Month: December 2014

Via Mint – Blain’s Extra Porridge,

“Nazhmite Lyubuyu Stavku…“

Extra Comment – this might be getting serious.

 

Russia’s markets have been spanked hard despite last night’s hike. 19% currency crash and 13% down stocks in a session. Ouch! Cumulatively, over the past few weeks stocks, oil and the Ruble are off 50% plus, and bonds off 40%. This morning felt like free-fall. Expect more action from the Russians to stave off economic catastrophe… imminent capital controls are rumoured, but markets are demonstrating a massive loss of confidence.

Lots of old market hands are talking about how its similar to the Russia default and crash of ‘98 all over again.. Actually.. its worse.

Much worse.

The scale and speed of the current collapse is a magnitude greater, and the effects are accelerated and magnified by the utter absence of liquidity, and by the political stakes at play. Lots of comments about how a Russian crisis might play out and what cornered Putin may do – or be forced into. Let’s not speculate, but it seems pretty clear that any Western support to calm the crisis and stabilise markets would come at a very high personal cost to Putin. That would be a good point to get selectively involved.

It’s too early. We’ve seen a few cautious buyers get wallpapered with Russian and Ukraine paper – and done decent amount of business, but generally none of the main distressed players feel it’s yet time to get involved. “Don’t expect a V-Shaped recovery – its different and aint going to happen..” said one manager. Hope is not a strategy when it comes to Russia at present.

The big risk is whether the Russian meltdown can be contained within the borders of the Rodina. All kinds of no-see-ems suggest themselves.

What are potential knock-ons into other markets? Perhaps Russians having to unwind London Property, (we understand Russians have been very big buyers in recent weeks prefiguring potential exchange controls), or further ructions in Europe? We’re already concerned European sovereign debt is poised on a knife-edge between brutal reality and over-inflated hopes for QE. A strong nudge from a conflagurating Russia and bang goes Italy?

Or will it come from safe-haven flight triggering sell-offs across every asset class in a replay of 2008? Could a Russia default that will outspook the Lehman apocalypse be on the cards?

So much for dull Christmas markets…

via Zero Hedge http://ift.tt/1zo1O8m Tyler Durden

Following the conversion of all of its failed peers into bailed-out, FDIC-insured bank holding companies (speaking of which, where can one find a Goldman ATM these days?), middle-market focused Jefferies may be best-known as the last true investment bank standing. Or at least was until Leucadia came and gobbled it up a year ago.

But what Jefferies is best known for among Wall Street shareholders is that, by still reporting a Nov. 30 fiscal year end, 1 month ahead of everyone else, it provides an invaluable glimpse into the fortunes of its Wall Street peers with a 4 week advance notice, especially when it comes to its bread and butter: fixed income trading (recall that CEO Rich Handler was a Drexel bond trader when the firm blew up). And report it did earlier today, although most of Wall Street shareholders would rather it didn’t, because the numbers were absolutely abysmal, and indicative of nothing short of a trading bloodbath on Wall Street in the latest three months of trading. In fact, if this is what one should expect out of the larger Wall Street names in a few weeks when the big banks close the quarter, then it may be best to skip earnings season altogether.

The numbers:

• A 73% drop in Q4 revenue from fixed-income trading, down to $61 million from $227 million
• A 45% drop in Q4 revenue from equity trading, down to $158 million from $290 million
• A 24% drop in Q4 revenue from investment banking, down to $316 million from $417 million

Charted:

Overall, Q4 net revenue crashed by a whopping 43% to just $538 million (resulting in a net loss of $92 million) driven by the plunge in revenues from fixed income and equity trading. There is a caveat: it wasn’t just a plunge in flow volumes: Jefferies decided that it was smart to have some prop positions on too. Positions which had yet another spectacular blow out. From Bloomberg:

Jefferies Group reported a 73 percent drop in fourth-quarter revenue from fixed-income trading as the firm sustained losses on distressed debt, including Fannie Mae and Freddie Mac securities.

 

“We experienced a very challenging fourth quarter,” Chief Executive Officer Richard Handler, 53, said in the statement. “Despite these results and our decision in respect of pursuing strategic alternatives for our Bache business, we believe Jefferies’s prospects for 2015 are solid, with our investment-banking backlog currently robust, and an expectation of more normal trading markets.”

