Trade With Larry

Oil? Uhh, is there a problem in the markets out there that has to do with oil? No – couldn’t be. Oh wait, there “was,” as in past tense…in other words, three whole days later there’s no problems now. Good times…good times.

There must have been insanely good, and new, fundamental news that hit the tape because the market RACED so much higher that even the perma-bulls on Fraud Street were shocked. Clearly the oil problem is gone – right? Let’s have a look at the recent news.

• Oil prices plummeted ~7% from its intra-day high. There was no bounce.

• US Services PMI plunged to 53.6, below expectations of 56.3 by the most on record, and is also the 6th month of declines.

• Markit’s PMI summary, “A sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October 2013. The extent of the slowdown suggests that economic growth in the fourth quarter could come in below 2%.”

• Philly Fed data crashed from last month’s 40.8 headline to 24.5. Moreover, it missed the expectation of 26.0.

• Inside the Philly Fed report we read “Firms were less optimistic about employment increases over the next six months and concerns about rising health care costs continue to be reported.”

• Bloomberg reported that “Saudi Arabia and OPEC would find it ‘difficult, if not impossible’ to give up market share by cutting crude production, the country’s oil minister said.” NEVER MIND – oil worries are behind us. My bad!

• The same Saudi oil minister said that the slide in oil prices are due to demand. Said otherwise: global economic growth is slowing. Bullish, right?

• Emerging market debt yield spreads vs. AAA-rated US corporations have nearly doubled in the last few weeks, which is raising eyebrows because Euro banks are on the hook for many of their loans. I wonder if plunging oil prices have something to do with this? Nahh, impossible. No worries.

• Will Russia default again because of the oil slide? Would that impact bankers?

• Small oil firms, like Comstock Resources, are suspending oil drilling (and laying off highly paid employees) because of low prices.

• But large industry is being affected too – “The US-based oil giant ConocoPhillips is cutting 230 out of 1,650 jobs in the UK. This month it announced a 20% reduction in its worldwide capital expenditure budget, in response to falling oil prices…Other big oil firms are expected to make similar cuts to their drilling and exploration budgets. Research from the investment bank Goldman Sachs predicted that they would need to cut capital expenditure by 30% to restore their profitability at current prices.”

• According to Robin Allan, chairman of the UK independent explorers’ association Brindex, the industry was “close to collapse – It’s a huge crisis…”

• Hmm, so now that’s the UK, Canadian, Venezuelan, Norwegian, Mexican, and US oil firms that are being negatively effected, which are already said to be impacting GDP.

Clearly none of these (what’s the word the parrots and lap-dogs regurgitate on TV?) FUNDAMENTALS matter. Nope. No sir – none of it. After all, as reported yesterday, Janet Yellen changed three words in her statement and that’s all that matters.

It should be clear now for all to see what the markets have dissolved into: a hollowed-out shell of free markets; a sickening joke of puppet and puppeteer. The puppeteers are many actually, with a new one joining the fray last evening: The Swiss National Bank (SNB). Of course, the puppets are global stock and bond markets, jumping about like the sock puppets that they are, doing what ever the central planning puppeteers demand.

With the simple 3 word change in the FOMC statement and the SNB joining the global play of the other puppeteers – “NIRP” – the Dow skyrocketed +421 points Thursday. Nooo, the market isn’t rigged by the central bankers – right? Do the puppet masters really have that much power?

Yes, yes they do.


The market was on pins and needles as it waited for the FOMC announcement and Fed Chair, Janet Yellen’s, press conference. Will J-Yell raise rates (LOL), will she keep the language the same, or will she change the language to suggest higher rates in the future? Oh boy, the was such excitement… (can read the sarcasm through the lines?).

When the FOMC statement did hit the tape, some announced that the all-important phrase of “considerable time” was not changed; however, it was. It was changed to…oh my goodness are you ready…it was changed to “patient.” Really? Wow. Big deal.

