That was quick! Last November Snapchat was valued at $2 billion in the private VC market; by Q1 that had risen to $7 billion; and yesterday it soared to $10 billion. Gaining $8 billion in market value in just nine months is quite a feat under any circumstance - but that’s especially notable if you’re are a company with no profits, no revenues and no business model. How much does it cost to manipulate an entire market? Apparently not much. And it’s getting cheaper!
The surge in North American oil and gas production is arguably the most important development in energy over the last decade. That’s the good news. The not so good news is that North America doesn’t have nearly enough oil and gas pipelines to accommodate its 11-million-barrel-a-day output level. Both are good examples of how pipelines – considered the safest way to move oil and gas – have become politicized and scrutinized, and not without reason. Despite their reliability, pipelines still lead to an unacceptable rate of safety mishaps. They corrode and rupture, which threatens workers and nearby communities. In 2013 alone, over 119,000 barrels of oil were spilled in 623 incidents. America’s existing pipelines are getting older and more prone to corrosion, and over the next five to 10 years, there will be a significant increase in the number of new pipelines. And that is creating a huge opportunity for better pipeline safety technology.
If you like your de-escalation, you can keep your de-escalation. To think that heading into, and following the Russia-Ukraine "summit" earlier this week there was so much hope that the tense Ukraine civil war "situation" would somehow fix itself. Oh how wrong that thinking was considering overnight, following rebel separatists gains in the southeast of Ukraine which included the strategic port of Novoazvosk and which is "threatening to open up a new front in the war" including setting up a land corridor to Russia controlled-Crimea, Ukraine's president Poroshenko for the first time came out and directly accused Russia of an "Invasion", or at least a first time in recent weeks, saying he has convened the security council on the recent Russian actions.
"The relationship between those who are constantly watched and tracked, and those who watch and track them, is the relationship between masters and slaves." - Chris Hedges
You may be familiar with the story of how the US government confiscated gold bullion and then made owning it illegal back in 1933. Actually this event is more accurately termed a nationalization. Americans were forced under harsh penalties to sell their gold at an artificially low “official price.” Many have speculated that the US government could once again turn to gold confiscation/nationalization if it became desperate enough. But would the US government really turn to a 1933-style grab again? We would argue that they wouldn’t, but that doesn’t mean the threat to your gold has diminished. Quite the opposite.
If the big hope propelling both ES and S&P cash over 2,000 was the Ukraine-Russian talks, leading to some de-escalation and a thawing of Russian-German conditions, then it was clearly a dud. As the WSJ reports, "face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine's President Petro Poroshenko described as "tough and complex," ended early Wednesday after a day of talks on the crisis in the Belarusian capital of Minsk. Mr. Poroshenko said afterward that he would prepare a "road map" toward a possible cease-fire with the pro-Russia separatists." In other words, absolutely no progress. There was however escalation, when overnight the September Bund future rose as much as 36 ticks to 151.18, after Poland PM Tusk said “regular” Russian troops are operating in eastern Ukraine. And so we are back to square one, with concerns over Russia pushing European bonds to new record highs, in turn leading to more US Treasury buying, while a brand new rumor of more easing from the ECB, this time by Deutsche Bank, has propped up European equities, which like US futures are trading water around the critical 2000 level.
In the rush to make QE’s taper and the follow-on “forward guidance” appear more data-related than of due concerns about the structural (and ultimately philosophical) flaws in the economy, the regressionists of the Federal Reserve have come up with more regressions - a 19-factor model to determine Yellen's 'labor market conditions'. What does this mathematical reconstruction of the labor market tell us about the labor market? If you believe the figures, this has been one of the best recoveries on record. No, seriously...
