Archive - Dec 2014 - Story

If the US has become the undisputed world leader in sending non-lethal "military advisors" to the middle east, then Russia is learning fast, and as Interfax just reported, the head of the Russian Armed Forces chief of staff Gerasimov just confirmed that Russian "military specialists" are now working in the Donetsk region, although not to support the separatist army, but to promote "conflict de-escalation." One just has to admire politically correct war talk. But the punchline, from both Interfax and Bloomberg which also just reported this news, is that Russia is doing so at the "request of Ukraine's head of general staff." In other words, Ukraine actually invited the Russians.

Now that China is on the same boat as the rest of the world, and its stock market is a direct reflection of hopes for constant liquidity injections by the central banks, nothing could be better for stocks than bad news, which is precisely what it got. After the biggest crash in the Shanghai Composite in 5 years, what China got just the bad economic update it needed, when it reported a PPI of PPI (-2.7%, Exp. -2.4%), the 33rd consecutive decline and a  CPI (1.4%, Exp. 1.6%), lowest since November 2009, when the big banks’ RRR rate stood at 15.5% vs. current 20%. And so hope of yet more PBOC interventions to halt China's deflation promptly reversed SHCOMP losses of over 4% on the session (at which point it was just shy of correction territory from recent highs hit just this week), and stocks surged to close up almost 3%, erasing half of yesterday's losses. This spike came despite reports Chinese regulators may limit brokerages' interbank borrowing.

The Nikkei 225 has fallen over 300 points from the v-shaped recovery close at the end of the US day session and is now trading below the lows of the day at 2-week lows. USDJPY has plunged over 100 pips having briefly neared 120.00, now back below 119.00. JGB Futures are trading near record highs prices as yields collapse to near-record lows (30Y -23bps since QQE, 20Y -15bps) only seen during last year's yield-crash. No surprise then with the bond market "dead" according to market participants and yields negligible, that RBS has decided to exit the Japanese fixed-income business, slashing 200 jobs, and surrendering its primary bond dealership.

The Chinese stock market hit a four year high today at 3,020. This is up 53% since the middle of 2013 low and up 48% in the last six months. I guess this must mean the Chinese economy is operating on all cylinders. If you think so, you’d be wrong. As Anne Stevenson-Yang - who has lived there since 1985, told Barron's, the entire Chinese economic miracle is a fraud. The reforms are false. The leaders are corrupt and as evil as ever. The entire edifice is built upon a Himalayan mountain of bad debt. This lady is about as blunt as you can get about Chinese fraud, lies, mal-investment, and data manipulation.

On the wall of George Orwell's Ministry of Truth from his novel 1984 there were three slogans: "WAR IS PEACE, FREEDOM IS SLAVERY, IGNORANCE IS STRENGTH" It occurred to us that these apply just a little bit too well to the way the Washington, DC establishment operates. But there is a fourth slogan they need to add to the wall of Washington's Ministry of Truth. It is this: DEFEAT IS VICTORY!

If we're in a gold bear market, then answer these questions...

Yes, you too can become a Crude Oil futures trader!

If you are wondering what triggered the PBOC to pull the punchbowl of leveraged collateral away from the 'wealth-creating' stock market exuberance in China... wonder no more. The last 2 weeks saw the biggest surge in new Chinese brokerage accounts ever, with this week alone the highest since October 2010 and January 2008 with a stunning 228,000 new accounts opened. On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.

Worried about money-printing in China... don't! As China.org reports, an electricity generation plant in China's troubled Henan province is burning banknotes in what appears to be an effort to raise efficiency and reduce toxic emissions. One ton of scrapped banknotes can generate about 660 kWh of electricity, which means around 4,000 tonnes of coal can be saved in the province every year by using this process. Perhaps that is the solution to higher natural gas prices in winter for the US NorthEast... just transfer some banknotes up from The Eccles Building and heat the nation...

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.

While there will be much debate over the economic pros and cons to tumbling oil prices (there is no debate if the plunge is confirmed to be the result of a global collapse in demand: that would scream global recession) with a definitive answer unlikely to be forthcoming for at least several quarters, when it comes to corporate profitability the outcome is already known, because between plunging oil prices and the soaring dollar, what is most likely next in store for the US economy may or may not be a full-blown economic recession, but a profit recession seems virtually inevitable.

Having announced its intention to create an alternative to the SWIFT payment system (following calls from Western politicians for SWIFT to cut off Russia - which the 'independent' firm rapidly denied), Russia recently said it would be ready in May. However, it seems the rapid drop in the Ruble (and the Yuan in recent days) has escalated the need for this de-dollarized payment system and, as RT reports, Russia’s Rossiya and SMP banks, which fell under Western sanctions, are among the eight lenders that will start testing the country’s new national payment system on December 15.

Nothing screams economic recovery like 2 out of every 5 Americans living paycheck to paycheck. Especially when that number has reportedly increased by 33% since 2012. Perhaps someone should inform these destitute plebs that the stock market is up nearly 45% over the past two years, and after all, nothing says economic success like the 0.01% enriching themselves via fraud and financial engineering.

Zimbabwe's 90-year-old President Robert Mugabe fired the country's vice president, Joice Mujuru, today. His reasoning for her dismissal after 10 years in office... she is a witch who is plotting to assassinate him. She immediately responded, by radio address, saying she is not a witch (well she would, right?) adding she has "always been a God fearing person and would not and has not resorted to witchcraft to advance [her] political career." Mujuru is the first vice president to be fired since Zimbabwe gained independence in 1980. Her four predecessors all 'died' in office.

First the BIS came out with the following stunner when discussing markets: "The highly abnormal is becoming uncomfortably normal. Central banks and markets have been pushing benchmark sovereign yields to extraordinary lows - unimaginable just a few years back. There is something vaguely troubling when the unthinkable becomes routine." And now the routine of the unthinkable has forced Deutsche Bank to look at the unprecedented disconnect between the collapse in energy assets and the general market - which continues its hypnotized, low-volume levitation - and conclude that it makes absolutely no sense:  "We find current dislocation between deep distress in Energy assets and marginal reaction in broad market indexes to be inconsistent with each other. Either energy has to rebound noticeably, or it could pull broader market indexes lower. Exceptions to this assessment are rare."