Here’s What Oil Did Today and Over the Past Three Weeks

With a long list of culprits.
The price of oil plunged nearly 5% today. West Texas intermediate is now at $45.41, down $2.41 per barrel. It has been a wild ride since April 12, when it still traded at $53 and the industry was talking about $60. Over the past three weeks, it has plunged 15%. It is now at the lowest level since November 30, when OPEC agreed to cut production.
This chart shows the plunge over the past three weeks in five-hour increments:

This post was published at Wolf Street by Wolf Richter ‘ May 4, 2017.

Shake Shack Confirms Worst ‘Minimum-Wage-Hike’ Fears – “It’s Going Up Too Fast… We Can’t Catch Our Breath”

As we detailed earlier, Shake-Shack shares crashed to record lows after the fast-food restaurant as increased labor costs (thanks to Obama’s minimum-wage-hikes) crushed margins and caused menu price hikes that slowed demand…
Shack-level operating profit margins decreased 300 basis points to 25.2%, primarily due to increased labor and related expenses resulting from increases in hourly wages that were implemented at the end of fiscal 2016… Every market’s different, John, and every market is affected by rising minimum wage. A lot of our markets will soon see a $13, $14, $15 minimum wage. Our average wage across Shake Shack is about $13 right now, starting.
And worse, in its outlook, the company stated that “Same-Shack sales growth to be flat to prior year (vs. 2% to 3%), which includes approximately 1.5% to 2% of menu price increases taken at the end of December.“
This, as any rational economist knows – and we detailed in December 2015 before the socialist experiment in ‘fair-wages’ began, is exactly as was expected, and as The Wall Street Journal reports, Shake-Shack is not alone. A spate of high-profile New York City restaurants closing or increasing prices has raised concerns about the effects of higher minimum wages in one of the world’s most renowned food-and-drink cities.

This post was published at Zero Hedge on May 4, 2017.

New Risk for Investors: Fed Considers Jacking Up Inflation Target

Investors are under-estimating inflation risk. As a consequence, they are under-pricing inflation protecting assets including precious metals.
The Federal Reserve has given itself the objective of engineering an inflation rate of around 2%. However, there are many ways in which real-world inflation can potentially outpace the Fed’s 2% target.
Firstly, the Fed’s preferred inflation gauges are flawed. The so-called ‘core’ rate of consumer price inflation strips out food and energy costs. The core Personal Consumption Expenditures (PCE) index has also been criticized for underweighting housing and medical costs.
The PCE number for March, which came out on May 1st, shows the Fed’s favored inflation gauge running at 1.6% year over year. That’s down slightly from the previous month’s reading of 1.8% (2.1% for the headline unadjusted PCE).
Since 2012, the core inflation rate has been running below the Fed’s 2% target. That has caused investors to grow complacent toward inflation risk. They seem to be operating under the assumption that 2% is a ceiling.
That is a dangerous assumption – not only because of food and energy inflation not being properly accounted for, but also because even the official ‘core’ number could rise well above target for extended periods.

This post was published at GoldSeek on 4 May 2017.

Italian Prime Minister Secretly Meets With George Soros In Rome Amid Migrant Transport Scandal

In the past few weeks, the transport of migrants from the African shores has become a case of national importance for Italy, and is now under investigation from the prosecutor of Catania, who recently testified to the Defence Committee of the Italian Senate and will meet soon with the Superior Council of the Magistrates.
Harsh criticism of the activities of the NGOs has come from opposition parties Forza Italia, Lega Nord and even Movimento 5 Stelle, normally more neutral on immigration issues, while Prime Minister Gentiloni has opted to let the judicial system run its course.
Yet, a new element will further exacerbate the situation; George Soros, a billionaire who is incredibly active politically on both sides of the Atlantic, met in secrecy with Prime Minister Gentiloni, less than a week after the latter had commented on the NGOs activities. The meeting was not listed on the website of the Italian government as official and its timing is at the very least suspicious.
George Soros had penned multiple arguments in favour of immigration, suggesting that Europe should welcome ‘at least one million refugees a year’ and that the EU should create EU-bonds to support attendant expenses.

This post was published at Zero Hedge on May 4, 2017.

