Declining Oil Prices and The Asian Cleantech Shift

DECLINING OIL PRICES AND THE ASIAN CLEANTECH SHIFT
Andrew McKillop

The major economic driver for shifting away from fossil fuels is high oil prices, and these are presently set for considerable decline, to be sure with large volatility. Lower priced oil will however not stop the Asian shift to clean energy: even if oil prices continue tumbling, with the possible decline attaining as much as $50 less than the price of 2 months ago.

The reason is that the move to clean energy in Asia is powered by clean energy economics which are becoming less dependent on high oil prices, for economic break even.

As highlighted by the IEA, electric power production in many Asian emerging economies, and in most African low income countries is still heavily based on oil. IEA estimates for the power sector in non-OECD countries show it consumed about 2.2 billion barrels of oil in 2011, with an annual cost of around US$200 billion. This is the first target for clean energy transition in non-OECD countries and is the largest single business opportunity.

GLOBAL OIL DEMAND IS UNLIKELY TO REBOUND

The open and net decline of oil demand in most OECD countries today, not only Europe, cannot be explained away as only due to economic recession. The OECD group's energy watchdog, the IEA has made a basic error in its economic models by continuing to forecast oil demand will always rise when GDP grows, because this energy agency, like the US EIA, or Europe's Eurostat, and energy major corporations like Exxon, Total or BP still thinks there can be new "oil shocks".

The belief that oil demand will always rise with GDP was true in the past, but we are now close to the transition point where this will no longer be the case - global energy transition is happening.

The process of "chasing oil out of the economy" especially concerned the European Union countries, the US and Japan until as recently as 2009, but since then China and India have begun to radically cut their own oil needs for economic growth. The argument by the IEA that only the global economic downturn, since the end of 2008, has cut world oil demand is in fact contradicted by the graphs, charts, data tables and diagrams published by the same agency in its World Energy Outlook and other reports.

The IEA theory is that when the economy rebounds, oil demand will also rebound. For this reason, the IEA always forecast higher oil demand in the future "when the economy recovers". By about 2015-2017, according to the IEA, this could lead to oil prices as high as $175 - $200 per barrel.

The real world shows a very different readout. The chart below is what happened to the EU27 plus 2 non EU european countries of the OECD Europe group, through 1995-2011.



       EU27 + 2   OIL DEMAND SINCE 1995.    Sources: Eurostat, BP and others

For China and India, and a rising number of other Asian countries including Pakistan and Turkey, the oil intensity of their economies (amount of oil needed per unit of GDP) is now falling about as fast as it is among the OECD countries. Things were different as recently as 2004-2007, when high annual growth of oil demand in China and India helped create the global oil price breakout, but the shift to cleantech and the development of green energy, and the development of new energy-saving technology was already beginning to drag down the annual growth rate of oil demand, in China and India. Since 2009 this pattern is now clear - suggesting that another "oil shock" as in 2008 is now unlikely.

The main reason is that firstly India, then China started slashing the oil intensity of their economies, their oil input per unit of GDP output, from as early as 2005. This had and has a fast escalating impact on their trend rate of oil demand growth, since 2009.

Through 2001-2011, China averaged more than 9% per year growth of oil demand, and India about 5.5% but this was front-loaded in time, with more regular and higher-than-average growth in 2000-05 than in 2006-11. Forward estimates for oil demand growth of both India and China are now being revised downward - because they will certainly decline. For India, the official figure for national oil demand growth is about 3% per year, if GDP growth holds at high rates, and for China it is now unlikely it will ever again have annual growth rates of oil demand of more than about 6% per year.

Today, the outlook for oil price breakout is becoming history book: oil prices are going to stay relatively low, and are unlikely to spiral upward, except if there is major Middle East political crisis.


THE NEW ENERGY SYSTEM

The IEA and other western energy agencies claim that clean energy must be moved forward, but energy consumer countries must also develop more oil supplies because, these agencies say, when the economy recovers oil demand will grow again, and oil shortage will bite. This implies very big spending on the energy sector, if countries have to invest in both energy systems - - clean energy and fossil energy.

Political deciders and policy makers in Asia however know that maintaining the investment effort and political support to clean energy is a win-win stategy: oil prices will stay moderate, the environment will be protected, and jobs will be created. Spending more on oil, gas and coal (and especially on oil) is likely not the best strategy because, as the IEA itself shows in its reports and studies, its "bad scenario" of oil price breakout is unlikely to happen: comparing OECD energy dependence of 1973 and 2009, it shows that the richworld group's oil dependence fell from oil covering 52.6% of its total energy demand, to 36% in 2009. This same process is now happening in Asia, and can run even faster in Asia than in the OECD countries; clean energy is set to become the dominant paradigm.

More simply, oil does not fit into the new energy economy. For Asia, certain oilsaving sectors and targets are clear and massive. In particular as noted at the start of this article, we find that oil-based electric power production is the key near-term target.

Due to what is now industrially mature mass production of windpower and solar power equipment, the process of slashing this oil demand can move rapidly. For the low income countries where some still use oil for over 50% of their generation (US oil-fired electricity 2009: 1% of total), the growing supply of newly obsolete solar and windpower equipment in the North, especially in Europe, becomes a key resource. Leapfrogging tech development of windmills, for example, has seen their power spiral from 600 kW to 6000 kW (6 MW) per mill, leading to rapid economic obsolescence of smaller mills built to operate 30 years or more, but retired in less than 10 years.

