7:48 China Dec gold imports through Hong Kong highest since 2013 (Reuters)
Deutsche Bank Declares War On Mario Draghi, Warns Him Any Further QE Will Push Stocks Lower
Submitted by Tyler D.
01/26/2016 - 08:46
In what is the first official warning to a central bank to no longer do what has been done so far for seven years, earlier today Deutsche Bank came out with a startling presentation addressed to Mario Draghi, warning him explicitly that any more QE will not only not help stocks (and certainly not DB stock which continues to plumb post-crisis lows on fears it is overexposed to the commodity crunch and potentially such names as Glencore and various other commodity traders), but will actually push equities lower.
3% Downpayment FHA Loans Surge As Subprime Buyers Are Back In The Housing Market
Submitted by Tyler D.01/26/2016 - 09:21
Americans across the country have been priced out of the U.S. housing market since the “recovery” began due to a combination of factors; stagnant wages, private equity purchases and money laundering foreigners. As such, many potential first time buyers have been sidelined despite the availability of meager 3% downpayment loans from the FHA as well as Fannie Mae and Freddie Mac. Fortunately for the U.S. ponzi scheme economy, the U.S. government has a solution. Lower mortgage insurance premiums.
John Paulson Puts Up Personal Holdings To Secure Credit Line As AUM Plunges
Submitted by Tyler D.
01/26/2016 - 09:55
Back in August we noted that John Paulson managed to get himself and his investors involved in two rather dubious "firsts" in 2015: Puerto Rico became the first US commonwealth in history to default, and Greece became the first developed country to default to the IMF. Paulson had invested in Puerto Rican and Greek assets. Now, amid a client exodus, the billionaire is putting up his own holdings to secure a longstanding line of credit with HSBC.
Chinese "Lose Faith In Collapsing Stock Markets And Currency", Import Most Gold Since 2013
Submitted by Tyler D.
01/26/2016 - 10:21
China's demand for gold is back: as China's equities slumped and its yuan currency finished 2015 with a record yearly loss, "people looked at other investment alternatives that's why there was huge demand for gold," said Brian Lan, managing director at gold dealer GoldSilver Central in Singapore.
Gold Soars Above Key Technical Level Near 2-Month Highs
Submitted by Tyler D.
01/26/2016 - 11:27
Gold futures just broke out of their recent range, pushing well above the key 100-day moving average and testing towards $1120 - the highest since early November. It appears precious metals are signaling - as they have done since mid-December - that The Fed will be forced to admit it is wrong - just as Jeffrey Gundlach warned.
"The Risk Of An Earnings Recession" And Six Other Reasons Why JPM Just Cut Its S&P Target To 2000
Submitted by Tyler D.
01/26/2016 11:33 -0500
The onslaught from JPMorgan continues, which in the aftermath of first Marko Kolanovic's periodic threats about sudden market crashes, and Mislav Matejka's recurring warnings that BTFD is dead and "not to overstay your welcome in the bounce", earlier today JPM's chief equity strategist Dubravko Lakos-Bujas has officially cut his 2016 year-end S&P500 earnings forecast to $120 from $123 "on stronger US Dollar and lower economic growth forecast" as well as trimming his year end S&500 target from 2,200 to 2,000.
Here are the seven reasons why JPM continues to push the bear case:
The risk-reward for equities is deteriorating. There is increasing risk that elevated volatility starts incurring enough technical damage to market psychology and spills over, negatively impacting investor, consumer and business sentiment, resulting in a lack of risk taking, and eventually creating a negative feedback loop into the real economy. Going forward we see equity risk remaining asymmetric to the downside given:
1. rising risk of US earnings recession,
2. diverging central bank policies and a Fed that is trying to tighten causing USD to strengthen,
3. US manufacturing sector already in recession territory and non-manufacturing sector continuing to decelerate,
4. deteriorating macroeconomic backdrop with China posing a significant risk to global markets,
5. credit spreads widening and high yield approaching recession levels,
6. late cycle dynamics,
7. continued elevated volatility likely to impact sentiment—VIX has been averaging ~20 for the last 6 months.
As Dubravko summarizes, "this all makes for an unattractive equity backdrop." Furthermore, just like his peers, the third croat notes that there may be a short-term rebound, it is one that should be sold:
"While in the short term an expected pickup in buyback activity and positive 4Q earnings surprises may provide some support to equities, absent a positive central bank catalyst we see equity risks skewed to the downside over the medium term. We have been highlighting for some time that normalization of US monetary policy could pose a significant risk to equities. If equities get progressively worse with sentiment spilling over into the real economy, the Fed may be forced to pause for a while. This could be a relief to the USD and a positive for equity prices and earnings. However, if the Fed continues to normalize, there is a high degree of risk that equities begin to price in a policy error. Also, this is an election year in the US with partisan debate around a range of issues—tax reform (corporate, personal), fiscal policy (infrastructure, defense programs), healthcare. Depending on election outcome (i.e. far right vs. far left) the implication for US equities and sectors could vary by a wide degree.
All of this puts the Fed's credibility in the crosshairs: the market is already expecting just one rate hike in 2016 vs the Fed's "dot plot" forecast of 4. Just how will Yellen converge the two outlooks without leading to even more volatility?
And then there is the economy: "US economic growth estimate for 2016 GDP has been revised down to 1.8% compared to 2.3% in December, which is a step down from 2.4-2.5% seen over the last two years:"
Which brings us to the conclusion:
We are lowering 2016 S&P 500 EPS to $120 from $123 on stronger US Dollar and lower economic growth forecast. The negative revision to our 2016 EPS estimate is due to the further rise in USD TWI (every 2% increase in USD results in negative earnings revisions of ~1%) and deceleration in US GDP forecast (to 1.8% from 2.3%). Our revised $120 EPS assumes flat sales growth (Street at 3%), flat margins (Street at +6bps) and buybacks contributing ~2% to EPS growth. Risk of earnings recession is rising, with S&P 500 likely to print 2 consecutive years (’15, ‘16e) of flat to negative earnings growth. Additionally, we expect volatility to remain elevated and continue to exert negative pressure on the P/E multiple.
Of course, using a well-known Keynesian strategy, if one only excludes all the negatives, only the great news is left, which may explain what the algos are doing today the stock market today. As for tomorrow, we hope Gartman decides to chase the rebound so the shorting can again resume.
Martes 25/01/16 Inicio de la reunion del Fed
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Re: Martes 26/01/16 Inicio de la reunion del Fed
por Fenix » Mar Ene 26, 2016 8:01 pm
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- Mensajes: 16334
- Registrado: Vie Abr 23, 2010 2:36 am
Re: Martes 26/01/16 Inicio de la reunion del Fed
por Fenix » Mar Ene 26, 2016 8:08 pm
Swiss Franc Plunges To One-Year Lows Amid SNB Intervention Chatter
Submitted by Tyler D.
01/26/2016 - 11:56
With the biggest drop in 3 months, EURCHF has broken above last September's highs, plunging below 1.06. Amid chatter of SNB intervention, this is the weakest Swissy has been since the removal of the ceiling a year ago.
A Constant Short Squeeze Threat: Oil Shorts Are At All-Time Highs
Submitted by Tyler D.
01/26/2016 - 12:27
We have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures.
"Zombie Ships" - Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
Submitted by Tyler D.
01/26/2016 - 12:50
One glance at The Baltic Dry Index's collapse is all that most need to see the painful state of the global shipping industry. However, as gCaptain reports, reality is even worse as the boom in so-called "zombie ships" suggests there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.
60 Reasons Why Oil Investors Should Hang On
01/26/2016 13:20 -0500
Submitted by Dan Doyle
Inventories will continue to rise, but the momentum is slowing.
The following are some observations as to how we got here and how we’re gonna get out.
9 reasons why oil has taken so long to bottom:
1. OPEC increased production in 2015 to multiyear highs, principally in Saudi Arabia and Iraq where production between the two added 1.5 million barrels per day (mb/d) to inventories after the no cut stance was adopted.
2. Russian production increased in 2015 to post Soviet highs.
3. Long planned Gulf of Mexico production began coming on in late 2015.
4. An overhang of 3,000 or 4,000 shale wells that were drilled but uncompleted (“ducks”) entered a completion cycle in 2015.
5. Service companies and suppliers went to zero margin survival pricing (not to be confused with efficiency). The result has been an artificial boost to completions that cannot be sustained.
6. Resilience among a few operators in the Permian who felt the need to thump their chests, creating the rally that killed the rally last spring (disclosure: I own stock in Pioneer Resources but am going to dump it if they don’t cut it out!).
7. The dollar strengthened.
8. Iranian exports are coming.
9. And, finally, China.
5 Demand-Side Reasons Why We Need to Hang-On:
1. Chinese oil demand is up year-over-year by 8 percent. It is expected to slow in 2016 to as low as 2 percent (maybe) but it is still growth in a tightening market.
2. Watch Chinese car sales. They were sluggish in early 2015 but finished very strong in what could be a 2016 V-shaped recovery.
3. The Indian economy is on a tear. The IMF has it as the world’s fastest growing large economy. GDP growth was 7.3 percent in 2015 and is projected to be 7.5 percent in 2016. That trumps Chinese growth. Although India’s oil demand is only one-third that of China, it is the growth picture that should be better covered by analysts and headlines. India is about to be the world’s most populous nation with a middle class that is likely to double over the next 15 years. 40 cars now service 1,000 people but that is rapidly changing. And this is not something that will occur sometime, someday in the future. 2015 Indian consumption grew by 300,000 barrels per day (bpd).
4. U.S. consumption has been increasing with higher employment and lower fuel costs. Truck and full size SUV sales have been extraordinary.
5. Europe, the world’s largest oil market, is in a decade long decline but not as steeply as it was. Asia demand is strong with Vietnam’s GDP growing 7.5 percent in 2015. Middle East countries are seeing increases in consumption. And as a final observation, go back one year when most oil analysts were looking at supply as the means to a correction. Demand was thought to be too inelastic and would thus take too long to play out. But it was demand that responded first. When the story is written, it will be demand that outplayed supply 2 to 1 on our way to parity. Thereafter, if we go into imbalance, it will be the damage done to supply that really moves prices.
