Baltic Dry Index. 556 +02 Brent Crude 56.75
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Leonard Read
Some days, some things are just too good not to
steal, especially when they are so much better than anything I can produce, and
yesterday’s output from David Stockman’s contracorner.com was one of those
days. So while we wait for either Germany or Greece to blink, or neither. For
America’s War Party to set off World War Three by arming Kiev against the
Russian Revolutionary Minutemen in eastern Ukraine, and for some stability to
return to the global oil patch, we present three great articles from
contracorner.com. The whole articles are well worth the read. Anyway, I haven’t
so much stolen them as borrowed them. They’re all still available on the always
excellent contracorner.com.
Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.
Graeme, with apologies to Cary Grant. To Catch A Thief.
Europe’s Greek Showdown: The Sum Of All Statist Errors
by David Stockman • February 9, 2015
The politicians of Europe are
plunging into a form of ideological fratricide as they battle over
Greece. And “fratricide” is precisely the right descriptor because in this
battle there are no white hats or black hits—-just statists.
Accordingly, all the
combatants—the German, Greek and other national politicians and the
apparatchiks of Brussels and Frankfurt—- are fundamentally on the wrong path,
albeit for different reasons. Yet by collectively indulging
in the sum of all statist errors they may ultimately do a service. Namely,
discredit and destroy the whole bailout state and central bank driven
financialization model that threatens political democracy and capitalist
prosperity in Europe——and the rest of the world, too.
The most difficult case is that
of the German fiscal disciplinarians. Praise be to Angela Merkel and her
resolute opposition to Keynesian fiscal profligacy and
her stiff-lipped resistance to the relentless demands for “more
stimulus” from the likes Summers, Geithner, Lew, the IMF and the
pundits of the FT, among countless others. At least the Germans recognize
that if the EU nations are going devote 49% of GDP to state spending,
including nearly a quarter of national income to social transfers, as was the
case in 2014, then they bloody well can’t borrow it.
Notwithstanding the alleged
German led austerity regime, however, that’s exactly what they are doing.
Germany has managed to swim against the surging tide of
EU public debt, lowering its leverage ratio from 80% to 76%
of GDP in the last four years. Yet the overall debt ratio for the
EU-19 has continued to soar—meaning that the rest of the EU drifts
ever closer to fiscal disaster.
Indeed, Germany’s frustration
with the rest of the European fiscal sleepwalkers is more than
understandable, as is its fanatical resolve not to give an inch of ground to
the Greeks. Or as Merkel’s deputy parliamentary leader, Michael
Fuchs told Bloomberg,
There is no way out” for Greece from its treaty obligations….. conditions
set for Greece by The Troika (EU, ECB, IMF) for bailout funds “have to be
fulfilled…. That’s it, very simple.”
This isn’t just teutonic
rigidity. It’s actually all about the so-called capital
contribution key—-the share of the EU bailout fund that must be covered by
each member country in the event of a default.
At dead center of Greece’s $350
billion of debt is $210 billion owed to the Eurozone bailout mechanism.
Germany’s share of that is 27% or roughly $57 billion. Yet the prospect
of tapping the German taxpayers for some substantial part of that
liability in the event of a Greek default is not the
main problem—-even as it would mightily catalyze Germany’s incipient
anti-EU party.
The real nightmare
for Merkel’s government is that the next two largest countries in the
capital key are on a fast track toward their own fiscal demise. So
what puts a stiff spine into its insistence that Greece fulfill the
letter of its MOU obligations is that if either France or Italy is called
upon to cover losses, the whole bailout scheme will go up in smoke.
There is not a snowball’s chance
that the already faltering governments of either country would survive a
capital call from the EU bailout funds. Indeed, the prospect of a
partnership with Marine Le Pen and Beppe Grillo is undutedly what was on
German Finance minister Schaeuble’s mind when this picture
was snapped during his meeting with Varoufakis.
Much, much more.
Nein! Germany quashes hope of quick Greek debt accord
Schaeuble: If Greece doesn’t want new program, ‘that’s it.’
European equities and U.S. stock index futures got an added lift Tuesday morning as headlines and rumors floated the prospect of a six-month extension of Greece’s bailout program, which would presumably allow the country’s new antiausterity government to negotiate a new pact with its creditors while avoiding default.
