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Having ripped higher by over 200 points after the US close, Nikkei 225 futures have “glicthed”:
The ramp, which caught futures up to USDJPY happened as they recoupled… we will see which direction the post-break market wants to go…
via Zero Hedge http://ift.tt/1n4yuMk Tyler Durden
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.
However, while Russian hypocrisy is to be expected – after all they are the “Evil Empire” to quote a famous actor and president – it is the humor from the self-appointed moral watchdog of all the world’s evils, the US, that was the highlight of today’s UN session:
U.S. Ambassador Samantha Power dismissed Moscow’s contention that it intervened militarily in Crimea to protect the human rights of Russian civilians there as “baseless,” insisting there is no evidence of any threats against ethnic Russians in Ukraine.
“One might think that Moscow has just become the rapid response arm of the High Commissioner for Human Rights,” she told the council. “Russian military action is not a human rights protection mission.”
Speaking of high commissioners for human rights, at least Russia never invaded a country using made up WMDs as pretext, and did not almost launch World War III to satisfy a nat gas-rich ally over a fabricated YouTube clip. Oh, and all that “innocent civilian casualty” drone stuff too.
So what does the world’s most irrelevant organization do? They send in monitors:
Well, monitors did miracles during the Yugoslav war, maybe they will “work” this time too.
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:
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?
One wonders: did the US Department of Education tell Gazprom to maintain gas supplies to Germany no matter how many CIA agents are operating in Kiev?
Or did ACORN tell whoever is the current pre-countercoup Ukraine president to hike minimum wages?
Or maybe the Department of Justice is quietly trying to collect its Fedex guns sent “erroneously” to Ukraine mercenaries, having confused them with Mexican drug lords?
Whatever the confusion, we are confident that following this latest “escalation” in the US response narrative, that Russia will promptly CTRL-Z everything it has done in the Ukraine in the past two weeks, and say it was only kidding.
***
Tangentially, while it has been made abundantly clear just how terrified Russia is of the US, of Europe and of NATO, for an indication of what China thinks of the latter, the WSJ reports the following:
The departing U.S. ambassador to China, Gary Locke inspired mixed reactions during his two-and-a-half-year tenure. Though his unpretentious manner was widely praised, as the first American of Chinese descent to hold the job, criticism of him had a special bite… The state-run China News Service… published a derisive editorial late last week (in Chinese) that described Mr. Locke as “a banana, with yellow skin and a white heart.”
Because when America respects itself and its symbolic headpiece, the president, so very much how can the rest of the world not follow?
via Zero Hedge http://ift.tt/1kQz8vF Tyler Durden
Authored by Charles Tannock, originally posted at Project Syndicate,
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.
In Western capitals, the response so far has been mixed. The punishments being considered – expulsion from the G-8, for example – would be laughable were the threat to Europe’s peace not so grave. Putin regards the breakup of the Soviet Union as the greatest catastrophe of modern times, and he has sought relentlessly to refashion Russia’s lost empire. If the West intends to be taken seriously, it needs to act as decisively as Putin has.
Putin’s many successes in his imperial project have come virtually without cost. His Eurasian Economic Community has corralled energy-rich states like Kazakhstan, Uzbekistan, and Turkmenistan into Russia’s camp. Georgia was dismembered in 2008. Armenia’s government was bullied into spurning the European Union’s offer of an Association Agreement.
Now the greatest geostrategic prize of all – Ukraine – may fall into Putin’s hands. Russia without Ukraine, former US National Security Adviser Zbigniew Brzezinski wrote, “ceases to be an empire, but Russia with Ukraine suborned and then subordinated, Russia automatically becomes an empire.” And, because the vast majority of Ukrainians have no desire to join Putin’s empire, we can be certain that the state Putin will lead from this point on will be a highly militarized one, rather like the Soviet Union but without the ruling Communist Party.
Given the scale of Putin’s adventurism, the world’s response must be commensurate. Canceled summits, trade deals, or membership in diplomatic talking shops like the G-8 are not enough. Only actions that impose tangible economic sanctions that affect Russian citizens – who, after all, have voted Putin into power time and again – offer any hope of steering the Kremlin away from its expansionist course.
Which sanctions might work?
