Friday, February 12, 2016

Oil Company Decides Not To Drill For Oil, Stock Jumps 7%

From City A.M.:
Premier Oil and Rockhopper Exploration today announced the early termination of a drilling contract in the Falklands.

The companies said their contract for the Eirik Raude rig was terminated with immediate effect yesterday, due to operational issues.

"As a result, Premier will no longer be drilling the Chatham exploration well during the current campaign" it said in a statement to the London Stock Exchange this morning.

"However, we are in discussions with the Falkland Islands government regarding the possibility of drilling this prospect in the future."

But shares in the the FTSE 250-listed Premier Oil still rose as much as 7.56 per cent to 32p this morning....MORE

La Niña expected in next months for the first time since 2012

To paraphrase Chris Farley, 'for those who don't habla Español, La Niña is Spanish for..ah..the niña.'

I mentioned on Tuesday "We are expecting to have a lousy weather-thank you La Niña long trade later this year..." Here's more.
From Reuters:
Even as the El Nino weather phenomenon continues to impact global temperatures and crops, its counterpart La Nina is increasingly expected to emerge in the coming months for the first time in four years.
The return of La Nina, Spanish for "the girl" and characterized by unusually cold ocean temperatures, is possible later this year, the U.S. government forecaster said Thursday. It joined other forecasters in projecting La Nina could follow on the heels of one of the strongest El Ninos on record.

Weather models indicate La Nina conditions, which tend to occur unpredictably every two to seven years, may emerge in the Northern Hemisphere fall, while El Nino - which means "the little boy" in Spanish - is expected to dissipate during the late spring or early summer, the National Weather Service's Climate Prediction Center (CPC) said in its monthly forecast.

The phenomenon can be less damaging than El Nino, but severe La Ninas are linked to floods, droughts and hurricanes.

Even though CPC is not on official watch for La Nina, the probability is trending towards one, said Michelle L'Heureux, a CPC climate scientist and El Nino/La Nina expert.

When La Nina last appeared from August 2011 to March 2012, it hurt corn and soybean crops in Argentina and Brazil, brought the worst drought in a century to Texas and increased the number of storms that threatened U.S. coastal regions, like Hurricane Irene....MORE
We have a couple hundred posts on La Niña, here's one from last week, or use the search blog box.
Contra the headline:
Agriculture: "Corn, Wheat, and Soybean Prices to Fall in 2016"

Google Says U.K.'s Google Tax Doesn't Apply to Google (GOOGL)

From LearnBonds:

Alphabet Inc (GOOGL) Says UK’s ‘Google Tax’ Doesn’t Apply To Them
Alphabet Inc (NASDAQ:GOOGL)’s top tax executive told UK authorities that the new UK tax – popularly called “Google Tax” – will not apply to the Internet firm, says a report from Bloomberg. The tax – the Diverted Profits Tax – came up last year owing to rising concerns that Alphabet and other tech firms are using loopholes to transfer profits to offshore tax havens.

“Google Tax” does not apply to us
So, to discourage transfer to offshore tax havens, the UK officials introduced this so-called “Google tax,” which allows the govt. to charge 25% tax on any profits it believes have been moved out of the US improperly. Standard corporate tax rate in the UK is 20%.

However, Alphabet’s VP for finance – Tom Hutchinson – speaking to a Parliamentary committee, which is investigating Google’s 130m-pound ($188 million) settlement with the U.K. tax authority, said the new tax does not apply to the firms past profits.

“Because of our agreement with the HMRC we are paying the right amount of tax, so we are not having to pay anything else,” the executive said.

Alphabet Inc (NASDAQ:GOOGL) has been using tactics like the “Double Irish” and “Dutch Sandwich,” to shift its profits to a Bermuda subsidiary, Bloomberg reported in 2010. But, in Thursday’s hearings, the executive said such strategies has no effect on the tax the firm paid in the UK. Transferring of profits to Bermuda has been designed to lower the taxes in the US, the executive said.

“Under the rules in the U.S., this structure makes sense,” he said. “I don’t think this is an aggressive structure.” Hutchinson said his duty is to efficiently manage the tax affairs of his firm, and Alphabet paid 19% as tax around the world, “a fair amount of tax to pay.”

