Natural Gas

Previously, when looking at the real underlying national interests responsible for the deteriorating situation in Syria, which eventually may and/or will devolve into all out war with hundreds of thousands killed, we made it very clear that it was always and only about the gas, or gas pipelines to be exact, and specifically those involving the tiny but uber-wealthy state of Qatar. Needless to say, the official spin on events has no mention of this ulterior motive, and the popular, propaganda machine, especially from those powers supporting the Syrian "rebels" which include Israel, the US and the Arabian states tries to generate public and democratic support by portraying Assad as a brutal, chemical weapons-using dictator, in line with the tried and true script used once already in Iraq.On the other hand, there is Russia (and to a lesser extent China: for China's strategic interests in mid-east pipelines, read here), which has been portrayed as the main supporter of the "evil" Assad regime, and thus eager to preserve the status quo without a military intervention. Such attempts may be for naught especially with the earlier noted arrival of US marines in Israel, and the imminent arrival of the Russian Pacific fleet in Cyprus (which is a stone throw away from Syria) which may catalyze a military outcome sooner than we had expected. However, one question that has so far remained unanswered, and a very sensitive one now that the US is on the verge of voting to arm the Syrian rebels, is who was arming said group of Al-Qaeda supported militants up until now. Now, finally, courtesy of the FT we have the (less than surprising) answer, which goes back to our original thesis, and proves that, as so often happens in the middle east, it is once again all about the natural resources.

• As scandals mount, White House springs into damage control (Reuters)
• Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
• JPMorgan Chase asks Bloomberg for data records (Telegraph)
• Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
• Syrian Internet service comes back online (PCWorld)
• Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
• Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
• Factory Ceiling Collapses in Cambodia (WSJ)
• Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
• Snags await favourite for Federal Reserve job (FT)
• James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)

• Controversies give Obama new governing headaches (Reuters)
• About that Capex... BHP to Rein In Investment, Chief Says (WSJ), considers returning cash to shareholders (FT)
• Bloomberg users’ messages leaked online (FT)
• Japanese mayor sparks China outrage with sex-slave remarks (Reuters)
• Economists Cut China Forecasts (WSJ)
• U.S. oil boom leaves OPEC sidelined from demand growth (Reuters)
• U.S. banks push back on change in loan loss accounting (Reuters)
• Fed’s Plosser Says Slowing Inflation No Concern for Policy (BBG)
• Watchdog probes 1m US swap contracts (FT)
• Used Gold Supply Heads for ’08 Low as Sellers Balk (BBG)
• Ex-BlackRock Manager Said to Be Arrested in U.K. Probe (BBG)

... the Bank of Israel!

The Obama administration has come out in support of the idea of exporting U.S. natural gas. This stance is counterproductive and shortsighted, and if followed, it will prove harmful to domestic manufacturing (i.e., value generation) and to future generations of Americans. While exporting natural gas would certainly prove to be an economic boon for a very select minority of companies and individuals, it makes no sense from an energy standpoint and undermines our national interests. All it will do is enrich a few while boosting prices for all domestic consumers and shortchanging the energy and environmental inheritance we pass along to our children. The time has come to give greater weighting to energy matters than to economic and political desires. To continue to be energetically wasteful at this time in history, when so much data is telling us that the effluent of our activities is measurably altering our support systems, is beyond embarrassing.  It's tragic.

• PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
• Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
• Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
• China issues new rules targeting wealth management fund pools (RTRS)
• Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
• New York may have to drop claims against BofA over Merrill (RTRS)
• FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
• In eastern Syria oil smugglers benefit from chaos (RTRS)

The U.S. stock market rally has recently passed its fourth anniversary after the terrifying lows of March 2009. During that time, massive and unconventional reflationary policy from the Federal Reserve has managed to lift the S&P 500 to new all-time highs. But perhaps even more improbably, it has finally (for now?) built a floor under U.S. residential real estate prices. This 'Less Bad' Recovery continues in other ways as well. Jobs have been created. Not good jobs. Not high paying jobs. Not full time jobs. But some rudimentary sets of tasks and responsibilities that could be called jobs. There has also been deleveraging. But here, too, the scale of debt reduction is nothing close to the unadjusted figures often touted in the media. Americans, and more generally, OECD citizens, remain highly burdened by debt. When combined with poor wage growth, this explains the continued suppressed demand so pervasive in developed nations. And of course, oil prices – as expressed through prices at the pump – remain stubbornly elevated and are likely to persist at their new elevated level. Combined, these factors have kept a lid on consumer confidence and make for a precarious disparity between the stock market and the real economy. Welcome to the Great Constraint - a growing failure to thrive.

