Tag: finance

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Since the end of the financial crisis, economists, analysts, and the Federal Reserve have continued to point to the monthly employment reports as proof of the ongoing economic recovery. Even the White House has jumped on the bandwagon as the President has proudly latched onto the headlines of the “longest stretch of employment gains since the 1990’s.”

Yes, there has definitely been an improvement in the labor market since the financial crisis. I am not arguing that point. The financial markets, investors, and analysts eagerly anticipate the release of the employment report each month while the Federal Reserve has staked its monetary policy actions on them as well.

My problem is the discrepancy between the reports and what is happening in the underlying economy. The chart below shows employment gains from 1985-2000 versus wages and economic growth rates.

As compared to 2000-2016.

See the problem here?

IF employment was indeed growing at the fastest pace since the 1990’s, then wage growth, and by extension, economic growth should be at much stronger levels as well. That has YET to be the case.

Part of the reporting problem that has yet to corrected by the BLS is the continued overstatement of jobs through the “Birth/Death Adjustment” which I addressed recently in greater detail.

“For example, take a look at the first slide below.”

“This chart CLEARLY shows that the number of “Births & Deaths” of businesses since the financial crisis have been on the decline. Yet, each month, when the market gets the jobs report, we see roughly 200k plus jobs.

 

Included in those reports is an ‘ADJUSTMENT’ by the BEA to account for the number of new businesses (jobs) that were “birthed” (created) during the reporting period. This number has generally ‘added’ jobs to the employment report each month.

 

The chart below shows the differential in employment gains since 2009 when removing the additions to the monthly employment number though the “Birth/Death” adjustment. Real employment gains would be roughly 4.43 million less if you actually accounted for the LOSS in jobs discussed in the first chart above.”

Think about it this way. IF we were truly experiencing the strongest streak of employment growth since the 1990’s, should we not be witnessing:

1. Surging wage growth as a 4.9% unemployment rate gives employees pricing power?
2. Economic growth well above 3% as 4.9% unemployment leads to stronger consumption?
3. A rise in imports as rising consumption leads to demand for goods.
4. Falling inventories as sales outpace production.
5. Rising industrial production as demand for goods increases.

None of those things exist currently.

Unreal Retail

Furthermore, as Jeffrey Snider just addressed, the surging jobs in “retail sales” does not jive with actual retail sales. To wit:

“On the sales side, the last year has been appreciably worse than the dot-com recession and recovery yet employment is moving in the exact opposite direction and with that strange intensity of late. Not only are employment figures showing a more robust hiring scenario now than the late 1990’s, the pace is significantly better than even the housing mania of the middle 2000’s. From April 2003 until August 2005, retail sales clearly accelerated, with the overall average 6.0% during those two and a half years (and the short-term, 6-month MA 7.25% by the end of them). It would make sense, then, that hiring would be sustained and relatively robust, with the BLS suggesting 458k total new retail jobs to go along with those increasingly better sales estimates.”

“That means we have worse than dot-com recession levels in terms of sales over the past year from early 2015, but not the contraction in retail employment that went along with them prior. Instead, the BLS suggests that hiring is more robust now than during either the heights of the dot-com or housing bubbles even though sales are nowhere near those periods.”

Something is clearly amiss in what is happening in retail trade. We are likely going to see fairly sharp negative revisions to the data when the BLS eventually gets around to accounting for “retail reality.” 

Profits Drive Employment

Let’s set all of the above data points aside for a moment and just talk about the single most important driver of employment – profits.

Business owners are the single most astute allocators of capital on the planet. Why? Simple. If businesses continually misallocate capital over an extended period of time, they will not be in business for long. If sales are declining – companies tend to reign in hiring as a defense against falling profitability.  If profits are declining due to cost increases, like spiraling healthcare premiums, employment tends to be curtailed. Employment, which is the largest expense for companies, is driven by the rise and fall of profits.

I have smoothed the annual variability of inflation-adjusted corporate profits with real GDP to provide a clearer picture of its relationship to the annual rate of change in employment.

