Steve Bull's Blog, page 1261
November 9, 2017
Too Safe to Fail: Implied Default Rate for European Junk Bond is Negative 1.1%
Apparently, European junk bonds are too safe to fail. Fundstrat Global Advisors’ Thomas Lee says the market-implied default rate for a European junk bond sits at a negative 1.1%.
Please consider Investors Price European Junk Debt as Too Safe to Fail, Thanks to Funky Bond Math.
The market’s expectation for an average European high-yield bond to default on its payments stood at negative 1.1% on Oct. 26, versus a long-term average of a positive 5.8%, according to an analysis released Friday by Thomas Lee, the head of research at Fundstrat Global Advisors, who attempted to demonstrate the pernicious consequences of quantitative easing.
“We see this creating a ‘moral hazard’ which allows bad businesses to borrow money and misallocate. After all, wouldn’t anyone want to borrow money at cost of debt less than the U.S. government?” said Lee.
But Martin Fridson, chief investment officer of Lehman Livian Fridson Advisors and a veteran high-yield bond analyst, has criticized the principal way money managers and market strategists like Lee calculate the market’s expectations for the default rate, which uses the option-adjusted spread as a jumping-off point. By his own calculations, the default rate for an average European junk bond should be 0.2%, still a very low level.
Fridson, nonetheless, conceded the ECB was one “root cause” for the seemingly stretched valuations seen in the market for European corporate paper.
Debate Over Risk
Depending on your point of view, the implied default rate on European junk bonds is -1.1% or as high a 0.2%.
Also consider Tracking the Amazing Junk Bond Bubbles in the US and Europe.
One hell of an unwind is coming. I wish I could tell you when.
Reviving the Spirit of Existential Rebellion in a World of Propaganda, Lies and Self Deception
Photo by Mónica Leitão Mota | CC BY 2.0
Search for nothing anymore, nothing
except truth.
Be very still and try to get at the truth.
And the first question to ask yourself is:
How great a liar am I?
– D. H. Lawrence, “Search For Truth”
Like existential freedom, honesty and truth-seeking demand a perpetually renewed commitment. No one ever fully arrives, and all of us are blown off course on the journey. Even when we think we have reached our destination, we are often startled by the enigma of arrival, and must set sail again. We are all in the same boat. The search for truth is a process, an experiment, an essay – a trying without end.
Yet surely it is not an exaggeration to say that most people are liars and self-deceivers. Honesty, while touted as a virtue, is practiced far less than it is praised. There is almost nothing that people are less honest about than their attitudes toward honesty. Few think of themselves as dishonest, and even to hint that someone is so is received as a great insult that usually elicits an angry response. So most people follow the advice of the character Jean-Baptiste Clamence from Albert Camus’ The Fall: “promise to tell the truth and then lie as best you can.” In that way you satisfy your own and others’ secret desires for deception and play-acting, and other people will love you for it.
However, it is widely accepted that political leaders and the mass media lie and dissemble regularly, which, of course, they do. That is their job in an oligarchy. Today we are subjected to almost total, unrelenting media and government propaganda.
…click on the above link to read the rest of the article…
Is Funding About Money?
A key factor that constrains people’s ability to generate goods and services is the scarcity of funding. Contrary to popular thinking, funding is not about money as such but about real savings.
Note that various tools and machinery or the infrastructure that people have created is for only one purpose and it is to be able to produce final consumer goods that are required to maintain and promote peoples life and well-being.
For a given consumption of final consumer goods, the greater the production of these goods the larger the pool of real funding or savings is going to be. The quantity and the quality of various tools and machinery i.e. the available infrastructure, place a limit on the quantity and the quality of the production of consumer goods.
Through the increase in the quantity of tools and through the introduction of better tools and machinery a greater output can be secured. The increase in the quantity of tools and their enhancement requires funding to support various individuals that are engaged in the production of new tools and machinery.
This of course means that through the increase in real savings, a better infrastructure can be built and this in turn sets the platform for a higher economic growth.
A higher economic growth means a larger quantity of consumer goods, which in turn permits more savings and also more consumption. With more savings a more advanced infrastructure can be created and this in turn sets the platform for a further strengthening in the economic growth.
Note that the savers here are wealth generators. It is wealth generators that save and employ their real savings in the buildup of the infrastructure. The savings of wealth generators employed to fund various individuals that are specialized in the making and the maintenance of the infrastructure. Real savings also fund individuals that are engaged in the production of final consumer goods.
…click on the above link to read the rest of the article…
In Just 5 Days Without Trucks, Chaos Would Erupt in America
Have you ever thought about how fast things could go sideways in America? What if we went 5 days without trucks moving supplies across the country? Have you considered how JUST ONE THING could change the world as we know it?
The video below has been around for several years, but if you haven’t seen it in a while, it is worth watching again.
Think for a moment about what would happen if the trucks stopped running. The trucking industry is the lifeblood of this country, and according to this, it would only take 5 days without trucks for all hell to break loose.
