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WTI/RBOB Slide After Surprise Crude Inventory Build

Oil closed at a 3-year high heading into tonight’s inventory data, but WTI/RBOB faded after API reported a surprise crude build (after 9 straight weekly draws). Gasoline inventories rose for the 11th week as Cushing stores fell again.

Underpinning the price rally were also assurances from Russian and Saudi Arabian oil chiefs that a historic production accord by the world’s largest producers will endure.

The comments from Saudi Arabia and Russia quell investors’ “concerns about OPEC discipline deteriorating. That should be welcome news,” Paul Crovo, a Philadelphia-based oil and equity analyst at PNC Capital Advisors LLC, said by telephone. “Inventories continue to go down. That’s all good news.”

API

Crude +4.755mm (-2mm exp) – biggest build since September
Cushing -3.572mm(-2.2mm exp)
Gasoline +4.117mm (+2.2mm exp) – 11th weekly draw in a row
Distillates -1.28mm (-1.1mm exp)

The streak of crude draws ends at 9… If this data holds up for DOE tomorrow, this will be the 11th weekly gasoline build in a row…

WTI/RBOB prices were exuberantly hopeful heading into API data but faded after the surprise crude build…

“You are seeing a rebalancing of the oil market,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone. “We’ve had outsized inventory declines for the last little while.”

Is that over now?

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Rep. Meehan Says Sexual Harassment Accuser Was ‘Soulmate,’ New York Sues Eight Drug Companies, Two Dead in Kentucky High-School Shooting: P.M. Links

U.S. Rep. Pat Meehan’s (R-Pennsylvania) defense to sexual harassment allegations from a former subordinate: They were “soulmates.” Unfortunately, she didn’t see it that way.
Two 15-year-olds were killed and 17 other people were injured after another student, also 15, opened fire at a Benton, Kentucky, high school Tuesday afternoon.
New York is suing eight pharmaceutical companies that manufacture prescription opioids.
The FBI has released preliminary crime statistics for the first half of 2017.
A Harvard historian reminds us that “the Republican Party once supported women’s issues, especially the ERA, and that in 1970 a Republican introduced the Senate’s first bill to legalize abortion.”
Behind the well-funded group campaigning to make the minimum age for working at strip clubs 21-years-old.
Happy anniversary, Donald and Melania Trump!

Follow us on Facebook and Twitter, and don’t forget to sign up for Reason’s daily updates for more content.

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Mueller Seeks To Question Trump On Comey, Flynn Firings

Following the news earlier this month that special counsel Mueller is seeking to question President Trump – and following today’s NYT report that Mueller had interviewed AG Jeff Sessions – moments ago the Washington Post reported that Mueller wants to question Trump over his decision to fire former FBI Director James Comey and the departure of former national security adviser Michael Flynn from the White House.

According to two WaPo sources, Trump’s legal team could present conditions for Trump to interview with Mueller’s investigators as soon as next week.

The Post also adds that Trump’s lawyers hope to have Trump answer some of Mueller’s questions in an in-person interview and some in writing.

Within the past two weeks, the special counsel’s office has indicated to the White House that the two central subjects that investigators wish to discuss with the president are the departures of Flynn and Comey and the events surrounding their firings.

Mueller has also reportedly expressed interest in Trump’s efforts to remove Jeff Sessions as attorney general or pressure him into quitting, “according to a person familiar with the probe who said the special counsel was seeking to determine whether there was a “pattern” of behavior by the president.”

Earlier this month, Trump declined to say whether he would grant an interview to Mueller and his team, deflecting questions on the topic by saying there had been “no collusion” between his campaign and Russia during the 2016 presidential election.

“We’ll see what happens,” Trump said when asked directly about meeting with the special counsel.

While Trump has told has allegedly told his lawyers that he is not worried about a face to face meeting with the special counsel, some of Trump’s close advisers and friends fear a face-to-face interview with Mueller could put the president in legal jeopardy.

A central worry, they say, is Trump’s lack of precision in his speech and his penchant for hyperbole.

