ECONOMIC DUELING

 

Back in the day dueling was often the solution of choice to solve a problem or difference.

Weapons varied from pistols to swords to whatever. Today dueling still exists, but the weapons have changed. Today's weapons of choice are QE and beggar thy neighbor.

A host of central banks recently picked up the trend, Canada, Denmark among others, with the 800 pound gorilla, Japan, sending out a shock wave of jitters with their own form of "Whatever it takes."

To cover its tracks Japan's central bank counterpart to Super Mario, a relaxed Haruhiko Kuroda, taking a theme from a popular song not too long ago, urged the world, don't worry, be happy.

The money-printing crowd will no doubt deny this for obvious reasons. They want what they want, a good old fashioned exterior house painting, in many circles known as a feel good factor notwithstanding that the interior is as usually rotting away. We call it monetary curb appeal.

We have written before and we will mostly do so again that the worst nightmare of politicians and bureaucrats is the Internet. With most of MSM in their hip pockets, it's a medium that's prevented these denizens of the world capitols and Davos from wreaking more unquestioned havoc on the masses.

The only creditability that Super Mario and his fellow dolts at the ECB will bring in the end is the current growing mistrust of these folks is warranted by 10 to the 10th power. 

When it fails to improve things these power-seekers will do just that, call for more independence, a receipt for further enslaving the masses and a clear shot at rolling back one of the major benefits of the Internet.

The journalistic meme waiting in the wings is what Financial Times columnist Martin Wolf floated last week when he wrote that if the ECB QE plan fails it won't be because it's independent but because "it's not independent enough."

EU inflation in December was positive, though it might not have been anywhere near what these bureaucrats wanted to cover up their perfidia. But the problem isn't one of printing more money. Europe is a cesspool of over-regulation, a chastised banking system and a cauldron spineless politicians.

In the end, the Super Duper Mario's legerdemain will be discovered just for what it is, economic sleight of  hand.

Meanwhile, expect the dueling to continue.And plan your investments accordingly.

EITHER WAY THE TRUTH GETS FRACKED

The possibility of more fracking woes seems to be spreading faster than a big oil spill. Low energy prices along with deflation worries are only a couple of many facing the industry.

Hydraulic fracturing in shale for oil and gas should be put on hold in the U.K. because of risks to public health and the environment, a panel of lawmakers said.
A moratorium on fracking is needed to prevent the U.K. from missing its carbon targets and allow time to stiffen regulations for the industry, Parliament’s cross-party Environmental Audit Committee said in a report Monday.

It called for measures including a ban on venting methane, public disclosure of chemicals used for hydraulic fracturing, and a regulatory regime to be written specifically governing fracking.
“Fracking cannot be compatible with our long-term commitments to cut climate-changing emissions unless full-scale carbon-capture-and-storage technology is rolled out rapidly,” Committee Chairwoman Joan Walley, a member of the opposition Labour Party, said in a statement. “There are also huge uncertainties around the impact that fracking could have on water supplies, air quality and public health.”

The Conservative-led government has promoted fracking by Cuadrilla Resources Ltd., IGas Energy Plc and other companies by cutting taxes and opening up swathes of the countryside to bidding for drilling licenses. 

The Bowland basin in Lancashire alone is estimated to hold as much as 1,300 trillion cubic feet of gas, enough to meet U.K. demand for half a century.
Lawmakers will debate Monday an Infrastructure Bill that would allow fracking companies to drill deep under land without the owner’s permission.

‘Profoundly Undemocratic’

Six thousand residents of a small northern Montana town recently awoke one morning to find that their tap water smelled and tasted like hydrocarbons. 

That turned out to be a good call as a pipeline beneath the Yellowstone River has sprung a leak and contaminated their water. Officials had to truck in bottled water.

Make no mistake in the UK and other places there's a huge egotistical political war being waged with huge goodies at stake. Besides some innocent folks like you and me the real victim will turn out, as usual, to be the truth.

What's interesting about the cited article is the phrase, "Profoundly undemocratic."

We like it. It sounds a lot like what the ECB and Super Duper Mario did just last week--endanger peoples' future without their permission.

