12/11/17

The Economy Added More Jobs Than Expected

By: Kent Engelke | Capitol Securities

The economy added more jobs than forecast in November and the unemployment rate held at almost a seventeen year low, the result of more workers entering the workforce. Because of these additional workers, wage gains were nominally lower than forecasted.

Last week I wrote about the labor participation rate (LPR) which remained unchanged at 62.7%. here is a vast pool of potential workers that may perhaps slow wage gains as the workers reenter the work force. November’s data indicated there was a 148,000 increase in the labor force.

This vast pool of potential workers may befuddle economists who are predicting greater wage gains with a low unemployment rate. Can an argument be made this structural change is not reflected in analysts’ outlooks? I would argue yes.

Regarding hours worked, which is a precursor to wage gains, there was slight increase to 34.5 hours from 34.4 hours of the prior month. Consensus had expected a 34.4 hourly workweek.

The data all but guarantees the Federal Reserve will increase interest rates this week and fourth quarter growth over 3% for the third consecutive quarter, the longest stretch of 3% growth since 2004.

Markets were generally higher on the news. Momentum growth outperformed.

This week the economic calendar is comprised of various inflation indices. Moreover, there is Wednesday’s Fed meeting, a meeting where it is almost a forgone conclusion that rates will rise.

Last night the foreign markets were mixed. London was up 0.47%, Paris was down 0.12% and Frankfurt was up 0.02%. China was up 0.98%, Japan was up 0.56% and Hang Sang was up 1.14%.

The Dow should open flat. The 10-year is up 2/32 to yield 2.37%.

11/28/17

Meet The World’s Most Powerful Bitcoin Backers

Cryptocurrency may be one of the biggest threats to governments, security and the entire financial system that we’ve ever seen. It can help fund terrorism and its anonymity makes it almost impossible to track. Most importantly, it is poised to revolutionize global finance and banking.

But our new Enemy No. 1 can’t be fought; it can perhaps be controlled. Banks have figured that out and are bringing crypto currency into the fold.

The superpowers—U.S., China and Russia–will have to face the new reality. They love to hate it and hate to love it. Regardless, if they don’t embrace it, they won’t be able to control it. An enemy you don’t control is a much bigger threat.

So, welcome to the new balance of power, funded by cryptocurrency.

“This will ‘uberize’ banking to the extent that the major banks are spending billions to get into this Blockchain, says Frank Holmes, legendary gold investor, CEO of US Global Investors and Chairman of HIVE Blockchain Technologies (TSX:HIVE.V), the first public company where investors can participate in the build-up and infrastructure of crypto-mining.

“Bitcoin is the catalyst for crypto-mining the way emails were for the Internet. When we first heard about the Internet it was for the ‘dark world’, but with email, it exploded and became mainstream. Ethereum takes crypto-mining further with smart contracts,” Holmes told Oilprice.com

The Period of Uncertainty is Over

Russia is embracing it, with an eye to dominating it. China has banned it. The U.S. is struggling to figure out how to regulate it. But nothing can hold it back.

And now, many believe the uncertainty is over.

China tried to ban it in September, making it illegal for residents to trade in cryptocurrencies or start-ups to raise funds through ICOs, completely shutting down local cryptocurrency exchanges.

Bitcoin’s price plunged 40 percent. Then it recovered almost immediately.

This was a reminder that cryptocurrency is an autonomous system that can’t be knocked out.

“The ethos behind blockchain has been tested,” Ken Sangha, COO of Open Money and the Open Project in San Francisco, told Forbes. “A central, organized and powerful authority — China — said ‘no’ and we all have been tested worldwide because of it. But the system flexed its muscles. It’s doing what it was supposed to do.”

And its muscles are the envy of tangible currencies everywhere. Bitcoin hit a record $6,000 per coin on 21 October. Naysayers came out of the woodwork to say it couldn’t possibly last, and definitely couldn’t go any higher. Wrong again. By the last week of November it was approaching $10,000 a coin.

Threats and Opportunities

The potential security threats are clear and present, but let’s put things like new avenues of terrorism funding into perspective.

At this point, terrorist groups are certainly eyeing their options with cryptocurrency, and testing the waters. In January, we saw what appears to be the first case, with the Indonesian government claiming that members of the Islamic State were transferring Bitcoin to each other.

Terrorists could create a virtual currency that is even more powerful and untraceable-one that can completely bypass the global banking system. It hasn’t happened yet, but the potential is there.

While terrorist groups may be mildly courting cryptocurrency, it’s not widespread. Speaking to Newsweek, the Rand Corp’s Joshua Baron, a cryptographer and mathematician, says he doesn’t really see Bitcoin as the “go-to currency for terrorists”—yet. “It does not offer enough anonymity.”

While terrorism is a threat to the security of all states, another threat to the U.S. is an opportunity for Russia: sanctions busting.

The rise of digital currency means that Russian officials sanctioned by the U.S. and the European Union have a way to send and receive money.

While the U.S. Treasury’s Terrorism and Financial Intelligence unit puts sanctioned individuals on a blacklist that keeps them from doing any business in U.S. dollars, cryptocurrency, which isn’t backed or controlled by any state, makes it possible to bypass the blacklist.

But even this pales in comparison to the bigger story here: Bitcoin and its fellow cryptocurrencies are challenging the foundations of the global banking system.

