Oil's getting drilled....

The major market development of the past few days has obviously been the ongoing decline in energy prices, spurred by the recent decision from OPEC to stand pat rather than cutting production. Oil's certainly not looking too slick these days, which naturally calls to mind a whole skein of commodity-related puns.   In the original iteration of your author's stewardship of this space, he wrote an entire post chronicling a list of them (aided admirable by numerous contributions in the comments section.)  Imagine his surprise to find that it was written six years ago to the day.  Plus ca change....

On a more serious note, a number of brain cells have no doubt been taxed attempting to assess the impact of the decline in energy prices.   In areas where taxes make up a large percentage of the retail price of petrol (like most of Europe and, it appears, Macro Man's home state of Connecticut), the impact is of course quite modest as the taxes don't change with the underlying fuel costs.  For the United States as a whole, of course, the price represents a fairly tasty windfall for consumers- some $75 billion over the past six months alone.


Of course, that needs to be balanced by the impact of lower oil on the ongoing development of alternative petroleum sources, which could perhaps shave off roughly half of the boost to consumption from overall growth.

A number have commenters in recent days have noted the potential impact upon the high yield market, given that much of the exploration boom was financed by junk bonds.  To be sure, on an individual security basis it is difficult to state with any certainty how and when the lower price point for crude will either change development plans or disrupt cash flows.  This naturally depends on the extent duration of the current swoon, the breakeven for a given project, the hedging practices of the firm in question, and a myriad of other factors.

We can however get a broad sense of the scale of the issue.  Macro Man got a list of every security in the IBOXX high yield index (hat tip: AC) and broke them down by industry.  If one included just about every business related to hard commodities and energy, we get 26.5% of the index- approximately $137 billion worth of securities.



Winnowing it down to just oil exploration, services, and pipelines, we get 14.16%- still a quite tasty sampling.  One JP Morgan analyst seems to think that 40% of "energy" names could default in a few years should crude remain pinned below $65/bbl.   It's not clear, however, what industries he's including in that total:  coal?  utilities?   It's hard to see why the local power company, for example, should go bust just because crude is back to where it was in 2006.

However, if we take the analyst's figures at face value, what are we left with?  A worst-case scenario in which 40% of energy names, which comprise 18% of the index, default: in other words, a default by 7.2% of the index over a multi-year horizon.   Given that the yield on the ETF version of the index is currently 5.8% and the price has adjusted downwards by 5.85% since oil prices peaked in July, one might reasonably believe that a lot of bad news is already priced in.

If all we had to worry about were fundamentals, that argument might hold water.

Unfortunately, the new regulatory landscape is one that will amplify, rather than mitigate, the shock waves from events like energy sector defaults in the high yield sector.  Now, the people who have designed the current regulatory regime might tell you that it's a good thing that people who own the bonds of defaulting companies should take a haircut.   It's hard to disagree in principle.   They might also tell you that banks should not use taxpayers' money as a put to speculate on things like high yield bonds.  This is fine, although it is not immediately obvious that the solution is to ban 'speculation' or 'prop trading' altogether; if it were, why were these activities not also banned for the one financial asset that the United States Government happens to manufacture?

However, by forcing market-makers to act as brokers for products like high-yield credit (i.e., to act as an agent rather than a principal), the authorities have left a gap as wide as the Grand Canyon:  What if there are no buyers?

As we saw in 2008, price declines do not occur in a vacuum; they inform the intentions of other investors, potentially creating a snowball effect.   In such a circumstance, price really is news, and a crescendo of price declines ostensibly unjustified by underlying economic fundamentals is the result.  

