Daily Digest

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Daily Digest 12/10 - Sweden Declares War On Cash, New Forms Of Carbon?

Thursday, December 10, 2015, 10:48 AM


As stock buybacks reach historic levels, signs that corporate America is undermining itself (Afridev)

“HP was the poster child of an innovative enterprise that retained profits and reinvested in the productive capabilities of employees. Since 1999, however, it has been destroying itself by downsizing its labor force and distributing its profits to shareholders,” said William Lazonick, a professor of economics and director of the Center for Industrial Competitiveness at the University of Massachusetts-Lowell.

Bank of Canada would consider setting interest rate below zero: Poloz (PBD)

The economic rebound is taking longer than the bank thought it would in 2008, but “there are clear signs our recovery is underway,” Poloz said. “Canada’s outlook is encouraging” he said, maintaining the bank’s forecast for steady economic growth in 2016 and return to full capacity by mid-2017.

Will The IRS Take Your Passport? (richcabot)

A little-noticed provision in the highway funding bill Congress passed this week threatens a right most Americans take for granted: the right to travel abroad. The provision in question gives the Internal Revenue Service the authority to revoke the passport of anyone the IRS claims owes more than $50,000 in back taxes.

Cleveland Boy Tamir Rice Wasn't Reaching for Pellet Gun: Report (richcabot)

Previous reports concluded that officer Timothy Loehmann shot Tamir within 2 seconds of opening his car door. The new analysis determined it happened even faster, within less than a second, according to the review by California-based shooting reconstruction expert Jesse Wobrock.

Beware The “Massive Stop Loss” – JPM’s Head Quant Warns This Unexpected Downside Catalyst Looms Next Week (Aaron M.)

First, we lay out JPM’s longer-term concerns for the S&P500, starting with the same one noted previously by everyone from Zero Hedge, to Goldman, to Credit Suisse to Citi: profit margins, and specifically their lack of future growth as a result of relentless dollar strength. Here are some of the main ones...

Squandered Resources on College Education (richcabot)

A Harvard University student organization representing women’s interests now routinely advises students that they should not feel pressured to attend or participate in class sessions that focus on the law of sexual violence and that might therefore be traumatic. Such students will be useless to rape victims and don’t belong in law school.

Democratic Party Primaries: “Progressives” as Political Contraceptives (richcabot)

Popular movements have emerged and mass public opinion has expressed hostility toward both major parties. Hence, the third parties struck a responsive note among the electorate to which the Democratic Party leadership felt threatened by a possible defection by wage and salaried voters, especially to supporting Ralph Nader.

Drone Pilots have Bank Accounts and Credit Cards Frozen by Feds for Exposing U.S. Murder (richcabot)

“We are former Air Force service members,” the letter begins. We joined the Air Force to protect American lives and to protect our Constitution. We came to the realization that the innocent civilians we were killing only fueled the feelings of hatred that ignited terrorism and groups like ISIS, while also serving as a fundamental recruiting tool similar to Guantanamo Bay. This administration and its predecessors have built a drone program that is one of the most devastating driving forces for terrorism and destabilization around the world.”

Sweden has declared war on cash (Ivo)

Cash’s demise appears to be orchestrated by Sweden’s central bank, which of course stands to benefit from the switch. In a purely electronic system, every financial transaction is not only charged a fee but can also be tracked and monitored. Plus, taxes can’t be levied on cash that’s squirreled away in Johan’s sock drawer.

Meet The Malignant Narcissist (Adam)

This type of narcissism is a defining characteristic of psychopathy/sociopathy and is rooted in an individual’s deficient capacity for empathy. It’s almost impossible for a person with such shallow feelings and such haughtiness to really care about others or to form a conscience with any of the qualities we typically associate with a humane attitude, which is why most researchers and thinkers on the topic of psychopathy think of psychopaths as individuals without a conscience altogether."

From the Risk to the Guarded Expectation of Recession (Aaron M.)

The following chart, showing the ratio of nonfinancial market capitalization to corporate gross value added (red line, left scale, inverted) versus the actual subsequent 12-year nominal total return of the S&P 500 (right scale), places current valuations and prospective returns in a historical context. In our expectation, the likely total return of the S&P 500 over the coming 12-years is likely to be approximately zero, though with one or more extraordinarily deep interim losses on the way to zero overall returns. Recall that the same outcome emerged in the 12-year period following similar valuation extremes in 2000. Nearly the same outcome for nominal returns also followed the late-1968 extreme, and the outcome was identical in real terms, as the S&P 500 followed both extremes with negative real total returns over a 12-year horizon.

