Month: December 2018

Authored by Mike Shedlock via MishTalk,

Over 25% of those searching for an apartment in 2018 were looking for something “cheap”. A close second was “studio“.

The Rent Cafe 2018 Year End Rent Report shows rents hold strong at year end.

What most caught my eye, however, was an interactive graphic that lets you hover over a phrase to see how often perspective renters included that word or phrase in a search.

Search Results

• Cheap apartments: 25.14%

• Studios: 23.88%

• One-, two- and three-bedroom apartments follow in that order, with 10.48%, 9.46% and 7.5% of all rental-related searches, respectively.

• Luxury apartments also saw significant interest among renters this year, accounting for 7% of searches.

• Those wanting a pool or gym turned up in 0.33% and 0.06% respectively

Cheap Is On My Mind

Studio is another sign that cheap is on renter’s minds.

Admittedly there is some overlap between cheap and studios while there isn’t between One-, two- and three-bedroom apartments. However, there is likely some overlap between studio and one-bedroom.

GPS Searches

The infographic only listed amenities but here’s another interesting factoid: Online activity has migrated to GPS-enabled mobile devices. One third of the keywords people searched for in 2018 included the words ‘near me.’

Cheap – Near Me

This is what people want: Cheap, near them.

Everything else other than number of bedrooms doesn’t factor in until final comparisons.

National Average Rent

Other Take-Aways

• The national average apartment rent ends the year with a strong 3.1% y-o-y increase, having reached $1,419, $42 above what renters were paying this time last year, according to Yardi Matrix.

• As of the end of the year and throughout 2018, rents have seen the most fluctuation in small cities, with double-digit percentage increases in Odessa, TX, Midland, TX, and Reno, NV.

• Queens, NY has been the only large market with stagnating rents, and only two small cities, Baton Rouge, LA and College Station, TX have seen significant decreases.

Cheap is In

In case you haven’t figured it out, cheap is in.

Don’t count on those looking for “cheap” to be looking to buy homes until this economic bubble collapses.

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With US markets going into full-fledged convulsions thanks to disheartening economic data out of China, a looming government shutdown, renewed fears about a “no deal” Brexit and Dow component JNJ’s worst day in 16 years, strategists can add one more disconcerting development to their list of woes. Citing a “top secret” intelligence report, NBC News said Friday that the US suspects that North Korea is still evading US sanctions by secretly transferring oil at sea.

While this isn’t exactly news – the US back in September reportedly formed an international posse to crack down on these illegal oil sales – it certainly doesn’t bode well for the stalled planning for a second summit between President Trump and North Korean leader Kim Jong Un. It also raises questions about North Korea’s intentions as doubts persist about Pyongyang’s commitment to denuclearization. Negotiations hit an impasse over the summer as Pyongyang insisted that the US commit to a gradual schedule of removal for its economic sanctions, while Washington has insisted that the North must completely denuclearize first – something few intelligence analysts expect it to do.

Specifically, the intel report examined how the North has changed up its tactics and moved these transfers out of the East China Sea and into “more logistically challenging waters to the North and South” as the US-led posse – Australia, Britain, Canada, France, Japan, South Korea and New Zealand are also participating – has made the transfers more difficult by its presence alone (they typically don’t try to board or detain ships caught in the act, instead allowing them to flee). The Koreans are also using smaller ships to evade detection. The US has been monitoring the smuggling activity since October 2017, when it began surveillance flights after both the UN and the US ramped up sanctions that summer following the most intense phase of the North Korean nuclear- and missile-testing crisis.

The North Koreans are also resorting to smaller vessels to avoid recognition by the coalition’s warships and surveillance aircraft, the officials said. The assessment found that while attempts to transfer oil have not decreased, the coalition presence has forced North Korea out of the East China Sea and into more logistically challenging areas to the north and south. That shift could ultimately affect the pace and number of the ship-to-ship transfers, raising the cost of smuggling for North Korea, according to the three U.S. officials.

A U.S. defense official said the U.S. began surveillance flights over the East China Sea to disrupt these illicit transfers on Oct. 19, 2017. Since then, the U.S. has conducted more than 300 surveillance flights. Allied nations began flights on April 30 of this year, and have flown more than 200 surveillance flights to date.

Since October 2017, there have been 30 instances when smugglers halted ship-to-ship transfers when observed by coalition naval forces at sea, according to a U.S. defense official.

