Archive - Feb 2014 - Story

The short answer: if it did, the Chairman is unaware of it. Or is he? [Laughter]

The following chart showing the use of the words "economy" and "markets" in the Fed's September 16, 2008 meeting transcript is presented without comment.

“We planned to allocate another tranche according to that arrangement. Yet in the current situation we have many questions as to how the money will be used and how it will be paid back," said Russian Finance Minister Anton Siluanov, according to ITAR-TASS this morning.

*RUSSIA URGES RESPECT FOR UKRAINE SOVEREIGNTY, LEGITIMATE GOVT

Siluanov also added "[central bank] interventions can prove a waste of gold and currency reserves that will lead to nothing and will not prevent the hryvnia's devaluation."

The world may have been crashing and burning, and as Bernanke admitted in March 2008, "At some point, of course, either things will stabilize or there will be some kind of massive governmental intervention, but I just don’t have much confidence about the timing of that" (guess which one it was), but at least the Fed ended the catastrophic 2008 yeat on a high note. The chart below shows the number of the time the FOMC committee had an moment of levity as captured by [Laughter] in the FOMC transcripts. Perhaps not surprisingly, the December 2008 meeting, when the market was in free fall, saw the biggest number of laugh lines in the entire year.

While, for now, depositors at Austria's Hypo-Alde-Adria-Bank (nationalized in 2009) have not had assets confiscated, Austrian authorities are shifting in an unusual (scary precedent-setting) direction. Amid the resignation of the bank's CEO, the government is taking aim at 'speculators' who dared to buy the bank's bonds below par - and made money therefore on the back of the taxpayer. "What financial markets expect is not always what you want politically," Austria's finance minister warned, "if someone buys today at a lower price, saying ‘shortly, I’ll get 100 back,’ that’s what’s agitating the people."It seems Europe has a new template.

While it's useful to keep the dream alive (and blame the weather for any weakness that ruins the "sustainable recovery" meme) the data (once again) does not support that "common knowledge" whatsoever...

Existing home sales plunged 5.1% (considerably worse than the 4.1% drop expected) to its lowest level in 18 months. This extends the string of missed expectations to 5 months as even the ever-credible NAR chief economist said it was not the weather but "we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates." First-time homebuyers plunged to a mere 26% of the total - the lowest share on record as all-cash (and spec) investors rose to a record 53% share of sales.

In a world in which there is no risk, only return (thank you Federal Reserve Risk Management LLC), hedge funds - used to generating Profits just by sitting on legacy positions - see no need to reallocate their portfolios. Nowhere was this more evident than in the position turnover in Q4. As Goldman calculates, total asset turnover in Q4 dropped to 28% - a new all time low. In fact, the only increase in turnover, either buying or selling, was in the tech and infotech spaces. Everything else saw an unprecedented buyers and sellers strike.

The die has been cast, and it appears that the world is finally on the path to the great "carry-trade unwind" endgame. If so, this is what it will look like...

1. Within 48 hours of the signing of this agreement, a special law will be adopted, signed and promulgated, which will restore the Constitution of 2004 including amendments passed until now. Signatories declare their intention to create a coalition and form a national unity government within 10 days thereafter. 

2. Constitutional reform, balancing the powers of the President, the government and parliament, will start immediately and be completed in September 2014.

3. Presidential elections will be held as soon as the new Constitution is adopted  but no later than December 2014. New electoral laws will be passed and a new Central Election Commission will be formed on the basis of proportionality and in accordance with the OSCE & Venice commission rules.

4. Investigation into recent acts of violence will be conducted under joint monitoring from the authorities, the opposition and the Council of Europe.

5. The authorities will not impose a state of emergency. The authorities and the opposition will refrain from the use of violence. The Parliament will adopt the 3rd amnesty, covering the same range of illegal actions as the 17th February 2014 law.

"If Ukraine breaks apart, it will trigger a war," warns a senior Russian government official. The FT reports Russia is prepared to fight a war over the Ukrainian territory of Crimea (where the largest ethnic Russian population lives and they have a military base). Conjuring images of the 2008 Russian invasion of Georgia, the official told the FT, "they will lose Crimea first [because] we will go in and protect [it], just as we did in Georgia." The Kremlin regards the Georgian conflict as the biggest stand-off between Russia and the west since the end of the Cold War and it has fed determination in Moscow to push back against what it believes to be western attempts to contain Russia.

All you need to know about the New Normal breed of crony capitalism and unbridled hypocrisy is once again best exemplified by the following quote by Charlie Munger - the lifetime business partner of crony capitalist par excellence Warren Buffett - from May 2013, in which he said that "I think it is very stupid to allow a system to evolve where half of the trading is a bunch of short term people trying to get information one millionth of a nanosecond ahead of somebody else. It's legalized front-running. I think it is basically evil and I don't think it should have ever been allowed to reach the size that it did. Why should all of us pay a little group of people to engage in legalized front-running of our orders?" Noble, noble words Charlie. What Munger, however, did not disclose is that as part of the Berkshire Hathaway-owned Business Wire news service, the company was enabling just this "basically evil" frontrunning, by allowing some, those who could afford the hefty fee of course, to make Munger and Buffett even richer and to subscribe to BW's HFT direct news access which gave them a few millisecond headstart and in the process frontrun everyone else.

Most people in the world believe you get what you pay for. Furthermore, the dream of a meritocratic society remains alive and well in the corporate world. As the following chart shows, however, the US (and perhaps even the world) better hope that they don't get what they are paying for...

Six months ago a "glitch" halted all ATM withdrawals, and Credit and Debit card transactions for Russia's largest bank but today, the CEO of the huge bank has no such "glitch" to blame:

*SBERBANK SEES RUN ON ITS BANK MACHINES IN UKRAINE, GREF SAYS
*SBERBANK HALTS LENDING IN UKRAINE, GREF SAYS

We suspect that whether an agreement is in place or not, this will continue.

Several hours ago, and a day after the latest truce lasted about a few minutes before the the shooting returned and resulted in the bloodiest day of Ukraine's protests so far, there was hope that the situation in Ukraine may finally be getting resolved, when Ukraine's President Viktor Yanukovich announced plans for early elections in a series of concessions to his pro-European opponents. As Reuters reported earlier, Russian-backed Yanukovich, under pressure to quit from mass demonstrations in central Kiev, promised a national unity government and constitutional change to reduce his powers, as well as the presidential polls. He made the announcement in a statement on the presidential website without waiting for a signed agreement with opposition leaders after at least 77 people were killed in the worst violence since Ukraine became independent 22 years ago. This comes in the aftermath of S&P's announcement overnight that the Ukraine will default in absence of favorable changes.

So is this the favorable change that everyone has been expecting. Nope.