Frontrunning: February 13

  • Greece will do 'whatever it can' to reach deal with EU (Reuters)
  • ECB Urges Greek Political Deal as Emergency Cash Is Tight (BBG)
  • Fighting rages in run-up to Ukraine ceasefire (Reuters)
  • Eurozone GDP Picks Up, Thanks to Germany (WSJ)
  • Two J. P. Morgan Executives Connected to Asia Hiring Probe Pushed Out (WSJ)
  • Putin's High Tolerance for Pain and Europe's Reluctance to Inflict It (BBG)
  • Indigestion Hits Top U.S. Food Firms (WSJ)
  • Alibaba's Jack Ma seeks to reassure employees over U.S. lawsuits (Reuters)

German DAX Rises Above 11,000 For First Time After European GDP Surprises To Upside

Who would have thought all it takes for Eurozone Q4 GDP to print above expectations, even if by the smallest of possible margins - one which even the Chinese goalseek-o-tron bows its head down to in respect - which at 0.3% Q/Q was above the 0.2% expected and above Q3's 0.2%, was for Europe to admit it has finally succumbed to deflation. Oh, and for the ECB to admit the situation has never been more serious by launching Q€. Oh, and add the "estimated contribution" to GDP from hookers and drugs. Put all that together and on an annualized basis, the European economy grew by 1.4%. Whatever the reason, Q4 GDP was the best print since Q1, even as Germany blew not only consensus of 0.3%, but the highest GDP estimate of 0.6% out of the water when it reported that courtesy of a spike in spending, its economy grew by 0.7% in the fourth quarter, up from the near-recessionary 0.1% in Q3. That, together with QE and ZIRP now raging across the continent, was enough to push the DAX above 11,000 for the first time ever.

Traders Lose Faith In BoJ As Another Weak Japanese Auction Sparks JPY, JGB Turmoil

Yet another weak Japanese bond auction (this time 5Y maturity - lowest bid-to-cover and biggest tail since 2013), on the heels of last night revelations of a growing chorus of JPY-devaluation-fears has many wondering if the faith they placed in The BoJ's grandest experiment was wrong after all. With speculators now net short for Japanese stocks for the first time since Abenomics was unleashed, a series of weak bond auctions and a spike in JGB yields since the ECB unleashed QE, and now a surging JPY (tumbling USDJPY) as carry trader around the world pull back on leverage and exposure... perhaps - the idea that a nation can devalue itself into prosperity on the backs of the rest of the world was total idiocy after all and Kyle Bass' Potemkin Village is about to fall.

Is Russia Planning A Gold-Based Currency?

The “perfect-storm” of geopolitical instability, diplomatic isolation, severe currency depreciation, and economic decline now confronting Russia has profoundly damaged Moscow's international standing, and possibly for the long-term. Yet, it is precisely such conditions that may push the country’s leadership into taking the radical step that will secure its world-player status once and for all: the adoption of a gold-exchange standard.

A Father's Personal Struggle With The Vaccine Debate

Across these United States, a fierce vaccination debate has started to flare up, and straw-man arguments are being paraded around as the truth. Governor Chris Christie of New Jersey said he’s for a balanced approach, in which parents have some measure of choice. Parents living in the Christie regime don’t get full choice, but he is willing to grant them some measure of choice. Perhaps the citizenry’s ability to voice its perspective would suffice for the Governor, as long as they understand that he and his bureaucrat comrades have the final say. The debate to vaccinate or not to vaccinate is a distraction from the more important issue at hand: Who owns your body, you or the government?

"Independent" Fed Lobbies GOP Against Audit

Because nothing says "independence" like snuggling up to the newly Republican-controlled Congress. Having, in recent years, been accused of being too closely aligned with Democrats, WSJ reports that the Fed's "Liaison Office" - which lobbies for the bank's interest on Capitol Hill - has begun cultivatinmg relationships with the GOP in a desperate bid to evade Rand Paul's "Audit The Fed" Bill.

Greek Game Theory: "The Risk Of A Negative Outcome Is Higher Than The Market Thinks"

Essentially, our analysis suggests that there is a large divergence in the perceptions of both sides but the rational choice is to hold to their respective positions. In other words, our analysis of the payoffs suggest that the EU won’t offer debt relief and Syriza won’t back down from demanding it. Our fear is that the markets, inured by previous bailouts, expect the Greeks to cave, leaving the risk of an unexpected negative outcome in Europe is probably higher than what is currently being discounted. At the same time, EU policymakers are assuming that contagion will not occur, which may not be accurate.

2015 US Economic Data Is Worst Since 2009

As Steve Ricchiuto explained to a stunned CNBC audience, the US economy is not as awesome as the narrative would proclaim. In fact, based on the underlying data (as opposed to anecdotal perspectives like Jim Cramer this morning dismissing hard data - "I am no longer using these aggregate retail sales reports" - in favor of rose-colored glass half-full CEO expectations from earnings calls) 2015 has seen US macro data deteriorate and disappoint the most since 2006... and weakest absolute start to the year since 2009.

