For The First Time Ever, China Shows Footage From Disputed, Man-Made Reef
By Tyler Durden
For the first time ever, Chinese State television has aired construction work on the artificial island known as the Fiery Cross, or Yongshu, Reef in the Nansha Islands, located in the contested territory inside the South China Sea.
Fiery Cross is also claimed by the Philippines, Vietnam and Taiwan however China has been the fastest in actually settling the reef which it converted into a man-made island in 2014 to which it has deployed hundreds of troops.
China Central Television (CCTV) on Tuesday released video of construction work on Yongshu Reef as part of a news report on the performances of a Chinese People’s Liberation Army (PLA) navy song and dance troupe on the reef.
Buildings, roads and lighthouses are beginning to take shape, according to the videos.
As the Global Times reported, “it is probably the first time that CCTV has publicly released video about the reef,” according to Li Jie, a Beijing-based military expert who stressed that the construction on the reef falls within China’s sovereignty and is aimed at regional peace and stability; ironically it is China’s urgent scramble to “reclaim” the reef that has led to much diplomatic fallout with the US, most recently culminating in the USS Stennis being refused access to the port of Hong Kong.
The Chinese government has justified its rapid military buildup on several disputed islets, saying it is simply defending its own territory, while also condemning U.S. Navy patrols in the area as acts of aggression.
China began to reclaim land on Yongshu Reef in August 2014, and several test flights were conducted on an airport in the reef in January, according to the Xinhua News Agency.
Meanwhile, a six-vessel flotilla belonging to the PLA navy’s South China Sea Fleet on Wednesday left a port in Sanya, South China’s Hainan Province for an annual live ammunition drill, which includes simulations of breaking through the blockade of “the enemy” and reconnaissance and counter-reconnaissance drills with submarine forces, Xinhua reported.
Such exposure on reef construction activities and the drills at this particular time come amid hyped-up South China Sea issues and more involvement from countries outside the region, Li said, adding that the naval exercises are part of “a targeted move to improve the Chinese navy’s detection and warning capabilities.”
The flotilla is scheduled to conduct drills in the South China Sea, East Indian Ocean and West Pacific. The PLA Naval Aviation of the South China Sea Fleet and troops on the Nansha Islands will also participate in the drills, along with troops from the North China Sea Fleet, according to Xinhua, The drills are part of the PLA navy’s annual training, Xinhua noted.
“The flotilla also includes the newly-built comprehensive depot ship Honghu, which can provide support for sustained combat at sea,” Li noted, adding that such capabilities are vital for maritime operations, considering China’s vast territorial footprint in the South China Sea.
Clip below.
Support For Anti-Muslim AfD Hits Record High As 60% Agree That "Islam Does Not Belong In Germany"
By Tyler Durden
We recently pointed out that Germany’s Alternative for Germany (AfD) party was gaining significant popularity as the anti-immigrant and anti-Muslim tide continued to rise in Germany. We then noted that everyone in the establishment will be shocked when the AfD’s polling numbers started to climb higher.
We expect much more such back and forth between the “left” and the “right”, which just like in the US, will ultimately benefit the object the media has decided to target for ridicule, until – just like in Austria – Germany’s establishment is shocked when the AfD’s polling skyrockets in the coming months and leads to drastic changes in Germany’s political landscape.
It turns out we didn’t have to wait long for that to become a reality. In a recent survey for ARD , support for Germany’s right-wing populist party AfD is at a record 15% (+1), closing in on the centre-left’s SPD, which fell to 20% (-1), its lowest level of support since 1997. Angela Merkel’s CDU/CSU bloc came in at 33% (-1).
SPD experienced a loss of confidence across the board (family policy, property trust, social justice).
In yet another poll for Bild newspaper by the Insa Institute, an astonishing 61% of Germans agreed that Islam does not belong in Germany. This result further explains AfD’s surge in popularity, as the AfD reportedly has a section in its new party program called “Islam is not part of Germany”, which is a position that 92% of its supporters agree with.
With the AfD only behind SPD by 5 points in the polls, it won’t be long until the AfD is able to close the gap and become Germany’s second most popular party. An increasingly powerful AfD who shares the same anti-Muslim, anti-Sentiment as a growing number of German voters means that the political landscape in Germany is changing rapidly, and significantly.
* * *
As a bonus, the ARD poll indicates that it’s becoming quite clear Obama’s Transatlantic Trade and Investment Partnership (TTIP) proposal has found few supporters in Germany, which will put pressure on Angela Merkel not to support it.
47% view the TTIP proposal as having no economic benefit as opposed to 41% who believe the deal will yield benefits.
