en AAPLocalypse & Lockhart-nado Spoil Stock Party; Dollar & Bond Yields Surge <p>The last week in stocks (and Apple and Twitter) in 19 seconds...</p> <p><iframe allowfullscreen="" frameborder="0" height="360" src="" width="480"></iframe></p> <p>&nbsp;</p> <p>Strength in China on new short-selling-curbs provided very littlc comfort for US investors. Early strength quickly faded as Dennis Lockhart peed in the Kool-Aid...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 414px;" /></a></p> <p>&nbsp;</p> <p>On the day...only Trannies closed green...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 438px;" /></a></p> <p>&nbsp;</p> <p>From Lockhart&#39;s comments, S&amp;P and Dow were weak...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 388px;" /></a></p> <p>&nbsp;</p> <p>And since Friday... Dow and Smal lCaps underperform</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 447px;" /></a></p> <p>&nbsp;</p> <p>The machines were in charge as AAPL selling pressure demanded index support to sustain institutional sells...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>With AAPL getting clubbed...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 338px;" /></a></p> <p>&nbsp;</p> <p>VIX was as gappy as a hillbilly&#39;s teeth...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 307px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields all rose notably after Lockhart jawboned...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 311px;" /></a></p> <p>&nbsp;</p> <p>Which drove the curve to its flattest in almost 4 months...and flattening at the fastest pace this year</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 288px;" /></a></p> <p>&nbsp;</p> <p>The Dollar Index surged after Lockhart&#39;s comments as money fled EUR and CHF...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 312px;" /></a></p> <p>&nbsp;</p> <p>Dollar strength sparked more commodity weakness...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p>Fed credibility remains near zero as the long-bond tracks reality and short-end tracks Fed promises... As one witty chap said &quot;Data Dependent, my arse!!&quot;</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 310px;" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <p><strong>Bonus Chart: Just a little reminder - The Fed f##ked up before...</strong><strong>&quot;</strong><em>The Fed exit strategy completely failed as the money supply immediately contracted; <span style="text-decoration: underline;">Fed tightening in H1&rsquo;37 was followed in H2&rsquo;37 by a severe recession and a 49% collapse in the Dow Jones</span>.&quot;</em></p> <p><a href=""><img height="321" src="" width="500" /></a></p> Apple Bond China Dennis Lockhart Kool-Aid Money Supply Reality Recession Twitter Twitter Tue, 04 Aug 2015 20:08:52 +0000 Tyler Durden 511066 at Tuesday Humor: When Social Media Gets Real <p>In a period when social media stars are getting clobbered, we thought this quite appropriate...</p> <p>&nbsp;</p> <p>"I haven't got a computer, but I was told abouy Facebook and Twitter and am trying to make friends in the real world applying the same principles..."</p> <p>&nbsp;</p> <p><a href=""><img src="" width="492" height="703" /></a></p> <p><em>Source: @_youhadonejob</em></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="427" height="277" alt="" src="" /> </div> </div> </div> Twitter Twitter Tue, 04 Aug 2015 19:55:00 +0000 Tyler Durden 511064 at Some Clear Thinking About The Price Of Gold <p><a href=""><em>Submitted by Simon Black via Sovereign Man blog</em></a>,</p> <p><strong>On April 2, 2001, the price of gold closed the market trading session at $255.30.</strong></p> <p><strong>And that was the lowest price that gold has seen ever since.</strong></p> <p>In US dollar terms, gold closed the 2001 calendar year higher than it did in 2000. Then it did the same thing again in 2002. And again in 2003.</p> <p>In fact, after reaching its low in April 2001, gold closed higher for twelve consecutive years&ndash; something that had never happened before in ANY financial market with ANY asset.</p> <p>Then came a correction; the price started falling, and gold is now on track for 2015 to be its third down year in a row.</p> <p><strong>What&rsquo;s incredible is that, despite its history of gains, and 5,000 years of tradition behind it, gold is rapidly becoming one of the most widely despised assets.</strong></p> <p>But before we pronounce it dead and write the final gold eulogy, however, let&rsquo;s consider the following:</p> <p><span style="text-decoration: underline;"><strong>1) Nothing goes up (or down) in a straight line.</strong></span> After 12 straight years of unprecedented gains with any asset class, it&rsquo;s not unusual to have a meaningful correction.</p> <p>(Just imagine how severe the correction in stocks will be. . .)</p> <p>And like all frantic booms which go way past sustainable levels, corrections also overshoot fair value.</p> <p>This correction in the gold market could easily last for several more years, with prices potentially well below $1,000.</p> <p>But then we could just as easily see another massive surge all the way past $2,000 and beyond.</p> <p>That&rsquo;s the nature of these markets&ndash; to be extremely fickle (and highly manipulated).</p> <p>Even over a period of a few years, the market can show about as much maturity as a middle school lunchroom, complete with pubescent gossip and inane popularity contests.</p> <p>But it&rsquo;s rather short-sighted to completely lose confidence in an asset that has a 5,000 year track record because of a few down years.</p> <p><span style="text-decoration: underline;"><strong>2) The gold price shed nearly 5% after the government of China announced recently that they owned 1,658 metric tons of gold.</strong></span></p> <p>This amount was lower than what many investors and analysts had been expecting, and the price of gold dropped as a result.</p> <p>My question- <strong>since when did anyone start believing official reports from the Chinese government?</strong></p> <p>Seriously. The Chinese have a vested interest in understating their gold holdings.</p> <p>They know that doing so will push the price of gold LOWER, which is exactly what they want.