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Submitted by Artrhur Bermann via OilPrice.com,

Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.

 

A Production Freeze Will Not Reduce The Supply Surplus

An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today.

In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.”

Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37 percent from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.

The problem is that neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful.

(Click to enlarge)

Figure 1. Incremental liquids production since January 2014 by the United States plus Canada, Iraq, Saudi Arabia and Russia. Source: EIA & Labyrinth Consulting Services, Inc. (click image to enlarge)

Saudi Arabia and Russia are two of the world’s largest oil-producing countries. Yet in January 2016, Saudi liquids output was only ~110,000 bpd more than in January 2014 and Russia was actually producing ~50,000 bpd less than in January 2014. The present world production surplus is more than 2 mmbpd.

By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”

Growing Storage Means Lower Oil Prices

U.S. crude oil stocks increased by a remarkable 10.4 mmb in the week ending February 26, the largest addition since early April 2015. That brought inventories to an astonishing 162 mmb more than the 2010-2014 average and 74 mmb above the bloated levels of 2015 (Figure 2).

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Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)

The correlation between U.S. crude oil stocks and world oil prices is strong. Tank farms at Cushing, Oklahoma (PADD 2) and storage facilities in the Gulf Coast region (PADD 3) account for almost 70 percent of total U.S. storage and are critical in WTI price formation. When storage exceeds about 80 percent of capacity, oil prices generally fall hard. Current Cushing storage is at 91 percent of capacity, the Gulf Coast is at 87 percent and combined, they are at a whopping 88 percent of capacity (Figure 3).

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Figure 3. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)

Prices have fallen hard in step with growing storage throughout 2015 and early 2016. Since talk of a production freeze first surfaced, however, intoxicated investors have ignored storage builds and traders are testing new thresholds before they fall again.

The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd.

Despite extreme reductions in rig count and catastrophic financial losses by E&P companies, production decline has been painfully slow. The latest data from EIA indicates that February 2016 production will fall approximately 100,000 bpd compared to January (Figure 4).

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Figure 4. U.S. crude oil production and forecast. Source: EIA STEO, EIA This Week In Petroleum, and Labyrinth Consulting Services, Inc. (click image to enlarge)

That is an improvement over the average 60,000 bpd monthly decline since the April 2015 peak. It is not enough, however, to make a difference in storage and storage controls price.

EIA and IEA will publish updates this week on the world oil market balance and I doubt that the news will be very good. IEA indicated last month that the world over-supply had increased almost 750,000 bpd in the 4th quarter of 2015 compared with the previous quarter. EIA data corroborated those findings and showed that the surplus in January 2016 had increased 650,000 bpd from December 2015.

Oil Prices and The Value of the Dollar

Why, then, have oil prices increased? Partly, it is because of hope for an OPEC production freeze and that sentiment is expressed in the OVX crude oil-price volatility index (Figure 5).

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Figure 5. Crude oil volatility index (OVX) and WTI price. Source: EIA, CBOE and Labyrinth Consulting Services, Inc. (click image to enlarge)

The OVX reflects how investors feel about where oil prices are going. It is sometimes called the “fear index.” That suggests that investors are feeling pretty good and less fearful about the oil markets than in the last quarter of 2015 when oil prices fell 47 percent. Since mid-February, prices have increased 37 percent.

But there is more to it than just hope and that may be found in the strength of the U.S. dollar. The negative correlation between the value of the dollar and world oil prices is well-established. The oil-price increase in February was accompanied by a decrease in the trade-weighted value of the dollar (Figure 6).

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Figure 6. U.S. Dollar value vs. WTI NYMEX futures price. Source: EIA, U.S. Federal Reserve Bank and Labyrinth Consulting Services, Inc. (click to enlarge)

Now, that trend has reversed. The U.S. jobs report last week was positive so continued strength of the dollar is reasonable for a while. Assuming the usual correlation, that means that oil prices should fall.

Oil Prices Should Fall Hard

It is a sign of how bad things have gotten in oil markets that we feel optimistic about $35 oil prices. It should also be a warning that the over-supply that got us here has not gone away.

Oil storage volumes continue to grow and that is the surest indication that production has not declined enough yet to make a difference. It is impossible to imagine oil prices rising much beyond present levels until storage starts to fall. In fact, it is difficult to understand $35 per barrel prices based on any measure of oil-market fundamentals.

