Awash In Oil

Given the record level of oil inventories, it is amazing to me that the crude price is being sustained in the low $50s. This price is encouraging the shale producers to keep pumping, having sold forward their product into the futures market.

Now it seems that gasoline shipments are being diverted from New York as there is nowhere to put the stuff. Demand is down and everyone is carefully avoiding the obvious explanation – there is a recession underway.

Which rather surprises me – I would have thought that Trump’s Goldman advisers would want him to take the recession now, while there is still room to blame it (justly) on Obama, rather than further postpone and aggravate the inevitable outcome.

I don’t think the stock market will head lower until oil does. But it seems that Treasuries may be starting to reject the “Trumpflation” scenario.

You Can’t Make This Stuff Up

At some point we moved into an alternate universe, where illegal is legal and false is true.

The American Association of Cosmetology Schools sued Education Secretary Betsy DeVos claiming that a gainful-employment rule implemented by the Obama administration shouldn’t be applied to beauty schools.

The lawsuit, filed Friday in federal court in Washington, seeks an order barring the rule that threatens career schools’ access to federal student aid if they saddle their graduates with too much debt relative to their earnings. The trade group said the rule is harmful when applied to beauty schools, whose graduates typically underreport income from cash tips.

Give them a break because their graduates cheat on their taxes? Whatever happened to the clean hands rule?

Bloomberg. Emphasis mine.

DROP kills

The Dallas Police and Fire Pension System is mired in political conflict and facing insolvency, due to a combination of poor investment decisions and generous DROP plans. Just like the ones in California that have not yet hit the wall.

California Government Pay

In case you were feeling that government employees in California were underpaid, here’s BART janitor Liang Zhao Zhang pulling down a mere $271,243 for 2015 (and a total of $705,000 in pay and benefits during the four years from 2012 to 2015.).

Check out some of his colleagues here.

Take A Memo

John Hussman this morning tweeted “Just time-stamping this chart for future generations”
spx2306

Amen.

This one needs to be saved, as well.

maxpl

Greece Again

Greece is back in the news. As a pretty much unbiased observer, a few points:

  • The IMF is right. Greece cannot pay its debts. Debt repayments come from surplus, profits in a sense. They’re not there, and they’re not coming.
  • Greece is a zombie. It needs a fresh start desperately, for humanitarian reasons if nothing else.
  • Apparently, there is no provision in the rules for a Eurozone member to go bankrupt. Therefore, the Eurozone rules need to be changed. It is foolish to believe that bad things don’t happen.
  • Germany has profited hugely from the Eurozone – on paper – but a lot of those profits are yet to be collected because they are in the form of unpaid debts.
  • Germany is, understandably, reluctant to write off any of those debts for fear that the whole racket will come apart, so it insists on the “nuclear option” of Grexit. As the French would say “Pour encourager les autres.”
  • Draghi is unwilling to take a leadership role in resolving the situation, because he knows that if Greece is given a less painful solution, then Italy is next in line. And Germany will be on the short end of the stick.
  • It is likely that nothing good will happen until Merkel and Schäuble are gone. The good news is that, because of the immigrant crisis, their departure from the scene is no longer unthinkable.

Manipulation

Yesterday, the API reported a huge build in crude oil inventories. This morning, the EIA confirmed it. After a couple of minutes hesitation, the algos took over and marched crude up – and turned the Nasdaq and S&P green at the same time. As they have consistently as inventories have built.

MAnipulation has become completely obvious and shameless as the SEC’s so-called supervision turns a blind eye – could it be, perhaps? so that the SEC folks can discreetly become “compliance officers” with no work and large paychecks when they leave.

Extrema

Speculative positions (in futures contracts, speculators must self-identify) are at historical extremes. Crude is the same, I didn’t find such a nice chart is all.

everyone

Edit: Found a crude oil chart.
wti-cot

Charts are from zero hedge.

Inflation

The Fed sounded dovish on the inflation front today. As I have mentioned, there are only two prices worth worrying about. One is labor, up about 2.5% for 2016, and the other is energy. Oil is up from the $30s to the low $50s in the last year.

The real mystery is how oil prices are being kept up despite rapid growth in inventories of both crude oil and refined products, as well as domestic production. I have a sneaking suspicion that OPEC producers, at least, are selling product and partially offsetting their sales with purchases in the futures market, which is used to set contract prices, probably through proxies. We do know that speculative long positions in crude oil are at record levels (also in some other commodities, such as copper), and keep setting new records with each COT report. Someone has deep pockets.

Oil is the price to watch. As oil goes, so goes inflation – and the market, I suspect.

Same Old

Per Bloomberg, house flippers have pushed the share of sales that are flips, or properties sold twice in 12 months, to its highest level since 2006.

Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1 percent of U.S. home sales in 2016, according to Trulia, which defines a flip as a property sold twice in a 12-month period in arm’s-length transactions. That’s the highest share since 2006, when flips accounted for 7.3 percent of sales.

House prices are, of course, now above the last bubble peak. This is not likely to end any differently than the last time. Thanks, Janet.