Russia's military action in Crimea was out of weakness. He was afraid having a potentially hostile power on his border and losing his naval base in Crimea. He is at risk of repeating mistakes of the Soviet Union in not taking market forces seriously enough.
Stocks in Europe failed to hold onto early gains and gradually moved into negative territory, albeit minor, as concerns over money markets in China gathered attention yet again after benchmark rates fell to lowest since May 2012. Nevertheless, basic materials outperformed on the sector breakdown, as energy and metal prices rebounded following yesterday’s weaker than expected Chinese data inspired sell off. At the same time, Bunds remained supported by the cautious sentiment, while EUR/USD came under pressure following comments by ECB's Constancio who said that financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets. Going forward, market participants will get to digest the release of the weekly API report after the closing bell on Wall Street and the US Treasury will kick off this week’s issuance with a sale of USD 30bln in 3y notes.
The Turkish Lira is tumbling this morning (+150pips at 2.22); rapidly devaluing back towards pre-emergency-rate-hike levels and Turkish bond yields have surged back to levels seen in mid-2009. The driver appears to be the release of several political prisoners, suggesting the President is starting to lose control and given that 'political stability' is the key factor for many of these EM debt markets. The government, however, remains adamant that an "operation" by some institutional holders of lira bonds to "threaten" Turkey's economy started after the probe into government corruption began in mid-December.
This week brings a slew of central bank meetings: At the forefront will be the BOJ meeting on Tuesday where no changes to monetary policy are expected. However, we will be watching the commentary closely for hints to further monetary easing in the coming months. Goldman, and others, still expect the BOJ to provide additional stimulus in the second quarter of this year as the impact of the consumption tax hike on the economy becomes visible - it is that expectation that sent the USDJPY above 100 in late 2013 and any disappointment by the BOJ will certainly have an adverse impact on the all important Yen carry pair. In terms of the key data to watch this week, the themes of recent weeks remain the same: US activity data, with retail sales and the U. Michigan Consumer sentiment survey the main releases, European inflation trends (French and German HCPI data on Thursday and Friday, respectively), and finally external balances in EM. Within that group, the latest data points for trade and current account balances in India, Turkey and South Africa will receive the most attention.
With 40% of the portfolio in cash and having returned $4 billion to clients at year-end, Seth Klarman's Baupost Group has "drawn the line in the sand" as they reflect on the diminished opportunities in the so-called "Truman Show" market we see today. In the face of mixed economic data and at a critical inflection point in Federal Reserve policy, Klarman notes, the stock market, heading into 2014, resembles a Rorschach test - "what investors see in the inkblots says considerably more about them than it does about the market." From "born bulls" to "worry genes" and from Bitcoin to flash-mob-speculation, "there is a growing gap between the financial markets and the real economy...and the overall picture is one of growing risk and inadequate potential return almost everywhere one looks... as every 'Truman' under Bernanke’s dome knows the environment is phony."
As we reported yesterday, after getting permission to cross the Bosphorus, the guided-missile destroyer USS Truxtun departed the Greek port of Souda Bay on its way to the Black Sea. As of a few hours ago, it is already there. Sky News reports that the USS Truxtun passed the Dardanelles strait earlier today on its way to the Black Sea amid heightened tension over the crisis in Ukraine and reports that Russia has now 30,000 troops in Crimea.
Yesterday we reported that with the US aircraft carrier, CVN-77 George H.W. Bush, anchoring in Piraeus, Greece, an unnamed US warship had been granted permission by Turkey to cross the Bosphorus and enter the Black Sea. There was speculation it may be the carrier itself, even though such a crossing would be forbidden by the Montreaux Convention. Today we have the answer: it is not CVN-77, but one of the ships from its aircraft carrier strike group - the guided-missile destroyer USS Truxton, which as the clip below shows, just departed the Greek port of Souda Bay earlier today.
The UAE, Saudi Arabia and Bahrain said on Wednesday they were withdrawing their ambassadors from Qatar after it had not implemented an agreement among Gulf Arab countries not to interfere in each others' internal affairs. The move, unprecedented in the 30-year history of the Gulf Cooperation Council (GCC), follows the Bahrain state minister for information Samira Rajab saying she has evidence of Qatari media provocation against her country. As Gulf News reports, Qatar has been a maverick in the region, backing Islamist groups in Egypt, Syria and elsewhere in the Middle East that are viewed with suspicion or outright hostility by some fellow GCC members. Not a good sign for the oil-generating center of the world.
Scrape away the media sensationalism and geopolitical posturing and it boils down to a simple dynamic: follow the energy.
In a brief statement this morning, Turkish military authorities have admitted that:
- *EIGHT TURKISH F-16 JETS TRACKED RUSSIAN PLANE IN BLACK SEA
- *TURKEY SCRAMBLED F-16'S YDAY AS RUSSIAN PLANE NEARED BORDER
Which appears odd given this was a "military exercise" that we are sure the Russians had cleared with neighboring nations that it would be entering their airspace. The Turkish air force has been busy recently following the failed 'drunk' Sochi hijacking and Syrian intercepts.
Russia’s seizure of Crimea is the most naked example of peacetime aggression that Europe has witnessed since Nazi Germany invaded the Sudetenland in 1938. It may be fashionable to belittle the “lessons of Munich,” when Neville Chamberlain and Édouard Daladier appeased Hitler, deferring to his claims on Czechoslovakia. But if the West acquiesces to Crimea’s annexation – the second time Russian President Vladimir Putin has stolen territory from a sovereign state, following Russia’s seizure of Georgia’s Abkhazia and South Ossetia regions in 2008 – today’s democratic leaders will surely regret their inaction. When Chamberlain returned from Munich, Winston Churchill said, “You were given the choice between war and dishonor. You chose dishonor and you will have war.” Obama and other Western leaders face a similar choice. And if they choose dishonor, one can be certain that an undeterred Putin will eventually give them more war.
Yuan volatility is part of a major rebalancing of global trade. The next phase of EM turmoil will involve banking crises in several countries including China.
"If you have physical gold or silver, you are in a golden position,” Celente said. Despite the many risks of today, Celente saw light at the end of the tunnel. He said that there are opportunities in “clean food”, breakthrough alternative energy, alternative medicine and in digital education and internet learning.
Gold declined from $1,900 in September 2011 to $1,188 on December, 19, 2013. Silver declined from $48.50 to $18.50 over approximately the same time frame. Precious metal equities declined by approximately 70% over this period. This move down played out exactly as was scripted. However, let us review the causes of this decline. We start out with the most important words ever written by a regulator: BaFin, the German equivalent of the SEC, said that precious metals prices were manipulated worse than LIBOR. What are we to read into this, particularly the word “worse”? Obviously, worse than LIBOR could not mean that more money was fraudulently earned since the LIBOR markets are many orders of magnitude larger than the precious metals markets. Then it must mean that the egregiousness of the pricing dysfunction was materially larger in precious metals.
It doesn't take any special insight into the situation in Ukraine to conclude that no one narrative illuminates all the dynamics. Various contesting Grand Narratives have emerged in the media--neofascist coup, rampant corruption, east versus west, to name a few--but these only describe a few of the regional fault lines and complexities... I describe the U.S. Deep State as the National Security State which enables a vast Imperial structure that incorporates hard and soft power--military, diplomatic, intelligence, finance, commercial, energy, media, higher education--in a system of global domination and influence. One key feature of the Deep State everywhere is that it makes decisions behind closed doors and the surface government simply ratifies and implements the decisions. I have covered various aspects of geopolitics and the Deep State for years, for example: