Archive - Mar 9, 2014 - Story

It would appear the fecal matter is starting to come into contact with the rotating object in China. Worrying headlines are beginning to mount on the back of real economic events (an actual default and a collapse in exports):

• *COPPER IN SHANGHAI FALLS BY 5% DAILY LIMIT TO 46,670 YUAN A TON
• *CHINA YUAN WEAKENS 0.46% TO 6.1564 VS U.S. DOLLAR
• *YUAN DROPS MOST SINCE 2008

Aside from that Iron ore prices are crumbling, Asian stocks are dropping, Chinese corporate bond prices aee falling at their fastest pace in almost 4 months, and all this as 7-day repo drops to one-year lows (as banks hoard liquidity).

Over the past three years there has been endless debate over whether the Fukushima radioactive fallout is hitting the US west coast, or if, as the media spin would have it, it is largely isolated, and best to just take their word for it for the simple reason that no federal agency currently samples Pacific Coast seawater for radiation. The answer may finally be in sight, and it is not a pleasant one: USA Today reports that "very low levels of radiation from the Fukushima nuclear disaster likely will reach ocean waters along the U.S. West Coast next month, scientists are reporting. Current models predict that the radiation will be at extremely low levels that won't harm humans or the environment, said Ken Buesseler, a chemical oceanographer at the Woods Hole Oceanographic Institution who presented research on the issue last week.

"It's the weather" That's all Abe has left to pretend that 'recovery' is right around the corner. Japan just printed its worst current account deficit on record and its worst GDP growth since Abenomics was unveiled - both missing by the proverbial garden mile and both confirming that all is not well in Asia. As for the perpetual hope of a J-curve (or miracle hockey-stick reversal)? There won't be one! As Patrick Barron noted, "monetary debasement does not result in an economic recovery, because no nation can force another to pay for its recovery."And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""

A week ago, when the idea of sanctions against Russia was first officially announced, we made a statement, which was obviously in jest yet which, as so often happens, was so rooted in reality: "U.S. CONSIDERING SANCTIONS ON RUSSIAN BANKS, OFFICIAL SAYS. So short London/NYC real estate you say?" How is this an indication of reality? Well, for one, as we reported previously, the one country that has the most to lose from Russian sanctions, Germany, and specifically its industrial superlobby has already said "Nein" to any truly crippling trade blockade of Moscow would backfire on Germany's own economy and bottom line. But what about London? Here, the NYT explains why, once again, it was all about the money, and why were right even when we were being humorous: "It boils down to this: Britain is ready to betray the United States to protect the City of London’s hold on dirty Russian money. And forget about Ukraine."

Now that it appears clear the bottom is in for gold, it’s time to stop fretting about how low prices will drop and how long the correction will last - and start looking at how high they’ll go and when they’ll get there. When viewing the gold market from a historical perspective, one thing that’s clear is that the junior mining stocks tend to fluctuate between extreme boom and bust cycles. As a group, they’ll double in price, then crash by 75%... then double or triple or even quadruple again, only to crash 90%. Boom, bust, repeat. Given that we just completed a major bust cycle - and not just any bust cycle, but one of the harshest on record, according to many veteran insiders - the setup for a major rally in gold stocks is right in front of us.

In recent months the Fed (and ECB for that matter) has taken up the mythical charm offensive of "forward guidance" as a way to assure markets that punchbowls will remain free and available for as long as it takes. At the same time, the Bank of England has been shown up (and lost credibility) over its threshold-ignorance, the Fed has also now started to hit the wall on any 'quantitative'-based forward-guidance communications policy, proposed Fed vice-Chair Stan Fischer is skeptical: "you can't expect the Fed to spell out what it's going to do... because it doesn't know;" and finally Bob Rubin slammed the Fed, saying "their forecast models don't work.. and forward guidance [has no validity] as it is impossible to know what is going to happen in 6 months." So today's BIS report on the the fallacy of forward guidance and risks to central bank reputation (and the following 4 charts) suggest faith in central banker omnipotence may be fading.

In the last few years we have discussed the huge real estate bubble in China: "Real estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long term investment real estate has become and flee the market, and the market will crash." Amen! As they say, it is better to be wrong, wrong, wrong and then right than the other way around! In case you continue to be a skeptic, here are a few observations...

What does the typical Westerner think of when asked about Ukraine?

The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy. The economic damage of energy supply disruptions cuts both ways. Putin likes to play the role of bully, but Russia is not exactly in a strong position in terms of using energy as a political weapon. Whether or not the Ukraine crisis deepens, it is unlikely that Moscow would intentionally turn off the taps for any prolonged period of time.

The only thing that is unclear about the following clip released by the Ukraine's Border Guard supposedly capturing Russians "digging in" on a key route linking Crimea to the rest of the Ukraine, is what is funnier: that the Russian soldier is "painting" the drone with a laser flashlight, or that according to the Ukrainians said action was evidence the drone was being "shot at" by Russian soldiers.

There probably isn’t a more over-used phrase thrown across the media landscape than, “It’s different this time.” One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear. Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. These precarious times leave many scratching their heads. Expressed another way, When everyone is on the band wagon – except the band. You had better take notice.

Deja vu all over again...

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity? The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs. President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough.

Between China's dismal trade deficit data (desperately defended by several sell-side strategists proclaiming it's just lunar new year 'noise' - aside from the fact that all the same strategists 'knew' the dates and still missed by 6 standard deviations) and the esclalations in Ukraine, it appears 'confidence' is a little shaken in the status quo. JPY has opened notably stronger dragging Yen carry trades lower and implying notable losses on the open for stock futures...

"I do not believe that Crimea will slip out of Russia's hands," former Defense Secretary Robert Gates told Fox News this morning adding that there is little chance Ukraine will be able to get back control. When asked in this brief clip "You think Crimea's gone?" Gates responded clearly, "I do." Gates then goes on to explain why Obama's foreign policy didn't "embolden" Putin and perhaps more importantly defends Obama's "taking the weekend off in the middle of a crisis" golf trip...