CRUDE OIL SPILLOVER

A lot has been written lately about the spillover effects of trouble in the oil patch. We have touched on it several times. Just how pervasive is it, well, this article might give you a glimpse.

It is a buyer’s market.” This phrase is omnipresent on most oil trader’s lips these days as crude oil prices continue to slide. None typifies this better than the current state of the Nigerian crude oil market. Overhang, glut, oversupply, unsold barrels, are some of the words most associated with Nigerian crude.

Rewind to almost a decade ago: Nigerian crude was every refiners’ oil of choice. Most of them wanted to refine Nigerian light sweet oil in order to produce a substantial amount of middle distillates and gasoline, the profit-making products for refineries.

Now fast forward to the present day. Nigerian crude has lost its appeal. With the growing pace of technological advancement in refineries that can take a greater variety of crude grades, Nigerian crude is no longer the talk of the town.

In the past six years Nigeria also lost its biggest customer, the US, which now buys only a small amount of Nigerian crude oil due to the dramatic rise in domestic shale production. And Nigeria has still not been able to adapt to this loss.

 blogs.platts.com/2015/12/14/nigerian-crude-no-longer-talk-of-town

OUR VIEW

 
Here is a post from AP that should interest anyone and everyone interested in maintaining their right to free speech in this country. We have written recently articles: Open Letter To Ron Paul and 
MSM Continues Assassination and Open Letter To Mark Zucherberger that apparently received over site complaining about the content violating guidelines.  

This is a common thing today. Our content was simply about a difference of opinion and one's individual right to express those opinions without being labeled a hater or some other often used epithet. These well-chosen epithets are hardly benign. There are designed to strike fear at the least and to silence at the most.

In journalism there are at least three defenses against slander or libel: truth, fair comment and matter of public record. Unless those three have been redacted, buried in some hidden legislation, we believe they are still valid.The comments we made that were allegedly deemed offensive or in violation were not only true but matters of  pubic record. 

We realize that slanted news presentations, like attractiveness, is in the beholder's eyes, but it's a known and well-publicized fact that many MSM organizations, right and left, slant their news. And numerous polls, if one can believe them, reflect that fact. And people who legitimately voice them are hardly the ones who need sensitivity training.

Nor were they in any way meant to be malicious or mean-spirited, two more poplularly used labels against anyone who dares to differ with current so-called accepted wisdom. Differences of opinions can run deep, but that doesn't make them hateful speech or racist. 

BEIJING (AP) -- Police scuffled with protesters and journalists at a Beijing courthouse Monday as a prominent rights lawyer stood trial on charges of provoking trouble and stirring ethnic hatred with online commentary critical of the ruling Communist Party.

Chinese protesters and foreign rights groups said Pu Zhiqiang's trial at the No. 2 Beijing Intermediate Court amounted to political persecution, and foreign governments including the U.S. called for his release. Pu denied the charges and the trial concluded about midday, with Pu's lawyer Shang Baojun saying a verdict and sentence would be delivered at a later date.

"Pu Zhiqiang is a lawyer with a conscience," activist Yang Qiuyu said in a brief interview outside the courthouse while a policeman tried to grab him. "This is why he is now under arrest. We support him, and that means that we are also defending our own rights."

It should stirke you as curious that U.S.government offcials often call for a person's release when it happens in a foreign country but not when it happens here.

That's our view. We hope you know yours.

hosted.ap.org/dynamic/fronts/HOME?SITE=AP&SECTION=HOME

SANTA CLAUS RALLY?

As the end of 2015 grinds down ( And we think given the recent market behavior it's been a grind for many investors.), the Santa Claus rally that usually happens comes into question again. Will it happen or no?

The end of December is usually kind to stocks, so watch for “an oversold bounce in the coming weeks,” says Ari Wald, technical analyst at Oppenheimer & Co., in a note. That seasonal trend is shown in the chart above from Wald.

