Schlumberger Fires 9000; Baker Hughes 7000

As predicted in a previous post here, America’s oil industry is laying off thousands and thousands of workers.

Unemployment

Unemployment
Photo by Bernard Pollack

From ZeroHedge, Tyler Durden, January 20, 2014:

Another day, another unambiguously bad announcement from America’s battered energy sector which is bolting down ahead of the crude storm, and firing thousands. Last week it was Schlumberger which announced it would fire 9000, today it is Baker Hughes which just warned it too will hand out about 7000 pink slips in the first quarter. And as a reminder, when it comes to comp: each Baker Hughes job is equivalent to about 10 waiter and bartender jobs, which have been the basis of this “recovery.”

  • BAKER HUGHES SEES WORKFORCE REDUCTION OF 7,000 WORKERS
  • BAKER HUGHES EXPECTS TO CUT 7,000 JOBS IN FIRST QUARTER
  • BAKER HUGHES SEES 1Q ’15 SEVERANCE COSTS $160 MLN-$185 MLN
  • BAKER HUGHES SEES REDUCING CAPEX BY 20% VS. LAST YEAR
  • BAKER HUGHES CEO SAYS MUST ADAPT TO ‘NEW REALITY’ LOWER PRICES
  • BAKER HUGHES SEEING GROWING NUMBER WELLS DRILLS, NOT FINISHED
  • BAKER HUGHES SEES 2015 AS `PIVOTAL’ FOR COMPANY, INDUSTRY<More>
Conclusion

Watch out Texas, Oklahoma, Alaska, North Dakota, and Louisiana. These are the states that are going to be the hardest hit.

 

Gold and Swiss National Bank De-Peg

The Swiss franc was unilaterally de-pegged from the euro last week causing major market upheaval and financial stress to multiple firms.

Swiss National Bank

Swiss National Bank
Photo by Laura Marie

From Sproutmoney, 22 January, 2015:

“The historically ‘neutral’ Switzerland, a safe haven for large capital, is now a victim of the worldwide currency war. While almost every central bank across the globe is trying to devalue its currency, the opposite happened to the Swiss franc (CHF) as the franc increased by 30% in value versus the euro, with an intraday jump of no less than 50%!

“There is no longer a cap on the Swiss franc. Since the crisis of 2008-2011, the franc has been rising in value versus the euro, and the euro crisis of 2010-2011 created additional pressure for the franc. This was a smack in the face of the Swiss central bank, which decided to put a cap on the CHF on September 6th in 2011 after the Swiss franc had risen by 60% to 1.04 versus the euro and the negative impact of the much stronger currency became very tough on Swiss exporters. The franc would not move beyond 1.20 versus the euro.

“If a central bank wants to devalue its currency, the strategy is quite simple: print money and use that money to buy foreign currency. This blew up the balance sheet of the SNB (Swiss National Bank) to no less than 85% of the GDP, without any inflationary pressure. The policy of the SNB created political pressure as well, since it was the opposition that pushed to organize a referendum to force the SNB to keep 20% of its balance sheet in gold. Although the motion was denied in November, the damage had been done, because the SNB was no longer able to defend its policy. It is expected, moreover, that the ECB will announce a program to purchase 550 billion euros worth of government debt this Thursday. No less than 93% of the economists surveyed by Bloomberg expect this to happen. This will most likely lead to enormous inflows for Switzerland as investors will look for safe havens, which would add hundreds of billions to the SNB’s balance sheet on top of everything.

SNB foreign reserves

Source: WSJ, SNB

“If the SNB would not have decoupled the CHF from the EUR, it would have become more dependent on the policy of the ECB and the bank must have seen an opportunity to get out right before the ECB’s QE program. You could ask yourself, by the way, whether there is not some big hedge fund hiding behind the SNB’s balance sheet. They practically bought everything: euros, euro investments, bonds , small caps, etc. You name it. This means that there is a lot of leverage in the system, and that it is intimately interwoven with the international banking system, which is what makes the SNB exceptionally vulnerable today.