First, Turkey should close the Dardanelles to Russian shipping, as it did after the 2008 Russo-Georgian War. Back then, Turkey closed access to the Black Sea to prevent the US from intervening, though the US, it is now clear, had no intention of doing so. Today, it should close the Turkish straits not only to Russian warships, but to all commercial vessels bound for Russia’s Black Sea ports. The impact on Russia’s economy – and on Putin’s military pretensions – would be considerable.
Turkey is permitted to close the Dardanelles under a 1982 amendment to the 1936 Montreux Convention. Indeed, Turkey could turn Putin’s justification for seizing Crimea – that he is protecting ethnic Russians there – against him, by arguing that it is protecting its Turkic Tatar kin, who, given Russia’s ill treatment of them in the past, are anxious to remain under Ukrainian rule.
Turkish Foreign Minister Ahmet Davuto?lu turned his plane around in mid-air this week to fly to Kyiv to offer support to the new interim government. Prime Minister Recep Tayyip Erdo?an, no pushover himself, as Putin well knows, should follow up on that gesture of support by immediately closing the straits to Russian shipping – until Putin recalls all troops in Crimea to their Sevastopol bases or to Russia proper. And Turkey should be offered an Article 5 guarantee from NATO should Russia seek to intimidate it.
Second, US President Barack Obama should impose the type of financial sanctions on Russia that he has imposed on Iran for its nuclear program. Those sanctions have crippled Iran’s economy. Similarly, denying any bank that does business with a Russian bank or company access to the US financial system would create the kind of economic chaos last seen in Russia immediately after the fall of Communism. Ordinary Russians should be made to understand that permitting Putin – whose primary claim to leadership is that he ended the penury of the first post-Soviet years – to continue with his imperialist aggression will cost them dearly.
Third, Obama should emphasize to the Chinese their stake in Eurasian stability. Putin may regard the Soviet Union’s disintegration as a tragedy, but for China it was the greatest geostrategic gift imaginable. At a stroke, the empire that stole millions of hectares of Chinese territory over the centuries, and that threatened the People’s Republic with nuclear annihilation, simply vanished.
Since then, Central Asia’s independent states, and even Ukraine, have become important trading partners for China. Russia’s conquests in Georgia greatly displeased China, as was seen at the post-war summit of the Shanghai Cooperation Organization (a regional grouping that includes ex-Soviet countries that share borders with China and Russia). Russia pushed the SCO to recognize the independence of Abkhazia and South Ossetia. But the SCO balked. The group’s Central Asian members – Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan – would not have stood up to the Kremlin without China’s support.
Today, however, Chinese President Xi Jinping may need to be less cryptic in his response to Putin’s adventurism. Indeed, the real test of China’s claim that it is a responsible stakeholder in the world community will come soon at the United Nations. Will it back Putin’s clear flouting of international law, or will it back Ukraine’s territorial integrity?
There are other possible punitive measures. Visas can be denied and canceled for all Russian officials. Assets can be frozen, particularly those laundered by oligarchs close to Putin. Only when the pain becomes intolerable, particularly for the elite, will Putin’s kampf be defeated.
The cost of inaction is high. Countless countries, from Japan to Israel, rely on America’s commitment to act robustly against grave breaches of the peace. Moreover, when Ukraine surrendered its nuclear weapons in 1994, it did so with the express understanding that the US (and the United Kingdom, France, and Russia) would guarantee its territorial integrity. Should Crimea be annexed, no one should gainsay Ukraine if it rapidly re-nuclearized its defense (which it retains the technological capacity to do).
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.
via Zero Hedge http://ift.tt/1hDEbzm Tyler Durden
The American press portrays Putin as being the bad guy and the aggressor in the Ukraine crisis.
Putin is certainly no saint. A former KGB agent, Putin's net worth is estimated at some $40 billion dollars … as he has squeezed money out of the Russian economy by treating the country as his own personal fiefdom. And all sides appear to have dirt on their hands in the Russia-Ukraine crisis.
But we can only see the bigger picture if we take a step back and gain a little understanding of the history underlying the current tensions.
Indeed, the fact that the U.S. has allegedly paid billions of dollars to anti-Russian forces in Ukraine – and even purportedly picked the Ukrainian president – has to be seen in context.