So the all-knowing sages of the FOMC spent two days discussing a change from “we can wait a considerable time to raise interest rates…” to “we can be patient before we raise interest rates.” Really? Wow. Big deal.

But that’s what it has come down to. The Fed has painted itself into a corner and can’t see a way out, so it changes its language in the most miniscule way and hopes that its prior guesstimates of what it should do actually works. Please watch the following short video that will go a long way as to how the J-Yell came up with today’s plan of action.

“We don’t know what we’re doing”

But there is always a bright side! With the staggering change from “considerable time” to “patient,” the ES had great tradeable ranges – complete with high volume and volatility.


Volatility is the new black. It’s back for the holiday season and shows now signs of going out of style.

The VIX is over 20 for the fourth day in a row. This is the longest stretch since October. For traders who wanted volatility in their stockings, they are in luck.

What does this mean for today’s trade? From Zero Hedge:

Previewing today’s market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets.

While no doubt today’s main event will be the “considerable” FOMC announcement and the Fed’s downward-revised economic projections followed by Yellen’s press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.

FOMC aside, overnight markets were shaped by the now usual suspects: declining energy, with WTI trading again below $55 at last check, and Brent also back below $60. One of the drivers for today’s weakness appears to be a late digestion of yesterday’s story that Russia will race OPEC to the bottom with “plans to boost daily oil exports in the first quarter of 2015 by 6.6 percent to 52.32 million tonnes, quarter-on-quarter, according to Reuters. This follows WTI closing higher (even if literally by pennies) for the first time in a week yesterday, however today’s European session has so far seen both WTI and Brent crude back under selling pressure, with the stronger USD combined with yesterday’s API Crude Oil Inventories showing a build in crude stockpiles of 1.9mln weighing on oil ahead of DoE inventories.

As for the RUB, things appear to have stabilized a bit even if the intraday gyrations remain, and the USDRB was trading a little below 68 at last check, while more and more brokers simply refuse to trade the Russian currency, in line with what was first reported here yesterday. One of the factors leading to the stabilization is that the Russia finance ministry announced it would start selling its own FX reserves on market leading to a brief ruble rally vs USD. Also, PM Medvedev added that order must be brought to Russian FX market, while Kremlin economic aide Andrey Belousov said that Russia was working to stop ‘bacchanalia’ on FX market, according to Interfax. In other Russian news, Sberbank will raise FX, ruble deposits rates starting tomorrow, while president Putin plans no ‘special statements’ on markets, Kommersant says.

An early Merry VIXMAS!


Right now you need a lot of rubles to buy most things, except of course for a barrel of crude.

Overnight, the ruble sank as much as 19 percent to 80.10, before trading at 78 at 3:14 p.m. in Moscow. That was the biggest drop since 1998, the year Russia defaulted on its local debt. The currency erased a gain of 11 percent as investors shrugged off a surprise Bank of Russia decision to take its key interest rate to 17 percent from 10.5 percent. Ten-year government-bond yields jumped 317 basis points to a record 16.4 percent.

According to Bloomberg.

Russian central bank Governor Elvira Nabiullina may resort to capital controls as she runs out of options to revive a currency wrecked by the oil-price slump and international sanctions, money managers from Schroder Investment Management Ltd. to Skandinaviska Enskilda Banken AB said. The ruble has plummeted 58 percent this year even after an 11.5 percentage-point increase in rates and interventions exceeding $80 billion.

So what’s ahead?

The markets started off yesterday by racing higher early on in the trading session, but had a huge swing to the downside. The markets filled the gap from the open, and continued to extend lower. Then the SX crossed over the 50 day moving average, and that trigger more selling. The reversal from the highs and a close below the 50 day moving average shows that the sellers were in control. I suspect we open lower again today. The question is will we gap and go, or rally back on turn around Tuesday? All of this is happening ahead of the FOMC meeting announcement on Wednesday. There is a lot of activity, volatility, and volume flowing in now. Maybe the big money knows something, or this is just pure liquidation of positions, but the markets are telling us something for now.