Disruption of the global banking system at this point is “inevitable”, Bala Venkataraman, global chief technology officer of banking and capital markets for Computer Sciences Corp, whose sister company runs the IT backbone of the National Security Agency (NSA), told Newsweek.

“Cryptocurrencies could become the new driver of international business and financial transactions, and that would be transformative, if not revolutionary,” says Dr. Makarenko, whose consulting firm advises Fortune 500 companies.

But here’s the problem:

“If we don’t truly understand how they are operating, who is controlling them and how to avoid it being used for illicit purposes, it may inadvertently turn out to be one of the most innovative turning points in the underworld, whether it’s organized crime, terrorism financing or corruption.”

The Crypto ‘Embrace’ is All About Control

Just last year, Russia was toying around with throwing Bitcoin owners in prison, characterizing cryptocurrency as an infectious pyramid scheme.

Now, Vladimir Putin’s Russia is ready to embrace cryptocurrency—if only to control it.

The real push started in July, when a Putin aide unveiled his cryptocurrency mine: an industrial-scale server farm called Russian Miner Coin. In September, the company held an initial coin offering (ICO), raising over $43 million in Bitcoin and Ethereum.

Then came the regulatory push. After all, Russia has lost an estimated $310 million this year alone due to lack of ICO regulation.

In late October, Putin issued five presidential orders for controlling cryptocurrency. This means everything from taxing coin miners and regulating initial coin offerings (ICOs) to creating legislation for new blockchain tech and setting up a single payment space, presumably with the Central Bank.

Still, the Russian government is not entirely unified on the issue. The Central Bank thinks blockchain is cool, but isn’t keen on cryptocurrency itself. They’d like to have something like a crypto-ruble that could track transactions from cryptocurrencies into rubles.

It’s far more than a fad. Cryptocurrencies are becoming increasingly visible across Russia. Mining is becoming so pervasive, in fact, that computer stores are having a hard time keeping graphic and video cards in supply.

The Russian Finance Minister, Anton Siluanov, has even gone as far as to say that cryptocurrency will soon be treated like regular financial securities.

There’s no point in prohibiting this reality, says Siluanov.

The U.S. might be of the same mind—broadly speaking, but it’s moving at a slower pace in the race to control the world’s new currency.

And it’s its own worst enemy in this scenario, says Dr. Tamara Makarenko, managing director of West Sands Advisory, a UK-based global consulting firm.

But Russia, for one, is much more motivated. Cryptocurrency is a great way to skirt sanctions.

“The U.S. is rightfully concerned about cryptocurrencies, but like anything that may have a negative impact on national security, there are way too many stakeholders that need to be brought to the table to discuss, so the U.S. is not capable of acting quickly,” Dr. Makarenko told Oilprice.com.

“The right conversations are taking place, but at the end of the day, it is in the U.S. interest to secure the value of the global position of the dollar.”

So, while China is banning cryptocurrency and the U.S. is still trying to figure things out, Russia seeks to dominate.

But just like China’s ban will be largely ineffective, so too will Russia’s move to dominate. Cryptocurrency is stateless, and that is its real power. It can be regulated, but not enslaved.

Resilience Proven, Investors Flock to the Future

Right now, about 85 percent of the world’s bitcoin trading volume comes from China. Countries with heavily subsidized energy are obvious ether mining haunts, but now the colder countries have something to offer that has nothing to do with the government, and doesn’t involve any legal gray areas that will come under scrutiny.

With even Putin’s IT advisor getting into the great game, hoping to challenge China’s hegemony in Bitcoin mining, the race is on in full force. They’re hoping to capture 30 percent of the global cryptocurrency mining share in the future.

Japanese billionaire Masatoshi Kumagai, co-founder of giant GMO Internet, announced plans recently to invest over $90 million in a new Bitcoin mining business that will operate as a fund, partially by soliciting capital from investors and repaying them in cryptocurrency.

In North America, billionaire backing is going into HIVE (TSVX:HIVE.V), via Lionsgate Entertainment and Goldcorp (NYSE:GG) superstar Frank Giustra, a legendary mining figure known for being in the right place at the right time—and always in front of a trend.

The new Great Game is virtual reality, and while governments are busy trying to figure out how they can control it, investors are busy sinking billions into what is fast becoming a story of industrial-scale cryptocurrency mining.

Now that everyone’s seen how resilient Bitcoin is, not only are things moving to the industrial phase, but everyone’s weighing the best venues for mining. Because even though this is virtual reality, location still matters.

That’s why HIVE has set up in Iceland, where Mother Nature’s natural cooling is friendly to these massive computing facilities, and where the massive energy required to mine cryptocurrency—in this case Ether–on an industrial scale is cheaper thanks to plentiful hydroelectric and geothermal sources. First, HIVE put $9 million into Hong Kong-based Genesis Mining Ltd., which just built the biggest ether-mining facility in the world—Enigma. Genesis acquired 30% of HIVE in the deal. A second deal in mid-October saw HIVE close a $30-million bought deal financing, completing a $7-million investment by Genesis Mining, acquiring a second data center in Iceland.

And now HIVE is setting up in another ‘cold country’—Sweden—with Genesis.

From China and Russia to North America, virtual is the reality. It’s no longer a question of whether cryptocurrency will survive. It’s a question of what it will disrupt on its way to the top of the global finance chain.