Still, it is safe to say that with vol surging in the last quarter, most if not all banks will come well to the low side of FICC expectations: “Fixed income was affected by heightened volatility starting in September and a tepid trading environment that led to mark-to-market writedowns, the firm said. The bank reported $55 million in negative revenue from distressed trading following a slump in those markets, it said.”

Finally, while it is not a secret that Goldman has almost single-handedly taken over the advisory business, mostly on the M&A (and stock buyback advisory) side, the tradeoff is that there is very little residual business left for everyone else, such as smaller firms like Jefferies.

Investment-banking revenue declined 24 percent because of “dampened capital-markets activity due to the unsettled markets, which in turn led to the postponement of deals into future periods,” the firm said in the statement.

The only good news, if any, is that Jefferies said the tabloid drama surrounding its ex-UBS rainmaker Sage Kelly did not hurt its revenues. “The impact from the unusual publicity in late October and November was immaterial” to earnings, the firm said in the statement. Which show that the cost to shut up the disgruntled Mrs. Kelly was far lower than the most optimistic estimates.

via Zero Hedge http://ift.tt/1wGYtyI Tyler Durden

Wolf Richter   www.wolfstreet.com   http://ift.tt/Wz5XCn

The price of oil plunged once again off the chart on Monday and early Tuesday. At one point, West Texas Intermediate traded below $54 per barrel, though it soon bounced off. Crude is down nearly 50% since June. And over-indebted energy companies with cash flows that range from increasingly uncertain to completely demolished are suddenly contemplating just how deep the abyss might be.

The below-investment-grade bonds these risky companies issued with enormous hoopla and hype to fund the shale revolution and offshore drilling projects, lovingly dubbed “junk bonds,” had been sold to investors on the premise that oil would sell for ever increasing prices in the future, with the understanding that this might allow the company to make interest payments on time and raise new debt to pay off the old debt when it matures.

Even the still uncertain economics of fracking – the expense of drilling coupled with the horrendous decline rates – or the potential environmental consequences and subsequent backlash were elegantly shrugged off on Wall Street, given the ever increasing price of oil.

And investors loved the slightly higher yields these bonds offered in an era when the Fed and other central banks have conspired to expunge yield from the system with the express purpose of pushing investors ever further out into riskier and riskier bets. Investors, driven to near insanity by these central-bank policies, went for the junk bonds with gusto, and it turned into a feeding frenzy that pushed yields down even further, encouraging companies to issue more and more junk at lower and lower yields.

Now the price of oil has plunged by nearly half. None of the equations work any longer. Sure, oil companies have hedged some of their production at much higher prices, and few are fully exposed, at least not yet, to the wrath of the oil-price collapse. But some of their production is already exposed, and in the future more and more of their production will be exposed.

Then what? The answer hovering in the room for junk bond investors, which includes conservative-sounding bond funds that people have in their retirement portfolios: default. A very unappetizing thought.

So investors are losing their appetite for oil and gas junk bonds. As they dump this suddenly crappy-looking paper and as they unwind this once magnificent bubble, prices drop and yields soar. This chart by S&P Capital IQ’s HighYieldBond.com shows just how rapid the decline has been: in July, energy junk bonds (red line) were still trading above 105 cents on the dollar, outperforming overall junk bonds (blue line) during the peak of the junk-bond bubble. Then the Great Unwind set in:

During these times of turmoil in the oil patch and on Wall Street, scores of bond issues become illiquid, and “price discovery” sets in where buyers and sellers are so far apart that no trades take place. And if forced selling sets in, prices collapse entirely. It’s brutal out there.

It’s a big market: energy junk bonds make up over 15% of the $1.3 trillion high-yield market. The rout has started to drag on the overall junk-bond bubble, and junk bonds ex-energy are now also declining.

At the riskiest and erstwhile frothiest end of the overall junk-bond market, it’s getting outright ugly: the effective yield index for bonds rated CCC or lower jumped from the record junk-bond-bubble low of 7.94% in late June to 11.72% on Monday. An increase of nearly 50% in funding cost for companies in that category. Here is a two-year chart with that beautiful spike :

Junk bonds provided $1.3 trillion in funding to risky companies of all stripes, some of which are in terrible shape and likely to default in the near future. But oil drillers saw their revenue model suddenly cut in half, and this scares investors.

They know their favorite junk bonds get in trouble for two reasons:

• When the oil-price plunge decimates the cash flow from unhedged production, and drillers have trouble making interest payments.
• When a bond matures that was issued at a yield of, for example, 6% and has to be refinanced at 12%, just when revenues are plummeting while drilling costs remain the same, which might make it impossible to refinance this debt.