It is unclear exactly why stock futures, bonds - with European peripheral yields hitting new record lows for the second day in a row - gold, oil and pretty much everything else is up this morning but it is safe to say the central banks are behind it, as is the "de-escalation" algo as a meeting between Russia and Ukraine begins today in Belarus' capital Minsk. Belarusian and Kazakhstani leaders will also be at the summit. Hopes of a significant progress on the peace talks were dampened following Merkel’s visit to Kiev over the weekend. The German Chancellor said that a big breakthrough is unlikely at today’s meeting. Russian FM Lavrov said that the discussion will focus on economic ties, the humanitarian crisis and prospects for a political resolution. On that note Lavrov also told reporters yesterday that Russia hopes to send a second humanitarian aid convoy to Ukraine this week. What he didn't say is that he would also send a cohort of Russian troops which supposedly were captured by overnight by the Ukraine army (more shortly).
A few days ago when we commented, somewhat in jest, on the seemingly impressive strategic planning behind the Islamic State Jihadists becoming a "commodities trading powerhouse" (when it was revealed that ISIS had sold the grain it had stolen from the Itaqi government back to the government), we described just how well-versed in the ways of the modern world ISIS was. Now, thanks to Bloomberg we can quantify this particular strategy, and put top-line numbers with the ISIS faces, so to speak: "The Islamic State, which now controls an area of Iraq and Syria larger than the U.K., may be raising more than $2 million dollars a day in revenue from oil sales, extortion, taxes and smuggling, according to U.S. intelligence officials and anti-terrorism finance experts."
It's been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe's slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi's speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.
From Arab Spring-related uprisings in Libya or Egypt, to a civil war in Syria and now violence in Iraq and the Ukraine, geopolitics are impacting oil. True, geopolitical risk measured by combat deaths does not always correlate well with market volatility. But wars and conflict are easy to spot on an oil price series. With combat deaths rising four fold in the last 10 years, oil markets should prepare for more turmoil. BofA 's Francisco Blanch asks "Can the US preserve geopolitical stability?" America still takes up 38% of global military spending, but appetite for foreign adventures has been low. As an example, a drop in US combat deaths in recent years has been mirrored by a rise elsewhere. Following a drop to multi-decade lows, implied vol in long dated oil options at 15% looks cheap. Oil after US hegemony may not be as steady.
Overview of the technical outlook for the major currencies, bonds, Treasuries, stocks, CRB and oil.
Crude Oil and gasoline prices have been sliding notably recently, but, as Carl Larry, president of Oil Outlooks & Opinions LLC in Houston notes, "the focus is definitely on the U.S. and on concern about demand as we head into the maintenance season." While Brent remains more concerned about Russia and Ukraine, WTI is "focused on supply, demand fundamentals," which with production surging, leaves "everybody wondering if demand will stay steady. People are reducing risk exposure now." What we wonder is - does that explain why the US Oil Rig Count dropped this week by its most since 2012...?
While today's key events were supposed to be the Jackson speeches first by Janet Yellen at 10:00am Eastern and then by Mario Draghi at 2:30 pm, Ukraine quickly managed to steal the spotlight yet again when moments after the first Russian humanitarian aid convoys entered Ukraine allegedly without permission, Kiev first accused Russia of staging a direct invasion, even if moments later it changed its tune and said it had allowed the convoy in to "avoid provocations." In other words, your daily dose of Ukraine disinformation, which initially managed to push futures down some 0.3% before futs regained virtually all losses on the subsequent clarifications. Expect much more conflicting, confusing and very provocative headlines out of Kiev as the local government and the CIA try to get their story straight.
With the FOMC Minutes in the books, the only remaining major event for the week is the Jackson Hole conference, where Yellen is now expected to talk back any Hawkish aftertaste left from the Minutes, and which starts today but no speeches are due until tomorrow. And while the Minutes were generally seen as hawkish, stocks continue to levitate, blissfully oblivious what tighter monetary conditions would mean to an asset bubble, which according to many, is now the biggest in history. And speaking of equities, US futures climbed to a fresh record high overnight on just the right mix of bad news.