16 Supply-Side Reasons Why We Need to Hang On
1. Earlier in 2015 global supply exceeded demand by about 2.2 mb/d according to the EIA. Others had it at 2.5 mb/d. The EIA now has it down to 1.3 mb/d and change. We are still nowhere near an inflection point but we are converging.
2. The rig count in OPEC’s GCC countries has not corrected down with prices. It is mostly maintenance drilling and somewhat additive in Saudi Arabia. The level of production that we have seen lately likely means the GCC is close to or at capacity.
3. There is near universal acknowledgement that there will be another 300,000 to 500,000 bpd decline in U.S. production this year. It could be more given the struggles of the onshore conventional market which alone should give up 150,000 bpd. Shale’s steep decline rates will easily make up the rest even against increasing Gulf of Mexico production.
4. Global non OPEC, non U.S. production will decline by 300,000 to 400,000 bpd in 2016 according to the IEA. This number could increase as marginal production at current low prices comes off line due to lifting costs.
5. After an upside surprise in 2015 Russian production, there is a building consensus that 2016 results will be off with further declines thereafter. Russian oil giant Lukoil is stacking contractor rigs which will show up fairly soon in the numbers. State backed Rosneft is showing financial strain.
6. Pemex production is down 10 percent.
7. North Sea production, which has increased over the last few years, will slip in 2016.
8. Long-term Canadian oil sands projects will come on in 2016 as will some production in Brazil, but even collectively the amounts are small. It’s probable too that some of the oil miners will put a hold on production due to lower product costs (about $15/bbl less than WTI) and extraordinarily high lifting and processing costs (some of the sands are subjected to subsurface CO2 drives, others are surface mined).
9. Anticipated Iranian exports are here, but the projections are all over the place from the Iranian government’s claim of 1 million b/day in 6 to 12 months to Rystad Energy’s claim of 150,000 b/day. Even the middle ground argument of 500,000 b/day assumes Iran can get back to their long term trend line, which had been declining during the 5 years prior to 2011 sanctions. Fields are in poor repair and the gas drives essential to production have been mostly abandoned. All in, it’s most likely that production will stutter step up to the trend line due to delays caused by political process and infrastructure funding. This, like all things, will take longer than expected but watch out for early sales. You will be seeing more inventory than production as Iran unloads the 30 to 45 million barrels of oil in storage. Allow some time to work off stocks to get an idea of the actual production numbers which will likely disappoint.
10. Depending on the source, $140 to $200 billion of expenditures has come off of long term projects in 2015 with calls for another $40 to $150 billion in cancellations and postponements in 2016. This won’t be made up by renewables. The current and projected crude and natural gas prices have dis-incentivized consumers from wind and solar. Governments after the Paris accord may throw money around but consumers will likely not follow until commodity prices make them.
11. All said, these capex cuts will result in a loss of at least 5 mb/d in long-horizon production. These are the goliath type projects that we absolutely need to match to current plus anticipated consumption increases.
12. Existing wells have natural decline curves. Some hold up better than others but all said the global yearly decline rate without additional drilling is right around 4 mb/d.
13. Hedged bets started coming off in late 2015 and will continue in early 2016. Accompanying this could be the capitulation in activity and production that the market has been looking for.
14. Global capex declines have occurred here and there over the past 20 years but always rebound the following year. For the first time in recent history, the global oil complex has charted two consecutive years of declining budgets. 2014 showed a small constriction but 2015’s 20 percent capex decline is unprecedented in terms of size and is the highest by percentage in 20 years. And right now, 2016 doesn’t look like it’s going to have much bounce to it.
15. The world seems to be moving closer to a supply side disruption. Middle East wars, skirmishes and terrorist attacks are increasing in size and frequency. Libyan oilfields are a constant target. Nigerian installations are vulnerable. ISIS controls most of Syria’s small oilfields. Yeminis missiles are targeting Saudi oil installations and would have hit their targets in December launches had the Saudi’s not shot most of them down. Iraqi production is somewhat safe, but only somewhat. Venezuela’s PDVSA is teetering in its ability to pay for the imported diluents needed to export its crude. Tankers are stacking up in the Jose Petroterminal demanding payment up front before unloading up to 3 million b/month of naphtha. And then there’s the torched embassies, mass beheadings, a resurgent Shiite state and a hardening Sunni stance amid a claw back of freebies to Saudi Arabia’s citizens. It’s not good. Not at all. Our best hope is that price rebalancing will occur quickly through supply and demand metrics rather than bloody supply-side shocks.
16. At $25 oil, the Bakken is at $13 to $15 after transportation which puts operators up there underwater after lifting costs, taxes and carrying royalty owner costs. Sub $30 oil will not only kill development drilling, but it will be where production stops. In cases where operators are committed to selling natural gas produced alongside oil there may be a reason to continue due to supply obligations, but otherwise what’s the point? If you want to lose money buy a boat. It’s more fun.
6 Things to Ignore
1. This is not the 1980’s with 14+ mb/d spare capacity. In 2016, we are oversupplied by about 1.5 percent and it will be at zero by early to mid-2017. The last time we were at zero was late 2013/early 2014 when WTI was at $100 and Brent up around $105+.
2. Lower for longer is true but $29 oil is not. This is a classic over-sold scenario and likely somewhere in the realm of capitulation. Operators and service companies can find a footing at $50 oil. We won’t prosper but we’ll survive. $100 may be a long way off and that’s because ridiculously high, sustained oil prices only leads to ridiculously low sustained oil prices. But who wants $100? It will only get us back to $30. The industry makes no sense at the top or the bottom. The high middle is best.
3. Demand is dropping. Not true. Demand growth may be slowing but not by much. Consumption is up and it is increasing.
4. Chinese demand is down. The rate of growth may slow in 2016 but it will still be up year-over-year. A 6.8 percent Chinese economy is consuming more oil now than a 10 percent economy was 5 years ago. A lot more.
5. We’re going to float the lids right off our oil tanks. Don’t worry. You can sleep tight. We’re not.
6. Efficiency gains are offsetting the declining rig count. This one is always amusing. Give me the rig count and higher density fracking and you take all the recent efficiency gains and let’s see who gets invited to the bank’s Christmas party.
6 Things You Shouldn’t Ignore
1. Q1 oil prices are going to be ugly. Try and ignore them if you can. The market will remain uncertain over Iran as it determines and adjusts to how much oil is coming on.
2. Hedges coming off will not bode well for producers and the service companies looking to them for a lifeline.
3. Spring debt redeterminations may knock the wind out of the E&Ps. If capitulation hasn’t already occurred, it will then.
4. China. The sinking Shanghai Composite Index is oil’s anchor.
5. Pioneer and other chest thumpers getting too aggressive. Any recovery will be short lived if they jump the rig count as they did in the short-lived Spring 2015 rally. Traders are fixated on even meaningless moves in the rig count. Best to play it cool. We all want to work but operators need to practice some restraint.
6. Lack of capitulation. There will be no recovery until there is general agreement that the shorts cannot drag the market any lower. The Saudi’s, with Russia following, can always point to a large U.S. failure as proof that they did not blink first.
14 Things We Owe Ourselves:
1. The water wars of 3 or so years ago are mostly solved. Recycling frac water is now a ‘’gimme’’. Marcellus operators like Shell and Cabot are able to boast of 99 percent recycle rates. We still have hurdles with deep well brine injection but the issues are getting defined and will be addressed.
2. Progress is being made on recognizing and reducing methane emissions from well sites. Ultimately, this could slow drilling in places like the Bakken until infrastructure is in place, but it will also move operators to effectively use lease gas to power operations.
3. No government agency provided directives for Halliburton and Pattison to build dual fuel frac fleets that run on clean burning lease gas. They just did it in cooperation with their customers.
4. We’ve proven than natural gas is beyond abundant.
5. There have been fewer bankruptcies than anticipated.
6. No one has been arrested yet for fracking.
7. Harold Hamm was still able to write a billion dollar personal check.
8. Aubrey McClendon was still able to raise fresh money.
9. T. Boone Pickens overshot the mark with an $80 call but his optimism helped us – a lot.
10. Even President Obama jumped in and did us a favor with the elimination of the 40 year old export ban. It might have been done grudgingly but we got it.
11. LNG exports will set sail by March 2016.
12. Coal miners displaced by the current administration’s EPA in Kentucky and West Virginia have been finding work in oil and gas fields. Hopefully they’ll find more soon enough.
13. We can celebrate the abrupt end of the glossy multicolored booklets from fawning jewelers and art auctioneers arriving in the mail.
14. David Einhorn’s crass and predictable “mother fracker” short on Pioneer Resources was a yawn. The stock even climbed after the news. If this was a political statement, which was my read of the subtext, then short the stock now big guy.
The inevitable will occur. Supply and demand will cross. The question is will Wall Street notice? Some of the analysts caught the cross in early 2014 but most didn’t. For full disclosure, I missed it too.
The question this time around is will we see it coming and if so will it be an orderly reaction? Or will the market miss the coming wake-up call and instead deliver a severe supply disruption with skyrocketing prices and a political response along the lines of windfall profits taxes? My worry is that everything takes longer than you think, from recognizing coming imbalances in the global crude complex to painting the house. In the meantime, just hang on and keep your equipment running. You’re going to need it. Until then, all the best of luck.
Submitted by Tyler D.
01/26/2016 - 11:56
With the biggest drop in 3 months, EURCHF has broken above last September's highs, plunging below 1.06. Amid chatter of SNB intervention, this is the weakest Swissy has been since the removal of the ceiling a year ago.
A Constant Short Squeeze Threat: Oil Shorts Are At All-Time Highs
Submitted by Tyler D.
01/26/2016 - 12:27
We have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures.
"Zombie Ships" - Why Global Shipping Is Even Worse Than The Baltic Dry Suggests
Submitted by Tyler D.
01/26/2016 - 12:50
One glance at The Baltic Dry Index's collapse is all that most need to see the painful state of the global shipping industry. However, as gCaptain reports, reality is even worse as the boom in so-called "zombie ships" suggests there is no recovery in sight for the beleaguered containership charter market, which is facing its biggest crisis since the 2008 financial crash.
