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The bad feelings concerning Russia run deep in the Western parts of Ukraine (as they topple statues of Lenin in growing numbers) while in the East they see themselves much more as Russians. These feelings run very deep in the region and memories do not fade so easily as the mayor and police chief of Kerch vigorously defend the Ukrainian flag in the clip below – deep in the eastern Crimea region (that Russia has already suggested it is willing to go to war over). Russian President Vladimir Putin has now been placed in a very difficult position, as Martin Armstrong notes, the entire set of circumstances creates the image of events in Ukraine that have diminished the power of Russia, which is a matter of pride and the only stable resolution remains a split along the language faultline. The critical question then is – will Putin let it go?
In the west they are toppling Lenin statues en masse
But in the East, the mayor and city officials in Kerch, Crimea defend the Ukrainian flag…
The big question- of course – will Putin let it go? (via Martin Armstrong),
Russian President Vladimir Putin has now been placed in a very difficult position. As the protesters in Ukraine gathered the support of the police against the mercenaries, they turned the tide of politics for the moment. Putin’s Sochi Olympic moment has been overshadowed by the bloody mess in neighboring Ukraine thanks to the insanity of Yanukovich trying to oppress the people as in the old days. Yanukovich has demonstrated that ultimate power always corrupts ultimately. There must be checks and balances.
The entire set of circumstances creates the image of events in Ukraine that have diminished the power of Russia, which is a matter of pride. The situation may appear that it is slipping out of control and Russia will just walk away. Indeed, it’s hard to imagine that Putin will just walk away and leave Ukraine to its own devices. There is political pride that is at stake here and Putin said in 2005 that the fall of the Soviet Union was “the greatest geopolitical catastrophe” of the 20th century. Putin’s view of this is not economic, but only political. From that perspective, we must understand that if the USA split apart as was the case with the Civil War, there is a sense that a loss of prestige and power will engulf the nation unless the lost portion is regained.
There are lessons from history on this point to demonstrate this is not my personal opinion. Take the Roman Emperor Aurelian (270–275 AD) who fought to regain the European portion that separated from Rome known as the Gallic Empire and in the East defeated Zenobia who established the Empire of Palmyra. Putin’s desire to retake the former nations that were part of the Soviet Union is in accordance with history and would be an exception if it were not true. Therefore, to allow Ukraine to slip out of Russia’s orbit would make Putin no better than Mikhail Gorbachev, who presided over the Soviet empire’s dissolution in 1991 and allowed the very thing he sees as a great geopolitical catastrophe.
There can be no question that Putin wants Ukraine to join Russia’s economic attempt to create the offset to the EU with his Customs Union that includes Belarus, Kazakhstan, and soon, Armenia. The Customs Union is his counter economic response to the European Union’s much larger trading bloc. On this score, economics is the battleground.
It is true that only after Yanukovych broke off with the EU moving away from a European Union integration accord last November and chose Russia instead that the protests began in Ukraine. Putin applied pressure and Yanukovych responded taking the nation toward the Customs Union rather than the EU that would have no doubt curtailed trade to a large extent and reduced the prospect for greater entrepreneurship in Ukraine. The emergence of small business in Ukraine does not match the oligarchy monopolies inside the Russian economic model. However, this was more the straw that broke the camel’s back than the spark that ignited the revolution.
I have explained in the Cycles of War that Russia and Ukraine have deep historical links dating back to the Kievan Rus, from whom the very word “Russia” emerges. They were the days of the 11th and 12th centuries and they are traditionally seen as the beginning of Russia and the ancestor of Belarus and Ukraine. Kiev was the first real capital of Russia before Moscow. Therefore, we have a mother-country complex involved as well.
According to the Russian business daily Kommersant, they cited a source in a NATO country’s delegation back in 2008 that reported Putin had told President George W. Bush: “You understand, George, that Ukraine isn’t even a state.” Indeed, Ukraine has been the real mother-country to Russia for most of the last 900 years prior to the collapse of the Soviet Union in 1991. Certainly, parts of what is now called Ukraine have been controlled by many various countries as the borders have constantly change including Poland, Lithuania, the Khanate of Crimea, Austria-Hungary, Germany, in addition to Russia. Putin has often referred to Ukraine as “little Russia.” So clearly, there are serious issues here that warn that the immediate result in Ukraine may not yet be permanent independence. I have suggested that Ukraine split along the language faultline BECAUSE history warns that Russia is not likely to simply fade into the night. This is the ONLY solution that may allow Ukrainian independence and Russia to maintain its pride.
Strategically, Crimea, the southern part of Ukraine on the Black Sea, was part of Russia until 1954. At that time, Crimea was given to the Ukrainian Soviet Socialist Republic by the Presidium of the Supreme Soviet, supposedly to strengthen brotherly ties. However, the majority of the population were Russian – not Ukrainian! Therein lies part of the problem. This “gift” of Crimea to Ukraine would be like the USA giving Texas to Mexico and Texans would suddenly all be Mexican. Would they “feel” Mexican or American?
There is also Russia’s Black Sea Fleet that is headquartered in the Crimean city of Sevastopol, which is less than 200 miles northwest of Sochi where the Olympic Games are being held. It is hard to imagine that the Ukrainian government could even end that lease without major consequences. Russia would no doubt be forced to move its headquarters east to Novorossiysk, yet this will have a serious geopolitical loss of face. Just last December, Russia proposed a deal of providing cheaper natural gas to Ukraine in exchange for better terms on its lease in Sevastopol. This is another reason there should be serious consideration of a split handing back the Crimea to Russia.
