The Ukraine and China pose clear and present danger to global markets.

March 13 - Financial Times (Miles Johnson): "In the 'Truman Show', the late nineties Hollywood film, the eponymous character lives a seemingly charmed world, snuggled comfortably into an American suburbia of white picket fences and crisply cut lawns. But gradually Truman starts to notice something is not quite right. He is actually trapped inside a film set controlled by hidden directors, and discovers to his horror that he is the unknowing star of the world's most popular reality TV show. The question some of the world's biggest hedge funds are starting to ask is whether overly placid investors will also wake up to discover they are living in a 'Truman Show market' - where central bankers' ultra loose monetary policy has manufactured a fake reality that is bound to end. For Seth Klarman, the manager of the $27bn hedge fund the Baupost Group who recently coined the analogy in a letter to clients, investors have been lulled into a false sense of security that is creating an ever greater risk of a sharp correction. 'All the Trumans - the economists, fund managers, traders, market pundits - know at some level that the environment in which they operate is not what it seems on the surface,' Mr Klarman wrote. 'But the zeitgeist is so so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end."

I love Seth Klarman's "Truman Show" analogy - one that has surely secured a place in market lore. This line of analysis becomes only more pertinent with serious risks unfolding in China and the Ukraine. The securities markets have been so unbelievably "pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end." And when they inevitably falter, protracted Bubbles tend to end with a bang.

Warren Buffett was on CNBC Friday discussing Berkshire's underwriting of the "Billion $ Bracket Challenge." "'I should be institutionalized,' Warren Buffett joked on CNBC Friday -- talking about how he's feeling about Berkshire Hathaway's part in insuring a contest by Quicken Loans to offer a billion dollars for the perfect March Madness bracket. Buffett said in a 'Squawk Box' interview that the odds are much better than just a coin-flip on each game -- which would yield about a 1 in 9 quintillion chance in winning."

Insuring against the possibility of an individual correctly predicting the outcome of every game in the NCAA basketball tournament is an interesting insurance risk. Buffett states that predicting each game outcome is certainly better than a coin-flip, but there is sufficient data available to give the actuaries comfort that the risk of a contest winner is extremely low. This risk can be priced (apparently in the $10 million range) to ensure a very high probability of a profitable insurance transaction.

Over the years, I've made what I believe is an important (and conveniently disregarded) distinction: The traditional insurance business rests upon insuring against basically random and independent events. Actuaries have an enormous amount of data that allows the effective pricing of insurable risks, such as automobile accidents, home fires and deaths. "Insuring" against market and Credit losses is a completely different proposition. These types of losses are specifically neither random nor independent. They tend to come in "waves." And these waves tend to hit precisely when everyone is all bulled up - i.e. convinced market risk is extraordinarily low. Writing/selling such protection is more financial speculation than selling insurance. Especially during extended bull markets, it is akin to writing flood insurance during a drought.

Using Buffett's coin-flip example, the odds of flipping "heads" in a single toss are one in two (50%). But how about the odds of ten consecutive heads? The probabilities are actually extremely low (about one in 1,000). But after 10 heads in a row, what is the probability that the 11th flip is heads? Well, it's 50%. The outcome of the 11th flip is random and independent of the previous 10.

Market outcomes are anything but random. The market has flipped "heads" (gains) five years in a row. And after such a long period of rising stock prices, market participants perceive that the odds of another year of "heads" remain exceptionally favorable (upwards of 100%). Credit conditions have similarly turned up "heads" after "heads," with losses declining year after year. Reflecting the low cost of market "insurance", the "VIX" equity volatility index and Credit risk premiums have recently traded near multi-year lows.

And this gets to the heart of one of the serious issues I have with the Fed's "Truman Show" World: Federal Reserve (and global central bank) rates, balance sheet and market intervention/backstop policies have completely distorted market prices, marketplace behavior and market risk perceptions. Securities and asset prices have been mispriced. The cost of market "insurance" has been mispriced. These mispricings have incentivized enormous speculation and leveraging. And the myriad associated costs go way beyond inflated securities prices and market exuberance.

I concluded my January 3, 2014 "Issues 2014" CBB with the following: "At this point, conventional analysis seems particularly oblivious, which increases the risk of the proverbial 'black swan.' And when it comes to Bubbles and 'black swans,' I tend to see bursting Bubbles (i.e. 'black swans') as high probability outcomes. What tends to make them so-called low probability events is only the uncertainty of their timing."

Of course, such comments are completely dismissed at this phase of the speculative cycle. Nonetheless, the current backdrop prompts me to raise the "black swan" issue again this week. The "Truman Show" World is priced for minimal market risk. Fiscal and monetary policies ensure endless cheap liquidity, strong corporate profits, rising asset prices and reliable GDP expansion. Any disappointment will be met with additional QE, of course. The "Truman Show" World perceives the Fed is there attentively to backstop market liquidity and asset prices. The Fed is in complete control - not gonna allow any bad outcomes.

