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Your Chance For A Live Q&A With CBO Founding Director Alice Rivlin On "The Nation's Debt And Fiscal Health"

Beginning at 12:30 pm, the Brookings Institute is hosting a live Q&A via CoverItLive with Congressional Budget Office director Alice Rivlin, who will field questions relating to the nation's debt and fiscal "health." Click on the screen below to be taken to the live Q&A.



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Much Ado About OPEC: Russia Is The True Wildcard, And Just Got Even More Powerful

Today the world is transfixed with the dissolution of OPEC courtesy of yet another polarizing response to the most recent set of US MENA policies, with Saudi siding with the US (it has no choice in this: recent violent developments in the MENA region means Saudi Arabia is now even firmer attech to Uncle Sam's armed sleeve), yet the truth is that this is a completely non-event from a pure crude supply/demand perspective. Why? Because the real marginal supplier, in light of OPEC's secular decline in output, has been Russia for a long time. The Globe and Mail's Jeff Rubin explains: "Other than a gratuitous gesture to their concerns, any announced OPEC production increase isn’t going to pump more gasoline into U.S. gas tanks or, for that matter, the tanks of motorists anywhere in the OECD... Khalid al Falih, chief executive officer of state-owned Saudi Aramco, recently warned in April that at the country’s current rate of growth in domestic oil consumption, Saudi Arabia would burn a staggering 8.3 million barrels a day of its own oil by 2028. That is almost its current level of production." In other words, Saudi would promote unilateral actions regardless of the other 6 countries that just isolated the Middle East country, simply to keep its population happy with ever greater bribes, but also due to the expansion of its own economy (as transient as it may be). The real story is here: "Russia, the one country actually capable of producing 10 million barrels a day, isn’t even at the table at the OPEC meeting. And it’s been Russia that has been adding the most to world exports over the better part of the last decade as OPEC exports have faltered." In other words, now that the former cartel is finished, and supply bickering and uncertainty portend extreme crude volatility, Russia's role in the energy output scene, and thus in political in general, is about to become that much more important.



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Guest Post: Death By Debt

One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt-encrusted developed nations over the short haul -- and, over the long haul, across the entire soon-to-be energy-starved globe. The sooner we can accept that idea and make other plans the better. To paraphrase a famous saying, Anything that can't be fixed, won't. The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.



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Rosenberg's Takeaways From Bernanke's Speech: "Cause For Pause"

Yesterday we brought you Goldman's quite bearish takeway on Bernanke's speech (excluding the highly irrelevant Jamie Dimon monologue detour: we can't wait to hear what the JPM CEO says once it is announced that Glass-Steagall is being reinstated). Below we present Rosie's key takeaways on Bernanke's remarks. "Bernanke said the 'jobs situation remains far from normal" and as such, this recovery cannot be regarded as being "truly established." That is quite an admission — free money, a tripling of the Fed's balance sheets and 10% deficit/GDP ratios have fallen short of establishing an established recovery. Cause for pause."



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China Surpasses US As Largest Energy Consumer; World Has 46.2 Year Of Proved Oil Reserves; Crude Has Lots Of Upside In Real Terms

In its just released must read Statistical Review of World Energy, BP has many critical observations, the key of which, while not a surprise to most, is that as of 2010, the US is no longer the world's biggest consumer of energy. The new leader, with a 20.3% share of global energy consumption: China. Keep in mind that the Chinese economy is still (in whatever centrally planned terms it discloses) not even half the size of the US, thus one can only imagine how far this number will rise should China ultimately succeed in its goal of converting from an export-led to a consumer-led society. And here we have a market worried about a few million bpd in quota courtesy of the now defunct OPEC. From the report: "World primary energy consumption – which this year includes for the first time a time series for commercial renewable energy – grew by 5.6% in 2010, the largest increase (in percentage terms) since 1973. Consumption in OECD countries grew by 3.5%, the strongest growth rate since 1984, although the level of OECD consumption remains roughly in line with that seen 10 years ago. Non-OECD consumption grew by 7.5% and was 63% above the 2000 level. Consumption growth accelerated in 2010 for all regions, and growth was above average in all regions. Chinese energy consumption grew by 11.2%, and China surpassed the US as the world’s largest energy consumer. Oil remains the world’s leading fuel, at 33.6% of  global energy consumption, but oil continued to lose market share for the 11th consecutive year." And in terms of production reserves: "World proved oil reserves in 2010 were sufficient to meet 46.2 years of global production, down slightly from the 2009 R/P ratio because of a large increase in world production; global proved reserves rose slightly last year. An increase in Venezuelan official reserve estimates drove Latin America’s R/P ratio to 93.9 years – the world’s largest, surpassing the Middle East."