With the crisis over Syria that is the Saudi attempt to get a pipeline through Syria to compete with Russia on natural gas sales to Europe, Ukraine also presents a very serious problem for Russia. Natural gas sales to Europe are a key source of foreign exchange for Russia, yet a large portion of that gas actually passes through Ukraine. An independent Ukraine may present an economic threat to Russia if those pipelines were to be shut off. Nevertheless, Gazprom is also hedging its bets by building a new South Stream pipeline that crosses the Black Sea on the seabed from Russia to Bulgaria, bypassing Ukraine. This could relieve that geopolitical-economic threat, but it is not immediate. Clearly, this comes at a time that is serious in light of what the USA and Saudi’s are trying to pull off with the overthrow of Syria pretending they care about human rights when in fact it is all about that pipeline.
The Ukrainians really do not “feel“ that they are Russian and they have toppled statues of Lenin everywhere. Why? Historically, Josef Stalin brutally subjugated Ukraine back in the 1930s. He confiscated all the wealth liquidating the farmers that were known as kulaks. The bad feelings concerning Russia run deep in the Western parts while in the East they see themselves as Russians.These feelings run very deep in the region and memories do not fade so easily. We still have the word “vandalize” that comes from the North African Vandals sacking Rome back in 455AD. China still hates Japan for their brutal invasion. These feelings and memories do not really exist in the USA most likely because of the very diverse ethnic backgrounds creating a melting pot rather than one group that remembers another.
The US is adding its $0.02 to the international condemnation of the actions under way in Ukraine – desparate to re-write Victoria Nuland’s narrative of “f##k the EUR” and political manipulation. President Obama, having not learned his lesson the last time he drew a red line, has come out swinging…
- *OBAMA:`THERE WILL BE CONSEQUENCES IF PEOPLE STEP OVER THE LINE’
- *OBAMA SAYS U.S. CONDEMNS UKRAINE VIOLENCE IN `STRONGEST TERMS’
- *OBAMA:MILITARY SHOULDN’T ACT WHERE CIVILIANS CAN RESOLVE ISSUES
Of course, it’s unclear if open military action against civilians is ‘crossing the line’ but we await Putin’s response.
More from the WSJ:
The Obama administration is considering sanctions against Ukraine, possibly in concert with European allies, saying the threat of penalties may push the government in Kiev to halt the deadly violence there.
“All of us are deeply disturbed,” Secretary of State John Kerry said during a brief appearance in Paris with his French counterpart. “We are talking about the possibility of sanctions or other steps with our friends in Europe and elsewhere in order to try to create the environment for compromise.”
Mr. Kerry and other U.S. officials didn’t detail what those sanctions might entail, but the administration in the past has held out the threat of individual sanctions, typically steps that freeze assets and limit travel.
The threat from the U.S. comes after violent clashes in Kiev this week have claimed the lives of at least 25 people and as the Obama administration and its European counterparts try to get a handle on the situation.
Ukrainian President Viktor Yanukovych has blamed opposition leaders for the violence, while opposition leaders said the government was responsible.
Ben Rhodes, a deputy National Security Adviser to President Barack Obama, said the administration hopes the threat of sanctions will quell some of the violence. “We have made it clear we would consider taking action against individuals who are responsible for acts of violence within Ukraine,” he said while traveling with Mr. Obama to Mexico. Mr. Obama is headed to Mexico, among other reasons, to discuss trade.
Submitted by James Stafford via OilPrice.com,
The potential for a golden age of gas comes along with a big “if” regarding environmental and social impact. The International Energy Agency (IEA)—the “global energy authority”–believes that this age of gas can be golden, and that unconventional gas can be produced in an environmentally acceptable way.
In an exclusive interview with Oilprice.com, IEA Executive Director Maria van der Hoeven, discusses:
- The potential for a golden age of gas
- What will the “age” means for renewables
- What it means for humanity
- The challenges of renewable investment and technology
- How the US shale boom is reshaping the global economy
- Nuclear’s contribution to energy security
- What is holding back Europe’s energy markets
- The next big shale venues beyond 2020
- The reality behind “fire ice”
- Condensate and the crude export ban
- The most critical energy issue facing the world today
Interview by. James Stafford of Oilprice.com
Oilprice.com: In 2011, the IEA predicted what it called “the golden age of gas,” with gas production rising 50% over the next 25 years. What does this “golden age” mean for coal, oil and nuclear energy—and for renewables? What does it mean for humanity in terms of carbon emissions? Is the natural gas boom lessening the sense of urgency to work towards renewable energy solutions?
IEA: We didn’t predict a golden age of gas in 2011, we merely asked a pertinent question: namely, are we entering a golden age of gas? And we found that the potential for such a golden age certainly exists, especially given the scale of unconventional gas resources and the advances in technology that allow their extraction. But the potential for a golden age of gas hinges on a big “if,” and we elaborated on this in 2012 in a report called “Golden Rules for a Golden Age of Gas”. Exploiting the world’s vast resources of unconventional natural gas holds the key to golden age of gas, we said, but for that to happen, governments, industry and other stakeholders must work together to address legitimate public concerns about the associated environmental and social impacts. Fortunately, we believe that unconventional gas can be produced in an environmentally acceptable way.
