Saturday, February 18, 2012

SAR #12049

There is no believable 'best case' scenario.

Crib Death: Citigroup announced (again) that peak oil is dead, killed by the production of nearly 0.5 mbd from North Dakota oil shales. Never mind that while North Dakota was scraping up that half-million barrel capacity, the net exports from the seven major Western Hemisphere oil producers fell by 1.2 mbd (or 20%).

Two Down: Germany's president, Christian Wulff, has resigned while corruption charges against him were being investigated. He is the second German president in as many years to resign.

Did You Hear... It's not just the town gossips and Homeland Security that know everything you do. It's the grocers and others retailers, too. Target, for example, knows you are pregnant before your husband does. Or in this case, your parents.

What is $4.01? It is, according to customers, the point at which the price of a gallon of gasoline will make them change their driving habits. Unless you're making over $100,000, then it's $5.01. Sliding scale.

What Goes Around... Reportedly Iran has the ability attack US targets in the Middle East and could close the Straits of Hormuz at least temporarily. Of course the US has the ability to attack Iranian targets, too. Other officials say it is unlikely that Iran would strike first. Further deponent sayeth not.

Part Time Lovers: It used to be there were 5 full time jobs in the US for every part time one. Now it's barely 4 to 1.

A Clue: Saudi Aramco plans to re-open and re-work the Damman field, trying to breathe life into a field left for dead 30 years ago. There is, after all, a real demand for hard to refine heavy, sour crude.

The Rest of The Story: Initial unemployment claims is one data point - one that as a raw number has been decreasing. But like the unemployment rate, it tells only a small slice of the employment/unemployment story. If you add up all of the unemployment claims (not counting those who have long since run out of any possible aid) the number is over 70% above the long term trend.

Yawn: Both headline and core CPI growth came in at 0.2% for January.

Sign Language: A closer look at the Philly Fed Index data that was warmly greeted yesterday. The Index's employment component (based on simply asking employers if they planned on hiring) fell dramatically, a sign that February Non-farm jobs gain will be an anemic 50,000 - a big drop from January's 243,000 new jobs.

Some Things Haven't Changed: Police in Austin, Texas have – again – stopped, cuffed and interrogated a man caught in the act of walking his granddaughter home. “Why is it,” she asks, “that the police won’t ever believe you’re my Grandpa?” Then she looks at him and adds, “Because you’re white?” APD denied allegations of racism.

Restraint: “While we believe that capitalism is fundamentally superior to any other system for organizing economic activity, it is also clear that some of the ways in which it is now practiced do not incorporate sufficient regard for its impact on people, society and the planet." Al Gore.

----> A Trojan Horse <---

Bringing in the Sheaves: New money is necessary to fix Greece, but new money won't fix Greece. At least not a Greece with an economy that has already shrunk 16%, with worse to come as austerity beggars the populace and drives them into the streets. Most likely there will be yet another band-aid. but it will not be enough. Nothing will. Greece will leave the euro (which has been the goal for some time) by the end of summer, with rounds of devaluation and inflation, riots in the street and political and social upheaval. Athens is ripe to turn into a disaster zone.

Others see a Greek default by April 1st, starting a chain reaction, throwing the global economies into contraction and sending markets tumbling as the euro unravels. The EU overlords want to see how much further they can push the Greeks. They forget the basic rule of the Game of Nations – you have to stay in power in order to stay in the game – a rule Greek politicians understand. There is plenty of room for error.

Eurozone finance officials are looking to delay parts (or all) of the second bailout, while somehow keeping Greece tottering along until after the April elections so they can see if the next government will bend to their demands. This will require that the private investors acquiesce to massive haircuts – but no one has asked them if they'd go along with this scheme while they have (or think they have) CDS protections.

And so we are back to the same fiscal feudalism that Germany has insisted on all along. The ECB is intent on swapping 50 billion euros of old bonds (which cost them about 35 billion) for 50 billion in new bonds with covenants that to prevent Greek default, making these bonds 'more equal' than the ones held by the private market. Again, no one asked the private investors to the dance.

Reading all of the commentary suggests the final days are close upon us, when we we learn – among many other things - whether CDS on sovereigns have any value, whether the euro has a future, and how long the night will be; for after Greece will come Portugal, Spain and possibly Italy. The endgame is approaching. No one is in charge and things are going to get uglier. All we can be sure of is that those who think they know how it all plays out are wrong.

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