Archive - May 2014 - Story

As was largely expected, Petro Poroshenko - the candy tycoon known as the "chocolate king" - has easily beaten Yulia Tymoshenko - nicknamed "gas princess" - to become Ukraine's next president according to exit polls:

UKRAINIANS ELECT POROSHENKO AS PRESIDENT: (POROSHENKO RECEIVES 55.9%, TYMOSHENKO RECEIVES 12.9% OF UKRAINE VOTE: EXIT POLL)
UKRAINE'S POROSHENKO SAYS HE'S READY FOR TALKS WITH RUSSIA
POROSHENKO: UKRAINE WON'T GIVE UP CRIMEA

Hope remains for stability in the nation as Poroshenko, as we noted here, is the most middle of the road - pro-Europe (but not too much) and most importantly believes Ukraine joining NATO "is probably not a good idea," which will likely disappoint the US. There has been violence in the East but it does not seem widespread enough to warrant any negative conclusions from Putin for now.

When does the market break? When will the Narrative of Central Bank Omnipotence fail? Implicit (and sometimes explicit) in these questions is the belief that this – whatever this is – simply can’t go on much longer, that there is some natural law being violated in today’s markets that in the not-so-distant future will visit some terrible retribution on those who continue to flout it. There has never been a more unloved bull market or a more mistrusted stock market high. Public markets today are essentially hollow, as what passes for volume and liquidity is primarily machines talking to other machines for portfolio “positioning” or ephemeral arbitrage rather than the human expression of a desire to own a fractional ownership share of a real-world company. We believe that today’s public market price levels primarily reflect the greatest monetary policy accommodation in human history rather than the real-world prospects of real-world companies. We believe that the political risks to both capital market structure and international trade (which are the twin engines of global growth, period, end of story) have not been this great since the 1930’s. Simply put, we believe we are being played like fiddles.

Presented with no comment...

Yesterday we showed how Russia and China hold "massive" naval drills in the northern part of the East China Sea (close enough to Japan for us to footnote "ahem Japan and Taiwan"), which in addition to a clear signal to the US (on part of Russia), was sending just as clear a message to Japan (on the part of China). Sure enough, overnight Japan was not too happy with this massive show of force by the two biggest and closest foes near its disputed territory. As a result it dispatched an OP-3C surveillance plane and a YS-11EB electronic intelligence aircraft. China promptly retaliated and as Reuters reports, it scrambled a Su-27, fully-armed with missiles, which came as close as 50 meters of the Japanese fighters - the closest Chinese warplanes had come to aircraft of Japan's Self-Defense Force according to Japan - in what can only be described as "please take the first punch."

No matter the headline, no matter the scandal, no matter how few or how many might be involved, one thing will become crystal clear: nobody that should have known – will have known.

A month ago, when the fate of the historic (and now concluded) gas deal between Russia and China was still unknown we wrote that "Isolated Russia Makes Friends: To Hold Military Drill With China", a drill titled "Maritime Cooperation-2014", and which, coincidentally, is taking place in the northern part (ahem Japan and Taiwan) of the East China Sea, just as Russia is conducting another massive airforce drill along its border with Ukraine on the weekend of Ukraine's presidential election. Here are some snapshots of what has taken place so far.

Thailand’s twelfth coup since 1932 reveals both the sorry state of its democracy and the erosion of the monarchy. But as political tensions in Thailand have escalated, raising fears that the country could return to the unrest that followed the ouster in 2006 of Prime Minister Yingluck Shinawatra's brother, Thaksin Shinawatra, we thought it useful to note the key Thai political figures facing yet another crisis.

As The Diplomat's Serhat Unaldi notes, "If Thailand negotiates successfully, if the country avoids further bloodshed, it will soon be back on track for a positive transformation. If it fails, the consequences will be disastrous."

