The Oil Short Squeeze Explained: Why Banks Are Aggressively Propping Up Energy Stocks

Last week, during the peak of the commodity short squeeze, we pointed out how this default cycle is shaping up to be vastly different from previous one: recovery rates for both secured and unsecured debts are at record low levels. More importantly, we noted how this notable variance is impacting lender behavior, explaining that banks – aware that the next leg lower in commodities is imminent – are not only forcing the squeeze in the most trashed stocks (by pulling borrow) but are doing everything in their power to “assist” energy companies to sell equity, and “persuade management” to use the proceeds to take out as much of the banks’ balance sheet exposure as possible, so that when the default tsunami finally arrives, banks will be far, far, away from the carnage.
All of this was predicated on prior lender conversations with the Dallas Fed and the OCC, discussions which the Dallas Fed vocally denied and accused us of lying, yet which the WSJ confirmed, showing that it was the Dallas Fed who was lying.
This was our punchline:

This post was published at Zero Hedge on 03/08/2016.

US Economy – Still on the Edge

Are Recent Small Improvements Meaningful?
In recent weeks evidence has emerged that the weakness in the manufacturing sector has begun to spread to the services sector as well (see e.g. Mish’s summary on the Markit Services PMI as well as the worrisome state of services activity on a global basis). This is not particularly surprising: as we have frequently pointed out, economic slowdowns and busts always tend to hit the capital goods industries first.
At the same time, a few data points in manufacturing have actually slightly improved – which is to say, that the pace of the declines has slowed and was in some cases not as bad as expected. This always seems to happen: as soon as economists adapt their previously overoptimistic expectations to a recent worsening trend, they will promptly be proven wrong again, as the pace of the trend slows.
Few things in this world are more certain than the fact that the consensus forecasts of mainstream economists are likely to be wrong. One can probably easily improve on their hit rate by merely flipping a coin. It is quite eerie actually – it is as if they were all Gartman clones.
However, the question that interests us is this: do these improvements mean anything? Our friend Michael Pollaro has provided us with updated charts on the situation, several of which we present below. As we have repeatedly said in previous updates, the probability of a recession has clearly increased – but the evidence that one has already begun or is about to begin shortly is not yet definitive. The following chart depicts the year-on-year change rate in the value of new factory orders, unfilled orders and inventories for non-defense capital goods excl. aircraft. Focus on the areas highlighted by the black circles and green rectangles.

This post was published at Acting-Man on March 9, 2016.

This is Why I Don’t Short Anything Anymore

The moment of maximum pain.
Goldman Sachs called for the end of the epic short-covering rally that had whipped crude oil, oil & gas drillers, and the broader markets into froth over the past three weeks. As if on cue, the rally started to unwind today. But it was scheduled for demise from get-go. When oil fundamentals are this terrible, they eventually rule.
And here is what that rally did: It inflicted maximum pain and destruction on the short sellers that had piled into the trade.
Last week was the climax of a run that had started on February 12. Crushed energy companies, especially those lurching toward bankruptcy – the most shorted companies around – had a blistering week as short sellers had to buy back shares to cover their positions, or else get their heads handed to them.
When a stock you’re shorting rallies 100%, you face total wipe-out. But it doesn’t stop there. Losses are theoretically unlimited. If the stock rallies 200% or 300%, you lose multiple times the amount of the original bet. If your bet was big enough, you might lose everything you own. Shorting is not for those who easily vomit.
And no one feels sorry for shorts when they get massacred. ‘Serves them right,’ is the normal response. ‘How dare they bet against me!’

This post was published at Wolf Street by Wolf Richter ‘ March 8, 2016.

Who Makes What?

From Bahamian crawfish to Mexican shoes, and from Argentine soybeans to Ethiopian coffee, the world makes (and trades) in far more than just crude oil and petroleum products. However, given the current deflationary world, it is very notable how many countries in the world are dependent on commodities as the primary source of foreign income.
The following map of the world shows each country’s major export…
SOURCE

This post was published at Zero Hedge on 03/08/2016.