Hopefully such a catastrophe is avoided, there is no mass wave of defaults, and everyone lives happily ever after.   Of course, hope is not a strategy.  It would be a shame, however, if an ostensibly net positive externality like lower oil prices in an oil-importing country were to impair the road to energy independence (and perhaps a few other roads, too) because the real economy was starved of capital as a result of an unnecessary high-yield crisis.
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Anonymous
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December 2, 2014 at 7:57 AM ×

i'm not sure all is in the price..you also have to consider the fact that risk reduction will happen in other sectors as well within hyg and not just energy /commodity space . the lack of liquidity across the board will be a problem that feeds on itself

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Anonymous
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December 2, 2014 at 10:42 AM ×

Given that it is unpalatable that any long only investor is allowed to take a loss anymore, either the Fed will step in and restructure these bonds or the Volcker rule will be rescinded due to credit market stresses

The whining from Blackrock about how the market is not functioning for risk transfer on bonds where they own 100x the bid is just pathetic.

"I bought an illiquid pos.....wheres my bailout?"

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theta
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December 2, 2014 at 10:55 AM ×

"As we saw in 2008, price declines do not occur in a vacuum; they inform the intentions of other investors, potentially creating a snowball effect. In such a circumstance, price really is news, and a crescendo of price declines ostensibly unjustified by underlying economic fundamentals is the result."

Well, in 2008 the declining underlying assets were heavily securitized, sliced and diced, with even synthetic CDOs on top, and widely held by investors worldwide. Is this the case today with high yield credit? (it's a genuine question, I don't know the answer)

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Polemic
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December 2, 2014 at 11:17 AM ×

Perhaps it could all be boiled down to money management rules creating large gaps between actual probabilities and priced probabilities.

If there is a melt down in something it passes through the true pricing point that reflects actual probabilities or yield outcomes and goes into silly land. As you say the price is then used as the reference and is assumed to reflect actual risk. ( as we see with CDS prices being quoted as actual probabilities) .

So in effect we could argue that any huge swings in pricing because of lack of liquidity will punish those who have to employ money management rules over those that can take a sanguine long term view. So rather than all being bad, it creates opportunity and hopefully moves management back from the sometime cretinous short term consultants tight risk rules back towards the macro big picture world.

Those selling at the floor in maximum distress must theoretically be selling to someone else. So overall benefit nets to zero. In the case of the european melt down the buyers were the CBs, but of course they aren't seen to be part of the system and so all that we hear is the wailing.

If there is a melt down in HY then it just moves to where new probality says it should (re increased Energy sector defaults) or the lack of liquidity means it overshoots and is a bargain for someone.

I look forward to a HY crap out so I can buy some at some stupid level because some VAR calculation deep in a fund says 'spew at any cost'. Thank you.

Of course the wealth destruction argument is different. If leverage is involved which of course it is then book values will tank and no doubt the value of that book has been used to borrow against some other asset, which then has to be foreclosed. Now THAT is the transmission risk to other asset classes. Leverage .. what a bitch.

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washedup
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December 2, 2014 at 12:11 PM ×

MM - that brought back some memories - I remember reading that with my colleagues at the hedge fund I use to trade at back then and having a good laugh in between all the turmoil - in fact, that may have been the article that made me a loyal follower of this blog (with some fits and starts) to this day.

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washedup
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December 2, 2014 at 12:22 PM ×

MM - share your concern for the reflexivity of the process - its a bit hard for me to buy that what was great for equities from a reflationary standpoint from 2005-2013 is now supposed to be good from a deflationary one - commodity EM is now 18% of global GDP not 5-6 % like it was from the late 90s which is the playbook most guys have dusted off to make sense of these proceedings.
Also, perhaps not uniquely to the energy business, accounting scandals and other assorted scandals have a strange way of tumbling outwards as cash flow dries up - remember the merchant energy industry heading to church for confession en masse in 2001-2002?
I think the truth is probably somewhat nuanced - these moves in oil are great for the US consumer, OK for US GDP, but not great for the future of US equities, perhaps on a slower fuse than people realize.

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abee crombie
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December 2, 2014 at 2:37 PM ×

agree washedup. The reduction in Energy CapEx that is forthcoming is going to hit Energy, Industrial and Tech in a nice way. I'm sure lots of other regular businesses in Texas and all the other shale basins are going to temper future spending as well, at least for the short term. Hopefully spending still increases but at the margin, you have to say expectations for CapEx have been ratcheted down a notch or 2 in the past month from oil. And we needed the spending to provide more jobs and get the demand part of the economy back. lets see if the regained 'gas' wealth really boosts consumer spending.

