Breaking News

 

GDP Now in Dangerous Waters

The Atlanta Fed has posted today that its GDP Now measure has reached exactly the same level as a certain Mr. John Blutarsky’s mid-term grade average. This is to say, it has declined to 0.0%.

 

gdpnow-forecast-evolutionGDP Now goes Blutarsky – via Atlanta FED

 

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Game of Chicken Continues, EU Ratchets Up Pressure on Greece

After the ECB has made Greek debt no longer eligible for repos (note that this mainly concerns government bonds however, bank bonds that have been “guaranteed” by the government will however no longer be eligible after February 28 2015 either – these amount to a quite large € 25 billion), fears of an intensifying bank run in Greece are growing. At the end of December, Greek banks owed about € 56 billion to the euro system. This is estimated to have jumped to about € 70 billion since then.

These debts to the system have grown concurrently with a sharp decline in deposit liabilities since November last year, when it dawned on people that there might be an election. Unfortunately more up-to-date data aren’t available as of yet, but we will try to post them as soon as the Bank of Greece makes them available. However, there exist estimates regarding the extent of the decline in deposits since the end of December as well – very likely an additional € 15 billion has fled from the Greek banking system since then.

 

chicken-620x412

Photo credit: Pressmaster via Shutterstock

 

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Oil Prices, Deflationary Pressures, Bonds and Gold

The transcript of the Incrementum Fund’s fourth advisory board discussion is available for download below. The fund is managed by Ronald-Peter Stoeferle (formerly of Erste Bank, author of the annual “In Gold We Trust” report) and Mark J. Valek, employing a strategy focused on the effects of monetary policy on asset prices, with the help of proprietary indicators based on the monetary theory of the Austrian School of Economics. Here is Ronald’s brief summary of the discussion:

 

“The main topic of the discussion was the increasing deflationary pressure and its consequences on markets and central bank policy. We discussed the consequences of collapsing oil prices, a potential case for new all-time highs in treasury bonds, the impeding currency wars and the consequences for gold. As readers of our previous Advisory Board transcripts may remember, we already discussed the possibility of another round of quantitative easing in the US in our last advisory board meeting. It seems, as if the odds of such an event have increased since then, but generally still are considered as a highly improbable event by most market participants.

Perhaps the whole discussion can be accompanied by this quote by the great Ludwig von Mises: “No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future.”

 

ludwig-von-mises

Ludwig von Mises, who first came to the world’s attention in 1912, as an eminent European monetary theorist with the publication of “The Theory of Money and Credit”

Photo via mises.ca

 

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Greek Election – Decisive Victory by SYRIZA

With more than 95% of the votes in Greece’s parliamentary election counted as of the time of writing, Greece’s far-left Syriza led by Alexis Tsipras was already certain to have won a decisive victory.

 

Greek election resultGreek election results after more than 95% of the votes had been counted – click to enlarge.

 

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US Airdrops Ensure that ISIS Remains Well Supplied …

The US air force recently engaged in an air drop of various supplies in Kobani, including high quality weapons and ammunition, which were intended to aid the remaining Kurdish fighters still holed up in the town. ISIS will probably soon send a “thank you” telegram to Mr. Obama. They have every reason to. According to Reuters:

 

“A Pentagon spokesman says a U.S. airdrop over the Syrian border with Turkey “did not make it into the right hands.”

Rear Admiral John Kirby told reporters on Tuesday, “that we are very confident that the vast majority of the bundles did end up in the right hands. In fact we’re only aware of one bundle that did not.”

The Pentagon is working to determine the authenticity of the amateur video posted online on Tuesday appearing to show a U.S. air drop containing military supplies, intended for Kurdish fighters in Kobani, in the hands of Islamic State fighters.

