Tag: finance

Buybacks blacked out, option expiration ramp over, and real investors fleeing… what happens next?

Dip, Jawbone, Rip… Repeat…

 

And close-up…

 

But this time it’s different, 150 days of almost perfect correlation and co-movement means nothing – right?

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Over the past several months, we’ve kept a close eye on post-crisis CLOs or, CLO 2.0s, as they’re affectionately known. In the interest of not recounting the story in its entirety here (i.e. for the sake of brevity), here’s a list of posts those interested should review:

• The Next Shoe Just Dropped: Equity NAVs Of 348 CLOs Slide Below Zero
• Canary, Meet Coal Mine: These Are The Tranches Where The CLO 2.0 Meltdown Begins
• Citi Can’t Believe How “Attractive” This Trade Is
• The Shoe Keeps Dropping: CLOs With Negative Equity Soar By 30% In February To Record 453
• Coal Mine Canary Or “Opportunity?” You Decide

Issuance fell off a cliff in the wake of the crisis, but eventually rebounded, and by 2014, issuance was running at a $124 billion per year clip (comparable to auto loan-backed ABS annual supply, for reference). Supply slipped to around $95 billion last year and then, well, then it all fell apart.

The percentage of CLO assets carrying a negative ratings outlook jumped five-fold in just three months to 12.6% according to Moody’s and as Morgan Stanley has been keen to document, the market is literally falling apart.

As of the end of February, the median US CLO 2.0 equity NAV stood at -1.99 with the number of CLO 2.0 deals’ equity tranches currently having NAV below zero soaring by 30% from 348 to 453.

Over the same period, the underlying asset deterioration continued, we went on to note. By February 29, the median CCC assets in US CLO had reached 4.30% from 3.90% in January. Needless to say, this trend will only continue as the debt-laden US O&G space continues to spiral into oblivion. “Among the 180 loan issuers with price drops larger than 5 points in February, we see 32 issuers in Oil & Gas,” Morgan Stanley warns, before adding that “851 CLO transactions have exposure to these 180 issuers, with a median exposure of 7.07% in the CLO 2.0 space across 654 deals.”

To determine how it will all play out, we can take a look at history. Let’s go to Morgan Stanley one more time:

From late 2007, CLO equity investors suffered from a sharp decline in loan prices followed by a rapid increase of asset downgrades. The number of US CLOs failing junior OC triggers climbed and led to an increasing number of deals missing payments to equity tranches. The proportion of deals cutting off payments to equity tranches peaked in 2Q 2009, right after the bottoming of loan prices and the peak of loan downgrades in 1Q 2009.

Got it. So the credits in the collateral pool suddenly all sour at once, the triggers are hit, and the subordinated tranches are a really bad place to be. Take a look at the red line here:

That’s missed payments to the equity tranches when the market blew up in the wake of the crisis (i.e. that’s CLO 1.0s). The question is how long before that dynamic plays out in 2.0s. As we noted late last month, Moody’s and S&P have delivered their first downgrades of post-crisis CLOs. Here’s a look at the tranches affected by Moody’s decision: 

Now, we learn that Silver Spring and Silvermore, along with four other CLO 2.0s are failing their interest diversion tests. That is, they’ve hit their triggers and payments to the equity tranches are in jeopardy pending how things look next month. Here’s Deutsche Bank: 

Looking at interest diversion tests, there hasn’t been any diversion of cash interest payments to the equity tranche of post-crisis CLOs so far, but it will come down to the status of these tests for the payment dates in April. Right now there are six CLOs failing their interest diversion tests. One of those, Jamestown IV, is just barely failing the test. Three other deals have coverage right above their respective interest diversion triggers, see Figure 20.

