Archive - Aug 7, 2014

White House: Iraq is approaching a "catastrophe"

Just in case there weren't enough potential GDP-boosting war hotzones around the world, Obama is now preparing to go back to ground zero, Iraq, where the NYT just reported he is "considering airstrikes or airdrops of food and medicine to address a humanitarian crisis among as many as 40,000 religious minorities in Iraq who have been dying of heat and thirst on a mountain top after death threats from the Islamic State in Iraq and Syria, administration officials said on Thursday."

This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.

Gold futures broke above $1315 as a double whammy of NATO threats and Ukraine headlines spark safe-haven buying:

*FIGHTER JET SHOT DOWN OVER REBEL-HELD EAST UKRAINE: AFP

10Y Treasury yields are under 2.43% and JPY is strengthening once again as carry trades are unwound.

A few hours ago, the existing head of the breakaway Donetsk People's Republic in East Ukraine, Aleksander Borodai, current head of the self-proclaimed "Donetsk People's Republic" (DNR), and one of the Russian nationals that have taken top roles among the pro-Russia rebels, was said to be quitting his post. Moments ago RIA confirmed that Borodai is indeed out and would be replaced with Alexander Zakharchenko, a native of Donetsk, who heads a heavily armed rebel unit called Oplot. Contrary to some early erroneous speculation that this replacement is a sign of moderation of hostilities, Reuters reports, citing a source, that "He is being named to beef up the military wing."

Germany's DAX stock index has plunged once again, to the same level as in October 2013 as European economic realities (coupled with sanctions retaliation fears) miss expectations drastically. The DAX is now in "correction", down 10.235% from its June record highs as it appears the more the US sanctions Russia, the more Europe crumbles...

While we assumed everyone knew that correspondence from Nigerian leaders requesting funds were always fradulent, it appears the US government decided the opportunity was worth the risk...

*U.S. FORFEITS OVER $480 MILLION STOLEN BY FORMER NIGERIAN DICTATOR

The DoJ describes it as "the largest forfeiture ever." Oh well - we hear Rwanda is looking to issue some bonds..."We might go for double that or more, up to $1 billion."

While we assume NATO's Rasmussen's appearance in Kiev is not responsible, Kiev is burning once again. As RT reports, activists and police have clashed in the Ukrainian capital’s center after communal workers tried to dismantle an activist camp, following a months-old conflict over the camp with the city administration.

With over 932 dead, the US Centers for Disease Control and Prevention has issued its highest level alert for an all-hands on deck response to the crisis in West Africa (that is spreading across the world). While President Obama proclaimed we are prepared and itis "not easily transmitted," it appears that is not entirely true. Meanwhile, CDC Director Frieden's "deep concerns" have been confirmed as Nigeria’s health minister has declared a health emergency as the deadly Ebola virus gained a foothold in Africa’s most populous nation, according to news reports. Nigerian authorities moved quickly late Wednesday, gathering isolation tents as five more cases of the Ebola Virus were confirmed in Lagos (the world's 4th most populous city with 21 million people). Most international flights from West Africa are also now screening passengers.

It was all fun and games while the grand western "Pariah Putin is evil" alliance was calling the shots, lobbing one sanctions after another, and Russia was quietly sitting there and taking it all. But once Europe realized that suddenly its food exporters are about to see their revenues plunge (and ostensibly lead to even more domestic deflation as all the excess produce floods domestic markets) and lead to gaping trade deficits, suddenly cries that Putin's retaliation is "unfair" have filled the air. What's worse, the moment Russia retaliated, the grand alliance started to crack. Enter Greece which has hundreds of millions in food exports to Russia, and which was the first country to hint that it may splinter from the western "pro-sanctions" alliance.

NATO's Chief Anders Rasmussen is unleashing his latest set of 'back down or else' comments this morning towards Russia:

*RASMUSSEN TELLS RUSSIA 'TO STEP BACK FROM THE BRINK'
*NATO: INTL COMMUNITY TO `REACT DECISIVELY' IF RUSSIA INTERVENES

And ironically Rasmussen proclaims Russia faces further isolation if it continues down this path... by which he means Russia will become even closer to its BRICS allies. The market's reaction to this tone is bad... stocks dropping, gold popping, and Bunds to record low yields...

Outspoken non-status-quo thinker Reserve Bank of India Governor Raghuram Rajan may be set to have his central banker card revoked... for telling too much truth (here in 2012, here in 2013, and most recently here). Having previously noted that "international monetary cooperation has broken down," the WSJ reports that Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense. Simply put, he concludes, "we are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost."

Either Europe is run by a bunch of unelected idiots, or... well, that's about it. After blindly doing the US' bidding over all propaganda matters Ukraine-related, and following just as blindly into round after round of US-inspired sanctions, sanctions to whose retaliation Europe would be on the frontline unlike the largely insulated US, Europe appears to be absolutely shocked and is apoplectic that after several rounds of sanction escalations, Russia finally unleashed its own round of sanctions and yesterday announced a 1 year ban on all European food imports, something which will further push Europe into a triple-dip recession as already hinted by Italy yesterday.

You do not want to play checkers with these two...

Considering all central bank money is created out of thin air, without actual collateral (unlike money created by commercial banks) and just has the backing of the (diluted) "full faith and credit" of the issuer, the only real use for such money is to be "embezzled" either legally - by banks where it ends up as reserves and is then used to push risk assets higher and make the merely uber richer uberest rich... or illegally. It is the latter shortcut that numerous employees of the central bank of Albania decided to pursue when the central bank discovered that around 713 million lek, or $6.7 million, in cash had been stolen two weeks ago.

Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation. Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!