Baltic Dry Index. 814 -13 Brent Crude 59.41
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
There can be few
fields of human endeavour in which history counts for so little as in the world
of finance. Past experience, to the extent that it is part of memory at all, is
dismissed as the primitive refuge of those who do not have the insight to
appreciate the incredible wonders of the present.
J. K. Galbraith.
Once upon a time in stocks, make believe.
U.S. Futures, Asia Stocks Extend Rally as Oil Pares Drop
Dec 19,
2014 6:08 AM GMT
U.S. equity-index futures rose with Asian stocks (MXAP), extending a global surge in shares
as the regional index headed for its steepest two-day advance in 13 months.
Crude oil pared a fourth weekly decline, the euro traded near a two-year low
and wheat fell. Futures on the Standard & Poor’s 500 Index advanced 0.5 percent by 3:07 p.m. in Tokyo after the gauge capped its best two-day advance since 2011 in New York. The MSCI Asia Pacific Index jumped 1.8 percent after a 0.7 percent gain yesterday. Japan’s Topix index climbed 2.4 percent as the yen traded at a one-week low. Oil in the U.S. rose 1.4 percent after sliding 6.4 percent in the first four days of the week. The euro bought $1.2286 and wheat dropped 1.6 percent.
The Bank of Japan held monetary policy steady today, almost two months after unexpectedly boosting stimulus amid a recession in Asia’s second-largest economy. The MSCI All-Country World Index is headed for its steepest weekly advance since the end of October after the Federal Reserve pledged patience on raising U.S. interest rates and as Switzerland’s central bank introduced negative deposit rates. Russian President Vladimir Putin said the country can withstand an economic downturn as plunging oil prices undermine the ruble.
“We’re seeing a relief rally,” said Koichi Kurose, who oversees about 6 trillion yen ($50 billion) as Tokyo-based chief market strategist at Resona Bank Ltd. “The Fed saying they won’t move toward tightening soon, and Putin saying Russia won’t end up in financial turmoil has helped to alleviate fears. While we’re still concerned as to how low oil prices can go, for now it has rebounded, which is good for risk sentiment.”
Fed
Chair Janet
Yellen said this week that policy makers are likely to hold key rates near
zero at least through the first quarter, even as the U.S. economy
strengthens. The central bank, in a statement after its last meeting of 2014,
replaced a reference to borrowing costs staying low for a “considerable time”
with a pledge to be patient on the timing for higher rates.
----U.S. investors celebrated a reprieve from energy angst and Russia with the biggest post-Federal Reserve rally in three years. The S&P 500 surged 4.5 percent in the last two days, erasing four-fifths of the seven-day decline that began Dec. 5 and wiped out about $1 trillion of equity value. The gauge pulled within 1 percent of its all-time high as Apple Inc., Berkshire Hathaway and Johnson & Johnson led the advance.
After two weeks in which traders grew obsessed with headlines about OPEC and Russia’s central bank, the rally was ignited by a more familiar institution: Janet Yellen’s Federal Reserve. More than 500 points has been added to the Dow Jones Industrial Average in the nearly nine hours U.S. exchanges have operated since she pledged patience in raising interest rates.
More
Reality.
North Sea oilfields ‘near collapse’ after price nosedive
Warning over the future of North Sea oil comes as Iran and Saudi Arabia bicker over the falling price of crude
The North Sea oil industry is
“close to collapse”, an expert has warned, as a slump in prices piles pressure
on drillers to cut back investing in the region.
Robin Allan, chairman of the
independent explorers’ association Brindex, told the BBC that it is “almost
impossible to make money” with the oil price below $60 per barrel.
“It’s a huge crisis. This has
happened before, and the industry adapts, but the adaptation is one of slashing
people, slashing projects and reducing costs,” he said.
Mr Allan’s glum outlook for oil
production and exploration in the UK Continental Shelf came on a volatile day
of trading for crude. Brent – a global pricing benchmark comprising crude from
15 North Sea fields – ended trading in London down 1pc at around $60 per barrel
after trading up by as much as 3pc earlier in the session.
Oil is down around 45pc since
June amid concerns about oversupply and weakening global demand.
Mr Allan’s warning comes after The Telegraph reported that £55bn worth of oil projects in
the North Sea and Europe could be cancelled due to the current slide in prices,
according to consultancy Wood Mackenzie.
