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Monday, December 15, 2014


Here's a bit of reading:

Bespoke - the entire world is now oversold. BTW, Shaoul thinks the oil price drop has engendered fears of major dislocations across asset classes - like EM currency crises, or maybe junk debt collapse. Not that these will happen, just that these are what Wall Street Whitey is worrying about now.

Liz Ann Sonders - a bit of perspective. Again she reminds Whitey to quit piddling his panties.

FT Alphaville - optimism about falling oil prices, please. A standout piece from Cardiff Garcia:
Consider a simple thought experiment.

Imagine that the decline in oil and its probable effects could have been predicted in mid-June. You are given a choice between keeping the status quo price back then (nearly $110 for WTI) or accepting what came next. You survey the landscape of affected parties in the US should you choose the latter.

On the one hand, the outlook for capex and employment in the energy sector weakens, though neither is large relative to the US economy. High yield energy bonds experience an unnerving shakeout, raising fears that the damage to credit markets will spread beyond the sector, and the vulnerability of some financial institutions to the energy sector is exposed. The S&P 500 fluctuates more throughout this period than it did earlier in the year. The petroleum trade deficit, which had been narrowing quickly in recent years, at some point might begin shrinking at a slower pace than previously expected.

On the other hand, you see that the decline in energy prices also represents the equivalent of a big real wage gain (or a tax cut, whatever) for the middle class. Estimates vary by economist, but the benefits for the average household are in the hundreds of the dollars, with the total gains somewhere north of $100bn. The compensating benefits to the non-energy economic sectors should mitigate the threat to wider financial instability. While the short-term disinflationary pressures of a lower oil price surely complicates the Fed’s job, in the medium term the effect should be helpfully inflationary.

Furthermore, this boost starts arriving after an extended period of stagnant nominal wage growth and falling real median incomes. It also arrives in the summer months when gains in the US labour market had appeared to be slowing, and a little before the IMF would downgrade the near-term growth prospects for the world.

Surely nobody with any sense would refuse such a deal, or even hesitate to accept it. The only exceptions would be oil producers and investors in certain risky debt instruments.

Now also try to imagine that the exact reverse scenario had followed. Rather than falling by about 40 per cent, oil instead climbs by the same amount. The pessimism would have been extraordinary: Runaway headline inflation! Devastation for the middle class! Strengthened geopolitical foes! The outcry following a negative supply-side oil shock would have been dramatically more intense than the relatively subdued optimism following the positive shock that has actually ensued.
 But Whitey gotta keep pukin'.

BI - Russia admits it's done for, commits suicide. They raised their key interest rate to 17%. That laughable, suicidal gesture will scare off the currency speculators for an hour, maybe, tops. Face it, Pooty-poot, you're fucked.

FT Alphaville - the 2014 ruble forecasts all sucked. Quote:
In the bleakest official forecast yet from Moscow, the Russian central bank warned that the country could see a 4.5 per cent to 4.7 per cent contraction in GDP next year if oil prices remained at $60 a barrel.
The fundamental failure in the West's calculus is the assumption that this would weaken Pooty. Au contraire, the only Russians left in Russia are livestock who love living in a crypto-Stalinist mafia state, and Pooty's only concern is that he and his mafia friends can continue to rob the country blind to the tune of its entire GDP every year.

Krebs on Security - Sony addresses hacking scandal by threatening to sue Brian Krebs. Because that'll work.

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