Archive - Feb 2015 - Story

You know Merkel, Draghi, Dijsselbloem et al. have a problem when... More than one in three Greeks (35%) in 2014 approved of Russia's leadership, while fewer than one in four (23%) approved of the EU's leadership.

The US, like western Europe, is in the midst of a massive failure of its brand of capitalism. There are no free markets, no price discovery, there are asset bubbles being blown with money that belongs to our grandchildren as people are thrown into despair, while others attain unparalleled riches, and the whole grossly distorted movie is fed to everyone by a well-oiled spin machine. Yes, 40 million Americans are on food stamps, 100 million are not even officially in the labor force, and perhaps as much as most Americans are receiving some sort of government assistance, but that doesn’t make it socialism. It makes it a failed capitalist system. Socialism is supposed to be about a society that cares, and that’s not what those US government handouts are about. They’re about keeping people quiet in a failed system.

Two weeks ago we reported that "the next victim of crashing oil prices has been identified: housing", particularly non-residential construction among the energy producing regions, where the capex collapse reality is already being felt far and wide. Eventually, once the overall economy of these same oil producing regions is impacted sufficiently, the pain would spread to residential housing as well, as the energy boom that kept the local economies humming for years, turns to a bust. But while the US patiently, and nervously, awaits the outcome of the crude crash, one place is already starting to suffer the consequences of the price collapse is Canada's energy Mecca, Calgary, where as the Financial Post reports, "the stage has been set for a massive correction in the oilpatch."

"The price plunge is new, but if it is not reversed relatively quickly, it could make the apparently strong economic numbers in the U.S. in recent months seem like a lost warm memory by the middle of 2015. The problem, of course, is that the absence of pro-growth economic policies in the developed world (aside from monetary extremism) places a large premium on any industry that is actually growing and providing jobs and GDP. Given the fragility of both the global financial system and the economy, the plummet in the oil price is coming into a world in which any disruption can be harmful, even one resulting from a fall in prices of a major global input into the economic engine."

"There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie. And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth -- the percent of Americans in good jobs; jobs that are full time and real -- then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class." -  CEO of Gallup

Two weeks ago, rail freight transportation company CSX's CEO Michael Ward stated 'unequivocally' that as far as the movement of crude by rail he has "not seen any changes," suggesting everything's fine down to $30-35 oil and "expected no impact on crude shipments." It appears he may have been somewhat careful with the truth as Reuters reports, while overall oil-train traffic remains near record highs, the shadowy industry that deals in the specialized 87-tonne crude carriers has seen monthly lease rates plunge to $1,300 late last month from a high of $2,450 about year earlier with the rates at their lowest in about three years. Even worse, railcar construction has surged amid the mal-investment boom exaggerating the over-supply, with one trader noting brokers were offering cars at spot rates of as little as $500 a month compared with $4,000 a year ago.

The following chart from Deutsche Bank illustrates the difference between life under the Classical Gold Standard and today’s “modern” forms of money. For the first four hundred years depicted here, money was gold and silver - the quantity of which rose at roughly the same rate as the human population. Prices during that time fluctuated, but only modestly by today’s standards, and they always returned to more-or-less the same level. In other words, money held its value for not just years but centuries. It was a fixed aspect of the financial environment and was therefore not a tool of economic policy. Governments and individuals had to adapt to unchanging money rather than forcing money to adapt to political circumstances. A phase change occurs in the 20th century when the US created the Federal Reserve and World Wars I and II placed survival above monetary stability for most of Europe and Asia.

With nearly 1400 killed in Iraq in January alone (800 of them civilians), Iraqi Foreign Minister Ibrahim al-Jaafari told his visiting Austrian counterpart today that "the fight against Islamic State is effectively 'World War III' and that all the world's major capitols are under threat."

With just three slides and 5 minutes and 44 seconds, Tim Price breaks down everything that’s wrong with the markets... and with the conventional investing mentality that most investors cling to like a warm blanket...

Because nothing says 'totally normal' markets like day after day of pre-NYMEX close ramping of the world''s biggest commodity's futures prices...  When all that matters is the centrally-planned narrative of money-printed growth, why would it surprise anyone that this would happen?

All day mainstream media has been crowing about Auto sales being mind-blowing... record-breaking... colossal... so we have a simple question... when Ward's released its US Domestic Auto Sales (SAAR) data this afternoon... why did it miss expectations and show a 2nd monthly drop in a row? January printed 13.31 million cars SAAR, missing expectations of 13.5 million and dropping from December's 13.46 million SAAR. Paging Phil LeBeau?

A few days ago we wrote that "Either Oil Soars Back To $88, Or Energy Stocks Have To Tumble By Over 40%." The basis for that analysis was a forward Energy Sector multiple which last week was just shy of 24X. It's time for an update because following today's latest surge in energy stocks, the most recent forward P/E multiple for energy companies is... well, see for yourself.

“It would have provoked a crisis without precedents in Argentina," exclaims a political analyst after, as The NYTimes reports, a draft of a warrant for the arrest of President Cristina Fernández de Kirchner - accusing her of trying to shield Iranian officials from responsibility in the 1994 bombing of a Jewish center - was found at dead prosecutor Alberto Nisman's home. The new revelation has further inflamed theories regarding the heightened tensions between him and the government before he was found dead, as "it would have been a scandal on a level previously unseen."

The devil is in the details: The market is likely too excited about falling rig counts. Even after the natural gas experience, the market fails to appreciate that the relationship between rig count and production can be deceptive. Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical/directional rigs – i.e. the low-hanging fruit. Even within horizontal rigs, much of the decline has come in lower performing plays or lower tier counties within high quality plays. In some cases, we’ve seen a reallocation of rigs between counties within plays. This was particularly prominent in Midland last week. The most productive rigs will likely remain as long as possible, esp where hedges are in place, until redeterminations or cash flow issues force additional cuts.