As for the bond market, we have a few corporate single names that opened down 5 points from last week. No trading either way. Thats the problem, there really isnt any volume here. Also if you look at HYG/JNK Shares Outstanding its actually rising since mid summer. So i dont think anyone is puking just yet.



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CV
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December 2, 2014 at 3:13 PM ×

Great piece MM ... look guys, we have had this discussion and the play here is very, very simple. This is the key.

"As for the bond market, we have a few corporate single names that opened down 5 points from last week. No trading either way. Thats the problem, there really isnt any volume here. Also if you look at HYG/JNK Shares Outstanding its actually rising since mid summer. So i dont think anyone is puking just yet"

Bid/ask spreads are the new interbank rates, we must watch them very closely. The key is when the PMs at Templeton, PIMCO and Blackrock decide to do a little spring cleaning and discover the bid for their CHK et al turds are 20 cents lower. Then we run for the hills, but it will be too late of course. Did you ever see Margin Call, only ok that movie, but Jeremy Irons aka the boss had a point when he noted that he who initiates the move has a first move advantage.

I am not in the bunker yet, but my game plan has always been predicated on non-fin corporate debt as the next bubble that would lead to nastiness in the market (we are seeing clear signs of distress now due to the energy/HY puke). Risk levels, as they say, are elevated!

Meanwhile, the funniest thing here is that credit markets in the Eurozone will stay completely isolated in some markets. Covered bonds anyone, what covered bonds ... there aren't any left!!

Keep watching them bid/ask spreads, they hold the key to becoming the next Roubini!

Claus

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Anonymous
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December 2, 2014 at 4:22 PM ×

C Says
For short term trading purposes I had long going some inverse energy names ..think easyjet etc. Thought that would take me to the new year then exit. Yet post Opec three long trades hit their targets has oil went puke. So again short term go mean reversion on the sectors.

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washedup
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December 2, 2014 at 4:50 PM ×

Question for the punters on this forum (all UST 5/20)
1. Bull Steepener
2. Bear Steepener
3. Bull Flattener
4. Bear Flattener
Which of these is most likely to perform in the next 2-3 months?
Is a long USD short spoos trade same as long US 10 y for now?

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Leftback
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December 2, 2014 at 6:04 PM ×

Cor, guv, everyone is at their sharpest today, some brilliant stuff all around. There aren't half some clever blokes and birds round here, innit.

LB would just like to offer that when the tide goes out in some asset pool like crude oil or mortgage backed, etc., then what happens to the proverbial blokes swimming without their trunks on depends on one additional thing that isn't normally visible. Leverage. It's the unwinding of excessively leveraged bets that takes prices into Polemic's Silly Land and results in a tsunami that buries the unlucky skinny-dippers.

As in 2008, it's not that crude oil isn't a useful asset, any more than 99% of US RMBS and CMBS were actually dodgy. It's that the whole complex (commodity, integrated oil stocks, E&P stocks) was owned by HF players who had levered up, in many cases during QE2-3 employing a dollar carry trade that is now being unwound.

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Leftback
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December 2, 2014 at 6:10 PM ×

@washed:

Easy. Bull flattener in USTs. It's just getting started. The differential between US and EU rates is bonkers. Ride the Long Bond to the place of true convergence, Grasshopper.

*LB would also like to say: "Mum! Waaaahhh! I don't like this USD rally. Make it stop. Mummy!!!!"

* This is British humour. LB is really rough and tough and knows that not even MM, "C says", Mr. T and Polemic together can stop the USD. (Only theta is all powerful.)

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Leftback
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December 2, 2014 at 6:16 PM ×

Btw, do visit MM's 2008 post on commodities, which dates back to those dark dire December days where everything went down every day for no apparently new reason. The puns in the comment section are highly groanworthy.