60 Reasons Why Oil Investors Should Hang On
01/26/2016 13:20 -0500
Submitted by Dan Doyle
Inventories will continue to rise, but the momentum is slowing.
The following are some observations as to how we got here and how we’re gonna get out.
9 reasons why oil has taken so long to bottom:
1. OPEC increased production in 2015 to multiyear highs, principally in Saudi Arabia and Iraq where production between the two added 1.5 million barrels per day (mb/d) to inventories after the no cut stance was adopted.
2. Russian production increased in 2015 to post Soviet highs.
3. Long planned Gulf of Mexico production began coming on in late 2015.
4. An overhang of 3,000 or 4,000 shale wells that were drilled but uncompleted (“ducks”) entered a completion cycle in 2015.
5. Service companies and suppliers went to zero margin survival pricing (not to be confused with efficiency). The result has been an artificial boost to completions that cannot be sustained.
6. Resilience among a few operators in the Permian who felt the need to thump their chests, creating the rally that killed the rally last spring (disclosure: I own stock in Pioneer Resources but am going to dump it if they don’t cut it out!).
7. The dollar strengthened.
8. Iranian exports are coming.
9. And, finally, China.
5 Demand-Side Reasons Why We Need to Hang-On:
1. Chinese oil demand is up year-over-year by 8 percent. It is expected to slow in 2016 to as low as 2 percent (maybe) but it is still growth in a tightening market.
2. Watch Chinese car sales. They were sluggish in early 2015 but finished very strong in what could be a 2016 V-shaped recovery.
3. The Indian economy is on a tear. The IMF has it as the world’s fastest growing large economy. GDP growth was 7.3 percent in 2015 and is projected to be 7.5 percent in 2016. That trumps Chinese growth. Although India’s oil demand is only one-third that of China, it is the growth picture that should be better covered by analysts and headlines. India is about to be the world’s most populous nation with a middle class that is likely to double over the next 15 years. 40 cars now service 1,000 people but that is rapidly changing. And this is not something that will occur sometime, someday in the future. 2015 Indian consumption grew by 300,000 barrels per day (bpd).
4. U.S. consumption has been increasing with higher employment and lower fuel costs. Truck and full size SUV sales have been extraordinary.
5. Europe, the world’s largest oil market, is in a decade long decline but not as steeply as it was. Asia demand is strong with Vietnam’s GDP growing 7.5 percent in 2015. Middle East countries are seeing increases in consumption. And as a final observation, go back one year when most oil analysts were looking at supply as the means to a correction. Demand was thought to be too inelastic and would thus take too long to play out. But it was demand that responded first. When the story is written, it will be demand that outplayed supply 2 to 1 on our way to parity. Thereafter, if we go into imbalance, it will be the damage done to supply that really moves prices.
16 Supply-Side Reasons Why We Need to Hang On
1. Earlier in 2015 global supply exceeded demand by about 2.2 mb/d according to the EIA. Others had it at 2.5 mb/d. The EIA now has it down to 1.3 mb/d and change. We are still nowhere near an inflection point but we are converging.
2. The rig count in OPEC’s GCC countries has not corrected down with prices. It is mostly maintenance drilling and somewhat additive in Saudi Arabia. The level of production that we have seen lately likely means the GCC is close to or at capacity.
3. There is near universal acknowledgement that there will be another 300,000 to 500,000 bpd decline in U.S. production this year. It could be more given the struggles of the onshore conventional market which alone should give up 150,000 bpd. Shale’s steep decline rates will easily make up the rest even against increasing Gulf of Mexico production.
4. Global non OPEC, non U.S. production will decline by 300,000 to 400,000 bpd in 2016 according to the IEA. This number could increase as marginal production at current low prices comes off line due to lifting costs.
5. After an upside surprise in 2015 Russian production, there is a building consensus that 2016 results will be off with further declines thereafter. Russian oil giant Lukoil is stacking contractor rigs which will show up fairly soon in the numbers. State backed Rosneft is showing financial strain.
6. Pemex production is down 10 percent.
7. North Sea production, which has increased over the last few years, will slip in 2016.
8. Long-term Canadian oil sands projects will come on in 2016 as will some production in Brazil, but even collectively the amounts are small. It’s probable too that some of the oil miners will put a hold on production due to lower product costs (about $15/bbl less than WTI) and extraordinarily high lifting and processing costs (some of the sands are subjected to subsurface CO2 drives, others are surface mined).
9. Anticipated Iranian exports are here, but the projections are all over the place from the Iranian government’s claim of 1 million b/day in 6 to 12 months to Rystad Energy’s claim of 150,000 b/day. Even the middle ground argument of 500,000 b/day assumes Iran can get back to their long term trend line, which had been declining during the 5 years prior to 2011 sanctions. Fields are in poor repair and the gas drives essential to production have been mostly abandoned. All in, it’s most likely that production will stutter step up to the trend line due to delays caused by political process and infrastructure funding. This, like all things, will take longer than expected but watch out for early sales. You will be seeing more inventory than production as Iran unloads the 30 to 45 million barrels of oil in storage. Allow some time to work off stocks to get an idea of the actual production numbers which will likely disappoint.
10. Depending on the source, $140 to $200 billion of expenditures has come off of long term projects in 2015 with calls for another $40 to $150 billion in cancellations and postponements in 2016. This won’t be made up by renewables. The current and projected crude and natural gas prices have dis-incentivized consumers from wind and solar. Governments after the Paris accord may throw money around but consumers will likely not follow until commodity prices make them.
11. All said, these capex cuts will result in a loss of at least 5 mb/d in long-horizon production. These are the goliath type projects that we absolutely need to match to current plus anticipated consumption increases.
12. Existing wells have natural decline curves. Some hold up better than others but all said the global yearly decline rate without additional drilling is right around 4 mb/d.
13. Hedged bets started coming off in late 2015 and will continue in early 2016. Accompanying this could be the capitulation in activity and production that the market has been looking for.
14. Global capex declines have occurred here and there over the past 20 years but always rebound the following year. For the first time in recent history, the global oil complex has charted two consecutive years of declining budgets. 2014 showed a small constriction but 2015’s 20 percent capex decline is unprecedented in terms of size and is the highest by percentage in 20 years. And right now, 2016 doesn’t look like it’s going to have much bounce to it.
15. The world seems to be moving closer to a supply side disruption. Middle East wars, skirmishes and terrorist attacks are increasing in size and frequency. Libyan oilfields are a constant target. Nigerian installations are vulnerable. ISIS controls most of Syria’s small oilfields. Yeminis missiles are targeting Saudi oil installations and would have hit their targets in December launches had the Saudi’s not shot most of them down. Iraqi production is somewhat safe, but only somewhat. Venezuela’s PDVSA is teetering in its ability to pay for the imported diluents needed to export its crude. Tankers are stacking up in the Jose Petroterminal demanding payment up front before unloading up to 3 million b/month of naphtha. And then there’s the torched embassies, mass beheadings, a resurgent Shiite state and a hardening Sunni stance amid a claw back of freebies to Saudi Arabia’s citizens. It’s not good. Not at all. Our best hope is that price rebalancing will occur quickly through supply and demand metrics rather than bloody supply-side shocks.
16. At $25 oil, the Bakken is at $13 to $15 after transportation which puts operators up there underwater after lifting costs, taxes and carrying royalty owner costs. Sub $30 oil will not only kill development drilling, but it will be where production stops. In cases where operators are committed to selling natural gas produced alongside oil there may be a reason to continue due to supply obligations, but otherwise what’s the point? If you want to lose money buy a boat. It’s more fun.
6 Things to Ignore
1. This is not the 1980’s with 14+ mb/d spare capacity. In 2016, we are oversupplied by about 1.5 percent and it will be at zero by early to mid-2017. The last time we were at zero was late 2013/early 2014 when WTI was at $100 and Brent up around $105+.
2. Lower for longer is true but $29 oil is not. This is a classic over-sold scenario and likely somewhere in the realm of capitulation. Operators and service companies can find a footing at $50 oil. We won’t prosper but we’ll survive. $100 may be a long way off and that’s because ridiculously high, sustained oil prices only leads to ridiculously low sustained oil prices. But who wants $100? It will only get us back to $30. The industry makes no sense at the top or the bottom. The high middle is best.
3. Demand is dropping. Not true. Demand growth may be slowing but not by much. Consumption is up and it is increasing.
4. Chinese demand is down. The rate of growth may slow in 2016 but it will still be up year-over-year. A 6.8 percent Chinese economy is consuming more oil now than a 10 percent economy was 5 years ago. A lot more.
5. We’re going to float the lids right off our oil tanks. Don’t worry. You can sleep tight. We’re not.
6. Efficiency gains are offsetting the declining rig count. This one is always amusing. Give me the rig count and higher density fracking and you take all the recent efficiency gains and let’s see who gets invited to the bank’s Christmas party.
6 Things You Shouldn’t Ignore
1. Q1 oil prices are going to be ugly. Try and ignore them if you can. The market will remain uncertain over Iran as it determines and adjusts to how much oil is coming on.
2. Hedges coming off will not bode well for producers and the service companies looking to them for a lifeline.
3. Spring debt redeterminations may knock the wind out of the E&Ps. If capitulation hasn’t already occurred, it will then.
4. China. The sinking Shanghai Composite Index is oil’s anchor.
5. Pioneer and other chest thumpers getting too aggressive. Any recovery will be short lived if they jump the rig count as they did in the short-lived Spring 2015 rally. Traders are fixated on even meaningless moves in the rig count. Best to play it cool. We all want to work but operators need to practice some restraint.
6. Lack of capitulation. There will be no recovery until there is general agreement that the shorts cannot drag the market any lower. The Saudi’s, with Russia following, can always point to a large U.S. failure as proof that they did not blink first.
14 Things We Owe Ourselves:
1. The water wars of 3 or so years ago are mostly solved. Recycling frac water is now a ‘’gimme’’. Marcellus operators like Shell and Cabot are able to boast of 99 percent recycle rates. We still have hurdles with deep well brine injection but the issues are getting defined and will be addressed.
2. Progress is being made on recognizing and reducing methane emissions from well sites. Ultimately, this could slow drilling in places like the Bakken until infrastructure is in place, but it will also move operators to effectively use lease gas to power operations.