Collateral Damage

“The ‘collateral damage’ of the ECB’s decision was evident immediately. Not only were Swiss stocks that are dependent on export dumped, but Eastern European neighboring countries who held mortgages in CHF are licking their wounds as well; not to speak of bankrupted currency traders and hedge funds that were short on CHF.

The Swiss people will also not be very happy. Many economists believe that a central bank’s losses are not relevant and do not influence policy, as a consequence, but this would be hard to believe in the case of the SNB, however, since 45% of the bank is in the hands of private investors. Many of them are regular retail investors who receive dividends from the SNB, but the rest belongs to the Swiss cantons, which recently complained about insufficient cash transfers from the SNB. This shareholder structure is completely different from most other central banks, which are in fact government institutions, completely in the hands of the treasury and, consequently, tax payers. The workings of the SNB make it inherently scared of losses on the balance sheet, especially considering the fact that unhappy citizens can demand changes to monetary and reserve policies by way of a referendum. Needless to say, there are plenty of losses at the SNB today, rest assured.

Gold

It is also interesting to study the link between the SNB’s move and the price of gold. On exactly the same day that the Swiss National Bank coupled the CHF to the EUR to prevent massive inflows to the CHF, the gold price rose to an all-time high of 1,920 USD/ounce. Since then, gold has been going downhill, but that all changed recently and decoupling the CHF from the EUR caused the gold price to break out from its downtrend.

CHF vs gold

Source: StockCharts

“The gold price ‘feels’ that something is up, as it were. The Swiss central bank was the first one to jump into the currency war and it is also the war’s first victim. Three and a half years of built-up tension came to the surface in a single day, just like you can hold a ball under water for a very long time, but at a certain point…

Central Banks No Longer Trusted

“People are losing faith in central banks. We believe that Switzerland could be the canary in the coal mine and that other currency wars are coming. Economic growth is on the weak side globally and betting on exchange rates is one of the last pieces of leverage one can use to stimulate growth. Asian countries like South Korea, Taiwan, and others, could take the lead here since these countries are suffering from the lower Japanese yen, although that is good news for their Japanese exporter counterparts. Large upcoming countries like Brazil, for example, will have to get creative with their exchange rates.

“Ultimately, the intensity of the global currency war will largely depend on the US Federal Reserve. The Fed is most likely going to raise interest rates this year, while the ECB is going to do the opposite, which has made the USD much stronger in the face of the EUR. Until now the Fed has not made a move to contain the rise of the dollar, but the Fed might make a move in the coming period to slow down the dollar’s appreciation by postponing a first increase, which is expected this summer, by a few months. The increase of the dollar has put central banks in a difficult spot and forced them to review their position.” <More>

Conclusion

The major problems for the future are going to be volatility and the lack of trust in central banks. Both of these will take their toll in the markets going forward.

Gold Shares – Pointing Up Or Down?

Gold shares lead the way. Right?

Then what do you think about GDX and GDXJ both finishing the day with outside reversal day patterns?

GDX

GDX

And GDXJ

GDXJ

GDXJ

 

Otherwise known as bearish engulfing patterns, these often lead the way down, especially if confirmed by a lower candlestick bar the next day.

Only a week ago, we had another set of outside reversal day patterns for both stocks. It was only on Monday that GDX was able to negate that pattern and it was only Tuesday that GDXJ negated the pattern and became bullish again. And now they are both looking bearish again.

Why are the miners chopping and changing direction like this?

It’s because of the uncertainty surrounding the ECB announcement about bond purchases. Some of the details have seemingly leaked out already and we are meant to be looking at approximately €50 billion bond purchases per month over the next year.

The mining stocks, which can be bid up during risky times may now see this as a less risky environment. Investors may think that money flows will go into other areas than the mining stocks. Hence the outside reversal patterns, or bearish engulfing patterns, that were formed today.

We will have to see what the market thinks tomorrow.

Volatility Increases Big Time

Major volatility ensued when the Swiss National Bank removed the peg to the Euro without any notice. Up till the day they took this action, the SNB made it clear it was an integral part of their monetary policy…until it wasn’t.

This action has had major consequences, some already out in the open, others still to come. Hedge funds have had to close down. Financial firms have taken major hits.

