iftttwall

Against expectations of a 3.5mm build (following a small draw last week), API reports total crude oil inventories shockingly drew down by 3.3 million barrels. Meanwhile Cushing inventories also drew down (by 175k versus expectations for a 700k build and 523k build last week), but we note that Gasoline inventoriers rose (by 750k) for the 14th week in a row.

API Breakdown:

• Crude down 3.3 million
• Cushing: up 175,000
• Gasoline up 750,000
• Distillate down 2 million

 

 

Having rallied all day on Iran over-supply news (??), WTI extended its gains, pushing above $31 to the day's highs.

 

With the Cushing draw supporting the front-month against the out curve…

 

Charts: Bloomberg

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

Submitted by Simon Black via SovereignMan.com,

This is starting to become very concerning.

The momentum to “ban cash”, and in particular high denomination notes like the 500 euro and $100 bills, is seriously picking up steam.

On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

Personally I find this comical.

I can just imagine a bunch of bureaucrats and policy wonks sitting in a room pretending to know anything about criminal activity.

It’s total nonsense. As long as there has been human civilization there has been crime. Crime pre-dates cash. And it will exist long after they attempt to ban it.

Perhaps even more hilarious is that many of these bankrupt governments have become so desperate for economic growth that they now count illegal drug activity and prostitution in their GDP calculations, both of which are typically transacted in cash.

So, ironically, by banning cash these governments will end up reducing their own GDP figures.

What’s really behind this? Why is there such a big movement to ban something that is used for felonious purposes by just a fraction of a percent of the population?

Cash, it turns out, is the Achilles’ Heel of the financial system.

Central banks around the world have kept interest rates at near-zero levels for nearly eight years now.

And despite having created massive bubbles and enabled extraordinary amounts of debt, their policies aren’t working.

Especially in Europe, the hope of stoking economic growth (and even the sickening goal of inflation) has failed.

So naturally, since what they’ve been trying hasn’t worked, their response is to continue trying the same thing… and more of it.

Interest rates across the European continent are now negative.

Japanese interest rates are now negative.

And even in the United States, the Federal Reserve has acknowledged that negative interest rates are being considered.

They have no other choice; raising rates will bankrupt the governments they support and derail any fledgling economic growth.

Look at how low interest rates are in the US– and yet 4th quarter GDP practically ground to a halt. They simply cannot afford to raise rates.

As global economic weakness continues to play out, central banks will have no other option but to take interest rates even further into negative territory.

That said, negative interest rates will be the destruction of the financial system.

Because sooner or later, if banks have to pay negative wholesale interest rates to each other and to the central bank, then eventually they’ll have to pass those negative rates on to their customers.

Many banks have already started doing this, especially on larger depositors.

We’ve seen this in Europe where some banks charge their customers negative interest to save money, and in some extraordinary circumstances, pay other customers to borrow money.

It’s total madness.

There’s a certain point, however, when interest rates become so negative that no rational person would hold money in the banking system.

Eventually people will realize that they’re better off withdrawing their money and holding physical cash.

Sure, cash doesn’t pay any interest. But it doesn’t cost any either.

If you have a $200,000 in your savings account at negative 1%, you’d have to pay the bank $2,000 each year.

Clearly it would make more sense to buy a safe and hold most of that money in cash.

Problem is, the banks don’t have the money.

For starters, there’s literally not enough cash in the entire financial system to pay out more than a fraction of all bank deposits.

More importantly, banks (especially in the US and Europe) are extremely illiquid.

They invest the vast majority of your deposit in illiquid loans or securities of dubious long-term value, whatever the latest stupid investment fad happens to be.

And many banks have been engaging in a substantial balance sheet shift, rotating bonds from what’s called “Available for Sale” to “Hold to Maturity”.

This is an accounting trick used to hide losses in their bond portfolios. But it also means they have less liquidity available to support bank customer withdrawal requests.

The natural side effect of negative interest rates is pushing people to hold money outside of the banking system.

Yet it’s clear that a surge of withdrawal requests would bring down that system.

Banks don’t want that to happen. Governments don’t want that to happen.

But since central banks have no other choice than to continue imposing negative interest rates, the only logical option is to ban cash and force consumers to hold their money within the banking system.

Make no mistake, this is absolutely a form of capital controls. And it’s coming soon to a banking system near you.

via Zero Hedge http://ift.tt/1oreV7b Tyler Durden

Congratulations to Devon Energy: moments ago it announced that with Goldman as underwriter, it became the first company to successfully access the equity offering window in a long, long time sell equity in the form of 55 million shares in stock, or just over $1 billion in proceeds assuming today’s closing price of $20.33.  The proceeds will be used “for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program.” In other words, Devon is rusing to sell equity while it still can sell equity.

