continued devaluation of the yuan, Indian Trade Minister Nirmala Sitharaman expressed concern about the effect a sharply weaker RMB will have on her country’s trade deficit with Beijing. “It’s worrying,” she said. “My deficit with China will widen.”

India is now looking at ways to prevent a flood of cheap imports from hitting domestic producers.  “India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them,” Reuters writes. “A similar measure was adopted in 1999.”

…click on the above link to read the rest of the article…

Saudis Boost Gas Prices by 40%, Dismantle Welfare State To Wage War With U.S. Shale

December 28, 2015

Saudis Boost Gas Prices by 40%, Dismantle Welfare State To Wage War With U.S. Shale

Earlier today, we parsed Saudi Arabia’s budget report in order to determine if the kingdom’s fiscal nightmare was better or worse than market expectations.

As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations.

Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October.

The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring.

Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%.

And that’s not all.

Prices for gas, diesel, kerosene, water and electricity were also raised. 

Indeed, some Saudis were looking to fill up before the price hike:

…click on the above link to read the rest of the article…

“I Know Of No One Who Predicted This”: Russian Oil Production Hits Record As Saudi Gambit Fails

December 21, 2015

“I Know Of No One Who Predicted This”: Russian Oil Production Hits Record As Saudi Gambit Fails

In late October, we noted that for the second time this year, Russia overtook Saudi Arabia as the biggest exporter of crude to China.

Russia also took the top spot in May, marking the first time in history that Moscow beat out Riyadh when it comes to crude exports to Beijing. “Moscow is wrestling with crippling Western economic sanctions and building closer ties with Beijing is key to mitigating the pain,” we said in October, on the way to explaining that closer ties between Russia and China as it relates to energy are part and parcel of a burgeoning relationship between the two countries who have voted together on the Security Council on matters of geopolitical significance. Here’s a look at the longer-term trend:

You may also recall that Gazprom Neft (which is the number three oil producer in Russia) began settling all sales to China in yuan starting in January. This, we said, is yet another sign of the petrodollar’s imminent demise.

On Monday, we learn that for the third time in 2015, Russia has once again bested the Saudis for the top spot on China’s crude suppliers list. “Russia overtook Saudi Arabia for the third time this year in November as China’s largest crude oil supplier,” Reuters writes, adding that “China brought in about 949,925 barrels per day (bpd) of Russian crude in November, compared with 886,950 bpd from Saudi Arabia.”

This is an annoyance for Riyadh. China was the world’s second-largest oil consumer in 2014 and closer ties between Moscow and Beijing not only represent a threat in terms of crude revenue, but also in terms of geopolitics as the last thing the Saudis need is for Xi to begin poking around militarily in the Arabian Peninsula on behalf of Moscow and Tehran.

…click on the above link to read the rest of the article…

Brazil Devolves Into Full-Blown Political Crisis With Launch Of Impeachment Proceedings Against President Rouseff

December 2, 2015

Brazil Devolves Into Full-Blown Political Crisis With Launch Of Impeachment Proceedings Against President Rouseff 

Moments ago Brazil lower house chief Eduardo Cunha announced that he has accepted an impeachment request filed by Helio Bicudo. Cunha told reporters in Brasilia that the decision is not political, and while one can debate that, the implications will have a tremendous impact on both Brazil’s political situation not to mention its already imploding economy.

As Bloomberg adds, Cunha told reporters in Brasilia on Wednesday he “profoundly regrets” what’s happening. “May our country overcome this process.” The impeachment process could take months, involving several votes in Congress that ultimately may result in the president’s ouster. Rousseff would challenge any impeachment proceedings in the Supreme Court, according to a government official with direct knowledge of her defense strategy.

The speaker’s decision will put the president’s support in Congress to a test after government and opposition spent months trying to rally lawmakers to their sides. The move also threatens to paralyze Rousseff’s economic agenda as she focuses on saving her political life rather than reviving growth. Her ouster would mark the downfall of the ruling Workers’ Party that won global renown for lifting tens of millions from poverty before becoming ensnared in Brazil’s largest-ever corruption scandal.