This type of equipment is often priced at giveaway levels as low as $500 per kW. Heavy discounts also operate on economically obsolescent solar PV equipment, having typical efficiencies of below 12.5% and quickly retired from service, compared with new equipment attaining 18%, but service lifetimes for both are around 30 years. The clean power shift in Asia will accelerate.

*****

Why we need expensive Oil?

Why We Need Expensive Oil


By: Andrew_McKillop


To some it can seem a joke, but the new definition of "expensive oil" is about $75 a barrel. Even worse fol oil producers, $75 a barrel is rapidly becoming the base price for financially feasible oil production development strategies. Above all, the old paradigm of extreme high oil prices is long dead.


It was born from the oil panics of the 1973-81 period, called "oil shocks", and the paradigm says that cheap oil is the Holy Grail of economic growth and full employment, which today are folk memories in the OECD countries, while the linked claim of low inflation flowing from the low-priced barrel has no relation to what is left of the "real economy", and fantastically inflating debt-and-deficit lead balls and chains. These will need massive inflation (or default hidden by a quick changeover of national moneys) in a rapidly approaching period of future time, to be deleveraged.


Oil import costs for heavily import-dependent countries and regions (US, Europe, Japan) ranged from 2.2% to 2.7% of GDP in 2011 using IEA data: minuscule numbers compared with sovereign debt servicing and budget deficit financing, either at present or going forward !


Old time oil panic drivers have eroded or even disappeared. In 1973, at the time of the first oil shock the OECD group of countries dependend on oil for 52.6% of their energy, using IEA data. By 2011 this had fallen to 36%. By 2020 the figure may be 30% -  33%, although the IEA pushes the date much further forward, but under any scenario, any theory oil's energy role will be lower than today. Evidently, a high-price oil panic of today, if it comes, will be downsized and diluted relative to previous and well mythologized, less unreal, more credible panics.


Still today however we hear claims our political deciders took years to finally home in on the dire reality of our financial situation, and they will need even more years to face the dire reality of our global energy situation: read "energy scarcity". The fact is that now structurally weak, on again/off again Western economic growth over the last decade or 15 years has a sharply declining relation with energy demand, supply and prices, shown by fast declining energy intensity of economic output. Record Asian economic growth in the period 2004-2008, in particular, showed little in the way of negative impacts from oil and energy prices rising to a peak. Only in the period ending about 1985, was the then OECD-dominated global economy's growth fundamentally affected by oil prices.


The second fact is that that even if oil, of the "conventional" type will stay scarce, all other types and sources of energy are either relatively abundant or absolutely abundant: also, global energy demand growth is shrinking. In some mega regions and for unsurprising reasons, Europe for example, both energy and oil demand are on a steady downhill track, at about 2.5% a year in Europe for oil, since 2006. With much slower future demand growth, and more abundant energy sources, and more efficient energy technology, the potential for new 1970s-type oil panics are low or zero. The only rational hope for oil boomers and peddlers of oil crisis theory, today, is civil war or revolution in the Middle East, Iran bombing or unlikely inner circle Kremlin putschs with the Putin team thrown out of power.


WHAT HAPPENS IF OIL PRICES FALL TOO FAR?

The model for this is what is happening to the US energy sector because of the shale gas surge: near bankruptcy for the most exposed players like Chesapeake, and falling earnings for the biggest of all US energy coporations, Exxon Mobil, is the result. US gas prices are now suicidally low, but for a host of reasons including US energy players morphing into real estate gamblers, using drilling lease land as betting chips, the surge in US gas production will continue, now with the hope of large volume LNG exports at Asian or European prices (up to 6 times the US price of less than $3 per million BTU). To be sure, LNG export offer from a constantly mounting number of other new producers including Australia and potential new producers in a swath of countries, from Mozambique to Cyprus and Guyana, will surely trim these prices. 


The IEA's forecast global gas prices to fall 30% by 2020.


In no way ironically, global energy corporations both in the OECD and Emerging economies now need high oil prices - defined as about $75 per barrel - to offset the huge costs of developing the huge finds of "stranded" gas that continue to be made, and to maintain their oil production, at constantly rising investment costs per barrel-day of replacement capacity. Spending elasticity on oil E&P (exploration and production) by global energy companies through 2000-2012 to date is relatively predictable and logical: the most recent peak year was 2008, before falling about 33% in 2009, staying flay in 2010, and making an uncertain recovery since mid-2011. Oil prices hit a peak of $147 a barrel in 2008 before falling to $35 a barrel in 2009. Gas E&P was unrelated to this price-elastic profile, again for a host of reasons, including the sheer size of new gas discoveries, and despite the crash of gas prices in the US.

Another oil price crash will almost certainly cause another oil E&P spending crash, with the inevitable result that global oil supply will only show the slightest growth of net production capacity - and perhaps even a decline. But as already noted, global oil demand growth is now very close to zero and can dip into contraction not only through recession - but through the surge in non-oil energy supply and the rapid progress in energy saving and efficiency raising technology development and application, both in the OECD and Emerging economies. Separating which of these factors is the driver - declining supply or declining demand for oil - is a chicken and egg question.


