The Daily Reckoning

Well, August washed up. It was the worst month for US stocks in almost a decade. And yesterday didn’t help. The Dow couldn’t manage a rally. It rose just 4 points.

The British newspaper, The Telegraph, has the story:

Those fears took centre stage again during the final day of trading.

In New York, markets enjoyed some brief respite from the blizzard of weak data as reports on the US housing market and consumer confidence proved better than feared. The Conference Board’s index of consumer confidence climbed to 53.5 last month from 51 in July, while the latest reading from the respected S&P/Case-Shiller index showed that home prices were up 4.2pc in June compared with a year ago.

The day’s rally proved short-lived, however, after the minutes of the Federal Reserve’s latest meeting returned investors to the summer’s familiar themes. Fed chairman Ben Bernanke has spent the past few weeks facing increasing pressure from markets to publicly declare he will do more to fight the prospect of a second recession if the recovery stumbles further. According to the minutes, some members of the Fed’s Open Market Committee saw “increased downside risks to the outlook for both growth and inflation”.

That admission left the Dow up just 4.99 points at 10,014.72 for the day, while the S&P ended the day up 0.41 at 1,049.33.

As predicted on this page, both Martin Wolf and Paul Krugman are taking the low road. Not that we wouldn’t take it too, were we in their position. They urged the Obama team to undertake massive programs of “stimulus.” Now that the stimulus hasn’t worked, they say it wasn’t massive enough.

And thank God the administration at least took some of our advice, they add. Otherwise, things would be a lot worse!

In today’s Financial Times, Wolf refers to a recent paper by Alan Blinder and Mark Zandi. The two use a “standard macro-economic model” to determine that without the feds’ intervention the decline in GDP would have been three times worse and unemployment would have risen to over 16%. And, can you believe it, we would have had a federal deficit of $2.6 trillion.

Oh man, oh man…we’re so grateful to Wolf, Krugman, Summers, Obama, Bernanke and all the other savants who protected us from such a dreadful fate.

But wait a minute, this “standard macro-economic model” sounds great and all…but we can’t help but wonder. It can predict precise outcomes based on federal policy inputs, right? That is, if the feds were to do such and such…it tells us what will happen, right? And Wolf says it’s “standard,” so we imagine that you can get it at any Wal-Mart or filling station. So, the Obama team must have had it two years ago, right? We can’t help wonder if this was the same model they used when they forecast that unemployment wouldn’t go over 8% – if Congress agreed to the stimulus bill the administration proposed. Must have been a different one… Because Congress did pass the stimulus bill and unemployment rose over 9% anyway.

And it’s still over 9% – almost 2 years after the stimulus effort got underway.

So, maybe this “standard macro-economic model” is full of… But let’s imagine that it isn’t. Let’s allow our imaginations to take flight…to soar…to loose themselves from the gravity of worldly cares or practical reality. Let’s imagine that these economists have a clue!

Imagine that the feds had done nothing – which was more or less standard policy for the nation from its founding in 1776 up until the middle of Herbert Hoover’s term in 1930…and for all the years that preceded them…all the way back to the founding of Rome. Now, let’s imagine that Blinder and Zandi are right. Without fed intervention, GDP would have sunk 12% – three times more than the actual loss…and half the loss of the Great Depression. Well, that would have been a disaster, right?

Well. Maybe not. It might have been a blessing. The point of a correction is to correct. The Blinder/Zandi study tells us that the economy had mistakes equal to 12% of GDP. Okay…well, maybe the correction overshoots. Who knows? But think of the crazy years of the Bubble Epoque…when lenders were giving unemployed people a mortgage for 110% of the inflated value of a house. Think about the Private Equity deals based on growth assumptions that were hallucinatory. Think about the hundreds of trillions’ worth of derivatives based on complex formulae that were phony and silly? Think of all the decisions made on the assumption that consumer credit would continue to expand as it had from 1949 to 2007. Was one of every 8 of them too optimistic? Too ambitious? Too unrealistic? We’d be surprised if there weren’t more errors…far more than 12% of GDP.

Now ask yourself…what good was done by failing to correct those mistakes? By failing to wash out the excess debt? Failing to allow insolvent banks to go broke? Failing to permit worn-out, uncompetitive businesses to die in peace?

We don’t know how many mistakes there were. We don’t know how far GDP SHOULD go down. And we don’t know what would have happened if willing buyers and sellers had been allowed to sort themselves out in the age- old ways – by panic, default, bankruptcy, restructuring, and reconstruction.

We don’t know. We’ll never know. But there is no reason to think we’d be any worse off if we’d found out a year ago. A 12% drop in GDP might have been just what we needed. We could be on the road to prosperity now, rather than looking at another 5 to 15 years of stagnation, decline, and desperation.

And more thoughts…

But we have good news. Yes, dear reader, genuine, no-doubt-about-it good news.

Two bits of good news, actually.

First, the café across the street from our office serves a proper café au lait. A real one.

In Paris these days, if you ask for a “café au lait” they mark you as a foreigner. Parisians ask for a “café crème.” Trouble is, the café crème doesn’t have much milk in it. It tends to be a bit watery and bitter.

A proper café au lait, on the other hand, is served with a little pitcher of hot milk. Not many cafes in Paris still serve it that way – unless you ask them specifically. Fortunately, the one across the street still does it the right way.

Second, and perhaps more important, we discovered yesterday that tea- totallers die sooner than heavy drinkers. This comes as a great relief to your editor. He sat down last night with a bottle of Lussac St. Emilion to celebrate.

Here’s the story from John Cloud (originally appearing in Time Magazine):

Why Do Heavy Drinkers Outlive Nondrinkers?

One of the most contentious issues in the vast literature about alcohol consumption has been the consistent finding that those who don’t drink actually tend to die sooner than those who do. The standard Alcoholics Anonymous explanation for this finding is that many of those who show up as abstainers in such research are actually former hard-core drunks who had already incurred health problems associated with drinking.

But a new paper in the journal Alcoholism: Clinical and Experimental Research suggests that – for reasons that aren’t entirely clear – abstaining from alcohol does actually tend to increase one’s risk of dying even when you exclude former drinkers. The most shocking part? Abstainers’ mortality rates are higher than those of heavy drinkers.

Moderate drinking, which is defined as one to three drinks per day, is associated with the lowest mortality rates in alcohol studies. Moderate alcohol use (especially when the beverage of choice is red wine) is thought to improve heart health, circulation and sociability, which can be important because people who are isolated don’t have as many family members and friends who can notice and help treat health problems.

But why would abstaining from alcohol lead to a shorter life? It’s true that those who abstain from alcohol tend to be from lower socioeconomic classes, since drinking can be expensive. And people of lower socioeconomic status have more life stressors – job and child-care worries that might not only keep them from the bottle but also cause stress-related illnesses over long periods. (They also don’t get the stress-reducing benefits of a drink or two after work.)

But even after controlling for nearly all imaginable variables – socioeconomic status, level of physical activity, number of close friends, quality of social support and so on – the researchers (a six- member team led by psychologist Charles Holahan of the University of Texas at Austin) found that over a 20-year period, mortality rates were highest for those who had never been drinkers, second-highest for heavy drinkers and lowest for moderate drinkers.