Millennials Are The Deflation Generation

While the world’s central banks struggle with deflation, millennials (those born between 1980 – 2000) are busy creating a world where persistently lower prices will be an economic cornerstone. ‘A feature, not a bug,’ as they say in the tech world.
The immediate reason for that is simple: our cohort got stuck with educational hyperinflation, something economists miss when they look at the headline numbers. Education is only 6% of the CPI basket. For millennials, that number can easily exceed 20% because of student loans. We are therefore turning to a new tech-enabled service economy to help us make ends meet, and the majority of these new services are profoundly ‘Disruptive’ to old business models.
‘Disruption’ is often code for ‘deflation’, since more taxis (Uber), hotel rooms (Airbnb), food delivery (too many examples to mention) means more price competition. And when the next wave of disruption comes along to put the current crop of ‘Disruptors’ out of business, we’ll switch to them. Deflation will be permanent, and we’re OK with that. And when my cohort runs the Fed, or the ECB, or the BoJ, we will be unlikely to care if prices decline. We may even consider it the sign of a successful economy that serves its citizens well.

This post was published at Zero Hedge on 03/08/2016.

This 4,000-year old financial indicator says that a major crisis is looming

Over 4,000 years ago during Sargon the Great’s reign of the Akkadian Empire, it took 8 units of silver to buy one unit of gold.
This was a time long before coins. It would be thousands of years before the Lydians in modern day Turkey would invent gold coins as a form of money.
Back in the Akkadian Empire, gold and silver were still used as a medium of exchange.
But the prices of goods and services were based on the weight of metal, and typically denominated in a unit called a ‘shekel’, about 8.33 grams.
For example, you could have bought 100 quarts of grain in ancient Mesopotamia for about 2 shekels of silver, a weight close to half an ounce in our modern units.
Both gold and silver were used in trade. And at the time the ‘exchange rate’ between the two metals was fixed at 8:1.

This post was published at Sovereign Man on March 8, 2016.

Jim Cramer Needs To Be Shut Down And Investigated For Illegal Stock Promotion

‘No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to betaken over. Don’t move your money from Bear.’ – Jim Cramer on CNBC’s ‘Mad Money’ on March 11, 2008.
Three days later, on March 14, Bear Stearns stock plunged 92% after it was taken ‘under’ by JP Morgan.
Today Cramer has made the claim on CNBC that ‘a lot of the bear markets have ended since February 10.’ According to Cramer, apparel, restaurants, iron ore and machinery groups are now in bull markets. ‘C’mon in retail stock trading minnows, the water is nice and warm.’
This assertion is just ludicrous. For starters, we know from hard industry data released a little over a week ago – LINK – that the service sector – i.e. restaurants and retail-oriented businesses – are now shedding employees. If a new bull market in consumption were born, service businesses that rely on middle class disposable income expenditures would be hiring, not firing.
Clearly Cramer completely neglects the fiduciary duty to conduct appropriate due diligence before issuing investment advice. Because if he actually rolled up his sleave and did some work, he would have found the middle class is sinking in a sea of debt. Sorry Jim, imminent personal bankruptcy is not conducive to disposable income-based consumption.

This post was published at Investment Research Dynamics on March 8, 2016.

Deflation Is Coming To The Auto Industry As Used Car Prices Drop, Off-Lease Deluge Looms

Last week, we learned that vehicle leasing as a percentage of monthly light-vehicle sales hit a record in February at 32.3%.
In other words, a third of the over 1 million cars and light trucks ‘sold’ during the month were leases, according to J. D. Power.
This is indicative of what is now a long-term trend. Have a look at the following chart from WSJ, which shows that since 2009, the share of monthly auto leases as a percentage of vehicle sales well more than tripled:

This post was published at Zero Hedge on 03/08/2016.

Bubblicious! NAR’s Yun Admits That Home Prices Are Growing Faster Than Wages

It was almost a year ago that I spoke to a joint session of the National Association of Realtors (NAR) and National Association of Home Builders (NAHB) where I warned that housing was getting increasingly unaffordable. Here is the chart I discussed showing home prices growing at around 2x wage growth. Nobel Laureate Robert Shiller of Yale and NAR Chief Economist Lawerence Yun were in attendance.

This post was published at Wall Street Examiner by Anthony B. Sanders ‘ March 8, 2016.