The "Truman Show" World assumes that Fed policymaking has eradicated market "tail risk". Indeed, the marketplace has enjoyed an intoxicating string of "heads" coin flips and is fully positioned for more Fed-induced "heads" to come. After all, with the Fed having ensured a string of "heads," only a complete moron would wager on the next flip coming up "tails." Writing market risk "insurance" has been virtually free "money."

Yet, it's again that issue of market outcomes as neither random nor independent. Extraordinary monetary stimulus has had a profound impact on asset prices and market perceptions. Sure, the activist Fed has ensured many "heads" in a row and an emboldened marketplace has fully priced in more to come. And these market perceptions do increase the odd of another "heads." More importantly - I would argue pertinently - this backdrop also ensures that an unexpected "tails" would at this point risk serious market dislocation. Said differently, behavior and perceptions in the "Truman Show" World - certainly including the belief that the Fed won't allow a tail risk event - have created potentially acute market vulnerability to perceived low-probability outcomes.

The germane issue is that the Federal Reserve doesn't control China, Ukraine or Russia. The combined power of the Fed, Bank of Japan, ECB and Bank of England's balance sheets just doesn't command great influence on Russia's Putin or China's policymakers - or geopolitical issues for that matter. Actually, a strong case can be made that "Western" monetary inflation has at the end of the day had a profoundly destabilizing impact on geopolitics. Putin these days surely doesn't buy into the "Truman Show" World. He likely despises it.

Friday from a leading Wall Street firm: "The pressure being applied to Moscow by financial markets will likely help resolve the crisis..." This is a commonly held view (within the "Truman Show" World Bubble). "Globalization" - with its heavily interdependent economies, financial systems and markets - provides the added benefit that disputes will now be handled through market pressure and sanctions - rather than tanks and missiles. It's an element of this halcyon "tail risk"-free World.

I remember clearly the view in the marketplace back in 1998 that "the West would never allow a Russian collapse." It was exactly this view that had incentivized enormous speculative leveraging and excess. One might have thought the 1997 Asian Tiger collapse would have had market players on guard against a similar outcome for Russia. Instead, the view was that with the IMF and global policy makers now aggressively on the case, one need no longer fear another crisis.

So-called "black swans" are by definition unexpected, perceived very low-probability market occurrences with major consequences. While not predictable, I would argue one can identify backdrops conducive to major market dislocations. For one, there must be significant speculative leverage. Everyone would generally be on the same side of the boat ("crowded trades"). There would be potential for a series of perceived non-correlated asset classes to abruptly become highly correlated, catching those (especially speculators using leveraged) exposed to outdated notions of diversification. There would be a predominant market misperception that has been integral to speculative trading/positioning. There would likely be a major government role that has been instrumental in the performance of the economy, markets and risk perceptions. There would generally need to be an extended "bullish" (inflationary) market cycle where optimism/exuberance becomes fully embedded in market pricing, psychology and risk-taking. There would have to be an expectation for ongoing abundant cheap liquidity. And there would be a potential catalyst with the potential to invalidate widely-held misperceptions.

Also from the above FT "Truman Show" article (Miles Johnson): "Sir Michael Hintze, chief executive and founder of CQS, one of Europe's largest hedge funds, has argued that loose central banks have actually increased the riskiness of markets as a result of their policies forcing too much money into the same assets, meaning any corrections are likely to be sharper than normal. 'Everyone is thinking the same and being driven into the same trade... Shifts when moving from one state to another can be difficult and abrupt. It is not healthy to have a 'rigged' market'. Yet, for now, as long as markets continue to believe in the willingness and ability of central bankers to maintain current conditions, few hedge fund managers are ready to make any big bets against a reversal."

Friday's meeting between Secretary Kerry and Russian Foreign Minister Lavrov made little diplomatic headway. The West has warned of sanctions being imposed against Russia on Monday in the event of a Sunday referendum in Crimea. While the rhetoric was toned down by Friday, German Chancellor Merkel warned of "massive damage" if Ukraine territorial integrity was not ensured. Russia has warned that it will reciprocate with sanctions against the West. Its military has heavily mobilized. And on Thursday, China "warns of dangerous Russia sanctions 'spiral.'" Reuters quoted China's ambassador to Germany: "We don't see any point in sanctions. Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences."

The "Truman Show" World has no role for financial and economic sanctions between G8 nations - let alone potential armed conflict between the West and Russia. And there's no contemplation of how an unfolding financial crisis in China might disrupt global finance, economics and geopolitics. To be sure, global markets have entered a period of acute uncertainty. From my perspective, it's only the degree of financial fragility that is open to debate.

There is today a not insignificant probability that the situation in Ukraine spirals out of control - with unforeseeable financial, economic and political ramifications. I would argue years of uncontrolled central bank inflationism have played an integral role in today's highly unstable backdrop. At the same time, all the central bank liquidity ensures that markets are priced for the "Truman Show" World as opposed to the less-than-"resplendent" real world.