</p> <p>China is sitting on trillions of dollars in reserves right now, a portion of which they&rsquo;re rapidly trying to rotate OUT of US dollars.</p> <p>So it&rsquo;s clearly beneficial to the Chinese government if they can sell dollars while they&rsquo;re strong and buy gold while it&rsquo;s cheap.</p> <p>And if they can push gold to become cheaper, even better for them.</p> <p><u><strong>3) Remember why you own gold to begin with.</strong></u></p> <p>Gold is a very long-term store of value. Notwithstanding a few down years, gold has maintained its purchasing power for thousands of years.</p> <p>Paper currencies come and go. They get devalued, revalued, and extinguished altogether.</p> <p>How much would you be able to buy today with paper money issued by the 7th century Tang Dynasty? Nothing. It no longer exists.</p> <p>Or a pound sterling from 1817? Very little. It&rsquo;s barely pocket change today.</p> <p>Yet the gold backing up that same pound sterling from 1817 is worth over $250 today (165 pounds).</p> <p>Even in modern history, the gold backing up a single US dollar from 1971 is worth vastly more than the paper currency that was printed 44 years ago.</p> <p>But even more importantly, aside from being a long-term store of value,<strong> gold is a hedge</strong>&mdash; a form of money that acts as an insurance policy against a dangerously overleveraged financial system.</p> <p>How much will your dollars and euros buy you in the event of real financial calamity? Or if there&rsquo;s a major government default or central bank failure?</p> <p>No matter what happens in the financial system&ndash; whether it collapses under its own weight, or cryptofinance technology revolutionizes how we do business&ndash; gold ensures that you&rsquo;re protected.</p> <p><u><strong>4) Resist the urge to value gold in paper currency. </strong></u>We all have this tendency&ndash; we invest in something, and then hope it goes up in value.</p> <p>But that&rsquo;s a mistake with gold. It&rsquo;s a hard thing for some people to do, but try to stop yourself from thinking about gold in terms of its paper price.</p> <p>(It&rsquo;s also important to remember that there&rsquo;s a <strong>huge disconnect between the &lsquo;paper price&rsquo; of gold, and the physical price of gold</strong>.)</p> <p>Remember, gold is not an investment; there are plenty of better options out there if you&rsquo;re looking for a great speculation.</p> <p>So the notion of trading a stack of paper currency for gold, only to trade the gold back for a taller stack of paper currency misses the point entirely.</p> <p><u><strong>5) Having said that, if you find it too difficult to do this, and you catch yourself constantly refreshing the gold price and checking your portfolio, you might own too much.</strong></u></p> <p>Listen to your instincts; if you&rsquo;re always feeling frantic about the daily gyrations in the market, lighten your load.</p> <p>Don&rsquo;t love anything that won&rsquo;t love you back. Stay rational. Own enough gold that, in the event of a crisis, you will feel comfortable that you have enough &lsquo;real savings&rsquo;&hellip; but don&rsquo;t own so much that you&rsquo;re constantly worrying about the paper price.</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="533" height="302" alt="" src="" /> </div> </div> </div> China default Purchasing Power Tue, 04 Aug 2015 19:30:00 +0000 Tyler Durden 511063 at We, The Sheeple <p>Presented with no comment...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="399" /></a></p> <p>&nbsp;</p> <p><a href=""><em>Source:</em></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="787" height="524" alt="" src="" /> </div> </div> </div> Tue, 04 Aug 2015 19:05:00 +0000 Tyler Durden 511062 at Japan's Real Wages Just Plunged The Most In Six Years <p>When it comes to Japanese wage data, that weakest link of Abenomics simply because real wages haven't grown in 24 consecutive months - and without wage growth no economy can ever possibly groq - there is little to add to what we said previously: all the data is not only fabricated, but manipulated to comply with policy. Recall our <a href="">post from April </a>in which we exposed just how Japan's Monthly Labor Survey adjusted all historical data so that the "rising" wages into Japan's election were subsequently revealed to be a lie and in fact Japan never had a single month of rising base wages in 2014!</p> <p><a href=""><img src="" width="600" height="390" /></a></p> <p>&nbsp;</p> <p>Since then the Japanese department of data fabrication has gone "full Chinese" and last month, the wage data was presented as the long overdue "smashing success" for Abenomics, as <a href="">it was the first month </a>in two years when <a href="">real wages</a> posted a meager 0.1% increase. </p> <p>Unfortunately, just a few weeks later that 0.1% increase was promptly adjusted down to an unchanged 0.0%, thereby confirming not only that Abenomics remains a failure but that no Japanese wage data is even modestly credibly. </p> <p>And then, last night, we got the latest data for the month of July which was an absolute disaster.</p> <p>The ministry of health and labor <a href="">reported </a>that total average monthly cash earnings per regular employee in Japan for June stood at Y425,727, plunging 2.4% from a year earlier and posting the first year-on-year drop in seven months after +0.7% in May, which was distorted by irregular summer bonus payment patterns.</p> <p>Bonuses and other special pay slumped 6.5% on year for the first drop in eight months after +25.2% in May. But base wages, the key to a recovery in cash earnings, rose 0.4% on year in June for the fourth straight rise. <strong>Overtime pay fell 0.4% for the fourth straight drop, indicating a GDP slump in the April-June quarter</strong>.