Oil Angst Obfuscation

Tyler Durden's picture

Overnight action saw EURUSD surging over 1.33 and retracing back into the US open as broadly European equity markets started to play catch up to European credit's recently weak performance. Couple that with a miss in jobless claims and the rise in WTI and Brent prices and shortly after the US open S&P futures fell 9pts rather rapidly. However, fears of margin compression or consumer spending impacts were quickly dismissed as every asset class took off and never looked back - as only one thing matters (and USD weakness and commodity strength confirmed that belief). Having underperformed the last day or two, HY credit jumped higher, catching up with IG and HYG's recent performance and over-taking stocks, as high beta took over again on the heels of what can only be assumed is central bank largesse as financials and energy names outperformed. There were some 'odd' disconnects among the broad asset classes today with Treasuries rallying euphorically after the strong 7Y auction, Gold rallying well and then losing a lump on a Zero Hedge margin rumor, and up-gaps in EUR (and down in USD) into the close to sustain the rally. While Oil was notably higher on the day, Silver took the honors - now up over 6% on the week - as Brent-WTI compressed this afternoon as the latter pushed above and held $108.5. The Treasury-Stock disconnect continues to grow, and yet when we adjust for the USD-numeraire, the two asset classes agree wholeheartedly on low-/no-growth - perhaps it is time for the 'transitory' word to re-appear.


Credit markets (red, dark red, and green) all took off today with HY credit spreads outperforming as they all shurugged off European weakness and early stmubles (black oval) with high beta rotation back in vogue.

The early tumble (1) occurred across all asset classes (with TSYs rallying, gold dropping, USD strength, and stocks down) but quickly forgot all about that and went about its business - led by Gold. The 7Y Treasury auction (2) was very well bid and the whole complex rallied considerably on that news - every other asset class ignored it. Towards the close as momentum had good hold of stocks (and Treasuries were leaking back a little), we tweeted a rumor of a margin hike (3) and Gold stumbled $5 instantly - followed quickly by a jump in the EUR (drop in the USD) which sustained the end of day strength in stocks (despite all but financials dipping into the close).

FX markets were a little more volatile than recent days today but the surge, retrace, and resurge EURUSD move has shifted it all the way back up in line with our longer-term EUR-USD swap spread model's fair-value. While this does not helkp with direction per se, there is less bias for sure to the upside now as 'one fundamental' has re-converged. The last time this happened (Aug/Sept 11), EUR overshot to the upside before settling back down so perhaps we will see that next. For sure it is impacting the USD and implicitly commodities and everything else.


Silver and Oil were the standouts on the day and week with copper still lagging but well up still as the USD weakens.

Oil dominated the chatter today but little to no special attention was paid to the reality of margins circling the drain should this 'transitory' tax hike stay in place as it did almost exactly the same way last year. Brent and WTI are ratcheting higher with the spread oscillating between $15 and $18 as it rises. With WTI having caught up 'analogously' to Brent, it is Brent's turn next to drag the pair higher seemingly.


The disconnect between Treasuries and stocks today was self-evident but this disconnect has been growing for much of the last 6-9 months as talking heads want to 'judge' which market is right (low-/no-growth Treasuries or high-growth stocks). The problem is very straightforwardly solved. If we adjust the S&P 500 for its USD-based numeraire (i.e. rebase it to something that is stable in 'value'), then in fact the two market agree wholeheartedly that we are in a low-/no-growth environment and it is only the USD-numeraire of stocks that is allowing their nominal value to rise. We have discussed this at length recently but thought it instructive to see the charts above and below for a sense of the different realities that can be perceived.

From the lows in March 2009, Treasuries and a non-USD numeraire stock market measure have been very much in sync as they have adjusted for a 'new normal' that only transitory central bankers could be so afraid of. That is until they see the gas-price-governing factor on central bank governors printing prowess come to fruition.

Charts: Bloomberg

and today's bonus chart (by request) is the exuberant squeeze higher in Sears' share price relative to the modest shift in the bonds and CDS, trad accordingly.

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fonzannoon's picture

what the fk was up with the vxx?

