The Daily Shot - 12/29/14

From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
To: <thedailyshot@xxxxxxxxxxxxx>
Date: Tue, 30 Dec 2014 01:38:28 -0500
The Daily Shot™

 

 

Greetings, 

 

Tonight I’d like to start with the situation in US crude oil markets. We are 
beginning to see some signs of oversupply showing up in US crude inventory, 
pressuring prices further. In recent weeks absolute levels of crude stocks 
jumped materially above their 5-year range.

 



Source: EIA

 

And stocks measured in days of supply have moved above last year’s level at 
this time.

 



Source: EIA

 

As a result, WTI futures came under pressure again, dipping below $53.5/bbl 
today.

 



 

And US rotary oil rig count fell again – down by 37 over the past week. Some 
folks from Texas told me this is a seasonal effect but I call that wishful 
thinking. High cost production is gradually being mothballed.

 



Source: SoberLook.com

 

The good news according to Morgan Stanley is that the positive impact on the 
consumer – and therefore the GDP - will be more immediate than the decline in 
nonresidential fixed investment which will result from this dislocation in 
crude prices.

 



Source: @Eurofaultlines

  _____  

 

A related note to the discussion above: Here is an example of what I call a 
“spurious correlation". I am sorry, but the end of QE in the US had little to 
do with the massive correction in oil prices.



Source: @BlanchardGold

 

Here is a better explanation:



Source: EIA

  _____  

 

The oil markets are not being helped by the US dollar strength, with the DXY 
dollar index now at an 8-year high. This remains a major risk for 2015 as it 
may further destabilize commodities, emerging markets, as well as raise 
disinflationary risks in the US. US equity markets may be negatively impacted 
as well if the trend continues.

 



Source: barchart

  _____  

 

With the renewed selling in the oil markets, Russia came under pressure again. 
The ruble is still much stronger than the lows from the panic a couple of weeks 
back but it gave up some 10% today in spite of the informal controls imposed by 
Moscow. Debt downgrades by rating agencies are coming shortly.

 



  _____  

 

Now we turn to the Eurozone where Greece has once again become the crisis 
flashpoint. It amazes me how such a relatively small economy could destabilize 
the whole of euro area’s infrastructure. While many are talking about a 
potential for “Grexit”, such an outcome will be a disaster resulting in full 
default of Greek debt – creating losses for investors, the ECB, the Eurozone 
rescue vehicles, the IMF, etc.  Moreover, the Greek central bank owes the 
Eurosystem money via the TARGET2 system – and nobody has set up a mechanism for 
this type of separation. More on this later.

 



Source: The Guardian

 

Greek 3-year government bond yield quickly blew past 12%.

 



Source: Investing.com

 

The euro came under pressure again.

 



 

And German government yields fell further in response to the Greek situation.

 

1. The 10-year yield fell below 55 bp,

 



 

2. And the 5-year German yield is now below 2 basis points! Note that this is 
lower than the 5-year Japanese government bond yield. 

 



  _____  

 

In the United States the homeownership rate is approaching a 20 year low. 
Welcome to “generation rent”. However with rental costs rising quickly due to 
lack of sufficient rental housing, we are probably going to stabilize at around 
64% homeownership rate (“pre-bubble” levels).

 



Source: @Eurofaultlines

  _____  

 

In the US banking sector the FDIC is continuing its policy of fewer banks 
(since the financial crisis). This creates barriers to entry and reduces 
competition. But the FDIC’s view is that such policy also makes existing banks 
stronger. Perhaps. Some of the lending however is simply shifting to “shadow 
banking”.

 



Source: @PlanMaestro, @AlexRubalcava

  _____  

 

Now some food for thought – 3 items:

 

1. Apparently aircraft accidents these days are at historical lows. But in 2014 
accidents have been much more deadly.



Source: @NickEvershed, @GuardianData (The Guardian)

 

2. Which nations have a negative opinion of the US?

 



Source: @conradhackett

 

3. Wanting global change ...

 



Source: @went1955, @kantelaars

  _____  

 

Thanks for reading the Daily Shot. To subscribe or unsubscribe please enter 
your e-mail address here:  <//www.freelists.org/list/thedailyshot> 
Subscribe/Unsubscribe to the Daily Shot and select the appropriate command. 

 

The Daily Shot list is maintained at FreeLists.org, which has an ugly interface 
but is quite reliable and has been safely delivering newsletters like this for 
over a decade. E-mail addresses are protected and NEVER shared with anyone.

 

If you have received the Daily Shot in error please notify me by replying or 
simply unsubscribe per instructions above.

 

All content provided by the Daily Shot is for informational and educational 
purposes only and is not meant to represent trade or investment 
recommendations. The Daily Shot is not produced by any entity that is 
registered as an investment adviser with any federal or state regulatory 
agency. 

 

CONTENT COPYRIGHT 2014. The Daily Shot.  ALL RIGHTS RESERVED
The Daily Shot - 12/29/14

Other related posts:
