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Happy Thanksgiving Eve! One hundred and forty-eight years to the day after Alfred Nobel patented dynamite, and the fuse has been lit for an explosion to the downside for the crude complex.

After geopolitical tension was stoked yesterday, attention shifts back to oversupply today with the weekly EIA inventory report. Yesterday afternoon’s API report yielded a build of 2.6 million barrels to crude stocks, as well as solid builds to the products. This has adjusted expectations ahead of the EIA report, as a lesser 1 million barrel build was being baked into the cake.

Yesterday we discussed how copper is at a six-and-a-half year low due to a combination of falling Chinese demand and a rising US dollar. The chart below illustrates that despite the downward trend in copper prices, an ongoing supply glut is set to persist, as lower-cost projects come to fruition after billions of dollars have already been invested. Accordingly, global copper production is expected to reach an all-time this year…and is projected to rise through the rest of the decade.

Given the broad-based sell-off we have seen in commodities, from copper to crude to coal, Bloomberg’s commodity index – which tracks 22 natural resources – has plunged two-thirds lower from its peak in 2008 to the lowest level since 1999:

Today is ‘double data day‘, as tomorrow’s Thanksgiving holiday means we get the EIA natural gas storage report a day early. A minor injection of +6 Bcf is expected, which will further add to the record storage level of 4.000 Tcf.

…click on the above link to read the rest of the article…

The Endgame Takes Shape: “Banning Capitalism And Bypassing Capital Markets”

October 11, 2015

The Endgame Takes Shape: “Banning Capitalism And Bypassing Capital Markets”

One month ago we presented to readers that in the first official “serious” mention of “Helicopter Money” as the next (and final) form of monetary stimulus, Australia’s Macquarie Bank said that there is now about 12-18 months before this “unorthodox” policy is implemented. We also predicted that now that the seal has been broken, other banks would quickly jump on board with an idea that is the only possible endgame to 8 years of monetary lunacy, and sure enough, both Citigroup and Deutsche Bank within days brought up the Fed’s monetary paradrop as the up and coming form of monetary policy.

So while the rest of the street is undergoing revulsion therapy, as it cracks its “the Fed will hike rates any minute” cognitive dissonance and is finally asking, as Morgan Stanley did last week, whether the Fed will first do QE4 or NIRP (something we have said since January), here is what is really coming down the line, with the heretic thought experiment of the endgame once again coming from an unexpected, if increasingly credibly source, Australia’s Macquarie bank.

* * *

Would more QE make a difference? Have to move to different types of QE or allow nature to take its course

It seems that over the last week investor consensus swung from expecting Fed tightening and some form of normalization of monetary policy to delaying expectation of any tightening until 2016 and possibly beyond whilst discussion of a possibility of QE4 has gone mainstream.

Although “QE forever” and no tightening has been our base case for at least the last 12-18 months, we also tend to emphasize the diminishing impact of conventional QE policies. As the latest Fed paper (San Francisco) highlighted, “There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed-inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation”.

…click on the above link to read the rest of the article…

TSX falls 373 points as commodities sell off again

September 29, 2015

TSX falls 373 points as commodities sell off again

Canadian dollar loses almost half a cent to close at 74.66 cents US.

Canada’s benchmark stock index lost almost 2.8 per cent on another bleak Monday for commodities like oil, gold and copper.

The S&P/TSX Composite Index lost 373 points to close at 13,004. That’s the lowest level for Canada’s benchmark stock index since October 2013.

The TSX is now down by almost six per cent since the start of September. If that holds until Wednesday, the last day of the month, it will be the worst month for the index since 2012, and the June-to-September period would be the worst three-month period for Canada’s benchmark stock index since 2011.

Almost all of the sub-sectors were lower. Commodities were especially hard hit as the December gold contract fell $13.40 to $1,132.20 US an ounce and the November crude oil contract was down $1.23 at $44.47 US a barrel.

The gloom in commodities was largely tied to more news out of China about that country’s slowing economy. Profits at Chinese industrial firms dropped by the largest amount on record since Beijing started releasing the data in 2011.

“Whenever the market is down, the first place to look these days is China,” John Manley, chief equity strategist at Wells Fargo Fund Management, told The Associated Press.

“Right now, we need evidence that China is not slowing that much and that profits are still going to be OK.”

