Frontrunning: May 16

• As scandals mount, White House springs into damage control (Reuters)
• Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
• JPMorgan Chase asks Bloomberg for data records (Telegraph)
• Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
• Syrian Internet service comes back online (PCWorld)
• Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
• Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
• Factory Ceiling Collapses in Cambodia (WSJ)
• Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
• Snags await favourite for Federal Reserve job (FT)
• James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)

Surging Q1 Japan GDP Leads To Red Nikkei225 And Other Amusing Overnight Tidbits

In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.

David Stockman: "The American Empire And The End Of Sound Money"

In Chapter 12 of David Stockman's new book The Great Deformation, the outspoken truth-sayer discusses the realities of the end of the gold standard - from the the Bank of England's 'default' in 1931 to the 1960 London Gold panic (a shot across the Keynesian bow) and on to Nixon and Bretton Woods, Stockman explains how we are constantly deferring the day of reckoning... "...worse still, severing the link to gold paved the way for the T-bill standard and a vast multi-decade spree of central bank debt monetization and money printing. Since a régime of floating-rate paper money had never been tried before on a global basis, the Keynesian professors and their Friedmanite collaborators can perhaps be excused for not foreseeing its destructive consequence. The record of the next several decades, however, eliminated all doubt."

Will Fed "Taper" Talk Crush Chinese Property Prices?

When the Fed extended its guidance for extremely low rates to 2014 and later, none of the Chinese government's measures to deter property speculation could deter 'homebuyers' from bidding up prices. However, as the chart below shows, the disconnect between home prices (extreme highs) and home sales (near lows) has never been greater and with the Chinese looking to further control speculation at the same time as a Fed that is increasingly jawboning a slowing to its easy money policy, the prices of Hong Kong property has begun to drop in recent weeks. As Bloomberg notes, prices have fallen 4.2% from a record reached in mid-March, compared with a 77% contraction in sales from their post-global financial crisis peak in 2010.  The prices of property is explicitly deterring the 'urban dream' that we explained here, but any sustained drop in property prices (given the shadow lending and collateralization this bubble represents) leaves China once again between a bubble-pricking rock and an inflationary (social unrest harboring) hard place.

Chartapalooza: Complex Recovery Paths And Will It Ever Be The Same?

Major central bank activism and some sporadically good economic data in the U.S. have lifted equity markets and also helped the credit markets continue their rally. Central bank policy has been focused on an emergency bailout footing to stave off sudden panic and is also is aimed at stimulating economic activity. This has involved incentivizing households and businesses to expand and take some more risk. But no new policy initiative is perfect – not in implementation nor is it precise in its impact. Some in the markets and even in the Fed itself worry that the massive and unprecedented easing could be causing its own distortions and perverse side effects. It has clearly triggered a chancy search for yield that may yet lead to new asset bubbles and financial instability. There are numerous examples as Abraham Gulkowitz's PunchLine (chart extravaganza) shows. While the liquidity provided by key central banks -- including the move by the Bank of Japan to initiate massive monetary easing -- will likely continue suppressing yields, there is a serious argument to be made that the rallies have moved beyond fundamentals... This increases the likelihood of more surprises, not less...

The Holder - Issa Smackdown

This was not your grandfather's hearing. The air was thick with partisanship already but when Darrell Issa began by playing audio of Thomas Perez, assistant attorney general for civil rights and President Barack Obama's nominee to become the next Secretary of Labor, in which he confirms that he is arranging for details relating to the St. Paul case not to be disclosed. "Do you think it's appropriate for someone to -- at a federal level -- to try to keep information out in order to disguise what's actually going on?" Issa asked. "There are a whole variety of reasons why people, why we as a government and Justice Department, decide not to become involved in qui tam cases," Holder replied. Holder and Issa went back and forth until Holder lost it... "It is inappropriate and too consistent with the way in which you conduct yourself as a member of Congress," Holder said. "It is unacceptable. It is shameful."

Obama Makes Statement On "Situation Regarding The IRS" - Live Webcast

With the president so busy with teleprompted appearances, one is almost reminded of the presidential campaign when this was an hourly event, although since that is not the case and since the president is engaged in now seemingly endless damage control, one wonders if Ben Bernanke is able to govern the country entirely on his own. So far so good, if the country is just the Stalingrad & Poor 500 of course. As for Obama, he will next speak, following a customary delay, on the "situation regarding the internal  [and less than impartial] revenue service." Let's listen in.