Archive - Mar 25, 2014 - Story

When we left China last night, it was all shits and giggles that bad news is great news and a Chinese stimulus plan will be here any minute to save the day. Having realized the sad fact that is not going to happen (as we explained here most recently) and the specter of banks runs looming, this evening's session has seen property developer stocks tumble - retracing all of last night's losses - the Yuan plunges by the most in a week back above 6.2150. Copper is holding in for now at the magic $300 level but corporate bond prices are falling once again (worst run in 4 months).

If you are like most Americans, paying taxes is one of your pet peeves.  The deadline to file your federal taxes is coming up, and this year Americans will spend more than 7 billion hours preparing their taxes. When the federal income tax was originally introduced a little more than 100 years ago, most Americans were taxed at a rate of only 1 percent. But once they get their feet in the door, the social planners always want more. Since that time, tax rates have gone much higher and the tax code has exploded in size. Why do we have to have the most convoluted tax system in the history of the planet?

The Diplomat‘s Justin McDonnell spoke with Larisa Smirnova, an expert on Sino-Russian relations and professor at Xiamen University, about the crisis in Ukraine, Russian foreign policy, and more.

What if this was the year where the Treasury curve bear flattened completely as happened in 1994? That is the question that BofAML'sHans Mikkelsen addresses in this worrying report. His warning, as the majority of high grade investors nowadays have total return - as opposed to excess return – objectives, a complete bear flattening of the Treasury curve would be quite devastating. And furthermore, "reverse rotation" into higher-yielding bonds could punish stocks much more than most talking-heads prefere to consider.

The Greek economic collapse, depression and bankruptcy has seen many odd things in its brief and often times violent history (in those days when the violent elements were not on strike), but this surely is the first time when one of the countless Greek bailouts may be on the rocks due to the disagreement over the definition of "fresh milk." No, really. Reuters explains that Greece's government risks another rebellion over bailout terms this week after milk producers lobbied against a move to free up prices as part of efforts to make the economy more competitive. Basically, for Greeks, milk is fresh if it is 5 days old or less, yet according to the always fascinating codex of the Troika, "fresh" can be labeled anything that is as old as 11 days.... including the salmonella bacteria it contains. What's worse, is that the "spoiled milk" scandal, far from a joke, has swept over the country, and now even threatens to topple the government.

Nothing to see here, move along. While it appears the Russians are willing to pay the price of modest sanctions from the west to 'liberate' their fellow countrymen, the fallout from further tension with Ukraine could "boomerang" once again on the divided nation. As RBC Ukraine reports, the Minister of Energy and Coal Industry Yuriy Prodan said at a press conference today that "oil reserves will last for 28-29 days" in Ukraine. After that, the negotiation begins as Ukraine already owes billions for previously delivered gas - as Ukraine's natgas storage levels more than halved in the last 3 months.

The dismal list of financial executive deaths has recently increased to 11 in the last few months. Speculation has surrounded many of these deaths (and suicides) as to the reasoning; none more than the first - William Broeksmit, an executive who worked in Deutsche Bank's risk function and advised senior leadership who hanged himself in his South Kensington home in late January. However, as the WSJ reports, we now know why this poor man felt compelled to take his own life: he was "anxious about various authorities investigating areas of the bank where he worked" (and yes, we are well aware of the grammatical and temporal impossibilities suggested by this article's title).

Thirsty Californians are pinning their hopes that worried farmers in Australia are right. After months of the Polar Vortex dumping snow on the US east coast and drought on the west coast (and crushing the American Dream of an 'escape velocity' economy), The US Climate Prediction Center issued an El Nino watch bring hope of a big rain year for California, floods in South America, and dismal droughts in Southeast Asia. The Australian Bureau of Meteorology said an El Nino could occur during the southern hemisphere winter from May-July. Increased sea surface temperatures suggest an increasing chance of the global weather phenomenon and the great rotation from a Polar Vortex to a Solar Vortex.

It doesn’t take a rocket scientist to figure out that an unsustainable debt burden soundly tolls the death knell of a nation’s economy, and its government. Unfortunately, it can sometimes take a rocket scientist to figure out what the real numbers are; governments have a vested interest in not being transparent about their debts and interest payments. Obligations are obligations, no matter who they’re owed to. Taking this into account, total US interest payments in Fiscal Year 2013 were a whopping $415 billion... This means they actually spent approximately 26% of their available tax revenue just to pay interest last year.. much higher than the 1868 Ottoman Empire at the end of its reign...

Presented with little comment aside to ask... if 'weather' can do this much damage to the US economy and 'faith' in the wealth effect-building benefits of the US equity market are this weak, then there are a few uncomfortable truths about to punch some talking heads in the mouth...

In the WSJ’s February 24th exposé of the turmoil at the helm of Pimco, we saw a curious bit about tension at “the Beach” increasing in the summer of 2013. During this period, according to the Journal, conflict between then co-CIOs Bill Gross and Mohamed E-Erian became apparent to staff, and Gross restricted trading at the firm. We wanted to see what insights a quantitative analysis of Pimco Total Return Fund (PTTRX) could offer about the summer and Total Return’s recent performance, a topic of increasing scrutiny amongst the investment community.

The last few days has seen a sudden jump in the news headlines about one of the deadliest viruses known to man. Ebola haemorrhagic fever has prung up in Guinea, Liberia, and Sierra Leone but now, as BBC reports, a man is in hospital in Canada with symptoms of a haemorrhagic fever resembling the Ebola virus, a health official has said.

A little skit ran through my head the other day… The house lights dimmed and the bright American flag glistened in the background. The crowd hushed as a tall man in a strange costume strode confidently onto the stage. Curly turned to Larry and Moe and exclaimed, "Oh my, that's our favorite - Uncle Sam, our boyhood hero." Moe put his finger to his lips as if to say "Shhh!" ... Uncle Sam begins... "Today I want to announce the deal of a lifetime. We all know that IRAs and 401(k)s are tools greedy rich people use to save for retirement. I'm here to announce a new retirement program for everyday, ordinary people. Everyone should have the right to retire safely and with dignity, and that is what we are going to do for you."

Last August we presented the story of a very sad and misguided individual, one Athony Davian, who was then the first person charged with running a ponzi scheme off twitter. Today, the sad story of Anthony "@Hedgieguy" Davian comes to an end with his guilty plea to charges of fraud.

Pre-open gold dump, USDJPY pump, check. Opening dump in USDJPY and stocks led by Momos and Biotechs, check. European close marks the bottom, check. EURJPY takes over and ramps stocks back up to highs, check. Fade into close, check. Today was an almost perfect echo of yesterday's market action with blue-chips benefitting from the weakness in Nasdaq and Russell high-beta honeys. Bonds were quite with very modest steepening. Gold and silver bounced off earlier lows but their losses mirror Copper's 1.7% rise on the week. The USD lost ground as Draghi's failed jawboning sparked EUR strength. VIX fell 1 vol to its lowest close in 2 weeks as a late-day VIX -slam failed to get SPX green post-FOMC.