Under the central scenario of the World Energy Outlook-2013, natural gas production rises to 4.98 trillion cubic metres (tcm) in 2035, up nearly 50 percent from 3.38 tcm in 2011. But we have always said that a golden age of gas does not necessarily imply a golden age for humanity, or for our climate. An expansion of gas use alone is no panacea for climate change. While natural gas is the cleanest fossil fuel, it is still a fossil fuel. As we have seen in the United States, the drastic increase in shale gas production has caused coal’s share of electricity generation to slide. Of course, there is also the possibility that increased use of gas could muscle out low-carbon fuels, such as renewables and nuclear, from the energy mix.
OP: When will we see “the golden age of renewables”?
IEA: Although we have not yet predicted a “golden age” of renewables, the current, rapid growth of renewable power is a bright spot in an otherwise bleak picture of global progress towards a cleaner and more diversified energy mix. Still, the investment case for capital-intensive, low carbon power technologies carries challenges. We need to distinguish between two situations:
• In emerging economies, renewable power often provides a cost-competitive alternative to new fossil based generation and are perceived as part of the solution to questions of energy supply, diversification, and economic development. In China, for example, efforts to reduce local pollution are stimulating major investments in cleaner energy.
• By contrast, in stable systems with sluggish demand, no technology is competitive with marginal electricity prices, due to overcapacity. Governments are nervous about increasing investment in low-carbon options which impact on consumer prices, and this is causing policy uncertainty. But long term energy security and environmental goals need to be kept in mind.
The overall outlook for renewable electricity remains positive, even as the outlook can vary strongly by market and region. However, the electricity sector comprises less than 20% of total final energy consumption. The growth of renewables in other sectors such as transport and heat has been more sluggish. For a golden age of renewables to materialise, greater progress is needed in these areas, for example, with the development of advanced biofuels and more policy frameworks for renewable heat.
OP: How is the shale boom reshaping the global financial and economic system? Who are the winners and losers in this emerging scenario?
IEA: One of the key messages of our World Energy Outlook-2013 is that lower energy prices in the United States mean that it is well-placed to reap an economic advantage, while higher costs for energy-intensive industries in Europe and Japan are set to be a heavy burden.
Natural gas prices have fallen sharply in the United States – mainly as a result of the shale gas boom – and today they are about three times lower than in Europe and five times lower than in Japan. Electricity price differentials are also large, with Japanese and European industrial consumers paying on average more than twice as much for electricity as their counterparts in the United States, and even Chinese industry paying almost double the US level.
Looking to the future, the WEO found that the United States sees its share of global exports of energy-intensive goods slightly increase to 2035, providing the clearest indication of the link between relatively low energy prices and the industrial outlook. By contrast, the European Union and Japan see their share of global exports decline – a combined loss of around one-third of their current share.
OP: The IEA has noted that the US is no longer so dependent on Canadian oil and gas. What could this mean for pending approval of TransCanada’s Keystone XL pipeline? How important is Keystone XL to the US as opposed to its importance for Canada?
IEA: The decision on the Keystone matter is one that must be taken by the United States Government. I am afraid it is not for the IEA to comment.
OP: With the nuclear issue taking center stage in Japan’s election atmosphere, is Japan ready to pull the plug entirely on nuclear, or is it too soon for that?
IEA: This year’s World Energy Outlook, which we will release in November 2014, will carry a special focus on nuclear energy, so please stay tuned. While I won’t discuss what Japan should do, I will say that every country has a sovereign right to decide on the role of nuclear power in its energy mix. Nevertheless, nuclear is one of the world’s largest sources of low-carbon energy, and as such, it has made and should continue to make an important contribution to energy security and sustainability.
A country’s decision to cut the share of nuclear in its energy mix could open up new opportunities for renewables, particularly as some phase-out plans envision the replacement of nuclear capacity largely with renewable energy sources. However, such a decision would also likely lead to higher demand for gas and coal, higher electricity prices, increased import dependency on fossil fuels and electricity, and a more difficult path towards decarbonisation. Such a scenario would therefore make it much more difficult for the world to meet the 2°C climate stabilisation goal, and have potentially negative impacts on energy security.
OP: What is the key factor holding back European energy markets?
IEA: Europe has quite a few advantages but also many hurdles to overcome. If I had to pick one key factor that is holding back European energy markets, I would say it is the lack of cross-border interconnections. Let me explain what I mean. As we showed in WEO 2013, Europe’s competitiveness is under pressure, as energy price differences grow between Europe and its major trading partners – the US, China and Russia. High oil and gas import prices combined with low gas and electricity demand, following the recession, are impacting European economies.
Europe should accelerate the use of its indigenous potential and reap the social and economic benefits from energy efficiency, renewable energies and unconventional oil and gas. In open economies, there are significant advantages to be gained from free trade and a large energy market. One example: Today, we cannot make use of competitive electricity prices across the EU, as physical trade barriers exist and markets remain national. Europe is failing to achieve its potential. The electricity grid and system integration is very low, which also serves as a barrier to the full and efficient exploitation of renewable energy potentials. This is why addressing the issue of cross-border interconnections is so important.
OP: Where do you foresee the next “shale boom”?