Veteran New York Times reporter Steven Kinzer notes at the Boston Globe:
From the moment the Soviet Union collapsed in 1991, the United States has relentlessly pursued a strategy of encircling Russia, just as it has with other perceived enemies like China and Iran. [Background here, here and here.] It has brought 12 countries in central Europe, all of them formerly allied with Moscow, into the NATO alliance. US military power is now directly on Russia’s borders.
“I think it is the beginning of a new cold war,” warned George Kennan, the renowned diplomat and Russia-watcher, as NATO began expanding eastward. “I think the Russians will gradually react quite adversely, and it will affect their policies.”
Stephen Cohen – professor emeritus at New York University and Princeton University who has long focused on Russia – explained this weekend on CNN:
We are witnessing as we talk the making possibly of the worst history of our lifetime. We are watching the descending of a new cold war divide between west and east, only this time, it is not in far away Berlin, it's right on Russia's borders through the historical civilization in Ukraine. It's a crisis of historic magnitude. If you ask how we got in it, how we got into the crisis, and how therefore do we get out, it is time to stop asking why Putin – why Putin is doing this or that, but ask about the American policy, and the European Union policy that led to this moment.
***
I don't know if you your listeners or views remember George Kennan. He was considered [a] great strategic thinker about Russia among American diplomats but he warned when we expanded NATO [under Bill Clinton], that this was the most fateful mistake of American foreign policy and that it would lead to a new Cold War. George lived to his hundreds, died a few years ago, but his truth goes marching on. The decision to move NATO beginning in the 90's continuing under Bush and continuing under Obama, is right now on Russia's borders.
And if you want to know for sure, and I have spent a lot of time in Moscow, if you want to know what the Russian power elite thinks Ukraine is about, it is about bringing it into NATO. One last point, that so-called economic partnership that Yanukovych, the elected president of Ukraine did not sign, and that set off the streets – the protests in the streets in November, which led to this violence in and confrontation today, that so-called economic agreement included military clauses which said that Ukraine by signing this so called civilization agreement had to abide by NATO military policy. This is what this is about from the Russian point of view, the ongoing western march towards post Soviet Russia.
Jonathan Steele writes at the Guardian
Both John Kerry's threats to expel Russia from the G8 and the Ukrainian government's plea for Nato aid mark a dangerous escalation of a crisis that can easily be contained if cool heads prevail. Hysteria seems to be the mood in Washington and Kiev, with the new Ukrainian prime minister claiming, "We are on the brink of disaster" as he calls up army reserves in response to Russian military movements in Crimea.
Were he talking about the country's economic plight he would have a point. Instead, along with much of the US and European media, he was over-dramatising developments in the east, where Russian speakers are understandably alarmed after the new Kiev authorities scrapped a law allowing Russian as an official language in their areas. They see it as proof that the anti-Russian ultra-nationalists from western Ukraine who were the dominant force in last month's insurrection still control it. Eastern Ukrainians fear similar tactics of storming public buildings could be used against their elected officials.
Kerry's rush to punish Russia and Nato's decision to respond to Kiev's call by holding a meeting of member states' ambassadors in Brussels today were mistakes. Ukraine is not part of the alliance, so none of the obligations of common defence come into play. Nato should refrain from interfering in Ukraine by word or deed. The fact that it insists on getting engaged reveals the elephant in the room: underlying the crisis in Crimea and Russia's fierce resistance to potential changes is Nato's undisguised ambition to continue two decades of expansion into what used to be called "post-Soviet space", led by Bill Clinton and taken up by successive administrations in Washington. At the back of Pentagon minds, no doubt, is the dream that a US navy will one day replace the Russian Black Sea fleet in the Crimean ports of Sevastopol and Balaclava.
***
Vladimir Putin's troop movements in Crimea, which are supported by most Russians, are of questionable legality under the terms of the peace and friendship treaty that Russia signed with Ukraine in 1997. But their illegality is considerably less clear-cut than that of the US-led invasion of Iraq, or of Afghanistan, where the UN security council only authorised the intervention several weeks after it had happened. [Indeed, top American leaders admit that the Iraq war was for reasons different than publicly stated. And the U.S. military sticks its nose in other countries' business all over the world. And see this.] And Russia's troop movements can be reversed if the crisis abates. That would require the restoration of the language law in eastern Ukraine and firm action to prevent armed groups of anti-Russian nationalists threatening public buildings there.
