Deutsche Bank: ‘The Bears Have a Problem’

Add Deutsche Bank and UBS to the list of investment banks out with research notes today, attempting to create a panic amongst short sellers. I find it interesting that these notes are coinciding with a much more effervescent market, if you will.

The Deutsche Bank notes is, essentially, suggesting the bear case for systemic risk due to oil collapse is completely without merit and that the US labor market is very robust, hardly a harbinger of recession of significant broad economic slowdown.

“The bears have a problem,” asserts Torsten Sløk, chief international economist at Deutsche Bank. “The problem is that the challenges in the energy sector are not spilling over to the broader economy and the macro data is not deteriorating.”

Growth in consumer spending may not be as robust as hoped, but it’s also nowhere close to recessionary levels. And the labor market hasn’t rolled over, either.

“Since 1960, the median increase in the unemployment rate in the year before a recession is 0.4 percentage points,” wrote UBS Deputy U.S. Chief Economist Drew Matus. “The past year has seen a drop of 0.8 percentage points.”

“The Federal Reserve Bank of Atlanta is tracking 2.7 percent for Q1 GDP on the back of strong consumer spending,” added Neil Dutta, head of U.S. economics at Renaissance Macro Research. “Ex-trade and inventories, the two most volatile sectors of the GDP accounts, real GDP is tracking 2.8 percent. Yep, call in the IMF.”

Meanwhile, the epicenter of the bear case for the U.S. economy—a general, across-the-board decrease in credit provided to businesses and consumers—has shown no signs of materializing.

On the contrary, UBS’s Matus tracked core bank loan growth (a composite of commercial and industrial, mortgage, and consumer credit flows) and found that rather than decelerating amid the crumbling commodity complex and swelling credit spreads, loan growth has been picking up steam:

“Core bank lending also does not suggest we are close to recession,” he explained. “Typically core bank loan growth decelerates heading into a recession on both a 3- and 12-month basis.”

“In plain English, the reason why we are seeing no signs of a slowdown in bank lending or consumer borrowing is likely that the losses in the energy sector are not located inside the banks but instead among investors globally, which have essentially no leverage and are well diversified, and hence much better able to shoulder energy sector losses,” he wrote.

Naturally, these analysts aren’t taking into account the fact that a vast amount of unprofitable oil producers are still alive, only because of access to cheap capital and that those spigots, once turned off, will yield an indelible decline in economic activity and a spate of joblessness in oil rich regions. Moreover, we haven’t seen a large amount of oil centric debt mature yet, which is scheduled to occur after 2016.

In short, these notes, while not entirely false, are merely trying to evoke panic in shorts to perpetuate a squeeze. There’s a lot of bad blood between Deutsche Bank and short sellers, especially since the bank has been singled out as “the Lehman of this era”, broadly derided for its China and energy exposure, amongst other things.

I imagine if Janet Yellen were to write a research note, it’d sound almost exactly like this.

They aren’t reducing production, only freezing at the already too bountiful January 11th levels.

Moreover, the Saudi minister said that low oil prices have no effect on the Saudi economy.

Qatar, Venezuela and Russia have also agreed to this accord.

Reuters reported that the meeting had echoes of a 2001 encounter between OPEC and non-OPEC producers when Saudi Arabia pushed through a global deal to curb output in which Russia agreed to participate. But Moscow never properly followed through on its pledge to curb exports.

The fuck?

This is having to opposite effect of what the Saud intended. Prices ran up in anticipation of a possible production cut.

The absurdity of the House of Saud is unparalleled. The crude market remains oversupplied.

Goldman is out with a note today that is sure to be making the rounds, suggesting to fade gold and the idea that the collapse in oil will result in systemic risk to the banking system.

There’s “nothing to fear but fear itself,” the analysts entitled the seven-page note, channeling comments from Roosevelt’s 1933 inauguration when the U.S. economy was being ravaged by the Great Depression. “It’s time to sell the fear barometer,” the bank said, and recommended shorting gold.

Gold jumped to highest since February 2015 last week as sinking equity markets, weaker oil prices, and diminished bets for higher U.S. borrowing costs spurred haven demand. Prices were further boosted by the spread of negative interest rates and concerns about a crisis in Europe’s banks. Goldman said it still expected rates to rise, putting the odds of U.S. recession at just 15 to 20 percent, and rejected the notion that a re-run of the crisis was likely.

‘Not Justified’

“We believe that these new fears, like past fears, are not justified,” the analysts wrote in the e-mailed report, which didn’t cite the president’s name alongside the headline. “Systemic risks stemming from the collapse in oil and commodity prices are extremely small.”

Gold is sharply lower in the overnight session, off by more than 3%. Equity markets are in full fledged global rally mode.

There is no rational explanation for this meteoric increase in lending, other than it being another cock-eyed scheme by the PBOC to try to jumpstart a very flaccid economy.