I'll conclude with a Keynes quote from 1919 that seems more pertinent by the year: "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

This particular quote has been used repeatedly over the years, to the point where the "one man in a million" would seem to understate the number of folks that appreciate the diagnosis. I'll suggest Keynes' ratio may actually still apply. I believe few recognize the degree to which central bank liquidity and assurances coupled with speculative finance on an unprecedented worldwide scale, have distorted markets, spending, incomes, asset prices, economies, wealth distribution and societies at all corners of the globe. The World is simply not as perceived in today's "Truman Show." The more sophisticated speculators appreciate this and, perhaps, have begun to take some risk off.

For the Week:

The S&P500 dropped 2.0% (down 0.4% y-t-d), and the Dow fell 2.4% (down 3.1%). The Utilities rallied 2.1% (up 6.5%). The Banks sank 2.5% (up 0.4%), and the Broker/Dealers fell 3.3% (down 1.1%). The Morgan Stanley Cyclicals were down 3.0% (down 1.0%), and the Transports declined 1.5% (up 1.0%). The S&P 400 Midcaps declined 1.8% (up 1.6%), and the small cap Russell 2000 fell 1.8% (up 1.5%). The Nasdaq100 declined 2.0% (up 1.0%), and the Morgan Stanley High Tech index dropped 2.7% (up 1.0%). The Semiconductors fell 2.1% (up 5.1%). The Biotechs sank 3.0% (up 17.4%). With bullion jumping $43, the HUI gold index was up another 6.5% (up 30.6%).

One- and three-month Treasury bill rates ended the week at 5 bps. Two-year government yields were down 3 bps to 0.34% (down 4 bps y-t-d). Five-year T-note yields fell 10 bps to 1.54% (down 21bps). Ten-year yields sank 13 bps to 2.66% (down 37bps). Long bond yields dropped 12 bps to 3.60% (down 24bps). Benchmark Fannie MBS yields were down 9 bps to 3.37% (down 24bps). The spread between benchmark MBS and 10-year Treasury yields widened 4 to 71 bps. The implied yield on December 2014 eurodollar futures declined 2 bps to 0.325%. The two-year dollar swap spread was unchanged at 14 bps, while the 10-year swap spread increased one to 11 bps. Corporate bond spreads widened. An index of investment grade bond risk increased 4 to 67.5 bps. An index of junk bond risk jumped 20 bps to 335 bps. An index of emerging market (EM) debt risk surged 18 bps to 327 bps.

Debt issuance slowed. Investment-grade issuers included Verizon Communications $4.5bn, American Express $2.25bn, Enlink Midstream Partners $1.2bn, Blackrock $1.0bn, Husky Energy $750 million, Quest Diagnostics $600 million, CenterPoint Energy Houston Electric $600 million, QVC $1.0bn, WP Carey $500 million, Potomac Electric Power $400 million, Unum Group $350 million, and Western Gas Partners $750 million.

Junk bond funds saw inflows of $573 million (from Lipper). Junk issuers included United Rentals North America $1.75bn, Post Holdings $875 million, Lear $325 million, Hercules Offshore $300 million, and Mediacom Broadband $200 million.

Convertible debt issuers included Vipshop $632 million, Jarden $600 million, Carriage Services $144 million, Apollo Commercial Real Estate Finance $125 million and Moduslink Global Solutions $90 million.

International dollar debt issuers included Petrobras $8.5bn, Caisse D'Amortissement de la Dette Sociale $3.0bn, Denmark Kingdom $1.5bn, National Australia Bank $1.5bn, Australia & New Zealand Bank $800 million, Marfrig Overseas $775 million, Hyundai Capital Services $500 million, Aircastle $500 million, Credito Real $425 million, Royal Bank of Canada $400 million, Global Ship Lease $420 million, Banco International del Peru $300 million, Artsonig Property $250 million, Export Development Canada $200 million, Barclays $300 mllion and International Finance Corp $100 million.

Ten-year Portuguese yields increased 2 bps to 4.60% (down 15bps y-t-d). Italian 10-yr yields declined 2 bps to 3.41% (down 72bps). Spain's 10-year yields dipped 2 bps to 3.34% (down 81bps). German bund yields dropped 11 bps to 1.55% (down 38bps). French yields fell 9 bps to 2.12% (down 44bps). The French to German 10-year bond spread widened 2 bps to 57 bps. Greek 10-year note yields jumped 40 bps to 7.23% (down 119bps). U.K. 10-year gilt yields sank 13 bps to 2.66% (down 36bps).