A GREASY SLOPE FOR OIL PRODUCERS

The recent and ongoing determination of Saudi oil minister al-Naimi to "steer" prices down to about $75 for Brent, and only slightly less for WTI, signals the above arguments have been received 20/20 with this readout for producers: prices have to be brought down and held down - to prevent the retreat from oil by world energy users and consumers becoming a rout. Russia's stance on the oil price issue can be gleaned from Gazprom's Medevedev "airing the idea" that oil indexing should be dumped for global gas pricing, and gas pricing might in future be related to renewable energy prices.


The crux of the energy pricing issue is easy to summarize. Currently, prices are unrealistically wide ranging and unrelated - they will converge, not diverge further. Oil, for a short while longer still fetches $85 a barrel for WTI and near $100 for Brent, gas prices range from under $17 per barrel equivalent (boe) in the US, more than $85 per boe in Asia and close to that price in Europe, coal prices are around $30 per boe but declining, and renewable energy prices are set in the most extreme possible range from levels as low as $10 per boe to over $200 per boe.


Anybody outside the energy industry and energy analyst community looking at these prices can only scratch their head - but the future is mapped. Prices are set to converge, and oil prices have to fall. The biggest drivers of change are the energy demand side and gas-plus-renewables on the supply side. Both are in rapid change, even mutation and for renewable energy the German concept of "Energiewende" or energy transformation is the keyword.


The old time model of periodic oil panics driven by fast-growing oil demand in lockstep with fast economic growth, and occasional oil-politics crises and supply cutoffs, is disappearing from view. Global interest in and commitment to the new keywords clean energy and energy saving are of course heavily infiltrated by hype of the global warming crisis type, but the process of energy change is under way. The simplest changes in critical oil using sectors - starting with gas energy in transport - can now accelerate this process, and literally transform world energy. Taking road and marine transport, currently using an estimated 11 to 13 billion barrels-per-year (on a world total of 32 bn bbl/year), as much as 25%-33% of this could be eliminated by the 2020-2025 horizon, given the right policies, financing and commitment. The technology and infrastructure barriers are low or very low.


Unappreciated by nearly all commentators, the oil producers can only accelerate this process. If they act to maintain high prices (defined as over $75 a barrel) through production cuts and quotas this will intensify the competitiveness of energy alternatives and energy saving; if they heavily cut back on oil E&P spending this will reduce the rate of supply capacity replacement, oil supply will stagnate or fall faster than global demand, and prices will rise through the $75 ceiling. Either way, the producers accelerate the oil decline and wipeout process.


This iron logic will drive the oil-versus-other energy changeover and transition process, with sure and certain outrider signals that the logic is finally understood.


These signals already exist in growing numbers. For the past decade but accelerating since 2005, the former "oil majors", sometimes called "supermajors" and variably defined by membership (BP, Chevron Corporation, ExxonMobil, Royal Dutch Shell, Total, ENI, ConocoPhillips) have all made a gas shift shown by the simplest possible indicator: the ratio of their oil energy output to gas energy output on an annual basis. Most are now at or close to 50-50 while some like Shell now produces more than 55% of its annual energy output as gas, not oil. This process is certain to continue, at the same time as the "supermajors" and the large, growing national oil corporations in Emerging economy countries also move into coal, renewable energy, electric power production and downstream value added activities - including energy saving and substitution technology and services.


NO MORE OIL CRISIS?

This is hard to answer, but the betting is no. The current OECD-source economic recession is itself a major driver of stagnant or falling energy demand and the move away from oil, firstly through economic decline and deindustrialization, which have a major impact on oil prices. Stock exchange crises are not the friends of long term, big ticket investing in high priced oil, and asset collapses will hit oil like any other speculative commodity. When oil falls to prices of $50 or $60, the claim that we face Oil Armageddon becomes even harder to take seriously: only high oil prices can feed panic-theory.


Given that natural gas prices, outside the US will fall, coal prices are set to at best stagnate or decline, and renewable energy prices are in some cases on a steep downward slope - while global energy demand is set to grow at slower and slower rates - the potential for oil shock is low. Another oil panic is of low credibility, outside purely political driven oil crisis in the Middle East or possibly Africa.


The real crisis, for oil producers is noted above. They are set in a pincer where replacing oil production capacity lost through depletion is high cost and needs prices near $75 a barrel, but prices will rise if they take avoiding action in the shape of production limitation, and will rise if they let total oil supply fall away too fast, that is faster than global oil demand shrinks.


The ex-oil majors, rapidly becoming Gas Majors have already made a de facto choice to move away from and out of oil, despite the windfall profits when prices spike, which sets the betting to the second scenario, above, of global oil supply falling away too fast and resulting in a Peak Oil nexus of too little supply and too much demand, which the IEA sets as a major threat and likely by 2017, but this is completely dependent on the demand side holding up. What we can be sure of is that trends continued of the past are most surely and certainly not the future trends - meaning that old style oil shocks now include the surprising rate of decline in global dependence on oil and the surprising trend for oil prices going forward.


By Andrew McKillop
Contact: xtran9@gmail.com
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

Cyprus Bank Bailout Grows - Reuters

UPDATE 1-Cyprus bank bailout grows on largest bank bid

From Reuters


Wed Jun 27, 2012 7:50am EDT 

* Cyprus bank bailout bill rises


* Largest lender says needs capital support


* Island's two largest banks need to plug shortfall


* Finland says will want collateral


NICOSIA, June 27 (Reuters) - The cost of Cyprus's EU bailout to support a major bank jumped unexpectedly on Wednesday after the island's largest lender said it too needed state support to meet a regulatory shortfall in capital by June 30.