Roger Stone, a longtime informal adviser to Trump, said he should try to avoid an interview at all costs, saying agreeing to such a session would be a “suicide mission.” “I find it to be a death wish. Why would you walk into a perjury trap?” Stone said. “The president would be very poorly advised to give Mueller an interview”, Stone said.

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“That Was Easy” Stocks Up, Bonds Up, Gold Up, Crypto Up… Dollar Down Again

Come on now…

Nasdaq was the day’s big winner, Dow flatlined…

Nasdaq was all about NFLX…

Futures show the chaos best from the shutdown shrug and un-shutdown buying-panic…

AAPL took another hit this afternoon on a JPM report and FANGs soared… again (after NFLX huge gains)

VIX rallied overnight but was chaotic for most of the day…then VIX was dumped into the close desperate to keep The Dow green…BUT FAILED

HYG rallied again today, bouncing up to technical resistance once again…

As stocks rallied on the day, so did bonds with the short-end outperforming…

The yield curve steepened modestly – testing 2018 technical support again…

Another day, another dollar dump after Asia closes…

Today was the lowest close for the dollar since Dec 2014.

Some early weakness in cryptos was quickly vanquished as Bitcoin bounced off $10,000 to break back above its 100DMA… and Ethereum rallied back above $1000…

It seems Bitcoin investors have been rotating back to the other alternative currency…

Gold jumped notably – to its highest close since 9/8/17… (gold has only seen 4 down days since The Fed hiked in December)

Silver had a chaotic day – tumbling to its 50DMA before pushing back above its 100- and 200DMA…

“Rigged” much?

WTI/RBOB were higher on the day as the dollar drooped ahead of tonight’s inventory data.

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Peak Hubris? Ray Dalio Mocks “Stupidity Of Holding Cash”

Authored by Mike Shedlock via MishTalk,

Bridgewater’s Ray Dalio says investors in cash are going to feel pretty stupid.

Speaking at Davos, the head of world’s largest hedge fund says ‘If You’re Holding Cash, You’re Going to Feel Pretty Stupid’.

“We are in this Goldilocks period right now. Inflation isn’t a problem. Growth is good, everything is pretty good with a big jolt of stimulation coming from changes in tax laws,” Dalio said, referring to the health of the U.S. market as well as what he sees as an improving global economic climate.

The prominent investor, who runs the largest hedge fund in the world with about $150 billion in assets, says a “blowoff rally”, or melt-up as some refer to it, in which investors begin to rush into equities for fear of missing out on gains, will take the Dow Jones Industrial Average DJIA, the S&P 500 index SPX, and the Nasdaq Composite Index to ever-new height.

Apparently, the blow-off top has not even started.

Worried about rising interest rates? The Fed will need to figure it out says Dalio.

Trigger Not Needed

Meanwhile, economist Robert Shiller says Stock Markets Don’t Need a ‘Trigger’ to Correct.

A pullback for this Teflon stock market could come like a thief in the night.

That’s the view of Nobel Prize-winning Yale University economics professor, Robert Shiller, who was interviewed in snowy Davos, Switzerland, on Tuesday as the World Economic Forum got underway. He was asked by CNBC if he thought any specific trigger could finally break the winning run for stocks.

Shiller vs. Dalio

It’s possible that Dalio is correct. It is certain that Shiller is correct. No trigger is needed. Sentiment can change at any time without there being a trigger you can put your finger on.

Think back to the summer of 2006. People were standing in line, overnight, for the right to buy a Florida condo. A month later, the lines were gone. The trigger? There was none that anyone can point.

Sentiment changed. If you prefer to think of this way, the trigger was a change in sentiment. But there was no trigger for the sentiment change.

Dalio Arrogance

Unlike Shiller, Dalio comes across as a pompous know-it-all.

Shiller does not pretend to know the unknowable. Dalio does.

“You are going to feel stupid”, is quite the arrogant thing to say.

