Month: January 2016

As we said two days ago when looking at the paltry recoveries on their total debt that bankrupt energy debtors are generating in liquidation and bankruptcy asset sales, “the energy bankruptcy party is only just starting.” And sure enough, overnight we learned that another company is preparing to throw in the towel following a Reuters report that SandRidge Energy – a shale oil and gas producer in the Mid-Continent region of the U.S. – is exploring debt restructuring options, “as the heavily indebted U.S. oil and gas exploration and production company struggles with the fallout from plunging energy prices.”

In reviewing the company’s options, Reuters writes that one choice is a pre-packaged bankruptcy. However, a decision on a way forward is not imminent and that the company has access to enough cash to continue doing business for at least several more months under its current structure. Other avenues SandRidge could pursue would include a debt exchange or filing for bankruptcy protection without any agreement with its creditors.

What this really means is that having struggled to come to a prepackaged bankruptcy agreement for the past few weeks with its various stakeholders (Debtwire reported on Jan. 13 that Sandridge hired Houlihan Lokey to craft a restructuring plan), the company will likely have no choice but to file a “freefall” Chapter 11 and let a bankruptcy judge decide the fate of its $4 billion in debt.

According to Reuters, the vast majority of the company’s debt is in the form of bonds owned by a plethora of mutual funds, hedge funds, and other institutional investors. They do not yet have a single representative who could be reached for comment. They will soon, and shortly thereafter the official creditor committee will become very familiar with recovery matrices that see it getting as much as 15 cents on each dollar it gave to the soon to be bankrupt energy company.

A little bit of history on SandRidge, “which made risky bets in the Mississippi Lime formation in northern Oklahoma and southern Kansas, is particularly vulnerable.”

For months, SandRidge has been caught in a bind, having just enough money to pay interest on its debt, but not enough to drill new wells or replace older ones.

 

Mississippi Lime wells typically do not produce as much oil as some other shale formations, and the rock also contains a lot of water, which is costly to haul away.

 

After an initially encouraging exploration phase, the shale play has not delivered the low cost production gains that SandRidge and Wall Street analysts expected.

 

About 40 energy companies entered bankruptcy in 2015 and more are expected in the next few months as oil prices have dropped by 75 percent since mid-2014.

Oklahoma-based SandRidge was founded in 2006 by former CEO Tom Ward, a previous executive and co-founder of natural gas giant Chesapeake Energy Corp. Perhaps that explains why just as troubled Chesapeake may follow SandRidge into bankruptcy shortly.

Ward was ousted by SandRidge’s board in 2013 after some of SandRidge’s largest investors alleged governance lapses and strategic missteps, including transactions SandRidge had made with entities controlled by the Ward family. His exit package from the firm was worth around $90 million. A request for comment at Ward’s new Oklahoma City-based company, Tapstone Energy, was not immediately returned.

More notably, SandRidge attracted the ire of Oklahoma regulators over its use of wells to dispose of wastewater, an activity that is believed to trigger earthquakes. Last week, the company agreed to shut seven wells in the state and reduce the amount of wastewater injected into roughly 40 others.

For now, the biggest threat facing the company especially as it enters a protracted reorganization and potential bankruptcy, will be to raise cash so it can avoid a liquidation. To do that SandRidge has put its headquarters in Oklahoma City up for sale in May, but has yet to find a buyer. In April, it laid off at least 130 employees, or 20 percent of its workforce based there, public records show. It has also previously used a distressed debt exchange with creditors to lighten its debt load. Had it only waited a little longer, it could have bought its bonds back even cheaper:  its Jan. 15 2020 notes at below 5 cents on the dollar.

SandRidge had $790 million in cash and access to undrawn credit facilities that gave it access to capital totaling $1.9 billion, chief financial officer Julian Bott said on the company’s latest quarterly earnings call on Nov. 5. This has given the company breathing room of several more months to decide on a way forward, as well as scope to pursue another debt exchange.

Of course, if it waits the full seven months in desperate hopes that oil rebounds and it doesn’t, instead of a Chapter 11 Sandridge may not pass go and proceed straight to a Chapter 7.

To be sure, a SandRidge bankruptcy will hardly come as a surprise: as of earlier this month, SandRidge’s shares are no longer listed on the New York Stock Exchange, and trade on the OTC Pink marketplace instead with a market capitalization of around $30 million.

Finally, assuming $4 billion in debt SandRidge does file, that would make it the second largest bankruptcy since the default wave started in earnes last year, putting it behind only Samson Resources with its $4.3 billion, and ahead of both Sabine Oil and QuickSilver.

 

via Zero Hedge http://ift.tt/1JxAGf4 Tyler Durden

Investing in Silver – 3 Must See Charts

Precious metals continue to look  very undervalued vis a vis most asset classes – particularly stocks and bonds.

This is especially the case with silver which has fallen by more than 70% from what we believe was an intermediate price high of $49 in 2011 – despite surging demand for silver bullion coins and bars from canny buyers investing in silver.

Silver Eagle Sales – Full Year 1996 and First 19 Days of 2016

Silver is currently trading at just over $14.25 per ounce – 1/77th of the price of gold at $1,100/oz. GoldCore continue to believe that silver will surpass its non-inflation adjusted, nominal high of $50 per ounce in the coming years. Indeed, we believe that silver will surpass its inflation adjusted high or real record high of over $150 per ounce in the next 5 to 7 years.

We are currently doing a research note on silver which will outline why we are so positive on silver.

In the meantime, let us whet your appetite and give you an understanding of the rationale for our bullishness. Steve St Angelo of the SRSrocco REPORT has just done an excellent blog with three very interesting charts which contribute to our positive outlook for silver bullion.

Silver Eagle Sales – 1996 (Full Year) Versus 2016 (Full Year)

He points out that

In 1996, total Silver Eagle sales for the year were 3,466,000. Now compare that to the 4,950,000 Silver Eagles sold in the first half of January. We must remember, Silver Eagle sales in 2016 started on January 11th. So, in just six working days (this Monday was a holiday), the U.S. Mint sold 43% more Silver Eagles than all of 1996. 

