American Students Love Socialism (Just Don’t Ask Them What It Is)

Authored by Cabot Phillips via CampusReform.org,

Ask most college students, and they'll tell you that socialism is a wonderful thing. Just don't ask them to define it, because you'll get the same answer.

Last year, a poll was released showing 53 percent of Americans under age 35 are dissatisfied with our nation’s current economic system and think socialism would be good for the country.

The same poll found that 45 percent of young Americans would be willing to support an openly socialist Presidential candidate.

The findings of this poll coincide with the rise of Senator Bernie Sanders, an avowed “Democratic Socialist” from Vermont who received millions of votes in the 2016 Democratic Primary, many of them from millennials.

While it’s clear that young people increasingly view socialism in a positive light, it’s also clear that many of them are uneducated about what it entails, or the impact it’s had throughout history.

The same poll found many millennials are unfamiliar with historical figures often associated with socialism, such as Che Guevara, Joseph Stalin, and Karl Marx.

Wanting to see what millennials in D.C. thought of socialism, Campus Reform headed to Washington, D.C. to ask students two simple questions: “Do you like socialism?” and “What is socialism?”

It quickly became clear that while most of the people we spoke with held an idyllic view of socialism, most had little idea of what it actually is.

One student said of socialism, “I think people throw that word around to try and scare you, but if helping people is socialism, than I’m for it.”

When asked how she would define socialism, her answer was simple: “I mean honestly I’m not not exactly sure.”

“I guess just, you know, getting rid of that wealth gap in the United States?” ventured another.

One student supported it passionately, saying “It’s more of an open form of government and it feels a lot more accessible to a lot more people,” but when asked to explain what socialism actually entails, could only repeat now-common refrain: “To be quite honest I don’t know.”

Watch the full video to see what else students had to say about socialism!

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Massive Spike in Bitcoins Causes John McAfee to Make An Outrageous Prediction, Promises to ‘Eat His Own D*ck’ On National Televi

Content originally published at iBankCoin.com

Now this is the sort of story you’re all interested in reading about. I can see it now, ‘man forced to eat his own penis after bitcoin bet goes sideways.’ This is the indelible position John ‘Jungle Killer’ McAfee has just placed himself into.

Unbelievably, he’s wagered to eat, mind you, his very own dick should the price of bitcoin not rise 22,636% to $500,000 inside of three short years.

Here is the Twitter thread where this outlandish bet was forged and made.

Thus far, it appears McAfee has the upper hand in this death bet, with bitcoins rising by an astounding 14% since yesterday’s trading price.

Even still, it will take a rally of monumental proportions to save the penis of John McAfee, who, obviously, places little value on his human anatomy. It’s worth noting, McAfee’s new company, MGTI, fashions themselves to be North America’s largest bitcoin miner — leveraging up to purchase high powered machines to mine the valuable cryptocurrency.

You can peruse his cocksure twitter feed, where he’s challenging a sundry of normies to six figure bets based off the eventual price of Bitcoin. He wants money to be held in escrow and will do a minimum of $100k.

He quite literally placed his balls where his mouth is. Let’s just hope it all ends up well for Mr. McAfee, as we’d all prefer to see him walking around, virile, with purpose, and placing future bets on his seemingly expendable and valueless penis.

No word on how he intends to ensure the removal of his penis by betting participants, who take him up on this venture.

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Revisiting Saudi Arabia

By Chris at http://ift.tt/12YmHT5

In May of last year I was attempting to figure out if there was an asymmetric play to be had in the land of sand and black gloop. There were a lot of moving pieces to deal with. I think it’s worth revisiting but first it’s worth reviewing what I thought just over a year ago. Much has subsequently happened so we can piece a little bit more together now.

Only Two Options For The Saudi Sheikhs

A few years ago, when living in Phuket, Thailand, a group of Saudis stayed for a week’s holiday in a neighboring villa.
Outside of the religious and social confines of the land of black gold and endless sand, this group made a bunch of spoiled 5-year olds left to run amok in a candy shop without adult supervision look positively angelic.
They were very visible, with an entourage of young Thai “ladies” and a fleet of Land Cruisers to haul them about. On one occasion, after my son witnessed one of the guys buying a beer and throwing a US$100 bill at the waiter, telling him to keep the change, he asked me how come they had so much money to waste.
I explained that Saudi Arabia has two things in abundance: sand and oil. And though the world doesn’t need sand as much as it does oil, they have grown very wealthy selling the oil to the rest of the world.
Depending on whose numbers you take, somewhere between 75% and 85% of Saudi Arabia’s revenues come from oil exports, and fully 90% of revenues come from oil and gas. Clearly the Kingdom is dependent on oil revenues in the same way that an infant is dependent on its mother’s milk. And unless you’ve been living under a rock for the last few years, you’ll have noticed that the price of oil has collapsed.
Brent Crude Oil
Now, in a “normal” market the reduced revenues would manifest in a weaker local currency as demand for Riyals declines.
But governments and central bankers don’t believe in “normal” markets and so the Saudi riyal has been pegged at 3.75 to the US dollar since 1986.
It’s not hard to see a situation where Saudi Arabia may very well be forced to de-peg the currency to curb the fall in the country’s FX reserves should low oil prices persist.
Let’s look at some of the potential catalysts for this.

Could Yellen Kill The Peg?

While the Sheiks contemplate how to deal with their predicament from diamond encrusted cars and golden toilets, across the pond we find that monetary policy in the US has been tightening albeit modestly. What’s important to understand is that in order for Saudi Arabia to maintain its currency peg it needs to follow FED monetary policy.
By following Yellen the Saudis land up sacrificing growth, and by diverging they sacrifice FX reserves in order to maintain the peg. Clearly neither are attractive propositions. According to the Saudi Arabian Monetary Agency (SAMA), for every 100 basis point increase in the Saudi Interbank Offered Rate (SIBOR) this leads to a 90 basis point decline in GDP in the subsequent quarter, and a further 95 basis points in the following quarter.
Falling GDP in a country where over 60% of the population are under 30 brings about its own set of problems. Political instability in the Kingdom has been rising and the royal family is increasingly fighting for survival. After all, they had the experience of watching the Arab Spring unfold on their flat screens.
If, on the other hand, they opt not to follow the stumpy lady, the gap between interest rates in the US and Saudi Arabia will be quickly exploited by people like me as arbitrage opportunities open up.
So this is what we’re all looking at right now: SAMA will have to buy riyals in the open market by selling from its hoard of dollar reserves. Any rise in interest rates in the US will mean SAMA will have to further deplete reserves.
Saudi Arabia Monetary Reserves

As I have mentioned before, all pegs eventually break. The question is one of timing.

How long do the Sheiks have under current oil prices?
The falling oil price since mid-2014, has significantly reduced Saudi Arabian revenues. So much so that the scorecard for 2015 showed a deficit of $98bn, and SAMA is estimating a further $87bn deficit this year.
Saudi Arabia Budget Balance
The Saudi government have been funding this deficit by drawing down on forex reserves, spending $132bn in the year to January of this year. With current prices and current reserves they can easily last another 4 years.
Some things I’m thinking about:
  • Iran will bring additional supply to a market in surplus. Saudi Arabia will be forced to keep the pedal to the metal on production, not wanting to lose any market share. And so I’m not convinced we’ll see oil rising in the next 12 to 24 months.
  • Internal domestic political pressures can be “addressed” with creating an external pressure or conflict. It wouldn’t be the first time.
  • We’re in a US dollar bull market as I’ve stated here,here, and here and many other times. Dollar strength will put pressure on the price of oil and thus revenues to the Kingdom.
This could certainly get interesting and traders have begun speculating on a de-pegging from the dollar.
Saudi Riyal and Oil Prices
Should low oil prices persist for the next 3 to 4 years, Saudi Arabia will be forced to decide whether it prefers to either cut the production or loosen the currency peg.
I could be wrong but I feel like it’s too early to play this trade and the costs of entry are not astoundingly cheap. Saudi Arabia has almost no debt and can easily access the credit markets. With debt to GDP of just 2% they have a lot of room to move. Coupled with the upcoming partial listing of Aramco their ability to tap international markets for capital is certainly a factor I’m not sure all currency speculators are considering.
What is worth watching are neighbour states. While Kuwait, Qatar, and the UAE all have dollar pegs, they too have vast central bank reserves and sovereign wealth funds. But what looks pretty precarious to me are Oman and Bahrain who could run out of reserves in less than three years. Both these countries have resorted to issuing debt to extend the longevity of their reserves but issuing dollar denominated debt which is essentially asset underwritten by the price of oil in an environment of persistently low oil prices certainly looks like a precarious bet to be making.
Investors looking for asymmetry in markets will do well paying attention to the currency markets, and existing dollar pegged currencies in particular. As I mentioned before… all pegs break, and the returns that can be made in such situations are of the life changing variety.
– Chris
“If Saudi Arabia was without the cloak of American protection, I don’t think it would be around.” – Donald Trump

Ok, so that was over 12 months ago. Fast forward to today and we have some of the answers… and we’re a little further down the road.

Oil

Still looks like isht. The supply and demand setup hasn’t gotten any better, and this is not what the house of Saud wants. Nothing shocking to what we expected anyway.

Rates

The tubby lady at the FED has gone ahead with a divergent policy (raising rates). As you can see, I discussed in that article what effect the raising of rates could (or would have) on the finances in Saudi Arabia. Again, nothing we never expected.

Conflict

I penned an article on Qatar here. I do think the spat with Qatar has less to do with them than it has to do with Iran and with the Saudi’s domestic problems – both financial and political. In the article above, I mentioned some stupid conflict but wouldn’t have put it up there as a probability over 50%. And yet now it’s happening in real time. Does it subside, does it blow up, or something else?

The question I think we need to ask ourselves today is this: now that the conditions have been met that do nothing to assist the Saudis with their finances (and at the same time they’ve chosen a path of “external” enemy) where does that leave us with original idea of looking for an asymmetric payoff on the riyal having to de-peg their currency?

I’m watching the dollar index very, very closely. If we break higher, then the Saudis will have a very, very serious problem on their hands as their balance sheet blows out. This could get interesting… and profitable.

– Chris


Rockefeller once explained the secret of success. Get up early, work late – and strike oil.” — Joey Adams

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Meet The Only Private Equity Fund In History To Raise $2 Billion From Investors And Return $0

Sir Richard Branson once said that the quickest way to become a millionaire was to take a billion dollars and buy an airline. But, as EnerVest Ltd, a Houston-based private equity firm that focuses on energy investments, recently found out, there’s more than one way to go broke investing in extremely volatile sectors. 

As the Wall Street Journal points out today, EnerVest is a $2 billion private-equity fund that borrowed heavily at the height of the oil boom to scoop up oil and gas wells.  Unfortunately, shortly after those purchases were made, energy prices plunged leaving the fund’s equity, supplied primarily by pensions, endowments and charitable foundations, worth essentially nothing. 

The outcome will leave investors in the 2013 fund with, at most, pennies for every dollar they invested, the people said. At least one investor, the Orange County Employees Retirement System, already has marked its investment down to zero, according to a pension document.

 

Though private-equity investments regularly flop, industry consultants and fund investors say this situation could mark the first time that a fund larger than $1 billion has lost essentially all of its value.

 

EnerVest’s collapse shows how debt taken on during the drilling boom continues to haunt energy investors three years after a glut of fuel sent prices spiraling down.

But, at least John Walker, EnerVest’s co-founder and chief executive, expressed some remorse for investors by confirming to the WSJ that they “are not proud of the result.”

Enervest

 

All of which leaves EnerVest with the rather unflattering honor of being perhaps the only private equity fund in history to ever raise over $1 billion in capital from investors and subsequently lose pretty much 100% of it. 

Only seven private-equity funds larger than $1 billion have ever lost money for investors, according to investment firm Cambridge Associates LLC. Among those of any size to end in the red, losses greater than 25% or so are almost unheard of, though there are several energy-focused funds in danger of doing so, according to public pension records.

 

EnerVest has attempted to restructure the fund, as well as another raised in 2010 that has struggled with losses, to meet repayment demands from lenders who were themselves writing down the value of assets used as collateral, according to public pension documents and people familiar with the efforts.

So, who’s getting wiped out?  Oh, the usual list of pension funds, charities and university endowments.