More
Oil Crash Exposes New Risks for U.S. Shale Drillers
Dec 19, 2014 3:56 AM GMT
Tumbling oil prices have exposed a weakness in the insurance that some U.S.
shale drillers bought to protect themselves against a crash. At least six companies, including Pioneer Natural Resources Co. (PXD) and Noble Energy Inc. (NBL), used a strategy known as a three-way collar that doesn’t guarantee a minimum price if crude falls below a certain level, according to company filings. While three-ways can be cheaper than other hedges, they can leave drillers exposed to steep declines.
“Producers are inherently bullish,” said Mike Corley, the founder of Mercatus Energy Advisors, a Houston-based firm that advises companies on hedging strategies. “It’s just the nature of the business. You’re not going to go drill holes in the ground if you think prices are going down.”
The three-way hedges risk exacerbating a cash squeeze for companies trying to cope with the biggest plunge in oil prices this decade. West Texas Intermediate crude, the U.S. benchmark, dropped 50 percent since June amid a worldwide glut. The Organization of Petroleum Exporting Countries decided Nov. 27 to hold production steady as the 12-member group competes for market share against U.S. shale drillers that have pushed domestic output to the highest since at least 1983.
WTI for January delivery rose 31 cents to $54.42 a barrel in electronic trading on the New York Mercantile Exchange at 11:51 a.m. Singapore time.
Shares of oil companies are also dropping, with a 49 percent decline in the 76-member Bloomberg Intelligence North America E&P Valuation Peers index from this year’s peak in June. The drilling had been driven by high oil prices and low-cost financing. Companies spent $1.30 for every dollar earned selling oil and gas in the third quarter, according to data compiled by Bloomberg on 56 of the U.S.-listed companies in the E&P index.
Financing costs are now rising as prices sink. The average borrowing cost for energy companies in the U.S. high-yield debt market has almost doubled to 10.43 percent from an all-time low of 5.68 percent in June, Bank of America Merrill Lynch data show.
More
Central Banks Are Now Uncorking The Delirium Phase
by David Stockman •
Virtually every day there is an
eruption of lunacy from one central bank or another somewhere in the world.
Today it was the Swiss central bank’s turn, and it didn’t pull any punches with
regard to Russian billionaires seeking a safe haven from the ruble-rubble in
Moscow or investors from all around its borders fleeing Mario Draghi’s
impending euro-trashing campaign. The essence of its action was
that your money is not welcome in Switzerland; and if you do bring
it, we will extract a rental payment from your deposits.
For the time being, that levy
amounts to a negative 25 bps on deposits with the Swiss Central bank—-a
maneuver that is designed to drive Swiss Libor into the realm of negative
interest rates as well. But the more significant implication is that the Swiss
are prepared to print endless amounts of their own currency to enforce this
utterly unnatural edict on savers and depositors within its borders.
Yes, the once and former pillar
of monetary rectitude, the SNB, has gone all-in for money printing. Indeed, it
now aims to become the BOJ on steroids—-a monetary Godzilla.
So its current plunge into
the netherworld of negative interest rates is nothing new. It’s just
the next step in its long-standing campaign to put a floor under the
Swiss Franc at 120. That means effectively that it stands ready to print
enough francs to purchase any and all euros (and other currencies) on
offer without limit.
And print it
has. During the last 80 months, the SNB’s balance sheet
has soared from 100B CHF to 530B CHF——a 5X explosion that would make
Bernanke envious. Better still, a balance sheet which stood at 20% of Swiss GDP
in early 2008—-now towers at a world record 80% of the alpine nation’s total
output. Kuroda-san, with a balance sheet at 50% of Japan’s GDP, can only pine
for the efficiency of the SNB’s printing presses.
As per the usual Keynesian folly,
this is all being done in the name of protecting Switzerland’s fabled export
industries.
Let’s see. During the most recent
year, Switzerland did export $265 billion of goods, representing an impressive
41% of GDP. But then again, it also imported $250 billion of stuff.
Accordingly, for every dollar of watches, ball point pens, (Logitech) mouses,
top-end pharmaceuticals and state of the art high speed elevators it exported,
it imported 95 cents worth of petroleum, raw and intermediate materials,
semi-finished components and expensive German cars.
