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Sudden Crude Backwardation Telegraphing Imminent Easing Episode By Fed
Commodity prices have certainly been volatile in the last few days with near-record-breaking upside shifts in some. Copper's extravaganza in the last two days was discussed earlier but it is the huge shift in the whole WTI crude complex that is perhaps more fascinating. For the first time since May 2011, Dec 11 WTI is more expensive than Dec 12 and in the last three trading days alone, the entire curve has shifted to backwardation very aggressively. This inflation-prone signal, and much chatter among Fed talking heads on 'helping' the Europeans, could perhaps help explain the strange 'strength' in the EUR as it and the USD circle the drain of fiat currencies. Gold has obviously yet to get going, but today has broken $1660 (up over $50 in the last few days).
The Dec11 WTI future trades higher than the Dec12 WTI future for the first time since May11...
...As the entire WTI curve has inverted in only the last 3 trading days!!
Does this explain the notable outperformance of stocks (relative to credit and sense), suspiciously good performance of EUR relative to the USD given the underlying tail risks, and the drop in vol (that has been the other QE signal of the past as 'normal' risk is removed thanks to Bernanke's shifting the strike on his put a little higher).
Charts: Bloomberg
h/t Taro
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So let's call QE3 for what it really is, Bank Asset Reflation Fund, or BARF for short.
Not just gold, but silver is looking cheap now. Already short copper and long AUD.
BARF, Bitchez....
Its got a ring to it. Sweet find firstdivision
Banker's be BARFing ALL DAY, ER'E DAY, BIOTCHES
It's driven by the central banksters' SUCK program -- Sudden Uptrend in Check Kiting.
Leveraged EFSF, bitchezs!
Yeah, I also think about buying a 1K short on copper just for the fun of it.
It's like a no lose bet right now.
@ firstdivision,
+ 1
Just wait until GOLD goes into backwardation. When the world says they want their gold NOW, not a promise for delivery later. ANtal Fekete explores this topic thoroughly. When gold goes into backwardation, the physical will disappear...
Yes, get your PMs now.
The "BARF" could be brought about by the "Fraudulent Asset Reflation Trigger", or FART for short.
a binge then purge economy
Those scum filth bankers have ruined the 'free markets' for ever. If this was a casino (and it is), no one would ever return after spending an everning there.
As history shows, it's time for some hanging...
No free drinks served by half naked cocktail waitresses...I'm out.
Would a glass of banker's blood with vodka mixer suit your palate sir?
jagerdagger - one part jager, two parts blood
The problem is a la Eagles
You can checkout any time you like,
But you can never leave!
Call me mean spirited but I say hangin's too good fer em, gut shot em and use em fer buzzard bait.
"Buzzards got to eat, same as the worms."
New Rome has the special Bankster Moneychanger eradication role to play.
The Pope has it under control.
That is really why the markets are up again...new Pope in town...and he won't put up with any guff.
So everone else can go back to "business" until the clearout begins.
The Vatican is just jealous of what our current crop of banksters is getting away with.
The Vatican Bank is no slouch in the arts of Insider trading, price fixing and front running,
but lateley they have been missing out and need to get a lot closer to the trough.
Nope. Headfake. Just like the last "QE 3 is coming" run up. Bloodbath in the works.
We find out in ten days or so after the Nov1-2 meeting. I'm inclined to think LSAP of mortgage backed securities is coming, but I'm not convinced it will matter much overall.
Absolutely. Getting ready to load up on puts. Three weeks ago I called for a relatively short but enthusiastic rally, 1250-1270 on S&P, to be followed by rollover into the next leg down. I might have underestimated the strength of the rally, but it's damn sure not a new bull market. This is exactly the kind of mindset that this rally was expected to create, so everything is falling into place. Bloodbath looming, and I'm lining up my puts.
In 2008 we rallied to the upper Bollinger Band before we crashed. Upper BB right now is 1380.
Could happen, I guess, but it's not the scenario I see unfolding. Wouldn't be the first time I was wrong. I'm not placing my bets until I feel in my gut that this rally has topped, and I'm not there quite yet. That's why I said I may have underestimated. The rally has been more enthusiastic than I expected, so maybe it carries much higher than I originally thought. My strategy is to stay nimble but be ready to play the downside quickly. We'll see.
