GORDIAN KNOT

Here is an interesting read on the Greek election, most of it before the election.
http://globaleconomicanalysis.blogspot.com

And here is what happened earlier Sunday.

ATHENS (Reuters) - Greek leftist leader Alexis Tsipras promised on Sunday that five years of austerity, "humiliation and suffering" imposed by international creditors were over after his Syriza party swept to victory in a snap election on Sunday.

With about 60 percent of votes counted, Syriza was set to win 149 seats in the 300 seat parliament, with 36.1 percent of the vote, around eight points ahead of the conservative New Democracy party of Prime Minister Antonis Samaras.

While a final result may not come for hours, the 40-year-old Tsipras is on course to become prime minister of the first euro zone government openly opposed to the kind of crippling austerity policies which the European Union and International Monetary Fund imposed on Greece as a condition of its bailout.

"Greece leaves behinds catastrophic austerity, it leaves behind fear and authoritarianism, it leaves behind five years of humiliation and anguish," Tsipras told thousands of cheering supporters gathered in Athens.

European leaders have said Greece must respect the terms of its 240 billion euro bailout deal, but Tsipras campaigned on a promise to renegotiate the country's huge debt, raising the possibility of a major conflict with euro zone partners.

Now the jockeying for position begins. Taking some attention from Europe this coming week is the Federal Reserve's upcoming two-day buffet Tuesday and Wednesday. Most expect no surprises coming from that quarter as flat wages and lower energy prices put fears of spreading deflation on the front burner.

If the Greeks are smart this would be the beginning of their swan song. They would just get up and go. It would be rough going for a while, but counting on Brussels bureaucrats rather than your own independence is the more dangerous course of the two in our view.

There is an inherent north-south division here older and more complex than a Gordian knot.

WHATEVER IT TAKES

When attacked, go on the attack.

It's an age-old tactic and not one lost on Keynesian apologist or editorial writers like those at the Financial Times.

In a weekend editorial, "No need for hostilities in the money currency war," one anointed genius writes, "The ECB should ignore accusations of competitive devaluation."

Much of the justification for EU QE we have read came from those citing U.S. and UK monetary policy, the assumption being they were not only successful but worth emulating. After all, it seem to work for them. Why not us and what's the holdup?

Talking that up with a litany of excuses why QE is pure and devoid of any nasty ulterior motives, especially those as nasty as competitive devaluation, he writes:

There is little to suggest that the ECB is skewing its policy easing towards weakening the exchange rate.

We wonder why. Telling the population before is akin to a bank robber announcing which bank he's going to rob before he does it.

Next the editorial plays down the cynical idea of begging thy neighbor by citing that the EU trades mostly within its own currency area. The amount they buy from, and sell to, countries outside the 19-member bloc is less than one-fifth of the eurozone economy. 


Though only a small perception point, it's interesting that the writer chooses a fraction rather than a percentage to make his point in a discipline--the dismal science--that lives and breathes on percentage parameters like the percent of unemployed, interest rates or 2% inflation.

Small businesses are the purported heartbeat of the EU. Given the previous ECB tactics, with interest rates already lower than a fat duck's belly, all designed to prod banks to lend more to these small businesses--something that has yet to happen on any meaningful scale--that leaves weakening the currency.

But the writer saves his most hypocritical point for last.

Governments and central bankers would do well to look at their own monetary and fiscal policies rather than complaining about others. The ECB has a perfect right to pursue QE and is wise to do so. It should not be put off by complaints from others based on faulty understanding of monetary policy and an unwarranted degree of cynicism about its motives.

Apparently, this editorialist is either ignorant or has a faulty memory or both.

But here's a reminder, sir, of Super Mario's now famous words quoted around the globe:"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."  

MACHIAVELLIAN CRICKET

“It will work because it’s big, because it’s strong, and because it’s open-ended.” — ECB executive board’s Benoit Coeure speaks to CNBC, post-bazooka.

If after Mario Draghi's smiling gala "credibility" performance Thursday there's any doubt that QE ECB style is a progeny of the old Greenspan-Bernanke-Yellen put option, double your dose of medicine.

