price fixing Archives - The Automatic Earth

Update 1240ET: In what CNN described as a “rate public warning,” the FBI released a statement Wednesday saying it has “grave concerns” over the accuracy of the House Intel Committee’s memo describing purportedly egregious FISA abuses. “With regard to the House Intelligence Committee’s memorandum, the FBI was provided a limited opportunity to review this memo the day before the committee voted to release it. As expressed during our initial review, we have grave concerns about material omissions of fact that fundamentally impact the memo’s accuracy,” the FBI said in a statement.
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Update 1130ET: Bloomberg reports that FBI Director Christopher Wray told the White House he opposes release of a classified Republican memo alleging bias at the FBI and Justice Department because it contains inaccurate information and paints a false narrative, according to a person familiar with the matter. Of course, given the allegedly terrible picture the memo paints of The FBI, it is perhaps not entirely surprising that Wary would oppose its release, however, if this sourced reporting proves correct, it plays very badly for Republicans as it would seem to confirm Rep. Schiff’s accusations.
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As we detailed earlier, just before President Trump headed to the Capitol for last night’s “State of the Union”, the Washington Post reported that top Justice Department officials made a last-ditch plea on Monday to White House Chief of Staff John Kelly about the dangers of publicly releasing the memo. Shortly before the House Intelligence Committee voted to make the document public, Deputy Attorney General Rod J. Rosenstein warned Kelly that the four-page memo prepared by House Republicans could jeopardize classified information and implored the president to reconsider his support for making it public. But those pleas from Rosenstein – who isn’t exactly the West Wing’s favorite lawman, and whose name apparently appears in the memo – have apparently fallen on deaf ears.

Last night, President Trump promised a lawmaker that the memo would “100%” be released now that the House Intel Committee has voted to approve its release. And during a Fox News Radio interview with Brian Kilmeade, Chief of Staff John Kelly added that the memo would be publicly released “pretty quick.” “I’ll let all the experts decide that when it’s released. This president wants everything out so the American people can make up their own minds,” he said.

He should know, he created them both.

• Alan Greenspan Sees Bubbles in Stocks and Bonds (BBG)

The man who made the term “irrational exuberance” famous says investors are at it again. “There are two bubbles: We have a stock market bubble, and we have a bond market bubble,” Alan Greenspan, 91, said Wednesday on Bloomberg Television with Tom Keene and Scarlet Fu. Greenspan, who led the Federal Reserve from 1987 until 2006, memorably used the phrase to describe asset values during the 1990’s dot-com bubble. Greenspan’s comments come as stock indexes remain near record highs, despite selling off in recent days, and as the yields on government notes and bonds hover not far from historic lows. Interest rates are expected to move up in coming years as the Fed continues with a campaign to gradually tighten monetary policy.

“At the end of the day, the bond market bubble will eventually be the critical issue, but for the short term it’s not too bad,” Greenspan said. “But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.” The Fed on Wednesday opted to leave rates unchanged and markets are pricing in an increase at the central bank’s March meeting. Greenspan sounded an alarm on forecasts that the U.S. government deficit will continue to climb as a share of GDP. He said he was “surprised” that President Donald Trump didn’t specify how he would fund new government initiatives in Tuesday’s State of the Union speech. The president last month signed into law about $1.5 trillion in tax cuts that critics say will further balloon the budget gap.

The nonsense is deafening. Great solid economy, but no rate hikes.

• Janet Yellen’s Fed Era Ends With Unanimous Vote of No Rate Hike (BBG)

Federal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell. “The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the policy-setting Federal Open Market Committee said in a statement Wednesday in Washington, adding the word “further” twice to previous language. The changes to the statement, collectively acknowledging stronger growth and more confidence that inflation will rise to their 2% target, may spur speculation that the Fed will pick up the pace of interest-rate increases.

Officials also said inflation “is expected to move up this year and to stabilize” around the goal, in phrasing that marked an upgrade from their statement in December. At the same time, the Fed repeated language saying that “near-term risks to the economic outlook appear roughly balanced.” “It opens the door to four hikes for them, but I don’t think they have walked through it,” said Michael Gapen at Barclays in New York. “It closes the door to two hikes.” Fed officials penciled in three rate moves this year in quarterly forecasts they updated last month, according to their median projection.

With her term ending later this week after President Donald Trump chose to replace her, Yellen is handing the reins to Powell, who has backed her gradual approach and is widely expected to raise interest rates at the FOMC’s next meeting for the sixth time since late 2015. Fed officials are hoping to keep a tight labor market from overheating without raising borrowing costs so fast that it would stifle the economy. “Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said, removing previous references to disruptions from hurricanes. “Market-based measures of inflation compensation have increased in recent months but remain low.”

People won’t understand their pensions are Ponzis until there are no payments.

• Two Out Of Three UK Pension Schemes Are In The Red (Yahoo)

Two out of three pension funds are in the red – to the tune of a combined £210 billion, it has been revealed. Some 3,710 schemes are in deficit according to the Pension Protection Fund watchdog, putting a serious question mark over the retirement plans of millions of workers. The PFF has been called into action on two high profile occasions of late – working with Toys R Us to secure a near £10m injection into its ailing fund to protect the company’s short-term future and also sorting through the debris of the Carillion collapse. The giant contractor folded earlier this month with debts of above £1.3bn, including an estimated £800m hole in its pension fund. The PFF monitors the health of 5,588 pension pots, with some of the biggest names on the FTSE 100 running schemes with major shortfalls.