Swiss National Bank

Swiss National Bank on right side of photo
Photo by ptwo

From the Saxo Group, Steen Jakobsen, January 21, 2015:

“Where does this all bring me? The SNB’s action was really the culmination of bigger and bigger moves at the end of a low volatility paradigm. I have been trading currencies for more than 30 years, Thursday’s move was single biggest move I have experienced in one market. But let’s look at other remarkable moves this year:

“Oil has dropped more than 50%

Oil

Oil

Source: Bloomberg

“Russian ruble falls off a USD cliff

Ruble

Ruble

Source: Bloomberg

“EURNOK had it biggest move in many, many years (15% in space of a few days)

EURNOK

EURNOK

Source: Bloomberg

“EURCHF move in comparison:

EURCHF

EURCHF

Source: Bloomberg

“Even overnight, the Shanghai index dropped more than 7%
– the biggest move in years on margin calls:

Shanghai Composite index

Shanghai Composite Index

Source: Bloomberg

“The lesson is clearly that the market has been trying to tell us for a long time that volatility was a function of an economic model of suspending the business cycle. When you suspend an economic system such as the world markets for an extended period you ultimately release more energy when the business cycle starts anew.

“We started the year with Maximum Dislocation of the market in a model of planned economies. We have bond and credit spreads at historic lows, currencies at extremes, equities and real estate in bubble-like valuations, and a geopolitical risk which keeps rising as seen this year in Paris, last year in Ukraine and also the rise of ISIS.

“The US dollar is putting pressure not only on US itself but also the world. A journalist asked me last week: Who benefits from a stronger US dollar? I still owe him an answer because very few benefit. In fact the world has two growth engines: The US and emerging markets. Both are pretty much US dollar economies. Debt (US dollar funding) in EM has exploded to an extent that many including the World Bank now call a for risk of “Perfect Storm in EM”. Both US and EM became credit junkies over the QE-to-infinity era in the US. The law of unintended consequences.

“Another unintended consequence was that energy was the trigger for the crisis in 2008 as rising energy prices took five trillion US dollars out of the economy – which became the catalyst for the Eurozone crisis and US banking bailout. Now eight year later the drop in energy has broad spillover effects as the wealth is transferred from sovereign wealth funds in resource countries to consumers.

“That’s good for Main Street and bad for Wall Street as the “bid” in the assets disappear as these sovereign buyers needs to draw down on their wealth instead of buying overseas assets. Similarly, will a direct impact from SNB not having a floor be less NASDAQ buying which famously SNB had in its portfolio?

“Meanwhile the fact that volatility is rising, the fact that we see early signs of the business cycle being activated, is good for the real economy. It’s a sign of money flowing from the 20% QE induced overvalued listed companies to the 80% SMEs (the real economy) as increase in volatility will make expected return less in “paper money” and more attractive in tangible assets and good business.

“The world should be concerned when volatility is too low, it’s a sign of the market not allocating money correctly. The one lesson everyone needs to learn is that for a market based economy to function you need to allocate capital to the highest marginal real return of capital. Not to the most politically connected.

“When history of 2015 is written I have no doubt that the Paris terror act and SNB’s removal of the floor will stand out – both happened less than two weeks into 2015, although that is random, what is not random is that market volatility has been rising directly and indirectly through a misallocation of capital directed by the central bank system.

The Central Banks

“Many central banks will envy the SNB for its move last week, as it at least tries to regain some control of its future, but the conclusion remains: central banks have as a group lost credibility and when the ECB starts QE this week the beginning of the end for central banks is completed. They are running out of time – that’s the real real bottom line: the SNB ran out of time, the ECB will runout of time this week, and the Fed, Bank of Japan and the Bank of England ran out of time in 2014.” <More>

Conclusion

Steen Jakobsen concludes “that the SNB’s action of last week (taken without regard to other financial entities), spells the end of the road for the central banks as we have known them.”

And I conclude that the volatility in financial markets is picking up and increasing. I expect 2015 to be a very interesting year.

