Citigroup, JPMorgan to Pay Most in $4.3 Billion FX Rigging Cases

http://www.bloomberg.com/news/2014-11-12/banks-to-pay-3-3-billion-in-fx-manipulation-probe.html

7 Questions Gold Bears Haven’t Answered

http://davidstockmanscontracorner.com/7-questions-gold-bears-havent-answered/

http://www.caseyresearch.com/articles/7-questions-gold-bears-must-answer-1

A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years.
More alarming, even for die-hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak US dollar, have reversed.
Throw in a correction-defying Wall Street stock market and the never-ending rain of disdain for gold from the mainstream and it may seem that there’s no reason to buy gold; the bear is here to stay.
If so, then I have a question. Actually, a whole bunch of questions.
If we’re in a bear market, then…

Why Is China Accumulating Record Amounts of Gold?

Mainstream reports will tell you Chinese imports through Hong Kong are down. They are.
But total gold imports are up. Most journalists continue to overlook the fact that China imports gold directly into Beijing and Shanghai now. And there are at least 12 importing banks—that we know of.
Counting these “unreported” sources, imports have risen sharply. How do we know? From other countries’ export data. Take Switzerland, for example:

So far in 2014, Switzerland has shipped 153 tonnes (4.9 million ounces) to China directly. This represents over 50% of what they sent through Hong Kong (299 tonnes).
The UK has also exported £15 billion in gold so far in 2014, according to customs data. In fact, London has shipped so much gold to China (and other parts of Asia) that their domestic market has “tightened significantly” according to bullion analysts there.

Why Is China Working to Accelerate Its Accumulation?

This is a growing trend. The People’s Bank of China released a plan just last Wednesday to open up gold imports to qualified miners, as well as all banks that are members of the Shanghai Gold Exchange. Even commemorative gold maker China Gold Coin could qualify to import bullion. Not only will this further increase imports, but it will serve to lower premiums for Chinese buyers, making purchases more affordable.
As evidence of burgeoning demand, gold trading on China’s largest physical exchange has already exceeded last year’s record volume. YTD volume on the Shanghai Gold Exchange, including the city’s free-trade zone, was 12,077 tonnes through October vs. 11,614 tonnes in all of 2013.
The Chinese wave has reached tidal proportions—and it’s still growing.

Why Are Other Countries Hoarding Gold?

The World Gold Council (WGC) reports that for the 12 months ending September 2014, gold demand outside of China and India was 1,566 tonnes (50.3 million ounces). The problem is that demand from China and India already equals global production!
India and China currently account for approximately 3,100 tonnes of gold demand, and the WGC says new mine production was 3,115 tonnes during the same period.
And in spite of all the government attempts to limit gold imports, India just recorded the highest level of imports in 41 months; the country imported over 39 tonnes in November alone, the most since May 2011.
Let’s not forget Russia. Not only does the Russian central bank continue to buy aggressively on the international market, Moscow now buys directly from Russian miners. This is largely because banks and brokers are blocked from using international markets by US sanctions. Despite this, and the fact that Russia doesn’t have to buy gold but keeps doing so anyway.
Global gold demand now eats up more than miners around the world can produce. Do all these countries see something we don’t?

Why Are Retail Investors NOT Selling SLV?

SPDR gold ETF (GLD) holdings continue to largely track the price of gold—but not the iShares silver ETF (SLV). The latter has more retail investors than GLD, and they’re not selling. In fact, while GLD holdings continue to decline, SLV holdings have shot higher.

While the silver price has fallen 16.5% so far this year, SLV holdings have risen 9.5%.
Why are so many silver investors not only holding on to their ETF shares but buying more?

Why Are Bullion Sales Setting New Records?

2013 was a record-setting year for gold and silver purchases from the US Mint. Pretty bullish when you consider the price crashed and headlines were universally negative.
And yet 2014 is on track to exceed last year’s record-setting pace, particularly with silver…

• November silver Eagle sales from the US Mint totaled 3,426,000 ounces, 49% more than the previous year. If December sales surpass 1.1 million coins—a near certainty at this point—2014 will be another record-breaking year.

• Silver sales at the Perth Mint last month also hit their highest level since January. Silver coin sales jumped to 851,836 ounces in November. That was also substantially higher than the 655,881 ounces in October.

• And India’s silver imports rose 14% for the first 10 months of the year and set a record for that period. Silver imports totaled a massive 169 million ounces, draining many vaults in the UK, similar to the drain for gold I mentioned above.

To be fair, the Royal Canadian Mint reported lower gold and silver bullion sales for Q3. But volumes are still historically high.

Why Are Some Mainstream Investors Buying Gold?

The negative headlines we all see about gold come from the mainstream. Yet, some in that group are buyers…
Ray Dalio runs the world’s largest hedge fund, with approximately $150 billion in assets under management. As my colleague Marin Katusa puts it, “When Ray talks, you listen.”
And Ray currently allocates 7.5% of his portfolio to gold.

