Saturday, November 29, 2014

Charts of the Day: Wow…Oil Prices Just Collapsed!

Oil prices just had a shocking one day meltdown! Absolutely stunning…

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WTIC –10.18%!

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Brent –9.77%!

(charts above from stockcharts.com)

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WTIC at 5 year lows (chart from zero hedge)

The last time oil prices got smashed was during the 2008 crisis when every risk asset endured a meltdown, except US dollar and US treasuries. 


This time is different?

Friday, November 28, 2014

Monetary Authority of Singapore Warns of Domestic Debt Bubble!

More example of what  I call as
...global political or mainstream institutions or establishments, CANNOT deny the existence of bubbles anymore. So their recourse has been to either downplay on the risks or put an escape clause to exonerate them when risks transforms into reality
Singapore’s central bank, the Monetary Authority of Singapore, warns of escalating domestic leverage

From Yahoo.com
Corporate debt-to-GDP ratio hit 78% in Q2.

The Monetary Authority of Singapore today raised the alarm over the spike in local debt. In its annual Financial Stability Review, the MAS stated that the corporate debt-to-GDP ratio hit 78% in the second quarter, up significantly from just 52% in Q2 2008.

The report further noted that the household debt-to-income ratio has also edged up from 1.9 times in 2008 to 2.3 times in 2013.

“An interest rate hike combined with an earnings shock could increase the number of financially distressed corporates and households,” the MAS stated.

The MAS also said that still-elevated property prices and increasing cross-border banking exposure also warrants close attention.

“MAS is monitoring the above risks closely and taking pre-emptive measures to address them,” it said. 
These warnings from political authorities have been coming in so frequently. 

Doesn’t the MAS realize that ‘this time is different’? Debt stock, prices of stock markets and real estate can only rise forever?

Well of course the MAS can do something. They can pop the bubble. But they are afraid to do so. They dread the consequence: the implosion of unproductive debt or debt deflation

They don’t seem to realize that this will happen anyway. And for them to continue to inflate the debt bubble will pose as a BIGGER problem tomorrow than today, e.g. corporate debt-to-gdp at 78% today vis-à-vis 52% 2008. So how much will it be 6 months now 80% and rising???

The problem has been debt based speculation and consumption which comes from easy money policies. So the solution is to tighten money.

So like almost every central bank, dithering to tighten means that the only available remedy has been to “signal” the problem rather than to act on it.

Again the same dynamic: I recognize the problem of addiction but a withdrawal syndrome would even be more cataclysmic

Like many major central banks, for the MAS, HOPE has become the only strategy


Why there is no such thing as deficiency of demand

The ever eloquent Austrian economist Dr. Frank Shostak debunks the pervasive and populist myth that has pillared today's aggregate demand policies (from the Cobden Center):[bold mine]
There is no such thing as deficiency of demand that causes economic difficulties. The heart of economic growth is the process of real wealth generation.

The stronger this process is the more real wealth can be generated and the stronger so-called economic growth becomes. What drives this process is infrastructure, or tools and machinery. With better infrastructure more and a better quality of goods and services i.e. real wealth, can be generated.

Take for instance a baker who has produced ten loaves of bread. Out of this he consumes one loaf and the other nine he saves.

He can exchange the saved bread for the services of a technician who will enhance the oven. With an improved oven the baker can now produce twenty loaves of bread. Now he can save more and use the larger savings pool to further invest in his infrastructure such as buying other tools that will lift the production and the quality of the bread.

Observe that the key for wealth generation is the ability to generate real wealth. This in turn is dependent on the allocation of the part of wealth towards the buildup and the enhancement of the infrastructure.

Also, note that if the baker were to decide to consume his entire production i.e. keeping his demand strong, then he would not be able to expand the production of bread (real wealth).

As time goes by his infrastructure would have likely deteriorated and his production would have actually declined.

The belief that an increase in the demand for bread without a corresponding increase in the infrastructure will do the trick is wishful thinking.

We suggest that there is no such thing as a scarce demand. Most individuals have unlimited desires for goods and services.

For instance, most individuals would prefer to live in nice houses rather than in small apartments.

Most people would like to have luxuries cars and be able to dine in good quality restaurants. What prevents them in achieving these various desires is the scarcity of means.

