Category Archives: International

A Bit Of Math

Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of the deadly numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.

Crude Remarks

WTI crude is down sharply today after an EIA report that showed substantial increases in inventories of both products and crude itself. Inventories remain well above historical ranges, close to or at record levels.

US production has been increasing steadily and a slowing economy appears to be sapping end-user demand. However, one presumes that most if not all domestic producers have taken advantage of crude’s prolonged OPEC-supported trading in the $50 range to sell their output forward, either in the futures market or by private contract. So for the time being they are more or less indifferent to the market price.

The question is, who is holding the bag for all that $50 crude – obliged to buy at that price or just looking at tanks of the stuff. When do they decide to liquidate their positions before $40 crude becomes $30 and then $20?

Bubble Blowers

Res ipse loquantur.

Why I Like The Dutch

Mario Draghi visited the Dutch parliament today and received an “unenviable grilling” from Dutch MPs for nearly two hours which, as the FT said, left the usually implacable Italian confrontational and riled up as tempers flared.

At the end of the meeting, the Dutch gave Draghi a gift – a tulip.

At least someone still has a sense of humor.

Consumer Prices

Everybody has a bias when it comes to measuring price inflation. Reports like the Devonshire one come out quite frequently, usually complaining that the government indexes understate inflation. They all say, well the numbers don’t reflect reality. The problem is, they don’t know what reality is any more than the government does. My reality and the next person’s are completely different because we buy different things. Cheap loans have allowed universities to raise prices in an outrageous fashion – but our kids have long since graduated so it doesn’t affect me, although anyone putting kids through college is being eviscerated. Consumers react to prices. Technology changes. Quality changes. Fashions change. And so on. All these things make any index pretty much useless, except for making political arguments. So one has to ask, in the famous words of Ms. Clinton – “What difference does it make?”

If you ask someone in Venezuela right now, of course, you would get an expletive for an answer. There is massive consumer price inflation because there are not enough consumer goods to meet demand, and so people are going hungry and without toilet paper. They are driving up prices, trying to outbid one another to compete for what little supply there is. But even in that desperate situation, there is no agreement on what consumer prices actually are, even by disinterested parties. The only way to fix the problem in Venezuela is to get goods back on the shelves. If the Venezuelan government can do that, then consumer prices will reflect the value of the bolivar and general world price levels.

There’s your clue. If you want to measure consumer prices, it is easy. Just use the Big Mac, as the Economist does. It works. 2016 USA Big Mac price inflation was 2.6%. Venezuela Big Mac prices in bolivars:

July 2014: 75

December 2014: 245

July 2015: 485

December 2015: 940

December 2016: 3550

Looks like a pretty decent metric. It tells you what you need to know – there’s a big problem.

But the economy does not run on Big Macs, and I’m interested in the inputs, not the outputs so much. And those are labor and energy. Nothing else much matters.


I’m holding to my opinion that CADUSD will see 0.65 before 1.00, and here’s a little confirmation bias.

I’m Yelling Timber! CAD’s Going Down!

In addition to the collapse of the housing bubble, commodity prices, especially energy, are going to take a hit. And that could be right now – it looks like the oil longs – the hedgies – are already getting nervous about OPEC’s ability and/or willingness to sacrifice their cash flows in order to bolster the oil price.


Markets are all excited because Trump declared that the dollar is “too strong” and Ms Yellen is “not toast.” Not crumpet either, I would say, and Trump clearly knows his crumpet.

The End Of Hope

I had hoped that Donald Trump’s presidency would see some change in Washington. The attack on Syria finally dashed this hope.  The neocons’ campaign to demonize Russia has shaken his confidence to the point that they are now back in charge. This is a catastrophe, for which there is no one to blame but Trump.

Almost as seriously, presumably at the urging of the Goldmanites, he has not only failed to even attempt to slow the financial bubble, of which his pre-election statements show he is well aware, but has cynically relished it as proof of his success. This failure is likely to be his downfall.

We are so screwed. Sauve qui peut.


There is much noise that the Fed will raise interest rates to combat “inflation.”

Over the last year to the end of February, wages are up 2.8% (nominal). The price of oil, as a metric for energy prices, is up 32%.

Guess what is driving “inflation.”

The Saudis are still pumping as hard as they can, but justifying it on the grounds that they are storing the above-quota output, not selling it internationally. It seems to me that a tank in Saudi and a tank in Oklahoma are pretty much fungible, except that we at least think we know how much is in the Oklahoma tanks.

The bottom line is that global inventories of oil are continuing to expand to new records, more or less on a daily basis. The EIA is forecasting that US shale is set to expand production by 109k barrels from March to April, rising from 4.853mmbpd to 4.962mmbpd, and offsetting OPEC’s entire February production cut.

At some point we are going to see a reaction and that will be the end of “inflation.” For a while, anyway.

Crude Dreams

It seems like the price of crude oil is finally taking notice of the new records in inventories being set every week.

OPEC is ruminating about further cuts. The problem, for OPEC anyway, is that keeping the price high has fed a resurgence in US production as the rig count keeps driving higher and higher. A resurgence that will not easily be countered as the high prices have allowed producers to sell forward the oil that they have yet to produce either into the public futures market, or by private contract. Either way, they can drill with confidence in the pricing.

As a result, the global re-balancing of the oil markets that OPEC hoped to achieve remains a fantasy. GLWT.

As a side note, speculators’ most recently reported positions in WTI crude oil futures total about 525 million bbl., or nearly $27 billion at the current price of $51.