en More To Ruble's Collapse Than Meets The Eye? <p><a href=""><em>Submitted by Colin Chilcoat via</em></a>,</p> <p><strong>The ruble is dying, and fast.</strong> In what is now being dubbed &lsquo;Black Monday&rsquo; the ruble&rsquo;s value to the dollar dropped nearly 15 percent. Tuesday brought no respite and the ruble fell another 10 percent. The ruble&rsquo;s collapse follows a similar &ndash; though by no means as extreme &ndash; slump in oil prices. Still, the Russian economy&rsquo;s troubles are deeper than that and President Vladimir Putin will be hard-pressed to find an easy out. With a recession looming, state energy companies are struggling to stay afloat, if not directly contributing to the country&rsquo;s woes.</p> <p><strong>On the year, the ruble has lost more than 55 percent of its value against the dollar, breaking psychological barrier after psychological barrier.</strong> Tuesday&rsquo;s low of 80 <a href="">marks</a> a new record and harkens back to the period of hyperinflation that characterized post-Soviet Russia. Then, as now, citizens are seeing their material wealth disintegrate amid rising costs domestically.</p> <p>&nbsp;</p> <p><img alt="Ruble vs Dollar" src="" style="width: 600px; height: 375px;" /></p> <p><em>Source: <a href="">QZ</a></em></p> <p><strong>For its part, the Russian central bank has been unable to stop the slide.</strong> Neither periodic use of the dwindling foreign exchanges reserves nor interest rate hikes have proved effective. The latest interest rate increase &ndash; enacted under the cover of night Monday &ndash; brought the key rate to 17 percent, up from 10.5, in an effort to end investor speculation. Tuesday&rsquo;s trading demonstrated the speculation is far from over and the central bank is far from in control. The higher rates will further squeeze growth as the economy <a href="">heads</a> for a 4.5 percent retraction next year. Ill prepared to wait it out, the central bank is clearly a step behind the game and perhaps even out of its league. <strong><u>Black Monday suggested other powers might be at play.</u></strong></p> <p><strong>Monday was incidentally the day of an interesting 700 billion ruble liquidity auction. </strong>Prior to the auction, Rosneft <a href="">raised</a> 625 billion rubles (almost $11 billion) in a bond issue backed by the central bank. The central bank then quickly cleared the lower-yield bonds to serve as collateral for banks seeking liquidity in the auction. It&rsquo;s unclear who purchased the bonds, but Rosneft explicitly <a href="">stated</a> the proceeds will finance internal projects and will not touch the foreign exchange markets. <strong>Nevertheless, speculation has persisted and theories abound.</strong></p> <p><strong>It is within reason that Rosneft&rsquo;s subsidiaries and their respective banks were <em><a href="">prepared</a></em> &ndash; or financed by Rosneft that is &ndash; for the bond issue, after which they could refinance the bonds at the central bank for a 5 to 10 percent profit.</strong> A similar theory has been <a href="">suggested</a> for the bigger state banks like VTB and Sberbank, who would not <a href="">comment</a> on their involvement. The idea goes that they purchased the bonds, flipped them for foreign currency at the central bank, and then passed cash along to Rosneft through a currency swap. While complicit, the central bank has little control and, in either scenario, the money hitting the market from such a deal is certainly of the scale to <a href="">inflict</a> the damage we saw Monday.</p> <p><strong>The move highlights dire straits for Rosneft who must answer to $10.2 billion of debt in the fourth quarter, which includes a $6.88 billion loan from foreign banks due Dec. 21. </strong>The company &ndash; whose market value has <a href="">tumbled</a> 40 percent this year &ndash; has approximately $55 billion in net debt and has thus far been unsuccessful in its attempts to garner bailout money from the government. In its recently defined strategic development goals, the company stressed efficiency, gas production growth, and the localization of advanced technologies and equipment. In the meantime, all eyes at Rosneft are on the price of oil, which appears to be <a href="">undercutting</a> their expectations.</p> <p><strong>For Russia, the uncertainty is just as great. </strong>The Russian stock market has collapsed in tandem with the ruble and traders in the US anticipate stricter government controls as early as this week. While flows of money have thus far been <a href="">unimpeded</a>, capital controls such as limits on foreign exchange transactions appear ever more likely as the ruble continues to sink.</p> Bond Hyperinflation Recession Vladimir Putin Thu, 18 Dec 2014 22:20:56 +0000 Tyler Durden 499322 at Berserk Rampathon Algo Just Bought The S&P At 2,130 <p>4 seconds before the close, one super-bullish algorithm exuberantly bought a massive <strong>$200 million worth of the S&amp;P 500 ETF up to a 2,130 level on the index in one second</strong>... and no -<em> it was not a fat finger!! It was 1,147 trades! </em><a href="">Now who do we know that is an 'expert' in ETF trading?