We have been focusing, over the past few months, on the credit contraction issue, and what this means to the markets. The recent weakness (today and Tuesday) were very much Credit related.
However, we should not ignore the impact of the rising price of Crude Oil.
As of yesterday’s close,
Crude oil was $76.24 a barrel. That price came after three days of losses, reversed by falling U.S. crude stockpiles in the U.S.
As I type this, Crude is a hair under $77.
Futures: The front-month September light, sweet crude contract on the NY Mercantile closed settled up at $2.32 — a 3.2% gain — at $75.88 a barrel. This was "just shy of the 11-month closing high of $75.92 reached July 19."
The good news for motorists was reported by the WSJ: "Gasoline stockpiles rose by 800,000 barrels amid the highest-ever weekly gasoline imports. That compared with expectations of a 510,000-barrel gain. Distillates, which include heating oil and diesel, increased by 1.5 million barrels, twice as much as was forecast in a Dow Jones Newswires poll of market participants."
Source:
Crude Jumps to Almost $76
Futures Leap 3.2% As Stockpile Falls At Key Storage Hub
MATT CHAMBERS
WSJ, July 26, 2007; Page C6
http://online.wsj.com/article/SB118537163781177567.html
Zman over on Phils stockworld is excellent at predicting the Oil “game”. I gave up trying to figure that one out as the contracts never make any sense to me. Like they will take delivery of 300 million barrels of oil in one place on one date…but that’s how that market works. I’ll stick to things that I can understand easier…..
Ciao
MS
has anyone out there quantified the LBO commitments on the books of the banks & brokers? and what that represents as % of capital at various haircuts: 90c, 75c, or maybe 50c in a couple years as the likes of Chrysler and these other so-so companies go into the grinder?
Nobody is mentioning the yen at 119. Not that I’m a carry trader, but I know the carry trade doesn’t like volatility like this.
Will tomorrow GDP bring any relief or will it sink it lower?… VIX is spiking now.
yes I noticed that….you know the VIX has’nt spiked on a down move for quite some time….
only on up moves……..
Ciao
MS
check out BX…….
How low can she go…….limbo lower now….
Ciao
MS
You know I have also noticed over the last couple days that while much of Asia has corrected along with US and Europe, Shanghai and the BSE have kept going up about .5% a day.
I don’t know if that makes them strong in the face of weakness (i.e., like Apple), or they are just completely detached from reality at this point.
Was is CFC ? Was it Chrylser not able to get $20 billion? Was it Bear Stearns again?
Whatever it is, the music has stopped and everyone is searching for a chair.
My PM buddy writes:
This is a liquidity thing…..the subprime mess impact on hedge funds. Now the LBO financing market is gone and the banks/brokers are getting stuck with all the bridge loans, so they will not be willing to make new loans because there are no investors
It is LTCM x about 3
Circle this week on the calendar. Oh BTW dow is down 400 points from peak.
The good news is they just opened up another 99 cents store where I live. Yay.
Is this going to make a massive double-top in crude oil? We still haven’t beat last year’s highs, and the driving season is coming to a close…
A significant break in the JPY below 120 in a rising interest rate environment w/ credit tightening should not only force unwinding in the Yen carry but is bad news for equities. I have increased hedges in broad indexes and am net short financials, REITs in particular (I’ve been shorting select home builders and mortgage lenders for about a year now but that’s more of a tactical play). Don’t want to get extreme or overreact so I am still not net short overall but the risk vs. reward picture is now very poor as I see it. FWIW
I just heard they’re going to start pricing gasoline “per quart” rather than “per gallon”, to lower the price. Consumers will appreciate the lower prices.
But, for you big spenders, you’ll still be able to buy gas in “large 1-gallon size”.
…kidding.
day4night,
I agree that driving season is coming to a close, that “should” help gasoline prices,
but then again
-Hurricane season is just about to start
-Iran/Middle East
-China’s demand
-Peak oil (maybe)
-higher costs “inflation” lead to higher oil
$60-90 oil (using $USD) may be the norm
On a day like this, this part of the day gets really exciting. Things slow down, people go to lunch–they talk about things. Are they going to come back and sell? Or are they going to console each other and come back and buy it all back? Play the group-think.
