At $30, the market's still long oil

Once more unto the breach, dear friends, as US markets re-open today.  Despite the holding pattern in European bourses yesterday, it certainly feels as if pessimism still reigns supreme; certainly there was little in yesterday's price action in crude oil to engender any confidence whatsoever.  Perhaps this week's earnings can stem the tide of despair, or maybe Mario Draghi can recover the magic beans that he seemed to have misplaced last month.   Failing that, it's hard to see where any good news may come from other than a short squeeze.

Going back to oil for a second, it was instructive to note how the rapprochement with Iran was taken as a "sell the fact" rather than "buy the fact" as one may have supposed.  While markets often bottom on bad news, it doesn't necessarily follow that bad news mandates a bottom.  It is very interesting to observe, for example, that the CFTC commitment of traders report still has non-commercial traders comfortably net long WTI futures:


To be sure, the position size has come down a lot, but it is still remarkable that it is long at all.   In fairness, the number of shorts is at a record high, having spiked recently; while that could well serve as a prelude to a squeeze, it does make sense to ask who is likely to have an itchier trigger finger: the guy who's been short for the last $20, or the guy who's been long for the last $70?


On a technical note, Macro Man also looked at the dis-aggregated report from the CFTC.  He's ashamed to admit that he could not make the numbers reconcile with the standard COT report, or whether that is even possible.   Regardless, the message is largely the same: swap dealers, managed money, and "other reportables" all register net long positions in WTI.  Even the little guy, the non-reportables, have been buying the dip in their Interactive Brokers accounts; net WTI longs registered their highest reading in more than a year in last Friday's report.

Perhaps the evolution of "long-only" commodity holdings such as pension allocations or ETFs is responsible for the skewed net reading on crude futures (Macro Man calculates the holdings of the USO ETF to be ca. 95,000 futures, more than half of the non-commercial net long).  Certainly the fact that shorts have increased dramatically renders a squeeze somewhat more likely, if only temporarily.   But to generate proper capitulation and form a tradeable bottom, is it really too much to ask for speculative positions to actually go short?

Elsewhere, Chinese GDP data actually came in a bit lighter than expected last night, with the y/y reading printing 6.8% (versus a 6.9% expectation) and the q/q reading printing 1.6%, below the consensus of 1.8%.  One can take this one of two ways:  on the one hand, you could say that the authorities must be feeling confident about the measures they've taken if they're allowing such important figures to show a bit of weakness.  The other, more cynical (or shall we say realistic?) explanation is that things are so bad that they couldn't massage the figures up to expectation even with a full toolbox of chicanery.  Certainly Macro Man's growth indicator would vote for the latter explanation....


At the time of writing, S&P futures are trading higher, though the experience of the past couple of weeks suggests that this recovery could prove as ephemeral as the unfortunate daffodils currently trying to grow in Macro Man's front garden.  Perusing the comments section and other financial commentary over the weekend, Macro Man has the sense that people are a) generally quite bearish, and b) feel that there remains a fair amount of complacency in the market.

Macro Man has therefore decided that that time has once again come to tap into the wisdom of crowds, but this time with a twist.  In addition to asking for your forecasts for the SPX and oil, he also wishes to know what you think the market forecasts for these assets...i.e. your belief of what the aggregate risk taker expects for those assets.  Who knows...perhaps all those guys who shorted crude will vote for negative prices!


Previous
Next Post »

59 comments

Click here for comments
Anonymous
admin
January 19, 2016 at 7:35 AM ×

Asian names buying equities.

Reply
avatar
Eddie
admin
January 19, 2016 at 8:49 AM ×

China's GDP reminds me of Leftback's trusty formula:

GDP = 8.0% - 0.1% * #Quarters

Reply
avatar
Anonymous
admin
January 19, 2016 at 9:57 AM ×

I must be going crazy but I'm becoming more and more bullish on Europe. It has been down in the dumps for so long people have forgotten that EZ makes 1/5 of world's GDP and EU 1/4. It makes a difference if it grows 1.5% or 2.5%. I'm leaning towards the latter. I believe we'll see some silly numbers towards end of year. The kind of numbers that'll make CBs itching to pull trigger whether inflation is there or not. €1 = $1.2 by 2017?