24 Year Lowest Growth Rate For China

China’s growth rate has sunk to a 24 year low at 7.4%, announced the National Bureau of Statistics yesterday.

China Map

China
Photo by Nadine Stammen

From wsws.org, Will Morrow, January 21, 2015:

“The announcement further punctures the illusion that China will provide a driver for world economic growth in 2015 and beyond. The country is being drawn into the deepening crisis produced by the global breakdown of capitalism that erupted in 2008. Its economy is racked by mounting debt, particularly in the real estate sector, and productive overcapacity, resulting from the stimulus measures adopted by the Chinese regime since the 2008 crash.

Tuesday’s figures fell below the Chinese Communist Party (CCP) target of 7.5 percent, the first time that growth has failed to meet official predictions since 1998. The result was also well below the 8 percent benchmark that the government nominated in 2010 as being necessary to prevent rising unemployment and social unrest.

World markets rose marginally yesterday because the Chinese data slightly exceeded expectations among analysts and traders. Industrial production rose by 7.9 percent, compared to a median estimate of 7.4, and retail sales increased 11.9 percent, 0.2 points higher than expected.

The CCP leadership is expected to set a lower growth target of around 7 percent when it meets in March. The International Monetary Fund revised its estimate down further, to 6.8 percent, in its latest World Economic Outlook report, released yesterday.

With growth rates falling, speculative activity is becoming a major factor in the Chinese economy. This was underscored by wild stock market gyrations this week. The Shanghai Composite Index finished 7.7 percent down on Monday. It was the biggest one-day decline since June 2008, wiping out all January’s gains. Stocks in the main brokerage houses, Citic and Haitong, dropped by 10 percent, the maximum for a single day.

The falls were triggered by a China Security Regulatory Commission move to clamp down on margin lending, which involves borrowing money at low interest rates in order to invest in shares. Margin lending results in huge rates of return, so long as markets continue to rise. But it can lead to a vicious downward spiral and liquidity crisis—in which everyone rushes to sell—if markets fall.”

Real Estate On Verge Of Collapse

The real estate market is also balanced precariously.

“There are mounting signs that the speculative real estate bubble may be on the verge of collapse. Housing prices fell by 4.3 percent year-on-year in December, according to government data released on Sunday. It is the largest drop since the current data series began in 2011, according to calculations made by the Financial Times. Property and related sectors currently constitute nearly a quarter of the Chinese economy.

According to the Australian Financial Review, other official figures show that the number of unsold houses in China increased by 25.4 percent in 2014, while land sales dropped by more than 10 percent. Overall property investment increased by just 10.5 percent, the slowest pace since early 2009, and down by almost half from 19.8 percent in 2013.

The Financial Times warned on January 18 that “much of China’s property construction has been funded by credit and there are growing concerns the slowdown could trigger localised debt crises. Cash-strapped local governments are heavily reliant on land sales to fund basic services and most have taken on huge debt loads using land and real estate projects as collateral.”

The real estate bubble is a direct consequence of the post-2008 stimulus measures. Export growth has slowed and been replaced by internal investment as the driving force of Chinese economic growth, with cheap money funding massive construction projects. Uninhabited “ghost cities,” lined with empty apartment blocks, have spread across China.”

$6.8 Trillion of Ineffective Investment

“The government’s own planning agency reported last November that “ineffective investment” of $6.8 trillion accounted for nearly half the total invested in China between 2009 and 2013.

Further official figures released on Tuesday show that construction fell by double digits in 2014. There is now severe overcapacity in industries, like steel, cement, furniture and glass that serve the real estate sector. China’s producer price index, which measures the price of goods as they leave the factory gate, fell to its lowest level in two years last December.”

Steel Demand Down

Demand for steel has fallen for the first time in two decades.

“Steel output had tripled between 2006 and 2013, with local manufacturers increasing their share of global production from one third in 2006 to about 50 percent in 2012. By last June, however, Chinese holdings of excess steel reached 106 million tonnes, and are estimated to have remained at that level. Domestic steel consumption is thought to have contracted last year, for the first time in 20 years.”

Zombie Factories

Factories are not allowed to declare bankruptcies.