So if you want to do your part to bring back higher energy and gasoline prices at the pump, grab your cardboard sign with the witty slogan and join the protestors. We  know more than a few speculators who will thank you profusely for it once prices start back up.

http://fuelfix.com/blog/2015/01/25/u-k-lawmakers-urge-fracking-moratorium/ 

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.

WATCH WHAT YOUR HOLDING

Gold hit a four month high Monday pending the ECB's expected but long-awaited QE program.

Talk about looking for a four leaf clover in a field where uncertainty and indecision reign, the wished-for-magical elixir of QE's been on the minds of too many for too long.

The euro recently hit an 11-year low against the rising U.S. dollar. Printing money debases the currency being printed. If one writes favorably about gold he or she is by MSM standards a gold bug. But those who vilify the yellow stuff are mostly fiat paper shills.

So the gauntlet has been tossed. Priced in euros gold is now back to prices not seen since 2013, having risen 3.5% since the Swiss central bank performed its monetary tap dance on currency markets last week.

Low bond yields are part of what goes around comes around. Low bond yields lower the holding costs associated with gold helping wipe out one its critics favorite points--gold doesn't yield anything while one is holding it. 

To the less MSM-annointed members strolling around the planet that seems a curious thought given the current yields on checking and savings accounts, notwithstanding taxes and government lies about the absence of inflation.  


In 2011 gold topped out at a record $1,921.17 an ounce before falling just under 30% in 2013 to the cheers of the fiat money crowd. Last year it eked out a small rise.

The bigger message from the Swiss bank heist is one fiat money shills could come to hate--central banks are not what many believed, fortresses of stability. 

While for those who choose the easy road, targeting greedy individuals and corporations for widening the income inequality gap, central banks with their easy money madness might be the real villains hiding in the economic clover.

Make no mistake. If Euro-style QE, even in its most-watered down form, happens, there will be money to be made. But it won't be made by those at the  bottom of the economic pit. That's not the way central banking works. It's only the way they talk.

So be careful what you're holding.

DOWNSIDE PRESSURE

 
 U.S.markets were closed for the Martin Luther King holiday but that didn't stop oil futures from declining.

NEW YORK (MarketWatch) -- ICE Brent crude oil futures for March delivery lost $1.33, or about 2.7%, to close at $48.84 a barrel on Monday during a session when U.S. markets were closed in observance of Martin Luther King Jr. Day. The London-traded benchmark is now down 57.5% from its 52-week high of $115.06 in June, and has fallen during 13 of the past 17 sessions, according to Dow Jones data. Brent crude is down 14.81% in 2015.

It will be interesting to see if New York follows suit when things get back to full stride Tuesday.  

With all the downside pressure on oil prices one could postulate much of the pressure that goes into the fracking business is being pumped in another direction.

Just where the point of equalization is, nobody knows. But there will be one, that much is clear.

GREED TAKES A HIT

Greed may know no bounds, but Thursday last week greed--the Federal kind--took one across the face.

U.S. District Judge Carl Babier ruled that British Petroleum unloaded 3.2 million barrels of oil in the Gulf not 4.2 million the U.S. government claimed.

That's a 25% decrease and as we previously noted U.S. officials wanted to fine BP $4,300 a barrel. On Friday BP's shares jumped 5.5% to close at $37.86. Even at this price the shares on a $2.40 dividend are  yielding 6.7%.

Instead of the old milk bottle, this is a game of spin the oil price wheel and see where she stops. Nor is it how long the price stays there, despite the palaver about falling knives and lost opportunity costs owing to tied up capital.

Big oil is cutting costs. Most of these programs means job cuts, too. In this case higher paying jobs--not those hamburger flipping types created since 2008. Those job cuts effect to a degree any benefit of lower prices at the gas pump.

If there is a mainstream media meme more over-worked today than that expected $150 billion tax break to consumers if oil stays in the $50 a barrel range, we have not seen or heard it.

 Much of the current attitude around the Street about oil disallows for the unseen.

UNDISPUTED

 

A lot of people are eating fresh crow this morning, including three guys named May, Palmer and Pollock.

