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Shale's
Record Fracklog Could Force Crude Prices Even Lower - (www.bloomberg.com) There’s
yet another concern growing as oil prices continue to erode: A record U.S.
fracklog. There were 5,946 drilled-but-uncompleted wells in the nation’s
oilfields at the end of May, the most in at least three years, according
to estimates by the U.S. Energy Information Administration. In the last month
alone, explorers drilled 125 more wells in the Permian Basin than they would
open. That represents about 96,000 barrels a day of output hovering over the
market. If OPEC thought shale was a thorn in its side before, just wait until
U.S. explorers turn their spigots on full blast. Wells waiting to be
fracked and flowing are an overhang that could mean a burst of new supply in
the second half of the year and into 2018, according to Luke Lemoine an analyst
at Capital One Securities Inc. in New Orleans.
Hong
Kong Warns: Its Housing Bubble is a “Dangerous Situation” - (www.wolfstreet.com) The
HK financial system is “very strong” and “can withstand an adjustment in the
property market.” The Hong Kong dollar is pegged to the US dollar. Hong Kong’s
monetary policy is follows the Fed’s monetary policy. The Fed has embarked on a
tightening cycle, raising rates four times so far. The Hong Kong Monetary
Authority has followed each time. Last week, it raised its policy rate by 25
basis points to 1.5%. This will have consequences for the most expensive and
ludicrously inflated housing bubble in the world. “We have to warn our people
about the dangerous situation of the property market at the moment,” Hong Kong
Financial Secretary Paul Chan told Bloomberg TV.
China's
Workers are Saying Goodbye to Double-Digit Pay Raises - (www.bloomberg.com) China’s
workers may be starting to feel like they’re getting a raw deal. Amid soaring
industrial profits, employees in the world’s second-largest economy saw slower
wage growth last year -- and many are seeing the smallest raises since 1997. That’s
another sign that the years of pay gains above ten percent and burgeoning
spending power are coming to a close, as China confronts industrial
overcapacity, mounting debt and waning competitiveness. Yet while slowing wage
growth is bad for workers now, it’s not entirely negative for the economy as a
whole – a cheaper labor bill helps China stay lean against the nations like
Vietnam snapping at its heels. Where the balance falls will determine whether
the workforce continues to see living standards rise –- or ends up finding
common cause with peers in developed economies who’ve seen real incomes
stagnate.
San
Francisco and tech driven housing mania: The median home in San Francisco
reaches a new high of $1.5M - (www.doctorhousingbubble.com) San Francisco real estate is deep into a tech driven mania.
Home prices in the Bay Area are comically out of reach for most families and
people are getting squeezed out like ketchup in a disposable packet. What
seemed like a new peak was once again surpassed. The housing market is
running on massive fumes and delusions run rampant. … Home prices
are up nearly $300,000 in one year simply because San Francisco is going
through a housing mania. Tech valuations are off the charts and there
seems to be this belief that prices will never come down. The consensus
seems to think that buying real estate at any given point is a smart
move. They simply cannot foresee a correction in the cards.
Funding
scramble squeezes China's borrowers despite PBOC injections - (www.reuters.com) Generous
money injections by China's central bank are helping to maintain some calm in
the country's financial markets, but market rates are persistently high,
reflecting worries that liquidity conditions remain unusually tight. Rates on
14-day repos climbed to 5.3 percent on Monday, their highest late April,
showing that a large gap remains between the supply of funding and demand from
banks. Liquidity conditions are typically tight in China in June due to tax
payments and as companies look to make their balance books look healthier at
the end of the month and quarter. A rigorous quarterly inspection by the
People's Bank of China (PBOC) is also prompting banks to hoard cash.
