Archive - Mar 25, 2014 - Story

A day after Venezuela formally devalued its currency by way of the new and improved FX central planning system SICAD II, which sent the official value of the Bolivar 89% lower, the government desperately needed a distraction. It got just that when earlier today Socialist par excellence Nicolas Maduro announed that he had narrowly avoided a coup after he arrested three air force generals suspected of plotting an uprising against the leftist government.

As Fortune's Stephen Gandel begins, "if you hate the Fed, you have a new hero." He is referring to none other than GMO's Jeremy Grantham who aggressively takes on the status-quo-hugging faith in the omnipotence in Central banking prowess with fact and anecdote in this brief interview..."Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernanke's policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not..we have never had such a limited recovery."

Speaking in Holland, after asking for the world's trust back after being caught red-handed lying about the NSA's spying, President Obama calmly explained to the open-mouthed press conference that he continues to be "more concerned about a nuclear weapon going off in Manhattan that Russia." Sleep well New York...

A funny thing happened during Michelle Obama's public relations tour of China (where taxpayers are privileged to pay $8,400 for each night of her lodgings): T-shirts, coin purses and posters that show President Barack Obama portrayed as Chairman Mao are normally available for sale at the Great Wall. But on Sunday, when First Lady Michelle Obama visited the Chinese tourist spot with her daughters, the so-called “Obamao” souvenirs were no where to be found. "We don’t have them anymore," said one peddler, a woman who declined to give her name. "But if you come back next time, you might find them. You could come tomorrow," the woman said.

After less than three months consideration, the IRS has issued its statement clarifying th etax treatment of Bitcoins (and other virtual currencies) before the April 15th Deadline. The finding, summarized, is that Vitual currencies will be treated as property (not as a currency) which, as WSJ notes, means an investor who buys bitcoin would typically have a capital gain or loss when it’s sold. The price of Bitcoin is rising modestly on this news...

Words matter, and the Fed’s words matter more than anyone’s. But this is the classic mistake that academic economists always make – the quasireligious belief in theory over practice, in the triumph of bloodless ideas over the market’s fang and claw. Woodford’s ideas are sweet music to the enormous egos of the academics who control the Fed: you can save the world just by stating your brilliant policy intentions. Your words will become self-fulfilling prophecies as the markets shape themselves in expectation of your mighty deeds. And so what do we get? Horror shows like Bernanke’s press conferences last summer or Yellen’s press conference last week. If the Fed was surprised by the rotten tomatoes thrown up on the stage last year, they ain’t seen nothing yet.

The Russian foreign ministry proclaimed the recent robbing of passengers traveling from Russia to Moldova (via Ukraine), by an ultra-nationalist Insurgent Army, is a manifestation of "anarchy" and was "bewildered" by the refusal of the Ukrainian police to take any action (against the groups that are largely responsible for the overturn of Yanukoych's government just a few weeks ago). However, as RT reports, that changed this morning as the notorious Ukrainian ultra-nationalist known as Sashko Bilyi was shot dead during a police raid against his gang. The story just gets worse though as now the activist 'right sector' has stated it will seek revenge for the killing of their leader.

Moments ago the Treasury sold $32 billion in 2 year paper. Those who have been keeping track of the amazing bear flattening in rates in the past week will probably not be surprised by the result. Everyone else will surely like to know that it just cost the US the most to sell 2 year paper since May of 2011, which at a high yield of 0.469% was the highest yield since May of 2012, or before the great rotation out of stocks and into bond began. And thanks to the "dots" expect to see the yield on short-dated paper to continue rising, even as the long-end drops further in an epic flattening which is sure to crush bank Net Interest Margins. It also explains why nobody talks about it on CNBC any more: after all what is there to say?

The Nasdaq Biotech index is down 4% from earlier opening highs and is once again testing the 100-day-moving-average that provided some impetus for a modest bounce yesterday. This is a 10-week low level (-14% from Feb highs) and has retraced over 60% of the gains since the Fed announced the taper in December. Volume has been very heavy.

For some inane reason, about a year ago, there was a brief - and painfully boring - academic tussle between one group of clueless economists and another group of clueless economists, debating whether Too Big To Fail banks enjoy an implicit or explicit taxpayer subsidy, courtesy of their systematic importance (because apparently the fact that these banks only exist because they are too big in the first place must have been lost on both sets of clueless economists). Naturally, it goes without saying that the Fed, which as even Fisher now admits, has over the past five years, worked solely for the benefit of its banker owners and a few good billionaires, has done everything in its power to subsidize banks as much as possible, which is why this debate was so ridiculous it merited precisely zero electronic ink from anyone who is not a clueless economist. Today, the debate, for what it's worth, is finally over, when yet another set of clueless economists, those of the NY Fed itself, say clearly and on the record, that TBTF banks indeed do get a subsidy. To wit: " in fact, the very largest (top-five) nonbank firms also enjoy a funding advantage, but for very large banks it’s significantly larger, suggesting there’s a TBTF funding advantage that’s unique to mega-banks."

Curious what the real, and not pre-spun for public consumption, sentiment on the ground is in a China (where the housing bubble has already popped and the severe contraction in credit is forcing the ultra wealthy to luxury real estate in places like Hong Kong) from the perspective of the common man? The photo below, which shows hundreds of people rushing today to withdraw money from branches of two small Chinese banks after rumors spread about solvency at one of them, are sufficiently informative about just how jittery ordinary Chinese have become in recent days, and reflect the growing anxiety among investors as regulators signal greater tolerance for credit defaults.

The structural incompetence of centralized, wrong-unit-size agencies and central banks is global: the centralized strategies of China, Japan, the European Union and yes, Russia, too, will all fail for the same reasons: organizations with a few limited controls are intrinsically incapable of managing complex systems.

Last week we reported that while the West was busy alienating Russia in every diplomatic way possible, without of course exposing its crushing overreliance on Russian energy exports to keep European industries alive, Russia was just as busy cementing its ties with China, in this case courtesy of Europe's most important company, Gazprom, which is preparing to announce the completion of a "holy grail" natural gas supply deal to Beijing. We also noted the following: "And as if pushing Russia into the warm embrace of the world's most populous nation was not enough, there is also the second most populated country in the world, India." Today we learn just how prescient this particular comment also was, when Reuters reported that Rosneft, the world's top listed oil producer by output, may join forces with Indian state-run Oil and Natural Gas Corp to supply oil to India over the long term, the Russian state-controlled company said on Tuesday.

Oh the dashed hopes... Just as we warned earlier... the dreams that yesterday was the dip to get back in and ride the waves of central bank largesse to another double in your favorite social media or Biotech stock are fading fast. Today is an almost perecect replay of yesterday's market action so far... pre-open Gold dump, JPY pump to sustain stocks at highs, spark retail bounce buyers back in and pros sell into strength as the "high growth" momentum stocks and Biotechs all reverse earlier gains in a hurry as all major stock indices are once again red post-Yellen.

The last time Obama announced he would "wind down" the NSA the NSA... got bigger!? Which is why we don't have any hopes whatsoever that this latest appearance by the teleprompted populist in chief, in which he is expected to announce a proposal to end NSA bulk data collection (yeah right), will lead to any deescalation of the centrally-planned, totalitarian state which has all 20th century dictators spinning in their CIA-facilitated graves. We do expect him to issue more warnings, and explain the "costs" to Putin once again, just in case he missed them the last time, before he annexed Crimea...