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Russia Keeps Top Spot As China’s No.1 Crude Supplier

August 23, 2017 Tsvetana Paraskova 0

Russia continued to be China’s biggest crude oil supplier in July for a fifth consecutive month, while Chinese refineries have been taking in more Brent-price-linked West African crude at the expense of sour Middle Eastern varieties as OPEC’s cuts led to narrower price differentials making African oil more attractive for buyers. China’s crude oil imports from Russia averaged around 1.17 million bpd in July, a 54-percent surge compared to the same month last year, according to data by China’s General Administration of Customs…

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El-Erian Warns Vexed Central Bankers “The Lowflation Demon Is Real”

August 23, 2017 Tyler Durden 0

Authored by Mohamed El-Erian via Bloomberg.com,

Persistently low inflation, or “lowflation,” is vexing lots of people. According to the recent minutes of policy meetings of the Federal Reserve and the European Central Bank, central banks on both sides of the Atlantic have been trying to identify the causes — but with limited success so far. This complicates monetary policy decisions and undermines the range of institutional solutions that have been proposed by academics. Until this changes, central banks may need to think more holistically about the objectives of monetary policy, including the unintended consequences for future financial stability and growth of being too loose for too long.

Four facts stand out in reviewing recent inflation data:

  • Inflation rates have been unusually and persistently low.
  • This is primarily an advanced-country phenomenon.
  • Inflation has not responded to the prolonged pursuit of ultra-low interest rates and huge injections of liquidity by central banks through quantitative easing. 
  • This has coincided with a period of notable job creation, especially in the U.S., thereby flattening the “Phillips curve” that plots unemployment and inflation rates.

Many economists worry that such lowflation frustrates the relative price adjustments that are critical to a well-functioning market economy. And if the inflation rate, and related inflationary expectations, flirt with the zero line for too long (as had occurred in Europe), there is an increased risk of actual price declines that encourages consumers to postpone their purchases, weakens economic growth, and undermines policy effectiveness (as had been the case in Japan).

The many reasons that have been put forward for the lowflation phenomenon range from benign measurement errors to worrisome structural drivers, with a host of “idiosyncratic factors” in the middle. Indeed, the Fed minutes released last week contain a list of possible drivers. These also note that a few central bankers are questioning the usefulness of traditional models and approaches in explaining and predicting inflation behavior. The recent ECB minutes also refer to “a number of explanatory factors” for lowflation and the importance of monitoring “the extent to which such factors could be transient or more permanent.” (And that is not the only issue vexing central bankers and economists more generally — productivity and wage formation have also been puzzles to an unusual extent.)

Turning to solutions, some economists have suggested that central banks increase their inflation targets, typically set at 2 percent currently. Others have proposed that the monetary authorities should pursue a price level target so that shortfalls in meeting the desired inflation rate in one year would require aiming for a higher rate in the subsequent year.

As attractive as they may sound to some, these solutions are operationally challenged, particularly if structural factors are depressing inflation. 

Having failed to meet the 2 percent target despite aggressive monetary policy, it is far from obvious that central banks would be able to meet a higher objective. And no one is quite sure how the political system would respond to a central bank that pursues much higher inflation as it tries to offset the shortfalls of prior years. Indeed, until we have a better understanding of how the transmission mechanism has evolved, there is no guarantee that a change in policy approach would do anything more than threaten even greater collateral damage and unintended consequences.

Already, economies on both side of the Atlantic must contend with the risk that a loose monetary policy approach may have overly repressed financial volatility, excessively boosted a range of asset prices beyond what is warranted by economic fundamentals, and encouraged too much risk-taking by non-banks. Indeed, in the Fed minutes, the central bank staff noted that “since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated.” Robust job creation, financial conditions, and the overall health of the economy should guide monetary policy formation rather than the excessive pursuit of a still-misunderstood lowflation.

The lowflation demon is real and, in the case of the U.S., the market now believes that it will likely dissuade the Fed from delivering on the next signaled step in the gradual normalization of monetary policy, including an interest rate hike in the remainder of 2017. Yet a lot more work is needed to understand the causes and consequences of persistently low inflation. Until that happens, central bankers may be well advised to stick with the demon they know rather than end up with one of future financial instability that undermines prospects for growth and prosperity.

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MOAR Pipeline Wars: Jews fear being gassed (by their own government) before exports to Europe even begin

August 23, 2017 hedgeless_horseman 0

“Everybody has a plan…until they get punched in the face.”

-Mike Tyson

Paul Alster has an interesting story this month in The Jerusalem Post.  It begins by informing us that…

“A fierce battle is being waged in the north of Israel.”

