Recap : Oil, SPX Volume, Student Loans


The longer term price action in oil is very interesting. The front end has been rising within a long term wedge:

Even as the back end has been falling:

The reason for the divergence, of course, is the tightening in the Brent – WTI differential. As a result of the surge in US shale production, WTI has been trading at a substantial discount to Brent since 2011. The narrowing of that spread over time has been the largest driver of the different price action at the front and back end of the WTI strip:

If we simply use front Brent futures in place of WTI, we see that the backwardation in the oil market has actually been pretty stable since early 2012:

However, that observation raises a key question. Why has backwardation remained so wide, despite global growth (and hence oil demand, in both EM and DM) that has substantially disappointed expectations, as well as rising shale output that has surprised expectations? I’ve heard of explanations ranging from persistent geopolitical risk premia, to the cost of carrying a short, but I’m not certain if they are sufficient to explain the dichotomy. If any readers think they have an answer – please share!

In equities space, Quantifiable Edges notes that low volume may no longer be a bearish indicator. (bottom was in Feb 2012) Looks like the market continues to get more efficient.

Separately, Goldman did a good piece on student loan debt growth. Did you know that student loan debt is now an eighth of mortgage debt, and substantially higher than Auto Loan, Credit Card, and Home Equity debt? And ONE THIRD of the loans are delinquent at the end of 2012, despite the fact that there are multiple ways to avoid it. (First, federal loans allow for income-based repayment, which limits required payments to a manageable percentage of borrowers’ income. Second, some borrowers are taking advantage of flexibility built into federal student lending programs, which allow for deferment or forbearance under certain circumstances.)

One result of that is that young people have lower credit scores and been less able to take out mortgages: (although the latter is clearly not solely due to student loans)

Finally – a couple of links:

it looks like Google is looking to disrupt the cell phone companies!

This is why political donations that go toward advertising has an effect, and should be limited:


  • German IFO declined to 110.4 vs 110.9 exp and 111.2 prev
  • Canada CPI rose to 2.0% YoY as exp vs 1.5% prev. the Core measure rose to 1.4% as exp vs 1.3% prev
  • US New Home Sales rose 6.4% MoM in Apr vs 10.7% exp and -14.5% prev
  • S&P upgraded Spain by one notch to BBB with a Stable outlook. Fitch upgraded Greece by one notch to B with a Stable outlook.
  • Blackrock said it has sold Portuguese sov bonds this month after having already significantly reducing its holdings of Spanish and Italian debt. WSJ
  • Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets.
  • China’s central bank governor Zhou Xiaochuan said there may be a housing bubble in some cities, an issue that’s difficult to resolve with a single nationwide policy. The Ministry of Housing and Urban-Rural Development has allowed most Chinese cities to independently adjust curbs, the Southern Weekly reported; Hangzhou, a city near Shanghai will limit home price cuts, the Qianjiang Evening News reported. Housing stocks rallied overnight.
  • A former mining magnate with suspected ties to the family of China’s retired security tsar Zhou Yongkang was sentenced to death on Friday on charges of leading a gang on a crime spree spanning two decades. The sentencing of Liu Han, handed down by a court in the central province of Hubei, was the culmination of one of the highest-profile cases against a private businessman since President Xi Jinping took office last year and began a campaign against pervasive graft… With the approval of China’s two previous leaders, Hu Jintao and Jiang Zemin, as well as other senior officials, sources close to the leadership say, Xi broke with an unwritten rule that incumbent and retired members of the Standing Committee were immune from corruption investigations…Although he retired in late 2012 from the elite Politburo Standing Committee, the apex of political power in China, the 71-year-old Zhou wanted to rule from behind the scenes and had become a threat to leadership stability, according to multiple sources with leadership ties. One of Xi’s influential patrons, former vice president Zeng Qinghong, was the catalyst for the investigation into Zhou, three sources with ties to the leadership said. "Zeng proposed to central (authorities) that Zhou Yongkang be investigated for posing a political risk to the collective leadership," one of the sources said…Zhou is believed to have orchestrated the bugging of senior Chinese leaders. At Zhou’s behest, Beijing’s civilian intelligence chief Liang Ke ordered his most trusted men to bug the telephones of Premier Li Keqiang and his immediate predecessor, Wen Jiabao, their families and aides in the run-up to the party’s 18th congress in 2012, said one source close to the current leadership and another who has been briefed about the surveillance… Zhou Yongkang’s son Zhou Bin, who has business interests in the energy sector, is also a key target of the corruption probe. In a sign of Zhou Yongkang’s lingering influence in the security apparatus, Zhou Bin eluded a warrant for his arrest and fled to the United States early last year after receiving a tip-off from an ally, said one source with direct knowledge of the matter. "Central (authorities) were shocked and angry", the source said. – Reuters, h/t FTA
  • Blackrock is calling for international rules that could impose redemption fees for some kinds of funds, to cut the chances of damaging runs during times of market panic – FT
  • There are now more young adults than there are baby boomers. – NYT

Upcoming Data:

  • Mon: US Holiday, BoJ Minutes,
  • Tue: US Durable Goods, Consumer Confidence, Kuroda Speaks, NZ Business Confidence
  • Wed: German GfK Consumer Confidence, EU Money Supply, Australia Private CapEx
  • Thu: Canada Current Account, US Jobless Claims, US Pending Home Sales, New Zealand Building Permits, UK Gfk Consumer Confidence, Japan Unemployment, CPI