A number of prominent institutional investors are at risk of having their investments wiped out, including Caisse de dépôt et placement du Québec, Canada’s second-largest pension, which invested more than $100 million. Florida’s largest pension fund manager and the Western Conference of Teamsters Pension Plan, a manager of retirement savings for union members in nearly 30 states, each invested $100 million, according to public records.

 

The fund was popular among charitable organizations as well. The J. Paul Getty Trust, John D. and Catherine T. MacArthur and Fletcher Jones foundations each invested millions in the fund, according to their tax filings.

 

Michigan State University and a foundation that supports Arizona State University also have disclosed investments in the fund.

Luckily, we’re somewhat confident that at least the losses accrued by U.S.-based pension funds will be ultimately be backstopped by taxpayers…so no harm no foul.

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Can Japan Ever End Its Easy-Money Addiction?

Authored by Brendan Brown via The Mises Institute,

The shock landslide defeat of PM Shinzo Abe’s Liberal Democratic Party (LDP) in the recent Tokyo metropolitan elections – and the triumph there of Tokyo Governor Koike’s new party (Tomin First) – has lit a faint hope that the radical Japanese monetary expansion policy could be on its way out. The flickering light though is not strong enough to soothe the mania in Japan’s carry trades and so the yen continued to slide in the aftermath of the elections. Between mid-June and early July the Japanese currency depreciated by some 5% against the US dollar and 10% against the euro. 

The perception in currency markets is that Japan will not be embarking on monetary normalization this year or next, in contrast to Europe where ECB Chief Draghi has hinted that the train (to monetary normalization) will start next year, even though the journey promises to be very slow. The US train to normalization continues at a glacially slow pace including some periods of reverse movement. Moreover the monetary climate prior to the journey commencing is even more extreme in the case of Japan than in Europe or the US.

It was possible to imagine that the shock election setback for the LDP could have caused Shinzo Abe to withdraw support from his money-printer in chief, Bank of Japan governor Haruhiko Kuroda (whose term ends in April 2018), thereby signaling an early end to negative interest rates and quantitative easing. But markets in their wisdom have concluded this is not to be. Many elderly Japanese are pleased with their stock market and real estate gains even though they complain about negative interest rates and the threat of inflation. In any case it was young voters, responding to the stink of alleged corruption scandals, who turned out en masse for Governor Koike’s new party.

In fact, the widespread prediction is that PM Abe will nominate an even more radical monetary experimenter to the head of the Bank of Japan along with two deputy governors of similar persuasion. Some political pundits in Tokyo suggest that Shinzo Abe could yet face a challenge in an LDP leadership election in September 2018 and that ex-Defence Minister Shigeru Ishiba (also on the nationalist right of the party) could prevail. Ishiba-san would favor, some speculate, a return to monetary orthodoxy. But in market terms this is a long time ahead and much further monetary damage will have been done first.

Three Risks to the Current Easy-Money Orthodoxy

Currency markets are not a one-way bet and there are three main risks confronting speculators on further yen depreciation.

First, Washington could yet get its trade and currency acts together (President Trump’s nominee for the role of Treasury Under-Secretary responsible for international affairs, David Malpass, has not yet been approved by Congress). The US would take aim at currency manipulation by Europe and Japan, now occurring under the camouflage of the global 2% inflation standard and deployment of non-conventional monetary policy tools. In particular the Bank of Japan’s policy of pegging long-term interest rates at barely zero is surely a means of keeping the yen cheap.

 

Second, the US economy could enter a growth cycle slowdown and even recession which in turn would narrow the yield gaps which draw capital out of Japan.

 

Third, the giant carry trades could suddenly go into reverse as global asset price inflation progresses toward its final deadly phase.

Booming carry trades are indeed a top symptom of asset price inflation. As income famine investors hunt for yield, or investors impressed by a series of capital gains become irrationally exuberant, they are unusually susceptible to speculative narratives, discarding normal healthy cynicism. These narratives justify risk-arbitrage positions implicit in all the various forms of carry trade (whether in search of premiums for exchange risk, or term risk, or credit risk, or illiquidity, or equity risk). Japan, due to the extent of monetary distortion there, has become the land of frenzied carry trading.

