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Submitted by Nick Cunningham via OilPrice.com,

The rumors of a coordinated production cut between OPEC and Russia continue to grow more serious. The latest comes from the Russian energy minister Alexander Novak, who insisted that Russia will hold talks with OPEC in February on a possible agreement to reduce output.

“There are very many questions, on checking cuts, from what base to count from. In order to start working through these issues, we need general agreement, it’s too early to talk about that. That’s the subject of the meeting and discussion (in February),” Novak told reporters, according to TASS.

The headline figure: a 5 percent production cut across the board for all participants. That’s what Saudi Arabia floated last year. When asked if that was still on the table, Novak replied, “That is precisely the subject for debate.” The meeting could tentatively take place in February. It was originally proposed by Venezuela, which has pleaded for emergency measures to stabilize oil prices.

Oil prices skyrocketed on Wednesday and Thursday after the comments from Novak. During intraday trading on January 28, prices shot up by more than 8 percent. By midday, WTI and Brent fell back a bit, but were still up more than 3 percent. That is the highest level since the first week of January.

Coordination on production cuts between OPEC and Russia has always been a long shot, and probably still remains an unlikely development. The big difference this time around, though, is Russia’s change in tone. Saudi Arabia had hinted at its willingness last year to undertake a 5 percent production cut if Russia did the same, but up until now Moscow never really took the idea seriously.

On January 26, however, Russian oil executives met with Russian government officials in Moscow to discuss their predicament. Reuters reported that the meeting resulted in an openness, if not complete agreement, to begin talking with OPEC about cooperation.

"At the meeting there was discussion in particular about the oil price and what steps we should take collectively to change the situation for the better, including negotiations within the framework of OPEC as a whole, and bilaterally," Nikolai Tokarev, chief of state-owned oil pipeline company Transneft, said according to Russian media outlets.

"The main initiative is being shown by, of course, our Saudi partners. They are the main negotiators. That means that they are the ones we need to discuss this with first of all,” Tokarev added.

Russia’s oil production hit another post-Soviet record in December, climbing to 10.8 million barrels per day (mb/d).

There seems to be a newfound openness from many different oil producers to look at ways of stabilizing the market. Sub-$30 oil tends to do that. Iraq’s finance minister told Reuters on Wednesday that his country would be willing to participate in talks on production cuts.

However, don’t get too excited. Shortly after the comments made from Russia’s energy minister, some OPEC officials shot down the speculation. Four OPEC officials said that they had no knowledge of a February meeting, insisting that the next OPEC summit was still scheduled for June.

Moreover, even if Russian officials are open to discussion on cuts in output, they face serious obstacles on following through on actual reductions. Russia’s main oil fields are already facing natural decline, and many in the industry would balk at throttling back on production. Also, there are technical obstacles. Russia is largely unable to reduce output in winter months.

Perhaps more important is the fact that Russia’s oil sector is not dominated by one state-owned company like Saudi Aramco. It would be more difficult to corral an array of semi-private companies, many of which are partially owned by international oil companies like BP. Investors may be placing too much faith in the state if they think Russia can adjust production as easily as, say, Saudi Arabia.

Yet another obstacle is Iran. Iran has shown a dogged determination to return to the oil market, with pledges to ramp up output by 500,000 barrels per day in the near-term. It is hard to imagine Iran being willing to slash output just as it finally has reached its goal of ridding itself of sanctions.

To complicate matters even further is how to measure what a 5 percent production cut would look like. What is the baseline? 5 percent below what level? Production levels for OPEC members are constantly shifting, and some have even made significant gains as of late. For example, Iraq managed to increase output by 300,000 barrels per day between October and December, hitting a high of 4.3 mb/d by the end of 2015. A 5 percent cut would merely bring it back to October levels. That would be less painful than, say, a 5 percent cut in Venezuela, which saw a slight erosion of output over the same time period.

In other words, until something more concrete emerges, the speculation of a coordinated production cut between OPEC and Russia is just that: speculation.

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

As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…

 

… and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…

… only to be eviscerated by the BOJ’s negative rates announcement.

So what happened? Reuters has one amusing take, one which we doubt many macro HFs will find quite entertaining:

Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.

The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go even further negative and lead to even more pronounced losses, something European banks have discovered the hard way over the past year and a half.

There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”

In a note released this morning, Goldman itself warns that it has “concerns” about Kuroda’s act:

… we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.

