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Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks
Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks
The month of August sure has started off with a bang. Tech stocks are crashing, oil is crashing, industrial commodities are crashing, Greek stocks crashed the moment that the Greek stock market reopened for trading, and Chinese stocks continue to crash. At this point we have not seen a broad crash of U.S. stocks yet, but it is important to note that the Dow is already down more than 700 points from the peak in May. If it continues to slide like it has in recent days, it won’t be too long before we will officially reach “correction” territory. Just a few days ago, I described August as a “pivotal month“, and so far that is indeed turning out to be the case.
A full-blown financial crisis has not erupted yet, but we are well on the way. In this article, I want to look at a few of the “crashes” that are already happening…
Apple
This is more of a “correction” than a “crash”, but it is very noteworthy because it is happening to one of the most important U.S. stocks of all. The price of Apple stock has already broken through the 200 day moving average, and at this point it is down nearly 11 percent from the peak…
Shares of Apple are down 10.9% from their highest point in a year — which places the stock squarely in what’s considered to be a correction. The unofficial definition of a correction is a 10% or greater drop from a recent high. Shares of Apple hit a 52-week (and all-time) high on $134.54 on April 28.
‘Perfect Storm’ Engulfing Canada’s Economy Perfectly Predictable
‘Perfect Storm’ Engulfing Canada’s Economy Perfectly Predictable
Years ago Andrew Nikiforuk, citing experts, warned where Stephen Harper’s priorities would lead us.
Economists, an irrational tribe of short-sighted mathematicians, are now calling Canada’s declining economic fortunes “a perfect storm.”
It seems to be the only weather that complex market economies generate these days, or maybe such things are just another face of globalization.
In any case, economists now lament that low oil prices have upended the nation’s trade balance: “Canada has posted trade deficits every month this year, and the cumulative 2015 total of $13.6 billion is a record, exceeding the next highest, in 2009, of $2.95 billion.”
But this unique perfect storm gets darker. China, which Harperites eagerly embraced as the globe’s autocratic growthlocomotive, has run out of steam.
As the country’s notorious industrial revolution unwinds, China’s stock market has imploded. Communist party cadres are now moving their money to foreign housing markets in places like Vancouver.
Throughout the world, analysts no longer refer to bitumen as Canada’s destiny, but as a stranded asset. They view it as a poster child for over-spending, a symbol of climate chaos, a signature of peak oil and a textbook case of miserable energy returns. Nearly $60-billion worth of projects representing 1.6 million barrels of production were mothballed over the last year.
A new analysis by oil consultancy Wood Mackenzie reveals that capital flows into the oilsands could drop by two-thirds in the next few years.
The Bank of Canada doesn’t describe the downturn led by oil’s collapse as a recession because the “R word” smacks of negative thinking or just plain reality.
Surely lower interest rates will magically soften the consequences of a decade of bad resource policy decisions, Ottawa’s elites now reason.
Meanwhile the loonie, another volatile petro-currency, has predictably dropped to its lowest value in six years along with the price of oil.
…click on the above link to read the rest of the article…
5 signs of trouble for Saskatchewan’s economy in oil slump
Many said province could withstand economic blows from oil and gas, but there are troubling signs
When crude oil prices began to plummet, economists comforted Saskatchewan residents that their diversified economy would safeguard them during the oil and gas slump.
In fact, Saskatchewan’s economy isn’t that diverse.
The province relies heavily on natural resources: fuel, food and fertilizer.
The Canadian Association of Oil Drilling Contractors forecasts it will drill half as many wells in 2015 compared to 2014.
And while economists were banking on the agriculture and potash industries to offset energy losses, they’re no longer confident that will happen.
The potash industry remains strong in production, on par with its growth last year, but nitrogen prices have fallen about $60 US a tonne.
Most worrisome, it’s shaping up to be a disappointing crop year for many Saskatchewan farmers, thanks to an unwelcome mixture of spring frost, drought and poorly timed rains.
While cattle prices remain high, drought has jeopardized hay yields and could force some ranchers to sell off their herd.
The Bank of Montreal has already downgraded its growth projection for Saskatchewan this year from one per cent to half a per cent.
“It’s disappointing,” chief economist at the Bank of Montreal, Douglas Porter, said. “The likelihood of a pretty tough crop this year further dims the outlook for western Canada.”