</p> <p>Not surprisingly, the fall in bonuses in June was attributed to an increase in entities that paid bonuses early in May at businesses with more than 30 employees where payments are large <strong>and a decline in businesses that paid bonuses in June compared with last year (ratio of businesses paying in June: 37.7%, June 2014: 41.9%). </strong></p> <p>In other words, as Abe pushes more and more companies to compensate for soaring import costs with higher bonuses, companies have simply slashed the number of bonuses paid out by 10% in one years! And it's only going to get worse, with the Federation of Economic Organizations’ (Keidanren) summer bonus survey showing a sharp slowdown in bonuses this year to +2.8% from +7.2% last year, excessive expectations are unwarranted.</p> <p>The punchline: all important real wages, even those including bonuses and special payments, once again failed to keep up with inflation, and in June crashed by a whopping 2.9% reflecting a 0.5% yoy increase in the CPI excluding imputed rent. As the chart below shows, <strong>there has now been 24 consecutive months without a single Y/Y monthly increase in real wages </strong>(we fully expect May's unchanged print to be revised negative in the final report). </p> <p><a href=""><img src="" width="600" height="330" /></a></p> <p>What's worse is that when one adjusts the inflationary surge from the consumption tax hike last April, which has now been fully anniversaried and is no longer part of the base effect, <strong><span style="text-decoration: underline;">this was the largest decline in Japan's real wages since December 2009</span>, or the biggest monthly plunge in 6 years! <br /></strong></p> <p>The irony here is that even as Abenomics is pushing Japan's economy ever deeper into total ruin, overnight an economic adviser to Japan's prime minister said that he saw no need for the Bank of Japan to deploy additional stimulus to meet its 2 percent inflation goal next year, warning that it could cause the yen to weaken and prices to overshoot. </p> <p><a href="">Quoted by Reuters</a>, Etsuro Honda, special adviser to the Cabinet and a leading architect of Prime Minister Shinzo Abe's reflationary economic policy, told Reuters in an interview that the next step for the central bank could be to taper its massive asset purchases.</p> <p>So tapering Japan's QQE <em><strong>just as the Japanese consumer has not been weaker in 6 years</strong></em> (a state for which the BOJ takes all the blame).</p> <p>Back to the real deterioration in Japan's economy, Market News reminds us that many firms are still using lower-paid part-time and contract workers as a buffer against business cycles. And a big reason for the ongoing weakness in wages is that just like in the US, the number of full-time employees rose 1.5% on year in June after +1.4% in May while the number of part-time workers gained 3.4% in June after +3.5% in May.</p> <p>We already covered all this previously in "<a href="">This Is What Keynesian "Success" Looks Like: Soaring Part-Time Jobs, Record Low Real Wages</a>" when we showed how Japan, like the US, is becoming a nation of part-time workers...</p> <p><a href=""><img src="" width="600" height="576" /></a></p> <p>... consisting of "senior citizens and housewives"</p> <p><a href=""><img src="" width="600" height="380" /></a></p> <p>With Abenomics solely to blame for the collapse in real wages which are now at a record low indexed level:</p> <p><a href=""><img src="" width="600" height="564" /></a></p> <p>We leave the conclusion to <a href="">MarketNews</a>: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The economy is widely expected to have contracted in the April-June (preliminary Q2 GDP due out on Aug. 17) but is forecast to rebound in the July-September quarter, which should support a modest improvement in nominal wages. But it takes time to push up wages above inflation, which is keeping consumption weak. <strong>The long decline in real wages, which has been on a general downtrend in the past four years, has hurt the average household income as the cost of living has been pushed up by high import costs and the sales tax hike last year</strong>.</p> </blockquote> <p>So another Keynesian success. And by success we of course mean complete failure.</p> <p>But how is it possible that Japan could singlehandedly destroy its economy? We wondered long and hard, and then we remembered that it was never alone.</p> <p>Recall: <strong>"<a href="">And The Person Responsible For Japan's Economic Endgame Is... Paul Krugman</a>"</strong></p> <p>At that point everything falls into place.</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="932" height="513" alt="" src="" /> </div> </div> </div> Abenomics Bank of Japan CPI Japan Krugman Paul Krugman recovery Reuters Yen Tue, 04 Aug 2015 18:48:38 +0000 Tyler Durden 511061 at Dramatic Footage Of Saudi Tanks Invading Yemen <p>There are competing accounts as to exactly what happened at the Al Anad airbase in Yemen on Monday, where Saudi-backed forces loyal to President Abed Rabbo Mansour Hadi reportedly routed Houthi rebels, marking the latest in a series of setbacks for the Iran-backed group which forced Hadi to flee to Riyadh earlier this year, plunging Yemen into a bloody civil war.&nbsp;</p> <p>According to the Houthis, coalition forces were "crushed" and their vehicles destroyed, but a spokesman for the Popular Resistance said most of the base was in coalition hands. Here’s <a href="">WSJ</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>Forces fighting for a Saudi-led military coalition in Yemen have defeated the country’s Houthi rebels at a strategic southern air base, the Yemeni defense ministry said Tuesday.</em></strong></p> <p>&nbsp;</p> <p><em>The Houthis denied that the base had fallen. However, if it has been captured this would extend a recent turning of the tide in favor of the coalition in the four-month-old conflict.</em></p> <p>&nbsp;</p> <p><em>The defense ministry said the operation at Al Anad, a large complex from which the U.S. had launched drone attacks against Al Qaeda in the Arabian Peninsula before the recent instability, was "a true representation of national will and noble sacrifices that are being made to liberate Yemen from the grip of overthrowing militias."</em></p> <p>&nbsp;</p> <p><em>A report Tuesday by the Houthi-run Saba news agency denied that Al Anad base had been taken, citing an unnamed military official.