Tag: finance

In the aftermath of China’s gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up.

We now know what may be the most important answer: soaring imports of crude oil.

We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs.

As Energy Aspects pointed out in a report last week, “Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports.”

And sure enough, this kind of record surge in imports would be sure to lead to another major port bottleneck. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, accord. to ship-tracking data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show.

As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

So what caused this surge in demand? The answer is China’s teapot refineries.

According to Oilchem.net, the operating rate at small refineries in eastern Shandong province rose to 51.84% of capacity as of the week ended Apr. 22. The utilization rates climb as various teapot refiners completed maintenance and restarted production.

How much of a boost in oil demand did teapot refineries represent? Well, the current operating run rates is averaging 50.42% this tear compared to just 37.72% a year ago, Bloomberg calculated.

Notably, this may be just the beginning of China’s. As Bloomberg adds today, China, the world’s second-biggest crude consumer, may be poised for another increase in imports after the number of supertankers bound for the Asian country’s ports rose to a 16-month high amid signs it’s stockpiling.

There were 83 headed to China, the most since December 2014, according to a ship-tracking snapshot compiled by Bloomberg on Friday. Assuming standard cargo sizes, they would be able to deliver about 166 million barrels.

Others also noticed China’s ravenous demand. As JPM reporte in a note last week, China crude imports rose in February and March after dip in January. The total crude imports (a number which certainly should be taken with a salt mine) was 7.7 million bpd in March, up 21.6% compared to last year. Furthermore, 2016 YTD imports are running 12.3% above the same period in 2015.

Where is China getting the most of its oil? Cue JPM:

Atlantic Basin, 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.

It appears that at least China is delighted to take advantage of the ongoing OPEC production chaos and massively oversupplied oil market.

Furthermore, as ClipperData reported moments ago, Chinese waterborne crude oil imports are on pace for another record high this month.

However, while China is importing at a near record pace, is there also an offsetting increase demand? There was early in the year as shown in the chart below, but as of March the answer appears to be no. Accrding to JPM, apparent oil demand was down slightly. Because while crude oil processed by Chinese refineries remained high in March, roughly unchanged month-over-month, after accounting for net product exports, apparent oil demand was 10.3 mbpd in March, down 2.3% from February and down 2.5% year-over-year.

So supply is soaring, demand is declining, which means just one thing: “China is hoarding crude at the fastest pace in at least a decade”, according to Bloomberg, filling up excess inventory capacity at a record pace.

The punchline:

The nation added 787,000 barrels a day to stockpiles in the first quarter, the most for the period since at least 2004 when Bloomberg started calculations based on customs data. Its imports climbed in March from countries including Iran, Venezuela and Brazil.

For now – with the record credit impulse still reverberating across its economy – China’s demand is relentless, and is keeping virtually all producers busy: “we’ve seen crude buying in recent months coming from a very broad range of sources, more coming from Latin America and more from Europe,” said Richard Mallinson, an analyst at Energy Aspects Ltd. in London. Shipments are being boosted by so-called teapot refineries and may also be advancing in preparation for the end of refinery maintenance programs in China, he said.

However, the party may be ending.

China’s pace of imports may drop substantially in coming weeks as the teapot operating rate starts to drop next week, as many refineries are scheduled to start repairs, just like in the US.

Meanwhile, the oil production glut persists, and if suddenly China can no longer take advantage of all those tankers overflowing with oil for the next few months as teapot maintenance takes place, the world will suddenly realize that the spike in Chinese excess demand, driven by the biggest credit impulse in history, may be over, at which point attention will once shift to an oil market that remains in a state of pernicious imbalance as a result of weak global demand, record OPEC production, and a critical storage situation as there is ever less onshore and offshore space in which to store all the excess oil.

Judging by today’s oddly rational drop in the price of crude, attention may already be shifting…

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Submitted by Nick Bernabe via TheAntiMedia.org,

Hillary Clinton-aligned Super PAC, Correct the Record, is taking a page out of Vladimir Putin’s playbook by employing a $1 million dollar professional internet troll army to build a paid, positive consensus about the Clinton campaign. The effort, called “Breaking Barriers 2016,” claims:

“While Hillary Clinton fights to break down barriers and bring America together, the Barrier Breakers 2016 digital task force will serve as a resource for supporters looking for positive content and push-back to share with their online progressive communities, as well as thanking prominent supporters and committed superdelegates on social media.