Japan's Nikkei equities index was slammed for 6.2% (down 12.1% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.63% (down 11bps). The German DAX equities index sank 3.2% (down 5.2% y-t-d). Spain's IBEX 35 equities index fell 3.5% (down 1.1%). Italy's FTSE MIB index declined 1.4% (up 7.3%). Emerging equities markets were mostly lower. Brazil's Bovespa index dropped 2.8% (down 12.7%), and Mexico's Bolsa was hit for 2.5% (down 11.2%). South Korea's Kospi index sank 2.8% (down 4.6%). India's Sensex equities index slipped 0.5% (up 3.0%). China's Shanghai Exchange ended the week down 2.6% (down 5.3%). Turkey's Borsa Istanbul National 100 index recovered 0.3% (down 6.7%). Russia's RTS equities index fell 7.6% (down 17.7%).

Freddie Mac 30-year fixed mortgage rates jumped 9 bps to 4.37% (up 76bps y-o-y). Fifteen-year fixed rates were up 6 bps to 3.38% (up 56bps). One-year ARM rates were down 4 bps to 2.48% (down 11bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down a basis point to 4.40% (up 14bps).

Federal Reserve Credit expanded $11.2bn last week to a record $4.135 TN. During the past year, Fed Credit expanded $1.024 TN, or 32.9%. Fed Credit inflated $1.324 TN, or 47%, over the past 70 weeks.

M2 (narrow) "money" supply declined $13.9bn to $11.114 TN. "Narrow money" expanded $690bn, or 6.6%, over the past year. For the week, Currency increased $3.0bn. Total Checkable Deposits jumped $100.6bn, while Savings Deposits fell $111.6bn. Small Time Deposits declined $3.0bn. Retail Money Funds fell $2.7bn.

Money market fund assets slipped $2.0bn to $2.678 TN. Money Fund assets were up $26bn, or 1.0%, from a year ago.

Total Commercial Paper declined $7.4bn to $1.021 TN. CP was down $24.7bn year-to-date, while increasing $3bn over the past year, or 0.3%.

Currency Watch:

March 14 - Bloomberg (Fion Li): "Yuan forwards had their biggest weekly loss since November 2011 as signs the world's second- largest economy is slowing fueled speculation policy makers will weaken the currency to bolster exports... 'Data are pointing to a slowdown in the economy,' said Daniel Chan, a Hong Kong-based strategist at China Silver Global Investment Consultant Ltd. "Investors are worried the PBOC will keep the yuan weak to ease pressure on exports.' Twelve-month non-deliverable forwards fell 1.1% this week..."

March 14 - Bloomberg (Fion Li): "China's yuan will lose 10% by the end of next year as U.S. stimulus cuts and heightened credit risk prompt an exodus of funds from the world's second- largest economy, according to Daiwa Capital Markets. Bond purchases by the Federal Reserve kept U.S. interest rates low and spurred demand for China's higher-yielding assets, giving the Asian nation scope to 'print a lot of money' that funded a credit boom without destabilizing the exchange rate, Hong Kong-based economists Kevin Lai and Junjie Tang wrote... 'We believe the People's Bank of China will have to keep printing money to ensure the economy stays afloat and not care too much about downward pressure on the currency,' Lai and Tang wrote. 'This option could at least buy some time for the PBOC to fight the fire.'"

The U.S. dollar index slipped 0.3% to 79.45 (down 0.7% y-t-d). For the week on the upside, the Japanese yen increased 1.9%, the New Zealand dollar 0.9%, the Swiss franc 0.6%, the South African rand 0.6%, the euro 0.3%, the Danish krone 0.3%, the Singapore dollar 0.3% and the Norwegian krone 0.2%. For the week on the downside, the South African rand declined 1.1%, the Australian dollar 0.4%, the British pound 0.4%, the Taiwanese dollar 0.3%, the Mexican peso 0.2%, the Canadian dollar 0.2% and the Swedish krona 0.1%.

Commodities Watch:

The CRB index declined 1.4% this week (up 8.1% y-t-d). The Goldman Sachs Commodities Index fell 1.4% (up 1.9%). Spot Gold jumped 3.2% to $1,383 (up 14.7%). March Silver gained 2.3% to $21.43 (up 10.5%). April Crude fell $3.69 to $98.89 (up 1%). April Gasoline slipped 0.5% (up 6%), and April Natural Gas sank 4.2% (up 5%). May Copper was hit for 4.3% (down 13%). March Wheat surged 6.8% (up 14%). March Corn declined 1.8% (up 12%).

U.S. Fixed Income Bubble Watch:

March 14 - Dow Jones (Min Zeng): "Foreign central banks' Treasury bond holdings parked at the Federal Reserve dropped by the most on record in the latest week. Some analysts think the crisis in Ukraine is sparking the move. Their theory: Russia is shifting its Treasury bond holdings out of the Fed and into offshore accounts. That way, Russia would be able to buy or sell its portfolio if the U.S. and its European allies impose economic sanctions amid growing geopolitical tensions in Ukraine. Treasury securities held in custody for foreign official and international accounts tumbled by $105 billion in the week that ended Wednesday... That shrank Treasury bond holdings by foreign central banks to a 15-month low of $2.855 trillion, though still near a record high of $3.02 trillion set in December."

