Archive - 2015

Perhaps in a recognition of the collapsing yield curve, and for sure in the face of the mainstream's bullish narrative on US banks in a post-rate-hike paradigm, Citi has announced plans to cut at least 2,000 jobs starting next month. Despite exuberance over higher rates, it appears Citi's CEO Michael Corbat wants to restructure some of the bank’s businesses.

In a move that defines the word 'irony' better than the dictionary does, the Federal Reserve raised rates just five hours after their own Industrial Production series was released showing an almost certain entry into a US recession. The Federal Reserve's hidden role as banking lobbyist won out over their populist role as counter-cyclical policy provider and they raised rates for the wrong reasons, putting them in the US-1936 and Japan-2000 policy mistake club.

This was not supposed to happen. Since The Fed raised rates the temporary (one day) stability in high-yield bonds has been obliterated. Across all sectors, HY bonds are being sold; the HY bond ETF is tumbling back to recent lows; and Energy spreads have surged to record highs. In a nutshell, it's not over yet!

More un-fearmongery? More re-reassurance? Noone really knows but President Obama will address the nation ahead of tomorrow's reportedly 2nd biggest shopping day of the year. Fear the bad guys... but spend, spend, spend...

Levels to watch are the large imbalances in favor of puts in Dec SPX put contracts at 2050, 2000, 1950, 1900 strikes. It further writes that "as SPX moves below these levels market makers who are short these puts would be forced to sell spot futures to hedge, which could exacerbate a market selloff."

The evidence continues to pile up implicating NATO's own Turkey in Islamic State's lucrative oil trade but the UN doesn't seem to care despite bold rhetoric from the Security Council and empty promises to "cut off" terrorist funding and access to the international financial system.

We will not spend much time discussing what the FOMC did as tons of ink have been spilled on that already. We will rather spend more time on what the FOMC did not do.

WTI crude has collapsed to cycle lows after the US oil rig count surged by 17, the largest jump in 5 months.

The Saudi strategy has yet to bear itself out, but early indications suggest it is generating returns. Non-OPEC supply is expected to suffer its steepest decline in two decades in 2016, at a drop of nearly 0.5 mbpd. Moreover, U.S. shale producers are among the hardest hit. Oil production across the seven most prolific shale plays is expected to plummet a combined 116,000 bpd in January 2016. Still, the strategy is not without sacrifice, and several OPEC members are struggling to find – and, more importantly, endure – that magical balance between non-OPEC pain, market share retention/growth, and self-inflicted damage. Their tipping points are nearly impossible to predict, but there will be more losers than winners in this game of brinksmanship.

"To be sure, there is nothing to stop Chinese warships from sailing through under international law, but they will have to do so in within the crosshairs of Japanese missiles."

Moments ago, the House of Representatives just passed the $1.15 trillion spending bill that includes a $680 billion package of tax-break extensions, in a 316 to 113 vote, and will now move to the Senate, where its passage is likewise assured and will be signed by the president over the next few days. For those wondering what are the main components of the spending bill, here is a quick summary.

Yellen and her cohort have no clue, however, that all of their massive money printing never really left the canyons of Wall Street, but instead inflated the mother of all financial bubbles. So they are fixing to blow-up the joint for the third time this century. That was plain as day when our Keynesian school marm insisted that the Third Avenue credit fund failure this past week was a one-off event - a lone rotten apple in the barrel. Now that is the ultimate in cluelessness.

For CAT the global manufacturing depression just turned 3 years old as the company has now suffered through 36 consecutive months of declining annual retail sales - something unprecedented in company history, and set to surpass the "only" 19 months of declining during the great financial crisis by a factor of two!

Another data point to ignore... Kansas City Fed's business survey has crashed from a hope-full bounce. Dumping from a +1 print in October, Kansas collapsed to -9, the weakest since May 2015 as across the board components were abysmal. Production, Prices Paid, Employees, and inventories all cliff-dived with New Orders falling the most YoY since the Great Recession.