Mr Lennon Hendrix's picture

The VIX sleeps with the fishies.

ilion's picture

They (you know who!) are going to drive up the oil prices - public anger will follow - they will blame it on Iran - the sheeple will believe this crap - and obviously war will follow. It's all a game for them.

ZeroPower's picture

We saw big front month and 2nd month sellers in VIX futures today (and march Put buyers) which helped push the VXX down as it primarly tracks the very near month. 

VIX cash and future had about a 5pt diff up until last week, today its less than 3... i.e. people were betting the cash would rise up to the future, and yet the inverse is happening, future drifting lower to the cash. April and May churned lower as well, though not as much as March, which again impacts VXX the most.

fonzannoon's picture

I appreciate the explanation.....not to sound completely ignorant but what does that tell you about where it may head from here? Sounds like down.

spekulatn's picture

And down is ......bullish, yes?

Buck Johnson's picture

Are all of you getting an impression that something is just lurking right under the water before emerging.  I am because things just feel real off, from serious bad news of major losses of banks to the ever increasing uping in rhetoric in regard to Iran.  I think that the economic tsunami is about to breach and they are about ot attack Iran to cover and blame them for the economic problems.

tmosley's picture

To be honest, I feel like we are in the first rising wave of hyperinflation, given what has happened with oil and gas.

Maybe it is just wardrum-induced jitters in the oil markets, but this seems different.

Hopefully I am just imagining it.  I'm not as ready as I want to be yet.

Xibalba's picture

Didn't this happen in early Weimar?  Seems like a parallel.    



tmosley's picture

What's oil priced in gold, Tyler?

brewing's picture

hey, that $50 gas tank fill i did yesterday is now worth $51...

tmosley's picture


I'm reminded of an episode of "It's Always Sunny in Philidelphia".

Great show.

mayhem_korner's picture



Looks like someone's gonna be holed up for a while...

mayhem_korner's picture

What's oil priced in gold, Tyler?


You can prolly find that posted on the National Iranian Oil Co homepage.

tmosley's picture

Very nice.  Thank you.  Now if only Tyler would post something similar in ALL oil stories, perhaps we could beat the concept of "fiat collapse" into the heads of the Peak Oilers.

mayhem_korner's picture

Oil Angst Obfuscation


Nobody wakes up in the morning thinking they'll see those three words together.  Nicely done.

bdc63's picture

WTI is pushing towards $109 here after hours.

Ned Zeppelin's picture

It's bullshit - be careful.  This is a setup.

mayhem_korner's picture



Any more than abject speculation, Mr. Ryerson, Sir?

ArkansasAngie's picture

I think I'll go fishing.  There's no way I want any part of this market ... except my pretty coins.

I Got Worms's picture

Gollum/ "The Precious!" /Gollum

Mr Lennon Hendrix's picture

The destruction of the Fiat Ponzi continues....

Alex Kintner's picture

Gingrich says "Not to worry, there is oil on the moon. Building the pipeline is gonna be a bitch tho."

tmosley's picture

Oil meteorites, bitchez.

Or we could just burn currency.  That will produce BTUs and lower the price of oil and other commodities at the same time.  Or at least slow the rate of their rise.

Rainman's picture

Singer-in-Chief says make sure your tires are properly inflated. 

Debeachesand Jerseyshores's picture

Seems like GroundHog Day all over again.

chump666's picture

The central bank/s trade, but it's a spec trade across the board.  Copper is down, Oil is bid.  USD selling, but Asia will buy the dips.  It messy and overbought market that could correct at anytime on Gold/Copper selling.  Asia could lead this sell off. Jan meltup top is in.  Wildcard is the LTRO 1trillion.  For a brutal correction we need some brutal news.  Otherwise rangy trading. 