Financial Times columnist and Keynesian apologist Martin Wolf wrote:"Above all the purchases will continue until the bank sees a 'sustained adjustment' in the path of inflation consistent with its aim of achieving inflation rates 'below, but but close to, 2 per cent' over the medium term."

Who gets to define "sustained adjustment," the market or a whole gaggle of bureaucrats?  The medium term apparently runs until September 2016. Sounds like a LEAP put to us. What's your view?

An editorial in the same paper, "Draghi opens Europe's monetary spigot at last," stated, "The claim that monetary policy is inert when interest rates are low is belied by the recoveries of the US and UK."

Much of any U.S. recovery has engineered a paper financial asset bubble now headed into its seventh year, not a raft of meaningful, sustainable jobs notwithstanding what governments officials claim.

And as if these central bankers didn't know that most of the money in the U.S., as it will most likely in the EU, wound up in the hands of speculators widening the already wide gap between those
much-hated haves and those not haves the MSM loves to drivel on and on about.

First you attack the banks for not running a fiscally tight ship last time around, run some bogus stress tests designed to cough up the wanted results, then start pressuring them to lower lending standards.

Here's a what-you-expect quote from Bloomberg. Block out if you can the cheering in the background.

The region’s leaders have so far started overhauling the banking system to spur lending and funnel credit to the businesses that need it, and with some success. Credit standards eased for a third straight quarter in the three months through December and demand for loans is rising.

Demand is rising for less credit-worthy loans and bureaucrats and MSM mavens get excited. Does that about cover it?

Back to Wolf. Nobody knows for sure whether this action will work. But at least it's a start.

The proverbial camel gets it's nose under the edge of the tent too. It's a start. But nobody knows for sure if he'll ever get his whole body inside, a fact most would view as quite unfavorable.

Currency devaluation has become a currency war. Look around at how many central banks are doing it. Blockades are acts of war. So too are the foolish EU and U.S. sanctions against Russia over a country that has been one of the worst governed in the history of government.

And then there's that beautiful part with all the back slapping Draghi's getting over negotiating a bigger deal than most expected, buying one trillion-plus euro's worth of investment-grade bonds. He stood strong against those stubborn fiscal probity philistines of the north.

As a concession to the pathologically prudent he brokered a deal that left the ECB only 20 percent on the hook for any unexpected defaults. You can bet messieurs Renzi and Hollande groaned loud and long and deep from their third chakra when they heard that one.

What happened to the Three Musketeers and the all for one and one for all to take the fall? That hardly sounds like Machiavellian cricket.

Draghi may be Super Mario today to many. But if this monetary recklessness crashes and burns, in a not too distant tomorrow he might be a Super Something Else.

ENERGY JOB CUTS MOUNT

Job cutbacks in the energy section continue to grow and as we've noted before these are mostly good paying jobs not the burger-flipper kind we've seen accelerate over the last six years or so.

Here's a list of recent news about some of those cuts from: http://theeconomiccollapseblog.com/archives/12-signs-economy-really-starting-bleed-oil-patch-jobs

#1 It is being projected that the U.S. oil rig count will decline by 15 percent in the first quarter of 2015 alone.  And when there are less rigs operating, less workers are needed so people get fired.

#2 Last week, 55 more oil rigs shut down.  That was the largest single week decline in the United States in 24 years.

#3 Oilfield services provider Baker Hughes has announced that it plans to lay off 7,000 workers.

#4 Schlumberger, a big player in the energy industry, has announced plans to get rid of9,000 workers.

#5 Suncor Energy is eliminating 1,000 workers from their oil projects up in Canada.

#6 Halliburton’s energy industry operations have slowed down dramatically, so they gave pink slips to 1,000 workers last month.

#7 Diamondback Energy just slashed their capital expenditure budget 40 percent to just$450 million.

#8 Elevation Resources plans to cut their capital expenditure budget from $227 million to$100 million.

#9 Concho Resources says that it plans to reduce the number of rigs that it is operating from 35 to 25.

#10 Tullow Oil has reduced their exploration budget from approximately a billion dollars to about 200 million dollars.

