- J.P. Morgan's Dimon Describes Year of Pain (WSJ)
- SAC Faces a Final Reckoning for 14 Years of Insider Scam (BBG)
- New Standards for $693 Trillion Swaps Market Increase Risk of Blowup (BBG)
- China says no major stimulus planned; March trade weak (Reuters)
- As we said in 2012 would happen: Record Europe Dividends Keep $3 Trillion From Factories (BBG)
- Blame it on the algo: Deutsche Bank Said to Find Improper Communication in FX Case (BBG)
- Coke Sticks to Its Strategy While Soda Sales Slide (WSJ)
- Ukraine’s Rust Belt Faces Ruin as Putin Threatens Imports (BBG)
- RBC Joins Goldman in Suing Clients After Singapore Crash (BBG)
- U.S. House panel to look at aluminum prices, warehousing (Reuters)
- Brooklyn Apartment Rents Jump to a Record as Leases Surge (BBG)
Dr Faber discussed the importance of not owning gold stored in the U.S., the mystery of the Fed gold, why Singapore is safest for gold storage, the risks of bitcoin and how small countries should revert to national currencies. The must watch interview can be watched here ...
China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities. To worry or unwind? How much debt can China really absorb?
Jim Rickards said that gold should remain an essential part of diversified portfolios and Mark Faber pointed out that the question should be “how could you NOT own gold?” Faber has said that he favors owning gold in fully allocated gold accounts in Singapore and Switzerland.
While everyone was gushing over the spectacle on TV of a pro-HFT guy and anti-HFT guy go at it, yesterday afternoon we reported what was by far the most important news of the day, one which was lost on virtually everyone if only until this morning, when we reported that "Monetary Blockade Of Russia Begins: JPMorgan Blocks Russian Money Transfer "Under Pretext" Of Sanctions." This morning the story has finally blown up to front page status, which it deserves, where it currently graces the FT with "Russian threat to retaliate over JPMorgan block." And unlike previous responses to Russian sanctions by the West, which were largely taken as a joke by the Russian establishment, this time Russia is furious: according to Bloomberg, the Russian foreign ministry described the JPM decision as "illegal and absurd." And as Ukraine found out last month, you don't want Russia angry.
After ramping in overnight trading, following the spike in Japanese stocks following another batch of disappointing economic data out of the land of the rising sun and setting Abenomics which sent the USDJPY, and its derivative Nikkei225 surging, US equity futures have pared some of the gains in what now appears a daily phenomenon. Keep in mind, the pattern over the past 6 consecutive days has been to ramp stocks into the US open, followed by a determined fade all the way into the close, led by "growthy" stocks and what appears to be an ongoing unwind of a hedge fund basket by one or more entities. Could the entire market be pushed lower because one fund is unwinding (or liquidiating)? Normally we would say no, but with liquidity as non-existant as it is right now, nothing would surprise us any more.
If the current pace of reductions continues it is reasonable to assume that the Fed will terminate the current QE program by the October meeting. If we assume the current correlation remains intact, it projects an advance of the S&P 500 to roughly 2000 by the end of the year. But... the question is, can the US economy can stand on its own when QE completely winds down, not to mention when the Fed actually hikes rates? Amid such weak levels of economic growth does not leave much wiggle room to absorb an exogenous event, or even just a normal downturn, in an economic cycle. If the Fed is indeed caught in a liquidity trap, then the current withdrawal of support will quickly show the cracks in the economy pushing the Fed back into action. It is at the point of "monetary impotence" where the word "risk" takes on a whole new meaning.
Let the fun begin.
