The Daily Shot - 12/12/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Sat, 13 Dec 2014 02:46:02 -0500
The Daily Shot™
Greetings,
I’d like to start by welcoming all the new readers from the University of Notre
Dame.
What a week it has been. Most major traded markets are now driven by oil. Few
have understood just how pervasive a 40%correction in oil prices will be. And
declines have only accelerated in recent days. While some traders are trying to
time the bottom, this is a bit like catching a falling knife.
Blue = Jan-15 WTI futures, Black = Jan-15 Brent futures.
_____
In some instances, the energy correction simply accelerated the inevitable.
Here is once such situation.
Venezuela:
* 96% of export revenues are from oil
* Foreign reserves running out
* Default imminent
2yr government bond yield:
_____
Spec-focused market participants are probing areas of energy-related weakness,
such as piling into Mexican peso short positions.
Blue represents net positioning of speculative futures accounts:
Source: @Schuldensuehner
_____
The oil price collapse is forcing inflation expectations lower globally. In the
US the 10-yr breakeven is now at 2010 level.
US 10-yr TIPS-based inflation expectations
As a result, both longer-dated gilts and treasuries are seeing a new round of
yield compression.
The October treasury "flash-crash" is being revisited, except there is no yield
rebound this time.
_____
The US energy policy is potentially on the move as Congress contemplates
permitting crude oil exports. Such a move may have a positive effect on
shipping demand.
Source: Evercore ISI (h/t David)
_____
In aggregate, the commodity complex is drifting lower. The Continuous Commodity
Index (GCC) is now at levels we haven’t seen since 2009.
Source: barchart
_____
In credit-land, pain is spreading across leveraged finance.
blue=loans, green=HY bonds, red=BDCs -
Spreads in energy credits are blowing out to post-08 highs. Here are the two
worst-hit sectors.
_____
Just as the Bloomberg US consumer index I discussed yesterday, the UMichigan
sentiment index is moving higher, beating expectations.
Source: Investing.com
One surprising aspect of the UMichigan report is that consumer inflation
expectations actually increased. I don’t understand this, particularly given
that gasoline prices continued to decline during this survey.
Source: Natixis
_____
Of course there could be another reason why some US consumers are happier.
Cheaper bacon for the holidays … The Porcine Epidemic Diarrhea virus (PEDv) has
devastated a number of pig farmers in the US (see the spike below). But high
pork prices weakened demand and the supply turned out to be not as low as some
have feared.
Feb-15 Lean Hogs contract:
Source: barchart
_____
Now some food for thought – 3 items:
1. Law school enrollment is down suddenly in the US. Market saturation?
Source: @conradhackett
2. The number of young Americans living with parents seems to have topped. But
so far we’ve had only a small decline.
Source: @themoneygame (Business Insider)
3. Energy usage in US homes changed quite a bit since late 70s.
Source: @ranimolla
_____
I received numerous comments related to last night’s Food for Thought picture
of Afghan women – in the 50s vs now.
Here is one such comment:
Your picture of Afghanistan - it is almost propaganda... I went to Afghanistan
not in 1950 but in 1969. This was a very conservative country but with a King,
whose son I met, that was very pro modernity and was trying very hard to change
its country. He was found of France and tried to emulate a lot of what the
Occidental way of life and France in particular could bring to the country. But
to my experience, only and I mean ONLY Kaboul and especially the University of
Kaboul had made real efforts and succeeded in turning a new face, more open to
the world. Herat and Kandahar the two other ''big'' cities were still very much
where the beginning of the century had left them. Afghanistan was a rural
country with farmers accounting for the bulk of the country output. BUT and
this is a very sad BUT Afghans were very happy people extremely welcoming and
very curious of the outside world. Turkey in comparison WAS very unwelcoming to
strangers.
What wars do to people should never be ignored for too long from pundits
narrative.
Have a great weekend.
_____
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