The sample of those who were studied included individuals between ages 55 and 65 who had had any kind of outpatient care in the previous three years. The 1,824 participants were followed for 20 years. One drawback of the sample: a disproportionate number, 63%, were men. Just over 69% of the never-drinkers died during the 20 years, 60% of the heavy drinkers died and only 41% of moderate drinkers died.

These are remarkable statistics. Even though heavy drinking is associated with higher risk for cirrhosis and several types of cancer (particularly cancers in the mouth and esophagus), heavy drinkers are less likely to die than people who have never drunk. One important reason is that alcohol lubricates so many social interactions, and social interactions are vital for maintaining mental and physical health. As I pointed out last year, nondrinkers show greater signs of depression than those who allow themselves to join the party.

The authors of the new paper are careful to note that even if drinking is associated with longer life, it can be dangerous: it can impair your memory severely and it can lead to nonlethal falls and other mishaps (like, say, cheating on your spouse in a drunken haze) that can screw up your life. There’s also the dependency issue: if you become addicted to alcohol, you may spend a long time trying to get off the bottle.

That said, the new study provides the strongest evidence yet that moderate drinking is not only fun but good for you. So make mine a double.

Bill Bonner
for The Daily Reckoning Australia

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Zero Hedge

Seeing Past The Hologram, by Mike Krieger of KAM LP

There is no distinctly American criminal class – except Congress.

- All quotes by Mark Twain

We Need Real Confidence to Return, Not Confidence in a Ponzi Scheme

Last week I pointed out that what I got from Banana Ben’s speech in Jackson Hole was that he realized any major public statement of interference in markets was too risky at this point following his announcement at the last meeting to keep the balance sheet steady by reinvesting MBS proceeds into treasury securities.  The operative word in this sentence being “public.”  Anyone that believes this means the Fed and government will just take a back seat and do nothing behind the scenes is deluding themselves.  Washington D.C. and the Fed still fail to comprehend how to increase standards of living in the real world, rather they remain completely addicted to the short-term buzz of printed money heroin as it flows through the house of cards they have created.  They also think that the only thing that really matters in an economy is “confidence.”  As Madoff can attest to, that is indeed the case when you are running a ponzi scheme and since the U.S. government is basically that I can understand where they are coming from.

 I agree that confidence is a huge part of any healthy economy; however, I do not define confidence in the way these arrogant bureaucrats do.  They think confidence comes from rising asset prices, including stocks and homes.  They think this is enough to spark growth in the real economy.  This is nonsense.  The confidence that is needed more than anything else today is two-fold.  First, confidence that there is the rule of law and there will be the rule of law in the future.  The second is that the money issued by the government will maintain its purchasing power over time.  As I have made clear on various occasions, I do not have confidence in either of these things based on how the government has responded to the crisis.  I do not like buying physical gold.  I do not like feeling the need to write these emails every week to warn people.  I wish I could employ capital into businesses and the real economy.  I hope that one day I will be able to do so, but at the moment I do not trust my government and I certainly don’t trust the fascist Federal Reserve.  So I will hoard what I have as the government prints and let the storm pass me by.  I am not the only one.  People are collectively starting to understand this.  So what happens when the big, smart money takes itself out of the investment and capital allocation game because they don’t trust anything?  What happens when the government’s response to this is to print money to keep up the spending habits of people with no jobs or people with government jobs that produce no goods for the economy?  You get the worst case scenario and that is exactly what is staring us straight in the face.

Is a Trade War with China Coming?

The quicker the dollar is devalued the better.  This is not to say that I think dollar devaluation is a good thing.  It is to say we are past the point of avoiding it.  We could have taken the pain in 2008, but instead it was extend and pretend all over again.  Now the debt and promises are too big.  The behind the scenes manipulations are too entrenched.  There is no avoiding a devaluation relative to things people need (food and energy) and capital goods that are imported.  The best thing would be to get it over with and then change policies and restore the rule of law.  The problem with this is that the main currencies the dollar needs its major adjustment against are those in emerging Asia and China.  What has prevented the realignment from happening in a quick and healthy way is China’s refusal to allow the yuan to appreciate.  This creates a situation where Central Banks throughout emerging Asia take steps to prevent their “free-floating” currencies from adjusting either.  If China does not change its policy I fear that what we are looking at a trade war with China after the November elections.  I think Congress and the Administration will start to introduce aggressive policies to discourage Chinese goods and encourage goods made at home.  Think it can’t happen?  We are a lot closer than you think.  This all goes back to my “think local” theme.  While I am inherently a fan of free trade we do not have free trade in any sense whatsoever.  We have policies that are geared to advantage the multi-national corporations at the expense of the U.S. citizen.  The U.S. consumer has merely been spending borrowed money.  This gave an illusion that the U.S. was benefiting from the global multinational corporate rigged market whose model mainly thrives on companies moving abroad to exploit the labor arbitrage caused by a combination of what was a labor surplus (no longer it seems) and a rigged currency.  As more people realize this, more pressure will be placed on politicians and ultimately this will overpower the corporate lobbyists and a trade war of sorts will begin.  Then the chaos could really ensue as we engage in a trade war with our biggest creditor!

Seeing Past the Hologram

The past couple of weeks have been extraordinarily interesting and some of the moves appear to be extremely important.  Although a lot of people like to point to the treasury market and then extrapolate out as to what this means to equities and the ability of the government to increase spending, I think this is the most USELESS market in the world to watch.  If anything is a hologram and a PR tool it is the U.S. treasury market.  How can people with a straight face come out and extrapolate anything from a market where the Federal Reserve is buying the debt of its own government!  The Fed is merely the fiat drug dealer to a government addicted to spending and false promises.  The equity market is the second most useless market in my opinion.  There is no doubt in my mind that a huge part of the government’s “strategy” to build confidence is to keep this thing from doing what it should be doing.  Thus, I am not surprised at all that since I last wrote the S&P500 was +1.6%, -1.5%, flat, and then +3.0%.  So what you have seen is high volatility with no real direction.  How can anyone have confidence this that thing is for real?

So what markets do I watch?  I get the most from the FX markets and the commodity markets.  While these markets are no doubt manipulated heavily as well, I think this is where the players that really understand the macro are playing.  The first currency I check in the morning is the dollar/yen.  The reason for this is that the yen is back to the highs of 1995 and if it does not stop appreciating around this level I think the Bank of Japan is going to absolutely panic.  While the yen has not broken higher yet as market participants are afraid of such intervention, unless the BOJ does something extreme soon the market may test their resolve and push this thing further.  I guess the main point I am trying to make is that with the Chinese yuan NOT strengthening and the yen threatening to break out we could be in for some major fireworks.  Meanwhile Japanese 10 year government bond yields have really started to spike lately (chart GJG10 Index on Bloomberg).  Something big is happening in the land of the rising sun.  In the back of my head I think that any panic move from the BOJ could be the spark that breaks government bond bubbles globally and ushers in a period of massive global commodity driven inflation as every country tries to devalue their way to prosperity.  Essentially, a fiat money version of the 1930’s beggar thy neighbor policies.  When this begins the rush into gold and silver that we have seen thus far will look like a trickle.  I don’t think people will be able to find supply anywhere near the quoted price on comex (or as some like to call it “crimex”).