In fact as things stand most individuals have plenty of desires i.e. goals, but not enough means.

Unfortunately means cannot be generated by boosting demand. This will only increase goals but not means.

Contrary to the popular way of thinking we can conclude that demand doesn’t create supply but the other way around.

As we have seen by producing something useful i.e. bread, the baker can exchange it for the services of a technician and boost his infrastructure.

By means of the enhanced infrastructure the baker can generate more bread i.e. more means that will enable him to attain various other goals that previously were not reachable by him.

The current economic difficulties are the outcome of past and present reckless monetary and fiscal policies of central banks and governments.
Read the rest  here

Crashing Oil Prices: OPEC Deadlock, Shale Bubble, Global Liquidity and Philippine OFWs

I recently pointed out that October brought upon us the reality of real time crashes—a dynamic we have not seen since 2008.

In spite of the ECB-PBOC-BOJ fueled stock market boom, crashes seem to be still haunting global markets

From Reuters:
Saudi Arabia blocked calls on Thursday from poorer members of the OPEC oil exporter group for production cuts to arrest a slide in global prices, sending benchmark crude plunging to a fresh four-year low.

Brent oil fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group's output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices.

This outcome set the stage for a battle for market share between OPEC and non-OPEC countries, as a boom in U.S. shale oil production and weaker economic growth in China and Europe have already sent crude prices down by about a third since June.

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The sustained crash in oil prices (WTI left, Brent right) has just been amazing

On the one hand, we see record stocks in developed economies backed by record debt. On the other hand, we see crashing commodities led by oil prices. So the world has been in a stark divergence in terms of market actions. 

Prior to the US prompted global crisis of 2008, divergence in the US housing and stocks heralded the (2008) crash.  US housing began to decline in 2006 as stock markets soared to record highs. When the periphery (housing) hit the core (banking and financial system), the entire floor caved in.

Today’s phenomenon (crashing commodities as well as crashing Macau stocks and earnings) runs parallel to the 2008 crash, except that this comes in a global dimension.

Bulls rationalize that lower oil price benefit consumption. This is true. Theoretically. But what they didn’t explain is why oil prices have collapsed and now nears the 2008 levels. Has this been because of slowing demand (which ironically means diminishing consumption)? If so why the decline in consumption (which contradicts the premise)? 

Or has this been because of excessive supply? Or a combination of both? Or has a meltdown in oil prices been a symptom of something else--deflating bubbles?

Yet how will consumption be boosted? Is consumption all about oil?

If economies like Japan-Eurozone and China have been floundering because of too much debt or have been hobbled by balance sheet problems that necessitates for central bank interventions, how will low oil prices improve demand? Well my impression is that low oil prices may alleviate only the consumer’s position, but this won’t justify a consumption based boom. 

Again the problem seems to be why prices are at current levels?

From the production side, what collapsing oil prices means is that oil producing emerging markets will likely get hit hard…

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The above indicates nations dependent on oil revenues.

Oil production share of GDP won’t be much a concern if not for the role of domestic political spending (welfare state) which oil revenues finance…

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At current levels, almost every fiscal position (welfare state) of oil producing nations will be in the red.

This simply means several interrelated variables, namely, economies of these oil producing nations will see a sharp economic slowdown, the ensuing economic downturn will bring to the limelight public and private debt problems thereby magnifying credit risks (domestic and international), a downshift in the economy would mean growing fiscal deficits that will be reflected on their respective currencies where the former will be financed and the latter defended by the draining of foreign exchange reserves or from external borrowing and importantly prolonged low oil prices and expanded fiscal deficits would eventually extrapolate to increased incidences of Arab Springs or political turmoil.

But the implications extend overseas.

I have pointed out in the past that any attempt to use oil prices as ‘weapon’ (predatory pricing) to weed out market based competitors, particularly Shale oil, will fail over long term

But over the interim, collapsing oil prices will have nasty consequences for the US energy sector, particularly the downscaling, reduction or cancellation of existing projects and most importantly growing credit risks from the industry's overleveraging.

The Shale industry has been a part of the US Fed inflated bubble.

