Archive - Apr 2015

While global equity markets hover near record-er highs, global GDP growth expectations have erased their February dead cat bounce hopes and tumbled back towards cycle lows. This is all confirmed by the latest data from Goldman Sachs whose Global Leading Indicator remains mired in "contraction" for the 4th month in a row...

This morning I had left the TV mistakenly tuned to CNBC with the sound on - and unavoidably caught another bullish strategist jawing about the US economy’s awesome strength. This one was peddling as exhibit #1 the recent surge in C&I loans, arguing that it is a sure sign that business is gearing up for a post-winter boom. In this case, like most of the blizzard of bullish factoids spewed out each day on bubble vision, the purported business lending boom is not all that.

Earlier today, there was some good news for Brazil's largest energy major Petrobras when as we reported earlier, none other than China through its CDB, agreed to lend $3.5 billion to the foundering energy giant. That was quickly offset by bad news later in the day when a massive fire broke out at a fuel tank storage facility in Brazil’s port of Santos, Latin America’s largest, forcing some eighty firefighters to battle a raging inferno which consumed facilities located next to Norway’s Stolt-Nielsen Ltd and Transpetro, a subsidiary of state-run oil company Petrobras.

If the government of Australia is concerned that their well-capitalized banking system needs a safety net and wants to tax deposits for such purpose, how in the world can we possibly expect the US and Europe, with all of their banking system risk, won’t do the same?

The ECB’s €1 trillion plus in asset purchases should drive demand for euro corporate credit as yields on sovereign debt and SSAs are driven relentlessly lower. UBS is now forecasting €600 billion in supply for 2015, up a fifth from last year with up to €140 billion in HY issuance. With liquidity in the secodary market constrained by regulation, does this increase the risk that a tail event could trigger a bond market meltdown? 

In case anyone is curious what today's theater is all about. Because it's not a "deal", it's a "Parameters for a Joint Comprehensive Plan of Action"

There are a host of signs as of late, including price momentum and internal deterioration in the financial markets, that suggests the risks are rising. For investors, this is critically important since the majority of major market reversions are coincident with economic recessions. While it is very likely that economic activity will bounce in the second quarter (data does not move in a straight line), it will likely be weaker than currently anticipated.

In the same style as we have grown used to around the world, a major negotiation has ended with all sides claiming victory and no sides offering any actual solutions. Iran proclaims the talks have made "significant progress," yet Western diplomats are saying progress is "limited," only to be confused even more by Iran's Foreign Minister stating that "but still we have not agreed on the reviewed solutions." So in summing it all up, a press conference will be held shortly to explain that 'they agree on the outline of a plan which will pave the way for an agreement but aren't sure how much of the plan or hypothetical agreement they want to share'. New normal geopolitics... no deal is the new deal.

Recovered...

Despite the "deal" having absolutely no content whatsoever... the headlines:

IRAN OIL, BANK SANCTIONS WILL BE LIFTED ONCE DEAL IMPLEMENTED

...are enough to send the algos scrambling and spark weakness across the crude complex (even though this 'news' is stating what will/may/could/won't happen after June 30th).

Crude prices are undecided how to react to this week's 20 rig decline in total rig count to 1028. This is the 17th weekly decline in a row (down over 46% from the highs) but the pace of declines is dropping rapidly as it appears the 'efficiency' has been wrung out for now.

It ranks at the very top of potential tax nightmares, especially if you invest internationally.  This nightmare could become a reality if you happen to invest in what the IRS deems a Passive Foreign Investment Company (PFIC), which are taxed at exorbitant rates and have highly complex reporting rules. Most foreign mutual funds are PFICs, as are certain foreign stocks.  PFIC rules amount to unofficial restrictions on investing in certain foreign assets and are yet another indicator of the disturbing trend of creeping capital controls in the US.  Capital controls are used by many countries and come in all sorts of shapes, sizes, and labels. The purpose, however, is always the same: to restrict and control the free flow of money into and out of a country so that the politicians have more wealth at their disposal to plunder.

And against this disatsrous backdrop… investors are completely bullish!