Goldman Sachs

If you are looking for a “canary in a coal mine” type of warning for the entire global economy, you have a whole bunch to pick from right now.

As commodities carnage and credit cracks, talking heads remain intentionally ignorant in there sheep-like mantra to buy and hold stocks no matter what. Ever hopeful that 'growth' and the 'future' will fix any and all over-valuations, even with the current record low number of stocks trading 'cheap', they continues to ignore the facts. As Professor Bruce Greenwald recently told Goldman Sachs, "if a cyclical is trading expensively, it doesn't really matter how fast it is growing because historically growth hasn’t created value for cyclicals. Absent growth, value cyclicals don’t look like good investments."

Many investors still view gold as a safe-haven investment, but there remains much confusion regarding the extent to which the gold market is vulnerable to manipulation through short-term rigged market trades, and long-arm central bank interventions. First, much of the gold that is being sold as shares, in certificates, or for physical hoarding in dubious "vaults" just isn't there. Second, paper gold can be printed into infinity just like regular currency. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them.Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market. There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.

In the middle of the biggest criminal scandal involving the Fed, but also an FT-owned expert network (an FT which until today was owned by Pearson), the expert network known as Medley Global Advisors just changed its owners, from the FT/Pearson to Japan's Nikkei, in a transaction advised by Rothschild for the buyer and Goldman, Evercore and JPM for the seller.

Something is very rotten in the state of China, and its crashing, manipulated stock market is merely the tip of the iceberg.

While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.

• Gold claws back ground, European assets lose Greek tarnish (Reuters)
• Greece's Euro Exit Back on the Agenda Next Year, Economists Say (BBG)
• Greece submits bill needed to start rescue talks (Reuters)
• Wall Street Lenders Growing Impatient With U.S. Shale Revolution (BBG)
• Overtime Rules Send Bosses Scrambling (WSJ)
• As Markets Swing, Beijing Steadies Yuan (WSJ)
• Tennessee rampage suspect went to Qatar in 2014 (Reuters)
• Kathryn Dominguez to Be Nominated for Fed Governor (WSJ)

If yesterday's market action was boring, today has been a virtual carbon copy which started with the usual early Chinese selloff levitating into a mildly positive close, with the SHCOMP closing just above the psychological 4,000 level: the next big hurdle will be 4058, the 38.2% Fib correction of the recent fall. In the US equity futures are currently unchanged ahead of a day in which there is no macro economic data but lots of corporate earnings led by Microsoft, Verizon, UTX and of course Apple. Most importantly, some modest USD weakness overnight (DXY -0.1%) has helped the commodity complex, with gold rebounding from overnight lows, while crude has at least stopped the recent carnage which sent WTI below $50.

Today's action is so far an exact replica of Friday's zero-volume ES overnight levitation higher (even if Europe's derivatives market, the EUREX exchange, did break at the open for good measure leading to a delayed market open just to make sure nobody sells) with the "catalyst" today being the official Greek repayment to both the ECB and the IMF which will use up €6.8 billion of the €7.2 billion bridge loan the EU just handed over Athens so it can immediately repay its creditors. In other words, Greek creditors including the ECB, just repaid themselves once again. One thing which is not "one-time" or "non-recurring" is the total collapse in commodities, which after last night's precious metals flash crash has sent the Bloomberg commodity complex to a 13 year low.

During the Vietnam War, surveying the shelled wreckage of Ben Tre, an American officer famously remarked, “It became necessary to destroy the town to save it.” His comment came to epitomize the sort of self-defeating “victory” that undoes what it aims to achieve. Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions.

What have the bailouts achieved? Well, the Greek economy is doing worse than ever, and the people are poorer than ever; and both have a lot more bad ‘news’ to come. The bailouts needed to be as big as they were to 1) successfully make the international banks ‘whole’ that had lent as much as they had into the Greek economy, 2) get the IMF involved, 3) and absolve the notorious -and cooperative- domestic oligarchy from any pain. And make all the usual suspects a lot more money in the process. It therefore doesn’t look at all unlikely that Greece was saddled with an artificially raised deficit, and that the intention behind that, all along, was to get the Troika ‘inside’ for the long run. So the country could be stripped of all its assets.

"The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghi of the ECB. Then the head of Europe is also unelected by the people...This is authoritarian government if we have ever seen one... The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power."

Just a little over a month after we learned that Jamie Dimon recently became a billionaire, Bloomberg reports that yet another TBTF CEO has joined the billionaire banker club and frankly, we’re surprised it took this long because after all, when you’re the CEO of the blood-sucking cephalopod that holds the political and financial fate of the world in its tentacles, it seems only right that you would have been a billionaire long before any other banker on the Street.

Economic Hitmen?

The coming few months will prove challenging for the sector, and some small and medium U.S. producers may start missing their debt repayments or even file for bankruptcy. Quicksilver Resources and American Eagle Energy are two of the six U.S. based companies that have filed for bankruptcy in 2015 so far. Sabine Oil and Gas Corp. is the latest, and the biggest, U.S. producer to file for bankruptcy so far. Even mergers and acquisitions have slowed down considerably for the U.S. oil and gas industry in 2015. If the present trend persists, companies will have no choice but to cut their workforces even further to remain competitive and reduce their rising overheads. If oil prices remain in the range of $50 per barrel for longer than expected, even big operators such as Exxon Mobil, Chevron and ConocoPhillips (who have so far not made any major layoffs) could start downsizing their workforce.