Archive - Feb 2011

Our advice to Italy, which imports 425,000 barrels of oil each day from Tripoli: "Panic." Following yesterday's Force Majeure announcement from Libya which meant that oil production and exports will continue only for a few more days, the FT now reports that over half of Libya's production, or about 750,000 barrels is now offline. As Libya accounts for ~2% of global oil exports, this means that 1% of world oil output has just been removed. And to all those who claim that excess OPEC capacity can be easily substituted, sorry it can't - Libyan crude is far higher in quality than the general muck, meaning it is not a simple apples for apples replacement. From the FT: "Industry executives told the Financial Times that at least half of Libya’s 1.6m barrels a day oil output had been closed down. They cautioned, however, that they could only estimate the total outage since they did not have direct knowledge of production at their competitors’ oilfields." And if Nomura's earlier call is correct that a combined Libya-Algeria oil stoppage will result in the doubling of crude prices (and one can only imagine what happens if Saudi is thrown into the fray), then our January call for "higher" oil may lead to some very tidy profits. In the meantime, we expect the partial Libyan oil closure to reach 100% shortly.

While it is not surprising that the Swiss Franc is surging almost as much as silver in today's flight to safety episode, and even "value investor" Whitney Tilson is rumored to be shorting Netflix again after topticking his cover with immaculate perfection, what is a little disturbing is that the dollar has plunged to the lowest levels since February 3. The reason, of course, is that with global unrest spreading like Molotov cocktail fire, and implied US GDP plunging by 5% in the past week on the hike in oil prices, it is becoming very evident that the recovery myth is now over, despite claims by the NAR charlatans, and another round of quantitative easing is almost inevitable. What that means for the dollar is precisely what one can see on the chart below. As for the use of funds in the upcoming QE episode, perhaps the Fed can instruct the Primary Dealers to go out and buy some WTI this time instead of just crowding into Apple and REITs...

A $10 move in a week is just what the doctor ordered to destroy the last trace of surreality in the whole "economic recovery" story. At this rate we will take out all time high crude prices by mid March. As we have been saying since December, a rapid move in oil will undo years of carefully planned propaganda and money printing. Yet the weakness that "nobody could have possibly predicted" is just as we had forecast: global and US weakness in late February/March, market swoons in March/April (as per DeMark's repeat appearance), Fed releases early indications of QE3 in May. In the meantime, we also get a war as a bonus to boost the US military-defense industrial complex. Pretty much a rerun of the first great depression to the dot.

With the facebook revolutions having claimed virtually every other country in the region, the time may be coming for that most important one of all. And if Facebook is to be relied on for its revolutionary calendar, a job it has so far done without reproach, the revolutionary wave will come to Saudi Arabia on March 20. That will also the day crude passes $200.

To those who bought Italy CDS last week, congratulations. To those who are buying it right now, also congratulations.

Waiting for a Saudi revolution before buying those $200 oil calls? It may be time to reevaluate: according to Nomura a halt in just Libyan and Algerian oil production (far more likely than the crisis spilling over to Saudi) would send oil to over $220/bbl. Specifically "the closest comparison to the current MENA unrest is the 1990-91 Gulf War. If Libya and Algeria were to halt oil production together, prices could peak above US$220/bbl and OPEC spare capacity will be reduced to 2.1mmbbl/d, similar to levels seen during the Gulf war and when prices hit US$147/bbl in 2008." Wouldn't a doubling in price lead to a major demand plunge as well? Yes it would "This could also result in a temporary demand destruction of some 2.0mmbbl/d globally." Also, since the Fed's free money was not flooding global market last time, $220 is just a lowball estimate: "We could be underestimating this as speculative activities were largely not present in 1990-91."

The global stock markets' big dump yesterday has long-frustrated Bears salivating. Everyone knows the market has traded up for months on thin volume and heavy intervention by the Federal Reserve, so it makes a certain sense to expect the markets to cascade downward once the charade ends. Everybody also knows the tradewinds that have filling the markets' sails--record profits, impressive gains in overseas revenues, the expectation that China alone would fuel a commodities boom for decades to come, to name but a few--have all suddenly ceased, and in the stillness, a storm--oil over $100/barrel--is gathering ominously on the horizon. But too many hedge fund managers and other traders have been waiting for a big dump to make their year, which means the big dump is suddenly less likely. We might also anticipate that the Powers That Be aren't going to let their pride and joy, a manipulated market, roll over and expire just because Libya imploded and oil is heading over $100/barrel.

• Qaddafi Vows New Crackdown as Violence Spreads (Bloomberg)
• Merkel Says EU Considering Extension of Financial Aid Program for Greece (Bloomberg)
• Dale Joins Sentance, Weale in Push for BOE Rate Increase (Bloomberg)
• Making sense of Wisconsin's union showdown (WaPo)
• Ireland Needs Help with its Debt (FT)
• What Inflation Means to You: Inside the Consumer Price Index (dshort)
• New Zealand's Central Bank May Hold Rates as Earthquake Postpones Recovery (Bloomberg)
• Hong Kong's Main Task Is `Fighting Inflation,' Tsang Says (Bloomberg)

Dan Bigman of Forbes wants to remind you Wisconsin’s Public Pension Problems Are Your Problem, Too. But are they really or is this more fear mongering?

Coghlan Capital today announced the launch of MetalsTrades, a unique service for gold and silver traders and investors. In addition to intraday traders this specialist service is ideally suited for traders or institutions that have or are looking to establish core positions in gold or silver and would like to hedge or capitalize on intraday moves in these highly volatile instruments. The service provides access to real-time calls and commentary from well known metals trader, Andrew Maguire.

Markets up this morning. Stocks plunged and oil rallied yesterday to a two year high as instability in Libya worsens. February consumer confidence rose yesterday to 70.4 according to the Conference Board, well above market expectations of 65.5. The increase marks the index’s highest level since February 2008 and is likely due to recent stock gains and lighter unemployment rates. The gains occurred despite a stumbling housing market as the S&P/Case-Shiller home price index fell 2.4% YoY v -2.3%E in the last twelve months ending in December.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/02/11

EURCHF reverted back into the short zone in yesterdays session, today we have CHF PPI at 03:15 EST which is likely to have an effect on this positioning. After some strong selling in the early part of yesterdays session a recovery ensued in EURUSD, the pair is now in the long zone.

Tim-fucking-berrrrrrrrrrrrrrrrrrrrrrrrrrr. Holy shit is it on like...

The Conference Board says people are more optimistic. Gallup says they aren't. Who are we to believe?