Illinois Comptroller: "The State Can No Longer
Function, We Have Reached A New Phase Of Crisis" - (www.zerohedge.com) With just 10 days to go until Illinois
enters its third year without a budget, resulting in the state's imminent
downgrade to junk status and potentially culminating in a default for the state
whose unpaid bills now surpass $15 billion, Democratic Illinois Comptroller
Susana Mendoza issued a warning to Illinois Gov. Rauner and other elected
officials on Tuesday, saying in a letter that her office has "very serious concerns" it may no longer
be able to guarantee "timely and predictable
payments" for some core services. In the letter posted on her
website, Mendoza who over the weekend warned that Illinois is "in massive crisis
mode" and that "this is not a false alarm" said the state
is "effectively hemorrhaging money" due to various court orders and
laws that have left government spending roughly $600 million
more a month than it's taking in. Mendoza said her office will
continue to make debt payments as required, but indicated that services most
likely to be affected include long-term care, hospice and supportive living
centers for seniors. She added that managed care organizations that serve
Medicaid recipients are owed more than $2.8 billion in overdue bills as of June
15. "The state can no longer function without a
responsible and complete budget without severely impacting our core obligations and decimating services to the state's most in-need citizens,"
Mendoza wrote. "We must put our fiscal house in order.
It is already too late. Action is needed now."
Argentina
(!) Sells 100-Year Dollar-Denominated Junk Bonds - (www.wolfstreet.com) Yield-desperate
investors stop before nothing. What have central banks wrought? Junk-rated,
deficit-plagued, inflation-whacked Argentina just sold $2.75 billion of
100-year dollar-denominated bonds. This was the first time ever that a junk-rated country
was able to sell 100-year bonds denominated in a foreign currency, or any
currency. Argentina sports a “B” credit rating from Standard & Poor’s. Five
notches below investment grade. Deep junk. And 100 years is a very, very long
time for Argentina and its regularly beaten-up creditors: Just over the past 65
years, it has defaulted six times – in 1951, 1956, 1982, 1989, 2001, and
its “selective default” in 2014. Its default in 2001 on $80 billion of
dollar-denominated debt was the largest sovereign default at the time.
Carrington
Mortgage To Throw Korean War Hero To The Street - (www.mfi-miami.com) Korean War Hero Faces Being Homeless Thanks To
Carrington Mortgage And Being Scammed By A Michigan Lawyer. Large mortgage
servicers like Carrington Mortgage seem to care more about their bottom line
than our nation’s military. Soldiers and sailors are coming home from battle
only to find they have no home. Some have been fortunate to sue their lender
and be victorious. Yet, the vast majority of servicemembers and veterans
haven’t been so lucky. Bob Chalice is a combat veteran of the Korean War.
He was a Navy gunner during the Battle of Inchon. He also shot down
Chinese and North Korean planes during Operation Wonsan. You would think
Carrington Mortgage would be honoring this man and his service. Nope.
Carrington Mortgage and their lawyer, Randall Miller and Associates had other
ideas. They decided to take Bob Chalice’s money and then foreclose on him and
his family anyway. Miller is the brother of prominent Michigan
Democratic politician Lisa Brown.
Fed
is Careening Into Housing and Stock Bubble... Look Out Below! - Ben Hunt - (www.zerohedge.com) What has happened (and apologies for the
ten dollar words) is that the Fed's reaction function has
flipped 180 degrees since the Trump election. Today the Fed is looking for
excuses to tighten monetary policy, not excuses to weaken. So long as the
unemployment rate is on the cusp of "instability", that's the only
thing that really matters to the Fed (for reasons discussed below). Every other
data point, including a market sell-off or a flat yield curve or a bad CPI
number -- data points that used to be front and center in Fed thinking -- is
now in the backseat. I'm not the only one saying this about the Fed's reaction
function. Far more influential Missionaries than me, people like Jeff Gundlach
and Mohamed El-Erian, are saying the same thing. If you think that this Fed
still has your back, Mr. Investor, the way they had your back in 2009 and 2010
and 2011 and 2012 and 2013 and 2014 and 2015 and 2016 ... well, I think you are
mistaken. I think Janet Yellen broke up with you this week.
Amazon
Is Now Cash-Poor -- Big Contrast From Tech Giant Peers - (www.seekingalpha.com) The big merger of last week had one key aspect
mostly overlooked by the market. The surprise purchase of Whole
Foods Market (NASDAQ:WFM) by Amazon (NASDAQ:AMZN) was
made with cash leaving the company in a precarious cash position in comparison
to other tech giants. Amazon traded up and topped the
magical $1,000 mark on Monday. Will the shift towards a brick and mortar focus
finally place Amazon into a retail type valuation? …. The
purchase price knocks the net cash balance down to virtually zero. This doesn't
even account for Whole Foods trading above the offer price with expectations
that a bidding war might ensue causing Barclays to place a $48 price target on
the stock. For Amazon, another billion in cash doesn't really alter the
equation for owning the organic food retailer. What it does though is highlight
the vast differences between the retail giant and tech giants that are so
commonly lumped into the same investment discussions.