Alcoa splitting in two

In corporate news, one of the world’s largest mining companies, Alcoa, was a bright spot for mining stocks with the stock rising about six per cent on the NYSE. But that optimism was only because the company announced it was splitting itself into two, to insulate its growing and profitable aerospace and automotive business from its sagging base metals business, which primarily consists of aluminum assets.

Prior to Monday’s bounce, Alcoa shares had lost more than 40 per cent this year as the price of metals cratered.

The Canadian dollar lost almost half a cent amid the gloom, to close at 74.66 cents US.

…click on the above link to read the rest of the article…

“This Time May Be Different”: Desperate Central Banks Set To Dust Off Asia Crisis Playbook, Goldman Warns

September 5, 2015

“This Time May Be Different”: Desperate Central Banks Set To Dust Off Asia Crisis Playbook, Goldman Warns

Early last month, Bloomberg observed that plunging currencies were “handcuffing bankers from Chile to Colombia.” The problem was described as follows:

Central bankers in commodity-dependent Andes economies aren’t even considering interest-rate cuts to revive growth, even as prices for oil, copper and other raw materials collapse.

That’s because the deepening price slump is also dragging down currencies in Colombia and Chile — a swoon that’s fanning inflation and tying policy makers’ hands.

That was six days before China’s decision to devalue the yuan.

Needless to say, Beijing’s entry into the global currency wars did nothing to help the situation and indeed, since the yuan devaluation, things have gotten materially worse. The real, for instance, has plunged 10.5%, the Colombian peso is down 6.6%, the Mexican peso is off 4.4%, and the Chilean peso is down a harrowing 8% (thanks copper). And again, that’s just since China’s devaluation.

Meanwhile, plunging commodity prices, falling Chinese demand, and depressed global trade aren’t helping LatAm economies. Just ask Brazil, where the sellside GDP forecast cuts are coming in fast (Morgan Stanley being the latest example) now that virtually every data point one cares to observe shows an economy that’s sliding into depression.

Of course a plunging currency, FX pass through inflation, and a soft outlook for growth is a pretty terrible place to be in if you’re a central bank, but that’s exactly where things stand for the “LA-5” (believe it or not, that’s not a reference to the Lakers, it’s short for Brazil, Chile, Colombia, Mexico, and Peru), who very shortly will be forced to decide whether the risks associated with further FX weakness outweigh those of hiking rates into a poor economic environment.

For Goldman, the outlook is clear: LatAm central banks will, in “stark” contrast to counter-cyclical measures adopted during the crisis, hike in a desperate attempt to shore up their currencies and control inflation.

…click on the above link to read the rest of the article…

It Starts: Broad Retaliation Against China in Currency War

August 20, 2015

It Starts: Broad Retaliation Against China in Currency War

The biggest global “tail risk” is China’s deteriorating economy and an emerging market debt crisis, according to BofA Merrill Lynch’s monthly poll of fund managers. And 48% of them were expecting the Fed to raise rates, despite languid growth and low inflation expectations.

Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own.

This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear today: these struggling economies that compete with China are going to protect their exports against Chinese encroachment.

Hence a currency war.

It didn’t help that oil plunged nearly 5% to a new 6-year low, with WTI at $40.55 a barrel, after the EIA’s report of an “unexpected” crude oil inventory buildup in the US,now, during driving season when inventories are supposed to decline!

And copper dropped to $5,000 per ton for the first time since the Financial Crisis, down 20% so far this year. Copper is the ultimate industrial metal. China, which accounts for 45% of global copper consumption, is the bull’s eye of all the fretting about demand. 5,000 is the line in the sand. A big scary number. Other metals fared similarly.

Copper powerhouse Glencore, whose shares plunged nearly 10% today, blamed“aggressive and synchronized large-scale short selling” for the copper debacle, instead of fundamentals. But fundamentals have been whacking copper for years, and shorts have simply been joyriding the trend.

