Archive - Sep 10, 2014

The current environment is distinct from the period of 2009-2013 when governments and central banks were quasi-coordinated in providing gargantuan amounts of stimulus, and when the geo-tensions were only chirping modestly. This year, governments and central banks have focused more generally on domestic issues. This is good in theory, but it has splintered coordination into a quasi-fracturing of the global monetary system. Diverging policies serve as a trigger for capital flow movements. They are shaking the foundation of capital markets, which in turn is causing second order effects like a mini-contagion. Amplified volatility in FX and commodity markets are warning signs. They appear on the cusp of spilling more broadly into other markets, exposing the full size of the iceberg.

In a world of no consequences and where lying is justified "when it's serious enough," it is hardly surprising that mere hours after stating unequivocally that none of the law enforcement entities the league approached "was permitted to provide any video or other investigatory material to us," AP reports that, in fact, a law enforcement official says he sent a video of Ray Rice punching his then-fiancee to an NFL executive five months ago. More lies - but then we are sure, just as we have heard many times before, Roger Goodell was 'unaware' of the situation...

"The bubble probably needs to continue in order to sustain the current global financial system and the necessary future deleveraging. However with yields moving ever lower in many parts of the world in recent times, partly due to weak growth, and with debt levels still moving higher, the chances are that most government bondholders are unlikely to achieve a positive real return over the medium to long-term from this starting point. Inflation or even the risk of sovereign restructuring will likely prevent this."

It appears that, in a rush to get his strategy out the door, President Obama overlooked his key "do nothing stupid" foreign policy plan.

• OBAMA SAID TO SEEK CONGRESS AUTHORITY TO ARM SYRIAN REBELS

So - to be clear - the strategy to defeat ISIS is to arm more of the same "rebels" that ultimately split off and became, well, ISIS?

Today's v-shaped recovery in US equities was brought to you by the number 107 (USDJPY target) and the words "Scottish poll" which showed a majority of "no"s this afternoon. Early weakness in stocks (but not in Treasuries) reversed almost perfectly as Europe closed and JPY started to ramp towards the next logical stop run at 107.00. Nasdaq led the way (as AAPLites swept back in) and pushed into the green for the week (while the rest are still red). Treasury yields rose on the day, led by the long-end (30Y +3bps) stalling some of yesterday's flattening (5Y +9bps on the week). GBP rallied notably after the "no" poll which kept pressure on the USD (closing practically unch on the day). Gold, silver, and oil slipped lower as US woke up then stabilized. Credit spreads compressed on the day but not as exuberantly as stocks even as VIX dropped back under 13 again. For the 2nd day in a row, the S&P 500 closed below 2,000 - turmoil?

Every three years the Federal Reserve releases a survey of consumer finances that is a stockpile of data on everything from household net worth to incomes. A major mainstream media theme has been that the surging stock market, driven by the Federal Reserve's monetary interventions, has provided a boost to the overall economy. However, given that the bulk of the population either does not, or only marginally, participates in the financial markets, the "boost" has remained concentrated in the upper 10%. The Federal Reserve study breaks the data down in several ways, but the story remains the same...

Russia-Iran Oil-for-Goods Contracts
Representatives of the Russian and Iranian governments met in Tehran yesterday for the 11th meeting of the Iran-Russian Trade Council, where details of a ground breaking oil-for-goods swap between the two heavily sanctioned countries were revealed.

With both countries now sanctioned by the West, Russia and Iran have been in extensive negotiations on how to facilitate Iranian oil exports without breaching the UN Security Council nuclear deal that was agreed between Iran, Germany and the five UN Council permanent last January.

Mission Accomplished, military-industrial complex scaremongers...

While Europe appears to have blown it load prematurely, with the latest round of Russian sanctions leaked before Europe actually has the consensus to implement them, Russia has no such moral quandaries and three days following our forecast, here comes Gazprom confirming once again that it is perfectly happy to play the "mutual defection" strategy in the ongoing and ever escalating game theory between Europe and Russia. From Bloomberg:

RUSSIA LIMITING EU GAS TO RESTRICT REVERSE SUPPLY TO UKRAINE

This follows news earlier today from Poland’s PGNiG which said Gazprom lowered supply by 20%-24% in past 2 days.

So what they're doing is requiring medical marijuana dispensaries...........to set aside a portion of their cannabis............to give away free............to poor people

When we exposed the shift in Russia's military doctrine towards one of nuclear deterrence and pre-emptive strikes, many eschewed it as fantastical thinking of extremists. They were wrong. Speaking at a defense meeting this morning, Russian President Vladimir Putin declared he is taking charge of Russia's military-industrial complex:

*PUTIN SAYS NEW MILITARY DOCTRINE READY BY DEC, CALLS ENSURING NUCLEAR DETERRENT TOP DEFENSE TASK TO 2030

This does not seem like de-escalatory conversation as NATO continues to push - to justify its existence - and Putin now prepares an increasingly Cold-War-esque response threat (following an overnight nuclear missile test).

While we fully understand that when selling institutionally-priced newsletters to institutions (not retail for one simple reason: lack of "other people's money" to spend) one will have a far more lucrative career as a bull than as a bear simply because insecure (that would be most of them) institutional "strategists" prefer to surround themselves in cognitive bias-reinforcing groupthink just to convince themselves they are right, as the rating-agency era confirmed, one thing we are very confused by is whether David Rosenberg, who famously flipped from bear to bull a little over a year ago (recall David Rosenberg: Here’s why I’m bullish on the US economy), preaching a "wage-inflation" driven bout of economic growth which has not only not materialized, but the 10 Year recently hit 2014 lows, is now back to being a bear.

No, this is not from The Onion. Bloomberg reports that six U.S. army helicopters landed in a rapeseed field in northern Poland to ask for directions after veering off course on their way back from military exercises. Locals were alarmed and explained, "we know that security is the most important thing right now... But thank God it was the Americans." We wonder how long before Sikorski proclaims this an invasion and demands NATO react...

As AAPL surges back today, it appears the market is more sensitive than many thought to what is happening in Scotland - as we overheard yesterday how meaningless Scottish GDP is compared to America's. However, a flashing red headline on Bloomberg from a Survation poll in Scotland of 1000 people showed 53% No and 47% Yes - the widest margin in over a week... and stocks jumped. It seems that since nobody cares about any newsflow out of Ukriane any more since it is all fabricated, the algos have turned their attention on any "de-escalation" out of Scotland.