Category: zerohedge

Authored by Tsvetana Paraskova via Oilprice.com,

Over the past few years, Brazil has held several very successful oil auctions under production-sharing contracts in its pre-salt layer, attracting major oil companies to its prized offshore oil area.  

Now President-elect Jair Bolsonaro wants to open more of the pre-salt assets – an area currently exclusively in the hands of state oil firm Petrobras – to private investors, hoping to earn US$31 billion (120 billion Brazilian reais) that could help narrow Brazil’s massive budget deficit.

However, as Bolsonaro prepares to take office on January 1, 2019, his transition team may need to negotiate how different Brazilian states and municipalities could divide the revenues from the potential sale of stakes in more pre-salt fields to foreign oil firms. This uncertainty is not welcome news for Big Oil, which has expressed interest in the area that has been explored to some extent and proven to hold much more oil than initially thought.

The area at stake is the so-called ‘transfer of rights’ area, where Petrobras holds 100 percent of the rights to produce 5 billion barrels of oil. The state oil firm has explored the area and found that a lot more oil lies in this low-risk offshore zone. There are estimates that the ‘transfer of rights’ area could hold up to 15 billion barrels of oil in excess of the 5 billion barrels to which Petrobras is entitled to produce when the government transferred the area to the state firm in 2010.

Brazil has been looking to pass legislation to remove the obligation that only Petrobras can produce oil in the ‘transfer of rights’ area. Far-right President-elect Bolsonaro, who had supported state control over the oil assets in the past, now plans to sell oil and other energy assets and supports the bill to allow foreign participation in the currently Petrobras-only ‘transfer of rights’ area, Bolsonaro’s advisor Luciano de Castro told Bloomberg earlier this month.

But last week, the head of Brazil’s Senate Eunicio Oliveira put on hold a bill authorizing oil auctions in the zone, dealing a blow to the president-elect and potentially stalling the bill further. At a meeting with mayors on Friday, Oliveira said that the bill to authorize the sale of stakes in the ‘transfer of rights’ area to foreign firms would be approved if it guarantees that part of the revenues would go to states and municipalities.

Bolsonaro’s plan for the oil auction in this area hit a snag even before the President-elect takes office. Bolsonaro is the third Brazilian president looking to authorize sales to foreign firms in the ‘transfer of rights’ area. But his transition team will probably have to negotiate with various states and municipalities how future revenues would be divided, if the plan is to pass in Parliament.

In the past, Bolsonaro favored state control over energy assets, but he has changed his stance before the presidential election race and now he is lining up a pro-business team to lead the country and picked a privatization advocate, Roberto Castello Branco, to be Petrobras’s new chief executive officer.

If Bolsonaro and his team manage to push the ‘transfer of rights’ area bill through Brazilian politicians from all sides, the potential resources opening for Big Oil to bid are huge.

The area is low-risk—Petrobras has explored parts of it and has found much more oil than originally thought. According to UBS analyst Luiz Carvalho, projects in the area can be viable even if oil prices were to drop to $20 a barrel, Bloomberg quoted the analyst as saying at an event in Rio last week.

Brazil can become an even more attractive destination for Big Oil than it is now if it manages to remove regulatory and political hurdles to auctioning more of its coveted pre-salt oil fields.

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While recent weeks have seen a surge of doom and gloom forecasts involving the US credit market, including dire assessments that a “death spiral” in credit ETFs may have begun following the recent blowout in both investment grade and high yield spreads…

… at least one fund is seeing a shiny silver lining amid the carnage.

According to AXA Investment Managers. corporate bonds have fallen so hard they’re officially in a bear market, which is great news for funds eager to dip their toes and BTFD, such as AXA which believes we have seen a “potential trough and buying opportunity in the ruins.”

“The market is trading with more attractive valuations than for most of the post-crisis period,” said Chris Iggo, AXA’s CIO for fixed income who manages over $500 billion in assets.

In a note on Monday, Iggo writes that “for anyone that is relatively optimistic that the U.S. will avoid a really nasty slowdown and that inflation will generally remain well behaved, then the time is getting closer to add to bonds.” And, like all other chronic buyt-the-dippers, Iggo predicts that after their dismal performance in 2018, dollar bonds “should race ahead next year.”

Unless of course, the Fed has already tightened into a recession, and keeps hiking rates for the foreseeable future as vice chair Clarida suggested earlier today.

