Crude Oil

As we reported previously, today Iran decided to launch a rather impromptu "massive" naval drill dubbed the Velayat 91, which will take place in the Oman Sea, North of Indian Ocean, in the Persian Gulf and East of Strait of Hormuz, and will cover an area of one million square kilometers right in the sweet zone of the US 5th Naval Fleet's AOR, where in addition to other resources, both the Stennis aircraft carrier and Peleliu amphibious warfare ship group are located. As PressTV reports, "On the first day of the drills, ships and submarines, will go to their locations and get ready for the tactical stage of the maneuvers. Forces in shores will also get ready for the tactical phase of the drills. In addition our 23rd fleet will be deployed to the high seas to protect commercial ships and oil tankers and to counter piracy in Gulf of Aden." All this will be taking place within kilometers of both the busiest seaborne transit corridor of crude oil in the world, as well as the headquarters of the US 5th Navy in Bahrain. What could go wrong.

Enjoy your job in North Dakota while you can as in four years, those shale oil projects are no longer sustainable.

Meanwhile in the always efficient crude oil markets... another asset class joins the inverse-Baumgartner crowd... Daniel Day-Lewis would be proud of this gusher...

Our biggest concern here on the cusp of 2013 is the current odd combination of extreme complacency about the risks presented by extend-and-pretend macro policy making and rapidly accelerating social tensions that could threaten political and eventually financial market stability. Before everyone labels us ‘doomers’ and pessimists, let us point out that, economically, we already have wartime financial conditions: the debt burden and fiscal deficits of the western world are at levels not seen since the end of World War II. We may not be fighting in the trenches, but we may soon be fighting in the streets. To continue with the current extend-and-pretend policies is to continue to disenfranchise wide swaths of our population - particularly the young - those who will be taking care of us as we are entering our doddering old age. We would not blame them if they felt a bit less than generous. The macro economy has no ammunition left for improving sentiment. We are all reduced to praying for a better day tomorrow, as we realise that the current macro policies are like pushing on a string because there is no true price discovery in the market anymore. We have all been reduced to a bunch of central bank watchers, only ever looking for the next liquidity fix, like some kind of horde of heroin addicts. We have a pro forma capitalism with de facto market totalitarianism. Can we have our free markets back please?

If fracking comes to your neighborhood, it may be a good idea to get in on some Reg D Private Placement offerings...

Back in 2010, an explosion at the deepwater horizon oil rig killed 11 workers and resulted in around 206 million gallons of crude oil leaking into the Gulf of Mexico over a period of three months, before the well was finally capped and sealed. In September an oil sheen was spotted about 50 miles off the Louisiana coast, and tests proved that it was indeed oil from BP’s infamous Macondo well. BP sent a probe down and saw that oil was indeed seeping from the containment dome, however by the 23rd of October they were able to declare the leak “plugged”. Despite this declaration more oil, in sheens of varying sizes, continues to surface around the Gulf of Mexico, discovered by satellite photos and aerial videos. Ed Markey, who led the initial investigation into BP after the spill back in 2010, has stated that history is repeating itself, concerned “that substantial amounts of oil could still be leaking from the wreckage," but BP is not releasing information to Congress.

In the past we have explored the life-cycle of a sovereign nation, and, perhaps more importantly when allocating capital to specific idiosyncratic investment ideas, we strongly believe, as Goldman notes below, that the competitive strengths of companies often stem from the advantages of the countries they reside in. These include a combination of resource availability (food, energy, mining and others), demographics, trade positioning, infrastructure quality and above all, the presence of strong, inclusive institutions that encourage innovation. So, what follows is Goldman's attempt to map the various success drivers of the world’s countries. Of course, the components of each category aren't exhaustive (and in some cases they are they overlapping), but we hope it is a good starting point from which to understand the fundamental advantages that some countries enjoy over others. Still think the U.S. is the greatest nation in the world? Try telling the Scandinavians...