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Greek CDS Surges To All Time Record On Talk Accord For Greek Bailout Faces Major Obstacles

Nobody could have seen this coming. According to RanSquawk, there is "Market talk that accord on new Greek bailout faces major obstacles." Whether true or not is irrelevant: the market sells first. Greek CDS just hit 1,474, +63 bps and an all time record high. Elsewhere, the EURUSD is dropping as the house of cards appears to be finally on the edge. Per Market News: "Despite public declarations last Friday that an agreement in principle had been reached, two major problems threaten to block a deal, the sources said. One is the highly sensitive issue of private sector contribution. The other is the insistence of European officials and the International Monetary Fund that the Greek parliament pass significant new deficit-cutting measures before EU leaders meet at the end of June as a condition for new money. That task appears Herculean, given the rapidly growing domestic political and social resistance. "



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Nomura FX: "Mr. Bernanke: You Are Trapped!"

From Nomura: "The way the data and psychology has turned down just as QE2 is ending is no coincidence – just like it was no coincidence when the same thing happened at the end of QE1. To use the Fed Chairman's preferred term these days – the impact of QE is transitory. Much like fiscal stimulus, QE has a temporary impact but as soon as the extraordinary intervention ends, the patient begins to wither again. This is the trap that Bernanke fully understands and it seems like the endless monetization prophecies of Zerohedge and The Daily Dirtnap are at risk of coming true."



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OPEC Unable To Reach Consensus On Boosting Oil Production

The worst nightmare of crude bears has just come true:

  • OPEC secretary general says OPEC unable to reach consensus to boost production
  • OPEC delegate says OPEC has no consensus for agreement
  • OPEC president says some in OPEC believed should have had production increase, other said more time needed to asses
  • OPEC secretary general says OPEC spare capacity down to 4-4.5MBPD after Libya
  • OPEC president says final proposal was to wait for about three months to asses situation
  • OPEC president says Status-Quo outcome unwelcomed by some members
  • OPEC president says effective OPEC decision is a roll-over

This is what happens when, as we wrote yesterday, the OPEC is no longer a cartel but a loose gathering of dictators who do their best/worst to boost/scuttle Obama's re-election chances. Look for crude to do the HFT levitation on the news.



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Greek Economy Grinding To A Halt As Daily Protests Cripple Industrial Production

One thing that the brilliant Eurozone Keynesian shamans appear to have missed is that with the Greek economic production base (read its population) offline and protesting now virtually every day, thus completely unmotivated to actually generate incremental output, the entire Greek economy will soon grind to a halt: the latest confirmation - plunging Industrial Production, which dropped by 11% Y/Y in April, the worst economic performance since the first half of 2009. Guardian reports: "Esa, the state statistics agency, said the decline was caused by falls in the main sectors of Greek production - mining, manufacturing, electricity and water supply production. Mining fell by 6.4pc, manufacturing decreased by 11.3pc, electricity production dropped 12.2pc, while the water supply declined by 6.8pc. Greece's economy is struggling to emerge from a deep recession fueled by austerity measures taken to rescue the economy from near-bankruptcy last year." And these are the economic conditions that according to the Troica deserve a passing grade? One wonders what would force the Greek economy to get an F in Keynesianism. One also wonders how the Greek economy is supposed to rebound and cut its deficit to IMF-mandated thresholds as more and more economic capacity is eliminated and the Greek workers simply fall back on their socialized benefits and lieu of a 9 to 5 job (and retire as soon as possible to be grandfathered by existing clauses in advance of what Bailout #1298 will dictate will soon be a 100 year old retirement age).



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China Goes From 50 Year Record Drought To 200 Year Record Deadly Floods

Too bad there is no central bank to sell weather future puts and induce a "great moderation" in climatic conditions, which lately have seen volatility surge through the roof. The most recent example of why the CBOE needs a weather VIX is China, where following weeks of inflation spiking near-record drought conditions, the weather has flipped, and heavy rainfalls since June 3 have created floods that have killed at least 52 people led to 32 more missing, and much more is coming. According to Xinhua, "Heavy rains have inundated parts of 12 provinces in
central and southern China and affected 4.81 million people so far since
the flood season arrived, Shu Qingpeng, deputy head of the Office of
State Flood Control and Drought Relief Headquarters, told a conference. Floods have destroyed 7,462 houses and submerged 255,000 hectares of farmland, incurring direct economic losses of 4.92 billion yuan (760 million U.S. dollars), he said. Heavy rainfalls since June 3 have drenched the previously parched lower and middle parts of the Yangtze River basin, increasing water of rivers to alert levels in the provinces of Jiangxi, Hunan and Guizhou." The PBoC's, which is preparing with spinning a record 5.5% CPI print imminently, just can't catch a fair weather break.



