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Lost Interest

The sovereign debt of the developed world has risen from approximately 80% of GDP to 110%, an additional $12 trillion of debt, while interest rates have fallen to nothing. A ‘normal’ short term interest rate is one that is in line with inflation, which has been an average of 2% for the period 2007-2013. Therefore we can roughly calculate that ‘citizen-savers’ of the world have lost $1.75 trillion in unreceived interest. This is nothing short of being an undeclared tax levied by the State. As the quantum of debt has increased, a rise in interest rates would bring hefty costs to the State; currently, interest outlay in the USA alone, at 2.5%, is $400 billion  per annum. Any sustained interest rate rise with the continued level of deficit is not manageable without growth being greater than the yields paid. Simply put, interest rates cannot rise without high growth, therefore a ‘lost interest generation’ is unfolding.


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Europe Can't Even Agree On Russian Trade Sanctions

The (ironically named) United Kingdom is the first to openly raise concerns over trade sanctions against Russia. As The Telegraph reports,

"Britain is preparing to rule out trade sanctions against Russia amid fears that the Ukraine crisis could derail the global economic recovery"

Perhaps it is the fear of a massive liquidity suck out from London's real estate market (or its banking system) that has the Brits on edge. We suspect Germany will be close behind as they eye exploding gas and oil prices and their dependence on Russia's marginal production.


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Monday Humor: World On The Verge? "Get Some Peace Of Mind"

The Cold War being back with a bang and somehow the world again finding itself on the verge of World War got you down? Don't worry, there an insurance policy for that. Because life is unpredictable...


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Ukraine Has Only 4 Months Of Gas Stocks Without Russia

Having explained the Ukraine "situation" in one map, it appears the inter-connectedness of Ukraine and Russia is becoming any increasingly problematic part of the current crisis. As Reuters reports, absent Russian gas, Ukraine's natural gas stocks can meet just 4 months of demand. The modest silver-lining is that the stocks are generally in the west of the country (away from potential Russian intervention) but it bears noting that Ukraine meets around half its gas demand through Russian imports (and Russia has cut supplies in the past). The situatio is not just energy though as Bloomberg notes, that Ukraine relies on Russia for about 30 percent of its global trade activity, compared with Russia’s 6 percent dependency on Ukraine. However, Ukraine has another big problem - while it would like $3bn in IMF loans, that will not even cover interest and principal payments through June...


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BTFWWIII'ers Missing As Stocks Slump Most In A Month

Gold and crude oil prices rose steadily all day even as US equities oscillated around VWAP unable to break above Friday's lows (and trading in a narrow range) on heavier than normal volume. USDJPY and US equities remained roughly coupled but stocks auctioned up and down in search of stops with algos desperate to cling to VWAP on a big down day as a rally mid-afternoon reached the S&P into the green for 2014 and marked the top of the day. Gold ended at 4-month highs, the USD rose 0.4% (led by GBP and EUR weakness), WTI crude back over $104.50 (near 6-month highs), and Treasury yields dropped 5bps or so with 10Y back under 1.60% (2nd lowest yield close in 4 months). VIX jumped above 16% - 1-month highs but still the asset-gatherers demand we BTFWWIII...

 


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Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine

Ukraine is on the brink of civil war. In the country, there is chaos and anarchy.

The life, the security and the rights of people, particularly in the southeast part in Crimea are being threatened.

So under the influence of Western countries, there are open acts of terrorism and violence. People are being persecuted for language and political reasons.

So in this regard, I would call on the President of Russia, Mr. Putin, asking him to use the armed forces of the Russian Federation to establish legitimacy, peace, law and order, stability, and defending the people of Ukraine.


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Ukraine's NATO Member Neighbors To Boost Air Force Presence

As the big questions surrounding the future of the Ukraine crisis persist, the countries neighboring the former communist nation, and especially the Baltic states which are members of NATO, are asking for safeguards should Russian ambitions end up just a little too big to be contained solely by the Ukraine. As a result, the WSJ reports, they are considering calling for a greater North Atlantic Treaty Organization presence in their countries “if the situation gets worse” in the Ukraine, Ojars Kalnins, the chairman of the foreign-affairs committee of the Latvian parliament, said Monday. Mr. Kalnins said that a worsening of the Ukraine crisis “such as an outright invasion” of areas outside Crimea would present a threat to all of Russia’s neighbors, including the Baltic states–which are members of NATO. Such an expanded conflict should be reason for NATO to “bring extra military support to the Baltic region as a safeguard.”


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A Tale Of Two Winters

Presenting the US car market this cold, stormy, sunny, dry, and rainless winter according to "The Haves... and The Have-Nots..."


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Kunstler: "Welcome To The Era Of Failed States"

Welcome to the era of failed states. We’ve already seen plenty of action around the world and we’re going to see more as resource and capital scarcities drive down standards of living and lower the trust horizon. The world is not going in the direction that Tom Friedman and the globalists thought. Anything organized at the giant scale is now in trouble, nation-states in particular.  The USA is not immune to this trend, whatever we imagine about ourselves for now.


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Obama's Latest Tactic: "Isolate Russia"

After once again clearly delineating that Russian "costs" are set to surge, and hopefully he means more than just the drop in the Micex and its artificial, paper wealth effect which Putin couldn't care less about as long as crude is soaring...

  • OBAMA SAYS INCIDENT WITH UKRAINE WILL BE ‘COSTLY’ FOR RUSSIA

... the US president has laid out his latest tactic:

  • OBAMA SAYS HE'S CONSIDERING ECONOMIC STEPS TO ISOLATE RUSSIA

And the punchline:

  • OBAMA URGES CONGRESS TO PROVIDE PACKAGE OF ASSISTANCE QUICKLY TO UKRAINIAN PEOPLE; SAYS SHOULD NOT BE PARTISAN ISSUE ON CAPITOL HILL

Maybe time to send Obamacare to Kiev: so many young, strapping participants just waiting to sign up? Or maybe it just time to raise minimum wages in the Ukraine while giving the local population the safety of mind that comes with investing in the "no risk, guaranteed return" MyRA.


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Preparing For Obama's 2015 Budget With A Chart And A Toy

Our public finances are a mess, notwithstanding the misinformation you’ll hear tomorrow. When President Obama rolls out his proposed budget, you’ll hear boasts about improvements in the deficit since the depths of the Great Recession. You’ll also hear claims that those improvements are easily sustained; that a much talked about “grand bargain” on long-term debt reduction can wait. But once you see through the phony numbers in government projections, it’s clear that we’re on a path from a stupidly high debt burden to a much higher burden. Washington would need to find some leadership and foresight to change that path, and there’s no sign of that happening anytime soon.


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It Turns Out That The "Harsh Weather" Is Actually Boosting The Economy

"January nominal personal spending rose 0.4% (vs. consensus +0.1%). Both durable (-0.4%) and nondurable (-0.7%) goods spending fell on the month. Services spending rose a sharp 0.9%, the strongest gain since the bounce-back from the September 11 attacks in October 2001. Out-sized gains occurred in two categories of services spending: household utilities (+9.7%), boosted by colder weather, and health care (+1.6%) in light of enrollments in the Affordable Care Act exchanges."


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Former Central Banker Admits "[They] Are Making It Up As They Go Along"

A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission: "The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky...I’m becoming more and more convinced that all of the models we use are basically useless... We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right." Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic. But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.


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Ukraine Denies Russia's Denial, Claims Ships Threatened With Seizure

Minutes after Russia denied it had issued an ultimatum to the Ukraine navy, Ukraine's acting president has just denied the denial.

  • UKRAINE'S TURCHYNOV SAYS SHIPS THREATENED IF ARMS NOT LAID DOWN
  • UKRAINE'S TURCHYNOV SAYS SHIPS THREATENED WITH SEIZURE
  • UKRAINE'S TURCHYNOV SAYS SITUATION AROUND FLEET IS DANGEROUS
  • UKRAINE'S TURCHYNOV SAYS RUSSIA INCREASING CRIMEA FORCES
  • UKRAINE'S TURCHYNOV SAYS RUSSIAN BLACK SEA FLEET HAS BLOCKED UKRAINIAN NAVY VESSELS IN SEVASTOPOL BAYS

What is curious here is that while it is clear why Russia would benefit from an escalation in hostilities in the Crimea, on which it did not "start" - i.e., allowing it a clear pretext to enter the "east" and "protect" its citizens - what is becoming clear is that it is Ukraine that is desperate to raise the level of hostilities. Why - if it is to force the hand of NATO, EU or the west in providing assistance, this is a wild gambit, which will backfire massively.


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Warren Buffett Warns Minimum Wage Hike Could Hurt Jobs

"If you could have a minimum wage of $15 and it didn't hurt anything else, I would love it," Warren Buffet told CNBC this morning... "But clearly that isn't the case." And therein lies the rub that apparently the Democrats are incapable of comprehending. Hopefully, now that the Oracle of Omaha has spoken and explained that raising the minimum wage to $15 "wouldn't be a good idea," and suggested a different way to help the poor via the earned income tax credit. Buffett also explained that Obama should add further fiscal stimulus to create (or save, we assume) jobs.


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