Archive - Sep 2015

Today the US made a dramatic diplomatic escalation ahead of what is now assured to be the second major showdown between the US and Russia in Syria, over a Qatari gas pipeline no less, when according to Reuters, it asked Greece to deny Russia the use of its airspace for supply flights to Syria, a Greek official said on Monday, after Washington told Moscow it was deeply concerned by reports of a Russian military build up in Syria.

Five years of austerity, higher taxes, deep cuts in public spending, record suicide rates, and homelessness beyond anyone's worst forecasts... is it any wonder that, as Gallup reports, a majority of adults in the country - 55% - said in a poll that they think converting from the Greek drachma to the euro in 2001 has harmed Greece.

The fallout from the demise of the petrodollar is becoming impossible to sweep under the rug even as Gulf states are keen to downplay the severity of the budget crunch. For the Saudis, who need crude at $100 to plug a budget deficit that’s projected at a whopping 20% of GDP, the situation is becoming particularly acute. For Qatar, the situation isn't quite as dire but that doesn't mean the country's officials aren't acutely aware that the world is now scrutinizing the budgets of petrostates in the wake of collapsing crude and indeed on Monday, Qatari Finance Minister Ali Sherif al-Emadi was at pains to reassure the market.

While the media focuses on the human tragedy of so many people uprooted and traveling in dangerous circumstances, there is very little attention given to the events that led them to leave their countries. Certainly we all feel for the displaced people, especially the children, but let’s not forget that this is a man-made crisis and it is a government-made crisis.

But the aforementioned weasel words provide the best of both worlds: if commodities rally, then he can point to "nailing the bottom" with this interview. On the other hand, if commodities continue to sink, as I imagine they generally will, then he's got about five different escape hatches in this verbiage so that he's off the hook.

On one hand, every economist, virtual portfolio manager, Yahoo Finance Twitter expert, and TV talking head is certain that a September rate hike is inevitable. On the other hand, the bank that runs the NY Fed (and whose chief economist Jan Hatzius has dinner with NY Fed head Bill Dudley at the Pound and Pence every other month), Goldman Sachs is re-doubling down on its call that the Fed will not hike in September. Here are Goldman's seven reasons why not.

The violence in two of the world's conflict hot spots escalated materially over the weekend after a Houthi rocket attack in Marib killed 45 UAE soldiers, prompting the delpoyment of an additional 1,000 Qatari troops and triggering stepped up Saudi airstrikes. Meanwhile, in Turkey, roadside bombings blamed on the PKK mean Ankara will look to plunge the country deeper into civil war ahead of elections in November. 

There is strong evidence that economies perform better with a tight labor market and, as the International Monetary Fund has shown, lower inequality (and the former typically leads to the latter). Of course, the financiers and corporate executives who pay $1,000 to attend the Jackson Hole meeting see things differently: Low wages mean high profits, and low interest rates mean high stock prices. Statements from Fed officials that the economy has virtually returned to normal are met with derision. Perhaps that is true in the neighborhoods where the officials live. But, with the bulk of the increase in incomes since the US “recovery” began going to the top 1% of earners, it is not true for most communities. Simply put, in the US, workers are being asked to sacrifice their livelihoods and wellbeing to protect well-heeled financiers from the consequences of their own recklessness.

Filed under 'what the f##k?', French President Francois Hollande is preparing for air strikes in Syria in a somewhat mind-numbing approach to to stem a flood of refugees from the Middle East into Europe. Using the always-ready excuse of "grappling with the threat of terrorism," Bloomberg reports Hollande's response to Europe’s biggest refugee crisis since World War II by increasing the bombing of the very place from which the refugees are fleeing...

As events unfold that have to be seen to be be believed in Belgian capital Brussels, European farmers - protesting plunging food prices, blamed on Russia's food embargo, which was retaliation to Europe and US sanctions - are demanding EU intervention to bail them out. What was originally a parade of tractors quickly turned violent as farm equipment rammed police barricades and police released tear gas and water jets in response to the farmers unleashing their "hay cannon." Boomerang anyone? "EU farmers are paying the price for international politics...There have been hundreds of suicides as a result of disastrous agricultural policies."

Despite US markets being closed for Labor Day, WTI Crude futures traders algos appear to be following the post-EU close run-the-stops pattern. Despite rising tensions in the middle-east and China promising their market is stable, WTI Crude is down almost 4%, back to a $43 handle...

What is the reason for the drop? Well, one can believe the ECB's stated explanation which is that due to European summer vacations, activity in Europe has ground to a halt. Of course, this would suggest that monetization in the Eurozone is continent on managers' summer vacation plans, which is probably an even more troubling explanation of ECB activity bottlenecks than what may be really going on in Europe. The alternative? As we noted over the weekend when we reported that now even the IMF is discussing the upcoming limits to BOJ QE as a result of sellers running out of BOJs to hand over to the BOJ, the same may be taking place in Europe

Last week’s volatility to the downside was entirely predictable, as the first leg down during this ongoing market crash reached the correction stage of 11%. The technical bounce was a given, as the 30 year old HFT MBAs on Wall Street have been trained like rats to BTFD. In their lemming like minds, it has worked for the last six years of this Federal Reserve created “bull market”, so why wouldn’t it work now. Last week was their first lesson in why it doesn’t work during bear markets, and we’ve entered a bear market. John Hussman seems amused at the shallowness of the arguments by Wall Street shills and CNBC cheerleaders about the future of the stock market in his weekly letter. After this modest pullback from all-time highs, the S&P 500 is still overvalued by 92%...

Logically, the massive liquidation of USD assets by China and other emerging market central banks should put upward pressure on UST yields and will, all else equal, work at cross purposes with DM central bank QE. But all else is never really equal...