Again, we don't believe that there are angels on any side. But we do believe that everyone has to take a step back, look at the bigger picture, calm down and reach a negotiated diplomatic resolution.
And see this, this, this and this (interview with a 27-year CIA veteran, who chaired National Intelligence Estimates and personally delivered intelligence briefings to Presidents Ronald Reagan and George H.W. Bush and the Joint Chiefs of Staff).
via Zero Hedge http://ift.tt/1hDEeLu George Washington
You hear that old saw that "the market is not the economy," a lot these days, and for good reason. As ConvergEx's Nick Colas notes, the S&P 500 breaks to record highs – but U.S. labor markets remain sluggish; investor portfolios do well – but over 47 million Americans (more than 15% of the population) are still in U.S. food stamp program – the same as August 2012. The important question now is: "Is the market TOO different from the economy?"
Record corporate profits – the reason for all-time highs in U.S. equities – come with little hiring or wage gains. The hottest growth stories are business models with lots of customers but very few employees. The recently purchased WhatsApp – for $19 billion – has 55 employees. Investment payoffs – and increasingly social outcomes as well – are technology-enabled, asymmetric and sporadic. How soon before we reach a tipping point?
Via ConvergEx's Nick Colas,
Last week the local government of San Francisco announced that Google has promised to give $6.8 million over the next two year to pay for over 31,000 low-income young people to use the city’s mass transit system for free. Mayor Edwin Lee applauded the company for helping ease San Francisco’s “Affordability crisis for lower and middle-income families”. Without Google’s help, the successful pilot program would have run out of money in July of this year.
Google’s initiative seems to be a direct response to numerous local protests over its practice of providing free shuttle busses throughout the city for the sole benefit of its employees. Local and often long-time residents, fed up with cost of living inflation from their new stock-option enriched neighbors, see the busses as a symbol of an out-of-touch elite and the companies they serve. Some of the protests have turned violent. Even Wired magazine, a widely read voice of the merits of technology, sees the problem. In the most recent issue: an editorial entitled “Breaking Point: Silicon Valley Can’t Avoid the Haters”, and a back page questionnaire – “Am I a Silicon Valley Douchbag?”
There’s an old Wall Street aphorism that goes “The market is not the economy”, something akin to “A Google bus is not the San Francisco economy.” In both cases, you’d think there were would some correlation. A hugely profitable Silicon Valley should mean a broadly wealthy and generally content “City by the Bay”. And a rocking stock market should indicate a U.S. economy solidly on the mend after the Financial Crisis and accelerating in 2014. Neither seems to be true.
That old school maxim about the market and the economy used to be accurate for the following reasons:
The eyes of the equity market face forward, not to the sides. Investors price assets based on future expectations of earnings and interest rates. In the depths of a recession, stock markets tend to rise – think the early 1980s and 1990s – as they anticipate improvements in corporate earnings. These moves may seem out of sync with current economic data at the time – high unemployment and low consumer confidence – but they eventually prove prescient as those indicators start to improve later in the cycle.
It takes time for the Wealth Effect of higher stock prices to translate into increased consumer spending. Consumers who own investment portfolios need to see their net worth rise for some time before they act on their improved financial situation and spend some of their gains. This feedback loop is important, for it ties the “Real world” economy – especially job growth – to the financial markets.
Recessions in the U.S. don’t tend to last very long, so the workforce in place at the end of the last expansion is still largely relevant and employable at the beginning of the next recovery. Of the 11 recessions since the end of World War II, 8 of them lasted less than a year. Workers who got a pink slip during a slowdown had some confidence that their next job would be available soon enough. This confidence limited the impact of a downturn on consumer confidence, spending, and even social policy.
At least by these factors, the current equity market’s link to the real economy is obviously different; “The market REALLY isn’t the economy” this time around. A few points here:
U.S. stocks are at record highs largely because public company profits are strong as well. There may not be much revenue growth, true. But that’s not exactly a secret. Interest rates remain low, providing support for stock market valuations.
Five years into the current economic “Expansion”, however, and the “Real world” remains sluggish. The U.S. Supplemental Nutrition Assistance Program (SNAP, more commonly known as Food Stamps) still serves over 47 million Americans on a monthly basis. That is 15% of the population, and this ratio is essentially unchanged since 2012. Unemployment may be down to 6.7%, but even the Federal Reserve acknowledges that this number is suspect for both demographic issues and unforeseen shifts in how many people want to work.
