Petroleum prices are getting hammered: from Bloomberg:
|BRENT CRUDE FUTR (USD/bbl.)||89.430||-3.260||-3.52%||16:02|
|GAS OIL FUT (ICE) (USD/MT)||809.250||-27.500||-3.29%||15:59|
|HEATING OIL FUTR (USd/gal.)||253.390||-5.350||-2.07%||16:01|
|NATURAL GAS FUTR (USD/MMBtu)||2.584||0.067||2.66%||16:00|
|GASOLINE RBOB FUT (USd/gal.)||255.200||-3.820||-1.47%||15:59|
|WTI CRUDE FUTURE (USD/bbl.)||78.430||-3.020||-3.71%||16:00|
The price level is creeping toward the cost of producing new fuel. Producers can operate with negative cash flow until their lines of credit are exhausted then assets must be sold and unprofitable wells shut in. This is not an instant process but prices cannot remain low for too long.
US and world stocks are taking blows as well, the precious metals are a leading indicator:
|GOLD 100 OZ FUTR (USD/t oz.)||1,567.100||-48.700||-3.01%||16:00|
|HKMEx GOLD (USD/t oz.)||1,587.700||-16.200||-1.01%||11:55|
|SILVER FUTURE (USD/t oz.)||26.860||-1.529||-5.39%||16:02|
|HKMEx SILVER (USD/t oz.)||28.040||-0.330||-1.16%||11:55|
Cherished ideas are dying hard and ugly right under our noses: the right to earn without labor, the ‘power’ of central banking to effect outcomes, the moral supremacy of debt-driven industrialization and ‘progress’, the parallel ascendancy of industrial ‘democracy’, the centrality of the automobile and ‘mobility’ to culture. The managers stand trembling at the abyss: they look to their prerogatives as they wring their hands anxiously.
There are two Big Ideas emerging from the background noise: the unraveling of the resource dependent ‘real’ or physical economy that monetizes waste. The use of fuel does not return enough to pay the cost of recovering the fuel. The gap between what the use affords (zero) and what extraction requires must be bridged with larger and unaffordably expensive loans. Fifty years and more of such loans has left the world overwhelmed with (bad) debts.
The other Big Idea is the institutionalization of theft, the ‘Greatish Game’. This isn’t a particularly new, what inspired the Spanish Conquistadors hard on the heels of Chris Colon post-1492 was theft from American natives of whatever wasn’t bolted down, then the theft of the natives themselves. Not much has changed since the 16th century, the methods have become more diverse and the natives have become slightly more skeptical. The popular instrument is investment fraud/currency traps: cars, suburban ‘villas’, ‘collectibles’, swim-pools, stocks, credit default swaps, subordinated- and un-subordinated loans, REITs, gold mines and gold mining stocks, mega-yachts, private submarines … the Endless China Boom that will save/overrun the world, (Bloomberg):
Commodities slumped today amid signs that manufacturing in China, the world’s biggest user of energy and metals, will shrink for the eighth straight month, matching the slump that started in 2008. The 48.1 preliminary reading for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics compared with a final 48.4 for May. A reading above 50 shows expansion.
Here is China PMI, looks like the wheels are coming off, (Financial Times):
China factory data add to economy fears
China’s manufacturing sector has slowed further in June and a decline in new orders shows that the weakness is likely to drag on, according to a survey released on Thursday.
HSBC said its Chinese purchasing managers’ index was on track to fall to 48.1 in June from 48.4 in May, which would mark a seven-month low. In dipping further below the 50 threshold, the flash figure, which is the earliest piece of monthly economic data for China, indicates a steepening contraction of factory activity.
The data added to concerns about the health of the Chinese economy, with the benchmark stock index in Shanghai down 1.5 per cent in morning trading.
Maybe China isn’t going to conquer the world after all just steal it, from Patrick Chovanek:
The big story today, in my opinion, is the report issued by Citron Research accusing Evergrande, one of China’s ten largest property developers, of massive fraud and arguing that the company is deeply insolvent and nearing the end of its rope. I can’t vouch for any of the allegations, but the report is well worth reading. Concerns about dodgy accounting practices have dogged Evergrande ever since its 2009 IPO, but Citron’s multi-barrelled shotgun blast takes them to an entirely new level, forcing the Hong Kong-listed company to issue an official denial today.
