en Can QE Prop Up Asset Prices Forever? <p><em>Submitted by <a href="">Chris Hunter via Acting man blog</a>,</em></p> <h3><u><strong>Popular Myths and a Shrinking Work Force</strong></u></h3> <p>It&rsquo;s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.</p> <p><strong>What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings.</strong></p> <p>It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers.</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="1124-MI-blog" class="aligncenter wp-image-34487 size-full" height="313" src="" width="600" /></p> <p>&nbsp;</p> <p>That&rsquo;s a problem for the US. Because according to a recent report in&nbsp;<em>The Economist</em>, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.</p> <p>Making things worse, many of America&rsquo;s boomers &ndash; the first of whom qualified for Social Security in 2008 &ndash; are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits.</p> <p>This helps explain why the percentage of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck.</p> <p>And it&rsquo;s not just Americans who are getting older on average.</p> <p>From&nbsp;<em>The Economist</em>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.&rdquo;</p> </blockquote> <p>Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever.</p> <p>Otherwise, stock and bond investors will start to reconsider the prices they&rsquo;re willing to pay to own their pieces of paper.<strong> </strong></p> <p style="text-align: center;"><img alt="workers per retiree" class="aligncenter wp-image-34486" height="463" src="" width="600" /></p> <p style="text-align: center;">Past and projected workers per retiree of selected countries &ndash; via <a href="" id="yui_3_16_0_1_1417093721303_7467" rel="nofollow" target="_blank"></a>.</p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="582" height="364" alt="" src="" /> </div> </div> </div> Bond Central Banks China Germany Janet Yellen Japan The Economist Fri, 28 Nov 2014 14:52:59 +0000 Tyler Durden 498362 at Netherlands, Germany Have Euro Disaster Plan - Possible Return to Guilder and Mark <p><strong><a href="">Netherlands, Germany Have Euro Disaster Plan - Possible Return to Guilder and Mark</a></strong></p> <p>The Dutch and German governments were preparing emergency plans for a return to their national currencies at the height of the euro crisis it has emerged. These plans remain in place.</p> <p><img src="" width="250" /></p> <p><em><strong><br /> German Gold Deutsche Mark - (Special Edition)</strong></em></p> <p>The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency - the guilder. They hosted meetings with a team of legal, economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012.&nbsp;</p> <p>The Dutch finance minister during the period has confirmed that Germany also discussed such scenarios.</p> <p> At the time the Euro was in crisis, Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard. The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control - leading to contagion and the risk of a systemic collapse.</p> <p>A TV documentary broke the story last Tuesday. The rumours were confirmed on Thursday by the current Dutch minister of finance, Jeroen Dijsselbloem, and the current President of the Eurogroup of finance ministers in a television interview which was covered by <a href=""><span style="text-decoration: underline;">EU Observer</span></a> and <a href=""><span style="text-decoration: underline;">Bloomberg</span></a>.</p> <p>“It is true that [the ministry of] finance and the then government had also prepared themselves for the worst scenario”, said Dijsselbloem.</p> <p>“Government leaders, including the Dutch government, have always said: we want to keep that eurozone together. But [the Dutch government] also looked at: what if that fails. And it prepared for that.”</p> <p>While Dijsselbloem said there was no need to be “secretive” about the plans now, such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets.</p> <p>When asked about Germany, Dijsselbloem said he couldn’t say whether that country’s government had made similar preparations.</p> <p><a href=""><img src="" width="500" /></a></p> <p><em><strong>German Silver Deutsche Mark - (1951-1974)</strong></em></p> <p>However, Jan Kees de Jager, finance minister from February 2010 to November 2012, acknowledged that a team of legal experts, economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios.</p> <p>“The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough”, said De Jager in the TV documentary.</p> <p>“We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands.”</p> <p>When the EU Observer requested confirmation from Germany, the German ministry of finance did not officially deny that it had drawn up similar plans, stating simply:<br /> “We and our partners in the euro zone, including the Netherlands, were and still are determined to do everything possible to prevent a breakup of the eurozone.”&nbsp;</p> <p>This is quite a revelation. At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece. Whether it could survive without the Dutch is another matter entirely.</p> <p>A Euro without Holland and especially Germany is currently inconceivable. De Jager also states that other countries found the prospect of a Euro break-up frightening.&nbsp;<br /> So much so that they buried their heads in the sand rather than deal with the situation facing them. It appears that no emergency contingency plans were made in the unfortunately named PIIGS nations - Portugal, Ireland, Italy, Greece and Spain.</p> <p>One has to wonder if the plans would have been made public had a TV documentary not forced the Dutch government to confirm the claim.</p> <p>It is interesting to note that it is these two countries, Germany and Netherlands, whose citizens have also been at the forefront of the gold repatriation movement currently sweeping across Europe - France's second largest party entered the fray this week.</p> <p>In a climate with a lack of faith in fiat currencies, any return to a purely fiat guilder or mark would be risky in the absence of the confidence that gold backing provides.<br /> Despite the implication that secrecy is no longer necessary because Europe is over the worst we believe the Dutch repatriation of 20% of it's sovereign gold from the U.S. indicates that the Dutch are still, wisely, preparing for the worst - whether that be a euro crisis or indeed a dollar crisis and an international monetary crisis.</p> <p> Their stated reason for returning their 122 tonnes of <span style="text-decoration: underline;"><a href="">gold to Netherland’s</a>&nbsp;soil</span> was to instil public confidence in the Dutch central bank.</p> <p>The prospect of a Euro-break up is a frightening one. It would appear that most Eurozone nations are ill-prepared and indeed unprepared for.&nbsp;</p> <p>As always we recommend investors act as their own central bank by taking delivery of bullion or keeping gold and silver in secure, allocated and segregated vaults in safer jurisdictions such as Switzerland and Singapore.</p> <p><a href=""><img src="" /></a></p> <p>For investors and savers currently using the euro, it begs the important question do you have a euro failure contingency plan?