He’s not alone. Joe Wickwire, portfolio manager of Fidelity Investments, said last week, “I believe now is a good time to take advantage of negative short-term trading sentiment in gold.”
Then there are Japanese pension funds, which as recently as 2011 did not invest in gold at all. Today, several hundred Japanese pension funds actively invest in the metal. Consider that Japan is the second-largest pension market in the world. Demand is also reportedly growing from defined benefit and defined contribution plans.
And just last Friday, Credit Suisse sold $24 million of US notes tied to an index of gold stocks, the largest offering in 14 months, a bet that producers will rebound from near six-year lows.
These (and other) mainstream investors are clearly not expecting gold and gold stocks to keep declining.

Why Are Countries Repatriating Gold?

I mean, it’s not as if the New York depository is unsafe. It and Ft. Knox rank as among the most secure storage facilities in the world. That makes the following developments very curious:

• Netherlands repatriated 122 tonnes (3.9 million ounces) last month.

• France’s National Front leader urged the Bank of France last month to repatriate all its gold from overseas vaults, and to increase its bullion assets by 20%.

• The Swiss Gold Initiative, which did not pass a popular vote, would’ve required all overseas gold be repatriated, as well as gold to comprise 20% of Swiss assets.

• Germany announced a repatriation program last year, though the plan has since fizzled.

• And this just in: there are reports that the Belgian central bank is investigating repatriation of its gold reserves.

What’s so important about gold right now that’s spurned a new trend to store it closer to home and increase reserves?
 These strong signs of demand don’t normally correlate with an asset in a bear market. Do you know of any bear market, in any asset, that’s seen this kind of demand?
Neither do I.
My friends, there’s only one explanation: all these parties see the bear soon yielding to the bull. You and I obviously aren’t the only ones that see it on the horizon.

LendingClub leads end-of-year push for tech IPOs

http://finance.yahoo.com/news/lendingclub-leads-end-of-year-push-for-tech-ipos-193743358.html

The market for technology IPOs is regrouping for an end-of-year rally. After a few months of quiet following Alibaba’s (BABA) record-breaking deal in September, underwriters say seven technology-related companies could go public this week and next, raising over $1.5 billion.

Related Stories

1. All I want for Christmas are 3 Bay Area IPOs San Jose Mercury News
2. 5 IPOs That Broke The Markets In 2014 Investopedia
3. LendingClub's IPO Range Implies Market Cap of $3.98B, Close to Prior Round The Wall Street Journal
4. Tech Stocks: This Time It Is Different Barrons.com
5. Cinco personas mueren tras peor tormenta de nieve en el año en oeste de Nueva York Reuters
6. 8 Nice Girls Who Went Bad On The Big Screen Answers Screen Sponsored 

That should help push the total raised for the year over $40 billion, the most for tech IPOs since 2000, according to Dealogic. Minus the $25 billion raised by Alibaba, however, the total would be closer to the average $12 billion a year raised over the past four years.

Among the upcoming deals, two online lending platforms, LendingClub and On Deck Capital, are hogging most of the investor enthusiasm. The remaining grab bag of cloud-based software providers and a Chinese Internet company are getting a somewhat less-excited reception, if only because investors remember how badly similar highly touted IPOs of the spring performed.

LendingClub, a marketplace for personal and small-business loans, has already upped its price range this week, a signal of strong investor interest. The San Francisco-based company expects top price shares between $12 and $14, up from $10 to $12, valuing the currently unprofitable loan matchmaker at close to $6.5 billion on a fully diluted basis.

The largest of the so-called peer-to-peer loan startups, LendingClub has helped match lenders and borrowers on $6 billion worth of debt since it launched in 2007. The company takes a fee on each transaction but doesn’t lend its own capital. Revenue in the first nine months of 2014 totaled $133.8 million, up 142% from the same period last year. But expenses grew quickly, too, turning a 2013 profit of $4.5 million into a net loss of $23.9 million this year.

On Deck started at the same time but has facilitated only $1.7 billion of loans. It focuses more on small businesses and makes loans up to $250,000.  Revenue for the first nine months of 2014 was $107.6 million, up 156%. Its net loss for common shareholders of $24.2 million was 18% less than last year.

“We’re highlighting LendingClub,” says Kathleen Smith, principal at Renaissance Capital, which manages exchange-traded funds aimed at IPOs. “It’s been profitable, has high growth and they just raised the pricing range.”

If the shares do well once they hit the market on Thursday morning, that could bode well for On Deck’s IPO next week.
Among the other tech debuts, several companies may hit the public market at valuations below their most recent rounds of venture capital. Hortonworks, which helps companies use the open source data processing software Hadoop, was valued at $1 billion in the spring but looks to go public at about half that amount.

