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12-06-14 |
ENERGY |
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ENERGY - Conequences of $68/bl Oil
Oil Crash 12-01-14 Richard Duncan
The price of oil is crashing – and with good reason. Supply is surging, while demand is weak. Moreover, within just a few decades, new technologies, including solar and probably hydrogen fuel cells, will make oil completely obsolete. Anyone born after the middle of this century will probably never know the smell of gasoline.
The price of oil fell by $10 a barrel last week. It’s now down 40% since June. This oil price plunge will have a significant impact on the global economy, so it is important to consider both its causes and its potential consequences.
THREE MAIN CAUSES
- SHALE OIL: There are three main causes. First and foremost is shale oil. Thanks to the shale oil revolution, the United States is now producing almost 9 million barrels per day, the most in 30 years. By the end of next year, US production will be approaching 10 million barrels per day. So, even with most Iranian oil off the market due to sanctions, and with Iraqi oil production at somewhere near a quarter of what it could have been had there been peace in that country during the last decade, global output is increasing sharply. According to the International Energy Agency (IEA), global supply was 93.8 million barrels per day (mb/d) in September this year, up 2.8 mb/d from one year earlier.
- WEAK GLOBAL DEMAND: The second reason is that global demand for oil is weak. Demand from China is growing much more slowly than had been anticipated due to the economic slowdown there. US demand for oil is actually declining – in large part due to government regulations requiring improved fuel efficiency standards for cars. Furthermore, global economic growth is weak and there has been a very sharp slowdown in the growth in global trade. The IEA estimates global oil demand will be 92.4 mb/d this year and 93.6 mb/d in 2015.
- GEO-POLITICAL CLASH: In addition to supply and demand factors, I believe there may also be a third reason for this oil price crash: the desire of the United States to punish Russia for supporting pro-Russian separatists in the Ukraine. Russia is one of the world’s largest oil producers. Russian government finances depend heavily on oil sales. Therefore, the drop in oil prices is a severe blow to Russia. I believe it is well within the power of the United States government to push down the price of oil by selling oil futures short. The lack of transparency or oversight within the $700 trillion Over-The-Counter derivatives market would permit the US government to do this without being noticed. Since this tool is available to US policymakers (and perhaps this is just the kind of situation that explains why the government has not imposed transparency on this market), no one should be surprised that they would employ it.
CONSEQUENCES OF $68/BL OIL
Now, what about the consequences? Ultimately, the consequences will depend on two things:
- How far the price of oil falls and
- How long it remains low.
Since we don’t know the answers to those questions, let’s focus on the consequences if the oil price stabilizes where it is now, at $68 per barrel for Brent.
- CONSUMER "TAX CUT": Consumers will be better off. Lower gasoline prices will be like a tax cut for the middle class, who will be able to spend more on other goods.
- SMALLER US TRADE DEFICIT: The US trade deficit will become smaller as the cost of oil imports falls (although this will be partially offset since Americans are likely to use their savings from a lower gasoline bill to buy more consumer goods made overseas). A lower trade deficit will boost GDP.
- SHIFT IN CENTRAL BANK STANCES: Lower oil prices will mean more downward pressure on consumer prices and a greater risk of deflation. The fear of deflation is likely to cause the Fed and the Bank of England to delay their plans to increase interest rates, while it may force the European Central Bank and the Bank of Japan to accelerate their asset purchases.
- LOWER SOVEREIGN BOND YIELDS: In most countries, government bond yields have already fallen in response to the increasing disinflationary/deflationary pressures that will result from lower oil prices. Government bond yields in a number of European countries fell to record lows last week.
- SOVEREIGN FISCAL PRESSURES: The finances of the oil exporting countries will suffer. The currencies of Russia, Norway, Venezuela and Nigeria have already fallen significantly, reflecting the deterioration in those countries’ economic prospects.
- PRODUCTION BREAKEVEN COSTS: Lower oil prices are likely to put some high cost producers out of business. Canadian oil sands look particularly vulnerable. Some of the marginal shale oil producers in the US may also go to the wall. As bankruptcies occur, defaults on energy junk bonds are likely to rise significantly. At this stage, I don’t believe that the losses in the junk bond market will be significant enough to cause a new financial sector crisis. Nor do I believe that so many wells will shut down in the United States that US oil production will begin to fall. Production costs have been falling rapidly and are likely to continue falling. Oil prices will have to fall considerably further before most of the new shale oil production becomes unprofitable. Of course, the possibility that oil will fall much further can’t be ruled out. It was $20 per barrel not all that long ago.
- REDUCED CAPITAL FLOWS: Finally, the reduction in the US trade deficit will mean a reduction in capital inflows into the US. (Capital inflows are the mirror image of the Current Account Deficit, since every country’s balance of payments must balance.) The reduction in capital inflows will reduce the upward pressure on US asset prices that has come from this source in the past.