The biggest include £9.1billion at BT, as well as deficits of £6.9billion at Royal Dutch Shell, £6.7billion at BP and £6.6billion at both Tesco and BAE Systems. Sir Steve Webb, a former pensions minister under the recent coalition government, said Carillion would not be the last big company to fold leaving its pension scheme in jeopardy. “The question isn’t if there will be another Carillion – it’s when,” said Webb, who is now director of policy at pensions group Royal London. “With two-thirds of schemes in deficit it is inevitable there will be more insolvencies and more schemes ending up in the PPF.”

They had more than 60 active working groups.. And thought it’d remain secret? Anyone going to jail?

• Secret Price Fixing Among German Carmakers (Spiegel)

The Federal Cartel Office suspects that major carmakers and a few of their suppliers have been fixing prices for years, and possibly even decades. It’s not the prices at which the companies sell their cars or car parts that is at issue, but rather a significant component of the prices they pay for steel. “The aim of the suspected collusion,” the court ruling that granted the search warrants read, was to “unify the purchasing price for steel in the automobile industry and, by doing so, create a commonality of costs.” The Federal Cartel Office believes that the alleged collusion existed back in the 1990s and that “it existed again from March 2007 until February 2013.” Investigators have also found indications there may have been collusion in 2016.

Collusion of that nature is the antithesis of competition. It means that VW, Daimler and BMW were no longer competing to buy steel cheaper than their rivals and passing their savings down to customers – as is normally the case in a functioning market economy. And steel is one of the most important supplies purchased by carmakers. The nationwide searches didn’t remain secret, with the media quickly reporting on them. But until now, the background and details of the raids have remained largely unknown, the case having been overshadowed by a European Commission investigation into another case that also involves the automobile industry – a case that DER SPIEGEL exposed last summer.

That case was triggered when Daimler and Volkswagen essentially admitted wrongdoing, and since then the Brussels authority has been looking into suspicions that the companies engaged in collusion for several years with BMW, Porsche and Audi, in the form of more than 60 working groups covering areas such as technological development, suppliers and how to deal with environmental protection authorities. The companies had created working groups for almost every part of a vehicle. They existed for “gasoline engines,” “diesel engines,” “car body,” “chassis,” “total vehicle” and many more areas. With five brands involved – Daimler, BMW, Audi, Porsche and VW – the groups were referred to internally as “groups of five.” All together, they met more than 1,000 times in past years.

Say no more: “Desired ambiguities..”

• Germany Reaches Limit of Support for Macron’s Europe Plans (BBG)

French President Emmanuel Macron will be disappointed if he expects Germany’s next government to drum up more goodwill for his European reform plans in this week’s talks, according to four people familiar with the current coalition negotiations. Angela Merkel’s Christian Democratic Union-led bloc and its prospective Social Democratic Party partner are not planning any fundamental changes to their proposals on Europe’s future as set out in a preliminary agreement reached Jan. 12, according to the people, who represent all three parties involved in the talks. All asked not to be named as the negotiations are private and ongoing. Representatives of Merkel’s CDU, its Christian Social Union sister party and Martin Schulz’s Social Democrats met in the Chancellery in Berlin on Wednesday to discuss Europe policy.

While Schulz hailed the outcome as a “fresh start” for Europe, details were in short supply. The negotiators didn’t go much beyond those measures already agreed, one of the people attending the meeting said. These include higher German contributions to the EU budget; expanding the European Stability Fund (ESM) into a European Monetary Fund; and a European framework for minimum wages. The SPD proposed giving the EU its own means to raise revenue, whether by taxes or tolls, prompting Merkel’s bloc to warn against a debate over tax increases. On a visit to Macron in Paris on Jan. 19, Merkel said the coalition’s common Europe plans contained “desired ambiguities,” since any attempt to agree on the final details now would reduce the room to negotiate.

In reality, her CDU/CSU and the SPD, as the Social Democrats are known in German, have different interpretations of the proposals, and these divergent positions are likely to bubble up in the coming months in the debate over euro-area reform.

Hungary won’t be easy to strong-arm. But Brussels will try. The only people who want more Europe are politicians.

• Hungary Rejects Macron’s ‘Arrogance’ as EU Reform-Fight Looms (BBG)

French President Emmanuel Macron’s plan to bring to heel renegade European Union nations as part of a drive to reform the bloc smacks of arrogance and will fail, a senior Hungarian ruling party official said. Unanimity is required both to change the EU constitution and approve a multi-year, post-2020 EU budget. That means proposed sanctions on countries like Hungary and Poland for alleged rule-of-law violations won’t gain traction, according to Gergely Gulyas, parliamentary leader of Hungarian Prime Minister Viktor Orban’s Fidesz party. Governments are drawing battle lines as the EU mulls plans to re-invent itself, with some members saying the euro crisis, Brexit, the biggest refugee influx since World War II and ex-communist members ditching the bloc’s liberal values have necessitated a revamp.

Macron has presented the most ambitious proposals, with a plan to deepen integration in everything from defense to the economy. He has also called for sanctions against member states seen as backsliding on democracy. “If we’re going to play the game that western European countries want to launch rule-of-law procedures against eastern European countries because of differences over values, then that’s not going to work,” said Gulyas, 36. “That would destroy the Union.” Hungary received 3.6 billion euros ($4.5 billion) in net EU funding in 2016. That made it the fourth-biggest beneficiary in the 28-member bloc after Poland, Romania and Greece and underscores the risk to its economy if Macron can make good on his pledge. Gulyas dismissed proposals aimed at punishing Hungary and Poland, arguing that France has for years failed to meet EU spending limits yet has escaped penalties for fiscal offenders.

Under an alleged left-wing government.

• More Than One Million Greeks Trapped In Tax Payment Scheme Nightmare (K.)

