Marshall Horn CFTC

Friday, 21 August 2015

Marshall Horn - Russian Unemployment Nears Historic Lows Despite Sanctions

Marshall Horn,

This article originally appeared at Awara

The unemployment rate in Russia dropped in July to 5.3%, not far from the record low of 4.8% a year ago. Notably the number of the economically active population (those working or looking for a job) simultaneously grew from 76.5 to 77.2 million. This shows that real gains were made on the job market.

The unemployment rate must be considered the most accurate indicator of the real health of the economy as the other core indicators such are too much subject to estimations and conventions. Here we then have solid proof that not all is bad in the Russian economy as the press would have it.

According to some malicious and mendacious press reports the low unemployment rate is a mere chimera. The Russian government has supposedly attempted to save jobs in economically unviable areas in order to protect social stability rather in the way it was done during the planned economy in the USSR.

This is what Bloomberg claims in a story of August 18 titled Putin Revives Soviet Deal of Pretend-Work-and-Pay to Hide Crisis. This comes against the better knowledge we have about a slew of announcements of downsizing and shedding of workforce at Russian state owned corporations and authorities.

Indeed the Western press has been regularly gloating during the last few months over the reports of mass redundancy with headlines like these:

Russia hit with mass layoffs as economy worsens;

Russia’s Largest Carmaker Announces Major Layoffs;

Putin Cuts 110,000 Government Jobs;

Big Companies Cutting Staff in Gloomy Economy

At the end of this article, we will provide a brief digest of such press clippings for the education of those in doubt.*

It becomes remarkably clear that the unemployment has gone down against the backdrop of simultaneous mass layoffs and restructuring. The only proper way to interpret this is that the Russian economy indeed is resilient and that a real modernization of Russia’s economy is underway with new viable ventures absorbing the labor force made redundant.

Bloomberg continues its lamentation (or euphoria?) about the Russian job market by referencing to a recent OECD report on labor productivity in various countries. According to that report, Russians would be the least productive workers in Europe, as The Moscow Times interprets it. This is of course total nonsense partly based on Academic drivel and partly on calculation errors.

The Academic drivel part lies in the entire notion behind this measure, the idea that by dividing a country’s GDP by the number of hours worked would yield the productivity of the worker. (Let’s be fair, the question is in fact about the productivity of the economy as a whole including – and to a big degree – its management. By referring to low productivity of workers, The Moscow Times only wanted to add insult to the story.)

We have in this study from last year criticized this idea of trying to derive measures of labor productivity from the GDP figures. The GDP measures the value of goods and services produced and not the productivity. A lot of macroeconomic actions and events affect the GDP, such as taxes that push up the general price level and hence GDP in high-tax countries.

Borrowing at all levels of the national economy, government, corporations, and households increase GDP and therefore the base for calculating this faulty labor productivity measure without any real improvement in actual labor productivity. The more leveraged an economy is, the better this skewed labor productivity looks. – We could then argue that the Russian worker is particularly inept in participating in the debt-binge that is so totally defining the behavior of his Western peers.

But that’s not all. Not content with distributing such products of fantasy, the OECD also made a major calculation error. In their method they purported to use the GDP adjusted to purchasing power (PPP). Considering the significant devaluation and the volatility of the ruble during 2014 (the year of OECD refers to), it is indeed a daunting task to determine both the base nominal price of the hour of labor and the PPP coefficient. It seems to us that the correct adjustment coefficient should be closer to 3 than the 2 that OECD used. This would radically change the ranking of Russia in this Academic leisure game.

Finally, we must draw attention to one more gross error in the Bloomberg article. They claimed that “Putin” now has “some of Europe’s most restrictive labor rules”. Nothing could be further from the truth as any practicing lawyer or business executive in Russia knows. Russia has some of the most lenient rules (from point of view of the employer) in Europe allowing mass layoffs by mere giving of a two-month notice without being restricted in this by cumbersome labor union rules and legal restrictions.

