WHY NOT?

Everybody else has decided to write about it so why not me.  CITGO of course the wholly owned affiliate of PdVSA  the national oil company of Venezuela.

Well, maybe not wholly owned.  You see, CITGO is the only thing that Venezuela owns that works and is worth anything, so when it's parent, being broke, needed money to continue to pay the God knows how many political hacks on its payroll and the coffers of the thugs who run the country off they went to their socialist (HAH) buddies, Russia's ROSNEFT, a wholly owned susidiary of Putin & Friends for a bit of the ready.  Sure, says Putin, provided you pledge about 49% of CITGO...not that we don't believe in Chavezismo but oil son, things aren't looking so great right now.

Well, things are looking worse and there is no doubt that at all that PdVSA will default on debt sometime later this year which will no doubt trigger the cross default in the ROSNEFT loan which will result in a payment demand which when not made will trigger a move to collect the collateral which will create an international mess of monumental proportions...assuming the civil was, presently in its early stages, doesn't end the country for good.

What makes this all so great is that CITGO is an American company and if anybody thinks that the Russians have a chance in hell of gaining any control over 39 pipelines and a half dozen refineries in the United States, that person might consider professional help.  By the same token, did the Russians really think they were receiving decent collateral.  Surely, they have top flight advisors (Memo to Charlie: find out who's lawyering this thing for the Russkies).   Can't believe they did, so what do they have.   Welllllll, they will certainly have a claim which if coupled with the other 51% would constitute ownership.  Now if the Venezuelan government could be induced to selling the remaining shares and if the two pieces could be put together some clever young investment banker might make a heck of a fee...or get assassinated in the process with this cast of players.  There sure as hell is a seller in PdVSA and there are probably buyers if...and it may be a big if...the bleeding of CITGO by PdVSA has not wrecked the infrastructure of the company.

Overlooking all of this is the total collapse of Venezuela and the undoubted national default which will occur later this year.  It is a enormous story and a desperately sad one.  If civil war of some sort breaks out there will be involvement with other countries particularly Colombia.  I watched the President of that country rather closely during his visit to the United States this week.  He does not instill confidence in possibly becoming the point man in this looming crisis.  Indeed...well, I shall refrain from political comment even in a country where I once had a deep involvement.  There will come a time.

Have a great weekend

WORKIN' ON THAT TAN

Another beautiful day today.  Few more of these and I'm going to look like George Hamilton helped immeasurably by Janet & Co, doing exactly what everybody thought they would do; leave everything in place, say there is less risk out there (translation: we got BREXIT all wrong) and hold out a bit of hope for a rise in September.  On the latter point, forget it.  There is absolutely no chance of a rate rise two months before the election from this Fed.  None.  So we cruse along without a care in the world-- except for around here because the Cubbies are beginning to slip.  Somehow, I don't think the world order will be affected.

The big news today, just breaking I might add, is hat the new stimulus program widely expected...and in some quarters feared...from the Bank of Japan apparently will not happen.  I just glanced at exchanged rates in Asia a moment ago and the Yen was surprisingly strong yet again based it seems on the BOJ expressing that there is no need for a new stimulus package.  Caught me out as I would have been short but as I don't have two Yen to rub together no harm done.  Tomorrow's markets will be interesting.

                                               ------------------------------------------------------

It's politics, but I have to comment on this.  Just when the news cycle was heading into top speed in covering Bill Clinton's speech at the convention last night..."In 1971 I met this girl..." up pops The Donald and kills the entire story line with an absolutely beauty:  "Russia, if you can find those 30,000 Emails, you'll make some real friends among these press people (pointing) here"  WELL!  All hell broke loose with the NY Times accusing Trump of asking Russia to spy against the United States and that was the gentlest of the criticism.  Trump plays these guys like a tin drum.  Never for a moment did the Times consider that among all the nations in the world that own a computer the only one that might NOT have the Emails is the United States.  Of course they have been hacked...even the FBI has much admitted that.  But that raises another question for this most extraordinary of all elections.  If the Emails do contain damaging information on Mrs. Clinton as many suspect, is she now and could she be compromised in the future by a foreign power who has that information.  It is the electronic generation version of the oldest intelligence ploy existing, the HONEY TRAP.  If anybody figures that out and brings it up, let me know would you?  I'll be in the sun.  Until November.

