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China Industrial Commodities Collapse As Sentiment Tumbles To 15-Month Lows

Unlike the QE-lite-driven exuberance in Chinese stocks of the last few weeks (which faded dramatically overnight), China's industrial commodities (with near-record inventories) and seeing prices collapse. This may shock some who espy PMIs and government-created trade data and proclaim, China is fixed. In fact, as JPMorgan's China Sentiment Index (JSI) shows, things are anything but bright as it fell to the lowest since June last year (at 48.3 in August). Sales and margins are tumbling - despite supposedly lower input costs. Lastly, those focused on spot Yuan movements (strength in recent weeks) have suggested this also confirms China strength - inflows - but looking out 12-months shows the market is expecting a dramatic devaluation from current levels in the Chinese currency is coming.

With Half Of City Residents Delinquent, Detroit Restarts Water Shut-Offs

"Utility disconnection is always considered a last resort, obviously because of consequences for households," but as Detroit News reports, but water-providers can expect more controversy, as a month-long moratorium against shutting off water for those behind on their bills expired last night. Halting service to people that don't pay generate outrage among not just Detroit residents but a wider audience who proclaim 'water should be a right'. However, as one utility director noted, "We've seen a lot more payments...They need that little kick in the pants to get in here and do it." Water industry experts say cities with high delinquency rates sometimes have few other effective options for getting customers to catch up on their bills. Roughly half of Detroit’s 170,000 customers were delinquent as of last spring.

(Un)Comfortable Myths About High Yield Debt

There rarely seems to be a “reason” for why market crashes happen. Market observers are e.g. debating to this day what actually “caused” the crash of 1987. It is in the nature of the beast that once liquidity evaporates sufficiently that not all bubble activities can be sustained at once any longer, bids begin to become scarce in one market segment after another. Eventually, they can disappear altogether – and sellers suddenly find they are selling into a vacuum. Once this happens, the usual sequence of margin calls and forced selling does the rest. Risk premiums normalize abruptly, and there doesn't need to be an obvious reason for this to happen. Compressed risk premiums can never be sustained “forever”.

De-Escalation Algo Pushes Futures To Overnight Highs

It is unclear exactly why stock futures, bonds - with European peripheral yields hitting new record lows for the second day in a row - gold, oil and pretty much everything else is up this morning but it is safe to say the central banks are behind it, as is the "de-escalation" algo as a meeting between Russia and Ukraine begins today in Belarus' capital Minsk. Belarusian and Kazakhstani leaders will also be at the summit. Hopes of a significant progress on the peace talks were dampened following Merkel’s visit to Kiev over the weekend. The German Chancellor said that a big breakthrough is unlikely at today’s meeting. Russian FM Lavrov said that the discussion will focus on economic ties, the humanitarian crisis and prospects for a political resolution. On that note Lavrov also told reporters yesterday that Russia hopes to send a second humanitarian aid convoy to Ukraine this week. What he didn't say is that he would also send a cohort of Russian troops which supposedly were captured by overnight by the Ukraine army (more shortly).

Gold, & Silver Jump As Citi Sells All USD Positions Fearing "Squeeze"

UPDATE: Every dip is to be bought... USD now higher and gold, silver lower

After a week of punishment, precious metals are kneejerking higher this morning on the heels of a Citi FX note explaining they are cutting all USD longs - "This is an opportunistic exit as we feel we may be due for a squeeze of USD long positions similar to what happened at this point in the cycle last year." The USD Index is sliding quickly and Treasury yields inched higher (but remain -1.5bps despite equity strength).

S&P 500 To Rise Above 2000 On Hopes Euro Collapse Accelerates, Euro Yields Hit New Records

It's been one of those days. First, the CME broke for 4 hours due to what some suggested were HFT connectivity issues, then Russia announced it would send a second humanitarian convoy into Ukraine (a big risk off move the first time it was announced, now not even an algo stirred), then Germany reported that the IFO Business Confidence/Climate dropped for the fourth consecutive month to 106.3 from 108.0, below the 107.0 expected, with the IFO chief economist stating that German GDP expectations are likely to be cut to 1.5% from 2.0% later in the year, and finally the French government collapsed due to disagreement over policy between finance minister Valls and economy minister Montebourg. All in all, a typical day in Europe's slow-motion implosion. So why are Spanish and Italian bank stocks soaring and European bond yields reaching new record highs? Simple: following Draghi's speech on Friday at Jackson Hole, which at initial read was hardly as dovish as many had expected, the FT and various other media outlets promptly changed the narrative and made it seem as if the ECB head was about to unleash QE.

Immigration For Republicans

This essay is not intended to address a crisis that may be occurring on the border at this time. We make no comment on that. Nor does it discuss the issues around war, such as how to deal with citizens of enemy nations. This essay is not a policy proposal, it does not set out, for example, when an immigrant can become a citizen and attain the vote or what to do to immigrants who commit crimes. It has but one purpose: to enumerate and respond to the common arguments used in favor of an impenetrable and guarded border fence to shut down immigration.