Link to original article: https://oilprice.com/Geopolitics/International/Meet-The-Worlds-Most-Powerful-Bitcoin-Backers.html

11/21/17

It’s Worse Than You Think: The Federal Government Has No Clue What It Is Spending

By: Denise Simon | Political Vanguard

Do you think our federal government knows how much and where it is is spending money?

Well, think again.

Back in 2014, the Government Accountability Office presented this is prepared testimony:

The federal government has no idea how many tax dollars it’s wasting on redundant federal programs every year—but it’s likely in the neighborhood of $45 billion.”

That’s according to the Government Accountability Office, which identified more than two dozen new areas of inefficiency and overlap in its annual report to Congress. This is on top of the more than 160 redundant areas that the GAO has identified in its three previous reports.

“It’s impossible to account for how much money is wasted through duplication, in part because the government doesn’t keep track of which programs each agency is responsible for,” Comptroller Gene Dodaro said prepared congressional testimony.

Examples you ask?

Right now, there are 10 different agencies within the Department of Health and Human Services that are providing similar services relating to AIDS outreach in minority communities. There are also 11 different agencies performing autism research without properly coordinating their efforts.

In another example included in the 200-page report, the auditors found that Colorado’s Schriever Air Force Base has eight different satellite control centers controlling 10 different satellite programs.

Meanwhile, the report also identified a $4.2 billion loan program within the Department of Energy for Advanced Technology Vehicles Manufacturing that hasn’t been utilized since 2011.

There is even a video to report waste, fraud and abuse, but no one seems to know how to solve those issues. Checking the House Oversight and Government Reform Committee website, there are no reports or menu of items they are investigating. Where is the confidence in that?

The GAO issued a report dated November 2017, that included this little passage:

“Reported improper payment estimates totaled over $1.2 trillion government-wide from fiscal years 2003 through 2016. Agencies are statutorily required to perform improper payment risk assessments to identify programs and activities that may be susceptible to significant improper payments and are required to report an improper payment estimate for ones that are susceptible to significant improper payments.”

Due to the Harvey Weinstein predatory sexual behavior scandal, many other names have recently hit the headlines with similar cases including members of both houses of Congress. As such, we learned there is essentially a pay-off slush fund where the victim was provided taxpayer funds to shut up, sign a non-disclosure and to for the most part go away. Note the payouts:

Still not convinced spending is literally out of control?

GAO’s 2016 report found that the Social Security Administration (SSA) has not fully addressed the growing amount of Disability Insurance overpayments.  In FY 2014, SSA identified $1.3 billion in such payments, in part because Congress still allows individuals to collect both full Social Security Disability Insurance benefits and Unemployment Insurance at the same time.  The Congressional Budget Office (CBO) estimates that eliminating this double-dipping would save $1.9 billion over the next 10 years.    The Treasury department’s Earned Income Tax Credit program had $15.6 billion in improper payments and the Social Security Administration’s errant payments totaled $7.1 billion.

The 2016 report also highlights a mounting problem of obsolete information technology (IT) systems in the federal government.  For example, the Department of Homeland Security was supposed to integrate and modernize its 422 different human resources systems and applications in 2003.  GAO found that “limited progress” has been made, and none of its many recommendations in this area have been addressed.

The federal government spends more than $1 billion on mobile devices per year; however, “GAO found that among 15 selected agencies, only 5 had complete service and device inventories.”  Therefore, most agencies are unable to know when taxpayer-funded devices are no longer needed or are being abused.

The 2016 report also cites many other outlandish examples of government duplication run amok, one of the most obvious being the existence of two programs in two different agencies that are tasked with inspecting the same type of catfish.  There are 45 programs in nine different agencies for employment for people with disabilities.  The federal government operates more than 90 different programs to foster the construction of green buildings in the private sector.   In FY 2014, unobligated balances, or the amount of money not spent by an agency or department, stood at $870 billion.

So, it seems we have enough reasons to declare we don’t trust you, the government anymore right? Yes, but is anyone listening? Not so much.

So, trotting over to the U.S. Treasury website you can find the Final Monthly Treasury Statement. The report includes the final budget results and details a deficit of $666 billion for Fiscal Year 2017. Fascinating number eh?

The issue is only 36 pages and it is suggested you begin at Table 3 and mobilize a team of friends where collectively you can perhaps define the line items, the duplicate programs or worse why they exist at all.

There is an app for that at least at the state level for only a handful of states. Yeah for California, right?

The Pew Charitable Trust in part published the following:

“In Long Beach, California, six city employees were fired after people complained items had gone missing from inside impounded cars. In Philadelphia auditors found safety issues in a dozen rental properties as well as over $350,000 in unpaid taxes. And in Richmond, Virginia, a city employee is on the hook for nearly $10,000 in bogus expenses.”

All of these cases were brought to auditors’ attention by tipsters using hotlines or fraud apps, which allow smartphone users to anonymously report government waste, fraud and abuse.

Cities and states have long had hotlines for reporting misuse of government resources. But mobile apps bring a new level of sophistication. They allow people to submit photos and videos in support of their claims; and in some cases auditors can use the app to respond and ask for follow-up information, all while maintaining a tipster’s anonymity.

Sixty-four percent of American adults now carry a smartphone, according to a report from the Pew Research Center. (The Pew Charitable Trusts funds both the Pew Research Center and Stateline.) Because reporting waste, fraud and abuse through an app is so easy, people are more inclined to do so, auditors say.

