Davos

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.

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."

As if emerging markets didn't have enough things to worry about following a week in which both the Turkish and Argentina currencies are in free fall, overnight we got a stark reminder from Thailand that the country where the 1997 Asian Crisis originated, is also on the brink and getting worse following news that a anti-government protest leader was shot and killed. Reuters reports, citing a spokesman for the national police, that the dead man as Suthin Tharatin - one of the protest leaders- was shot in the head and in the chest.

Mike Krieger brings to our attention this clip from the Daily Show, in which Jon Stewart takes on the orgy of crony capitalists, vacuous celebrities and corrupt politicians that is the World Economic Forum in Davos, or as he calls it, "The Money Oscars."

Davos is about to end, and there is much good news to report: you see, the billionaires in the lovely Swiss town, surrounded by their own private (or public) armies, have fixed record global wealth inequality, which just happens to be the result of actions by... of Davos billionaires. And just to top the surreal idiocy off, here is Mario Draghi, Goldman's best known banker at the ECB, with a special address titled "the Path from Crisis to Stability"... ostensibly on the back of bailout mechanism that don't exist, and facilitating "reforms" that promote more spending and less revenue in a continent that just happens to be insolvent. #Ref!

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