en 5 Things To Ponder: Variegated Contemplations <p><a href=""><em>Submitted by Lance Roberts of STA Wealth Management</em></a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p style="text-align: center;">&quot;Twas the week before Christmas, when all through markets</p> <p style="text-align: center;">Not a trader was stirring, because they already left for the Hamptons.</p> <p style="text-align: center;">Which left&nbsp; the &quot;inmates running the asylum&quot; with very little care</p> <p style="text-align: center;">As everyone hoped a &#39;Santa Claus Rally&#39; would soon be there.&quot;</p> </blockquote> <p>Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. For individuals, it is <em>&quot;magic time&quot;</em> as hopes are high that <em>&quot;Santa Claus&quot;</em> will come to WallStreet.</p> <p>Of course, as mutual funds window dress portfolios for the end of year reporting, it tends to elevate the most popular stocks in the markets. However, investors should also be wary of the rotation of the calendar as those same managers then sell positions for tax purposes in the New Year.</p> <p>This weekend&#39;s reading list is a smattering of articles that cover a wide range of topics from investing to oil. As always, I try to provide opposing points of view to give readers a complete picture of the topic. As a portfolio manager, it is important to remember that our fundamental beliefs can lead us into making poor investment decisions. Therefore, it is crucial for long-term investment success that we eliminate the emotional biases that affect our decision-making processes.&nbsp;</p> <p>With that said, here are the things I will be reading this weekend.</p> <hr /> <p><u><strong>1) Be A Good Loser&nbsp;</strong></u><a href="">by Mebane Faber via Meb Faber Research</a><strong><span style="color: #dc0000;"> </span></strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;One of the biggest challenges of investing is long periods of underperformance, <strong>or outright negative performance and losses.</strong> Cliff Asness has a<a href=""> fun piece out on his blog </a>where he talks about 5 year periods in stocks, bonds, and commodities and basically how anything can happen.</p> <p>&nbsp;</p> <p>So if you&rsquo;re going to be an investor, get used to being a loser!&quot;</p> </blockquote> <p><a class="highslide ageent-ru" href="" target="_blank" title="Faber-Drawdown-121814"><img alt="Faber-Drawdown-121814" class="i_want_img5" src="" style="width: 601px; height: 265px;" /></a></p> <p><strong><span style="color: #dc0000;">Read Also:</span> What To Expect When Your Expecting&nbsp;</strong><a href="">by Michael Batnick via The Irrelevant Investor</a></p> <p>&nbsp;</p> <p><u><strong>2) An Unconventional Way Of Looking At Valuations&nbsp;</strong></u><a href="">by GaveKal Research</a></p> <p>&quot;An unconventional way of looking at valuations is to place companies into different &quot;buckets&quot; based on their absolutely valuation level. This gives you a simple way of understanding where the majority of stocks lie in terms of valuations levels</p> <p>In the charts below, we take a look at price to earnings, price to book, price to cash flow and price to sales ratios. We want to see whether or not a majority of companies lie above or below certain absolute levels.&quot;</p> <p><a class="highslide ageent-ru" href="" target="_blank" title="GaveKal-Valuation-12191414"><img alt="GaveKal-Valuation-12191414" class="i_want_img5" src="" style="width: 600px; height: 341px;" /></a></p> <p><strong><span style="color: #dc0000;">Read Also:</span> Lessons From WWI About &quot;Markets&quot; Predictive Ability </strong><a href="">by Fabius Maximus</a></p> <p>&nbsp;</p> <p><u><strong>3) Oil Price Scenarios For 2015-2016&nbsp;</strong></u><a href="">by Euan Meams via</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;The spare capacity data suggests that demand / supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot.&quot;</p> </blockquote> <p><a class="highslide ageent-ru" href="" target="_blank" title="Oil-price-scenariors-121814"><img alt="Oil-price-scenariors-121814" class="i_want_img5" src="" style="height: 557px; width: 600px;" /></a></p> <p><strong><span style="color: #dc0000;">Read Also:</span> The Fracturing Energy Bubble Is The New Housing Crash </strong><a href="">by David Stockman via Contra Corner Blog</a></p> <p><strong><span style="color: #dc0000;">Read Also:</span>&nbsp;The Lessons Of Oil By Howard Marks&nbsp;</strong><a href="">via ZeroHedge</a></p> <p>&nbsp;</p> <p><u><strong>4) Advocating Ignorance&nbsp;</strong></u><a href="">by Signmund Holmes</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>Ignoring valuation &ndash; ignoring risk &ndash; is a recipe for disappointment</strong> and is the thing that is most likely to lead investors to abandon a passive plan as Swedroe fears. If you have a risk tolerance that allows for a 10% drawdown and you invest the same today as you would when valuations were lower &ndash; say in 2009 &ndash; you will at some point blow your risk budget. You&rsquo;ll get a drawdown that exceeds your pain threshold and you&rsquo;ll throw in the towel right when you shouldn&rsquo;t. If your risk tolerance is fixed, at least in the short term, shouldn&rsquo;t your portfolio asset allocation change as risk rises and falls? Is Swedroe saying that stock market risk today, after a huge rise in market multiples, is the same as it was in March of 2009 and you should just ignore that and stick to the same portfolio?