March 14 - Bloomberg (Bob Van Voris): "Bank of America Corp., Citigroup Inc. and Credit Suisse Group AG were among 16 of the world's biggest banks sued by the U.S. Federal Deposit Insurance Corp. for allegedly manipulating the London interbank offered rate from 2007 to 2011. The FDIC, acting as receiver for 38 failed banks including Washington Mutual Bank, IndyMac Bank FSB and Colonial Bank, claimed that institutions sitting on the U.S. dollar Libor panel 'fraudulently and collusively suppressed' the U.S. Libor rate."

March 12 - Bloomberg (Christine Idzelis): "Companies are borrowing through more junior-ranking loans than ever before, helping to fund buyouts and payouts to private-equity firms. Speculative-grade borrowers have raised $8.1 billion of second-lien loans this year in the U.S. after a record $29.6 billion of the debt was issued in all of 2007, according to Standard & Poor's... KKR & Co. is relying on the borrowings to back its $1 billion purchase of eye glasses retailer National Vision Inc., while mobile phone insurance provider Asurion raised a $1.7 billion second-lien loan to pay a dividend to its private-equity owners..."

March 14 - Bloomberg (Sarika Gangar): "Sales of corporate bonds in the U.S. cooled from last week's almost-record pace... Petroleo Brasileiro SA raised $8.5 billion in the biggest dollar-denominated bond sale in six months and New York-based Verizon Communications Inc. issued $4.5 billion to help fund a tender as they led offerings of at least $39.9 billion... Sales fell from $64.4 billion last week, the second-busiest period ever, and were above the $29.2 billion weekly average over the past 12 months."

U.S. Bubble Watch:

March 13 - Associated Press (Martin Crutsinger): "The U.S. government is running a deficit that is 23.6% lower than in the same period a year ago through the first five months of this budget year... In its monthly budget report, the Treasury Department says the deficit for February totaled $193.5 billion... For the period from October through February, the deficit totals $377.4 billion. Last week, President Barack Obama sent Congress a new budget which projects the deficit will fall to $649 billion this year, down from a $680 billion deficit last year."

March 11 - Dow Jones (Nick Timiraos): "The top Democrat and Republican on the Senate Banking Committee said they had reached agreement on the broad outlines of a bill to overhaul Fannie Mae and Freddie Mac and the nation's $9.9 trillion mortgage market, drawing a strong statement of support from the White House. The bill will call for replacing Fannie and Freddie with a new system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered. Fannie and Freddie, which were taken over by the U.S. in September 2008, remain one of the largest unaddressed pieces of the government's financial-crisis rescues... 'There is near unanimous agreement that our current housing-finance system is not sustainable in the long term,' Mr. Johnson said... The current arrangement, in which Fannie and Freddie are backing nearly three in five new loans while under government control, is 'unacceptable,' Mr. Crapo said."

March 13 - Bloomberg (Lu Wang, Joseph Ciolli and Callie Bost): "Investors who beat a path out of global equity markets earlier this year are stampeding back in. More than $41 billion has returned to U.S. exchange-traded funds that own shares in the past four weeks, reversing withdrawals that swelled to as much as $40.2 billion last month..."

Ukraine/Russia Watch:

March 11 - Bloomberg: "While Chinese officials have repeatedly urged a diplomatic solution to the crisis in Ukraine, they underscore their nation's ties to Russia and oppose sanctions against it. Foreign Minister Wang Yi said March 8 that China's relationship with Russia is 'in its best period in history, characterized by a high level of mutual trust' and firm support for each other. Wang called for calm and restraint in the Ukraine crisis."

March 13 - Reuters (Noah Barkin and Andreas Rinke): "China's top envoy to Germany has warned the West against punishing Russia with sanctions for its intervention in Ukraine, saying such measures could lead to a dangerous chain reaction that would be difficult to control. In an interview with Reuters days before the European Union is threatening to impose its first sanctions on Russia since the Cold War, ambassador Shi Mingde issued the strongest warning against such measures by any top Chinese official to date. 'We don't see any point in sanctions,' Shi said. 'Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences. We don't want this."

March 14 - Bloomberg (Evgenia Pismennaya and Ilya Arkhipov): "Russian government officials and businessmen are bracing for sanctions resembling those applied to Iran after what they see as the inevitable annexation of Ukraine's Crimea region, according to four people with knowledge of the preparations. Iran-style retaliation from the West, which would include freezing Russia's foreign reserves, banking assets and halting lending to companies, is being treated as an unlikely worst case, according to the people, who asked not to be identified... Still, officials are calculating the economic cost of a sanctions war with the West, the people said."