This is the way the world ends Not with a bang but a whimper. ~ T. S. Eliot
Last week, after western sanctions against Russia expanded to include not only the first financial institution, Bank Rosiya, but also SMP bank whose main shareholders were on the sanctions list, unexpectedly both Visa and MasterCard halted providing transaction services to the two banks, without providing an explanation. Over the weekend, one of the banks got its full credit card functionality back after Visa Inc and MasterCard both resumed services for payment transactions for clients at Russia's SMP bank. What was the purpose of this escalation? Simple: as Reuters reports, SMP Bank said on Monday around 9 billion roubles ($248 million) had been withdrawn by depositors since U.S. sanctions were announced last week. Washington imposed sanctions on Thursday against 20 Russians close to President Vladimir Putin over Moscow's involvement in the Ukraine crisis, including Boris Rotenberg and his older brother Arkady, the co-owners of SMP Bank. SMP CEO Dmitry Kalantyrsky told a news conference that an estimated 4 billion roubles had been withdrawn by individuals and 5 billion by organisations. In other words, the staggered escalations against Russian banks, to which credit card processors have joined without any specific reason, were meant solely to incite a bank panic and to promote bank run conditions. With SMP this succeeded partially, with quarter of a billion withdrawn, however hardly enough to cripple the bank. At least for now.
- Australia says nothing spotted in search for plane (AP)
- Putin looks to Asia as West threatens to isolate Russia (Reuters)
- China Billionaire Builds Metals With Dreyfus, Glencore Hires (BBG)
- China Beige Book Says Economy Slowing (BBG)
- Caterpillar Said to Be Focus of Senate Overseas Tax Probe (BBG)
- US Cancels Summit With Divided Group of Gulf Nations (WSJ)
- Cyprus defense minister suffers aneurysm (AP)
- Abe to zero in on economy as tax hike looms (Nikkei)
- Europe strikes deal to complete banking union (Reuters)
Each time the Fed has lowered the overnight lending rate, the next set of increases have never exceeded the previous peak. This is due to the fact, that over the last 35 years, economic growth has been on a continued decline. Increases in interest rates are not kind to the markets either. Each time the Fed has started increasing the overnight lending rates. Each time has seen either market stagnation, declines, or crashes. Furthermore, it is currently implied that the Fed funds rate will increase to 3% in the future, yet the current downtrend suggests that an increase to 2% is likely all that can be withstood. According to Jim Cramer last night, he said the idea of rising interest rates shocked the markets, however, in the long-term it's a positive sign. Rates rise as the economy does better. The assumption he makes is that as the economy "catches fire" and corporate profits increase, then it is natural for interest rates to rise also. If a growing economy is a function of expanding profitability, then what is wrong with the chart below...
One of the primary drivers of the real estate bubble in the past several years, particularly in the ultra-luxury segment, were megawealthy Chinese buyers, seeking to park their cash into the safety of offshore real estate where it was deemed inaccessible to mainland regulators and overseers, tracking just where the Chinese record credit bubble would end up. Some, such as us, called it "hot money laundering", and together with foreclosure stuffing and institutional flipping (of rental units and otherwise), we said this was the third leg of the recent US housing bubble. However, while the impact of Chinese buying in the US has been tangible, it has paled in comparison with the epic Chinese buying frenzy in other offshore metropolitan centers like London and Hong Kong. This is understandable: after all as Chuck Prince famously said in 2007, just before the first US mega-bubble burst, "as long as the music is playing, you've got to get up and dance." In China, the music just ended.
"Print Yellen Print" - Meanwhile Russia Warns U.S. Sanctions "Unacceptable", Threatens “Consequences”Submitted by GoldCore on 03/19/2014 15:03 -0400
Russian Foreign Minister Sergei Lavrov told U.S. Secretary of State John Kerry that Western sanctions over the Crimea dispute were "unacceptable" and “will not remain without consequences." Geopolitical risk shows the importance of owning gold as a hedging instrument and safe haven diversification. As does Yellen's confirmation today that she is going to "print baby print".
In case you misunderstood and judged the market's reaction to Janet Yellen's first FOMC statement, the ultimate Fed mouthpiece is out with a few clarifying words (well 712 words posted in under 4 minutes). The Wall Street Journal's Jon Hilsenrath clarifies "The Fed stressed it has not changed its plan to keep interest rates low long after the bond-buying program ends," and added further that "the Fed said explicitly for the first time that it likely would keep short-term rates lower than normal, even after inflation and employment return to their longer-run trends." While noting a bigger consensus of members around a 2015 rate 'liftoff', Hilsenrath is careful to point out that the Fed also blamed the weather for not having a clue.