&quot;</p> </blockquote> <p><strong><span style="color: #dc0000;">Read Also:</span> The Next Crisis Will Be Different Than The Last&nbsp;</strong><a href="">by Pater Tenebrarum via</a></p> <p><strong><span style="color: #dc0000;">Read Also: <span style="color: #000000;">Maybe Business Cycles Don&#39;t Exist</span>&nbsp;</span></strong><span style="color: #dc0000;"><a href=""><span style="color: #dc0000;">by Noah Smith via Bloomberg</span> </a> </span></p> <p>&nbsp;</p> <p><u><strong>5) Will The Fed Be Patient Enough&nbsp;</strong></u><a href="">by Matt O&#39;Brien via The Washington Post </a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;But why does it think it should be raising rates then anyway? Sure, unemployment is approaching normal levels, but there are still a lot of people who want full-time jobs who can only find part-time ones, or who have given up looking altogether until things look better. Wages are quiescent, and prices are too. There&#39;s just no pressure to raise rates now. And as Sweden shows, raising them too soon only leads back down to zero. That&#39;s because even 1 percent rates can be enough to kill a still-weak recovery, and send inflation down below zero&mdash;forcing rates back there too.&quot;</p> </blockquote> <p><strong><span style="color: #dc0000;">Read Also:</span> Janet Yellen Consults Mr. Language Person </strong><a href="">by Sigmund Holmes</a><strong> (Humorous)</strong></p> <p><strong><strong><span style="color: #dc0000;">Read Also:&nbsp;<span style="color: #000000;">The Coming Margin Call From Hell</span></span></strong> </strong><span style="color: #dc0000;"><a href=""><span style="color: #dc0000;">by Ambrose Evans-Pritchard via The Telegraph</span></a></span></p> <p>&nbsp;</p> <hr /> <p><u><strong><span style="color: #dc0000;">CHART OF THE DAY:</span> &nbsp;The Annotated History Of The Dollar</strong></u> <a href="">via ZeroHedge</a></p> <p><a class="highslide ageent-ru" href="" target="_blank" title="Annotated-History-Dollar-121914"><img alt="Annotated-History-Dollar-121914" class="i_want_img5" src="" style="width: 600px; height: 405px;" /></a></p> <hr /> <p><u><strong><span style="color: #dc0000;">Bonus Read:</span> 122 Things Everyone Should Know About Investing And The Economy </strong></u><a href="">by Morgan Housel via Motley Fool</a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;#103 Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports. &quot;Read 500 pages like this every day,&quot; he said. &quot;That&#39;s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.&quot;&quot;</p> </blockquote> <hr /> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div> <p style="text-align: center;">&quot;It is no coincidence that the century of total war coincided with the century of central banking.&rdquo; -&nbsp;Ron Paul</p> </blockquote> <p>Have A Great Weekend</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="590" height="256" alt="" src="" /> </div> </div> </div> Cliff Asness Evans-Pritchard fixed Howard Marks Janet Yellen OPEC recovery Ron Paul Unemployment Warren Buffett Fri, 19 Dec 2014 21:36:27 +0000 Tyler Durden 499366 at Last Minute Fizzle Fails To Dent Best 3-Day Stock Surge In 3 Years <p>For old time&#39;s sake...</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="//" width="560"></iframe></p> <p>&nbsp;</p> <p>What a week!!</p> <ul> <li><strong>WTI&#39;s best day in over a year</strong></li> <li><strong>S&amp;P 500 2nd best week in 2 years</strong></li> <li><strong>Dow&#39;s best 3-day run in 3 years</strong></li> <li><strong>USD at 8 year highs</strong></li> </ul> <p>The Dow rips over 800 points off its lows in 3 days, S&amp;P over 100 near record highs.. before a weak close...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 520px;" /></a></p> <p>&nbsp;</p> <p>The late-day rebalance and opex seemed to spark some weakness</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 477px;" /></a></p> <p>&nbsp;</p> <p>The best 3-day run in 3 years</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 427px;" /></a></p> <p>&nbsp;</p> <p>As &quot;most shorted&quot; stocks suffered their biggest squeeze in over 3 years...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 303px;" /></a></p> <p>&nbsp;</p> <p>Off the lows - quite a meltup...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 551px;" /></a></p> <p>&nbsp;</p> <p>Overall the week was big for Small Caps -best week in 2 months; <strong>S&amp;P&#39;s 2nd best week in 2 years...</strong></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 610px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields rose modestly on the week...