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Two Events That Will Determine Oil Prices

Two Events That Will Determine Oil Prices

offshore rig

Two big events over the next two weeks will determine the trajectory for oil prices in the second half of the year. One of those events will take place in Japan, the other in Austria.

U.S. President Donald Trump will meet Chinese President Xi Jingping on the sidelines of the G-20 conference next week in Osaka, Japan. Nothing less than the health of the global economy hangs in the balance.

Both leaders have powerful forces pulling them in opposite directions. On the one hand, both have a domestic political constituency invested in confrontation, or, at least, in not backing down from a trade fight. Neither wants to lose face. Trump campaigned on taking on China, and at least part of his political base may be disappointed if he comes home short of victory. In Beijing, Xi is also under tremendous pressure. The protests in Hong Kong leave him little room for error, and being seen as backing down to Trump would be highly damaging.

However, both leaders are also under pressure to end the trade war. Trump has a presidential election right around the corner, and farm country has been hit hard by sinking agricultural prices related to tariffs. China’s economy has also been hit hard by American tariffs, so Xi would likely be relieved to reach a compromise.

The stakes are high. The global economy is slowing down. Manufacturing data is weak, the auto market has slumped badly, trade volumes are sharply down globally. If the talks fail and the U.S. and China decide to escalate the pressure – Trump has threatened to hike tariffs on $300 billion of Chinese goods – a full-blown recession is possible.

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

The Financial War Escalates

THE FINANCIAL WAR ESCALATES

Behind the scenes, the financial war between America and China is escalating dangerously into a war to secure global financial resources. 

At a time of growing liquidation of dollar assets by foreigners, the US Treasury’s internal analysis will highlight future government funding problems in the light of a developing US recession. This will result in an overdependency on inflationary financing, threatening to destabilise the dollar’s purchasing power. For these reasons, America needs foreign portfolios to invest in US Treasuries, at a time when China also needs them to help finance her infrastructure plans and future development. We face a battle for these funds, and the outcome will determine all our futures.

Introduction

When you see a rash, you should look beyond the skin for a cause. It has been like this with Hong Kong over the last few weeks. On the surface we see impressively organised demonstrations to stop the executive from introducing extradition laws to China. We observe that university students and others not much older are running the demonstrations with military precision. The Mainland Chinese should be impressed.

They are unlikely to see it that way. The build-up of riots against Hong Kong’s proposed extradition treaty with the Mainland started months ago, supported and driven by commentary in the Land of the Free. America is now coming out in the open as China’s adversary, no longer just a trading partner worried by the trade imbalances. And Hong Kong is the pressure point.

This happened before, in 2014. The Chinese leadership was certain the riots in Hong Kong reflected the work of American agencies. The following is an extract translated from a speech by Major-General Qiao Liang, a leading strategist for the Peoples’ Liberation Army, addressing the Chinese Communist Party’s Central Committee in 2015:

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

Connecting the Dots: Insane Trade and Climate Chaos

Connecting the Dots: Insane Trade and Climate Chaos

Imagine a world where food routinely gets shipped thousands of miles away to be processed, then shipped back to be sold right where it started. Imagine cows from Mexicobeing fed corn imported from the United States, then being exported to the United States for butchering, and the resulting meat being shipped back to Mexico, one last time, to be sold. Imagine a world in which, in most years since 2005, China has somehow managed to import more goods from itself than from the USA, one of its largest trading partners.

This may sound like the premise of some darkly comic, faintly dystopian film – albeit one geared towards policy wonks. But it’s no joke – in fact, it is the daily reality of the global economy.

The above examples are all instances of ‘re-importation’ – that is, countries shipping their own goods overseas only to ship them back again at a later stage in the production chain. And these are far from the only instances of this head-scratching phenomenon. In the waters off the coast of Norway, cod arrive every year after an impressive migratory journey, having swum thousands of miles around the Arctic Circle in search of spawning grounds. Yet this migration pales in comparison to the one the fish undertake after being caught: they’re sent to China to be fileted before returning to supermarkets in Scandinavia to be sold. This globalization of the seafood supply chain extends to the US as well; more than half of the seafood caught in Alaska is processed in China, and much of it gets sent right back to American grocery store shelves.

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

Draghi Punts, Trump Grunts, Gold Bunts

Draghi Punts, Trump Grunts, Gold Bunts

ecb-draghi-failure

For months now the markets have been in denial that ECB President Mario Draghi has any answers to the Euro-zone’s problems. Today’s statement confirms what anyone with eyes to see has been saying.

There is no Plan B.

Draghi started the year saying he would end his various QE programs and by June he’s not only put them back on the table (New TLTRO in September) but has now opened up the possibility of taking rates lower.