#11 Henry Resources President Danny Campbell has announced that his company is reducing activity “by up to 40 percent“.

#12 The Federal Reserve Bank of Dallas is projecting that 140,000 jobs related to the energy industry will be lost in the state of Texas alone during 2015.

And of course it isn’t just workers that are going to suffer.

Some states are extremely dependent on oil revenues. Just take the state of Alaska for instance.  According to one recent news report, 90 percent of the budget of Alaska comes from oil revenue…

THE FRACK THICKENS

What if owing to reduced investment and cost cutting crude oil hit $200 a barrel by the end of the decade?

Some might call this political theater. But Claudio Descalzi, the chief of the big Italian oil firm, Eni, just posed that question.

Saying a a lack of production in four or five years along with continued cost cutting and lower capital expenditures "would create a condition for a dramatic rise in oil prices," he floated the number $200 a barrel.

Descalzi referred to Opec's need to stabilize prices by cutting back production, something Opec officials contend ain't in the hydrocarbon deck any time soon as crude traded below $50 a barrel, near a six-year low.

Opec defended it stance, claiming its not directed "at any one country." But that's a meal U.S. fracking firms may have a difficult time digesting.

Stories on the Internet are popping up routinely now about who--Saudi Arabia or U.S. fracking firms--will toss in the stained oil rag first. 

News about jobs cuts and reduced rig counts too are almost daily fare. This is theater, but it's also the stuff of huge profits sometime, somewhere down the oil patch lane.

Speaking to Reuters at Davos, Descalzi compared Opec to central banks and the need to create and maintain price stability. With all due respect to Descalzi, given what we really know about central banks, it was probably a poor choice of metaphors.

FIAT LAND

The long awaited moment is nigh as investors and assorted believers in Qualitative Easing, aka Qualitative Squeezing, depending on one's view of this monetary madness, later today see what's on the mind of the ECB and its astute leader Mario Draghi.

The sure bet is not everyone wll be happy no matter what the ECB pulls out of its magical chapeau.

For QE apologists like Financial Times columnist Martin Wolf who blames something he calls "chronic demand deficiency syndrome,"claiming in his latest garble that Europe is afflicted with it to those austerity prone Germans Wolf labels as pathological, disappointment will carry the day.

Too much or too little too late or too whatever, it's the nature of people carp and grumble.

In our humble view, Wolf's description should more correctly be labeled "chronic supply crock syndrome," but that's just our us being us.

 Wolf takes the ultimate swipe at those who favor prudence over profligacy and those stubborn Germans when he notes whatever Draghi does, if it fails, it won't be because the bank is "too independent but because it's not independent enough."

That's not the call of the wild you're hearing, it's the call of the fiat paper printing shills. 

(Reuters) - Asian shares held near eight-week highs on Thursday as investors bet on the likely size and scope of a bond-buying program the European Central Bank is poised to unveil later in the day as it attempts to revive the flagging euro zone economy.

DECIDE FOR YOURSELF

There's an old joke about a company CEO who asks his chief accountant what two plus two equals.

After a brief hesitation the accountant replies: "Whatever you want it to be, boss."

It appears that same philosophy prevails when it comes to forecasts, a multiple-billion dollar business. In this case when is a forecast not a forecast or, if you will, a non-forecast.

Forecasts or projections or whatever you want to call them are inherently political. They are made with an eye to pleasing whoever pays for them, in this case, the U.S. Congress.

The above is a quote from a recent piece about the accuracy of the U.S. Department of Energy's statistical right arm, the Energy Information Agency (EIA) and its forecasts about America's growing supply of natural gas owing the the fracking revolution in it Annual Energy Outlook 2014.

 http://resourceinsights.blogspot.com

For a little background here's a quote from President Obama.


When US President Barack Obama talks about the future, he foresees a thriving US economy fuelled to a large degree by vast amounts of natural gas pouring from domestic wells. “We have a supply of natural gas that can last America nearly 100 years,” he declared in his 2012 State of the Union.

