Steve Bull's Blog, page 1380
April 14, 2017
Olduvai trilogy in ebook format only $6.99
Click here to purchase the book(s).
How Heavy Is This?
Here is a glass of water. You’re holding it.
How heavy is it?
The answer is: the actual weight probably doesn’t matter. It’s just a glass of water. What matters is how long you hold it.
Hold it for a minute, it’s no problem. An hour and your arm will ache. A day and your arm will feel paralysed.
The weight doesn’t change but the longer you hold it the heavier it becomes and the greater the probability you finally just have to put it down or risk dropping it altogether.
Now, take a look at this graphic which I nicked from Hugo Salinas:
How Heavy Is This?
Betting against the ability of governments and their central banks to keep holding the proverbial glass of water has been a losing proposition for a looooong time.
Now, simple math tells us that although this debt growth is pretty damned fantastic it needn’t be a problem if income growth has kept up with it. Income, after all, services debt.
Since income growth hasn’t kept up clearly that’s not the case. So what is it?
The answer lies in this chart which shows the cost of capital across the major economies of the US, the EU, the UK, and Japan.
When the cost of debt servicing is low or zero, then the size of debt really doesn’t matter much. It’s as if the glass of water has no weight at all.
Now here’s something worth pondering…
On an historical timeframe we’re at the tail end of the long term debt-cycle… a cycle that typically lasts between 50 and 75 years.
Today, bonds are more sensitive to price movements than at any other time in history and the yield achieved on them so low that it doesn’t take all that much for a positive return (just) to turn into a loss.
Now take a look at this:
…click on the above link to read the rest of the article…
If an electorate falls in the forest, is their voice heard?
Quizzically-inclined quantum physicists quench their intellectuality by quoting philosophers first, then their fellow scientists.
It is in fact questionable whether quantum physics would have come into being if not for George Berkeley’s 1710, “A Treatise Concerning the Principles of Human Knowledge.” Berkeley’s most famous saying is, ‘esse est percipi,’ or, ‘to be is to be perceived.’ He elaborated using the following examples:
“The objects of sense exist only when they are perceived: the trees therefore are in the garden, or the chairs in the parlour, no longer than while there is some body by to perceive them.” So matters of matter exist only in our mind. It is critical to note that Berkeley never posed a question but rather he made a statement of the world view through his metaphysical personal prism.
It was not until the June 1883 publication of the magazine The Chautauquan that the question was put as such: “If a tree were to fall on an island where there were no human beings would there be any sound?” Rather than pause to ponder, the answer followed that, “No. Sound is the sensation excited in the ear when the air or other medium is set in motion.”
A vexatious debate has ensued ever since, one that eventually stumped the great Albert Einstein who finally declared “God does not play dice.” In recognizing this, Einstein also resolved himself to the quantum physics conclusion, that there is no way to precisely predict where individual electrons can be found – unless, that is, you’re Divine.
Odds are high that the establishment, which looks to ride away with upcoming European elections, is emboldened by quantum physics. The entrenched parties appear set to retain their power holds, in some cases by the thinnest of margins.
…click on the above link to read the rest of the article…
April 10, 2017
Trump Plunges Toward World War III
Months of Democratic Russia-bashing and Trump-baiting achieved their predictable result as the thin-skinned and rash President is now proving his “toughness” by firing off missiles and risking World War III, warns Norman Solomon.
Vast efforts to portray Donald Trump as Vladimir Putin’s flunky have given Trump huge incentives to prove otherwise. Last Thursday, he began the process in a big way by ordering a missile attack on Russia’s close ally Syria. In the aftermath of the attack, the cheerleading from U.S. mass media was close to unanimous, and the assault won lots of praise on Capitol Hill. Finally, the protracted and fervent depictions of Trump as a Kremlin tool were getting some tangible results.
Illustration by Chesley Bonestell of nuclear bombs detonating over New York City, entitled “Hiroshima U.S.A.” Colliers, Aug. 5, 1950.
At this point, the anti-Russia bandwagon has gained so much momentum that a national frenzy is boosting the odds of unfathomable catastrophe. The world’s two nuclear superpowers are in confrontation mode. It’s urgent to tell ourselves and each other: Wake up!
