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We Have A Scalability Issue
At the dawn of the industrial revolution less than 1 billion humans inhabited this earth. We’ve consumed only a small proportion of the easy to access ores of iron, copper and coal. With the power of coal we’ve became capable to tap a vast amount of new resources. Everything we did seemed miniature in scale compared to the vast resources and pollution sinks (the ocean and the atmosphere) of this planet. It was very easy to believe, that this is really an infinite world… An empty world — at least in economic terms — all there for the taking.
Back in 1950’s, when the great acceleration has really kicked into gear neoclassical economists started to believe that there are really no limits to growth. Needless to say, this observation was completely blindsided to the fact that this growth was due exclusively to a one-time boom in non-renewable resource extraction of both fossil fuels AND minerals.
This energy and material blindness was combined with a good deal of disregard for those who cared to do the math and begged to differ — an act of hubris lasting this very day. As a result, this ‘great acceleration’ has came at the cost of tipping the only habitable ecosystem (at least in a 4 light-year radius) into an irreversible decline.
If you have only 42 minutes to understand what is really going on our planet besides climate change, and would like to know what is this ‘great acceleration’ I’m blathering about, watch this very informative presentation from Will Steffen, emeritus professor of the Australian National University.
…click on the above link to read the rest of the article…
Is the Future Already Written?
Generally speaking the future is impossible to tell. The story of us could take many different paths branching into ever different versions of its current self. There are an infinite number futures, which we shape and select every day, every hour, every minute with our conscious decisions, our actions and deeds. We make our choices based on free will and select the right or wrong path ahead of us based on morals and ethics.
The bad news is, that this is only a myth, incompatible with the laws of physics.
Living in an illusion
Having self-consciousness comes with certain limitations and a good deal of illusions to help us disregard those limits. Through what appears to be a cause and effect relationship however— like having a desire to eat an apple, then grabbing one from the kitchen table — it makes us believe that it is us who are making conscious decisions resulting in deliberate action.
The hard truth is that there is neither ‘you’ or ‘I’, ‘us’ or ‘them’ in this story, nor there was a ‘conscious decision’ in the first place. There is no need for those. We’ve lived without these concepts for many millennia just fine, so do our fellow animal companions we share this planet with. Pronouns are mere artifacts of our language accidentally ‘invented’ together with the story of an ‘independent self’. One, which is free to decide what to do, where to go, whom to talk to. One, which has a free will to do so. The problem is that this idea is fully incompatible with the laws of nature and physics — and thus can safely be called an illusion.
Sorry to disappoint you, but you neither have free will — and as you will see — nor a separate independent self.
…click on the above link to read the rest of the article…
Italy Granted “Extraordinary ” €150BN Bank Bailout Program To Prevent “Panic, Run On Deposits”
Italy Granted “Extraordinary ” €150BN Bank Bailout Program To Prevent “Panic, Run On Deposits”
How did this happen so quietly under the table and without Merkel’s blessing? WSJ says that the program was approved under the bloc’s “extraordinary crisis rules for state aid.”
And here we thought that Italy’s banks are actually doing so very well. Oh wait, no we didn’t.
As the WSJ notes, the proposed “crisis” plan is the “other leg of an intervention plan considered by the government” namely, the direct capital injection into Italian banks that would add up to €40 billion in capital to the banking sector”, the one we profiled previously. It is also the plan that Merkel supposedly shut down before it got off the ground. However, Europe had a Plan B up its sleeve.
What are the details of this latest “crisis” program?
According to an EU official, the liquidity support program includes up to €150 billion ($166 billion) in government guarantees. The WSJ adds that the commission spokeswoman declined to comment on the amount of guarantees that were authorized, but said that the budget requested by the Italian government had been found to be proportionate. The Italian economy ministry declined to comment.
…click on the above link to read the rest of the article…
Iran Oil Minister Rejects Saudi Demand To Freeze Crude Production
Iran Oil Minister Rejects Saudi Demand To Freeze Crude Production
Today, what little hope there may have been that Iran will suddenly change its mind and join the production freeze evaporated on Sunday when Iran’s oil minister rejected a Saudi demand to stop throttling up its petroleum production. As the WSJ adds, this threatens what has become a farcical deal to “limit crude output and raise prices” when the major oil producers meet in Doha on April 17.
The follows Zanganeh’s admission that Iran’s oil and condensates exports surpassed 2mm b/d, a trend Iran will certainly not want to imperil.
Iranian Oil Minister Bijan Zanganeh
As the WSJ notes, Zanganeh’s remarks were his first comments since a report emerged last week that Saudi Arabia, the world’s largest crude exporter, would limit its production only if Iran followed suit.