We are currently witnessing what is very likely the peak in employment for the current economic cycle. With layoff announcement rising from virtually every sector of the economy, it will likely not take much more economic weakness to see a rise in unemployment rates.

LMCI Leads

Lastly, the Fed’s on Labor Market Conditions Index (LMCI) tends to lead the overall change in the BLS employment reports. The chart below is a 12-month average of the LMCI as compared to the annual change in employment.

Despite the Fed’s “jawboning” about the strength of the labor market as a reason to “normalize” interest rates, their own indicator likely confirms why they have not done so as of yet. The historic correlation is extremely high and the recent divergence will likely not last long as the LMCI approaches ZERO growth. With economic data continuing to weaken, it will likely not be long before employment reports begin to consistently miss overly optimistic expectations.

It is quite evident there is something amiss about the BLS’ employment reports. Is the disparity simply an anomaly in the seasonal adjustments caused by the depth of the financial crisis? Is there an exceptional and unaccounted for margin of error in the surveys? Or, is it something more intentional by government-related agencies to keep “confidence” elevated as Central Banks globally “paddle like crazy” to keep global economies afloat.

I honestly don’t know those answers. I do know the only question that really matters is:

“Who gets to the end of the race first?”

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And your post-Doha gains are… gone…

 

Chinese intervention at the end of their day turned an overnight losing session into a BTFD winner, but it did not take long for selling to begin again in futures, erasing all the post-Doha gains…BUT that was not allowed to stand…

 

Despite a 50 Dow point vertical spike at 1pmET (2Y auction), US (cash) equities drifted lower all day with each bounce met with fresh selling pressure near VWAP… UNTIL The late-day panic buying instigated by a VIX slam left Nasdaq perfectly 0.0000% for the day!

Dow Transports worst day since March 8th.

With The S&P 500 signaling a "Golden Cross"…

 

What day would be copmplete without a panic slam of VIX into the close- in this case a desperate attempt to push Dow back to 18k…

 

The US open once again sparked selling in bonds but Treasury yields only rose 1-2bps on the day (though notably were sold on the day even as stocks were sold)…

 

The USD Index slipped lower on the day on the heels of EUR and JPY strength…

 

Friday's huge surge in USDJPY gave way to some profit-taking as Yen strengthened the most in April against the dollar…

 

And as a reminder – Levered Specs are the shortest USD in 22 months…

 

Modest USD weakness helped Gold but Crude plummeted on Saudi headlines (and fears over Cushing builds)

 

Crude slipped back toward pre-Doha levels…

 

Time for oil to catch down to Oil VIX…

 

This was gold's best day against silver in 3 weeks…

 

Charts: Bloomberg

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Submitted by by Howard Kunstler via Kunstler.com,

Spring unfolds at last in all its loveliness and Hillary sits back in repose like the matriarch of toads with a clear path to her toadstool throne, having swallowed the mouse-king Sanders. (She forgets that there are millions more mice under the thatched grass, including new mouse-kings awaiting.) And Trump with his bullfrog smile now casts his baleful eye on the two remaining gnats circling his lily pad. Yes, this magical week when the world bursts into leaf and flower, the life of our nation seems like a fairy tale.

Weeks from now when we’re used to the mild air and the greened world, going coatless and care-free, is when the storms of summer strike and the life of the nation turns from fairy tale to horror comic. Both Clinton and Trump are perfect representatives of the nascent forces moving towards some kind of civil war in comic book America.

Clinton perfectly embodies the fortress of the status quo, including especially her praetorian guard of black ghetto grandmothers, giving Hillary the false appearance of some sort of righteousness when, really, she has nothing to offer the greater crisis of black manhood, boxed into prison by the ancient crippling rules of federal welfare policy with its extreme penalties on active fathering. Otherwise, the stone wall of her status quo fortress conceals her privy council of Wall Street necromancers, and the fortune they have helped her lay up in the vaults of the Clinton Foundation.