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Mr. T
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December 2, 2014 at 6:55 PM ×

I don't think we are going to see a HY collapse, but adding up the commodity producers debt outstanding seems like minimizing the (potential) impact. Domestic energy is a big part of raw capex, which is not just going to SLCA and SLB, but to software companies, construction outfits, building roads, retailers. Its a source of a lot of higher-paying-lower-skilled wages, etc. In short I think the reality is if the US is an energy producing nation (it is), and energy prices drop (they are), its not a cost pressure that is just absorbed by a couple companies on the bottom line. The impact will be wider and shallower, as opposed to sharp and deep punctuated by defaults. Also, the 3 years below $65 is way ahead of itself. First surprise is going to be the enormous bottom line prints these companies deliver based on hedging gains.

For people with access to bloomberg, just browsing through some of the shale players SPLC screens, which shows supply chain revenues (ie CLR is .5% of RedHat sales) is an interesting jaunt down the path.

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washedup
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December 2, 2014 at 8:14 PM ×

As many of the punters here who managed complex portfolios would have realized the hard way, the biggest mistake in trading is not to be wrong in an idea, but to not know ur position and what it factors on.
Was reminded of this after Fischer's comments - the fact that the fed doesn't realize yet that it is long, not short, oil has to be one of the biggest illusions ever pulled by Mr Market.
All in good time...

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December 2, 2014 at 8:18 PM ×

To the list of potential effects of oil i'll add Tesla: do i really need an electric car overpriced when i can drive a cheaper and emotional Viper??? Great trade of Daimler!

Russia situation is going out of control...here's a time bomb... Hard currency are scarce and scarcer... USD rally tells something..
Mkts are undervaluating Venezuela+Russia+HY+commodities...

Huge divergence btw US and EU credit... can ECB buy everything? has eu bonds mkts became bulletproof?

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Leftback
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December 2, 2014 at 8:25 PM ×

MM, you should just drive across the border to Noo Joizey to fill up. Also you'll have to fill up a lot less often after I stop siphoning your tank at midnight.

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December 2, 2014 at 8:35 PM ×

@CV: you're right, be the first one is a huge advantage... it's 5 years that to stop yourself means to sign the low.... PM's minds have been really distorted...
some big player needs to be forcefully obliged to sell.. but leverage is scarse in these players.. so maybe redemptions?? maybe but to move where??
a catalyst? which one? some defaults??

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CV
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December 2, 2014 at 8:37 PM ×

Agree with Polemic and LB that this is ultimately about leverage. Obviously, this story is going well mainstream now with BBG spewing out several articles a day, here is the latest

http://www.bloomberg.com/news/2014-12-02/junk-bonds-funding-shale-boom-face-8-5-billion-of-losses.html

Overall, the combination between the plunge in oil and the likelihood that the Fed will be bullied into raising rates next year does indicate that we are on the cusp of a default cycle in this sector. Can the economy/market withstand this ... we will see, I guess. This for example;

"It's that the whole complex (commodity, integrated oil stocks, E&P stocks) was owned by HF players who had levered up, in many cases during QE2-3 employing a dollar carry trade that is now being unwound."

Is exactly the risk. As for US rates, well ... I think we all need to watch the 2y now which is basically the most out of whack if indeed the Fed is on the cusp of hiking. I still think that the curve could very well invert in the US next year if the Fed panics. It will start with the 2s5s of course and then the biggun, 2s10s ...

Claus

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Polemic
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December 2, 2014 at 8:40 PM ×

How about they tax oil consumption instead of raising rates?

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Polemic
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December 2, 2014 at 8:42 PM ×

And I see that HFs closing at a rate not seen since errrr. the last time ( make that 2009)

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Anonymous
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December 2, 2014 at 8:44 PM ×

Swiss 30yr now @ 0.89% . Just 6bps til the lowest yield of all time. We live in an alternative universe.