The Fuse on the Subprime 2.0 Debt Bomb is About to Ignite

The Subprime 2.0 story is now gaining traction in the financial media.
By way of brief review, here is the template for Subprime 1.0 (the mortgage meltdown).
1) Banks, hungry for profits, began issuing mortgages to sub-prime borrowers (people who couldn’t possibly pay the loans back).
2) Housing prices and sales began to fall.
3) Subprime borrowers began defaulting on their mortgage.
4) Subprime mortgage lenders began to collapse.
5) A crisis unfolds as the issue spreads throughout the banks.
Subprime 2.0 is following the exact same pattern, just replace the words ‘housing’ with ‘automobiles’ and ‘mortgages’ with ‘auto-loans.’ As the Wall Street Journal notes…

This post was published at GoldSeek on 4 May 2017.

US Territory of Puerto Rico Files for Bankruptcy

The US territory of Puerto Rico is the oldest colony in the world. Part of the United States since 1898, the Caribbean island with a predominantly Spanish-speaking population of over 3.7 million has often been promoted as a candidate to become the nation’s 51st state.
But May 3, 2017 marked the beginning of a new era for the island, coming over 523 years after being discovered by Christopher Columbus during his second expedition to the New World, as Puerto Rico’s territorial government filed for bankruptcy, just over one year after it first defaulted on paying its debts, and nearly 10 months after it began defaulting on its constitutionally guaranteed debt. Reuters describes the magnitude of the event and what finally touched it off:
Puerto Rico announced a historic restructuring of its public debt on Wednesday, touching off what may be the biggest bankruptcy ever in the $3.8 trillion US municipal bond market.
While it was not immediately clear just how much of Puerto Rico’s $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit’s insolvency in 2013.
The move comes a day after several major creditors sued Puerto Rico over defaults [of] its bonds.

This post was published at FinancialSense on 05/04/2017.

Apple Is Now The World’s Largest Bond Fund

Nearly five years ago, when looking at the cash and cash equivalents of Apple, which at the time was a far more “modest” $121 billion in gross cash (and virtually no debt at the time), we noted that Tim Cook’s company was “the world’s biggest hedge fund you have never heard of.” Five years later, with more details available about its balance sheet holdings, we can conclude that in addition to the world’s largest publicly traded company, Apple has now also become the world’s biggest bond fund.
In its 10-Q filed on Wednesday, the iPhone-maker reported that $148 billion of its record $257 billion cash pile is invested in corporate debt, with an additional $53.1 billion in Treasurys and another $21 billion in mortgage-backed securities.
According to Bloomberg calculations, AAPL’s corporate bond holdings are enough “to buy all the assets in the world’s largest fixed-income mutual fund, the Vanguard Total Bond Market Index Fund, which has about $145 billion of assets including company, government and mortgage bonds.”

This post was published at Zero Hedge on May 4, 2017.

The Economy Is Rolling Over Which Will Result In A Catastrophe – Episode 1271a

The following video was published by X22Report on May 4, 2017
Jobless claims crash to multi year lows, and if we look back in time every time jobless claims fall like this we entered a recession. Apple says manufacturing is coming back to the US, but its not what you think. Core factory order tumble and industrial production collapses. Kyle Bass warns that we are in big trouble, the system is going to crash, China is crashing now and it’s only a matter of time before the entire system rolls over and collapses

4 Signs That Spell Doom For Traditional American Grocery Chains

The grocery business in the U. S. is, and always has been, a fairly miserable one. In fact, from A&P to Grand Union, Dahl’s, etc., bankruptcy courts have been littered with the industry’s failures for decades.
Of course the reasoning is fairly simple…razor-thin operating margins that hover around 1-3% leave the entire industry completely incapable of absorbing even the slightest financial shock from things like increasing competition or food deflation.

This post was published at Zero Hedge on May 4, 2017.

