MAGNETS

Magnets in their time have been used for many things. So this should hardly come as a surprise. One wonders, however, should this research hold up, if there's not some use for them on bureaucrats and politicians to decrease their cravings for greed, power and corruption.

Stefano, a 46-year-old cocaine addict from Padua, Italy, had all but accepted that he might die from his habit. He’d just relapsed after a seven-month stay at a rehab facility, his third failed attempt at getting clean. Stefano (who asked that his last name not be used) couldn’t go more than two days without the drug.

So when he read a magazine article about an unusual new method to treat drug addicts, he figured he didn’t have much to lose. The study described how local researchers were using a technique called transcranial magnetic stimulation to counteract cravings. He would have to sit in a chair while doctors waved a figure-8-shaped wand over his head to fire magnetic waves into his prefrontal cortex. “So almost like a joke, a little bit just to make my family happy, I said I would try,” Stefano says.

Now the results of the study, involving 29 cocaine addicts seeking treatment at a Padua clinic, are out. They suggest that the magnetic stimulation treatment significantly reduced both cocaine use and cravings. Stefano says his desire for cocaine diminished dramatically after several sessions under the magnet. “I can’t explain it,” he says. “It happened very quickly. Read more:

http://www.technologyreview.com/news/544081/for-cocaine-addicts-treatment-with-magnets-may-stop-craving/?

MORE ON OIL

 What happened the last time oil fell this low?

Well, here's an interesting chart that gives you one possibility. We're not saying that this is ahead, but with the Fed cocksure on raising interest rates soon the timing could be exactly right for the Fed to do precisely the wrong thing.

Recall the ECB was still hiking interest rates while the U.S. was lowering them before the last recession became the news of the day .Check out action in the oil patch bond market on Monday as the WSJ reports.

A fresh wave of selling hit energy-company bonds, reflecting a growing consensus that slumping commodity prices will push many heavily indebted firms into default.
Bonds from Chesapeake Energy Corp. , which is looking to restructure some of its debt through an exchange offer, traded at 32.8 cents, a decline of 17%, according to data from MarketAxess Holdings Inc. Oasis Petroleum Inc. bonds shed roughly 6% and traded at 79 cents. A bond from EP Energy LLC traded at 80 cents, down about 5%.

The selloff marks a sharp shift in Wall Street sentiment from earlier in the year, when investors piled into energy-company debt and firms sold new bonds as the price of oil appeared to stage a comeback.

But with oil prices plunging anew after the Organization of the Petroleum Exporting Countries decided Friday to keep pumping crude at near-record levels, many firms’ bonds have begun trading at levels that suggest a reckoning is at hand. Crude fell $2.32, or 5.8%, to $37.65 a barrel on the New York Mercantile Exchange.

Maintaining the ability to borrow money at reasonable terms is crucial to many low-rated energy firms, which need to raise cash to retire debt and pay for new infrastructure. Analysts say losing access to the capital markets could accelerate some firms’ slide into bankruptcy, though a wave of defaults wouldn’t necessarily provide immediate relief for the industry’s supply glut.

Recessions bring on unrest and unrest begets conflict. And conflict could be just what the doctor ordered.

OVERNIGHT

Water, water, every where,         
And all the boards did shrink
Water, water, every where
Nor any drop to drink 
                                   
The world seems awash in oil. But unfortunately it's apparently awash in "Whatever!" when it comes to demand. Samuel Taylor Coleridge's line from his famous poem, Rhyme of the Ancient Mariner, pretty much applies to today's oil patch. There's plenty of it around but few takers. And the implications seemingly spread with each decline in prices as the WSJ reports about the Asian markets overnight.

HONG KONG—Asian markets tumbled Tuesday after global oil benchmarks hit the lowest levels in almost seven years in U.S. trading, sending energy stocks and raw materials producers sharply lower.