More than 1 million Greeks are now trapped in programs to pay off their tax and social security dues in installments, a situation likely to continue for years to come. On Wednesday the Finance Ministry announced taxpayers can apply for a 12- or 24-installment payment scheme, which under certain circumstances can include non-expired dues, on the website of the Independent Authority for Public Revenue. Citizens are resorting to various payment programs offered by the ministries of Finance and Labor because they would otherwise be unable to meet their obligations. In many cases taxpayers are forced to pay additional installments in order not to default on their plans.

The million-plus taxpayers and businesses that are trapped in the various schemes they have entered to pay off the tax authorities and the social security funds have no other choice but to keep paying, otherwise they will have their assets confiscated. The payment schemes are the outcome of the growth in taxation and of social security contributions in recent years. Worse, as of this year, if anyone delays the payment of an installment by more than 24 hours, the debt will be classified as overdue and the process of the monitoring mechanism will be triggered for the state to safeguard its interests. Particularly in the case of the 100-payment program for dues to the tax authorities, missing a deadline means the entire amount due is classified as expired and becomes immediately payable along with fines and penalties.

You mean, monoculture is not the greatest thing ever?!

• Planting Wildflowers Across Farm Fields To Cut Pesticide Spraying (G.)

Long strips of bright wildflowers are being planted through crop fields to boost the natural predators of pests and potentially cut pesticide spraying. The strips were planted on 15 large arable farms in central and eastern England last autumn and will be monitored for five years, as part of a trial run by the Centre for Ecology and Hydrology (CEH). Concern over the environmental damage caused by pesticides has grown rapidly in recent years. Using wildflower margins to support insects including hoverflies, parasitic wasps and ground beetles has been shown to slash pest numbers in crops and even increase yields. But until now wildflower strips were only planted around fields, meaning the natural predators are unable to reach the centre of large crop fields.

“If you imagine the size of a [ground beetle], it’s a bloody long walk to the middle of a field,” said Prof Richard Pywell, at CEH. GPS-guided harvesters can now precisely reap crops, meaning strips of wildflowers planted through crop fields can be avoided and left as refuges all year round. Pywell’s initial tests show that planting strips 100m apart means the predators are able to attack aphids and other pests throughout the field. The flowers planted include oxeye daisy, red clover, common knapweed and wild carrot. In the new field trials, the strips are six metres wide and take up just 2% of the total field area. They will be monitored through a full rotation cycle from winter wheat to oil seed rape to spring barley.

“It’s a real acid test – we scientists are having to come up with real practical solutions,” said Pywell, who led a landmark study published in 2017 showing that neonicotinoids insecticides damage bee populations, not just individual insects. In the new trials, the researchers will be looking out for any sign that drawing the wild insects into the centre of fields, and therefore closer to where pesticides are sprayed, does more harm than good.

Old threat. But a real one.

• Earth’s Magnetic Field Is Shifting, Poles May Flip (ZH)

[..] scientists from the University of Colorado in Boulder are sounding the alarm that the Earth’s magnetic poles are showing signs of reversing. Although the pole reversal, in and of itself, isn’t unprecedented, the solar winds that would take out the power grid and make parts of the globe uninhabitable could cause widespread disasters. The Earth has a fierce molten core that generates a magnetic field capable of defending our planet against devastating solar winds. This magnetic field is vital to life on Earth and has weakened by 15 percent over the last 200 years. This protective field acts as a shield against harmful solar radiation and extends thousands of miles into space and its magnetism affects everything from global communication to power grids.

Historically, Earth’s North and South magnetic poles have flipped every 200,000 or 300,000 years. However, the last flip was about 780,000 years ago, meaning our planet is well overdue. The latest satellite data, from the European Space Agency’s Swarm trio which monitors the Earth’s magnetic field, suggest a pole flip may be imminent. The satellites allow researchers to study changes building at the Earth’s core, where the magnetic field is generated. Their observations suggest molten iron and nickel are draining the energy out of the Earth’s core near where the magnetic field is generated. While scientists aren’t sure why exactly this happens, they describe it as a “restless activity” that suggests the magnetic field is preparing to flip.

A lot more timeless than most other pics of this.

• ‘Super Blue Blood Moon’ Rises Over The Acropolis (K.)

A ‘super blue blood moon’ rises behind the 2,500-year-old Parthenon temple on the Acropolis hill in Athens on Wednesday evening, when thousands of city residents took to the streets and balconies to witness the rare spectacle. People in many parts of the world caught a glimpse of the moon as a giant reddish globe thanks to a rare lunar phenomenon that combines a total eclipse with a blue moon and super moon. The spectacle – the first in 152 years – has been coined a ‘super blue blood moon’ by NASA. [Petros Giannakouris/AP]

Just refuse to do any trade with any country that imports the horns. For starters.

• Latest Rhino Poaching Figures Show A Decade Of Bloodshed (Ind.)

Dr Ian Player, the veteran South African game ranger and doyen of global rhino conservation, would be turning in his grave today were he to discover that another 1,000 rhinos had been slaughtered in the last calendar year. The African-wildlife warrior died just over three years ago aged 87, at a point when poaching had just exploded to record levels in South Africa – with nearly three rhinos gunned down daily. Annual government statistics announced last week complete the picture of 7,130 rhino carcasses piled up in South Africa over the last decade. Shortly before his death, I visited Player at his home in the KwaZulu-Natal Midlands to ask him about his thoughts on the poaching crisis and the future of one of the “big five” (lion, leopard, rhinoceros, elephant and Cape buffalo) species he devoted most of his life to protecting.

Frail and dispirited, he had reached a point in life where he should have been taking things easy, after more than six decades of service to nature conservation. Instead, his cellphone rang incessantly as colleagues from all corners of the country reported the discovery of yet another rhino butchered for its horns. Having worked so hard to save rhinos from extinction once before, there was no way Player could hang up his conservation boots amidst this new crisis. He also told me about a dream that haunted him. “My dream was about a young white rhino which came to lie down next to me and then gently placed its head on my shoulder. That does not need too much interpretation – the rhinos still need our help more than ever before,” he explained.