After the success of the 'scariest charts for equity bulls', the following 12 charts are the most important, in CitiFX's view, to establish a 'starting point' for views on markets as we head into 2013. From employment trends echoing the 1970s, one-last-low in Treasury yields and '90s analogs, to EURUSD and its mid-'80s mirror, and the ongoing trend higher in gold; there is something here to scare equity and bond bulls and bears alike.

2012 has been a stellar year for oil and gas. From East Africa to North America, new technology, major new discoveries, an unparalleled appetite for exploration and a metamorphosing perception of risk have changed the playing field. We’re looking at potential rather than existing production, and here are our Top 5 picks for this year.

As of the end of November, the Consumer Discretionary sectot was the winner year-to-date with financials close behind (both up around 23%). The clear loser across asset classes is Crude Oil (down around 10%). We suspect at the start of the year that very few 'managers' or strategists would have expected anything like the distribution of outcomes that we see here - with EURUSD unchanged and Hedge Funds up just over 3% on average for the year. Some context for what 'could' happen in the remaining three weeks of the year.

Sweeping changes are taking place at the state level as pension trustees and legislatures push for higher monthly contributions to pension plans, a later retirement age and lower annual cost-of-living adjustments for current and retired workers. Unions (those that don't make Twinkles, in any event), are making the concessions because they can see the future absent shared sacrifice — the termination of defined benefit plans in favour of defined contribution plans. Be that as it may, employee contributions are going up — a de facto tax hike. And this will work directly against any upturn in consumer spending when you consider that the state and local government sector employ nearly 20 million people or 15% of the national job pie. So we will have less government, fewer entitlements and more whisperings that it isn't just the $250,000+ high-income households that are going to experience tax increases and diminished disposable income growth. This is shared sacrifice. To think that the nation could have ever gone to war in Iraq and in Afghanistan under the Bush regime, putting our troops at great risk not to mention the emotional scars on their families, while here at home civilians would be allowed to enjoy tax cuts and a debt-financed consumption binge.... One has to wonder what events could provide positive momentum to GDP growth, push corporate earnings to record highs as the consensus predicts as early as next year, or generate any lasting inflation, for that matter.  It's the people that make these pricing decisions. Businesses can only price up to what consumers are willing to pay. It is households that determine whether or not we have inflation, not some bureaucrat in Washington who believes he has control over some printing press.

1. Stay short AUD/NOK, opened at 5.90 on 03 Dec 2012, with a target of 5.00 and a stop on a close above 6.35, currently at 5.88.
2. Stay long risk (sell protection) on the CDX High Yield on-the-run index, opened at 506bp on 04 Dec 2012, with a spread target of 450 and a stop on a close above 550, currently at 516.
3. Go long the Commodity Carry Basket (Crude, Corn and Base), opened at 100 on 05 Dec 2012, with a target of 112 and a stop on a close below 94, currently at 100.

Right now the world produces more Oil than it consumes each day, and it has for the past 16 months, this trend will only get worse in 2013.

We noted the debacle that occurred at midnight Eastern last night but the impact of this sudden and completely unfounded voluminous surge in buying activity (on no news or rumors) was much more widespread than just e-mini S&P 500 futures. The other equity indices also tagged along and we saw volumes and quote-rates jump in EURUSD futures, but more so in Crude futures and AUD futures. Thanks to NANEX, the charts below show the millisecond-by-millisecond reality of a broad and deep-pocketed algo liftathon as most of the East coast was tucked up in bed and Europe had still to wake. PPT - who knows? But it seems unusual at best or someone somewhere getting a rather large tap on the shoulder to shut their entire futures book?

• Egypt protests continue in crisis over Mursi powers (Reuters)
• Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
• Executives' Good Luck in Trading Own Stock (WSJ)
• Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
• Eurozone states face losses on Greek debt (FT)
• Spain's rescued banks to shrink, slash jobs (Reuters)
• EU Approves Spanish Banks' Restructuring Plans (WSJ)
• At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
• China considers easing family planning rules (Reuters)
• European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
• And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
• Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
• Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
• Iran "will press on with enrichment:" nuclear chief (Reuters)