Accusations that top members of her party accepted bribes, coupled with surging consumer prices and rising unemployment, have driven Rousseff’s approval rating to record lows. The majority of Brazilians in public opinion polls agreed that Congress should open impeachment proceedings against the president.

The story gets better because Cunha himself is facing allegations that he accepted kickbacks and hid the money in overseas accounts. The lower house ethics committee is considering whether to open a probe that could result in his removal from office. His decision today comes after Workers’ Party members on the committee agreed Dec. 2 to vote in favor of investigating Cunha. The speaker denies wrongdoing.

…click on the above link to read the rest of the article…

Presenting BofA’s “Number One Black Swan Event For The Global Oil Market In 2016”

November 20, 2015

Presenting BofA’s “Number One Black Swan Event For The Global Oil Market In 2016”

We’ve spent quite a bit of time this year talking about Saudi Arabia’s rather precarious financial situation.

To be sure, the move to artificially suppress crude prices has at least partly served the kingdom’s interests in terms of market share and geopolitics. The US shale space has felt the screws tighten and even as wide open capital markets have helped even the weakest players stay in business, production is falling and for the most uneconomic producers, it does indeed appear that the music may finally be about to stop.

As for the “ancillary diplomatic benefits” (i.e. the geopolitical angle) of collapsing crude, the Russians have undoubtedly felt the squeeze and when considered in tandem with Western economic sanctions, one has to believe that the pain from low energy prices has been very real indeed for Moscow.

On balance though, it looks like this was a bad gamble for Riyadh. ZIRP has kept the US shale space in business far longer than the Saudis probably imagined would be possible and instead of forcing Putin to give up Assad, Russia instead built an air base at Latakia and plunged headlong into Syria’s civil war on behalf of the President.

Meanwhile, the fallout from “lower for longer” has been a disaster for the kingdom’s finances. Saudi Arabia’s budget deficit is expected to come in between 16% and 20% and for the first time in ages, the country faces a deficit on the current account as well.

The pressure is exacerbated by the necessity of preserving the societal status quo. Put  Here’s what we mean (via Deutsche Bank):

The largest energy subsidy beneficiary is the end-consumer in the form of fuel (petrol) subsidies. Bringing up the price of petrol to levels in the UAE, which earlier this year eliminated the petrol subsidy, could provide the government with USD27bn incremental revenues, or 20% of the budget deficit. 

…click on the above link to read the rest of the article…

Saudis Poke The Russian Bear, Start Oil War In Eastern Europe

October 18, 2015

Saudis Poke The Russian Bear, Start Oil War In Eastern Europe

Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft. Saudi officials have said publicly that the price of oil reflects only global supply and demand, and they have insisted that Saudi Arabia will not let geopolitics drive its economic agenda. But they believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad.

That’s a quote from a New York Times article that ran in February of this year.

At the time, we pointed to the piece as evidence that yet another conspiracy “theory” has become conspiracy “fact” as it effectively served to validate (to the extent The New York Times is validation) the thesis that at the end of the day, this is all about energy.

If the Saudis could use oil prices to force Moscow into ceding support for Bashar al-Assad in Syria, then the West and its regional allies could get on with facilitating his ouster by way of arming and training rebels. Once Assad was gone, a puppet government could be installed (after some farce of an election that would invariably pit two Western-backed candidates against each other) then Riyadh, Doha, and Ankara could work with the new government in Damascus to craft energy deals that would not only be extremely lucrative for all involved, but would also help to break Gazprom’s iron grip on energy supplies to Europe. 

Those are the “ancillary diplomatic benefits” mentioned in The Times piece.

Only it didn’t work out that way.

…click on the above link to read the rest of the article…

Why It Really All Comes Down To The Death Of The Petrodollar

August 23, 2015

Why It Really All Comes Down To The Death Of The Petrodollar

Last week, in the global currency war’s latest escalation, Kazakhstan instituted a free float for the tenge. The currency immediately plunged by some 25%.

The rationale behind the move was clear enough. The plunge in crude prices along with the relative weakness of the Russian ruble had severely strained Kazakhstan, which is central Asia’s largest crude exporter. As a quick look at a chart of the tenge’s effective exchange rate makes clear, the pressure had been mounting for quite a while and when China devalued the yuan earlier this month, the outlook for trade competitiveness worsened.