The dueling positions by the Middle East’s two biggest rivals for power and economic might have set off a scramble among other oil-producing nations to salvage a deal to freeze their output and stop growth in the world’s petroleum supplies. Global oil production outpaces demand by almost two million barrels on any given day, sending prices to their lowest levels in over a decade.
Ironically, in advance of the Doha meeting which many thought had a chance of reaching some agreement, other OPEC members had pushed their oil production to the limit, flooding the market with even more excess supply. Most will find it virtually impossible to throttle production back.
…click on the above link to read the rest of the article…
China Warns Officials: Allow Social Unrest, Lose Your Job
China Warns Officials: Allow Social Unrest, Lose Your Job
To be sure, there are always going to be financial and geopolitical landmines and every once in awhile we – and by “we” we’re referring to the market, or the country, or humanity, or whatever collective you want to choose – are going to step on one on the way to ushering in a black swan event.
But when we look out across markets and across the political landscape it’s difficult to escape the feeling that there are more black swans waiting in the wings – so to speak – than usual. There’s the threat of a dirty bomb being detonated in a crowded Western European urban center for instance. Or the chance that Turkey ends up “accidentally” killing a Russian or Iranian soldier while shelling the Azaz corridor. And how about the possibility that China tries to save its economy by chancing a 30% devaluation of the yuan and inadvertently plunges the world into a crisis far worse than 2008?
The interesting thing to note about the third crisis event listed above is that an economic implosion in China may spawn a black swan far larger than that which would emanate from a crisis in the country’s banking sector and/or a deeper devaluation of the RMB.
As we’ve discussed on multiple occasions of late, China desperately needs to purge its economy of excess capacity. The industrial sector is weighed down by too much debt and too little demand, but an acute overcapacity problem prevents the market from getting anywhere close to clearing. Either Beijing moves quickly to ameliorate this, or else a wave of defaults will ripple through the industrial complex on the way to crippling the country’s banking sector, where NPLs are probably at least five times greater than the official numbers suggest.
…click on the above link to read the rest of the article…
Chinese Take Over Canada’s Real Estate Market, Buy One-Third Of All Vancouver Homes Sold In 2015
Chinese Take Over Canada’s Real Estate Market, Buy One-Third Of All Vancouver Homes Sold In 2015
“Housing in Vancouver is insane — it was insane when I left and it’s more insane now.”
That’s from 33-year-old Kevin Oke, co-founder of LlamaZoo Interactive who left Vancouver for Victoria two years ago because he couldn’t afford to buy a home in his native city even while earning a generous salary as a lead designer at a video-game company whose clients included Atari and Ubisoft Entertainment SA.
Kevin isn’t the only one leaving. Vancouver added only 884 net new people age 18-24 last year according to Statistics Canada, and many observers worry the soaring cost of housing will eventually strip the city of its burgeoning tech economy.
(a representative listing from Point Grey)
We’ve spilled quite a bit of digital ink documenting the “three-alarm fire” (to quote Bank of Montreal chief economist Doug Porter) that’s burning in British Columbia’s housing market. Here, for those who missed it, are some informative posts:
- Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million
- How Vancouver Is Being Sold To The Chinese: The Illegal Dark Side Behind The Real Estate Bubble
- Meanwhile In Canada, A Real Estate Bargain Emerges…
- Calgary’s Housing Market Collapses While “Three-Alarm Blaze” Burns Next Door In Vancouver
According to the Greater Vancouver Real Estate Board, residential property sales in Greater Vancouver rose 31.7% in January, 46% above the 10-year sales average for the first month of the year and the second highest January ever. The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600. The latest data from the Canadian Real Estate Association shows the average price of a home in Canada rose an astonishing 16% Y/Y last month to more than $500,000. Underscoring the extent to which British Columbia and Ontario are driving the market, stripping out those two provinces pulls the national average down to under $300,000.
…click on the above link to read the rest of the article…
A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed
A Desperate China Begged Fed For “Plunge Protection Playbook” As Its Market Crashed
The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.
A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July, the market was off by more than 30% from its peak.
Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.
A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.
More than two-thirds of stocks in the index traded limit down that day.
At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.
Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.
…click on the above link to read the rest of the article…
“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher
“They Should Leave Us Alone”: Iran Wants No Part Of Oil Freeze Until Output Higher
On Tuesday, Kuwait’s oil minister Anas al-Saleh delivered a rather stark warning to the rest of OPEC when he said the following about the much ballyhooed crude output freeze: “I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell.”
That was a response to a question about what Kuwait would do if all major producers failed to agree to the freeze. Of course “all major producers” includes Iran and having just now begun to enjoy the financial benefits of being free to sell its oil without the overhang of crippling international sanctions, Tehran isn’t exactly thrilled about the idea of capping production at the current run rate of around 3 million b/d.