Leery investors see this, and they try to bail out of the riskiest end of the market, or they start demanding much higher yields to be enticed back in. In the process, they effectively turn off the cheap-money spigot these companies have become addicted to, and must have access to in order to survive. If this process continues, investors are effectively defunding parts of the fracking industry, precipitating the very events they’re so scared of.

The plunge in the price of oil is good for consumers, and so Wall Street promises a big boost to US GDP. But what have these folks been smoking? Read…   This Is Why the Oil-Price Crash Will Maul the US Economy

via Zero Hedge http://ift.tt/1wGYtii testosteronepit

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

via Zero Hedge http://ift.tt/1A6mBxc Tyler Durden

As liquidity evaporated from Ruble, after three retail FX platforms abandoned trading of the USDRUB pair, Reuters reports, the more liquid Norwegian Krone began acting as a proxy for the Russian unit of exchange. When the selling in the Ruble was at its peak, the Krone bore the brunt and smashed to its lowest level in over a decade, dropping below parity against its Swedish counterpart for the first time in almost 15 years.

 

As Reuters reports,

Three retail currency trading platforms halted trading in roubles on Tuesday, citing growing signs of stress among the banks that underpin trade in the battered Russian currency.

 

FXCM, one of the biggest platforms catering to online and retail traders of currencies, said the move stemmed from the expectations of banks that Moscow would impose outright capital controls within the next few days.

 

Angus Campbell, an analyst at another platform, FxPro, said a number of the top tier-one banks that provide its liquidity had ceased quoting prices on one of its systems, prompting it to halt trading there.

 

A third platform, Alpari, also halted trade.

Which led anxious traders to shift to the Krone…

Traders and analysts said liquidity in the Russian rouble was evaporating fast and, to some extent, the more liquid Norwegian Krone was acting as a proxy for the Russian unit.

 

 

The Krone fell to its lowest in more than a decade against the dollar and dropped below parity against its Swedish counterpart for the first time in almost 15 years.

JPMorgan said in a note that a relentless slide in oil prices was pushing up yields on U.S. lower-rated bonds, boosting volatility in currency markets and hurting overall liquidity in the $5.5 trillion market.

“Although FX volumes this month are actually above average for a typical December, bid-offer spreads have been widening for several weeks, and the pace has quickened alongside recent moves in oil and credit,” JPMorgan said.

“It is unlikely that this surge reflects year-end seasonals, as bid-offer spreads exhibit much less variation by calendar month than trading volumes do.”

Source: Reuters

via Zero Hedge http://ift.tt/1wGYsLk Tyler Durden

In the most ironic twist of all amid the “currency crisis” enveloping Russia, we suspect the world’s central bankers will be looking on jealously as The CBR manages to achieve precisely what The BoJ and The Fed are desperate to achieve. In raising inflation expectations, The FT reports, Russians are hurriedly turning their depreciating Rubles into jewelry, furniture, cars, and apartments as the currency’s collapse prompts a shopping spree that will likely lead to a surge in GDP. As one anxious shopper noted, “none of us know what’s happening. We’re all worried that the currency will keep falling,” and so “it’s time to buy furniture!” And sure enough, shopping centers are currently experiencing a spectacular rush.

 

As The FT reports,

Russians hurried to change their savings and pensions into dollars and euros while also stocking up on furniture and jewellery as the rouble’s collapse accelerated.

 

Their mounting concern was reflected on Tuesday morning in the red lights of the currency exchange booths that dot the city, which were ticking over to show ever weaker rouble rates.

 

…

 

“I took out some of my pension and I want to change it into dollars,” said Galina, a retiree, who declined to give her surname. “None of us know what’s happening. We’re all worried that the currency will keep falling.”

 

The dramatic collapse in the rouble in recent days has not triggered outright panic, but it has prompted a rush to change currency and to stock up on durable goods such as furniture, cars and jewellery before they become even more expensive.

 

…

 

“I think the rouble will carry on falling until the end of the year,” she said. “It’s time to buy furniture!”

 

Indeed, shoppers reported enormous queues even at 2am in Ikea on Monday night as people rushed to stock up before the rouble plunge triggered price rises. The Swedish furniture company had said it would be raising prices from Thursday.