I have noticed over the last couple volatile days, though the market can work its way back, the money that goes into bonds has stayed in bonds–instead of a quick flight back and forth like was happening earlier in the year. Traders seem genuinely unsure right now.
The yen is up (stronger) against the dollar even though Euro and Canadian $ are weaker (today) against the dollar so the move is specific to the yen. (Up till now, during the recent move from 124 yen to near 120, the yen was just riding along with the other currencies as they rose too.)
So something is making the yen in specific strengthen.
The obvious guess would be carry trade unwinding.
OT:
BX appears to be in a free fall…. I’m thinking that someone tripped over some of those covenanats in the dark….
Lookout below….
Econolicious
Wow…the Yen broke below 119. That’s impressive.
What does the 6 month chart for oil denominated in Euros or Pounds?
Damn….BX
Oil at LOD now too, at least USO. Double top could be however the games played there are beyond my scope.
Ciao
MS
Here’s an article from Bloomberg on the topic:
http://www.iht.com/articles/2007/07/24/bloomberg/bxoil.php
Aside from tons of FUD being spread about oil, the article states, “…A record number of options have been sold that give the buyer the right to buy crude oil at $100. ”
With all of this hype, and someone selling those options, perhaps we are near a top and shorting should be considered.
Thoughts?
Note: I usually like the news reporting out of Bloomberg, but this article didn’t seem to measure up.
BTW: How do you folks value Bloomberg reporting versus the rest of the field?
Bloomberg has less of an agenda but still has to be viewed with a skeptical eye.
Bring back Suzy!!!!!!
It’s like voting….lesser of the evils. I’ve actually turned it off during the day and only watch the wrap up
Ciao
MS
another day of the weakening across all the asset classes and the new meme will be credit crunch induced deflation.
what’s going on in emerging market debt? ….not too late to short the shippers (within reason of course).
MS,
I’m addicted to Bloomberg TV (over CNBC) and I always wonder what happens to these people like Suzy Assaad. They just disappear. Erin Burnett when to CNBC, but a bunch of other people just vanished. I did heard the upcoming FOX/Dow Jones business channel was poaching talent.
Bloomberg is above the average, but the average is very low unfortunately.
These days I favor the forex news feed, mostly Thomson and 4Cast. Short and to the point. And you get to read headlines like “EUR/USD: Euro Pop Catches Market On The Hop”
2 cents about Bloomberg news….
personally find Bloomberg news/TV infinitely superior to CNBC/mainstream media.
Remember, Bloomberg derives most of their revenue from the terminals and views TV/media as an integral to the terminal….which offers (at least an air) of intellectual independence .
CNBC/Dow Jones/etc. predominantly rely on advertising (especially to the likes of AMTD SCHW MER) so the cynic in me says that mainstream media is more apt to be saying that the emperor has clothes on.
And just from my impression….it seems that Bloomberg has more employees with ex.-Street backgrounds as opposed to x School of Journalism.
Kevin,
It’s not just the Yen; look at the sudden strength in the other carry-trade currency, the Swiss Franc.
Additionally, spot gold is WAY down the last day-and-a-half (margin covering I assume)
There’s definitely some unwinding going on…
btw, Sven, someone DID mention the stronger Yen; see my post in the “Bagdad Bob” thread from about 5 hours ago.
Anyone have the bollocks to buy some BSC at fresh 52-week lows?
RIP BSC….live by the CDO die by the CDO.
Think there will be any margin calls at
3:00 eastern standard time?
Also to remember – The last time the NYSE
computer “had some problems”
Guess we will see what Bernake is made of now. Looks like ’87 crash all over again. Bar the doors, lock the hen house, all of 2007’s gains should be erased in the next several days. Food stuffs and bomb shelters on sale now!
What a f-ing joke the financial markets are. They are set up to suck the little guys in and once they get them they just body slam their arse’s. Gotta love the American Dream!
Big reversal (intraday) for oil.
Interesting.
“Think there will be any margin calls at
3:00 eastern standard time?”
Good question. Should be pertinent tomorrow too.
I’m curious if anyone has any thoughts on trading strategies heading towards the end of the trading day and into tomorrow? During tonight’s post-mortem, there’s got to be the usual crowd calling this an overreaction and looking at this as a buying opportunity. My gut says tomorrow will see a partial recovery but then again, if a lot of the action is carry trade reversal then maybe not.
