Goldman Lists Two Conditions For The OPEC Production Cut Extension To Work

Goldman, which has been pushing for higher oil prices with seemingly daily bullish research reports for the past month, and which underwrote the last Saudi Arabian bond issue and is expected to also manage the Aramco IPO (explaining the bank’s conflict of interest), released a note commeting on the latest development in the oil market, which sent the price of crude higher by 3% after Saudi and Russia oil minister agreed to extend the OPEC production cuts by another 9 months through the end of Q1 2018. Specifically, Goldman writes that “today’s announcement will likely further extend the oil price rebound started last week on decent stock draws and low positioning, although the rally so far today has remained modest compared to the move that occurred last year when the OPEC cuts were first announced.”
Even so, Goldman’s oil analyst Damien Courvalin had some caveats. Specifically, he said that for the strategy to work, however, two things have to take place:
compliance needs to remain high and long-term oil prices need to remain low to prevent shale producers from ramping up investment significantly more. In fact, an extension of the cuts should go hand in hand with guidance of future production increases by low cost producers, in our view, with an already notable emphasis by Saudi and others that oil prices will likely remain in a $45-55/bbl long-term range, in line with our forecasts. This leaves us reiterating our 3Q17 $57/bbl Brent price forecast and, with an increasingly likely extension of the cuts, raises our confidence that the oil market will shift into backwardation in 3Q17. His full note below:
Saudi and Russia commit to a 9-month extension of oil production cuts
Saudi Arabia and Russia announced today, May 15, that they had reached an agreement to extend their oil output cuts for another nine months, through Mar-18. This announcement comes ahead of the scheduled May 25 meeting of OPEC members. Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak further pledged in a joint statement “to do whatever it takes” to reduce global inventories to their five-year average. In our view, this commitment to a longer than expected cut by the two largest participants of the output deal significantly increases the likelihood that all participants will agree to such an extension, with the longer duration likely helping to achieve high compliance through 2017.

This post was published at Zero Hedge on May 15, 2017.

Saudi Arabia Lobbying To Amend Sept 11 Law

Following last week’s report that Saudi Arabia is starting to apply pressure on the Trump administration by hinting it could move the Aramco IPO away from New York to some still undeteremined venue due to concerns the recently passed Sept 11 law could make business in the US problematic, on Sunday Saudi Arabia’s foreign minister said he has been lobbying US legislators to change a law allowing victims of the September 11, 2001 attacks to sue the kingdom.
According to AFP, Adel al-Jubeir told reporters he had returned from an extended stay in the United States, which was partly “to try to persuade them that there needs to be an amendment of the law”, the Justice Against Sponsors of Terrorism Act (JASTA). In September, the US Congress voted overwhelmingly to override President Barack Obama’s veto of the JASTA. While 15 of the 19 Al-Qaeda hijackers who carried out the 9/11 attacks were Saudi, Riyadh continues to deny any ties to the plotters who killed nearly 3,000 people, and is worried disclosures in court could lead to material complications about conducting business in America.
“We believe the law, that curtails sovereign immunities, represents a grave danger to the international system,” Jubeir said at a joint press conference with visiting US Secretary of State John Kerry.

This post was published at Zero Hedge on Dec 19, 2016.

The Banking Model from Hell Has Now Killed the IPO Market

The horror stories that continue to spill out about what Wall Street banks are doing behind their cloistered walls have blurred the actual function of Wall Street: to efficiently allocate capital so that new industries can be born and thrive in America, creating new jobs and a rising standard of living for all of our fellow citizens.
In the same week that the U. S. Senate Banking committee was taking testimony that one of the biggest Wall Street banks, Wells Fargo, was opening two million unauthorized customer accounts over at least a four-year span in order to generate fees and meet daily sales quotas, the Wall Street Journal reported yesterday that just 68 new companies had been listed for public trading this year, a drop of 51 percent from the 138 companies that had gone public by this time last year.
Let’s recap what the public has learned over the past eight years about the Wall Street banking model from hell. (1) The greatest housing collapse since the Great Depression resulted from Wall Street banks muzzling their internal whistleblowers who wrote memos to management and shouted from the rafters that the banks’ mortgage loan departments were ignoring their own compliance rules and buying up tens of thousands of mortgages with wildly overstated incomes by the mortgage holder. (2) The banks then knowingly bundled these toxic mortgages into pools and paid the ratings agencies, Standard & Poor’s and Moody’s, to assign triple-A ratings to the offerings (called securitizations). (3) The banks knew these toxic mortgages would fail but they sold them to their customers as sound investments. (4) The banks also used their insider knowledge that the mortgages were going to fail to place bets (short sales) and reap billions of dollars in profits as the U. S. housing market collapsed and families were thrown into the streets.
Last December, ‘The Big Short’ movie began to play in theatres across America, allowing millions of people to see how the unchecked, insidious greed of Wall Street had destroyed the nation’s economy along with the reputation of Wall Street, the ratings agencies and the revolving door regulators. (See video below.) The movie was based on real-life people on Wall Street and adapted from the book by the same title by author Michael Lewis, an authoritative source through his previous career on Wall Street.

