Tag: finance

Authored by Irina Slav via OilPrice.com,

OPEC’s oil production cut agreement could start falling apart soon, as Saudi Arabia and Iran once again face off. This time, however, the spat is over determining what the best price level is for the commodity. That’s what Iran’s Oil Minister Bijan Zanganeh told the Wall Street Journal in an interview.

The split, apparently, stems from Saudi Arabia’s insistence that crude oil should be kept closer to US$70 a barrel – a level Brent touched briefly early this year – and Iran’s equal insistence that US$60 is a better place for oil to trade at.

This disagreement could see the cartel start unwinding the cuts as early as June, when it will meet with its partners to discuss progress and next steps. Zanganeh’s explanation of the Iranian stance is anything but a surprise: “If the price jumps [to] around $70 … it will motivate more production in shale oil in the United States,” he told the WSJ.

Zanganeh is not wrong, but the problem is that U.S. drillers have demonstrated that they could pump more at US$60 a barrel, too, so bringing prices closer to that level is not a guaranteed way to stymie U.S. oil production growth. Production has been growing steadily, last week hitting 10.37 million bpd.

The oil production in the United States is not the only problem. The bigger problem is soaring U.S. exports that are eating away the market share of OPEC members. This could be the last drop to swing OPEC in Iran’s favor.

Bloomberg quoted an ING analyst yesterday as saying that crude could fall below US$60 a barrel because of rising U.S. exports to Asia, a key market for every producer. The OPEC deal is under threat, ING commodities strategist said, because U.S. crude supplies are displacing OPEC’s. “The longer the deal goes on, it’s going to start falling apart. They continue to give market share away to the U.S.”

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Just hours after an earlier deadly blast killed a teen and injured a woman, ABC News reports that a second explosion has rocked Austin, Texas.

ABC notes that the first blast, reported about 6:44 a.m., killed a male teenager and injured a woman in her 40s.

It occurred at a single-family house in the northeast section of the city and appears to have been caused by a package that had been placed on the porch of a home rather than delivered by a mail service, police said.

Police believe the explosion happened after residents took the package inside to open it.

The second explosion injured another woman and authorities are evaluating whether a second person was also hurt, according to the Austin Police Department.

Local Fox13 reports that police are responding to another reported explosion in the 6700 block of Galindo Street on Monday.

According to Austin-Travis County EMS, a woman in her 70s has been transported to Dell Seton Medical Center with potentially life threatening injuries.

An official briefed on the investigation told ABC News earlier that authorities were looking to determine if the first explosion this morning is connected to another deadly blast in Austin on March 2.

Perhaps most ominously, authorities have warned residents that if they receive a package they are not expecting, they should contact the Austin Police Department.

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As the Sun reported late Sunday evening, Theresa May has officially blamed Russia for a nerve-agent attack on Sergei Skripal, a former Russian spy, and his daughter Yulia, that led to the hospitalization of 21 people.

And in a speech to the House of Commons, May fleshed out the evidence that the UK has gathered to make its determination, while insisting that actions would be taken to hold the regime accountable – raising the possibility of more sanctions against Russia.

May told lawmakers that it was “highly likely” that Russia was responsible for the attack, explaining how a known Russian nerve agent had been discovered by investigators at the scene of the attack in Salisbury. If Moscow is unequivocally proven to have masterminded the attack, May said the UK government would consider it “an unlawful use of force.”

However, instead of conclusively declaring that Russian President Vladimir Putin had authorized the attack, May said UK intelligence said there are two possibilities of the origin of this action: That the attack was ordered by the Russian state, or the Russian state lost control of these nerve agents, which were then utilized to attack Skripal.

“Russia has previously produced this agent, and the government has concluded that it is highly likely that Russia was responsible,” May said.

May pointed out that the attack happened “against a backdrop of Russian state aggression” citing the annexation of Crimea and unrest in the Donbas region. May added that Russia has meddled in elections.

“We will not tolerate such a brazen attempt to murder innocent civilians on our soil,” May said.