<strong> The Houthis had “crushed all [coalition] offensives” against the base and destroyed scores of military vehicles, &nbsp;</strong></em><strong><em style="font-size: 1em; line-height: 1.3em;">Houthi spokesman Nasruddin Amer said Monday evening.</em></strong></p> <p>&nbsp;</p> <p><em>If confirmed, the turn of fortunes in favor of the coalition at Al Anad build upon a string of recent gains in the south by the allies, which include Saudi Arabia, the U.A.E., Qatar, Bahrain, Egypt and a number of other Arab states.</em></p> <p>&nbsp;</p> <p><strong><em>Houthi rebels have been driven from Aden in recent weeks, setting the stage for coalition forces to make a further push northward into other Houthi-controlled areas.</em></strong></p> </blockquote> <p>Here's footage of the actual battle <a href="">courtesy of RT</a>:</p> <p><iframe src="" width="560" height="315" frameborder="0"></iframe></p> <p>And here's footage of Saudi tanks pushing north as the coalition offensive gathers steam:&nbsp;</p> <p> <iframe src="" width="560" height="315" frameborder="0"></iframe></p> <p>* &nbsp;* &nbsp;*</p> <p>Importantly, Saudi and coalition boots are now officially on the ground in Yemen, under the guise of tank trainers. Here's <a href="">The Washington Post</a>: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>Saudi and Emirati troops are assisting Yemeni pro-government forces at al-Anad by operating many of the tanks and sophisticated military equipment, military officials said.</em></strong></p> <p>&nbsp;</p> <p><em>A Yemeni military official said thus far, few Yemeni troops have been trained in operating the tanks that have arrived by sea from Gulf allies in recent weeks. He added that the Yemeni military sought help from coalition countries in the al-Anad operation, calling them "partners in the liberation operation of Aden and other provinces."</em></p> </blockquote> <p>Obviously, that seems like a rather transparent way of saying that the recent "turning of the tide" in Yemen may indeed be attributable to the fact that the Houthis are now fighting an open war with the Saudi army which turns out to be quite a bit more challenging than urban warfare in the backalleys of Aden with poorly trained Hadi holdouts. </p> <p>In any event, we suppose the real question is whether Iran is willing to stand by and watch as the Houthis are dismantled by Saudi Arabia, or whether Tehran decides it's time to provide more than just "logistical support", at which point Yemen's proxy "conflict" will officially morph into a regional sectarian war.&nbsp;</p> Iran Saudi Arabia Tue, 04 Aug 2015 18:45:28 +0000 Tyler Durden 511057 at Fed/Treasury Worried High-Frequency-Trading "Hurts Market Function" <p><a href="">Just days after China bans Citadel (and its high frequency trading) from trading Chinese markets, </a>US Treasury and Federal Reserve officials have been forced to admit they <strong><em>&quot;need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning.&quot;</em></strong> As WSJ reports, Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. markets in light of recent events. They are growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading. <a href="">As Weiss concludes</a>, <em>&quot;<strong>the constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere</strong>, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic.&quot;</em></p> <p><a href=""><em>As we previously noted, </em></a><strong><u>Citadel gets busted in China (and banned)...</u></strong> after &quot;<strong>The firm has recently expanded its quantitative hedge funds there</strong>, and its securities trading business traded options this year in a trial program on the China Financial Futures Exchange.&quot;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Chinese media reported over the weekend that one of the restricted accounts was co-owned by Citadel and major Chinese brokerage firm Citic Securities. Citic Securities said Sunday it invested in the account in 2010, but it sold off its stake in November 2014 and no longer owns stock in the account, according to China&rsquo;s official Xinhua News Agency. Citic Securities didn&rsquo;t immediately reply to a request for comment.</p> </blockquote> <p>And while a Citadel spokesman didn&rsquo;t respond to a request for comment on which side of the firm&rsquo;s business was affected by the suspension, it appears that Citadel&#39;s infatuation with market rigging via algos and &quot;automated trading&quot; is what set China off. Or rather the &quot;selling&quot; via automated trading.</p> <p>Moments ago Bloomberg confirmed as much when it reported that an official Chinese regulator urges further algorithm trading regulation, adding that China should be prudent on developing algorithm trading, Shanghai Securities News cites an unidentified official with China Securities Regulatory Commission as saying.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Market stability were &ldquo;seriously damaged&rdquo; by algorithm trading combined with some abnormal trading activities, the official was cited as saying.</strong> Algorithm trading may lead to systematic risks and result would be catastrophic when algorithm trading was used to manipulate market, the official was cited as saying.</p> </blockquote> <p><span style="text-decoration: underline;"><strong>Why are none of these risks ever brought up vis-a-vis Citadel&#39;s market manipulation in the US? </strong></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The answer is glaringly simple: because in the US, unlike China, Citadel always manipulates the market <em><strong>higher.</strong></em></p> </blockquote> <p>And now,<a href=""> as The Wall Street Journal reports,</a> regulators in the US are less excited about the impact of HFT as perhaps they fear the same about to happen here...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Senior officials at the Treasury Department and Federal Reserve questioned the benefits of high-frequency trading in U.S. Treasury markets, suggesting market overseers are building the case for new rules targeting the firms.</strong></p> <p>&nbsp;</p> <p>Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. Treasury markets in light of recent events that suggest they are more prone to swings.