"Excess credit creation is at the heart of much of China’s GDP growth, and why this means that China must choose between a sharp slowdown in GDP growth as credit is constrained, or a continued unsustainable increase in debt. The key point is that we cannot simply put the bad debt behind us once the economy is “reformed” and project growth as if nothing happened. Earlier losses are still unrecognized and hidden in the country’s various balance sheets."
Here are the most notable news updates from overnight events in Iraq.
What is really going on in Iraq?
The relationship between high-yield credit spreads (the 'cost' of protecting the most equity-like of the credit-risky bond spectrum) and VIX (the 'cost' of protecting equities) tend to have a very stable and consistently correlated relationship driven by clear arbitrages between the two asset classes and corporate finance causation. Last July, VIX futures plunged while credit spreads remained less impressed... that ended badly for the penny-in-front-of-the-steamroller crowd who saw VIX spike back to credit's reality. May 2014 - as the chart below shows - is exhibiting the same kind of disconnect and VIX traders and credit market participants are concerned.
Nearly all of us……well, all except our benevolent dictators, appear to be permanently caught in the first four stages of the Kubler-Ross black hole of loss and grief........
- Ukraine forces kill up to five rebels, Putin warns of consequences (Reuters)
- Obama to Russia: More sanctions are 'teed up' (AP)
- Vienna Banks Bemoan Russia Sanctions Testing Cold War Neutrality (BBG)
- GE’s $57 Billion Cash Overseas Said to Fuel Alstom Deal (BBG)
- GM posts lower first-quarter profit after recall costs (Reuters)
- Apple Stock Split Removes Obstacle to Inclusion in Dow (BBG)
- U.S. regulators to propose new net neutrality rules in May (Reuters)
- Q1 revenue $2.5 billion, beats expectations of $2.36 billion
- Q1 revenue from advertising $2.27 billion
- Q1 EPS $0.34, beat expectations of $0.24
- Free cash flow - Free cash flow for the first quarter of 2014 was $922 million.
- Capital expenditures - Capital expenditures for the first quarter of 2014 were $363 million.
- Cash and marketable securities - Cash and marketable securities were $12.63 billion at the end of the first quarter of 2014.
- Monthly active users (MAUs) were 1.28 billion as of March 31, 2014, an increase of 15% year-over-year. Unclear how many of these are bots originating out of Egypt and India.
So, they might be on the opposite side of the Atlantic Ocean, but the Europeans and the Americans have one thing very much in common.
As I step ever closer to the advent of a new monetary system...
When the Taper Talk sign is on, beware. The sign is now brightly lit.
In the 21st century economy, if you want to stay employed, seek out a field that is ascending rather than declining. Most people understand that technology is fundamentally changing the nature of work and employment. These changes are also having a profound effect on the state of the US economy...
Accounting for “Sunk costs” – money already spent that cannot be retrieved – is likely both the best understood and most widely ignored bit of wisdom on Wall Street and beyond. As ConvergEx's Nick Colas notes, whether you buy a stock or make a corporate investment or purchase a theater ticket, that money is gone forever. If the investment doesn’t pan out or you hear that the play stinks, you are better off cutting your losses or, in the case of the ticket, just going out to dinner. But, Colas quickly reminds us, that is way easier said than done, as apparently humans are generally hard wired to fall further in love with whatever they have already chosen. The single largest sunk investment of recent decades is the Federal Reserve’s bond buying program, with $2.4 trillion in QE 1, 2, and 3 on the line. Tomorrow, we’ll get a another glimpse of how well the Federal Open Market Committee knows its sunk cost theory – and what they know about Friday’s jobs number.
This past March, Jeroen Dijsselbloem, the head of the finance ministers of the eurozone, shocked the markets with seemingly off-the-cuff comments suggesting that the Cyprus banking solution will, “serve as a model for dealing with future banking crises.”1 Depositors across Europe took a collective gasp of horror – could banks possibly confiscate depositors’ funds in a form of daylight robbery? Indeed they could, and last week the Bank for International Settlements (“BIS”), the Central Bank's Central Bank, published what we have referred to as ‘the template’; a blueprint outlining the steps to handle the failure of a major bank and the conditions to be met before ‘bailing-in’ deposits.
- In Hong Kong, ex-CIA man may not escape U.S. reach (Reuters)
- Backlash over US snooping intensifies (FT)
- Apple to Revamp IPhone Software, Ending Product Funk (BBG)
- Nothing like revising history: Japan revises up Q1 growth to annual 4.1% (FT), just don't look at the trade deficit
- Coffee Exports From Indonesia Seen Slumping to Two-Year Low (BBG)
- Euro bailout Troika nears end of road with patchy record (Reuters)
- Treasuries Little Changed Before Bullard Speaks Amid QE Debate (BBG)
- Schwab Topping Goldman Sachs Presages Return to Stocks (BBG)
- Hedge funds take over another city: London’s Forced Renters Fuel Apartment Investing Boom (BBG)
- South China Sea tension mounts near Filipino shipwreck (Reuters)
- OECD cuts economic forecasts as eurozone drags on growth (FT)
- Switzerland frees banks to settle U.S. tax evasion cases (Reuters)
- U.S. Says Firm Laundered Billions (WSJ)... no, it's not HSBC, also: Free Corzine!
- Ardent conservative Bachmann to not seek re-election to Congress (Reuters)
- Russia faults U.S. over 'odious' Syria rights resolution (Reuters)