Month: April 2016

No mass shooting incident today, but moments ago BNO news reported that the stuiod of Fox 45, also known as FOX Baltimore, has been evacuated after a man dressed in a hedgehog suit entered the building and claimed to have a bomb strapped to his chest.

BREAKING: Fox 45 evacuated due to alleged bomb threat. https://t.co/orMryzEY3V http://pic.twitter.com/6RReodTGUr

— FOX Baltimore (@FOXBaltimore) April 28, 2016

DEVELOPING: @FOXBaltimore has been evacuated due to reports of a man with a bomb, @ShepNewsTeam reports.https://t.co/LdmyReNeJM

— Fox News (@FoxNews) April 28, 2016

Following developments from @FOXBaltimore barricade situation. https://t.co/upG2WnNZVf http://pic.twitter.com/wWi1hHETBz

— WBAL NewsRadio 1090 (@wbalradio) April 28, 2016

#BREAKING: #News; Man reportedly walked into Fox 45 Baltimore TV station, claimed to have explosive devicehttps://t.co/b3hfHz0Xz3

— AlwaysActions (@AlwaysActions) April 28, 2016

As BNO adds, the incident began on early Thursday afternoon when a man wearing a onesie and a face mask entered the TV station’s building and approached a person working at the front desk, claiming that he had a bomb and had a message that he wanted to be heard. The station’s security guard, speaking to reporters near the scene, said the suspect had “something” strapped to his chest and handed over a flash drive which contained rants regarding black holes, space and the U.S. government.

#FoxBaltimore … Station security guard spent 45 min speaking with man making threats – man said this is not a jokehttps://t.co/CtSYTEkRMk

— Raven*H??U*Wolf (@RavenHUWolf) April 28, 2016

“He walked in, opened up his hedgehog outfit that he had on, and he pretty much said he had a bomb on him, and he had a message that he needed to be heard,” the security guard said. “He had a flash drive with him, he handed me the flash drive.”

The security guard said he looked at the contents of the flash drive and said it contained rantings related to space. “Black holes, the sun, about it being liquid in gas, and just wanted to say that the government is wrong and thinking about the way they do when it comes to anything in space,” he said.

During the incident, the gas tank of a car parked in the TV station’s parking lot was set on fire, but the fire failed to spread and was quickly extinguished by the Baltimore Fire Department. People are being urged to avoid the area.

MORE: Man claiming to have a bomb at Fox Baltimore wanted to get a message out https://t.co/ANOmbaZO2H http://pic.twitter.com/SB6gPpe4p4

— BNO News (@BNONews) April 28, 2016

Moments ago FOX Baltimore reported that bomb disarming equipment has arrived at the studio.

Bomb equipment arrives at Fox45. http://pic.twitter.com/FKGVru1e3K

— FOX Baltimore (@FOXBaltimore) April 28, 2016

Here is a live periscope feed from the location:

LIVE on #Periscope https://t.co/jGDtRF8LUG

— Casey Clark (@CaseyClarkjr) April 28, 2016

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When JPM quant Marko Kolanovic released his latest report today, we were expecting him to read his latest insight on the positioning of quant funds, on the relative imbalance of risk parity, or perhaps whether market gamma was suggesting that the market is poised for an inflection point, either lower or higher. Instead, we were surprised to read an extended analysis looking at how trapped the “out of options” central banks are, what the next steps are for the global economy, how the market is now as overvalued as it was before the 2000 crash, how rising rates “would make the current S&P 500 level look like a bubble”, and the exhaustion of all available policy options, which he dubbed the “endgame.” To wit:

If investors lose confidence that the debt can ever be repaid, they will reduce their holdings, increasing the cost to governments or inviting more central bank buying. This can eventually result in the devaluation of all currencies against real assets such as gold, high inflation or even outright defaults (as was the case in Greece). If such a trend develops in one of the large economies, it could have far-reaching consequences.

We were most surprised by Kolanovic’s strong case to buy gold, although considering it comes just one week after a Pimco economist dared to propose that central banks should monetize gold next in an attempt to massively boost inflation expectations (while send the price of gold to $5,000), perhaps we are not that surprised.