While the S&P 500 closed at record highs (and VIX near record lows), Marc Faber says the "momentum sell-off has caused serious internal damage to the market," with many of the most-loved and most-levered stocks down 30-50%. Interestingly Faber warns that if bond bears are correct and rates rise to 4% then stock prices "will really tumble." But it is China that worries him the most. Faber warns that Chinese growth figures are a fallacy and that "if one analyzes the data carefully" it is clear that "China is growing at most 4%" and given the "gigantic credit bubble" the outlook is not hopeful as the sharp deceleration in growth is likely to continue. Faber also has strong words for Western nations treatment of the rest of the world and "the US will have to back off.. because China is so important."

Having watched Tim Geithner's disgusting defense of the tax-payer-backed re-inflation of a corrupt and knowingly devastating banking system on Jon Stewart's Daily Show, and watching the US fine (no jail time for anyone) a Swiss bank which admits its guilt over billions of fraud yet allow them to remain a prime dealer of US Treasuries; we thought the following story from a '3rd world banking system' would open a few eyes in the US this weekend as 'we remember'. As AP reports, a billionaire businessman at the heart of a $2.6 billion state bank scam in Iran, the largest fraud case since the country's 1979 Islamic Revolution, was executed Saturday, state television reported.

Speaking like a jilted girlfriend, German finance minister Wolfgang Schaeuble exclaimed that "Russia needs Europe more than China to develop economy," following the signing of the 'holy grail' gas deal this week. But the German saved his sternest comments for his US "allies" as he explained discussions over sanctions and negotiations with Russia over Ukrains would "be even more successful if the United States understands that it is also part of the West." Reflecting on the waning US influence and slamming US Congress delays over IMF reform, Schaeuble unleashed the following: "Perhaps now more of those in power in the United States will ask themselves: Why is America's soft power, even though it is the indispensable nation, not so great as to be understood by the dumb Germans?" As the WSJ reports, Schaeuble reiterated "we won't seek military escalation, but we will of course use our political and diplomatic abilities to increase the pressure on Russia to abide by the rules."

We are confused: on one hand the Fed is injecting hundreds of billions of liquidity into the market, boosting the S&P to all time highs and making the rich richer (Piketty taking Excel lessons from Rogoff notwithstanding) while the economy remains stagnant because, according to the BLS, inflation is too low, and as everyone knows the biggest lament of the impoverished middle class is that "the value of my dollar isn't being destroyed fast enough for me to feel confident about the future." On the other hand, the very same Federal Reserve Bank (of Chicago), just announced that as a result of "prices continuing to increase between 3% and 33%" (!), beginning May 27 it is hiking the prices in its cafeteria. So, clearly prices are rising at a 33% clip due to, how does the IMF put it, lowflation, right? Oh, and harsh weather.

Contrary to blatant propaganda ignited by an insincere West, Putin’s government has no intention of enlarging the Russian Federation. All Putin, and overwhelmingly the Russian people, are after is the assurance of a buffer state in Ukraine without US missiles pointing at Moscow, and that implies a nation that would not join NATO. With the looming elections, Tymoshenko is decidedly pro-NATO but the front-runner Poroshenko has often suggested that Ukraine joining NATO would not be such a good idea. Meantime our neocon-infested State Department and the Pentagon continue to provide imprimatur to America’s corporate media to propagate lies demonizing Putin and Russia and glorifying our American empire. Yet, we are the folks who started the entire mess in Ukraine.

Do not look at this chart if you remain of the opinion that everything is fine in the world. For the 3rd time in the last 4 months, world trade volumes dropped. The 0.5% fall in March - it must have been weathery all over the world? - continues the biggest plunge in global trade since May 2009. As WSJ reports, exports from developing economies in Asia recorded the largest decline, a drop of 4.5%. Central and Eastern Europe was the only region to record a rise in exports as the decline in trade flows is consistent with other evidence that suggests the global economy got off to a weak start this year. So, $12 trillion of global money printing and world trade is unable to sustain growth...