 

 

Apart from these deals most other CLOs still have a good buffer before tripping interest diversion tests. Out of the 589 post-crisis broadly syndicated CLOs that have interest diversion tests and are still in their reinvestment period we find twenty deals (including the three mentioned in Figure 20) that have a buffer of one point or less before tripping the test. Other deals have a larger buffer. Figure 21 shows how well the 589 deals are covered, in terms of passing the interest diversion test. We show the data normalized by the initial collateral balance. The graph shows each deals collateral test par value relative to the initial collateral balance plotted against their interest diversion trigger, normalized the same way. Finally, the red line shows where the trigger lies, so the distance from the red line to the blue dot representing each line represents the interest diversion test buffer.

 

Despite Deutsche Bank’s attempt to strike an upbeat tone, what the above means is that the market is beginning to crack and if you get anything out of Morgan Stanley’s recent series of updates, it should be that it won’t be long before there’s (much) more trouble in OC trigger land. 

Meanwhile, issuance was actually up this month, but we wouldn’t get too excited about the prospects for the leveraged loan market – supply was still some five times lower than last March.

So keep the faith we suppose and remember: Citi can’t imagine how CLO mezz could possibly be any more attractive.

Oh, and don’t forget that next month banks will reevaluate credit lines on RBL for the beleaguered O&G sector. We’ll leave it to readers to determine for themselves what that means for CLO 2.0s, but we will give you a hint. Match up the following table with the “Deal Name” column in Figure 20 shown above.

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By EconMatters

We delve into the technicals of the Bitcoin Market in this video.

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While this all started with a currency "war," it seems – according to a stunningly candid transcript of Japan's finance minister's conversation with none other than Paul Krugman – that the real endgame here is actual war. Aso remarked that "a similar [deflationary mindset] had occurred in the US in the 1930s. What solved the question? War! Because World War II had occurred during the 1940s and that became the solution for the United States. [We] have to switch [the Japanese] mindset… we are looking for the trigger."

Japanese Prime Minister Shinzo Abe has been the most hawkishly militaristic PM of a generation, shifting from the passive society to an aggressor, beginning around 2013. This has only been emboldened by rising nationalism and escalatuing tensions in the South China Sea.

We note this by way of background as just-released transcripts of a conversation between Japanese finance minister Aso and Uber-Keynesian Paul Krugman reveal perhaps the reality that Japan faces as its economic and social structure collapses…

(Minister of Finance Aso)

 

During the 1930’s, I remember that in the United States likewise there was a situation of deflation. And the New Deal policies have been introduced by then President Roosevelt. As a result, it worked out very nicely, but the largest issue associated with it is that for a long period of time entrepreneurs and managers of companies did not go to make a capital investment by receiving the loan. It had continued up until the late 1930’s and that is the situation occurring in Japan too. The record high earnings have been generated by the Japanese companies but they would not spend in the capital investment. There are lots of earnings at hand on the part of the corporate in Japan. It should be used for wage hike or dividend payment or the capital investment, but they are not doing that. They are just holding onto their cash and deposits. Reserved earnings have kept going up.

 

A similar situation had occurred in the US in the 1930’s.

 

What solved the question? War! Because World War II had occurred during the 1940’s and that became the solution for the United States. So, let’s look at the entrepreneurs in Japan. They are stuck with the deflationary mindset.

 

They have to switch their mindset and should start making capital investments. We are looking for the trigger. That is the utmost concern.

 

(Prof. Krugman)

 

The important point about the war from the macroeconomic point of view is that it was a very large fiscal stimulus. That fact that it was a war is very unfortunate. It was simply something that led to a fiscal stimulus that would not otherwise have happened.

 

In fact, the story in the 1930’s was that the New Deal, Roosevelt backed off the fiscal stimulus in 1937, because then, as now, there were many calls for balancing the budget. That was a terrible mistake. It caused the major second recession.

 

Yes, obviously we are looking for ways to achieve something like that without war.

Obviously… though war would be handy eh? All that ammunitiopn manufacturing and no inflationary pressure as everyone of them gets shot away. What could go wrong?