 

Furthermore, if we compare sales of Silver Eagles in 1996 versus 2015, this was the result:

Investors purchased a record 47 million Silver Eagles in 2015 compared to 3.5 million in 1996. Basically, investors bought 13.5 times more Silver Eagles in 2015 than they did in 1996.

 

This next charts compares the 20-year change of silver investment versus Jewelry and Silverware demand:
Silver Investment & Jewelry Demand – 1996 (Full Year) Versus 2015 (Full Year)

In 1996, total global Silver Bar and Coin investment was only 23 million oz (Moz) versus 264 Moz of Jewelry & Silverware. However, 20 years later… we see a much different picture. While global Jewelry & Silverware demand increased to 280 Moz, Silver Bar & Coin investment surged to 236 Moz.

Steve’s blog in full and charts can be seen here

Breaking Gold and Silver News Today – Click here

 

Silver bullion coins – like Silver Nuggets (Kangaroos), Eagles, Maples and Britannias are great forms of insurance against currency debasement and financial collapse. They also make very nice gifts for loved ones and are a great way to pass on wealth to the next generation.

We have the best prices – some of the most competitive in the U.S. and internationally.

Call us today to order – 1 302 635 1160 – or buy silver coins online here.

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Traders on the NYSE clapped and cheered when the closing bell sounded on Friday as though a couple of green closes somehow made up for the outright chaos that’s reigned throughout the month.

Oil may technically have entered a new “bull” market and the yuan may have momentarily stabilized, but a quick look at the fundamentals for crude and the backdrop for the global economy suggests any respite will be fleeting.

Echoing that sentiment is FX trader Mark Cudmore who is out this morning warning that while the blizzard of 2016 may have come and gone, markets are likely just in the “eye of the storm.”

*  *  *

From Mark Cudmore, writing for Bloomberg

While the worst of the U.S.’s epic winter blizzard has officially passed, it’s less likely that the storm in financial markets can also be said to have ended.

• Thursday’s rally continued strongly into the weekend close, resulting in most global assets recording a positive week. But once analyzed in the broader context, it seems likely this may only be a bear-market bounce
• Bear-markets often provide the most extreme moves in both directions because lower risk-appetite reduces liquidity on both sides of the market. Also, technicals gain supremacy over fundamentals which loosens anchors to “value” and encourages out-sized reactions to any changes in sentiment
• Technically, there is little out there for bulls to cling to. While oil may now officially be in a “bull” market after its biggest two-day rally in seven years, it is still down 12% year-to-date and firmly in a medium-term downtrend. That applies even more clearly to other important commodities, such as copper
• Likewise, across longer-term charts for stock markets, emerging-market currencies and high-yield credit, the recent bounce is barely noticeable. And the risk-barometer that is EUR/JPY closed below the critical 200-week moving average for a second straight week
• Fundamentals didn’t drive this year’s weakness, so it will be harder for positive fundamentals to prompt a recovery’’
• Perhaps the two most significant supports for the market have been that the Chinese yuan stabilized and the European Central Bank indicated that further monetary easing is imminent. But both of these are arguably reactions to negatives rather than genuinely new positive drivers
• The relief rally probably has more to run but it’s hard to believe the worst of 2016 is behind us. And there are even reports that Storm Jonas may crop up again in a couple of days – on the other side of the Atlantic

*  *  *

As a reminder, this is still the 2nd worst start to a year ever…

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• Oil Drops as Saudis to Maintain Spending, China Diesel Use Falls (BBG)
• Saudi Arabia is able to withstand low prices says Saudi Aramco Chairman (WSJ)
• Recession Warnings May Not Come to Pass (WSJ)… or they May
• Problems Found at Theranos Lab (WSJ)
• New York rebounds after blizzard, Washington shuts down government (Reuters)
• China business confidence, recruitment hit record lows in January – SMI survey (Reuters)
• Twitter to Revamp Leadership Under CEO Jack Dorsey (WSJ)
• Johnson Controls to Combine With Tyco, Move Domicile to Ireland (BBG)
• Birinyi More Worried About Markets Than Any Time Since 2009 (BBG)
• Wal-Mart: It Came, It Conquered, Now It’s Packing Up and Leaving (BBG)
• Sanders, Clinton cool to Bloomberg’s possible entry into 2016 race (Reuters)
• Ford Shutting Operations in Japan, Indonesia on Lack of Profit (BBG)
• China’s Working-Age Population Sees Biggest-Ever Decline (WSJ)
• More holes than fingers? Beijing struggles to plug capital flight (Reuters)
• Chinese Developer Aims Lower Amid Manhattan’s Luxury-Condo Glut (BBG)
• Merkel’s party, sliding in polls, weighs German ‘border centres’ (Reuters)
• German Business Sentiment Falls as Market Woes Cloud Outlook (BBG)
• Syria opposition to meet Tuesday, blames Russia for ‘obstacles’ (Reuters)
• U.S. Relies Heavily on Saudi Money to Support Syrian Rebels (NYT)
• U.S. IPO Market on Track for Slowest Month Since Recession (BBG)
• Canada’s Trudeau to DiCaprio: Your climate remarks don’t help (Reuters)

 

Overnight Media Digest

WSJ

– Twitter Inc Chief Executive Jack Dorsey is revamping his top ranks as he tries to find ways to revive the social media company and earn the trust of investors. (http://on.wsj.com/1RHubsr)

– U.S. health inspectors have found serious deficiencies at Theranos Inc’s laboratory in Northern California, according to people familiar with the matter. (http://on.wsj.com/1RHGjtC)

– Johnson Controls Inc and Tyco International PLC are in advanced talks to combine, according to people familiar with the matter, in a deal that could value Tyco as high as $20 billion and signal that companies are still willing to embark on large mergers despite being shaken by recent market volatility. (http://on.wsj.com/1QsUkda)

– Canada’s efforts to curb greenhouse gas emissions are calling into question oil majors’ ability to tap the world’s third-largest oil reserves. (http://on.wsj.com/1OQkSk3)

 

FT

Twitter is on the verge of a major management shake-up. Three of its most senior executives – head of product, head of media and head of engineering are leaving the company. The San Francisco-based company might announce the appointment of two new members to its board as soon as this week.

U.S. asset manager Third Avenue Management’s asset under management have dropped by more than $1 billion. The company had $6.3 billion under its management at the end of 2015, however, investment losses coupled with client redemptions have led to a reduction in its assets under management to $5 billion.

Investors in China’s rural commercial banks are selling their stakes on Taobao showing signs of desperation amongst cash-straped investors. The sale in lenders at the bottom of China’s financial system require minimum to no regulatory approval at all.

Iran plans to sign a contract with Airbus to buy 114 new aircrafts. Following the lifting of economic sanctions against the middle-eastern nation, president Hassan Rouhani’s government is determined to show Iranians the economic benefits of its diplomacy.

 

NYT

– Avocados From Mexico and two other advertisers – Skittles and Wix.com – have decided to return to the Super Bowl, indicating that live television remains important for advertisers. (http://nyti.ms/1WIMWLr)

– Traders and portfolio managers worry that sophisticated institutional investors, who generally tend to take a long-term view, have been the ones driving the selling over the past six months. (http://nyti.ms/1Nu7j86)

– Whether or not negotiators reach a pact by Feb. 1 on how companies such as Google and Facebook use Europeans’ online data, Isabelle Falque-Pierrotin, who chairs the group of European data protection regulators as well as France’s watchdog called the CNIL, is in a position to propel privacy protection efforts. (http://nyti.ms/1ZMrViZ)

– Twitter will undergo a major overhaul of its top ranks in the next few weeks, from its eight-member board to key executives in engineering and product. (http://nyti.ms/23mTROW)

 

Canada

THE GLOBE AND MAIL

** Sears Canada Inc is stepping up its efforts to close another round of stores. The company has instructed real estate firm CBRE to look for alternative uses for Sears’s weakest stores, such as its clearance outlets, Brandon Stranzl, executive chairman of Sears Canada, said in an interview. (http://bit.ly/1nJ5Rdj)

** Canadian investigators are analyzing cellphone data in an attempt to track down the masterminds of a militant attack that killed six Canadians, Burkina Faso foreign minister Alpha Barry, said in an interview with The Globe and Mail. (http://bit.ly/1nJ6bIW)

NATIONAL POST

** Peter MacKay, a high ranking cabinet member in the previous Conservative government, is joining the Toronto office of global law firm of Baker and McKenzie as a partner. (http://bit.ly/1lJKdE6)

** By arguing that publishing peer viewed research conflicted with her role as an indigenous scholar, former law professor Lorna June McCue has won her bid for a human rights tribunal hearing after losing her job at the University of British Columbia. (http://bit.ly/1lJKjeW)

 

Britain

The Times

The Financial Conduct Authority has been accused of betraying the confidence of whistleblowers by passing on evidence and sensitive information to the high street banks that were the subject of their complaints. (http://thetim.es/1OQsuDl)

Competition to win the £4 billion contract to build superfast trains for the HS2 rail line has been blown open by a promise from Alstom, the French industrial giant, to bring rolling stock production back to Britain if it wins the tender. (http://thetim.es/1SGgXfG)

The Guardian

Unilever, the consumer goods group behind Persil and Magnum ice-creams, has said it will not scale back its UK operations if Britain votes to leave the EU. (http://bit.ly/23lUh8v)

Iran plans to buy 114 aircraft from the European company Airbus by March, and is looking for other deals, senior Iranian officials said on Sunday as their country emerges from sanctions and international isolation. (http://bit.ly/1Pwfy4Q)

The Telegraph

HSBC is poised to make a decision on whether it will stay in the UK as early as this week, The Daily Telegraph has learnt. (http://bit.ly/1ZXvoAC)

Former Ofcom chief Ed Richards has ruled himself out of the race to become the next chief executive of City regulator the Financial Conduct Authority, the Telegraph understands, further narrowing the field of candidates to take over from ousted boss Martin Wheatley. (http://bit.ly/23mji3e)

Sky News

The Government is considering taking thousands of unaccompanied Syrian refugee children from migrant camps in Europe, the International Development Secretary has told Sky News. (http://bit.ly/20nGiMI)

Severe weather warnings are being issued as the snowstorm that deluged the U.S. heads to Britain, bringing up to 8 inches (20cm) of rain in some areas. (http://bit.ly/1PtRFkH)

The Independent

A controversial policy reportedly forcing asylum seekers in Cardiff to wear brightly coloured wristbands has been axed after a public outcry. (http://ind.pn/1Jw3NiN)

 

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After the biggest two-day surge in oil in seven years, early in the overnight session both Brent and WTI continued their run for a third day, entering a bull market, 20% up from recent lows hit just last week (yet still 15% down on the year) when Saudi Arabia spoiled the momentum party after  the world’s biggest crude exporter said it’s keeping up investments in energy projects while diesel consumption in China dropped for a fourth consecutive month, signaling an industrial slowdown.

WTI reversed course and futures dropped as much as 4.1% in New York when Saudi Aramco Chairman Khalid Al-Falih announced his company hasn’t reduced its investment capacity amid lower crude prices, suggesting that oil will remain oversupplied for the foreseeable future. As a result, West Texas Intermediate for March delivery dropped as much as $1.33 to $30.86 a barrel on the NYMEX and was at $31.14 at pixel time after rising as high as $32.74 earlier. “The Saudi news surely would give a little bit of a worry that production would remain strong,” Daniel Ang, an investment analyst at Phillip Futures, said by phone from Singapore. “The main reason for oil losing steam still comes from the fact that oil markets are currently in oversupply.”

Khalid al-Falih, the chairman of Saudi state oil giant Aramco, addresses the 10th Global Competitiveness Forum on Monday. He said that a moderate oil price would be reached before long. Photo: Agence France-Presse/Getty Images

Elsewhere, diesel use in China dropped 5.6% in December compared with a year earlier and gasoline consumption grew at the slowest pace in more than two years, confirming it is not just growing supply but slowing demand – something the DOE confirmed last week – that is the culprit for record oil stockpiles. “The China demand figures is a stark reminder that consumption growth may not be stellar in 2016,” Bjarne Schieldrop, Oslo-based chief commodities analyst at SEB AB, said by phone. “Prices needs to stay weak for some time at least in order to keep excess production out and help rebalance the market later.”