 

“Correct The Record will invest more than $1 million into Barrier Breakers 2016 activities, including the more than tripling of its digital operation to engage in online messaging both for Secretary Clinton and to push back against attackers on social media platforms like Twitter, Facebook, Reddit, and Instagram.”

The campaign will essentially be employing an unknown number of paid, pro-Hillary trolls to spread positive news about the candidate and counter anyone posting negative information about her. And these aren’t just ragtag trolls living in their mothers’ basements — they are industry and campaign professionals. As Correct the Record acknowledges:

“The task force staff’s backgrounds are as diverse as the community they will be engaging with and include former reporters, bloggers, public affairs specialists, designers, Ready for Hillary alumni, and Hillary super fans who have led groups similar to those with which the task force will organize.”

In response to this news, Bernie Sanders campaign staffer Mike Casca told The Daily Beast, “Our campaign and our vendors are not paying people to reply to anti-Bernie comments on social media.” He added, “Come on man, really?”

The Hillary campaign was also recently called out by The Intercept for deploying “astroturfers” into the media — people with ties to Clinton who act as experts and political commentators to promote her campaign without disclosing their ties to the candidate.

With Hillary’s highly effective media strategies employing media surrogates — and now internet trolls — it’s becoming increasingly hard to decipher a distinction between actual Clinton supporters, unbiased political commentators, and paid campaign shills.

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Who could have seen that coming? It appears President Obama’s ill-advised Op-Ed and visit to The United Kingdom, exhorting his “friends” to ‘just say no’ to Brexit and vote democratically to stay part of an undemocratic superstate, has backfired for the establishment. A poll by YouGov suggests that Obama’s high profile intervention in the UK’s EU Referendum failed with 65% of Brits seeing his comments were not “appropriate.”

As SputnikNews reports, Mr Obama’s pro-European plea sparked angry responses from a number of high profile advocates of a ‘Brexit’, not least the Conservative London Mayor, Boris Johnson:

“For us to be bullied in this way, I don’t want to exaggerate, for people to say we are going to be unable to cope on our own is absolutely wrong.”

Of course, this is not the first time that Mr Obama has intervened in a British constitutional debate; during the 2014 Scottish independence referendum, he made a similar plea – albeit more euphemistically worded – that the United Kingdom ought to remain “united.”

We leave it to Britain’s most-tatestful newspaper The Sun to sum up…

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Now that everyone has finally figured out that the only way to not get steamrolled in this “market” is to frontrun central banks – something we have been pounding the table on since mid-2009 when we said that the only two financial statements that matter are the Fed’s H.4.1 and H.3 – and not just central banks, but central banks who are now so intimately intertwined in capital markets that the moments they adjust one variable, they unleash a torrent of “reflexive” actions which promptly leads to a cascading effect across the markets and promptly undoes whatever it is that they wanted to do in the first place (Yellen’s recent failed attempt at hiking rates which unleashed chaos in China being the best example), we are glad to see that what was until recently yet another apocryphal “conspiracy theory” is the de facto norm.

In the latest note from Eric Peters, CIO of One River Asset Management, he cites another CIO who basically breaks down the convoluted pathway in which monetary policy “works” as of this moment, and explains what, in a world in which “central banks are mistaken”, is “the only way to make money this year.“

From Peters:

“The world doesn’t work anymore when interest rates go up,” said the CIO, explaining his model. “Since the taper tantrum, the S&P 500 has gone nowhere.” Each time bond yields rise, with a lag of 3mth (but continually getting shorter), risk assets have fallen. “At first people felt it was ok, any Fed tightening would be offset by ECB and BOJ easing.” But this simply sparked a dollar rally that in turn tightened global financial conditions. “The issue is that the world is not growing fast enough to service its debt, so if rates rise you get massive defaults.”