3. No government agency provided directives for Halliburton and Pattison to build dual fuel frac fleets that run on clean burning lease gas. They just did it in cooperation with their customers.
4. We’ve proven than natural gas is beyond abundant.
5. There have been fewer bankruptcies than anticipated.
6. No one has been arrested yet for fracking.
7. Harold Hamm was still able to write a billion dollar personal check.
8. Aubrey McClendon was still able to raise fresh money.
9. T. Boone Pickens overshot the mark with an $80 call but his optimism helped us – a lot.
10. Even President Obama jumped in and did us a favor with the elimination of the 40 year old export ban. It might have been done grudgingly but we got it.
11. LNG exports will set sail by March 2016.
12. Coal miners displaced by the current administration’s EPA in Kentucky and West Virginia have been finding work in oil and gas fields. Hopefully they’ll find more soon enough.
13. We can celebrate the abrupt end of the glossy multicolored booklets from fawning jewelers and art auctioneers arriving in the mail.
14. David Einhorn’s crass and predictable “mother fracker” short on Pioneer Resources was a yawn. The stock even climbed after the news. If this was a political statement, which was my read of the subtext, then short the stock now big guy.
The inevitable will occur. Supply and demand will cross. The question is will Wall Street notice? Some of the analysts caught the cross in early 2014 but most didn’t. For full disclosure, I missed it too.
The question this time around is will we see it coming and if so will it be an orderly reaction? Or will the market miss the coming wake-up call and instead deliver a severe supply disruption with skyrocketing prices and a political response along the lines of windfall profits taxes? My worry is that everything takes longer than you think, from recognizing coming imbalances in the global crude complex to painting the house. In the meantime, just hang on and keep your equipment running. You’re going to need it. Until then, all the best of luck.
- Fenix
- Mensajes: 16334
- Registrado: Vie Abr 23, 2010 2:36 am
Re: Martes 26/01/16 Inicio de la reunion del Fed
por Fenix » Mar Ene 26, 2016 8:14 pm
Near Record Foreign Central Bank Demand For 2 Year Treasuries
Submitted by Tyler D.
01/26/2016 - 13:28
When the high yield print on the 2Y auction flashed at 0.86% (alloted 97.03% at the high) there were loud gasps of surprise at what can only be described as a blistering demand, especially from foreign central banks, and one which stood at odds with the rest of the market tone today, especially when considering that no issues were trading special in repo earlier today, and certainly not the 2Y.
RANsquawk Preview: FOMC Rate Decision 270116 where focus will be on the Fed's language and any commentary on how many rate hikes we can expect this year
Submitted by RANSquawk 01/26/2016 13:32 -0500
OVERVIEW
Now
that the FOMC has finally lifted interest rates in what was the first rate-hike
in almost a decade, attention has turned to the language from the Fed and how
many rate-hikes we can expect this year from the central bank. As such, the Fed
have maintained that they are data dependent and that current market conditions
warrant gradual rate hikes. The median
projection from the Fed currently stands at 4 rate hikes this year. Fed’s
Lacker stated that it is likely they will need at least 4 hikes this year,
while Evans commented that he would prefer between 2-3 hikes with a very
gradual rate path. Some of the other commentary from the Fed at the last
meeting was that slack remains in the economy while there is ongoing pressure
in energy and manufacturing sectors yet the economy remains healthy. The biggest talking point among Fed officials
currently is inflation, with concerns raised over falling inflation expectations
if the economy weakens. In terms of the recent inflation data, US CPI (Dec)
M/M came in at -0.1% vs. Exp. 0.0% and Y/Y printed 0.70% vs. Exp. 0.80%.
The
beginning of 2016 has seen one of the worst starts to a year ever in terms of
market volatility and sentiment, with the S&P 500 lower by over 7% YTD. Global
concerns are highly likely to be at the forefront of FOMC members minds yet
they will be wary about making any irrational decisions or comments. There is
no scheduled press conference following this rate decision, therefore full
focus will be on the statement and more importantly inflation commentary. As such, analysts have highlighted that any
language reference to the divergence between current market expectations and
the FOMC’s expectations regarding rate hikes will be of note. It is also worth mentioning that FFR
futures are currently not pricing in another rate hike until the meeting in
September, highlighting the continued divergence in expectations between the
FOMC and market participants. Individuals will also be looking out for
comments on the previously mentioned poor start to the year, alongside their
own projections of four rate hikes for 2016. Analysts have also highlighted the
further impact of the strong USD and its strain on inflation. Additionally, how
it is impacting exporters in the country and most notably the manufacturing
sector. This meeting has the potential to be more subdued than December’s due
to the large consensus that the FOMC are to leave rates unchanged. Additionally, given the fairly
disappointing data from the US that we have observed since the previous meeting
alongside oil concerns and continued fear of a global slowdown led by China,
risks are said to be skewed towards the downside.
PROJECTIONS
Projections
from December:
·
Fed median Fed Funds Rate seen at 1.40% at
2016-end, at 2.40% 2017-end and at 3.30% 2018-end; Longer run rate forecasts
3.50%.
·
Estimates 2015 GDP growth 2.1%, unemployment
rate at 5.0% and core inflation of 1.3%.
MARKET REACTION
Given the overwhelming consensus that the FOMC are to leave
rates unchanged, not hiking is unlikely to cause any reaction while neither is
a dovish tone given the various factors explained previously. Participants will be looking as to the
scale of how dovish the FOMC appear and how they see the recent developments
impacting on their own expectations. As such, if full details are laid out
by the Fed on the impact on the economy as to the recent developments, this
could cause the USD to lose ground against its major pairs, while yields are
likely to fall across the curve. However, if the Fed seem to shrug of any
impact from this year’s developments while maintaining their outlook for the
rest of 2016, the inverse may occur.
"Pipe Dreams" Of A Gently Rising Oil Price
Submitted by Tyler D.
01/26/2016 - 14:30
What does the world really want from oil prices? There are conflicting views, but, as Bloomberg's Mark Cudmore notes, ultimately a stable and slowly appreciating oil price is probably best.
It’s quite clear from price action that financial markets are keen to see oil bounce. Crude (with the yuan) led the early-year rout before spear-heading the broad relief rally last week. And its capitulation yesterday has snuffed out animal spirits globally.
But, it’s important to remember that financial asset performance isn’t everything. It’s generally assumed that cheaper oil is positive as it boosts consumers’ disposable incomes, broadening consumption and spurring the real economy.
As Citigroup’s head of emerging-market economics David Lubin wrote yesterday, cheaper oil may in fact hurt more than help emerging-market crude importers. His argument is that the retrenchment of petrodollar investment in developing economies may outweigh their savings from cheaper energy bills.
That may explain why we’ve yet to see a large economic boost after 18 months of falling petrol prices. And it’s another reason to support the plea from financial markets that we really don’t want oil prices to keep falling.
But that doesn’t mean the world needs a steep oil rally. Not only would that provide a new negative shock for the real economy, but developed-market central bankers might suddenly find themselves with a lot more of the recently-elusive inflation than they’ve been hoping for.
Base effects would exacerbate this problem and global markets might then be fighting an upward battle against quickly tightening monetary policy.
So stability is the target. Or perhaps, as is the desired state for prices more generally, a gradual appreciation -- ideally at a pace that’s just enough to support energy investment and capital flows.
That seems a pipe dream right now when Brent crude has moved by an average of 7.8% a week since the start of December...
For now it appears neither "stability" nor slow and gentle appreciation are on the cards.
Submitted by Tyler D.
01/26/2016 - 13:28
When the high yield print on the 2Y auction flashed at 0.86% (alloted 97.03% at the high) there were loud gasps of surprise at what can only be described as a blistering demand, especially from foreign central banks, and one which stood at odds with the rest of the market tone today, especially when considering that no issues were trading special in repo earlier today, and certainly not the 2Y.
RANsquawk Preview: FOMC Rate Decision 270116 where focus will be on the Fed's language and any commentary on how many rate hikes we can expect this year
Submitted by RANSquawk 01/26/2016 13:32 -0500
OVERVIEW
Now
that the FOMC has finally lifted interest rates in what was the first rate-hike
in almost a decade, attention has turned to the language from the Fed and how
many rate-hikes we can expect this year from the central bank. As such, the Fed
have maintained that they are data dependent and that current market conditions
warrant gradual rate hikes. The median
projection from the Fed currently stands at 4 rate hikes this year. Fed’s
Lacker stated that it is likely they will need at least 4 hikes this year,
while Evans commented that he would prefer between 2-3 hikes with a very
gradual rate path. Some of the other commentary from the Fed at the last
meeting was that slack remains in the economy while there is ongoing pressure
in energy and manufacturing sectors yet the economy remains healthy. The biggest talking point among Fed officials
currently is inflation, with concerns raised over falling inflation expectations
if the economy weakens. In terms of the recent inflation data, US CPI (Dec)
M/M came in at -0.1% vs. Exp. 0.0% and Y/Y printed 0.70% vs. Exp. 0.80%.
The
beginning of 2016 has seen one of the worst starts to a year ever in terms of
market volatility and sentiment, with the S&P 500 lower by over 7% YTD. Global
concerns are highly likely to be at the forefront of FOMC members minds yet
they will be wary about making any irrational decisions or comments. There is
no scheduled press conference following this rate decision, therefore full
focus will be on the statement and more importantly inflation commentary. As such, analysts have highlighted that any
language reference to the divergence between current market expectations and
the FOMC’s expectations regarding rate hikes will be of note. It is also worth mentioning that FFR
futures are currently not pricing in another rate hike until the meeting in
September, highlighting the continued divergence in expectations between the
FOMC and market participants. Individuals will also be looking out for
comments on the previously mentioned poor start to the year, alongside their
own projections of four rate hikes for 2016. Analysts have also highlighted the
further impact of the strong USD and its strain on inflation. Additionally, how
it is impacting exporters in the country and most notably the manufacturing
sector. This meeting has the potential to be more subdued than December’s due
to the large consensus that the FOMC are to leave rates unchanged. Additionally, given the fairly
disappointing data from the US that we have observed since the previous meeting
alongside oil concerns and continued fear of a global slowdown led by China,
risks are said to be skewed towards the downside.