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It appears the complete decoupling from economic reality of the so-called US equity 'market', combined with the collapse in a data-dependent Fed's credibility – topics we have extensively covered – has reached the mainstream. Barron's always-insightful Randy Forsyth exposes the ugly reality that this is a "Bullard" market and we are just living in it as the flip-flopping Fed head is "the most visible telltale of the shifting winds of Fed expectations. Investors navigating the choppy waters of the financial markets are forced to change tacks accordingly."

Only one thing matters..

Macro-economy? Nope…

 

Micro-economy? Earnings expectations… Nope!

 

Bullard-economy… Yep!

 

Excerpted from Barron's – Is it a bull market or a bear market? Or maybe just a Bullard market?

That is, as in James Bullard, the president of the Federal Reserve Bank of St. Louis. Not only is he among the voters this year on the policy setting Federal Open Market Committee, he is also perhaps the most vocal member of the panel's adjunct, the Federal Open Mouth Committee.

 

…

In his habit of speaking early and often, Bullard has developed a nearly unequaled ability to move markets, which was on display last week. In various appearances, he suggested that the central bank's next interest-rate increase could come as soon as the FOMC's meeting on April 26 and 27.

…

Bullard's point last week was that the conditions that let the FOMC make its long-awaited initial increase in its short-term interest-rate target in December — to 0.25%-0.5%, 25 basis points (a quarter-percentage point) above the near-zero level where it had been held for seven years since the dark days of the financial crisis — were present. That is, unemployment had met the Fed's target, at just under 5%, while inflation was closing in on the central bank's goal of 2%.

But that was far different from what the St. Louis Fed chief was saying just last month

• On Feb. 17, he contended in a speech that it would be "unwise to continue a normalization strategy" — read, rate hikes — while inflation expectations were declining.
• So, in five weeks, Bullard has gone from arguing to hold off on higher interest rates, as the FOMC opted to do at the March 15 and 16 meeting, to putting them on the table as soon as next month.

What has changed so radically in that span?

The market-based measure of inflation forecasts did advance. According to the St. Louis Fed's own charting, five-year forward inflation expectations ( derived from the spread on Treasury inflation protected securities, or TIPS, versus regular Treasury notes) did tick up to 172 basis points on Wednesday, when Bullard made his comments to the New York Association for Business Economics. They had been at 152 basis points on Feb. 17, when he cautioned against rate hikes.

That's a mere 20-basis-point uptick over that span, and 30 basis points from the low touched on Feb. 11. Arguably, what has really changed since then has been the stock market, which rallied sharply, with the Standard & Poor's 500 index jumping more than 12% above its February low to last week's peak. After Bullard made his comments on Wednesday, stocks retreated in tandem with a renewed slide in crude-oil prices and a pop in the dollar, ending their five-week winning streak.

In that period, the world's central banks all got on board with accommodative policies: Interest rates plumbed deeper into negative territory, the European Central Bank expanded its stimulus, and the Fed stepped back from its previous timetable of four rate hikes in 2016. The last suggestion helped spur the 11% correction from the end of 2015 through February, amid the ongoing slide in oil, a toxic deflationary combination.

This was far from Bullard's first market-moving flip-flop. In October 2014, as stocks were sliding ahead of the well-advertised end of the Fed's quantitative-easing program, Bullard suggested that the central bank could continue its bond purchases, again citing too-low inflation expectations. On the date of those comments, Oct. 16, the S&P 500 made its lows, and went on to rally some 14% to its peak last May.

The circumstantial evidence also suggests that Bullard's comments coincided with swings in stocks as much as inflation expectations. With the S&P 500 having mostly corrected its early-year correction, if you will, and the index solidly north of 2000, the St. Louis Fed head adopted a hawkish tone. But he was distinctly dovish when the S&P 500 was in retreat in the low 1800s, most recently in February and previously in October 2014.