This is why Americans are overweight and broke (richcabot)

Those restaurant meals are also adding to our growing waistlines: On days when people dine out, they tend to consume 200 more calories than when they eat at home, according to a study of more than 12,500 people published by Public Health Nutrition last year, and government research shows that “when eating out, people either eat more or eat higher calorie foods — or both — and that this tendency appears to be increasing.” Other studies show that eating out more frequently is associated with obesity and higher body fat.

West’s reaction to Turkish invasion – an exercise in hypocrisy (richcabot)

It is noteworthy that modern Iraq is the product of the British-American “nation building” since the times of its occupation in 2003. In these circumstances, one would expect the US and the UK to protect their client state’s territorial integrity and side with its government, in whose formation Washington and London played not too small a role, at least by removing the two previous rulers (remember Saddam Hussein and Nouri al-Maliki by any chance?)

Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke (westcoastjan)

Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

New Forms of Carbon? (Chris M.)

So what about the shorter poly-ynes – how do they behave? That’s the problem: they’ve been known for some time, and they’re known to be, well, violently and unpredictable unstable. And that only gets worse as you make the chains longer. Stacking them up into a bulk solid would not be predicted to help at all; in fact, it might make things worse, because the instability is due to sudden exothermic cross-linking. This makes this new report of carbyne crystals, from Guowei Yang and co-workers, instantly controversial, with a lot of people saying that what this stuff is, it can’t actually be carbyne. Harry Kroto, of fullerene fame, is quoted in C&E News as saying that “I know that they can’t have made carbyne because they are still alive”.

Adjusting The Taps (Kevin J.)

HOW will the oil price affect profitability and production? Who pumps how much at what price? Depending on geography, some reserves are more expensive to exploit than others and only a high oil price can justify the costs. This interactive graphic allows you to choose an oil price and see its effect on OPEC and non-OPEC production and viability, broken down by country.

Gold & Silver

Click to read the PM Daily Market Commentary: 12/9/15

Provided daily by the Peak Prosperity Gold & Silver Group

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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Crude Oil (Brent) Graph Not Updating

Crude Oil (Brent) Graph Not Updating on main web page.

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China Goes for Gold as Central Bank Expands Reserves

China Goes for Gold as Central Bank Expands Reserves

Wall Street Journal-6 hours ago
The central bank has been steadily scooping up more gold since then, with its reserves climbing another 5.1% to 1,743 metric tons by the end of November.

Warning: Half of oil junk bonds could default

CNNMoney-13 hours ago
Energy companies that loaded up on debt during the oil boom are likely to have ... 50% of energy junk bonds are "distressed," meaning they are at risk of default.

Tick Tock: Time Running Out for Struggling Oil and Gas Drillers

Nasdaq-4 hours ago
That suggests a growing consensus that more defaults are likely. As the WSJ notes, the price for credit-default swaps, which act as insurance against the ...

Moody's Places Brazil on Review for Downgrade

Wall Street Journal-19 hours ago
Analysts said there is little the government can do to avoid a downgrade. The budget deficit is approaching 10% of GDP, and gross debt is on its way to hitting ...

Brazil Ratings Put Under Review for Cut to Junk by Moody's

Bloomberg-21 hours ago
Because of internal rules, some institutional investors such as pension funds ... to measures aimed at turning around the worst budget deficit in two decades ...

Moody's downgrades Petrobras debt further into junk territory

Reuters Africa - ‎18 hours ago‎
RIO DE JANEIRO Dec 9 (Reuters) - Moody's Investors Service cut the debt rating of Petroleo Brasileiro SA Petrobras for the second time this year as weak oil prices and a stalled asset sale program make it harder for the state-run oil company to cut ...

Emerging Stocks Drop for Seventh Day as Growth Concern Deepens

Bloomberg-1 hour ago
A measure of nine Chinese raw-material producers traded in Hong Kong fell to ... emerging-market debt over U.S. Treasuries was narrowed one basis point to ...

South African Banks Drop Most in 14 Years as Zuma Fires Nene

Bloomberg-2 hours ago
Bank bonds tend to move in lockstep with the sovereign debt. While all of South Africa's biggest lenders issue debt regularly, none of them rely solely on the ...

China's slowdown continues to squeeze Asian manufacturing

Nikkei Asian Review-9 hours ago
HONG KONG Manufacturing activity in Taiwan weakened for the eighth straight month in November, with China's economic slowdown continuing to have a ...

Japan big manufacturers' mood darkens in fourth quarter as global ...