This brings me to silver which potentially experienced a game changer last week.  I can’t remember the last time silver bounced back almost immediately after every attempted raid.  I am starting to wonder how much physical silver is available.  What we do know is that Central Banks do not store silver to manipulate markets.  Even if it doesn’t break out right now, there is no asset in the world that has more upside than silver.  Don’t buy SLV either.  Buy physical silver not something with JPM as a custodian. 

I also continue to watch food prices very closely.  Wheat, which has come off of its high now seems to have found a base at a price that is 50% higher than the end of June.  Corn prices are threatening to break above resistance at levels 30% where they were at the end of June.  Rice looks like it could have a long way to go on the upside as it is only 20% off of its June low.  If I were a foreign government I would be using this opportunity to buy every single grain of rice I could in order to feed my people when things get dicey in the months ahead.  After strong performance in recent months lean hogs and live cattle also look set to make another push to the upside.  How people in the investment world still focus on the government inflation statistics is beyond me.  It was the rampant commodity inflation, trucker strikes and food riots that played a key role in ending the game in 2008.  This is because it forced the emerging markets to raise rates and cool growth as the Western world imploded under a pile of debt.  It seems the whole play is starting again and people remain focused on deflation.  Deflation in some things yes I agree (discretionary things like homes, technology, stock prices, etc), but not in the things you NEED to buy!!!

Onto oil which is also exhibiting some strange moves.  The Asian benchmark Tapis has not experienced the recent volatility and weakness that WTI has and is currently trading at $80/b.  The Asian price is the one I really pay attention to since that is where the demand growth resides.  The spread between the two now is back above $6/b, which is toward the high end of the range for the past two years.  This tells me that one price is wrong and the spread should narrow.  Given what I think about currency debasement and lack of appropriate investment in the space I think WTI should rally.  We shall see…

A Primer on the Federal Reserve

For those that read my commentary on the Federal Reserve as an immoral an fascist institution and think to themselves “what is this guy talking about,” I have attached a video from G Edward Griffith (the author of The Creature from Jekyll Island).  It’s a great description of how the Fed was formed and who it answers to when push comes to shove.  http://video.google.com/videoplay?docid=6507136891691870450#

Also in case you weren’t aware of the power grab that the “Financial Reform” legislation allowed the Fed, read this Bloomberg article. 

http://www.bloomberg.com/news/print/2010-09-02/bernanke-meets-buffett-in-new-role-conceived-to-protect-markets.html

All the best,
Mike

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Zero Hedge

You will pardon us for posting two excerpts from David Rosenberg today, but this one is a must read, and explains more clearly than anything written on the matter why America is currently, and without doubt, in a depression, due primarily to ongoing secular changes in consumer and investor behaviour, something not experienced during mere recessions. As such any intraday or short-term bounces in the stock market that merely confirm that there was a liquidity injection by one player or another, or a successful short squeeze engineered by the wily folks at the custodian firms or due to simple headfakes, are completely irrelevant (especially with record implied correlations), as the long-term trend has only one way to go in the long-run. Down. Of course, those who believe they can time the moment when the last lingering support pillar collapses and everything tumbles down, are more than welcome to keep trying their top-ticking. We are confident that when the mass exodus begins, the HFT liquidity “support” of the market will be alive and well, and provide everyone with a perfectly acceptable exit price level…

WHAT IS A DEPRESSION ANYWAY?

A depression, put simply, is a very long period of economic malaise. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.                                     

You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending. 

The economy is in a depression when the banks are sitting on $1.3 trillion of cash and yet there is no lending going on to the private sector. It’s otherwise known as a liquidity trap.    

Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.

When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can’t see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don’t be lulled into the view that we are into anything remotely close to a normal economic cycle.

Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why, as per last week’s data releases, we saw existing home sales slide to 15-year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining  mortgage rates should lead to lower home sales.

In a depression, radical changes occur in terms of social norms and spending behaviour. In recessions, people don’t cancel their life insurance policies – as one example. But in a depression, tragically, that is what happens – almost 35 million Americans now have no such coverage, up from 24 million five years ago. This reflects the focus by households to pay down their debts at all costs and how companies have bolstered profits – by eliminating benefits.

More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between those two states.    

After all, we are now in a situation where every 1-in-6 Americans is now receiving some form of government assistance — more than 50 million Americans, from food stamps, to Medicaid, to extended jobless benefits, are on one or more taxpayer-supported programs. That transcends the definition of a recession.

In a recession, everything would be back to a new high 33 months after the initial decline. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.

Let’s be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is a testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels.  

For all the chatter about whether the recession that started in December 2007 ended sometime last year, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.

What is important to know is this; in that initial four-year economic downturn, from 1929 to 1933, there were no fewer than six — six! – quarterly bounces in GDP data. The average gain in these up-quarters was 8% at an annual rate! But because they proved not to be sustainable, the National Bureau of Economic Research (NBER) refused to declare that the recession officially ended, even though the stock market rallied 50% in the opening months of 1930 on the belief that the downturn was about to end. False premise. And guess what? We may well be reliving history here. If you’re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3%.

I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet – again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing and lasting impact to the economy.  

This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can  understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.

The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) we had a 2-year note auction that saw the yield dragged to new record low of 0.46%. Instead of lamenting over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being  cut.

If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $60 or $65 in the coming year as opposed to the current consensus view of almost $90. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 12x was actually buying the market with a 17x multiple.

How’s that for a reality check?

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By Karl Denninger, The Market Ticker

Again, I must say……

The same principal has left the nations public and private pension funds badly underfunded.

We are actually more underfunded than we were at the end of 2008 because of the drop in interest rates since then, said John Ehrhardt, who tracks fund performance for benefits consultant Milliman.

That "same principal" is The Fed’s ZIRP policy.

By picking winners – in this case the banks who made imprudent loans and should have been forced out of business, along with "protecting" the imprudent buyers of bonds in institutions that made those imprudent loans, the prudent are getting hammered.

There is no solution to this other than to stop doing that.  And this means withdrawing liquidity and forcing the borrowing of money to have a reasonable cost, so that those who lend money through the purchase of bonds can earn a reasonable inflation-adjusted return.

The initial "impact" of low interest rates appears seductively good.  It’s not – it’s always bad.  It forces people to take imprudent risks (how do you think we got a housing bubble in the first place?) and destroys the prudent investor, lender of capital and saver.

As these people are eviscerated their ability to contribute positively to the economy is likewise destroyed, and in particular, capital formation is critically damaged.

This is the real story on how Japan lost two decades. 

We will follow them unless we stop this insanity, and soon.

(PS: Are the unions still sheep on this issue, more than two years after I started sounding this alarm?)

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Felix Salmon submits:

Read more…. »

If one wants to be taken seriously in the world of policy analysis, one should at least use an internally consistent framework. This consideration, apparently, has not troubled Mr. Reidl.

To quote from The fatal flaw of Keynesian stimulus, in the Washington Times:

Last week, the Congressional Budget Office released a report claiming that the $814 billion “stimulus” has added 3.4 million net jobs.

…

Such implausible analysis does not come from actually observing the post-stimulus economy. Rather, it comes from Keynesian economic models that have been programmed to conclude that government spending injects new dollars into the economy, thereby increasing demand and spurring economic growth. In other words, these models are programmed to conclude that stimulus spending always creates jobs and growth, no matter how the economy actually performs.