As soon as sanctions were lifted, Iran immediately committed to boosting production by 500,000 b/d and said that by the end of the year, it would bring an additional 500,000 b/d of supply online. That would put Iranian production at around 4 million b/d total and, as we noted back in January, would mean the country will be raking in between $3 and $5 billion every month by the end of 2016.
Whether or not those numbers are ultimately achievable is debatable, but the point is, Iran came back to market at a rather inauspicious time. President Hassan Rouhani is attempting to rebuild his country’s economy and Tehran is attempting to attract tens of billions in investments. Taking the foot off the pedal now would be a bitter pill to swallow.
On Sunday, we got the latest from Iranian Oil Minister Bijan Zanganeh and the message was unequivocal: “They should leave us alone as long as Iran’s crude oil has not reached 4 million. We will accompany them afterwards.”
…click on the above link to read the rest of the article…
How Vancouver Is Being Sold To The Chinese: The Illegal Dark Side Behind The Real Estate Bubble
How Vancouver Is Being Sold To The Chinese: The Illegal Dark Side Behind The Real Estate Bubble
One month ago, when describing the latest in an endless series of Vancouver real estate horror stories, in this case an abandoned, rotting home (which is currently listed for a modest $7.2 million), we explained the simple money-laundering dynamic involving Chinese “investors” as follows.
- Chinese investors smuggle out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
- They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in person, in cities like Vancouver, New York, London or San Francisco.
- The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.
We also explained that hundreds if not thousands of Vancouver houses, have become a part of the new normal Swiss bank account: “a store of wealth to Chinese investors eager to park “hot money” outside of their native country, and bidding up any Canadian real estate they could get their hands on.”
This realization has now fully filtered down to the local population, and as the National Post writes in its latest troubling look at the “dark side” of Vancouver’s real estate market, it cites wholesaler Amanda who says that “Vancouver seems to be evolving from a residential city into almost like a lockbox for money… but I have to live among the empty houses. I’m a resident, not just an investor.”
The Post article, however, is not about the use of Vancouver (or NYC, or SF, or London) real estate as the end target of China’s hot money outflows – by now most are aware what’s going on.
…click on the above link to read the rest of the article…
IA’s Dire Oil Forecast: $34 Crude Due To Far More Resilient Production, Oversupply And Lower Demand
IA’s Dire Oil Forecast: $34 Crude Due To Far More Resilient Production, Oversupply And Lower Demand
Instead, the pain is only just beginning, after the EIA revised its 2016 supply forecast higher as “production is more resilient to lower prices than previously expected” – why thank you desperate momentum chasing “investors” of other people’s money, who can’t wait for that secondary offering to repay JPMorgan’s credit facility.
The EIA also revised its forecast demand lower as a result of a decline in global economic growth.
Yes, someone finally admitted that demand is lower.
End result: a cut in forecast oil prices for 2016 and 2017 from $37 and $50 to just $34 and $40.
Here is the summary, with the troubling parts highlighted:
Global oil inventories are forecast to increase by an annual average of 1.6 million b/d in 2016 and by an additional 0.6 million b/d in 2017. These inventory builds are larger than previously expected, delaying the rebalancing of the oil market and contributing to lower forecast oil prices. Compared with last month’s STEO, EIA has revised forecast supply growth higher for 2016 and revised forecast demand growth lower for both 2016 and 2017. Higher 2016 supply in this month’s STEO is based on indications that production is more resilient to lower prices than previously expected. Notably, revisions to historical Russian data, which raised the baseline for Russian production, carry through much of the forecast. Additionally, lower expectations for global economic growth contributed to a reduction in the oil demand forecast.
And the details:
…click on the above link to read the rest of the article…
Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years
Why Helicopter Money Can’t Save Us: We’ve Already Been Doing It For 8 Years
For those unfamiliar, it’s billed as a kind of last Keynesian resort when ZIRP, NIRP, and QE have all failed to boost aggregate demand and juice inflation.
For instance, HSBC said the following late last month: “If central banks do not achieve their medium-term inflation targets through NIRP, they may have to adopt other policy measures: looser fiscal policy and even helicopter money are possible in scenarios beyond QE and negative rates.”
And here’s Citi’s Willem Buiter from Septemeber: “Helicopter money drops would be the best instrument to tackle a downturn in all DMs.”
So what exactly is this “helicopter money” that is supposed to provide a lifeline when all of central banks’ other forays into unconventional policy have demonstrably failed? Well, here’s Buiter to explain how it works in theory (this is the China example, but it’s the same concept everywhere else):
Now whether it’s “fiscally, financially and macro-economically prudent in current circumstances,” (or any circumstances for that matter) is certainly questionable, but what’s not questionable is that it is indeed feasible.