Reuters-17 hours ago
"Manufacturers are clearly worried about the emerging market slowdown. The domestic economy is not that bad, but it does seem to have peaked for the time ...

Singapore Growth to Slow More Sharply Than Expected: Central ...

Nasdaq-13 hours ago
... not likely to reverse anytime soon, though things may look less bad in coming months," said Mr. Song, who didn't participate in the central bank's latest survey.

U.S. Household Wealth Fell $1.23 Trillion in Third Quarter on Lower ...

Bloomberg-1 hour ago
Net worth for households and non-profit groups decreased by $1.23 trillion from ... Household debt rose at a 1.5 percent annualized rate in the third quarter, the ...

China Swallows Its Mine Debt Bomb

Bloomberg-10 hours ago
That should help with its net debt, which already stood at 136 billion yuan ($22 ... Seven of the 17 most debt-laden mining and metals companies worldwide are ...

Chevron slashes budget by 24 pct to weather low oil prices

Reuters-18 hours ago
... on Wall Street about whether some energy companies can service their debt. Chevron plans to spend $26.6 billion across the globe in 2016, with the bulk of ...

US banks ease underwriting standards, increase risky loans: federal ...

Reuters-Dec 9, 2015
... debt-to-income ratios, scorecard cutoffs and documentation requirements, ... at banks with assets of $3 billion or more and the survey covered loans totaling ...

Trudeau Leaves Door Open to Deficits Exceeding C$10 Billion

Bloomberg-20 hours ago
Canadian Prime Minister Justin Trudeau is refusing to recommit to a campaign pledge capping the federal deficit at C$10 billion ($7.4 billion) amid a worsening ...

Gov. Walker proposes to fix budget deficit with income tax, PFD cut

Alaska Dispatch News-22 hours ago
We can't continue to survive with a $3½ billion deficit. ... in prices, the state relied on savings to cover about $3.7 billion of its $6 billion budget last year — about ...

Pennsylvania schools borrow $900 million to survive state budget ...

PhillyVoice.com-16 hours ago
The total will top $1 billion if there is no state budget by January, he said. ... state's long-term fiscal imbalance could grow to a nearly $3 billion structural deficit in ...

Gov: Puerto Rico default likely on upcoming bond payments

WBOC TV 16 - ‎Dec 9, 2015‎
On Wednesday, the Republican chairmen of the Senate Judiciary, Finance and Energy committees introduced a bill that calls in part for the creation of an authority that would oversee Puerto Rico's finances and could offer up to $3 billion in repurposed ...

Schools May Stay Closed After Christmas Due To Budget Stalemate

CBS Local-18 hours ago
... requests for more human services aid and narrow a long-term budget deficit. ... to scale back public pension benefits and by House Republicans to break state ...

Kentucky teacher's pension liabilities skyrocket under new rules

Reuters - ‎17 hours ago‎
The sharp increase in the unfunded liability led to a decline in the system's funded ratio to 42.5 percent from 45.6 percent, meaning the fund only has 42.5 cents for every dollar of pension benefits it owes to members. The appropriate discount rate to ...

No Plan C: Chicago Schools Brace For Budget Cuts

WBEZ-7 minutes ago
While Claypool says there are many different ways to get a compromise, the mayor outlined one option: the state picks up normal pension costs for the district, ...

Health care costs are out of reach for one in four working adults with private ...

Greenville News - ‎2 hours ago‎
Health care costs are out of reach for one in four working adults with private insurance and many go without needed medical care as a result, new research shows. “More Americans than ever have health insurance,” said Dr. David Blumenthal, president of ...

Consumers complain about high deductibles on Obamacare plans

Richmond Register-20 hours ago
Many consumers of health insurance under the Patient Protection and ... Deductibles for the bronze plans, which have the lowest premiums, ranged from $4,400 ...


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Brussels to propose creation of standing European border force

From ZH, "FT Bombshell: EU Unveils Standing Border Force That Will Act "Even If A Government Objects""


Last weekend we wrote that in Europe's attempt to contain the greatest refugee crisis since WWII, it would directly take control over the border control of the one country which over the summer lost its sovereignty (but at least it still has the euro), and which serves as a springboard for tens of thousands of migrants to proceed onward with their journey to Germany (where as reported earlier, they are no longer desired, as their continued arrival results in a plunging approval rating for Angela Merkel).

We added that the deployment of additional officers will begin next week, and noted that as our friends at Keep Talking Greece wrote:

"the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.”  And the plan is all German."

Finally, we asked whether this was merely Paranoia...