 

…

 

“People who didn’t manage to exchange their money at 35 roubles or 40 roubles to the dollar have been buying up high-end goods, cars and apartments because a massive repricing hasn’t happened yet,” said Vyacheslav Trapeznikov, acting director of the Urals Builders’ Guild, in Yekaterinburg.

 

Car sales in Russia rose in November from the previous month — in spite of a slowing economy — and December is “rather promising”, according to the Association of European Businesses in Russia trade group. “Retail demand has been extraordinary in recent weeks,” said Joerg Schreiber of the AEB.

 

…

 

“People are trying to spend their last roubles and buy up things that haven’t been priced, but this trend has an expiration date,” Mr Trapeznikov said.

Russians are lining up at currency exchange centers to swap their increasingly worthless Rubles for Dollars…

 

And as Germany’s N-TV also notes, they are spending that money…

Shopping centers are currently experiencing a spectacular rush. The most recent example is the Swedish furniture chain Ikea, prior to their department stores in the past few days with long queues. Several hours had to wait for the customers before they could enter.

 

The reason is that Ikea had announced in early December to try to raise prices in the near future because of the decline of the ruble. While Ikea calmed after its customers that prices would continue to meet the published list prices in the summer. At the same time, the Group achieves in Russia each year well over a billion euros in sales, that its operations were dependent on external factors explained.

 

…

 

“At this point, Russia differs from industrialized countries to save where people start when a crisis begins,” says the economist Igor Nikolayev. “For us, this is accompanied by a strong degradation of money and the people spend more, which relaxes the situation for some time,” adds the analyst of consulting company FBK.

 

…

 

“People have rushed to buy expensive goods such as televisions, computers, laptops, to save their rubles, which lose value dramatically,” says Maria Wakatowa of the consulting firm Watcom, the observed trade.

*  *  *

Simply put – it’s all about inflation expectations. And unlike The Fed or The BoJ, who keep trying to jawbone higher expectations into their citizens’ minds, the CBR has achieved it and with it – a spending spree before things get more expensive and implicitly a surge in GDP. Ofcourse, however, the spending surge can only be short-term and will stop as soon as there are no more Rubles to spend.

*  *  *

Finally – this seemed to sum it all up nicely…

Wonder if Japanese newspapers ran headlines like this in the 1990s. http://ift.tt/1uOZjFI

— Peter Thal Larsen (@peter_tl) December 16, 2014

via Zero Hedge http://ift.tt/1A6myl1 Tyler Durden

“Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well – while the downside losses, when they materialize, become the taxpayer’s problem.

Citigroup is also, collectively, stupid on a grand scale. The supposedly smart people at the helm of Citi in the mid-2000s ran them hard around – and to the edge of bankruptcy. A series of unprecedented massive government bailouts was required in 2000-09 – and still the collateral damage to the economy has proved enormous. Give enough clever people the wrong incentives and they will destroy anything.

Now the supposedly brilliant people who run Citigroup have, in the space of a single working week, made a series of serious political blunders with long-lasting implications.

Their greed has manifestly proved Elizabeth Warren exactly right about the excessive clout of Wall Street, their arrogance has greatly strengthened a growing left-center-right coalition concerned about the power of the megabanks, and their public exercise of raw power has helped this coalition understand what it needs focus on doing – break up Citigroup.”

Simon Johnson: Here

 

 

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WB7:

Why only SHITI?

 

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Why not confiscate thie TBTF Whale’s nailgun and send him to the wolves?

 

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And while we are at it, someone hand a nailgun to these TBTF Bitches.

 

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via Zero Hedge http://ift.tt/134Lw7r williambanzai7

The epic melt-up in US equities stalled “surprisingly” exactly as Europe closed and the EURJPY-pumpathon, VIX-dumpathon instantly reversed… because it’s not rigged at all. The other driver – a dead-cat bounce in Crude – has also stalled as Kuwait’s oil minister confirmed no new OPEC meeting until June (hardly good for oil expectations of a production cut any time soon with in OPEC). 5Y5Y inflation breakevens continue to free-fall in US, Japan, and Europe.

 

 

As oil slips back below $56…

 

Oil price recovery depends on how long some producers, especially from shale and oil sands, can endure while pumping at a loss, Kuwait Oil Minister Ali al-Omair tells parliament, according to state-run Kuna news agency.

OPEC to continue with policy to keep output unchanged without engaging in price war

via Zero Hedge http://ift.tt/1A5Qk9D Tyler Durden