Source: Support For Anti-Muslim AfD Hits Record High As 60% Agree That "Islam Does Not Belong In Germany"
"Summer Of Shocks" Is Upon Us: BofA Warns "Own Volatility", Wait To Buy Stocks Until VIX > 20
By Tyler Durden
“Own volatility..” is the subtle message from BofA's Michael Hartnett, who warns “don't add risk before SPX 1950-2000 range and/or VIX>20.” Simply put, as he explains below, bullish “positioning shocks” & “policy shocks” are largely behind us; and there is no bullish “profits shock” coming in a world that cannot cope with a higher US dollar & higher rates.
2016 YTD global total returns: commodities 7.6%, bonds 7.5%, equities 1.1%, the US dollar -5.8%.
Our base case remains:
End of excess liquidity + end of excess profits = end of excess returns = higher weightings in cash, volatility & gold in 2016
Shift from “raging bull” (2009-13) to ‘sitting bull” (2014-15) to “volatility bull” (2016) reflects: a. low probability of Higher EPS & Lower Rates, and, b. redemption, repression, regulation risks
Positioning + policy correctly caused Feb-April risk-rally; post-March we have been sellers into strength; case for volatility once again rising driven by the “3P’s” of Positioning, Policy & Profits
The bullish “positioning shock” is largely behind us: our BofAML Bull & Bear index has jumped from an uber-bullish 0.1 level in Feb to 5.1 today, an 11-month high (Chart 5); cash levels, which were at 15-year highs in Feb according to the BofAML FMS, are falling as investors rotate from cash to corporate bonds; BofAML private client equity allocation is back up to 59% (up from 56% in Feb’16, albeit below all-time high of 63% in Mar’15).
The bullish “policy shock” is largely behind us: the policy “panic” of Feb & March was ended with the BoJ decision last week to disappoint market expectations of further easing; Quantitative Failure stalks Japan (see yen surge and unbelievably low level of JGB yields – 0.31% for the 40-year yields; debt deflation stalks China (watch CN0C Index); and while the ECB is limiting credit spreads, recent ECB actions have coincided with higher euro, not higher bond yields, bank stocks & inflation expectations; meanwhile Fed willingness to raise rates likely will continue to create fear of “events” (Chart 6). The likelihood of a Trump-Clinton election match-up supports our Main Street versus Wall Street theme. Both candidates state support for the working class versus the rich.
There is no bullish “profit shock”: global EPS (Chart 7) & global GDP forecasts continue to be revised lower; good, reliable, cyclical lead indicators, e.g. the SOX index, are rolling over/heading back toward floor of 18-month range; and the decline in US corporate profits has extremely ominous implications for US payroll numbers in coming months (consensus looks for 200k on Friday). Watch credit: the global high yield index (HW00 Index) is approaching all-time highs; a break above 330 would be risk-on, but we think credit fails to hit new highs.
And finally, ahead of tomorrow, we note that profits portend weaker payrolls…
Why Gazprom’s ‘Monopoly’ In Europe Is Far From Over
By Tyler Durden
Submitted by Irina Slav via OilPrice.com,
The first U.S. shipment of liquefied natural gas (LNG) arrived in Portugal last week and Gazprom did not immediately cut its own gas prices for Europe. While European media has hailed the entry of U.S. gas into the market as a game-changer and a monopoly-breaker, in the short term, nothing has changed at all.
Let’s first get things straight: Gazprom is not a monopolistic supplier for Europe, though it’s often called that. The Russian state giant actually supplies about one-third of the gas that Europe consumes. Norway supplies another quarter; so together, the two countries satisfy less than 60 percent of European gas needs. That’s not a monopoly, although the current supply mix means that Gazprom is the single biggest player on the European market.
The U.S., on the other hand, has quickly turned into the world’s biggest natural gas producer thanks to the shale boom. With prices pressed down hard by oversupply, U.S. gas producers are looking for international markets—and Europe is one obvious choice, but not the most lucrative.
According to calculations from one energy industry expert, the price for U.S. LNG landed in Europe could come in at $3.59 per MMBtu. Gazprom’s average price this quarter was $180 per 1,000 cm3, or about $5.14 per MMBtu.
Numbers can be misleading, however, as different calculations make different price assumptions as evidenced by an Oxford Institute for Energy Studies estimate for U.S. and Gazprom prices laid out in an FT article from February.
Now, at first glance things look promising for Cheniere – the company that shipped LNG to the LNG terminal in Lisbon last week. Its gas is competitive. However, we should not forget that the above calculations are based on a price assumption, which, like all assumptions, allows for a wide margin of error. Still, let’s accept the assumption that Cheniere gas is for the moment meaningfully cheaper than Gazprom gas for Europe.
