Archive - Jul 17, 2014

While the world was riveted by the latest Malaysian Airlines tragedy, Obama and Putin spoke. According to Reuters, Obama warned Russian President Vladimir Putin on Thursday that the United States and its allies are prepared to impose additional sanctions on Moscow if it does not change course in Ukraine.

The first eyewitness photo of debris of MH17 Malaysian Airlines plane has been released. Considering the amount of propaganda involved in this tragic development, take everything with a mine of salt.

The Ruble was already losing ground on the back of US Sanctions but those losses accelerated markedly after the Malaysia Airliness jet crash news. This is the biggest drop in the Ruble since August 2011...

#BREAKING: Reuters correspondent on the scene in Eastern Ukraine sees burning wreckage of air plane, bodies on ground

— Reuters World (@ReutersWorld) July 17, 2014

Despite CNBC's best afforts to play down this "may have been shot down" news of 295 dead on a Malaysian Airlines jet in Ukraine, markets are turmoiling. New lows for the day in stocks and bond yields have been accompnied by a surge in Gold (up over $25) and VIX (up almost 2 vols) with its biggest jump in 6 months.

That didn't take long for the Ukrainian government to know exactly what happened:

*UKRAINE REBELS SHOT DOWN MALAYSIAN PLANE, GERASHCHENKO SAYS; But
*DONETSK SEPARATISTS SAY NOT INVOLVED IN PLANE CRASH: INTERFAX

All 280 passengers and 15 crew were killed in the crash. The Malaysian Airlines jet was shot down by the BUK Missile System according to Interfax.

U.S. Sanctions Against Foreign Nations Are Hurting American Companies

First it was MH-370. Now, it appears tragedy has struck again, this time on Malaysian Airlines flight MH-17, on route from Amsteram to Kuala Lumpur, which disappeared from radar moments ago and was reportedly shot down over Ukraine. While there is nothing yet officially confirmed by the carrier, the radar tracked path of the airplane is shown below.

Remember when Ukraine was fixed and you could BTFATH as no geopolitical concerns could ever harm US equity markets... well that just changed... News that a Malaysian Airlines passeneger jet carrying 280 passengers was shot down in Ukraine has sparked major derisking across stocks and slammed bonds to the low yields of the day. Gold and Silver are jumping and the USD is fading.

Update: so yes, it was shot down.

• MALAYSIAN PASSENGER JET WAS SHOT DOWN AT 10 KM ALTITUDE: IFX

While we hope it is a horrific accident, and has yet to be officially confirmed by Malaysian Airlines, the timing is oddly coincidental. From Bloomberg.

• MALAYSIAN PASSENGER JET WAS SHOT DOWN AT 10 KM ALTITUDE: IFX
  
• INTERFAX SAYS PLANE MAY HAVE CRASHED NEAR RUSSIA-UKRAINE BORDER
• MALAYSIAN BOEING 777 MAY HAVE CRASHED IN UKRAINE: INTERFAX

The crash happened near Donetsk and the plane had 280 passengers on board. The question is - accident? Or was it shot down by Russia or Ukraine as a provocation.

• RUSSIAN U.N. AMBASSADOR VITALY CHURKIN SAYS RUSSIA DID NOT SHOOT DOWN UKRAINIAN WARPLANE
• RUSSIAN DEFENCE MINISTRY CALLS KIEV'S ACCUSATION IT SHOT DOWN UKRAINIAN WARPLANE "ABSURD" - INTERFAX
• RUSSIA SAYS ETHNIC CLEANSING HAPPENING IN UKRAINE: RIA
• RUSSIA DOESN'T WANT WAR W/ UKRAINE, RIA CITES SECURITY COUNCIL
• RUSSIA SAYS U.S. POLICY PUSHES RUSSIA, CHINA CLOSER: RIA

what is the source of the ongoing ramp in the S&P 500. Surely after one entire year of nothing but multiple expansion it should, at least now, be earnings, also known as fundamentals, right? Wrong. For the answer, we go to the following chart from UBS which explains that once again, and continuing the theme from 2013, in Q2 virtually all the upside in the S&P 500 has all been on the back of P/E multiple expansion!

By the magic of hopes and dreams, Philly Fed's headline index soared to cycle highs at 23.9. Smashing the 16.25 expectation, this is the highest since March 2011 (and almost the highest in the recovery cycle). This is a 4-standard deviation beat. While most of the 'current' subindices improved with new orders exploding to their highest in 10 years (really!?). Great news right? Well no - the outlook 6-months forward sees employment drop, workweek drop, and capex investment plans drop to its lowest since January...

As US equities put in their ubiquitous v-shaped recovery from any opening weakness, Treasury yields are pushing the lows of the day. 10Y Yields are back below 2.5% - the lowest in 7 weeks. AUDJPY is fully in charge of equity levitation today so far (though Russell 2000 and Biotech names mostly are notably lower and not bouncing as exuberantly as Trannies and the Dow).

Since the advance reports of layoffs at Microsoft started circulating this Sunday, the giant tech company has surged over 8%. This has raised the market cap of the behemoth by almost $28 Billion. Today we get the 'news' that Microsoft was laying off a record 18,000 employees (more than tripled the 2009 dump of 5,900 employees).That means - for all activist investors out there looking to raise MSFT share price - a $1.5 million market cap boost for each scalp, which, in other words, is the marginal "value added" of every currently employed Microsoft worker.