Month: February 2016

When “Whatever It Takes” Fails – Global Bank Risks Are Soaring

The surge in credit risk across the global financial system is starting to get to the point where even Bill Miller will be forced to pay attention. With every central banker "all-in" with "whatever it takes" or "no limits" monetary policy, the fact that US, European, Chinese, Japanese, and Middle-East banks are all seeing credit risk spike should be a major concern to all…

 

European bank risk is at its highest since 2013…

 

Which is dragging the cost of funding for investment grade European corporates to their highest since 2013…

 

Led by a collapse in Deutsche Bank (which has the largest derivative exposure in the world)

 

Middle-East banks are blowing out to record high credit risk…

 

China banks are in trouble…

 

Japanese banks are collapsing…

 

As Raoul Pal exclaimed yesterday on CNBC when asked if there was a contagious threat to US banks from the rest of the world (paraphrased by us) "of course there [bloody] is… the tri-party repo system will spread this worldwide."

And indeed it is…


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WTI Plunges Below $30 As Crude, Gasoline Inventories Surge

After initial weakness, crude prices have rallied since last night's across the board inventory build reported by API (especially gasoline). Against headline expectations of a 3.8mm build, DOE reported a huge 7.8mm rise with Gasoline also surging 5.9mm barrels. The overnight ramp gains on OPEC rumors have been erased and WTI is back below $30.

 

API reported:

  • Crude inventories: +3.8M barrels
  • Cushing +0.1M barrels
  • Distillate +0.4M barrels
  • Gasoline +6.6M barrels

DOE reported:

  • Crude inventories: +7.79M barrels (whisper 3.8m)
  • Cushing +0.75M barrels
  • Distillate -0.78M barrels (whisper -0.26m)
  • Gasoline +5.9M barrels (whisper 5m)

 

Production fell very modestly for the 2nd week in a row…

 

WTI dropped after API then ripped on more OPEC-Russia chatter… only to fade after Dudley's comments failed into the DOE data…

 

And finally, don't forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression.

Charts: Bloomberg


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Donald Trump’s Post-Iowa Twitter Meltdown

If you can’t be a winner, be a whiner. In a series of tweets this morning, Donald Trump is insisting that Ted Cruz stole the Iowa caucuses and demanding a do-over:

I don’t remember anyone getting a second shot at a contest on The Apprentice, but then, I stopped watching that show after season two. Maybe they changed the rules later on.

What does Trump mean by “the fraud”? He brings up a false rumor spread by the Cruz team, in which Ben Carson supposedly dropped out of the race; and he mentions a mailer Cruz distributed that aimed to shame nonvoters. Both were rather sleazy tactics, but neither is the sort of thing that’s gonna lead any caucus to cancel its results. (In the case of the mailer, which came to light days before the voting, the backlash against it may well have cost Cruz more votes than it gained.) Then Trump gets to this:

So if a candidate doesn’t like the way another candidate describes his record, the second candidate’s victories get cancelled? By that standard, Trump disqualified himself ages ago, and so did pretty much everyone else in the race.

But of course Trump doesn’t actually expect anyone to nullify Iowa’s results. The real point here is to make an excuse for losing:

Snapshot from 2018: President Trump in his fallout shelter, mashing keys on a broken laptop, tweeting excuses for the apocalypse to an audience of zero.

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The End Game For Central Banks Has Officially Begun

For over six years, the markets have been moving based on Central Banker actions and words.

 

The first phase (2009 to 2013) was dominated by action (ZIRP and QE).

 

The second phase (2013 to the present) was increasingly reliant on words (verbal intervention) as most Central Banks had by then used up 90% of their ammo.

 

As former Fed Chair Bernanke himself noted in his recent memoirs:

 

“Monetary policy is 98% talk and 2% action, especially when short term rates are near zero"

 

However, we are now reaching the point at which even actions AND words are losing their effect on the markets.

 

Last Friday, the Bank of Japan introduced Negative Interest Rates or NIRP. The ensuing rally in the Nikkei lasted roughly 30 minutes before reversing all of its gains. It was only through concerted manipulation by the Bank of Japan that the Nikkei finished the day in the green.

 

Fast-forward to today, and the head of the Bank of Japan Haruhiko Kuroda is already promising to engage in even more NIRP if needed. He stressed there was “no limit” to monetary easing measures.

 

Yes, this took place only a few days later.

 

So… the Bank of Japan launches NIRP for the first time in its history. And within THREE trading days is already promising to do MORE, going so far as to say that it has “no limit” on what it will try.

 

This is what it looks like when a Central Bank loses control= total desperation.

 

Bear in mind, the Bank of Japan has been at the forefront for ALL monetary policy for decades. The US Federal Reserve launched its first QE program in 2008. The European Central Bank launched its first QE program in 2015.

 

The Bank of Japan first launched QE back in 2001.