This doesn't suggest that the Fed is explicitly targeting the stock market. The causality arguably runs in the other direction. Expectations of more rate hikes result in a stronger dollar; weaker prices for crude oil and other commodities; a flatter yield curve — all disinflationary indicators — and retreats in risk assets, such as high-yield bonds and equities. When rate-increase expectations subside, those markets reverse.

At this point, the federal-funds futures market is definitively pricing in only one 25-basis-point hike this year, with odds of 60% by September and 73% by December, according to Bloomberg. For April, when Bullard thinks an increase should be considered, the futures market's probability is just 6%. Those low odds seem justified by persistently tepid gross-domestic-product growth. The GDPNow tracking model from the Atlanta Fed was lowered last week to a real annual rate of just 1.4%, about half the estimate in early February, and no better than the revised final fourth-quarter GDP report released on Friday.

Bullard seems to be the most visible telltale of the shifting winds of Fed expectations. Investors navigating the choppy waters of the financial markets are forced to change tacks accordingly.

read more here…

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Fascism… Communism… Socialism… Democratic Socialism… They are all evil!

Spot The Difference…

Source: The Burning Platform

 

Democratic Socialism – like Fascism, Communism, and Socialism – are all rooted in envy and rely on force.

In summary, they are all evil.

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Submitted by Claire Bernish via TheAntiMedia.org,

Following Portugal’s model, Hawai`i could become the first state in the U.S. to decriminalize all drugs — including cocaine and even heroin.

“[D]espite a longstanding policy that enforces illicit drug prohibition and imposes some of the world’s harshest penalties for drug possession and sales, illicit drug use in the United States has been increasing,” states a resolution that passed, amended by the Hawai`i House Judiciary Committee on Thursday.

Now that it’s been approved, the study’s findings will be due later this year, “no later than 20 days prior” to the convening of the legislature’s 2017 session.

According to testimony from the Legislative Reference Bureau Acting Director, Charlotte A. Carter-Yamauchi, the study will reference Portugal’s successful decriminalization with the caveat of recognizing Hawai`i’s obligation to follow federal law. But the state recognizes the numerous failures and pitfalls of the national war on drugs and its policies, beginning with passage of the Harrison Narcotics Act of 1914.

“Addicts are still considered to be violating the law by possessing drugs and have no legal way of obtaining them. The war on drugs most problematic effects are in its pursuit of dealers and traffickers. This is what has made the business lucrative and violent, caused addicts to steal to obtain drug money, and burdened the tax payers [sic] and criminal justice system,” Libertarian Party of Hawai`i Chair, Tracy Ryan, submitted in support of the study, with the recommendation to examine pre-1914 U.S. drug policy.

Among others offering testimony, the Drug Policy Forum of Hawai`i issued a statement in “strong support” of studying the issue, as well as a recommendation the LRB carry out a “twin study” on “the effects of legalization of marijuana for adult use.” Noting the Supreme Court’s refusal to intervene in a dispute between Colorado, Nebraska, and Oklahoma — stemming from Colorado’s cannabis legalization — the Forum claimed it would be an “opportune time” to conduct the parallel study.

Policymakers in Hawai`i decided to turn to Portugal’s across-the-board decriminalization, which became law on July 1, 2001, for consideration, after the CATO Institute issued a report touting the policy’s success. Cited in testimony by Kat Brady, Coordinator of Community Alliance on Prisons, the report’s conclusion stated:

“None of the fears promulgated by opponents of Portuguese decriminalization has come to fruition, whereas many of the benefits predicted by drug policymakers from instituting a decriminalization regime have been realized. While drug addiction, usage, and associated pathologies continue to skyrocket in many EU states, those problems — in virtually every relevant category — have been either contained or measurably improved within Portugal since 2001 […]

 

“By freeing its citizens from the fear of prosecution and imprisonment for drug usage, Portugal has dramatically improved its ability to encourage drug addicts to avail themselves of treatment. The resources that were previously devoted to prosecuting and imprisoning drug addicts are now available to provide treatment programs to addicts.”

