Thoughts on the Week Ahead

Weekend developments will dominate the first part of the week ahead. Two developments stand out.


First, China announced a doubling of the permissible band from 1.0% to 2.0% around the daily fix. There had been some speculation that Chinese officials were moving in this direction. PBOC officials indicated that this was their intention some time this year.  Although past moves to widen the band (May 2007 and April 2012) were not preceded by an increase in volatility, some observers did see the doubling of volatility (3-month implied volatility) to about 2.5% in the past month as a signal of the move.


The PBOC deliberately and preemptively facilitated the narrowing of onshore and offshore yuan interest rates to avoid a new influx of capital that might have been spurred by the widening of the trading band. The increased volatility and the small depreciation of the yuan over the past several weeks likely had a different motivation. It was arguably more about the one-way bet that was drawing excessive speculative and leveraged attention as well as presenting moral hazard issues.


Major currencies rarely move by 2% in a single day. Yet, China’s announcement does not mean that the yuan is for all practical purposes floating. The PBOC still will play a critical role. The yuan had rarely explored the full 1% band.


We note that the 3-month implied volatility averaged a little more than 3% from the time the band was widened from the time the band was widened from 0.3% to 0.5% (June 2007 through March 2012). It has been nearly halved (averaging about 1.65%) since the band was widened to 1.0% (May 2012 through February 2014).


That said; the widening of the band should be understood within the broad financial reform commitment outlined by last year’s Third Plenary session. These reforms will likely include acceptance of more defaults and business failures as the ubiquitous moral hazards are addressed.


There are two elements to watch to monitor the effectiveness of China’s efforts. Many of the structured speculative vehicles that embody the moral hazard are thought to be particular sensitive to yuan weakness that extends to the CNY6.35 against the dollar. It finished last week near CNY6.15 where the pressure on those structured positions just begins in earnest, according to reports. Is the PBOC willing to continue this path?


In addition, a measure of the extent that China is willing to let market forces play a greater role is the extent of its reserve accumulation. China’s currency reserves rose by more than $325 bln in the H2 13. They had grown by $185 bln in H1 13. Does China’s reserve growth slow dramatically?


The second development over the weekend was the Crimean referendum. The precise outcome is not known at this hour but in some way they do not matter. The key was always what happens next.  The US and Europe will announce sanctions and, likely, a framework for their escalation.


Russian forces reportedly made an incursion into east Ukraine and seized a natural gas terminal. Some argue that because of clear reluctance of the US and Europe to show a more forceful response to the grabbing of Crimea, Putin is now going to press on into the eastern part of Ukraine.


However, the immediate evidence suggests otherwise, and this seizure was meant to secure Russia’s position in Crimea and prevent Ukraine from trying to isolate Crimea in terms of cutting off its energy supply. In addition, it appears that the foreign ministers of Ukraine and Russia reached some tentative agreement that involves constitutional changes in Kiev. The details are not clear, but it may involve accepting a fait accompli Crimea. There also seems to be an agreement that prevents Russian forces more directly confronting the Ukrainian forces trapped in Crimea for a week or so, ostensibly allowing some space of diplomacy.


The week’s main economic event is the Federal Reserve meeting, the first that Yellen will chair. There are four components that do not seem particularly controversial.


First, is the FOMC statement. It is likely to recognize that weather and other temporary factors slowed the economy. Growth is expected to pick up in the coming months and quarters.


Second, the Fed will announce another $10 bln reduction in its asset purchases. Many officials have acknowledged that the bar to altering the path that Bernanke put it on is high.


Third, the FOMC will provide new economic forecasts. It is likely to pare slightly this year’s GDP forecast of 2.8-3.2%, which would simply recognize weaker Q1 activity, without changing its medium term view. The unemployment forecast may also be tweaked lower. We would not expect the core PCE forecasts to change.


Fourth, and this is what most of the focus will be on, is the adjustment to forward guidance that has been hinted by several officials and required, as the 6.5% unemployment threshold has been approached. There is general agreement that the numerical threshold approach will be morphed into a qualitative approach.


This more qualitative approach means looking at a wider range of economic indicators. We suspect that this will be the main subject of Yellen’s press conference after the FOMC meeting concludes.


The key is that the forward guidance is strategy to reassure households, businesses and investors that interest rates will not go up for some time, even as the Fed slows its asset purchases. The shift from the threshold approach to the qualitative approach will be presented in such a way to reaffirm this. The measure of Yellens’ success will be if expectations of the first rate hike remains late Q3 15 or Q4, depending on the instrument and interpolation.