Then Schaeuble stepped in, telling reporters at the Group of 20 meeting in Istanbul that such speculation was the stuff of fantasy. There would be no hasty deal reached Wednesday when the so-called Eurogroup of eurozone finance ministers gather for an emergency meeting in Brussels. See: Remember these dates as Greece marches toward potential default.
Talk of any sort of “bridging” was “false,” he said, according to Dow Jones Newswires.
Moreover, he signaled that Berlin hasn’t budged when it comes to its demand that Greece stick to the elements of its existing bailout program, rejecting the newly-elected Greek government’s call to scrap the bailout and end much of the austerity that’s accompanied the crushing, years-long depression that’s followed the country’s financial implosion in 2010.
If Greece doesn’t want a new program, “then that’s it,” Schaeuble said, according to Reuters.
For there to be an agreement, Athens and Berlin will have to come to some sort of agreement. Germany is the eurozone’s largest economy and there can be no deal without the consent of the region’s so-called paymaster.
At the same time, the Greek government has sent conflicting signals, taking a hard-line against continued austerity and the so-called troika of international creditors—the European Commission, European Central Bank and International Monetary Fund—that have held the country’s feet to the fire.
But Greece has also backed away from some demands, including the elimination of portions of its debt. Greece also plans to go ahead with the privatization of the country’s main port of Piraeus—another demand by its creditors—after having previously pledged to freeze the deal, The Wall Street Journal reported. Finance Minister Yanis Varoufakis also told parliament Monday that Greece would abide by 70% or so of the reforms demanded under the current bailout program.
The clock is ticking. Greece’s current bailout plan expires on Feb. 28 and some analysts fear the country could run out of money before then.
More
Elsewhere.
Kiev’s Bloody War Is Backfiring—-Citizens Resisting Kiev Conscription
by Justin Raimondo • February 9,
2015
When Ukrainian army officers came to the
Ukrainian village of Velikaya Znamenka to tell the men to prepare to be drafted,
they weren’t prepared for what happened next. As the commanding officer was
speaking, a woman seized the microphone and proceeded to tell him off: “We’re
sick of this war! Our husbands and sons aren’t going anywhere!” She then
launched into a passionate speech, denouncing the war, and the coup leaders in
Kiev, to the cheers of the crowd.
What she did is now a crime in Ukraine: the only reason she wasn’t arrested on the spot is that the villagers wouldn’t have permitted it. But in Ukrainian Transcarpathia, well-known journalist for Ukrainian Channel 112 Ruslan Kotsaba has been arrested and charged with “treason” and “espionage” for making a video in which he declared: “I would rather sit in jail for three to five years than go to the east to kill my Ukrainian brothers. This fear-mongering must be stopped.” Kotsaba may sit in jail for twenty-three years, the prescribed term for the charges filed against him.
Kotsaba’s arrest is part of a desperate effort by the Ukrainian government to intimidate the growing antiwar and anti-draft movement, which threatens to upend Kiev’s dreams of conquering the rebellious eastern provinces. Kotsaba’s particular crime, according to prosecutors, was in describing the conflict as a civil war rather than a Russian “invasion.” This is a point the authorities cannot tolerate: the same meme being relentlessly broadcast by the Western media – that an indigenous rebellion with substantial support is really a Russian plot to “subvert” Ukraine and reestablish the Warsaw Pact – now has the force of law in Ukraine. Anyone who contradicts it is subject to arrest.
Also subject to arrest, and worse: the thousands who are fleeing the country in order to avoid being conscripted into the military. In a Facebook post that was quickly deleted, Defense Minister Stepan Poltorak wrote: “According to unofficial sources, hostels and motels in border regions of neighboring Romania are completely filled with draft dodgers.” President Petro Poroshenko, the Chocolate Oligarch, is readying a decree imposing possible restrictions on foreign travel for those of draft age – which means anyone from age 25 to 60. Ukrainians may soon be prisoners in their own country – but they aren’t taking it lying down.