The above quote is from the December 2014 issue of well-known magazine, Science, that took the EIA to task over its rosy projections.  

http://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430

Like most government agencies the EIA doesn't like to be questioned or second guessed. And that's precisely the point and why if your interested in the energy markets you need to read these three posts. And as we always say, decide for yourself.


http://www.oilgasdaily.com/reports/Nature_fires_back_at_EIA_shale_gas_critique_999.html

EXCESSES LEAD TO OPPORTUNITIES

A boom in anything--bond, home, oil prices--creates excesses.

Yesterday, we mentioned how many big Wall Street firms were just now releasing their most bearish reports on energy at a time when the hay is already in the barn. In short, they didn't see it coming.

Now as is Wall Street's frequent want, there rolling out the damage control to their reputations.

First come the excesses, then the inevitable cuts. It's a market way of doing things that reflects human behavior so long as one can keep the bureaucrats and politicians at bay.

Here's a headline from today's Financial Times, "Total to slash capital spend by 10% under new chief."

Total, the French  oil-and-gas giant plans to reduce group-wide capital spending by 10 percent this year and speed up billions pf dollars in asset disposals, under an accelerated cost-cutting plan led by new chief executive Patrick Pouyanne.

The move comes as thousand more job cuts were announced in the energy industry yesterday, with Baker Hughes, the oil field service provider being acquired by Halliburton in  a $26.8bndeal, saying that it would lay off 7,000 employees.

The executive also said it was considering a company-wide hiring freeze and it would cut its capital spending by $2-$3bn from 2014's total of $26bn. This is hardly the first of the big guys to take such a stand.

Earlier, ConocoPhillips, announced a 20 percent cut in capital spending for 2015 and BP, still struggling with its legal problems, already took a $1bn charge off to pay for job losses. At the same time rig count, a much followed industry indicator, recently fell for the sixth straight week.

According to a statement from Baker Hughes, "Oil drilling is falling faster in North America than the rest of the world," as the company warned of the beginning of "a downturn in the industry of the type seen once or twice every decade."

Some of the cuts, as in the case of Total, are to help maintain the group's dividend, a point their new leader noted was essential to retain investor confidence.

The other shoe from the lower energy prices is consolidation, something Total's new chief mentioned: "I  think you will see some impact on smaller players. I think it will be an opportunity for larger players maybe to have access to resources at a lower cost."

MORE ON GOLD

Here's the real story behind the Swiss national bank's sudden ending of its 2011 peg to the euro.

Economist John Maynard Keynes was noted for saying lots of things and one of them was a response to a question about changing his view to which he reportedly replied: "What do you do when you find out your wrong? I change my mind."

And that's what the Swiss central bank did last week, change it's outlook before their central bank doors get blown off their hinges in a modern day central bank version of your pain tolerance is important but not as important as ours.

Last one out turn off the lights because you won't be needing them any time soon.

http://www.mining.com/swiss-franc-farce-may-be-gold-price-tipping-point-89548/

VOLATILITY CHECK

American humorist Will Rogers presciently pointed out a long time ago that he was more concerned about the return of his money rather than the return on it.

In case anyone doesn't understand, Rogers' observation is a metaphor for what's going on big time in today's markets as investors scramble for yield while turning a blind eye about the risk to their capital.

As this Thursday approaches and the nearly consensus market expectation the ECB will roll out some form of QE, interest rates are likely to head lower once the economic cards hit the table in full view. 

In a world of falling interest rates or one central bank instigated and supported with a put option, investors will be scrambling for yield more than ever.

Such a scenario would bode well for safer dividend yielding stocks and certain asset mangers who can out perform returns investors get from traditional accounts like savings and CDs.

If you feel the limb getting slimmer and slimmer as investors scoot farther and farther away from the trunk, you're probably onto something.

One might say the interest rate and yield climate is the opposite of what's going on in the oil market where any positive news is being totally ignored and only the negative given any traction as many Wall Street firms that completely missed the oil downturn are only now tripping over each other to get out their most bearish reports.

In our view too many investors are expecting QE European style to mimic what QE American style did at least in part and that is keep volatility in check.

That's a meter for the last couple of years that's been relatively flat.