"or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate? "

It was not paranoia, because according to blockbuster FT report released moments ago, "Brussels is to propose the creation of a standing European border force that could take control of the bloc’s external frontiers even if a government objected."

As even the otherwise pro-EU FT cautiously notes, "The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency."

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Investing in Oil stocks, anyone?

Try EOG and/or HES and/or XEC????


Oil Price   FREE

How Far Will Oil Sink Before Christmas?

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Greetings from London,

We start this week’s newsletter with some key figures from the oil and gas industry. 
We see U.S. crude imports surge, whereas U.S. domestic production sees a slight decline. 
U.S. average gasoline prices see a minor decline and U.S. crude stocks see a minor draw.






Last week’s OPEC decision has set off another round of crude losses, which persisted through the week. WTI is now decidedly in mid-$30s territory, with Brent breaking through the $40 per barrel threshold. The losses were once hard to imagine. The bearish voices out there (Goldman Sachs, for example) had raised eyebrows over the course of this year when they predicted oil would drop below $40 per barrel, even provoking some mockery at times. But they were right – here we are. 

The short run doesn’t look great, either. “When we look at 2016, I don't see many reasons why we can see upward pressure on the prices…Demand is weaker and we may well see Iran come back (to the market) and there will be a lot of oil,” IEA’s executive director Fatih Birol said in Paris this week. “So 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector.”

The collapse of crude prices has once again put pressure on emerging market currencies. Canada’s dollar hit an 11-year low against the U.S. dollar this week. Colombia’s peso hit an all-time low. Russia’s ruble is once again under fire, nearing record lows. Other currencies under pressure – the Saudi riyal, the Nigerian naira, the South African rand, Brazil’s real, and Mexico’s peso. With a rate hike just around the corner from the Federal Reserve, the dollar could appreciate further – or put another way, emerging market currencies could continue to fall. This threatens to destabilize fragile economies with rising inflation and depleting foreign exchange reserves. 

OPEC piled on the bad news. After last week’s removal of a production target, this week the oil cartel released figures that showed the group collectively produced the most oil in three years in November, ramping up output to 31.7 million barrels per day (mb/d). Iraq accounted for most of the monthly gains, achieving more than 247,000 barrels per day in increases from October. 

The bearish news suggests more pain in the offing for U.S. shale. The EIA put out anestimate, expecting U.S. shale to lose 116,000 barrels per day in production in January, with the largest losses once again coming from the Eagle Ford shale (down 77,000 barrels per day). 

Production could continue to decline for quite a while. Chevron (NYSE: CVX) andConocoPhillips (NYSE: COP) each announced spending cuts for 2016 of an eye-watering 25 percent. The oil majors are struggling to cover organic cash flow with revenues at today’s prices. More spending cuts from a lot more companies should be expected. 

An estimated $250 billion has been slashed in 2015 compared to spending levels in 2014, according to Rystad Energy. The same consultancy sees another $70 billion trimmed from spending next year. 
The fall in oil prices and the corresponding deep cuts in spending are what we are dealing with today, but some in the industry think that the world is planting the seeds for a major shortage of supply in the years ahead. The CEO of Italian oil giant Eni (NYSE: ENI) Claudio Descalzi told Bloomberg that a price spike might occur in the medium-term because of the shortfall in investment today. “What is worrying me is not the price of today; it is what is happening in the industry,” Descalzi said from the COP21 climate change conference in Paris. “We cut about $200 billion and I think next year we are going to do the same and that can create in the mid-term an imbalance between supply and demand.” Low investment today means a shortage of new supply three, four, or five years from now

Mining companies are also getting walloped in today’s market. Mining giant Anglo-American (LON:AAL) announced that it would be laying off 85,000 workers in a major restructuring. Its share price dropped by 20 percent this week, hitting a record low. The company’s dividend will be suspended for at least a year. With metals and coal prices down to multiyear lows, the mining company is seeing revenues dry up. 

Low oil prices have another detrimental effect on oil companies: it reduces their assets, officially. Producing oil at these low prices, in many cases, is not profitable. That means that oil companies have to officially lower their reserve figures when reporting to financial regulators. Chesapeake Energy (NYSE: CHK), for example, has seen 1.1 billion barrels of oil vanish from its books because of low prices, reserves that are no longer technically recoverable. Although this is an accounting quirk (the oil in the ground has not gone anywhere), it can have a material impact on the share prices for companies, and thus the returns to investors. In the coming months, as a result, we could see the collective figure for U.S. recoverable oil reserves fall significantly. 