The allegations of rampant bribery and misuse of funds are certainly titillating, and do expose Evergrande to certain risks, but the really critical issue here is the company’s solvency and liquidity — whether it is a genuine going concern, or a house-of-cards Ponzi scheme. Citron notes that Evergrande, which just this week shocked markets by paying a record-high RMB33k/sq meter auction bid for a plot of land in Guangzhou, has run a cumulative RM 26 billion operating (pre-Capex) cashflow deficit since 2006, sustaining itself by running up ever-rising levels of debt …
Just like all the other companies and all the countries, running up ever-rising levels of debt because nobody is expected to repay but refinance instead. The entire economy is a gigantic house-of-cards Ponzi scheme. The managers are thieves along with the precious entrepreneurs and ‘innovators’, looking for more unique ways to steal.
No wonder nobody trusts anyone!
With finance doing the heavy lifting it is our physical endeavors that are proven failures. We can create tokens or icons of success but returns must be borrowed using the icons as collateral. Relying on the icons to pay for themselves is proving to be an exercise in futility.
How much is that doggy in the window?
Unknown photographer ‘???? (Norman Foster)’ Here is a gigantic, dildo-ish monument to debt and living as far as possible from your job.
When the entire economy is banditry, where are the limits, or are there any?
Banks are failing, to be bailed out by nations needing bailouts themselves: both nations and finance are insolvent. Creditors demand citizens take losses in creditors’ place. This strategy fails as citizens lack the means to absorb any more losses. Creditors’ positions are too large to be liquidated without effecting markets in a vicious cycle. The efforts of central banks to date have kept pace with speculator redemptions which have prevented markets from crashing. These efforts succeed to the extent that speculators do not rush the exits at once.
When creditors take losses the real panic begins: it is every creditor for himself. Nobody cares when ordinary citizens lose everything and wind up on the streets, the elites losing fortunes is too much to bear. Deleveraging means a frozen credit market and a shortage of liquid funds. As time passes there is less the establishment is able to do: there are diminished returns to central bank credit and Treasury guarantees. Instead of being accepted at face value, guarantees are tested and held to account. As more credit is demanded the associated costs balloon: the credibility of guaranteeing institutions deteriorates. This is underway at this moment in the Eurozone. The managers can exercise discretion to regain their footing and allow decrepit finance firms to fail: the Lehman bankruptcy in 2008 demonstrated that doing so is too dangerous.
- The outcome of credit shortages is fuel shortages. Fuel is rationed by way of access to credit. Without credit there is rationing the old-fashioned way: limited physical availability. The entire fuel supply chain is credit dependent, failure of the weakest links strand the rest.
The US wages financial war against the rest of the world, not to gain dominion over money itself but over the world’s energy.
The current US regime channels its inner Dick Cheney as it maneuvers to steal the world’s crude oil. Even as it crumbles under its own weight, the American consumption lifestyle remains non-negotiable.
The Europeans have trouble borrowing: the Continent is rich, it is also vulnerable. It is not structured to monetize- or lend to itself but depends entirely upon external sources for loans in a ‘foreign’ currency. If the outside creditors refuse to lend there are no alternatives other than the fakery underway: ‘Troikas’ and their alphabet soup of useless agencies.
The external creditors state by way of their actions that Europe is worth more in liquidation than as a going concern. Make no mistake about this: Europe is subject to a loan embargo until existing loans are paid off at once. This demand is extraordinary. Since the end of the war credit embargoes, capital flight and demands for repayment have been levied by developed countries upon 3d world slave/resource- states in order to strip them bare. What is unprecedented is the employment of these tactics against the rich West itself, with the same actors — US banks, the IMF and the US Treasury Department — having prominent roles.
The creditors hold Europe hostage: because Europe cannot pay at once — or pay at all — it will fail. This endangers the creditors, but their gains are to be had elsewhere outside of Europe. As with the developing slave-states repayment will be in the form of energy- money returns that flow to lenders’ indirectly from ruined Europeans.
Modernity ‘succeeds’ for a few in one place at the expense of others, elsewhere. Advertised conceits of national moral supremacy evaporate: the world is run by criminals, not all of whom are Chinese.
What comes next? The gains by creditors and businessmen are assumed, that European- and others’ failures will equal success in ‘Conquistador America’. As with all other enterprises, what matters are costs. Stealing from the rest of the world appears cheap compared to alternatives however there is no escaping entropy which does not recognize borders.