The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing. It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous.

No terrible economic news has surfaced in recent weeks but that does not change the profound weakness of a global economy that is burdened with debt and weak demand. The announcement last week by the People’s Bank of China that it sees room for more quantitative easing may have comforted stock markets but it only added to my anxiety about reduced oil consumption and future downward shocks in oil prices.

I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.

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If anyone is still confused why the most predatory, parasitic, and in many case criminal, of HFT actors are so vehemently opposed to IEX’s HFT-limiting exchange application, here is the reason. 

According to Bloomberg, Europe’s Aquis Exchange has doubled its share of public European stock trading since Feb. 8, when it banned what it considers a problematic high-frequency-trading strategy. Aquis says it doesn’t have a beef with HFT firms, it just wants to limit proprietary traders to passively providing price quotes. In other words, it wants to ban HFT firms which are parasitic orderflow frontrunners not market makers, and take zero risk which is about 99% of them. 

Bloomberg also notes that one firm that is still permitted on Aquis is HFT powerhouse Virtu: “We have the same goal as the end investor – we both want to minimize market impact,” said Doug Cifu, the chief executive of Virtu Financial Inc., an electronic trading company that’s providing more liquidity on Aquis. And why shouldn’t it – now that it has enough scale it can merely step back and watch as the frontrunning HFT strategies cannibalize each other.

Meanwhile investors, all of whom have by now learned how HFTs manipulate and rig markets, will run away from any venue that still permits HFTs, and go to alternatives such as Aquis and, if its application is granted, IEX (which it won’t be because NY Fed’s favorite hedge fund Citadel is vocally opposed to IEX which means so is the SEC). This can be seen in the chart showing Aquis’share of European stock trading below.

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There was some confusion why the S&P 500 just had to close in the green yesterday. The answer was simple: as we reported first thing yesterday morning just two days after “world renowned” CNBC contributor Dennis Gartman said he was “covering shorts” because he was “stunningly, shockingly, stupidly wrong” he flopped and was reducing his longs. Ergo, green close. It also meant that there was virtually unlimited upside before the market. We are, however, delighted to announce that just one day after being spooked on the bearish side, the Gartman Letter author is now back to “very, very marginally net long of equities in our retirement fund here at TGL.”

This coming from the gentleman who yesterday said that “we are obviously not about to change our position here, having been long of gold in EUR and Yen denominated terms for years in the case of the later and for nearly a year in the case of the former, putting to bed, we hope, the reports amongst the blogs that we change our tune rather often. Clearly we do not.”

If you are not smiling yet, you will be after this brief recap of Gartman’s most recent virtual retirement money “calls”:

Friday, February 26: Gartman covers his shorts, turns bullish.

We have been short one unit of equities in rather global terms, by being short one third of a unit of US equities; one third of a unit of the EUR STOXX 50 and one third of a unit of the Nikkei. The trade started off properly and almost immediately we were profitable; however we are now almost at a small loss on the trade… We wish to cover the position immediately upon receipt of this commentary, taking a very small profit and refraining from taking a loss and living to fight another day and in the end succeed.

Tuesday, March 1: Gartman is “selling the market short again.”

We are selling the markets short once again, having been short recently and having covered that short only a “short” while ago. But we are sellers once again this morning, noting that as the global markets have rallied they have done so on lesser volume on balance. Volume should follow the trend and the trend and volume are pointing lower, not higher.

Wednesday, March 2: Gartman says “we were stunningly, shockingly, stupidly wrong” as he covers shorts, goes long… again.

In our retirement funds here at TGL we moved swiftly to cover our short positions and we moved just as swiftly to buy what we could, when we could and where we could. We covered our derivatives positions and we urge everyone to do the same… immediately. We held on to our long positions in tanker stocks and we actually bought some of the oldest of the old guard dividend paying stocks mid-day just  because the market was loudly telling us that we had no choice but to do so.

Monday, March 7: two days after “covering shorts”, Gartman is “reducing longs.”