Alphabet executive does not know his salary...
...MORE

Art Institute of Chicago Recreates Van Gogh's Bedroom, Puts it On Airbnb

From Messy Nessy Chic:
vangogh1
What would it be like to go inside the mind of one of the most brilliant and misunderstood artists of all time? To potter around in his own bedroom, an intimate space that so inspired him? Well, if you’re curious, the Art Institute of Chicago has recreated the room in Vincent Van Gogh’s Bedroom in Arles painting and put it up for rent on Airbnb. Bookings are now open!
vangogh2
Did you know that there are in fact not one, not two, but three versions of Van Gogh’s bedroom painting? The first version was created in 1888 while the painter was living in his beloved “Yellow House” in the south of France; that one is now in Amsterdam....MORE

"Corn Belt farmland price retreat longest since 1980s"

From Agrimoney:
Farmland values in major US agricultural states ended 2015 on a weak note, recording the worst declines on some measures not seen since the 1980s' price slump – and with further losses seen likely, official data showed.
Much watched quarterly reports from the Federal Reserve on land prices showed values in its Chicago region, covering major Corn Belt states such as Illinois, Indiana and Iowa, shedding 3% last year.
The drop, which followed a 3% fall in 2014, represented the first period of back-to-back falls in annual land prices since the mid-1980s, towards the tail end of a six-year market slump during which regional values near-halved, in a correction fuelled by soaring US interest rates.
Prices in Iowa, the top US corn-producing state, have suffered particularly badly in the latest retreat, recording a third successive year of annual decline in prices, over which prices have dropped by more than 13%, the central bank data showed.
Biggest drop since 1987
Separately, the Fed's Kansas City bank, which covers largely Plains states, such as major wheat producers Kansas and Oklahoma, also revealed an accelerated downturn in farm prices in its region.
Price change, as measured as the average for the October-to-December quarter compared with that a year before, hit a negative 3.7% for non-irrigated cropland, the fastest rate of decline since early 1987.
And ranchland prices, which rose 10% over 2014 amid buoyant livestock markets, retreated with cattle values....MORE

Oil & Gas Companies With the Worst Debt Coverage

From Barron's Stocks to Watch:

Oil Stocks: Yes, There Will Be More Dividend Cuts, Equity Raises
Barclays analyst Thomas Driscoll and team see more dividend cuts and equity raises coming for oil & gas stocks like Apache (APA), Devon Energy (DVN), Encana (ECA), Anadarko Petroleum (APC), and Marathon Oil (MRO). They explain why:
Leverage concerns will lead E&P companies to take strong steps to strengthen balance sheets. As oil price weakness has lingered, management teams have become more willing to take stronger steps to address leverage. We view 4x debt to pre-interest cash flow as a warning sign that companies may be overlevered. At a $30-40/bbl WTI oil price, debt to estimated pre-interest cash is over 4x for 16-19 of the companies we cover. At $50 oil, roughly half of our coverage universe remains “overlevered” using our 4x coverage test…

We have seen several dividend cuts in the recent past, including Anadarko Petroleum cutting its dividend by 81%…and we expect more companies to follow suit. Chesapeake Energy (CHK), ConocoPhillips (COP), Encana, Marathon Oil and Noble Energy (NBL) are among energy companies that have also cut dividends in the past 12 months, but dividend requirements – even after several cuts – will consume ~26% of 2016 estimated cash flow at current dividend rates (15% excluding Occidental Petroleum (OXY)) for the large cap E&Ps we cover. We believe most of the companies with a dividend yield of more than 1.5% should consider cutting the dividend and find the following companies more likely than not to reduce dividends:...MORE
http://s.wsj.net/public/resources/images/BN-MO469_oildeb_P_20160211134031.jpg

Vultures, Circling: Blackstone Aims New Fund at Troubled Offshore Drilling Market

We've seen a few smaller deals, including another one yesterday, but not enough to mark a bottom.
From Reuters via PEHub:
Blackstone Group has launched a fund to finance the troubled offshore drilling and services sector, the U.S. private equity firm said on Thursday, anticipating a buyer’s market as low oil prices set the stage for restructuring and consolidation.

