Archive - Jul 28, 2015

A serious deflationary bust is in the making...

"Greece is playing it correctly. Agree to everything. Give Germany no excuse to do what they want. Get the money. This is why France, among others, want this all agreed as quickly as possible, because they know this deal is not how it will end, but an end that keeps the EUR together must be found. The Germans know it too. They also know that they have been had and it is their own fault."

The U.S. E&P industry is really good at spending other people’s money to increase production. It doesn’t matter if there is a market for the oil and gas. As long as the capital keeps flowing, they will do what they do best. Don’t be distracted by the noisy chatter about savings through efficiency or re-fracking. Just look at the income statements and balance sheets from first quarter and it’s pretty clear that most companies are hemorrhaging cash at these prices. The U.S. rig count increased by 19 this week as oil prices dropped below $48 per barrel – the latest sign that the E&P industry is out of touch with reality.

The German Council of Economic Experts is out with a new report on euro area crisis management which backs state bankruptcies and euro exits for governments deemed "uncooperative." "A permanently uncooperative member state should not be able to threaten the existence of the euro. In view of this, the Council of Economic Experts recommends that the withdrawal of a member state from the currency union must be possible as an utterly last resort," the council says.

• Fed Officials May Offer More Clarity on Rates (WSJ)
• Stocks rebound, shrugging off volatile and weak China (Reuters)
• Three-Day Selloff Knocks 11% From China Shares (WSJ)
• China shares fall again as Beijing scrambles to calm markets (Reuters)
• VAT hikes to make Greek destination less popular (Kathimerini)
• Varoufakis - Something is rotten with the eurozone’s hideous restrictions on sovereignty (FT)
• EU denies Varoufakis 'tax control' claims (FT)

Grant: "I am very bullish indeed". ”Recent fall in prices “terrifically vexing but a wonderful opportunity”; the reasons for owning gold have not gone away.

For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.

Greece has no future, so long as it clings to the euro. The dollar won't servce you much better. A drachma will only harm the Greek people. That leaves one other option.