ENERGY SPIKE INTRIGUE

 

Webster's defines paradox as "a seemingly absurd or self-contradictory statement or proposition that when investigated or explained may prove to be well founded or true."

With the global economy in a grinding half-step mode, or even worse, depending on one's vantage point, you can bet the last thing bureaucrats want is a surprise spike in energy prices.

Oil prices softened Wednesday after the the Yellen Report reached the market and official reports of a larger than expected increase in U.S. crude stocks. Just the day before brent crude rose on rumors of  OPEC cutting production going into next year of about 500,000 barrels per day.

The price of oil is critical to Saudi leaders. If the price drifts down too much there will be a lot of squirming going on there, for sure. And the call for harsher sanctions against Russia by blowhards like Financial Times columnist Martin Wolf could sink the EU economy further than it already is.

If fears about EU deflation were any thicker one might need a chainsaw to cut them. What makes all this so intriguing is practically no one is expecting a spike in energy prices. Investors are convinced central bankers know their way out of this murky, protracted bog.

And anyone who dares question or attack these bureaucrats is subject to attack from their MSM shills as was the recent case when an electronic female media head openly attacked a longtime fund manager. That should tell you just how thin skinned these media types are.

It's quite difficult to think of enough bad things to say about MSM in general. On a particular note, this was pure, low-class-media reaching-for-ratings trash. A common staple these days.

Tolerance continues to grow thinner by the week. The Good Ship MSM is, thanks to the Internet, taking on water and they know it. Like tolerance, its influence shrivels daily.

So what does all this have to do with an unexpected spike in energy prices?  Well, that's part of the intrigue of it all. We'll have to wait and see.
t. man hatter

NEXT YEAR ON THEIR MIND

As is often the case with relatively brief front-page splashes, stories have a way of retreating into background atmosphere.

But that hardly means they go away or anything gets resolved simply because they're mostly out of sight. Argentina is a case in point.

After a protracted battle with its creditors, Argentina decided to default on some long-hanging financial obligations dating back several years, not a first for this beautiful South American country.
Nor a second either if you bother to check its economic history.

The exchange rate for Argentina's black market dollar, the 'dolar blue', has hit its highest rate in history at 15.10 dolar blue to one U.S. dollar.

The official rate, fixed by the government, has been set at 12 pesos to the U.S. dollar since the country devalued its currency in January.

To say that things usually get bad before they get worse is no exaggeration when it comes to Argentina and it's current leadership.

As one observer put it recently: "We are all looking into 2015 already."

That's when the next election is slated. The hope is a change in leadership will bring a change in fortune.

But a new administration is not the cure for what ails Argentina. It's just a teeny tiny step on the way to a recovery. Unfortunately, paying the holdouts wouldn't immediately help the country either.

"[If they pay the holdouts] they will still have pneumonia but at least the fat man sitting on their toes will get off," Loser said. 

What he means is that this isn't even close to over, especially since economists believe that another currency devaluation is on the way, given the country's economic malaise.

This is going to get worse before it gets better.

Axel Kicillof, the socialist outspoken, bellicose Economy Minister, responded as expected whenever  nyone is trying to flimflam their way out of something during a recent radio interview, blaming "a group of hedge fund holdout creditors suing the country for over $1.3 billion of sovereign debt."

Kicillof  claimed the rate was all part of a plan to speculate the country into ruin, and dismissed the size of the underground market.

"This attack on our money was all a part of the vultures' plan," said Kicillof. "The United States representative spoke of default, and that wasn't casual... The dolar blue is a small market that is illegal... It's easy for it move quickly... There are no economic reasons for the dollar to equal 15 pesos [15 dolar blue]. This is simply an attempt to generate panic. Do not be alarmed..."

 In July after the country defied a U.S. court order and tried to stiff the bondholders, it was ruled in default.

Kicillof's rantings aside, Argentina's problems are quite real and not new to a country that has a history of such goings-on.
 http://www.businessinsider.com/argentinas-black-market-dollar-hits-record-high-2014-9

THE YELLEN REPORT

Flummoxed is as flummoxed does. And the same goes for hawkish.

There use to be an old saying about one finds what one is looking for. Perhaps the two places that's most relevant is medicine and markets.

A corollary of that is what they use to teach in medicine. If you hear hoof beats approaching you from behind in the middle of the night, think horses not zebra. We say use to teach because today we're not sure what they're teaching.

It's probably too basic for today's popular meme: complex problems require complex solutions if they're going to be valid.

Here's more fallout from the Yellen Report with some good points worth reading.
http://www.marctomarket.com/

WATER SEEKS ITS OWN LEVEL

Be careful what you water down.

Here's an interesting chart about Japan and it's trade deficit from http://wolfstreet.com/2014/09/18/the-miraculous-impact-of-abenomics-on-trade-in-one-chart/. Could it be a lesson for what to expect  from other beggar thy neighbor policies?