If you follow the “Smart money”, you’ll see more of a flashing yellow light than a verdant green one. Mergers and acquisitions, famously cyclical and tied to CEO confidence, are far from boom levels. Bet the corporate ranch on a big deal? “No, thank you” say most CEOs to their bankers. Low risk bolt-on purchases rule the day. Conversely, the pipeline for Initial Public Offerings, where private investors sell to the public, is very robust so far in 2014. “Good market to be a seller”, this patch of smart money seems to say.
Most commentary on this front tends to focus on income inequality, but this narrative may well miss the real point. Markets price securities based on whatever society deems most valuable. Earnings and cash flow are two indicators of value, to be sure, and historically the growth of a business was an alchemy of allocating human and physical capital to maximize the growth of the bottom line.
Now, the priorities seem different. Incremental improvement is out; disruption is very much the word of the day. Consider the following:
Facebook recently paid $19 billion for WhatsApp, a company with 55 employees. That’s the monetary equivalent of hiring 19,000 people and paying them $100,000 for ten years. Facebook itself only has about 5,800 employees, according to Bloomberg, and a market cap of $174 billion.
Other highly valued tech companies also sport relatively low total headcounts. Google, after the sale of its handset business, should have about 40,000 employees for its $408 billion market value. Relative newcomer Snapchat has 30 employees and turned down a $3 billion bid last year. Yep, from Facebook. We’re clearly not in Kansas any more.
Market commentators from Mohamed El-Arian to Larry Summers are warning that this trend has meaningful implications for capital markets and interest rate policy. El-Arian wonders if corporate America’s reluctance to invest in capital and people is tied to the risks of getting it wrong. If a new mobile app can disrupt a large company like Facebook, is anyone safe from innovation? And Summers points to the problem of piles of corporate cash with nowhere to go keeping interest rates lower than historical norms.
In the end, everything from Google’s busses to El-Arian’s conundrum and even equity prices reflect an increasingly “Winner take all” society. Again, that’s not an indictment but rather an observation. The Great Recession and its aftermath align precisely with an explosion in technological innovation. In a slow growth economy, public market investors see growth, rather than just capital, as the true scarce social commodity. Thanks to technology, growth no longer means incremental employment. In fact, recent transactions like WhatsApp seem to point to the opposite.
This trajectory seems unsustainable, but the answer does not need to be nihilistic. Markets, investors, and societies tend to self-correct with time. We do seem to be a point where the problems – slow growth and still-high unemployment – are obvious, while the answers are not.
via Zero Hedge http://ift.tt/NpfzPV Tyler Durden
Presented with little comment.. Compare this:
To the following chart…
It appears the “big lie” remains well and truly in place… Just keep repeating it…
Oh and as a follow-up, Lipton nails it on Mexico…
and then there’s this…
Chart: Bloomberg
via Zero Hedge http://ift.tt/NpaQNW Tyler Durden
Submitted by Chris Andrew and Mustafa Zaidi of Clarmond House
List Interest…
The developed world is not currently in the grip of a major World War, however, the debt burden has increased as if it is. The general population may not be ready to suffer the further sacrifices that this massive deficit increase will lead to, and may unwillingly be becoming the ‘lost interest generation’.
“THE SINEWS OF WAR ARE INFINITE MONEY”.
Thus observed Cicero on the dual monopolies of the State, money and warfare. But how does the State amass this limitless largesse? It does so in three simple ways: taxation; debt issuance; and currency debasement.
When there is a war, the State issues debt to fund the conflict; citizens purchase this debt and await a future rise in taxation, a currency devaluation and a significant increase in the national debt. The contract between State and citizen is clear; in times of war, sacrifices are required, not only on battlefields but also in bond yields.
This can be seen time and time again, from the Prestiti, issued by Venice in the 1100’s, to the National Savings Movement in the British Empire for both world wars of the twentieth century. Indeed the slogans such as ‘Lend to Defend’ and ‘War Savings are Warships’ connected the population to the war and the national debt.
