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JPMorgan Sees ‘Stratospheric’ $380 Oil on Worst-Case Russian Cut

An employee walks across the top of an oil storage tank at an oil field near Salym, Russia.
An employee walks across the top of an oil storage tank at an oil field near Salym, Russia.

Source: Bloomberg

Global oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts, JPMorgan Chase & Co. analysts warned.

The Group of Seven nations are hammering out a complicated mechanism to cap the price fetched by Russian oil in a bid to tighten the screws on Vladimir Putin’s war machine in Ukraine. But given Moscow’s robust fiscal position, the nation can afford to slash daily crude production by 5 million barrels without excessively damaging the economy, JPMorgan analysts including Natasha Kaneva wrote in a note to clients.

For much of the rest of the world, however, the results could be disastrous. A 3 million-barrel cut to daily supplies would push benchmark London crude prices to $190, while the worst-case scenario of 5 million could mean “stratospheric” $380 crude, the analysts wrote.

“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the analysts wrote. “It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”

JPMorgan Publishes Terrifying Take On What Ukraine Crisis Will Do To Commodity Prices

JPMorgan Publishes Terrifying Take On What Ukraine Crisis Will Do To Commodity Prices

So far western media has been relatively silent on what the escalating Ukraine crisis means for western consumers when it comes to prices for everyday commodities such as oil, gas, wheat, corn (and gold, for the goldbugs), and with good reason: as the Russian ambassador warned, “ordinary Americans” are about to feel the pain. As such it is understandable that the pro-Biden media is hoping to avoid discussing the consequences to America’s checkbook from the escalation in Ukraine: after all, the last thing hundreds of millions of Americans want to hear is that already sky high prices are about to get even higher.

JPMorgan’s commodity desk, however, has no such political considerations and in a must-read note published earlier today by the bank’s commodity strategist team led by Natasha Kaneva (available to pro subs in the usual place), the bank writes that “geopolitical escalation over the last few days has materially increased the risk of further aggravating commodity market imbalances. At this stage of the conflict, it is hard to see a path towards an easy de-escalation.” Consequently, JPM now expects “a steady rise of tensions in Ukraine and a corresponding intensification of sanctions from the West.” In that case, the bank warns that “the world could see an extended period of elevated geopolitical tensions and high risk premium in all commodities given Russia’s far reaching impact on global commodities markets.

First, JPMorgan looks at what the impact on oil could be and it’s not pretty.

Confirming what we wrote just two days ago in “Oil Prices Will Be Above $100 For A “Prolonged Period“, Kaneva notes that Russia has always been a reliable supplier of oil, even at the height of the Cold War…

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

JP Morgan’s misinformation on the clean energy disruption – a handy guide

JP Morgan’s misinformation on the clean energy disruption – a handy guide

The JP Morgan Asset and Wealth Management Annual Energy Paper is one of the most influential publications among global investment and business leaders in the energy sector.

But JP Morgan Chase’s 2021 Annual Energy Paper is a deeply flawed piece of work that promotes some serious misinformation about the clean energy transformation, reinforcing the mistaken belief – often promulgated by fossil fuel companies – that it will be slow, expensive and require onerous state intervention.

Coming from JP Morgan Chase – the world’s fifth largest bank, and the largest lender to fossil fuel industries – the paper informs the policy, investment and business decisions of many influential companies, organisations and governments around the world. Which is why it is important to understand that the world’s largest fossil fuel lender appears largely oblivious to the dynamics of technology disruptions and energy transitions.

Myth 1: Renewable energy forecasts are too optimistic

The Annual Energy Paper, authored by chairman of JP Morgan Asset Management’s chairman of market and investment strategy Michael Cembalest, was overseen by its technical advisor, influential academic Vaclav Smil.

Its tone is set by a graph on the first page depicting alleged failed ‘renewable energy forecasts’. The graph seems to show that these forecasts were overly optimistic, and then repeatedly turned out to be false.

Yet according to Ketan Joshi, who previously worked in science communications for Australia’s national science agency, the sources for the alleged forecasts are impossible to trace.

For instance, he writes: “Danish physicist Bent Sørensen, for instance, seems to have published the figure between 1978 and 1980, and it isn’t easy to figure out where the prediction of 50% by 2000 was made. There was never any ‘Clinton Presidential Advisory Panel’ – the phrase can only be found in republications of this very chart; so that’s a mystery.”

