Oil Cedes to the Market and Buckles Under $40; Major Selling Taking Place in Drillers

It was a beguiling thing to bear witness to, frankly speaking. With equity markets on the ropes, one would expect oil to crush lower. But it was up 2%, early going. But now it’s enveloped in the hardest and most vicious sell off in months.

All of the oil bulls have mysteriously vanished. Poof!

Intra-day collapse

As such, major selling is underway in a sundry of oil stocks, particularly the drillers. My personal favorite companies to one day go bust include CLR, OAS, WLL and BBG. They’re all trash, all worthy of a short sale.

For now, I remain in TLT and I am short FCX, as of yesterday. That started out at an 18% position. I am supremely confident that I’ll be right on this one.

In what can only be described as the single worst investment vehicle in the history of the markets, the volatility index is raging higher today, following three straight months of deleterious decline.

Here are today’s ETF winners, courtesy of Exodus.

Conversely, the single best investment has been to bet against the VIX, via XIV. These small little respites for the VIX have proven, over time, to be transitory (extra Yellen). However, every 3-6 months or so, we get a fucking market scare for the ages, which forces every asshole into puts–in turn sending the VIX higher.

I avoid trading it like the plague.

It started in Japan last night. There has been a major shift in investor behavior away from bonds the past two days, which, interestingly, has gone unnoticed in the gold sector. Typically, the two sectors trade in tandem, in a perverse risk on/risk of world.

JGBs plunges last night, with yields dropping 8bps to -0.05%. Over in Germany, bunds are getting hammered, down 5 bps. And, naturally, this is crossing over into other European bond markets, as well as ours.

Typical of a risk off environment, the Yen is exploding higher, now up 1.5%.

U.S. markets are taking it all in stride, barely down 100 points at the moment.

Our markets are pretty much belching off the rout in Europe. But it’s serious over there now, especially with the banks.

In every European country, post stress test results, which showed how fragile the entire European banking system is, shares are getting ramshackled.

Santander -5%

Unicredit -9%

Commerzbank -12%

The company reported earnings today and spoke about how truly awesome they were.

“In general, Commerzbank is one of the most un-riskiest stocks in banking that you can currently get. We are well-capitalized, we have a strong leverage ratio, we have an extremely low NPL (non-performing loan) ratio and in that sense, that is a good reason to invest,” Stephan Engels, chief financial officer of Commerzbank told CNBC on Tuesday.

“Secondly, we are still the second biggest bank in the fourth biggest economy in the world which is still growing so there is a lot of good argument to go for the stock.”

And I borrowed this gem from Zerohedge. DB is doing great today, down only 4%

UBS -8%

Banco Popolare -10%

At the end of the day, a pig is a PIGS and the Bundesbank isn’t interested in spending inordinate euros there anymore.

The ECB is reporting a stark drop in bond purchases in Italy, Portugal and Spain, during the month of July. This is exactly the opposite of what was being reported in July too, by the way. Remember when they said bond purchases would focus on size of the nation’s debt and not the size of the nation? Investors took that news and bought the shit out of periphery debt.

Overall purchases fell 3.3% from June, with Portuguese bond purchases falling to a record low of just $1.1b, significantly below target.

Related, European markets are being shattered, off in excess of 1.5% and sinking quickly.

The Japanese yen is rising again, now up 0.7% v the dollar.

Happy Tuesday!

Look at those yield jumps in JGBs. This is some serious distribution taking place in the Japanese bond market. Ever since they announced their bullshit stimulus program, the value of the yen has been driven, the fuck, higher, while bonds have been sold en masse. I don’t know what to make of it really, other than the fact that people are disappointed in Kuroda’s QE swag game. It’s important for the elite to feel comfortable with front running government sponsored QE projects. We all know, to be perfectly blunt, Japan is a nation is dead. Their demographics are dreadful. Their people are more sexually aroused by anime and robots than each other. And, lastly, their fiscal situation, stemming from two plus decades of failed QE programmes, is in shambles.

There’s no reason to ever lend the Japanese govt money when their debt/gdp is in excess of 200%, let alone for a negative yield. At first glance, I’d say JGB yields rising is a good thing for Japan. It signals potential inflation. However, the other side to that coin is the death of Japan will never happen while yields are low. When the end comes, yields will fucking skyrocket and the Bank of Japan will explode.

I suppose that’s a little extreme for a 12:37am post, while markets are at record highs.

For now, I believe yields rising is a good thing, until they rise too high, naturally.

On October the 14th, 2016, new rules to prevent a run in money market funds will take hold, courtesy of the government, which will force massive purchases of U.S. Bills. In other words, firms who manage money market funds ($600b) will need to float their NAV and abandon their fixed $1 a share price.

So now all of these fund managers will be forced into a funnel, there to bow down and to purchase U.S. Bills. To feed into this frenzy and raise a little extra dough in the process, the government will boost supply by $250b, far below the estimated $400b that analysts say is needed.

Gone are the days when old men could sashay in and out of money market funds as if they were cash. These fuckers will need to bend the knee and buy government funds only, else deal with NAV volatility and liquidity risk.

“When it comes to Treasurers and their roles and responsibilities, the last thing they want is uncertainty,’’ said Brandon Semilof, a managing director at StoneCastle Cash Management, which manages more than $10.6 billion and works primarily with the nation’s community banks.

“The inflows to government funds should mean relatively lower Treasury bill yields and repo rates,” said William Marshall, an interest-rate strategist at Credit Suisse Group AG.

“We expect some fairly large outflows,” said Peter Yi, director of short-term fixed income at Northern Trust Corp., which manages $906 billion. “We don’t want to find ourselves selling credit instruments into a distressed market.”

God bless the United Steaks of America and its $20t in super-duper safe debt.

Like him or hate him, all he did was post a link to this article.

The word ‘muslim’ should be stricken from Face’d Book, unless it discusses how very peaceful 99.999999% of its practicing members are.

Forget about the market for a second and just focus on oil. Oil sub $40 will begin to truly wreak havoc on some energy credits out there, especially the high yield junk. At the moment, the high yield market is completely ignoring the dip in oil. This cannot last for too much longer.

One of the preferred methods of judging this is via HYG. As you can see, it has a bit of a rolling over look to it.

There are numerous ways to play this. I will formulate a strategy tonight.

Thank heavens I came across this note from Citi. All this time I was wondering why crude was going lower and it didn’t affect the overall market. Now I know. The drop is simply a case of stupid as shit bears, unfamiliar with the basic laws of mathematics. According to this sage at Citi, supply is coming in and demand is very high. It’s only a matter of time before prices fucking skyrocket.

For leisurely reading.

Worldwide oil supply is at record highs. Rig count has gone up for 5 consecutive weeks.

OPEC supply at record highs.

Citi is an ass.