Devon Energy Corporation (DVN) (“Devon” or the “Company”) announced today that it intends to commence a registered public offering of 55,000,000 shares of its common stock, subject to market conditions. The Company also expects to grant the underwriters an option to purchase up to 8,250,000 additional shares of stock at the underwriters’ election. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program.

 

Goldman, Sachs & Co. is acting as book-running manager for the offering.

And while we congratulate management for confirming that even this modest bounce in oil is to be faded (as otherwise Devon would not be selling shares when its stock price is pennies away from a decade low), we offer our condolences to anyone who bought DVN stock on the recent bounce higher. As of this moment, DVN was down 6% and will likely continue to slide lower, making future equity offering once the just issued $1 billion runs out, that much more dilutive if not impossible.

Finally, if equity investors are so desperate that they will buy equity offerings by E&P companies, that means that the war of attrition between shale and Saudi Arabia will be far longer than most expect.

via Zero Hedge http://ift.tt/1oqkH8F Tyler Durden

There really is only one clip for this…

 

This is the first 3 consecutive 1% gains for S&P since Oct 2011 – most notably S&P remains well below its 50dma…

 

The Dow is up 1000 Points from Thursday's lows…

 

This is the biggest 3-day short-squeeze since Dec 2008…

 

While yesterday was the biggest cover day since Oct 2014 (according to Morgan Stanley), today's squeeze was even bigger…with "most shorted" up almost 5% (all squeezed before EU closed)..

 

As it appears equity market-neutral funds were liqudiating en masse…

 

Before The FOMC Minutes hit the tape, today's (post-midnight) rally was the biggest since at least 2012…

 

Quite a move in the last 3 days…

 

And today soared… with Nasdaq leading the way…

 

Financials and Energy are leading the charge off the lows…

 

VIX is starting to decouple from equity exuberance…

 

Stocks stuck to crude today but decoupled from JPY carry….

 

Credit markets did not seem to be so excited…

 

Treasury Yields soared today until Europe closed, then leaked lower…

 

The Dollar Index ended the day unch but strength in commodity currencies (and JPY) weighed down early gains… the Buy USD in Europe, Sell 'em in New York regime continues…

 

USDJPY leaked after Abe headlines of no more stimulus…

 

Commodities drifted higher today with crude and copper leading PMs…

 

But crude was the crazy one today – rallying notably on complete confusion about Iran's pumping (as WTI's OPEX dominated action, pinning its between $30 and $31)…

 

Charts: Nanex and Bloomberg

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

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

A week after the New Hampshire Presidential Primaries, what lessons, if any, can we take from the dramatic victories of two outsider candidates? Former New Hampshire resident and occasional Automatic Earth contributor Nelson Lebo weighs in.

Note: Nelson writes below that “Trumpification is a clear and present danger” for writers like me “who rely on the best available data, statistics, facts”. But so far I find Trump mostly amusing, and an excellent indicator of what America has come to. And there’s little he can do to make representation of the facts in the media even worse than it is. Turns out, it didn’t take Trump to Trumpify the media. It might well be the other way around, that the Dumbification of the press paved the way for Da Donald. Here’s Nelson Lebo III:

*  *  *

Nelson Lebo: While I’ve lived in New Zealand for eight years, most of my adult life has been spent in New Hampshire, USA – the Granite State – where the official motto is “Live Free or Die.” It’s on the license plate. You don’t get more Libertarian than that.

The state’s unofficial motto is “First in the Nation,” which refers to hosting the first Presidential Primary once every four years (Iowa is not a primary!). First of the first – since 1964 – has been the tiny hamlet of Dixville Notch, whose citizens have embraced the tradition of casting their ballots just after midnight.

Of the nine eligible voters in Dixville Notch this year, five voted in the Republican Primary and four voted in the Democratic Primary. Counting the ballots took 30 seconds. John Kasich edged Donald Trump on the Republican side 3 to 2, but Bernie Sanders crushed Hillary Clinton in a 4 to 0 landslide.

In order to vote in the primary one must be a registered voter: either as a Democrat, Republican or Independent. Registered Democrats and Republicans can only vote in their party’s primary, but Independents may choose either. I lived in New Hampshire for 16 years, and over that time my primary votes got more and more ‘strategic.’ I have voted in both primaries. When I was young I always cast my ballot for ‘my candidate’ – voting with my heart – but as I got older my votes became increasingly strategic – voting with my head.