Blackstone’s new entity, called Clarion Energy Partners, will be led by former executives of Pride International, an offshore drilling services company that was acquired by London-based Ensco PLC in 2011.

Clarion would be able to provide “creative financing and operational solutions” to companies whose “balance sheets are under severe pressure” in the current downturn, Louis Raspino, the new entity’s chairman and Pride’s former chief executive, said in the press release.

The oil price rout has left many energy companies teetering on the brink of bankruptcy and left many of their assets appearing cheap. Private equity funds have been mobilizing to hunt for favorable deals.
Creation of the Blackstone fund was announced on the day that Hercules Offshore Inc, a U.S.-based offshore driller and liftboat services provider that emerged from bankruptcy in August, said it was exploring strategic options, including selling itself.

Offshore rig services is perhaps the most oversupplied sector of the glut-ravaged oil industry, and many players besides Hercules have begun exploring restructuring options.

Samson Resources Corp filed for bankruptcy in September, while Paragon Offshore PLC has hired a well-known restructuring firm and the investment bank Lazard and has deferred interest payments amid conversations with debtholders....MORE

Thursday, February 11, 2016

"U.S., Russia and other powers agree on ‘cessation of hostilities’ in Syria’s civil war"

Following up on the post immediately below, "Russia’s Prime Minister Medvedev Warns of New World War if US, Arab Troops Invade Syria".

From the Washington Post:
The United States, Russia and other powers have reached agreement on a “cessation of hostilities” in Syria’s civil war that allows for immediate humanitarian access to besieged areas, Secretary of State John F. Kerry announced here early Friday morning.

The end of hostilities, which Kerry avoided calling a cease-fire, is scheduled to go into effect “in one week’s time,” Kerry said. Humanitarian access to towns and cities in Syria where food and medical supplies have been blocked, sometimes for months, is to begin immediately.

“It was unanimous,” Kerry said. “Everybody today agreed on the urgency of humanitarian access. What we have here are words on paper. What we need to see in the next few days are actions on the ground.”

Agreement came after day-long consultations that lasted until early Friday here. Hours earlier, Russian Foreign Minister Sergei Lavrov huddled with his counterpart from Iran, Russia’s ally in backing the Syrian government of President Bashar al-Assad, and Secretary of State John F. Kerry sat down with allies backing the Syrian opposition, before all parties gathered for a joint meeting at which the deal was struck.

Lavrov called cessation of hostilities the “first step” toward a full cease-fire.

The effort has been considered a last chance to stop the carnage in Syria that has left hundreds of thousands dead and sent millions fleeing from the country. What was already a desperate situation in Syria has greatly worsened over the past few weeks, as massive Russian bombardment in and around the city of Aleppo has scattered opposition fighters and driven tens of thousands of civilians toward the barricaded Turkish border.

Participants said they had noted a new resolve in U.S. willingness to stand up to the Russians, who agreed in December to a U.N. resolution calling for a cease-fire in conjunction with peace negotiations...MORE

Russia’s Prime Minister Medvedev Warns of New World War if US, Arab Troops Invade Syria

And in other news...Kris Jenner Calls Kim Kardashian a ''Big Mouth'' After She Tells Caitlyn About Kendall's Victoria's Secret Fashion Show ...

Ah, that schtick never gets old.
Now back to threats of world war from Sputnik (all caveats apply):
As Turkey and Saudi Arabia edge closer to sending ground forces into Syria at the behest of the United States, Russian Prime Minister Dmitry Medvedev has warned that an escalation of the conflict could lead to world war. 
During an interview with German newspaper Handelsblatt, Medvedev warned of dire consequences if the United States and its allies abandon Syrian peace talks in favor of deploying ground forces. 
"All ground operations, as a rule, lead to permanent wars," he said. "Look at what is going on in Afghanistan and a number of other countries. I don’t even mention the ill-fated Libya....MORE
A few days ago Hezbollah was also warning the Saudis. From PressTV:
Ground incursion into Syria, Iraq opens gates of hell: Hezbollah Brigades
We last heard that turn-of-phrase from the Arab League in 2002.

You can probably tell I don't believe Saudi Arabia is going into Syria.