Player first came across a rhino in Imfolozi Game Reserve in the early 1950s when he joined the Natal Parks Board as a learner game ranger. A disciple of Carl Jung and Sir Laurens van der Post, Player went on to spearhead a global operation to safeguard the world’s second-largest land animal from extinction. Less than a decade ago, poaching deaths were limited to roughly 20 rhinos per year in South Africa, the country that provides sanctuary to 93% of Africa’s white rhinos and nearly 40% of the continent’s black rhinos. In 2007, only 13 rhinos were poached in South Africa. But in 2008 that tally rose steeply to 80 deaths; to 333 in 2010 and then to a record level of 1,205 during 2014. Last year the death toll topped the 1,000 mark for the fifth year in a row.

Debt Rattle November 27 2014

Nov 272014

November 27, 2014 Posted by Raúl Ilargi Meijer at 12:02 pm Finance Tagged with: deflation, devaluation, Fed, oil, OPEC, price fixing, price war, rhinos, Shale 2 Responses »

DPC Wall Street and Trinity Church, New York 1903

• Oil Price Fall Starts To Weigh On Banks (FT)

• Oil Sinks Further As OPEC Meeting Begins (MarketWatch)

• World On Brink Of Oil Price War As OPEC Set To Keep Pumping (Telegraph)

• Oil Bust of 1986 Reminds US Drillers of Price War Risks (Bloomberg)

• Drill On: U.S. Mantra as OPEC Power Wanes in the Face of Shale (Bloomberg)

• Oil Slump Reverberates After Nigeria Currency Devaluation (Reuters)

• Seadrill Plunges on Dividend Suspension as Oil Rig Market Sours (Bloomberg)

• Tightening By Superpower Fed Trumps Mini-Stimulus In Europe And Asia (AEP)

• China’s Industrial Profits Drop Most in Two Years Amid Slowdown (Bloomberg)

• Spanish Consumer Prices Decline More Than Forecast (Bloomberg)

• Juncker Investment Plan Questioned on Capital, Leverage (Bloomberg)

• Greece Paralyzed By Major Strike, Flights Stopped (Reuters)

• After Zero Rates, Sweden Ponders Next Steps To Avoid Deflation (Reuters)

• Europe’s Economy Faces Three Major Risks: Draghi (CNBC)

• Goldman Sachs, HSBC Sued By Jeweller For Fixing Platinum Prices (Independent)

• Attack Dogs Deployed To Save South Africa’s Rhinos (Bloomberg)

A loss of $340 million on just one loan.

• Oil Price Fall Starts To Weigh On Banks (FT)

Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. Details of the loan emerged as delegates of Opec, the oil producers’ cartel, gathered in Vienna to address the growing glut in the supply of oil. Several Opec members have been calling for a production cut to shore up prices, but Saudi Arabia, Opec’s leader and largest producer, signalled that it would not push for a big change in the group’s output targets. Repercussions from the decline in the price of crude, which has dropped 30% since June, are spreading beyond the energy sector, hitting currencies, national budgets and energy company shares.

The price slide is having a serious impact on oil producers that rely on revenues from crude exports to balance their budgets. The Russian rouble has lost 27% of its value since mid-June, when crude began to fall, while the Norwegian krone is down 12% and on Wednesday the Nigerian naira touched a record low. Companies are also being hit, with BP’s shares down 17% since mid-June and Chevron’s down 11%. Shares in SeaDrill, one of the world’s biggest drilling rig owners, fell as much as 18% on Wednesday as it suspended dividend payments. The company has suffered from an oversupply of rigs as the majors respond to crude’s slide by cancelling projects. Now banks are also being affected, with Barclays and Wells said to face potential losses on an energy-related loan.

Earlier this year, the two banks led an $850 million “bridge loan” to help fund the merger of Sabine Oil & Gas and Forest Oil, U.S.-based oil companies. Investors, however, balked at buying the loan when it was first offered in June and slumping oil prices combined with volatile credit markets in the months since have scuppered further attempts to sell, or syndicate, the loan, according to market participants. With underwriting banks unable to offload the loan to investors they are now facing losses on the deal as the value of the two oil companies’ debt erodes. Sabine’s bonds were trading above their face value at around $105.25 in June, but have since fallen to $94.25 – firmly in “distressed” territory. Their yield – which moves inversely to price – has jumped from around 7.05% to 13.4%. Rival bankers estimate that if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.

Isn’t it fun?

• Oil Sinks Further As OPEC Meeting Looms (MarketWatch)

Oil prices extended their losses and sunk to fresh four-year lows on Thursday as expectations of a cut in OPEC oil production faded following the Saudi Arabian oil minister’s comments Wednesday. On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $72.22 a barrel, down $1.47, or 2% in the Globex electronic session. January Brent crude on London’s ICE Futures exchange fell $1.92, or 2.5%, to $75.83 a barrel. The Organization of the Petroleum Exporting Countries meets in Vienna within a few hours to decide whether its members will cut production to remove some of the glut in supply in global markets and boost oil prices. The 12-member oil cartel typically steps in to adjust output when prices move sharply due to excess or insufficient supply. It currently has an oil production ceiling of 30 million barrels a day and has been producing in excess of this level in recent months.