The one thing it hasn’t accomplished is the original goal of increasing exports and lowering imports, thus creating that all-important trade surplus that would goose GDP and make Abe and the Bank of Japan smell like a rose. The Ministry of Finance sprinkled salt on the wound today with the trade statistics for August.

For sure, many will point out Japan is not the European Union. Maybe so? But judging from what we read there's much angst afoot in MSM on both sides of the Atlantic about that possibility becoming a reality. 
t. man hatter


 

DEFLATION RISK

Ever heard of a "doom loop?

If you haven't, take a few deep breaths and relax. 

Don't start calling your therapist for some more benzodiazepines. They might give you Alzheimer's later in life. 

You'll get over it pretty much by sundown unless, that is, you live in the European Union.

According to a recent study by the those bond rating mavens, Fitch, any further move toward deflation in the good old EU could set up: "A classic debt deflation feedback loop could ensue," according to the authors. Among economists, that's better known as the "doom loop."

Quoting from a recent study, Fitch says low inflation coupled with lack of growth could "put pressure on national budgets and cripple the ability of governments to assist struggling banks, with credit ratings slashed all around."

The term "doom loop" was first coined in 2009 by the Bank of England. Simply stated, doom loop, according to Fitch, "means any government help for banks would raise their debt, making the countries themselves less stable."

It's hardly a pretty picture because if "banks deteriorate and finance ministries have to pick up the bill, they risk being downgraded themselves....(and) unemployment would rise to about 12% and stay there. That’s more than twice the rate Japan recorded when inflation went into reverse there.

Deflation, unlike inflation, punishes the borrower not lender. When a sovereign floats debt investors become the lender and the sovereign the borrower. The example Fitch uses is a "French government issued a 10-year bond in 2007, an investor expecting 2% inflation might want a 2.5% yield. Nobody likes losing money.
 

If inflation then dropped to -1%, the investor would be getting a much better deal on his bond, relative to other options. But the French government would not be happy — it would be paying a much higher real rate of interest to make that bondholder whole."

Recall during the Japanese lost decade investors there loaded up on government bonds. Weak GDP growth would usher in another problem: property, equity and other non-fixed income assets would suffer. 

Beyond that there are tax revenue consequences. When prices fall sales tax revenue declines. And as Fitch points out it wouldn't take much from here to bring this scenario about.

 http://www.businessinsider.com/fitch-warns-of-europe-doom-loop-2014-9

THE GIBBERISH CONTINUES

 

The news is out. All over town. And the winners are CT and DP.

The Yellen Report announced today at the FOMC meeting that "considerable time" and "dot plot," sounds like two fillies at Santa Anita Downs about to enter the starting gate, are the winners and will continue to play a role in Fed guidance.

 In releasing it's latest monetary policy gibberish, the boys and girls of the Fed left interest rates alone and, as expected, continued cutting back it's QE stimulus program by $10 billion. The Fed also released its latest Summary of Economic Projections, which includes the latest dot plot, which shows expectations for rates over the long run are higher than they were in June. The market is seeing these dots as a hawkish signal from the Fed.

Gibberish is really too kind of a term for these poor, pathetic bureaucrats. Given their stumbling, bumbling style, it's even questionable just how well-meaning they are. 

In the military one learns many things, but one of the most important is, stupidity will get you killed.

We already have "considerable time" and "dot plot." Now here's another one, perhaps even more feeble, to describe the labor market, "significant underutilization." 

 "On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources."

Cutting through the gibberish, the take away message is "that a highly accommodative stance of monetary policy remains appropriate." 

Plan your investments accordingly with a keen eye open for the eventual train wreck. There's surely some more air in this market puppy, but don't hesitate to periodically take some profits when they appear.

Recall this is the market you're playing, not a game of Texas Hold'em.
t. man hatter
 

ELECTION TIME

The proposed possible break up in Scotland is hardly an isolated case.

Look at Catalonia in Spain, Hong Kong, the recent elections in France and Germany. And on a more local level there are numerous other examples.

Here in the U. S. there are gads of people who want to get that octopus in Washington finally out of their lives. And they're not all gun-toting, camouflage-fatigue wearing, over-weight,  dumb ass white people either. They run the ethnic and racial and religious gamut.

That's the scary part for these bureaucratic elitists. Like the Ebola virus it's spreading. But unlike EBV it's a good, healthy spread.

And they get it. As has been pointed out by many throughout history, one of the constants is changing borders. Folks who think it can't or won't happen here are naive. Britain treated the Scots as third class people for centuries, just as they treated much of the rest of the world during Kipling's heyday.

Sovereignty has been turned into a nasty term by globalists in their quest to rule all. Most people revere and prefer the local not the cosmic. The media portray them as inane or even insane, but most recognize the media, from Fox to CNN to any of the major networks, for what it is, shills for the status quo, useful idiots for the system masquerading as protective truth seekers instead of the pompous, self-important higher-ups they really are.