*What follows is a brief digest of some of the news of frequent mass layoffs at large Russian corporations and government. Reading these one wonders who is pretending, Bloomberg or Putin!

Russia hit with mass layoffs as economy worsens

Tells: “Large layoffs have begun. The Moscow construction sector has seen 100,000 people being laid off. We see signs of crisis in the auto industry,” (Alexey Kudrin interviewed)

Russia’s Largest Carmaker Announces Major Layoffs

Tells: “AvtoVAZ, [maker of Lada cars] will shed 27,600 jobs under an agreement negotiated with unions. Management had earlier sought to cut some 36,000 positions.”

Russia’s Putin orders cuts to Interior Ministry payroll

Tells: “Russian President Vladimir Putin has signed an order reducing the maximum number of staff on the Interior Ministry payroll by 110,000, or about 10 percent, according to a document posted on a government website on Monday.”

Tens of thousands of officials will be dismissed

Tells: “Prime Minister of Russia Dmitry Medvedev has ordered to reduce the number of officials at the regional and Federal levels by 10%, which is about 150 thousand people. “

Russia can’t afford to pay state employees

Tells: “Russian President Vladimir Putin signed three new decrees into law that will slash government salaries — including his own and that of Prime Minister Dmitry Medvedev — by 10% from 1 May. – The government has also announced plans to cut the number of government officials by 5% to 20%.”

Big Companies Cutting Staff in Gloomy Economy

Tells: “A slew of announced layoffs is rattling the domestic labor market, threatening to further undermine a weak economy. // Russia’s two largest banks, state-owned Sberbank and VTB, have joined the country’s biggest carmaker, AvtoVAZ, in declaring significant staff reductions in the upcoming months. // [VTB Group chief] Kostin said the group would consolidate some operations, leading to the layoffs. // Sberbank, the country’s largest bank by assets, said it would reduce personnel to 220,000 people over five years from the 250,000 people that it currently employs.“

Putin Cuts 110,000 Government Jobs

Tells: “President Vladimir Putin fired 110,000 Interior Ministry jobs with the stroke of a pen. The Interior Ministry control the police, paramilitary security forces, and the traffic safety agency.”

Russia’s automobile manufacturers begin layoffs campaign

Tells: “Russia’s automotive industry leader AvtoVAZ has launched a layoffs campaign” (see above), and

“Russia’s other automobile manufacturers have been reducing personnel, too. The General Motors plant in St. Petersburg will be working one shift a day instead of three as of October 1. Ford in Vsevolzhsk, the Leningrad Region, and Volkswagen, in the Kaluga Region, too, have declared they will be working shorter hours.”

Russia is imposing cuts on its healthcare system — and doctors aren’t happy about it

Tells: “As part of cost cutting measures, authorities announced last month they plan to close dozens of hospitals and lay off up to 10,000 medical staff. “

Russia’s Rosneft facing layoffs

Tells: “Russian media reported Thursday state-owned oil company Rosneft could shed as much as 25 percent of its staff as early as next month.”

via Marshall Horn, CFTC Russian Unemployment Nears Historic Lows Despite Sanctions

Marshall Horn - Russia and the Depression That Wasn't

Marshall Horn,

This article originally appeared at The Unz Review

Nearly every other day brings another scary headline about Russia’s economic apocalypse. Inflation is robbing Russians of buying power and Putin propagandistsare denying it. The “wheels are coming off” the regime according to our friends at the RFERL, the end of the regime is nigh according to Bill Browder, and Putin’s days are numbered, at least in the creative imagination of Ukrainian nationalist academic Alexander Motyl.

Masha Gessen’s friends can no longer get their little Gruyères, the “legendary” (primarily for losing his clients’ money) Moscow investor Slava Rabinovich is predicting food shortages, and things are only about to get worse with oil falling to $25 per barrel and the ruble to 125/$1, at least according to the Khodorkovsky-funded Interpret Mag’s Paul Goble, who has made something of a professional career forecasting Russia’s takeover by Muslims and the Chinese.