Echoing the warning from Morgan Stanley over the weekend, in which the bank asked “how many idiosyncratic problems before we conclude that the issues in credit are not one off”…

… Iggo notes that issuer-specific risks are starting to look widespread, and that “given where we are in the economic cycle and given the increase in funding costs, especially in the U.S., it’s safe to say we are in something of a credit bear market.”

But the reason why the AXA manager remains optimistic and recommends not ruling out the asset class just yet, Iggo believes that the economy is running not too hot or cold, where fundamentals may be “deteriorating” but “still positive on the whole.”

That analysis would have cost Iggo dearly at the start of the year because as Bloomberg notes, his is a glass-half-full take in a punishing year, with U.S. high-grade bonds down almost 4% in 2018.

But Iggo is confident that the rout is (almost) over, and calculates that debt prices have fallen so far that U.S. IG credit spreads would have to widen 20bps for a long position to underperform government bonds; yields would have to spike by more than 65 basis points to deliver a negative outright return, he estimates.

Still, as usual “bottom fishing” remains a virtually impossible taks, and as Iggo admits, finding the trough is the hard part given the “glorious chaos” gripping markets.

With Brexit, trade tensions, Italy’s battle with the European Union, a Chinese slowdown, and volatility weighing on global markets, it’s likely corporate bonds will cheapen further before prices reach a bottom, he said.

“It could get worse before it gets better but even today the entry point for credit is better than it has been for some time, an important consideration for investors with new money to invest or those with allocations out of equity markets,” Iggo said, hoping that greater fools will listen and jump in, helping him offload his book.

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Authored by Adam Taggart via PeakProsperity.com,

As we’ve been tracking here at PeakProsperity.com, the housing market is starting to look quite ill.

After the central bank-driven Grand Reflation following the Great Financial Crisis, home prices are now beginning to nose over from their new bubble-highs.

Has the Housing Bust 2.0 begun? If so, how bad could things get? And what steps should those looking to pick up values at much lower prices in the future be taking?

This week we talk with citizen journalist Ben Jones, property manager and publisher of TheHousingBubbleBlog— where he tracks the latest headlines and developments in the housing market.

And given the stream of data Ben sees every day, he’s extremely pessimistic on home prices in most major markets worldwide:

We’re going to see a collapse. The housing bubble is in the process of popping right now. 

Everybody’s been behaving like speculators. Housing prices have been just like day trading stocks. What’s happening right now is a lot more suggestive of a bubble bursting much more than it does just a correction or a down cycle. 

I can’t think of a market in the United States I would buy in right now.

There’s plenty of people like me who have a memory of how this is going to play out (from the 2007 housing bubble burst), and they’re actually probably all lining up the same way.

If you’re looking to purchase housing at better values once this current bubble bursts, you don’t want to buy from Joe Six-Pack. You want to buy from a bank or a lender, that will frequently be Fannie May and Freddie Mac. For instance, in 2010, I helped somebody buy a house for $12,000 through an online auction. That house had been refinanced four years before for over $100,000. That same day, we could’ve bought three more for the same $10,000-$12,000 price. That’s the kind of discount you want to see and it’s the lenders who are going to be the ones that give you those big discounts. Wait until the distressed sales. You don’t want to be buying retail in real estate.

Sheriff sales, trustee sales — they have to go through this process where they offer the property to anybody who can buy it, including the current owner. They’ll put a print price on it that’s usually what’s owed on the property. When you see them selling it for less than what’s owed, that’s when there’s blood on the streets. Wait until a foreclosure has been sitting on the market for about 6 months, after they’ve whacked it down eight or nine times. Then make a lowball offer.

You have to realize is that the guys that are selling these are hired professional. Their job is to get rid of the houses — they’ve got so much to spend on them and so much that they’re allowed to lose.

That’s where we’re headed again. I would be very patient right now about catching a falling knife in the current market. Wait for the coming distressed discounts.

Click the play button below to listen to Chris’ interview with Ben Jones (43m:05s).

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With Democrats demanding the regulation of social media firms – lambasting Zuckerberg at every opportunity – and leftist politicians up in arms over tax handouts to Jeff Bezos’ company in liberal cities, we have a simple question…

Why was Nancy Pelosi’s family making leveraged long bets on tens of millions of dollars worth of shares in Amazon, Facebook, and Apple in the last month?

According to House of Representatives official filings, soon-to-be-majority leader of the House, Nancy Pelosi, reported numerous huge call option purchases in the last few weeks – all of which are underwater now.