Draft resistance is at an all-time high: a mere 6 percent of those called up have reported voluntarily. This has forced the Kiev authorities to go knocking on doors – where they are met either with a mass of angry villagers, who refuse to let them take anyone, or else ghost towns where virtually everyone has fled. In the Transcarpathia region of western Ukraine, entire villages have been emptied, the inhabitants fleeing to Russia to wait out the war – or the fall of the Kiev regime, whichever comes first. “It may seem a paradox,” says Transcarpathia’s chief recruitment officer, “but from the western Ukrainian region of Ternopyl people have fled to Russia in order to escape army conscription.” The frantic Ukrainian regime is now contemplating conscripting women over 20.
----With Poroshenko’s war looking like a major disaster, one that could easily topple his EU/US-installed regime, the War Party in the US is turning up the heat, demanding that Washington provide Kiev with arms. Sen. John McCain is – naturally – leading the charge, but prominent liberals are also in the front ranks, with leading scholars of the Brookings Institution recently calling for heavy weapons to be sent. That provoked a response from a dissident within Brookings, former State Department official Jeremy Shapiro, who argues that the Ukrainian conflict is a civil war that cannot have a military solution, and is more than likely to provoke a dangerous military confrontation with Russia.
The Obama administration is under considerable pressure from within the President’s own party to start arming the Ukrainian army, but America’s European allies are reluctant to let this war go on much longer, especially now that their sock puppet Poroshenko is increasingly unpopular. With protests erupting all over western Ukraine, Germany’s Angela Merkel is openly opposing escalation of the war. She made that clear at a recent conference in Munich, where Merkel spoke after returning from talks with Russia’s Vladimir Putin and French President Francois Hollande. Meanwhile, on the sidelines, McCain was telling reporters: “If we had provided Ukraine with weapons they wouldn’t have had to use cluster bombs.”
They don’t call him “Mad John” for nothing.
The United States is providing the Kiev regime with military training, and we already have American boots on the ground there, ostensibly to “strengthen the rule of law.” What that means in practice is that we are bolstering a government that has declared war on its own people, and is rapidly closing off all legal means of dissent – charging political opponents with “treason,” banning political parties, and unleashing ultra-nationalist mobs on anyone who dares dissent. While the US State Department regularly canoodles with Russian “dissidents” who defile Orthodox churches and bare their breasts for the Western cameras, you won’t hear Marie Harf so much as mention Ruslan Kotsaba’s name. As far as I know, the Global Post is the only Western media outlet that has noted his existence – and I’ve not seen a single mention in English about his arrest.
Ukraine is a tripwire that could easily set off World War III – and US provocations are edging closer to that by the day. The crisis was initiated by Washington’s regime-change campaign which succeeded in violently overthrowing elected President Viktor Yanukovych, whose electoral victory was made possible by the criminal incompetence and outright thievery of his predecessor, US-supported Viktor Yushchenko. The so-called “Orange Revolution” led to economic chaos, rampant corruption, and the unleashing of a virulent nationalist current that has culminated in the rise of open neo-Nazis taking seats in the Ukrainian parliament. We are seeing its openly fascistic culmination in the current gang lording over Kiev.
Much, much more.
Ukraine crisis: fighting rages on eve of talks
Rockets crashed into Kramatorsk on Tuesday as rebels pushed on with an assault on an army-held rail junction ahead of Minsk Ukraine peace talks
By Our Foreign Staff 9:07PM GMT
10 Feb 2015
Rockets killed more than 10
civilians and soldiers deep in Ukrainian
government-held territory on Tuesday and rebels pushed on with an assault on an
army-held rail junction, setbacks that showed Kiev's position worsening on the
eve of peace talks.
Advances by pro-Russian rebels
diminished hopes of a deal when Russia, Ukraine, France and Germany hold a
summit in Minsk on Wednesday under a new Franco-German initiative to halt
fighting in a war that has killed more than 5,000 people.
European officials say it is
difficult to imagine the rebels agreeing to halt and go back to earlier
positions after weeks during which they have been advancing relentlessly.
A Russian source quoted by the
state RIA news agency said there were no plans to sign a document to resolve
the conflict at the peace talks, and the main subject would be creation of a
demilitarised zone.
---- Rockets crashed into Kramatorsk, some
30 miles north of the front, hitting the main headquarters of the Ukrainian
military campaign in the east, as well as nearby residential areas. Local
officials said at least seven civilians were killed, while 26 civilians and 10
soldiers were wounded. A parliamentary deputy said four soldiers were also
killed.