</a><em><br /></em></p> <p>&nbsp;</p> <p>With 4 seconds to go in today's "market" day-session, this happened...</p> <p><a href=""><img src="" width="600" height="402" /></a></p> <p><em>Source: NanexLLC</em></p> <blockquote class="twitter-tweet" lang="en"><p><a href=";src=ctag">$SPY</a> ex-div tomorrow - did it play a role? Will they bust those trades before options close. tick.tick.tick.</p> <p>— Eric Scott Hunsader (@nanexllc) <a href="">December 18, 2014</a></p></blockquote> <script src="//"></script><blockquote class="twitter-tweet" lang="en"><p>Each dot is a stock trade. Notice the <a href=";src=ctag">$SPY</a> column of trades all the way up 3% <a href=""></a></p> <p>— Eric Scott Hunsader (@nanexllc) <a href="">December 18, 2014</a></p></blockquote> <script src="//"></script><blockquote class="twitter-tweet" lang="en"><p><a href=";src=ctag">$SPY</a> spike wasn't 1 trade. Or 10, or 100. It was 1,147 trades (610K shares): <a href=""></a></p> <p>— Eric Scott Hunsader (@nanexllc) <a href="">December 18, 2014</a></p></blockquote> <script src="//"></script><p>&nbsp;</p> <p><a href=""><span style="text-decoration: underline;"><strong>There's only one man "expert" enouigh to handle a job like that...</strong></span></a> From his profile (<a href="">link</a>):</p> <p><a href=""><img src="" width="600" height="882" /></a></p> <p>&nbsp;</p> <p>But have no fear... those trades will be DK'd asap...</p> <ul> <li><strong>*NASDAQ ISSUES E-MAILED STATEMENT ON 'SPY' TRADES</strong></li> <li><strong>*POTENTIALLY ERRONEOUS `SPY' TRANSACTIONS BEING PROBED</strong></li> <li><strong>*TRANSACTIONS WERE EXECUTED BETWEEN 15:59:00-16:00:00 ET</strong></li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1200" height="804" alt="" src="" /> </div> </div> </div> NASDAQ SPY Twitter Twitter Thu, 18 Dec 2014 21:50:40 +0000 Tyler Durden 499320 at Comstock Suspends Drilling In Eagle Ford Due To Plunging Oil Prices <p>Shale 0 - Saudi Arabia 1</p> <p>Following one after another major and shale company announcing plans to trim capex (even as they miraculously still get to keep their revenue and EPS projections intact, for now), the latest victory handed to Saudi Arabia on a silver platter comes courtesy of Comstock Resources (Total Debt/EBITDA 2.4x, EBITDA $421MM, CapEx $674MM) Comstock Resources said earlier today that in response to low oil prices, plans to suspend oil directed drilling activity in its Eagle Ford shale properties and in Tuscaloosa Marine shale.</p> <p>It was not immediately clear how many high-paying oilfield jobs would be promptly terminated as a result of this unambiguously good development. </p> <p><a href=""><img src="" width="500" height="245" /></a></p> <p>Full press release:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Comstock Resources, Inc. ("Comstock" or the "Company") (NYSE:CRK) announced that it has budgeted $307 million in 2015 for its drilling and completion activities.&nbsp; <strong>In response to low oil prices, the Company plans to suspend its oil directed drilling activity in its Eagle Ford shale properties in South and East Texas and in the Tuscaloosa Marine shale in Mississippi.&nbsp; Comstock has released its rig in the Tuscaloosa Marine shale and will postpone its drilling activity there until oil prices improve.&nbsp; </strong>Comstock currently has four operated rigs drilling on its Eagle Ford shale properties.&nbsp; The Company will release two of these rigs in early 2015 and will move the other two rigs to North Louisiana to start up a drilling program on its Haynesville shale natural gas properties. Comstock believes that improved completion technology, including longer laterals, will provide strong returns on drilling projects at current natural gas prices. </p> <p>&nbsp;</p> <p>Comstock has budgeted to drill 19 (18.6 net) horizontal wells in 2015.&nbsp; The Company expects to spend $161 million for drilling 14 (14.0 net) Haynesville/Bossier shale natural gas wells and $34 million for drilling five (4.6 net) wells on its East Texas and South Texas Eagle Ford shale acreage.&nbsp; The 2015 budget includes $49 million for completion costs of 13 (11.9 net) Eagle Ford shale wells that were drilled in 2014 but will be completed in 2015 and $63 million on facilities, recompletions and for other capital projects.&nbsp; Comstock plans to refrac ten of its existing Haynesville shale producing wells as part of the 2015 program. </p> <p>&nbsp;</p> <p>Comstock estimates that the drilling program will generate Company-wide oil production of 3.5 to 3.9 million barrels in 2015 and natural gas production of 55 to 60 Bcf.&nbsp; </p> </blockquote> <p>The punchline:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>After three years of natural gas production declines, 2015 will mark a turnaround for the Company's natural gas production.