In September, Pelosi bought 100 Call Options (1,000 shares) in Apple (Strike $145, Maturity 6/19/20)

Source

In October: Pelosi bought 30 Call Options (3,000 shares) in Amazon (strike $1600, Maturity 1/17/20), 10,000 AT&T shares, and 30 Call Options (3,000 shares) in Facebook (strike $140, Maturity 1/17/20)

Source

The positions are likely due to her husband of 50 years, Paul Pelosi – a wealthy businessman from San Francisco.

Paul Pelosi’s exact net worth is not known, but in 2014, Nancy reported between $43.4 million and $202 million in assets.

With Nancy battling the increasingly socialist progressives of her ‘new’ party to maintain her role as leader, one wonders what Ocasio-Cortez and Bernie Sanders will make of this ugly capitalism being unleashed at such an opportune time.

(…also we note that the investments have taken a more serious tumble in the weeks since Democrats won the House in the Midterms).

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Authored by Sven Henrich via NorthmanTrader.com,

If I keep this up I’ll soon be accused of being a permabull  Oh I’m kidding. Yes I’m macro bearish but trade direction practical and data and technicals matter.

Hence a quick follow up to the Bear Trap case, specifically 2 key data points that could matter greatly here and may represent a missing link in the current bear case: Industrial production and GAAP earnings.

Whatever justified concerns there are currently here’s a fact: Neither GAAP earnings or industrial production have turned south yet.

They may well turn going forward, but fact is the US has been on an industrial production tear versus the rest of the world (chart via Bespoke):

Why is that noteworthy in the current environment? Because there’s no evidence suggesting bear markets are occurring with earnings and industrial production still expanding:

The 2000 and 2007 bear markets came on a turn in industrial production and so did the earnings recession in 2015. Clearly that is not happening here as of yet. Now watch that change and all bets are off. As we’ve seen these figures and turn quickly and sharply.

In terms of GAAP earnings, the acceleration in 2018 is massively driven by US tax cuts and they represent a problem for 2019 for comparison purposes, so a slowdown or a regression from the current picture is highly probable into 2019.

In 2000 GAAP earnings continued to muddle higher as the Nasdaq bubble had already popped, but $SPX made another run at the near the highs later in 2000. Why? One could argue because industrial production moved higher once again and earnings kept producing, but then industrial production turned south and that was the move toward the recession.

In 2007 the market peak coincided with a peak in GAAP earnings and industrial production. Both turned south quickly and the rest is history.

So where’s the evidence as of now that these key variables have turned?

I’m not saying they won’t, indeed from a macro bearish perspective it is highly probable that they will and then watch out.

Indeed one could make the case that the industrial production growth curve has already turned and hence it’s a potential warning flag:

But because GAAP earnings and industrial production haven’t turned in absolute numbers yet it lends additional credence to the Bear Trap case for another larger rally to emerge first before an actual bear market comes to fruition. That is of course if we see positive resolution to some of the macro issues discussed in the article.

But for now, GAAP earnings and industrial production represent a missing link in the bear case, but clearly they are key items to watch.

*  *  *

For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

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Ignoring Ukraine’s demands that its sailors be treated as prisoners of war, Russia has decided to jail two of the Ukrainian sailors captured on Sunday when Russian Navy ships rammed and fired on three Ukrainian vessels that Moscow said were “maneuvering dangerously” near the Kerch Strait. The Russian Coast Guard captured some two dozen sailors after commandeering the ships, which included to Ukrainian artillery ships and a tugboat. Russia has refused to release the ships and the sailors despite demands from European and US officials.

According to Radio Free Europe, a Russian court in Simferopol ruled that the men should be kept in custody for two months while Russia carries out an investigation. News of the court’s decision follows the release of interrogation footage where three of the sailors admitted to “provoking” Russia and said they were just following orders. In Russia “pretrial detention” typically means that the men will be locked behind bars in a jail.

The court would also carry out custody hearings for 12 other captured sailors on Tuesday, with nine more expected on Wednesday.

Russian law allows for the term of their detention to be extended at prosecutors’ request. It’s not clear when the sailors, who have been accused of violating Russia’s border, will face trial.

Six Ukrainians were injured on Sunday when Russian ships fired on the Ukrainian vessels, while a Russian shipped rammed the tugboat. After the ships were halted, Russian special forces stormed the vessels and took them into custody.

Following comments from the leader of the British army who claimed that Russia represents a greater security risk to the UK than ISIS, a British diplomat accused Russia of trying to cement its domination of Crimea, which Russia annexed in 2014, by expanding its dominance to the Sea of Azov.

