CONCLUSION: BMO's Randy Ollenberger (Energy) and Carl Kirst (Pipelines) conclude that the delay for a decision on Keystone XL is probably "much ado about nothing." Given the availability of alternatives, we do not believe that the delay or demise of Keystone will negatively impact the growth outlook for the Western Canadian producers. Our analysis suggests that heavy oil and bitumen producers will need to be able to access the PADD III market by 2015 or else face significant price discounting. Given the availability of alternatives within this time period we do not foresee a material increase in light-heavy spreads. We do see an increased likelihood that Enbridge's Wrangler and Spearhead expansions proceed as well as the probability that the Canadian federal government will attempt to diversify away from the
Summary of alternatives to Keystone for Western Canadian producers:
1- The most immediate alternative to Keystone XL is a two-step expansion by the largest transporter of crude oil, Enbridge (Wrangler/Spearhead)
2- Rail. Sending oil by rail from
3- Seaway Reversal. Not a true alternative, though Seaway carries crude northbound from
4 - Longer-term: Crafting a path to
Au bout du fossé, la culbute.
Brace yourself. Here are some reasons why markets are giving France, in particular, a kicking today, according to the Banca D’Italia’s latest financial sector report on November 2:
(Click to enlarge)
Source: Banca d’Italia
We will reserve judgement for now and let you mull this over. In the bank’s words: (Emphasis ours)
Figure A shows the trend in the total gross assets held by some large European Union countries (France, Germany, Italy, the Netherlands and the United Kingdom) vis-à-vis Greece, Ireland and Portugal in the aggregate and also Belgium, Italy and Spain.
The growth of gross assets was rapid for France, which had total exposure equal to about 60 per cent of its GDP at the end of 2009. For Germany the rise was more moderate but still resulted in an overall exposure of more than 30 per cent of GD P. The United Kingdom’s exposure to Greece, Ireland and Portugal rose particularly sharply (to over 25 per cent of GDP).
For the Netherlands, whose degree of openness and financial deepening is especially high, the exposure to the six countries comes to more than 100 per cent of GDP, owing in part to the massive presence of special purpose entities controlled by European financial companies. Italy’s overall exposure to the countries with sovereign debt strains – not counting domestic assets – is much lower (less than 15 per cent of GD P), compared with the other main European countries.
For both France and Germany the largest component of the exposure is debt securities (government and corporate), followed by bank loans (Figure B). For the UK the exposure consists primarily of substantial bank assets vis-à-vis Ireland.
And like manna from — eurozone-financial-exposure-statistics — heaven, the Institute for International Finance’s (IIF) Capital Markets Monitor, published Wednesday, dishes out more reasons to be bearish, particularly viz a viz France. (Click here to enlarge:)
Here come the bank deleveraging waves, current account adjustments, spike in contingent liabilities on sovereign balance sheets, safe haven bids etc… you know the drill by now.
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As diehard Treasury bond geeks, you gotta love the charts that accompany Treasury Borrowing Advisory Committee’s quarterly refunding report.
As we contemplate the massive amount of debt that the U.S. has managed to pile up over the years, it’s worth taking a look at who’s been loaning us the cash. This chart goes a long way to answer that question, showing the major holders of Treasury debt over time. You have to note that rather sharp uptick in Fed holdings of Treasurys lately. (The red line.) But obviously the big story has been among foreign holders, whose lending to Uncle Sam has exploded over the last 20 years.
The key question of course is why did foreign lending to the U.S. pick up so much in the mid-19990s. Well, some people would argue that this chart has a lot to do with it.
This FactSet chart shows the exchange rate between the U.S. dollar and the Chinese Renminbi. It’s a little counter intuitive, but when the line goes up, the CNY is getting cheaper against the greenback. So you can that in early 1994, there was a large and sharp devaluation of the Chinese currency against the dollar, making Chinese goods way more competitive as exports. China devalued its currency, the yuan, to 8.7 yuan to the dollar from 5.8 yuan to the dollar on Jan. 1, 1994. More recently the Chinese government has let its currency appreciate against the dollar somewhat. But the U.S. wants a lot more.
By the way, another way of looking at this whole debt issue is basically as the flip side of the U.S. trade deficit. The trade deficit started getting bad in the 1980s. But it really really got terrible in the 1990s and worsened up until the financial crisis. Here’s a look at the current account deficits, which measures mostly trade in goods and services and also includes transfer payments and investment income, as a share of GDP.
Basically, this means we started selling a lot less than we produce. That means our trading partners were socking away massive amounts of dollars that we paid them. And largely they stuck those dollars back into U.S. Treasurys for safekeeping. That keeps the U.S. borrowing costs low, which makes it easy for us to rely on too much debt. At that keeps the whole corrosive cycle going.
