Archive - Mar 13, 2014

To understand economics experts in Feynman’s absence, the best analogy that we can think of is to the methods of a magician. Magicians operate by showing their audience a small window on reality, and then tricking people into mentally filling in the rest incorrectly. Because the economy has so many moving parts, a similar approach also works in economics. Pundits can draw our attention to a couple of indicators, ignore everything else, and make claims that sound realistic even though they make little sense in the bigger picture. One difference between economists and magicians, though, is that economists are often unaware of their trickery because they fool themselves before fooling others. To be clear, we don’t claim to be immune to such deceptions, but we do try to root them out as best we can and will do that here. We’ll look at capital expenditures (capex), in particular...

Perhaps it was his comments today that "a construction boom is coming... tune out the noise and enjoy the bull market" due to lower oil costs and improving weather; but it appears JPMorgan and the permabull are about to part company after 15 years:

*JPMORGAN U.S. CHIEF EQUITY STRATEGIST THOMAS LEE DEPARTS FIRM
*JPMORGAN ANNOUNCES LEE'S DEPARTURE IN INTERNAL MEMO

It is unclear if Lee's next career will be as waterboy for Ben Bernanke on his $250,000/speech global speech tour. What is, however, likely is that in his place JPM will simply unleash an algorithm that keeps raising JPM's "official" S&P500 price target to 100 points above wherever the S&P may be at any given moment.

He may not have been a banker or trader, but the just reported passing of one Jeffrey Corzine, 31, son of the infamous Jon Corzine will likely raise more eyebrows than all previous recently reported banker deaths combined.

With the Sunday Crimean referendum seemingly unstoppable now, its outcome certain, it is set to unleash a chain of events that is not entirely predictable but is at best, ominous, as it will involve the launch of trade, economic and financial sanctions against Russia (despite China's stern disapproval), which will lead to a "symmetric" response in kind by Moscow. And in a worst case escalation scenario, should game theory completely collapse and everyone starts defecting from a cooperative equilibrium state, the first thing to go will be European gas exports from Russia, anywhere from one day to indefinitely. So which European countries are most exposed to the whims of Gazprom? The following map from the WSJ, shows just how reliant on Russian gas exports most European countries are.

Inflation has weakened the yen by 6.8% in the past 12 months… and the cost of living in Japan is now at a five year high.

Copper's China-credit-contraction-driven crash continues as the metal drops to fresh 5-year lows today (on par with Lehman and the US downgrade collapses). Japanese stocks are down over 1000 points from their post-Putin highs. Russian stocks are plunging, Germany's (and Swiss) bonds are surging (as is gold) and European equity and credit markets are in free-fall. But apart from that... Finally we saw the world's angst spill into Yen-carry trades (USDJPY was spanked today - almost biggest drop in 6 months). US equities plunged tick-for-tick with USDJPY (S&P's biggest drop in 6 weeks and red for 2014); Treasury yields were crushed 9-10bps from intraday highs (biggest drop in 2 months); credit spreads banged wider; gold jumped to six-month highs; and EUR weakness (post-Draghi) ramped the USD back near unchanged on the week. VIX was a one-way street higher all day (biggest low-to-high run in 6 weeks) to 6-week highs.

Nearly four thousand years ago, King Hammurabi of Babylon laid out his eponymous “Hammurabi’s Code”, a series of laws that is still famous to this day. Most people know Hammurabi’s Code as “an eye for an eye, a tooth for a tooth”. Yet what few realize is that the code was actually one of the original attempts at government wage and price controls. Today you can see various forms of wage and price controls all over the world– from the blatant (Argentina) to the subtle. Major farm subsidies in the United States, for example, are a form of price controls. Monetary policy (especially keeping interest rates at effectively zero) are a form of price controls. Yet today President Obama is set to lauch another far more obvious form... simply put, the rule of law means nothing.

Shortly after Ukraine found out that financial aid from the US will not be forthcoming (thanks to politicial gridlock); it appears they will be disappointed by the US once again:

*UKRAINE SAID TO ASK FOR ARMS FROM US, FLY SAYS CITING DJ
*U.S. SAID TO DENY UKRAINE REQUEST FOR ARMS, FLY SAYS CITING DJ

It would appear that what is good for US-assisted Syrian Al-Qaeda rebels is not good enough for the vastly outmatched and outnumbered Ukrainians.

Some GAZPROM with your NATOast?

Simple: just don't pay the mortgage. Because here is what happens next: shortly thereafter foreclosure proceedings will begin and at some point, far in the distant future, the bank will finally complete the foreclosure process, claiming the property and putting it on the block with intent to resell (or simply raze it). How far in the future? According to RealtyTrac, the average duration of the foreclosure process for zombie foreclosures is an average of a record 1,031 days. Or just shy of 3 years.

With Russia warning of "boomerangs" and China threatening "unforeseeable consequences" it appears gridlock in Washington is (coincidentally) enabling the US to sit out the first round of shenanigans responses over this weekend's Crimea referendum.

*KERRY SAYS `WE NEED AID FOR UKRAINE AND WE NEED IT NOW'

But as AP reports, Congress won't be able to authorize aid to Ukraine until after March 24 amid disagreements among several Republican. Simply put, No Aid For You...

Having had his fun with minimum-wages and employment supply-demand-disequilibrium, the President of the United States has decided it's time that overtime was "modernized" to save-or-create a few more jobs... "if you like your over-time, you can keep your over-time"

It would appear that 1.39 EURUSD is the line in the sand for Mario Draghi. As pressures build on European competitiveness, Draghi appears to have finally got sick of China buying EURs to diversify its FX reserves away from USDs. This time "whatever it takes" is to drag the EUR lower - on the back of suggestions that OMT 2.0 (new measures - double the effectiveness and just as non-existent) and guarding against deflation (not worried about inflation). The jawbone is working for now as EUR breaks down through 1.39.

The story gets curiouser and curiouser--but so far every piece of new data conforms to our basic analysis of the known facts. Like many others we are following the story of what happened to Malaysia Airlines Flight 370 with keen interest. Much of what we've been told doesn't add up, deepening the mystery. It seems, however, that we can already draw a number of conclusions from the known data by pursuing a logic-based analysis of what is possible and what can be excluded as illogical.

A few moments ago we showed a map of the various Russian military units amassing near the Ukraine border (whose movements we had been tracking for the past several days), so the ongoing less than stealthy escalation by Russian forces in preparation for what by all accounts looks like a preparation to take on east Ukraine should come as no surprise to anyone. And yet, it appears to have surprised Othe head of Ukraine’s National Security and Defense Council, Andriy Parubiy, who earlier today claimed that Russian forces near the border totaled more than 80,000 solders, 270 tanks, 370 artillery systems and 140 combat aircraft: precisely what Zero Hedge readers know already. His assessment: "Ukraine today is facing the threat of a full-scale invasion from various directions."