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Showing posts from January, 2016

Could oil have finally found its floor?

Well rumors are that Saudi Arabia has suggested that every producer cut production by 5% -- again this is a rumor and nothing may come of it during OPEC's next meet & greet.  Again agreements can be made and they can be broken. On top of everything Iran is back in the oil game, for real, and things there are getting interesting. Gartman -- a loathsome analyst said that we will not see oil at $40 "in his lifetime"  -- well that could be long as it could be short, but again aside from some free publicity I don't see how Gartman can make that call.  18 months ago oil was at $110.  Who would have called oil at $30 then?
Europe keeps on being fun, as is Japan with "no negative interest rates ever" -- at least until this morning.  Banks in Europe keep outperforming (NOT) the sad truth is that Europe is in a slump and the first to be affected are financial institutions.  Looking at charts none of Europe's major bank have reclaimed their market cap of 2007…

Fight: Bulls Vs. Bears

What a strange few weeks it has been.  Oil prices fell all the way down to $28, just to rebound a few days later to $32 -- as of 10 minutes ago they are just north of $30.  The stock market is in crisis -- we seem to be having a major correction, although its not entirely clear that its a major correction (it could just be a garden variety version -- after all the US economy is NOT in recession).  Some segment of the economy are in trouble, this morning all the talks were that another shale oil producer was about to "give up the gost".  Granted in America we are not talking about liquidation we are talking Chapter 11 with a write off of debt and equity -- new owners will keep on pumping.  The world is awash with oil, Chine diesel consumption is growing slowly, Saudi Arabia's bet that they can get the world to stop producing --- seems to be hurting them most.  The impact of a transfer of wealth from the producer to the consumer is the great unknown as for economic impact…

Oil Prices -- Where is the floor?

If I knew I would be a rich man!  One thing for sure is that there's still lots of long position out there. Every Tom, Dick and Harry saw the "easy trade" of going long oil because the forward curve was steep -- a cannot lose trade, that is losing lots of money for a lot of people.
Where will it end?  A very good question, demand is simply not rising -- Europe, which is a net importer of all energy things should be rejoicing, but in fact things are getting serious there.  Greece remains a basket case -- and the yields have recently started rising again.  The European banking sector seems to be facing a very difficult times and the word on Italian banks is "Get Out Now".  It never made sense that Italian debt was priced inside that of the US.
Europe is in a difficult place, deflation (especially imported from China) is a problem, the Southern countries problems that were swept under the rug are coming back to the foreground and Germany's mind is elsewhere -…

Energy loans are now causing systemic risks to US banks

"The Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated 'under the table' that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches."
Zero Hedge, January 18,2015 That's more like it!  There is no doubt that the US bank's exposure to the drilling sector was large. Ideally, for the banks was to issue bonds (Junk, but they like to call them High Yield...) that was the feed for the US energy sector over the past 5 years.  Almost any project was fundable, because extraction costs were around $50/$60 and prices were around $80/$90.  As of 9:00 am today oil prices (WTI) are trading around $29.95, so that producers are maximising output so as to pay…

Baltic Dry Index -- what it is and what it does

Historically, the BDI has been one of the best measure of global trade growth or contraction.  Its an index with few problem because if the number of ships increases then the index may fall despite trade growing -- which is what happened in in the early 00.

The BDI is a measure of bulk shipping -- we are talking steel, minerals and other bulky items that are not moved by containers.  The BDI peaked at 10,000 in 2007 but also fell to near 600 in 2008 -- a function of the economic crisis -- Now for many economists, like myself it was a useful tool to ascertain economic health of economies, such as that of Canada, which are primarily dependent on the export or raw material.
In the 2008 crisis it lost a bit of its usefulness, for not only was there a economic crisis but there was also a known schedule vessel replacement cycle.   The bulk carriers have an expected lifespan of about 20 years, and the replacement cycle in 2008 coincided with the economic crisis -- making the index drop to an…

The days of the car ownership are coming to an end

This morning Telsa's newest software iteration was released to all users (in the US for now) that now provides a Summons Feature (SF for short).  What is SF, well you press your key fob and the car will find you.  it will drive out of the garage, it may fill itself with electricity independently, but the car will drive to where you are.  Imagine arriving at the airport and "summoning" your car to the curb... I though this feature was years away, in fact it was weeks away.
The important thing here is that the car can move without a driver and passengers -- the taxi of the future if you will, the ultimate "shared economy".  My guess is that in very large cities -- New York, London, Mexico this will become the norm.  You are part of a club, when you need a car you summon one to pick you up...voila!
The news out of CES (Consumer Electronics Show) could not be better for Tesla -- because absolutely every car manufacturer is building an electric car out there.  This…

Changing Financial World Order

When I became a banker, in 1984, the financial world was well organized.  In the City of London there were clear rules as to who did what, fixed commission the easy life; then Tatcher's government decided to tip over the apple cart and implemented the Big Bang of financial reforms.  Big American brokers set up shop in the City covering the globe with their knowhow.  
In no time the old City was swept away -- the Americans with their speed and capital took over and impose their rules -- granted the American learned their share of new stuff, foreign currency were a no mans land, I was privileged to "assist" as a very very junior banker, as the first European interest rate swap was written (we didn't think we were doing something that would change the world).  It was just a contract.  The Americans could be amazingly obtruse; one back office guys in New York, decided that Sterling could not be worth more than the US dollar -- and for months booked F/X trades upside dow…