* * * .

We are confident readers will find it just as an engaging read.

From JPM’s Marko Kolanovic

Central banks, Inflation, and Debt Endgame

With the Fed and BoJ meetings behind us, markets are increasingly accepting that central banks are nearly out of options. Central banks can hardly raise interest rates, and there is a growing realization that negative interest rates simply make no sense (see analysis below). Unconventional approaches of buying corporate bonds (ECB) and stocks (Japan) so far have not produced significant results, and run the risk of tainting these assets for private investors. The next attempt to boost the economy or prevent a potential market crisis will likely need to be accomplished by fiscal measures. Fiscal measures may be employed even if there is no crisis (e.g., post US election), and over the next months investors will look closely at potential measures and their impact on equity markets, commodities (potential positive impact on certain sectors – e.g., from infrastructure spending), and the value of debt and currencies (likely negative impact).

Before we discuss the implications and risks that could result from such developments, we present an analysis that suggests that central banks face the risk of entrenched low inflation (rather than the risk of high inflation) and likely will not be able to raise rates meaningfully. Figure 1 shows the cumulative PCE (relative to the Fed’s 2% target) that shows significant and persistent undershooting over the past 8 years. Since 2000, the cumulative undershoot is 6% on the core PCE measure. Over the past 4 years, core PCE undershot by more than 1.5 % (and headline by 3.5%, the difference being largely due to the 2014 decline in energy). This undershooting is fairly significant: over the past 2 years headline PCE undershot by 3% (2 standard deviations) and Core by 1% (1 standard deviation). What should be more worrying is that PCE readings historically show strong persistence (serial correlations). This means that a low core PCE reading today implies that PCE is more likely to stay low in the future as well (e.g., core PCE reading today has 80% correlation with the reading of 12 months ago). Our quantitative model of core PCE indicates the most likely level is still below the Fed’s 2% target and continuing to undershoot over the next 3 years.

In that context, the Fed should welcome any overshooting of the target as that is the only way it can end up closer to the stated 2% target over any meaningful time period (e.g., 2, 5, or 10 years). For instance, overshooting the target over the next 2-3 years by ~0.5% each year (or over the next 1-2 years by ~1%) would put the inflation averages within the margin of the stated 2% target. The problem is that it simply may not happen, and inflation breakeven rates in the US, Europe and Japan point to the same direction.

Over the past 20 years, PCE overshoots (undershoots) tended to coincide with S&P 500 rallies (declines). However, over the past 8 years, PCE kept trending lower, while the market rallied strongly. While the Fed’s QE programs did not prevent inflation to persistently undershoot the 2% target, a potential byproduct was inflated S&P 500 valuations. Indeed, many clients ask us how much of the S&P 500 rally can be attributed to near zero rates and can be at risk should rates continue to rise? Assuming the S&P 500 returning to median P/E levels for comparable rate and inflation environments in the past, it would suggest a 5%-15% de-rating of the equity multiple should rates continue to rise at a moderate pace and assuming no increase of recession probability. If rates increase the probability of recession, it would likely result in a larger market pullback, as both earnings and multiples would suffer.

Should the problem of low inflation go away (e.g., if there is an oil price shock, or upside growth surprise) and there is need to raise rates more significantly, the Fed will face another problem. That is how to hike but not push the equity market significantly lower. The reason is that with current levels of leverage, rates behave like a ratchet (easy to turn lower, but hard to turn higher without breaking the gears). Over the years of ZIRP, asset prices and business models adjusted to low rates. For example, home buyers make decisions based on monthly mortgage payment levels, and S&P 500 companies (ex-financials) have the highest leverage since 2007 (when leverage was at record levels), with some of the debt used to buy back shares.

Indeed, the current S&P 500 P/EBITDA ratio is at the same level as shortly before the market crash of 2000. The distinction between current market valuations being reasonable vs. bubble-like is due to low interest rates (as well as lower effective tax rates). Significant increase of rates (e.g., to levels implied by 2018 Fed dots) would make the current S&P 500 level look like a bubble.