Amazon
to Slash Jobs at Whole Foods, Dump Cashiers, Switch to Cheaper Products in
Price War with Wal-Mart - (www.wolfstreet.com) Here’s
something Wal-Mart could do to Amazon, just to be nasty. Amazon expects to
slash jobs and other costs at Whole Foods, “a person with knowledge of the
company’s grocery plans” told Bloomberg. The ink isn’t even dry on the proposed deal,
but synergies and efficiencies are already being trotted out. Amazon agreed to acquire Whole Foods for $13.7 billion, a 27%
premium over the stock price on Thursday at close, and now intends to push down
prices to slough off Whole Food’s nickname “Whole Paycheck,” and go after
Wal-Mart Stores, Target, the German discounters Aldi and Lidl that are
expanding in the US, Costco, and grocery store chains, such as Kroger and the private-equity owned chains Safeway and Albertson’s. The jobs to be cut include cashiers, who’d be
replaced by Amazon’s own “Just Walk Out Technology,” now being tested at its
Amazon Go convenience store in Seattle. When customers with the Amazon Go app
on their smartphones walk into the store, the system logs them into the store’s
network and establishes the connection to their Amazon account.
Australia's
Haunted Housing Market - (www.bloomberg.com) You
know that horror-film trope where some piece of ominous information is missed
by all the characters? Where the dire warnings of the one wise old
Cassandra who spots what's going on are inevitably ignored? Something
similar is happening in Australia's frothy housing market. Forget all the
headlines about the undimmed pace of house price inflation -- up 19 percent in Sydney during March, pushing the median house price in the
city to A$1.15 million ($875,000) according to Domain, a
property-listings website. House prices, after all, aren't so much a guide to
the state of the housing market as to the 1 percent or so of homes that bought
or sold in a typical year. Even there, they're less an indicator of supply and
demand for housing than of how supply and demand for mortgage credit interact
with real estate fundamentals.
Italy,
EU Race to Find Solution for Two Troubled Banks - (www.bloomberg.com) Italian
finance officials and the European Commission are racing to find a solution for
two troubled banks in the northern Veneto region that have weighed on the
nation’s financial system. Finance Minister Pier Carlo Padoan said Sunday
the matter of Veneto Banca SpA and Banca Popolare di Vicenza SpA is being
worked on “actively,” without offering details. The European Commission is
working “hand in hand” with Italian authorities and Europe’s Single Supervisory
Mechanism, and is making “good progress” on reaching a solution within the
bloc’s rules, it said in a statement on Monday.
Rome’s la Repubblica newspaper said Sunday that the Italian
government and bank managers are seeking an agreement “by the end of next
week.” Padoan said last week that an accord with the Commission in Brussels was
“close.” Still there were differing news media accounts
of the status of the talks with European Union officials who will need to sign
off on any state involvement. La Stampa, quoting officials in the EU and the
Treasury in Rome, said the current rescue plan has been determined to be
unfeasible. The newspaper said a split into so-called good banks for performing
assets and bad banks for deteriorated credit was one possibility. Under this
option, Intesa Sanpaolo SpA may agree to buy the good banks, while the bad
assets would be sold, the newspaper said on Monday.
Debt
improves Greece's lot, Tsakalotos says - (www.ekathimerini.com) Greece’s
finance minister says financial markets now have “much greater clarity” about
the future of Greece’s debts, which will help the country regain market access
when its current bailout program ends next year. Speaking after a meeting of
the eurozone’s 19 finance ministers, Euclid Tsakalots said the country can
“look forward with much greater confidence.” Tsakalotos said one big benefit
from the deal Thursday was that future debt repayments could be linked to
Greece's growth. In essence, that could mean payments could be postponed in the
event of an adverse shock... As well as securing 8.5 billion euros ($9.5
billion) in bailout funds, which will help Greece meet a big summer repayment,
Tsakalotos won a promise on future measures to ease the country's debt burden
and possible IMF financial involvement in the coming year.'