Earlier in the day, Russian President Vladimir Putin brushed aside questions about Russia’s involvement, telling a BBC journalist that the UK needs to figure this out for itself before approaching Russia with any accusations, per RT.

“Sort this out for yourselves first, then come talk to us,” said the Russian president, when asked about the case by a BBC journalist during a visit to the southern region of Krasnodar. Putin then emphasized that he was in the region to deal with matters related to agriculture, not international espionage.

Despite May’s rhetoric, it’s possible that the UK response will be more bark than bite: As Bloomberg points out, British authorities took only modest countermeasures in 2006, when Russian agents poisoned a former MI6 informant with a rare and toxic isotope, polonium 210.

May explained that Russia’s ambassador to the U.K. has been summoned to explain how a Russian nerve agent turned up in Salisbury, the English city where Skripal and his adult daughter were sickened. Later, she said she would return to the House of Commons to review the options for responding to the attack – which is expected to include sanctions.

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Having earlier sold 3Y Notes and 6M Bills to a surprisingly eager market in two rather strong auctions, at 1:01pm the Treasury concluded today’s sale of $145 billion in paper, with the sale of $51BN in 3M Bills and $21 billion in 10Y Notes, in two more strong auctions.

The high yield of 2.889% was on the screws with the When Issued, and 9bps above February’s 2.811%. It was also the highest yield since January 2014.

The Bid to Cover was 2.50%, above last month’s 2.34 and also above the 2.45% auction average. The internals were also on the strong side, with the Indirects taking down 66.2%, which slightly below February’s 67.5% was above the 6 month average of 64.8%. Directs were awarded 6.5%, just higher than the 5.4% last month, leaving 27.3% for Dealer.

Separately, the Treasury also sold $51.0b in 3M bills, at a bid-to-cover of 3.13, well above the 2.95 6 auction average. And refuting speculation that foreigners are fleeing Bills, Indirect bidders were awarded 44.7% of the takedown vs six previous auction average 41.5%.

Overall, today’s massive supply was soaked up without a glitch, and with far less concessions than many had expected.

As a result, the TSY complex held gains after today’s auctions, with muted price action following the 10Y auction, and with the 10Y yield lower on the day by ~0.5bp.

 

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Having already been hit by Andrew Left and the Citron gang, Netflix shares took another dip after Apple confirmed that it “would rather

As Forbes reported in January, Citi analysts sent a note to clients saying there is a 40% chance that Apple will buy Netflix, which garnered endless headlines and was discussed ad nauseam on the financial news networks.

The basis for the analyst’s argument is that Apple will have $252 billion in overseas cash available to repatriate, and they need to do something with it.

But today, that rumor is crushed as Apple services head Eddy Cue said in comments at the South By Southwest conference in Austin:

“We don’t know anything about making television,” Apple “would rather build a studio than buy Netflix.”

And Netflix is extending its early losses…

And given that Apple is the only one big enough to swoop up Netflix (at this price), one wonders just how big an acquisition premium is priced-in to the streaming media service.

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Heading into 2018, UBS has been one of the most bullish banks, with its equity analyst Keith Parker predicting the S&P500 hits 3,150 by year-end.

And while UBS’ optimism is admirable if hardly unique with much of Wall Street expecting a similar return (which means that the pain trade is for everyone to be wrong), what is more interesting is how UBS gets to its target, and specifically its “EPS bridge” from 2017 to 2018E. What it reveals is that more than half of the (non-GAAP) EPS growth in 2018 is expected to come from the Trump tax cuts and buybacks.

Specifically, as shown in the chart below, when moving from the 2017 non-GAAP number of 132.50 to the UBS 2018 forecast of 157, 55% of this 24.5 delta, or 13.60 is expected to come from the “Trump tax uplift” (10.30 EPS units) and the “Buyback tailwind” (another 3.30). Meanwhile, organic US GDP growth is expected to contribute just 6.5 to this bridge.

