The Fed’s serial bubble machine has not only bestowed massive speculative windfalls on the 1%, but it has also fostered a noxious culture of plunder and entitlement in the gambling casinos of Wall Street. After each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money printing spree. In this context comes Bruce Berkowitz “scolding” and firing “salvos” at Washington from the front page of the Wall Street Journal.
- High Stakes Limit Bid to Cow Putin (WSJ)
- Russia says can't control Crimea troops ahead of U.S. talks (Reuters)
- Crimea Crisis Haunted by Ghosts of Bungled World War I Diplomacy (BBG)
- Putin’s Ukraine Gambit Hurts Economy as Allies Lose Billions (BBG)
- Germany Says It Provided Equipment and Training to Ukraine's Riot Police (WSJ)
- China signals focus on reforms and leaner, cleaner growth (Reuters)
- China Shares in Hong Kong Decline Amid Default Concern (BBG)
- Beijing Signals New Worry on Growth (WSJ)
While Emerging Market debt has recovered somewhat from the January turmoil, EM FX remains under significant pressure, and as Michael Pettis notes in a recent note, any rebound will face the same ugly arithmetic. Ordinary households in too many countries have seen their share of total GDP plunge. Until it rebounds, the global imbalances will only remain in place, and without a global New Deal, the only alternative to weak demand will be soaring debt. Add to this continued political uncertainty, not just in the developing world but also in peripheral Europe, and it is clear that we should expect developing country woes only to get worse over the next two to three years.
Keynesian stimulus always has been presented as a government action that improved general or overall economic conditions, as opposed to being a political wealth-transfer scheme. In reality, the government-based stimulus is based upon bad economics or, to be more specific, one of bad economic logic. To a Keynesian, an economy is a homogeneous mass into which the government stirs new batches of currency. The more currency thrown into the mix, the better the economy operates. Austrian economists, on the other hand, recognize the relationships within the economy, including relationships of factors of production to one another, and how those factors can be directed to their highest-valued uses, according to consumer choices. The U.S. economy remains mired in the mix of low output and high unemployment not because governments are failing to spend enough money but rather because governments are blocking the free flow of both consumers’ and producers’ goods and preventing the real economic relationships to take place and trying to force artificial relationships, instead.
We had previously warned that Putin's "trump card" had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia's Gazprom warned that not only could it cancel its "supply discount" as Ukraine's overdue payments reached $1.5 billion but that "simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe." And with that one sentence, Europe will awaken to grave concerns over Russia's next steps should sanctions be applied.
While it has gotten to the point where the propaganda is so bad on both sides of the Ukraine crisis, that any numbers thrown about are ridiculous, made up gibberish more fabricated than anything the Chinese Department of Truth or US Bureau of Labor can possibly goalseek, it is worth pointing out that according to AP, Ukraine's ambassador to the UN said 16,000 Russian troops are now deployed in the Ukraine. This was "revealed" at the third emergency Security Council session meeting in the last four days, shortly after Ukraine's fugitive president requested Russian soldiers in the strategic Crimea region "to establish legitimacy, peace, law and order," Russia's U.N. ambassador said Monday, contradicting the president's own comments last week. But the piece de resistance, regardless if the real number of Russian troops in the Ukraine is 1,000 or 100,000, was the following:
- DOD CALLS ON RUSSIAN FORCES IN CRIMEA TO RETURN TO THEIR BASES
Wait, so the US Department of Defense, that of the United States if it was somehow unclear, suddenly has authority to control the troops... of Russia?
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.
The (ironically named) United Kingdom is the first to openly raise concerns over trade sanctions against Russia. As The Telegraph reports,
"Britain is preparing to rule out trade sanctions against Russia amid fears that the Ukraine crisis could derail the global economic recovery"
Perhaps it is the fear of a massive liquidity suck out from London's real estate market (or its banking system) that has the Brits on edge. We suspect Germany will be close behind as they eye exploding gas and oil prices and their dependence on Russia's marginal production.
After once again clearly delineating that Russian "costs" are set to surge, and hopefully he means more than just the drop in the Micex and its artificial, paper wealth effect which Putin couldn't care less about as long as crude is soaring...