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

JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”

JPM: “We Could Be Just Weeks Away From Cushing Effectively Running Out Of Crude”

Back in April 2020, the landlocked West Texas Intermediate crude oil price briefly crashed into negative territory – a stunning turn of events that cost traders massive losses – when the spot oil market found itself with an unprecedented glut as there was literally too much oil to be stored, and as such those traders who were assigned delivery would pay others just to take the physical oil off their hands. Well, in just a few weeks we may see the opposite scenario: no physical oil at all in the largest US commercial storage facility, leading to what may be a superspike in the price of oil.

In a note predicting the near-term dynamics of the oil market, JPMorgan’s commodity Natasha Kaneva writes that in a world of pervasive nat gas and coal shortages which are forcing the power sector to increasingly turn to oil (boosting demand by 750bkd during winter and drawing inventory by 2.1mmb/d in Nov and Dec), Cushing oil storage – which just dropped to 31.2mm barrels, the lowest since 2018

… may be just weeks from being “effectively out of crude.” The bank’s conclusion: “if nothing were to change in the Cushing balance over the next two months, we might expect front WTI spreads to spike to record highs—a “super backwardation” scenario.”

Before we get into the meat of the note, first some background which as usual these days, begins with Europe’s catastrophic handling of its energy needs.

As JPM notes, the heating season of 2021/2022 is opening with record high global gas prices even as cold winter weather has yet to arrive…

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

JPMorgan: “Central Banks Have Created A Collective Hallucination Where Valuations Are Entirely Fabricated”

JPMorgan: “Central Banks Have Created A Collective Hallucination Where Valuations Are Entirely Fabricated”

Over a decade ago we were mocked and ridiculed for saying that the Fed was manipulating and rigging stock markets, pushing risk assets higher (either singlehandedly or via Citadel) and its only mandate was to prop up consumer confidence by preventing a stock market crash when instead all it was doing was creating a record wealth and income divide which has now morphed into “Trump”, populism the likes of which have not been seen since WWII, the BLM movement, and a country so torn apart it is unlikely it can ever be put back together again.

Fast forward to today when things are very different, and everyone from SocGen, to Rabobank, to Bank of America trashes the joke that is the Fed, and whose devastating money-printing fetish – just to keep stocks elevated – has become so conventionally accepted that the only ones who can’t see it are either idiots or those whose paycheck depends on not seeing it.

We can now add JPMorgan to the list of those who do see what was obvious to everyone back in 2009.

In an interview with  Bloomberg TV, Oksana Aronov, head of alternative fixed-income strategy tat JPMorgan Asset Management, said that central bank buying has forced rising credit valuations out of line with deteriorating fundamentals, resulting in a market where everything is broken:

European and U.S. credit investors are “locked in this collective hallucination with the central banks around valuations and what they mean and that there is a lack of desire to acknowledge the fact that market valuations are entirely fabricated – or synthetically generated – by all the central bank liquidity and do not reflect fundamentals of the securities that they represent,” Aronov said in a Friday BTV interview, adding that “Central banks continue to run the show and investors need to be really cautious here.”

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

Fourth Turning Accelerating Towards Climax

FOURTH TURNING ACCELERATING TOWARDS CLIMAX

“At some point, America’s short-term Crisis psychology will catch up to the long-term post-Unraveling fundamentals. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed.” – Strauss & Howe – The Fourth Turning

Economists Predict Great Depression II for US Economy: Fast or V ...

I’ve been writing articles about the Fourth Turning for over a decade and nothing has happened since its tumultuous onset in 2008, with the global financial collapse, created by the Federal Reserve and their Wall Street co-conspirator owners, that has not followed along the path described by Strauss and Howe in their 1997 book – The Fourth Turning.

Like molten lava bursting forth from a long dormant (80 years) volcano, the core elements of this Fourth Turning continue to flow along channels of distress, long ago built by bad decisions, corrupt politicians and the greed of bankers. The molten ingredients of this Crisis have been the central drivers since 2008 and this second major eruption is flowing along the same route. The core elements are debt, civic decay, and global disorder, just as Strauss & Howe anticipated over two decades ago.

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

EVERYTHING but Bullion & Commodity BUBBLE

EVERYTHING but Bullion & Commodity BUBBLE

I am going to start with something you hopefully can intuit as factual.

Flacid fiat currency values in the aggregate, remain in their greatest bubble of all time. 

How do we know this?!

Because gold bullion is nowhere near what the parasitical establishment will predictably and way too early describe as being in some valuation ‘bubble.’