The Royal Bank of Canada told CBC News it expects to downgrade its growth projection next month as well.
Premier Brad Wall says he’s still confident the province can overcome economic pressures, and points to his government’s four-year plan to spend $5.8 billion on infrastructure.
Still, there are already red flags for the economy. Here are five signs of trouble:
1. Housing sales
The honeymoon is over for Saskatchewan’s housing boom.
The Canadian Real Estate Association predicts house sales in Saskatchewan will decline by nearly 13 per cent this year.
…click on the above link to read the rest of the article…
Recession Risk Mounting For Canada
Recession Risk Mounting For Canada
The latest economic data from Canada shows that it is inching towards recession, after its economy posted its fifth straight month of contraction.
Statistics Canada revealed on July 31 that the Canadian economy shrank by 0.2 percent on an annualized basis in May, perhaps pushing the country over the edge into recessionary territory for the first half of 2015. “There is no sugar-coating this one,” Douglas Porter, BMO chief economist, wrote in a client note. “It’s a sour result.”
The poor showing surprised economists, who predicted GDP to remain flat, but it the result followed a contraction in the first quarter at an annual rate of 0.6 percent. Canada’s economy may or may not have technically dipped into recession this year – defined as two consecutive quarters of negative GDP growth – but it is surely facing some serious headwinds.
Related: This Week In Energy: Low Oil Prices Inflict Serious Pain This Earnings Season
Canada’s central bank slashed interest rates in July to 0.50 percent, the second cut this year, but that may not be enough to goose the economy. With rates already so low, there comes a point when interest rate cuts have diminishing returns. Consumer confidence in Canada is at a two-year low.
There are other fault lines in the Canadian economy. Fears over a housing bubble in key metro areas such as Toronto and Vancouver are rising. “In light of its hotter price performance over the past three to five years and greater supply risk, this vulnerability appears to be comparatively high in the Toronto market,” the deputy chief economist of TD Bank wrote in a new report. A run up in housing prices, along with overbuilding units that haven’t been sold, and a high home price-to-income ratio has TD Bank predicting a “medium-to-moderate” chance of a “painful price adjustment.” In other words, the bubble could deflate.
…click on the above link to read the rest of the article…
11 Red Flag Events That Just Happened As We Enter The Pivotal Month Of August 2015
11 Red Flag Events That Just Happened As We Enter The Pivotal Month Of August 2015
Are you ready for what is coming in August? All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal. In July, we saw things start to turn. As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet. I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter. Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening. In their blind optimism, they want to believe that things will somehow be different this time. Well, the coming months will definitely reveal who was right and who was wrong. The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…
#1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday. Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.
#2 As James Bailey has pointed out, the most important trendline for the S&P 500has finally been broken after holding up for six years. This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.
#3 The IMF is indicating that it will not take part in the new Greek debt deal. As a result, the whole thing may completely fall apart…
…click on the above link to read the rest of the article…
A Reality Check For U.S. Natural Gas Ambitions
A Reality Check For U.S. Natural Gas Ambitions
Something unusual happened while we were focused on the global oil-price collapse–the increase in U.S. shale gas production stalled (Figure 1).
Figure 1. U.S. shale gas production. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
Total shale gas production for June was basically flat compared with May–down 900 mcf/d or -0.1% (Table 1).
Table 1. Shale gas production change table. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
Marcellus and Utica production increased very slightly over May, 1.1 and 1.5 mmcf/d, respectively. The Woodford was up 400 mcf/d and “other” shale increased 300 mcf/d. Production in the few plays that increased totaled 3.3 mmcf/d or one fair gas well’s daily production.
Related: The Broken Payment Model That Costs The Oil Industry Millions
The rest of the shale gas plays declined. The earliest big shale gas plays–the Barnett, Fayetteville and Haynesville–were down 25%, 14% and 48% from their respective peak production levels for a total decline of -4.8 bcf/d since January 2012.
The fact that Eagle Ford and Bakken gas production declined suggests tight oil production may finally be declining as well.
To make matters worse, total U.S. dry natural gas production declined -144 mmcf/d in June compared to May, and -1.2 bcf/d compared to April (Figure 2). Marketed gas declined -117 mmcf/d compared to May and -1 bcf/d compared to April.
Figure 2. U.S. natural gas production. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
Although year-over-year gas production has increased, the rate of growth has decreased systematically from 13% in December 2014 to 5% in June 2015 (Figure 3).
