Central Perk: 18 ian. 2015

duminică, 18 ianuarie 2015

Mish's Global Economic Trend Analysis

Graves Waiting For Bodies: Major War Escalation in Ukraine; In 5 Weeks Ukraine Out of Money
Sneakin' In To The USA: Remake of Surfin' USA: Remake of Sweet Little Sixteen
Swiss Peg Removal: Did Anyone Win?
On the Lighter Side: Robot Beer Pong

Graves Waiting For Bodies: Major War Escalation in Ukraine; In 5 Weeks Ukraine Out of Money

Posted: 18 Jan 2015 06:04 PM PST

We regret having to interrupt feel-good weekend articles with more sobering news. In Ukraine, major battles have broken out over the past couple weeks.

Mainstream media has widely ignored the story because of Greece, then Charlie, and then the Swiss Franc. And of course Western media has no interest in reporting news the rebels are winning.

However, ignoring the story does not make it go away.

Major Rebel Advance

On November 9, 2014, I posted Ukraine Split in Two; Expect Major Rebel Advance.

That advance came later than I expected. But it is here in full force.

Max Keiser provided this accurate headline two days ago: Ukraine Lurches to Full Scale War as Russia Drastically Reduces Gas Supply to EU.

Reader Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian sent a few emails and videos recently worth posting.

From Jacob ...

Hello Mish

Here's a video that shows a military "cemetery" in Dnepropetrovsk region, Ukraine. Note especially seconds 33 through 51. There are literally hundreds of empty holes in the ground here, waiting for bodies. I read in another source that these graves were dug very recently, probably right before this video was posted on January 8th. Looks like Kiev had been planning an offensive, presumably the one that was just broken up by the rebels in the last few days. I guess it's cheaper to have the graves dug all at once than to keep calling the backhoe crew over and over.

Link if video does not play: Mass Graves in Ukraine.

Dreizin writes ...

The last few weeks have seen a significant escalation of fighting, which really boiled over in the last 5-6 days. I can't say for sure who "started" it, but it's clear from those hundreds of holes in the ground that the Ukrainians anticipated something.

Donetsk Airport Battle is Over

Dreizin also informs me that "The battle for the Donetsk airport is over. The rebels expelled Ukraine's most elite units from their last redoubts in the new terminal building."

More reports coming up, none of them pretty for Kiev. Mainstream media ... silence. But some things are impossible to hide. Here's one of them.

USD/UAH - US Dollar Ukrainian Hryvnia

Since November 30, 2013, the Hryvnia has collapsed from 8.24-per-US$ to 15.86-per-US$. That's a decline of 48 percent. Everything Ukraine imports costs nearly double what it did just over a year ago!

Ukraine is bankrupt. It needs another bailout, but so far there are no offers. See Ukraine Needs Second Bailout, Currency Reserves Drop to Critical Level; Another IMF Visit; Where's the Love?

In 5 Weeks, Ukraine Out of Money

Please consider Foreign Currency Reserves in Ukraine Plunge 63 Percent in 2014

Ukraine's foreign currency reserves were down to just over $7.5 billion last year, the lowest level for 10 years and barely enough to cover five weeks of imports, pressured by external debt repayments including to the IMF and to Russia for gas. Repayment of $14 billion of external debt falling due in 2014 took its toll.

War Marches On

From a "grave" perspective, the war marches on, and will do so until the IMF steps in with another bailout or every penny is gone, whichever comes first.

Philosophically speaking, the war is actually over. Ukraine is already split in two even if international recognition of that event comes years later.

Addendum:

The report from Dreizin that rebels took the airport was from Saturday.

Reuters reported Sunday afternoon that Ukrainian troops retake most of Donetsk airport from rebels.

Ukrainian troops recaptured almost all the territory of Donetsk airport in eastern Ukraine they had lost to separatists in recent weeks, as thousands gathered in Kiev for a state-sponsored peace march on Sunday.

Military spokesman Andriy Lysenko said the army's operation had returned battle lines near the airport to the previous status quo and thus not violated the 12-point peace plan agreed with Russia and separatist leaders last September in Minsk.

With its runways pitted and cratered, Donetsk airport has long since ceased to function.

But its control tower and extensive outbuildings, battered by shelling and gunfire, have taken on symbolic value, with government soldiers and separatists hunting each other, often at close range, in a deadly cat-and-mouse game among the ruins.

What we don't know is "what costs" and to which side. Also, I strongly suspect that this surge for Kiev to the previous status quo may mean Ukraine forces are really thin somewhere else of more strategic importance, such as the area around Mariupol.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Sneakin' In To The USA: Remake of Surfin' USA: Remake of Sweet Little Sixteen

Posted: 18 Jan 2015 04:37 PM PST

For those looking for yet another lighter weekend moment, I can oblige with a trilogy of musical videos to compare.

Rusty Humphries made an entertaining (some may say "politically incorrect" or insensitive) remake of the 1963 Beach Boys hit tune Surfin' USA, which in turn was actually a remake of Chuck Berry's 1958 hit Sweet Little Sixteen.

Here are three versions to compare.

Sneakin' In To The USA - Rusty Humphries

Link if video does not play: Rusty Humphries: Sneakin' In To The USA

Surfin' USA - Beach Boys

Link if video does not play: Beach Boys - Surfin Usa (Live, 14 March 1964)

Sweet Little Sixteen - Chuck Berry

Link if video does not play: Chuck Berry "Sweet Little Sixteen"

Some of those who did not know the true origin of Surfin' USA, do now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Swiss Peg Removal: Did Anyone Win?

Posted: 18 Jan 2015 01:32 PM PST

Swiss Economy Winners and Losers

In reference to Rabbit Hole Intervention Fails: Wild Moves in Swiss Franc as Switzerland Abandons Euro Peg; Morals of the Story, reader "Grandaddy" a Swiss citizen living in the US, asks "How will removal of the peg affect the Swiss economy/outlook in the long run?"

Intuitively Obvious

It's an interesting question because what seems intuitively obvious at first glance is not necessarily correct over the long haul or even the short haul.

For example, conventional wisdom is that Swiss exporters will be crucified and importers will benefit. Certainly there is an initial shock. But long-term, look at it this way: The price of materials used in exports (metals in watches and Swiss-made machinery) will get cheaper.

This may balance out over time, or not. One would have to look at input and output prices for every company to see.

Right now, Luxury Watch Makers Bemoan Move. Nonetheless, I have to wonder: Are top-end luxury items so ridiculously overpriced and so dependent on price-insensitive status buyers that the price change will not matter that much?

One widely recognized "big loser" is the tourism industry. For sure, hotel prices in Switzerland rose as much as 40% overnight compared to prices elsewhere.

But Swiss grocery shoppers buying food imports from France, Spain, and the rest of Europe benefit mightily.

Which of those is more important? I suggest the benefit to Swiss shoppers is more important, at least in the grand scheme of things. Moreover, those consumers will have more money to spend on other things ... like restaurants, travel and hotels.

Net-net this is likely to be a loser for the tourism industry, but it may not be the total carnage most expect.

The big short-term loser was the financial industry. You can easily see that in the reaction of the Swiss Stock Exchange.

SMI Swiss Market Index

In two days the Swiss stock market plunged 1375 points, from a high of 9274 to a close of 7899, a decline of nearly 15%.

Pressure Cookers and Central Bank Sponsored Stability

In a matter of minutes the Swiss franc plunged as much as 40%. Such is the nature of foolish attempts by central bankers to control volatility.

Brokerage Firm Gets Rescue

By attempting to keep things stable, the central bank created huge winners and losers on financial speculation.

For example, broker FXCM required a $300 million bailout to stay afloat.

In the quote of the day (going back to December), Drew Niv, FXCM's chief executive officer said "Without leverage no one would trade". Niv argued in favor of 50-1 leverage over proposed 10-1 leverage.

Niv got his way, and needed a huge bailout.

For details, please see Quote of the Day: "Currencies Don't Move Much. Without Leverage, No One Would Trade"

It Only Takes One

Also consider the biggest known loser to-date. Hedge fund manager Marko Dimitrijevic and his $830 million Everest Capital's Global Fund that lost everything overnight.

For details, please see It Only Takes One: Hedge Fund Manager Who Survived Five Debt Crises Wiped Out Overnight on Swiss Franc

Repercussions

This Swiss Franc peg story goes far beyond speculation on the Swiss franc. How many hundreds of billions of euros were bet on individual stocks? And what about interest rate bets?

Like the Swiss franc, volatility on interest rates was also amazingly low. But yields plunged across the board, and so did potential wins and losses.

Currency-Wise Who Won?

It's widely believed that for every loser on financial speculation there is a corresponding winner. Under this theory, it's a zero-sum game, with market-makers taking a slice out of every transaction.

Certainly, there were record net short bets on the Swiss franc by speculators. And market makers have to take the other side of client bets. It's what they do. For every long contract, there is an offsetting short contract. So presumably the market makers were the winners.

Not so fast. Market makers hedge (at least they are supposed to). If the market makers had perfect hedges or nearly so, they broke even and all the winners (and losers) were on the speculative side of the trade.

Thus, it is not necessarily true that anyone had to win!

But perfect hedging is impossible.

Depending on imprecise hedges, not only on the franc, but also on related interest rate bets and derivative bets on Swiss equities, there is ample room for market maker wins and losses on moves of this magnitude.

I suspect the reported losses by Citigroup etc., were combined losses on all of the above. Perhaps some market makers lost more on equities and interest rates bets than they made being forced-long on Swiss franc futures.

Comparison to Gold and Silver

The above is essentially the same setup as with gold and silver futures. How many times did we hear "If silver rises to $10, then $15, then $20, then $30, then $35 ... it will blow the commercial shorts out of the water".

It never happened and I maintain it never would, because the market makers were hedged.

But hedging does not imply no market manipulation, and on that score, I believe there was manipulation (in both directions, up and down).

Swiss Franc Winners

Even though there were net record shorts in Swiss francs, some individual speculators were long. Since no one has stepped forward, they were likely small individual speculators or small hedge funds with relatively small positions.

Unless and until a big player steps forward, that is the most likely outcome.

Lawyers Win

On the non-financial side, here is a clear cut winner: Lawyers. Lawsuits of all kinds will likely fly in the wake of this fiasco.

The 90% Lost

More broadly speaking (in reference to central bank tactics in general), the 90% lost. Central bank induced volatility, inflation policies, and interest rate manipulations benefits those with first access to money: the banks, the political class, and the already wealthy. Everyone else loses.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

On the Lighter Side: Robot Beer Pong

Posted: 18 Jan 2015 11:29 AM PST

Momentarily taking a step back from the Swiss franc, the renewed war in Ukraine, Charlie and politics, consider robot beer pong.

Link if video does not play: Jimmy Fallon Faces Off Against A Beer Pong Robot

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Seth's Blog : Please, go away

Please, go away

What if you had a big blue phone on your desk, and whenever you needed to, you could pick it up and instantly be connected with a smart and caring tech support expert (from your internet provider, your web host, the airline you use the most...)?

What are the chances you'd ever consider switching to a competitor that didn't offer similar service just to save a few bucks?

The current model of big company support is to throw undervalued, undertrained, underpowered human beings at perplexed customers, frustrating and disrespecting them enough that they shrug and give up.

These are the chat rooms staffed by people who merely repeat what's on the website.

The phone trees that bury 'talk to a human' at the very bottom of the options (or hide it altogether).

The reps who are rewarded for a short call and punished for escalating you to someone who can help.

And yes, the email correspondents who send notes from addresses to which you cannot reply.

In industries with drive-by customers, people you'll never see again, customer churn is no big deal. But in businesses where the lifetime value of a customer exceeds $15,000 (I'm thinking cable, phones, travel, banking), it's insane to blow someone off so you can save $17 in customer support isn't it?

How to execute this shift? Start with this: Use the conference call functionality built into every phone to create a team of customer advocates. They can even work from home with a cell phone you provide. Your best customers call an advocate, and then the advocate's job is to start calling internal resources until the problem is solved. Reward advocates not for short calls, but for delighted customers.

Start with six advocates and 600 customers and see what happens. The advocates will get smart, fast, about who to talk with and what to say, they'll start to see what works and what's broken, and they'll work to change the organization into one that keeps score of the right things.

Any customer that walks away, disrespected and defeated, represents tens of thousands of dollars out the door, in addition to the failure of a promise the brand made in the first place. You can't see it but it's happening, daily.

I wonder how these companies would act if every day, someone piled $100,000 in cash in the parking lot and lit it on fire. For many companies, the 'please go away' strategy is more expensive than that.