The coming gold bubble conversation is a moot talking point until at least we clear $4,000 oz in fiat USD valued currently (see the now fiat monetary base vs claimed US Gold Reserves chart below).

In other words, gold has not taken the fiat $USD and almost none of the other +180 fiat currencies entirely to the woodshed, just yet.

Strange, given that global and US fiat currency creation has never been more reckless and speedy than perhaps the first-two- and third QEs following the 2008 financial crisis.

Again fiat Feds are clogging the financial system with more debased we cannot believe its not-QE4 overnight REPO injections. 

Wondering in writing below.

The BIS’ FSB ‘s #1 Bank Bail-In threat remains JP Morgan. That’s a verifiable fact.

Now we wonder if JP Morgan walked away from the REPO market in revenge for their precious metals desk getting US DoJ RICO’d?

Mid-September 2019 timing looks like a match. Bail-ins cannot come soon enough.

One has to go back to early 1980 precious metal bull market peak, back to when especially early 1980 gold prices were making central bank fiat currencies tell their inherent truth.

We are further still now wallowing in fiat valued delusions. Just awaiting the supposed US gold reserves to account from +40 to 100% vs. fiat Fed notes issued currently.

Here is the fiat Federal Reserve note’s ongoing levitation versus all the Official Gold Reserves the USA supposedly holds at the moment. There are trillions of rationalizations for why gold will be rocketing higher in value soon.

EVERYTHING but Bullion & Commodity BUBBLE

The Federal Reserve Is Directly Monetizing US Debt

The Federal Reserve Is Directly Monetizing US Debt

In a very real way, MMT is already here

Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.

But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.

At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

How It’s Supposed to Work

Here’s how it’s supposed to work when the US government issues new debt:

  1. If the US Treasury needs to raise new funds, it announces an upcoming auction of US Treasury bills/notes/bonds.
  2. A date for the auction is set.
  3. Various participants bid for those bills/notes/bonds (including ‘regular folks’ like you and me if we’re using the government’s Treasury Direct program).
  4. At a later date, the Fed can buy those US Treasury bills/notes/bonds. The various holders of that debt submit offers to sell, and the Fed (presumably) selects the best offers on the best terms.

The Federal Reserve, under no conditions, buys Treasury paper directly.  The Federal Reserve’s own website still maintains that this is the case:

(Source)

There are two important claims plus one assertion I’ve highlighted in there, each in a different color:

  1. Yellow: Treasury securities may “only be bought and sold in the open market.”
  2. Blue: doing otherwise might compromise the independence of the Fed.
  3. Purple: the Fed mostly buys “old” securities.

So according to the Fed: it’s independent, it follows the rules set forth in the Federal Reserve Act of 1913, and it mostly buys “old” Treasury paper that the market has already properly priced in a free and fair system.

But that’s not really what’s going on…

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

Regulators Expand Already Massive Precious Metals Manipulation Probe To Other Markets

Regulators Expand Already Massive Precious Metals Manipulation Probe To Other Markets

Just two days after the DOJ took the unprecedented step of designating the JPMorgan precious metals trading desk as a “criminal enterprise” using unusually aggressive language which reminded legal experts of indictments utilizing the RICO Act, and which hopefully ended years of precious metal manipulation by the group formerly headed by Blythe Masters, CNBC now reports that the probe is set to spread significantly as Federal prosecutors and regulators “are expanding their already aggressive investigations of fraudulent precious metals trades at J.P. Morgan Chase to other U.S. markets and financial firms.”

The inquiry into market manipulation of all kinds comes amid a spike in criminal prosecutions and civil actions in the past year involving so-called “spoofing” in the precious metals markets, which we now find had been taking place with reckless abandon for years at JPMorgan and virtually all other major banks.

The prosecutors broadened their investigation thanks to information received from traders questioned for spoofing-related charges, and as in most RICO cases, the information obtained from those traders has led to criminal charges against other individuals.

In short: what we for many years said was blatant manipulation of precious metals was precisely that, and now the participants in said manipulating cabal are being treated as a mafia syndicate by the DOJ.

The widening inquiry is being led by the Justice Department and the U.S. Commodity Futures Trading Commission as they continue their pursuit of individuals and firms for manipulating U.S. markets.

The crackdown may result in one of the biggest conviction rings for the DOJ since the financial crisis, with CNBC adding that the scope of the investigations has grown to the point where the criminal fraud division of the Justice Department expects to add personnel to the existing team to assist with the investigations and prosecutions of cases.