This has been an exciting few weeks in the oil markets and the drama could increase during the weeks ahead. But just imagine the extraordinary upheavals that will occur (in the markets and in geopolitics) when the realization eventually sets in that new technologies will make oil practically worthless sometime before the middle of this century. That realization still appears to be some time off, however. Between now and then, we are likely to see a number of other big swings in the price of oil, both up and down.
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12-06-14 |
ENERGY |
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ENERGY - Conequences of Reduction in Liquidity Flows
SUMMARY
- FLOWS REDUCTION: $316bn hit to the cartel’s revenues which previously:
- Boosted liquidity,
- Spurred asset prices and helped to
- Kept borrowing costs down,
- The $316bn figure would be much higher if other big oil exporters including Russia, Norway, Mexico, Kazakhstan and Oman are taken into account.
- 40% fall in Brent crude since mid-June will reverse trend and for the first time in 20 years Opec nations will be sucking liquidity out,
- ASSET BUYING REDUCTION: In 2012 Opec petrodollar flows into liquid investments such as US Treasuries, high-grade corporate bonds and equities stood at $500bn. Next year, they could drop below $100bn if prices average $78 a barrel,
- US$ LIQUIDITY SQUEEZE : The US is importing less oil than it used to, meaning fewer dollars are being sent abroad: some analysts have said this could lead to a shortfall in dollar liquidity,
- SHIFT IN INVESTMENT PATTERNS: The main impact of the reduction of petrodollar flows will be less on liquidity than on investment patterns. What a sovereign wealth fund might put their money into will be different to what an asset manager might favour.
- FORCED ASSET SELLING: If stressed oil producers are forced to sell assets to fund gaps in their domestic budgets, that “could in theory be a good deal messier”
Flow of OPEC Petrodollars Set to Dry Up 12-03-14 FT
The flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues.
Big oil producers have pumped the windfall they enjoyed from soaring oil prices over the last decade into a huge range of global assets, from US Treasuries and high-grade corporate bonds to equities and real estate.
Qatar, for example, bought the Harrods department store and Paris Saint-Germain, France’s top football club, while Abu Dhabi’s sovereign wealth fund bought a stake in the glitzy Time Warner building in New York.
The flow of petrodollars into the global financial system boosted liquidity, spurred asset prices and helped to keep borrowing costs down.
But the 40 per cent fall in Brent crude since mid-June will reverse this trend, as the shrinkage of the oil producers’ cash pile removes a pillar of support for global markets.
“This is the first time in 20 years that Opec nations will be sucking liquidity out of the market rather than adding to it through investments,” David Spegel, global head of emerging market sovereign and corporate research at BNP Paribas.
BNP estimates that if oil production remains at its current level and oil prices stay at about $70 a barrel for the next year, Opec nations will receive $316bn less in oil export revenues than if oil prices were at their three-year average of $105.
George Abed, director for Africa and the Middle East at the Institute of International Finance, said at their peak in 2012, Opec petrodollar flows into liquid investments such as US Treasuries, high-grade corporate bonds and equities stood at $500bn. Next year, they could drop below $100bn if prices average $78 a barrel, he said.
This “comes on top of other trends that seem to be sucking liquidity out of the global system”, he said.
One of the key factors in the slowing flow of petrodollars is the surge in US oil production. The US is importing less oil than it used to, meaning fewer dollars are being sent abroad: some analysts have said this could lead to a shortfall in dollar liquidity.
The $316bn figure would be much higher if other big oil exporters including Russia, Norway, Mexico, Kazakhstan and Oman are taken into account.
Oil prices have fallen amid a surge in US shale production and weakening oil demand in China. Brent slipped further last week after Opec decided not to cut output to shore up prices.
George Magnus, economic adviser to UBS, said the main impact of the reduction of petrodollar flows will be less on liquidity than on investment patterns as wealth is transferred from oil-producing countries to consumer nations such as Japan that benefit from a lower oil price.
“What a sovereign wealth fund might put their money into will be different to what an asset manager might favour. We should expect a lot of churn,” he said.
Jason Shoup, analyst at Citigroup, said that the decline in petrodollar growth was “likely to equate to less demand” for bonds.
The shift could also have some bearing on when borrowing costs for governments, companies and consumers start to rise. With consumers spending more, the withdrawal of the Federal Reserve’s quantitative easing programme could become “that much more palpable,” he said.
However, Alan Ruskin at Deutsche Bank downplayed the impact of petrodollars on US markets as less Opec money has been flowing into the country in recent years.
In a note to clients, he said the size of annual inflows of petrodollars into US dollar and asset markets was “modest relative to total cross-border flows”. But if stressed oil producers are forced to sell assets to fund gaps in their domestic budgets, that “could in theory be a good deal messier”, he said.
Although some countries with huge foreign-exchange reserves such as Saudi Arabia are better able to withstand the pain from lower oil prices, others such as Venezuela will only suffer more if crude prices fall. Pierre Andurand, a prominent oil hedge fund manager, said that oil prices could drop to $60 a barrel next year.
