Archive - Feb 2015

Ya can't have any pudding...

The Baltic Dry Index dropped another 3% today to 590 - its first time below 600 since 1986 and not far from the all-time record low of 554 in July 1986. Of course, the absolute level is shrugged off by the over-supply-ists and the 'well fuel prices are down'-ists but the velocity of collapse (now over 60% in the last 3 months) suggests this far more than some 'blip' discrepancy between supply and demand - this is a structural convergence of massive mal-investment meets economic reality.

"It is clear that the stand-off between Greece and the eurozone is the greatest risk to the global economy," warns UK Chancellor George Osborne adding that he hopes Greece's new finance minister "acts responsibly," as Varoufakis toured Europe to discuss Greece's 'demands'. Mainstream media's attention, however, is not focused on this warning (remember, Greece is small and contained is the meme to pay attention to), but instead proclaimed Greece's pivot to Russia over when in fact, Tsipras words did anything but 'rule out' Russian aid as he said - specifically - "we are in substantial negotiations with our partners in Europe and those that have lent to us," adding that with regards Russia, "right now, there are no other thoughts on the table." Hardly the definitive "ruling out" that US media spins.

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The latest uptick in crude prices -  Ostensibly, triggered by a notable drop in the Baker Hughes rig count - will be one more head-fake, a false breakout. Keep in mind, oil drilling rigs and oil wells are not the same thing. Armored Wolf's Jon Brynjolfsson expects global inventories to continue to build until at least June. Drillers seem to be in denial, they fail to acknowledge that as long as inventories are building toward untenable levels, there will be extreme pressure on spot crude prices. What they don’t seem to realize is that absent a universal suppliers’ cartel (which OPEC clearly is not, because its members are autonomous, and many of the largest producers, including Norway, Russia, and US are not even members), high social break even prices incentivize individual producers to pump more, not less, oil at low prices!

It will be politics rather than economics (or Q€) that drives the shorter-term outlook in Greece. Goldman Sachs warns that the new Greek government’s position is turning more Eurosceptic and confrontational than most (and the market) had anticipated ahead of last weekend’s election. This increases the risk of a political miscalculation leading to an economic and financial accident and, possibly, Greek exit from the Euro area (“Grexit”) and while many assume European authorities have the 'tools' to address market dislocations arising from this event risk, Goldman expects significant market volatility. Rather stunningly, against this background, and in spite of Q€, recommends closing tactical pro-cyclical exposures in peripheral EMU spreads (Italy, Spain and Portugal) and equities (overweight Italy and Spain).

Virtually all of AAPL's cash growth in the December 31 quarter took place offshore, where its cash hoard rose from $137 billion to $158 billion (mostly thanks to the previously mentioned surge in Chinese iPhone purchases). How much of Apple's cash is domestic? As the following chart shows, a paltry $20 billion of AAPL's cash, or barely above 10%, is held domestically - one of the lowest levels in the past 4 years - and can be used for such corporate activities as stock buybacks and dividends.

In the latest in a long list of Social Media embarrassment's for the status quo administrations around the world, Will Stevens - spokesman for the US Embassy in Moscow - unleashed the following tweet...

President Obama's $4 trillion budget hinges on what Obama calls "middle-class economics," seeking tax breaks for many Americans while imposing increases on top earners, corporations and particularly the financial sector. Many have called it Robin-Hood Economics, and House Ways and Means Committee Chairman Paul Ryan accuses Obama of exploiting "envy economics." Probably the most controversial aspect is his recently announced six-year, $478 billion public-works program for highway, bridge and transit upgrades, half-financed with a one-time, 14 percent tax on U.S. companies' overseas profits.  As Ryan warned, Ryan said, "This top down redistribution doesn't work."

"The S&P: This has the ominous look of what some of the Old Guard amongst the market technicians used to call “Three Peaks and a Domed House” pattern, which always gave way to substantive weakness. All we know is that Friday’s action was horrific and that the volume swells on the downside these days, and wanes on rallies!"

- Dennis Gartman

The Greek Elites and kleptocrats are terrified of the discipline that leaving the euro will impose, but the general public should welcome the transition to an economy and society that has been freed from the shackles of Imperial debt and the kleptocracy that has bled the nation dry.

The last time 41% of the ISM respondents, and rising, saw "lower" prices was in October 2008. We can't quite put our finger on what had just happened the month prior.

Well there's a surprise - plunging stock prices.. and the markety breaks:

*BATS OPTIONS DECLARED SELF-HELP VS BOSTON OPTIONS EXCHANGE
*NASDAQ OMX BX OPTIONS HAS DECLARED SELF HELP AGAINST BOX

And sure enough... the bounce begins...

From the post "home run" IPO highs of $52.50, SHAK is now trading $42.50 for a drop of 19% and nearing the dreaded "bear market" 20% drop... Unless you owned it at the IPO, you are a loser for now...

With liquidity increasingly negligible this morning's chaos in crude has now spilled over into stocks. A triple whammy of disappointing data this morning and re-tumbling crude hopes have sent the S&P down 25 points from overnight highs and will below 2000 in cash. The Dow is now down over 1000 points from its record highs. Treasury yields have given up all the AAPL rate-lock surge and are at new cycle lows.