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Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

In 2018, the Chinese launched a gold-backed, yuan-denominated oil futures contract.  These contracts were priced in yuan, but convertible to gold, raising the prospect that “the rise of the petroyuan could be the death blow for the dollar.

Two weeks ago, The IMF reported that the global share of US-dollar-denominated exchange reserves dropped to 59.0% in the fourth quarter, according to the IMF’s COFER data released today. This matched the 25-year low of 1995.

Also last week, Peter Thiel warned “Bitcoin should also be thought [of] in part as a Chinese financial weapon against the US… It threatens fiat money, but it especially threatens the U.S. dollar.”

All of which sets the stage for the dramatic headlines that hit this morning, as Reuters reports that China has given domestic and international banks permission to import large amounts of gold into the country,

The People’s Bank of China (PBOC), the nation’s central bank, controls how much gold enters China through a system of quotas given to commercial banks.It usually allows enough metal in to satisfy local demand but sometimes restricts the flow.

In recent weeks it has given permission for large amounts of bullion to enter, the sources said.

“We had no quotas for a while. Now we are getting them … the most since 2019,”said a source at one of the banks moving gold into China.

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

“Things Are Out Of Control”: Supply Chain Collapse Leads To Lumber Frenzy, Soaring Home Prices

“Things Are Out Of Control”: Supply Chain Collapse Leads To Lumber Frenzy, Soaring Home Prices

With median prices for both existing and new homes at all time highs, and soaring at a record annualized rate of almost 20%…

… increasingly more Americans find themselves priced out of homeownership, while still cautious banks refuse to lend them the mortgages they so desperately need to live the American Dream (on credit).

And unfortunately, since most US houses are made out of wood, we have even more bad news: home prices are about to get even more expensive if for no other reason than the frenzy sweeping the lumber market is set to keep going through the summer peak of US home building as labor shortages and depleted inventories mean that supplies can’t keep up with skyrocketing demand.

As Bloomberg summarizes what we have observed across the past few months of torrid, sometimes panicked, ISM Survey Responses such as this one

“Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages.”

…  there is an unprecedented shortage and tightness across the entire timber supply chain. Sawmills have had trouble ramping up fast enough to meet the surge in demand. Meanwhile, trucking delays and worker shortages at lumber yards have added to costs, which are now getting passed on to consumers. Worst of all, the bigger cost component of any new house l Lumber prices – have surged more than 60% to record highs this year, and analysts aren’t expecting any relief until late 2021, if not later.

That, according to Bloomberg, will keep pouring fuel on red-hot home prices, making ownership less affordable for large swathes of the population (one would almost think it was the Fed’s plan to destroy the middle class)…

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

Texas Faces New Power Crisis: Prices Soar 10,000% As ERCOT Urges Power Conservation Amid Grid ‘Emergency’

Texas Faces New Power Crisis: Prices Soar 10,000% As ERCOT Urges Power Conservation Amid Grid ‘Emergency’

Texas’ power grid operator, Electric Reliability Council of Texas (ERCOT), which came under immense pressure months ago for mishandling the historic winter storm in mid-February, urged customers Tuesday afternoon to “reduce their electricity use” as a cold front swept through, causing power demand to spike.

ERCOT told customers to please “conserve energy at this time. Consumers and businesses are urged to reduce their electricity use this afternoon and into the evening.”

Texas’ power grid operator also said:

“Due to a combination of high gen outages typical in April & higher-than-forecasted demand caused by a stalled cold front over TX, ERCOT may enter emergency conditions. 

With a cold front moving through the Lone Star state some generation units were already down for repair work. Bloomberg reports one spot price for Texas power jumped as much as 10,000% on Tuesday.

In particular, the average spot on-peak electricity at Ercot’s North Hub jumped more than 10,000% to $1,975.96 a megawatt-hour as of 4 p.m, according to grid data compiled by Genscape. Prices are capped at $2,000 a megawatt hour, after regulators suspended the previous $9,000 cap following the energy crisis.