&nbsp; The Company will continue to assess the oil and natural gas markets throughout 2015 and will adjust its drilling program to reflect the appropriate mix of oil and natural gas wells in order to maximize returns.</p> </blockquote> <p>Good luck.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1184" height="581" alt="" src="" /> </div> </div> </div> Ford Natural Gas Saudi Arabia Thu, 18 Dec 2014 21:26:51 +0000 Tyler Durden 499319 at Fed Cat Bounce: Stocks Soar Most In 3 Years As Crude Crash Continues <p>This is indeed &quot;madness&quot;...</p> <p><iframe frameborder="0" height="360" src="//" width="480"></iframe></p> <p>&nbsp;</p> <p>Just 1 word... &quot;Patient&quot; and this idiotic market soars 700 Dow points! (and S&amp;P 90 Up ) - <strong>Quad Witching Machines in full retard mode.</strong>.. <u><strong>This is the biggest 2-day swing since Dec 2011.</strong></u></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 249px;" /></a></p> <p>&nbsp;</p> <p>Up 4-5% in 48 hours...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 621px;" /></a></p> <p>&nbsp;</p> <p><u><strong>&quot;Most Shorted&quot; stocks are up 4.75% from yesterday&#39;s lows - the biggest squeeze since October 2011.</strong></u></p> <p><a href=""><img height="304" src="" width="600" /></a></p> <p>&nbsp;</p> <p>Since The FOMC...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 567px;" /></a></p> <p>&nbsp;</p> <p>Dismal Data... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 318px;" /></a></p> <p>&nbsp;</p> <p>HY Credit dumping... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 358px;" /></a></p> <p>&nbsp;</p> <p>VIX protection bid... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 478px;" /></a></p> <p>&nbsp;</p> <p>Crude Carnage... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 319px;" /></a></p> <p>&nbsp;</p> <p>JPY Carry unwinds... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 357px;" /></a></p> <p>&nbsp;</p> <p>Inflation expectations collapsing... Buy Stocks</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p><u><strong>You&#39;re getting the picture.</strong></u></p> <p>The USDollar rallied...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields rose quite notably...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 318px;" /></a></p> <p>&nbsp;</p> <p>And commodities generally flatlined as oil roundtripped...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>Finally, Russia &quot;stabilized&quot; overnight following Putin&#39;s annual Q&amp;A...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 324px;" /></a></p> <p>&nbsp;</p> <p>Charts: Bloomberg</p> Crude Thu, 18 Dec 2014 21:09:13 +0000 Tyler Durden 499318 at Will Yellen Learn from Greenspan? <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">By&nbsp;<a href="">EconMatters</a></p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">EconMatters has been&nbsp;<a href="">critical of Fed's new found dovishness</a>. &nbsp; &nbsp;Judging from the FOMC statement released on Wednesday Dec. 17, Fed made a concerted effort (to<a href="">&nbsp;keep Wall Street happy</a>) keeping a spot for that infamous "considerable time" language. &nbsp;However, technically speaking, the phrase is actually a reference of timing, not exactly part of FOMC current policy statement. &nbsp;Below is the exact language: &nbsp;&nbsp;</p> <blockquote class="tr_bq" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"><p>Based on its current assessment, the Committee judges that it can be&nbsp;<strong>patient</strong>&nbsp;in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a&nbsp;<strong>considerable time</strong>&nbsp;following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.</p> </blockquote> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">In the Q&amp;A session of the press conference, Chairwoman Yellen said "The committee considers it unlikely to begin the normalization process for at least the next couple of meetings.” &nbsp;So the general consensus interpretation is that Fed is in no hurry to raise rates till at least April of 2015 unless the economic condition takes a drastic turn (better or worse).</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Nevertheless, Fed is running out of excuse to keep rates at near zero beyond 8 years. &nbsp;Employment is up, inflation is moderate (enhanced by<a href="">&nbsp;the recent lower oil/fuel prices</a>), and&nbsp;corporate profits are up.