No, they're not members of some prestigious legal firm, just three media ex-jocks who know a lot less than they think they do. 

They said Ohio State was untested and undeserving. But all Ohio State did was defeat the number one and number two teams back to back.

Congratulations to The Ohio State University, their coaches, players and fans, college football Undisputed National Champions 2015.

Enjoy your breakfast, gentlemen. Enjoy your breakfast.

AND THEY MIGHT NOT LIKE IT

Be careful what  you wish for goes an old saying.

Sure consumers are suppose to be rejoicing as gasoline prices at the pump drop. But much of that may soon be offset by higher gasoline taxes. It's been a few years since those sophisticated bureaucrats have tacked on more of those little goodies.

What apparently many don't seem to understand is falling energy prices and a dollar on steroids are both double-edged blades. Falling energy and rising dollar prices are quite different from stables ones.

Part of the dollar strength is coming from the beggar-thy-neighbor policy central banks in Japan, the EU and elsewhere are playing which brings up another issue. Is the U.S. economy really that good or is much of its rise owing the how weak other economies around the globe are?

The answer to that is what many investors may yet have to discover. And they might like it once they do.

Here's a story about possible state budget shortfalls owing to the declining energy prices. There will be others and they won't all be in those oil producing ones.

AUSTIN — State Comptroller Glenn Hegar, predicting a moderate economic expansion, said Monday that lawmakers will have $113 billion in state revenue available for general-purpose spending in the next budget cycle.
The total includes $7.5 billion that will be left unspent when the current budget cycle ends on Aug. 31. It also accounts for $5 billion in general-revenue transfers to the rainy day fund and the state highway fund.
Hegar said his estimate expects "moderate expansion" in the Texas economy while reflecting uncertainties in oil prices.
"Texas remains a leader on the national economic stage, and while we anticipate the robust pattern of growth the state has seen in recent years to moderate, we do expect continued expansion of the overall economy," Hegar said in a statement.
Hegar's estimate has been closely watched because of dropping oil prices. It sets the parameters for spending decisions by state leaders and lawmakers.
His revenue estimate projects an 8.9 percent increase in state sales tax revenues and a 14.3 percent drop in oil production and regulation taxes.
In addition to incoming revenue, the state's rainy day fund will have an $8.5 billion balance at the end of the current budget cycle.
State revenue from all sources, including federal money, is estimated at $220.9 billion in the next two-year budget period.

A COILED SPRING WILL UNCOIL ITSELF

As an investor one must be disturbed by central bankers everywhere and their fascination with a 2% inflation target.

It's almost reached point of becoming the assured panacea of Central Banking Gods, the answer to all of the globe's myriad economic ills.

One of the first things any good medical diagnostician learns is, never make your diagnosis in the lab or base it on a lab result.

Just to take one example, mammograms, like it or not, they're a metaphor for labs. Yet data show 50% fail to detect smaller cancers. The list of false positives in lab work, blood, urine or otherwise, is long. If you can have false positives, you must have false negatives.

Yet central bankers--the so-called  diagnosticians for monetary policy and economic growth--continue to worship at the alter of preconceived numbers. This seems to be about as fixed as fixed-views get, a view that could prove quite dangerous. Inflexible might be a more accurate term.

Most of the Fed folks are noted for their economic gobbledygook and their mind-numbing reports written in an even more mind-numbing style. Much of it wouldn't earn a solid C in a college freshman basic English class.  

And this leaves out all those econometric model abortions the profession so reveres. 

So one hardly expects them to be versed in the classics like Sophocles' Antigone:

The inflexible heart breaks first, the toughest iron cracks first, and the wildest horses bend their necks at the pull of the smallest curb. 

Point being: We might all be better off--including the economy--if these folks spent less time soaking in the bathtub with their rubber ducks pouring over figures and a bit more reading estimable stuff like the classics. 

A coiled spring will uncoil itself, absent time and interference.

WHO KNOWS?

More from the oil patch.

Looking for a bottom in crude prices has become almost as popular of late as fantasy football. How popular is that? Well, here's a link about a guy who spent nearly 300 hours in 2014 playing the game.