The grid has seen tight supply conditions as below-average temperatures pour into the state this week.

So far, “We do not expect customer outages. Declaring an emergency would allow us to access additional resources,” ERCOT said, although it requested energy conservation. 

The internet was not enthused by ERCOT’s grid warning today:

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

Russia Warns NATO Against Sending Any Troops To Ukraine As “Frightening” Escalation Looms

Russia Warns NATO Against Sending Any Troops To Ukraine As “Frightening” Escalation Looms

The Kremlin’s latest statements out Friday amid the potential new Ukraine crisis which has seen a serious flare-up in fighting in the Donbass region, along with what appears to be far bigger-than-usual troop movements on Russia’s side of the border, has raised the stakes further.

Russia has vowed it will take “extra measures to ensure its own security” should it observe any deployment of NATO troops inside Ukraine, the Kremlin statement said Friday according to Reuters.

It firmly warned against any potential looming NATO troop movements following Brussels voicing concern the day prior over the widespread reports and videos purporting to show a significant Russian build-up of forces along Ukraine’s eastern border.

Archive image of NATO exercises in Europe, via Allied Joint Force Command Naples

Reuters reports Russia’s Friday statement and “warning” as follows:

Kremlin spokesman Dmitry Peskov told reporters on Friday that the situation at the contact line in eastern Ukraine between Ukrainian government forces and Russian-backed separatist forces was quite frightening and that multiple “provocations” were taking place there.

U.S. Defense Secretary Lloyd Austin on Thursday spoke with his Ukrainian counterpart, Andrii Taran, and “condemned recent escalations of Russian aggressive and provocative actions in eastern Ukraine,” the Pentagon said.

“Our rhetoric [over Donbass] is absolutely constructive,” Peskov said in response to journalists’ questions. “We do not indulge in wishful thinking. Regrettably, the realities along the engagement line are rather frightening. Provocations by the Ukrainian armed forces do take place. They are not casual. There have been many of them.”

Ukrainian President Volodymyr Zelensky condemned the Russian troop movements across the border, calling the situation “muscle-flexing” likely to lead to “provocations” for which Ukraine’s army is “ready”…

russia, nato, united states, ukraine, zerohedge, war, world war 3

Rehypothecated Leverage: How Archegos Built A $100 Billion Portfolio Out Of Thin Air… And Then Blew Up

Rehypothecated Leverage: How Archegos Built A $100 Billion Portfolio Out Of Thin Air… And Then Blew Up

One week after the biggest, and most spectacular hedge fund collapse since LTCM, we now have an (almost) clear picture of how Bill Hwang’s Archegos family office managed to single-handedly make a boring media stock the best performing company of 2021, but then when its luck suddenly ended it was margin called into extinction, leading to billions in losses for the banks that enabled what Bloomberg has dubbed its “leveraged blowout.”

Thanks to detailed reports by the Financial Times and Bloomberg, we now have the missing pieces to complete the picture of the biggest hedge fund implosion of the 21st century.

As a reminder, and as we previously discussed, we already knew how Archegos was building up stakes in its various holdings: unlike most other investors, the fund never actually owned the underlying stock or even calls on the stock, but rather transacted by purchasing equity swaps known as Total Return Swaps (TRS) or Certificates For Difference (CFD). Similar to Credit Default Swaps, TRS exposed Archegos to the daily variation margin on the underlying stock, and as such while the fund would benefit economically from increases in the underlying stock price (and, inversely, would be hit by price drops forcing it to put up more cash as margin any day the stock price dropped) it would never be the actual owner of record of the underlying stock. Instead, the stock that Archegos was long would be “owned” by its prime broker, the same entity that allowed it to enter into TRS in the first place…

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

archegos, rehypothecation, zerohedge, financial markets, leverage

What To Expect From Today’s OPEC+ Meeting: Another Saudi Surprise?