What might not be as clear (on the surface anyway) is how recent events in developing economy FX markets following the devaluation of the yuan stem from a seismic shift we began discussing late last year – namely, the death of the petrodollar system which has served to underwrite decades of dollar dominance and was, until recently, a fixture of the post-war global economic order. 

In short, the world seems to have underestimated how structurally important collapsing crude prices are to global finance. For years, producers funnelled their dollar proceeds into USD assets providing a perpetual source of liquidity, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop. That all came to an abrupt, if quiet end last year when a confluence of economic (e.g. shale production) and geopolitical (e.g. squeeze the Russians) factors led the Saudis to, as we put it, Plaxico’d themselves and the US.

The ensuing plunge in crude meant that suddenly, the flow of petrodollars was set to dry up and FX reserves across commodity producing countries were poised to come under increased pressure. For the first time in decades, exported petrodollar capital turned negative.

 

…click on the above link to read the rest of the article…

Japan readies record $800 billion 2015-16 budget: sources

January 11, 2015

Japan readies record $800 billion 2015-16 budget: sources

(Reuters) – Japan’s government will propose a record budget for next fiscal year of more than $800 billion but cut borrowing for a third year, government officials said on Sunday, as Prime Minister Shinzo Abe seeks to maintain growth while curbing the heaviest debt burden in the industrial world.

The third annual budget since Abe swept to power in late 2012 also highlights his struggle to contain bulging welfare costs for the fast-ageing society while increasing discretionary spending in areas such as the military.

Abe’s 96.3 trillion yen ($813 billion) draft budget for the year from April, to be approved by the Cabinet on Wednesday and submitted to an upcoming session of Parliament, is up from this fiscal year’s initial 95.9 trillion, the two officials told Reuters.

But spending restraint and a surge in tax revenues as the economy recovers allows the government to cut bond issuance by 4.4 trillion yen to 36.9 trillion, the third decrease in a row and the lowest level in six years, the officials said.

…click on the above link to read the rest of the article…

 

Climate, Environment Boards and Foreign Aid slashed by Joe Hockey in #MYEFO | Climate Citizen

December 20, 2014

Climate, Environment Boards and Foreign Aid slashed by Joe Hockey in #MYEFO | Climate Citizen.

The Abbott Government slashing of climate change infrastructure continues in the latest Midyear Economic Forecast by the Treasurer Joe Hockey, where it was announced the Commonwealth deficit blows out to more than $40 billion and forecast not to return to surplus until 2019-20 at the earliest.

He attributed this budget blowout to reduced revenue due to iron ore prices being low, low wage growth with larger than expected family payments and other government benefits expenditure.

Joe Hockey was quick to criticise Labor’s budget deficits and promises to return to surplus, In 2012 he pledged after Labor’s 2012 budget that, “based on the numbers presented last Tuesday night we will achieve a surplus in our first year in office and we will achieve a surplus for every year of our first term”.

Being in Government it seems, is not as easy to meet such a promise.

Wayne Swan was quick to compare the budget deficit forecasts by Labor against the current Liberal deficit forecasts:

 

…click on the above link to read the rest of the article…

MYEFO: Budget deficit forecast for 2014-15 increases $10 billion to $40.4 billion – ABC News (Australian Broadcasting Corporation)

December 15, 2014

MYEFO: Budget deficit forecast for 2014-15 increases $10 billion to $40.4 billion – ABC News (Australian Broadcasting Corporation).

The Federal Government says it is “on the right track” to put the budget back in the black in 2019-20.

It means the budget would return to surplus in a third term of a Coalition government.

The budget deficit for this financial year will be $40.4 billion, more than $10 billion larger than forecast in May, in a blowout that is set to continue for at least four years.

The Mid-Year Economic and Fiscal Outlook (MYEFO) has been released after a slight delay caused by the siege in central Sydney.

The May budget had forecast a deficit for 2014-15 of $29.8 billion.

Next year’s deficit will be $31.2 billion, or 1.9 per cent of GDP, up from the May forecast of $17.2 billion.

…click on the above link to read the rest of the article…

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