Ambrose Evans-Pritchard, the guy who has predicted all twelve of China’s past zero recessions amongst other forecasting accomplishments, says that Russia is “in a full-blown depression.”

One would think from all the noise that we are looking at some sort of Greece-like depression, or an imminent rerun of the collapse of the post-Soviet economy in the 1990s.

Now for the rather banal reality. Real GDP is expected to contract by around 2.7% this year according to the World Bank, but then recover to 0.7% in 2016 and 2.5% in 2017.

The reasons behind this are likewise pretty banal. They don’t have a great deal to do with Western sanctions, which hurt the ability of Russian companies to raise capital but otherwise have had little bite, and they have even less to do with any particular feature of Russia’s political system/kleptocracy/lack of economic freedoms that both anti-Russian establishment pundits like Ariel Cohen and pro-Western liberals in Russia like former Finance Minister Alexey Kudrin like to claim as dooming it to economic stagnation. If they were right, then East-Central Europe – most of which is rated as a lot economically freer and less corrupt than Russia on the various indices that proclaim to measure such – would not also have been stuck in a relative economic rut since around 2007.

No, the reason for Russia’s recession is quite simple and boils down to the sharp collapse in oil prices from ~$100 in 2014 to ~$50 this year.

This is indeed what happened. Imports went down, goods became more expensive, and inflation rose. The Central Bank jacked up interest rates in order to prevent runaway inflation, but at the price of a decline in aggregate demand and consequently a short-run decrease in the GDP. If one is really searching for a comparison, the correct one would be not to Greece (which is locked in a monetary straitjacket by the ECB) nor to the late Soviet Union (wholly irrelevant) but to the Volcker recession in the early 1980s US.

Sergey Zhuravlev’s permanent oil shock model. Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

There is now a very substantial output gap. Dependence on Western credit is now much reduced relative to 2013, to say nothing of 2007. Meanwhile, there are active and serious efforts to developRussia’s own financial system, which remains woefully underdeveloped for an economy of its size and scope.

Finally, even if oil prices drop permanently to $50 – which is entirely possible, given the removal of the Iran sanctions, this would not mean the Russian economy would be necessarily doomed to years of stagnation. To the contrary, econometric modeling by Russian economist Sergey Zhuravlev indicates that it would result in a ~1.5 year recession (which began in mid-2013, versus 2012 in his model; but otherwise it remains very relevant) followed by accelerated GDP growth thanks to exports.

Otherwise, macroeconomic indicators remain unremarkable. Corporate debt repayments scheduled for the second half of the year are twice lower than in the first half. The budget deficit is forecast to be 3-4% of GDP for the year and overall state debt levels continue to be very low. (Incidentally, this figure is 20% for Saudi Arabia. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia).

Unemployment in Russia (Trading Economics).

Unemployment has barely budged, not even reaching 6% at its peak. In comparison, it was at 10% throughout much of the 1990s. This is almost entirely an output recession.

Now inevitably when recessions occur, living standards tend to fall, and people have to live more frugally. Reading the Western media, one would think that the recession has led to a tsunami in worker protests, criminality, and elite intrigues against Putin.

The percentage of Russians who spend either “almost all” or “two thirds” of their incomes on food, another measure of poverty, is 26% this year, completely unchanged from 2014, and actually lower than in 2013 (33%) or the 2000s in general (40%-50%), to again say nothing of the 1990s (consistently around 80%).

These numbers have been confirmed credible by observers such as Russia Insider’s Gilbert Doctorow and Alexander Mercouris, who have personally assessed the situation on the ground, in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.

Index of “protest potential” based on percentage of Russians saying they’d be willing to partake in protests.

It is deeply unfashionable to say this but Russian living standards have improved astronomically in the 15 years of Putin’s rule – more so than the headline GDP figures. As such, even a recession like the current one only kicks living standards back by one or two years.