Crude-oil prices have plummeted this year, losing almost 30% of their value since June, mainly due to rising U.S. oil production driven by the shale boom and slowing demand growth in Asia and Europe. Analysts say that OPEC will need to cut oil production much lower than its current ceiling for prices to make a significant recovery. Today’s OPEC meeting and any decision on production cuts is likely to set the tone for oil prices for the next few months and well into 2015. Forget about an OPEC cut: Three delegates told Reuters that OPEC was unlikely to take any action after Russia said it wouldn’t cut in tandem. On Wednesday, Saudi Oil Minister Ali al-Naimi said he expects the market “to stabilize itself eventually,” hinting he wouldn’t push for a cut in OPEC’s production targets. “This is a very clear indication that the Saudis and OPEC will do nothing at the meeting … It is not 100% rock solid or set in stone, but it is a very clear signal,” Michael Wittner, head of oil market research at Societe Generale said. His bearish price forecasts are for $70 Brent and $65 WTI for the next two years.

“Saudi oil minister Ali Al-Naimi said: “The market will stabilise itself eventually”. Question is where and when.

• World On Brink Of Oil Price War As OPEC Set To Keep Pumping (Telegraph)

Oil slumped on Wednesday as expectations that Opec will cut production faded following dovish remarks by cartel kingpin Saudi Arabia, which could signal the beginning of a price war. Speaking on the sidelines ahead of Thursday’s critical meeting of the Organisation of Petroleum Exporting Countries (Opec) in Vienna, Saudi oil minister Ali Al-Naimi said: “The market will stabilise itself eventually”. His remarks were interpreted by the market as a signal that the cartel would keep its production ceiling at 30m barrels per day (bpd), which sent the price of crude lower. Brent crude – a global benchmark comprised of a blend of high-quality oil from 15 North Sea fields – fell 1.3pc to $77.30 per barrel after Mr Naimi’s comments, before recovering to trade flat at $78.29 by late afternoon. Brent crude has fallen 30pc since June. Crude traded in the US fell to as low as $74 per barrel as traders bet that Opec will allow the price to fall further amid growing signs of a global price war amid producers.

“There remains little prospect of any production cut being agreed at [Thursday’s] Opec meeting,” said brokers at Commerzbank. “Opec will merely agree to comply better with the current production target of 30m bpd. Iranian officials, traditionally seen as hawks within the cartel of mainly Middle East producers, also appeared to soften their position following an afternoon of closed door meetings with counterparts from Saudi Arabia and Kuwait. Bijan Zanganeh, Iran’s oil minister, told reporters after leaving the talks that Iran was now “close” to the Saudi position, heading into Thursday’s final discussion at the Opec secretariat. Rafael Ramirez, Venezuela’s Opec representative, had tried to galvanise support for production cuts to restore oil prices to around $100 per barrel, after talks with senior Russian oil officials on Tuesday delivered no immediate sign of a consensus. Although Russia is not a member of Opec’s 12 nations, the country is a major oil producer and has expressed concerns over falling prices.

Major Opec nations, Russia and US shale oil drillers now appear on the brink of a price war as these three giant producing blocs fight for a greater share of global demand. Although Opec states enjoy the lowest average production costs – in some cases around $2 per barrel – they have increasingly lost ground in North America, which remains the world’s largest consumer of oil. Some Opec members now want producers outside the cartel, including Russia and the US, to shoulder some of the responsibility for balancing the market by essentially cutting their output. UAE energy minister Suhail Al-Mazrouei said on Wednesday that Opec alone was not responsible for the stability of the oil market. “This is not a crisis that requires us to panic,” he said.

“In 1986, the Saudis opened the spigot and sparked a four-month, 67% plunge that left oil just above $10 a barrel.” This time around, the Saudis will achieve that by simply not closing the spigot.

• Oil Bust of 1986 Reminds US Drillers of Price War Risks (Bloomberg)

The last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. In 1986, the Saudis opened the spigot and sparked a four-month, 67% plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market. So while no one expects the Saudis to ramp up output now like they did then and U.S. shale oil companies are pledging to keep drilling regardless, the memory of that bust looms large for American industry executives on the eve of OPEC’s meeting tomorrow.

As the Saudis gather with officials from the 11 other OPEC nations in Vienna, analysts are split on whether the group will cut output to lift prices or leave production unchanged to fight for market share with shale drillers. “1986 was the big price collapse and the industry did not see it coming,” said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts, who has covered the oil sector for 37 years. “It put a lot of them out of business. You just don’t forget it. It’s part of the cultural memory.” The Organization of Petroleum Exporting Countries, responsible for about 40% of the world’s output, pumped 31 million barrels a day in October, exceeding its official target of 30 million. Oil has tumbled more than 30% from a 2014 peak in June.

The more they drill, the lower prices will go. They’ll lose financing.

• Drill On: U.S. Mantra as OPEC Power Wanes in the Face of Shale (Bloomberg)

No matter what OPEC countries decide tomorrow about cutting oil output, U.S. producers already know what they’re going to do: drill on. As Saudi Arabia and its 11 fellow members of the Organization of Petroleum Exporting Countries meet for what’s viewed as the cartel’s most important conclave since 2008’s worldwide financial crisis, the U.S. has the most to gain and the least to lose. For the oil industry, a significant production cut by OPEC would lift prices and profits across the board and help finance further U.S. energy innovation. And while a weaker response – or no move – would put more pressure on energy companies, the industry is increasingly insulated by burgeoning North American output. “The U.S. oil industry is going to continue on its growth track whether OPEC comes out with a cutback or not,” Daniel Yergin, vice chairman of consultant IHS. “As oil prices go down, the U.S. industry is going up the learning curve and is better capable of coping with lower prices than it would have been two or three years ago.”

The swagger of U.S. producers in the face of plunging oil prices shows the confidence they’ve gained from upending OPEC’s six decades of market dominance with technology that wrings oil from dense rock for prices as low as $40 a barrel. The shale boom has placed the U.S. oil industry in its strongest position since OPEC began flexing its pricing power in the early 1970s. Investors are taking note, pouring money back into shale producers in the past 10 days after shares fell an average 20% since July. Beyond the ability of producers to remain profitable at lower prices, the broader U.S. economy is even less susceptible to whatever course OPEC might take. A shift away from industries like steelmaking and into services such as health care has helped make the economy less reliant than ever on oil and natural gas, according to government data compiled since 1950.

