Archive - Jan 2015 - Story

The Russian Ruble is re-crashing again today (higher by 3 handles and back above 66 RUB to the USD) as crude oil continues to plumb new depths. Having found some strength - via intervention amid 'stability' in crude prices in late December - the selloff since Christmas has been dramatic in both the Ruble and Crude. However, the contagious impact of this massive Ruble devaluation is, as Bloomberg reports, making life tougher for India's steelmakers. "In the past month or so, deals have been struck for steel imports from Russia," notes one steel industry executive, adding that such purchases "will only increase," as lower Russian prices "will be a threat to Indian steel mills."

Fort Hood officials and Hazmat crews are on site in Killeen after a US soldier, who recently returned from West Africa, was found dead outside his home. So far there are no answers as to why the soldier was not in quarantine and no known cause of death... (for now there are no indications the soldier had Ebola)

The touts have it backwards. This isn’t about greeters at Wal-Mart handing out tax cuts to hard-pressed American consumers. Its about the coming liquidation of the massive malinvestments and bloated economies that have been enabled by rampant central bank money printing and the resulting madcap expansion of unrepayable debt. Buying-the-dip was always a strategy that would work until it didn’t. The “oil tax cut” tale is designed to ensure that Wall Street’s Muppets will be the last to get the word.

Who could have seen that coming?

Having unveiled his non-boots-on-the-ground strategy in September, President Obama's "promise" was quickly proved fragile when General Martin Dempsey, the chairman of the joint chiefs of staff, indicated to the House of Representatives armed services committee that the strength of ISIS relative to the Iraqi army may be such that he would recommend abandoning Obama’s oft-repeated pledge against returning US ground troops to combat in Iraq. It seems another promise is about to be broken as Bloomberg reports Senator John Cornyn said President Obama told congressional leaders during meeting today at White House he would seek authorization for military force on Islamic State. Boehner’s office, in separate statement after meeting, said Republicans would work with him to build support.

Following the adoption of its new military doctrine signed by President Vladimir Putin in December which identifies NATO expansion as an external risk, it is perhaps hardly surprising that, as Reuters reports, Russia's top general, Valery Garesimov stated that the "Defence Ministry will focus its efforts on increasing the combat capabilities of its units and increasing combat strength.. with special attention will be given to the groups in Crimea." Amid renewed heavy shelling in Donetsk, NATO's top military commander noted they will be stepping up exercises in the Baltic Sea region as Russian Deputy Foreign Minister Grigory Karasin warns, "the situation in eastern Ukraine is deteriorating."

It is that time of the year when the President of the United States delivers his annual "State Of The Union" address. Despite the nation's voting choice in November, President Obama's retooled message is, "The American resurgence is real... Don't let anybody tell you otherwise." The question is whether the majority of the voting public will agree with the President's new message? Before he takes to the podium with his bullish optimism, he might want to consider the following charts...

But, but, but... homebuilder stocks were surging early on - just like they did at one point yesterday - proving that 'they' know something right? Right? Homebuilders are now the biggest losers - down 3% from the highs - as KB Home's conference call slashes guidance, pulls land deals, and expects margin compression...

In a globalized and financialized world, financial disruption, which is what a “rising” dollar signifies, is not an independent paradigm. The more prices trend exactly opposite of how “stimulus” is supposed to work, the less these convolutions will hold up whereby, eventually, reality sets in. The significance of the action in December is that there are no more lines in the sand left to defend the “honor” of monetarism; copper isn’t anywhere near $3 anymore and the long-predicted crude oil bounce to $70 is instead $45 and falling. Only equities remain, and at these valuations they signify nothing but the folly of the artificial economy. The more this goes on, the more it looks like 1937 lives again.

Now that even the pundit brigade has confessed that crashing crude may not be the "unambiguously good" event all of them had sworn as recently as a month ago it surely would be, and stocks are finally comprehending that plunging oil may well be rather "unambiguously bad" because without EPS growth (energy is well over 10% of S&P EPS), without multiple expansion (rumor has it the Fed will hike this year), without a jump in stock buybacks (energy companies account for 30% of the buyback growth in 2015 according to Goldman) and without a boost to GDP (energy capex plans are imploding), the only way is down. But there was one key element missing from the "bad" scenario: impaired banks. At least until now, because as Reuters reports, Asia-focused bank Standard Chartered is the first (of many) bank facing billions in losses resulting from the crude crash.

From almost $30 differentials in 2011, today's bounce in WTI has pushed the Brent-WTI spread negative for the first time since July 2013 briefly (and August 2010 consistently). This is, as the chart below shows, more 'old normal' as pre-QE the Brent-WTI spread oscillated in a very narrow range...

While there was good news in today's JOLTs report, the bad news is that it will likely take another 3 years before the labor/skills mismatch in the labor market renormalizes. Some time in 2017. So will Yellen be "patient" for another three years?

"Don't fight The Fed" A mantra echoed loud and proud by America's asset-gatherers and commission-takers... except there is a caveat that is not often heard... "don't fight the fed... unless they say sell." Just six short months ago, Janet Yellen's Federal Reserve had their 'irrational exuberance' moment when they warned "valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year." Since then, despite a small dip (that was bought), Biotechs have soared to new record highs... up over 35% since her warning...

A little over a year ago, Ocwen was the darling of hedge funds everywhere, with such luminaries as Steve Eisman pitching it at the Ira Sohn 2013 idea conference. Since then things went downhill and fast for the mortgage servicer, which after being branded "the "Next Generation Subprime Lender" by Moodys earlier in 2014, become the primary target of the NY State regulator. However, while the company's troubles with the state of New York were not life ending, as one major settlement could put everything in the past, the latest development out of the state of California may have just killed Ocwen's (whose disingenuous name comes from spelling Newco backward) business model, after the LA Times reported the state was "seelomg to suspend the mortgage license of Ocwen Financial."

Sure... why not. US equity markets went vertical in the pre-open and followed through as cash indices opened. This ramp drags stocks back to unchanged from the pre-payrolls level on Friday... It should not surprise anyoine that the ramp coincided with a USDJPY liftathon and yet another bounce in crude oil prices...