Okay, I couldn't stop myself, I bought some Mar CMG puts right before the close. The stock is trading about 1% below the 52 week high, and there is so much downside potential, I just couldn't wait. Way out of the money, but if my scenario proves correct, they'll be in the money well before March. Time will tell.
They are giving hints that QE3 might be in the way... Maybe not in November but December?
If not December, then probably January.
Don't worry QE3 is still an option. We got room with the latest inflation numbers.
If not January, then probably February.
Don't worry QE3 is still an option. We got room with the latest inflation numbers.
If not February, then definitely in March.
Don't worry QE3 is still an option. We got room with the latest inflation numbers.
and the beat goes on...
(kinda works for the european bail out plan if you substitute the right words and do the timeline in days.)
Broke433 in August
"They are giving hints that Qe3 might be in [sic] the way...Maybe not this month but in September?"
Smoked 'im out, nicely, Mr. Back to the Future. Prolly Ben's bro. :D
QE3 is the Euro bailout fund. Regardless of where it's being dumped, when currencies are nearly at parity with one another. Print in Europe or the US...shit even Canada or Australia. Now all FIAT is equal and the powers that be may do as they please regardless of the country of the bailout residence.
I wouldnt bet against oil for all the tea in china. Far too important and too large to ignore.
"I wouldnt bet against oil for all the tea in china. Far too important and too large to ignore." And the understatement of the year goes too...
Here comes some fresh green bitchez
Is it '420' already?
It better be!
Cuz if I'm not baked, then I've fallen through a wormhole into a bizarre alternate universe.
It's time to spark up the hopium hookah, bro.
okay china, get ready for the big green american wienie. #WINNING!
I wouldn't read too much into it
NFLX is up, I bet they blow out earnings
Seems like a stupid time to begin QE3 prep work. Game theory would require for the European experiment to first crash so as to bring down asset prices and sky-rocket the USD before the Fed would step in.
The other side of game theory, rational expectations says SHIT IS SO BAD IN EUROPE THEY GOTTA PULL THE TRIGGER NOW>...
How long until the OWS crowd realizes not only are more bank propping events coming up here, but WE are about to do alot more Euro bank propping? Will this be the point at which the movement goes rogue and starts buring shit down?
I am afraid most of them don't understand what is going on with enough depth to be as pissed as we are.
That's true. QE# will be embraced by OWS with open arms as they thank their overlords for bailing them out of their school debt.
Yes, MsCreant and Hearst.
OWS apparently has no idea of what QE3 will bring. QE4, etc. Maybe their student debts will be bailed out, but then with hyperinflation and no jobs, they will still be SOL.
RALLY!!!
(As usual permabears licking their wounds)
ZH has become a fade.
As usual my returns are kicking the shit out of every bull hedge fund in the country. Guess you were napping through august...
And just a little reminder:
Ray Dalio, founder of the largest hedge fund in the world (Bridgewater Associates), said the world debt is so large it will take 10 years to de-leverage it — and “there are no more tools in the tool kit” to postpone the inevitable reckoning. He gave the world the bad news on Friday night on the Charlie Rose Show. The world is divided into debtors and creditors — emerging nations — and the end is near.
We should listen because Ray Dalio is the 55th richest man in the world with a net worth of $6 billion. His company manages $125 billion in global investments, and as Charlie Rose, “Over the last two years, Bridgewater ranked as the largest and best-performing hedge fund in the world. In 2010, his returns were greater than the profits of Google, Amazon and eBay combined.”
This is just an interesting window where the markets have totally forgotten one simple fact: debts matter. If the Fed QE's on Nov. 1-2 with economic data literally picking up, the WTI over 90, then I said it before and I'll say it again:
WE SO FUCKED.
With your astute observations and vast contributions I for one will really miss you.
I have a feeling that the Yahoo boards will greet you with open arms.
Have a nice voyage to mean reversion.
Mean reversion?! Oh, snap, this gal knows her shit!
Mean reversion meet Shiller PE.
Don't worry your pretty little head so much.
Retracted.
More like your comments will fade by the next Tyler post.