Watch.
In only 5 days without trucks, everything would change.
In only five days, with only one component of our economy missing, we could be without medication, food, gasoline, and sanitation. We would be unable to travel great distances easily, as airports would close.
Think about it:
No toilet paper.
No laundry detergent.
No fresh fruits and vegetables.
No fresh milk.
No garbage trucks picking up waste and no way to get to the dump.
The banks would close.
No parts would be available for things that need repair.
We couldn’t refill prescription medications.
No gasoline would be available.
Panic would erupt.
It’s that easy for all hell to break loose. Five days without the regular delivery of supplies and our country could devolve into chaos. And if it was longer than 5 days without trucks, the initial panic would be a G-rated movie compared to what would come next.
We live in a just-in-time society.
Most retail stores no longer stock up on food but have a “just in time” ordering system that relies on regular shipments.
…click on the above link to read the rest of the article…
November 8, 2017
Satellite Images Reveal Saudis May Be Lying How Much Oil They Have In Storage
A little over a year ago, specialized satellite imaging company Orbital Insight which uses its proprietary imaging and algorithms to track above-ground oil storage, confirmed something we had alleged earlier in the year: that China was vastly under-representing the amount of oil it had stored in its Strategic Petroleum Reserve (with significant implications for prices). As we said last September “according to Orbital Insight, China had not only misrepresented how much oil it has stored, it has done so at a massive scale, with the real number dwarfing even JPM own estimate: the real amount of Chinese oil in storage, according to Orbital, was a whopping 600 million barrels as of May” an amount nearly 3 times greater than the official, at the time, number of 234 million barrels.
The resultant doubt about China’s true purchasing capacity was one of the several factors that led to the subsequent swoon in oil prices which OPEC was unable to overcome until nearly a year later, when the market became increasingly confident that the OPEC strategy of eliminating excess inventory, was working and pushed the price of WTI and Brent to two year highs, above $57 and $63 respectively.
That confidence may not last, however, and the reason may be the same one as last year: Orbital Insights.
As the FT’s David Sheppard writes, “while the oil market’s attention has been gripped this week by the corruption purge in Saudi Arabia and its tensions with Iran, from miles above the earth’s crust one company is highlighting a different kind of intrigue.” He is, of course, referring to Orbital Insight, whose analysis of Saudi crude inventories in recent months has thrown up an “interesting anomaly.’
…click on the above link to read the rest of the article…
What Could Go Wrong? EPA Approves Bacteria-Infected Lab-Grown Mosquitoes
Lab-grown mosquitoes armed with bacterium Wolbachia pipientis have just been approved by the EPA. The agency is saying that these mosquitoes could be the key to killing off insects that often transmit dangerous viruses such as Zika.
Nothing can go wrong, right? The government would never do that to us. Famous last words, but nonetheless, the created mosquitoes are very real! Mosquitoes are annoying the way it is, and adding the Zika virus has been exactly no fun for anyone. But is it worth infecting mosquitoes with bacteria in order to help stop the Zika virus? The EPA (Environmental Protection Agency) says “yes.”
On November 3, the Environmental Protection Agency approved a new approach from the biotech company MosquitoMate. The goal is to destroy populations of wild mosquitoes that could be carrying nasty viruses, according to a report from Nature magazine. –CNET
MosquitoMate infects lab-grown mosquitoes with the common bacterium Wolbachia pipientis, which affects mosquitoes but they claim, it does not affect not animals or humans. They chose to infect lab-grown mosquitoes over genetic modification, although the reason for this decision is not yet known. MosquitoMate will release these insects in 20 states (which include Washington D.C., and Kentucky) this summer.
The Wolbachia-infected male mosquitoes (which don’t bite) mate with the wild populations of female Asian tiger mosquitoes (which do bite). The eggs fertilized by MosquitoMate’s male mosquitoes won’t hatch because the paternal chromosomes don’t form properly due to the effects of the bacterium.
But the process to create these mosquitoes is time-consuming, and millions must be made and infected for the insects to do their job, and make a dent in the Zika virus.
…click on the above link to read the rest of the article…
The Seneca Paradox: If mineral depletion is a problem, how is it that we don’t see its effects?
The recent workshop held in Oxford, “Strategic Minerals in a Low Carbon Future” saw a very interesting debate on resource availability in which two opposite views emerged: one says that the gradual depletion of natural resources is a serious problem, already affecting the economy, the other that depletion is irrelevant or, at best, a marginal problem that can be solved by technological progress. The debate is ongoing, but the apparent lack of relevance of depletion in the current economic situation may be just an illusion generated by the “Seneca Effect.” It is an insidious kind of effect that hides future risks behind an apparently safe and robust growth.
The story of the Club of Rome starts with the issue of natural resources, mineral ones in particular. In the 1960s, it had become clear to the Club’s founder, Aurelio Peccei, that the world’s resources were not infinite. The question was how that was to affect humankind. It was the origin of the first and the best-known report to the Club of Rome, “The Limits to Growth,” published in 1972.