More
At the Comex silver depositories Tuesday final figures were: Registered 67.89
Moz, Eligible 108.68 Moz, Total 176.57 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, realism in the oil patch.
OPEC Producers Cut Oil Prices to Asia in Battle for Market Share
5:35 AM WET February 11, 2015
(Bloomberg) -- Iraq and Iran
joined Saudi Arabia in cutting their March crude prices for Asia to the lowest
level in more than a decade, signaling the battle for a share of OPEC’s largest
market is intensifying.
Iraq’s Basrah Light crude will
sell at $4.10 a barrel below Middle East benchmarks, the lowest since at least
August 2003, the Oil Marketing Co. said Tuesday. National Iranian Oil Co.
lowered its official selling price for March Light crude sales to a discount of
$2.10 a barrel, the lowest since at least March 2000, according to a company
official who asked not to be identified because of corporate policy.
The cuts come after Saudi Arabia,
the largest crude exporter, reduced pricing to Asia last week to the lowest in
at least 14 years. The Organization of Petroleum Exporting Countries left its
members’ output targets unchanged at a November meeting, choosing to compete
for market share against U.S. shale producers rather than support prices. Iraq
is the second-biggest producer in OPEC and Iran is fourth.
“This is an effort by some
producers to protect market share,” Sarah Emerson, managing principal of ESAI
Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone
Tuesday. “It’s really straightforward; cutting prices is how you keep your foot
in the door.”
More
Snake Oil In The Shale Patch: A Veteran Geologist Discounts The Hype
by Contributor • February 8, 2015
----Chris
Martenson: So let’s start with the shale oil narrative.
It goes something like this: US ingenuity and technological breakthroughs have
unlocked vast amounts of oil. So much that the world supplies are now swamped
and in reaction the price has plunged by more than 50%. Saudi Arabia is
fighting to preserve market share by refusing to cut production so that they
may gain a longer term advantage over US producers. Anything wrong with that
narrative?
Arthur Berman:
Well, there is everything wrong with that narrative. Of course everything in
that narrative has some basis in truth or it wouldn’t be the storyline that it
is. But let’s start with the vast resources of new oil that have been unlocked
by shale or tight oil production. You know, if you look at any kind of
reasonable assessment of the plays—and there is really only two of them, it’s
the Bakken Shale in North Dakota and the Eagleford Shale in South Texas. The
Permian certainly is producing a lot of oil, but it is kind of another story we
can talk about later. And the reason it is another story is because the
reserves just aren’t really there.
But if we look at the Bakken and
the Eagleford and we look at the proven reserves that anyone can find on the
EIA Energy Information Administration’s website and we look at both the proven
and the proven undeveloped, which basically are still not drilled yet, what we
find is a big surprise and that is that we have only got something like two
years worth of production left given current US consumption. To listen to the
kinds of things that we hear on television and the radio and read in the
newspapers you would think we’ve got decades and decades of production.
But the numbers just aren’t that big, Chris. We are talking about 10 billion
barrels of oil from all of the tight oil plays. That’s not my interpretation.
Those are the published proven, plus proven undeveloped reserves based on the
latest information we have.
Well, the United States uses
about 5.5 billion barrels of oil every year. So 10 billion barrels from tight
oil is less than two years. Those are the facts. We can talk about any other
narratives or storylines you want but as far as I’m concerned that is the
bottom line. And like I say, I am including the proven undeveloped reserves
which have not been drilled and ordinarily my advice to companies is don’t put
too much faith in proven undeveloped reserves because a lot of them won’t be
there.
Chris Martenson: And why won’t
they be there?
Arthur Berman:
Because they’re not commercial. The way that the Securities and Exchange
Commission generously rewrote the rules for booking reserves with the shale
players—this was back in 2010—was that you can book anything as a proven
undeveloped reserve simply by proximity. So in other words if you’ve got a
track that is within a mile or two of a producing well, you can call that
proven undeveloped. Now as we know from all oil and gas drilling, but
particularly from shale oil and gas drilling, one location away—which is to say
maybe 40 to 90 acres away—is always a big surprise. But a mile away, 640 acres
away, you don’t have any idea what is out there because the rock is far from
homogeneous. Even when we look at the core, the best areas, the sweet spots if
you will of the shale plays, there is tremendous variability between closely
spaced wells. That is why I say it is just – it is kind of a crap shoot for
those proven undeveloped reserves. We will know when they are drilled and right
now it is just a placeholder—a very generous placeholder, I might add.
