General Macro Observations

[DeepState]

Which of these central banks.....




Looks most like Varuca Salt?

 

[DeepState]

Chart of rolling 1yr forecast EPS for Australia, Europe and the US. Notice Europe has not converged yet to Aust and US. This may be somewhat alleviated when the full ECB package including TLTRO is introduced:




Meanwhile, the composition of EPS growth for the US in recent years, shows that it has arisen with very little revenue growth. Although not shown (available if requested), corporate debt has declined materially and cash on balance sheet is strong which is helping to finance buy backs and dividend payments in the absence of sustainable growth:

 

[sydboy007]

who'd a thought US 10Y T bills are high interest plays

Puts into perspective why the money is still flowing to aussie debt markets.

 

[DeepState]

Puts into perspective why the money is still flowing to aussie debt markets.

....keeping the AUD elevated despite deteriorating ToT.

 

[DeepState]

From the FOMC Press Conference following the release of the Minutes:



Source: FT

 

[DeepState]

Thought this was interesting. Very different to what one could be led to believe from general 'sky is falling' reports.

 

[DeepState]

So Goldman Sachs finds that its Sigma-X dark pool was not actually delivering the best prices to pool participants. FINRA finds that Goldman did not have the proper processes in place from Dec 2008 to Aug 2011. There were 395k transactions between 29 July 2008 to 9 August 2008 alone which contravened the law.

US regulators are filing a suit for $800,000. No, there are no missing zeros at the end of that figure. In addition, Goldman will pay $1.67m (again, that's an 'm' as opposed to 'bn') in restitutions to clients.

This week, BNP Paribas has been fined $9bn for violating sanctions.

Which of these is just? Is the other unjust? Or are they both screwed up?

 

[skyQuake]

So Goldman Sachs finds that its Sigma-X dark pool was not actually delivering the best prices to pool participants. FINRA finds that Goldman did not have the proper processes in place from Dec 2008 to Aug 2011. There were 395k transactions between 29 July 2008 to 9 August 2008 alone which contravened the law.

US regulators are filing a suit for $800,000. No, there are no missing zeros at the end of that figure. In addition, Goldman will pay $1.67m (again, that's an 'm' as opposed to 'bn') in restitutions to clients.

This week, BNP Paribas has been fined $9bn for violating sanctions.

Which of these is just? Is the other unjust? Or are they both screwed up?

A whopping 800k. Fantastic. Meanwhile Barclays is being sued by NY state and even its non-dark pool customers are leaving by the shipload.

Long GS short BNP/Barclays

 

[sydboy007]

Not looking good for employment growth

http://www.aigroup.com.au/portal/si...x.portlet.endCacheTok=com.vignette.cachetoken

The deterioration in the Australian PSI was evident across all the activity sub-indexes, which were all below 50 points this month. The sales, new orders, supplier deliveries and stocks sub-indexes moved below 50 points after indicating a mild expansion last month.

Three of the nine sub-sectors in the Australian PSI expanded in June. Growth remains concentrated in health and community services (62.0 points) and finance and insurance (64.7 points, three month moving averages). Accommodation, cafes and restaurants (54.3 points) expanded in June, for the first time since April 2013. The sub-indexes for retail trade (46.5 points) and the closely related wholesale trade sub-sector (46.6 points) stayed below 50 points in June, indicating ongoing contraction in these industries (three month moving average).

Ai Group Chief Executive, Innes Willox, said: “Conditions in the services sector slipped again in June with respondents to the latest Australian PSI survey suggesting that ongoing weakness across much of the domestic economy and the public reception of the Federal Budget are dampening consumer and business confidence. With both the sales and new orders sub-indexes pointing to contraction, it appears likely that it will take several months at least to recapture the momentum that was building earlier in the year in the services sector.

“Several respondents indicated that the further deterioration in manufacturing conditions in recent months is reducing demand for business-to-business services such as accounting, IT and personnel services while poor results for the retail, wholesale and transport & storage sub-sectors pointed to further weakness in household spending,” Mr Willox said.

 

[sydboy007]

http://www.zerohedge.com/news/2014-...er-revealing-40-surge-bad-debt-provisions-rec

Unfortunately for some banks, especially those which operate in Europe's supposedly highest-rated country, Austria, sometimes just being able to kick the can is not enough as on occasion a law will change, having the unintended consequence of forcing the bank to admit just how ugly its balance sheet truly is. That's what happened overnight when Erste Group, Austria's largest bank by assets, and the third biggest bank in Eastern Europe after UniCredit and Raiffeisen, announced that, oops, its earlier forecast about the amount of bad loans on its books is wrong, and will have to rise by a massive 40%, leading to what will be a record $2.2 billion loss, and triggering writedowns.

