Archive - Feb 18, 2015 - Story

27 years ago, in his acceptance speech, George H.W. Bush famously told America that he wanted a "kinder, gentler nation." While it took nearly three decades, it seems that his wish has finally come true. Sort of. Last week, the Commissioner of the Internal Revenue Service appeared in front of the House Way and Means Oversight Subcommittee... and apologized to taxpayers, specifically those who have had their assets seized and bank accounts wrongfully frozen - "To anyone who is not treated fairly under the [tax] code, I apologize."

API released its crude oil inventory data to subscribers and it printed an enormous 14.3 million barrel build (EIA tomorrow forecast at 3 million barrel build). This has sparked further weakness in WTI (not helped by refinery strikes, refinery fires, and storage capacities), pushing it to a $50 handle...

Curious how Obama will pivot from granting al Qaeda, ISIS "moderate" Syrian rebels access to B-1B bombers, to launching a full blown war on Syria's president Assad? Or how the White House plans to provide jobs to Qatar-funded Jihadists? Then watch Obama live for the explanation as he speaks live on "countering violent extremism"

The housing and mortgage evangelists on mainstream media are going to have to rewrite their “2015 is going to be a big year for housing!” meme. Nirvana it isn’t.

When a member of the New York Fed staff releases a paper on the topic of Anxiety, Overconfidence, and Excessive Risk Taking, and in which there is a section on "Self-Manipulation with Alcohol and Drugs", which explains that "pathological gambling is more common among people with alcohol use disorders," adds that "there is evidence that drugs are used strategically to induce performance changes, and particularly so for individuals with greater degrees of horizon-dependent  risk aversion", observes that 'Anecdotal evidence on the “widespread use of [...] cocaine by professional traders” is consistent both with strategic self-manipulation and with our observations about cross-sectional overconfidence across environments", and finally recommends to all the risk-averse BTFDers and BTFATHers, that "the performance of anxiety-prone individuals should then improve with moderate levels of drug-induced overconfidence"one should probably listen and trade - since the Fed's only remaining wealth effect and "monetary transmission channel" is to BTFATH - while both drunk and high.

Chairs flew and lawmakers traded punches as AP reports a brawl in the Turkish Parliament over a new security bill (dubbed the 'kingmaker') has forced the spotlight on mounting suspicions that President Recep Tayyip Erdogan's real goal is to hand himself more tools to crush dissent. Five lawmakers were injured early Wednesday in the fight that broke out as opposition leaders tried to delay a debate on the legislation.

The initial kneejerk higher in stocks has been removed (for now) as bubble warnings and truthiness about low oil prices as well as the general weariness of The Fed spoils the meme that everything is awesome. Bond yields plunged out of the gate (and remained lower) and The US Dollar is being sold hard. Gold and silver are rising as WTI Crude slides.

"The staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets, despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector, as indicated by rising prices and the easing in lending standards on CRE loans. Finally, the increased role of bond and loan mutual funds, in conjunction with other factors, may have increased the risk that liquidity pressures could emerge in related markets if investor appetite for such assets wanes. The effects on the largest banking firms of the sharp decline in oil prices and developments in foreign exchange markets appeared limited, although other institutions with more concentrated exposures could face strains if oil prices remain at current levels for a prolonged period."

When even The Fed is unable to keep its story straight on the impact of low oil prices, the entire facade of 'household spending' enhancement must collapse (as the data shows). After six months of lower prices, retail spending is still tumbling... and it appears The Fed is finally fessing up... "persistently low energy prices... could damp the overall expansion of economic activity for a period, especially if the slowing took place after most of the positive effects of lower energy prices on growth in household spending had occurred." Wait what!?

The January statement had only modest changes so reading the tealeaves of the FOMC Minutes 'should' provide little additional color with the main focus on the meaning of 'patient', fears over 'international developments', the 'right' gauge of inflation, and pace of rate lift-off...

• *MANY FED OFFICIALS INCLINED TO STAY AT ZERO LONGER: MINUTES
  
• *MANY OFFICIALS FELT DROPPING `PATIENT' MAY LEAD TO DATE FOCUS
  
• *MANY FED OFFICIALS SAW RISKS IF FOREIGN WEAKNESS WORSENED
  
• *FED OFFICIALS AGREED POLICY SHOULD STAY DATA DEPENDENT

It appears The Fed is 'worried' again... lower for longerer. Pre-FOMC Minutes: S&P Futs 2091.25, 10Y 2.122%, Gold $1201.50, WTI $52.05

Those wondering if Draghi would be so bold as to precipitate a Greek bank run and funding crisis by yanking the country's Emergency Liquidity Assistance program, which as of two weeks ago was boosted to €65 billion, now have an answer. According to Dow Jones, the ECB just boosted the Greek cash allottment to €68.3 billion, an increase of €3.3 billion:

• ECB SAID TO OK CONT. EMERGENCY LIQUIDITY FOR GREEK BANKS:
• ECB SAID TO OK ELA FOR GREEK BANKS OF EUR68.3B FOR 2 WKS: WSJ

Which means that the cat and mouse game between Greece and Europe will continue for at least one more week, because that's when, according to Kathimerini's Greek sources, the nation runs out of state cash which will have the same impact on the Greek negotiating leverage as a full-blown bank run.

Not that it was really a conspiracy 'theory' but with General Wesley Clark (ret.) now openly admitting "ISIS got started through funding from our friends and allies... to fight to the death against Hezbollah" it appears the 'angel investors' cat is out of the bag. Adding that "they recruited the zealots and religious fundamentalists" Clark says 'we' create "Frankenstein." He is careful not to name names, but we ask (rhetorically of course), which of our (oil-bearing) allies has the biggest bone to pick with Hezbollah (apart from Israel of course)?

It's not been a good week for oil safety in America. Following the derailment earlier in the week, CBS now reports an explosion at Exxon Mobil's Torrance, California refinery (processes an average of 155,000 barrels of crude oil per day) occured at 850amPT...

*EXXON SAYS EMERGENCY PROCEDURES ACTIVATED AT TORRANCE REFINERY
*EXXON TORRANCE SAID TO HAVE EXPLOSION IN FCC

While dismissed as 'normal flaring' to begin with, Exxon has confirmed it is not and "shelter in place" has been ordered as ash is falling up to 3 miles away.

According to IMF researcher Brad Jones, who wrote "Asset Bubbles: Re-thinking Policy for the Age of Asset Management", the "business risk of asset managers acts as strong motivation for institutional herding and "rational bubble-riding." This is a critical observation, and one which suggests that the mere groupthink of massive asset managers is what leads to not only herding, lack of originality and the "hedge fund hotel" phenomenon, but also to recurring and ever greater asset bubbles. As Jones further writes, "subdued leverage is not a sufficient condition for financial stability—if systemic risk, and activity in the wider economy, is shaped importantly by large shifts in risk premia owing to the "rational herding" motivations of asset managers."