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>...rolling over notably today (despite equity&#39;s exuberance)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 360px;" /></a></p> <p>&nbsp;</p> <p>Leaving 30Y almost unch of the week and decoupling significantly</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 359px;" /></a></p> <p>&nbsp;</p> <p>The USDollar soared 1.6% this week...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>To the highest since April 2006</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 303px;" /></a></p> <p>&nbsp;</p> <p>Commodities were all lower on the week - mirroring the surge in the USD...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>Oil had quite a run... ripping today but unable to get back to the $59 levels of resistance that have stalled it for the last week... Oil&#39;s best day in a year</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 520px;" /></a></p> <p>&nbsp;</p> <p>Some context...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 320px;" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> Meltup OpEx Fri, 19 Dec 2014 21:10:23 +0000 Tyler Durden 499365 at Why The US Is About To Be Flooded With Record Oil Production Due To Plunging Oil Prices <p>One would think that plunging oil prices and the resulting mothballing (or bankruptcy) of the highest-cost domestic producers would lead to a collapse in US oil production. And sure enough, if looking simply at headline data like the Baker Hughes <a href="">count of active rigs </a>in the US, then US oil production grinding to a halt would be all but assured. However, what will <em>actually </em>happen, even as the highest-cost producers and those with the weakest balance sheets are taken to their local bankruptcy court, is that as <a href="">Bloomberg reports</a>, <strong>the US is - paradoxically - set to pump a 42-year high amount of oil in 2015 </strong>"<strong>as drillers ignore the recent decline in price, pointing them in the opposite direction.</strong>"</p> <p>Here is the surprise for all those thinking Saudi Arabia will declare a quick win when half of the US shale is bankrupt and supply plunges: <strong>U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, </strong>said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells. That and the scramble to put competitors out of work, before competitors do just that to you.</p> <p>On one hand oil companies are, logically, shutting down expensive production. However, in borrowing a page from the playbook of the iron ore producers who also are caught in an AMZNian race to the bottom, and are producing more raw materials than ever in hope of putting their competitors out of business as fast as possible, what they are also doing is shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. <strong>Global giant Exxon Mobil Corp. the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers would be crushed by cratering prices has been a bust.</strong> </p> <p>In short, what the US energy industry will do at the national level, is precisely what OPEC did as an international cartel: battle plunging prices, and demand, <strong>with surge, if not record, production:</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“Companies that are already producing oil will continue to operate those wells because the cost of drilling them is already sunk into the ground,” said Timothy Rudderow, who manages $1.5 billion as chief investment officer at Mount Lucas Management Corp. in Newtown, Pennsylvania. “But I wouldn’t want to have to be making long-term production decisions with this kind of volatility.” </p> </blockquote> <p>Everyone's hope: flood the market with as much cheap oil as possible to take out higher cost competitors, and remove supply as quickly as possible. The problem is that this is precisely what everyone else will also do, and in the biggest paradox of the crude price collapse, the near-term outcome <strong>will be an unprecedented surge in oil supply</strong>, which will lead to an even greater crash in prices before everything reverts back to a more stable equilibrium... at some point in the distant future.</p> <p>Some of the facts according to Bloomberg:</p> <ul> <li><strong>U.S. oil production is set to reach 9.42 million barrels a day in May, which would be the highest monthly average since November 1972, according to the Energy Department’s statistical arm. </strong></li> <li><strong>Exxon, the world’s biggest oil producer by market value, is expected to boost crude and natural gas output by 2.8 percent next year to the equivalent of 4.1 million barrels a day</strong>, based on the average of eight analyst estimates compiled by Bloomberg. </li> <li><strong>Existing wells remain profitable even as benchmark crude futures hover near the $55-a-barrel mark because operating costs going forward are usually $25 or less.