Ukraine: A Perspective From Europe

It is clearly not in the interests of the long-standing members of the EU to escalate a 'sanctions and financial conflict' with Russia. This is why politicians are walking on eggshells, paying lip-service to America and the scared Eastern fringe members of NATO while hoping this goes no further. So long as this is the case it is clear that NATO members are powerless to stop Russia from wresting control of all or parts of Ukraine from the government in Kiev. Putin knows this; unfortunately it is not clear to us that the American government does. All in all it seems likely that after a period of slow-burn as Putin dictates the pace of developments, the political situation in Ukraine will deteriorate with some unhelpful nudges from Russia.

Futures Tread Water As Ukraine Tries To Steal The Jackson Hole Scene

While today's key events were supposed to be the Jackson speeches first by Janet Yellen at 10:00am Eastern and then by Mario Draghi at 2:30 pm, Ukraine quickly managed to steal the spotlight yet again when moments after the first Russian humanitarian aid convoys entered Ukraine allegedly without permission, Kiev first accused Russia of staging a direct invasion, even if moments later it changed its tune and said it had allowed the convoy in to "avoid provocations." In other words, your daily dose of Ukraine disinformation, which initially managed to push futures down some 0.3% before futs regained virtually all losses on the subsequent clarifications. Expect much more conflicting, confusing and very provocative headlines out of Kiev as the local government and the CIA try to get their story straight.

Futures Levitate To Fresh Record Highs On Just Right Mix Of Bad News

With the FOMC Minutes in the books, the only remaining major event for the week is the Jackson Hole conference, where Yellen is now expected to talk back any Hawkish aftertaste left from the Minutes, and which starts today but no speeches are due until tomorrow. And while the Minutes were generally seen as hawkish, stocks continue to levitate, blissfully oblivious what tighter monetary conditions would mean to an asset bubble, which according to many, is now the biggest in history. And speaking of equities, US futures climbed to a fresh record high overnight on just the right mix of bad news.

Frontrunning: August 20

  • Ferguson at Turning Point After Night of Relative Calm (BBG)
  • Gaza war rages on, Hamas says Israel tried to kill its military chief (Reuters)
  • Surge in Putin Patriotism Masks Pain of Sanctions (BBG)
  • Bank of England splits over rate hike for first time in 3 years (Reuters)
  • Putin Meeting Leaves Kiev With Tough Choices (WSJ)
  • European Gas Reverses Biggest Drop Since 2009 on Ukraine (BBG)
  • "Isolation"  Mongolia Seeks Economic Lifeline With Pivot to China, Russia (BBG)
  • Uber Picks David Plouffe to Wage Regulatory Fight (NYT)
  • China Levies Record Antitrust Fine on Japanese Firms (BBG)

Futures Flat With All Headline-Scanning Algo Eyes On Today's FOMC Minutes

While everyone's (algorithmic) attention will be focused on today's minutes from the July 29-30 FOMC meeting for views on remaining slack in U.S. economy following recent changes in the labor market (especially a particularly solid JOLTS report which indicates that at least on the openings front, there is no more) and any signal of policy change by the Fed ahead of Fed Chair Janet Yellen’s speech in Jackson Hole on Aug. 22, a curious thing happened overnight when a few hours ago the BoE's own minutes show the first vote split since 2011, as Weale and McCafferty argue for a 0.75% bank rate. Then again, if the Russians are finally bailing on London real estate, the inflationary pressures at the top of UK housing may finally be easing. In any event, every FOMC "minute" will be overanalyzed for hints of what Yellen's speech on Friday morning will say, even if stocks just shy of all time highs know quite well she won't dare say anything to tip the boat despite her warnings of a biotech and social network bubble.

Why So Much Anger In Ferguson? 10 Facts About The Massive Economic Gap Between White & Black America

When people feel like they don't have anything else to lose, they are likely to do just about anything. Many in the mainstream media seem absolutely mystified as to why there is so much anger in Ferguson, but as I pointed out yesterday, all of this anger did not erupt out of a vacuum. Economic conditions in Ferguson, and for African-Americans as a whole, have been deteriorating for years. Sadly, many white Americans are totally oblivious to any of this.

Fed Fueled M&A Destroys Capital

The world’s central bankers have given companies the urge to merge. Merger and Acquisition (M&A) activity has already reached $2.2 trillion this year according to Thomson Reuters Deals Intelligence, up 70% from this time a year ago. The deals are big, with eight acquisitions, each over $5 billion, being announced in just a single week in July. However CEO buying sprees do not create new jobs and new products that make our lives better, but are instead just wasteful malinvestments that destroy capital. The cost of capital is integral to making these assumptions. The lower the assumed interest rate or cost of capital, the higher the price for the acquisition that the models will justify. Once interest rates go up, these valuation models will be blown to pieces.