The Great Oil Swindle

When it comes to the story we’re being told about America’s rosy oil prospects, we’re being swindled.
At its core, the swindle is this: The shale industry’s oil production forecasts are vastly overstated.
Swindle: Noun – A fraudulent scheme or action.
And the swindle is not just affecting the US. It’s badly distorted everything from current geopolitics to future oil forecasts.
The false conclusions the world is drawing as a result of the self-deception and outright lies we’re being told is putting our future prosperity in major jeopardy. Policy makers and ordinary citizens alike have been misled, and everyone — everyone — is unprepared for the inevitable and massive coming oil price shock.
An Oil Price Spike Would Burst The ‘Everything Bubble’
Our thesis at Peak Prosperity is that the world’s equity and bond markets are enormous financial bubbles in search of a pin. Sadly, history shows there’s nothing quite as sharp and terminal to these sorts of bubbles as a rapid spike in the price of oil.
And we see a huge price spike on the way.
As a reminder, bubbles exist when asset prices rise beyond what incomes can sustain. Greece is a prime recent example. In 2008 when the price of oil spiked to $147/bbl, Greece could no longer afford imported oil. But oil is a necessity so it was bought anyway, their national balances of payments were stressed to the point that they were exposed as insolvent and then their debt bubble promptly and predictably popped. The rest is history. Greece is now a nation of ruins and their economy might as well be displayed alongside the Acropolis.

This post was published at PeakProsperity on Friday, December 15, 2017,.

Scheme To Pay Off Trump Accusers Emerges, One Woman Was Offered $750,000

California woman’s rights Attorney Lisa Bloom operated behind a scheme to compensate Trump accusers and potential accusers using money from donors and tabloid media outlets during the final months of the 2016 presidential race, in an effort which intensified as the election neared, report John Solomon and Alison Spann of The Hill.
Lisa Bloom’s efforts included offering to sell alleged victims’ stories to TV outlets in return for a commission for herself, arranging a donor to pay off one Trump accuser’s mortgage and attempting to secure a six-figure payment for another woman who ultimately declined to come forward after being offered as much as $750,000, the clients told The Hill. –The Hill The various accounts of Bloom’s scheme were detailed in documents, emails and text messages reviewed by The Hill, and come on the heels of Bill O’Reilly’s claim that there is a secret tape of a women who was offered $200,000 to file sexual harassment charges against Trump. It is unknown whether or not O’Reilly’s claim is related to Bloom’s activities.

This post was published at Zero Hedge on Dec 15, 2017.

Confidence, and What Comes With It

There is a strong positive feedback mechanism involving consumer sentiment and the economy. As conditions get better, people get more confident, which causes them to spend more, so companies hire more, which makes people more confident….
That all works until it doesn’t, and then the positive feedback goes the other way, making people get less confident as they see the economy slowing, making them spend less money, which causes layoffs, which makes people less confident….
The University of Michigan’ Survey of Consumers Index of Consumer Sentiment hit 100.7 in October 2017, its highest reading since January 2004. It has backed off just a little bit since that October reading, but is still at a very high level, showing that consumers are feeling pretty confident.
This week’s chart shows the relationship of that University of Michigan number and the U-3 unemployment rate. There is an interesting lag in the unemployment numbers, and that is highlighted with the 10-month time offset employed in the chart above. I want to emphasize that the consumer sentiment data plot is inverted in that chart so that we can better see the correlation to unemployment.

This post was published at FinancialSense on 12/15/2017.

Goldman: These Are the Hottest Commodities in 2018

Goldman Sachs continues to ratchet up predictions for commodities, laying out a bullish case for commodities of all stripes in 2018.
The investment bank said that its forecast a year ago for higher commodity prices ‘played out much better than expected.’ The bank pointed to industrial metal prices, which are up 24 percent this year, plus the 13 percent increase in oil prices.
But looking forward, Goldman sees plenty of room to run. ‘The demand backdrop today is now even stronger than a year ago, with robust and synchronous global growth clearly evident,’ Goldman analysts, led by Jeffrey Currie, wrote in a December 11 research note. The extension of the OPEC deal also led the bank to revise up its forecast for oil prices, as inventories should continue to fall throughout 2018.
There are other reasons to be bullish on commodities. The investment bank argues that commodities tend to outperform other asset classes when central banks move to tighten rates. That is because rate hikes typically occur when demand is exceeding supply – the higher prices resulting from that mismatch are why central banks are trying to raise rates, but it is those higher prices that support the investment case into commodities.
The report concluded that “a positive carry in key commodity markets and already strong global demand growth across the commodity complex reinforces the case for owning commodities. And hence we maintain our 12-month overweight recommendation, now with a forecasted return of almost 10 percent.”

