Archive - Nov 17, 2015 - Story

Brazil is expected to increase oil production by 180,000 barrels per day in 2015, hitting 3.04 million barrels per day (mb/d). But 2016 is a different story. Petrobras has been embroiled in a corruption scandal since last year, which has cost the company tens of billions of dollars. Given that Petrobras was already the most indebted oil company in the world, major cut backs in spending were in order. OPEC sees Brazilian oil production plateauing as soon as next year. That is a pretty significant development considering the fact that, not too long ago, Petrobras thought output would continue rising rapidly through the rest of the decade.

The precious metal pummeling continues... Which is odd given the near-record physical demand...

First it was Texas. Then five other states - Louisiana, Alabama, Arkansas, Indiana, and Michigan - followed in refusing to admit any Syrian refugees. It has since became an avalanche, and at last check, at least 27 states - represented by more than half the nation's governors - say they oppose letting Syrian refugees into their states.

Ten years after Symantec paid $13.5bn for Veritas, Carlyle Group agreed in August to buy the data-storage business for just $8 billion (the biggest LBO of the year). Of course, the buyout deal made sense when the cost of funding was negligible and The Fed had your back but, as Bloomberg reports, amid soaring borrowing costs, banks have pulled the $5.5 billion debt offering for Veritas signaling a clear end to the reach-for-yield, nothing is a problem, bond market's risk appetite.. and if 'growthy' deals like this are being killed, what does that say for distressed bets on Energy M&A deals?

Once again, the expected outcome of the most recent wave of deterioration in market internals will likely depend on one’s view of the current market regime. Are we in an environment that can continue to largely dismiss these breadth warnings, ala the late 1990?s? Or are stocks fated to eventually succumb to the weakening internal foundation as in the post-2000 period?

The Trade-Weighted US Dollar has risen almost 19% over the past 18 months - the fastest pace of increase on record - and is now at its highest level since 2003. As we noted previously, this is not unequivocally good for American corporate profits... and if you believe The Fed's Stan Fischer - the worst effects of this soaring exchange rate are yet to come... Most of the impact of exchange rate moves come after that first year. So we’re only just getting into the business end of the impact of the dollar’s strength on the US economy. And the Fed are about to hike?

The current world-system (call it whatever you like--cartel-crony neoliberal-state capitalism, etc.) is as doomed as the Titanic, for the same reasons: the design of the system is the source of its failure.

Count us incredulous at this point (and we're sure we aren't the only ones), but it looks as there has been yet another explosion at a Chinese chemical facility, this time in Liaoning.

While there are many that continue to dismiss individual "economic data points" in order to promote a "bullish bias" for the equity markets, it is more important to accumulate the "weight of evidence." The rising inventory levels, weak consumption, and plunging imports all suggest that the domestic consumer is much weaker than currently believed. The last time this combination of data points collided was just prior to the start of the last recession. But then again, this is where "economic theory" collides with "Main Street realities." Place your bets carefully.

"Today we close our last remaining Top Trade recommendation to be short EUR/$ via a 1.00 – 0.95 put spread (initially struck at 1.20-1.15 with spot at 1.25), which expires out of the money incurring a loss of premium."

Despite plunges in new and pending home sales (current) and lumber prices (forward-looking), Homebuilder Sentiment surged in October to its highest in over 10 years. November appears to be ushering in some sense of reality check. Having revised up October to 65 (from 64), November saw sentiment drop to 62 - the first drop since May. The Southern and Midwest regions saw overall drops in sentiment as The West rose to new cycle highs. Both current and future sales expectations dropped notably but - despite all the blather about weather - prospective buyer traffic rose to its highest since October 2005!

If you follow geopolitics and the oil market (and really, you can’t follow the latter without following the former) you might be wondering whether the tragedy that took place in Paris last Friday may be enough to override the fundamentals for a while. As it turns out, even the start of a global conflict may not be enough to spark a sustained upturn when only around 47-m bbls of available ex-US commercial storage remain.

"Apparently terrorist attacks are supportive of stocks… apparently! We have been wrong in times past, and we have been wrong badly before, but we cannot recall every having been as wrong as we were yesterday for we were certain that terrorism is a bad thing for equity investment... We were clearly and obviously wrong, and when wrong the only possible action to take is to get less wrong; to cover that which had been done and to retreat to the sidelines." - Dennis Gartman

Yesterday's surge-pricing in US equities driven tick-for-tick by a remarkable rip in WTI crude prices (as despite 3 billion barrels of excess inventory, decided to rip on Mid-East war tensions) appears to be losing its anchor. Once again, USDJPY 123.00 will be all that matters...