In the UK, the employment report and budget are the highlights. The market expects another 25k drop in the claimant count, which is about average over the past 12 months (-27k). The unemployment rate is expected to hold steady at 7.2%, just above the BOE’s 7.0% threshold, for which it too has moved to a more qualitative stance approach. Earnings may tick up.


The Chancellor of the Exchequer Osborne will present the new budget at midweek. Upward revisions to growth forecasts could point to a smaller deficit and better debt trajectory. However, there is some thought that this budget will help shape the economy ahead of next year’s election, that some of the potential fiscal improvement will be used to increase some targeted spending, such as the Help-to-Buy program that assists in the purchase of houses.


On Monday, the euro area will finalize its estimate of February’s CPI. Initially, it was estimated at 0.8%. Owing to new data and the effect of rounding, the original estimate may be shaved to 0.7%. This, coupled with Draghi’s (and other ECB officials’) comments last week, will renew speculation that the ECB, which did not move a couple of weeks ago, will take further accommodative steps at the meeting in early April.


Japan is likely to report a marked improvement in its February trade balance. The January trade shortfall was JPY2.79 trillion. It was likely distorted by seasonal factors and the lunar new year. The consensus for the February deficit is near JPY602 bln. This probably understates the real size of the Japanese monthly trade deficit. The 12-month average is near JPY820 bln. At the same time, a seasonal improvement in investment income suggests a trade deficit this size may not fuel a current account deficit. The streak of four consecutive monthly current account deficits may come to an end when the February balance is reported in early April.


Canada reports January retail sales and February CPI at the end of the week. Retail sales are expected to rebound from the -1.8% slide in December. The consensus expects a 0.7% increase. However, the focus will be on the CPI as that is what the Bank of Canada officials have been emphasizing in recent months. Headline CPI is expected to have slowed to 1.0% from 1.5%, and the more (policy) important core measure is expected to slow to 1.1% from 1.4%. Even though the Bank of Canada is still not prepared to cut interest rates in response, the Canadian dollar may suffer.


Lastly, we note that Australia’s governing Liberal Party won the state election in Tasmania over the weekend. The contest in South Australia was not yet clear at the time of this note. Regardless of the outcome, Prime Minister Abbott is likely to embrace the results, which gives his party control of all but one state, as a referendum on his policies. In particular, the push for privatization of state infrastructure projects will likely intensify.


via Zero Hedge Marc To Market

Obama’s Former Foreign Policy Adviser Said – In 1997 – that the U.S. Had to Gain Control of Ukraine

Neoconservatives planned regime change throughout the Middle East and North Africa 20 years ago. Robert Parry correctly points out that the Neocons have successfully “weathered the storm” of disdain after their Iraq war fiasco.

But the truth is that Obama has long done his best to try to implement those Neocon plans.

Similarly, ever since the Soviet Union collapsed in 1991, the U.S. has pursued a strategy of encircling Russia, just as it has with other perceived enemies like China and Iran.

In 1997, Obama’s former foreign affairs adviser, and president Jimmy Carter’s national security adviser – Zbigniew Brzezinski – wrote a book called The Grand Chessboard arguing arguing that the U.S. had to take control of Ukraine (as well as Azerbaijan, South Korea, Turkey and Iran) because they were “critically important geopolitical pivots”.

Regarding Ukraine, Brzezinski said (hat tip Chris Ernesto):

Ukraine, a new and important space on the Eurasian chessboard, is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire.




However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia.

And now Obama is pushing us into a confrontation with Russia over Ukraine and the Crimea.

As Ernesto notes:

Late last year when Ukraine’s now-ousted president Viktor Yanukovych surprisingly canceled plans for Ukrainian integration into the European Union in favor of stronger ties with Russia, the US may have viewed Ukraine as slipping even further out of its reach.


At that point, with the pieces already in place, the US moved to support the ousting of Yanukovych, as evidenced by the leaked phone conversation between US Assistant Secretary of State Victoria Nuland [arch-Neocon Robert Kagan's wife]  and US Ambassador to Ukraine Geoffrey Pyatt.  When peaceful protests were not effective in unseating Yanukovych, the violence of the ultra-nationalist Svoboda party and Right Sector was embraced, if not supported by the west.


In today’s Ukraine, the US runs the risk of being affiliated with anti-Semitic neo-Nazis, a prospect it probably feels can be controlled via a friendly western media. But even if the risk is high, the US likely views it as necessary given the geopolitical importance of Ukraine, as Brzezinski mapped out in 1997.