PROJECTIONS
Projections
from December:
·
Fed median Fed Funds Rate seen at 1.40% at
2016-end, at 2.40% 2017-end and at 3.30% 2018-end; Longer run rate forecasts
3.50%.
·
Estimates 2015 GDP growth 2.1%, unemployment
rate at 5.0% and core inflation of 1.3%.
MARKET REACTION
Given the overwhelming consensus that the FOMC are to leave
rates unchanged, not hiking is unlikely to cause any reaction while neither is
a dovish tone given the various factors explained previously. Participants will be looking as to the
scale of how dovish the FOMC appear and how they see the recent developments
impacting on their own expectations. As such, if full details are laid out
by the Fed on the impact on the economy as to the recent developments, this
could cause the USD to lose ground against its major pairs, while yields are
likely to fall across the curve. However, if the Fed seem to shrug of any
impact from this year’s developments while maintaining their outlook for the
rest of 2016, the inverse may occur.
"Pipe Dreams" Of A Gently Rising Oil Price
Submitted by Tyler D.
01/26/2016 - 14:30
What does the world really want from oil prices? There are conflicting views, but, as Bloomberg's Mark Cudmore notes, ultimately a stable and slowly appreciating oil price is probably best.
It’s quite clear from price action that financial markets are keen to see oil bounce. Crude (with the yuan) led the early-year rout before spear-heading the broad relief rally last week. And its capitulation yesterday has snuffed out animal spirits globally.
But, it’s important to remember that financial asset performance isn’t everything. It’s generally assumed that cheaper oil is positive as it boosts consumers’ disposable incomes, broadening consumption and spurring the real economy.
As Citigroup’s head of emerging-market economics David Lubin wrote yesterday, cheaper oil may in fact hurt more than help emerging-market crude importers. His argument is that the retrenchment of petrodollar investment in developing economies may outweigh their savings from cheaper energy bills.
That may explain why we’ve yet to see a large economic boost after 18 months of falling petrol prices. And it’s another reason to support the plea from financial markets that we really don’t want oil prices to keep falling.
But that doesn’t mean the world needs a steep oil rally. Not only would that provide a new negative shock for the real economy, but developed-market central bankers might suddenly find themselves with a lot more of the recently-elusive inflation than they’ve been hoping for.
Base effects would exacerbate this problem and global markets might then be fighting an upward battle against quickly tightening monetary policy.
So stability is the target. Or perhaps, as is the desired state for prices more generally, a gradual appreciation -- ideally at a pace that’s just enough to support energy investment and capital flows.
That seems a pipe dream right now when Brent crude has moved by an average of 7.8% a week since the start of December...
For now it appears neither "stability" nor slow and gentle appreciation are on the cards.
- Fenix
- Mensajes: 16334
- Registrado: Vie Abr 23, 2010 2:36 am
Re: Martes 26/01/16 Inicio de la reunion del Fed
por Fenix » Mar Ene 26, 2016 8:22 pm
Here Are The Stocks Emerging Markets And Wealth Funds Are Quietly Liquidating
Submitted by Tyler D.
01/26/2016 - 14:42
"While EM government ownership of the European equity market is just 0.5% of market cap, it is up to 25% for individual names. We highlight 23 European companies with EM government ownership of more than 5% of market cap, according to the latest figures available on Bloomberg... we are concerned that further capital outflows from emerging markets could lead to more downside risk."
How The Current Sell-Off Stacks Up To All Previous Bear Markets
Submitted by Tyler D.
01/26/2016 - 15:40
Based on 43 large sell-offs in the world's major equity markets, Morgan Stanley gauges how the current market slide compares to bear markets and bull corrections through history. While they have tended to last about 190 business days, with drawdowns around 30%, the current environment is considerably weaker than the typical bear market beginning...
Why A Former Fed Official Fears A Global Meltdown
Submitted by Tyler D.
01/26/2016 - 15:55
"The Fed’s monetary policy of extraordinarily low interest rates helped create the asset bubbles in stock and commodity prices that are now bursting. In retrospect, the Fed’s rate hike last month will likely be viewed as monetary malpractice. None of this is likely to forestall turmoil in credit markets. Investors are wise to be worried..."
AAPL Earnings Beat Despite Missing Sales, iPhone Expectations; US Revenues Decline
Submitted by Tyler D.
01/26/2016 - 16:49
Expectations were hardly sky high for AAPL heading into a quarter in which most of its suppliers had already announced iPhone sales would be disappointing, and moments ago AAPL validated many of these concerns when while beating on the bottom line, with an EPS of $3.28 compared to expectations of a $3.22 print, it missed not only on the top line, with revenue coming shy of the $76.5 billion expected at $75.9 billion, but across every single product line, most notably iPhones, of which AAPL sold 74.78 million in the quarter, below the 75 million expected.
Peter Schiff On The End Of The Illusion Of Recovery
Submitted by Tyler D.
01/26/2016 - 17:40
The financial engineering that has been made possible by zero percent interest rates is no longer available to paper over weak corporate results in the U.S. Our economy is addicted to QE and zero rates, and without those supports, we will spiral back into recession. This is the reality that the mainstream tried mightily to ignore the past several years. But the chickens are coming home to roost, and they have a great many eggs to lay. In the end, stimulus does not create actual growth, but merely the illusion of it.
This Is What "Stress Levels" Looked Like Two Months Before The Last Three Market Crashes
Submitted by Tyler D.
01/26/2016 - 18:28
For those who are inching closer to the "crash is imminent" camp, we suggest taking a look at the chart below showing the stress levels, or rather lack thereof, 2 months prior to every major crash in the past decade, and extrapolating how far said "stress" may soar to in the coming 8 weeks if, as Citi, JPMorgan and Deutsche Bank today suggest, central banks are on the verge of losing control...
Oil Prices In 2016 Will Be Determined By These 6 Factors
01/26/2016 19:45 -0500
Submitted by Allen Gilmer
The one given in this industry is that the analyst community is consistently wrong about where the price of oil is going in the near to mid-term. Just as $100 oil was a sentiment driven price that baked in the risk of every potential negative impact on the supply chain, $28, $30 or $40 dollars is equally sentimental, assuming that any and all incremental barrels are and will be available AND demand will slow or stop.
2013 and 2015 forecasts. (forecasting sentiment is hard) Image Sources: EIA
So let’s just step away from the current noise and focus on a non-controversial outcome… that oil will be much more valuable in the future than it is today. What, exactly, will that future look like?
Today’s pricing sentiment is driven by a global economic “Pick 6” today…
1. US production rates,
2. Saudi Arabia’s ability to grow production,
3. Iran’s latent ability to produce more oil,
4. Chinese economic slowdown and its impact on consumption,
5. Russia’s ability to add global production, and
6. OPEC’s inscrutable strategy.
* * *
Let’s stipulate a couple of assumptions.
First, people will produce existing wells at rates that aren’t sustainable to preserve cash flow or compete for market share, because the cost to drill and bring online is already sunk. Second, new wells will not be drilled if there isn’t at least an outlook to breakeven producing them. That means an expectation of a sustained price over 1-3 years or until the well has been paid out.
U.S. Production Rates
Image Source: Drillinginfo Production Report for Unconventional U.S. Onshore Plays (Combined MBOE 20:1) over last six years. Note the lag in production reporting means Q42015 and even some Q32015 reports are not finalized.
First, let’s look at the U.S., the simplest and most transparent of the “Pick 6” issues bandied about as a price driver. Certainly the unconventional revolution has been a huge factor in global production increases over the last 6 years. The item NOT generally recognized is that production typically lags drilling by some 5 months, thus the drilling in December 2014 is discernible in production records in April 2015. That analysts were alarmed at increasing production and supply during the 1st half of the year suggested that they did not understand this dynamic, nor did the business press. We predicted in April that monthly production would peak in May and then jump around between -100 mbpd and -350 mbpd for the rest of the year. When looking at additional production month over month, it is important to remember that it is building on a sloping foundation of natural decline.
For instance, in 2014, as the U.S. added some million barrels of daily production, it had to produce 2.2 million new barrels of production to do so. The slope of that foundation required 1.2 million new barrels to just flatten it out. First year production in the U.S. has had a blended annual decline that has increased from 41 percent in for 2010 era wells to 47 percent for 2013 era wells. Therefore, 2014 era wells were likely to have declined 49 percent and 2015 by 51 percent in their first year. Second year declines show less of a pattern, ranging from 10-20 percent decline from the end of the prior year. In other words, we will see real production declines in 2016 as the full impact of 2015 drilling reductions are cycled through. Depending on the variability of the second year declines, this could range from -400 mbpd to well over -1MM bpd. So, the U.S. isn’t going to be the bringer of oil glut news going forward. In fact, the U.S. oil patch has severely damaged its capacity to rebound from an oil field services point of view, with companies foregoing normal maintenance to just survive. This deferred maintenance will have permanent consequences. Score: NOT a driver.
Saudi Arabia’s Ability To Grow Production
Whereas Saudi’s rig count is up, so is its production. They are producing record amounts and most analysts believe that there is little if any behind valve production. SCORE: NOT a driver
Iran’s Latent Ability To Produce More Oil
When sanctions hit Iran, they immediately dropped 600 mbpd from their official production levels. That they report the same production to the barrel since cause their official number to be quite suspect. Iran has not been investing in their infrastructure and they require outside dollars to reinvest in existing production, ranging from $30 billion to $500 billion over the next 5 years, depending on the source to maintain what they have. $30 oil is not an environment amenable to outside tender offers. Some claim that there will be no net new production in the near term, that Iran will merely start to recognize the production of oil it has sold in the black market. In any case, 500 mbpd ‘new’ production are baked in as of last week. SCORE: NOT a driver
Chinese Economic Slowdown And Its Impact On Consumption
As the year has progressed, the Chinese economy exhibits signs of extreme duress, suggesting that demand growth could weaken materially. Imports of metals and building materials are down substantively. Oil is not. China continues to import crude oil at increasing rates, most likely taking advantage of the low price environment to strengthen strategic reserves. China’s growing “guns vs butter” investment shift isn’t likely a bearish sign for crude oil, either. The IEA and EIA’s production growth estimates both suggest that the market isn’t going to elastically respond to lower crude prices, in essence saying that lower price will not drive higher consumption for the first time ever and despite the surprise increase in consumption in 2015 SCORE: NOT a driver.