As such, it is not surprising – if deeply disappointing to the Western elites who want to stir up a color revolution in Russia – that Russia’s level of “protest potential” (the percentage of Russians saying they would be willing to participate in protests, or rating the likelihood of protests as being high) is currently near record lows.

Naturally, any such attempts to put the effects of an ultimately modest ~3% drop in GDP into statistical perspective will be met with accusations of callous indifferent to the plight of the Russian people, and the work of Olgino trolls to boot. I have seen this replayed numerous times on the Internet, even when the people making such arguments were Russians living in Russians, whose only sin was to recount their own (generally modest) experiences and impressions of the recession.

Make no mistake – there is a well coordinated media effort in the West to leverage any Russian economic problems to destabilize the Kremlin. Note the chorus of condemnation around the destruction of food illegally imported from the EU in contravention of Russian sanctions, even though the destruction of excess food is routine under the EU’s Common Agricultural Policy.

Naturally, this is driven by their altruistic and heartfelt commitment to the wellbeing of the Russian people. Though isn’t it just a wee bit strange that those journalists and “activists” who tend to shout loudest about the burning of European food also tended to be the ones who maintained the thickest silence about the burning of Russian people in Odessa in the new European Ukraine.

via Marshall Horn, CFTC Russia and the Depression That Wasn't

Marshall Horn - Russia and The Depression That Wasn't

Marshall Horn,

This article originally appeared at The Unz Review

Nearly every other day brings another scary headline about Russia’s economic apocalypse. Inflation is robbing Russians of buying power and Putin propagandists are denying it. The “wheels are coming off” the regime according to our friends at the RFERL, the end of the regime is nigh according to Bill Browder, and Putin’s days are numbered, at least in the creative imagination of Ukrainian nationalist academic Alexander Motyl.

Ambrose Evans-Pritchard, the guy who has predicted all twelve of China’s past zero recessions amongst other forecasting accomplishments, says that Russia is “in a full-blown depression.”

One would think from all the noise that we are looking at some sort of Greece-like depression, or an imminent rerun of the collapse of the post-Soviet economy in the 1990s.

Now for the rather banal reality. Real GDP is expected to contract by around 2.7% this year according to the World Bank, but then recover to 0.7% in 2016 and 2.5% in 2017.

No, the reason for Russia’s recession is quite simple and boils down to the sharp collapse in oil prices from ~$100 in 2014 to ~$50 this year.

Though the Russian economy is about far more than just oil – natural resource rents are 18% of GDP – it is true that oil is the key component of Russia’s export basket. So when oil prices collapse, in the absence of massive and unsustainable interventions, the ruble devalues. This is indeed what happened. Imports went down, goods became more expensive, and inflation rose. The Central Bank jacked up interest rates in order to prevent runaway inflation, but at the price of a decline in aggregate demand and consequently a short-run decrease in the GDP. If one is really searching for a comparison, the correct one would be not to Greece (which is locked in a monetary straitjacket by the ECB) nor to the late Soviet Union (wholly irrelevant) but to the Volcker recession in the early 1980s US.

Sergey Zhuravlev's permanent oil shock model. Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

Sergey Zhuravlev’s permanent oil shock model (click to enlarge). Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

Unemployment in Russia (Trading Economics).

Unemployment has barely budged, not even reaching 6% at its peak. In comparison, it was at 10% throughout much of the 1990s. This is almost entirely an output recession.

But in statistical terms, the real impacts of the downturn have been modest. According to Levada opinion polls, the percentage of people having difficulty buying food and clothing increased to 32% this year from 21% in 2014, but this is still lower than the figure for (pre-crisis) 2012, when it was at 33%, to say nothing of the early 2000s (higher than 50%) or the 1990s (around 80%). The percentage of Russians who spend either “almost all” or “two thirds” of their incomes on food, another measure of poverty, is 26% this year, completely unchanged from 2014, and actuallylower than in 2013 (33%) or the 2000s in general (40%-50%), to again say nothing of the 1990s (consistently around 80%). These numbers have been confirmed credible by observers such as Russia Insider’s Gilbert Doctorow and Alexander Mercouris, who have personally assessed the situation on the ground, in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.

