Volumeless Short Squeeze Lifts Stocks Green For 2016, Oil Nears $50

Yuan devalues to lowest since 2011, US Services economy plunges, bonds rally, and USD drops… so why not extend yesterday's manic stock gains…

 

The short squeeze continues – "Most Shorted" stocks biggest rise in 2 months…

 

On no volume on no volume once again… (lower panel shows relative volume)…

 

The Dow outperformed on the day and Small Caps lagged (unusual for a squeeze)…

 

Pushing The Dow green for May…

 

And Small Caps green for 2016…

 

VIX punched to a 13 handle…

 

Apple is up 4 days in a row for the first time since September – nearing its 100DMA – desperate to fill the earnings gap…

 

Stocks are lifting in what can only be called a perfect straight line… not exactly human-like move…

 

Treasury yields ended the day unchanged across the entire curve (apart from a sudden 2bps puke higher in 30Y shortly after the 5Y auction) – very odd…

 

The USD Index broke its 8-day winning streak (after last night's China devaluation) – note cable rallied once again on more Brexit polls…

 

The weaker dollar sparked strength in copper and crude but gold slipped lower despite Silver strength…

 

It appears gold and oil have roundtripped back to 'normal'…

 

Notably Oil VIX has spiked lower – seemingly erasing all the cover that created the squeeze…

 

Oil algos were just unable to get the front-month to $50 today – buying DOE Dip with full abandon… to Nov 2015 highs…

 

But we note that while everyone celebrates the recent rally, the curve has actually flattened notably since Nov 2015…

 

Charts: Bloomberg

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Worst Economy Since the Great Depression

Many economic indicators are at their worst since the Great Depression …

For example, we noted in 2009 that more Americans will be unemployed than during the Great Depression.

We noted in 2010:

The following experts have – at some point during the last 2 years – said that the economic crisis could be worse than the Great Depression:

 

We explained in 2011 that many economists agree we’re in a depression … and they only argue about whether we’re facing the “Great” depression of the 1930s or the “Long” depression of the 1870s. We also noted that housing prices fell farther than during the Great Depression.

In 2012, we wrote:

We’ve repeatedly pointed out that there are many indicators which show that the last 5 years have been worse than the Great Depression of the 1930s, including:

***

Indeed, the number of Americans relying on government assistance to obtain basic food may be higher now that during the Great Depression. The only reason we don’t see “soup lines” like we did in the 30s is because of the massive food stamp program.

We noted in 2013 that the British economy is worse than during the Great Depression, and more Americans are committing suicide than during the Great Depression.

We pointed out in 2014 that Europe is stuck in an economic malaise worse than a depression, and cited charts showing that Europe’s GDP is recovering much slower than after the Great Depression:

Great Depression v. Great Recession, United Kingdom GDP

Great Depression v. Great Recession, Europe GDP

We also noted that Americans fared better after the Great Depression than the 2008 crisis and that U.S. foreclosure rates are comparable to the Great Depression.

Last year, we noted that an important economic indicator – the velocity of money – has crashed far worse than during the Great Depression, and that the howling winds of deflation are hammering the U.S. just as much as Europe.

We noted that last year was the first pre-election year stock market loss since the Great Depression.

In January, we pointed out that a prominent economist said:

Future economic historians may not call the period that began in 2007 the “Greatest Depression.” But as of now, it is highly and increasingly probable that they will call it the “Longest Depression.”

In March, the Federal Reserve Bank of St. Louis noted that – as with Europe – America’s GDP is recovering much slower than after the Great Depression:

Economic Recoveries

And Pew reports:

More young adults in the U.S. are living with their parents than at any time since around 1940, according to a new Pew Research Center analysis of census data.

 

Across the European Union’s 28 member nations, nearly half (48.1%) of 18- to 34-year-olds were living with their parents in 2014 ….

