Archive - Jun 2015 - Story

March's exulted bounce in Durable Goods faded rapidly into April's disappointing drop and today we see May disappoint further with a 1.8% drop (against expectations of a 0.1% drop) having missed 5 of the last 7 months. Revisions are big and negative... so that's not helping and has pushed Durable Goods Orders NSA down 5.0% YoY - the largest 10-month slump since Dec09... the last time we dropped this much, The Fed unleashed QE3. Durable Goods Ex Transports and Core Capex are also both down YoY for 4 months in a row, flashing recessionary red.

With an agreement in principle on the table, Greek PM Alexis Tsipras now turns his weary eyes towards Syriza party hardliners whose support he will need in order to pass the new deal through parliament. Should the political stalemate prove intractable, Greece may need to call a referendum or snap elections.

Over the past 6 weeks, the Industrial Metals Index has gotten pummeled, losing its entire post-”false breakdown” gains... and that downside could mean more than just losses in this space – it could be a warning sign for global economic demand.

• Greek offer to creditors runs into angry backlash at home (Reuters)
• Tsipras Seeks to Stave Off Greek Defections Over Aid Plan (BBG)
• Austria finmin says no agreement on Greek proposals without concrete plan (Reuters)
• Another ELA raise, this time under €1 billion: ECB raises emergency funding for Greek banks (Reuters)
• Greek energy, foreign ministers divided on Russia gas deal (Reuters)
• China’s Plan for Local Debt Amounts to a Bailout (WSJ)
• Key Democratic senators back plan for trade legislation (Reuters)
• South Carolina Governor: Time to Furl Flag (WSJ)

Before taking a look at Europe, an update on China. Just a few short hours ago, when looking at the bursting of the Chinese bubble where stocks were down between 3% and 5% across the board in the first post-holiday trading session after the worst week in 7 years, we said that "without assistance (levitation) from the same PBOC that just clamped down on liquidity, the China bubble has burst." And then as if by request, minutes later we got, drumroll, levitation and the stickiest stick-save by the PBOC seen in months, when the Shanghai Composite staged an unprecedented 7% surge from the lows to close 2.2% higher after tumbling as much as 5% earlier in the session. And just like that, faith in the "wealth effect" is preserved.

“If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” TCW's Jerry Cudzil tells Bloomberg, adding that the firm is "as defensive as [it's] been since pre-crisis.”

Under pressure from all sides (and most importantly from Mario Draghi who holds the fate of the Greek banking sector in his hands) Greece looks to have folded and is now set to accept an extension of its current bailout program. PM Alexis Tsipras now faces an uphill battle to unite Syriza around what is likely to be an unpopular agreement. If he fails, the country could plunge into political and social turmoil. 

Just when you thought it was safe to buy the 12% collapse (the biggest since Lehman) in Chinese stocks, they re-plunge another 3-4% with no dip-buyers evident. The drivers are twofold: first, China PMI beat expectations modestly (uh oh no more QDII, QE, PSL, etc.); and second - and much more critically - The PBOC Operations Office has called for stricter regulation of brokerage liquidity (implicitly clamping down on the seemingly infinite expansion of margin lending required to fuel the boom). CHINEXT has entered a bear market (down 21.5%) and the rest of the Chinese complex is down 3-5% today (down 15-20% from the highs).

Wherever government officials sense a credible threat to their power, they invariably take every opportunity to crush it by any means necessary: this is the first principle of how governments function, and every libertarian is all too familiar with it. this latest tragedy, you can be sure, will be used to accomplish the same anti-libertarian ends: the calls to investigate “hate groups,” and even to ban “hate speech,” are already being heard. Of course, who and what constitutes a “hate group,” and who is hating whom are subjective evaluations that no government official is qualified to make...

In a remarkable document, which is not posted at the English version of the website of the Constitutional Court of Ukraine, but which is widely reported outside the United States, including Russia, Poroshenko, in Ukrainian (not in English), has petitioned the Constitutional Court of Ukraine (as it is being widely quoted in English):  "I ask the court to acknowledge that the law ‘on the removal of the presidential title from Viktor Yanukovych' as unconstitutional.”

In principle, there could not be a more spectacular game-changer-in-waiting. A royal Saudi caravan offering tribute, in the form of incense, gold and myrrh (or higher oil prices)? No one knows, yet, how this will play out in the New Great Game in Eurasia, of which a major spin-off is Cold War 2.0 between the US and Russia. Putin and King Salman – very discreetly — had been in touch over the phone for weeks. The King’s son invited Putin to Riyadh. Accepted. Putin invited the King to Moscow. Accepted. But is this real life? Or smoke and mirrors? Who's allied with whom?

There are effectively no tools left for governments and central banks to deal with another major crisis. Like Paris in 1940, they have no Plan B. They’re completely defenseless to support the financial system or the currency in the event of a major shock. We should all take a moment to appreciate this level of incompetence. This doesn’t happen overnight. It takes decades of “blunder and neglect” to engineer financial vulnerability on this scale. But they’ve somehow managed to pull it off.

Caught on tape: "Peak" Banker (again)

“The real problem is the following: we have paleolithic emotions; medieval institutions; and god-like technology. And it is terrifically dangerous, and it is now approaching a point of crisis overall.”