Since the 1973 Arab oil embargo, the first major shock brought about by OPEC coordination, the amount of oil and gas consumed in the U.S. to generate $1 of gross domestic product has fallen 64%. The U.S. in August imported an average of about 4.8 million barrels a day of crude and petroleum products, a 24% decline from 1986, the year when Saudi Arabia’s market machinations sent prices below $10 a barrel in a crushing blow to U.S. producers. As the services economy has grown, oil demand has fallen, with the U.S. burning 13% less oil in 2013 than 2005. Improvements in fuel consumption mean cars and trucks can travel further on each gallon of gasoline. The nation is 26%age points more efficient in terms of the the energy required to generate economic growth than the global average, according to the U.S. Energy Information Administration.

” IMF data shows Nigeria, Russia and Saudi Arabia all need prices above $90 to balance their budgets.”

• Oil Slump Reverberates After Nigeria Currency Devaluation (Reuters)

The impact of sub-$80 oil prices rippled across energy-exporting emerging markets on Wednesday, with investors betting other countries will have to follow Nigeria in devaluing their currencies. Brent crude remained firmly below $80 per barrel and around a third lower from June levels after Saudi Arabia signaled it was unlikely to push for a major change in output when producers’ club OPEC meets on Thursday. Nigeria’s naira hit a record low near 178 per dollar – lower than its new target band of 160-176 per dollar – a day after the central bank devalued the currency by 8% and hiked rates by 100 basis points to conserve its reserves. Central bank governor Godwin Emefiele forecast a sustained drop in oil, saying the $73 per barrel assumed in Nigeria’s 2015 budget may be too optimistic.

“Oil remains on the back foot … it is a relevant dynamic for the rouble and for various parts of the Middle East and Africa,” said Manik Narain, emerging markets strategist at UBS in London. “We will see more pressure on local currencies there and Nigeria is an early example.” The risk that falling revenues will affect spending plans in oil-exporting countries, with unpredictable political and economic consequences, is a prime concern of investors. IMF data shows Nigeria, Russia and Saudi Arabia all need prices above $90 to balance their budgets. Sub-Saharan Africa’s other big oil producer, Angola, saw its kwanza currency trade near a record low hit on Tuesday.

These guys are getting scared.

• Seadrill Plunges on Dividend Suspension as Oil Rig Market Sours (Bloomberg)

Seadrill fell the most in six years after the offshore driller controlled by billionaire John Fredriksen suspended dividends as the slump in oil prices weakens demand for rigs. Seadrill, which hadn’t frozen or cut dividends in six years, dropped as much as 19% in Oslo trading, the most since November 2008. The stock was down 17% to 118.3 kroner at 3:58 p.m., the lowest since July 2010. “The decision to suspend the dividend has been a difficult decision for the board,” Fredriksen, chairman of Bermuda-based Seadrill, said in a statement. “However, taking into consideration the significant deterioration in the broader offshore drilling and financing markets over the past quarter, the board believes this is the right course of action.”

The plunge in crude prices since June is blowing through the oil-services industry as clients peg back spending on finding and developing fields. Transocean, one of Seadrill’s largest competitors, earlier this month wrote down the value of its fleet by $2.76 billion. Halliburton, the second-biggest oil-service company, is buying the third-largest, Baker Hughes. Seadrill, which paid owners $1 a share for the first two quarters this year, said in August that level was sustainable until at least the end of 2015. Today’s surprise decision will strengthen the company’s capital position by about $2 billion a year, the company said. “Suspending dividends entirely is the most reasonable thing to do, since the market is looking so bleak,” said Robert Andre Jensen from SpareBank 1 Markets AS. “Fredriksen’s companies are known for paying dividends, but you have to focus on your chances to survive the downturn.”

“The liquidity cycle is inflecting downwards. The odds of turbulence are rising ..”

• Tightening By Superpower Fed Trumps Mini-Stimulus In Europe And Asia (AEP)

The apparent tsunami of stimulus from central banks in Asia and Europe is a mirage. The world’s monetary authorities are on balance tightening. There may or may not be good reasons to buy equities at the current giddy heights, but reliance on the totemic powers and friendly intention of central banks should not be one of them. The US Federal Reserve matters most in a financial world that still moves to the rhythm of the 10-year US Treasury bond, and still runs on a de facto dollar standard. More than 40 currencies have dollar pegs or “dirty floats”, including China, joined to America’s hip whether they like it or not. Some $11 trillion of cross-border loans and bonds issued outside the US are denominated in dollars. The US capital markets are still a colossal $59 trillion, more than the total for Europe and Japan combined.

The Institute of International Finance says the impact of Fed action on capital flows to emerging markets is “twice as large” as moves by the European Central Bank. The Fed can hardly put off rate rises for much longer as the US economy grows at a 3.9pc clip and the jobless rate drops to a six-year low of 5.8pc. The “quit rate” tracked by labour economists as a barometer of the jobs market is suddenly surging, a clear sign that slack is vanishing and wage pressures will soon rise. The world is already turning on its axis even before the Fed pulls the trigger, as if the QE era were a memory. The dollar largesse that flooded the commodity nexus and drove the credit booms of Asia, Latin America and Africa is draining away. “The liquidity cycle is inflecting downwards. The odds of turbulence are rising,” said CrossBorder Capital, which monitors global flows.