Reply
avatar
Anonymous
admin
January 19, 2016 at 11:02 AM ×

Anon 9:57 - I can't agree. Europe is a disaster: incompetent & corrupt politicians, and a low IQ populace who are intent on destroying their economy & culture by allowing mass immigration/terrorism and voting for socialism. If there was one lesson of the 20th century it was that socialism doesn't work. If there's one lesson for the 21st it's that ignoring huge structural problems (debt & asset bubbles, education & employment, multiculturalism, aging workforces etc) doesn't work. Regarding markets: Fed QE, although disliked, boosted the SP500. ECB QE isn't working anywhere near as well. Europe is a big short.

Reply
avatar
Anonymous
admin
January 19, 2016 at 11:12 AM ×

In context of this post, this FT article is also interesting: "IEA warns of an oil market ‘drowning in oversupply’" http://www.ft.com/intl/cms/s/0/ae9aa766-be94-11e5-846f-79b0e3d20eaf.html

Reply
avatar
Macro Man
admin
January 19, 2016 at 11:24 AM ×

@ Anon 11.02. While I would prefer not to delve into politics, having lived in both the US and Europe I can say that if relative intelligence were an arbiter of financial asset prices, the SPX would be about -5000 right now.

Reply
avatar
Booger
admin
January 19, 2016 at 11:39 AM ×

I am working on my first Novella called 'The Empire strikes it's back' (don't tell George Lukas). Here the Saudi empire pumps dark matter until one of the EM rebels literally blows up. Then the emperor has a chance to suggest a quota cut at the next OPEC meeting. But no one will follow their quotas and the dark sideous of even lower prices might be visited before the jedi frackers can return (the one or 2 that are still around by then).

Perhaps Yoda or someone could explain to me why has Venezuela, Petrobras or Brazil have not blow up yet ?

Reply
avatar
Anonymous
admin
January 19, 2016 at 12:27 PM ×

PBOC injects 410 bn...

Reply
avatar
Bruce in Tennessee
admin
January 19, 2016 at 1:25 PM ×

http://xroads.virginia.edu/~UG97/remus/tar-baby.html

"'You er stuck up, dat's w'at you is,' says Brer Rabbit, sezee, 'en I;m gwine ter kyore you, dat's w'at I'm a gwine ter do,' sezee.

"Brer Fox, he sorter chuckle in his stummick, he did, but Tar-Baby ain't sayin' nothin'.

"'I'm gwine ter larn you how ter talk ter 'spectubble folks ef hit's de las' ack,' sez Brer Rabbit, sezee. 'Ef you don't take off dat hat en tell me howdy, I'm gwine ter bus' you wide open,' sezee.

"Tar-Baby stay still, en Brer Fox, he lay low.

"Brer Rabbit keep on axin' 'im, en de Tar-Baby, she keep on sayin' nothin', twel present'y Brer Rabbit draw back wid his fis', he did, en blip he tuck 'er side er de head. Right dar's whar he broke his merlasses jug. His fis' stuck, en he can't pull loose. De tar hilt 'im. But Tar-Baby, she stay still, en Brer Fox, he lay low.

"`Ef you don't lemme loose, I'll knock you agin,' sez Brer Rabbit, sezee, en wid dat he fotch 'er a wipe wid de udder han', en dat stuck. Tar-Baby, she ain'y sayin' nuthin', en Brer Fox, he lay low.

"`Tu'n me loose, fo' I kick de natal stuffin' outen you,' sez Brer Rabbit, sezee, but de Tar-Baby, she ain't sayin' nuthin'. She des hilt on, en de Brer Rabbit lose de use er his feet in de same way. Brer Fox, he lay low. Den Brer Rabbit squall out dat ef de Tar-Baby don't tu'n 'im loose he butt 'er cranksided. En den he butted, en his head got stuck. Den Brer Fox, he sa'ntered fort', lookin' dez ez innercent ez wunner yo' mammy's mockin'-birds.