IEA: According to WEO projections, there will be little non-North American shale development before 2020 due to the much earlier stage of exploration and the time needed to build up the oil field service value chain. Beyond 2020, we project large-scale shale gas production in China, Argentina, Australia as well as significant light tight oil production in Russia. The current reform proposals in Mexico have the potential to put Mexico on the top of that list as well, but they need to be properly implemented.
OP: What is the realistic future of methane hydrates, or “fire ice”?
IEA: Methane hydrates may offer a means of further increasing the supply of natural gas. However, producing gas from methane hydrates poses huge technological challenges, and the relevant extraction technology is in its infancy. Both in Canada and Japan the first test drillings have taken place, and the Japanese government is aiming to achieve commercial production in 10 to 15 years.
One thing I always mention when I am asked about methane hydrates is this: It may seem far off and uncertain, but keep in mind that shale gas was in the same position 10 to 15 years ago. So we cannot rule out that new energy revolutions may take place through technological developments and price incentives.
OP: Have we hit the “crude wall” in the US, the point at which oil production growth may end up slowing due to infrastructure and regulatory constraints?
IEA: In January 2013, the IEA’s Oil Market Report examined the possibility that as surging production continues to move the US closer to becoming a net oil exporter, there may come a time when various regulations, particularly the US ban on exports of crude oil to countries other than Canada, could have an adverse impact on continued investment in LTO – and thus continued growth in production. We called this point the “crude wall”.
A year later, in our January 2014 Oil Market Report, we noted that with US crude oil production exceeding even the boldest of expectations in 2013 by a wide margin, the crude wall now seems to be looming larger than ever. Having said that, challenges to US production growth are not imminent. Potential US growth in 2014 seems a given, even against the backdrop of resurgent non-OPEC supply growth outside North America.
OP: How is this shaping the crude export debate and where do you foresee this debate leading by the end of this year?
IEA: You are better off asking my friends and colleagues in Washington! This is obviously a sensitive topic. Different people feel differently about it, often very strongly. Oil policy always is the product of multiple, sometimes-competing considerations.
OP: What would lifting the ban on crude exports mean for US refiners, and for the US economy?
IEA: Many refiners and other major oil consumers have said they support keeping the ban amid worries that allowing exports would result in higher feedstock costs and erode their competitive advantage, or shift value-added industry abroad. On the other hand, oil producers have in general come out in favour of lifting the ban, arguing that the “crude wall” may become so large that it cannot be overcome; they see the possibility of a glut causing prices to slump and thereby choking off production. We have not produced any detailed analysis on the economic impact of lifting the ban, so I cannot comment on that part of your question.
OP: Are there any other ways around the “crude wall” aside from lifting the export ban?
IEA: As we wrote in our January 2014 Oil Market Report, much of the LTO is produced in the form of lease condensate, which is most optimally processed in a condensate splitter. There is currently only one such facility in the United States, although at least five others are in various stages of planning and construction.
I mention this issue because one could imagine a scenario under which lease condensate is excluded from the crude export restriction. The US Department of Commerce, which enforces the export ban, includes lease condensates in the definition of crude oil. However, this definition could be changed, or the Commerce Department could simply issue lease condensate export licenses at the behest of the President.
OP: How will the six-month agreement to ease sanctions on Iran affect Iranian oil production? And if international sanctions are indeed lifted after this “trial period”, how long will it take Iran to affect a real increase in production?
IEA: The deal between P5+1 and Iran doesn’t change the oil sanctions themselves. The oil sanctions remain fully in place though the P5+1 agreed not to tighten them further. Relaxing insurance sanctions doesn’t mean more oil in the market.
As for the second part of your question, I am afraid I can’t answer hypotheticals and what-ifs.
OP: What is the single most critical energy issue in the US this year?
IEA: I think that if you take the view that the energy-policy decisions you make now have ramifications for many decades to come, and if you believe what scientists tell us about the climate consequences of our energy consumption, then the single most critical energy issue in the US is the same issue for every country: what are you going to do with your energy policy to mitigate the risk of climate change? Energy is responsible for two-thirds of greenhouse-gas emissions, and right now these emissions are on track to cause global temperatures to rise between 3.6 degrees C and 5.3 degrees C. If we stay on our present emissions pathway, we are not going to come close to achieving the globally agreed target of limiting the rise in temperatures to 2 degrees C; we are instead going to have a catastrophe. So energy clearly has to be part of the climate solution – both in the short- and long-term.
OP: What is the IEA’s role in shaping critical energy issues globally and how can its influence be described, politically and intellectually?
IEA: Founded in response to the 1973/4 oil crisis, the IEA was initially meant to help countries co-ordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets.
While this continues to be a key aspect of our work, the IEA has evolved and expanded over the last 40 years. I like to think of the IEA today as the global energy authority. We are at the heart of global dialogue on energy, providing authoritative statistics, analysis and recommendations. This applies both to our member countries as well as to the key emerging economies that are driving most of the growth in energy demand – and with whom we cooperate on an increasingly active basis.
5-minute video: US ‘leaders’ JOKE about OBVIOUS War Crimes, war lies, war murders: Arrest them Washington’s Blog
5-minute video courtesy Realist Report
In this 5-minute video, Presidents Bush and Obama, Secretary of State and presidential-hopeful Ms. Clinton, presidential-hopeful has-been John McCain, and former Secretary of State and Bush family friend James Baker all joke about:
- OBVIOUS unlawful US wars,
- all began on lies known to be false as they were told,
- their psychopathic lack of empathy about US-led wars that have killed ~30 million human beings since World War 2; more than killed by fascist Nazis.