In other words, Obama is following the same old playbook that the Neocons have been pushing for more than a decade.


via Zero Hedge George Washington

The Failure of Keynesianism

Submitted by James E Miller of the Ludwig von Mises Institute of Canada,

It’s hard not to agree with the old aphorism “history doesn’t repeat itself, but it does rhyme.” It’s nice to think we learn from our mistakes; yet we always seem to repeat them at some later date.

Reading the daily news, you would be hard-pressed to find mention that there is still an employment crisis unfolding in many industrialized countries. The New York Times recently reported that employers in the United States hired only 175,000 workers in February. This is apparently a cause for celebration among economists. The unemployment rate in the U.S. still remains at an historic high of 6.7%, and there appears to be no date in sight for a return of full employment, but no matter; the economy is supposedly gaining steam.

The only problem is, nobody seems to care much anymore. High unemployment is a constant reality now. Nearly six years of slagging job creation has created a cloud of apathy for most people. It’s just accepted that not everyone who wants to find work will be able to; or they will wander from low-wage job to low-wage job without any kind of security.

The current economic malaise is reminiscent of what the Great Depression was like. Persistently high unemployment with no conceivable end; massive government intervention in the marketplace; a changing industrial landscape; and even social and cultural transformation. We’re less than a century removed from the biggest economic hardship ever faced in America, and the same mishaps are unfolding in front of our eyes.

Then and now, something has remained perennial: the utter incompetence on government’s part to cure economic stagnation.

Newscasters, state officials, and academic economists all tell us government is capable of spending us into prosperity. No matter how much dough is thrown at the glob known as the “economy,” large numbers of people remain out of work. During the Depression, the glut of joblessness lasted for nearly fifteen years. Uncle Sam spent like a drunken sailor while swallowing up much of the economy in fascist scheme after fascist scheme.

The very same thing goes on today, all at the behest of Keynesian-type political actors who provide the intellectual ammunition necessary to justify government’s outstretched hand. With neatly obscure formulas and obtuse language, the apparatchik darlings of Keynes love branding themselves as deep-thinking scientists capable of engineering the perfect economy. When their policy is put to work, we get the opposite. Job creation stagnates, living standards slump, and misery spreads. The siphons of entrepreneurial growth don’t pump; they are bogged down with the grimy sludge of currency manipulation and government hubris.

After decades of constant failure, I mean this wholeheartedly: the followers of the Keynesian school don’t have a damn clue on how to fix the economy. Why my gauche phrasing? Their policy prescription is a complete and total failure. The Great Depression; the stagflation of the 1970s; the Great Recession we see today; in each instance, Washington was impotent to reverse the damage. Keynesians are either pathetically ignorant, or maliciously deceptive.

Taking rhetorical shots doesn’t mean much without some evidence. So let’s meet the Keynesians on their terms. First, economic science itself will be interpreted through the lens of positivism. That means data, in whatever form, will be used to justify whether something works or not. Of course the assumption will be made that spending is the driver of economic prosperity – not saving or investment. The same goes for boundless money printing, which is said to infuse the “animal spirits” with a rejuvenating elixir.

So what have they got for successes? Keynesians used to tout the efforts of Franklin Roosevelt (not so much Herbert Hoover, who was proto-Rooseveltian) during the Great Depression as vindication for their theory. I remember being told in no uncertain terms that Uncle Sam stepped up to save the downtrodden from excess capitalism in my American Presidency 301 class. Sure, it wasn’t an economics course; but it’s the same tale spun by economists anyway.

What does the data say? From 1931 to 1940, the unemployment rate never went south of 10%. From the onset of the Depression, Washington spending went up 97% under the Hoover Administration. According to the White House’s official statistics, the federal budget increased from $3.5 billion in 1931 to $13.6 billion in 1941, jumping in size year after year. A combination of deficit spending and tax hikes (admittedly not a Keynesian remedy) allowed for this gorge in consumption. Meanwhile, the Federal Reserve goosed the economy by first stabilizing the monetary base and increasing the supply of money after the initial contraction during the Depression’s early years. According to the Historic Statistics of the United States, the Federal Reserve increased its holding of U.S. securities from $510 million in 1929 to over $6 billion in 1942. During the same period, the central bank’s balance sheet went from about $5.5 billion to $29 billion.