Since algos continue to track every risk tick-for-tick with oil, as seen by the Bloomberg chart below showing the near record correlation between equities and oil, global stocks and US equity index futures initially rose only to slide following the Saudi Aramco comments, as stocks and the currencies of exporters were dragged down, while havens, including gold and the Japanese yen, rallied.

\

“The correlation between oil prices and equities has turned positive,” former Goldmanite Erik Nielsen, chief global economist at UniCredit Bank AG, wrote in a report to clients on Sunday. It’s “wrong, and therefore temporary,” he wrote. “When oil prices drop, it reduces the transfer of income and wealth from oil-consuming countries, like Europe, to oil-producing regions, like the Middle East and Russia. Since the ‘winners’ in Europe have lower savings ratios than the ‘losers’ this is all good for growth.”

For now, of course, it is Nielsen who is wrong as the latest snapshot of global risk confirms:

• S&P 500 futures down 0.3% to 1893
• Stoxx 600 down 0.1% to 338
• MSCI Asia Pacific up 1.2% to 120
• US 10-yr yield down 2bps to 2.03%
• Dollar Index down 0.15% to 99.42
• WTI Crude futures down 2.1% to $31.50
• Brent Futures down 1.6% to $31.66
• Gold spot up 0.5% to $1,104
• Silver spot up 0.9% to $14.16

Flipping quickly through regional markets, we start in Asia where equity markets traded higher in a continuation of the gains seen late last week amid prospects of central bank easing and a rebound in the energy complex . The ASX 200 (+1.8%) and Hang Seng (+1.4%) were led higher after crude posted its largest 2-day gain in 7yrs to climb back above USD 32/bbl. Shanghai Comp (+0.6%) was further bolstered by reports that the PBoC are planning as much as CNY 800bIn of mid-term liquidity support, while the Nikkei 225 (+0.9%) surpassed the 17000 level after shrugging off weak Japanese trade figures, underpinned by a weaker JPY. 10yr JGBs traded higher despite the firm risk on tone in the region, supported by hopes of further central bank easing while the BoJ were also in the market for 5yr-10yr government debt.

Elsewhere in Japan, BoJ Governor Kuroda said Japan’s underlying price trend currently looks solid and reiterated that the BoJ will not hesitate on further easing if needed to reach its price target, but could not comment on whether BoJ will ease this week or not.

Top Asian News

• Mirae Asset Buy $2 Billion Stake in Daewoo Securities: Mirae Asset agreed to buy a 43% stake in Daewoo Securities for 2.39t won ($2b), will create South Korea’s largest brokerage by assets
• PBOC’s Year of Monkey Challenge Opens With Calming Money Markets: 7-day repos done at 4.5% last week, highest since June
• Hong Kong Scores Record in Survey of Priciest Home Markets: Sydney ranked second priciest, followed by Vancouver
• J.C. Flowers to Buy Chi-X Exchange Business in Australia, Japan: Head of Japan unit aiming for 5% to 10% market share
• INCJ Fund Says Sharp Needs Just $2.5 Billion to Revive Growth: Fund CEO says no agreement has been reached on rescue

In Europe equities have been choppy this morning, despite initially following Asia’s lead and opening in positive territory (EuroStoxx -0.10%). Equity indices are mixed as North American participants come to their desks, as the risk tone for markets is somewhat uncertain.  Total SA and BP Plc lost more than 1 percent on Monday, while Rio Tinto Group also dropped 1 percent after oil weighed in early trading after Aramco’s comments.

Banca Monte dei Paschi di Siena SpA advanced for a third day, taking its surge in the period to a record 50 percent. Greece’s ASE Index climbed 1.5 percent after Standard & Poor’s upgraded the country to B- from CCC+, with a stable outlook.

Bunds have failed to benefit from lingering uncertainty in markets, trading in only very mild positive territory. Prices have been weighed upon by this week’s upcoming supply, with around EUR 11 bIn (equiv. to 77K Bund futures) expected this week.

Top European News

• VW Given Deadline to Come Clean by Second-Biggest Shareholder: Given three months by the prime minister of Lower Saxony, its 2nd-biggest shareholder, to provide a full account of the roots of the diesel-emissions scandal
• Rabobank Said to Hold Talks for $4.9b Leasing Unit Sale: Is in preliminary talks with banks, institutional investors and private-equity firms that may bid for its leasing unit, De Lage Landen, in a sale that may fetch as much as EU4.5b
• Russian Economy Shrinks Most Since 2009 as Oil Prices Plunge: GDP drops 3.7% in 2015 after growth of 0.6 percent in 2014, less than 3.8% fall seen in survey
• Airbus Jets, French Cars on Shopping List as Iran’s Rouhani visits Europe
• Portuguese Consensus Candidate Sousa Wins Presidential Election: Marcelo Rebelo de Sousa will become president after winning more than 50% of 1st-round vote Sunday, avoiding runoff
• Kingfisher Shares Drop on Cost to Implement Strategy Revamp: 5-year plan to boost profit will come at a cost to short- term earnings
• Google Agrees to Pay $185m in U.K. Tax Settlement: Google will adopt a new approach for U.K. taxes, and the settlement covers taxes going back to 2005
• Timid Inflation Pickup First Clue for Draghi Pondering Stimulus: Inflation picked up to 0.4% in Jan. from 0.2% the previous month, according to a Bloomberg Survey before data due Friday
• Anglo Platinum Sees $740 Million Loss on Mine Write-Offs: To report a bigger-than-expected loss after reported impairments and write-offs amounting to 14b rand

In FX, the yen halted a two-day decline after Bank of Japan Governor Haruhiko Kuroda showed little appetite for an immediate expansion of stimulus as the central bank prepares to set policy this week.

Japan’s currency has gained versus all its 16 major counterparts since the start of the year as a China-led stock selloff and a tumble in oil prices spurred demand for haven assets. Hedge funds and other large speculators raised net bullish yen positions to the highest in almost four years last week. The BOJ is scheduled to meet Jan. 28-29 and announce its monetary-policy decision on Jan. 29.

Kuroda said in an interview on Jan. 22 in Davos, Switzerland, that “we don’t think the current market situation has been affecting corporate behavior unduly.”