All of which is to say that Hillary represents the forces that want to keep things just as a they are: rackets rampant. What can crush her triumph of fakery is the sudden manifestation of rackets collapsing under their own weight — a set of awful probabilities waiting to happen, ranging from riots at the Democratic Convention in Philadelphia to an accident in financial markets jerry-rigged to mis-price everything for the purpose of funneling carry-trade gains into East Hampton. Look how she croaks about the triumph of the Affordable Care Act, as though it’s a great thing that Americans can shell out $10,000 a year for medical coverage that only kicks in after you rack up the first $6,000 in charges. (Forgetting for a moment that the costs are an hallucination of the “ChargeMaster” system designed to lavish six-figure salaries plus bonuses on the maestros in the hospital executive suites.) What a demonic fraud this woman is.

In terms of sheer persona on persona, Trump is not much better, a walking hood ornament on the faltering beater car that America has become. But at least he recognizes that the beater beneath him needs a complete overhaul, even if he can barely cobble up a coherent list of particulars, or name the mechanics who might be able to fix the damn thing. And, of course, a broad swathe of Americans whose lives have also come to resemble beater cars are very sympathetic to the impulses Trump radiates.

For example, I happen to agree that the nation needs to act on immigration, both on the problem of illegal immigrants and on limiting the quotas of legally admitted newcomers. The Left, sunk in its sentimental sob stories of “dreamers,” and its nostalgia for the Ellis Island romance of 1904, can’t conceive of any reason why the nation might benefit from, at least, a time-out on invitations. The idea undermines their world-saving fantasies. In my little corner of America, the computer chip factory run by Global Foundries (owned by the Emirate of Dubai) has just laid off the majority of its homegrown American technical labor force and replaced them with foreign technicians on H1B visas, thus creating x-number of new Trump voters among the laid-off, and rightfully so, I think.

Really, who says we have to invite every striver from other parts of the world where striving is more difficult? Let them improve the strive-osity of their own nations. Do the citizens already here not have any right to halt the influx and take stock of the nation’s circumstances for a period of time? If only Trump could speak clearly about these issues instead of simply issuing crude and rather dumb threats.

Enjoy this end-of-April lull in the action. Use the moment to gird your loins and perhaps get the hell out of the financial markets while the getting is good. I think you will see things liven up a lot as the heat rises and the seventeen-year locusts emerge from their long sleep underground in frightening storms.

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One of the more confusing market moves in recent weeks has been the tremendous surge in transportation, or as we call them trannies, stocks…

… even as underlying fundamentals have continued to steadily deteriorate.

On one hand, none other than Railway Age had an article titled “Down, down goes the freight traffic” in which it said that “freight traffic still shows no signs of growth in the week ending April 16, 2016, as carloads and intermodal units were both down nearly 13% and 7.5%, respectively, the Association of American Railroads (AAR) reported on April 20, 2016…. For the first 15 weeks of 2016, U.S. railroads reported cumulative volume of 3,613,417 carloads, down 14.1% from the same point last year; and 3,848,344 intermodal units, up 0.2% from last year. Total combined U.S. traffic for the first 15 weeks of 2016 was 7,461,761 carloads and intermodal units, a decrease of 7.3% compared to last year.”

Words, however, hardly do justice to the unprecedented, coal-driven collapse in total rail freight carloads, shown below:

 

 

But maybe if one excludes rail, things are better?

Sadly no. In a note released on Friday by RBC looking at the broader airfreight and surface transportation sector, and subtitled “These headcount numbers aren’t encouraging”, the Canadian bank has a very depressing assessment: “We are a week into the 1Q/16 earnings announcements for our Airfreight & Surface Transportation coverage universe and so far, the message is pretty sobering. It’s clear that no “green shoots” developed during the quarter from a freight or pricing standpoint, and instead the companies that were successful at cutting costs and realizing productivity gains are the ones being rewarded.”

Which is the good news. It is also the bad news because RBC then goes on to note that the future is anything but bright judging by the dramatic headcounts:

If a company is cutting headcount, it probably means the freight environment isn’t robust. We’ve seen three data points in the last few days that provide a clearer look into the headcount reductions being experienced across the freight transportation sector.

