A view from Venice

Found connectivity on the continent.

World stocks are trying to put in a bottom, but the slope is very slippery due to the price of crude.

More than 5% moves in crude a more common this year than anytime prior. Many in the oil pits have seen whipsawed prices taking out multi-month lows in an hour or so.

international energy firms like BP and ExxonMobil are seeing revenue fall 90% for the latest quarter.

Dow futures at 4am EST are down 120 points or 0.75, while WTI crude is off 2% at $30.96.

The US 10-year is trading down at 1.930, as this has become a very crowded trade the last two days as European markets open. The proverbial flight to “quality” so to speak.

The lack of global growth has hamstrung markets from commodities,  stocks and bonds. And while relief and short covering rallies do occur, the bias is to the downside.

More to come from Venice and Italy.

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China staging a coup against king dollar

So the US dollar has weakened by 1% this week and the Dow Jones index is up 3.5% through Thurs.

Crude is up $5 a barrel over the week, which is roughly a 10% move and other commodities have moved in tandem including gold.

Now of course a weaker dollar helps everyone in the world except us. The amount of pain in the BRICs and OPEC over the strong dollar is quite evident, so a pullback was needed, but for how long is the question.

Will we see $60 – $70 oil by the holidays? I don’t think it will get that high since the US is the cleanest dirty shirt in the pile.

Time will tell who the sellers of dollars are, but China in defense of the renminbi would seem to be the largest agent in the market.


 

It appears that central banks are being proactive this time and not waiting for the first shoe to drop.

Since the 29th of September, Glencore, Europe’s commodity giant that I wrote about as being this year’s candidate for Lehman Bros., its stock is up 94% at 135, still well off its 52-week high of 339.

While a capital injection and/or going private were rumored it seems that buoying copper prices off their lowest prices in decades seem to have done the trick for the short term.

Ironically, like 2008 after Lehman ex-Morgan Stanley CEO John Mack is out everywhere blaming short sellers for the attack on Glencore. Mack is on the board of the commodity giant.

You’ll recall Mack vigorously defended Morgan Stanley in 2008 with his short sellers are killing the investment bank. It worked then, perhaps it will work now.

 

Here's a primer on the latest firm that crushed your portfolio: Glencore

So there’s a company you may never have heard about, that in the next week or so could bring much pain to your portfolio and derivatives markets around the world.

Here’s how the company — Glencore — describes itself:

We are one of the world’s largest diversified natural resource companies, producing and marketing more than 90 commodities, with a network that spans over 50 countries
and around 181,000 people.

Anthony Hayward is the Non-Executive Chairman of Glencore. You may remember Hayward as the CEO of BP during the Gulf oil spill — the worst environmental disaster in history.

Well Hayward is now involved in what could be the worst derivative market meltdown in history.

So here is another What we do at Glencore:

Glencore is a leading integrated commodity producer and marketer, operating worldwide. Our business covers over 90 commodities encompassing
metals & minerals, energy products and agricultural products as well as related marketing and logistics activities.

So Glencore is a huge global player in commodities, which in this deflationary environment have seen their prices crater. Crude oil, coal, copper, iron ore and gold. All these materials have seen prices falling for the last six months, at least.

Over the last year Glencore’s stock price is down 79%, since its 2011 IPO the stock is down 87%. But if it was just an equity wipe out, all would be well except for the investors. A Sept. 16 secondary  offering on the equity side is already down almost 50% in two weeks.

Like AIG and Lehman before it,  Glencore uses overnight lending as liquidity for its commodity trading desks. Well, with a stock performance like this and credit default swaps soaring to Lehman-like levels, Glencore’s going to come crashing down like a house of cards within days as liquidity dries up.

Now of course no one — including Glencore or the Swiss government, where it is based — knows exactly how horrific a take down would be. The second or third derivative to fall on the bankruptcy is anybody’s guess. Think Lehman Bros taking out AIG. And an unwinding of its book is unthinkable due to size and scope.

So that’s the back story on a smallish commodity player going belly up and the shock waves rippling across the globe.

This post should be far more relevant come Wed. or Thurs. of this week. But I thought you would want to know now.

Who is shoring up markets?

So global markets considered the Greek event with a one day sell off. Slight correction and all is well again.

China is no longer in correction mode with the Shanghai index gaining more than 5% overnight.

The euro strengthened overnight as well against dollar and Puerto Rico’s $72 billion debt bill will be serviced for the time being despite what the Commonwealth’s governor said.

Welcome to the post-Lehman Bros. trading world, where central bankers buy and sell stocks, bonds, futures, currencies  and commodities to shore up a troubled market.

The terms investor confidence and investor sentiment no longer are valid reasons to buy the market during or soon after a crisis, because the sentiment maybe just the Federal Reserve, the ECB, the World Bank and/or the IMF shoring up a teetering market.

One can’t be sure who is doing the shoring up and for what reason.

One thing is sure, investor confidence and investor sentiment still applies on the way down as investors charge for the door.

2010: A Continuation of the Naughts

By MICHAEL GRAY

Many economists are looking at 2010 and seeing the glass is half full. The data they use to forecast how the US economy is improving has been corrupted to such an extent that the time-honored formulas used to determine future growth are fraudulent.

The disconnect occurs when government statistics are skewed with assumptions that can only be described as lies if you and I stated them. The major culprit in this regard is the Bureau of Labor Statistics’ weekly and monthly employment numbers.

Between seasonally adjusting the jobs numbers using the birth/death model as well as looking historically for the assumption of how many jobs were created is more voodoo than sound economics.

Inflation numbers also seem to be devoid from reality even when you take out food and energy. This number has been so politically charged for so long that to look at it as a true barometer of economic activity is moot. My best guess would say that inflation is probably running at 8 percent right now and will climb much higher by the second half of this year as the dollar index slides into the low 70s.

Equity markets are skewed to the upside since becoming awash with cheap cash last spring. The high-frequency trading employed by Goldman Sachs and other government proxies do not create wealth or growth for companies but rather a quick profit for the firm’s prop desk.

This is the main driver for the indices to be closing almost flat. The lack of conviction to buy or sell are the hallmarks of HFT. If you are in and out of a stock after a two-cent gain, you will not see 100-point moves on the Dow very much.

I am also very suspicious of pre-market activity. I have seen at least 10 days in the last two months were there have been 100-point swings in the futures market on very little news. Perhaps the Plunge Protection Team is in the market or one of its proxies propping up equities before the markets open in the west.

The take away on all this is that economists — even if they had good data — are guessing on the direction of the economy. So if you give them flawed data they will never see a collapse until it hits — perhaps.

My biggest concern is to get past the first quarter. I believe with a very disappointing jobs number for January — because the BLS typically does not add bogus jobs into that month’s number — it will usher in a wave of sell offs in equities, bonds and the dollar. Commodities may sell off, except gold and silver which will benefit as another flight to hard currency will ignite.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com