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Posted in Uncategorized |

Wither exports and oil rigs

The narrative is that as foreign oil producers see their incomes fall, directly or indirectly they will fewer US goods and services, aka, US exports.

Just read the highlighted part about exports:

Kansas City Fed Manufacturing Index
Tenth District manufacturing activity continued to expand at a moderate pace in December, and producers’ expectations for future activity remained at solid levels. Most price indexes grew at a slower pace, especially materials prices.

The month-over-month composite index was 8 in December, up slightly from 7 in November and 4 in October. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The slight increase in activity was mostly attributed to durable goods producers, particularly for electronics, aircraft, and machinery products, while nondurable goods production remained sluggish. Most other month-over-month indexes were also slightly higher than last month. The production and employment indexes were unchanged, but the shipments, new orders, and order backlog indexes increased markedly.

However, the new orders for exports index fell from 8 to 0. The finished goods inventory index rose for the second straight month, while the raw materials inventory index eased somewhat.

November 2014 Sea Container Counts Continue to Show Rapid Contraction of Exports

Written by Steven Hansen

Export container counts continue to weaken, which is a warning that the global economy is slowing. Export three month rolling averages continue to decelerate – being in negative territory year-over-year. This is a headwind for 4Q2014 GDP.Container counts are a good metric to gauge the economy.

Keeping an eye on this as well- North Dakota and Texas unemployment claims.

North Dakota 4 week moving average, year over year moving up some but nothing serious yet:

Same for Texas:

And oil rigs in service now heading south:



Posted in Oil |

Bankers See $1 Trillion of Zombie Investments Stranded in the Oil Fields

Wonder if Janet factored this in?

Bankers See $1 Trillion of Zombie Investments Stranded in the Oil Fields

By Tom Randall

Dec 18 (Bloomberg) — There are zombies in the oil fields.

After crude prices dropped 49 percent in six months, oil projects planned for next year are the undead — still standing upright, but with little hope of a productive future. These zombie projects proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands from Canada to Venezuela.

In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it.

Posted in Oil |

Surveys suddenly weakening

Philadelphia Fed Survey

Growth is still very strong in the Philly Fed manufacturing region but just not as strong as November’s great surge. The Philly Fed’s general conditions index slowed to 24.5 from 40.8 in November. Outside of November, the latest reading is the strongest since March 2011.

But details in the report do show across-the-board slowing including for new orders, at 15.7 vs November’s 35.7, unfilled orders at 1.5 vs 7.1, employment at 7.2 vs 22.4, and shipments, at 16.1 vs November’s 31.9. It was this 31.9 reading that first signaled what proved to be a great month for manufacturers based on Monday’s November industrial production report where the manufacturing component surged 1.1 percent.

But November looks to be an impossible comparison for the manufacturing sector this month though the rate of growth is still very strong. Other details in today’s report include steady and muted readings for prices and a steady reading for inventories. The 6-month outlook remains very strong though once again less strong than November, at 51.9 vs 57.7.

Today’s report follows Monday’s contractionary reading in the Empire State report and Tuesday’s slowing in the PMI manufacturing flash, a report that offered very similar indications to this report. Watch tomorrow for the manufacturing report from the Kansas City Fed.

PMI Services Flash
Markit’s sample of US service providers reports abrupt slowing in growth so far in December, to 53.6 vs 56.2 in the final November reading and 56.3 in the mid-month November reading. December’s flash is the lowest reading since the heavy weather of February.

Growth in this sample peaked in June and has been slowing the past 6 months, underscored by further moderation this month in new business. The rise in backlog work is the slowest in 5 months. Markit’s sample is still hiring though job creation is the weakest in 8 months. Price pressures are muted reflecting lower fuel-related costs for inputs and lack of pricing power for prices charged.

Today’s report points to tangible slowing for the bulk of the economy going into year end, and it follows weak indications so far this month from the manufacturing economy posted on Monday by the Empire State report and on Tuesday by Markit’s manufacturing sample.

