Archive - Jan 2016

It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party and it all well south very, very quickly...

Four those who do not know, four is widely considered the unluckiest of numbers in China, synonymous with death...

Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early). Dow futures are now down over 150 points from NYE close, Gold and Treasuries are bid, and offshore Yuan has plunged most since the August devaluation.

This week, the gold-silver ratio promptly moved up +2.3%. As readers will recall, we have been calling for a ratio value over 80 for a while.

With China closing the morning session limit down (and Yuan collapsing), US equity futures are extending their losses (even though crude futures are holding some of their gains). The initial knee-jerk jump as crude rose on Saudi tensions has been entirely erased and Dow Futures are now down 300 points from New Year's Eve highs... Happy New Year.

Earlier today, as Iranian police struggled to disperse protesters gathered outside the Saudi consulate in Mashhad, we said that Saudi Arabia and Iran may be on the verge of a historic diplomatic crisis after demonstrators burned the Saudi embassy in Tehran on Saturday evening. Sure enough, just hours later, Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir announced that Riyadh has cut diplomatic ties with Tehran

As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning... and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.

The Oregon standoff potentially forces the hand of the Liberty Movement, not the hand of corrupt government - the exact reverse of what should be happening. Ammon Bundy and companions are not the tip of the spear.  Not even close.  What some fear is that they are cannon fodder beckoning a nationwide government crackdown to which others will then be forced to personally respond to with equal measure.  And all of this on the worst possible terms and at a very inconvenient time (executive actions on gun control mere weeks from now).

Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did... for about 3 hours.  Then moments ago, Caixin Media and Markit Economics released the latest December PMI, which was, in a word, a total disaster, one which promptly sent US equity futures sliding, and the Shanghai Composite tumbling some 4%... and CSI-300 Limit down.

Presented with no comment...

Though "another Lehman Brothers" isn't likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices.

As go the markets, so go the movies. According to the WSJ, Hollywood just had its biggest-ever year at the box office in 2015, collecting $11.1 billion in ticket sales, up 7% from the previous year and surpassing the record of $10.92 billion set in 2013. All of the growth, however, occurred at the top of the heap, or in other words, 2015 was a record year "thanks to a handful of blockbusters that left a whole lot of duds in the dust." In other words, just like in the stock market, a record high portion of Hollywood "gains", or rather box office ticket sales, came from just five movies.

"Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things."

Main Street is vulnerable to leveraged trading algorithms and Brazilian bonds because it’s not just exotica that is overleveraged. Risk-off, in short, is no longer just a temporary swing of the pendulum, guaranteed to reverse in a year or two. As amazing as this sounds, we’ve borrowed so much money that as hedge funds go, so goes the world.