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

Theranos: Unicorn Valley’s Madoff Moment

To refresh one’s memory: it was in December of 2008 when Bernie Madoff admitted and subsequently arrested for what is considered the largest financial fraud in history. The main reason for his coming clean? A change of heart? Far from it. It was only for the reason he could no longer hide his pie-in-the-sky metrics (along with payouts) against a backdrop of such financial chaos and reality.
It wasn’t that he could no longer fabricate those metrics any longer. (i.e., for they were all made up to begin with) It was primarily for the fact that even he knew discovery was now inevitable. Why? It was becoming evidently clear for anyone with a modicum of business or financial sense (no matter how much they didn’t want too) that something was wrong. And he knew it. The time scale for discovery had moved from ‘maybe someday’ to ‘any day now.’ He just relinquished first.
Theranos, in my opinion, has many of the same overtones for what transpired during, as well as, in the aftermath of the Madoff scandal. And the residual implications are not only yet to be seen. The consequences that are about to reverberate are going to bring forth reckonings many believed would never come. At least that is – before they could IPO, cash out and avoid it themselves. But if 2016 is any clue? Avoiding might no longer be an option.
In ‘The Valley’ the last 7 or 8 years has seen a morphing of true business fundamentals into a place of pure financially adulterated fantasy.

This post was published at David Stockmans Contra Corner on June 6, 2016.

SP 500 and NDX Futures Daily Charts – Another Unicorn Plops Out of Wall Street

‘Participants in our US markets deal with a technological arms race, conflicts of interest, fleeting liquidity in times of stress, and an ever increasing amount of trading taking place in a vast network of opaque darkness.
The public markets are considered ‘toxic’ by varied participants. Studies point out that institutional bids and offers result in too much price movement. High frequency market makers lament that the orders sent to the exchange, outside their own, tend to be orders that have been ‘exhausted’ everywhere else.
Is this a desirable outcome of modern market structure? Did the Commission envision this when it crafted Reg NMS?’
Joe Saluzzi
Maybe we should call this period in our nation’s history ‘The Carney Wars.’
Stocks pretty much floundered around today, with the two or three tech stock heavy Nasdaq showing a little more spine.
But they did manage to squeeze out another lipstick-smeared crackhead valued IPO, so mission accomplished.
Light volumes, narrow advances, uncertain global situation, looming recession in Europe and weak domestic economy?
Let’s buy. Monkey rally, yay!!
Hey, we *might* get a rally into the FOMC meeting in December, or into year end to plump up those Wall Street bonuses.

This post was published at Jesses Crossroads Cafe on 19 NOVEMBER 2015.

Biotech And VC Bubbles – -An Update

In the late 1990s, some technology companies with little more than a website to their names rushed to go public. Many were greeted by receptive investors before their stocks crashed when the bubble burst.
Today, technology companies have largely avoided initial public offerings because of the availability of private funding. Many that have gone public have performed poorly, offering little incentive for others to do so – and, some investors say, signaling a cooling in late-stage valuations as investors scale back. Meanwhile, hot biotechnology stocks are raising questions about another bubble in the public markets.
IPO numbers illustrate both trends. In 1999, there were 547 initial public offerings priced, with 260 from the technology sector. The next year, there were 440, with 198 coming from the technology sector. But of the 293 IPOs that priced in 2014, 107 were from health care. So far this year, 59 of 159 were health care companies, most of them in the pharmaceutical category, which encompasses biotechnology.

