90 seconds at 9 am: Filling their boots

US jobs and services expand; graft in China grows; Britain tries for a 'Google tax'; corporate bond sales record; Australia growth sags; NZ$1 = 77.7 USc, TWI = 78.2

4th Dec 14, 7:27am by David Chaston

Here's my summary of the key issues that affect New Zealand overnight with news of companies gorging on cheap debt.

But first, American companies added workers at a fairly brisk clip in November (although less than expected) and the services sector grew strongly, suggesting the sluggish global economy is not yet having much impact on domestic US activity.

Corruption in China is getting worse, according to a 2014 survey out yesterday, and that is despite a major official push to root it out of its commercial, government and military life.

In Britain, the government there has announced plans to institute a 25% tax for companies that "artificially shift" their income to lower tax jurisdictions. Details on how that will work with their tax treaty systems is not clear, but the mood is there to push ahead with such moves.

According to Bloomberg data, global corporate bond sales have set an annual record as companies lock in borrowing costs that forecasters say are bound to rise. Bond sales in 2014 are approaching US$4 tln and beating the previous record in 2012. There seems to be a sense in the market that 2015 is when US interest rates will start to rise. Companies are filling their boots.

If you missed it yesterday, Australia’s economy grew by much less than expected in the third quarter as commodity prices tumbled and mining investment slumped, driving calls for interest-rate cuts next year.

UST 10yr bond yields were basically unchanged in New York overnight, at 2.29%.

The US oil price is now US$67/barrel and the Brent price fell back a little at US$70/barrel.

Gold gained more than US$10/oz and is currently at US$1,208/oz.

The kiwi dollar fell slightly as the US dollar gained. We start today at 77.7 USc, 92.3 AUc, and the TWI is at 78.2.

If you want to catch up with all the changes from yesterday we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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27 Comments

by Stephen Hulme | 4th Dec 14, 10:40am 1417642823

Corruption in China is getting worse, according to a 2014 survey out yesterday, and that is despite a major official push to root it out of its commercial, government and military life.

Doesn't it depend on the accepted description of corruption - does government extortion fit the bill?

The new era in banking is characterized by a rigorous enforcement of sanctions. As of September 2014, the cumulative litigation costs for EU and U.S. banks since the onset of the financial crisis has reached some $178 billion.

Sure enough: when one is a criminal syndicate, the largest in world history, paying litigation kickbacks in the hundreds of billions to the government is just the cost of "doing business." Read more

I was surprised at the Commerce Commision settlement with ANZ over the marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2009.

The receipt by this government regulatory body of $500,000.00 from ANZ to offset costs certainly raised my eyebrows.

The ANZ settlement will see ANZ establish a payment fund of $18.5 million, to be used to make payments to up to 178 eligible customers who are those who registered their complaints with the Commission.

The Commission will also get $500,000 towards its investigation costs. On top of this some money from the payment fund will be distributed to charitable organisations to assist the rural community. Read more

by iconoclast | 4th Dec 14, 10:57am 1417643864

Stephen Hulme:

You didnt really need to use that many words to demonstrate how easily and cheaply the CC was bought off

by Stephen Hulme | 4th Dec 14, 11:07am 1417644475

LoL - certainly serves to put the CC draft plan for Chorus wholesale pricing into focus. Read more

by iconoclast | 4th Dec 14, 11:26am 1417645579

The power of the NZBA lobbyists

In the past 18 months they got the RBNZ to postpone the implementation of the LVR's, currently they have delayed the implementation by the RBNZ plans for higher interest rates on the 5-bagger investment property high-rollers, and now the CC

by Stephen L | 4th Dec 14, 10:52am 1417643574

The following The AFR on Gross Domestic Income vs GDP, or Yes Australia the pie is shrinking, as they have headlined it, is an interesting editorial. It seems income has declined for two quarters in a row; production has still grown, but given the drop in prices for commodities, national income has dropped for the first time in many years.

NZ could benefit from more focus on national income rather than GDP. I would go one step further than the AFR and look at GNI which I believe is income attributable to residents of a country; where GDI includes income that then flows to foreign shareholders and corporations.