----Chris Martenson: I want to talk about this profit side a bit because I have been very confused
by what is going on there. So before we get to the actual company profitability maybe you can shed some light on this. With the run down in oil prices, the media was just swamped with various analyses coming from a variety of usually sell-side analysts saying “here is the all-in break even cost for play X, play Y, play Z” so you know they stack all the plays out. I never really understood what was involved in those break even analysis. Can you shed some light on that? When we are looking at those are we looking at truly the all-in, full cycle, self sustaining break even cost? Is this just the per well drilling cost? What are we looking at when we are looking at a chart that purports to tell us what the break even cost of a play is?
Arthur Berman:
Well, that’s the key question, Chris. It is like asking what does it cost. It
is easy to say this is what it is. But what is involved? You know, what are
your assumptions. Your point is dead on and that is: What costs have been
included and what costs have been excluded? I have read all of those silly
articles and basically, this is a pattern that we see. We saw it with shale gas
when the price of gas dropped from $14 or $15 per thousand cubic feet first to
eight and then to six and then to four. And every time the price goes down the
companies have another fairy tale for why they are still going to make money or
break even on the lower price. Well, we have seen the same thing as oil prices
have dropped. When oil prices dropped to 80 we saw you know, a whole stream of
articles saying oh well all of these companies can still make money at 80. And
then it went to 70 and now they can make money at 70. Recently, I have seen
some preposterous articles that say that some of these operators can make money
at $20 or $30 a barrel. It’s bogus. The whole thing is bogus.
----Chris Martenson: Well, maybe this helps explain a conundrum confusion that I have had for a while. For years I have been tracking the financial returns of the largest shale operators. There are about 80 in my list that I look at. And specifically the cash flow statements because to me—they are supposed to be cash cows and this always comes back to the cash flow. If you want to know if a business is going to do well or not, are they producing positive free cash flows? And what I have seen there—and other people have commented on this as well; it is pretty well-known I think. I have even seen it printed in Bloomberg, but these companies have consistent negative free cash flows every year I have been tracking them including 2011, 12, 13 when oil prices were twice what they are. I’d love to get your take on this phenomenon. I mean is it – does it make sense that I should be concerned that a company that theoretically is doing a plumbing operation in the Bakken and is making money and breaking even theoretically at $50 a barrel that they were all sporting steeply negative free cash flows through what were arguably the best years?
Arthur Berman:
You got to look at that, Chris. I mean that’s absolutely critical. I look at it
too. If you look at third quarter earnings we will get full year earnings here
well, they are starting to come in now. February is usually the month. But yea,
I see the same thing you do and that is that the very best of the companies in
these tight oil plays—companies like EOG for instance—they are barely cash flow
positive. And of course when you are looking at the free cash flow number you
are not really sure of all the costs that have been included. You got to look
at each statement. Yes, you are absolutely right. If we look at the oil
weighted, on shore companies—and I follow about 50 of them—what you find is
that their third quarter results say that they got negative free cash flow of
about $5 billion. You know, the price of oil in third quarter was $93 a barrel,
so you can just imagine what fourth quarter is going to look like. It is going
to be a total train wreck if they were losing money back then.
So yea, I look at the same thing
you do. I look at free cash flow, the difference between capital expenditure
and cash from operations. I look at debt pretty hard too. And debt to equity is
an okay measure except that you got to take the company’s word for their
equity. I like to look at debt as a function of free cash flow. In other words
how long would it take this company based on the free cash flow that it is
showing to pay off its debt. Well, if they got negative free cash flow they are
never going to pay off that debt. They keep getting farther and farther into
debt every year.
Much,
much more."Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."
Antony C. Sutton.
The monthly Coppock Indicators finished January
DJIA: +124 Down. NASDAQ: +220 Down. SP500: +178 Down.
No comments:
Post a Comment