Archive - Feb 10, 2015

And now for something completely unexpected: 2 minutes of pure truth on CNBC...

It is very difficult for governments to control the progress of a monetary union break-up because the example of one country exiting will create a precedent in the eyes of other members of the monetary union. The transmission channel is not government bonds, nor equities, not currency markets, but banks. In the event of a Greek exit from the euro, the loss in the real value of Greek bank deposits would encourage bank depositors in other countries to withdraw their funds. 

The process can be very rapid indeed.

"Greece's Foreign Minister Nikolaos Kotzias is to visit Moscow on Wednesday to hold talks with his Russian counterpart Sergei Lavrov, Russia's Interfax and TASS news agencies reported on Monday citing a source in the Russian Foreign Ministry." In other words, at precisely the same time as the FinMin is in Brussels discussing the fate, or lack thereof, of Greece in the Eurozone, the new Greek foreign miniser will be in the Kremlin, getting instant updates from Brussels and perhaps discussing the fate of Greece in the Eurasian Economic Union. Or put in the simplest of terms, tomorrow Greece will decide: Europe, or Russia.

It would appear the powers that be are getting nervous. Yesterday, Fed Governor Jerome Powell (and Fisher and Plosser) stepped up the central bank’s push against what he termed congressional efforts to extend political influence over monetary policy, calling them "misguided" and "in violent conflict with the facts." Today we have Senator Elizabeth Warren trying to sound supportive of transparency but proclaiming that she opposes Rand Paul's "Audit The Fed" Bill because it promotes "congressional meddling in the Fed’s monetary policy decisions," and has "dangerous implications for financial stability and the health of the global economy."

Much as we may dislike the fact, the results from quantum physics are unequivocal: parallel universes do exist. Oddly enough, such quantum effects are quite normal to observe within the political space. Here the physical objects involved are far too large to give rise to the parallel universes of quantum physics, but the narratives they give rise to are not. This is because the narratives are a matter of perception, and there can be historical periods, such as the present one, when the peephole through which the political establishment and the mainstream media allow us to see the world becomes so tiny that it becomes a toss-up as to whether or not any given photon will manage to find its way through it.

We remarked on the first notable casualty of the collapse of global trade and with it the cost of shipping freight last week when the first of the bulk shipping bankruptcies occurred, but as The South China Morning Post reports, over the past 10 years, shipping lines have endlessly invested in newer, larger vessels - flooding the market with additional capacity - yet the industry's profitability and return on capital have remained pitiful. This supply-demand imbalance has lowered the cost of ocean shipping, but has raised concerns among vessel operators, insurers and regulators about the potential for catastrophic accidents, as "cost cutting measures such as reducing crew numbers, overworking and lack of training” have exacerbated the risks.

‘Coin bars’ is a bullion industry term referring to bars that were made by melting gold coins in a process that did not refine the gold nor remove the other metals or metal alloys that were in the coins. The molten metal was just recast directly into bar form. Because it’s a concept critical to the FRBNY stored gold, the concept of US Assay Office / Mint gold bar ‘Melts’ is also highlighted below. Melts are batches of gold bars, usually between 18 and 22 bars, that when produced, were stamped with a melt number and a fineness, but were weight-listed as one unit. The US Assay Office produced both 0.995 fine gold bars and coin bars as Melts. The gold bars in a Melt are usually stored together unless that melt has been ‘broken’.

It's been more than six months since oil prices started to plunge (and with them gas prices at the pump). That should (right?) be more than enough time for the status quo's narrative "tax cut" to filter through into the real economy and lift US Macro data... it hasn't... at all!

Having signed a new five-year contract in December reported to be worth $10 million a year, Brian Williams - the mis-remembering NBC News anchor - has been suspended by the network for six months without pay this evening, according to The NY Times. NBC Universal CEO Steve Burke remarked, "by his actions, Brian has jeopardized the trust millions of Americans place in NBC News. His actions are inexcusable and this suspension is severe and appropriate."

"Pointing to one possible avenue of asymmetrical retaliation, the source said Moscow could give in to long-standing Chinese requests for sensitive defense technologies that would aid in its development of high-tech weapons capable of doing serious damage to U.S. naval forces in the Asia-Pacific. Moscow has so far declined China's requests on "politically correct pretenses," the source said." The punchline: "We can also encourage Iran, or even back Iran in a fight — a military operation — with Saudi Arabia, so then the prices for oil will skyrocket," the source said, explaining that these were just two possible responses."

It appears someone forgot to tell The Federal Reserve Bank of New York (FRBNY) how to 'seasonally-adjust' its data to meet the narrative. In Februrary's survey of consumer expectations, FRBNY reports a collapse in consumer spending growth expectations in January. Even more worrying for President Obama's "middle-class economic" strategy is that the biggest plunge is among the $50-100k income cohort. Not exactly the picture of the 'wreckovery' Americans are supposed to be buying right now. All those jobs, all that wealth created, all the low-gas-price-tax-cut, and spending expectations collapse...

The inability of the linear thinking ruling class to acknowledge the seriousness of our current circumstances and the implications of the era of depression and violence the country is about to experience can be witnessed on a daily basis by listening to mainstream media talking heads or politicians of all stripes who bloviate about economic improvement and progress just ahead. Could there be a better example of myopia, delusion and willful ignorance than the theme and opening line of Obama’s State of the Union speech: "The Shadow Of Crisis Has Passed" Do Obama and his advisors actually believe this Crisis is over? Or is he purposely misleading the American people about the seriousness of our circumstances because he has been instructed to do so by the men who really pull the levers of this country?

Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead.

With Russia allegedly moving its military presence deeper into NATO territory in Europe (with a Cyrpiot base), Bloomberg reports that in response to the regions' growing strategic importance, the US plans to open naval base in Australia (risking further "inflamed tensions" with China) in the midst of a “pivot-to-Asia” that will see 60% of its naval forces deployed in the region by 2020. The latest move, Admiral Greenert confirms, "we’re doing a study together with the Australia Defence Force to see what might be feasible for naval cooperation in and around Australia, which might include basing ships," as the Indian Ocean and South China Seas are becoming "geostrategic hot spots."

It appears the management team at FBRNY have decided that manipulating the US equity market via selling VIX has run its course (which started when Brian Sack left and Simon Potter took over) . As of this week - there has never been a bigger speculative long VIX position (implicitly bearish stocks). One wonders what the consequences are?