Well, not quite. As I described in this post, there are a variety of ways in which multipliers are obtained. Oftentimes, the impacts are estimated either directly or indirectly, by estimating the marginal propensity to consume. The article continues:

But there is one problem with the government stimulus theory: No one asks where Congress got the money it spends.

Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.

It is intuitive that government spending financed by taxes merely redistributes existing dollars. Yet spending financed by borrowing also redistributes existing dollars today. The fact that borrowed dollars (unlike taxes) will be repaid some years later does not change that.

Here, I think Mr. Riedl is invoking Ricardian Equivalence, despite the fact that there is no empirical evidence, to my knowledge, that validates pure Ricardian Equivalence (actually, Ricardian equivalence wouldn’t necessary hold for government spending on goods and services, anyway). Now, at this juncture, I thought that he might be invoking a real business cycle model, or an older, nonstochastic version of the RBC, namely a flex price Classical model. But then the next paragraph reads:

Some believe stimulus spending is the mechanism by which the Federal Reserve injects new dollars into the economy. Yet the Fed could run the printing press and then inject those dollars into the economy by buying existing bonds (with mostly inflationary results). It doesn’t need an expensive stimulus bill to conduct monetary policy.

Accepting that the Fed can stimulate via monetary policy then implies either (1) sticky prices so an expansionary monetary policy can affect the real interest rate, or (2) a financial accelerator model such that collateral constraints or some other financial rigidity holds. In the latter case, it seems prima facie that Ricardian Equivalance cannot hold.

Next, I was thrown for a loop, because Mr. Riedl seems to conflate real saving and the monetary multiplier. He argues that government deficits can only be financed by foreign saving, private saving and “idle saving”. This he describes thus:

Idle savings. The only government spending that truly increases current purchasing is the amount that would have otherwise sat idle in safes and mattresses. Those are the only dollars not already circulating through the economy as consumption, or through the financial markets as investment spending.

Idle savings are rare. People and businesses generally invest or bank their savings, where the financial markets transfer them to other spenders. Banks that receive savings either lend them out to a spender, or (when afraid to loan) invest them conservatively to earn some interest. They are not hoarding customer deposits in massive vaults (beyond the required cash reserves).

This is an odd conflation of saving, measured as a flow, and financial assets. But lets take the equation at face value, there is an incredibly counterfactual observation that there no reserves are behing held in excess of required cash reserves. According to the St. Louis Fed, excess reserves are now approximately $1 trillion dollars. Well, no need for facts to get in the way of a good polemic.

Mr. Riedl’s main point is:

All government stimulus spending requires first borrowing dollars that would have otherwise been applied elsewhere in the economy. The only exception is money borrowed from “idle savings,” which for reasons described above likely constitute a minuscule portion of the $814 billion stimulus.

As I’ve mentioned here and elsewhere, this is true in a full employment model. (I’m working off of textbook models; move to coordination models, or allow monopolistic power, and you have lots of other inefficiencies arising).

Mr. Riedl concludes:

Economic growth requires raising worker productivity to create more goods and services. Government stimulus spending represents a naive “magic wand” attempt to create purchasing power and wealth out of thin air.

No wonder the unemployment rate remains high.

Well, if we’re in a Classical world, then there is no involuntary unemployment. If we’re in a New Classical world, then whatever involuntary unemployment exists is not systematic. If there is involuntary unemployment, then there are resources that are not being utilized, and putting them to use naturally raises productivity (remember labor productivity is defined as output per man hour).

It pains me to say that Mr. Riedl is a graduate of the University of Wisconsin, in economics and political science.

Postscript: Here is Deutsch Bank’s assessment of the impact of the ARRA on the growth rate of GDP.

Figure 1: Dobridge, Hooper, Slok, Sufian, “The growing risk of fiscal drag in the US,” Global Economic Perspectives, New York: Deutsche Bank, July 28, 2010.

Level impacts are depicted in this post. Here is CBO’s latest assessment.

Read more….

Zero Hedge

Submitted by Econotwist

Flight to Mystery

Assets managed by European UCITS
III funds have increased to $52.3 billion over the last two years.
These special purpose vehicles are about to kill the traditional hedge fund industry, and are emerging as the new generation of sophisticated investment strategies.

“Using cautious estimates, projections for 2012 indicate that
over €8,000 billion will be invested in UCITS products, an increase
of 60% – from €5,000 billion at end 2007.”

Eurekahedge Pte.

UCITS – also called NEWCITS

Finally, some happy news for all the bankers who have been living in fear lately of how the new financial regulations – also known as the Dodd-Frank Legislation – will affect their business. I’m proud to announce: Problem solved!

It was Morgan Stanley who put me on the track to this brilliant solution a couple of weeks ago when they announced the launching of its first UCITS III Fund on the Firm’s FundLogic trading  platform.

Since then, I’ve discovered that all the big US, and all global non-European, banks are doing the exact same thing.

They are in practice outsourcing their investment bank activity to Europe.

The new financial regulations in both US and EU are aimed at traditional hedge
funds (who have been blamed for everything from causing the financial
meltdown to climate change) and the well-known tax heavens – also known
as offshore banking.

But the financial industry seems to have found an alternative in EU’s UCITS III Funds. (Undertakings for Collective Investments in Transferable Securities).

And the alternative is about to get even better with the introduction of UCITS IV in 2011.

In fact, it’s so good that several financial institutions are
bringing their offshore accounts from places like Calman Island and
Bermuda onshore – inside the EU area.

A collective investment fund may apply for UCITS status in order to allow EU-wide marketing.

UCITS’ are a set of European Union directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorization from one member state.

In practice many EU member nations have imposed additional regulatory
requirements that have impeded free operation with the effect of
protecting local asset managers.

In other words; the EU countries are now competing to offer the funds
the best possible framework, with as few regulations as possible.

At the moment Ireland and Luxembourg is leading the race.

Morgan Stanley’s UCITS III Fund will be managed by by P.Schoenfeld Asset Management LP (PSAM) in Ireland.

Shahzad Sadique, Executive Director and Head of FundLogic at Morgan Stanley says in a statement: “We
are seeing a huge level of interest from investors to access
alternative asset manager expertise through UCITS Funds and are
delighted that PSAM has partnered with Morgan Stanley. We are currently
seeking regulatory approval for a number of funds managed by leading
alternative asset managers and look forward to launching more UCITS
funds on FundLogic in the next few months.”

(Morgan Stanley Press Release)

Mostly Illegal

UCITS III Funds are illegal to offer and sell in the US and most
other countries around the world, except within the 30 countries
connected to the European Economic Area (EEA).

The idea behind the UCITS is to create a single market in
transferable securities across the EU. With a larger market the
economies of scale will reduce costs for investment managers which can
be passed on to consumers.

However, many asset managers are using UCITS as a main channel for
globalizing their businesses with considerable interest outside the EU
and as far out as Asia and South America.

UCITS III Funds   is the second version of the EU Commission’s
directive outlining a framework for investment funds suitable for
marketing to retail investors and has standardized rules for
authorization, supervision, structure and activities of collective
investment undertakings in the EEA and so to enable them to be
distributed throughout the EEA.

This significantly enlarges the range of investment instruments that could be used, notably allowing use of derivatives.

It makes it possible for hedge fund managers to launch versions of
their strategies in a UCITS version so many more investors can access
them.

According to the EU directives, a UCITS fund must be open-ended, liquid, well-diversified, invest only in certain “eligible”
assets (i.e. quoted securities, money market instruments, deposits,
certain derivatives and units in other UCITS) and can only employ
limited leverage.

Examples of Financial Derivative Instruments that can be used:

• CFDs:
Under UCITS III rules, the manager can be long up to 100% in directly
held equity securities and short up to 100% using stock specific
derivatives such as contracts for difference (CFDs) or stock specific
futures. Therefore, the fund can be leveraged up to 100% of NAV.

• Total Return Swaps: This involves investing in a portfolio and
swapping its return through a total return swap for a return that is
related to a reference basket (or index). Examples of a suitable
reference basket could be an equity long/short strategy or a commodity
index. This structure is ideal for managers that find the restrictions
of the previous option too onerous as the reference basket itself does
not have to comply fully with the UCITS rules.

• Credit Default Swaps:
CDS can be used in a number of ways in fixed income strategies, for
example hedging exposures and buy/write protection, or playing the basis
between the CDS and underlying corporate spreads.

* Certificates (either individually or in a
series) can also be used within the UCITS III framework to replicate the
risk/return profile of FOHFs. Alternatively, a UCITS eligible index can
be created to replicate all of the underlying hedge fund strategies;
the index needs to meet the UCITS criteria of eligibility though.

With any of the techniques mentioned, distribution is paramount to
global take-up of UCITS III, and has become the most dominant channels
for cross-border sales of UCITS funds, owned by third-party distributors
and open architecture platforms.

Hedge fund managers, sitting in a larger asset management company
with existing mutual fund platforms, are ideally positioned to
distribute UCITS III funds offerings, benefiting from access to a wider
spectrum of clients.

Road to Freedom

Because the UCITS lies outside the scope of the European draft
Alternative Investment Fund Managers Directive, which is likely to
impact unregulated offshore hedge funds in yet undefined ways, this is
potentially beneficial as the AIFM Directive is likely to impose
constraints on European investors investing in third-country funds, and
most likely include those domiciled in offshore jurisdictions such as
Cayman Islands and Bermuda.

However, Morgan Stanley is not one of the pioneers in this area.

Last month it emerged the world’s third largest hedge fund, Paulson & Co, is coming to Europe.

Founder John Paulson, who made a 589% and 351% profit in his two
Credit Opportunities hedge funds on the US subprime collapse, is making
himself available via a UCITS fund later this year.

But neither Paulson is the first to make his skills available to retail investors via funds domiciled inside Europe.

Others are bringing Caribbean-based product onshore because of the
EU’s plans to regulate hedge funds in such a way that non-EU managers,
including Paulson, and offshore funds, would be barred from taking money
from European investors.

One way for such managers to get around this is launching portfolios in Europe.

Marshall Wace is shifting all its Cayman Islands portfolios to Europe.

Rival Majedie Asset Management did so, too.

Gartmore and RWC Partners will make regulated variants of every offshore fund they launch now, too.

Investors seem increasingly to opt for onshore funds where one is available.

However, Dalton Strategic Partnership has drawn a line in the
Caribbean sand, and is taking steps specifically focused on keeping
offshore fund clients.

The European UCITS long/short fund of Dalton Strategic Partnership
grew from €4m at launch in February to €50m now, during which assets in
its Melchior European hedge fund stayed static, for example.

Similar stories are told at Man Group for AHL, RWC Partners for US equities funds and Gartmore for various portfolios.

The transparency, liquidity and regulatory oversight required in a
UCITS addresses investor concerns in a post-Madoff, post-credit 2008
crunch environment.

However, the regulation allows an even greater risk taking, in fact, it encourages greater risks.

Dalton’s onshore funds will double the risk-taking appetite of Melchior.

Magnus Spence, partner, explains:

“We are differentiating the products one from another, and need
to recognize and meet the different needs of investors in offshore hedge
funds and UCITS III hedge funds. Investors in UCITS hedge funds tend to
seek lower-risk strategies, which typically offer return targets of
between 5% and 10% per year.”

“In contrast, many traditional investors in offshore hedge funds
are prepared to accept a considerably higher level of investment risk in
return for performance greater than 10%.”

What Dalton’s latest move shows is that not everyone is so keen on “on-shoring” after all.

Barclay’s are among the big banks who still offer offshore products to its clients, now within the UCITS framework:

“The Structured UCITS Funds for Offshore Bonds range allows
investors access to a leading range of Funds, all approved under the EU
UCITS III Directive. A UCITS III fund refers to any collective
investment scheme set up under the UCITS Directive of 1985, as modified
by the amending proposal of 2001. As the UCITS Directive is a
pan-European directive, the main benefit of UCITS III is that it makes
it easier to passport and market such funds throughout Europe. UCITS III
allows funds to invest in a wide range of financial instruments,
opening up the range of investment strategies available to fund
managers,” Barclay’s write on their website.

Adding: “Our Fund range is developed by our asset class neutral
structuring team. Our team creates innovative products across asset
classes – developing solutions to help clients achieve optimal asset
allocation as well as manage risk. Our team specializes in delivering
quantitative asset allocation strategies within a UCITS III compliant
fund format.”

Read the full post at The Swapper:

More articles from Zero Hedge….

By Karl Denninger, The Market Ticker

The next two days could prove to be very interesting – but probably won’t.

Dick Fuld is prepared to later assert:

Lehmans demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.

Uh huh.  It wasn’t caused by 30:1 leverage Dick?  You know, leverage you got "enabled" to use by Pauslon?  Of course you weren’t forced to use that, but heh, if the music is playing, you had to get up and dance, right?

In 2007, when the U.S. housing market began to show signs of weakening, Lehman Brothers and many of its competitors had already accumulated large positions in what were considered less liquid assets. Many market observers, including government officials charged with oversight of the financial markets, believed that the problems in the subprime residential mortgage market were and would be contained.

You were wrong.  But a prudent CEO, and a prudent company, doesn’t "bet the firm" on a premise that their largest-concentration of assets in what is clearly a bubble economic environment, unsupported by the macro level fundamentals, will not only go on forever but will see it’s equivalent of multiple expansion continue forever. That by definition – the belief in expansion of a compound-growth function at ever-increasing rates – is a Ponzi Scheme.

Ponzi schemes are broadly illegal.  While it’s not illegal to place bets on asset appreciation, when you claim to be in a position of "systemic risk" you should be held to a higher standard.  That standard was not only loosened it was destroyed in the years from 2003-2007.  Bear Stearns was a final warning that the Ponzi had collapsed, yet Lehman refused to heed that warning, instead choosing to rely on the premise that a government tit would be proffered to suckle from.  When it was not the firm collapsed.

Then there’s Wachovia.  I read through Scott Alvarez’s testimony (FRB’s Counsel) which goes through the usual mantra of how Wachovia’s business deteriorated due to macro-level economic developments not under it’s control, along with the seizure of WaMu. 

Notably missing from this analysis, along with Steele’s, Wachovia’s former CEO, is any mention of the fact that Wachovia was writing credit-default swaps (CDS) on their own deals in the Option ARM space and bundling them with the lower-rated tranches as a means of being able to sell them!

