- New Normal headlines: Global stocks up on hopes of China policy easing (Reuters)
- China inflation eases to five-year low (BBC)
- U.S. Lawmakers Agree on $1.1 Trillion Spending Bill (WSJ)
- U.S. Braced for Blowback as CIA Report Lays Bare Abuses (BBG)
- CIA tortured, misled, U.S. report finds, drawing calls for action (Reuters)
- CIA Made False Claims Torture Prevented Heathrow Attacks (BBG)
- Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (BBG)
- OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (BBG)
- Greek yield curve inverted as politics raise default fears (Reuters)
On the wall of George Orwell's Ministry of Truth from his novel 1984 there were three slogans: "WAR IS PEACE, FREEDOM IS SLAVERY, IGNORANCE IS STRENGTH" It occurred to us that these apply just a little bit too well to the way the Washington, DC establishment operates. But there is a fourth slogan they need to add to the wall of Washington's Ministry of Truth. It is this: DEFEAT IS VICTORY!
Worried about money-printing in China... don't! As China.org reports, an electricity generation plant in China's troubled Henan province is burning banknotes in what appears to be an effort to raise efficiency and reduce toxic emissions. One ton of scrapped banknotes can generate about 660 kWh of electricity, which means around 4,000 tonnes of coal can be saved in the province every year by using this process. Perhaps that is the solution to higher natural gas prices in winter for the US NorthEast... just transfer some banknotes up from The Eccles Building and heat the nation...
Not long ago, we wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem? In our view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently. At some point the debt situation will eventually reach a breaking point.
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.
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.
Although every bad thing that is not the fault of climate change is allegedly the fault of Putin, it seems the EU commissariat “didn’t really mean it” and wants to see South Stream built after all.
The last time Israel ignored Syrian sovereignty and attacked Bashar al Assad's nation without fear of reprisals was in the spring of 2013, when the US was eager to launch an all out war, and tear apart the last country that stood in the path of the Qatari natural gas pipeline to Europe. As a result of last minute Russian intervention, the war was avoided in the last summer, but not before Syria had declared Israel's attack An "Act Of War.' Moments ago, following a year and a half hiatus, Israel, which had not made many headlines on the geopolitical arena in recent months, launched another bomb raid on Syria, and as AP reports, Israeli warplanes carried out two airstrikes Sunday near Damascus, one near the city's international airport and a second outside a town close to the Lebanese border, Syria's state news agency said.
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.
Things for Ukraine are going from bad to worse. As the central bank reported overnight, the country's foreign-currency (and gold reserves) dropped by over 21% in one month, to under $10 billion in November for the first time in nearly a decade due to large payments for debt and gas, from $12.6 billion to $9.966 billion.
Confused why in the lack of any horrible economic news (unless of course someone leaked a worse than expected November payrolls print which would put QE4 right back on the table) futures are higher, especially in the aftermath of yesterday's disappointing ECB conference? Then look no further than the Yen which has now lost pretty much all control and is in freeplunge mode, rising some 25 pips moments ago on no news, but merely as wave after wave of momentum ignition algos now make a joke of the Japanese currency, whose redline of 123 (as defined by SocGen)is now just 240 pips away. At this pace, Japan's economy, which as reported yesterday has just seen a record number of corporate bankruptcies due to the plummeting yen, may well be dead some time next week. Which, with Paul Krugman as its new and improved economic advisor, is precisely as expected. RIP Japan.
Today we'll learn more about whether Mr Draghi becomes Super Mario in the near future as the widely anticipated ECB meeting is now only a few hours away. We will do another summary preview of market expectations shortly, but in a nutshell, nobody really expects Draghi to announce anything today although the jawboning is expected to reach unseen levels. The reason is that Germany is still staunchly against outright public QE, and Draghi probably wants to avoid and outright legal confrontation. As DB notes, assuming no new policy moves, the success of today's meeting will probably depend on the degree to which Draghi indicates the need for more action soon and the degree to which that feeling is unanimous within the council. Over the past weekend Weidmann's comment about falling oil prices representing a form of stimulus highlights that this consensus is still proving difficult to build. It might need a couple more months of low growth and inflation, revised staff forecasts and a stubbornly slow balance sheet accumulation to cement action.
With uncertainty lingering and patience wearing thin after five-plus years of still lackluster wage growth, consumers are increasing saving for the future, hedging against a continuation of “more of the same.” Thus, for many, extra savings at the pump as a result of lower gas prices are simply being stored away to help supplement spending needs in the future, ramping up savings, not spending.
While superficially the November Beige Book, which is chronically bad at spotting actual trends as was the case in the 2005-2007 period when it came to the housing bubble and the BB had absolutely no warnings about what only in retrospect would be a glaringly obvious bubble, was among the more optimistic ones seen in recent months (there were only 13 instances of "weather" in the document), here is what the Fed's assessment had to say about the only thing that matters currently for the US economy (in addition to the soaring US Dollar of course): oil. One example: 'Energy and mining activity was higher on net, though lower oil prices were a concern for the oil industry in the Atlanta and Dallas Districts."
On the heels of 5 months of weakness in Services PMI, and 2 months of weakness in ISM Services, it only makes sense that ISM's Services print would massively beat expectations at 59.3 (against 57.5). All ISM subindices rose - apart from employment (which dropped to 4 months lows)! Just 15 minutes after one survey indicates a drastic slowdown in domestic demand for services, another one says it has almost never been better...