As we argued above, it is hard to see short-term rates moving meaningfully higher any time soon. We also think that rates cannot go much lower either as negative rates fundamentally don’t make sense (issues such as physical storage of cash can make negative yields viable only over short periods of time). So the attempt to boost growth or fight a potential crisis will likely need to be accomplished by fiscal measures.

However, fiscal measures also bring an increased level of government debt and increased market and credit risk of owning government bonds. These risks are in addition to current low yields and a less favorable correlation of bonds to risky assets. The unfavorable risk-reward of government bonds near the point of zero yields will likely prevent asset managers from increasing holdings of government bonds. If there are no private buyers, governments can still place their bonds with central banks. This trend is of course already in place – for instance, the Fed’s holdings of US Treasuries increased from ~18% in 2008 to ~34% today.

Increased government spending, financed by central banks could indeed create inflation, but will further elevate the problem of debt viability. If investors lose confidence that the debt can ever be repaid, they will reduce their holdings, increasing the cost to governments or inviting more central bank buying. This can eventually result in the devaluation of all currencies against real assets such as gold, high inflation or even outright defaults (as was the case in Greece). If such a trend develops in one of the large economies, it could have far-reaching consequences.

Once fiscal measures replace monetary measures, we think investors will increasingly focus on the dynamics of government debt and currency valuations, particularly in Japan and the US.

How can an investor hedge against the risk of these potential developments? One can reduce allocation to bonds and increase allocation to real assets and equity sectors related to real assets. Investors can also move away from bonds that are not backed by reserve assets such as currency reserves or gold. The ability of a government to pay back debt and at the same time as maintaining the value of the currency should be measured by hard assets for which transfer to bondholders is politically viable. For example, during the Greek crisis, the option of selling islands owned by the government was off limits. On the other hand, governments can easily part with assets with no national or cultural attachments such as FX reserves or gold, as was recently the case with Ukraine and Venezuela.

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Submitted by Roddy Boyd via Southern Investigative Reporting Foundation,

Purchase, New York is a woodsy, suburban hamlet on the Connecticut state line that’s known as much for its residents' extraordinary wealth as it is for being the headquarters address for corporate heavyweights like MBIA, PepsiCo and MasterCard.

The town is also home to Quorum Federal Credit Union, a small member-owned and tax-free cooperative whose website suggests it's still the type of plain vanilla alternative to big banks that it was set up to be 82 years ago, where profits reduce the cost of loans and boost the interest-rate paid on savings accounts.

What can't be easily seen, however, is the fact that Quorum has become a major lender to the vacation ownership interest business, i.e. the new iteration of time-share sales, the controversial–if long-standing–vacation concept. Loans made to customers of Diamond Resorts International are the biggest part of this portfolio and it’s no embellishment to say that without Quorum, Diamond wouldn’t be where it is today.

(Southern Investigative Reporting Foundation Readers will recall our March investigation into Diamond's financial filings, revealing a picture that's entirely at odds with the growth juggernaut that management touts. A January New York Times investigation discussed allegations of high-pressure or misleading sales practices at several Diamond resorts.)

Access to the Quorum lending facility is a key component of Diamond's business model — the credit union funds loans that are eventually securitized, providing the cash it needs to keep its operations going and to maintain its investment-grade credit rating. To that end, Diamond's annual report disclosed it extended the lending agreement into 2017 and the loan facility raised to $100 million.

This is not the most favorable moment for a VOI marketer to be looking for replacement financing — loans are showing mounting delinquencies and more broadly, the industry is coming under renewed regulatory scrutiny. (To that end, in its recently filed Proxy, Diamond disclosed that its board of directors has formed a "Strategic Risk" committee to assist the board in its "oversight of the business, affairs and management of the Company.")

One former Quorum official told the Southern Investigative Reporting Foundation that with respect to its relationship with Diamond–circa 2014 through early 2015–their impression was that Diamond sent its "riskier seeming" loans to the credit union. During certain periods of the year, up to 1,000 VOI loan applications per day would come to Quorum "with easily half from Diamond," they said.

