Archive - Jun 2014 - Story

First it was US' Victoria Nuland's "fuck Europe" leaked recording; then Turkey's Erdogan faced embarrassing details of a false-flag war with Syria from leaked recordings; then last week's Polish central bank was exposed (by leaked recordings) as offering support for the government in return for favors (crashing any faith in central bank independence); and then this weekend, Poland's foreign minister had some rather colorful language and perspective exposed (by leaked recordings). The Polish Zloty has been hammered lower in the last few days since the events broke (though clear CB intervention has rescued it today) and the Polish Prime Minister is fuming: the "criminal group" that taped public officials has the sole aim of destabilizing Poland during “key moment” as EU reshapes itself amid Ukraine crisis, Tusk blasted, adding (rather pointedly), "people who have organized criminal eavesdropping will not dictate to Poland who governs the country and which ministers are to be dismissed." One wonders who he is talking about; who has the technical know-how and organization to arrange such mass eavesdropping?

One of the great "paradigms" of the New Normal tech bubble that supposedly differentiated it from dot com bubble 1.0 was that this time it was different, at least when it came to advertising revenues. The mantra went that unlike traditional web-based banner advertising which has been in secular decline over the past decade, social media ad spending - which the bulk of new tech company stalwarts swear is the source of virtually unlimited upside growth - was far more engaging, and generated far greater returns and better results for those spending billions in ad bucks on the new "social-networked" generation. Sadly, this time was not different after all, and this "paradigm" has also turned out to be one big pipe dream. According to the WSJ, citing Gallup, "62% of the more than 18,000 U.S. consumers it polled said social media had no influence on their buying decisions.

This week brings PMIs (US and Euro area ‘flash’) and inflation (US PCE, CPI in Germany, Spain, and Japan). Among other releases, next week in DMs includes [on Monday] PMIs in US (June P), Euro Area Composite (expect 52.8, a touch below previous) and Japan; [on Tuesday] US home prices (FHFA and S&P/Case Shiller) and Consumer Confidence (expect 83.5, same as consensus), Germany IFO; [on Wednesday] US Durable Goods Orders (expect -0.50%, at touch below consensus) and real GDP 1Q anniversary. 3rd (expect -2.0%) and Personal Consumption 1Q (expect 2.0%), and confidence indicators in Germany, France and Italy; [on Thursday] US PCE price index (expect 0.20%), Personal Income and Spending, and GS Analyst Index; and [on Friday] Reuters/U. Michigan Confidence (expect slight improvement to 82, same as consensus), GDP 1Q in France and UK (expect 0.8% and 0.9% yoy, respectively), and CPI in Germany, Italy, Spain and Japan.

With Gen-X and Gen-Y out as buyers, who's left to scoop up the tens of trillions of dollars of Boomer assets at bubblicious prices? Given that other nations face the same demographic dilemma, the answer appears to be: no one.

Following our comprehensive update yesterday, there is not as much to report, but for all those following the Iraq situation closer than the surgeon general recommends, here are the latest updates.

• The Man Who Broke the Middle East (Politico)
• Kerry presses Maliki as Iraq loses control of Syrian, Jordanian borders (Reuters)
• Hank Paulson takes on global warming next: The Coming Climate Crash - Lessons for Climate Change in the 2008 Recession (NYT)
• In Yellen We Trust Is Bond Mantra as Inflation Threats Dismissed (BBG)
• After port fraud, China's vast warehouse sector under scrutiny (Reuters)
• Draghi Says Unlimited Cash Through 2016 Is Rate Signal (BBG)
• Tapes Said to Reveal Polish Minister Disparaging U.S. Ties (NYT)
• CDC reassigns director of lab behind anthrax blunder (Reuters)
• BNP set to receive ban to transact in USD as part of $9 billion settlement (WSJ)
• GE Clears Last French Hurdle to Clinch Alstom Deal (BBG)
• Al Jazeera journalists jailed in Egypt, supporters stunned (Reuters)
• ISDA Asked to Rule If Argentina Credit-Default Swaps Triggered (BBG)

Following last night's laughable (in light of the slow motion housing train wreck that is taking place, not to mention the concurrent capex spending halt and of course the unwinding rehypothecation scandal) Chinese PMI release by HSBC/Markit (one wonders how much of an allocation Beijing got in the Markit IPO) which obviously sent US equity futures surging to new record highs, it was almost inevitable that the subsequent manufacturing index, that of Europe, would be a disappointment around the board (since it would be less than "optical" to have a manufacturing slowdown everywhere in the world but the US). Sure enough, first France (Mfg PMI 47.8, Exp. 49.5, 49.6; and Services PMI 48.2, Exp. 49.4, Last 49.3) and then Germany (Mfg PMI 52.4, Exp. 52.5, Last 52.2; Services 54.8, Exp. 55.7, Last 56.0), missed soundly, leading to a broad decline in the Eurozone PMIs (Mfg 51.9, Exp. 52.2, Last 52.2; Services 52.8, 53.3, Last 53.2), which meant that the composite PMI tumbled from 53.2 to 52.8: the lowest in 6 months.