In other words, Trump’s tax reform, which resulted in corporate tax cuts and a tax regime that has prompted a surge in buybacks courtesy of offshore cash repatriation, will boost EPS growth by more than double compared to what US economic growth would do alone!

 

Ok, so now we know how UBS gets to one component of its year-end stock price, the EPS. What about the PE multiple it is applying to this number, which obviously has to be 20.1 for the numbers to fit.

The answer is shown below, and represents one of the most glaring examples of goalseeking data we have ever seen, because apparently in a time when everyone is slashing PE multiples as a result of rising rates (even the market now expects 3 more hikes in 2018 which will send the Fed Funds rate to 2%), UBS not only goes the other way, but magically calculates that its “fitted” PE should be 28.8x…

… and while it does not state it explicitly, the reason why UBS believes the market is still cheap is because if one applies the goalseeked P/E of 28.8 to the bank’s EPS estimate of 157, one gets an S&P number of 4,520, or as UBS says “The macro drivers of the P/E multiple are not at “average” levels and point to higher valuations.”

Surely, seen in this light, the bank’s much more “modest” S&P target of 3,150 is downright cheap.

So to summarize: 9 years into the world’s 2nd biggest bull market, in the second longest economic expansion in history, a bank predicts that at a time when the Fed is aggressively hiking rates, S&P earnings will grow by 18% while a “credible” PE for the market is, drumroll, 28.8x!

We look forward to a post-mortem of this analysis one year from now.

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Following all the excitement, back-patting, and media reports of the weekend, The BBC reports that South Korea says it has yet to receive a response from Pyongyang on a summit between North Korean leader Kim Jong-un and US President Donald Trump.

Local media even suggested even more goodwill yesterday with offers of US Embassies in Pyongyang and the release of prisoners.

However, as The BBC reports this morning, details on the planned talks remain vague, with no agreement yet on the location or agenda.

Analysts are skeptical about what can be achieved through talks given the complexity of the issues involved.

“We have not seen nor received an official response from the North Korean regime regarding the North Korea-US summit,” a spokesman for the South Korean Ministry of Unification said on Monday.

“I feel they’re approaching this matter with caution and they need time to organise their stance.”

The surprise proposal for the summit comes after more than a year of heated rhetoric between North Korea and the US, and global concern that the hostilities might escalate into military confrontation. North Korea has conducted several nuclear tests over the past year and developed long-distance missiles it says can carry nuclear bombs as far as the US mainland.

Talks between the countries would mark an unprecedented step in the conflict as no sitting US president has ever met with a North Korean leader.

“Pyongyang probably wants to wait to see how the offer was received in Washington,” Andray Abrahamian, Research Fellow at Pacific Forum CSIS, told the BBC.

“There’s already been a bit of confusion in the messaging from the White House so it probably makes sense to get some of the ground rules established before go public with it,” Mr Abrahamian said.

Speculation continues on where they could meet…

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Authored by John Rubino via DollarCollapse.com,

If you’re getting the sense that stocks always go up, that’s because they’ve been doing so for a really, really long time. From CNBC today:

On the bull market’s ninth birthday, here’s how it stacks up against history

• The Dow has quadrupled during the bull market, which turned 9 on Friday.

• This is the biggest and longest bull market for the Dow post-WWII, according to Leuthold Group.

The bullish run in the Dow Jones industrial average — which celebrates its ninth birthday Friday — is the longest ever and the greatest percentage gain since World War II, according to Leuthold Group.

The corresponding run by the S&P 500, notes LPL Financial, is that benchmark’s second-largest and second-longest bull market ever, with only the 1990s stock market run led by technology stocks in the way.

Despite a more than 10 percent correction in equities last month following a burst of bullish activity, Leuthold’s Doug Ramsey doesn’t think the bull is done yet.

“Assuming the Dow Jones industrial average can exceed its late-January high on March 9th or thereafter, this cyclical bull market will become the first one ever to last nine years,” said Ramsey, his firm’s chief investment officer. “Historically, cycle momentum highs are usually followed by a push to even higher price highs over the next several months.”