Index of “protest potential” based on percentage of Russians saying they’d be willing to partake in protests.

via Marshall Horn, CFTC Russia and The Depression That Wasn't

Marshall Horn - Market Volatility and the Twilight of the Dollar

Marshall Horn,

For those interested in that sort of thing, 20th August 2015 has been a fascinating day in the markets.

Oil has plunged, Kazakhstan and Vietnam have both floated their currencies, the Kazakh currency has fallen by 20% in a single day, and what are politely referred to as the currencies of the “emerging market economies” - which include the rouble - have all fallen in unison.

In Russia the rouble has tracked the fall in the price of oil, with Economics Minister Ulyukaev saying that because oil is likely to continue its fall, the rouble is likely to fall further.

In the meantime - and counterintuitively for those who continue to see the fall of the rouble as some sort of disaster for Russia - Russia’s international reserves have grown by over $4 billion in the last week - confirming incidentally that the Central Bank is not intervening in the foreign currency markets to support the rouble.

Meanwhile, though the rouble’s fall has now been underway for almost 2 months, the effect on inflation remains subdued. Rosstat - Russia’s statistical agency - reported deflation (i.e. an actual fall in prices) over the last week.

As for Russia’s overall financial position, the trade balance remains in surplus and the budget deficit has fallen from 3.7% of GDP to just 2.7% of GDP over the first 7 months of the year, despite the ongoing recession and the collapse in oil prices.

This means that Russia’s budget deficit is now no greater than that of the US - supposedly in the sixth year of recovery - and is half the size of Britain’s - on the strength of the reduction of which Britain’s governing Conservatives have just been re-elected.

As I have explained many times, the reason Russia’s budget deficit is so small and why the balance of trade remains in surplus, is because the government decided to float the rouble last year.

Of the big emerging market economies I suspect that the one to worry about is Turkey.

Unlike Russia Turkey’s economy operates with a trade deficit. It has grown over the last decade by importing capital from the Arab world and the West at an ever increasing rate. That has led to a steep rise in foreign debt, which by some estimates now equals more than half Turkey’s GDP - more than twice Russia’s - but without the large-scale amassing of hard currency liquid assets by Turkish companies that Russia’s companies have achieved. As was the case in Greece before 2007, much of the debt has gone to fuel a construction boom, which as in Greece before 2007, has been Turkey’s main growth driver.

The steep fall in the Turkish currency will increase the cost of imports and of servicing the debt, offsetting any benefit to the country from the oil price fall. Given that the balance of trade is in deficit, it is easy to see how things could go wrong and how the economy could fall into deep recession.

What explains the extraordinary volatility in world markets?

The Western financial press is blaming China and Saudi Arabia.

China’s economy is supposedly slowing and facing a “hard landing”, supposedly forcing it to devalue its currency to regain competitiveness, thereby allegedly increasing the risk of “currency wars” i.e. of competitive devaluations by countries seeking trade advantages over each other - as happened disastrously during the Great Depression of the 1930s. Falling Chinese demand for commodities caused by the slowing of China’s economy is supposedly what is causing the price of oil and of other commodities to fall.

Saudi Arabia is being criticised for causing the oil rout, supposedly because it has miscalculated the resilience of US shale oil producers, and is foolishly ramping up production during a period of oversupply, instead of cutting it.

I do not find either of these arguments convincing.

Concerns about China do not reflect what the statistics coming out of the country are saying, and are hardly justified by what has so far been a very small devaluation, which seems to have been intended primarily to strengthen China’s demand that the IMF include its currency in the IMF’s reserve currency basket.