These criminals continue a long history of lie-began US Wars of Aggression since the US invaded Mexico; despite Abraham Lincoln’s powerfully accurate rhetoric of President Polk’s lies to steal half of Mexico at the expense of US military and Mexican civilian lives. The most decorated US Marine general in his day also warned all Americans of this fact of lie-started wars for US oligarch plunder.
What can we do as American free citizens, with a tremendous heritage to speak against our own government when they violate basic lawful behavior?
Then arrest their bankster friends for crimes equally OBVIOUS for massive fraud and looting.
And then arrest their lying corporate media pals who “cover” these lies and crimes from us.
Speak now, or forever hold back from peace, justice, and truth.
At least 2,500 police officers were deployed but there were no incidents of violence [AFP]
|Tens of thousands of people have marched in Mexico City to protest against constitutional reforms pushed through by President Enrique Pena Nieto to open the oil and gas industry to foreign investment.
An estimated 65,000 people gathered for the protest on Friday in the Zocalo – a main square in the capital city – an official at the Secretariat of Public Safety told the AFP news agency.
At least 2,500 police officers were deployed but there were no incidents of violence, the official said.
The march was organised by the Party of the Democratic Revolution (PRD), the leftist opposition to the president’s ruling Institutional Revolutionary Party (PRI).
One of PRD’s founders, Cuauhtemoc Cardenas, claimed that the foreign investors “will be interested in extracting the largest amount of petroleum possible in the shortest amount of time”.
The reforms, which open Mexico’s oil industry to foreign investment for the first time in 75 years, were approved in Congress and ratified by a majority of Mexican states in late 2013.
The rule changes are supported by two of the country’s leading parties, the PRI and the conservative National Action Party (PAN).
In 1938, foreign oil companies were expelled by then president Lazaro Cardenas, who is Cuauhtemoc Cardenas’ father.
“All types of protest are valid” in opposing the reforms, Cardenas told the crowd in the Zocalo, “including civil disobedience.”
The PRD is hoping to hold a referendum in 2015 to overturn the measures.
Marc Faber Warns “Insiders Are Selling Like Crazy… Short US Stocks, Buy Treasuries & Gold” | Zero Hedge
Beginning by disavowing Mario Gabelli of any belief that rising stock prices help ‘most’ people (“Fed data suggests half the US population has seen a 40% drop in wealth since 2007“), Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron’s interview.
Quoting Hussman as a caveat, “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top,” Faber warns there are a lot of questions about the quality of earnings (from buybacks to unfunded pensions) but “statistics show that company insiders are selling their shares like crazy.”
His first recommendation – short the Russell 2000, buy 10-year US Treasuries (“there will be no magnificent US recovery”), and miners and adds “own physical gold because the old system will implode. Those who own paper assets are doomed.”
Faber: This morning, I said most people don’t benefit from rising stock prices. This handsome young man on my left said I was incorrect. [Gabelli starts preening.] Yet, here are some statistics from Gallup’s annual economy and personal-finance survey on the percentage of U.S. adults invested in the market. The survey, whose results were published in May, asks whether respondents personally or jointly with a spouse have any money invested in the market, either in individual stock accounts, stock mutual funds, self-directed 401(k) retirement accounts, or individual retirement accounts.Only 52% responded positively.
Gabelli: They didn’t ask about company-sponsored 401(k)s, so it is a faulty question.
Faber: An analysis of Federal Reserve data suggests that half the U.S. population has seen a 40% decrease in wealth since 2007.
In Reminiscences of a Stock Operator [a fictionalized account of the trader Jesse Livermore that has become a Wall Street classic], Livermore said, “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight.” Here’s another thought from John Hussmann of the Hussmann Funds: “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blaring red since late 2011.”
I am negative about U.S. stocks, and the Russell 2000 in particular. Regarding Abby’s energy recommendation, this is one of the few sectors with insider buying. In other sectors, statistics show that company insiders are selling their shares like crazy, and companies are buying like crazy.
Zulauf: These are the same people.
Faber: Precisely. Looking at 10-year annualized returns for U.S. stocks, the Value Line arithmetic index has risen 11% a year. The Standard & Poor’s 600 and the Nasdaq 100 have each risen 9.4% a year. In other words, the market hasn’t done badly. Sentiment figures are extremely bullish, and valuations are on the high side.
But there are a lot of questions about earnings, both because of stock buybacks and unfunded pension liabilities. How can companies have rising earnings, yet not provision sufficiently for their pension funds?
Good question. Where are you leading us with your musings?
Faber: What I recommend to clients and what I do with my own portfolio aren’t always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.
Next, I would buy 10-year Treasury notes, because I don’t believe in this magnificent U.S. economic recovery. The U.S. is going to turn down, and bond yields are going to fall. Abby just gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so I will go short.
What are you doing with your own money?
Faber: I have a lot of cash, and I bought Treasury bonds.
Faber: I have no faith in paper money, period. Next, insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors and my fellow panelists and Barron’s editors ought to own some gold. About 20% of my net worth is in gold. I don’t even value it in my portfolio. What goes down, I don’t value.
Which stocks are you recommending?
Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don’t own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.
Zulauf: Can you put the time frame on the implosion?
Faber: Let’s enjoy dinner tonight. Maybe it will happen tomorrow.