The U.S. Pacific Command assessment, labeled “Top Secret,” found that the presence of warships and surveillance aircraft deployed by an eight-nation coalition since September has forced North Korea to adjust its tactics at sea, including transferring oil further away from the Korean Peninsula and often in other countries’ territorial waters.

What’s almost worse than the smuggling itself is the fact that the North Korean ships participating in the transfers apparently have never heard of the phrase “act natural”, as ships have repeatedly been observed to drop whatever they were doing and flee after spotting Western monitors. 

“What’s equally as powerful as boarding a ship is taking a picture of the hull, getting information about the ship involved in the illegal activity, and that allows you to get to the insurers, the networks, the people financing the operation, and so we’ve been successful with a camera as much as we would be if we were to proceed to boardings.”

Before the posse was formed in September, incidences of North Korean smuggling (often abetted by China and Russia) had been on the rise.

A leaked report by U.N. sanctions experts in August, based on U.S. intelligence, found the number of transfers surging, with vessels turning off the transponders that show a ship’s geographic location. Between January and May, North Korean ships made 89 deliveries of refined petroleum to the country’s ports, U.N. Ambassador Nikki Haley said in July.

Which brings us the bigger issue here: Despite opting to support tighter UN sanctions against North Korea last year, China and Russia have continued to supply North Korea with badly needed oil. Some of the ships that have been tracked by US monitors have helped move North Korean coal to Russian ports. Though the intelligence analysts say their surveillance regime has helped them crack down on the support networks for these ships – like insurers and Western companies that need to abide by the sanctions.

When confronted about their complicity in the sanctions violations, Russia and China have insisted that they abide by the UN rules. Yet analysts say evidence of their deception is easy to see. Monitors of energy prices in North Korea show that the increased sanctions have had virtually no impact. Meaning that the sanctions impressed upon North Korea by President Trump have had virtually no effect.

Analysts and firms that track North Korean shipping data say there are numerous signs that the regime continues to use deception to move coal out of North Korean ports for sale and to obtain oil through ship-to-ship transfers at sea.

“I think they’re certainly trying to keep apace with the sanctions regime,” said Lucas Kuo, an analyst at C4ADS, a non-profit research organization that uses data to track illicit networks.

Two ships identified in a report by a U.N. panel earlier this year for smuggling coal to Russian ports, the Sky Angel and the Sky Lady, continue to operate and recently made port visits to Japan — even obtaining insurance paperwork, according to maritime and shipping sites.

The Sky Angel pulled into the Japanese port of Muroran in July, and Sky Lady made a port of call at Tomakomai on Tuesday.

“The fact that they’re still able to acquire this insurance at least raises some questions,” Kuo said.

And if Korean energy products have managed to slip through the sanctions so easily, what does that say about other Korean exports, like seafood?

The upshot here is that while we’re sure Trump will largely disregard these findings as he seeks a major diplomatic “win” by becoming the president who opens up North Korea, we’ll likely be hearing more soon about how these violations are Russia’s and China’s fault.

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Two months ago, to the chagrin of a generation of traders, Morgan Stanley made a dismal observation: Price action in 2018 has shown that ‘buy the dip’ is on its way out.  To wit, buying the S&P 500 after a down week was a profitable strategy from 2005 through 2017, and buying these dips fueled most of the post-crisis S&P 500 gains (relative to buying after the market rallied).  But in 2018 ‘buying the dip’ has been a negative return strategy for the first time in 13 years.  In other words, “buying the fucking dip” is no longer the winning strategy it had been for years (even if buying the most shorted hedge fund names still is a stable generator of alpha).

However, a more concerning observation is that while BTFD may no longer work, it has been replaced with an even more troubling trend for market bulls: Selling The Fucking Rip, or as it is also known, STFR.

This selling of rallies has been especially obvious for the past two weeks as traders have observed ongoing intra- US session asset-allocation trades out of the S&P and into TY, with simultaneous volume spikes / blocks trading in ESH9 (selling) and THY9 (buying) at a number of points throughout the day, but usually after the European close, and toward the end of the trading day.

“SELL THE RIPS” IN SPOOZ BECOMING THE NORM

So what is behind this pernicious, for bulls if quite welcome for bears, pattern?

Here, Nomura’s Charlie McElligott has some thoughts and in his morning note reminds clients that he had previously highlighted a similar potential observation YTD between the inverse relationship of UST stripping activity (buying US fixed-income) and the SMART index (end of day US Equities flows being sold)—which indicates a similar trend with pension fund de-risking throughout 2018, as their funding ratios sit at post GFC highs.