The tiny Mediterranean island became the fifth euro zone nation on Monday to seek emergency funding from Europe, with a bailout bill that could potentially amount to more than half the size of its economy. Cyprus already needs 1.8 billion euros ($2.2 billion) to help recapitalise Popular Bank, its second-largest lender.


Bank of Cyprus followed with a call for aid on Wednesday, saying it would need "temporary capital support" from the state to the tune of about 500 million euros - effectively jacking up the nation's exposure to its banks to 2.3 billion euros.


Cyprus banks have been crushed by a writedown on Greek sovereign bonds negotiated in an attempt to make Greece's debt mountain more sustainable. Bank of Cyprus and Popular recorded record losses in 2011, depleting their regulatory capital.


Combined, a 2.3 billion euro figure is a considerable chunk of Cyprus's 17.3 billion euro economy, and two euro zone sources on Tuesday put a potential bailout amount at up to 10 billion euros. The government says no amounts have been discussed. Officials from the ECB, which will carry out an assessment with the European Commission of precisely how much aid Cyprus may require, were due on the island on Monday, two sources said.


It was unclear whether the International Monetary Fund, which already has a team in Cyprus on a previously-scheduled and unrelated mission, would get involved.


PUT UP COLLATERAL, FINNS SAY


Although a 10 billion euro figure would easily be within the firepower of the European Financial Stability Facility (EFSF), it could lead to calls for collateral.Finland will demand collateral for its share in rescuing Cyprus, if the EFSF is used, Prime Minister Jyrki Katainen said on Wednesday. "If the non permanent fund is used to aid Cyprus, then yes, Finland will demand collateral," Katainen told reporters.


"In Finland's view... over some time span it could prove wise for larger European banks to have a crisis fund, which the banks would gather themselves." Cyprus kept markets guessing for weeks as to whether it would seek aid from its EU partners or resort to bilateral lending, an option which remains open and one which would supplement a bailout.


One fear in Nicosia is pressure that its low-tax status could be challenged, and unpopular austerity measures imposed with a general election in eight months. Cypriot finance minister Vassos Shiarly said any speculation on bailout conditions was premature. "I believe what we will discuss and conclude on won't be so painful as some may believe," he told state radio.

Consequences of the Euro Collapse

What will be the consequence of the Euro Collapse? One picture says it all !!


Source  : Spiegel

According to the above forecast, the immediate effect of the collapse of the euro will be:

1. Decline in economic output
2. Increase in Unemployment rate
3. Increase in consumer prices

Actually how likely will be the collapse of the Euro?

According to officials from Deutsche Bank, the ‘scenario is very likely’ and German companies are already preparing for the possibility of doing business in pesetas and drachmas again. Whatever pacts and deals will be torn apart when the Euro disintegrates.  Business contracts and deals will have to be reassessed and many companies are expected to go into bankruptcies. All of Europe will not be spared, Germany will also be much affected and is estimated to lose at least 500 billion euros and can be shown in the following chart.
  



Effects will spread like Wildfire


The effects will spread like a Tsunami Wave and according to Economists from ING Bank that “ in the first two years following a collapse, the countries in the euro zone would lose 12 percent of their economic output. This corresponds to the loss of more than €1 trillion. It would make the recession that followed the bankruptcy of investment bank Lehmann Brothers seem like a minor industrial accident by comparison. Even after five years, say the ING experts, economic output in the euro zone would still be significantly lower than normal. ”

And according to the German Finance Ministry “ in the first year following a euro collapse, the German economy would shrink by up to 10 percent and the ranks of the unemployed would swell to more than 5 million people. “

How does it affect the Companies?


One of the effect when Southern Europe countries break off from the eurozone will be the implementation of the so called trade barriers. Every country will have to protect its industries and hence tariff on imported goods will be hike tremendously. Moreover, there will be an incentive to devalue their currencies so as to make their exports more attractive. Another blow to Germany will be the reduce demand of German products due to the price hike caused by the devaluation of their currencies.
Germany will be hardest hit if the Euro collapse because it is the largest exporter to Spain and Italy and in fact most Southern Europe countries. Its exports to Italy and Spain accounted to more than 100 billion euros.

Even BMW’s CEO Norbert Reithofer warns that a collapse of the euro "would be a catastrophe," and says that he "doesn't even want to imagine it"


Anyway as of this writing (12.30 am), the Greek's Stock Index Athex Composite loss more than 7% after Greek Finance Minister resigns and Spain's IBEX dropped more than 3.8%. Talk about the 'Band Aid' effects of last week's bailout which failed to calm markets. Malaysia will not be spared either because a lot of Emerging Markets like Indonesia,Thailand,Singapore and Philippines have large borrowings from European Banks. When they start to repatriate their funds back to Europe, there will be a big hole in our financial market and the effects will be similar to the 'Hot Money' leaving our country not too long ago !

