What History Says About Fed Rate Hikes

Submitted by Lance Roberts of STA Wealth Management,

 


    



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Another Russian Oligarch Dumped All His Stocks Ahead Of The US Sanctions

Last week we discovered that Gazprom’s Chairman Viktor Zubkov sold his entire stake in the company days before the Crimean invasion (and subsequent sanctions and asset freezes). Today, on the heels of the latest round of US sanctions against Russia’s so-called “Putin cronies”; Cyprus-based oil trader Gunvor Group announced that co-founder Gennady Timchenko (estimated wealth $8.5 billion) – who was named on today’s sanctions list – sold his entire 44% stake in the company yesterday. The question is – as we show below – did the US Treasury tip Timchenk off to what was coming?

 

 

Gunvor Ensures Continued Operations

Anticipating potential economic sanctions so to ensure with certainty the continued and uninterrupted operations of Gunvor Group Ltd’s activities, the shares of the company held by Mr. Gennady Timchenko were sold on March 19 from his personal holding vehicle to Mr. Torbjorn Törnqvist personally.

 

As a result, Mr. Törnqvist has become the majority owner of Gunvor Group Ltd, with an 87 percent stake, and Mr. Timchenko has fully divested his entire holdings in the company. The remaining 13 percent of shares are held by senior employees of Gunvor. There are no outside shareholders.

One thing we suspect will happen next… the list of names from US Sanctions 3.0 will include Mr. Tornqvist’s name…

 

Some more color from Bloomberg:

The majority of Timchenko’s net worth was derived from his 44 percent stake in Cyprus-based oil trader Gunvor Group, which he sold to partner Torbjorn Tornqvist on March 19, 2014, ahead of U.S. economic sanctions. Through Volga Group, his Luxembourg-based investment vehicle, he also holds 23 percent stake in publicly traded Novatek, Russia’s second-largest natural gas producer; a 31.5 percent stake in petrochemical company Sibur; and 80 percent of rail company Transoil.

 

He owns Sibur through the holding company Sibur Ltd. with billionaire partner Leonid Mikhelson. The pair acquired the company from Gazprombank, the lending affiliate of state-controlled energy company Gazprom, in 2010 and 2011. The investment cost is calculated using the value stated by Gazprombank in December 2010, when it sold the first 25 percent for $1.3 billion. He also has an 80 percent stake in Russian construction company Stroytransgaz, which is valued using the average price-to-sales and price-to-book value multiples of three publicly traded peers: Mostotrest, Budimex and Polimex-Mostostal.

 

Through Volga, Timchenko holds stakes in publicly traded Rorvik Timber and Russian Sea Group, a fish farm and seafood processing company, as well as 8 percent of Bank Rossia, 12.5 percent of insurance company Sogaz, 49.1 percent of insurance company Sovag and 30 percent of coal mining company Kolmar. Gunvor holds another 30 percent of Kolmar.

 

Through A-group, the billionaire controls 70 percent of Avia Group, which develops ground infrastructure for the business aviation center at Moscow’s Sheremetyevo airport, Avia Group Nord, which provides business-aviation services for flights out of Saint Petersburg’s Pulkovo international airport, and a 99 stake in private jet operator Airfix Aviation. He also controls Finland’s Hartwall Areena along with billionaire partners Boris and Arkady Rotenberg.

Some background on Timchenko, Putin, and Gunvor (via The FT from 2008)…

many wonder whether Gunvor’s rapid expansion over the past five years – just as the Kremlin has moved in on private oil production – is due to more than just vision. The company has “one very good friend,” a former partner says. “He is at the very top level,” says another.

 

Some have speculated whether there are ties that bind Gunvor’s other co-founder, Gennady Timchenko, and Vladimir Putin, Russia’s president from 2000 until last week. As the company emerges from obscurity, some details of the connections between the two are finally becoming clear. The company claims that it has not benefited from any political favours.