Disconnect
Over the last seven years citizens have lived through a wartime-like increase in national debt, but with no war to explain it. The population has been detached from this peacetime debt explosion, the purpose of which has been to maintain consumption, collateral and capital. These three C’s lack the somber seriousness of war. The citizen is justifiably confused, asked as they now are to bear the increased debt burden, paltry interest rates and possibly currency debasement.
Given the rise in global debt burdens, governments now rely upon low interest rates to keep the cost of interest payments to a minimum. Sorry citizens, the State has redefined the contract.
A tax by any other name
The sovereign debt of the developed world has risen from approximately 80% of GDP to 110%, an additional $12 trillion of debt, while interest rates have fallen to nothing. A ‘normal’ short term interest rate is one that is in line with inflation, which has been an average of 2% for the period 2007-2013. Therefore we can roughly calculate that ‘citizen-savers’ of the world have lost $1.75 trillion in unreceived interest. This is nothing short of being an undeclared tax levied by the State.
Modern day example
Has this ever happened before? Yes, in modern day Japan interest rates have been zero for 19 years. However, the important difference is that there has been deflation in Japan during this entire period, so the savers of Japan have kept purchasing power. Rather than trample the savers it was the asset markets that suffered, with the stock market and property prices taking the brunt of zero rates and credit contraction.
As commented on in an earlier piece (‘Golden Calf to Raging Bull’ – May 2013) Central Banks have placed the economic world on an ‘asset-price’ standard. Asset prices have become the collateral upon which credit is issued and therefore must be protected, even if this means sacrificing savers on the altar of zero interest rates. The chances of central banks allowing interest rates to be higher than inflation is remote.
A Forlorn Hope?
As the quantum of debt has increased, a rise in interest rates would bring hefty costs to the State; currently, interest outlay in the USA alone, at 2.5%, is $400 billion per annum. Any sustained interest rate rise with the continued level of deficit is not manageable without growth being greater than the yields paid. Simply put, interest rates cannot rise without high growth, therefore a ‘lost interest generation’ is unfolding.
The only growth lever left for the State is currency devaluation. As Ben Franklin stated “wars are not paid for in wartime, the bill comes later.” The State’s peacetime but warlike increase in debt awaits its tab.
Bill Please.
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Earlier today we pointed out a curious divergence: while owner equivalent rent, the measurement of imputed costs of renting, has risen to the highest since the Lehman failure, total non-shelter core CPI continues to decline. What is notable is that OER amounts to 23.9% of the CPI basket – as such it is the single largest determinant of inflation as measured by the BLS. And yet everything else, hedonically adjusted of course, keeps falling. By how much? And do you agree with the BLS’ estimates of inflation? To answer these not so important questions, here is the full CPI basket, broken down by weighings, and by annual change.
At first blush, a lot of the “inflationary” assumptions shown below make little if any sense, but then again who are we to argue with the Arima-X-1 seasonal adjustment juggernaut of a few good Econ PhDs.
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Many people have been speculating all day as to why Bitcoin is up so much. The guesses have ranged from oligarchs worried about governments freezing their global bank accounts, to the UK moving away from a Bitcoin trading tax. While both those things may have played a role, I think the primary driver might be be comments from Benjamin Lawsky, superintendent of New York’s Department of Financial Services, on the sidelines of a banking conference today.
I’m not sure what time these comments were made, but it appears Lawsky wants to make sure New York state ends up being a global center for Bitcoin trading. This seems like a big deal to me.
From the UK’s Telegraph:
The collapse of the bitcoin exchange Mt Gox is part of a struggle for survival that could ultimately strengthen the virtual currency industry, New York’s banking regulator has said.
“It’s on the one hand a setback, on the other hand it will cause further improvements in this industry and some more regulatory involvement,” Benjamin Lawsky, superintendent of New York’s Department of Financial Services, told Reuters.
“It’s part of [a] shaking out,” he said on the sidelines of a banking conference in the US.
from A Lightning War for Liberty http://ift.tt/1ksIqkr
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Submitted by Anatole Kaletsky via Evergreen-Gavekal,
Oscar Wilde described marriage as the triumph of imagination over intelligence and second marriage as the triumph of hope over experience. In finance and geopolitics, by contrast, experience must always prevail over hope and realism over wishful thinking. A grim case in point is the Russian incursion into Ukraine. What makes this confrontation so dangerous is that US and EU policy seems to be motivated entirely by hope and wishful thinking. Hope that Vladimir Putin will “see sense,” or at least be deterred by the threat of US and EU sanctions to Russia’s economic interests and the personal wealth of his oligarch friends. Wishful thinking about “democracy and freedom” overcoming dictatorship and military bullying.