At this point, it would be ill advised to suddenly turn bullish of equities but instead at this point it might even be rational and reasonable to consider reducing long positions and become more and more neutral of equities…. we are “short” of a small but important position in derivatives that has reduced our net long exposure to the markets to something only modestly long. Likely we shall be adding to our derivatives positions while reducing our long positions today in order to bring our “net” exposure to something far smaller than it is.

And finally today, March 8, he is “net long.”

We are ambivalent as to the direction of stock prices at this point, and our ambivalence is reflected in the fact that we are very, very marginally net long of equities in our retirement fund here at TGL, having made only the smallest of changes to our position.

He may be “net long”, but he is concerned and dismayed by the lack of volume: “The rally in equities continues to cause us concern if for”no other reason than the volume on the upside remains tepid at best. Note then the chart at the lower left of p.1 of the Dow Industrials upon which we’ve noted the general trend of volume traded with the volume rising as the market falls and with volume falling as the market rises. This we find disconcerting. Indeed this everyone should find disconcerting and we are dismayed that no one other than we find this problematic.”

The obligatory rhetorical question follows: “Characteristically in recent months, lower openings have”given way to stronger closes here in the US, but what if this time it’s different? What if this time the lower opening is followed by even greater weakness?”

* * *

We bring all this up just in case there is any confusion if the market closes red today.

However, the worst news is that after Gartman ran away from gold some $30 lower less than a wee ago…

… we ran to cover our US dollar denominated gold position mid-day and we shall argue strongly that those still long of gold in US dollar terms, as noted above, should do the same.

… he has done what every other momo-chaser would do: he is about to go long again.

There is some formidable resistance to further strength in gold at the $1270-$1280 level, but what is impressive in our eyes is the fact that as gold in US dollar terms has consolidated at or just below that resistance, the support intra-day has been quietly, but consistently rising. A movement today at any time upward through $1275 would be technically impressive, and we shall keep a very close watch upon that level, intent upon adding to our positions  should that take effect.

Wait, did he say “adding to our positions”? Would that be the positions he “ran to cover” on March 2? Of course, it goes without saying that anyone who wishes to close out their long gold position at this point, is excused.

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Back in October, when Iran test-fired a next-generation, surface-to-surface ballistic missile dubbed “Emad,” Defense Minister Hossein Dehghan said the following about the future of Iran’s vaunted missile program: “We don’t ask anyone’s permission to enhance our defense power or missile capability and will firmly pursue our defense plans, particularly in the field of missiles.”

The launch infuriated US lawmakers who voted against the Iran nuclear accord and was promptly trotted out by Obama’s political opponents as further evidence that the President has adopted an unacceptably conciliatory position vis-a-vis what amounts to a belligerent pariah state.

Senator Bob Corker, the chairman of the Senate Foreign Relations Committee, for instance, said in December that Tehran “knows neither this administration nor the UN Security Council is likely to take any action.”

And Corker was right. Well, sort of. A few weeks after Corker made that comment a flurry of activity between the US and Iran lit up the wires. The IRGC fired rockets in close proximity to an American aircraft carrier in the Strait of Hormuz, the US readied fresh sanctions on Iranian individuals and companies in connection with the ballistic missile program, and the Ayatollah pulled an epic publicity stunt on the eve of Obama’s final state-of-the-union address when the IRGC kidnapped US sailors only to return them, along with long-held hostages, the following morning.

It’s against that rather fraught backdrop that Iran has once again test-fired ballistic missiles.

“Iran’s Islamic Revolutionary Guards Corps (IRGC) test-fired several ballistic missiles from silos across the country on Tuesday defying recent U.S. sanctions on its missile program,” Reuters reports.

The weapons were apparently medium-range Qiam-1s and struck targets some 700 km away.

“Our main enemies are imposing new sanctions on Iran to weaken our missile capabilities… But they should know that the children of the Iranian nation in the Revolutionary Guards and other armed forces refuse to bow to their excessive demands,” Brigadier General Amir Ali Hajizadeh, commander of the IRGC’s aerospace arm said, in a statement.

The latest tests, dubbed “The Power of Velayat” (a nod to the Republic’s religious doctrine), are “intended to show Iran’s deterrent power and also the Islamic Republic’s ability to confront any threat against the (Islamic) Revolution, the state and the sovereignty of the country,” the IRGC added.

