This is not a decrease in supply, at worst it is a re-routing to more favorable jurisdictions. Russia is not the swing producer (that honor falls to the Saudis) of oil and is prodding for weakness. The oil is transferred to other places, wherein those buyers could purchase oil at the world price and sell on to the west for modest profit.
This assumes that Russia will keep production level, which they must or risk losing market share to OPEC.
Interesting to note the combination of political, economic, and military means being used...and the attendent ends.
Russia may cut off oil flow to the West
By Ambrose Evans-Pritchard
Last Updated: 9:26pm BST 28/08/2008
Fears are mounting that Russia may restrict oil deliveries to Western
Europe over coming days, in response to the threat of EU sanctions and
Nato naval actions in the Black Sea.
Any such move would be a dramatic escalation of the Georgia crisis and
play havoc with the oil markets.
Reports have begun to circulate in Moscow that Russian oil companies
are under orders from the Kremlin to prepare for a supply cut to
Germany and Poland through the Druzhba (Friendship) pipeline. It is
believed that executives from lead-producer LUKoil have been put on
weekend alert.
"They have been told to be ready to cut off supplies as soon as
Monday," claimed a high-level business source, speaking to The Daily
Telegraph. Any move would be timed to coincide with an emergency EU
summit in Brussels, where possible sanctions against Russia are on the
agenda.
Any evidence that the Kremlin is planning to use the oil weapon to
intimidate the West could inflame global energy markets. US crude
prices jumped to $119 a barrel yesterday on reports of hurricane
warnings in the Gulf of Mexico, before falling back slightly.
advertisementGlobal supplies remain tight despite the economic
downturn engulfing North America, Europe and Japan. A supply cut at
this delicate juncture could drive crude prices much higher, possibly
to record levels of $150 or even $200 a barrel.
Friday, August 29, 2008
Thursday, August 28, 2008
Once bitten...
...twice shy.
Oligarchs and ex-KGB operatives (who have grown very wealthy) run the country. They are far more likely to desire preserving their new-found riches than rebuilding the former Soviet Union.
The rest of the world understands this...
Russia fails to secure regional backing
By Stefan Wagstyl in London, Charles Clover in Moscow and Geoff Dyer in Beijing
Published: August 28 2008 10:06 | Last updated: August 28 2008 19:14
Dmitry Medvedev, Russian president, failed on Thursday to win support from China or the former Soviet republics of central Asia in his deepening dispute with the west over military action in Georgia.
At a central Asian summit in Tajikistan, Mr Medvedev was unable to persuade Hu Jintao, the Chinese president, or other regional leaders to give explicit backing to Russia’s intervention or its decision to recognise the independence of the two breakaway regions, South Ossetia and Abkhazia
Oligarchs and ex-KGB operatives (who have grown very wealthy) run the country. They are far more likely to desire preserving their new-found riches than rebuilding the former Soviet Union.
The rest of the world understands this...
Russia fails to secure regional backing
By Stefan Wagstyl in London, Charles Clover in Moscow and Geoff Dyer in Beijing
Published: August 28 2008 10:06 | Last updated: August 28 2008 19:14
Dmitry Medvedev, Russian president, failed on Thursday to win support from China or the former Soviet republics of central Asia in his deepening dispute with the west over military action in Georgia.
At a central Asian summit in Tajikistan, Mr Medvedev was unable to persuade Hu Jintao, the Chinese president, or other regional leaders to give explicit backing to Russia’s intervention or its decision to recognise the independence of the two breakaway regions, South Ossetia and Abkhazia
Phase transition.
I am once again ignoring my self imposed "rule"*** to resist injecting metaphors into my commentaries. Indulge me.
The macro issues that I have been writing about for months now (the Chinese stock market, the U.S. Dollar, The Euro and commodities) are more or less coming to fruition. Now what?