The most logical move for Gazprom, and the scenario considered most likely by media, is to lower prices in order to preserve its market share, much like Saudi Arabia did with oil.
Gazprom is profitable, and it has long-term contracts with its European clients, as the company’s deputy chairman Aleksandr Medvedev told RT. Outside these contracts, it could increase production, of course, but can it “drown” Europe in cheap gas? Perhaps, if it’s cheap enough. But such a scenario is not at all certain. After all, the “drowning strategy” did not exactly do wonders for Saudi Arabia, and it’s now taking steps to diversify away from oil. Russia is aware of this.
But there is something else besides gas prices and Gazprom’s flexibility in this respect that could trip up hopeful U.S. gas suppliers looking for new markets in Europe. In three years, a new gas pipeline will come on stream that will supply Caspian gas to Europe. Initially planned to have a capacity of 10 billion cm3 annually, the Trans Adriatic Pipeline could eventually accommodate double that amount.
Now, that’s …read more
Source: Why Gazprom’s ‘Monopoly’ In Europe Is Far From Over
Has The Long Yen Trade Run Its Course?
By Tyler Durden
Submitted by Bryce Coward via Gavekal Capital blog,
Despite an unprecedented amount of monetary easing taking place at the Bank of Japan, the yen has – since the middle of 2015 – been on a consistently strengthening trend versus the USD. As paradoxical as it may seem in a period when the Fed talked about, and then did raise interest rates coincident to the BOJ firing off ever more arrows, the strengthening yen has been the reality. That reality may be about to take a breather, though, as too many investors have moved to the same side of the boat in betting on yen appreciation while the “smart money” is net short the yen.
In the chart below we show the net commercial trader positioning on yen options and futures contracts. Commercial traders are the “smart money” in that times of their extreme positioning often coincide with inflection points in the markets. They are the opposite of small speculators, who often have extreme positioning at inflection points as well, except that it’s the wrong positioning.
At the moment, the “smart money” commercial traders are carrying a near record net short position on yen options and futures of about 68,000 contracts. Previous periods of positioning near this extreme level have usually coincided with with a pause in appreciation or a selloff of the yen.
Source: Has The Long Yen Trade Run Its Course?
Tesla Is Tumbling In The Pre-Market
By Tyler Durden
The battle between Elon Musk and Jim Chanos continues in the pre-market as non-GAAP exuberance is trumped by epic cash burns and reality-checks from hedge fund managers. The after-hours panic-buying algos appear to have enabled more than a few to exit in a hurry…
Even with near record short-interest…
The squeeze couldn’t hold…
Source: Tesla Is Tumbling In The Pre-Market
A "Recovery" Paradox: Job Cuts In 2016 Are Highest Since 2009 As Initial Jobless Claims Tumble
By Tyler Durden
The paradoxical divergence between the government’s data on initial jobless claims, which in just over half an hour is expected to print at or close to another multi-decade low, and the actual number of layoff announcements by employers as tracked by Challenger Gray, and which continues to soar is puzzling to say the least.
While one can debate the veracity of the BLS’ seasonally adjusted data, one thing is certain: when a company announces it will layoff thousands, it will. So for all those who suggest that all is well with the US jobs picture based on initial claims reports, here is the latest report from Challenger according to which the pace of downsizing increased in April jumped by 35% to 65,141 during the month of April, from the 48,207 layoff announcements in March.
Looking further back, in the first four months of 2016, employers have announced a total of 250,061 planned job cuts, up 24% from the 201,796 job cuts tracked during the same period a year ago. This represents the highest January-April total since 2009, when the opening four months of the year saw 695,100 job cuts in the aftermath of the biggest financial crisis in modern history.
Contrary to popular belief it is not just energy: “We continue to see large scale layoffs in the energy sector, where low oil prices are driving down profits. However, we are also seeing heavy downsizing activity in other areas, such as computers and retail, where changing consumer trends are creating a lot of volatility,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
That said, the energy woes continue and the sector announced another 19,759 job cuts in April, bringing the year-to-date total to 72,660. That is up 26 percent from the 57,556 energy-sector job cuts announced in the first four months of 2015. As energy bankruptcies are only set to accelerate from here, we anticipate many more delayed layoffs from this moment onward.
Computer firms announced 16,923 job cuts during the month; the highest total among all industries. That total includes 12,000 from chipmaker Intel, which is shifting away from the traditional desktop and laptop market and toward the mobile market. To date, computer firms have announced 33,925 job cuts, up 262 percent from a year ago, when job cuts in the sector totaled just 9,368 through the first four months of the year.