 

***

Similar long-term trends have been observed elsewhere. Canada’s most recent census, in 2011, found that 42.3% of adults ages 20 to 29 lived in their parents’ homes, up from 32.1% in 1991 and 26.9% in 1981. In Australia, about 29% of 18- to 34-year-olds were living with one or both of their parents (but without a partner or child) in 2011, up from 21% in 1976. And in Japan, the share of 20- to 34-year-olds living with their parents grew from 29.5% in 1980 to 48.9% in 2012.

Heck of a job …

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This Is The Maximum Amount Of Cash You Can Take Out At A Venezuela ATM

As Bloomberg’s Nathan Crooks demonstrates, this is the maximum amount of money one can take out from a Venezuela ATM each day.

 

For those wondering, the fistful of cash is worth about $25.

The good news: those locals lucky enough to still have money in a Venezuela bank don’t need a wheelbarrow to carry it.

The bad news: those same locals soon will.

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Add It Up… And It Doesn’t Add Up

Submitted by Chris Hamilton via Hambone's Stuff blog,

The growth of population has been the primary driver of global demand growth and growth in consumption.  Rising wages have been largely offset by rising prices (inflation), so the primary basis of growth in demand is good old growth in population…and the deceleration in population growth should be very worrying for those expecting the next decade or two to look anything like the past seven decades.

The chart below gathers the combined 15-64yr/old annual growth of the 15-64yr/old population of the OECD, China, Brazil, and Russia against the Federal Reserve set Fed Funds Rate (%), global debt, and global GDP.  To be honest, it's a very good fit showing very bad things to come based on the current modus operandi.

But maybe that isn't fair or its simply cherry picking data with a desired result in mind?  So, to be fair, the chart below shows the annual growth of the global adult population (20-64yr/olds) highlighted in yellow.  The deceleration of the global adult population is plain to see and down 25 million (30%) from peak growth in 1988.  

The growth is further broken down by source of that population growth, OECD (34 wealthy 34 nations representing 1.1 billion people, outlined here…OECD), BRICS (Brazil, Russia, India, China, S. Africa…representing 3.1 billion persons), and the RoW (rest of the world…representing 3.2 billion persons).  The collapse of growth in the OECD is well known, but the collapsing growth among BRICS less well understood.

Annual global adult population growth, total and by source, below.  Also important is to understand that the next two decades on these charts (representing the adult population) are not an estimate or forecast…simply taking the count of those already borne and showing their replacement of the persons already there.  Said otherwise, any change in birthrates now (up or down) wouldn't even begin to have impact on the adult population for at least 20 years. 

And below, given the wealth and consumptive capacity of the OECD vs. the BRICS and particularly over the poor RoW…the chart below depicting the population growth multiplied by GDP per capita (all are held constant in $'s).

  • OECD = $40k/yr
  • BRICS = $15k/yr
  • RoW = $8k/yr

The outsized impact of the OECD nations in consumption vs. the relative minor impact of the RoW is highlighted by the growth of population when multiplied by GDP per capita.

Lastly, pulling it all together.  Adding in global GDP, global debt, and the Federal Funds Rate (the de facto global central bank behind the reserve currency).

The annual adult population growth peaked in 1988 but the FFR had already begun it's southward turn in advance of decelerating population growth.  Of course, debt (the substitute of the decelerating population growth) was already responding although global GDP didn't respond nearly as well. 
 
Continuing deceleration of population growth offset by rate cuts incenting ever greater debt loads (with continually underperforming GDP) was the central banks only play. 
 
And now as population growth and decelerating demand really begin to wane…the playbook is basically exhausted save for one play…simply print money with which to buy assets and "permanently retire" those assets.  Think Treasury's, think MBS, think equity's…think anything that can be digitally created and digitally destroyed all to perpetually shrink the outstanding float (think perpetual short squeeze).  How long this can maintain asset values northward march in the face of the populations southward divergence is anybody's guess.