For those curious, here’s what “deterrent power” looks like (note how amusingly calm the reporter remains when the projectile comes flyiing out of the ground behind him): 

Iran state TV shows launch of ballistic missile from underground base, presenter calls it a “missile revolution.” http://pic.twitter.com/VfsBs3PNiZ

— Thomas Erdbrink (@ThomasErdbrink) March 8, 2016

There you have it. “Deterrence.” 

For reference, the Quiam-1 (“Uprising” in Persian) is based on the Shabab-2.  By mid-2010, Iran was estimated to have between 200 and 300 Shahab-1 and Shahab-2 missiles capable of reaching targets in neighboring countries.

There was no immediate response from Israel or other “concerned” nations, but we imagine Obama will soon tell us how launching ballistic missiles doesn’t violate sanctions on…er… ballistic missiles.

*  *  *

For those who missed it, here’s a video tour of one of Iran’s many underground missile silos:

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Via Dana Lyons' Tumblr,

Last week’s stock market breadth was extraordinarily positive; similar signals historically have seen the market either launch higher or flame out, depending on the prevailing climate.

A lot of market talk lately has been focused on the recent improvement in the stock market’s breadth (we wrote about one unusual such display last Friday). This has stock market bulls excited, of course, because when coming off of a low of some significance, this sort of “thrust” in breadth has, at times, launched the market on substantial longer-term rallies. Well, looking at the weekly statistics, we note another uncommonly positive occurrence of strength last week: NYSE issues across the exchange averaged a gain of more than 1% per day.

 

 

This is just the 19th such occurrence since 1998. Since the market had already rallied for 2 and a half weeks, some of the short-term “launchiness” behind this signal has likely been removed. What about the longer-term? We looked at the topic following the previous signal last October. We found these events to be either extremely explosive for stocks, or complete duds, depending on the market cycle at the time. While October’s signal led to further short-term upside, stocks are now lower than they were 5 months ago. So while the jury may still be out on that signal, it has been more of a dud thus far.

What of the current instance? Well, in the short-term, anything can happen. In the longer-term, it will largely depend upon whether stocks are in a cyclical bull or bear market. Of course, we won’t know for sure what type of market cycle we’re in currently for some time, so the answer is TBD. However, readers may be aware that our view is that the stock market has likely entered a cyclical bear market. Therefore, the longer-term prospects for this signal may be less than stellar.

Outside of that, we do not have much more to add to our October 13, 2015 post, so we will re-print it here:

“Breadth thrust” has been the buzz phrase on Wall Street over the past few days. This term describes a condition in which the stock market displays an inordinate level of positive breadth over the course of several days to several weeks. Such events have typically originated from a deeply oversold condition in the market and have often (though, not always) marked the springboard for substantial intermediate-term rallies.

 

Many market participants have been citing one such example called the “Zweig Breadth Thrust”, named after the indicator’s founder, Martin Zweig. However, a breadth thrust can be defined in countless different ways. One unique form of breadth thrust that we have tracked pertains to a statistic that measures the average daily percentage price move of all stocks on a particular exchange. For decades, this particular statistic has been supplied by an organization named Quotron, and distributed in Barron’s each week (I swear we are the only ones that look at this statistic and that they continue to publish it just for us…but maybe there are other users out there!).

 

Quotron’s version of the statistic for NYSE stocks, called “QCHA”, did something rare last week. The average QCHA from Monday, October 5 through Friday, October 9 was 1.08%. That means that stocks on the NYSE rose an average of more than 1% per day last week. As our Chart Of The Day points out, this was just the 18th time in the last 17 years that this occurred.

 

So has the theory of the breadth thrust leading to a rally been borne out according to this measure? Yes and no. Much like the research we posted last Thursday on VIX drops from above 37 to below 20, this breadth thrust signal has led to results that are quite binary.

 

As the chart illustrates, a good deal of these signals (12 to be exact), occurred, not surprisingly, during the hyper-volatile period from late-2008 into mid-2009. 4 of those signals occurred between October 2008 and January 2009. These signals were, of course, followed by a continued cascade lower in stock prices. The other 8 occurred as the stock market was emerging from the March 2009 low. Thus, they played the part of the “breadth thrust as rally springboard” to a T.

