Archive - Mar 2014

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.

China's potential in shale gas production is nearly as staggering as its potential growth in demand for natural gas. The U.S. Energy Information Administration estimates that China possesses by far the world's largest reserves of technically recoverable shale gas. Although China's shale gas industry is not as advanced as the United States', it could be the most advanced outside of North America. It remains unclear whether this will be able to satisfy most of China's demand, and China's potential demand spikes leave those other liquefied natural gas importers worried -- especially those, such as Japan, that have few options other than importing liquefied natural gas.

Called the President...

Yes, They're Doing It To Americans As Well...

On account of the clear decline in the growth momentum of the US price index, many economists have concluded that this provides scope for the Fed to maintain its aggressive monetary stance. Some economists, such as Chicago Fed head Charles Evans, even argue that the declining trend in the growth momentum of the CPI makes it possible for the Fed to further strengthen monetary pumping. This, 'they' believe, will reverse the declining trend in price inflation and will bring the US economy onto a path of healthy economic growth. We suggest that contrary to Evans miracles, a strengthening in monetary pumping will only deepen economic impoverishment by allowing the emergence of new bubble activities and exacerbate existing bubble activities.

China, having abstained from voting against Russia in the UN, has been relatively quiet during this crisis... until now... As ITAR-TASS reports, spokesperson for China's Ministry of Commerce Shen Danyang said that while "the situation in Ukraine remains tense," and they are watching developments, "we are ready for cooperation with Crimea after the situation there gets back to normal.” This appears to implicitly recognize Crimea as its own region - as opposed to part of Ukraine - even after this morning's "very strict anti-secessio One China policy" comments.

Despite much hope that the current breakout of the markets is the beginning of a new secular "bull" market - the economic and fundamental variables suggest otherwise.  Valuations and sentiment are at very elevated levels while interest rates, inflation, wages and savings rates are all at historically low levels.  This set of fundamental variables are normally seen at the end of secular bull market periods. It is entirely conceivable that stock prices can be driven higher through the Federal Reserve's ongoing interventions, current momentum, and excessive optimism.  However, the current economic variables, demographic trends and underlying fundamentals make it currently impossible to "replay the tape" of the 80's and 90's.  These dynamics increase the potential of a rather nasty mean reversion at some point in the future.  The good news is that it is precisely that reversion that will likely create the "set up" necessary to launch the next great secular bull market.  However, as was seen at the bottom of the market in 1974, there were few individual investors left to enjoy the beginning of that ride.