…click on the above link to read the rest of the article…

If History Is Any Indication, Junk Bonds And Copper Are Telling Us Exactly Where Stocks Are Heading Next

August 19, 2015

If History Is Any Indication, Junk Bonds And Copper Are Telling Us Exactly Where Stocks Are Heading Next

Yields on the riskiest junk bonds are absolutely soaring and the price of copper just hit a fresh six year low. To most people, those pieces of financial news are meaningless. But if you understand history, and you are aware of the patterns that immediately preceded previous stock market crashes, then you know how howhuge both of those signs are. During the summer of 2008, junk bond prices absolutely cratered as junk bond yields skyrocketed. This was a very clear signal that financial markets were about to crash, and sure enough a couple of months later it happened. Now the exact same thing is happening again. The following comes from a Wall Street On Parade article that was posted on Tuesday entitled “Keep Your Eye on Junk Bonds: They’re Starting to Behave Like ‘08“…

According to data from Bloomberg, corporations have issued a stunning $9.3 trillion in bonds since the beginning of 2009. The major beneficiary of this debt binge has been the stock market rather than investment in modernizing the plant, equipment or new hires to make the company more competitive for the future. Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets.

Now, with commodity prices resuming their plunge and currency wars spreading, concerns of financial contagion are back in the markets and spreads on corporate bonds versus safer, more liquid instruments like U.S. Treasury notes, are widening in a fashion similar to the warning signs heading into the 2008 crash. The $2.2 trillion junk bond market (high-yield) as well as the investment grade market have seen spreads widen as outflows from Exchange Traded Funds (ETFs) and bond funds pick up steam.

And right now we are seeing the most volatility in the junkiest of the junk bonds.

…click on the above link to read the rest of the article…

4 Mainstream Media Articles Mocking Gold That Should Make You Think

July 29, 2015

4 Mainstream Media Articles Mocking Gold That Should Make You Think

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For those of you who have been reading my stuff since all the way back to my Wall Street years at Sanford Bernstein, thanks for staying along for the ride. I appreciate your support immensely considering that I essentially no longer write about financial markets at all, and for many of you, that remains your profession and primary area of interest.

There are many reasons why I stopped commenting on markets, but the main reason is that I started to recognize I wasn’t getting it right. In fact, in some cases I was getting it spectacularly wrong. Whenever this happens, I try to isolate the problem and fix it. In this case there was no fix, because much of why I was no longer getting it right was rooted in the fact that my heart, soul and passion had moved onto other things. My interests had expanded, and I started a blog to express myself on myriad other matters I deemed important. Providing relevant market information needs intense focus, and my focus had shifted elsewhere. I recognized that I wasn’t intellectually interested enough in centrally planned markets to provide insightful analysis, and so I stopped.

This doesn’t mean I won’t start up again. When central planners do lose control, I may indeed become far more interested in opining on such matters. Time will tell. In the interim, financial markets do still play an important role in the bigger picture of social, political and economic trends I passionately care about. The stability and increase in financial assets (stocks and bonds) is of huge importance to the propaganda machine, in particular keeping the non-oligarchic, non-politically connected 1% in line and believing the hype (see: The Stock Market: Food Stamps for the 1%).

…click on the above link to read the rest of the article…

Futures Soar On Hope Central Planners Are Back In Control, China Rollercoaster Ends In The Red

July 28, 2015

Futures Soar On Hope Central Planners Are Back In Control, China Rollercoaster Ends In The Red

For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw acoordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday’s losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.

As Bloomberg’s Richard Breslow comments, the majority of Asian equity indexes finished with losses but on an upbeat note, helping most European markets to start with modest gains that have increased with the morning, thanks to the aforementioned domestic and global mood stabilization. S&P futures have been positive all day other than a brief dip negative at the worst of the day’s China levels. Chinese equities opened quite weak and were down another 5% before the authorities assured the market that speculation they would withdraw from market supportive measures was misguided. This began a rally of over 6% before a mid-afternoon swoon.

…click on the above link to read the rest of the article…

Deflation Is Winning – Beware!

July 25, 2015

Deflation Is Winning – Beware!

Expect the ride to get even rougher

Deflation is back on the front burner and it’s going to destroy all of the careful central planning and related market manipulation of the past 6 years.

Clear signs from the periphery indicate that a destructive deflationary pulse has been unleashed. Tanking commodity prices are confirming that idea.

Whole groups of enterprises involved in mining and energy are about to be destroyed. And the commodity-heavy nations of Canada, Australia and Brazil are in for a very rough ride.

Whether the central banks can keep all of their carefully-propped equity and bond markets elevated throughout the next part of the cycle remains to be seen. We know they will try very hard. They certainly are increasingly willing to use any all tools at their disposal to keep the status quo going for as long as possible.

