Crude Oil

Thirteen cars came off the tracks around 1 a.m. Saturday -- 9 of which were carrying liquefied petroleum gas and four that were carrying crude oil. The derailment prompted local officials to declare a state of emergency and the evacuation of the nearly hamlet of Gainford about 80km west of Edmonton. As AP reports, an eyewitness noted "the fireball was so big, it shot across both lanes of the Yellowhead (Highway)... there's fire on both sides." According to the latest reports, the train cars remain ablaze as the liquified hydrocarbons continue to leak. Parkland County police chief added "how it exploded and why is yet to be determined," but while only 2 injuries (CN employees) and no deaths have been reported, he noted "it's still a risky situation so we need to contain as much as possible and keep people far away." This explosion comes just 3 months after the disaster that too 47 lives in Lac-Megantic and once again raises questions over the safety of dramatically increased rail traffic from/to the Bakken.

If there is anything the market has shown in the past 16 days of government shutdown, which is set to reopen this morning in grandiose fashion following last night's 10 pm'th hour vote in the House, is that it no longer needs Washington not only to function but to ramp higher. All it needs is the Fed, which in turn needs an unlimited debt issuance capacity by the US Treasury which it can monetize indefinitely, which is why the debt ceiling was always the far more pressing issue. In other words, the good news is that the can has been kicked, and now the government workers (who will need about a week to get up to speed), can resume releasing various government data showing just how much 5 years of now-open ended QE have impaired the US economy, and why as a result, even more years of unlimited QE are in stock (because in a Keynesian world, what caused the problem is obviously what will fix it). The bad news: the whole charade will be repeated in three months. More importantly, with futures no longer having the hopium bogey on the horizon, namely the always last minute debt deal, they have finally sold off on the back of a weaker USD. It is unclear if the reason for this has more to do with climbing the wall of shorters which is now gone at least until February when the soap opera returns, or what for now, has been an absolutely abysmal Q3 earnings season. Luckily, in a centrally-planned world, plunging stocks is bullish for stocks, as it means even more Fed intervention, and so on ad inf.

For all expectations of a big jump in US futures overnight on the largely priced in Janet Yellen nomination announcement which is due at 3 pm today, the move so far has been very much contained, as expected, with a modest 90 minute halflife, as the markets' prevailing concern continues to be whether the debt ceiling negotiation will be concluded by the October 17 deadline or if it would stretch further forcing the government to prioritize payments. There is however some hope with Bloomberg reporting that some possible paths out of the debt impasse are starting to emerge with less than a week before U.S. borrowing authority lapses after Obama said he could accept a short-term debt-limit increase without policy conditions that set the terms for future talks. Whether this materializes or just leads to more empty posturing and televized press conferences is unclear, although as Politico reports, the stakes for republicans are getting increasingly nebulous with some saying they are "losing" the fight, while the core GDP constituency is actually liking the government shutdown.

Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.

If yesterday was the paradoxical government shutdown "relief rally" pushed higher by a last minute VIX smashing ramp, today reality is starting to set in and global stocks and US futures are set to open lower. The FTSE MIB remains the only European bourse to trade in positive territory in today’s session, having touched upon 2 year highs as it is expected the political tumult that threatened to cause a collapse of the Italian government will be resolved today even as the latest news indicate Berlusconi's PDL will support the Bunga godfather after all. Other European equities have failed to benefit from this as market participants remain cautious ahead of the ECB rate decision today when Draghi may or may not (most likely) announce a new LTRO.

Back in August, just after the false flag chemical weapon attack in Syria, we showed that despite all the posturing by the Obama administration (and, of course, France's belligerent, socialist leader Francois Hollande), the nation behind the entire Syrian campaign was not one of the "democratic", Western nations but none other than close neighbor Saudi Arabia, and the brain orchestrating every move of the western puppets was one Bandar bin Sultan, the nation's influential intelligence chief. We also explained the plethora of geopolitical and mostly energy-related issues that Saudi and Qatar had at stake, which they were eager to launch a regional war over, just to promote their particular set of selfish interests. A month later, in clear confirmation that this was precisely the case, the WSJ reported that the recent overtures by Obama, brilliantly checkmated by Putin, to push for a peaceful resolution with not only Syria, but suddenly Iran as well, has managed to infuriate Saudi Arabia: traditionally one of the US' closest allies in the region and the key source of crude oil to the western world.

The recent drop in WTI crude oil prices has brought out the ubiquitous "well, that's a tax cut for the US consumer" recency-biased talking-heads always looking for a silver-lining to justify something. What they fail to notice, is at $103.57, this is the highest price WTI crude oil has ever been at the end of September. The reason timing is important is the annual cycle of oil prices means comparing Summer with Winter and so on is misleading. So is the highest price ever for oil in the Fall still a positive for the economy?

