Among other things, there is one major obstacle to the West's "costs" imposition on Vladimir Putin and his Russian economy - China. So far, a Xi Jinping has described, China has been a "sleeping lion" but today "the lion is awake" and with the Chinese President's first trip to Europe, as WSJ reports, western leaders are hoping to enlist his support over the crisis in Ukraine. However, privately, European diplomats concede that China's relationship with Russia remains solid and that was evidenced by their most recent investment in Russia's $10bn state-backed Direct Investment Fund (which just happens to be run by a former Goldman Sachs banker. It seems "money talks" once again and China will likely continue to play the middle ground.
"When the market is in the depressive phase of what President Lockhart referred to as a bipolar disorder, crafting policy to satisfy it is like feeding Jabba the Hutt—doing so is fruitless, if not dangerous, because it simply will insist upon more." - Fed's Dick Fisher
Unfortunately many investors, with central banks having slashed deposit rates to de minimis levels, have gone ‘all-in’ with regard to risk assets in the desperate pursuit of yield. Be careful what you wish for. It is quite clear that central banks will do literally anything within their power to attempt to avert deflation – to ensure that “it cannot happen here”. That does not mean they will succeed – but they may end up destroying fiat currencies in the process (one of the reasons we have consistently held gold). It is “quite obvious” what the Fed will ultimately do... Six years into this crisis, and in the words of Lily Tomlin, things are going to get a lot worse before they get worse.
The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
After Friday's surge fest on weaker than expected news - perhaps expecting a tapering of the taper despite everyone screaming from the rooftops the Fed will never adjust monetary policy based on snowfall levels - overnight the carry trade drifted lower and pulled the correlated US equity markets down with it. Why? Who knows - after Friday's choreographed performance it is once again clear there is no connection between newsflow, fundamentals and what various algos decide to do. So (lack of) reasons aside, following a mainly positive close in Asia which was simply catching up to the US exuberance from Friday, European equities have followed suit and traded higher from the get-go with the consumer goods sector leading the way after being boosted by Nestle and L'Oreal shares who were seen higher after reports that Nestle is looking at ways to reduce its USD 30bln stake in L'Oreal. The tech sector is also seeing outperformance following reports that Nokia and HTC have signed a patent and technology pact; all patent litigation between companies is dismissed. Elsewhere, the utilities sector is being put under pressure after reports that UK Energy Secretary Ed Davey urged industry watchdog Ofgem to examine the profits being made by the big six energy companies through supplying gas, saying that Centrica's British Gas arm is too profitable.
Many have sought to draw comparisons between Asia today and Europe in the run-up to WWI. Most notably, in a widely covered speech at the World Economic Forum in Davos last month, Japanese Prime Minister Shinzo Abe compared his country’s current bilateral relationship with China to that of England and Germany before WWI. Specifically, Abe used the example of London and Berlin before WWI to warn that China and Japan’s extensive economic ties do not necessarily preclude them from going to war. Now it appears that some in Asia believe the current regional environment is more similar to Europe just before WWII. However, there appears to be some disagreement over which country in Asia most resembles Nazi Germany.
An "Austrian" Bill Gross Warns: "The Days Of Getting Rich Quickly Are Over... Getting Rich Slowly May Be As Well"Submitted by Tyler Durden on 02/05/2014 14:03 -0400
If readers ignore the rest from the latest monthly insight from Bill Gross of PIMCO, they should at least read the following insight which we agree with wholeheartedly: "our PIMCO word of the month is to be “careful.” Bull markets are either caused by or accompanied by credit expansion. With credit growth slowing due in part to lower government deficits, and QE now tapering which will slow velocity, the U.S. and other similarly credit-based economies may find that future growth is not as robust as the IMF and other model-driven forecasters might assume. Perhaps the whisper word of “deflation” at Davos these past few weeks was a reflection of that.... don’t be a pig in today’s or any day’s future asset markets. The days of getting rich quickly are over, and the days of getting rich slowly may be as well. Most medieval, perhaps." Where have we read this recently? Why in An “Austrian View” Approach To Equity Prices in particular and the bulk of Austrian economics in general. Which means that following the TBAC, i.e. the committee that really runs the US, none other than the manager of the world's largest bond fund has now moved over to the Austrian side. Welcome.