Notes the CNBC: (bold mine)
Employment in the oil and gas sector has grown more than 72 percent to 212,200 in the last decade as technology such as horizontal drilling and hydraulic fracturing have made it possible to reach fossil fuels that were previously too expensive to extract. In order to fund the rapid growth, exploration and production companies have borrowed heavily. The energy sector accounts for 17.4 percent of the high-yield bond market, up from 12 percent in 2002, according to Citi Research.
Falling oil prices will increase credit risks of US energy producers, from the Telegraph
Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.
Collapsing oil prices will thus prick on the current Shale oil bubble.

But the basic difference between oil producing welfare states and debt financed market based Shale oil producers have been in the political baggage that the former carries. 

The current bubbles seen in the energy sector implies that inefficient producers today will simply be replaced by more efficient producers overtime. The industry will experience a painful market clearing adjustment process but Shale energy won’t go away.

The damage will be magnified in terms of political dimensions of welfare states of oil producing nations.
And as previously noted, the non-cooperation or perceived persecution of rival oil producing nations will have geopolitical consequences. There may be attempts by rogue groups financed by rival nations to disrupt or sabotage production lines in order to forcibly reduce supplies. This will only heighten geopolitical risks.

In addition, since forex reserves of producing nations will be used to finance domestic welfare state and defend the currency, such will reduce liquidity in the system

As the Zero Hedge duly notes: (bold italics original)
As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their "petrodollars" out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.

A consequence of this year's dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

But no more: "this year the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations."

In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.
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According to BNP, Petrodollar recycling peaked at $511 billion in 2006, or just about the time crude prices were preparing to go to $200, per Goldman Sachs. It is also the time when capital markets hit all time highs, only without the artificial crutches of every single central bank propping up the S&P ponzi house of cards on a daily basis. What happened after is known to all...

"At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out," said David Spegel, global head of emerging market sovereign and corporate Research at BNP.

Spegel acknowledged that the net withdrawal was small. But he added: "What is interesting is they are draining rather than providing capital that is moving global liquidity. If oil prices fall further in coming years, energy producers will need more capital even if just to repay bonds."

In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.
It’s interesting to note how some major oil producers have seen some major selling pressures in their stock markets…

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Saudi Arabia’s Tadawul
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The pressures have likewise been reflected on their currencies: USD-Kuwait Dinar, USD-Saudi Riyal and Nigeria’s Naira.

For the populist Philippine G-R-O-W-T-H story, if the Middle East runs into economic and financial trouble or if the collapse in oil prices triggers the region’s bubble to deflate, then how will this translate into OFW “remittance” growth? The largest deployment of OFWs  has been in the Middle East. Or is it that OFWs are immune to the region’s woes?

Interesting.

Thursday, November 27, 2014

Geopolitical Risk Theater Links: US Aid to Ukraine Army Revealed; the Sinatra Doctrine, Drone War Math, and more

Dear most valued readers

This post won’t be making it to your mail box. If interested pls click on the link
Once again some updates on the geopolitical sphere.

1 The proxy battle for Ukraine: Hacked US Documents Said To Reveal Extent Of Undisclosed US "Lethal Aid" For Ukraine Army Zero Hedge November 25, 2014

2 Surgical or indiscriminate bombing? U.S. Drone Strike Math – 41 Terrorists Targeted, 1,147 People Killed Liberty Blitzkreig November 25, 2014

3 Has the ISIS momentum stalled or does the following mark an inflection point? ISIS On The Backfoot? Iraqi Troops Regain Control Of Two Towns In Eastern Iraq From Islamic State Inquisitur November 24, 2014

Also ISIS fails to take Iraq’s oil-rich Kirkuk Alrabiya.net November 26, 2014

4 Russia in isolation? Or has Putin been getting more allies? Hungarian turn towards Russia causing “dismay” in Poland, conservative former PM Buzek reportedly says Politics.hu November 24, 2014

5 Tit for Tat? ; Swedish Spyplane “caught” flying off Russia’s Kaliningrad Oblast The Aviationist November 24, 2014

6 Russia’s Artic deployment; Putin: Russia’s Artic Command to Become Operational in December Sputniknews.com November 24, 2014

7 Will F-22 be enough to strike fear into China’s military? U.S. Air Force deploys F-22 stealth jets to Japan as a deterrence to North Korea and as a show of force to China The Aviationist November 25, 2014