Then goes on to say…

It’s a battle pitching the might and financial muscle of the Netanyahu government, allied with powerful international energy companies and lobbyists, against local residents of the Mediterranean strip, which will soon become the site of the natural gas energy boom on which Israel’s economy may become increasingly reliant in years to come.

 

“Why,” ask objectors to new plans for developing the Leviathan gas field off the Carmel coast, “have proposals for up to 16 130-meter high, massive gas platforms been changed from siting them 120 km from shore for safety, efficiency and security reasons to as little as seven to 10 km from shore?” There is no doubt they will be an ugly blot on the landscape. When you look out from the hillside town of Zichron Ya’akov and gaze from the seashore to the horizon, it is a distance of approximately 32 km. The platforms will stand around a quarter of the distance out to sea, far too close by almost all calculations and international norms.

The fumes, say those opposing the plan, will drift with the sea breezes onto the population of the region, posing a significant health risk.

They note the already shockingly high numbers of breathing-related illnesses and cancers in the nearby Haifa region that are attributed to noxious fumes belching from the petrochemical plants of the Haifa Bay.

The development of the gas field close to land is set to eventually span a distance from south of Haifa Bay to Netanya where another 16 gas platforms in addition to the original 16 of the first phase are proposed, something that appears to have not yet been fully communicated to those who will eventually be affected.

But of even more concern in the new plan is the decision to process highly toxic and potentially carcinogenic condensate, a valuable natural gas byproduct, on land at the Hagit power station between Zichron Ya’akov and Yokneam. It will be piped to the shore under extreme pressure, emerging at the stunning Dor beach before being piped on to Hagit. Objectors, including residents of Dor and the adjacent beach at Nahsholim, say most gas-producing countries are not prepared to run the risk of processing condensate close to population centers and prefer to do so out at sea, limiting the potential danger to their citizens. Not so, Israel, it appears.

It seems unlikely to me that Jews will eventually become accustomed to governments poisoning them with gas.  We shall see.

 

Setting these fears of the Israeli people aside, let us take note of these words from the article attributed to US drilling company, Noble Energy (NE)

The development plan approved by the Ministry of Energy on 02.06.2016, [June 2, 2016] will deliver natural gas to the Israeli market and to neighboring countries before the end of 2019. The Leviathan Production Platform is located 10 km offshore on the edge of the continental shelf and within the area approved by the National Planning Committee’s National Outline Plan 37H.

Exporting significant amounts of natural gas to neighboring countries…via pipeline…before the end of 2019? 

http://www.zerohedge.com/news/2016-09-25/natural-gas-war-burning-under-s…

To better understand the war in Syria, remember the surge in natural gas discoveries in the Eastern Mediterranean starting in 2009. Israel, Cyprus, and Egypt have found large gas deposits, and offshore Lebanon has the potential for significant gas resources. Israel has the potential to export gas to Egypt, Jordan, the Palestinian Authority, and Turkey [Read Europe] (Israel and Turkey have discussed a pipeline  to Turkey, but Cyprus has objected as it does not have diplomatic relations with Turkey.) 

So, looking at the following map, it is easy to see why the Israeli government and AIPAC’s whores in Washington, D.C., have been so keen on regime change in Syria. 

 

From the EIA…

There are proposals, at varying stages of development, to export gas via pipeline and as liquefied natural gas (LNG) from both Cyprus and Israel (for a more detailed discussion of the proposed export routes, see EIA’s regional brief Oil and Natural Gas in the Eastern Mediterranean). An LNG terminal in Cyprus already began pre-front-end engineering design work and could begin construction in 2015. Cyprus hopes to incorporate volumes from fields in offshore Israel into its plans, but Israel appears to prefer its own facility at this point.

 

Other natural gas export options include

  

  • A new pipeline from the eastern Mediterranean to Crete (where the volumes could flow into the European grid)
  • A new pipeline from the eastern Mediterranean to Turkey
  • Use of existing infrastructure to send volumes to Egypt for export via its LNG facilities

 

Several factors may influence how and when exports may came online: regional insecurity, such as the ongoing conflict in Syria and the recent unrest in Egypt; territorial disputes, such as that between Israel and Lebanon; and the status of economies in both potential exporting countries and destination markets like Europe and Asia.

 

Indeed, Syria and her long-standing ally and gas-exporting friend, Russia, have refused to tap-out of the fight, and it seems to have paid off.