South
African Mining Stocks Crash To 5-Year Low Valuations After Policy Shock – (www.zerohedge.com) South
Africa’s new mining charter (that all local mines should be 30% black-owned) is scaring away investors. The charter
revision comes shortly after Africa’s most industrialised economy entered its
first recession since 2009, with investor confidence already shaken by
infighting within the ANC over the scandal-hit presidency of Jacob Zuma. The proposal was unveiled by the Department of Mineral Resources which
said it intends to raise the minimum black-ownership level from the current 26% to
ensure more proceeds from the country’s natural resources flow to the black
majority, Mining Minister Mosebenzi Zwane told reporters on Thursday in
Pretoria. The charter will also require companies to pay 1% of annual revenue
to communities and new prospecting rights will require black control, Zwane
said. “The mining sector does not exist in a vacuum,” Zwane said as he unveiled
the charter on Thursday. South African miners needed “strong legislative
regimes” to thrive, he added. “We have listened to miners who have not seen
real economic benefit; people who don’t see benefit of transformation
structures,” he said. And the reaction is clear, as Bloomberg notes, the average
price-to-earnings
Fed
Losing Control: 100% Proof That A Massive Economic Meltdown Is Closer Than You
Think - (www.steemit.com) This
past Wednesday we heard from the Federal Reserve with regard to monetary
policy, and as I predicted they did raise the federal funds rate 25 basis
points however, instead of yields rising, they are dropping. More than a year
and a half ago I had said publicly that the Federal Reserve's attempt at trying
to normalize bond yields would backfire-and this is exactly what is happening. It
is clear to me that the Federal Reserve has absolutely lost control of what is
occurring in the bond market. Remember, this is uncharted territory, we have
never been here before in the history of the financial world-so the Federal
Reserve actually has no idea of how the market will react in the current
environment with regard to their attempt at normalizing interest rates.
Tough
Time for Automakers, Great Time to Buy a Car? - (www.wolfstreet.com) Wolf
Richter Talks Shop: “Carmageddon” and tips on buying a car. Here I am with
radio host Jim Goddard on “This Week in Money,” discussing the worsening conditions that the
US auto industry is facing. Jim is also asking whether it’s better to buy or
lease, go directly to a sales manager or start with a salesperson first,
whether to buy new or used, what to watch out for when buying used, what to
research, and many more things I don’t normally write about since WOLF STREET
isn’t a how-to site. So here’s an in-depth conversation on the nuts and bolts
of the industry I used to work in: And here’s more: Subprime Auto-Loan Backed
Securities from 2015 on track to be Worst Ever. Read… This Toxic Trifecta for Auto Loans is Fueling #Carmageddon
Mark
Hanson: Housing Bubble 2.0 - The End Is Nigh? - (www.zerohedge.com) "If, the past 8-years of a Fed in
Armageddon-mode created the 'everything bubble', what will shifting
monetary policy into reverse do to said asset price levels?
..Remember, a 'house-price recovery' and 'housing market recovery' are two
vastly different things." The incredible essay below is reproduced here
with permission by Dr. Hunt for Epsilon Theory. If Dr. Hunt is even moderately accurate,
which I believe he is, the housing market headwind on deck could be every bit
as powerful as what hit at the end of Bubble 1.0. Bottom line: The Fed,
during Obama, did everything in its power to surge all asset prices — stocks,
bonds, real estate, collectables, et al — with no regard for its own guidance,
as to when it would take its lead-foot off the accelerator. Now,
under Trump, they are doing the exact opposite; looking “through” all the
obvious coincident and near/mid term, economic weakening trends in an effort to
raise rates as quickly as possible. If, the past 8-years of a Fed in
Armageddon-mode created the “everything bubble” (hat-tip Wolf Richter), what
will shifting monetary policy into reverse do to said asset price levels? Back
in Bubble 1.0, the helium came out of house prices when the “unorthodox
credit and liquidity” was forced out of the markets all at once precipitated by
the mortgage credit market implosion. Quickly, house prices
“reattached” to end-user, shelter-buyer employment, income, and credit
fundamentals…or, to what end-user, shelter-buyers could really buy using a
traditional, 30-year fixed rate mortgage, and a truthful loan application,
which was about 30% less.