 

4 other occurrences took place in October 1998 and October 2011, just as stocks began their recoveries (springboard?) from near-20% declines. The remaining event happened in February 2008. This came following the first significant selloff within the cyclical bear market that began in late 2007. This signal was a dismal failure as stocks resumed their decline immediately afterward.

 

So of the 17 prior weeks that saw the average NYSE stock climb at least 1% per day for a week, 12 marked a traditional breadth thrust that provided a springboard for significant further intermediate-term gains. The other 5 marked the opposite: an immediate collapse in prices.

 

So what is the deal here? We’ll go back to what we wrote on Thursday regarding the all-or-nothing VIX signals. The delineating factor separating the two binary outcomes is the cyclical market environment that exists at the time of the signal. During cyclical (i.e., measured in years) bull markets, these breadth thrusts signify the end of market weakness and the beginning of a frenzied return to a “risk-on” environment. That is, a springboard to a rally.

 

During a cyclical bear market, a breadth thrust may be a sharp bounce in stocks that merely leaves the market in an overbought status at resistance. If there is no “risk-on” frenzy to build upon the breadth thrust and carry stocks further, they become vulnerable to the next leg lower within the bear market.

 

Unfortunately, this study only looks back to 1998 (we do have the data going back to 1970 somewhere in our archives, but I could not immediately locate it.) However, it is still long enough to get a taste of the significance of these breadth thrusts in which NYSE stocks rise an average of more than 1% per day during the course of a week. We know that these breadth thrusts have occurred as stocks kick-started rallies off of most of the major lows in recent times. However, we also know that the signal is not foolproof, having failed immediately and miserably on several occasions.

 

The key once again to determining which is the likely outcome in our present situation is to correctly identify the current cyclical market environment.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

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Back in late February, when crude prices had just hit a 13 year low, one catalyst unleashed a furious short-covering rally: a WSJ report which cited a delayed SkyNews interview with the UAE energy minister, according to which OPEC would freeze, if not cut production. Since then we learned, courtesy of the Saudi oil minister Al-Naimi himself, that the Saudis will never reduce output, however, in a utterly meaningless gesture, Saudi Arabia and Russia agreed to “freeze” production at levels which are already at maximum capacity and under one condition: that all other OPEC members join the freeze, with the possible exception of Iran which may be allowed to produce until it hits its pre-embargo export levels.

Of course, even said “freeze” is nothing but a stalling tactic employed by an OPEC member (Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal redux of “Weekend at Bernies” where everyone pretends not to notice the corpse in the room.

However, while many had pretended to at least play along with the charade, today a core OPEC member effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers take part including Iran.

According to Reuters, Kuwait’s oil minister said on Tuesday that his country’s participation in an output freeze would require all major oil producers, including Iran, to be on board.

“I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell,” Anas al-Saleh told reporters in Kuwait City. And since Iran has made it very, very clear it will not join the production freeze at its current mothballed output, and will need at least 9-12 months before it regains its pre-embargo capacity levels, one can forget about a production freeze well into 2017 if not for ever since by then at least one if not more OPEC members will be bankrupt (they know who they are: they are the source of those “ALL CAPS” flashing read headlines every day).

Putting Kuwait’s production in context, Kuwait – the small Gulf state Saddam invaded 25 years ago – is currently producing 3 million barrels of oil per day. Incidentally, this is precisely how much the oil market is oversupplied each and every day, and why in addition to PADD1, 2 and 3 being almost full, and excess oil now being stored in ships, pipelines and trains, and re-exported to Europe, quite soon empty swimming pools will be full with the “black gold” as the algos continue to refuse to pay any attention to the constantly deteriorating fundamentals.

Kuwait’s announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie said that “commodity rally is not sustainable” and it is time to sell crude.

“While these dynamics (rising prices) could run further, they simply are not sustainable in the current environment,” the analysts wrote. “Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it did last spring.”

Perhaps, but not just yet: in addition to China’s abysmal exports we also learned that in February China’s crude imports soared 19.1% to 31.80 million tonnes, or about 8 million barrels per day, an all time high, suggesting China – like the US – is filling every available container including its SPR at a time when precise are relatively low even if organic demand continues to deteriorate.

As Reuters writes, “despite strong oil demand, questions about the sustainability of growing consumption weighed on markets after China’s overall exports tumbled by a quarter in February.”

