Frontrunning: February 9

  • Greek Risk Draws Global Concern on Lehman Echo Warnings (BBG)
  • Merkel to urge caution in U.S. as pressure builds to arm Ukraine forces (Reuters)
  • West Races to Defuse Ukraine Crisis (WSJ)
  • German-French Push Yields Ukraine Summit Plan With Putin (BBG)
  • Swiss Leaks lifts the veil on a secretive banking system (ICIJ)
  • Italy Lenders Seen Cleansing Books Amid Bad-Bank Plans (BBG)
  • G-20 Finance Chiefs Face Tough Test in Istanbul (WSJ)
  • Demand for OPEC Crude Will Rise This Year, Says Group (WSJ)... or rather prays
  • U.S. Banks Say Soaring Dollar Puts Them at Disadvantage (WSJ)

Europe, US Risk Off After Greece Rejects European Ultimatum, Ukraine Peace Talks Falter

In the absence of any notable developments overnight, the market remains focused on the rapidly moving situation in Greece, which as detailed over the weekend, responded to Europe's Friday ultimatum very vocally and belligerently, crushing any speculation that Syriza would back down or compromise, and with just days left until the emergency Eurogroup meeting in three days, whispers that a Grexit is imminent grow louder. The only outstanding item is what happens to the EUR and to risk assets: do they rise when the Eurozone kicks out its weakest member, or will they tumble as UBS suggested this morning when it said that "the escalation of tensions between the Greek government and its creditors is so far being shrugged off by investors, an attitude which is overly simplistic and ignores the risk of market dislocations" while Morgan Stanley adds that a Grexit would likely lead to the EURUSD sliding near its all time lows of about 0.90.

Is This Who Is Managing EURUSD "Turmoil" Tonight?

With SNB's Danthine having proclaimed last week that, despite allowing Swissy to free-float again (with a soft corridor from 1.05 - 1.10), that "the SNB remains ready to intervene on foreign exchange markets" one could be forgiven for thinking that the Swiss National Bank is at it again tonight. The 'stabilitee' of EURUSD - trading in a narrow 45 pip range and holding very close to unchanged (as US equity futures slide, Treasuries rally and gold rises) seems a little too well managed tonight and one glance at EURCHF's "spikey-ness" suggests the visible hand of intervention at play...

The Singularity Is Already Here - It's Name Is Big Data

It seems like everyone and his brother today are wringing their hands about AI and some impending “Singularity”, a moment of future doom where non-human intelligence achieves some human-esque sentience and decides in Matrix-like fashion to turn us into batteries or some such. Please. The Singularity is already here. Its name is Big Data. Big Data is magic, in exactly the sense that Arthur C. Clarke wrote of sufficiently advanced technology. But here’s the magic trick that we're worried about for investors...

If Greece Exits, Here Is What Happens (Redux)

Now that the possibility of a Greek exit from the euro is back to being topic #1 of discussion, just as it was back in the summer of 2012 and the fall of 2011, and investors are propagandized by groundless speculation posited by journalists who have never used excel in their lives and are merely paid mouthpieces of bigger bank interests, it is time to rewind to a step by step analysis of precisely what will happen in the moments before Greece announces the EMU exit, how the transition from pre- to post- occurs, and the aftermath of what said transition would entail, courtesy of one of the smarter minds out there at the time (before his transition to a more status quo supportive tone), Citi's Willem Buiter, who pontificated precisely on this topic previously. Three words: "not unequivocally good."

Do You Believe In Miracles? 2015 Earnings Edition

Quarterly earnings fell (yes fell) 2% from Q4 2013 to Q4 2014 on an operating EPS basis, and as Goldman Sachs notes, was only saved from a much more disastrous fate by Apple. However, don't worry about the mother's milk of markets... From now on, everything looks awesome as the hockey-stick extrapolators project EPS growth to resume in its escape velocity gung-ho, higher interest rates are good way by year-end...

Europe Fractures: France Pivots To Putin, Cyprus Offers Moscow Military Base, Germany-US Splinter On Ukraine

Following yesterday's summary of the utter farce that the Minsk Summit/Ukraine "peace" deal talks have become, the various parties involved appear to be fracturing even faster today. The headlines are coming thick and fast but most prescient appears to be: Despite John Kerry's denial of any split between Germany and US over arms deliveries to Ukraine, German Foreign Minister Steinmeier slammed Washington's strategy for being "not just risky but counterproductive." But perhaps most significantly is France's continued apparent pivot towards Russia.