While oil prices stabilized somewhat during Asia market hours, both West Texas Intermediate and Brent crude had earlier hit their lowest levels since 2009 in the wake of the Organization of the Petroleum Exporting Countries’ failure at their meeting last week to take any steps to cut supply.

WTI futures edged up 0.4% to $37.79 a barrel on Tuesday, while Brent advanced 0.7% to $41.03 a barrel.

Oil isn’t the only commodity slumping. Spot iron ore fell for a seventh consecutive session on Monday, to a fresh decade low, amid further signs of weak demand from steelmakers.

Commodity producers and energy stocks tumbled, sending the Australian S&P/ASX 200 down 0.6% as mining giants BHP BillitonLtd fell 5.3% and Rio Tinto Ltd sank 4%. Both companies rely on iron—a key steelmaking ingredient—for a large portion of their earnings.

Investors are capitulating as the outlook for commodities prices dims further.
“It is quite spectacular, really,” said Tim Schroeders, a Melbourne, Australia-based resources fund manager at Pengana Capital. “We haven’t just seen low commodity prices, but continued falls in commodity prices,” he said. “Now, we are getting to a point where people have been so wrong for so long, they are having to address the situation and sell.”

While Tuesday’s slide follows another oil price collapse, it is also rooted in expectations that the U.S. Federal Reserve will soon raise rates, which could further weaken commodities demand, Mr. Schroeders said.

Chinese stocks fell, even as trade data for November pointed to a slower pace of decline compared with the previous month. Exports fell 3.7% year-over-year in yuan terms and imports fell 5.6%. Both declines were smaller than the drop expected by economists.

And Reuters noted the outlook for China remains nearly as mysterious to many as the Chinese language itself.

Underlining the cautious outlook for China, a Reuters poll of Japanese firms showed deep pessimism about near-term Chinese growth prospects, with 79 percent saying they do not expect to expand business there next year.

Tuesday's data showed China's imports fell for the 13th consecutive month with a 8.7 percent decline in November compared to a year earlier, indicating concerns about China's economic outlook will dog investors next year.

"Investors will remain quite sceptical about the true growth conditions of China which will mean that sentiment will remain quite fragile going into 2016," Kinger Lau, chief China strategist at Goldman Sachs, told a briefing in Hong Kong.

China is expected to eventually report growth of about 7 percent for this year, which would be the weakest pace in a quarter of a century. But according to an index used by Goldman Sachs, actual 2015 growth may be as much as 2 percentage points weaker.

                                                    

                                            

PUSHBACK BANKING

Last week the WSJ ran a story, "Rules Stifle Lending To Risky Borrowers," about federal regulators clamping down on banks that make leveraged loans to companies deeply in debt.

As you might expect these loans are money makers for banks, so the restraints didn't go down easily with bankers. Here's a few paragraphs from that story.

Banks also objected because their primary role in leveraged loans is as middlemen who arrange a loan and sell it in pieces to outside investors. The banks bear less risk if the borrower defaults than if they held on to the loans.

Leveraged loans generate hefty profits for banks such as Credit Suisse Group AG and J.P. Morgan Chase & Co. Borrowers include Wendy’s International Inc., SeaWorld Entertainment Inc. and PetSmart Inc.

Most of us try to avoid middle men because they take a slice of the pie. Here you have the banks apparently wanting to take advantage of both worlds, booking hefty profits but getting to unload the responsibilities before the fat lady sings.

Here's a few paragraphs from the other side.
While leveraged loans didn’t cause the financial crisis, their post crisis boom alarmed regulators who saw an eerie parallel to the mortgage bonds that battered investors world-wide during the foreclosure epidemic.

“Our banks are completely tied to the broader financial system in some form or fashion, so if there is weakness in one part of the system, it is likely going to have negative consequences for the banks,” says Darrin Benhart, the Office of the Comptroller of the Currency’s deputy comptroller for supervision risk management.

