DB"s "2018 Credit Outlook" - Killer Charts Point To Bearish Not Benign Conclusion

DB’s Jim Reid has released his “2018 Credit Outlook”. In our first pass on this 60-pager earlier, we noted that Reid characterised 2017 as the most “boring year ever”, since it will go down as one of, if not the least, volatile year for the majority of asset classes.

Heading into 2018, Reid characterises risk assets as a tightrope walker who’s successfully negotiated a hire wire since the 2008 crisis. However, the confidence of our risk asset funambulist was always fortified by the knowledge that there was a huge safety net direct beneath him in the shape of the central bank put. In Reid’s own words.

The best analogy for our view on 2018 is that risk assets are like a highly skilled but still relatively inexperienced tightrope walker. Our tightrope walker started his career immediately after the GFC and earned his apprenticeship in very difficult conditions with lots of crosswinds but with the knowledge that a huge safety net existed beneath him. This allowed him to walk across the narrow line with slow but ever-increasing confidence, skill and aplomb. In our analogy the safety net is the central bank put that has continued to help financial markets’ confidence over the last several years in spite of very challenging conditions.

As the tightrope walker steps from December 2017 into January 2018, he’s going to notice a disconcerting change in his safety net.

However in 2018 our tightrope walker will have to move onto the next phase of his career where the structural support of the safety net will likely be slowly weakened. Every time he looks down he’ll figuratively see a central banker loosen or take away a supporting rope. As such his skills and confidence are likely to be tested more than in recent years.

Reid is specifically referring to the growth in the size of the big four DM central bank balance sheets, i.e. the Federal Reserve, ECB, Bank of Japan and the Bank of England. At the end of 2017, the combined size of the big four’s balance sheets is estimated to reach about $14.9 trillion, an increase of about $1.8 trillion on the end of 2016. That’s about to change radically, as he notes.

Assuming fairly neutral and consensus assumptions, central bank balance sheet growth will fall sharply over the next 12-24 months from the near peak levels currently seen.

The chart below shows that on a rolling twelve-month basis, growth will fall sharply, beginning in 2Q 2018. By the end of 2018, DM estimates that the rolling twelve-month growth will have declined about 75% from its 2017 level to about $450 billion. By August 2019, growth will have declined to zero according to DB’s estimate.

As the report notes, this “represents a changing of the guard for ultra-easy policy”. The problem for Reid’s tightrope walker is that he’s come so far, there’s no turning back, even if he knows the risk of a catastrophe is only going to increase for the best part of the next two years. From Reid’s perspective, the threshold in terms of higher risk will be crossed as we move from Q2 2018 in the second half of next year.

So barring an external shock the ECB will be relatively dormant until late in Q2 when speculation will start to mount about what comes next after the current QE extension to the end of September 2018. DB’s expectation is for a quick and full taper in Q4 and the first policy rate hike in June 2019. As such, as we approach the June meeting - which will probably be the earliest that any announcement will occur - more hawkish speculation will likely start to mount about the future of the program. Indeed by the time we get to H2 2018 we’ll potentially be seeing a very different global QE picture to that we’ve been used to in the recent past. By then the Fed will be well into its gradual, but slowly increasing run down of its balance sheet.

As the report notes, the slowdown in QE purchases in 2017 will likely coincide with significantly different conditions to the most recent example in 2014-15.

While markets went through similar balance sheet wind downs through 2014 and into 2015 - driven predominantly by the Fed and ECB - not only was the stock of global QE lower with less central banks conducting such operations, we also had a situation where the tapering was consistent with a reduction in government issuance.

Fast forward to 2018 and a reduction of purchases across the globe could be occurring at a time when there is a move to increase government spending even if this isn’t yet showing up in the forecasts. The US tax plans haven’t been finalized as we go to print but an unfunded tax cut is our base case which will add to the deficit and eventually to treasury issuance. In the UK the budget - seen just before we went to print - included some loosening of the fiscal purse, as the current administration deal with Brexit risks and a population tired of austerity. Even in Germany, the recent election uncertainty and eventual coalition could include some fiscal stimulus.

So we think the tide is turning away from ultra-loose monetary and relatively tight fiscal even if the official fiscal forecasts from most commentators are yet to include much in the way of easing across the globe.

Reid backs up his forecasts with charts for the three key central banks, firstly the Federal Reserve and the Bank of Japan. The chart for the Fed shows that its purchases of Treasuries have never exceeded net supply. In contrast, the BoJ has exceeded net supply during the last four or so years of Abenomics, although the ratio has stabilised at around three times.

Turning to the ECB, the change in ECB purchases versus net issuance will be dramatic as 2018 unfolds.

 

Reid argues that.

Interestingly, if we look at the Fed, BoJ and ECB Government bond purchases versus net supply of domestic Government bonds we can see how the ECB’s removal of QE could be very different to that of the Fed relative to when it started tapering. In addition the supply/demand dynamic for European Government bonds has recently been even more extreme than in Japan…as ECB purchases have recently been seven times net issuance at their recent peak.

So in other words we’ve seen the huge PSPP volume far outstrip the relatively negligible net issuance in the Euro area. While the Fed program was clearly huge in absolute terms, relative to supply it was much more modest. It also declined along with Treasury issuance meaning that yields could be sheltered from the tapering impact.

In Europe we could see government bond QE go from seven times net issuance in Q3 2017 to more in line with it by the end of 2018. As the realisation mounts that ECB QE withdrawal is much more significant in relative terms to that seen in the US in 2014 then fixed income markets could become more vulnerable which may in turn create more volatility and more difficult conditions for credit spreads.
Which…unless we are missing something…sounds very bearish for European credit.

Nonetheless, when it comes to the DB team’s central case for credit spreads in 2018, they are relatively benign. Indeed, DB expects a tightening in Q1 2018, followed by a modest widening from Q2 2018 to the end of the year.

As the report notes, team member “Craig” is more bearish than his colleagues and his views seems more in keeping with the general thrust of the report.

Combining the net purchases versus net issuance data for the Fed, ECB and BoJ, Reid notes.

When we combine these three central bank purchases with net issuance historically in Figure 18 we can see just how supportive the technicals have been for government bonds. This is seemingly peaking out at the end of 2017 and with our forecasts for central bank purchases and a continuation of the 2013-2017 reduction in Government bond net issuance we expect this now to reverse. For choice we think fiscal spending will start to pick up which means these net issuance estimates are probably too aggressive on the downside.

Once again, the correct conclusion would seem to be bearish, although DB seems reluctant to go there. We are even more perplexed when DB cites the risk that inflation will surprise on the upside.

Meanwhile we think the risks to inflation are on the upside…will likely mean that crosswinds pick up as we move through Q2 and into H2 – a period where US inflation might start to more consistently beat on the upside (or at least not consistently miss on the downside) and markets start to think about a June ECB meeting where the end of Euro QE is possibly announced.

Returning to his metaphor of the tightrope walker, DB notes the probability of him remaining on his wire will deteriorate as the year progresses.

If we’re correct on inflation it’s going to be difficult for central bankers to justify anything other than the slow and steady removal of the safety net beneath our intrepid tightrope walker. As such his task will get more difficult purely because his confidence must surely weaken with more risks associated with any fall. As such he’s likely to wobble more. So expect volatility to finally start to increase after surprising many by staying as low for as long as it has done. At this stage the tightrope walker may have enough skill to safely navigate across to the next point (end 2018), however the probabilities of such a successful outcome are likely to be getting lower as the year progresses.

Perhaps Reid has been dissuaded from taking a more bearish stance by the ultra-low environment for volatility which he noted had made 2017 so boring. Indeed, he notes the close correlation between major asset volatility levels and credit spreads.

As we noted in our first pass on DB’s “2018 Credit Outlook”

Reid joins countless other strategists opining on the lack of vol in the past year, asking "why has volatility been so low and can it continue?" His answer is that the most likely reason for volatility being so low is a combination of:

• Synchronised and firm global growth;


• Inflation that has consistently been in the ‘Goldilocks’ range and not accelerating as much as expected in 2017, and;


• Global central bank liquidity which in 2017 has still been close to peak levels.

What Reid neglected to mention is that volatility has itself become a tradeable input – making it reflexive in nature - and one which has been shorted to insane levels, both implicitly and explicitly.

The rapid elimination of the central bank security net coupled with rising inflation are transforming the risk profile for Reid’s tightrope walker, as he acknowledges, and one where the chances of a sustained spike in volatility must be commensurately higher. We know from his writings that Reid is a big Liverpool (soccer) fan, as are we. It’s been a frustrating season so far. So often, the build-up play has been excellent while putting the ball in the back of the net has been elusive. We felt like this about DB"s otherwise impressive report.

New NGO Racket: Smuggling, Inc.

Authored by Soeren Kern via The Gatestone Institute,

• Although the European Union successfully bribed Turkish President Recep Tayyip Erdogan last year -- inducing him to slow the flow of migrants heading through Turkey into Greece -- Italy has received almost 100,000 people so far this year.


• This summer, even more than in previous years, it has become plain that some of the NGOs working in the Mediterranean are acting as something more than intermediaries. Many have in fact been acting as facilitators. This makes the NGOs effectively no more than the benign face of the smuggling networks. Undercover workers have also discovered NGOs handing vessels back to the smugglers" networks, effectively helping them to continue their criminal enterprise indefinitely.


• A group that which seeks to oppose Europe"s current self-destructive insane trajectory can now not even source independent financial support. Groups, however, that continue to push Europe along its current trajectory continue to get all the official support they need. In the difference in reaction to these two groups lies a significant part of the story of the ruin of a continent.

Sometimes it is in the gap between things that the truth emerges.

In recent years Europe has been on the receiving end of one of the most significant migrant crises in history. In 2015, in just a single year, countries such as Germany and Sweden found themselves adding 2% to their respective populations. Although much of the public continue to labour under the misapprehension that those still coming are fleeing the Syrian civil war; in fact, the majority of those now entering Europe are from Africa, particularly from sub-Saharan Africa.

Although the European Union successfully bribed Turkish President Recep Tayyip Erdogan last year -- inducing him to slow the flow of migrants heading through Turkey into Greece -- Italy has received almost 100,000 people so far this year. Spain -- which had ducked much of the movement of recent years -- now finds itself receiving thousands of people who are sometimes (as in this memorable footage from earlier this month) simply landing on the country"s beaches and running straight into the country. In doing so, they are not only breaking into Europe in a fashion that is illegal, but flouting all the asylum protocols, and other protocols, however inadequate, that are meant to exist.

In reaction to such events, the Spanish authorities have done something extraordinary. They have gone the way of the Italian authorities and made more efforts to intercept boats heading towards the country. Not in order to turn them around or block them, but in order to "rescue" them. In merely one day last week, the Spanish coastguards "rescued" 600 migrants. The purpose of the quotation marks around "rescue" is because its use in this context is highly contestable. Somebody may be rescued from a burning car, or rescued from a sinking boat. But if thousands of people intentionally head across narrow stretches of water, it can hardly be said that each and every one of them has been "rescued".

What have they been rescued from? They may be rescued from war. Or they may be rescued from poverty. Or slightly less rosy economic prospects than someone born in Spain. Most of these people have simply been rescued from Africa or whatever their country of origin. This situation leads to the questions which European politicians even now refuse to address -- which is whether Europe should indeed be "rescuing" anyone who ends up in a boat near Europe.

Whenever they are polled, the public in Europe consistently say that they want the migration to slow down or stop. This is a majority opinion in every European country. Across the EU as a whole, a recent survey found that 76% of the European public think that the European Union"s handling of the whole crisis has been poor. But it is in the gap between the treatment of two actors in this crisis that we can discern a terrible fact about the fate of Europe.

Throughout the crisis of recent years -- and especially since the height of the crisis in 2015 -- the official vessels operated by the European states have been joined by members of non-governmental organsations (NGOs), either on the vessels or running vessels of their own. A significant amount of the "rescue" part of the migrant crisis (finding boats and transferring those onboard onto safe vessels or guiding their vessels into port) has been done by NGOs. Organisations such as Save the Children and Médecins sans Frontières have been invited to do this by European government agencies, and many of them receive significant levels of government funding as well as charitable giving from the public.

Yet, this summer, even more than in previous years, it has become plain that some of the NGOs working in the Mediterranean are acting as something more than intermediaries. Many have in fact been acting as facilitators. Agents who have infiltrated the NGO groups have found collusion between the NGOs and the smugglers networks, including coordination with these brutal and mercenary organisations. Investigations have found NGOs to have been breaking their own agreed operating rules by coordinating locations to meet and pick up vessels sent out by the smugglers. This makes the NGOs effectively no more than the benign face of the smuggling networks. Undercover workers have also discovered NGOs handing vessels back to the smugglers" networks, effectively helping them to continue their criminal enterprise indefinitely.

Some NGOs that work to pick up migrants from boats in the Mediterranean and transport them to Europe have been discovered handing vessels back to smuggler networks, helping their criminal enterprise. Pictured: A small rubber boat overcrowded with migrants passes a boat set alight by the crews of Phoenix, a vessel operated by the "Migrant Offshore Aid Station" (MOAS) NGO, after all passengers were evacuated, on May 18, 2017. MOAS"s protocol of torching the smuggling boats after debarkation prevents smugglers from reusing the vessel. (Photo by Chris McGrath/Getty Images)

In frontline countries such as Italy, this unlawful activity has been causing growing public anger. Elsewhere in Europe, the notion that these NGOs are not entirely angelic in their operations is taking longer to sink in. But compare the reaction to them -- in receipt as they continue to be of large quantities of public and governmental money -- with a group that has a different view to that of the NGOs.

At the start of this summer, a group called "Defend Europe" raised money to hire and sail a ship off the coast of Italy. The ship aimed to deter migrants from crossing the Mediterranean. One activist was recorded saying, "We want to get a crew, equip a boat and set sail to the Mediterranean ocean to chase down the enemies of Europe." Some of the other characters and rhetoric associated with this movement may be equally unsavoury. For some weeks, the "Defend Europe" vessel, with banners prominently displayed, has floated in the Mediterranean and told people in a variety of languages, "No Way. You will not make Europe home" and "Stop human trafficking."

Now one may abhor this tactic, approve of it, or feel a whole range of emotions in between. The treatment of "Defend Europe", however, compared to the pro-migration NGOs, is startling. In recent weeks, when the "Defend Europe" vessel had some minor technical problems, it caused undisguised glee in the Western media. The suggestion that a pro-migration NGO vessel might have to rescue it caused even more delight. Now the group has had its sources of funding withdrawn. Not that "Defend Europe" would ever have received government aid. Far from it. But this past week, the US-based crowd-funding website Patreon shut down the group"s profile page, making it impossible for them to raise funds through it. The ostensible cause was that Patreon believed the actions of "Defend Europe" were "likely to cause loss of life."

It may easily be argued, of course, that pro-migration NGOs that are colluding with smuggling gangs and assisting them in their work are "likely to cause loss of life", if not in the Mediterranean then in encouraging thousands of people to give their money to smuggling gangs and encouraging millions more to set out for a new life in a continent which is increasingly less likely to receive them with warmth. A group that seeks to oppose Europe"s current self-destructive trajectory can now not even source independent financial support. Groups, however, that continue to push Europe along its current trajectory continue to get all the official support they need. In the difference in reaction to these two groups lies a significant part of the story of the ruin of a continent.

"The Mood Is Very Pessimistic": US Begins "Removing Furniture And Equipment" From Seized Compound In Russia

Two days after Russian President Vladimir Putin formally expelled 755 American diplomats and announced plans to seize two compounds used by US State Department employees, US officials have started "removing furniture and equipment from the compounds", according to Reuters.

The early start suggests that the US is making every effort to comply with Putin’s demand that the US reduce its 1,200 diplomatic personnel by 60% before Sept. 1, made in retaliation to a bill authorizing fresh sanctions against Russia that President Donald Trump is expected to sign. Late last year, the Obama administration expelled 35 Russian diplomats and seized two Russian diplomatic compounds near Washington, D.C. Putin refrained from responding at the time.

According to Reuters, the movers at the US compounds arrived at around 7 a.m. (0400 GMT) and were seen packing furniture, including beds and lamps, into three white vans over the course of three hours.

Ironically, the US is allowed to choose who stays and who leaves. Because of this, it’s expected that many of those who will be let go will be Russian citizens, Reuters noted. Putin’s decision has severely impacted morale among State Department employees, many of whom have given up on working and are instead updating their resumes and looking for new jobs online, Reuters reports.

“One person at the embassy, who spoke on condition of anonymity because they are not authorized to talk to the media, said staff there were feeling depressed and despondent as they came to terms with the Kremlin"s order.

‘The mood in the office is very pessimistic,’ the person said. ‘Everyone is just loitering, or sitting on job websites looking for a new job.’”

Reuters also noted that Putin’s ultimatum was carefully calibrated to preserve his relationship with Trump after the two world leaders purportedly hit it off over the course of several meetings at a G-20 summit in Hamburg last month.

“The ultimatum issued by the Russian leader is a display to voters at home that he is prepared to stand up to Washington - but is also carefully calibrated to avoid directly affecting the U.S. investment he needs, or burning his bridges with Trump.”

Congress’s sanctions bill risks derailing already tense US-Russia relations, despite Trump’s expressed desire to work more closely with Russia on areas of mutual benefit like containing ISIS in Syria. Vetoing the bill would be seen as a waste of political capital by Trump, who is fighting off allegations that his campaign colluded with the Russian government to tilt the election in his favor, because Congress, which passed the bill with overwhelming majorities in both the House and Senate, would likely be able to override it with a 2/3rds majority.

Despite Trump’s calls for closer ties, the Pentagon may be already contemplating its next steps in the escalating conflict with Russia, which as the WSJ reported will likely involve supplying Ukraine with antitank missiles and other weaponry - a red line for the Kremlin not even the Obama administration dared to cross.

By escalating tensions with Russia, the US also risks straining its relationship with Europe. On Monday, the Germany economy minister said that new penalties against Moscow proposed by US lawmakers violate international law, and that officials in Brussels should consider countermeasures.

Speaking to Funke Mediengruppe newspaper, Brigitte Zypries said that "we consider this as being against international law, plain and simple." She added that "of course we don"t want a trade war. But it is important the European Commission now looks into countermeasures."

She also said that “the Americans can not punish German companies because they operate economically in another country." Retaliatory measures may include limiting US jurisdiction over EU companies, according to a memo leaked to the Financial Times and Politico last month. Some European government officials object to language in the sanctions bill that could limit interactions between US and Russian energy firms related to the construction of pipelines, which European officials believes could damage their trade relationship with Russia.
 

"I Have Taken A Closer Look At The Data From EIA...": Why Horseman Global Is Aggressively Shorting Shale

Having staged a dramatic reversal at the end of 2016, when the world"s formerly most bearish hedge fund - it was net short over 100% in late 2016, which in turn led to a -24% return last year...

... rerisked, turning flat in just a few months, Horseman Global - now short developed markets and long emerging markets, and having lost 8.31% through the end of June - is once again dipping its toes in shorting stocks in general, and shale producers in particular. And, in Russell Clark"s latest letter, the Horseman CIO explains why.

From Horseman Capital Management"s July Monthly Newsleter

Your fund made 85bps net last month. Gains came from FX book and long book.

The big returns in fund management for me always come from finding some perceived wisdom, in which the market so completely believes that its fundamentals are never questioned. Theoretically this should not happen that often, but in my experience, it’s a constant feature of the market. Once you have built a business around an economic proposition you have no financial incentive to question it.

The Japan bubble was built on the view that Japanese corporate culture was inherently superior. The Asian financial crisis had its genesis in the view that Asian corporates borrowing in US dollars was risk free. The dot com bubble in the view that all tech stocks would prosper. The financial crisis was built on the view that US house prices could never see a nationwide fall. The European crisis was built on the assumption that all European government bonds were of equal value. And the recent commodity crash was built on the assumption that Chinese consumption and low interest rates made commodities safe.

Having grown up, and spent my entire investing career in periods of bubble inflation and deflation, I am constantly minded to look for where the market is deceiving itself, and then positioning the fund to benefit from the process of realisation. Many years ago, I could see that the commodity bubble was ending, and Chinese growth was peaking. This meant that commodities would be weaker and inflation lower, making a short commodities, long bond position very effective. It was a great strategy, but its effectiveness ended early last year.

The good news is that new market delusion is now apparent to me. When I moved long emerging markets, and short developed markets, the one commodity I could not give detailed bullish reasons for was oil. Unlike most other commodities, the oil industry, in the form of US shale drillers has continued to receive investment flows throughout the entire downturn.

I had shorted shale producers and the related MLP stocks before, and I knew there was something wrong with the industry, but I failed to find the trigger for the US shale industry to fail. And like most other investors I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further. However, I have taken a closer look at the data from EIA and from the company presentations. The rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money. If US rates continue to stay low, then it is possible that the high yield markets may continue to supply these drillers with capital, but I think that this is unlikely. More likely is that at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the 

next month (Source: EIA).

What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me. A broader commodity squeeze also looks likely to me.

In the latest letter"s sector allocation, Clark also added the following section providing a more detailed explanation why he has boosted his shale short to 15.5%:

We are negative on the US shale sector, during the month we increased the short exposure to oil exploration and MLPs to about 15.5%. Conventional oil wells typically produce in 3 stages: the start-up rising production stage lasts 2 to 3 years, it is followed by a plateau stage which lasts another 2-3 years and a long declining stage, during which production declines at rates of 1% to 10% per year. These wells generally produce over 15 to 30 years (Source: Planete energies).

In contrast, production from unconventional / shale wells peaks within a few months after it starts and decreases by about 75% after one year and by about 85% after two years (Source Permian basin, Goldman Sachs). This means that, in order to keep producing, shale producers need to constantly drill new wells.

Shale drilling is characterised by drilling horizontally into the layers of rock where hydrocarbons lie. Then hydraulic fracturing which consists of pumping a mixture of water, proppant (sand) and chemicals into the rock at high pressure, allows hydrocarbons to be extracted out to the head of the well.

Since 2016, as oil prices rallied, the number of rigs in the Permian basin, which is currently the most sought after drilling area in the US, rose from about 150 to almost 400. Furthermore, operations have moved into a high intensity phase as wells are drilled closer together, average lateral lengths increased over 80% from 2,687 ft in early 2012 to 4,875 ft in 2016 and the average volume of proppant per lateral foot more has than doubled (Source: Stratas Advisors).

Intensive drilling is causing a problem called ‘frac-hits’, which are cross-well interferences. These happen when fracking pressure is accidently transferred to adjacent wells that have less pressure integrity. As a result a failure of pressure control occurs, which reduces production flow. In the worst cases, pressure losses can result in a total loss of production that never returns. According to a senior reservoir engineer at CNOOC Nexen, frac-hits have now become a top concern, they can affect several wells on a pad along with those on nearby pads (Sources: Journal of Petroleum Technology).

A former engineer for Southwestern Energy said that frac-hits are very difficult to predict, the best way to respond is with trial and error and experimenting with well spacing and frac sizes to find the optimal combination.

In May Range Resources reported that it was forced to shut wells in order to minimise the impact of frac-hits. This month Abbraxas Petroleum said it will be shutting in several high-volume wells for about a month (Source: Upstream).

In the Permian basin new well production per rig continued to decline in June, from 617 barrels per day down to 602. In the meantime, legacy oil production, which is a function of the number of wells, depletion rates and production outages such as frac hits, is continuing to rise. (Source: EIA)

In light of the above growing short bet on shale, this is how Clark is positioned:

The analysis leads me to be potentially bearish on bonds, bearish on US shale drillers, but bullish on commodities. Over the month, we have added to US shale shorts, while also selling our US housebuilder longs. We continue to build our US consumer shorts, where the combination of higher oil prices and higher interest rates should devastate an industry already dealing with oversupply and the entry of Amazon into ever more areas. The combination of long mining and short shale drillers has the nice effect of reducing volatility, but ultimately offering high returns. The combination of portfolio changes has taken us back to a net short of over 40%. I find market action is supporting my thesis, and the research and analysis is compelling. Your fund remains short developed markets, long emerging markets.

While we will have more to say on this, Clark may be on to something: as the following chart from Goldman shows, the number of horizontal rigs funded by public junk bond issuance has not changed in the past 3 months. Is the funding market about to cool dramatically on US shale, and if so, just how high will oil surge?

Here Are The Latest Updates On Trump's Refugee Ban

Less than 48 hours after announcing his executive order on refugees, global opposition to Trump intensified on Sunday as world leaders, US (mostly tech) companies and civil rights groups condemned the move to temporarily limit entry from predominantly Muslim countries.

Here are the latest updates in the ongoing saga as of noon on Sunday:

• Global government lash out at order. Governments from London and Berlin to Jakarta and Tehran spoke out against Trump"s order. A spokesman for the U.K."s Theresa May, who visited Trump on Friday and hadn"t commented during the day yesterday, told the AP May does "not agree" with the order. Canada PM Trudeau, in a tweet, said on Saturday Canada would welcome those fleeing “persecution, terror and war. Canadians will welcome you, regardless of your faith.” Scotland"s Nicola Sturgeon endorsed Trudea"s tweet. A similar message was sent by Dutch Prime Minister Mark Rutte, who said refugees deserve a safe haven regardless of their background or religion. Danish Foreign Minister Anders Samuelsen said the decision was unfair.  Germany pledged to play a bigger role on the international stage.


• US tech companies "do not support:" Netflix Inc.’s chief executive officer said the changes were “un-American”; Alphabet Inc.’s Google advised staff who may be impacted by the order to return to the U.S. immediately; commeting on the order, Apple"s Tim Cook said "It is not a policy we support"


• Lyft donates $1 million to ACLU. In an email from Lyft to users, the company noted that the executive order is “antithetical to both Lyft’s and our nation’s core values. We stand firmly against these actions, and will not be silent on issues that threaten the values of our community.” The release went on to note that the company pledged to donate “$1,000,000 over the next four years to the ACLU to defend our constitution.”


• Uber slammed. Lyft’s response to the protests contrasted to that of its rival, Uber. While Uber’s CEO Travis Kalanick pledged to compensate drivers stranded overseas due to the executive order, he did not specifically condemn the executive order.  The company was criticized for the tone-deaf response from its CEO, prompting a new hashtag on Twitter: #DeleteUber.


• Trump refuses to relent. Despite the global criticism, Trump was steadfast as of Sunday morning, tweeting twice on the topic, first saying that "our country needs strong borders and extreme vetting, NOW. Look what is happening all over Europe and, indeed, the world - a horrible mess!"  following it up with "Christians in the Middle-East have been executed in large numbers. We cannot allow this horror to continue!"

Our country needs strong borders and extreme vetting, NOW. Look what is happening all over Europe and, indeed, the world - a horrible mess!

— Donald J. Trump (@realDonaldTrump) January 29, 2017

Christians in the Middle-East have been executed in large numbers. We cannot allow this horror to continue!

— Donald J. Trump (@realDonaldTrump) January 29, 2017

• Federal Judge issues nationwide stay, partially blocking the Trump immigration order. A Brooklyn judge temporarily blocked Trump’s administration late Saturday from enforcing portions of his order, however neither ruling strikes down the executive order, which will now be subject to court hearings.


• Another ruling: A Boston judge ruled to release two Iranian professors from Logan International Airport, according to the Boston Globe. The decision also stated that travelers could not be removed OR detained for 7 days.


• White House comments on judge"s ruling: "Nothing in the Brooklyn judge"s order in anyway impedes or prevents the implementation of the president"s executive order which remains in full, complete and total effect," White House adviser Stephen Miller told reporters.


• White House Chief of Staff Reince Priebus "we apologize for nothing": Priebus told "Meet the Press" the situation yesterday "wasn"t chaos." He appeared to contradict an official clarification by the White House, when he said on Sunday green-card holders won"t be impacted by the order going forward, but could face additional screening at CBP "discretion." Other countries could be added to order.


• DHS continues to enforce the travel ban. Despite the ruling, the DHS vowed early on Sunday to continue implementing the order, stating it will "enforce all of the president’s executive orders in a manner that ensures the safety and security of the American people." It added that "President Trump"s Executive Orders remain in place — prohibited travel will remain prohibited, and the U.S. government retains its right to revoke visas at any time if required for national security or public safety."


• The initial statistics: A DHS official told CNN that there were 109 travelers barred from entry to the U.S. when Trump signed the order. It was unclear how many were deported vs. detained.


• Opening for democrats: As Axios points out, after spending nearly two months back on their heels. Sen. Cory Booker of New Jersey showed up at Dulles airport, then tweeted last night: “I am driving North now from Virginia. I will check in on things at Newark airport tomorrow." Virginia Gov. Terry McAuliffe held a press conference on a concourse at Dulles, calling the order “antithetical to the values that make America great. It will not make our country safer." @HillaryClinton tweeted: “I stand with the people gathered across the country tonight defending our values & our Constitution. This is not who we are."


• Republicans revolt: As Axios also notes so far 10 GOPers have announced opposition to or questioned Trump"s executive order. These include Sen. John McCain; Rep. Carlos Curbelo; Rep. Ileana Ros-Lehtinen; Rep. Charlie Dent; Rep. Brian Fitzpatrick; Rep. Justin Amash; Rep. Barbara Comstock; Sen. Susan Collins; Sen. Jeff Flake; Sen. Ben Sasse.