 

“The Japanese private sector appears unwilling to increase leverage at any level of interest rates, which is a remarkable fact,” continued the same CIO. At this level of global debt, without new leverage we get no growth. “This is becoming true in Europe too.” And with the US energy sector now unable to re-leverage, the only solution is increased government leverage. “We’re in a temporary reprieve because China stepped up in Q1 and increased its balance sheet.” So where to now? “The world needs to keep re-leveraging or asset prices will go down again.”

And the punchline:

“Central banks are mistaken. They think they’re targeting employment and inflation,” he continued. “They’re actually targeting asset prices and leverage.” When asset values rise, inflation and employment gradually increase. When assets fall, inflation collapses; it’s a coincidental variable. “At these levels of asset prices, it takes a lot of leverage to lift them further.” So the second central banks see a little inflation and curb leverage, rates rise and it all unwinds. “The only way to make money this year is to understand this sequence, and trade it.”

Translation: when the market is broken, and is getting more broken with every passing day as central banks soak up even more of the marketable assets up until the point where, like the BOJ they will soon end up LBOing virtually everything, the only way to make money is to bet that these same central bankers will continue getting everything wrong and doubling down when they do; from a trading standpoint it means running away when CBs are confident they finally have it right, and BTFD when they are once again scrambling to undo the consequences of their actions by doing even more of what got the world into its current debt dead-end state.

After all, the endgame is now clear: a monetary paradrop which will unleash out of control inflation. At that point the only thing that will have value is hard assets and – to a lesser extent – those assets which generate cash flows which rise higher than the rate of (hyper)inflation.

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One of the recurring themes as we cross Q1 earnings season, is that virtually every sellside strategist has been repeating ad nauseam how as a result of the shaprly lowered earnings expectations…

… companies will have no problems beating consensus estimates. And then we got something like last week’s week’s barrage of tech company misses.

For many pundits this apparently did not register and just today BofA said that “1Q EPS expectations have likely bottomed as companies have begun to beat across the board.” This is how it explained this observation:

With the conclusion of Week 2, 133 companies representing 40% of S&P 500 earnings have reported. Results last week were dominated by Financials-where surprise stats improved as most smaller banks and consumer finance companies beat expectations-and Industrials-where the majority of companies across sub-sectors surprised to the upside, led by Road & Rail. Bottom-up EPS ticked up to $26.48 from $26.36 the prior week, 0.4% higher than analysts’ expectations at the start of earnings season. Expectations often bottom in Week 2, and our forecast of $27.50 implies a 4% beat.

 

While analysts continued to cut estimates last week in Energy and Utilities (which have yet to report), estimates climbed for most other sectors amid better-than-expected results. Health Care has seen the most top- and bottom-line beats so far, consistent with trends over the past few years. Meanwhile, a high proportion of top- and bottom-line beats in Industrials is a shift from recent trends, echoing the improvement in the ISM and other industrial indicators. Overall for the S&P 500, 67% of companies have beaten on EPS, 57% have beaten on sales, and 44% have beaten on both-an improvement from the prior week, and much better than we saw this time last quarter, when just one-fourth of companies beat on both EPS and sales.

However, confirming once again that what is one analyst’s meat, is another analyst’s non-GAAP poison, this “improvment” was not enough for one of Wall Street’s most cheerful analysts, DB’s David Bianco, who in his Q1 earnings tracker admitted something troubling – the truth: “Results so far are disappointing and our 1Q est. is at risk.” In fact, as DB admits, a sharp bounce in the fishhook chart shown above is now dependent on “big beats at Energy.” Good luck with those. Here is why Bianco is displeased with the Q1 results so far:

132 companies or 41% of S&P 500 EPS have reported 1Q EPS. The weighted avg EPS beat is 2.2% (4.1% ex. Fin) with a -0.2% miss on sales (in line ex. Fin). Bottom-up 1Q S&P EPS is now $26.49, -7.2% y/y, and -1.6% ex Energy. Btm-up sales growth is -1.2% y/y for the S&P and 1.9% ex Energy. It will take an avg beat of ~5% from the remaining non Financial & Energy companies and higher from Energy firms to reach our $27.50- 28.00 or down 2-3% y/y 1Q est.