(Diamond has usually been about 30%-37% of Quorum's VOI portfolio, according to its annual reports, but in 2015 fell to 27%.)

Additionally, this official recalled many of these loan applicants having FICO scores under 660, a key criteria in determining whether a borrower is classified sub-prime. They said "most" of these loans were approved as Quorum sought to grow its membership.

Membership is a key concept in keeping a credit union vigorous because unlike a bank, it can't issue shares or debt, nor have ancillary units like investment management or securities trading.

For Quorum, growing membership–and the assets members bring in the form of checking and savings account balances–was the reason they struck a deal with Diamond in early 2010 in the first place, according to the former Quorum official. Take a look at Quorum's 2009 call report to see why: a loss of $1.1 million, declines in membership and assets, and a spike in loan delinquencies.

The deal provided up to $40 million worth of loans for Diamond and in return the borrowers would become members of Quorum. But joining a credit union requires people to have a common professional or vocational bond, like working at a specific employer or in a certain industry. Quorum threaded this needle by having borrowers sign a document that made them a member of the American Consumer Council, a consumer advocacy group with an "affiliate relationship" with Quorum. After the VOI borrower is a member, per the Diamond contract, Quorum would seek to market other types of loans to them.

For every loan application Quorum approved, according to the former Quorum official cited above, Diamond purportedly deposited $25 in the borrowers savings account.

American Consumer Council president Tom Hinton, in an email comment about the use of his group's affiliate relationship as the first step in a VOI loan process, said, "I appreciate you bringing the matter of time share loans to my attention. While ACC does not make consumer loans, if consumers are being manipulated or abused financially, we are very concerned. Let me investigate this matter further and be in contact with you shortly."

At the center of Quorum's VOI loan strategy is the Vacation Ownership Funding Company LLC, or VOFCO, an entity 79% owned by Quorum and 21% by its president and founder, Todd Fasanella. Known as a credit union service organization, or CUSO, VOFCO consults with Quorum on VOI loan sourcing and portfolio management, although being more specific than that is difficult because after being prominently mentioned in the front of recent annual reports, it's not referenced again.

Whatever VOFCO does, it does well, at least in the eyes of Quorum president and chief executive officer Bruno Sementilli. When the NCUA floated a proposal to expand CUSO disclosures in August, 2011, he felt strongly enough to pen a bluntly-worded letter in opposition. Referencing VOFCO, he wrote, "in less than two short years, we estimate our credit union has earned over $4 million dollars in loan interest and generated $60 million in member deposits."

He added that VOFCO is "an innovative enterprise, borne out of the ashes of the credit crunch, [that] required non-disclosure agreements from many parties."

Tracking VOFCO's contribution to Quorum's bottom line is difficult since the credit union stopped breaking out its performance in the second quarter of 2011. The last call report with VOFCO's earnings was the end of the first quarter in March, 2011 and it showed a loss of $283,000, an improvement over the prior quarter, the end of the fourth quarter in December, 2010, which disclosed a loss of $1.5 million. The most recent call report only noted that Quorum had loaned VOFCO and its four other CUSOs a total of $1.9 million; other documents appeared to suggest that much of this total was to VOFCO.

VOFCO's chief executive Todd Fasanella is also a full-time investment banker at Beverly Hills-based brokerage Imperial Capital. It's an unusual arrangement for Wall Street circa 2016: he works at Imperial advising or trying to drum up business from VOI industry clients and then turns around and manages a $158 million portfolio of their loans for someone else.

Multiple attempts to contact both Imperial's general counsel and president to discuss Fasanella's two jobs were unsuccessful.

In a prior job as an asset-backed securities banker at Credit Suisse, one of Fasanella's key clients, National Century Financial Enterprises, perpetrated a massive fraud. Briefly, NCFE's senior managers inflated the amount of receivables NCFE had purchased from medical practices and then, using the proceeds from securitizations of the bogus receivables, sent payment "advances" to healthcare providers they owned undisclosed stakes in.

