Archive - Jan 12, 2015 - Story

It appears Lazard's investment banker Antonio Weiss' "help" in tax inversions was just too 'unpatriotic' to scare President Obama off at the last minute.

• *ANTONIO WEISS SAID TO WITHDRAW NAME AS TREASURY NOMINEE
• *WEISS SOUGHT TO AVOID LENGTHY CONFIRMATION PROCESS (how thoughtful?)

The White House exclaimed "opposition to Weiss was unjustfied," so perhaps it was his $203 million in assets just would not have played well with Obama's new vision for the future. However, he has managed to get a position as "counselor" - which does not require Senate approval.

It is at least well-understood that there are seasons in history, but they seem to have a mysterious, implacable dynamism that mere humans can only hope to ride like great waves, hoping to not get crushed. In the background of the present disturbances are not only the rise of Islamic fundamentalism, but the imminent collapse of the machinery that boosted up the greater Islamic economy of our time: the oil engine. These are the stresses that are boiling over into the West these days. The long war underway is a race to the bottom where the human project has to re-set the terms of a life above savagery.

Alcoa delivers the daily lesson on how to full everyone with non-GAAP BS all the time.

Despite Saudi prince bin Talal's explanations of the imbalances between supply and demand being the prime driver of lower oil prices, we thought a look at just where that over-supply is coming from might provide some context into the 'shale oil war'. As the following chart shows, since the start of 2014, rig counts in Saudi Arabia, Kuwait, and UAE have surged (just as they did in the mid-2000s). As of this week, US rig counts are now at 14 month lows as it appears clear that the core OPEC producers are intent on drowning the shale oil industry in excess supply.

There is compelling evidence that 2015 will see a global slump in economic activity. This being the case, financial and systemic risks will increase as evidence of the slump accumulates. It can be expected to undermine global equities, property and finally bond markets, which are currently all priced for economic stability. Even though these markets are increasingly controlled by central bank intervention, it is dangerous to assume this will continue to be the case as financial and systemic risks accumulate. Precious metals are ultimately free from price management by the state. Furthermore, they are the only asset class notably under-priced today, given the enormous increase in the quantity of fiat money since the Lehman crisis. In short, 2015 is shaping up to be very bad for fiat currencies and very good for gold and silver.

Who's Next?

"The biggest bubble out there is central bank credibility. If Draghi was a stock he'd be on a P/E of 200! Yellen's on 100. When that bubble pops, all hell will break loose again, and there you really just want to be in cash."

Today's extension of Friday's losses has erased all the post-End-QE3 gains for stocks as the S&P 500 catches back down towards the Fed's flat balance sheet. During the last 2 months, however, 30Y Treasury yields have plunged almost 60bps (back below 2.50% today)...

Amid contingent offers of more bailout loans from Europe, and a looming $3bn debt repayment to Russia, Ukraine's default risk has surged once again to post-crisis record highs. With missing gold and despite foreigners encouraging investment, Ukraine's reserves are in total freefall as this morning's data shows a new low and down a stunning 63% year-over-year.

Last week we focused on potential manipulations of the opaque and self-regulated process by which the conflicted members of ISDA’s Determinations Committee (“DC”) determine whether a triggering event has occurred. This week we will focus on the inherent problems in the External Review process, as set out in the Determinations Committee’s rules.

The only other times that Bloomberg's broad-based (i.e. not all OPEC's fault) Commodity Index has fallen so far so fast was in 1999 (before stocks crashed) and 2008 (before stocks crashed). At 12-year lows, the raw material of the world's economies is flashing a big fat red warning signal that all is not well (despite stocks being a 'smidge' off record highs). WTI traded with a $45 handle... but apart from that, everything's great (oh wait and the 230 pip USDJPY roundtrip). Amid all this turmoil, gold just broke to $1235 - its highest in a month.

Here is the chart which we affectionately call the scariest chart for the US shale industry - namely the US rig count drop, which as Goldman notes, "is faster and larger than in any other bear market."
That's not why it is scary. The reason why is that the current rate of rig collapse is nowhere near enough. In other words, before the new pricing equilibrium can be established, virtually the entire US energy sector in its current appearance will have to be wiped out!

The Long/Short Strategy for the New Reality
1. Go long companies that cater to the 1%.
2. Short companies that cater to the middle class.
3. Go long companies that cater to the poor.

There was one world leader who was out of step with the rest of political elite during yesterday's theatrical procession of world leaders for French unity and for press freedom (even as the bulk of them engage in prosecution of freedom of speech across their own nations): Israel's prime minister Benjamin Netanyahu. In fact, as Reuters reports, he managed to "ruffle a few feathers while taking part in the "Charlie Hebdo" rally in Paris on Sunday" because this was an event his office initially said he would not be attending following a specific request form French president Hollande not to come to Paris, but ultimately ended up participating in much to the Chagrin of the French president.