&nbsp;</p> <p>Indeed, for investors and savers internationally using other fiat currencies, it begs the important question do you have a currency failure contingency plan?&nbsp;</p> <p>While the risks in peripheral European nations of reversion to their national currencies and currency devaluations have diminished – some risks still remain.</p> <p>The risk is that individual national governments may elect to take this route rather than suffer deflationary economic collapse and Depressions. Alternatively, it could happen through contagion or a systemic event like the collapse of a large European bank, a la Lehman Brothers, that leads to a domino effect jettisoning a member state out of the monetary union.</p> <p>It could also come about should the German people and politicians decide that the European monetary project is not worth saving or they decide that it cannot be saved and elect to return to the Deutsche mark.<br /> All significantly indebted nations, so called PIIGS and non PIIGS such as Japan, the UK and the U.S. are at risk of currency devaluations.</p> <p> Competitive currency devaluations or the debasement of currencies for competitive advantage and <a href=""><span style="text-decoration: underline;">currency wars</span></a> poses real risks to the long term stability and prosperity of all democracies in the world and to the finances and savings of people in all countries.</p> <p><em><strong>Get Breaking News and Updates On Gold Markets <a href=""><span style="text-decoration: underline;">Here</span></a></strong></em></p> <p><span style="text-decoration: underline;"><a href=""></a></span></p> Eurozone Germany Greece Ireland Italy Japan Lehman Lehman Brothers Netherlands Portugal Silvio Berlusconi Switzerland Fri, 28 Nov 2014 14:43:41 +0000 GoldCore 498361 at Copper & Crude Crash To 4 Year Lows <p>With all eyes focused on the malls around America, we thought a glimpse at two of the most important commodities to the world economy would provide food for thought...</p> <p>&nbsp;</p> <p>Copper...</p> <p><a href=""><img height="322" src="" width="600" /></a></p> <p>&nbsp;</p> <p>And Crude...</p> <p><a href=""><img height="319" src="" width="600" /></a></p> <p>&nbsp;</p> <p>are at 4-year lows...</p> <p>But you can still get a bargain stock at record highs...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="716" height="384" alt="" src="" /> </div> </div> </div> Copper Crude Fri, 28 Nov 2014 14:28:41 +0000 Tyler Durden 498360 at As It Turns Out Deflation Is Good After All <p>Earlier today, in typical German fashion, the chief of the Bundesbank poured cold water on Europe's latest round of demands that Germany carry the weight of the rebound from the triple-dip on its shoulders, as usual, when Buba President Jens Weidmann Friday rejected calls for a German stimulus plan, <strong>saying only structural reforms and more competitiveness would kick-start eurozone economies</strong>. “Calls for a public fiscal stimulus plan in Germany to boost the Eurozone economy are amiss,” said Mr. Weidmann in a speech for an economic summit hosted by the German newspaper Süddeutsche Zeitung. He is, of course, right: the longer Europe's insolvent, uncompetitive governments kick the can and force Germany to do all the hard work, the longer Europe will be unable to get out of a hole that gets deeper with every passing day. In short: Mr. Weidmann refuses to "get to work" for a bunch of corrupt, clueless politicians. </p> <p><a href=""><img src="" width="500" height="333" /></a></p> <p>He then proceeded to do something shocking: he was logical. Quoted by the WSJ, <a href="">he said</a>: "<strong>Investment rates that are above the growth potential of a developed economy aren't likely to boost prosperity—this applies to both public and private investments</strong>." </p> <p>More: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The German government shares Mr. Weidmann’s view. It says public investment can’t solve the eurozone’s growth problem as structural reforms are needed. The International Monetary Fund and neighboring countries France and Italy have called on Germany to boost public investment. But Berlin has pledged only €10 billion ($12.5 billion) in additional public investment over three years starting in 2016, hoping this would spur private investment worth €50 billion.</p> <p>&nbsp;</p> <p>Mr. Weidmann stressed that it is also wrong to believe central bank monetary policy would be able to solve the bloc’s economic problems.</p> <p>&nbsp;</p> <p><strong>“It is an illusion to believe that monetary policy means can raise economies’ growth potential permanently, or create lasting jobs</strong>,” Mr. Weidmann said. “<strong>In the end, this can only be achieved by structural reforms, because growth and employment occur in innovative companies and competitive products, and well-educated and highly motivated employees</strong>.”</p> </blockquote> <p>Therein lies the rub: Europe is allergic to structural reforms, and as <a href="">we have shown in the past</a>, it blames its woeful fate on evil, evil "austerity" (somewhat paradoxical for a continent where record debt gets recorder with every passing quarter), when in reality what is causing the ongoing European depression is crime, corruption, cronyism and capital misallocation. </p> <p>But none of that is news. What was news, and what was truly notable in Weidmann's statement is his open jab at the stupidity of Keynesian economics itself. To wit from Bloomberg: ECB Governing Council member Jens Weidmann says at event in Berlin that consumer prices in euro area “are strongly influenced by the energy prices, which are at the moment experiencing a positive supply shock.”</p> <p>The punchline:&nbsp; <strong>"There’s a stimulant effect coming from the energy prices - it’s like a mini stimulus package."</strong></p> <p>But wait a minute, isn't deflation under Keynesian voodoonomics, the biggest bogeyman imaginable? </p> <p>It turns out deflation is only bad when it impacts... the S&amp;P 500. Otherwise deflation for such things as energy prices and other input costs is suddenly bullish? So, by that logic, Japan with its soaring energy costs as a result of its currency devastation must be smack in the middle of the biggest depression ever. Which, of course, it is, as we warned would happen in early 2013. </p> <p>For now, however, we are more focused on the official transformation of the German Central Bank into the central bank of "Austrian" economics.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1280" height="853" alt="" src="" /> </div> </div> </div> Consumer Prices Corruption Cronyism Eurozone France Germany International Monetary Fund Italy Japan Keynesian economics Monetary Policy Newspaper None Reality Fri, 28 Nov 2014 14:19:49 +0000 Tyler Durden 498359 at The 2014 Black Friday Frenzy: America Goes Shopping, In Photos <p>Black Friday is the day when the trademark US consumerism takes center stage for its annual manic, full-frontal exposure around the globe. Here is what it looked like around the US...