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“The Largest Ever Physical Transfer Of Gold”

“The Largest Ever Physical Transfer Of Gold”

Two months ago, when the market was in a state of near-total chaos as a result of a sudden collapse in global supply chains due to the hasty coronavirus lockdowns, one market that saw unprecedented turmoil was that of physical gold.

As we pointed out in late March, due to a sudden breakdown in physical gold supply as the world’s top gold refiners, those located in the southern Swiss town of Ticino, namely Valcambi, Pamp and Argor-Heraeus, suddenly stopped producing gold, the  result was a record divergence in the price of spot gold vs gold futures contracts…

… with gold futures decoupling and trading far above spot prices.

The resulting record divergence in gold futures vs spot (in some way analogous to what happened to the price of the prompt WTI contract in April, when the May WTI contract traded as low as ($40) as traders were willing to pay buyers to store oil in a world where there was suddenly no space for the physical commodity), unleashed a flood of physical gold into the US as a record scramble by traders rushing to take advantage of this arbitrage opportunity by shipping bullion to New York sparked what Bloomberg said “may be one of the largest ever physical transfers of the metal.

“The flows into New York are unprecedented,” Allan Finn, the global commodities director at logistics and security provider Malca-Amit told Bloomberg as his company’s teams in New York have been working 24 hours a day to cope with unprecedented demand for physical gold while navigating lockdowns, flight disruptions and social distancing.

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

“Crisis In Processing” – Pandemic Exposes Fragility Of Food Supply Chain

“Crisis In Processing” – Pandemic Exposes Fragility Of Food Supply Chain  

Today’s food supply chain crisis began in the meat industry has been developing for decades, and Tyson Foods has helped to create the disaster that is currently unfolding

The problem is consolidation, and with Tyson, JBS SA and Cargill Inc, three mega-corporations that control 66% of America’s beef, as much of it is processed in just a few dozen meatpacking facilities across the US. Only a few companies also dominate pork and Chicken. 

There have been at least 12 closures of meatpacking plants in April because of virus-related issues among employees. This has resulted in at least 25% of pork and 10% of beef processing capacity coming offline in the last several weeks, reported Bloomberg

“This is 100% a symptom of consolidation,” said Christopher Leonard, author of “The Meat Racket,” which examines the protein industry. “We don’t have a crisis of supply right now. We have a crisis in processing. And the virus is exposing the profound fragility that comes with this kind of consolidation.”

On Sunday, Tyson Foods warned in a full-page ad in the New York Times that the “food supply chain is breaking.”

“As pork, beef and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain,” wrote Tyson Chairman John Tyson, patriarch of the company’s founding family, in a Tyson Foods website post that also ran as a full-page ad in several newspapers. “The food supply chain is breaking.”

Then on Tuesday, President Trump signed an order for meatpacking facilities to remain open during the pandemic. With plants being forced to stay open as the fast-spreading virus infects workers, that doesn’t necessarily mean workers will show up to work. We discussed that over the weekend in a piece titled “American Farms Cull Millions Of Chickens Amid Virus-Related Staff Shortages At Processing Plants.” 

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

Chinese Warns US To Halt Military Operations In South China Sea

Chinese Warns US To Halt Military Operations In South China Sea 

The Chinese military is closely monitoring a US Navy guided-missile destroyer transiting the South China Sea on Tuesday (April 28). 

Global Times✔@globaltimesnews

When US destroyer Barry trespassed into China’s territorial waters off the Xisha Islands on Tue, the PLA Southern Theater Command coordinated with naval and air forces to follow its course; they identified the ship, warned and expelled it:PLA Southern Theater Command spokesperson

View image on Twitter

The People’s Daily, quoting senior colonel Li Huamin, spokesperson for the Chinese Army (PLA) Southern Theater Command, said a US warship entered the “territorial waters off Xisha Islands in the South China Sea without China’s permission. The Southern Theater Command of PLA deployed air and navy forces to monitor and verify the ship, and warned it to leave.”