By now everyone knows there is an unprecedented student debt bubble, amounting to well over $1 trillion and rising at a rate of nearly $200 billion per year. However, what is far less known, is what all these hundreds of billions in government loan proceeds are being spent on. The following two charts should shed some light on this all important matter just how Government money goes from Point A to Point B, using indebted to the hilt students as a pass-thru.

A country dies slowly. Those living during the decline of Rome were likely unaware that anything was happening. The decline took over a couple of hundred years. Anyone living during the decline only saw a small part of what was happening and likely never noticed it as anything other than ordinary. Countries don’t have genetically determined life spans. Nor do they die quickly, unless the cataclysm of some great war does them in. Even in such extreme cases, there are usually warning signs, which are more obvious in hindsight than at the time. Few citizens of a dying nation recognize the signs. Most are too busy trying to live their lives, sometimes not an easy task. Most cannot conceive of the death of a nation. But signs or symptoms precede death for a country often as they do for a person...

S&P 500 futures are jumping exuberantly as Japan and China PMIs print above expectations and back in expansion territory (Japan best in 3 months, China best in 7 months). This is China's best 2-month PMI rise since Oct 2010 (which makes perfect sense amid the collapsing housing market and CCFD ponzi probe) - which provides the perfect propaganda meme that targeted RRR cuts workl. However, while stocks don't care to scratch the surface, there are 2 glaring similarities that could become a problem. Both China and Japan saw employment drop (Japan's first in 11 months) and furthermore both China and Japan saw input prices rise and output prices decline - not exactly the margin expansion dream everyone is hoping for... and all this as China's Beige Book shows the slowdown deepening on most pronounced quarter-on-quarter drop in 10 quarters of surveys.

Liquefied natural gas (LNG) to Europe isn’t a get-rich-quick scenario for the impatient investor: It’s a long, strategic play for the sophisticated investor who can handle no small amount of politics and geopolitics along the way. When it comes to Europe, Russia’s strategy to divide and conquer has worked so far, but Gazprom is a fragile giant that will eventually feel the pressure of LNG.  Robert Bensh is an LNG and energy security expert who has over 13 years of experience with leading oil and gas companies in Ukraine. He has been involved in various roles in finance, capital markets, mergers and acquisitions and government for the past 25 years. Mr. Bensh is the Managing Director and partner with Pelicourt LLC, a private equity firm focused on energy and natural resources in Ukraine.

Well this is awkward. A week after the Polish central bank was busted offering favors to the government (exposing its utter un-independence); the same Polish news magazine has obtained s ecret recording of Foreign Minister Radoslaw Sikorski saying that Poland's relationship with the United States was worthless. The Wprost news magazine said the recording was of a private conversation between Sikorski and Jacek Rostowski (finance minister) with such headlines as "you know that the Polish-US alliance isn't worth anything;" also describing Warsaw's attitude towards the United States using the Polish word "murzynskosc" - roughly translated as a negro slave - "It is downright harmful, because it creates a false sense of security ... Complete bullshit. We'll get in conflict with the Germans, Russians and we'll think that everything is super, because we gave the Americans a blow job. Losers. Complete losers." USA - making friends wherever they go.

Now that the Iraq proxy war scene is set, and as we reported on Friday, Prime Minister Maliki has become a pawn in yet another middle-east war between the west and the petrodollar (with both Saudi Arabia and the US making it clear Maliki has to go) and Russia (with Putin expressing his full support for the prime minister), events will likely unfold at an even faster pace. Sure enough, even this otherwise quiet weekend, in which the world is supposed to put wars on the backburner and focus on the world cup, is chock-full of Iraq news upates. Let's begin.

With almost metronomic regularity, Japan will gush forth a headline proclaiming the ever-closer time when all the nation's retirees savings will be greatly rotated to the stock market and away from the nation's largest bond market in the world. This week was no exception; however, as Nikkei Asian Review reports, it appears the "all-talk" has turned to action...The Government Pension Investment Fund and other public pensions sold about 1.8 trillion yen ($17.4 billion) more in Japanese government bonds than they bought in the first three months of the year, fueling speculation that the GPIF may be rebalancing its portfolio sooner than expected. It seems rotating away from government bonds (which the GPIF has been worried about since 2011) into junk bonds and junk stocks is a far better use of 'wealth' - we can only imagine the GPIF risk models just got switch to '11'. As we explained last year, Japan's Plan B is not only not a panacea, but it is a House of Bonds Cards that would not survive an even modest gust of wind, and an even more modest contemplation into its true internal dynamics. We would urge Messrs Abe and Kuroda to come up with a fall back plan to the fall back plan before it, once again, becomes too late.

After hundreds of years knowing that no matter how many 'double-taps to the head' or 'sleeping with the fishes' orders they give, a quick penance and the mafia is going to pass through the pearly gates; the Pope, having met the father of a 3-year-old boy slain in the region's drug war, declared that all mobsters are automatically excommunicated from the Catholic Church. "Those who go down the evil path, as the Mafiosi do, are not in communion with God. They are excommunicated," Pope Francis decreed during his one-day pilgrimage to the southern region of Calabria - the heart of Italy's biggest crime syndicate. With the world already having a ChairSatan, is it now time for The SatanFather?