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Erdogan Halts European Refugee Deal After Merkel Snub, Says Turkey Has Other Options

Following Monday’s news that that EU, via Angela Merkel, had suspended plans to extend visa-free travel with Turkey, a public slap in the face of Turkey’s president Recep Erdogan who had expected the deal to be ratified due to his threat of “unleashing” millions of refugees back into Europe, we said that “the question is whether the infuriated Turkish leader will resort to making good on his threat, and once again send out countless refugees along the Balkan route whose end destination is well-known: the wealthy countries of Central Europe.”

Overnight we got a partial answer when Erdogan said that Turkey would not take any steps regarding the implementation of migrant readmission until progress was made on visa liberalization. He also said funds that the EU had promised to pay Ankara for taking back refugees had not been paid. In other words, the deal that had halted the influx of refugees into not only Germany but all of Europe is suddenly in limbo as Turkey will no longer accept European refugees as per the deal agreed upon last month.

 

Turkey added it is not worried if a decision cannot be reached, with Ankara’s new EU affairs minister saying that the EU was not the “sole option.”  Omer Celik, who recently replaced Volkan Bozkir in the cabinet named by new Prime Minister Binali Yildirim, said he also wanted the EU to drop its double standards regarding the fight against terrorism. 

In short, as expected Turkey is not only calling time on the refugee deal but is also threatening to go with other alternatives.

Turkey’s refusal to change its anti-terrorism laws has been a sore point regarding relations with the EU. Ankara says they cannot be changed due to the threat posed by Islamic State terrorists and Kurdish militants. However, critics of Erdogan, along with human rights organizations, have accused the Turkish government of using the terror laws as an excuse to carry out a military crackdown against Kurds in the restive southeast of the country.

Even Germany has become worried about the hard line taken by Erdogan, with Chancellor Merkel concerned about the country’s slide from democracy after the decision to strip MPs of legal immunity.  “I’ve made this clear in the conversation today that I also think we need an independent judicial system, we need independent media and we need a strong parliament,” Merkel said after holding talks with Erdogan in Istanbul on Monday.

Meanwhile, the person who has most to lose should the Turkish refugee deal unwind, Angela Merkel, who has seen her popularity in the polls tumble as a result of her handling of the immigrant influx, said he is not concerned. As RT writes, “German Chancellor Angela Merkel says she is not worried about the migrant pact between the EU and Turkey, though she admitted more time was needed to reach an agreement. Meanwhile, Ankara says it has alternatives to the EU if a deal cannot be reached.”

“I am not concerned, we just need more time,” Merkel told reporters on Wednesday, as cited by Reuters, after a cabinet meeting just outside Berlin.

She should be: As Bloomberg Richard Breslow writes:

“the threat to Europe, however, remains.

 

A day after German Chancellor Merkel returned from Istanbul in a desperate attempt to salvage the refugee deal so important to European unity, Turkey’s Foreign Minister said all agreements with the EU could be suspended. This followed an Erdogan adviser saying the joint customs union was at risk. Give us what we want or else. Truth is, right now, Europe needs Turkey more than Turkey needs Europe.

 

It may not be a coincidence that while Turkey’s markets were celebrating yesterday, the euro was getting pasted. What happens in Turkey, doesn’t stay in Turkey.”

As of this moment the refugee deal is in limbo. If and when it is cancelled outright, Europe’s immigrant related problems will come back with a vengeance.

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NSA Whistleblowers Vindicated By High-Level Pentagon Official

Obama, Hillary Clinton and other government officials have said that Snowden should have "gone through proper channels" instead of publicly blowing the whistle.

But we pointed out in 2013 that there are no proper channels Snowden could have gone through.

Now, a high-level Pentagon official confirmed that wouldn't have worked.  He gives the example of NSA whistleblower Thomas Drake (see exclusive interviews with Thomas Drake here, here, here and here), who tried to go through proper channels. But he was stonewalled and FRAMED by the government that was supposed to protect him and to use the information he disclosed to make our country safer and less corrupt:

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Downtown Seattle Hit By Widespread Power Outage

France may go dark tomorrow, but for residents of downtown Seattle elevators ground to a halt and lights went out across downtown Seattle late Wednesday morning as a major power outage struck. According to Komo News, the outage struck at about 11:30 a.m. The cause of the disruption was an equipment failure at Massachusetts Street Substation and was expected to last about two hours, according to Seattle City Light.

