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(NaturalNews) Beta radiation levels are off the charts at monitoring sites all across North America, according to new reports. But experts are blaming these radiation spikes on practically everything except for Fukushima.Data gathered from tr...
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 17, 2014, 7:54 pm
After falling for 15 of the last 16 days, the RTS (Russian Stocks) are surging 17% today, extending gains post CBR 7 Measures, the most since October 2008.The Ruble is soaring also - back below 62/USD.RTS biggest gain since Oct 2008...Juiced by th...
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 17, 2014, 3:35 pm
Earlier, we reported that various currency brokers such as FXCM and FxPro, would - as a result of the soaring liquidity in the USDRUB pair - suspend trading in the Russian Ruble (while other merely hiked margins to ridiculous levels). It appe...
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 16, 2014, 7:20 pm
No end seems to be in sight for the plight of the Russian ruble, which slumped to new record lows against hard currencies Tuesday. The EUR traded at 93.5 against the ruble, and the USD at 75.
The Russian stock market also went haywire, dropping more than 15 percent as of 2:30pm Moscow time, after it dropped 11 percent the day before. Sberbank, the country's largest lender, lost 17.77 percent, and VTB, the second biggest bank, fell by 14.29 percent. State-owned oil and gas companies Gazprom, Rosneft, and Surgut also saw shares plummet. 
The emergency interest rate hike to 17 percent has failed to halt the ruble’s landslide tumble against hard currencies. The rate increase only calmed the ruble temporarily.
It has accelerated its descent in November and December along with falling oil prices. Investors have been pulling capital out of Russia over geopolitics since earlier this year, and sanctions levied by the US and EU have essentially cut Russia off from Western lending.
Most analysts agree that Russia will enter recession in the first quarter of 2015, including the Economy Minister Aleksey Ulyukaev, and the Central Bank.
Ruble on the run, losing more than 20% against the USD Tuesday, hitting 73.82. Source: Forexlive.com
Ruble on the run, losing more than 20% against the USD Tuesday, hitting 73.82. Source: Forexlive.com

On Tuesday, the CBR chief Elvira Nabiullina said a higher rate should put an end to investor speculation that has been hitting the ruble.
“We must learn to live in a new reality, to focus more on our own resources to finance projects and give import substitution a chance,” the bank chief said in a televised address Tuesday.
Source: RBK quotes
Source: RBK quotes

However, neither the rate increase nor the comments have had a big impact on ruble trading as it continued to slide. Russia’s currency has lost more than 55 percent against the dollar this year, mostly to external factors such as slumping oil and sanctions against Russia.
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 16, 2014, 7:10 pm
EES: Is there ANY REASON why an investor would not want 17% return on their money?  No more comment...From Zero Hedge:Following the biggest rout to the Ruble in ages, Russia - unlike Mario Draghi - instead of talking the talk decided to walk the b...
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 16, 2014, 1:46 am
EES: While the west imposes sanctions on the former communist, now open market Russia, they are taking notes.  During the Cold War, the US economy was spurred by huge defense spending.  Even a policy was created to 'spend them to destruction....
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 15, 2014, 5:57 pm
Throughout the last 5 years, the financial markets have moved with high yield bonds (also called Junk Bonds) leading stocks. This makes sense: as the financial system began recovering from the 2008 Crash, money began flowing back into riskier and riskier assets.

You can see this below, with High Yield Bonds outperforming stocks, leading them higher from 2009-2014. With interest rates at 0%, investors were hungry for yield. Stocks only offered 2-3%, so this lead investors into Junk Bonds which typically yield 7% or even more.


Then something happened. Junk Bonds began to collapse… in a BIG WAY.

Indeed, Junk Bonds have been flashing a MAJOR warning signal that something BAD is coming. But stocks have ignored it for all of 2014.


Indeed, if you look at what happened during the October 2014 correction, you see that High Yield Bonds did NOT buy into the bounce AT ALL!



This is a MAJOR warning signal that the great “recovery” in risk assets was ending. The Fed spent over $4 trillion and managed to create another stock market bubble, but that bubble is ending.

Author: Elite Forex Blog - Market Research & Analysis
Posted: December 14, 2014, 4:11 am
EES: There were conspiracy theories that the Obama administration tactfully plotted with the Saudis to dump oil in order to hurt the Russians en passant; regardless of the truth of this, the Saudis did dump large quantities of oil on the market.  Ironically, the US does not largely use Saudi oil which is mostly "Light" crude not "Sweet" crude but it certainly impacted the price.  

The below data analysis captures the dire situation for the US shale industry.  But also we must remember the "Petro Dollar" - connection between Oil and the US Dollar.  A deterioration in the existing oil for dollars system, whatever that may be, erodes the status of the US Dollar as a world reserve currency and also as a trade currency.  Companies need energy, whereas it's questionable if they need US Dollars.  As long as it keeps their trucks fueled they are happy to continue the game, but as we see below in the case of the US shale industry, at some point it doesn't make sense to continue the system when $100 in results in less than $100 out.

A price collapse below $58 means many energy companies no longer viable:

WTI Crude just burst below $58 and is now over 46% below the peak in June. Since the initial leaks of no production cuts at OPEC, WTI is down 25% (gold and silver are up 2-4%). At these levels only 4 of the US 18 Shale Oil regions remain economic...

61...60...59...58...57...

Down 25% from the initial OPEC leaks...

Which leaves only 20% of US Shale regions economic...

*  *  *
Unequivocally good!!

See the latest from Zero Hedge on the collapsing energy industry due to the price collapse: 

"Anything that becomes a mania -- it ends badly," warns one bond manager, reflecting on the $550 billion of new bonds and loans issued by energy producers since 2010, "and this is a mania." As Bloomberg quite eloquently notes, the danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt - as HY energy spreads near 1000bps - all thanks to the mal-investment boom sparked by artificially low rates manufactured by The Fed. "It's been super cheap," notes one credit analyst. That is over!! As oil & gas companies are “virtually shut out of the market" and will have to "rely on a combination of asset sales" and their credit lines. Welcome to the boom-induced bust...

As Bloomberg reports, with oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.
“Anything that becomes a mania -- it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”
The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found thatinvestor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis.
Borrowing costs for energy companies have skyrocketed in the past six months...
Energy companies are no longer able to access credit...

“It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.
The Fed’s three rounds of bond buying were a gift to small companies in the capital-intensive energy industry that needed cheap borrowing costs to thrive, according to Chris Lafakis, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Quantitative easing “has been one of the keys to the fast, breakneck pace of the growth in U.S. oil production which requires abundant capital,” Lafakis said.

One of those to take advantage was Energy XXI, an oil and gas explorer, which has raised more than $2 billion in the bond market in the past four years.

The Houston-based company’s $750 million of 9.25 percent notes, issued in December 2010, have tumbled to 64 cents on the dollar from 106.3 cents in September, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They yield 27.7 percent.

Energy XXI got its lenders in August to waive apotential violation of its credit agreement because its debt had risen relative to its earnings, according to a regulatory filing. In September, lenders agreed to increase the amount of leverage allowed.
And the blowback is coming...
“There are distortions in multiple markets,” said Lawrence Goodman, president of the Center for Financial Stability, a monetary research group in New York. “It is like a Whac-A-Mole game: You don’t know where it is going to pop up next.”

...

“Oil companies that have high funding costs in the Eagle Ford and the Bakken shale plays are the ones that are most exposed right now due to lower crude prices,” Gary C. Evans, chief executive officer of Magnum Hunter Resources (MHR) Corp., said in a phone interview.

...

For other energy borrowers at risk, “the liquidity squeeze” will probably occur in March or April when banks re-calculate hoe much they may borrow under their credit lines based on the value of their oil reserves.

Deutsche Bank analysts predicted in a Dec. 8 report that about a third of companies rated B or CCC may be unable to meet their obligations should oil prices drop to $55 a barrel.