March 14 - Bloomberg (Robert LaFranco and Alex Sazonov): "Alexander Lebedev is concerned. 'Russian businessmen are very scared,' the 54-year-old former billionaire, who served in the Soviet embassy in London during the Cold War and owns Russia's National Reserve Corp., said... 'There are risks to the Russian economy. There could be margin calls, reserves might be drawn down, exchange rates may fall and prices will rise. This worries me.' Billionaires in Russia and Ukraine risk further losses as market volatility and the threat of Iran-style economic sanctions intensify following Russia's incursion into Crimea. Since Feb. 28, the day unidentified soldiers took control of Simferopol Airport in southern Ukraine, Russia's 19 richest people have lost $18.3 billion..."

March 12 - Bloomberg (Andras Gergely and Krystof Chamonikolas): "The Ukrainian central bank is printing money to keep schools and hospitals running, buying time for the new government as it presses for aid from the International Monetary Fund to avoid a default. Lenders are using the cash to buy local-currency government bonds as a 'temporary' solution to the country's funding crunch, Halyna Pakhachuk, head of the debt department at the Finance Ministry, said... While meeting domestic financing requirements, Ukraine faces $10 billion of foreign- debt payments this year, including a $1 billion note due in June, Finance Minister Oleksandr Shlapak said on March 5."

EM Bubble Watch:

March 14 - Bloomberg (Yumi Teso, Liau Y-Sing and Fion Li): "China's default risk has risen beyond that of Ireland, having been on par with France and Japan a year ago, as Premier Li Keqiang said financial leverage is making the economy's outlook more complex. Five-year contracts protecting against non-payment on government debt climbed to 99 from 63 a year earlier, almost double the 49 for Japan and 51 for France... That compares with 88 for lower-rated Ireland, which exited a bailout in December. The yuan has lost 1.3% in the past month, the most in Asia, while the Shanghai Stock Exchange Composite Index has declined 5.2%."

March 14 - Bloomberg (Tanya Angerer): "Borrowers in Asia refrained from marketing U.S. dollar-denominated bonds today as credit risk jumped the most in seven weeks amid rising tensions in Ukraine. Credit default risk in Asia outside Japan rose by 8.5 bps this week to 134.5 bps, the biggest advance since the gain during the five business days through Jan. 24... Offerings in all of the Asia- Pacific region this week fell by 27% compared with the previous five business days..."

March 12 - Bloomberg (Benjamin Harvey): "Turkish government bonds fell, driving yields to the highest level in more than five years, and the lira weakened as opposition to Prime Minister Recep Tayyip Erdogan's government spilled into the streets. The yield on Turkey's two-year debt surged 30 bps to 11.75%... the highest since July 2009. The lira dropped 0.4% to 2.2550 per dollar, bringing its loss over the past four trading days to 3.5%... Protesters fought with police in more than a dozen cities nationwide yesterday in clashes triggered by the death of Berkin Elvan, a 15-year-old boy, from injuries suffered in the Gezi Park protests last year."

China Bubble Watch:

March 10 - Bloomberg (Christine Idzelis): "China's biggest drop in exports since 2009 and deepening factory-gate deflation highlight the challenges for Premier Li Keqiang in achieving this year's economic-growth target of 7.5%. Overseas shipments unexpectedly declined 18.1% in February from a year earlier..., compared with analysts' median estimate for a 7.5% increase. Producer prices fell 2%, the most since July..., extending the longest decline since 1999."

March 13 - Bloomberg: "China's industrial-output, investment and retail-sales growth cooled more than estimated in January and February, signaling an economic slowdown that makes the government's 2014 expansion target harder to reach. Factory production rose 8.6% in the two-month period from a year earlier..., the weakest start to a year since 2009. Retail sales advanced 11.8%, the slowest pace for the period since 2004, while the 17.9% increase in fixed-asset investment was a 13-year low for the months."

March 10 - Bloomberg: "China's broadest measure of new credit trailed analysts' estimates in February, indicating a slowdown in shadow banking following the near-default of a trust investment product. Aggregate financing was 938.7 billion yuan ($153bn)..., compared with the 1.31 trillion yuan median estimate... New local-currency loans were 644.5 billion yuan, accounting for about 69% of aggregate credit, the largest proportion since July... Exports unexpectedly fell last month by the most since the global financial crisis, while producer prices had the biggest drop since July, showing weakness in the economy. 'Off-balance sheet activity has been curtailed and been contained,' said Ding Shuang, senior China economist at Citigroup... 'The policy stance is very obviously less accommodative than the first half of last year. Under those macro policies, we think it would be quite challenging to achieve 7.5 percent GDP growth.'"

March 10 - Bloomberg (Fion Li): "China's yuan fell after the central bank cut the currency's fixing by the most since July 2012 and the nation's exports unexpectedly declined last month. The People's Bank of China lowered the daily reference rate by 0.18% to 6.1312 per dollar today, the weakest level since Dec. 3... The cut in the yuan fixing 'is significant, coming on the heels of poor trade data, and suggests a possible policy push to weaken the yuan to help exporters,' said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. 'This would mean rising risks to more downside.'"