Cash on the Sidelines

In the CNBC interview, Dalio spoke of sideline cash.

“There is a lot of cash on the sidelines. I don’t mean just investor cash. I think banks have a lot of cash. Corporations have a lot of cash. So we are going to be inundated with cash.“

Sideline Cash Rebuttal

Sideline Cash Reality

For every equity buyer, there is a seller.
Someone must hold every dollar printed 100% of the time.
It is impossible for everyone to deploy their cash or for cash to flow into the market as a result of statements one and two above.

By the way…

“If you’re asking whether markets are at a high end of the cycle, it certainly feels like this, bull market is long in the tooth…in both of our[retail and institutional] businesses, we’re seeing historically low levels of cash to assets under management.”

– TD Ameritrade CEO

Dalio is clueless about how markets even work, and he is lecturing people about feeling stupid.

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Philadelphia’s Government ‘Expresses Interest’ in Safe Injection Sites

Philadelphia officials are now open to allowing safe injection sites for heroin users. The city’s health commissioner, Thomas Farley, does not yet have details about how such sites would be run, who would run them, or who would pay for them, looking instead to solicit for proposals from private and non-profit organizations.

“Part of what we’re doing today is expressing interest,” he told the local NBC affiliate.

The announcement comes on the heels of Pennsylvania Gov. Tom Wolf’s decision to offer a range of waivers for regulations that have made it harder for substance abusers to access life-saving treatments. Jeanette Bowles, a public health researcher who served on Philadelphia’s Opioid Task Force Harm Reduction and Overdose Prevention Subcommittee, told Reason‘s Mike Riggs earlier this month that she hopes the governor’s new policy means the state “might not get in the way” of a supervised injection facility. (Bowles’ old subcommittee has recommended safe injection sites as a way to mitigate overdose deaths, which are a growing problem in the city.)

Philadelphia’s new district attorney, Larry Krasner, endorsed the idea of safe injection sites while campaigning for the office last year, saying he’d support “properly run and appropriately supervised injection facilities.”

Police Commissioner Richard Ross has said he an open mind about safe injection sites—but with “a lot” of questions. “What would our role be? What does that look like to us? What am I asking police officers to do?” he said to PhillyVoice.

A similar effort in Vermont has been stymied by U.S. Attorney Christina Nolan, who declared that safe injection sites would “encourage and normalize heroin use” after the state legislature began to consider such a proposal.

Safe injection sites currently operate in parts of Europe as well as Vancouver, offering American officials a number of models to consider. There are not yet any sites in the United States, although there are efforts to establish them in California and Seattle.

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“Something Strange Is Going On With VIX…”

At the end of last week, we noted that VIX and the S&P 500 were behaving in an unusual manner.

Specifically, for the second week in a row, S&P and VIX were higher together… the first time since Nov 2013.

And VIX was drastically decoupled from stocks since 2018 began…

But, even more ‘odd’ as noted by Eric Robertsen, head of global macro strategy and FX research at Standard Chartered, “something very strange is happening with the VIX term structure.”

Typically, as Bloomberg reports, the VIX curve flattens during market selloffs as investors bid up front-end volatility.

In recent days, however, the curve has flattened as the market kept rallying.

Here’s a look at the five-day moving average of the gap between 3rd-month and 1st-month VIX contract.

It appears that the front-end of the vol index curve moved up as investors bought call options to chase equity gains.

That can be seen in the recent increase in the call/put ratio for the S&P.

Notably, as Bloomberg reports, as U.S. stocks trade at all-time highs, the price tag on bearish options has dropped to a trough relative to bullish contracts. The spread between the price of one-month, 25-delta puts and calls for the S&P 500 is roughly two standard deviations below its five-year mean, data compiled by Bloomberg show.

It’s an indication of the greed — or lack of fear — in the market suppressing the Cboe’s volatility gauge.

This is a record low skew – bullish/greed – lower than at the peak of the market in 2007…

The persistent decline in put prices — paying less for downside protection — drove the downtrend in the measure known as skew during most of last year’s second half. Since Jan. 3, investors chasing upside have led to an increase in the cost of calls, contributing to the historically significant level of bullish positions, the data show.