March Trade Deficit Shrinks To Smallest Since October

The US Trade Balance shrank to $43.7 billion in March, from an upward revised $43.8 billion in February, marking the month’s deficit the smallest since October and less than the conesnus estimate of $44.5 billion. Imports declined by $1.7 billion, or 0.7%, to $234.7 billion, while exports dipped fractionally more, or 0.9%, even as the recently weaker dollar did little to boost US exports. Notably, the US trade deficit with China was $31.4 billion, followed by the European Union at $10 billion. The trade deficit excluding petroleum stood at $35.82b in March.
The details: the deficit decreased in March 2017 according to the U. S. Bureau of Economic Analysis and the U. S. Census Bureau. The deficit decreased from $43.8 billion in February (revised) to $43.7 billion in March, as imports decreased more than exports. The previously published February deficit was $43.6 billion. The goods deficit increased $0.4 billion in March to $65.5 billion. The services surplus increased $0.4 billion in March to $21.8 billion.
The March decrease in the goods and services deficit reflected an increase in the goods deficit of $0.4 billion to $65.5 billion and an increase in the services surplus of $0.4 billion to $21.8 billion.

This post was published at Zero Hedge on May 4, 2017.

S&P Futures Jump Ahead Of GOP Healthcare Vote, Ignore China Commodity Crash

S&P futures rose on hopes a successful Republican healthcare vote on Thursday will unlock the Trump fiscal agenda, while European shares jumped to a 20 month high on signs Macron is poised to win Sunday’s French election coupled with reassuring corporate results, including strong earnings from HSBC, even as Chinese and Australian stocks fell as commodities, and iron ore futures particularly, tumbled. Oil also declined while the Bloomberg Dollar spot index fell 0.1% in London morning trading, after gaining 0.4% Wednesday. It weakened against all but two of its Group of 10 peers.
As reported overnight, Iron ore traded in China plunged limit down (-8%) in the afternoon session, with Rubber also limit down (7% lower), and steel rebar, coke, coking coal tumbling over 6% on concerns a crackdown on Wealth Management Products and shadow banking in general – in addition to the worst service sector PMI print in nearly a year – could result in a hard-landing for the Chinese economy (something both PIMCO and Kyle Bass warned about in the past 24 hours). Of note: the drop in iron ore prices was the biggest so far this year.
Concerns about a crackdown of credit in China also dragged 10-yr treasury futures lower, down 0.44% at the close, while the 21st Century Business Herald reported that Chinese borrowing costs in April surged with the average coupon rate up near 200bp.

This post was published at Zero Hedge on May 4, 2017.

Trump Flirting With the Idea of a Federal Gasoline Tax Increase

US President Donald Trump flirted with raising the federal gasoline tax this week, raising eyebrows by showing an openness to tackle a problem that has scared away politicians from both parties for years.
Everyone seems to want to fix, rebuild or build new infrastructure in the United States. Politicians often make large infrastructure promises, framed the issue as a way to both boost the economy and create jobs. But building roads, bridges, dams, ports and the like requires money, something that has been increasingly scarce in recent years.
The funding stream for infrastructure comes largely from the Highway Trust Fund, which receives money from federal fuel taxes. Those taxes have been stuck 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel since 1993. But infrastructure needs have exploded over the past quarter century while the revenue mechanism has remained unchanged, putting an ever-growing strain on the budget for new projects. Inflation has eroded the value of the tax over time, while construction costs have climbed.
The inadequacy of the gasoline tax is especially true because gasoline demand has remained flat for a decade, save for the one-off bump over the past few years because of the crash in oil prices. Not only did the long-term rise in vehicle-miles traveled slow down after the 2008 financial crisis, but the vehicle fleet has become more efficient over time. Hybrid and electric vehicles promise to cut into gasoline demand in the years ahead as well, taking a deeper bite out of the Highway Trust Fund. The Congressional Budget Office projects the Highway Trust Fund will run out of money in 2021.

This post was published at FinancialSense on 05/04/2017.

Protect Your Assets From The Establishment Agenda | Golden Rule Radio #17

The following video was published by McAlvany Financial on May 4, 2017
This week we review the price movements in the Gold, Silver, & Platinum Markets. The globalist agenda is threatened by Trump and they are pressing harder than ever to accomplish their goals. Learn how you can safeguard what you’ve worked your whole life to earn and to protect your assets from paper driven manipulation. Thanks for listening.

Russian Embassy Trolls The UK: “Praise God It’s Not Russia This Time”

Praise God it's not Russia this time
— Russian Embassy, UK (@RussianEmbassy) May 4, 2017

Responding to yesterday’s spat between the UK and Brussels, in which Prime Minister Theresa May “declared war” on Brussels in the words of the Guardian, where she urged voters to “let me fight for Britain”, the notoriously sarcastic Russian embassy in the UK trolled its host nation in a tweet on Thursday morning, in which it referenced a Times front page article titled “Brussels is meddling in our election, warns May”, to which it had a simple caption: “Praise god it’s not Russia this time”

This post was published at Zero Hedge on May 4, 2017.

