Norway

While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. 

The warnings are getting louder.  Is anybody listening?

Forget Norway. Japan. Iceland. Switzerland. Or any of the other places around the world that are notorious for being painful on the wallet. Venezuela is now the most expensive country in the world, hands down. To give you an idea, the cost of a 15-minute taxi ride to the beach yesterday afternoon totaled an eye-popping $158.

While Reverse QE, or QT, or whatever one wants to call it has become traditionally associated with Emerging Markets and petroleum exporters, nobody had linked it with one of the most advanced Developed Markets in the world which also happens to be an oil exporter, the market with the largest sovereign wealth fun in the world: Norway. That is about to change because as Bloomberg report, "the future may already be here", a future in which Norway's gargantuan $830 billion sovereign wealth fund, the product of two decades of capital accumulation courtesy of Norway's vast petroleum reserves and oil trade, is forced to begin liquidating its vast assets.

"The think tanks do not disclose the terms of the agreements they have reached with foreign governments. And they have not registered with the United States government as representatives of the donor countries, an omission that appears, in some cases, to be a violation of federal law, according to several legal specialists who examined the agreements at the request of The Times... As a result, policy makers who rely on think tanks are often unaware of the role of foreign governments in funding the research."

From time to time, the data (from economic activity, inflationary pressure, risk appetite and asset valuations) points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a point, and the worry is that each indicator is flashing red.

Another test or ... ?

Neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the “junk economics” that has destroyed the West. With so many Chinese and Russian economists educated in the US tradition, the prospects of Russia and China might not be any better than ours. The entire world could go down the tubes together.

The market, which clearly ignored the glaring contradictions in Yellen's speech which said that overseas events should not affect the Fed's policy path just a week after the Fed statement admitted it is "monitoring developments abroad", and also ignored Yellen explicit hint that NIRP is coming (only the size is unclear), and focused on the one thing it wanted to hear: a call to buy the all-critical USDJPY carry pair - because more dollar strength apparently is what the revenue and earnings recessioning S&P500 needs - which after trading around 120 in the past few days, had a 100 pip breakout overnight, hitting 121 just around 5am, in the process pushing US equity futures some 25 points higher at last check.

The global race to the bottom continued on Thursday as Norway and Taiwan moved to cut rates sending NOK plunging to its weakest level against the dollar in 13 years and pressing Tawain dollar forwards to six year lows. 

• Stocks slip for fifth straight day, euro holds steady (Reuters)
• VW recall letters in April warned of an emissions glitch (Reuters)
• VW Cheating Scandal Threatens to Ensnare BMW as Probe Widens (BBG)
• Pope Francis set to address fractious U.S. Congress (Reuters)
• Norway Cuts Rates to Record Low to Save Economy From Oil Slump (BBG)
• Taiwan Cuts Rate for First Time Since 2009 as Exports Falter (BBG)
• Janet Yellen to speak at UMass on Thursday (Daily Collegian)
• A Big Bet That China’s Currency Will Devalue Further (NYT)
• Debt Relief for Students Snarls Market for Their Loans (WSJ)

European equity have been weighed on by BMW after reports in German press that the Co.'s emission tests for their X3 model could show worse results than that of the Volkswagen Passat. The Norwegian and Taiwanese central banks have both cut interest rates, taking the number of central banks to cut rates this year to 40. Today's highlights include US weekly jobs data and durable goods orders as well as comments from ECB's Praet and Fed's Yellen. Of note US data, including jobless claims, durables and home sales will be delayed today & not released to newswires 1st due to Pope's visit

Europeans are caught between being compelled to help - on what is truly a humanitarian catastrophe - and dealing with the uncertain consequences of bringing in such a large number of people. Part of that anxiety relates to the fact that the majority of those migrants adhere to Islam, where its relationship with Europe has been uneasy for many centuries. However, framing the debate in religious terms is too simplistic and overlooks some important facts. Whatever your view is, one thing is clear: Europe will never be the same again.

The lack of leadership to tackle this clear and present danger to Europe's future is truly concerning. Both the migrants and the Europeans might be worse off as a result.