Ten
years since the global financial crisis, world still suffers 'debt overhang' - (www.smh.com.au) It
is almost exactly 10 years since the financial world began a wobble that would
swing into what we now know as the global financial crisis. Today, the scars of
the global financial crisis remain. There have been trillions of dollars in
losses. And in a world of subpar economic growth, even optimists are downbeat
about whether the economic medicine has been taken... Firstly, excessive debt.
In the aftermath of the world market crash, rather than pushing for debt
destruction, world leaders used fiscal and monetary policy to fan demand.
Global debt now stands at a staggering US$215 trillion.
History
of Great Depression Interest Rates Shows "Waiting-for-Recovery Exhaustion
Effect" Echoed in the Present - (www.alhamgrapartners.com) The
similarities are remarkable, particularly in this "reflation" view.
It proves, I suppose, irresistible because of human nature; again the belief
that lack of full recovery is somehow impossible. At some point after so many
years, "we" believe recovery just has to kick in if for no other
reason than luck, and therefore amplify whatever small positive indication into
the convincing proof it never was. Belief in authorities certainly plays a
role, but as the history of all these curves really shows, that belief isn't
permanent. The longer it goes without recovery, the lower curves drop in each
cycle, meaning the more jaded (for every good reason) these markets become. It
is not so much despair vs. reflation or hope, rather it's making peace with
reality. To today's policymakers, the yield curve as well as eurodollar futures
are some kind of mystery. They aren't. They simply prove that these people who
claimed to have studied all the necessary facets of the Great Depression didn't
actually do that. How else could 2008 have happened, let alone the aftermath?
They surely didn't listen to Friedman.
Amazon
Deal for Whole Foods Starts a Supermarket War - (www.nytimes.com) Shares
of Walmart, Target, Kroger and Costco, the largest
grocery retailers, all tumbled on Friday. And no wonder. Grocery stores have
spent the last several years fighting against online and overseas entrants. But
now, with its $13.4 billion purchase of Whole Foods, Amazon has effectively started a supermarket
war. Armed with giant warehouses, shopper data, the latest technology and
nearly endless funds — and now with Whole Foods’ hundreds of physical stores —
Amazon is poised to reshape an $800 billion grocery market that is already
undergoing many changes. And much of the battle is expected to take place
online, Amazon’s home turf.
For
Whole Foods workers, fears of robots, drones and culture clash - (www.reuters.com) The
merger that shook food and retail stocks on Friday - Amazon.com Inc's proposed
deal to buy Whole Foods Market Inc - rattled some employees of the upscale grocery
chain who expressed fears ranging from layoffs to the loss of their laid-back
corporate culture. The online retailer hopes the $13.7 billion acquisition
helps it disrupt the grocery business and expand its real-world store
footprint. Carmen Clark, 37, a six-year employee at a store in Mount Pleasant,
South Carolina, said some workers worry that Amazon-led automation could lead
to job cuts. "Everybody's been kind of joking that it's going to be robots
and drones," Clark said of potential changes from Amazon, which uses
robots in its warehouses and is testing drones for delivery.
What
Happens When the Machines Start Selling? - (www.wolfstreet.com) The
infamous FAANG stocks – Facebook, Apple, Amazon, Netflix, and Google’s parent
Alphabet – along with other “tech” stocks have been getting “hammered,” to use
a term that for now exaggerates their “plight.” The FAANG stocks are down
between 1.7% and 2.5% at the moment and between 5.5% and 11% since their peak
on June 8. Given how far these stocks have soared over the past few years, this
selloff is just a barely visible dip. But fundamental analysis has long been
helpless in explaining the surge in stocks. The shares of Amazon now sport a
Price-Earnings ratio of 180, when classic fundamental analyses might lose
interest at a PE ratio of 18 for the profit-challenged growth company that has
been around for over two decades. For them, the stock price might have to come
down 90% before it makes sense.
Illinois
Death Watch Continues... - (www.zerohedge.com) It’s
been a long time coming, but Illinois’ slow-mo financial disaster is now front
page news. A few recent examples: Roadwork Could Shut Down
Across Illinois Due To Budget Impasse. Roadwork
across Illinois may grind to a halt at the end of June due to the continued
state budget impasse, a representative for the Illinois Department of
Transportation (IDOT) announced Wednesday. IDOT will be unable to pay
contractors on July 1, unless the state passes a stopgap funding measure. IDOT
has told contractors that “all construction work is to shut down on June 30,”
according to a statement. “Contractors will be advised to secure work zones to
ensure their safety during any potential shutdown.” Illinois has gone almost two full years without
a state budget, which has hit education funding throughout the state and
generated more than $14 billion in unpaid bills. Summer is both a high-volume
construction season and a vaguely ominous time to cease road repairs; just last
week, IDOT released a statement warning that the heat could lead to pavement
“buckling or blowing out.”