The Canadian dollar and Mexico’s peso declined with the ruble as currencies of commodity producers fell with crude. South Korea’s won strengthened 0.5 percent before data forecast to show South Korea’s economic growth quickened. 

In commodities, West Texas Intermediate dropped as much as 4.1 percent. Saudi Arabian Oil Co. is maintaining investment in oil and natural gas projects as it studies options to sell shares in its parent company and refining and chemical operations, Chairman Khalid Al-Falih said Monday. The state-run producer, known as Saudi Aramco, can sustain low oil prices for “a long, long time,” he told reporters in Riyadh.

Aramco, which supplies all of Saudi Arabia’s crude, pumped 10.25 million barrels a day in December, adding to a global supply glut as the Organization of Petroleum Exporting Countries effectively abandoned production limits to defend market share.

Gold advanced as investors weighed the prospects of the metal as a haven. Bullion for immediate delivery rose 0.5 percent to $1,103.78 an ounce, according to Bloomberg generic pricing. The metal climbed 0.8 percent last week as turmoil in global stocks renewed interest in the metal as a store of value. Copper in London added 0.2 percent to $4,451 a metric ton, while nickel dropped 0.6 percent to $8,650 a ton.

On the US calendar today the only event today is the Dallas Fed manufacturing activity update for January, which is estimated at -14, up from a prior -20.1.

Global Top News:

• Johnson Controls Said in Talks to Merge With Tyco International: Johnson is continuing with its plan to spin off its automotive-seating operations, said people familiar; terms weren’t immediately available
• Twitter Loses Product, Engineering Chiefs in Major Shake-Up: Losing four members of its executive leadership team, including its product and engineering chiefs; will this week add 2 new board members to help guide it through a turnaround, according to a person familiar with the matter
• New York Gets Back on Track After Storm, Washington Slower: Stock, bond, and commodities markets in New York are planning to operate on regular schedules Monday, spokeswomen said; Federal offices in Washington will be closed on Monday, the Office of Personnel Management said
• German Business Sentiment Falls as Market Woes Cloud Outlook: Ifo institute’s business climate index dropped to 107.3 from a revised 108.6 in Dec.
• AT&T Sees $2.2b Pretax Gain on Pension, Benefit Changes: Gains were partially reduced by returns on assets that fell short of AT&T’s estimates
• Apple’s Growth Seen Slowing as IPhone Demand Wanes: Earnings due tomorrow; Apple Executive Leading Electric-Car Project Said to Depart
• Federal Realty Investment Trust to Replace Broadcom in S&P 500
• VMware Said to Cut About 900 Jobs in Restructuring: The job reductions may be announced on Tuesday when the company reports quarterly earnings or a day earlier
• U.S. IPO Market on Track for Slowest Month Since Recession: Zero listings so far this month as volatility shakes stocks
• ‘Revenant’ Climbs to Box-Office Lead After Oscar Nominations: Collected $16m in U.S. and Canadian theaters, Rentrak said
• Goldman’s Cohn Says Sell Treasuries; Morgan Stanley Is Bullish: Goldman Sachs President Gary Cohn says Treasury yields will probably rise, just as Morgan Stanley predicts the opposite
• Puerto Rico Electric Maintains Talks After Debt Plan Expires: Puerto Rico’s main electricity provider and its bondholders are continuing negotiations even after a plan to restructure nearly $9b of debt terminated Friday
• SandRidge Said to Explore Debt Restructuring Options: Reuters: Has been in talks with investment banks, law firms about hiring restructuring advisers
• Greenlight Capital to Get SunEdison Board Seat, WSJ Reports: Greenlight likely to pick director from outside firm, WSJ said
• Yahoo Said to Speed Up Stock Option Vesting: Business Insider: Co. to accelerate stock option grants to begin vesting after 1 mo. rather than 1 yr in attempt to stem departures
• Samsung Bioepis Delays Nasdaq IPO, The Bell Reported: Co., which had aimed to list shrs on Nasdaq in 1H, “indefinitely” delays IPO plan, The Bell reported in a story available to subscribers on Jan. 22
• Ford to Exit All Operations in Japan, Indonesia This Yr: Reuters
• Hilton Says New Tru Hotels May Become Company’s Biggest Brand

Bulletin Headline Summary from RanSquawk and Bloomberg

• Oil has sold off in European trade, following comments from Saudi Aramco’s Chairman that they will continue to sustain investments in the wake of lower oil prices
• European equities are mixed, with last week’s Draghi-effect no longer at the forefront. FX is taking a breather after a tumultuous start to the year
• Looking ahead at the calendar today, highlights include speeches from ECB’s Lautenschlager and ECB’s Draghi as well as earnings from McDonalds, Kimberly-Clark and Halliburton
• Treasuries rally overnight led by long-end as world equity markets mixed; week offers Fed rate decision on Wednesday and $90b UST note auctions beginning tomorrow with $26b 2Y.
• Federal Reserve Chair Yellen and her colleagues have so far found themselves wrong-footed by the stronger dollar after they raised interest rates last month for the first time since 2006
• ECB’s Draghi is about to receive his first major clue of 2016 on Friday as to whether the euro area needs more stimulus with inflation still only a fraction of the goal of just under 2% — a target the ECB president hasn’t met in nearly three years
• BOJ Governor Kuroda spoke at Davos ahead of what could be an agonizing decision about whether to add to the central bank’s record asset-purchase program
• The PBOC is adding administrative orders to its toolbox to calm money markets amid record capital outflows and a surge in cash demand, ordering some banks to cancel repurchase agreements at interest rates it deemed excessive
• German business confidence fell for a second month in January in a sign that companies in Europe’s largest economy are increasingly worried about slowing global growth
• Russia’s economy, facing renewed pressure from plunges in energy prices and the ruble, contracted the most since 2009 last year on oil’s decline and sanctions over the conflict in Ukraine that curbed access to international financing
• In today’s bond market, there’s plenty of hand-wringing about liquidity, or rather, the lack of it. But it’s become so pervasive that even in the market for U.S. Treasuries buyers are gravitating to the newest, easiest-to-sell debt
• $28.825b IG corporates priced last week along with $1.3b HY. BofAML Corporate Master Index OAS 2bp lower Friday at +196 to end week 7bp wider; 2015 range 180/129. High Yield Master II OAS tightened 26bp to +787 to end week 2bp tighter; 2015 range 733/438
• Sovereign 10Y bond yields mostly steady except for Greece will widen 19bp. Asian stocsk rally, European stocks mixed; U.S. equity-index futures drop. Crude oil drops, copper and gold higher