In other words, one possible culprit is pension funds who have decided that the market may have peaked, and are taking advantage of the recent selldown in fixed income, to reallocate back from stocks and into bonds, locking in less risky funding ratios.

And, as McElligott concludes, this equities de-risking/outflow corroborates what we touched upon this morning, namely this week’s EPFR fund flows data which showed an astounding -$27.7B outflow for US Equities (Institutional, Retail, Active and Passive combined), the second worst weekly redemption of the past 1Y period.

Meanwhile, the equity weakness is being coupled with surprising strong bid for US Treasuries, further confirmation of an intraday Pension reallocation trade.

According to McElligott, the price-action in the long-end of late indicates “that we potentially are seeing “real money” players back involved for the first-time in awhile, “toe-dipping” again in adding / receiving as the global slowdown story picks-up steam amidst growing 2019 / 2020 recession belief”, a hypothesis which is further validated by the sharp rebound in direct bidders in recent auctions and especially yesterday’s 30Y which we have documented extensively, as the “buyers-strike” in long duration auctions seems to have ended.

This Treasury bid could include large overseas pensions (which are less sensitive to hedge costs than say Lifers), Risk-Parity (as previously-stated, our QIS RP model estimated the risk-parity universe as a large buyer of both USTs and JGBs over the past month and a half) and potentially, resumption of long-end buying from “official” overseas sources as well (with market speculation that there could be an implicit agreement / gesture coming out of the G20 trade truce arrangement), McElligott notes.

One tangent to note: the bid has been more evident in futures and derivatives (as they are “off-balance sheet” expressions into a liquidity constrained YE reality), which is reflected in the fresh record dealer holdings of USTs and which the Nomura strategist notes has made made futures super rich to cash, creating arb opportunities in the cash/futures basis as the calendar is about to flip.

Finally, as to who or what is the real reason behind these inexplicable bouts of “selling the rip”, whoever it is the biggest threat to the market is that once the pattern manifests itself enough times, it becomes a self-fulfilling prophecy at which point it’s not a question of who started it – as everyone will be doing it – but rather at what point does the Fed step in to stop it.

 

 

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Authored by Robert Rapier via OilPrice.com,

Last week Bloomberg created quite a stir with this story: The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years. I have seen a number of follow-up stories that praised the significance of this development, but others laughed it off as misleading or incorrect.

There is some truth to both viewpoints. Yes, the headline is somewhat misleading and requires some context. But there continues to be a trend in the direction of energy independence for the U.S. So, today I want to break down the numbers so readers can understand the truth about U.S. petroleum production, consumption, and exports.

Domestic Crude Production Has Surged

The Bloomberg story is based on data from the Energy Information Administration (EIA). Each week the EIA publishes detailed statistics on U.S. oil production, consumption, exports, and inventories in a report called the Weekly Petroleum Status Report. So, let’s go straight to the source.

For the week ending 11/30/18, the EIA reported that the U.S. produced 11.7 million barrels per day (BPD) of crude oil. That represents a 2 million BPD increase from the year-ago number. This number is generally accepted even by those who believe the Bloomberg headline was misleading.

Further down in the report, the category of Products Supplied is listed at 20.5 million BPD. This is approximate U.S. crude oil consumption for the week. Thus, as some skeptics of the story suggested, the bottom line is that the U.S. is burning more than 20 million BPD while producing less than 12 million BPD. Thus, the conclusion for some was that the U.S. isn’t close to being energy independent.

Other Supply

But there is important context between these numbers. First, the 20.5 million BPD is a fairly accurate representation of U.S. consumption, but there is a large U.S. production number that isn’t included in the crude oil production numbers.

There is a line item called Other Supply, which consists primarily of natural gas liquids (NGLs) and fuel ethanol. This category represents a significant input to refiners in addition to the 11.7 million BPD of production (and the 4.0 million BPD of net crude oil imports). Other Supply represented 6.9 million BPD of production, and it mostly ends up as feedstock for refiners or petrochemical production. (Note that this category also includes “Refinery Processing Gain” of 1.2 million BPD, which results from refiners making products that are of a lower density than crude oil).

So, Domestic Production of crude oil plus Other Supply is equal to (11.7 + 6.9) = 18.6 million BPD — which is still about 2 million BPD less than the U.S. consumes.

