Archive - Dec 2014 - Story

It's a miracle... give the worst creditors access to cheap money for longer-and-longer terms and hey presto... 'expensive' stuff is available to everyone. Retail sales modestly beat expectations in November (+0.7% vs +0.6% expectations) - sending USDJPY spiking to confirm what great news this is. The driver of all this exuberance... Vehicle sales +1.7% MoM. Oddly, for all those prognosticators looking for windfall tax cuts from the oil price plunge, gasoline station sales dropped only 0.8% MoM - not exactly the consumption-boosting exuberance every talking head proclaims.. These numbers appear to be clearly in the "Fed wants to hike" narrative.

Just 2 short months ago we noted S&P's warning that Greece will default again within 15 months and following comments by Prime Minister Samaras that the market's drop is due to fear that Syriza will win an early election and seek a Greek exit from the Euro. Pressuring parliamentarians and the public alike, he stated "the choice is simple," warning that Greek financing needs are only covered through the end of February without further aid from the EU (but we thought they were 'recovered'). Greek stocks have crashed further, Greek default risk has spiked, and 3Y bond yields are now well north of 10% (138bps inverted to 10Y).

First it was humans. Now it is vaccum tubes.

• Shale operaters Goodrich, Oasis Petroleum cut spending for 2015 as oil slides (Reuters)
• Greece to hold elections in January if president vote fails (Reuters)
• Norway’s Shock Rate Cut Drives Krone to Lowest Since 2009 (BBG)
• ‘Severe Downturn’ Threatening Norway, Central Bank Governor Says (BBG)
• Russia’s Fifth Rate Increase Fails to Halt Ruble Slide to Record (BBG)
• SNB Says Deflation Risks Increased as Franc Cap Maintained (BBG)
• China eases bank lending restrictions, PBOC targets 10 trillion yuan in loans for 2014 (Reuters)
• Mobius Says China’s Bull Market Is Just Getting Started (BBG)
• How Wal-Mart Made Its Crumbling China Business Look So Good for So Long (BBG)

Not quite as many fireworks overnight, in another session dominated by central banks. First it was revealed that China had injected CNY400 billion into the banking system to add liquidity as the economy slows, which is ironic because on the other hand China is also seemingly doing everything in its power to crash its nascent stock market bubble mania, following the latest news that China’s CSRC approved 12 IPOs ahead of schedule which is seen as a pre-emptive step to tighten interbank liquidity amid the recent rise in margin trading. Another central bank that was busy overnight was Russia's, which proceeded with its 5th rate hike of the year, pushing the central rate up by 100 bps to 10.50% as expected. Elsewhere, the Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago. The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc. Finally Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter.

Back in September, when the results of the first much-trumpeted TLTRO were announced, everyone said it was a clear disappointment, when European banks expressed just €82.6 billion in ECB credit demand, far below the €100-€300 billion range expected and well below the €400 billion across the two 2014 TLTROs hinted by Mario Draghi. Today, we got the second TLTRO-3 result which too, was a flop, if not quite the disaster the first one was, when the ECB announced that just €129.84 billion was allotted in today's TLTRO result, spread among 306 counterparties, or 51 more than the bidder who signed up for the first TLTRO, resulting in an aggregate take up for both auctions of only €212 billion, which also happens to be €55 billion, or 21%, below the consensus expectations observed in a Goldman poll back in September 9, €40 billion below the Bloomberg median consensus estimate of €170 billion for the second TLTRO, and half the total cap of €400 billion.

The Department of Treasury is spending $200,000 on survival kits for all of its employees who oversee the federal banking system, according to a new solicitation. As FreeBeacon reports, survival kits will be delivered to every major bank in the United States and includes a solar blanket, food bar, water-purification tablets, and dust mask (among other things). The question, obviously, is just what do they know that the rest of us don't?

A week ago we wrote how Pennsylvania is financing various state infrastructure projects by selling residency to Chinese "investors" for $500K each. As it turns out, the practice of pimping passports for Chinese capex is hardly new or just isolated to Pennsylvania and is, in fact, massively widespread throughout America's insolvent states whose tax collections are far below budget and which are in desperate need of fresh funds to embezzle invest in random boondoggles. Case in point, New York, where the Biggest real-estate project in a generation, the Hudson Yards, is now officially financed by 1200 Chinese families in search of visas allowing them to live (and park their stolen cash) in the US. In all, 10,928 foreign investors applied to invest through the program in the fiscal year ended Sept. 30, up from 6,346 a year earlier and 486 in 2006, according to U.S. Citizenship and Immigration Services, the program’s administrator. Most projects have been real-estate developments.

For the first time in almost 3 years, the 'market' is fighting the PBOC in the FX markets. The last month has seen USDCNY rise almost 9 handles to as high as 6.21 (the weakest CNY in 5 months). At the same time, the PBOC's official 'fix' of CNY has been strengthened to below 6.12 (the strongest CNY in 9-months) diverging by the most in six months from the market. "The market is staying cautious and even bearish on the China macro outlook," notes Morgan Stanley, but as HSBC explains, "China doesn't want to join the currency wars [and wants to stall any speculation on trend] and that explains the fix movement." Simply put, markets doubt the PBOC and believe it will eventually be dragged into the currency war or just fundamentally deteriorate enough to warrant capital flight.

While on the one hand, Iceland's decision to inch towards lifting its capital controls is a positive step, it appears what they give with one hand they are taking with another. Just as we predicted three years ago, the muddle-through has failed and there are only hard choices left and sure enough BCG's envisioned 'wealth tax' appears to be rearing its ugly head once more. As Morgunbladid reports, Iceland plans to impose an exit tax as part of removing capital controls, anticipating all bank assets will be subject to the levy, regardless of whether assets are held in local (ISK) or foreign exchange.

The game is rigged, and “we the people” keep getting dealt the same losing hand. Even so, we stay in the game, against all odds, trusting that our luck will change. The problem, of course, is that luck will not save us. The people dealing the cards—the politicians, the corporations, the judges, the prosecutors, the police, the bureaucrats, the military, the media, etc.—have only one prevailing concern, and that is to maintain their power and control over the country and us. It’s time to change the rules of the game. For that matter, it’s time to change the game.

Because you can always bet on the "stupidity of the American voter" and win.

In July 2008, crude oil prices peaked and began to fall quickly. After 2 months they had dropped 30%, but being the smartest extrapolators in the room, producers piled on the rig count driving it higher and higher until around 5 months after oil prices peaked... the rig count completely collapsed. Today, it has now been almost 6 months since oil peaked and began its accelerating free-fall and rig counts have just started to drop (still 2% above the June peak oil levels)... of course, it's different this time... it's way worse! All these rigs are backed by massive debt loads at drastically lower costs of funding than is possible now... but we should ignore that, right?

The U.S. government justifies all of its militaristic and other interventions overseas using this false narrative that it holds some sort of moral high ground. It should now be abundantly clear to everyone that this invented ethical position is a total fabrication.   I can summarize my thoughts on this entire matter with the following: "If you're part of status quo, you can get away with anything. Murder, torture, theft of trillions. Until top guys are jailed it won't stop."

Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street.