Tick tock for the debt clock. Japan or Europe first to go???

 

[sydboy007]

http://www.thebull.com.au/premium/a...-the-world-economy-as-energy-prices-rise.html

I found the below quite an interesting concept. Only thing I'd argue with is that rising temperatures heating requirements may be reduced in colder countries, and cooling costs will likely rise in warm countries as it will just too hot without it for a lot of manufacturing to occur.

One part of our problem is that with globalization, we are competing against warm countries – countries that receive more free energy from the sun than we do, so are warmer than the US and Europe. Because of this free energy from the sun, homes do not need to be built as sturdily and less heat is needed in winter. Without these costs, wages do not need to be as high. These countries also tend to have less expensive healthcare systems and lower pensions for the elderly.

Governments can try to fix our non-competitive cost structure compared to these countries by reducing interest rates as much as possible, but the fact remains–it is very difficult for countries in cold parts of the world to compete with countries in warm parts of the world in making goods. This cost competition problem becomes worse, as the price of energy products rises because we are competing with a cost of $0 for heating requirements. If cold countries add carbon taxes, but do not surcharge goods imported from warm countries, the disparity with warm countries becomes even worse.

In the early years of civilization, warm countries dominated the world economy. As energy prices rise, this situation is likely to again occur.

 

[DeepState]

Another push to remove the USD from the position of enjoying Exorbitant Privilege...from France, no less. Follows from the agreement between Russia and China to trade energy in Renminbi. This strikes right to the heart of the scaffold of USD centrality since coming off gold. If the hub breaks/splinters, QE could be back in a hurry.

 

[sptrawler]

I read that associated press is going to use computers to generate financial reports from 'raw data' this will result in a loss of 400 financial journalist jobs apparently.

Well at last, a bit of pressure on the journo's, welcome to our world.

http://www.theaustralian.com.au/med...alism/story-e6frg996-1226979748460#mm-premium

Here is a link to some common sense.

http://www.smh.com.au/business/mark...eteran-investor-han-k-lee-20140707-zsyj6.html

 

[sydboy007]

Definitely the finite world is signalling cheap oil is consigned to the history books.

http://www.telegraph.co.uk/finance/...try-is-the-subprime-danger-of-this-cycle.html

Data from Bank of America show that oil and gas investment in the US has soared to $200bn a year. It has reached 20pc of total US private fixed investment, the same share as home building. This has never happened before in US history, even during the Second World War when oil production was a strategic imperative.

The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.

"What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14pc," said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves.

"They are having too look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel."

A report by Carbon Tracker says companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even. The Canadian tar sands mostly break even at $80-$100. Some of the Arctic and deepwater projects need $120. Several need $150. Petrobras, Statoil, Total, BP, BG, Exxon, Shell, Chevron and Repsol are together gambling $340bn in these hostile seas.

Martijn Rats, from Morgan Stanley, says the biggest European oil groups (BP, Shell, Total, Statoil and Eni) spent $161bn on operations and dividends last year, but generated $121bn in cash flow. They faces a $40bn deficit even though Brent crude prices were buoyant near $100, due to disruptions in Libya, Iraq and parts of Africa. "Oil development is so expensive that many projects do not make sense," he said.

IHS Global Insight said the average return on oil and gas exploration in North America has fallen to 8.6pc, lower than in 2001 when oil was trading at $27 a barrel. What happens if oil falls back towards $80 as Libya ends force majeure at its oil hubs and Iran rejoins the world economy?

"Under a global climate deal consistent with a two degrees centigrade world, we estimate that the fossil fuel industry would stand to lose $28 trillion of gross revenues over the next two decades, compared with business as usual," said Mr Lewis. The oil industry alone would face stranded assets of $19 trillion, concentrated on deepwater fields, tar sands and shale.

 

[Smurf1976]

Data from Bank of America show that oil and gas investment in the US has soared to $200bn a year. It has reached 20pc of total US private fixed investment, the same share as home building. This has never happened before in US history, even during the Second World War when oil production was a strategic imperative.

It can be said in two words - peak oil.

It never was about running out as such. As with any resource constraint, it follows the basic pattern that the "low hanging fruit" is picked first, after which it becomes a case of running faster and faster in order to achieve less and less.

At some point, we'll reach the stage where the economy simply can't afford to continue growing oil production at ever increasing costs. 20% of fixed investment now, give it a few years and that will be 25, 30, 35% and at some point something breaks economically as a result.

It's the same with any natural resource. There's still plenty of coal in the UK but it's too expensive to mine. Not "too expensive" as in it can't compete with other coal mines, but "too expensive" as in nobody could afford to use the coal unless the cost is socialised in some manner. Therefore it stays in the ground. Much the same has happened in Germany and Japan with coal.