</strong></li> </ul> <p>While as we have shown the vast majority of US shale is no <a href="">longer profitable below $60</a>, when one factors in the entire US energy sector, the average cost to operate an existing well in most parts of the U.S. "<strong>is about $20 a barrel," </strong>according to Tom Petrie of Petrie and partners. "It might be $5 higher or it might be $5 lower, that’s the out-of-pocket costs that we’re talking about. <strong>Until you dip into that and start losing money on a cash basis day in, day out, you don’t think about shutting in</strong>” wells. </p> <p>So what does this mean for the US energy industry: simple - while capital spending and growth projects are about to be frozen for years to come, companies are about to set existing production on turbo Max, as everyone hopes to not only "<em>make up for lower prices with soaring volume"</em>, but to take out their immediate competitors before their competitors do just that to them. </p> <p>And so the race to the bottom truly begins. The only question is will Saudi Arabia's cash reserves last long enough to keep its "bread and circuses" social fund solvent while the US energy sector implodes under its own weight, or if with a little help from outside, something "<em>black-swany</em>" were to happen to Saudi Arabia and/or its production infrastructure. </p> <p>Then those very deep OTM 2016 Brent calls we bought a few weeks back will seem like quite the bargain.</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="375" height="300" alt="" src="" /> </div> </div> </div> Crude Exxon Goldman Sachs goldman sachs Natural Gas OPEC Saudi Arabia Volatility Fri, 19 Dec 2014 20:44:34 +0000 Tyler Durden 499364 at Central Banks Are Now Uncorking The Delirium Phase <p><a href=""><em>Submitted by David Stockman via Contra Corner blog</em></a>,</p> <p><strong>Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. </strong>Today it was the Swiss central bank&rsquo;s turn, and it didn&rsquo;t pull any punches with regard to Russian billionaires seeking a safe haven from the ruble-rubble in Moscow&nbsp;or investors from all around its borders fleeing Mario Draghi&rsquo;s impending euro-trashing campaign.&nbsp;The essence&nbsp;of its action&nbsp;was that your money&nbsp;is not welcome in Switzerland; and if you do&nbsp;bring it,&nbsp;we will extract a rental payment from your deposits.</p> <p>For the time being, that levy amounts to a negative 25 bps on deposits with the Swiss Central bank&mdash;-a maneuver that is designed to drive Swiss Libor into the realm of negative interest rates as well. But the more significant implication is that the Swiss are prepared to print endless amounts of their own currency to enforce this utterly unnatural edict on savers and depositors within its borders.</p> <p><strong>Yes, the once and former pillar of monetary rectitude, the SNB, has gone all-in for money printing. Indeed, it now&nbsp;aims to become the BOJ on steroids&mdash;-a monetary Godzilla.</strong></p> <p>So its&nbsp;current plunge into the netherworld of negative interest rates is nothing new. It&rsquo;s&nbsp;just the&nbsp;next step in its long-standing campaign to&nbsp;put a floor under the Swiss Franc at 120. That means effectively that it stands ready to print enough&nbsp;francs to purchase any and all euros (and other currencies)&nbsp;on offer without limit.</p> <p><strong>And print it has.&nbsp;</strong>During&nbsp;the last 80 months, the SNB&rsquo;s balance sheet has&nbsp;soared&nbsp;from 100B CHF to 530B CHF&mdash;&mdash;a 5X explosion that would make even&nbsp;Bernanke envious. Better still, a balance sheet which stood at 20% of Swiss GDP in early 2008&mdash;-now towers at a world record 80% of the alpine nation&rsquo;s total output. Kuroda-san, with a balance sheet at 50% of Japan&rsquo;s&nbsp;GDP, can only&nbsp;pine for&nbsp;the efficiency of the SNB&rsquo;s printing presses.</p> <p><img alt="Historical Data Chart" id="ctl00_ContentPlaceHolder1_ctl00_ChartUC1_ImageChart" src=";d1=20080101&amp;d2=20141231" style="height: 275px; width: 601px;" /></p> <p><strong>As per the usual Keynesian folly, this is all being done in the name of protecting Switzerland&rsquo;s fabled export industries.</strong></p> <p>Let&rsquo;s see. During the most recent year, Switzerland did export $265 billion of goods, representing an impressive 41% of GDP. But then again, it&nbsp;also imported&nbsp;$250 billion of stuff. Accordingly, for every dollar of watches, ball point pens, (Logitech) mouses, top-end pharmaceuticals and state of the art high speed elevators it exported, it&nbsp;imported 95 cents worth of petroleum, raw and intermediate materials, semi-finished components and expensive German cars.</p> <p>Accordingly, allowing the market to drive its FX rate below the magic 120 floor (i.e. appreciating the CHF) would not bring on Armageddon &mdash;just a reduction in its giant import bill to offset&nbsp;any loss of&nbsp;earnings from&nbsp;its export trades. Instead, however, the mad money printers at the SNB are pursuing an altogether different financial proposition. Namely, they&nbsp;are going massively and incorrigibly &ldquo;long&rdquo; the Euro, and, in fact, have already&nbsp;stuffed their bulging one-half trillion dollar balance sheet with vast&nbsp;emissions of the ECB&rsquo;s&nbsp;unwanted euros.