Archive - Apr 2015 - Story

We warned last week that capital controls were inevitable and it apears the first steps have been taken (very quietly):

*GREECE ISSUES DECREE: LOCAL GOVTS OBLIGED TO TRANSFER DEPOSIT RESERVES AT CENTRAL BANK

So, following the pension fund raid, the Greek government is now centralizing all Greek cash citing an “extremely urgent and unforeseen need.". One wonders if this is Krugman's "advice."

The built-up tensions and fragilities are begging for release. The unfortunate consequence of not allowing the process of “creative destruction” to occur in banking and Big Business is that the historic forces behind it will seek expression elsewhere in the realm of politics and governance. The desperate antics of central banks to cover up financial failure can’t help but provoke political upheaval, including war.

"Ultimately, the current QE programs will fail. I think most likely through a large devaluation in the emerging market currencies.  Having dodged and parried so many blows from Central Bank QE programs, the market is seemingly failing to break higher. Breadth is narrowing in the US stock market, and credit spreads widening. Economic data, with the exception of jobs, which is a lagging indicator, indicate the US economy is peaking. To me it looks like the US and China might go into recession at the same time."

Does this behavior look like a market that is pricing-in a Fed rate hike?

As the head of Russian gas giant Gazprom, Alexei Miller, arrives in Athens tomorrow (for talks with Greek PM Tsipras about "current energy issues of interest," which we suspect will include finalizing the "Turkish Stream" pipeline heralded by many as Greece's potential get-out-of-Troika-jail-card), he will face an increasingly anxious European Union. Fresh from its suit against Google, the WSJ reports, the EU's competition regulator plans to file formal antitrust charges against Russia’s state-owned gas company OAO Gazprom on Wednesday. This re-opens a suit from 2012 saying that it suspected the company of abusing its dominant position in those countries’ natural-gas supply. It appears Europe is getting nervous...

Mission Accomplished?

Either join the disruptors or prepare to be disrupted.

With escorts forced to travel and with spending on alcohol and gambling on the decline, there's still one area of the vice economy which offers a compelling investment opportunity and thanks to Bloomberg, we now know which 55 stocks to focus on in order to capitalize off of the rise of legalized marijuana. 

Because... fun-durr-mentals...

What are the prevailing pain trades at this moment? According to BofA's latest fund manager survey, investors are positioned for i) more asset reflation, ii) stronger US$ and iii) rising rates. "So weak US growth, a rise in EU rates & stronger Chinese production would be painful in coming weeks."

Somewhat ironically, given that April 20th is Hitler's brithday, one of Greece’s most important political trials against current and former MPs and members of neo-nazi Golden Dawn started this morning. Party leader Nikos Michaloliakos and 68 other defenders stand trial on felony charges for having established a criminal organization, having committed several racists attacks and murder and the procession of weapons. The trial takes place in a special courtroom built inside high security prison Korydallos in western Athens. Several antifascists groups and Golden Dawn supporters gathered outside the prisonand violence broke out leading to the decision, two hours after the trial began, to adjourn until May 7th 2015  for "procedural reasons."

For the 2nd day in a row, WTI crude prices are falling (back below $55) after Saudi Arabian Oil Minister Ali al-Naimi said production in the world's biggest crude exporter would stay near record peaks around 10 million barrels per day in April. The investment community remains divided over the future (perhaps more a reflection of time horizons): BofA notes Large Speculators bought crude contracts for the 3rd consecutive week - the longest streak since June 2014; but Blackstone (among other private equity firms) have stayed on the sidelines (despite plenty of cash to put to work) as public markets have exuberantly filled the void so far this year: Oil producers have been able to “raise a lot of debt and, in some cases, equity publicly at values that we wouldn’t touch."

In January when we first brought news of one of China's largest developer's inability to cover interest payments on its debt, we raised the question of who's next. Now that it is official - China's first major developer to default on its US currency debt - and property prices are falling at a record rate, we suspect the likes of Wanda and Agile will also start to collapse once again (after being bid up incredibly amid China's latest exuberant bubble). Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market.

In a recent blog post, Citadel's latest trader and part-time Brookings blogger, Ben Bernanke, asks "does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today."We, on the other hand are skeptical of Bernanke's skepticism, for one simple reason: reality.

While this week sees the peak of Q1 earnings season, it will be a generally quiet week on the macro economic front for both EM and DM, with the emphasis on the latest seasonally adjusted manufacturing sentiment surveys, US durables and Japan trade.