* * *

At a minimum, it suggests that it’s less appealing to sell long-dated vol as carry is diminishing. It is also a sign that equity investors are getting too complacent.

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The Feds Are Willing to Let More Medical Workers Treat Opioid Addicts. Now the States Need to Step Up and Allow It.

The Drug Enforcement Administration (DEA) announced today that it will begin granting waivers making it easier for nurse practitioners and physician assistants to administer a drug designed to wean people off prescription painkillers and heroin without inducing withdrawal. Under the new rule, they’ll be able to give patients the drug—buprenorphine—in outpatient settings without requiring that care providers register as narcotics treatment programs. If the state where they practice allows it, nurse practitioners will also be allowed to administer the drug without a physician on the premises.

The Food and Drug Administration approved buprenorphine in 2002. That same year, the Department of Health and Human Services created a waiver program that would allow physicians to administer the drug in a primary care setting.

The waiver system was designed to provide an alternative to the regulatory obstacles physicians must navigate to set up a treatment center. Establishing a federally approved treatment program requires you to submit an application to both the DEA and the Food and Drug Administration, plus a state regulatory agency. Applicants must then be interviewed and have their facilities inspected by all three agencies. The waiver provision—which also involves a fair amount of paperwork—was intended to expand treatment access to Americans in rural areas. But nurse practitioners and physician assistants weren’t allowed to apply for the waivers.

In 2016, the Comprehensive Addiction and Recovery Act changed the waiver eligibility language from “qualifying physician” to “qualifying practitioner.” The DEA’s notice states that the definition of “qualifying practitioner” will include physicians, physician assistants, and nurse practitioners until October 2021, at which point the language will have to be reauthorized.

Under the new regulations, any nurse practitioner or physicians assistant who is licensed to administer a schedule III drug can now apply for a waiver. (Schedule III drugs have moderate potential for abuse and can be mildly habit forming.) They will be required to undergo 24 hours of training, and they will need a physician’s authorization if their state requires them to work under a doctor’s supervision. All physician assistants require such supervision, but 21 states and the District of Columbia allow nurse practitioners “full practice” status, meaning they can prescribe drugs independently of a medical doctor.

Unfortunately, many of the states hit hardest by opioids do not allow nurse practitioners this independence. Pennsylvania, New Hampshire, Kentucky, West Virginia, and Ohio had the highest overdose death rates in 2016. Of those five, only New Hampshire allows nurse practitioners to prescribe independently.

That blunts the impact of today’s announcement. According to the DEA, “rural providers of buprenorphine report a demand far beyond their capacity and say they lack the resources to adequately support themselves and patients in treatment.” A 2017 report from the National Rural Health Association revealed that only 39 percent of rural counties have a waivered physician.

Meanwhile, a 2016 survey found that 36 percent of waivered physicians who are not treating the maximum number of patients allowed by Health and Human Services, say it’s because they lack the time to treat additional patients. A 2015 research review by the Kaiser Family Foundation found that nurse practitioners “can manage 80-90% of care provided by primary care physicians” and that primary care outcomes between nurse practitioners and physicians are roughly identical.

The DEA took a step in the right direction today. Now states need to make it easier for non-physicians to keep their patients alive.

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Google Suspends ‘Malfunctioning’ Fact-Checker Feature

Google is following in Facebook’s footsteps and abandoning a search feature that displayed fact checks for publishers after a malfunction prompted conservative media outlets to accuse Google of discrimination.

Facebook ditched its “Fake News” flag last month after it discovered that flagged stories actually saw a boost in readership. Last week, CEO Mark Zuckerberg revealed that Facebook would try out a new system: It would rank news organizations by trustworthiness, using data gleaned from user surveys.

The feature in question is Google’s “Reviewed Claims” feature, which was launched last year.