That’s no small stimulus. And yet the unemployment rate failed to drop significantly during the Depression years. Most of Keynes’s disciples admit that nearly fifteen years of high unemployment leaves much to be desired on the part of muscular government. The counterfactual is then deployed that Roosevelt’s domestic efforts lightened the economic burden foisted upon America. What finally put the Depression to bed, they argue, was the incredible amount of spending during World War II.

But as economic historian Robert Higgs shows, measures of economic performance were highly skewed during wartime. Unemployment fell and production ramped up, but this was due to the draft and building of armaments. Rationing was widespread to the point where basic foodstuffs and toiletries were scarce. If a wartime economy counts as prosperity, then the homeless today are the living embodiment of luxury.

World War II is a bunk fantasy that in no way proves the Keynesian theory correct. The same goes for the fascist orgy known as the New Deal. Fast-forward to today, and the same charlatans are preaching from the gospel of government interventionism. They implore Washington to fight back against the Great Recession with the same blunted tools: spending and money printing.

When the housing bubble burst and the economy began to tank, then-Chairman of the Federal Reserve Ben Bernanke and crew nearly tripled the central bank’s balance sheet. As of right now, the Fed’s sheet stands at about $4 trillion. In 2008, it was at $800 billion. Not to be outdone, the federal government ramped up spending by running nearly-trillion dollar deficits year-after-year. Once again, all this effort has only made a slight dent in the unemployment rate.

From a strictly empirical perspective, the Keynesian theory is a disaster. Positivism wise, it’s a smoldering train wreck. You would be hard-pressed to comb through historical data and find great instances where government intervention succeeded in lowering employment without creating the conditions for another downturn further down the line.

No matter how you spin it, Keynesianism is nothing but snake oil sold to susceptible political figures. Its practitioners feign using the scientific method. But they are driven just as much by logical theory as those haughty Austrian school economists who deduce truth from self-evident axioms. The only difference is that one theory is correct. And if the Keynesians want to keep pulling up data to make their case, they are standing on awfully flimsy ground.


via Zero Hedge Tyler Durden

Crimea Referendum Voter Turnout At 73%; EU Rejects “Illegal, Illegitimate” Vote, Seeks “Additional Measures”

“No provocations have been reported. The situation is quiet and under control,” notes Crimea’s Prime Minister Sergei Aksynov (despite plenty of chatter of pro-Ukraine buildings being attacked by pro-Russian supporters in Donetsk and Kharkiv). However, what is perhaps more important is that Interfax reports, voter turnout at Sunday’s referendum on Crimea’ future status had reached 73% by 6 p.m. (8 p.m. Moscow time), according to a posting on the referendum’s website. That is higher than every US presidential election since 1900. European leaders remain dissatisfied with this “illegal and illegitimate” vote, demand Russian forces drop back to pre-crisis levels, and are preparing new EU sanctions for Monday.






But European leaders are not for the democracy…


So Barroso and Van Rompuy are not amused – we wonder what Frau Merkel thinks…


via Zero Hedge Tyler Durden

The Curious Case of the PM Fix vs. the AM Fix – James McShirley

The Curious Case of the PM Fix vs. the AM Fix

James McShirley

My investigation into gold trading irregularities, including the time around the London fixes, initially began after reading the work of the late Adrian Douglas, along with Dmitri Speck. As a 30-year veteran of the futures market (lumber being home turf) inconsistencies and anomalies were easy to spot. While eventually trading the gold market I discovered a veritable laundry list of suspicious trading activity. One with exceedingly high odds – 80% in fact – was the London PM fix settling lower than the AM fix. That led me to other New York/London-centric trading anomalies. The odds of the PM fix being lower 80% of the time was consistent with the pervasive overall down trend during London/New York trading periods. From January 1st of 2006 to August 2011 gold gained $1,397.15, or 368%, having traveled from $520.75 to its all-time high of $1917.90. Judging by the PM fix, however, you would swear gold was in a great bear market.

The curious thing about the specific anomaly of the lower PM fix vs.the AM fix though is how after occurring for over a decade it began to slowly abate in the year leading up to the CFTC investigation announced on March 13th, 2013. It then reversed, and the PM fix began gaining on the AM fix after the investigation. The trend further accelerated upward after the U.K.-FCA investigation was announced on November 26th of last year. After a decade or more this trading “anomaly” basically evaporated into thin air! Why the sudden change? If the London fixes were just part of normal “price discovery” and not somehow irregular then why does it appear that March 13th and November 26th 2013 were somehow seminal events? Back on April 5th, 2013 I noted on the LeMetropole site:

“One rule that is on hiatus lately is the cumulative gain/loss of the PM fix vs. the AM fix. While one month isn’t a trend it is curious that since March 1st the cumulative PM fixes are $57.00 HIGHER than the cumulative AM fixes.”