Here is the rest of the all too honest note:

Let’s be honest about what the cost reductions are telling us, especially the cuts to headcount and therefore, wage and benefit costs. If a company is cutting headcount, it probably means the freight environment isn’t robust. We’ve seen three data points in the last few days that provide a clearer look into the headcount reductions being experienced across the freight transportation sector.

 

First, according to the Department of Labor’s April 1st labor report, total employment for the Transportation and Warehousing sector declined by 2,500 positions in March 2016. The largest decline was experienced in the railroad segment, which shed 2,800 positions. The trucking segment was next with a decline of 2,400 positions. The one bright spot was the courier and express segment, which experienced an increase of 1,000 positions. In all honesty, we saw the decline in railroad employment coming given other data points but are surprised at the magnitude of job eliminations in the trucking segment and the job growth in the courier/express segment. In fact, given that we are post the peak-season, we expected that the express carriers would still be trimming some headcount from the system. However, maybe the growth of e-commerce is fueling better demand and resulting in an uptick in employment. 

 

Second, there was another data point concerning the employment trends within the U.S. railroad sector. Based on data from the Association of American Railroads (AAR), total railroad employment dropped 11.3% y/y and 0.3% sequentially in March 2016. The y/y decline reflects the seventh consecutive month the railroad segment shed jobs, while the sequential decline in March extends the streak to eleven consecutive months. In analyzing the March data, every category of employment saw a material y/y decline, with train and engine employees declining 20.0% and other transportation employees declining 7.6% (the two largest declines). The sequential data showed a similar trend, with five categories experiencing a decline with only maintenance of way and structure employment rising (albeit a modest 0.6%). The sequential trends make sense in that this is the time of year major maintenance projects get underway, so we would expect a modest uptick. However, this headcount trend is far different versus just twelve to eighteen months ago when the railroads couldn’t hire new employees quick enough to cover the volume growth. We guess a continued downturn in coal volumes and collapse in all things oil & gas related results in fewer employees required to run the network.

 

Third, as with the railroad employment trends, we saw an additional data point concerning TL and LTL headcount. According to the American Trucking association’s Quarterly Employment Report, the large TL fleets (i.e. >$30 million annual revenue) experienced a 3.9% sequential and 3.8% y/y decline in headcount during 4Q/16. While the data point is dated (the report was released April 20), it does provide more detail concerning the employment categories. During the quarter, the large TL carriers saw a 5.3% y/y decline in over-the-road drivers and 5.0% y/y decline in local drivers. Sales related employment was also down 3.2% y/y. More importantly, the decline in total employment at the large TL carriers was the largest decline experienced in several years. Also, the LTL component of the trucking segment saw a 1.6% y/y decline in total headcount, fueled by declines in all categories with a 2.7% y/y decline in freight handlers the largest contributor.

Bottom line, just like Intel slashing 12,000 workers is the best “tell” about the future of the semiconductor industry (for those confused, Intel would not be firing thousands if it saw an immediate rebound), so the US transportation industry firing tens of thousands in recent months is all one needs to know about what happens next if one steps away from the chart showing the dramatic, if unsustainable, rebound in transportation stocks.

Here is RBC’s summary:

The TL, LTL and especially the U.S. railroad segments are reducing headcount levels. We believe the decline in rail and LTL headcount is warranted given the current freight environment and while the TL sector is facing a challenging freight environment as well, we are surprised to see a decline in drivers. These headcount reductions are helping the companies operating in these segments to aggressively lower wage and benefit costs and better align resources with freight volumes. As we said earlier, we appreciate any company that can aggressively cut costs and shrink the expense base. However, we believe it is important to be honest about why these segments are facilitating and/or experiencing these headcount trends. We believe it continues to point to a weaker than expected freight environment and suggests that the management teams don’t see a near-term improvement.In sum, we are all for cost reduction as a means of protecting profitability. However, we believe that until these headcount trends reverse and the various freight transportation carriers start hiring (even modestly), it portends a continuation of the current sluggish freight environment.

But before getting depressed about the implications, think of the spin: another 50,000 or so waiters and bartenders are about to start making a minimum wage and boost Obama’s “recovery.”

