US jobs grow as expected; US house sales rise; Canada growth falls along with Brazil and Nigeria; India growth slows; pizza by drone almost here; UST 10yr yield at 1.57%; oil and gold down; NZ$1 = 72.6 US¢, TWI-5 = 76.3

Pizza by drone. Great. Now I can enjoy the pleasure of having my pizza travel through diesel fumes, aircraft fumes, exhaust fumes, bird poop and God knows what else. All so that it can crash land and scratch my new colorsteel roof. Sounds like progress.

Canada household debt to disposable income 165.3. Combined Household debt 1.93 trillion. All that debt and such little growth, selling houses to one another sometimes plateaus.. Now what is Auckland's debt/income.

The oil price is down sharply today with the US benchmark price now just over US$44.50 a barrel, while the Brent benchmark just over US$47 a barrel. Prices aren't being helped by a relentless rise in domestic US crude production.

Hmmm...

By switching to more realtime estimates derived from customs receipts information provided by the US Customs and Border Protection Agency, the EIA found that it had previously understated US exports of petroleum and products. While a very good use of idle crude or distillates sitting in LA or OK, that has the effect of recalculating and then revising prior estimates for domestic demand.

Over the first six months of 2016, EIA weekly estimates underestimated total crude oil, petroleum, and biofuel exports by an average of 16%, compared with final data published in the PSM. This underestimation of exports led to the overestimation of total consumption.

Since exports are a subtraction to arrive at consumption, underestimating exports to such a huge degree means conversely the EIA was overstating domestic consumption (oil and energy products were being used, just overseas rather than here) by more than 1 million barrels per day through most of the spring. Read more

In the aftermath of the 2008 financial crisis an abundance of leverage — borrowed money used to amplify returns — was blamed for exacerbating losses on subprime mortgages and contaminating the banking system with catastrophic results. Since then a host of new rules have been enacted to reduce financial leverage, including penalizing certain derivatives positions, such as the credit default swaps (CDS) villainized in the crisis, as well as outright curbing the amount of borrowing allowed at big banks.

While such efforts have made substantial steps in derisking the financial system — especially at large lenders — they've also encouraged the creation of new types of leverage and its migration to different players. Today, much leverage appears to sit on the balance sheets of large and small investors, often fueled by the need to generate returns amidst ultra-low interest rates and high correlations that see asset classes move together and make it more difficult to produce outperformance, known as 'alpha.'

Pimco's flagship bond fund, the Total Return Fund (TRF), sold $94 billion worth of put and call options on floating to fixed income swaps, or 41 percent of the fund's net asset value, according to BIS data. Known as selling or shorting volatility, the strategy allowed Pimco to collect insurance-like premiums as long as interest rates stayed low.

Similarly, Pimco deployed eurodollar futures, a type of derivative that locks-in interest rates for investors, with long eurodollar contracts at the Total Return Fund (TRF) jumping from 250,000 in March 2013 to almost 1.2 million as of June 2014. Read more and more

Former Fed Governor Jeremy Stein referred to “collateral transformation” in his February 2013 speech, arguing that some serious “reach for yield” behavior in securities lending was taking place at the time. In short, money market participants were transforming through the dubious “magic” of financial laws and operative behavior junk bonds of both US corporates as well as, I believe, EM corporate junk.

Lending further weight to the theory is the fact that Jeremy Stein is still talking about it. Though he had left the Fed long ago and is now teaching at Harvard, Mr. Stein along with co-authors Robin Greenwood and Samuel Hanson (both of Harvard and, like Stein, the NBER) produced a paper for presentation at the Jackson Hole event last week that got very little outside notice; but it appears was quite influential in setting the talking points and the overall agenda for within the gathering. The topic: the Fed “crowding out” what he calls “maturity transformation.” Read more

There’s an 8.7 trillion yen ($84 billion) gap between the value of government bond holdings on the Bank of Japan’s balance sheet and their face value.

While not an immediate problem because the BOJ’s income can cover the losses, the widening gap raises questions about the sustainability of the central bank’s bond purchases, which Governor Haruhiko Kuroda has said could be expanded. Read more

Is the RBNZ lending a hand to fund the government's latest debt offering?