The Japanese War Against Deflation 

The natural rhythm of prices has been unusually strong in a downward direction in Japan, meaning that the central bank’s targeting of positive inflation creates powerful monetary disequilibrium. The entry of China into the global economy in the case of Japan has meant an integration process which brings persistent strong downward pressure on prices (and on wages via offshoring). Adding to this pressure has been the growth of the “irregular” labor market (temporary contracts as against lifetime employment). And if we consider the core zone of the Japanese economy around Tokyo, productivity growth and technological change have been bearing down on prices (these trends are not apparent in the national data due to the falling behind of regions distant from the capital).

In the age of Abenomics (starting in 2013) the Bank of Japan ramped up the inflation target to the global 2% level. Accordingly, the carry trades in their various forms have boomed. The speculative hypotheses to justify these have waxed and waned through time. Some market critics think the latest to be waning is the FANMGs (equities in Facebook, Apple, Netflix, Microsoft, and Google) into which Japanese investors have poured funds in many cases via so-called structured products (notes which are a hybrid between fixed-interest paper and a kicker in the form of pay-outs related to the performance of a given index or stock price, in effect an option-type product).

The popularity of certain investment tools adds to the momentum of carry trades in Japan. Market practitioners (including hosts of retail investors) study charts and the trend lines there; the trend is the friend, make no mistake, until the trend brakes. Under monetary stability the flaws of such tools would most likely remain contained. But in the vast domestic and global monetary disorder such as now exists and which fans irrationality Japanese carry-trades become even more prominent.

Shinzo Abe if he thinks about this, and he has praised repeatedly the booming Tokyo stock market, must doubtless hope that global asset price inflation including its Japanese component will remain in its present sweet phase through the elections next year, first for LDp President and then for the Lower House of the Diet (December).

 

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Robot Security Guard “Commits Suicide” In Mall Fountain

“We were promised flying cars, instead we got suicidal robots.”

That was the comment of Twitter user Bilal Farooqui who this afternoon surprised the social network with a bizarre image: a robot which “commited suicide” by drowning itself in a public fountain.

The Knightscope K5 security robot was supposed to patrol the Georgetown Waterfront, a ritzy shopping-and-office complex along the Washington Harbour in D.C. Looking like a mutant hybrid of R2D2 and a Dalek, the K5 was built to be a crime-fighting robot that could rove the streets and monitor for suspicious activity. It has been used in some offices and malls across America.

But, in the absurdist take of NY Mag, “the pressure was too much for the rolling robot, which can turn, beep, and whistle in order to maintain order.”

At one point today, it had had enough, rolled into fountain and drowned itself.

The robot’s maker, Knightscope, describes itself as “an advanced security technology company that uses Software + Hardware + Humans to provide its clients with advanced anomaly detection capabilities. Knightscope’s long-term vision is to predict and prevent crime utilizing autonomous robots, analytics and engagement.” It may soon also need to provide therapy to its “robotic guard army.”

To be sure, the robot has pros and cons. It’s a good deal for any place that wants something patrolling an area on the cheap. It’ll roll around malls or parking lots, with rental prices starting at $7 per hour — 25 cents less than the federal minimum wage. Uber uses it to patrol certain parking lots. On the downside, NY Mag reports that it’s has been knocked over by a drunk man. Before that, it knocked down and ran over a 16-month-old boy.

Those caught up in the robot’s existential plight, and who would like to make a donation to some greater cause to cleanse their irrational guilt, can do so on Knightscope’s Seedinvest page: the company is seeking to raise up to $20 million in a Series M round at a pre-money valuation of $80 million.

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The Two Poster-Children Of Froth (Or How To Piss Off Half The Market)

Authored by Kevin Muir via The Macro Tourist blog,

I am sure to madden a bunch of readers this afternoon, but here it goes nonetheless. For most of the spring and early summer, there were two poster children of speculative froth.

The first was Tesla. Egged higher by Elon Musk’s tweets poking fun at the skeptical short sellers, this stock was seemingly unstoppable. Rising from $240 in March, TSLA ticked at $387 in late June, squeezing the shorts by 61% in the space of one quarter.

http://ift.tt/2tzAmVH

http://ift.tt/2u309ZW

Have a look at the headlines from ToutTV during this period:

http://ift.tt/2tzGgG5

http://ift.tt/2u39z7x

http://ift.tt/2tzmcUB

http://ift.tt/2u3460x

The euphoria for Musk filled the financial news networks, and any naysayers were generally viewed as idiots who just didn’t get it.

http://ift.tt/2tzl0Ra

*  *  *

The second investing theme from earlier in the year that caught the public’s attention was bitcoin. In this case, the rally was even more dramatic.

Bitcoin tripled from March to June.

http://ift.tt/2u2GclM

http://ift.tt/2tzHxwZ

I wrote an article in late May that did not embrace the new paradigm (My Great Bitcoin Bungle), and I can confirm, bitconians are not the most accepting bunch when it comes to alternative opinions. I was inundated with comments about how I was yet another finance guy unwilling to accept the new world reality.

Barrons’ even went so far to make bitcoin their cover story (and you know how I feel about Barrons’ cover stories).

http://ift.tt/2u30gVf

And nothing made me laugh more than the bitcoin zealot who sneaked into Fed Chair Janet Yellen’s Humphrey Hawkins’ testimony to hold up a “buy Bitcoin” sign.

http://ift.tt/2tzeo5c

I have to give the kid credit – it was a great stunt. But it sums up the degree at which this theme has captured the enthusiasts’ imagination.

Although there were other stories that dragged the stock market higher during the past few months (NVDA and AMZN are good candidates), I consider TSLA and XBT (bitcoin) the two most prominent leaders. In my mind, these were the two names where speculation was running the most amok.

For the longest time, it seemed like regardless of what the stock market or other financial markets did, each day TSLA and XBT were sure to rally.

And this next statement is where I am going to get myself into some trouble. I don’t think this speculation was healthy. I don’t view either of these themes as particularly well thought out. Yeah, I know Musk is going to change the world, and we will all be paying for our TSLA Model 3’s in bitcoin. Don’t bother trying to convert me. I think both of these assets are legitimate technologies, but both are priced for an unrealistic reality.

Regardless of your views about TESLA’s priced in bitcoin, there can be no denying that the tone of the trading has changed for both of these recent market darlings.

http://ift.tt/2u30hsh

What I find interesting is that even though the S&P 500 is hitting new all time highs, both of these other two stories are hitting new six month lows.

If they can’t rally along with the rest of the market, what is that saying about their strength?

I listened to this terrific Felder Report Podcast the other day with Bill Fleckenstein and he had this great line about short selling. Fleck said he likes to shoot his short sell candidates in the back. He would rather wait for the turn, and then lean on the sell button, instead of fighting them on the way up.

I wonder if the kid with the Bitcoin sign was the top. And maybe Tesla’s model 3 production announcement will prove to be a buy-the-rumour-sell-the-news event. Could this be the perfect time to shoot both TSLA and XBT in the back?

If you want to learn more about opportunities on the dark side of TSLA, then I highly suggest you follow Mark Spiegel on Twitter. Not only will he help you understand the absurdity of TSLA’s valuation, it is some of the funniest stuff on financial twitter.

As for bitcoin, I will leave you with an idea if you want to join the group of bitcoin skeptics.

Currently, the only stock exchange bitcoin listed product that I am aware of is Bitcoin Investment Trust sponsored by Grayscale Investments (GBTC). Due to the current lack of competing products, this closed end fund trades at a significant premium to Net Asset Value (NAV). Here is the history of the premium to NAV over the history of the fund:

http://ift.tt/2u3zXhL

Although the premium was over 125% during the most recent bitcoin excitement, GBTC is still trading at an 80% premium to NAV.

Given the chances of a variety of new XBT ETFs being introduced in the coming months, I don’t think you even need to get a decline in bitcoin for a short position in GBTC to potentially be profitable. I can’t see this premium hanging in there for much longer.

Although some market pundits are looking at the TSLA and XBT weakness and extrapolating it onto an imminent general stock market crash, I view it in a slightly different light. I think it is merely a return to sanity.

