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Tuesday, 28 July 2015

Nine Reasons Why Low Oil Prices Will Create Economic Mayhem, & More

Figure 12. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

Nine Reasons Why Low Oil Prices May “Morph” Into Something Much Worse

9. It is doubtful that the prices of energy products and metals can be raised again without causing recession.
We are not talking about simply raising oil prices. If the economy is to grow again, demand for all commodities needs to rise to the point where it makes sense to extract more of them. We use both energy products and metals in making all kinds of goods and services. If the price of these products rises, the cost of making virtually any kind of goods or services rises.
Figure 1. Chart prepared by St. Louis Fed using data through July 20, 2015.Raising the cost of energy products and metals leads to the problem represented by Growing Inefficiency (Figure 4). As we saw in Point 5, wages tend to go down, rather than up, when other costs of production rise because manufacturers try to find ways to hold total costs down.
Lower wages and higher prices are a huge problem. This is why we are headed back into recession if prices rise enough to enable rising long-term production of commodities, including oil.

IMF warns of gloomy eurozone outlook

Reforms and action needed urgently as fears over Greece, high unemployment, structural flaws and a still-shaken bank sector slow growth

The euro logo in front of the former HQ of the European Central Bank (ECB) in Frankfurt, Germany.
The International Monetary Fund has warned the eurozone faces a gloomy economic outlook thanks to lingering worries over Greece, high unemployment and a banking sector still battling to shake off the financial crisis.
The IMF’s latest healthcheck on the eurozone found it was “susceptible to negative shocks” as growth continues to falter and monetary policymakers run out of ways to help. It called for an urgent “collective push” from the currency union to speed up reforms or else risk years of lost growth.
“A moderate shock to confidence – whether from lower expected future growth or heightened geopolitical tensions – could tip the bloc into prolonged stagnation,” said Mahmood Pradhan, the IMF’s mission chief for the eurozone.

Greece rocked by reports of secret plan to raid banks for drachma return

Opposition demands answers after covert proposals attributed to Yanis Varoufakis and fellow ex-minister highlight deep split in Syriza party

Yanis Varoufakis (left) has opposed the bailout deal struck by Alexis Tsipras.

Some members of Greece’s leftist-led government wanted to raid central bank reserves and hack taxpayer accounts to prepare a return to the drachma, according to reports that highlighted the chaos in the ruling Syriza party.
It is not clear how seriously the government considered the plans, attributed to former energy minister Panagiotis Lafazanis and ex-finance minister Yanis Varoufakis. Lafazanis was sacked from his post and Varoufakis resigned earlier this month. However, the revelations have been seized on by opposition parties who are demanding an explanation.

Image result for paul krugman

But the Republican base isn’t eager to hear from SHCs; it has never put McCain on a pedestal; and people who like Donald Trump are not exactly likely to be scared off by his lack of decorum.
For what it’s worth, I still don’t expect The Donald to win the nomination; the big money will presumably coalesce around someone — though given Jeb’s foot-in-mouth performance it’s hard to see who — and will probably squeeze him out in the end. But the story so far has been a remarkable illustration of how little many professional political pundits seem to understand.

BRIEF-Philips CEO says China is really slowing down, as is Brazil

Image result for ceo phillips

My overarching belief is that this is the most “pure macro” environment we have been in for over a decade, probably since the Asian Crisis in the late 1990s, and I just don’t think people understand what is going on.
My entire thesis rests neatly on the US Dollar. Nothing else matters and if my view is wrong on that, then it is likely wrong on many things. What is really weird to me is that most people agree with my views on the dollar but don’t have the trade on, and were less versed on the macro knock-on effects of a strong dollar. Groupthink has tended to isolate particular parts of the US or global economy and ignore the bigger picture.

Importantly, actual breakdowns in market internals have been followed by market losses, on average, even since 2009 (as we saw in the near-20% plunge of 2011). In mid-2014, we imposed the requirement that market internals or credit spreads must actually deteriorate as a precondition to establishing a hard-defensive market outlook. That adaptation brings our present methods back in line with the central considerations that were responsible for our success prior to 2009.

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