Left, right or centre, one thing we the people had in common last Tuesday was the rejection of so-called “establishment candidates.”

• Voters are fed up with money in politics.
• Voters are fed up with cronyism.
• Voters do not want a coronation of another Clinton or Bush.

What shines as a beacon of hope for democracy from what Dr. Martin Luther King Jr. called “the prodigious hilltops of New Hampshire” is that no matter how much money and influence the powers-that-be throw behind their candidates, individual voters have the final say. I can’t say that tears came to my eyes when I heard the result, but it did notch up my wavering faith in humanity. Let freedom ring! Let freedom ring!

From this perspective, what happened on the Democratic side is nothing short of a Liberty Bell!

Consider:

• Every major NH newspaper endorsed Clinton.
• Every establishment NH Democrat politician endorsed Clinton.
• Sanders came from a 50-point projected deficit to win by over 20 percentage points: 60% to 38%.
• Sanders won every demographic – including 70% of women-under-30 – except for over-65s and households making over $200,000.

This result speaks volumes about the current and future generation and wealth gap not only in America, but also in New Zealand and worldwide. In other words, it is a snapshot of what we will see more and more often as Baby Boomers hold on to their wealth and status while Millennials are left holding the bag.

Many of us have seen this form of intergenerational tyranny coming down the tracks for some time. To me it is as simple as this:

In the older demographics, we have a generation or two in America and some other countries who got free university education, bought real estate when it was cheap, and enjoyed decades of cheap energy while destroying the planet’s climate system. Meanwhile in the younger demographics we have a generation or two that did not. Who does not see the imbalance?

Like many culture shifts, this one will move like an earthquake: in creeps and ruptures. The New Hampshire democratic result was a rupture and a week later the aftershocks are still being felt as the political circus moves on to South Carolina. If anything, the gift of “superdelegates” to Clinton will only increase the tectonic activity between voter demographics, as did the condescending and sexist comments from Madeleine Albright and Gloria Steinem.

The fact that feminist icon Steinem made one of the most sexist comments I have ever heard in an attempt to rationalise why young women support Sanders instead of Clinton shows the desperation of the wealthy, retired left. It appears that as the older and the wealthier and the whiter see their positions of wealth and privilege threatened, they fight and fight to maintain them. As the late Joe Strummer sang, “Now war is declared and battle come down” (London Calling, 1979).

Consider:

• Among democratic voters in NH the #1 issue was income inequality.

Without doubt, Sanders is the income inequality candidate and Clinton is not. I find it troubling that Hillary was paid reported speaking fees of $600,000 (US) by mega investment bank Goldman Sachs, but refuses to release what she spoke about. Goldman Sachs was at the eye of the financial hurricane that started in 2008 and has only grown richer and more powerful since. I seem to recall Clinton saying during a recent debate something along the lines of, “Of course Goldman doesn’t expect anything in return.” Right…

On the Republican side, NH had its largest turnout ever. Here is my favourite headline: “After running xenophobic & racist campaign, Donald Trump wins easily in New Hampshire.”

I have written about the Trump phenomenon in the past, most recently naming him my Person-of-the-Year for 2015:

Donald Trump is my Person of the Year. Who else has made a bigger splash in 2015?

 

Pundits say he plays on anxieties that exist among a certain voter demographic. He appears fearless in his attacks on political correctness. Bombastic is a term we hear to describe him.

 

But I say his most significant accomplishment has been in mastering a communication technique and ideology that has grown to achieve a critical mass of cultural significance: the double down. This is not to be confused with KFC’s Double Down – a beef burger between two pieces of fried chicken breast with cheese and bacon.

 

Doubling down takes many forms. It can mean making a false statement, and instead of admitting the mistake, vehemently insisting on the ‘truthiness’ of the statement in the first place. Alternatively, it might mean coming up with bad policy and then working tirelessly to try to justify it. It may be throwing good money after bad. In Trump’s case, it also means making outrageous or controversial statements and refusing to backtrack.

 

Doubling down means never having to say you’re sorry.

 

Trump is my Person of the Year not because he invented the double down or that he is the only person that does it, but because he has given it a living, breathing form. He is a meme with a comb-over and a personal jet.

 

Trump’s political success relies on the fact that many people only accept information that fits their existing worldview. Facts don’t matter. Research doesn’t matter. Trained experts don’t matter. As Ray Davies sang in 1981, “Give the people what they want.”

 

The Trumpification of Western society has reached its watershed moment. It marks the end of apology.

For writers like me and Ilargi and Nicole – who rely on the best available data, statistics, facts and sound research to build a case – Trumpification is a clear and present danger.