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Remember when “someone” used the Stuxnet virus in an Iranian nuclear plant several years ago to freeze Iranian nuclear production, leading to a major diplomatic scandal involving the spy agencies of both the US and Israel, as the world learned that in the present day industrial sabotage only needed a flash drive and a computer virus to render even the most sophisticated piece of industrial machinery obsolete? Well, a few minutes ago, Bloomberg reported that a computer virus was discovered in a German nuclear power plant.

• A computer virus was discovered at the Gundremmingen nuclear power plant in Bavaria, German news service DPA reported.
• No danger to employees or populace
• Power plant noticed the virus in its Block B on Mon.
• RWE specialists to determine how malware entered computer system built in 2008

* * *

BR (google translated) is reporting that the malware is thought to be brought in by a data carrier, and the affected portion of the system is the fueld assembly loading area. 

The affected IT system is part of the fuel assembly loading machine of the power plant. This raises, for example, old fuel from the reactor core and transports it to the storage pool. An influence on the control of these loading machine has the IT system according to the operator but not. In the power plant all other safety-related IT systems have been checked without finding the meantime.

The competent authority and the Federal Office for Information Security (BSI) have been informed. The reconnaissance takes place with the assistance of IT specialists in the RWE Group. The malicious software may have been introduced by a data carrier.

Ironically, in the case of the Iran “infection”, one of the suspected parties was Germany’s own Siemens. It would be painfully ironic if the same someone had infected a Germany nuke at roughly the same time.

Developing story.

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The propagandic wordsmithery is becoming pathetic as the Obama administration desperately avoids having to admit that it is sending more "boots on the ground" to strengthen its invasion of Syria. Having admitted to "greatly increasing" its operations in the war-torn nation earlier in the month, Defense Department spokesman Peter Cook today outlined why 250 additional Special Forces operatives will be put – in his words – "in harm's way" to "improve intelligence" carefully adding that "they will not be engaged in direct combat… though can defend themselves."

First President Obama explains…*OBAMA TELLS CBS SPECIAL FORCES TO TRAIN, ADVISE SYRIAN LOCALS

During a press conference with Merkel before the meeting, Obama acknowledged that the influx of migrants, the biggest since World War II, was politically challenging but said the German chancellor was on “the right side of history” for welcoming more than a million refugees into her country.

He also said he opposes proposals to impose a “safe zone” for refugees in Syria.

 

“As a practical matter, sadly, it is very difficult to see how it would operate short of us being willing to militarily take over a chunk of that country,” Obama said Sunday. “And that requires a big military commitment” to protect refugees from attacks.

And then tells CBS' Charlie Rose:

"It represents what I've said from the start, which is that us dismantling ISIL is a priority, and although we are not going to send ground troops in to fight, we are going to try to find out what works and then double down. And one of the things that has worked so far is us putting Special Forces in for training and advising local forces but also intelligence gathering.

 

One of the challenges of mounting the fight against a group like ISIL that embeds itself with civilian forces, they're not isolated. They're not out in remote areas where we can just hit them on their own. So, having people who develop relationships with local tribes, people who may be going in and out of places like Raqqa, us being able to distinguish between those who we can work with and those we can't – all of that – is really important."

To which The Pentagon adds:

• *DEFENSE DEPT. SPOKESMAN PETER COOK BRIEFS REPORTERS AT PENTAGON
• *COOK SAYS 250 INCLUDE SPECIAL FORCES AND SUPPORT PERSONNEL
• *COOK SAYS 'THEY WILL NOT BE ENGAGED IN DIRECT COMBAT'
• *COOK SAYS 'THEY WILL BE IN HARM'S WAY,' CAN DEFEND SELVES
• *COOK SAYS A GOAL IS TO HELP EXPAND SYRIAN ARAB FORCES

“What we’ve seen is the small team that we put into Syria several months ago has been very effective in serving as a force multiplier because they are able to provide advice and support to the forces that are fighting against ISIL on the ground in Syria,” said Ben Rhodes, U.S. deputy national security adviser, using an acronym for the terror group. “We want to accelerate that progress.”