The U.S. military said it conducted six air strikes on Islamic State militants near Kobani on Sunday and Monday. It said one of the strikes destroyed a stray bundle of supplies from a U.S. air drop in order to prevent them from falling into enemy hands. The video was posted on a social media website and Reuters is unable to independently verify the location, the date and whether it was the consignment that the U.S. said it had bombed. It bears a logo which commonly features on Islamic State videos. The video shows what appears to be an airdrop of several boxes and containers with an attached parachute lying on the ground. A man wearing a black balaclava and combat fatigues opens boxes in the video, revealing packaged grenades and what appear to be rocket propelled grenades (RPGs).

 

(emphasis added)

So now the US air force is busy bombing its own “stray weapons” again…it seems much of the Pentagon’s work is based on the broken window fallacy. Order new weapons, drop them somewhere, and then destroy them. This will surely please US weapons manufacturers and we’re just waiting for Paul Krugman to explain what a great boon to the US economy these activities are.

The Reuters video the transcript above refers to can be viewed here.

Here is the video posted by an ISIS related account on You-tube about the incident (note that we cannot be sure for how long it will remain accessible, as You-tube often erases IS-sourced content):

 

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Former Iraqi Pilots Allegedly Training ISIS Fighters to Fly Captured Syrian Planes

The immense Islamic radical fighting force that “came out of nowhere” already has everything from tanks, anti-aircraft weapons, heavy artillery, and so forth. Ultimately they have all these weapons were provided to them courtesy of US tax payers, who paid for the equipment that was originally given to Iraq’s army only to be later captured by ISIS with astonishing ease.

The only military plaything ISIS hasn’t had at its disposal so far is an air force. However, even that may be about to change according to recent press reports:

 

“Islamic State group jihadists are being trained by Saddam Hussein’s former pilots to fly three fighter jets captured from the Syrian military, a monitoring group said Friday.

The planes, which are believed to be MiG-21 and MiG-23 jets, are capable of flying although it is unclear if they are equipped with missiles, according to the Syrian Observatory for Human Rights.

The jets were seized from Syrian military airports now under IS control in the northern provinces of Aleppo and Raqa, according to the Britain-based group, which has a wide network of sources inside the war-torn country.

It said that former Iraqi army officers who once served under Saddam were supervising the training at the military airport of Jarrah, east of the city of Aleppo. Witnesses have reported seeing planes flying at a low altitude to avoid detection by radar after taking off from Jarrah.

It comes as the United States and its allies carry out a wave of air strikes on IS positions in Syria and Iraq. The jihadists also control two other airports in Syria — Albu Kamal near the Iraqi border and Tabqa in Raqa province.

 

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Destroying Iraq's Cultural Heritage

The fundamentalist retro-gang that has conquered Northern Iraq has decided it needs to go Taliban on cultural monuments it disapproves of. One of the most recent outrages was the destruction of the tomb of Yunus, better known in the West as the prophet Jonah (yes, the biblical one who spent some time in the belly of a whale). Jonah is one of the prophets revered by both Christians and Muslims, so the motivation is not entirely clear. However, this is by far not the only ancient religious site ISIS has destroyed in the vicinity of Mosul. Reportedly the group has by now destroyed some 30 ancient shrines, churches, mosques and Hussainiyas in the area of Mosul alone. Oddly, this included at least four Sunni mosques, so there appears to be a certain degree of arbitrariness to these actions. Yazidi monuments are of course also on the list of things ISIS destroys whenever an occasion presents itself.

In short, the group is not only killing people that don't conform to its harsh version of Islam, it is also trying to erase all traces of their history and culture. It cares not one whit how old or unique these buildings and monuments are. For instance, the mosque of Yunus was built on an archeological site the oldest parts of which date back to the 8th century BC. In short, there are buildings in Iraq that have survived 2,800 years of upheaval and strife, but they haven't survived the coming of ISIS. Apparently ISIS considers all the shrines and mosques it destroys “places of apostasy”. In the course of its rampage it has also burned the books of the Diyala province's library, so reading is apparently a no-no for ISIS as well.

 

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A Preliminary Assessment – From the OSCE Mission

Mish recently posted about the German aviation expert Peter Haisenko, who claimed that the photographic evidence from the cockpit parts of flight MH 17 suggested that the plane must have been downed by air-to-air fire, not a surface-to-air missile.

The photographic evidence consisted inter alia of this high resolution picture of what was left of the cockpit. The decisive point according to Haisenko was the shape of the holes (round) and the fact that the metal was bent outward in several places (according to Haisenko, evidence of high caliber bullets entering the cockpit on one side,  traversing it and exiting on the other side). Haisenko argued that missile shrapnel would leave different marks.

Mish reasonably concluded that non-experts cannot really confirm whether these claims have merit. However, a very interesting recent interview with someone from the OSCE mission examining the crash site has recently turned up in this context. 

To our knowledge this interview went unreported in the Western mainstream media so far (which never fail to report claims made by the Kiev government, no matter how dubious they are – see this article by William Boardman who inter alia dissects a poorly sourced article in the WSJ – see also below).

We find the fact that this went unreported in the Western mainstream press almost more interesting than what the man is saying. He is seemingly confirming Haisenko's claims, while allowing that a final expert assessment remains to be awaited – so this is not yet definitive.

One thing is absolutely certain though: this version of events would fly in the face of everything Kiev and Washington have so far claimed about the incident – the storyline also promoted in the mainstream press with few or no questions asked. Given that multiple sources seem to confirm that Ukrainian war planes were actually shadowing MH 17, this would certainly be a piquant development, to put it mildly:

 

OSCE monitor notes there is evidence of machine gun fire in MH 17's fuselage, but “no evidence of a missile strike”. Oops.

 

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A Brutal Bunch

ISIS is by all accounts is so utterly brutal that its arrival in a location probably does feel like Allah's wrath is descending like a ton of bricks on the heads of those who haven't fled in time. 

Al Qaeda, which terrorism experts refer to as a 'brand that has great weight' in radical fundamentalist circles, has officially disassociated itself from the group, fearing it might damage Al Qaeda's image due to its unvarnished brutality.  The background to this is reportedly a long-running dispute between the late Osama Bin Laden and the equally late (or even later, if you will) Abu Musab al Zarquawi, the Jordanian street thug who founded al-Tawhid wal-Jihad, which eventually became known as 'Al Qaeda in Iraq', the group that has in the meantime mutated into ISIS or ISIL (the Islamic State of Iraq and Syria, resp. the Levant).

Rumor has it (letters exchanged between OBL and Zarqawi have apparently been found) that OBL disapproved of Zarqawi's harsh tactics, rightly fearing they would alienate Sunnis in Iraq. AQI was indeed almost defeated when Iraq's Sunni tribes turned against it.

The movement regrouped in Syria, evidently got its hands on a great many weapons and was joined by jihadists from around the world. However, it continued with its brutal ways, imposing harsh sharia laws wherever it took over. Videos of beheadings and other gruesome executions perpetrated by ISIS fighters have flooded the internet. Undoubtedly ISIS' reputation was a great help in getting Iraqi soldiers to flee their posts when the group recently swept across Northern Iraq.

Al Qaeda, under its new leader Ayman al-Zawahiri finally completely disowned the group, with the disavowal being made official in early February of this year. As one observer remarked, Al-Qaeda seemed to have concluded that “not all press is good press”.

Ironically though, ISIS is farthest along the goal of actually establishing an Islamic Caliphate, a long term plan of Al Qaeda. And the break seems not to have  slowed its momentum one bit. It also appears it has changed its approach in Iraq, so as not to repeat Zarqawi's strategic mistakes.

Iraq's Shi'ite prime minister Maliki has made a grave mistake as well – he has failed to promote unity among Iraq's religious sects. The Sunni tribes in the North are disaffected and are therefore giving ISIS a chance – their help was probably a crucial element in the group's successful conquest of cities in the area.

 

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Barclays Caught Red Handed Manipulating Gold

It was all over the news last week, both mainstream and gold sites. Barclays was caught manipulating the gold price. They were fined £26M, and forced to pay a client who was damaged by their action. The trader who worked for Barclays, Daniel Plunkett, was also fined and banned from working in the financial sector. Here is a link to an article at the Financial Times.

This story is a big deal to the gold community.

It is commonly held that the gold price should be much higher than it is today. For example, many think the proper gold price is the money supply divided by the gold held by the US government. The monetary base is currently about $4T. The US Treasury owns about 261M ounces of gold. Simple math gives us $15,300 per ounce. If we use a broader measure of the money supply, the gold price should be even higher.

Also, there is the argument from common sense. Since 2008, the Fed has been “printing” trillions of dollars. Its balance sheet ballooned from just over $800B to just under $4.4T today. With all this fresh, new money flooding into the markets, why isn’t the gold price reacting as it should?

There are other theoretical arguments why the gold price should be skyrocketing. Instead, the fact is that it’s been dropping since 2011.

It must be that someone is pushing the gold price down. How else can we explain why the price is $1,300 and falling? They are keeping it thousands, if not tens of thousands of dollars, below the level where it ought to be.

And now, we have the Barclays scandal. It seems to offer the smoking gun, incontrovertible proof that the gold market is indeed manipulated.

Not quite.

Consider this analogy. Suppose a teenager stands accused of setting fire to several homes in his neighborhood. Despite investigations by the town police, sheriff, state police, and the FBI, they cannot find the sort of evidence that would convict him in court. Then, a breakthrough occurs. The kid is caught red-handed stealing candy at the corner store. Can the district attorney bring him to trial for multiple counts of arson now?

 

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The Dead of Odessa

Pro- and anti-Kiev protesters clashed in Odessa late last week, a confrontation which ended with numerous of the separatists being burned to death in the trade union building which they had fled into.

 

 

 

It kicked off after marchers calling for Ukrainian national unity, which the Kyiv Post claims was largely comprised of supporters of the local soccer team, encountered a rival pro-Russian group. Barricades were set up and buildings set aflame. Initial reports suggest that dozens were wounded, with at least three people shot dead,according to police. Then, police said at least 31 people were dead after pro-Kiev demonstrators hurled Molotov cocktails into a building where a pro-Russia contingent was holding out.

 

This is according to the Washington Post, which was partly relying on live tweets by Journalist Howard Amos. Amos inter alia noted the strange passivity of the Odessa police force when it came to extending protection to the pro-Russian faction (at one point he tweeted 'pro-Russian guys appear surrounded from three sides, riot police nowhere to be seen').

That's all OK though, since the people demanding more autonomy for the predominantly Russian-speaking regions are all 'terrorists'. Here is a video our democratic friends united under the 'Euromaidan' banner posted on you-tube, seemingly reveling in the death of at least 39 people by fire  (the number of dead has been revised upward to 39, while some local news organizations even speak of 43 dead people):

 

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A Quick Overview

Below we briefly review updates of two charts we have employed in our recent market updates. The first one is a quick glance at several major indexes: the NDX, the SPX, the Russell 2000 and the DJIA. There have been multiple divergences between these indexes at their recent peaks, but there is also a divergence visible now that a rebound has begun – which is a direct result of the recent underperformance of momentum stocks. Note that we have taken this chart snapshot during the trading day, so it doesn't incorporate Wednesday's close yet.

The market has begun to bounce from a natural support level: lateral support in the NDX (as well as the Nasdaq Composite and the RUT) that has served as a support and resistance level on several previous occasions.

As you will see further below, although momentum and growth names are outperforming 'safe' stocks in Wednesday's trading, the trend toward safety is not undermined yet by this short term counter-trend move. There have been several short term pullbacks in the XLU-QQQ ratio since this new trend emerged in November, but the trend has continued all the same. On Tuesday, the ratio actually reached a new high for the move and is probably overdue for a pullback.

The Rydex sentiment measures we are keeping an eye on show practically no change since our last update. The only measure that is not firmly in cloud-cuckoo land just yet are total assets in bull and sector funds. However, relative to assets in money market funds and bear funds, they are near the peak levels recorded in early 2000. Bear fund assets and money market fund assets are at 17 year lows.

 

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The First $3 Billion of a Ukraine Bailout Immediately Go to Russia

This is really too funny. Apparently, the Ukraine owes $3 billion to Russia in bonds that have been issued under UK law. One of the stipulations of the bonds is that if the Ukraine's debt-to-GDP ratio should exceed 60%, the bonds will become immediately callable.

Once the Ukraine gets funding from the IMF,  this is of course going to happen right away – its debt-to-GDP ratio will then most definitely exceed 60%, so the first $3 billion of any aid the Ukraine receives in the form of loans will right away flow into Russia's coffers.

Of course there may be litigation first, but as Greek bondholders have found out, all those who held bonds issued under UK law were actually paid in full, while everybody else had to accept the 'PSI' and could basically go pound sand.

Of course it was all 'voluntary', but funny enough, the holders of Greek bonds issued under UK law didn't turn out to be as altruistic as all the other ones. At least we have not heard of any 'voluntary' contributions made by them. It seems rather doubtful that Mr. Putin will be eager to become a voluntary contributor to bailing out a government which he deems illegitimate. Instead he's going to take his money and run – or alternatively, make as-of-yet unspecified demands.

According to NBC:

 

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What the Economy Needs

We want to briefly comment on the suggestions that the Ukraine – this is to say the government of the Ukraine – allegedly needs to “borrow at least $35 billion”. This has been reported in terms such as these:

 

“The political crisis has cost Ukraine economically as the country is facing a possible debt default. Ukraine needs approximately $35 billion in aid to improve its economy, according to the country’s finance ministry.”

 

The last thing a country needs to “improve its economy” is a giant loan to its government. Government equals waste, even if it isn't prone to stealing, which we suspect the new administration in Kiev definitely is. Why should it be any different from the previous 'Orange Revolution' government? It's the same people, only fortified by a bunch of extreme right-wing nationalists this time, who incidentally hold a number of important portfolios, including everything relating to police, defense, national security and even the post of prosecutor general. Germany's news magazine Der Spiegel, which is largely sympathetic to the new government, reports this most recent tidbit from Kiev:

 

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Ukrainian Government Issues Arrest Warrant for Aksyonov

The latest in a series of futile gestures surrounding the situation in the Crimea is a warrant for the arrest of the Crimea's new prime minister, issued by the central government in Kiev:

 

 

 

 

 

“A court in the Ukrainian capital of Kiev has issued arrest warrants for the prime minister and parliament speaker of the country's autonomous republic of Crimea, the Prosecutor General's office said Wednesday.

Criminal charges had been brought against them and some other politicians in Crimea, said Ukraine's acting Prosecutor General Oleh Makhnytsky.

Last Thursday, the regional parliament of Crimea appointed Aksyonov, leader of the Russian Unity party, as prime minister in a closed session and announced that a referendum would be held over the future status of the territory on March 30.

Aksyonov said Saturday that he had asked Russian President Vladimir Putin to help ensure peace in the pro-Russian region. Ukrainian Parliament Speaker Alexandr Turchynov, who is also the country's acting president, later signed a decree to reject Aksyonov's new capacity.

 

(emphasis added)

Our guess is that Aksyonov's resolve has just been strengthened immeasurably. If they really mean it, then he has henceforth nothing left to lose. Just as Kiev thinks his government is illegitimate, so he believes the Kiev government to be illegitimate. The irony is that both governments were proclaimed by the same methods: First, protesters took over government buildings and thereafter, the respective parliamentarians appointed a new government. Both were slightly dubious affairs from a legal standpoint.

 

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