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Despite dismal PMIs from China and USA, stocks managed a miraculous 'pump' into the US open only to be unceremoniously dumped very soon after as MoMos and Biotechs had the rug pulled out. Weakness continued down to Nasdaq's 50DMA (and Biotech's 100DMA) and stabilized into the European close when soon after, via the magic of EURJPY, stock rebounded back to VWAP. Alas, it was not be the day for the bulls as VWAP-selling hit hard in the last hour… until the good fairy 330RAMP CAPITAL came along, and punched VIX in the mouth in a desperate attempt to regain green and get the Dow positive post-FOMC. Unlike many fairy tales though, this one ended sadly ever after. Stocks down, USD down, Gold down, VIX up, Yield Curve down to 2009 levels.

 

Despite the exuberant rebound in stocks…helped by the magic of VIX-crushing algos…

 

Stocks were unable to hold green on the day and remain red post-FOMC

 

USDJPY remained generally in charge (with some EURJPY thrown in soon after the EU close)…

 

A day in the life of an S&P 500 futures contract…

 

The Nasdaq has seen the biggest high to low drop in 2 days for 9 months…

 

But the most important chart of the day is the ongoing collapse of the term structure… this is the biggest 4-day slide in the curve since the US downgrade in summer 2011…

 

As the Treasury complex was mixed – 10s and 30s rallying and shorter-dated selling off further…

 

Even though the USD fell notably as a sudden rush out of USD and into EUR occurred around the EU close…

 

Gold and silver slipped (-1.8%)

 

Charts: Bloomberg

Bonus Chart: Nasdaq Biotecth Index bounced perfectly off its 100DMA

via Zero Hedge http://ift.tt/1eGgHsC Tyler Durden

Moments ago the CBO released its estimate of what S. 2124, aka “Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014“, better known as the “Payment of Overdue Gazprom Invoices Act” – here is the verdict: “CBO estimates that enacting the bill would decrease direct spending by $373 million over the 2014-2024 period. S. 2124 would achieve that decrease mostly by rescinding funds that were provided as an emergency requirement. Certain sanctions, if enacted, would affect revenues, but CBO estimates that those effects would not be significant. Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues. CBO estimates that the statutory pay-as-you-go effects of S. 2124 (which, by law, do not including the effect of rescinding funds provided under the emergency designation) would be to increase the deficit by $320 million over the 2014-2024 period.” Of course, the total amount authorized is substantially higher at $1.3 billion, and will be met through various loan guarnatees, and other US-backed promises, which the CBO is assuming right now, will not result in outlays (they will).

 

Either way, one thing is certain: in order to enforce the fading Pax Americana in the Ukraine, and to keep the funding to the otherwise insolvent Ukraine flowing, which as everyone knows will be first and foremost used to pay Russia’s Gazprom, the US is about to send lots of money abroad. As in, not in the US.

So when it comes to priorities, whom does Putin have to thank for the billions in Western funds he is about to receive? Maybe he can start in Detroit, where the local utility is planning mass water shutoffs over $260M in delinquent bills.

In other words, while the US is enforcing some odd international law, according to which a democratic vote is not credible but a violent coup is, US citizens are about to have no drinking water over a paltry $260 million. From Detroit News:

The Detroit Water and Sewerage Department has a message for Detroit residents and companies more than 60 days late on their water bills: We’re coming for you. With more than half of the city’s customers behind on payments, the department is gearing up for an aggressive campaign to shut off service to 1,500-3,000 delinquent accounts weekly, said Darryl Latimer, the department’s deputy director.

 

Including businesses, schools and commercial buildings, there are 323,900 Detroit water and sewerage accounts; 164,938 were overdue for a total of $175 million as of March 6. Residential accounts total 296,115; 154,229 were delinquent for a total of $91.7 million. The department halts cutoffs through the winter because of complications associated with freezing temperatures, such as damaged pipes. But this spring, a new contractor has been hired to target those who are more than two months behind or who owe more than $150 — twice the average monthly bill of $75.

 

The department says it’s now ready to “catch up” with cutoffs halted because of the unusually harsh winter weather. DWSD is looking to show there are consequences associated with not paying water bills, Latimer said.