Seriously, the Saudis seem to have their hands full with just the Houthi tribesmen in Yeman, I can't imagine them going up against Russia's T-90 main battle tanks, Su-35 fighter planes and S-400 anti-aircraft missiles, each of which is the best of its kind in the world and all of which are in Syria right now.

So, I'm thinking it's just talk when we see this at al-Arabiya: "Saudi’s decision to send troops in Syria ‘final’"
Here's an Su-35 showing off that we first posted on in 2012. It caught the attention of U.S. Generals:

What Is Going To Happen When Chinese Markets Re-open This Weekend?

So I'm blowing the dust off the contingency plans, magnitude 9 Los Angeles earthquake, poison gas attack on a European capital, reality TV guy becomes U.S. President, and find we don't have one for 'world markets crack as Chinese celebrate New Year'.
Not good.

The Shanghai and Shenzhen markets showed small upticks (~1%) before putting on their party clothes but when Hong Kong reopened  earlier today it promptly dropped 4% and now I'm reading about how bad the Chinese banks could actually be. From Bloomberg:

Bass Says China Bank Losses May Top 400% of Subprime Crisis
  • Manager says 10% asset loss would cut equity by $3.5 trillion
  • China would have to print $10 trillion to recapitalize banks
Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis. 
Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish, Bass, the founder of Dallas-based Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world’s second-biggest economy may end up having to print more than $10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30 percent against the dollar, according to Bass. 
Bass, 46, scored big after betting against mortgages in 2007, racking up gains as the world’s largest banks wrote off more than $80 billion in subprime losses. All his calls haven’t been as prescient. He revealed wagering on a collapse in Japan’s government-bond market in 2010, a short position that Bass later acknowledged that other bond investors had nicknamed “the widow maker.” 
Largest Resetting
“What we are witnessing is the resetting of the largest macro imbalance the world has ever seen,” he wrote in the letter. “Credit in China has reached its near-term limit, and the Chinese banking system will experience a loss cycle that will have profound implications for the rest of the world.”...MORE
Psychologists tell us it's good to have something to look forward to.

PIMCO: "Negative Interest Rates May Be Part Of The Problem"

From Allianz's Pacific Investment Management Co:

Negative Interest Rate Policies May Be Part of the Problem
Investors may see these experimental policy moves as damaging to financial and economic stability
Central banks around the world are developing a newfound fondness for experimenting with negative interest rate policy (NIRP) despite unknown consequences and what appears to be a chilling effect on financial markets.

After initially rejecting the idea given the uncertainties and potential for collateral damage, the European Central Bank in 2014 and the Bank of Japan last month joined the central banks of Denmark, Sweden and Switzerland in negative territory. Now it seems the Fed may be warming to the idea, having gone beyond supportive innuendo to subtle preparation for potentially engaging in NIRP. (One example: The Fed’s 2016 scenarios for bank stress tests, released in late January, included as part of the “severely adverse scenario” the potential for short-term Treasury rates to fall to negative 50 basis points.)

While there is no longer any doubt about the ability or willingness of many central banks to manufacture negative interest rates, their efficacy on growth or inflation is far from certain. In fact, policymakers may have significantly underestimated the economic risks. 
The new abnormalCentral bank advocates of NIRP increasingly seem to portray it as nothing more than a natural extension of conventional monetary policy. In a “normal” interest rate cycle, central banks cut interest rates to reduce nominal and real (inflation-adjusted) interest rates; the goal is to ease the burden on debtors and lower hurdle rates for investment. The belief is that lower rates (even negative ones) are always stimulative, while higher rates are always restrictive. However, risks may increase exponentially the lower rates go and the longer they stay there.

Although it is difficult to know the counterfactual because this is such an unprecedented situation, it appears that NIRP has not been especially impactful in lifting growth or inflation, or in lifting expectations about future growth or inflation. Instead, it seems that financial markets increasingly view these experimental moves as desperate and consequently damaging to financial and economic stability. 
What are the potential negative externalities that could be upsetting financial markets?

Markets
At a minimum, NIRP is a contributing factor to the financial market volatility of the past few months. And contrary to current central bank dogma, NIRP is possibly one of the major catalysts behind the tightening in global financial conditions. While NIRP undoubtedly helps lower government bond yields, which in isolation represents a loosening of financial conditions, it may be causing the opposite effect on overall financial conditions: widening of credit and equity risk premiums, increased volatility and reduced credit availability from a more stressed bank system.

Moreover, NIRP may act to reduce inflation expectations embedded in financial assets rather than encourage anticipation of a return to targeted inflation. Nominal government bond yields can be decomposed into two yield components: a component that represents the expected “real” inflation-adjusted return, and a component that compensates for expected inflation. The exact decomposition is not scientifically determined; individual investors will make their own decisions. But policymakers hope that all of the downward adjustment in yield reflects a lowering of the real yield component and not the nominal yield piece that reflects inflation expectations.....MORE
HT: Barron's Focus on Funds, who has a couple other links worth a look.

Don't Never Ever Lend Money To A Duke

If you are a Baron-or-higher ranked aristo.

That at least is my takeaway from this piece in the Financial Times, Feb. 10:

City grandee Lord Turner warns on peer-to-peer lending risks
Lord Adair Turner, the former chairman of the UK financial regulator, has issued a grave warning on risks building up in the burgeoning peer-to-peer lending industry....MORE
Turner himself is a peer, a Baron, so he should know, although his title is only of the life variety.

This train of thought can be blamed on FT Alphaville's "The curious state of UK “peer-to-peer” lending".
And my dislike for busybody political infighters like Turner, who, if he hangs around long enough, will probably end up with a real title.

Hundreds of Former Sex Slaves Take Up Arms To Do What Obama, Cameron Won't: Kill ISIS Pigs

From the Daily Mail:
The former ISIS sex slaves waging war on their abusers: Hundreds of Yazidi women form an all-female battalion called the 'Sun Ladies' to launch massive assault on Mosul 
Hundreds of former ISIS sex slaves have joined an all-female battalion to launch a massive assault against their abusers in Iraq.

The Yazidi women – who call themselves the 'Force of the Sun Ladies' – have taken up arms in the quest for revenge but also to preserve the future of their race.

They are among around 2,000 captives who have escaped their jihadi tormentors who subjected them to horrific torture and rape and massacred thousands of their loved ones after storming their villages in the summer of 2014.

Now, driven by a collective desire for vengeance, the battalion is preparing for an offensive on the ISIS stronghold of Mosul where many were exchanged by militants to serve as their sex slaves....MORE


"Gravitational waves: discovery hailed as breakthrough of the century"

Following up on yesterday's "Einstein’s theory about gravitational waves could be confirmed tomorrow" which for some reason degenerated rather quickly into "Florida Man..." stories.
From the Guardian:

Scientists announce discovery of clear gravitational wave signal, ripples in spacetime first predicted by Albert Einstein
Physicists have announced the discovery of gravitational waves, ripples in spacetime first anticipated by Albert Einstein a century ago.

“We have detected gravitational waves. We did it,” said David Reitze, executive director of the Laser Interferometer Gravitational-Wave Observatory (Ligo), at a press conference in Washington.

The announcement is the climax of a century of speculation, 50 years of trial and error, and 25 years perfecting a set of instruments so sensitive they could identify a distortion in spacetime a thousandth the diameter of one atomic nucleus across a 4km strip of laserbeam and mirror.

The phenomenon was detected by the collision of two black holes. Using the world’s most sophisticated detector, the scientists listened for 20 thousandths of a second as the two giant black holes, one 35 times the mass of the sun, the other slightly smaller, circled around each other.

At the beginning of the signal, their calculations told them how stars perish: the two objects had begun by circling each other 30 times a second. By the end of the 20 millisecond snatch of data, the two had accelerated to 250 times a second before the final collision and dark merger.

The observation signals the opening of a new window on to the universe.

“This is transformational,” said ProfAlberto Vecchio, of the University of Birmingham, and one of the researchers at Ligo. “This observation is truly incredible science and marks three milestones for physics: the direct detection of gravitational waves, the first detection of a binary black hole, and the most convincing evidence to date that nature’s black holes are the objects predicted by Einstein’s theory.”...MORE

Morning Market Internals

From Between the Hedges:
NYSE Composite Index: 
  • Volume Running +30.0% Above 100-Day Average
  • 0 Sectors Rising, 10 Sectors Declining
  • 14.3% of Issues Advancing, 84.4% Declining
  • 25 New 52-Week Highs, 505 New Lows
...MORE

Twitter and the Wall Street Stupidity Index (TWTR)

In light of headlines like this:
Twitter growth grinds to a halt

I thought we should dust off a December 2013 post:

The Wall Street Stupidity Index 
From Fortune:

A new tool to measure one of the great market forces.

