Archive - Mar 20, 2014 - Story

As is widely known by now, Barack Obama, in an executive order, earlier this week as well as moments ago in a very dramatic follow up performance, decided to sanction a handful of Russian military leaders and Kremlinites close to Putin. He didn't touch Putin of course, that could be seen as too strong a signal one which may cut off German gas supplies for a day or two. Remember: there are "costs" and stuff. So while Russian official debate just how to retaliate best to US and European sanctions, as they said they would, ordinary Russians are taking matters into their own hands. And on twitter. Here are some examples in which the "Russian on the street" has some fun with Obama's sanctions, and prohibits the US president and people close to him to approach, enter and/or use the facilities.

No conventional scenario accounts for the methodical disabling of the communications systems, the bizarre altitude changes and professional navigation to way points, or the presumed turn south and a flight path that extended to at least 8:11 a.m. Every plausible theory about what happened to Flight 370 has to not only fit the most reliable facts (radar tracks and satellite data) but basic geography.

Despite Russia's scoffing at the extent of the West's sanctions and Ukrainian politicians seemingly resigned to the fact that Crimea is lost (and wanting some compensation), we are sure President Obama will want to reset the narrative. As Jay Carney noted earlier in the week, we suspect a broad-based "sell Russia" recommendation will be issued along with threats of more "costs" and strongly worded language...

The chart below from Bank of America - showing the progression of first-time US homebuyers in recent months - should scare everyone who still believes that there is some sort of "housing recovery" in the US.

Vladimir Putin's approval rating has soared to new five-year highs as the State Duma ratifies the agreement on Crimea's admission to Russia. However, it is the clear distain that the Russian Foreign Affairs Committee Deputy Chairman Alexander Romanovich had for the West's response so far. "The US and EU sanctions against Russia are absurd and unreal," the lawmaker scoffed, adding "this is an operetta, and we can only laugh." So much for non-mutually-assured-destruction-based sanctions. The Duma are considering how retaliatory sanctions could be imposed.

Another month, another confirmation that the so-called housing recovery is sputtering on its last breath and is being held up entirely by the higher end segment, which however is also coming to an end now that wealthy Chinese have started liquidating their ultra luxury housing. In February, according to the NAR, some 4.6 million annualized existing homes were record, in line with expectations, and a 0.4% decline from the 4.62 million print in January. This was the 19th monthly drop in a row, and the lowest since July 2012, and a 7.1% drop year over year. But the worst news is that housing is increasingly unaffordable to the poorer Americans, with houses costing in the $0-$100 bucket down 18% from a year ago. Since nobody is applying for a mortgage any more this is hardly surprising. Finally, in addition to the usual weather excuse for weak housing sales, a new scapegoat has appeared: soaring student loans: "20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle." Oops.

The Philly Fed Factory Index surge 15.3 points from February's plunge for its biggest jump in nine months. New Orders recovered most of last month's loss but the employment sub-index dropped to its lowest since June 2013. Perhaps even more troubling was the drop in the business outlook with the average workweek and new orders expected to drop.

Short, sweet and to the point.

Any minute now...

Just like with the fabled Abenomics recovery which is said to be just around the corner, so Caterpillar, whose stock has discounted a Phoenix-like rise from the ashes, continues to disappoint month after month, with no actual pick up in sales, and as was just released moments ago, in February the heavy industrial equipment maker posted the 15th consecutive decline in global retail sales, which declined 8% from February of 2013, which in turn was a 13% decline from 2012.

When we started discussing the upcoming onslaught of corporate defaults in "Minsky Moment" China, now that the bankruptcy seal has been broken, we warned that the worst is about to come. Well, it's coming. Overnight, Hong Kong's The Standard reported that in addition to the solar, coal and real-estate developer companies that are on everyone's radar as potential future bankruptcy candidates, one can also add steel makers to the list, with its report that Highsee Group, the largest private steel makers in Shanxi province has defaulted on CNY3 billion of debt, unable to repay its bonds on time.

Amid the growing Crimea crisis, Estonia, Latvia and Lithuania - which like Ukraine were all parts of the old Soviet Union and have very significant concentrations of ethnic Russian-speaking citizens - have expressed growing apprehension over Moscow's intentions. As Reuters reports, Russia signaled concern on Wednesday at Estonia's treatment of its large ethnic Russian minority, comparing language policy in the Baltic state with what it said was a call in Ukraine to prevent the use of Russian. "Language should not be used to segregate and isolate groups," the envoy noted, referencing the same 'linguistic tensions' that supported its annexation of Crimea.

Initial jobless claims rose for the first time in 4 weeks - with, oddly, no upward revision of previous data - but beat expectations for the 3rd week in a row. In the prior week the best state was New York, where claims dropped by 17,548 due to "Fewer layoffs in the transportation and warehousing, educational services, and food services industries." However, the rise in continuing claims - the most in over 2 months - is perhaps the most notable - missing expectations by the most in 8 weeks. This is notable since this week was the survey period for the all-important Non-Farm Payrolls (well less important now given Yellen's comments).

• Possible debris off Australia a 'credible lead' for missing Malaysia jet (Reuters)
• Maldives and Afghanistan: Theories Blossom for Airliner (BBG)
• Ukraine Military Concedes on Crimea as Russia Takes Hold (BBG)
• Asia Stocks Drop on Fed; H-Share Index Enters Bear Market (BBG)
• Scientists say destructive solar blasts narrowly missed Earth in 2012 (Reuters)
• GM’s Ignition Victims Need Help From Bankruptcy Judge (BBG)
• U.S. Alleges Inside Traders Used Spycraft, Ate Evidence (WSJ)
• God Meets Profit in Obama Contraceptive Rule Court Case (BBG)

In the aftermath of yesterday's key market event, the FOMC's $10 billion tapering and elimination of QE with "QualG", not to mention the "dots" and the "6 month" comment, the USD has been on fire against all key pairs, with the EURUSD sliding below 1.38, a 150 pip move in one day which should at least give Mario Draghi some comfort, but more importantly sending the USDJPY soaring to 102.500 even as US equity futures continue to slide, and not to mention the Nikkei which tumbled -1.7% to just above 14,000 overnight. Perhaps the biggest take home message for traders from yesterday is that the Yen carry trade correlation to the Emini is now dead if only for the time being until DE Shaw and Virtu recalibrate their all-important correlation signal algos. The other big news overnight was the plunge in the Yuan, tumbling 0.5%, 6.2286, up 343 pips and crushing countless speculators now that the "max vega" point has been passed. Expect under the radar news about insolvent trading desks over the next few days, as numerous mega levered FX traders, who had bet on continued CNY appreciation are quietly carted out the back door. Elsewhere, gold and other commodities continue to be hit on rising fear the plunging CNY will accelerate the unwind of Chinese Commodity Funding Deals.