Gross Domestic Product

Why Oil Prices Might Never Recover

Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained levels above $70 per barrel any time soon or perhaps, ever. That is because the global economy is exhausted. The current oil-price rally is over and prices are heading toward $40 per barrel. Oil has been re-valued to affordable levels based on the real value of money. The market now accepts the erroneous producer claims of profitability below the cost of production and has adjusted expectations accordingly. Be careful of what you ask for.

"Soon" And "Really, Really Crazy": Starting Up The Helicopters

The idea (now being pushed by a surprising number of people who ought to know better) that governments should take advantage of historically low interest rates to “invest” with borrowed money has an obvious fatal flaw. That is, accumulating even more negative or zero-rate debt will make it functionally impossible to raise rates to “normal” levels, which is to say levels where markets can once again function as mechanisms for moving savings into productive investments. It’s not a stretch to call this the end of capitalism and the beginning of a new Dark Age.

Key Events In The Coming Week

With the key event of the week flying largely under the radar, which as previewed here last week was Bernanke's visit to Japan which has already led to another global market spike, here are the rest of the week's events.

The Prospects For Money

"In my view, this new bout of turmoil in financial markets is the prelude to the final demise of government currency..."

In Unprecedented Decision, Europe Will Sanction Spain, Portugal Over Deficits While Ignoring France, Italy

Confirming yet again that just like in the US, "some are more equal than others", moments ago the European Commission announced that it would seek sanctions for Spain and Portugal for breaching limits on budget deficits in an unprecedented step to enforce rules designed to prevent another debt crisis.  Punishing the Iberian countries will be a deeply contentious and divisive issue. That’s because while other countries including France and Italy have all received warnings in recent years after missing targets on deficit or debt, no country has so far been sanctioned. Until now.

China To Boost "Economic Growth" By Changing Definition Of GDP

Under the new method, the size of the economy is larger than previously estimated; 2015 GDP was revised up by 1.3% to 11tn USD, the Real growth rate was also revised up (rates vary from year to year and averaged 0.06% (6 bps) over the past 5 years). The upward revision is because China’s R&D expenditure growth has been consistently faster than that of overall GDP. With further upward revisions, which appear likely, there should be incrementally lower pressures to reach the growth targets in the coming years.

Can The EU Survive As A Prison? Who Has The Keys?

Jean-Claude Juncker and Angela Merkel want to make the EU a prison. The Eurozone was designed as a prison from the beginning. But the cat is finally out of the bag. And voters know they have the key.

Bill Gross Says Yellen "Worships False Idols" So "Worry About The Return Of Your Money, Not On It"

"Investors should not hope unrealistically for deficit spending any time soon. To me, that means at best, a ceiling on risk asset prices (stocks, high yield bonds, private equity, real estate) and at worst, minus signs at year's end that force investors to abandon hope for future returns compared to historic examples. Worry for now about the return "of" your money, not the return "on" it."

"China Is Headed For A 1929-Style Depression"

“The government is allowing speculation by providing cheap financing,” Andy Xie exclaimed, China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”

"We Won't Be Lectured" - Italy's Renzi To Defy Brussels Over Banking Bailout

With all eyes distratcted by the post-Brexit euphoria, the last week has seen a far more existential crisis accelerating in Europe. Italy's banking system is in tatters (from a EUR40bn bailout 6 days ago, to EUR150 emergency support 3 days ago, to chatter of further support from pension funds Friday) but, in what seems like a clear admission that things are really bad, The FT reports that Italian prime minister Matteo Renzi is prepared to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress, a last-resort move that would smash through the bloc’s nascent regime for handling ailing banks.

Here Is Why Biotech Stocks Just Exploded Higher

On the back of extremely heavy volume, Biotech and Pharma stocks soared moments ago, following yesterday's surprising weakness. What was the catalyst? As it turns out, Medicare spending didn’t trigger initiation of the Independent Payment Advisory Board to slash costs, a relief for the beleaguered drug industry whose shares have slumped since the start of the year.