We'll never extract all the oil, because we simply can't afford to. If it ends up costing $5 per litre then we just can't afford to use anywhere near as much as we do today, meaning that the marginal sources costing that much won't actually be developed to any significant extent. Once that tipping point is reached, where we can't afford to pay rapidly increasing costs, that's when we'll see a peak of physical oil extraction.

The key point to grasp, and which most seem to struggle with, is that the timing of peak physical extraction is not solely a function of geology and isn't actually that relevant in an overall context. What matters is when business as usual no longer works.

It's no good being able to supply 120 million barrels per day at a price of $300 if the world can't actually afford to spend $13 Trillion a year on oil. Just because it's in the ground and technically able to be extracted, doesn't mean we can afford to do so.

The real, unanswered question is at what price point the economy "breaks" sufficiently to preclude further growth in total expenditure on oil? That's the real question and a very relevant one on a stocks / investment forum. My guess personally is that the limit is somewhere in the $150 - $200 per barrel range.

 

[sydboy007]

The real, unanswered question is at what price point the economy "breaks" sufficiently to preclude further growth in total expenditure on oil? That's the real question and a very relevant one on a stocks / investment forum. My guess personally is that the limit is somewhere in the $150 - $200 per barrel range.

You only have to look at graphs showing US and China consumption. Pretty much every barrel of consumption dropped in the USA has been taken by China. It will boil down to who can extract the highest $$$ in GDP from each unit of oil. In the west there's lots of recreational oil consumption that will disappear as prices continue to rise, and the developing world will use it.

The problem all the economic models have is they view oil consumption as a demand issue, not a supply issue. I'd agree the demand limit is in the $150-200 range, and probably much closer to the $150 range - iirc $146 was what it go to pre GFC and things were already turning nasty in a lot of the developing world.

I'm starting to wonder if those doomsday preppers ain't so crazy afte rall. Maybe as a country we need to start disconnecting from the global economy and see just how much we can make do with indigenous production. At the moment we're screwed.

 

[DeepState]

1. So...after Barclays gets busted for acting in poor faith for its Dark Pool clients, volume dropped by ONLY 40%? What?

2. RBA minutes released today. Australian dollar still higher than historical levels....



Classic carry.

 

[sydboy007]

Could be interesting for those who like their yield income.

am I wrong to think the hang seng is offering the best yield / risk play?

http://www.bespokeinvest.com/thinkbig/2014/7/15/country-dividend-yields.html

 

[DeepState]

Could be interesting for those who like their yield income.

am I wrong to think the hang seng is offering the best yield / risk play?

http://www.bespokeinvest.com/thinkbig/2014/7/15/country-dividend-yields.html

Not necessarily wrong. Just something more to consider:

MSCI HK has around 70% in Financials, Telco and Utilities. These tend to trade on higher yields and lower PE. So perhaps the data you posted reflects this. Naturally, the sector composition of each market and other similar considerations will, to a significant extent, impact the valuation parameters shown. What we really need to make this comparison easier is to sector neutralize each country's stats. If we did that, I suspect the picture would be less clear cut.

 

[sydboy007]

"We've got to make sure that every molecule of gas that can come out of the ground does so. Provided we've got the environmental approvals right, we should develop everything we can." Ian Macfarlane (resource minister)

I'm not sure how a lot of manufacturing and food processing is supposed to survive with export parity gas prices? Curtis Island LNG export facilities were over built - should have been a clause they could only use CSG rather than siphon away a large chunk of cooper basin gas from local users. Another calssic example of Governments of various stripes taking short term gains over the long term.


http://www.businessspectator.com.au...il&utm_content=831043&utm_campaign=pm&modapt=

An alliance of industry associations – largely in the manufacturing sector – have released a report today by Deloitte Access Economics outlining that soaring gas prices will curtail output in manufacturing and mining sectors by levels which this industry alliance claim are “significantly larger than those associated with repeal of the carbon tax”.

The group – involving a coalition of the Australian Industry Group, the Aluminium Council, the Energy Users Association, Plastics and Chemicals, Food and Grocery Council and the Steel Institute – point out that the expected rise in gas prices as part of LNG exports will have the following impacts:

– Australia's manufacturing output will contract by $118 billion over the next seven years;

– The mining sector will contract by $34 billion and the agriculture sector by $4.5 billion; and

– 14,600 manufacturing jobs will be lost.

Contrary to Abbott’s assertions of an economic wrecking ball, the regulatory impact statement which accompanied his own carbon price repeal bill outlined that manufacturing and agricultural economic output would expand by more with the carbon price left in place rather than repealed. However, this would come at the expense of mining and, in particular, mining of coal, gas and non-ferrous ore.