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

JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency

JPMorgan: We Believe The Dollar Could Lose Its Status As World’s Reserve Currency

Almost eight year ago, we first presented a chart first created by JPMorgan’s Michael Cembalest, which showed very simply and vividly that reserve currencies don’t last forever, and that in the not too distant future, the US Dollar would also lose its status as the world’s most important currency, since it is never different this time.

As Cembalest put it back in January 2012, “I am reminded of the following remark from late MIT economist Rudiger Dornbusch: ‘Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'”

Perhaps it is not a coincidence then that in light of the growing number of mentions of MMT and various other terminal, destructive monetary policies that have been proposed to kick on the current financial system the can just a little bit longer, that the topic of longevity of reserve currency status is once again becoming all the rage, and none other than JPMorgan’s Private Bank ask in this month’s investment strategy note whether “the dollar’s “exorbitant privilege” is coming to an end?”

So why is JPM, after first creating the iconic chart above which has since spread virally across all financial corners of the internet, not only worried that the dollar’s reserve status may be coming to an end, but in fact goes so far as to state that “we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”

Read on to learn why even the largest US bank has started to lose faith in the world’s most powerful currency.

Is the dollar’s “exorbitant privilege” coming to an end?

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

Goldman: Here’s Why The Fed Is About To Shock The Market

Goldman: Here’s Why The Fed Is About To Shock The Market

As discussed earlier, and as both Bank of America and JPM explained, the biggest risk for the market next week is if the Fed not only doesn’t cut – the market assigns a very low probability to such a “pre-emptive” move – but fails to signal an aggressive dovish reversal in the form of a rate cut in July. And yet, despite its upbeat outlook – it still expects the S&P to close the year at 3,000, Goldman’s strategists are certainly taking the over on how hawkish the Fed will sound next week.

As Goldman’s chief economist Jan Hatzius writes, the bank expects “unchanged” policy at the June 18-19 FOMC meeting and sees the subjective odds of a June cut at only 10%. More importantly, while Goldman looks for a dovish tilt to the proceedings it won’t be nearly enough to appease markets that have aggressively priced rate cuts in the fall. 

Barring an unlikely surprise on the funds rate, we expect the market to focus on four key developments:

  1. the statement’s policy stance/balance of risks paragraph,
  2. the number of participants projecting cuts in the Summary of Economic Projections (SEP),
  3. the extent of dovish changes to the statement and economic forecasts, and
  4. the tone of Powell’s press conference.

Rather than Goldman’s standard “Then and Now” table, the chart below “plots the setup for next week’s meeting across three dimensions, as well as their averages ahead of three major dovish shifts: September 2007 (at which the Fed abandoned the hiking bias and cut 50bps in response to subprime turmoil), September 2010 (formally signaled QE2), and March 2016 (scuttled the hiking cycle until global risks abated). Here, Hatzius also shows the three-month evolution of these four variables: stock prices, IG credit spreads, and consensus GDP growth.

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

JPMorgan: We Are Fast Approaching The Point Where Banks Run Out Of Liquidity

JPMorgan: We Are Fast Approaching The Point Where Banks Run Out Of Liquidity

Last week we first noted that something unexpected has been going on in overnight funding markets: ever since March 20, the Effective Fed Funds rate has been trading above the IOER. This was unexpected for the simple reason that it is not supposed to happen by definition. 

As a reminder, ever since the financial crisis, in order to push the effective fed funds rate above zero at a time of trillions in excess reserves, the Fed was compelled to create a corridor system for the fed funds rate which was bound on the bottom and top by two specific rates controlled by the Federal Reserve: the corridor “floor” was the overnight reverse repurchase rate (ON-RRP) which usually coincides with the lower bound of the fed funds rate, while on top, the effective fed funds rate is bound by the rate the Fed pays on Excess Reserves (IOER), i.e., the corridor “ceiling.”

Or at least that’s the theory. In practice, the effective FF tends to occasionally diverge from this corridor, and when it does, it prompts fears that the Fed is losing control over the most important instrument available to it: the price of money, which is set via the fed funds rate. And ever since March 20, this fear is front and center because as shown in the chart below, starting on March 20, the effective Fed Funds rate rose above the IOER first by just 1 basis point, and then, last Friday spiked as much as 4 bps above IOER.

