Archive - Mar 17, 2014

It was almost exactly one year ago to the day that an entire nation was frozen out of its savings… overnight. Cypriots went to bed on Friday thinking everything was fine. By the next morning, they had no way to pay bills or buy food.  It’s certainly a chilling reminder of how quickly things can change. And why. The government was too insolvent to bail anyone out. And as a member of the eurozone, Cyprus didn’t have the ability to print its own money. So they did the only thing they could think of– confiscate customer deposits. Now, in the Land of the Free, you now have an insolvent government and insolvent central bank underpinning a commercial banking system that is incentivized to make risky, stupid bets with their customers’ money. And if there is one thing we can learn from the Cyprus bail-in, it’s that it behooves any rational person to have a plan B, even if you think the future holds nothing but sunshine and smiley faces.

The scenario that best fits the facts is a spontaneously initiated "drastic political protest" by the captain that went awry.

Today Kermit rang the bell for the NYSE. That is all.

The Dow has retraced half of last week's losses as exactly what everyone expected (a "yes" vote followed by US/EU sanctions and no actions yet by Putin) occurred.  The S&P was ramped thanks to the always-happy-to-help EURJPY back into the green for 2014. The big ramp occurred heading into the US open to spark momentum and save the day but weakness into the close suggests that the early short squeeze ran out of ammo relatively quickly. Volume overall was extremely weak - lowest non-holiday volume in 5 months. VIX's notable divergence from Friday likely provided some of the ammo for the early ramp. Gold and Treasuries were relatively unimpressed by equity exuberance until Europe closed and then were sold quite notably (TSYs +3-4bps, Gold/Silver -1.4%) Late-day weakness pushed Nasdaq back to unchanged post-Putin's conference call.

There are three things that are often spotted, widely believed, and actively sought after with little evidence they actually exist:  Big Foot, Ghosts and Economic "Soft Landings."  Over the past 159 years, there is not much evidence that an economic "soft landing" has ever occurred.  However, it is not without precedent that as the economy reaches the latter stage of the growth cycle that the words "soft landing" are uttered by economists and Federal Reserve members. Why do we bring this up?  Bihnamin Appelbaum, via the New York Times, recently interviewed John Williams, the President of the Federal Reserve Bank of San Francisco, who stated: "John Williams, president of the Federal Reserve Bank of San Francisco, is feeling pretty good about the economy. He is ready to continue the Fed’s retreat from bond-buying and forward guidance. And he says he’s optimistic that this time, the Fed will manage to produce a soft landing."

The last time the FT penned an article on the topic of gold manipulation, titled "Gold price rigging fears put investors on alert" it was promptly taken down without much (any) of an explanation. Luckily, we recorded the article for posterity here. Earlier today, another article on the topic appears to have slipped through the cracks of the distinguished editors of the financial journal that enjoys the ad spend of the status quo, when it reported that "Gold pricing scrutiny widens", hardly an update that will take the world by storm, however it is notable that "even" the FT, where for years goldbugs claiming gold manipulation had been ridiculed, is finally start to admit the glaringly obvious.

We knew that the legal market was in bad shape last summer when we came across the story that top law firm Weil, Gotshal & Manges announced its first mass layoffs in 82 years, but I had no idea it was this bad. As most will be aware, U.S. News & World Report publishes a widely anticipated ranking of undergraduate as well as graduate schools. It appears law schools are so consumed with performing well in these rankings that they are going to outrageous lengths to make it look like their students are performing better financially after graduation than they actually are. One of the most ridiculous ways they achieve this is by paying the salaries of their graduates upon graduation.

Unsafe at any speed...

General Motors is in trouble. On the heels of a 1.3 million car recall over fault ignition switches (that allegedly caused 12 deaths and could have been fixed with a $1 part), the bailed-out car maker has announced it will take a $300 million charge in Q1 to cover costs associated with this and 3 new recalls covering an additional 1.5 million cars. As Reuters reports, unsold vehicles will be placed on a stop-delivery until development of a solution has been completed. Why is this such a problem? Because GM's channel-stuffed dealer inventory is already at all-time record highs as the entire industry projected the sales to continue ad infinitum and inventory-to-sales surged to near-record highs.

