Archive - May 2014

Memorial Day provides the political class countless opportunities to ruin an otherwise thoroughly enjoyable holiday weekend. Like clockwork, local congressmen, mayors, city council members, et al. materialize at parades, picnics, and churches to give speeches about “freedom.” But what does freedom really mean?

Below is a real-time tracker of the results from the elections as they come in. For anyone but the Euroskeptics, the results will hardly be pretty...

On Friday we showed what the most hated (by everyone) Russell 2000 stocks are as of the most recent period (and hence most susceptible to epic short squeezes), here is a listing of what the most beloved stocks, by hedge funds, are as of March 31. One thing to note: just like in the case of first Apple, then GM, any time virtually everyone piles into the most held stock, it means just one thing - there are no marginal buyers left.

On a weekend so full of memories, we thought it appropriate to remember what was promised so many years ago from our central-planning overlords. All that printed money, all those bailouts, all those promises and Bernanke's statement that "Fed actions did not favor Wall Street over Main Street..." and this is what we end up with... "not" all time highs in what really matters...

China and Russia signed an historic agreement in Shanghai this week - the ramifications of which have yet to be appreciated ... Reserve currency status does not last forever. Empires rise and fall. The world is constantly changing and evolving. Nothing lasts forever …

After the crisis, many expected that the blameworthy would be punished or at the least be required to return their ill-gotten gains—but they weren’t, and they didn’t. Many thought that those who were injured would be made whole, but most weren’t. And many hoped that there would be a restoration of the financial safety rules to ensure that industry leaders could no longer gamble the equity of their firms to the point of ruin. This didn’t happen, but it’s not too late. It is useful, then, to identify the persistent myths about the causes of the financial crisis and the resulting Dodd-Frank reform legislation and related implementation...."Plenty of people saw it coming, and said so. The problem wasn’t seeing, it was listening."

As was largely expected, Petro Poroshenko - the candy tycoon known as the "chocolate king" - has easily beaten Yulia Tymoshenko - nicknamed "gas princess" - to become Ukraine's next president according to exit polls:

UKRAINIANS ELECT POROSHENKO AS PRESIDENT: (POROSHENKO RECEIVES 55.9%, TYMOSHENKO RECEIVES 12.9% OF UKRAINE VOTE: EXIT POLL)
UKRAINE'S POROSHENKO SAYS HE'S READY FOR TALKS WITH RUSSIA
POROSHENKO: UKRAINE WON'T GIVE UP CRIMEA

Hope remains for stability in the nation as Poroshenko, as we noted here, is the most middle of the road - pro-Europe (but not too much) and most importantly believes Ukraine joining NATO "is probably not a good idea," which will likely disappoint the US. There has been violence in the East but it does not seem widespread enough to warrant any negative conclusions from Putin for now.

When does the market break? When will the Narrative of Central Bank Omnipotence fail? Implicit (and sometimes explicit) in these questions is the belief that this – whatever this is – simply can’t go on much longer, that there is some natural law being violated in today’s markets that in the not-so-distant future will visit some terrible retribution on those who continue to flout it. There has never been a more unloved bull market or a more mistrusted stock market high. Public markets today are essentially hollow, as what passes for volume and liquidity is primarily machines talking to other machines for portfolio “positioning” or ephemeral arbitrage rather than the human expression of a desire to own a fractional ownership share of a real-world company. We believe that today’s public market price levels primarily reflect the greatest monetary policy accommodation in human history rather than the real-world prospects of real-world companies. We believe that the political risks to both capital market structure and international trade (which are the twin engines of global growth, period, end of story) have not been this great since the 1930’s. Simply put, we believe we are being played like fiddles.

Presented with no comment...

Yesterday we showed how Russia and China hold "massive" naval drills in the northern part of the East China Sea (close enough to Japan for us to footnote "ahem Japan and Taiwan"), which in addition to a clear signal to the US (on part of Russia), was sending just as clear a message to Japan (on the part of China). Sure enough, overnight Japan was not too happy with this massive show of force by the two biggest and closest foes near its disputed territory. As a result it dispatched an OP-3C surveillance plane and a YS-11EB electronic intelligence aircraft. China promptly retaliated and as Reuters reports, it scrambled a Su-27, fully-armed with missiles, which came as close as 50 meters of the Japanese fighters - the closest Chinese warplanes had come to aircraft of Japan's Self-Defense Force according to Japan - in what can only be described as "please take the first punch."

And Fat and Skinny...

The CBO report is screaming, "This is F-ed up! Fix this now, or pay a price later!"

A dispassionate look at the week ahead.  

Could this be the last straw?