The Seventh Fold

Fracking (I’ve given up and given in)

• Thousands of Bulgarians protested throughout the Balkan country on Saturday against exploration for shale gas, worried it would poison underground waters, trigger earthquakes and pose serious public health hazards. Protesters rallied in more than six major Bulgarian cities calling for a moratorium on shale gas tests through hydraulic fracturing, known as fracking, and demanding a new law to ban unconventional drilling for gas in the southeastern European country.
• The Environmental Protection Agency says New York regulators should set limits for radioactive materials in gas-drilling wastewater sent to public treatment plants before allowing any hydraulic fracturing of natural gas wells in the state.
• Teamster pipeline workers are heading back to the job after the union and the Pipe Line Contractors Association struck a deal extending an expired contract. The National Pipe Line Agreement, which expired on Jan. 31, 2011, will be extended until April 13. The two sides will return to bargaining over the next three months. At stake is the future of pipeline workers retirement plans. The union and management group are battling over types of retirement plans. The impasse led to a strike that began in at pipeline work sites in Pennsylvania and West Virginia Jan. 1 and spread to pipelines in California early this week

Keystone XL

• The White House said on Thursday that finding an alternate route for the Keystone XL oil pipeline from Canada to Texas would take time and any effort to circumvent the approval process would be “counterproductive.” President Barack Obama faces a February 21 deadline set by Congress to either allow TransCanada’s $7 billion pipeline to be built or determine the project is not in the national interest of the United States. Speculation in Washington is rampant on how Obama will address the tricky political question, which divides two key parts of his base during an election year.

Iran

• The Iran Government has raised the temperature further in its dispute with western regimes that threaten to impose sanction on its oil exports. Having threatened to close the Straits of Hormuz shipping channel through which 35%-40% of the world’s oil is moved by sea, it has now warned OPEC members in the region not to ‘ramp up their output’.  ’Should Iran’s southern neighbours collaborate with the adventurous countries [the US and the European Union] to replace their oil production for that of Iran.such countries will be held as main culprits.’ The official added: ‘Such moves are not considered friendly and the consequences of Saudi Arabia and other OPEC members raising production could not be predicted.’
• This week the European Union announced they will be delaying their embargo of Iranian oil for at least six months.

Climate Change, Global Warming & Effects

• Nothing is quite as damning or convincing as photo evidence. And when James Balog looked over his time-lapse photography of an Icelandic glacier, everything he thought he knew about climate change …. changed. ”Your basic human perception of this stuff is that major epochal, geologic scale change happened a long time ago or will happen a long time in the future. ”[But] when we looked at these pictures, we realized — good God — we’re right in the middle of epochal change happening right now.
• On Wednesday, the Environmental Protection Agency (EPA) issued its list of top greenhouse gas emitters from 2010. Of the top 100 emissions sources, 96 were power plants, virtually all of them coal-fueled.
• See China’s Insane Pollution From Space
• China tripled its solar energy generating capacity last year and notched up major increases in wind and hydropower, government figures showed this week, but officials are still struggling to cap the growth in coalburning, which is the biggest source of carbon dioxide emissions in the world. The latest evidence of China’s promotion of renewable energy has been welcomed by climate activists, but they warn that the benefits are being wiped out by the surge in coal consumption.
• Some more China bashing: China’s airlines will refuse to pay any charges under the European Union’s new carbon trading scheme, while other Asia Pacific carriers, already battling a weak travel market, are likely to pass on the extra cost to passengers.
• What Rising Temperatures May Mean for World’s Wine Industry. Warming temperatures associated with climate change are already affecting vineyards from France to Chile, often in beneficial ways. But as the world continues to warm, some traditional winemaking regions are scrambling to adapt, while other areas see themselves as new wine frontiers.
• As the graph below from the UN Food and Agriculture Organization (FAO) clearly demonstrates, the amount of arable farmland has already shrunk and will continue to do so.

Macroeconomics

• China a prisoner to its own growth story. In order to sustain growth the Chinese will have to continue supporting a lopsided growth model: one driven by expanding leverage and increased investment and infrastructure spending. And while in the short run, investment (and even a little overinvestment is ‘ok’) at some point the consumer and organic demand must become the driving force of an economy.
• It’s the derivatives, stupid As in 2008, a boom has generated a large stock of liabilities of dubious worth—subprime loans then, European sovereign bonds now—with banks incurring large exposure to eurozone risk directly and through credit default swaps (CDS) and other derivatives. European banks have sold $238 billion in credit default swaps on bonds issued by the governments of vulnerable European countries—Greece, Ireland, Italy, Portugal, and Spain. U.S. banks have provided $518 billion in guarantees, mostly also in the form of credit default swaps, on the government, bank, and corporate debt of these countries. Banks tend to hedge a substantial portion of their CDS exposure, and it can be devilishly difficult to determine their net exposure to speculative instruments. For example, after a lengthy data slog, one analysis concludes that we can say very little “about the extent and form of U.S. banks’ exposure” to Europe.
• The actions of the European Central Bank greatly eased the immediate financial pressures in the Eurozone. But the underlying problem of internal imbalances remain, and the European response is still not addressing those imbalances. Instead, the commitment to the fixed exchange rate combined with Germany’s failure to recognize that their current account surplus must turn to deficit if they ever hope to be repaid promises to lock the Eurozone on the path of ongoing recession.
• I continue to be a skeptic of the pundits rhetoric that a European recession could lead to a true contraction of the economies of China and India. This is unlikely, and bordering on impossible.
• I remain a bear of the U.S. markets, but the U.S. consumer credit numbers for November 2011 (just released in January 2012) were striking and definitely not bearish for the markets. If consumers are happy to take on debt, for whatever reason, it is very bullish sign. However, as with all things in economics, the devil is in the details. Below is a table of the consumer credit breakdown, from December 2010 to November 2011 (the latest available data) from the Federal Reserve Economic Data
• U.S. consumers started the New Year feeling more hopeful about the economy, according to data released Friday. The Thomson Reuters/University of Michigan consumer sentiment index for early January increased to 74.0 from a reading of 69.9 at the end of December and a preliminary December reading of 67.7, according to sources who have seen the report.
• Friday’s jobless claims report showed an increase to both initial and continued unemployment claims as seasonally adjusted initial claims jumped back near the so-closely watched 400K level.
• If the United States economy is going to turn down, then foreign trade is the most likely source of the slump.

Logistics

• FMCSA delays enforcement of final driver work rule until 2013, giving truckers and shippers more time to test impact, prepare a challenge. Many factors may push truck pricing higher this year, but new restrictions on truck driver work hours won’t be among them.
• Rail services linking Asia and Europe are set to boom as shippers take advantage of an operation that is faster than ocean shipping and cheaper than air delivery, rail operators say.
• More Asian air cargo carriers will remove capacity this week year as export traffic remains week, said industry executives. The current air cargo export market out of Asia was “very, very bad,” said Paul Tsui, chairman of the Hong Kong Association of Freight Forwarding and Logistics.  He pointed to a 10 percent year-over-year decrease of export traffic at Hong Kong International Airport in the first 11 months of last year. Total traffic was down 5.6 percent in the same period.
• The cost advantage of manufacturing products in low-cost manufacturing locations in Asia will erode in comparison to the U.S. and Mexico in 2012, according to a new report by global consultancy AlixPartners. China, which is experiencing negative pressure as an exporter because of wage inflation, exchange-rate pressures and higher freight rates, could lose its cost advantage vis-à-vis U.S. production in four years if freight rates rise at 5 percent annually, according to the 2011 U.S. Manufacturing-Outsourcing Cost Index.