 

“Not everyone is in the situation where they can’t afford to pay,” he said. “It’s just that the utility bill is the last bill people choose to pay because there isn’t any threat of being out of service.”

 

People pay up more when they see the department out cutting off water to neighbors, and the statistics bear that out, officials said. In July, for example, before contractors started on the shutoffs, the department cut off 1,566 customers. That month, it collected $149,000 in water bills. Extra contractors started working on cutoffs last summer. Attheir peak in October — before cold weather caused a halt to the disconnects — 3,700 cutoffs occurred. The department collected more than $350,000 in overdue bills that month. That number of cutoffs translated to more than double for warm weather months compared to last year.

 

“We’re trying to shift the behavioral payment patterns of our customer base right now,” said Constance Williams-Levye, DWSD commercial operations specialist. “And so aggressively we’ll have a team of contractors coming in, in addition to our field teams.” Up to 20 additional contractor crews are expected to be employed working on the cutoffs, DWSD officials said.

 

The department bills monthly and sends out notices when bills are overdue. When an account is more than 60 days late, a notice goes out saying service could be cut, Latimer said.

 

Residents don’t necessarily have to move out but Latimer said there were instances, in the case of households with children, where the department of social services will come in and say the kids will be removed from the home if water is not restored.

 

“Usually folks will then come in and make some kind of arrangement,” Latimer said.

While we respect the DWSD’s “behavioral” experiment at making Americans accountable and taking responsibility for their action, such as paying for services rendered, it is far too late – the entire fabric of US society would tear apart, with disastrous and deadly consequences, if such an approach was taken at the wholesale level. Confused why? Just look at the $17.5 trillion in public obligations the US government is on the hook for, and which it will never repay, aka the “Minsky Moment” with the only footnote that for now the US is the world’s reserve currency, so the Fed can always print more $ and monetize even more debt. Sadly, this always ends in tears.

In the meantime, since everyone in the US is merely living from can kicking to another can kicking, one wonders: wouldn’t the $373 million in funds destined to pay off Putin’s oligarch buddies not be better used to pay overdue DWSD bills, which would then allow several tens of thousands of Detroit residents to have running water for a few more months?

Not that we advocate either course of action, but we do wonder: just who sets capital allocation responsibilities at the White House. Because last time we checked, Russian billionaire oligarchs don’t even vote in the US.

via Zero Hedge http://ift.tt/OSEv2s Tyler Durden

While Angela Merkel has publicly threatened that Russia risks “massive economic and political harm” if it doesn’t change course, Germany’s envoy to Russia, Gernot Erler, has more realistic concerns. As Bloomberg reports, Erler warned that US sanctions are counterproductive and probably won’t make Putin bow to Western demands.

The sudden German show of restraint is hardly surprising given their exposure to Russian energy provision and the fact that a stunning 54% of Germans believe the EU and US should accept Russia’s annexation of Crimea.

 

Erler goes in to note that “starting the spiral of sanctions reduces possibilities for dialogue,” and warned against completely excluding Russia from the G-8 (as Merkel had suggested a day earlier). 

Via Bloomberg,

U.S. sanctions on Russia are counterproductive and probably won’t make President Vladimir Putin bow to Western demands on Ukraine, said Gernot Erler, the German government’s coordinator for relations with Russia.

 

Erler’s comments in an interview in Berlin today reflect German restraint on punishing Russia for its annexation of Crimea and differ in tone from Chancellor Angela Merkel, who has said Russia risks “massive economic and political harm” if it doesn’t change course. Erler, whose Social Democratic Party is Merkel’s junior coalition partner, plans to travel to Moscow for talks with Russian officials on March 24-25.

 

Financial sanctions ordered by President Barack Obama yesterday and Russia’s response of denying entry to nine U.S. officials show that “we’re already seeing a spiral,” which makes “saving face” more difficult, Erler said.

 

“Starting the spiral of sanctions reduces possibilities for dialogue,” Erler, 69, said at his office two blocks from the Brandenburg Gate. “That’s regrettable. Based on experience, I have low expectations about the short-term effectiveness of sanctions.”

 

…

 

“Russia views itself as a world power at eye level with America,” he said. “We’re dealing with a very self-confident power, that won’t change its policy under outside pressure. That wouldn’t work with America, either.”

 

Erler also warned against “completely excluding” Russia from the Group of Eight nations, a day after Merkel said the forum “doesn’t exist anymore” for now. Still, Erler said there’s “a strong consensus” in German policy toward Russia.

 

…

 

Restricting Russian energy imports probably wouldn’t be among the sanctions, he said, citing Russian gas flows that “always worked” during the Cold War.

Good-sanctioner, bad-sanctioner?

via Zero Hedge http://ift.tt/1iv4HLe Tyler Durden

Submitted by Ramsey Su via The Acting Man blog,

Legal Mumbo-Jumbo

As promised, the Johnson/Crapo bill has finally arrived.  Here are the 442 pages of legal mumbo jumbo, guaranteed to cure all forms of insomnia and those suffering from low blood pressure.   

Allow me to provide a summary. 

The Bill calls for the elimination of FNMA and FHLMC.  It will be replaced by FMIC with a 5 member board appointed by the president.  There will be a 9 member advisory board to assist FMIC and the OCMA.  An internal OIG will be funded by the FMIC to inspect the FMIC.  The FMIC and the OCMA would update Congress on the MIF and audited by the Comptroller General.  FMIC can create any office but must establish the Office of Underwriting, Office of Securitization and the Office of Federal Home Loan Bank Supervision.  The OCMA would administer the Market Access Fund.  Of course, we cannot forget multifamily housing.  There will be an Office of Multifamily Housing.  As for regulations, FMIC starts with the Standard Form Credit Risk-Sharing Mechanism.  Then there will be rules for the Mortgage Insurance Fund.  FMIC would be exempt from SEC but there will be a Securitization Platform with a Platform Board.  Regulations to come include servicers, IDI, PMI and the authority to issue any regulation they desire ……… I am sorry, I need to stop here, I can't read any more.  My head is hurting too much, trying to compute the compliance cost.  (MND has a good summary for those interested.)

 

House Price Inflation and the Fed

Instead of wasting time on the details, I would like to approach Freddie and Fannie reform from a different perspective – the origination and loss recovery.  

In hindsight, it is clear that the agencies did not lead the sub-prime bubble but they were nevertheless dragged into the cesspool.  They never provided no-doc no-qualification NINJA loans, but cannot escape the simple maths of lending 95% LTV loans when the V (value) was artificially inflated by 40%-50%-or more, resulting in all the negative equity loans outstanding today.  Regardless of how qualified a buyer may appear to be at origination, if the property's value declines by, say 20%, all 95% LTV loans will be in trouble.  

Is double digit home price appreciation a reasonable expectation, when inflation (as imagined by the Fed) is non-existent, income growth is negligible and GDP growth is barely a couple of percent?  Is the bill going to prevent the new agency from insuring loans secured by inflated assets? 

It is unclear how the Fed justifies buying agency MBS when home prices are appreciating at an unsustainable pace and agency loans command 90% of the mortgage market.  Are they trying to use a housing bubble to rescue the economy?  Are the Fed's actions disregarding any consequences to the real estate market?  Is the purchase of agency MBS a real tool for monetary policy, or is it just something the Feds were allowed to do?  

Greenspan, Bernanke and Yellen all confessed that they were wrong about sub-prime.  They all underestimated the consequences.  Yet, they are still empowered to openly manipulate the real estate market, something they admitted that they know very little about.  For agency reforms to be meaningful, Congress should first remove the power of the Fed to buy agency MBS, allowing some type of orderly free market price setting mechanism to return.

 

Making Rules Up on the Fly

As regards loss recovery, there were Federal Laws, State Laws and local government ordinances, the rules and procedures that a lender must go through when a borrower defaults on a mortgage.  They have all been ignored during the aftermath of the sub-prime bubble.  Order has not been restored.  No one can really say what the rules will be if the industry suffers another down turn.  The Johnson/Crapo Bill adds to the confusion:

Sec.305. Authority to protect taxpayers in unusual and exigent market conditions.

 

If the Corporation, the Chairman of the Federal Reserve Board of Governors and the Secretary of the Treasury, in consultation with the Secretary of Housing and Urban Development, determine that unusual and exigent circumstances threaten mortgage credit availability within the U.S. housing market, FMIC may provide insurance on covered securities that do not meet the requirements under section 302 including those for first loss position of private market holders.

In other words, Section 305 explicitly states that if the Fed, the Treasury and HUD decide market conditions are "unusual and exigent", whatever that means, they can have taxpayers directly fund any bailout and change the rules as they see fit.  To have the gall to say they are protecting taxpayers is an insult to the intelligence of the taxpayers.  Hmmmm. "Intelligence of the taxpayers"?  I need to think about that one.

How can risk managers assess mortgage risk when the rules are moving targets, subject to changes that are dependent upon the prevailing political winds?

The agencies have been providing cheap financing to borrowers, courtesy of the Fed.  The agencies have been providing cheap and bullet proof insurance for bond investors, courtesy of the Treasury.  The Bill somehow expects some mysterious private capital will come in to insure the first loss position and the Government (including the FOMC) can gracefully exit its role in the mortgage monopoly. That is more than overly optimistic.  Can anyone quantify that in dollars as well as mortgage rates?

 

Conclusion:

In summary, the Bill is going to increase mortgage compliance costs.  It will confuse, rather than clarify, the mortgage application and approval process.  It is a disaster.  Fortunately, I opine the Bill has no chance of passing in its present form.

 

Alan Greenspan and Ben Bernanke – Clueless, but intervening anyway …

via Zero Hedge http://ift.tt/1oVG5xz Tyler Durden

Venezuela’s exchange rate is a Gordian Knot of rules and regulations meant to baffle onlookers with bullshit and, we suspect, hide the hyperinflation from prying eyes just a little longer.

Today’s launch of SICAD II, a new currency market which allows the free-market to bid for USD (in Bolivars), appears to be an effort to provide liquidity to a black-market for dollars. SICAD II priced at 55 Bolivars today – an 88% devaluation from the official rate of 6.29 (and another auction-based rate SICAD I – applicable to some firms – of 10.8).

 

This new SICAD II rate will replace SICAD I as the official tourist rate.

Confused? You should be – the bottom line is that Maduro and his cronies continue to suppress the reality of a hyperinflating currency as student marches grow ever more popular and outspoken.

 

The positive ‘spin’ is that SICAD II has lowered the black market rate but simply due to the additional liquidity and transparency that the platform provides – an 88% devaluation is nothing to be too excited about!!

 

Via Reuters,

“It is going to cover 7, 8 percent of real (dollar) demands, seeking equilibrium as regards the flow of foreign currency necessary for the functioning of the economy,” Maduro said in a speech on Friday.

 

Sicad 2 essentially revives a previous system, known locally as the “permuta” or “swap” market, which Chavez shuttered in 2010 after accusing speculators of manipulating it.

 

Opposition politicians have long criticized the government’s currency controls. Still, they are lambasting Maduro for what they call a “stealth devaluation” via the new system.

 

“Today will be ‘black Monday’. Sicad 2 is another devaluation for our currency,” Tweeted opposition leader Henrique Capriles. “Nicolas has also finished off the bolivar. Another blow to the poor.”

 

Venezuela’s annual inflation rate, currently at more than 56 percent, is the highest in the Americas.

As Bloomberg adds,

“This is a devaluation any way you look at this,” Tamara Herrera, chief economist at financial research firm Sintesis Financiera, said by phone. “The government is trying to bring down the black market rate with this new market, with the consensus that the dollar should be trading for about 50 bolivars.”

via Zero Hedge http://ift.tt/1gjijJW Tyler Durden

Trading desks are awash with chatter over which FX desk just got a tap on the shoulder as it appears beaking 141.00 in EURJPY soon after the European close sparked a mini-avalanche of sell USD orders and sent stocks ramping briefly. Some talk of US term strcuture bets gone awry (as the EUR move occurred as 5s30s broke to 2009 lows) There is little if any fundamental news to pin to this move – but when has there ever been – and gold and bonds hardly budged on the ramp.

 

 

Some chatter that a 5s30s steepener bet finally unwound as the term structure broke to 2009 lows…

 

but no one is confirming.

via Zero Hedge http://ift.tt/NKQQVF Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.

Emmanuel Saez and Thomas Piketty are leading lights in the exploration of rising wealth inequality. Both are academic economists who have devoted considerable time and effort to assembling data that deepens our understanding of the issues.

For example, Saez's recent essay Striking it Richer: The Evolution of Top Incomes in the United States, provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.

Here is a chart of the top 10% share of income, based on their research: (the note in red marking the beginning of financialization in 1982 is my own)

What is the primary driver of this era's widening wealth inequality? Thomas Piketty's new book Capital in the Twenty-First Century provides an answer: financialization. While definitions vary, mine is:

Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

Another way to describe the same dynamics is: financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.

When the profits from financializing collateral and leveraging those bets to the hilt far exceed generating wealth by creating products and services, the economy is soon hollowed out as the perverse incentives of financialization start driving every business decision and strategy.

Author David Cay Johnston recently wrote an insightful review of Piketty's book,Trickle-Up economics:
 

Coming out of the Great Recession in 2009, inequality increased dramatically, the opposite of what happened when the Great Depression ended nearly eight decades earlier. Why?

The short answer: When investment returns exceed economic growth, the rich get richer, increasing inequality.

When an economy grows at 1 percent annually but investment returns are 5 percent, the already wealthy need to reinvest only a fifth of their gains for their fortunes to grow at the same rate as the overall economy. The rest can be spent on a sumptuous lifestyle.

Since by definition the very rich do not need to consume 80 percent of their incomes — the portion by which investment returns exceed the growth of the economy in Piketty’s model — they can reinvest most of their annual gains in the market. Over time this accumulating capital will snowball.

The official American income numbers, crunched by Piketty and his sometime colleague Emmanuel Saez, show that in the 21st century wealth and income increases are almost all taking place among the tiniest sliver of the wealthiest and highest-earning.

The top 1 percent of Americans raked in 95 cents out of every dollar of increased income from 2009, when the Great Recession officially ended, through 2012. Almost a third of the entire national increase went to just 16,000 households, the top 1 percent of the top 1 percent, Piketty and Saez’s analysis of IRS data shows.

The income changes for the vast majority are just as revealing. The bottom 90 percent saw their average incomes rise 8.8 percent in 1934 over the prior year, while in 2012 the same statistical group had to get by on 15.7 percent less than in 2009.

Piketty shows that whether capital is taxed or not, inequality will grow under current policies because savings from current wages and salaries cannot grow as much as returns to existing riches.

The process of accumulating “becomes more rapid and inegalitarian as the return on capital rises and the [overall economic] growth rate falls,” Piketty writes.

It's important to note that capital is not monolithic, nor is all capital qualitatively equal. Capital that is invested in rigged financier games funded by the Federal Reserve (for example, carry trades and high-frequency trading) is entirely different from capital that is placed at risk in a start-up company.

Capital invested in building a house is quite different from capital invested in pyramiding the mortgage into mortgage-backed securities (MBS) and exotic financial instruments based on the MBS.

Productively invested capital is at risk and generates additional production of goods and services. Financialized capital skims profits from leveraging debt: nothing of any real-world value is produced, it's just a giant skimming operation based on information asymmetry (or outright fraud and misrepresentation) and leverage.

Fed-funded financialization creates a perverse set of incentives: talent and capital flow to unproductive skimming operations because that's what generates the outsized profits, effectively starving the real economy of talent and capital.

The Fed makes essentially limitless funds available to banks and financiers at near-zero interest rates. Try borrowing $100,000 from the Fed at 0.1% interest; you can't. That privilege is reserved for financial predators and parasites.

Financier skimming operations stripmine productive assets and labor. With the Fed providing free money to financiers and no limits on debt, leverage, information asymmetry and sleight-of-hand accounting, the only result possible is widening wealth inequality.

You want to fix wealth inequality? Abolish the Fed, eliminate the too-big-to-fail banks, tax speculative profits from high-frequency trading and other skimming operations at 90% and lower the corporate tax rate on productively invested capital to 5%. The only way to reduce wealth inequality is to change the incentives and disincentives to favor productive investments and innovation rather than financialization.

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