 People’s Daily, China✔@PDChina

A US warship on Tue entered the territorial waters off Xisha Islands in the South China Sea without China’s permission. The Southern Theater Command of PLA deployed air and navy forces to monitor and verify the ship, and warned it to leave, according to Senior Colonel Li Huamin.

View image on Twitter

Bloomberg reports that the “Chinese navy followed and expelled it [US Navy warship],” citing a PLA Daily report. 

Huamin went on to say, the US Navy violated “relevant international law and was a serious infringement of China’s sovereignty.” 

CGTN News said China urged the US to focus on the COVID-19 pandemic unfolding across the country rather than conduct freedom of navigation missions in the South China Sea. 

The PLA has spent the last 3 to 4 weeks ramping up military operations in the highly contested waters as the pandemic sweeps across the world. 

The US blasted China last week for its “bullying behavior” in the region. The US State Department recently said China is taking advantage of the region’s focus on the COVID-19 pandemic to “coerce its neighbors.” 

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

American Farms Cull Millions Of Chickens Amid Virus-Related Staff Shortages At Processing Plants

American Farms Cull Millions Of Chickens Amid Virus-Related Staff Shortages At Processing Plants

A significant concern that readers should have during an economic collapse and pandemic is food security. We’ve noted over April that troubling news is developing deep inside America’s food supply chain network, suggesting shortages and rapid food inflation could be ahead.

The reason behind the disruptions begins with meatpacking plants across the country are shuttering operations because of virus-related issues. At the moment, we’ve reported at least 10-12 large operations have gone offline in the last several weeks, which could result in pork shortages in the first or second week in May.

“Almost a third of U.S. pork capacity is down, the first big poultry plants closed on Friday and experts are warning that domestic shortages are just weeks away,” reported Bloomberg

We also highlighted additional risks to beef and poultry capacity at processing plants that were starting to develop.

Now, more specifically, diving into the world of poultry, new developments from Maryland, Delaware, and Virginia, a region known to be a top producer of chickens not just in the country but the world, is experiencing logistical issues due to coronavirus.

The Baltimore Sun is reporting that 2 million chickens are set to be culled across farms in Maryland and Delaware amid coronavirus-related staffing shortages at meatpacking plants.

We’ve heard the same story with pork, turkey, and beef processing plants across the country. Reducing operations or shutting down due to virus-related illnesses among staff. 

“With reduced staffing, many plants are not able to harvest chickens at the pace they planned for when placing those chicks in chicken houses several weeks ago,” before strict social distancing rules went into effect, trade group for the Delmarva poultry industry said in a statement.

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

Weekly Commentary: Fault Lines

Weekly Commentary: Fault Lines

Now on a weekly basis, we’re witnessing things that couldn’t happen – actually happen.

April 20 – Bloomberg (Catherine Ngai, Olivia Raimonde, and Alex Longley): “Of all the wild, unprecedented swings in financial markets since the coronavirus pandemic broke out, none has been more jaw-dropping than Monday’s collapse in a key segment of U.S. oil trading. The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory — minus $37.63 a barrel.”

For posterity, the latest numbers on U.S. monetary inflation: Federal Reserve Assets expanded $205 billion last week to a record $6.573 TN. Fed Assets surged $2.307 TN, or 56%, in just seven weeks. Asset were up $2.645 TN over the past 33 weeks. M2 “money” supply surged $125bn last week to a record $16.870 TN, with an unprecedented seven-week expansion of $1.362 TN. M2 inflated $2.329 TN, or 16.0%, over the past year. Institutional Money Fund Assets (not included in M2) jumped $123 billion last week. Over seven weeks, Institutional Money Funds were up $845 billion. Combined, M2 and Institutional Money Funds jumped a staggering $2.207 TN over seven weeks ($100bn less than the growth of Fed Assets).

