Here are today’s Phase Two developments. Many are ominous. Things not looky so goody.
The smartest guys in the room, i.e., Goldman Sachs had this to say about AI: “Massive investment in AI contributed basically zero to US economic growth last year.” What will they predict next? An oil price spike if we go to war with Iran? Oh wait.
Dario notes that the liquidity crisis is going global: “Middle East liquidity crisis in the financial system is surfacing.”
He cites Rashid ben Saeed who elaborates: “Citi and Standard Chartered literally evacuated their offices this week. Told staff go home, work remote. HSBC closed their Qatar branches. Hedge funds are in “contingency mode.” That’s a polite way of saying they’re bricking it. Analysts are saying customers could pull out $307 BILLION if this goes on another month.”
First Squawk writes that both JP Morgan and Goldman are offering Hedge Funds ways to short private credit. That’s just weird.
Ripplebrain conveys just how devastating the attack on QatarEnergy’s LNG production is: “17% of QatarEnergy’s production is 3.4% of the world’s LNG production.” Ending ominously saying, that it’s “gone in the blink of an eye, perhaps for years.”
The irrepressible Matt Stoller highlights a video that highlights “straightforward market manipulation.” He also points our attention to the #2 story at the Wall Street Journal: “U.S. Regulators Propose More Lenient Capital Rules for Big Banks.” This kind of proposal is in direct contravention to the ‘stress test’ rules put in place after the 2008 Financial Crisis. It also clearly foreshadows liquidity and/or solvency issues that the commericial banks will soon face.
In another clear phase two clusterfuck is this story from the WSJ, cited by Unicus Research. The upshot: “Stone Ridge’s LENDX fund just told investors it would honor only 11% of redemption requests.” The post on X also includes what kind of garbage is in the fund. Go take a look. It’ll engender a ton of schadenfruede. Enjoy!
As pending crises morph into full blown disasters investment banks often prepare by enacting the following policies. First, they raise production quotas for their employees while simultaneously cutting their commission payouts. It’s a cut-throat business. Payout cuts are painful. I’ve lived it. And they always cut payouts right before or during bear markets. I endured this twice at Morgan Stanley. Guess what: Goldman has begun that process, as First Squawk reports: “Goldman plans performance-based job cuts in late April.” This we can infer two important factoids from this: Goldman is worried about cash-flow. You don’t plan to run employees off if you’re flush with cash. Two: timing, Goldman clearly sees this credit cycle accelerating rapidly with an April inflection point.
Shashank Joshi catches an excellent highlight from the Economist: “Average prices of petrol and diesel have reached $3.88 and $5.09 a gallon, compared with $3.11 and $3.72 at Mr Trump’s inauguration. Republican support for the war is strong, but softening.”
More Perfect Union informs us “the cost of vegetables jumped 49% last month as inflation hit hard and companies raised prices.” Its source is BLS data. Now I know, some will dispute how the CPI is computed. I thinks it full of balderdash and male bovine excrement. So does Ian. So I post and you decide.
Sohrab Ahmari notes, unconfirmed but entirely plausible, that “force majeur [has been declared] on Qatari LNG contracts for up to five years.” Five years? That’s going to pile Pelion atop the already messa Ossa of the energy markets globaly.
CORRECTION: according to EarlyGray the video below does not say anything about Japan buying Russian oil. Mea culpa. I regret the error. SPK
Richard posts a video and apparently translates it. If true, it’s a bombshell: “Japan is now openly buying Russian oil with the yuan.” Why not with JPY? I would imagine that China has already set up a Yuan based transaction system for buying and selling oil to steadily chip, chip, chip away at dollar hegemony. Yeah, Japan has said it publically and officialy. That’s pretty much like pissing on the petrodollar. Our closest North East Asian Ally. That’s fuckery on an hitherto unseen level.
Meanwhile, to Japan’s northwest, South Korea is considering resuming imports of Russian oil.
And I make the observation, in utterly obscene Russian fashion that “with these high oil prices the Russian Treasury has certainly Как бога за яйца поймал.” Translated idiomatically: Russia is in the catbird seat. Translated directly:they got God by the balls.
Rory Johnston notes just how high Dubai crude prices have risen: “Cash Dubai crude (balance of the month) just broke above $170 per barrel.”
Here’s what I’ve previously written on this credit cycle. I stand by it all. The only comment I’ll add at present is this: if the exogenous shocks to the US economy continue and the energy shock intensifies, all bets are off on the proximate cause of the end of dollar hegemony.
But aren’t most of those contracts never expecting to take physical delivery? Just gambling, er excuse me, investment hedging?
Or is the problem that given that Comex price is under the real, that all those contracts *want* to be exercised in delivery so they can arbitrage to China (who has a real price?)
I’ve always found futures confusing, thanks for any help.
Answer is complex by I’ll do my best to simplify. I’m going to base my answer on much of what Dario says in this video, so it might be worth a watch for anyone interested in how the contracts are viewed at the Comex versus SHFE.
All contracts traded on Comex are designed to take physical delivery. Understood? They are designed for industrial hedging so corporations can smooth out their expenses on needed commodities. That said, under Clinton and accelerating under Bush, the CTFC made a whole raft of rule changes that changed the PRIME AIM of the commodities markets from honest price discovery into something resembling a casino. I’ll spare you the details, but I was in the business at the time and I still can’t believe what they did.
As for arbitraging Comex prices over those on the SHFE. Rumor is someone tried it–a Chinese trader–and got hammered hard. Main reason: the cost of shipping and arranging for delivery, even if, as rumored, he made the trade when there was a $20 USD premium at SHFE, and all the subsequent logistics of physical delivery, added up rather too quickly. But as a former arbitrage clerk myself, kudos to the brother for trying. Fortune does favor the bold. Until she doesn’t: fickle bitch she is.
Futures are identical to stock options: calls-are the expectation a stock will rise-and puts are the opposite. On the commodities exchanges you buy long exepcting the price to go up, but your buying price of the long give you the right to exercise it at that price not its current high, if it did go up. Buying short means you expect the commodity to go lower. You can also combine the two into a hedging bridge of sorts, where you give yourself the right to exercise the contracts within a range. This is what hedging truly is. Not hedgefund bullshit. I used to know the head commodities trader at Pioneer Flour Mills here in San Antonio and how he explained it was elegant. One of the reasons I went into the business.
I’ve never mentioned this before but what made me leave was a long time ago I was sitting first class next to a former international business man. He asked most of the questions, but the upshot is I was sitting next to John Perkins and the questions he asked me opened my eyes to what I was truly participating in. It was only a matter of time til I left.
The US commodities exchanges were originally established, and this was hammered into me when I took my commodities trader’s exam, for price discovery and sanctity of the market mechanism. Used to be you had to own or expect to take delivery of the underlying commodity you were hedging/selling/buying. Now you don’t.
At the SHFE the rules are much similar to the pre-Clinton era rule changes. And Chinese regulators are hardcore. They’ve shutdown at least 25 trading groups accounts last week alone for breaking the rules, which Dario explains in his video.
Hope this helped.