In response, the Fed, OCC and Federal Deposit Insurance Corp.strong-armed U.S. banks for the first time ever to comply with minimum underwriting standards on leveraged loans no matter who shoulders the credit risk.

The heightened scrutiny has included monthly reviews of individual banks’ leveraged loan portfolios. Regulators also have lowered the boom on some lenders in so-called private letters, for which failure to comply can lead to fines or curbs on lending, dividends and other activities.  

 From the regulator side it's about sustaining financial stability, but that comes with severe concerns, one of which is how much should bureaucrats interfere with open markets. There are others like over-regulatory zeal to rule out any and all risks. After all, one of the inherent fundamentals of markets is risk.

But like any water-filled balloon, push on it one place and it will bulge in another. And that's just what these lenders are confirming as they take their business elsewhere to firms not regulated by the Fed and other government overseers.

Now some might call that normal human behavior, albeit many don't believe bankers inherently fall into that category: Push on me here and I will push back somewhere else. It could turn into a huge stalemate, otherwise known in more crude circles as a pissing contest. And we all know how good stalemates are for the economy.

WHATEVER CONVICTION?

Last week's action sent confusion through the market and raised questions about the ECB's conviction to Draghi's "whatever it takes" pronouncements. 

That is not what happened last week. Of course, the ECB did provide additional stimulus, in the form of another deposit cut and an extension of the QE program. It is also possible that thin liquidity exaggerated market moves, such that the spike in EUR/$ overstates the degree of disappointment to the market. But in the end, what mattered last week was whether the ECB sent a message consistent with President Draghi’s speech in Frankfurt on November 20, one that signalled a sense of urgency over the need to confront low inflation. It did not.

Our best read is that the Governing Council is conflicted over the use of unconventional policies and therefore resisted more aggressive action. Given that – at the zero lower bound – so much rides on a central bank’s willingness to send strong signals in order to influence expectations, last week’s performance likely compounded the damage from the summer, rather than fixing it. In short, our conviction in regime change is down, and we worry that the ECB is starting to lag relative to the BoJ under Governor Kuroda.

zerohedge.com/news/2015-12-07/eur-slides-below-108-after-goldman-raises-eur-forecast

FRANKFURT--German industrial output rose in October, although by less than expected as gains in manufacturing and construction were capped by a slump in energy production.

Industrial output, adjusted for seasonal swings and calendar effects, expanded 0.2% in October from the previous month, the economics ministry said Monday. Economists polled by The Wall Street Journal had forecast a 0.5% increase.

"The trend in industrial production was slightly negative of late," the ministry said, but added that rising output at the start of the fourth quarter was "a first step to overcome the weakness of the previous months."

Manufacturing output and construction each increased 0.7% from September, but energy production slumped 5.9%. "Ample wind and sun during the summer had previously led to a noticeable expansion in renewable-energy production," the ministry said.

The industrial output data are the latest in a series of rising economic indicators, that point to a pick-up in German economic activity following a slack third quarter.

The ministry said Friday that manufacturing orders rose 1.8% in October from the previous month, propelled by a 2.4% rise in eurozone demand. Germany's Ifo business sentiment measure hit its highest level in 17 months in November.

.nasdaq.com/article/german-industrial-output-rebounds-but-by-less-than-expected

CURRENCY RESERVES DOWN

BEIJING--China's foreign-exchange reserves in November fell to their lowest level in more than two years, reigniting concerns about Beijing's ability to stem the outflow of capital from the world's second-largest economy.

Read more: http://www.nasdaq.com/article/china-nov-foreignexchange-reserves-down-to-lowest-level-in-more-than-two-years

OVERNIGHT

 Reuters's reports that Asian share markets bounced on Monday after Wall Street welcomed an upbeat U.S. jobs report that suggested the world's biggest economy was well placed to handle an expected first increase in interest rates in almost a decade.

Oil prices were near their lowest since 2009 in the wake of the Organization of the Petroleum Exporting Countries' decision to keep production high despite depressed demand.

