SANCTIONS STARTING TO HURT

As we already noted sanctions are starting to cut deeper in the Ukraine mess upping the chances of a Russian recession, according to Bloomberg.

The probability of a recession in the next 12 months rose to 65 percent from 50 percent, the highest since the first such Bloomberg survey in June 2012, according to the median estimate of 26 economists in the poll. Russia will enact additional restrictions in retribution for sanctions imposed by the U.S. and the European Union, according to 15 of 25 economists. Of those, 12 expect Russia to target cars and consumer goods. 

Now economists are often wrong, but forewarned is forearmed as they say.

The ruble tanked, capital is fleeing and inflation is on the rise as the two sides throw economic bombs at each other. One could look for the glass is half full side and be thankful it's not those other kinds of bombs, but any further sanctions could push the recession cart over the cliff. 

Since the start of 2014 Russian sovereign bonds are down more than 11 percent and the ruble dropped 10 percent against the U.S. dollar, Bloomberg reports.

As the sanctions cut both ways, it remains to be seen how staunch European Union members will remain given all the problems there if this continues into fall.



 

MORE JOBS NUMBERS

Here's some more Fed voodoo jobs numbers, one of 24 indicators Fed Chair Yellen is suppose to be tracking, to make us all feel like these folks know what they're doing. MSM will likely run with it.

 It's from the Kansas City Fed and Yellen mentioned the index at Jackson Hole last week. Now we can all take a deep breath and relax they got this covered.
http://blogs.marketwatch.com/capitolreport/2014/08/28/yellen-cited-jobs-index-reaches-highest-level-since-october-2008/ 

ADDICTION HARD TO KICK

 Be careful what you become addicted to or dependent on.

As the situation in Ukraine continues to cloud up the inevitable change of seasons advances respecting  no man or gas importer either.

At least six European countries get all of their gas from Russia, the big bad hydrocarbon wolf of the area. And Putin, like bullies have been doing from the playground to the international scene since the beginning, is threatening to take his gas ball and go home.

Finland, Estonia, Latvia, Lithuania, Romania and Bulgaria receive 100% of their natural gas imports from Russia, the Energy Information Administration said Wednesday.
Romania and Bulgaria receive that gas through pipelines that cross Ukraine.

Overall, 30% of natural gas consumed in Europe (including countries outside the European Union) came from Russia last year, with 16% of natural gas consumed in Europe passing through pipeline networks in Ukraine. 

Top Russian gas importers include Germany and France. In the past, as much as 80% of the Russian gas traveled through Ukraine, but that percentage has fallen to 50% to 60% once a pipeline under the Baltic Sea connected Russia and Germany three years ago, according to the EIA. http://www.marketwatch.com/story/these-countries-have-the-most-to-lose-if-russia-shuts-the-gas-valve-2014-08-27

People want food, water and heat. The good side to all this if it gets worse it will make these countries try to get off the Russian gas fix. And even more so, it most likely will slow down the global warming, climate change madness that's been sweeping the globe the last decade or so.

Germany's huge north to south renewable energy project, a pagan hymn to the God of Greenies, is on cost overload and anything at this point but a success. One of the goals is it's suppose to get Deutschland off those dreaded hydrocarbons and nuclear power.

For now owing to a milder winter last year stockpiles look adequate. But the longer it goes on, the colder it's likely to get.
t. man hatter




 

EURO STRENGTH

Concerns about the strength of euro in the absence of inflation crop up again as French President Hollande noted earlier today, according to Reuters.

 French President Francois Hollande said on Thursday low inflation in Europe and an overvalued euro threatened a protracted stagnation, and called for an early euro zone summit to coordinate pro-growth measures.

"The recovery is too weak. Inflation is too low. The euro is too high," Hollande said at an annual ambassador's conference.

"Europe is threatened by a long and possibly interminable stagnation if we do nothing."

Hollande said pro-growth reforms France had already taken "cannot work unless all of Europe is mobilized also."

"At the side of monetary policy, there must be a budgetary policy which must play an important role to take into account situations, exceptional circumstances," Hollande said.

"The rhythm of deficit reduction must be compatible with growth goals and weak inflation."

This was Hollande's latest comment since shaking up the government over last weekend when he shuffled his cabinet in a new effort to revive France's sick and stumbling economy. Critics are calling for an end to any austerity emphasis and more pro-growth action.

The euro has remained stubbornly high in the face of efforts throughout the EU to stimulate more inflation which remains well below the official target rate of two percent.

In other European news the situation in the Ukraine apparently worsened as claims of Russian troops entering the country hit the airways. Coupled with the latest reports from the eurozone's consumer confidence index that dropped in August to 100.6 from July's 102.2 and the gloom continues to spread. Economists were expecting a number closer to 101.5.

