Crude Oil

After the Libor rigging scandal in 2012, authorities have sharpened their act, deeply scrutinizing company financial records, and implementing stricter regulations. This has led to a new investigation which has led European authorities to raid the offices of Shell, BP, and Statoil, in what is suspected to be one of the largest international actions since Libor. The Commission has "concerns that the companies may have colluded in reporting distorted prices to a price reporting agency to manipulate the published prices for a number of oil and biofuel products."

Manufacturing data in the last several months has suggested that economic growth around the world is slowing. However, China’s export growth surprised the market this week and unexpectedly accelerated in April, even as shipments to the U.S. and Europe fell. This has created a conundrum for analysts and market watchers. How can China be growing while the countries that purchase its exports are slowing? As we noted earlier, the numbers don’t add up. Many analysts have attributed China’s increasing imports as signs of a healthy manufacturing sector, or increasing investments in infrastructure and property. Our simple analysis shows that more than one third of the increase in imports is due to China’s increasing gold consumption. This new gold buying could have a significant impact on Chinese import statistics and force analysts to reconsider the strength of the Chinese domestic economy.

No news is the best news. Quite a week across every asset class dominated by the last two days as USDJPY broke 100 and seemingly all hell broke loose (apart from in stocks). Spikes in Treasury yields (10Y and 30Y +15bps on the week); a surging USD (+1.3%) driven by major JPY and AUD weakness (-2.75%) and the biggest drop in EUR in 6 weeks; Gold and Silver sold off hard (-3.5%) before bouncing back this afternoon ending -1.5% on the week; crude oil plunged but the Brent Vigilantes were not so easily beaten and ripped back above $96 and higher to close the week. Bond-like stocks (Utes) were hammered as high-beta cyclicals (homebuilders) ripped and while stock indices rolled over a little they remain near highs. It's not all sunshine and ponies though... credit markets drastically underperformed (playing catch down from an exuberant few days but sending a clear message to stocks) and the VIX curve steepened rather significantly around the Labor Day horizon - a date that represents desk chatter for "tapering" and debt ceiling drama to re-appear). S&P futures exhibited a spooky 15-min cycle zig-zag pattern this afternoon - in a totally human way... and average trade size was very low (algos) - right before the late-day ramp.

Back in February we introduced the world to their last best hope in controlling the largesse of the world's central bankers. The 'Brent Vigilantes' were shown to have taken over the mantle of the now totally-repressed and benign bond vigilantes (since deficits don't matter apparently). Each time retail gas prices have breached $3.80 in the past six years, the S&P 500 has crested (specifically the crossing of that threshold has seen P/E multiple expansion brought to a halt). With current gas prices around $3.53, we hear you cry, "what are you worried about?" Well, simply put, the answer lies in what is coming. Prices at the pump follow crude oil prices extremely closely with around a 30-day lag; the current WTI crude prices imply a price of gas at the pump around $3.80. So, if there is anything that can stop us from hitting 2,000 on the S&P 500 (or Dow 30,000), we suspect it is the 'tax' that gas prices represent and we now know what the trajectory of those prices is likely to be in the next few weeks.

One of the New Normal responses to allegations, first started here in 2009 and subsequently everywhere, that all HFT does is to frontrun traditional market players (among many other evils) now that its conventional and flawed defense that it "provides liquidity" lies dead and buried, is that "everyone does it" so you must acquit because how can you possibly prosecute a technology that accounts for over 60% of all market volume and where if you throw one person in jail you would throw everyone in jail. Today we learn that this indeed may be the case, and not only at the traditional locus of HFT frontrunning such as conventional exchanges for stocks such as the NYSE or even dark pools, but at the heart of the biggest futures exchange in the US, the CME where as the WSJ's Scott Patterson explains frontrunning by HFT algos is not only a way of life, but is perfectly accepted and even smiled upon.

Overview of the price action in foreign exchange and outlook for the week ahead.  