The outage was causing major problems across the downtown area. At least seven elevator rescues were in progress as emergency responder spread across the area.

Traffic lights went dark at major intersection, causing backups and traffic jams.

Many workers fled darkened buildings out into the streets.

Ferry service from Seattle to Bremerton and Bainbridge Island also was disrupted and ferry passengers were warned to expect delays.

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The “System” Won’t Survive The Robots

Submitted by Paul Rosenberg via FreemansPerspective.com,

It’s really just a matter of time; the working man’s deal with his overseers is half dead already. But there’s still inertia in the system, and even the losers are keeping the faith. Hope dies slowly, after all.

Nonetheless, the deal is collapsing and a new wave of robots will kill it altogether. Unless the overseers can pull back on technology – very fast and very hard – the deal that held through all our lifetimes will unwind.

We All Know the Deal

We usually don’t discuss what the “working man’s deal” is, but we know it just the same. It goes like this:

If you obey authority and support the system, you’ll be able to get a decent job. And if you work hard at your job, you’ll be able to buy a house and raise a small family.

This is what we were taught in school and on TV. It’s the deal our parents and grandparents clung to, and it’s even a fairly open deal. You can fight for the political faction of your choice and you can hold any number of religious and secular alliances, just as long as you stay loyal to the system overall.

This deal has been glamorized in many ways, such as, “Our children will be better off than we are,” “home ownership for everyone,” and of course, “the American Dream.” Except that it isn’t working anymore, or at least it isn’t working well enough.

Among current 20- and 30-year-olds, only about half are able to grasp the deal’s promises. That half is working like crazy, putting up with malignant corporatism and trying to keep ahead of the curve. The other half is dejected and discouraged, taking student loans to chase degrees (there’s more status in that than working at McDonald’s), or else they’re pacified with government handouts and distracted by Facebook.

The deal is plainly unavailable to about half of the young generation, but as I noted above, hope dies slowly and young people raised on promises are still waiting for the deal to kick in. It’s all they know.

Regardless, the deal has abandoned them. It has made them superfluous.

Here’s Why

Put very simply, the deal is dying because two things can no longer coexist:

#1: New technology.

#2: A system geared to old technology.

Let’s start with new technology: New machines and methods have made so many jobs obsolete that there aren’t enough to go around. Both North America and Europe are already filled with the unemployed or underemployed children of industrial workers. But at the same time, we are suffering no shortages; we have an overflow of stuff and a double overload of inane ads trying to sell it all. And there’s something important to glean from this:

Where goods abound, additional jobs are not required.

We don’t need more workers. Machines are producing plenty of stuff for us, and this becomes truer every day.

Item #2 is the system itself; let’s confront that directly too: The system was designed to reap the incomes of industrial workers. Everything from withholding taxes to government schools was put in place to maximize the take from an industrial workforce. Whether purposely or simply by trial and error, the Western world was structured to keep industrial workers moving in a single direction and to reap from them as they went. Call it “efficient rulership” if you like, but the system is a reaping machine.

Technology, however, has advanced beyond the limits of this machine; it has eliminated too many jobs. At the same time, regulations make it almost impossible for the superfluous class to adapt. Nearly everything requires certification and starting a business is out of the question; fail to file a form you’ve never heard of and the IRS will skin you alive.

This system, however, will not change; the big corps paid for the current regulatory regime, and they still own their congressmen.

Enter the Robots

You may have seen this image (it comes from NPR’s Planet Money), but look again anyway. I count 28 states in which “truck driver” is the most common job. As inexact as this map may be, it makes a point we can’t really ignore: What happens to all these truck drivers when self-driving trucks pile on to the roads? And you may count on it that they will; automated trucks will be safer and cheaper and will use less fuel. So, millions of truck drivers will be dropped out of the deal, and probably fairly soon.

jobs_map

On top of that, the very last refuge for the superfluous class – fast food – is experiencing its own robot invasion. Wendy’s just ordered 6,000 self-service ordering kiosks to be installed in the second half of 2016, and KFC’s first automated restaurant went live April 25.