Britain’s Deputy UN Ambassador Jonathan Allen said Russia “wants to consolidate its illegal annexation of Crimea and annex the Sea of Azov,” where Ukraine has several ports.

The international community will not accept this, he said, insisting that Russia “must not be allowed to rewrite history by establishing new realities on the ground.”

During a phone call with German leader Angela Merkel, Russian President Vladimir Putin expressed concerns about Ukraine’s decision to declare martial law in ten border regions, saying it could lead to “the threat of escalation” – which, ironically, is exactly what Ukrainian President Petro Poroshenko said to justify it. As Ukraine deploys reservists to the border provinces affected by the order, opposition politicians have questioned why martial law is needed now, and not during the worst of the fighting in Eastern Ukraine during the insurgency that flared in 2014 and 2015. Still, Poroshenko’s warnings of an imminent Russian invasion helped win support for the measure in the country’s parliament.

“The imposition of martial law in various regions potentially could lead to the threat of an escalation of tension in the conflict region, in the southeast” of Ukraine, Putin’s spokesman, Dmitry Peskov, later told reporters.

Russia’s decision to jail the sailors will likely inflame the diplomatic crisis that erupted following Sunday’s confrontation. Secretary of State Mike Pompeo said Putin and Poroshenko should meet to resolve the dispute amicably. But given the developments over the past day, that doesn’t look likely.

(Courtesy of Radio Free Europe)

Though NATO has said it will back Ukraine no matter what, the United Nations Secretary General Antonio Guterres on Tuesday urged Russia and Ukraine to exercise “maximum restraint” to avoid further escalation. As fears of a hot war run high, the deeply unpopular Poroshenko is running to keep his seat in a March election that he is widely expected to lose. Will his stand against Russia be enough to revive his sagging popularity? Or will the Ukrainian leader need to resort to more drastic measures to convince the Ukrainian people to fall in line behind their leader during a period of crisis?

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After surging to new cycle highs in October, Conference Board consumer confidence was expected to weaken in October and it did (dropping from 137.9 to 135.7).

While the Present Situation rose modestly to new cycle highs (from a revised lower October print), Expectations (hope) in November tumbled…

Consumers’ optimism about the short-term future declined in November. The percentage of consumers expecting business conditions will improve over the next six months decreased from 26.3 percent to 22.5 percent, while those expecting business conditions will worsen increased, from 7.2 percent to 8.8 percent.

Notably only the 35-54 cohort saw overall optimism decrease (tumbling from 143.2 to 132.0) while the younger- and older-cohorts saw confidence increase.

Income expectations also fell from 16.5% net expecting an increase to 13.7% net (the lowest since June).

Finally, as a reminder, the divergence between slumping savings rates and surging consumer confidence has typically not ended well…

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US equity markets and European Auto stocks are plunging after reports that President Trump may introduce car tariffs as soon as next week (suggesting little hope for optimism from the G-20).

WirthschaftsWoche reports that US President Donald Trump may impose tariffs on imported cars as early as next week.

“The investigation report of the Ministry of Commerce is on the table of the President,” reported WirtschaftsWoche, citing EU sources.

“Trump will probably decide the tariffs next week after the G20 meeting in Buenos Aires.”

The dispute over possible US tariffs on cars from the EU is not over. The Europeans have already prepared a list of retaliatory measures.

The report recommends 25 percent duty on car imports from all countries except Canada and Mexico. There will be no exceptions for certain car types.

“The report recommends as broad a policy as possible.”

EU Trade Commissioner Cecilia Malmström will travel to Washington on Wednesday to discuss the issue with US Trade Representative Robert Lighthizer. In July, US President Trump promised EU Commission President Jean-Claude Juncker that he would not impose tariffs as long as the US and EU negotiated a free trade agreement. Trump and Juncker will see themselves on the sidelines of the G20 summit, but an official meeting is not planned.

The immediate reaction was selling in the major US equity indices as hopes for any good news coming out of the G-20 are dashed…

And European auto stocks are also getting hit with Daimler and VW down.

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Paul Manafort, Donald Trump’s former campaign manager, held secret talks with Julian Assange inside the Ecuadorian embassy in London, right around the time he joined Trump’s campaign, according to The Guardian, which as is now the norm in reports of this kind refers to unnamed “sources”

Sources have said Manafort went to see Assange in 2013, 2015 and in spring 2016 – during the period when he was made a key figure in Trump’s push for the White House.

