Saudi Announcement Met With Disdain

1,700 views

I was hopeful earlier this week that when Saudi Arabia announced they intended to start reining in their above average pumping activity with the sunset of summer, we might see some relative strength in the price of oil.

The market reaction has been to mostly shrug off the new and keep the price of crude oil sliding, so far. The oversupply of oil is a more pressing and immediate weight on the price per volume which is going to have to be alleviated before any pricing strength can take hold.

Despite the continued weakness in oil prices, oil stocks are staging a small relief rally into the weekend, although I cannot say if it will last much longer.

Outside of oil (which for obvious reasons is something of a point of focus for me), my other positions are doing alright. TIS, OMAB, and ALDW are all staging some strength which is taking some of the edge off.

Now, we are in the midst of one of the more beautiful summers we have had of late; turn your screen off and go outside.

In The Funnel Again

2,014 views

Oh hurray, it looks like deflation is the path forward. All commodities are getting creamed, and no commodity is more commodity-y than oil.

I’m back to flat for the year and feeling as if my head is firmly placed in a vice.

If you had a puppy, I would kick it.

Saudi Arabia Can Suck It

2,668 views

The Saudi’s are clinging to the past.

The days of them being the variable producer are coming to a close. They see that clearly and are completely freaked out by it. This is a desperate guy move.

The thing about desperate guy moves is…they’re desperate. Saudi Arabia is not putting this genie back in the bottle. American oil production is here to stay. Right now there’s a cost average race to the bottom going on, and a big game of chicken being played with cash reserves.

But US production isn’t going to just roll over and die. These people are fighting for their lives and have been largely successful about it.

I am absolutely positive that we will see some domestic US producers collapse. It would be silly to suggest otherwise. But what comes out the other side is a leaner, slimmer, more efficient US oil operation.

OPEC is dead, folks. The US endeavored to put a stake through the heart of that malediction for 40 years. In the last 5, we pulled it off. They are coming apart at the seams and the Saudi’s, as the ring leader for that little circus, are trying to hold it all together.

They’re not going to succeed.

Euro And Oil Are Decoupling

2,396 views

I have a working theory that the EURUSD move precipitated the collapse of oil prices (and the strength of the dollar against other currencies more generally), with the currency move starting at the beginning of 2014 and finally being brought to a head in oil prices in the second half of the year.

It is difficult to fully disentangle the parts because everything is so complex and we cannot fully rule out that oil demand is or would have been soft without the dollar strength. Perhaps it would have been regardless.

But seeing the EURUSD fall while oil bids hold up is encouraging, as it at least breaks the conventional trends that have held so well for nine months.

One thing that does strike me; if currency exchanges were the primary cause of the disruption, then you can expect the pricing swing to correct itself abruptly either when those exchange moves halt or, possibly, just because a majority of the damage escalating from the move has been absorbed or priced in and so the continuation of the cause has a diminutive effect going forward.

For the moment, euro-dollar parity feels like a forgone conclusion and it also seems that oil traders have made their peace with that. But maybe it is too soon to tell.

Garbage Friday Action

2,808 views

Everything I own is sharply lower as apparently American’s gaining employment is something to be feared.

I will try to explain this to you. The reason we have had no inflation before now is because even as the monetary supply rocketed to untold heights, the velocity of money was collapsing. All of the deflationists have been harping on the sound money crowd because they believe they can control employment levels by printing ugly pictures of dead people (which is stupid).

Now that employment is regaining its stride, Americans will have more to spend, and you can probably expect the velocity of money to start picking back up. In fact, if you just bother to look at my new position OMAB, flight volumes are surging to vacation destinations as an example.

We have made much ado about the ever higher levels of debt owed by Americans. Well the numbers aren’t really that bad either. Does an extra $300 of credit card debt on average per year really signify the end times? The debt has almost no carrying cost at the moment; even average citizens can take hold of these zero percent interest rates in one way or another.

The point, good sir or ma’am, is that the monetary supply outstanding is still quite a bit larger than it was five years ago and there is no good strategy to unwind that. Employment numbers picking up are the first stride to wage growth which will usher in the final stretch of the recovery – inflation.

And that inflation will probably get out of hand, because the probability of a perfectly controlled, centrally planned recovery is exactly zero.

Don’t be surprised if commodities experience a second awakening in the not too distant future.

The Big Question Then: How To Play EU QE?

