Archive - Mar 2014 - Story

In 2009, two Japanese individuals were arrested trying to smuggle $134 billion in US bonds into Switzerland from Italy. In 2012, Italian authorities seized $6 trillion in allegedly fake US bonds from safe-deposit boxes in Zurich (which were purportedly to be used to buy plutonium from Nigerian sources). And now, in 2014, The BBC reports, Italian police have arrested two men who were allegedly trying to deposit trillions of euros in fake bonds in the Vatican bank.

This is no plain modern event with civil unrest erupting because of an interconnected world. These are grassroots uprisings cross-fertilized perhaps from a world contagion yet they often have similarities – corrupt governments. Turkey, Ukraine, Thailand, Venezuela and Bosnia-Herzegovina are all middle-income democracies with elected leaders besieged by people angry at misgovernment, corruption and economic sclerosis. These days it is no longer just dictators who have something to fear from the crowd. This is the promise of Marxism that centralized planning and false promises are coming home and governments are too corrupt and incompetent to deliver what they have claimed for decades.

Overnight, AFP reported that Russian forces have begun a gradual withdrawal from the Ukrainian border, citing a Russian defense ministry official. "In recent days, the Russian forces have been gradually withdrawing from the border," the Ukrainian defence ministry's general staff spokesman Oleksiy Dmytrashkivskiy said in a telephone interview. Moments ago, Reuters confirmed this story:

• RUSSIAN DEFENCE MINISTRY SAYS ONE INFANTRY BATTALION IS WITHDRAWING FROM REGION NEAR UKRAINIAN BORDER - RUSSIAN STATE NEWS AGENCIES

So is Putin de-escalating, and now merely biding his time until the Ukraine elections when the population, suddenly facing 100% price increases in heating costs, capital controls, and a collapsed economy will have to empower the current government to continue the status quo? Or just another headfake to show that even Putin is malleable to "negotiations"? Stay tuned to find out.

As if there was any surprise that Yellen was fundamentally an uber dove, she just confirmed it. Here are the key highlights from her speech from Bloomberg.

• YELLEN SEES `CONSIDERABLE SLACK' IN ECONOMY, LABOR MARKET
• YELLEN SAYS QE TAPER DOESN'T MEAN REDUCED STIMULUS COMMITMENT
• YELLEN SAYS ECONOMY, JOB MARKET `ARE NOT BACK TO NORMAL HEALTH'

And the punchline:

• Pool of 7m people who work part time and want full-time jobs is much larger than should be expected at 6.7% unemployment rate; this is sign that labor conditions are worse than unemployment rate indicates  

However, the only thing that matters for algos is that their interpretation of Yellen is that more stimulus from the Fed, i.e., the long-awaited untaper, may be just around the corner. And stocks surge.

"But it must be the weather", we are sure, will be the cry of a thousand economists whose meterologist forecasts just got torn up. Chicago PMI just missed expectations by the most in a year and tumbled to its lowest since August as it appears knowing what the weather was like in March did nothing for analysts' ability to comprehend the awful reality of the underlying economy. The business barmoter has been falling since October (pre-weather) but this month saw the employment sub-index collapsed to 50 (from 59.3), prices paid dropped, and new orders tumbled to the lowest since August. However, rest assured that all will be well, as the survey reports, "Panellists, though, were optimistic about the future."

Back in October, when European inflation shocked market observers after it tumbled to a then (revised)low of 0.7%, the reaction by the ECB was to shock everyone and lower rates by 25 bps - a completely unexpected move. Earlier today, Europe shocked everyone once again after it reported that annual Eurozone consumer inflation in March tumbled from 0.7% to a paltry 0.5%, the lowest level since November 2009, below already the depressingly low 0.6% forecast, driven primarily by energy costs which tumbled 2.1% courtesy of Japan continuing to export deflation (where are energy costs soaring? Look at the price of natgas in Japan for a hint).

Behold: the "8:30 am" risk repricing catalyst, because sometimes you just have to laugh... of course we also know how this has ended for 10 days in a row too.

As we noted last night, French President Hollande's first election since his gaining power was not going well for the ruling Socialist people. The municipal elections, especially in the South of the country, saw victories for the far-right National Front (FN) party (which is specifically anti-immigration and anti-Europe and often accused of being racist, anti-Semitic, and anti-Muslim) as widespread disappointment with the Socialist Party was clear. However, as The Mail reports, riot police were called in several towns on the south coast to guard the winning right-wing party's offices as "demonstrators are trying to get at the Front representatives and starting fights." Riot police were also out in force in other parts of the country as anti-fascist demonstrators threatened FN candidates with violence.

Overnight, UK property consultancy Knight Frank reported that London property prices rose 7.5% annually, modestly slowing from 8.1% in March 2013, and 11.3% March 2012. Slowing you say? Not really, and certainly not at the high end: "London sales over £1 million accounted for 22% of the £4.7 billion total in the 2012/13 tax year, while sales over £2   million made a 15% contribution. Transaction volumes in both price brackets represent less than 2% and 1% of the total, respectively" Knight Frank reported. But really putting it into perspective is the observation that on the 5 year anniversary of the centrally planned, HFT-rigged market ramp, London real estate prices have risen by a stunning 68% in the 5 years since March 2009.

• US, Russia talks fail to end Ukraine deadlock (AP)
• Russian forces 'gradually withdrawing' from Ukraine border (AFP)
• Turkish PM Erdogan tells enemies they will pay price after poll (Reuters)
• And Goldman arrives: Credit markets open to Argentina for first time in years (Reuters)
• Regulators Twice Failed to Open GM Probes (WSJ)
• Bad loan writedowns soar at China banks (FT)
• Investors Breathe Life Into European Banks' Bad Loans (WSJ)
• Euro zone inflation drops to lowest since 2009 (Reuters)
• Yellowstone National Park rattled by largest earthquake in 34 years (Reuters)

After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.

With Chinese authorities increasingly looking like they are sticking to their reform promises, fighting moral hazard and allowing defaults to occur (in a completely 'contained' way, of course); the continued crackdown on graft and government corruption has hit a new high (or low). As Reuters reports, Chinese authorities have seized assets worth at least 90 billion yuan ($14.5 billion) from family members and associates of retired domestic security tsar Zhou Yongkang, who is at the center of China's biggest corruption scandal in more than six decades. 71-year-old Zhou has been under house arrest since first being investigated late last year but the size and scale of the corruption is unprecedented including 300 apartments, 60 vehicles, bonds, stocks, and gold - "it's the ugliest in the history of the New China."

Analysis suggests that commentators and policymakers need to better distinguish between the ways in which the US shale gas boom constitutes a ‘revolution’ and the ways in which it does not. The US unconventional energy boom has reversed the decline of domestic production, significantly lowered oil and gas imports, reduced gas costs for consumers, and created a political space for tougher regulations on coal-fired power plants. But it is not a panacea. Even if current estimates of production turn out to be accurate, the benefits to the US economy in the long run are relatively small, and the benefits to manufacturing competitiveness in most sectors are even smaller.

"It's always darkest before the dawn," we are sure will be the next idiotic (and wholly unsupported) bullshit line from various Japanese leaders about yet another round of disastrous Japanese data. Aside from June 2013, this is the biggest monthly drop in Industrial Production since the Tsunami - and biggest miss since Abenomics began. Good news right? More stimulus right? Not with inflation surging thanks to the collapsed currency. But wait, there's more 'great' news, Markit PMI just had its biggest 2-month drop in 20 months and is at its lowest in 6 months. For now, JPY is confused (and so is the Nikkei) but US futures aren't, they are rallying; because, well - why not, the casino is still open for now.