The dangers of a direct U.S.-Russian military conflict are spiking upward. After the missile attack, the Russian Foreign Ministry announced that it was suspending a memorandum of understanding with the United States to prevent mid-air collisions over Syria. And Russia’s prime minister, Dmitry Medvedev, issued a statement referring to “our now completely ruined relations” and declaring that the United States was “on the verge of a military clash with Russia.”
These ominous developments are a longtime dream come true for ultra-hawks like Republican Senators John McCain and Lindsey Graham, who’ve gained leverage in an alliance with numerous congressional Democrats. The neocons and the “liberal interventionists” really have something going now, after propagating the meme that Trump is a Putin puppet.
…click on the above link to read the rest of the article…
Give Us Another Oil Boom
Dear Lord, Y’all give us another oil boom…
If there is one sector of the US economy where an Austrian-style Boom-and-Bust bust has taken place, it is the onshore oil industry – though, by extension, other primary resource industries, such as metals and mining and farming have also suffered in the ongoing aftermath of the general commodity bust.
The good news is that the Austrian prescription for how to deal with a such a calamity has also been followed. The weak have ceded control to the strong – whether by bankruptcy, equity dilution, or co-option and takeover. Prices have been allowed to fall; payrolls – alas, for the unfortunate souls involved – have been cut; the more marginal projects have been put in abeyance, while an unrelenting search for greater efficiency has gone so as to reduce the level of the all-important cut-off between profit and loss.
As a result – and even if we do have to offer a caveat that much of what is afoot is also taking place under the baleful influence of over-easy monetary conditions – the industry has not only found a base, but has even begun to expand once more with no bail-outs, TARPs, or other assistance from a government apparatus (which, if anything has been intensely antagonistic to the industry on ideological grounds), saving only the putative enactment of last autumn’s OPEC agreement to limit output elsewhere.
To put this into context, we could perhaps start with a Moody’s report from the middle of last year which summed matters up by declaring that the oil bust was fully comparable with that vast destruction of value which took place during the first great Tech-Telecom mania at the turn of the century.
…click on the above link to read the rest of the article…
Trump Abandons His Base, Goes toward Nuclear War
The 48,000+ reader-comments thus far at Stephen Bannon’s Breitbart News, to their announcement on April 6th that Trump had invaded Russia’s ally Syria with missiles, are overwhelmingly along the lines of “This isn’t what I voted for.”
The tweet by the convert to Orthodox Judaism, Ivanka Trump, when she had learned that her father was bombing Syria, was “Proud of my father for refusing to accept these horrendous crimes against humanity.” She was referring to the sarin gas attack that the U.S. government says that it can prove had been perpetrated by Syria’s government, and that the Syrian government says was set up by Al Qaeda so as to appear to have been planned and carried out by the Syrian government in order to draw the U.S. into invading Syria and killing Assad (in the way it killed Saddam Hussein and Muammar Gaddafi).
Trump has now been praised by Paul Wolfowitz and virtually all of the many other neoconservatives who had endorsed Hillary Clinton for President and who had supported George W. Bush’s 2003 invasion of Iraq — including most members of the current U.S. Congress. This is a 180-degree turnabout by Trump, which occurs even before his hundredth day as President. Not many Americans had voted for this type of President — but it’s what we now have. It’s what today’s American political system has offered to its voters: a choice between two neoconservatives, one of whom had successfully hidden his neoconservatism, and the other of whom (Clinton) had not.
…click on the above link to read the rest of the article…
“Canada: Irrational Exuberance?” Wild Housing Speculation Drives Entire Economy
Everyone is afraid of breaking the addiction.
Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy.
Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown.
Housing starts are an indication of construction activity, a powerful additive to the local economy with large secondary effects. Housing construction gets fired up by the promise of ever skyrocketing housing prices, and thus big payoffs for developers, lenders, real estate agents, and the entire industry.
National home price data covers up the real drama in certain cities, particularly Vancouver (British Columbia) and Toronto (Ontario), but it does show by how much Canadian housing prices have overshot the already lofty US housing prices.
The chart below by Stéfane Marion, Chief Economist at Economics and Strategy, National Bank of Canada, compares US home prices per the Case-Shiller 20-City index to Canadian home prices per the Teranet-National Bank 26-market index. Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. Note that during the housing crisis in the US, there was only a blip in Canada’s housing market:
Marion added in his note today:
Home price inflation has become THE hot topic of discussion in Canada. Surging prices are no longer confined to greater Toronto and Vancouver. As today’s Hot Chart shows, we estimate that close to 55% of regional markets in Canada are reporting price inflation of at least 10%.