Both bulls and bears look fearful.


slaughterer's picture

I think IBs have realized that--on top of so many Fed govs throwing doubt on QE3--that we are never going to get QE3, so why not say fuck it, forget trying to artificially create a deflationary environment, let's just drive everything up in price, instead of waiting for the Fed to do it.  Let's get on with our DIY super-inflation if the Fed is not going to do it.   

slewie the pi-rat's picture

tyler, yesterday (paste):  That the Fed is now actively monetizing US debt is beyond dispute (although some semantic holdouts remain - we are quite happy for them).

from: "as US debt To GDP passes 101%"

are you a semantic holdout?

if so, tyler is quite fuking happy for you!  L0L!!!

disabledvet's picture

"courage of fear." treasuries, oil, gold and the dollar are the "Four Riders of the Financial Apocalypse." Would still be a big mistake to short this market in my view--the Fed is providing too much liquidity--interest rates are way too low. I think Kyle Bass et al will be spot on in his view on Japan (tragically in my view) and I think Europe is going to either a) explode b) fly apart or c) both.

chump666's picture

Spot on.  Four riders are all bid.  And China will keep adding, they won't go all hard assets, just not liquid enough.  So USD bids will be in as will be USTs.  Seeing that now.  The market is topped, bad.  But CB's ( the anuses of the markets) are pumping the liquidity.  Won't drive the market higher, it's stretched already.  But if liquidity does run off, it will hit the USTs, oil, gold and $.  The market is running on spec trades.  Probably short after the LTRO has been priced in and war breaks out, Europe just slides into the earth and, yes, japan fiscally implodes.

Bulls will be destroyed.  Bears will have a brutal revenge, till Bernanke 'officially' announces QE3 at some point.  But volatility will be the name of the game, before it ALL falls apart.

2012 will be the year of the re-set/final collapse/doomsday/endgame trade

PicassoInActions's picture

euro is fucking up everything, 

i bet Fed's buying large amount fo euro now everyday.

The only q i don't get, why eur/chf is going opposive if everything is resolved....

CvlDobd's picture

I submitted for a bid on some Sears Bonds and the price was a few pennies higher than what I show for close of business yesterday. Nothing seems to confirm stock prices but that doesn't matter anymore.

I love big brother and this brave new world! <sarc off>

slaughterer's picture

<p>I spent nearly the whole day trying to locate a large block of SHLD to short at a reasonable level of interest. &nbsp;</p>

CvlDobd's picture

Odd how the price would lead one to believe everything is roses!

dcb's picture

in general long treasuries during auction is good. U use to layer in some tbt. very easy channel to trade on the computer right now with tbt, tlt.

navy62802's picture

Last time WTI got close to $150, we had a massive financial crisis. Wonder what's going to happen this time around.

Gomie's picture

"Couple that with a miss in jobless claims..."

Huh? There was no "miss" in jobless claims and they did actually improve slightly. Aside from that, we've been down this oil price increase road before. Average Joe will bitch about it but he's seen it many times now and knows it's only temporary so it will not impact spending.

Stocks were up today because we had better data out of Germany and more decent data here. That's how it works. And until gas is over $5/gallon and rising for a period of weeks, then you might see some consumer response. Otherwise, same old story to Average Joe Consumer.

CrashisOptimistic's picture

Keep an eye on Hugo's tumor.

When he croaks, that will be the signal to liberate some more oppressed crude.

Van Halen's picture

Please tell me that I did NOT read correctly the article where Obama proposed in a speech today that we use algae as a solution for high gas prices.

Van Halen's picture

Oil flirting with $109/barrel now...

Everyone put up your SUV sails and activate the solar cells on your cars to save gas!

e92335i08's picture

These are the best charts I've seen!! I wish only everyone understood what is really going on and understands the truth about the markets like the rest of us!


I really hope there is a spike in oil to 150 or higher to wreck the whole financial system so we can try to rebuld a properus one!

adr's picture

The rocket took off this moring as headlines proclaiming Greek parliament passed the bond swap. Nothing but algo freak out buying today. Same as every other day for the past few months.

jose.six.pack's picture

what brought the price back down after the 150 peak??

DaylightWastingTime's picture

loving the wall street wealthfare check,  put your funny money in, get a 55 gallon barrel of laughs fit to burn.  and i can't wait for the shamtorum sweater invest to keep me warm for 4  years. things are looking up (in flames)