Talk about a sudden reversal! Later, on July 2nd I further noted:

“One recent change of pace in the cartel game plan has been the timing of the bigger hits on gold. While the PM fixes in June were generally still under pressure the vast amount of the cumulative losses occurred after the PM fix, and before the AM fix. In fact for the entire month of June gold lost $210.50 from the first PM fix of the month to the last, yet only $11.50 of that occurred in the typical post-AM fix time frame.”

The trend of the stronger PM fix vs. the AM fix continues unabated to the present, and as mentioned has accelerated from late November. Exactly one year has gone by since the CFTC London fix investigation was announced and the fixes have strangely reversed polarity from their decade-long trend. Coincidence? More recently on February 20th I further noted:

“The lower PM fix cartel rule that dominated trading for so many years continues to act contrary. Much like the Friday smash rule something has been different for some time. Even though the month of January was sharply sideways price wise (+$14) the PM fix was showing underlying strength. In fact 18 out of the 22 trading days were higher, or no lower than $5. Of those 4 days that were lower than $5 all but one occurred during the crucial op.ex./FND period at the end of the month. The actual up/down tally was 14 up, 7 down, and 1 unch.

For the year so far 33 out of 37 PM fixes have been higher, or no lower than $5. The greatest February PM fix loss so far is a rather miniscule 2.75. Ten PM fixes have exceeded $5 gains, while only four have exceeded $5 losses. The cumulative PM fix gains stand at $138.50, while the cumulative losses are only $58.00, a net gain of $80.50. The old cartel ways would always have the PM fix lower even when gold was in rally mode. The fact that it hasn’t been lower, even during periods when gold has been selling off is worth noting.”

Worth noting indeed! Wednesday’s +$10.25 PM fix vs. the AM fix made it a cumulative +$103.25 for the year, with 45 out of the past 49 PM fixes higher, or no lower than $5. Other cartel rules remain AWOL as well, with the crucial selloff periods, and algo bombs in general still curiously absent. The old saw about there being few coincidences in the markets rings true. Can it be coincedental that the PM fixes have behaved much differently in the year after the investigations compared to the years prior?

Normal price discovery or rats scurrying from bright lights? Gold declinedin the 12 months post-CFTC investigation by nearly twice as much as in
the prior year, yet the PM fix gained $266.25 vs. a prior loss of $39.25! This is a stunning reversal!

The argument the gold isn’t manipulated because if it were traders would step in and arbitrage the London fixes is easily refuted. In a nut, they do. Deep pockets and MOPE however are all that matter. In the case of TBTF banks there can be no deeper pockets. In a QE-mad environment where trillions are spent supporting TBTF banks any potential gold trading losses would be miniscule compared to the collapse of a $600 trillion + global paper derivative scheme and the commensurate change in “inflation expectations”. Confidence is everything, and in reality it would be implausible for the London fix and other gold barometers to NOT be manipulated. Actually manipulators with deep pockets are almost assuredly making money on gold trading. They can always withstand being offside long enough in any given trade to eventually flush weaker spec longs. The fact that commercials (read TBTF banks) have been perennially the major short in both gold and silver for decades is in of itself manipulative evidence and without merit in a freely traded market. The fact that all 9 of the trading anomalies I follow involve gold price suppression, rather than gold price promotion is telling.

Any discussion of the London Gold fix manipulation must be taken in the context of a much broader gold manipulation agenda. Treating the London fix as a potential one-off problem without considering the enormous body of gold manipulation evidence available, particularly at is disingenuous. Of those 9 aforementioned trading anomalies I have researched (the London fix anomaly being just one of those) none could occur in a freely traded market. The most suspicious of all isn’t even the London Fix, but rather the “1% and 2% rule”. As I have documented for over 10 years nearly all gold rallies are capped at +1% basis the Comex pit close, which is the most widely reported price. A few, which I dub “expanded limit” are capped at exactly +2%. So outrageous is this behavior that I have predicted hundreds of daily gold rallies virtually to the exact tick. I have even predicted in advance on more than one occasion a sequence of 4 consecutive trading days within pennies of each day’s close. To do this once as you know would be extraordinary, to do it over and over is akin to winning a Powerball lottery over, and over. Had somebody won a Powerball numerous times you would immediately suspect the game was rigged. The same holds true for gold trading on a daily basis. With HFT algos it has become child’s play to intervene with surgical precision.

Had I won a Powerball multiple times I would expect to be investigated for fraud. Such odds in irregular gold trading activity have been ignored for too long, and any investigation is most welcome. Pollyanna beliefs about gold manipulation are terribly misguided. In light of ZIRP, LIBOR, and virtually every new day bringing another trading scandal is it realistic to claim gold is the only market NOT manipulated? My research has involved thousands of hours, and as you might guess it’s a tedious venture. It is data and fact-based, not just opinion or “conspiracy theory”. Anybody disputing manipulation should first review all data, including the works of Adrian Douglas, Dmitri Speck, and the GATA archives. Or, if you’re up for it, spend thousands of hours of your life researching and DYODD.

James McShirley
March 14th, 2014


via Zero Hedge lemetropole

Russia-Ukraine Agree “Truce” Until March 21st; White House Warns Putin Stop Playing “Russian Roulette”

"President Putin has started a game of Russian roulette and I think the United States and the West have to be very clear in their response," states Sen. Foreign Relations Committed Chair Robert Menendez among a slew of Sunday morning talk-show rhetoric from US politicians with the White House's Dan Pfeiffer adding "President Putin has a choice about what he's going to do here. Is he going to continue to further isolate himself, further hurt his economy, further diminish Russian influence in the world, or is he going to do the right thing?" As the "sham referendum" continues, Reuters, however, reports that Ukraine's acting defense minister believes Russia and Ukraine have agree a truce until March 21st.


Sunday Morning Talk-Show Rhetoric… (via AP)

If Russian President Vladimir Putin doesn't back down in Crimea, he will face penalties from the West that will hurt the Russian economy and diminish Moscow's influence in the world, the White House said Sunday.


White House senior adviser Dan Pfeiffer said the Obama administration's top priority is supporting the new Ukrainian government "in every way possible." He also said the United States would not recognize the results of a referendum taking place in Crimea Sunday on whether it should become part of Russia.


Pfeiffer said everything that Russia has done in Crimea has been a violation of international law and bad for stability in the region.


"President Putin has a choice about what he's going to do here. Is he going to continue to further isolate himself, further hurt his economy, further diminish Russian influence in the world, or is he going to do the right thing?" Pfeiffer said on NBC's "Meet the Press."



"President Putin has started a game of Russian roulette and I think the United States and the West have to be very clear in their response because he will calculate about how far he can go," said Sen. Robert Menendez, the Democratic chairman of the Senate Foreign Relations Committee.


Menendez appeared on Fox News Sunday along with the ranking Republican on the Foreign Relations Committee, Sen. Bob Corker of Tennessee. Corker said the U.S. and Europe were entering a "defining moment" in their relationship with Russia.


"Putin will continue to do this. He did it in Georgia a few years ago. He's moved into Crimea and he will move into other places unless we show that long-term resolve."


Democratic Sen. Chris Murphy of Connecticut returned early Sunday from meetings in Ukraine. He called an annexation vote taking place in Crimea a "sham referendum." He said that Ukrainians he talked to, both inside the government and outside, said war could occur if Russia attempts to annex more territory. They indicated that "If Russia really does decide to move beyond Crimea it's going to be bloody and the fight may be long," he said on ABC's "This Week."

But it appears truce has been reached for now…

The defense ministries of Ukraine and Russia have agreed on a truce in Crimea until March 21, Ukraine's acting defense minister said on Sunday.


"An agreement has been reached with (Russia's) Black Sea Fleet and the Russian Defense Ministry on a truce in Crimea until March 21," Ihor Tenyukh told journalists on the sidelines of a cabinet meeting.


"No measures will be taken against our military facilities in Crimea during that time. Our military sites are therefore proceeding with a replenishment of reserves."

As Ukrainian armed forces appear resigned to the loss:




No confirmation as yet from the Russian authorities… which, it would appear, merely gives Putin more time to arrange his military pieces since for sure he shows no signs of backing down… as the tanks keep rolling



via Zero Hedge Tyler Durden

Does Mt. Gox Mark The Beginning of the End for Bitcoin?

