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If You Listen Carefully, The Bankers Are Actually Telling Us What Is Going To Happen Next
Submitted by Michael Snyder via The Economic Collapse blog,
Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead. As you will read about below, the big banks are warning that the price of oil could soon drop as low as 20 dollars a barrel, that a Greek exit from the eurozone could push the EUR/USD down to 0.90, and that the global economy could shrink by more than 2 trillion dollars in 2015.
Most of the time, very few people ever actually read the things that the big banks write for their clients. But in recent months, a lot of these bankers are issuing such ominous warnings that you would think that they have started to write for The Economic Collapse Blog. Of course we have seen this happen before. Just before the financial crisis of 2008, a lot of people at the big banks started to get spooked, and now we are beginning to see an atmosphere of fear spread on Wall Street once again. Nobody is quite sure what is going to happen next, but an increasing number of experts are starting to agree that it won’t be good.
Let’s start with oil. Over the past couple of weeks, we have seen a nice rally for the price of oil. It has bounced back into the low 50s, which is still a catastrophically low level, but it has many hoping for a rebound to a range that will be healthy for the global economy.
Unfortunately, many of the experts at the big banks are now anticipating that the exact opposite will happen instead. For example, Citibank says that we could see the price of oil go as low as 20 dollars this year…
The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February.
Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.
The oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range — after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.
Even though rigs are shutting down at a pace that we have not seen since the last recession, overall global supply still significantly exceeds overall global demand. Barclays analyst Michael Cohen recently told CNBC that at this point the total amount of excess supply is still in the neighborhood of a million barrels per day…
“What we saw in the last couple weeks is rig count falling pretty precipitously by about 80 or 90 rigs per week, but we think there are more important things to be focused on and that rig count doesn’t tell the whole story.”
He expects to see some weakness going into the shoulder season for demand. In addition, there is an excess supply of about a million barrels of oil a day, he said.
And the truth is that many firms simply cannot afford to shut down their rigs. Many are leveraged to the hilt and are really struggling just to service their debt payments. They have to keep pumping so that they can have revenue to meet their financial obligations. The following comes directly from the Bank for International Settlements…
“Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets, for example, more production is sold forward,” BIS said.
“Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments. Debt service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market.”
In the end, a lot of these energy companies are going to go belly up if the price of oil does not rise significantly this year. And any financial institutions that are exposed to the debt of these companies or to energy derivatives will likely be in a great deal of distress as well.
Meanwhile, the overall global economy continues to slow down.
On Monday, we learned that the Baltic Dry Index has dropped to the lowest level ever. Not even during the darkest depths of the last recession did it drop this low.
And there are some at the big banks that are warning that this might just be the beginning. For instance, David Kostin of Goldman Sachs is projecting that sales growth for S&P 500 companies will be zero percent for all of 2015…
“Consensus now forecasts 0% S&P 500 sales growth in 2015 following a 5% cut in revenue forecasts since October. Low oil prices along with FX headwinds and pension charges have weighed on 4Q EPS results and expectations for 2015.”
Others are even more pessimistic than that. According to Bank of America, the global economy will actually shrink by 2.3 trillion dollars in 2015.
One thing that could greatly accelerate our economic problems is the crisis in Greece. If there is no compromise and a new Greek debt deal is not reached, there is a very real possibility that Greece could leave the eurozone.
If Greece does leave the eurozone, the continued existence of the monetary union will be thrown into doubt and the euro will utterly collapse.
Of course I am not the only one saying these things. Analysts at Morgan Stanley are even projecting that the EUR/USD could plummet to 0.90 if there is a “Grexit”…
The Greek Prime Minister has reaffirmed his government’s rejection of the country’s international bailout programme two days before an emergency meeting with the euro area’s finance ministers on Wednesday.
His declaration suggested increasing minimum wages, restoring the income tax-free threshold and halting infrastructure privatisations. Should Greece stay firm on its current anti-bailout course and with the ECB not accepting Greek T-bills as collateral, the position of ex-Fed Chairman Greenspan will gain increasing credibility. He forecast the eurozone to break as private investors will withdraw from providing short-term funding to Greece. Greece leaving the currency union would convert the union into a club of fixed exchange rates, a type of ERM III, leading to further fragmentation. Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90.
If that happens, we could see a massive implosion of the 26 trillion dollars in derivatives that are directly tied to the value of the euro.
We are moving into a time of great peril for global financial markets, and there are a whole host of signs that we are slowly heading into another major global economic crisis.