“Smartphones are becoming a ubiquitous tool, and I think we need to meet people where they are,” said Dave Yost, the state auditor who in 2014 introduced a fraud app in Ohio.

The cost of developing the apps varies. Ohio was able to develop its app in-house, while Richmond spent about $10,000 for outside help. Pittsburgh’s app was unveiled this month. It cost $20,000 to develop and will cost $3,000 for upkeep, but it also allows users to access a range of databases on city contracts and campaign contributions.

Uncertain Impact

In many places, it’s hard to discern how much of a difference the apps are making compared to traditional hotlines because auditors don’t keep track of where tips originate. Many of the apps allow users to call a fraud hotline from the app.

So far, relatively few citizens have downloaded the apps. In Long Beach there have only been 160 downloads. In Ohio there have been 673. In Philadelphia, which in 2011 developed one of the first fraud apps, there have been 2,015 downloads.

Whether tips are received through a hotline or an app, governments have received valuable information.

This is an important exercise for every American paying taxes and the challenge is to question your senator or representative. If that fails, try contacting the House Oversight Committee and ask some hard questions, in fact make some demands.

Those dollars reported by Treasury, those dollars in payouts and those dollars in waste, fraud and abuse are yours….you need to take ownership all while we are watching congress playing in the tax reform sandbox.

11/19/17

Book Review: Harpoon: Inside the Covert War Against Terrorism’s Money Masters

By: Terresa Monroe-Hamilton

Purchase at Amazon.com

I had a very interesting book sent my way: HARPOON: Inside The Covert War Against Terrorism’s Money Masters by Nitsana Darshan-Leitner and Samuel M. Katz. I’m a military and counterterrorism wonk, so it peaked my interest. First off, this is a fascinating book and if you are analytical, it will really engross you. It comes at you from the stance of cutting off the money-flow to terrorists and that is definitely one of the primary tools we should be using in the war on terror. Plus, I just admire the heck out of the Mossad and Israel in general.

Think about it… terrorists have to have money to buy weapons to kill people. They get that money in many different ways… from the sale of drugs, to the sale of oil, investments, charities and foundations. We use our military might to keep ISIS and other enemies on the run, but to squash them, you have to strangle them financially. Israel is a master at this technique. For many years I have said we should emulate Israel in profiling and counterterrorism tactics, including border security. But I never really looked at how they cut off the lifeblood of terrorism… money. The US is now utilizing financial techniques like this to starve ISIS and it works. Europe should be using this weapon as well.

If the flow of money was cut off to ISIS and other terrorists, their Caliphate and networks would fall apart. This is why I was so furious when Obama gave millions to the Iranians, who are the biggest purveyor of terrorism on the planet. He knew what he was doing, he was funding a maniacal Islamic theocracy that will murder countless people with that money. Obama has blood all over his hands on that one.

Israel has learned the hard way, through blood and tears, that more than force is needed to take down her enemies. From 2000 to 2005, during the last Intifada, Palestinian suicide bombers relentlessly attacked Israel. The Israelis have one of the best fighting forces on the planet and they met the enemy head on. But no matter how hard they fought or how they won each encounter, the bombings continued. That was when Israeli leaders knew they needed a new game plan. So, they went after the money trail that financed everything from bomb-building factories to the cash bonuses issued to the families of suicide bombers.

Israel gave birth to a new multiagency task force codenamed Harpoon. It’s directive was to wage financial warfare against the enemies of the Jewish state. Harpoon tracked money to it source. That included charities in the US and multimillion-dollar transfers from Iran, the Gulf States and Saudi Arabia. In 2002, Harpoon expanded. It now focuses on not only intercepting the cash and the accounts, but taking them from their enemies and destroying them if necessary.

Nitsana’s book covers all of this and shows that counterterrorism is not just fought on the battlefield or through cloak and dagger, it is waged on the financial front out of necessity. Israel laser focused on this in every agency… and it worked. They even utilized lawfare in US courts and internationally to file lawsuits to stop state sponsors of terror in their tracks. The banks and the intermediaries that give life to these murderous demons are fair game and any method that can be employed to take them down is used by Israel. I applaud that wholeheartedly.

I vehemently disagree with those in the west and in the US that decry Israel’s tactics here. They raid banks etc. to stop terrorism before people die. That’s called survival. I have been less than thrilled with President George W. Bush lately. He criticized Israel’s actions as being “Wild West” in nature. Really? Because it looks to me like they work. Which is more than can be said for what the US was doing before President Trump took office. I’m not always thrilled with him either, but at least he’s kicking ISIS’ ass these days. The US has come around to Israel’s way of thinking. It’s about damn time.

From Nitsana at Fox News:

The Americans saluted Israeli spy chief Meir Dagan – the mastermind behind Harpoon – and his understanding that money was the oxygen that enabled the terror beast to live and thrive. Dagan was intent on suffocating this malignant creature through any and all means at his disposal.

In the wake of terrorist attacks in Britain, France, Spain Belgium, Germany and Sweden in recent years, Europeans will need to use the highly effective financial warfare template that Israel has already established if they hope to defeat ISIS and the terror armies that will follow.

The European intelligence services will have to cut through red tape and muster their resources to bankrupt ISIS, intercept its ability to move money from country to country, and stop it from funding fighters and operations throughout the continent.

Rendering a group like ISIS insolvent will yield victorious battlefield results.