This post was published at FinancialSense on 12/15/2017.

Jim Kunstler: “You Can See Where This Has Been Going…”

Lately, fund flow data has all the credibility of a NYT presidential poll two days before the Trump defeats Hillary. On one hand, you have Lipper reporting that investors pulled $16.2bn from U. S.-based equity funds in the past week, the largest withdrawals since December 2016. The same Lipper also reported that taxable-bond mutual funds and ETFs recorded $1.2bn in outflows, with U. S.-based high-yield junk bond funds posting outflows of $922 million. On the other hand, you have EPFR which looking at the same data, and the same time interval, concluded that there was $8.7bn inflows into equities, of which total flows into the US amounted to $7.8bn, the largest in 26 weeks.
How does any of this make sense? We are not sure, although it may be that while Lipper ignores ETF flows, EPFR includes these. Indeed, when breaking down the latest flow data, which still does not foot with the Lipper numbers, Bank of America notes that the $8.7bn in equity inflows is the result of a $31.4bn in ETF inflows – the second largest on record – offset by $22.7bn in mutual fund outflows, the 4th largest on record.
When looking at this staggering divergence, BofA’s Michael Hartnett put it best:
Passive hubris, active humiliation: 2nd largest week of inflows ($31.4bn) ever into equity ETFs vs 4th largest week ever of outflows from equity mutual funds (Chart 1)

This post was published at Zero Hedge on Dec 15, 2017.

Stocks Surge To All Time High As Corker Unexpectedly Joins Rubio In Supporting GOP Tax Bill

Update: Just hours after Rubio announced that he would support the reconciled Republican tax plan, Tennessee Sen. Bob Corker – the only Republican who voted against the Senate tax bill – has said he, too, will support the legislation.
By supporting the bill, Corker – who has publicly feuded with President Trump, famously comparing the West Wing to an “adult daycare center” – has surprised many observers. A self-styled “deficit hawk”, Corker said in a statement that “while the bill is far from perfect,” he didn’t want to miss out on the “once-in-a-generation opportunity to make US businesses domestically more productive and internationally more competitive is one we shouldnot miss.”
Read his full statement below:
Bob Corker endorses the Republican tax bill, abandoning his deficit concerns. pic.twitter.com/eVVqag2e0q
— Sahil Kapur (@sahilkapur) December 15, 2017

This post was published at Zero Hedge on Dec 15, 2017.

Janet Yellen: Trump’s Tax Cut Could Play a Negative Role in Next Downturn

The outgoing Chair of the Federal Reserve, Janet Yellen, held her last press conference yesterday following the Federal Open Market Committee’s decision to hike the Feds Fund rate by one-quarter percentage point, bringing its target range to 1-1/4 to 1-1/2 percent.
Given the growing reports from market watchers that the stock market has entered the bubble stage and could pose a serious threat to the health of the economy should the bubble burst, CNBC’s Steve Liesman asked Yellen during the press conference if there are ‘concerns at the Fed about current market valuations.’
Yellen gave a response which may doom her from a respected place in history. She stated:
‘So let me start Steve with the stock market generally. Of course the stock market has gone up a great deal this year and we have in recent months characterized the general level of asset valuations as elevated. What that reflects is simply the assessment that looking at price-earnings ratios and comparable metrics for other assets other than equities we see ratios that are in the high end of historical ranges. And so that’s worth pointing out.
‘But economists are not great at knowing what appropriate valuations are. We don’t have a terrific record. And the fact that those valuations are high doesn’t mean that they’re necessarily overvalued.