March 13 - Bloomberg: "China is studying the default risks to companies that use iron ore as collateral to obtain financing, and may warn banks about the dangers of lending money in such cases, people with direct knowledge of the matter said. Regulators are weighing the risk to banks from the falling price of iron ore and a weaker yuan, said the two people, who asked not to be identified... The CBRC issues such warnings for matters that it judges may pose significant risks to banks, the people said. The probe underscores concern that credit stress is increasing in Chinese industries after a solar-cell maker became the first company to default on an onshore bond earlier this month."

March 12 - Bloomberg: "Shanghai Chaori Solar Energy Science & Technology Co., the first company to default in China's onshore bond market, said its notes may be delisted as a second solar-equipment maker had its securities halted... Baoding Tianwei Baobian Electric Co.'s stock tumbled in trade today while its notes remain suspended after it said on March 10 it expects to report losses for a second year. Chaori Solar's default last week is stoking speculation more companies in overcapacity industries may miss debt payments in China's $4.2 trillion bond market after the government pledged to let markets take a 'decisive' role in the economy... 'The default has caused a disruption to the entire Chinese bond market, combined with weak exports and disinflation data,' Charles Macgregor, Lucror Analytics Pte.'s ... head of Asia said... 'It should hopefully serve to highlight the credit risk inherent in similar bonds.' China Securities Regulatory Commission's statistics unit has asked brokerages to report holdings of corporate debt rated below AA, local media organization Caixin said..."

March 12 - Bloomberg: "Chinese steel companies, the world's largest, helped drive a regional industry benchmark index to a seven-month low as concern builds that some mills face financial difficulty amid a government credit squeeze. 'They are having trouble accessing finance,' Yunde Li, chairman of Ishine, a unit of China Zhongsheng Resources Holdings Ltd., which processes iron ore in Shandong, said... Some of Ishine's steel mill customers cannot make their payments to his company, Li said... Closely-held steel mills in China are struggling to get funding at the moment and that's led to panic selling of iron ore, according to Morgan Stanley. The nation's top banking regulator said yesterday strict credit guidelines will be imposed on mills that were big polluters and users of energy. 'The capital squeeze on steel traders has started to affect mills,' said Henry Liu, Hong Kong-based executive director of China Merchants Capital... 'It looks like the credit crunch is worsening.' Iron ore this week had its biggest drop in more than four years, spooked by the credit squeeze and a surge in stockpiles."

March 10 - Bloomberg (Justina Lee and Fion Li): "Volatility in the yuan is raising dollar borrowing costs for Chinese developers already choked by a domestic property-market crackdown and slowing sales. Real-estate companies accounted for six of the 10 worst performers in Asia's high-yield dollar debt market in the past month... The Shanghai Stock Exchange Property Index tumbled 8.9%, compared with a 2.7% drop in the benchmark. The yuan's record 1.4% slump last month as the central bank seeks to end one-way appreciation bets is narrowing one of the few remaining funding windows for developers, after a ban on onshore bond sales, limits on domestic bank loans and a crackdown on trust lending."

March 11 - Bloomberg: "The Made in China label is losing traction with its two biggest customers. After three decades of gains, China's share of U.S. imports has plateaued and in Europe it's in decline. The steepest losses are in the European Union, where China's share of imports slumped to 16.5% in the first 11 months of last year, from a 2010 high of 18.5%... In the U.S. the needle has barely moved in the past five years, holding around 19%. China's low-cost vantage has been blunted by rising wages and an appreciating currency, with cheaper nations including Vietnam and Bangladesh competing to sell products from T-shirts to shoes... 'It's a sea change," said Andrew Tilton, chief Asia economist at Goldman Sachs... 'China's period of unusually strong competitive advantage in exports may have run its course.'"

March 10 - Financial times (Jamil Anderlini): "A Chinese internet money market fund that launched just nine months ago has more investors than the country's equity markets in a sign of how quickly Beijing's reforms are reshaping the financial services industry. The total number of investors in Yu'e Bao, an online fund launched by ecommerce giant Alibaba Group in June last year, topped 81m at the end of February, compared with about 77m active equity trading accounts in the whole country at the start of this month. The explosive growth has propelled Yu'e Bao... up the global rankings of the biggest money market funds. Senior Chinese financial officials told the Financial Times that it had accumulated at least Rmb500bn ($81bn) in deposits by the second week of March, making it the fourth largest money-market fund in the world..."

March 12 - Dow Jones (Brian Spegele): "President Xi Jinping called on China's armed forces to staunchly defend national interests, while warning military leaders that China would have to bear greater responsibility as its military might grows... Mr. Xi echoed earlier calls that the military shouldn't shy away from defending China's interests. 'We hope for peace, but at any time and under any circumstance, we cannot give up defending the nation's reasonable interests,' Mr. Xi was quoted as saying. The latest remarks by Mr. Xi might renew fears in Japan and elsewhere in the region, where smaller countries have grown anxious over the rise of Beijing's military and strategic assertiveness."