This post was published at David Stockmans Contra Corner on November 6, 2015.

The Japan Post IPO – – -Now That’s A Ponzi!

The global financial Ponzi gets crazier by the day, and more often than not the mad men who run Japan Inc. are front and center. But even Japan’s whacko Prime Minister, Shinzo Abe, has outdone himself with the Japan Post Holdings IPO.
We could start with the fact that after trading up roughly 25% from the offer price in an apparent fit of nationalistic mania, the holding company and its two subsidiaries were valued at $140 billion. Needless to say, that sporty valuation was not owing to the fact that Japan’s 24,000 unit postal savings system experienced a sudden spurt of growth.
In fact, revenue has been falling for years, and net profits have been nothing to write home about. Indeed, the group’s offering release indicated an expectation that the net income of Japan Post Holdings would drop 23% to 370 billion yen in the year ending next March 31.
Stated differently, Abe & Co have foisted on Japan’s retail public, which got upwards of 75% of the shares sold this week, the vastly inflated stock of a dying public bureaucracy which by its own admission is now ‘earning’ 33% less than it did in FY 2013.

This post was published at David Stockmans Contra Corner by David Stockman – November 5, 2015.

Bursting Bubbles Update – – -Alibaba’s Market Cap Has Shrunk By $128 Billion

Alibaba Group Holding Ltd. looked like a sure thing a year ago when it pulled off the largest initial public offering ever. It had a lock on China e-commerce as the economy was surging and consumer spending was steadily rising. Shares soared 76 percent from the IPO price in just two months.
Then it all crumbled. Alibaba came under fire from a China government agency, it cut deals that baffled investors and it replaced its chief executive as growth slowed. Most important, China’s economy turned wobbly, jeopardizing the rise in consumer spending Alibaba needed. Its stock slid down, down, down to the IPO price and then below. The sure thing was no such thing.
What now? Investors who watched $128 billion in market value disappear shouldn’t expect a reprieve any time soon. Atlantic Equities LLP’s James Cordwell, the top-ranked analyst covering the stock, predicts the slowing Chinese economy will undercut e-commerce transaction growth until at least 2016. The many deals Alibaba has negotiated will take time to pay off too.
‘All the operating metrics seem to be pointing in the wrong direction,’ said London-based Cordwell, who topped Bloomberg Absolute Return rankings for his calls on Alibaba and also recommendations across the portfolio he covers. ‘Until investors feel some comfort in that slowdown bottoming out, it will be hard for the stock.’

This post was published at David Stockmans Contra Corner on September 18, 2015.

More Red Cards Falling – -The Dubious Reality Behind The Alibaba Hype

Chinese online retailing behemoth Alibaba took the stock market by storm when it went public almost exactly a year ago.
The September 19, 2014 IPO priced at $68 per share, giving the company aneye-popping valuation of $168 billion.
‘Today what we got is not money,’ CEO Jack Ma said that day. ‘What we got is the trust from the people.’
But in a new, devastating 3000-word cover story for Barron’s, Jonathan Laing struggles to find any redeeming qualities in the company and its stock.
For starters, Laing believes the stock, which closed at $64.68 on Friday, is worth half that.
… Forty-five of the 52 brokerage analysts covering the company still have Buy recommendations on the stock, according to Bloomberg … The average price target of this crowd: $95.50, up nearly 50% from the current level. It’s time to get real. A decline of up to 50% looks far more likely. Alibaba shares trade at about 25 times the consensus earnings estimate for the year ahead, and that should be closer to eBay ‘s (EBAY) multiple of 15 …
In addition to the rich valuation, Laing warns about competition and discusses the history of Chinese IPOs that went from hot to cold.

This post was published at David Stockmans Contra Corner on September 13, 2015.