 

After analysts cut their 1Q EPS estimates by a whopping 9.4% from Jan 1 to Mar 31, they continue to make last minute trims to their 1Q EPS estimates, especially at Energy, for companies yet to report this season. These trims keep 1Q btm-up S&P EPS lower than suggested by the beats so far. Thus, the typical “fish hook” upturn in btm-up quarterly EPS has yet to occur and is now dependent on big beats at Energy. However, ex. Financials & Energy the beats are normal. At current oil prices and FX rates 2016, S&P EPS should be $118-120 with a quarterly EPS profile of roughly: $27.50, $29.50, $30.50, $31.50.

 

1Q results are better than feared, but they do not point to any significant upside to our standing 2016 or 2017 S&P EPS outlook. If anything we think it less likely for S&P EPS growth, ex. Energy, to exceed 5% through 2017. However, we also increasingly think that our standing 5.5% real S&P CoE estimate might be too high. If Treasury yields stay low as the profit recession ends and also despite Fed hikes later this year, we see more S&P PE upside.

DB’s summary earnings table:

If excluding energy, perhaps once should also exlude FANG. Doing so shows just how reliant the market is on merely four companies because while the S&P is expected for post a 7% EPS drop in total and “only” 2% ex energy, the plunge is -8% if one excludes the FANG stocks.

So if one excludes both energy and FANG names, S&P earnings are set to tumble about 5%.

In summary this is what the worst quarter since the crisis looks like when charted.

And here is the full frontal of EPS in nominal terms including and excluding energy.

Finally, keep in mind that all these earnings are non-GAAP. If one looks at as reported, GAAP earnings, the result has been a disaster, not only in recent years, but also for Q1, where the gap, pardon the pun, between GAAP and non-GAAP earnings is set to be record wide.

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WTI Crude tumbled back off algo-stop-run highs this morning after Genscape reported a 1.5 million barrel inventory build at Cushing (considerably more than the 1.2mm build expected).

That would be the biggest inventory build since mid-December and follows 4 of the last 5 weeks with draws…

And price is falling..

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Well that escalated quickly. While Nasdaq had already given up its gains, this morning’s economic weakness, Yen strength, and unimpressed oil market has driven the S&P and Dow back into the red from pre-Doha levels…

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Following the death of Philly Fed's dead-cat-bounce, Dallas Fed did the same with a disappointing thud back to -13.9 (missing expectations of a rise to -10.0). This is the 16th consecutive month in contraction (below 0) and respondents are increasingly depressed, "it is a bad time for manufacturing, agriculture and mining – the only sectors that actually create wealth." What kind of fiction are these real average joes peddling? Have they not seen the jobs data?

A recession by any other name should smell so bad…

While new orders rose, number of employees and employee workweek contracted as future expectations tumbled to a 0.4 print with CapEx and wages expected to drop.

Here is the fiction the Dallas Fed respondents are peddling:

"Most of our clients are reporting slower sales heading into second quarter and expect further slowing into fourth quarter. As a result, they are stocking less and asking for faster shipments. Asian markets—especially China and Russia—are frequently discussed, but domestic production of biological products seems to have peaked in 2015 and is slowing."

 

"Customers are really dragging their feet on payments. Terms are 15 to 30 days beyond agreed terms per the purchase order."

 

"The summer season is the slow season, and we are already planning to go to a 32-hour work week."

 

"It is a bad time for manufacturing, agriculture and mining—the only sectors that actually create wealth."

 

"There is persistent downward pressure on the oilfield services industry due to continued weak oil and gas commodity prices and depressed activity levels both onshore and offshore. Already weak, and weakening, global economic outlooks foreshadow an even longer down cycle for the energy industry. It is expected that even though crude oil commodity prices may be achieving high points for 2016, exploration and development and the associated oilfield service activities that accompany them will continue to be depressed through 2017 as supply will continue to outstrip demand."

 

"I'm not normally a pessimist, but deep sea drilling looks to be pretty darn ugly moving forward."

 

"Politics. Gas. Oil. ISIS. This is not a good time to be in business."

And to sum it all up perfectly:

"Over-taxation, complicated export/import regulations and increasingly burdensome labor regulations are slowing down growth, hiring and expansion."

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