Citigroup

We recently noted the rise of counterparty risks in the financial system due to oil prices dropping (and leveraged derivative exposures) but as the Russia situation has deteriorated so dramatically this week, a renewed focus on bank exposures has sent stocks reeling (and credit risk soaring) among many European (and US) banks. As Bloomberg reports, Raiffeisen Bank International and Societe Generale, the European banks with most at stake in Russia, led European lenders lower. Raiffeisen fell as much as 10.3% to 11.40 euros in Vienna, the lowest level since it went public in 2005. Societe Generale dropped as much as 7.3% to 31.85 euros, hitting the lowest intraday level since August 2013. CDS markets for both also exploded with Raffeisen risk at 27 month highs. As one analyst noted, "There remains a huge amount of uncertainty at this juncture, but the key point is that there are no benign scenarios." While not on the same scale, US bank risk has also widened signicantly in recent weeks (despite equity strength).

• Ruble Sinks to 80 a Dollar Defying Surprise Russia Rate Increase (BBG)
• Oil slumps near $59 for first time since 2009 on oversupply (Reuters)
• Oil sinks, Russian moves fail to quell nerves (Reuters)
• Fed Seen Looking Past Low Inflation to Drop ‘Considerable Time (BBG)
• Students Among Dead as Pakistan Gunmen Kill 126 at Army School (BBG)
• Repsol to buy Talisman Energy for $13 billion (Reuters)
• Indonesia’s Rupiah Erases Decline After Central Bank Intervenes (BBG)
• Anti-Islam Rally Grows as Immigrant Backlash Hits Europe (BBG)
• Saudi Arabia is playing chicken with its oil (Reuters)

Not that all politicians are bad, but those who have genuinely good intentions get drowned out, within seconds, by the ones for whom the need to have power over others is more important than anything else. And, on the whole they’re not very smart. So they get advisors who they feel do know, and these advisors all come from the same small niche of society that steer everybody’s hard-earned cash towards that same small niche of society. 99% of economists are religious nuts who do even the Roman Catholic church one better because they chart graphs to ‘prove’ their beliefs are true - they adapt the world to their theories, not the other way around, as physicists do.

• Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
• Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
• Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
• Tremble algos: the SEC has hired... "QUANTS" (WSJ)
• When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
• Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
• Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
• Amid Crisis, Pimco Steadies Itself (WSJ)

It is amazing the speed at which FOMC officials have embraced not falling oil prices but collapsing crude. The pace of the decline is being driven, contrary to the fracking miracle, by the fact that nobody seems to want to bid on the stuff. That is, as I noted earlier, a demand problem. But officials like Fed Vice Chair Stanley Fischer and FRBNY President Bill Dudley are saying that these lower oil prices, due to lower demand, will end up boosting demand – big time. That is the essence of their argument, that recession is the latest “stimulus.”

Phibro could have the ability to mask its activity in Occidental’s hedging activity. Speaking with traders within the oil complex, I learned that there has been heavy trading activity on the OTC market on the backend of the oil curve. 

It should come as no surprise that Republicans would be willing to vote for a bill that seeks to indemnify Wall Street from future failure. After all, Wall Street's proximity to the GOP, and vice versa, is hardly a contentious issue. And yet, it was "only" 162 republicans who voted for the Cromnibus - some 67 voted against. Which means that whipping the 57 democrats who also voted for the Bill to get the crucial 218 passing votes was far more critical to assure passage of the swaps push out provision.  What exactly motivated those 57 Democrats to break ranks with the rest of their party - the 139 democrats voted against the spending bill - and to be not only on the receiving end of Elizabeth Warren's ire, but also accountable for dumping a few hundred trillions of derivatives into the laps of US taxpayers. The answer, what else: money.

Courtesy of the Cronybus(sic) last minute passage, government was provided a quid-pro-quo $1.1 trillion spending allowance with Wall Street's blessing in exchange for assuring banks that taxpayers would be on the hook for yet another bailout, as a result of the swaps push-out provision, after incorporating explicit Citigroup language that allows financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp, explicitly putting taxpayers on the hook for losses caused by these contracts.

While most Americans are busy Christmas shopping and making preparations for trips to see family, Congress remains hard at work doing what it does best. Giving gifts to Wall Street and trampling on citizens’ civil liberties.

• Oil slide hits European stocks, safe-haven assets sought (Reuters)
• IEA Cuts Global Oil Demand Forecast for 4th Time in Five Months (BBG)
• Cue constant pro-Abe propaganda out of Japan: Japan’s Secrecy Law Takes Effect as Abe Seeks Fair Vote Coverage (BBG)
• As if it has a choice: Japan’s GPIF Bets on Abenomics-Driven Recovery (WSJ)
• Heather Capital: How a $600 Million Hedge Fund Disappeared (WSJ)
• Senate Panel Votes to Authorize U.S. War on Islamic State (BBG)
• Japan’s 28 IPOs in 11 Days Give Abe a Lift as Startups Boom (BBG)
• U.S. authorities face new fallout from insider trading ruling (Reuters)
• Greek Stock Rout Means ASE Is 2014 Worst After Russia (BBG)

The Department of Treasury is spending $200,000 on survival kits for all of its employees who oversee the federal banking system, according to a new solicitation. As FreeBeacon reports, survival kits will be delivered to every major bank in the United States and includes a solar blanket, food bar, water-purification tablets, and dust mask (among other things). The question, obviously, is just what do they know that the rest of us don't?

Because you can always bet on the "stupidity of the American voter" and win.

Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street.

While we were expecting that one-time "god of crude oil trading" would have a poor year as a result of his consistent bullishness on the crude space, we were quite astounded to learn, as Bloomberg first reported yesterday, that Andy Hall - the man whose name was for a decade legendary in the commodity space - would call it a day. And yet that pales in comparison to the WSJ report overnight than Phibro itself, Andy Hall's 113 year old employer currently owned by Occidental Petroleum after its sale by Citigroup, would liquidate in the US after it failed to buy a buyer, marking the end of an era.

• New Normal headlines: Global stocks up on hopes of China policy easing (Reuters)
• China inflation eases to five-year low (BBC)
• U.S. Lawmakers Agree on $1.1 Trillion Spending Bill (WSJ)
• U.S. Braced for Blowback as CIA Report Lays Bare Abuses (BBG)
• CIA tortured, misled, U.S. report finds, drawing calls for action (Reuters)
• CIA Made False Claims Torture Prevented Heathrow Attacks (BBG)
• Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (BBG)
• OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (BBG)
• Greek yield curve inverted as politics raise default fears (Reuters)