It’s increasingly clear this pandemic is striking powerful blows at the most fragile Fault Lines – within communities, regions, societies, nations as well as for the world order. To see this disease clobber the most vulnerable ethnic groups and the downtrodden only compounds feelings of inequality, injustice and hopelessness. It is as well stunning to watch COVID-19 hasten the partisan brawl. A nation terribly divided is split only more deeply on the process of restarting the economy. To witness rival global superpowers plunge further into accusation and enmity. And to see the coronavirus viciously attack Europe’s fragile periphery, further splitting a hopelessly divided Europe and pressuring a critical global Fault Line.

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

“Scan Your Code!”: Dystopian Post-Lockdown ‘Normal’ In Wuhan Enforced By ‘Anti-Virus Patrols’

“Scan Your Code!”: Dystopian Post-Lockdown ‘Normal’ In Wuhan Enforced By ‘Anti-Virus Patrols’

The industrial hub of over eleven million people and ground zero for the global outbreak, Wuhan, has come roaring back to life but more in the way of a dystopian version of itself after the virus peaked there in February and now with almost no new infections occurring according to official numbers.

Under strict lockdown since late January as the virus ripped through the original ‘hot zone’ epicenter of Hubei province, the capital city provides a glimpse of what hard-hit urban centers in the West may look like in a new post-lockdown world.

“So far, Wuhan’s answer has been to create a version of normal that would appear utterly alien to people in London, Milan, or New York — at least for the moment,” Bloomberg writes. It’s a situation that appears ‘normal’ but with a totalitarian twist: “Bolstered by China’s powerful surveillance stateeven the simplest interactions are mediated by a vast infrastructure of public and private monitoring intended to ensure that no infection goes undetected for more than a few hours.”Police in some locations have begun to use AI-powered smart helmets to track citizens’ temperatures. Source: China News/Weibo via Daily Mail.

Just to get a major Lenovo tablet and phone factory on the outskirts of the city up and running again – previously closed for over two months – workers are first greeted by a series of four temperature checks. If flagged for even slightly higher than normal temperature (above 99.1F) they get referred to an in-house “anti-virus task force” to make determinations.

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

Eight Meatpacking Plants Close In Weeks Across America Stoking Food Shortage Fears

Eight Meatpacking Plants Close In Weeks Across America Stoking Food Shortage Fears

Update (April 23):  Food shortages across the country are coming a lot quicker than anyone has anticipated. A total of eight meatpacking plants have already gone offline in weeks. On Thursday morning, we noted how pork shortages could hit households by the first week of May.

Now we’re starting to learn the dominos are falling, with meatpacking plants shuttering operations across the country because of the coronavirus outbreak.

Tyson Foods Inc. has announced the third plant closure in about a week and the second closure within 24 hours. The latest announcement crossed the wires on Thursday afternoon, specifies how a major beef facility in Pasco, Washington, is shutting down operations because of the virus outbreak, reported Bloomberg.

“We’re working with local health officials to bring the plant back to full operation as soon as we believe it to be safe,” Steve Stouffer, head of Tyson Fresh Meats, said in the company’s statement. 

“Unfortunately, the closure will mean reduced food supplies and presents problems to farmers who have no place to take their livestock. It’s a complicated situation across the supply chain.”

In total, eight major meatpacking plants have closed in the last several weeks. We noted on Thursday morning that a “rash of coronavirus outbreaks at dozens of meatpacking plants across the nation is far more extensive than previously thought.” 

As for the plant in Washington, well, it produces enough beef to feed four million people per day. Just imagine what happens when people who have just lost their jobs experience food shortages, or maybe rapid food inflation. It could be a trigger for social unrest.

* * * 

Update (19:50):  It appears meatpacking facilities in America’s heartland could be the next epicenter of the coronavirus outbreak.

On Wednesday, Tyson Foods announced two closures of meatpacking facilities because of coronavirus related issues.

Here’s the timeline of closures:

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

The Liquidity Crisis Is Quickly Becoming A Global Solvency Crisis As FRA/OIS, Euribor Soar

The Liquidity Crisis Is Quickly Becoming A Global Solvency Crisis As FRA/OIS, Euribor Soar

One month after turmoil was unleashed on capital markets, when the combination of the Saudi oil price war and the sweeping impact of the coronavirus pandemic finally hit developed nations, what was until now mostly a liquidity crisis is starting to become a solvency crisis as more companies realize they will lack the cash flow to sustain operations and fund debt obligations.

