Category Archives: Dubious statistics

Russia Can Survive An Oil Price War

Yves here. This article is an important sanity check on the impact of the current oil price war on Russia. We’ve seen similarly skewed conventional wisdom on the Saudis: “No, they can’t make it on a fiscal budget basis at below $90 a barrel,” completely ignoring the fact that the Saudis clearly believe it is in their long-term interest to suffer some costs to inflict pain on some of their enemies, and render some (a lot) of shale oil and alternative energy development uneconomical, which increases their ability to extract more in the long term from their oil asset.

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Treasury Liquidity Freakout: Searching for a Market-Maker

As someone old enough to have done finance in the Paleolithic pre-personal computer era (yes, I did financial analysis using a calculator and green accountant’s ledger paper as a newbie associate at Goldman), investor expectations that market liquidity should ever and always be there seem bizarre, as well as ahistorical. Yet over the past month or two, there has been an unseemly amount of hand-wringing about liquidity in the bond market, both corporate bonds, and today, in a Financial Times story we’ll use as a point of departure, Treasuries.

These concerns appear to be prompted by worries about what happens if (as in when) bond investors get freaked out by the Fed finally signaling it is really, no really, now serious about tightening and many rush for the exits at once. The taper tantrum of summer 2013 was a not-pretty early warning and the central bank quickly lost nerve. The worry is that there might be other complicating events, like geopolitical concerns, that will impede the Fed’s efforts at soothing rattled nerves, or worse, that the bond market will gap down before the Fed can intercede (as if investors have a right to orderly price moves!).

Let’s provide some context to make sense of these pleas for ever-on liquidity.

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Private Equity Now Looking to Even Bigger Chumps, Namely 401 (k)s and Retail

One of the reasons that private equity has managed to flourish is that its biggest investor group is what is traditionally referred to as dumb money: public pension funds, which account for 25% of industry assets. Readers may recall that even CalPERS, widely considered to be the savviest public pension fund, recently had a public board meeting where the questions asked of prospective gatekeepers, the pension fund consultants, were, with one exception, softballs. And that question was the only one to address the SEC’s revelation that private equity firms have been engaging in large scale fee-skimming and other forms of grifting. And remember, the SEC also stated that the investors in these funds, known in industry nomenclature as limited partners, have done a crappy job of negotiating their agreements.

But in predictable fashion, as one group of marks, um, sales targets, starts to dry up, private equity funds, aka general partners, are hunting for new ones. And having gone very systematically after every conceivable large pot of money, the only place left for them to go is down market, in terms of size and sophistication.

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More Private Equity Fibbing: Marketing Materials Often Exaggerate Returns

I’m a little slow to write this up because private equity abuses are so pervasive as to fall in the “dog bites man” category. But that doesn’t mean that the public at large, or worse, intellectually captured, credulous investors understand that.

One of the latest abuses to come to light is private equity firms effectively lying about their returns in past funds when dialing for dollars for prospective funds. The overview from Reuters, which broke the story last week:

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That Shrinking Slice of a Barely Growing Pie: Why the Glorious Economy of Ours Feels so Crummy

ves here. There’s one thing to add to Richter’s useful recap of what the supposedly sparkling 3Q GDP results mean for those of us who live in the real economy. The GDP deflator fell from 2.1% in the second quarter to 1.3% this quarter, so some of the rosiness of the results was due to the swing in the deflator.

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Yanis Varoufakis: Why the European Bank Stress Tests Have to be Phony

Yves here. I have to admit I never focused on what turns out is a blindingly obviously reason why the European bank stress tests are an exercise in optics. Even though this website derided the US stress tests as a cheerleading exercise, and earlier criticized the Administration for failing nationalize Citigroup as FDIC chairman Sheila Bair sought to do, the US authorities were in a position to Do Something about sick banks. Consider the European case (note I consider Yanis to be too charitable toward US bank regulators, but keep in mind that he’s comparing them to his home-grown version). And then you have the additional problem, which was widely discussed in 2009 to 2011 or so, that the apparent insolvency of states was the result of and bound up with the overindebtedness of European nations. Perversely, tha is almost never put front and center these days when the topic of seriously unwell European banks comes up.