As is the case with Russia, one should not confuse Western wishful thinking about China with China’s economic reality, which still looks robust.

As for Saudi Arabia, wishful thinking and confusion about its intentions is, if possible, greater still.

First of all, it baffles me that the myth that Saudi Arabia refused to cut production last year in order to hurt Russia as part of some sort of US-Saudi plot refuses to die. The Saudis have made it clear that it is not Russia but the US shale oil producers that are in their sights. That is a fully sufficient explanation for Saudi Arabia’s actions, and there is no reason to look beyond it.

What of the view that the Saudis have misjudged the resilience of US shale oil producers and that they need to reverse course quickly or risk putting in jeopardy their own economy?

The Saudis are the most experienced and best informed players in the oil market, and it beggars belief that they are not well-informed about conditions in the US oil industry - including the shale oil industry.

It is difficult to believe the Saudis ever thought a few months of depressed prices would be enough to kill off an entire industry. Common sense - and basic market intelligence - would have told them that it would take a sustained period of low oil prices - and a general market expectation that oil prices would remain low for a long time - to persuade the shale oil industry’s investors and creditors that there was no point in holding on.

When the Saudis decided last year to maintain production at current levels they must have calculated that prices would remain depressed for a long time - two or even three years at least. Nothing else makes sense.

What of claims from the shale oil industry that efficiency savings will enable it to ride out the storm?

I am not an energy industry economist. What I would say however is that what we are now hearing from the shale oil industry is precisely the sort of thing one would expect to hear from the shale oil industry at this point in the oil price cycle. They have to say they have the situation under control to reassure their creditors and investors in order to keep them on side, and it is hardly surprising that that is what they are doing.

I can remember hearing exactly the same things at the crest of the dot.com boom and of the property bubble as both were starting to burst and I see no reason to think it is any different this time.

Despite claims to the contrary, Saudi Arabia’s reserves and the liquidity of its banking system means that despite heavy spending it has the wherewithal to last out a prolonged period of low prices.

That surely is the Saudis’ calculation and the reason for their actions.

Given that this is so, there is no reason to expect them to change their policy, and Ulyukaev’s comment on 20th August 2015 shows that he at least doesn’t expect them to.

In any test of endurance between a cash-rich low-cost saver and a heavily indebted high-cost debtor - such as we are now seeing between the Saudis and the US shale oil industry - most people would put their money on the saver. Nothing I have seen or heard so far would lead me to change that view.

Saudi Arabia’s actions anyway did not cause the original oil price crash, which began in the summer of 2014 - before November’s OPEC decision to maintain production at current levels. Saudi Arabia’s actions cannot therefore explain the instability in the markets, which is now affecting all commodity markets and not just oil.

For an explanation of the present instability one has to look not at Beijing or Riyadh but to the policy paralysis in Washington.

In 2014 the US Federal Reserve Board finally brought its quantitative easing programme to an end.

Everyone expected - and the Federal Reserve Board encouraged everyone to think - that this would be followed quickly by a rise in interest rates.

As I have discussed many times previously, it was this apparent tightening of monetary policy in the US that caused oil prices to collapse last year.

In the event, instead of the rise in interest rates everyone was expecting, the Federal Reserve Board, apparently evenly split between supporters and opponents of a rate increase, has held fire.

Some of the reluctance to raise interest rates may be because economic performance in the US over the last year has been consistently below expectations, with productivity growth particularly bad.

It is difficult however to avoid the feeling that behind the failure to take action is pressure from the Obama White House, worried about what an increase in interest rates would do to the Democrats’ chances of holding on to the Presidency in 2016.

It is this uncertainty about the Federal Reserve Board’s intentions which is behind the instability in world markets. Since no one is sure what the authorities in charge of the world’s main reserve currency are doing or are going to do, no-one can plan ahead, so that positions are taken quickly and are reversed as quickly, as everyone nervously waits for the Federal Reserve Board to make up its mind.