As Bloomberg’s Laura Cooper writes, cash-strapped companies are finding little relief from stimulus measures, and from Europe to the US, cash in hand has been hard to come by even as governments pledge funds for small businesses to bridge the financial gap until lockdowns are lifted:

  • US: The March NFIB survey of U.S. small businesses noted challenges in submitting loan applications and the urgent need for federal assistance
  • UK: A British Chamber of Commerce survey showed only 1% of companies reported being able to access funds dedicated for business. A complex application process for the U.K. Coronavirus Business Interruption Loan Scheme comes as 6% of U.K. firms say they have run out of cash while nearly two-thirds have funding for less than three months
  • Canada: A proposed six-week roll out of emergency funds is unlikely to prevent 1 in 3 companies from laying off workers. More than 10% of the labor force has already filedemployment claims
  • Europe: existing structures are aiding in the deployment of funds, but concerns remain that more is needed with EU leaders failing to reach agreement on further initiatives

As we have noted previously, small businesses – everywhere from China, to Europe, to the US – make up the majority of firms in advanced economies and account for a sizeable share of private sector employment. Quick delivery of stimulus measures is needed to curb widespread insolvencies. This could mean the difference between a short, yet sharp recession and a prolonged erosion to the labor market and economy regardless of containment of the health crisis.

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

China Suffers Economic Double-Whammy As Current Global Demand Collapse Follows Earlier Supply Crash

China Suffers Economic Double-Whammy As Current Global Demand Collapse Follows Earlier Supply Crash

As the first quarter is about to close, many Chinese factories are still operating below full capacity, have been gradually ramping up production over the last several weeks as government data suggests the country’s pandemic curve has flattened.

But as Bloomberg notes, there is a serious problem developing, one where the virus crisis is locking down the Western Hemisphere, has resulted in firms from Europe and the US to cancel their Chinese orders en masse, triggering the second shockwave that is starting to decimate China’s industrial base. 

A manager from Shandong Pangu Industrial Co. told Bloomberg that 60% of their orders go to Europe. In recent weeks, manager Grace Gao warned that European clients are requesting orders to be delayed or canceled because of the virus crisis unfolding across the continent.

“It’s a complete, dramatic turnaround,” Gao said, estimating that sales in April to May could plunge by 40% over the prior year. “Last month, it was our customers who chased after us checking if we could still deliver goods as planned. Now it’s become us chasing after them asking if we should still deliver products as they ordered.”

A twin shock has emerged, one where China shuttering most of its industrial base from mid-January through early March, generated a supply shock. Now, as those Chinese firms add capacity, expecting to be met with a surge in demand from Western companies, that is not the case and is resulting in a demand shock. 

“It is definitely the second shockwave for the Chinese economy,” said Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. The pandemic across the world “will affect China manufacturing through two channels: disrupted supply chains and declining external demand.”

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

“The World Has Changed” – What Was Our Biggest Mistake?

“The World Has Changed” – What Was Our Biggest Mistake?

This is going to take time. Sorry to have to say it, but patience will be required and undoubtedly tested. By far the best thing that central banks can do is keep the global financial and funding markets functioning and not especially worry about whether the stock market, within some reason, has a good or bad day. We need to keep our eye on the ball. Unfortunately, the reality is that, until the virus starts to visibly recede, the best we should plan for is getting by as best we can.

The worst mistake that was made up until now was trying to pretend that it was business as usual.

I was reading through my emails and IBs this morning and was really surprised how many people essentially asked whether I thought the Fed‘s move over the weekend would “solve” the problem. What an extraordinary example of how we have been conditioned. The Fed can’t fix this. They can just help us get through it. It also was striking, how few people brought up the coordinated actions by multiple central banks. This is a global problem. The Fed isn’t in this alone. To think that way, misses the whole point. And, not to beat a dead horse, there will have to be some action on the fiscal policy side. We’ve seen that global monetary policy can be somewhat synchronized. Now we will see if the politicians can do the same.

