Ed’s Daily Notes for March 28th   Leave a comment

Sorry, I got busy last night and didn’t post my results yesterday:

EUM: -0.38 to $26.82 ( -1.40% , -2.26% overall)–bought at $27.44
FXP: -1.02 to $69.69 ( -1.44% , -2.05% overall)–bought at $71.15

OVERALL: -0.38%

Now back to the news…

Financial Times: Facebook works on drones and lasers

Facebook is working on drones, satellites and lasers to deliver the internet to far-flung corners of the world, in its second big bet on future technology in a week.

Mark Zuckerberg, Facebook founder and chief executive, said the company was working with leading experts from Nasa and acquiring a team from Ascenta, a five-person UK-based company whose founders helped create an early version of a solar-powered unmanned aircraft.

I look at this and get two feelings about it:

First, is Facebook the next Google? Doing things like this reminds me of some of Google’s far-flung research. Perhaps I underestimated Facebook?

The leads me to my second feeling, where is the dividend? Just like I am anticipating a Google dividend, a company with the money to chase crazy, albeit potentially useful, ideas, also has the money to start paying a dividend. Time to pony up, Zuckerberg.

Bloomberg: Fed of 1970s Shows Capacity May Mislead: Cutting Research

The decision of central banks to focus more on economic slack as a barometer of when inflation will become a problem could backfire, if history is any guide.

The Federal Reserve, Bank of England and European Central Bank have started using the level of spare capacity in their economies as a way to foretell when they will start reversing easy monetary policies. The more capacity, the bigger the output gap between actual and potential economic growth and the longer officials can keep interest rates low because price pressures will be sluggish.

“While this sounds plausible, past experience suggests that central banks tend to hike rates too slowly, with corresponding risks for price inflation,” Christoph Balz and Bernd Weidensteiner, economists at Commerzbank AG in Frankfurt, said in a March 21 report.

…The initial impression was of an output gap of minus 1 percent for 1974, which would have encouraged the U.S. central bank to be “moderately expansionary,” said Balz and Weidensteiner.

In reality, the economy was later shown to have been slightly over-stretched in 1974. Repeating the exercise for 1983, the output gap the Fed would have calculated at the time was minus 1 percent, versus the minus 4 percent it proved to be.

“In other words, a more restrictive policy would have been appropriate in 1974, but in 1983 a more expansionary policy was required,” said Commerzbank. “This demonstrates the uncertainty prevailing when monetary policy conclusions are drawn from the current data set.”

With the Fed’s new lines of communication aimed at damping expectations of rate hikes, the risk is the Fed “will again probably raise rates too late and too cautiously,” said the economists. This time the “greater danger” may be that loose monetary policy fans inflation in asset prices.

In summary, expect the central banks to either over or under-estimate what they should be doing. Whether their miscalculation will show up today, or several years from now, is the only part that remains to be seen.

Bloomberg: U.S. House Poised to Clear Sanctions Called Putin Warning

It seems the U.S. isn’t finished with sanctions on Russia:

The U.S. House of Representatives is ready to clear legislation that would provide aid to Ukraine and impose additional sanctions on Russian officials for the annexation of Crimea.

The House’s next opportunity to act on the bill, which the Senate passed yesterday with broad bipartisan support, would be in a session scheduled for 11 a.m., Washington time, today.

The measure includes about $1 billion in loan guarantees and authorizes $150 million in direct assistance to Ukraine. It would impose sanctions against Ukrainians and Russians deemed responsible for corruption and violence.

…President Barack Obama said in Rome yesterday that the U.S. and its allies are looking at Russia’s military, energy and finance industries as possible further targets if the country moves deeper into Ukraine.

Yet additional sanctions would inevitably also hit the U.S. and European economies, Obama said at a news conference.

“None of them, to have a powerful impact on Russia, are going to have zero impact on us because Russia is part of the world economy,” he said, appearing with Italian Prime Minister Matteo Renzi. “Everybody owns a piece of everything.”

Under the Senate-passed bill yesterday, Russian officials, as well as their close associates or family members, also may be subject to sanctions, which could include blocking access to assets held in the U.S. and prohibiting travel to the U.S.

Meanwhile:

The Daily Beast: Putin Could Invade Ukraine ‘At a Moment’s Notice’

The U.S. State Department believes the Russian army is now prepared to launch an invasion of eastern Ukraine if President Vladimir Putin decides to pull the trigger, according to a senior adminstration official.

“At this point, they are amassed and they could go at a moment’s notice if Putin gave the go ahead,” the official said.

…Top Ukrainian security officials said Thursday that Russia now has 100,000 troops on its side of the Russia-Ukraine border. Other estimates put the number much lower, around 30,000, but still enough to overpower the undermanned and undersupplied Ukrainian armed forces.

CNN reported Wednesday that U.S. intelligence assessments have increased the likelihood that Russia will invade Ukraine in the past week. This has been based on a number of worrying indicators about the Russian military buildup on the Ukrainian border. “This has shifted our thinking that the likelihood of a further Russian incursion is more probable than it was previously thought to be,” one official told CNN.

Russian forces are currently positioned in and around the cities of Rostov, Kursk, and Belgorod and could try to establish a land corridor from Russian to Crimea by attacking the Ukrainian cities of Kharkiv, Luhansk and Donetsk. Russian agents have already been active in that region of Ukraine.

The fact the Russians have increased their military forces on the Ukraine border in the face of so-called sanctions, tells you all you need to know about what Putin is planning. He WILL be invading Ukraine, in order to establish a land corridor to the Crimea.

I would avoid adding any long positions until this happens, because the markets will have a bad reaction.

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Posted March 28, 2014 by edmcgon in Economy, Federal Reserve, News, Politics, Portfolio

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