Archive - Mar 18, 2014 - Story

China, having abstained from voting against Russia in the UN, has been relatively quiet during this crisis... until now... As ITAR-TASS reports, spokesperson for China's Ministry of Commerce Shen Danyang said that while "the situation in Ukraine remains tense," and they are watching developments, "we are ready for cooperation with Crimea after the situation there gets back to normal.” This appears to implicitly recognize Crimea as its own region - as opposed to part of Ukraine - even after this morning's "very strict anti-secessio One China policy" comments.

Despite much hope that the current breakout of the markets is the beginning of a new secular "bull" market - the economic and fundamental variables suggest otherwise.  Valuations and sentiment are at very elevated levels while interest rates, inflation, wages and savings rates are all at historically low levels.  This set of fundamental variables are normally seen at the end of secular bull market periods. It is entirely conceivable that stock prices can be driven higher through the Federal Reserve's ongoing interventions, current momentum, and excessive optimism.  However, the current economic variables, demographic trends and underlying fundamentals make it currently impossible to "replay the tape" of the 80's and 90's.  These dynamics increase the potential of a rather nasty mean reversion at some point in the future.  The good news is that it is precisely that reversion that will likely create the "set up" necessary to launch the next great secular bull market.  However, as was seen at the bottom of the market in 1974, there were few individual investors left to enjoy the beginning of that ride.

In a surprising development out of Canada's cabinet, moments ago the finance minister, Jim Flaherty, a noted deficit hawk and proponent of paying down government debt, just announced his resignation.

CANADA FINANCE MINISTER FLAHERTY RESIGNS FROM CABINET
FLAHERTY SAYS DECISION TO LEAVE POLITICS WAS NOT RELATED IN ANY WAY TO HIS HEALTH

This despite speculation that it was indeed his health that was the reason for this unexpected resignation. Either way, Canada's housing mess will now be someone else's problem.

With ORCL no longer a bellwether - preferring Twitter or yesterday's IPO as an indicator of the health of the world economy - we are sure investors will simply shrug at the tech firm's top- and bottom-line miss (again):

*ORACLE 3Q ADJ. EPS 68C, EST. 70C
*ORACLE 3Q ADJ. REV. $9.32B, EST. $9.36B

But the big question is - who knew early!?

US equity markets are up around 2% from Friday's close - extending yesterday's hope-filled gains on the back of Vladimir Putin not nuke-ing the world this morning and lower-than-expected inflation prompting hope for moar free money tomorrow. This jump is a ridiculous deja vu all over again of Putin's first press conference. Bear in mind that the USD is unchanged on the week and Treasury yields are up a mere 1-2bps - so hardly a resounding risk-on conviction. Following yesterday's epic low volume, today was little better. Copper was flat as Oil prices rose back towards $100. Gold and silver were pummeled - just for good measure (gold's biggest 2-day drop in 3 months) - as was VIX (which took over the role of S&P 500 driver from AUDJPY after Europe closed). The afternoon saw VIX diverging (higher ahead of tomorrow's FOMC) from rising stocks. For the week, USD unch, Bonds unch, Stocks +2%, Gold -2%.

"Fat Finger" or just more "High Freaks"? At 1110ET, the FTSE100 futures contract (representing the most liquid vehicle for trading the broadest UK stock market) suddenly rocketed up 1.3% on huge volume... and then, just as remarkably, Nanex shows, most of that price exuberance returned to normal within 10 seconds... Doesn't look like a fat finger order to us? with 5 waves of buying on the way up? Of course, one thing is sure, Virtu made money!

On Sunday, Senate lawmakers unveiled the 442-page plan that will eliminate the mortgage-finance giants; replacing them with a new system in which the government would continue to play a potentially significant role insuring U.S. home loans. The Johnson-Crapo bill would, as WSJ reports, construct an elaborate new platform by which a number of private-sector entities, together with a privately held but federally regulated utility, would replace key roles long played by Fannie and Freddie.

Politicians, these days, appear to magically conjure ever-more-surprising poll-results to support their perspectives. In fact, surveys are used to justify everything in our increasingly divided nation - so why is it so easy to create a poll in your favor? The answer, notes Washington Post's Reid Wilson, is not in over-sampling partisan perspectives - the problem is that Americans are changing the way they communicate. Simply put, if you want to produce a survey that tilts distinctly Republican, call landlines only. If you want to produce a Democratic-skewed poll, stick to cell phones.

So, "supporters" of one side that has promised not to escalate (but believes the region belongs to them based on an overwhelming vote) has killed a soldier from the other side (which has promised to respond) as he defended a military base for his country...

• *UKRAINE DEFENSE MINISTRY SPOKESMAN MOTUZYANYK SPEAKS BY PHONE
• *UKRAINE AUTHORIZES LIVE AMMO USE FOR SELF DEFENSE: MOTUZYANYK
• *UKRAINE AUTHORIZES LIVE AMMO AFTER CRIMEA DEATH: MOTUZYANYK
• *UKRAINE LIVE AMMO AUTHORIZATION IN CRIMEA ONLY: SENYK

Does that mean war has started?

Blaming the weather for the sullen state of corporate or economic affairs has become a daily occurrence by analysts, pundits and corporate chieftains. However, Bloomberg's Rich Yamarone notes that while there has undoubtedly been a larger-than-normal impact this year, some sub-components of headline indicators suggest underlying weakness without the influence of snowstorms. Sinking economic activity cannot be blamed solely on poor weather, he adds, noting one client's comment that, "If we adjusted for weather, Napoleon would have taken Russia in 1812."

With Ukraine military spokespersons acknowledging that military snipers were in action around the base in Semferopol and blood having been spilled:

*UKRAINIAN INSTALLATION SEIZED BY UNIDENTIFIED GUNMEN: SELEZNYOV
*UKRAINIAN MILITARY UNIT UNDER ARREST IN CRIMEA: SELEZNYOV

it would appear - as the Ukraine PM warned - that the situation has "moved from the political to military stage." While things are quiet once again outside the military base, the following live feed will cover events as night falls...

If there is one line that reveals how the Obama administration is perceiving the world, and specifically that it is all through the lens of the manipulated stock market, here it is...

As feared earlier, the attack by "unidentified" forces on a Ukrainemilitary base in Semferopol has resulted in fatalities:

• *UKRAINE SOLDIER KILLED AFTER UNIDENTIFIED GUNMEN STORMED BASE
• *UKRAINE SOLDIER'S DEATH IN CRIMEA CONFIRMED BY DEFENSE MINISTRY

And two further "self-defense" fighters are injured. Once again it seems the market misread Putin's comments and one wonders how will Turchynov respond?

For five long years, we have pursued the fantasy that we could return to "growth" without having to fix or change anything. The core policy of the fantasy is the consensus of "serious economists," i.e. those accepted into the priesthood of PhD economists protected by academic tenure or state positions: what we suffered in 2009 was not the collapse of leveraged crony-state financialization but a temporary decline of "aggregate demand" and productive capacity. The five-year fantasy that free money would fix all the distortions and systemic problems is drawing to a close. Why can't the fantasy run forever? The two-word answer: diminishing returns. Handing out subprime auto loans works at first because it pulls demand forward: anyone who wants or needs a new car buys one now, rather than put the purchase off a year or two. Eventually the marginal buyers default and demand falls off, and the distortions cause an even greater collapse in demand and auto loan quality.