Let’s-A Go!

“The ECB finally embarked on a large-scale sovereign bond-buying programme (alt) on Thursday.”  Here are the highlights: (1) “the €60bn monthly asset purchases include asset-backed securities and covered bonds,” (2) it “will commence in March and last until the end of September 2016; or ‘until we see a sustained adjustment in the path of inflation,” (3) national central banks will be doing the purchasing, “there will be, however, risk-sharing on 20 per cent of the assets,” (4) central bankers agree to “never buy more than one-third of a country’s debt issuance,” (5) “There will be ‘no special rules’ for Greece…To be eligible, however, Greece would need to stick to the terms of its international bailout.”  Regarding that “risk-sharing” issue, Martin Sandbu says “the ‘demutualisation’ of risk is an economically irrelevant trick that solved the political problem of Germany’s scepticism about QE…a loss on sovereign paper can always be recovered by withholding the relevant government’s share of ECB profits.”  Furthermore, he says Draghi’s plan “for all practical purposes is unlimited, but [limits] how much the central banks can hold of each bond issue (25 per cent) and from each issuer (33 per cent).  This seems entirely arbitrary, and more importantly — since total eurozone government debt is more than €9tr — it would allow the ECB to do a lot more than it has just promised to do.”  Meanwhile, Syriza leader Alexis Tsipras wrote an op-ed in the Financial Times yesterday that went like this: “balancing the government’s budget does not automatically require austerity, [however] a Syriza government will respect Greece’s obligation, as a eurozone member, to maintain a balanced budget…On existing loans, we demand repayment terms that do not cause recession and do not push the people to more despair and poverty.  We are not asking for new loans.”  Bloomberg says it’s an olive branch…Either way, Syriza has a ~5 point lead going into Samaras’ going away party the election to be held this Saturday.  Meanwhile, this should not be ignored.  Euro-dollar parity will change things.  But good luck predicting what they are.

 

How Much Of Oil’s Decline Is Due To Hyper-Financialization?

Calling the bottom in oil prices is the hubris du jour.  OPEC’s Secretary-General says oil prices aren’t headed to $20 or $25, and he is expecting a slow rebound in price.  Izzy Kaminska (must be followed if oil is your favorite thing to think about) says “What’s striking about that statement, of course, is the very specific reference to $25 crude prices.  Why $25?  Why not $30?  or $35?  Perhaps because the last time Brent crude was at $25 was…when Enron collapsed.  So what’s this a subtle reference to really?  Could it be, perchance, the fact that the entire oil and commodity rally was something of a financial speculator-induced sham which detached commodities entirely from their fundamentals?”  Along those lines, the Peterson Institute says “the decline in oil prices to less than $50 per barrel should not be a surprise.  The surprise is how long oil prices stayed above $100 per barrel when supply and demand fundamentals could not longer support such a price…Financial markets overestimated the challenges to oil supply.  Their capitulation made the slump in oil prices abrupt.  Today, financial markets are underestimating the structural nature of reduced demand and increased supply.  The strength of the world economy will likely surprise on the upside.”  Also, Boston Consulting Group appears to agree with the Secretary-General: “sharp and protracted swings in oil prices, such as the one we are experiencing now, do not last forever.  Indeed, the current down cycle is already the longest peak-to-trough progression of any of the sustained oil-price declines since the 1980s.” Also, “opportunities and threats typically emerge early.  Markets are quick to price in weakness, and valuations can be hit hard.”  Speaking of which, the spread on investment grade corporates has widened by ~50bps since last July, but it’s still “below the 161-basis-point monthly average going back to December 31, 1996.  And the recent 3.14 percent yield for the Bank of America Merrill Lynch investment-grade corporate bond index is far below the average of 5.39 percent over that period.”  Meanwhile, Kinder Morgan is buying up $3 billion worth of energy assets in the Bakken.

 

Apple Is Insane

Consider this for a moment: Apple is currently valued at $653bn, which is $265bn more than the second and third largest companies in the world; Exxon and Microsoft.  Apple is 17 times larger than the median market cap for companies in the S&P 500 ($38.45bn), and represents 3.4% of the entire S&P 500.  Now go read about how Apple’s iTunes store brings in more cash than Hollywood.

 

Because Sorghum ≠ Oil

Sorghum is “suddenly in high demand (alt) thanks to China’s soaring appetite for animal feed and a shift in its buying preferences away from foreign corn.  A 15-fold increase in imports of U.S. sorghum by China over the past year has pushed its price above corn’s in parts of the U.S..”

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