"It's not clear to us that breaking commercial ties with the Russia partners, consumers gets anyone to where they want to be," warns one political think tank as AP reports, The White House is considering imposing unilateral sanctions on Russia over its threatening moves in Ukraine - a move reflecting frustration at Europe's reluctance to bit off its nose to spite its face. Until now, the U.S. has insisted on hitting Russia with penalties in concert with Europe in order to maximize the impact, but, as Putin warned, those same economic ties have made Europe fearful that tougher penalties against Russia could boomerang and hurt their own economies. Obam has faced criticism over a lack of action, as Bob Corker blasted "sometimes I'm embarrassed for you, as you constantly talk about sanctions and yet, candidly, we never see them put in place," but the European 'concerns' are just as valid in America as Utilities in the U.S. are scrambling for coal, on pace to increase imports 26% this year.
- Secret Path Revealed for Chinese Billions Overseas (BBG)
- Traders Flood U.S. With $3.4 Trillion of Bond-Auction Demand (BBG)
- Just in time to cover bad earnings in a massive $3.8 billion "one-time charge": Citi says to pay $7 billion to settle securities investigation (Reuters)
- Troubled Epirito Santo family loosens grip on Portugal's BES (Reuters)
- BES puts in place new executives after central bank push (Reuters)
- Bank of China-CCTV drama may reveal power struggle in Beijing (SCMP)
- Portugal speeds up Banco Espírito Santo management changes (FT)
- Dark pool probe builds pressure on Barclays boss (Reuters)
- Russia Vows to Respond After Shelling From Ukraine (BBG)
- Ukraine forces end rebel airport blockade (Reuters)
- Obama Contends With Arc of Instability Unseen Since '70s (WSJ)
The UK had feared whiplash from sanctions on Russian oligarchs but this 'boomerang' is too much to bear... As Bloomberg reports, “We’re seeing a lot less Russian surnames on the booking sheet," at London's Mahiki, a Polynesian-themed nightclub in upmarket Mayfair where a bottle of Cristal Champagne goes for $719 - and Russian customers are being supplanted by revelers from countries including China and Nigeria. “The Russian market was like a Champagne fountain,” notes on ereveler, "The money was coming into the top and flowing down..." but not so much anymore...
"We’re in a world where there are very few unambiguously cheap assets...If you ask me to give you the one big bargain out there, I’m not sure there is one." But frustrating as the situation can be for investors hoping for better returns, the bigger question for the global economy is what happens next. How long will this low-return environment last? And what risks are being created that might be realized only if and when the Everything Boom ends?
Economic analysts are torn as to how important Saudi Arabia will prove to the global economy in years ahead. In the first half of 2014, the US surpassed Saudi Arabia to become the world’s foremost oil producer. This sparked widespread predictions that the US would soon become an oil exporter, reducing its dependency on Riyadh and harming Saudi Arabia’s leading role in the Middle-East. However, the ISIS invasion of Iraq and Syria, the Boko Haram insurgency and continued oil theft in Nigeria, unrest in Venezuela and ongoing violence in Sudan and South Sudan have changed the deal.
Is there any doubt that we are living in a bubble economy? At this moment in the United States we are simultaneously experiencing a stock market bubble, a government debt bubble, a corporate bond bubble, a bubble in San Francisco real estate, a farmland bubble, a derivatives bubble and a student loan debt bubble. And of course similar things could be said about most of the rest of the planet as well. And when these current financial bubbles in America burst, the pain is going to be absolutely enormous.
Just when we thought US foreign policy couldn't sink to new lows, it does just that. Recall yesterday's less than veiled threat by China president Xi Jinping Xi called for greater military communication with the U.S., adding that "A conflict between China and United States will definitely be a disaster for the two countries and the world. As long as we uphold mutual respect, maintain strategic patience and remain unperturbed by individual incidents and comments, we’ll be able to keep relations on a firm footing despite ups and downs that may come our way.” So what does the US do? Nothing short of taking a machete and poking the Dragon in the mouth.
"There is a colossal bubble in all asset prices and eventually it will burst," is the subtle recurring message from The Gloom, Boom, & Doom Report's Marc Faber, warnings that "maybe has begun to burst already." While Faber admits he has called for such a correction previously, he notes that the difference now is that "valuations are so much higher; and contrary to what the mainstream economists believe, I don't believe the global economy is strengthening; in fact I believe it is weakening." Furthermore, while "you never know what will trigger for a bull market or bear market is until after the fact," Faber offers 3 factors (aside from the Fed) that could trigger a 30% crash or more... beginning with "a) In The White House we have a very poor President - which will lead to political issues domestically in the US," which are not priced in.
The dollar's demise has been often foretold. The euro, SDRs, the yuan, Bitcoins all were going to be viable alternatives. The dollar persists.
This week was very busy with economic data. For the most part, the majority of the data came basically inline with expectations. However, the internals of the various reports were much less encouraging. The most noteworthy report, and the least important from an investment standpoint, was the monthly employment report which came in at 288,000 jobs for the month. As with the bulk of other reports, the more important details were lost to the headlines... full-time employment relative to the working age population has remained primarily stagnant since the financial crisis and actually fell in the latest month. This is a key reason why economic growth continues to struggle.
Is good news about to become the ultimate bad news. JPMorgan's Michael Feroli notes that (for the first time in recent memory) is pulling forward their projected date for Fed tightening and the inevitable end of the free-money cycle. Based on a belief in the committee's limited appetite to wait in inflation and today's report, JPMorgan notes a Q2 tightening seems plausible. Of course, this will be repeated mantra like as evidence of escape velocity and the status quo is back but, as we noted here, while policy economists claim that interest rates can be “normalized” at no cost; a more likely scenario is that policy “normalization” leads us directly into the next bust.
In Reality, War Will Bring An End to the Petrodollar, and Impose Hardship on the Average American ...
Alongside that other canard of global monetary machinations, Christine Lagarde (who oddly declared earlier that "the global economy will not return to 'pre-crisis' world" and asked if central banks need a 'financial stability goal' -mandating a market "put" of sorts); Fed head Janet Yellen will be addressing her peers at The IMF this morning. We expect a lot of "noise" comments, "lower for longer", "weather" excuses, and escape velocity is coming any minute as she desperately tries to keep the "don't worry, you will be ok without all our money printing" meme alive.
Is the New Normal of ever-higher stock valuations sustainable, or will low volatility lead to higher volatility, and intervention to instability? Though we're constantly reassured by financial pundits and the Federal Reserve that the stock market is not a bubble and that valuations are fair, there is substantial evidence that suggests the contrary.
It stands to reason that when the Fed eventually lifts interest rates, we’ll see the usual effects. After a sustained rise in rates, you can safely bet on: Fixed investment and business earnings dropping sharply; GDP growth following investment and earnings lower; Many people losing their jobs; and Risky assets performing poorly. These consequences follow not only from the arithmetic of debt service and present value calculations, but also from the mood swinging psychology of entrepreneurs, lenders and investors. Yet, policy economists claim that interest rates can be “normalized” at no cost. Our conclusion is to reject forecasts calling for the economy to power right through interest rate hikes without stumbling. A more likely scenario is that policy “normalization” leads us directly into the next bust.