“A December 28 Financial Times article referred to “zombie” factories that are flooded in debt and being propped up by the government. During December, according to Chinese media reports, nine large steel mills suspended production but were forbidden to declare bankruptcy. A now-bankrupt factory owned by Highsee previously employed 10,000 people.”

Beijing Attempting to Rebalance the Economy

“The Beijing regime is seeking to “rebalance” the economy away from investment-driven production and toward consumption, which currently represents only 36 percent of gross domestic product. This involves a fundamental contradiction, however. Increased consumption requires higher wages, but this would undermine China’s ability to compete with other cheap-labour platforms, such as Thailand and Vietnam.

Above all, the Beijing authorities are terrified that the deepening economic slowdown is creating the conditions for an explosion of China’s social powder keg and the eruption of mass working-class struggles.” Source:

Update: Chinese Shares Surge Higher

Just in from the Wall Street Journal:

“The Shanghai Composite climbed 4.7%, its biggest daily jump in more than five years. The two-day rally recovers most of the 7.7% decline Monday, sparked by China’s clampdown on excess borrowing by individual investors.” More

Conclusion

The immediate fall in Asian shares has been averted for now. But with its slowing economy, the road looks rocky ahead for China.

More Gold Purchases By Russia

The rumors about Russia selling its gold to help support its currency, the Ruble, were wrong. Instead of selling, they have been buying.

Gold

Gold

From ZeroHedge.com, Tyler Durden, January 18, 2015:

Indeed, Russian gold reserves rose by their largest amount in six months in December to just over $46 billion (near the highest since April 2013).

It appears all the “Russia is selling” chatter did was lower prices enabling them to gather non-fiat physical assets at a lower cost. On the other hand, there is another trend that continues for the Russians – that of reducing their exposure to US Treasury debt. For the 20th month in a row, Russia’s holdings of US Treasury debt fell year-over-year – selling into the strength.  

Buying low…

Russia gold reserves jump the most in six months in December, near the highest since April 2013…

 

and selling high…

Russian holdings of US Treasuries are now at the 2nd lowest since 2008…

 

More:

Charts: Bloomberg

Gold Ends Week Strongly

Gold closed out the week very strongly at 1276.90.

This is above its 200 daily moving average. The relative strength indicator also closed above 70 which is bullish. The +DI line for the ADX indicator is above the -DI line indicating that bulls are in control of this market. Additionally, the ADX line itself is showing an upward trend. Though this is still in the low figures, it does indicate that a trending move higher is now possible.

There is some significant resistance at the 1275 level that gold will have to get through. But if it does, the next resistance level above that is 1300.

Strong weekly gold close

Gold closes out the week strongly.

The gold shares also closed out the week very strongly. Here’s the chart of the HUI:

HUI closes strongly

HUI also closed out the week strongly

The HUI closed strongly above its key outside reversal day of Tuesday. This is bullish. Additionally, the +DI line for the ADX indicator is above the -DI line, showing that the bulls are in control right now. the ADX line itslef is just starting to trend upwards, though this is still at a low figure, it dow indicate that a trend upwards is possible here.

Now let’s take a look at the number of tonnes of gold in the GLD ETF.

GLD gold holdings

GLD gold holdings

After trending down since the middle of 2014, GLD has just started to add tonnes of gold since the start of 2015. On January 1st, there were 709 tonnes of gold in the ETF. Today, two weeks later, there are now  717 tonnes. Though this is only a small increase, it is an increase, and is indicative that western demand for gold has started to pick up.

Conclusion

Gold has closed out the week strongly. There is some significant resistance at this level, but if it battles through this resistance, then there is a pretty clear run to the next level at 1300.

The gold shares have closed the week above their outside reversal of Tuesday, and look very bullish.

The increase in GLD holdings of 8 tonnes is showing that gold is in demand by the west.

 

Expect 100,000’s Of US Oil Industry Layoffs

“Demand for rigs is falling off a cliff.”

If oil prices stay low for a considerable time, expect massive layoffs within the US oil industry.