China’s February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year on year, data from the country’s Passenger Car Association showed.“This is really a poor start for trade this year,” said Zhang Yongjun, senior economist at the China Centre for International Economic Exchanges.

However, judging by the latest bounce in crude in the last hour of trading, the only thing that still matters is who does the daily “short squeeze” rip higher. By the looks of things, at least one major trader already got the tap on the shoulder.

via Zero Hedge http://ift.tt/1pvsd2J Tyler Durden

By late January, Tim Leissner was irritated.

Irritated that Goldman wouldn’t support his move to Los Angeles to be with his famous wife Kimora Lee, irritated that the firm wouldn’t let him give an internship to the son of a shadowy, as-yet-unnamed go-between in a deal to finance a controlling stake in an Indonesian copper mine, and especially irritated that the bank seemed to be looking a lot harder at the deals he was working on in Southeast Asia in the wake of the 1MDB scandal.

And why shouldn’t he be frustrated? After all, Leissner built Goldman’s SE Asia operation. Who is the executive committee to tell him he can’t pass out internships as bribes on the way to financing Indonesian copper mines? And as far as 1MDB goes, Leissner didn’t recall anyone in New York complaining when the bank raked in hundreds of millions in underwriting fees for the deals that helped finance Najib’s slush fund (for more on the origins of the 1MDB scandal you can read here, here, and here).

“It’s not my fault Najib messed the whole thing up,” Leissner must have been thinking.

(Leissner and Kimora)

Be that as it may, Goldman had seen enough by the start of 2016.

Leissner, once the crown banker jewel in the Squid’s Asian tentacle, had become a liability. Investigations into 1MDB were underway in the U.S., Singapore, Switzerland, Hong Kong and Abu Dhabi. Someone, somewhere, was going to get to the bottom of how this disastrously indebted “development bank” got itself into dire straits and at the end of the rabbit hole there’s going to a giant Vampire Squid.

So what did Goldman do? Well, they cooked up an excuse to cut a critical loose end.

“Goldman placed Tim Leissner, the firm’s Southeast Asia chairman, on leave after a review of his email found that he had allegedly sent an unauthorized reference letter on behalf of an individual to another financial firm in 2015,” WSJ wrote this morning. “The letter also included statements that Goldman believes to be inaccurate.”

That review led to Leissner’s previously reported “mystery” leave. As we wrote at the time, “whether or not Leissner’s leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious.” Although no one knew it then, Leissner had already resigned by the time news of his “vacation” hit the wires.

“The email review also came as Goldman [questioned] a potentially lucrative mining deal in Indonesia being led by Mr. Leissner because of the involvement of someone in the deal who the bank believed could hurt the firm’s reputation,” WSJ goes on to detail. “Bank investigators found that Mr. Leissner had offered an internship to a child of the individual.”

Ultimately, Goldman backed out of the deal. Leissner was incensed. At $50 million, it would have been the biggest deal for Goldman in the region since the 1MDB bond offerings.  

It seems fairly obvious that Goldman saw the writing on the wall here and simply ordered the firm’s investigators to scour Leissner’s e-mail for an excuse to fire him ahead of revelations about 1MDB. Now, some possibly make-believe person of questionable repute and a possibly make-believe internship Leissner was set to give this anonymous individual’s son will be trotted out as the reason the most important banker in SE Asia just had to go.

You know, because Goldman wouldn’t want to damage its sterling reputation.

“?After leaving Goldman, Mr. Leissner took on an advisory role with Wildcat Capital Management, the family office of private-equity giant David Bonderman” with whose TPG Capital Leissner is close, WSJ says, in closing. “A person familiar with the matter said Mr. Leissner was no longer an adviser to his firm. It is unclear why he ended his relationship with the family office.”

Yes, it’s “unclear why he ended his relationship with the family office,” but one possibility is that Wildcat didn’t want anything to do with the looming 1MBD investigation by US authorities. As WSJ also reported early this morning, US investigators have subpoenaed Leissner in connection with the ongoing FBI and DoJ probe.

So, sorry Tim. The world is a collection of “fair weather fans,” so to speak. You find out who your real friends are when the chips are down and for you, Lloyd Blankfein apparently isn’t one of them.

via Zero Hedge http://ift.tt/1LOu4JO Tyler Durden