Archive - Mar 11, 2014 - Story

Just before the European close, copper prices on the LME (and US futures) began to crack on rumors that another China corporate had defaulted. This plunge was accompanied by a collapsed in AUD and rumors across desks were a levered fund unwind (which appears some China-commodity play) was responsible. While many would like to believe that fundamentals matter, today made it clear they don't as AUDJPY weakness dragged stocks lower tick-for-tick. A brief moment of hope in the early-afternoon - where VIX was slammed lower as momentum away from carry was sparked  failed and stocks continued to slide, retracing a considerable amount of post-Putin gains. Bonds and gold were bid (after the latter suffered early) as WTI crude slipped back under $100 and copper was crushed.

The Libyan defense minister took over duties as prime minister this morning as the Libyan parliament voted "no confidence" in the current prime minister after a North-Korea-flagged tanker broke the "blockade" from a rebel-held port. The ouster of the PM appears to have bolstered confidence in the anti-rebel oil-stealing that we discussed yesterday, and resulted in

*LIBYA NAVY FIRE HIT TANKER AS IT FLED TO INTL WATERS: SKYNEWS

The oil tanker - The Morning Glory - had at least 234,000 barrels of oil aboard but is now "under complete control" of Libyan government authorities. However, as Bloomberg reports, the North Korean tanker is said to be on fire after being hit by a missile.

David Stockman blasted the GSE-profiteers just last week but the manic run-up in the stocks of Fannie Mae and Freddie Mac has abruptly come to an end as the FT reports, the US Senate banking committee on Tuesday released a highly anticipated plan that would maintain government backing of mortgages but wind down the GSEs. Not a great day for Mr. Ackman - who owned 10% at last filing.

The US equity market summarized in one chart...

While we noted the top-down dismal demise of the American Dream of upward mobility over the weekend, Bloomberg has crunched the numbers and ranks the 50 most populous cities in the US on the difficulty of obtaining upward mobility in a low-wage job. The American dream is hardest to achieve in... Miami.

Let's be clear about one thing (to quote the president): the Fed's policies have been an unqualified success for financiers and an abject failure for everyone who has to work for a living. The Fed has not just failed to rectify the nation's obscene inequality in wealth and income; it has actively widened it by handing guaranteed returns to the banks and financiers while strip-mining what's left of the middle and working classes' non-labor income, i.e. interest on savings.

The tit-for-tat sabre-rattling and rhetoric continues to build ahead of this weekend's planned referendum in Ukraine's Crimea region. This morning has seen 3 new threads beginning with Ukraine's "live-fire" exercises involving T-64B tanks. This was then followed by warnings from Russia of "consequences" of "unconditionally indulging radical elements" in Ukraine calling US financial aid "illegal" which was swiftly responded to by the State Department exclaiming it "unacceptable" that Russian forces take matters into their own hands and "do not create the right environment for diplomacy." Not positive...

"The more information we get, the more we're inclined to conclude that it was not a terrorist incident," says the Interpol Secretary General Ronald Noble according to CNN, as details of the 2 Iranians at the center of the "stolen passport" uncertainty are identified. As CNN reports, Noble gave their names and ages as Pouri Nourmohammadi, 18, and Delavar Syed Mohammad Reza, 29 and added "they are not likely to be members of a terrorist group." Of course, the more dismal unknown is that of the entire plane and its passengers and crew which remain missing without a trace.

While the world is terrified about what China - where corporate bond defaults are now permitted - may be about to unleash on the world, most are all too happy to remain in a state of delightful ignorance. We decided to take a peek behind the scenes.

"We can't come out of this with a shadow of doubt about the integrity of the Bank of England," Governor Mark Carney told MPs this morning on the heels of the report, as we noted here, that found no collusion by the bank to manipulate FX rates. A senior BoE employee was told of "attempts to move the market" but "did not convey to [Monetary Policy Committee member Paul Fisher] that markets were being rigged," and therefore was suspended. While many have called this "as bad as Libor" the BoE remains adamant of its lack of involvement but is still restructuring itself - adding that "it isn't our job to go out hunting for rigging of markets." Nope, just to ignore it, we presume. MPs were not impressed.

It's all about the fun-durr-mentals... but, just in case you don't believe that, this morning's angst over copper financing and China credit concerns has sparked notable carry unwinds (USDJPY below 103 and AUDJPY 93) and therefore US equities are tumbling (tick for tick). This morning's volatility in stocks was considerable around the open suggesting a lot of uncertainty and nervousness.

The chart below shows that while there has traditionally been near 100% correlation between the 1 year cumulative change in payrolls, and the monthly amount of job hires, in the New Normal this is anything but true. The simple explanation: the only reason why it "seems" things have gotten back to normal, is not because there is hiring, but because companies have put a freeze on terminations, and with quality jobs few and far between, workers still refuse to leave existing jobs voluntarily, further confirmed by the Quits print which just dropped to 2.375MM, the lowest since October as confidence in finding a better paying job has rapidly evaporated. Perhaps the snow is to blame for that too?

Copper futures prices are plunging once again, back under $3.00 back at the lowest levels since July 2010. The last 3 days have seen prices drop over 7.5% as China credit contagion concerns surge and letters-of-credit from last summer's cash-for-copper financing deals roll-off and businesses need the cash. The vicious circle of tumbling collateral values (copper and Iron ore) is exacerbating the tightening financial conditions in China as banks hoard liquidity, unwilling to lend to the over-capacity industries that the government has deemed unworthy. Rumors today of further defaults triggered this latest drop, and as we noted previously, there are a lot more to come.

"In the future, no matter how the situation is resolved in Crimea, we need a much stronger Ukraine," warned Pavlo Rizanenko, a member of the Ukrainian parliament, adding that "If you have nuclear weapons people don't invade you." It would seem tough for the West (and their START Treaty) to get behind a nation that, as USA Today reports, believes it may have to arm itself with nuclear weapons to enforce a security pact to reverse the Moscow-based takeover of Crimea. "We gave up nuclear weapons," (inherited from the Soviet Union) because of the 1991 agreement that The United States, Great Britain and Russia would "assure Ukraine's territorial integrity" but Rizanenko told his government today, "now there's a strong sentiment in Ukraine that we made a big mistake."

"US retail as we have known it for hundreds of years is in sharp decline," warns Bloomberg Brief's Rich Yamarone, adding that "market participants should take note of the fallout in a sputtering US economy." The retail apocalypse, as we discussed here, is dominated by mass layoffs, weak traffic, and poor wage growth and, as Yamarone highlights, it's not hard to see why...