</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="" style="margin-left: 1em; margin-right: 1em;"><img src=";container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="228" border="0" style="cursor: move;" /></a></p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Council on Foreign Relations (CFR)&nbsp;<a href="">published an interesting graph</a>&nbsp;(see below) just before this Dec. FOMC meeting comparing various inflation and unemployment measures in 2004 (Greenspan era) and 2014. &nbsp;CFR at the time predicted that Yellen would drop the "considerable time" language from the policy statement, just like Greenspan did in Jan. 2004, and it looks like CFR was right. &nbsp;&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <table class="tr-caption-container" style="padding: 6px; margin-bottom: 0.5em; font-family: 'Times New Roman'; margin-left: auto; margin-right: auto; text-align: center;" cellspacing="0" cellpadding="0" align="center"> <tbody> <tr> <td> <p style="margin: 0px;"><a href="" style="margin-left: auto; margin-right: auto;"><img src=";container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="479" border="0" style="cursor: move;" /></a></p> </td> </tr> <tr> <td class="tr-caption" style="font-size: 13px; padding-top: 4px;"> <p style="margin: 0px;"><em>Source: Council on Foreign Relations, Dec. 16, 2014</em></p> </td> </tr> </tbody> </table> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Now the more intriguing question for markets is when the Yellen Fed will start raising rates? The Greenspan Fed started gradually raising rate in June 2004, roughly 5 months after dropping the "considerable time" language in Jan. 2004. &nbsp;So if we continue the train of thought by CFR, we probably could expect a rate raise somewhere in Q2 of 2015. &nbsp; &nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">Greenspan was criticized by some for keeping the loose monetary policy far too long leading to the housing bubble, which was a main contributing factor to the 2008 financial crisis. &nbsp;When it comes to the Federal Reserves, past performance could have more relevance to future results.&nbsp;Ms. Yellen would be prudent to learn from history and not to repeat the similar missteps. &nbsp; &nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">©&nbsp;<a href="">EconMatters</a>&nbsp;All Rights Reserved |&nbsp;<a href="">Facebook</a>&nbsp;|&nbsp;<a href="!/EconMatters">Twitter</a>&nbsp;|&nbsp;<a href="">Email Subscribe</a>&nbsp;|&nbsp;<a href=";node=80">Kindle</a></p> Housing Bubble Monetary Policy Twitter Twitter Unemployment Thu, 18 Dec 2014 21:05:31 +0000 EconMatters 499317 at 3 Things Worth Thinking About <p><a href=""><em>Submitted by Lance Roberts of STA Wealth Management</em></a>,</p> <h2><u><strong>The Fed&#39;s &quot;You Say Potato; I Say Potatoe&quot; Statement</strong></u></h2> <p>Yesterday, the Federal Reserve released their financial FOMC meeting statement for 2014. The primary focal point by the financial markets has been answering the question of WHEN the Federal Reserve will begin tightening monetary policy by hiking interest rates. Yesterday, did not answer that question as <a href="">Tim Duy</a> summed up well:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>Policymakers were apparently concerned that removal of &#39;considerable time&#39; by itself would prove to be disruptive.</strong> Instead, they opted to both remove it and retain it:</p> <p>&nbsp;</p> <p>&#39;Based on its current assessment, the Committee judges that <strong>it can be patient</strong> in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range <strong>for the federal funds rate for a considerable time</strong> following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee&#39;s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.&#39;</p> <p>&nbsp;</p> <p><strong>If you thought they would drop &quot;considerable time,&quot; they did.</strong> <strong>If you thought they would retain &quot;considerable time,&quot; they did. Everyone&#39;s a winner with this statement.</strong>&quot;</p> </blockquote> <p>As I have written in the past, the Fed has lost its focus of managing for price stability and <em>&quot;real&quot;</em> full-employment by trying to appease WallStreet and keeping its member banks <em>&quot;fat and happy.&quot; &nbsp;</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>(I say &quot;real&quot; full-employment because it is hard to suggest that the U.S. is anywhere near full-employment levels when only 46.5% of working-age individuals, those between the ages of 16-54, are employed full or part-time. <a href="">Read here</a>)</p> </blockquote> <p>There are two important points to be made about yesterday&#39;s FOMC statement.&nbsp;</p> <p>First, when the Federal Reserve has begun hiking interest rates in the past, GDP was averaging between 4% and 5% annual growth rates. The Fed historically has raised interest rates <em>&quot;slow&quot;</em> a rapidly growing economy and abate rising inflationary pressures. Now, however, the Fed is discussing raising interest rates in an economy that is barely growing above 2% with deflationary pressures and falling interest rates.&nbsp; As shown in the table below of the FOMC projections, estimates for future GDP growth remains at very sluggish levels.