Weekend May 15, 2016
A Messy World
Brasília (AFP) - Brazilian President Dilma Rousseff was suspended Thursday to face impeachment, ceding power to her vice-president-turned-enemy Michel Temer in a political earthquake ending 13 years of leftist rule over Latin America's biggest nation.
A nearly 22-hour debate in the Senate closed with an overwhelming 55-22 vote against Brazil's first female president. Pro-impeachment senators broke into applause.
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Puerto Rico has defaulted for the second time in five months, as the island struggles with massive debt obligations and a flagging economy.
Last week, the island's governor said it would pay most, but not all, of the nearly $1bn (£681.6m) it owed, using extraordinary financial measures.
Governor Alejandro Padilla has called for the island to be granted bankruptcy rights like those on the mainland.
Overall, the island has a total debt load of about $70bn, which Governor Padilla has said the island cannot pay.
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Donald J. Trump and Hillary Clinton barreled toward a general election showdown on Tuesday night as they dominated primaries in Pennsylvania, Maryland and other Eastern states, piling up enough delegates to close in on their parties’ nominations.
Looking past their fading rivals, the two even taunted each other in dueling election-night events. Mrs. Clinton chided the Republican’s penchant for harsh language by saying that “love trumps hate.” Mr. Trump was more bluntly dismissive of Mrs. Clinton, saying her appeal boiled down to her gender.
“Frankly, if Hillary Clinton were a man, I don’t think she would get 5 percent of the vote,” Mr. Trump said.
The bull market is exhausting itself. The FED is raising the odds of the economic tail risk they are trying to avoid. It is an ephemeral sugar high. This moment reminds me of he period before the 2008 financial crisis.
Stanley Druckenmiller, Billionaire Trader, WSJ Thursday May 5,2016
All markets, both energy and the stock market, take their cues from internally generated mood of the market participants. A read of the above recent news items causes -me to conclude that mood is decidedly negative.
Just a few years back, Brazil was the mover and shaker in the popular BRIC four country Brazil Russia India China combo. Today impeachment is front burner in Brazil amid the Petrobas scandal. Russia reels from lower energy prices leading to a collapse of the ruble. India is probably in the best shape but still suffers from regulatory strangulation. China seeks to draw attention away from an economic slow down by projecting military strength into the South China Sea. Expect Russia to ramp up its military excursions again for the same reason.
Puerto Rico, a US Territory, is now officially bankrupt. Forty years ago in the market cycle New York, a major city, missed debt payments. Now we have an entire Territory on the rocks. Yet this seems to go unnoticed.
And finally with majorities in the House and Senate, the Republicans have an apparent candidate that none of the Republican ‘establishment ‘ is behind. Welcome to 2016.
Energy
West Texas Intermediate broke to a new high on Wednesday. It climbed to $46.75, a five percent increase in one day. We recently noted in this space that inflation was coming back. Perhaps we need to make that stagflation. Stagflation was a term coined in the 1970s. It denotes a combination of a lack of job growth, inflation, and a stagnant stock market.
Still the rise in oil price has not been enough to stave off oil patch bankruptcies. Eighteen energy firms filed for Chape3r 11 bankruptcy protection in March and April, the most since prices began dropping in the summer of 2014. Some seventy firms have filed for bankruptcy in the US and Canada since prices fell below $100. We predicted this in that no one will buy these firms as that would mean assuming their external debts. It is far more advantageous to buy the assets in bankruptcy court without the debt burden.
Natural gas futures have roared back from the early March low of $1.50. Now trading at $2.17, futures need a weekly close over the last high at $2.30 to affirm the uptrend.
Stock Market
The ten-week rally in stocks from the February 9 low appears to be ending.. Watch the action in Apple shares which have officially entered bear market (down 20%) territory. Recent support is $92.50 while the 200 week MA is at 89.73. Taking both those levels out would be quite negative.
Essentially the large stock indexes have gone nowhere since the highs of last November. The bell weather Transports are also signaling weakness.
Market tops exhibit diminishing breadth with fewer new highs and a lessened leadership. Puerto Rico is not alone with its municipal outsized debt, Chicago and even San Antonio and Houston also have serious future underfunded pension obligations. As we said, the tenor of the markets has changed. We look for a new lows the last week of June.