Also noted by Brady in bold from the CATO study as being of particular importance, “Drug policymakers in the Portuguese government are virtually unanimous in their belief that decriminalization has enabled a far more effective approach to managing Portugal’s addiction problems and other drug-related afflictions.”

Numerous individuals, groups, and organizations submitted written testimony in support of Hawai`i’s proposal to study sweeping decriminalization, chiefly because a policy like Portugal’s would view addiction as a health, rather than criminal, issue.

Hawai`i will study virtually every facet of drug policy and its countless repercussions in the state to determine if Portugal’s model, or some variation of it, would be feasible and beneficial to implement. Simply undertaking such research in the United States highlights recent foundational shifts toward ambivalence from government and civilians concerning the failed Drug War — which insider reports indicate may have been largely fueled by the desire to quash dissent and incite division.

Portugal’s decriminalization policy, though not perfect, stands as a solid testament to the benefits triggered when government reframes citizens as people rather than criminals. Whether Hawai`i ultimately follows that country’s lead or not, the study will almost certainly find decriminalization to be worth a try.

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Benevolent leader. Military genius. Consensus builder. Renaissance man.

These are all descriptions of someone who will quite possibly go down in history as the greatest statesman of the 21st century:

North Korea’s Kim Jong-Un is struggling to stay relevant in a world that has generally forgotten that Pyongyang exists.

Pressing matters of global concern such as the proliferation of ISIS cells in Western Europe, the intractable conflict in Syria, still fraught relations between the West and a resurgent Iran, the return of Russia to the forefront of global politics, and the rise of the Chinese juggernaut have all conspired to permanently relegate Kim’s reclusive nation to the geopolitical backburner. And the young leader isn’t happy about it.

That’s why he’s ratcheted up the nuclear rhetoric over the past six months and sought to convince the international community that the next nation to insult the North will be wiped off the face of the planet by weapons “unknown to the world” (to quote the DPRK).

Of course Kim, like Venezuela’s Nicolas Maduro, depends for political survival on convincing the beleaguered masses that the country is engaged in an epic ideological struggle with the United States. The public has no idea how little anyone in Washington actually cares about the proclamations of the Supreme Leader and if they did, they’d revolt immediately. But as it stands, Pyongyang has managed to preserve the illusion in the five years since Kim Jong-il’s death.

On Saturday, we get a look at a new propaganda video out of the North in which the DPRK warns “American imperialists” against provocations. 

The video is called “Last Chance,” and it contains a series of hilarious warnings from the North to the “gang of cruel robbers” – as Kim is fond of calling US officials – in Washington. “If the American imperialists provoke us a bit, we will not hesitate to slap them with a pre-emptive nuclear strike,” the clip cautions. “The United States must choose! It’s up to you whether the nation called the United States exists on this planet or not.”

Enjoy.

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Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

Get beyond endless Latin American headlines burning column inches and you come to far broader strategic conclusion: The seven ‘ugly Latino sisters’, namely Brazil, Venezuela, Ecuador, Bolivia, Colombia, Mexico and Argentina are all deep political trouble from collapsed benchmark prices. It’s merely a case of who’s in more advanced states of political decay where left leaning governments’ can’t hang on much longer vs. those trying to buy a bit of time with more ‘centrist’ positions. In either case, it’s going to be a classic example of too little too late where the seven ugly sisters have committed at least seven deadly sins when it comes to resource mismanagement over the past decade. This isn’t about whether crisis can be avoided, but how bad the impacts will be. Another ‘lost Latino decade’ beckons.

