Archive - Jun 12, 2014 - Story

It seems blood on Iraq streets and infringements near oil reserves is enough to pop crude oil price, break the airlines bubble, stall the Trannies unstoppable surge, and spark volume selling through the US equity markets. We will be reassured that this is a buying opportunity and that 'nothing fundamental has changed' and the US is 'the cleanest dirty shirt' but when the Chinese are tamping down carry with flip-flopping CNY fixes, the ECB has shot his mini-bazooka, and we know the Fed ain't un-tapering anytime soon (as they are fearsome of complacency and financial fragility), it makes one wonder if the corporate buyback machine can overwhelm the geopolitical-risk selling pressure of the rest of the world. Trannies dropped to their worst day in 4 months as all major US equities reversed any Draghi gains. Treasuries were well bid (-6bps and lower in yield on the week) as gold also benefited from safe haven status rising up to $1275. Copper slipped further south. Oil was the big news, spiking up to $106.70 (9 month highs). It's not Tuesday - what did you expect? (and remember there are no Friday POMOs in June).

Now that the middle east is once again about to become a hot bed of "kinetic action", the recurring question from 2011/2012 when Israel was seemingly knocking on Iran's door on a daily basis, returns: how are US naval assets positioned particularly those surrounding the Fifth fleet located in the Persian Gulf. The answer, as updated just earlier today, is shown below, and it shows that America, which historically has had a far greater naval presence in the middle east, is quite unprepared for the recent dramatic resurgence of Al Qaeda splinter groups. Expect at least one more aircraft carrier to depart in direction Iraq shortly.

The gain in home prices has been widespread, with prices up on an annual basis in all 20 metropolitan areas surveyed. However, as BofAML notes the improvement has been particularly notable in certain markets, which have disproportionately pulled up the national composite. Ethan Harris points out that the trend in home prices in California is particularly important when gauging the risks to national home prices; and prices have peaked. The bottom line, they warn, "if history is a guide, this suggests a slowdown in national prices is coming."

We can be happy. And we can hope. But it’s dangerous to presume that all the challenges improve simply because a new group of people is installed into positions of power. This is the fallacy that persists at nearly every election cycle– people cheer that the new guy is going to fix everything. And this excitement almost always turns to disappointment. Optimism is great. But it’s dangerous to invest one’s faith in a political system. Elections merely change the players. They don’t change the game. And it is the game that is fundamentally flawed.

Not quite the "crowds" everyone was expecting...

Well that didn't take long... US equity and bond markets have round tripped in the last week and are now unchanged from when Mario Draghi unleashed more promises and nothing of use to the real economy...

"Is it Al Qaeda? Is it not Al Qaeda?" When it comes to the most recent fighting in Iraq, nobody is quite sure how and what to brand the ISIS/ISIL spin off of Al Qaeda. Here are some thoughts from Stratfor on this issue, as part of their map of the day.

Where does one begin with the plaudits for the just completed 30 Year auction. Following this week's weak, tailing 3 and 10 Year auctions, there was concern the 30 Year would be a disaster. It was everything but: pricing at 3.444% (virtually unchanged from the 3.44% last month), the final demand stopped through the When Issued of 3.467% by some 2.3 bps - the largest in recent history. And speaking of recent history, the Bid to Cover soared from 2.09 in May to 2.69 today, the highest since February 2013. And then there were the internals: Indirect bidders just couldn't get enough, with the allotment to Indirect bidders exploded to 51.8%, the highest since February 2006 and second highest ever, and since Directs took down an aggressive 21.8%, this means that Dealers we left with a tiny 26.5%: the lowest Primary Dealer allottment in history.

Here is why, as we predicted yesterday when faced with not only but two brand new scandals, the VA farce and the Berghdal "extraction" fiasco, the most likely outcome is war: OBAMA SAYS IRAQ `CLEARLY IS AN EMERGENCY SITUATION'; OBAMA ADMINISTRATION SAID NOT CONSIDERING GROUND TROOPS IN IRAQ; OBAMA SAYS US IS PREPARED TO TAKE MILITARY ACTION WHEN ITS NATIONAL SECURITY INTERESTS ARE THREATENED.  So the US is about to unleash hell against the same Al Qaeda extremists it was arming across the border in Syria? Score one more for US foreign policy. Meanwhile, the one person who benefits the most from rising crude prices, that would be Putin for those who still don't get it, is laughing all the way to the bank.

"The responsibility of any central bank is price stability. I was at the helm at that time. Price stability is two percent inflation, which we can’t closely control anyway. They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation... The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me. Your teachers must be telling you that if you’ve got expected inflation, then everybody adjusts and then it’s OK. Is that what they’re telling you? Where did the question come from?"

Now that 25 year old math PhD HFT programmers have finally figured out what this thing called Iraq is, and why headlines around it should factor into algo trading signals, here, for their benefit is a summary of the latest events in Iraq, and also for everyone else confused why crude is back to levels not seen since last summer.

He's funny cause he's... funny.

We are short of Brent while long of WTI, but the political situation over which we’ve no control has taken control of  this spread rendering our position intolerable and forcing us to run for cover upon receipt of this commentary. Not to do so would be trading foolishness of the first order

Because in all other situtations when Gartman "puts" on crude positions (with whose money?) which are always a function of geopolitics, he does so only when he has control over the "political situation"? Gotcha.

If there was ever a time to bring out the waterworks again, this is it. No really: as Politico reports, "Cantor’s private speech drove Boehner to tears." And now is a perfect opportunity to whip out the tears once more, this time for public consumption.

Insurgents surrounded Iraq's largest refinery in the northern town of Baiji on Thursday, police and an engineer inside said. Sunni militants first moved into Baiji late on Tuesday, closing in on the refinery, but later withdrew to the surrounding villages after reaching a deal with local tribal chiefs. A witness who lives in a house near the refinery said the militants arrived in more than 50 vehicles.

Volume is well above average pro rata as US equity markets are stumbling notably this morning. Was retail sales' miss the final straw that broke the hope back? Or was it China's CNY vol, failed auction, warehouse probe, or Japan's dismal data and misery, or Iraq's reignition, or Ukraine, or Q1 GDP downgrades, or earnings outlook downward revisions, or flows? Since Mario Draghi promised the world and made everyone believe that's what he gave them, US equity markets have rolled over hard today and Dow Transports are now notably in the red as the former high-flier unbreakable trend looks set to follow Biotechs in the momo meltdown club...