News that Matters for Week Ending 24th June 2012

News that matter for the week ending 24th June 2012

1. Starving Greeks queue for food in Central  Athens.

http://www.dailymail.co.uk/news/article-2161651/Starving-Greeks-food-thousands-politicians-finally-form-coalition-government--long-last.html

2. Is it a ‘Bank run’ or ‘Bank Transfer day’ happening in Natwest, RBS and Ulster Bank?

Or is it a harbinger of worse things to come?

http://www.belfasttelegraph.co.uk/news/local-national/northern-ireland/ulster-bank-customersrsquo-fury-as-glitch-hits-100000-accounts-16175861.html

3. Europe to launch massive  2 trillion Euro Bailout package?

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/22_Saut_-_Europe_To_Launch_Two_Trillion_Euro_Bailout_Package.html

4. Greyez : We are heading for Panic as World markets Tumble

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/21_Greyerz_-_We_Are_Headed_For_Panic_As_Global_Markets_Tumble.html

5. Turkey says jet downing cannot be ignored. Those who shorted Oil over the weekend will have a rude awakening come Monday.

http://www.aljazeera.com/news/middleeast/2012/06/20126221721460173.html

6. Mario Monti : We have a week to save the Eurozone. Are they doing another  Hank Paulson on Congress ala 2008? Another monster bailout on the way?

http://www.guardian.co.uk/business/2012/jun/22/mario-monti-week-save-eurozone

The long awaited Moody's Downgrading of the banking Sector

The long awaited Banking Sector downgrade by ratings agency has finally arrived by Moody’s today .  Due to the  ‘mark to make believe’ and instead of the normal ‘mark to market’  accounting , banks had managed to hide much of their bad debts for an such a long period. Moody’s on Thursday downgraded 15 biggest global banks by one to three notches. However Morgan Stanley and HSBC was downgraded only 2 notches instead of the original Moody’s 3 notches due to last minute negotiations.

Out of the fifteen banks 4 were downgraded 1 notch, 10 were downgraded 2 notches and 1 was downgraded by 3 notch.
The following are the summary of the downgrades.


Bank of America  Long-term senior unsecured debt to Baa2 from Baa1, outlook negative;
Barclays plc          Long-term issuer rating to A3 from A1, outlook negative 
BNP Paribas        Long-term debt and deposit rating to A2 from Aa3; outlook stable
Citigroup Inc.       Long-term senior debt to Baa2 from A3, outlook negative
Credit Suisse     Long-term deposit and senior debt rating to A1 from Aa1, outlook stable
Citibank, N.A.   Long-term deposit rating to A3 from A1, outlook stable
Credit Agricole Long-term debt and deposit rating to A2 from Aa3, outlook negative
Deutsche Bank Long-term deposit rating to A2 from Aa3, outlook stable
Goldman Sachs  Long-term senior unsecured debt to A3 from A1, outlook negative
HSBC Holdings Long-term senior debt to Aa3 from Aa2, outlook negative
JPMorgan          Long-term senior debt to A2 from Aa3, outlook negative
Morgan Stanley Long-term senior unsecured debt to Baa1 from A2; outlook negative
RB of Scotland   Long-term senior debt to Baa1 from A3, outlook negative
RB of Canada     Long-term deposit rating to Aa3 from Aa1 outlook negative
Societe Generale Long-term debt and deposit to A2 from A1; outlook stable
UBS Bank AG    Long-term debt and deposit to A2 from Aa3, outlook stable

As a result of the downgrade there will be more pressure on their borrowing cost and also there will be an increase in collateral calls.  According to Moody’s Global Banking Managing Director, Greg Bauer.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities", says Moody's Global Banking Managing Director Greg Bauer. "However, they also engage in other, often market leading business activities that are central to Moody's assessment of their credit profiles. These activities can provide important 'shock absorbers' that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges." The specific credit drivers for each affected firm are summarized below.


Today's rating actions conclude the review initiated on 15 February 2012 when Moody's announced a ratings review prompted by its reassessment of the volatility and risks that creditors of firms with global capital markets operations face. In the past, these risks have led many institutions to fail or to require outside support, including several firms affected by today's rating actions. Today's actions, however, reflect not only the credit implications of capital markets operations. They also reflect (i) the size and stability of earnings from non-capital markets activities of each firm, (ii) capitalization, (iii) liquidity buffers, and (iv) other considerations, including, as applicable, exposure to the operating environment in Europe, any record of risk management problems, and risks from exposure to US residential mortgages, commercial real estate or legacy portfolios.


The funny thing is that despite the downgrades by Moody’s, during after hours trading the shares of the following banks managed to up.

1. Morgan Stanley up by more than 3%
2. Goldman Sachs up by more than 0.3%
3. Citigroup shares up by more than 0.8%
4. Bank of America shares up by more than 1.2%

What may cause their share prices to go up? Is it because they have factored into the pricing? From what we see, the following may be one of the reasons that helped their share prices to gain.

1. Obama’s Plunge Protection Team working overtime to ensure smooth and orderly support for the share prices.
2. The bank’s own HFT (High Frequency Trading) team is also working overtime to alter the algorithms of their program to push up their share prices..
3. Maybe it is the ‘better than expected’ verdict for the 14 remaining banks that receive the less than the maximum downgrade issued by Moody’s which is 3 notches. Folks out there are probably rejoicing over this news and the banks will have more time to continue their Fractional Reserve Banking ponzi schemes.

JPMorgan Tells Other Bankers about a Pending $4 Trillion Muni Bond Time Bomb

JPMorgan Tells Other Bankers About a Pending 4 $Trillion Public Pension Bomb that is About to Explode, Keeps Public in the Dark



Posted on June 18, 2012 by Nick Sorrentino

JPMorgan recently circulated a “strictly confidential” report among leaders at the bank and with trusted hedge fund allies outside of the bank which details an impending public pension crisis. And we mean big time nastiness.