</p> <p><a href=""><img src="" width="500" height="308" /></a></p> <p><em>People buying TVs</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Thanksgiving Day shoppers line up to start shopping at a Target store in Chicago</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>People carry shoes in Macy's during Black Friday sales in New York</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Shoppers line up outside Best Buy before the store opens in Newport, New Jersey</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="333" /></p> <p><em>People line up outside before the Toys R Us store opened in Times Square</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Women try on shoes in Macy's to kick off Black Friday sales in New York</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Shoppers wait to enter Macy's to kick off Black Friday sales in New York</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>A girl chooses an item from Disney's Princess toy line up to purchase at the Toys R Us store in Times Square</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>A shopper carries a TV outside a Best Buy store in Newport, New Jersey.</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Shoppers enter Best Buy as the store opens in Newport, New Jersey</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="333" /></p> <p><em>People look in the window before the Toys R Us store opened in Times Square.</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="333" /></p> <p><em>A girl poses with an Olaf plush toy from Disney's Frozen toy line at the Toys R Us store in Times Square.</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Thanksgiving Day shoppers ride an escalator while shopping at a Target store in Chicago</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Thanksgiving Day shoppers carry televisions at a Target store in Chicago</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="333" /></p> <p><em>A woman lines up outside before the Toys R Us store opens in Times Square.</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="334" /></p> <p><em>Shoppers line up outside Best Buy before the store opens in Newport, New Jersey</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="333" /></p> <p><em>A girl looks at items from Disney's Frozen toy line at the Toys R Us store in Times Square.</em></p> <p>* * * </p> <p>... And not only, because other countries increasingly adopt the "best" of US traditions. Here is what happened in the UK earlier today:</p> <p><img src="" width="500" height="317" /></p> <p><em>Black Friday hops the pond: Shoppers compete to purchase retail items on "Black Friday" at an Asda superstore in Wembley.</em></p> <p>&nbsp;</p> <p><img src="" width="500" height="330" /></p> <p><em>Shoppers wrestle over a television as they compete to purchase retail items on "Black Friday" at an Asda superstore in Wembley, north London November 28<br /></em></p> <p>&nbsp;</p> <p>... And Brazil:</p> <p><img src="" width="500" height="387" /></p> <p><em>Here, shoppers crowd outside a store before it opens on "Black Friday" in Sao Paulo. </em></p> <p><em>Photos: <a href="">Reuters</a></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="500" height="308" alt="" src="" /> </div> </div> </div> Best Buy Black Friday Brazil Reuters Fri, 28 Nov 2014 13:39:08 +0000 Tyler Durden 498358 at Russian Warship Flotilla Enters English Channel For Military Exercises <p>The French delivery of two Mistral ships to Russia may be postponed indefinitely (a move which ultimately would cost Hollande <a href="">over $4 billion in contract breach penalty fees </a>he simply can't afford to pay), but that doesn't mean the Russian navy has been hobbled or is hiding in the corner. To the contrary: according to the following tweet from the UK Ministry of Defense, Russia's navy is getting quite bolder. </p> <blockquote class="twitter-tweet" lang="en"><p>Four Russian ships escorted through Dover Strait from North Sea by <a href="">@RoyalNavy</a> HMS Tyne this morning. Ships have left UK waters.</p> <p>— Ministry of Defence (@DefenceHQ) <a href="">November 28, 2014</a></p></blockquote> <script src="//"></script><p>What happened? </p> <p>As Bloomberg reports, at least 4 vessels which departed the Russian Northern Fleet main base on November 20, led by anti-submarine ship Severomorsk, entered English channel for exercises that include anti-sabotage training, damage control in case of fire and water intake, state-run news service RIA Novosti says, citing statement from Navy.</p> <p>Reuters confirms that a <a href="">squadron of Russian warships </a>entered the English Channel on Friday to hold exercises, RIA news agency reported, the latest apparent show of military might since ties with the West plunged to Cold War lows over Ukraine.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>RIA quoted the Northern Fleet as saying its vessels, led by anti-submarine ship Severomorsk, had passed through the Strait of Dover and were now in international waters in the Seine Bay to wait for a storm to pass.</p> <p>&nbsp;</p> <p>"While it is anchored the crew are undertaking a series of exercises on how to tackle ... infiltrating submarine forces and are training on survival techniques in the case of flooding or fire," RIA quoted the Northern Fleet as saying in a statement.</p> <p>&nbsp;</p> <p>The Russian navy could not reached for comment and the Defence Ministry declined to comment on the report.</p> </blockquote> <p><img src="" width="567" height="378" /></p> <p><em>The Russian navy frigate Smolny is seen at the STX Les Chantiers </em><br /><em>de l'Atlantique shipyard site in Saint-Nazaire, western France, November 25, 2014</em></p> <p>Naturally, NATO - afraid of looking even weaker than it is - was quick to downplay the incident since a lack of retaliation would make the defensive alliance appear quite prone to "penetrations" by Russian forces:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>France's navy confirmed the location of the ships and said it was not unusual to have Russian warships in the Channel.</p> <p>&nbsp;</p> <p>"They are not holding exercises. They’re just waiting in a zone where they can be several times a year," said the French Navy's information service.</p> <p>&nbsp;</p> <p><strong>Lieutenant-Colonel Jay Janzen, NATO's military spokesman, also said the alliance was aware of the Russian ships' location.</strong></p> <p>&nbsp;</p> <p><strong>"Our information indicates that the ships are transiting and have been delayed by weather conditions. They are not exercising in the Channel, as some Russian headlines would have us believe," he said.</strong></p> </blockquote> <p>And if <em>they </em>were in fact "exercising" it would simply mean that NATO exercises in the Black Sea miles away from the Russian coast, are finally being met <em>in kind </em>by a Russia which with every passing day is making it clear its "concern" of western reprisals and retaliation to Russian actions, which in turn are a consequence of <a href="">NATO expansion eastward</a>, is increasingly more negligible. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="567" height="378" alt="" src="" /> </div> </div> </div> France headlines Reuters Ukraine Fri, 28 Nov 2014 13:00:47 +0000 Tyler Durden 498357 at Frontrunning: November 28 <ul> <li>Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale (<a href="">BBG</a>)</li> <li>Alberta Producers With World’s Cheapest Oil Face Cascading Woes (<a href="">BBG</a>)</li> <li>Bundesbank’s Weidmann Rejects Calls for German Stimulus Plan (<a href="">WSJ</a>)</li> <li>Google Should Be Broken Up, Say Euro MPs (<a href="">BBC)</a></li> <li>Calm comes to troubled Ferguson; protests dwindle across U.S. (<a href="">Reuters</a>)</li> <li>Russia’s Banks Feel Capital Squeeze in Grip of Sanctions (<a href="Russia’s Banks Feel Capital Squeeze in Grip of Sanctions">BBG</a>)</li> <li>&nbsp;Italian Unemployment Rate Rises to Record, Above Forecasts (<a href="">BBG</a>)</li> <li>Hedge Funds Seek to Tie Up Money for Longer (<a href="">WSJ</a>)</li> <li>Laughing Hacker Who Hit Sony, FBI Now Seeks Legal Lols (<a href="">BBG</a>)</li> <li>China Motorists Exceed 300 Million as Cities Struggle (<a href="">BBG</a>)</li> <li>WHO advises male Ebola survivors to abstain from sex (<a href="">Reuters</a>)</li> <li>Why Italy's stay-home shoppers terrify the euro zone (<a href="">Reuters</a>)</li> <li>Iron Caps Biggest Monthly Drop Since September as Supply Climbs (<a href="">BBG</a>)</li> </ul> <p>&nbsp;</p> <p><strong>Overnight Media Digest</strong></p> <p><span style="text-decoration: underline;"><em>WSJ</em></span></p> <p>* Two music publishers are taking aim at a new target in the battle against illegal song downloading: the cable industry. Wednesday afternoon, BMG Rights Management LLC and Round Hill Music LP sued cable giant Cox Communications Inc, claiming that Cox, which provides Internet service to millions, is deliberately turning a blind eye to illegal downloading by its subscribers. (<a href="" title=""></a>)</p> <p>* Hedge-fund managers are increasingly persuading investors to lock up their money for longer - in many cases more than double the typical one-year period - and dangling lower fees to close the deal. (<a href="" title=""></a>)</p> <p>* European politicians are poised to approve a new generation of lower-cost rockets, partly in response to competition from U.S. launch providers, according to government and aerospace-industry officials on both sides of the Atlantic. (<a href="" title=""></a>)</p> <p>* Manufacturers are taking matters into their own hands to patch up a weak spot of Thailand's economy: its worsening shortage of skilled labor. A shrinking labor pool and inadequate training for workers are constraining business and industrial growth, investors here say. Now an increasing number of companies - many in the auto industry - are rolling out apprenticeship programs aimed at beefing up the workforce themselves. (<a href="" title=""></a>)</p> <p>* Europe escalated its war against U.S. technology superpowers as the Continent's two largest economies and the European Parliament on Thursday backed fresh efforts to rein in the growing influence of companies such as Apple Inc, Facebook Inc and Google Inc. (<a href="" title=""></a>)</p> <p>* Outbrain Inc, a provider of "native ads," filed confidentially with the U.S. Securities and Exchange Commission earlier this month seeking preliminary approval to list shares on the Nasdaq Stock Market, according to people familiar with the matter. (<a href="" title=""></a>)</p> <p>* The financial crisis and its aftermath have revived interest in gold as a monetary policy instrument, especially in Europe, where central banks face public pressure to buy gold or bring back home what they hold overseas. (<a href="" title=""></a>)</p> <p>* BAIC Motor Corp, a Chinese car maker partly owned by Daimler AG, is planning to start gauging investors' interest next week in an initial public offering which could raise between $1.2 billion and $1.5 billion in Hong Kong, a person familiar with the situation said. (<a href="" title=""></a>)</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><em>FT</em></span></p> <p>Two senior executives, Kevin Grace, group commercial director, and Carl Rogberg, UK finance director, of troubled British grocer Tesco, left the company on Wednesday.</p> <p>Mexican billionaire Carlos Slim is set to become the largest investor in Spanish builder FCC after agreeing to buy top shareholder Esther Koplowitz's part of a $1.3 billion capital increase. This capital increase will leave Slim with a 25.6 percent stake in the company.</p> <p>Deutsche Bank AG is winding down its physical precious metals trading business, it said on Thursday, moving to further scale back its exposure to commodities.</p> <p>Director of Britain's "Business for New Europe", a pro-EU lobby group and a non-profit organisation, Alisdair McIntosh, is set to quit after less than a year in office. </p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><em>NYT</em></span></p> <p>* Oil cartel OPEC decided not to cut petroleum production, despite the plunge in prices in recent months that has indicated the diminishing clout of the organization. The price of Brent crude oil fell an additional $4 to a four-year low of about $73. American crude dropped below $70, an even more significant threshold. (<a href="" title=""></a>)</p> <p>* Europe's resentment of the American technology giant Google Inc reached a new noise level as the European Parliament passed a nonbinding vote to break up the company. European fears of American technology giants have been stoked in the last 18 months by the revelations of Edward Snowden, the former National Security Agency contractor, about American intelligence agencies' spying activities and perceived easy access to the world's tech infrastructure. (<a href="" title=""></a>)</p> <p>* A London high court judge has ordered Chris Hohn, founder of one of Britain's largest and most successful hedge funds, to pay his former wife $531 million to settle their messy public divorce, according to statements made in court. The figure demonstrates the immense wealth Hohn has accumulated at the helm of the Children's Investment Fund, known as TCI. (<a href="" title=""></a>)</p> <p>* Cheyne Capital, a $6 billion hedge fund based in London, plans to buy property it will then rent to organizations that deliver services like affordable housing, aid for the elderly or care through the National Health Service. (<a href="" title=""></a>)</p> <p>* Argentina's tax agency accused HSBC Bank PLC of helping more than 4,000 Argentines evade taxes by placing their money in secret Swiss accounts. The head of the country's tax agency said Argentine citizens had evaded about $3 billion in taxes. (<a href="" title=""></a>)</p> <p>* U.S. Bank, a division of U.S. Bancorp, is being accused of failing to engage with borrowers who missed payments. The legal action could mean fresh problems for other big mortgage banks, as well. (<a href="" title=""></a>)</p> <p>* Japan will follow the United States in forcing automakers to recall all vehicles containing potentially dangerous driver's-side airbags made by Takata Corp. An order from the Transportation Ministry on the airbags would lead to the recall of an additional 200,000 vehicles in Japan. (<a href="" title=""></a>)</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><em>Canada</em></span></p> <p>THE GLOBE AND MAIL</p> <p>** Canada's energy sector faces the prospect of a lengthy downturn in oil prices and broad spending cuts after the Organization of the Petroleum Exporting Countries said it did not intend to cut production - a move that sent