As Nitsana put it (and I wish I had said this darn it), “A smart and successful war on terror requires James Bonds and General Pattons, as well as one or two Bernie Madoffs – and their services are needed immediately.” This woman truly gets it. Bankrupting the enemy destroys their supply lines and their killing machines. I admire this reasoning and I love this book.

From Amazon.com:

A revelatory account of the cloak-and-dagger Israeli campaign to target the finances fueling terror organizations–an effort that became the blueprint for U.S. efforts to combat threats like ISIS and drug cartels.

ISIS boasted $2.4 billion of revenue in 2015, yet for too long the global war on terror overlooked financial warfare as an offensive strategy. “Harpoon,” the creation of Mossad legend Meir Dagan, directed spies, soldiers, and attorneys to disrupt and destroy money pipelines and financial institutions that paid for the bloodshed perpetrated by Hamas, Hezbollah, and other groups. Written by an attorney who worked with Harpoon and a bestselling journalist, Harpoon offers a gripping story of the Israeli-led effort, now joined by the Americans, to choke off the terrorists’ oxygen supply, money, via unconventional warfare.

“It’s a cliche after Watergate that the key investigation in most circumstances is to ‘follow the money’ (in the words of Deep Throat). This is the story of how Mossad led this movement and substantially effected investigations of terrorism and similarly important matters and how this influenced the CIA’s later work in the same field. Bravo Mossad! Thanks for leading the way” – R. James Woolsey, CIA director (1993-1995)

And here is the press release for the book, that gives an inside look:

The haunting images of the hijacked airliners crashing into the World Trade Center, the pools of blood on the streets of Paris, and the aftermath of the horrific massacres in a nightclub in Orlando and on the streets of Barcelona, have been seared into our collective conscious, leaving us all feeling frustrated, vulnerable and afraid. Tragically, the universal approach to combating this ruthless global threat has been focused on the conventional responses anchored in dilatory military actions that have produced foreseeable and pedestrian results. However, with groups like ISIS bringing in billions of dollars annually to finance their attacks, and the Islamic Republic of Iran bankrolling its proxies Hamas and Hezbollah with an endless flow of cash, a small and covert group of intelligence operatives spearheaded a dynamic new front to combat terrorist armies by depriving them of the oxygen they require to breath: the money needed to carry out attacks around the world. This is a story of a pioneering and innovative method of fighting terrorism – financial warfare waged against the extremist organizations, their leadership and the rogue regimes that support them. It all began in Israel, the small and embattled nation that has become fabled for its cutting edge hi-tech creativity and the prowess of its espionage services. This is the previously untold tale of perhaps the greatest and most disruptive Israeli start-up of them all and its joint-venture with the United States’ counterterrorism community.

In HARPOON: Inside The Covert War Against Terrorism’s Money Masters, Israeli activist attorney Nitsana Darshan-Leitner and New York Times bestselling author Samuel M. Katz bring to light the previously classified account of how one nation, facing a tsunami of unstoppable suicide terrorism, forged its intelligence, military, law enforcement, and political leaders into a powerful task force, code-named Harpoon, to combat terror financing around the world.

Traveling back to the 1990s, Darshan-Leitner and Katz introduce Meir Dagan, a legendary soldier and spymaster, who spent a lengthy military career serving the State of Israel in the up-close-and-personal world of deadly special operations ultimately becoming the director of the Mossad, the Jewish State’s famed espionage service. Dagan’s reputation was that of a warrior, a man who moved silently behind enemy lines with a dagger between his teeth. But as a commanding general frustrated with the limitations and inefficiencies of the conventional approach to warfare that failed to stem the waves of bus-bombings, drive-by shootings and suicide attacks in Israel, Dagan sought new and imaginative strategies. He pieced together an outside-the-box solution to target the source of the terrorists’ power, a complex underground economy of “blood money” that enlisted banks and charities to distribute funds to the diabolical masterminds behind the suicide attacks and catastrophic murders. Dagan assembled a dream team of specialists from the intelligence services, the Israel Defense Force, the National Police, and even Israel’s IRS, to fight the ever transforming terrorist groups and their money across the Middle East, South America, Africa, and around the globe. In the process, Harpoon fused an operational alliance with the highest reaches of the United States government to fight terror on a truly global front.

This is the untold and remarkable story of modern day “Untouchables.” This elite and covert force intercepted banking records, perpetrated financial con games, unleashed invasive and destructive computer malware attacks, called in missile strikes against bankers, and violently eliminated financiers and bag men in foreign capitals. This is also the story of the private lawyers who pioneered the use of American counterterrorism suits to bring terrorist groups, and the countries and financial institutions that provided them material support, to their knees.

I have several new heroes here. This is just my kind of book. These are the good guys, make no mistake about it. If you want a peak into the real war on terror, this book is it. Pick up a copy at Amazon.com. I’m passing mine on to friends in the counterterrorism fields here in the US. It’s an epic read.

11/14/17

Is Peak Permian Only 3 Years Away?

The world’s hottest shale basin, the Permian, is leading the second U.S. wave of tight oil production growth and will continue to do so for years to come, all analysts say.

However, signs have started to emerge that the relentless intensification of drilling leads to diminishing returns, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said in an article this week. Pumping twice as much sand as usual into Permian wells and drilling longer laterals doesn’t deliver commensurate volumes of oil, Flowers notes.

“Drilling costs rise exponentially with depth, and there’s a suspicion that longer wells are hitting a cost efficiency ceiling,” WoodMac’s chief analyst writes.