A Google spokesperson said the company was withdrawing the service because “it’s clear that we are unable to deliver the quality we’d like for users.”

“We launched the reviewed claims feature in our Knowledge Panel at the end of last year as an experiment with the aim of helping people quickly learn more about news publications,” a Google spokesperson said in an emailed statement to Poynter.

“We said previously that we encountered challenges in our systems that maps fact checks to publishers, and on further examination it’s clear that we are unable to deliver the quality we’d like for users.”

Google launched the Knowledge Panel feature in November on mobile and desktop in an effort to display information about specific publishers in search, according to Poynter. Part of that feature included a Reviewed Claims column that matched outlets’ disputed claims with fact checks contributed by independent fact-checking organizations to the Schema.org ClaimReview markup.

However, that feature came under fire last week when The Daily Caller published a story blasting Google for wrongly appending a Washington Post fact check to one of its stories about Robert Mueller’s investigation team.

Ironically, it was the fact check that was incorrect.

Google told Poynter on Friday that the decision to suspend Reviewed Claims resulted in part because of The Daily Caller’s complaint, as well as feedback from other users.

Going forward, Google’s spokesperson said that the feature won’t be scrapped: Instead, Google’s engineers will keep working to improve it until it’s ready to be reintroduced.

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“Even Worse Than iPhone 8”: JPM Warns Of Tumbling iPhone X Orders, Slashes Production Forecast By 50%

“Has the Apple gone sour?”

That’s what JPM’s tech/semi analyst Narci Chang wants to know after looking at recent iPhone X orders where he sees “more signs of weakening” and is revising his forecast for iPhone production to plunge by 50% Q/Q, “even larger than the decline of the iPhone 8/8+.”

“Our EMS forecast for total iPhone is now 55mn in 1Q (vs 60mn before), and iPhone X is now 20mn in 1Q (vs 30mn before).” – JPM

Unfortunately for AAPL fans, this is not some year-end calendar quirk, but instead JPM believes the “weakness will continue in 1H18 as high-end smartphones are clearly hitting a plateau this year.

Noting that JPM downgraded the Apple Supply Chain in mid-September given that: 1) iPhone X expectations are largely priced in, and 2) sustained growth into the 2018 iPhone cycle is unlikely, given limited design changes in the next cycle (click for podcast and note), Chang warns that “now we believe the peak has arrived even earlier than our expectations.“

Chang also writes that as a result of the steep plunge in orders, he expects upstream component build for iPhone X to stop in May, while new iPhone component build may start earlier in late-June as Tim Cook hopes the new generation of iPhones will salvage what is clearly becoming an extremely saturated industry.

Instead of taking any action on AAPL now – although it is likely imminent – JPM said it was re-adjusting its supply chain view as follows:

Despite robust revenue from iPhone X suppliers in 4Q, demand has gone sour quickly. Along with this note, we have lowered our 1Q forecasts for Win Semi (OW), Merry (OW), Largan (N), Hon Hai (N), and AAC (OW), and cut full-year forecasts/lowered price targets for LGI (N), and downgraded Sony to N. We still like suppliers with long-term content growth potential, but would like to caution 1H18 weakness and saturated growth for highend iPhones.

For Win Semi, we are still highly convinced all three new models in 2H18 will have 3D sensing while a rear-end 3D sensing module in 2019 could provide upside potential.
For Merry, we forecast that earnings exposure from iPhone is <5% anyways, while the company has 6% dividend yield support here.
Largan, on the other hand, may face intensified competition, and we also lowered the forecast to factor in that 6.05″ LCD phone will NOT have dual camera this year, contrary to market expectations.
On AAC, we believe the new verticals and dollar content growth, and the China smartphone exposure, are able to help the company maintain 20%+ earnings growth this year. For Hon Hai, we expect further earnings downgrades to weigh on the share price.

And while this market has long ago stopped responding to news, the JPM announcement was enough to knock the stock modestly of its day highs, even if it is still green for the day despite what – if JPM is right – is an indication of a collapse in iPhone X demand.

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