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12-06-14 |
ENERGY |
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GEO-ECONOMICS - Petro$$ Crisis and Energy Price (Demand) Collpase
Given the presumed 17% expansion of the global economy since 2009, the tiny increases in production could not possibly flood the world in oil unless demand has cratered.
The term Black Swan shows up in all sorts of discussions, but what does it actually mean? Though the term has roots stretching back to the 16th century, today it refers to author Nassim Taleb's meaning as defined in his books, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets and The Black Swan: The Impact of the Highly Improbable:
"First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme 'impact'. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."
Simply put, black swans are undirected and unpredicted. The Wikipedia entry lists three criteria based on Taleb's work:
1. The event is a surprise (to the observer).
2. The event has a major effect.
3. After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected; that is, the relevant data were available but unaccounted for in risk mitigation programs.
It is my contention that the recent free-fall in the price of oil qualifies as a financial Black Swan. Let's go through the criteria:
1. How many analysts/pundits predicted the 37% decline in the price of oil, from $105/barrel in July to $66/barrel at the end of November? Perhaps somebody predicted a 37% drop in oil in the span of five months, but if so, I haven't run across their prediction.
For context, here is a chart of crude oil from 2010 to the present. Note that price has crashed through the support that held through the many crises of the past four years. The conclusion that this reflects a global decline in demand that characterizes recessions is undeniable.

I think we can fairly conclude that this free-fall in the price of oil qualifies as an outlier outside the realm of regular expectations, unpredicted and unpredictable.
Why was it unpredictable? In the past, oil spikes tipped the global economy into recession. This is visible in this chart of oil since 2002; the 100+% spike in oil from $70+/barrel to $140+/barrel in a matter of months helped push the global economy into recession.
The mechanism is common-sense: every additional dollar that must be spent on energy is taken away from spending on other goods and services. As consumption tanks, over-extended borrowers and lenders implode, "risk-on" borrowing and speculation dry up and the economy slides into recession.

But the current global recession did not result from an oil spike. Indeed, oil prices have been trading in a narrow band for several years, as we can see in this chart from the Energy Information Agency (EIA) of the U.S. government.

Given the official denial that the global economy is recessionary, it is not surprising that the free-fall in oil surprised the official class of analysts and pundits. Since declaring the global economy is in recession is sacrilege, it was impossible for conventional analysts/pundits to foresee a 37% drop in oil in a few months.
As for the drop in oil having a major impact: we have barely begun to feel the full consequences. But even the initial impact--the domino-like collapse of the commodity complex--qualifies.
I will address the financial impacts tomorrow, but rest assured these may well dwarf the collapse of the commodity complex.
As for concocting explanations and rationalizations after the fact, consider the shaky factual foundations of the current raft of rationalizations. The primary explanation for the free-fall in oil is rising production has created a temporary oversupply of oil: the world is awash in crude oil because producers have jacked up production so much.
Even the most cursory review of the data finds little support for this rationalization. According to the EIA, the average global crude oil production (including OPEC and all non-OPEC) per year is as follows:
2008: 74.0 million barrels per day (MBD)
2009: 72.7 MBD
2010: 74.4 MBD
2011: 74.5 MBD
2012: 75.9 MBD
2013: 76.0 MBD
2014: 76.9 MBD
The EIA estimates the global economy expanded by an average of 2.7% every year in this time frame. Thus we can estimate in a back-of-the-envelope fashion that oil consumption and production might rise in parallel with the global economy.
In the six years from 2009 to 2014, oil production rose 3.9%, from 74 MBD to 76.9 MBD. Meanwhile, cumulative global growth at 2.7% annually added 17.3% to the global economy in the same six-year period. What is remarkable is not the extremely modest expansion of oil production but how this modest growth apparently enabled a much larger expansion of the global economy. ( Other sources set the growth of global GDP in excess of 20% over this time frame.)
Global petroleum and other liquids reflects a similar modest expansion: from 89.1 MBD in 2012 to 91.4 MBD in 2014.
Given the presumed 17% to 20+% expansion of the global economy since 2009, the small increases in production could not possibly flood the world in oil unless demand has cratered. The "we're pumping so much oil" rationalizations for the 37% free-fall in oil don't hold up.
That leaves a sharp drop in demand and the rats fleeing the sinking ship exit from "risk-on" trades as the only explanations left. We will discuss these later in the week.
Those who doubt the eventual impact of this free-fall drop in oil prices might want to review The Smith Uncertainty Principle (yes, it's my work):
Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences."
I call your attention to the last line, which I see as being most relevant to the full impact of oil's free-fall.
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12-06-14 |
ENERGY |
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12-06-14 |
ENERGY |
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MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Nov. 30th - Dec 6th, 2014 |
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RISK REVERSAL |
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1 |
GLOBAL RISK - Increasing Instability
Last week saw the global financial system tip from delusion — where it had happily drifted for several years — into chaos. Consider the following more-or-less randomly chosen data points:
French unemployment hits record high
Italian unemployment hits record high
Oil’s price falls by $10.36/bbl, or 13.5%, in a single day, to its lowest price since 2010.