Nine Event Risks for the week ahead: identified, discussed and assessed.
The 2008 crisis never ended as issues of excess credit and economic imbalances were never resolved. Turkey is the latest installment in the rolling crisis.
Indicators of US balance-sheet repair hardly signal the onset of the more vigorous cyclical revival that many believe is at hand. Optimists see it differently. Encouraged by sharp reductions in households’ debt-service costs and a surprisingly steep fall in unemployment, they argue that the long nightmare has finally ended. That may be wishful thinking. Notwithstanding the Fed’s claims that its unconventional policies have been the elixir of economic renewal in the US, the healing process still has years to go. This should not be surprising. Far too many US households made enormous bets on the property bubble, believing that their paper gains were permanent substitutes for stagnant labor income... and appear to be doing the same again.
- Emerging sell-off hits European shares, lifts yen (Reuters) - but not really if you hit refresh since the latest central bank bailout announcement
- Apple’s Holiday Results to Show Whether Growth Is Back (BBG)
- Israel attacked Syrian base in Latakia, Lebanese media reports (Haaretz)
- Abenomics FTW: Japan Posts Record Annual Trade Deficit as Import Bill Soars (BBG)
- When all else fails, Spain's hope lie in a 16th century saint: Saint “might help Spain out of crisis,” says interior minister (El Pais)
- Global Woes Fail to Send Cash Into U.S. Stocks (WSJ)
- IMF's Lagarde sees eurozone inflation "way below target" (Reuters)
- Minimum wage bills pushed in at least 30 states (AP)
- AT&T Gives Up Right to Offer to Buy Vodafone Within 6 Months (BBG)
Amid calls to spread the wealth (among the elites in Davos) and for an end to violence in Ukraine, the Pope released his "peace" doves today to send a message of hope to the world. However, the callous claws of capitalism (in the form of a black crow) and the sullen shape of social unrest (in the form of a seagull) decided to send their own message. As the sad images below show, the peaceful dove had his feathers ruffled following the callous attack by the winged avengers... As one wit noted, rumors that the end is nigh are as yet unconfirmed (although if Nomura loses control of the USDJPY levitation, and it breaches the 102 support, all bets are off).
China and Japan’s war of words reveals a larger struggle for regional influence akin to a mini Cold War. Last week's tempestuous pissing contest in Davos, which The FT's Gideon Rachman notes left people with the belief that "this is not a situation that is getting better; it is getting worse." Following Abe's analogies to WWI, China's Yi compared Abe's visit to the Yasukuni shrine to Merkel visiting the graves of Nazi war criminals and as the rhetoric grows the US has asked for reassurance from Abe that he will not do it again. So we have two countries, each building up their militaries while insisting they must do so to counter the threat of their regional rival. Added to this, a deep distrust of each other’s different political systems coupled with a history of animosity makes the two nations deeply suspicious of each other. Each country insists it loves peace, and uses scare tactics to try to paint its opponent as a hawkish boogeyman. Sound familiar to anyone else?
Because only class war imposters spend anything less than CHF460 on "snacks."
What a difference half a year makes. It seems like it was yesterday when Blackrock head Larry Fink, when discussing the future of capital markets with the now defunct money honey, uttered these infamous words about any and all possible risks: "it doesn't matter." Suddenly, it matters. Speaking in Davos, Fink warned there is 'way too much optimism' in financial markets as he predicted repeats of the market turmoil that roiled investors this week. As Bloomberg reports, Fink warned a Davos panel that "the experience of the marketplace this past week is going to be indicative of this entire year... We’re going to be in a world of much greater volatility."