 

In short, the Bank of Japan has two decades of experience with QE AND ZIRP. It has launched the single largest QE program in history (an amount equal to over 20% of Japan’s GDP). And it has expanded its balance sheet to over 65% of Japan’s GDP.

 

In short, the Bank of Japan has gone “all in” to attempt to reflate its financial system. It has completely failed. And now it is so desperate that it is promising to do even MORE only three days after its latest monetary surprise.

 

The End Game for Central Banks has officially begun.

Smart investors are preparing now.

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Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 


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Manufacturing Recession Spills Over Into Services After Dismal PMI, ISM Data

In the words of Markit's chief economist, "the US upturn has lost substantial momentum over the past two months," as the golden child of any current bullish narrative – the Services economy – drops to its weakest since October 2013 (PMI 53.2, missing expectations). Plunging backlogs suggest hiring will slow notably and then ISM Services hit at a 23-month low, plunging back towards manufacturing's weakness, with employmenmt at its weakest sicne April 2014 and unadjusted new orders at their weakest since Jan 2014.

Services PMI plunges back towards Manufacturing..

 

Troubling: the New Orders tumbled not only on a seasonally adjusted basis (because for some reason one needs to adjust sentiment surveys), but worse, on an unadjusted basis the 52.5 was barely above contraction territory and the lowest since January 2014.

Markit commentary is dismal…

Slower service sector activity, combined with subdued manufacturing growth, means January’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown.

 

…backlogs of uncompleted work have been falling in recent months, which usually means that such strong hiring is unlikely to persist…

 

While the first quarter may see a rebound in GDP due to technical factors such as an inventory adjustment and weather-related variations, the survey data paint a darker underlying picture of business conditions.

And then ISM Services hit… tumbling to 23-month lows. The decoupling is over…

 

With new orders ane employment plunging…

 

Respondents are not exuberant:

We have experienced a slight increase in business activity since the start of the new year. Our new job orders have increased about 10 percent and the job awards about 12 percent." (Professional, Scientific & Technical Services)

 

"Healthcare requirements in several states changing, which will [affect] our business directly." (Health Care & Social Assistance)

 

"Research funding expected to increase during 2016 and will result in higher employment when compared to calendar year 2015." (Educational Services)

 

"Protein commodities all lower due to strong U.S. dollar. Trade imbalance in exports and embargos with certain foreign nations." (Accommodation & Food Services)

 

"Sales have improved. We are feeling more optimism, but remain concerned about the impact of global unrest." (Retail Trade)

 

"Watching economic slowing in other sectors, but not affected yet." (Management of Companies & Support Services)

 

"We continue to see record low key commodity prices driving product cost down. Record low oil prices are putting extreme pressure on exchange rates for key export markets Canada and Mexico. Falling prices [are] pushing margins down as many are forced to drop prices to meet the competition. Extreme weather conditions this season are adding additional challenge[s] to both retail and wholesale sales volume regionally." (Wholesale Trade)

*  *  *

So – after all is said and done – we were right: It's noit "decoupled" its lagging… and now the pain comes as the only cylinder still firing in the US economy just blew a gasket.


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Anthony Fisher Talks Bernie Sanders’ Folk Album on NH Public Radio’s Word of Mouth Today, 2p ET

Tune into New Hampshire Public Radio‘s Bernie Sanders Hears YouWord of Mouth today in the 2p ET hour, where I’ll be talking with host Virginia Prescott about Bernie Sanders’ long-forgotten and now suddenly ubiquitous folk album We Shall Overcome. 

I reviewed the 5-song EP, which was intended to serve as Vermont’s answer to “We Are the World,” here at Reason last week:

Examining this record nearly 30 years later, what’s most remarkable is how Sanders appears impervious to the influences of time. His voice and speaking cadence of 1987 are nearly identical to the present day, and his passion for peace and freedom remain admirably staunch, even if his simplistic utopian economic views remain trapped in the Dust Bowl.

Listen online here or check out the podcast later.

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Twitter Harassment Case Ends in Victory for Free Speech

On January 22, a three-year legal drama that made few headlines but was closely watched by those with an interest in free-speech and online-harassment issues came to an end in a Toronto courtroom. Gregory Alan Elliott, a 55-year-old graphic artist, was found not guilty of criminal harassment toward feminist activists Stephanie Guthrie and Heather Reilly. The trial judge took pains to stress that he felt the women were truthful and did feel harassed. But he also concluded that their perception of harassment was not reasonable, since it was based on the assumption that Elliott had no valid points to make or opinions to defend. 

There is “no question in my mind,” writes Cathy Young, that the real issue in this case is the dangerous drift toward criminalizing political speech, often in the name of protecting women. Elliott’s defenders may have oversimplified the facts at times—claiming that he was facing charges merely for disagreeing with feminists on Twitter. But here was a man with no criminal record facing six months in jail for tweets which, by the admission of the police officer handling the case, were neither threatening nor sexually harassing. 

View this article.

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