Like Sanders, Trump speaks to the economic angst many Americans feel. While both men have a populist message, they appeal to vastly different demographic sub-cultures. The irony of course is that a billionaire businessman has convinced thousands of minimum wage Joe Blogs that he will look after their interests. Right…

When I lived in New Hampshire I remember driving the back roads and seeing run-down, crappy mobile homes in the middle of nowhere with Republican lawn signs out front – Bush, Dole, Romney, McCain – and wondering why these people actively vote against their own economic interests.

Alongside Clinton, the biggest establishment candidate on the ticket was Jeb Bush, whose advertising budget in the state meant that at the end of the day his campaign spent $1,086 (US) per vote. He finished fourth, barely ahead of Marco Rubio.

The takeaway message from New Hampshire is powerful but not new. Voters in Greece have rejected establishment parties – twice. Voters in Portugal recently rejected the establishment. Voters in Iceland did so years ago and their nation is now thriving.

So what’s behind all of this rejection? I reckon it’s because you can only push people so far. As Popeye the Sailor is famous for saying, “That’s all I can stands, I can’t stands no more.”

While Trump is a classic Bluto character – large, loud and aggressive – Sanders retains a classic Popeye attribute that has endeared him to an increasing number of voters: “I yam what I yam and that’s all that I yam.”

Trustworthiness and integrity were the number one characteristic New Hampshire Democratic Primary voters were looking for in a candidate. From this perspective there can be no doubt about last week’s overwhelming result.

via Zero Hedge http://ift.tt/1QJF0F4 Tyler Durden

Wolf Richter, www.wolfstreet.com

Most of the defaults, debt restructurings, and bankruptcies so far this year and last year were triggered when over-indebted cash-flow negative companies could not make interest payments on their debts.

During the crazy days of the peak of the credit bubble two years ago, they would have been able to borrow even more money at 8% or 9% and go on as if nothing happened. But those days are gone. Now the riskiest companies face interest costs of 20% or higher – if they’re able to get new money at all. Hence, the wave of debt restructurings and bankruptcies.

But that’s small fry. Now comes the wave of companies whose debts mature. They will have to borrow new money not only to fund their interest payments, cash-flow-negative operations, and capital expenditures, but also to pay off maturing debt.

That “refinancing cliff” is going to be the biggest, steepest ever, after the greatest credit bubble in US history when companies took on record amounts of debt, and it comes at the worst possible time, warned Moody’s in its annual report.

In its report a year ago, Moody’s had already warned that the refinancing cliff for junk-rated US companies over the next five years – at the time, from 2015 through 2019 – would hit $791 billion. Of that, $349 billion would mature in 2019, the largest amount ever to mature in a single year.

But Moody’s pointed out that “near term risk remains low as only $18 billion, or 2% of total speculative-grade issuance comes due in 2015.” And that’s how it played out last year.

Since then, the refinancing cliff has gotten a lot bigger, according to Moody’s new annual report. The amount in junk-rated debt to be refinanced over the next five years, from 2016 through 2020, has surged nearly 20% to a record of $947 billion.

This is an increasingly steep cliff, with the largest portions due in the later years of the period, including $400 billion to mature in 2020, the highest amount of rated debt ever to mature in one year.

And near term? Moody’s Senior Analyst Tiina Siilaberg warned that there would be “a significant wave of new issuance in late 2016 and 2017.” At the worst possible time – because “a range of macroeconomic factors will make it more difficult for lower-rated companies to tap the debt capital markets in order to refinance their debt obligations.”

One of those macroeconomic factors is the spread between yields of these lower-rated junk bonds and Treasuries, which has totally blown out. For debt rated CCC/Caa1 or lower, the average spread has shot to over 20%, where it had been on October 6, 2008, right after the post-Lehman panic. And yields for these bonds have soared to over 21% on average.

Among the other macroeconomic factors, Moody’s lists the slowdown in China and volatility in oil prices. And there’s another factor that will “make it more difficult for lower-rated companies to refinance”: worried regulators have been cracking down on banks’ exposure to leveraged loans, which are so risky that even the Fed has been fingering them publicly.

Banks sell these leveraged loans to loan mutual funds or repackage them into collateralized loan obligations (CLOs) which they then sell in tranches to institutional investors. When leveraged loans mature, companies have to come up with the money, but Moody’s warns that “rising defaults and the impact of the Dodd-Frank Act’s risk retention rule will make it more difficult for existing CLOs to supply corporate financing.”