Copper falls by 6% to $2.86/lb, 25% below its 2013 high.
European bond yields fall to record lows. Even Italy, with government debt exceeding 130% of GDP, can now borrow for around 2%. Japan, meanwhile, issues bonds with negative interest rates.
European inflation approaches zero, with several member states apparently already in deflation.
Emerging markets see the opposite trend, as a soaring dollar causes their currencies to fall and inflation to spike.
The Russian ruble falls by 7.3% to a record low, while the currencies of Brazil, Colombia, Mexico and Chile drop by at least 1.9%. See Brazil’s Rousseff vows immense effort to slow inflation.
Chinese malinvestment, a topic of conversation ever since those ghost city pictures started circulating, is pegged at $6.8 trillion, or about 70% of China’s entire economy.
As Prudent Bear’s Doug Noland put it his November 28 Credit Bubble Bulletin, “Collapse of the ‘global reflation trade’ runs unabated.
Where might contagion strike next?”
The answer is in one final set of stats:
Last week the S&P 500 and Dow Jones Transports hit record highs, while the Nasdaq 100 index of tech stocks rose to its highest level since March 2000, just before its epic crash.
If everything but equities is being sucked into a 2008-style deflationary vortex, how much longer can US stocks hold out? Probably not long.
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12-01-14 |
MACRO
OUTLOOK |
1 - Risk Reversal |
JAPAN - DEBT DEFLATION |
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2 |
BOND BUBBLE |
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3 |
EU BANKING CRISIS |
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4 |
SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] |
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5 |
CHINA BUBBLE |
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6 |
CHINA - Shift in Monetary Policy
China's recently reduced lending & borrowing rates signals another monetary reversal.
They have caught the "western addiction"
Three Reasons China May Cut the Reserve Requirement Ratio 10-04-14 Bloomberg Brief
China’s November interest-rate cut signaled a shift in policy.
- Short-term growth is taking precedence over long-term reform.
- Conventional policy tools with universal impact replaced targeted instruments.
- High visibility replaced stealth stimulus.
What’s the next move? Expectations are high that the People’s Bank of China might follow the rate cut with a reduction in the reserve-requirement ratio. That’s not a foregone conclusion. Still, we’d give it a high probability.
Here are three reasons why.
First, rate cuts and reserve-requirement cuts are complementary. Rate cuts lower the cost of funds. Reserve-requirement cuts make more funds available to lend. In past tightening and loosening cycles, interest rates and the RRR have moved up and down in tandem.
Second, growth continues to weaken. The early signs from November show
- The factory sector stumbling,
- Metals prices continuing to fall and
- Export demand frail.
That adds to the case for ratcheting up the stimulus.
Finally, money-market rates remain high. The seven-day repo rate spent last week yo-yoing between 3.5 percent and 4 percent. The lesson from past years is that year-end demand for cash tends to push up rates during December. The central bank may want to get ahead of that with a liquidity injection.
There are also arguments in the other direction. Concern about leverage means the PBOC may want to cut the cost of credit without encouraging another lending splurge. China’s equity markets are still celebrating the rate cut, which might argue for a pause before injecting more good cheer.
Still, the pattern of past policy moves, signs of weakening growth and fears of higher money-market rates all suggest the chances of an RRR cut in the weeks ahead are high.
The expiration of the PBOC’s three-month 500 billion-yuan loan to the big five banks in the middle of the month could be the right opportunity.
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12-04-14 |
MACRO
GEO-ECO
CHINA CREDIT |
6 - China Hard Landing |
TO TOP |
MACRO News Items of Importance - This Week |
US ECONOMIC REPORTS & ANALYSIS |
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GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES |
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Market Analytics |
TECHNICALS & MARKET ANALYTICS |
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PATTERNS - Longest Streak In Stock Market History
The Longest Streak In Stock Market History... Is Over 12-01-14 ZH
For 29 days - off the Bullard lows - the S&P 500 closed above its 5-day moving average. As MKM's Jonathan Krinskynoted last week, this is the longest streak of sustained equity momentum higher in the history of US markets (surpassing the previous record 27 days from 1928). Today (well techncially Friday's early close) saw that streak come to an abrupt end...

The outcome post a reversal is mixed:
h/t @ReformedBroker and @JKrinskyMKM |
12-03-14 |
PATTERNS |
ANALYTICS |
PATTERNS - US versus World Markets
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12-03-14 |
PATTERNS |
ANALYTICS |
PATTERNS -NYSE Flashing Red
The World's Largest Stock Market Index Is Flashing Red 12-01-14 ZH
With a market capitalization of around $16 trillion, the NYSE Composite Index is a massively broad equity indicator less affected by the day to day gyrations of AAPL, TSLA, BABA, or NFLX. As NewEdge's Brad Wishak remarks, theworld's largest market cap equity index is painting a very different picture than that of the Dow or S&P 500...
Not only is there no breakout to new highs, you have a potential failure developing, not only at old swing resistance but more importantly at the old uptrend line.
