Archive - Aug 2014 - Story

Presented with no comment...

The official Ebola death toll is now at 932 with over 1,700 reported cases but as the WHO reports, in the last 48 hours, deaths and cases have exploded (48 and 108 respectively). As the charts below show, this epidemic is going exponential. What is perhaps most worrisome is, while playing down the threat in Nigeria (most especially Lagos - which the CDC Director is "deeply concerned" about), officials have formally asked the US for the experimental Ebola drug, which suggest things are far worse than the 3 deaths reported so far in Nigeria would suggest. Finally, as we warned yesterday, Saudi Arabia is suffering too as the main who was hospitalized yesterday with symptoms has died - the first reported casualty in the Arab world.

Presented with little comment aside to ask... is it different this time?

The average jobseeker is hoping to nail down a corporate or government position, for the usual reasons: security, pay and benefits. But there aren't enough secure, high-paying corporate/government jobs for everyone who wants one. Low-wage serfdom is not the only alternative to a shiny Corporate America/government bureaucracy job. To understand the alternatives, we have to understand the economy we have, not the one we wish we had or the one we might have in the future.

While bonds and stocks shrug off the volatility in FX markets, it appears the crude oil complex is suffering. Despite Putin's discussion of "countermeasures", crude oil prices have tumbled back under $97 to fresh 6-month lows. Brent Crude is notably not selling off (yet) as the spread pushed back above $8.

While Jack lew promised the economic impact on the US economy of Russian sanctions would be minimal, the facts suggest the opposite. Admittedly, Russia is not the US' largest trade partner but escalating sanctions have resulted in a 34% collapse in US exports to Russia - the largest absolute drop since 2010. Imports (from Russia) also fell (for the 3rd month in a row) but while the US is suffering 'costs' it is clear Russia is hurting more (for now - as Putin is set to unleash his countermeasures). Since sanctions began Russian stocks are up 9.5% and the S&P up 4.5% but the spread has collapsed in recent weeks.

The fundamentalist retro-gang that has conquered Northern Iraq has decided it needs to go Taliban on cultural monuments it disapproves of. In short, the group is not only killing people that don't conform to its harsh version of Islam, it is also trying to erase all traces of their history and culture - "The demolition of structures erected above graves is a matter of great religious clarity." It is quite ironic that Saudi Arabia, allegedly one of the main financial backers of ISIS, is finally getting worried a bit in light of all these events. Luckily, there is absolutely nothing to worry about. Not only do the Saudis believe that “ISIS will run out of steam” just before it gets to Mecca (see above), but more importantly, “the US State Department also issued a statement that it was “actively monitoring” the Iraqi situation” (apparently it neglected to “actively monitor” the Lebanese situation though). What could possibly go wrong?

Just in case the legacy of Abenomics wasn't clear enough (it should have been after we reported that its legacy is "Japan's Greatest "Misery" In 33 Years"), here is another confirmation that in the New Normal, only bad things happen when you forget to BTFD.

No headlines on the tape for now but suddenly the world wants out of Dollars... (world's FX traders searching for Sikorski and Putin's "sell" button)... It appears led by major JPY buying as someone just puked a huge carry trade (25,000 JPY futures contracts or around $3 billion notional).

A few years ago, the definition of "strong banking" was Switzerland; now, not so much. But eager to restore some of its former banking luster, Switzerland has taken note of this and is rapidly positioning itself to become a major center of European RMB trade. Continuing to believe that the dollar is going to maintain its global reserve status is now not only foolish, but financially hazardous. To countries, businesses and individuals. Those who ignore the trend do so at their own peril.

"Suppression of yield and vol induces investors to take on more risk (QE III). The market clings to perception of certainty regarding outcomes, despite the Fed shifting commitment modes from time or level-based to data dependent. This stage of policy should eventually lead to increased uncertainty and risk."  Translation: the TBAC itself - i.e., America's largest banks - whose summary assessment this is, is now actively derisiking.

Last week we noted Russia was considering banning fruit from Europe (as well as various other sanctions retaliations) but this morning Vladimir Putin has come out swinging by signing 'a decree on countermeasures to Western sanctions':

*PUTIN BANS FOOD IMPORTS FROM COUNTRIES SANCTIONING RUSSIA: IFX
*PUTIN ORDERS GOVT TO PREVENT ACCELERATED GROWTH OF FOOD PRICES

So trade wars escalate externally and price controls internally. It appears the US (and Europe) will indeed feel "tangible losses" despite Jack Lew's promises.

Having lost contact with JPY crosses early on, it was left to VIX to be the momentum ignition to run equities back up to the scene of the crime yesterday. US equity indices are close to the levels pre-Sikorski yesterday as VIX is hammered back under 16.

Talking-heads drew "this is not geopolitical risk fears" comfort yesterday that the stock sell-off was not accompanied by a big bid for gold. Today... not so much. Gold and silver have surged since around 8amET (when Ukraine incursion headlines began today from NATO) with the yellow metal up over $20 - its biggest jump since mid-Jun (with futures over $1310).

On the heels of yesterday's comments from Poland's Sikorski, NATO has confirmed there's a risk of Russia sending troops into Ukraine under the 'pretext' of a humanitarian or peacekeeping mission. "We're not going to guess what’s on Russia’s mind, but we can see what Russia is doing on the ground - and that is of great concern," a NATO spokesperson warned, adding, "this is a dangerous situation." Then US SecDef Hagel added, "the threat of Russian incursion in Ukraine is a reality." Russia's response to this warmongering (as Ukraine appears desperate to instigate something before the money runs out) is to blast the disinformation, "reports of troop buildups near the Ukraine border are groundless." It appears we are going to need more YouTube clips...