 

The company’s rise provides a glimpse into a secretive clique of businessmen close to Mr Putin who have made immense fortunes under his presidency but have so far stayed far away from public scrutiny. Even as Mr Putin completes a stage-managed transfer to the role of prime minister, installing his hand-picked successor, Dmitry Medvedev, as president, they are finding it increasingly hard to escape the spotlight. This year, Mr Timchenko for the first time made it on to the Forbes rich list with an estimated fortune of $2.5bn.

 

In a scanty paper trail, corporate records from St Petersburg show Mr Timchenko and a committee headed by Mr Putin participated in one business in the early 1990s. Bankers say the company, Golden Gates, was established to build an oil terminal at St Petersburg’s port but foundered in a clash with organised crime.

 

Mr Timchenko’s trading company, meanwhile, was a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Mr Putin when he worked as head of the city administration’s foreign economic relations committee in 1991, local parliament records show. The trader also built close ties with Surgutneftegaz, a Kremlin-loyal oil company, inviting speculation he may have built a significant stake there.

The big question is – how did he know?

We suspect the US Treasury telegraphed it…

Timchenko Stake in Gunvor Less Than 50% Trigger, Treasury Says

 

Gunvor Group Ltd. isn’t subject to automatic blocking from dealing with U.S. persons under Russian sanctions because co-founder Gennady Timchenko owns less than 50 percent of the company, a U.S. Treasury official said.

 

Treasury: Under the 50 percent rule, only entities in which a designated individual or entity owns a 50 percent or greater interest are blocked by operation of law

 

Treasury’s understanding is that Timchenko’s ownership stake in Gunvor is less than the 50 percent required to trigger an automatic blocking

 

Treasury urged U.S. persons to act with caution when considering a transaction with a non-blocked entity in which a blocked person has a significant ownership

Because the US needs a vehicle to trade US oil…


    



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Ron Paul Warns “We’re Just Stirring Up Trouble In Crimea”

“I think it was wrong for us to get involved and participate in the overthrow of the government,” exclaims Ron Paul in this brief clip, adding the US is “stirring up trouble in Crimea.” The American people are “tired of it,” and “it would be best for us to stay out.” The US doesn’t need another war – and certainly can’t afford it – and “we don’t want trade wars.” Simply put, he concludes, “it’s best we stay out.”

 



    



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Casino Magnate Finds Legislators to Support His War on Online Gambling

What's immoral are those textures. What is this, 2003?As casino magnate Sheldon
Adelson
promised last fall
, efforts to restore a federal ban on
Internet gambling (and eliminate his competition) are pushing
forward. Rep. Jason Chavetz of Utah and Sen. Lindsay Graham of
South Carolina, both Republicans, are introducing legislation to
make Internet gambling illegal.
From the Las Vegas Review-Journal
:

A draft that has been circulating on Capitol Hill declares the
legislation would “restore longstanding United States policy that
the Wire Act prohibits all forms of Internet gambling.” Its goals
are consistent with the highly publicized campaign by billionaire
casino owner Sheldon Adelson to outlaw Web gaming.

In recent years, Congress has been unable to sustain momentum
for any piece of gambling legislation, pro or con.

But lobbyists say a wild card this time is Adelson, the
megadonor to Republicans and their causes who believes online
gambling is unsafe and bad for society and who has vowed to spend
“whatever it takes” to stop its spread.

Online gambling is unsafe and bad for society, but the
legislation apparently excludes betting on horse races, so if
anybody thought the legislation wasn’t cynical nonsense, there you
go. Matt K. Lewis at The Daily Caller
speculates
that exemption is there as a way to get Sen. Mitch
McConnell of Kentucky on board.

Adelson’s competitors in the casino business, many of whom are
fine with the growth in online gambling, have started their own
activist group to oppose Adelson’s:

GM Resorts and the American Gaming Association have launched a
competing group, the Coalition for Consumer and Online Protection,
with former Republican Reps. Mary Bono, R-Calif., and Michael
Oxley, R-Ohio, as spokespersons. It advocates legalized online
gaming, regulated to protect gamblers.

