Archive - Oct 4, 2015

JV?

The results from Portugal's elections are beginning to trickle in and according to exit polls, Coelho's coalition has prevailed. According to Bloomberg, the ruling coalition of Prime Minister Pedro Passos Coelho has won 38%-43% of vote and 108-116 seats.

From time to time, the data (from economic activity, inflationary pressure, risk appetite and asset valuations) points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a point, and the worry is that each indicator is flashing red.

The following would be funny, if it weren’t so incredibly sad. The United Nations’ spiral into clownish insignificance continues unabated.

On the morality of war....

Late last week, after looking at Valeant soaring default risk as measured by the price of its blowing out CDS, soaring to over 30% even as its stock prices was surging, we wondered - does someone know something? It appears someone may have known that this weekend, the same Andrew Pollack whose NYT article exposing Turing's 5000% price increase resulted in Hillary Clinton promising to cap specialty biotech prices if elected, has come back for round two and after taking aim at Shkreli and Turing, much to the chagrin of Bill Ackman, Pollack is now taking aim at the biggest culprit: Valeant Pharmaceutcals.

If it feels like you’re reliving the market jitters of the Great Recession and eurozone crisis, it’s probably because you are. During this week, Marketwatch reports that global risk appetite dropped to "panic" levels for the first time since January 2012, according to Credit Suisse’s Global Risk Appetite Index.

With supply set to increase meaningfully over the next few years, JPMorgan sees a buyer's market until 2020 with limited new long term contracts being signed and renewal of existing contracts post expiry likely to have more price diversification (i.e. more Henry hub component) and offtake/diversion flexibility. A recent trip to Asia identified 10 key themes reinforcing their bearish outlook on the LNG market for the rest of the decade.

The reaction function of officials takes on added importance in the week ahead.

By way of excuse for what President Obama called "a tragic incident," (and The UN called a 'war crime') US officials have claimed that the Taliban were fighting from within the Kabul hospital (which was destroyed by a US air strike yesterday killing at least 19 including 3 children) using aid workers as "a human shield." However, this justification for the 'collateral damage' has been vehemently denied by Medecins Sans Frontier (MSF) who have issued a statement dismissing the US claims, "the gates of the hospital compound were closed all night so no one that is not staff, a patient or a caretaker was inside the hospital when the bombing happened..." but, the US strike has done one thing, as one local health official concluded, "this city is no longer for the living."

Even a deflating balloon can still explode...

Once again the reactions of desperate government policies looks like creating an even worse situation thanks to unintended (though entirely foreseeable) consequences. Amid the prospect of sharply higher shipping taxes in Greece - designed to increase revenues and 'fix' the debt-ridden nation, WSJ reports many of Greece’s world-leading shipowners are actively exploring options to leave their home country. With Greece controlling 20% of the world's shipping fleet, the 'quadriga' of Greek creditors' demands to raise taxes (because debt restructuring is out of the question) on such an 'easy target' as the world's largest shipping industry appears likely to backfire as an entire industry's revenues move out of reach of government taxers.

$13 trillion in market losses in just one quarter would be very hard to make up for even in very favorable circumstances. We have no such circumstances. We’ve built our very lives on squeezing China et al for 27 years, and issuing more debt as if there’s no tomorrow - sort of a self-fulfilling prophecy -, and now we’ve belatedly realized that there’s a time limit on that model. But hey, by all means, it’s your money, and it’s your life, so do keep on betting on that recovery, and the return to ‘normal’, whatever that once was. Put it all on red. Go crazy! You do risk becoming a lonely crowd though. Meanwhile, those of us down here with our feet planted in the real earth have just this one question: “How bad can this get, and how fast?”.

"I know there is a major battle upon us and everything needed for this battle will be made available"...