And he came in second, winning the huge sum of $30.

http://www.theonion.com/articles/man-who-spent-300-hours-playing-fantasy-football-t,37707/

To be sure, nobody knows for sure where the bottom is. Or for that matter when it will occur. We've seen projections for $20 a barrel on the low side and others in between the recent breach below $50 a barrel. 

Here's the opinion of a well known energy trader that's worth considering in the jumble of those out there. Given the speculation it is one of those anyone can be wrong and anyone can be correct.

But if past is prologue, when it's all said and finished, a whole bunch of them will claim the prize that they called it.

Renowned Trader Hall Sees $40 Oil ‘Absolute Price Floor’

By Bradley Olson and Simone Foxman - Jan 7, 2015

Oil prices have almost bottomed out and “some recovery” is likely by the second half of the year as demand picks up, commodity hedge fund manager Andrew J. Hall told investors.

Crude could trade in the $40-a-barrel range in 2015, close to “an absolute price floor,” the head of Astenbeck Capital Management wrote in a Jan. 2 letter obtained by Bloomberg News. A significant amount of U.S. and Canadian production can’t cover the cash costs of operating at that price, he said.

“Oil prices will stay under pressure in 2015,” he wrote. “However, current prices are not sustainable in the longer term. The interplay between extreme weakness in the short term and the potential for supply shortfalls in the medium term should create attractive trading opportunities over the course of the coming 12 months.”

Hall gained notoriety in 2009 after receiving a pay package of about $100 million while at Citigroup Inc., a bank that received government assistance during the financial crisis. For more than two decades he led Phibro LLC, which Occidental Petroleum Corp. (OXY) bought from Citigroup. Founded in 2010, Astenbeck manages a total of $3 billion.

Phibro is in the process of being sold by Occidental and Astenbeck is now operating independently, according to two people familiar who asked not to be identified because the matter is private. Spokeswomen for Occidental and Astenbeck declined to comment.

Plunging Prices

West Texas Intermediate oil, the U.S. benchmark, fell below $50 a barrel this week for the first time in more than five years. WTI rose 1 percent to $49.11 at 1:21 p.m. today in Sydney. Prices fell 46 percent last year, as flagging demand forecasts met expanded output from North American shale formations.

A futures contract for April delivery is selling for $49.78. Delivery in December is $55.12 a barrel, according to data compiled by Bloomberg.

Saudi Arabia and its allies are seeking to drive high-cost producers from the market, Hall said. While many have assumed this is U.S. shale drillers, the majority can operate at lower prices, he wrote. The most vulnerable operate in Canada’s oil sands and deep-water production, said Hall.

Cuts in spending this year will set the stage for an eventual supply shortfall, said Hall, who has long held that oil will become more expensive. Once prices begin a sustained increase, companies won’t be able to count on as much new crude from projects. The low prices also increase the risk of geopolitical instability, another factor that could boost oil if a major producer is unable to make exports, Hall said.

THE OIL BACKDOOR

Here's a theme we've been mentioning for a while now. We like to call it the unseen.

As adroitly put in this article from Platt, "while volatility slips in through the back door."

The recent auto sales reports tells you much about humans. Sales were up and so were profits as buyers, given the fall in gasoline prices, shunned the economical for big trucks and SUVs. The backlog of more climate-friendly wheels are clogging car lots like they're a bunch 80 year old coronary arteries. 

New vehicles usually come attached to three or five year notes. Where will the price of petrol be in three or five years, who knows?  When gas filed tanks at $4 a gallon, how easy was it to unload those huge clunkers. About as easy as it is now for dealers to unload all those lower profit margin gas savers nobody--at least at the moment--basically wants.

One could talk short-sighted here, but no-sighted might be more accurate. Even more appropriate is people are people. To think otherwise is to take your eye off that back door.

http://blogs.platts.com/2015/01/08/oil-future-problems/

FORGET THE BISCUITS, PASS THE B&B

There's much blithering and blathering going on since the European Union's year-on-year prices recently came in negative 0.2% for December.

Those in favor of oiling up the old printing press whiffed an opportunity only these folks can never fail to pass up. Prices are not the only things falling. If one listens to this crowd, so is the sky.

