Archive - Jul 2015 - Story

Unfortunately for millions of people living in east Ukraine nothing has been resolved and every new day continues to be one filled with dread and fear just where may death come from next. Nowhere is this seen better than in the following dramatic video clip released moments ago which captured a Ukraine artillery shell flying mid-air through a Donetsk residential region, just an instant before it strikes its target. The dramatic moment can be seen 1 minute 37 seconds into the clip below.

... of the 6,657 days since 1965 when the S&P 500 closed up, Friday had the 6,627th worst breadth... the last 12 times this situation occurred, the S&P 500 was lower 3 weeks later each time by an average of 4%. Also of note, for what it is worth, this is the closest to a 52-week high the S&P 500 has ever been on any of the occurrences.

While Abenomics has been an unmitigated disaster for Japan's ordinary population, where the soaring stock market has benefited the top decile of the population while everyone has been slammed by a record 25 consecutive months of declining real wages and soaring input costs, there had been one bright spot: corporate earnings. Then on Friday, a report out of Reuters caught our attention when news hit that 140 year old electronics conglomerate, and "pillar of Japan Inc", Toshiba had inflated profits by a stunning $1.2 billion for a whopping 7 years, with fabricated figures amounting to 30% of the company's "profits" since 2008!

My own most likely Grexit scenario is a different one yet again. Donald Tusk, the president of the European Council, hinted at this in his interview with the Financial Times last week when he said that he felt "something revolutionary" in the air. He is on to something. The most probable scenario for me is Grexit through insurrection.

• Gold claws back ground, European assets lose Greek tarnish (Reuters)
• Greece's Euro Exit Back on the Agenda Next Year, Economists Say (BBG)
• Greece submits bill needed to start rescue talks (Reuters)
• Wall Street Lenders Growing Impatient With U.S. Shale Revolution (BBG)
• Overtime Rules Send Bosses Scrambling (WSJ)
• As Markets Swing, Beijing Steadies Yuan (WSJ)
• Tennessee rampage suspect went to Qatar in 2014 (Reuters)
• Kathryn Dominguez to Be Nominated for Fed Governor (WSJ)

If yesterday's market action was boring, today has been a virtual carbon copy which started with the usual early Chinese selloff levitating into a mildly positive close, with the SHCOMP closing just above the psychological 4,000 level: the next big hurdle will be 4058, the 38.2% Fib correction of the recent fall. In the US equity futures are currently unchanged ahead of a day in which there is no macro economic data but lots of corporate earnings led by Microsoft, Verizon, UTX and of course Apple. Most importantly, some modest USD weakness overnight (DXY -0.1%) has helped the commodity complex, with gold rebounding from overnight lows, while crude has at least stopped the recent carnage which sent WTI below $50.

"If these people are ... disloyal to the United States, as a matter of principal that’s fine, that’s their right... It’s our right and our obligation to segregate them from the normal community for the duration of the conflict."

Capital controls imposed by the Greek government are taking a heavy toll on Greek businesses, according to a new report from Endeavour Greece. With over two-thirds of respondents reporting a "significant drop in revenues," and 1 in 9 firms forced to suspend production due to shortages of raw materials (unable to buy due to capital controls), the problems created by The Greek government's action seem asymmetric as almost a quarter (23%) of firms are now "planning to transfer their headquarters abroad for security, cashflow, and stability reasons."

The Obama administration is pushing to prohibit Social Security benefit recipients from owning firearms if they “lack the mental capacity to manage their own affairs,” a move which the Los Angeles Times reports would affect millions of people whose disability payments – for one reason or another – are handled by other people. The idea is to bring the Social Security Administration under the jurisdiction of laws that regulate who gets reported to the National Instant Criminal Background Check System (NICS), a database that was initially supposed to pertain to illegal immigrants, drug addicts, and felons. Of course, it should be pointed out that, with the exception of illegal immigrants, prohibiting American citizens who are not confined to a prison cell from owning weapons is itself unconstitutional.

While the rest of the world attempts to convince themselves that a Chinese stock market bubble and bust is at worst irrelevant, CapitalEconomics notes, evidence that the labor market is coming off the boil arguably matters more to China’s economy. Chinese stocks futures are down 2% in today's pre-open after yesterday's whipsaw action as 'exit plans' for the stabilization were discussed (dumping stocks) and then denied (surging stocks) shows just how fragile (and quickly and entirely addicted to China's new 'measures' investors have become); but as BofAML warned earlier, selling pressure will likely remain relentless. Now that the spell is broken, we expect that many holders may want to sell to the forced buyers in the market.

While we have shown previously that over the past 30 years median incomes in the US have barely grown (indicative of a middle class whose income has been largely stagnant for some 35 years), we have never before shown just what how this middle class "stasis" looks like in comparison to other developed nations. Now, thanks to Max Roser and "Our world in Data", we know. Sadly, in this particular sample of median income growth since 1980, the US is dead last, behind such countries as the UK, Canada and even Spain and France!

"Now that the spell is broken, we expect that many holders may want to sell to the forced buyers in the market. In addition, although difficult to assess accurately, due to a lack of data, we estimate that around 1/5 of the free float is still carried on margin. The high margin cost means that selling pressure is high as long as investors do not expect the market to go up significantly.we expect the market to experience another leg down, possibly within months."

We hope the Greek government is watching and learning, and taking appropriate measures so that it too can, at least once, prioritize its own people's needs over those of a global banking oligarchy.

Russian municipal bond risk is surging once again (at 6-week highs) heading towards crisis-levels as Bloomberg reports numerous regions (including Chukotka - across from Alaska, Belgorod -near Ukraine, and three North Caucus republics) are prompting concerns as debt-to-revenue levels top 100% (144% in the case of Chukotka). The clock is ticking for President Vladimir Putin to defuse a situation he set off in 2012 with decrees to raise social spending. That contributed to a doubling in the debt load of Russia’s more than 80 regions to 2.4 trillion rubles ($42 billion) in the past five years and it all rolls within the next two to three years.

Chinese Gold reserves jump 604 tons from 1,054 tons last reported in 2009 to 1,658 tons. Many gold observers ask: "Is that it"? Since 2009 China has mined over 2,000 tons of gold and imported over 3,300 tons of gold through Hong Kong*. Where did it all go?