Fresh money creation in Japan, China and the eurozone would not offset a liquidity squeeze by the Fed in a symmetric fashion even if it were happening, but it is not in fact happening on anything like an equivalent scale, and may not do so for a long time. The “happy handover” scenario is wishful thinking. China is tightening at a slower pace, but it is still tightening. The surprise rates cuts last week are less than meets the eye. The People’s Bank of China (PBOC) regulates the level of credit in the economy through curbs on quantity, not by adjusting the cost of credit. These controls are still in place. It is too early to conclude that President Xi Xinping has capitulated and ordered the PBOC to reflate, pushing the day of reckoning into the future once again. The balance of evidence is that Beijing is still attempting – with great difficulty – to deflate China’s $26 trillion credit boom before it turns into a national tragedy.

” .. investment in fixed assets such as machinery expanded the least since 2001 ..”

• China’s Industrial Profits Drop Most in Two Years Amid Slowdown (Bloomberg)

Industrial profits in China fell the most in two years, underscoring the need for looser monetary conditions as the world’s second-largest economy slows. Total profits of China’s industrial enterprises fell 2.1% from a year earlier in October, the National Bureau of Statistics said today in Beijing. That compares with September’s 0.4% increase and is the biggest drop since August 2012, based on previously reported data.

The People’s Bank of China, which last week cut benchmark interest rates, refrained from selling repurchase agreements in open-market operations today for the first time since July, loosening monetary policy further. Mired by a property slump, overcapacity and factory-gate deflation, China is headed for its slowest full-year economic expansion since 1990. Data released Nov. 13 showed the economy’s slowdown deepened in October. Factory production rose 7.7% from a year earlier, the second weakest pace since 2009, while investment in fixed assets such as machinery expanded the least since 2001 from January through October. Retail sales gains also missed economists’ forecasts last month.

And it’s supposed to be doing so well?!

• Spanish Consumer Prices Decline More Than Forecast (Bloomberg)

Spanish consumer prices fell more than economists forecast in November, which may raise concerns that deflation is taking hold in the euro region’s fourth-largest economy. Prices dropped 0.5% from a year earlier, the Madrid-based National Statistics Institute said today. The decline, based on a European Union measure, was bigger than the 0.3% forecast by economists in a Bloomberg News survey. Economic growth was unchanged at 0.5% in the third quarter, INE said in a separate release, confirming its Oct. 30 estimate. Euro-area data tomorrow is forecast to show inflation in the 18-nation currency region slowed to 0.3% in November to match the least since 2009.

European Central Bank policy makers are watching for signs that additional stimulus may be needed and have expert committees examining further measures to help boost near-stagnant growth to add to long-term loans and asset-purchase programs. “The data show risks of deflation remain high for some countries,” said Diego Trivino, chief economist at Intermoney Valores in Madrid. “Price drops in Spain are forced and structural as it’s the only way it can regain competitiveness in an environment of near-zero inflation in the euro region.” Spanish bond yields fell to a record low this week along with those of most members of the 18 nation euro region after ECB President Mario Draghi stoked speculation of a new stimulus program extending to sovereign bonds.

Juncker is a windbag, and plans like this are what comes out of such bags.

• Juncker Investment Plan Questioned on Capital, Leverage (Bloomberg)

German Chancellor Angela Merkel said she supports the European Commission’s 315 billion-euro ($394 billion) investment plan “in principle” as businesses around Europe sounded a note of caution. “We stress that investments are important, but that it has to be clear above all where the projects of the future lie,” Merkel, who announced Germany’s own 10 billion-euro investment program earlier this month, told the Bundestag in Berlin yesterday. The investment plan unveiled by commission President Jean-Claude Juncker will use 5 billion euros in cash from the European Investment Bank and 16 billion euros in European Union guarantees. The start-up money, projected to have an impact of 15 times its size, will serve as capital for a new EIB unit that can share risk with private investors.

The fund doesn’t have sufficient capital, Spanish Economy Minister Luis de Guindos said in Madrid yesterday. He described the commission’s leverage projection as “a bit high.” It’s right to focus on measures “to raise growth prospects across Europe and the emphasis on increasing private-sector investment,” British Chancellor of the Exchequer George Osborne said in a statement. The program, called the European Fund for Strategic Investments, is set to be operational by mid-2015. It doesn’t require EU member nations to commit any new money or alter existing budget agreements. The Brussels-based commission will dedicate 8 billion euros of existing funds to backstop its guarantee.

“Using a small amount of public funds to leverage private-sector provision can be a successful way to ensure that we choose projects that drive productivity and growth,” said Markus Beyrer, director general at BusinessEurope, a lobby representing employers from 35 nations. “We hope the leverage ratios set out in the investment plan can be achievable, but we must ensure that projects taken forward are genuinely ones that would not have taken place without the new fund.” By taking on some of the risk of new projects through a first-loss liability, the investment fund aims to attract cash-rich banks and companies to support investments in energy, broadband and transport infrastructure and back risk finance for small and medium-sized companies.

Go. Leave.

• Greece Paralyzed By Major Strike, Flights Stopped (Reuters)

Greek labour unions staged a 24-hour strike on Thursday that cancelled hundreds of flights, shut public offices and severely disrupted local transport, in the first major industrial action to cripple the austerity-weary country in months. Private sector union GSEE and its public sector counterpart ADEDY called the walkout to protest against planned layoffs and pension reform demanded by European Union and International Monetary Fund lenders who have bailed out Greece twice. All Greek domestic and international flights were cancelled after air traffic controllers joined the strike. Trains and ferries also halted services. Hospitals worked on emergency staff while tax and other local public offices remained shut. “GSEE is resisting the dogmatic obsession of the government and the troika with austerity policies and tax hikes,” the union said in a statement this week.