The 1972 report already provided answers to the question of the relevance of depletion. It turned out that resource scarcity would limit the growth of the world’s economy and, eventually, lead to a decline. This conclusion was often misunderstood as meaning that humankind would soon “run out” of oil, gas, or some other resource; but that was never stated in the report and it never was the point. The problem is not, and never was, running out of anything. It is that the gradual depletion of mineral ores makes extraction more expensive and that’s a burden on society that we cannot ignore.
…click on the above link to read the rest of the article…
The return of the peasant: or, the history of the world in 10½ blog posts – 8. Of reconstituted peasantries and alternate modernities
Continuing with my ‘History of the world’. As ever, the fully referenced version of this essay is available here.
I’m going to come back to the issue of peasantries as the ‘universal class’ at the end of this essay. For now, I’d just like to broach the issue by returning to the question of peasantries under capitalism by way of what the doyen of Caribbean anthropology, Sidney Mintz, called ‘reconstituted peasantries’. Mintz was referring specifically to the rise of peasant farmers in the Caribbean around the edges and in the aftermath of the slave plantation system – people who weren’t originally peasants, but workers in the capitalist world economy (plantation slaves) who turned to peasant farming as the best available option open to them under changing circumstances.
I’d like to submit Mintz’s concept for more generalised use – at points of breakdown in the capitalist world system, peasant production can present itself as an attractive or, at least, as a least-worst option. For those of us who suspect that major breakdowns in the capitalist world system are likely in future, the possibility of a more widespread emergence of ‘reconstituted peasantries’ becomes interesting. If that’s how things turn out, an intriguing question is the extent to which post-capitalist reconstituted peasantries of the future might resemble any peasantries of the capitalist or pre-capitalist past. In other words, is the history of agrarian production and its social structures prior to and during the development of the capitalist world system relevant to its future after capitalism – does agrarian society have a predictable structuring – or have I been wasting my time reading and writing about all this history?
…click on the above link to read the rest of the article…
Norway and UK Production Update
Short-term trends for UK oil and gas production and, to a lesser extent, Norway can be rendered a bit meaningless by seasonal impacts from summer maintenance turn-arounds and cyclic gas demand. Overall, though, both are at or approaching the tail end of the production curve, but with slight upticks in the nearer term. Barring several large and unlikely new discoveries over the coming years the industry will continue winding down in both countries, with the UK ahead of Norway, and exploration and development leading operations and finally decommissioning. However some Norwegian gas production still has a multi-decade plateau to come and there are a couple of large oil projects due on-line in each country which will run for twenty to thirty years.
norway drilling and discoveries
The usual patterns of exploration wells and discoveries following a bell curve that is matched by a later development curve (see below for the UK example and note that production is in cubic meters as it fits on a common axis better that way) is not seen so much in the Norwegian numbers. There are a number of reasons for this: 1) the wells and discoveries shown are for oil and gas and Norwegian gas development has been several years behind oil; 2) Norway really has three basins which have been explored somewhat sequentially – the North Sea, then the Norwegian Sea and then the Barents Sea; 3) the NPD includes as discoveries ‘hydrocarbon shows’ which will never be developed and skew the numbers, additionally in the chart the large number of ‘not evaluated’ finds in recent years will mostly become ‘unlikely to be developed’; 5) in the past Norwegian governments has made efforts to spread development of the resources through approval and leasing timing; 6) I think there are tax breaks in Norway that encourage exploration drilling even at low oil prices and low discovery rates; and 7) the chart shows numbers of discoveries rather than size, which would show a much clearer bell curve.
…click on the above link to read the rest of the article…
Centrally Planned UK Generation Scenarios for 2030
The economies of the European Union have centrally planned energy delivery strategies where the amount of electricity to be generated from a particular source by a particular time is planned in minute detail by legions of civil servants and academics.
This post summarises some of the scenarios for 2030 from The UK Committee on Climate Change and discusses the consequences for the grid, companies and consumers.
Dieter Helm’s recent independent review into the UK’s Cost of Energy (big pdf) provides a stark reminder of the scale of State intervention into the electricity generation sector. Figure 1 (Helm p40) summarises the various State sponsored organisations involved.
Figure 1 17 State-sponsored organisations involved in the centralised planning and delivery of UK electricity supplies.
Helm also reminds us of the Committee on Climate Change (COCC) plan for the UK 2030 (Figure 2) which forms the basis of the analysis presented in this post.
Figure 2 The plan for the fifth carbon budget ~ 2030 (Helm p11) showing scenarios for installed generation capacities.
With four scenarios offered, and 12 months/year to analyse, this presents a total range of 48 monthly scenarios to evaluate. In this post, I have reduced this to 4 monthly scenarios looking at the High Nuclear (High N) and High Renewables (High RE) scenarios for the months of January and July.
Notably the COCC has a low electricity demand scenario simultaneous with the policy of electrifying motor vehicle transport and heating.
…click on the above link to read the rest of the article…