“If you keep oil prices low enough for long enough, there is a pretty good case that some of the weakest issuers in the high-yield space will run into cash-flow issues,” Oleg Melentyev, a New York-based credit strategist at Deutsche Bank, said in a telephone interview.
*  *  *
As we noted previously, here is Deutsche Bank's most granular research:
Here are the details:
 
 
So how big of an impact on fundamentals should we expect from the move in oil price so far and where is the true tipping point for the sector? Let’s start with some basic datapoint describing the energy sector – it is the largest single industry component of the USD DM HY index, however, given this market’s relatively good sector diversification, it only represents 16% of its market value (figure 2). Energy is noticeably tilted towards higher quality, with BB/B/CCC proportions at 53/35/12, compared to overall market at 47/37/17. We find further confirmation to this higher-quality tilt by looking at Figure 3 below, which shows its leverage being around 3.4x compared to 4.0x for overall market. Similarly, their interest coverage stands at noticeably higher levels, even having declined substantially in recent years (Figure 4).


Energy issuer leverage has increased faster than that of the rest of the market in recent years, but this trend has largely exhausted itself in recent quarters. As Figure 5 demonstrates, growth rates in total debt outstanding among US HY energy names have been only slightly higher relative to the rest of HY market. It is almost certain in our mind that with the current shakeout in this space further incremental leverage will be a lot harder to come by going forward.

Perhaps the most unsustainable trend that existed in energy going into this episode shown in Figure 6, which plots the sector’s overall capex expenditure, as a pct of EBITDAs. The graph averaged 150% level over the past four years, clearly the kind of development that could not sustain itself over a longer-term horizon. Our 45%-full sample of issuers reporting Q3 numbers has shown this figure coming down to 110%, a move in the right direction, and  yet a level that suggests further capacity for decline. This chart also shows, perhaps better than any other we have seen, the extent to which current economic  recovery in the US has in fact been driven by the energy development story alone.


The next question we would like to address here is to what extent the move in oil so far could translate into actual credit losses across the energy sector. To help us approach this question we are borrowing from the material we are going to discuss in-depth in next week’s report on our views on timing/extent of the upcoming default cycle. For the purposes of the current exercise we will limit ourselves to saying that we have identified total debt/enterprise value (D/EV) as an important factor helping us narrow down the list of potential defaulters. Specifically, our historical analysis shows that names that go into restructuring, on average, have their D/EV ratio at 65% two years prior to default, and, expectedly, this ratio rises all the way to 100% at the time of restructuring. From experiences in 2008-09 credit cycle we have also determined that there was a 1:3 relationship between the number of defaulting issuers and the number of issuers trading at 65%+ D/EV prior to the cycle. Again, we are going to present detailed evidence behind these assumptions in the next week’s report.

For the time being, we will limit ourselves to applying these metrics to current valuations in the US HY energy sector, and specifically, its single-B/CCC segment. At the moment, average D/EV metric here is 55%, up from 43% in late June, before the 26% move lower in oilAbout 28 pct of energy B/CCC names are trading at 65%+ D/EV, implying an 8.5% default rate among them, assuming historical 1/3rd default probability holds. This would translate into a 4.3% default rate for the overall US HY energy sector (including BBs), and 0.7% across the US HY bond market.

Looking at the bond side of valuation picture, we find that energy Bs/CCCs are trading at a 270bp premium over non-Energy Bs/CCCs today (Figure 7). This premium implies incremental default rate of 4.5% (= spread * (1 – recovery) = 270 * (1-0.4) = 4.5%). Actual default rate among US HY Bs/CCCs is currently running at 3%, a level that we expect to increase to 5% next year (not to be confused with overall US HY default rate, currently running at 1.7% and expected to increase to 3.0% next year).