Given the drop in dairy prices- our iron ore- presumably the same effect is happening here. And given the consistent sale of assets offshore, income attributable to residents will also be declining.

by steven | 4th Dec 14, 11:14am 1417644872

"The US oil price is now US$67/barrel and the Brent price fell back a little at US$70/barrel."

However China is apparantly filling its boots (strategic reserve) right now at something liek 700,000 barrels per day. So when that stops?

Also as I posted yesterday its quite possible US shale will be dumping 2mbpd more into the market in 2015. If NET 1mbpd this year was enough to see a 30% collapse what will that again do to the price?

regards

by profile | 4th Dec 14, 4:18pm 1417663116

This is the same tight oil that has moved the market down 40%, helped give Texas 420,000 new jobs in the last 12 months yet you deign the EIA are liars for including it in proven reserves.

by steven | 4th Dec 14, 4:47pm 1417664820

There are a few things wrong though.

a) It has more than helped the market down, it has collapsed it 35%. 10%, sure, is that 35% such a drop good? no I'd say not, longer term and globally. On the face of it it looks rather dire.

b) The EIA reserves "estimates" are proving grossly inaccurate, more like la la land stuff eg the monterey field, downgraded 95%

c) As the report/paper shows the EIA has again been using wildly poor estimate methods.

http://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430

So yes I challenge those as proven reserves.

Plus,

d) questionable economics ie only economical at $100 a barrel. Way to coarse methods.

e) rather nasty decline rates.

f) So more jobs in texas, however I wonder what the losses are elsewhere...ie what is the NET effect.

g) How long those jobs are gained for. So once the hedging is exhausted and the drillers have to cough up the drilling costs at the present market rate, well that does not look too hot for the production curve.

by profile | 4th Dec 14, 5:45pm 1417668354

oh no, not another list! Spare me. Yes lower energy prices are a good thing. The net effect of some dude getting a shale oil job in Texas is lower energy costs for everyone - who is losing out there? Subsidised wind farm investors?

Proven reserves have to be reported to the US Securites and Exchange Commission so if people are liars then there are mechanisms in place.

by steven | 4th Dec 14, 5:02pm 1417665727

yet more EIA porkies...

"the EIA assessments had grossly overestimated shale deposits: The recoverable shale gas estimate for Poland shrank from 187 trillion cubic feet to 1.3 trillion cubic feet, a 99 percent drop."

http://www.motherjones.com/environment/2014/09/hillary-clinton-fracking…

"The Department of Energy’s forecasts — the ones everyone is relying on to guide our energy policy and planning — are overly optimistic based on what the actual well data are telling us,”

http://www.desmogblog.com/2014/10/27/american-energy-policies-based-inf…

So yes I wonder on the EIA.

When your predictions show downgrades over 90% the hell yes I question them.

regards

by steven | 4th Dec 14, 5:03pm 1417665808

oh and "The author of the original EIA estimate, INTEK Inc., admitted that it had been derived from oil company presentations rather than hard data.

So not even data, but spin.

by profile | 4th Dec 14, 5:33pm 1417667623

Getting an estimate wrong doesn't make them liars Steven. You really think they are they are trying to deceive people? What happened with with Marcellus shale gas estimate? Horribly underestimated. Getting a few plays wrong is understandable but it is having zilch effect on market prices out to 2023 now below $80.

As the Nature link states:

""The EIA is doing “the best with the resources they have and the timelines they have”, says Patzek. Its 2014 budget — which covers data collection and forecasting for all types of energy — totalled just $117 million, about the cost of drilling a dozen wells in the Haynesville shale. The EIA is “good value for the money”, says Caruso. “I always felt we were underfunded. The EIA was being asked to do more and more, with less and less.”

Patzek acknowledges that forecasts of shale plays “are very, very difficult and uncertain”, in part because the technologies and approaches to drilling are rapidly evolving. In newer plays, companies are still working out the best spots to drill. And it is still unclear how tightly wells can be packed before they significantly interfere with each other."

