BREAKING: Crimea TV reporting that Russians have begun storming Ukraine air-force base on the peninsula, ramming the gates with a truck
— Simon Shuster (@shustry) March 7, 2014
Following last week's discovery that Mohamed El-Erian was "sick of cleaning up [Bill Gross's] shit" as tensions soared at PIMCO, the "bond king" has struck back blasting to Reuters that he's "so sick of Mohamed trying to undermine me," claiming El-Erian wrote the damaging WSJ article. Furthermore, the somewhat paranoid-sounding Gross indicated that he had been monitoring El-Erian's phone calls but when questioned by Reuters for evidence of El-Erian's undermining, Gross responded "you're on his side. Great, he's got you, too, wrapped around his charming right finger." As one analyst noted, "I've never seen Bill and Pimco scrutinized like this before... a couple of high-profile stumbles and mediocre showings, coupled with some outflows clearly has some investors on edge."
We noted last night that Iron Ore futures prices were in free-fall as the vicious circle of China's commodity-collateral-backed shadow banking system unwind hits home amid fears of contagion from the Chaori Solar default. The first domestic Chinese corporate bond default has retail investors running scared as surprise spreads that the local government did not come to the rescue. The deleveraging is now spreading to copper prices (remember the massive cash-for-copper schemes of last year) as borrowers are forced to sell to meet cash calls which in turn drops copper prices, reducing collateral values and tightening credit conditions even more. This is the biggest copper price drop since Dec 2011...
- Putin rebuffs Obama as Ukraine crisis escalates (Reuters)
- Behind the $100 Billion Commodity Empire That Few Know (BBG)
- Initial Public Offerings Hit Pace Not Seen in Years (WSJ)
- Russian Parliament Will Back Crimea Split From Ukraine (WSJ)
- Nakamoto Named as Bitcoin Father Denies Involvement, Flees Press (BBG)
- Chaori Can’t Make Payment in China’s First Onshore Default (BBG)
- Zombies Spreading Shows Chaori Default Just Start (BBG)
- Pimco's Gross declares El-Erian is 'trying to undermine me' (Reuters)
- U.S. Fighters Circle Baltics as Putin Fans Fear of Russia (BBG)
Today's nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.5 million "jobs" higher) will be a major beat to expectations, which will crash the "harsh weather" narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February... because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more. So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country's history - indicating a further shift toward responsibility and focus on moral hazard in China.
UPDATE: It's happened - China has suffered its first domestic corporate bond default as Chaori fails to meet interest payments on schedule and rather more surprisingly failed to receive a last-minute mysterious or otherwise bailout...
*CITIC BANK WON'T HELP CHAORI MAKE INTEREST PAYMENT: 21ST HERALD
Ever since the specter of the first real domestic default on a Chinese corporate bond hovered over the markets, the Chinese credit markets have been leaking lower. The last 3 days have seen the biggest drop in Chinese credit markets in almost 4 months. That situation, wistfully occurring half way around the world while US equity markets press on to ever more exuberant (and ignorant) heights, meant at least 3 other Chinese firms pulled their bond issues today and, as Reuters reports, has "triggered widespread upheaval in the bond market." Banks are awash with liquidity (as indicated by low repo/SHIBOR rates) but clearly unwilling to lend and external investors are now running scared.
The biggest Asia-Pacific defense story this week is China’s decision to increase its defense budget by 12.2 percent to about $132 billion for the next fiscal year. Notice that the figure is noticeably uncorrelated with China’s 7.7 percent actual growth rate (with a 7.5 percent target rate). The numbers are expected, of course, and send a clear signal across the region that China is taking its investments in military hardware seriously. Contrast the Chinese trend with the United States’ belt-tightening on defense spending. The United States and China are, of course, nowhere near to a convergence in defense spending.
