Archive - Mar 18, 2014

Goldman Sachs is bearish on TSLA with a $200 price target (currently trading at $236) but... provides bulls with all the hope they need to justify stock prices rising to at least $478. Laying out 5 scenarios on the company's path to 2025, the analyst shies from his base-case and downside-risk perspective to reflect on the possibility that TSLA is truly disruptive. Depending on whether Elon Musk is Steve Jobs (iPhone projections), Henry Ford (Model T projections), or a Maytag Repairman (Consumer Durable projections), TSLA's upside is enormous as all of our three “disruptive outcomes” imply meaningful upside to the current share price. Of course, the probability assocoated with each of these scenarios is why Goldman's overall target is 15% below current prices - but that won't stop the dreamers.

On the heels of reports that:

• *UKRAINE WON'T RECOGNIZE CRIMEA JOINING RUSSIA: INTERFAX

The Eastern Ukraine Kharkiv region's governor Baluta warns:

• *RUSSIAN ARMY CONCENTRATED NEAR ROADS FOR QUICK INVASION: BALUTA
• *RUSSIA BOOSTS ARMY PRESENCE AT UKRAINE BORDER: KHARKIV GOVERNOR

And all of this after Putin confirmed that West's sanctions are "irresponsible and aggressive and we will respond properly."

If there is one main theme in the just released February housing starts and permits data, it is that while total starts continued declining, missing expectations of a 910K print, instead dropping from an upward revised 910K to 907K, the third month in a row of declines after peaking at 1,101K in November, with single-family unit starts of 583K, virtually unchanged from the 591K level first seen in September 2012, it was the epic bifurcation in Housing Permits between single-family housing and rental (or multi-family units) that is the highlight. Yes, the headline Permit number of 1,018K beat expectations of 960K rising from January's revised 945K, but it was the composition that was the story - to wit, single-family permits dropped from 599K to 588K which just happens to be the lowest number since January of 2013, but this ongoing drop in single family was more than offset by multi-family permits, which soared to 407K - the highest number since the 540K peak recorded in June of 2008!

As long you don't eat, sleep under a roof, or use energy, things are positive for you as Core CPI dropped to its lowest in 10 years. Overall CPI dropped to 1.1% YoY - missing Bloomberg's estimate by the most since August. Thanks to the drought in California, food prices jumped; but energy costs overall fell despite fuel oil and other fuels rose 7% MoM (thanks to Winter storm demand). The heavily-weighted 'Shelter' index rose as did Healthcare costs.

It's deja vu all over again in markets this morning as the fact that Vladmiti Putin did not use the words "we're gonna nuke 'em all" and, just as he did 2 weeks ago, confirmed "Russia would not seek confrontation in West and East" and did not announce sanctions (which last time ended with the referendum and annexation of Crimea); has left algos believing that the world is calm once again and the buying spree can continue. Stocks, thanks to the helping momo-sparking hand of EURJPY, have jerked another 12 points higher on the news; gold and silver are limping lower; there is dollar weakness (EUR strength); and Treasury yields are up 3-4bps. However, Russian stocks and the Ruble continue to strengthen (in a nothing can hurt us now manner).

One of the things that Putin failed to mention in his nearly hour-long annexation speech, was the topic of retaliation to Western sanctions, leading many to assume he wouldn't even bother. Moments ago Reuters provided some clarity on this issue:

President Vladimir Putin said on Tuesday that Western attempts to frighten Russia with sanctions over its takeover of Ukraine's Crimea region would be viewed as an act of aggression, and that Moscow would retaliate.

We expect details wil be forthcoming, and that the west, whose every bluff has been called, and every gambit has failed, will need another teleprompted conference by the leader of the "Free world" Obama, explaining - once again - just what the costs, red lines, and escalating sanctions against Russia will be.

And there it is:

RUSSIA, CRIMEA, SEVASTOPOL SIGN AGREEMENT ON ENTERING ACCESSION
REPUBLIC OF CRIMEA CONSIDERED PART OF RUSSIA FROM DATE OF SIGNING AGREEMENT - KREMLIN

And futures, stocks, and risk in general is soaring, sending the Kremlin precisely the message it needs to know that there is absolutely nothing wrong with this. Perhaps if Russia had annexed all of Ukraine, or the Baltics, or maybe even Poland, the S&P would have soared over 2000 already?

• Lost Jet’s Path Seen as Altered via Computer (NYT)
• Fed Links Low Rates to “Persistent Headwinds” in Economy (Hilsenrath)
• Top German Court Clears Euro-Zone Bailout Fund (WSJ)
• U.S., EU set sanctions as Putin recognizes Crimea "sovereignty" (Reuters)
• Indian wealth effect: Sensex, Nifty hit life highs as domestic-focused firms rally (Reuters)
• China bond default has positive effect on local government groups (FT) - unless it's negative
• Russia tensions  risk higher gas prices (FT)
• China Home-Price Growth Slows in Big Cities on Tight Credit (BBG)
• ECB's Weidmann says German surpluses "here to stay" (Reuters)
• Microsoft Office for iPad (AAPL) to be introduced this month (The Verge)

Today's prime time geopolitical risk event is Putin's speech to a joint session of parliament, in which he will address the Crimean crisis. No major surprises are likely, with mentions of retaliatory sanctions and the formal annexation of Crimea expected to be the main talking points, although it is the nuances and the phrasing that threaten to pull the USDJPY lower potentially into the double digit territory at which point all bets are off, if only for the Nikkei and the future of Abenomics. Watch Putin's speech live below.

Has the market done it again? Two weeks ago, Putin's first speech of the Ukraine conflict was taken by the USDJPY algos - which seemingly need to take a remedial class in Real Politik - as a conciliatory step, and words like "blinking" at the West were used when describing Putin, leading to a market surge. Promptly thereafter Russia seized Crimea and is now on the verge of formally annexing it. Over the weekend, we had the exact same misreading of the situation, when the Crimean referendum, whose purpose is to give Russia the green light to enter the country, was actually misinterpreted as a risk on event, not realizing that all the Russian apparatus needed to get a green light for further incursions into Ukraine or other neighboring countries was just the market surge the algos orchestrated. Anyway, yesterday's risk on, zero volume euphoria has been tapered overnight, with the USDJPY sliding from nearly 102.00 to just above 101.30 dragging futures with it, in advance of Putin's speech to parliament, in which he is expected to provide clarity on the Russian response to US sanctions, as well as formulate the nation's further strategy vis-a-vis Crimea and the Ukraine.