The day Twitter went public not only was profitable in the fiscal sense, but also illuminated a metric that has heretofore been underappreciated by those attempting to comprehend and thereby profit from the laws that guide the market. We will call this potent new tool the Wall Street Stupidity Index. On Nov. 7, 2013, you may remember, the market went down more than 150 points. Yet Twitter hovered cheerfully above the bloodbath, darting about in the sunshine of a 73% increase from its opening price. There were many good reasons for this, of course. Twitter is terrific....
Here's the monthly chart, from the Nov. 7, 2013 IPO, via FinViz. Today the stock looks to open down 7%:
TWTR Twitter, Inc. monthly Stock Chart

CLSA's 2016 Lunar New Year Feng Shui Index

Kung Hei Fat Choy! 
Year of the  Fire Monkey 
Happy Lunar New Year
(we're a few days late to this, sorry)

From CLSA:
Monkey business
How will you and the Hang Seng Index fare with the primate in 2016? Our Feng Shui guide, now in its 22nd incarnation, offers an alternative look at what’s in store this year to help the luck flow in your direction.
 
Like astrologists summoned in the West by politicians and lesser mortals, Feng Shui masters are valued in the Orient by those looking to foretell the future. If you're running a hedge fund, no doubt you'll take our sorcerer’s view on the year ahead with a pinch of salt, but curiosity if not superstition may get the better of you.
 
So stop monkeying around and scroll down to see all manner of forecasts. Our longstanding health warning holds: don’t be a silly monkey and take it too seriously!
Some predictions - All the thrills and spills
New antibiotic brought to market - herbal source declared protected plant · Cloud bursts in massive internet security leak - nothing remains private · South China Sea shipwreck, submerged construction rubble blamed · Google announces new device to allow “reverse smell” searches - pop in your sample to locate the accursed source · “VR disease” explodes with record numbers refusing to remove their Virtual Reality goggles. New “strictly analog” wings planned for psych hospitals · Robot pet plague. Rogue Aibos on the loose, terrify Zoomer Kittys off the street · Major liberalisation in Vietnam as wealth effect prompts popular movement ·
First singing chimp hits top 40 with hip-hop screech track, Bape-attack! · Spate of power blackouts hit global bank data-servers - exposes downside of digital assets · La Nina blamed for record-low temperatures · Air-borne disease threatens Rio Games · Celebrity engagement hits a snag · Gold rallies in September · Mike Nesmith reforms Monkees · New star rises with Elvis Presley covers · Shabani the gorilla releases a line of fragrances · Google translate includes emojis · Plastics cure discovered - harmless chemical hastens decomposition of previously “longlife” pollutant · Oil pricing goes negative; Saudi starts paying people to take the stuff...

So, If The Japanese Yen Is So Important, What Happens Next?

Following up on the post immediately below, "Stocks Crater, Yen Soars".
From FT Alphaville:

JPY, it wasn’t meant to be this way
What must the BoJ be thinking as the yen keeps getting stronger post the Japanese central bank’s announcement of negative rates?
That’s an inverted JPY in blue and the falling Nikkei in yellow YTD. It shows the yen hitting 111 against the dollar as the world gets dangerous once again. According to Fast, the next big level is Y109.21, the level it was at before the additional easing by the Bank of Japan on October 31 2014.