What To Expect From Today’s OPEC+ Meeting: Another Saudi Surprise?

After Wednesday’s JMMC meeting ended without reaching a recommendation (as is customary and expected), the key decision-making OPEC+ meeting – where ministers will hammer out May’s output quotas – begins at 1pm London Time. As Newsquawk notes, market expectations are skewed towards an extension of current cuts, but a clear stance from Saudi – who have a tendency to surprise in recent months – remains to be seen, namely on the decision regarding the extra 1MM barrels the Kingdom has kept offline since the start of the year.

Commenting on today’s key event, Bloomberg’s Jake Lloyd-Smith reminds us that Saudi Arabia has sprung some big surprises in the oil market already this year, and may do so again today as OPEC+ grapples with a thorny decision on supply. That could make for a volatile session before the long weekend, and already has with oil whipsawing from gains to losses in jittery trading, amid market rumors that OPEC+ is i) considering a return to phased monthly oil-output hikes and ii) is also considering maintaining current cuts, according to a delegate… which pretty much covers every base so is completely useless.

As such, while the consensus view is the grouping will stick with deep output curbs to safeguard crude’s recovery, there’s an outside chance of alternative outcomes. These span the twin extremes, from releasing barrels to tightening further.

At issue is the varied recovery across key regions. For every rosy demand metric from the U.S. or China, there’s a poor one from Europe as lockdowns make a comeback. In addition, Riyadh faces a headache from rival Iran, which has been pushing clandestine barrels into China despite U.S. sanctions…

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

opec+, oil and gas industry, zerohedge, saudi arabia, russia, iran, china, united states, economic sanctions, oil, oil price, bloomberg

Suez Canal Crisis Morphs Into Global Supply Chain Wrecking Ball 

Suez Canal Crisis Morphs Into Global Supply Chain Wrecking Ball 

The world got another wake-up call this week about the overreliance on complex global supply chains. As of Friday, the massive containership, “Ever Given,” remains stuck in the canal, unable to be refloated, paralyzing the world’s most important shipping lane.

Ever Given is one of the world’s largest containerships, with approximately 20,000 shipping containers of goods. The shipping lane is a vital linkage between Asian factories and customers in Europe and the US.

Reuters reports the Suez Canal Authority (SCA) is looking forward to cooperating with the US to refloat the stranded containership that has blocked the canal since Tuesday.

“The Suez Canal Authority (SCA) values the offer of the United States of America to contribute to these efforts, and looks forward to cooperating with the US in this regard,” it said in a statement.

Shoei Kisen, the Japanese owner of the ship blocking the Suez Canal, aims to dislodge the vessel from the canal bank by Saturday. But as Bloomberg reports, the process to refloat the ship could “take until at least next Wednesday.”

Peter Berdowski, CEO of Dutch company Boskalis who has been tasked with dislodging the vessel, warned Ever Given “could be stuck in the canal for weeks.”

So actual timelines on when the vessel will be unstuck are unclear. The blockage is wreaking havoc across global supply chains, and crude prices were higher on Friday morning on mounting fears the containership will be stuck for much longer than initially anticipated. Since the containership got stuck on Tuesday, crude prices have been chopping around 57-handle to 61-handle.

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

suez canal, shipping, supply chains, zerohedge,

Escobar: Welcome To ‘Shocked & Awed’ 21st Century Geopolitics

Escobar: Welcome To ‘Shocked & Awed’ 21st Century Geopolitics

With a Russia-China-Iran triple bitch slap on the hegemon, we now have a brand new geopolitical chessboard…

It took 18 years after Shock and Awe unleashed on Iraq for the Hegemon to be mercilessly shocked and awed by a virtually simultaneous, diplomatic Russia-China one-two.