It is unclear why Manafort wanted to see Assange and what was discussed. But the last meeting is likely to come under scrutiny and could interest Robert Mueller, the special prosecutor who is investigating alleged collusion between the Trump campaign and Russia.

A well-placed source has told the Guardian that Manafort went to see Assange around March 2016. Months later WikiLeaks released a stash of Democratic emails stolen by Russian intelligence officers. –The Guardian

The 69-year-old Manafort has denied any involvement in the release of the emails, and has said that the claim is “100% false.” 

Developing…

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Authored by Patrick Buchanan via The Unz Review,

Mass migration “lit the flame” of the right-wing populism that is burning up the Old Continent, she said.

Europe must “get a handle on it.”

“Europe must send a very clear message — ‘we are not going to be able to continue to provide refuge and support.’” Should Europe fail to toughen up, illegal migration will never cease to “roil the body politic.”

And who is the lady who issued the dire warning and dispensed the tough-love advice to Europe? Marine Le Pen?

No. It is Hillary Clinton, spouse of the Great Triangulator.

Democrats may have piled on Clinton for selling out progressivism, but her political instincts here are dead on. She has grasped something her party willfully refuses to recognize — the growing salience of the issue of mass illegal migration into Western societies.

According to a new Gallup Poll, concern over immigration and illegal aliens soared from 13 to 21 percent of the public in November, as the No. 1 problem on the minds of the American people.

And this was before Sunday’s violent collision at San Ysidro where the Border Patrol fired rubber bullets and used tear gas to stop a mob of hundreds — out of the thousands of migrants housed in a stadium in Tijuana — from breaching our border and pouring into our country.

TV footage of the attempted breach, and photos and stories that major newspapers are putting on Page One, will sustain the national focus on what, since the election, has re-emerged as the nation’s primary concern.

With Mexico about to install a leftist government and new caravans forming in Central America to move through Mexico to the U.S. border, this issue is not going away before the 2020 election.

And with nearly 10,000 migrants being held in Tijuana for more than a week, in what the city’s mayor calls a humanitarian crisis, new and more desperate attempts to breach our border can be expected.

Rocks and bottles were hurled at the men and women of the Border Patrol Sunday, which brought the tear gas and temporary closing of the San Ysidro crossing. New, more serious, casualties cannot be ruled out.

Monday, Trump called on Mexico City to deal with the migrants seeking to breach our border, and threatened that if Mexico does not act, he could close one of the world’s busiest crossings, and for good:

“Mexico should move the flag waving Migrants, many of whom are stone cold criminals, back to their countries. Do it by plane, do it by bus, do it anyway you want, but they are NOT coming into the U.S.A.,” Trump tweeted, “We will close the Border permanently if need be. Congress, fund the WALL!”

Trump thus laid down a marker for himself. Either he halts the caravans, or he will be seen as the failed enforcer of America’s border.

In that Gallup Poll there is other major news.

Among the problems facing America, in the eyes of her people in November, not one of the top 10 involved a foreign threat. In the following order, all involve the troubled state of our splintered nation: immigration/illegal aliens; dissatisfaction with government/poor leadership; health care; unifying the country; race relations/racism; lack of respect for each other; ethics/moral/religious/family decline; economy in general; unemployment/jobs; and education. Immigration, race, culture, the economy and education appear to be the agenda Americans want addressed in 2020.

What does this portend?

While progressives may have piled on Clinton for her comments, and she may have “clarified” what she said, she has hit on something. Mass migration from the Third World has not only been the major progenitor and propellant of the right-wing populism that is raging across Europe, it also played an indispensable role in defeating her and electing Donald Trump.

And if the Democratic Party and its presidential candidates in 2020 are seen as abolish-ICE, pro-amnesty, open borders liberals, they will pull their party out of the mainstream of this nation on the most divisive issue of our time — the Third World invasion of the West.

For Trump, the die is cast. Not only are border security, the wall, and his pledge to halt the illegal invasion of his country what got him elected, they appear to be a primary argument for his re-election.

Washington’s think tank and media elites may be focused on other issues:

• Brexit,

• the Russia-Ukraine naval clash in the Kerch Strait,

• Kim Jong Un’s nukes,

• the South China Sea,

• Syria,

• Iran,

• the Saudi crown prince’s role in the grisly murder of Washington Post contributor Jamal Khashoggi.

But according to Gallup, none of these issues is a top concern or problem for the American people.

Progressives fail to understand that what they describe as greater and ever more desirable diversity, millions of Americans see as the conquest of their country by an endless flood of uninvited strangers.

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