iftttwall

One of my simple pleasures in life is reading the Daily Post, which is Palo Alto’s own little daily newspaper. It’s a morning tradition for me to walk the dogs, grab the (free) paper from a newstand, and read it during my pre-dawn breakfast.

On yesterday’s paper, this photo and caption on the front page caught my eye:

As I’ve said in posts before, it baffles me that criminals still pull stuff like this, since in our highly-surveyed society, there is going to be a high-quality color photo of you for all to see, whether you rob a bank or steal packages off someone’s porch.

Anyway, sure enough, here is this item from the paper the very next day:

So apparently this criminal genius stole cash from a bank and, using the spanking new $100 bills, went on a little shopping spree. And for those of you not as well-acquainted with downtown Palo Alto as I am, allow me to illustrate the vast distance separating (1) the bank he just robbed and (2) the shoe store at which he made the aforementioned purchase.

Yep. It’s one whole block away.

So my message to the petty thieves out there who happen to read my little financial blog: just don’t bother. Or, better yet, how about make an inquiries at any of the dozens upon dozens of businesses downtown with signs that are just BEGGING for help in their kitchens, stockrooms, or delivery vehicles? There is a TON of work available out there, and being a complete dumbshit like the fellow above, and being thrown in jail for a few years, is just fuckin’ retarded.

via http://ift.tt/2rhx6Br Tim Knight from Slope of Hope

In the end, the OPEC Vienna meeting – which technically won’t conclude until tomorrow – was anticlimatic, with the recommendation by Joint OPEC-Non-OPEC Ministerial Monitoring Committee in line with what was “trial ballooned”, and leaked in advance:

The JMMC considered several scenarios presented by the JTC regarding the extension of the Declaration of Cooperation and decided to recommend that the production adjustments of the participating countries be extended for nine months commencing 1 July 2017. In this regard, the JMMC should continue monitoring conformity levels as well as market conditions and immediate prospects, and recommend further adjustment actions, if deemed necessary.

As such, OPEC and non-member producers are likely to “clinch” a deal on Wednesday extending output cuts by nine months in hopes of clearing the huge global stock overhang and prop up the price of crude.

In advance of the formal recommendation, there was a lot of noise as OPEC summits tends to create, and non-stop headlines from the newswires.

Saudi ally Kuwait signaled on Wednesday OPEC could discuss deepening the cuts, in what would come as a positive surprise for market bulls, but hopes quickly faded after a key committee recommended keeping the curbs unchanged. Two OPEC sources told Reuters the ministerial committee comprising OPEC members Algeria, Kuwait, Venezuela, current OPEC president Saudi Arabia and non-OPEC producers Russia and Oman recommended keeping the cuts “at the same level.”

Further, according to Reuters, Saudi Energy Minister Khalid al-Falih gave the thumbs up when asked whether the committee had agreed on a nine-month extension.

Most other OPEC ministers including Iraq’s had already voiced support for extending cuts by none months. One potential last minute wildcard is Iranian Oil Minister Bijan Zanganeh, who clashed with Saudi Arabia in many previous OPEC meetings, and has so far kept a low profile, saying extensions of six or nine months were possible. Zanganeh is due in Vienna later on Wednesday. As a reminder, Iran has already received an exemption slightly to raise output, which has been curtailed by years of Western sanctions. Iran’s production has been stagnant in recent months, suggesting limited upside potential at least in the short term.

“Before the end of the year, prices may go above $55 a barrel,” Algerian Energy Minister Noureddine Boutarfa told Reuters before the committee meeting, saying an extension by nine months should help clear the glut by the year-end. Of course, they may also plunge to $45 or lower, where they were as recently as two weeks ago following the violent liquidation of all of Pierre Andurand’s long oil positions at steep losses.

Justifying the extension, Saudi Arabia and Russia said that prolonging output curbs by nine months rather than the initially planned six months would help speed up market rebalancing and prevent crude prices from sliding back below $50 per barrel, even though as we showed last week, the math behind a 9 month extension still does not work out.