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Anonymous
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December 2, 2014 at 8:50 PM ×

SandRidge Energy, Inc. (SD) @ new lifetime lows . Their 7 1/2% 2023 has plunged from $110 to $68 in last few months . Whole lotta hedgies own this barker

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Anonymous
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December 2, 2014 at 9:25 PM ×

Jack Schwager's new technology website to find and verify the best traders

"...a technology company designed to find the world’s best traders and connect them with investors seeking undiscovered emerging trader talent."

http://fundseeder.com/

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Polemic
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December 2, 2014 at 9:26 PM ×

$8.5 bio in junk bond losses. if US consumes 18m barrells a day and are saving $30pb then the cost in junk bond losses is matched by the economy saving that every 2 weeks. meh

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Nico G
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December 2, 2014 at 9:35 PM ×

if i am not mistaken when oil was still breaking records in July 2008 (i remember shorting $147 on Israel vs. Iran 'threats' on a pure suicidal cowboy basis)(note that Goldman called crude $200 that same month cough cough),

the rest of commodities was already under a severe correction as world growth was slowing down, like they have been this year

A few months later equities joined the party

a wishful thinking of history repeating, a fortiori oil above $100 was clearly a price anomaly this year

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washedup
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December 2, 2014 at 10:01 PM ×

pol - we also produce 9 MM BBL/d, but same difference I guess
As for ur meh - let me quote someone who is clearly quite smart, from earlier today

"Of course the wealth destruction argument is different. If leverage is involved which of course it is then book values will tank and no doubt the value of that book has been used to borrow against some other asset, which then has to be foreclosed. Now THAT is the transmission risk to other asset classes. Leverage .. what a bitch"

i highly suggest you have a private chat with this gentleman to sort things out!
just kidding pol - good luck to everyone.

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Leftback
admin
December 2, 2014 at 10:15 PM ×

Nico - the 2008 US economy was eventually broken by $145 oil. The 2014 version was nearly dead at $95.

It will be a shocker when they print the Q4 GDP at 1.0% or less, making the whole year's US GDP (-3 + 4.5 + 3.5 + 1) divided by 4 = 1.5%. Escape velocity postponed yet again.

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Anonymous
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December 2, 2014 at 10:43 PM ×

Newly downgraded to A1 10yr JGB @ 0.41% is at lowest in Japanese history history ( with Nikkei @ 7yr highs same time )

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Anonymous
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December 2, 2014 at 10:43 PM ×

Little mention of Apples move yesterday. That was fast & furious. NQ got smoked. A taste of things to come? Only time I've seen market move that fast was Emini reaction to Associated Press hacked tweet of explosion in White House. A HF deleverage on Apple & other NQ could be triggered.

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Anonymous
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December 3, 2014 at 12:31 AM ×

Eric Scott Hunsader:

AAPL trades/sec hit 3400 during it's flash crash yesterday
5.5% drop (117.69 to 111.27) in 49 seconds (9:49:54 to 9:50:43)

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Anonymous
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December 3, 2014 at 12:40 AM ×

Wait, people are actually worried the Fed is going to raise next year?

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Anonymous
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December 3, 2014 at 12:43 AM ×

did amps pass out?

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Polemic
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December 3, 2014 at 1:05 AM ×

probably restocking.

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Anonymous
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December 3, 2014 at 11:08 AM ×

Some fun facts:

-From the peak year 2006 US crude and petroleum imports down from 5bln to 3.6bln barrels in 2013 or 28%

-From 2006 exports up from 0.48bln to 1.32bln barrels in 2013, or 175%

-Production up from 1.85bln to 2.71bln barrels or 46%

-Trade account balance up from -2$ trillion to -1$ trillion

-Total crude and petroleum available for internal use (import + production - exports) has decreased from 6,37bln to 4,99bln or 22%, which in effect is how much more efficient the US has become as a total

It seems that almost 100% of the crude and petroleum production increase has gone to exports and at the same time consumption has slumped and imports decreased. Together these have decreased the current account deficit from both directions.

The price decline will probably hurt the traditional oil producers much more than the US. The US can always just pause the production and use its undisputed reserve currency position to bail out every energy bond that needs to be and resume these trends later. Short term there might be some hickups though.

Perhaps Bucky is just reflecting this huge game changer? Maybe the current account will just keep getting better and better and imports will be dropping even more. Altough China has the biggest current account surplus, they have other inexcusable deficiencies to be solved before they can even hope to think of challenging Bucky.

