Mish's Global Economic Trend Analysis

Natural Gas Hoarding in Europe Thanks to US Sanction Proposals; Boehner vs. McCain; LNG the Solution
Texas Democrat Senatorial Candidate Wants to Impeach Obama, End Obamacare; Other Interesting Primary Results
Russia Has Upper Hand in Ukraine, No Meaningful Sanctions Coming
Political Gambit of the Day: Obama Opts for Two-Year Renewal for Old Health Plans
China Composite Output and New Orders Both Fall for First Time in Seven Months

Natural Gas Hoarding in Europe Thanks to US Sanction Proposals; Boehner vs. McCain; LNG the Solution

Posted: 05 Mar 2014 05:24 PM PST

US sanction proposals against Russia coupled with immediate Russian counter-threats against European interests led to an easily predictable result: natural gas hoarding.

Bloomberg reports Europe's Russia Gas Imports Jump to 3-Week High as Buyers Hoard.

European utilities boosted imports of natural gas from Russia to the highest level in three weeks even as storage remains at record-high levels amid the mildest winter since 2007.

Russia shipped 493 million cubic meters of gas to Europe, excluding the Baltic States, on March 3, the highest level since Feb. 10, Energy Ministry data show. Storage sites in the region are 47 percent full, 12 percentage points above the same time last year and the highest since at least 2008, according to Gas Infrastructure Europe, the Brussels-based lobby group.

U.K. gas prices jumped the most in 29 months on March 3 as Russia took control of the Crimean peninsula in Ukraine, which transits about 15 percent of Europe's use, before paring gains the next day after President Vladimir Putin said there was no immediate need for military action. Bulgaria and Serbia, which suffered shortages in the past decade amid disputes between Russia and Ukraine, are pumping gas into storage.

LNG Demand

Russia's intervention in Ukraine will boost LNG demand from European countries eager to diversify supplies, according to Sveinung Stoehle, the Chief Executive Officer of Hoegh LNG Holdings Ltd., which will deliver the first LNG import terminal in the former Soviet Union to Lithuania in August.

The U.S. will begin LNG exports next year from Cheniere Energy Inc. (LNG)'s Sabine Pass facility in Louisiana, the first of six Energy Department approvals since 2010. There are at least 24 more projects pending clearance. The U.S. should "dramatically" expedite the approval of its gas exports to global markets, House Speaker John Boehner, an Ohio Republican, said March 4.

Import Dependency on Gazprom

Here is an interesting image from reader Arthur on European dependencies on the Russian natural gas supplier Gazprom.

The chart is from Gazprom and Morgan Stanley.

It is mathematically impossible to be more than 100% dependent on a supplier, at least over the long-term. Certainly, for short periods of time imports can exceed usage, but over the long haul they cannot.

That said, I do not know the timeframe for the chart. It's possible the chart is reflective of recent hoarding.

Regardless, the chart shows the huge dependencies some European countries have for Russian natural gas.

Boehner vs. McCain

In regards to Senator John McCain's proposal to sanction Russia and place missiles in the Czech Republic as the solution to the Ukraine crisis, I suggest that Speaker Boehner is thinking clearly but McCain isn't.

Please see Russia Has Upper Hand in Ukraine for discussion.

LNG the Solution

If natural gas is a huge problem (and it is), then additional supply from other sources, not counterproductive sanctions is the solution.

Let's reduce German and European need for Russian natural gas. Do that and the Russian hold on Europe will diminish.

Free market capitalism beats threats of nuclear war any day of the week.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Texas Democrat Senatorial Candidate Wants to Impeach Obama, End Obamacare; Other Interesting Primary Results

Posted: 05 Mar 2014 02:45 PM PST

Here's a story too funny to not report.

In a field of five, no Democrat senatorial candidate received 50% of the votes in yesterday's Texas primary. As a result, Kesha Rogers is in a runoff with David Alameel on May 27.

