Archive - Mar 20, 2014

"I think it was wrong for us to get involved and participate in the overthrow of the government," exclaims Ron Paul in this brief clip, adding the US is "stirring up trouble in Crimea." The American people are "tired of it," and "it would be best for us to stay out." The US doesn't need another war - and certainly can't afford it - and "we don't want trade wars." Simply put, he concludes, "it's best we stay out."

Ukraine's honeymoon period with its new rulers may end far sooner that most expect, and it will be certainly accelerated with news such as this. A few hours ago, Interfax reported that Ukraine expects to increase domestic gas prices by 40% once discounted import prices from Russia expire, the country’s Energy Minister Yury Prodan told journalists in the European Parliament on Thursday.

Banking operations globally, including ATMs throughout the world, are threatened as support from Microsoft for Windows XP operating system will end from Tuesday, April 8. More than 95% of ATMs also run the operating system. The financial system remains vulnerable with much unappreciated technological and systemic risk ...

It's mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed's stress test (for those who may have forgotten last year's farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results, can read here). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a "test", and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone's confidence has been boosted. So Buy stawks, and build your paper wealth! And here is the truly funny part: in the baseline stress test scenario, the Dow Jones "plunges" to 11.4K in Q3 2014, and then somehow surges back to all time highs by Q4 2016! Does the Fed understand the word Stress?

Treasuries ended the day practically unchanged. Gold, despite some early weakness, ended the day unchanged. The USD ended higher on the day - extending post-Yellen gains but was essentially flatlining aside from concerted buying pressure from 3ET to 7ET. Copper kept falling (as did silver) and oil prices slipped lower. VIX pressed lower as stocks rallied out of the gate but VIX diverged notably after Europe's close to 15% with a few minutes to go. So, given all of that, where do you think stocks closed? Thanks to a pre-CCAR ramp in US financial stocks (which notably diverged from financial credit spreads), and an idiotic 0.5 vol smackdown in VIX, US equities managed to clamber their way back up to pre-FOMC levels before giving some back inthe late-day (with a mini-melt-up into the close). AUDJPY ruled the 'fundamental'-driven US equity markets from open to close.

Following the default of 2 more corporations last night, Hang Seng's index of China Enterprises plunged to 8-month lows and officially entered bear market territory. Overnight angst in the Chinese currency markets (which saw the Yuan trade back to 1-year lows) has sparked broad commodity weakness (as CCFD unwinds en masse) with copper giving back most of yesterday's major short squeeze gains back. Chinese corporate bond prices also tumbled to one-month lows.

Having warned of Putin's blind-spot (and Merkel's position of potential leadership) in the Europe-US-Russia debacle, billionaire investor George Soros has some ideas on how to punish Russia (and some warnings on the consequences)...

Truth can be a damn difficult thing to digest sometimes. Despite the Obama administration touting a budget deficit of “only” $680 billion in 2013, the GAO’s more accurate accounting shows a total government cost of $3.8 trillion on total revenue of $2.8 trillion. In other words– the administration wasn’t exactly honest with the American people– the deficit was more like $1 trillion, not $680 billion. But it gets worse.

Having been shown yesterday by the all-knowing Federal Reserve that growth expectations are "over-optimistic", we are sure President Obama will make it clear that the US is growing (but could do better), that jobs are being created (but could do better), and how middle-class opportunity is right around the corner if it wasn't for them dastardly Republicans...

While the US administration continues to fire 'sanction' bullets at Russia and explains how painful these will be, Senator John McCain - in response to his own sanctioning by the Russians - has responded... (as has John Boehner)

Remember when we said in January 2011 that Dealers merely game the daily POMO reverse auction to generate abnormal - and now confirmed criminal - profits on the back of the central bank, i.e. taxpayer? Guess what - we were right. Again.

S&P, still deep in the mire of a legal battle with the US government, has decided now is an opportune time to cut the ratings outlook on Russia:

• *RUSSIAN FEDERATION OUTLOOK TO NEGATIVE FROM STABLE BY S&P
• *S&P SEES EU-U.S. IMPOSING FURTHER SANCTIONS

Russia remains a BBB credit (but with the outlook shift remains open to a downgrade with 24 months). S&P has cut 2014 GDP forecast to 1.2% and 2015 to 2.2%. Of course, we are sure, this would have nothing to do with currying favors with the US government (who threatened them when they downgraded the USA). Full report below.

It would appear the IMF's dirty little fingerprints are all over this latest piece of legislation in Ukraine. The Ukraine Finance Ministry is proposing to take a very-similar-to-Cyprus approach to bailing in its despositors:

*UKRAINE PROPOSES NEW TAX ON DEPOSITS EXCEEDING 100,000 HRYVNIA
*UKRAINE TAX PROPOSAL WOULD INCLUDE 1.5% OF ALL DEPOSITS

This would appear a measure designed to stabilize the budget for potential IMF negotiations and fits perfectly with what the IMF has consistently hinted as the next steps for many nations.

One of these markets has recovered all of the post-Yellen move from yesterday... (and only one)...

US and European stocks are spiking higher this morning supposedly on the back of better-than-expected data (Philly Fed) and self-referencing bias that surely Janet Yellen didn't mean what she said. Stocks (oddly) melted up on the last Philly Fed release (which was a massive miss). Anyway, fun-durr-mentals aside, this move is all about AUDJPY all the time as Financials lead the way (and are the only sector green post Yellen). European stocks are merelty tagging along for the exuberant melt-up ride. Beware of financials as CDS are widening even as stocks soar - a pattern we have seen before into the run-up to CCAR (stress-tests) and doesn't end well for bank stocks.