And I know that I will have just pissed off a bunch of TSLA and XBT disciples, but I suggest that you should welcome my negativity. It just gives you a chance to buy more at lower prices from stupid short sellers like me…

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OPEC Deal Splinters: Ecuador Will No Longer Comply With Production Quota Due To “Difficult Economic Situation”

Ever since the OPEC production cut deal was announced last year in Vienna, there have been two key wildcards fascinating the oil trader and analyst community: what would be the deal compliance (in other words, how pervasive would cheating be), and which country would break away from the deal first. When it comes to the former, after an impressive run in which compliance hit and in some months surpassed 100%, mostly due to Saudi Arabia shouldering the extra production cut burden, in June it finally slid back to 92%, the lowest in months, and the first indication that the recent Saudi rising production is starting to weigh on the cartel members who are growing concerned that the Saudi commitment to production cuts may be waning.

As for the first country to defect, the odds were always highest on Venezuela, however as of today that has turned out to be a losing wager because as Argus reported, Ecuador’s oil minister said the cash-strapped country faces a “difficult economic situation” and is no longer able to comply with its pledge to Opec to cut 26,000 b/d of oil production.

Today’s announcement comes after the small Latin American nation had strictly followed the quota set by the Vienna deal, and from January to May Ecuador reduced its output by some 16,000 b/d. However, that ended today, when oil minister Carlos Perez said today the country is no longer complying with the quota because of its fiscal challenges.  These include a public debt close to 50% of gross domestic product and an expected 7.5% fiscal deficit for the year.

Perez claimed Ecuador has a non-written agreement with Opec that gives Quito some flexibility. In the last month and a half instead of reducing output, Ecuador has slightly increased it.

 

Perez said state-owned downstream company PetroAmazonas is now producing about 430,000 b/d and foreign oil companies, such as Spain’s Repsol, China’s AndesPetroleum and Italy’s Agip, are producing another 115,000 b/d. That combined 545,000 b/d is a 2.19pc increase over the production average of the first four months of the year, according to oil regulator Arch.

As a reminder, this is what the agreed upon production adjustments and quotas looked like per the Vienna deal.

And so with one country of the 11 OPEC states who pledged to throttle their production already out of the agreement just six months after it was implemented, the next logical question is how much longer can the deal last in its entirety, and, obviously, who will defect next citing a “difficult economic situation” something which virtually every OPEC member nation can claim.

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30-Year EM Veteran Fears “The Most Illiquid Market Conditions I’ve Ever Seen”

Low market volatility spurred a “torrent” of capital flows into emerging-market debt, reflecting investor complacency and “excessive risk taking,” Bank of America Merrill Lynch strategists led by David Hauner in London wrote in a report last week. He warned that the second half of the year should bring challenges for lower-rated issuers as higher interest rates in the U.S. reduce some of the appeal of junk credits with relatively steep interest rates.

“The market is at a point where we haven’t hit a real bump in the road to wake everyone up.”

And they are not alone. Since entering the world of emerging markets nearly three decades ago, Robert Koenigsberger, who oversees $6 billion as chief investment officer at Greenwich, Connecticut-based Gramercy Funds Management, has seen more than his share of changes. One of the most consequential, BloombergQuint.com reports, is the migration of allocators from hedge funds to exchange-traded and mutual funds in recent years.

That’s effectively made ETFs one-day liquidity vehicles, versus the 90-day instruments leveraged funds typically offer, which, as Koenigsberger explains simply means:

"This market isn’t well set up for outflows."

Which is a big problem, because, outflows are accelerating…

As JPMorgan recently noted…

What caused this deterioration in EM overall capital flows in Q2? It is difficult to answer this question given that current account data are not available for Q2 for most EM countries. But if one uses high frequency data of fund flows such as equity and bond ETF flows as proxies for overall portfolio flows, we find portfolio flows were not responsible for the deterioration in the overall EM capital flow picture in Q2. Both EM equity and EM bond fund flows were rather strong in Q2 and if anything there was acceleration in EM equity fund flows relative to Q1.

As a reminder, in the run-up to this dumping of EM assets, expected uncertainty in Emerging Market Equities has never been lower… (in fact EEM implied vol is now less than half its lifetime average of 29.7%)

 

What was even more stunning than investors' tolerance for these risky issuers is how little compensation they’re demanding in return.  Emerging Market bonds were pricing in the least 'risk' since Dec 2007…

The disconnect is a result of historically low interest rates worldwide — notes in Japan, Germany and France have negative yields — as well as what skeptics see as investors’ complacency as they pour into index-based funds without scrutinizing their holdings.

