Baltic Dry Index. 761 Brent Crude 50.53
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"Liquidation
sometimes is orderly, but more frequently degenerates into panic as the
realization spreads that there is only so much money, not enough to enable
everyone to sell out at the top."
Charles
P. Kindleberger, Manias, Panics and Crashes.
Bunker time has arrived. And I don’t mean President Obama hitting the
bunker on a golf course in Hawaii. Uncle Scam’s undeclared war on Russia and
Saudi Arabia’s undeclared oil war on American frackers, seems to have triggered
a collapse in confidence in our greatly disconnected global stock markets. With
the real world economy now only a heartbeat away from implosion, a Great
Reconnect is getting underway at the start of 2015. A rolling wave of lay-offs,
capital expenditure cutbacks, and debt defaults is our destiny for at least the
first half of 2015. “Buy the dips” in stock markets is so last century. As
margin calls mount and a new reality sinks in to the oil sector and wider
economy, sell everything and anything comes next when panic sets in. And panic
will set in once the reality rises that getting out early beat getting out last
in a world of collapsing energy and commodity prices.
Banks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover
Asian Stocks Extend Drop, Led by Energy Companies on Oil Plunge
Jan 7, 2015 12:10 AM GMT
Asian stocks fell, after yesterday sinking the most in nine months,
as U.S. equities extended declines and the slump in crude oil deepened. The MSCI Asia Pacific Index (MXAP) declined 0.3 percent to 134.57 as of 9:03 a.m. in Tokyo, with energy companies dropping the most. The Asian gauge slumped 1.7 percent yesterday and the Standard & Poor’s 500 Index fell for a fifth day, extending the longest losing streak in 13 months. West Texas Intermediate oil sank below $48 a barrel in New York amid speculation data on U.S. supplies today will fuel concern over a global glut.
“With the U.S. markets again under pressure, the lead for Asia looks bleak,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today. “Until oil finds bottoms, the markets will remain in a downward trajectory.”
Japan’s Topix index dropped 0.5 percent. Short-selling on the Tokyo Stock Exchange reached 37.8 percent of total trading value yesterday, the highest since at least October 2008, when bourse data became available.
South Korea’s Kospi index fell 0.2 percent. Australia’s S&P/ASX 200 Index slid 0.6 percent, while New Zealand’s NZX 50 Index lost 0.2 percent.
More
Russia faces 'perfect storm' as reserves vanish and derivatives flash default warnings
BNP Paribas says Russia no longer has enough reserves to cover external debt and enters this crisis 'twice as levered' as it was before the Lehman crash
Russia’s foreign reserves have
dropped to the lowest level since the Lehman crisis and are vanishing at an
unsustainable rate as the country struggles to defends the rouble against
capital flight.
Central bank data show that a
blitz of currency intervention depleted reserves by $26bn in the two weeks to
December 26, the fastest pace of erosion since the crisis in Ukraine erupted
early last year.
Credit defaults swaps (CDS)
measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by
100 basis points to 630, before falling back slightly.
Markit says this implies a 32pc
expectation of a sovereign default over the next five years, the highest since
Western sanctions and crumbling oil prices combined to cripple the Russian
economy.
Total reserves have fallen from
$511bn to $388bn in a year. The Kremlin has already committed a third of what
remains to bolster the domestic economy in 2015, greatly reducing the amount
that can be used to defend the rouble.
The Institute for International
Finance (IIF) says the danger line is $330bn, given the dollar liabilities of
Russian companies and chronic capital flight.
Currency intervention did
stabilise the exchange rate in late December after a spectacular crash
threatened to spin out of control, but relief is proving short-lived.
The rouble weakened sharply to 64
against the dollar on Tuesday. It has slumped moe than 20pc since Christmas,
with increasing contagion to Belarus, Georgia and other closely-linked
economies.
More
Bill Gross Says the Good Times Are Over
Jan 6, 2015 9:45 PM GMT
Bill Gross, the former manager of the world’s largest
bond fund, said prices for many assets will fall this year as record-low
interest rates fail to restore sufficient economic growth. With global expansion still sputtering after years of interest rates near zero, investors will gradually seek alternatives to risky assets, Gross wrote today in an investment outlook for Janus Capital Group Inc., where he runs the $1.2 billion Janus Global Unconstrained Bond Fund.
“When the year is done, there
will be minus signs in front of returns for many asset classes,” Gross, 70,
wrote in the outlook. “The good times are over.”