Financial markets cannot afford to be so sentimental. While we should always recall at a time like this the famous advice from Nathan Rothschild to “buy at the sound of gunfire,” the drastically risk-off response to weekend events in Ukraine makes perfect sense because Russia’s annexation of Crimea is the most dangerous geopolitical event of the post-Cold War era, and perhaps since the Cuban Missile crisis. It can result in only two possible outcomes, either of which will be damaging to European stability in the long-term. Either Russia will quickly prevail and thereby win the right to redraw borders and exercise veto powers over the governments of its neighbouring countries. Or the Western-backed Ukrainian government will fight back and Europe’s second-largest country by area will descend into a Yugoslav-style civil war that will ultimately draw in Poland, NATO and therefore the US.
No other outcome is possible because it is literally inconceivable that Putin will ever withdraw from Crimea. To give up Crimea now would mean the end of Putin’s presidency, since the Russian public, not to mention the military and security apparatus, believe almost unanimously that Crimea still belongs to Russia, since it was only administratively transferred to Ukraine, almost by accident, in 1954. In fact, many Russians believe, rightly or wrongly, that most of Ukraine “belongs” to them. (The very name of the country in Russian means “at the border” and certainly not “beyond the border”). Under these circumstances, the idea that Putin would respond to Western diplomatic or economic sanctions, no matter how stringent, by giving up his newly gained territory is pure wishful thinking.
Putin’s decision to back himself into this corner has been derided by the Western media as a strategic blunder but it is actually a textbook example of realpolitik. Putin has created a situation where the West’s only alternative to acquiescing in the Russian takeover of Crimea is all-out war. And since a NATO military attack on Russian forces is even more inconceivable than Putin’s withdrawal, it seems that Russia has won this round of the confrontation. The only question now is whether the new Ukrainian government will accept the loss of Crimea quietly or try to retaliate against Russian speakers in Ukraine—offering Putin a pretext for invasion, and thereby precipitating an all-out civil war.
That is the key question investors must consider in deciding whether the Ukraine crisis is a Rothschild-style buying opportunity, or a last chance to bail out of risk-assets before it is too late. The balance of probabilities in such situations is usually tilted towards a peaceful solution—in this case, Western acquiescence in the Russian annexation of Crimea and the creation of a new national unity government in Kiev acceptable to Putin. The trouble is that the alternative of a full-scale war, while far less probable, would have much greater impact—on the European and global economies, on energy prices and on the prices of equities and other riskassets that are already quite highly valued. At present, therefore, it makes sense to stand back and prepare for either outcome by maintaining balanced portfolios of the kind recommended by Charles, with equal weightings of equities and very long-duration US bonds.
Looking back through history at comparable episodes of severe geopolitical confrontation, investors have usually done well to wait for the confrontation to reach some kind of climax before putting on more risk.
In the 1962 Cuban Missile Crisis, the S&P 500 fell -6.5% between October 16, when the confrontation started, and October 23, the worst day of the crisis, when President Kennedy issued his nuclear ultimatum to Nikita Khrushchev. The market steadied then, but did not rebound in earnest until four days later, when it became clear that Khrushchev would back down; it went on to gain 30% in the next six months.
Similarly in the 1991 Gulf War, it was not until the bombing of Baghdad actually started and a quick US victory looked certain, that equities bounced back, gaining 25% by the summer. Thus investors did well to buy at the sound of gunfire, but lost nothing by waiting six months after Saddam Hussein’s initial invasion of Kuwait in August, 1990.
Even in the worst-case scenario to which the invasion of Crimea has been compared over the weekend—the German annexation of Sudetenland in June 1938—Wall Street only rebounded in earnest, gaining 24% within one month, on September 29, 1938. That was the day before Neville Chamberlain returned from Munich, brandishing his infamous note from Hitler and declaring “peace in our time.” The ultimate triumph of hope over experience.
via Zero Hedge http://ift.tt/1ollAZ2 Tyler Durden