In thermodynamics, phase transition is the process of matter changing from one form to another. International capital is now changing form from a risk-seeking, yield hogging form of liquid, to the decidedly less fluid form of a solid which seeks safety and blissful contentment.
a few thoughts:
short-run:
Interest rate compression in the G8, rate increases in Emerging Market countries. Flight to safety, quality and transparent legal processes for the orderly work-out of debt convenants. The credit/liquidity hurricane touches down on the continent.
Spreads between peripheral EU countries and core countries continue to widen. Calls for synthetic inflation exportation are met with cries of unfair trade practices.
U.S. financial assets ascendent.
medium-run:
The Russian Bear hibernates, suitably chastened by international capital flight (due to both war and strange instances of the expropriation of foreign owned assets.)
The EU continues its decline. Does anyone here know the capital and current account between California and Washington State? The EU countries still calculate this...the participants themselves are telling Brussels "this is NOT an optimal currency area".
Long run:
There are major geopolitical risks in Latin America - a region that has far-left leanings. The deflating of the commodity boom will cause serious sovereign debt risk for Brazil, Argentina and Chile. 20 years from now, pure communism will only be found in Latin America.
China faces widespread deflation, low growth, economic stagnation, and politcal unrest.
The EU is dissolved, European realpolitik resumes after the minor speed bump of Maastricht and Lisbon.
Japan muddles along at 0%-1% growth in real terms.
The U.S. continues to be the world leader in employing physical and financial assets to produce excellent investment returns.
***My father once told me "any rule that is not a law should be distrusted"
The macro issues that I have been writing about for months now (the Chinese stock market, the U.S. Dollar, The Euro and commodities) are more or less coming to fruition. Now what?
In thermodynamics, phase transition is the process of matter changing from one form to another. International capital is now changing form from a risk-seeking, yield hogging form of liquid, to the decidedly less fluid form of a solid which seeks safety and blissful contentment.
a few thoughts:
short-run:
Interest rate compression in the G8, rate increases in Emerging Market countries. Flight to safety, quality and transparent legal processes for the orderly work-out of debt convenants. The credit/liquidity hurricane touches down on the continent.
Spreads between peripheral EU countries and core countries continue to widen. Calls for synthetic inflation exportation are met with cries of unfair trade practices.
U.S. financial assets ascendent.
medium-run:
The Russian Bear hibernates, suitably chastened by international capital flight (due to both war and strange instances of the expropriation of foreign owned assets.)
The EU continues its decline. Does anyone here know the capital and current account between California and Washington State? The EU countries still calculate this...the participants themselves are telling Brussels "this is NOT an optimal currency area".
Long run:
There are major geopolitical risks in Latin America - a region that has far-left leanings. The deflating of the commodity boom will cause serious sovereign debt risk for Brazil, Argentina and Chile. 20 years from now, pure communism will only be found in Latin America.
China faces widespread deflation, low growth, economic stagnation, and politcal unrest.
The EU is dissolved, European realpolitik resumes after the minor speed bump of Maastricht and Lisbon.
Japan muddles along at 0%-1% growth in real terms.
The U.S. continues to be the world leader in employing physical and financial assets to produce excellent investment returns.
***My father once told me "any rule that is not a law should be distrusted"
Monday, August 25, 2008
Regulatory arbitrage...
Banks shopping around for the most advantageous jurisdiction to place impaired collateral...
Aug. 25 (Bloomberg) -- The European Central Bank will announce changes to the rules governing its money-market auctions in coming weeks to head off the risk of abuse by financial institutions, council member Yves Mersch said.
``At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in an interview on Aug. 23 in Jackson Hole, Wyoming. ``The Governing Council has been discussing the whole issue'' and has agreed on a ``certain amount'' of refinement to the existing rules, he said.
ECB officials have become increasingly concerned that banks are taking advantage of collateral rules that are broader than those used by the Federal Reserve and the Bank of England. The danger is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.