Accordingly, allowing the market
to drive its FX rate below the magic 120 floor (i.e. appreciating the CHF)
would not bring on Armageddon —just a reduction in its giant import bill to
offset any loss of earnings from its export trades. Instead,
however, the mad money printers at the SNB are pursuing an altogether different
financial proposition. Namely, they are going massively and incorrigibly
“long” the Euro, and, in fact, have already stuffed their bulging one-half
trillion dollar balance sheet with vast emissions of the
ECB’s unwanted euros.
Now why in the world would any
rational investor want to get massively long the squabbling, dissembling
monetary crackpots who run the ECB and the even worse gang of self-serving
parasites who urge them on from Brussels?
More
David Stockman: Energy Crunch Will Morph Into a Replay of the Housing Crash
by Contributor •
By John Morgan at MoneyNews
The spiraling energy meltdown is
the new housing crash, according to David Stockman, White House budget chief in
the Reagan White House.Just as the 2007-09 housing plunge did not put a dime
into consumers’ pockets — even though average home prices tanked by about 30
percent, from $230,000 to $165,000 — the energy crunch likewise is not going to
add to consumer wallets, Stockman asserts.At the peak of the mortgage boom, he
notes, the U.S. savings rate had actually vanished, falling to about 2.5
percent of personal income from pre-Greenspan rates of 10 percent to 12.5
percent.
“Stated differently, the mortgage
credit boom exploded uncontrollably in the run-up to the financial crisis
because free-market pricing of debt and savings had been totally distorted and
falsified by the monetary central planners at the Fed,” Stockman writes on his Contra Corner
blog.
“Drastic mispricing of savings
and mortgage debt in this instance touched off a cascade of distortions in
spending and investment that did immense harm to the main street economy
because they induced unsustainable economic bubbles to accompany the financial
ones.”
Now Stockman predicts it will be
deja vu all over again for Federal Reserve Chair Janet Yellen and her minions
at the Fed.
“Substitute the term ‘E&P
[exploration and production] expense’ in the shale patch for ‘housing’
investment and employment in the sand states, and you have tomorrow’s graphs —
that is, the plunging chart points which are latent even now in the crude oil
price bust. But the full story of the housing bust also reminds that the long
caravans of pick-up trucks which will soon be streaming out of the Bakken in
North Dakota will represent only the first round impact.”
According to Stockman, the
Fed-driven energy distortion crossed national borders, and into the willing
hands of other central banks, as the “Fed exported bubble finance to the entire
world.”
“Between 2000 and 2014, China’s
credit outstanding soared from $1 trillion to $25 trillion. Consequently, its
credit-swollen GDP expanded from $1 trillion to $9 trillion in a comparative
heartbeat; and its crude oil consumption soared from 2 million barrels per day
to 8 million.”
Stockman sees more shoes to drop,
as the “lunatic junk bond yields” stemming from billions of dollars in bad
loans to the energy industry start to unravel.
“But there is something else even
more significant. The global oil price collapse now unfolding is not putting a
single dime into the pockets of American households — the CNBC talking heads to
the contrary notwithstanding. What is happening is the vast flood of mispriced
debt and capital, which flowed into the energy sector owning to the Fed’s
lunatic ZIRP [zero interest rate policy] and QE [quantitative easing] policies,
is now rapidly deflating,” he explains.
More
Exxon Mobil Shows Why U.S. Oil Output Rises as Prices Plunge
Dec 18, 2014 9:40 PM GMT
Crude oil production from U.S. wells is poised to approach a 42-year record
next year as drillers ignore the recent decline in price pointing them in the
opposite direction. U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells.
Oil companies, while trimming 2015 budgets to cope with the lowest crude prices in five years, are also shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. Global giant Exxon Mobil Corp. (XOM), the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers would be crushed by cratering prices has been a bust.
Crude oil production from U.S. wells is poised to approach a 42-year record next year as drillers ignore the recent decline in price pointing them in the opposite direction.
U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells.
Oil companies, while trimming 2015 budgets to cope with the lowest crude prices in five years, are also shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. Global giant Exxon Mobil Corp. (XOM), the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers would be crushed by cratering prices has been a bust.