Violent Extremism & Europe's Economic Hardship

"Economic hardship is another piece of the puzzle governing the extent to which violent extremism takes hold of societies. Europe, in part because of the unintended (but entirely predictable) effects of the euro currency union, is in its seventh year of economic stagnation. Unemployment and underemployment are high, especially among the region’s youth. This economic environment is a foul ground in which anger and racial, religious and ideological hatreds flourish."

Citi Warns Chinese Stocks "Look Precarious", Fears 23% Downside Correction

The Chinese stock market is "looking prercarious" according to Citi FX Technicals' team. A bearish outside day on the Shanghai Composite could represent just the first of a series of technical patterns that suggest a potential 23% correction... as 100s of thousands of newly minted margin'd retail equity 'investors' find out the hard what a tap on the shoulder feels like. As Paul Sinder warned, "take a look at a chart of Chinese retail margin debt, but not just right before bedtime. It looks something like the U.S. figures heading for 1929."

Albert Edwards' On The Next Shoe To Drop: The Realization That Core Inflation In The US And Europe Are The Same

"The next shoe to drop will be the realisation that the US recovery is stalling and outright deflation is as big a threat there as it is in the eurozone. Indeed my former esteemed colleagues Marchel Alexandrovich and David Owen pointed out to me that if US core CPI is measured in a similar way to the eurozone (i.e. ex shelter), then US core CPI inflation is already pari passu with the eurozone ? despite the former having enjoyed a much stronger economy!"

Does Kyle Bass Pay His Taxes In Nickels?

"Don't mess with Texas," may be a dire warning to most but perhaps after this "don't mess with Taxes" would be more appropriate. In what must have most free-thinking libertarians smirking, a man in Texas was arrested this week for “disrupting the operation and efficiency” of the local tax office - by trying to pay his taxes in $1 bills. Which leaves us with one question... does Kyle Bass pay his taxes with nickels?

Guest Post: 5 Reasons To Buy Gold & Silver In 2015

“In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings. Aristotle (?2,400 years ago)

“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it. Alan Greenspan (2014)

US Equity Futures Are Sinking Despite EURUSD's "V-Shaped" Recovery

While we are sure the spin from any and every talking head will be that Grexit is overall positive for the Eurozone (until they see Podemos in the lead in the Spanish polls and Italy's Beppe Grillo previous threasts to "leave the Euro and bring down this system of bankers, of scum"), the early pressure to sell Euros (and not in a 'great news we are devaluing our currency and exports will be awesome way' - more a Venezuela 'get my capital away from this hell-hole' way) has been v-shaped recovered as, without doubt every central bank from Switzerland to Swaziland will be buying Euros tonight to maintain the illusion but for how long... While 'they' tried to save EURUSD, US equity futures aren't buying it (giving up the late-Friday Ukraine-is-solved and Dow is gren YTD surge) - The Dow is down 65 points, S&P down 8 points, and Nasdaq down 14 points.

Turkey Deputy PM Warns "The Polarization Of The Masses Frightens Me"

In the face of Turkish President Recep Erdogan's increasingly harsh rhetoric towards The West and slamming the central banks for its "independence" warning that it will "be held accountable" if the decision on interest rates is wrong - which has sent the Lira to record lows - Deputy Prime Minister Bulent Arinc appears to have come out today to try and calm the situation. Fearing that "Turkey could cease to be a governable country," Arinc called for a softening of political language, as he warns "the polarization of the masses, frightens me."

"Central Banks Have To Keep Fooling All Of The People All Of The Time"

Today's obvious mispricing of sovereign bonds is a bonanza for spending politicians and allows over-leveraged banks to build up their capital. This mispricing has gone so far that negative interest rates have become increasingly common. Macroeconomists will probably claim that so long as central banks can continue to manage the quantity of money sloshing about in financial markets they can keep bond prices up. But this is valid only so long as markets believe this to be true. Put another way central banks have to continue fooling all of the people all of the time, which as we all know is impossible.

Arthur Berman: Why Today's Shale Era Is The Retirement Party For Oil Production

Much of what's been 'sold' to us about the US shale oil revolution is massively over-hyped. The amount of commercially-recoverable shale oil is much less than touted, returns much less net energy than the petroleum our economy was built around, and is extremely unprofitable to extract for most drillers at today's lower oil price. To separate the hype from reality, Arthur Berman explains the recent US oil production boost from shale drilling as short-lived and somewhat desperate; a kind of last hurrah before the lights get turned out...