Early weakness in Asia driven by US-follow thru selling and ongoing concerns about the us fiscal showdowns as well as the debt ceiling, if not by actual news, resulted in a red close in both the Nikkei and SHCOMP, as well as other regional indices such as the Sensex. This then shifted to Europe, where however stocks reversed the initial move lower and are seen broadly flat, with Bunds remaining bid on the back of month-end, as well as coupon and redemption related flows. However the move higher in stocks was led by telecommunications and health care sectors, which indicates that further upside will require another positive catalyst. There was little in terms of fresh EU related macroeconomic commentary, but according to a report published by the European Banking Authority, the EU’s biggest 42 banks cut their aggregate capital shortfall with respect to the “fully loaded” 2019 Basel III requirements to €70.4bln as of December 2012. This is amusing since not one European bank has actually raised capital, but merely redefined what constitutes capital courtesy of a liberal expansion of RWA, Tier 1 and various other meaningless definition which works until such time as the perilous European balance kept together by the non-existent OMT, is tipped over.

With WTI crude oil prices hovering at record levels for this time of year, the spread to Brent crude has bounced from zero as Syria started up to around $4.50. At the time time we noted the plunge in the spread was as much related to US infrastructure and technical issues as the war premium and now Pierre Andurand, manager of one of this year's most successful commodity hedge funds, believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market. As The FT reports, the ex-Goldman trader is known for taking bold positions, and while not commenting in specific trades, he noted "In order for Cushing inventories to stop drawing and start building, I think WTI [the US benchmark] should be at a premium to Brent [the global benchmark]," within weeks.

The Venezuelan government is in a bind. They realize that 'the people' will stand-by idly as the nation's currency is devalued, as inflation soars, and blackouts continue as food shortages grow...(and the stock market soars) but take away a critical personal care item and the riots will begin. As Yahoo Maktoob reports, Venezuela's leftist government said Saturday it temporarily seized a major toilet paper factory hoping that it can end troublesome shortages of the staple personal care item. "The temporary occupation of [the toilet-paper manufacturing plant] is aimed at verifying that toilet paper industry production, marketing and distribution" are all in line with state policies, Vice President Jorge Arreaza said on Twitter, without indicating how long the takeover would last. This action follows 'nationalization' of large farms amid President Maduro's claims that the White House is plotting the "collapse" of his government next month by sabotaging food, electricity and fuel supplies.

The end. The dollar collapsing into zero interest is like a spacecraft crashing into a black hole. The singularity's pull is irresistable.

With rumors this evening of the White House calling around for support for Yellen, Marc Faber's comments today during a Bloomberg TV interview are even more prescient.  Fearing that Janet Yellen "would make Bernanke look like a hawk," Faber explains that he is not entirely surprised by today's no-taper news since he believes we are now in QE-unlimited and the people at the Fed "never worked a single-day in the business of ordinary people," adding that "they don't understand that if you print money, it benefits basically a handful of people." Following today's action, Faber is waiting to seeing if there is any follow-through but notes that "Feds have already lost control of the bond market. The question is when will it lose control of the stock market." The Fed, he warns, has boxed themselves in and "the endgame is a total collapse, but from a higher diving board."

The day when the Fed will begin the unwind of its latest QE program (for the fourth time) has finally arrived (as has the day when an impeachment committee will vote whether to ban Berlusconi from public office, but understandably that is getting far less press). In a few short hours the answer to all those questions of whether and how much of the taper was priced in, will be revealed. But while the Taper discussions will dominate the airwaves, as they have for the past five months, there actually were some news in the world that had nothing to do with the US Politburo in charge of capital markets and the US economy, located in the Marriner Eccles building. Here is a brief summary.

While the only market moving event of note had nothing to do with the economy (as usual), and everything to do with the Fed's potential propensity to print even more dollars and inject even more reserves into the stock market (now that Summers the wrongly perceived "hawk" is out) some other notable events did take place in the Monday trading session. Of note: while India's August inflation soared far higher than the expected 5.7%, rising to 6.1% from 5.79% (making life for the RBI even more miserable, as it is fighting inflation on one hand, and a lack of liquidity on the other), in Europe inflation decelerated to 1.3% from 1.6% in July driven by a drop in energy prices, while core inflation was a tiny 1.1%. In a continent with record negative loan growth this is to be expected. Additionally, as also reported, Merkel appears to be positioned stronger ahead of this weekend's Federal election following stronger results for her CDU/CSU, if weaker for her broader coalition. In Libya, oil protesters said they would continue stoppages at oil terminals until their demands are met in yet another startling outcome for US foreign intervention. Finally, some headline on Syria noted a Kerry statement "will not tolerate avoidance of a Syria deal", while Lavrov observed that it may be time to "force Syria opposition to peace talks." And one quote of the day so far: "Don't want market to become excessively exuberant" from the ECB's Mersch- just modestly so?

• U.S., Russia to push for new Syria peace talks (Reuters)
• Elite Syrian Unit Scatters Chemical Arms Stockpile (WSJ)
• Obama to nominate Summers as Fed chief: Nikkei (Reuters)
• Boehner Wants Joint Talks on Debt, Budget (WSJ)
• House Republicans go for broke in fiscal battles (Reuters)
• Pimco, BlackRock Together Received More Than a Quarter of Verizon's $49 Billion Bond Deal (WSJ)
• Insane financial system lives post-Lehman (Gillian Tett)
• JPM to add $2.5 billion to its litigation reserves in the second half of the year (WSJ)
• Goldman’s Zurich offices visited over working-hours complaint (FT)