 

Of interest to us was the growth and inflation forecasts in the Outlook for Economic Activity and Prices (Outlook Report) also released on January 29. As we expected, the BOJ cut the FY2016 core CPI outlook to +0.8%, from +1.4% in October, but other growth rate and price outlooks were largely unchanged. The future benefits of changing to this historical policy regime (i.e., introducing a negative interest rate) were hardly factored in by the Policy Board despite the above explanation of the policy transmission channels made by Governor Kuroda.

 

In our view, this suggests that the BOJ intended to affect the expectations of forex market participants with a bold and surprising announcement. As we mentioned above, Governor Kuroda had continuously rejected the possibility of cutting interest rates in the Diet and other public forums until only recently. Governor Kuroda may have spotted a chance to surprise at the January 29 MPM having seen a substantial decline in market expectations for an interest rate cut as a result of this. He declared that the BOJ is prepared to lower the interest rate further into negative territory if it decided this was necessary, and introduced examples of countries with large negative interest rates such as Switzerland (-0.75%) and Sweden (-1.1%). We believe this was also intended to keep expectations alive in the forex market going forward.

Translated, this means that just like China’s central bank, which in recent weeks has been panicking over how to scare currency speculators away from shorting its currency too far, and thus unleashing a surge in capital outflows (which as we wrote yesterday are estimated to have hit a near record $185 billion in January), the BOJ is likewise scrambling to prevent aggressive shorting of the JPY, and now that it has unleashed NIRP will use it as the “backstop bazooka” that can be used at any given moment when the USDJPY gets too low, spooking speculators and other hedge funds who have ironically been the biggest beneficiaries from BOJ policies.

But how did Draghi get the idea to engage in NIRP specifically as the? Reuters writes that it all started precisely a week ago: on Jan. 21, a day before flying out for the annual World Economic Forum in Davos, Kuroda told Japan’s parliament he was not considering negative interest rates. But he quietly told his staff to come up with several options in case the BOJ eased.“

Of course, our staff knew that several central banks have adopted negative interest rates, so they’ve been analyzing the step for some time,” Kuroda said at a news conference on Friday. “They raised it as one of the options, which we discussed at today’s meeting.”

 

By the time Kuroda returned from Davos, BOJ staff were ready to propose negative rates, taking a leaf from the European Central Bank’s book. “The ECB showed that combining QE and negative interest rates can work,” one BOJ official said. “It was just a question of overcoming some technical difficulties.”

Which at least superficially makes sense: one can be wrong, but if the right intentions are good – it can be excused. But the punchline that should leave everyone speechless is that it wasn’t even the right intention. Instead, it was this:

People close to Kuroda say that Davos – where he mingled with central bankers such as ECB President Mario Draghi and leading company executives – likely prompted him to pull the trigger. “Davos is really important. Many central bank governors change their perception of things there,” said one central bank policymaker who has regular interaction with Kuroda.

It was peer pressure by other central banks that forced Kuroda to act!

Actually, it’s even worse than that, because that is just half of the story. Here is the other half, again thanks to Reuters:

“When stocks are falling this much, it’s hard to justify not acting,” said one of the individuals, who has occasional contact with Kuroda.

And there you have it: stocks are dropping, so central banks must intervene, just as they have done from day one. Just as Draghi did most recently on December 4 when asked if his speech was meant to talk up markets: recall the exchange: “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi’s response was legendary: “Not really… well, of course.“

This was followed by loud laughter, and why not: Draghi had succeeded in pushing stocks higher, if only for the time being.

Just like Kuroda has done today. Alas, just like in December, the laughter won’t last. First, as MarketWatch notes, “The move does speak to a certain degree of desperation.”

Finally, there’s this disturbing bit from Goldman’s take of the BOJ’s decision:

Regarding the Introduction of Supplementary Measures for Quantitative and Qualitative Monetary Easing announced at the December 2015 MPM, we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.

And when none other than Goldman Sachs says the Bank of Japan engaged in a “last-ditch measure” it may be time to panic.

via Zero Hedge http://ift.tt/1SOf4hf Tyler Durden

Via Dana Lyons Tumblr,

The Dow Jones Industrial Average just alternated 1% moves up and down for 4 days in a row – just the 17th such stretch in the last 70 years.

The stock market’s wild ride to begin the year continues, with the latest twist reminiscent of a roller coaster. Over the past 4 days, the Dow Jones Industrial Average (DJIA) has moved at least 1%, with each day alternating up and down. Since 1900, this is the 68th such streak and just the 17th in the past 70 years (actually, today narrowly missed making it 5 days in a row which would have been just the 3rd occurrence in the last 84 years).

Now, with most studies that we undertake, we’re at least hopeful of finding some kind of an edge in guiding our investment decisions. After all, this effort is not merely an academic exercise – we are trying to make some money. However, concerning the phenomenon that is the subject of this post, we did not realistically expect to find anything too instructive in navigating the market going forward. That said, there are a few interesting tidbits contained herein.

First of all, let’s look at a chart of all of the occurrences since 1900.

 

 

As you can see, in the early part of the 20th century, it was not all that uncommon to see these 4-day streaks of alternating 1% up and down moves in the DJIA. In fact, during the epic 1929-1932 bear market, these events were so prevalent that the chart markers cover the entire DJIA line over that period. Now, as we mentioned in yesterday’s post, also on the extreme January volatility, it is common to see elevated volatility near the depths of a bear market. However, the frequency of the events in the 1930′s is still pretty eye-opening to look at.

Since 1946, however, there have been just 17 of these streaks now. In fact, the DJIA went from 1946 to 1973 without recording a single instance of these streaks. Similarly, another long drought in signals took place from 1980 to 2002. What makes these streaks so interesting is that they each skipped over the entirety of respective secular bull markets (from 1949-1966 and 1982-2000). Indeed, like yesterday’s post, these bouts of volatility tended to be products of secular bear markets, with this one being even more skewed. Consider the following:

Every one of the DJIA’s 68 streaks of 4 straight alternating 1% up and down moves occurred within the confines of a secular bear market.

Again, as we mentioned in yesterday’s post, we still consider the market to be in the post-2000 secular bear market (though, that is surely not the popular stance). Thus, we would include the 3 occurrences since 2010 in the secular bear category. Technically, the only ones that did not occur within a secular bear were 2 occurrences in April 1929. However, those did occur close enough to the onset of the crash later that year that we’ll include them with the secular bear events.

One more thing to note is that, like we mentioned before, it is more common to see elevated volatility after considerable market weakness. Although, it certainly can appear after just a short, but sharp decline, as in our present case. That said, we take a bit more interest in those streaks that occurred after relatively small declines as extreme volatility is less typical at those times. Our current streak has the DJIA just under 13% from its 52-week high. Thus, we looked at all instances occurring within 13% of the DJIA’s 52-week high.

There have been 16 streaks now meeting this condition, with half of those occurring since 1973. Again, we’re not placing a whole lot of confidence in prior events serving as a guide to our present circumstances. However, the performance of the DJIA following the 15 previous occurrences is somewhat interesting at least.

In the short-term, the DJIA showed a tendency to bounce, in particular over the following 2 weeks. 12 of the 15 occurrences saw higher prices (1 was unchanged), with the median return at +2.7%. In the longer-term, it was a different story, however. 1 year later, 10 of the 15 were lower. The 2/2/2015 event has yet to record a 1-year return, but barring just about the biggest 3-day rally ever, by next Tuesday it will be 11 out of 15 that were lower 1 year later.

One more time, we do not put a ton of stock in these results. They surely will not dictate much of our thinking in terms of executing our investment approach. However, again, perhaps the most relevant takeaway is that bad stuff tends to happen in bad markets. This includes volatility spikes. Thus, the presence of this recent 4-day roller coaster is perhaps a clue that our present market landscape is not a healthy one.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

via Zero Hedge http://ift.tt/1Uvp2lg Tyler Durden

Well that de-escalated quickly…

 

 

Just as we warned, it appears the short-covering is over…

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

Thanks to BoJ’s global “float all boats” NIRP-tard-ness, Chinese stocks avoided the headline of “worst month in 21 years” by rallying above the crucial 2,667 level (for SHCOMP). However, January’s 23% pluinge is the worst month since October 2008 and is officially the worst start to a year in the history of Chinese stocks.

 

While Shanghia Composite was ugly, the higher beta Shenzhen and ChiNext indices were a disaster…

 

Making it the worst January ever…

 

So February is a buying opportunity?

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

Submitted by Carey Wedler via TheAntiMedia.org,

As the nation rightly focuses on Flint’s ongoing water crisis, other cities in the state of Michigan face even higher levels of lead contamination. The alarming pervasiveness of potentially toxic drinking water extends across the United States.