New Relic and Workiva are similar to the many cloud-services companies that went public in the spring. New Relic helps companies tap into massive amounts of real-time data they may collect, while Workiva is a cloud-based solution for filing to the U.S. Securities and Exchange Commission. Both face substantial competition and unproven markets, notes Francis Gaskins, editor and president of IPO Desktop.

Connecture, which helps run public and private online health insurance markets, may suffer from comparisons to Castlight Health (CSLT), another online health data player. Castlight’s shares have dropped 70% since the close of its first day of trading back in March.

Momo, a Chinese mobile messaging and social networking company, also may get a cooler reaction thanks to the weak performance of similar companies. Among Chinese Internet companies, shares of Sina (SINA) have dropped 57% this year, Sohu.com (SOHU) 37% and Renren (RENN) 14%.

But with that in mind, investors likely won't bid up the current crop of IPOs to the same heights. And that should be good for long-term investor interests.

The math to $40 a barrel oil

http://jeffhirsch.tumblr.com/post/104440107838/the-math-to-40-a-barrel-oil

The math to $40 a barrel oil

• Jeffrey A. Hirsch
• December 5, 2014

On Wednesday, I jumped into the “where oil is headed next” forecast game and set a target of $40.75 a barrel. The chart that was included highlighted a series of lower highs and the recent sudden sharp drop. The line drawn at $40.75 drew criticism for appearing rather arbitrarily placed on the chart. Contrary to this opinion, the target was not simply draw on the chart. But before getting into the math behind this price let’s have a look at a few recent news stories.
ExxonMobil OK with oil at $40: CEO – When the CEO of ExxonMobil specifically says his company is “ok” with oil at $40 when it is trading in the $60s, this may deserve a second thought.
Sub-$50 Oil Surfaces in North Dakota Amid Regional Discounts – Bakken oil has sold in the $40s already.
Why Elon Musk’s Batteries Scare the Hell Out of the Electric Company – This one targets utilities, but it also hits oil demand. It is not that far of a stretch to envision most U.S. households with an off-the-grid solar-powered charging station for their plug-in hybrids and/or all electric vehicles. Once purchased, this combo would make it possible to never visit a gas station again. And for households that already own multiple autos this makes even more sense, one electric auto for the daily commute and local errands and a second fossil fuel burner for those long summer and holiday road trips.
To get to $40.75 per barrel I considered the following: world oil supply and consumption data since 1990, inflation since 1990, crude oil price and the U.S. dollar index. Oil supply, consumption and price data was retrieved from www.eia.gov and is in an average annual format. The CPI was used to represent inflation and is also an average annual value. All four are graphed as cumulative percent change in the chart above beginning with 1990 equal to zero. Crude’s price is on the left axis while the rest are on the right.
In 24 years through 2013, global oil supplies have risen a cumulative 35.6 % while demand has risen 35.8%. In twelve years supplies exceeded consumption while crude’s price rose nearly 300%. A gap of 0.2% between supply and demand suggests that actual oil production has done an excellent job of meeting real demand. Global spare production capacity is more than sufficient to cover any supply shortfalls in 2014. So supply and demand is considered to be in balance, but price is clearly bloated in the new hi-tech era of oil exploration, drilling and production.
Inflation plays a role in the price of crude oil. Using CPI as the metric, inflation has risen 78.3% since 1990 through the end of 2013. Adjusting crude oil’s annual average price in 1990 of $24.53 a barrel for inflation would be $43.66. Since a barrel of oil is priced in U.S. dollars, the U.S. dollar index must also be considered. Due to recent strength, the U.S. dollar index is actually 7.5% higher today than it was at the end of 1990. Factor this into the inflation adjusted crude price of $43.66 and the net result is $40.40 per barrel. This is slightly less today than my initial calculation of $40.75 because the dollar has further strengthened since Wednesday.

Oil Shock Streaks Across Globe From Moscow to Tehran to Caracas. Ready for $40?

http://www.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market-transforms-caracas-to-iran.html


Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union.
Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades.
“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS Inc. and author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.”

Costs as Benchmark

Oil has dropped 38 percent this year and, in theory, production can continue to flow until prices fall below the day-to-day costs at existing wells. Stevens said some U.S. shale producers may break even at $40 a barrel or less. The International Energy Agency estimates most drilling in the Bakken formation -- the shale producers that OPEC seeks to drive out of business -- return cash at $42 a barrel.
Canadian Natural Resources Ltd. Chairman Murray Edwards said crude may sink as low as $30 a barrel before rebounding to stabilize at $70 to $75 a barrel, the Financial Post reported.
“Right now we’re seeing a price shock coming out of the meeting and it will be a couple of weeks until we see where the price really falls,” said Yergin. Officials “have to figure out where the new price range is, and that’s the drama that’s going to play out in the weeks ahead.”
Brent crude was down $1.40 at $68.75 as of 9:14 a.m. in London, while New York oil lost $1.47 to $64.68. Brent is now at its lowest since the financial crisis -- when it bottomed around $36.

