Mish's Global Economic Trend Analysis |
- Oil Collapses to Six-Year Low, Brent Crude Hits Parity with West Texas Intermediate; Keystone Connection?
- Steen Jakobsen Warns "Euro is Not a Good Idea and ECB About to Make Biggest Mistake in History"
- Bright Light Shines on Medicare Fraud; Is There an Easy Way to Stop Fraud?
| Posted: 13 Jan 2015 03:23 PM PST In late 2011, Brent traded with a huge 40% premium to West Texas Intermediate (WTI). The spread collapsed to parity in July of 2013, but surged to a 22.5% premium late last year. The spread went negative again today, but a late day rally in Brent vs. WTI saved the day for Brent as the following chart shows. Price of Brent Divided By Price of WTI  click on any chart for sharper view Price of Brent vs. Price of WTI  Betting on the Return of WTI-Brent Parity The Financial Times spoke of Betting on the Return of WTI-Brent Parity back on October 20, 2011. The reason given at the time seems rather amusing today - expectation the Keystone pipeline would be completed. The price difference between West Texas Intermediate and Brent crude reached a record high of more than $28 a barrel earlier this month. But, almost unnoticed, the market has started to price a return to the parity between the two benchmarks in five years.Keystone Pipeline Synopsis Some pieces of the Keystone Pipeline Project are completed, but President Obama has sat on others.  Keystone Phases
The first two phases have the capacity to deliver up to 590,000 barrels per day of oil into the Mid-West refineries. Phase III has capacity to deliver up to 700,000 barrels per day to the Texas refineries. By comparison, U.S. oil production was about 9,000,000 barrels per day in early November, 2014; and in the preceding twelve months through August 2014, the US imported an average of about 7.5 million barrels of oil per day. The Keystone XL proposal faces criticism from environmentalists and a minority of the members of the United States Congress. In January 2012, President Barack Obama rejected the application amid protests about the pipeline's impact on Nebraska's environmentally sensitive Sand Hills region. TransCanada Corporation changed the original proposed route of Keystone XL to minimize "disturbance of land, water resources and special areas"; the new route was approved by Nebraska Governor Dave Heineman in January 2013. On April 18, 2014 the Obama administration announced that the review of the controversial Keystone XL oil pipeline has been extended indefinitely, pending the result of a legal challenge to a Nebraska pipeline siting law that could change the route. Senate Advances Keystone Yesterday the Huffington Post reported Senate Advances Bill To Approve Keystone Pipeline Despite Obama's Veto Threat. The Senate advanced legislation Monday night to approve the Keystone XL pipeline, even though President Barack Obama has already said he would veto it.Speculation Synopsis The primary reason many gave for the price discrepancy between Brent and WTI was the Keystone pipeline. That's a questionable proposition given pipeline capacity of 700,000 barrels per day vs. US production of about 9 million barrels per day in early November, 2014 with the US still importing an average of about 7.5 million barrels per day. Obama Threatens Keystone Veto The House voted 9 times in 2014 for the XL project, but every time passage was held up in the Senate. Obama put XL on hold pending a review by the Nebraska Supreme Court. Now that the Nebraska Supreme Court OK'd Keystone, President Obama issued a Formal Position saying he "strongly" opposes the bill. Thus, Obama's true position all along comes to the forefront: He never wanted to approve XL in the first place. Instead he hoped that Nebraska would kill XL for him. Now, forced to take a position, Obama promises to veto the bill. Weak Demand Since 2012-02-25, the price of crude is down from $128.40 to $46.81. That's a decline of 63.5%! Whatever fundamental or speculative reason there once was for the sometimes huge price discrepancy between Brent and WTI is now gone. What remains is oversupply coupled with solid evidence of a hugely slowing global economy led by Asia and Europe. The US will soon follow. For further analysis of the supply-demand setup, please see What's Behind the Plunge in Oil? Winners and Losers? Boon to Spending or Recessionary? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Steen Jakobsen Warns "Euro is Not a Good Idea and ECB About to Make Biggest Mistake in History" Posted: 13 Jan 2015 11:58 AM PST Saxo Bank CIO and chief economist Steen Jakobsen warns the US is not Europe, the Euro is not a good idea, and the ECB is About to Make Biggest Mistake in History. Via Mish-modified translation from El Economista. Steen Jakobsen has never been less outspoken regarding historic moment that is about to live the Eurozone. He explains his particular vision of the economy, bluntly. This morning, visiting Madrid, Jakobsen warned that quantitative easing (QE), printing money to buy government bonds, will be the biggest mistake of the European Central Bank, making matters worse."Full-Board Bingo" That's a "full-board" European bingo, with every square covered. The euro cannot and will not work because it's fatally flawed as I have noted for years. Fatal flaws include no fiscal union, wildly differing social agendas of member states, wide variances in productivity, wage discrepancies, and retirement benefit discrepancies. Those problems make it impossible to conduct monetary policy. The "Target2" system of payments is icing on the fatally flawed cake. (See Eurozone Target2 Imbalances Rise Again, Led by Italy). Finally, I maintain QE did not work in the US either, unless "work" means creating one of the biggest equity bubbles in history coupled with the absolute biggest junk bond bubble in history. Nothing Fixed Anywhere It's not just Europe. Nothing has been fixed anywhere. Bernanke says letting Lehman fail was his biggest mistake. What a bunch of nonsense. Lehman failed in every sense of the word. In effect, Bernanke wanted to bail out a failed institution at taxpayer risk and expense. The markets need to purge excesses. Instead, central banks refuse to allow just that, blowing bubbles of increasing amplitude over time in the wake. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Bright Light Shines on Medicare Fraud; Is There an Easy Way to Stop Fraud? Posted: 12 Jan 2015 11:58 PM PST At long last, a bright light shines on something I have been discussing for years - Fraud. Investigators now use data mining tools to claw back billions stolen by crooked doctors and clinics. The Financial Times reports Big Data Diagnoses Medicare Fraud. Late on an April evening in 2010, agents with the Federal Bureau of Investigation broke into a medical clinic in Bath Beach, Brooklyn, an area popular with Russian immigrants. Once inside, they installed a hidden camera in an air-conditioning vent in the ceiling directly above a desk.Data Mining Questions Why does fraud take years to prove? And why the slow start? Data mining was launched as an experiment in 2007 in Miami, a hotbed of healthcare fraud. The DoJ, the FBI and the Department of Health and Human Services' office of inspector-general wanted to see if data could be as good as a human at rooting out fraudsters. "You might see one medical equipment provider getting referrals for 500 wheelchairs from the same doctor, or a home health agency that's getting 60 per cent of its referrals from the same doctor," says Leslie Caldwell, chief of the DoJ's criminal division. "A lot of this can be gleaned from the data."That paragraph belongs in the "duh?" category. Nonetheless, Leslie Caldwell, chief of the DoJ's criminal division claims "The idea of using real-time data to generate fraud cases is unique," she said. Unique to whom? Google uses real-time data every second to deliver ads. One might not expect Government to react so fast, but what we have seen so far is glacial. What About Disability Fraud? And what about other types of fraud? I have written about disability fraud at least a dozen times. Here are a few key samples. October8, 2013: Mainstream Media Finally Catches on to Disability Fraud: 60 Minutes Reports on "Disability USA" January 7, 2014: 102 Police and Firefighters Caught in Disability Scam September 11, 2013: States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There? March 27, 2013: Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide; A Simple Solution Please read the preceding two links if you have not done so. States actually have an incentive to promote fraud, and they do just that. Hale county is preposterous. Fraud will continue until the expectation is that it will be caught and prosecuted. Easy Way to Stop Fraud? Is there an easy way to stop fraud? Of course there is. All Congress need do is pass a law that ...
Fraud would drop 80% in a month. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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