Figure 3. U.S. dry gas year-over-year production change. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
This all comes at a time when the U.S. is using more natural gas for electric power generation. In April 2015, natural gas used to produce electricity (32% of total) exceeded coal (30% of total) for the first time (Figure 4).
…click on the above link to read the rest of the article…
The South American Financial Crisis Of 2015
The South American Financial Crisis Of 2015
Most nations in South America are either already experiencing an economic recession or are right on the verge of one. In general, South American economies are very heavily dependent on exports, and right now they are being absolutely shredded by the twin blades of a commodity price collapse and a skyrocketing U.S. dollar. During the boom times in South America, governments and businesses loaded up on tremendous amounts of debt. Since much of that debt was denominated in U.S. dollars, South American borrowers are now finding that it takes much more of their own local currencies to service and pay back those debts. At the same time, there is much less demand for commodities being produced by South American nations in the international marketplace. As a result, South America is heading into a full-blown financial crisis which will cause years of pain for the entire continent.
If you know your financial history, then you know that we have seen this exact same scenario play out before in various parts of the world. The following comes from a recent CNN article…
The dollar’s gains should make history nerds shake in their boots. Its rally in the early 1980s helped trigger Latin America’s debt crisis. Fifteen years later, the greenback surged quickly again, causing Southeast Asian economies, such as Thailand, to collapse after a run on the banks ensued.
In particular, what is going on right now is so similar to what took place back in the early 1980s. At that time, Latin American governments were swimming in debt, the U.S. dollar was surging and commodity prices were falling. The conditions were perfect for a debt crisis in Latin America, and that is precisely what happened…
…click on the above link to read the rest of the article…
Blame the Fed for the Commodities Slump
Blame the Fed for the Commodities Slump
When we left you at the end of last week the world was falling apart.
As you know, the economy functions on electronic credit… not cold, hard cash. Without the banks pumping more credit into the system – by way of loans – it sags.
The Dow fell 163 points – or about 1% – on Friday.
More significant is the action in the gold market. At this morning’s price of $1,103 an ounce, gold is now trading $100 below what we thought was the “floor” under the price.
Why?
It could be that gold is signaling a global recession/depression. People tend to buy gold when they fear inflation. All they see today is a global deflationary slump.
The People’s Daily newspaper – the official organ of the Communist Party – tells us that Chinese electricity consumption is accelerating at the slowest rate in 30 years.
We all know China’s GDP figures are untrustworthy, but electrons don’t lie. They flow with the economy. And they’re now only increasing at a sluggish 1.3% a year – suggesting a big slowdown in the Chinese economy.
According to economists’ estimates compiled by Bloomberg – as opposed to the official spin from Beijing – China’s economy is growing at the slowest pace in 25 years.
A Pileup in Commodities
Meanwhile, on the commodities highway, there’s a huge pileup.
The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.
A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.
And the coal miners have slid on the cheap oil and gas.
In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.
…click on the above link to read the rest of the article…
Has The E&P Industry Lost Touch With Reality?
Has The E&P Industry Lost Touch With Reality?
The U.S. rig count increased by 19 this week as oil prices dropped below $48 per barrel–the latest sign that the E&P industry is out of touch with reality.
Getty Images from The New York Times (July 26, 2015)
The last time the rig count increased this much was the week ending August 8, 2014 when WTI was $98 and Brent was $103 per barrel.
What are they thinking?
In fairness, the contracts to add more rigs were probably signed in May and June when WTI prices were around $60 per barrel (Figure 1) and some felt that a bottom had been found, left behind in January through March, and that prices would continue to increase.
Related: Oil Price Rout Set To Inflict Real Pain On Russia
Figure 1. Daily WTI crude oil prices, January 2-July 24, 2015. Source: EIA and NYMEX futures prices (July 21-24).
(click image to enlarge)
Even then, however, the fundamentals of supply, demand and inventories pointed toward lower prices–and still, companies decided to add rigs.
In mid-May, I wrote in a post called “Oil Prices Will Fall: A Lesson in Gravity”,
“The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.”
In mid-June, I wrote in a post called “For Oil Price, Bad Is The New Good”,
“Right now, oil prices are profoundly out of balance with fundamentals. Look for a correction.”