THE ROLLER COASTER CONTINUES

Equities WAAAAY up today.  Oil up.  Why? Well in the first case there were good car sale numbers followed by not-as-bad-as-we-thought manufacturing numbers, so equities was the place to be.  In the second case, some Russian came out with a report that the Rodina and the Saudis had agreed to freeze production at current levels irrespective of what Iran was planning to do and everybody was ready to jump on board.  Terrific news, eh?  Except that when one stops to think about what was said one realizes that freezing production just at the point where everybody is pumping at max capacity might not be the solution to the problem which as we keep saying is not one of demand but of supply. Then, to compound the silliness, some genius speculates that what the guys are really after is for the U.S. to reduce fracking which caused the mess in the first place.

News flash to the world: the United States does not produce oil; private oil companies produce oil.  The U.S. cannot order private companies to stop producing.  If private companies stop producing, cash flow stops, debt payments stop and bankruptcy becomes reality.  Am I the one who is nuts I keep asking myself when I see this stuff.  Maybe I am as a lot of people want to believe it.

Another reason that was proffered today on the rise in equities was now that the economy seems to be on track, the Fed can continue to raise interest rates.  Huh?  Aside from the fact that for 10 years the stock market has performed because of low interest rate, with the rest of the world cutting interest rates doesn't it seem likely that at some point the Fed might just have to worry about where the dollar would go (UP) and the effect that will have in regard to the export sector (DOWN)?  Does to me.  Poor buggers are still in the box of their own making.  And speaking of boxes, the Japanese today got paid to raise even more debt.  Yep, negative yields on the new on-the-run Yen bonds issued today.    All this would really be fun if it wasn't so nuts.  I think I'll get back to Argentina and their announced plans to raise $15 billion in the markets next month.  I need to shift back to the world of reality.   Later.

THERE ARE RISKS, AND THEN THERE ARE RISKS

The funny thing is no one seems to pay attention.  I had mentioned some weeks back about all those planes flying around over Syria and what might happen.  Today, the Turks shot a Russian SU-24 out of the sky for apparently "invading" Turkey for 17 seconds, then their buddies on the ground killed the two airmen who managed to eject and then killed a Russian marine in a rescue mission while blowing up a rescue helicopter at the same time.  The world blinked nary an eye.  In fact the equity markets closed up at the end of the day.

Maybe the reaction was, "Ah ha. Russia is a paper bear," and to be sure the operational expertise exhibited by the Bear today was considerably less than formidable.  Mind you, the SU-24 is no match for the souped-up F-16 the Turks were flying but everything else was amateur night in the Russian Circus.  Then again, it's still Russia and it is still Putin, a nut at best, but it is also Turkey and Article 5 which may alone keep things under control and force Putin to lick his wounds and wait to fight another day.  I fear this isn't over.

But I can't get over the singular lack of concern world-wide.  It was as though nothing happened and yet something very big occur ed.  Thanksgiving is a lousy time for crises because nobody wants to deal with one and the tendency is to wait for Monday.  I'm not kidding; it's just that the rest of the world keeps on truckin'.  Thanksgiving is just another Thursday.

Anyway, we're off to be with family and friends tomorrow, and Monday will probably come too quickly.  For those of you that celebrate with us, have a wonderful holiday.  For those of you Over There or over somewhere, peace...or at least take a shot at it.

See you next week.

APRIL IN MOSCOW

This was in the midst of being written yesterday when the first thunder storms of the year came rolling in.  KA-BOOM!  And all electronic appliances stopped but the lights didn't go out.  Back on this morning so I thought I would wait and close out yesterday's thoughts.  The break is easy to spot.




Well, the papers were full of pictures of Alexis and his new best friend, Val, who was positively dripping with unctuous dribble and the thought of this silly little man from Greece apparently spitting in the eye of the EU over the Ukraine and expecting big numbers from Mother Russia.  Putin loves it when ever there is trouble afoot.

Over the weekend, our rock star finance minister traveled to Washington to meet with Christine to promise her that the IMF would get paid and Chrissy, in return, promised to do everything she could to help Greece.  Things were looking up until one stops to think that there is really nothing she can do and there is no way in hell that Greece can come up with a couple of billion next week without new loans and hence, Alexis to the Kremlin tout suite.