Growing Exports

However, these numbers don’t account for exports. During that particular week, the U.S. imported 7.2 million BPD of crude oil, and exported 3.2 million BPD. Thus, net crude oil imports were 4 million BPD.

But product exports are a different story. During that week the U.S. imported 1.6 million BPD of finished products, while exporting 5.8 million BPD (which includes some ethanol and NGLs). Net U.S. exports of finished products were 4.2 million BPD. (The U.S. became a net exporter of just finished products in 2011).

The U.S. also exports crude oil. President Obama repealed the 40-year old crude oil export ban in 2015, and crude oil exports have soared since. As an aside, the reason the U.S. simultaneously imports, and exports crude is that some of what we produce isn’t a good match for our domestic refineries. So we export some domestic crude and import crude that is a better match for our refineries.

Fact Check

So, here’s a summary of the important inputs to the balance that resulted in the Bloomberg claim:

• U.S. crude oil production – 11.7 million BPD

• Other supply (NGLs, ethanol, processing gain) – 6.9 million BPD

• U.S. crude oil imports – 7.2 million BPD

• U.S. crude oil exports – 3.2 million BPD

• U.S. finished product imports – 1.6 million BPD

• U.S. finished product exports – 5.8 million BPD

• U.S. petroleum consumption – 20.5 million BPD

So the Bloomberg headline results from a net crude oil import number of 4.0 million BPD and a net finished product export number of 4.2 million BPD. So, indeed when you consider crude oil and finished products, for the week ending 11/30/18, the U.S. was a net exporter of 0.2 million BPD of crude plus finished products. (For perspective, this average over the previous four weeks was 2.0 million BPD of net imports).

Verdict: Remarkable Achievement, But False Headline

Significantly, this is the first time this category of weekly crude plus finished products became an export number since the EIA began reporting this information in 1991. This is a far cry from 2005, when that weekly number hit an all-time-high of 14.4 million BPD. As far as I can tell, Bloomberg is correct that this hasn’t happened in the past 75 years.

But that’s not what the headline claimed. The headline said “oil.” The U.S. is still a net importer of oil to the tune of 4.0 million BPD.

Further, total U.S. production of oil and other supply that is fed into refineries is 18.6 million BPD, while U.S. consumption is 20.5 million BPD. That still puts U.S. consumption at nearly 2.0 million BPD more than we produce. (It’s actually a little worse than that, because not all NGLs end up as refinery feedstock).

So the bottom line is that we aren’t net exporters of crude oil, and we aren’t energy independent. But, the U.S. has trended in that direction for over a decade. Regardless of whether it remains that way, this is undoubtedly a remarkable achievement. I know a lot of people – including myself – would have scoffed at such a prediction in 2005.

 

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Is there anybody left in Washington who wants to be President Trump’s third chief of staff?

After four people – including one-time front-runner Nick Ayers, OMB head Mick Mulvaney and Freedom Caucus leader Mark Meadows – turned down offers to succeed General John Kelly as President Trump’s chief of staff, former New Jersey Gov. Chris Christie has reportedly emerged as the leading candidate.

JUST IN: Former New Jersey Governor Chris Christie is the leading candidate to be Trump’s next chief of staff, according to 2 people familiar with the matter pic.twitter.com/BUCnwFR6xx

— TicToc by Bloomberg (@tictoc) December 14, 2018

Chirstie, who worked on Trump’s inauguration (which has recently become the target of a criminal probe) before being summarily fired by Trump and pushed out of his transition team, reportedly met with Trump in the residence following a White House Christmas event Thursday night. And reports published Friday morning suggested that the president had narrowed the search down to three candidates: His son-in-law Jared Kushner, Trade Rep. Robert Lighthizer and Christie. As should come as no surprise, just the rumor that Kushner was being considered elicited widespread outrage. And Lighthizer is already occupied with managing the ongoing trade war. 

The notion that Christie might take such a senior job in the White House is almost too hard to believe, considering that Christie prosecuted and jailed Jared Kushner’s father, Charles Kushner, the father-in-law of Trump’s daughter Ivanka.

Still, Christie has long been angling for a job in the administration. And this could be his last and best hope. In any case, we should know for sure soon: The White House has said that an announcement of Trump’s pick is ‘imminent’.

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GOP lawmakers are fuming over a partial government shutdown set to hit just in time for Christmas, after President Trump put his foot down in a Tuesday meeting with Democratic leaders and demanded $5 billion in funding for a border wall – as opposed to the $1.3 billion which would otherwise be appropriated. 