• Microsoft prepares U-turn on Windows 8 (FT), Microsoft admits failure on Windows 8 (MW), After Bumpy Start, Microsoft Rethinks Windows 8 (NYT)
• China reports four more bird flu deaths, toll rises to 31 (Reuters)
• Republicans shift stance on US budget (FT)
• NYC Tallest Condo Corridor Gets New Entrant With Steinway (BBG)
• U.S. Says China's Government, Military Used Cyberespionage (WSJ)
• China rejects Pentagon charges of military espionage (Reuters)
• Bank of China Cuts Off North Korean Bank (WSJ)
• Libya defense minister quits over siege of ministries by gunmen (Reuters)
• London Recruiter Says City Job Vacancies Rose 19% (BBG)
• Colleges Cut Prices by Providing More Financial Aid (WSJ)  or, said otherwise, loans
• Jeweler agrees to plead guilty in KPMG insider-trading case (LA Times)

While Harvard historian Niall Ferguson's off-the-cuff remarks during the Q&A were in his words "as stupid as they were insensitive", the core message of his presentation was clear: the party of the last 20 years is now over and the longer we fail to address the real issues the bigger the hangover will be in the future. The central question Ferguson asks is whether our institutions, corporations and governments, are degenerating. As Lance Roberts of Street Talk Live notes Ferguson believes that without addressing the structural problems that plague the economy from production to employment – stimulus will fail. The reality is that the 'punch bowl' won't fix employment growth, economic growth or the rule of law.

• The number of bond funds that own stocks has surged to its highest point in at least 18 years (WSJ)
• Clubby London Trading Scene Fostered Libor Rate-Fixing Scandal (WSJ)
• Cheap money bankrolls Wall Street's bet on housing (Reuters)
• Bank of Japan reveals concerns over easing policy (FT)
• iPads and low-end rivals propel higher tablet shipments  (Reuters)
• China Cyberspies Outwit U.S. Stealing Military Secrets (BBG)
• Draghi Fuels Bets on Rate Cut With Risk of Limited Impact (BBG)
• China guides renminbi to fresh high against US dollar (FT)
• Japan is preparing to start up a massive nuclear-fuel reprocessing plant (WSJ)
• Apple’s Ive Seen Risking iOS 7 Delay on Software Overhaul (BBG)
• UBS faces calls for break-up at investor meeting (Reuters)

Those expecting a complete collapse in the Manufacturing ISM, on par with yesterday's slide in the Chicago PMI, will have to wait some more before the complete devastation in the US manufacturing sector sends stocks into the stratosphere. Moments ago the ISM Manufacturing report for April was released, printing at a headline of 50.7, down from 51.3 and the lowest print since December 2012. The good news: it was still above 50 and beat expectations of a 50.6 print by the smallest amount possible. The bad news: it is sliding fast. The worst news: the Employment Indicator, which came at 50.2, down 4 on the month, was the lowest since November, tied with the biggest sequential drop since 2008 in absolute terms, and the biggest drop in percentage terms since the Great Financial Crisis. Judging by the stock market response, the news is not as bad as needed to send the S&P to over 1600, at least not just yet (but the biggest 3-month drop in construction spending in 26 months may be bad enough to get us there).

Less than a month after being ejected from Chesapeake Energy, the charismatic, yet controversial, Aubrey McClendon, has launched his next venture in the form of the American Energy Partners. Forbes were sent a copy of the email that Aubrey sent to his many contacts in the oil and gas industry in his search for potential acquisitions, or assets that his new company could get involved with...

Wishful thinking now runs so thick and deep across the USA that our hopes for a credible future are being drowned in a tidal wave of yellow smiley-face stories recklessly issued by institutions that ought to know better. A case in point is the Charles C. Mann’s tragically dumb cover story in the current Atlantic magazine - “We Will Never Run Out of Oil” - setting out in great detail the entire panoply of techno-narcissistic “solutions” to our energy predicament. Another case in point was senior financial writer Joe Nocera’s moronic op-ed in last week’s New York Times beating the drum for American “energy independence.” You could call these two examples mendacious if it weren’t so predictable that a desperate society would do everything possible to defend its sunk costs, including the making up of fairy tales to justify its wishes.

In a slight digression from the usual pure market-based discussions of Jeremy Grantham's perspectives, the fund manager addresses what is potentially and even more critical factor for the markets. As he writes, we are in a race for our lives, as our global economy, reckless in its use of all resources and natural systems, shows many of the indicators of potential failure that brought down so many civilizations before ours. By sheer luck, though, ours has two features that might just save our bacon: declining fertility rates and progress in alternative energy. Our survival might well depend on doing everything we can to encourage their progress. Vested interests, though, defend the status quo effectively and the majority much prefers optimistic propaganda to uncomfortable truth and wishful thinking rather than tough action. It is likely to be a close race.

• Reinhart and Rogoff: Responding to Our Critics (NYT)
• Differences with centre-right delay Italy's Letta (Reuters)
• Italy's Letta moves forward to shape government (Reuters)
• China’s leaders warn on financial risks (FT)
• Norway oil fund makes big move from bonds to stocks (FT) - worked wonders for the Bank of Israel
• Smuggling milk is the new smuggling heroin in HK: Milk Smugglers Top Heroin Courier Arrests in Hong Kong (BBG)
• RenTec's mean reversion models fail on BOJ lunacy: Yen Bets Don't Add Up for a Fund Giant (WSJ)
• From 'Fabulous Fab' to Grad Student (WSJ)
• BOJ in credibility test as divisions emerge over inflation target (Reuters)
• Boston Bombing Suspect Moved from hospital to prison (WSJ)
• Provopoulos Says ECB May Never Need to Use Bond-Buying Program (BBG) which is good because, legally, it doesn't exist