Fed POMO bank ponzi-boy and eternal Goldman Sacks loyalist, Dudley, just gave an algo soundbyte saying, "More QE possible." The shilltards at CNBS are running this quote as a "Breaking News" headline every 5 minutes.
We're fucked...buy silver.
Goldman's Hatzius is also calling for QE3 in 6 to 9 months. If the movie "Casino" is any indication of how the mafia works, then he is actually saying in 3 to 6 months. I doubt "The Nothing" (steaming debt pile) will wait that long anyway.
Hedges unwinding. Quite common after a period of market turmoil comes to an end.
Lots of dealers that were taking big hits on their core positions due to overall market conditions used crude as a basic hedge (i.e. long cash bonds, but shorting with a corresponding CDS index is never 1:1 and so a poor short at best - the better hedge was short oil).
Now that 'all is fine', short crude unwind is showing up, hence, you bid up the front contracts - probably even moreso than required.
+ a large whole number
Tyler, I presume that you will comment on the "variable rate treasuries" that CNBC is reporting? Crap, looks like the sub-prime boondoogle taught us nothing and the entire country will get a sub-prime floating mortgage. Yikes.
Blah blah blah. Evidence of China growth maintaining = evidence of oil consumption.
Oil is everything. Debt is second fiddle. Huge news last week from the UK. Their drilling rig count down 36% from equivalent period last year. All kinds of hand waiving to avoid saying the critical reality: The North Sea is running out of promising geological structures to drill, so when each well is double digit millions, guess what . . . YOU DON'T DRILL WHEN THE TARGETS ARE NOT PROMISING.
This means the right side of the curve's slope for North Sea is going to steepen. Remember, it is only new wells that gradualize the production total slope as old wells produce less and less.
Steepness looms.
Dude - did u miss the news of Lundin Oil? They just struck one of the largest oil wells EVER in the north sea.
http://www.lundin-petroleum.com/Press/pr_norway_21-10-11_e.html
Hype house. Want to see if it's there? Wait to see them put up their own money to produce, vs sell the lease to some dupe, err, some more experienced developer.
Worse, it's only 1 billion barrels. Such a field won't do more than 200K/day at peak production. The total North Sea is falling by more than that per year.
That's only 10-20 days worth of world oil consumption. Abundant natural resources aren't going to make up for the current and future levels of capital misallocation.
And that is really the crux of the whole thing. Capital misallocation resulting in ultimately the destruction of what could have been even more productive capital, including your fiat "savings". Get physical and wait.
well, apparently the market missed that news ...........
All part of the Biflation Conundrum: when we're not in near-recession (economic contraction), we're on the brink of killer inflation.
Lotsa Luck!
Yes, left or right cheek. But imho it will be inflation, because deflation does the reset too violently - which would destroy this wonderfull web.
We'll see $220 oil as Nomura predicted for a number of reasons---printing, MENA instability, etc.
And who will be able to pay $6.50/$7.00 gallon at the pump on the $220 oil price in this environment? Talk about the start of a bloody bout of civil unrest...
First despair, then unrest
Papa Roach wrote:
And who will be able to pay $6.50/$7.00 gallon at the pump on the $220 oil price in this environment?
Only the rich. But the federal government will probably impose fuel price controls before the price breaches $6 per gallon. Count on it. And after such imposition, there will be profound shortages of fuel at the LEGAL price.
-- Paul D. Bain
paulbain@PObox.com
Hate to break it to you kiddo, but most of the world already pays that, many parts of the world much more, and have done so for almost 10 years.
Australia -> AUD 1.5 per litre == USD 5.45 per US gallon
France -> EUR 1.56 per litre == USD 8.30 per US gallon
Germany -> EUR 1.6 per litre == USD 8.51 per US gallon
Hong Kong -> HKD 16.55 per litre == USD 8.04 per US gallon
Singapore -> SGD 2.10 per litre == USD 6.27 per US gallon
Of course, the most of the world stopped driving SUVs and Hummers 15 years ago, but thats probably because they dont have the Oil Protection Marine Corp to secure the supply with blood and iron.
Hey Hey! just in time for Winter! Not to mention eventual strike on Iran - getting bullish for the Bakkens right about now myself as well as Burlington Coat Factory.