“I’m curious if anyone has any thoughts on trading strategies heading towards the end of the trading day and into tomorrow?”
Given your “name” I’d suggest you double up on those shorts.
http://finance.yahoo.com/q?s=%5ETNX
That’s right honey… that’s my sweet Bondie… That’s right girl… Come to Daddy… Come to Daddy my sweet Bondie.
Don’t worry about that old nasty Barringo… tryin’ to get in my baby’s britches is what he’s after… He’s a hound, Bondie!… Don’t trust him girl!… Come on back to Daddy.
If fact, if you get really scared of ole Barringo… I’ll send you off to Dr. Anke’s house… yeah!… that’s the ticket, Bondie… he won’t let anything happen to my sweet baby.
Kiss Kiss,
Yo Daddy
Did I really just hear Paulson say (on Bloomberg) that the subprime is “well contained”?!?
short man
i will see if tomorrow the stocks get some reprieve /gain some
if the data looks weak short at the end of the day
damn…I go out for a walk and it got worse.
Play taps for BX……
Ciao
MS
Yet there is a worldwide GLUT of crude oil.
.
that is the lunacy of the oil market. You know there is something wrong with it when you get a build of stockpiles(that is so far off the “expectation”) and the price rises, at least this morning it did. And then…..
The roach motel theory at work…..
Ciao
MS
Yen up 1.5%
CHF up 0.9%
Euro only up 0.25%
NZD down 2%
ISK down 2%
Certainly looks like carry trades are unwinding…
-IM
“Did I really just hear Paulson say (on Bloomberg) that the subprime is “well contained”?!?”
Yes, you most certainly did. Sad isn’t it. The vanishing credibility of high ranking officials.
There will be a very profound difference between this crash and the one in ’87.
Boomers have their 407(k)’s in the market now. That’s real money for the future. Back in ’87, investment in the market wasn’t spread across the population as widely.
So, if the rollercoaster continues downward, I’d look toward a position in tar and feather futures.
The big question is what can Bernanke and Co. pull out of the hat? We’ve had lower reserve requirements, low interest rates, loose lending controls, real estate speculation–what could be left in his bag of tricks?
that is the lunacy of the oil market. You know there is something wrong with it when you get a build of stockpiles(that is so far off the “expectation”) and the price rises, at least this morning it did. And then…..
Pull the troops back out of Baghdad, Get the Dems in control and cut back on the deficit, and Oil will be back to $40/Bar before u can say “Clinton surlus”.
MS, oil prices are futures market determined, which allows for an understanding of why they can be so ‘lunatic’*, especially if people are doing intermarket ‘stuff’ in attempts to, e.g., balance volatility.
*I know, that stands some preconceptions on their head but only for those who retain notions of efficient pricing.
One of the ‘peak oil’ jefes, Matt Simmons, put it very concisely back in 1998:
For all those that fervently believe price movement always reflects fundamental changes in physical markets, the discussion in this paper bears careful reading. Our work strongly suggests that large swings in the funds’ net position in oil contracts on the NYMEX have driven virtually every significant movement of crude oil since the MG position was unwound in early 1994. The single exception was a brief period in the fall of 1996 when physical tightness in the market itself set the price of oil. (Which does not mean that speculators are necessarily wrong in their…views)
The record COT spec long position combined with a 10 year (soon to be alltime record) high in inventories (all crude and products) is an unlikely base for a breakout to sustained higher oil prices.
But $40? I wouldn’t hold my breath…
Of course, nobody can connect the Vietnam War, LBJ’s runaway deficit spending and the delinking of the $ from Gold in 1971 w/ the “arab oil embargo” of 1973.
Yeah, yeah, that’s the ticket…
It was the arab oil embargo.
Clinton ran a so called “surplus” and oil was $15/bar in 1999.
I dunno, looks like shorting winter crude is a good speculative risk soon: dec 07 NYMEX crude’s trading over $71. Maybe a few puts wouldn’t be such a bad thing. Maybe January puts. Obviously it’s a gamble…. If the “roach motel” scenario is right then maybe a very good gamble indeed…
The market is puking. It must be July