Whether it’s the People’s Bank of China stepping in to the market to buy 10% stakes in major Chinese corporations in a matter of weeks, the Bank Of Japan becoming the majority owner of key ETFs in the Japanese markets, or the Swiss National Bank purchasing $100 billion of various global equities, we see the same desperation. Equity prices are being propped, jammed and extended higher and higher without regard to risk or repurcussions.

It makes us wonder: Why haven’t humans ever thought to print their way to prosperity before?

Well, that’s the problem. They have.

And it has always ended up disastrously. History shows that the closest thing that economics has to an inviolable law is: There’s no such thing as a free lunch.

Sadly, all of our decision-makers are trying their hardest to ignore that truth.

First, The Fall….

So how will all of this progress from here?

We’ve always liked the Ka-Poom! theory by Erik Janzen which we explained previously like this:

…click on the above link to read the rest of the article…

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

July 9, 2015

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

Here is a brief sample of some of the measures the Chinese government and the PBOC have unleashed in just the past ten days to prop up the crashing market include:

a ban on major shareholders, corporate executives, directors from selling stock for 6 months
freezing more than half (1400 at last count per Bloomberg) of the listed companies from trading,
blocking fund redemptions, forcing companies to invest in the market,
halting IPOs,
reducing equity transaction fees,
providing daily bailouts to the margin lending authority,
reducing margin requirements,
boosting buybacks
endless propaganda by Beijing Bob.

The measures are summarized below.

But it wasn’t until last night’s first official threat to “malicious” (short) sellers that they face charges (i.e., arrest), as Xinhua reported yesterday:

[Ministry of Public Security in conjunction with the recent Commission investigation of malicious short stock and stock index clues ] correspondent was informed on the 9th morning , Vice Minister of Public Security Meng Qingfeng led to the Commission , in conjunction with the recent Commission investigation of malicious short stock and stock index clues show regulatory authorities to the operation of heavy combat illegal activities.

… that the wall of Chinese intervention finally worked. For now.

And since this is all about one thing, the stock, market, it is worth noting that the Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who used a wrong discount rate in their DCF, when everything suddenly took off, and the SHCOMP closed a “Dramamine required” 5.8% higher, the biggest daily increase since March 2009!

“As China beefs up its efforts to rescue the market, with even the public security ministry involved, market sentiment is recovering slightly from a panicky stage earlier,” Shenyin Wanguo analyst Qian Qimin says by phone

…click on the above link to read the rest of the article…

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

July 8, 2015

Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash

Today’s market battle will be between those (central banks) “hoping” that a Greek deal over the weekend is finallyimminent (which on one hand looks possible after a major backpeddling by Tsipras – who may never have wanted to win the Greferendum in the first place – yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.

For those who may have missed the overnight fireworks, here are some more indicative Bloomberg headlines about China:

China’s Stocks Plunge as State Intervention Fails to Stop Rout
China Freezes Trading in 1,300 Companies as Stock Market Tumbles
China’s State-Owned Firms Ordered Not to Cut Share Holdings
China’s Market Rescue Makes Matters Worse as Prices Lose Meaning
China Ramps Up Policy Response as Panic Grips Stock Market

While pundits have been eager to downplay what is now a historic rout in Chinese risk assets, one that is matched by the depression of 2008 and which has sent the SHCOMP from up 60% for the year 3 weeks ago to barely green losing some 15 Greeces in market cap since mid-June…

… the same pundits to whom neither the oil crash nor a Grexit nor the imminent collapse in Q2 corporate revenues and GAAP EPS, or anything else matters, the reality is that the Chinese stock rout is very clearly starting to have contagion effects on the rest of the economy, crashing commodities such as crude, gold, copper, iron and virtually everything else where China has been a marginal source of demand, but leading to forced selling of anything that is not nailed down.

…click on the above link to read the rest of the article…

Controlling copper and silver prices

May 12, 2015

Controlling copper and silver prices

There is an unwarranted assumption that market prices are always right, and represent “fair value”. In the case of commodities, particularly metals, this is not necessarily true, because regulated financial markets make it too easy for government agencies and large banks to game the system.

Take the case of a country like China, which is the largest consumer of copper. Does it passively buy its copper through the market? No. Instead it strikes a price with a supplier, such as a Zambian copper mine, based on the London market price, bypassing the market entirely. If China plays no part in setting the reference price in London, the Zambians can be satisfied the price is fair; but if China or her agents suppressed the price of copper in the market before the price is set, the Zambians would be right to be upset.

