"In economics, hope and faith coexist with great scientific
pretension."
J. K. Galbraith.
And
so it ended. Well almost. The great US bond bull market, kicked off by Paul
Volker all the way back in 1981, will end next month when the Fed moves off
ZIRP. After yesterday’s US unemployment report, and the Fed’s talking chair’s
remarks earlier in the week, the Fed’s “chair” talked herself into a key
interest rate increase at next month’s Fedster meeting. Though the rate
increase is only likely to be an irrelevant 0.25 percent, it’s a killer for emerging
markets and the debt overloaded sinking commodities flotilla led by Glencore.
After 44 years of ever lower interest rates now come X many years of ever
rising interest rates. Few of the current banksters and Great Vampire Squids
have ever worked in an era of ever rising interest rates. Only a new recession
can delay the onset of the interest rate rebound.
Only
when the tide goes out do you discover who's been swimming naked.
Warren
Buffett.
The October Jobs Report Gives Fed Officials a Green Light to Raise Rates
November
6, 2015 — 1:30 PM GMT Updated on November 6, 2015 — 4:52 PM GMT
Forget
about ambiguity. The October jobs report left little doubt the U.S. labor
market is back with a vengeance after a two-month lull.
The
271,000 gain in payrolls was the biggest this year and exceeded all estimates
in a Bloomberg survey of economists, a Labor Department report showed Friday.
The jobless rate fell to a seven-year low of 5 percent and average hourly
earnings over the past 12 months climbed by the most since 2009.
Treasuries tumbled and the dollar strengthened as
the report allayed concerns of a hiring slowdown after weaker payrolls advances
cooled in August and September. Such improvement will probably mean a green
light for Fed officials, who last month held out the possibility of a December
rate increase.
More
I
have real doubts about the numbers released yesterday. They don’t seem to fit
with the reality of the real world. In the real world a great slowdown continues
gathering pace. Below what looks more and more like a new global recession arriving
to me. If I’m right and the Fed does raise their key interest rate next month,
I suspect that it will go down in history as an incredible mistake of the 21st
century.
If all else fails, immortality can always be assured by
spectacular error.
J. K. Galbraith.
U.S. Oil & Gas Company Earnings Take a Huge Hit in Q3 2015
Mark Young Nov 5,
2015 7:03:05 AM
Since commodity prices began to drastically fall
in Q4 2014, U.S. oil and gas companies in the upstream sector have seen their
respective net incomes drop significantly. Operating margins have been tightly
squeezed and assets have suffered major impairments. The low price environment
has endured throughout 2015 and, as a result, Q3 2015 earnings for U.S.
companies are the lowest since prices began to fall in Q4 2014.
Evaluate Energy has analysed the preliminary Q3
earnings statements of 48 U.S. companies and compared it with their earnings in
previous periods. The 48 companies had a combined total net loss of US$25.5
billion, which is a staggering 70% and 58% larger than these companies’
significant combined net losses of US$14.9 billion and US$16.6 billion in Q1
and Q2 2015 respectively (see note 1).
Impairments (see note
2) are clearly the main reason for this continued downward trend. Evaluate
Energy released a similar piece of analysis earlier this year focused on U.S. company impairments in Q4 2014. In Q3 2015, impairments for U.S. companies have
not only continued to be recorded due to low prices, they are in fact
significantly larger.
Of the 48 companies in
this study, only 10 did not report any kind of impairment in their earnings
statements, while the remaining 38 collectively reported impairments totalling
US$32.8 billion in Q3 2015. This is a 79% increase over last quarter’s combined
impairments of US$18.4 billion for the full group of 48 companies. In total,
since prices began to drop in Q4 2014, the 48 companies have recorded a grand
total of US$84.6 billion in impairments and Q3 2015’s total makes up 39% of
this.
On an individual
company basis, Devon Energy Corporation (NYSE:DVN) reported the largest impairment
this quarter at US$5.9 billion. Devon has been recording impairments all year;
this quarter’s US$5.9 billion represents around 38% of 2015 impairments. Of the
companies that recorded this quarter’s biggest impairments, Occidental
Petroleum Corp. (NYSE:OXY), Murphy Oil Corporation (NYSE:MUR), Whiting
Petroleum Corporation (NYSE:WLL) and Carrizo Oil & Gas Inc. (NASDAQ:CRZO)
suffered over 90% of their respective impairments for the year in Q3 2015.
Whiting’s impairments were especially noteworthy as the US$1.7 billion figure
of asset impairments in the chart below does not include an additional US$870
million of goodwill impairments associated with its acquisition of Kodiak Oil
& Gas, which only recently closed in December 2014.
More
German Industrial Output Unexpectedly Drops Amid China Risks
Updated
on November 6, 2015 — 7:36 AM GMT
German
industrial production unexpectedly dropped in September as a slowdown in China
and other emerging markets took its toll.
Output,
adjusted for seasonal swings and inflation, fell 1.1 percent from August, when
it declined a revised 0.6 percent, data from the Economy Ministry in Berlin
showed on Friday. The reading, which tends to be volatile, compares with a
median estimate for a 0.5 percent gain in a Bloomberg survey of economists.
Germany
is grappling with a slowdown in China and other emerging markets, key
destinations for its exports. With factory orders from countries outside the
19-nation euro region down 8.6 percent in the third quarter, the focus is
shifting to strengthening domestic spending fueled by pent-up investment demand
and consumption.
“Disappointing
industrial production doesn’t bode well for German third-quarter gross domestic
product,” said Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt.