8 More word war on SEA territorial disputes. China Blasts US Comments on Spratlys Project as 'Irresponsible' Defensenews.com November 24, 2014

9 Abenomics has been about the economic theory based on spend spend spend, so what better way to justify these than to raise scapegoat; These Are The High Tech Military Systems Japan Is Purchasing To Counter China Business Insider.com November 26, 2014

10 Putin’s psy war?; Putin Is Waging An 'Ambiguous' War And We've Got No Idea How To Handle It November 26, 2014 Business Insider.com

11 NATO commander itching for a showdown?; Nato commander warns Russia could control whole Black Sea November 26, 2014 Business Insider.com

12 Protectionism represents economic war: How sanctions against Russia are hitting UK businesses BBC.com November 27, 2014

13 Mainland China to unify Taiwan via socio-political means? Special Report - How China's shadowy agency is working to absorb Taiwan Reuters.com November 27, 2014

14 Russia and China’s Sinatra Doctrine? As the U.S. retreats, how far will Russia and China threaten Israel? November 27, 2014 Haaretz.com
How does Frank Sinatra become involved? Rachman notes that the Russian and Chinese exercises come as the Russians and communist Chinese are “pushing for a broader reordering of world affairs, based around the idea of ‘spheres of influence.’” They reckon that they should have what Rachman characterizes as “veto rights” about “what goes on in their immediate neighbourhoods.” Hence the Kremlin’s antsiness at a Ukraine allied with the Free World. Hence communist China’s declaration of an “air defense identification zone” in the East China Sea.

The Obama administration, Rachman notes, has set itself against the idea of spheres of influence….

Against all this America is rolling out what the Financial Times’ columnist likens to the “Sinatra doctrine.” That’s a phrase once used in 1989 by the spokesman for the foreign ministry of a dying Soviet Union. The spokesman, Gennadi Gerasimov, went on the ABC News program “Good Morning America” to declare, “We now have the Frank Sinatra doctrine. He has a song, ‘I Did It My Way.’ So every country decides on its own which road to take.”
15 Cementing the Russia-China alliance, yet more spend spend spend on unproductive killing machines: Russia ready to supply 'standard' Su-35s to China, says official November 25, 2014

Bundesbank Warns of Excessive Risk Taking from Low Interest Rates

More example of what  I call as 
...global political or mainstream institutions or establishments, CANNOT deny the existence of bubbles anymore. So their recourse has been to either downplay on the risks or put an escape clause to exonerate them when risks transforms into reality
Well, it appears that Germany's central bank, the Bundesbank, has joined the chorus
 
From the Economic Times:
Low interest rates are prompting investors to take too many risks in some asset classes, the German central bank or Bundesbank warned Tuesday.

"There are incentives for investors to engage in riskier behaviour in the current low-interest-rate environment," Bundesbank deputy president Claudia Buch told a news conference on the presentation of the German central bank's annual financial stability report.
If in case one hasn’t noticed, these sort of admonitions from international political agencies have become quite too frequent. 

Why?

Hot: Reversion to the Mean? Philippine 3Q GDP Falls to 5.3%!

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Let me add to my act as the unpopular spoiler of this boom.

In near unanimity, the public has acquiesced to the narrative that the slowdown in 1Q 2014 annualized growth rates have been an aberration as explained above.

Unfortunately for popular wisdom, there is a possible non-economic, but financial-statistical force lurking behind the shadows. This is called the regression/reversion to the mean.
I also noted that 2Q 6.4% GDP represent an interim bounce
And this also means that the reversion to the mean is still in play, as I earlier wrote: if the laws of the regression/reversion to the mean will be followed (even without economic interpolation) then statistical economic growth will most likely surprise the mainstream NEGATIVELY as economic growth are south bound in the coming one or two years, with probable interim bounces.
Of course it's more than just mean reversion, but this would be a topic for another post.
From Bloomberg:
Philippine growth unexpectedly slowed to the weakest pace since 2011 as government spending fell, countering gains in private consumption and industrial production. Stocks slipped.

Gross domestic product increased 5.3 percent in the three months through September from a year earlier, the Philippine Statistics Authority said in Manila today, after rising 6.4 percent in the previous quarter. That is lower than all estimates of 24 economists in a Bloomberg survey.
“lower than all estimates of 24 economists”—when everyone thinks the same then no one is thinking.