Allright kids, get out those moth eaten sweaters and electric blankets, because Papa won't be able afford heating oil in New England soon unless they accept SNAP cards
Funny you should mention Iran. This change in the term structure might reflect front-running of an oil shock. I've heard rumors of Iran's oil production suddenly becoming unavailable to the market (I'll leave it at that).
And there you have it folks.
It's not about investment any more. It's about inflation survival. Unless you are earning 20% year on year, you're losing.
Guns, gold, water, and food.
This is a hard point to get across. Water, Food, Guns, Gold. I like that order better. They think we are kidding or nuts. Do it!
Good to see you MsC
I liked your binge and purge economy above. The purging may well do permanent harm.
Looks like I picked the wrong week to give up on "tradition".
www.pmbug.com
The Fed stopped easing after mid-2003. Crude was frequently in backwardation between then and the start of the next (unexpected) easing in August 2007, I seem to recall. Does that change the point of this post?
Is it possible that anything from trading techniques to the expected advent of Libyan oil coming onstream is more relevant to this sudden backwardation?
Oddly enough, everything is not caused by alien abductions;) This is not unusual in grains or the oil complex in times of low interest rates. In my experience, it means that producers are worried about prices and selling heavily into the future months, but that doesn't mean the Martians won't get you.
Now that's a reach. Oil is the new gold, and somehow a predictor of madman Ben?
More likely hedging by producers. Libya coming back on line, nat gas dropping like a rock. European depression coming. The Saudi's aren't idiots. They should be locking in prices here.
How is the Fed going to unleash QE3 with the Dow nearly 12k? Politically, I don't think it can be done either. There will be riots in the street.
Riots? You're dreaming.
As long as the masses are ignorant and have food on the table, cable, and most of them their jobs, don't expect any riots.
If, on the other hand, "Kim Kardashian", disappears from TV, my wife will be among the first to hit the streets. I imagine other cancellations of Ellen DeGenerate, Phil Maher, Monday Night Football, would also result in riots.
But economic policy is a yawn to the proles.
CORRECT.
Hardly anyone I know have any idea of QEs. OK, they do know about the bailouts and feel left behind (because they have been), but the MSM will cheerlead any QEs. The markets will go up (until all of this no longer works).
I have been predicting that GOLD will not be bought by many until the price is $5000. They will have LOST their chance to buy it cheap.
All good points. Maybe it was wishful thinking on my part.
They're scared to death of QE3 and yet it's the only trick they know. That's why they were hoping for some Fiscal Stimulus to tide the economy over for a while. The mortgage refi deal which is coming is the stim. Fed laid the groundwork for it with Op Twist, lowering mortage rates even further so people would refi (and pay fees to banks). But even if the .gov pays for the loss on underwater mortgages it's only a stall. People still won't be able to afford the houses they're in and the cost structure of the economy they live in.
I don't get it. So now people who are heavily underwater can refi their loans....so 2 possibilities:
1. person is underwater and not even paying mortgage (will not refi - ever) so no impact
2. person is underwater but still paying mortgage - they will refi if it save money (duh!)....so now they pay less and SOMEONE ELSE LOSES. Who loses....banks, Fannie, Freddie....oh, but that is OK we will bail them out or just let them report made up numbers and simply provide them with liquidity to keep the transactions going. Can we make it to the next election?
Short term - party on. Long term - we are hosed.
Is there an adult left among our leaders (other than the lonely, aging voice of Ron Paul)?
Politically the people don't matter, hell there are already articles about how Occupy Wall Street consists of ex cons and people from shelters. The 99% are crabs in a barrell, corporations are all that matter if you want to get elected. I'm leveraging my first born to buy into the rally, Ben's about to make it thunderstorm in this biz-natch, weeeee
The fed made the call, "Blue Horseshoe loves QE3"
The Pope does not like QEx.
Moneychangers will be thrown out in 3...2...1
The Vatican and the Catholic Church are so corrupt that they are inviting in the biggest one of all. Who would control the Worldwide Bank? Hmm, probably not who the Vatican would want...
A little math (not FASB or IASB math - they were castrated).