Is There an Answer?

“The deal” is very clearly failing. At the same time, the system is utterly unwilling to change; the people in control are making too much money and hold too much power. The impoverishment of a hundred million people in flyover country won’t move them to give it up. Their system, after all, funnels the wealth of a continent to Washington, DC, in a steady stream… and they’ve bought access to that steam. The system will be defended.

So, forget about orderly reform. Certainly there will be talk of reform, and plenty of it… there will be promises, plans, and a small army of state intellectuals dedicated to keeping hope alive. But the system will not reform itself. Did Rome? Did Greece?

If there is to be an answer, it will have to come from the ‘superfluous’ people… but that discussion will have to wait for another day.

Don’t Blame the Robots

One last point: Don’t make the mistake of blaming technology for all of this. Technology is doing precisely what we want it to do: It’s killing scarcity. And that’s a very, very good thing. Without technology, we all go back to low-tech farming. And if that possibility doesn’t alarm you, you really should try it for a month or two.

Technology is moving forward and should move forward. The death of scarcity is to be welcomed. Our problem is that we’re chained to an archaic hierarchy of dominance with a deeply entrenched skimming class. Either we get past it or we go back to serfdom… or worse.

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Monetary Lunacy: The ECB Could End Up Funding Bayer’s Purchase Of Monsanto

One month ago, we were surprised to report that the junk bond issued by French telecom company Numericable would, after its 100%+ upsizing, become the largest high yield bond on record. As we explained this was a direct consequence of the unprecedented intervention by the ECB in the European bond market unveiled one month prior, which courtesy of Mario Draghi’s backstop to all non-financial corporate bond issuance, had made a virtual certainty that the European bond corporate market was the next bubble as there was effectively no longer any risk in holding not only investment grade, but also junk paper, now that starved for yield investors would flood into anything that carried even a modest yield premium.

Today we find an even more striking example of just how broken the global bond market has become thanks to the ECB because as Reuters writes, Bayer could receive financing from none other than the European Central Bank to help fund its takeover of the world’s largest seed company, US-based Monsanto, according to the terms of the ECB’s bond-buying program.

As reported yesterday, Monsanto turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. Bayer, which many were surprised by its eagerness to pursue a quasi-hostile offer, promptly agreed to get more actively involved in the negotiation process. Now we know why: the cost of debt would be funded by none other than the European Central Bank.

As we documented back in March when describing the terms of the ECB’s CSPP, or corporate bond buying program, the ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

It now appears the “use of funds” may be M&A, and even LBOs.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity. And since the ECB will buy a substantial amount of debt Bayer has to offer and will likely provide it with preferential terms, it explains why Bayer has been so surprisingly price indiscriminate to confuse even Bayer’s own shareholders. It also explains why if the Bayer deal goes through, the world will likely see a surge of ECB-funded M&A deals unleashed by European corporates eager to sell billions in debt to Mario Draghi.

“It will be interesting to observe how much of such a deal would be absorbed by the central bank,” credit analysts at UniCredit wrote in a note.
The ECB is buying 80 billion euros ($90 billion) worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs.

According to Reuters, central bank sources said it would not be the ECB’s first choice if the money it spent ended up financing acquisitions, however they have no say.

Reuters adds that “even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added.”

And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

Bayer has investment-grade ratings from S&P, Moody’s and Fitch, but all three agencies said they were reviewing their ratings for possible downgrades following the offer for Monsanto. We doubt that any downgrade will push the pharmaceutical giant into junk status.

And here is the punchline: once Bayer acquires Monsanto, a substantial number of the company’s highly-paid 22,500 workers will be “synergized” rinto into unemployment. Only this time we will know who is directly to blame for thousands of American workers losing their jobs: the European Central Bank.

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