Rogers will not stand a chance in the runoff as the party will do everything to stop her because her views are "Democratically bizarre" to say the least.

According to The Hill ...

Rogers supports impeaching President Obama, repealing ObamaCare and "crushing Wall Street." She also advocates the reinstatement of the Glass-Steagall Act to limit securities trading, and has a detailed plan for space exploration and harnessing thermonuclear fusion energy. In the past, she's drawn Hitler mustaches on Obama posters and likened ObamaCare to practices of Nazi doctors.

Other Interesting Texas Primary Results

In the Texas GOP primary 95% want welfare drug testing and 97% want to repeal Obamacare.

Thoughts on Welfare Drug Testing

Welfare drug testing is the wrong way to go. The last thing we need is another government program to do anything.

I expect it would cost more to administer than it would save in reduced payouts. Besides, it would hurt kids in poor families whose parents happen to be using drugs.

Instead, I make a commonsense proposal on food stamps.

Mish SNAP Proposal

Prohibit food stamp purchases of potato chips, snacks, soft drinks, candy, pizza, frozen foods of any kind except juice.
Limit food stamp users to generic (store brand vs. name brand) dried beans, rice, peanut butter, pasta, fresh vegetables, fresh fruit, frozen (not bottled) juice, canned vegetables, canned soup, soda crackers, poultry, ground beef, bread, cheese, powdered milk, eggs, margarine, and general baking goods (flour, sugar, spices).
Calculate a healthy diet based on current prices, number in the family, ages of recipients, and base food stamps allotments on that diet.
In the interest of health and cleanliness, expand the food stamp program to include generic soap and laundry products.

My proposal will not only lower the cost of the food stamp program, the resultant healthier diets would lower Medicaid and Medicare costs as well.

Moreover, my proposal would give people a strong incentive to get off the food stamp program without intrusive, costly big-brother ideas like drug testing which cannot possibly work for the simple reason that anyone who fails will steal to get food rather than starve.

For further discussion, please see States Circumvent Food Stamp Cutbacks; Draconian Cuts "Much Ado About Nothing"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Russia Has Upper Hand in Ukraine, No Meaningful Sanctions Coming

Posted: 05 Mar 2014 12:57 PM PST

Will there be any meaningful sanctions against Russia for invading Crimea? The answer is no, and a comparison to Iran will show why.

It was easy enough to impose sanctions on Iran because there was no meaningful trade with Iran other than oil. And global oil supply can come from anywhere.

Secondly, and unlike the US which has little trade with Russia, Germany, the UK, and other European countries do have meaningful trade with Russia.

Finally, Germany gets 30% of its natural gas supply from Russia. Impose severe sanctions and Russia can shut down those supply lines, most of which happen to run through Ukraine.

Obama can pretend to put down a tough stance, but don't expect any meaningful reaction globally. Events are already firming up along those lines.

UK Says No to Sanctions

Two days ago the Guardian reported secret documents photographed outside No 10 Downing Street [the Prime Minister's Office] state that 'London's financial centre' should not be closed to Russians.

The picture of the document was taken by the freelance photographer Steve Back, who specialises in spotting secret documents carried openly by officials entering Downing Street. The document was in the hands of an unnamed official attending a meeting of the national security council (NSC) called by the prime minister to discuss the Ukrainian crisis.

The document said Britain should:

• "Not support, for now, trade sanctions … or close London's financial centre to Russians."

• Be prepared to join other EU countries in imposing "visa restrictions/travel bans" on Russian officials.

Former US presidential candidate Senator John McCain said he was "disappointed" by the UK's position and said European countries were "ignoring the lessons of history".

Asked if it was right to avoid such sanctions, he said: "Of course not. I am not astonished, to be very frank with you. Disappointed, but not astonished."

McCain Wants Missiles in Czech Republic

I am disappointed but hardly astonished that McCain's solution is to put missiles in the Czech Republic.

Splits Emerge in West's Stance on Russia

Today, the Financial Times reported Splits Emerge in West's Stance on Russia.