US Oil Workers

Tribute to Roughnecks – US Oil Workers
Photo by Cindy Jackson

From wsws.org, Gabriel Black, January 15, 2015:

The precipitous drop in the price of oil has prompted oil companies to prepare mass layoffs in 2015 as sections of the industry become unprofitable. According to a variety of sources, hundreds of thousands of jobs in the US alone could disappear this year if oil prices remain low.

The boom led to the addition of some 150,000 jobs in the industry, according to Citi Research. The slowdown could wipe out even more as jobs are slashed in exploration, construction, refining and the tens of thousands of jobs that service the industry and its workers.

Job Cuts

The job cuts, which are occurring worldwide, will be most pronounced in regions where “unconventional” oil production has recently developed. In Texas, for instance, where a large oil boom has occurred at the Eagle Ford shale formation, the Dallas Federal Reserve predicts that 128,000 jobs could be lost in the state by mid-2015 if West Texas Intermediate (WTI) crude oil remains around $55.00 a barrel. As of this writing, WTI crude is going for $48.52 a barrel.

“Unconventional” fields, such as shale formations, which require hydraulic fracturing or fracking, tar sands, and deep-sea offshore reserves, have costs of production far higher than “conventional” oil. While the average Saudi Arabian field has a price of production close to $1 a barrel, an average shale field in the United States only begins to break even at $69 a barrel, according to a recent Scotia Bank estimate.

The drop in price has caused oil producers, where they can, to halt or slow down activity at their least profitable rigs. Reuters received data from Drilling Info Inc. that shows approved new oil well permits in the US dropping from 7,227 to 4,520 between October and November, a drop of 37.5 percent in a single month. The Wall Street Journ al quotes Susan Murphy, an oil and steel analyst, saying that spending on oil production and exploration will fall by 20 percent in the US this year. Total land rigs will decline by as much as 500 according to Murphy. Rocky Mountain Oil Journal quotes Dave Galt of the Montana Petroleum Association, who predicts a 50 percent decline in the drilling of new oil wells this year in the Bakken Shale formation, which underlies parts of Montana, North Dakota, Saskatchewan and Manitoba.

Brutal Rig Demand Cuts

“Demand for rigs is falling off the cliff,” Joseph Triepke, a financial analyst and managing director of Oilpro, an industry publishing company, told theNew York Times. “Exploration and production budgets are down anywhere from 30 to 40 percent and the cuts are happening faster than we thought.” Over the next six months, Triepke told the Times, the big three land drilling companies—Helmerich & Payne, Nabors Industries and Patterson-UTI Energy—are “likely to cut approximately 15,000 jobs out of the 50,000 people they currently employ.”

The oil service giant Halliburton announced in December that it would cut 1,000 jobs from its division in the “eastern hemisphere.” Halliburton’s multimillionaire CEO, Dave Lesar, sent an e-mail out to employees informing them that further layoffs could follow. The international oil giant BP announced in December it would lay off an unspecified number of workers as part of a $1 billion cost-cutting campaign. A host of other oil companies are shutting down development projects and slashing spending.

10,000 Laid Off Last Week

In Mexico, 10,000 workers were laid off last week. The majority of the workers operated rigs in the offshore formations of the Bay of Campeche in the Gulf of Mexico. Like many oil workers, they worked for smaller oil service companies that contracted out to a giant oil company, in this case state-owned Petroleo Mexicanos (Pemex). In a phone interview withBloomberg, Gonzalo Hernandez, the secretary of the Ciudad del Carmen Economic Development Chamber, said job losses could go much higher, all the way to 50,000 this year.

In Bakersfield, California, the Employment Development Department was given notice by Ensign Energy Services that it would be axing 700 jobs. Edgar Salazar, who was fired just before Christmas by the company, spoke to Bakersfieldnow. Fighting off tears, he told the news agency, “I’ve never seen it this bad…. I’ve got six kids. It’s stressful…. I have to support my family some way or another.” Edgar had worked in the oil industry for 14 years and, up until now, has always been employed.

