FRIDAY 8/15/14; Hang Seng Index 25K; Pakistan Tension; Italy and France Record Low Bond Yields; EL; PPI; Consumer Sentiment; Ukraine Troops Attack Russia Military; OpEx

The dollar/yen moves sideways at 102.50 so the NIKK trades flat. The BOJ may have to lower growth forecasts again. Asia is up across the board overnight choosing to follow the Putin happy talk path instead of the depressing European deflation path. The SSEC gains +0.9% and the Hang Seng Index, fueled by a China Mobile +6% gain, tags the 25K level not seen for six years. T







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Gundlach says the 10-year yield may drop to 2.2% which is a reasonable forecast since the short-covering just described may easily take the TNX down to 2.2%.

The low European bond yields are a major story this week. The German bund slipped under 1% and the short duration yields went negative. Investors are now paying Germany to hold their money. Ireland’s 10-year bond yield is 2.09% a multi-decade low. Belgian yields are at multi-decade lows. France’s 10-year dropped to 1.39% this week and Spain is also setting low yield records.

Europe is slipping into a Japan-style deflationary funk that may last years or a decade or more. The sick man of Europe is very ill. The ECB will be forced to act but they are limited. The US and Japan are sovereign nations with their own central bank so the money-printing (QE stimulus) comes easy with a flick of the switch. In Europe, however, the central bank has to satisfy many member nations and thereby has less monetary tools available. ECB President Draghi is losing sleep this evening. Europeans face a tough road ahead and the word that no one wanted to utter, deflation, is coming home to roost. Global deflation is an outcome that nearly every economist, trader, analyst and strategist continues to reject, just as they rejected any thought of European deflation over the last couple years.

FedEx is indicted on charges of shipping illegal prescription drugs from two pharmacies knowing that the prescriptions may be invalid. FDX and UPS will likely trade lower on Monday on worry that the shippers will have to bear more responsibility for products moving through their facilities (which means higher costs and lower profits).

F recalls 160K Focus and Escape models due to wiring problems that will cause the vehicles to lose power and stall. Famous investor George Soros, known for exceptional market timing and directional calls, is greatly increasing put positions in the SPY ETF to over $2 billion. However, Soros remains long many stocks and his fund’s large short bet may be more of a hedge against the ongoing long positions.