Russian Foreign Minister Sergey Lavrov (L) meets Chinese Foreign Minister Wang Yi (R) in Beijing, China on March 23, 2021. Photo: Russian Foreign Ministry/Handout/Anadolu Agency

How this is a real game-changing moment cannot be emphasized enough; 21st century geopolitics will never be the same again.

Yet it was the Hegemon who first crossed the diplomatic Rubicon. The handlers behind hologram Joe “I’ll do whatever you want me to do, Nance” Biden had whispered in his earpiece to brand Russian President Vladimir Putin as a soulless “killer” in the middle of a softball interview.

Not even at the height of the Cold War the superpowers resorted to ad hominem attacks. The result of such an astonishing blunder was to regiment virtually the whole Russian population behind Putin – because that was perceived as an attack against the Russian state.

Then came Putin’s cool, calm, collected – and quite diplomatic – response, which needs to be carefully pondered. These sharp as a dagger words are arguably the most devastatingly powerful five minutes in the history of post-truth international relations.

In For Leviathan, it’s so cold in Alaska, we forecasted what could take place in the US-China 2+2 summit at a shabby hotel in Anchorage, with cheap bowls of instant noodles thrown in as extra bonus.

China’s millennial diplomatic protocol establishes that discussions start around common ground – which are then extolled as being more important than disagreements between negotiating parties. That’s at the heart of the concept of “no loss of face”. Only afterwards the parties discuss their differences.

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

“Get Ready For Some Serious Sticker Shock Very Soon: This Jump In Inflation Won’t Be Transient”

“Get Ready For Some Serious Sticker Shock Very Soon: This Jump In Inflation Won’t Be Transient”

Semiconductor Costs Could Lead to a Shock This Fall

Consumer confidence is key to how people plan to spend. You can see it in the chart below. And as the chip shortage grows, expect the higher prices to begin showing up in products, which could dampen confidence and eventually stall consumer spending.

The recent surge in chip prices hasn’t affected consumers, and stimulus has kept spending up while confidence has lagged. But that will soon change. Manufacturers have been eating the increase costs and not passing them on to consumers. With chip prices expected to rise every quarter this year, many companies will be unable to keep swallowing it, especially those with tight margins.

Manufacturers order semiconductors six months in advance. The choke points along the supply chain driving up prices and creating shortages will come to a head in the third quarter, when the next orders to replace inventories are delivered, according to the founder of SouthBay Research Andrew Zatlin.

Automakers will struggle to hold the line. At General Motors, for example, roughly 5% of the cost of goods sold is from semiconductors. The company has 11% margins, and a surge in chip prices will hit profits hard, according to Zatlin. And small business who sell to the likes of Amazon and Walmart with tight retail margins will be forced to raise prices even higher.

The impact should only spread from there. Which is why this jump in inflation won’t be transient as the Fed hopes. Every manufacturer with tight margins will be forced to raise and maintain higher prices. So get ready for some serious sticker shock very soon.

Bloomberg Markets Live , Vincent Cignarella, zerohedge, inflation, supply shortages, supply chains, price inflation

 

“Things Are Out Of Control” – There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next

“Things Are Out Of Control” – There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next

In Wednesday’s press conference, Jay Powell confirmed that the Fed is setting off on a historic experiment: welcoming a conflagration of red-hot inflation for an indefinite period of time in an overheating economy, with the underlying assumption that it’s all “transitory” and that inflation will return to normal in a few years, and certainly before 2023 when the Fed’s rates will still be at zero.

There is a big problem with that assumption: while FOMC members, most of whom are independently wealthy and can just charge their Fed card for any day to day purchases of “non-core” CPI basket items, the vast majority of the population does not have the luxury of having someone else pay for their purchases or looking beyond the current period of runaway inflation, which will certainly crush the purchasing power of the American consumer, especially once producers of intermediate goods start hiking prices even more and passing through inflation.

Many readers may not recall, but one such instance of “transitory” inflation that proved to be anything but and led to the infamous Volcker Fed and its double digit rate hikes, was the price of oil which took off in the Arab oil embargo and then refused to come back for over a decade.

