Archive - Mar 2014 - Story

Officially, US debt stands at more than $17 trillion. In reality, it is many times more. So who in his right mind would think it is a good time to start a war with Russia over Ukraine? And worse, who would commit the United States to bail out a Ukraine that will need at least $35 billion to survive the year? Who? The president and Congress, backed by the neocons and the so-called humanitarian interventionists! Cooler heads in the United States are not currently prevailing. There is a danger of an unimaginable conflict between the US and Russia. We must demand a shift away from a war footing, away from incendiary rhetoric. We are broke and cannot afford to “buy” Ukraine. We certainly cannot afford another war, especially with Russia!

Two months ago we noted the clashes between the Libyan government and the rebels over selling oil. It appears the rising threats are reaching a crescendo as AABAA reports the Libyan Navy has impounded a North Korean oil tanker trying to export oil from a rebel-held port of Es-Sider, and is on its way to Western Libya. Interestingly this comes just a day after the US issued a statement strongly condemning "illicitly obtained oil from Libya." We suspect Kim will not be a happy tyrant this evening and also note that the rebels deny the vessel is under government control.

If you travel around America you will see towns and landscapes every bit as desolate as a former Soviet republic. In fact, our towns look infinitely worse than the street-views of Ukraine’s population centers. Ours were built of glue and vinyl, with most of the work completed thirty years ago so that it’s all delaminating under a yellow-gray patina of auto emissions. Inside these miserable structures, American citizens with no prospects and no hope huddle around electric space heaters. They have no idea how they’re going to pay the bill for that come April. They already spent the money on tattoos and heroin.

You really can't make this stuff up:

• EVANS: FED NEEDS TO BE CLEAR RATES WILL BE LOW FOR LONG TIME (ok)
• EVANS SAYS 'WE NEED TO LET THE MARKET WORK' (umm, well...)
• EVANS SAYS FED WANTS TO SEE LOWER LONG-TERM INTEREST RATES (but... you just said)
  
• EVANS:HIGHER LONG-TERM RATES FOR RIGHT REASON IN 'OUR' INTEREST (wait, what?)

Did Charlie blow a fuse? Because he just said that the Fed will hold rates low, wants long-term rates low, but also wants to let the markets work, and wants inflation to raise long-term rates... Forward-guidance just lost another few points of credibility.

Whether or not institutional investors, read large speculators, decided to invest alongside Putin in the one trade that is most critical to the future prosperity and positive cash flow balance of Russia, namely keeping the price of Crude high, and rising, is unknown, however, as the following chart the net position in crude oil futures as of the week of March 4, just hit an all time high of $44.0 billion up from $42.4 billion the week prior, surpassing all prior peaks, and certainly any set during the summer of 2008 when oil was threatening to make a run on $150, and was set to hit $200 if one believes Goldman (which nobody does).

Mere days ahead of Crimea's referendum to join Russia (or not) and following reports of shots fired between Russian and Ukrainian forces, the Ukraine Defense Ministry reports (via Facebook):

• *UKRAINE LIEUTENANT COLONEL DEFECTS TO RUSSIAN FORCES: MINISTRY
• *UKRAINE OFFICER IN CHARGE OF CRIMEA UNIT DEFECTS: UKR MINISTRY
• *OFFICER CONVINCES 'SEVERAL' SOLDIERS TO DEFECT: DEF MINISTRY

Lt. Colonel Sadovnyk is the officer reported as 'kidnapped' yesterday in Bakhchisarai. It would appear Crimea is annexing itself as this comes just one week after the head of Ukraine's Navy defected.

European sovereign bond spreads have not batted an eyelid during the recent Russia-Ukraine crisis... and why should they, Draghi will do "whatever it takes." Even HY credit in Europe is holding up - despite an ugly squeeze wider on Friday (chatter that positioning in very long credit). But with Europe's VIX above 20, the broad European stock index is now below pre-Putin levels. What is perhaps most stunning is that while investors have piled out of German, Swiss, and French stocks in the last few days, they have backed-up-the-truck in "new normal" safe-haven Portugal. The reason proferred by some - Portugal is further from Ukraine (and less dependent on Russia's gas) - which of course is the critical swing factor for an economy that remains crushed aside from trade with Germany.