When the scam unwound in the autumn of 2002, Dublin, Ohio-based NCFE was accused of collecting $2.5 billion from two dozen institutional investors; when the bonds were revealed to be nearly worthless, the losses spread to several brokerages, including Credit Suisse. Two of the company's senior executives were sentenced to 25- and 30-year jail terms and another four executives were convicted.

While no regulator or client accused Fasanella or his Credit Suisse colleagues of perpetrating or aiding the scam, a U.S. District Court judge had some sharp words about what they saw and said about NCFE internally.

In a 2012 opinion denying Credit Suisse's motion for summary judgement on the NCFE bondholder's claims, Judge James Graham of the Southern District of Ohio, cited emails and depositions from Fasanella and three Credit Suisse ABS unit colleagues as evidence of their possibly "having knowledge of the fraud." He also wrote that there was evidence that Fasanella, at varying points, may have been aware of a series of NCFE's problematic business practices, including "using reserve funds to buy receivables" and management's attempt to manipulate (downwards) the receivables default rate.

Credit Suisse settled the NCFE noteholder claims in May, 2013 for $400 million.

Reached on his mobile phone, Fasanella sole comment before hanging up was, "I don't speak to reporters."

*  *  *

Diamond has a good thing going with Quorum: they get access to ample credit, especially for those applicants with weaker credit profiles. From a Diamond investor's perspective, it would be a shame if anything changed.

This week Quorum posted its first quarter call report and it's safe to say that change is in the offing after it disclosed $6.8 million in bad loan charges that led to a loss of $2.99 million.

The post credit-crisis strategy of focusing on esoteric lending opportunities like VOI (as well as taxi medallions, hearing aids and fertility treatments) to generate revenues and membership has run into both a broader slowdown in the consumer credit cycle as well as more specific problems, like an increasingly worried regulator.

Since 2014, Quorum's regulators at the National Credit Union Association have been scrutinizing its VOI loan portfolio. They are weighing (among other measures) ordering the credit union to sell up to $110.7 million worth of VOI loans that it's holding in a held-for-sale account.

According to Quorum's 2015 annual report, another $47.9 million of VOI loans are held in the consumer loan receivable account — all told, the credit union has a total of $158.6 million worth of these loans, making up 22.6% of the $701 million loan portfolio.

Almost 14% of the VOI loans were in arrears last year–in 2014 it was 12.6% –and Quorum says it hasn't reserved for prospective losses given its "credit enhancement feature," or the discount between the loan's full value and the price it pays for the loan, which last year was between 80%-90% of full value.

If the NCUA ordered Quorum to sell the VOIA held-for-sale block it's difficult to imagine the loans fetching a price the credit union would be happy about because there is no secondary market for this type of asset, so any bid would likely be below the value that they are carried on Quroum's books, diminishing equity.

Keith Leggett, a retired American Bankers Association senior economist, has written about Quorum and VOI loans repeatedly on his weblog, Credit Union Watch. Asked about the likelihood of the NCUA forcing the credit union to sell the loans, he said, "I would have thought it was a low probability outcome, but [the NCUA] is clearly reconsidering their approach to the loans based on the annual report's language."

He did add that "If [Quorum] was forced to do so it wouldn't be like a margin call from a broker; they would almost certainly be given a good amount of time to work out a solution."

(A brief disclosure: Leggett worked for the Washington-based ABA, the banking industry's primary trade and lobbying group, whose membership is a daily competitor of credit unions for consumer deposits. Moreover, its leadership has recently sought to end tax-exemption for credit unions. Going back decades, the ABA and credit unions have disputed a host of financial regulations.)

One headache that Quorum won't be able to navigate around is the $76 million taxi medallion loan portfolio. Though not explicitly referenced in the first quarter call report, the loan charge-offs are almost certainly coming from here.

As the popularity of cab alternatives Uber and Lyft continues to skyrocket, taxi industry revenues have plummeted. Correspondingly, medallion prices have currently fallen to around $500,000 from under $1.1 million in 2013.

Morgan Stanley's equity analysts, in a March 31 research report on Signature Bank, estimated that a baseline default scenario for taxi medallion loan portfolios is 25%, with a worst-case scenario of 50% (playing out over four years.)