I think the strategy is beginning to take shape and it doesn't look good.  The IMF gets paid but we now begin a series of selective defaults probably beginning, if possible, with Germany because everybody hate the Germans.  Now here is where this thing gets hairy as it brings us bright back to where we were a few years ago.  A couple of billion missed payments in Euros doesn't scare anyone, but the European banks are still not clean and the specter of rolling defaults or even one massive default could have repercussions throughout the entire EZ.  Remember, too, the Greek banks, which are already toast de facto, will become toast de jurie and just what does that mean?

Well, for one thing they have been issuing massive amounts of T-Bills which are guaranteed by the Greek Government, which they buy themselves and sell to the Central Bank to fund their liquidity position!  Right now the Central Bank can use the notes as collateral at the ECB!  That ends immediately and the music stops.  That is when real blood begins to spill.  I asked He Who Knows All Things the other day how could there be a single Euro left on deposit in a Greek bank.  Answer: "Who says there is other than day to day working capital."  It was rhetorical on my part but he confirmed what I already knew.

I don't think we are going to have another banking crises ala a few years back but things are going to become very difficult over the next few months.  On a grander scale, if the EZ banking system comes under new stress how can it not upset any thought of an economic resurgence which is being talked of in hushed tones as though it has really come into existence.  One must keep in mind that the only real source of credit in the EZ are the banks and if one takes them out of the equation, most everything stops.  The concept of such as exists Over Here of a "shadow banking system" is still merely a concept in the EZ.  Over Here, the involvement of commercial banks in credit extensions--particularly what is called "C & I" (credit & industrial)  lending has shrunk from somewhat over 50% of the market as little as 20 years ago to slightly under 20% today.  We have discussed the risk in that on previous occasions but it is what it is.  In Euroland it ain't what it ain't.


Well, Christine got her money today, Alexis flew back to Athens and the Rock Star met with Joe Steglitz who, next to his good self, is probably the last economist with whom to be seen in the middle of such a crisis.  Alexis got just what he should have expected: a Greek icon stolen by the Nazis during by the occupation and retrieved by the Russians.  Reports say Alexis was in tears.  Of course the dumb bugger forgot to ask Putin why the Russians had held on to the thing for SEVENTY years before giving it back but, hey, he's learning.  He didn't get any money as was predicted in this space but in the future he probably will.  Here's how.

I think there will be rolling defaults probably beginning in the next few weeks, not in total, but to the extent that the Greeks can afford to pay out something.  In exchange for Greek support on the political front, the Russian will engage in some "bridge financing" to their Orthodox brothers.  keep in mind that the sanctions imposed by the Euros on Russia expire at the end of July.  They can ONLY be renewed with the unanimous vote of all member states.  Do not expect the Greeks to leave the Zone or the Union before that.  IF they make nominal payments, they can surely talk this thing out for a couple of months and what's a billion or two to the Russians at this stage given what is at stake.  Anyway, that's what I would do.  Of course that might cloud the future for a decade or two but they have been around for three thousand years or so...it's only been the past 2000 that have been a problem.


Jamie Diamond's letter to shareholders today really set a cat among the pigeons.  Read it and we'll try to talk about it tomorrow

WE'RE BACK!

"Tom, I'm still seeing double."  Tom is my surgeon and neighbor.

"Charlie, the operative word is seeing."


We're back, a good way from perfect but lookin' really good...and feeling even better.

Big doings while sidelined on just about everything so the trick is going to be how to weave the past with the present beginning with the election which, as he challenged it would be, was all about Il Duce's policies of the past six years.  Yeah, Il Duce.  No point of being clever about it anymore, let's just call it as it is and hope he doesn't end up on a lamppost.  He, his policies and his party got killed which is going to shape the next two years but of course that hasn't stopped him in his imperial quest the latest being the "normalization" of relations with Cuba about which other than the Castro boys, the Venezulus, the Nics and other assorted vermin and despots in Latin Land, who benefits?  Certainly not the Cuban people and the U.S.  But, forward he goes, trailed by an increasingly smaller group of sycophants and hangers-on, wandering from one alternative universe to another.  The problem is he has chosen a high stakes game in which he holds less than half of the aces.  If he loses one of his challenges--just one--be it a real risk in with the Supremes involving Obama Care and Executive authority, or a disaster in foreign affairs,  the economy could be brutalized.  It is therefore critical that the Republicans, having been wildly successful, prepare for what they have fought and the fall-out from the same.  Not to have in place contingency plans to deal with success would be critical.  It all begins in two weeks.