Endogenous Risks

I’ve been yapping my trap about these vol-selling monkeys for some time – we may have finally reached peak vol absurdity.
As you may have seen, the VIX dipped under 10 on an intraday basis the other day:

Meanwhile, short interest has reached an all-time high in VXX, the ETN that is supposed to track the VIX.. Remember, if you buy VXX you are getting long volatility, so basically what we are seeing is an overabundance of people rushing in to sell volatility… at the all-time lows.
No bubble here.
We spent last week talking about bubbles – is there a bubble in short volatility strategies? I think there might be.

This post was published at Mauldin Economics on MAY 4, 2017.

“A Nightmarish Picture For Iron Ore Prices” Has Emerged, Axiom Warns

As noted earlier, while European stocks and US equity markets have ignored the commodity crash in China, which in addition to iron ore plunging limit down, also saw rubber tumble 7% lower, and steel rebar, coke, coking coal plunge over 6% …
.. Axiom’s Gordon Johnson warns (as we did a month ago) that the worst is yet to come, and in fact, the “backdrop of near-record/record iron ore inventories and aggressive domestic and seaborne iron ore supply, paints a nightmarish picture for iron ore prices over the coming months.”
Here are the choice excerpts from his overnight note “Why We Feel Iron Ore Prices Are Slated For a Sharp N-Term Fall (Even From Here) & Why Iron Ore Stocks (FMG; RIO; CLF; X) Are Attractive Shorts Right Now“
SUMMING THE BELOW ANALYSIS UP: With China’s April PMIs disappointing, suggesting China’s tightening measures are beginning to take hold (i.e., demand for steel in China is now weakening), we expect steel supply in China to begin to moderate imminently; stated differently, this suggests iron ore demand is in the process of waning, which, against a backdrop of near-record/record iron ore inventories and aggressive domestic and seaborne iron ore supply, paints a nightmarish picture for iron ore prices over the coming months. On this trend, we would be adding to shorts in FMG, CLF, RIO, and X.

This post was published at Zero Hedge on May 4, 2017.

Brent Crude Drops Below $50 After Russian Comments, Sliding Demand Forecast

For the first time since mid-March, Brent Crude prices tumbled below $50 after Russia said no decision had been made yet on extending the oil output cut production deal. This came after the 11th weekly rise in US crude production and concerns from JBC that oil demand is declining rapidly.
Russia Says No Decision Yet on Extending Oil Output Cut W/ OPEC – Russia will make announcement if decision is taken, Kremlin spokesman Dmitry Peskov tells reporters on conference call.
US Crude production rose once again to August 2015 highs…
And demand forecasts are tumbling:

This post was published at Zero Hedge on May 4, 2017.

Global Demand for Physical Gold Up in First Quarter

Global demand for physical gold increased by 9% year-on-year in the first quarter of 2017, according to the latest demand report from the World Gold Council.
The sale of gold bars and gold coins hit 289.8 tons worldwide in Q1, driven by Asia’s appetite for gold. The WGC said the strength of the retail investment market in the first quarter built on 2016’s exceptionally strong finish.
Demand in China soared in the first quarter. Chinese investors gobbled up 105.9 tons of gold. That represents a 30% year-on-year increase, and was the fourth strongest quarter on record.
Demand also rebounded in India after a weak end to 2016. Indians bought 31.2 tons of gold bars and coins in the first quarter of this year. This after the Indian economy virtually ground to a halt after after a government demonetization policy that suddenly declared 1,000 and 500 rupee notes no longer valid. According to the WGC, currency in circulation fell 50% from Nov. 11 to Jan. 6. Sales of motorcycles – a good barometer of the health of India’s cash-reliant economy – halved in December. Gold imports in the first quarter indicate a rebound, increasing 106% over Q1 2016. It appears strong first quarter demand carried over into the new quarter. Indians bought 23 tons of gold in a single day during the Akshay Tritiya festival last week.

This post was published at Schiffgold on MAY 4, 2017.