“Banning all online gaming nationwide, as this bill effectively
does, would put American consumers at serious risk,” Bono said in a
statement Wednesday. “It is impossible to stand in the way of the
Internet; instead, we should embrace and shape these new
technologies in a way that is safe for consumers.”

Lots more on America’s absurd attempts to block online gambling
(even though a majority of the public supports allowing at least

online poker
) here.

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Russia Moves Forward on Annexing Crimea, Teen Sneaks into One World Trade Center, NSA Continues PR Spin: P.M. Links

  • Where's Kevin James in his mall security outfit?Russia’s lower house of
    parliament has voted to approve the
    annexation of Crimea
    from Ukraine. Only one member voted
    against it.
  • A New Jersey teen managed to sneak into
    One World Trade Center
    , still under construction, and climbed
    all the way to the top.
  • An Arizona reporter claims reporters are providing White House
    Press Secretary Jay Carney their
    questions in advance
    , a charge Carney denies. Given that
    he rarely seems to be able to answer any of the reporters’
    questions, it would be hilarious if he were getting them in
    advance.
  • The National Security Agency’s deputy director spoke via video
    to the TED conference in Vancouver, where he perpetuated the
    agency’s position that it has a
    public relations problem
    , not a civil liberties crisis.
  • South African Olympian Oscar Pistorius is looking to sell his house
    to pay for his defense in his murder trial.
  • Turkish Prime Minister Tayyip Erdogan is again threatening to
    shut
    down
    ” social media platforms such as Twitter in his
    country.

Follow us on Facebook
and Twitter,
and don’t forget to
sign
up
 for Reason’s daily updates for more
content.

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Zenon Evans: Ukrainians and Venezuelans Need Guns To Be Free

It’s hard to stand by and watch the plight of
Ukraine and Venezuela. But the thing is, they don’t need us.
Reason‘s Zenon Evans writes that what they do need is
a way to exercise their basic property rights and protect
themselves. They need guns and could have used them to prevent
their current crises.

View this article.

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ATMs Globally At Risk Of Hacking And Viruses From April 8

ATMs Globally At Risk Of Hacking And Viruses From April 8 ~~~ 

Today’s AM fix was USD 1,327.00, EUR 962.64 and GBP 802.78 per ounce.                      

Yesterday’s AM fix was USD 1,346.00, EUR 967.16 and GBP 809.72 per ounce.     


Gold dropped $26.10 or 1.93% yesterday to $1,329.30/oz. Silver fell $0.25 or 1.2% to $20.57/oz
.

Gold traded near the lowest in almost three weeks today as momentum traders and nervous longs pushed prices lower. Some participants interpreted the Fed’s policy statement as more hawkish than expected. Traders weighed the U.S. Federal Reserve’s indication that it may raise interest rates next year against the crisis over Ukraine.


Gold Bullion Coin and Bar Dispensing ATM

The short term trend and momentum is now down and gold is vulnerable to further falls. Gold had become overbought after its surge to 6 month highs and was due profit taking and a correction. Indeed, gold’s 6 month highs last week had led to a 14% gain so far in 2014 which if it had retained those gains, would have been gold’s best start to a year and the best first quarter for gold since 1985.

Gold is up 11% this year and reached a six-month high of $1,392.22 an ounce on March 17 as turmoil over Ukraine left Russia and the West embroiled in their worst confrontation since the Cold War. The abatement of unresolved tensions between Russia and the West has contributed to
gold bullion’s pullback.

Gold fell yesterday after Yellen said that the Fed would cut its monthly bond buying by $10 billion and said they will slow purchases in “further measured steps.” However, Yellen also made very dovish sounds and signalled that ultra loose monetary policies would continue.


Banking operations globally, including ATMs throughout the world, are threatened as support from Microsoft for Windows XP operating system will end from Tuesday, April 8. Windows XP also powers  medical devices, industrial control systems and some of the hardware used for swiping credit cards.

More than 95% of ATMs also run the operating system, according to NCR, the largest provider of ATMs globally. It expects only a third of ATM providers will upgrade before Microsoft’s April 8th cut-off according to the
Financial Times.


