Vladimir Putin told the state-run TASS news agency that Russia's economy faces a potential "catastrophic" slump in oil prices, saying, as Bloomberg reports, such a scenario is "entirely possible, and we admit it." However, Putin reassures that with reserves at more than $400 billion, the country will weather such a turn of events because "we handle our gold and currency reserves and government reserves sparingly."
This is one of the consequences of the Fed’s decision to flood the land with free liquidity. When the cost of capital is near zero, and when returns on low-risk investments are near zero as well, or even below zero, investors go into a sort of coma. But when they come out of it and realize that “sunk capital” has taken on a literal meaning, they’ll shut off the spigot. Only then will drilling and production decline. As with natural gas, it can take years, and the price might plunge through a four-year low and hit a decade low – which would be near $40/bbl, a price last seen in 2009. The bloodletting would be epic.
WTI Crude oil prices tumbled to a $75 handle this morning as Saudi oil minister al-Naimi dismissed claims of a price-war as having "no basis in reality" noting that "Saudi oil policy has remained constant for the past few decades and it has not change today," suggesting expectations of a supply cut at the looming OPEC meetings are overdone. This comment comes after Qatar said it "may" cut output by 500k barrels/day.
The relentless regurgitation of the only two rumors that have moved markets this week, namely the Japanese sales tax delay and the "surprise" cabinet snap elections, was once again all over the newswires last night in yet another iteration, and as a result the headline scanning algos took the Nikkei another 1.1% higher to nearly 17,400 which means at this rate the Nikkei will surpass the Dow Jones by the end of the week helped by further reports that Japan will reveal more stimulus measures on November 19, although with US equity futures rising another 7 points overnight and now just shy of 2050 which happens to be Goldman's revised year-end target, the US will hardly complain. And speaking of stimulus, the reason European equities are drifting higher following the latest ECB professional forecast release which saw the panel slash their GDP and inflation forecasts for the entire period from 2014 to 2016. In other words bad news most certainly continues to be good news for stocks, which in the US are about to hit another record high (with the bulk of the upside action once again concentrated between 11:00 and 11:30am).
With the USDJPY repeatedly hitting 116.00 as a result of the same pair of headlines hitting either Reuters, the Nikkei or Sankei every 6 or so hours for the past 3 days, namely that Japan will delay its sales tax hike by almost two years, and that Abe is preparing early elections, perhaps the algos realized they were pricing in the same event about 4 times in one day, and unable to break the 7-year-high resistance level, slid dropping nearly 100 pips to just over 115 at least check, which may well be today's "tractor" level, which in turn has also dragged down both European stocks and US futures. But the thing that made the vacuum tubes really spark is that at a press conference yesterday in Beijing, Abe was quoted as saying that he "has never made any reference to the dissolution of parliament", this came after the chief cabinet secretary Suga saying that the decision on whether or not to go to the polls would be Abe’s only.
Chris Martenson is an economic researcher and futurist, specializing in energy and resource depletion, and co-founder of PeakProsperity.com. As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar, The Crash Course, that interconnected forces in the economy, energy, and the environment that are shaping the future, one that will be defined by increasing challenges as we have known it. Chris’s insights are in high demand by the media as well as academic, civic, and private organizations around the world, including institutions such as the U.N., the U.K. House of Commons, and the U.S. State Legislatures. So with that we’d like to welcome Mr. Chris
While Putin was busy laying the groundwork for another major commodity gas pipeline expansion project, one that would make China the largest natural gas client of Gazprom, surpassing Europe and fully concluding Russia's pivot from west to east, US president Obama had slightly less lofty ambitions out of the annual APEC summit in Beijing: coordinating with China's leader Xi Jinping on how to best avoid war, or as the WSJ phrased it "military confrontations." So in order to prevent military conflict in the coming years, China and the US have penned two deals. “It’s incredibly important that we avoid inadvertent escalation and that we don’t find ourselves again having an accidental circumstance lead into something that could precipitate a conflict” said a White House official.
With the bond market closed today due to Veteran's Day and the correlation and momentum ignition algos about to go berserk without any parental supervision, it was only a matter of time before some "stray" headline sent first the carry pair of choice, i.e., the USDJPY, and subsequently its derivative, the Emini, into the stratosphere. And sure enough, just before 3am Eastern, it was once again Reuters' turn to leak, only this time not about the ECB but Japan, as usual citing an unnamed "government official close to Abe's office", that Prime Minister Shinzo Abe was likely to delay a planned sales tax increase.
- JAPAN MORE LIKELY TO DELAY SALES TAX INCREASE, REUTERS REPORTS
Which of course is a repeat of what Reuters said 2 days ago but since it came on the weekend, the momentum ignition algos didn't notice. The result was an instant surge in the USDJPY, which shortly thereafter touched on 116.00 the highest level in 7 years, and is up now 200 pips since yesterday as the obliteration of Japan's economy proceeds, in turn pushing European stocks, and shortly, the S&P, higher
- Obama urges China to be partner in ensuring world order (Reuters)
- China Sees Itself at Center of New Asian Order (WSJ)
- Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (BBG)
- China's Xi, Japan's Abe hold landmark meeting after awkward handshake (Reuters)
- Revenue Softness Worries Stock Investors (WSJ)
- How BOJ’s Kuroda Won the Vote for Stimulus Expansion (WSJ)
- Bonus Season Brings More Pain for Traders (WSJ)
- Russia’s Military Encounters Risk Clash in Europe (BBG)
Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on. That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.
We often hear that if there is not enough oil at a given price, the situation will lead to substitution or to demand destruction. Because of the networked nature of the economy, this demand destruction comes about in a different way than most economists expect–it comes from fewer people having jobs with good wages. With lower wages, it also comes from less debt being available. We end up with a disparity between what consumers can afford to pay for oil, and the amount that it costs to extract the oil. This is the problem we are facing today, and it is a very difficult issue.
As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, grenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply another 30 billion cubic meters (bcm) of gas a year to China. Gazprom CEO Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas client.
Today, with little fanfare, Russia's president Putin - whose economy is said to be reeling as a result of a plunging currency, paradoxically something Japan would love to be able to achieve on such short notice - told the media ahead of his visit to the Asia Pacific Economic Conference on November 9-11, that Moscow and Beijing have agreed many of the aspects of a second gas pipeline to China, the so-called western route, or as some already are calling it, the "second holy grail." “We have reached an understanding in principle concerning the opening of the western route,” Putin said. "We have already agreed on many technical and commercial aspects of this project laying a good basis for reaching final arrangements,” the Russian President added.
Back in September, there was a summit meeting in a city that involved an organization that most Americans have never heard of. Mainstream media coverage was all but nonexistent. The place was Dushanbe, the capital of Tajikistan, a country few Westerners could correctly place on a map. But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.
There was a time when the merest hint of Russia military activity at the Ukraine border would do the unthinkable: challenged central planners and send stocks lower. Who can forget the market drubbing when the Russian humanitarian convoy was going to enter east Ukraine and allegedly carry a DIY army? Well, those days are long gone. Because with Ukraine repeating day after day after day, how many Russian soliders have entered the country, how many artilery shells have landed, and how Putin is just salivating to invade the economically devastated country, everyone completely tuned out. Case in point, yet another report earlier today from Kiev, according to which "a column of 32 tanks, 16 howitzer artillery systems and trucks carrying ammunition and fighters has crossed into eastern Ukraine from Russia." Market reaction: absolutely none.