What's this mean for Diamond? Quorum's management may want to continue lending heavily to the VOI industry, but equity write-downs from medallion losses might force regulators to curtail activity.

A credit union is considered "Well Capitalized" if the ratio of its net worth to total assets is 7% or better; Quorum's ratio is 7.3% this quarter. If the Morgan Stanley baseline scenario comes to pass, and total assets don't grow appreciably, that ratio would drop to 5.1% making Quorum "Under Capitalized."

*  *  *

Over the course of five weeks worth of reporting, numerous phone and email attempts were made to contact Quorum Federal Credit Union's management, especially President and CEO Bruno Sementilli, and included his home and mobile phones. Similarly, attempts to get a comment from VOFCO's chief investment officer Greg Cooper failed.

Diamond, asked about its relationship with Quorum, provided these answers.

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Not only is Donald Trump likely to gather the most votes of any GOP Presidential nominee ever, having swept the East Coast and crushed the anti-Trump alliance between Kasich and Cruz even before it made the news cycle; but now, as Reuters reports, the GOP establishment faces an ever bigger problem. Wealthy, well-educated voters helped carry the Republican front-runner to victory this week – a demographic the famously blunt-spoken billionaire had struggled to attract in the past.

As we noted previously, with a number of states remaining including California, Trump is set to surpass current record holder George W. Bush, who received 10.8 million votes in 2000.

 

And, as Reuters reports, it's not just "angry blue collar white men"…

Trump's sweep of Pennsylvania, Maryland, Delaware, Connecticut and Rhode Island on Tuesday included wins in some of the richest and best-educated counties in the country – like Fairfield County, Connecticut, and Newport County, Rhode Island – and added to victories in his more traditional strongholds of white working-class neighborhoods.

 

Exit polls from Connecticut, Pennsylvania and Maryland showed Trump winning about half of Republican voters with college degrees, and over half of Republican voters making more than $100,000 a year.

 

“On its face, it is hard to believe he’d be improving with a demographic group that has been so averse to his style, his denigrating language,” said Randall Miller, a professor of American politics at Saint Joseph’s University in Pennsylvania.

 

“But I think people may have gotten used to Trump, he’s not as outrageous as he used to be,” he said, adding that familiarity with the businessman's brand in the Northeast may also have helped him.

 

But with Trump far ahead of his rivals, U.S. Senator Ted Cruz of Texas and Ohio Governor John Kasich, in the race for the presidential nomination, Miller said Republican voters of all stripes may become more resigned to voting for Trump.

 

"I think it is possible he replicates this."

Trump has historically done well in areas where the collapse of important local industries has put stress on working families – propelling his popularity among poorer white voters drawn to his rhetoric about inept government and failed international trade deals.

A Franklin and Marshall College voter survey released last week showed Trump's message of disaffection had sunk in across the state. Just under 40 percent of voters cited "government, politicians" as the most important problem facing Pennsylvania, with "unemployment, personal finances” ranked a distant second at 14 percent.

 

In the affluent Maryland suburbs of Montgomery and Howard counties, where more than 60 percent of whites hold college degrees, Trump claimed a smaller 40 percent share of the Republican vote. It was still enough for a first-place finish over Cruz and Kasich.

 

Fred Stubbs, 72, a retired accountant from Potomac, Maryland, said he voted for Trump on Tuesday because he believed the real estate mogul would improve the country's standing in the world.

As Trump said aftewr "the sweep" – "as far as I'm concerned, it's over"

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And just like that the “no brainer” party’s over. Remember when in January 2014 Carl Icahn laid out his extensive thesis on why being long AAPL is the best investment out there?  Or when a little over a year later, hoping for even more stock buybacks (even as he was decrying short term activism) he boosted his price target on AAPL to $240?

All that is now over.

Speaking during a CNBC interview, Carl Icahn admitted the ultimate “no brainer” is no longer a holding of his:

• ICAHN TELLS CNBC HE’S EXITED APPLE POSITION

And so, two years after his “buy buy buy” pitch, and with AAPL stock less than half of his so-called price target but with , the billionaire has pulled the plug, after pushing up the company’s debt from $35 billion to just shy of $80 billion.

