Whether it is a reflection of the inflated price of regular edibles thanks to Abe's Yen devaluation escapades, or simply more evidence of the greater fool theory playing out among a mesmerized world, the latest gourmet eating experience in Japan highlights the human ability to follow a herd in spite of all common sense. As CBS reports in this somewhat remarkably not The Onion clip, the highest delicacy among Japanese diners is now - dirt. Of course, no-one would be expected to eat, chew, gnaw on any old garden variety, umm, garden; this is potting soil that is boiled, grilled, steamed, and pureed and then dribbled on creme brulee, rolled over mashed potatoes, and drizzled over arugula. Is it any wonder that consumer confidence in Japan is soaring, despite their currency's dismal demise and soaring prices for energy; as even the ever-calm-and-polite host of this clip is 'surprised' at the taste (hint: not in a good way). Of course, there is nothing new in this world as geophagy (eating dirt) is a traditional cultural activity in Africa for pregnant and lactating women. So perhaps, this is Japan's subliminal message to their people to start procreating a little more - as that demographic cliff is getting very close.
Chinese Foreign Minister Yang Jiechi said Saturday that "Japan needs to face up to reality, and take real steps to correct its mistakes... so as to prevent a further escalation," with regard the demand that Japan reverse its nationalization of the small islet chain of the Senkakus. In some of the strongest rhetoric yet, The Japan Times reports that the Chinese minister said Japan's 'single-handed' actions so far have "caused great damage to China-Japan relations and undermined stability in the region," and urged Tokyo to "make concrete efforts" to prevent fraught bilateral ties from spiraling out of control. As the reigns of control in China continue to be handed over (with Yang expected to become state Councillor for foreign affairs), we suspect the situation is far from resolved - especially with Shinzo Abe fighting a war on another front (that China is likely not pleased with either).
The current globally-coordinated central bank ZIRP/bailout policies are destroying the world's saving class. As Jim Rogers notes, "For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don't know." The bigger danger that concerns him is the "hollowing out of the 'saving class'" resulting from this situation. Central planners' policies are "punishing the prudent in favor of rescuing the irresponsible." Rogers owns gold, silver, and other precious metals and commodities - as a better way to play the debasement of currencies - and concludes rather ominously that, "this has happened before in world history, and the aftermath has always had grievous economic, social - and often human - costs."
We posted this chart previously, but it deserves repeating, for one reason: whereas conventional wisdom in the past was the due to the mutual assured trade destruction between China and the US (with China overly reliant on the US consumer and market for its exports, and the US desperate for Chinese purchases of US bonds as a USD-recycling and, more importantly, deficit-funding pathway), perhaps now that exports to the US as a percentage of total Chinese exports have fallen to an all time low, and with Chinese purchases of US bonds stagnant of 18 months in a row as the Fed's monetization of US paper has replaced the marginal Chinese demand, perhaps it is time to rethink the increasingly unstable MAD Nash Equilibrium that exists between the countries: first in trade, and soon in all other aspects of socio-economic relations.
First it was a sudden bout of tightening following a series of record liquidity withdrawing repos, then it was two disappointing PMIs, then it was a warning that China's property market is (as usual) overheating and major curbs were being implemented, then it was China's "state of the union" address in which the country trimmed substantially its outlook for the remainder of the year, predicting well below trendline economic growth, inflation and credit expansion, then we got an absolute collapse in Chinese imports indicating the domestic economy had gone into a state of if not shock then outright stasis, and finally overnight we got an update on China's retail sales and industrial output which both had their weakest combined start to a year since the global recession in 2009, leading Bloomberg to title its summary article, "China’s Economic Data Show Weakest Start Since 2009", and further adding that the data is now "adding to signs of a moderating rebound in the world’s second-biggest economy." Luckily, in the new batshit normal, who needs the fastest growing marginal economy: the weight of the growing world can obviously be dumped on the shoulders of the savings-less, part-time working US consumer, accountable for 70% of US GDP, and thus about 20% of the global economy. What can possibly go wrong?
Why are citizens of the developed world looking a gift horse in the mouth? The Dow Jones Industrial Average rallied beyond 14,300 points this week, passing the highs it reached in 2007 just as the world economy was starting to wobble. And yet, this week, investors and pundits warned us not to read too much into it. They have a point. In the half-decade since the western financial system almost collapsed, the relationship between stock markets and the “real” economy has seemed more tenuous. Part of the reason people get less giddy about the Dow than they did five years ago is because they have learnt a bit about inequality. What looks like a recovery, a rally or an increase in consumer confidence may just be the effect of elites passing money among themselves. The US Federal Reserve has added more than $2tn to its balance sheet since 2007. In general, that tide of liquidity ought to lift all boats in the harbour. But when the harbour is an equity market, you won’t find your yacht lifted unless you own one.