Funny how the only people who can make precise and accurate predictions are doomsters.

by steven | 4th Dec 14, 5:39pm 1417667990

Ok "liars" then...in effect they knew they were paid and published a report not based on data but PR spin from a vested interest.

How about dishonest then?

regards

by profile | 4th Dec 14, 5:51pm 1417668701

But it is not about PR spin is it - proven reserves are capital assets.

"Proved reserves are those quantities of oil and gas which, by analysis of geological and engineering data, can be estimated with reasonable certainty (typically 90% certainty) to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. (Note: these quantities are required to be reported from publicly-traded companies to both EIA and U.S. Securities and Exchange Commission using specific guidelines as they are considered to be capital assets)."

by Snodgrass Thro… | 4th Dec 14, 5:56pm 1417669018

Profile, you have to understand that steven never gets anything wrong. All statements in the 123,641 comments he has made here at steven.co.nz have been 100% correct. That is why steven.co.nz scooped so many awards at that big media awards ceremony the other night. His continuing participation will, I am sure contribute to many more such accolades for steven.co.nz.

by steven | 4th Dec 14, 6:12pm 1417669923

Creepy, so you went and counted, yes indeed creepy.

Simple dont attack the messenger, show us the data....

regards

by Snodgrass Thro… | 4th Dec 14, 6:19pm 1417670371

Ffs steven, if "not getting it" was gold, you'd be For Knox.

by steven | 4th Dec 14, 6:23pm 1417670627

ffs if you cant get it together, not my problem.

Simple, if you think Im so wrong, show why and well, place your bets, buy oil shares...

regards

by steven | 4th Dec 14, 5:48pm 1417668501

Oh so now you are switching from how can we not trust them, to oh they dont have enough money to do it properly? Doesnt matter, their estimates are proving wildly in-accurate, to the point of absurdity. On top of that businesses are spending many, many millions investing on fossil fuel infrastructure based on their "numbers" that will be pointless.

Not doomsters, realists, the money could be better spent elsewhere.

regards

by profile | 4th Dec 14, 6:00pm 1417669205

On balance surely the oil price is going down because shale oil estimates where too low not too high. If recent history is anything to go by predictions that proven reserves are too high is conjecture.

You were telling me the other day tight oil shouldn't even be included in proven reserves but now you are posting tight oil is moving the market. Consistency?

by steven | 4th Dec 14, 6:22pm 1417670520

No, I think oil is down because there is too much oil, not because there might be or not in the future.

If you look at the claims of the realists they seem to be in the order of 5~10% low, the la la landers such as EIA, 90% high (to actual).

Place your bets.

regards

by profile | 4th Dec 14, 6:29pm 1417670946

So it is ok to include tight oil in proven reserves data now?

by steven | 4th Dec 14, 6:40pm 1417671656

No it probably isnt, not carte blanche anyway.

a) Sure some of the sweet spots are economic, but as that report points out the EIA took the outputs from the sweet spots and applied it across large parts of if not all of the field/county.

b) The price to get some of the remaining conventional oil and maybe a lot of the shale oil maybe more than the gloabl economy can pay.

regards

by steven | 4th Dec 14, 6:10pm 1417669824

Oh and what about the penions and incomes of mom, pops and OAPs who have mal-invested in shale?

regards

by profile | 4th Dec 14, 6:26pm 1417670782

From above:

"Note: these quantities are required to be reported from publicly-traded companies to both EIA and U.S. Securities and Exchange Commission using specific guidelines as they are considered to be capital assets)."

Mal invested? Surely you expect the price of oil to go up again?

by steven | 4th Dec 14, 6:44pm 1417671888

Yes IMHO, and yes I do expect it to go back up, the only q is when, will it be 6months or several years.

I also expect that there will be class actions on this in the future over this.

regards

by steven | 4th Dec 14, 8:52pm 1417679576

So does T Boone Pickens,

http://www.marketwatch.com/story/oil-tycoon-t-boone-pickens-predicts-re…

$100 yes sure, if we dont sink into a depression.

regards