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

Bank Of America: “This Is The First Sign That A Bubble Has Arrived”

Lately, fund flow data has all the credibility of a NYT presidential poll two days before the Trump defeats Hillary. On one hand, you have Lipper reporting that investors pulled $16.2bn from U. S.-based equity funds in the past week, the largest withdrawals since December 2016. The same Lipper also reported that taxable-bond mutual funds and ETFs recorded $1.2bn in outflows, with U. S.-based high-yield junk bond funds posting outflows of $922 million. On the other hand, you have EPFR which looking at the same data, and the same time interval, concluded that there was $8.7bn inflows into equities, of which total flows into the US amounted to $7.8bn, the largest in 26 weeks.
How does any of this make sense? We are not sure, although it may be that while Lipper ignores ETF flows, EPFR includes these. Indeed, when breaking down the latest flow data, which still does not foot with the Lipper numbers, Bank of America notes that the $8.7bn in equity inflows is the result of a $31.4bn in ETF inflows – the second largest on record – offset by $22.7bn in mutual fund outflows, the 4th largest on record.
When looking at this staggering divergence, BofA’s Michael Hartnett put it best:
Passive hubris, active humiliation: 2nd largest week of inflows ($31.4bn) ever into equity ETFs vs 4th largest week ever of outflows from equity mutual funds (Chart 1)

This post was published at Zero Hedge on Dec 15, 2017.

Weekend Reading: Ignorance Is No Excuse

Authored by Lance Roberts via RealInvestmentAdvice.com,
The ‘tax bill cometh.’ According to the press, this is going to be the single biggest factor to jump-starting economic growth since the invention of the wheel.
Interestingly, even the Fed’s economic projections are suggesting that economic growth will pick up over the next two years from the impact of tax cuts. (Chart is the average of the range of the Fed’s estimates.)

This post was published at Zero Hedge on Dec 15, 2017.

Global Dollar Liquidity Shortage Explodes – Worse Than European Crisis

Very quietly, in the last few days, cross currency basis swaps (CCBS) related to the dollar have reversed their rise and started collapsing deeper into negative territory… again. This might not be of much interest to buyers of global equity markets at this point, but it is signalling ominous signs of growing funding stress in the financial ‘plumbing’.

As Bloomberg notes ‘cross-currency basis swaps, which money managers and corporate treasurers outside the U. S. can use to borrow in dollars, remain close to the widest levels since January even after quarter-end, when such financing strains typically dissipate. The market was a key indicator of stress during the financial crisis, and while it’s nowhere near the alarming levels of that era, it’s still garnering the attention of analysts.’

This post was published at Zero Hedge on Dec 15, 2017.

Still Can’t Find That Pitchfork, Can You?

Corporate balance sheets have never been in the condition they are now, but most of this is a fraud.
Virtually all of the so-called “growth” has been in buybacks and (to a lesser extent) dividends. The problem with buybacks is that into ramping prices they are a terrible long-term deal. They make some sense in the depths of a crash, but of course nobody has the cash to do it during a crash.
When debt financed it’s even worse because history says that corporate debt is never paid off, only rolled over. In point of fact non-financial companies did not decrease their total debt levels (as measured by the Fed Z1) even during the depth of the financial crisis of 2007-2009. This of course means that debt:equity levels go vertical as soon as the ramp in equity price stops.
I remind you that while buybacks increase earnings during good years (by reducing the divisor) they also increase losses during bad ones. People forget this because, well, there haven’t been any bad ones recently. That will end and when it does it will provide a gross amount of acceleration for the decline in equity prices. In fact, it’s not going to be gasoline poured on that fire, it’s going to a mixture of diesel fuel and ammonium nitrate…. See Galveston for what will come of that.
But on top of this we now have the real screw job in the tax bill.

This post was published at Market-Ticker on 2017-12-15.