Fourth Turning: The Shadow Of Crisis Has Not Passed - Part 3

When you accept the fact history is cyclical and continuous linear progress is not what transpires in the real world, you free yourself from the mental debilitation of normalcy bias and cognitive dissonance. Things do get worse. There are dark periods of history and they recur on a regular cycle. And we are in the midst of one of those dark periods. This Crisis will not be resolved without much pain, sacrifice, bloodshed, and ultimately war. The American people have lost their ability to think, reason, question, do math, control their urges, defer gratification, or realize when they are being lied to by the people they elected to public office. A culture of ignorance, celebration of the absurd, salutation of stupidity, honoring of the inane, being mesmerized by electronic gadgets, and satiating their egocentric shallow impulses on social media, is a sure recipe for societal collapse.

The New-Normal Down-Under

If you thought the utter insanity of the new-normal's central-planner-driven "bad news is great news" inflate-a-thon was reserved for The Fed, think again... This week Australia has had the dubious honour of seeing a huge 'surprise' surge in its unemployment rate to a 13-year high at 6.4% (from 6.1%) - which was largely ignored by the cognoscenti as anomalous data, but really just shows the utter farce that seasonal adjustments have become on government data. Tonight something else happened... the Australian stock market has soared 11% in the last 2 weeks to its highest sincee May 2008. Welcome to the farcical world of modern finance...

Central Banks Buy The Second Most Gold In 50 Years: A Look At Who's Buying

After significant buying in recent years, some may have questioned if this would continue in 2014. The answer was loud and clear: central bank net purchases amounted to 477t over the year, 17% above 2013’s impressive 409t. This represents the second highest year of central bank net purchases for 50 years, after the 544t addition to global gold reserves reported in 2012.  Russia had by far the greatest appetite amongst those who raised gold reserves. The country accumulated an additional 173t (36% of total central bank demand in 2014) over a turbulent 12 months. 2014 was bookended by tension and uncertainty for the country: geopolitical antagonism with the Ukraine, and the resulting international sanctions, at the beginning of the year was followed by severe economic distress towards the end.

Financial Markets: Pinocchio’s Enchanted Island

We have been living in a new era of “fantasy finance” since the Fed officially intervened massively, in 2009, and since the non-official control of the gold price, in 2013. Investors are now thinking that everything is possible: stocks rising into infinity, oil being given to us by producers and refiners almost for free (it sells cheaper than mineral water), countries that can borrow at historically ri-di-cu-lous rates, and, no later than just a few days ago, a bank in Denmark that pays people to contract a real estate loan (negative rates) ! The financial world, with its lies and immoral management, has been transformed into a Pinocchio’s Enchanted Island... for adults !

The Central Planners Are Failing Fast

For the last few years, the mantra of central planners around the world has been "if at first you don't succeed... buy a bigger printing press." However, as Citi's Matt King notes, the following four charts show the monetary experiments are having less and less impact (on the real economy and the pretend stock-market-based one) as peak debt overhangs swamp anything but financial asset inflation.

3 Things - Uncomfortable Facts, 25-54 Employment, Houston RE

"...I believe that the Fed understands that we are closer to the next economic recession than not. For the Federal Reserve, the worst case scenario is being caught with rates at the 'zero bound' when that occurs. For this reason, while raising rates will likely spark a potential recession and market correction, from the Fed’s perspective this might be the 'lesser of two evils.'"

Now On The Endangered Species List: Bond Traders

The bond market may have gotten so fragmented in recent months that even Bloomberg was amazed at how little trading volume it necessary to make a price impact, the amount of bond traders (and certainly salesmen), and certainly their bonuses, appeared to only go up. "Appeared" being the key word, however, because as Bloomberg reports, "the average number of dealers providing prices for European corporate bonds dropped to a low of 3.2 per trade last month, down from 8.8 in 2009, according to data compiled by Morgan Stanley."

Dijsselbloem Pours Cold Water On Greek Compromise: "Don't Get Your Hopes Up"

Just over an hour ago, what appears to have been a strawman now was issued by Bloomberg via leaked sources from Greek and German officials that proclaimed talk of a "compromise" deal that makes everyone happy in Europe. However, as the leaders exited today's summit, the tone of their responses did not exactly sound compromise-prone:

*DIJSSELBLOEM SAYS GREECE PROCESS GOING TO BE V. DIFFICULT, "DON'T GET YOUR HOPES UP YET" ON GREECE
*MERKEL URGES GREECE TO MAKE UP ITS MIND SOON ON FINANCING

Hardly the resoundingly positive spin we saw earlier. Poland's Tusk, Finland's Stubb, and good old Juncker also chimed in with the latter commenting on Greece's "anti-social" behavior. Tsipras made some neutral statements, then came out swinging, "The MoU as we knew it is over. The same goes for the troika. All these years, the burden fell on the poorest. Our aim is to restore the sense of justice."