That is why when it appeared last summer that the Federal Reserve Board was going to raise interest rates the oil price collapsed; why when it put off its decision to raise interest rates in the winter the oil price rallied; and why when talk it might be about to raise rates in September began to spread again during the summer the oil price collapsed again - taking other commodity prices down with it.

It remains to be seen whether at the Federal Reserve Board’s forthcoming meeting in September a decision one way or the other is finally made. The very latest announcement suggests continued uncertainty.

In the meantime - in the absence of a clear decision - the US risks ending up with the worst of all worlds: having the costs of high interest rates without the corresponding benefits.

Talk of an imminent rise in interest rates must already be causing interest rates to US borrowers - including shale oil producers - to creep up, without however providing the benefit of higher interest rates to US savers, who have had to get by with almost zero interest rates since 2008.

At the same time speculation that US interest rates are going to rise has caused the dollar to surge and the currencies of the US’s competitors to fall, pricing out US goods and ensuring that most of the benefit of the oil price fall goes to the US’s manufacturing competitors rather than to the US’s own manufacturers.

US dithering on this key question is having another effect.

Governments and business people around the world - or at least outside the Western world - have long been exasperated at how their plans are constantly held hostage by the chaos in decision making in Washington and by the US’s narrow minded focus on its own interests.

Once, not so long ago, US and Western economic predominance was so great this did not matter. Today that is no longer so.

The result is increasing discussions around the world to end an international trade and financial system based around an increasingly erratic and unpredictable US and its currency, the dollar.

That ultimately is what all the discussions and agreements between Russia, China, the Eurasian states and the BRICS states, that happened this year, were all about.

It is also what the discussions between the Russians and the Saudis, which have caused so much surprise and which have attracted so much comment, are also about.

If the market instability of the last year shows the continued importance of the dollar, that same instability explains why the dollar is unlikely to retain that importance for very long.

via Marshall Horn, CFTC Market Volatility and the Twilight of the Dollar

Marshall Horn - Russia to Build Nuclear Power Plant in Vietnam

Marshall Horn,

MOSCOW (Sputnik) - The first nuclear power plant in Vietnam will have two energy units, each with a capacity of 1.2 GW. Russia and Vietnam signed an agreement on the construction of the nuclear power plant in October 2010. Vietnam is due to receive a state loan of $8 billion from Russia to finance the project.

Rosatom intends actively engaging Vietnamese businesses in the project, localizing 30-40 percent of equipment manufacturing and construction.

Hanoi plans to build and bring on stream 13 nuclear power units by 2030 in a move to generate 15 GW of nuclear power capacity, or about 10 percent of the country’s total electricity production.

via Marshall Horn, CFTC Russia to Build Nuclear Power Plant in Vietnam

Thursday, 20 August 2015

Marshall Horn - Anti-Global Warming Crusader George Soros Invested Millions in Coal

Marshall Horn,

August 19th (Sputnik) - In 2009, wealthy philanthropist George Soros used $1 billion of his own money to launch a think tank known as the Climate Policy Initiative. That organization’s goal was to help develop clean, renewable energy to move the planet away from its reliance on more harmful energy sources.

“There is no magic bullet for climate change, but there is a lethal bullet: coal,” Soros said at the time.

But despite specifically identifying coal as the main culprit in global warming, the billionaire has now invested heavily in that very industry. Over the past few months, Soros has spent $2 million to help prop up two major coal companies, Peabody Energy and Arch Coal.

Those investments mean that Soros Fund Management now owns over 1 million shares of Peabody stock, and 500,000 in Arch.

Given the vast size of Soros’ $24.2 billion wealth, these recent investments seem relatively small. With the struggling coal industry, the cost of each share was remarkably cheap.

“At their current stock prices of just above a $1 these investments can almost be viewed as stock options – or a small bet on a recovery in global coal prices,” Dan Lowrey, a coal analyst with SNL Energy, told the Guardian.