So, with Assad and Putin’s recent defeat of the Israeli-American backed terrorists in Syria, and the Israeli people protesting the industrialization of their beautiful but limited seashore, the Israeli Ministry of Energy and Noble Energy may need to revise their plan of exporting gas to neighboring countries…via pipeline…through Syria…before the end of 2019.  

What effect this would have on Noble Energy’s PL and stock price remains to be seen. 

Peace, prosperity, and liberty,

h_h

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Former CIA Agent Is Raising Cash To Buy Twitter And Delete Trump’s Account

August 23, 2017 Tyler Durden 0

Unveiling a novel, if oddly circuitous attempt to shut up President Donald Trump on his favorite social network, former undercover CIA agent Valerie Plame Wilson has launched a crowdfunding campaign in hopes of raising enough money to buy Twitter so she can then ban Trump from using it.

The blonde ex-spook launched the fundraiser last week, tweeting: “If @Twitter executives won’t shut down Trump’s violence and hate, then it’s up to us. #BuyTwitter #BanTrump.”

If @Twitter executives won’t shut down Trump’s violence and hate, then it’s up to us. #BuyTwitter #BanTrump https://t.co/HhbaHSluTx

— Valerie Plame Wilson (@ValeriePlame) August 18, 2017

The GoFundMe page for the fundraiser says Trump’s tweets “damage the country and put people in harm’s way.”

From the campaign:

Donald Trump has done a lot of horrible things on Twitter. From emboldening white supremacists to promoting violence against journalists, his tweets damage the country and put people in harm’s way. But threatening actual nuclear war with North Korea takes it to a dangerous new level. 

 

It’s time to shut him down. The bad news is Twitter has ignored growing calls to enforce their own community standards and delete Trump’s account. The good news is we can make that decision for them.

 

Twitter is a publicly traded company. Shares = power. This GoFundMe will fund the purchase of a controlling interest in Twitter. At the current market rate that would require over a billion dollars — but that’s a small price to pay to take away Trump’s most powerful megaphone and prevent a horrific nuclear war.

And the punchline: “Let’s #BuyTwitter and delete Trump’s account before he starts a nuclear war with it. The whole world will thank us when we do!”

Plame’s pitch is simple: raise enough cash to buy a controlling interest of Twitter stock. If, on the “odd chance” Plame is unable to raise enough to purchase a majority of shares, she said she will explore options to buy “a significant stake” and champion the proposal at Twitter’s annual shareholder meeting.

Considering that her campaign’s stated goal is only $1 billion, a (very) minority stake is the best the former CIA agent can hope for. As of Wednesday, a majority stake would cost just over $6 billion (TWTR’s market cap is $12.33 billion). Still, a billion dollars of TWTR shares would make her Twitter’s largest shareholder (or rather bagholder) and give her a dominant “activist” position to exert influence on the company. Of course, whether kicking Trump off Twitter is worth the hassle is a different question, especially since anyone who wishes not to follow Trump can do so for free.

Another problem is that almost a week into the campaign, it has raised just under $8,000, meaning it is about $999,992,000 shy of its lofty goal.

The White House responded to the campaign, and in a statement to the AP, press secretary Sarah Huckabee Sanders said the low total shows that the American people like the president’s use of Twitter. “Her ridiculous attempt to shut down his first amendment is the only clear violation and expression of hate and intolerance in this equation,” the White House read.

As a reminder, Plame’s identity as a CIA operative was leaked by an official in former President George W. Bush’s administration in 2003 in an effort to discredit her husband, Joe Wilson, a former diplomat who criticized Bush’s decision to invade Iraq. She left the agency in 2005.

Some cynics have dared to speculate that Plame’s campaign is just a (not so) veiled attempt to regain social and media prominence. It is unclear if their Twitter accounts will also be banned by the up and coming CEO. It’s also unclear what happens to the raised cash once the campaign fails to reach its target, although we are confident Jill Stein has some ideas


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Harvard study: Exxon ‘misled the public’ on climate change for nearly 40 years

For nearly 40 years ExxonMobil publicly raised doubt about the dangers of climate change even as scientists and execs inside the oil giant acknowledged the growing threat internally, according to a Harvard University study.

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How Rand Paul Can Free Americans From The Fed

August 23, 2017 Tyler Durden 0

Authored by Tho Bishop via The Mises Institute,

Ever since entering the Senate, Rand Paul has continued his father’s work in advocating for an audit of the Federal Reserve. This week, writing for the Daily Caller, Senator Paul renewed his efforts, illustrating how the recent era of unconventional monetary policy has made an audit all the more important:

In 2009, then-Fed Chairman Ben Bernanke was able to refuse to tell Congress who received over two trillion in Fed loans, and it took congressional action and a Bloomberg lawsuit to force the Fed to reveal the details of what it did in more than 21,000 transactions involving trillions of dollars during the 2008 financial crisis.  A one-time audit of the Fed’s emergency lending mandated by Congress revealed even more about the extent to which the Fed put taxpayers on the hook.