“The Chinese and emerging-markets slowdowns are also leaving their marks on the
euro zone’s largest economy.”
The euro
was down 0.1 percent at 8:25 a.m. Frankfurt time and traded at $1.0874.
Industrial
production fell 0.3 percent in the third quarter from the previous period as
manufacturing output dropped. In September, factory production declined 1.4
percent from the previous month.
Third-quarter
GDP data are due to be published on Nov. 13.
The
Economy Ministry said Thursday that manufacturing orders unexpectedly retreated
1.7 percent in September, marking the third consecutive decline. Business
confidence as measured by the Ifo institute fell in October -- the first
decline in four months.
More
U.K. Industrial Output Falls, Trade Drags on Economic Growth
Updated
on November 6, 2015 — 9:43 AM GMT
U.K.
industrial production fell more than forecast in September, capping a weaker
third quarter than initially estimated.
Output
fell 0.2 percent in September, more than the 0.1 percent decline forecast by
economists in a Bloomberg survey. The Office for National Statistics in London
also said that production rose 0.2 percent over the quarter, less than the 0.3
percent in last month’s GDP data. The revision has a negligible effect on the
0.5 percent economic growth estimate.
In
further bad news for the third quarter, separate data showed that trade will be
a drag on economic growth in the period, though the ONS said it can’t yet
quantify the extent of the effect. The goods-trade deficit widened by almost 6
billion pounds to 32.2 billion pounds as exports dropped 7.9 percent. The total
trade gap in goods and services more than doubled to 8.5 billion pounds.
More
ArcelorMittal Is Latest Victim of China's Steel-Export Glut
Updated on November 6, 2015 — 9:46 AM
GMT
ArcelorMittal is taking the latest knock from record Chinese steel exports
hurting producers across the globe.The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its dividend, putting the blame on the flood of cheap steel from China’s loss-making mills. The market is being overwhelmed with material coming from the nation’s state-owned and state-supported producers, a collection of industry associations said Thursday.
“It is obvious that we are operating in a very challenging market,” Chief Financial Officer Aditya Mittal said on a call with reporters. “This is essentially the result of very low export prices out of China that are impacting prices worldwide.”
The steel industry has been roiled by the slowest economic growth in two decades in China, the biggest consumer. The flood of cheap exports from the nation has drawn complaints from Europe and the U.S. that the shipments are unfair. Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100 million metric tons this year, more than the combined output of Europe’s top four producing countries
----“This is not an economic crisis, it is not a
volume crisis, it is an import crisis,” Mittal said. “Our core markets of
Europe and Nafta are still growing,” he said, referring to North American Free
Trade Agreement.
More
Richemont Drops as October Slump, New Cartier CEO Cloud Outlook
Updated on November 6, 2015 — 9:12 AM
GMT
Richemont
shares fell the most in two months after a surprise sales drop in October and
the departure of the head of jewelry and watch label Cartier, which leaves the
Swiss luxury-goods maker’s biggest brand without a permanent chief during the
critical Christmas period.
The
unexpected downturn also pushed shares of LVMH Moet Hennessy Louis
Vuitton SE and Swatch Group AG lower. Cartier Chief Executive Officer Stanislas
de Quercize has stepped down and will be replaced with the head of LVMH’s
Japanese unit in January, the Geneva-based company said Friday. Sales dropped 6
percent last month at constant exchange rates as demand from retailers for
watches has weakened, Richemont also said.
The
leadership change comes as Cartier struggles to turn around its Swiss timepiece
business. Watch demand has slumped across Asia, where Richemont generates
almost half of its revenue, and the business’s profitability is also being eroded
by this year’s surge in the Swiss franc. Switzerland’s watch exports had the
biggest decline since 2009 in the three months through September as the
slowdown spread to Singapore, South Korea and Taiwan.
More
We close for the weekend with this
question. Did the commodity general price collapse lead to this? When cost
cutting is safety put at risk?
Dam burst at Vale, BHP mine devastates Brazilian town
A dam
holding back waste water from an iron ore mine in Brazil that is owned by Vale
and BHP Billiton burst on Thursday, devastating a nearby town with mudslides
and leaving officials in the remote region scrambling to assess casualties.
The
mining company Samarco, a joint venture between top iron ore miners Brazil's
Vale and Australia's BHP, said in a statement it had not yet determined why the
dam burst or the extent of the disaster at its Germano mine near the town of
Mariana in Minas Gerais, south eastern Brazil.
Civil
defense authorities in Mariana said they were evacuating about 600 people to
higher ground from the village of Bento Rodrigues, where television footage
showed dozens of homes destroyed by the mudslide. A car rested on top of a wall
where the roof of a building had been ripped off.
They said
the flood had also reached another village further down the hill, called
Paracatú de Baixo, and that inhabitants there were being evacuated.
The dam
was holding tailings, a mining waste product of metal filings, water and
occasionally chemicals. It was located near the Gualaxo do Norte river, adding
to fears of potential water contamination.
---- Miners are struggling amid a collapse in prices of iron ore and other commodities due to concerns about demand from China, the world's top consumer of industrial raw materials.
Samarco
produces about 30 million tonnes per year of iron ore, just under 10 percent of
Brazil's output. Iron ore is transported down a slurry pipe from Germano to
Espirito Santo, where it is turned into pellets.
More
Should
you find yourself in a chronically leaking boat, energy devoted to changing
vessels is likely to be more productive than energy devoted to patching leaks.
Warren Buffett
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