Despite the seeming consensus, a gray cloud lingered throughout the Vienna meeting, with one main question unanswered: is OPEC still the “marginal price setter”, or has OPEC lost control of the market and the “war with shale”, as the following recent chart from Goldman suggests:

Some quickly came to the cartel’s defense: “OPEC has already achieved a lot. They stopped the oil market surplus from building even before they started cutting,” said Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts.

Others, however, such as Erik Norland, senior economist at CME Group unloaded on OPEC, telling Bloomberg in an interview that “OPEC is in a terrible bind, they’ve lost control of the market, they’ve lost control of prices and are trying to figure out the least bad option.”

His complaints should be familiar: the increase in non-OPEC production, particularly in U.S., has cost the group market share while deeper output cuts would worsen that situation.  Norland sees OPEC extension of cuts priced in, even as U.S. production likely to increase further, with significant downside risk:

“It wouldn’t surprise me to see oil prices re-testing $40 or $35 a barrel.”

He also predicts that OPEC is more likely to cheat on cuts in 2H, despite strong compliance so far, citing a “natural tendency” of OPEC members, especially Iraq to fib. He also predicted that barring any major supply disruptions, he sees lower prices, though sees risk from “political disturbances” in producing nations. 

“Calling it fundamentally bearish but geopolitically bullish is probably the right combination.”

* * *

Finally, while the probability is small, there is a modest chance of surprise in tomorrow’s final statement and according to Reuters, a substantial additional cut was unlikely, one OPEC delegate said, “unless Saudi Arabia initiates it with the biggest contribution and is supported by other Gulf members“. However, this is where our “math”, and Norland’s skeptical assessment come into play: “Production cuts cause higher prices which will incentivize more production for the U.S. shale oil and reduce the impact of the production cuts. So it’s a bit cyclical,” said Sushant Gupta, research director for consultancy Wood Mackenzie.

Judging by the commentary from OPEC members, a surprise cut is unlikely. Algeria’s Boutarfa said he believed stocks remained stubbornly large in the first half of 2017 because of high exports from the Middle East to the United States. “Thankfully, things are improving and we started seeing a draw in inventories in the United States,” Boutarfa said, adding he believed that inventories should decline to their five-year average by the end of 2017.

There is one problem: it’s not the US where the marginal demand is currently set, but China, and as we reported last night, Chinese demand may be about to fall off a cliff if early indications that China’s Strategic Petroleum Reserve is approaching capacity are confirmed. Should that be the case, some 1.2 million in oil demand is about to be eliminated overnight, forcing OPEC to quickly sit down again and hammer another, far deeper production cut. For now, keep an eye on the price of crude – should the recent jerk higher start to fade as the “news is sold”, OPEC will be forced right back to the drawing board on very short notice.

via http://ift.tt/2qgkbf0 Tyler Durden

Authored by Charles Hugh Smith via OfTwoMinds blog,

Can we finally admit that eight years of following the Keynesian coloring-book have not just failed, but failed spectacularly?

What do we call a status quo in which "emergency measures" have become permanent props? A failure. The "emergency" responses to the Global Financial Meltdown of 2008-09 are, eight years on, permanent fixtures. Everyone knows what would happen if the deficit spending, money-printing, zero interest rates, shadow banking, asset purchases by central banks and all the rest of the Keynesian Cult's program stopped: the status quo falls apart.

Keynesianism Vs The Real World

Let’s start by reviewing the core contexts of the economy.

1. The dominant socio-economic structures since around 1500 AD are profit-maximizing capital (“the market”) and nation-states (“the government”).

2. The dominant economic theory for the past 80 years is Keynesianism, i.e. the notion that the state and central bank must aggressively manage private-sector consumption (demand) and lending via centrally planned and funded fiscal and monetary stimulus during downturns (recessions/depressions).