Posted in Employment, GDP |

Yellen vs Mosler

At her press conference Janet Yellen stated that the net effect of the drop in oil prices is that of a tax cut, and therefore supportive of US output and employment.

My take is that the cuts in spending due to both the equal income lost by oil producers as well as the reduced ‘borrowing to spend’/credit expansion results in a net reduction of aggregate demand of hundreds of $ billions.

The Fed spends over $100 million on research, which is more than double what I spend, so take that into consideration as well.

So it makes sense for the markets to go with the Fed, which would mean stocks go back through the highs, and rates rise in anticipation of Fed rate hikes as the ‘oil tax cut’ does its thing to accelerate sales/output/employment.


Brent crude held steady above $61 a barrel on Thursday, bringing a sharp drop in prices to a temporary halt as companies are forced to cut upstream investments around the world.

Chevron has put a plan to drill for oil in the Beaufort Sea in Canada’s Arctic on hold indefinitely, while Marathon Oil cut its capital expenditure for next year by about 20 percent.

Canadian oil producers also deepened 2015 spending cuts, as Husky Energy, MEG Energy and Penn West Petroleum joined those hacking back capital budgets in response to tumbling crude prices.

Posted in Fed, Oil |

Offsetting the demand leakages

As previously discussed the economy is continually subject to chronic ‘unspent income’, also known as ‘demand leakages’. Many are tax advantaged, such as pension fund and retirement contributions, insurance reserves, and other corporate reserves. Some are political, such as foreign central bank fx reserve accumulation.

And each period of expansion has been characterized by a ‘borrowing to spend’/’credit expansion’/’spending more than income’ that has more than offset the demand leakages.

The govt spending more than its income ordinarily gets things going, but then the non govt ‘spending more than its income’ has to take over as the ‘automatic fiscal stabilizers’ of falling unemployment and other benefits and increased tax collections ‘automatically’ reduce govt deficit spending.

In the 80’s the deficit went up with the tax cuts and spending increases, but the heavy lifting was done by the savings and loan expansion phase which added about $1 trillion of ‘suspect’ loans while it lasted. In the late 90’s it was the .com and y2k ‘borrowing to spend’ further supported by a surge in mortgage credit. In the early 2000’s it was the expansion phase of the sub prime fiasco that drove growth until that ended.

That’s why I’ve been looking for the credit expansion that’s been sustaining even the modest growth we’ve been getting in this latest cycle, particularly after the 180 billion tax hike that began Jan 1, 2013 and the 70+ billion in sequesters that followed a few months later. I couldn’t find the supporting credit expansion in the usual places- houses, C and I loans, student loans, and autos which did help some.

What I didn’t dig into was loans to the energy sector to develop what are now high priced oil. And now with that source of ‘borrowing to spend’ going into reverse, we’ll see how much support it’s been providing…

Posted in Uncategorized |

oil priced in rubles chart

Any coincidence that oil priced in rubles hasn’t moved all that much recently?


Posted in Oil, Russia |

macro update

Let’s look at the Saudi price cuts in the context of the accounting identity that states that for everyone who spent less than his income, another must must have spent more than her income or that much output would not have been sold. ;)

The price cut itself shifts income from producers to consumers. And to the extent that consumers have a higher propensity to spend that gain than the amount the producers will cut spending more output will get sold. So the analysts who are forecasting a net gain for the US economy are hanging their hats on consumers spending more of their fuel savings than producers who lose that much income cutting back on their spending. Not to forget the potential loss of US exports that are sold to non residents spending their incomes earned from oil production, and the new US consumer spending that will be spent on imports. In other words, there may not be a whole lot of difference in total spending.

And there is another factor. While new oil related investment was partially financed from earnings it was also funded via agents ‘spending more than their incomes’ through bank loans and other forms of debt.

That is, part of the ‘spending more than income’ that was critical to the support of US domestic demand was coming from the energy sector. And much of that support is fading fast, as reports of reduced capex, falling rig counts, etc. continue to accelerate.

