Archive - Jun 2014

John Kerry came, saw and as usual made a horse ass out of himself.

While the "mysterious, indiscriminate" buyer of US stocks has been fully unmasked now, what most likely do not know is that just this is happening at a comparable record pace nowhere else but the place which is mirroring and repeating every single Fed mistake tit for tit. Japan...  “Share buybacks have the effect of supporting the market when it’s weak,” Daiwa Securities Group Inc. quantitative analyst Masahiro Suzuki wrote in a report on June 10.

"The banks still haven't looked under the hood," warns one executive as the probe at Qingdao port (centering around the duplication of warehouse certificates in order to use a metal cargo multiple times to raise financing) begins to spread to the entire Chinese warehousing sector. As Reuters reports, even if banks or their customers have insurance for the metal, some warehouse sources said they might struggle to get paid if fraud is uncovered or their agents are implicated. Though many global firms are involved in the warehouse industry in China, there has been outsourcing to local firms to cut overheads and avoid dealing with complex local regulations. That appears to have back-fired. One thing looks certain, however, banks involved in commodity financing in China are set to charge higher fees: "The cost is certainly going to go up, whether it's going to be from local banks or international."

No one ever thinks about the water.. until they have to. Hours ago, the local gas company in Kiev (Kyivenergo) announced that they would be shutting off the hot water supply to most of the city. While the official reason for the hot water shutoff is that Kyivenergo (the energy supplier to Kiev) owes a debt to the Ukrainian state gas company (Naftogaz) of over $100 million; it’s just a quirky little coincidence that this debt suddenly became materially important only one week after Russia shut off natural gas supplies to Ukraine. Funny thing is that Ukrainian politicians for years had been telling people not to worry about this. Clearly this turned out to be a big fat lie.

After last week's fireworks, we suspect this rare evening hearing will have plenty more as the major Democratic donor (and IRS Commissioner) John Koskinen faces a fresh grilling over the technuical bullshit that led to the IRS destroying subpoena'd hard drives...

The American financial establishment has an incredible ability to celebrate the inconsequential while ignoring the vital. Last week, while the Wall Street Journal pondered how the Fed may set interest rates three to four years in the future (an exercise that David Stockman rightly compared to debating how many angels could dance on the head of a pin), the media almost completely ignored one of the most chilling pieces of financial news that I have ever seen. According to a small story in the Financial Times, some Fed officials would like to require retail owners of bond mutual funds to pay an "exit fee" to liquidate their positions. Come again? That such a policy would even be considered tells us much about the current fragility of our bond market and the collective insanity of layers of unnecessary regulation.

Christine Lagarde of the International Monetary Fund has told the European Central Bank that they need to consider Quantitative Easing if inflation continues to remain low, which it will. She stated: “If inflation was to remain stubbornly low, then we would certainly hope that the ECB would take quantitative easing measures by way of purchasing of sovereign bonds”.

The 'dumb' algos trading off the headlines have dragged Dean Foods stock down 7.5% as the WSJ reports that the company has in recent weeks received a subpoena from criminal authorities ordering the company to produce information, said a person familiar with the matter. Dean Foods stated it will offer "full support" and is also doing its own investigation of the matter. We suspect the stock move is a little much.

Aerial shots, slow-motion explosions, scenes filmed through a rifle’s crosshairs... As France24 reports, you might think this is footage from a new summer blockbuster, but you would be wrong. It is, in fact, a new propaganda video produced by Sunni jihadists from the armed group the Islamic State in Iraq and Syria (ISIS). The extremely violent hour-long film was published online just days before ISIS launched a massive offensive in northern Iraq. The film is called “The Clanging of the Swords IV" because it is part of a series much like other Hollywood blockbusters. Given their funding (via stealing Iraq's central bank's cash), and we pre-suppose from the ISIS annual report that they get generous tax breaks on the production, we await "The Clanging of the Swords V" next summer.

"...On June 28, 1914, a Slavic nationalist in Sarajevo murdered Archduke Franz Ferdinand, heir to the Austrian throne. The battle lines were drawn. Austria positioned itself against Serbia. Russia announced support of Serbia against Austria, Germany backed Austria, and France backed Russia. Military mobilization orders traversed Europe. The national and private finances that had helped build up shipping and weapons arsenals in the last years of the nineteenth century and the early years of the twentieth would spill into deadly battle. Wilson knew exactly whose help he needed. He invited Jack Morgan to a luncheon at the White House. The media erupted with rumors about the encounter. Though Wilson explained this did not signify the start of a series of talks with “men high in the world of finance,” rumors of a closer alliance between the president and Wall Street financiers persisted..." Woodrow Wilson and Jack Morgan’s collaboration to finance the Allies in the early days of the war - aside from its timeliness - provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests.

Overnight exuberance on China PMI (which was entirely opposite China's Beige Book results) sent stocks to record-er highs but Europe's dismal PMIs corrected that into the US open. Better-than-expected US data (which under the surface looked anything but) did absolutely nothing to spur exuberance in stocks and aside from a little weakness early, it appeared stocks and bonds forgot the weekend was over as they traded in extremely narrow ranges all day. Trannies were weak (biggest drop in 10 days). The USD ended down 0.15% (with modest JPY strength and AUD gains). Treasury yields closed +1-2bps (in a 3bps range). VIX rose for the 2nd day (back to 11). Gold and silver flatlined as copper popped and oil slipped. Of course, why waste a perfectly good Tuesday by closing green today...

At the heart of the last financial crisis, some compared CDS to buying home insurance on a neighbor's home and burning it down; it appears the USA has come a long way in the last few years. As NDTV reports, employees at The Orange County Register received a rather unusual request from their employer - Freedom Communications - writing to request workers' consent to take out life insurance policies on them.... But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Because such life insurance policies receive generous tax breaks, they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. But in many cases, companies and banks can use the tax-free gains for whatever they choose, "Companies don't promise regulators they will use it for any specific purpose." Of course, it is the banks that are the biggest utilizers of this. Forget buybacks, just unleash some anthrax to really juice EPS this quarter?

Several months after it was revealed that Germany was able to only recover a miserable 5 tons of its gold in all of 2013 (under 10% of the 84 tons it was scheduled to repatriate), Germany appears to have given up entirely in its attempt to recover gold which simply is not there, and as Michael Krieger reports, citing Bloomberg, has decided to keep "it" (by "it" we don't mean the gold since that clearly has not been at the Fed for decades, but merely the paper promises of ownership: for more see China's gold rehypothecation scandal and how the unwind works) at the NY Fed after all. That is to say, in the "safe hands" of former Goldmanite Bill Dudley.

The popular story is that America was built by immigrants and that therefore everything about immigration is good and leads to a more successful society. However, in the 21st century, The USA is no longer sparsely populated, except in the regions that are typically hostile to settlement anywhere else in the world — places where there is no water, or too hot, or too cold, or too swampy. Currently, progressive America is pretending that the conditions of the 19th century still prevail here - boundless material resources and land for the taking - and that we can happily accommodate the overflow from our equally overpopulated neighbors, Mexico and the countries of Central America, any way they can manage to get here. It’s rather funny that the presumptive Democratic nominee for president in 2016 titled her current book Hard Choices, because that is the chief pretense of the party she represents. The last thing Hillary wants to do is take a stand on anything, other than her entitlement to live in the White House.