So to sum up, just as Russia had been hinting at de-escalation (while in reality it was building up a military presence), now it is the US' turn – sending 250 SpecOps warriors to "advise" Syrian locals… and to distinguish between those who we can work with and those we can't.

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After meandering steadily higher for the past week, and completely ignoring the negative newsflow out of the Doha meeting, today oil took an unexpected leg lower to 4-day lows, leaving many stumped: what caused this drop?

The answer, according to Citi, is the realization Saudi Arabia is actually making good on its threat to boost production (recall that just one day ahead of Doha, Saudi deputy crown prince bin Salman said he could add a million barrels immediately) something we noted a month ago in “Why Saudi Arabia Has No Intention To End The Oil Glut.”

As Citi’s Ed Morse notes, the biggest bear risk to the oil market right now is that Iran’s ramp-up accelerates (which might in fact be happening with recent data indicating that April crude exports are running at ~1.9-m b/d) and then that Saudi Arabia does the same.

This would come as a surprise to many because one argument against the notion that the Saudis would turn on the taps is that “this would require ripping up their marketing playbook which relies on long term contracts with select buyers.”

As Citi adds, today’s news that Saudi Arabia is selling a cargo on the spot market to Asia may mark the turning of a dramatic new chapter in the Saudi playbook.

Recall that as we noted in our earlier post on the record demand by Chinese teapot refiners, in the recent surge of imports to Chinese teapot refineries the biggest beneficiaries were the Russians, while Saudi Arabia was the biggest loser. As JPM documented when highlighting the sources of Chinese oil imports:

“Russian imports strong in March at the expense of Middle East. In total, Atlantic basin–sourced crude was 28% of total imports, up from 25% the month prior, while Middle East–sourced crude was 44% of imports, down from 51% the previous month. Russian imports were the second highest on record at 4.6 million tons (up from 4.1 million tons in February), well above Saudi Arabia (4.0 million tons). Russia imports were 14% of total Chinese imports. The strength in Atlantic Basin exports primarily came from Venezuela, Colombia, and Brazil, which were all at or near record high.”

Which brings us to today Reuters report that “Saudi Aramco has sold a crude oil cargo to an independent Chinese refinery, its first spot sale to such a buyer in a sign that the world’s biggest exporter is trying to expand beyond its state-owned customers in China, a source with knowledge of the deal said.

The 730,000-barrel cargo will be lifted in June from Aramco’s storage in Japan’s Okinawa prefecture and shipped to China’s eastern province of Shandong, the source said.

Which brings us back to Ed Morse who says that “if anyone had a doubt about Saudi Aramco’s ability to use its logistical system and spot sales to increase market share, its recent 730-k bbl sale of a cargo to a Chinese teapot refiner in Shandong should lay any doubts to rest.”

Not only that, but according to Morse, the Saudis have a clear advantage if they are indeed trying to boost supplies to China to regain market share lost to Russia:

The sale comes from Aramco’s leased crude inventory at Japan’s Okinawa Island, a clear advantage Aramco has in marketing incremental sales not just into Asia but to Europe and the US as well given Saudi inventories deployed worldwide. What is unusual is that the sale is spot rather than the initiation of a new term contract. The Kingdom has had its sales arms tied behind their backs in competition for market share. For decades the world’s largest exporter has been handicapped by its conservative commitment to term sales based on long term contracts with limited open credit and strict payment terms. That might be great for maintaining the bulk of the ~7-m b/d of Saudi sales but it is a handicap in a world in which lumpy buyers prefer spot sales and where competitors offer a larger amount of open credit extending beyond 30 days to 90 days or even more, in the case of Iran.

And the unpleasant punchline for oil bulls: another 500,000 b/d in production may be about to hit the market.

It looks increasingly likely that the Kingdom is targeting another 0.5-m b/d of sales, bringing its production up to a steadier 11-m b/d or higher as the summer high burn season for crude in power generation reaches its peak and just at the same time that Iran looks like it will be adding 1-m b/d to sales above its pre-January levels.