“I’m guessing the alarm bells are ringing, and in many ways it feels like 2007,” said Anders Faergemann, a senior fund manager in London at PineBridge Investments, which oversees about $80 billion globally.

 

“Dedicated EM investors are dancing ever closer to the exit door, but for those of us who were around in 2007 there was a long period in which EM continued to rally even though valuations were stretched.”

However, as Bloomberg notes, the Federal Reserve’s hawkish posture (though tempereed modestly last week) sets the stage for an uptick in developing-nation volatility in the second half of the year, Bank of America Merrill Lynch strategists said.

And that is among the things that Koenigsberger fears… (via BloombergQuint.com)

"We’re potentially sitting on one of the most illiquid market conditions in emerging markets that I’ve ever seen…"

 

"This market showed its stripes in the taper tantrum, and I think this will challenge the taper tantrum, if not 2008."

Since the global financial crisis, the amount of emerging-market high-yield debt has quadrupled to about $763 billion, according to data compiled by JPMorgan Chase & Co. At the same time, dealer inventories have been scaled back to about a fifth of what they were in 2009 due to regulations, Koenigsberger said, meaning many banks no longer participate in emerging markets as intermediaries or proprietary traders.

"The question is: Is this a market or a bazaar?" Koenigsberger said.

 

"In 2017, with the absence of banks providing liquidity, who will facilitate the flows for the one-day ETFs and mutual funds?"

One wonders if those liquidity issues are about to appear front-and-center, as the lagged effect of the collapse in China's credit impulse is set to send volatility and risk spreads higher…

 

The fickel flows into, and now rushing out of, EM debt, seem to have finally woken up to the reality that, as Bloomberg's Lisa Abramowicz notes, the fundamental health of emerging markets has deteriorated on average, with the debt of lower-rated countries such as Turkey, Ecuador and Sri Lanka accounting for a greater proportion of benchmark indexes. As Bloomberg Intelligence's Damian Sassower and Alexander Graf noted in a recent research note, leverage is on the rise among high-grade, nonfinancial corporate and quasi-sovereign issuers in emerging markets. And investors are getting compensated less for the increasing debt relative to income of these issuers.

via http://ift.tt/2t9EQ64 Tyler Durden

New York Attorney Demands To See Manafort’s Bank Records Over $16 Million Loan

In what should have probably been the first action in the investigation of former Trump campaign chairman Paul Manafort, WSJ reports that New York prosecutors have decided tofollow the money, demanding records relating to up to $16 million in loans from a bank run by a former campaign adviser for President Trump.

As a reminder, in mid-April, federal investigators requested Mr. Manafort’s banking records from Citizens Financial Group, the Journal previously reported, but now…

The subpoena by the Manhattan district attorney’s office to the Federal Savings Bank, a small Chicago bank run by Steve Calk, sought information on loans the bank issued in November and January to Mr. Manafort and his wife, the person said.

 

The loans were secured by two properties in New York and a condominium in Virginia, real-estate records show.

Mr. Calk was a member of Mr. Trump’s economic advisory panel who overlapped with Mr. Manafort on the Trump campaign.

Around the time they were issued, Mr. Calk had expressed interest in becoming Mr. Trump’s Army Secretary, the Journal previously reported, citing three people briefed on the Army interactions.

A veteran whose bank caters to former members of the military, Mr. Calk didn’t get the job, and previously declined to comment on it.

 

Mr. Calk has previously said that the loans to Mr. Manafort were standard with more than sufficient collateral.

 

Messrs. Manafort and Calk knew each other before the campaign, a person familiar with the relationship has said.

The Journal reported in May that Manhattan District Attorney Cyrus R. Vance Jr. and New York Attorney General Eric Schneiderman had begun examining real-estate transactions by Mr. Manafort, who has spent and borrowed tens of millions of dollars in connection with property across the U.S. over the past decade. Investigators at both offices are examining the transactions for indications of money-laundering and fraud, people familiar with the matters have said.

Asked by a reporter for The Wall Street Journal about the subpoena Monday, Calk said, “I’ve got no comment, but I appreciate the call.”

via http://ift.tt/2usWlSE Tyler Durden