“However, strategically, we believe Q4 strength has marked an opportunity to sell weaker trends ahead of what we expect to be a Q1 ’16 correction,” he adds. “We see downside risk to 1900 over the coming months.”
marketwatch.com/story/what-technical-analysts-are-watching-after-last-weeks-big-market-selloff-2015-12-14

OVERNIGHT

Reuters rseported falling energy prices added to investor worries as Asian equities and the Chinese yuan recorded 4.5 year lows in trading Monday as the day of reckoning for the Fed's first interest rate hike in nearly seven years nears.

Trouble in the oil patch continues to contribute to the beggar thy neighbor global central bankers are playing. The People"s Bank of China continued Monday to guide the yuan lower, "setting," as Reuters reported, "a yuan/dollar official midpoint at the weakest since July 2011."

In a related story the WSJhttp://www.wsj.com/articles/dont-be-afraid-of-chinas-currency-gift-basket,investors were told the recent Chinese move to join a basket of currencies this time around appeared to be for real.

Every five years, China promises the world a currency basket, only to remain tethered to the U.S. dollar. Investors should be on guard that this time the basket is for real. Late Friday, in typical Chinese policy maker style, a currency department of the People’s Bank of China released a cryptic, unsigned editorial saying it would begin to publish a reference rate for the yuan against a trade-weighted basket of 13 currencies. The implication is that this new reference rate will be more important than focusing exclusively on the yuan’s rate versus the dollar. The PBOC said the new rate would be of “great significance.”

Just because it is publishing a rate, of course, doesn’t mean it has to follow it. In 2005, when China began to allow a gradual appreciation against the dollar, it said it would follow a basket. It repeated that promise in 2010, when it began to allow appreciation again after pausing during the global financial crisis.

But back then, a basket wasn’t in China’s short-term interests. The dollar was weakening, so even as the yuan appreciated against the U.S. currency, it weakened against its biggest trading partner’s currency at the time, the euro, and against the yen.

 Now is different. Staying tied to an ascending dollar means China has allowed its currency to become very strong against basically the entire world—except for the U.S. And it is at a time when Beijing has struggled to get the economy to respond to stimulus moves.

Following a basket will lead to further depreciation against the dollar. If done slowly and gradually, markets may absorb the change in stride, notwithstanding howls from the U.S. Congress. Yet the chance for dislocation remains high given that companies don’t invest based on a currency basket. Dollar exposure through offshore borrowing is a fact of life for Chinese real-estate companies, airlines and energy firms.

No doubt the timing—just before the U.S. Federal Reserve is this coming week expected to lift interest rates from near-zero levels—is aimed at getting ahead of further dollar strength. But it is not just a calculated, race-to-the-bottom depreciation. Following a basket is arguably a more rational way for China to let its currency adjust to economic circumstances.

TECHOLOGY IS AS IT DOES

Here are two stories one should be aware of. Recently, we mentioned that robots, not climate change, could turn out to be the biggest nemesis of humans. Since nearly everyone has a mobile phone these days, maybe the second story is also a prelude  to the destruction of humans. At least, any pretense of human privacy.

.telegraph.co.uk/news/worldnews/northamerica/usa/12047454/Elon-Musk-launches-1bn-fund-to-save-world-from-

dailymail.co.uk/news/article-3356608/So-terrorists-Homeland-Security-deployed-hi-tech-spy-plane-scoops-tens-thousands-phone-calls-one-time-San-Bernardino-days-massacre.

VOLATILITY WATCH

We've always been a bit amused to see how much investors love volatility when it's to the upside. When it appears in any other direction, choppy or straight to the down side, it becomes a MSM topic and something onerous if not outright sinister.

But volatility is inherent in the definition of markets. At the very least it's implied or should be. You know, sorta like the concept of marriage. Now that the Fed's set to crank up the old interest rate cycle and the market's exposed its skittish underside once again with the Dow Friday off 300 or so points, the volatility bugs are out in force warning investors like it's something new.

It ain't. But here's a sample from Reuters.

http://www.reuters.com/article/us-usa-stocks-weekahead

WILL IT STICK?