Bond Markets Really Are Signalling A Slowdown

Authored by Lakshman Achuthan and Anirvan Banerji via Bloomberg.com,
Analysts shouldn’t dismiss the yield curve’s message just because inflation expectations have been declining in recent years. When it comes to the economic outlook, the bond market is smarter than the stock market. That Wall Street adage appears to be on the money from a cyclical vantage point, with key indicators in the fixed-income markets independently corroborating slowdown signals from the Economic Cycle Research Institute’s leading indexes.
The yield curve is widely considered to be among the most prescient indicators. That’s why its flattening this year has been troublesome for an otherwise optimistic consensus to explain away.
This hasn’t stopped optimistic analysts from dismissing the yield curve’s message on the grounds that inflation expectations have been declining in recent years, or that foreign central banks like the European Central Bank and the Bank of Japan continue to artificially suppress their bond yields, pulling down U. S. yields. We’re reminded of Sir John Templeton’s warning that ‘this time it’s different’ are the “four most costly words in the annals of investing” — but that’s effectively what it means to simply ignore the slowdown signals emanating from the fixed-income markets.
Of course, there’s no Holy Grail in the world of forecasting, which is why we look at a wide array of leading indexes that each includes many inputs. From that vantage point, the yield curve flattening actually makes a lot of sense.

This post was published at Zero Hedge on Dec 15, 2017.

“What The H*** Is Going On In Chicago” And Other Highlights From Trump’s Speech To FBI Grads

With the feud between the White House and FBI growing bigger by the day, you know…in light of FBI Agent Peter Strzok’s efforts to collude with Deputy Director Andrew McCabe to institute an “insurance policy”intended to make sure Trump would never win in 2016, no one had any idea what to expect when Trump took the stage earlier this morning to address graduates of the FBI National Academy in Quantico, VA.
As it turns out, Trump had nothing but praise for the FBI grads but he did re-launch his full-frontal assault on Mayor Rahm Emanuel and Chicago’s surging violent crime problem, asking “what the hell is going on in Chicago?”
As a quick reminder, courtesy of stats from HeyJackAss!, here’s a quick recap of “what the hell is going on in Chicago.” In aggregate, 3,451 people have been shot so far in 2017, or roughly 1 person every 2.4 hours, and 651 have died from there injuries. Per the chart below, the violent crime is a persistent cloud over the city of Chicago with shootings and murders happening on a daily occurrence

This post was published at Zero Hedge on Dec 15, 2017.

The Rug Yank Phase of Fed Policy

Bogus Jobs Pay Big Bucks
The political differences of today’s two leading parties are not over ultimate questions of principle. Rather, they are over opposing answers to the question of how a goal can be achieved with the least sacrifice. For lawmakers, the goal is to promise the populace something for nothing, while pretending to make good on it.
Take the latest tax bill, for instance. The GOP wants to tax less and spend more. The Democrat party wants to tax more and spend even more. We don’t recall seeing any proposals to tax less, spend less, and shrink the size of the state. And why would we?
Today’s central planners and social engineers are enlightened and progressive. They know much more about anything and everything than the rest of us. In particular, they share a general sense that they know how to spend your money better than you.

This post was published at Acting-Man on December 15, 2017.

Market Talk- December 15, 2017

Asia drifted with prices for core all closing around -0.5% lower for the day. Volumes were light but the lack of conviction as well as year end book-squaring were the key discussion topics. The Dollars decline did not help Exporters within the Nikkei, but that has been an issue for a few days this week. However, late in the US trading day, we have seen a reversal of these declines with the DXY clawing back some earlier losses and is happy playing high 112’s against the Yen. Stocks had opened weak and did well to recover into positive territory at one stage probably the result of a good Tankan print. However, that was lost again at the cash close. Late in US trading we see futures back up but lets see how cash opens again on Monday. The Hang Seng suffered most with a little over 1% decline. This was due mainly to property and financials trading heavy.

This post was published at Armstrong Economics on Dec 15, 2017.

Waiting for the Curve to Invert

One of the hallmarks of a Bull market is climbing a ‘Wall of Worry’. Certainly, there is plenty of longer-term optimism with Consumer and Small Business surveys showing extreme confidence. Yet analysts seem increasingly focused on what might go wrong. In the early days of 2009 – 2012 most were certain that the Trillions in money printing by central banks would cause massive inflation and thus contraction level node-bleed interest rates. Recently the worry du jour has been on rising short-term rates that is spiraling our Yield Curve towards inversion. It’s perhaps too widely know that Yield Curve inversion has always given an accurate warning of impending economic recession months later. In ‘waiting for the curve’ too many investors are cautious well before some unforeseeable inversion turning point. This chart clearly shows that historically the ‘current’ Yield Curve is not a concern, in fact, it will remain a positive factor as we approach inversion. Furthermore, even after the ominous flat yield spread is reached where short-term rates are equal to or above long-term yields, we often witness another year or more of positive growth before recessionary contraction pressures break the back of the expansion phase. Based on history, we have at least a couple years of expansion before push comes to shove in halting this 8+ year growth period.