According to Citi, “11-m b/d of production might be the new normal for the kingdom. This battle to secure market share appears to be the main driver of Saudi oil policy right now as witnessed by the breakdown in the Doha talks and apparent agreement to freeze production at January levels by a large number of oil producers, excluding Iran and the US, earlier this month. This ongoing effort by the Kingdom to secure market share at a price level too low to sustain output in the US, other non-OPEC producers and even marginal cost OPEC countries is the only significant bearish factor on the immediate oil horizon, in our view.”

This is not the first time the Saudis have done this: the kingdom’s oil marketing arm seems to have employed the same spot sales tactic in increasing market share in Europe at the expense of Russia and perhaps Iraq in late 2015. Spot sales are about the only way the Kingdom can gain new market share in a world in which chunky buyers are interested in securing incremental purchases via spot rather than term arrangements. Saudi Aramco has long shunned spot sales but it remains to be seen whether in the new oil environment, in an effort to gain greater control over market share and market pricing, the Kingdom will move more aggressively to allow resale of its crude and truly re-establish Saudi light crude oil as the global benchmark. With the Saudi Deputy Crown Prince just establishing a new road for transforming the kingdom for a post oil reformed economy, and with his talk of boosting output well above today’s level to even 20-m b/d, it’s time to think about what the new world oil order will look like and what the role of the world’s largest exporter will look like.

* * *

In other words, the rush to capture marginal Chinese market share is now on, and the question is how Russia will respond. The most likely answer: by undercutting Saudi pricing in its ongoing attempts to boost its own rising Chinese market presence.

But the worst news could be not so much the marked boost in production but that Chinese demand, as we documented just a few hours ago, may be about to hit a wall as Chinese teapots are closed for an extened period of time to undergo regular maintenance…

… leaving a world betting on soaring Chinese demand suddenly scrambling what to do with all the excess seaborne oil.

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Submitted by Simon Black via SovereignMan.com,

My grandfather was something of a Renaissance Man.

He was a farmer, schoolteacher, fisherman, collector, real estate investor… and one of those guys who always seemed to know how to do everything.

He could take apart an engine, build a house with his bare hands, tame wild horses, treat life-threatening wounds, play the guitar… and he was extremely well respected in his community.

Plus, like many from his generation who grew up during the Great Depression, he was also a prolific saver.

Being highly mistrustful of banks, my grandparents dealt mostly in physical cash. They used to keep money in old coffee cans stuffed full of coins and bills.

Every now and again when the coffee cans became too numerous, they would buy government savings bonds.

Of course, that was a different world.

When my grandparents were saving, the government was actually solvent, and interest rates were ‘normal’. You could buy government bonds and expect a decent rate of return.

Plus the dollar was still linked to gold back then, so you could have a confident outlook on your currency.

At the same time, Social Security was also in good shape; you didn’t have to worry whether it was still going to exist when it came time for you to retire.

Sadly, it’s no longer the same today.

As we discussed on Friday, Social Security in the Land of the Free has a shortfall exceeding $40+ TRILLION according to its own annual report.

Simply put, this means that Social Security woefully lacks the funding to meet its obligations, particularly those to America’s future retirees.

This isn’t a problem strictly with Social Security either; one of the major Medicare trust funds (Disability Insurance) is literally days away from going completely broke.

And as the Financial Times reported recently, city and state pension funds across the United States have another multi-TRILLION dollar funding gap.

Nor is this problem distinctly American; the same conditions broadly exist across most of the developed world, especially in Europe.

So relying on just about any western government’s retirement program is an absolute sucker’s move.

Yet even if you take matters into your own hands and save for retirement on your own, you’re fighting an uphill battle at best.

Zero (or negative) interest rates around the world have practically destroyed any reasonable expectation of savings.

When my grandfather was saving, for example, he could buy a 1-year US government bond yielding 4% at a time when inflation was 1%.

That’s a 3% return when adjusted for inflation. Not huge, but for him it was risk free.

Today, the latest government report shows the US inflation rate at 0.9%; yet that same 1-year US government bond yields just 0.53%.

In other words, today you lose more money to inflation than you earn in interest.