</p> <p>&nbsp;</p> <p>The remarks, made at an event hosted by the Brookings Institution think tank, were the<u><strong> latest evidence that Washington is growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading</strong></u>. Officials have lately focused on a huge 12-minute swing in the yield of a key U.S. Treasury bond on Oct. 15&mdash;the Treasury market&rsquo;s version of the 2010 stock price dive known as the &ldquo;Flash Crash.&rdquo;</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>Mr. Powell, who has an influential voice as a member of a Fed board that sets rules for large banks, didn&rsquo;t endorse any specific rule changes, but said the current market structure, which encourages superfast trading, could be less resilient than in the past.<strong> &ldquo;One can certainly question how socially useful it is to build optic fiber or microwave networks just to trade at microseconds or nanoseconds rather than milliseconds,&rdquo;</strong> he said.</p> <p>&nbsp;</p> <p><u><strong>&quot;If trading is at nanoseconds, there won&#39;t be a lot of &#39;fundamental&#39; news to trade on or much time to formulate views about the long-run value of an asset; instead, trading at these speeds can become a game played against order books and the market rules,&quot; </strong></u>Powell said</p> </blockquote> <p>Of course - it&#39;s easy - as Volcker did recently, to fob blame off on HFTs alone...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>But some on Wall Street say new regulations are to blame for more fragile markets </strong>because they have made it harder for big banks to act as middlemen between buyers and sellers.</p> <p>&nbsp;</p> <p>U.S.<strong> officials don&rsquo;t appear convinced their rules are the problem.</strong> Mr. Powell said regulations &ldquo;may be one factor driving recent changes in market making,&rdquo; but added &ldquo;these same regulations have also materially lowered banks&rsquo; probabilities of default and the chances of another financial crisis.&rdquo;</p> <p>&nbsp;</p> <p>Another significant change in Treasury markets: <strong>The Federal Reserve now is holding far more Treasury bonds as part of its programs to stimulate the economy.</strong></p> </blockquote> <p>And, <a href="">as Reuters adds,</a> Antonio Weiss, counselor to the U.S. Treasury secretary, was blunter.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;We need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning,&rdquo;</strong> Mr. Weiss said.</p> <p>&nbsp;</p> <p><u><em><strong>&quot;The constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic,&quot; </strong></em></u>he said in a speech prepared for deliver to the panel.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p><strong>Which leads to an even more interesting, follow up question:</strong> if Citadel&#39;s HFT algos were indeed caught red-handed selling in China, then someone in the US must have given the local Citadel brokerage the green light to spoof Chinese stocks lower. And since by definition Citadel does not do anything market-moving without the Fed&#39;s preapproval, <strong>one wonders if China&#39;s paranoia that foreigners are eager to crush its market is not at least partially grounded in reality?</strong></p> <p><strong>*&nbsp; *&nbsp; *</strong></p> <p><strong>In other words - all the time HFT manipulation presses prices higher, everything is fine and ignored... but when bonds are aggressively bid or stocks aggressively sold by the flash-crashing vicious-cycling HFTs then something has to be done about it!!</strong></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="200" height="161" alt="" src="" /> </div> </div> </div> Bond China Citadel default Federal Reserve HFT High Frequency Trading High Frequency Trading Market Manipulation None Reality Reuters Treasury Department Wall Street Journal Tue, 04 Aug 2015 18:34:21 +0000 Tyler Durden 511060 at US Shale: How Smoke And Mirrors Could Cost Investors Millions <p><a href=""><em>Submitted by Rune Likvern via</em></a>,</p> <p>In this post I present what I found from <strong>applying R/P (Reserves divided by [annual] Production) ratios for Light Tight Oil (LTO) for 3 big companies in Bakken/Three Forks/Sanish.</strong></p> <p>The companies are; Continental Resources, Oasis Petroleum and Whiting Petroleum, which operated 28% of total LTO extraction in the Bakken (ND) in December 2014.</p> <p><u><strong>Undertaking oil and gas reserves assessments are just as much an art as a science.</strong></u></p> <p>From previous work with LTO from Bakken I kept track of the R/P ratio for wells/portfolios and generally found it was in the range of 3 &ndash; 4 after their first year of flow. This suggested that 25 &ndash; 35% of the wells&rsquo; Estimated Ultimate Recovery (EUR) was extracted in their first year of flow.</p> <p>This made sense as extraction (production) from LTO wells are heavily front end loaded and have steep initial declines.</p> <p>Examining some big Bakken companies SEC 10-K (SEC; Securities and Exchange Commission) filings for 2014 I noticed that these had R/P ratios for Proven Developed Reserves (PDP) that ranged from 7 &ndash; 9.</p> <p><span style="font-size: 1em; line-height: 1.6em;">That did not make sense and R/P ratios give away powerful and very valuable information about likely future extraction trajectories.</span></p> <p><strong>About 50% of the companies&rsquo; total LTO extraction (flow) in Dec 2014 in Bakken (ND) were from wells started in 2014. In other words, the flow was dominated by &ldquo;young&rdquo; wells which decline rapidly. Therefore, whatever flow data (monthly, quarterly) that was annualized it should be expected a R/P ratio for total extraction around 4 for 2014.</strong></p> <p>What I present is how PDP, extraction data and R/P data derived from the 3 companies SEC 10-K statements compares to what was derived from actual data. Further, what actual data now is projecting for EUR for the average well for these companies.</p> <p><a class="lightbox" href=""><img src="" style="width: 600px; height: 340px;" /></a></p> <p>(Click to enlarge)</p> <p><em><strong>Figure 1</strong>: The chart above shows developments in average well first year LTO totals (productivity) for some companies and by vintage. The colored columns for 2013 and 2015 show projected financial performance based on average well first year LTO totals.