Archive - Mar 18, 2014

Well over a week after the disappearance of flight MH370 - which now is the longest official disappearance of a modern jet in aviation history - with no official trace of the missing plane yet revealed, the investigation, which as we reported over the weekend has focused on the pilots and specifically on Captain Zaharie Ahmad Shah, earlier today revealed that on his home-made flight simulator had been loaded five Indian Ocean practice runways, among which those of Male in the Maldives, that of the US owned base at Sergio Garcia, as well as other runways in India and Sri Lanka - all notable runways as all are possible landing spots based on the flight's potential trajectories. The Malay Mail Online reported, "The simulation programmes are based on runways at the Male International Airport in Maldives, an airport owned by the United States (Diego Garcia), and three other runways in India and Sri Lanka, all have runway lengths of 1,000 metres."

A new era is dawning in Chinese foreign policy as the country’s economic growth enables it to move from past timorousness in declaring itself a global leader and a relative inability to defend its interests, to one in which Beijing can seek adjustments in the security environment it has faced for the last sixty years. In the Chinese-language media, politicians are increasingly talking of China as a great power. Yet Russia’s invasion of Ukraine has put Beijing’s new foreign policy to the test and raised questions about the extent of China’s global role. China is close to meeting all the measures of what defines a global great power: political, economic, and military might with a global reach. But it does not appear to act like a great power in terms of its contribution to international leadership during conflict situations such as in Ukraine. Instead we repeatedly only see Beijing being assertive when it comes to defending its own narrow interests.

Nearly 40% of China lives off of $2 a day. Your average college graduate in China makes just $2,500 per year. In an economy such as this, a rise in prices in costs of living can be devastating for the population.

After trading well above the Dow at last year's peak (and equal with it at 2013 year-end), the Nikkei 225 is now almost 2000 points below the level of the Dow - a 13-month low. Trading not far off the EM-crisis lows of January, Japanese stocks are fading as JPY can't sustain any offer and carry-trades are unwound. Not helped by yet another in a long and illustrious list of mssed trade balance figures since Abe took the helm. Elsewhere in Asia, USDCNY traded up to almost 6.20 (the Maginot line for many derivatives trades) and does not look like the PBOC has it under control and copper has dumped from earlier US exuberance; iron ore is flat; and Chinese stocks are down (along with US futures fading modestly).

Something very strange is going on at the US treasury.

From "contrarianism takes courage" to "expect bullshit," Doug Casey's nine secrets for successful speculation are principles everyone can learn from.

A few select headlines from the day that made us, well, wonder...

• DONETSK GOVERNOR (AND BROTHER) HAD MOAT DUG OUT ON RUSSIAN BORDER (and filled with crocodiles?)
• CHINA SHOULD LOOSEN RESTRICTIONS OVER HOME PURCHASES: SEC. NEWS (but, but, but the reforms?)
• BEIJING TO SPEND 20M YUAN TO CHANGE WEATHER TO CUT SMOG: DAILY (winning the war on weather and hence the economy)
• PUTIN SPOKESMAN SAYS UKRAINE FORCES MUST CHOOSE SIDES: BBC (hhmm, tough decision)
• CARNEY SAYS LOW RATE ENVIRONMENT IS CONDUCIVE TO COMPLACENCY (and water is wet and we'll keep doing it)
• BANK OF CANADA: HARD TO BELIEVE THAT RECENT ECONOMIC SOFTNESS IS ALL DUE TO THE WEATHER. (wait what?)
• ESTONIA'S PRESIDENT ILVES SAYS EU RESPONSE "SHOULD NOT BE ABOUT THE PRICE OF GAS" (what else is there?)
• UKRAINE MAY SEEK COMPENSATION FOR CRIMEA ASSETS: PETRENKO (we don't recognize it unless you pay us?)
• MERKEL SAYS NO CHANGE IN RUSSIA G-8 STATUS FOR NOW (nope, they'd have to really cross the red line)
• PUTIN: RUSSIA WILL NEVER SEEK CONFRONTATIONS IN WEST, EAST (fingers crossed?)

Has the world gone totally mad?

Ordinarily Grant Williams would bet the ranch on this spat being defused diplomatically and everybody leaving the negotiating table a little disgruntled (which would mean the outcome was just about perfect); but he suspects that markets have become dangerously conditioned — by one perfectly executed landing after another in recent years — to expect (and position for) the best. The trouble is we've been here before and pulled back from the brink every time, but this time that outcome is expected again by most, and that is extremely dangerous; as markets are most assuredly NOT ready for reality. Add to that the fact that every new Fed chief gets a serious test - perhaps it is Yellen's turn?

“Unless and until Mr. Putin calls off the annexation of Crimea, no more ‘House of Cards’ or ‘Orange Is the New Black’ for him,” Mr. Kerry said. “The United States will not stand by and reward the annexation of another sovereign nation with a policy of streaming as usual.”

“I’m sure I don’t need to remind the Russian President that ‘Game of Thrones’ is about to come back for another season,” he said. “As I have said, this thing could get very ugly, very fast.”

When you think of polluted cities, the Chinese capital probably springs to mind above all others - as we have noted, given the record-breaking levels of lung-killing smog. But in the past few days, another city is competing with Beijing when it comes to air pollution: Paris. On Friday, the city’s air quality index rating rose to 185, which puts it firmly in the 'unhealthy' bracket with people suffering adverse health effects as a result of breathing the smog. In reaction to this, as France24 reports, for the first time in 17 years, France is limiting vehicle use.

If you said a short list of commodities manipulated by the Too Big To Prosecute banks, you are probably right, but the answer we were looking for is that these are all the various, and increasingly more ridiculous, commodities that serve to make up the bulk of China's hot money flow (those flows into China which are not reflected in the current account flows or FDI) facilitating synthetic structures, also known as Chinese Commodity Funding Deals.

Computer programs are obsolete before they even get put on the market and it’s been that way for years now. There’s also the added bonus of actually making sure that the buyers keep buying and always want the latest. 

Forget tapering. Forget Ukraine. The largest single risk to the world economy and financial markets right now is China. What’s going on in China is very reminiscent of South Korea in the 1990s, before that economy’s crash in 1998.

Present Obama’s viral interview on Zack Galifianakis “Between Two Ferns” was both funny and informative, thus deserving the buzz it generated. Both the content of the interview, and the fact that the President felt it was needed in the first place, can teach us about the current state of Obamacare and the problems it continues to have. The point here isn’t to nitpick the numbers or get into a semantic argument, but to show one of the key shortcomings of this appearance and the President’s other attempts at getting young people to sign up: if you are promoting something that has shaky credibility, and you use dubious arguments that your target audience will realize might not be true, you end up hurting your cause.

With The White House proclaiming Russian stocks a "sell" today (and in the meantime Russian stocks and the Ruble strengthening), it is clear, as Citi's Steven Englander notes, that the Russia/Ukraine crisis may be the first major political conflict that is played out in international financial markets. The difference, Englander points out, between this and standard imposition of sanctions is that both sides have some options that can inflict damage on the other side; and this has significant implications for investors in the short- and medium-term.