1,540 views

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

Saudi Announcement Met With Disdain

1,700 views

I was hopeful earlier this week that when Saudi Arabia announced they intended to start reining in their above average pumping activity with the sunset of summer, we might see some relative strength in the price of oil.

The market reaction has been to mostly shrug off the new and keep the price of crude oil sliding, so far. The oversupply of oil is a more pressing and immediate weight on the price per volume which is going to have to be alleviated before any pricing strength can take hold.

Despite the continued weakness in oil prices, oil stocks are staging a small relief rally into the weekend, although I cannot say if it will last much longer.

Outside of oil (which for obvious reasons is something of a point of focus for me), my other positions are doing alright. TIS, OMAB, and ALDW are all staging some strength which is taking some of the edge off.

Now, we are in the midst of one of the more beautiful summers we have had of late; turn your screen off and go outside.

In The Funnel Again

2,014 views

Oh hurray, it looks like deflation is the path forward. All commodities are getting creamed, and no commodity is more commodity-y than oil.

I’m back to flat for the year and feeling as if my head is firmly placed in a vice.

If you had a puppy, I would kick it.

Saudi Arabia Can Suck It

2,668 views

The Saudi’s are clinging to the past.

The days of them being the variable producer are coming to a close. They see that clearly and are completely freaked out by it. This is a desperate guy move.

The thing about desperate guy moves is…they’re desperate. Saudi Arabia is not putting this genie back in the bottle. American oil production is here to stay. Right now there’s a cost average race to the bottom going on, and a big game of chicken being played with cash reserves.

But US production isn’t going to just roll over and die. These people are fighting for their lives and have been largely successful about it.

I am absolutely positive that we will see some domestic US producers collapse. It would be silly to suggest otherwise. But what comes out the other side is a leaner, slimmer, more efficient US oil operation.

OPEC is dead, folks. The US endeavored to put a stake through the heart of that malediction for 40 years. In the last 5, we pulled it off. They are coming apart at the seams and the Saudi’s, as the ring leader for that little circus, are trying to hold it all together.

They’re not going to succeed.

Euro And Oil Are Decoupling

2,396 views

I have a working theory that the EURUSD move precipitated the collapse of oil prices (and the strength of the dollar against other currencies more generally), with the currency move starting at the beginning of 2014 and finally being brought to a head in oil prices in the second half of the year.

It is difficult to fully disentangle the parts because everything is so complex and we cannot fully rule out that oil demand is or would have been soft without the dollar strength. Perhaps it would have been regardless.

But seeing the EURUSD fall while oil bids hold up is encouraging, as it at least breaks the conventional trends that have held so well for nine months.

One thing that does strike me; if currency exchanges were the primary cause of the disruption, then you can expect the pricing swing to correct itself abruptly either when those exchange moves halt or, possibly, just because a majority of the damage escalating from the move has been absorbed or priced in and so the continuation of the cause has a diminutive effect going forward.

For the moment, euro-dollar parity feels like a forgone conclusion and it also seems that oil traders have made their peace with that. But maybe it is too soon to tell.

Garbage Friday Action

2,808 views

Everything I own is sharply lower as apparently American’s gaining employment is something to be feared.

I will try to explain this to you. The reason we have had no inflation before now is because even as the monetary supply rocketed to untold heights, the velocity of money was collapsing. All of the deflationists have been harping on the sound money crowd because they believe they can control employment levels by printing ugly pictures of dead people (which is stupid).

Now that employment is regaining its stride, Americans will have more to spend, and you can probably expect the velocity of money to start picking back up. In fact, if you just bother to look at my new position OMAB, flight volumes are surging to vacation destinations as an example.

We have made much ado about the ever higher levels of debt owed by Americans. Well the numbers aren’t really that bad either. Does an extra $300 of credit card debt on average per year really signify the end times? The debt has almost no carrying cost at the moment; even average citizens can take hold of these zero percent interest rates in one way or another.

The point, good sir or ma’am, is that the monetary supply outstanding is still quite a bit larger than it was five years ago and there is no good strategy to unwind that. Employment numbers picking up are the first stride to wage growth which will usher in the final stretch of the recovery – inflation.

And that inflation will probably get out of hand, because the probability of a perfectly controlled, centrally planned recovery is exactly zero.

Don’t be surprised if commodities experience a second awakening in the not too distant future.

The Big Question Then: How To Play EU QE?

1,540 views

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

Previous Posts by Mr. Cain Thaler