Gold Equities are on their way to a parabolic rise
Two years ago, the mega law firm Dewey and LeBeouf shocked the legal world when it announced, out of the blue, it would be filing for bankruptcy following an exodus of employees as the money had run out. However, as usually happens in cases like these, it was not just gross incompetence that was at fault: one must usually add major act criminality to explain such a rapid fall from grace. Such was the case in the Dewey bankruptcy too. Moments ago former top executives from bankrupt U.S. law firm Dewey & LeBoeuf were criminally charged for "cooking the books" at the once prestigious firm and defrauding investors and lenders. So for those curious, here is how a law firm - and here we can only assume Dewey is hardly alone - can cook the books for 4 years thinking it can get away with it.
Nothing says global 'economic recovery' like a major retailer drastically missing revenue expectations, slashing earnings projections and announcing it will shutter 225 stores nationwide. Staples, the largest US office supplies retailer, hit the triple whammy and didn't blame it all on the weather as the CEO notes "our customers are using less office supplies." Or maybe there are just less office workers? Isolating Staples is a little unfair but as the largest (and most belwhether-ish), it is perhaps time to question the constant meme of escape velocity, improving fundamentals, and cleanest-dirty-shirt growth...
While the biggest strategic news of the day is that the Crimean parliament voted to join Russia with a done deal referendum to be held in a few days, as well as collapse of the anti-Russian sanction lobby with Germany and others getting cold feet against boycotting Russian goods, the tactical developments continue. Of note: earlier today the leader of the most persistent pro-Moscow protest movement in eastern Ukraine was arrested at his home in the city of Donetsk on Thursday, a Reuters journalist who was with police on the raid said. Around 10 members of the SBU security service arrested Pavel Gubarev at his apartment in a five-story Soviet-era block in the eastern city, on charges of "infringing the territorial integrity and independence of the state". He did not resist.
Moments ago, Reuters blasted the following headline:
DECREE MAKING CRIMEA PART OF RUSSIA HAS COME INTO FORCE FROM MOMENT OF ADOPTION; RUSSIAN ARMED FORCES ARE ONLY LEGITIMATE FORCES IN REGION -DEPUTY PRIME MINISTER OF CRIMEA
On the surface, this would mean that the Russian annexation of the Crimea if complete (and East Ukraine is coming). Especially when one considers that earlier Crimea also said it could adopt the Russian rouble as its currency and "nationalise" state property as part of plans to join the Russian Federation, a regional official was quoted as saying on Thursday.
- Spot the inaccuracies: Stocks rise on Ukraine diplomacy, ECB easing speculation (Reuters)
- Bank of England Extends Record-Low Rates Into a Sixth Year (BBG)
- China's Chaori Solar poised for landmark bond default (Reuters), explained here previously
- EU leaders meet in Brussels to address Ukraine crisis (FT)
- Nine-month-old baby may have been cured of HIV, U.S. scientists say (Reuters)
- China Raises Defense Spending 12.2% for 2014 (WSJ)
- China Stock Index Rises as Developers Jump on Policy Speculation (BBG)
- VTB Cancels New York Forum as U.S. Relations Sour (BBG)
- IBM workers strike in China over terms of Lenovo takeover (FT)
- College Board Redesigns SAT Exam Making Essay Portion Optional (BBG)
While the world is convinced that Putin's Tuesday press conference was an admission of blinking to the west, the reality is anything but that, and hours ago Crimea's parliament voted to join Russia on Thursday and its Moscow-backed government set a referendum within 10 days on the decision in what Reuters said is a "a dramatic escalation of the crisis over the Ukrainian Black Sea peninsula." To be sure, the Crimea - which has an ethnic Russian majority - affiliation to Moscow as opposed to Kiev is well-known, yet still the sudden acceleration of moves to bring Crimea formally under Moscow's rule came as European Union leaders gathered for an emergency summit to seek ways to pressure Russia to back down and accept mediation. And now all Putin has to do is sit back and say the people have spoken and without spilling a drop of blood has effectively split the country in two parts, with the entire east of Ukraine, where pro-Russian sentiment also runs high - sure to follow Crimea. Just as we said from the very beginning.
Members of the Ukrainian parliament have had their mobile phones hacked by equipment installed in Russia-controlled Crimea, according to the nation's security services. Reuters reports that "an IP-telephonic attack is under way on mobile phones of members of Ukrainian parliament for the second day in row."