Archive - Mar 14, 2011

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 14/03/11

Does anyone seriously think the global recovery is still intact? Based on what? Does anyone think that stagnant/declining wages, falling real estate values, skyrocketing prices for materials and energy, and belt-tightening by bankrupt States are ideal foundations for higher profits? Anyone who doesn't realize the quake in Japan is a tragic load dumped on a fragile addict's quivering back (i.e. the global recovery) will undoubtedly be surprised by how fast the global economy will start unraveling. Anyone who kept their eyes open is only wondering how a debt and propaganda-fueled recovery lasted this long.

The innovative onslaught and creative destruction of margins in the tablet wars continues. The smart money should wait a few months as these companies slaughter each other to get a tablet. You will probably get more technology than you thought your $190 could ever buy.

The temporary lull in the Bahrain "peace" is over: Saudi troops have invaded the country, which has prompted the country's opposition to declare the escalation an act of war by Saudi Arabia, and as Reuters reports "Saudi troops who crossed into Bahrain were heading in the direction of Riffa, a Sunni Muslim area that is home to the royal family and a military hospital, witnesses said. They saw 150 armored troop carriers, and about 50 other vehicles including ambulances, water tankers, buses and jeeps. The vehicles were lightly armed and there were no tanks or missile launchers in the procession." All this serves as a reminder that should the violence in Bahrain not be contained, and if there is a "reverse invasion" out of Bahrain into Saudi Arabia, the Ghawar oil field, which supplies more oil than any country except Russia and the US, will likely be the first target of retaliating Bahrainis. 

The damage control comes earlier. In an Op-Ed just posted at the FT, Pimco executive Mohamed El-Erian has presented his thoughts on why the Japanese devastation, while disrputive, will eventually lead to another GDP surge: "Japan’s economic growth rate will fall in the immediate aftermath of the natural disasters before rising sharply due to reconstruction activities." Yet even by Pimco standards it is not all good news and the immediate effect will likely be a jump in inflation per the former Harvdardite: "Disruptions to supply chains and the loss of inventories will cause shortages and inflation to spike temporarily from very low levels. The fiscal deficit and public debt will rise meaningfully due to lost revenues and, more importantly, emergency spending. The central bank will ease monetary policy which, given policy interest rates floored at the zero bound, will involve the provision of extraordinary credit and liquidity facilities. Last, the country will receive transfers from abroad, including the repatriation of funds held outside the country by Japanese residents." What however received no mention is Pimco's lamentation that the firm will no longer be able to frontrun Japanese buying of Spanish (and Eurozone in general) bonds: a plan that is certainly put on indefinite hold.

Following the nuclear power plant explosions in Japan over the weekend, the next step once the world gets over its shock, will almost certainly be a worldwide adverse response against any future nuclear developments (explaining the action in shares of Exelon and Areva). It will likely also see countries that have a substantial exposure to nuclear power plants be pressured to migrate to other sources of energy. Below we present a list of the 30 countries that have the largest exposure to nuclear power generation. At the top are Lithuania, France, Slovakia Belgium and Ukraine, all of whom see at least 50% of their energy needs satisfied by nuclear sources. The US is further back, at 20.2% as of 2009 (equivalent to an energy output of roughly 800 TWh). German is at 26.1% while the UK is at 17.9%. It is possible that many of the countries listed below could see social unrest based on concerns of developments comparable to those in Japan, with the respective governments promptly forced to do the old song and dance how nuclear power is the safest available... until the black swan event occurs and it isn't.

A butterfly flapped its wings in Tunisia creating a hurricane that is swirling across the globe, wreaking havoc with the existing social order and sweeping away old crumbling institutions and dictatorships. The linear thinking politicians, pundits and thought leaders have been knocked for a loop. They didn’t see it coming and they don’t know where it’s leading. An examination and understanding of history would have revealed that we have been here before. We were here in 1773. We were here in 1860. We were here in 1929. We are here again. The Fourth Turning has returned in its predictable cycle, just as Winter always follows Fall.

Contrary to prior expectations that all No Fly Zone decisions will have to go through the UN, Reuters reports an Al Jazeera update that US, Britain and France have promised East Libyan rebels the imposition of a No Fly Zone. While the latter two were expected, and hardly relevant considering both are quite impotent at actually imposing "any" zone anywhere in the world, the addition of the US, with its USS Enterprise floating in the region, is rather surprising, especially since the nobel peace prize winning teleprompter announced previously how no unilateral invasion (because that is what a No Fly Zone in essence) decisions would be made.

Gold ticked lower momentarily to $1,417.63/oz on the open in Asia prior to rising to over $1,432/oz where determined sellers sold aggressively, sending gold back down to near Friday's closing price on the London AM Fix (see chart). Silver also rose initially prior to determined selling. Ordinarily, last week's lower silver and gold weekly close would lead to further momentum-driven liquidation but these are no ordinary times. The catastrophe in Japan is already leading to safe haven demand for gold. Premiums for gold bars in Tokyo rose to their highest level since February. Overnight, gold bars were quoted at a premium of $1 an ounce to the spot London prices in Tokyo, up from zero last week and a discount of 50 cents two weeks ago. In Japan, panic buying and stocking up with essentials such as food and gasoline has seen shortages developing, prices rising sharply and concerns of inflation. A bullion dealer in Tokyo said that premiums were higher as the Japanese market is a bit tight on gasoline, so there are inflation risks."