Simply put, the conventional view holds that there are two (and only two) solutions for whatever ails the economy: the market (profit-maximizing capital) or the government (nation-states and their central banks). Proponents of each blame all economic and social ills on the other one.

In the real world, the vast majority of Earth’s inhabitants operate in economies with both market and state-controlled dynamics in varying degrees.

The Keynesian world-view is doggedly simplistic.  The economy is based on aggregate demand for more goods and services.  People want more stuff and services, and as long as they have the means to buy more stuff and services, they will avidly do so (this urge is known as animal spirits).

The greatest single invention of all time in the Keynesian universe is credit, because credit enables people to borrow from their future earnings to consume more in the present. Credit thus expands aggregate demand for more goods and services, which is the whole purpose of existence in this world-view: buy more stuff.

But credit, aggregate demand for more stuff and animal spirits make for a volatile cocktail.  The euphoria of those making scads of profit lending money to those euphorically buying more stuff with credit leads to standards of financial prudence being loosened.  In effect, lenders and borrowers start seeing opportunities for profit and more consumption through the distorted lens of vodka goggles.

Lenders reckon that even marginal borrowers will earn more in the future and therefore are good credit risks, and borrowers reckon they’ll make more in the future (i.e. the house they just bought to flip will greatly increase their wealth), and so borrowing enormous sums is really an excellent idea—why not make more money/enjoy life more now?

But the real world isn’t actually changed by vodka goggles, and so marginal borrowers default on the loans they should never have been issued, and lenders start losing scads of money as the value of the collateral supporting the defaulted loans (used cars, swampland, McMansions, etc.) falls.

Oh dear! The hangover of credit expansion is brutal, as lenders go bankrupt, wiping out their owners, and borrowers go bankrupt as they are unable to make their payments or sell the collateral to pay off the loan.

Just as credit expansion feeds on itself—everybody’s making a fortune buying and flipping houses, let’s go buy a house or two on credit—the hangover is also self-reinforcing: the value of collateral falling pushes more marginal borrowers into insolvency, and the lenders who made the loans are pushed into insolvency as defaults increase and collateral melts like ice in Death Valley.

In the Keynesian universe, this self-reinforcing contraction of imprudent credit and widespread losses of speculative wealth are Bad Things. Very Bad Things.  Important, Powerful People tend to own issuers of credit (banks), and losses are not something they signed up for.

If all the Little People stop borrowing more money, the Powerful Owners of the credit-issuing machines (banks) can no longer reap enormous profits from issuing more credit, and that is a Very Bad Thing.

As a nasty side-effect of the credit hangover, businesses that depended on people borrowing more money to buy more stuff also shrink, and this contraction is also self-reinforcing: as sales decline, businesses must cut costs to stay solvent, which means laying off employees, abandoning under-utilized offices, closing factories, etc.

The euphoria of credit expansion turns to painful contraction.  Nobody’s happy in the hangover phase, and people naturally cry out, Somebody do something to stop the pain!

The Keynesian answer is simple: the government should borrow and spend lots of money to replace all the money that the private sector is no longer borrowing and spending, and the central bank should lower interest rates and create a lot of new money that private banks can borrow cheaply to loan out to private-sector businesses and consumers.

In the simplistic Keynesian Universe, the credit contraction is like a temporary drought: all the government and central bank have to do to fix the drought is release a flood of new money onto the parched landscape of the credit-starved private sector, and aggregate demand and new loans will blossom like spring flowers.

Horray for central states and banks! Given the power to borrow (or create out of thin air) as much money as they need to flood the private sector with fresh money and credit, the drought ends, animal spirits are revived, people get to buy more stuff by promising to give their future earnings to banks and Powerful Owners of banks are once again earning great gobs of cash from lending to the Little People (i.e. borrowers in danger of becoming debt-serfs, whose earnings go largely to service their debts).