...Morning, follow investors. I do enjoy the story above, where obviously Brer Rabbit is long and Brer Fox, laying low as he does, it out of the market. Tar Baby, well, that anology would be present day markets....and if you want to find out what happened to Brer Rabbit....go ahead...

...I read the news overnight, and I am just trying to get the tea leaves to show me the thread of 2016...I see that France says they are in an economic emergency, that markets are hoping for more debt injection in China, Abe is going to use national pension fund money to prop up the stock market, and big banks are getting ready to deal with oil loans.

...Here's the deal: we can convince ourselves of blue skies or rainy days, and this affects our investing mightily. But the question, as MM asked about predicting the economy and the tools that are used to follow it, is what will the trend be in 2016? Try to do this with a yellow pad and a cup of coffee and just take your time...it appears also the falling knife could be going several ways at present.

...as Dustin Hoffman was once asked repeatedly, "Is it safe yet?".....

Reply
avatar
Anonymous
admin
January 19, 2016 at 1:44 PM ×

Take a look at their GDP deflator-implies at -1% yoy. Of course that could simply be their balancing mechanism to achieve the real GDP target but not quite what you want when you're stuffed full of debt!

Reply
avatar
January 19, 2016 at 2:19 PM ×

Please guys.. take a look to senior and sub financials in Italy... also bank names are enough... There's a banking crisis going on in Europe.. Bail-in + NovoBanco legacy..

Reply
avatar
January 19, 2016 at 2:23 PM ×

For me only strategy is call spread on SX5E and spread widening on peripherals..
Cash is king.. small size on HY US and CRB+ emkt equity

Reply
avatar
Anonymous
admin
January 19, 2016 at 2:25 PM ×

Agree Bond Strategist. Mentioned it yesterday here about their price action. Not getting reflected in btp becsuse of ecb bid. Periphery going to be in the headlines again soon.

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 3:03 PM ×

Macro Man, Cycles are hard to come by if your a intermediate trader. So I put to you , are we saying good riddens to you and your buy the dip mentality and thereby leaving a poor mug alone. Game over for the BTFDippers , let's get to work on some authentic macro trades. Piss off these f##ckin charts.

Reply
avatar
Macro Man
admin
January 19, 2016 at 3:07 PM ×

Ermmm, "my buy the dip mentality?" When was I displaying that...when I told FM to piss off? Or when I said the Bovespa was a basket case headed to single digit PEs?

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 3:24 PM ×

It was a broad sweep comment that was tossed out there in the hope that it doesn't flare up a argumentative thread, can you imagine saying that to anyone twelve months ago. "Oh no..you have to buy the dip..do it for the people and their pension funds" yeah right!

Reply
avatar
Anonymous
admin
January 19, 2016 at 3:37 PM ×

Do not feed the amps!

Reply
avatar
Anonymous
admin
January 19, 2016 at 3:56 PM ×

Oil is going up and stocks are going down... hahaha

STFR !

Reply
avatar
Eddie
admin
January 19, 2016 at 4:08 PM ×

Re China's GDP:

"China’s headline GDP grew 6.8% in the fourth quarter. But in nominal terms, it grew just under 6%, the slowest since last century."

China GDP: Long Slog Increases the Pain

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 4:09 PM ×

What's that @ anon 3:37 "Do not feed the amps!" guess what, no has the last thirteen years!

Reply
avatar
Anonymous
admin
January 19, 2016 at 5:13 PM ×

Where's LB on Carney?

Reply
avatar
CV
admin
January 19, 2016 at 5:17 PM ×

No matter how you cut it ... this market is not trading well. If the world suddenly starts to trade off of a narrative that goes something like: "OMG, the SWFs will sell all their equities", I don't think you want to get in front of it!

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 5:17 PM ×

Macro Man...talk up your book all you want, your beachside house will remain on the market for eternity.