</p> <p><strong>Now why in the world would any rational investor want to get massively long the squabbling, dissembling monetary crackpots who run the ECB and the even worse gang of self-serving parasites who urge them on from Brussels?&nbsp; Needless to&nbsp;say, that&nbsp;question doesn&rsquo;t require much contemplation. The fact is, the SNB&rsquo;s crazy money printing scheme to throttle CHF appreciation is just plain irrational.</strong></p> <p>Yet this very irrationality is part and parcel of the&nbsp;central bank race to the currency&nbsp;bottom that is driving the global financial system toward a monumental implosion. Prior to Mario Draghi&rsquo;s accidental discovery in mid-2012 that by the mere emission of words (&ldquo;whatever it takes&rdquo;), he could&nbsp;temporarily park a $1.3 trillion chunk of&nbsp;his balance sheet with&nbsp;the fast money traders of London and New York (i.e. they and the various national banks front-ran the promised QE), the ECB&rsquo;s balance sheet had expanded at a blistering pace, as well.</p> <p><strong>In fact, between 2007 and early 2012, the ECB printing presses had been working overtime, tripling their footings in a relative heart-beat of historical time.</strong></p> <p><img alt="Historical Data Chart" id="ctl00_ContentPlaceHolder1_ctl00_ChartUC1_ImageChart" src=";d1=20070101&amp;d2=20121231" style="height: 275px; width: 601px;" /></p> <p><strong>Facing this tsunami of euro, the SNB simply responded in kind.</strong> After only a modest rise in the CHF exchange rate, it has&nbsp;launched&nbsp; a veritable monetary rampage.&nbsp;Consequently, it has now committed what amounts to one-year&rsquo;s output by the Swiss people to the dubious&nbsp;proposition that something will not go bump in the night among the German, French, Italian, Spanish, Greek, Dutch etc. patriots&mdash;&ndash;financially illiterate as they may be&mdash;who malinger in Frankfurt.</p> <p>So add Thomas J. Jordan, Chairman of the SNB and PhD economist, to the rogue&rsquo;s gallery of financial arsonists who are setting up the global financial system for a fiery conflagration. To nearly every last man and woman, these central bankers&nbsp;are now daily espousing pure monetary rubbish, making up theories as they go along&nbsp;to justify an out of control spiral of debt monetization and extreme interest rate repression.</p> <p>To reprise, there is no &ldquo;deflation&rdquo; threat whatsoever in the Eurozone. It&rsquo;s just made-up chatter among the financial apparatchiks&nbsp;based on the fact that the long-suffering citizens of these countries are finally&nbsp;enjoying a moment of price stability&nbsp;compared to the official&nbsp;2% inflation &ldquo;target&rdquo;&nbsp;. Yet&nbsp;there is not a shred of proof that cutting the purchasing power of savings in half every working generation&mdash;&ndash;that&rsquo;s what 2% compounds to over 30 years&mdash;-results in more growth and wealth.</p> <p><strong>Stated differently, the ECB is fixing to unleash a new round of QE based on mere ritual incantation.</strong> Buying the junk bonds of Italy, Spain, Portugal and Greece cannot possibly generate more productivity, enterprise or investment in the euro-zone. Interest rates are already at the zero-bound and households, business and banks are already saturated with &ldquo;peak debt&rdquo; and have been so since 2008.</p> <p><img alt="Historical Data Chart" id="ctl00_ContentPlaceHolder1_ctl00_ChartUC1_ImageChart" src=";d1=20000101&amp;d2=20141231" style="height: 275px; width: 600px;" /></p> <p><strong>What QE in the Eurozone will&nbsp;do is enable fiscal fraud in the peripheral countries and a further inflation of already lunatic valuations of sovereign debt.</strong> It is now an established fact that the Italian government, for example, cannot get out of its own way, and that its public debt is in a death spiral. Yet today&nbsp;the Italian 10-year is&nbsp;trading at a 1.9% yield because the fast money traders are happy to hold it on&nbsp;zero cost repo&mdash;- until the ECB takes it off their hands at an enormous windfall gain a few months down the road.</p> <p><img alt="Italy Government Debt to GDP" id="ctl00_ContentPlaceHolder1_ctl00_ChartUC1_ImageChart" src="" style="height: 275px; width: 601px;" /></p> <p><img alt="Historical Data Chart" id="ctl00_ContentPlaceHolder1_ctl00_ChartUC1_ImageChart" src=";d1=20120101&amp;d2=20141231" style="height: 275px; width: 601px;" /></p> <p><strong>The above pictures are no more anomalous than today&rsquo;s 35 bps yield on&nbsp;10-year JGBs</strong>&mdash;&mdash;the debt of a government which is hopelessly bankrupt and for which there is virtually not a single bid anywhere&nbsp;outside of the open market desk of the BOJ. Nor does it make any more sense than today&rsquo;s heated rip on Wall Street based on the word &ldquo;patient&rdquo; at a point in the cycle where 71 months of free carry trade money has already inflated financial asset values to the nose-bleed section of history.