The comment section of Bakersfieldnow was filled with hundreds of comments expressing the sentiment of oil workers and sympathetic workers. “Kirsty Darren King Clark” wrote, “I have been Human Resources at a drilling company for 13 years…. I have never seen it this bad and I don’t expect it to get better…. I was laid off. I hope and pray every oilfield man/women will get through this rough patch….” Arlene Aninion wrote, “Wouldn’t it be nice, though, if these oil companies would forego their HUGE profits every now and then so the employees could keep their jobs and provide for their families?”

Steel Mills Affected

It is not just oil workers who are affected by the price fall. US Steel, whose most profitable wing has been supplying steel pipes for the burgeoning shale industry in the US, recently fired 756 workers. The company is idling steel mills that specialize in Oil Country Tubular Goods in McKeesport, Pennsylvania; Lorain, Ohio; and Houston and Belleville, Texas. Its stock has fallen by about 20 percent over the past year.

Civeco, which operates camps for oil workers in undeveloped areas, saw its stock plummet by 53 percent on a single day of trading in December. The resultant job loss is not known. Overall, the Energy Select Sector (XLE) stock index, which houses major energy companies, has dropped by more than 25 percent in the past six months.

Conclusion

The worst hit states are going to be the “oil states”: Louisiana, Alaska, Oklahoma, North Dakota and Texas.

Oil has already dropped 55% since July last year. If it stays this low…or dare I say it, it goes lower…expect severe trauma within the US oil industry.

Sears, JC Penney, Macy’s Close Stores, Layoff Thousands

Christmas is over.

Store Closing

Store Closing
Photo by Nicholas Eckhart

Sears  closed a store near me last week. It’s part of their plan to close 235 poorly performing stores.

JC Penney is closing 39 stores and laying off 2250 workers.

Macy’s are closing 14 stores and could end up cutting 2200 employees.

From USA Today:

Penney’s company media relations manager, Sarah Holland says “We continually evaluate our store portfolio to determine whether there’s a need to close or relocate under-performing stores. While it’s never an easy decision to close stores, especially due to the impact on our valued associates and customers, we feel this is a necessary business decision.”

Macy’s CEO Terry Lundgren states “Our business is rapidly evolving in response to changes in the way customers are shopping across stores, desktops, tablets and smartphones. We must continue to invest in our business to focus on where the customer is headed — to prepare for what’s next”.

But what’s really happening?

From WND.com:

It’s.. just the beginning of the retail earthquake hitting America, say analysts.

“I believe that we are on the verge of a number of business failures of specialty retailers as well as some national general retailers which in turn will have a domino effect on those dealing with the retail industry,” says bankruptcy expert Chuck Tatelbaum. “Because of the changes in buying habits of U.S. consumers, as a result of the continuing hesitancy to spend, the 2014 holiday season was not sufficiently successful for many retailers that have either over expanded, fell out of favor or had insufficient capital and merchandise.” Source

 

 

Asia’s Standard Chartered Bank In Trouble

The first bank has been hit by the fall in the price of oil and other commodities: Asia’s Standard Chartered Bank.

Standard Chartered Bank in Hong Kong

Hong Kong’s banking district with Standard Chartered Bank in the foreground.
Photo by Brian Sterling

From Reuters, Steve Slater, January 12, 2015:

A jump in Standard Chartered’s bad debts in the third quarter has prompted concern that it could face heavy losses from commodities loans after the fall in the price of oil and commodities.

Credit Suisse’s estimate was based on an “adverse” scenario that would see the bank need $4.4 billion to maintain its capital ratio, based on a potential $2.6 billion of pretax provisioning for commodities loans that sour and a higher risk-weighting on the loans.

Analysts said the losses could force Standard Chartered to raise $6.9 billion to improve its core capital ratio to 11 percent by the end of the year.

Credit Suisse said that its analysis was based on default probabilities across Asian energy, metals and mining companies and an assessment of Standard Chartered’s commodities portfolio. More:

Conclusion

The rapidly falling prices of oil and most other commodities such as copper, cotton and corn are likely to cause major problems for other banks and financial entities around the world. Copper fell to below $2.50 last night indicating a slowing economy. In conjunction with the falling price of oil, it won’t be long before we see other banks having the same problems.