Now, we do not know if China or her agents drive the copper price down, by placing a relatively small paper order so that the large off-market physical deal is priced favourably, but it is obviously in her interest to do so. Another metal where this could apply is silver.

We need to bear in mind three things about China and silver. She is the world’s largest industrial user, she is almost certainly the world’s largest refiner, and the government owns all the refineries. China imports large quantities of doré ¹ and also base metal ores containing silver. So how she goes about this business is highly relevant to the silver price, and the following is an example of how it works.

…click on the above link to read the rest of the article…

Commodities crash: Bad news for the world economy, but is anyone listening?

February 2, 2015

Commodities crash: Bad news for the world economy, but is anyone listening?

Reading the general run of financial headlines might lead one to believe that price declines in those commodities which are highly sensitive to economic conditions such as iron ore, copper, oil, natural gas, coal, and lumber are good on their face.

Obviously, the declines aren’t good for those who sell these commodities. But, those of us who buy these commodities in the form of cars, houses, utility bills and other products and services ought to be helping the world economy as we buy more stuff with the freed up income.

As true as that may be, these commodity price declines also signal something else: exceptional weakness in the world economy. It is no secret that economic growth in Europe has been stalled for some time and is now receding. The European Union’s confrontation with Russia over the Ukraine conflict and the resulting tit-for-tat economic sanctions levied by both sides are only worsening the economic climate.

Russia has been hit by the double whammy of oil price declines and sanctions which are probably sending the country into recession. And, now the new anti-austerity government in Greece seems to be pushing Europe headlong into another Euro crisis as worries about Greek debt default spread.

…click on the above link to read the rest of the article…

World Bank forecast causes markets to tumble

January 14, 2015

World Bank forecast causes markets to tumble

Copper prices – seen as measure of global economy – fall along with shares, after growth prediction cut to 3%

Copper prices fell and shares plummeted across Europe as markets reacted to the World Bank’s decision to cut its economic forecasts for this year and next.

The price of copper, regarded as a barometer of global economic demand, fell as much as 8% to a low not seen for more than five years after the World Bank said the world economy was too reliant on the US.

The bank blamed reduced prospects for growth in the eurozone, the state of finances in Japan and some big emerging economies for its decision to cut its 2015 global growth forecast to 3% from 3.4%.

Germany’s Dax index fell 0.75%, dragged down by steel producer ThyssenKrupp, which fell 3.6%. In France the CAC index dropped 0.9% as rival steel company ArcelorMittal lost 4.5%.

In London, copper miner Antofagasta fell more than 10% and was the biggest loser in the FTSE 100 index, which was down 1.3%. All the 10 worst performers in the index, including Glencore and oil producer BG Group, were commodities companies. Brent crude fell 1.7% to $45.78 a barrel.

“Europe has been pretty sluggish, China’s still got that property overhang, Japan’s entered recession. You’ve got the US and UK going fine, so it’s a patchy global growth picture – but it’s one that has definitely deteriorated from six months ago,” UBS analyst Daniel Morgan said.

…click on the above link to read the rest of the article…

Either Crude or Copper

January 13, 2015

Either Crude or Copper

The primacy of the monetary pyramid in 2015 is not really about money as it is all ideology. If you believe that monetary policy provides “stimulus” then you immediately remove all thoughts of any economic decline during times when monetarism is most active. Since “it works” then all else must fall into place. Contrary indications are thus given extraordinary lengths to maintain logical consistency.

Economic commentary as it exists is incredibly short-sighted, though there is no reason to believe that is anything other than exactly what I stated above. The state of economics even as a discipline has internalized Keynes so deeply that all that matters is what happens month-to-month. That makes it easier to maintain the status quo of opinion about “stimulus” – in the short run it is very easy to find a suggestion for something behaving “unexpectedly.”

That was certainly the case with crude oil prices these past few months, as the initial impulse was uniformly and incessantly prodded to over-supply. Again, the reasoning behind that was simply since “stimulus” works and it was being practiced and replicated all over the world there was no possible means by which “demand” might drop, and so precipitously. After a few weeks of oil “unexpectedly” falling further, re-assurances were more difficult and increasingly derivative by nature.

…click on the above link to read the rest of the article…

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