This Country Is So Screwed Up

‘He’s Like Hitler…’
First they ignore you.
Then they laugh at you.
Then they attack you.
Then you win.
Quote Donald Trump misattributed to Mahatma Gandhi
And then they realize what a dumb jerk you really are.
Addendum offered by Bill Bonner
SOUTH CAROLINA – We’re still down here in South Carolina, where the sandy soil and warmish temperatures bring horse riders from up and down the East Coast. Your editor’s wife is a competitive rider. He follows her here and hangs out at coffee shops and hotel lobbies, looking a little like a man with nowhere to go. But he keeps his eyes and ears open…
Friday, a group of motorcycle riders roared through town. Harley Davidson has to be a good company to sell, we thought to ourselves. Every one of the riders was fat, with a gray beard. The customers must be dying off. Later, in The New Moon Caf – a place that looks as though it was decorated in the 1960s… and still plays 1960s music – we eavesdropped:
‘I kinda like Trump,’ said one older man to a group of other retirees.
‘This country is so screwed up. It needs someone to get in there and clean up. Trump doesn’t take any crap from anyone. He doesn’t have to. I don’t know what he’ll do exactly. But he’ll shake things up.’
‘He scares me,’ replied a white-haired woman. ‘He says he’s going to deport all those illegal aliens… torture people… and build a wall. It’s supposed to keep out the Mexicans. I bet they end up using it to keep us from getting out.’
‘What planet do you live on?’ asked an old woman. ‘It’s not like white people were trying to sneak into Mexico. Boy, you are paranoid.’
‘I’m not paranoid. But walls work both ways.’

This post was published at Acting-Man on March 8, 2016.

MARCH 8/NO CHANGES IN INVENTORY AT GLD AND SLV/THE REPO POOL IN THE USA BOND MARKET BREAKS DOWN AS YIELDS PLUMMET AND FAILURES TO DELIVER INCREASE DRAMATICALLY/CITIBANK WARNS OF A HUGE DROP IN RE…

Gold: $1,262.10 down $1.10 (comex closing time)
Silver 15.38 down 24 cents
In the access market 5:15 pm
Gold $1261.50
silver: 15.35
At the gold comex today, we had a poor delivery day, registering 1 notice for 100 ounces and for silver we had 7 notices for 35,000 oz for the active March delivery month.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 212.03 tonnes for a loss of 91 tonnes over that period.
In silver, the open interest fell by 1287 contracts down to 168,368. In ounces, the OI is still represented by .840 billion oz or 120% of annual global silver production (ex Russia ex China). Generally as we go into an active delivery month the liquidation is much bigger.
In silver we had 7 notices served upon for 35,000 oz.
In gold, the total comex gold OI rose by a huge 6507 contracts to 498,172 contracts despite the fact that the price of gold was down $6.70 with yesterday’s trading.(at comex closing)
We had no changes in gold inventory at the GLD, / thus the inventory rests tonight at 793.12 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,/we again had a major change in inventory/this time another huge deposit of 2.856 million oz and thus the Inventory rests at 322.632 million oz
First, here is an outline of what will be discussed tonight:

This post was published at Harvey Organ Blog on March 8, 2016.

Prices Matter – Why Central Bank ‘Fiddling’ Is A Bad Idea

Call me old fashioned, but I still think prices matter. I vividly recall the first time I studied those simple supply-and-demand graphs as a college freshman, and today, far too many years later, their basic logic remains undeniable. When prices are right, money flows to the most productive endeavors and economies work efficiently. When prices are wrong, crazy things eventually happen, with potentially dire consequences.
That’s why we should be very worried about Japan, where things are getting crazy. On March 1, the Japanese government sold benchmark, 10-year bonds at a negative yield for the first time ever. Think about that for a minute. The investors who bought these bonds not only loaned the Japanese government their money. They’re paying for the privilege of doing so.
Why would any sane person do such a thing? A government with debt equivalent to more than 240 percent of national output — the largest load in the developed world — should surely have to pay investors a tidy sum to convince them to part with their money, not the other way around. But the bond market in Japan has become so distorted that investors believe it’s in their interests to lend money at a cost to themselves. The only explanation is that prices in Japan have gone horribly, horribly awry, and that has made the illogical logical.

This post was published at Zero Hedge on 03/08/2016.

IMF Calling For Immediate Action Before The Global Economy Completely Collapses – Episode 913a

The following video was published by X22Report on Mar 8, 2016
Texas is feeling the pain of declining retail sales and many states are now feeling the same pain. Small business optimism declines to a 2 year low. More individuals renounce their citizenship because of FATCA. Baltic Dry Index rises on increase rates. The IRS is looking to higher debt collectors to get the outstanding taxes. Italy’s banks are collapsing and this will spread throughout Europe. IMF calls for action before the entire global economic system collapses.

