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Oil Price Plunge? It's The Global Economy, Stupid!

The decline in the price of oil - in the face of surging geopolitical pandemonium - has been lauded as indicative of both US' awesomeness in energy independence and a tax cut for Americans... but, as the following chart suggests, there may be another - much more realistic - explanation for why oil is plunging... demand!



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Credit Suisse Warns Of "Self-Fueling Negative Feedback" In Scotland; Here's Who Is Exposed

Credit Suisse warns of a self-fuelling feedback loop of rising risks and costs to the Scottish financial and sovereign sectors, and a steady migration of capital, activity, jobs and taxes if the Scots vote "Yes". However, if the vote is a close "no", they warn "the cat is out of the bag," and risk remains.



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End Of Empire - The 'De-Dollarization' Chart That China And Russia Are Banking On

History did not end with the Cold War and, as Mark Twain put it, whilst history doesn’t repeat it often rhymes. As Alexander, Rome and Britain fell from their positions of absolute global dominance, so too has the US begun to slip. America’s global economic dominance has been declining since 1998, well before the Global Financial Crisis. A large part of this decline has actually had little to do with the actions of the US but rather with the unraveling of a century’s long economic anomaly. China has begun to return to the position in the global economy it occupied for millenia before the industrial revolution. Just as the dollar emerged to global reserve currency status as its economic might grew, so the chart below suggests the increasing push for de-dollarization across the 'rest of the isolated world' may be a smart bet...



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Why PIMCO Thinks "The Bursting Bubble" Is Not The Biggest Risk

Getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages. This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally “overvalued” relative to their long-term “fair value.” The dominant risk for Wall Street is not bursting bubbles, but rather a long slow grind down in profit’s share of GDP/national income. And you can stick that into a Gordon Model, too! Bonds and stocks may at present be rationally valued, but borrowing from the lyrics of Procol Harum’s Keith Reid: Expected long-term returns are turning a more ghostly whiter shade of pale.



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The One Company Most At Risk From Russian Sanctions Is Actually American

"We always encourage the people who are making those decisions to consider the very broad collateral damage of who are they really harming with sanctions."

- Rex Tillerson, CEO Exxon Mobil



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Is Scotland Big Enough To Go It Alone?

As Scotland goes to the polls to decide on its own separation from the United Kingdom, the tone of the campaign is high on passion and secessionists are inching toward the magical 50 percent line. One core debate is whether Scotland is too small and too insignificant to go it alone... The answer, perhaps surprisingly, is resoundingly “Yes!” Scotland’s big enough to “survive” on its own, and indeed is very likely to become richer out of the secession. Nearer to the small-is-rich Ireland than the big-but-poor Britain left behind.



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The ISW's Strategy To Defeat The Islamic State

While a misnomer, if President Obama is to be believed, The Islamic State, according to The Institute for the Study of War, poses a grave danger to the United States and its allies in the Middle East and around the world. As they exclaim, reports that it is not currently planning an attack against the American homeland are little comfort. Its location, the resources it controls, the skill and determination of its leaders and fighters, and its demonstrated lethality distinguish it from other al-Qaeda-like groups..."It must be defeated," they conclude... and here's how.



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Europe Folds To Russian Demands, Delays Ukraine Free Trade Deal By Over A Year

While the world was poring through the details of the latest round of preannounced western sanctions against Russia - a round which Russia commented would have little actual impact - and just as excitedly awaiting the Kremlin's retaliation, which Putin warned is coming shortly, far from the glare of the center stage Europe quietly folded to a bigger Russian demand namely to delay the implementation of a Ukraine free trade deal by more than one year until the end of 2015 and likely beyond.



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5 Things To Ponder: "Bear-ly" Extant

"It is a bad sign for the market when all the bears give up. If no-one is left to be converted, it usually means no-one is left to buy.” The extraordinarily low level of "bearish" outlooks combined with extreme levels of complacency within the financial markets has historically been a "poor cocktail" for future investment success.



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WTF VIX Moment Of The Day

Because it's Friday... "unrigged?"



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Bonds Worst Run Since "Taper Tantrum" Sends Stocks To 4-Week Lows

The entire US Treasury complex surged higher in yield this week, rising 12-16bps (2Y +5bps) as the last 2 weeks are the worst for 10Y since last June's Taper Tantrum. Despite all the 'bonds-go-down-so-stocks-will-see-inflows' rotation buffoonery, stocks slipped to their worst week in the last six, as hawkish Fed concerns spread through markets. High-yield credit notably underperformed and VIX pushed back above 14 (its highest in a month). The USDollar rose 0.5% - 9th week in a row (despite EUR unch on the week) led by a 3% collapse in AUD and 2% in JPY & CAD. Gold and Silver dropped 3% on the week (worst in over 3 months, lowest in 8 months to $1230). WTI prices whipped around but ended -1% at $92. Of course, because it's Friday, the last hour saw manic VIX-selling, S&P futures buying (in 1 lots) to lift it magically off the lows to VWAP, but the S&P ended being the worst of the major US equity indices on the week (S&P <2,000; Dow <17,000).



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Obama's "Gravest" Threat

Hint (...not ISIS...)



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Outflows Signal High Yield Credit Concerns Remain; Deals Pulled, Potential Downgrades Surge

The high-yield credit market remains stressed. An active week ended poorly as a heavy pipeline saw Vistaprint pull its deal citing "market conditions" as perhaps both a re-awakening of liquidity fears (Fed hawkishness concerns), price/spread moves, potential downgrades soar, and outflows signal the flashing red light that HY markets are shining is as red as ever. With buybacks having dwindled already - removing a significant leg from the equity rally - it seems CFOs are realizing that maybe they should have used some of that easy money to build as opposed to buy as they face weak growth, a lack of liquidity, and a wall of maturing debt in the next few years that will have to be refinanced at higher yields and spreads.

 



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Rates 'Liftoff' Getting Closer, Goldman Warns

Recent comments from FOMC participants on the forward guidance and the appropriate timing of the first hike of the fed funds rate suggest, Goldman warns, a greater clustering of FOMC participants' views around a mid-2015 'liftoff' in rates. Similarly, private sector forecasts for the first hike are becoming more centered on mid-2015 rather than August to September.



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No Money, No Problem: You Can Now Lease An iPhone With Nothing Out Of Pocket

Subprime cars, subprime houses, and now subprime iPhones... on layaway.



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