In the crayon-coloring book of Keynesian ideology, this is The Way the Universe Works. The problem is always a temporary drought of aggregate demand caused by a temporary drought of private-sector credit, and the solution is always a state-central-bank issued flood of money and credit: the government borrows and spends more money to replace declining private spending, and central banks make it cheaper and easier for private banks to issue new loans to enterprises and Little People.

That this coloring-book ideology no longer describes the problem or solution is incomprehensible to the Keynesians.  That neither “the market” nor “the government” can solve the current set of problems is equally incomprehensible—not just to Keynesians, but to everyone who unthinkingly accepted that the market and/or the state can always fix whatever problems arise.

Oops! The Flood of Money and Credit Didn’t Fix the Economy

The post-credit/asset bubble crashes in 2000 and 2008 and the state/central-bank responses–fiscal and monetary stimulus, a.k.a. flood the land with borrowed money—seemed to confirm the Keynesian world-view: marginal borrowers, lenders and collateral all went south and the stimulus restored animal spirits, which promptly inflated a new credit/asset bubble.

But this time around, the drought never ended, no matter how much money was poured into the economy, and the earnings of borrowers stagnated or declined. (Recall that debt is borrowed from future earnings; if earnings decline, it becomes much more difficult to service existing debt, much less borrow more.)

Federal debt has more than doubled just since 2009 (and tripled since 2001) as the government flooded the land with fiscal stimulus:

Central banks have flooded the global economy with trillions of dollars, euros, yen and yuan, and continue to do so to the tune of $200 billion per month:

Central banks have dumped over $1 trillion in new monetary stimulus in the first four months of 2017—eight years after the “emergency” stimulus began:

Meanwhile, wages are stagnant or declining for the vast majority of wage-earners—even the highly educated:

Household income has fallen across the board:

Stagnating incomes is not a new issue for the bottom 90%; it’s a structural reality going back four decades:

Clearly, fiscal and monetary stimulus policies that were supposed to be temporary are now permanent.  That isn’t what was supposed to happen.

Earnings were supposed to rise once private-sector credit and consumption returned to expansion.  As we see here, bank credit and consumer credit have surged higher, but the incomes of the bottom 90% have gone nowhere.

Meanwhile, total debt—government, corporate and household—has rocketed higher, more than doubling from 280% of GDP in 2000 to 584% of GDP in 2016:

As if these weren’t bad enough, wealth and income inequality have soared during the era of permanent fiscal-monetary stimulus:

In sum: nothing has worked as the Keynesians expected.  Instead, state/central bank measures that were supposed to be temporary are now permanent, and the expansion of private-sector debt has failed to “trickle down” to earnings.

The Keynesian solution—borrowing from future earnings to “bring consumption forward”—has expanded consumption at the cost of enormous increases in debt throughout the economy, which has exacerbated income-wealth inequality and declining real incomes.

Can we finally admit that eight years of following the Keynesian coloring-book plan have not just failed, but failed spectacularly, and not just failed spectacularly, but made the economy even more vulnerable and fragile, as more and more future income must be devoted to service the skyrocketing debts?

Isn’t it obvious that there are deeply structural problems in the economy that inflating yet another credit/asset bubble won’t fix?

Clearly, the real-world economy does not function like the simplistic Keynesian coloring-book model.

What Comes Next: Contraction

Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

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

Via The Daily Bell

I like mom and pop family owned restaurants, and local craft breweries, two businesses that are currently doing great in America.

Giant corporations, on the other hand, are legally bound to the government, which causes most of the corruption in the corporate and government world. They end up taking advantage of people and bludgeoning their competitors using the government.

The United States of America is a giant corporation that is entering its dinosaur phase. Do you remember what happened to the dinosaurs? Their extinction paved the way for mammals to be the top species on earth. And in the same way, the collapse of the American financial system will pave the way for better smaller governments, and governance.