Quote of the Day: Wall Streeters are there to help themselves make money

If you have money, you will know one thing about the financial industry. It is largely parasitic.

A parasite attaches itself to you and drains you of your blood. Its interests are at odds with yours.

The stockbroker, for example, wants to encourage you to buy and sell – when that is precisely what you shouldn’t do.

And the fund manager, the dealmaker and the structured products engineer – they all make their money by encouraging you to spend yours… often on things that make little sense.

Wall Street sells dreams… hopes… and pies in the sky.

Sure, its labor force tends to dress well. They often go to the best schools. They are smart. They are presentable. But get close enough, and you will see they struggle to mask the moral strain of flogging hopeless investments to people who they believe were “born yesterday.”

Wall Streeters are not bad people. They are not dumb people. Neither saints nor sinners, they are just like the rest of us. But their industry encourages a huge fraud: That they are there to help you make money.

They are not. They are there to help themselves make money.

How?

By taking it from YOU.

The financial industry is very large and very profitable. The service it pretends to provide is helping to match worthwhile investment projects with the capital they need. The service it actually provides is separating fools from their money.

But the financial industry isn’t equally bad to all comers. It reserves a special zeal for the “suckers.”
(bold and italics original)

This is from Agora Publishing’s founder and president Bill Bonner published at the Wall Street Daily

The above is an example of the principal-agent problem or the agency problem as previously discussed. Of course the participants are not just direct intermediaries mentioned above as this should include Wall Street appendages or indirect participants (e.g. information intermediaries etc.), but most importantly it involves the major beneficiaries of "separating fools from their money": specifically governments and publicly listed companies supported by their patron: again the government.

Wednesday, November 26, 2014

Insider Trading in Chinese Stock Markets? More on Chinese government’s blowing of her Stock Market Bubble

Chinese stocks reportedly surged prior to the announcement of interest rate cuts.

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Has this been out of luck or from insider trading? 

The Wall Street Journal reports
A sudden surge in China’s stocks hours before Beijing cut interest rates on Friday has drawn complaints from some investors who suspect that word of the central bank’s surprise move was leaked to the market ahead of time.

Authorities have in recent years sought to crack down on insider trading in the country’s volatile stock markets. But the unusual rally adds to worries the illegal practice remains, giving big profits to those in the know but leaving an unfair playing field for other investors.

Shanghai’s benchmark index started the Friday morning session virtually flat, but after the midday break climbed 1.4% to just shy of its three-year high despite a lack of substantial market-moving news. Trading volume jumped 31% from the previous day.

The cut to borrowing costs was announced at 6:30 p.m. local time in Shanghai, three-and-a-half hours after the market’s close. Stocks in Shanghai rallied a further 1.9% Monday.
It could be combination of luck, momentum and insider trading.
 
But the following paragraph gives us a clue why the Chinese government has been inflating a stock market bubble. (bold mine)
Retail investors, who account for more than 80% of all transactions in China’s stock markets, have long complained that information appears to be disclosed unevenly. Beijing’s policy on approvals for new share offerings, which favors state-run enterprises rather than more profitable and innovative private firms, has attracted criticism as well.
Given that the housing markets have been on a steep decline, the Chinese government hopes that by providing “gains” on speculative activities to retail investors in the stock market, such would create “demand” for housing, thereby cushioning the current pressures on the housing markets. Of course Chinese retail investors have been noted to use levered money in order to speculate on stocks.

So the Chinese government’s cure to the housing oversupply financed by overleverage has been to entice the retail sector to lever up in order to pump a stock market bubble.

Such manipulated boom has been channeled directly via price controls of the IPO markets, and the HK-China stocks connect, and indirectly via stimulus and bailouts

The Chinese government’s push to stoke a stock market bubble via the IPO market can be seen via additional measures--the announced ‘liberalization’ of fund flows from IPOs conducted abroad. 

Notes the Bloomberg:
China scrapped some approval procedures related to initial public offerings, part of government efforts to cut red tape and spur private-sector investment.