Massive cuts in services will have to happen, or massive tax increases will have to happen, or both, to keep many pensions and municipalities from going over a cliff. The politicians know that disaster is coming. JPMorgan and their hedge fund buddies know that it’s coming. The public, though it has a sense of impending doom, still doesn’t grasp the avalanche that is headed toward states and cities in the very near future.

Charlie Gasparino details in the attached article that JPMorgan did not want the information in the report to become public because it feared angering the politicians in the municipalities and states where default due to public pensions is a very real possibility. Many local politicians are lying when they tell their fire fighters and teachers that pensions are in good shape. According to what the report supposedly says these workers should probably start making alternative plans for retirement. But to say that is very messy politically.

JPMorgan didn’t want to lose its very profitable muni bond underwriting business in these same localities, which is determined to a large degree by these same lying local politicians, so this information was kept quiet.

Of course that means the blow of the hammer will be even more powerful when it finally comes down. 
(Which it sounds like will be pretty soon.)

Click Below for Gasparino’s article.


http://www.nypost.com/p/news/opinion/opedcolumnists/morgan_big_secret_DSB0O9VFZwDih1ZrjkeaAN

.
About Nick Sorrentino
Nick Sorrentino is the co-founder and edtior of AgainstCronyCapitalism.org. A writer and political consultant, he lives just outside of Washington DC where he can keep an eye on Leviathan.

Global Elites and Rothschild Bankers Thrown Out of Iceland - must read

GLOBAL ELITES THROWN OUT OF ICELAND: Iceland Dismantles Corrupt Gov’t Then Arrests All Rothschild Bankers 


June 18th, 2012 | The Meister 




Since the 1900′s the vast majority of the American population has dreamed about saying “NO” to the Unconstitutional, corrupt, Rothschild/Rockefeller banking criminals, but no one has dared to do so. Why? If just half of our Nation, and the “1%”, who pay the majority of the taxes, just said NO MORE! Our Government would literally change over night. Why is it so hard, for some people to understand, that by simply NOT giving your money, to large Corporations, who then send jobs, Intellectual Property, etc. offshore and promote anti-Constitutional rights… You will accomplish more, than if you used violence. 

Corrupt Government Thrown Out


In other words… RESEARCH WHERE YOU ARE SENDING EVERY SINGLE PENNY!!! Is that so hard? The truth of the matter is… No one, except the Icelanders, has been the only culture on the planet to carry out this successfully. Not only have they been successful, at overthrowing the corrupt Government, they’ve drafted a Constitution, that will stop this from happening ever again. That’s not the best part… The best part, is that they have arrested ALL Rothschild/Rockefeller banking puppets, responsible for the Country’s economic Chaos and Meltdown.


Last week 9 people were arrested in London and Reykjavik for their possible responsibility for Iceland’s financial collapse in 2008, a deep crisis which developed into an unprecedented public reaction that is changing the country’s direction.


It has been a revolution without weapons in Iceland, the country that hosts the world’s oldest democracy (since 930), and whose citizens have managed to effect change by going on demonstrations and banging pots and pans. Why have the rest of the Western countries not even heard about it?


Pressure from Icelandic citizens’ has managed not only to bring down a government, but also begin the drafting of a new constitution (in process) and is seeking to put in jail those bankers responsible for the financial crisis in the country. As the saying goes, if you ask for things politely it is much easier to get them.
This quiet revolutionary process has its origins in 2008 when the Icelandic government decided to nationalize the three largest banks, Landsbanki, Kaupthing and Glitnir, whose clients were mainly British, and North and South American.


After the State took over, the official currency (krona) plummeted and the stock market suspended its activity after a 76% collapse. Iceland was becoming bankrupt and to save the situation, the International Monetary Fund (IMF) injected U.S. $ 2,100 million and the Nordic countries helped with another 2,500 million.


Great little victories of ordinary people


While banks and local and foreign authorities were desperately seeking economic solutions, the Icelandic 
people took to the streets and their persistent daily demonstrations outside parliament in Reykjavik prompted the resignation of the conservative Prime Minister Geir H. Haarde and his entire government.
Citizens demanded, in addition, to convene early elections, and they succeeded. In April a coalition government was elected, formed by the Social Democratic Alliance and the Left Green Movement, headed by a new Prime Minister, Jóhanna Sigurðardóttir.


Throughout 2009 the Icelandic economy continued to be in a precarious situation (at the end of the year the GDP had dropped by 7%) but, despite this, the Parliament proposed to repay the debt to Britain and the Netherlands with a payment of 3,500 million Euros, a sum to be paid every month by Icelandic families for 15 years at 5.5% interest.


The move sparked anger again in the Icelanders, who returned to the streets demanding that, at least, that decision was put to a referendum. Another big small victory for the street protests: in March 2010 that vote was held and an overwhelming 93% of the population refused to repay the debt, at least with those conditions.


This forced the creditors to rethink the deal and improve it, offering 3% interest and payment over 37 years. Not even that was enough. The current president, on seeing that Parliament approved the agreement by a narrow margin, decided last month not to approve it and to call on the Icelandic people to vote in a referendum so that they would have the last word.


The bankers are fleeing in fear


Returning to the tense situation in 2010, while the Icelanders were refusing to pay a debt incurred by financial sharks without consultation, the coalition government had launched an investigation to determine legal responsibilities for the fatal economic crisis and had already arrested several bankers and top executives closely linked to high risk operations.