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 5:26 PM ×

And I"ll let in on something else , Macro Man..I'll never put a foot in an American bank as long as I live. NEVER.

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 5:29 PM ×

Keep your money , Macro Man. Keep it.

Reply
avatar
Macro Man
admin
January 19, 2016 at 6:12 PM ×

Umm, what do you hope to accomplish by insulting me (assuming that's what you're trying to do with this incoherent rubbish), other than a ban?

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 6:21 PM ×

Yes, a ban from ever stepping into an American finance company littered with current and ex-current government employees. Oh yes please.

Reply
avatar
Eddie
admin
January 19, 2016 at 6:35 PM ×

Amps... you didn't take the red pill and the blue pill simultaneously, did you?

Reply
avatar
Anonymous
admin
January 19, 2016 at 6:44 PM ×

For oil well yes USO obviously explains some of the length but you can't look at it in isolation even for a category of the longs. Some are not correctly categorized, some are otc versus exchange, WTI versus other parts of the barrel or versus brent etc. Can only make relative takeaways on positioning in IMHO.

LondonFrog

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 6:58 PM ×

No, Eddie, I spent enough back in the day to enjoy flashback freebies these days. But the American government and finance make me sick.

Reply
avatar
Bruce in Tennessee
admin
January 19, 2016 at 7:05 PM ×

Lefty,

Can you have a negative face-ripper? That is, when markets open up 200 and lose 90% during the course of the day, what exactly is the term for that? And if they do it repeatedly.....?

What are you buying or selling today?

Reply
avatar
Eddie
admin
January 19, 2016 at 7:17 PM ×

Understood Amps. But this is no reason to insult our host, no?

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 7:21 PM ×

No insult intended, Eddie. Just doing my best to get out of a trade that will drive me to forking over cash again for a red or blue pill along with some home truths.

Reply
avatar
Anonymous
admin
January 19, 2016 at 7:24 PM ×

"While I would prefer not to delve into politics, having lived in both the US and Europe I can say that if relative intelligence were an arbiter of financial asset prices, the SPX would be about -5000 right now"

Bingo!

Reply
avatar
Nico G
admin
January 19, 2016 at 7:40 PM ×

for what it's worth there is a monster bullish divergence shown in Eurostoxx beanchmark futures

why are people still surprised that PIGS are bankrupt is beyond me. Have you seen Greek bank index losing 95% since October? Italian or Spanish banks are no different, never to be touch with Serguey Bubka's pole

Reply
avatar
Anonymous
admin
January 19, 2016 at 7:44 PM ×

Amp, reading your incoherent bubble left a bad taste in my mouth, gonna have to drink another espresso just to get rid of it.

Reply
avatar
amplitudeinthehouse
admin
January 19, 2016 at 7:51 PM ×

anonymous 7:44, be sure to hit Starbucks and grab yourself a Grande.

Reply
avatar
abee crombie
admin
January 19, 2016 at 8:06 PM ×

Cheers for the Iti- bank heads up. Here is a chart of Monte dei paschi's subs. ouch http://imgur.com/2Yn6gkA

I'm not an expert, so please correct me, but I dont really see what has changed with the itilian banks? Its not like they havent been under regulatory review for the past 3 years in terms of capital, provisioning. Sure the delay in creating a bad bank isnt positive but hardly a reason to kill the bonds. So now the markets are assuming there will be a banking crisis in Italy? What new news came out? Unlike greek banks Itilian banks generally have OK capital.

I dont have any real positions in this so its more curiosity. Views appreciated.

Amps, welcome back. Please do let me know who/what you buy your stash from, bc whatever you are taking it must be good ;-)

Reply
avatar
Anonymous
admin
January 19, 2016 at 8:18 PM ×

The problem with a lot of European banks is they were making a good yield on periphery bonds when the ECB had their backs without bothering to lend (because they couldn't). Now the ECB has gifted them strong asset appreciation BUT...taken away their future earnings due to collapsed yields. SO.....if they don't lend, and can't get any new yield...what do they do to earn? They can't take on more loans when they have such high non performing ones already. But this was brushed under the carpet.

