Archive - Dec 2014 - Story

Un-United States of America...

The ECB left its policy rates unchanged at today’s meeting and made no announcement of further non-conventional measures. The main innovation in today’s press conference was the shift in the language regarding the expansion of the ECB's balance sheet: an increase towards the size of its balance sheet at the beginning of 2012 is now “intended”, rather than simply an “expectation” of the Governing Council (as in the November statement). We read this as implying a higher degree of commitment to balance sheet expansion and thus as a further signal towards additional asset purchases. As made clear by ECB President Draghi, some members of the Governing Council remain sceptical about the introduction of further measures. An assessment of whether further stimulus is needed will be made “early next year”. Having emphasised that he does not need to achieve unanimity on the Governing Council to proceed with further easing (including purchases of sovereign debt), we expect Mr Draghi to announce and implement a sovereign debt QE programme during the first half of next year.

The increasing use of technology to replace human capital is a trend that will not reverse anytime soon and will continue to proliferate areas where unskilled, repetitive labor can be automated. This is the risk that fast food workers take by lobbying for higher wages; an ordering kiosk can be quickly employed to take orders and deliver those to an automated production line. Or better yet, why not allow customers to simply place orders on the way to the restaurant through an "app." The next time you go out take a moment to realize the impact of technology on everything you do. Also, notice how many individuals have the faces stuck into their phones being truly unproductive.

Who could have seen that coming!!??? Apparently Draghi could not clarify exactly what he meant in 90 minutes, 3 hours ago!!!!

*ECB SAID TO PREPARE BROAD-BASED QE PACKAGE FOR JANUARY MEETING

So, despite telling us earlier than not January and not ready, we get this spurious headline just as EURUSD crossed 1.2450... Fun-durr-mentals indeed. And now Bloomberg is retracting!!

"Investors may have taken low volatility for granted and underestimated the potential for a reversal. While quantitative easing policies are intended to encourage investors to buy risky assets, there is also a risk that the perceived reversal of such policies will lead investors to turn the other way, triggering market instability.... Similarly, investors may have become too sanguine about the availability of market liquidity — the ability to transact in size without having a significant impact on price — during both good times and bad. Accommodative global monetary policy, coupled with the Federal Reserve’s purchases of large amounts of low-risk assets and changes in risk sentiment, helped to compress volatility and risk premiums. "

With its bonds trading at 50% of face value, CDS implying an 84% chance of default, a black-market FX rate that signals massive devaluation is likely, and a teetering-on-the-brink of social unrest population entirely dependent on President Maduro's generosity (and the military junta), it is perhaps not entirely surprising that they are trying any trick in the book to bolster reserves. The Venezuelan Central Bank issued a statement today (akin to Europe's hookers-and-blow GDP adjustment) that enables them to count a whole new set of 'assets' as potential international reserves including "stones" and "precious metals held in their vaults on behalf of foreign financial institutions." Hey presto... new reserves. And if that wasn't enough, a massive blackout just hit Caracas...

With the Fukushima disaster having disappeared from all media coverage in recent months (and with the plan to encapsulate the radioactive plant in an ice sarcophagus recently scrapped, Japan has still to reveal what its plans are for dealing with the disaster area), the world occasionally needs a reminder of the waste land that follow when nuclear power goes horribly wrong. For that we go back to the original nuclear disaster, Chernobyl, and US photographer Phillip Grossman who, while having taken numerous pictures of the radioactive sarcophagus and its surroundings in the past, has produced his most amazing work yet courtesy of a camera-equipped drone. It allowed him to use a high powered camera and get a bird’s eye view of the surrounding landscape. The stunning result is shown in the video below.

Claims that the new government in Ukraine is nothing more than a Western puppet Parliament have been swirling around consistently since February. Nevertheless, we think it’s very significant that the takeover is now overt, undeniable and completely out in the open. 

Meet American, Natalie Jaresko, who runs private equity fund Horizon Capital, and just became Ukraine’s Finance Minister.

Just another "unintended consequence" of modern non-stakeholder capitalism and central-planning.

ECB head Mario Draghi made it clear where the real battle is taking place in the world this morning. When asked what form QE would take, his response was to the point... "On what sorts of assets should be included in QE... we discussed all assets BUT gold" and gold dropped, right on cue.

It has been centuries since the Portuguese last dominated the world's seaways, but in glancing over recent headlines one would be forgiven for thinking that their pirates are still running around. With the economy still reeling from the effects of the devastating financial crisis in 2010-11, Portugal has been rocked by a series of corruption scandals which go to the very core of the political and financial establishments. Portugal's economic divergence relative to Europe’s core is striking; it has even been overtaken by an average of the newcomers that joined the European Union in 2004, many of which are former communist countries. This in spite of Portugal receiving billions in structural reform funds from Brussels for almost three decades now – a process which is still ongoing. So how did this significant underperformance come about?

A funny thing happened in China in July. Ever so quietly, and with little aplomb, the PBOC unleashed CNY 1 trillion of 'Pledged Supplementary Lending' (PSL) to China Development Bank - later dubbed "QE-Lite." Economic indicators temporarily blipped higher, a new recovery was proclaimed by the masses, and the world fell back into its stupor... despite the post-credit-impulse hangover which has seen Chinese data collapse in the last 2 months. But that did not stop speculators... tired of betting on Chinese real estate (which never goes down), the 'signal' of QE has sparked a stunning 41% surge in Chinese stocks since PSL. However, this exuberant resurgence (+4.3% last night alone) rests on shaky foundations as margin trading balances have more than doubled during this period...

When ISIS dared to steal and sell oil at below market rates, they were dire pirates that needed to be destroyed (and anyone who dared to buy it was pariah). So when, as Bloomberg reports, crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28 (according to the marketing arm of Plains All American Pipeline), you know there is an issue in the US Shale industry. As one analyst notes, "to a producer in Wyoming, if Brent’s $70 then I’m at $50, then I have to start asking does it economically make sense to keep drilling, they might start reallocating capital, you might see projects slowed or shut down." So with every expert in financial media clinging to some hope that oil prices can't go down any more surely right? The answer is yes... and have already broken below $50... something that may indicate not just transportation issues, but desparation for crucial liquidity needs.

Stocks are down... EU bonds are down... EURUSD is up, and Draghi is not providing his usual promises. Cue The Bank of Japan proxies buying USDJPY to ignite some momentum in risk assets... USDJPY just broke above 120 (for the first time since July 2007)... ran all the stops then tumbled back down...

Back in March the ECB predicted 2014 inflation would be 1.0%, with prices rising to 1.3% in 2015. Since then one can say that deflation has once again taken hold, and following two consecutive cuts to 2014 inflation expectations, moments ago Draghi just released the ECB's latest set of inflation expectations. In a nutshell: in just 9 short months, the ECB's current year inflation forecast has been cut in half, with 2015 inflation also down nearly 50%, from 1.3% to 0.7%.