- Obama to tout manufacturing gains, highlight economic progress (Reuters)
- Iraq Gunmen Attack North of Baghdad as Obama Weighs Plan (BBG)
- Chinese Regulators Block Shipping Alliance Abandoned Deal (WSJ)
- Russian $8.2 Trillion Oil Trove Locked Without U.S. Tech (BBG)
- Ukrainian forces, rebels clash near Russian border (Reuters)
- M&A talk lifts stocks, Iraq tensions ease slightly (Reuters)
- Wealthy Clintons Use Trusts to Limit Estate Tax They Back (BBG)
- Argentina vows to service debt despite new legal blow (Reuters)
- Allergan's Bitter Pill for Morgan Stanley (WSJ)
- Islamists kill 50 in Kenya, some during World Cup screening (Reuters)
- American Express Revs Up Pursuit of the Masses (WSJ)
"In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” - The Fourth Turning - Strauss & Howe – 1997
ISIS militants boasted on Twitter that they had executed 1,700 Iraqi government soldiers, posting gruesome photos to support their claim. If the claim is true, it would be the worst mass atrocity in either Syria or Iraq in recent years, surpassing even the chemical weapons attacks in the Syrian suburbs of Damascus last year, which killed 1,400 people and were attributed to the Syrian government.
About a month ago we showed photos of the Chinese police engaged in a drill designed to crush a "working class insurrection", in which the police did precisely what would be required to end a middle class rebellion. It made us wonder: what does China know that the US doesn't. As it turns out, nothing. Because long before China was practicing counter-riot ops using rubber bullets, all the way back in 2008, the US Department of Defense was conducting studies on the dynamics of civil unrest, and how the US military might best respond. The name of the project: "Minerva Research Initiative" and its role is to " “improve DoD’s basic understanding of the social, cultural, behavioral and political forces that shape regions of the world of strategic importance to the U.S." The premise behind Minerva is simple: study how violent political overthrow, aka mass civil breakdown, happens in the day and age of social networks, and be prepared to counteract it - by "targeting peaceful activities and protest movements" - when it finally reaches US shores.
We believe Jeffrey Gundlach, et al. are wrong regarding the 10-Year Bond yield staying below 2.80% over the second half of the year.
Earlier today we reported that despite, or rather due to, all the confusing propaganda from either side, it was not exactly clear whether and how far away from Baghdad the ISIS offensive had been halted (if at all). It appears the confusion has also impacted none other than the US State Department, which moments ago announced it would evacuate an "substantial number" of the whopping 5,500 staff situated in the US embassy in Baghdad on the banks of the Tigris river, staff which incidentally is the largest of any US embassy. Additionally, the State Dept said that some additional U.S. govt security personnel will be added to Baghdad staff as result of instability and violence in certain areas of Iraq.
More and more investors are struggling...
While the world's short attention span may have been diverted to Iraq where the ISIS insurgents are now knocking on Baghdad's door, and with it - Iraq's vast southern oil fields and infrastructure (which if taken offline would send oil up to $200 according to T. Boone Pickens). the "out of sight, out of mind" conflict in Ukraine, which the western media dropped covering like a hot potato some time in early May for reasons not entirely known, continues to escalate and where the latest outbreak of violence took place overnight when a Ukraine military transport Il-76 was allegedly shot down by separatists in the city of Lugansk as it was about to land.
Best week for WTI crude in 6 months (to 9 month highs). Worst week for the Dow Transports in 2 months (3rd worst in 10 months)... and while 5s30s flattened to its equal lowest since January 2009, 10Y Treasury yields ended the week just 1bp higher in yield. Late day VIX smashing was trumped by rumors of the death of Iraq's PM Maliki (which was later denied and sent VIX reeling lower again). The USD ended the week modestly higher (+0.2%) with GBP strength and EUR weakness the main theme. Silver and gold were bid (safety and CCFD unwinds) with the best week in 3 months. Copper and iron ore were down for the 3rd week in a row. "Most shorted" stocks rose for the 5th week in a row (notably decoupling from the broad markets's weakness in the last few days). So it seems that the market does not trade on bad news; it trades on fake rumors.