The market is not happy.

 

But don’t cry for Icahn. With a cost basis of $68, he still made hundreds of millions.

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Yes we know "Facebook crushed expectations" but…

US Macro data just suffered its worst two-week streak of weakness and disappointment in 14 months… And earnings expectations 'dead-cat-bounce' has died.

 

With The Fed leaning hawkish, The ECB having shot their wad, and The BoJ failing to surprise – what is holding stocks up here (apart from buybacks?)

Charts: Bloomberg

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The panic-buying continues in the crude complex. Oil prices are up for the 3rd day in a row, trading up to $46 for the first time since December 4th 2015. Despite continued growth in inventories and worse than expected economic growth, it appears speculative traders in black gold just can’t get enough… Of course, as we just detailed, this merely accelerates the self-defeating re-birth of shale production as cash-flow desperation trumps rationality.

June crude is back at its highest sicne Dec 4th 2015… and above its 200dma…

 

The last time June crude was here, the rest of the curve was over $4 higher… think about what that says about the real confidence in this bounce…

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Three days ago, Pioneer surprised oil market watchers when it not only said that it has already produced more oil than it had initially forecast, but that once crude returns to $50, all systems are go. This is what it said in its Q1 press release:

• producing 222 thousand barrels oil equivalent per day (MBOEPD), of which 55% was oil; production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2015, and was significantly above Pioneer’s first quarter production guidance range of 211 MBOEPD to 216 MBOEPD; oil production grew 10 thousand barrels oil per day during the quarter, or 9%, compared to the fourth quarter;
• expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%; the higher forecasted growth rate reflects improving Spraberry/Wolfcamp well productivity;
• expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive

Then yesterday it was another US shale giant to admit that $45 oil is good enough, and that it is “increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d” adding that “with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017.”

It was not immediately clear if Pioneer and Whiting were restoring production due to recently implemented hedges. What is clear is that as the EIA reports, drilling costs have tumbled in recent years, which suggests that breakeven drilling prices have followed suit.

From the EIA:

EIA report shows decline in cost of U.S. oil and gas wells since 2012

 

The profitability of oil and natural gas development activity depends on both the prices realized by producers and the cost and productivity of newly developed wells. Overall trends in well development costs are generally less transparent than price and productivity trends, which are readily observable in the markets or through analyses of well productivity trends such as EIA’s monthly Drilling Productivity Report.

 

In an effort to increase understanding of the costs of upstream drilling and production activity, EIA commissioned IHS Global Inc. (IHS) to study these costs on a per-well basis in the Eagle Ford, Bakken, Marcellus, and Permian regions, analyzing the Permian’s Midland and Delaware basins separately. Upstream costs in 2015 were 25% to 30% below their 2012 levels, when per-well costs were at their highest point over the past decade. Changes in technology have affected drilling efficiency and completion, supporting higher productivity per well and lowering costs, while shifts towards deeper and longer lateral wells with more complex completions have tended to increase costs.

 

 

Costs per well generally increased from 2006 to 2012, demonstrating the effect of rapid growth in drilling activity. Since 2012, costs per well have decreased because of reduced overall drilling activity and improved drilling efficiency and tools. Changes in costs and well parameters, such as the need to drill deeper or longer lateral wells, have affected the onshore oil plays differently in 2015, with recent per-well costs ranging from 7% to 22% below 2014 levels.

 

 

Differences in geology, well depth, and water disposal options can affect costs for each onshore oil play area. The adoption of best practices and the improvement of well designs have reduced drilling and completion times, decrease total well costs, and increase well performance. Greater standardization of these drilling and completion practices and designs across the industry should continue to lower costs. The drilling cost per foot, based on total depth, and the completion cost per foot, based on lateral length, are both projected to maintain these lower cost trends through 2018. Sustained lower upstream costs may affect near-term oil and natural gas markets, and ultimately, the prices of these fuels.