The Dragster himself, ECB leader Mario Draghi, worried out loud that such a decline might set off a wait-and-see-about-prices-until-tomorrow tantrum by consumers, thus causing further deflation in prices.

For those who care to beg the difference, here's a different point of view from: http://davidstockmanscontracorner.com/the-deflation-calamity-howlers-are-dead-wrong-in

So right on schedule comes this blithering nonsense from one James Ashley, purportedly an economist at RBS Capital Markets:

“The emergence of negative inflation does forcefully raise the specter of a possible prolonged period of deflation,” said James Ashley, an economist at RBC Capital Markets. “In other words, for those policy makers who, hitherto, might have been undecided over whether or not to take further action immediately, this may be just the clarion call that was required to appreciate the gravity of the situation.”

That’s right. A single month of hairline negative inflation is a “clarion call” no less—calling for the ECB to damn the monetary torpedoes. Could it be the RBC has been busy putting its clients and its own prop funds in Italian, Spanish, Portuguese and Greek bonds on the predicate that a big fat Italian bid would be forthcoming from the ECB?

In short, the euro zone’s momentary spat of year-over-year price stability is almost entirely owing to the global decline of commodities since the China bubble driven peaks of 2012; and also the lagged effect of the Euro’s strength prior to mid-2014.

In the case of non-food commodities including energy, for example, the producer price index is down about 25% from it 2011/12 peak.  Since the euro zone imports a heavy share of its energy and industrial commodities, isn’t this decline a welcome development?

And there’s more. Commodity prices are still double their pre-2005 level. In other words, the giant global commodity bubble generated by the runaway credit boom in China, the BRICs and their EM satellites has finally started to cool, and this relief is now washing through the euro zone price indices. Rather than an existential crisis, the cooling of euro zone inflation is mainly a welcome surcease from the utterly aberrational credit bubble that was foisted on the global economy by central banks over the past decade.

GRADUALLY, THEN SUDDENLY

Here's a story we like. It's about maximum pessimism.

The gloomier it gets the more we like it. These for the most part are all good dividend paying companies with the exception of QEP. 

We know that mid-term these days let alone long-term is an unwelcome theme on the Street.

QEP's trip to the equity woodshed is based on the expectation that natural gas prices will follow crude oil over the cliff and into the abyss. We welcome the idea.

In Hemingway's "The Sun Also Rises," one of the characters is asked how he went bankrupt to which he replies: "Two ways. Gradually, then suddenly."

Truth be told that's the path to wealth. It takes time and a wide margin for error. The lower these stocks get the less margin for risk is needed. They are undervalued and misunderstood. The cure for low prices of a commodity is low prices.

Forget the falling knife meme. Coupled with the dividends, a simple regression to the mean will return serious money over either of those most unwelcome Wall Street time frames.

A stock that should be on the list below is Helmerich Payne (HP), the Tulsa-based big oil rig firm. As sector prices decline like this consolidation usually kicks in and the strong get stronger at the expense of the marginally weaker.

Exclusive: Sell-side sours on U.S. energy stocks more than any sector

11:57am EST

By Rodrigo Campos

NEW YORK (Reuters) - As if plummeting oil prices were not giving energy companies enough to worry about in 2015, Wall Street has turned against the sector, with stock analysts slashing earnings estimates.

Despite a 23 percent drop in the S&P 1500 energy sector .SPCOME since the end of June 2014, stock prices still may not account for the drastically lowered forecasts for the sector's earnings, particularly if oil prices continue to slide.

Of the 10 S&P 1500 .SPSUP sectors, Thomson Reuters StarMine data ranks energy as having the worst analyst sentiment, using a model that lists equities by aggregating metrics that include changes in estimates for company earnings-per-share and revenue.

On Tuesday, energy was dead last, with its components averaging a ranking of 14 out of 100, down sharply from 26 a day earlier. One component, Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz), the No. 2 U.S. energy company, had a 1 in the Analyst Revision Score, meaning analysts have been more furiously lowering estimates for Chevron than for 99 percent of companies.