</p> <p><strong>In short, the central banks of the world are embroiled in a group-think mania</strong> so extreme and irrational that it puts one in mind of the spasm of witchcraft trials&nbsp;that erupted in the&nbsp;Massachusetts Bay Colony nearly four centuries ago.&nbsp;&nbsp;As a practical matter, this mania&nbsp;amounts to a race to the currency&nbsp;bottom and the final extinguishment of the price discovery mechanism in every financial market on the planet.</p> <p>Flying blind, the financial markets&nbsp;are thus&nbsp;bubbling - in the delirium phase - like never before.<strong>&nbsp;That is, until&nbsp;they don&rsquo;t.</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="343" height="292" alt="" src="" /> </div> </div> </div> Carry Trade Central Banks ETC Eurozone Greece Italy Japan LIBOR Mad Money Monetization Portugal Purchasing Power Sovereign Debt Swiss Franc Switzerland Fri, 19 Dec 2014 20:22:49 +0000 Tyler Durden 499363 at S&P 500 Melts Up Over 100 Points In 3 Days, Nears All-Time High <p>Well that escalated quickly... <strong>The S&amp;P 500 cash index has ripped from 1972.50 to over 2076 in 3 days... </strong>And US Treasuries are rallying hard too.<strong><br /></strong></p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="400" /></a></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>The Dow is up from 17067 to 17872... 800 Points</strong></span></p> <p>But bonds are ripping...</p> <p><span style="text-decoration: underline;"><strong><a href=""><img src="" width="600" height="354" /></a><br /></strong></span></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="845" height="498" alt="" src="" /> </div> </div> </div> Fri, 19 Dec 2014 20:04:55 +0000 Tyler Durden 499362 at The Fed Is "Confused & Confusing" <p><em>Via Scotiabank's Guy Haselmann,</em></p> <p><strong><span style="text-decoration: underline;">Too Clever By Half</span></strong></p> <p>Yesterday I received an email from a well-known hedge fund manager which in its entirety read as follows:<em> “At the end of the day, the Fed is confused and confusing, so if you spend too much time addressing their comments you end up confusing as well”.</em></p> <p>In this light, I will detail one observation in this note that leaves me to conclude that <strong>the post-FOMC market reaction is farcical</strong>.&nbsp; Bear with me while I explain.</p> <p><span style="text-decoration: underline;"><strong>The FOMC meeting was slightly hawkish for two simple reasons. </strong></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>1) The Fed slightly moved forward its time frame for the first rate hike to the April-June time frame when Yellen stated, “It is unlikely the Federal Open Market Committee will raise rates for at least the next couple of meetings”.&nbsp; This statement is indeed wishy-washy enough as to allow the Fed flexibility around the comment; nonetheless, the center point for ‘lift-off’ was moved forward.</p> <p>&nbsp;</p> <p>2) Yellen said the drop in the price of oil would have a transitory effect on inflation and was seen as “tax cut” for the consumer and businesses.</p> </blockquote> <p>These were the only new pieces of information that emerged from the meeting.&nbsp; <span style="text-decoration: underline;"><strong>How would a day-trader have reacted in normal markets?</strong></span> The US dollar would have risen.&nbsp; Oil would have fallen despite the rise in the dollar.&nbsp; The front end of the Treasury market would have dropped (i.e. higher yields). And, equities would have gone down.&nbsp; <strong>All of these occurred except for equities which exploded higher in wild grab-fest fashion. Why?</strong></p> <p><strong>The explanation centers around the fact that the Fed left the words “considerable period” in the statement, even though the Fed changed how it used those words.</strong> Many headlines read, “Fed kept considerable period”.&nbsp; This is misleading.&nbsp; The FED did NOT say that it “expects to maintain the target range for the federal funds rate for a consider time”.&nbsp; Rather, the Fed kept the original language that it expects to maintain the target…..for a considerable time following the end of its asset purchase program in October.&nbsp; There is a big difference between the two.</p> <p><strong>Why make it backward looking?</strong>&nbsp; Using the statement in this manner is no different than saying, ‘we still believe what we said at the last meeting’.&nbsp; The markets already knew the Fed expected rates to be maintained after the end of QE, but what about its assessment from today forward?&nbsp; </p> <p><strong>They actually even changed how the words “considerable time” were used to make them completely meaningless.</strong>&nbsp; They wanted to emphasize the word “patient” (even though the market already knew it would be patient).&nbsp; In order to keep the “considerable time” words, the FOMC said its patience is consistent with that earlier statement of “consider time”.