Archive - Apr 2014 - Story

Here is a full breakdown of regional price parities, again using BEA data, this time at the Metro State Level, which shows for example that it is over 30% more expensive to live in New York, NY (which is the second most expensive city in the US after Honolulu.

This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time. No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room - it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple - and is a by-product of the Fed’s insane repression of interest rates.

While the Fed has clearly had a problem with reflating the broader housing bubble, one which would impact the middle class instead of just those who are already wealthier than ever before thanks to the Russel 200,000, one place which not only never suffered a housing bubble pop in the 2006-2008 years, but never looked back as it continued its diagonal bottom left to top right trajectory is Canada. As the chart below shows, the Canadian housing bubble has put all attempts at listening to Krugman and reflating yet another bubble to shame.

With Canada having closed the door on the cash-for-canadian-citizenship housing bubble blowing machine, it seems the Russian oligarch sanctions have left a gaping window for the Chinese to swoop and spend their billions. As Reuters reports, for the first time in history, wealthy Chinese top wealthy Russians are the biggest buyers of Manhattan real estate. It seems Manhattan real estate will always be home to some desperate capital flow, money-laundering 1%-ers cash - no matter what the price.

One can’t help when watching the latest news stories and shake one’s head in both amazement, as well as disgust. Whether it’s the latest political blunder or snafu, all the way through to some of the worlds largest corporations. One thing becomes crystal clear: Most “Intellectuals” can only remain looking smart if the world is calm, or a current business cycle is booming. For once the tide turns and decisive action is needed during the turbulence: the dumbest choice of people to deal with an evolving crisis are “intellectuals.”

Bitcoin prices tumbled almost 15% as Chinese bitcoin exchange BTC China announced it has stopped accepting RMB deposits to user accounts from a major bank. As Coindesk reports, Management decided to proactively halt deposits from one of the country’s largest banks, China Merchants Bank, after the bank posted on its public website that it would no longer allow its customers to engage in bitcoin-related transactions, and said essentially it would require all such businesses to close their accounts. Withdrawals, of course, are allowed, but as Coindesk goes on to note, that while the PBOC's 'official' policy on Bitcoin has not changed since December, this 'pre-emptive' move may suggest he PBOC would soon set stricter rules about how its earlier edicts should be followed.

The Ukrainian defense ministry has issued a statement confirming that Ukraine's air-defense forces have been placed in "operation readiness" in the nation's southern regions. This comes on the heels of the pro-Russian separatists taking OSCE observers hostage - and later "parading" them on local TV (where they explained they were not being treated badly). In another odd twist, pro-Russian forces (wearing British militrary fatigues) have taken over the region's TV station based in Donetsk. Twitter rumors suggest there has been a full military mobilization in Kharkiv - yet to be confirmed; but Germany's deputy forign minister Erler confirmed the EU is set to widen "stage-two" sanctions against Russia tomorrow and may discuss further sanctions later in the week.

Russia and China are becoming closer thanks to Obama and his insane policies behind the NSA that have left America trying to find friends in a dark hour. The sanctions being imposed on Russia have sent China into its camp. The USA is finding it increasingly more difficult to be the bully in the school-yard. No former administration has ever acted with such arrogance and blind stupidity than the Obama Administration. The net result is to empower Russia and to inspire a new dynamic-duo of Russia-China against the USA. China supported Russia, when Western countries launched an anti-Russian campaign. With both of their economies turning down, this is by no means the proper time to impose sanctions. All this policy is doing is re-enforcing Putin and placing him in the position where he must become more aggressive or seem weak in the shadow of Obama.

Next week marks the beginning of May and the potential for a regime change in US Treasuries. As BofAML's Macneil Curry notes, historically the month of May coincides with a jump in Treasury volatility. A seasonal analysis of implied Treasury volatility using the MOVE Index (Merrill Option Volatility Estimate) shows that May is traditionally the second strongest monthly of the year after December. With the MOVE Index also showing signs of basing, and 10yr Treasury yields stuck in an increasingly unsustainable narrow range, this May is unlikely to disappoint. While the long term trend for US 10s suggests that Treasury yields should climb higher, in the near term we prefer to take a wait and see approach, watching for a break of the range extremes at 2.825% and 2.591%.

"YELLEN. The strong incoming data on spending eased my fears that we are in or are approaching a recession regime." Janet Yellen's comment above, from June 2008, sounds no different than what is being said right now. What looked like "drags" on tepid growth trajectories was, at that moment, something worse – and would only grow far, far more destructive further on.

Russian RIA Novosti reports that it has received satellite photos, "which clearly show the accumulation of a large number of Ukrainian military equipment and weapons on the border with the Russian Federation and in the vicinity of Slavyasnk." RIA cites a source in the Defense Ministry, who commented that the pictures show a military formation designed "to wipe out the city and all its inhabitants from the face of the earth." According to source, the group has more than 15,000 troops from the Ukraine army and national guard, about 160 tanks, 230 infantry fighting vehicles and APCs, and as much as 150 mortars, howitzers and multiple launch rocket systems ("Grad" and "Smerch").

The US State Department announced the launch of its third annual "Free the Press" campaign today, which will purportedly highlight "journalists or media outlets that are censored, attacked, threatened, or otherwise oppressed because of their reporting." A noble mission for sure. But maybe they should kick off the campaign by criticizing their own Justice Department, which on the very same day, has asked the Supreme Court to help them force Pulitzer Prize winning New York Times reporter James Risen into jail.

Presented with no subtle snark or biting pithy comment...

We are entering a completely new era in economics. Either (1) if countries perceive that their borrowings curtail their ambitions (thus we have a check and balance), however (2) if countries cannot borrow, then they may invade and revert to the old Conquest Model relying upon the spoils of war, which included the confiscation of assets belonging to an adversary. Either Putin backs down, or he asserts the same principles and is then forced to invade in short-order just to economically survive.

Last week, USDNCY began to accelerate lower and break across the "real pain" threshold that we have been discussing for many of the world's so-called "hedgers" who have been riding the one-way strengthening trend of the CNY for years and piled in with leveraged trades on what had been a one-way bet. The collapse this week, to levels not seen since pre-BoJ QQE and pre-Fed QE3 appeared to trigger an avalanche of unwinds or hedges of the exposures we have been worrying about. As the chart below shows, billions of dollars of upside calls on USDCNY were purchased on Friday with serious size out to 6.65 strikes (levels not seen since 2009) by the end of 2014.