EPS estimates for Chevron's fourth quarter have dropped dramatically in the last month. Six different analysts have lowered earnings expectations by an average of 14.3 percent in that time, during which the stock price has actually risen by about 1 percent.

Six of the largest 10 energy companies, accounting for 33 percent of the sector's market capitalization, have a ranking of 9 or less in StarMine's Analyst Revision Score.

The outlook has continued to worsen as crude futures prices kept sliding to new 5-1/2 year lows. U.S. crude oil recently fell below $50 a barrel after trading above $100 for the most part between February and July of last year. [O/R]

"We believe it is more likely that oil goes to $20 before it goes to $80, and we think that oil prices are likely to remain low for a long time," Brian Reynolds, chief market strategist at Rosenblatt Securities in New York, wrote on Tuesday.

Marathon Oil (MRO.N: Quote, Profile, Research, Stock Buzz), Hollyfrontier (HFC.N: Quote, Profile, Research, Stock Buzz) and QEP Resources (QEP.N: Quote, Profile,Research, Stock Buzz) are among the other handful of energy companies with a 1 Analyst Revision Score.

On Tuesday, Bank of America/Merrill Lynch cut its rating on Chesapeake Energy (CHK.N: Quote, Profile, Research, Stock Buzz) and Laredo Petroleum (LPI.N: Quote, Profile,Research, Stock Buzz) to "underperform" and EOG Resources (EOG.N: Quote, Profile, Research, Stock Buzz), the seventh-largest energy company on the S&P 1500, was downgraded to neutral.

Expected earnings growth for the S&P 500 energy sector's .SPNY in the fourth quarter was at -19.8 percent, according to Thomson Reuters IBES data, down from a 6.4 percent growth expectation on October 1. The first quarter looks even worse - an expected decline of 32.2 percent..

GOOSE AND GANDER TIME?

We've talked before about the importance of looking for the unseen.

Nearly everyone by now realizes the initial benefits and the obvious beneficiaries of lower oil prices. If utilities companies are capital intensive, and they are, the early beneficiaries of softer energy prices are for the most part the energy intensive.

You know the usual suspects, transportation firms, retailers and restaurants, the drive to work crowd, to mention a few. But at some point, often a bit farther down the road, low prices carry the prospect of whacking the economy with a bigger hurt than many suspect.

It's kind of a reverse law in itself of what's good for the goose ain't always good for the gander.

With crude yesterday falling for the first time in over five years below $50 a barrel, fear about global growth grow.  Couple that with other troubles like the Greece situation and a U.S. dollars that seems to have recently discovered steroids, visions of deflation and slow growth have replaced those of any sugar plums that might arrive via cheap gasoline prices.

And that's what more than one well known investor is talking about in this piece recently on Zero Hedge.

http://www.zerohedge.com/news/2015-01-05/jeff-gundlach-if-oil-drops-40-geopolitical-consequences-could-be-terrifying

DAILY MEDIA HYPE

Part of the fun and education of prowling around the Internet is discovering others who share your own experiences about what we call the media-market complex.

Like we keep repeating be your own person, accept the responsibility that comes with it and, by all means, do your homework.

This is from Daily Speculations.

The Financial Media, from Jeff Watson

January 5, 2015 | Leave a Comment

Media advice is of little worth, except for a fade perhaps. After all, the primary purpose of the typical financial reporter is to make his/her quota in inches. Quantity over quality. The purpose of the financial media is to sell ads, make money, and hook you like a fly fisherman casting a fly at a trout. The TV financial media has been taken over by guest experts(touts). I avoid reading or listening to them like the plague as I prefer to make my decisions looking through my own lens, not the lens of others(who are observers, not players), second hand.
This broken down old grain trader looks at the financial media with a very flinty eye, much like one looks at the guys at the track who sell tout sheets when you walk past the turnstyle. Make your own decisions, keep your own counsel, and play your own hand. If you need advice, there are private subscription services, for a high price, that might, sometimes be worth listening to, but unless they have skin in the game avoid them like the plague.

Craig Mee writes: 

Everyone is now a salesman trying to justify themselves…listener beware. Funny how the country boys seem to do less talking and more listening and see things more clearly. I suppose that happens when you're not selling your soul on every deal as a means to pay the rent.

