The fix for low oil prices is... low oil prices. Past some point high-priced producers will naturally stop producing, the excess inventory will get burned up, and the price will recover. Not only will it recover, but it will probably spike, because a country littered with the corpses of bankrupt oil companies is not one that is likely to jump right back into producing lots of oil while, on the other hand, beyond a few uses of fossil fuels that are discretionary, demand is quite inelastic. And an oil price spike will cause another round of demand destruction, because the consumers, devastated by the bankruptcies and the job losses from the collapse of the oil patch, will soon be bankrupted by the higher price. And that will cause the price of oil to collapse again. And so on until the last industrialist dies...
Remember when S&P forgot for a second that it lives in a world of pretend free speech, and where telling the truth would promptly result in a lawsuit by the US government after it downgraded the US from AAA to AA+ in the summer of 2011? A downgrade which as Bloomberg previously reported led to this exchange with then Treasury Secretary Tim Geithner: "S&P’s conduct would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government." Well, S&P will never make the same mistake again, because according to Reuters, it will cost it $1.5 billion to settle with the government and put the whole "downgrade" episode in the past.
The world of investing as we’ve come to know it is over. Financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period. The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.
A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."
Everyone loves a good conspiracy theory debate. Regardless of whether you argue for it, or against, there are times when suddenly the ramifications for plausible truth are realized that overshadow the conspiracy. This is where the plot of truth can get far more sinister than the imagined conspiracy ever could.
Quality stocks along with everything else are expensive. Increasing risk while valuations in the equity market are so elevated seems dangerous, so the obvious answer is to hide in cash. Given valuation dispersion is so tight, avoiding risk will be pivotal in 2015. To that end, avoiding or even shorting companies with a high degree of earnings manipulation seems sensible. This style was a particular strong performer in Europe and Japan last year. We expect to see similar effects emerging in US stocks this year. Simply put, the lack of quality income stocks to invest in is often a precursor to a market downturn.
We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet - it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.
Next week, I'm tossing up the notion that the market will run up until Mario delivers his large pepperoni pizza pie on Thursday....... Hold the Greek olives, Italian sausage and Spanish onions!
At the hastily arranged press conference on January 15, SNB's president, Jordan, looked like a red-faced school boy caught with the hand in the cookie jar. None of his explanations made any sense. The SNB was clearly caught by surprise itself and didn't have time to make up some better lies. But why this sudden change of heart, throwing in the towel causing book losses of somewhere around CHF 75bn (>10% GDP)? Some theories...
Reuters just reported that none other than the HFT's bestest buddy exchange, BATS, which earlier this week was slapped with the biggest monetary penalty ever for continuing the practice of Hide Not Slide (at least until UBS' dark pool was slapped with an even bigger fine for conducting subpennying without informing most of its clients), is about to buy the FX trading platform of KCG, formerly Knight Capital which too blew up after one of its algos went haywire and blew up the firm in milliseconds.
- BATS GLOBAL MARKETS IN TALKS TO BUY FX TRADING PLATFORM HOTSPOT FROM KCG HOLDINGS KCG.N FOR NEARLY $400 MLN - SOURCES KCG.N - RTRS
Which, of course, is great news for all those who have stepped back from the rigged circus and merely enjoy "markets" for the comedic farce they have become
"It's Carnage" - Swiss Franc Soars Most Ever After SNB Abandons EURCHF Floor; Macro Hedge Funds CrushedSubmitted by Tyler Durden on 01/15/2015 06:07 -0500
Over a decade ago, George Soros took on the Bank of England, and won. Less than two hours ago the Swiss National Bank took on virtually every single macro hedge fund, the vast majority of which were short the Swiss Franc and crushed them, when it announced, first, that it would go further into NIRP, pushing its interest rate on deposit balances even more negative from -0.25% to -0.75%, a move which in itself would have been unprecedented and, second, announcing that the 1.20 EURCHF floor it had instituted in September 2011, the day gold hit its all time nominal high, was no more. What happened next was truly shock and awe as algo after algo saw their EURCHF 1.1999 stops hit, and moments thereafter the EURCHF pair crashed to less then 0.75, margining out virtually every single long EURCHF position, before finally rebounding to a level just above 1.00, which is where it was trading just before the SNB instituted the currency floor over three years ago.
Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies. We’re not in 2008 anymore, when an oil price drop actually helped us crawl out of a tight spot. We’re $50 trillion down the road, and there won’t be another $50 trillion, or another road. For all intents and purposes, we are the center today, and we cannot hold this way.
Earlier today, during the JPM conference call, when Jamie Dimon wasn't busy explaining why the Q4 earnings presentation was sorely missing the page showing JPM's latest Net Interest Margin, a staple placeholder page in the presentation appendix, he found time to lament something totally different. As Bloomberg reports, Dimon lashed out at U.S. regulators for putting his bank "under assault." We don't know how American, or how fair, or how complex, but we know why. The reason: JPMorgan and the rest of the world's banks have now become the world's biggest organized crime syndicate. The evidence? $178 billion in government kickbacks to keep their criminal scheme going for the past 5 years: something which none other than the BCG called a "cost of doing business" - criminal business that is.
Yesterday was a bad day for the HFT lobby, after not one but two incidents which exposed the high frequency parasites doing what they do best, and perhaps only: rigging markets. And since it would be laughable if its wan't tragic, we decided to make it even more laughable, by noting that none other than intellectual titan in the House of Representatives, Maxine Waters, had a few choice words to say about the latest HFT rigging busts. That's right: Maxine Waters now opines on market microstructure issues.