Not All Suffer

To be sure, not all oil producers are suffering. The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.
“Saudi Arabia, U.A.E. and Qatar can live with relatively lower oil prices for a while, but this isn’t the case for Iran, Iraq, Nigeria, Venezuela, Algeria and Angola,” said Marie-Claire Aoun, director of the energy center at the French Institute for International Relations in Paris. “Strong demographic pressure is feeding their energy and budgetary requirements. The price of crude is paramount for their economies because they have failed to diversify.”
Brent crude is poised for the biggest annual decline since 2008 after OPEC last week rejected calls for production cuts that would address a global glut.
Like this year’s decline, oil’s crash in the 1980s was brought on by a Saudi-led decision to defend its market share, sending crude to about $12 a barrel.

Russia Vulnerable

“Russia in particular seems vulnerable,” said Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen. “A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998.”
VTB Group, Russia’s second-largest bank, OAO Gazprombank, its third-largest lender, and Russian Agricultural Bank are already seeking government aid to replenish capital after sanctions cut them off from international financial markets. Now with sputtering economic growth, they also face a rise in bad loans.
Oil and gas provide 68 percent of Russia’s exports and 50 percent of its federal budget. Russia has already lost almost $90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down 35 percent against the dollar since June.

This Will Pass

While the country’s economy minister and some oil executives have warned of tough times ahead, President Vladimir Putin is sanguine, suggesting falling oil won’t force him to meet Western demands that he curb his country’s interference in Ukraine.
“Winter is coming and I am sure the market will come into balance again in the first quarter or toward the middle of next year,” he said Nov. 28 in Sochi.
Even before the price tumble, Iran’s oil exports were already crumbling because of sanctions imposed over its nuclear program. Production is at a 20-year low, exports have fallen by half since early 2012 to 1 million barrels a day, and the rial has plummeted 80 percent on the black market, says the IMF.
Lower oil may increase the pain on Iran’s population, though it may be insufficient to push its leaders to accept an end to the nuclear program, which they insist is peaceful.

‘Already Losing’

“The oil price decline is not a game changer for Iran,” said Suzanne Maloney, senior fellow at the Brookings Institution, a Washington-based research organization, who specializes on Iran. “The Iranians were already losing so many billions of dollars because of the sanctions that the oil price decline is just icing on the cake.”
While oil’s decline wrenches oil-rich nations that squandered the profits from recent high prices, the world economy overall may benefit. The Organization for Economic Cooperation and Development estimates a $20 drop in price adds 0.4 percentage point to growth of its members after two years. By knocking down inflation by 0.5 point over the same period, cheaper oil could also persuade central banks to either keep interest rates low or even add stimulus.
Energy accounts for 10 percent to 12 percent of consumer spending in European countries such as France and Germany, HSBC Holdings Plc said.

Nigerian Woes

As developed oil-importing nations benefit, some of the world’s poorest suffer. Nigeria’s authorities, which rely on oil for 75 percent of government revenue, have tightened monetary policy, devalued the naira and plan to cut public spending by 6 percent next year. Oil and gas account for 35 percent of Nigeria’s economic output and 90 percent of its exports, according to OPEC.
“The current drop in oil prices poses stark challenges for Nigeria’s external and fiscal accounts and puts heavy pressure on the exchange rate,” Oliver Masetti, an economist at Deutsche Bank AG, said in a report this month. “If oil prices remain at their current lows, Nigeria will face tough choices.”
Even before oil’s rout, Venezuela was teetering.
The nation is running a budget deficit of 16 percent of gross domestic product, partly because much of its declining oil production is sold domestically at subsidized prices. Oil is 95 percent of exports and 25 percent of GDP, OPEC says.
“Venezuela already qualifies for fiscal chaos,” Yergin said.