US Event Calendar

• 9:30am: Dallas Fed Mfg Activity, Jan., est. -14 (prior -20.1)

Central Banks

• 1:00pm: ECB’s Draghi speaks in Frankfurt

Jim Reid completes the overnight wrap

The market’s allergic reaction so far in 2016 has eased for now and we’re actually only 2% off a bull market in Oil (based on the March WTI contract) after an 18% rally since the lows near Wednesday’s close. That included a 9% surge on Friday alone and while the prospects for further central bank stimulus and a general bounce off the recent record lows are playing their part, some comments out of Saudi Arabia suggesting that $30 oil is irrational as well as the prospect of those extreme winter conditions in the US over the weekend were also to partly to blame.

In fact, as much as last week felt horrible for large parts of it it’s worth pointing out that the S&P500, DAX, CAC, FTSE and Oil were up +1.41%, +2.30%, +3.01%, +1.65% and +5.92% respectively on the week. Elsewhere crossover was 15bps tighter and CDX IG 6bps tighter. US HY energy spreads finished the week 20bps wider but that included a 101bp move wider on Wednesday alone, with spreads actually 80bps tighter in the last two days of the week. Although we continue to think the global financial system is fundamentally broken and the global economy is in a secular stagnation funk we do think that the cycle has a few quarters of life left in it yet even if recent events have made us much more nervous that the next downturn could come a year earlier than we’ve been thinking for some time. When inflation is this low central banks can still play a part keeping the plates spinning and when oil is this low the consumer can offset the severe structural issues for a while.

Indeed on the former, Draghi’s assertion on Thursday that more was likely to be done in March proved that Central Banks can still have influence even though many in the market have given up on them. It’s another big week on this front with the FOMC (Wednesday) and the BoJ meeting on Friday to anticipate. It feels unlikely they will be negative events for the market even if there is no actual hard signs of a Fed relent or fresh stimulus this month from Kuroda. As a minimum we should hear hints of more dovish soundbites relative to their last meetings.

Following on from a strong performance across most Middle Eastern bourses over the weekend on the back of that rally in Oil, the momentum has continued into the Asia session this morning where there have been broad based gains across most of the region. The Nikkei (+0.59%), Hang Seng (+1.37%), Shanghai Comp (+0.59%), Kospi (+0.80%) and ASX (+1.84%) are all currently up as we go to print, with oil markets generally up another 1% this morning. The iTraxx Asia is a couple of basis points tighter while US equity index futures are flat.

The early data this week has come out of Japan where the notable takeaway has been a slightly softer than expected export number for December (-8% yoy vs. -7% expected). Imports were also less than expected last month (-18% yoy vs. -16.4% expected) which has helped to swing the trade balance back to a surplus. The Yen has been trading between gains and losses post the data although some of the focus this morning has been on BoJ Governor Kuroda’s comments from the weekend in Davos where the Governor has appeared to keep his cards close to his chest, saying that ‘at this stage, we don’t think the current market situation has been affecting corporate behavior unduly’, but that ‘the market is the market, and markets could affect the real economy – so we carefully watch’.
Quickly recapping the news and price action from Friday. The direction across the bulk of the markets was pretty much one-way and owed to that biggest daily gain for Oil since August last year. Equities closed strongly, the S&P 500 (+2.03%), Dow (+1.33%), Stoxx 600 (+3.00%), DAX (+1.99%) finishing with strong gains. US credit was a notable outperformer (CDX IG 4.5bps tighter) relative to Europe (Main 1bp tighter) most probably reflecting the exposure to energy, while US Treasury yields crept higher for the second consecutive day, the benchmark 10y yield up a couple of basis points to 2.053%.

As well as the obvious focus on Central Banks this week, as you’ll see in the week ahead earnings season is set to kick up a gear in the US with a number of the bellwether tech names set to report. The only notable report from Friday was a mixed set of quarterly numbers from General Electric, with a beat in earnings but falling well short of revenue expectations after an unsurprisingly weak quarter for the oil and gas segment. All told with 73 S&P 500 companies having reported, we’ve seen a healthy 78% beat earnings expectations but just 48% beat consensus estimates at the top line. Regular readers will recognize that this follows a recent trend. Q1, Q2 and Q3 2015 earnings beats amounted to 73%, 75% and 74% respectively based on Bloomberg data, while sales beats failed to break 50% during any of the quarters (48%, 49% and 44% respectively). So its early days but a similar pattern is already emerging. A lot of the big Oil names are still to report and will likely be the main focus for analysts. Speaking of which, Friday saw Moody’s place 120 energy issuers credit ratings on review for downgrade, a large proportion of which are based in North America in what was the rating agency’s largest warning sign of potential downgrades since the financial crisis.

In terms of the macro, the US economic data was fairly unexciting on the whole on Friday. Existing home sales were up a much better than expected +14.7% mom in December (vs. +9.2% expected). The Conference Board’s leading index for last month declined -0.2% mom as expected, although the flash January manufacturing PMI rose unexpectedly by 1.5pts to 52.7 (vs. 51.0 expected).
Meanwhile, the latest set of European flash PMI’s for January were a little more disappointing than the market had hoped. The Euro area composite declined 0.8pts this month to 53.5 and below expectations of 54.1. Both the manufacturing (-0.9pts to 52.3; 53.0 expected) and services (-0.6pts to 53.6; 54.2 expected) components fell, while regionally the decline was led by Germany where the composite was down 1pt to 54.5 (vs. 55.1 expected). France’s composite actually rose 0.4pts to 50.5 (vs. 50.3 expected) while our European economics expect that the weakness in the Euro area services PMI was also likely driven by the periphery, although we have to wait until the final PMI’s to assess this fully. At face value the data still points to quite strong growth of +0.4% qoq for the Euro area, although it’s still worth highlighting the disappointment of hard data relative to surveys in Q4 so caution is warranted.