It accused the government of trying to take the labour market back to “medieval times” and of implementing policies that are causing a “humanitarian crisis”. Thousands of Greeks were preparing to march to parliament later on Thursday as part of rallies to mark the strike. The two unions last held a general strike in April. Major protests have declined sharply since then as frustration and anger give way to a mood of despondency and resignation over a jobless rate exceeding 25% and a sharp fall in incomes. Turnout at Thursday’s rallies could provide a key measure of the opposition facing Prime Minister Antonis Samaras’s conservative-led government, which is under pressure from EU/IMF lenders to impose more cutbacks to balance next year’s budget.

Yep. Krugman was here.

• After Zero Rates, Sweden Ponders Next Steps To Avoid Deflation (Reuters)

What should a central bank do next when it already has zero interest rates and arguably still faces the threat of Japanese-style deflation? If it’s the Swedish Riksbank, it should keep cutting, and do so soon, says Lars Svensson. Svensson no longer has a say; he quit as a deputy Riksbank governor last year after failing to persuade fellow board members to cut rates aggressively. Last month, they heeded his advice, lowering the repo rate to 0% and pushing back the official forecast for when the Riksbank will start tightening monetary policy again to mid-2016. After years of tense, polarized meetings that eventually led to Svensson’s resignation, a united Riksbank now sees zero rates as enough to push inflation up toward its 2% target. Svensson disagrees, saying Sweden should go into negative rates – effectively charging banks to deposit funds at the central bank – to avoid the deflation which has trapped Japan in low economic growth punctuated by periodic recessions for more than a decade.

“From this point it is unlikely that the current policy at zero is enough,” he told Reuters. “They should lower to -0.25 or even -0.50. The next meeting would be the natural time.” The Riksbank’s next policy meeting is on Dec. 15, with its decision announced the following morning. Rate-setters have not ruled out negative rates, but Riksbank Governor Stefan Ingves has rejected the comparison with Japan, pointing to expected Swedish growth this year of around 1.9%, with the economy moving up a gear again in 2015. Nevertheless, Swedish consumer prices have been flat or falling for most of the last two years on an annual basis. Underlying inflation, the Riksbank’s preferred measure which excludes interest rate effects, was 0.6% in October.

Draghi himself is a big risk.

• Europe’s Economy Faces Three Major Risks: Draghi (CNBC)

Europe’s recovery faces three risks – unemployment and a lack of productivity and structural reforms, according to the European Central Bank’s President, Mario Draghi. In a speech to be delivered to the Finnish Parliament later Thursday, Draghi concedes that the euro area economic outlook “is surrounded by a number of downside risks.” According to a transcript released ahead of the speech to Finnish lawmakers, Draghi will say that the euro zone’s “recovery will likely be dampened by high unemployment, sizeable unutilized capacity, and the necessary balance sheet adjustments….Inflation in the euro zone remains very low (and) meanwhile, we are facing continuously sluggish money and credit dynamics.”

“We have seen a weakening in the euro area’s growth momentum over the summer Also, most recent forecasts by private and public sector institutions have been revised downwards. Our expectation for a moderate recovery in the next years still remains in place, reflecting our monetary policy measures, the ongoing improvements in financial conditions, and the progress made vis-à-vis structural reforms and fiscal consolidation,” he said. His comments come amid speculation as to whether the ECB will implement a U.S.-style quantitative easing program to stimulate the euro zone economy in the face of slowing growth, disinflation and low consumer confidence – at a 9-month low in November.

Why isn’t Washington suing them?

• Goldman Sachs, HSBC Sued By Jeweller For Fixing Platinum Prices (Independent)

Goldman Sachs and HSBC are among a group of banks being sued in the US for allegedly fixing platinum and palladium prices. Modern Settings — a jeweller that buys precious metals and derivatives set on their prices — claims the banks “were privy to and shared confidential, non-public information about client purchase and sale orders that allowed them to glean information about the direction” of prices. “This unlawful behaviour allowed defendants to reap substantial profits, while non-insiders, which include plaintiffs, were injured,” lawyers acting for the company added. Separately, HSBC is facing a probe into allegations that an employee leaked confidential client information to a major hedge fund, according to reports. The leak is alleged to have taken place in March 2010, when HSBC was advising Prudential on its failed bid for AIA. A senior HSBC trader is said to have alerted a trader at hedge fund Moore Capital Management about a transaction taking place.

It’s going to take a lot more than dogs.

• Attack Dogs Deployed To Save South Africa’s Rhinos (Bloomberg)

Strapped into a black nylon harness, Venom abseils from a helicopter 100 feet to a bush clearing below. The two-year-old Belgian Shepherd’s master Marius slides down in tandem and unclips his ward. Then the dog races across the grass and tears down a man wearing a felt-stuffed bite suit. Venom is part of an army of dogs being trained as South African defense company Paramount Group’s contribution to fighting the poachers in South Africa, home to most of the world’s rhinos. Prized for their horns, which are used in Asian traditional medicine, a record 1,020 rhinos have been slaughtered in the country this year, triple the number three years ago.

The Malinois, as the breed is also known, “can work in extreme conditions,” Henry Holsthyzen, who runs Paramount’s K9 Solutions dog academy, said at a presentation of the year-old school yesterday. “It’s been proven useful in Iraq and Afghanistan. It’s high energy, highly intelligent and very fast. It’s an awesome package.” Rhino horns are made of the same material as human hair or finger nails, yet is more valuable than gold by weight. Prices for a kilogram range from $65,000 to as much as $95,000 in China and Vietnam, where consumers buy them in a powdered form to ingest as a supposed cure for cancer and to try improve their libido. South Africa is trying a number of measures to end the poaching, including setting up a protection zone within the Israel-sized Kruger National Park, moving rhinos to private ranches and deploying soldiers to fight poachers.