Archive - Sep 2014

Consolidating? Or Topping Out? But Ceasefire... But ECB... but Jobs data...

Presented with little comment...

• *EBOLA DEATH TOLL REACHES 1,900; CASES SURPASS 3,500, WHO SAYS
• *EBOLA OUTBREAK HAS MORE DEATHS THAN ALL PAST OUTBREAKS COMBINED

Perhaps, when Doctors-Without-Borders and the World Health Organization start speaking in panicced terms about 'out of control' outbreaks, 'global crisis', 'lethally inadequate' responses; that it's time for the west to start getting involved (as opposed to sending humanitarian advisers to Iraq and Ukraine).

The financial market stimulus chorus is now universal - virtually identical from Hong Kong to London to New York, despite ostensibly deep differences in policy regimes. At the end of the day, however, there is not really a dimes worth of difference between the Bush/Obama/Bernanke model and the economic model employed by the politburo overlords in Beijing. Its all about insensible, contagious, addictive credit expansion, and the phony wealth and temporary prosperity which it breeds. All it takes is just another shot of “stimulus”.

ISIS threats, it would appear, are not limited to President Obama and his American allies. RIA is reporting that Russian leaders are seeking to cut access to an ISIS video posted that threatens Putin (for ties to Assad), and plans to liberate (via Caliphate) Chechnya, and calls the Chechnyan leader, Ramzan Kadyrov, a Putin puppet. The Chechnya leader took to Instagram to respond slamming "these bastards have no relation to Islam," and exclaiming if they try to threaten Russia or Chechnya "you will be destroyed."

While the 'market' has rallied to record highs this morning, "proving" to some talking-heads that this cease-fire is real this time, it appears Ukraine's Prime Minister Arseniy Yatsenyuk isn't buying it...

*YATSENYUK SAYS NO 'TRUST' IN PUTIN'S PEACE PLAN FOR UKRAINE, RUSSIA VIOLATED OR IGNORED ALL PRIOR AGREEMENTS
*PUTIN SEEKING TO RUIN UKRAINE, RESTORE SOVIET UNION: YATSENYUK

So that would be the opposite of what the 'market' is pricing in? Of course, what does Ukraine's PM know... the market is efficient after all, right?

Just in case ISIS, or any of the various weaponized local groups of disconents get any ideas and decide to bring their "terrorism" to China's megacities, here is how the local authorities prepare for just such occasions. The photos below show the Beijing police conducting the appropriately named "One-minute handling" anti-terror drill taking place in one of the city's commercial centers. While in itself it is hardly surprising that the world's most populous country is preparing for Plan B, one does wonder just what the local Politburo may be seeing especially in the aftermath of the images from May which captured the riot police training for a "working class insurrection" making one wonder: just what is considered terrorism in China?

The chance of EURCHF breaking the peg at 1.2000 have increased from 10% to 25-30% based on European Central Bank monetary policy, geopolitical risk and a lack of policy choices for the Swiss National Bank. This means that being long EURCHF no longer is a safe bet and although the 70% chance of the floor being both defended and protected is still high, the tail-risk involved is becoming too concerning.

Overview of the ECB meeting and likely outcomes.  More robust analysis than ideological fervor.

Sustainable? Thanks to various massive airplane orders (as Ex-Im is threatened with extinction), US Factory Orders rose 10.5% MoM in July - the biggest MoM rise ever. However, this was a miss against expectations of an 11.2% rise and perhaps most critically, Factory Orders Ex-Transports dropped 0.8%, also missing expectations with its worst print since March 2013.

Just three months ago, everyone was a believer: bonds traded well above par, Europe's recovery was on track, and Portugal's banking system was a shining example of how Europe's bailout program worked (and Goldman was pitching SPVs full of this crap to any and all greater fools). Today - the ugly truth is exposed as Bloomberg reports, Espirito Santo International debt attracted potential buyers at just 2% of face value. Of course, the words "contained" are trotted out to explain how this is a one-off and not at all representative of the rest of the European banking system. But... Howard Marks' Oaktree Capital seems to disagree - "We continue to think Europe will provide a substantial quantum of attractive investment opportunities for all of our strategies and in particular distressed debt," as a record amount of bad loans are being offloaded by European banks ahead of the stress tests.

Russia did this... "These are facts, provable," President Obama declared... we let him continue...

This month's Bill Gross letter, notably shorter than usual, is as close to the bond manager discussing an Austrian economics worldview as we will likely ever see him: in brief, it's all about the credit/money creation, with an emphasis on the use of proceeds of said creation under ZIRP, i.e., malinvestment , or as Gross puts it: "credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring."

• Confusion as Ukraine and Russia announce progress towards peace (Reuters)... but not for stock buying algos, they know everything
• Obama Expresses Skepticism About Possible Ukraine Cease-Fire (WSJ)
• Fighters Unwind in Russia Where Beer Doesn’t Spell Death (BBG)
• Despite dangers, U.S. journalist Sotloff was determined to record Arab Spring's human toll (Reuters)
• New Beheading Video Spurs Calls for Global Response (BBG)
• Christie’s Spending on Outside Lawyers Passes $50 Million (BBG)
• IEX to Apply for Exchange Status (WSJ)
• UK says not ruling out airstrikes against Islamic State, says hostage video genuine (Reuters)

Heading into the North American open, the bulk of the morning’s price action has been provided by news that Ukrainian President Poroshenko said that he reached an agreement with Russia's Putin on a "permanent cease fire" in Eastern Ukraine's Donbass region. This saw an immediate spike higher in European equities with the DAX future rallying and breaking above its 100DMA seen at 9644.50, thus extending earlier gains that stemmed from the strong performance in Asia-Pacific equities, while the e-mini S&P once again printed a fresh record high. However, these moves staged a partial reversal amid comments from Russia’s Putin that he denied that such an agreement had been reached as Russia is not a party to the Ukraine conflict. In stock specific news, Russian exposed Raiffeisen Bank outperforms Europe (+7%) in reaction to the geopolitical developments, while Hugo Boss have underperformed throughout the session following a share placement which came in at the lower end (-5.3%).