Looks like it's all coming out SOON. And, when a run goes on them, they will have to dump their bonds.

Reply
avatar
CV
admin
January 19, 2016 at 8:26 PM ×

EZ banks are wardens of the state ... and the BRRD allows bail-in of creditors and equity holders. It won't be fun, but this only counts for the small banks. The big ones will be saved, one way or the other, if it comes to that. Note here, though, that this is NOT 2012 ... Italy's banks are protected by domestic savings and an external surplus. The equity can go down, but it won't be a big blow up in the short run.

Reply
avatar
Anonymous
admin
January 19, 2016 at 8:27 PM ×

MM do you have any thoughts on USDHKD? You brought it to attention the last time hkd swaps moved sharply right. USDHKD spot was 7.82 paid and 1y swaps are over +500 bringing the outrights way above 7.85

Reply
avatar
Anonymous
admin
January 19, 2016 at 8:37 PM ×

CV - if there's been a psychological change in the market and how participants perceive events unfolding. The short run will be rapid. Portuguese system is in collapse mode. Market is worried about who is exposed to HY oil. Anglo Irish bank was a small one and it pretty much brought down the Irish system due to its exposures.

The butterfly effect etc.

Reply
avatar
AL
admin
January 19, 2016 at 8:55 PM ×

A lot of the massive move in Italian banks can be probably explained by the recent verbal fight between the Italian PM and his cabinet and the European Union. This has raised doubts about a swift resolution on a creation of a bad bank in Italy approved by the European authorities. Such vehicle is badly needed for the weakest banks and the prospects of not having one is a clear negative. Add to this a good deal of rumours about inquiries by the ECB on the valuation on NPLs, positioning by hot money and you have a perfect mix for a 40/50 % correction in a matter of couple of weeks.
Now, if Nico is right about Italian banks, you have to play BTPs on the short side (which by the way has been surprisingly calm while banks were collapsing). If, on the contrary, you believe that the banking system is today in a much better position it was only a couple of years ago, some names trading at P/TE below 0.30 are very attractive.

Reply
avatar
CV
admin
January 19, 2016 at 9:11 PM ×

"you have to play BTPs on the short side "

Widow maker in my view, but be my guest. Play it in the markets that matter ... U.S. energy bankruptcies, EU, EM etc. Overexposed overowned names etc.

Reply
avatar
Anonymous
admin
January 19, 2016 at 9:13 PM ×

Not to be a downer on the equity bull party, but Saudi said this afternoon they intend to acquire a nuclear weapon (against Iran's nuke development). Oh, and expect more bad news from EZ banks... enjoy !

Reply
avatar
washedup
admin
January 19, 2016 at 9:25 PM ×

@anon 9:13 - an equity bull party? Looks more like a wake..
Why so serious, bears? Everything is going your way for the first time since 2011 - enjoy!
Sitting on my hands with my thumb up my butt never felt better.

Reply
avatar
AL
admin
January 19, 2016 at 9:30 PM ×

@ CV
BTPs are certainly overexposed in case of an Italian banking crisis, and most likely overowned currently. At 1,55ish yield I find it difficult to see much upside in price from here .... Unless of course you see Dr.Aghi taking out the bazooka on Thursday. And even then, any spike could be temporary.

Reply
avatar
Anonymous
admin
January 19, 2016 at 10:19 PM ×

AL & CV - btp - it's one of those obvious things. The yield is too damn low. But Draghi. It's the same for OATS,while not Italy, even after Hollande's langauge about the state of the economy yesterday. And the bankers at that BNP event last week discussing the very risks of the periphery. Need someone big to knock those yields up.

Reply
avatar
Nico G
admin
January 19, 2016 at 11:54 PM ×

Abee

Italian banks are the darling of smart money and they have been known to be dumped mercilessly as soon as they get out of flavor. The big (idiotic) play was on moron Renzii getting all he wants from uber sharp Draghi because you know cazzo, they are both italians. This isnas dumb as it gets but incaught some really sharp Italians friends punting alike.