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

China’s “JPMorgan” Hit By Sudden Debt Crisis As Cross-Default Chain Reaction Triggered

China’s “JPMorgan” Hit By Sudden Debt Crisis As Cross-Default Chain Reaction Triggered

Ever since Beijing allowed private Chinese companies (even certain state-owned enterprises) to officially fail for the first time in 2016, and file for bankruptcy to restructure their unsustainable debt loads, it’s been a one-way street of corporate bankruptcies, one which we profiled last June in “Is It Time To Start Worrying About China’s Debt Default Avalanche“, and which culminated with a record number of Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a record 119.6 billion yuan in defaults on local Chinese debt in 2018. 

However, whereas for much of 2018 Chinese defaults affected largely less meaningful companies with little to no systemic impact, in 2019 the defaults started hitting dangerously close to the beating heart of China’s massive, $40 trillion financial system (roughly three times China’s GDP). As we reported back in February, a giant Chinese borrower missed its payment deadline when Wintime Energy – which in 2018 became the latest Chinese bond defaulter as the coal miner failed to pay scheduled interest – didn’t honor part of a restructured debt repayment plan, setting the scene for even more corporate defaults, and as Bloomberg put it, “underscoring the risks piling up in a credit market that’s witnessing the most company failures on record.”

Then, earlier this week, a unit of China’s infamous conglomerate, HNA Group, defaulted on a loan it took out just seven months ago, the latest in a string of missed payments that threaten to complicate the embattled Chinese conglomerate’s restructuring. As Bloomberg reported, lenders to CWT International Ltd., a Hong Kong-listed unit of HNA which is still struggling to cope with its debt after embarking on more than $25 billion of asset sales since 2018 unwinding the biggest global acquisition binge in modern Chinese history, said they would seize most of the company’s assets –

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

Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

In Turkey’s ongoing attempt to crush currency manipulators, yesterday we reported that in addition to launching a “probe” against JPMorgan, the biggest US bank, for daring to cut its TRY price target, as well as threatening unnamed “manipulators”, on Monday Turkish authorities took a page of the Chinese currency manipulation playbook, when they made it virtually impossible for foreign investors to short the lira as they soaked up virtually all intermarket liquidity, potentially threatening to kill the economy.

As we reported yesterday, the overnight swap rate on Monday soared more than ten-fold over the prior two sessions to more than 300%, the highest spike on record going back to the nation’s 2001 financial crisis as offshore funds clamoring to close out long-lira positions failed to find counterparties and the cost of a lira short exploded.

Think Volkswagen short squeeze but for a currency, or FXwagen.

Well, FXwagen went turbo on Tuesday, when this unprecedented move continued as Turkish Lira swaps exploded again, more than doubling overnight, and hitting an insane 700%, with some reporting prints as high as 750%

There was just one problem: whereas on Monday this “shock therapy” meant to force out the shorts did in fact work, sending the Lira soaring, and the USDTRY tumbling, the continuation of this painful squeeze no longer has a positive impact on the currency, where as of this point most of the shorts had already been stopped out. As a result, the USDTRY actually rose for the day, and was up to 5.4272, after hitting 5.3051 on Monday.

Commenting on this unprecedented move in swaps, Bloomberg’s Mark Cudmore notes that he doesn’t recall “seeing this happen to any liquid and freely tradeable currency in the past 15 years.”

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

JPMorgan Chase Trader Pleads Guilty to Gold Manipulation, Turns State’s Evidence

JPMorgan Chase Trader Pleads Guilty to Gold Manipulation, Turns State’s Evidence

Gold and silver investors got a rare bit of good news on the enforcement front last week.

A trader from JPMorgan Chase pled guilty to rigging the precious metals futures markets.

John Edmonds admitted to cheating the bank’s clients and plenty of other people naive enough to expect fair treatment on the COMEX and other exchanges.

While this is by no means the first time a banker has been caught cheating, some aspects of this case are certainly worth noting.

Below is some detail on the who, what, when, why, and how of Mr. Edmonds’ activities at JPMorgan.

As part of his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.

Edmonds and his fellow precious metals traders at the Bank routinely placed orders for precious metals futures contracts with the intent to cancel those orders before execution (the Spoof Orders), he admitted.

This trading strategy was admittedly intended to inject materially false and misleading liquidity and price information into the precious metals futures contracts markets by placing the Spoof Orders in order to deceive other market participants about the existence of supply and demand. The Spoof Orders were designed to artificially move the price of precious metals futures contracts in a direction that was favorable to Edmonds and his co-conspirators at the Bank, to the detriment of other market participants.

In pleading guilty, Edmonds admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.

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

 

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