Archive - Aug 15, 2014

The fundamental mistake is to think in terms of a low yield telling you anything about the economy, as it is price that you should be focusing on.

Things just escalated notably - (Via Bloomberg):

*UKRAINE FORCES ATTACK ARMED CONVOY FROM RUSSIA, 'DESTROY' PART OF ARMED CONVOY: LYSENKO
*RUSSIA SAYS IT'S GETTING INFO OF DIRECT THREATS TO CONVOY, SAYS UKRAINE INTENSIFIES MILITARY OPS TO DISRUPT CONVOY

EU & US Stocks and bond yields (and Ruble) are tumbling, gold rising... We await Putin's response... "concerned at attempts to disrupt convoy."

When it comes to Chinese (or any other in these centrally-planned, fabricated days) economic data, there is GDP and then there is reality. And as the current premier of China himself has admitted, there is no more accurate indicator of real, not bullshit "growth", than China's monthly power consumption. It is here that another rather massive divergence from China's official data (which has the world believe China GDP rose 7.5% in Q2) has appeared. According to Economic Information Daily, power consumption in Shanghai and Jiangsu fell by more than 10% y/y in July, compared with double-digit growth a year ago, sources said. And it gets worse: other provinces, including Zhejiang, Anhui, Hubei, Hunan and Guizhou, reported a power consumption declines of up to 22 percentage points.  One could almost say the Ukraine ministry of YouTube clips has been put in charge of China's GDP calculation.

Back in February we observed, with some surprise, when Soros Fund Management, the investment vehicle of the famous Hungarian billionaire investor revealed in its Q4 13F that the firm had taken its bearish S&P 500 ETF - aka SPY - put exposure to a then record $1.3 billion notional, prompting us and many others to ask if Soros was preparing for a market crash. Fast forward to today when following the latest 13F disclosure from the same fund, we note, with double the surprise that a quarter after the same ETF put was lowered to "only" $299 million notional, Soros has once again increased his total SPY Put to a new record high of $2.2 billion, or nearly double the previous all time high, and a whopping 17% of his total AUM.

Is it any wonder that both the WHO and Doctors Without Borders appear in full panic mode, explaining that the outbreak is "moving faster" than they can manage it? As WHO reports, the death toll in West Africa has jumped to 1,145 (2,127 infections) with 76 new deaths in the last 2 days and a record-breaking pace of reported new cases (152 in the last 2 days).

Two months ago, Fed's Bullard went full hawktard and implicitly told bondholders to "sell, sell, sell." As we explained here, there was a hidden motive for his demands - the bond market was breaking bad. So, perhaps it is not a total surprise that on the week when Treasury "fails to deliver" break back above $1bn to 2-month highs (broken market), that Jim Bullard is back:

*BULLARD SAYS MARKET TRADING 'TOO DOVISHLY' COMPARED TO FOMC, TIPS REAL RATE `SHOCKINGLY LOW'
*BULLARD SAYS HE SEES FIRST RATE RISE AT END OF 1Q 2015

As Renaissance Macro's Neil Dutta adds, confirming Bullard's meme, while recent moves in 10Y USTs have been driven mostly by geopolitical concerns and softening global economy, "we suspect that there may be a misreading of Fed policy." Or 'the market' knows full well how this ends?

Even though government surveillance is becoming more and more invasive, there are ways to shield yourself from prying eyes. If you agree with the premise that every person has the right to protect their personal matters and privacy from the Big Brother, there are free options to use out there that can ensure your communications, your digital presence and activity, and your data remain secure and private.

And just like that the disinformation war goes full retard:

• RUSSIAN DEFENCE MINISTRY SAYS THERE WAS NO RUSSIAN MILITARY COLUMN THAT CROSSED INTO EASTERN UKRAINE - RIA
• RUSSIA SAYS UKRAINE STATEMENTS BASED ON `SOME FANTASIES': RIA
• STATEMENTs BASED ON FANTASIES SHOULDN'T BE THE SUBJECT OF SERIOUS DISCUSSION: RIA

Surely the Ukraine president, who already confirmed to David Cameron that the Russian column was mostly "eliminated" will be releasing a YouTube clip with the proof momentarily.

All morning we have been waiting for some Russian response to the announced, if so far unconfirmed, attacked by Ukraine on a Russian "military convoy". We got it moments ago. From Bloomberg:

• UKRAINE SEEKS TO AGGRAVATE CONFLICT, DRAG IN RUSSIA: ZAKHAROVA
• RUSSIA FOREIGN MINISTRY SPOKESWOMAN ZAKHAROVA COMMENTS BY PHONE
• UKRAINE'S STATEMENTS ON ARMED CONVOY `PROVOCATION': ZAKHAROVA

And remember what we said not even an hour ago: "as a reminder this is first and foremost a war of relentless propaganda on all sides", well Russia seems to agree:

• UKRAINE'S REPORT ON CONVOY PART OF INFORMATION WAR: ZAKHAROVA

Time for the CIA to unleash the YouTube clips. And while we are waiting, perhaps Ukraine can finally release those MH-17 air traffic control recordings its secret police confiscated a month ago, and which the entire world forgot about?

If structural reform is impossible as a result of lobbying (i.e. the political capture of governance and regulation) by vested interests that profit handsomely from these broken systems, collapse is the only "fix" left.

As the TBAC explained one year ago, pensioners (first in Denmark, soon everywhere else) have the Fed and other monetizing central banks to thank for losing their "purchasing power" as a result of the central banks' sequestration of high quality collateral, i.e. bonds with duration to record levels, and the resulting collapse in bond market liquidity. Well, things just got worse today, when as the following chart courtesy of Nanex showed, liquidity in the ZB future took a step function lower on the Russian news. Expect even further contraction in liquidity in the coming weeks and months, which in turn will mean that soon the world's "deepest" market may have all the liquidity of CYNK... and all the volatility as well.

Having plunged at 8amET on no news whatsoever... gold futures have recovered the entire drop on Ukraine-Russia escalation.

While we await to see any actual proof of either a Russian armed convoy entering Ukraine territory, or that this convoy was shelled by Ukraine artillery, because as a reminder this is first and foremost a war of relentless propaganda on all sides, here is the latest from Europe, which moments after stating it may roll back sanctions just announced it is now considering even more actions against Russia. From Reuters:

• EU FOREIGN MINISTERS SAY WOULD CONSIDER ANY UNILATERAL MILITARY ACTIONS BY RUSSIA IN UKRAINE AS BLATANT VIOLATION OF INTERNATIONAL LAW

So far the only official comment that is missing is that of Russia which has vehemently denied any entrance by an armed convoy into Ukraine and has yet to have any direct statement on the alleged destruction of its assets in Ukraine.

News of the Ukrainian destruction of part of a Russian military convoy sent European stocks (and bond yields) plunging.  German DAX futures lost all the gains from the US close last Friday as 2Y bonds closed at -1bps and 10Y bunds at a record low 96bps. European equity indices all lost significant ground on the news today but generally held on to some gains on the week. Peripheral bond spreads pressed wider today but ended the week lower (Spain -5bps, Portugal -25bps). High yield spreads jumped over 20bps on the news. Europe's VIX soared over 20 today (from 16 earlier).