On the bright side, the complete collapse in energy prices has been the second most important event in the past month and a half, providing what amounts to a huge tax break to the American consumer and massive upheavals in the geopolitical landscape especially in regard to Russia.  Tsar Vlady's imperial ambitions may have been seriously derailed by a world awash in oil and the prospect of burgeoning new supplies of energy arriving in western Europe in a much shorter time frame.  The Saudis bless them, have chosen sides in this one and from our standpoint, all the bad guys are getting squeezed.  If Il Duce's mob aided in that, good on em'.  But times are not good for the Rodina, Belarus--couldn't happen to a nicer bunch--and Venezuela just to name a few.  The Zulus could be real close to asset sales and thoughts of default just past the first of the year assuming Duce doesn't do something even stupider and bail them out.  Emerging market funds are the other side of this picture, however, with people like Allianze and...ready for it...PIMCO, up to their eyeballs in dodgy paper with the former holding a big number in Russian private sector.  Nobody's going in the tank over this but there might well be a cut back or two in bonuses this year.  Cry for them.

A third important and truly encouraging piece of news was the roll-back of a small part of Dodd-Frank which sent crazy Lizzy into an apoplectic state which was certainly fun to watch.  Poor Lizzy, the minute her back was turned, WHAMMO, right in the neck from my old bud Chuck Schumer whose motto has always been, "Gather ye campaign contributions while ye may..." and the easiest gathering spot is Wall Street.  But this is not going to go away and blood is going to be spilt.  More on this in coming episodes and on the Federal Reserve which today said it ain't doing nuttin'.  The market, which had been awful for ever it seemed immediately went up 300 points.  And a Merry Early Christmas to all!  Who says it's not about interest rates?

Finally, it became more and more apparent...as we have been suggesting...that the next year is going to be all about Europe, the Union and the Euro.  Baring external political events, this is the game to be played and the one to watch which we shall be doing carefully and with great regularity.  So, I am really looking forward to the coming months and trying to tie all this together.  I hope you're still with me and thanks for all the good wishes I received.  Believe me, they were very heart warming.

THE END OF THE END?

It was last week I guess when the Head of the Banque de France announced that the crisis of the Euro and of Euroland was at an end.  I think at the time I expressed some skepticism.

I have been watching the close of the stock market and the commentary of the talking heads.  It hasn't been a good week, that's for sure made worse by the deepening morass that the standoff between the Ukraine and Russia is becoming.  It seems that after weeks of attempting to downplay the global nature of these goings-on--especially by the Euros who absolutely do not want to know--people suddenly took notice today when the Ukraines began to fight back and killed a few people.  Russia of course reacted and started flying jets and moving tanks all over the place but what really got people's attention was VISA's announcement that its quarterly earnings were going to be hurt because of a sharp down turn in Russian revenue.  My reaction was you have got to be kidding me.

About 10 years ago I got into a discussion with a very, very smart guy with whom my son worked. Despite the fact that he holds a Ph.D in Political Science from one of the world's great universities, I ventured to warn him that Russia needed watching.  Nah, said he, a has-been power, never to be a real threat.  In every aspect he was correct and I acknowledged such except that I suggested that they were armed to the teeth with strategic weapons and their leader was a nut.  Putin is still a nut, but a corrupt, criminal nut as well.  It is always about the people, never the metrics in whatever business or political clime one finds oneself.

I bring this up only to point out that risk is where one finds it but you have to look for it for it to be found.  The risk of Putin has been ignored simply because it was convenient and profitable to ignore it and only now when the threat has become apparent to a five-year old, has the world become concerned.  Make no mistake, if this thing escalates, there is going to be dramatic economic repercussions as yet unidentified.  Oh, I'm not talking about theater hostilities because if that happens, the point of discussion is over, but economic sanctions in which even the Euros will have to participate leading to a huge global recession.  I mean, VISA?  Who would have thunk it.