Banks are being asked to take immediate steps to prevent their ATMs becoming inoperational. The end of support for Windows XP is likely to increase the probability of attacks on such antiquated systems and may affect ATM operations according to Microsoft.


From April 8, 2014, Microsoft will stop issuing updates and patches for bugs in its Windows XP operating systems, which was released in 2001. It may be difficult to defend such attacks in the absence of Microsoft support. Microsoft themselves and experts have said that the probability of attacks is 100%.

Many banks have failed to upgrade their systems, including ATMs, and may still be working on Windows XP. They are being advised both by Microsoft and indeed by some central banks to take immediate steps to implement appropriate systems and controls.

The financial system remains vulnerable with much unappreciated technological and systemic risk. Owning non digital, physical bullion coins and bars in segregated, allocated accounts in Singapore is now one of the safest ways to own precious metals. Protect and grow your wealth by reading The Essential Guide To Storing Gold In Singapore


    



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The Fed’s Annual “Stress Test” Is Out: 29 Of 30 Banks Pass, Zions Is This Year’s Sacrificial Lamb

It’s mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed’s stress test (for those who may have forgotten last year’s farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results, can read here). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a “test”, and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone’s confidence has been boosted. So Buy stawks, and build your paper wealth!

WSJ summarizes the results:

The Federal Reserve’s annual test of big banks’ financial health showed the largest U.S. firms are strong enough to withstand a severe economic downturn, potentially clearing the way for banks to reward investors with dividends and stock buybacks.

 

The Fed said 29 of the 30 largest institutions have enough capital to continue lending even when faced with a hypothetical jolt to the U.S. economy lasting into 2015, including a severe drop in housing prices and a spike in the unemployment rate.

 

The results will factor into the Fed’s decision next week to approve or deny individual banks’ plans for returning billions of dollars to shareholders through dividends or share buybacks. The Fed’s annual “stress tests” are designed to ensure large banks can withstand severe losses without needing a government rescue.

 

Under its “severely adverse” scenario—which projects a deep recession with surging unemployment, a steep drop in housing prices and a nearly 50% drop in equity prices over nine quarters—the Fed found the 30 banks would suffer loan losses of $366 billion. The Fed said banks are “collectively better positioned” to withstand such losses.

 

 

Bank of America was the lowest performer among the big banks, with a Tier 1 common ratio that dropped as low as 6% under the Fed’s hypothetical scenarios. Bank of America would have lost $49 billion before taxes, the highest of any of its peers.

As always, our condolences to the bank that picked the short stick this year:

Only Zions Bancorp, a regional lender based in Salt Lake City, posted capital levels during the two-year downturn scenario that failed to meet the Fed’s minimum standards. The Fed said Zions had a Tier 1 common capital ratio of 3.5%, below the Fed’s 5% minimum. Zions has said previously it will likely resubmit its capital plan to the Fed in light of its selling certain debt securities as a result of the Volcker rule, which the Fed and other regulators adopted in December

And here is the truly funny part: in the baseline stress test scenario, the Dow Jones “plunges” to 11.4K in Q3 2014, and then somehow surges back to all time highs by Q4 2016! Does the Fed understand the word Stress?

 

Full CCAR below:

bcreg20140320a1


    



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What’s the Best Way To Learn? Whatever Works For Your Kid.

ClassroomAt a moment when New York City Mayor Bill de
Blasio is
rubbing his constituents the wrong way
with an attack on the
education options represented by
charter schools
, let’s take a break and examine a vision of the
future of education that embraces all sorts of alternatives. Where
de Blasio seems to use your average 1970s-era Department of Motor
Vehicles as the starting point for his policy preferences, a recent
report authored by Goldwater Institute Education Director Jonathan
Butcher looks at the increasingly dynamic and diverse world around
us as a model for helping children learn. Butcher takes it as a
given that children have different needs and should be able to
learn in the variety of ways that suit them, rather than being
plugged into one-size-fits-all institutions.