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="FOMC-Projections-GDP-121814"><img alt="FOMC-Projections-GDP-121814" class="i_want_img5" src="" style="height: 549px; width: 600px;" /></a></p> <p>My guess is that the Fed realizes that the economy, now over six years into the current expansion, is closer to the next recession than not. Therefore, the Fed likely feels compelled to raise interest rates regardless of near term market or economic consequences in order to have some capability of lowering rates to offset the next recessionary drag. Ironically, it will likely be the Fed&#39;s actions that trigger the next economic slowdown.</p> <p>Secondly, it is important to remember that the Federal Reserve CAN NOT tell the truth. In a liquidity driven world where the financial markets parse and hang on every word uttered by the heads of Central Banks worldwide, can you imagine what would happen to the financial markets if Janet Yellen stated:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;Despite many years of supporting the financial markets in hopes of a resurgence of economic growth, it is committee&#39;s assessment that Keynesian economic theory is flawed. While our monetary interventions have inflated asset prices as desired, it has only served to widen the <em>&quot;wealth gap&quot;</em> while having little effect on the real economy. It is the conclusion of the committee that our policies have failed to achieve realistic economic objectives and has potentially imperiled the financial markets with a third &#39;asset bubble&#39; in the last 15 years.&quot;</p> </blockquote> <p>The ensuing collapse in the financial markets would immediately create a recessionary environment. Financial markets would crumble as credit markets froze as economic activity plunged. This is why there is such great emphasis focused on the Federal Reserve statement and the guidance they provide. It is also why the FOMC has repeatedly stated that following the end of the current large scale asset purchase programs (LSAP or QE) that they would continue to focus on the use of <em>&quot;forward guidance&quot;</em> as a policy tool.</p> <p>The ability to <em>&quot;move&quot;</em> markets with words, rather than actions, has become the trademark of the European Central Bank (ECB) over the last couple of years. It is ultimately the hope that the Federal Reserve can pull off the same trick as they begin to extract liquidity and accommodation from the financial markets as the economic recovery takes hold.&nbsp; The problem for the Federal Reserve is that they are still looking for that elusive economic recovery to take hold after more than six years. Unfortunately for the Fed, economic recovery cycles do not last forever, and the clock is ticking.</p> <p>&nbsp;</p> <h2><u><strong>Retail Sales Not What They Seem</strong></u></h2> <p>I have been extremely vocal about the fact that shifting consumption from gasoline sales to retail sales does not create economic growth. It is just a <em>&quot;shift&quot;</em> in where the same dollars are spent.</p> <p>However, there has been much <em>&quot;hoopla&quot;</em> over the recent retail sales report for November that saw retail sales jump for the month by 0.7%. While on the surface this appears to be a strong retail sales report, a quick look below the surface quickly destroys that claim.&nbsp;</p> <p>First, as shown below, the <em>&quot;seasonal adjustment&quot;</em> to the retail sales report was the fourth largest in the history of the report. Of particular note, in the last two years, the seasonal adjustment were negative. The three previous record level adjustments were made immediately following the last two recessions.&nbsp;</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Retail-Sales-November-Adj-121814"><img alt="Retail-Sales-November-Adj-121814" class="i_want_img5" src="" style="height: 349px; width: 599px;" /></a></p> <p>Secondly, let&#39;s take a look at the NON-seasonally adjusted data for some guidance using a simple 12-month moving average to smooth the data rather than a potentially corrupted, by the financial crisis, seasonal adjustment methodology.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Retail-Sales-NSA-12moAvg-121814"><img alt="Retail-Sales-NSA-12moAvg-121814" class="i_want_img5" src="" style="height: 387px; width: 601px;" /></a></p> <p>As suspected, there is little evidence to support that retail sales actually surged in November. While the seasonally adjusted data, which is rather volatile, the smoothed NSA data suggests a weaker retail, consumer, spending environment. This corresponds closely with the premise that <a href="">I discussed recently</a> in the weekly newsletter <a href=""><em>(subscribe for free E-delivery)</em></a> that falling gasoline prices really have little impact on overall retail sales. To wit:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;While the argument that declines in energy and gasoline prices should lead to stronger consumption sounds logical, the data suggests that this is not the case.