With surveillance and online privacy now front-and-center in many people's minds, the 2014 SXSW Interactive Festival is hosting a "Virtual Conversation with Edward Snowden" this morning focused on the impact of the NSA's spying efforts on the technology community, and the ways in which technology can help to protect us from mass surveillance. Hear directly from Snowden about his beliefs on what the tech community can and must do to secure the private data of the billions of people who rely on the tools and services that we build.

One month ago, when we last looked at the incredible amount of Chinese new loan issuance, a topic which even the mainstream media is slowly starting to circle in on as the primary source of hot money flow creation in the world, we found the highest loan notional issued by the country's semi-sovereign banks since 2009, and the largest one-month ever monthly total in the largest aggregated, Total Social Financial, series, which rose by an unprecedented CNY2.6 trillion, or over $400 billion in one month! That was just before the tremors surrounding first the potential defaults of several Chinese shadow-banking Trusts, and certainly before the first official corporate bond default which took place last week. Overnight, the PBOC released its latest, February, loan data. As expected, it reveals something else entirely.

AUDJPY (and therefore US equities) is sliding this morning after the ubiquitous pre-open melt-up providing a green open for retail investors to believe in. Notably, from the close before Putin's press conference, the Nasdaq is underperforming all major indices (and Trannies soaring) but this morning has seen almost one-way traffic since the open. Treasuries are unch today as are precious metals (recovering from early losses) and the USD is modestly higher driven by AUD and GBP weakness.

The Turkish Lira is tumbling this morning (+150pips at 2.22); rapidly devaluing back towards pre-emergency-rate-hike levels and Turkish bond yields have surged back to levels seen in mid-2009. The driver appears to be the release of several political prisoners, suggesting the President is starting to lose control and given that 'political stability' is the key factor for many of these EM debt markets. The government, however, remains adamant that an "operation" by some institutional holders of lira bonds to "threaten" Turkey's economy started after the probe into government corruption began in mid-December.

People apparently don't eat pizza when it is snowing... Or during an economic recovery... And certainly not when celebrating the market's all time high 5 year bull "market" anniversary. That is the conclusion one can derive from the just filed Sbarro Chapter 11 bankruptcy filing, which just happens to be the company's second in three years after it did the same in April 2011. The filing itself, which lists assets and liabilities between $100 and $500 million, is not surprising following on the heels of the announcement last month, when Sbarro said it would close 155 of 400 North American restaurants to cut costs. The reason for the Chapter 22 as it is known in restructuring circles: too much debt (so... debt isn't wealth?) and declining customer traffic, which like in the McDonalds' case has nothing to do with a cash strapped US consumer, but the nagging fear, which came true in January, that it would snow during the winter. Oh, and there is also no inflation, even though as Moody's warned in January, Sbarros was striggling with "high food, labor and occupancy costs."

One of the two men who used stolen passports to board the missing Malaysia Airlines jet has been identified according to the nation’s inspector general of police. Authorities are not releasing details of his nationality but confirmed he is neither Malaysian nor from Xinjiang, China (the home of the Uighur separatists who have come under suspicion following Taiwanese authorities tip last week warning that terrorists were targeting Beijing’s international airport).

That Ukraine "drill" may be coming at just the right time. Just out from Reuters:

• RUSSIAN TROOPS OPENED FIRE DURING TAKEOVER OF UKRAINIAN MILITARY POST IN CRIMEA, NO ONE WOUNDED -INTERFAX QUOTES UKRAINIAN BASE COMMANDER

And at the same time:

• RUSSIA'S PUTIN SAYS TOLD FOREIGN MINISTER LAVROV TO INVITE U.S. COUNTERPART KERRY FOR MORE CONSULTATIONS ON UKRAINE
• RUSSIAN FOREIGN MINISTER LAVROV SAYS HAD INVITED KERRY TO RUSSIA TODAY, BUT KERRY SAID ON SATURDAY HE WOULD LIKE TO POSTPONE VISIT

No de-escalation yet. Any minute now though. The market said so.

Iron Ore prices have dropped 25% since the end of last year, sending the key steel-making component into a bear market after slumping by over 9% overnight - its biggest daily drop on record. We warned last week this was likely to happen on the heels of Copper prices fell on monetary financing fears as we explained here how Iron Ore replaced copper as the collateral pool for new loans (following China's clampdown on cash-for-copper deals last year) and stockpiles hit record highs. What is further hurting the Iron ore prices are concerns over China's new anti-pollution reforms which are set to close thousands of furnaces.