Some call it the “holy rail.” In Alberta Canada, an estimated 120,000 barrels of oil per day are shipped out by train to the U.S. east coast and Gulf coast region. By the end of the year - when several terminals are completed - that number could reach 200,000 barrels a day. Despite rail costs doubling pipeline tariffs, the logistics have often been worth the time for producers - those that have been able to get a better price railing it past the mid-continent refineries all the way to the US East Coast and Gulf Coast. But just as Canadian rail use is set to soar again, say analysts - rail may no longer be economic. In fact, rail could be a victim of its own success.

Let's get down to the facts of the recent banker gold & silver paper price smash and the lies about the banker gold & silver paper price smash being propagated by the mass media and banking shills like Paul Krugman so everyone can understand why this smash will blow up in the face of the very bankers that executed it at some point down the road. Retail individuals AND global institutions all around the world are finally beginning to understand that physical ownership of gold and silver is how to counter banker fraud & intervention into the gold and silver markets and this realization is going to produce massive blowback.

Correlation is not causation; but coincidence means you're on the right path. Looking at the charts of Stocks, Commodities, and Precious Metals, we wonder just what it was that President Obama said at his 11amET White House meeting last Thursday...

Given the dramatic drops in gold and oil prices over the past few trading sessions, we thought it worth examining which miners and oil producers were most 'at risk' of generating negative cash flows at current and long-term prices. Goldman Sachs looks at 40 oil producers and 25 gold mines to create a complete 'cost curve' in terms of the best indication of what it actually costs to keep operations running. It is quite apparent that ~$85 Crude and ~$1150 Gold are key to the ongoing support for these industries.

Yesterday, Goldman was stopped out of its inflationary Long Brent reco for a 15.5% loss (for the clients of course, not for the Goldman counterparty traders who made 15.5%). Today, it was time for Goldman to get stopped out on its Commodity Carry Basket, after the firm's 6.0% stop loss was triggered: "Spillover from gold and renewed European and EM macroeconomic concerns also created sharp sell-offs in crude oil and base metals, that were mostly front-end driven, crushing spreads (the carry), as longer-dated prices remained remarkably stable. This stopped us out of our CCB (Commodity Carry Basket) recommendation with the potential loss reaching our 6.0% stop." With gold now trading below the revised stop out target, we will watch to see if Goldman lower its target once more to buy even more paper gold that its clients are furiously selling.

Courtesy of Nanex, here are several depth of market charts showing how today's NFP number looked like through the eyes of the kneejerk response algos, and how quantized, sub-millisecond jumps in the "market" appear like in a day and age when virtually all the trading done is that by robots. And, oh yes, a statistically "noisy" number, such as today's jobs which is entirely lost in the seasonal adjustment, just somehow manages to wipe out all the market liquidity for what to a robot is an eternity. What happens when the shock is not just statistical noise?

Some people believe that by imposing losses on investors and reducing the Cyprus banking system liabilities, the European powers have addressed the problems in Cyprus (if harshly). A dangerous dynamic has been set in motion, which will likely bring many unintended consequrences.

Below are portions of a comment letter submitted by R.T. Leuchtkafer to the SEC on April 16, 2010, just 3 weeks before flash crash. The second paragraph in the excerpt below, unknowingly describes exactly how the flash crash was started. The letter goes on to alert the SEC on the dangers of High Frequency Trading (HFT), phantom liquidity and other concerns.

Gasoline prices in the U.S. Midwest have pulled back from the seasonal highs reported in February. Motor group AAA reported Monday that U.S. commuters paid, on average, $3.69 for a gallon of regular unleaded gasoline, just over 1 percent less than they paid last week. For some markets, that's the first time gasoline prices have declined this year. A series of refinery issues, coupled with higher oil prices, left some motorists in February paying the highest they've ever paid seasonally for a gallon of regular unleaded gasoline. By the end of February, some drivers in the Midwest were paying nearly $4 per gallon on average, sparking congressional debate over the impact of speculation in the energy market. Given concerns over costs associated with healthcare, insurance and other issues not related directly to energy, it's curious why there aren't hearings when prices begin to fall.