But going back to Pioneer’s $50 oil price bogey, that is also what Bloomberg dubs oil’s magic number becomes $50 a Barrel for Promise of Recovery. It notes that BP, Nabors and explorer Pioneer Natural Resources “all said in the past 24 hours that prices above $50 will encourage more drilling or provide the needed boost to cash flow.”

BP said on its call earlier this week that next year it will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel, down from a previous estimate of $60, the London-based explorer said. Pioneer expects to add as many as 10 horizontal drilling rigs when oil reaches $50 and the outlook for supply and demand of crude is positive, the company said Monday in its earnings statement.

Others agree that the closer we get to $50 oil, the more concerned Saudi Arabia will be that its plan to put US shale out of business is failing: at an average price of $53 per barrel of oil means the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to Wood Mackenzie. Nabors, which owns the world’s largest fleet of onshore drilling rigs, said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise “comfortably” above $50.

Incidentally, what is happening right now is a rerun of last summer when oil also tumbled then rebounded into the summer only to see shale production spike at whic point oil tumbled again.

As Bloomberg writes, “even talk of ramping up again is bringing a stinging reminder of last year’s failed attempt to restart activity too quickly after oil prices rose. We got out ahead of ourselves — bit of a head fake there,” Tony Petrello, chief executive at Nabors, told analysts and investors Tuesday on a conference call. “We’re going to be a little more guarded here.”

Judging by the actions of Pioneer and Whiting that is hardly the case and as WTI rises above $46, the market is once again ahead of itself.  Bloomberg concludes:

Exactly when oil prices hit that level and how long they need to stay there is a question no one can say for sure. Nabors said the activity could start up in the middle of the third quarter or into the final three months of this year. Continental estimated that supply and demand could be nearing balance later this year and be “absolutely in balance” or in need of more oil next year.

Actually we know “when” – it is right about now, as ConocoPhillips admitted just hours ago:

• CONOCOPHILLIPS CEO SAYS WITH OIL PRICES AT $45 PER BARREL, COULD KEEP PRODUCTION FLAT WITH CASH FLOW FROM OPERATIONS

And with every incremental dollar, the supply will only increase.

via http://ift.tt/1pKLo8m Tyler Durden

And just like that, they are tied. In the latest poll from Rasmussen Reports, a national telephone survey of Likely U.S. Voters finds Trump and Clinton tied at 38% each.

But 16% say they would vote for some other candidate if the presidential election comes down to those two, while six percent (6%) would stay home. Only two percent (2%) are undecided given those options.

This is a very different picture from the latest polls – pre-East Coast sweep…

Rasmussen adds Trump is more toxic within his own party than Clinton is in hers.

If Trump is the Republican nominee, 16% of GOP voters say they would choose a third-party candidate, while five percent (5%) would stay home. Sixty-six percent (66%) would vote for Trump, but 10% would vote for Clinton instead.

 

If Clinton is the Democratic nominee, 11% of Democrats would vote third-party, while three percent (3%) would stay home. Seventy-five percent (75%) would support the nominee, but 11% say they would vote for Trump.

 

Among voters not affiliated with either major party, nearly one-third say they would opt out: 21% would choose a candidate other than Trump or Clinton, and 10% would stay home. Trump leads Clinton 38% to 27% among unaffiliated voters.

Rasmussen concludes that nearly one-in-four voters say they will stay home or vote third party if Hillary Clinton and Donald Trump are the major party presidential candidates.

Despite speculation that Trump may have a problem with women voters, women and men are equally likely to say they would stay home or vote third party in the event of a Clinton-Trump race. Men prefer Trump by six points, while women give Clinton the edge by a similar margin.

Those under 40 are nearly twice as likely as older voters to say they would vote for some other candidate or stay home if Clinton and Trump are the major party nominees. Clinton leads among younger voters but loses to Trump among those 40 and over.

While Clinton has sizable leads over Trump among black and other minority voters, these voters are also more likely than whites to say they will stay home or vote for someone else. Trump leads among white voters.

via http://ift.tt/1SNfti7 Tyler Durden