South Dakota is the first state, since the Newtown tragedy, to enact a law allowing teachers to carry guns in school. As Fox News reports, Governor Dennis Daugaard signed the bill that allows school districts to arm teachers and other personnel. Unsurprisingly, the measure prompted intense debate as many feared it "could make schools more dangerous, lead to accidental shootings," and potentially put guns into untrained hands, as well as previously dismissed by Education Secretary Arne Duncan as "a marketing opportunity" for the industry to sell more guns. South Dakota, apparently, doesn't stand alone on this issue (Utah has allowed teachers to wear concealed weapons for 12 years) but as Washington pushes forward on its gun control legislation, other states including Georgia, New Hampshire, and Kansas are working on similar measures. Rep. Scott Craig - the bill's main sponsor - has received support from rural districts who do not have the funds for full-time law enforcement. While the Great Depression promised a 'chicken in every pot', our current repression appears to be heading towards a 'gun in every classroom'.
Those who have been following our exclusive series of the Fed's direct bailout of European banks (here, here, here and here), and, indirectly of Europe, will not be surprised at all to learn that in the week ended February 27, or the week in which Europe went into a however brief tailspin following the shocking defeat of Bersani in the Italian elections, and an even more shocking victory by Berlusconi and Grillo, leading to a political vacuum and a hung parliament, the Fed injected a record $99 billion of excess reserves into foreign banks. As the most recent H.8 statement makes very clear, soared from $836 billion to a near-record $936 billion, or a $99.3 billion reserve "reallocation" in the form of cash - very, very fungible cash - into foreign (read European) banks in one week.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
"US equities, what is there to say? Successive new highs; record buybacks (Miller-Modigliani and ESOP rules, OK!); multi-year heaviest mutual fund buying; vol a whisker off its Crisis Era lows; margin debt rising as fast as in 2000 and 2007; put-call ratios depressed; cumulative A/D in the stratosphere; junk bonds near yield lows; leveraged loan prices back at Blue Sky, mid-2007 levels—and now the jobs numbers giving everyone an all over warm glow"
Still confused why crony capitalist #1, the "rustic" Octogenarian of Omaha, and Obama tax advisor #1, Warren Buffett has been aggressively attempting to corner the railroad market, while the administration relentlessly refuses to allow assorted new, and very much competing petroleum pipelines from America's neighbor to the north to cross through the US (in gratitude for the former's generous "tax advice" and pedigree by association)? Hint: it's not concern about the environment. The answer is the chart below.
Mr Bernanke and his colleagues all over the central banking world are well aware of their fundamental problem. If there is one “entity” in all modern societies where the very concept of “savings” is seen as a deadly danger it is government. The act of saving (and access to something WORTH saving) makes for a nation of independent and increasingly prosperous individuals. Such individuals do not look for something for nothing. An individual who can sustain his or her life by their own effort has little need of being “governed” and will not be “ruled”. That makes the job of governance very easy, but the “job” of ruling prohibitively difficult. Since a government does not produce, it cannot “save” in the real meaning of the term. All it can do is to minimise its demand on those who DO save, those who consume LESS than they produce. That is anathema to a government intent on gaining the power necessary to “run” an economy. The purpose of a “welfare state” is to convince a majority of the people that savings are not necessary. Once a welfare state has been put into operation - as it has been all over the developed world for a century or so - those in power go further. Their new task is to convince their subjects that the act of saving is not only unnecessary, it is dangerous to their “prosperity”. This would seem at first glance to be both a ridiculous and a formidably difficult task. It is. It has taken our “powers that be” a long time to succeed.
Venezuela is a place of severe contradictions. It’s the only country we found that ranked in the top ten regarding improvement in the UN Human Development Index since 2006, and also ranked in the top ten regarding intentional homicides per capita. Usually, these two things do not go together. Similarly, income inequality has been reduced, but has been accompanied by very high inflation. Chavez’ redistribution policies contributed to a large decline in Venezuela’s Gini coefficient since 2002, now the lowest in the region (lower implies less income inequality). However, Venezuela has also experienced the highest inflation in the world over the last 5 years (excluding Zimbabwe, of course), which suggests that Venezuelans have in part been made more equal by having their incomes inflated away. Despite all the challenges, Venezuela’s economic model may well survive given how high oil prices are; but, what no one knows is how much hard currency the government needs to spend to maintain support from the Chavistas.
We know that core and periphery are struggling under the same monetary policy sun as divergences grow wider. We also know that even in the core, the Franco-German divide continues to gape. However, for a 'union' that continues to promote itself as the utopian solution for 27 nations across Europe, it seems there is an even bigger chasm - the gender pay gap. On International Women's Day, Bloomberg's Niraj Shah notes that women earn on average 16% per hour less than men with Estonia (27% gap) and Austria (24%) at the worst end of the spectrum and Italy (6%) and Slovenia (2%) at the most equitable end. And finally, even with a woman running the show, Germany's gender-pay-gap is a surprising 22%.
When a group or organization seeks to establish any social policy, it helps tremendously if that group remains honest in their endeavor. If its members are forced to lie, tell half-truths or use manipulative tactics in order to fool the masses into accepting its initiative, then the initiative at its very core is not worth consideration. Propaganda is not simply political rhetoric or editorial fervor; it is the art of deceiving people into adopting the ideology you want them to espouse. It is not about convincing people of the truth; it is about convincing people that fallacy is truth. Nothing embodies this disturbing reality of cultural dialogue more than the ill-conceived movement toward gun control in America.