As Wishak concludes - one for the radar.
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12-03-14 |
PATTERNS |
ANALYTICS |
RISK - Concerns
Five reasons why markets are heading for a crash 12-02-14 Telegraph, Jeremy Warner
- DISCONNECT: Rising Equities While Bond Yields & Commodities Fall
- EU: Falling oil prices may give Germany an excuse to delay ECB's QE,
- POLITICAL UNCERTAINTY: Rise of populist, anti government parties in the EU,
- INTERNATIONAL TURBULENCE: Oil has the potential to further destabilize,
- NON-FINANCAL SECTOR DEBT: Up by more than 20% and likely has brought forward demand.
This bearish indicator just neared its precrash high 12-01-14 CNBC
Jubilant equity investors have been piling into U.S. exchange traded funds (ETFs) in the last few months, triggering a number of cautionary signals for stocks, according to U.S.-based tracker firm TrimTabs. An ETF is a security that tracks an index, like the S&P 500, and flows into these funds have been positive for four of the past five weeks, according to the research. A time of continued positive sentiment might be a good thing for some investors, but contrarians, who like to go against the grain, see it as a bearish signal that markets might have become too exuberant and are due to pull back.
TrimTabs also highlighted that inflows into these ETFs over the month ending Nov. 26 was $42.9 billion, near a level not seen since December 2007, shortly after the last bull market ended. This inflow figure is also five-times the year-to-date average.
Margin Debt Declines For The 4th Time This Year 11-25-14 GavKal
US$ NEARS CONSOLIDATION LEVEL
SPX UP AGAINST OVERHEAD RESISTANCE
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12-03-14 |
RISK ON-OFF |
ANALYTICS |
COMMODITY CORNER - HARD ASSETS |
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PORTFOLIO |
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COMMODITY CORNER - AGRI-COMPLEX |
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PORTFOLIO |
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THESIS |
2014 - GLOBALIZATION TRAP |
2014 |
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2013 - STATISM |
2013-1H
2013-2H |
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"There is no FREEDOM without NOISE -
and no STABILITY without VOLATILITY."
German pastor Martin Niemöller initially supported Hitler. But he later opposed him, and was imprisoned in the Dachau concentration camp for years.
Niemöller learned the hard way that keep your head down doesn’t keep one out of trouble … in the long run, it increases the danger to all of us.
Niemöller wrote a brilliant poem – First They Came – about the manner in which Germans allowed Nazi abuses by failing to protest the abuse of “others” … first gypsies, gays, communists, and Jews, then Catholics … and eventually everyone.
“When the Nazis arrested the Communists, I said nothing; after all, I was not a Communist.
When they locked up the Social Democrats, I said nothing; after all, I was not a Social Democrat.
When they arrested the trade unionists, I said nothing; after all, I was not a trade unionist.
When they arrested the Jews, I said nothing; after all, I was not a Jew.”
Click To Enlarge
This is my modern interpretation of Niemöller’s poem …
First they tortured a U.S. citizen and gang member …
I remained silent;
I wasn’t a criminal
Then they tortured a U.S. citizen, whistleblower and navy veteran …
I remained silent;
I wasn’t a whistleblower
Then they locked up an attorney for representing accused criminals …
I remained silent;
I wasn’t a defense attorney
Then they arrested a young father walking with his son simply because he told Dick Cheney that he disagreed with his policies …
I remained silent;
I’ve never talked to an important politician
Then they said an entertainer should be killed because she questioned the government’s version of an important historical event …
I remained silent;
I wasn’t an entertainer
Then they arrested people for demanding that Congress hold the President to the Constitution …
I did not speak out;
I’ve never protested in Washington
Then they arrested a man for holding a sign …
I held my tongue;
I’ve never held that kind of sign
Then they broke a minister’s leg because he wanted to speak at a public event …
I said nothing;
I wasn’t a religious leader
Then they shot a student with a taser gun and arrested him for asking a question of a politician at a public event …
I remained silent;
I wasn’t a student
Then they started labeling virtually every innocent and normal behavior as marking Americans as “potential terrorists” …
I remained silent;
I didn’t want to be called a terrorist
Then they threw political dissenters in psychiatric wards …
I remained silent;
I didn’t want to be seen as crazy
Then they declared that they could label U.S. citizens living on U.S. soil as “unlawful enemy combatants” and imprison them indefinitely without access to any attorney …
I remained silent;
I didn’t want to be labeled an enemy
Then they assassinated an American citizen without any court trial
And they killed his son because he should have had a “far more responsible father” …
I remained silent;
I live on American soil
Then they declared that they could assassinate U.S. citizens living on U.S. soil without any due process of law (update) …
I remained silent;
I didn’t want to be on the list
Then they forced down the airplane carrying the president of a sovereign nation, because they were looking for a whistleblower
I remained silent;
I’m not a foreign leader
Then they called for the founder of an independent publisher to be killed by drone
I remained silent;
I don’t want to worry about drone strikes against me
Then they started spying on all Americans, even though top experts say that doesn’t protect us from terrorism
I remained silent;
I didn’t want to call even more attention to myself from the spies
Then they charged the partner of an investigative journalist with terrorism for transporting whistleblowing documents to the journalist regarding illegal NSA spying
I remained silent;
My wife isn’t a journalist
Then they targeted prominent, peaceful American Muslim lawyers for total surveillance by the NSA and FBI
I remained silent;
I’m not a Muslim
Then they used military weapons used in the Iraq war on peaceful African-American protestors
I remained silent
I’m not black
When they came for me,
Everyone was silent;
there was no one left to speak out.