During the Tuesday meeting with House Minority Leader Nancy Pelosi (D-CA) and Chuck Schumer (D-NY), Trump said he could easily have a bill passed by the house – to which Pelosi shot back “Then do it!“

Chuck Schumer later dug his heels in on the Senate Floor “I want to be crystal clear. There will be no additional appropriations to pay for the border wall. It’s done.“

Instead, Schumer said Democrats would pass a yearlong stopgap bill which would fund the Department of Homeland Security – or a measure funding all the departments and agencies covered by seven unfinished appropriations bills; both options which would keep the border wall funding a $1.3 billion. 

With the two sides at an impasse, it appears that the partial shutdown is a foregone conclusion unless someone blinks. 

“There is no discernable plan. None that’s been disclosed,” said #2 Senate Republican John Cornyn of Texas. “Everybody’s looking to [Trump] for a signal about what he wants to do. So far, it’s not clear.”

In a sign that the GOP is having issues coordinating a plan, majority Whip Steve Scalise (R-LA) announced on Thursday that the House would advance a bill with Trump’s $5 billion wall request – however House Majority Leader Kevin McCarthy (R-CA) didn’t seem to know anything about it. “I didn’t hear him say that. … Interesting,” said McCarthy when asked about it by a reporter. 

Other Republicans expressed frustration with the impasse, with Senate Appropriations Committee Chairman Richard Shelby (R-AL) suggesting that the House’s failure to pass a bill was a significant problem. “That’s a central question,” said Shelby. “We’re at an impasse and at the moment it doesn’t look like things are getting any better.”

“This is a case where I think people are putting their political interests ahead of the best interests of the American people. The best interest of the American people is for the government to function smoothly,” said Rep. Tom Cole (R-OK), who sits on the House Appropriations Committee. “I personally don’t think a government shutdown will work,” he added. 

Senate Majority Leader Mitch McConnell (R-KY), meanwhile, has expressed privately that he strongly wants to avoid a shutdown. “He has zero interest in going through a government shutdown,” said Sen. Shelley Moore Capito (R-WV) – chairwoman of the Senate Homeland Security Appropriations Subcommittee. 

Rep. Patrick McHenry (R-N.C.), the chief deputy whip, asked whether the GOP would gain leverage by passing the funding bill with $5 billion in wall funding, said he wasn’t sure it was in the House GOP’s interest to send the bill to the Senate if it couldn’t get through that chamber.

“Ok, so it’s December after the election. We shouldn’t be here for show, we should be here to get our work done and get out of here,” he told reporters Wednesday evening. “We have to look at where we are in this process and what is the additive piece here: Is it the stay and wait or is it to take action? So those two things matter for a call like this.” –The Hill

“We need to secure our borders, I support that, I support the president, but at some point and time we need to get things done,” said Rep. Paul Mitchell (R-MI)

The House held its last vote of the week Thursday and won’t be back until next Wednesday – two days before the government shutdown deadline. 

With Congress and Trump already having approved funding bills for 75% of the $1.2 trillion operating budget for federal agencies, the remaining 25% would be subject to the shutdown.

As we noted on Wednesday, among the agencies which would be affected by the partial shutdown are Homeland Security – although several of the agency’s law enforcement components would continue to operate as usual as they are considered essential, according to Bloomberg. 

At the Department of Homeland Security, the overwhelming majority of border patrol, emergency management and immigration enforcement staff would be able to keep doing their jobs, though with their pay delayed.

At the Department of Housing and Human Development, on the other hand, 87 percent of the agency’s 7,800 employees would be sent home. The Treasury Department is among agencies that would furlough workers. Its biggest component is the Internal Revenue Service and most of its employees wouldn’t report to work because it’s not tax season. Environmental Protection Agency employees would also be furloughed. –Bloomberg

National parks would remain open, however park staff would be sent home.

The Securities and Exchange Commission (SEC) would be forced to halt new investigations unless they are needed “for the protection of property.” 

The Defense Department, of course, is fully funded and would operate as usual. 

An estimated 400,000 federal employees would work without pay and 350,000 would be furloughed, according to a congressional Democratic aide. The essential employees who work during a shutdown are paid retroactively when the government reopens and payroll operations resume. After previous shutdowns, Congress also has passed legislation to retroactively pay furloughed workers. –Bloomberg

That said, it’s possible that lawmakers could agree on another short-term funding bill that would last into January, or perhaps they would reach a deal that allows all sides to prevail.

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