Archive - Feb 2015

While US equities suggest all is well and Greece is contained, the less mainstream-news indicators of European stress are starting to flash orangey/red as the surge in spreads across European peripheral bonds since the Greek election suggests Q€ is being over-run. Italian, Spanish, and Portuguese bond spreads are all wider on the year now and up 25-30bps from ther Greek Election (fastest rise in months). Greek bank bonds and stocks remain near record lows and even broad European stock indices are struggling to hold gains post-election.

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With a sane (and apparently honest/legitimate) government achieving election in Greece, the past six years of European “bail-out” fraud is about to be fully exposed. Indeed, the recent history of Greece, alone, is little more than a road-map of fraud, conclusively illustrated by a concise summation of events.

a) In 2009 and early 2010, the ECB “bailed-out” Greece on several occasions – and then it immediately went bankrupt, defaulting on 75% of its national debt.

We previously noted the extreme spike in S&P Energy sector stock valuations (and the fact that energy sector earnings will have to surge by 70% in order for this exuberant to be 'discounted' correctly). Now Deutsche Bank has run the numbers and warns that in order for S&P Energy to now be trading at what we would consider a fair ~15x normalized EPS, $70/bbl oil must return and be sustained by 2H15.

As the WSJ noted, the "world’s top finance leaders on Tuesday in effect backed currency depreciation as a tool for promoting growth by signaling strong support for aggressive easy-money policies aimed at boosting the fragile global economy." Spot the person who just realized it's not going to work.

The Fed is no longer engaging in QE. Profits will now be the largest drivers of stocks. And profits are collapsing.

A current Bank of America employee has made a number of whistleblower submissions to the U.S. Securities and Exchange Commission about the role played by the U.S. banking subsidiary in financing dividend-arbitrage trades: trades which used taxpayer-backed funds to allow hedge funds to avoid paying taxes. The employee’s submissions allege that Bank of America’s London-based Merrill Lynch International unit has extended “extreme levels of BANA leverage” to fund “increasingly aggressive and reckless” tax-avoidance trades. The submissions said the practices risked causing the bank “serious financial and reputational damage.”

The so-called "Normandy Quartet" of Merkel, Hollande, Poroshenko, and Putin are arriving for the latest/final round of Ukraine peace talks... Poroshenko warns "things in east Ukraine will "go haywire" if Minsk talks fall through."

There’s nothing good left from the initial idea that gave birth to the EU. It’s devolved into something utterly ugly, in which fat Germans driving their Mercs and Beamers down the autobahn can yell at their car stereos that those lazy Greeks must pay their due - which stems from Merkel et al. bailing out Deutsche Bank’s insanely outsized derivatives portfolios. The whole thing is so morally bankrupt, it’s really insane that we’re still trying to have a serious discussion about it. The whole thing, the entire global banking system, is as morally bankrupt as it is financially. So far, all the EU has (anyone notice how silent the IMF has been?) is hubris, bluster and chest-thumping. They play politicians, but Syriza plays real life.

With inventories expected to rise 2.33 million barrels, crude oil inventories surged by 4.87 million barrels for the 5th week in a row (despite some talking heads looking for a draw). There were significant builds across the board in all products. As far as rig counts dropping means production cuts - forget it - crude production rose 0.534% to a new record high and total inventories rose to a new record high. Furthermore, as the following chart shows, the total crude inventory is still massively excessive relative to historical norms for this (or any other) time of year.

Moments after its US inhabitants leave the embassy in Yemen for one final time, it is now officially owned by the new, less than supported by the US, rebel regime.

• ARMED HOUTHI REBELS SEIZE U.S. EMBASSY VEHICLES AFTER AMBASSADOR, DIPLOMATS LEAVE COUNTRY - LOCAL MEMBERS OF EMBASSY STAFF

We could make a token witty comment about how this entire episode is emblematic and symbolic of all US foreign policy in recent history, but at this point, what difference does it make?

We previously detailed the manipulations ("spoofing") that has occurred in oil futures but yesterday 'took the biscuit' in the outright bluntness of the algo's efforts to manage WTI Crude. As Nanex exposed, a 'wild HFT algo' oscillated oil 21 cents a dozen times in 18 seconds and the 'spoofing' continues. It appears though that after the squeeze of the last week, selling pressure has returned with WTI testing the $48 handle once again. But, but, but, the man on the TV news said oil prices had stabilized and bottom'd... it appears "it's a Brian Williams world" as business media anchors mis-remember their exuberant bottom-calls from last week.

Greece has the potential to be the small domino that ends up toppling much larger dominoes.