So…the US economy is allegedly in recovery… the financial markets are fixed… and all is well in the world. But the Fed cannot risk raising interest rates to normal levels because Wall Street has over $12 trillion (more like over $100 trillion) in derivatives contracts that could blow up.
The ragged Keynesian excuse that all will be well in Japan once the jump in the consumption tax from 5% to 8% is fully digested is false. Here’s the problem: this is just the beginning of an endless march upwards of Japan’s tax burden to close the yawning fiscal gap left after the current round of tax increases, and to finance its growing retirement colony. There is no possibility that Abenomics will result in “escape velocity” Japan style and that Japan can grow its way out of it enormous fiscal trap. Instead, nominal and real growth will remain pinned to the flatline owing to peak debt, soaring retirements, a shrinking tax base and a tax burden which will rise as far as the eye can see. Call that a Keynesian dystopia. It is a cautionary tale for our times. And Japan, unfortunately, is just patient zero.
After surging all week on the worst volume of the year, US equities hit an air-pocket of reality this morning as last night's news of a Russian 'invasion' was confirmed by Ukraine (and UK reporters), denied by Russia, and met with silence from the US. Of course, thanks to a handy VIXnado, stock bounced back to VWAP, stabilized and closed the week in the green. The last two weeks have been the best for 7Y bonds in 10 months as it closes back under 2% for the first time since Oct 2013. Amid all this chaos, the US dollar closed unchanged on the week (giving up mid-week gains) as AUD and CAD strength dominated EUR weakness. Gold and silver - after a quiet week - was clubbed lower in the pre-open. Gold and oil surged higher on the Ukraine news - closing marginally lower on the week. VIX was cranked down to an 11 handle before Ukraine hit, surged back over 14.5, then jerked lower to close 'weaker' than stocks imply. Once again, US stocks surged once Europe closed (and of course, the panic buying into close makes perfect sense).
Futures Continue Levitation On More "Deescalation" Hopes Despite UK Warning Russia Of "Serious Consequences"Submitted by Tyler Durden on 08/15/2014 07:05 -0400
There were headlines for everyone this morning, but especially for fans of what is increasingly known as Russia's "Schrodinger Invasion" of East Ukraine: one which may or may not be happening depending on i) one's point of view and ii) how one is observing it.
The record-breaking outflows in high-yield bonds are not the only indication that the U.S. economy could be on the verge of very hard times. Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked. For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse. Unfortunately, there are now a bunch of signs that this period of relative stability is about to end. The following are 14 reasons why the U.S. economy's bubble of false prosperity may be about to burst...
- Police fire tear gas, stun grenades at Missouri protesters (Reuters)
- Putin’s Pipeline Bypassing Ukraine at Risk Amid Conflict (BBG)
- Russia's Largest Oil Company Seeks $42 billion to Weather Sanctions (WSJ)
- Shells hit central Donetsk, Russian aid convoy heads towards border (Reuters)
- U.S. Tightens Sanctions, Putting More Russian Companies at Risk (BBG)
- How to Blindly Score 43% Profit Overnight in China Stocks (BBG)
- Tears guaranteed: San Diego Pension Dials Up the Risk to Combat a Shortfall (WSJ)
- Euro Recovery Halts as Germany Shrinks, France Stagnates (BBG)
- Billionaire Found in Middle of Bribery Case Avoids U.S. Probe (BBG)
- Hillary Clinton, Barack Obama 'Hug It Out' on Martha's Vineyard (WSJ)
Here Comes The European Triple-Dip: Negative German GDP Sends Bunds Under 1% For The First Time EverSubmitted by Tyler Durden on 08/14/2014 07:11 -0400
The hammer finally hit for Europe when overnight both Germany and France reported Q2 GDP prints that missed expectations, the first actually contracting at a 0.2% rate with consensus looking for -0.1%, while France remained flat vs expectations for a tiny 0.1% rise. As a reminder, this GDP is the revised one, which already includes the estimated contribution of drugs and prostitution, suggesting the actual underlying economic growth is far worse than even reported. Then again, this is hardly surprising considering all the abysmal data out of Europe and the rest of the world in recent weeks, and with the Russian trade war sure to trim even more growth, look for all of Europe to join Italy in its first upcoming triple-dip recession in history.
As Chinese Credit Plummets US Stocks Soar On Hopes Of More PBOC Easing; But Is Conventional Wisdom Again Wrong?Submitted by Tyler Durden on 08/13/2014 22:19 -0400
Conventional wisdom, now so habituated to getting all the cheap credit it can get, did not anticipate such a dramatic collapse in Chinese credit last month, is eagerly expecting a proportional response from the PBOC, one which would potentially involve significant easing, which is precisely what US equities priced in today when they closed near the highs of the day, even as there was not a single piece of good macroeconomic news overnight. Pretty cut and dry right? Well not really. Recall that as we reported in the last week of July something odd was revealed: namely that China quietly unveiled and implemented its Pledge Supplementary Lending line, or as it is increasingly better known: China's QE.
UPDATE: *BRAZIL PRES. CANDIDATE CAMPOS DIES IN PLANE CRASH: GLOBONEWS
Brazil's stock market is reeling this morning as rumors and now news hit that Brazilian Presidential candidate Eduardo Campos was on board a private jet that crashed in the city of Santos. Polls had put Mr. Campos head-to-head with Ms. Rousseff (but behind Ms. Silva). A police official in Santos said there were "certainly" fatalities in the crash, but could not say how many or provide any additional information. Campos had run on a platform of less government intervention and proposed a bill to ensure central bank indpendence.
If it was crashing German business confidence yesterday setting the somber mood for European economic "growth" in the second half, with a European GDP decline if not outright contraction now almost practically inevitable, then overnight it was disappointing data from virtually every other spot in the globe (and Europe again) to hammer the message in, starting with a historic 6.8% drop in Japanese GDP driven by a record plunge in consumption, quickly followed by total social financing out of China which in aggregate rose by only RMB273.1bn in July, or just 18% of what was expected, with missing industrial production and retail sales just the cherry on top. Then it was Europe's turn again, where June Industrial Production contracted -0.3% on expectations of a 0.4% increase, to set the stage for tomorrow's Eurozone GDP print which, following Italy's triple-drip recession shocker last week, probably means it will be not only Japan but also Europe which are about to have taken a sharp move for the worse. All of which of course, explains why just as Europe opened, the USDJPY blasted off and took both EuroSTOXX and US equity futures higher with it, and at last check ES was some 10 higher.
If the global equity "markets" were in need of a sharp "horrible news is great news" boost overnight, it came courtesy of Germany's ZEW investor confidence survey, which printed at a stunning 8.6, a plunge from the 27.1 in July and far below the 17.0 expected - the lowest print since December 2012 -largely suggesting that a European triple-dip is all but assured. And if that wasn't enough, strong language from John Kerry, assured to fan the flames of geopolitical instability, came hours ago when the US SecState said even more Russian sanctions may be coming. And just to make sure the NY Fed trading desk has to come up with a new narrative is the latest development in the Russian "humanitarian convoy" saga, which as we reported last night, has departed Russia but which Ukraine is now refusing to allow into its country. All in all, it's is setting up to be another super bullish day in the rigged markets for which all that matters is... Tuesday.
According to yesterday’s Wall Street Journal, the bailed out financial criminals at Goldman Sachs are set to launch the latest and greatest toxic derivative product directly into the portfolios of willing muppets the world over... and it all starts this September. Yes, it’s called the “Fixed Income Global Structured Covered Obligation,” (ironically close to the acronym FIASCO) and no, you will not have a clue what’s in it. No seriously, you won’t have a clue.
At the start of the year, Russia said 'nyet' to 132 Japanese cars imported through Vladivostok due to high radiation levels. Fast forward seven months and as AutoWeek reports, it appears the Japanese are up to their old tricks - desperate to make Abenomics look like it's working by jamming exports higher - a total of 70 used cars imported from Japan and found to have increased levels of radiation are being stored in Bishkek, Kyrgyzstan. The import of used Japanese cars is big business in Central Asia, especially in Mongolia and the Russian far-east regions, but several batches of cars have been seized by the government during the last three years - despite 'agreements' from Japan.
Despite the early volumeless lift, helped by USDJPY, it appears stock investors began to get the hint that the US economy (Stan Fischer), Iraq (coup), Ukraine (Russian will do it anyway), and Israel are not all fixed. Bonds rallied modestly early on ignoring the equity bounce and then as Europe closed (and a few Ukraine and Iraq headlines of reality hit), stocks leaked back off their highs. Treasuries end the day unchanged (5Y -1bps), Silver popped 0.75% back above $20, copper and oil modestly higher and gold down small to $1310. FX markets appeared quiet (USD ended practically unchanged) but EUR weakness was offset by CAD and SEK strength. S&P futures volume was 40% below average.
Deja vu all over again. Just as he stole the jam from the market's donut last week, NATO Chief Rasmussen has done it again:
NATO'S RASMUSSEN SEES "HIGH PROBABILITY" THAT RUSSIA COULD INTERVENE MILITARILY IN EASTERN UKRAINE
He also adds he sees no sign of troop withdrawal. So, despite the market's confidence that it's fixed and Putin has folded, it seems NATO is not so sure. Un-De-Escalation begins.