Archive - Mar 2014 - Story

When you think of polluted cities, the Chinese capital probably springs to mind above all others - as we have noted, given the record-breaking levels of lung-killing smog. But in the past few days, another city is competing with Beijing when it comes to air pollution: Paris. On Friday, the city’s air quality index rating rose to 185, which puts it firmly in the 'unhealthy' bracket with people suffering adverse health effects as a result of breathing the smog. In reaction to this, as France24 reports, for the first time in 17 years, France is limiting vehicle use.

If you said a short list of commodities manipulated by the Too Big To Prosecute banks, you are probably right, but the answer we were looking for is that these are all the various, and increasingly more ridiculous, commodities that serve to make up the bulk of China's hot money flow (those flows into China which are not reflected in the current account flows or FDI) facilitating synthetic structures, also known as Chinese Commodity Funding Deals.

Forget tapering. Forget Ukraine. The largest single risk to the world economy and financial markets right now is China. What’s going on in China is very reminiscent of South Korea in the 1990s, before that economy’s crash in 1998.

Present Obama’s viral interview on Zack Galifianakis “Between Two Ferns” was both funny and informative, thus deserving the buzz it generated. Both the content of the interview, and the fact that the President felt it was needed in the first place, can teach us about the current state of Obamacare and the problems it continues to have. The point here isn’t to nitpick the numbers or get into a semantic argument, but to show one of the key shortcomings of this appearance and the President’s other attempts at getting young people to sign up: if you are promoting something that has shaky credibility, and you use dubious arguments that your target audience will realize might not be true, you end up hurting your cause.

With The White House proclaiming Russian stocks a "sell" today (and in the meantime Russian stocks and the Ruble strengthening), it is clear, as Citi's Steven Englander notes, that the Russia/Ukraine crisis may be the first major political conflict that is played out in international financial markets. The difference, Englander points out, between this and standard imposition of sanctions is that both sides have some options that can inflict damage on the other side; and this has significant implications for investors in the short- and medium-term.

China's potential in shale gas production is nearly as staggering as its potential growth in demand for natural gas. The U.S. Energy Information Administration estimates that China possesses by far the world's largest reserves of technically recoverable shale gas. Although China's shale gas industry is not as advanced as the United States', it could be the most advanced outside of North America. It remains unclear whether this will be able to satisfy most of China's demand, and China's potential demand spikes leave those other liquefied natural gas importers worried -- especially those, such as Japan, that have few options other than importing liquefied natural gas.

On account of the clear decline in the growth momentum of the US price index, many economists have concluded that this provides scope for the Fed to maintain its aggressive monetary stance. Some economists, such as Chicago Fed head Charles Evans, even argue that the declining trend in the growth momentum of the CPI makes it possible for the Fed to further strengthen monetary pumping. This, 'they' believe, will reverse the declining trend in price inflation and will bring the US economy onto a path of healthy economic growth. We suggest that contrary to Evans miracles, a strengthening in monetary pumping will only deepen economic impoverishment by allowing the emergence of new bubble activities and exacerbate existing bubble activities.

China, having abstained from voting against Russia in the UN, has been relatively quiet during this crisis... until now... As ITAR-TASS reports, spokesperson for China's Ministry of Commerce Shen Danyang said that while "the situation in Ukraine remains tense," and they are watching developments, "we are ready for cooperation with Crimea after the situation there gets back to normal.” This appears to implicitly recognize Crimea as its own region - as opposed to part of Ukraine - even after this morning's "very strict anti-secessio One China policy" comments.

Despite much hope that the current breakout of the markets is the beginning of a new secular "bull" market - the economic and fundamental variables suggest otherwise.  Valuations and sentiment are at very elevated levels while interest rates, inflation, wages and savings rates are all at historically low levels.  This set of fundamental variables are normally seen at the end of secular bull market periods. It is entirely conceivable that stock prices can be driven higher through the Federal Reserve's ongoing interventions, current momentum, and excessive optimism.  However, the current economic variables, demographic trends and underlying fundamentals make it currently impossible to "replay the tape" of the 80's and 90's.  These dynamics increase the potential of a rather nasty mean reversion at some point in the future.  The good news is that it is precisely that reversion that will likely create the "set up" necessary to launch the next great secular bull market.  However, as was seen at the bottom of the market in 1974, there were few individual investors left to enjoy the beginning of that ride.

In a surprising development out of Canada's cabinet, moments ago the finance minister, Jim Flaherty, a noted deficit hawk and proponent of paying down government debt, just announced his resignation.

CANADA FINANCE MINISTER FLAHERTY RESIGNS FROM CABINET
FLAHERTY SAYS DECISION TO LEAVE POLITICS WAS NOT RELATED IN ANY WAY TO HIS HEALTH

This despite speculation that it was indeed his health that was the reason for this unexpected resignation. Either way, Canada's housing mess will now be someone else's problem.

With ORCL no longer a bellwether - preferring Twitter or yesterday's IPO as an indicator of the health of the world economy - we are sure investors will simply shrug at the tech firm's top- and bottom-line miss (again):

*ORACLE 3Q ADJ. EPS 68C, EST. 70C
*ORACLE 3Q ADJ. REV. $9.32B, EST. $9.36B

But the big question is - who knew early!?

US equity markets are up around 2% from Friday's close - extending yesterday's hope-filled gains on the back of Vladimir Putin not nuke-ing the world this morning and lower-than-expected inflation prompting hope for moar free money tomorrow. This jump is a ridiculous deja vu all over again of Putin's first press conference. Bear in mind that the USD is unchanged on the week and Treasury yields are up a mere 1-2bps - so hardly a resounding risk-on conviction. Following yesterday's epic low volume, today was little better. Copper was flat as Oil prices rose back towards $100. Gold and silver were pummeled - just for good measure (gold's biggest 2-day drop in 3 months) - as was VIX (which took over the role of S&P 500 driver from AUDJPY after Europe closed). The afternoon saw VIX diverging (higher ahead of tomorrow's FOMC) from rising stocks. For the week, USD unch, Bonds unch, Stocks +2%, Gold -2%.

"Fat Finger" or just more "High Freaks"? At 1110ET, the FTSE100 futures contract (representing the most liquid vehicle for trading the broadest UK stock market) suddenly rocketed up 1.3% on huge volume... and then, just as remarkably, Nanex shows, most of that price exuberance returned to normal within 10 seconds... Doesn't look like a fat finger order to us? with 5 waves of buying on the way up? Of course, one thing is sure, Virtu made money!

On Sunday, Senate lawmakers unveiled the 442-page plan that will eliminate the mortgage-finance giants; replacing them with a new system in which the government would continue to play a potentially significant role insuring U.S. home loans. The Johnson-Crapo bill would, as WSJ reports, construct an elaborate new platform by which a number of private-sector entities, together with a privately held but federally regulated utility, would replace key roles long played by Fannie and Freddie.