Equity investors in Asia were also wary ahead of a bevy of Chinese data which are expected to show a still sluggish economy. Trade figures are due on Tuesday, followed by inflation on Wednesday and industrial output and retail sales on Saturday.

Japan's Nikkei .N225 led the way with a 1.2 percent gain, while Australian stocks managed only 0.1 percent. The CSI300 index .CSI300 of the largest listed companies in Shanghai and 

Shenzhen started soft before inching up 0.2 percent.

The WSJ is reporting Investors are taking positions ahead of gauges of Chinese inflation, trade, retail sales and industrial production within the next week.

After a shaky start, Chinese markets advanced later in the morning, with the Shanghai 

Composite up 0.4% and the smaller Shenzhen market jumping 1.2%.

The Hang Seng China Enterprises Index, which tracks Chinese companies with offshore listings, was last up 0.3% after briefly turning negative in the morning.

Reuters' is reporting these results fron Sunday's Venezuelan elections.

Venezuela's opposition won control of the legislature from the ruling Socialists for the first time in 16 years on Sunday, giving them a long-sought platform to challenge President Nicolas Maduro.Election board head Tibisay Lucena said the opposition Democratic Unity coalition won 99 seats to the Socialists' 46 in the 167-national National Assembly with some districts still to be counted.When she finished speaking, fireworks went off in pro-opposition districts of Caracas.

Maduro, 53, quickly acknowledged the defeat, the worst for the ruling "Chavismo" movement since its founder Hugo Chavez took power in the South American OPEC nation in 1999.

INVESTMENT GURU

Twenty-five years ago investment rock star Peter Lynch stepped away from Magellen, the huge Fidelity mutual fund he put on the investments map. Lynch wrote a best selling investment book in his day that is still worth a read for market students and popularized terms like four-bagger and backing up the truck.

What he now says he didn't do is recommend what has long been attributed to him as a simplification of his investment philosophy, investing in "what you know." Now 71 he still follows the market, but notes the market is different today if for no other reason than ETFs weren't around back then, a fact he comments on below.

Contrary to today, Lynch was one of the guys of his era (and there were others) who proved individual money managers could and did beat the market averages regularly or, in Wall Street parlance, add alpha. Lynch was also known for his attention to fundamental research.

Here are some excerpts from a recent WSJ piece.wsj.com/articles/peter-lynch-25-years-later-its-not-just-invest-in-what-you-know.

Use your specialized knowledge to home in on stocks you can analyze, study them and then decide if they’re worth owning. The best way to invest is to look at companies competing in the field where you work. Someone with deep restaurant-industry experience would have predicted the success of Panera Bread Co. and Chipotle Mexican Grill Inc., he says: “If you’re in the steel industry and it ever turns around, you’ll see it before I do.” 

Speaking of restaurants which have an average life span of about five years, Lynch once warned about those eateries that depend on liquor sales for a good portion of their revenue, saying the food better be good because liquor tastes the same everywhere.

The market is different than in 1990. One of the biggest changes: exchange-traded funds. Mr. Lynch credits their rise with a distrust of mutual-fund managers, which he says is unwarranted. “People accept that active managers can’t beat the market and it’s just not true,” he says. (A Fidelity spokesman says about three-quarters of its 49 equity funds managed by the same portfolio manager for at least five years were beating their benchmark over the manager’s tenure as of Sept. 30.) Mr. Lynch’s advice for small investors: Picking individual stocks is hard even for the professionals. So “if you can’t understand the balance sheet, you probably shouldn’t own it.”

SOLAR PANELS, WINDMILLS AND SCREWED CONSUMERS

There is an old saying no good deed goes unpunished.

A rough translation of that is: If there's a way to screw the consumer we will  find it. Or for every action there is a reaction.Wouldn't it be nice if someone told the bureaucrats and politicians.

Here's a story from MarketWatch we're sure all those climate change freaks and alternative energy pushers will love.

