As hard as it is to believe - given the strength of the "Russia-is-doomed" meme - Crude oil prices for Russia (in Rubles) are unchanged since February... This is important as all costs are Ruble denominated while revenues are USD denominated, leaving Russian oil companies’ margins insulated despite the dollar decline in price. In addition, the Russian government is easing the export taxes which further improve the profitability of Russian oil. So as US Shale Oil sector is destroyed by its USD costs, it appears Putin's core energy industry is somewhat insulated... and America's late-80s "defeat The Soviet Union" playbook is failing.
Run away... just 6 weeks ago when we first highlighted the FBI was probing multi-billion-dollar REIT American Realty Capital, the company's stock crashed, wiping out billions leading the CEO to note, "we don't have bad people, we had some bad judgment there." Now, as The WSJ reports, it appears the CEO David Kay, COO Lisa Beacon, and founder & Executive Chairman Nicholas Schorsch have all decided to "stabilize the company and... strengthen future leadership and strategy," by jumping ship. We are sure their jets will be fueled up and ready for the nearest extradition-free nation...
We already know that to at least one, sadly all too prominent, career economist gold is held by central banks simply due to "tradition." Here is how another professor of economics perceives the value of gold to central banks.
Perhaps the most notable feature of the October Treasury International Capital report is that in October foreigners sold a whopping $27.2 billion in US equities, surpassing the dump just after the first Taper Tantrum, when they sold $27.1 billion in June of 2013 when they also sold $40.8 billion in Treasurys. This was the largest selling of US corporate stocks by foreign entities since the August 2007 quant flash crash, when some $40.6 billion in US stocks were sold by offshore accounts. However, what this month's TIC data will surely be best remember for, is that both China and Russia dumped US Treasurys in October, some $14 billion and $10 billion, respecitvely, in the process sending China's total Treasury holdings to just $1,253 billion, the lowest since February 2013 and just $30 billion more than the TSYs held by America's second largest (offshore) creditor, Japan.
In 1985, the Saudis chose volume over price to defend their market share against new production from the North Sea, as well as cheating/discounting from other OPEC members in a period of weak demand. The Saudis had warned the world of their intentions, but many thought “it was merely an elaborate warning designed to scare other OPEC countries and restore discipline.” The parallels with today’s market structure are hard to miss, and the Saudi’s essential playbook remains the same...
The shale oil “miracle” was an epochal stunt. Thanks to ZIRP, what every pom-pom carrying cheerleader failed to note was how much of the day-to-day shale operation was being run on junk bond financing. ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. Finance was the lifeblood of the global economy and scam after scam left it riddled with wormholes of fragility. That fragility has been waiting to express itself and the ability of bank wizards to squelch and conceal it may have come to an end. There will be no quick cure for cratering oil prices and the damage it will wreak among the shale drillers.
It never fails: every year we get a story of that one individual who, as simple survivorship bias would suggest, made a killing in the same market where 999,999 others lost (you won't ever read about them though). This year that someone is a 17-year-old from Queens who, according to rumors at Styuvesant High School in NYC where he is a junior, made $72 million by trading pennystocks, oil and gold. Meet Mohammed Islam, who as the photo below shows, is like most other high school kids... with a few exceptions: he rents a Manhattan apartment, drives a BMW. And eats caviar and apple juice. Allegedly.
Oil volatility has literally exploded in recent weeks as investors pile into protection and headline-driven shocks spark almost unprecedented swings in the ultimate raw material. While FX volatility has been draually picking up in the last 6 weeks - now at 2014 highs, rates and equity market volatilities have shrugged this off... until last week. While rates volatility is stable, equity vol picked up significantly as 'business risk' picks up once again - as evidenced by the contagious weakness in high-yield credit markets.
The market is a giant living organism of human behavior and trying to predict what the market will do in two weeks, much less twelve months from now, is pure folly. However, by looking at the price trends, and using some statistical analysis, we can garner a view of the direction that the “herd” is most likely heading. There is a fascinating analogy in nature, called murmuration, that very much resembles the “herd mentality” in the markets.
It's jolly good fun to discuss alternatives to the doomed status quo, but what choice do most of us have to participating in the current system, even if we loathe it? The lack of choice is of course a key characteristic of the status quo-- if alternatives were plentiful, how many would opt out of Corporate America and the Financial Nobility's manor house of debt servitude?