Mexico is preparing for another oil auction on December 15, this time for onshore tracts. The Mexican government has held two auctions in recent months for shallow water tracts in the southern Gulf of Mexico. The first, over the summer, was a disappointment, but tweaks in bidding terms attracted a bit more interest in September. The upcoming auction has attracted even more interest, with a record 79 companies qualified to bid, up from just 20 in September. Mexican regulators have not set a minimum bid requirement for the tracts, and says that royalties will range from 1 to 10 percent. Bloomberg raised the question of security – over 3,600 illegal taps on oil pipelines in Mexico siphoned off over $792 million worth of stolen fuel in 2014. So far, oil companies – 50 of the qualifying bidders are Mexico-based – are not showing signs of being deterred by oil theft.  

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. A potential huge new shale gas formation in the U.S., crude-by-rail figures, and oil price volatility. Find out more by clicking here

Thanks for reading and we’ll see you next week.

Best Regards,

Evan Kelly

Editor, Oilprice.com

P.S. – In this week’s Inside Markets, our top analyst Jim Hyerczyk sees that resistance is falling for oil and that last week’s $40 ‘line in the sand’ didn’t hold while the amount of short positions increased again. In this week’s edition, Jim indicates the next and more vulnerable support level for oil and points out the most interesting February future to look at. Find out which future Jim is talking about by clicking here.

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What's in Oil & Energy Premium this week:
Inside Investor
• Dealing With The New Oil Price Reality
Inside Opportunities:
• A Promising Trade For The Long Haul
Executive Report:
• Oil Cutbacks Coming, But More Supply in the Works
Inside Markets:
• With Resistance Falling, Can Oil Hold The Next Support Level?
Inside Intelligence:
• Politics, Geopolitics & Conflict – 11th December 2015
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Dealing With The New Oil Price Reality

You cannot go long on oil here. But I also think it's impossible to be short. What that leaves us with, as we're trying to trade and invest in the energy space, is more than a bit of a conundrum.  

The OPEC meeting's outcome was no surprise to anyone – all the ink being spilled on the 'end of the cartel' or other such nonsense is just that.

The Saudis have had a plan. They're out to destroy non-OPEC production and regain control of the global marketplace. They've been following that plan for the last year, and gotten little in the way of help from other OPEC members, or destruction in production elsewhere – so far.

So they ratchet up the pressure. What, $45 a barrel isn't low enough to force 20 large cap US and Canadian E+P's into major restructuring? How does $35 strike you then? Are some of your ready to cry 'Uncle' yet?  

That's what's been going on with oil stocks in the last week, since the meeting's outcome last Friday.  

Oil company shareholders are realizing this 'ain't no game' and that prices are going to stay low for as long as it takes to shake out some of the weakies.  

To use the parlance of the day - “Stuff” just got real.  

A great parallel I got this week was from my friend Paul Siluch at Raymond James in Canada – where they dealing with their own serious stresses in the oil patch. 

He draws a comparison from the tech bubble in 2000 and charts the movement of Cisco (one of the survivors of that crash) to EOG Resources (one of the likely survivors of this oil bust, which I own and have recommended). 


One of the major similarities likely to play out in the oil patch is with corporate bankruptcies. During that disaster in tech more than a decade ago, a lot of very big names finally disappeared (remember Nortel and World-com?) before the sector began to recover.

If this parallel view holds even more value, two more takeaways emerge – oil prices and oil stocks are in for another year of depressed action (which I think is about right) and a significant short covering rally will happen in the meantime before ultimate lows are reached (which, considering the overwhelming number of shorts in oil futures is, I think, also quite likely). 

Both of these takeaways tells us a bit more about how to approach our energy investments today. 

First, investing in oil stocks, even the best ones, should come with a very long time horizon in mind.  Paul thinks as I do that valuations don't go down much from here, provided you're holding one of the survivors.   

It also says that many energy companies that we thought of as staples in the patch won't be around in the same form at this time next year. I don't need to tell you what those names are, as the market may be telling us already – if they're down more than 70% from their 2014 highs, you're likely looking at a goner.  

It also allows for a trade or two or three in the meantime – that short covering rally is likely to be a doozy.

It's for all these reasons that certain oil stocks will get recommended by me at very specific prices. I'm again looking to buy EOG at $72, Hess (HES) at $50 and Cimarex (XEC) near $100. Some of these shares will be traded around, some will be held with a long-term goal in mind. Your situation will dictate what you do.  

But the most important things is continuing to stay away from the doomed as I have advised countless times. Nothing good will come from either trading, or investing in those.  

Buckle in. It's going to be a very long haul.  


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