No doubt, Russia is the risk de jour but, keeping in mind the session I attended in New York, what else is out there that for which we are not really not looking?

On a global political front, The Leader is wandering around Asia seeking to define what his "pivot" means and getting the Chinese God-awful pissed off when he clearly backed Japan's play over a bunch of rocks in the middle of no where.  We are bound by treaty you understand which is a bit more than drawing a red line but one must ask if we had an administration that had any foreign policy in place for six years, would it have come to this.  Had we understood that the trade-off in China was the ability to consolidate power which meant an even more powerful positioning of the PLA now with highly sophisticated toys with which the heads of this mob are just dying to play, maybe the present and the future of that part of the world might be different.  Let's hope this turns out for the better.

To the seeming mundane, people who know about these things keep telling me that the hedge fund guys are in a bit of a panic because everybody is under water and nobody can get out of the pool.  Of course, one can simply sit still and not do anything, but then questions start getting asked about why am I paying you 2 1/2% a year to underperform and the meal ticket heads south.  Unfortunately, the solution in times like this is to take the exact opposite tack and increase the risk to increase the returns. We create "bubbles" in things like real estate…can one say, "London"…or high-yielding assets like Greek bonds (is 5% really high-yielding given past history?), or mortgages.  The geniuses at Wells Fargo (hey! that's what the Street thinks they are) announced the other day that they are back in the sub-prime market which is just fine I guess as the FHA seems to be willing to guarantee everything in sight.  Now here's how this thing goes:  somebody looks up and says, "Hey, look what Wells is doing and everybody knows they are the smartest guys in the room.  Shouldn't we be doing some of that?"  If the guy asking the question is sufficiently senior, the answer will invariably be yes, but as the returns are good the "some" will become "a lot."  How do I know this?  It's an old movie.  I've seen it once or twice.

Of course, all of this is greatly enhanced with free money and there appears to be no end to that phenomenon.  Janet & Co. are all in with the belief that the Fed can really manage this economy to the upside and oh, if you can supply the same to a government that appears to be absolutely in no way inhibited in spending more money on stuff that hasn't worked yet, that's fine too.  Problem is, when one side of the equation written by the hedgies hits a wall and the rich aren't getting richer, problems emerge.  Same thing is the nuts of the world begin to be found out as being nuts.  When happens then is all the Risk management guys discover risks about which they had no clue and decide that they must be mitigated.  They all decide this at once, you see, and they all head for the door at once.  It is a narrow door.

Have a great weekend.

I DID IT AGAIN

I was cruising down I-80 when it came to me that the last time I had seen the lap top was atop the kitchen island not resting comfortably in the back seat.  Just like last year it had been left at home.  Turning to Trouble and Strife I never even got the first word out when a curt, "Don't even TRY to go there," hit me.  I know that tone; it was my fault anyway so I didn't even try to lay off some of the blame.  It could have gotten ugly at 75MPH.

Shame is I missed a pretty good week of stories.  The big news on the banking front was the agreement among the regulators to establish new primary capital rules for the larger banking institutions at 5%, putting the U.S. banks at a higher level than their European counterparts as well as being somewhat at a disadvantage as to the assignment of risk as to assets.  The Euros continue to regard sovereign risk in the Euro zone as having a risk weighting of 0 whereas U.S. banks only enjoy that concept in regard to full faith and credit U.S. debt.  Somehow, I seem to think there is a difference in value between Greece and Germany but our Euro brothers and sisters do not.

Now most of the larger institutions can already point to acceptable capital levels or plans that will get them there in a relatively short period of time, but what troubles me, as I continue to point out over and over, is that capital in the sense of which the regulators are speaking, can be important when the Second National Bank of Boot Hill's loan to Farmer Brown goes in the gurgle tube because it didn't rain this year, but doesn't mean a damn thing to J.P. Morgan if all the liquidity in the system dries up: banks get sick on the asset side but die on the liability side…those that count, that is.  With all respect to Boot Hill, it doesn't count.  So, we have all these fine people in D.C. and Billy the Dud patting themselves on the back when in fact they have done absolutely nothing to improve the system in any way that counts for those among their charges who do count.  A round of applause and let us move on.

Citicorp got another piece bad news last week as it was announced that the Federal A.G. in Massachusetts was opening an investigation of money laundering involving their affiliate--once removed--BANAMEX of California.  Hummmm.  Tarullo deciding that his boys' algorithms work better than all those which had mutually been agreed and now another Massachusetts-based entity jumping up ugly at the Pinata that is/will become Citicorp?  Why, you ask?  Could it be political cover?  Could it be Crazy Lizzy organizing this entire thing?  Get good odds from me that it is.  I don't believe in coincidences.  It is so transparent it is ridiculous, but of course the deaf and dumb media just will not pick it up.  As a repost, Citicorp today reported far better than expected operating results and a great improvement in their balance sheet which had the effect of giving a big boost to the stock market at least in the short term.  Good on ya, mates.

Finally, Greece announced an immensely sucessful 5 year bond issue of over 3 Billion Euros yielding just under 5%.  Coverage was nearly 4X.  Remarkable.  This morning, the Governor of the Banque de France announced that the Euro Crisis is mostly behind us.  Oh good, I was waiting for that.  I am also waiting to be told that the Russians have not invaded the Eastern portion of the Ukraine and the Ukrainians will not fight as a proud people will do from time to time.  Just a few more events that alter and illuminate our time…and my lap top was in the kitchen.  Think I'm getting old?

A WEEK FULL OF PROMISE

Consider what happened this weekend.  The Olympics ended with nary an incident occurring in the 17-day time span.  Good on the Russian security forces.  The Ukraine overthrew its government, stopped the killing and actually appeared to be moving forward on a Parliamentary basis,  Italy has a new government which looks very much like the old government but with a new guy running it and the G-20 ended its meeting Down Under with some non-sensical statement about working together to create $2 trillion in new wealth over some period of time to which no one paid any attention.  Wow.

The case of the Ukraine is quite remarkable made even more so by what appears to be the fact that it caught every one somewhat flat-footed, especially the Russians who were slow to react or even recognize that events were rapidly turning against them as the medal production turned rapidly in their favor in Sochi.  The Europeans were bumbling about and we, as has become the norm, were clueless.  Aside from the political situation--which is no where near being settled--what has arisen is one hell of a financial problem with the country virtually on the verge of default across the board now that Russia, as a first response, has withdrawn all offers of financial aide which of course was the Big Bribe for the turn-about from the EU.

First up to deal with that was the IMF, which, if anyone has any brains in their head will be kept well out of shouting distance.  More than anything else, this is a political issue not a financial one.  It is not an exaggeration to say that a good deal of the future of Europe, and of Eastern Europe as well,  may depend upon the solution of this gnarly problem.  The amounts of money involved are huge but it is not about money.  At one time the U.S. might well have jumped into the leadership role but such actions from this administration are, for better or worse, not to be expected.  As things stand right now…and for all I know they may be changing as I write…this is the EU's moment.  If the Union is to prosper it must move rapidly and decisively to stabilize the financial aspects of this situation so that the political solution can be found.  Whether the EU can accomplish that is, indeed, a very open question, but upon its success very possibly rests the success of the Union itself.

As for Russia, the political stakes are enormous.  Mr. Putin's dream in re-establishing Russia's spread of influence in a reconstituted U.S.S.R.-like relationship with the former vassal states ends if the Ukraine ops for full partnership with the West.  By the same token, Mr. Putin must realize that if begins to break things he owns them and the Ukraine without western support and capital becomes a very expensive thing to own indeed.  He is of course a Moscow Center Hood whose first thoughts must have been the ethnic Russian community in the East and South and what leverage that gives him.  Years ago there was a place called the Sudetenland and another little thug and that turned out badly for the entire world.  Scary thought, but having been successful in Georgia…then again, this is waaaaay bigger and more important.  Surely he knows that.

Anyway, the markets woke up today and barely shrugged.  The Euro moved marginally higher, equities sought new highs and interest rates barely budged.  I guess everything must be OK.  The whole week is before us.  We shall see.

THE WEATHER, THE WORRIES

We have had almost 100 inches of snow so far this year: we average 66.  Tonight we are expecting another 3-6 inches.  It's getting a bit old.  No one can explain the crazy weather pattern that has caused this.

No one seems to be able to explain the massive switches in market sentiment that has occurred since the start of the year either.  The DOW is down 700 points, the 10 year yield, in the face of a seemingly less-generous Fed has lost nearly 40 B.P.s in yield explained partly by the rush out of emerging markets in into "safe" investments.  Of course if you were onto the emerging markets story early-on, lucky you; if you weren't…Last week the drop in equity markets was blamed on the emerging markets; yesterday's major sell-off was caused be bad industrial production numbers.  Friday's job report is rumored to be poor and despite today's rally (at least as I write) the overall feeling is there is more gloom to come.

The mumbling and grumbling Over There hasn't helped the situation.  First, we have Greece, which, amidst the charges that the books have once again been cooked, it is becoming well-accepted that it will need another bail-out of substantial funds.  Right now they aren't available nor is the delivery mechanism nor is the ECB if the German high court has anything to say about it or so it would appear.  The same situation is being charged against Portugal much against the denial of the finance minister of the country--the debt/GDP ratio is second-worse in the EU--but gaining on Italy which presently holds first place with it's banking system looking shakier by the day.  France is a political mess and as the economy remains in the doldrums, the politics looks worse and worse.  And as for the Euro?  Well, it strengthened against everything once again today.  Go figure.

All of this is a background for the Olympics which start this week-end in Sochi, Russia, which just canceled a major bond offering due to "adverse market conditions"--no kidding Tovarich--and where a lot of really bad things could happen.  If they do, the overall effect will be far more significant that could be justified by pure logic.   Therefore, on top of everything else we are looking at event risk for the next few weeks which has all the traders sitting out there with their fingers crossed and not in a hurry to be long anywhere.  At least I wouldn't be but this generation has always been far more long testosterone than ever I was.

Finally, to add to the list of worries, we are looking at the perfect storm…no not in finance but in the convergence of our 3-6 incher with a n'or-easter heading up the coast on the weekend.  We in the Fly-Over Zone just love to see our detractors hammered every once in a while.  Good for their hubris.  Good for our sense of being.  Good for the world.  No worries, mate.

OVERDONE

At least that's what folks are telling me.  Nobody will go or has gone near Venezulus and nobody has anything more outstanding to the Argies other that what is already in default which means we skate over this lovely little piece of circumstance without a bump leaving both of these deadbeats to deal with their problems by themselves.  Maybe bankers aren't so dumb after all.

Carter checked in with an interesting thought to wit, if things go well with Iran, things really go bad for Russia whose economy is based entirely on oil and gas revenue.  Now Russia is a real country, run by a Moscow Center Thug and armed to the teeth which could be a real worry if things got really bad, but in my view getting it right in Iran occurs only if our own Baghdad Bob, the White House Press Secretary, declares victory due to the genius of The Leader and the indefatigable spirit of the Secretary of State and somebody on the face of the planet believes it.  Then of course we have the Israelis about whom I would rather not think.  But it could happen and if it does, so what?

Rather, I still am most concerned with the situation Over There although there is nothing immediate to which I can point and say, "here's the bad spot."  It's a continent of  general malaise looking for some form of bold leadership and finding none appears to be content to simply await the hand of fate.  One comment that was telling was that if France doesn't get it's act together the EU will be facing a real question of survival.  Talk about a lack of bold leadership; poor Frankie is trying to juggle three women, an almost 11% unemployment rate and a growing stream of affluent Frenchmen moving over to Blighty of all places to escape French taxation.  That in turn is causing a crisis of the lack of French-speaking plumbers in London and the surrounding countryside for whom there are ads now being posted throughout the Home Counties and Europe.  You can't make this stuff up.

Over Here, our part of the Fly-Over Zone has been, as they say in Folsom, on lock-down.  It is now 4F going to -15 tonight with a wind chill of -35F.  If you venture out in a motorcar it is a $500 fine.  Too many accidents, too many machines in snow drifts, too many roads blocked to the point where emergency vehicles cannot get through.  We have enough whiskey for 4 days.  It better end by then otherwise I have Putin in the form of Trouble and Strife.  Carter, you have no idea.

STILL B & B

For a different reason today.  The GDP figure for the U.S. economy came in at a -0.1% and we we actually told this was the best negative number your could possibly get.  'It's a sucking chest wound says the doc but it's not serious."  One of the reasons given for this curious opinion was that the wars we have been fighting are winding down.  Translation:  We can always start another war?  Another reason was government spending was down 22%  Translation:  We know how to spend money in the government.  Hell, we can hire a million people to dig holes and another million to fill them up.  Or we can start another war...can't we?  Inventories were down.  Translation:  What the hell does that mean?  People were purchasing things?  In case you missed it guys Hanukkah fell in this quarter.  I even heard that we might still have Christmas.  Inventories always go down in the fourth quarter.

I really think that what none of the geniuses will admit is that this makes it harder for the Fed to take the punch bowl away and from where I sit this incredible stock market rally is entirely central bank led.  Then again, Apple that makes more money than anyone has ever seen and seems to holds on to all of it is in the crapper on the street and Amazon which makes no money at all is loved by all.  At least there is consistency out there, at least in my eyes as either everything is upside down or I'm standing on my head.  To be honest, I'm not the least bit sure.  I guess we'll just have to wait 3 months to confirm the direction this is taking...of course by that time we will be in the middle of a God-awful budget fight which will be used as an excuse by all sides in explaining/defending/promoting their respective positions on wither the economy.  Can't wait

Anyway, I'm glad I have this to write about because there aint nothin' of interest out there.  It has been remarkably quiet with the battle over anti gun legislation overtaking everything in the Congress.  Over there, not much is new except that Euroland just may have dodged a bullet in regard to Cyprus.  As suggested almost to the point of a prediction, Russia announced the other day that it would assist in any Cypriot bail-out.  Guess the Oligarchs lined up outside Putin's office and said something to the effect, " That's our money down there.  Fix this thing or else."  With those kind of numbers in that kind of country not even Putin is entirely in the clear.  Old Damocles found that out a couple of years ago.  Some people just never learn.

THE COMPANY ONE KEEPS.

The fact of the matter is the Eurozone is a hodgepodge of different countries with different interests, outlooks on life, and certainly different mores.  However, none is so different than Cyprus, which is actually two countries on one little island, one part for the Turks and the other for the Greeks who up to partition a number of years ago were killing each other on a regular basis both on the island and across the Aegean. It is the Greek part that really is in the Euro zone and the part with the largest commercial business which just happens to be financial in nature (aside from tourism).

The Cypriots have never been particularly concerned about with whom they deal and the same holds true for their banks. Want to be a depositor, not a problem and few questions as well. There has always been a practice of bank secrecy and even in the face of Euroland regulations to the contrary, life goes on for the banking business as it has for decades.

Not surprisingly, over the years the banks have attracted what one might call a less that blue chip group of depositors from various and sundry locales: failed African states, Latin American former--and present--heads of state, Latin entrepreneurs engaged in single product agriculture, Middle Eastern thugs and most recently Russian oligarchs, who like many others across Europe are concerned about business conditions back home and taxes which they realy don't like paying.  The business hasn't changed much over the years; the numbers have just gotten bigger...very much bigger.

Now Cyprus is a rather small island and when you are stuck with that much money there are very few places in which to invest.  Not surprisingly, Cypriot bankers looked to greener pastures, such as the property markets of Portugal, Spain and Greece. Not surprisingly, the banks are now broke, the Cypriots as a result are broke as well but as added grief, the latest bunch who would like their deposits back are the afor-mentioned Russians and these are not very nice people who are cheek to jowl with the folks who run Russia who, too, are not nice people at all.  Not surprisingly, he banks have gone to the government, the government has gone to the EU asking for a bail out of the banks and the Germans have said "no way" or something like that in German.  If that wasn't bad enough, finding some resistance to their request the Russian depositors have gone to their government (it's that cheek to jowl thing) and low and behold the government has indicated that if the EU is not to be found helpful it is prepared to bail out Cyprus and it's banks!  Salvation!  Er, not so fast my friend.

The Russians will save the banks but then they will become the owners of the banking system and about the last thing the Euros and Uncle Sam wants to see is the Russian government with an off-shore banking system connected with Euroland.  No how, no way.  So it looks as though the first direct bail-out of banks in Euroland may be in Cyprus unless another form of sleight-of hand can be devised because there is one thing of which one can be sure; the Russian depositors will get their money.  Darn, the neighborhood is just going to hell.  Who knows who is going to move in next door while you're asleep?