Politicians
and investors adapt to the age of radical uncertainty - (www.ft.com)
Record
level of investors fear corporate bonds are overvalued - (www.ft.com)
The
New Cold War Pits a U.S. General Against His Longtime Russian Nemesis - (www.wsj.com)
Illinois
State Official: "We Are In Massive Crisis Mode, This Is Not A False
Alarm" - (www.zerohedge.com) Last
week we reported that as Illinois, a state which now faces over $15 billion in backlogged bills, struggles over the next two weeks to somehow
come up with its first budget in three years ahead of a June 30 fiscal year
end, and faces an imminent ratings downgrade to junk - the first ever in US
state history - traders finally puked,
sending the yield on its bonds surging after a judge ruled at the start of the
month that the state is violating consent decrees and previous orders, and
instructed the state to achieve "substantial compliance with consent
decrees", further pressuring its financial situation. In a last ditch
attempt to resolve the ongoing budget impasse and prevent a potential crisis,
which may culminate with an eventual default by the distressed state, yesterday
the WSJ reported that Illinois Gov. Rauner ordered lawmakers to
return for a special session this week, but the two sides still seem far apart.
Republican Gov. Bruce Rauner ordered the special session starting Monday, as
the backlog of unpaid bills reaches $15.1 billion.
San
Francisco Bay Area Sheds Jobs and Workers - (www.wolfstreet.com) Commercial
and residential real estate bubbles choke the economy. The upper bounds of hype
and craziness have been reached. The San Francisco Bay Area has seen an
astounding jobs boom since the Great Recession. The tsunami of global liquidity
that washed over it after the Great Recession, central-bank QE and
zero-interest-rate policies that sent investors chasing blindly after risk, a
blistering no-holds-barred startup bubble with the craziest valuations, one of
the greatest stock market bubbles ever – whatever caused the boom, it created
one of the craziest housing bubbles ever, a restaurant scene to dream of,
traffic jams to have nightmares over, and hundreds of thousands of jobs. But
it’s over.
Amazon-Whole
Foods Deal Is Bad News For Store Cashiers And The Fight For $15 Minimum Wage - (www.forbes.com) Among
the losers will be traditional neighborhood stores, which won't be able to
compete with Amazon's razor thin operating margins -- and minimum wage
employees like cashiers, as Amazon's technology will make them dispensable and
speed up a trend already underway in traditional retail chains...and in
the process, make the $15 minimum wage irrelevant.... ... other store chains
will also have to do away with cashiers to keep up with Amazon, accelerating
and broadening a trend already underway in the retail industry. Wal-Mart and
Target have been using technology to replace labor that is usually paid the
minimum wage.
Small
and midsized banks could get regulatory relief from Senate. Wall Street?
Probably not – (www.latimes.com) One
of the key targets of the House bill and the Treasury report is the Consumer
Financial Protection Bureau, which would have its authority gutted. The changes
include making its director subject to removal by the president for any reason,
eliminating the independent funding stream so Congress could reduce its budget,
and stripping the agency of its ability to send supervisors into banks to make
sure they are complying with consumer protection laws. For [Sen. Sherrod] Brown
and Senate Democrats, changes like that amount to a poison pill for any
legislation.
It's
a 'scary' time with a global crisis on the way, LVMH CEO says - (www.cnbc.com) A
financial crisis could be just around the corner, according to the chief
executive of LVMH, who has described the global economic outlook as
"scary". "For the economic climate, the present situation
is...mid-term scary," Bernard Arnault told CNBC Thursday. "I don't
think we will be able to globally avoid a crisis when I see the interest rates
so low, when I see the amounts of money flowing into the world, when I see the
stock prices which are much too high, I think a bubble is building and this
bubble, one day, will explode." Arnault, who is responsible for the
world's largest luxury goods company, couldn't say whether the crash would be
imminent or within the next few years, but he insisted that almost a decade on
from the global financial crisis of 2008, one was due.