Maybe it’s don’t hold rubles.


The main topic of last week’s market action was certainly the collapsing crude oil prices. And although everyone’s initial reaction to lower oil prices is that it will be good for the economy and therefore the market, we’re finding out that when the whole sector has been financialized, it can drag stocks lower. This worry will surely be at the top of the list this coming week as well.

In fact, if the following news turns out to be correct, it could get a lot worse. OPEC says it could oil prices to fall to $40 per barrel with no problem.

“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current the environment doesn’t warrant a special OPEC meeting. “We need to wait for at least a quarter” to consider an “emergency” meeting, he said.

From Reuters we read – OPEC’s unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.

Speaking at a conference in Dubai, Abdullah al-Badri defended November’s decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.

“We agreed that it is important to continue with production (at current levels) for the … coming period. This decision was made by consensus by all ministers,” he said. “The decision has been made. Things will be left as is.”

Some say selling may continue as few participants are yet willing to call a bottom for markets.

Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November’s decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.

“Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect,” he said.

If the crude oil market did fall all the way to $40 per barrel and prompted a special OPEC meeting, there will be many more fireworks in the days ahead. Until that time, however, there will also be rally attempts that will surely boost stock values.

More volatility ahead!


A day after stock market crashes in both China and Greece, the US markets sold off today in a big way. On Tuesday morning the US markets almost fell as hard, but buyers bought the lower gap open…and then it turned.The market changed course when an ECB banker announced the same old news as it has many times before: it would buy sovereign bonds “for sure.” The ES exploded to unchanged in short order. That euphoria, however, didn’t last.

Since there were a lot of market moving headlines and stories today (mostly from the oil sector), I will list as many as I can in bullet form.

• Let’s start with more ECB news. Yesterday’s euphoria was reversed as news hit the tape that there is no political will at Draghi’s back to make the purchases. Moreover, the German’s were said to be against it.

• Crude oil was crushed again – it was down over 5% at one point. Most people think that this is good news, and it is for the middle and lower classes but not for Wall Street.

• Many oil businesses are highly leveraged, and a lower price makes for less revenues, lower stock prices, and an inability to service massive amounts of debt.

• JPM says that oil firms account for 18% of the high yield market.

• One analyst believes that 40% of energy “high yield” bonds could go into DEFAULT if prices do not recover from sub $60.00 prices, which hasn’t quite happened yet but came very close today. Moreover, some analysts believe that this could lead to a cascading cycle across the entire junk bond market.

• The energy sector is responsible for a third of S&P500 capex, so losing this is terrible for Wall Street – especially since so few other industries are spending money in capex and rather using cash for share buybacks.

• Reuters reported that in November alone, well permits fell 40%.

• The oil sector is said to support 1.3 million jobs. With all of the above mentioned, one can certainly assume that this will decline rapidly and will not be good for the country.

• And what about some emerging markets? While the lower prices will help some, others are already in trouble. Mexico is scrambling to support the collapse of the peso, while Venezuelan bond yields imply a 93% default probability. Both are due to current oil prices. Both are surely heavily indebted to Wall Street.

• As mentioned above the Greek stock market crashed; 10% on Tuesday and another 8% on Wednesday. A new government may be elected and while no longer declaring an exit of the Euro, it will demand a renegotiation of its Mount Everest-sized debt. How do you think that will go over with Italian, Spanish, German (etc) banks and other debt holders (read: Wall Street)?

• Remember when Ukraine was “saved” with a $17 billion dollar bailout? Good times… How many weeks ago was that? Oh well, it needs another $19 billion bailout next year.

• There’s plenty more, but I’m tired of typing.

By the way, did you hear the one about the US politician who was going to “show Putin who’s boss” by asking Saudi Arabia to flood the market with oil to crush prices, thus killing the Russian economy because he didn’t like Putin’s reaction to the CIA overthrow of the Ukrainian government? Isn’t it odd that politicians rarely, if ever, think about the blow-back?