Chinese companies no longer need a go-ahead from the foreign-exchange regulator to bring back money raised in overseas share sales, according to a State Council statement posted on the central government website today and dated Oct. 23. The government will also cancel the certification process for sponsor representatives, a qualification for investment bankers overseeing domestic IPOs, the statement shows.

Making it easier for companies to send proceeds back home may encourage more overseas share sales, easing the backlog of applications for domestic listings
As one would note, the Chinese government has been so desperate to secure funds that they now resort to “liberalization”, which unfortunately when things fail, will get the blame. 

In addition, given the colossal debt by local governments (estimated at $3 trillion as of June 2013) inflating stocks in favor of state-run enterprises as I noted last weekend is a sign that “Chinese government wishes to find alternative avenues for overleveraged companies to access funds”

China’s State owned enterprises according to Wikipedia are “governed by both local governments and, in the central government, the national State-owned Assets Supervision and Administration Commission” or are owned by the local, provincial, and national governments.

The thrust  of the Chinese government hasn’t been to generate real economic growth, but as signs of desperation, to inflate substitute bubbles in the hope to buy time, to meet political goals in the context of statistical growth and of a miracle.

Essentially, the Chinese government’s therapy to the problem of addiction has been to provide more of the substances which one has been addicted to. Doing the same thing (in a slightly different form) over and over again

Oh, those charts above shows resemblance with the “afternoon delight” in the Philippine stock exchange. The difference is that the above may have been a one day event in the Middle Kingdom but in the Philippines has become a norm. 

As a side note: Philippine stock operators have been visibly hurt in their plans to break the 7,350 from a ‘dump’ by an unexpected participant/s at the last minute, so they have come back with vengeance this morning with a relentless raw emotion driven manic buying episode to push index above 7,350. 

As historian Charles Kindleberger once noted of the hallmarks of manias (or market tops): The propensities to swindle and be swindled run parallel to the propensity to speculate during a boom…And the signal for panic is often the revelation of some swindle, theft, embezzlement or fraud. 

How germane this has been today.

Tuesday, November 25, 2014

Geopolitical Risk Theater Links: Iran Talks Extended, Defense Sec Hagel Fired, Neo-Nazi Risk? and more...

To my valued email subscribers 

The following  posts will not be included in your mailbox. So if you wish to read them kindly pls just click on the links
Back to regular programming

Some interesting geopolitical articles:

1 Small progress between US-Iran: Iran Nuclear Talks Extended 7 Months; $700 Million In Monthly Sanctions Lifted November 24, 2014 Zero Hedge

2 China as galvanizing force? : India-Pakistan Sparring Opens Door for China in South Asia Bloomberg.com November 25, 2014

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3 NATO encirclement strategy: NATO Jets Surrounding Russia: Before And After November 24, 2014 Zero Hedge
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4 Europe’s tinderbox: Mapping Recent "Incidents" Between Russia And NATO November 24, 2014 Zero Hedge

5 Testing ASEAN’s response: China Said to Turn Reef Into Airstrip in Disputed Water New York Times November 23, 2014

6 War is business; UK approved Israeli arms deals worth £7mn in lead-up to Gaza conflict RT.com November 24, 2014. It’s really more of a racket.

7 Russia seals pact with Georgia’s breakway region. Getting more allies to counter NATO?: Pact Tightens Russian Ties With Abkhazia New York Times November 24, 2014

8 Despite some aerial incursions by Russian jet, Finland to stay neutral: Finland joining NATO would alienate Russia – President Niinisto RT.com November 25, 2014

9 Neo Nazis are a threat?: Ukrainian neo-Nazism threatens to spread across Europe – Russian diplomat RT.com November 24, 2014

10 Indian government itching to have a stealth fifth-generation fighter aircraft (FGFA); Can not keep waiting for stealth fighter, India tells Russia The Times of India November 25, 2014

11 The military oligarchy prevails as the risk of a world at war heightens: Secretary of Defense Chuck Hagel Fired Mises Blog November 24, 2014;

Writes Ryan McMaken
Now it appears that the truly important players in US defense policy — the weapons manufacturers and financiers who benefit most from an "active" foreign policy — have gotten their way. Hagel, of course, knows that the United States is broke and relying largely on monetized debt to pay the bills. At the same time, it's his job to keep the military bureaucrats who lobby continuously for endless spending (i.e., the "generals") while also pleasing "private" contractors like Lockheed Martin who live fat and happy off the sweat of taxpayers.