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abee crombie
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December 3, 2014 at 1:47 PM ×

Re: BondStrategist, I think you are spot on about the RUB, though I think the currency depreciating is actually a good thing (showing how FX is supposed to be a outlet for balancing the economy).

The real problem there is they are they biggest issuer of USD Corp bonds and refinancing is going to start soon and they are shut out of the market. Add in a little acctg scandle from Petrobras and EM Corp IG/HY in USD could be the area where managers start puking.

The problem of using some comparisons between now and 2008 is that in 2008 one day all the pension funds and endowments woke up realizing they really didnt own bonds, but instead CDO, CLO's etc. They just said get me out. Today its more plain vanilla. So there really needs to be a big change for someone to say, SELL my APACHE bond at any price, I dont believe in the company or its assets anymore. But if all of the sudden Gazprom/Rosneft/Petrobras can't refinance a big bond maturity, RUN

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Polemic
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December 3, 2014 at 1:49 PM ×

Russia - Must be one of the only countries where oil prices are rising in local currency. The lower oil goes the more likely it is that Putin will have to step in to ’save’ them by taking them into State ownership. Depowering the oligarchs. No wonder he doesn’t want to cut oil production. Meantime the Ruble is making imports more and more costly helping domestic suppliers. Default on Russian bonds? Well if you know you aren't going to get refunding from the West then why not indeed default on any non-Ruble issued bond. As for Ruble issued? Well you can always print more Rubles to repay them. I am still worried that the more the West squeezes the stronger Putin gets, like one of those Star-trek alien beings that feeds on negative energy. Stop firing your phasers at it, it just grows stronger. http://polemics-pains.blogspot.co.uk/2014/12/liquidity-meltdown-so-whats-problem.html

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abee crombie
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December 3, 2014 at 1:57 PM ×

specifically on russia, they do still have quite a lot of reserves ($420B, RUREFEF )and companies have been preparing for refinancing for the past 6 months, so I wouldnt run for the hills right now, but its something to keep your eyes on.

Russian eurobond, down 5 points as well over the past few days, but 2030 maturity (in USD) still yielding just 6% priced at 106. I'd start getting real worried if we trade more than a few sessions below 95.

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Anonymous
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December 3, 2014 at 2:20 PM ×

re abee crombie( from the economist)

“WE HANDLE our gold and currency reserves and government reserves sparingly.” So said Vladimir Putin on November 13th. Mr Putin is wrong. In the past year Russia’s foreign-exchange reserves have fallen by 20% as the central bank has tried to prop up the rouble. They stand at around $370 billion, with $12 billion more at the IMF (see chart). The central bank claims all of this is readily available. But there is some reason to doubt that.

Foreign-exchange reserves have assumed a new importance for Russia in recent months. As Western sanctions have shut Russian companies out of foreign debt markets, they struggle to raise money. That makes it harder to pay back the $130 billion of external debt that comes due between now and the end of next year. The Kremlin can step in: but if it helps Rosneft, a giant oil company, as it is being asked to, calls for more bail-outs will get louder.

In this section
The end of the line
Not quite all there?

Some people argue that Russia’s reserves are so big that they can accommodate such demands and weather the economic storm. But the central bank exaggerates the reserves at its disposal. About $170 billion of its assets sit in two giant wealth funds, the Reserve Fund and the National Wealth Fund (NWF), and much of what is in these funds could prove illiquid or inaccessible if called on to meet short-term financing needs. Cash from the $82 billion NWF is committed to long-term infrastructure projects, says Sergei Guriev of Sciences-Po, a French university. The NWF has also provided money to VEB, the Russian development bank, to finance construction at the Sochi Olympics. The loans by which it did so have been “restructured” to allow delayed repayment. Mr Guriev says many people believe the money to have been embezzled. The NWF may thus be unable to offer any liquidity to the government.