Venezuelan Rioting

The country was paralyzed by deadly riots earlier this year after police repressed protests about spiraling inflation, shortages of consumer goods and worsening crime.
“The dire state of the economy is likely to trigger renewed social unrest, while it seems that the government is running out of hard currency,” Capital Economics, a London research firm, wrote in a Nov. 28 report.
Declining oil may force the government to take steps to avoid a default including devaluing the currency, cutting imports, raising domestic energy prices and cutting subsidies shipments to poorer countries in the region, according to Francisco Rodriguez, an economist at Bank of America Merrill Lynch.
“Though all these entail difficult choices, default is not an appealing alternative,” he said. “Were Venezuela to default, bondholders would almost surely move to attach the country’s refineries and oil shipments abroad.”
China Bailout?
In an address on state television Nov. 28, President Nicolas Maduro said Venezuela would maintain social spending while pledging to form a commission to identify unnecessary spending to cut. He also said he was sending the economy minister to China to discuss development projects.
Mexico shows how an oil nation can build new industries and avoid relying on one commodity. Falling crude demand and prices in the early 1980s helped send the nation into a debt crisis.
Oil’s share of Mexico’s exports fell to 13 percent in 2013 from 38 percent in 1990, even as total exports more than quadrupled. Electronics and cars now account for a greater share of the country’s shipments. Though oil still accounts for 32 percent of government revenue, the Mexican government has based its 2015 budget on an average price of $79 a barrel.
Related reading: Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale Oil Bust of 1986 Reminds U.S. Drillers of Price War Risk OPEC Refusal Means Oil Industry’s Weakest Producers Left Behind
To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net; Simon Kennedy in London at

This Is Probably The 2nd-Worst Time In History To Own Stocks

http://www.businessinsider.com/second-worst-time-to-own-stocks-2014-11

This stock market is now the second most overbought, the second most overvalued and most most over-leveraged market in history.
Overbought: My friend, Dana Lyons, recently posted the chart below which shows the S&P 500 in relation to its exponential regression trend line. The only other time in history stocks were this “overbought” (traded more than 90% above the long-term trend) was back at the height of the internet bubble.
JLFMI
 Overvalued: A glance at the chart below, of Warren Buffett’s favorite valuation metric (total market capitalization-to-GDP), clearly shows that there was also only one other time in history when stocks were priced so dearly as they are today: 1999.
FRED
Over-leveraged: Finally, investors have never been so highly levered to equity prices. Even 1999 can’t compare with today’s aggressiveness. As the next chart shows, net free credits (cash minus margin debt) in brokerage accounts have never traveled so far into negative territory as they have now.
dshort.com
I think it’s pretty pointless to debate whether this constitutes another “bubble” or not. Label it however you want. But it’s hard to deny that this is, at the very least, the second most unattractive time to own equities in history. In other words, this is probably the second worst time in history to own stocks. 

Read more: http://thefelderreport.com/2014/11/25/this-is-probably-the-second-worst-time-in-history-to-own-stocks/#ixzz3KkaAl3rZ

Guess What Happened The Last Time The Price Of Oil Crashed Like This?

http://www.globalresearch.ca/guess-what-happened-the-last-time-the-price-of-oil-crashed-like-this/5417215
here has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months.  The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months.  Well, now it is happening again, but this time the stakes are even higher.  When the price of oil falls dramatically, that is a sign that economic activity is slowing down.  It can also have a tremendously destabilizing affect on financial markets.  As you will read about below, energy companies now account for approximately 20 percent of the junk bond market.  And a junk bond implosion is usually a signal that a major stock market crash is on the way.  So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds.  If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.
It would be difficult to overstate the importance of the shale oil boom to the U.S. economy.  Thanks to this boom, the United States has become the largest oil producer on the entire planet.
Yes, the U.S. now actually produces more oil than either Saudi Arabia or Russia.  This “revolution” has resulted in the creation of  millions of jobs since the last recession, and it has been one of the key factors that has kept the percentage of Americans that are employed fairly stable.
Unfortunately, the shale oil boom is coming to an abrupt end.  As a recent Vox article discussed, OPEC has essentially declared a price war on U.S. shale oil producers…

For all intents and purposes, OPEC is now engaged in a “price war” with the United States. What that means is that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share.

If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost.  The Saudis know how to play hardball, and they are absolutely ruthless.  In fact, we have seen this kind of scenario happen before…

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

But the energy sector has been one of the only bright spots for the U.S. economy in recent years.  If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook.  For example, just consider the following numbers from a recent Business Insider article…

Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs.
“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.

Even more troubling is what this could mean for the financial markets.
As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market.  As those companies start to fail and those bonds start to go bad, that is going to hit our major banks really hard…

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis.
Why could that happen?
Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.

It would be hard to overstate the seriousness of what the markets could potentially be facing.
One analyst summed it up to CNBC this way…

“This is the one thing I’ve seen over and over again,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.“

The last time junk bonds collapsed, a major stock market crash followed fairly rapidly.
And those that were hardest hit were the big Wall Street banks…

During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half.

I understand that some of this information is too technical for a lot of people, but the bottom line is this…
Watch junk bonds.  When they start crashing it is a sign that a major stock market collapse is right at the door.
At this point, even the mainstream media is warning about this.  Just consider the following excerpt from a recent CNN article…

That swing away from junk bonds often happens shortly before stock market downturns.
“High yield does provide useful sell signals to equity investors,” Barclays analysts concluded in a recent report.
Barclays combed through the past dozen years of data. The warning signal they found is a 30% or greater increase in the spread between Treasuries and junk bonds before a dip.