Elsewhere, in the UK we saw December retail sales come in softer than expected last month at -0.9% mom (vs. -0.3% expected) excluding autos fuel sales and -1.0% mom (vs. -0.3% expected) including. Staying with the UK, on Friday our UK Chief Economist George Buckley highlighted that he has now pushed back his call for a BoE rate hike from May to November this year. George notes that the previous forecast was becoming more difficult to justify in light of inflation expected to rise more slowly than previously thought, wage growth disappointing, the economy showing signs of slowing and global growth/financial markets looking fragile.

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

Submitted by Bill Holter via Jim Sinclair's Mineset blog,

What a tangled web the global geopolitical situation has become.  Geopolitics and finance have always been interrelated but recently much more so.  As many readers know, I have speculated we would be hit over the head with a “truth bomb” from the East and most likely from Mr. Putin himself.  Just this week Britain has alleged Mr. Putin personally ordered a “hit” on an ex KGB agent for calling him a pedophile.  Another story came out that Turkey shot down a NATO helicopter which made no press coverage at all in the West.  Also, Victoria Nuland recently travelled to Russia and was refused an audience by Mr. Putin.  This, after John Kerry had a meeting where he went into it saying “Assad must go” and came out saying Mr. Assad can stay …  Why all of this now?  I would simply say this reeks of desperation and also a VERY dangerous strategy to attack Mr. Putin personally.  I say “dangerous” because it raises the likelihood of a response from him.  Can you imagine the outrage were Russia to accuse president Obama or the Prime Minister Cameron of Britain for ordering the murder of someone who called them a pedophile?

Before going any further, I believe nearly ALL of what we are seeing is centered by and on the “petrodollar”.  Will it survive or be replaced?  In my opinion it is no longer “if”, but “when” and by “what” will it be replaced with?  Just over the last two weeks we have seen three very important yet interrelated events.

First, the sanctions against Iran in place over the last 35 years were lifted.  Along with this comes the ability for Iran to sell oil and they will now have access to up to $150 billion worth of assets and accounts previously frozen as reported by many credible non-government sources.

 

The day after, we saw 10 U.S. captured sailors on their knees as they were said to have “strayed” into Iranian water.  The official U.S. account has changed at least twice.  We heard “mechanical failure” at first, this is unlikely as there were reportedly two separate vessels.  If one had mechanical problems, the other could have tied off and either towed it or held it steady until help could arrive.  Then the story changed to “navigational” problems.  This one I believe …but not the official story they “strayed” into Iranian water.  Again, if it was just one boat, maybe their navigation system malfunctioned …at the same time their communications failed …MAYBE?  But both boats …at the same time lost their comm and navigation systems?  Probably a better chance one of these sailors winning the Powerball lottery two weeks in a row!  Speculation on my part, I believe the electronics were somehow hacked or blocked just as happened with the Donald Cook in the Black Sea in late 2014.

 

Just a couple of days ago, President Xi of China met with Iranian leaders one day and then the Saudis the following day.  We can only speculate what was discussed but surely oil was the centerpiece.  Naturally China wants to make and diversify oil supply deals from them both.  We have no proof but I believe it is a very good bet President Xi told the Saudis they would be expected to accept yuan for settlement instead of dollars.  There is no denying, the Chinese have done everything in their power to prepare for the dollar being dumped as the world’s reserve currency.  You can argue about timing, you cannot argue about “intent” as China/Russia have set up non Western clearing facilities similar to SWIFT but without any Western interference, trade deals, currency hubs, trading banks, and even gold and oil exchanges where the dollar will not be welcome.

It is not tough to tie all of this together.  I ask you this, what would the world look like the day following a “truth bomb” dropped by Mr. Putin and the Chinese.  Would Americans even notice if he documented several false flags or frauds embedded in U.S. finance such as outright monetization of U.S Treasuries?  No, most certainly not.  Americans would however notice if financial markets collapsed or were shut down.  Russia and China know full well the situation in the West.  It is a bankruptcy waiting to happen as everything is fractional reserve and running on maximum margin while the underlying system is shrinking and no longer supplying enough liquidity.  The way I see it, the stage is truly set for a financial attack on anything and everything American.  Is it implausible for the Saudis to announce they will sell oil in yuan to China?  Or Iran to withdraw their funds from U.S. institutions and then bid for gold with these funds?  If the East does in fact have jamming or hacking capability of Western technology, is it far fetched for them to show it very publicly in one or several situations?  How would the “bookies” react if they saw a prize fighter enter one of the later rounds with his hands tied behind his back?

You can laugh at the above speculation if you choose but it is all quite plausible and actually probable if you look at where things are and what posturing has already been done leading up to this.  Western markets, ALL markets are a fraud.  Our Treasury market is one where the biggest buyer is “our self” …the Fed and the ESF.  We have already seen $1 trillion of foreign reserves offloaded with no effect on yield nor the dollar itself and NO ACCOUNTING ANYWHERE as to “who” bought these offloaded central bank reserves.  Accounting fraud and no rule of law here, nothing to see …please move along!  You can laugh if you want and say Saudi Arabia will never move toward the East …  Saudi Arabia is now in very dire straits financially, who do you think they will side with when Western markets melt down?  Do you really believe they will go down trying to support our dollar?

The stage has already been set.  The East knows the West has bankrupted.  They know we have no gold left because they have it!  They can see the finances of the various cities, states and federal government.  They know the situation in derivatives is one giant mountain of dynamite waiting for a spark.  They know our rule of law is gone and bail ins of depositor funds is next.  We are monetizing their sales of Treasury securities.  “We” are fooling no one except ourselves.  And by “ourselves” I am talking about the vast majority of the population who have grown to rely on the government for everything.  Everyone knows we are broke, yet ask anyone and the odds highly favor you will hear “the government will never let it happen”.  Even if you are silly enough to believe this you must ask yourself, what are the ramifications when markets become “make believe”?

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

Having recently explained his "greatest investment opportunity for the next 3 to 5 years," Kyle Bass expands on his China discussions…

"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

…to focus on Emerging Markets more broadly and specifically The BRICs.

