You may be familiar with the story of how the US government confiscated gold bullion and then made owning it illegal back in 1933. Actually this event is more accurately termed a nationalization. Americans were forced under harsh penalties to sell their gold at an artificially low “official price.” Many have speculated that the US government could once again turn to gold confiscation/nationalization if it became desperate enough. But would the US government really turn to a 1933-style grab again? We would argue that they wouldn’t, but that doesn’t mean the threat to your gold has diminished. Quite the opposite.
From Arab Spring-related uprisings in Libya or Egypt, to a civil war in Syria and now violence in Iraq and the Ukraine, geopolitics are impacting oil. True, geopolitical risk measured by combat deaths does not always correlate well with market volatility. But wars and conflict are easy to spot on an oil price series. With combat deaths rising four fold in the last 10 years, oil markets should prepare for more turmoil. BofA 's Francisco Blanch asks "Can the US preserve geopolitical stability?" America still takes up 38% of global military spending, but appetite for foreign adventures has been low. As an example, a drop in US combat deaths in recent years has been mirrored by a rise elsewhere. Following a drop to multi-decade lows, implied vol in long dated oil options at 15% looks cheap. Oil after US hegemony may not be as steady.
Overview of the technical outlook for the major currencies, bonds, Treasuries, stocks, CRB and oil.
Crude Oil and gasoline prices have been sliding notably recently, but, as Carl Larry, president of Oil Outlooks & Opinions LLC in Houston notes, "the focus is definitely on the U.S. and on concern about demand as we head into the maintenance season." While Brent remains more concerned about Russia and Ukraine, WTI is "focused on supply, demand fundamentals," which with production surging, leaves "everybody wondering if demand will stay steady. People are reducing risk exposure now." What we wonder is - does that explain why the US Oil Rig Count dropped this week by its most since 2012...?
Lately it is not just trains blowing up across the country in the ongoing effort to prove just how safer rail transport is for crude oil transit compared to pipelines: as citizens of Cincinatti found out this morning, their drinking water may come with an added kick after thousands of gallons of diesel fuel spilled out onto the Ohio River after an incident at a power plant early Tuesday. According to WCPO, the Coast Guard said it estimated about 8,000 gallons of fuel spilled out from Duke Energy’s W.C. Beckjord power station outside of Cincinnati.
With global GDP expectations plumbing new depths (at 2.48% consensus for 2014), one could understand why it is that 30Y US Treasury yields are at 16-month lows, that Dr.Copper is tumbling, and crude oil prices slumping. But apart from the fundamentals of global macro strength, what - at almost record highs - does the US equity market know that every other asset class does not...
The current US air strikes in Iraq are unlikely to have a significant impact on defense spending or oil prices, Goldman Sachs writes, unless the scale of the conflict changes considerably. Evidence from past US conflicts that were similar in scale also suggests little impact on confidence and at most mixed evidence of a flight-to-safety effect in financial markets. The exchange of sanctions with Russia - a relatively minor US trading partner - is also likely to have only a modest impact on the US economy. Of course, Goldman caveats, both situations are highly unpredictable; as they expect little reaction to recent events from Fed officials, who have generally not discussed conflicts of this magnitude unless accompanied by other economic concerns, such as a large rise in oil prices.
If You Believe The Oil Bull Market Is Over, This Is How To Monetize Your Perspective With Up To 4x LeverageSubmitted by Reggie Middleton on 08/14/2014 13:08 -0400
Ways for retail investors, and institutions small and large, to monetize a fundamental or economic outlook that the muppet masters will never tell you!
Despite global geopolitical crises exploding among the world's biggest producers of oil, WTI (and Brent) crude oil prices have tumbled to 5-month lows (WTI At $96). Despite the exuberant PMIs in China, Copper and Iron ore prices are collapsing (2-month lows). One can't help but wonder what global 'economic growth' must really be like if 'demand' for all these crucial growthy commodities looks so weak?
If it was crashing German business confidence yesterday setting the somber mood for European economic "growth" in the second half, with a European GDP decline if not outright contraction now almost practically inevitable, then overnight it was disappointing data from virtually every other spot in the globe (and Europe again) to hammer the message in, starting with a historic 6.8% drop in Japanese GDP driven by a record plunge in consumption, quickly followed by total social financing out of China which in aggregate rose by only RMB273.1bn in July, or just 18% of what was expected, with missing industrial production and retail sales just the cherry on top. Then it was Europe's turn again, where June Industrial Production contracted -0.3% on expectations of a 0.4% increase, to set the stage for tomorrow's Eurozone GDP print which, following Italy's triple-drip recession shocker last week, probably means it will be not only Japan but also Europe which are about to have taken a sharp move for the worse. All of which of course, explains why just as Europe opened, the USDJPY blasted off and took both EuroSTOXX and US equity futures higher with it, and at last check ES was some 10 higher.
As stocks soar higher amid dismal volumes, Treasury yields remain trapped in a very narrow range and just slipped lower on the day. It seems bonds don't believe the world's geopolitical carnage is over...
We frequently see stories telling us how well the United States is doing at oil extraction. The fact that there are stories in the press about the US wanting to export crude oil adds to the hype. How much of these stories are really true? A major concern with falling per-capita energy consumption it that the financial system may soon reach limits where it is stretched beyond what it can stand. The economy needs energy growth to grow, but the economy is not getting it.
- Russia bans all U.S. food, EU fruit and vegetables in sanctions response (Reuters)
- Snowden receives three-year Russian residence permit (Reuters)
- Headline of the day: Europe's Recovery Menaced by Putin as Ukraine Crisis Bites (BBG)
- Americans worry that illegal migrants threaten way of life, economy (Reuters)
- Almost 90% of Uninsured Won't Pay Penalty Under the Affordable Care Act in 2016 (WSJ)
- Germany’s Bond Advance Sends 2-Year Note Yield Below Zero (BBG)
- Gaza War’s Critics in Crosshairs as Israelis Back Offensive (BBG)
- The 1% May Be Richer Than You Think, Research Shows (BBG)
- Bank of America Near $16 Billion to $17 Billion Settlement (WSJ)
- Deep Water Fracking Next Frontier for Offshore Drilling (BBG)
The White House has previously said that talks between Russia and Iran were a matter of "serious concern". Currency wars are set to escalate as the petro dollar’s decline continues. U.S. and European Union sanctions against Russia threaten to hasten a move away from the petro dollar that’s been slowly occurring since the global financial crisis.
While bonds and stocks shrug off the volatility in FX markets, it appears the crude oil complex is suffering. Despite Putin's discussion of "countermeasures", crude oil prices have tumbled back under $97 to fresh 6-month lows. Brent Crude is notably not selling off (yet) as the spread pushed back above $8.