In terms of money that could actually be put to use, Russia’s reserves could be more than $100 billion lower than the headline figures suggest. Mikhail Zadornov, a former finance minister, said in a recent interview with Dozhd, a television channel, that the usable amount could be as low as $200 billion. If current trends continue Russia may soon have enough for just three months’ worth of imports: below that level, financiers start to panic. That is bad news for a country that will struggle to find cash elsewhere.

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Anonymous
admin
December 3, 2014 at 3:50 PM ×

Ireland 10yr @ 1.35% and its just a single A credit who was bankrupt a few years ago

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Anonymous
admin
December 3, 2014 at 3:57 PM ×

China Credit and Money Supply Growth

http://imgur.com/BMccxJF

Source:
http://www.rba.gov.au/chart-pack/world-economy.html

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Leftback
admin
December 3, 2014 at 3:59 PM ×

I wouldn't be so quick to write off Russia and the RBL. This is a country with a very long history of grinding through adverse economic conditions. They have been reaching out to other countries to make trade deals that are not dependent on the magic paper that is the amazing levitating USD, and can temporarily at least sell sovereign and corporate bonds to quite a few SWFs and countries that are cash rich who don't mind indulging in a 10-11% yield.

I'm sure the Norwegians aren't averse to playing ball with the Russian bear, they are both oil producers. Finland might have a pop, China obviously, even the Japanese might get a bit naughty for 10%. Whatever Germany says in public, in private they think that Obama is a tosser and that sanctions against Russia are silly and self-defeating, as they are so dependent on Russia for energy supply and some exports. I don't think we should assume that all participants in the capital markets are in a pact to crush the rouble. Surely not everyone is under the yoke of the unelected neocons in the shadows who dreamed up the recent smashing Ukrainian adventure? Would you rather snag a 10% yield or have lunch with Victoria Nuland and co?

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Anonymous
admin
December 3, 2014 at 4:01 PM ×

"The Kremlin can step in: but if it helps Rosneft, a giant oil company, as it is being asked to, calls for more bail-outs will get louder."

Problems refinancing your bonds?

China to the rescue... for a price of course

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Leftback
admin
December 3, 2014 at 4:07 PM ×

Yes, rescue is available but it will not be cheap.

Here is a problem that will rear its ugly head next year. We worry about the divis on our REITs, of course, and that may require hedging, but that sector is used to watching its cash flow and is far from the most vulnerable. Many other divis at risk.

Dividend Cuts Ahead?

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Mr. T
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December 3, 2014 at 5:04 PM ×

Corp FI is really not letting up here. JNK/HYG are looking better than a lot of the internals, at least from my point of view. And I say "Corp", not just energy. IG materials are up 15bp in the last month. Energy +30bp. Frankly this is yet another market I don't understand. Chevron seems a lot more credit worthy than Italy, but Italy is borrowing 10yr for 100bp less. Is this the convergence trade of 2015?

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abee crombie
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December 3, 2014 at 5:05 PM ×

Thanks Anon 2:20 for the russian article. I have read the same thing before about the reserves that can actually be used. But Russian corporates have been preparing for months for the 2015 refi, so I dont think its gonna be a big deal (I will be watching just in case I am wrong)

but at some point if the Euro dollar corp bond market remains closed to russia (and most of the oil related EM) we will have a mini minsky moment. i say that bc most EM debt is actually leverage very conservatively with much lower debt ratio's vs US. However that leverage may now increase with lower earnings.

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Leftback
admin
December 3, 2014 at 5:25 PM ×

Abee,

Agreed. Venezuela first, old chap. Let's get through that one, which really is probably going to be a default, and an imminent one at that. I wasn't paying attention but you have been all over it. Chaotic.

The whole situation is "Caracas".

arf arf

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Leftback
admin
December 3, 2014 at 5:39 PM ×

The "cheap oil is good for the US" story is unraveling, there are just so many interconnections in our economy. Not just HY debt of drillers...

Texas Bank Stocks Dinged

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December 3, 2014 at 6:29 PM ×

A question for USD bulls (that would be the world's population minus one at this moment). What if Draghi doesn't do "real/enough QE" and then Abe loses the election?

Positional asymmetry?