This is important for two reasons: It is roughly equivalent to you writing fire insurance on your own house, when the entirety of your net worth including all your liquid cash is contained within the house in a shoebox.  Should the house burn you will of course be unable to pay off on your self-dealt "insurance."  Second, there is no mention as to where those instruments are now or what they’re actually worth.  We know where they are – they’re off-balance sheet at Wells, which now has roughly one trillion dollars of off-balance sheet exposure – with no way to evaluate the "wisdom" (or lack thereof) on the marks on those "assets."

It is that fact, incidentally, that led myself and many others, including hedge fund managers, to short the stock.  That in turn drove the CDS spreads out.  But the predicate act that led people like myself to reach this conclusion – that the bank was hiding losses and likely was insolvent – was an act taken by their own hand and enabled by willfully-blind regulators.

Indeed, the bottom line problem here with Wachovia is the same as it has been up and down the line since this mess began – ridiculously over-optimistic asset "values".  This has not abated, as we keep seeing every week with FDIC bank seizures, where banks that are allegedly solvent (by their accounting of "assets" and "liabilities") are nonetheless seized and huge losses, often as much as 30% of the asset base, are absorbed.  This isn’t possible unless the "asset values" are pure works of FICTION.

After the 1929 crash the Pecora Commission was formed to find the causes and prevent it from happening again.  What Pecora found was that too much leverage combined with self-dealing and lies about asset valuations led to the collapse of banks and other members of the financial system when the falsehood of those asset "value" claims was exposed to the light of day, and that self-dealing in various forms led to covering up these deficiencies until they reached critical levels (where banks were literally unable to pay the light bill), by which point the entirety of the depositors’ funds were often gone.  Just as today, banks often maintained that they were "fine" right up until the fact that their assets were worth pennies was exposed.

Glass-Steagall was an attempt to prevent that from happening again by separating deposit-holding banks from securities activities.  Between that and strict leverage limits, along with bank examiners, it was believed that loss-hiding would no longer be possible to a degree where these sorts of panics could develop.

For 40 years it worked.

Then we had the S&Ls, which gamed the system.  Bluntly, they broke the law, "trading" assets between themselves with a wink and a nod, thereby "establishing" asset valuations that were false.  This "supported" their lending and other activities – right up until, just as with the 1920s (and now) it led to their destruction when the truth began to leak out. 

But unlike today Bill Black came in with a mandate and started referring cases to prosecutors, who promptly sent over 1,000 people to prison for their lies and scams.

The FCIC will fail to be effective unless we have another Bill Black.  We must reverse those decisions of Congress to extort FASB, as well as exposing and laying bare on the table the inside baseball, hidden caches of alleged "assets" that are not really worth what is being claimed, and other forms of rooking the public while laying off the costs on taxpayers.

Sadly, I see no evidence that the FCIC will do any of this.  There is nothing in the hearings I’ve seen to date that suggests that Wachovia’s Steele, for example, nor The Fed, will be called to account on exactly where are those CDS, what are they worth, and why did The Fed and other regulators ignore their existence and lack of public valuation and disclosure?

Nor has the FCIC asked Henry Paulson (or Tim Geithner for that matter) why is it that the former 14:1 leverage limit was removed and why shouldn’t it be put back in force now, since it is now a known fact that had it been in place neither Lehman or Bear would have failed, and if it had applied to AIG they wouldn’t have failed either!

No, instead we have a circle jerk of monkeys, prancing before the cameras, but with no substantive progress and disclosure.

Phil Angelides is no Ferdinand Pecora.

More articles from the Market Ticker….

Interview with Michael Smith (Part 2 of 2)

I feel the peak/plateau period is much delayed because of the recession. Currently I am looking at around 2020 – perhaps as late as 2025. But of course it is dependent on what happens to the global economy (and the environment) between now and then. When I first started forecasting in the late 1990s, I had a production plateau beginning around 2016. Over time, supplies got tighter and tighter and oil prices started to rise, and the plateau moved nearer to around 2012. Now it has moved out to 2020, showing how uncertain this modeling can be because so many technological, financial, political and social variables are at work. The fluctuation points to volatility of course which is a signal of tight energy supply. If there is a new surge in economic growth and China and India continue to grow and mop up oil supplies, then it will move back to 2016 very quickly.

Pemex Plans to Invest $269 Billion in Next 10 Years to Increase Oil Output

Petroleos Mexicanos, the state-owned oil company, plans to invest $269 billion by 2019 to increase production, the company’s chief executive officer said.

Pemex, as the company is known, should not have trouble having its planned investments approved by Congress and will spend about $27 billion a year over the next decade, CEO Juan Jose Suarez Coppel, said today at a conference in Mexico City.

Mexico sees big potential near Tsimin oil find

MEXICO CITY (Reuters) – Mexico’s state oil company Pemex is increasingly optimistic about the potential of what appears to be a new cluster of light crude oil fields around its Tsimin discovery, according to company executives.

The side-by-side Tsimin and Xux discoveries are believed to hold the equivalent of 1.5 billion barrels of proved, probable and possible oil reserves said Manuel Teran, a Pemex engineer working on the discoveries, at a petroleum engineering conference this weekend.

For BP, post-spill advertising comes at an unknown cost

FORTUNE — The coverage of BP’s Deepwater Horizon spill is teaching the typically secretive oil industry something about life in the limelight. Now, the company has to account for every cent it spends.

Bahamas Bans Offshore Drilling

The Public is advised that The Ministry of The Environment has suspended consideration of all applications for oil exploration and drilling in the waters of The Bahamas. The Ministry seeks, by this decision, to maintain and safeguard an unpolluted marine environment for The Bahamas, notwithstanding the potential financial benefits of oil explorations.

Additionally all existing licenses will be reviewed to ascertain any legal entitlement for renewal.

Coal India May Set Up Power Plants Because of Shortfall in Rolling Stock

Coal India Ltd., the world’s largest producer of the fuel, said it may be forced to set up power plants to use coal that’s piling up because there aren’t enough railway wagons to carry supplies to utilities.

“It’s not a business we would naturally like to be in because there are already so many players,” Chairman Partha Bhattacharyya said in New Delhi today. “If stocks keep building up, we may not have an option.”

Russia to protect domestic car makers with higher import duty

Russia will gradually raise the import taxes for the foreign-made cars, Russian Prime Minister Vladimir Putin said Monday.

Putin noted this would be done to stimulate foreign companies to build their production facilities in Russia.

Electricity and climate change

Also as a result of global warming, the countries of this region are witnessing dramatic increases in the demand for electric power, as the use of air-conditioning increases in households, shops, places of worship, offices, hotels and factories. And as a result of the exceptional hot weather, the sale of all types of air-conditioning devices flourished, and their stocks were effectively depleted in Lebanon, Jordan, Syria, Egypt and other countries, while their retailers achieved exceptional profits, after taking advantage of the circumstances.

