Wednesday, January 14, 2015

Today's links

"Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies. " Automatic Earth

1--Oil fall could lead to capex collapse: DoubleLine's Gundlach, Reuters

DoubleLine Capital's Jeffrey Gundlach said on Tuesday there is a possibility of a "true collapse" in U.S. capital expenditures and hiring if the price of oil stays at its current level.
Gundlach, who correctly predicted government bond yields would plunge in 2014, said on his annual outlook webcast that 35 percent of Standard & Poor's capital expenditures comes from the energy sector and if oil remains around the $45-plus level or drops further, growth in capital expenditures could likely "fall to zero."

Gundlach, the co-founder of Los Angeles-based DoubleLine, which oversees $64 billion in assets, noted that "all of the job growth in the (economic) recovery can be attributed to the shale renaissance." He added that if low oil prices remain, the U.S. could see a wave of bankruptcies from some leveraged energy companies....

High-yield junk bonds have also been under severe selling pressure. Gundlach said his firm bought some junk in November but warned that investors need to "go slow" and pointed out "we are still underweight

2--US Retail Sales Drop Most Since June 2012 (And Don't Blame Gas Prices), zero hedge

3--Mind The Dollar Spike—-Greenback Now In Sharpest Ascent Since The Lehman Crisis , stockman

The movement since the end of June/first week in July is now matched only by the period right before the 2008 crash. In other words, this is the most significant “dollar” problem we have seen during this part of the “cycle”, far and beyond even the 2011 version which nearly saw a rerun of Lehman Brothers that December....

Like the flattening yield curve from around December 1 onward, foreign currencies almost everywhere have been entrapped by the same pessimism. If I am right about the implications being almost exclusively economic rather than financial responsibility for this “tightening”, that would again and further cement the globalized economy as indistinguishable from individual pieces – the US cannot escape of its own and is, in fact, a good part of the problem.....

 if I am correct about the ordering of factors after December 1, this would indicate not financial leading economic, but rather the other way around. That is in many ways a much more dangerous and explosive arrangement particularly given the current degree of central bank involvement. Something changed in late November/December 1 which shifted the risk perceptions of credit and, more importantly, funding globally. From what we see of January so far, that hasn’t been at all alleviated even if the immediacy has withdrawn so far this year

4--Charles Biderman and Rick Santelli discuss the rise in stocks and bonds in the new year.  Trim Tabs
Wages and salaries have gone down 4 months in a row. This is not a sustainably-growing economy. Interest rates will keep going down ..even with all the free money we have tremendous asset inflation and a no growth economy.

5---The Most-Censored News Story of 2014 Was , SC

6--Inflation Outlook , Bloomberg

Tumbling oil prices have crimped the outlook for inflation, depressing yields on 10-year U.S. Treasuries to the lowest since May 2013. Bank of America’s Market Risk Index, derived from implied volatilities in stocks, Treasuries, currencies and commodities, touched the highest level since July 2013 on Jan. 7 and has remained around there since.
“The velocity of oil’s plunge has made it very difficult for markets to take,” Quincy Krosby, a market strategist based in Newark, New Jersey at Prudential Financial Inc., which oversees more than $1 trillion in assets, said by phone yesterday. “It bleeds into other assets and that’s what we’re seeing here.”

7--Here’s Why Oil Is Such A Problem For Corporate Earnings 
On December 1st, analysts anticipated that Energy earnings for Q1 2015 would decline 13.8% compared to Q1 2014, according to S&P Capital IQ. As of Monday, analysts expected Energy earnings for Q1 2015 to decline 41.0%. Think about that: in 5 weeks, earnings expectations for the entire Energy group have gone from down 13.8% to down 41.0%.
Q1 earnings for the Energy sector were cut by $7.7 billion from December 1 through today. The S&P 500 as a whole saw a cut of $9.1 billion during the same period. So Energy is $7.7 billion/$9.1 billion = 84% of the decline in the dollar value of the earnings decline we have seen in the past five weeks. See why the market is so focused on oil for the moment?

Thing is, that whole line about how lower oil prices were going to be a boost for our economies was ignorant from the start. And there’s still plenty people believing just that. That may explain those EU stock exchange gains. That sort of thing all comes from people who don’t understand to what extent oil is pivotal to our societies. 

That we would be lost without it. And that dropping its price by 55% and counting will make the machine run a lot less efficiently. Think of what you pay for oil and gas as the grease that keeps the machine running. Not the product itself, but what you pay for it. We just took away a lot of grease. And you know what that does to a machine. When oil drops, so do many people’s wages, and jobs. And then businesses start to close. And we enter deflation. And more businesses close. And more jobs are lost, and more wages squeezed. Ergo: more deflation

8--U.S. Stocks Slide, Global Bonds Rally Amid Growth Concern , Bloomberg

Retail sales fell last month in a broad-based retreat that will probably prompt economists to cut growth forecasts. Commodity prices are tumbling as a supply glut collides with waning demand, reducing earnings prospects for producers and increasing the appeal of bonds as inflation slows. The World Bank cut its global growth outlook, citing weak expansions in Europe and China. U.S. financial shares sank after JPMorgan Chase & Co. (JPM)’s earnings retreated.

“People are starting to get very nervous as commodity prices are faltering and we know it’s because the global growth rate has been brought down,” Tom Stringfellow, president and chief investment officer of San Antonio-based Frost Investment Advisors LLC, which manages about $10 billion, said in a phone interview. “The U.S. alone can’t support the world and the retail sales are a warning shot across the bow. One month isn’t a trend but it does put people ...

Risk Off

“There is a broad-based risk-off sentiment in financial markets,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen today. “This is highlighted by the set-back in the copper price and weak performance in equity markets.”
The plunge in crude prices is spreading to the metals market, as copper tumbled amid speculation that demand for raw materials won’t be enough to eliminate a supply glut. China is the world’s biggest consumer of the industrial metal.

9---The stock market is overvalued any way you look at it, mark Hulbert

The market can stay overvalued for some time, and even become more overvalued.
Eventually, however, value wins out. Ben Inker, co-head of the asset-allocation team at Boston-based money management firm GMO, likens the market to a leaf in a hurricane, with the Earth representing the market’s underlying fundamental value:
“You have no idea where the leaf will be a minute or an hour from now,” he says. “But, eventually, gravity will win out, and it will land on the ground.”

10--Prepare for the largest wealth transfer in history , marketwatch

11--Disaster scenario" comes into focus as stocks, commodities slump, Yahoo

12--Oil prices and bond yields continue their decline, wsws

13--European powers implement police state measures in wake of Charlie Hebdo attack, wsws

14--Imperialist war, the “war on terror” and the end of democracy, wsws

The purpose of this “war,” in both its international and domestic manifestations, is to provide a political rationale for the re-division of the world between the major imperialist powers. After more than 13 years, it is clear that the “war on terror” is the pretext and political framework for the reestablishment of colonial-style domination and subordination of the world’s peoples to the dictates of finance capital.

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