Archive - Mar 2015 - Story

Andreas Lubitz, the 28-year-old co-pilot who murder-suicided a plane full of 150 people into the Alps, had been judged to have suffered a "serious depressive episode" around the time he suspended his training in 2009, according to internal documents cited by Germany's Bild. As Reuters reports, Lubitz had broken off his training in 2009 and reportedly spent a year in psychiatric treatment but as the Lufthansa CEO noted, "After he was cleared again, he resumed training. He passed all the subsequent tests and checks with flying colors. His flying abilities were flawless." French Prime Minister Manuel Valls urged patience during the investigation but stated, "everything points to a criminal, mad, suicidal action that we cannot comprehend."

So much for the "self-sustaining", "escape-velocity" recovery. Again. After rising at an annualized pace of 4.6% and 5.0% in Q2 and Q3, the final Q4 GDP estimate (a number which will still be revised at least 3-4 times in the coming years), slid more than half to 2.2%, the same as the second estimate from a month ago, and below the consensus Wall Street estimate of 2.4%.

Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved. Russia sees the world as one in which multiple major powers can govern together. The US sees Russia as a power that must be defeated by any means necessary, and subdued. One of these worldviews must prevail in the end. Perhaps we won’t know which one that will be until the third power, China, raises its voice. What we do know is that Russia will back down only so far, and then it will no more.

While a source of much schadenfreude by its neighbors and casual onlookers, Turkey has become a glaring example of what happens to a formerly respectable nation as it devolves entirely into a banana republic with not only authoritarian overtones but a police state to boot. And earlier today, Turkey's conversion to a full blown police state was complete when, after weeks of heated debates and brawls in parliament, Turkey’s government passed a security package expanding police powers, along with an online surveillance law and a discretionary fund for President Recep Tayyip Erdogan to fund covert operations. 

• Google's new CFO to make $70 million (WSJ)
• Senate passes Republican budget with deep safety net cuts (Reuters)
• With Yemen strikes, Saudis show growing independence from U.S. (Reuters)
• Banks Slash Dividends as Loans Sour From Beijing To Pearl River (BBG)
• North American Railroads Caught by Speed of Crude-Oil Collapse (BBG)
• Japan’s Zero Inflation a Setback for Abenomics (WSJ)
• Cooperman Says U.S. Seeks Information About Omega Trades (BBG)

After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.

There’s no agency in government more vehemently opposed to ending the immoral and counterproductive “war on drugs” than the Drug Enforcement Administration (DEA). Now we know why.

“If you’re unhappy with what you’ve had over the last 50 years, you have an unfortunate misappraisal of life...  should all be prepared for adjusting to a world that is harder..."

Bloomberg estimates industrial output may have to be slashed by a fifth in order for Beijing to hit its own pollution targets and by up to 40% if China wants its citizens to be able to breathe the same air as the rest of the world.

Whether due to contagion from the surge in US Treasury yields or a double whammy of weak household spending and Retail Trade data indicating that Abenomics is an utter failure is unclear, but yields across the entire JGB complex are spiking by the most in over 2 years. 10Y yields are up almost 9bps (not much you say) except that is from 32bps to 41bps!! 2Y and 5Y JGB yields have roundtripped from last week's Fed-driven plunge. Is the BoJ/GPIF losing control of the largest and now most illiquid bond market in the world?

The last few days have been almost the worst for the Saudi Arabian stock market in 4 years. Between low oil prices, a new King's big social welfare budget, and now "war," it appears this year's dead cat bounce from last year's exuberance is dying rather rapidly. However, what is perhaps even more troublesome for The Kingdom than the net worth destruction and potential blowback from instigating war against the Houthis is the fact that this month saw the largest drop in foreign curreny reserves on record (over 15 years) for the Arab nation... somewhat suggesting capital flight on a scale never seen before in one of the richest states in the world.

China’s economy is slowing, and the debate is raging over whether the country is headed for an abrupt hard landing or whether the slowdown will stabilize into a soft landing that may already be underway. However it plays out, Schwab's Jeff Kleintop notes, one thing is clear: A return to the double-digit growth rates of years past seems unlikely. Demographics are destiny.. and China faces two unstoppable trajectories.

We're just a little over two weeks into PSPP and signs are already beginning to show that the ECB is effectively breaking the market. "The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system," Reuters notes.

BNP is out with a note calling China’s equity bubble “a microcosm for the overall economy: unsustainable growth in leverage masking ever-deteriorating fundamentals and increasing future downside risks. Margin purchases are now accounting for almost 20% of equities daily turnover which itself has soared to wholly unprecedented levels in another sign of self-feeding speculative frenzy. What happens next is clearly an ‘unknown-unknown’."

Did you know that the Russians have a massive underground complex in the Ural mountains that has been estimated to be approximately 400 square miles in size?  In other words, it is roughly as big as the area inside the Washington D.C. beltway.  Back in the 1990s, the Clinton administration was deeply concerned about the construction of this enormous complex deep inside Yamantau mountain, but they could never seem to get any straight answers from the Russians.  The command center for this complex is rumored to be 3,000 feet directly straight down from the summit of this giant rock quartz mountain.  And of course U.S. military officials will admit that there are dozens of other similar sites throughout Russia, although most of them are thought to be quite a bit smaller.  But that is not all that the Russians have been up to.