When a 77% Gain In four Days Is Not Enough – – Inside China’s Lunatic IPO Market

In mostSTOCK MARKETS, a 77 percent return in four days would leave investors feeling ecstatic.
In China, it’s just the opposite – at least when it comes to initial public offerings. That four-day advance in Guotai Junan Securities Co., which completed China’s biggest IPO in five years last month, is the worst start among 190 initial share sales on mainland bourses this year. Every other one recorded a gain at or near the 92 percent maximum allowed, according to data compiled by Bloomberg.
While regulatory pressure on companies to keep their IPO prices low has led to instant gains once the shares start trading, returns are coming under pressure from a flood of new equity and a tumble in the Shanghai Composite Index. The Bloomberg China IPO Index has dropped 25 percent since the end of May, even as authorities considered a suspension of new deals to ease supply concerns.
‘Insanity has a limit,’ said Francis Lun, the chief executive officer at Geo Securities Ltd. in Hong Kong. ‘If Guotai keeps rising like aPENNY STOCK, it will soon become the biggest company in the world, bigger than Apple.’
China’s second-largest brokerage rose 1.4 percent to 34.82 yuan in Shanghai on Wednesday, its first day without a limit-up move. China restricts daily gains to 44 percent for IPO debuts and 10 percent thereafter. The stock dropped 9.8 percent on Thursday.

This post was published at David Stockmans Contra Corner on July 2, 2015.

Federal Agents Investigating Bitcoin Money Laundering Extorted, Stole Over $1 Million In Bitcoin

This is one of those sad times when The Onion realizes it has badly, and permanently, missed its IPO window.
Just released from the Department of Justice
Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud
Agents Were Part of Baltimore’s Silk Road Task Force
Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that allowed users to conduct illegal transactions over the Internet. The charges are contained in a federal criminal complaint issued on March 25, 2015, in the Northern District of California and unsealed today.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U. S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Special Agent in Charge Jos M. Martinez of the Internal Revenue Service-Criminal Investigation’s (IRS-CI) San Francisco Division, Special Agent in Charge Michael P. Tompkins of the Justice Department’s Office of the Inspector General Washington Field Office and Special Agent in Charge Lori Hazenstab of the Department of Homeland Security’s Office of the Inspector General in Washington D. C. made the announcement.
Carl M. Force, 46, of Baltimore, was a Special Agent with the Drug Enforcement Administration (DEA), and Shaun W. Bridges, 32, of Laurel, Maryland, was a Special Agent with the U. S. Secret Service (USSS). Both were assigned to the Baltimore Silk Road Task Force, which investigated illegal activity in the Silk Road marketplace. Force served as an undercover agent and was tasked with establishing communications with a target of the investigation, Ross Ulbricht, aka ‘Dread Pirate Roberts.’ Force is charged with wire fraud, theft of government property, money laundering and conflict of interest. Bridges is charged with wire fraud and money laundering.

This post was published at Zero Hedge on 03/30/2015.

Why The Stock Market Casino Is Dangerous: The Case Of Looney Tunes In the Sand Dunes

On August 4th the Wall Street Journal carried a breathless tale of how a handful of obscure oilfield suppliers were striking immense riches in the sand dunes of Wisconsin. Owing to the ‘shale revolution’, the stock price of an outfit that had originated in the stagnating business of supplying sand traps to golf courses, and which had been at death’s door as recently as 2011, had gone parabolic.
Emerge Energy Services (EMES) presently traded at $145 per share, reflecting a red hot gain of 8.5X over its $17 IPO price fifteen months earlier. In a literal sense, silicon valley had come to the silicon dunes of Lake Michigan, as reflected in EMES’ valuation at 43X its LTM earnings.
Given the fact that EMES’ share price had most recently risen by $100 or $2.5 billion of market just since January 2014, the ‘momo’ story was self-evidently all about upside growth, not current profits or cash flow. In fact, during its 14 quarters as a public filer, EMES had generated negative $50 million of operating cash flow after CapEx. So at a total enterprise value of $3.7 billion, the punters chasing the stock straight up the parabolic curve would seemingly have anticipated some stupendous growth indeed.
Except……except they had no idea about EMES’ sustainable growth potential and didn’t care because the buyers were robots, day traders and flavor-of-the-month hedge funds. They were piling into the stock of a company selling a form (white sand) of the second most abundant low-value commodity on planet earth for no other reason than Emerge Energy Services was another momo play on steroids. The ‘price action’ was the investment thesis.

This post was published at David Stockmans Contra Corner on Jan 2, 2015.