Same as it ever was.


Let us not forget about China.

They are in fact now the world’s largest economy, officially surpassing the U.S. according to new data from the International Monetary Fund. The IMF says China will produce $17.6 trillion this year, ahead of the $17.4 trillion made by the U.S.

This is the first time since Ulysses S. Grant was president that we are number two. But just like the domestic economic situation here at home, being number one doesn’t mean things are robust and rosy for the Chinese economy.

The Chinese stock market got HAMMERED last night.

From Zero Hedge:

Benchmark index falls as much as 6.2%, most since Aug. 31, 2009, on record volume.

• Value of shares changing hands on Shanghai and Shenzhen stock exchanges reaches 1.18t yuan at 2:51pm, highest on record

• Shanghai Composite earlier rose as much as 2.4%

• Index set to snap five-day 13% win streak

• CSI 300 -4.8%; HSCEI -4.5% in H.K. trading

• CSI 300 snaps record win streak, dropping for 1st time in 13 sessions

• Shanghai margin trading, short-sell balance rose yday to 601.7b yuan

Ironically, and as has been the case throughout the western world, the crash in stocks promptly led to a capital reallocation, and all the earlier moves in other asset classes were quickly reversed as panicked speculators rushed out of stocks into everything else that had been sold off earlier:

• Yield on 4.13% govt bond due Sept 2024 reverses rise, falling 12 bps to 3.730%

• 1-yr IRS drops 4 bps to 3.3400%, reversing earlier rise by as much as 29 bps; 5-yr contracts down 6 bps to 3.5400% after rising by as much as 30 bps

• 7-day repo rate rises 9 bps to 3.5719%

• Yuan falls 0.21% to 6.1855 per dollar after earlier dropping by as much as 0.55%, most since Dec. 2008; PBOC sets reference rate 0.08% higher at 6.1231

That said, it is likely to get much worse before it gets better as the government will now be running and popping bubble after bubble until it extinguishes all the excess liquidity:

• China Securities Depository and Clearing Corp.’s announcement yesterday will significantly reduce source of funds for securities firms and funds as these institutions usually pledge bonds for funding in exchange (bond repurchase) market, ANZ says in note; overall liquidity conditions could be tightened as many financial institutions will have to lower leverage ratio

The liquidity crunch may have already taken place, with the FT reporting that Industrial and Commercial Bank of China, China Construction Bank, Bank of China have raised rates on time deposits to 20% above benchmark over past week. Why else would they be doing this if not to entice depositors to park their cash at just these banks. And how long before everyone else follows, and what happens to inflation then and the biggest bubble of all: housing, which as we have been reporting since the beginning of the year, is teetering on the verge of total collapse?

And we thought things in the oil market were scary.

What a difference a year makes. The narrative this time in 2013 was that an imminent war in the Middle East, particularly between Israel and Iran, could push oil prices sky-high and cause a global economic crisis. Oil was trading around $120 a barrel and there was talk among “analysts” that prices could hit $200.

Well, fast forward to this morning where WTI was down another whopping 2% trading at $65 per barrel, a new four year low. This is on news that Morgan Stanley lowered its 2015 estimate by 29% based on OPEC’s decision and continued weakness in the Chinese economy. The jobs reported which boosted the dollar also hurt oil prices because a stronger dollar makes it more expensive for most countries to buy oil which is a dollar denominated commodity.

In addition there are no signs yet that US output will decrease even after OPEC’s decision. In fact, US oil production has never been higher and is now up to over 9 million barrels per day. The producers are going to keep producers and there are new players in the game.

Last Tuesday we learned that after long years of often acrimonious negotiations, the Iraqi government had signed an agreement with the Kurdistan Regional Government on the division of the output of the oil fields in the Kurdish areas on Northern Iraq. The Kurds agreed to send 300,000 barrels of oil a day south through the Iraqi pipeline while being allowed to independently sell on the international market 250,000 barrels of their own through a different pipeline to neighboring Turkey.