</em></p> <p><em>For 2013 the chart is based on: WTI at $98/b and a type well at $10M was found to have a 0% return with a total first year LTO flow at about 50 kb.</em></p> <p><em>For 2015 the chart is based on: WTI at $60/b and a type well at $8M was found to have a 0% return with a total first year LTO flow at about 90 kb.</em></p> <p><em>The chart illustrates that the well productivity has been on an upward trend. So far the productivity improvements and cost reductions have not fully compensated for the effects from a much lower oil price.</em></p> <p><em>The profitability equation of the type well was solved for the equivalent total first year flow for various oil prices and costs on a point forward basis.</em></p> <p><em>A lower oil price makes the red columns &ldquo;push&rdquo; the other ones upwards (moves the profitability bands upwards).</em></p> <p><em>Wells of 2015 vintage (pre May) are on a trajectory close to those of the 2014 vintage.</em></p> <p><em>kb, kilo barrels = 1,000 barrels</em></p> <p><strong>LTO in Bakken will now generally work profitably with an oil price (WTI) above $80/b.</strong></p> <p>The willingness of several companies to sell more debt (obtain more credit), assets and equity to continue to manufacture LTO wells which estimates showed were not commercially viable have had many analysts puzzled.</p> <p>Something was likely overlooked, and chances are that this is related to EUR driven incentives to expand assets/equity on the companies&rsquo; balance sheets (or &ldquo;book to model&rdquo;).</p> <p>As companies drill wells and puts these in operation (production), it allows them to book reserves on the balance sheets. And reserves are the biggest portion of the LTO companies&rsquo; balance sheets.</p> <p>The rush to use credit/debt to drill what likely would become unprofitable wells (applying project economics) with a lasting, low oil price appears driven by some perverse incentive to grow booked reserves to grow assets and thus equity on the companies&rsquo; balance sheets, overriding outlooks for poor profitability. High equity on the balance sheets allows for more debt.</p> <p>Looking at actual, hard well data (from NDIC; North Dakota Industrial Commission) this strategy will at some point have to face up to the realities of physics and Nature. <u><strong>And physics and Nature do NOT negotiate.</strong></u></p> <ul> <li>Using actual data for LTO wells strongly suggests that the PDP (and thus PUD) estimates in companies&rsquo; SEC 10-K filings for 2014 are grossly inflated. If so, this has inflated the assets/equity numbers on the companies&rsquo; balance sheets.</li> <li>The findings from this study suggest that the massive drilling activity funded by growing debt, was likely motivated by balance sheets expansions of assets, and thus the equity from inflated EUR numbers (&ldquo;book to model&rdquo;) which made room to take on more debt.</li> <li>An inflated balance sheet that allows for a debt load above the carrying capacities of the real underlying collateral, will at some point in time turn against their creators and call for revisions of future plans and expectations.</li> <li>It will be interesting to see how the LTO companies&rsquo; balance sheets and their profitability respond as it become Mother Nature&rsquo;s turn with the bat.</li> </ul> <p><em>NOTE: Actual well data used for this analysis are all from North Dakota Industrial Commission (NDIC). For wells on confidential list, data on runs were used as proxies for extraction (production).</em></p> <p><em>Production data for Bakken, North Dakota: <a href="">Monthly Production Report Index</a></em></p> <p><em>Formation data from: <a href="">Bakken Horizontal Wells By Producing Zone</a></em></p> <p><em>Data on wells kindly made available by Enno Peters&rsquo; excellent and tireless work.</em></p> <p><em>Continental Resources; <a href=";p=IROL-sec&amp;secCat01.1_rs=21&amp;secCat01.1_rc=10&amp;control_symbol">Investor relations, SEC filings</a><br />Oasis Petroleum; <a href="">Investor relations, SEC filings</a><br />Whiting Petroleum; <a href="">Investor relations, SEC filings</a></em></p> <p><strong>The companies selected for this study were based on their number of producing wells </strong>(high portion of wells with 30 months or less of flow as per December 2014, their portion of total Bakken LTO extraction and these represent some spread of better and poorer than the average Bakken well.</p> <p>Some companies&rsquo; 10-Ks PDP shows reserves by area/field split on oil, NGL and natural gas and are also totaled as BOE (BOE; Barrels of Oil Equivalents).</p> <p><u><strong>The R/P ratio</strong></u></p> <p>The R/P ratio for (oil, gas, coal) is a useful and powerful metric that gives away tons of information.</p> <p><strong>The R/P ratio is a snapshot about how long the annual production level for any year versus the (estimated) remaining proven reserves at the end of that same year could be sustained.</strong></p> <p>The R/P ratio is a number which describes a theoretical rectangular production profile.</p> <p>In the real world things do not work this way. The R/P number changes from one year to another and it also needs to be seen together with the production level described by it for the year in question.</p> <p><strong>The Bakken LTO companies looked at</strong></p> <p>Analyzing the time series for around 8,000 LTO wells in Bakken for 2008 &ndash; 2015 makes for a solid foundation to develop predictable trajectories towards their EUR as the time series grow. It is a Nature thing.</p> <p>This study/analysis presents some data on and derived from R/P for 3 companies that are big in LTO extraction in Bakken (ND) and what to expect from actual data versus those reported on their SEC 10-K 2014 filings.</p> <p><strong>EUR trajectories for the average wells by vintage:&nbsp;<u>Continental Resources</u></strong></p> <p><a class="lightbox" href=""><img src="" style="width: 600px; height: 341px;" /></a></p> <p>(Click to enlarge)</p> <p><strong>Figure 2</strong>: <em>The chart show development in the EUR trajectories for LTO for wells by vintage and which are operated by Continental.</em></p> <div id="bannerzone5"> <div class="banner" id="banner424"> <div id="bannerzone-attention">&nbsp;</div> </div> </div> <p>Exclusive of the 2008 &ndash; 2010 vintage wells, the average for the younger ones are within a small trajectory band.</p> <p><u><strong>Oasis Petroleum</strong></u></p> <p><strong><a class="lightbox" href=""><img src="" style="width: 600px; height: 340px;" /></a></strong></p> <p>(Click to enlarge)</p> <p><strong>Figure 3</strong>: <em>The chart show development in the EUR trajectories for LTO for wells by vintage and which are operated by Oasis.</em></p> <p>Wells of 2014 vintage pulls the average down. Wells started in 2015 have so far performed better, but are not included in this study. Exclusive of the vintages 2010 and 2011, the average for the younger ones are within a small trajectory band.</p> <p><u><strong>Whiting Petroleum</strong></u></p> <p><strong><a class="lightbox" href=""><img src="" style="width: 600px; height: 340px;" /></a></strong></p> <p>(Click to enlarge)</p> <p><strong>Figure 4</strong>: <em>The chart show development in the EUR trajectories for LTO for wells by vintage and which are operated by Whiting.</em></p> <p>Whiting&rsquo;s operated wells of 2014 vintage started out better than average and have in recent months moved to a trajectory converging with the average. Wells so far in 2015 are closely tracking the average for all.</p> <p>Exclusive of the 2008 &ndash; 2010 vintages, the average for the younger wells are within a small trajectory band.</p> <p><u><strong>LTO Wells and Extraction</strong></u></p> <p><strong><a class="lightbox" href=""><img src="" style="width: 600px; height: 408px;" /></a></strong><br />(Click to enlarge)</p> <p><strong>Table 1</strong>: <em>The table shows some key data on extraction (production), EURs and number of wells included in the study.</em></p> <p>Table 1 shows that the wells in this study that had flowed 30 months or less as per December 2014 constituted a major portion of the total LTO flow (production) and total number of wells.</p> <p>Long time series with actual data provides more reliable descriptions about what to expect than relying on extrapolations of Initial Production (IP) numbers and/or shorter time series of production followed by tweaking some exponential/hyperbolic factors in the equations for well models.</p> <p><u><strong>The R/P Analysis</strong></u></p> <p>How the R/P numbers based on actual data were derived?</p> <p>By totaling the projected EUR of LTO for the average well that started to flow from Jan 08 to Dec 14, adjusting this with what had been extracted (this is measured and reported by NDIC!) for the same period, results in an estimate of PDP (the R for the R/P equation) at end 2014.</p> <p>The P is total LTO extracted/produced in 2014.</p> <p><a class="lightbox" href=""><img src="" style="width: 600px; height: 345px;" /></a><br />(Click to enlarge)</p> <p><strong>Table 2</strong>: <em>R/P ratios derived from actual data versus those derived from companies&rsquo; SEC 10-K filings for 2014. PDP numbers derived from actual data versus those derived from companies&rsquo; SEC 10-K filings for 2014. Total PDP after adjustments for estimates on the companies&rsquo; average WI in 2014.</em></p> <p>NOTE: The estimated overstatement of PDP at end 2014 does not equate to a similar estimated divergence for the EUR of the average well, refer also table 1.</p> <p>The estimated magnitude of PDP overstatements was tested and confirmed by alternative approaches, like using BOE as a basis, Q4 2014 numbers for production in the R/P ratio and more.</p> <p><u><strong>The Balance Sheets</strong></u></p> <p>Now let us move over to these companies&rsquo; balance sheets as these were filed with the SEC in their 10-Ks for 2014.</p> <p>A balance sheet contains a lot of useful financial information about a company.</p> <p>Here it will be kept simple focusing on the relation as described by the equation below:</p> <p>&bull; <span style="text-decoration: underline;">Equity = Assets &ndash; Liabilities</span></p> <p><img src="" style="width: 599px; height: 241px;" /></p> <p><strong>Table 3</strong>: <em>Main data from the companies&rsquo; balance sheets from their SEC 10-K filings for 2014.</em></p> <p><em>*&nbsp; *&nbsp; *</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>If,</strong> it is, as I have shown in this post/analysis that the presented companies&rsquo; PDP reserves for LTO (in Bakken) are grossly overstated (hard numbers and Nature do not lie!), then what follows from logic is that it should be expected that the numbers on Proven UnDeveloped (PUD) LTO reserves are subject to about the same inflation as the PDP numbers.</p> <p>&nbsp;</p> <p>This leads to some interesting prospects.</p> <p>&nbsp;</p> <p>LTO companies&rsquo; assets on their balance sheets are primarily described by their PDP and PUD numbers (the reserves).</p> <p><strong>If</strong>, this analysis by direction and magnitude reflects reality, then this with time will show up in financial performance (not only from oil price changes) through metrics for profitability. There are several good profitability metrics that with time will reveal imbalances from an inflated balance sheet with poor/none profitability. Profitability metrics will be the proverbial canary that will give away the true strength of the balance sheet.</p> <p>&nbsp;</p> <p><strong>If,</strong> PDP and PUD reserves are overstated by a very high percentage, ceteris paribus (all things equal, i.e. prices as per 2014), then the balance sheet assets at some point in time will have their day of reckoning and deflate to reflect reality.</p> <p>&nbsp;</p> <p><u><strong>Now add the effects from a much lower oil price at end 2015 relative to 2014.</strong></u></p> <p>&nbsp;</p> <p><u><strong>(and&hellip;..equity is gone!)</strong></u></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>As reserves are depleted (extracted), this becomes recognized on the balance sheets as depletion. From what has been shown in this post the unit depletion numbers are probably based on inflated EUR numbers which understates depletion adjustments which thus overstates assets and equity.