The only real growth industry flourishing today is intrusive government. The EU experiment is the latest tinder box that can explode any day.

That makes what happens in Scotland important. Here's a link to both sides of the issue we think is worth a look. 
http://www.dailyspeculations.com/wordpress/?p=9619

OUR VIEW

 

Here's a headline from today's Financial Times that in our mind is the story of the day, especially leading into Scotland's pending vote for independence.

"Greenspan, Zoellick and McCain warn Scots against voting for independence."

If the Scottish people who wanted a better sign to carry out their conviction for independence, this is it. It would be hard to assemble a more pathetic triumvirate than these three. Forget Moe, Larry and Curley or even Manny, Moe and Jack.

This is Greenie, Zoe and Mac. And it shows you just how worried these folks are. Of the three Greenspan's and McCain's pronouncements are most likely the most dangerous. Zoellick is just another incompetent former World Bank bureaucrat.

That's our view. We hope you know yours.
t. man hatter

CATCH THE DRIFT

We knew it was bound to happen, just a matter of time.

It's part of the new meme, thanks in large part to political correctness, no one is responsible any more for his or her actions. 

It ain't the devil that makes them do it. It's the monopoly on healthcare by the giant pharmaceutical companies.

Here's the headline from a recent Financial Times article: "US more open to obesity drugs."

US regulators are becoming more open to drugs for tackling obesity, according to Lars Sorensen, chief executive of Novo Nordisk, as the Danish company pushes for approval of a weight-loss medicine that analysts forecast  could generate $1bnin annual sales.

Type II diabetes, the kind most folks eat their way into, is a huge money maker. If you don't believe us here's more from Sorensen and his company.

Growth in obesity drugs could provide a new source of momentum for Novo Norkisk on top of its role as the world's biggest maker of insulin for diabetics.

Rising incidence of diabetes across the world has helped Novo Nordisk over-take GaxoSmithKline to become Europe's fourth-biggest drugmaker by market capitalisation after Roche, Novartis and Sandofi. 

Mr Sorensen said 10 per cent of global  healthcare costs were attributable to diabetes. He said the 'enormous business potential' in treating diabetes meant Novo Nordisk had no need to join the rush of mergers and acquisitions among drug makers this year.

Back in the 1990s another anti-obesity drug, called fen-phen for short after its ingredients, fenfluramine/phentermine, captured the public's attention. Though it had been around since the early 1970s, phentermine when mixed with fenfluramine sales began to take off. 

Up until that time fenfluramine was not popular because it only temporarily reduced weight. Later it was discovered that this and a similar weight-loss drug has serious side effects. 

If you're paying attention, there are two five-letter words here. One is drift and the other is greed. Once again what could be done naturally gets an artificial, painless solution. Natural is big pharma's biggest nightmare.

For a decent recap on the history of fen-phen and its problems, here's an interesting link.
https://www.dartmouth.edu/~chance/course/Syllabi/97Dartmouth/day-2/fen-phen-1.pdf

IT'S ABOUT THE SLACK

Forget the cat. It's now about the slack.

Most are familiar with the old saying about the cat being out of the bag. With the Fed's two-day FOMC meeting starting today, the real question on many minds is: How much slack is still in the bag?

Up to now Fed policy has been slow and steady as you go. Growth in the U.S. has picked up, according to many watchers, notwithstanding claims that inflation remains below the Fed's target rate of two percent. 

Wage pressures also remain low by some accounts. But others are saying that wages never receded enough during the The Great Recession to begin with and are thus starting from a level that won't take too much of a hike to pressure employers.

Stock market pundits near and far of course have rolled out their historical charts that show the market continues to rise during the first few Fed rate hikes, especially if those increases are orderly. But history buffs are like people, they come in all shapes and biases.

Today's Wall Street Journal "Ahead of The Tape" column quoted bond guru Jeffery Gundlach, saying "Yellen will be in no hurry to raise rates since U.S. economic growth is no stronger than in 2012." But  today's Financial Times noted in three previous occasions, 1994, 1999 and 2004, the Fed jumped on higher rates when conditions were less favorable than they are today, notwithstanding that each situation is different.

Confidence is a fragile thing. The longer the Fed waits to clearly signal what's on it's connect-the-dots mind, the greater the possibility investor confidence wanes. A Bank of America Merrill Lynch fund manager survey for September released earlier today cited the second quarter of next year as "48% expect the central bank to deliver its first rate hike then, up from 38% a month earlier" 

The end of the Fed's asset purchase gig, set to end next month, is actually a statement about declining slack left in the bag. Sitting atop a $4.4 trillion bond portfolio and after five years of  look-no-hands-zero interest rates, there's more than enough room for some unpleasant surprises. 
t. man hatter