Many people are talking about the supply glut while ignoring the mean reversion of global demand now underway. Both are working prices lower.
Andy Xie, independent economist, weighs in on oil’s plunge, as demand wanes in China. Here is a direct video link.
Bloomberg reports on OPEC’s crude oil production forecast. Here is a direct video link.
Another day another meltdown in risk markets. As shown below, non-investment grade bond prices are leading the S&P 500 down to their level, as their yields gap wide with a new found appreciation for the growing default risk in many highly levered sectors.
With cash flow evaporating by the hour in the energy sector–and therefore all the many governments and businesses who have been feeding on it–eyes are now focusing on the reckless levels of debt that was taken on during the heady days of ‘QE-confidence’.
“What were we thinking?” is a phrase back in vogue. The answer of course: ‘You weren’t thinking, you were following false prophets.’
Investment banks have been proving over the past 6 years, that when you can spend $2.7 billion on legal fees in a quarter you can get away with pretty much every crime and violation in the book. Their proceeds of crime cash flow is so plentiful, that they can wrangle out of pretty much every breach with a cost-of-doing-business-payment to regulators or politicians. The trouble is that eventually, it is bad for earnings; and that’s when shareholders finally get peeved and executives fall from grace.
Here is a prediction: Citigroup will go bust a third time and look to the taxpayers for a third bail out before this next down cycle completes. The question is, when, oh when, will we the people, finally cut these corrupt institutions off from the public purse and push the investment banking arms back out to live and die on their own dime? See: Citigroup Expects $2.7 billion in fourth-quarter-legal-expenses.
“Citigroup Inc. said it would spend $2.7 billion to bolster its legal reserves, wiping out the bulk of its expected fourth-quarter profit and delivering a fresh setback in what was supposed to be a turnaround year.
The nation’s third-largest bank also said it would recognize $800 million in so-called repositioning costs, its largest cost-cutting tab since Chief Executive Michael Corbat took the reins two years ago.
The developments signal that the New York company is struggling to put its house in order amid deepening legal probes and uneven economic conditions that pressure profits in Citigroup’s global banking and trading businesses…
Citigroup was the only big bank to disclose major new expenses Tuesday. Top executives of Bank of America Corp. and Wells Fargo & Co. also presented at an investor conference hosted by Goldman Sachs Group Inc.”
For some important historical context see: The Untold Story of the Bailout of Citigroup