So much for de-escalating:

RUSSIAN PRESIDENT VLADIMIR PUTIN SIGNS ORDER ON RECOGNITION OF CRIMEA AS SOVEREIGN STATE - RIA

Surely to precede Putin's own executive order recognizing Crimea as the latest member of the Russian Federation. And as for those "crippling" sanctions, via the FT, here is the locals reall think and why the Russian stock market is soaring as we reported earlier.

Day after day, the West's mainstream media promotes Russian President Vladimir Putin as a tyrannical despotic hitler-esque figure so we though it might be interesting to see what the Russian people hear from Russian TV. It is perhaps no surprise that Putin revels in near-record-high approval ratings when one hears Dmitry Kiselev - anchor of News of the Week - explain that "Obama's hair is getting greyer and greyer... as he fears direct action against Russia (and its nuclear retaliation)... as it is the only country that can turn the US into radioactive dust."

Just a few short hours after Obama issued an executive order declaring sanctions against a select group of Russians and Ukrainians, here comes the EU, whose unelected leaders have just slammed not only those Crimeans and pro-Russian Ukrainians who dared to organize and execute the Crimean referendum vote in which the population overwhelmingly voted to support becoming part of Russia, but in keeping with the US, also launched a salvo making it quite clear that neither Russian politicians nor various Russian military commanders are welcome to park their assets, or buy houses in the EU as of this moment. Needless to say, one person, Germany's chancellor Angela Merkel, is already dreading what the Russian response to this latest escalation will be, and grudgingly stated that "RUSSIA FORCED EU'S HAND WITH CRIMEA BALLOT." Perhaps, and perhaps Russia will be "forced" to if not freeze German gas exports as a result of this diplomatic move, then just happen to pull an Amazon Prime, and hike prices by a few dozen percent. We will find out shortly.

Those of you too caught up in Lady Gaga’s latest cutting edge art project - she arranged for another woman to vomit on her while seated at the keyboard to show, well, I guess to demonstrate that not even vomit cannot stop the power of pop music - may have missed the latest moves in our nation’s foreign policy quest to remain Hall Monitor of the World. State Department chess players are gloating at the moment that the Russian ruble has lost ten percent of its value this year. No doubt a few functionaries in the Kremlin are going boo-hoo over this. But remember: they are a nation who lost about 8.6 million soldiers to overcome Hitler. Do you think a little austerity will persuade them to cede Ukraine to the Walt Disney Company? Have the Lady Gaga fans forgotten that our country set this whole fiasco in motion by promoting a tug-o-war between a proposed Russian free trade zone (the Customs Union) and the European Union (another trade zone) with Ukraine as the rope?

Rook to G7, check.

• KYIV DEEMS THE ISSUE OF SOVIET-ERA DEBTS UNSETTLED, MOSCOW RESERVES THE RIGHT TO INSIST THAT UKRAINE REPAY $20 BILLION TO RUSSIA - RUSSIAN FOREIGN MINISTRY
• RUSSIA MAY ASK UKRAINE TO PAY ITS $20B SHARE FOR EX-SOVIET DEBT

Pidgeon playing checkers response time.

As the US and EU press forward with sanctions - proclaiming them as the first step in punishing economic actions - the world's stock markets could not be happier. European stocks are up over 1% - their best day in 6 weeks; Germany - notably hard-hit on the basis of its gas-dependence - is surging by the 2nd most this year as Italian stocks rally a ridiculous 2.4% (its 2nd best day in 7 months). Everyone loves a good short-squeeze on war escalation but we suspect the surge in Russian stocks - up 8.5% from Friday lows -  (and the Ruble) will be disappointing more than a few of the world's great thinkers in Washington and Brussels.