Why “green wizards” get us nowhere new…

So, first question, what is a ‘green wizard’? Greer defines green wizards thus, “individuals who are willing to take on the responsibility to learn, practice and thoroughly master a set of unpopular but valuable skills – the skills of the old appropriate technology movement – and share them with their neighbours when the day comes that neighbours are willing to learn”. The idea, as I read it, is that any notion of a co-ordinated response, a la Heinberg’s ‘Powerdown’, a scenario where communities self-organise and work with, or without, their local authorities, to start the rebuilding of that settlement’s resilience, reduce its oil dependency and carbon footprint, is now for the bin, condemned as impractical and unrealistic. Greer appears to have given up any notion that such a thing might be possible, stating “a movement is a great thing if you want to hang out with congenial people and do interesting things together. It’s just not usually a good way to make change happen”.

Are People Smarter Than Chipmunks?

After witnessing this eccentric behavior, I began wondering why the chipmunk would behave so illogically. It didn’t take too long to realize that it simply doesn’t possess the right equipment to understand the threat posed by a car. A chipmunk’s brain and the behavior produced by it are the result of ages of natural selection – a process that took place in the absence of roads and cars. The mind of a chipmunk, therefore, is incapable of properly interpreting the data coming its way, especially when it’s coming at 60 miles per hour.

The chipmunk’s maladaptive behavior has some prominent parallels with our own predicament. The data are approaching us at a fast and furious clip. We have ample and disturbing evidence about climate destabilization, dwindling energy resources, social breakdowns, and a host of environmental maladies. We know that the economy is a subsystem of the finite planet, and that increasing the scale of the economy impinges on the earth’s ecosystems. In an age of biodiversity die-offs and political buy-offs, however, we don’t seem to possess the wherewithal to interpret the data correctly.

Lenders Back Off of Environmental Risks

Blasting off mountaintops to reach coal in Appalachia or churning out millions of tons of carbon dioxide to extract oil from sand in Alberta are among environmentalists’ biggest industrial irritants. But they are also legal and lucrative.

For a growing number of banks, however, that does not seem to matter.

After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines.

New Study Links Toxic Pollutants to Canadian Oil Sands Mining

Native Canadians living downstream from the oil sands mines in Alberta have long contended that their high cancer rates were related to the expanding excavation of bitumen for the production of synthetic crude. Their assertions have been disputed by the reports of a joint oil industry-government research panel that concluded that natural causes — and not mining — were responsible for the high levels of various metals in the sub-Arctic Athabasca River.

But now a new study in the journal Proceedings of the National Academy of Sciences is backing the position of the Native Canadians. Led by several University of Alberta researchers, the study found that unusual levels of lead, mercury, zinc, cadmium and other toxic pollutants were found near oil sands mining sites or downstream from them. The levels exceeded federal and provincial government guidelines.

Crude Oil Heads for First Monthly Slide Since May on Slowing Global Growth

Oil fell, headed for its first monthly decline since May, before a report forecast to show U.S. crude inventories increased to the most in a month.

Futures dropped as much as 1.7 percent, extending their decline from the highest level in a week reached on Aug. 27, after the Commerce Department said incomes rose 0.2 percent, less than the 0.3 percent estimate by economists surveyed by Bloomberg News. An Energy Department report tomorrow may show crude stockpiles gained 1.55 million barrels last week.

Oil Supply Climbing to One-Month High in Bloomberg Survey

U.S. crude oil inventories probably increased to a one-month high last week amid signs that U.S. economic growth is slowing, a Bloomberg News survey showed.

Supplies rose 1.55 million barrels, or 0.4 percent, in the seven days ended Aug. 27 from 358.3 million a week earlier, according to the median of 12 analyst estimates before an Energy Department report tomorrow. The gain would leave stockpiles at the highest level since July 23.

OPEC Oil Output Declined on Iraqi Pipeline Bombing, Bloomberg Survey Shows

The Organization of Petroleum Exporting Countries’ crude-oil output fell in August to a seven- month low, led by Iraq, where production was hobbled by a pipeline bombing, a Bloomberg News survey showed.

Production slipped 75,000 barrels, or 0.3 percent, to an average 29.15 million barrels a day, the lowest level since January, according to the survey. Output by members with quotas, all except Iraq, dropped 5,000 barrels to 26.805 million, 1.96 million above their target.

Japan Issues Storm Warnings, Cancels Okinawa Flights as Typhoon Approaches

Typhoon Kompasu slammed Japan’s southern island of Okinawa, causing the country’s two biggest airlines to cancel flights, disrupting some shipping and closing an oil refinery owned by Brazil’s Petroleo Brasileiro SA.

Ras al Khaimah seeking electricity for growth

Ras al Khaimah’s Government is in talks with the Federal Electricity and Water Authority (FEWA) to boost power supplies to the emirate as it attracts more businesses to its industrial zones and completes development projects.

Russia eyes Rosneft sale

Russia may consider selling a stake in state-controlled oil producer Rosneft in 2011 to 2013, Economy Minister Elvira Nabiullina said today.

LUKOIL to get tax breaks for Caspian oil fields

(Reuters) – Russia’s No.2 oil firm LUKOIL’s CEO said on Tuesday that the government is ready to introduce tax breaks for oil extracted from the company’s Korchagin fields on the Caspian Sea.

‘Fracking’ fractures N.Y. county

A controversial method of natural gas drilling — known as “fracking” — has begun to tap the energy-rich Marcellus Shale, a huge geological formation that underlies much of New York, Pennsylvania, Ohio and West Virginia. In New York, fracking has been stalled by opposition from environmental groups, legislators and people such as the Diehls.

Bad weather delays BP bid to recover blowout preventer

WASHINGTON (AFP) – A bid to recover a key valve that failed to prevent the blowout of the BP well in the Gulf of Mexico has been delayed because of bad weather, the pointman for the US response to the oil spill said Monday.

“We are in a hold pending calming of the current weather,” retired coast guard admiral Thad Allen told reporters, adding that it would be two or three days before the operation could begin.

No gas concerns Memphis officials (Michigan)

Two gas stations in the city but no gas to be pumped has prompted Memphis Mayor Dan Weaver to explore strategies for getting a station open to serve residents.

“I’ve been spinning my wheels talking to people trying to get us a gas station in town,” he said at a recent City Council meeting where he asked officials to consider options such as asking the city’s attorney to advise on issues such as eminent domain.

Stickers would help auto buyers compare fuel economy

DETROIT — In its first major overhaul of fuel-economy ratings in 30 years, the Environmental Protection Agency and the Department of Transportation on Monday released two proposed window stickers designed to make it easier for consumers to compare vehicles.

One version gives cars and trucks a grade from A+ to a D, compares vehicles with three sliding scales and gives an estimated annual fuel cost. The other version omits the grade. At first, only electric vehicles would rate an A+.

Toyota Prius May Lead Japan Car Sale Collapse as Subsidies End

The Prius hybrid has spearheaded sales growth for Toyota Motor Corp. in Japan for more than a year, helped by government subsidies. The model will likely bear the brunt of plunging demand as the support ends.

“A collapse in sales is unavoidable,” said Hiromi Inoue, the new-car sales chief for Tokyo Toyopet Motor Sales Co. “The daily pace of orders for the Prius is already dropping. We are bracing ourselves for the coming crisis.”

Russian billionaire Prokhorov to roll out hybrid car models in December

Russian billionaire Mikhail Prokhorov will present three electric vehicle models in December for public approval, he said on Tuesday.

