Markets Rally After Crude Explodes Higher

Something to do about an EIA report is today’s excuse for an oil rally.

Crude oil inventories had a draw of -4.937 mln (consensus called for a build of +3.1 mln)
Gasoline inventories had a build of +1.438 mln
Distillate inventories had a build of +1.799 mln

Crude is higher by more than 4% now, helping spur a relief rally that is bound to catch fire–should crude continue to run.

The biggest gains are in biotech, now higher by 3.5%.

Over the past week there are been an energetic sprint towards the biotech sector. It has been maligned by 27% to close out the quarter and then everyone came in and gobbled it whole.

The rally has been widespread and fierce, sending dozens of stocks up double digits. Encompassing more than a hundred stocks, the median return was greater than 7% for the past week. But individual names like ANAC, EDIT, JAZZ and ICPT have done much better than that.

The market is seemingly at a point when earnings begin to count again. All of the oils and perhaps the retail sectors, both of which have done splendidly in 2016, aren’t expected to impress investors to any large degree. There is a level of non-systematic fear out there, with spirit and vigor leaving the early winners in search for new ones.

If your desire is to live in Fantasy Land, what better place to be other than the biotech sector, an industry without fundamentals and the albatross of having to meet earnings expectations. Of course, if these companies fail to meet their clinical trial goals or become the target of political scrutiny, they will indeed cone under pressure again. But, for the most part, this is the only sector that offers high returns, based on a drug dream similar to playing the lottery, that goes unrivaled in the market place. Because of this, the biotech sector has been the darling of the market, when it was going up, for the better part of the last 5 years.

Stifel is out this morning with multiple downgrades on a number of oil stocks, including CLR, APC and EOG, citing complete and utter horseshit ahead of the alleged ‘oil freeze’ meeting on April the 17th.

Essentially, they believe Iran will ramp up volumes and fuck up the House of Saud’s plans to effect an OPEC wide production freeze.

On the news, the targeted oil stocks are little changed.

No one really gives a shit what Stifel has to say. They’re from St. Louis.

Good morning Goldman Sachs. I’m so sorry to hear about your investment bank fee windfall being washed away. It was a nice little pay day, especially in this desert of a market where fees are a harsh rarity.

But I’m sure you’ll pick yourselves up and go get another $160 billion deal, no?

Pfizer will probably pay $120 million to $150 million in fees while Allergan’s advisers will split $160 million to $200 million, according to estimates from consultants Freeman & Co. Goldman Sachs Group Inc., Centerview Partners, Guggenheim Partners and Moelis & Co. worked for Pfizer. Allergan was advised by JPMorgan Chase & Co. and Morgan Stanley.

With the deal behind it, Pfizer said it would decide this year about whether to split off its hundreds of generic medicines into a separate business. It had put off making that decision until 2019 after announcing its deal with Allergan last November.
Allergan said it would move ahead with plans for its $40.5 billion sale of its generic drug business to Israel’s Teva Pharmaceutical Industries. It expects the transaction to close by June.

Thanks to the U.S. Treasury new rules on tax inversions, corporations are now trapped inside of our tax hell and can never leave.

Pfizer will pay Allergan $150 million to reimburse expenses from its deal.

Both PFE and AGN are higher this morning. They both announced alternative plans that no one gives a shit about.

Moving on please.

Before I go to sleep for the next 3 hours, I wanted to reach out to the world to let them know they’re doomed.

Loss rates are rising. Recovery for bond holders are averaging 29 cents on the dollar, down from 44 last year. Analysts believe that number can swoon down to 20 cents, leaving bond holders, inexorably, screwed.

Default rates are low, still under 5%, but rising. Remember, the vast majority of debt refinancing needs to be done between 2017-2020.

“We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,” said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management.

Loss rates have already been rising. The potential for them to climb further may mean that in general junk bonds are not compensating investors enough for the risk they are taking, said Michael Contopoulos, high yield credit strategist at Bank of America Merrill Lynch. The average yield on a U.S. junk bond is now around 8.45 percent, according to Bank of America Merrill Lynch indexes, about the mean of the last 10 years.

“A lot of the troubled companies that had become overleveraged were able to find more temporary solutions in the last credit cycle,” Holtz said. “Those Band-Aids are no longer available now, and a lot of companies are going to have to face distress,” he said.

Junk-rated companies have debt equal to about 48 percent of their assets now, up 7.5 percentage points in the last 7 years, according to Bank of America Merrill Lynch data. The ratio of debt to assets is one of the main factors in how big losses will be when a borrower defaults.

Another factor is the rate of default, because when more companies are defaulting, more are looking to sell assets or otherwise restructure, leaving investors with lower recoveries. Default rates currently stand around 4 percent, according to Moody’s Investors Service. The ratings company forecasts that the measure will rise to 5.05 percent by the end of the year in the best-case scenario, and could jump as high as 14.9 percent under the most pessimistic projection.