</p> <p>&nbsp;</p> <p>Simply put, lower oil and gasoline prices may have a bigger detraction on the economy that the <i>&ldquo;savings&rdquo;</i> provided to the consumer</p> <p>&nbsp;</p> <p>In any economy, nothing works in isolation. <strong>For every dollar increase that occurs in one part of the economy, there is a dollars&rsquo; worth of reduction somewhere else.</strong></p> </blockquote> <p>The data over the next couple of months will be interesting to watch.</p> <p>&nbsp;</p> <h2><u><strong>Chart Of The Day</strong></u></h2> <p><a href="">I have addressed previously</a> the divergence the economic indicators such as the ISM surveys and actual industrial production. Today&#39;s release of the Markit Service Sector activity shows a continued drop in services activity that belies recently released ISM Services surveys and retail sales data. Importantly, both cannot be right.</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="PMI-Sector-Services-121814"><img alt="PMI-Sector-Services-121814" class="i_want_img5" src="" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="587" height="379" alt="" src="" /> </div> </div> </div> Central Banks European Central Bank Federal Reserve Janet Yellen Markit Monetary Policy Recession recovery Thu, 18 Dec 2014 20:49:02 +0000 Tyler Durden 499316 at Sorry Folks, The North Koreans Hacked The "Global Recovery" <p>We are far too speechless to even comment on the latest Goldman "leading indicator" swirlogram, which we can only assume was made public after another unprecedented "<em>North Korean hack"</em> at US "recovery" propaganda central, so here is Goldman's own take:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The December Advanced GLI locates the global industrial cycle in the ‘Slowdown’ phase</strong>, which is characterised by positive but decreasing momentum. This follows last month’s Final GLI, which also placed us in ‘Slowdown’. Ongoing oil-related pressure on commodity prices, the AUD and CAD and a retreat of the Philly Fed index from November’s two-decade high contributed to this decline. </p> <p>&nbsp;</p> <p>Five of the seven Advanced GLI components have worsened in December so far. Notably, the Philadelphia Fed headline print (the Advanced proxy for the Global PMI) declined from last month’s two-decade high. The Philly Fed New Orders less Inventories component was also weak following a strong print last month, and the volatile Baltic Dry Index declined. The S&amp;P GSCI Industrial Metals Index® and AUD and CAD TWI aggregate components, two market-based gauges, also deteriorated. The University of Michigan survey (an early proxy for our Consumer Confidence aggregate) came in stronger for a fourth month, and the US Initial&nbsp;&nbsp; Jobless Claims contributed positively this month, after coming in weaker last month.</p> </blockquote> <p>And the punchline, well, <strong>this:</strong></p> <p><a href=""><img src="" width="600" height="514" /></a></p> <p>Looks like the world skipped recovery and proceeded straight into global recession (we say this as the Dow Jones is up 320 points and the S&amp;P is up 90 in 2 days)</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="785" height="673" alt="" src="" /> </div> </div> </div> Baltic Dry Consumer Confidence Initial Jobless Claims Michigan Philly Fed Recession recovery University Of Michigan Thu, 18 Dec 2014 20:21:22 +0000 Tyler Durden 499315 at World Awaits Russian Response As Obama Makes "Lethal Aid" To Ukraine Legal <p><a href="">As we explained previously, quietly hidden within the<strong> humanitarian-sounding &quot;The Ukraine Freedom Support Act of 2014&quot;</strong>,</a> under the premise of enabling further sanctions on Russia, is the <strong>provision of &quot;lethal aid&quot; to Ukraine</strong>. Today, President Obama signed it into law...</p> <ul> <li><strong>*OBAMA SIGNED RUSSIAN SANCTIONS BILL TODAY, but</strong></li> <li><strong>*OBAMA SAYS HE DOESN&#39;T PLAN TO IMPOSE SANCTIONS UNDER NEW LAW</strong></li> </ul> <p>Because he knows full well that is not the important part. <strong>The &quot;lethal-aid&quot; aspect is a direct provocation to Russia.. and he knows exactly how Putin will respond.</strong></p> <p>&nbsp;</p> <p><a href=""><img alt="" src="" style="width: 494px; height: 278px;" /></a></p> <p>*&nbsp; *&nbsp; *</p> <p><a href=""><em>As we detailed previously,</em></a></p> <p>As we <a href="">reported over the weekend</a>, in the tumult surrounding Citigroup&#39;s annexation of Congress with the passage of the theatrically dramatic <em>$303 trillion derivative quid-pro-$1.1 trillion spending quo, </em>what most missed is that Congress also unanimously passed the <em><a href="">The Ukraine Freedom Support Act of 2014</a>, </em>which not only expands Russian sanctions (read <a href="">the details here</a>) but far more impotantly, provides &quot;<strong>lethal assistance to Ukraine&rsquo;s military</strong>.&quot; And as we explained, passage of this law is just the pretext some Russian legislators needed to push for a full-blown, preemptive military incursion in east-Ukraine.