Natural Gas

Dirt-cheap natural gas is the cornerstone of President Obama’s energy policy, but drilling activity is falling off a cliff....

All you need to read.

• Tainted Libor Guessing Games Face Replacement by Real Trades (Bloomberg) - so circular, self-reported data is "tainted" - but consumer confidence is great for pumping a stock market?
• Japan Sets up $12 Billion Program for Dollar Loans, Increases Growth Fund (Bloomberg)
• China Hints at Halt to Renminbi Rise (FT)
• Spain Pressed to Cut More From Its Budget (FT)
• Bailout can make Greek debt sustainable, but risks remain: EU/IMF (Reuters)
• Banks to Face Tough Reviews, Details of Mortgage Deal Show (NYT)
• U.S. and Europe Move on China Minerals (WSJ)
• Use of Homeless as Internet Hot Spots Backfires on Marketer (NYT)
• Obama administration seeks to pressure China on exports with new trade case (AP)

• Greek Bailout Payment Set to Be Approved by Euro Ministers After Debt Deal (Bloomberg)
• China Trade Deficit Spurs Concern (WSJ)
• Sarkozy Makes Populist Push For Re-Election (FT)
• ECB Calls for Tougher Rules on Budgets (FT)
• As Fed Officials Prepare to Meet, They Await Clearer Economic Signals (NYT)
• PBOC Zhou: In Theory 'Lots Of Room' For Further RRR Cuts (WSJ)
• Latest Stress Tests Are Expected to Show Progress at Most Banks (NYT)
• Monti Eyes Labor Plan Amid Jobless Youth, Trapped Firemen (Bloomberg)

If there was any confusion as to who calls the shots in the world, the following anecdote should provide some needed clarity. Hint: it is not the US. After last week India announced it would proceed with a Cotton export ban, two days ago China logged "a formal protest against India's ban on cotton exports amid signs that India is rethinking the ban that was implemented a few days ago." As a result hours ago India announced that less than a week after enacting said ban, it is now overturning it. Of course, there is the diplomatic snafu of just why it did, and for India it has to do with "protecting" the interests of its farmers, who "complained that, due to higher production this year, they were already suffering from lower prices than they had expected and needed to export to recover their domestic losses." Of course, the farmers' position was well-known before the ban overturn. What wasn't known is just how vocal China would be, as suddenly it would scramble to find alternative sources as it fills its strategic cotton reserve. Turns out it was quite vocal. And India, unwilling to risk a trade war with the world's biggest economic power, promptly relented. As a result, any and all commodity traders who bought up the widowmaker trade may find themselves staring into a limit down market post open.

All you need to read.

European stock futures have trended higher today in relatively light volumes as the market awaits key interest rate decisions (BoE & ECB) and with the deadline for the Greek debt swap deal looming. The latest talk this morning has been that the participation in the PSI deal has been well received and coupled with speculation of a Chinese RRR cut overnight and stops tripped in the E-mini S&P and Eurostoxx futures earlier this morning, contributed to a large portion of the move higher. As a consequence, the USD index has weakened (-0.5%) which has lifted the EUR/USD pair back firmly though the 1.3200 level to the upside and Brent/WTI crude futures are seen higher ahead of the NYMEX pit open. Looking ahead we await the ECB press conference as well as the latest jobs data from the US due at 1330GMT.

All you need to read.

And now for some pure irony, we have a member of the Fed, granted a gold bug, but a Fed member nonetheless, one of the same people who not only enacted ZIRP, but encourage easy money every time there is a downtick in the market, complaining about, get this, Wall Street's "continued preoccupation, bordering upon fetish" with QE3. The irony continues: "Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery....I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice." So let's get this straight: these academic titans, who for one reason or another, are given free rein to determine the fate of the once free world with their secret decisions every two or three months, are completely unaware of classical conditioning, discovered by Pavlov nearly 90 years ago, also known as a salivation response. The same Fed is shocked, shocked, that every time the market dips, the red light goes off, and the "balls to the wall" crowd scream for more, more, more free money. Really Fisher? Really? Oh, and let us guess what happens the next time the S&P slides into the tripple digits: will the Fed a) do nothing, thereby letting the market slide to its fair value in the 400 point range, or b) print. Our money, in the form of hard yellow metal, is on the latter, just like we predicted, correctly, back in March 2009 in " Bailoutspotting (Or The Search For The Great Financial Methadone Clinic" that nothing will ever change vis-a-vis the great market junkie until it all comes crashing down.