The Powell Fed, however, is eager to brush aside any analogues to previous episodes of runaway inflation which it sees as having a demand component, and merely ascribes what is taking place to unprecedented supply chain disruptions – i.e., collapse in supply – as a result of both the trade war with China and, more recently, the covid pandemic, which have unleashed chaos among traditional supply-chain intermediaries.

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

 

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

Biblical, Lean, and Mean: ‘Dreams’ of an agri-commodity super-cycle

Then Pharaoh said to Joseph: “Behold, in my dream I stood on the bank of the river. Suddenly seven cows came up out of the river, fine looking and fat; and they fed in the meadow. Then behold, seven other cows came up after them, poor and very ugly and gaunt, such ugliness as I have never seen in all the land of Egypt. And the gaunt and ugly cows ate up the first seven, the fat cows. When they had eaten them up, no one would have known that they had eaten them, for they were just as ugly as at the beginning. So I awoke.”

– Genesis 41:17-21

Summary

  • Key feed and food prices have been pulled to 9-month and 7-year highs
  • We explore the ‘dream’ of Biblical scarcity; its origins and impacts; and draw comparisons with Joseph, the trader and central planner who avoided starvation for ancient Egypt
  • One point is clear: global food insecurity falls heaviest on lower income, importing nations, who spend a far greater share of their income on food than the richer ones
  • The Fed would play an ironic role in this process even as it embraces fighting poverty and inequality alongside inflation
  • This could exacerbate (geo)political risk – potentially even regarding institutional architecture

Our Base Commodity Call

At time of writing, our forecasts for three of the world’s key agri commodities, soybeans, corn, and wheat are as follows:

The First Big Commodity Call

In the Bible, Joseph interpreted Pharaoh’s dream as meaning great abundance for seven years would be followed by an equal famine. He was then entrusted with ensuring Egypt’s storehouses were full of grain so the country could survive – which he, and it, did.

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

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

“Quadzilla is approaching Tokyo!”

[Cue epic music] “Up from the depths; 30 trillion high; Breathing fire; Its name in the sky — Quadzilla! Quadzilla! Quadzilla!” [Sudden switch to comedy music] “…and Godz-EU-ki.”

They’ve already agreed to a joint Covid vaccine plan, where US vaccines will be produced in India, and Japan and Australia will help with the finances and logistics to distribute this throughout Asia. That’s powerful PR and diplomacy (even if India was already doing most of this alone, overlooked by Western media). Moreover, the Quad countries have pledged to ensure emissions reductions based on the Paris climate accord, as well as to cooperate on technology supply chains, 5G networks, and biotechnology. There are also defence agreements between most of them. It doesn’t take Austin going along for the ride to realize this is all about countering that other economic giant, China – which is as big and powerful as King Kong. So Quadzilla vs. Xi-ng Kong? That’s a movie already supposed to be released this year, coincidentally.

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

 

Rabobank: Inflation Is Being “Hidden” Because Belief In Our Whole Fantasy System Is Collapsing

Rabobank: Inflation Is Being “Hidden” Because Belief In Our Whole Fantasy System Is Collapsing

Because Orcs

“And as if in answer there came from far away another note. Horns, horns, horns, in dark Mindolluin’s sides they dimly echoed. Great horns of the north wildly blowing. Rohan had come at last.”

Today is going to be dominated by the market pricing in US fiscal stimulus for the nth time, unless we buy the rumor and sell the fact: and it’s rumors and facts I want to address. US CPI yesterday saw headline inflation in line with consensus at 0.4% m/m and rising from 1.3% to 1.7% y/y, but core inflation a tick lower at 0.1% m/m and so dipping to 1.3% y/y. On the back of that, and a moderate US 10-year auction, US equities rose (the S&P up 0.6%); US bond yields dipped, (10s down 6bp from their intraday peak to close at 1.52%); and USD wobbled.

