Archive - Mar 2014 - Story

It was less than a month ago when Barclays announced it would fire 12,000 workers after posting abysmal earnings with Q4 banking income crashing 37% and overall income sliding 9%. So, one would think, its employees would be punished with lower pay - those that are lucky enough to keep their jobs of course. One would be wrong. Reuters just reported that 481 of Barclays employees were paid 1 million pounds ($1.7 million) or more last year, 53 more than in the year before, and most of them were based in the United States. Barcalys' immutable rationale - fear of losing the traders to a better-paying competitor. Like who - is the Fed hiring again?

Minutes ago, the chief of police of the Donetsk regional state administration (in Eastern Ukraine and the home region of Yanukovych) explained how the situation was "stable" and "everything is under control"... So perhaps he better look out the window:

*RUSSIAN-FLAG WAVING CROWD SAID TO STORM DONETSK BUILDING: AP
*PRO-RUSSIAN PROTESTERS ON WAY TO STORM DONETSK TREASURY: TV5

So, apart from the protesters storming buildings and breaking into the Treasury, things are "under control."

Today's economic data has been absolutely abysmal. We know, we know, snow. However, first the atrocious ADP number, and then the abysmal Services ISM employment index plunging at an unseen pace, should give some pause for thought. It appears to have done so with Goldman's chief economist, the same guy who a month ago was expecting 3.0% GDP growth in Q1, and who just cut his February NFP forecast for this Friday from 145K to 125K. To wit: "As a result of the sharp decline in the employment component of the nonmanufacturing index, we have reduced our payrolls forecast to 125k and our private payrolls forecast to 130k"

Retweets are not endorsements... but they really usually are. Which is the reason some are wondering just why did the FTC show a specific appreciation of this particular tweet sent out yesterday by a user who appears to have a bone to pick with Herbalife, Nu Skin and other alleged pyramid schemes.

#NCPW2014 Why have you not shut down pyramid schemes like Herbalife, Nu Skin and others? What is the FTC waiting for?

— AS (@ArbitrageIt) March 4, 2014

Following warnings from US and European nations over economic (and travel) sanctions against Russia, the upper house of Russia's parliament has struck back. As RIA reports, Russia is mulling measures allowing property and assets of European and US companies to be confiscated in the event of sanctions being adopted. Layers are studying the costitutionality of the 'confiscation' but cite Europe's standards (i.e. Cyprus) as precedent. This is further to the threat to "dump US goverment bonds" issued earlier in the week.

ISM Services headline index collapsed to 51.6 (missing expectations of 53.5) to its lowest since February of 2010. We are sure many will proclaim this as "weather-related" but remember the strong performance of the Manufacturing print. Respondents worried about weather, Obamacare, and oil prices... as the employment sub-index crashed from 56.4 (highest since Nov 2010) to 47.5 (lowest since Mar 2010) - the biggest drop since Lehman!

On the heels of yesterday's confessions (as we detailed here), ex-Fed chair Ben Bernanke continues his contrition:

• *BERNANKE SAYS HE UNDERESTIMATED IMPACT OF SUBPRIME PROBLEM
• *BERNANKE SAYS HE THOUGHT SLOWDOWN WOULD BE 'MODERATE'

But apart from that, "nailed it." What a great way to earn $250,000 per appearance (a year's Fed salary): by admitting your mistakes destroyed the middle class.

"This extensive review of documents, e-mails and other records has to date found no evidence that Bank of England staff colluded in any way in manipulating the foreign exchange market or in sharing confidential client information,” the Bank of England said today in a statement. Yet, as Bloomberg reports, a staff member was suspended amid the probe of a widening rigging scandal though "no decision has been taken on disciplinary action." As far back as 2006, they show concerns over the FX "fixings" that are at the core of this collusion but are careful not to condone any form of market manipulation. Well that's that then - until the next whistleblower exposes them.

For all the chest-thumping from policymakers about the declining unemployment rate and increase in GDP growth in the second half of last year, these statistics are easily misread. More telling indicators, such as private domestic demand, haven’t picked up at all. Nor would you expect a robust recovery as long as employers create mostly lousy jobs. In the horse race between the real economy and the risk of financial instability, the real economy seems to be falling behind. Financial risks are growing steadily, as we discussed in “Tracking ‘Bubble Finance’ Risks in a Single Chart.” The real economy, on the other hand, is held back by weak income growth.

More snow. That is the assessment of Mark Zandi and the ADP Private Payrolls, which just printed at 139K on expectations of a 155K print. But don't worry: the number was pre-spun for idiot consumption, as the 139K was actually an increase from the January 127K. What was not said is that the January number was a massive revision lower from the previously announced 175K. What will also not be said is that the December ADP print was revised lower from 227K to 191K and the November 289K was chopped off and revised to only 245K. Of course, both of those numbers were massive beats at the time, and have now become misses, but who cares: they have served their algo kneejerk reaction purposes. And while the data is complete garbage, and is obviously manipulated and goalseeked (as we have shown before), it should be welcome to the US to know that in February it generated a whopping 1,000 manufacturing jobs. But the punchline, certainly, is this from Mark Zandi: "February was another soft month for the job market. Employment was weak across a number of industries. Bad winter weather, especially in mid-month, weighed on payrolls. Job growth is expected to improve with warmer temperatures.”

About an hour ago, the head of Russia's top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine's total debt to Gazprom for gas deliveries was nearing $2 billion. "Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries," he told Russian President Vladimir Putin.

• High Stakes Limit Bid to Cow Putin (WSJ)
• Russia says can't control Crimea troops ahead of U.S. talks (Reuters)
• Crimea Crisis Haunted by Ghosts of Bungled World War I Diplomacy (BBG)
• Putin’s Ukraine Gambit Hurts Economy as Allies Lose Billions  (BBG)
• Germany Says It Provided Equipment and Training to Ukraine's Riot Police (WSJ)
• China signals focus on reforms and leaner, cleaner growth (Reuters)
• China Shares in Hong Kong Decline Amid Default Concern (BBG)
• Beijing Signals New Worry on Growth (WSJ)

With the world still on edge over developments in the Ukraine, overnight newsflow was far less dramatic than yesterday, with no "bombshell" uttered at today's Putin press conferences in which he said nothing new and simply reiterated the party line and yet the market saw it as a full abdication, he did have some soundbites saying Russia should keep economic issues separate from politics, and that Russia should cooperate with all partners on Ukraine. Elsewhere Gazprom kept the heat on, or rather off, saying Ukraine recently paid $10 million of its nat gas debt, but that for February alone Ukraine owes $440 million for gas, which Ukraine has informed Gazprom it can't pay in full. Adding the overdue amounts for prior months, means Ukraine's current payable on gas is nearly $2 billion. Which is why almost concurrently Barosso announced that Europe would offer €1.6 billion in loans as part of EU package, which however is condition on striking a deal with the IMF (thank you US taxpayers), and that total aid could be as large as $15 billion, once again offloading the bulk of the obligations to the IMF. And so one more country joins the Troika bailout routine, and this one isn't even in the Eurozone, or the EU.

Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that's what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE's largest bank, was hoping for earlier today when they paid an exorbitant amount of money to hear the former chairman talk. Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed - "I can say whatever I want."

So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?

Ready?

While everyone was focusing on the threat of tumbling debt dominoes in China's shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers - the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate - as well as shadow banking - bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.