Russia’s Ability To Add Global Production
Russia found itself in a fun position in 2015 as economic sanctions hammered the ruble down 50%. Essentially, Russia had a half price drilling environment and was effectively hedged by its cratering currency because it pays for new wells in rubles and sells its crude in dollars. This advantage doesn’t exist at commodity prices this low. Russia isn’t likely to spend a buck to get back 20 cents in the first year. SCORE: NOT a driver.
OPEC’s Inscrutable Strategy
Forget all the rest of the “Pick 6”. If anyone assumed OPEC wasn’t in charge of global oil prices, they were dead wrong. And by OPEC, let’s be honest and say Saudi Arabia. Only Russia, Saudi Arabia, and the U.S. technically have the production base to unilaterally affect the price of crude without completely undermining their net production rates, and the U.S. regulatory environment is focused on efficiency and safety and not price, because, alone of these three, the U.S. until recently was thought to be a net beneficiary of low priced crude oil.
Saudi Arabia, tired of being the only player ceding market share in an organization comprised of members that continually and habitually cheat on their production allotments, is flexing their global geopolitical muscle to enforce their control over the organization and to affect the amount of money available to global E&P projects in light of the new beta in crude oil pricing that is recognized today. So, as a result, the U.S. finally sees production declines of the celebrated unconventionals; Iran and Russia are starved of cash, along with the rest of the OPEC members, some to the point of existential crisis. How big a stick does Saudi Arabia wield right now? Very big, I think.
* * *
So what about the U.S. oil patch? The global price of crude is as ridiculously priced today as it was at $120 per barrel. A 2 percent oversupply in a world where we cannot even measure within 5 percent with any certainty drops the price of crude over 70 percent and has every analyst that claimed just 2 years ago that we would never see crude below $100 again now claiming that we won’t see oil above $40 anytime soon. They were wrong then, and they are wrong now.
Image Source
What is different is that the cost of capital in the U.S. has gotten much higher. That won’t be changing soon. Banks and other lenders have already started changing the cost of capital. Warrants are being demanded at closings. Even when oil recovers, this will not change rapidly. Watch the industry get a lot better, because their breakeven for cost of capital will have gotten worse. The oilfield service sector has suffered more than a glancing blow. It will not be able to ramp up as quickly as it was laid down. A lot of its equipment is shot for lack of proper maintenance.
The Fed is reported to be advising banks to push for asset liquidation in lieu of bankruptcy. This is actually a good idea if the point is to preserve value for lenders and equity holders. There is nothing more damaging to producing oil and gas assets as a bankruptcy trustee. Great for the eventual acquirer, bankruptcy trustees know how to make sows ears from silk purses by their reluctance to fund what Texas Independent Producers and Royalty Owners (TIPRO) chairman Raymond Welder calls the “recurring, non-recurring” expenses such as workovers necessary and common in the oilfield.
Submitted by Tyler D.
01/26/2016 - 14:42
"While EM government ownership of the European equity market is just 0.5% of market cap, it is up to 25% for individual names. We highlight 23 European companies with EM government ownership of more than 5% of market cap, according to the latest figures available on Bloomberg... we are concerned that further capital outflows from emerging markets could lead to more downside risk."
How The Current Sell-Off Stacks Up To All Previous Bear Markets
Submitted by Tyler D.
01/26/2016 - 15:40
Based on 43 large sell-offs in the world's major equity markets, Morgan Stanley gauges how the current market slide compares to bear markets and bull corrections through history. While they have tended to last about 190 business days, with drawdowns around 30%, the current environment is considerably weaker than the typical bear market beginning...
Why A Former Fed Official Fears A Global Meltdown
Submitted by Tyler D.
01/26/2016 - 15:55
"The Fed’s monetary policy of extraordinarily low interest rates helped create the asset bubbles in stock and commodity prices that are now bursting. In retrospect, the Fed’s rate hike last month will likely be viewed as monetary malpractice. None of this is likely to forestall turmoil in credit markets. Investors are wise to be worried..."
AAPL Earnings Beat Despite Missing Sales, iPhone Expectations; US Revenues Decline
Submitted by Tyler D.
01/26/2016 - 16:49
Expectations were hardly sky high for AAPL heading into a quarter in which most of its suppliers had already announced iPhone sales would be disappointing, and moments ago AAPL validated many of these concerns when while beating on the bottom line, with an EPS of $3.28 compared to expectations of a $3.22 print, it missed not only on the top line, with revenue coming shy of the $76.5 billion expected at $75.9 billion, but across every single product line, most notably iPhones, of which AAPL sold 74.78 million in the quarter, below the 75 million expected.
Peter Schiff On The End Of The Illusion Of Recovery
Submitted by Tyler D.
01/26/2016 - 17:40
The financial engineering that has been made possible by zero percent interest rates is no longer available to paper over weak corporate results in the U.S. Our economy is addicted to QE and zero rates, and without those supports, we will spiral back into recession. This is the reality that the mainstream tried mightily to ignore the past several years. But the chickens are coming home to roost, and they have a great many eggs to lay. In the end, stimulus does not create actual growth, but merely the illusion of it.
This Is What "Stress Levels" Looked Like Two Months Before The Last Three Market Crashes
Submitted by Tyler D.
01/26/2016 - 18:28
For those who are inching closer to the "crash is imminent" camp, we suggest taking a look at the chart below showing the stress levels, or rather lack thereof, 2 months prior to every major crash in the past decade, and extrapolating how far said "stress" may soar to in the coming 8 weeks if, as Citi, JPMorgan and Deutsche Bank today suggest, central banks are on the verge of losing control...
Oil Prices In 2016 Will Be Determined By These 6 Factors
01/26/2016 19:45 -0500
Submitted by Allen Gilmer
The one given in this industry is that the analyst community is consistently wrong about where the price of oil is going in the near to mid-term. Just as $100 oil was a sentiment driven price that baked in the risk of every potential negative impact on the supply chain, $28, $30 or $40 dollars is equally sentimental, assuming that any and all incremental barrels are and will be available AND demand will slow or stop.
2013 and 2015 forecasts. (forecasting sentiment is hard) Image Sources: EIA
So let’s just step away from the current noise and focus on a non-controversial outcome… that oil will be much more valuable in the future than it is today. What, exactly, will that future look like?
Today’s pricing sentiment is driven by a global economic “Pick 6” today…
1. US production rates,
2. Saudi Arabia’s ability to grow production,
3. Iran’s latent ability to produce more oil,
4. Chinese economic slowdown and its impact on consumption,
5. Russia’s ability to add global production, and
6. OPEC’s inscrutable strategy.
* * *
Let’s stipulate a couple of assumptions.
First, people will produce existing wells at rates that aren’t sustainable to preserve cash flow or compete for market share, because the cost to drill and bring online is already sunk. Second, new wells will not be drilled if there isn’t at least an outlook to breakeven producing them. That means an expectation of a sustained price over 1-3 years or until the well has been paid out.
U.S. Production Rates
Image Source: Drillinginfo Production Report for Unconventional U.S. Onshore Plays (Combined MBOE 20:1) over last six years. Note the lag in production reporting means Q42015 and even some Q32015 reports are not finalized.
First, let’s look at the U.S., the simplest and most transparent of the “Pick 6” issues bandied about as a price driver. Certainly the unconventional revolution has been a huge factor in global production increases over the last 6 years. The item NOT generally recognized is that production typically lags drilling by some 5 months, thus the drilling in December 2014 is discernible in production records in April 2015. That analysts were alarmed at increasing production and supply during the 1st half of the year suggested that they did not understand this dynamic, nor did the business press. We predicted in April that monthly production would peak in May and then jump around between -100 mbpd and -350 mbpd for the rest of the year. When looking at additional production month over month, it is important to remember that it is building on a sloping foundation of natural decline.
For instance, in 2014, as the U.S. added some million barrels of daily production, it had to produce 2.2 million new barrels of production to do so. The slope of that foundation required 1.2 million new barrels to just flatten it out. First year production in the U.S. has had a blended annual decline that has increased from 41 percent in for 2010 era wells to 47 percent for 2013 era wells. Therefore, 2014 era wells were likely to have declined 49 percent and 2015 by 51 percent in their first year. Second year declines show less of a pattern, ranging from 10-20 percent decline from the end of the prior year. In other words, we will see real production declines in 2016 as the full impact of 2015 drilling reductions are cycled through. Depending on the variability of the second year declines, this could range from -400 mbpd to well over -1MM bpd. So, the U.S. isn’t going to be the bringer of oil glut news going forward. In fact, the U.S. oil patch has severely damaged its capacity to rebound from an oil field services point of view, with companies foregoing normal maintenance to just survive. This deferred maintenance will have permanent consequences. Score: NOT a driver.
Saudi Arabia’s Ability To Grow Production
Whereas Saudi’s rig count is up, so is its production. They are producing record amounts and most analysts believe that there is little if any behind valve production. SCORE: NOT a driver
Iran’s Latent Ability To Produce More Oil
When sanctions hit Iran, they immediately dropped 600 mbpd from their official production levels. That they report the same production to the barrel since cause their official number to be quite suspect. Iran has not been investing in their infrastructure and they require outside dollars to reinvest in existing production, ranging from $30 billion to $500 billion over the next 5 years, depending on the source to maintain what they have. $30 oil is not an environment amenable to outside tender offers. Some claim that there will be no net new production in the near term, that Iran will merely start to recognize the production of oil it has sold in the black market. In any case, 500 mbpd ‘new’ production are baked in as of last week. SCORE: NOT a driver
Chinese Economic Slowdown And Its Impact On Consumption
As the year has progressed, the Chinese economy exhibits signs of extreme duress, suggesting that demand growth could weaken materially. Imports of metals and building materials are down substantively. Oil is not. China continues to import crude oil at increasing rates, most likely taking advantage of the low price environment to strengthen strategic reserves. China’s growing “guns vs butter” investment shift isn’t likely a bearish sign for crude oil, either. The IEA and EIA’s production growth estimates both suggest that the market isn’t going to elastically respond to lower crude prices, in essence saying that lower price will not drive higher consumption for the first time ever and despite the surprise increase in consumption in 2015 SCORE: NOT a driver.