The CPI release included a footnote stating:

“…data collection in February was affected by the temporary closing or limited operations of certain types of establishments. These factors resulted in an increase in the number of prices considered temporarily unavailable and imputed. While the CPI program attempted to collect as much data as possible, many indexes are based on smaller amounts of collected prices than usual, and a small number of indexes that are normally published were not published this month.”

Or, to put it differently, ‘We did our best, but made some of it up’.

This rightly worried some people: is inflation being ‘hidden’?

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

 

Happy Days At The Gas Pump Are Over As Prices Soar 

Happy Days At The Gas Pump Are Over As Prices Soar 

When the virus pandemic first hit early last year, Americans were locked down in their homes as gasoline demand plunged and prices crashed. Last April, the nationwide average for gasoline was around $2. According to AAA, prices are surging nationwide, up 32 cents in the previous month to $2.796 for regular.

On Monday, regular gasoline in Los Angeles County rose for the 27th consecutive day and 47th time in 48 days, increasing to $3.81, the highest since Dec. 3, 2019. Average prices for crude products in the metro area have been on a tear, resulting in a price shock for many consumers who are still battling food and housing insecurities, along with job loss as they wait for the next round of stimulus checks.

Happy times at the pump are over as crude product prices continue to rise. 

GasBuddy analyst Patrick DeHaan told Fox News that one reason for the jump in prices is due to increased demand. Still, more importantly, he said the Organization of the Petroleum Exporting Countries (OPEC) “is not opening the spigot.”

Last week, OPEC leaders maintained production cuts for all countries except Russia and Khazakstan. The news caused West Texas Intermediate and Brent to surge.

OPEC’s decision last week inspired Goldman’s Damien Courvalin to raise his Brent forecast by $5/bbl, to $75/bbl in 2Q and $80/bbl in 3Q21: “This increase in our price forecast reflects stronger time spreads, with our updated inventory path consistent with $5/bbl additional backwardation over the next six months relative to our prior forecast.”

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

 

Record Warmth In Plains, Midwest?; NYC To Top 60s This Week 

Record Warmth In Plains, Midwest?; NYC To Top 60s This Week 

About ten days ago, we penned a weather note to readers titled “”Early Spring, Winter Is Over?” – New Weather Models Suggest Warmer Weather Nears,” outlining how after a polar vortex split poured Arctic air into much of the US, wreaked havoc on power grids, but there was light at the end of the tunnel as the first half of March would expose much of the country to warmer weather trends.

Well, eight days into March and more than 100 million Americans across the Southwest, West Central, East Central, Southeast, Mid-Atlantic, and Northeast will experience warmer than average temperatures this week.

“The ridge of high pressure over the East will allow southerly winds to spread spring warmth northward and influence conditions for most areas east of the Rockies. Meanwhile, cooler than average temperatures will develop in the West, particularly in the Southwest,” according to The Weather Channel

The mild setup for this week is a relief from last month. Highs could be 10 to 25 degrees above average in the East, except for Florida, by Tuesday. By Wednesday, most parts of the Northeast could be in the 60s.

Here are some of the forecasted temperature highs this week for major metro areas. By mid-late week, NYC could be averaging in the mid-60s.

“High temperatures will be 20 to 35 degrees above average from the Northern and Central Plains into the Great Lakes region through Wednesday. Highs in the 60s and 70s are anticipated with 50s toward the Canadian border. Temperatures near 80 are even possible in parts of the Central Plains,’ The Weather Channel said. 

Temperature anomalies show the widespread warming that will affect more than 100 million people.

Could the US planting season begin earlier this year with warming trends?

NYMEX Henry Hub Natural Gas futures blew through the 2.70 support level.

The warmer weather is expected to last through Mar. 15, with slightly colder temperatures afterward. At this point, Americans will take any warm weather as the tail end of winter has been miserable. 

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