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Drilling Deeper: New Report Casts Doubt on Fracking Production Numbers

Yves here. We’ve discussed the fracking bubble intermittently, particularly that many of the valuations ascribed to shale gas wells don’t reflect how short their production lives really are. This report by Steve Horn of DeSmogBlog focuses on a related result from the same set of unrealistically high production assumptions: that overall fracking output forecasts are likely to prove to be high.

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Ilargi: Europe Redefines “Stress” in Its Bank-Boosterist Stress Tests

Yves here. As we’ve repeatedly pointed out, bank “stress tests” are officially-orchestrated bank PR. And the reason they worked so well the first time was that exercise was accompanied by all sorts of Administration “we’re fully behind the banks” messaging, including a commitment that any banks that fell short would get a heapin’ helping of new capital. But the effort to talk bank stock prices up worked so well that many, even the weaker ones, were able to float new shares.

The Europeans have tried emulating the Americans, but with more emphasis on the optics and less on prodding the banks to take meaningful steps to shore up their capital bases. Ilargi describes how even this exercise in porcine maquillage is failing to cover up the unhealthy state of many banks.

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Ilargi: 40% of Eurozone Banks Are In Bad Shape

Yves here. While investors remain fixed on how much more the Fed and the ECB will pump into financial assets via QE, Eurozone banks lumber on in their walking wounded state. Deflationary pressures and lousy growth grind down weak and even once-good borrowers. And it’s not as if the banks who lent to them in the first place were good shape themselves.

As we wrote at the onset of the Eurozone bank stress tests, they were designed to be even more cosmetic than the US bank stress tests. Just a month ago, we posted an analysis that showed that many countries in Europe have banking systems weaker than those in Latin America.

Even with the efforts to use the stress tests as a confidence-building exercise, the result of the current exam of Eurozone banks is expected to be less than impressive.

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A Picture Worth 1000 Words: A Sighting from the McJobs Market

One of the complaints too often taken seriously by the business press is employer claims that they can’t find workers with the right skills for open job slots. We’ve looked at some of these stories in the past, and when employers complained, it pretty much without exception reflected that because the economy is slack,they expect to be able to hire workers cheaply, which often includes not being willing to spend time to train someone. In fact, there has been a perverse trend starting more than a decade ago of employers putting out incredibly narrow job specifications. They were effectively saying they were willing only to hire someone who had been in precisely the same role at a similar company.

But even as McJobs look to be the fastest growing employment sector, just because they want to hire workers for as little as possible does not mean that prospective employees will hit their bid.

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“Private Equity at Work” Rigorously Debunks Industry Mythology

I must confess that I have been extremely tardy in discussing a tremendously important book on the private equity industry, Eileen Appelbaum’s and Rosemary Batt’s Private Equity at Work.

In the meantime, the book is getting the attention it deserve via a glowing review by Bob Kuttner in the New York Review of Books, Why Work Is More and More Debased.

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Media Giving Corporate Executives a Free Pass on Their Value Extraction

Executive rentiers and their media lackeys are invoking the canard that they can’t find decent investment opportunities. The truth is that they’ve exhausted the first and second lines of value extraction, that of labor-squeezing and disinvestment, and aren’t prepared to accept the lower but still attractive returns of taking real economy risks.

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Deconstructing Fed Chair Janet Yellen on Unemployment and the Unemployed

I would have liked to see some table pounding and shouting about pseudo-scientific constructs like the “Natural Rate of Unemployment” — what’s “natural” about it? — or a heartfelt plea for a well-funded study to find out how the permanently disemployed actually eat, and find shelter, and stay alive — System D? — or even a dim recognition that regulating the economy by throwing people out of work is just as barbaric and inhumane as the medieval remedy of bloodletting.

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