IT'S THAT TIME AGAIN

It's that time again, although you usually see articles like this throughout the year.

It's time to lay down some thoughts about 2015 and how to increase your chances to be successful in the land of investments where most often it takes two eyes rather than one to remove the veil.

Here's our list.

1.  Do your homework.

2.  Look for the unseen, not the seen.

3.  Related to #2, understand what everyone knows is usually not much help at best and incorrect at worst. Former President Dwight Eisenhower once noted: "If everyone is thinking the same thing, nobody is thinking."

4.  In boxing it's the one you don't see that does the damage or hurts the most. In case you don't recognize it, that's a metaphor for asking yourself what have I not looked for or not thought about that could go wrong?

5.  Neophyte investors--usually like young marriages--buy with only one direction in mind--up. The high divorce rate in general tells those who pay attention other directions are possible.

In one of my previous incarnations I was working my usual ER shift when a big, strapping ex-professional pro football lineman rolled in late one night with a badly swollen, painful red hot great toe infection, the kind that usually ends up getting I&D,

He seemed in a lot of pain as he hobbled over to a gurney and pulled his house slipper off.

"What's your pain level on a scale of 1-10 ?"

"10, man. It's a 10," he shot back without the slightest hesitation.

"That's pretty high," I offered in one of my more empathetic tones.

"Naw, this ain't nothing, doc. I've been through some real pain."

"Such as, "I probed , alluding to his pro football days.

"Naw, that ain't nothing either, doc. I was married for 10 years, man!"

Since at that very time I was going through a painful split with my then live-in girlfriend, I recognized a kindred spirit, infected toe or otherwise.

It was what William Butler Yeats, in his longtime unrequited love for Maude Gonne warned about, the dangers of wooing spirits not kindred of your own soul. It's the same in the market: Do your homework.

Understand what you're getting into and have a ready, viable exit plan before you execute the trade.

I opened his toe, sutured a drain in, put him on an antibiotic and some painkillers while we swapped stories through what was a slower than usual night absent the routine overdoes, MIs, car wrecks and gunshot victims.

6.  Extrapolation, though we all do it, is just another version of taking too much for granted. There's an old joke about the alcoholic who said: " For years his dog never bit him until one night he came home sober." Things change.

Extrapolation in the market is buying or staying with last year's hot sectors, expecting more of the same.

6.  Here's another one: A+B = C. That may apply to numbers but not when A is Alice, B is Bob and C is Charles. Behind the market are millions of individual consciousnesses. Basic market psychology, especially for the general population, is it's more comfortable to buy when asset prices are rising.

Yet some of history's most notable investors like Buffett and the late Sir John Templeton talked about looking for what Templeton called "maximum pessimism."

7.   Related to the above is one of life's biggest myths, one that bureaucrats, politicians and even psychologists never seem to get, that people behave rationally. If you believe that, you've never driven a car in Southern California. And when it comes to investors you can take that to the 10th power.

If you think all these investors the past few years chasing yields, any and practically all yields despite the risk, will turn out unblemished, you've never seen or suffered a bad case of acne.

8.  It's not supposed to be easy. One of the big stories of 2014 is how indexers outperformed the alpha-added crowd. But there was a time not so long ago when the indexers didn't do too well versus the money management boys and girls.

Indexing is the one-size-fits-all trap, the same trap that money management offers when it's leading the parade. And it will again. It's a close relative to the belief that people behave rationally most of the time as they well might. But check your newspaper or click on the Internet or television and tell me how much irrational behavior you see every day.

9.  Learn that just because you know something it doesn't mean everyone else does. And the law of reversibility applies here also.

10. When I was a young guy coming up my dear old mother gave me a simple two part piece of advice that proved quite effective avoiding unwanted trouble. "Take a glass of water before you go to bed and nothing after. Either that or wear protection."

If you're going to play around the markets, don't forget to bring along your own protection. A healthy dose of skepticism not cynicism is a good start.

11. And this one is related to all the others, but it can't be stressed enough--Do your homework.