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12-02-14 |
THESIS |
STATISM

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The Day Freedom Ends 12-02-14 International Man
Is The Day Coming Where This Looks Like A Typical City Police Force?
Casey Research's Jeff Thomas suggests that Americans should watch out for another 9/11 type of disaster event that helps the government to "justify" bringing more restrictions on people's freedom. It could include measures such as, but not limited to:
- No travel to other countries without written permission
- Confiscation of passports of all those who “may” have "enemy" contacts
- Freezing or confiscation of assets
- Dramatic expansion of police control
- Regular televised programs for citizens to report on the “suspicious” behavior of any other person
US boosts local policing efforts 12-02-14 FT $263m funding programme comes in aftermath of unrest in Ferguson
President Obama 'Fixes' Ferguson 12-01-14 Zero Hedge
Yep that should do it...

The White House explains...
White House Review: Federal Support for Local Law Enforcement Equipment Acquisition
Today, the White House released its review which provides details on the programs that have expanded over decades across multiple federal agencies that support the acquisition of equipment from the federal government to LEAs. During the course of its review, the White House explored whether existing federal programs:
- Provide LEAs with equipment that is appropriate to the needs of their communities,
- Ensure that LEAs have adequate policies in place for the use of the equipment and that personnel are properly trained and certified to employ the equipment they obtain, and
- Encourage LEAs to adopt organizational and operational practices and standards that prevent misuse/abuse of the equipment.
The report finds a lack of consistency in how federal programs are structured, implemented and audited, and informed by conversations with stakeholders, identifies four areas of further focus that could better ensure the appropriate use of federal programs to maximize the safety and security of police officers and the communities they serve:
- Local Community Engagement,
- Federal Coordination and Oversight,
- Training Requirements, and
- The Community Policing Model.
Consistent with the recommendations in the report, the President instructed his staff to draft an Executive Order directing relevant agencies to work together and with law enforcement and civil rights and civil liberties organizations to develop specific recommendations within 120 days. Some broad examples of what process improvements agencies might implement as a result of further collaborative review include:
- Develop a consistent list of controlled property allowable for acquisition by LEAs and ensure that all equipment on the list has a legitimate civilian law enforcement purpose.
- Require local civilian (non-police) review of and authorization for LEAs to request or acquire controlled equipment.
- Mandate that LEAs which participate in federal equipment programs receive necessary training and have policies in place that address appropriate use and employment of controlled equipment, as well as protection of civil rights and civil liberties. Agencies should identify existing training opportunities and help LEAs avail themselves of those opportunities, including those offered by the Federal Law Enforcement Training Center (FLETC) and the International Association of Law Enforcement Standards and Training.
- Require after-action analysis reports for significant incidents involving federally provided or federally-funded equipment.
- Harmonize federal programs so that they have consistent and transparent policies.
- Develop a database that includes information about controlled equipment purchased or acquired through Federal programs.
Task Force on 21st Century Policing
The President similarly instructed his team to draft an executive order creating a Task Force on 21st Century Policing, and announced that the Task Force will be chaired by Philadelphia Police Commissioner Charles H. Ramsey, who also serves as President of the Major Cities Chiefs Police Association, and Laurie Robinson, professor at George Mason University and former Assistant Attorney General for DOJ’s Office of Justice Programs. The Task Force will include, among others, law enforcement representatives and community leaders and will operate in collaboration with Ron Davis, Director of DOJ’s Community Oriented Policing Services (COPS) Office. The Task Force will build on the extensive research currently being conducted by COPS; will examine, among other issues, how to promote effective crime reduction while building public trust; and will be directed to prepare a report and recommendations within 90 days of its creation.
Community Policing Initiative
The President also proposes a three-year $263 million investment package that will increase use of body-worn cameras, expand training for law enforcement agencies (LEAs), add more resources for police department reform, and multiply the number of cities where DOJ facilitates community and local LEA engagement. As part of this initiative, a new Body Worn Camera Partnership Program would provide a 50 percent match to States/localities who purchase body worn cameras and requisite storage. Overall, the proposed $75 million investment over three years could help purchase 50,000 body worn cameras. The initiative as a whole will help the federal government efforts to be a full partner with state and local LEAs in order to build and sustain trust between communities and those who serve and protect these communities.