If you have been waiting for the next major financial collapse, what you have just read in this article indicates that it is now closer than it has ever been.
Over the coming weeks, keep your eye on the price of oil, keep your eye on the junk bond market and keep your eye on the big banks.
Trouble is brewing, and nobody is quite sure exactly what comes next.

The New, Improved Shanghai Cooperation Organization

http://thediplomat.com/2014/09/the-new-improved-shanghai-cooperation-organization/

The annual Shanghai Cooperation Organization summit convened in Dushanbe, Tajikistan on September 11 and 12. As befitting its origin as a regional security organization, the SCO mainly focused on security issues, from counterterrorism to Afghan stability, but also touched on economic cooperation. And in a major step forward in expanding its regional clout, the SCO finalized procedures for taking in new members, with India, Pakistan, and Iran first on the list.

Security issues are at the top of the SCO agenda, and terrorism continues to be the major security concern. Anti-terrorism is, not coincidentally, also a huge point of emphasis for China, the SCO’s de facto leader. In his speech at the summit, Chinese President Xi Jinping called for the SCO to “focus on combating religion-involved extremism and internet terrorism.” Xi also said SCO members should set up consultations regarding an eventual “anti-extremism” treaty. Ultimately, Xi wants to see regional players, led by the SCO, handling regional security, thus eliminating the need for extra-regional actors (especially the U.S.) As Xi put it, the SCO members “should take it as our own responsibility to safeguard regional security and stability, enhance our ability to maintain stability, continue to boost cooperation on law enforcement and security, and improve the existing cooperation mechanisms.”

Against the larger backdrop of counterterrorism, Afghanistan’s stability remains a major concern for SCO members. Of all the countries bordering Afghanistan, only one (Turkmenistan) is not an SCO member or observer state (and Afghanistan is an SCO observer itself). Thus, should Afghanistan’s security fall apart in the post-NATO era, the SCO would be on the front lines of the disaster.

Before the summit, China’s ambassador to Tajikistan told Xinhua that “SCO members are determined to turn Afghanistan into a country with genuine peace, stability and development, and [will] make concerted efforts with international community in this endeavor.” But, as with other regional security concerns, the SCO ideally wants to ensure Afghan security without having to rely on outside forces (namely, the U.S. and NATO). During this week’s summit, the SCO members voiced their support for “an Afghan-led and Afghan-owned reconciliation and reconstruction process” that allows
Afghanistan to become “self-reliant.” Given the current disaster unfolding in Iraq, SCO members have good reason to be concerned about Kabul becoming overly dependent on U.S. support.
The SCO also made clear its position on the expansion of missile defense systems . “The unilateral and unlimited strengthening of missile defense systems by any individual state or any group of states will undermine international security and strategic stability,” the SCO declaration read. Expanded missile defense systems are a concern for both China and Russia, who protest the idea of new missile defense systems being set up by neighboring U.S. allies.
While the main emphasis was on security concerns, the SCO summit also encouraged further economic cooperation among its members. Economic integration has become an increasingly large part of the SCO agenda, especially as China promotes its idea for a Silk Road Economic Belt that would include the SCO members and observer states.

Amidst all these ambitious goals — ensuring regional stability, especially preventing terrorist activities; promoting Afghan security; furthering economic integration — the imperative for expanding the SCO becomes clear.  Teng Jianqun of the China Institute of International Studies told CCTV in an interview that “enlargement has become absolutely necessary” for the SCO. The current membership is limited to six: China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Given that, it’s easy to dismiss the SCO as a playground for China and Russia’s foreign policy initiatives, but one that doesn’t carry any real clout. However, should the SCO expand, as it is now primed to do, the organization would see a corresponding jump in prestige and influence. As Xinhua put it, SCO expansion would “infuse fresh vigor into the group’s future development and boost its influence and appeal on the international arena.”

The SCO has not expanded since it was officially founded in 2001. Before it can add new members, it must first create a legal framework for doing so — exactly the task before the SCO at this week’s summit. The current requirements for joining require potential members to have observer status in the SCO, which would limit the list of candidates to Afghanistan, India, Iran, Mongolia, and Pakistan (Belarus, Turkey, and Sri Lanka are currently “dialogue partners”). Of these, India, Iran, and Pakistan have been tapped for membership; the full process is expected to be complete before the 2015 SCO summit, to be held in Russia.  Despite the new membership, Global Times notes that the SCO’s primary focus will remain on Central Asia.

An expanded SCO will be in a better position to achieve Xi’s vision of becoming the regional security heavyweight. Despite a tendency to see the SCO as a competitor to NATO, Chinese leaders stress that the SCO is something entirely new. In Dushanbe, Xi announced that “SCO members have created a new model of international relations — partnership instead of alliance.” An op-ed in RT by a former Russian deputy foreign minister struck a similar tone, contrasting the SCO with “the rigid discipline that exists within old-fashioned, cumbersome alliances of the previous era, which imposed serious constraints on the sovereignty and freedom of their member states.” By comparison, the SCO was described as “fully in tune with the realities and requirements of the 21st century” — the model for future international relationships. With three new partners added to its ranks, the SCO is now better positioned to truly challenge those “cumbersome alliances” for primacy in shaping regional security.