The west's diplomatic efforts to counter Russia's takeover of Crimea faced setbacks on multiple fronts on Wednesday as the Kremlin refused to engage with the new Ukrainian government and allies themselves were at loggerheads over how tough a line to take with Moscow.

The refusal of Sergei Lavrov, the Russian foreign minister, to meet his Ukrainian counterpart cast a shadow over talks in Paris, the US and Russia's first top-level meeting since the crisis intensified last week.

At the same time, a US-led push for allied agreement to impose sanctions on Russia also faltered with the strong resistance of Germany, which was prepared only to cut off visa liberalisation and trade agreement talks with Russia.

Natural Gas and More

"They're afraid if we do something the Russians will hit back," said a senior EU official involved in summit planning.

You bet. The fear goes beyond natural gas.

Andrei Klishas, a Russian senator, said he was preparing countermeasures which could come into effect if sanctions were imposed on Russia.

The proposed legislation "would allow us to freeze the assets of European and American companies – including private ones – working in our country," he told the pro-Kremlin newspaper Izvestia.

There would be serious repercussions to McCain's idea of sanctions coupled with placing US missiles in the Czech Republic. And how would McCain pay for those missiles? He does not say.

Either McCain cannot think clearly, or worse yet he can and would welcome another global war.

Culture of Engagement

Also consider Ukraine crisis tests Berlin's new 'culture of engagement'.

German chancellor Angela Merkel on Thursday faces the first test of a new foreign policy sketched out by her ministers in recent weeks; a "culture of engagement" intended to replace Germany's postwar "culture of restraint".

But while Berlin has played a more active role in the west's response to Ukraine, the debate over how to react to Russia's troop deployment there has illustrated the limits of Germany's new assertiveness.

With deep commercial ties to Russia, Germany has been a leading voice against sanctions. There is no backing in Berlin for measures that go beyond the suspension of talks on a Russia-EU trade agreement and visa liberalisation.

Germany is also arguing that any western aid to Kiev should come with tough economic conditions, supervised by the International Monetary Fund. It has opposed Polish efforts to accelerate the signing of the EU-Ukraine free trade agreement, partly out of fear of further irritating Vladimir Putin, Russian president.

German business leaders point out the US has far less to lose from sanctions – American companies account for 3.8 per cent of Russian imports, compared with a share of nearly 10 per cent for German business.

Germany is deeply dependent on Gazprom for its energy needs. It is the single largest buyer of Russian natural gas. More than a third of Germany's gas imports came from Russia in 2012, according to government data.

Sympathy for Russia is widespread. Even conservative and habitually pro-American newspapers such as Die Welt have carried editorials warning against "demonising" Moscow. "The west should hug Putin," was the headline.

Meaningful sanctions? Forget about them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Political Gambit of the Day: Obama Opts for Two-Year Renewal for Old Health Plans

Posted: 05 Mar 2014 10:46 AM PST

In a desperate, and likely futile attempt to stem losses in the November mid-term elections Obama Said to Allow Two-Year Renewal for Old Health Plans.

Americans who kept health plans that don't comply with Obamacare requirements will be able to renew those policies for two more years, according to a person familiar with the matter.

The Obama administration, which has been deliberating the issue since November, is expected to announce today the extension of the health plans, said the person, who asked not to be identified because the decision wasn't yet public.

Insurers sent letters to policyholders canceling the health plans as the new government exchanges opened Oct. 1. The letters caused a political headache for President Barack Obama, who had promised during the debate on the Patient Protection and Affordable Care Act that people who liked their health plans wouldn't have to change them. About 2.6 million Americans received the cancellation notices, according to a study published March 3 by the journal Health Affairs.

"It's clearly been a damaging gaffe that the president doesn't want to hang around the neck of fellow Democrats this fall," John Gorman, the executive chairman of Gorman Health Group, a Washington consulting firm, said in a phone interview.