One thing you can be sure of is that trying to trade these markets is unlikely to be easy. Equities will most likely be heavy. They should be.

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

Only 5 Shale Drillers Are Still Profitable At $31 Oil

Only 5 Shale Drillers Are Still Profitable At $31 Oil


Most shale oil wells drilled in the United States are unprofitable at current oil prices, Rystad Energy has warned. The Norwegian consultancy said, as quoted by Bloomberg, that drilling new wells would be loss-making for more than 100 companies.

Just five shale drillers—Exxon, Chevron, Occidental, and Crownquest—can drill new wells at a profit at $31 per barrel of West Texas Intermediate.

The problem is the nature of shale oil wells: while quick to start production and expand it, they are also quick to run out of oil, so drillers need to keep drilling new ones to maintain production, which is what U.S. shale patch players have been doing for years. However, this has affected investor returns, Bloomberg notes, and now it is affecting spending plans.

“Companies should not be burning capital to be keeping the production base at an unsustainable level,” Tom Loughrey from shale oil data company Friezo Loughrey Oil Well Partners LLC told Bloomberg. “This is swing production — and that means you’re going to have to swing down.”

The situation is more positive for drilled but uncompleted wells, according to Rystad. The consultancy said yesterday that as much as 80 percent of DUCs in the U.S. shale patch have a breakeven price of less than $25 per barrel of WTI. Yet this is dangerously close to current prices.

If nobody blinks in this supply war, prices may have to go this low in order to properly reduce production and get supply-demand back in balance,” Rystad’s head of shale research, Artem Abramov, said in the news release.

“This could turn out to be one of the greatest shocks ever faced by the oil industry, as coronavirus containment measures will add to the headache of producers fighting for market share. And OPEC has clearly stated that it won’t be coming to the rescue in the second quarter of 2020,” he also said. 

Four Scenarios Of How Covid-19 Could Wreak Havoc On Global Economy

Four Scenarios Of How Covid-19 Could Wreak Havoc On Global Economy

The grave risks and dangers of a globalized world of interlocking supply chains over the last four decades is starting to be realized as the crash of China’s economy could cost the world $2.7 trillion. 

Bloomberg Economics says the shutdown of China’s economy could have severe implications for the rest of the world and lays out four scenarios of what could happen next: 

The first scenario is a plunge in China’s economy, with a modest spillover of economic damage in Asia Pacific countries, Europe, and the US. China is a source of demand for multinationals based across the world, and if China can reopen its economy as soon as possible, contagion can be minimized. The scenario says a “severe shock in the first half would be followed by recovery in the second. For the world as a whole, and major economies like the US, the impact would then be hard to see in the full-year GDP data.”  

The second scenario is the assumption that the Covid-19 outbreak worsens, and China’s economy remains disrupted with the hopes of a V-shape recovery transforming into a U-Shape dip, which would result in localized disruptions for Asia Pacific countries and Europe. 

“Even when factories are back to work, it’s not like all the problems are solved,” said Li Lei, the Made-in-China.com manager. “Many factories don’t have enough inventory… the supply chain obstacles cap production capacity.”

The scenario assumes Asia Pacific countries like South Korea and Japan, and European countries like Germany, France, and Italy, would experience supply chain disruptions because of the lack of parts sourced from China due to factory shutdowns. Bloomberg said in their calculations, this scenario would result in global growth at 2.3%, down from 3.1% pre-virus forecast. 

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

A Shift in the Global Financial Order Is Upon Us

A Shift in the Global Financial Order Is Upon Us

The collapse in bond yields, exacerbated by the crash in oil prices, marks an end to the era of trust in central banks.

Hold on, the shock to the oil market is going to spread.
Hold on, the shock to the oil market is going to spread. Photographer: Andrew Burton/Getty Images

OPEC+: A 24-Hour View

Coronavirus. That will be the first and last time this column mentions that word. Despite the weekend’s many developments in the epidemic, there is a new issue to drive the markets. Like the dreaded disease, its effect is to take an already disquieting market trend and make it far more extreme. The breakdown of the OPEC talks in Vienna on Friday, followed by Saudi Arabia’s announcement that it would abandon attempts to limit supply, and instead aim to increase market share, has driven a historic fall in the oil price.

