Archive - Mar 13, 2014 - Story

With the Sunday Crimean referendum seemingly unstoppable now, its outcome certain, it is set to unleash a chain of events that is not entirely predictable but is at best, ominous, as it will involve the launch of trade, economic and financial sanctions against Russia (despite China's stern disapproval), which will lead to a "symmetric" response in kind by Moscow. And in a worst case escalation scenario, should game theory completely collapse and everyone starts defecting from a cooperative equilibrium state, the first thing to go will be European gas exports from Russia, anywhere from one day to indefinitely. So which European countries are most exposed to the whims of Gazprom? The following map from the WSJ, shows just how reliant on Russian gas exports most European countries are.

Copper's China-credit-contraction-driven crash continues as the metal drops to fresh 5-year lows today (on par with Lehman and the US downgrade collapses). Japanese stocks are down over 1000 points from their post-Putin highs. Russian stocks are plunging, Germany's (and Swiss) bonds are surging (as is gold) and European equity and credit markets are in free-fall. But apart from that... Finally we saw the world's angst spill into Yen-carry trades (USDJPY was spanked today - almost biggest drop in 6 months). US equities plunged tick-for-tick with USDJPY (S&P's biggest drop in 6 weeks and red for 2014); Treasury yields were crushed 9-10bps from intraday highs (biggest drop in 2 months); credit spreads banged wider; gold jumped to six-month highs; and EUR weakness (post-Draghi) ramped the USD back near unchanged on the week. VIX was a one-way street higher all day (biggest low-to-high run in 6 weeks) to 6-week highs.

Nearly four thousand years ago, King Hammurabi of Babylon laid out his eponymous “Hammurabi’s Code”, a series of laws that is still famous to this day. Most people know Hammurabi’s Code as “an eye for an eye, a tooth for a tooth”. Yet what few realize is that the code was actually one of the original attempts at government wage and price controls. Today you can see various forms of wage and price controls all over the world– from the blatant (Argentina) to the subtle. Major farm subsidies in the United States, for example, are a form of price controls. Monetary policy (especially keeping interest rates at effectively zero) are a form of price controls. Yet today President Obama is set to lauch another far more obvious form... simply put, the rule of law means nothing.

Shortly after Ukraine found out that financial aid from the US will not be forthcoming (thanks to politicial gridlock); it appears they will be disappointed by the US once again:

*UKRAINE SAID TO ASK FOR ARMS FROM US, FLY SAYS CITING DJ
*U.S. SAID TO DENY UKRAINE REQUEST FOR ARMS, FLY SAYS CITING DJ

It would appear that what is good for US-assisted Syrian Al-Qaeda rebels is not good enough for the vastly outmatched and outnumbered Ukrainians.

Simple: just don't pay the mortgage. Because here is what happens next: shortly thereafter foreclosure proceedings will begin and at some point, far in the distant future, the bank will finally complete the foreclosure process, claiming the property and putting it on the block with intent to resell (or simply raze it). How far in the future? According to RealtyTrac, the average duration of the foreclosure process for zombie foreclosures is an average of a record 1,031 days. Or just shy of 3 years.

With Russia warning of "boomerangs" and China threatening "unforeseeable consequences" it appears gridlock in Washington is (coincidentally) enabling the US to sit out the first round of shenanigans responses over this weekend's Crimea referendum.

*KERRY SAYS `WE NEED AID FOR UKRAINE AND WE NEED IT NOW'

But as AP reports, Congress won't be able to authorize aid to Ukraine until after March 24 amid disagreements among several Republican. Simply put, No Aid For You...

Having had his fun with minimum-wages and employment supply-demand-disequilibrium, the President of the United States has decided it's time that overtime was "modernized" to save-or-create a few more jobs... "if you like your over-time, you can keep your over-time"

It would appear that 1.39 EURUSD is the line in the sand for Mario Draghi. As pressures build on European competitiveness, Draghi appears to have finally got sick of China buying EURs to diversify its FX reserves away from USDs. This time "whatever it takes" is to drag the EUR lower - on the back of suggestions that OMT 2.0 (new measures - double the effectiveness and just as non-existent) and guarding against deflation (not worried about inflation). The jawbone is working for now as EUR breaks down through 1.39.

The story gets curiouser and curiouser--but so far every piece of new data conforms to our basic analysis of the known facts. Like many others we are following the story of what happened to Malaysia Airlines Flight 370 with keen interest. Much of what we've been told doesn't add up, deepening the mystery. It seems, however, that we can already draw a number of conclusions from the known data by pursuing a logic-based analysis of what is possible and what can be excluded as illogical.

A few moments ago we showed a map of the various Russian military units amassing near the Ukraine border (whose movements we had been tracking for the past several days), so the ongoing less than stealthy escalation by Russian forces in preparation for what by all accounts looks like a preparation to take on east Ukraine should come as no surprise to anyone. And yet, it appears to have surprised Othe head of Ukraine’s National Security and Defense Council, Andriy Parubiy, who earlier today claimed that Russian forces near the border totaled more than 80,000 solders, 270 tanks, 370 artillery systems and 140 combat aircraft: precisely what Zero Hedge readers know already. His assessment: "Ukraine today is facing the threat of a full-scale invasion from various directions."

If yesterday's 10 Year auction was stellar, today's 30 Year was anything but. With the When Issued market getting slammed by the flight from equities, and down to 3.61%, the high yield was an unpleasant 2 bps tail at 3.630%, putting to question the recent strength in demand for duration. The internals were also on the flimsy side, with the Bid to Cover of 2.35 higher than last month's 2.27, but below the TTM average of 2.42. Directs took down 12.6% below the 15.5% average, Indirects had 38.8% of the allotment, while Dealers were left with 48.6%, the highest since June 2013, and well above the 44.5%. That said, despite today's weakness, should the market finally crash as it is long overdue to do following months if not years of blindly ignoring the newsflow, the current level on the 30 Year will seem like a bargin in the coming weeks when everyone and the kitchen sink rushes, as they tend to do, into the safety of Treasurys once more.

US equities have erased all the post-Putin gains from last week and are tumbling this morning (with no cessation at the European close). The S&P 500 has rejoined the Dow (down 200 on the day) in the red for 2014 as bond yields are collapsing on the day.

With Russia's MICEX down another 2% today back at May 2010 lows (and Russian govt bond yields up to 9.41%), it appears investors are anything but confident that the worst is behind us in Ukraine. Russian stocks are -18% in the last 3 weeks. Perhaps the biggest tell is the German stock market which is now the worst-performing European stock market this year and back to lows seen in mid-December. Even the glorious safety of Portuguese stocks is fading in the last few days. Europe's VIX broke 22% - its highest in 5 weeks; and Europe's high-yield credit markets (which are rumored to be heavily biased long) are squeezing wider playing catch-up to stocks. Peripheral sovereigns don't give a crap in their manipulated illiquid way but Bund yields have sluped to 1.54% (lowest since July) - its tightest to US TSYs since 2006!

"Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences," warns China's envoy to Germany adding that "we don't see any point in sanctions." On the heels of Merkel's warning that Russia risked "massive" political and economic damage if it did not change course, Reuters reports ambassador Shi Mingde urged patience saying "the door is still open" for diplomacy (though we suspect it is not) ahead of this weekend's referendum. Russia's Deputy Economy Minister Alexei Likhachev responded by promising "symmetrical" sanctions by Moscow. So now we have China joining the fray more aggressively.

We would suffer too many subdural hematomas if we were to comment on this most recent outbreak of the "idiot meteorologist" syndrome by Bank of America below.