- OBAMA SAYS INCIDENT WITH UKRAINE WILL BE ‘COSTLY’ FOR RUSSIA
... the US president has laid out his latest tactic:
- OBAMA SAYS HE'S CONSIDERING ECONOMIC STEPS TO ISOLATE RUSSIA
And the punchline:
- OBAMA URGES CONGRESS TO PROVIDE PACKAGE OF ASSISTANCE QUICKLY TO UKRAINIAN PEOPLE; SAYS SHOULD NOT BE PARTISAN ISSUE ON CAPITOL HILL
Maybe time to send Obamacare to Kiev: so many young, strapping participants just waiting to sign up? Or maybe it just time to raise minimum wages in the Ukraine while giving the local population the safety of mind that comes with investing in the "no risk, guaranteed return" MyRA.
Perhaps surprisingly, Germany's DAX index was the weakest in Europe today as the Russia-Ukraine debacle escalates, underperforming high-beta "safe-havens" like Spain and Italy (which also fell rather notably). Despite the 2.5% to 3% declines across all major European equity markets, sovereign bond spreads barely budged! Seriously, Italian and Spanish bond spread rose a mere 5bps on the day. European banks collapsed 3.6%, its biggest drop in 6 months. EURCHF continues to collapse, now at 14 month lows (-200 pips today) as 2Y Swiss rates close at -11.4bps (the lows of 2014).
We were perhaps even more amused than our readers by our Friday headline "Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss." It appears that today the market forgot to take its lithium, and is finally focusing on the Ukraine part of the headline, at least until 3:30 pm again when everything should once again be back to market ramp normal. As expected, the PMI data from China and Europe in February, was promptly ignored and it was all about Ukraine again, where Russia sternly refuses to yield to Western demands, forcing the shocked market to retreat lower, and sending Russian stocks lower by over 11%. This is happening even as Ukraine is sending Russian gas to European consumers as normal, gas transport monopoly Ukrtransgas said on Monday. "Ukrtransgas is carrying out all its obligations, fulfilling all agreements with Gazprom. The transit (via Ukraine to Europe) totalled 200 million cubic meters as of March 1," Ukrtransgas spokesman Maksim Belyavsky said. In other words, it can easily get worse should Russia indeed use its trump card.
By now it was only a formality, as the likelihood of the G-8 meeting taking place in Sochi in June, months after the Russian invasion of the Ukraine, was zero at best. So the fact that G-8, pardon, G-7 countries announced the halting of their preparation for a June vacation on the Black Sea should not surprise anyone.
At this stage we see very little from the Ukraine priced into the market as a best-case (encroachment into Eastern Ukraine that is quickly and peacefully resolved) scenario appearing to be the blissful hope. However, as some of the other scenarios (described below) potentially come into play, whether in reality or perception, the risk to further downside in the market is significant. Since we are already recommending being short based on the economy and the misperception of the Fed’s next steps, you effectively pick up the conflict for free. With VIX being so low, picking up some downside protection makes a lot of sense here.
Dispassionate look at next week's calendar.
President Of China's Marine Institute For Security: "Glory Drenched In Blood Will Pave China’s Road To Revitalization"Submitted by Tyler Durden on 02/27/2014 23:02 -0400
"In 2013, China embarks on a new road after the conclusion of the Third Plenum of the 18th National Congress of the Chinese Communist Party. On December 26, China solemnly commemorated the 120th anniversary of the birth of Mao Zedong. On this same day, Japanese Prime Minister Shinzo Abe provoked China by visiting the Yaksukuni Shrine in Tokyo. In response, the Chinese Foreign Ministry spokesman quoted Mao Zedong’s “On Protracted War,” and implied that the final victory will belong to China. The new China is born in blood and fire, and is not only unafraid of war, but also courageous in welcoming reasonable and lawful conflict, because defending the country from aggression serves to further boost the development of the state’s power. The Chinese nation loves peace, but there is little doubt that glory drenched in blood will pave China’s road to revitalization. This is the glory that generations to come will treasure. Sound the alarms for war preparation, remold our firm convictions, wake up the fearless people, and revive our strategic industries—our country is moving forward and our future is bright!" - President Of China's Marine Institute For Security And Cooperation