As Benzinga summed up, Bass Warns

"we still have three tough innings to go, maybe four," he warning that emerging markets will "see a lot more pain before things are okay."

Plenty more smoke and mirrors to be destroyed yet…

 

Bass talks Emerging Markets with Wall Street Week's Gary Kaminsky…

Specifically, as ValueWalk notes:

Brazil

“You look at Brazil, and the [carwash] scandal goes all the way to the President…It is a complete disaster with corruption,” he said. Bass believes that until the country roots out its corruption, the country “will keep going south.”

Russia

Russia faces issues related to “Putin’s global chess moves” and international sanctions.

India

Bass, meanwhile, called India a “semi-bright spot” in the grouping of countries, but didn’t delve deeper.

China

China, lastly, is “the big one,” according to the hedge fund manager. Bass cited the country’s non-performing loan growth as the key issue to watch.

 

 

"China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it's killing them… China's effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle."

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Submitted by $hane Obata via Tha Business blog,

It seems like every day we are inundated with news out of China. Investors are already concerned. The offshore renminbi (CNH) is more international than the onshore one (CNY), which is tightly managed by the government. As such, the rising spread (CNH-CNY) between the two may be indicative of mounting skepticism about China’s economy and its markets. Likewise, capital is fleeing the country as hot money flows have accelerated:

source: @vikramreuters

In the following sections we will attempt to analyze China’s markets and determine the biggest risks facing its economy. Lastly, we will try to answer the following question: does it matter to us?

Markets

As the first week of trading in 2016 came to an end, the Chinese markets had already been halted twice. Newly minted circuit breakers, which have since been suspended, were triggered when China’s main equity index, the CSI 300, fell 7% on two separate occasions. The first selloff was triggered by a rumor that the China Securities Regulatory Commission (CSRC) was planning to suspend a short sale ban that has kept a reported ~$185 billion off the market. Subsequently, the CSRC decided to extend the ban in order to calm the markets. The second drop followed a significant devaluation of yuan by the People’s Bank of China (PBOC). China has also backtracked on that move. Basically, the Chinese markets are confusing…

That said, the volatility is not surprising considering how unsophisticated China’s market is. One university study found that 2/3 of the new investors at the end of 2014 did not have a high school diploma:

source: Bloomberg Brief

Along the same lines, individuals account for at least 80% of trading on the mainland exchanges. In other words, there are many speculators and few investors. China’s markets are undeveloped and relatively unimportant. Nonetheless, they may offer some clues into consumer sentiment and the government’s ability (or inability) to control the economy.

Economy

It is hard to determine whether China is more capitalist or communism. Either way, it remains an indispensable part of the global economy. In nominal terms, China is the world’s second biggest economy with a GDP of ~$10.3 trillion. However, in terms of Purchasing Power Parity-adjusted GDP (PPP), it has surpassed the US. Moreover, it accounts for ~40% of global PPP-adjusted GDP growth:

source: The Economist

In regards to trade, China is the world’s biggest player. In 2013, it led the world in exports ($2,209 billion) and was the number two country for imports ($1,950). The combined value of its trading amounted to $4,159 billion, marginally higher than the US’ $3,909 billion.

Debt

China’s aggregate debt level is one of the highest in the world, although it may not seem to be at first glance. China’s government debt-to-GDP ratio is 55%. To put that in perspective, the US and Japan are at 89% & 234%, respectively. Even so, it is always prudent to consider a country’s debt composition. China’s mounting debt comes into focus when we account for non-financial corporate debt (125% of GDP), financial institution debt (65%) and household debt (38%). The grand total is an astounding 282% of GDP, or $28.2 trillion:

source: McKinsey

The rate of debt growth is also a concern. Non-financial corporate debt, increased from 72% to 125% of GDP from 2007 to 2Q14, a 73.6% increase.

China’s debt load is a global risk because of how tightly managed its economy is. The government has allowed unprofitable companies to stay in business. Though defaults have been very limited, China must allow these companies to fail eventually. Otherwise, it will continue to suffer from high debt servicing costs ( ~30% of GDP).

Overcapacity

Government investment has been a big part of China’s economy. Massive amounts of stimulus went into factories, leading to overcapacity in sectors such as coal and steel. This is making it very difficult for companies that operate within those sectors to make profits – both domestically and abroad. Fiscal stimulus also went into housing and infrastructure, which are both clearly overbuilt. Despite the overcapacity, gross capital formation still represents ~45% of GDP:

source: Gordon T. Long

That is more than twice as high as it is in both the US and the European Union.

Monetary Policy & FX

The PBOC has been very active trying to support the economy. It has cut rates 6 times since November of 2014. Likewise, it has been lowering its Reserve Requirement Ratio and selling its foreign reserves in an attempt to prevent excessive devaluation of the yuan (CNY). They are down more than $400 billion (from a peak of ~$4 trillion) since mid-2014:

source: @TomOrlik

FX is also a risk because China has a lot of USD-denominated debt. In mid-2015, non-bank borrowers held ~$1.2 trillion worth of it. This is an issue because Dollar debt becomes more expensive when USDCNY rises, which is exactly what the markets expect to happen.

Corruption Crackdown

China’s anti-corruption campaign is a step in the right direction. That said, it is a big political risk for foreign investors. High profile businessmen and officials have been disappearing while others are being investigated. Moreover, securities regulators have been cracking down on market manipulators, “ensnaring some of the nation’s most high-profile money managers and announcing more than 2 billion yuan of fines and confiscated gains” (source: BBG Brief). Critics of the campaign suggest that it may deter business while failing to address the corruption that exists amongst the ruling party.

Implications

As investors, we should be concerned because China is one of the biggest economies and the world’s leading trader. Therefore, if it slows down then so will global growth:

source: $GS

China is also important because it is a massive source of demand for many commodities. Thus, its weakness is spreading to undiversified economies such as Russia, Brazil and South Africa. Recessions in those countries might not carry over to the rest of the world. Nevertheless, it is important to consider the amount of debt they have taken on since the financial crisis. In the US, credit is already tightening. If borrowing costs rise for the emerging markets, especially China, then we may see a wave of defaults with untold consequences.

via Zero Hedge http://ift.tt/23mGFcU Tyler Durden