Archive - Jul 18, 2014

Yesterday, we laid out extensively what the official Ukrainian case was when it came to "proof" that Russian separatists had launched the Buk missile which allegedly took down flight MH-17; we also highlighted several glaring inconsistencies and questions that still remained open after the "incriminatory" YouTube clip release. So far, any international response has been muted to this hastily prepared evidence of Russian involvement, although the day is still young. So what about the Russian side? Below we present the key arguments made by Russia to suggest that not it, but Ukraine, was responsible for taking down the Malaysian Boeing.

Thanks to Edward Snowden, we now have proof about an incredible set of tools used by the British equivalent of the NSA, known as the GCHQ, or Government Communications Headquarters. These tools will essentially confirm every single conspiracy theory you could have ever imagined when it comes to propaganda on the Internet. It allows British intelligence officers to: “manipulate the results of online polls, artificially inflate pageview counts on web sites, ‘amplify’ sanctioned messages on YouTube, and censor video content judged to be ‘extremist.’”

While we have again and again explained why Abenomics is ultimately doomed as you simply cannot print your way to prosperity (a message The Fed appears to be discovering rapidly), when Goldman Sachs unleashes an Abenomics-bashing piece, one has to wonder just what options Abe has left as economic data starts to collapse (and approval ratings drop just as fast). Simply put, as we concluded before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery... Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!"

Presented with no comment (except to note how different the "fact" in this chart is from the "fantasy" we hear spewed day after day about 'recovery' in the world's economy)...

We talk a lot about Peak Cheap Oil as the Achilles' heel of the exponential monetary model, but the real threat to the quality of our daily lives would be a sustained loss of electrical power. Anything over a week without power for any modern nation would be a serious problem. When the power goes out, everything just stops. A blackout of a few hours results in an inconvenience for everyone and something to talk about. But one more than a day or two long? Things begin to get a bit tense; especially in cities, and doubly so if it happens in the hot mid-summer months. Anything over a week and we start facing real, life-threatening issues.

Despite being dismissed as "noise", inflation is here and it's rising. As the following chart shows, if you eat, drive, use electricity, or live in a house, you are paying dramatically more this year than you did last year. On the bright side, if you wear clothes or use electronics, prices have dropped (but remember deflation is bad...). How much longer can the Fed pull the wool over the eyes of the people?

Fed history is riddled with examples of how ‘too-low-for-too-long’ Fed policies have created booms that caused busts.   The crazy irony now is that current policy is specifically trying to create the boom with the belief that rules, promises, and a gradual change of any policy will be enough to massage a soft landing.   Equally disturbing is the fact that the FOMC appears to believe that it has no choice but to keep policy exceptionally easy, because with rates at zero, it has no bullets left should the economy falter.  It reminds me of that movie when Sargent Foley (Louis Gossett) was trying to get Mayo (Richard Gere) to quit boot camp and a broken Mayo cries out, “I’ve got nowhere else to go”.

Ignoring for one second yesterday disastrous air crash in Ukraine, the 'boomerang' of sanctions continues to be thrown back and forth between the US and Russia. Having restricted Russian firm's access to USD funding, Putin has come out swinging. His first act was to demand that state departments and state-run companies will no longer purchase PCs built around Intel or AMD processors (which might explain AMD's slashing their outlook); but now he has hit out at the heart of what has made America great (in the eyes of some) - banning the use of foreign cars for officials in favour of home-produced cars.

Presented with little comment aside to ask - in all frankness - does this look like a 'recovering' economy five years after a central bank unleashes its extreme monetary policy?

At the heart of the China Commodity Financing Deals (CCFD) is the ability to leverage a letter of credit on the basis that there was some collateral somewhere that backed the risk of this rehypothecatable 'money'. Until now, the biggest concern has been "where's my copper, nickel, gold, etc..?" as the Qingdao ponzi scheme is unveiled; but, as Metal Bulletin reports, the contagion from the exposure of CCFDs ponzi has now hit Western banks. At least one western bank has stopped discount financing of copper into China after Industrial & Commercial Bank of China (ICBC) applied for the right not to settle a letter of credit it issued earlier this year, as a result of the Qingdao investigations. In other words the collateral chains were just snapped...

To those who believe the correlation of Fed monetary heroin and the stock market is eternal and cannot possibly come undone, please consider this line from songwriter Jackson Browne: "Don't think it won't happen just because it hasn't happened yet."

Remember: when central planning works (almost exclusively in the form of another all time "market" high, if not so much in the increasing frequency of wars and conflicts around the globe) it is because the Fed's policies worked. When, however, it doesn't, it's the snow's fault, or the heat, or, in this case, the rain.

What if Janet Yellen is wrong?

Just imagine how high stocks would be if more jets were shot down in Ukraine, more ground operations were unleashed in Gaza, more sanctions were placed on global growth, more European and US macro data disappointed, more job cuts at major firms, and more European banks declared bankruptcy. Today's farcical Friday surge (with the Nasdaq up 2% from its overnight lows and 30 point rip in the S&P) appears 100% based on the squeezing of "most shorted" stocks (best day in over a month) and the ramping of AUDJPY.  Credit markets ignored the idiocy; Treasury markets ignored it; The USD went nowhere (after EUR dumped on Italy downgrade then recovered). Gold, Silver, and Copper all closed down 2-3% on the week (given back yesterday's gains) as Oil surged 2.2%. VIX dropped over 2 vols to close with a 12-handle (but disconnected notably from stocks at the close). It's not all ponies and unicorns though - Biotechs are down 5% from Yellen's comments and the Russell 2000 closed red for the 2nd week in a row (and still -1% year-to-date). Best Dow Friday in 5 months (up 11 in a row).

A Roundup of ACCIDENTAL Shoot Downs of Civilian Passenger Planes by Russia, Ukraine, America, China and Israel