Stocks were modestly weak overnight amid poor Japanese, Chinese, and European data, but as soon as the US cash markets opened, stocks surged higher algorithmically testing up to unchanged briefly for the S&P 500 and squeezing small-cap shorts (as usual).. until Europe closed. Stock started to lose steam but once Nasdaq and Russell broke red, programs slammed stocks lower and despite a late-day bounce, stocks gave up all the gains from Friday's "awesome jobs data" and then some with Trannies and Small Caps worst. Momo names all suffered - most notably TWTR & TSLA. VIX broke above 14.5 briefly, closing up 2.4 at 14.2. Treasury yields plunged 5-7bps at the long-end (1-2bps at the short-end) flattening significantly. Credit markets were clubbed - with HYG taking the brunt and ending at Bullard lows. Gold and silver gained solidly (as USD slipped 0.3% led by JPY strength) as copper fell 0.5% and oil price crashed again. Markets turmoiled notably into the oil pit close (margin calls) and stabilized modestly after... but the S&P 500 still closed below its 5DMA.
Things just went a little bit turbo in the world financial markets.
Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast. Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted.
With every single hollow chatterbox repeating that crashing oil prices are "unambiguously good" it is clearly the case that the opposite is true. And sure enough, the first indications that the crude price crash is about to lead to some serious pain in the US came first yesterday from BP, which announced over the weekend that it would "slash 100s of mid-level supervisor jobs" around the globe, and moments ago, from ConocoPhillips, which added that as a result of plunging oil prices, it would slash its 2015 spending budget by a whopping 20%, cutting off some $3 billion in capital spending mostly involving "less developed project: spending which for those who remember their GDP calculation, means a proportional reduction in the US Gross National Product.
We doubt anyone will find it one bit surprising that as Bank of America observes in its latest weekly hedge fund monitor, "S&P500 longs increase to six month high" with all equities bought. And alongside that, and confirming that the short squeeze in the Treasury market will continue indefinitely, "10-yr contracts were sold at a strong pace to increase net short positioning to largest in six months." Why? Because that imminent economic recovery which everyone has been betting on since the second half of 2013 is just not coming, seasonally adjusted low-paying temp, retail, teacher and secretary jobs notwithstanding.
For those, who are leery of seasonally-adjusted government data (showing soaring low-wage jobs offset by crashing employment in the energy sector and M&A synergies which mysteriously are never captured), or sentiment surveys and confidence polls (of Wall Street executives and government workers), here is the latest data from McDonalds. Showing the worst US comp store sales in nearly 12 years at -4.6%, one does wonder if following America's inability to even pay for sub-$1 meals, mass starvation will follow?
Of all the problems with fiat currency, the most basic is that it empowers the dark side of human nature. We’re potentially good but infinitely corruptible, and giving an unlimited monetary printing press to a government or group of banks is guaranteed to produce a dystopia of ever-greater debt and more centralized control, until the only remaining choice is between deflationary collapse or runaway inflation. The people in charge at that point are in a box with no painless exit.
The crude carnage continued overnight with oil prices across the entire complex crashing through support to new cycle lows. Despite recent strategic reservce demand in China, the world's oil glut continues as global growth expectations plunge leaving WTI trading as low as $64.10, Brent $66.77 (narrowing the Brent-WTI spread to $2.68 from $3.23 on Friday), and most stunning of all, Canada Heavy as low as $49.24. Speculators and money managers appear to be BTFD as they increased net long positions last week (amid the price slump) but comments from Kuwait Petroleum's CEO and Iran officials suggest 'lower for longer' on prices will be the norm. As Morgan Stanley notes, "with OPEC on the sidelines, oil prices face their greatest threat since 2009 and appear on track for an extremely volatile 2015"
- Welcome to the recovery:
- Oil Extends Retreat With European Stocks as Dollar Gains (BBG)
- California police, protesters clash again after 'chokehold' death (Reuters)
- Ruble’s Rout Is Tale of Failed Threats, Missteps (BBG), not to be confused with "Yen's Rout Is Tale Of Keynesian Success, Prosperity"
- Uber banned from operating in Indian capital after driver rape (Reuters)
Without doubt, the most memorable line from the latest quarterly report by the BIS, one which shows how shocked even the central banks' central bank is with how perverted and broken the "market" has become is the following: "The highly abnormal is becoming uncomfortably normal.... There is something vaguely troubling when the unthinkable becomes routine." Overnight, "markets" did all in their (central banks') power to justify the BIS' amazement, when first the Nikkei closed green following another shocker of Japanese econ data, when it was revealed that the quadruple-dip recession was even worse than expected, and then the Shanghai composite soaring over 3000 or up 2.8% for the session, following news of the worst trade data - whether completely fabricated or not - out of China in over half a year.
Be careful what you wish for... Russia matters. It mattered in 1998 when the shock waves from its debt default reverberated around the world. And it would matter again should the plunging oil price lead to economic collapse. That’s despite the fact that Russia is a massive land mass with a relatively small economy. It accounts for only 3% of global GDP and it is dominated by an energy sector that is responsible for 70% of exports. But there are at least five ways in which a crisis for Russia could spread.
A few nations may indeed be forced to sell some of their official gold reserves as a result of plunging oil prices. It seems however not likely at this juncture that Russia will be one of them, there is a good chance that Venezuela will eventually be forced to sell some of its official gold holdings. However, the impact - short term psychological impact - on the gold market should be quite limited.
The cards in this deck are not aligned the way they were a half-year ago. An Obama veto of Keystone is no longer a sure thing. Proving once again that crude prices have strange bedfellows.
We don’t see a whole lot of comprehension out there, so let’s try and link the obvious: employment to shale to plummeting oil prices to the debt the shale industry was built on (and which is vanishing). We know, people look at the US jobs report yesterday, and at the stock markets (Europe up some 2% across the board), and think salvation has landed on their doorstep, but the true story really is very different. We’ve been saying for weeks that lower oil prices would not be a boon but a scourge for the US economy, for several different reasons, and this is a big one. The losses to investors, the restructurings and bankruptcies, and perhaps even the bailouts, are a very much interconnected and crosslinked other. There’s no resilience – left – in a system like this, it bets all on red, and that makes it terribly brittle.
About That 2100 S&P Target For 2015, Goldman Was Only Kidding, Now Sees Even More Ridiculous Multiple ExpansionSubmitted by Tyler Durden on 12/06/2014 15:14 -0500
It was just one short month ago when, on the back of the soaring dollar (which has since soared even more), as well as "diminished global GDP growth and lower crude prices", Goldman's David Kostin cut his EPS for 2015 and 2016 from $125 and $132 to $122 and $131. Then, it was just two short weeks ago, the same David Kostin said "we expect the P/E will contract and the index will slip during the second-half of 2015 as the Fed takes its first step in the long-awaited tightening cycle. Our S&P 500 year-end 2015 target of 2100 implies a modest 5-10% P/E multiple compression to 16.0x our top-down 2016 EPS estimate or 14.6x bottom-up consensus earnings estimates." And then, with the S&P now about 20 points away from Goldman's 2015 year end target (and just 120 points from the government-backed hedge fund's 2016 year end target!), the very same David Kostin admits that he was only kidding and that the S&P may in fact rise to a whopping 2300 in the coming year...