The agreement was reached largely due to the ongoing fighting with the Islamic State (ISIS) which led to the collapse of the Iraqi army and the re-emergence of the Kurdish militia Peshmerga as the dominant force in the north.

The Baghdad government is no longer capable of preventing the Kurds from exporting their own oil and had no choice but to sign the agreement, opening up the way for the entrance of Western oil companies eager to develop new oil fields in the region. A new source of cheap available oil added to the growing global surplus.

When it comes to commodities, there is never a sure thing.


A few days ago I briefly mentioned the National Retail Federation (NRF) data and how it was a shocking -11% lower than the prior year. Every year prior to the start of the Holiday season we’re bombarded with predictions on how “this year” will not only be better that the last, but will be simply marvelous. The GDP expansion from these wallet-emptying purchases will have the economy humming along.

Uh, not so much.

As it turns out, the NRF data shouldn’t get as much press as it does every year at this time. Its predictions are notoriously bad. But why would that matter to a reporter; I guess they just need a story. That being said, as the whole notion of GDP-boosting sales is trumpeted from every corner on Wall Street, any sales miss is bad. There is just too much riding on it.

As you can see from the Commerce Department’s chart below, the NRF predictions of the past six years have been terrible. There is a more interesting and far more important chart, however, below that.


We get this “real” information from Bank of America.

The BAC internal data showed a sluggish start to the holiday shopping season. Spending on BAC credit and debit cards over Thanksgiving and Black Friday declined 1.6% yoy. In order to restrict the sample to holiday-related spending, we are measuring “core control” sales, which nets out food services, gasoline, building materials and autos, making it a comparable sample to the Census Bureau’s data. While not as dismal as the 11% yoy decline reported by the National Retail Federation (NRF), our data supports the weak anecdotes.

As it reads in the BAC chart, this data doesn’t prove that the total shopping season will be a bust, but it sure is off to a bad start.


If you have read my missives before you know that I weight the words of most “teams of experts” or “market strategists” in feathers.

So I got more than a good chuckle from this Business Insider piece because it is perfectly representative of the lunacy that is both the main stream media and the markets. From Business Insider


Wall Street’s predictions for 2015 have been rolling in over the last few weeks.

Overall, all strategists highlighted by Business Insider expect the market to eke out gains in 2015, but only a couple of strategists expect gains to be near the roughly 11% rally the S&P 500 has enjoyed so far this year.

However, NYSE floor governor Rich Barry on Tuesday gave us a look at what some traders on the floor are seeing when looking forward to 2015.

And the short answer: big gains.

Barry writes that, “For hints and clues [about 2015], a few seasoned veteran floor-denizens dusted off their editions of the Stock Traders Almanac (for historical patterns)… Hold on to your helmets, because you might be surprised by some of their findings.”

What these traders found is that there are five big reasons why stock market bulls should be psyched about 2015:

(Psyched? Really, are we twelve?).

1. 2015 will mark, by far, the best year of the 4-year Presidential cycle, and especially in a President’s second term. Since 1939, the Dow has averaged a 16% gain, while the S&P 500 is up 16.3%, on average, in these years.

2. According to the Almanac, years ending in ’5′ have only had one down year in the last 13 decades. The average gain is 28.3% for the Dow and 25.3% for the S&P.

3. In addition, for the current election cycle, the current quarter and the first 2 quarters of next year have produced average gains of 21% for the Dow and S&P.

4. In the last 84 years there have only been 3 times where equity markets were up double digits 3 years in a row (2014 looks like the third-straight). In each of those occurrences, the 4th year was up an average of 23.1%.

5. Pre-Presidential Election years have seen ZERO losers in 76 years.

Basically, it’s a bunch of numerical nonsense attempting to substantiate why the “bulls should be psyched.”

2015 will look like 2014 and 2013 before that because of the Central Banks continued commitment to maintaining low rates and easy money. It may be dressed up a little different in the New Year, but the intent remains the same.