Tuesday, January 6, 2015

Economics in 2015 (part 1)

1.)  "The US Dollar Rally in late 2014 has crushed Brazil, Australia, and now the S&P 500"

2.) The oil-price plunge is eating into the American oil boom, munching on income statements and balance sheets of drillers that have gorged on junk debt. It’s chewing up junk bonds and leveraged loans. It’s frying oil and gas stocks. It’s starting to wreak havoc among suppliers to the industry. Layoffs are starting to cascade across the oil patch, company by company, as capital expenditures and operating expenses get slashed in an effort to stay liquid long enough to make it through the oil bust.  Oil busts are terrible creatures in oil and gas states, such as Texas, Oklahoma, or North Dakota. The last one persisted for a long time. It took down banks, housing, restaurants, oil-field equipment manufacturers and their suppliers, grocery stores, Pickup truck sales plummeted, boat sales dried up. Jewelry stores fell on hard times.  This time, it’s different. Fracking is immensely capital intensive. Wall Street is up to its ears in it. Hedge funds and private equity firms will join banks in taking the hits on their equity stakes and on the debt they hold".  And yet, media analysts and economists argue that "what we're inundated with is the tsunami of benefits of lower oil prices".  Could it be true? "Airlines make extra billions by offering the same crummy service without lowering  airfares, though their fuel costs drop. Utilities come out ahead for similar reasons. Toll road operators will be able to raise tolls and extract more money from drivers who’re sitting on what they've saved at the pump, according to Wells Fargo. It expects airports to shine, 'specifically large international gateway airports with significant cargo operations'. Because consumers will buy more imported stuff with money they saved on gasoline. Alas, much of that gasoline is an entirely American-made product all along the chain, from the technology required to extract crude to the gallon of regular dispensed by a machine.  Whatever money consumers save on gas lowers the consumer-spending component of GDP. If consumers spend all this money on something else, consumer spending stays flat. It just gets shifted around. But many people won’t spend the money on other things. The economic impact from this boom goes far beyond the oil patch. Many items used in this industry, from frack sand to steel pipes to the most sophisticated equipment, are made in the US, often by well-paid workers. Materials and equipment get shipped across the country by US railroads. Pipelines get built. Crude gets transported via pipelines or oil trains to US refineries where it is refined into gasoline, diesel, heating oil, jet fuel, and other products, to be transported once again and sold to consumers and businesses or industrial users around the country. These industries have created an immense number of well-paid jobs. There is hardly any foreign involvement in this. Most of the money spent by the US oil and gas industry and its suppliers flows into US GDP. Replacing part of this activity with imported clothes or shoes or necklaces or electronic gadgets would boost US economic growth? I mean, come on.  This machinery was built with debt, much of it junk debt. It requires a high price of oil to continue functioning. A $50-per-barrel drop, if maintained on average in 2015, which is entirely possible, would send much of the junk debt into default. It would strangle the flow of new money into the industry, a process that has already begun. If the money stops flowing, drilling projects will be cut. Many outfits would topple because they could no longer service their enormous debts. Much of this debt would blow up. Equity would be transferred from existing stockholders to creditors. Oil bust mayhem would spread in this all-American industry that has played such an outsized role in the otherwise crummy US recovery.

3.) USA instructs the Russian Central Bank on how to strangle Russian economy -"In other words, Russia is not even a ruble country de jure. Russia is a dollar country. The Russian ruble takes a small share in the country. The whole segment of investment is based on dollars and Euros. The Constitution protects that, and the Central Bank of the country should keep the rate. Now, we have the situation when the Central Bank does not abide by the Constitution, because it raised the key rate and reduced the ruble rate. From the point of view of the Constitution, the Central Bank is obliged to keep the rate. The Central Bank violated the Constitution and Putin's numerous instructions, but it was an absolutely logical move. The charter of the Central Bank does not contain a word about the Russian economy. It should not support the Russian economy. The law says that the Central Bank is governed by international agreements. The bank signs agreements that the Ministry of Justice does not even register. The administration of the Russian Central Bank is based outside Russia.

4.) Stocks ALWAYS “get it” last.  When a "carry" trade unwinds, the damage is often catastrophic.

5.) The Death of American Malls -"We are extremely Over-retailed"

6.) “If you do not have it already you may not be able to get it.  If you do not have it physically in your hands you do not own it. If you cannot protect it you will not have it for long”

7.) The "Unravelling process" and the "Consolidation process" both take time when they are happening. However, the effects on those involved during the process will be felt emotionally, mentally, and physically.

8.) "The income crude oil sales generate are used to pay the interest on the debtWhat this breakdown in the crude oil price is going to spawn is another financial crisis. It will be tied to the junk debt that has been issued to finance the shale oil plays in North America. It is reported to be in the area of half a trillion dollars worth of junk debt that is held largely on the books of large financial institutions in the western world. When these bonds start to fail, they will jeopardize the future of these financial institutions". 

9.) "Continued antagonization of Russia may have dire consequences for Europe, if Russia chooses to respond more aggressively. France’s Societe General, alone, is exposed to Russia to the tune of €26 billion. Were Russia to renege on this and other obligations to European banks it would likely trigger a Lehman’s style crisis. Or Russia could cut its supplies of natural gas to Europe upon which German industry, in particular, relies. Thankfully, for now, Russia has reacted with cool heads, even inviting Europe to become a partner in the newly formed Eurasian Economic Union".

10.)  "There are at least three major differences between the 1929 Crash and today which make things worse. Back then FDR was able to ask JPMorgan and other privateers for loans but today it's the private sector that went broke and took governments with them. Back then the dollar wasn't mass-produced like wallpaper; and back then we had an industrial base and manufacturing base upon which to rebuild".  

11.)   "There is no framework in place for an orderly secession of a member state from the Union. An antagonistic break up would likely cause contagion to many large banks exposed to Greece. The ensuing turmoil might also prompt other member states to break away in chaotic fashion – Spain, Portugal, and Italy being prime contenders"

12.) The Toronto Stock Exchange (TSX) is heavily energy invested. When Oil goes down, energy stocks go down too. Low oil and low energy is bad for the TSX which means heavy losses for retirement portfolios.

13.) The Plutocracy Cartel (the real power manipulating everything that you see, hear, and read about in your daily lives) -http://www.plutocracycartel.net/

1.) Assumptive Selling -Sell something based on an assumption not the truth or a fact (however, argue it like a "fact").  A cunning rhetorical tactic that salesmen, theoreticians, academics, union leaders, and politicians use on a regular basis 

2.) Every leader is convinced that this time, it will be different, because after all, he or she is a clearly superior leader to those others! And every generation believes that they have voted in the right leader because they are smarter than all those that have passed before them. 

 3.) "People must be trained to desire, to want new things, even before the old have been entirely consumed. Man's desires must overshadow his needs."

4.) The education system adapts every decade to what the economy needs from them.  What one generation learned in the past will be different from another generation in the present and furthermore even more different than a future generation because the economy demands workers who will fulfill those roles created for them to fill.  The educational system by design will not create the minds to change the economical or political system but rather to help keep the status quo in place until the economy needs something else and by that time, the education system will adapt itself when instructed to do so. What one generation valued in the past (or what one generation values in the present) another will not even be taught it, therefore creating a separation from one generation to the next by design.  This is why after the implementation of the universal educational system into society there is so much friction between generations presently.

5.) "Even countries acting like dictatorships do not want to APPEAR as though they are dictatorships”

6.) “The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society."

7.) HOW THE MEDIA, GOVERNMENTS, INSTITUTES, AND the ENTERTAINMENT SECTOR WORK -"If you repeat a falsehood long enough, it will eventually be accepted as fact."

8.) "Justice is no longer blind, she is a cheap whore whose price is well known."

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