There is a colossal bubble in assets. When central banks print money, all assets go up. When they pull back, we could see deflation in asset prices but a pickup in consumer prices and the cost of living. Still, you have to own some assets. Hutchison Port Holdings Trust yields about 7%. It owns several ports in Hong Kong and China, which isn’t a good business right now. When the economy slows, the dividend might be cut to 5% or so. Many Singapore real-estate investment trusts have corrected meaningfully, and now yield 5% to 6%. They aren’t terrific investments because property prices could fall. But if you have a negative view of the world, and you think trade will contract, property prices will fall, and the yield on the 10-year Treasury will drop, a REIT like Hutchison is a relatively attractive investment.
Faber: The outlook for property in Asia isn’t bad because a lot of Europeans realize they will need to leave Europe for tax reasons. They can live in Singapore and be taxed at a much lower rate. Even if China grows by only 3% or 4%, it is better than Europe. People are moving up the economic ladder in Asia and into the middle class.
Are you bullish on India?
Faber: I am on the board of the oldest India fund [the India Capital fund]. The macroeconomic outlook for India isn’t good, but an election is coming, and the market always rallies into elections.The leading candidate is pro-business. He is speaking before huge crowds.
In dollar terms, the Indian market is still down about 40% from the peak, because the currency has weakened. In the 1970s, stock market indexes performed poorly and stock-picking came to the fore. Asia could be like that now. It is a huge region, and you have to invest by company. Some Indian companies will do well, and others poorly. Some people made 40% on their investments in China last year, but the benchmark index did poorly.
I like Vietnam. The economy has had its troubles, and the market has seen a big decline. I want you to visualize Vietnam. [Stands up, walks to a nearby wall, and begins to draw a map of Vietnam with his hands.] Here’s Saigon, or Ho Chi Minh City, the border with China, and the Mekong River. And here in the middle, on the coast, is Da Nang.
Faber: I recommend shorting the Turkish lira. I had an experience in Turkey that led me to believe that some families are above the law. When I see that in an emerging economy, it makes me careful about investing.
On Friday, when stocks were plunging, natural gas soared 9.6% to $5.18 per million British thermal units (MMBtu) at the Henry Hub. Up 20% for the week. The highest close since June 2010.
Back then, the “shale gas revolution” had turned into a crazy no-holds-barred land-grab and fracking boom that veered into overproduction and a “glut” – accompanied by a historic collapse in price. The US could not export its excess production due to export restrictions and the lack of major LNG export terminals. By April 2012, when the Japanese were paying around $17 per MMBtu for LNG on the world markets, natural gas in the US hit a decade low of $1.92 per MMBtu, and predictions that it would go to zero showed up in the mainstream media. That was the bottom.
But nothing can be priced below the cost of production forever. By Friday, natural gas was up 170% from the April 2012 low. Turns out, only a low price can cure a low price.
The low price caused demand to creep up.
Gas exports via pipeline to Mexico have been growing, especially since additional pipeline capacity went into service last year. Mexico is switching power generation from using its own oil to cheap US natural gas. This allows it to export its more valuable oil to the US. Ka-ching. But building gas-fired generating capacity is a slow-moving process.
Other exports are also moving forward – in people’s heads. There are pipelines between the US and Canada, but the US is a net importer. Exports of LNG are at this point still a pipedream, so to speak, though deals are being made, contingent on getting government approvals to export LNG. It’s going to take years before LNG can be exported in large quantities.
But the low price had short-term and structural impacts. Utilities dispatched electricity generation from their coal-fired plants to their gas-fired plants. And there have been structural changes: utilities have built gas-fired power plants and have retired – not mothballed! – their oldest, most inefficient, and most polluting coal-fired power plants. Global industrial companies have been building plants in the US for energy-intensive processes and for processes that use natural gas as feed stock. Even natural gas in transportation is picking up.
The low price destroyed the business model for drillers.
Thousands of unprofitable wells litter the land. Many billions were written off. Real money that had been recklessly thrown around during the boom disappeared into the ground. Investors were lured with false promises. The bloodletting in the industry was enormous. Some of the largest drillers have pulled back from drilling for dry natural gas. Most of the wells that are still being drilled are in fields that are rich in natural-gas liquids and oil, which sell for much higher prices and make wells profitable. Dry natural gas has become a byproduct. In the immensely productive Bakken shale-oil field in North Dakota, where gas occurs along with oil, 30% of it is flared – burned at the well as a waste product. The low price doesn’t justify building pipelines to haul it off.
But shale gas wells have sharp decline rates, and new wells need to be drilled constantly to make up for the decline in older wells. These days, not enough wells are being drilled, and production in all gas plays combined – except for the Marcellus – is already in slight decline. The only production boom left is in the Marcellus: the “shale gas revolution” in the US is now a one-pony show.
In January 2012, according to Baker Hughes, there were 143 rigs drilling for natural gas in the Marcellus – the most prolific parts of which are in Pennsylvania. Today, there are 86. But during the drilling boom, someone forgot to install sufficient pipeline infrastructure. So, wells were shut in, perhaps thousands of them, a giant reservoir waiting for takeaway capacity. That was 2012. Last year, part of a new pipeline network went into service, and bottlenecks were removed, and the gas started flowing to New York City and other places. Drilling is down. Production – the delivery of gas to the markets – is soaring!
