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  • British Pound crosses $1.70 [View news story]
    I'm not so sure its sustainable either but the fact remains that the UK is the fastest growing country within the G7. This feat, of course, is an irritant to a spectrum of economists (the usual suspects), who had argued the UK's slightly "austerian" policies would doom the country for decades. Humiliated and proven flatly wrong, the suspects are now arguing how little the UK has really achieved and point to special circumstances that have allowed the UK to achieve what it has while going to great lengths to caution that UK economic polices are no model for the world. Larry Summers recently concluded an article in the FT saying "It (the UK) certainly should not, however, be seen as any kind of inspiration to other companies or countries."
    May 6 01:10 PM | Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    GJ, Both you and gggl make interesting points.

    But as I have said before, I believe there is a "Putin" doctrine. And rather than rebuilding the Soviet Union Putin is acting on a long-standing goal to create a buffer zone to counter the encroaching West, an ambition that suggests Crimea and eastern Ukraine may be just an initial steps.

    "The Kremlin's official objectives in Ukraine are supportive of this broader strategy: protecting Russia's own security, countering NATO expansion, and helping Russian-speaking residents of Ukraine if they come under threat of persecution."

    But I believe protecting Russian speaking Ukrainians is predominantly a pretext to destabilize Ukraine and justify extension of geographical control. Putin may have genuine concerns for Russian speaking sympathizers inside Ukraine, but I believe he attaches greater priority to geographical/political expansion.

    May 6 12:35 PM | 4 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    I tend to agree that reporting has been slanted to the benefit of Kiev and its supporters, however extreme.

    The problem is that it cannot be denied Putin wishes to expand his sphere of influence and build a buffer against an encroaching west but many interested people are using this policy as a means of justifying human rights abuses against all people sympathetic to Russian interests, not just the fighters.

    The image of a corrupt, chaotic and divided Ukraine – killing and robbing its own citizens – suits the Russian government very well. And amid events spinning out of control, God knows what the highly anticipated election on May 25th will bring.
    May 6 08:42 AM | 14 Likes Like |Link to Comment
  • Weighing The Week Ahead: Is The Ukraine Crisis Important For Financial Markets? [View article]
    I made this point elsewhere that economic integration is replacing the nuclear deterrent of MAD as a discouragement of full scale war economic war as we are seeing in the Ukraine. Germany exports machinery, France sells arms and the UK sells flats and takes massive deposits from the Oligarchs. Conversely, Russia ranks as the EU's number one trading partner, accounting for 41% of all trade. The two spheres of influence are relatively weak in economic terms and thinking within the EU is country centric, making it difficult to agree upon anything beyond token sanctions. In my mind, it will take more than Putin fomenting unrest in eastern Ukraine for the Europeans to agree to really serious action, whether military or economic because of their nature and their concern for fragile national economies. And as George Friedman has pointed out, a land war with Russia would be far more complex than suggested by the comparative size advantage enjoyed by NATO. And a full blown economic war could create unknown risks and vulnerabilities for the global economy, possible creating another Lehman moment. With all of this said, a continuum of scenarios could be developed to assist with investment decisions but there are so many possible outcomes conditional upon Russian behavior and US/EU counter measures it's almost impossible to catalog and meaningfully quantify all of the possibilities, much less assign probabilities and risk/reward relationships to each possible outcome. Given this grey scale, we can say the Ukraine remains a tail risk but I'm not sure how to hedge against further economic disruption unless you short the rubble or hryvnia. Once further measures are taken (possibly) after the May25th elections, additional hedges may become apparent.
    May 5 07:31 AM | 3 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    While not making light of the situation, things are going swimmingly well for Putin who is enjoying his highest domestic popularity in recent years. As with Benghazi, this is no "spontaneous" uprising as the separatists used shoulder-launched anti-aircraft missiles suggesting trained, highly qualified foreign military specialists were operating in the area "and not local civilians, as the Russian government says, armed only with guns taken from hunting stores". But that is really a small detail as the Ukrainian people are obviously just pawns in a much larger geo-political game but it helps when the pawns are fearful of the new authorities in Kiev and have little faith in Ukraine after 23 years of post-Soviet independence marked by rampant corruption and poor living standards. Finally, the smart folks over at the IMF realize as the size of the Ukraine shrinks while its official obligations remain fixed, it may need more than $17 billion of assistance which will help pay Gazprom bills ($2.2 to 3.5billion) and possibly the $3 billion euro bond Russia purchased from the Ukraine last December. Putin is having a field day while suffering, thus far, only muted sanctions and harsh by criticism by an unnamed president on Facebook.
    May 2 07:48 AM | 7 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    I should be trading but the market is tricky, had a good April and would rather spend time out figuring out how Obama and LaGarde will screw things up in the name of helping. When Russia bought $3 billion of non-tradable eurobonds from Ukraine (due December 2015) they inserted some interesting provisions including a debt threshold clause of 60% of GDP which, if exceeded, allows Russia to convert the bonds into a demand for cash. Equally interesting, Russia's bonds make all of Ukraine's state and state-guaranteed foreign bonds cross-default to one another: if Ukraine skips a bond payment due in 2014, holders of the bond due in 2021 can accelerate. All of these provisions provide room for mischief and could accelerate the payment date of the bonds which are separate and apart from monies owed Gazprom by the Ukrainian sate utility. Segue. Bloomberg reports that IMF loan of $17 billion contains a provision that $2.2 billion of the loan will be used to pay monies owed to Gazprom but notes "Ukraine’s gas debt to Russia is one risk to the programme. The IMF has had to build in an assumption about how much Ukraine will pay Russia for gas, and if that is wrong, the funding might not be sufficient. The IMF generally requires countries to stay current on their debts as part of any programme, so Ukraine will be expected to keep paying Russia, although the amount of its debt is in dispute." And that will clearly be the case as Gazprom's last invoice to Ukraine was for $3.5 billion, virtually guaranteeing that the IMF's fears will be confirmed. In the worst case scenario, repayment of the bonds will be accelerated and the IMF would assist Ukraine with a past due amount of $3.5 billion, bringing Russia's take to $6.5 billion. My bet is the IMF loan will prove insufficient and the loan guarantees signed by the US and the EU in April (each about a $billion) will be needed. Putin should be pleased.
    May 1 12:31 PM | Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    And since we are the largest quota contributor to the IMF, it becomes increasingly surreal. We are waging a small scale economic war against Russia yet applaud actions by the IMF that will benefit Russian interests.
    May 1 09:06 AM | 8 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Just read a Bloomberg piece and at least $2.2 billlion (likely understated) will go to back payments on natural gas purchases from Gazprom. Perhaps of greater interest, the IMF and Ukraine have been discussing this loan since 2008 with the major obstacle being the need for Ukraine to phase out natural gas subsidies as part of getting its fiscal house in order. If Yushchenko and other political leaders of the time had the political brass to go along with IMF conditions, the arc of history could, possibly, be different than what it is today.
    May 1 08:31 AM | 4 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Morning All,

    I was hoping SA would report on the recently announced $17 billion IMF loan (bet) to Ukraine. I want to know whether any of these monies will be used to help the Crimea or the the eastern provinces of Donetsk and Lugansk which Kiev recently lost control of. Is Russia expected to co-sign?

    As to China, there is so much going on beneath the surface I'm not sure how useful dispersion surveys are when the internals are so questionable. Housing starts are beginnig to fall but prices are falling and inventories are building, posing obvious financial risks

    Oddly, though, steel production keeps increasing even though about half of all steel production is consumed by housing. Overcapacity, excess supply and sagging prices have taken Chinese steel companies from profit to loss in the first quarter, and the problems are likely to get worse as production continues to increase.

    And as we all know, none of this or China's widely discussed and debated debt issues fall within the scope of PMI's.
    May 1 07:21 AM | 5 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Forgot to say Morning All which I want to correct by saying enjoy the day.

    Here is a must read on the BoJ's statement, revealing Kuroda's confidence in accelerating inflation is not widely shared with many dissenting from his language. Kuroda, is appeasing Abe and applauding policies which may or may not work.
    Apr 30 10:31 AM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Meanwhile, in a parallel universe, Japanese companies are drastically reducing their outlook for profits and are bracing for lower growth in GDP stemming from reduced exports and the adverse consequences of the increase in the VAT.

    As the article notes, real gross domestic product will grow by 1.1 per cent in the fiscal year to March 2015. In its last interim forecast in January, the BoJ said it was expecting growth of 1.4 per cent, down a notch from its October estimate of 1.5 per cent. I see a pattern here.

    "And economists expect real gross domestic product in Japan to shrink by an annualized 3.4 per cent in the current quarter, before resuming growth likely supported by ultra-easy monetary policy and a second round of growth initiatives in early summer from Abe."

    Finally, the IMF is all over Abe's ass to start introducing structural reforms which are politically costly.

    And with another tax hike looming (to 10%), nothing on the horizon of suggests higher inflation unless it is a result of fresh attempts to weaken the currency and higher import costs.
    Apr 30 08:42 AM | 5 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Morning All,

    From a headline of an October, 2012 issue of the Telegraph:

    "Paul Krugman attacks 'mad' austerity policies in Britain
    "The Government's pursuit of austerity is "fundamentally mad" and could cast a shadow over the British economy for up to 15 years, Nobel prize-winning economist Paul Krugman has warned."

    CI here. According to the IMF, Britain will be the fastest growing economy within the G7, There are imbalances within the economy, but that is true for most and in no way vindicates the clownish Paul Krugman who, in addition to being wrong about the UK, has been wrong about the imminent collapse of the EMU.
    Apr 29 08:26 AM | 12 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Mo Zii, I'm more of a policy wonk than a historian but believe the 40 million deaths attributed to Stalin originated with studies undertaken by the historian Medevedev which were published shortly before the breakup of the Soviet Union. But it includes 20 million believed to have been killed in WWII, exaggerating the point I was trying to make. But even if its "only" 20 million non-war deaths, it's clear Stalin was a troubled psychopath who eliminated anyone and everyone see to be a threat to his power.

    Here is some cut and paste stuff:

    Most other estimates from reputed scholars and historians tend to range from between 20 and 60 million.

    In his book, “Unnatural Deaths in the U.S.S.R.: 1928-1954,” I.G. Dyadkin estimated that the USSR suffered 56 to 62 million "unnatural deaths" during that period, with 34 to 49 million directly linked to Stalin.

    In “Europe A History,” British historian Norman Davies counted 50 million killed between 1924-53, excluding wartime casualties.

    Alexander Nikolaevich Yakovlev, a Soviet politician and historian, estimated 35 million deaths.
    Apr 28 01:54 PM | 2 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    gggl, I think we are going to have to agree to disagree on what I said about Putin taking over the Crimea.

    And while its true there are many in Crimea and Ukraine fluent in Russian and sympathetic to Russia, it would be a mistake to believe Putin is a human rights kind of guy because he is both a student and admirer of Joseph Stalin who is credited with killing around 40 million largely Russians beginning in 1929 and continuing through WWII.

    That said, it is widely believed Putin's broader geo-political interest in the region is to create a Eurasian Union to create a buffer zone to counter the encroaching West; he would love to rebuild the Soviet Union but that is out of the question.

    "The buffer zone takes on economic significance but Ukraine is also important for military reasons; the Ukrainian city of Sevastopol is the headquarters for Russia’s Black Sea Fleet. Ukraine’s strategic location as a borderland between Russia and Europe and its proximity to Russia’s own breadbasket and economic heartland in the Volga region make the country key to Russia’s geopolitical strength and, ultimately, its survival."

    "A strong Russia allied with Ukraine gives Moscow confidence and strength, particularly in dealing with Europe, while a Russia without Ukraine is weak to its core." Further, if the Ukraine were to join the EMU and enjoy unlikely economic prosperity it could galvanize Russians to believe they too would be better served with Western governments and institutions. Obviously, this poses an unacceptable risk to Russian stability.

    So while Putin may feign interests in the fate of Russians inside Ukraine, they are actually pawns in a much larger game. And there is little doubt that the armed men wearing uniforms without insignias which seized control over the Crimea were Russian soldiers.
    Apr 28 11:36 AM | 7 Likes Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    Morning All,

    Knowing the Europeans are a union in name only and having measured and taken stock of Obama, Putin felt safe in taking over the Crimea and fomenting instability in Eastern Ukrain. Today additional sanctions against individuals have been announced, only broadening the net against individuals whose assets may be frozen and who are denied visas to travel. Wider sanctions such as broad measures to shut down big chunks of the Russian economy - energy and banking - are being held reserve because Europe requires the energy produced in Russia, trade considerations and if the Russian economy were to implode its fallout would ripple throughout the global economy. Financial and economic integration has introduced a new deterrent to war similar to Mutually Assured Destruction. Again, finance is proving to be nuclear.
    Apr 28 08:11 AM | 10 Likes Like |Link to Comment