This leaves Moody’s refinancing index, which measures if there’s sufficient liquidity in the credit markets to deal with the refinancing cliff, at “2009 levels,” which indicates “that the refinancing conditions are weaker than normal,” said Moody’s in its laconic manner.

And the refinancing cliff is getting bigger: In the current downgrade tango, companies at the lower levels of investment grade are getting downgraded one or two notches and end up with a junk credit rating, thus increasing the total amount of junk-rated debt that needs to be refinanced over the next five years beyond the $947 billion.

The telecommunications, technology, and media sectors are weighed down by the highest debt burden. But as energy companies and much of the remaining commodities sector have gotten run over by the commodities rout, their credit profiles have sharply deteriorated. And a number of these companies at the lower levels of investment-grade will likely be downgraded into junk.

For example, energy companies that Moody’s still rates Baa3, so one notch above junk, have $34 billion in debt maturing over the next five years. “But there is a high risk that investment-grade issuers in these sectors will be lowered to speculative-grade,” Moody’s said.

This trend has been playing out in Moody’s Liquidity Stress Index, where the energy sector continues to fuel liquidity downgrades and defaults. These companies are already grappling with cash flow constraints, and they will be tapping the markets just as increased regulation and slowing growth in China make the credit markets more risk-averse.

But it’s not limited to energy and commodities. Other companies in sectors like brick-and-mortar retail, restaurants, or telecommunications (Sprint is the biggie here) are heading down the same path toward the cliff. And when these companies can’t refinance their maturing debts, they go over the cliff – or rather their stockholders and creditors will go over the cliff.

So it’s not contained. Read…  This is How Financial Chaos Begins

via Zero Hedge http://ift.tt/1KqHStE testosteronepit

With the market enjoying its biggest three-day short-squeeze since 2011, one can be forgiven to forget, if only briefly, that nothing has been fixed. Furthermore, if the OPEC meetings of the past two days have demonstrated anything, it is to confirm that not only is OPEC finished as a cartel, but that OPEC has no power over the marginal oil producers in Texas, aside from bankrupting them by pressuring prices lower.

Which is precisely what it will do.

And going back to the original point of how nothing has been fixed, here is a chart from DB showing what will happen to the average oil and gas company net debt/EBITDA ratio if oil rises to and remains at $35/bbl.

Why is $35 important? Becase as a recent Wood MacKenzie study found, less than 4% of the world’s oil supply is actually in the red at that price. Here’s Platts:

Citing up-to-date analysis of production data and cash costs from over 10,000 oil fields, Wood Mac said it believes 3.4 million b/d, or less than 4% of global oil supply, is unprofitable at oil prices below $35/b.

 

Even the majority of US shale and tight oil, which has been under the spotlight due to higher-than-average production costs, only becomes cash negative at Brent prices “well-below” $30/b, according to the study.

This is what is sure to make the Saudis very frustrated:

Despite widespread fears of a major supply collapse, the US’ shale oil output since late 2014, sharp deflation in service sector costs and greater drilling efficiencies have seen shale oil output remain more resilient to lower prices than first thought.

 

Wood Mac said falling production costs in the US over the last year have resulted in only 190,000 b/d being cash negative at a Brent price of $35/b.

 

The latest study contrasts with a similar report from the research group a year ago when it estimated that up to 1.5 million b/d of output — focused in the US — was vulnerable to being shut in at $40/b Brent.

 

At the time, US tight oil production was expected to start becoming cash negative a Brent oil price in the “high $30s.”

 

“In the past year we have seen a significant lowering of production costs in the US, which has resulted in only 190,000 b/d being cash negative at a Brent price of $35,” it said.

 

Last month, the International Energy Agency estimated that non-OPEC oil output will fall by 600,000 b/d this year, the biggest slide in almost 25 years, following gains of 1.4 million b/d in 2015 and 2.4 million b/d in 2014.

But even all of that is irrelevant if the fundamental flaw in the Saudi strategy is not addressed, a flaw we have pounded the table on for months, and one which the WSJ caught up with overnight, which reported that “Not Even a Wave of Oil Bankruptcies Will Shrink Crude Production.” Here’s why:

The conundrum for many investors is that a slew of bankruptcies won’t necessarily shrink the global glut of crude. Companies need cash to repay their debts, so their existing wells are unlikely to stop operating throughout the bankruptcy process. In fact, those wells will probably be sold to better-financed buyers, who can afford to keep production going or even increase it.

Meanwhile, leverage ratios will only go higher as oil prices continue sliding lower, which also means that the market’s post-squeeze hangover will be quite unpleasant.

via Zero Hedge http://ift.tt/1PRhp5m Tyler Durden