Russia’s Ability To Add Global Production
Russia found itself in a fun position in 2015 as economic sanctions hammered the ruble down 50%. Essentially, Russia had a half price drilling environment and was effectively hedged by its cratering currency because it pays for new wells in rubles and sells its crude in dollars. This advantage doesn’t exist at commodity prices this low. Russia isn’t likely to spend a buck to get back 20 cents in the first year. SCORE: NOT a driver.
OPEC’s Inscrutable Strategy
Forget all the rest of the “Pick 6”. If anyone assumed OPEC wasn’t in charge of global oil prices, they were dead wrong. And by OPEC, let’s be honest and say Saudi Arabia. Only Russia, Saudi Arabia, and the U.S. technically have the production base to unilaterally affect the price of crude without completely undermining their net production rates, and the U.S. regulatory environment is focused on efficiency and safety and not price, because, alone of these three, the U.S. until recently was thought to be a net beneficiary of low priced crude oil.
Saudi Arabia, tired of being the only player ceding market share in an organization comprised of members that continually and habitually cheat on their production allotments, is flexing their global geopolitical muscle to enforce their control over the organization and to affect the amount of money available to global E&P projects in light of the new beta in crude oil pricing that is recognized today. So, as a result, the U.S. finally sees production declines of the celebrated unconventionals; Iran and Russia are starved of cash, along with the rest of the OPEC members, some to the point of existential crisis. How big a stick does Saudi Arabia wield right now? Very big, I think.
* * *
So what about the U.S. oil patch? The global price of crude is as ridiculously priced today as it was at $120 per barrel. A 2 percent oversupply in a world where we cannot even measure within 5 percent with any certainty drops the price of crude over 70 percent and has every analyst that claimed just 2 years ago that we would never see crude below $100 again now claiming that we won’t see oil above $40 anytime soon. They were wrong then, and they are wrong now.
Image Source
What is different is that the cost of capital in the U.S. has gotten much higher. That won’t be changing soon. Banks and other lenders have already started changing the cost of capital. Warrants are being demanded at closings. Even when oil recovers, this will not change rapidly. Watch the industry get a lot better, because their breakeven for cost of capital will have gotten worse. The oilfield service sector has suffered more than a glancing blow. It will not be able to ramp up as quickly as it was laid down. A lot of its equipment is shot for lack of proper maintenance.
The Fed is reported to be advising banks to push for asset liquidation in lieu of bankruptcy. This is actually a good idea if the point is to preserve value for lenders and equity holders. There is nothing more damaging to producing oil and gas assets as a bankruptcy trustee. Great for the eventual acquirer, bankruptcy trustees know how to make sows ears from silk purses by their reluctance to fund what Texas Independent Producers and Royalty Owners (TIPRO) chairman Raymond Welder calls the “recurring, non-recurring” expenses such as workovers necessary and common in the oilfield.
- Fenix
- Mensajes: 16334
- Registrado: Vie Abr 23, 2010 2:36 am
Re: Martes 26/01/16 Inicio de la reunion del Fed
por Fenix » Mar Ene 26, 2016 8:24 pm
Something Really Snapped At The Comex
Submitted by Tyler D.
01/26/2016 17:12 -0500
There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka "registered" gold, had stayed practically unchanged at 275K ounces all throughout January.
Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner's request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.
This took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink's (-21K ounces).
Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.
This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the "coverage ratio" that shows the total number of gold claims relative to the physical gold that "backs" such potential delivery requests, - or simply said physical-to-paper gold dilution - just exploded.
As the chart below shows - which is disturbing without any further context - the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday's close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.
To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold's owner.
Still, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.
Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn't.
Ben Bernanke: Buy One Suit, Get Three Free
Submitted by Vitaliy Katsenelson on 01/26/2016 09:28 -0500
Ben Bernanke is no longer the Fed's chairman, but this article is even more relevant today then it was when I wrote it in August 2013.
Ben Bernanke: Buy One Suit, Get Three Free
By Vitaliy Katsenelson, CFA
Linear thinking is dangerous. It is the easiest form of reasoning, lying on the path of least resistance. The simpler the path, the more readily people will march along it. Linear arguments are easy to make, as they require the least amount of evidence — past data points with a straight line drawn through them.However, the larger the crowd that follows the wrong line of reasoning, the more people pile in, and the greater the consequences if they are proved wrong.
A lot of things in nature, and thus in investing, are not linear. A past trend may or may not persist into the future. Events don’t happen in a vacuum; they are observed, studied and capitalized on — which in the case of investing may preclude a company’s future from resembling its past. As I write this, I think of successful companies whose achievements attracted competition, which then marginalized them.
Some things are inherently nonlinear, their behavior reminiscent of a pendulum’s: The further they swing in one direction, the harder they’ll go in the opposite direction. It is very dangerous to default to linearity with such nonlinear phenomena, as the more confident we become in the swing (the more linearity we observe), the closer we are to the pendulum’s reversing course.
Price-earnings ratios often follow a pendulum behavior. If you look at high-quality dividend-paying stocks — the Coca-Colas and Procter & Gambles of the world — they are now changing hands at more than 20 times earnings. Their recent performance has driven linear thinkers to pile into them, expecting more of the same in the future. Don’t! These stocks were beneficiaries of a swing in the P/E pendulum as it went from low to average and then to above-average levels.
Pattern recognition is an important contributor to success in investing. Mark Twain once said that history doesn’t repeat itself, but it rhymes. If you can identify a rhyme (that is, see a pattern) relating to the current situation, then you can develop a framework to analyze and forecast it. But what if the current situation is very different — if it doesn’t rhyme with anything in the past? This is where the ability to draw parallels becomes helpful. It allows you to overlay rhymes (patterns) from other companies, industries or even fields. Building analogous frameworks is a cure for linear thinking; it helps us see nonlinearity and facilitates the creation of nonlinear mental models.
Then there is pseudolinearity: things that seem to be linear but are forced into linearity by extrinsic factors. This was a subtopic of my presentation at the Valuex Vail investing conference in June. I drew a parallel between two entities that suddenly looked analogous: Jos. A. Bank Clothiers, a Hampstead, Maryland–based retailer of men’s apparel, and the Federal Reserve.
Jos. A. Bank has always been a very promotional retailer. It would jack up prices, then run sales for consumers happy to be deceived — a typical American retail tale. But sometime in 2008, Jos. A. Bank went promotional on steroids. You could not watch CNBC for an hour without seeing one of its ads. The company started out by encouraging you to buy one suit and get one free. Then you got two free suits. Finally, it started giving away Android phones with suit purchases. For a while this past March, Jos. A. Bank offered consumers the opportunity to buy one suit and get three free.
There are several problems with the strategy: It does not emphasize the quality of the suits or the company’s great service, and the ads aren’t helping to build a brand but are intended just to pimp sales at Jos. A. Bank, as if it were a grocery store with USDA choice beef on sale.
This brings us to the latest quarter. Jos. A. Bank’s same-store sales dropped 8 percent, but what really piqued my interest was this explanation by its CEO, R. Neal Black, during its earnings call in June: “Since 2008, at the beginning of the financial crisis and the recession, the overall sales picture has been one of volatility, and strong promotional activity has been consistently and effectively driving our sales increases. This strategy was designed with 18 to 24 months of effectiveness in mind, and we stuck with it for more than 60 months since — as the economy remained weak. Now the strategy has become less effective.”
What Jos. A. Bank has really been doing since the financial crisis is running its own version of quantitative easing. The company had a temporary strategy that was supposed to get people into its stores during the recession — much like the Fed’s original QE, which was designed to provide liquidity in a time of crisis — but the recovery that ensued was not to Jos. A. Bank’s liking. So just as the Fed implemented QE2, and then QE3 when the economy did not improve to its satisfaction, the retailer followed with more QE.
It is understandable why Jos. A. Bank’s management did what it did. The company was being responsible to its employees — it didn’t want to close stores or have layoffs — and it had to report quarterly to shareholders. The focus shifted from building a long-term sustainable franchise to using short-term measures to grow earnings the next quarter and the quarter after that.
There are many lessons that one can draw from the parallels between Jos. A. Bank’s behavior and the Fed’s handling of our economy. First, it is very hard to challenge someone who has a linear argument. Let’s say that a year ago you talked to Jos. A. Bank’s management and raised the question of the sustainability of their advertising strategy. They’d have pointed to four years of success, and they’d have been right, at least up to that moment. They would have had four years of data points and a bulletproof linear argument, and you would have had your common sense and little else.
Right now Ben Bernanke looks like a genius. He can show you all the data points in the recovery, but so could Jos. A. Bank, and this leads us to a second lesson: Pain is postponable, but it is cumulative. During Jos. A. Bank’s quarterly call, its CEO also said: “The decline in traffic is because existing customers are returning slightly less frequently. . . . It makes sense when you consider the saturating effect of our intense promotional activity over the past several years.”
With every sale Jos. A. Bank stole its future purchases, because when you buy one suit and get three for free, you may not need to buy another one for a while.But there is also a snowball effect that you cannot ignore: Every ad chipped away at the company’s brand. Now when you show someone that you wear a Jos. A. Bank suit, they don’t think about its quality, just that you have two or three more suits in your closet.
There is a cost to our recovery — a bloated Federal Reserve balance sheet and our addiction to low interest rates. Of course, we spread that addiction globally. According to Hugh Hendry, founding partner and CIO of London-based hedge fund firm Eclectica Asset Management, rising U.S. bond yields have driven global yields higher. “In Brazil for instance, the biggest emerging debt market, no company has been able to raise debt abroad since mid-May as borrowing costs soared to a four-year high in June, at 7.1 percent,” he wrote in a recent investment letter.
The Fed is betting on George Soros’ theory of reflexivity, in which people’s biases and actions can change the economy: Instead of the wagon being towed by the horse, the wagon, in expectation that it will be towed by the horse, starts moving on its own, thereby motivating the horse to start towing the wagon.Lower interest rates drive people to riskier assets, and as asset values go up, people feel confident and spend money, and the economy grows. But this policy puts us on very shaky ground, because reflexivity cuts both ways: If asset prices start to decline, confidence declines — and so will the economy. Now there are a lot more savers owning riskier assets than they otherwise would have, and their wealth is at risk of getting wiped out.