While holding a portfolio of speculative-grade bonds to maturity at current yields may still result in a positive return for investors, higher defaults and losses on the securities will likely weigh on prices in the coming months, Bank of America’s Contopoulos said.

For many liquidated energy companies, “there’s not a whole lot to recover in terms of cash,” said Leonard Klingbaum, a partner at law firm Willkie Farr & Gallagher.

This story hinges on the price of oil. Back in 2009, oil shot higher and recovered with the general economy. The massive reflation of the markets helped distressed oil companies refinance their debt and survive. I should know, being long FTK from $1– which eventually traded above $20.

Sans a major reflation trade taking place, this default storm is more than likely to occur.

Some dork on Fox just rifled through all of the existing states left, overlaying polling data to make some back of the envelope projections.

The results were extremely dire for Donald Trump, who is only on pace to receive 1,193 delegates, which are many, many more than Rafael Cruz–but not enough to win the nomination.

Bottom line: Trump loses through victory. Cruz wins by coming in second. If you’ve got a business — you didn’t build that. Somebody else made that happen. And, also, if you like your plan and you like your doctor, you won’t have to do a thing. You keep your plan. You keep your doctor.

Russia is evil.

After tonight’s establishment new world order win in Wisconsin, Donald Trump went apeshit in a memo released to the media, decrying LYIN’ TED as a ‘trojan horse’ a puppet and totally controlled by party hacks in an attempt to steal the nomination.

Here is the full statement.

This is a significant step in The Donald’s ascendency to “Boss King” of America, totally and completely laying waste to the Grande Olde Party, who is hell bent on seeing him either destroyed against the rocks, broken or gone.

It’s looking more and more like a 3rd party might emerge from this fuckery that is to be the Republican Convention.

Captain of the Madison High School track team, Bernard Sanders, annihilated H. Clinton this evening, in spite of the Clinton sex machine roaring through the state like a former white hair’d President after ingesting an entire bottle of viagra.

No one really gives a shit that Bernie won. The superdelegates cast their lot before the primary even occurred–gifting the Clinton harem with at least 5 of the 10 ‘super dels’ as they like to call them. Bernie is okay with fighting the long, uphill, battle. Growing up as a young man, basically orphaned by the death of both parents, displeased with college due to it being ‘boring and irrelevant’, Sanders made it his life’s work to seek the destruction of the billionaire class of people in the corrupt capitalistic society filled with nothing but catiffs and mountebanks, the US of A.

Canada’s own, Rafael Edward Cruz aka “Felito”, won big in Wisconsin this evening, crushing the orange one Donald J. Trump. The loss was so extreme and belligerent, it bordered on a violent act being committed on the reviled and insane republican front runner.

Immediately after Cruz was projected the winner, MSNBC host, Chris Mathews, skewered Trump, declaring the people have spoken and if he’s unable to complete the task of getting 1,237 delegates he would have lost the game–likening it to a game of golf. He furthered the American people do not like Trump and will not give him anything, aside from millions of votes.

In a victory speech this evening, Rafael warned Hillary Clinton that he was coming for her, celebrating victory over Trump in the cheeseheaded state of Wisconson, sacking an astounding 24 delegates in the process.

Republican hack and troll-like human being, Newt Gingrich, said in a Hannity interview that the establishment is nuts if they think an outside candidate will grab the nomination in a brokered convention. The menace of a Paul Ryan or Mitt’d Romney selection has the social media circles atomic bombing one another. Newt put that fear to rest, insisting that the winner will be either Trump or Cruz, in spite of the indelible facts that Rafael cannot win the election without causing a great hazard to the personal health of The Donald. According to the laws of mathematics, even after this glorious triumph in the tundra of Wisconsin, Cruz needs to take 85% of all existing delegates, a feat only possible in the 5th dimension or another realm of the multiverse.

NOTE: Like Barack Obama dismays his muslim middle name Hussein, Rafael Cruz would like to strike the name Rafael from the public record, in favor of the more american sounding “Ted”, in an effort to appeal to an otherwise racist trailer truck driving under-educated white male.

The firebrands of this election cycle, B. Sanders and D. Trump, are both huge advocates for protecting American jobs through tariffs and never hesitate from throwing American companies, who actively seek slave wages abroad, under the proverbial bus.

GE, literally, gives zero fucks about America.

“That is greed and that’s selfishness. That is lack of respect for the people of this country,”

“General Electric was created in this country by American workers and American consumers,” Sanders said. “What we have seen over the many years is shutting down of many major plants in this country, sending jobs to low-wage countries.”

“If the only thing that matters to you is making an extra buck, you don’t care about my family. I think that’s immoral,” Sanders said. “And I think what corporate America has shown us in the last number of years, what Wall Street has shown us, the only thing that matters is their profits and their money. And the hell with the rest of the people of this country.”

According to Opensecrets.org, GE is quite active in political donations to both parties.