So don’t be fooled by all of the happy talk in the mainstream media. They did not see the last crisis coming either.
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Tomorrow is a big big day
One can hope...
One thing to remember...
In 2017 the UK is having a referendum on staying in the EU.
If Greece leaves now, it will plunge the euro zone into chaos and the UK would be very likely to vote for Brexit.
Grexit = Brexit
Once again Germany is going down with ship, facing massive economic loss in the form of currency ruin. The world is sleep walking into WWIII all over again.
How long until a German National party emerges and the entire world moves to defcon 5.
That's overly dramatic. Germany may be the last idiot carrying water for the US when the rest of the world has made deals in currencies other than USD with the BRICS. That's the real conondrum now. When is the best time to abandon the sinking USD Titanic and how can we do it without pissing off the Americans too much? We really don't want America to foister another war upon Europe.
the war is already in place. it is up to poland and germany to say no.
Germany is in a nowin situation:
https://www.stratfor.com/weekly/germany-emerges?mc_cid=eed5c7cc54&mc_eid...
You don't have to agree with GF, but imho, the last sentence said it all.
And I wouldn't look far into 2017 if Gexit does (imho i think it will) happen...bexit will come too late.
But then, isn't this all scripted?
But not as big as Dollar Freefall Day.
The day the US dollar starts free-falling is the only time we will have free markets because we'll it's when the Federal Reserve will have lost control.
The US dollar is now backed only by bad debts, derivatives and 300 million zombie serfs who have no idea what has been done to them by their overlords the moneychangers.
The Debt is in a downtrend. Thanks to the FED monetization policy.
"I will not Monetize", the Bernanke before Congress he said.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
Btfd
How the US Admin and the big banks collaborate to rape the Somalis :
http://www.theguardian.com/commentisfree/2015/feb/10/racist-cruelty-bara...
And you guys WANT TO AUDIT THE FED TO UNDERSTAND WHAT is wrong with this system?
Hahaha, eyes wide shut!
Don't forget that Somali is the supposed Libertarian/Anarchocapitalist Paradise.
Classical liberalism isn't law of the jungle. The ambition is to free oneself from coercion (forced collectivism). Tribal law doesn't exactly qualify.
You'll get a down arrow but no poor attempt at rebuttal. He's gotta cram for his gender studies final.
...the point being that what you're calling 'Tribal law' has never in history cared one jot what you think 'qualifies', and my oh my does it looooove a power vacuum!
I know, I know, just because the average 1/2 life of your utopia is exactly 1/1000000000 of a second doesn't mean it never existed...but it does go far in explaining why no one has ever managed to record a functioning example of it.
lol
:)
On the contrary. Switzerland between 1945 and 1992 is a pretty good example.
Somalia? That supposed Libertarian/Anarchocapitalist Paradise? Can't be.
moved
Somalia is half governed by the UN and a military junta, genius. Go back to reading your little sociology books and prepare for that dream job as assistant manager at Burger King.
In the same way that Afghanistan is run by the US and its imposed junta. In reality the junta leader is actually just the mayor of Kabul.
They don't want to see it coming because it means they would have to admit to their clients that they are lying to them...
ot folks, but relative.
do a search on operation chokepoint.
better get it now while you can.
https://www.youtube.com/watch?v=46Am7qFf16c
That's scarey. I noticed some years ago that when the gun grab was a no starter they bought up all the ammunition to deny us that. Now they're just going to squeeze them out of business by denying them access to banks.
Who believes a word of what they say?
"Not I" said the boiled frog
I was listening and all I heard was a giant sucking sound.
http://youtu.be/xQ7kn2-GEmM
Prof Yanis laid it all out in TED. He wants the beast dead. He sees this as his duty as a human. Right in the soft podgy underbelly.
Interesting times, spice vs. ideology once again.
Link?
DavidC
Here you go ;) :
http://bit.ly/1Cgfnqr
Or here, in case bit.ly is blocked for you.
so big banks would be saying smthg like :
"so folks printed like hell to delay the pain and made it all worse"
mwahahah naaaah can't believe such statement ;-)
Holy crap, an essay from Snyder that doesn't involve a list?
Good job, Michael.