The Dow hit an all-time high of 26,616.71 on Jan. 26, the same day the S&P 500 clinched its own record of 2,872.87. The major indexes are off their record highs 6.4 percent and 4.6 percent respectively.

This chart from Leuthold Group shows where the Dow bull market stacks up since 1900. It’s far and away the longest in modern financial times. In terms of percentage gains, it’s third behind two bull markets pre-WWII.

LPL chief investment strategist John Lynch, who measured the S&P 500, says the index is in the middle of its second-longest and second-greatest run ever.

The S&P 500 posted a 418 percent gain from October 1990 through March 2000, well ahead of its current 302 percent climb as of Jan. 26 as technology stocks boosted the index more so than the Dow.

To sum up, there have been a lot of bull markets over the past century, and they all ended eventually.

Why did they end? Usually because equity bull markets are part of broader expansions that eventually build up imbalances that force a retrenchment. The longer the good times go on, the more cocky investors and entrepreneurs become and the more dumb investments they make. These don’t generate sufficient cash flow to cover the interest on the related debt or otherwise satisfy backers, and eventually fail. Investors who lose money on failed projects stiff their creditors and so on, down the food chain until everyone is shell-shocked and risk-averse. Stock prices plunge, the economy contracts and the cycle begins again.

The key sentence here is “the longer the good times go on,” because the malinvestment is both cumulative and progressive. That is, the number of bad decisions rises as people become convinced that “this time it’s different” and they can’t lose.

Why the current expansion/bull market has so long is open to debate. What’s undeniable, though, is the vast amount of malinvestment that has accumulated. The biggest example might be corporations borrowing hundreds of billions of dollars to buy back their stock at record high prices. See Record Buybacks at Worst Possible Time. If those equities subsequently fall by half in a future bear market, today’s buybacks will end up as an object lesson in corporate hubris.

Another undeniable fact is that based purely on historical precedent, this bull market is ancient, which puts it near, if not at, its end.

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It appears the algos have found a pattern…

Even Saturday saw Bitcoin hit at around 1130ET (though Sunday, the machines rested)…

Bitcoin pushed up towards $10,000 over the weekend after falling last week on Mt.Gox overhang concerns, but as CoinTelegraph reports, talking about the Mt. Gox issue, FundStrat’s Tom Lee was relaxed and urged calm.

“It’s a short-term concern, but it doesn’t change anything,” he told Barron’s the day of the release.

After an ugly week last week, Litecoin, Ethereum, and Ripple are now back in the red again and Bitcoin holding just positive from Friday’s close…

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The story with Gary Cohn’s replacement is becoming increasingly fluid.

In the days after the resignation of the Goldman COO as head of Trump’s National Economic Council, we have seen an avalanche of names who were supposed to fill Cohn’s shoes. First, it was Peter Navarro, and while media reports suggested that he is not being considered, other reports said that he would take the role if offered.

Then, Politico reported that Cohn himself had picked Shahira Knight – a former Hill staffer, ex-lobbyist and the NEC’s resident tax expert  — as his replacement, although on Sunday the NYT reported that she was not interested in the opportunity. At the same time, the NYT also reported that Christopher P. Liddell – a New Zealand businessman who works as an assistant to Trump and director of strategic initiatives, and who was CFO of Microsoft previously – was the frontrunner for Cohn’s spot.

And now, we go back to square one as CNBC’s Jim Cramer reports that Larry Kudlow, the man who was originally mentioned as the logical replecement for Gary Cohn, is once again the front runner to lead Trump’s National Economic Council “and would take the job if offered it.”

According to CNBC, while Trump has not formally offered the job, “Kudlow is a leading choice of not only Trump but also some of his advisors.”

Kudlow, a long-time supporter of Trump, helped to craft economic policy during the Reagan administration.

The market’s reaction was initially favorable to the news, due to Kudlow’s well-known opposition to Trump’s import tariffs and trade wars, however the modest bounce appears to now be fading.

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