Archive - Feb 27, 2014

Russia may be awaiting a diplomatic resolution of the Ukraine crisis, but we wouldn't hold our breath especially with the deposed president Yanukovich set to conduct a press conference tomorrow from Russia's Rostov-on-Don at 5pm local time, where we hardly anticipate a scaling back of the escalation in what is sure to not be an abdication from power. Instead, Putin continues to prepare for the worst and is openly signalling to the West that if he has to fight to regain influence in the Ukraine, he will, as a top Kremlin politician warned last week. As such it was not surprising to read that two Russian warships, the Minsk and the Kaliningrad which last week were sent out on deployment around Syria, crossed back into the Black Sea, most likely in direction Sevastopol, as the build up of Russian forces in the Crimea continues.

Just like in yesterday's scorching 5 Year auction, demand for today's $29 billion in 7 Year paper was blistering, with a yield of 2.105% stopped through the When Issued 2.108%, and the lowest since November as appetite for the belly of the curve is the highest in months. The Bid to Cover was also very strong at 2.723, the highest since November 2012, and like in other shorter-maturity auctions, has reverse the recent declining trend in BTCs. But the most notable features in the conclude auction, the bulk of which will naturally be quickly flipped back to the Fed, is that while Indirects took down 41.12% or spot on with the 12 Month average, and Dealers were left with 34.28%, below the 40.0% TTM average, it left Directs with 24.6% - this was the highest Direct take down in the history of the bond. The Primary Dealers, who have been openly complaining about Direct Bidder participation in bond auctions in recent weeks, will certainly not be happy about this particular development as increasingly more paper goes straight into the hands of Direct bidders.

Missed today's follow up Janet Yellen testimony before the Senate Banking Committee? Don't worry: you didn't miss much, all the bases were covered including winter weather during the winter, the Fed's complete cluelessness about what "full employment" means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the "quantitative" definition of quantitive easing is (Yellen has no idea), why the Fed isn't subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically - something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don't worry - the Fed is on top of it), and, of course, Bitcoin. For everything else, here is Goldman's post-mortem of Yellen's Day Two testimony.

A national average sounds an alarm: investors that drove up the housing market are bailing out

While the "developed" world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn't turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that "Ukrainian banks will be provided with necessary liquid assets, including cash." But there is a condition: the funding will only come "if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website."

Is the groundwork for the "transitioning out" of the US Attorney General being laid? From Reuters: U.S. Attorney General Eric Holder was taken to a Washington, D.C., hospital as a precaution on Thursday after he felt faint and was short of breath during a morning meeting with his staff, his office said in a statement. "He is currently resting comfortably and in good condition. He is alert and conversing with his doctors," according to the statement. Please get well soon Eric: how else will this nation sleep easy at night knowing there are still so many "Too Big To Prosecute" banks out there whose wrists you still have to slap?

Yesterday's "better than expected" New Home sales served as the "good news" pre-market boost to send futures ramping higher once again, if not enough to cause a fresh all time high. Here is what really happened when one spreads the numbers, courtesy of Mark Hanson's housing blog. "If all of the 4 regions were in this morning's New Home Sales print were rounded down to the nearest thousand by the Census Bureau vs up, it would subtract 4k sales, or about 12%.  Even with the massive January seasonal adjustments, this would result in a SAAR headline print of 428k, or flat YoY vs the up 10% reported.   If only the South was flat YoY like the other regions, the same thing would occur. "

Maybe because, gasp, it wasn't the weather?

A currency debasing spider...

The following remarks by John Kerry, borne out of his humiliation over the complete fiasco that was the US intervention in Syria last year and the even greater fiasco that was this year's attempt to get all feuding parties on the table in Geneva, only to see that outcome obliterated as well, appear to be borne out of his disgust at the defunding of the US defense budget, which for Kerry, more than his gross incompetence, is the reason why the US now finds itself in a "new isolationism" leading him to conclude that the US is "beginning to act like a poor nation." One wonders what tipped him off: the fact that the US debt just hit a record high $17,419,220,117,766.69 or that the biggest monetizers of US deficit spending are the Fed, China and just as insolvent Japan?

While the IMF is promising a massive bailout to the Ukraine, and NATO is using the harshest language it can possibly muster to halt Russia in its tracks, Putin is doing what he does best: employing brute force (as seen below), and using even harsher language, to wit: RUSSIA: WEST MUST STOP MAKING PROVOCATIVE STATEMENTS ON UKRAINE.

Two weeks ago, Janet Yellen's testimony to the Senate, following her remarks to the House, were delayed due to inclement weather. Now that it is no longer snowing, she is back behind the mic at the Senate Banking Committee, where she will deliver the same identical prepared remarks as she did last time, but obviously with a different Q&A. Watch it live here.

Russian tat. And now, NATO tit.

• NATO CHIEF SAYS ACTIONS BY ARMED GROUP IN CRIMEA "DANGEROUS AND IRRESPONSIBLE"
• NATO URGES RUSSIA NOT TO DO ANYTHING THAT WOULD "ESCALATE TENSION OR CREATE MISUNDERSTANDING"

And the lie of the day:

• U.S., NATO HAVE NOT DRAWN UP ANY CONTINGENCY PLANS FOR HOW THEY WOULD RESPOND IF RUSSIA INTERVENED IN CRIMEA-NATO'S TOP MILITARY COMMANDER
• THERE IS NO REASON FOR NATO AND RUSSIA TO COMPETE OVER THE FUTURE OF UKRAINE-NATO COMMANDER

Actually, there is, which is precisely why Putin will smile when reading the latest NATO pleadings.

See if you can spot the Durable Goods ex Transports seasonal adjustment outlier.

For now the only number that matters is the capital goods orders nondefense aircraft, aka core capex. It is here that while the sequential print was a modest increase of of 1.7%, compared to expectations of a -0.2% decline, it is the annual number that is of interest. We focus on this, because as can be seen on the chart, the annual change just posted its first annual decline in a year: in the past any such decline would mark the start of a recession, except of course for in 2012 when the New Normal central planning, and the trillions in Fed liquidity injections, made the business cycle as we know it meaningless. So much for that $1+ trillion in QE: it is good to know that it went to stock buybacks and dividends... if not so much to actually investing in future growth.