Six years after the end of the
financial crisis, borrowing costs in the world’s richest nations are stuck near
zero, a sign investors have little confidence that their economies will
strengthen. Gross, the former chief investment officer of Pacific Investment
Management Co. who left that firm in September to join Janus, has argued the
Federal Reserve won’t raise interest rates until late this year if at all as
falling oil prices and a stronger U.S. dollar limit the central bank’s room to
increase borrowing costs.
More
Why Oil Is Dragging Down the S&P
Jan 7, 2015 12:00 AM GMT
Why does falling oil, a boon to consumers, keep knocking down the Standard
& Poor’s 500 Index? To Bank of America Corp., it’s because of the
possibility companies will cancel plans for capital
spending. Earnings in the benchmark gauge for American equities may be as much as $6 a share lower than analysts forecast this year should oil stay below $50 a barrel, according to Savita Subramanian and Dan Suzuki, New York-based strategists at Bank of America. The S&P 500 (SPX) has declined 4.2 percent since Dec. 29, sliding for five straight days as West Texas Intermediate crude fell below $49 a barrel for the first time since 2009.
While the 55 percent retreat in oil since June is good for stores and restaurants, it’s a mistake to overestimate the importance of those industries to the S&P 500, Suzuki said. Equities take a bigger cue from business spending, and because so much of that is tied to commodities the net effect of lower oil on earnings over the next few months is negative.
“The direct impact to profits in the energy sector and energy-related companies in the industrials sector far outweighs the positive impact on the consumer sectors,” Suzuki said by telephone. “The positive impact for other sectors is actually pretty muted.”
More
How the Bear Market in Crude Oil Has Polluted Non-Energy Stocks
Jan 6, 2015 5:41 PM GMT
Perusing the list of the biggest stock-market losers
since the price of oil peaked in June yields some predictable results. You have your large-cap energy companies like Transocean Ltd., Denbury Resources Inc., Nabors Industries Ltd., Noble Corp. and Halliburton Co., all down at least 45 percent.
----The answer illustrates how much of an impact the energy industry has had on the bottom line of corporate America, whether it’s companies profiting from the boom in domestic production or those that made big investments based on the premise that fuel will always be expensive. As such it helps explain why the entire stock market, not just the energy companies, tends to freak out when oil heads lower rapidly.
The big bets on high energy prices made by companies like Ford Motor Co. (down 13 percent since oil peaked on June 20) or Tesla Motors Inc. (down 10 percent) or Boeing Co. (down 3.9 percent) jump immediately to mind.
Not so obvious, unless you follow the stock closely, is the investment made by Fifth Third Bancorp (FITB), one of the regional lenders that tried to chase the fracking boom. (It’s down 12 percent since June 20.)
Here’s how the company’s management described the rationale for the launch of a new national energy banking team two years ago: “The energy sector is a rapidly growing industry,” said the announcement. The new team “demonstrates our commitment to providing dedicated banking services to this evolving sector. The oil and natural gas sector represents a tremendous growth opportunity.”
The sector certainly is “evolving.” Fitch Ratings last month identified regional banks lifted by the shale boom that now face potential credit pressures in loans related to the industry. Oil prices below $50 a barrel, like now, would likely trigger a jump in credit losses, Fitch said.
Fitch’s list of banks with high concentrations of loans to the industry is topped by BOK Financial Corp., which is down 13 percent since June 20.; Cullen/Frost Bankers Inc., down 16 percent; Hancock Holding Company, down 19 percent; Comerica Inc., down 14 percent; and Amergy Bank of Texas, a subsidiary of Zions Bancorp, which is down 13 percent.
More
And in China, a year of defaults looms into view. In 2015, ugly gets
uglier by the day.
There's a Leadership Crisis in Chinese Property Firms -- They're Defaulting. Who's Next to Go?
Jan 7,
2015 2:49 AM GMT
The loan default by Kaisa Group Holdings Ltd., after the second surprise
exit of a Chinese property tycoon in six months, is prompting investors to ask
who’s next. The 2019 notes from the builder, based in the southern city of Shenzhen, have tumbled 38.4 cents on the dollar to a record low of 25.3 cents, after the resignation of the developer’s chairman triggered a loan default Dec. 31. The perpetual securities of Agile Property Holdings Ltd. dropped 17 cents to 67 since its billionaire chairman was placed under control of prosecutors in September before being released last month without details of the detention.