When pushed to defend the lack of transparency for the Federal Reserve, officials like Janet Yellen and Treasury Secretary Steve Mnuchin point to the myth of the Fed independence – a position that requires outright ignorance of the history of America’s central bank and the executive branch. Of course it’s quite usual for the Senate to base the merits of legislation entirely off of fallacious arguments, so they have continued to be the legislative body holding up a Fed audit with little indication they are prepared to move.

Given that reality, it is time for Senator Rand Paul to change his approach and introduce another piece of legislation from his father’s archives: the Free Competition in Currency Act.

While not as catchy as “End the Fed”, this piece of legislation – inspired by the work of F.A. Hayek – was perhaps Ron Paul’s most radical pieces of legislation. The idea was quite simple: eliminate legal tender laws mandating the use of US Dollars and remove the taxes Federal and State governments place on alternative currencies – such as gold and silver. While the original legislation did apply to “tokens,” an updated version should explicitly include the growing market of cryptocurrencies as a good with monetary value that should not be taxed.

What this would do is create a more even playing field between the dollar and alternative currencies, allowing an easy way for Americans to safeguard their wealth if they ever have reason to doubt the wisdom of the Federal Reserve’s policies. Just as Senator Paul advocated for the ability of Americans to be able to opt-out of the failing Obamacare system, this bill would grant Americans a lifeboat should the weaknesses inherent with the Fed’s fiat money regime expose themselves.

Unlike most examples of monetary policy reforms, which tend to be the products of ivory tower echo chambers, competition in currency would reflect active political trends. In recent years, states like Texas, Utah, and – in 2017 – Arizona have passed laws allowing the use of silver and gold for use in transactions. Meanwhile, other countries have looked to embrace the potential of cryptocurrencies for their monetary regimes. This makes this not only an idea that is good on paper, but one whose time has come.

As alluded to before, simply because a policy makes sense does not mean the Senate will act on it. That doesn’t mean the conversation and debate isn’t worth having. While it may still be on the horizon, there has been a steady drumbeat in Washington for the Federal Reserve to face some sort of reform. For two Congressional sessions in a row, the House has passed legislation explicitly calling for the Fed to embrace a “rules-based monetary system.” While this approach may sound better than today’s PhD standard, it doesn’t solve the problems inherent with central banking and fiat money.

Monetary rules such as “NGD Targeting” – which has the support of a rare coalition including the Cato Institute, Mercatus Center, Christina Romer, and Paul Krugman — should never be seen as a “reasonable compromise” for those skeptical about the Fed. Instead it’s simply another way of disguising central planning in a way to make it more palpable to the public, and therefore more difficult to stop. By putting this bill out there, Rand Paul can help frame the debate and bring a real solution to the table. Something that wouldn’t force the Fed to change a single thing, only making them compete on the market like the producer of other good or service. 

After all, as is the case with healthcare, or shoes, the best sort of “monetary policy” is competition on the market. Not one dictated by government. 

 

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Compass Point: “Odds Of A Government Shutdown Are Now Dramatically Higher”

August 23, 2017 Tyler Durden 0

Over the weekend, Morgan Stanley reminded its clients that the biggest threat facing markets over the coming weeks is the “three-headed policy monster” inside Washington: raising the debt ceiling, passing a budget and embarking on tax reform. As MS cross-asset strategist Andrew Sheets noted, “none are easy, but we see the debt ceiling as the most immediate test.”

He then cautioned that while the most likely outcome is that, after some tension, the debt ceiling gets raised “we don’t think it will be easy, or smooth, and it may require some form of market pressure to get different sides to fall in line. I’ve spoken to investors who are comforted by FOMC transcripts from 2011 that discussed prioritization of debt payments in order to avoid default. I am not. First, I worry that this reduces the urgency of what remains a serious issue. Second, this prioritization would require delaying payments to programmes like Social Security and Medicare, with real human and economic cost. And third, while the mechanics of this prioritisation may work, it is untested in a live environment.”

As reported earlier, the market’s concerns about a potential debt ceiling crisis, so far mostly contained, have once again started to bubble to the surface, with the Oct. 5 T-Bill rate rising to the highest level since August 1st, suggesting that bond traders see rising odds of a “worst case outcome” and partially answering our question from Monday whether “Markets Are Sleepwalking Into A Debt Ceiling Crisis: Mnuchin Issues Another Warning.

Additionally, the yield spread between the Sept 28 and Oct 5 Bills is now the widest on record:

The blowout has come after the latest warning by Treasury Secretary Steven Mnuchin, who on Monday said that “we need to raise the debt limit and it’s my strong preference is that there’s a clean raise of the debt limit.”

However, as of this morning, it’s not just the debt ceiling that traders have to worry about, because as discussed overnight, a new potential problem emerged last night when Trump told a Phoenix rally that he is commited to securing funds for a border wall, even if it results in a government shutdown.

While last night’s rally audience loved the threat, Democrats promptly blasted it: on Wednesday, Chuck Schumer ripped Trump for threatening to shutdown the government: “If the President pursues this path, against the wishes of both Republicans and Democrats, as well as the majority of the American people, he will be heading towards a government shutdown which nobody will like and which won’t accomplish anything,” Schumer said on Wednesday. Including funding for a physical wall is considered a non-starter for Democrats, whose votes will be needed to get a government funding bill through the Senate.

We doubt a warning from the Senate Minority Leader, or any other Democrat or Republican for that matter, will have much of an impact on Trump’s decision-making if he has indeed set his mind on procuring border wall funding. Which is also why in a note from Compass Point released this morning, strategists Isaac Boltansky and Lukas Davaz warn that not only is the risk of a government shutdown bigger than the debt limit, but that Trump’s commitment to securing funds for a border wall, together with Trump’s “injurious relationship” with GOP leaders – best demonstrated by last night’s NYT bombshell article laying out the open war between Trump and Senate Majority Leader Mitch McConnell – “dramatically raises the spectre of a shutdown in October.” Here are the highlights of their note, courtesy of Bloomberg:

  • The prospect of a govt shutdown “still poses a potentially serious downside risk for investors,” even as “our firm belief that the debt ceiling will be lifted removes a profound political risk from the landscape”
  • Trump’s commitment to securing funds for a border wall “dramatically raises the spectre of a shutdown in October” and his “injurious relationship” with Congressional Republican leadership “further complicates the underlying calculus”

Compass Point adds that four factors increase the potential for an equity market sell-off as government shutdown risks intensify:

  • Further delays confirmations, which would affect Trump’s deregulatory agenda;
  • Delivers a “psychological blow” to markets, serving as a “concrete symbol” of Washington’s inability to govern;
  • Delays legislative progress on tax reform;
  • Alters Fed’s policy normalization trajectory

In summary, while Compass Point says that lawmakers will promptly raise the debt ceiling in mid-September, or less than a month from now – something which Morgan Stanley and others find hard to believe – a government shutdown in October suddenly all too likely.

Then, shortly after the note was released, rating agency Fitch also chimed in and warned that if the U.S. debt limit is not raised in a timely manner, it would review the U.S. sovereign rating, with potentially negative implications. In other words, Fitch is warning that a repeat of August 2011 – when S&P infamously downgraded the US to AA+ after the failure to raise the debt ceiling resulted in a brief technica default0 is now on the table. The silver lining: Fitch said that a government shutdown following a debt ceiling increase, such as the one envisioned by Compass Point, would not direct affect on U.S. AAA rating.

Finally, for those who are still on the fence about the likelihood of a shutdown and are otherwise unhedged, one month ago Bank of America put together a “costless” spread collar trade, should volatility surge in the coming weeks as a debt ceiling/government funding deal emerges as unlikely. Here again is how to make money should the US government shut down in just over a month.

Trade idea: VIX Oct 12/14/19 call spread collar for zero-cost upfront

 

We are comfortable selling VIX puts to leverage a likely floor in volatility, particularly ahead of the debt ceiling, and using the premium collected to the cheapen the cost of portfolio protection. For example, investors may consider selling the VIX Oct 12 put vs. the 14/19 call spread, indicatively zero-cost upfront with a net delta of +54 (Oct fut ref 13.35).

 

The trade leverages the facts that (i) VIX 3M ATMf implied volatility, while low, is not necessarily cheap compared to the level of the VIX 3M future (Chart 14), and (ii) VIX 3M call skew is currently very steep, in the 92nd percentile since Sep-09 (Chart 15).

 

More critically, while VIX call spread collars have been challenged by recent sub-11 VIX settlement values, they can be successful, low-cost hedges when there are defined macro catalysts on the calendar to provide support to volatility, as seen from the US election and more recently the first round of the French election.

 

Lastly, we are comfortable capping upside via the call spread as the VIX 1M and 2M futures have not closed above 20 since Brexit over one year ago.

 

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