Moreover, after the early production-exuberance stage, drillers are now much more focused on delivering profits and higher profit margins. They now favor quality over quantity, and value over volumes.

“Might the Permian be reaching the limits of well size and design? Maybe—as Star Trek’s Scotty might observe of an underwhelming high intensity completion ‘you cannae change the laws of physics, Jim’,” Flowers says. But WoodMac suggests that drillers could ‘change the laws of physics’ and that these signs of setbacks may actually be growing pains.

The energy consultancy’s Director of L48 Research, Rob Clarke, argues that there are two basic and very sound reasons that the fading lateral drilling and proppant metrics might be just growing pains. One is much more advanced proppant placement, and the other is the oil majors’ move into the Permian, set to change things.

“Now, pinpoint frac technology can place the proppant exactly where it’s wanted. Science is also being applied to identify the most effective proppant grain size and shape as well as drill bit design and fluid chemistry, all with the aim of boosting EUR,” according to WoodMac.

In addition, ExxonMobil significantly boosted its Permian position earlier this year, and Exxon has “global expertise in extra-long laterals—including a 39,000 footer in Russia,” WoodMac says.

ExxonMobil has already drilled a 12,500-foot well in the Permian and “will no doubt ramp up longer still to test the diminishing returns theory,” Clarke noted.

Now the next challenge will be to deliver an effective completion of such a long well.

“The application of the Majors’ capital and industrial approach will test whether the thousands of wells to be drilled in the future enable the Permian to deliver on the bold growth targets,” WoodMac said.

Two months ago, Wood Mackenzie warned that as drillers are set to continuously develop the hottest U.S. shale play, they may soon start to test the region’s geological limits. And if E&P companies can’t overcome the geological constraints with tech breakthroughs, Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices.

Apart from geological constraints, other factors that could affect Permian growth are increasing service costs and potentially persistently low oil prices.

While oil service margins have increased for oil field service providers such Schlumberger and Halliburton, oil producers, on the other hand, face cost pressure, and “higher well costs may force additional discussion on capital discipline going into 2018, which could be a good thing for the overall supply and demand balance,” BTU Analytics said earlier this month.

At the end of September, Moody’s warned that even if average drilling and completion costs have declined significantly in the past two years, “drillers will be hard pressed to further reduce drill-bit finding and development costs, since drilling efficiencies may be offset by higher service costs.” North American oil producers will need WTI at over $50 a barrel in order to achieve “meaningful capital efficiency”, Moody’s said.

Pioneer Natural Resources, for example, continues to believe in the Permian, but it thinks that the U.S. shale patch is heading toward hitting the ceiling of efficiency gains from larger frackings.

“In the U.S., we are essentially using a sledgehammer approach. We are using larger volumes or sand and fluids and pumping at higher rates,” Pioneer’s CEO Tim Dove said at the Oil & Money conference in London, as quoted by Platts.

“At some point you reach a peak on logistics, limits on sand, water volumes… that’s where we are getting to, [although] we’re not quite there as an industry,” Dove noted.

Still, the expertise of the majors, as well as science and tech breakthroughs in proppant use, may help the Permian outgrow its growing pains faster than expected.

Link to original article: https://oilprice.com/Energy/Crude-Oil/Is-Peak-Permian-Only-3-Years-Away.html

By Tsvetana Paraskova for Oilprice.com

11/13/17

Will The Middle East Become A Major Market Catalyst?

By: Kent Engelke | Capitol Securities

Friday stocks limped to a close and Treasuries fell for the third consecutive day. The reason for the weakness… potential tax reform delay.

As noted a gazillion times, this is the first time in 30 years I have observed near universal bearishness as the majority of bulge bracket firms are forecasting a significant decline. The reasons are varied, but the consistency is the change in monetary policy. Some are pontificating that last week was the beginning of a declining trend.

My only comment is rarely does an event occur when everyone is suggesting that it will occur.

To date, there has been little written about the Middle East and its potential impact upon the markets. In years past, any Middle Eastern volatility was met with considerable selling.

Will the purge in Saudi Arabia be of significance, the greatest purge in at least a generation? What about the abdication of the Lebanese President and the subsequent coup in Lebanon leaving the Iranian supported Hezbollah in power? Saudi Arabia has all but declared war on Lebanon. And then there is the Iranian based Yemini Houthi missile fired at the Saudi Arabian capital, an act of war. How will the Kurdistan referendum in Iraq unfold?

The hatred between Saudi Sunni and Iranian Sunni is at least 1200 years old. The potential flash points are at historical proportions. All must remember Iran, Iraq and Saudi Arabia provide approximately 25% of the world’s daily oil needs.

There is little geopolitical premium in either the equity or oil markets. Is this about to change?

Historically it is the unwritten event that becomes a major market catalyst.

This week there are several inflationary indices released as are retail sales. Also posted is industrial production/capacity utilization as well as housing statistics. How will all be interpreted?

Last night the foreign markets were down. London was down 0.09%, Paris was down 0.68% and Frankfurt was down 0.75%. China was up 0.44% and Japan was down 1.32%.

The Dow should open quietly lower. Is the benign inflationary narrative about to change? According to the NY Fed’s underlying inflation gauge, inflation is now at the highest level in more than 10 years, partially the result of a 35% climb in oil from its June lows. The 10-year is up 8/32 to yield 2.38%.