With Brent and West Texas Intermediate crude both down more than 20% when trading began in Asia, this was on course to be the worst day for the oil price since January 1991, when a coalition was fighting Iraq over its invasion of Kuwait:

Brent Crude is on course for its biggest daily fall in 29 years

Moves this dramatic can create quite a shock. This could be good news for beleaguered airlines, whose fuel will be much cheaper, and it should provide a broad economic stimulus as motorists and industrialists see fuel costs reduced. But those benefits take time to make themselves felt.

In the meantime, this will put immense pressure on anything that benefits from a high oil price. An immediate effect will be on the U.S., which has profited from the shale oil boom. The economics of that industry now come under threat — which is precisely the purpose of allowing prices to drop so far. Shale operators tend to be heavily leveraged and so now face a great risk of bankruptcy, which will hurt banks, and credit investors.

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

The Fed “Is Complicit In Creating Fragilities In The System”

The Fed “Is Complicit In Creating Fragilities In The System”

When the Fed cut interest rates this week, everyone had an opinion about it.

  • The economy needs it to fend off recession.
  • The economy has been hanging in well and they shouldn’t have rushed to spend dwindling monetary policy resources.
  • They were responding to the stock market.
  • They were helping keep the financial plumbing functioning.
  • They were bold.
  • They folded to criticism.
  • More is needed immediately.
  • Enough is enough for now.
  • Their communication strategy was sloppy.
  • They were willing to show flexibility in the face of evolving circumstances.
  • They are scaring people.
  • They are reassuring people.

The list is endless. As are the number of commentaries taking each side.

Who was right?

To a very real extent, they all were.

Sometimes, you just have to take action. And that is what they had at hand. Even if there will be both positive and negative consequences. But, if the rest of the government fails to demonstrate proper and immediate resolve to do its part in fighting the disease, it will all be for naught. They are buying time. But there isn’t a lot of it. Especially because, while fiscal policy would be a help, it remains to be seen if and when it can be expected to take its rightful place in manning the laboring oar.

It doesn’t mean the Fed can allow itself to be assumed to be at the complete mercy of the markets. Although, to be honest, they ultimately are. 

They have been complicit in creating fragilities in the system through their encouragement of desperation investing that they bear a responsibility to be responsive to it. Perhaps at the moment, more than we thought or would like.

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

The Good, Bad, & Ugly Of Virus Response: El-Erian Admits Govts & Central Banks Can Only Do So Much

The Good, Bad, & Ugly Of Virus Response: El-Erian Admits Govts & Central Banks Can Only Do So Much

Look for this week to be full of news about governments and central banks signaling their “whatever it takes” willingness to take additional policy measures to fight the contractionary impact of the coronavirus on virtually every economy around the world. Already, the Federal Reserve signaled on Friday readiness to loosen monetary conditions in the United States while Italy announced on Sunday a “shock therapy” of fiscal measures.

As more announcements materialize during the week, it will be crystal clear that the question will not be about the willingness to act but about the effectiveness of those actions. For the most part, the answer will be only partly satisfactory in the short term until two underlying health conditions change. Less obvious will be the need to weigh immediate benefits — partial and as necessary as they are — against the possibility of longer-term unintended consequences associated with the inevitable use of ill-suited policy tools for the task at hand. Those include more borrowing of growth from the future and even greater reliance on activities bolstered by central bank liquidity injections.

An increasing number of sectors and countries are experiencing sudden-stop dynamics as the economic effects of the coronavirus spread more widely around the world. Both demand and supply are being hit hard and in multiple ways. For example, News Corp., the owner of the Wall Street Journal, banned nonessential travel for its employees this weekend; more conferences are being cancelled around the world; airlines are reducing flights; and companies are asking employees to work from home.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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