The collapse does not have to be apocalyptic and full of death and destruction. If people start taking action now, they can arrange their local and regional governments, as well as their own independent finances, as a cushion. People are already poised to reject monopolistic corporations (the USA being the largest of these), and currency should reflect these values.

Personally, I am not a big fan of how government operates, which is why I promote governance instead. The difference is that government is monopolizing power by force, while governance is gaining the consent of those governed in a particular group or land area. In currency, many organizations are experimenting with the governance of financial systems.

But I also realize that moving quickly to an entirely new system of governance could cause some major upsets. People might not be ready to adjust that quickly, and the adjust or die philosophy does seem a bit cold for 2017.

That is why adjustment should be gradual while allowing the people that are ready for quicker adjustment the freedom to go their own way. In fact the more people we have who are ready to go out and forge an example of how an area or group of people or internet community can be governed effectively, the more options we will have for solving many societal problems.

But there is one last major ace in the hole that the United States government is holding. That is control over money.

States Governments Can Help

Before anything goes down on the federal level, we need to make sure the states have the ability to cushion a collapse. Money is the main thing that would be an issue if the federal government ceased to exist, especially since a financial collapse is the most imminent threat to America.

Just this week Arizona passed a law officially recognizing gold and silver as legal tender by eliminating the capital gains tax on precious metals. Ron Paul helped campaign to pass the law and said:

By allowing the people of Arizona to use an alternative to Federal Reserve-created fiat currency, HB 2014 will help the people of Arizona survive the next Federal Reserve-created recessions. Passage of this bill will also help make Arizona more attractive to the growing number of people seeking alternatives to fiat money in order to protect themselves, their families, and their business from the effects of Federal Reserve policy. Thus, this bill will help attract new investments and jobs to Arizona.

This is actually better than a state government asserting more control over currency. Instead of trying to push their own fiat currency, or trying to issue their own silver or gold backed currency (which would cause friction with the Fed and Feds), they have simply freed up the market to give more options to residents.

And you don’t need to necessarily carry around a sack of gold to pay your debts. Banks are now theoretically free to hold your gold or silver safely, and issue their own representation of those coins, say on a debit card, which can then be spent, and redeemed in real gold or silver at the bank.

This type of solution is an opt-out style where it requires no action to end the Fed, or friction with the federal authorities. Arizona residents can now protect themselves from financial ruin by holding and using real currency, not fiat dollars.

Berkshares

Shift your attention to New England for another small example of a region setting up a backup plan for economic exchange.

In the Berkshires, a mountainous county in Western Massachusetts, locals have been using what they call Berkshares for over a decade.

The currency is accepted only regionally and is meant to keep wealth in the area. They encourage people to use the currency by making the exchange rate favorable: one Berkshare costs 95 cents effectively giving anyone who uses them a 5% discount on anything they buy.

For a community like the Berkshires, this makes sense. There are plenty of local artisans, farmers markets, and small businesses that foster a sense of cohesion. There is only about $140,000 worth of Berkshares circulating, but the proof of concept is interesting.

It should be noted that Berkshares are still a fiat currency, with the only value being their wide acceptance by businesses of the region, and the fact that local banks convert them back into U.S. dollars if you so choose. I would be interested to see the same concept applied but backed by silver.

Other communities are different and will need different solutions. That is the point, that one size fits all approaches–centralizing government–does not do what is best for people.

Cryptocurrencies

For online commerce and communities, there is much buzz surrounding cryptocurrencies, and enormous potential. However, the actual use of cryptocurrencies as currencies is still relatively minimal. Many people are treating them as investments right now, hoping to grow their worth, and sometimes even trading them back into fiat dollars in order to spend them.

But this is just the very beginning phase where people work out what makes sense and what does not in terms of the underlying governance and technology of the cryptocurrencies. If a particular coin’s value levels off and it becomes widely accepted, this will become a very freeing mode of exchange.