BRICS and the Shanghai Cooperation Organization (SCO) Challenge U.S. Global Dominance

http://www.globalresearch.ca/brics-and-the-shanghai-cooperation-organization-sco-challenge-u-s-global-dominance/5415550


United States military aggression globally is stimulating the creation of a new international economic order that could serve as a viable alternative to the present Western-dominated version. Washington’s surrounding of both Russia and China with military bases and warships, its severe economic sanctions against Russia and Iran (a close Russian ally), and its attacks on Syria (a Russian and Iranian ally) are accelerating the consolidation of the BRICS country alliance (Brazil, Russia, India, China and South Africa), as well as the expansion of the Shanghai Cooperation Organization (SCO) that now includes about half of the world’s population.
In May, BRICS members Russia (the world’s biggest energy producer) and China (the world’s biggest energy consumer) signed a $400 billion energy agreement in which Gazprom, the large Russian state energy company, agreed to supply China National Petroleum Corporation (CNPC) with 3.75 billion cubic feet of liquefied natural gas a day for 30 years. That equals a quarter of Russia’s huge gas exports to Europe.
Crucially, the gas deal was sealed in yuan and rubles, which worries the U.S. Most oil and gas trade happens in U.S. dollars and the requirement for countries to stock U.S. currency to pay for energy gives the U.S. enormous economic power. The Russia–China energy deal is a significant—and very intentional—step away from this setup. As Pepe Escobar, correspondent for Asia Times, put it in one article,

“Russian President Vladimir Putin and [Chinese President Xi Jinping]… are scaring the hell out of the ‘Empire of Chaos.’ No wonder; their number one shared priority is to dent the hegemony of the U.S. dollar—and especially the petrodollar—in the global financial system.”

Escobar remarked the deal creates a “tectonic shift,” with Asia’s vast pipeline network, “intersecting with a growing Sino-Russian political-economic-energy partnership. Along with it goes the future possibility of a push, led again by China and Russia, toward a new international reserve currency—actually a basket of currencies—that would supersede the dollar.”
Peter Koenig, an economist and former employee (of 30 years) of the U.S.-dominated World Bank, told me the Russia–China energy deal is:

“symbolic, because Russia’s total hydrocarbon trading per year alone amounts to about US$1 trillion. It is also a demonstration to the world that Russia and China are morphing into a strong alliance in trade, politics and defence. In that sense yes, the gas deal is clearly undermining the dollar.”

Koenig explained there is a “massive effort of de-dollarization” happening within the BRICS that is led by China and Russia, which have been swapping sizeable amounts of ruble and yuan since June 2014. (In October, the Chinese and Russian central banks signed a three-year, 150 billion yuan bilateral local currency swap deal.) He pointed out that in July, Elvira Nabiullina, governor of the Russian Central Bank, said she was discussing the idea of similar arrangements with other BRICS countries, and that, in her words, “a part of the currency reserves can be directed to [the new system].”

“This signals the beginning of a new monetary system which eventually will issue its own currency, possibly a basket of currencies, akin to the Special Drawing Rights (SDR) of the International Monetary Fund (IMF) that could gradually replace the dollar as a reserve currency,” said Koenig. “This is in fact already happening. Ten years ago, 90% of the world’s reserves were in dollar denominated securities. Today that figure has shrunk to 60%.”

The IMF has reported that since 2003, reserves in other currencies in emerging markets have shot up by 400%. In the six months leading up to February 2014, South Korea increased its yuan holdings 25-fold.

“The chances are good that a BRICS currency will eventually displace the dollar as ‘world currency,’ in other words as currency of reference and major reserve currency,” Koenig told me. “Once the new money is established with a secure exchange and transaction system… it is very likely that many countries that so far do not dare abandon the dollar (for fear of sanctions) might join the new money pool, thereby strengthening it.”

This would be a good thing, according to the economist.

“It is high time that the currency of worldwide theft, abuse and exploitation—the U.S. dollar, financial instrument for endless wars and economic terrorism—be replaced with a currency of peaceful endeavors that respects national sovereignty, a currency that works for the people, not for the elite.”

According to Escobar, the BRICS countries want to become a counterforce to the G7 western powers and the global economic architecture established after the Second World War.
“They see themselves as a potential challenge to the exceptionalist and unipolar world that Washington imagines for our future (with itself as the global robocop and NATO as its robo-police force),” he wrote in May. “The BRICS long-term plan involves the creation of an alternative economic system featuring a basket of gold-backed currencies that would bypass the present America-centric global financial system.”
In July, the BRICS countries set up a $100 billion development bank that could eventually rival the World Bank and IMF as a source of project financing for the Global South. Koenig suggested the BRICS bank represents a “step away from the Washington Consensus,” with its focus on “privatizing public goods and services, like water supply and health and education services.”
The BRICS development bank “will likely concentrate on infrastructure development and enhancements [like] transportation, energy distribution, telecommunication and so on, energy exploration and exploitation, including alternative clean energy, and social services,” he said, adding it “could temporarily even act as a BRICS Central Bank and when the time comes issue a new BRICS currency.” Together the BRICS account for almost 30% of world GDP and for about 45% of the world population.
Conn Hallinan also thinks the BRICS bank will be better for the Global South than the U.S.-dominated system. He is an analyst with Foreign Policy in Focus, a project of the Washington, D.C.-based Institute for Policy Studies.

“The new BRICS development bank will lend money not only to the BRICS but other countries as well,” he told me. “The importance of that is that the money will not come with all the ‘free market’ Washington Consensus nonsense that has plunged country after country into a debt trap.
“The needs of the Global South are for basic infrastructure and poverty reduction. The World Bank accomplishes neither, and its economic policies end up increasing poverty. Also, the creation of a development bank will make it possible to bypass the IMF for balance-of-payment loans, thus avoiding the organization’s onerous austerity requirements.”

The U.S. system is based on a deeply flawed economic model, Hallinan continued, which can be summed up this way: finance debt through tax cuts and enforced austerity.

“All austerity does is drive up debt because it causes economies to shrink, and tax cuts translate into deeper government debt,” he said. “Even the IMF and many EU members are starting to resist this formula [that] totally destroyed Latin America in the 1990s and early 2000s.”

In contrast, Hallinan explained the BRICS system is closer to the kind of “pump priming” used to pull the U.S. out of the Great Depression, and which Japan and South Korea “used so effectively to jump start their manufacturing booms” after the Second World War and Korean War.

“Because the new system focuses on building up infrastructure it will not only create jobs, it will raise productivity through building transportation systems and the like. This is desperately needed for Brazil and India, not so much for China and Russia. It is very difficult for developing countries to get loans to modernize their economies, and when they do they have many restrictions attached. The BRICS plan is a major step away from that,” he said.

Developing countries are also concerned about the ability of the U.S. to manipulate the dollar to its advantage, Hallinan added, and they are fearful of attracting heavy, debilitating sanctions (e.g. against Russia and Iran) imposed by the U.S., European Union and their allies, including Canada.
In September, in another “tectonic” shift, BRICS members China and Russia, and the other four members of the Shanghai Cooperation Organization (SCO)—Tajikistan, Kazakhstan, Uzbekistan and Kyrgyzstan—agreed to add four new members to the group: India, Pakistan, Iran and Mongolia. For Escobar, this is proof the SCO is shaping up to be the most important international organization in Asia.
“It’s already clear that one of its key long-term objectives will be to stop trading in U.S. dollars, while advancing the use of the petro-yuan and petro-ruble in the energy trade,” he commented.
With this expansion, SCO members now control 20% of the world’s oil and half of all global gas reserves. The organization represents about half of the world’s population.

“The expansion is a big deal,” said Hallinan. “The U.S. has been trying to isolate Iran and Russia. After this expansion I think it is relevant to ask who is looking more isolated these days?”

Hallinan said a major focus of the SCO is security, with Russia and China wanting to diminish the U.S. and North Atlantic Treaty Organization (NATO) presence in Central Asia to what it was before the 2001 U.S. invasion of Afghanistan. The SCO has pressured countries in the region to close U.S. military bases with some success. The U.S. was evicted from the Karshi-Khanabad base in Uzbekistan in 2005 and from the Manas base in Kyrgyzstan in 2014.
“At present, the SCO has started to counterbalance NATO’s role in Asia,”commented Aleksey Maslov, chair of the department of Asian studies at the Higher School of Economics in Moscow, in a recent article.

“The aggressive nature of Western actions towards Russia has certainly united the SCO members,” concurred the London-based political commentator Alexander Clackson in Oriental Review this September. “What links them all—whether members or observers—is the rejection of Western-dominated institutions, such as the World Bank or the International Monetary Fund, which are all U.S.-based. The SCO, like the BRICS with their Development Bank, sees itself as a forum against the Western dominated global order.”

Hallinan wrote recently that the days when these Western institutions could, “dictate international finances and intimidate or crush opponents with an avalanche of sanctions are drawing to a close. The BRICS and the Shanghai Cooperation Organization are two nails in that coffin.”
“This cannot happen fast enough in order to stop U.S.-led Western aggressions and financial terrorism around the world,” said Koenig.