Archive - Jan 2015

Following another frustrating year in the previous metals markets, 2015 is showing signs that change is afoot. As Santiago Capital's Brent Johnson notes in this brief presentation, while being 'wrong' for the last 2 years on gold has been painful, is it any less crazy to believe that it will turnaround that to believe the hype that The Fed will raise rates once again (just like it promised in 2010, 2011, 2012, 2013, 2014, and now 2015...) - who is really losing their credibility? With the world's fiat currencies waging war and dislocations mounting, gold is no longer the 'David' underdog fighting against the 'Goliath' central banks... but is - as Alan Greenspan opined - "the premier currency. No fiat currency, including the dollar, can match it."

When news broke of the death, by gunshot wound to the head, of Alberto Nisman - the prosecutor who was due within hours to deliver testimony implicating the Argentine President in covering up the investigation into a bombing in 1994 - it seemed oddly quick for police to rule it suicide within hours (especially after his earlier concerns that "I could end up dead because of this.") Today's news from The Buenos Aires Herald that the "unexpected result" of forensic analysis of Nisman’s body confirmed that there were no traces of gunpowder on his hands suggests (despite experts still proclaiming it does not rule out suicide) has prompted many questions over just how he died. Even the US has offered help... and protests are growing larger.

The fix for low oil prices is... low oil prices. Past some point high-priced producers will naturally stop producing, the excess inventory will get burned up, and the price will recover. Not only will it recover, but it will probably spike, because a country littered with the corpses of bankrupt oil companies is not one that is likely to jump right back into producing lots of oil while, on the other hand, beyond a few uses of fossil fuels that are discretionary, demand is quite inelastic. And an oil price spike will cause another round of demand destruction, because the consumers, devastated by the bankruptcies and the job losses from the collapse of the oil patch, will soon be bankrupted by the higher price. And that will cause the price of oil to collapse again. And so on until the last industrialist dies...

Unfortunately for IBM, it better resume its financial engineering fast because this is where the bang (not the whimper) comes into play: in Q4, IBM's revenue was a modest $24.11 billion, far below the Wall Street estimate of $24.8 billion, and a whopping 12% less than what IBM generated a year ago. In fact, as the following chart shows, the annual plunge in IBM Q4 revenue was the worst since Lehman.

One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in "dollar economy" terms, i.e., converted in USD, things are not nearly as good.  In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having lost a whopping $4 trillion, or a whopping 5% drop,  in just the last 6 months! 

What he sees is what we get...

All algos that were short NFLX into earnings were just brutalized and stampeded into an epic short-covering squeeze when the company announced Q4 EPS of $1.35, nearly double the $0.72 expected. However, as usual, there is more here than meets the eye, epsecially when considering that NFLX Q4 revenue actually missed expectations of $1.49Bn, printing $1.48Bn. So how did NFLX smash EPS? Because as anyone who actually read the release before trading the stock would find, NFLX "Q4'14 Net Income/EPS includes a $39m / $0.63 benefit from a tax accrual release related to resolution of tax audit." Subtract that from the reported EPS and one gets $0.72. Right on top of expectations.

Remember when S&P forgot for a second that it lives in a world of pretend free speech, and where telling the truth would promptly result in a lawsuit by the US government after it downgraded the US from AAA to AA+ in the summer of 2011? A downgrade which as Bloomberg previously reported led to this exchange with then Treasury Secretary Tim Geithner: "S&P’s conduct would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government." Well, S&P will never make the same mistake again, because according to Reuters, it will cost it $1.5 billion to settle with the government and put the whole "downgrade" episode in the past.

Extended-term loans are "stupid not just for us, but for the industry," exclaimed Honda's US sales chief John Mendel, adding that competitors are doing "stupid thing" to boost auto sales. With delinquency rates surging, it appears he is right to worry, as Bloomberg reports, more than one in four new-car loans in October and November had terms of 73 to 84 months long (more than double that of the previous 08 peak). Honda has said it will avoid longer-term loans even if competitors do note as one economist ranted, "we've seen this movie before, we know how it ends, and it’s not pretty."

“Quite frankly, a lot of us thought that by buying politicians, rewriting tax laws, and hiding money overseas, we were getting it done,” said Dorrinson, who owns the hedge fund Garrote Capital. “If, at the end of the day, all we control is a measly half of the world’s wealth, clearly we need to do more - much more.”

Exporting crude oil and natural gas from the United States are among the dumbest energy ideas of all time. Exporting gas is dumb. Exporting oil is dumber.

Having saved the world markets from a 10% correction fate worse than death (or recession) in October with 'hints' of reigniting QE4, The Fed's Jim Bullard is back to his jawboning best. Blaming The ECB's looming unconventional policy move for the global bond market rally (as opposed to collapsing growth and disinflation), Bullard proclaims the domestic US economy is doing well with tailwinds from low rates and oil prices (just don't tell the 7,000 Baker Hughes workers this morning) and tells WSJ's Jon Hilsenrath that he wants to “get going” with rate increases warning that the funds rate is 400bps below normal.

A mere 70 million people will have more wealth than 6.93 billion. Thanks, banksters!

Whether you agree or disagree with our points below, or the President's "wealth redistribution agenda" in tonight's SOTU address, is of little matter. With both houses of Congress controlled by conservatives, the likelihood of any of these proposals actually passing into law nears "zero." This will leave the President with his nuclear option of "excutive orders" to move his agenda down the field, but even that is likely to be viciously contested in the months ahead.