Oil prices began falling in early July and fell another 6% last week. Some of that was because of the Iran nuclear deal, the Greek debt crisis and the drop in Chinese stock markets. But everyone knew that the first two were coming, and there were plenty of warnings about the Chinese stock exchanges long before July.
…click on the above link to read the rest of the article…
Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?
Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?
No sector of the economy should be considering the urge to merge more than Canada’s beleaguered oilfield services (OFS) business. The signals are powerful: overcapacity in virtually every product and service line; prices down to slimmest of margins; bankers are unhappy and getting twitchy; shareholders are morose and OFS operators have to do something because doing nothing is no longer an option.
The short- and medium-term outlook is not promising. Oil prices are going down, not up. The recent nuclear deal with Iran will continue to overhang well-supplied world crude markets into next year. Even if oil rose sharply tomorrow, Alberta would still suffer from heightened uncertainty until the royalty issue is clarified.
New oil sands projects are dead. LNG is paralyzed by price, cost and global market turmoil. E&P companies looking to drill are demanding the lowest prices possible. Bankers who have been patient for months cannot kick the forbearance letter can down the road forever.
Because of a collapse in business, along with oil prices, oilfield service managers have been cutting costs since late last year. Workers have been laid off by thetens of thousands. Capital spending and maintenance programs have been slashed or postponed. Discretionary expenditures like travel and entertainment have been cancelled. Pay cuts have been instituted. Dividends reduced or eliminated. Principal payments postponed where possible.
Related: Toxic Waste Sullies Solar’s Squeaky Clean Image
The last major expense not yet addressed in any meaningful way is a measurable reduction in administrative (non-revenue generating) costs per dollar of revenue. This is the CEO, COO, CFO, VP marketing, HR manager, safety officer and corporate head office. Reduced expenses for field service locations and product and service delivery. Increased purchasing power in other words.
…click on the above link to read the rest of the article…
Acrid Smell of Burned Fingers Wafts through the Bond Market
Acrid Smell of Burned Fingers Wafts through the Bond Market
Commodities had once again an ugly week. Copper hit the lowest level since June 2009. Gold dropped below $1,100 an ounce. Other metals dropped too. Agricultural commodities fell; corn plunged nearly 7% for the week. Crude oil swooned, with West Texas Intermediate dropping nearly 7% to $47.97 a barrel, a true debacle for energy junk-bond investors.
It was the kind of rout that bottom fishers a few months ago apparently didn’t think was possible.
For example, in March, coal miner Peabody Energy had issued 10% second-lien notes due 2022 at 97.5 cents on the dollar. Now, these junk bonds are trading at around 49 cents on the dollar, having lost half their value in four months, and 17% in July alone, according to S&P Capital IQ’s LCD HY Weekly. Yield-hungry fund managers that bought them at issuance and stuffed them into their bond funds that people hold in their retirement accounts should be sued for malpractice.
Other bonds too have gotten slaughtered in July.
Among the bonds: Cliffs Natural Resources down 27.6%, SandBridge down 30%, Murray Energy down 21.2%, and Linn Energy down 22.3%, according to Bloomberg.
For example, Linn Energy 6.25% notes due in 2019 were trading at 78 cents on the dollar at the beginning of July and at 58 on Friday, according to LCD. There was bloodshed beyond energy, such as AK Steel’s 7.625% notes due in 2021. They were trading at 62 cents on the dollar, down 22% from the beginning of July.
“The performance is a disappointment to investors who purchased about $40 billion of junk-rated bonds from energy companies this year, thinking that the worst of the slump was over,” Bloomberg noted.
But the worst of the slump is far from over.
The riskiest junk bonds, tracked by the BofA Merrill Lynch US High Yield CCC or Below Effective Yield Index, have been hit hard, with yields jumping from the ludicrous levelsbelow 8% of last summer to 12.19% as of Thursday, the highest since July 2012:
…click on the above link to read the rest of the article…
Central Banks Ready To Panic — Again
Central Banks Ready To Panic — Again
Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.
Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:
Cheap Money Is Here to Stay
For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.The Fed’s Countdown
Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks.