China’s junk dollar notes have lost 3.9 percent in 2015, the worst start to a year ever in Bank of America Merrill Lynch indexes, after Kaisa Chairman Kwok Ying Shing resigned days after two other executives left their positions. Developers that rely on personal relations in securing land from the government are among the most at risk from President Xi Jinping’s local-government financing shakeup and anti-graft drive.
“You never know where the skeletons in the closet are or what company will be next,” said Charles Macgregor, head of Asia high-yield research at Lucror Analytics Pte, the Singapore-based independent credit researcher focused on high-yield markets. “There’s always been a bit of a corporate-governance premium on Chinese developers and that will increase because of the latest challenges.”
More
"The
London Banker Henry Fauntleroy forged to keep his bank solvent. He was executed
for it in 1824."
Charles
P. Kindleberger, Manias, Panics and Crashes.
At the Comex silver
depositories Tuesday final figures were: Registered 64.66 Moz, Eligible 109.70
Moz, Total 174.36 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Below, compare and contrast the difference in the
EUSSR, between having one’s own national currency, albeit fiat, and having a
non-national fiat currency designed by the committee that came up with the
camel to race at Royal Ascot. Dire v dismal. The dying EUSSR is moving from
intensive care down to the morgue.
The
bankster in his mansion,
The
taxpayer at his gate,
Draghi
made them High or lowly,
He disordered
their estate.
With
apologies to All things bright and beautiful.
Eurozone misery as France and Italy drag on growth
Growth in the single currency bloc slows its lowest rate in over 18 months, increasing calls for a further round of central bank stimulus
Weakness in the eurozone's three
largest economies dragged economic growth to its lowest in more than a year,
capping off a miserable 2014 for the single currency.
A composite measure of the
purchasing managers’ index (PMI) statistics from Markit fell to 51.4 for
December, down from an earlier estimate of 51.7. Anything above 50 indicates
expansion, but the rate of growth in the continent was at its weakest since
July 2013.
The average reading over the
final three months of the year also fell to 51.5, the worst performance since
the third quarter of 2013.
Italy, the third largest economy
in the union, fell into outright contraction, with its PMI reading coming in at
49.1. France's manufacturers also continued to have a miserable year, helping
push down overall French output for the eighth consecutive month.
Germany, traditionally the
eurozone's economic engine, also saw a "lacklustre" rate of expansion
towards the end of 2014.
The numbers suggest final quarter
growth of just 0.1pc in eurozone and will put further pressure on European
Central Bank chief Mario Draghi to inject more stimulus to revive the flailing
bloc, said Chris Williamson, chief economist at Markit.
"The weakness of the PMI in
December will add to calls for more aggressive central bank stimulus, including
full-scale quantitative easing, to be undertaken as soon as possible," he
said.
Ireland proved to be the
best-performing economy in the eurozone, with output expanding to 61, the
highest in the 18-country union. This was closely followed by Spain which also
saw a rise in economic activity and total new business.
MoreSurprise slowdown in vital services sector sends pound to 17-month low
Weaker than expected expansion suggests the economy will be entering 2015 with less momentum than hoped for
Sterling has slumped to a
17-month low against the dollar after a closely-watched economic survey
suggested growth in the UK slowed to just 0.5pc in the final quarter of the
year.
An influential gauge of the
services sector showed expansion had slowed to its lowest level in 19 months.
Services account for almost 80pc of the UK's economic output.
Markit's Purchasing Managers'
Index reading came in at 55.8 for December, lower than the 58.6 in November.
Any figure over 50 indicates
economic expansion, showing average growth in the sector was still above trend
and close to levels seen before the financial crisis.
Sterling fell to $1.5188 - its
lowest since August 2013 - immediately following the survey's release.
Chris Williamson, chief economist
at Markit said the weaker-than-expected expansion could help delay any rise in
interest rates from the Bank of England in 2015.
"The loss of momentum
towards the year end will no doubt fuel worries that the upturn is too fragile
to withstand higher interest rates", said Mr Williamson.
"It's too early to get
worried about a sharp slowdown - after all, the latest PMI reading is still
strong, merely down from unusually high levels earlier in the year," he
added.
In better news for the
Chancellor, the survey showed continued robust job creation in the economy,
with employment growing for the 24th consecutive month and evidence that wages
were also finally beginning to rise.
More
Italy is not technically part of the Third World, but no one has told the Italians.
P. J. O’Rourke
The monthly Coppock Indicators finished December.
DJIA: +138 Up. NASDAQ:
+247 Down. SP500: +198 Down.
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