It seems blood on Iraq streets and infringements near oil reserves is enough to pop crude oil price, break the airlines bubble, stall the Trannies unstoppable surge, and spark volume selling through the US equity markets. We will be reassured that this is a buying opportunity and that 'nothing fundamental has changed' and the US is 'the cleanest dirty shirt' but when the Chinese are tamping down carry with flip-flopping CNY fixes, the ECB has shot his mini-bazooka, and we know the Fed ain't un-tapering anytime soon (as they are fearsome of complacency and financial fragility), it makes one wonder if the corporate buyback machine can overwhelm the geopolitical-risk selling pressure of the rest of the world. Trannies dropped to their worst day in 4 months as all major US equities reversed any Draghi gains. Treasuries were well bid (-6bps and lower in yield on the week) as gold also benefited from safe haven status rising up to $1275. Copper slipped further south. Oil was the big news, spiking up to $106.70 (9 month highs). It's not Tuesday - what did you expect? (and remember there are no Friday POMOs in June).
Now that 25 year old math PhD HFT programmers have finally figured out what this thing called Iraq is, and why headlines around it should factor into algo trading signals, here, for their benefit is a summary of the latest events in Iraq, and also for everyone else confused why crude is back to levels not seen since last summer.
- Iraqi Drama Catches U.S. Off Guard (WSJ)
- Al-Qaeda Offshoot on NATO Border Threatens Turkish Rally (BBG)
- It's just the snow, people: U.S. Economic Recovery Looks Distant as Growth Lingers (NYT)
- Freed Taliban leaders may remain in Qatar beyond one-year travel ban (Reuters)
- BNP Paribas Executive Chodron de Courcel to Quit Post (WSJ)
- Greenmail is back (WSJ)
- Facebook Places Multiple Bets to Win Messenger Wars (BBG)
- ECB easing to benefit Ukraine, Russia corporate bonds (Reuters)
- Rome Shows the World How Not to Run Bike-Sharing Program (BBG)
Over 1 in 5 homes (with $674 billion of mortgages) in China stand empty... and if you think that urbanization will fix that, as WSJ reports, a 10 percentage point rise in the urbanization rate (already at 54%) would result in only a 2.6% drop in vacancy rates. China has a major over-supply issue thanks to property developers who had rushed into the market to build homes, which have been a popular investment as prices seemed bound to keep rising. But now, as Vanke recently warned, things are changing and "the golden era" of China's property market are over. The vacancy rate of sold residential homes in urban areas reached 22.4% in 2013 and as new home prices are slashed to move product, a 30% drop would leave 11.2% of Chinese homes underwater on their mortgages...
Just when one thought US foreign policy couldn't sink any deeper into the hole of its embarrassment, it takes out a shovel and starts digging. Overnight, in what AP describes as a stunning assault that exposed Iraq's eroding central authority, Al Qaida-inspired militants from ISIS, or the Islamic State of Iraq and al-Sham, overran much of Mosul on Tuesday, seizing government buildings, pushing out security forces and capturing military vehicles as thousands of residents fled the second-largest city. But the worst news by far for the US is that as a result of the takeover of Mosul by ISIS forces, an unknown number, and at least one, US ultramodern Blackhawk and Kiowa helicopters parked at the Mosul airport, are now in, you guessed it, Al Qaeda hands.
While The Tea Party had been relatively aggressive in the race, it is still quite shocking to the establishment that the second-highest House Republican just got unseated (despite outspending Brat by a ratio of 5-to-1) by a local tea-party-backed economics professor:
HOUSE MAJORITY LEADER CANTOR LOSES VIRGINIA REPUBLICAN PRIMARY
DAVID BRAT BEATS CANTOR IN VIRGINIA PRIMARY, AP REPORTS
TEA PARTY CHALLENGER BEATS SECOND-HIGHEST HOUSE REPUBLICAN: AP
Echoing Europe's dissatisfaction with the status quo, it appears the announcement of the death of the Tea Party was a little premature. Cantor was elected to Congress in 2000... looks like we have to add one to initial jobless claims this week. Meet the man who just crushed Eric Cantor...