For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan's economic and financial stability:

• The total shutdown of all 54 nuclear plants, leading to an energy insufficiency
• Japan's trade deficit in negative territory for the first time in decades, driven largely by energy imports
• A budget deficit that is now 56% larger than revenues (!!)
• Total debt standing at a whopping 235% of GDP
• A recession shrinking Japan's economy at an annual rate of 2.3%
• Renewed efforts underway to debase the yen

As I wrote a shortly after the earthquake in March 2011, Japan is facing an economic meltdown. If it is not careful, it may well face a currency meltdown, too. These things take time to play out, but now almost exactly a year after the devastating earthquake of 2011, the difficulties for Japan are mounting -- as expected.

Central banks are printing money all over the world. New names have been given to what is really an age old phenomenon. Desperate governments have traditionally debased their currencies when they have no other way of financing their deficits. So far the world’s central banks have been “lucky”. Thanks to the prior global bubble ending in 2008 and the realization that the so-called advanced countries are reaching the end of their borrowing capacity, the world is in a massive deleveraging mode which tends to be deflationary. For the moment the central banks can get away with printing all the money they want without massive increases in consumer price indexes. The public doesn’t connect increases in prices of commodities like gold or oil with the current bout of money printing. But if history is any guide, this money printing will matter and the age of deflation and deleveraging will be followed by an age of inflation.The coming battles over solving the problems of the bankrupt American government will not be pretty. It will be a bit more difficult for an American president to preach patriotism to the affluent in these circumstances. Although, if there is a war with Iran, he might try.

In 2011 it was Europe's turn to baffle everyone with bullshit. it still is, but now it has added China (whose Services ISM printed both below and above 50 depending on which data one uses, whether Markit or HSBC), and the US, as it is now the turn of the Services ISM to beat expectations and print at 57.3, on expectations of 56.0, and higher than the prior 56.8 - this beat comes just as the market was expecting a major drop in the aftermath of the big manufacturing ISM miss (Goldman was well below the consensus on today's number), and appears to have printed where it did just to keep the confusion about the true state of the US economy in place as Bernanke vacillates whether or not to proceed with QE3 and when. Curiously, the most important subindex ahead of this Friday's NFP data, the employment indicator, showed a decline from 57.4 to 55.7, just to make an NFP beat all that much more 'surprising.' That said, as Bloomberg's Joe Brusuelas notes, this data is stale and does not reflect the recent gasoline price shock, which as of today has regular has at a 2012 high of $3.767, compared to $3.503 this time last year. Elsewhere, and in keeping with the Mfg ISM data, US Factory Orders slid 1.0% on expectations of an unchanged print from last month's 1.4% increase. Finally, stocks are completely unmoved on all of this data.

• China cuts 2012 growth target to 7.5 percent, stability key (Reuters)
• Freom the Fed scribe himsef - Fed Takes a Break to Weigh Outlook (WSJ)
• Greek bond swap deal rests on knife-edge (FT)
• Lenders Stress Over Test Results (WSJ)
• China to Curb Auto Production Capacity, Promote New-Energy Car Development (Bloomberg)
• China military spending to top $100 billion in 2012, alarming neighbours (WaPo)
• Warning: A New Who's Who of Awful Times to Invest (Hussman)
• EU to push quota for women directors (FT)
• Romney Advances As Obama Gains (WSJ)
• Saudi Aramco Raises Oil Premium for April Sales to Asia, U.S.; Cuts Europe (Bloomberg)

All you need to read.

When it comes to reporting the news, Reuters ability to get the scoop first may only be rivaled by its ability to "spin" analysis in a way that will make a normal thinking person's head spin.  Such as the following piece of unrivaled headscrathing titled "The good news behind oil prices" whose conclusion, as some may have already guessed, is that "the surge in crude oil is looking more like a harbinger of better days." Let's go through the arguments.