This post was published at FinancialSense on 12/15/2017.

JPMorgan: “This Is The Moment Everyone Went All In”

There is a fascinating table in JPMorgan’s 2018 year-end outlook released overnight, previewed yesterday by head quant Marko Kolanovic: it shows that a funny thing happened as the so-called experts were looking for signs of retail euphoria (and repeatedly were unable to find it): everyone went “all-in” stocks, and not just retail investors and US households, but mutual funds, hedge funds, pensions, systematic, and sovereign wealth funds.
The table below breaks down equity positioning in percentile terms by investor type: it shows that never investors have never been more long equities, or more “all-in” stocks.

This post was published at Zero Hedge on Dec 15, 2017.

Bill Blain: “I Have Never Seen So Many Extraordinary Events In One Year, And I’ve Been In Markets Since 1985!

We don’t think 2018 is going to be the End of the World. There will be opportunities and mistakes. Winners and grinners, and more than a few losers. Sure, we’re looking forward to the new MiFID regime – isn’t everyone? (US Readers…..)
Our broad brush picture is a continuation and acceleration of the Global Macro Alignment theme – a stronger global economy, cautious normalisation, continued upside for risk assets (stocks and alternatives), but a negative outlook for the bond markets with rates set to rise as Central Banks pull back from distortion. They will remain nervous about financial market instability.
If things wobble, them my personal view is the High Yield market is where we will see the most dramatic losses start in bonds. We still see a strong chance of equity market correction – and will buy into it because the global economy is expanding. Our big Macro Threat for the coming year is resurgent inflation – how quickly will it mount and will it take out market sentiment.
The devil is in the detail. We’re positive across all the developed economies and expect to see growth expectations raise. Although the US, UK and Europe will be moving into Normalisation with tightening, while inflation remains sub 2% Japan will continue its ZIRP (zero interest rate policy) which is massive yen negative and therefore stock positive – my Japan-watching macro man Martin Malone is calling for further massive gains in Japan Stocks.

This post was published at Zero Hedge on Dec 15, 2017.

Brexit Moves To Phase 2 – Sterling Slides As EU Warns Talks Will Be Far More Testing

Following the humiliation of losing the House of Commons vote on Friday, in which MP’s took the final say on the Brexit deal from the executive, UK Prime Minister was in Brussels as EU leaders gave approval for Brexit talks to move to phase 2. At a dinner last night, she was applauded by leaders of the other 27 EU nations after giving a speech. This morning, the European Council approved the recommendation from the European Commission that talks should proceed to the next phase. Donald Tusk, President of the European Council, tweeted the news.
From the FT ‘EU leaders have confirmed that ‘sufficient progress’ has been made in the first phase of Britain’s Brexit talks, giving a boost to Theresa May, the UK prime minister, and paving the way for crucial discussions next year on trade. In a summit in Brussels on Friday the EU’s 27 other member states endorsed the European Commission’s recommendation that London had given enough guarantees on the most important divorce issues for talks to begin on a future relationship. The three issues were the UK’s Brexit bill, the rights of EU citizens and the Northern Irish border.
Mrs May was not in the room when her fellow heads of government quickly signed off on the end of phase one talks. They had applauded her on Thursday night to mark the end of several months of fraught negotiations on the divorce. Friday’s declaration was widely expected after Mrs May secured an agreement last week with Jean-Claude Juncker, commission president. That agreement came after the British prime minister assuaged the concerns of Northern Ireland’s Democratic Unionist party over the Irish border; Mrs May relies on DUP support in the UK’s parliament.

This post was published at Zero Hedge on Dec 15, 2017.