Aug. 25 (Bloomberg) -- The European Central Bank will announce changes to the rules governing its money-market auctions in coming weeks to head off the risk of abuse by financial institutions, council member Yves Mersch said.
``At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in an interview on Aug. 23 in Jackson Hole, Wyoming. ``The Governing Council has been discussing the whole issue'' and has agreed on a ``certain amount'' of refinement to the existing rules, he said.
ECB officials have become increasingly concerned that banks are taking advantage of collateral rules that are broader than those used by the Federal Reserve and the Bank of England. The danger is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.
Friday, August 22, 2008
Stress test in action.
This article is self-explanatory. Like most news articles it is an after-the-fact explanation as Eurodollar spreads (and some EU debt repo prices) reflected this.
Bank borrowing from ECB is out of control
By Ambrose Evans-Pritchard
Last Updated: 3:06pm BST 21/08/2008
The European Central Bank has issued the clearest warning to date that it
cannot serve as a perpetual crutch for lenders caught off-guard by the
severity of the credit crunch.
Not Wellink, the Dutch central bank chief and a major figure on the ECB
council, said that banks were becoming addicted to the liquidity window in
Frankfurt and were putting the authorities in an invidious position.
"There is a limit how long you can do this. There is a point where you take
over the market," he told Het Finacieele Dagblad, the Dutch financial daily.
advertisement
"If we see banks becoming very dependent on central banks, then we must push
them to tap other sources of funding," he said.
While he did not name the chief culprits, there are growing concerns about
the scale of ECB borrowing by small Spanish lenders and 'cajas' with heavy
exposed to the country's property crash. Dutch banks have also been hungry
clients at the ECB window.
One ECB source told The Daily Telegraph that over-reliance on the ECB funds
has become an increasingly bitter issue at the bank because the policy
amounts to a covert bail-out of lenders in southern Europe.
"Nobody dares pinpoint the country involved because as soon as we do it will
cause a market reaction and lead to a meltdown for the banks," said the
source.
This "soft bail-out" is largely underwritten by German and North European
taxpayers, though it is occurring in a surreptitious way. It has become a
neuralgic issue for the increasingly tense politics of EMU.
Bank borrowing from ECB is out of control
By Ambrose Evans-Pritchard
Last Updated: 3:06pm BST 21/08/2008
The European Central Bank has issued the clearest warning to date that it
cannot serve as a perpetual crutch for lenders caught off-guard by the
severity of the credit crunch.
Not Wellink, the Dutch central bank chief and a major figure on the ECB
council, said that banks were becoming addicted to the liquidity window in
Frankfurt and were putting the authorities in an invidious position.
"There is a limit how long you can do this. There is a point where you take
over the market," he told Het Finacieele Dagblad, the Dutch financial daily.
advertisement
"If we see banks becoming very dependent on central banks, then we must push
them to tap other sources of funding," he said.
While he did not name the chief culprits, there are growing concerns about
the scale of ECB borrowing by small Spanish lenders and 'cajas' with heavy
exposed to the country's property crash. Dutch banks have also been hungry
clients at the ECB window.
One ECB source told The Daily Telegraph that over-reliance on the ECB funds
has become an increasingly bitter issue at the bank because the policy
amounts to a covert bail-out of lenders in southern Europe.
"Nobody dares pinpoint the country involved because as soon as we do it will
cause a market reaction and lead to a meltdown for the banks," said the
source.
This "soft bail-out" is largely underwritten by German and North European
taxpayers, though it is occurring in a surreptitious way. It has become a
neuralgic issue for the increasingly tense politics of EMU.
Thursday, August 21, 2008
Labor shortages in China...
Decades from now, the Olympics will be seen as the apex in this cycle of China's development.
TOKYO (Nikkei)--Dark clouds are gathering quickly over China's economy, with concern growing over a notable drop in the number of workers migrating from rural areas to take factory jobs in cities.