Interpol, meanwhile, had issued an international arrest warrant against Sigurdur Einarsson, former president of one of the banks. This situation led scared bankers and executives to leave the country en masse.
In this context of crisis, an assembly was elected to draft a new constitution that would reflect the lessons learned and replace the current one, inspired by the Danish constitution.


To do this, instead of calling experts and politicians, Iceland decided to appeal directly to the people, after all they have sovereign power over the law. More than 500 Icelanders presented themselves as candidates to participate in this exercise in direct democracy and write a new constitution. 25 of them, without party affiliations, including lawyers, students, journalists, farmers and trade union representatives were elected.
Among other developments, this constitution will call for the protection, like no other, of freedom of information and expression in the so-called Icelandic Modern Media Initiative, in a bill that aims to make the country a safe haven for investigative journalism and freedom of information, where sources, journalists and Internet providers that host news reporting are protected.


The people, for once, will decide the future of the country while bankers and politicians witness the transformation of a nation from the sidelines.

Are Stocks Under Performing the Index? Case Study - Indonesia

There is always a belief that by holding Defensive Stocks or Blue Chips will enable you to weather the storm during a Financial Crisis. What we will do now is to build a case on whether holding on to stocks will outperform the Market Index. To do this we will use the Global Financial Crisis in 2008 as a backdrop in our study. We will be using the Jakarta Stock Exchange as a Case Study our study will be based on the following assumptions.

1. Period of comparison is from the 2007 High to Current value.
2. Stocks in study will be the 10 largest listed companies in the JSX as of 2010
3. Stock  split and bonus are taken into account

Our mission will be to compute the performance of the top 10 index linked companies in the Jakarta Stock Exchange. As indicated by Index linked stocks, we mean that the performance of those stocks in question will be closely linked to the movement of the Jakarta Composite Index.



How do we compute the Index performance?


What we will do is to get the high of the JCI during 2007 which was set on 12th December 2007 which is 2818 points and the current (15/06/2012) level of the Index which is at 3818 points. The reason for using the High of 2007 is because we want to find out how much the current Index level had improved since then. Below is the monthly chart for the Jakarta Composite Index. To compute the performance of the Index we will use the following formula.





(Current Level-Previous Level/Previous level) x 100

Which will lead us to the following.  (3818-2818/2818) x 100 = 35.5%

That means that the Jakarta Composite Index have recovered from the high of 2007 and managed to outperformed it by 35.5%. So obviously when we want to measure the performance of individual stocks, it must outperform the index by at least 35.5% since we are using index linked stocks where their performance is ‘closely hugged’ to the movement of the Index. That means if there is a 5% gain in the index for a given year, the index linked Stocks should be up by at least 5%  if they are to outperform the index.


Table for Stock Performance from 2007 – 2012

	Top 10 largest listed Companies in Indonesia as of 2010
		A	B = A x 35.5%	C	D= (B-C)/B x 100	Return on the
Ranking	Company	1997 High	1997 High x 135.5%	Current Price	Performance  %	1000 Rp Invested
1	Telekom Indonesia	12800	17280	7900	-54	460
2	Bank Central Asia	3175	4286	7100	65	1650
3	Bank Mandiri	4050	5467	7000	28	1280
4	Bank Rakyat Indonesia	4350	5894	5950	1	10
5	Bank Negara Indonesia	2858	3872	3725	-9	910
6	Bumi Resources	8750	11812	1080	-91	90
7	Bank Danamon	5554	7497	5850	-22	780
8	Perusahan Gas Negara	3400	4590	3400	-26	740
9	Semen Gresik	6250	8468	11100	31	1310
10	Bukit Asam	12800	17289	13350	-22	780
				Net Return Performance		8090

Index Linked Stocks Under-Performed the Index

As you can see from the above Table, if you have invested Rp1000 on the above 10 counters during Dec 2007, the return you will get on 15/06/2012 is – 19.1%. Your total investment of Rp10000 will only yield Rp8090 which is a loss of Rp1910. So what we can conclude is that even though the index went up by 35.5% but the index linked stocks still UNDER-PERFORMED the INDEX throughout that period.


Compare to other Investments?


So how about other alternative investments? One of the best comparisons will be the Money Market fund. By Money Market we mean funds that are park at Stock Market accounts in Broking Firms. Indonesian money market pays pretty well and it can be in the vicinity of 9-10%. Ciptadana Sekuritas used to pay about 9% per annum for their Money Market account until the Indonesian Government stop Broking firms from accepting deposits recently.


Again using our same Rp10000 as the base investment so how much better would it compared to stock market investment from the time period in 2007 till 2012? To calculate the future returns on the present value of RP10000 we will use the following formula.


FV = PV(1+i)t  where

FV = Future Value
PV = Present Value
I     = Interest rate – 9%
T     = time period – 5 in this case


So the FV = 10000(1+0.09)5 = Rp15386.24


Hence, we can deduce that during that period of analysis in Indonesia, the Money Market return (Rp15386.24) is better than the Stock Market return (Rp8090).


Why is this so?

The following offers some explanation on why Stocks tends to Under perform the Market Index.

Firstly, new stocks are added every year through IPO. At the meantime old stocks that are not performing or went into bankruptcy are delisted from the exchange. There are more new stocks added to the list than being taken out and hence the list of stocks grows every year. The Darwinian Law on survival of the fittest also applies to the stock market. Hence every year bad and poorly performed stocks are taken out of the list and new and healthy ones are added to the list.