crude prices and energy shares plunging. Investors immediately punished Canadian energy companies in reaction to the OPEC's decision on Thursday to stand firm on its production plans, defying industry hopes for a cut. (<a href="" title=""></a>)</p> <p>** It has been a long road to redemption for Canadian Imperial Bank of Commerce, but the lender's retail banking revamp is finally bearing fruit. For the first time in years, there is a buzz inside CIBC - a confidence instilled in its executives by early signs of above-industry-average growth. After years of lagging its peers, retail banking head David Williamson says he and other executives can't help but feel a little swagger. (<a href="" title=""></a>)</p> <p>** Patents are a key measure of a country's ability to turn research into viable products, and Canada is slipping. Per capita patent filings in Canada have been on a steady decline since 2000, according to a study of more than one million applications to the Canadian Intellectual Property Office by the C.D. Howe Institute. (<a href="" title=""></a>)</p> <p>NATIONAL POST</p> <p>** Wal-Mart Stores Inc's Walmart Canada is expanding its 'grab and go' locker pickup system for online orders just in time for Christmas, beating Amazon Canada to the punch. Walmart began testing a locker system for web customers at 10 Toronto-area stores in August, offering it as an alternative to home delivery. It allows customers to pick up the goods at a locked unit with a personal PIN code tied to their order, thereby skipping cash register lines and in-store shopping time. (<a href="" title=""></a>)</p> <p>** In his blogging about Canada's hate speech laws, right-wing personality Ezra Levant defamed a young law student as a serial liar, a bigot and a Jew-hating "illiberal Islamic fascist," bent on destroying Canada's tradition of free expression, a judge has found. (<a href="" title=""></a>)</p> <p>** Canada is sending a team of military medical specialists to Sierra Leone to help combat the spread of Ebola in that country. The government says up to 40 Canadian Armed Forces healthcare and support staff will be deployed to the West African country. (<a href="" title=""></a>) </p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><em>China</em></span></p> <p>CHINA SECURITIES JOURNAL</p> <p>- A cut in China's reserve requirement ratio (RRR) is "imminent" after the central bank slashed interest rates last week, said Wen Bin, senior economist at Minsheng Bank.</p> <p>CHINA BUSINESS NEWS</p> <p>- The Legislative Affairs Office of the State Council, or China's Cabinet, is seeking public comments on draft rules for the country's social security fund.</p> <p>- Balance in China's margin trading accounts reached a record 800 billion yuan ($130.31 billion), the newspaper said, citing a report.</p> <p>21ST CENTURY BUSINESS HERALD</p> <p>- The National Development and Reform Commission (NDRC) will soon release guidelines on Public-Private Partnership (PPP) regarding cooperation between local governments and social capital, said Ou Hong, an NDRC official.</p> <p>CHINA DAILY</p> <p>- The people of Hong Kong must respect Beijing's jurisdiction over the region in order to smoothly implement the "One country, two systems" policy, the China Daily said in an editorial.</p> <p>&nbsp;</p> Apple Central Banks China Crude Crude Oil Daimler Deutsche Bank FBI Google Hong Kong Japan Monetary Policy NASDAQ National Health Service national security Newspaper OPEC Precious Metals Reuters Securities and Exchange Commission Unemployment Yuan Fri, 28 Nov 2014 12:33:33 +0000 Tyler Durden 498356 at PROOF: While The Bank Of Japan Goes 'Full-QE-Retard', Japanese Investors Are Hoarding Physical Gold <p><img src="" alt="Shinzo_Abe_-_129590_419777c" width="620" height="413" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-4006 aligncenter" /></p> <p>Japan’s Prime Minister Shinzo Abe has had an extremely busy past few weeks. After increasing the sales tax rate earlier this year which caused the GDP to contract by more than 7%, the Bank of Japan announced earlier this month it would step up its game and print money like never before. In a previous column we explained that Japan would print new money at twice the rate the USA was printing cash at the height of its quantitative easing program.</p> <p>Even though Abe’s economic policy (called Abenomics) seemed to be working in the first phase of the implementation, the progress has stalled and Japan is now <a href="" target="_blank">back in a recession</a> again. This could be a huge indication that Abenomics is quite dead. In an attempt to resuscitate the policy, the huge money printing program has started and Abe has announced he would postpone a planned increase in the sales tax to 10% by 18 months years as the effect of another increase might have been devastating for the country’s economy. It was already quite weird for someone who wanted to increase the consumption pattern of the Japanese population to increase a sales tax (which obviously reduces the demand for goods) to get the country’s financial situation back in order.</p> <p>Surprisingly enough, even though Japan’s economy is now officially in recession again Abe has <a href="" target="_blank">called for new elections</a> within the month. With Abenomics failing and the domestic economy tumbling back into recession, the central bank printing money like crazy leading to a severe depreciation of the Japanese Yen and an unpopular move to increase the sales tax from 5% to 8%, one would definitely not expect a democratic leader to ask the citizens of Japan to vote for him once again.</p> <p><img src="" alt="Japan Abenomics" width="599" height="411" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-9497 aligncenter" /></p> <p>But Abe has effectively called for elections which will be held on December 14<sup>th</sup> which is in less than four weeks from now, now that’s an electoral ‘Blitzkrieg’! It’s also quite easy to understand why the sales tax hike has been postponed as the prime minister needs to make himself popular with his citizens. But more than anything else, the elections were called to take the left side of the political landscape by surprise. As elections are a complete surprise for everyone, the left-wing parties haven’t organized and harmonized their opposition against Abe yet. On top of that, with such a short time frame before the elections it’s extremely unlikely the left side will actually be able to organize themselves and take up the glove Abe has dropped.</p> <p>By adding this element of surprise, Abe just wants to secure another term in office despite his failing economic policy. As he’s a real politician, Shinzo Abe is still upbeat about Abenomics stating ‘it’s working’ but he seems to forget that even though the unemployment rate decreased and the company’s revenues increased, there still isn’t a noticeable increase in consumption and salaries. Realizing one out of three promises isn’t really what you’d call ‘passing’ the test. It’s also a very wise decision to ask the Japanese population for a vote of confidence before the newly-printed money will be felt by the man in the street through an increasing inflation rate.