Draghi told an ECB conference in Sintra, Portugal, that “further cuts in policy rates… remain part of our tools.” He added that there was “considerable headroom” to re-start bond purchases, which inject newly created money into the financial system in the hope of boosting lending and economic activity. 

Draghi has been exposed as swimming naked, as Warren Buffet would put it.

The fun part is that Draghi used the cover of Trump’s trade war with everyone to justify a policy that was inevitable anyway.

In response, President Trump piled on accusing Draghi of being a currency manipulator. And then announced his upcoming meeting with Chinese Premier Xi Jinping to hammer out a trade deal.

But, as I’ve pointed out in the past, Trump doesn’t have a serious offer on the table for China. 

Trump backed himself into a corner with China, essentially demanding it give the U.S. ultimate say over its fiscal, monetary and trade policy.

The Chinese aren’t going to agree to that any more than the Palestinians are going to agree to a Palestinian State in name only, administered like a Native American reservation by Israel.

Lebanon is not going to accede to Pompeo’s demands to remove Hezbollah from its government. North Korea isn’t going to give up its nukes so the U.S. will allow it to trade with dollars. Negotiations with Trump are nothing of the sort.

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

Escalating Trade War Signals More Pain For Oil

Escalating Trade War Signals More Pain For Oil

Offshore tanker terminal

Trump backed off his proposed trade war with Mexico in the face of intense pressure from business groups and even his own party, but his faith in tariffs remains unbowed. In fact, Trump may have internalized a lesson that presents further risks to the global economy and to oil markets.

“If we didn’t have tariffs, we wouldn’t have made a deal with Mexico,” Trump said on Monday. “We got everything we wanted.”

The proposed 5 percent tariff on Mexico was suspended because Trump said that the Mexican government agreed to a series of demands to tighten up migration through the country. However, press reports suggest that some of the provisions in the deal, such as Mexico agreeing to buy agricultural goods, are a mirage, while others, such as expanding border security, were agreed to months ago.

Leaving those pesky details aside, Trump was triumphant. Indeed, even though the White House saw pushback from business groups and the Republican-controlled U.S. Senate, in Trump’s mind the whole episode seems to have reaffirmed his strategy.

With the U.S.-China trade war unfinished, the U.S. President feels emboldened to take a hardline on Beijing.

“The China deal’s going to work out,” Trump said in an interview on CNBC. “You know why? Because of tariffs. Because right now China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”

Moreover, he says that the tariffs to date have been successful. “We’ve never gotten 10 cents from China. Now we’re getting a lot of money from China, and I think that’s one of the reasons the G.D.P. was so high in the first quarter because of the tariffs that we’re taking in from China,” he told reporters on Monday. 

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

The Zeitgeist Knows

The Zeitgeist Knows


Who said the global economy was a permanent installation in the human condition? The head cheerleader was The New York Times’s Tom Friedman, with his 1999 book, The Lexus and the Olive Tree, the trumpet blast for the new order of things. Since then, we partied like it was 1999, with a few grand mal seizures of the banking system along the way, some experiments in creating failed states abroad, and the descent of America’s middle-class into a Disney version of Hieronymus Bosch’s Last Judgment — which is kind of what you see on the streets of Los Angeles these days.

Guess what: the global economy is winding down, and pretty rapidly. Trade wars are the most obvious symptom. The tensions underlying that spring from human population overshoot with its punishing externalities, resource depletion, and the perversities of money in accelerated motion, generating friction and heat. They also come from the fact that techno-industrialism was a story with a beginning, a middle, and an end — and we’re closer to the end than we are to the middle. There will be no going back to the prior party, whatever way we pretend to negotiate our way around or through these quandaries.

The USA-China romance was bound to end in divorce, which Mr. Trump is surreptitiously suing for now under the guise of a negotiated trade rebalancing. The US has got a chronic financial disease known as Triffin’s Dilemma, a set of disorders endemic to any world reserve currency. The disease initially expressed itself in President Nixon’s ditching the US dollar’s gold backing in 1971. By then, the world had noticed the dollar’s declining value trend-line, and threatened to drain Fort Knox to counter the effects of holding those dollars. Since then, all world currencies have been based on nothing but the idea that national economies would forever and always pump out more wealth.

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

Not Winning: Collapse in Global Trade Escalates, Imports -2.7%, Exports -4.0%

Not Winning: Collapse in Global Trade Escalates, Imports -2.7%, Exports -4.0%

Those who claim that Trump has already won or is sure to win the trade war need to ponder actual trade results.

Exports rose 1.0% in March with imports up a reported 0.9%. That progress was taken away and then some in April.

The Census Bureau Advance Trade report shows the balance of trade widened by 0.3%. The details, as noted by Econoday are downright ugly.

Sharp declines in exports are unwelcome headlines in April’s advance data on goods trade. The monthly deficit remains very deep, at $72.1 billion with exports falling 4.2 percent year-on-year and with imports also down, 2.7 percent lower. The deficit compares unfavorably with a $71.3 billion monthly average in the first quarter that marks a weak opening for net exports in the second quarter.

Capital goods are the US’s largest exports and these fell 6.5 percent in the month to $44.3 billion. Compared with April last year, capital goods exports are down 3.7 percent. Auto exports are also down, 7.2 percent lower to $12.9 billion and 6.7 percent below last year. The only export component showing a gain is food & feeds which rose 0.5 percent to $11.2 billion but which is nevertheless 6.2 percent below April last year.

The decline on the import side is also led by a 3.5 percent decline for capital goods ($55.4 billion) but also includes 3.1 percent and 2.3 percent monthly declines in autos ($30.9 billion) and consumer goods ($54.2 billion) as well as a 1.1 percent drop in foods ($12.8 billion).

Global trade figures have been contracting and the latest US numbers are part of that picture. Today’s report gets second-quarter GDP, already held down by contractions for April retail sales and industrial production, off to a slow start.

Note that country balances aren’t posted with the advance report but will follow with the subsequent international trade report that will also include data on services.

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

Beijing Threatens Damaging Rare-Earth Export Ban As Trade Fight Intensifies

Beijing Threatens Damaging Rare-Earth Export Ban As Trade Fight Intensifies

Once dismissed as a “nuclear option” that would only be invoked by Beijing as a last resort in the burgeoning trade war with the US, it’s looking increasingly likely that the Communist Party might impose an export ban on rare-earth metals, creating serious supply-chain issues for American producers of everything from microchips, to batteries, to night-vision goggles.

Xi

After Global Times editor and Trump Twitter foil Hu Xijin warned on Tuesday that a ban was being ‘seriously considered’ (which followed a visit by President Xi and Vice Premier Liu He to a rare-earth mine that was widely seen as a threatening gesture), China’s powerful state-planning body threatened to use rare earths as “China’s counter-weapon against the US’s unwarranted suppression”…while a host of state-controlled media organizations used rare threatening language intended to convey that Beijing isn’t playing around.

As BBG explained, an editorial published in the People’s Daily on Wednesday used the phrase “don’t say I didn’t warn you”, which is loaded with historical significance. That specific wording was used by the paper in the early 1960s before China fought a brief war with India; it was also used before conflict broke out between China and Vietnam.

The newspaper’s commentary included a rare Chinese phrase that means “don’t say I didn’t warn you.”The specific wording was used by the paper in 1962 before China went to war with India, and “those familiar with Chinese diplomatic language know the weight of this phrase,” the Global Times, a newspaper affiliated with the Communist Party, said in an article last April. It was also used before conflict broke out between China and Vietnam in 1979.

On rare earths specifically, the People’s Daily said it isn’t hard to answer the question whether China will use the elements as retaliation in the trade war.

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

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’ 

A lot has happened since then-candidate Trump said he would label China a currency manipulator on ‘day one’ should he make it to the Oval Office. So far, at least, the pledge to hold Beijing accountable for manipulating its currency wouldn’t fall into the ‘promises kept’ column. But that could soon change.

Shortly after the Treasury Department delayed its biannual report on suspected currency manipulators – an ominous indication that the issue might resurface in trade talks after Beijing reportedly balked at a pledge to keep its currency stable – the Commerce Department on Thursday revealed that it’s planning to propose a new rule that would allow it to impose anti-subsidy tariffs on imports from countries suspected of undervaluing their currency.

Ross

The change would allow the Commerce Department to impose anti-dumping and countervailing duties on products believed to benefit from manipulated currencies. In effect, an artificially depressed currency would be treated as a government subsidy.

Though China wasn’t specifically named in the Department’s announcement, it presence on the Treasury Department’s manipulation ‘watch list’ – which also includes Japan, South Korea, India, Germany and Switzerland – means Chinese companies would be obvious targets.

And just like that, Wilbur Ross has opened up another front in the US-China trade war – albeit one that could ensnare some of Washington’s closest allies, Reuters reports.

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a statement.

“Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses,” he said.

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

Could China dump its US Treasuries to fight the trade war? A contrarian view is emerging in Beijing

Could China dump its US Treasuries to fight the trade war? A contrarian view is emerging in Beijing

  • As trade war escalates, market talk is emerging that Beijing will use monetary weapons to retaliate as ‘last resort’
  • China’s US Treasury holdings in March dropped by US$10.4 billion while foreign exchange reserves rose to highest level since August
Traders work as US President Donald Trump is seen on television on the floor of the New York Stock Exchange (NYSE) in New York. Photo: Bloomberg

Traders work as US President Donald Trump is seen on television on the floor of the New York Stock Exchange (NYSE) in New York. Photo: Bloomberg

As American pundits and polls dismiss the idea that China would dump its massive holdings of US Treasury debt as retaliation against US tariffs, a contrarian view is emerging in Beijing that the government may use the securities as a “weapon of last resort”.China’s US$1.12 trillion holdings account for just 5 per cent of total US national debt, which may mean any material damage on the US economy stemming from a bond sales would be limited. In addition, even if it did cause market volatility, China’s remaining holdings would also be hurt, which the Chinese may view as a move that is too risky, US sceptics have said.

“While we think China will continue to sell Treasuries, as it has for most of the last year, we do not think that the pace at which they sell will increase as a direct response measure for tariffs. Rather, we believe that the pace at which they sell Treasuries will continue to track the pace at which they see capital inflows,” said Matthew Hornbach, an analyst at Morgan Stanley.

However, with Beijing vowing to fight “to the end” and the US preparing to place a 25 per cent tariff on a further US$300 billion of Chinese imports, China may have “no choice but to sell” its US Treasury holdings, according to some analysts and reports widely distributed on China’s social media.

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

The Boycott Begins: Chinese Company Orders Employees To “Stop Using American Products, Eating At KFC”

The Boycott Begins: Chinese Company Orders Employees To “Stop Using American Products, Eating At KFC”

In a harbinger of what’s to come as the US-China trade war gets worse by the day, a Chinese company has told all of its employees to boycott American products and halt international travels to the U.S., reported The Epoch Times.

Jinggang Motor Vehicle Inspection Station notified all employees last Thursday, May 16 that the use of iPhones, driving in American automobiles, eating at American fast food restaurants, using American household products, and even traveling to the U.S. was forbidden by a new company policy; any employee who violated the new rules would be fired. Here are some excerpts from the notice:

“Employees are prohibited from purchasing or using iPhones; instead, they are recommended to use Chinese domestic brands of cell phones, such as Huawei.

“Employees are not allowed to purchase vehicles made by China-U.S. joint venture automakers. They are recommended to purchase 100 percent Chinese-made vehicles.

“Employees are forbidden to eat at McDonald’s or Kentucky Fried Chicken. They are not allowed to purchase P&G [Proctor and Gamble, a U.S. maker of household products], Amway [U.S. maker of health and beauty products], or any other American brands. Employees must not go to the United States as a tourist.”

The company’s memo was emailed to employees several days after state-run newspaper Global Times published an editorial piece that called on the Chinese public to fight a people’s war” against the U.S.

As a result of a prolonged trade war with the U.S., the company said: “To help our country win this war, company authorities have decided that all employees must immediately stop purchasing and using American products.”

The Times said the notice went viral on Chinese social media platforms: “Computers should be banned as well, because it is a U.S. invention,” one Chinese internet user said. Another said: “Stop using the Windows operating system, everyone.”

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

99 Lead Balloons… Are About To Come Crashing Down

99 Lead Balloons… Are About To Come Crashing Down

‘Lead balloon.’ That graphic description of public failure apparently dates from the US in 1924, and ironically was itself such a poorly-received idiom that it didn’t appear in the American press again until 1947. A few decades later, and the phrase was so well known that a derivative of it inspired one of the greatest rock bands of all time. Today, 99 lead balloons fill our sky.

To illustrate the point I don’t even have to look at headlines about the US-China trade war – though I could pick any number of them showing how serious this is getting, and how global the impact is likely to be. My favourite today contains a quote from a US semiconductor maker who states We’re too far into free trade that the world cannot have countries not trading.” Sorry mate, 1913 called and wants its ‘Great Illusion’ back; indeed, reports are that China’s surveillance camera-maker Hikvision is next in the US firing line. Standing with me not on the side of the (Norman) Angells is Eli Lake writing for Bloomberg, who argues The tech cold war has begun. To which I can only say: It’s about time. If this ban is just a bit of brinkmanship designed to pry a better trade deal out of Beijing, however, then it’s a blunder. The national security implications raised by Huawei’s technology transcend any trade dispute.” And while US tech is in the headlines, so is US farming, where federal subsidies are set to rise sharply to offset trade-war pain.

I could choose from a series of stories in Turkey, where the authorities are both trying to prop up the currency and cutting rates at the same time(?), as well as about to clash with the US and NATO allies again over their preferred choice of anti-aircraft defence system in a major way.

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

Blain’s Morning Porridge – May 21st 2019

Blain’s Morning Porridge – May 21st 2019


“He knew everything about literature, except how to enjoy it…”

Waves of negative news headlines battering markets. Might have to wear a hat..

Huawei – Trade War Threat Level Rises

The Huawei embargo raises the trade war threat from undeclared to imminent shooting match. While it’s not quite “bullets fired at Archduke’s car”, it’s getting close. It feels like there is something of a tedious inevitability developing – a bellicose Trump realises his political future depends on winning, and the Chinese refuse to lose face. Is it already too late to rein back?  

Huawei being effectively barred from Occidental markets has triggered all kinds of market fears: a “digital iron-curtain”, the threat of an economic cold tech war, broken global supply chains, and knock-on effects we can only begin to imagine. It’s the End of Globalisation – scream the media. The Chinese hint at reprisals. The “temporary exemptions” granted last night by the US are just that – temporary: they won’t undo the sudden need of millennials to dump their Huawei phones. The damage has been done.  Who will the Chinese punish in return? 

Markets are now rife with speculation about “ripple” effects damaging tech dependent initiatives from autonomous cars, streaming, digitisation, and booking apps, triggering all kinds of real-world economic pain in sectors like tourism and luxury goods. While the market is fretting about how America will shod itself as tariffs are slammed on shoes made in China, it might be time to reassess market sectors where we expected long-term and ongoing China expansion, rising domestic consumption and demand to drive growth – I’m think areas from aviation, autos, machinery and plant, and energy. And, what are the implications for the UK – where the Chinese are building our nuclear power stations? 

This doesn’t end well…

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

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

“Significant Slowdown” Spooks Maersk At Mediterranean’s Third Largest Port

Malta Freeport, the third largest transshipment port in the Mediterranean region and located on the island of Malta, has seen a “significant slowdown in business activity” since 2H18.

One of its major clients, Maersk, the largest container ship and supply vessel operator in the world, has decided to move its operations from Malta to other ports in North Africa after Mediterranean shipping routes have been severely affected by the synchronized global slowdown.

The Times of Malta reported that Freeport’s management notified unions and other clients that Maersk and Mediterranean Shipping Company (MSC) will be shifting operations from Malta to other African ports, is expected to reduce business at Malta’s container terminal by 35% next month.

Last year’s figures show the port handled 3.3 million containers in its transshipment activities, but with Maersk and MSC halting operations, that number is expected to be dramatically less.

A spokesman for Freeport confirmed to the Times of Malta that Maersk and MSC have departed.

“Maersk recently informed us that it will be shifting some of the services that are being carried out through Malta Freeport to a new fully-automated facility in Tangier Med, Morocco, and to Port Said in Egypt.”

Maersk has been operating from Malta for at least a decade, handling import shipping routes to and from China.

Industry sources said shipping volumes have already decreased at Freeport, as a severe economic slowdown in Europe and Asia have sent container rates between both regions into a tailspin in the last several quarters.

“The slowdown can already be felt and there are already fewer people working, particularly on overtime,” the source said. 

Last month, data from the CPB Netherlands Bureau for Economic Policy Analysis revealed world trade volume fell 1.8% in the three months to January compared to the preceding three months as a global slowdown gained momentum.

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

In The Fed We Trust – Part 1

In The Fed We Trust – Part 1

This article is the first part of a two-part article. Due to its length and importance, we split it to help readers’ better digest the information. The purpose of the article is to define money and currency and discuss their differences and risks. It is with this knowledge that we can better appreciate the path that massive deficits and monetary tomfoolery are putting us on and what we can do to protect ourselves.   

How often do you think about what the dollar bills in your wallet or the pixel dollar signs in your bank account are? The correct definitions of currency and money are crucial to our understanding of an economy, investing and just as importantly, the social fabric of a nation. It’s time we tackle the differences between currency and money and within that conversation break the news to you that deficits do matter, TRUST me. 

At a basic level, currency can be anything that is broadly accepted as a medium of exchange that comes in standardized units. In current times, fiat currency is the currency of choice worldwide. Fiat currency is paper notes, coins, and digital 0s and 1s that are governed and regulated by central banks and/or governments. Note, we did not use the word guaranteed to describe the role of the central bank or government. The value and worth of a fiat currency rest solely on the TRUST of the receiver of the currency that it will retain its value and the TRUST that others will accept it in the future in exchange for goods and services. 

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

Olduvai IV: Courage
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Olduvai II: Exodus
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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