Archive - Mar 24, 2014 - Story

In order to enforce the fading Pax Americana in the Ukraine, and to keep the funding to the otherwise insolvent Ukraine flowing, which as everyone knows will be first and foremost used to pay Russia's Gazprom. So when it comes to priorities, whom does Putin have to thank for the billions in Western funds he is about to receive? Maybe he can start in Detroist where the local utility is planning mass water shutoffs over $260M in delinquent bills. In other words, while the US is enforcing some odd international law, according to which a democratic vote is not credible but a violent coup is, US citizens are about to have no drinking water over a paltry $260 million.

While Angela Merkel has publicly threatened that Russia risks "massive economic and political harm" if it doesn't change course, Germany's envoy to Russia, Gernot Erler, has more realistic concerns. As Bloomberg reports, Erler warned that US sanctions are counterproductive and probably won't make Putin bow to Western demands. The sudden German show of restraint is hardly surprising given their exposure to Russian energy provision and the fact that a stunning 54% of Germans believe the EU and US should accept Russia's annexation of Crimea.

As promised, the Johnson/Crapo bill has finally arrived. There are 442 pages of legal mumbo jumbo, guaranteed to cure all forms of insomnia and those suffering from low blood pressure. The agencies have been providing cheap financing to borrowers, courtesy of the Fed. The agencies have been providing cheap and bullet proof insurance for bond investors, courtesy of the Treasury. The Bill somehow expects some mysterious private capital will come in to insure the first loss position and the Government (including the FOMC) can gracefully exit its role in the mortgage monopoly. That is more than overly optimistic. Can anyone quantify that in dollars as well as mortgage rates? In summary, the Bill is going to increase mortgage compliance costs. It will confuse, rather than clarify, the mortgage application and approval process. It is a disaster. Fortunately, we suspect the Bill has no chance of passing in its present form.

Venezuela's exchange rate is a Gordian Knot of rules and regulations meant to baffle onlookers with bullshit and, we suspect, hide the hyperinflation from prying eyes just a little longer. Today's launch of SICAD II, a new currency market which allows the free-market to bid for USD (in Bolivars), appears to be an effort to provide liquidity to a black-market for dollars. SICAD II priced at 55 Bolivars today - an 88% devaluation from the official rate of 6.29.

Trading desks are awash with chatter over which FX desk just got a tap on the shoulder as it appears beaking 141.00 in EURJPY soon after the European close sparked a mini-avalanche of sell USD orders and sent stocks ramping briefly. Some talk of US term strcuture bets gone awry (as the EUR move occurred as 5s30s broke to 2009 lows) There is little if any fundamental news to pin to this move - but when has there ever been - and gold and bonds hardly budged on the ramp.

When the profits from financializing collateral and leveraging those bets to the hilt far exceed generating wealth by creating products and services, the economy is soon hollowed out as the perverse incentives of financialization start driving every business decision and strategy. Fed-funded financialization creates a perverse set of incentives: talent and capital flow to unproductive skimming operations because that's what generates the outsized profits, effectively starving the real economy of talent and capital.

After a month ago a leaked phone call between US assistant secretary of state Victoria Nuland and the US envoy to the Ukraine, Geoffrey Pyatt confirmed that it was the US that was pulling the strings in what was about to be a violent coup overthrowing Ukraine's president Yanukovich, "someone" has just leaked another phone conversation, this time between parliamentarian Nestor Shufrych and former PM and ideological leader of the Ukraine "revolution" Yulia Tymoshenko and most probable future president of West Ukraine, in which Tymoshenko makes several new threats but the the smoking gun, and where Putin once again shows just how masterful of a chess player he is, is the following statement by Tymoshenko, after asked, rhetorically, by her counterparty, "what should we do now with the 8 million Russians that stayed in Ukraine. They are outcasts"... to which she replies: "They must be killed with nuclear weapons." And just like that Putin has his provocation carte blanche - because the second something, anything happens to any ethnic Russian in east Ukraine, Putin can point to precisely this conversation as proof of how Ukraine's "government" feel toward the ethnic minorities in the east, and why "they deserve to be protected." Which has been precisely Putin's ploy all along.

"When you bundle bots, clicks fraud, viewability and the lack of transparency [in automated ad buying], the total digital-media value equation is being questioned and totally challenged," warns one advertising group executive as the WSJ reports about 36% of all Web traffic is considered fake, the product of computers hijacked by viruses and programmed to visit sites. This means, simply put, that marketers, who are pouring billion of dollars into online advertising, are confronting an uncomfortable reality: rampant fraud... and the fraud is only going to get worse...

Sprinkled in between Herbalife promotion and eBay board decimation, CNBC's favorite crowd-pleaser Carl Icahn offered a few pearls of wisdom that the TV anchors were un-prepared for:

• *ICAHN SEES MAJOR SELL DOWN OF MARKET COMING
• *ICAHN CALLS MARKET ARTIFICIAL BECAUSE OF FED POLICY

Of course, Icahn did not specify the timing which provided just enough cover for the talking heads to confirm their "but stocks are a buy" perspective. We wonder whether the "sell-down" is as big a "no-brainer" as many of Carl's other ideas.

It has been a while since well-known Russian nationalist and spotlight-grabbing politician, Vladimir Zhirinovsky, made headlines. The recent flame up of Cold War 2.0 is precisely the cover the flamboyant individual needed to reemerge once more, scandalous as ever. Because while the west scrambles to find a way to punish Russia for openly flaunting its relentless hollow threats by annexing Crimea, Zhirinovsky is back and has a "modest proposal" for Ukraine, and the countries neighboring the troubled former USSR territory: namely dividing the country along the lines of an infamous Nazi-Soviet pact, suggesting that regions in Western Ukraine hold referendums on breaking away from Kiev. In a letter sent to the governments of Poland, Romania and Hungary, Vladimir Zhirinovsky also suggested those countries hold referendums on incorporating the regions into their territory. The question is whether Zhirinovsky, who traditionally has been just a bit of a loose cannon yet whose nationalist Liberal Democratic party largely backs President Vladimir Putin in the Russian parliament,speaks only for himself, or whether Putin is using him the way the Fed uses Hilsenrath.

UK Prime Minister David Cameron stated that it is "absolutely clear" that the G-8 Summit scheduled for June in Sochi, Russia will not go ahead. But it is President Obama that appears to be pressing the hardest for major changes:

• *OBAMA SAID TO PRESS ALLIES TO SUSPEND RUSSIA FROM G8: WSJ

This comes at a time when Ukraine forces are being withdrawn from Crimea and deployed to North, South, and East borders of the region.  Meanwhile, Ukraine is taking its soldiers pulled from Crimea and deploying them along all other borders.

Hell hath no fury like a woman scorned or, it seems, like a Chinese real estate speculator who is losing money. After four years of talking (and not doing much) about cooling the hot-money speculation that is the Chinese real-estate bubble (mirroring the US equity market bubble since stock-ownership is low in China), the WSJ reports that the people are restless as the PBOC actually takes actions - and prices are falling. With new project prices down over 20%, 'homeowners' exclaim "return our hard-earned money" and "this is very unfair" - who could have seen this coming... "We aren't speculators. We just want an explanation from the developer," said one 35-year-old home buyer, who said he had bought an apartment and gave his surname as Wu. "This is very unfair." Unfair indeed. How long before we hear they are "entitled" to a fair return on their housing (non) speculation investment? Alas for China's "non-speculators", as we reported last week in "The Music Just Ended: "Wealthy" Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash" the real anger is only just beginning.

With the list of high-ranking US officials running dry, it appears Russia has turned its attention, in the tit-for-tat sanction battle, to Canada. Following Canada's sanctions against 10 top Russian an Ukrainian officials last week, Russia has placed travel bans on 13 Canadian lawmakers and officials.

• *RUSSIA SETS SANCTIONS AGAINST 13 CANADIANS IN RETALIATORY STEP

The list includes aides to PM Harper and the head of the Ukrainian Canadian Congress, and is, according to Russia's foreign minister, a response to the "unacceptable action by the Canadian side that has inflicted serious damage to bilateral relations."

Despite Pope Francis' recent attempts - mostly for media and public consumption, if not so much in actuality - to clear out decades of corruption at the Vatican including shady financial backroom dealings, involving countless global banks, some very odd things continue floating up to the surface. Like condoms filled with cocaine.

Palladium is like the Rodney Dangerfield of precious metals. It never gets any respect. If you ask someone about precious metals, in fact, just about everyone has heard of gold and silver. And occasionally platinum. But palladium is one of those obscure precious metals that few people think about, or even know about. Palladium is widely used in a variety of industrial applications, from spark plugs to catalytic converters to hydrocarbon ‘cracking’ to electronic components. And here’s something most people don’t know: most of the world’s palladium is mined in Russia.