</p> <p><img src="" alt="Gold in Yen 1y chart" width="748" height="326" class="alignnone size-full wp-image-9615" /></p> <p><a href="" target="_blank"><em>Source</em></a></p> <p>The ‘Abenomics -balloon’ is slowly deflating and Abe seems to want to secure his personal future before Japan’s economic situation deteriorates even further. The Japanese Yen has already lost 15% of its value in the past six months and with a failing economy and huge quantitative easing program we are expecting a further depreciation of the Yen. Meanwhile, the gold price in JPY has increased by almost 10% in the same six months, despite a 7.5% drop in the price of gold (expressed in USD). This once again emphasizes every decent investment portfolio should contain some gold and silver to protect yourself against sudden changes in the economic policy. </p> <p>Our thesis seems to be confirmed as our research has indicated the total amount held in a physical gold ETF issued by Mitsubishi UFJ - "Fruit of Gold" - has increased exponentially since Abenomics went in full force, as can be seen on the following chart.</p> <p><img src="" alt="Mitsubishi UFJ Japan Physical Gold ETF - AUM" width="563" height="470" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-9580 aligncenter" /></p> <p><a href="">Source</a></p> <p>The amount of gold is expressed in grams. So whereas this ETF had roughly 1 million grams of gold in 2010 ( 32,150 ounces), this increased exponentially and almost eightfolded in just a few years time. The vertical red line is the moment the Bank of Japan started behaving irrational and you can clearly see the interest to hold physical gold has increased since then. The smart Japanese have mobilized their money and invested it in physical gold to safeguard and protect their purchasing power. And they are right to do so!</p> <p><strong><a href="" target="_blank"> &gt;&gt;&gt; Check Out Our Latest Gold Report!</a></strong></p> <p><em>Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the <a href="">Gold &amp; Silver Report</a> and the <a href="">Technology Report</a>.</em></p> <p><em>Follow us on Twitter <a href=""><strong>@SproutMoney</strong></a></em></p> Abenomics Bank of Japan Japan Purchasing Power Quantitative Easing Recession Twitter Twitter Unemployment Yen Fri, 28 Nov 2014 12:09:19 +0000 Sprout Money 498355 at OPEC's Crude Bloodbath Sends 10 Year To 2.20%, Energy Companies Tumble <p>The biggest, and most market-moving, event overnight continues to be yesterday's shocking OPEC announcement, which is still reverberating across the energy space as markets largely ignore European and Japanese inflation data which is once again sliding back dangerously fast, or Italian unemployment which rose more than expected, and joined France in hitting a new record high. As a result European shares remain lower, close to intraday lows, with the oil &amp; gas and industrials sectors underperforming and telco and travel outperforming as oil continues its decline. EU inflation slowed in Nov. to 0.3%. Italian and Swedish markets are the worst-performing larger bourses, Spanish the best. The euro is weaker against the dollar. And while US equity futures are largely unchanged even as, or perhaps because, the world is screaming economic slowdown, bonds are finally getting the message with U.S. 10yr bond yields falling to only 2.20% as Japanese yields also decline. </p> <p><em>Some more detail from RanSquawk:</em></p> <p>European equities enter the North American crossover in negative territory albeit off their worst levels. The sole catalyst for price action thus far has been the fallout of yesterday’s decision by OPEC to refrain from altering their output ceiling. More specifically, the energy sector has naturally been substantially weighed on by the ramifications of yesterday, with the top 10 laggards in the Stoxx 600 all being from the sector, with the FTSE 100 feeling the squeeze with BP and shell notably lower, with the two Co.’s accounting for just over 12% of the index. Nonetheless, airliners have provided stocks with some modest reprieve as the lower energy prices will benefit the sector, although the implications for airliners are less substantial than those of oil producers. Elsewhere, in fixed income markets, Bunds opened at fresh contract highs, although now reside in relatively modest territory after failing to make a break above the 153.00 level. One thing to be aware of looking ahead, is that the lower energy prices are likely to filter through to global inflation prospects and thus could have further considerations on central bank policies, notably the ECB, with this also coming in the backdrop of the heightened expectations of a sovereign QE programme.</p> <p><strong>Market Wrap</strong></p> <ul> <li>S&amp;P 500 futures down 0.3% to 2067.1</li> <li>Stoxx 600 down 0.5% to 345.7</li> <li>US 10Yr yield down 5bps to 2.2%</li> <li>German 10Yr yield up 0bps to 0.7%</li> <li>MSCI Asia Pacific up 0.1% to 140.9</li> <li>Gold spot down 0.8% to $1181.5/oz</li> </ul> <p><strong>Bulletin Headline Summary from RanSquawk and Bloomberg</strong></p> <ul> <li>The OPEC oil-slide continues to cause further turmoil for oil producers and commodity currencies, while lower energy prices provide airline names with some reprieve. </li> <li>Looking ahead, today’s calendar is exceedingly thin with ECB’s Weidmann due on the speaker slate, although volumes are expected to be surprised by yesterday’s US Thanksgiving Holiday</li> <li>Treasuries head for weekly gain amid well-received 2Y and 5Y auctions and as oil prices slide after OPEC refrained from reducing output at meeting yesterday.</li> <li>OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers</li> <li>Euro-area inflation slowed in November to match a five-year low, prodding the ECB toward expanding its unprecedented stimulus program</li> <li>Draghi yesterday said the ECB is open to buying a wide variety of assets for further stimulus as German and Spanish inflation data highlighted the struggle to revive the euro-area economy</li> <li>David Cameron raised the prospect of Britain leaving the EU unless fellow leaders agree to let him restrict access to welfare payments for migrants</li> <li>Rating companies say defaults in China will spread as the central bank’s interest rate cut will do little to stop a wave of maturities from worsening record debt downgrades</li> <li>China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials</li> <li>Brazil’s economy expanded 0.1% in 3Q, less than forecast, as the world’s second biggest emerging market recovers from recession</li> <li>Brazil’s Finance Minister-designate Joaquim Levy pledged to adopt more rigorous fiscal discipline without providing details on how he will reduce the country’s debt levels</li> <li>Sovereign yields mostly lower. Asian stocks gain; European stocks,&nbsp; U.S. equity-index futures fall. Brent crude falls; WTI reached $67.75 yday, lowest since May 2010; gold and copper lower</li> </ul> <p><strong>FX</strong></p> <p>In FX markets, the notable focus has been on commodity currencies with the NOK reaching a 5 year low against the EUR, while CAD has continued its OPEC-inspired losses, with USD/CAD steadily approaching the 1.1400 level; should we trade above 1.1400 in the pair then the 6th of November 2014 high comes in at 1.1443 to the upside. Furthermore, the RUB has also felt the squeeze of lower energy prices and earlier printed a fresh record low against the greenback, with the USD broadly stronger after breaking above the 88.00 level during Asia-Pacific trade, which subsequently saw USD/JPY break above 118.00 overnight. EUR was provided a modest uptick as Y/Y CPI came in-line with expectations at 0.3%, although was not as low as some participants had feared. Furthermore, today is the last trading day before the results of the Swiss national gold referendum with results due on Sunday.