BofA has 1 Trillion dollars in deposits, with 20:1 leverage, that's 20 Trillion dollars in, well, lets say 'Risk'.
Add 53 Trillion in derivative risk, for a total of 73 Trillion dollars in 'Risk'.
That's leverage of 73:1.
JPMorgueChase is about 1 Trillion in deposits, so 20 Trillion dollars in 'Risk'.
Add 75 Trillion in derivatives, for a total of 95 Trillion dollars in 'Risk'.
That's leverage of 95:1.
Two US banks, with 168 Trillion dollars in 'Risk', covered by 2 Trillion in deposits.
European banks are advertised as double the leverage of US banks.
Hmmm.
Net those exposures then get back to us.
As an investor, I would be interested in net exposure.
As a taxpayer, I'm interested in gross exposure.
How did that netting work out when Lehman was allowed to go bankrupt? Oh right. Do you really think there is enough opacity in balance sheets, off balance sheets, dark pools, the innumerable interconnected counterparties and the financial system in general to truly net out risk? You're dreaming. Netting is a fucking scam, wake up.
If you want the truth, then you need to at least figure in the difference between net and gross exposure.
If you want to dwell on a load of crap just so you can rant about stuff, then carry on gentlemen.
Yeah, to save Europe and the TBTFs, let's drive the price of gasoline & heating oil into the stratosphere as we head into Winter.
Of course, if you earn what Ben and the other Fed governors make, it's a no-brainer. They should be good at making that kind of decision, actually...
Totem, you might not be considering there is a lag time before higher prices reach the pumps. 2012 is gonna be dull. 2013 is when the real fun starts. By 2021 it will be over. Mental preparation to do whatever you must (outside of killing people) to survive is what is most important, but having three months of basics is recommended in at any and all times. It is a chaotic universe.
http://www.youtube.com/watch?feature=player_embedded&v=cCul2D8bog8
and now a word about black folk and niggers........
Is there any evidence that QEn helped creating jobs? If yes, there are the numbers? If not, fire the idiot chairman for wasting 2.5 trillion.
Well, to your question, in March 2009, the BLS said there were 139,833,000 employed Americans.
In September 2011, the BLS claimed we have 140,502,000 employed Americans.
However, every February the BLS usually deducts 1.5 million jobs in its annual rejiggering of the numbers. So, the September 2011 number likely is somewhere around 139,000,000.
So, in essence, we've probably LOST jobs since QE1 was fully implemented in March 2009. Or, at the very least, it's a push.
Wait, the shameless Chairman works for a private entity, can't be fired.
Remember : your tax dollars still subsidize Exxon-Mobil. You pay them taxes to produce and make a profit off you and then get taxed a second time at the pump for them to sell it to you. Got you coming and going.
Oh and they export some of that oil too :-)
sprott is buying up energy stocks because they are valued based on fear. a quote from one of his fund managers:
“It has everything to do with fear and little to do with actual fundamentals,” Sprott Inc.’s Eric Nuttall, whose Sprott Energy Fund is up 16 percent this month, said of oil stocks. “When people are in a fear-driven mode, fundamentals can be irrelevant in the short term. Eventually, the stock market will always be fundamentals-driven.”
so sprott, who has been hammering the pm community about silver being the investment of choice due to a worldwide bank meltdown and sovereign crisis, now feels that the fear is unjustified and that the stock market will be more fundamentally driven going forward (i.e. bullish) anybody find a bit of hypocrisy here? after all, wouldnt a debt derived global meltdown destroy demand, and therefore commodities?
Sprott is 100% out of sync with the market right now, and should heed the wise words of Will Rogers: if you're in a hole, stop digging. He is also short financials and retailers. He's been crushed this month.
Does being "in sync" entail momentum chasing the rest of the crowd and doing what all of the kool kids r doing? I seem to recollect that the best plays are made by those who go counter-trend when others look and barf; I'm gonna have to check this Sprott guy out.
Thanks for the tip!
I have no idea how all this intervention will end up, but overall I think Sprott has 100% more credibility than the rest of wall street whores.
Remember - there is a big difference between taking a long term position and trading short term to take advantage of swings in sentiment.