March 13 - Bloomberg: "China's home sales fell in the first two months of the year as local government property measures to rein in rising prices weakened buyer sentiment. The value of homes sold fell 5% to 598.5 billion yuan ($97.5bn) from the same two months a year earlier... That compared with an almost doubling in sales in the first two months of 2013... Premier Li Keqiang said... there's some flexibility around the nation's target of 7.5% growth this year, without specifying how much of a slowdown leaders would tolerate. The government will curb demand for housing among investors and will regulate the housing market 'differently in different cities,' Li said... Investment in homes, office buildings, malls and other types of real estate climbed 19% to 795.6 billion yuan in the first two months, according to the statistics bureau."

March 11 - Bloomberg: "Passenger-vehicle sales in China gained 18% last month, beating analysts' estimates, as deliveries surged at Toyota Motor Corp. and Ford Motor Co. Wholesale deliveries of cars, multipurpose and sport utility vehicles climbed to 1.31 million units in February..."

Japan Watch:

March 11 - Bloomberg (Toru Fujioka and Masahiro Hidaka): "The Bank of Japan maintained record easing, keeping ammunition as an April sales-tax bump threatens to trigger the deepest one-quarter contraction since the March 2011 earthquake. The BOJ kept a pledge to expand the monetary base at a pace of 60 trillion to 70 trillion yen ($677bn) per year... The bank lowered its view of exports and lifted its assessments of industrial output and investment."

March 12 - Bloomberg (Mariko Ishikawa, Masaki Kondo and Yumi Ikeda): "Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages. The misery index, which adds the jobless rate to the level of inflation, will climb to 7 percentage points in the three months starting April 1 when Japan raises its sales levy to 8% from 5%, based on the median estimates... and consumer prices. That would be the highest level for the measure since June 1981 when Japan was emerging out of depression after the oil shocks in the 1970s."

March 11 - Bloomberg (Keiko Ujikane): "Japan's economy expanded less than estimated in the fourth quarter and the current-account deficit widened to a record in January, highlighting risks to Abenomics as a sales-tax increase looms. Gross domestic product grew an annualized 0.7% from the previous quarter..., less than a preliminary estimate of 1%... The current-account deficit widened to 1.59 trillion yen ($15.4bn), a record in data back to 1985..."

Europe Watch:

March 12 - Bloomberg (Jesse Westbrook): "Billionaire investor George Soros said Europe faces 25 years of Japanese-style stagnation unless politicians pursue further integration of the currency bloc and change policies that have discouraged banks from lending. While the immediate financial crisis that has plagued Europe since 2010 'is over,' it still faces a political crisis that has divided the region between creditor and debtor nations, Soros, 83, said... Europe 'may not survive 25 years of stagnation,' Soros said... 'You have to go further with the integration. You have to solve the banking problem, because Europe is lagging behind the rest of the world in sorting out its banks.'"

March 11 - Bloomberg (Jeff Black): "The European Central Bank said it will look for capital shortfalls in euro-area banks by examining more than 3.72 trillion euros ($5.16 trillion) in assets in on-site checks. Releasing a 285-page manual for staff undertaking the Asset Quality Review, the... ECB said any adjustments to lenders' capital ratios identified as necessary by the unprecedented balance-sheet probe will be determined during July. While banks won't have to revise their 2013 accounts, they may have to raise extra capital once the results are published in October following a stress test."

March 11 - Bloomberg (Sonia Sirletti and Francesca Cinelli): "Banca Monte dei Paschi di Siena SpA, the bailed out Italian bank seeking to raise 3 billion euros ($4.2bn) in a share sale, reported a seventh straight quarterly loss on provisions and restructuring costs. The fourth-quarter net loss narrowed to 920.7 million euros from 1.6 billion euros a year earlier..."

March 11 - Bloomberg (Sonia Sirletti and Francesca Cinelli): "UniCredit SpA, Italy's biggest bank, posted a record 15 billion-euro ($20.8bn) fourth-quarter loss as it set aside money for bad loans and wrote down goodwill from past acquisitions. It plans to cut 8,500 jobs. Provisions for doubtful loans soared to 9.3 billion euros in the quarter, more than double the year-ago level..."

March 11 - Bloomberg (Kati Pohjanpalo): "Finland is pursuing a failed policy of using public funds to prop up companies with no hope of surviving on their own, according to the head of the country's biggest business park operator, Technopolis Oyj. 'We're putting a lot of money into saving old industries,' Technopolis Chief Executive Officer Keith Silverang said... 'It's a waste, we can't save them.' Finland's economy has contracted for three of the past five years, depleting state coffers and destroying jobs... Industrial production slumped an annual 7.5% in January, falling for a 15th consecutive month."