And of course, all these ideas on currency can be melded to form more stable mediums of exchange. There are already gold backed cryptocurrencies coming out; one company is called DinarDirham. A co-founder said:

If you have an asset that follows real-time gold price, which can be redeemed or claimed for physical gold and if you combine the benefits of digital currencies with benefits of gold as a store of value, in a transparent way, you get a match made in heaven. This is a cheap way to store, trade and use gold globally. Our unique and innovative trading technology based on blockchain makes this possible.

This is not to endorse the actual company DinarDirham; four people involved were arrested by the Brunei Commercial Crime Division. It is unclear if this was in response to actual fraud or simply backlash from the government for threatening the status quo.

But other options for gold and silver backed cryptos are emerging, including one called ZenGold with the same idea:

ZenGold aims to create crypto assets that are backed by physical gold in order to enable investors to instantly buy and transfer even a very small fraction of gold anywhere in the world while having pertinent asset information securely stored onto an unalterable Metaverse Blockchain.

As with anything else, especially new technologies, cryptocurrencies should be thoroughly vetted to make sure they are legitimate, and even then there is no guarantee that it is a safe store of value. But with the battle being taken to centralized banks, including the Federal Reserve, on so many fronts, it is a time to be optimistic about the impending collapse of the old world dinosaurs controlling our lives.

Experimentation Phase of Governance

These are all examples of communities experimenting with governance that will provide options for those of us who seek economic freedom, and freedom from centralized banks, and the oppression that comes with them.

Diversify your wealth, and encourage local and state governments to distance themselves from centralized government.

People need to be able to say, “No thank you, I will take my business elsewhere.” That is the only way to make sure that a sinking ship doesn’t suck everyone down with it. Having control over your financial health and freedom, even in the event of emergencies, is an invaluable lifeboat.

via http://ift.tt/2qkc9AZ TDB

In the aftermath of prior media reports that in the past Deutsche Bank provided hundreds of millions in loans to Trump, today Democratic lawmakers – looking for a smoking gun- asked Germany’s largest bank to hand over its findings on “two politically charged matters”, demand details whether Trump accounts have Russia ties, and if Deutsche Bank loans to Trump were backed by Russia.

From the letter:

We write seeking information relating to two internal reviews reportedly conducted by Deutsche Bank (“Bank”): one regarding its 2011 Russian mirror trading scandal and the other regarding its review of the personal accounts of President Donald Trump and his family members held at the Bank. What is troubling is that the Bank to our knowledge has thus far refused to disclose or publicly comment on the results of either of its internal reviews. As a result, there is no transparency regarding who participated in, or benefited from, the Russian mirror trading scheme that allowed $10 billion to flow out of Russia.  Likewise, Congress remains in the dark on whether loans Deutsche Bank made to President Trump were guaranteed by the Russian Government, or were in any way connected to Russia. It is critical that you provide thisCommittee with the information necessary to assess the scope, findings and conclusions of your internal reviews.

Along with the internal review of the Russian stock-trading scheme, Democrats are seeking any internal correspondence and communications related to loans extended to Trump and his immediate family members. The bank has made more than $300 million in loans to Trump, for the Doral golf resort in Florida, a Washington, D.C., hotel and a Chicago tower.

“Deutsche Bank’s pattern of involvement in money laundering schemes with primarily Russian participation, its unconventional relationship with the President, and its repeated violations of U.S. banking laws over the past several years, all raise serious questions about whether the Bank’s reported reviews of the mirror trading scheme and Trump’s financial ties to Russia were sufficiently robust,” the lawmakers wrote in the letter.

The letter, which asks Deutsche Bank to respond by June 2, also asks whether the bank’s loans to Trump, made years before the New York developer ran for president, “were guaranteed by the Russian government, or were in any way connected to Russia.”