“Companies that are already producing oil will continue to operate those wells because the cost of drilling them is already sunk into the ground,” said Timothy Rudderow, who manages $1.5 billion as chief investment officer at Mount Lucas Management Corp. in Newtown, Pennsylvania. “But I wouldn’t want to have to be making long-term production decisions with this kind of volatility.”
----
Existing wells remain profitable even as benchmark crude futures hover near the
$55-a-barrel mark because operating costs going forward are usually $25 or
less, Tom Petrie, chairman of Petrie Partners Inc., said in a Dec. 15 interview
on the Bloomberg Surveillance television program.
More
And did they all live happily ever
after?
“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."
J. K. Galbraith. The Great Crash: 1929.
At the Comex silver
depositories Thursday final figures were: Registered 64.59 Moz, Eligible 110.84
Moz, Total 175.43 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
J. K.
Galbraith.
China’s GDP Revision Adds Output Equal to Malaysian Economy
Dec 19, 2014 4:53 AM GMT
China revised the size of
the economy by $308.8 billion, adding almost the entire output of Malaysia. The gross domestic product of the world’s second-largest economy was 58.8 trillion yuan in 2013, according to the results of a nationwide economic census announced today. That’s 3.4 percent larger than the previously reported figure. Malaysia’s 2013 GDP was $312 billion.
The size of the revision was smaller than the last time China made a similar change in 2008, reflecting more accurate counting of a rapidly expanding services industry. The larger GDP makes China’s debt look smaller by comparison, which may give policy makers more room to maneuver as they seek ways to bolster growth set to be the lowest since 1990 this year.
----The revision will barely affect the 2014 GDP growth rate, the National Bureau of Statistics said in a statement today. Tertiary industry’s share of GDP is revised to 46.9 percent from 46.1 percent, it said, reflecting a more active services sector.
“The economic structure is shown more balanced after the census,” analysts at China International Capital Corp. including chief China economist Liang Hong, said in a report today. They said consumption would be higher and the growth rate in the past five years will probably be revised up.
The economic census is conducted about every five years to gather information on the manufacturing and services industries. Over 10 million businesses and about 60 million enterprises were visited early this year by about 3 million census takers, according to the official Xinhua News Agency.
The past two censuses led to a 16.8 percent boost to 2004 GDP and a 4.4 percent increase in 2008. Ma Jiantang, the head of the National Bureau of Statistics, said Dec. 16 that China would revise 2013 GDP upward by “a bit more than 3 percent.”
More
Reality.
Macau Casinos Drop $75 Billion as China's Crackdown Continues
Dec 19, 2014 6:04 AM GMT
As Xi Jinping makes his first visit to Macau as China’s president
this week, the city’s casinos would like to hear a reassuring word that might
revive their tumbling stock prices. They’re not likely to get it. Xi, who arrived today to mark the 15th anniversary of the former Portuguese enclave’s return to Chinese rule, is the man responsible for the two-year campaign against corruption in China, scaring away high rollers who have helped make Macau the world’s largest casino gambling hub and wiping out $75 billion of casino operators’ market value -- bigger than the entire economy of Luxembourg.
Macau, half of the size of Manhattan and the only place in China where casinos are legal, is viewed as a conduit for officials and businessmen to bypass currency controls and send money out of the mainland to safer havens. While anti-graft campaigns have been short-lived in the past, Xi is stepping up the effort in a bid to bolster the legitimacy of the ruling Communist Party.
“It’s more important for China’s government to see Macau in a healthy economic development, and the reliance on corrupted official gamblers is not healthy,” said Chen Guanghan, deputy director of the Chinese Association of Hong Kong and Macau Studies, a policy research institute backed by China’s government.
More
"We
pay the debts of the last generation, by issuing bonds payable by the
next generation."
Dr. Laurence J. Peter, author, The Peter Principal.
One last shopping weekend to the
celebration of the birth of Christ. Yet another unintended consequence of the
Great Nixonian Error of fiat money. Have a great weekend everyone.
Set in Camelot, Arthur and Guinevere have a daughter. At the Blessing of Princess Aurora, the Fed’s “talking chair” arrives and sets an evil curse on the child, forcing the child into paying off the national debt….
Apologies to Richard Gauntlett.
The monthly Coppock Indicators finished November.
DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.
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