Hagel was expected to be something of a budget "cutter," (the DC version of "cuts" which are slight reductions in spending growth) and it was he who presided over the DoD during the final days of the sequestration debate during which the military and its private sector allies howled over tiny reductions in military growth rates.  The "cuts" seemed politically necessary at the time since Hagel came into office during a transition period when there was not a clear global bogeyman for the US to use to justify unchecked government spending. Now, the generals and corporate lobbyists at Boeing, et al have breathed a sigh of relief as because the so-called Islamic State is the gift that keeps on giving and will allow the military-industrial complex to advocate for utterly unrestrained spending.

Of course, the taxpayers, who were once were fleeced to create and arm  ISIS at first, will now be charged to disarm it (or so the administration says).  

The landscape has greatly improved from the perspective of military spending, and Hagel can now be replaced with someone more adept at shoveling cash to powerful interest groups whom we will later be told we must thank for defending freedom.

Phisix: Marking the Close: A dose of own medicine

Someone or some entities decided to give stock market “bull” operators the proverbial dose of one’s own medicine 

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The ritualistic modus to massage stocks higher after the lunch-break or what I call the ‘afternoon delight’ was in motion once again.

For most of the AM session, the Phisix had been down by about the same degree as with the session’s end.

In the PM session, the massaging of the domestic index peaked at the last minute, which was the highest level for the PM session and second highest for the day.

Then, I expected the Phisix to close by at least 7,350 given their previous actions.

To my surprise, someone or some entities unloaded a huge amount of index issues, not only to reverse the gains, but importantly to drive back the index to the session’s low. 

Today’s volume was at a hefty Php 15.9 billion based on PSE’s quote with a miniscule of special block sales. 

Today had been a reverse of marking the close...in favor of sellers! (chart from technistock)

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During the index guidance 'afternoon delight' phase only the holding and the property sectors were in the red (marginally). By the session's close, all sectors, except for the mining and oil, in losses.

What’s even more remarkable has been the conduct of the index management.


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BDO Unibank BDO took the biggest load of the push, gained about an astounding 4.5% at the peak. 

BDO’s share of the index at the close of the session has been at 5.47%  (chart from colfinancial)

The unknown seller/s simply disgorged BDO’s record high shares to erase the bulk (80%) of today’s gains. BDO still closed up .92%

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Complimenting BDO had been the  two consumer favorites (and two of the most expensive issues) Jollibee Foods (JFC) and Universal Robina (URC).

Ironically, what went up came down fast. Both shares made a round trip to close significantly down by 1.16% and 1.55% respectively.

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And the show won’t be complete without the participation of the biggest property company, Ayala Land (ALI). ALI rallied from the depths but stayed down (.28%) for the day. ALI wasn’t a participant in the rare seller incited “marking the close”.

All four companies accounted for 22.45% of the Phisix basket (based on today's closed).

This is interesting because the last two days marked the fourth attempt this year (since September) by the bulls to infringe into the 7,300-7,400 territory only to be pushed back.

This won’t likely be the last though. Given the global risk ON environment, I expect more attempts to be made. Expectations, for instance, of the 3Q GDP figures by the week’s end will likely spur such activities.

Whether or not a successful breach occurs isn’t the issue. This isn't about boundaries. Rather the  primary concern is the degree of risks from overvaluations, overleveraging and overconfidence—in short, a mania.



As the BSP chief recently warned of irrational exuberance: “While we have not seen broad-based asset mis-valuations, the BSP remains cognizant that keeping rates low for too long could result in mis-appreciation of risks in certain segments of the market, including the real estate sector and the stock market as markets search for yield.”

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And as I have pointed out before, the past secular stock market cycles (1965-1985 and 1986-2003) have shown breakouts from major resistance levels from the most recent highs during market tops, had only been followed by collapses. This time won’t be different.

The lesson of which is: the higher the Phisix the greater the crash

Add to this manic phase has been the growing incidences to engage in market control, which signifies also a crucial sign of overtrading.

Nonetheless it’s a curiosity to see today’s index engineering scheme upended.