It was not clear just how Russia would  “guarantee” a loan that is by definition secured (as a recourse loan at that) by an asset, although the confusion is understandable, as the initiative is being spreadheaded by Maxine Waters, who together with four other Democrats on the House Financial Services Committee, has asked the Frankfurt-based lender for the various documents.

Other details: the lawmakers asked whether the bank’s loans to Trump, made years before the New York developer ran for president, “were guaranteed by the Russian government, or were in any way connected to Russia.” A copy of the letter sent to the bank was reviewed by Bloomberg News.

That said, it is unlikely that either Trump or DB will lose much sleep over this initial disclosure request: as the minority party, Democrats don’t have the power to force Deutsche Bank to make any disclosures.

Furthermore, it’s not clear whether Representative Jeb Hensarling of Texas, the chairman of the committee, shares his colleagues’ interest in the matter. If past is prologue, the answer is most likely note: Bloomberg reminds us that the same group of Democrats demanded in March that Hensarling hold a hearing to explore the bank’s conduct in the Russian mirror-trading scandal, as part of an effort to ensure that the Justice Department investigation wasn’t influenced by the lender’s relationship with Trump. No hearing has been scheduled.

That said, Democrats may have a good reason to peek inside DB’s book, citing the bank’s previous compliance failures, “which have resulted in more than $6 billion in fines and penalties to U.S. regulators since 2015.”  Previously, Bloomberg has reported that the bank’s loans to Trump were structured as “recourse” loans, which, in the case of default, would allow the bank to go after Trump’s own assets.

The full letter is below (link):

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WTI/RBOB prices were relatively unchanged from last night's API inventory print (despite some volatility from OEPC headlines) ahead of the DOE print, but that did not last long as Crude saw a much bigger than expected draw (-4.43mm vs -2mm exp) and gasoline a considerably smaller draw than API (-787k vs -3.18mm API) and the same with distillates. Lower 48 crude production rose for the 16th straight week and seemed to take the shine off the inventory data – sending WTI/RBOB prices lower.

 

API

• Crude -1.5mm (-2mm exp)
• Cushing -210k
• Gasoline -3.15mm (-1.08mm exp)
• Distillates -1.85mm

DOE

• Crude -4.43mm (-2mm exp)
• Cushing -741k
• Gasoline -787k (-1.08mm exp)
• Distillates -485k (-493k exp)

Crude's 7th weekly draw in row was much bigger than expected, but Gasoline only saw amodest draw…

 

Bloomberg's Mitchell Martin notes that gasoline stockpiles are more than 9% above the five-year average. Summer driving season will likely take on greater significance this year, but gasoline consumption may rise less than 1% from last year's level. Bloated distillate inventories are being relieved by exports, but stockpiles remain 15% above the five-year average, even with demand from railroads and industrial users helping to boost consumption to a five-year high in April.

Bloomberg's Laura Blewitt notes that we can thank Gulf Coast refiners for that massive crude draw. PADD 3 refinery crude runs rose to the highest on record in data going back to 1992.

This is the 16th straight week of increased crude production from The Lower 48, as output tracks the lagged surge in oil rig counts. Production rose from 8.795mm to 8.815mm last week, highest since Aug 2015

Javier Blas points out that the U.S. continues to import lots of crude from Saudi Arabia, despite the OPEC production cuts (creating a bit of mismatch between the rhetoric here in Vienna about the curbs and what refiners receive). Last week, U.S. refiners bought 1.371 million barrels a day from the kingdom, largely unchanged from the previous week (1.376 million). Shipments from Iraq fell significantly, but they were offset by a surge in Kuwaiti arrivals. All in all, Middle East crude appears to be plentiful in the U.S. Something OPEC will likely need to explain tomorrow at its official meeting.

Gasoline (big build) was higher heading into the DOE data, crude was lower as ovenight streength faded after OPEC's Vienna meetings ended with no statement today. Bloomberg's Laura Blewitt points out that summer driving season arrives this weekend. This year comes with a unique price trend: the typical 50-cent spring surge in gasoline prices hasn't happened. The reaction to the DOE data was clear – WTI up, RBOB down…BUT that did not last as both are lower now on the lack of product demand.

