Archive - Dec 2014

Having predicted oil prices below $80 in 2014 at the beginning of the year, Saxobank's Steen Jakobsen has a leg or two to stand on when he warns of a "massive correction" in energy stocks andthe drop in prices will rapidly become a headwind for the US economy, adding that "it will subtract 0.5% from GDP, bare minimum." He further notes that due to the strategic importance of the oil industry to America, he suspects the government will attempt (a likely highly unpopular) bailout of the Shale sector. However, as Raul Ilargi Meijer notes, there is a problem for any bailout (aside from public angst), in that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil...And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.

Even though the economy may not have normalized fully, it is also clearly no longer in crisis, and yet, as Bloomberg Brief's Carl Riccadonna notes, monetary policy remains calibrated at a crisis stance. There are numerous reasons for this as we have expounded vociferously but the make-up of the Federal Reserve's voting members next year bends notably to the dovish side... no matter how much they want to get off ZIRP and achieve some breathing room into the next crisis. As Bloomberg's "Fed Spectrometer" shows, from Hawkish Fischer (non-voting) to Dovish Yellen (voting) and uber-dovish Kocherlakota (non-voting) this handy guide will clear up any confusion when the FedSpeak begins again...

Respected economic historian and author of the “Gloom, Boom and Doom Report,” Dr Marc Faber has warned about the continuing and coming decline of western economic power.

He believes that the generation of young people starting to work today will be the first in two hundred years to have a lower standard of living than their parents had. He believes dividend paying Asian stocks will grow wealth in the coming years and remains an advocate of owning physical gold.

While none of the following analysis suggests that a market crash is imminent, it does imply that we are very late in the current market and economic cycle. A market melt up into 2015 would certainly be exciting, but should be used to sell overly priced assets to what will probably be a dwindling supply of "greater fools."

MOAR Spying on Americans ... MOAR On-the-Hook-edness for Taxpayers ... MOAR Terrorism

Update: As you were - VOTE ON FEDERAL SPENDING BILL POSTPONED, STILL PLANNED FOR THIS AFTERNOON

As is widely known by now, in a largely token vote, since it has the blessing of the White House, in a few moments the House will vote on H.R. 83, the bill containing $1.1 trillion in appropriations to fund the government through 2015, aka the "Cromnibus". As noted previously, among the provisions in the bill is Citi-directed watering down of Dodd-Frank by way of a Swap "push-out" provision, which as we explained over the weekend, would put taxpayers on the hook for derivative losses as it "would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts." Those wishing to follow who votes for and against the Spending Bill may do so on C-Span after the jump.

"Over the next five years investors now expect inflation to average just below 1.3%. This level of expected inflation has always previously been associated with a decline in US equity prices. There have been no exceptions until today." Russell Napier

Golf-clap, Janet... you really screwed this one up...

CIA Director John Brennan is due to make a rare public statement and answer press questions with regard the Senate Intelligence Committee's report on the CIA's use of torture.

Once again, following a strong 10 Year auction, today's 30 Year reopening of CUSIP RJ9 was an absolute stunner, and with the When Issued trading at 2.875%, the high yield was a very much scorching 2.848%, stopping through nearly 3 bps through the WI, and the lowest 30 Year auction yield since November 2012. The reason for this impressive surge in last minute interest: a record low takedown by Dealers who got just 25.9% of the auction as they were pushed out by the other two bidding groups. Sure enough, there was an absolute scramble by Indirects (49.8%) and Directs (24.3%) both of which received, logically, a record high takedown for a 30 Year.  And finally with the Bid to Cover soaring to 2.762, this was the highest since January of 2013.

While Kyle Bass once remarked that "the brevity of financial memory is about two years," it appears for today's energy stock traders the period of goldfish-like memory is a mere two days... As the following chart suggests, the 'bounce' in XLE - the S&P Energy Sector ETF - is entirely decoupled from credit's uglier-and-uglier reality (just as it did on Tuesday, only to crash again yesterday). Trade accordingly...

US Household net worth dropped $141 billion in Q3 2014 after rising non-stop on the heels of various QE-inflated stock and real-estate prices for 11 quarters in a row. Mrs. Chairman, get back to work...

The 2% target is low enough that the household frogs in the kettle of hot water never realize they're being boiled alive because the increase is so gradual. The central banks assume their 2% plan to impoverish us all escaped our notice. Apparently it has.

So… the prices of assets are fraudulent, the value of balance sheets is fraudulent, and earnings are fraudulent. This means that stock market caps, balance sheets, and income statements are all inaccurate representations of reality.

For many, if not most, companies and especially retailers, the great wildcard that is the "massive" Chinese market with the potential of hundreds of millions of buyers in the country's nascent middle class, has been a slam dunk when it comes to boosting stock prices. After all, what can go wrong? America's largest retailer was one of those hoping to capitalize on just this shareholder euphoria for Chinese exposure, and just like everyone else, it milked its Chinese exposure for many years. And then, unexpected everything did go wrong: as Bloomberg explains, "After years of heralding China as one of its best markets, Wal-Mart in August said its performance there was among the worst in its major countries." How is that possible? Read on to find out how Wal-Mart fabricated, lied and misled investors for years using every single trick in the book and then some.