10/20/17

The Wall Of Worry Is Rising

By: Kent Engelke | Capitol Securities

The “Wall of Worry” is rising. Goldman warns there is an 88% chance of a bear market in the intermediate future. Morgan Stanley stated today is an appropriate time to short the market. Vanguard and Fidelity have both issued bearish pronouncements. These are just the bearish comments of the last three days. The warnings issued the last 9 months are bordering on infinity.

The reasons are well known. Valuations. Lack of breadth. Historic change in monetary policy. Geopolitics. Socio-economic issues, etc.

The difference between today’s Wall of Worry and past “Walls” is that in era’s past equities were plunging.

Perhaps the only definitive comment to make is that if equities enter into a bear market as the largest firms are repetitively suggesting, this will be the most forecasted bear market in history.

Speaking of bear markets, the oil narrative is still extremely negative. Crude prices however are rising as inventories are declining at a pace greater than expected. The geopolitical risks are gargantuan, risks in years past that would create an incredibly bullish narrative.

Conversely to rising crude, oil equities are still languishing, internalizing this never ending bearish narrative, a narrative which in my view that is devoid from reality. It has been suggested oil stocks are priced for $35 oil not $52.

I am certain one can write a SAT question surrounding the negative equity narrative… rising equity prices and a negative crude narrative, but rising crude prices and languishing oil equity prices. But I do poorly on standardized tests.

In my view, the market that is entirely devoid from reality is the Treasury market. The FOMC is projecting an additional 100 basis points of tightening in the next 12-13 months boosting the overnight rate to around 2.25% or to the yield on today’s 10-year Treasury.

If the 14-year average of a 180 basis points spread between the overnight rate and the 10-year Treasury is maintained, the 10-year would rise to a 4.0% yield. If this relationship was to be maintained, the 10-year would decline in price by over 28% in the proceeding year according to Bloomberg.

Wow! All must remember the Committee missed its “central tendency” (which is different than a projection) from 2010-2015 when a comparable increase was suggested. Because of history, I think there is total complacency in the Treasury market.

Perhaps the only definitive statement to make is tomorrow will be interesting where fortunes can potentially be made and lost.

Last night the foreign markets were up. London was up 0.28%, Paris was up 0.23% and Frankfurt was up 0.29%. China was up 0.80%, Japan was up 0.04% and Hang Sang was up 1.17%.

The Dow should open nominally higher on tax cut optimism. The 10-year is off 11/32 to yield 2.36%.

10/13/17

Trump’s EO Halting Insurance Subsidies Comes from Boehner

By: Denise Simon | Founders Code

CNBC: The Trump administration will immediately stop making critically important payments to insurers who sell Obamacare health plans, a bombshell move that is expected to spike premium prices and potentially lead many insurers to exit the marketplace.

The decision to end the billions of dollars worth of so-called cost-sharing reduction (CSR) payments came after months of threats by President Donald Trump to do just that. The news came only hours after Trump signed an executive order that Obamacare advocates said could badly harm the individual insurance marketplaces.

Advocates, along with insurers, health-care provider groups, patient groups and officials in many states, have expressed concerns for months that the cost-sharing reimbursements would be cut off by Trump.

Senate Minority Leader Chuck Schumer, D-N.Y., sharply criticized Trump in a series of Twitter posts late Thursday.

Two months ago, the Congressional Budget Office estimated that individual health plan premiums would be 20 percent higher than originally projected if the payments ceased. It also projected that premiums would be 25 percent higher than they otherwise would be by 2020, and that the federal deficit would be increased by almost $200 billion if the subsidies ended.

The payments, worth $7 billion or so to insurers this year and up to $10 billion or more next year, reimburse insurers for discounts in out-of-pocket health costs they give to low-income Obamacare customers. The discounts must be offered by law.

However, congressional Republicans successfully challenged in a lawsuit the Obama administration’s decision to make the reimbursement payments to insurers without getting the express budgetary authorization from Congress.

Now, both California Attorney General Xavier Becerra and New York State Attorney General Eric Schneiderman said they would file lawsuits seeking to prevent Trump from ending the subsidies.

The two were part of a group of 18 state attorneys general who were given permission this year to intervene in the pending appeal of the federal court decision that had ruled the payments were illegal given their lack of congressional authorization.

*** While the Democrats are crying sabotage, they refuse to tell you that there is a legal ruling that says this funding is illegal. The Obama administration via the Treasury Department essentially stole money from various government agencies to subsidize insurance providers since Congress did not appropriate the funds.

In part it played out this way:

When House Republicans first came up with the idea to take the president to court nearly two years ago, they planned to sue the administration over a completely different part of Obamacare. Then-Speaker John Boehner was, as usual, facing pressure from conservatives who were frustrated at Obama’s liberal use of executive authority and their inability to derail the hated health-care law. So he and his leadership team hatched a plan to file a lawsuit accusing the president and his administration of exceeding their authority by unilaterally delaying the implementation of the employer mandate in Obamacare. The requirement that businesses with more than 50 employees provide insurance to their workers had long been a big target for Republicans and one of the more contentious policies in the law. It was the middle of the mid-term congressional campaigns, and Republicans suspected the administration was delaying the mandate to put off the political pain of compliance until after the election.

“The president changed the health-care law without a vote of Congress, effectively creating his own law by literally waiving the employer mandate and the penalties for failing to comply with it,” Boehner said in a statement at the time. “That’s not the way our system of government was designed to work. No president should have the power to make laws on his or her own.” The irony was that House Republicans had repeatedly assailed the employer mandate as a jobs killer, and yet here they were suing to force the administration to implement it faster. Read more here.