It’s getting harder to figure out whether converting your home to solar energy makes financial sense as utilities adopt new ways to pay customers who pump electricity into the electric grid.
Most utilities buy homeowners’ excess solar power for the same price they sell power from the grid. This idea, called net metering, is easy to understand: Buyer and seller get the same price.
But some utilities around the country complain that net metering doesn’t cover their costs of accommodating solar. With support from regulators, they’ve started paying for home solar at lower prices than grid power.

Consumers need to pay attention to these changes. Most home solar systems export 40% to 60% of their electricity production back to the power grid, says Mark Dyson, a manager at the Rocky Mountain Institute, which studies alternate energy. Lower payments for that power have a big impact on whether home solar is cost effective.
 
In Hawaii — where utilities have griped that rooftop solar stresses parts of the power grid — regulators in October replaced net metering with a new price structure that slashes solar reimbursements.

In Honolulu and the rest of Oahu, rooftop solar owners have been reimbursed at Hawaiian Electric Co.’s retail price, which in 2014 averaged 35.48 cents per kilowatt hour. Under the state’s new rules, Oahu residents installing new rooftop systems will be paid around 15 cents per kilowatt hour — 64% less.

On Hawaii’s other islands, utilities won’t reimburse new solar customers more than 25 cents per kilowatt hour — the exact rate varies by company. The new price setup applies only to new solar installations. Homeowners who’ve already installed rooftop solar will continue to be paid at net metering rates.

Hawaii’s sky-high power prices make solar more popular there than anyplace else in the U.S. One in eight Aloha State homes has solar panels. Hawaii’s average retail electricity price in 2014 was 37.03 cents per kilowatt hour, the nation’s highest. That’s more than double the 18 cents it costs to produce a kilowatt hour of solar in Honolulu, according to an online calculator posted by the U.S. National Renewable Energy Laboratory.

Solar is so cheap compared with Hawaii’s grid power, it’s still a good deal despite the state’s new price rules. “Even with the reduced benefit, you still save money,” said Colin Yost, chief executive of RevoluSun, a Honolulu solar installer. “But it becomes a little less valuable.” Yost thinks the new tariffs will force lower-income customers to think twice about switching over to solar.

If you think they're going to let you leave quietly, solar panels, wind mills or cow flatulence, when there's money and "power"at stake, you probably believe there won't be any ISIS terrorists in the 10,000 Syrian refugees Obama and his crowd want to let into this country.

marketwatch.com/story/why-some-states-are-making-going-solar-more-expensive-2015-12-04.

RECYCLED WATER

She loves me, she loves me not. Anyone remember that childhood flower-petal-picking game?

The economy is doing well, the economy is not doing so well.  New jobs are being created, new jobs are not being created. The Fed wants to crank up interest rates--and most likely will--in a few days and as we've noted before they are data driven. Some might say, data paralyzed.

So you originally put out a feeler to see what the reaction is. It doesn't get the reaction you want. So you give it a little time and then you roll out a revised number. It's nice work if you're fortunate enough to get it. It's what a colleague calls economic plastic surgery. We fixed the nose last month. This month we'll doctor up the jobs numbers.

This “Jobs Friday” ritual is getting truly absurd. So it can’t be repeated often enough: These artifacts of the BLS’ seasonally maladjusted, trend-cycle modeled, heavily imputed/crafted and five times revised “jobs” numbers have precious little to do with the real health of the main street economy. 

Indeed, the six-year run of job gains since early 2010 primarily represent “born-again jobs” and part-time gigs. In economic terms, they do not remotely resemble your grandfather’s industrial era economy when a “job” lasted 40 to 50 hours per week all year round; and most of what the BLS survey counted as “jobs” paid a living wage. 

Not now. Not even close. 

Don't drink the water. It's been recycled. More:

davidstockmanscontracorner.com/these-aint-your-grandfathers-jobs-why-fridays-rip-should-be-sold/