* * *
So, a task force (aka Police Tzar) by Executive Order, more funding for local police equipment, and figure out how tomake gold from lead promote effective crime reduction while building public trust
In 1776, the Americans had a wonderful new idea for a republic in which each state (a common word for “country” in those days) would exist independently of the others, whilst a federal government would be in place to provide a few additional services, such as the creation of a common currency and joint protection from foreign invasion.
Unfortunately, those who sought to be all powerful were at work almost immediately, hoping to increase the power of the federal government to the point that the United States would be run as a conglomerate. By 1860, this had already reached the stage that the president denied the right of states to leave the Union.
The US later became the model for a new kind of empire. Until the 20th century, empires were often oppressive, with kings who ruled over a country and conquered other states. This was true right until the decline of the British Empire.
Since that time, the empire concept has not by any means gone away. It has just changed its marketing strategy. Today, the trend is toward collective unions patterned after the American model—the illusion that democracy is in full flower and that “the people” are in charge. This, of course, is Freedom in name alone. The propaganda soothes the more gullible of us into imagining that a modern empire is less oppressive than the empires of old.
The Rape of Liberty
Rights are regularly stripped away, generally to “protect the people from terrorism.” This has been most evident in the US, where, since 9/11, the country has devolved dramatically into a police state. (As second US President John Adams correctly stated, “Those who trade Liberty for Security have neither.”)
Those of us who are not US citizens tend to view the “Rape of Liberty” presently being carried out in much of the First World (and in the US in particular) the way we might watch a violent storm from the windows of our (hopefully) secure home, all the while hoping that the storm is not so strong as to destroy our home in the bargain.
We watch as, in recent years, rights are stripped away and the population is ordered to comply with a host of new restrictions that turn the citizenry into obedient cattle:
- Increasingly humiliating searches in order to be allowed to travel
- Passport confiscation from those whose tax payments “may be in question”
- Increasing restrictions on moving assets abroad
- Increasing taxation on moving assets abroad
- Increasing financial penalties for the renunciation of citizenship
- Increasing militarization of police
- Increasing indoctrination in the belief that powerful evil external forces are afoot that may destroy the country if they are not stopped by dramatic military action
This is, of course, a shortlist, and the reader can add many more without bothering to think very hard. But the list should serve as a reminder as to the direction in which the US is headed as a nation.
Americans are being taught to be in fear of some faceless outside force and told that they must be prepared to give up their principle freedoms in order to be safe. Above all, however, they must not decide to exit the US. Although the borders will open up for others to come in, they will close for those seeking to leave.
But surely, at some point, Americans will decide that too much liberty is being lost for the small increase in actual safety.
The Tipping Point
For those of us watching this charade from the outside, it is clear that, at some point, all the fear mongering by the US government will not be sufficient to justify the now-Hitleresque controls that are increasing each year. At some point, the government will need to provide justification—a demonstration that the threat is “for real.”
This will mean that an event that is sufficient to justify a sudden, dramatic increase in tyranny would be necessary. For the sake of argument, let’s say that an “attack” occurs on US soil—similar in nature to the 9/11 attack. The US government immediately announces who was responsible for the attack and that the US is now “at war” with that group or groups.
They state that their intelligence has identified several more planned attacks and that all of the US is in imminent danger. The unquestioned, most important consideration is that Americans be protected from possible attacks, and all other considerations must be “temporarily” sacrificed until the threat has been neutralised.
Such an event would allow for the tipping point—the effective lockdown of the country. Whilst there would be no “Berlin Wall,” there would be an “Iron Curtain.” The armoured vehicles, the automatic weaponry, the combat gear (right down to the bayonets) must already be in place nationwide, ready to be deployed. The old “serve and protect” training must be gone and “riot control” training must be fully in effect.
And as it happens, these preparations are in place.
Following such an event, it would be possible for the list above to change to the following one:
- No travel to other countries without written permission
- Confiscation of passports of all those who “may” have terrorist contacts
- Confiscation of some assets (particularly in banks) until proof can be provided that these were obtained legally and taxes on them have been paid
- Renunciation of citizenship declared a terrorist act
- Presidential declaration that the US is a legal battleground and all constitutional rights are suspended until further notice
- Dramatic expansion of police control
- Regular televised indoctrination for citizens to report on the “suspicious” behaviour of any other person, including family members
Temporary Becomes Permanent
Sounds Orwellian. And of course, it is. It worked well for others (Messrs. Hitler and Stalin come to mind), and if a population is properly prepped (as Americans have been), it should be accepted. After all, it’s for the sake of safety and will only be temporary, right?
Possibly not. As Milton Friedman so correctly stated, “Nothing is so permanent as a temporary government program.” So, if the above premise seems to the reader to be the logical outcome of the present direction of the government, what of the timing? Well, if we observe the rapidity at which the US is implementing its controls and we hazard a guess as to when they will become so overbearing that a dramatic event isnecessary before full lockdown can be implemented, the reader can make his own guess. A year? Two years? Longer?