Stop kidding yourself, they saw the last crisis coming. They profited from it.......
a lunatic - well the press says that goldman profited from them. the fact is - their mortgage desk made good money shorting mortgages and mortgage backed cdos, most of which they had orignated, so they knew (their own words) what 'shitty deals these are'. but
the reality is that the counterparties had disappeared, so infact, goldman would be bankrupt today, if hank paulson, then a few years previously their CEO and then currently the treasure secretary had not done a bail out.
they bailed out AIG for $180,000,000,000 (that is 180 billion dollars) - 80 billion of which was channeled throught aig to goldman to cover the bets goldman had that aig could not pay out.
the 85 billion QE printed a month for years was an attempt to smooth all that out again.
so, some of goldman people saw it coming, but overall goldman still didn't have enough risk management and overall insight to be able to tally up all their bets and see where it would actually end.
i work in this industry. you think with the 10's of trillions of derivatives buried in computers around the world, anybody can REALLY say what the result will be?
http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/derivatives-quarterly-report.html
Er, not all of them.
Crammer will spout BTFD on CNBS. Fuck him.
It does feel a lot like 2007, the absolute irrational exuberance in the face of every terrible fact about the economy.
I thought 2010-2014 were a bad business environment, 2015 is shaping up to be even worse. 2008-2009 were actually pretty good for business in the real economy.
See when you actually need to sell real product to make money, companies that sell real product do well. It is only the fake corporations, like the whole of Wall Street, that do poorly during stock market downturns. Bullshit accounting and channel stuffing doesn't work when stocks decline in value because shares can't be sold to pay for debt expansion.
So that's bad for gold right?
According to WillyGrouper, above, the government is forcing gold dealers out of business by making their banks refuse to do business with them, thus shutting them down. I think you can still buy all the paper gold you want though.
It makes sense now, with oil markets all in a twister and a black swan is a swan covered with Greece...
In 1929, Kredit Anstalt was an Austrian bank broken by the strong dollar / weak local currency (Weimar Republic in 1923?) and loan defaults that started the contagion in American banks and then onto Wall Street.
The widespread repudiation of sovereign debt in eastern Europe then was called the Rhine Syndrome, a term completely unknown to today's popular search engines. Has the concept of spreading sovereign default also been "forgotten"?
"a black swan is a swan covered with Greece..."
This will be the aphorism I remember best when I look back on 2015 from the post-apocalyptic future.
Well said, sir.
molon labe
Foto Caption Contest : Is that a Muslim .... deep in prayer ?
Looks like Brian Williams peeking into the tunnel leading to Mordor to me, it was right after he saved ten drowning puppies he found struggling in the middle of the Pacific Ocean during his trip around the world in a kayak.
Film and live interviews at eleven! ;-)
What you failed to report here, in an obvious effort to discredit dear Brian, is that those were shark infested waters and his kayak was missing a very large chunk of it's bottom due to torpedo attack by Al Qaeda frogmen earlier in the week......
and with no food, he had to dangle his tiny weiner like a worm to catch fish with his bare hands. he ate them raw
la,la, la, la, la...nah...I am not listening. Market is awesome...zero risk...
https://www.youtube.com/watch?v=S_RYIylWEp4
#BankersSayDontPrintDrachmasSaveTheEuro
Tsipras and Varoufakis have dared declare the emperor naked. Out of the mouths of babes...
Watch the EU and US and City bankers go ballistic over this tiny % of global GDP.
They must be levered 100:1 or more to elicit this response.
The Emperor is naked.
"It's impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while."
Heh, at the risk of breaking the old adage of never looking a gift horse in the mouth; if WTI goes to 20USD/bbl and WCS remains @ WTI-13.65USD/bbl, with transport by rail @ ~ 11USD/bbl and extraction at about 35USD/bbl it'll cost Canukian oil producers ~40USD/bbl to ship it to the refineries!
Luckily NAFTA's 'proportionality clause' (which even Mexico declined to accept), combined with the renowned docility of Canadians, will keep 2/3 of whatever spice they produce heading south, regardless of their losses!
The fed will poop this little tiny tiny monetary bandaid and launder it through their Brussels account then reset a few zeros and ones and POOF! it's rainbow skittles in la la land again. Next step??? Oh yeah monkey hammer gold!
How much does Synder pay to post this shit?
Only 26 trillion dollars in derivatives? Pah, wake me when it's a hundred kajillion bajillion dollars.
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I wonder what will happen to the USD carry traders if the USD explodes ...
This Blog is moronic...If we've learned anything about banks, proprietary trading, Commodity and Futures trading, is that they tell you one thing for the purpose of doing something entirely different.
It's code for a greed-based, narcissistic hyperindividualism which radiates with a sociopathic lack of interest in others.