Archive - May 2, 2014 - Story

A leaked recording by the vice-chairman of Vanke Group (China’s biggest property developer), confirms, as The Telegraph's Amrbose Evans-Protchard reports, what the bears have been saying for months, 'it is a dangerous bubble, and already deflating'. Mao Daqing's words, translated, are ominous: "In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level... China has reached its capacity limit for new construction of residential projects... and I don’t see any possibility for a rise in home prices." The simple chart below highlights all one needs to know - inventory is exploding - and as Mao concludes: "housing production per 1000 people reached 35; even when the housing market is hot, no country has a figure of greater than 14 - this should cause alarm."

UPDATE: Up to 38 reported choked to death in the burned buildings of Odessa.

Wondering why Treasury yields plumb new depths, gold's having its best day in a month, and stocks can't keep a bid no matter how many times JPY or VIX is slammed? The answer lies in these disturbing images from Odessa which show Pro-Russian forces under attack by Ukrainian forces, buildings burning, deaths, and of course - most critically - the kind of anti-Russian actions that Vladimir Putin said was the red-line for him taking action... it's a long way to Tuesday

Italy’s central bank, the Banca d’Italia, has recently published an important document detailing the storage locations and composition of the country’s gold reserves. The document confirms that Italy’s gold is held across four vault locations, three of which are outside Italy. This is a significant announcement given that the Banca d’Italia is the world’s third largest official holder of gold after the U.S. and Germany. Italy officially holds 2,451.8 tonnes of gold, worth more than €72 billion (US$ 100 billion) at current market prices. In the detailed three page report focusing exclusively on its gold reserves (and only published in Italian), the Banca d’Italia reveals that 1,199.4 tonnes, or nearly half the total, is held in the Bank’s own vaults under its Palazzo Koch headquarters on Via Nazionale in Rome, while most of the other half is stored in the Federal Reserve Bank gold vault in New York. The report also states that smaller amounts are stored at the Bank of England in London, and at the vaults of the Swiss National Bank in Bern, Switzerland.

The world's most expensive apartment sale has been 'consumated'... in London (of course). As The Evening Standard reports, an Eastern European buyer (has anyone seen Yanukoych recently?) is believed to have paid £140 million (~$235 million) for the 16,000  square feet apartment — more than 10 times the size of a typical London three-bedroom home — at the One Hyde Park scheme near Harrods. This values the apartment at a 'mind-blowingly-desperate-to-launder-my-money-and-get-my-assets-away-from-potential-bank-freezes' $17,000 per square foot.

Obama won't be happy! "It would harm everybody, the Europeans and the Russians," warned Olli Rehn, the European Commissioner for Economic Affairs, adding that "any 'sensible' European Union citizen should oppose further sanctions on Russia because of the economic cost for Europe." As Merkel and Obama cozy'd up for discussions this morning, we can only imagine the promises being made if only she would support his crusade (which she clearly indicated she did not want to). Perhaps she should check in with her nation's CEOs (who have vociferously demanded no more sanctions) and, as Rehn acknowledges, the slowing Russian economy is already having a “negative impact” on Finland and Austria, and "that economic fallout probably will spread to Germany, Poland and the Baltic countries."

If we only voted for unbuyable candidates, money would become poison in politics rather than mother's milk.

Two months after Obama first mentioned the "costs" to Putin should he continue to do what the Russian leader has been doing for, well, the past two months, namely copycatting how the US would act if in the exact same situation, Obama today will be assisted by Germany's Angela Merkel on her first visit to D.C. in three years, to further reinforce the US deterrence idea of "costs" (perhaps to Germany in the form of a third of its gas imports being cut off?), just in case Obama alone can't handle Putin. Somehow we doubt Russia will pay much attention - after all it has been revealed time and again that Russia has all the trump cards.

First Kiev, now Odessa? The answer to the question of who is doing the shooting and who is being shot at will need to wait until another Victoria Nuland phone recording is released.

30Y yields have plunged back below 3.40% for the first time snce June 2013 and have retraced over 50% of the "Taper tantrum" sell-off. Yields have accelerated lower this morning after spiking on the jobs data, as a combination of blood on the streets of Ukraine and the reality of the jobs data send investrs to safe havens. JPY is aggressively bid (with AUDJPY ruling US equity weakness) and Gold and silver are in heavy demand. Remember, it's not Tuesday!

As if there wasn't enough news for the market to ignore, here is another. NBC reports that a subway train has derailed in Queens, the MTA says.  FDNY was responding to the Broadway and 65th Street area in Woodside, and reported heavy smoke conditions. Authorities say the train that derailed is a Manhattan-bound F train on the express track. The MTA could not immediately say how many wheels derailed. Riders should expect delays on the E, R, F and M lines.

The earlier Ukraine "anti-terrorist" operation in Solvyansk has resulted in the death of at least 2 servicemen and now tensions are roiling in Odessa (with mass brawls and molotov cocktails flying) as the Ukraine government tries to live up to the IMF's demands or "fight or no money". Violent clashes have broken out at a pro-Ukraine rally in Odessa and at least one person is dead. As the live feed below shows, things are getting out of control fast. Ukraine's acting president adds:

*TURCHYNOV SAYS OPERATION PROGRESSING SLOWER THAN GOVT WANTED - REBELS HIDING BEHIND HOSTAGES, CIVILIANS
*TURCHYNOV URGES SEPARATISTS TO LAY DOWN WEAPONS AND SURRENDER

Ukrainian authorities have also banned Russian air companies from making flights to the eastern Ukrainian cities; and, perhaps ironically to some, Russia has called for an emergency UN meeting to discuss Ukraine's actions.

While we expect much media coverage of the fact that as of the end of April, total jobs have risen to 138,252K or just 98,000 jobs shy of the December 2007 highs when the depression started (which means that the next jobs report will finally show a full recovery of the jobs lost in the past 6 years), another fact which will not receive nearly as much attention is that the cumulative increase in Americans who have, over the same period, dropped out of the labor force has more than "made up" for the job gains. In fact, it may come as a surprise to most, that since the peak of the depression in February 2010, when the job number dropped to 129.7 million and has been rising ever since, the average monthly number of job adds is 172K. And what about the average monthly number of people who drop out of the labor force since February 2010? 175K, or a virtually perfect mirror image.

"After a long hard winter it is good news that the employment numbers are picking up. To hit the lowest unemployment rate in five and a half years is a positive sign as we move into the summer season that should bring more construction and tourism jobs. Many American families are still struggling with high costs of housing, childcare and college and we need to continue our work to give them a fair shot." Mission Accomplished?

Yesterday it was construction spending that took the positive shine off a measly Q1 GDP print and today it is New Factory Orders. A mere 1.1% gain MoM, missing expectations of a 1.5% bounce (and down from a 1.5% rise in February) suggest anything but a post-weather bounce in the economy. This is the 4th miss in the last 5 months and missed even with a huge spike in defense spending (+21.5%). Who will be first to lower Q1 GDP final expectations today?