Archive - Mar 2014

If the idea is to anticipate what an adversary does, it behooves us, even if we do not believe in QE on moral grounds or on efficacy grounds, to consider how the ECB can have QE, which it appears under increasing pressure to do.  Here is such a course. 

BREAKING: US freezes diplomatic, consular relations with Syria; Orders non-US personnel to leave country.

— The Associated Press (@AP) March 18, 2014

Warren Buffett epitomizes everything that is wrong with the global economy, and the U.S. economy specifically. He is the consummate crony capitalist, a brilliant yet conniving oligarch who intentionally plays on the gullibility of the masses to portray himself as one thing, when in reality he is something else entirely. He publicly talks about how rich people need to pay more in taxes, then turns around and pioneers new ways for his company Berkshire Hathaway to avoid hundreds of millions in taxes. He thinks that by going on television stuffing ice cream cones and hamburgers in his mouth and acting all grandfatherly that no one will notice who he is really is and the incredible hypocrisy of his actions. Buffett’s latest elaborate scheme to avoid $400 million in capital gains taxes from the disposition of a large chunk of Berkshire Hathaway’s Washington Post stake (which was acquired in the 1970s for $11 million) absolutely takes the cake.

It seems, despite all the market's belief that Putin would go quietly into the night once more, that the situation is escalating:

• *GUNMEN STORM UKRAINE ARMY INSTALLATIONS IN CRIMEA: UKRAINE DEFMIN SELEZNYOV
• *GUNMEN STORMING CRIMEA BUILDINGS SHOOTING IN AIR: SELEZNYOV
• *UKRAINIAN OFFICER WOUNDED BY LIVE AMMUNITION, HAYDUK SAYS
• *ATTACKS ON UKRAINIAN UNITS INCREASING: NAVY CHIEF HAYDUK

Of course, the big question now is how will Ukraine respond? Because attacking (and injuring) citizens sure seems like a red-line someone should not be crossing (although, as per the referendum, that region is now Russian).

Not a week seems to pass without some banker or trader committing suicide. Today we get news of the latest such tragic event with news that 28-year old Kenneth Bellando, a former JPMorgan banker, current employee of Levy Capital, and brother of a top chief investment officer of JPM, jumped to his death from his 6th floor East Side apartment on March 12.

Many had feared (or expected), fallout from Crimea's referendum and subsequent accession to Russia may embolden ethnic minorities in many bordering nations to seek self-determination. It appears that is taking place in Moldova where Vedomosti reports that Mikhail Burla, head of the Transnistria region's legislature, has asked Russia's Duma for draft laws on accession to Russia to be altered to allow the region to join. The timing of this move is surreal as headlines appeared this morning that Europe is looking to speed up its "association" with Moldova. In a 2006 referendum, over 97% of Transnistrians voted to join Russia...

The PBOC is reported to be scrambling to bail out China's second corporate default in one month, real estate company Zhejiang Xingrun, even as the Chinese property developer market is crashing and rapidly shutting down. So why did the PBOC personally just go to Weibo to deny such speculation. And what happens next?

It seems the blatant unveiling of the HFT market's Holy Grail trading - Virtu (1 loss in 1238 days) - has raised some attention as Bloomberg reports, NY AG Eric Schneiderman has opened a broad investigation into whether U.S. stock exchanges and alternative venues provide high-frequency traders with improper advantages. As one European lawmaker noted, "the area of high-frequency trading is lacking suitable regulation," and Schneiderman warned "this new breed of predatory behavior gives a small segment of the industry an enormous advantage over all other competitors."  We wonder how this will affect Virtu's IPO given regulation is risk factor #1!

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?