The ugliest twins are obviously Brazil and Venezuela right now. We firmly expect Rousseff to be impeached next month on the back of endless corruption scandals, and the drastically ill-judged return of Lula that poured far more oil on corruption cover up flames. Watch for Michel Temer to take over the reins of a coalition PMDB government, busily negotiating posts behind closed doors with other players to tee up a formal Worker’s Party split to form a caretaker government through to 2018. How much Temer can get done depends on how far the outstanding ‘car wash’ scandal still rubs off on PMDB factions for major economic reforms, where the rot still runs pretty deep. Initial rhetoric (and inevitable market lifts) on supposed ‘structural reforms’ and far broader liberalisation measures remain unlikely to play through. Although it’s possible Petrobras might push through 2017 licencing rounds purely for political appearances, it’s not going to deliver tangible results in current price environments. Dig just ‘under the salt’, and Petrobras leverage will remain high; local content even higher. Until Brazil can properly clear its electoral decks in 2018 Mr. Temer is going to have a very limited mandate. If anything, his core challenge is trying to make sure his caretaker outfit doesn’t end up ‘washed out’ day one, given Temer is by no means beyond political reproach, with the PMDB basically as corrupt as the ruling PT. The smart move for Brazil would actually be calling fresh elections with the TSE (electoral authority) invalidating the entire Rousseff-Temer 2014 ticket to put a line under what currently shapes up to be the worst commodity driven economic crash Brazil has ever experienced. Regrettably, Brazilian politics has nothing to do with national interests at this stage, and everything to do with narrow self-preservation societies.

 

Right on cue, that points us towards Venezuela where exactly the same PSUV dynamics are in play. Rather than trying to kick Maduro out of office, the PSUV is desperately trying to keep him in to take the interim pain (see Can Maduro Mayhem Last to 2017). The last thing they want is splintered opposition MUD forces launching a five month ‘recall referendum’ half way through Maduro’s term to remove him by the end of 2016. Not when the Party can actually ‘Constitutionally’ replace Maduro out of their own accord into early 2017 without needing a national election before 2019 to do so. As we’ve previously flagged, rear-guard PSUV tactics will include leaning heavily on the National Election Board (CNE) and various courts to undermine any referendum ballot. And continuing to extend ‘emergency rule’ for Maduro without the National Assembly’s (Parliamentary) blessing to do so. That debunks any notion Venezuela is even pretending to run its affairs by Constitutional strictures at this stage. Good old fashioned PSUV power grabs are back in vogue. But whether the Party can realistically drag things out that far depends on how much Chinese cash keeps coming Caracas’s way given $50bn sunk PSUV costs – and more importantly – whether economic collapse sparks mass social unrest. Short term power plant outages are getting Venezuela headlines as a potential supply problem of late, but the broader concern remains complete state collapse, and associated ‘transitional military rule’ for the generals to safeguard whatever’s left of dwindling economic rent, without being put behind MUD bars. Given structural default is now inevitable in Venezuela where the ‘government’is spending 90% of all oil exports purely to service debts, supply side losses are almost certain to accrue under Maduro’s remaining rule. Venezuela isn’t just ugly, it’s the proverbial ‘elephant man’ of Latino politics.

Ecuador doesn’t look all that much better as the ‘surrogate sister’ of the Latino left. The OPEC minnow has seen a spate of public protests against the Correa presidency amid bloating deficits, tighter payments and dire need to find new forms of external funding. Correa himself can’t stand in 2017 after serving three terms since 2006, and appears willing to go relatively quietly without attempting Constitutional coups to extend his terms any further having unsuccessfully played that card in 2014. That said, he’ll look to current VP, Lenin Moreno to protect AP interests that isn’t going to make for a particularly ‘free or fair’ ballot in 2017 for more centrist candidates, Guillermo Lasso to contend. Petroecuador will be the cash cow of choice to keep the AP in control, with an injudicious mix of poor governance and Chinese loans about all Quito has left in the locker.