On or about February 23rd, 2014, Mt. Gox (on of the larger bitcoin exchanges) collapsed. The MSM (mainstream media) had a field day…


LA times on btc

yhoo on btc

I warned everybody that the fall of Mt. Gox was simply a poorly managed small business getting its just dues. To correlate the fortunes of Mt. Gox with the fortunes of the Bitcoin ecosystem is akin correlating the fortune of the World Wide Web with that of or Alta Vista in the 1990s. Sounds silly doesn’t it? Well, fast forward 3 weeks from the Gox’d experience and this is what we find… BTC volatilityThe week after the media frenzy regarding Mt. Gox started to fade, the price of BTC (bitcoins) started a dramatic phase of price stabilization. This apparent price stabilization was verified by the very dramatic drop in standard deviation.

If we drill down to the weeks in question, we find… BTC volatility1

This price stabilization has occurred even before the wide scale adoption of UltraCoin. 

As always, I’m looking for:

  1. financial capital
  2. intellectual capital
  3. developers, management and sales/marketing expertise.

If you have any of this in abundance, hit me at


via Zero Hedge Reggie Middleton

Malaysian Airlines Flight 370: The Complete Timeline And Infographic

With Malaysian authorities frustrated (and seemingly confused),  and US and Chinese government offering "help" to solve this increasingly mysterious disappearance of the Boeing 777-200ER over a week ago, we thought a quick summation of all that we know would be useful. The possibilities remain numerous but it appears the latest line of investigation is the pane vanished through "deliberate action" with the airline pilots coming under increasing scrutiny.




7.24am: Malaysia Airlines confirms a jet lost contact with Subang air traffic control at 2.40am after it took off from Kuala Lumpur

10.30am: Families waiting at Beijing airport are told passengers will not arrive

By night: International rescue effort is under way. Two passengers used passports – one Austrian, one Italian – reported stolen in Thailand. Airline does not rule out terrorism



2am: Airline says it last heard from MH370 at 1.30am, not 2.40am

2.43am: Airline chief executive makes first public statement

Noon: Hong Kong Immigration Department confirms 45-year-old local woman was on board



The largest rescue flotilla in Chinese naval history – four warships and five civilian and commercial vessels – speeds overnight to waters between Malaysia and Vietnam. Ten Chinese satellites join the hunt

Night: Airline announces it will give 31,000 yuan (HK$39,200) to relatives of each passenger as a special condolence payment



Two senior Malaysian military officials say missing jet flew for an hour off its flight course and at a lower altitude after disappearing from civil aviation radar, partly explaining why Malaysia expanded search area to include Strait of Malacca two days earlier.

3pm: Malaysian police say one of two passengers using a stolen passport is an Iranian teenager, and release photos of both



Beijing slams Malaysia's "pretty chaotic" and conflicting information as Kuala Lumpur officials fail to pinpoint the plane's last known whereabouts.

Malaysian media report the government has invited a witch doctor to help look for the plane by using a magic carpet, two coconuts and a wooden stick.



Malaysian military confirms spotting an unidentified aircraft on its radar about 1 hour and 20 minutes after MH370's signal went cold. Airline says it has not been determined if that was the missing jet.

Malaysian authorities vow to banish witch doctor if he again carries out a ritual at the country's main airport after the scene draws ridicule around the world.



Investigators are increasingly certain the jet turned back across the Malay Peninsula after losing communication.

International search expands westwards towards Indian Ocean.



Search narrows to two air corridors as Malaysian Prime Minister Najib Razak confirms plane kept flying after it "vanished". Officials also confirm the jet's disappearance was a "deliberate act".



And more on the "deliberate action" from WSJ,

Malaysian police are examining the home flight simulator of the pilot of Malaysia Airlines  Flight 370 in a closer focus on the plane's crew amid suspicion that the aircraft disappeared because of foul play.


The homes and of Capt. Zaharie Ahmad Shah and co-pilot Fariq Abdul Hamid were searched by police Saturday and investigators spoke to the pilot's family, the Malaysian Transport Ministry said in a statement.


The searches came as Prime Minister Najib Razak had said that he believes that the plane vanished through "deliberate action'' on March 8, when it disappeared with 239 people on board on a flight between Kuala Lumpur and Beijing.



The disappearance of Flight 370 has baffled investigators for more than a week, but Mr. Najib's comments have appeared to corroborate the analysis of U.S. investigators, which determined that one or more people on the plane deliberately changed its course and tried to mask its location.


Malaysia's leader says communications systems on Flight 370 were cut off by "deliberate action." U.S. officials are investigating whether a third system, on the plane's lower deck, was also compromised. WSJ's Jason Bellini explains.


Colleagues have described Capt. Zaharie as an aviation enthusiast who loved to fly and built a flight simulator at home.



The Transport Ministry statement said that Malaysia was treating both search corridors with "equal importance'' and is asking countries to provide further assistance in the search for the Boeing BA +1.00%  777-200, including satellite data and analysis, ground-search capabilities, radar data and maritime air assets, and how best to deploy them.


Malaysian officials have contacted countries along the corridors including Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan, Pakistan, Bangladesh, India, China, Myanmar, Laos, Vietnam, Thailand, Indonesia, Australia and France, the statement said.



via Zero Hedge Tyler Durden

Putin Reiterates To Merkel That Crimean Referendum Is Legal

More of the same. Via the Kremlin:


Even as the West (and NATO) continues to reject any legitimacy of the referendum.

So what happens when the people vote to join Russia, Russia formally annexes the territory and calls the western diplomatic bluff? The answer may be provided as early as 8pm local Ukrainian time when the polls are set to close, and it will likely involve further provocations such as this one, reported moments ago by Sky News: “Interfax reports three Ukrainian military trains carrying equipment into eastern Ukraine have been intercepted by Russian forces.”


via Zero Hedge Tyler Durden

Stock Market: Be Careful Now

stock market bear

2014 is no party for stock market investors. January was a smack in the face, especially newcomers, as the markets decided to go for a 5 percent nosedive. But they again recovered in February and some indices put up new all-time highs; others are on the fence and you can feel that doubt is creeping in as investors are starting to feel uncomfortable having a large part of their portfolio invested. As a result, March also turns out to be a challenging month for stocks. And this should not come as a surprise, as different signals indicate that the market situation is getting overheated.

We cannot blame anyone here. The current bull market has recently had its fifth birthday and is almost breaking the top 3 of the longest stock market rallies in history. With an increase of 147% for the Dow Jones index from its March 2009 low, it is obvious that the magnitude and momentum of this bull market is just as qualified for the history books as its duration. That is clearly visible on the next chart (source: Barclays).

Bull markets - duration vs magnitude

You can also see that we have seen better and longer bull markets in the past. In the ‘50s, we had a seven year bull market and the bull market of the ‘90s lasted for almost ten years! Just to be clear: a bull market remains theoretically intact as long as an index does not drop by more than 20 percent from a high. There is plenty of upside in other words, but the air does get thinner the higher we go. Naturally, the upward potential has decreased and as history has taught us, at one point the cable on this elevator will snap and we will go down a lot faster than we came up.

The question, of course, is when will the music stop? That has always been a tough call to make. With regards to valuation, we are already in overtime at the moment. The markets are generously valued at this point, more specifically when looking at market capitalization versus GDP (Warren Buffett’s favorite indicator). Another comparable ratio, however, is also showing warning signs. The Tobin Q ratio measures the total market cap of non-financial listed companies in relation to the replacement value of the assets of these companies. The ratio is a good check to see if the fair value of these companies is deviating from their stock price. Above 1x, this ratio indicates that investors are prepared to pay a lot more for expected performance and goodwill.

Tobin Q

The above chart from Ed Yardini clearly shows that the actual position of the Tobin Q ratio, as well as the adjusted version, has been living north of the 1x level since the fourth quarter of 2013. In the past, namely in the seventies, the current position would have been enough to cause turmoil. Naturally, there are exceptions as evidenced by spike around the dot com boom, but still…

Still, it feels like the 2000-period on the stock market. Just have a look at the chart below, which compares the S&P 500 to the Rydex Asset Ratio (Bears versus Bulls). It’s been 13 years since the ratio dropped this low. Investors are pouring massive amounts of cash into equity funds (long only) and liquidating their short / hedge funds and money market funds. This again is huge warning sign for the markets.

Rydex Asset Ratio 2014

And that is precisely the problem investors have today. On the one hand, valuation and duration are above average, but that does not necessarily mean that we are at the dawn of a big stock market correction. This stock market rally could last for a few more years and valuations have a lot more room to grow before we can even start talking about a bubble. On the other hand, it is clear that the rally is having a tough time repeating its 2013 performance, at least for now.

That is why vigilance is in order. Indeed, investing is making an estimation regarding the future, taking healthy probabilities into account. As the market rally persists, its effective life span decreases; that is pure logic. Unfortunately, logic is not always what governs the stock market. Nevertheless we have become more careful in 2014 and have advised our subscribers to take profits of the table here and there, without getting out of the market completely. We rather wait and see for now as things could go either way from this point.

Protect your capital: read our GUIDE TO GOLD!


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via Zero Hedge Sprout Money