I generally agree, Mark. He's got AUM that make it impossible for him to be a trader. But he made the fatal mistake: he got too giddy and led many people right off the cliff at highs at exactly the wrong moment.
He's probably taking advantage of the market upswing to talk up his beaten down funds, so investors pour in and he collects MER. Win or loose, it's what he shaves off the top that makes him money from these funds.
16% in a month is enough to pull in some performance chasers... How about the last 3 months? -10%... or 6 months? -20%. Did he mention that?
Hurricane Rina - and seems like they really don't know where this one's going to go
oil up 4.5% today....but gold hardly at all.
I guess this would make sense if there was some evidence that the economy is taking off like a rocket ship, and NOT due to money printing. I don't get it.
Cynical thought - the big guys are running up the market using 0% fed money and HFT in anticipation of some big drop that is on its way.
Your cynicism is duly noted.
I see it as being realistic, not cynical.
didnt you hear, europes debt problems were solved today...for the 20th time.....
Oh good. One less thing.
...creating the 21st problem...
when are people going to learn WTI contract is not worth looking at .Brent has been in backwardation for ever ! at expiry of the November contract the back. went to a huge $2.50 plus . today Brent / WTI narrowed , think this is the unwinding of the Libya play where Brent has been squeezed.
if QE3 is the european bailout, then that means all monies is being transfered out of the US. hmmmmm, i wonder why?
No QE until WTI and S&P are at least in three digit territory.
I dont think its 'QE3 signs' at all I think its mid east war kickoff.
I heard a rumor that Iran is going to blow up the entire planet.
Must invade and bomb country into oblivion....need new Shah in control to ensure democracy, freedom, love and McDonalds.
I agree... QE3 seems to be just another carrot for the msm. Besides, why declare when you can QE Stealth and pillage for resources?
Waiting on gold backwardation. Then the Fed will be forced to peg the euro to the dollar. Then it's full on currency crisis time. Inching ever so closer to event horizon.
It will be great when everyone pegs to each other and then tries to print their way free, it'll probably look like the 3 stooges
+ 1
Gold backwardation will be a BIG deal.
QE3 is underway. In my humble opinion. Bitchez.
http://research.stlouisfed.org/fred2/series/M2
Maybe Bill Dudley is spouting about QE3 because he knows that Wednesday will be underwhelming on the European BS front, so they jawbone.
Hilsenrath usually does a good job as sock puppet for the Bernank, so there is as yet no free money ready to roll in given the time table presented. The Administration is also doing its part with the "we don't care if you have negative equity at whatever level, we're going to refi you" play.
Ramp it up into overbought, let some puts come back into the market, a couple of days set up now for the fast money and then we find out Wednesday that the Euros are still as confused and undecided as can be.
Whoosh, test the 1150 level. That may take us into November. Perfect setup to push through the MBS deal, right on Hilsenrath's timetable.
THEN we see David Tepper on CNBC again and if you don't buy the ponzi at that re-discounted point, may the lord have mercy upon your P&L.
Markets that go straight up are oh so passe?
Crude at $91 today.... yeah, that's good times at teh pump tomorrow.
Survey: UCITS Investors Want CTA Strategies
Oct 24 2011 | 10:36am ET
The market for CTA strategies within the UCITS wrapper is growing, according to a recent survey from ML Capital.
The firm polled 51 investors who together manage €80 billion and invest upwards of €30 billion into Alternative UCITS strategies.
ML Capital says it observed a “dramatic increase in demand for CTAs” with 57% of respondents committed to the sector.
The survey found that the largest increase in allocations were to global macro systematic and CTA strategies, both of which saw demand almost double over the last quarter from 30% of polled investors to almost 60%
http://www.finalternatives.com/node/18513
Europe is DEMANDING exposure to Commodities.. MORE, Gold! and / or other Tangibles.. as a nice basket of risk adjusted for paper (any kind) becoming less and less safe.
time for another SPR release. Blame it on tensions in Burkina Faso.. or something
Awesome! Just in time for winter, lets see who will riot/protest first out of the two European backstops. Germany or France? I say France first with major industrial strikes, then the Occupy influenced protests turn violent, next Germany. The whole world will riot at the same time, going to be very interesting.
Look no further than the land of the fleeced, home of the slave for the backstop.