Other reports have suggested sanctions are starting to squeeze Russia and the EU, adding to what many feel is further hurting an already feeble situation with unemployment in Germany, the EU's largest economy, still at 6.7 percent.

THE FRENCH CONNECTION

t. man hatter
With a "forty-year history of nearly unbroken deficits," the term instant results should never even be in the discussion.

And that's the problem all reform movements share. It took 40 years to get it this screwed up, but critics want it fixed pronto and without any pain or discomfort. As someone once put it: New ideas don't go down easy.

A wise old gentleman and statesman named Benjamin Franklin, a guy who had some apparently fond French connections, was noted for many things, one of which is the saying: "A stitch in time save nine." 

That's the problem with France and a whole lot of other countries around the globe including the United States. Nobody wants to pay the piper on time. And France is only one of a gaggle of classical, historical examples.

But you don't have to look at France and their current political-social turmoil. Take a look at Mexico and its relatively new government's struggles to evoke change.

Mexican President Enrique Pena Nieto took office less than two years ago bringing with him, according the Financial Times, a "game-changing agenda which includes flinging open the energy sector to private investment after nearly 80 years under a state monopoly, forcing competition in a telecom market dominated by mogul Carlos Slim, as well as education, labour and financial reforms."

After a first rough year when much of the global economy was still under weather, the Mexican economy appears to be picking up some oomph. In the interim Nieto won international praise for his "gutsy" moves. And the big ratings firm Moody's has a scheduled conference with the catchy title, "Mexico's debut in the big league."

So what do you suspect Nieto's popularity ratings are?  If you answered not great, you're just a kind soul who likely gets most of his news from your local throwaway. According to a recent Pew Research Center survey, 67 percent of Mexicans "are unhappy with the way things are going and many resist change."

Are you surprised?  Though much of the disappointment centers on Mexico's poor results in Nieto's first year in office when the economy grew only 1.1 percent, people remember and expect his 2012 promise to bring 5-6 percent GDP growth.

There's an old business saying about giving more than you promise if you want to be successful. After all these years, apparently it's one bureaucrats and politicians have yet to learn.

It also contains a deep lesson about deficits seemingly too subtle for many to understand.

HISTORICAL BULL

 
One of the arguments people like Wharton Finance professor Jeremy Seigel, a perennial bull who if he gets any more bullish given his long record, could replace the bull statue just outside the New York Stock Exchange, is this statement given today on CNBC.

 So, the 10-year goes from 2½ to 3—and maybe even 3½—that's still extraordinarily low from any historical (perspective). And that's why, again, stocks have that wind of the interest rates going with them no matter when the Fed starts tightening."

It should be noted here how often bulls like Seigel like to recite historical norms when they buttress their position. Now we're neither bull nor bear.The market is what it is until it decides to be something different.

Yet unless we misconstrued Fed Chair Yellen's recent mincing of words act at Jackson Hole, she noted that the labor market was indeed different this time. Different from what? Historical standards. 

Assuming she's correct, a position many bulls take, one could postulate why would the labor market be different from the interest rate market? And why would historical standards apply here but not there?

Lowering interest rates is designed to pump up consumption. Pumping up consumption is designed to pump up the economy. And pumping up the economy is supposed to create jobs. Yellen's point, as we understand it, is the jobs have not readily shown up because it's different this time.

So despite Seigel's claim to the contrary, going from 2.5% to 3.5% yield on the 10-year Treasury, irrespective of coming off historical lows, might indeed be different this time. And an S&P 500 with earnings at $120 at 2,000 trading at 16.5 earnings might not turn out to be so cheap after all.
t. man hatter 

NO BUSINESS LIKE NO BUSINESS

t. man hatter

"Cutting deficits without growth is the worst time to do it," some pundit was quoted in today's Financial Times in French President Francois Hollande's latest brush with reality.

The quote is just another example why the globe should leave the French to their misery. In the pathetic world of politics, there is never a good time to cut deficits. It's too painful in hard times, they say, and when things get better they don't need to be whacked. So the old game of economic musical chairs continues.

This is hardly unique to France. But the French are mostly likely just better at it than, say, even Italian or Spanish or American politicians. The first part of the pundit's quote is: "France's problem is we have not been credible for so many years (on fiscal policy)," and you thought the British were masters of  understatement.

Much of the recent uproar is about known French loudmouth Arnaud Montebourg's weekend comments in announcing his resignation as economy minister. Montebourg leveled his criticism, in what some believe was a not-so-veiled slur at Germany, that the EU's fiscal stance was causing "unnecessary prolongation of the economic crisis and the suffering of the European population"

There is nothing like good politically-based emotion to rile folks up. The Times describes Montebourg as "both sharp and tirelessly ambitious--among other things, he makes no secret of his goal to one day become French presidient," just the kind of bloke one wants running its affairs. 