</p> <p><strong>COMMODITIES</strong></p> <p>In the energy complex, as to be expected, yesterday’s OPEC decision has continued to take centre-stage with energy prices continuing to plummet lower and seemingly unable to find a floor, with analysts at Barclay’s suggesting that Crude prices to drop another USD 10/bbl before new floor is discovered. Elsewhere in metals markets, a strong USD capped any potential pullback in prices and also weighed on metals with COMEX copper, spot gold and spot silver all slipping to their 1-week lows. Elsewhere, Spot iron ore prices rose to around USD 70/ton overnight, boosted by Dalian iron ore futures rising for their 3rd consecutive day as investors covered short positions</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="600" height="399" alt="" src="" /> </div> </div> </div> Bond China Copper CPI Crude fixed France OPEC Price Action RANSquawk Unemployment Fri, 28 Nov 2014 12:03:17 +0000 Tyler Durden 498354 at "There Will Be Blood": Petrodollar Death Means A Liquidity And Oil-Exporting Crisis On Deck <p>Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today's shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter...</p> <p><a href=""><strong>How The Petrodollar Quietly Died, And Nobody Noticed</strong></a></p> <p>Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (<em>especially if one held US-denominated assets <strong>and </strong>printed US currency</em>) loop.</p> <p>The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today's FT, why China's <a href="">Renminbi offshore market has gone from nothing to billions in a short space of time</a>.</p> <p>And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico'ed both itself, and its closest Petrodollar trading partner, the US of A.</p> <p><strong>As <a href=";feedName=rbssFinancialServicesAndRealEstateNews">Reuters reports</a>, for the first time in almost two decades, energy-exporting countries are set to pull their "petrodollars" out of world markets this year, </strong>citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.</p> <p>A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.</p> <p>This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. <strong>Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.</strong></p> <p>But no more: "this year the oil producers will effectively <em><strong>import</strong></em> capital amounting to $7.6 billion. By comparison, they <em><strong>exported</strong></em> $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations."</p> <p>In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.</p> <p><a href=""><img src="" width="600" height="396" /></a></p> <p>According to BNP, Petrodollar recycling peaked at $511 billion in 2006, or just about the time crude prices were preparing to go to $200, per Goldman Sachs. It is also the time when capital markets hit all time highs, only without the artificial crutches of every single central bank propping up the S&amp;P ponzi house of cards on a daily basis. What happened after is known to all...</p> <blockquote><p>"<strong>At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out," </strong>said David Spegel, global head of emerging market sovereign and corporate Research at BNP.</p> <p>&nbsp;</p> <p>Spegel acknowledged that the net withdrawal was small. But he added: "What is interesting is they are draining rather than providing capital that is moving global liquidity. If oil prices fall further in coming years, energy producers will need more capital even if just to repay bonds."</p> </blockquote> <p>In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.</p> <p>Which is hardly great news: because in a world in which central banks are actively soaking up high-quality collateral, at a pace that is unprecedented in history, and led to the world's allegedly most liquid bond market to <a href="">suffer a 10-sigma move </a>on October 15, the last thing the market needs is even less liquidity, and even sharper moves on ever less volume, until finally the next big sell order crushes the entire market or at least force the [NYSE|Nasdaq|BATS|Sigma X] to shut down indefinitely until further notice.&nbsp;</p> <p>So what happens next, now that the primary USD-recycling mechanism of the past 2 decades is no longer applicable? Well, nothing good.</p> <p>Here are the highlights of David Spegel's note <em>Energy price shock scenarios: Impact on EM ratings, funding gaps, debt, inflation and fiscal risks</em>.</p> <p>Whatever the reason, whether a function of supply, demand or political risks, oil prices plummeted in Q3 2014 and remain volatile. Theories related to the price plunge vary widely: some argue it is an additional means for Western allies in the Middle East to punish Russia. Others state it is the result of a price war between Opec and new shale oil producers. In the end, it may just reflect the traditional inverted relationship between the international value of the dollar and the price of hard-currency-based commodities (Figure 6). In any event, the impact of the energy price drop will be wide-ranging (if sustained) and will have implications for debt service costs, inflation, fiscal accounts and GDP growth.</p> <p><strong>Have you noticed a reduction of financial markets liquidity?</strong></p> <p><strong>Outside from the domestic economic impact within EMs due to the downward oil price shock, we believe that the implications for financial market liquidity via the reduced recycling of petrodollars should not be underestimated. </strong>Because energy exporters do not fully invest their export receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find their way back into bank deposits (fuelling the loan market) as well as into financial markets and other assets. This capital has helped fund debt among importers, helping to boost overall growth as well as other financial markets liquidity conditions.</p> <p>Last year, capital flows from energy exporting countries (see list in Figure 12) amounted to USD812bn (Figure 3), with USD109bn taking the form of financial portfolio capital and USD177bn in the form of direct equity investment a<strong>nd USD527bn of other capital over half of which we estimate made its way into bank deposits (ie and therefore mostly into loan markets). </strong></p> <p><a href=""><img src="" width="600" height="209" /></a></p> <p><a href=""><img src="" width="600" height="311" /></a></p> <p><a href=""><img src="" width="600" height="354" /></a></p> <p>The recycling of petro-dollars has benefited financial markets liquidity conditions. <strong>However, this year, we expect that incremental liquidity typically provided by such recycled flows will be markedly reduced, estimating that direct and other capital outflows from energy exporters will have declined by USD253bn YoY. </strong>Of course, these economies also receive inward capital, so on a net basis, the additional capital provided externally is much lower. This year, we expect that net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed&nbsp; global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. <strong>The implications for financial markets liquidity - <span style="text-decoration: underline;">not to mention related downward pressure on US Treasury yields </span>– is negative</strong>.