If you look back at the records of Dow Jones for the last 100 years, less than 3% of the stocks managed to maintain their original name. For the past 50 years only less than 10% managed to do that. What does this tells us? A lot of the companies did not survive intact throughout the years, many of them either delisted, gone during a Merger, Acquisition or being Takeover exercise. And again along the way many new stocks are added while old ones are pushed out from the list.

This is one of the main reason why the stock market is always going up.

Secondly, the Composite Index is made up of only a handful of Stocks. Like the Dow is made up of 30 stocks, Malaysia's KLCI has 30 and so on. Normally these stocks have large market capitalization and hence also their weightage on the Index. Again it is the same old story, ‘not performing or tired’ stocks are taken out of the group and new ones are added into it. So this can be regarded as cheating and they can do continue doing this as long as the index keep going up.

This is also similar to Hedge Funds when they apply survivorship bias in their reporting. Since they are not under the jurisdiction of the Securities Exchange they are not required to report to them. In other words, they are free to cook their books. Under perform quarterly figures are discarded from their annual reporting and hence their reporting is always better than their actual performance.

So why do they want the market to go up? In my earlier article I mentioned that an overvalued market benefit everyone from the stock brokers to the politicians. Only us suckers got squeezed in the end because when the music stops, we are the ones will be the last to leave the party.

Thirdly, we only have ourselves to be blamed. Due to the propaganda by the market promoters and propagandist from the corporate mainstream media we are more or less afflicted with a disease called ‘Normalcy Bias’.

Normalcy Bias refers to a situation where the mental state of the people failed to estimate the possibility and effects of a disaster that is looming. When facing a stock market crash instead of taking evasive action to cut loss we tend to focus on the unexpected event and enter into a state of paralysis. It is normal for investors to be overwhelmed by losses and hence failed to do the right thing and that is to get out of the market. This is because we are constantly fed with ‘good and soothing’ stories by the mainstream media and condition our mind to accept that things are always in good hands and order. Consider the following quote,

"The man who never looks into a newspaper is better informed than he who reads them; in as much as he who knows nothing is nearer to the truth than he whose mind is filled with falsehoods and errors." – Thomas Jefferson


Where is the Problem?

The main problem is OURSELF. Why? Because we did not bother to TIME the market because we always believed that the market will always deliver and hence let nature takes its course. In other words we didn’t sell when the market says SELL and we just hang on with the Investments. When the next Downturn comes around, you will find that not only your gains will be wipe out but worse still it will result in a negative return on your capital as shown by our example above. So we must learn to TIME the market. Sell when you need to and buy back later at an appropriate price.

As for an illustration we shall take Telekom Indonesia as an example. The following is the weekly chart for the Telekom Indonesia from the period 2007 – 2012.




I have already  marked the BUY signal using the Green circles and SELL signals using the RED circles. As you can see from the chart there are three different opportunities for you to greatly increase your return by selling when the price goes above the 70% line in the RSI and buy when it goes below the 30% line in the RSI.


This represents only one of the simpler method you can trade the market, however as you go along you will find that you need much more complex tools to study the market more professionally. Eventually you will need to understand support and resistance, rebounds and declines percentages, pivot points, market turning indicators, time series and many more if you want to improve your trading techniques.

Trading in markets is never an easy task as many perceived, you need to put in a lot of effort and you need sweat blood over your analysis. It is not like launching a ‘fire and forget’ Exocet missile because in financial markets there is nothing such as ‘buy and forget’ kind of strategy. You will need to manage, monitor and also rebalances your portfolio every now and then.

As for myself, I am monitoring over 17 Global Stock Exchanges and 2 Futures Exchanges and spend many hours in reading apart from writing more than 20 articles a month. This is because due to the nature of financial markets which is affected by tens if not hundreds of variable and ‘Change is the only Constant’, we need to constantly update ourselves. This is also due to the fact that financial markets today are more closely linked to world events than before. A drop of 500 points in the Dow overnight will surely affects Asian Markets when they open the next morning and similarly a huge drop in corn prices in the Futures Market will surely affect American corn farmers in the days and weeks ahead.

Currently we had started using Spectral Analysis where its approach to the market is similar to Fourier Transform. Geologists have long been using Spectral Analysis to analyse data from their oil drilling operations with great accuracy. Fourier Transform is also being used to analyze vibrations in aircraft wings by studying the pattern of its Sine wave.


Both of them can be used to study the Stock Market's Sine Wave movement to determine actual entry and exit points. The advantage of using Spectral Analysis in analyzing Financial Markets is that it needs less data to achieve better accuracy and results. So that means we can use Spectral Analysis for stocks that have less than 3 years of historical data.  


It is known that movements in most Financial Markets mimics the Sine Wave with peaks and valley quite evenly distributed. So our next objective is to use the correct tools to help us identify the ‘Soft Spots’ in these peaks and valley that will greatly improve our timing in the entry and exit points. Identifying these soft spots is akin to Tennis Players trying to hit the ball on the soft spots (located at the center of the racket) in their racquets. These peaks and valley are our soft spots for entry and exit points in the markets. It can be shown by the following.


Eventually the ultimate aim for any Stock Market Trader is to reach a Trading Mastery level where we call it the ‘ZEN of TRADING’. When you had reached such a level you are able to approach the Stock Market with a peaceful and tranquil mental state. You are able to predict Financial Market movements with great accuracy.