…click on the above link to read the rest of the article…
Russia Demands Evidence to Support US Attack on Syria
Russia’s Foreign Minister Sergey Lavrov telephoned Rex Tillerson concerning the attack on Syria. The minister had told Tillerson that allegations that the Syrian military had used chemical weapons in the so-called “poison gas incident” lacked any proof whatsoever. Lavrov and Tillerson had agreed to personally continue the talks on Syria, because it is increasingly looking like the “intelligence” community was deliberately trying to mislead the White House.
Tillerson had to come out on CBS television stating that the priority of the US in Syria is to defeat the jihadist militia Islamic state (IS). Trump looks very stupid for allowing the intelligence community to create false flags. This is far more of a crisis than meets the eye. It is not likely that Syria will escalate from here, but there is a clash going on between the bureaucracy and the Trump White House. Can the intelligence community be trusted any more?
Doomsday Device
Disappearing Credit
All across the banking world – from commercial loans to leases and real estate – credit is collapsing. Ambrose Evans-Pritchard writing for British newspaper The Telegraph:
Credit strategists are increasingly disturbed by a sudden and rare contraction of U.S. bank lending, fearing a synchronized slowdown in the U.S. and China this year that could catch euphoric markets badly off guard. Data from the U.S. Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December.
The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Over the last three months it has dropped at a rate of 5.4% on annual basis, a pace of decline not seen since December 2008.
C & I loans, y/y growth. Readers may recall that we recently showed this chart in “Libor Pains”, in which we discussed corporate debt. Actually, y/y commercial & industrial loan growth peaked in early 2015 already, not just “last December”… but lettuce not quibble (Pritchard likely meant to refer to total commercial bank credit, the growth rate of which reached an interim peak in late 2016 – shown further below). The point remains that credit growth is falling fast – click to enlarge.
If new loans aren’t made, the supply of credit money will contract. That’s the “doomsday device” embedded in our credit money system: It is subject to sharp and disastrous drawdowns in the money supply.
When loans are paid or written off, the outstanding credit (money) ceases to exist. This reduces the money supply and triggers corrections, recessions, or market crashes.
Real money doesn’t disappear in a credit contraction. But our fake “credit money” does. This makes the entire system vulnerable to the credit cycle. Credit increases. Then it decreases. And as credit money vanishes, the recession deepens… causing the credit market to tighten further and causing more money to disappear.
…click on the above link to read the rest of the article…
Shale Hotspot Draws In Another Big Oil Player
The oil price crash that destroyed a lot of smaller oil producers has not spared the finances of even the oldest and largest oil companies. Trying to keep the precious dividends intact and growing, Big Oil is focusing on cost control and cash preservation, and has effectively deferred investments in new ultra-expensive drilling ventures.
One of the biggest companies, U.S. Chevron, is now planning to capitalize on its vast acreage holdings in the Permian. Investments in new mega projects, at least over the next few years, are not currently on the table, chief executive John Watson told Reutersin an interview published this week.
Chevron is now betting big on the Permian; the star shale play straddling West Texas and New Mexico that has seen most of the resurgence since oil prices started steadily recovering in the fourth quarter last year.
Unlike some other (and smaller) producers who have just recently rushed to secure holdings in the shale play, Chevron is not a newcomer to the Permian – the group and its legacy companies have held acreage in the area since the early 1920s.
Now the new oil order is causing the company to shift strategies away from mega drilling projects to secure steady returns in more conservative projects in order to protect dividends and keep them growing.
Chevron reported earnings of $0.22 per share for the fourth quarter of 2016, compared with a loss of $0.31 per share for the fourth quarter of 2015, in line with analyst expectations that it would return to profit, but still missing the EPS estimates by a wide margin. Full-year 2016 results showed a loss of $497 million compared with earnings of $4.6 billion in 2015, which was the first annual loss Chevron has booked since 1980.
…click on the above link to read the rest of the article…
![[image error]](https://armstrongmedia.s3.amazonaws.com/wp-content/uploads/2017/04/Russia-at-UN-4-9-2017.jpg){kind=link}