10/10/17

The “Amazon Effect” Is Coming To Oil Markets

While OPEC mulls over further steps to once again support falling oil prices, tech startups are quietly ushering in a new era in oil and gas: the era of the digital oil field.

Much talk has revolved around how software can completely transform the energy industry, but until recently, it was just talk. Now, things are beginning to change, and some observers, such as Cottonwood Venture Partners’ Mark P. Mills, believe we are on the verge of an oil industry transformation of proportions identical to the transformation that Amazon prompted in retail.

According to Mills, the three technological factors that actualized what he calls “the Amazon effect”, which changed the face of retail forever, are evidenced in oil and gas right now. These are cheap computing with industrial-application capabilities; ubiquitous communication networks; and, of course, cloud tech.

The Internet of Things is entering oil and gas, and so are analytics and artificial intelligence. These, Mills believes, will be among the main drivers of a second shale revolution, reinforcing the efficiency push prompted by the latest oil price crisis.

It seems that shale operators have been paying attention to what growing choirs of voices, including Oilprice, have been saying: they are talking more and more about the benefits that software solutions can bring to their business, potentially leveling the playing field for independents, a field that has been tipped in favor of Big Oil for decades.

Long-standing mistrust of technology is now dwindling as the benefits—including streamlining operations, maximizing the success rate of exploration, and optimizing production—make themselves increasingly evident, not least thanks to a trove of tech startups specifically targeting the oil and gas industry.

In a story for Forbes, Mills notes several examples of such startups that are already disrupting the industry with cognitive software for horizontal drilling, an on-demand contractor network, and an AI-driven software platform for well planning, among many others. The common feature among them all is they are narrowly specializing in various segments of the oil industry to deliver solutions that promise to substantially reduce times, labor, and costs, while improving outcomes. What’s not to like?

Tech investments among oil independents are still much below the level already characteristic of other industries such as healthcare or financial services, to mention just a couple. Yet this will also change. In the not-too-distant future we may see a flurry of M&A in oil and gas software development.

The reason for this future consolidation is already evident: there are many oil and gas independents in the shale patch. Technology improvements will soon separate the winners from the losers, so it’s a pretty certain bet that more M&A—a lot more—will likely happen over the next few years.

But independents in the shale patch are already burdened with debts that they took on in order to expand their production, and not all will survive the digital disruption. And they don’t just have Big Oil to contend with; oil and gas independents also have renewable energy solution providers breathing down their necks every time oil prices rise—renewable energy that’s already married to software.

That should be strong enough motivation for shale boomers to make sure they catch up, and catch up fast.

Link to original article: http://oilprice.com/Energy/Crude-Oil/The-Amazon-Effect-Is-Coming-To-Oil-Markets.html

By Irina Slav for Oilprice.com

10/9/17

Was The Unemployment Numbers As Ugly As The Headlines Suggested?

By: Kent Engelke | Capitol Securities

The headline numbers of September’s jobs report were disappointing. Non-farm payrolls contracted for the first time in seven years, albeit August’s data was revised higher. The unemployment rate however fell to the lowest level since February 2001.

At the risk of becoming too technical, non-farm payrolls are determined by calling 140,000 plus businesses employing over 400 workers and asking whether or not they are hiring.

The unemployment rate is determined by calling approximately 60,000 households asking whether or not they have a job.

The labor participation rate (LPR) is an overlooked data point that I think is of great significance. This measures the percentage of people who have a job or are actively looking for a job. If the person exits the work force, that person does not count.

September’s LPR rose to 63.2%, the highest level since August 2013’s 63.3% level. Analysts thought the LPR would remain flat at 62.9%. If the LPR stood around 2009’s level of about 65.7% when the great recession ended, the unemployment rate would be around 8.5%, or about double today’s 4.2% rate.

It was summer 2013 when Dodd Frank started to be implemented. Full implementation was September 2014. The LPR began its decent in August 2013, bottoming two years later in September 2015 at 62.4%. It remained mired around this level until January 2017.

Capital formation is the life blood of capitalism and job creation. Without such, growth will be anemic. Dodd Frank restricts capital formation and job creation. I think there is a direct correlation between the LPR, Dodd Frank and wealth/job creation.

The great job generation era of 1996-1997 was where 90% of jobs were created by small businesses that are defined as companies employing less than 499 people. The LPR was consistently around 67% during this era. Dodd Frank is a major reason why small business creation has been stifled.

In June 2017, Dodd Frank was repealed in the House. Reiterating, I think this repeal is directly related to a rising LPR and 3.0% economic growth.

And then there are rising wages. Wages in September rose at a pace considerably faster than expected. Some are blaming the distorting effects of the hurricanes. Only history will state whether or not this is an accurate conclusion.

This week is the commencement of earning season. How will the early results be interpreted?

The economic calendar is comprised of the Fed Minutes from the September FOMC meeting, various inflation indices, retail sales and sentiment surveys. What will this data suggest?

Last night the foreign markets were quiet. London was down 0.24%, Paris was down 0.01% and Frankfurt was up 0.03%. China was up 0.76%, Japan was up 0.30% and Hang Sang was down 0.46%.

The Dow should open quietly. The bond market is closed today for Columbus Day.