So saving money guarantees that you will LOSE after adjusting for inflation, at a time when the US government’s finances have never been more precarious. Crazy.

According to Blackrock CEO Larry Fink (the largest money management firm in the world), people today have to set aside THREE TIMES AS MUCH money to save for retirement as their parents and grandparents did because of these low interest rates.

So not only are you facing a no-win situation with government retirement options like pensions and Social Security, but even saving money on your own requires three times as much sacrifice.

How is someone supposed to put their kids through an astonishingly expensive university system, pay for the shocking cost of medical care, AND set aside three times as much for retirement??

It almost sounds impossible.

Now, this isn’t intended to be a downer. What I really hope to point out is that CONVENTIONAL options and strategies just don’t work anymore.

Buying ‘risk free’ bonds, dumping money in a mutual fund, and waiting for the government pension to kick in just won’t produce the results that it used to.

The truth is there are entire asset classes and niche investments out there that can generate vastly superior rates of return without having to take on substantial risk.

And best of all, these niche assets and corners of the market are only available for smaller investors.

If you buy big, conventional blue chip stocks and funds, there are dozens of ways you’re getting fleeced by Wall Street and City of London.

High-frequency traders, re-hypothecation, bank solvency issues, collusive price fixing, etc. Finance is a big insider boy’s club… and we’re not in it.

But niche investments are way too small for these giant sharks.

Goldman Sachs is probably not going to get into the Burmese art market anytime soon. And that’s not even a good example.

via http://ift.tt/24fVc9U Tyler Durden

Bloomberg’s Richard Breslow, former FX trader and fund manager who now comments on markets, has been on a roll lately. One week ago, he officially lost it, going on an epic rant how central banks have devastated “markets” with their constant intervention (proven yet again with today’s report that the BOJ now is a Top 10 owner of 90% of Japanese stocks): “You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years” he raged.

Today, his post-weekend anger has crystallized in another aptly titled note, “You Have to Go With the Central Bank Flow”, in which he writes that “for traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.”

The solution: “investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.“

Well, such is life under central planning: any original thought or fundamental analysis is crushed and the only thing that matters is anticipating what Janet Yellen will have for dinner next. Traders – and the general public – had a chance to restore normalcy when the entire system crashed, by averting bailouts and allowing a reset; now it’s too late.

Here is Richard Breslow on the verge of losing it again:

You Have to Go With the Central Bank Flow

 

Markets are behaving as if the shock and horror of the financial crisis has finally led to full-blown post-traumatic stress disorder. For traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.

 

The problem is, that despite all of the emphatically reasoned analysis, no one really believes anything. And it may not pay to. The distortions are just too great.

 

The periodic declarations of mission accomplished were not helpful, quite the contrary. Wishful thinking turned into gloom time and again. Testimonies, elections and book launches shouldn’t be contrived as opportunities to mark misleading milestones.

 

The investing landscape is overpopulated by straw men. The IMF says global growth is slowing dramatically. And the response is, Kansas City has bounced back nicely. We’re on the path to normalizing policy it’s been declared. Ignore that continually reinvested $4 trillion balance sheet. At the same time actual investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.

 

Central bank balance sheets are growing, and fast. They’ll never be sold off. And it was disingenuous fantasy to have ever thought that a possibility. The most optimistic thing you can hope for is the bond portion runs off.

 

As we dive headfirst into a world of sovereign wealth funds out to solve all problems with activist investing, don’t get your hopes up. It’s bad enough that the BOJ has gobbled up the Nikkei. What will be the effect (conflicts) when sovereign wealth funds go all-in abroad? Think it was a big deal to be threatened with a Treasury portfolio sell-off? Wait until it’s the S&P 500.

 

It’s business as usual, but it’s not business as normal.

Sorry Richard, but as Goldman put it so politely yesterday when explaining why Japan has no option but to proceed with helicopter money, “the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.” The reality is that absolutely the same is true of all the other central banks. Which means that for traders this “nightmare” will not end until the very last central bank is finally shut down.

via http://ift.tt/1SnSpY9 Tyler Durden