Archive - Mar 2014

The Maidan City...

Spending your inordinately over-valued 'currency' on an ever-reaching (and increasingly over-valued) portfolio of dreams may have been the stuff of expanding multiples and social media stock-lovers; but for the creator of Minecraft (among the world's most popular games), Facebook's move to buy Oculus was the last straw. As WSJ reports, Markus Persson just cancelled his company's deal with Oculus explaining that he "did not chip in ten grand to seed a first investment round to build value for a Facebook acquisition." It seems shareholders are of similar mind, cutting Facebook's value by $6bn this morning after the $2bn acquisition.

Yesterday we showed the end result of what happens in a China, in which bankruptcy and default are suddenly all too real outcomes for the country's hundreds of millions of depositors, when the risk of losing all of one's money held in an insolvent bank becomes a tangible possibility in "What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors." Today, we look in detail at all the discrete elements that culminated with hundreds of Chinese residents lining up in front of a bank in Yancheng and rushing to withdraw their money only to find their money not available (at least until the regional government was forced to step in with a bail out to avoid an even greater panic).Why is this a useful exercise? Because since we will certainly see many more example of it in the near future, it pays to be prepared. Or least it certainly prevents one from losing all of their money...

It's deja vu all over again in Biotech bubble land. For the 4th day in a row, and opening salvo of hope-fueled buying has faded quickly into a sea of red-faced selling as The Nasdaq Biotech Index holds down 13% from the highs at is 100-day-moving-average. Will 4th time be the charm for the revival of the bubble? or is today the break?

The US would be better served these days to literally mind its own business. With Detroit in bankruptcy, why would we send Kiev billions of dollars? American urban infrastructures — water, sewer, gas, and electric lines — are falling apart. We have no idea how we’re going to manage most of the crucial economic activities of daily life in ten years, when the illusions of shale gas and shale evaporate in a dark cloud of disenchantment... We’re having no conversation about these things and the political landscape in this country is a wasteland of mirages and dust devils. That is the true weakness of the USA now. We’re incapable of seeing the disorder in our own house. Why should we even glance overseas at others?

We assume this is not what President Obama meant when he said "costs"...

• *UKRAINE TO RAISE GAS PRICES FOR HOUSEHOLDS 50% FROM MAY 1
• *UKRAINE TO RAISE GAS PRICE FOR HEATING UTILITIES 40% FROM JULY

As we warned previously, "the honeymoon is over" and it seems, from today's address, President Obama is about to mandate who and where the free market for natgas delivers it supply.

We are sure the weather is to blame but what happens when pent-up demand (from a frosty east coast emerging from its hibernation) bumps up against a drought-stricken west coast unable to plant to meet that demand? The spot price (not futures speculation-driven) of US Foodstuffs is the best performing asset in 2014 - up a staggering 19%...

Having IPO'd at $22.50, King Digital Entertainment - the maker of Candy Crush - opened disappointingly this morning at $20.50 and is trading down tro $19.20!... just keep repeating the mantra that KING is not ZNGA and we are sure the levitation will resume. Of course, this would have nothing to do with the record-setting levels of earnings-less IPOs that are occurring.

With Switzerland long dead as an offshore tax haven for US savers unwilling to fund Uncle Sam's central-planning machine (and who can blame them - isn't monetizing the deficit precisely what the Fed is for?) and with Cyprus banks, shall we say, compromised, many have been forced to look for greener tax-evading pastures, as far away as the Pacific Rim, especially that oasis of mega wealth creation, Hong Kong. Only this time the US is paying attention as SCMP reports that Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washington's global crackdown on tax evasion. In other words, for tax purposes, Hong Kong is now effecitvely under IRS control.

To really appreciate “too big to fail,” you must first and foremost understand that it is a political concept that springs from a sense of liberal privilege and entitlement. 

While we have no idea if Facebook is right in paying $2 billion (mostly in overvalued stock, thank you momo dot com 2.0 bubble-chasing "investors"), and frankly we don't care what bears noting is that while the idiocy of Facebook's CEO is still up for debate, the idiocy of the markets is once again beyond a reasonable doubt. Presenting Oculus... Innovative Sciences - a company which has absolutely nothing in common with Oculus VR, and which is up over 4% this morning because... it shares the same name as the Facebook acquisition - the same deep fundamental analysis that lead "investors" to decide that both Tweeter (TWTRQ) and Nestor (NEST) are undervalued.

... we just don't know where.

Remember the "last minute" ICBM launch by Russia just as the Crimean tensions were peaking? Moments ago Russia revealed another such unexpected "military exercise" which resulted in a French Airbus380 airplane, with over 500 passengers and crew on board being diverted from Shanghai to Paris after Russia without a warning decided to shut down a part of its airspace.

Netflix isn't as expensive as it appears.  Be cautious getting caught up in the latest fear frenzy over net neutrality.

Russia has increased its gold holdings by 7.247 tonnes to 1,042 tonnes in February. Turkey and Kazakhstan also raised their bullion reserves, data from the International Monetary Fund showed today. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed. Many analysts are ignoring the important context of today's new geopolitical backdrop. Russia alone has some $400 billion in foreign exchange reserves - mostly in U.S. dollars. If they were to diversify just 5%, worth some $20 billion, of those reserves into gold - it would be equal to nearly 500 tonnes of gold or nearly 25% of global annual production.  It will be interesting to see what Russian demand is in March and indeed in the coming months. Sanctions could lead to materially higher demand from the Russian central bank, Bank Rossii.