Additionally, to the same point, a deflationary environment tends to subdue bank lending, as previously discussed. And housing prices, for example, were already softening prior to the oil price cuts.

Therefore, to the extent that the ‘borrowing to spend’ falls back more than the oil consumers vs producers propensity to spend increases, aggregate demand/sales/GDP/employment falls.

Not to mention the oil price itself goes into the GDP calculation to the extent the oil price drop exceeds the GDP deflator.

I was already looking for a weak Q4 and beyond due to the deficit being too small for the current degree of credit expansion, and now this makes it a whole lot worse…

Posted in Comodities, Deficit, GDP |

Housing starts, Japan discussion, China, US pmi, store sales

Looks bad to me. Remember, for GDP to grow at last year’s rate, all the pieces on average have to contribute that much. And, as previously discussed, hard to see how starts and sales can grow with cash buyers and mtg purchase apps declining year over year.

The charts look like we are well past this cycle’s peak and headed into negative territory. Not to mention multifamily had been leading the way and those units tend to be smaller/cheaper, so if you were to look at the $ being invested vs prior cycles it would look even worse.

Housing Starts
Housing remains on a flat trajectory. Single-family starts and multifamily starts moved in opposite directions. Housing starts dipped 1.6 percent after rebounding 1.7 percent in October. Analysts projected a 1.038 million pace for November. The 1.028 million unit pace was down 7.0 percent on a year-ago basis.

November strength was in the volatile multifamily component. Multifamily starts rebounded 6.7 percent after declining 9.9 percent in October. In contrast, single-family starts fell 5.4 percent in November after gaining 8.0 percent in October.

Housing permits declined a monthly 5.2 percent, following a 5.9 percent jump in October. The 1.035 million unit pace was down 0.2 percent on a year-ago basis. Market expectations were for 1.060 million units annualized.

Overall, recent housing numbers have oscillated notably. October was relatively good but November was not. On average, housing growth appears to be flat to modestly positive.



And how about this headline? Make any sense to you?


Japan’s got issues, but ability to ‘service it’s yen debt’ isn’t one of them, as it’s just a matter of debiting securities accounts at the BOJ/by the BOJ and crediting member bank accounts also at the BOJ. But markets don’t seem to quite believe that:


Meanwhile, Japan’s ‘depreciate your currency to prosperity’ policy combined with tax hikes on domestic consumers- about as ‘pro exporter at the expense of most everyone else’- is producing the outcomes previously discussed. They include falling real domestic incomes/real standards of living, increased exporter margins/sales/profits, etc. And more to come, seems, under the ‘no matter how much I cut off it’s still too short, said the carpenter’ mantra now practiced globally.

A few anecdotes:

The day after his ruling coalition secured more than two-thirds of the seats in parliament’s lower house, Mr. Abe acknowledged at a news conference that higher stock prices and corporate profits under his administration have yet to translate into worker gains.

“As I toured around the nation during the election, I heard the opinions of ordinary citizens who are suffering from price increases and small-business owners in difficulties due to price hikes in raw materials,” Mr. Abe said, adding that he will draft an economic stimulus package by the end of the year.

For the second year in a row, the conservative prime minister and his historically pro-business Liberal Democratic Party find themselves in the position of imploring corporations to cut into their profits and give workers more. Mr. Abe said he would summon executives and labor leaders to a meeting Tuesday to make his pitch ahead of next spring’s annual wage talks.

The reason: If wages don’t rise as quickly as prices, households could cut back on spending, endangering an economic recovery. There have only been four months since Mr. Abe took power in December 2012 when real wages—the value of paychecks after accounting for inflation—have risen. A weaker yen has made imported food and other goods more expensive, and a rise in the national sales tax to 8% in April from 5% hit consumers further.