EIA’s Dire Oil Forecast: $34 Crude Due To Far More Resilient Production, Oversupply And Lower Demand

Now that the massive USO-driven squeeze appears to be over (congratulations to whoever managed to sell equity and their secured lenders) the bad news can return. First, it was Goldman slamming the “unsustainable rally, and then just a few hours ago, the EIA released its latest monthly short-term outlook report in which it brought even more bad news for long-suffering bulls who thought the pain was finally over.
Instead, the pain is only just beginning, after the EIA revised its 2016 supply forecast higher as “production is more resilient to lower prices than previously expected” – why thank you desperate momentum chasing “investors” of other people’s money, who can’t wait for that secondary offering to repay JPMorgan’s credit facility.
The EIA also revised its forecast demand lower as a result of a decline in global economic growth.
Yes, someone finally admitted that demand is lower.
End result: a cut in forecast oil prices for 2016 and 2017 from $37 and $50 to just $34 and $40.

This post was published at Zero Hedge on 03/08/2016.

Trade, Truth, and Trump

Of course, I’m grateful to Yahoo News’ Rick Newman for spotlighting my finding that the rising U. S. trade deficit is further hobbling an American economic recovery from the Great Recession that is quite slow enough, thank you. It’s almost unheard of for a journalist or anyone involved in economic policy to acknowledge this point. (And it was especially cool to be featured briefly in the video accompanying the post!) At the same time, much more needs to be said about the trade deficit and growth than Rick’s post suggested. So here goes.
First, Rick presented my findings as an ‘argument.’ Actually, as readers of RealityChek know, as anyone who has taken an Economics 101 course should know, and as I know Rick knows, the growth-killing effects of rising trade deficits are not a matter of opinion – unless you have major problems with the way the U. S. government and the entire economic profession has been calculating changes in the economy’s size for decades. Not that it’s out of bounds to question the accuracy or the entire methodology of the gross domestic product (GDP) statistics. But it’s surely significant that such challenges still represent a distinctly minority viewpoint.
Second, because the methodology is not in any current-policy sense controversial, the specific numbers I provided aren’t, either. As I told Rick in an email, according to the latest data from the Commerce Department, in the fourth quarter of 2015, real GDP annualized was $16.4551 trillion. At the end of the second quarter of 2009, when the recovery began, it was $14.3556 trillion annualized. So real growth has been $2.0995 trillion.

This post was published at Wall Street Examiner by Alan Tonelson ‘ March 8, 2016.

Never Go Full-Kuroda: NIRP Plus QE Will Be Contractionary Disaster In Japan, CS Warns

In late January, when Haruhiko Kuroda took Japan into NIRP, he made it official.
He was full-everything. Full-Krugman. Full-Keynes. Full-post-crisis-central-banker-retard.
In fact, with the BoJ monetizing the entirety of JGB gross issuance as well as buying up more than half of all Japanese ETFs and now plunging headlong into the NIRP twilight zone, one might be tempted to say that Kuroda has transcended comparison to become the standard for monetary policy insanity.
The message to DM central bank chiefs is clear: You’re either ‘full-Kuroda’ or you’re not trying hard enough.
But as we’ve seen, the confluence of easy money policies are beginning to have unintended consequences. For instance, it’s hard to pass on NIRP to depositors without damaging client relationships so banks may paradoxically raise mortgage rates to preserve margins, the exact opposite of what central banks intend.

This post was published at Zero Hedge on 03/08/2016.

China And Fracking: The Pillars Of ‘The Recovery’ Are Crumbling

When historians sort out this era of once-a-decade financial bubbles, they’ll marvel at how dissimilar the drivers of each boom were. The junk bonds of the 1980s were essentially leveraged tools for extracting wealth from companies. The dot-coms of the 1990s were vehicles for exotic new technologies and untested business models. The sub-prime mortgages and credit default swaps of the 2000s were semi-fraudulent fee-generation schemes.
All, in retrospect, were strange, unsteady foundations on which to build a global economy. But they look positively sane compared to the pillars of the current expansion: China and fracking.
As the true extent of China’s debt binge becomes apparent, the only reasonable reaction is awe. To cook the story down to its essence, the world’s biggest developing country decided to become developed in the space of a few years, borrowing nearly as much money as the entire rest of the world and using the proceeds to buy up every conceivable kind of industrial commodity. The result was a natural resources boom that, for a little while, floated the global economy on a rising tide of leverage.

This post was published at DollarCollapse on March 8, 2016.

SP 500 and NDX Futures Daily Charts – Who’ll Stop the Rain?

Stocks managed to hold near their recent levels, pulling back a bit from overhead resistance.
There was nothing of note in the US macroeconomic news this morning as you can see below.
The markets are waiting to see what the ECB might do for the stagnant EU Zone economy.
I see that Hillary’s campaign is pivoting to appeal to ‘moderate Republicans.’
That’s a change?

This post was published at Jesses Crossroads Cafe on 08 MARCH 2016.