There's an old story, though we've never verified either it's origin or it's veracity, about some young Harvard guys sitting around tossing a chunk of gooey-gunk that reportedly became a best-selling toy against their office wall to see if it stuck.

From our view that's what next week's Fed rate hike--if it happens--will turn to be about. The market of course will twit and twitter over patience--that is, how much the Fed will display before further bumping up rates should their pile of trailing indicator data so dictate.

The meme being the threat  of rising rates lower stock prices. (See Friday's market selloff.) But patience is probably an incorrect term. Paralysis comes to our mind, but we're certain many Fed defenders will take issue with that. After all, after all this time, that request of the late Rodney King is still floating around out there.

With the current market worry about junk bonds safety becomes a bigger priority that might be somewhat helped by higher interest rates. The numbers on Third Avenue high yield fund tell an interesting  story. The term panic might not be an overstatement here.

According to what we've read, last summer, approximately 18 months ago, the fund had $3.5 billion in assets. As of last week it had plunged to $789 million. Some might call that a haircut. We call it, PC hall monitors aside, a scalping.

The odds on a rate hike next week have changed somewhat given Friday's big selloff in stocks and the latest high yield bond nightmare. And if you look there are other troubling signs in emerging markets, to mention just one. So the Fed, which has self-inflicted much this damned-if you-do, damned-if-you-don't scenario, will be forced to show its hand, one way or another.

As a neighbor of ours who lives and inhales the marker recently said:"It couldn't happen to nicer bunch of incompetent bureaucrats."

DEJA VU

When we view a tree what we obviously see is that part above ground. But in many trees the roots and tentacles below ground are often longer and cover a wider space than that the tree is tall.

Now that default season in the high yield bond market has been kicked off by Third Avenue, investors need to think about the sector as one of those trees. What's out there that we don't see yet and how deep and wide does it go?

One could argue that those under ground tree roots and tentacles are where the money or gold is. Any poison that manages to get into the tree must come for the most part through them. So the tree can appear healthy from the outside, but what's lurking in those hidden roots and tentacles is the most important question.

On that subject is an interesting read from zerohedge.com.

zerohedge.com/news/2015-12-12/eerie-echo-2007-it-really-bear-stearns-all-over-again

WHAT NEXT?

Rising interest rates are the topic de jour of the coming week.

And there's no paucity of gurus popping the corks on their Genie bottles. Here's one from the recent issue of Barron's, "Rising Rates Spell Stock Trouble."

I have spent a good portion of the past 25 years working with colleagues (most notably Gerald Jensen of Creighton University and Luis Garcia-Feijoo of Florida Atlantic University) to examine empirically what happens to asset classes and sectors under expansive or restrictive monetary policies.

What we have found is that there are very strong patterns of returns related to monetary policy present in the capital markets. Domestic equities perform quite well when the Fed is pursuing an expansive monetary policy, and provide more pedestrian returns in a restrictive monetary environment. This may not be a big surprise, but the magnitude of the return differences is remarkable.

The bad news first: International developed markets have followed the same general pattern as the domestic equity markets. That is, higher returns in expansive periods and lower returns in restrictive periods. It would not have paid an investor to rotate out of U.S. stocks and into foreign developed markets during restrictive periods. This is because the major financial markets are globally integrated, now more than ever before.

The good news is that developing markets show a pattern distinctly different from the U.S. and world developed markets. From 1988 through 2013 (a shorter time period due to data limitations), emerging markets earned 8.5% in expansive periods and 16.5% during restrictive periods. This makes sense in that many emerging market economies are commodity-based. It follows that emerging markets and commodity returns would follow a similar pattern. 
  
The bottom line is that Fed policy has tremendous influence on investment returns, and investors ignore Fed  policy at their peril. As Fed liftoff nears, investors would be well served to review their portfolios,. taking the Fed's expected moves as serous threats to their stock market returns
http://www.barrons.com/articles/rising-rates-spell-trouble-for-stocks.