While wages have gone up in nominal terms this year, rising prices — partly the result of a consumption tax hike in April — have negated those gains. Adjusted for inflation, total cash earnings fell 2.8% on the year in October, dropping for a 16th straight month. Unions hope that with this month’s lower house election shaping up to be partly a referendum on Abenomics, the prime minister’s plan for ending deflation, Japan will see a serious debate on wage growth.

The corporate sector is coming to terms with the need to raise pay to some degree next spring.

“What is important is escaping the deflation that has persisted for 15 years,” Sadayuki Sakakibara, chairman of the Keidanren business lobby, told reporters Wednesday.

“Companies that have succeeded in growing their profits ought to reflect that success in their wage increases,” he added.

For the second year in a row, Keidanren will explicitly encourage member companies to raise wages in its guidance for the spring’s “shunto” negotiations.

But even as big export-driven manufacturers cruise toward record profits, many smaller companies, particularly those dependent on domestic demand, are suffering the side effects of a weak yen and still waiting for consumer spending to recover from the tax hike.

China continues to go down the tubes and the western educated hot shots keep pushing the tight fiscal and what they think is ‘loose monetary’ policy that’s failed every time it’s been tried in the history of the galaxy:

Operating conditions deteriorate for the first time since May

(Markit) — Flash China Manufacturing PMI slipped to 49.5 in December from 50.0 in November. Manufacturing Output Index ticked up to 49.7 from 49.6. New Orders decreased while New Export Orders increased at a faster rate. “The HSBC China Manufacturing PMI dropped to a seven-month low of 49.5 in the flash reading for December, down from 50.0 in November. Domestic demand slowed considerably and fell below 50 for the first time since April 2014. Price indices also fell sharply. The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”

Not good here either:

PMI Manufacturing Index Flash

And this came out. Note the year over year trend.


Posted in Bonds, CBs, China, Deficit, GDP, Housing, Japan, Trade |

Japan rate update, Empire manufacturing

‘The market’ sure doesn’t seem to think rates in Japan are going up after decades of 0 rates:

This survey just turned radically:

New York state manufacturing index lowest in two years: NY Fed

Dec 15 (Reuters) — Manufacturing activity in New York state contracted for the first time in nearly two years, a New York Federal Reserve survey showed on Monday.

The New York Fed’s Empire State general business conditions index fell to -3.58 in December from November’s 10.16 reading, falling to negative territory for the first time since January 2013.

NY Fed: Empire State Manufacturing Survey indicates “activity declined for New York manufacturers” in December

Empire State Mfg Survey
Sudden contraction is the theme in this month’s Empire State manufacturing report where the general conditions index fell to minus 3.58 for the first negative reading since January last year. This compares with plus 10.16 in November and a soft plus 6.17 in October. This report had been showing very strong momentum from May to September when the index averaged 21.22.

New orders, at minus 1.97 vs November’s plus 9.14, are in the negative column for the second time in the last three months while unfilled orders, at a very steep negative reading of minus 23.96, are the weakest since December last year. Shipments are at minus 0.22 for the first negative reading since July last year.

A plus in the report is steady and respectable growth in hiring, at 8.33 vs November’s 8.51. But unless all the other negative readings reverse back to the positive side, hiring isn’t likely to remain solid. Price data are little changed showing moderate gains for costs of raw materials and modest price traction for finished goods.

Anecdotal reports on the manufacturing sector have been running much hotter than government data, and today’s report hints at a reality check for other anecdotal reports including Thursday’s closely watched report from the Philly Fed whose November report last month showed spectacular strength. Later this morning at 9:15 a.m. ET, the industrial production report will offer the first hard data on the November manufacturing sector.

Posted in Interest Rates, Japan |

Early Signs Of A Slowdown In US Oil Fields

Early Signs Of A Slowdown In US Oil Fields Are Emerging. After leading the US economic recovery out of recession, some of the nation’s top oil states are showing early signs of a slowdown as a result of the plunge in crude prices. In Houston, the first oil industry layoffs have been announced, with realtors there predicting a sharp decline, up to 12%, in home sales next year.

Posted in Uncategorized |