…click on the above link to read the rest of the article…
Copper, China And World Trade Are All Screaming That The Next Economic Crisis Is Here
Copper, China And World Trade Are All Screaming That The Next Economic Crisis Is Here
If you are looking for a “canary in a coal mine” type of warning for the entire global economy, you have a whole bunch to pick from right now. “Dr. Copper” just hit a six year low, Morgan Stanley is warning that this could be the worst oil price crash in 45 years, the Chinese economy is suddenly stalling out, and world trade is falling at the fastest pace that we have seen since the last financial crisis. In order not to see all of the signs that are pointing toward a global economic slowdown, you would have to be willingly blind. In recent months, I have been writing article after article detailing how the exact same patterns that happened just before the stock market crash of 2008 are playing out once again. We are watching a slow-motion train wreck unfold right before our eyes, and things are only going to get worse from here.
Copper is referred to as “Dr. Copper” because it does such an excellent job of indicating where economic conditions are heading next. We saw this in 2008, when the price of copper started crashing big time in the months leading up to the stock market implosion.
Well, now copper is crashing again. Just check out this chart. The price of copper plunged again on Wednesday, and it is now the lowest that it has been since the last financial crisis. Unfortunately, the forecast for the months ahead is not good. The following is what Goldman Sachs is saying about copper…
“Though we have been bearish on copper on a 12-mo forward basis for the past two and a half years, we have maintained a more bullish medium to long-term stance on the assumption of Chinese copper demand growth of 4% per annum and a major slowing in supply growth around 2017/2018 …
…click on the above link to read the rest of the article…
Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now?
Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now?
If we were going to see a stock market crash in the United States in the fall of 2015 (to use a hypothetical example), we would expect to see commodity prices begin to crash a few months ahead of time. This is precisely what happened just before the great financial crisis of 2008, and we are watching the exact same thing happen again right now. On Wednesday, commodities got absolutely pummeled, and at this point the Bloomberg Commodity Index is down a whopping 26 percent over the past twelve months. When global economic activity slows down, demand for raw materials sinks and prices drop. So important global commodities such as copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber are all considered to be key “leading indicators” that can tell us a lot about where things are heading next. And what they are telling us right now is that we are rapidly approaching a global economic meltdown.
If the global economy was actually healthy and expanding, the demand for commodities would be increasing and that would tend to drive prices up. But instead, prices continue to go down.
The Bloomberg Commodity Index just hit a brand new 13-year low. That means that global commodity prices are already lower than they were during the worst moments of the last financial crisis…
The commodities rout that’s pushed prices to a 13-year lowpulled some of the biggest mining and energy companies below levels seen during the financial crisis.
The FTSE 350 Mining Index plunged as much as 4.9 percent to the lowest since 2009 on Wednesday, with BHP Billiton Ltd. and Anglo American Plc leading declines. Gold and copper are near the lowest in at least five years, while crude oil retreated to $50 a barrel.
“This commodity bear market is like a train wreck in slow motion,” said Andy Pfaff, the chief investment officer for commodities at MitonOptimal in Cape Town. “It has a lot of momentum and doesn’t come to a sudden stop.”
…click on the above link to read the rest of the article…
Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges
Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges
The Bank of Canada took a good look at the Canadian economy, saw it was sinking into the mire, glanced at the collapsed prices of commodities, particularly oil, saw how they were wreaking havoc in Canada, and then looked at the global economy, particularly at China and the US, and it freaked out.
It cut its overnight rate 25 basis points to 0.5%, the second rate cut this year, and attached a gloomy view about the Canadian economy with as it said a “significant downgrade” from its last estimate issued only in April. Things are heading south fast.
In his opening statement, Governor Stephen Poloz blamed oil, China, and dropping exports, particularly to the US which is “still a puzzle that merits further study,” he said, as the swooning Canadian dollar should have pushed up exports. The three culprits:
First, Canadian oil producers have lowered their long-term outlook for global oil prices, and have cut their plans for investment spending significantly more than previously announced.
Second, China’s economy is undergoing a structural transition to slower, domestic-driven growth, which is reducing Canadian exports of a range of other commodities.
Third, Canada’s non-resource exports have also faltered in recent months. While this is partly due to the first-quarter setback in the U.S. economy, it’s still a puzzle that merits further study.
This splits the economy in two, with the “resource economy” falling off a cliff, and with the “non-resource economy” motoring forward. Alas, they’re “not independent – the cancellation of an investment in the oil patch will often lead to a hit in the manufacturing sector, for example.”
Ah yes, and the ballyhooed positive effects of lower oil prices? They “have been slow to emerge.”
…click on the above link to read the rest of the article…