</p> <p><a href="">Recall</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The decision of the US Senate is extremely dangerous. If it is supported by the House of Representatives and signed by their president, Russia must reply with adequate measures,&rdquo; Mikhail Yemelyanov of the Fair Russia party told reporters on Friday.</p> <p>&nbsp;</p> <p>&quot;<span style="text-decoration: underline;"><strong>It is quite possible that we should return to the decision by our Upper House and give the Russian president an opportunity to use military force on Ukrainian territory preemptively</strong></span>. <strong>We should not wait until Ukraine is armed and becomes really dangerous</strong>,&rdquo; the lawmaker stated.</p> <p>&nbsp;</p> <p>Yemelyanov also noted that in his opinion the US Senate&rsquo;s decision to arm Ukraine had revealed that Washington wasn&rsquo;t interested in the de-escalation of the Ukrainian conflict. He then said that US actions gave him the impression they was seeking to turn Ukraine into some sort of an &ldquo;international militant targeting the Russian Federation.&rdquo;</p> <p>&nbsp;</p> <p><strong>&ldquo;In a few years Ukraine will turn into a poor and hungry country with an anti-Russian government that will teach its population to hate Russia. They will be armed to the teeth and Ukraine and US reluctance to recognize the Russian Federation within its current borders would always provoke conflicts,&rdquo;</strong> the MP said.</p> </blockquote> <p>Furthermore, we asked if &quot;this means that what was a lingering proxy cold civil war in east Ukraine between NATO-armed Ukraine troops and Russia-armed Separatists and local militias is about to escalate into a shooting precursor to something greater? There is still hope an all out escalation can be avoided&quot; and we cited White House press secretary Joshn Earnest who last week said that &quot;the administration hadn&rsquo;t finished reviewing the language and isn&rsquo;t ready to take a position on the legislation. He said the administration wants to ensure that the U.S. and its European allies are working together, that any sanctions are effective and that they minimize harm to U.S. and European companies. <strong>&ldquo;This is delicate work,&rdquo; Earnest said</strong>.&quot;</p> <p>Apparently, not delicate enough, and moments ago we got confirmation that the epic collapse in the USDRUB is just a jovial preview of the main event. To wit:</p> <ul> <li><strong>OBAMA DOES INTEND TO SIGN RUSSIAN SANCTIONS LEGISLATION:EARNEST</strong></li> <li><strong>OBAMA LIKELY TO SIGN SANCTIONS BILL BEFORE END OF WEEK: EARNEST</strong></li> </ul> <p><strong><u>And with that, US &quot;lethal aid&quot; will shortly begin arriving in Kiev, which in turn will be just the pretext needed by Sergey Lavrov and the Kremlin to escalate the recent events in Russia as a direct attack by the West, and to demand retaliation against a US president who &quot;does not reason&quot; as the Russian media will appeal to the population in an attempt to &quot;<a href="">rally round the flag</a>&quot;, and as a result Russian tanks may have no choice but to enter the separatist territories in East Ukraine.</u></strong></p> <p>What the western, and certainly NATO, response at that point will be, is far beyond our meager prediction skills.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="494" height="278" alt="" src="" /> </div> </div> </div> Citigroup President Obama Ukraine White House Thu, 18 Dec 2014 20:03:07 +0000 Tyler Durden 499314 at Is The Oil Implosion Supply Or Demand Driven? Here Is The Very Simple Answer, Thanks To Saudi Arabia <p>There has been much debate whether the crude price implosion has been due to excess supply or not enough demand. Here, courtesy of the oil minister at the world's largest crude supplier, is the answer:</p> <ul> <li><strong>NAIMI SAYS DEMAND FOR OIL SLOWED MORE THAN EXPECTED: SPA</strong><strong>&nbsp;</strong></li> <li><strong>NAIMI SAYS GLOBAL ECONOMY SLOWDOWN LARGELY BEHIND MKT PROBLEM</strong></li> </ul> <p>Which, of course, to anyone with even the most rudiemntary logic and charting skills, should not come as any surprise.</p> <p><a href=""><img src="" width="600" height="316" /></a></p> Crude Global Economy Saudi Arabia Thu, 18 Dec 2014 19:41:45 +0000 Tyler Durden 499313 at Deciphering Yellen's Rub-Goldbergian Message <p><em>Via Scotiabank's Guy Haselmann,</em></p> <p>Through the overly-complex verbiage riddled with a copious number of contingencies, a simple message was actually able to surface.&nbsp; <strong><span style="text-decoration: underline;">The net result is modestly hawkish and one consistent with<a href=""> our "Sooner but Slower" rate cycle perspective</a>.</span></strong></p> <p><strong>Use of the word “patient” is analogous to “slower”; while Yellen’s comment about how it is “unlikely to begin normalization process for at least the next couple of meetings”, corresponds to a “sooner” lift-off.