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December 3, 2014 at 6:32 PM ×

Note that I am not even questioning the undisputed kernel of the argument for USD longs, the robust US economic recovery, no doubt we will be printing +500k jobs month after month in 2015 and Janet will be falling over herself to hike month after month, until by summer she is wearing a mini-skirt to the Humphrey Hawkins testimony.... (look away, punters).

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Anonymous
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December 3, 2014 at 6:41 PM ×

Bloomberg:

"Foreign bank claims represented about $209 billion of the $700 billion in Russian external debt as of the first quarter of this year, according to the OFR. Direct exposure of U.S. institutions is a “manageable” $27 billion, or 0.8 percent of bank claims. That rises to 3.4 percent “if other claims such as derivatives, guarantees and trade credit are included,” the OFR report said, and “some European banks are heavily exposed.”

Re Venezuela--US investment bankers were all over Chavez a few years ago. US bank exposure must be huge

http://www.banctrust.com/news/citigroup-to-top-venezuela-bond-ranks-with-3-billion-pdvsa-debt-offering/

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washedup
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December 3, 2014 at 6:54 PM ×

LB - regarding ur question on USD - I think if that very bearish set of circumstances came to pass (good confidence of no eurozone QE and bye bye Abe), there will be a big rotation from US equities to US treasuries - I am honestly not sure if it spells carnage for the dollar or a stalled rally. I will take your word for it that it is a super crowded trade, but i think the biggest risk to that thesis is up europe and asian data hooked up and not absence of QE - my 2 cents.
Oh and thanks for that janet yellen in mini-skirt image - i will have to live with my own personal deflation scare for the forseeable future now.

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Anonymous
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December 3, 2014 at 9:58 PM ×

DXY going higher
http://imgur.com/zZkIl1m

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December 4, 2014 at 2:02 AM ×

Following the Staten Island and Ferguson grand jury decision, it is clear that we live in a country that promotes crony capitalism and income disparity (bad enough), has interfered with democratically elected foreign governments (from Allende's Chile to Cuba to Ukraine), spies on its own citizens and on the Chancellor of Germany. Sadly, we also live in a country where once again police officers believe that human lives mean nothing, lynching is legal, protest is to be punished, and the police are above the law.

U.S. police act like Mussolini's blackshirts, bullying, threatening and intimidating the people, defending corporations, and killing people in broad daylight with complete impunity. Staten Island, Cleveland, Ferguson, it's all the same. People of all ages, creeds and colours need to take to the streets to protest these actions, or this will get far, far worse. This has to be stopped.

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Anonymous
admin
December 4, 2014 at 2:29 AM ×

@LB, if you are on Twitter, check out the #CrimingWhileWhite stuff. You're right, this needs to be stopped.

- Whammer

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Anonymous
admin
December 4, 2014 at 5:05 AM ×

Some black shirted bullies, who think they are above the law, and have disregard for all human life, on their way to threaten, intimidate and lynch a gentle, God fearing American "family" who happen to be celebrating the latest Fed QE announcement

https://www.youtube.com/watch?v=J-VWPkHOTYQ

Emotional rants fail when they run into LEGAL reality. Staten Island, Cleveland, Ferguson are each unique and unrelated to any other.

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Nico G
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December 4, 2014 at 5:09 AM ×

you guys should read Vollmann, the greatest living author today

he made violence (mostly in the USA) his lifelong study, and it is Nobel material

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72bat
admin
December 4, 2014 at 9:50 PM ×

@anon @5:05 am
just two aspects of how these and other cases are related
- police practice (de facto policy) is to escalate rather than try to contain or de-escalate situations.
watch the video of the cleveland 12-year old being shot within 2 seconds of police arrival (https://www.youtube.com/watch?v=Vki8SU6Oz6Q. ditto the walmart shooting last august, particularly since the 911 call audio is synched to the walmart in-store cctv (https://www.youtube.com/watch?v=3nMJ2gV_WLo)
- grand jury proceedings which are de facto trials rather than inquests, at which the d.a.'s essentially put on defenses of the police officers including officers testifying (rarely are potential felony defendants permitted to testify before grand juries)

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