</p> <p>* * *</p> <p><em>Even scarcer liquidity in US Capital markets aside, this is how BNP sees the inflation and growth for energy exporters:</em></p> <p><strong>Household consumption benefits</strong>: While we recognise that the relationship is not entirely linear, we use inflation basket weights for ‘transportation’ and ‘household &amp; utilities’ (shown in the ‘Economic components’ section of Figure 27) as a means to address the differing demand elasticities prevalent across countries. These act as our proxy for consumption the consumption basket in order to determine the economic benefit that would result as lower energy prices improve household disposable income. This is weighted by the level of domestic consumption relative to the economy, which we also show in the ‘Economic components’ section of Figure 27.</p> <p><strong>Reduced industrial production costs: </strong>Outside the energy industry, manufacturers will benefit from falling operating costs. Agriculture will not benefit as much and services will benefit even less.</p> <p><strong>Trade gains and losses: </strong>Lost trade as a result of lower demand from oil-producing trade partners will impact both growth and the current account balance. On the other hand, better consumption from many energy-importing trade partners will provide some offset. The percentage of each country’s exports to energy producing partners represents relative to its total exports is used to determine potential lost growth and CAR due to lower demand from trade partners.</p> <p>Domestic FX moves are beyond the scope of our analysis. These will be tied to the level of openness of the economy and the impact of changed demand conditions among trade partners as well as dollar effects. Neither do we address non-oil related political risks (eg sanctions) or any fiscal or monetary policy responses to oil shocks.</p> <p><strong>GDP growth</strong></p> <p>The least impacted oil producing country, from a GDP perspective, is Brazil followed by Mexico, Argentina, Tunisia and Trinidad &amp; Tobago. The impact on fiscal accounts also appears lower for these than most other EMs.</p> <p>Remarkably, the impact of lower oil for Russia’s economic growth is not as severe as might be expected. Sustained oil at USD80/bbl would see growth slow by 1.8pp to 0.6%. This compares with the worst hit economies of Angola (where growth is nearly 8pp lower at -2%), Iraq (GDP slows to -1.6% from 4.5% growth), Kazakhstan and Azerbaijan (growth falls to -0.9% from 5.8%).</p> <p>For a drop to USD 80/bbl, it can be seen (in Figure 27) that, in some cases, such as the UAE, Qatar and Kuwait, the negative impact on GDP can be comfortably offset by fiscal stimulus. These economies will probably benefit from such a policy in which case our ‘model-based’ GDP growth estimate would represent the low end of the likely outcome (unless a fiscal policy response is not forthcoming).</p> <p><a href=""><img src="" width="600" height="204" /></a></p> <p><a href=""><img src="" width="600" height="200" /></a></p> <p>&nbsp;</p> <p><em>Global growth in 2015? More like how great will the hit to GDP be if oil prices don't rebound immediately?</em></p> <p>On the whole, we can say that the fall in oil prices will prove negative, shaving 0.4pp from 2015 EM GDP growth. The collective current account balance will fall 0.58pp to 0.6% of GDP, while the budget deficit will deteriorate by 0.61pp to -2.9%. This probably has the worst implications for EM as an asset class in the credit world.</p> <p><strong>Energy exporters will fare worst, with growth falling by 1.9pp and their current account balances suffering negative pressure to the tune of 2.69pp of GDP. </strong>Budget balances will suffer a 1.67pp of GDP fall, despite benefits from lower subsidy costs. The impact of oil falling USD 25/bbl will be likely to put push the current account balance into deficit, with our analysis indicating a 0.3% of GDP deficit from a 2.4% surplus before. Fortunately, the benefit to inflation will be the best in EM and could help offset some of the political risks from reduced growth.</p> <p>As might be expected, energy importers will benefit by 0.4pp better growth in this scenario. Their collective current account will improve by 0.6pp to 1.1% of GDP.</p> <p><strong>The regions worst hit are the Middle East, with GDP growth slowing to 0.3%, which is 3.8pp lower than when oil was averaging USD105/bbl. </strong>The regions’ fiscal accounts will also suffer most in EM, moving from a 1.7% of GDP surplus to a 1.8% deficit. Meanwhile, the CAB will drop 5.3pp, although remain in surplus at 3.9%. The CIS is the next-worst hit, from a GDP perspective, with regional growth flat-lined versus 1.91% previously. The region’s fiscal deficit will worsen from 0.7% of GDP to -1.8% and CAB shrink to 0.7% from 3% of GDP. Africa’s growth will come in 1.4pp slower at 2.8% while Latam growth will be 0.4pp slower at 2.2%. For Africa, the CAB/GDP ratio will fall by 2.4pp pushing it deep into deficit (-2.9% of GDP).</p> <p>Some regions benefit, however, with Asia ex-China growing 0.45bpp faster at 5.5% and EM Europe (ex-CIS) growing 0.55pp faster at 3.9%, with the region’s CAB/GDP improving 0.69pp, although remain in deficit to the tune of -2.4% of GDP.</p> <p><a href=""><img src="" width="600" height="180" /></a></p> <p>* * *</p> <p>And so on, but to summarize, here are the key points once more:</p> <ul> <li>The stronger US dollar is having an inverse impact on dollar-denominated commodity prices, including oil. This will affect emerging market (EM) credit quality in various ways. </li> <li><strong>The implications of reduced recycled petrodollars has significant ramifications for financial markets, loan markets and Treasury yields</strong>. In fact, EM energy exporters will post their first net drain on global capital (USD8bn) in eighteen years.</li> <li><strong>Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds.</strong> For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution to reserves of oil and gas-related export receipts. <strong>Together, these will have a significant effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing risks and credit ratings.</strong></li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="290" height="174" alt="" src="" /> </div> </div> </div> BATS Bear Market Bond Borrowing Costs Brazil Budget Deficit Capital Markets Central Banks China Crude Goldman Sachs goldman sachs Iran Iraq Kazakhstan Kuwait LatAm Mexico Middle East Monetary Policy NASDAQ None OPEC ratings Renminbi Reserve Currency Reuters Saudi Arabia Sigma X Sigma X Twitter Twitter Fri, 28 Nov 2014 03:50:37 +0000 Tyler Durden 498338 at