Bolivia is obviously more of a gas story, but exactly the same political direction of travel applies to Evo Morales in La Paz where the aging leader lost a referendum to eliminate presidential term paving the way for his exit in 2019. The result will see fierce internal infighting across the Movement for Socialism Party for a prospective replacement, with Morales trying to secure his rentier interests behind the scenes. The fact he’s come under intense criticism for ongoing corruption around his office, including embezzlement and awarding of contracts to Chinese companies where he has ‘personal links’ remain a far broader trend across the Americas. When money runs out, the dirty linen starts to show. The only question for Bolivia is whether Morales will ultimately go smoothly, and whether the MAS can start charting more credible policy paths post-2019. Prospects for that aren’t particularly good in our view.

That duly gets us onto some of the supposedly politically prettier sisters of Colombia, Mexico and Argentina that are already on a more centrist path. The problem here isn’t whether they start making smarter political choices, but whether they’re going to be able to stay the course under lower price pressures.

Being fair, President Santos hasn’t done much wrong in Colombia beyond staking allhis political capital on securing a peace agreement with FARC up to 2018. That might ultimately come good given Santos can’t stand for re-election third time round, but broader militant activities from the ELN (National Liberation Army) has already becoming an additional problem. Parse that to the corrosive effect of bandas criminales, and Santos needs to make a critical choice whether he keeps going ‘all in’ on peace deals towards 2018, or starts pulling back to give his own Partido de la Unidad Nacional candidates a better electoral chance in a couple of years’ time. Everyone knows even if Santos strikes a FARC deal to cut the head of the ‘paramilitary snake’, splinter groups will almost certainly proliferate as a result, continuing to hit Ecopetrol operations across the board. Previous attacks on the flagship Bicentennial pipeline gives us a decent proxy for why the national champion will struggle to get much beyond 1mb/d production, irrespective of more stringent contractual terms on the table. Once Santos is gone, the chances of Colombia taking a hard-line turn for the worse back against paramilitary organisations actually remains acute. Under all core political scenarios, the 2000s Colombian supply growth story has had its day.

Meanwhile President Nieto has staked his entire house on PEMEX opening up along a more centrist path. Despite PEMEX still registering massive $30bn year on year losses, depletion setting in fast, with major midstream gaps and massive (circa $830bn) investment deficits, the prospects of this sticking over the longer term look increasingly slim. Beyond price collapse, the fundamental problem is Nieto can’t stand again in 2018 under six year limits, with broader PRI support for longer term openings far from secure. So called round zero in 2014 and P2 (probable) reserves (2015) might be enough to steady the ship on PEMEX depletion. But whether that’s really going to follow through onto Deep Water Gulf of Mexico acreage or the complex Chicontepec formations towards 2018 simply isn’t going to happen given Nieto won’t be around to see PRI initiatives through. If anything, the lower oil prices go, the more likely it becomes that Andres Manuel Lopez Obrador stands a serious chance of winning the 2018 election on a far left PRD ticket that’s going to ward off any prospective investment from 2017 on, given the clear political risk entailed. Nieto was brave jumping through a narrow window of political opportunity to open PEMEX up; but it’s looking increasingly likely to close long before his six year tenure is up.

All that just leaves Argentina as the final Latino‘sister’ that’s applied plenty of Cambiemos (Let’s Change) lipstick under Mauricio Macri, who finally managed to overhaul incumbent FPV advantages to ease Kirchner out of Presidential office in October 2015. The problem is that Argentina’s problems now run so deep, Mr. Macri’s room for manoever is relatively limited. Congress is still stashed full of Peronist hardliners that will cling on for all their worth in 2017 mid-terms to stave off majority Cambiemos rule. Any initial economic medicine applied by Macri is also likely to plunge Argentina further into contraction, not growth. Measures that will come with blowback political consequences. More likely than not, YPF’s core task will be looking at restoring self-sufficiency once more sensible domestic pricing structures are in place, not going after dead, Vaca Muerta cows in the foreseeable future.

We could probably go on with even more Latino examples, but bring that all together, and ‘seven ugly sisters’ is probably a bit unfair on Latin America. Seven dwarfs is probably a more fitting epithet, without snow white commodity prices to commodity prices to fall back on.

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