&nbsp; If they did not do this in order to purposefully make sure those exact words were in the statement, then the entire sentence is completely meaningless.</p> <p>The reason the Fed likely went to such “too clever by half” efforts to make sure those words remained in the statement in tact is because<strong> they knew the press, HFT (high frequency traders), and algorithmic models would data mine those words, triggering a buy signal.&nbsp;</strong> With market liquidity so compromised, HFTs can push markets around easily and they certainly did.</p> <p><strong>The Fed is very nervous about disrupting the apple cart after (arguably) fueling asset bubbles, so whenever they do anything hawkish, they cleverly try to also serve-up something dovish to the markets.&nbsp;</strong>&nbsp; I called this the “Great Aunt Addy Strategy” in my August 18th note in memory of my Great Aunt Addy who drove with one foot on the accelerator and one foot on the break.</p> <p><strong>The Fed did the same thing earlier this year, when it simultaneously pared the QE program (hawkish), while offering ‘forward guidance’ (dovish). </strong></p> <p><strong>At the end of the day, the statement was hawkish.&nbsp;</strong> Most risks seekers I speak with say they will stay as aggressive as possible until the Fed hikes rates and then they will “get out”.&nbsp; <span style="text-decoration: underline;"><strong>This is the greater fool theory to believe the market is deep enough for so many to “get out” at the same time with poor liquidity conditions.</strong></span></p> <p>*&nbsp; *&nbsp; *</p> <p><span style="text-decoration: underline;"><strong>I remain a bond bull.</strong></span>&nbsp;&nbsp; Most roads lead to a win-win for long dated Treasuries.&nbsp;&nbsp; If the Fed hikes early, I expect it will upset risk-on trades and flush people into Treasuries while reassuring that inflation will remain in check.&nbsp; If they don’t hike at all in 2015, I suspect it will reflect global anxieties or a problem that morphed from the many troubles brewing abroad.&nbsp; This may lead to fears of a broader slowdown prompting yield seekers to act more cautiously and gradually migrate to Treasuries.</p> <p><strong>It is time to cover Treasury shorts in the front end and unwind flatteners</strong> (our strategy into the FOMC meeting).&nbsp; The market is giving active managers a great opportunity to go outright long the backend of the Treasury market at these post-FOMC improved levels.&nbsp; <strong>PM’s should also use this opportunity to take down low-quality credit and beta risk. Stay short oil.&nbsp; And yes, sell equities.&nbsp; For long only investors, I advise sector shifts in defensives like healthcare, staples and utilities.&nbsp;</strong> There are also certain financials that will benefit from a Fed rate hike that looms in early 2015 (this is only a short term trade). </p> <p><span style="text-decoration: underline;"><strong>Unfortunately, the markets’ outsized and illogical reactions are signs and symptoms that financial markets are broken. The FOMC’s meddling in financial market behavior could easily catch up to them in an ugly fashion.</strong></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“The world is just illusion, always trying to change you.” – VNV Nation</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="458" height="558" alt="" src="" /> </div> </div> </div> Apple Bond headlines HFT Fri, 19 Dec 2014 19:51:08 +0000 Tyler Durden 499361 at Guest Post: Calculating The Breakeven Price For The Median Bakken Shale Well <p><em>Authored by CEO of the SOFA,</em></p> <p><strong>A lot of data has been thrown around recently concerning the Bakken shale wells of North Dakota in an attempt to figure out the necessary oil price required to break even on the investment.</strong>&nbsp; In order to get a clearer picture of the financial situation in Bakken, it is necessary to develop a financial model of the median Bakken well (attached).&nbsp; </p> <p><span style="text-decoration: underline;"><strong>The median Bakken well has the following attributes:</strong></span></p> <p><a href=""><img src="" width="600" height="232" /></a></p> <p><strong>With a discount rate of 15%, the median well has a profitability index of 1.02 (after federal income tax) </strong><span style="text-decoration: underline;">if $66 per barrel is used</span><strong>.&nbsp;</strong>&nbsp; (A profitability index of 1.0 indicates a break even situation at the discount rate that was used in the model).&nbsp; <strong><span style="text-decoration: underline;">This means that at $66 per barrel, half the wells are uneconomic.</span></strong>&nbsp; If oil prices settle out at this price it can be expected that the number of wells drilled should be reduced by about half.</p> <p><span style="text-decoration: underline;"><strong>If the current oil price of $55 per barrel is used</strong></span>, the initial production rate has to be increased to 800 BPD in order to break even.&nbsp; According to the J.D. Hughes data, 25% of the wells have an initial production rate of 1000 BPD or more.&nbsp; Accordingly, if oil prices settle out at the current price, <span style="text-decoration: underline;"><strong>the number of wells drilled will be about a quarter of the present number</strong></span>.</p> <p>Some people have stated that this shale industry exists only due to abnormally low interest rates.&nbsp; <span style="text-decoration: underline;"><strong>If we use $100 per barrel</strong></span> and increase the discount rate to 20%, the median well has a profitability index of 1.6, which is profitable.&nbsp; The well is still making over 200 BPD after payout.&nbsp; My conclusion is that the shale development would still be profitable in a normal interest rate environment.</p> <p>The production data used in this model are from only 4 counties, Dunn, McKenzie, Mountrail, and Williams.&nbsp; Very few wells have been economic outside of these 4 counties.&nbsp; <span style="text-decoration: underline;"><strong>Therefore, when these 4 counties become saturated with wells, the Bakken play is over.&nbsp; </strong></span></p> <p>*&nbsp; *&nbsp; *</p> <p>And we already see rig counts falling and jobless claims surging in the Shale states.</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="327" height="268" alt="" src="" /> </div> </div> </div> Guest Post Fri, 19 Dec 2014 19:26:05 +0000 Tyler Durden 499360 at Just What Is China Buying? <p>Something strange is going on in China. On one hand, as the chart below shows, China's trade surplus is growing and growing, and just hit record highs. In other words, China is - on paper - receiving record amounts of foreign currencies in exchange for its (mostly) goods exports. </p> <p>That much is clear in the Chinese (record) trade balance chart below:</p> <p><a href=""><img src="" width="600" height="314" /></a></p> <p>&nbsp;</p> <p>Yet on the other hand, a chart from <a href="">Deutsche Bank </a>shows something very peculiar: even as China's foreign reserves <em><strong>should </strong></em>be rising, they are not only <em><strong>dropping</strong></em>, but just suffered their biggest quarterly drop in the past decade!</p> <p><img src="" width="600" height="469" /></p> <p>&nbsp;</p> <p>This validates what the TIC data has shown recently, namely that China has not only not been adding to US Treasury but reduced its TSY holdings to the <a href="">lowest since February 2013</a>, and that contrary to what some have alleged, China is not using Belgium as an offshore-based conduit for Treasury accumulation. </p> <p><a href=""><img src="" width="600" height="372" /></a></p> <p>&nbsp;</p> <p>A bigger question is just what is China buying "off the books" to account for this reserve decline, amounting to about $100 billion in Q3, or is this merely due to even more off the books "capital flight" as some has speculated. Or is China indeed actively buying commodities - either as shown here <a href="">previously for Commodity Funding Deals involving gold </a>or in physical bulk, perhaps to quietly fill up its new Strategic Petroleum Reserve (see "<a href="">Record Oil Tankers Sailing to China Amid Stockpiling Signs</a>") - and bypassing the official ledger in doing so. If so, which commodities is China buying, and how big will the foreign reserve plunge be in the fourth quarter. </p> <p>For the answer to the latter we will check back in a little over a month when the "official" data is released. As for the former, one can only speculate. </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="691" height="541" alt="" src="" /> </div> </div> </div> Belgium China Deutsche Bank Trade Balance Fri, 19 Dec 2014 19:15:37 +0000 Tyler Durden 499359 at The "North Korea Hacking" Scandal As Explained By The Taiwanese Animators <p>Nothing more to add to this: "Wouldn't it be funny if it was all just a set up?"</p> <p><iframe src="//" width="560" height="315" frameborder="0"></iframe></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="754" height="440" alt="" src="" /> </div> </div> </div> North Korea Fri, 19 Dec 2014 18:49:07 +0000 Tyler Durden 499358 at "Some North Korean Folks Are Hacking..." President Obama Explains "Costs" - Live Feed <p>Having become convinced that the North Koreans are responsible for hacking the Japanese company Sony <em>(with the apparent help of China or some Chinese folks... though not Russia or ISIS yet)</em>, President Obama will hold a press conference to - we are sure - show us the proof, explain how bad the movie was anyway, discuss the "costs" to be imposed, and point out that the terrorists did not win...</p> <p>&nbsp;</p> <p>President Obama is due to speak at 1330ET (plan accordingly)...</p> <p><iframe src="//" width="560" height="315" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>We found this amusing...</p> <p><a href=""><img src="" width="600" height="450" /></a></p> <p><a href=""><em>via Lonely Libertarian</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="600" height="450" alt="" src="" /> </div> </div> </div> China President Obama Fri, 19 Dec 2014 18:26:25 +0000 Tyler Durden 499357 at