The bottom line is hardly as pretty as all those preaching that the lower the oil the better for the economy:
 
 
In the next step we are attempting to perform a stress-test on oil, defined this way: what would it take for overall US energy Bs/CCCs segment to start trading at 65%+ total debt/enterprise value? Our logic in modeling this scenario goes along the following lines: if a 25% drop in WTI since June 30th was sufficient to push their average D/EV from 43 to 55, then it would take a further 0.8x similar move in oil to get the whole sector to average 65 = (65-55)/(55-43) = 0.8x, which translates into another 20% decline in WTI from its recent low of $77 to roughly $60/bbl. If this scenario were to materialize, based on historical default incidence, we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.
How should one trade an ongoing collapse in oil prices? Simple: sell B/CCC-rated energy bonds and wait to pick up 10%.
 
 
If this scenario were to materialize, the US energy Bs/CCCs would have to trade at spreads north of 1,800bp, or about a 1,000bps away from its current levels. Such a spread widening translates into a 40pt drop in average dollar price from its current level of 92pts for energy Bs/CCCs.
It gets worse, because energy CapEx is about to tumble, which means far less exploration (and US fixed investment thus GDP), far less supply, and ultimately a higher oil price.
 
 
As the market adjusts to realities of sharply lower oil prices, it is important for to remember that the US HY energy sector is a higher quality part of the market. Higher credit quality will help many of them absorb an oil price shock without jeopardizing production plans or ability to service debt. Their capex rates, expressed as a pct of EBITDAs, have already declined from an average of 150% over the past four years to roughly 110% today. We still consider this level to be high and thus subject to further pressures. This in turn should work towards slower rates of supply growth, and thus ultimately towards supporting a new floor for oil prices. A 25% in oil price so far has pushed debt/enterprise valuations among US energy B/CCC names to a point suggesting 8.5% future default probability, while their bonds are pricing in a 9.5% default probability.
And the scariest conclusion of all:
 
 
Finally, our stress-test shows that a further 20% drop in WTI to $60/bbl is likely to push the whole sector into distress, a scenario where average B/CCC  energy name will start trading at 65% D/EV, implying a 30% default rate for the whole segment. A shock of that magnitude could be sufficient to trigger a  broader HY market default cycle, if materialized.
And now back to the old "plunging oil prices are good for the economy" spin cycle.

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Author: Elite Forex Blog - Market Research & Analysis
Posted: December 13, 2014, 3:30 pm
First it was humans. Now it is vacuum tubes.
Having quickly learned that letting carbon-based traders engage in FX (or stock, or bond, or Libor, but not gold, never gold) rigging usually leads to said carbon-trader ultimately being fired with the bank suffering a violent slap on the wrist, banks are getting smart, and have - as we have been claiming for about 4 years - decided to let pre-programmed algos do all the market manipulation. Only this time it is not some tinfoil blog making this accusation, but New York regulators who according to Bloomberg, have found evidence that Barclays Deutsche Bank may have used algorithms on their trading platforms to manipulate foreign-exchange rates, a person with knowledge of the investigation said.
As Bloomberg reports, the practice suggests there may be a systemic problem involving automated tools that goes beyond individuals colluding to rig currency benchmarks and take advantage of less sophisticated clients.
Whatever tipped them off: was it looking at any given Yen cross for about a minute and seeing the now surreal stop hunts that take place on a constant basis as algos outrig each other in attempts to pick the pockets of any human fools who still think they have a chance in yet another rigged, manipulated market.
The algorithms’ use is being scrutinized by the New York Department of Financial Services, said the person. The investigators are looking into the practice at each bank and it isn’t clear if there’s a link between the two, according to the person, who asked not to be named because the matter isn’t public. The algorithms were embedded in Barclays’s BARX trading platform and Deutsche Bank’s Autobahn system, according to the person.