</strong>&nbsp; The marketplace had expected the first hike to occur in the June-September corridor, but Yellen moved it slightly forward to the April-June range. </p> <p><strong>The word “patient” will likely be used throughout 2015, for fear of unsettling the apple cart of bubble-like financial markets generated after six years of uber-accommodative policies.&nbsp;</strong> In other words, to prevent roiling Treasuries or risk assets too much -- after interfering for several years with the market’s normal price discovery functions – the Fed will have to tread carefully and slowly.</p> <p><strong>A modestly “sooner” hike is one reason why the front end of the Treasury curve is under pressure.&nbsp;</strong>&nbsp;&nbsp; However, a hike in ‘mid-2015’ is still quite far off and not a certainty given the worryingly and quickly changing geo-political landscapes. Therefore, due to carry and ‘roll –down’ benefits, Treasuries will not be able to price too many hikes in too soon.</p> <p><strong>The real hawkish part of the press conference was when Yellen defined the decline in oil as a “tax cut” to the consumer.</strong>&nbsp; The downward pressure it will have on headline CPI over the next few months, she explained as a “transitory” condition.</p> <p><strong>It is counter-factual to know whether economic progress has been the result of a normal business cycle or the result of Fed policy.</strong>&nbsp; After all, is ZIRP (or QE) creating jobs or impacting inflation?&nbsp; The plunge in the velocity of money is a sign that the Fed’s printing was not used as intended.&nbsp; It is a sign of extreme indebtedness.&nbsp; In this sense, Fed policies have borrowed from the future, while encouraging wild market speculation. </p> <p><strong>If economic progress has been more about the business cycle and it begins to turn by ‘mid-2015’ (or should a geo-political event damage rosy economic forecasts), then the Fed could lose its window of opportunity for ‘lift-off’.</strong>&nbsp; Is it possible that the Fed hikes even in the face of worse economic and financial market conditions?&nbsp;&nbsp; If conditions got really bad, it is possible that the Fed may not be able to hike at all in 2015. </p> <ul> <li><strong>This is certainly the risk of not hiking even “sooner” under the nearly ideal current conditions.</strong></li> </ul> <p><span style="text-decoration: underline;"><strong>Such a ‘lower for longer’ potential scenario would then be bad, not good, for risk assets. </strong></span></p> <p>Under such a scenario, <strong>risk asset valuations would look even further deviated from their economic fundamentals</strong>.&nbsp;&nbsp; The fallout in financial markets would likely be severe.&nbsp; The Fed would have to take the blame for focusing too much on its inflation mandate (of which it has little control) and not enough on the current risks to financial stability. </p> <p><strong>Too often times in history, the Fed has been the source of ‘boom to bust’ cycles.&nbsp; It is easy to envision that another one currently unfolding at this very moment.&nbsp; </strong></p> <p><span style="text-decoration: underline;"><strong>Markets are being driven more by fear of missing the upside, and fear of under-performing peers and benchmarks, than by any other factor.&nbsp; This Pavlovian response has worked well in recent years and encouraged by the Fed.&nbsp; However, this pattern is in the 9th inning.</strong></span>&nbsp; Moreover, such herd-like behavior will run into great difficult due to dreadful market liquidity that is the result of regulatory over-reach; indications that were evident in markets over the past few weeks.</p> <p><strong>I asked a trader today what he gleaned from the Fed meeting yesterday.&nbsp; He said, “Nothing.&nbsp; Fed policy was completely unchanged”.&nbsp; If this is true, then the market over-responded.&nbsp;</strong>&nbsp; While I believe the FOMC was slightly hawkish as noted above, the global situation is too fluid to price a Fed that when they finally move will only move gradually.&nbsp; In the meantime, markets need to contend with problems being created by falling oil, Greece, China, Russia and other areas.&nbsp; Could the Ruble go to 100?&nbsp; Putin said he will not bother with it, so why not?&nbsp; How will a devalued Yen and Ruble begin to impact China?</p> <p><strong>It is all about positions into year end.</strong> Rising uncertainties and changing risk/reward distributions for portfolios will keep volatility high.&nbsp; Treasuries 10 years and longer will stay low for a while longer.&nbsp; The post FOMC re-pricings are opportunities to buy the dip in long-dated Treasuries, and pare exposures to risk assets.&nbsp; <strong>Fade the over-reactive moves.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>“I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant” – Alan Greenspan</em></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="424" height="263" alt="" src="" /> </div> </div> </div> Alan Greenspan Apple China CPI Greece Market Conditions Volatility Yen Thu, 18 Dec 2014 19:31:08 +0000 Tyler Durden 499312 at