The Detroit News reports that “Elevated blood-lead levels are seen in a higher percentage of children in parts of Grand Rapids, Jackson, Detroit, Saginaw, Muskegon, Holland and several other cities, proof that the scourge of lead has not been eradicated despite decades of public health campaigns and hundreds of millions of dollars spent to find and eliminate it.”

Of over 7,000 children tested in the Highland Park and Hamtramck areas of Detroit in 2014, 13.5 percent tested positive for lead. Among four zip codes in Grand Rapids, one in ten children had lead in their blood. In Adrian and south-central Michigan, more than 12 percent of 640 children tested had positive results.

These overall numbers are higher than Flint’s, where Dr. Mona Hanna-Attisha found lead in up to 6.3 percent of children in the highest-risk areas; while The Guardian reported Dr. Hanna-Attisha has also said the rate is as high at 15 percent in certain “hot spots,” the size of those samples was not listed. Even so, the overall figures across Michigan are lower than in previous years. In 2012, children tested across Michigan had lead in their blood at a rate of 4.5 percent, about five times less than the rate ten years prior, which reached an alarming 25 percent. In spite of the decrease in recent years, however, thousands of children in Michigan are still affected.

“In 2013, that level sank to 3.9 percent and fell again to 3.5 percent in 2014. But that is still 5,053 children under age 6 who tested positive in 2014,” the Detroit News explained. “Each had lead levels above 5 micrograms per deciliter. (Though no amount is considered safe, 5 micrograms is the threshold that experts say constitutes a ‘much higher’ level than most children.)” One Detroit zip code had a rate of 20.8 percent of children who tested positive in 2014, and 20.3 percent the following year.

The outrage in Flint is especially warranted because of the pronounced effects of lead on children. Lead, a known toxin, is associated with both physical and mental ailments, and according to one Detroit teacher, has harmed the cognitive abilities of students.

Kieya Morrison, a veteran kindergarten teacher, who now teaches preschool, described a recent student known to have elevated levels of blood in her system. The girl experienced difficulties grasping simple cognitive tasks, like differentiating between a triangle and a square. “She had cognitive problems. She had trouble processing things,” Morrison said. “She could not retain any of the information.” The University of Michigan recently found a link between lead in children and lower academic test scores.

Michigan’s lead problem “…is still an issue. It’s not going away,” said Dr. Eden Wells, chief medical executive of the Michigan Department of Health and Human Services.

In fact, lead levels are elevated across the United States. Anti-Media reported this week on Sebring, Ohio, where a similar lead crisis spawned official cover-ups. For years, discoveries of lead in public water supplies have made headlines, even if these finding were not national news. In 2008, the Los Angeles school district’s water supply was found to have levels of lead hundreds of times higher than the allowable. In 2015, officials could not guarantee they had adequately purified the water. In another example, in 2010, New York City tested 222 older homes known to have lead pipes, and found 14 percent had lead levels higher than the allowable limit.

Vox noted that in 2014, “Nine counties nationwide told the CDC that 10 percent or more of their lead poisoning tests came back positive. Four of them are in Louisiana, two in Alabama, and the rest scattered across West Virginia, Kentucky, Indiana, and Oklahoma.”

The problem extends beyond anecdotal cases or any specific region. As Huffington Post reports, millions of lead pipes — like the ones that contaminated the water in Flint — are still in service across the United States:

“There are roughly 7.3 million lead service lines in the U.S., according to an estimate by the Environmental Protection Agency, down from 10.5 million in 1988. Service lines are the pipes connecting water mains to people’s houses. They’re mostly found in the Midwest and Northeast.”

Jerry Paulson, emeritus professor of pediatrics and environmental health at George Washington University, told the Detroit News how common the problem is:

“This is a situation that has the potential to occur in however many places around the country there are lead pipes,“ he explained. “Unless and until those pipes are removed, those communities are at some degree of risk.”

Paul Haan of the Healthy Homes Coalition of West Michigan, an organization that works to eliminate household hazards to improve children’s health, warns that the levels of lead in Michigan children’s blood continue to rise, citing weekly statewide reports from pediatricians. In spite of his efforts to help reduce contaminants, he pointed out a dismal flaw in the process:

“The problem is,” he said, “we’re still using kids as lead detectors.”

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