Archive - Aug 18, 2014 - Story

Fifteen months ago we reported China's stealth invasion of India's Ladakh region, and now, as PTI reports, Chinese troops are reported to have entered deep into Indian territory in Burtse area in Ladakh where they had pitched their tents last year. Indian troops spotted Chinese personnel 25 to 30 km from the perceived Line of Actual Control (LAC). PLA personnel carried flags reading "this is Chinese territory, go back" in their hands and they refused to move after being confronted by India's quick response team.

It remains to be seen if frontrunning the general public on collusive, material, non-public information that a strategic would be about to announce a bid for Allergan is indeed "completely lawful", however we do have a question: now that the SEC is formally investigating Ackman for what may be a massive frontrunning scam, is it also looking at all the other hedge funds which reported brand new stakes (some of which also entirely in the form of calls) in Allergan in the second quarter?

Despite almost record-low mortgage apps and plunging sales, homebuilders remain as optimistic as ever that no matter what is ahead - stagnant wages, rising rates, or FNMA's outlook deteriorating - everything will be fine in housing.NAHB sentiment printed 55, beating 53 expectations on the back of an explosion of hope in the Midwest to record highs (as South and West tumbled). The 'outlook' - the real hope - surged to its highest in a year - just short of this cycle's highs in hope.

Following a summit in Brussels, a senior NATO diplomat proudly proclaimed that 'allies' have pledged more spending and will beef up its presence in Eastern Europe. However, likely to the chagrin of President Obama (and the West's narrative), he let slip some uncomfortable truths:

• *NATO DIPLOMAT SAYS PUTIN HOLDS TACTIAL SHORT-TERM CARDS (hhmm, ok)
• *NATO DIPLOMAT SAYS LONG-TERM GEOPOLITICAL TRENDS FAVOR THE WEST (phew...)
• *NATO DIPLOMAT SAYS PUTIN WON'T BE AROUND FOREVER (threat or warning?)

So, all the west has to do is be patient? Wait out Putin? We suspect that 'strategy' may get accelerated at some point.

While it remains to be seen if Obama can put an end to what has been the hottest M&A trend in 2014, namely engaging in tax redomiciling "inversion" deals, it is clear that the C-suite is delighted to continue pursuing deals which minimize the cash outflows to the US Treasury, with some 52 redomiciling deals done since 1983, 22 taking place since 2009 and another 10 being finalized and many more in the works. But what is the track record of tax inversions when it comes to the bottom line, namely investor returns.  According to a Reuters calculation, "companies that have done such "inversion" deals have failed to produce above-average returns for investors."

Much of the supposedly godlike power of central banks is participants' faith in their powers to control not just finance but the real world that can be leveraged by finance. Implicit in this narrative is the notion that there are no hard limits on credit or central bank money creation. Equally implicit is the assumption that the central banks repressing interest rates and creating trillions of dollars out of thin air can control any blowback or unintended consequences triggered by the free money for financiers tsunami.

Amid all the global geopolitical tensions - which the stock market apparently believes are all fixed now - news that the motorcade of a Saudi prince was attacked in Paris by Kalashnikov-wielding gunmen takes on more relevance than it normally would. The attackers stole 250,000 Euros in cash and more crucially - "sensitive documents." No suspects have been apprehended and to make matters more complex, local police noted "It's quite an unusual attack. They were obviously well-informed. It's true that it's quite a rare way of operating."

The main event of the week will be Yellen's long awaited speech at the Jackson Hole 3-day symposium taking place August 21-23. The theme of this year's symposium is entitled "Re-Evaluating Labour Market Dynamics" and Yellen is expected to deliver her keynote address on Friday morning US time. Consensus is that she will likely highlight that the alternative measures of labour market slack in evaluating the ongoing significant under-utilisation of labour resources (eg, duration of employment, quit rate in JOLTS data) have yet to normalise relative to 2002-2007 levels. Any sound bite that touches on the debate of cyclical versus structural drivers of labour force participation will also be closely followed. Unlike some of the previous Jackson Hole symposiums, this is probably not one that will serve as a precursor of any monetary policy changes but the tone of Yellen's speech may still have a market impact and set the mood for busier times ahead in September.

After three consecutive days of rioting and looting in Ferguson, MO, despite a second night of curfews which was honored by few if any, Missouri's governor said on Monday he would send the National Guard into the violent suburb to "restore calm" after authorities forcibly dispersed yet another crowd overnight.  Gov. Jay Nixon signed an executive order deploying the U.S. state militia, saying demonstrators had thrown Molotov cocktails and shot at police as well as a civilian, a description of the night's events diverging widely from some eyewitness accounts. State Highway Patrol Captain Ron Johnson told a late night news briefing: "Molotov cocktails were thrown, there were shootings, looting, vandalism and other acts of violence that clearly appear not to have been spontaneous."

• Yellen Dashboard Warning Light Glows as Millions Work Part Time (BBG)
• More US drones boosting global GDP: Unidentified war planes, explosions heard in Libyan capital (Reuters)
• London Home Asking Prices Plunge Most in More Than Six Years (BBG)
• Carney - Rate Hike before Pay Recovers (Times)
• No Fed fireworks, but plenty of clues, expected at Jackson Hole (Reuters)
• Kurdish, Iraqi forces in control of Mosul dam (Reuters)
• China Pushes Cleanup of Banks (WSJ)
• Russia Widens Ruble Trading Band in Move Away From Managed Rate (BBG)
• Dollar General Makes $9.7 Billion Family Dollar Counterbid (BBG)
• Autopsy finds unarmed teen killed by police was shot six times (NYT)
• Bull Market Waning as Barclays Sees 1% Gain for S&P 500 (BBG)
• Credit Suisse Caught Up in Espírito Santo Mess (WSJ)

Friday's main event, Ukraine's alleged attack of a Russian military convoy, has come and gone, and as we mused on Friday has promptly faded into the memory of all other fabricated headlines released by the country engaged in a major civil war and an even more major disinformation war. To be sure, Germany's DAX has recovered virtually all losses, US futures are up about 9 points, and the 10 Year is back to 2.37%. One wonders what algo-slamming headline amusement Ukraine has in stock for us today, although anyone hoping for a quick "de-escalation" (there's that word again) will have to wait following yesterday's meeting of Russian, Ukraine, German and French ministers in Berlin where Russia's Lavrov said he saw no progress on Ukraine cease-fire, Foreign Minister Sergei Lavrov says in Berlin, adding that a cease-fire should be unconditional.