“If they don’t like them, they can say ‘we don’t want these cars.’ We will hold a vote on the Internet,” said Prokhorov, an active blogger.

Prokhorov said he will decide where to produce the cars after the presentation.

The Biking Boom Breeds Discontent

Mayor Michael R. Bloomberg and other city leaders have praised the increase in cycling for reducing congestion and pollution and making the city streets safer overall. To accommodate the surge in bike commuters, the city has installed hundreds of bike racks and roughly 200 miles of new bike lanes in the past three years, with plans for future expansion.

Yet according to a recent weeklong investigative series by Tony Aiello, a reporter with New York City’s WCBS-TV (Channel 2), the cycling boom is breeding discontent. Titled “Bike Bedlam,” the segments turned a critical eye on reckless riders who flouted traffic laws, and profiled a young father who was killed by a cyclist riding the wrong way on a one-way street in Midtown Manhattan. A former bike shop owner declared that cyclists were “way out of control.”

Blowin’ in the Wind

Pattern Energy wants to do what T. Boone Pickens couldn’t: deliver Texas’ overabundance of wind power to less-windy states.

The wind and transmission line developer aims to build a $1 billion, 400-mile transmission line to carry electricity generated by Texas wind turbines to Mississippi where it could be distributed across existing lines to Georgia, Alabama, Tennessee, and other states in the South.

Red Books And Yellowcake – The Permanent Quest For Uranium

Only taking the world’s present 439 civil reactors and ignoring the 200-plus reactors called “research and military”, these civil reactors will need about 68 000 tonnes of uranium in 2010, but world mine output will be less than 55 000 tonnes. If the vaunted “Nuclear Renaissance” takes place as planned by the industry and about 200 – 225 new reactors are added in 2010-2020, world uranium fuel needs will grow to about 125 000 tonnes a year by 2020.

And You Thought Radiation Was a Problem for Nuclear Plants?

A power plant has overexposed its workers to radiation, and the Nuclear Regulatory Commission is proposing a fine. The plant, though, is not a reactor; it runs on coal.

E.P.A. Turns Down Request to Ban Lead Bullets

The Environmental Protection Agency on Friday rejected a request that it ban lead bullets, saying it does not have the legal authority to do so. The American Bird Conservancy and the Center for Biological Diversity had petitioned for the ban.

To Win, the Green Movement Needs to Understand Leverage, not Just Footprints

A few years ago I got into a heated debate about Al Gore’s Inconvenient Truth with a green-minded friend of mine. My hippy friend couldn’t stand the movie—not because of anything it said, but because of the ‘hypocrisy’ of flying around the world to preach about climate change. “Doesn’t he know this sends his carbon footprint through the roof?!” exclaimed my irate drinking buddy.

“He probably doesn’t care.” replied I. “Nor should he.”

I’ve wondered before why so much of the environmental movement is focused on individual virtue instead of collective success. Yet I’m increasingly realizing that that’s just one part of a broader issue I have with greens—we spend too much time talking about impact, and not enough talking about leverage.

Greenpeace claims to have shut down Greenland oil well

Greenpeace claims its activists have shut down a ”dangerous” oil drilling operation by a British energy company in the Arctic.

Author Simon Singh Puts Up a Fight in the War on Science

The British Chiropractic Association sued Singh, hoping to use Britain’s draconian libel laws to force him to withdraw his statements and issue an apology. Losing the case would have cost Singh both his reputation and a substantial amount of his personal wealth. Such is the state of science, where sometimes even stating simple truths (like the fact that there’s no reliable evidence chiropractic can alleviate asthma in children) can bring the wrath of the antiscience crowd. What the British chiropractors didn’t count on, however, was Singh himself. Having earned a PhD from Cambridge for his work at the Swiss particle physics lab CERN, he wasn’t about to back down from a scientific gunfight. Singh spent more than two years and well over $200,000 of his own money battling the case in court, and this past April he finally prevailed. In the process, he became a hero to those challenging the pseudoscience surrounding everything from global warming to vaccines to evolution.

Three degrees is at least one too many

It is fittingly ominous that 2010, year of the next big climate change conference, has been the hottest in recorded history. The heat rises inexorably yet the world dithers and looks away. None of the excitement that surrounded the opening stages of the climate summit at Copenhagen last year looks like materialising this November at Cancú*in Mexico.

Japan Forsees Starting Carbon-Emissions Trading in 2013, Panel Reports

Japan plans to start emissions trading in 2013, as the government revived a climate-protection draft law that was scrapped earlier this year when then Prime Minister Yukio Hatoyama resigned.

Cap-and-Trade Is Beginning to Raise Some Concerns

Critics have warned for years that this form of offsetting would encourage profiteering, with little or no value in efforts to curb climate change.

More recently, opponents of offsetting have likened the system to the kind of financial engineering on Wall Street that helped precipitate the recent banking crisis.

Review Finds Flaws in U.N. Climate Panel Structure

UNITED NATIONS — The United Nations needs to revise the way it manages its assessments of climate change, with the scientists involved more open to alternative views, more transparent about possible conflicts of interest and more careful to avoid making policy prescriptions, an independent review panel said Monday.

The review panel also recommended that the senior officials involved in producing the periodic assessments serve in their voluntary positions for only one report — a statement interpreted to suggest that the current chairman of the climate panel, Rajendra K. Pachauri, step down.

Virginia Case Against Climate Researcher Is Rejected

RICHMOND, Va. (AP) — The state attorney general has failed to back up accusations that a former University of Virginia climate change researcher defrauded state taxpayers in obtaining government grants, a judge ruled Monday.

Climate Change and the Wealth of Nations

Professor Kahn isn’t skeptical about global warming, but he is (quite reasonably) skeptical about our ability individually and collectively to reduce carbon emissions: “attempts to reduce or reverse our carbon output — to mitigate the damage that we’ve already done — aren’t going so well” and “evidence shows that very few individuals have cut back on their carbon-producing activities at all.” Consequently, he predicts, “the world is going to get hotter.”

But while this would lead many people to doomsday scenarios, Professor Kahn is an optimist who believes “that we will save ourselves by adapting to our ever-changing circumstances.” He says this salvation will come from “a multitude of self-interested people armed only with their wits and access to capital markets.” In short, the same economic system that led to global warming will rescue us from it.

Climate ‘sceptic’ Bjørn Lomborg now believes global warming is one of world’s greatest threats

One of the world’s most prominent climate change sceptics has called for a $100bn fund to fight the effects of global warning, after rethinking his views on the severity of the threat.

Atlantic Rising: sea level rise threatens the Orinoco Delta in Venezuela

Rising sea levels are forcing the migration of indigenous peoples and threatening the freshwater ecosystem of catfish and piranha found in the Orinoco Delta near the coast of Venezuela.

Arctic ice: Less than meets the eye

Barber, an environmental scientist at the University of Manitoba in Winnipeg, Canada, went to sleep one night at midnight, just before the ship was due to reach a region of very thick sea ice. The Amundsen is only capable of breaking solid ice about a metre thick, so according to the ice forecasts for ships, the region should have been impassable.

Yet when Barber woke up early the next morning, the ship was still cruising along almost as fast as usual. Either someone had made a mistake and the ship was headed for catastrophe, or there was something very wrong with the ice, he thought, as he rushed to the bridge in his pyjamas.

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.
Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

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