Some obligatory spin: “For all intents and purposes, the economy remains strong. The nation’s payrolls have experienced 66 consecutive months of net job gains, a trend that is likely to continue with the new report out Friday. The unemployment rate is at five percent, with a growing number of metropolitan areas at three percent or lower. Yet, job cuts are trending upward,” noted Challenger.
“However, it is not unusual to see heavy job cuts a strong economy. In December 1998, near the height of the dot.com boom, we recorded more than 103,000 planned workforce reductions. The fact is, companies are constantly retooling, and sometimes the …read more
Source: A "Recovery" Paradox: Job Cuts In 2016 Are Highest Since 2009 As Initial Jobless Claims Tumble
"Global LIBOR Scapegoat" Turns To Public Crowdfunding To Fund Appeal
By Tyler Durden
While UBS agreed to pay $1.5 billion to quickly settle charges that the bank manipulated LIBOR, trader Tom “Libor is too high, ‘cos I’ve kept it artificially high” Hayes wasn’t so lucky however. Alas, Hayes’ pockets weren’t that deep and he was the scapegoat UBS chose to offer up to the masses in the wake of the scandal, eventually being found guilty and sentenced to 14 years in jail (later reduced to 11 years).
Hayes, who was the first individual convicted at trial for manipulating what until recently was the world’s most important rate, is now looking to the generosity of the public to help fund his appeal. As Bloomberg reports, the 36 year-old has opened a Fundrazr page in hopes of raising £150,000 enough money to pay for an appeal through with the Criminal Cases Review Commission, an independent organization set up to investigate suspected miscarriages of justice in U.K. courts. According to his lawyer Karen Todner, “Tom’s family are now in possession of fresh evidence, some of which Tom requested in his trial but which UBS and the prosecution did not supply. We believe Tom has a strong case, which our submission to the CCRC will demonstrate.”
Given the fact that evidence was presented showing UBS actually had a “guide to publishing Libor rates” during his trial and he was still convicted, we suspect that nothing will be able to help the former trader at this point. The fund has raised £3,635, although we’re going to go out on a limb and say the trader who cost people and firms a lot of money with his rigging activities, won’t win much of sympathy in the court of public opinion, although there is a possibility some of his former superiors who got away scott-free thanks to his incarceration may feel generous and decide to “tip” him. Anonymously of course.
Source: "Global LIBOR Scapegoat" Turns To Public Crowdfunding To Fund Appeal
A Very Bearish Stanley Druckenmiller Blows Up At The Fed; Reveals His Biggest "Currency" Position
By Tyler Durden
If anyone had wondered if Stanley Druckenmiller’s recent bearishness had dissipated, or transformed into at least modest bullishness as a result of the market meltup, we have bad news.
Moments ago at the Sohn Conference, Druckenmiller raged at the Federal Reserve’s dire monetary policies, saying that low interest rates have caused an environment where “not a week goes by without someone extolling the virtues of the equity market.” The obsession with short term stimulus contrasts with the monetary reform of 80’s which led to the bull market, he added.
The Fed bashing continued when Druck said that “by most objective measures, we are deep into the longest period ever of excessively easy monetary policies. Despite finally ending QE, the Fed’s radical dovishness continues today. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies. In other words, and quite ironically, this is the least ‘data dependent’ Fed we have had in history.”
Wrong: this is the most data-dependent Fed ever, only the data is the daily level of the Dow Jones Industrial Average; this is also why as Druckenmiller added, the Fed “causes reckless behavior” and added that “the Fed has no endgame and the end objective seems to be preventing the S&P from having a 20% decline.”
“Three years ago on this stage I criticized the rationale of Fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself.”
Repeating something else we have long said, Druckenmiller also correctly said that as a result of the Fed’s permissive policies (who can ever forget Chuck Schumer statement to Ben Bernanke: “Get to work, Mr Chairman”) means politicians can avoid things like tax reform. Or pretty much anything else.
However, the Fed’s action is not without a cost, as “the fed has borrowed from future consumption more than ever before.”
He then noted that he is just as concerned about China, also correctly observing that the local “zombie lending” simply can’t stop, and adding that Chinese people don’t need more debt and houses. Which is true, however when debt and houses are merely financialized instruments, then all is well.
If it wasn’t clear already, Drucknemiller is very bearish stocks: “volatility in global equity markets over the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform. Don’t hold your breath for the latter.“
The former Duquesne hedge fund manager, who averaged annual returns of 30 percent from 1986 through 2010, also agreed that negative rates are “absurd”, said that he is bearish stocks, and concluded by revealing what his biggest currency allocation is. “Some …read more
Source: A Very Bearish Stanley Druckenmiller Blows Up At The Fed; Reveals His Biggest "Currency" Position
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