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Frontrunning: June 8

  • Fed Sees Recovery Lagging (Jon Hilsenrath)
  • Grand Bargain U.S. Debt-Deal Failure Would Set Up 2012 Election Showdown (Bloomberg)
  • Ruling party lawmakers attack new Greek bailout (Reuters)
  • IMF's Lipsky says QE3 not necessary (Reuters)
  • Yuan's band may be widened (China Daily)
  • Tank Looks Dry for the Australian Dollar (WSJ)
  • Berlin seeks 7-year Greek debt extension (FT)
  • It’s Bubble Time as Asia Braces for Fed’s QE3 (Bloomberg)
  • G20 targets volatile food prices (FT)


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Japan: Land Of The Rising Sun And The Irradiated Ground

Perhaps the reason why so far nobody has been too concerned about the radiation levels in and around Tokyo, some 140  miles southwest of Fukushima, be that everyone is looking for radiation in all the wrong places? As the following very disturbing video demonstrates, a quick trip down the street with your personal Geiger counter indicates, the radiation gradient between the air and the ground is orders of magnitude. It is unclear if the ground is such a more generous source of radiation due to radioactive rains seeping into the ground, due to irradiated water in the subsoil, or for some other reason. What is pretty certain, is that unless Japanese citizens have learned to fly and avoid the ground altogether, by walking each and every day, they absorb substantial abnormal amounts of radiation. How soon before we transition from videos of earless mutant bunnies to those of something far more tragic?



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Today's Economic Data Docket - The Beige Book And More Ten Years

A beige book and a bond auction.



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Republicans Are Pushing For A "Brief" Default As China Warns US Is "Playing With Fire"

Yesterday Reuters reported that a troubling, yet potentially inevitable development may be imminent: the default of the US, granted, a short-lived one (though we are not sure just how the world's "reserve" currency will be backed by a national that is technically insolvent). Luckily for the US, everyone else (except China) is just as bankrupt. Yet if there is one thing pushing Lehman into competitive bankruptcy just so that Goldman would have a monopoly in the US fixed income sales and trading market, it is that any such action will have massive downstream consequences, and in the pyramid of "unpredictable downstream effects", the insolvency of the US is at the very top. And just to make it clear, now that a default is becoming a palpable option, China announced that the United States is "playing with fire" if it opts to briefly default on its debt, which could undermine the dollar, Li Daokui, an adviser to China's central bank said on Wednesday. Yet the statement could very well backfire after Li, speaking on the sidelines of a forum, said China needs to dissuade the United States from defaulting on its debt, but he believed China may hang on to its investment in U.S. Treasuries in any case. This is precisely the case made by Stanley Druckenmiller: in fact, should there be a technical default, US bonds will become a true safe haven investment as America will for the first time take a step to indicate that it believes the relentless abuse of its fiscal situation is coming to an end.



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Guest Post: Keep The Faith....

What happens if energy and food prices keep going up? Can we be sure that this won’t happen? No of course not so these markets are far too complacent in my view and are not pricing enough risk premium. I am not even convinced that a lot of higher input prices have been passed on yet so the consumer will either face higher prices or the producer will see margins collapse and neither is good for equities. Europe is in a mess and it looks increasingly likely that a restructuring WILL happen somewhere at some point, whilst Trichet seems determined to jack up rates on principle. Don’t forget that even though European politicians want to help for fear of the consequences, ultimately the outcome will be decided by backbench politicians in PM Papandreou's parliamentary party. If austerity measures are not approved by parliament on Jun 28, then all hell could break loose. And just look at the EUR; what’s it doing up here? There is little risk priced here it seems and yet the risks are huge. Central banks are sucking volatility from these markets in a bid to create a false sense of security. This covert intervention is very clever as it’s tough to fight. Without doubt G20 is behind this and the accord is strong. They need a stable equity markets and stable FX markets to help buy time. Very clever.



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