How long can it last? Well decline rates in the Marcellus are as steep as elsewhere, and this sudden burst in production, if not supported by a new bout of drilling, will taper off as it has in other fields. And that’s today’s one-pony show of the US “shale gas revolution.”
Then cold fronts swept across the country.
These polar vortices, as they’re now referred to for additional flair, have caused demand for gas as heating fuel to spike to record highs. And more bitter cold weather is being forecast. Natural gas in underground storage dropped to 2,423 billion cubic feet (Bcf) for the weekending January 17. The last time storage levels were this low during an equivalent week was in January 2005!
At the time, gas was selling for $12 to $14 per MMBtu and hit an all-time high of $15.40 in December that year. But demand has changed. In 2013, demand was over 18% higher than in 2005; this year, it might be over 20% higher [my article from nine days ago…. Natural Gas Squeeze? “Panic hasn’t ensued just yet”].
And the big money has jumped into the fray.
For years, the favorite game was to short natural gas, playing the glut for all it was worth, a sport that has gotten very complex and, if you get the timing wrong by a few hours, very expensive. Some of the spike late Friday, and some of the action all week, was due to a hard squeeze on these folks – as the big money arrived en masse.
On Wednesday, the big money went public. As reported by MarketWatch, Citi analysts wrote that, “With tight fundamentals, $5 gas is not impossible.” What had been obvious for a while, showed up in the media: “Strong demand is expected to push gas inventories to very low levels with cold weather lingering.” And the price took off once again.
Now everyone is bent over weather data, trying to figure out what nastiness the winter will still serve up, and they’re betting on the weather because cold snaps happen relatively fast and are observable. Watching the fundamentals is like watching paint dry. But it’s the fundamentals that have changed the equation. The polar vortices are merely speeding up the calculus.
Natural gas is famous for its head fakes, unexpected plunges when it should rise, and inexplicable rises when it should drop. It’s being manipulated in a myriad ways. It’s always a bet on the weather, except when it’s not. It can turn around in a second and cause whiplash. It’s a seatbelt-mandatory commodity. And once every few years, there is a panic, and it spikes to dizzying highs.
While natural gas was soaring on Friday, and all week, the rest of the markets were tanking, with emerging markets “trading in full-blown panic mode.” What gives? Read…. A Teeny-Weeny Bit Of Taper, And Look What Happened
The Trans-Pacific Partnership has been described by negotiation countries as one of the most ambitious 21st century trade agreements. However, today’s leak of the agreement’s draft environment chapter reveals deeply concerning limits to that ambition. And it is these limits that could significantly undermine the sustainable use of the world’s resources as well as the long-term economic benefits of trade.
For nearly four years, a dozen nations including Canada, the U.S., Mexico, and a number of Pacific Rim countries have been quietly negotiating this deal. Last fall, WWF along with 23 other environmental organizations called for the inclusion of a number of critical measures to ensure the long-term sustainability of the world’s seafood and timber, and to curb the illegal trade of wildlife. Even though legally enforceable environmental provisions are a mandatory part of all U.S. trade agreements, that’s precisely where the leaked chapter (penned, it turns out, by Canada) fails. In short, the environmental provisions have no teeth.
The global environmental issues cited by WWF and others are implicit in this trade agreement. The countries included in the Trans-Pacific Partnership represent about one-quarter of the world’s global seafood catch (Canada is both a major exporter and importer of seafood). They account for 34 per cent of world’s timber and pulp production. And they include some of the globe’s largest consumers of illegal wildlife products. In other words, this agreement represents a once-in-a-generation opportunity to significantly address the overfishing of our oceans, the devastation of our forests, and the illegal poaching and trafficking that is driving rhinos, elephants, sharks and other species to the brink of extinction.
That’s what’s slipping through our fingers here. And the implications are far-ranging. Unsustainable resource trade weakens the ability of law-abiding businesses to compete, and threatens jobs in countries who follow the rules. Take “pirate” fishing for example (fishing that’s illegal, unregulated, and unreported). This global epidemic accounts for about 20 per cent of the world’s seafood catch, costing the industry as much as $23 billion per year. It’s also a major driver of overfishing, which includes unsustainable shark finning.
Canada has actually become an international leader in the fight against “pirate” fishing. Shouldn’t we be demanding that same level of leadership from others? Shouldn’t we be at the table pushing for an agreement that makes strong, legally-binding environmental legislation the foundation for a prosperous and sustainable global economy? Doesn’t that speak both to our historic role in international negotiations as well as to our values as Canadians?
Sadly, today’s leaked report shows us doing the opposite: standing in the way of proposals for stronger environmental enforcements. That, too, is a very disappointing missed opportunity — for Canada, for the world, and for our country’s our place in it.
Follow David R. Miller on Twitter: www.twitter.com/@iamdavidmiller
How the U.S. Employs Overseas Sweatshops to Produce Government Uniforms | A Lightning War for Liberty
The following article from the New York Times is extraordinarily important as it perfectly highlights the incredible hypocrisy of the U.S. government when it comes to overseas slave labor and human rights. While the Obama Administration (and the ones that came before it) publicly espouse self-important platitudes about our dedication to humanitarianism, when it comes down to practicing what we preach, our government fails miserably and is directly responsible for immense human suffering.