</p> <p><strong>The reality of this arrives as the &ldquo;non-existent&rdquo; volumes do not show up.</strong></p> <p>The focus from Wall Street analysts on Initial Production (IP; production for a well during a defined period of time as the well starts to flow, normally during a 24 hour period early in the well&rsquo;s life) is misguided from the belief that there are good correlations between IP and EUR in the shales. Statistical analysis for correlations between IP and expected EUR in shales from actual data has shown these to be poor.</p> <p>In LTO extraction there has been little empirical data available for benchmarking of the models. This will with time change as longer time series of actual data become available to calibrate the models with.</p> <p><strong>Overly balance sheets focused (as in myopic) investors/creditors will continue to be confident from the numbers of IP and balance sheets and will in the near future spend sleepless nights wondering why such good IPs and strong balance sheets produces poor or no profits and/or why they do not fully receive the money lent.</strong></p> <p><strong>Their worries will gradually morph from being focused on return on investment to return of investment.</strong></p> <p><u><em><strong>The mysteries created by Nature&rsquo;s lack of cooperation with the balance sheets will surpass any other existential questions; also the one about what there was before the &ldquo;Big Bang&rdquo;.</strong></em></u></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="601" height="305" alt="" src="" /> </div> </div> </div> B+ BOE Creditors Natural Gas None Reality recovery Securities and Exchange Commission Whiting Petroleum Tue, 04 Aug 2015 18:15:45 +0000 Tyler Durden 511059 at Fed's Lockhart Sends Stocks Reeling; Dollar, Bond Yields Soaring <p><em><strong>"Priced in?"</strong></em> Atlanta Fed's Lockhart is the un-Bullard as he proclaims that <strong>September would be "appropriate time" for rate hikes to begin</strong>... Stocks have roundtripped from initial excitement to lows of the day, short-end bonds are ugly as the curve flattens dramatically and the USD index is surging...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p><em>As The Wall Street Journal reports,</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Federal Reserve Bank of Atlanta President Dennis Lockhart said<strong> the economy is ready for the first increase in short-term interest rates in more than nine years </strong>and it would take a significant deterioration in the data to convince him not to move in September. </p> <p>&nbsp;</p> <p><strong>"I think there is a high bar right now to not acting, speaking for myself,"</strong> Mr. Lockhart said in an exclusive interview with The Wall Street Journal. </p> <p>&nbsp;</p> <p><strong>Mr. Lockhart is watched closely in financial markets because he tends to be a centrist among Fed officials who moves with the central bank's consensus, </strong>unlike those who stake out harder positions for or against changing interest rates. His comments are among the clearest signals yet that Fed officials are seriously considering a rate increase in September. </p> </blockquote> <p>The only problem - the data does not support this bullshit at all...</p> <p><img src="" width="600" height="315" /></p> <p>&nbsp;</p> <p>So why is The Fed so desparate? It seems the gap between markets (30Y) and fed credibility (ED short end) has never been wider as bonds track weak macro lower...</p> <p><a href=""><img src="" width="600" height="310" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></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="1912" height="1004" alt="" src="" /> </div> </div> </div> Bond Dennis Lockhart Federal Reserve Federal Reserve Bank Wall Street Journal Tue, 04 Aug 2015 18:00:12 +0000 Tyler Durden 511058 at USA, Turkey and Israel Act As Air Force for ISIS <p>NATO member Turkey was <a href="" title="busted">busted</a> buying huge quantities of oil from ISIS (its main source of funding), and bombing ISIS&rsquo; main on-the-ground enemy &ndash; Kurdish soldiers &ndash; using its air force. Many also say that Turkey has long been <a href="" title="directly supporting ISIS">directly supporting ISIS</a>.</p> <p>The <a href="" title="Israeli air force has bombed">Israeli air force has bombed</a> near the Syrian capital of Damascus, and attacked agricultural facilities and warehouses (the Syrian government is the other main opponent of ISIS in Syria besides the Kurds). The Israeli military <a href="" title="recently admitted">recently admitted</a> supporting Syrian jihadis. And <a href="" title="see this">see this</a>.</p> <p><a href="" title="Mainstream U.S. writers">Mainstream U.S. writers</a> such as Thomas Friedman have called for America to support ISIS.</p> <p>Republican Senator Ted Cruz opposed U.S. military intervention in Syria, saying the U.S. military <a href="" target="_blank" title="shouldn’t be “Al Qaeda’s air force.”">shouldn&rsquo;t be &ldquo;Al Qaeda&rsquo;s air force.&rdquo;&nbsp; </a>Similarly, former Democratic Congressman Dennis Kucinich&nbsp; said that striking Syria would turn the United States military into <a href="" target="_blank" title="“al-Qaeda’s air force.”">&ldquo;al-Qaeda&rsquo;s air force</a>.&rdquo; (ISIS is just a <a href="" title="re-branded">re-branded</a> name for Al Qaeda).</p> <p>Indeed, <a href="" target="_blank" title="NBC News">NBC News</a>, the <a href="" target="_blank" title="Wall Street Journal">Wall Street Journal</a>, <a href="" target="_blank" title="CNN">CNN</a> and others report that the U.S. has already committed to provide air power to support Muslim jihadis in Syria if they feel threatened by Syrian government soldiers..</p> <p>So Turkey, Israel and the U.S. are <em>all</em> now acting as ISIS&rsquo; air force in order to oust the Syrian government &hellip; <a href="" title="again">again</a>.</p> <p>(We&#39;ve <a href="">always been at war with Eastasia</a>.)</p> Dennis Kucinich Israel Kucinich NBC Turkey Wall Street Journal Tue, 04 Aug 2015 17:33:41 +0000 George Washington 511056 at