Allowing people to renew old health plans may mean that some young and healthy Americans won't have to sign up for plans in the Affordable Care Act's exchanges, leaving a sicker and older population of customers.

"Exchange enrollment will be lower than expected," Brian Wright, an analyst with Monness, Crespi, Hardt & Co. Inc. in New York said by e-mail.

One consequence of Obama's policy may be that insurers in the exchanges, faced with sicker customers than they expected, will have to draw more heavily on federal programs intended to limit their financial losses.

The Obama administration said yesterday that one such program is expected to payout about $5.5 billion to companies that lose money on their exchange business next year. While the program, called risk corridors, is supposed to be fully funded by taking money from insurers who turn a profit on the exchanges, there may not be enough plans in the black.

"It does mean that they'll be tapping more into that pool of money to backstop some of the losses, I would think," Ana Gupte, an analyst at Leerink Partners in New York, said in a phone interview.

People who stayed on old plans, which don't carry the Affordable Care Act's consumer protections, are believed to be younger and healthier in general than people on exchange plans. The insurer Humana Inc. (HUM) said in January that its exchange customers would be sicker and older than it expected in part because Obama allowed renewals of old plans.

Allowing the plans to be renewed "is sort of anathema to the rest of Obamacare," Gorman said. At least 28 states allowed plans to be extended under Obama's policy, according to the Commonwealth Fund, a New York foundation that studies health policies.

Don't Expect Insurers to Follow

Although 28 states allow plan extension, insurers will not necessarily follow. Once plans are cancelled there are regulations, procedures, and costs associated with bringing those plans back. Then the plans will go away in two more years anyway.

Although cancellations only affected a small number of people percentage-wise, that still amounts to 2.6 million unhappy voters.

Millions of others are unhappy their costs went up.

Of course some are happy their costs went down, but the overall effect of Obamacare is that some small number of people are way better off, with a far larger number of people who are somewhat to way worse off.

This does not bode well for Democrats in the mid-term election.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

China Composite Output and New Orders Both Fall for First Time in Seven Months

Posted: 05 Mar 2014 12:06 AM PST

Signs of a global slowdown continue. The HSBC China Services PMI shows China Composite Output and New Orders Both Fall for First Time in Seven Months.

HSBC China Composite PMI ™ data (which covers both manufacturing and services) signalled a contraction of private sector output in China, following a six-month sequence of growth. That said, the rate of reduction was fractional overall, as signalled by the HSBC Composite Output Index posting at 49.8 in February down from 50.8 in January.

Staffing levels declined at manufacturing companies again in February and at the quickest rate in nearly five years. In contrast, service sector firms expanded their payroll numbers for the sixth month running. However, service sector firms were more cautious toward s taking on more staff, as the rate of job creation eased to a five-month low. Consequently, employment levels fell modestly at the composite level.

Backlogs of work decreased across both the manufacturing and service sectors in February. Though only slight, it was the first reduction of work-in-hand at goods producers since July 2013. Meanwhile, outstanding business at service providers fell at a moderate pace that was the quickest in a year. As a result, unfinished business declined marginally at the composite level.

Comment

Commenting on the China Services and Composite PMI™ data, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said: "The HSBC China Services PMI suggests that service sector growth seems to be stabilising at a relatively low level. However, combined with the weaker manufacturing PMI, the overall strength of economic growth is moderating and this is starting to weigh on employment growth. Beijing policy makers can and should fine-tune policy to avoid growth deceleration in the first half of the year."

Comment on the Comment

The comment by Hongbin Qu is ridiculous for two reasons. First and foremost, the idea that central banks can fine-tune anything is ridiculous. History proves just that.

Second, even if central banks could assure short-term growth, it is always at an expense. Hongbin Qu ignores that expense.

If anything, China has overinvested in everything from vacant houses, to vacant malls, to vacant shopping centers, to unused trains and airports. To prevent further malinvestments, China actually needs to slow (and it will).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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5.3.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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