Except Draghi cannot stand that provincial opportunistic serial liar who by the way has already deceived 70% of the populace. MIT Draghi is Roman royalty, Tuscans always get on the nerves of Romans especially the Florentine pogen variety

Reply
avatar
Leftback
admin
January 20, 2016 at 12:38 AM ×

We would suggest caution in shorting sovereign bonds, other than for brief swing trades. They are all Widowmakers now.

Let's see if we can string together a few days without TEOTWAWKI and then we can count bulls and bears again. One day at a time and we'll see how long it is before the vol sellers set up their stalls again and start to ply their filthy trade. We did nothing but watch today and that's going to go on for a while...

Reply
avatar
Anonymous
admin
January 20, 2016 at 1:28 AM ×

CURRENT DEBT SITUATION WORSE THAN 2007/8, BIS/OECD WARNS OF EUROPE BANKING MELTDOWN:

http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html

Reply
avatar
Macro Man
admin
January 20, 2016 at 1:32 AM ×

Whatever the underlying truth of the story may be, one can rest assured that hyperbole is part of the bedrock of any AEP story in the Torygraph. I'm still waiting for the Chinese to dump Treasuries en masse like he shouted 8-9 years ago; one might have thought that their loss of FX reserves would make this an opportune time to do so...

Reply
avatar
hipper
admin
January 20, 2016 at 2:05 AM ×

Well, the expected spiky panic for oil didn't happen, and now it just seems more likely that it will slowly continue to drip until some real supply shock arrives in the headlines. The potential catalyst called China is out of the way and yawn... still slowing, so no help there.

I'm sitting tight on my hands, sold the BP punt and raised some cash with the better price levels today from China exposed EZ equities. Looking at the rear view valuation mirror one might think equities still offer value, but how long can the toppish margins hold with the low growth, low inflation environment? These earnings just feel too good to be true in context of the supposed more or less pitiful macro environment they're operating in. In addition, too many black swan likish crisis looming in EZ and perhaps with the China debt bubble. And this time it feels that it won't be just Greece. Greece was just merely the first one that happened to run out of runway.

Really tough environment for any long strategies. Would otherwise run into safe heaven treasuries but USD looks soft, which could potentially just toast all the returns. Even gold not moving and miners still getting toasted. Like many here expected, rate hikes did nothing but flatten the curve.

It's just that slowly creeping feeling of a looming recession which makes all conventional activities feel futile. If a US recession happens to coincide within 1-2y just as France, Italy along with their bank complex were getting into deeper trouble anyway, that might result in some very nasty cocktails. But for now lets just see and what Q4 earnings says, a good amount of the potential weakness might already be discounted, for now.

Reply
avatar
MrBeach
admin
January 20, 2016 at 2:11 AM ×

One argument for why oil has a lot further to go: storage capacity may max out.

"I expect that the particular problem we are likely to reach in 2016 is limits to oil storage. This may happen at different times for crude oil and the various types of refined products. As storage fills, prices can be expected to drop to a very low level–less than $10 per barrel for crude oil, and correspondingly low prices for the various types of oil products, such as gasoline, diesel, and asphalt. We can then expect to face a problem with debt defaults, failing banks, and failing governments (especially of oil exporters)."
-- http://ourfiniteworld.com/2016/01/07/2016-oil-limits-and-the-end-of-the-debt-supercycle/

Reply
avatar
abee crombie
admin
January 20, 2016 at 3:00 AM ×

Thanks for the thoughts on Italian banks.

MM any thoughts given to changing the format of the comments/blog. It seems the discussion board is pretty interesting but i was looking in the past and it is very hard to look back in history to find stuff. Just a thought, as I really do enjoy your insightful posts as well as the comments from the peanut gallery

Reply
avatar
Simon Miller
admin
January 21, 2016 at 6:10 AM ×

Wow! This can be one of the most beneficial blogs we have ever come across on the subject. Basically magnificent article! I am also an expert in this topic so I can understand your effort. Crude Oil Trading Report

Reply
avatar