The labor shortages are emerging at a time when the export-led growth model that has propelled China's rapid-fire expansion is grinding to a halt. And China has not made sufficient progress in replacing its export-driven economy with a new one that draws on domestic demand. There is a danger that Chinese society could be destabilized if the current period of high economic growth ends.
The city of Shenzhen in Guangdong Province, a special economic zone bordering Hong Kong, raised the minimum wage by 17.6% to 1,000 yuan a month in July, a margin more than double the increase in consumer prices
Home to clusters of companies assembling electronic goods and a wide range of other products, Guangdong serves as China's foremost export base, accounting for some 30% of the country's total export value. Until a few years back, factories in the province had hummed with activity, being able to tap a labor pool of rural migrant workers paid around 500 yuan a month.
Now, employers in Shenzhen and elsewhere in Guangdong are finding that capable workers are hard to come by unless they are paid double to triple the minimum wage. There have been reports of an increasing number of factories in the province closing down after being hit by stagnant exports. But the labor shortage is here to stay because "the total number of migrant workers is stuck at the same level," according to Ryo Ikebe, deputy director-general of the Japan External Trade Organization's Guangzhou office.
Wages are also rising in inland regions, although pay levels there continue to be lower than in coastal areas. Wuhan, the capital of Hubei Province, hiked the minimum wage 20% to 700 yuan, effective in August.
TOKYO (Nikkei)--Dark clouds are gathering quickly over China's economy, with concern growing over a notable drop in the number of workers migrating from rural areas to take factory jobs in cities.
The labor shortages are emerging at a time when the export-led growth model that has propelled China's rapid-fire expansion is grinding to a halt. And China has not made sufficient progress in replacing its export-driven economy with a new one that draws on domestic demand. There is a danger that Chinese society could be destabilized if the current period of high economic growth ends.
The city of Shenzhen in Guangdong Province, a special economic zone bordering Hong Kong, raised the minimum wage by 17.6% to 1,000 yuan a month in July, a margin more than double the increase in consumer prices
Home to clusters of companies assembling electronic goods and a wide range of other products, Guangdong serves as China's foremost export base, accounting for some 30% of the country's total export value. Until a few years back, factories in the province had hummed with activity, being able to tap a labor pool of rural migrant workers paid around 500 yuan a month.
Now, employers in Shenzhen and elsewhere in Guangdong are finding that capable workers are hard to come by unless they are paid double to triple the minimum wage. There have been reports of an increasing number of factories in the province closing down after being hit by stagnant exports. But the labor shortage is here to stay because "the total number of migrant workers is stuck at the same level," according to Ryo Ikebe, deputy director-general of the Japan External Trade Organization's Guangzhou office.
Wages are also rising in inland regions, although pay levels there continue to be lower than in coastal areas. Wuhan, the capital of Hubei Province, hiked the minimum wage 20% to 700 yuan, effective in August.
Monday, August 18, 2008
Expected shocks??
We need a new language for explaining what occurs in capital markets. One supposes this is more akin to the kind/type of "shock" experienced in tectonic shifts, but goodness what confusing language.
Enough on word usage. Is the below bullish or bearish for U.S. equities considering what I have been writing about on this blog for the past 6 or so months? Where do you, faithful readers, think sovereign wealth funds, large mutual funds, retirement plans, central banks, etc., etc., think market participants are going to do their investable assets? Given the relative forward looking prospects of same?
CNBC
Financial Crisis Is Expected To Bring More Big Shocks
Monday August 18, 10:17 am ET
The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday.
Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News).
Enough on word usage. Is the below bullish or bearish for U.S. equities considering what I have been writing about on this blog for the past 6 or so months? Where do you, faithful readers, think sovereign wealth funds, large mutual funds, retirement plans, central banks, etc., etc., think market participants are going to do their investable assets? Given the relative forward looking prospects of same?
CNBC
Financial Crisis Is Expected To Bring More Big Shocks
Monday August 18, 10:17 am ET
The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday.
Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News).
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