Let’s get down to some facts. The U.S. government is one of the largest buyers of clothing from overseas factories at over $1.5 billion per year. To start, considering our so-called “leaders” are supposedly so concerned about the state of the U.S. economy, why aren’t we spending the money here at home at U.S. factories? If we don’t have the capacity, why don’t we build the capacity? After all, if we need the uniforms anyway, and it is at the taxpayers expense, wouldn’t it make sense to at least ensure production at home and create some jobs? If a private business wants to produce overseas that’s fine, but you’d think the government would be a little more interested in boosting domestic industry.
However, the above is just a minor issue. Not only does the U.S. government spend most of its money for clothing at overseas factories, but it employs some of the most egregious human rights abusers in the process. Child labor, beatings, restrictions on bathroom brakes, padlocked exits and much more is routine practice at these factories. Even worse, in the few instances in which the government is required to actually use U.S. labor, they just contract with prisons for less than $2 per hour using domestic slave labor. Then, when questions start to get asked, government agencies actually go out of their way to keep the factory lists out of the public’s eye, even going so far as denying requests when pressed for information by members of Congress.
Sadly, as usual, at the end of the day this is all about profits and money. Money government officials will claim is being saved by the taxpayer, but in reality is just being funneled to well connected bureaucrats.
From the New York Times:
WASHINGTON — One of the world’s biggest clothing buyers, the United States government spends more than $1.5 billion a year at factories overseas, acquiring everything from the royal blue shirts worn by airport security workers to the olive button-downs required for forest rangers and the camouflage pants sold to troops on military bases.
But even though the Obama administration has called on Western buyers to use their purchasing power to push for improved industry working conditions after several workplace disasters over the last 14 months, the American government has done little to adjust its own shopping habits.
Labor Department officials say that federal agencies have “zero tolerance” for using overseas plants that break local laws, but American government suppliers in countries including Bangladesh, the Dominican Republic, Haiti, Mexico, Pakistan and Vietnam show a pattern of legal violations and harsh working conditions, according to audits and interviews at factories. Among them: padlocked fire exits, buildings at risk of collapse, falsified wage records and repeated hand punctures from sewing needles when workers were pushed to hurry up.
In Bangladesh, shirts with Marine Corps logos sold in military stores were made at DK Knitwear, where child laborers made up a third of the work force, according to a 2010 audit that led some vendors to cut ties with the plant.Managers punched workers for missed production quotas, and the plant had no functioning alarm system despite previous fires, auditors said.Many of the problems remain, according to another audit this year and recent interviews with workers.
At Zongtex Garment Manufacturing in Phnom Penh, Cambodia, which makes clothes sold by the Army and Air Force, an audit conducted this year found nearly two dozen under-age workers, some as young as 15. Several of them described in interviews with The New York Times how they were instructed to hide from inspectors.
“Sometimes people soil themselves at their sewing machines,” one worker said, because of restrictions on bathroom breaks.
And there is no law prohibiting the federal government from buying clothes produced overseas under unsafe or abusive conditions.
Why am I not surprised…
“It doesn’t exist for the exact same reason that American consumers still buy from sweatshops,” said Daniel Gordon, a former top federal procurement official who now works at George Washington University Law School. “The government cares most about getting the best price.”
Labor and State Department officials have encouraged retailers to participate in strengthening rules on factory conditions in Bangladesh — home to one of the largest and most dangerous garment industries. But defense officials this month helped kill a legislative measure that would have required military stores, which last year made more than $485 million in profit, to comply with such rules because they said the $500,000 annual cost was too expensive.
As usual, it is all about the money. You think average Americans are seeing any of that massive profit? Believe me, someone is and it’s not you.
At Manta Apparels, for example, which makes uniforms for the General Services Administration, employees said beatings are common and fire exits are kept chained except when auditors visit. The local press has described Manta as one of the most repressive factories in the country. A top labor advocate, Aminul Islam, was organizing there in 2010 when he was first arrested by the police and tortured. In April 2012, he was found dead, a hole drilled below his right knee and his ankles crushed.
Conditions like those are possible partly because American government agencies usually do not know which factories supply their goods or are reluctant to reveal them. Soon after a fire killed at least 112 people at the Tazreen Fashions factory in Bangladesh in November 2012, several members of Congress asked various agencies for factory addresses. Of the seven agencies her office contacted, Representative Carolyn Maloney, Democrat of New York, said only the Department of the Interior turned over its list.
Federal officials still have to navigate a tangle of rules. Defense officials, for instance, who spend roughly $2 billion annually on military uniforms, are required by a World War II-era rule called the Berry Amendment to have most of them made in the United States. In recent years, Congress has pressured defense officials to cut costs on uniforms. Increasingly, the department has turned to federal prisons, where wages are under $2 per hour. Federal inmates this year stitched more than $100 million worth of military uniforms.
The Marine Corps and Navy still do not require audits of these factories. The Air Force and Army exchanges do, but the audits can come from retailers, and defense officials fail to do routine spot checks to confirm their accuracy.
The Marine Corps and Navy still do not require audits of these factories. The Air Force and Army exchanges do, but the audits can come from retailers, and defense officials fail to do routine spot checks to confirm their accuracy.
For now, Bangladesh’s garment sector continues to grow, as do purchases from one of its bulk buyers. In the year since Tazreen burned down, American military stores have shipped even more clothes from Bangladesh.
This is the human equivalent of factory farming and every decent American citizen should be appalled that this is happening on multiple levels. Please share this post to raise awareness.
Full article here.