And again, the US is only the most extreme country of the First World in this regard. The EU is not far behind in its increasing controls. And other countries in the former “free” world are instituting similar controls.
Should the reader be a citizen of one of these countries, he might wish to weigh his options. He may decide that it is hopeless to escape. Or he might decide that he needs to escape, but he still has time. Or he may decide to “git while the gittin’s good.”
If he settles on the third conclusion, he would be well advised to plan an exit soon. If not, he may well find he has left the move too late and has unwittingly chosen to remain.
Editor’s Note: It’s not all doom and gloom; the world is your oyster, and there are very attractive jurisdictions that are cause for optimism. That’s what International Man is all about—making the most of your personal freedom and financial opportunity around the world. The free IM Communiqué is a great place to start. |
12-02-14 |
THESIS |
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2012 - FINANCIAL REPRESSION |
2012
2013
2014 |
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2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
2011
2012
2013
2014 |
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2010 - EXTEND & PRETEND |
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THEMES |
FLOWS -FRIDAY FLOWS |
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THEME |
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FLOWS - Drying Up Quickly On Multiple Front
SUMMARY

- FLOWS REDUCTION: $316bn hit to the cartel’s revenues which previously:
- Boosted liquidity,
- Spurred asset prices and helped to
- Kept borrowing costs down,
- The $316bn figure would be much higher if other big oil exporters including Russia, Norway, Mexico, Kazakhstan and Oman are taken into account.
- 40% fall in Brent crude since mid-June will reverse trend and for the first time in 20 years Opec nations will be sucking liquidity out,
- ASSET BUYING REDUCTION: In 2012 Opec petrodollar flows into liquid investments such as US Treasuries, high-grade corporate bonds and equities stood at $500bn. Next year, they could drop below $100bn if prices average $78 a barrel,
- US$ LIQUIDITY SQUEEZE : The US is importing less oil than it used to, meaning fewer dollars are being sent abroad: some analysts have said this could lead to a shortfall in dollar liquidity,
- SHIFT IN INVESTMENT PATTERNS: The main impact of the reduction of petrodollar flows will be less on liquidity than on investment patterns. What a sovereign wealth fund might put their money into will be different to what an asset manager might favour.
- FORCED ASSET SELLING: If stressed oil producers are forced to sell assets to fund gaps in their domestic budgets, that “could in theory be a good deal messier”

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12-05-141 |
THEMES |
FLOWS

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FLOWS - Drying Up Quickly On Multiple Front
A Dramatic Change in the Liquidity Environment
GavKal 12-02-14
For the last six years of quantitative easing, commercial bank non-borrowed reserves have been a good proxy for liquidity. These reserves have grown from under $50 billion in 2008 to $2.8 trillion at the peak a few months ago.
In the last few months as QE has ended in the US, however, these reserves have tumbled some $283 billion. This drop in reserves telegraphs an increase in the federal funds rate. Based on the relationship in the chart below, it looks fed funds are likely to rise to 25bps in the near future, perhaps priming the pump for the first rate increase next year.
This drop in liquidity is probably also a good explanatory variable to the drop in oil prices and in turn energy stocks.
Given the relationship between the broad equity markets and non-borrowed reserves, the recent divergence between stock prices and reserves is particularly alarming.
Momentum trends have particularly diverged from liquidity trends lately.
Its been a while since investors have had to pay much attention to liquidity trends with QE continuously injecting liquidity for the last five years. With QE over, it may be time for investors to turn their attention back to these trends because there has been a dramatic change in the liquidity environment, with potentially big consequences for asset prices.
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12-05-141 |
THEMES |
FLOWS

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SHADOW BANKING -LIQUIDITY / CREDIT ENGINE |
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THEME |
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CRACKUP BOOM - ASSET BUBBLE |
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THEME |
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ECHO BOOM - PERIPHERAL PROBLEM |
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THEME |
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PRODUCTIVITY PARADOX -NATURE OF WORK |
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THEME |
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STANDARD OF LIVING -EMPLOYMENT CRISIS |
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THEME |
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CORPORATOCRACY -CRONY CAPITALSIM |
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THEME |
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CORRUPTION & MALFEASANCE -MORAL DECAY - DESPERATION, SHORTAGES. |
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THEME |
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SOCIAL UNREST -INEQUALITY & A BROKEN SOCIAL CONTRACT |
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THEME |
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SECURITY-SURVEILLANCE COMPLEX -STATISM |
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THEME |
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GLOBAL FINANCIAL IMBALANCE - FRAGILITY, COMPLEXITY & INSTABILITY |
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THEME |
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CENTRAL PLANINNG -SHIFTING ECONOMIC POWER |
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THEME |
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CATALYSTS -FEAR & GREED |
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THEME |
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GENERAL INTEREST |
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STRATEGIC INVESTMENT INSIGHTS |
RETAIL - CRE
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SII |
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US DOLLAR
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SII |
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YEN WEAKNESS
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SII |
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TO TOP |

Tipping Points Life Cycle - Explained
Click on image to enlarge
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