Archive - Sep 4, 2014 - Story

While NATO is contemplating its existential purpose in a world where the Cold War has suddenly come back with a vengeance, and the military alliance has found itself woefully unprepared to deal with a Russia which no longer accepts the supremacy of the west (appropriately enough NATO is doing this on a golf course) Russia is also strategizing, only instead of issuing "sharply-worded catchphrases" and hashtags, a Russian general has called for Russia to revamp its military doctrine, last updated in 2010, to clearly identify the U.S. and its NATO allies as Moscow's enemy number one. That in itself is not disturbing: we reported as much yesterday and is merely more rhetorical posturing. Where things, however, get very problematic is that the general demands that Russia spell out the conditions under which the country would launch a preemptive nuclear strike against the 28-member military alliance.

We believe independence terrifies some people because it requires a human being to challenge the unknown and take responsibility for the consequences if he fails. Followers trade in their mental and spiritual freedom to governments, oligarchs and gatekeepers so that they never have to face these difficulties. Sometimes, they are simply lazy. Sometimes, they lack confidence in their own abilities. Sometimes, they are just cowards. In any case, the result is the same: a life of relative ease riding the tides in a vast school of self-serving minnows but always prey to the ever circling sharks. We say don’t be a minnow; man-up, and build something of your own.

Just two charts...

"The West is afraid of a major war and Putin is exploiting that," says one former Kremlin adviser, adding that "his end goal is a Ukraine that is a buffer state between Russia and the West." After the recent rebel offensive, it's now militarily possible to gain full control of Donetsk and Luhansk and to create a 'land bridge' to Crimea, and "without help, Russian troops can roll ever-deeper into Ukraine." As Bloomberg reports, Vladimir Putin will continue his shadow war until he's created quasi statelets in Ukraine’s easternmost regions with veto power over the country’s future, five current and former Russian officials and advisers said. As they ominously conclude, "Ukraine's only way out is to admit defeat... the longer Ukraine waits, the more territory it will lose and the harsher demands it will face." However, as Gavekal explains, Putin may have staved off an immediate defeat but the stakes have undoubtedly been hugely raised - here are 3 scenarios.

It is "Mission Accomplished" for BofAML's Macneil Curry's EURUSD short. Thanks to Draghi's moar-negative-rate-cut, EURUSUD pushed through Cury's objective and we note has now stabilized at 14-month lows around 1.30 the figure. Curry's fear now, given the extremes in sentiment and positioning, is that EURUSD squeezes notably higher.

In today’s financialized economies, zero cost money has but one use: It gifts speculators with free COGS (cost of goods sold) on their carry trades. Indeed, today’s 10 basis point cut by the ECB is in itself screaming proof that central bankers are lost in a Keynesian dead-end.  You see, Mario, no Frenchman worried about his job is going to buy a new car on credit just because his loan cost drops by a trivial $2 per month, nor will a rounding error improvement in business loan rates cause Italian companies parched for customers to stock up on more inventory or machines. In fact, at the zero bound the only place that today’s microscopic rate cut is meaningful is on the London hedge fund’s spread on German bunds yielding 97 bps—-which are now presumably fundable on repo at 10 bps less.

Context is king. Week-in, week-out, we are reassured by whoever the next talking-head is that the recovery-meme is alive-and-well (despite consensus GDP expectations continued to slide for 2014), and that housing is back. The fact that mortage applications inched 0.2% higher on the week (as mortgage rates briefly dropped below 4% for a day - back at 4.20% now) is extrapolated into full recovery when the following chart perhaps provides a little clearer picture of just what has happened in this 'recovery'.

"Get up! Get down! Fast-food workers run this town!" were the chants from fast-food workers in over 100 cities across America today, as empowered by President Obama's explanation of 'fairness', they demanded a $15-per-hour minimum wage amid strikes, rallies, and acts of civil disobedience. Many fast-food chains and independent restaurants have said that a $15 hourly wage would lead to big price increases on their menus or make it impossible to eke out a profit, adding that they "believe that any minimum wage increase should be implemented over time so that the impact on owners of small and medium-sized businesses." Police arrested 19 workers in NYC and several dozen were placed in handcuffs in Detroit and organizers strongly denied unconfirmed fast-food industry accusations that some workers were being paid $250 to $500 by the union to strike. While the economic reasoning for a minimum-wage hike has been dead-and-buried, we try one more time to explain the hidden costs of the minimum wage.

Back in 2009 we first warned that the market is now just a "market" where between the direct manipulation of all asset-prices by the firehose Fed and its peers, and the explicit rigging of stock prices by the HFTs, there is no such thing as a market left. Back then, we were called tinfoil something or another. Now that everyone admits the Fed's only purpose is to push asset prices higher, and the topic of HFT's rigging of markets is now a blockbuster book, those accusations have grown silent. In fact, the only thing that remains are the very loud screams as increasingly more often, some unknown or well-known trader and/or investor, with a several year delay, stumbles on our conclusion and realizes that the game (i.e., market) is so rigged, manipulated and broken, that the only winning move was not to play in the first place. Today's case in point Andrew Cunagin, the founder of Rinehart Capital Partners LLC, a hedge fund backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, and who as the Wall Street Journal reported earlier, is closing. The closure is not news: what Cunagin blames the closure on, however, is.

Poll after poll confirms what we're sure you’ve already been feeling. People are disenchanted with the existing system. They don’t trust the government, they don’t trust the banks, and they don’t trust the media. You can hear the rumblings of grumblings, and it’s only growing louder and louder. It doesn’t have to be this way.

Market reversions, when the occur, are extremely rapid and tend to leave a rather brutal "scar" on investment portfolios. There is clear evidence that economic growth is being impacted by deflationary pressures on a global scale. This suggests that the sustainability of current and projected growth rates of profits is questionable given the magnitude to which leverage has been used to boost margins through share repurchases. Here are three things to consider that may help you question your faith.

Sure, it could be front-running the inevitable post-product-launch "it's great but not that great" sell-off... but one wonders if more is at play here...

Some believe that actions today were jointly agreed to by the Fed and ECB to allow the stimulus baton to be passed from one major central bank to another. Could this be to help ease the risk-off fallout that is likely to ensue in anticipation of the first Fed hike? Maybe the price action in US equity markets today should serve as an early warning signal.

Just when one thought the embarrassment for Obamacare, and its epically flawed website Healthcare.gov, which according to some accounts had over 100 million lines of code, the vast majority of which did not work as it is after all a government project, could not get any worse it just did following a report in the WSJ that the website which is reasonably expected to be the safest in the world (and at a price of over $500 million it should be the safest in the world) considering it holds not only the financial but personal and healthcare data of millions of Americans, has been hacked. According to the WSJ, a hacker broke into part of the HealthCare.gov insurance enrollment website in July and uploaded malicious software. And the punchline: neither the government, nor the security contractor, Blue Canopy Group, found out it had been hacked until two months later.

"The entire problem we face going ahead stems from the very idea of Karl Marx that government is capable of managing the economy either through communism or autocratic-socialism where the state dictates to the economy under the pretense of caring for the people, that has truly become a derivative of fascism where the state comes first."

Simply put, "Savers are being exploited by government under the pretense of managing the economy."