Which means that despite the decline of the coal industry – a trend which Soros himself contributed to – the billionaire is now placing a multi-million dollar bet that the coal market will recover.

A curious choice, given that multiple economic indicators predict that the coal sector will only continue to weaken.

“We see no reason to question this conclusion,” Luke Sussams, an analyst with Carbon Tracker, told the Guardian. “The market is still struggling to stay afloat, with victims falling by the wayside monthly. This month is was Alpha Natural Resources filing for bankruptcy, the US’s second-largest coal producer [after Peabody].”

Soros’ own foundation also documented the harmful environmental effects of coal, and even noted how a transition to low-carbon systems could actually improve the global economy.

“Transitioning away from coal can achieve 80% of the needed emissions reductions for just 12% of the asset value at risk,” a report by the CPI reads. It adds that “significantly reduced operational costs associated with extracting and transporting coal and gas outweighs increased financing costs for renewable energy…”

Soros appears to be ignoring both the financial and environmental advice of his own think tank.

The billionaire has said that he was inspired to join the crusade against climate change after talking to former US vice president Al Gore.

“I will look for profitable opportunities, but I will also insist that the investments make a real contribution to solving the problem of climate change,” he said in 2009.

“Profitable opportunities” appear to have become a priority.

via Marshall Horn, CFTC Anti-Global Warming Crusader George Soros Invested Millions in Coal

Marshall Horn - Oil Prices Must Rebound. Here’s Why

Marshall Horn,

This article originally appeared at Oil Price

Last week I spotted a very interesting chart that Gregor MacDonald tweeted which showed world oil production over recent years excluding the USA. The chart was pretty flat and that got me wondering about the extent to which the world has come to depend upon Light Tight Oil in the USA and, for that matter, Steam Assisted Gravity Drainage (SAGD or oil sands) projects in Canada.

So I went back to the font of all knowledge, the BP statistical review of world energy, and reconstructed the plot with my own little variations on it. For one thing, I added in OPEC’s spare capacity, as what I was really interested in seeing was just how much capacity the world had to produce oil. Figures on unused capacity are hard to come by, but the EIA do publish a series of estimates of OPEC spare capacity and it is pretty reasonable to expect that just about everyone else is pumping flat out. Then I thought I would add Canada and the USA together, LTO and SAGD are different in many ways but they both grew in response to higher oil prices.

Finally, I thought I would compare the total world production capacity to BP’s figures for oil consumption (less biofuels) to see how the trends had moved. BP do give a pretty healthy warning on their work that supply does not equal consumption but the details of why that is so (other than stock movements) elude me.

No matter, here is the aggregated picture of world oil production capacity vs world oil demand from 1990 onwards with the annual average oil price in 2014 dollars added on for good measure.

You can see two things on this chart, the first is that when capacity exceeds demand, prices are low (and vice versa); the second is that, since about 2005, despite the oil price being rather high, outside North America the world has struggled to add any oil production capacity at all. In fact, since 2010 oil production capacity outside North America has been in decline. If it weren’t for the USA & Canada, where production growth has been driven by LTO & SAGD, we would have been in a right pickle.

Here is a closer look at that growth in capacity in North America. It is very dramatic, but what you don’t see on this chart is that by the end of this year that growth will have halted and that demand will once again exceed capacity.

In the short term, the oil market is in the doldrums and projects are being delayed or cancelled, left right and center. That will mean that, outside North America, oil production capacity will decline even faster and with the growth knocked out of the shale producers and SAGD projects being put on the back burner, it is only a matter of months before demand starts to exceed world oil production capacity again. A nasty recession might put a dent in demand growth and turn those months into quarters, but eventually capacity will wane, demand will wax, and the oil price will climb once again.

In fact if traders looked hard at these charts they might wonder if the continued weakness in the 2022 Brent Oil future was a tad overdone. For this time, I think the price response might be even stronger and more sustained than before.

via Marshall Horn, CFTC Oil Prices Must Rebound. Here’s Why