Archive - Mar 2014 - Story

The US would be better served these days to literally mind its own business. With Detroit in bankruptcy, why would we send Kiev billions of dollars? American urban infrastructures — water, sewer, gas, and electric lines — are falling apart. We have no idea how we’re going to manage most of the crucial economic activities of daily life in ten years, when the illusions of shale gas and shale evaporate in a dark cloud of disenchantment... We’re having no conversation about these things and the political landscape in this country is a wasteland of mirages and dust devils. That is the true weakness of the USA now. We’re incapable of seeing the disorder in our own house. Why should we even glance overseas at others?

We assume this is not what President Obama meant when he said "costs"...

• *UKRAINE TO RAISE GAS PRICES FOR HOUSEHOLDS 50% FROM MAY 1
• *UKRAINE TO RAISE GAS PRICE FOR HEATING UTILITIES 40% FROM JULY

As we warned previously, "the honeymoon is over" and it seems, from today's address, President Obama is about to mandate who and where the free market for natgas delivers it supply.

We are sure the weather is to blame but what happens when pent-up demand (from a frosty east coast emerging from its hibernation) bumps up against a drought-stricken west coast unable to plant to meet that demand? The spot price (not futures speculation-driven) of US Foodstuffs is the best performing asset in 2014 - up a staggering 19%...

Having IPO'd at $22.50, King Digital Entertainment - the maker of Candy Crush - opened disappointingly this morning at $20.50 and is trading down tro $19.20!... just keep repeating the mantra that KING is not ZNGA and we are sure the levitation will resume. Of course, this would have nothing to do with the record-setting levels of earnings-less IPOs that are occurring.

With Switzerland long dead as an offshore tax haven for US savers unwilling to fund Uncle Sam's central-planning machine (and who can blame them - isn't monetizing the deficit precisely what the Fed is for?) and with Cyprus banks, shall we say, compromised, many have been forced to look for greener tax-evading pastures, as far away as the Pacific Rim, especially that oasis of mega wealth creation, Hong Kong. Only this time the US is paying attention as SCMP reports that Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washington's global crackdown on tax evasion. In other words, for tax purposes, Hong Kong is now effecitvely under IRS control.

While we have no idea if Facebook is right in paying $2 billion (mostly in overvalued stock, thank you momo dot com 2.0 bubble-chasing "investors"), and frankly we don't care what bears noting is that while the idiocy of Facebook's CEO is still up for debate, the idiocy of the markets is once again beyond a reasonable doubt. Presenting Oculus... Innovative Sciences - a company which has absolutely nothing in common with Oculus VR, and which is up over 4% this morning because... it shares the same name as the Facebook acquisition - the same deep fundamental analysis that lead "investors" to decide that both Tweeter (TWTRQ) and Nestor (NEST) are undervalued.

... we just don't know where.

Remember the "last minute" ICBM launch by Russia just as the Crimean tensions were peaking? Moments ago Russia revealed another such unexpected "military exercise" which resulted in a French Airbus380 airplane, with over 500 passengers and crew on board being diverted from Shanghai to Paris after Russia without a warning decided to shut down a part of its airspace.

Russia has increased its gold holdings by 7.247 tonnes to 1,042 tonnes in February. Turkey and Kazakhstan also raised their bullion reserves, data from the International Monetary Fund showed today. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed. Many analysts are ignoring the important context of today's new geopolitical backdrop. Russia alone has some $400 billion in foreign exchange reserves - mostly in U.S. dollars. If they were to diversify just 5%, worth some $20 billion, of those reserves into gold - it would be equal to nearly 500 tonnes of gold or nearly 25% of global annual production.  It will be interesting to see what Russian demand is in March and indeed in the coming months. Sanctions could lead to materially higher demand from the Russian central bank, Bank Rossii.

• One-Ship Ukraine Navy Defies Russia to the End (WSJ)
• Crimea-Induced Trading Surge Stokes Moscow Exchange Rally (BBG)
• Moscow says Ukraine stops Russian crews disembarking in Kiev (Reuters)
• New images show more than 100 objects that could be plane debris (Reuters)
• Anger of Flight 370 Families Explodes in Beijing (BBG)
• Murdoch Promotes Son Lachlan in Succession Plan for Empire (BBG)
• Facebook to buy virtual reality goggles maker for $2 billion (Reuters)
• Syrian Regime Exploits Rebel Despair (WSJ)
• King Digital IPO price may not bode well for stock (Reuters)
• Rothschild in Twitter Spat as Bakries Cut Ties With Miner (BBG)

Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.

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.