China’s broadest measure of new credit surged to a record on a seasonal lending binge and as companies paid back foreign currency loans.

Aggregate financing rose to 3.42 trillion yuan ($525 billion) in January, according to a report from the People’s Bank of China on Tuesday, compared with the median forecast of 2.2 trillion yuan in a Bloomberg survey. New yuan loans jumped to 2.51 trillion yuan, compared with the median estimate of 1.9 trillion yuan.

The strong figures were helped by banks front loading their 2016 lending targets and as companies switched foreign currency loans into yuan ones. To be decided is whether the acceleration in lending will translate into a sustained pick up in economic growth.

“We expect the new loans for the real economy to pick up,” Morgan Stanley analysts Sun Junwei and Zhang Yin wrote in a note before the data release.

M2 money supply growth was 14 percent from a year earlier, compared to the median estimate for 13.5 percent.

Let’s see if it works.  What’s a little more debt for the most indebted nation in the world? The Shanghai composite is higher by 2.3% at the moment. Dow futures are up by 265.

Sara Hewin, Chief economist at Standard Chartered, sees another round of easing coming, due to Draghi’s recent coming. Reason being: falling inflation expectations and the fact that Draghi rarely says things without following up.

Disaster looms. This is straight up bear market pornography for those of you with a short bias. Jim runs through his whole litany of ‘hate the central banks’ jargon, strongly condemning their actions as being ruinous to the modern world.

Jim posits markets will rally in the interim– as investors relax sales, beguiled by central bank promises of utopia. Ultimately, however, Rogers believes the market will resume its downward trajectory and establish an absolutely horrid environment for markets. In plain terms, he is suggesting disaster is just around the bend.

It’s worth noting, Jim also said to sell your NYC real estate in 2009 in exchange for a fucking farm in Lancaster, PA. He’s been calling for an apocalypse, ever since he starting working for the propaganda arm of the red Chinese government, domiciled in Singapore with his mandarin loving family.

Despite not being a chartered member of the religion of technical analysis, I’ve watched this man, Robin Griffiths, over the years make a number of accurate market calls. His sentiments and advice match my own, in calling for a strong bear market rally.

Said rallies should be used to liquidate high-risk assets and to reallocate into traditional safe havens, e.g. “The Ark”, utilities and consumer staples.

Crude is running higher this evening, ingratiating the speculators who’ve been betting long. As such, futures in the United States have increased their gains, now higher by 72.

This move in crude was not of the black swan varietal. Recent bets in the futures markets, according to the CFTC, have indicated a growing sentiment towards bullish price action.

Speculators’ long position in WTI rose by 1,152 contracts to 302,384 futures and options, according to CFTC data. Shorts, or bets that prices will decline, slipped 2.1 percent. Net-longs increased 5 percent to a three-month high. Funds took the opposite stance with Brent, pulling back net-long positions by 9.2 percent to 265,332 contracts in the week to Feb. 9, according to ICE data.

The dollar is weakening against the by 0.16%, in an otherwise quite forex session. The bond market is showing losses, but not nearly to the degree one would expect, considering the risk on nature of equity markets. U.S. 30yr bonds are yielding 2.62%, up less than 1%.

Gold is a singular outlier, off by 2.5%, well deserving of profit taking, all things considered.

The $18 billion hedge fund manager, who run his shop from the Short Hills shopping mall in NJ, and acquires $45 million beach homes in the Hamptons, only to tear them down to build bigger ones, has revealed some big bets in some distressed energy stocks.

According to the fund’s latest 13-F filing made on Friday, Tepper bought 9.4 million shares of energy company Kinder Morgan, whose shares are roughly flat this year even as commodity prices have fallen. The fund bought 4.3 million shares of natural gas and oil exploration company Southwestern Energy Co. who’s shares have climbed 25 percent this year.
He also bought 2.3 million shares of Williams Partners LP, which has tumbled 50 percent, and added 3.5 million shares of natural resource company Freeport-McMoRan, whose stock has dropped 18 percent this year.

Say what you want about Tepper, he’s proven to be one heck of a trader. I like these plays running into strong seasonality for the industry, post apocalypse.

The very thing that saved him from undergoing heinous losses may hold him back now, as markets set to move higher.

Loeb, whose fund lost just 1.5% last year, announced on Friday that he’s taken in a lot of equity shorts to hedge against the downward action.

A renewed focus on generating alpha on both sides of the portfolio has led us to increase single-name equity shorts by four-fold over the past year. Our total equity short exposure is nearly $4.5 billion today,” Loeb wrote in a letter to clients dated February 12 and seen by Reuters.

Loeb, whose $17.5 billion hedge fund has delivered an average return of 16.2 percent a year over the last two decades, did not mince words in his assessment of tumbling markets.
“The indices’ drastic declines actually fail to capture the true carnage revealed when you take a closer look at the breadth of S&P companies experiencing massive losses,” he wrote.

A hedge fund that actually hedges? Amazing.