The two services provide electronic marketplaces for the banks’ customers to trade currencies. Rather than directly matching one client’s buy order with another’s request to sell, the systems aggregate all requests from the banks’ clients to create prices that are displayed to customers. The banks profit from the spread or the difference in the price at which currency is sold and bought.
Not surprisingly, Autobahn, which is offered to Deutsche Bank’s companies and institutional investors, was ranked top in a market-share survey by Euromoney magazine earlier this year (Euromoney also awarded the bankrupt Bank of Cyprus the award for Best Bank in Cyprus for 2011). BARX allows customers to trade more than 80 currencies, according to the London-based bank’s website.
Ironically, both Deutsche Bank and Barclays were not among the six firms that agreed to pay $4.3 billion to U.S., U.K. and Swiss authorities last month in the first settlements in the global probe. London-based Barclays dropped out of negotiations on the eve of the announcements after DFS Superintendent Benjamin Lawsky balked, viewing the penalties as too lenient, people with knowledge of the talks said at the time.
Of course, the foreign banks thought that with a few good human traders fired, the algos could continue their rigging unobstructed. Yet someone appears to have tipped off Lawsky to the full extent of just how manipulated the FX market is.
Which means that New York regulators are now losing sleepless nights thinking of the best way to throw an algo in jail, because clearly none of the humans who programmed it are guilty of anything. Remember: when an algo is caught rigging markets, it is a "glitch."
Oh, and we emphasize the phrase "foreign banks" above because while we applaud the NY regulator's push to "fix" rigged markets, we can't help but wonder why not a single US-based bank has fallen in the crosshairs? Could it be that there is just too much lobby spending on the line to keep lady justice interested in what the objective truth is?
But while this diversion is a welcome attempt to create the illusion that regulators are "on top of things", nothing will change when the biggest manipulators happen to be the central banks themselves, either acting alone or in coordination with Citadel.
Finally, while absolutely nothing will change in the US, one person who has clearly had enough with rigged FX markets - be it by humans or vacuum tubes - is none other tha Vladimir Putin:
  • RUSSIAN INVESTIGATORS PROPOSE MAKING FX SPECULATION CRIME: TASS
  • RUSSIA MAY MAKE FX MKT MANIPULATION, INSIDER TRADING A CRIME
Because when the west is a rigged grouping of insolvent banana republics, it is up to the former banana republics to acknowledge that the biggest criminal syndicate in the "new normal" are the bailed out banks themselves.
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 11, 2014, 3:31 pm
Hang on to your hats, America.
And throw away that big, fat styrofoam finger while you’re about it.
There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.
It just happened — and almost nobody noticed.
The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.
As recently as 2000, we produced nearly three times as much as the Chinese.
To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.
This latest economic earthquake follows the development last year when China surpassed the U.S. for the first time in terms of global trade.
I reported on this looming development over two years ago, but the moment came sooner than I or anyone else had predicted. China’s recent decision to bring gross domestic product calculations in line with international standards has revealed activity that had previously gone uncounted.
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These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino served in Beijing counts the same as a venti Frappucino served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders.
Make no mistake. This is a geopolitical earthquake with a high reading on the Richter scale.
PPP is the real way of comparing economies. It is one reported by the IMF and was, for example, the one used by McKinsey & Co. consultants back in the 1990s when they undertook a study of economic productivity on behalf of the British government.
Yes, when you look at mere international exchange rates, the U.S. economy remains bigger than that of China, allegedly by almost 70%. But such measures, although they are widely followed, are largely meaningless. Does the U.S. economy really shrink if the dollar falls 10% on international currency markets? Does the recent plunge in the yen mean the Japanese economy is vanishing before our eyes?
Back in 2012, when I first reported on these figures, the IMF tried to challenge the importance of PPP. I was not surprised. It is not in anyone’s interest at the IMF that people in the Western world start focusing too much on the sheer extent of China’s power. But the PPP data come from the IMF, not from me. And it is noteworthy that when the IMF’s official World Economic Outlook compares countries by their share of world output, it does so using PPP.
Yes, all statistics are open to various quibbles. It is perfectly possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But the IMF data are the best we have.
Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.
This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights.
Author: Elite Forex Blog - Market Research & Analysis
Posted: December 5, 2014, 5:15 pm