 

Bloomberg notes that crude is on a nice bullish streak, not huge gains but steady daily ones. In the five days through Tuesday, WTI gained 41, 28, 98, 40 and 34 cents. The flip to July delivery also helped the front-month contract, pushing it to the highest settlement since April 18. Aggregate volume hasn't been rising with the price, though. Both days this week were under 1 million trades after being over a million from May 2 to May 19 with the exception of May 12, when volume totaled 999,989.

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While the Bank of Canada did not surprise with its interest rate decision, holding rates at 0.5% as expected, the market has read between the lines of the statement and concluded that it was substantially more optimistic than expected, with clear hawkish notes as a result of the following line: “The Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging, including indicators of business investment.”

Additionally, the BOC has added a new line which now reads: “all things considered, Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent” and replacing the previous conclusion which said there was “significant uncertainty on the outlook.”

And while the BOC hedged by saying “the uncertainties outlined in the April MPR continue to cloud the global and Canadian outlooks” the market is clearly more impressed by the hawkish readthru, sending the Loonie surging after the report.

Some other observations from the report:

• On inflation: “The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.”
• On housing: “Consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions. Macroprudential and other policy measures, while contributing to more sustainable debt profiles, have yet to have a substantial cooling effect on housing markets. Meanwhile, export growth remains subdued, as anticipated in the April MPR, in the face of ongoing competitiveness challenges. The Bank’s monitoring of the economic data suggests that very strong growth in the first quarter will be followed by some moderation in the second quarter.”

End result: the USDJPY has tumbled to 5 week lows.

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Following yesterday's collapse in new home sales, NAR reports that existing home sales in April also disappointed – dropping 2.3% (and March revised lower). This drop happens as median home prices spiked 6.0% YoY to record highs as sales declines are blamed once again on a lack of supply (forget affordability?).

Highlights include:

• Existing-home sales at 5.57m, vs est. of 5.65m
• March at 5.7m; revised from 5.71m
• Existing-home sales fell 2.3% after rising 4.2% prior month
• 4.2 months supply in April vs. 3.8 in March
• Inventory rose 7.2% to 1.93m homes
• 1st-time buyers 34% of total sales; all cash 21%; investors 15%
• Distressed sales 5% of total sales

Don't be too surprised…

The median existing-home price for all housing types in April was $244,800, up 6.0 percent from April 2016 ($230,900). April's price increase marks the 62nd straight month of year-over-year gains.

However, as has traditionaly been the case, the bulk of price increases has been toward the upper end:

Total housing inventory at the end of April climbed 7.2 percent to 1.93 million existing homes available for sale, but is still 9.0 percent lower than a year ago (2.12 million) and has fallen year-over-year for 23 consecutive months. Unsold inventory continues to rise and is at a 4.2-month supply at the current sales pace.

Lawrence Yun, NAR chief economist, says every major region except for the Midwest saw a retreat in existing sales in April.

"Last month's dip in closings was somewhat expected given that there was such a strong sales increase in March at 4.2 percent, and new and existing inventory is not keeping up with the fast pace homes are coming off the market," he said.

 

"Demand is easily outstripping supply in most of the country and it's stymieing many prospective buyers from finding a home to purchase."

As a reminder, the May University of Michigan Consumer Sentiment survey showed a six-year low among those who think it’s a good time to buy a house and a 12-year high among those who say it’s a good time to sell. Disparities of this breadth tend to coincide with break points and that’s just where we’ve landed in the cycle.

The beginning of May officially marked the advent of a buyers’ market, defined simply as sellers outnumbering buyers by a wide enough margin to trigger falling prices. Yes, it’s the moment buyers have been waiting for. It is also the moment private equity investors, those who’ve crowded out natural buyers, have been dreading.

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