In
A Vision for Education and the Future of
Learning
 [PDF], Butcher writes:

[I]magine sitting with your child at the dinner table and
preparing for the new school year. But instead of reading a letter
telling you what school your child is assigned to, you have a menu
of schools, classes, tutors, and extracurricular activities to
choose from, some located nearby and others online. This
educational directory lists such options as virtual classes,
schools that focus on the liberal arts, classes in computer
programming, and even lessons taught in another language.

You select math, English, and art classes offered by a local
charter school, where your child will sit with friends she’s had
all of her life. In the afternoon, she’ll study Spanish and music
online and prepare for the SAT in an evening class at a nearby
private school. She swims on the swim team at the neighborhood
traditional school twice a week.

New technology and bold legislative advances in educational
choice are bringing us closer to the day when this hypothetical
dinner-table exercise becomes a reality for every family. However,
this vision for the future is a sharp contrast to the factory model
of education we have come to accept. We have grown accustomed to
the routine of parents sending their children to an assigned public
school, and these schools employ administrators, teachers, and
other staff who receive their pay regardless of how many children
learn to read or drop out of high school. The question for parents
and their students in the next generation must change from “Where
do we go to school?” to “How do we want to learn?”

Butcher makes the point that children should acquire marketable
skills as they learn—something that equips them to function in a
world that increasingly requires some knowledge of science and
math.

Whatever skills are acquired, and for whatever purpose, he also
suggests using technology to allow children to self-pace their own
learning, so that they’re neither bored nor overwhelmed. That would
involve a significant break from the increasingly rigid model
currently in vogue.

Butcher gets specific about the policy tools that can be used to
achieve these ends, including education savings accounts, online
classes, charter schools, and funding that follows kids rather than
schools. But the specific tools are less important than a vision of
education that recognizes that children aren’t widgets. You can’t
shoehorn them into identical settings, treat them as objects of
cookie-cutter teaching plans, and expect good results.

There’s no one right way to teach children, because there’s no
one type of kid. We recognize the need for options everywhere else
in life, from eateries to clothing stores to places where we live.
There’s no good reason to think that a world that offers hot dog
carts and five-star restaurants, thrift stores and Brooks Brothers,
yurts and mini-mansions, should settle for a single model of
institutionalized education. Nor should we pretend that we’re
well-served by letting the de Blasios of the world choke off our
choices.

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Financials Lead Stocks To Recover Yellen Losses (Bonds & Bullion Unchanged)

Treasuries ended the day practically unchanged. Gold, despite some early weakness, ended the day unchanged. The USD ended higher onthe day – extending post-Yellen gains but was esentially flatlining aside from concerted buying pressure from 3ET to 7ET. Copper kept falling (as did silver) and oil prices slipped lower. VIX pressed lower as stocks rallied out of the gate but VIX diverged notably after Europe's close to end the day almost unchanged near 15%. So, given all of that, where do you think stocks closed? Thanks to a pre-CCAR ramp in US financial stocks (which notably diverged from financial credit spreads), US equities managed to clamber their way back up to pre-FOMC levels before giving some back inthe late-daye (with a mini-melt-up into the close). AUDJPY ruled the 'fundamental'-driven US equity markets from open to close.

 

Spot The Odd One Out…

 

US financials led the post-Yellen re-exuberance…

 

Which dragged the blue-chip indices up to unch from FOMC before fading into the close…

 

And while much of this rampaging recovery from Yellen's mis-step is due to US financial stocks jerking higher into tonight's CCAR results – but credit wasn't buying it…

 

Of course AUDJPY ruled stocks all day…

 

And VIX diverged notably…

 

FX markets have been trading in fits and jumps – total flatline then chaos –

 

Copper crapped out again… (but wasn't yesterday's ramp the end of the problems? – That's what we were told?)

 

Charts: Bloomberg

Bonus Chart: The chart explains why Shinzo Abe should be stockpiling "Depends" (via Brad Wishak of NewEdge)


    



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