How do we know? Because we’ve been doing it for 8 long years.
If you think about what Buiter says above, it’s simply deficit financing. The government prints one paper liability and buys it from itself with another paper liability that the government also prints.
Sound familiar? It’s called QE.
The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.
…click on the above link to read the rest of the article…
NIRP Won’t Work – What Ray Dalio Thinks Central Banks Will Do Next
NIRP Won’t Work – What Ray Dalio Thinks Central Banks Will Do Next
If dropping interest rates to zero was Unorthodox Policy #1 and QE was Unorthodox Policy #2 then it seems very possible Helicopter Money will be Unorthodox Policy #3. Whether this new level of expansionism, with all the hopes and theoretic power it is supposed to hold, can generate growth of the red-hot rather than lukewarm kind remains to be seen.However in so much as it could potentially raise nominal GDP, it may become an increasingly more attractive policy option around a global economy (especially DM) economy that faces many natural and structural growth concerns in the year ahead.Forcing the nominal economy to grow into the problems of the bubble era could be the most realistic policy choice over the remainder of the decade.
And today, the latest in a long line of realists has now come to the same conclusion that the only thing the central planners have left is a money-drop…
Authored by Bridgewater’s Ray Dalio (via ValueWalk.com),
Monetary Policy 1 was via interest rates. Monetary Policy 2 was via quantitative easing. It will be important for policy makers and us as investors to envision what Monetary Policy 3 (MP3) will look like.
While monetary policy in the US/dollar has not fully run its course and lowering interest rates and quantitative easing can still rally markets and boost the economy a bit, the Fed’s ability to stimulate via these tools is weaker than it has ever been. The BoJ’s and ECB’s abilities are even weaker. As a result, central banks will increasingly be “pushing on a string.” Let’s take just a moment to review the mechanics of why and then go on to see what MP3 will look like.
…click on the above link to read the rest of the article…
Canada Set To Unleash Negative Rates As Oil Patch Dies, Depression Deepens
Canada Set To Unleash Negative Rates As Oil Patch Dies, Depression Deepens
Canada’s oil “dream” is dying thanks to the inexorable slide in crude prices and as the IEA made clear earlier today, the pain is set to persist for the foreseeable future as the world “drowns in oversupply.”
“Lower for longer” has hit the country’s oil patch hard. We’ve spent quite a bit of time documenting the plight of Alberta, where job cuts tied to crude’s slide have led directly to rising suicide rates, soaring property crime, and increased food bank usage (not to mention booming business for repo men).
Adding insult to injury for Canadians is the plunging loonie. Because the country imports most of its fresh fruits and vegetables, the weak currency has triggered a sharp increase in the price of many items in the grocery aisle as documented in a hilarious series of tweets by incredulous Canadian shoppers.
The question for the Bank of Canada is this: is the risk of an even weaker loonie worth taking if a rate cut has the potential to head off the myriad risks facing the economy?
We’ll find out what the BOC thinks tomorrow, but in the meantime, analysts have weighed in. JP Morgan’s Daniel Hui says CAD needs to fall further lest producers should simply close up shop. “[W]ith West Canada Select (WCS) now sitting just a dollar above the average per-barrel operational cost of $20 (Canadian), the risk is that any further decline will cause a whole new host of spillovers including potential shutdown and retrenchment of energy extraction and exports (with its attendant growth and balance of payment effects) or the potential of highly leveraged companies running operational losses, and the more contagious financial impact that might have in Canada, with broader spillovers.”
…click on the above link to read the rest of the article…
Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016
Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016
Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion.
“Everybody is happy except the Zionists, the warmongers who are fuelling sectarian war among the Islamic nation, and the hardliners in the U.S. congress,” Rouhani said, referring directly to Israel, the Saudis, and GOP lawmakers in the US.
In addition to the never-ending feud with the Israelis, Tehran is embroiled in a worsening conflict with Riyadh triggered by Saudi Arabia’s execution of prominent Shiite cleric Nimr al-Nimr and subsequent attacks on the Saudi embassy and consulate in Iran. The argument has raised the specter of an all-out conflict between the Sunni and Shiite powers and stoked sectarian discord across the region.
With sanctions lifted, Iran will now have access to some $100 billion in frozen funds and will be able to increase its oil revenue exponentially even as prices remain suppressed.
It’s easy to see why the Saudis and other Gulf Sunni monarchies are nervous. Iran plans to immediately boost output by 500,000 b/d with an additional 500,000 b/d coming online by year end. “The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs.
…click on the above link to read the rest of the article…