Here’s the 5yr view:
Here’s HSBC’s David Bloom on the possibility of a coming intervention:
Japan’s surprise move to a negative interest rate policy at the end of January similarly had only a temporary weakening impact on the JPY....MORE

"Stocks Crater, Yen Soars"

That headline should probably be reversed as the folks who were into the yen carry trade are now getting out of whatever they bought with the yen carry trade.
They are getting cruched.
From Marc to Market:
The continued sell-off in global equities is the main driver of the capital markets.  It, along with the push lower in oil prices, are pushing core bond yields sharply lower.  
The US 10-year yield is nearing 160 bp having begun the year above 225 bp.    The 10-year gilt yield is at a new record low of 130 bp.  It began the year near 195 bp.  The yield on the 10-year bund is also at new record lows today near 17 bp.  It had begun the year above 60 bp.  The only thing that saves the 10-year JGB yields from going back into negative territory was the fact that Tokyo markets were closed today.  
China and Taiwanese markets were still closed for the New Year's celebration, but Hong Kong re-opened with almost a 4% drop.  The Hang Seng Enterprise Index, which tracks mainland shares, fell nearly 5%.     European bourses have fallen sharply, with most major indices off 2.5%-4.5%.    The Dow Jones Stoxx 600 is off 3.25% near midday in London.  Financials are leading the way with more than a 5% decline., with bank shares off 6.5%.   
Poor earnings at a large French bank and ongoing concerns at a large German bank.   There has been much talk of sovereign wealth funds liquidating investments, and some observers are linking this to the sharp decline in financials.    At the same time, the banks' exposure to the energy sector may also be weighing on sentiment.  In addition, just like the rout, last August tested the ETFs ( the ETFS would open even though all their components may not), the CoCo bonds are being tested now.  On top of this, there is concern about the protection of bondholders under the new Bank Recovery and Resolution Directive.   
The dollar-bloc currencies and sterling are under pressure.  Traditionally sterling moves in the euro's orbit, but in recent weeks, it appears to be closer related to the dollar-bloc currencies.   One explanation for this is that it was not used as a funding currency the way yen, euro and dollar were.  The euro is making new highs since the second-half of October near $1.1355.   Above here is $1.1400 and the mid-October high closer to $1.15.  
The combination of falling share prices and the sharp fall in US Treasury yields have continued to drive the yen higher.  The dollar briefly traded below JPY111.00.  Many observers expected stepped up resistance by Japanese officials, and many cited the JPY115.00 level.  We have been skeptical that there is any such line.  
We recognize intervention as an escalation ladder.  Comments by Ministry of Finance's Asakawa were fairly relaxed, suggesting officials are watching foreign exchange developments to see if it is a speculative run.    The fact that Japanese markets were closed today would not have prevented stronger verbal or material intervention if that is what officials wanted.   
Although we recognize that speculators in the CME futures market have been buying yen and are net long, we do not think that is the main driver.  We think the unwinding of short yen funding positions is playing a key role.  As s a subset of this, many foreign investors that had bought Japanese stocks (record corporate profits, easier BOJ policy where QQE also includes equity purchases)  also hedged out the currency risk.  As Japanese equities are liquidated, the hedge is bought back.....MORE

Oil: Buffet's Favorite Refiner Trying To Get Rid Of Excess Crude, Price Collapses (PSX; BRK.a)

For the last month or two each time Berkshire Hathaway bought more Phillips 66 you'd see headlines like "As Warren Buffett Buys More Phillips 66, Is He Calling a Bottom?" and the temptation would be to put up a post explaining that refiners were a bet on the crack spread and not on the price of oil.

But we didn't.
Sometimes it's best to just go about your business and let folks believe whatever they want to believe.
This is especially true if you can make a buck off of them and their advisers.

Anyhoo, the thing about the spread is, although it is a bet on cheaper input costs (crude) it is also a bet on being able to maintain your higher price for the end product (gasoline).
And now that's a problem.

March WTI $26.83 down 62 cents after trading as low as $26.52.

From ZeroHedge:
The canary in the coalmine of an increasingly desperate energy industry just croaked. With "unusual timing" and at "distressed prices," Reuters reports that Phillips 66 - the major US refiner owned by Warren Buffett - dumped crude oil for immediate delivery into Cushing storage tonight. This sparked heavy selling of the front-month WTI contract (to a $26 handle) and crashed the 1st-2nd month spread to 5 year lows.

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.
“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

graph of difference in inventory levels as of January 22, 2016 to previous 5-year average, as explained in the article text

And now with Reuters reporting on major US refiners dumping crude, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories...MORE
Gasoline prices may have turned the corner for the immediate term but I don't have enough information to make that call. In the meantime we are still betting lower for crude.
Here the hourly gasoline chart from FinViz: