Late last night we asked if, as the Russian media had reported and only the Russian media, CIA director John Brennan had secretly visited Kiev over the weekend: "Brennan landed in Ukraine on Saturday under an assumed name and held a "series of secret meetings" with the country's "power bloc" Interfax reported, citing an unidentified official in the Ukrainian parliament. The person who said this to Interfax in a phone talk added that John Brennan came to Ukraine not under his real name. According to some yet unconfirmed information, the decision to suppress protesters in Slavyansk, a city in Ukraine's east, with force was advised to Ukraine's authorities by Brennan." One can further admit the meeting was "secret" - if only in intent - not only because of Brennan's assumed fake name (why the secrecy? but because until Russian Interfax- of all places - had reported about what is certainly a key meeting in a nation in which disinformation and counterpropganda is rife - Brennan's meeting was completely unmentioned by the US press. Until today, when moments ago White House speaker Jay Carner confirmed that indeed the CIA director was in Kiev last weekend.
To paraphrase Donald Rumsfeld, we work in the economy we have, not the economy we might want or wish to have at a later time. And what characterizes the economy we have? It's bewildering because nothing works like it's supposed to. For example, getting a college degree was supposed to guarantee a good job and an 80% lifetime wage premium over people without college degrees. But in the economy we have, getting a college degree no longer guarantees a good job, or indeed, a job of any kind: 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college. The payoff for getting a college degree is declining while the risks of becoming a debt-serf due to crushing student loans is rising.
So much hope, so much faith, so much euphoria that the early bounce in high beta crap, which sent biotechs by more than 3%, would finally stick... All for nothing.
Finds the answer is: "very"
During the course of its massive money printing campaign after the financial crisis of 2008, the Fed drove the 30-year mortgage financing rate down from 6.5% to 3.3% at its mid-2012 low. The ostensible purpose was revive the shattered housing market which had resulted from the crash of its previous exercise in bubble finance. But what it really did was touch off another of those pointless “refi” booms which enable homeowners to swap an existing mortgage for a new one carrying a significantly lower interest rate and monthly service cost. Such debt churning exercises have been sponsored repeatedly by the Fed since the S&L debacle of the late 1980s.
As we reported over the weekend, a rather concerned Goldman proclaimed the great momo rally - that one that led to so much gains in 2013 and to many losses so far in 2014 - dead, and in a sign that far less euphoria is coming over the horizon, said that while momentum stocks will hardly recover their panic buying highs, suggested that the best the S&P 500 can hope for - if history is any guide - is for a 5% rise in the broader market over the next 6 months (what it didn't add is that hardly any algos, and certainly no self-respecting TBTF banker, get out of bed for a measly 1% return per month). Perhaps more imprortantly, what Goldman also remarked on was what it thought would be the stocks that should benefit from the rotation out of momo names and into slower growth, low valuation, low momentum names.
Within the last fourteen years, there have been two major market corrections, both of which saw drops of 55% from their highs. That, or more, is the potential for what lies ahead. For those who went through these markets, it was not enjoyable... and those who 'stayed long' have been lucky. To put into perspective how lucky he was, it took 25 years for the Dow Jones to recover to its pre-crash highs after the Great Depression. Likewise, the Dow hit an intraday high of 1,000 in 1962 but never closed above 1,000 until about twenty years later. Whether recent market behavior proves to be merely a dip in the chart is almost irrelevant. The country and financial markets are nearing what could very well be an existential event. Do not be investing like your father or grandfather. Markets today are more like casinos than a way to invest in American growth. Unfortunately, the Federal Reserve has made it impossible to go elsewhere other than your mattress.
We realize the future for blogging was bright, but this bright? Moments ago, Bloomberg View, Bloomberg's in house blogging operation, announced that El-Erian had joined it as a columnist. And just like that Mohamed has his own unedited venue in which to spill all the dirt on his former employer.
With Ukraine no longer paying for Russian gaz, and with Gazprom making it clear Kiev has to a) first pay the overdue $2+ billion in invoice and then b) prepay some $5 billion in gas until the end of the year of Europe gets it, it was only a matter of time before the US Treasury stepped in and paid off part or all of Gazprom's demands. That time is now, when moments ago Jack Lew announced a $1 billion loan guarantee for Ukraine - very much the same way that the US provided billions in loan guarnatees for the now long overthrown Mursi regime in Egypt. And in other news, many more "costly" and "damaging" US sanctions are surely headed Russia's way any second now.
While the so-called "experts" were adamant in repeating that one must ignore all Q1 economic data (because of harsh weather you know), one thing the same "experts" pounded the table on was the earnings growth in 2014 which confirmed that the Fed was correct in tapering and that the corporate sector was well on its way to achieving "escape velocity" and a stable recovery. And then this happened...
As was expected, so called Russian separatists completely ignored Ukraine's 0600 GMT ultimatum to hand over their weapons and give up, which means Ukraine now is in the clear, according to its leaders, to engage in the previously warned military "anti-terrorist" operation. As a result, as Reuters updates, "towns in eastern Ukraine on Monday braced for military action. As the 9 a.m. (07.00 a.m. BST) deadline issued by authorities in Kiev expired, a Reuters reporter in the flashpoint city of Slaviansk, where armed men had seized two government buildings, said there was no outward sign the rebels were complying with the ultimatum." Subsequent reports indicated that since the deadline passed, at least 4 people have been killed however since virtually no "factual" propaganda news out of Ukraine is to be believed, we would heavily discount this update.
What was worst, and naturally will not be discussed at all by the peanut gallery, about Citi's just announced results is that the amount of Citigroup mortgage originations - that key aspect of the trumpeted "housing market recovery" - did what it has done at every other bank. It plunged. Only at Citigroup, it plunged so badly, it just reached a new record low which at $5.2 billion is a 71% drop from a year ago! Long live the housing recovery... in which nobody seems to be participating.
Not entirely surprising given the data from the automakers in recent weeks, but the 3.4% jump in auto dealer sales provided enough juice to push overall retail sales in the US up 1.1% MoM (beating expectations of 0.8% and with last month's data revised higher). This is the biggest month-over-month jump in retail sales since Sept 2012. The question, of course, is whether this auto spike is sustainable to support the overall sales environment or will the ever lowering credit standards of the subprime auto loan market lead to the inevitable collapse in a few months?
The last few days have seen Western anti-Russian rhetoric and red lines escalate dramatically as the military and economic issues come to light in any push back against Putin's pressure. From NatGas export fallacies to "boomerang"-ing sanctions, the west seems stuck (for now).. which brings up the question - why is China and Russia making huge investments in commodity-miners? Russia's largest gold miner Polyus Gold is considering a complete onshoring of its activities and China is buying a huge Peruvian copper mine from Glencore. The outcome would appear to enable both firms to do away with USD but not having to buy this resource in the market... just mine it?
While US equities have spent much of the past several weeks under pressure (the NASDAQ bio tech index has fallen over 21%, the NASDAQ Comp is down over 8% and the S&P500 is down over 4%), BofAML's Macneil Curry is concerned that the VIX index suggests conditions should deteriorate further before greater signs of a base materialize.