The third lesson from the parallels between the Fed and Jos. A. Bank: We are in the midst of a game of musical chairs, and when the music stops, no one wants to be left standing around holding risky assets. Everyone is focused on the Fed’s tapering, and they are right to do so. Just as we saw with Jos. A. Bank, economic promotions cannot go on forever. With every sale the company had to increase the ante, giving away more and more to get people to come into its stores. The Fed may continue to buy Treasuries and mortgage securities, but the purchases will be less and less effective. And the music may stop on its own, without the Fed doing anything about it.
Last, pseudolinearity eventually leads to high uncertainty and thus lower valuations. Put yourself in the shoes of an investor analyzing Jos. A. Bank today. Before buying the stock, you’d have to answer the following questions: What is the company’s earnings power? How much did its promotional strategy damage the brand? And how much in future sales did that strategy steal?
In the wake of Jos. A. Bank’s own five-year, nonstop version of QE, it is difficult to answer these questions with confidence. The company’s earnings power is uncertain, and investors will be willing to pay less for a dollar of uncertain earnings, thus resulting in a lower P/E. At some point, when U.S. economic activity weakens, investors will have to answer similar questions about the U.S. and global economies. And as they look for answers, they’ll be putting a lower P/E on U.S. stocks.
Submitted by Tyler D.
01/26/2016 17:12 -0500
There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka "registered" gold, had stayed practically unchanged at 275K ounces all throughout January.
Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner's request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.
This took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink's (-21K ounces).
Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.
This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the "coverage ratio" that shows the total number of gold claims relative to the physical gold that "backs" such potential delivery requests, - or simply said physical-to-paper gold dilution - just exploded.
As the chart below shows - which is disturbing without any further context - the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday's close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.
To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold's owner.
Still, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.
Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn't.
Ben Bernanke: Buy One Suit, Get Three Free
Submitted by Vitaliy Katsenelson on 01/26/2016 09:28 -0500
Ben Bernanke is no longer the Fed's chairman, but this article is even more relevant today then it was when I wrote it in August 2013.
Ben Bernanke: Buy One Suit, Get Three Free
By Vitaliy Katsenelson, CFA
Linear thinking is dangerous. It is the easiest form of reasoning, lying on the path of least resistance. The simpler the path, the more readily people will march along it. Linear arguments are easy to make, as they require the least amount of evidence — past data points with a straight line drawn through them.However, the larger the crowd that follows the wrong line of reasoning, the more people pile in, and the greater the consequences if they are proved wrong.
A lot of things in nature, and thus in investing, are not linear. A past trend may or may not persist into the future. Events don’t happen in a vacuum; they are observed, studied and capitalized on — which in the case of investing may preclude a company’s future from resembling its past. As I write this, I think of successful companies whose achievements attracted competition, which then marginalized them.
Some things are inherently nonlinear, their behavior reminiscent of a pendulum’s: The further they swing in one direction, the harder they’ll go in the opposite direction. It is very dangerous to default to linearity with such nonlinear phenomena, as the more confident we become in the swing (the more linearity we observe), the closer we are to the pendulum’s reversing course.
Price-earnings ratios often follow a pendulum behavior. If you look at high-quality dividend-paying stocks — the Coca-Colas and Procter & Gambles of the world — they are now changing hands at more than 20 times earnings. Their recent performance has driven linear thinkers to pile into them, expecting more of the same in the future. Don’t! These stocks were beneficiaries of a swing in the P/E pendulum as it went from low to average and then to above-average levels.
Pattern recognition is an important contributor to success in investing. Mark Twain once said that history doesn’t repeat itself, but it rhymes. If you can identify a rhyme (that is, see a pattern) relating to the current situation, then you can develop a framework to analyze and forecast it. But what if the current situation is very different — if it doesn’t rhyme with anything in the past? This is where the ability to draw parallels becomes helpful. It allows you to overlay rhymes (patterns) from other companies, industries or even fields. Building analogous frameworks is a cure for linear thinking; it helps us see nonlinearity and facilitates the creation of nonlinear mental models.
Then there is pseudolinearity: things that seem to be linear but are forced into linearity by extrinsic factors. This was a subtopic of my presentation at the Valuex Vail investing conference in June. I drew a parallel between two entities that suddenly looked analogous: Jos. A. Bank Clothiers, a Hampstead, Maryland–based retailer of men’s apparel, and the Federal Reserve.
Jos. A. Bank has always been a very promotional retailer. It would jack up prices, then run sales for consumers happy to be deceived — a typical American retail tale. But sometime in 2008, Jos. A. Bank went promotional on steroids. You could not watch CNBC for an hour without seeing one of its ads. The company started out by encouraging you to buy one suit and get one free. Then you got two free suits. Finally, it started giving away Android phones with suit purchases. For a while this past March, Jos. A. Bank offered consumers the opportunity to buy one suit and get three free.
There are several problems with the strategy: It does not emphasize the quality of the suits or the company’s great service, and the ads aren’t helping to build a brand but are intended just to pimp sales at Jos. A. Bank, as if it were a grocery store with USDA choice beef on sale.
This brings us to the latest quarter. Jos. A. Bank’s same-store sales dropped 8 percent, but what really piqued my interest was this explanation by its CEO, R. Neal Black, during its earnings call in June: “Since 2008, at the beginning of the financial crisis and the recession, the overall sales picture has been one of volatility, and strong promotional activity has been consistently and effectively driving our sales increases. This strategy was designed with 18 to 24 months of effectiveness in mind, and we stuck with it for more than 60 months since — as the economy remained weak. Now the strategy has become less effective.”
What Jos. A. Bank has really been doing since the financial crisis is running its own version of quantitative easing. The company had a temporary strategy that was supposed to get people into its stores during the recession — much like the Fed’s original QE, which was designed to provide liquidity in a time of crisis — but the recovery that ensued was not to Jos. A. Bank’s liking. So just as the Fed implemented QE2, and then QE3 when the economy did not improve to its satisfaction, the retailer followed with more QE.
It is understandable why Jos. A. Bank’s management did what it did. The company was being responsible to its employees — it didn’t want to close stores or have layoffs — and it had to report quarterly to shareholders. The focus shifted from building a long-term sustainable franchise to using short-term measures to grow earnings the next quarter and the quarter after that.
There are many lessons that one can draw from the parallels between Jos. A. Bank’s behavior and the Fed’s handling of our economy. First, it is very hard to challenge someone who has a linear argument. Let’s say that a year ago you talked to Jos. A. Bank’s management and raised the question of the sustainability of their advertising strategy. They’d have pointed to four years of success, and they’d have been right, at least up to that moment. They would have had four years of data points and a bulletproof linear argument, and you would have had your common sense and little else.
Right now Ben Bernanke looks like a genius. He can show you all the data points in the recovery, but so could Jos. A. Bank, and this leads us to a second lesson: Pain is postponable, but it is cumulative. During Jos. A. Bank’s quarterly call, its CEO also said: “The decline in traffic is because existing customers are returning slightly less frequently. . . . It makes sense when you consider the saturating effect of our intense promotional activity over the past several years.”
With every sale Jos. A. Bank stole its future purchases, because when you buy one suit and get three for free, you may not need to buy another one for a while.But there is also a snowball effect that you cannot ignore: Every ad chipped away at the company’s brand. Now when you show someone that you wear a Jos. A. Bank suit, they don’t think about its quality, just that you have two or three more suits in your closet.
There is a cost to our recovery — a bloated Federal Reserve balance sheet and our addiction to low interest rates. Of course, we spread that addiction globally. According to Hugh Hendry, founding partner and CIO of London-based hedge fund firm Eclectica Asset Management, rising U.S. bond yields have driven global yields higher. “In Brazil for instance, the biggest emerging debt market, no company has been able to raise debt abroad since mid-May as borrowing costs soared to a four-year high in June, at 7.1 percent,” he wrote in a recent investment letter.
The Fed is betting on George Soros’ theory of reflexivity, in which people’s biases and actions can change the economy: Instead of the wagon being towed by the horse, the wagon, in expectation that it will be towed by the horse, starts moving on its own, thereby motivating the horse to start towing the wagon.Lower interest rates drive people to riskier assets, and as asset values go up, people feel confident and spend money, and the economy grows. But this policy puts us on very shaky ground, because reflexivity cuts both ways: If asset prices start to decline, confidence declines — and so will the economy. Now there are a lot more savers owning riskier assets than they otherwise would have, and their wealth is at risk of getting wiped out.
The third lesson from the parallels between the Fed and Jos. A. Bank: We are in the midst of a game of musical chairs, and when the music stops, no one wants to be left standing around holding risky assets. Everyone is focused on the Fed’s tapering, and they are right to do so. Just as we saw with Jos. A. Bank, economic promotions cannot go on forever. With every sale the company had to increase the ante, giving away more and more to get people to come into its stores. The Fed may continue to buy Treasuries and mortgage securities, but the purchases will be less and less effective. And the music may stop on its own, without the Fed doing anything about it.
Last, pseudolinearity eventually leads to high uncertainty and thus lower valuations. Put yourself in the shoes of an investor analyzing Jos. A. Bank today. Before buying the stock, you’d have to answer the following questions: What is the company’s earnings power? How much did its promotional strategy damage the brand? And how much in future sales did that strategy steal?
In the wake of Jos. A. Bank’s own five-year, nonstop version of QE, it is difficult to answer these questions with confidence. The company’s earnings power is uncertain, and investors will be willing to pay less for a dollar of uncertain earnings, thus resulting in a lower P/E. At some point, when U.S. economic activity weakens, investors will have to answer similar questions about the U.S. and global economies. And as they look for answers, they’ll be putting a lower P/E on U.S. stocks.
- Fenix
- Mensajes: 16334
- Registrado: Vie Abr 23, 2010 2:36 am
Re: Martes 26/01/16 Inicio de la reunion del Fed
por Comodoro » Mié Ene 27, 2016 12:18 am
Los gráficos del día, 
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