Montebourg is anti-business, the last thing the people of France need.

OUR VIEW

There are many bad things that come out of Ohio and one of them is Democrat Senator Sherrod Brown.

We know the winters are frigid there and owing to the cold the viscosity of one's blood thickens depriving O2 to the Circle of Willis among other places. Now we have this elected cretin indirectly calling Burger King, as we've written several times before, nasty names.

The suggestion here is anything but subtle. Try what these donkey heads, control freaks love most, unpatriotic. This is another ploy to wipe out a perfectly legal freedom of choice movement that will soon be playing at a venue near you if you cower against these elected tyrants.

Forget White Castle,which during its long history might have clogged more arteries than tobacco smoke and trans fats combined, and Wendy's, a homegrown Ohio outfit. They're just pawns Brown seeks to use if they prove useful, a common tactic among these Congressional freaks.

More important, it shows you Senator Brown's real views about health care. Recent research reveals that today's 20 and 30 year-olds are skipping McDonald's. Isn't that what these food Nazis like certain mayors wanted?  Other new research shows that fast food venues cannot be profitable selling healthy food. It isn't in the cards.

Instead of Burger King, what the good citizens of  Ohio ought to boycott is Senator Brown and sending any more tax dollars than they have to off to that big black hole called Washington, D.C. As a native of the Great State of Ohio, some hallowed ground were both my parents are buried, people like Senator Brown make me ashamed of my heritage.

That's our view. We hope you know yours.
t. man hatter

DON"T SLEEP ON ENERGY

                                           t. man hatter
We've written about energy before. Back when it started  its recent run to $115 a barrel we said then that there would be a pullback and we've been getting one.

We also said then that hydrocarbons should be a permanent part of your portfolio. 

This is an energy market running on what some might call a full tank of confidence. Others an empty tank of fear. At present global oil supplies are plentiful, demand owing to economic concerns about the EU, Japan and China, to name a few, looks anemic and market participants for the most part have blown off the risk of geopolitical supply disruptions for now.

In our last "AROUND THE WEB" we posted a link to a Citigroup report essentially predicting the demise of the hydrocarbon world, another feature we like to see.

These should strike you as all the ingredients one looks for to be taking the other side of that trade. We know that Buffett just sold off a chunk of his energy holding and we say so what. Maybe he's just taking a chunk of big profits? For years he's claimed he's not a macro guy. He also owns Burlington Northern railway, a backdoor play on energy anyway you look at it.

Some would suggest its a monopoly to the North Dakota fracking boon, but Buffett has friends in high places, no surprise either. He's also an opponent of the Canadian pipeline that would run through Cornhusker Land.

Deflation fears are so much in the air one could call it the economic land of the the blind, a place as the parable goes where the one-eyed rule. In another link in that same post we listed another, "WHY YOU SHOULD NEVER TRUST ECONOMISTS," that quotes a Nobel Prize winning economist saying: "Anyone who believes in inflation is stupid." 

There are few things more dangerous to one's financial well being than Nobel Prize winning economists. If you haven't learned that by now, well, we again wish you well in your delusions.

Snooze on bureaucrats, politicians and Nobel Prize winning economists. But don't go to sleep on the possibilities to make money in energy.

AROUND THE WEB

1. MORE ON WELFARE THAN WORKING
http://globaleconomicanalysis.blogspot.com/2014/08/40-of-country-on-welfare-obamacare.html

2. A COMPLICATED OIL TALE
http://blogs.platts.com/2014/08/21/texas-oil-drilling/#more

3. SO MUCH FOR HUMANS
http://www.businessinsider.com/robots-as-bosses-2014-8?

4.  KOOKY ECONOMICS
http://www.zerohedge.com/news/2014-08-24/krugmans-keynesian-crackpottery-wasteful-spending

5. FRANCE BEING FRENCH
http://www.reuters.com/article/2014/08/24/us-france-austerity-id

6. BIG G AIDS BIG B
http://www.fee.org/the_freeman/detail/19-big-government-is-a-check-on-big-business

7. WHY YOU SHOULD NEVER TRUST ECONOMISTS
http://www.theguardian.com/business/economics-blog/2014/aug/24/nobel-winning-economists-challenge-conventional-thinking

8. THE SOLAR SIDE
http://oilprice.com/Latest-Energy-News/World-News/Citigroup-Report-Spells-Trouble-For-Oil-Further-Growth-For-Renewables.html