The US dollar closed higher against all the major currencies during the holiday shortened week. The lack of liquidity may have exaggerated the weakness of Swedish krona and Norwegian krone, the poorest performing major currencies. Both lost about 1.5% against the greenback.
The least weak currencies were in the dollar-bloc. The Canadian and New Zealand dollars were practically flat, and the Australian dollar slipped 0.2%. The euro and sterling slipped about 0.5%, while the yen shed 0.7% of its recent gains.
Trading volumes today are running at the lowest pace since 2006, crude oil prices ae testing back towards fresh 5 year lows, and Treasury yields are all lower... so it should come as absolutely no surprise that the S&P 500, Dow Industrials, and Russell 2000 have all hit fresh intraday record highs today.
For the past few months, the one silver lining to the energy complex - with crude oil plummeting to levels not seen since 2009 - was nat gas, which soared to the mid-$4s in early November on expectations of a brutal polar vortex for the second year in a row sending heating demand surging. Well, so far the "harsh" weather, which was blamed for the epic collapse in the US economy in Q1 has not materialized, and all those buyers of natgas contracts have been scrambling to sell all of their exposure afraid they may suffer the same fate as their crude trading brethren. End result: as of moments ago, nat gas finally slide under $3, the first time it has done so since 2012!
The ability of oil exporters to trigger a short-term collapse in price does not automatically translate into an ability to control the financial conflagration such a crash ignites.
As the following snapshot from January 2009 shows, the 12 month, $25 contango back then was without precedent, and as a result there was an epic scramble by hedge funds, banks and various other speculators to store about 100 million barrels on tankers with the intention to sell later. Since the contango was so wide one could easily lease any number of VLCCs and still be profitable on the trade. In fact, a big reason for the renormalization of the crude curve back then was because so many funds jumped on this arb. Fast forward to today, because the "risk-free" contango trade is back.
A form of society could undoubtedly exist powered by nuclear, wind and shale gas. But it would be a society supported by the state with far larger numbers working in the energy industries than now, producing lower surpluses, the energy production part perhaps running at a perennial loss. Those losses have to be covered by either higher price or via the taxation system. Either way, the brave new world that awaits us will be characterized as the time of less that will be in stark contrast to the time of plenty many of us enjoyed during the 20th Century.
As the year winds down, a Gordian knot tying Russia, oil prices and China together is receiving a great deal of attention. Let's see if we can unravel some of the confusing twists and turns.
We turn first to China's offer of assistance to Russia. The idea that Russia could activate its CNY150 bln (~$24 bln) currency swap line with China is capturing the imagination of many.
"People should not be worried," explained Kazakhstan President Nursultan Nazarbayev in a TV address over the weekend, "we have a plan in place if oil prices are $40 per barrel." Kazakhstan, the second largest ex-Soviet oil producer after Russia, explains "there are reserves which could support people, preventing living conditions from worsening." However, if A. Gary Schilling's reality check of $20 oil being possible comes to fruition, as he explains, what matters are marginal costs - the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf... We wonder who has a plan for that?
- Police officers' slaying raises pressure on New York mayor (Reuters)
- People Call for Cooling of Racial Tensions After Murder of NYPD Officers (BBG)
- The $6.3 Trillion Frenzy That Vanquished Treasury Bears (BBG)
- China Investigates Possible Stock-Price Manipulation (WSJ)
- Citigroup Was Wary of Metals-Backed Loans (WSJ)
- UPS Turns Parking Lots Into Sorting Centers to Add Speed (BBG)
- U.S. Move to Normalize Cuba Ties Boosts Firms’ Asset Claims (WSJ)
- Meredith Whitney’s Fund Said to Drop 11% as Office Put on Market (BBG)
- Railcar Bottleneck Looms for Oil (WSJ)
Fast forward to today when we are about to learn that Newton's third law of Keynesian economics states that every boom, has an equal and opposite bust. Which brings us to Texas, the one state that more than any other, has benefited over the past 5 years from the Shale miracle. And now with crude sinking by the day, it is time to unwind all those gains, and give back all those jobs. Did we mention: highly compensated, very well-paying jobs, not the restaurant, clerical, waiter, retail, part-time minimum-wage jobs the "recovery" has been flooded with. Here is JPM's Michael Feroli explaining why Houston suddenly has a very big problem.
Drilling Our Way Into Oblivion: Shale Was About Land Gambling With Cheap Debt, Not Technological MiraclesSubmitted by Tyler Durden on 12/21/2014 15:00 -0500
The shale patch can exist in its present form only if it has access to nigh limitless credit, and only if prices are in the $100 or up range. Wells in the patch deplete faster than you can say POOF, and drilling new wells costs $10 million or more a piece. Without access to credit, that’s simply not going to happen. That’s about all we need to know. Shale was never a viable industry, it was all about gambling on land prices from the start. And now that wager is over, even if the players don’t get it yet. So strictly speaking my title is a tad off: we’re not drilling our way into oblivion, the drilling is about to grind to a halt. But it will still end in oblivion.
For the past 150 years, crude oil prices have varied between around $10 per barrel and around $120 per barrel. For many decades, oil prices were relatively "stable" but a funny thing happened in the early 70s and everything changed - whether coincidental or causative the linkages between the oil crisis and Nixon's Gold-Standard-busting of Bretton Woods are clear in the chart below. Goldman expects continued high oil price volatility with risks skewed to the downside as the market searches for a new equilibrium... and a period of macroeconomic adjustment to structurally lower oil prices. Is oil adjusting to a new 'gold-standard-esque' normal?
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
When the dollar falls, we are told it is logical. The empire is crashing and burning. When the dollar rises, the markets, we are told are manipulated. Well, the dollar is back, and the technical correction ended, near we told you it would.