Archive - Jun 13, 2011

The BOJ just concluded its two-day operation, and while not announcing any new monetary program or changing its interest rate, both of which had been widely anticipated, it did announce a new Y500 billion loan program for "growth industries" the result of which is some substantial strength in overnight equity markets. Alas, just like everything else by BOJ terms, this stimulus will prove largely insufficient, and will be followed by yet another loan program, until finally Shirakawa relents and restarts the printers. And in other ridiculous news, the BOJ raised its outlook of the second half, saying the economy was "picking up." There is no point in even commenting on this, suffice to say that instead of engaging in what it does best, i.e., monetary stimulus, Japan, and of course the US, will now be delighted to live in bizarro world that things will improve on their own. Best of luck with that.

Luckily, the IMF does not bar candidates for being too thin, or too male...

It is kind of the fine folks who compile the Case Shiller index to finally "definitively" tell us that home prices have now officially double-dipped (or is that quadruple dipped when one adjusted for the pro forma impact of QE1 and 2?). Well, below is a chart that cuts right through the noise and semantics, and shows that when expressed in a currency that has not been battered and diluted endlessly, the true normalized value of housing is really down 80% not just since the housing peak but since the turn of the millennium.

Air Canada flying off course?

While the rest of the economic world was staring transfixed at the ongoing collapse in American home equity disclosed by the most recently Z.1, we were busy analyzing the as always far more important liability side of the ledger. After all, the quarterly Z.1 update provides the only undisputed update of the state of the Shadow Banking system, or more specifically, Shadow Liabilities. Not only that, but it also fully exposes the periodic changes in the "overt" Commercial Banking system's liabilities. The results as always hold some very dramatic surprises, although those who read and understood our recent expose on the surge in foreign-banks' cash courtesy of the Fed spike in reserves, may have a sense of what is coming. In a nutshell, and not very surprisingly, Shadow Liabilities dropped once again, and for the 12th consecutive quarter (or 3rd year in a row), although the $81 billion decline was the smallest since the $604.9 billion rise (the last one recorded) in Q1 2008. The drop since then is now a total of $5.1 trillion, and the total now stands at $15.8 trillion, a far cry from the all time high of $20.9 trillion just before the 3 years of consecutive declines. That the shadow system continues collapsing is no surprise: after all with the securitization machine dead, and the nationalized GSEs (with $6.6 trillion in liabilities) unable to relever there is little marginal debt that can be accrued to the shadow banking system. Yet oddly enough, despite drops across most other shadow liability verticals, there were some very strong performers, with Open Market Paper seeing the biggest surge since Q2 2007 at $74 billion. Though what was most surprising (or least, considering that it is Bernanke's only role now, as we have said since last July, to reflate the conventional banking system liabilities, and thus assets, through QE) is that traditional liabilities of Commercial Banks exploded by $424 billion in Q1, more than offsetting the drop in the shadow banking system, and leading to a $343 billion jump in the liabilities of the consolidated financial system. To all those wondering, here is your answer where the inflation in Q1 came from. Yet the biggest stunner in the data set is just where the biggest jump in commercial bank liabilities came from. Jumping from $19.4 billion to $232.4 billion over the quarter, accounting for two thirds of the Q1 "inflation" was... interbank liabilities due to foreign banks. And there you have that foreign bank smoking gun again...

The Chinese data dump is here. Just as expected the key May inflation data point out of China came at 5.5% Y/Y, in line with expectations, and higher than 5.3% in April. This is the highest inflation print since 2008 when the economy fell into a deflationary vortex. Other economic data: PPI comes blistering at 6.8%, beating expectations of 6.5%, and in line with 6.8% in April. Industrial production was 13.3%, stronger than the 13.1% expected, and down from 13.4% previously, while retail sales were the only metric that missed, coming at 16.9% Y/Y, below consensus of 17.0%, and lower than 17.1% in April. Fixed Inventory excluding Rural was at 25.8%, on expectations of 25.2% and higher than 25.4% previously. Lastly, on the key topic of electricity output, the print is 377.5 BKW/h up 12% Y/Y: it is unclear whether the energy gap discussed previously will be filled at this rate of growth. Inflation continues to dominate although courtesy of the better than expected Industrial Production calls for stagflation will be more muted this time. Expect to see renewed calls on the PBoC to hike rates imminently.

Remember, stocks tanked 16% after QE 1 ended in 2010. So far, we’re already down 6% and QE 2 hasn’t even ended yet! If we match last year’s post-QE correction, the S&P 500 will be at 1,144 soon after QE 2 ends. And given the numerous disasters (economic and financial) occurring in the world today, we could easily drop a lot further than that.

The biggest problem with investing the markets today, is that we’ve entered a period in which not one country, but most of the developed world is entering a currency Crisis. Of the countries that back major currencies the Europe, the US, and Japan all face major debt restructuring issues. In different terms, we are witnessing the slow-motion collapse of the entire paper-money based financial system, as well as the unbridled credit growth such a system fosters.

The inaugural GOP presidential debate will begin shortly in New Hampshire. The sevan candidates who will be exchanging shots over all sorts of irrelevant matters will be Michele Bachmann, Newt Gingrich, Ron Paul, Tim Pawlenty, Mitt Romney and Rick Santorum. For those who are not watching the Stanley Cup which is concurrent with this game show, this muppet spectacle should provide for at least an hour of delightful entertainment.

How many residents of Japan, Hawaii and the West Coast have tasted this?

Do Zero Hedgers agree?

June 15, the day of a general strike in Greece, is also the day when the critical "mid-term agreement" between the insolvent country and the Troica will be voted on by the general assembly. "The agreement includes tax increases, slashing of
wages and pensions and the lay-off of approximately more 100,000 civil
servants in the next few years." Already the blog Occupied London has called for a blockade of the Athens parliament: "Last night (June 11th) the popular assembly of Syntagma square
announced a call to blockade the Greek parliament ahead of the voting of
the so-called Mid-term agreement between the Greek government and the
troika (IMF/ECB/EU). The call-out for the blockade below is one of the most important acts
we have seen by the Syntagma assembly so far. June 15th is gearing up
to become a historical day in Greece, a crucial chance to block off the
charge-ahead of neoliberalism here. Don’t be a spectator to this – translate and disseminate the text
below; organise a gathering where you are, or come join us at Syntagma.
This is the struggle for and of our lives." Needless to say, should the vote pass, and should the Parliament be blockaded, which it will be, the chances of politicians to leave general assembly unscathed may be compromised. Which is why we were not surprised to learn, courtesy of Covering Delta, that the Greek parliament has hired foreign workers to clean out the underground tunnel which leads from the parliament to the port of Piraeus (soon to be privatized) in order to avoid what some fear may be the popular lynchings of MPs by the disgruntled masses.

After a major hack of the IMF's website over the weekend promptly scrambled the FBI, just as Operation Empire State Rebellion announced it was taking its attack of the Fed Chairman to the next level (we have yet to see anything here more than just rhetoric), today, the competing hacker group, the one implicated in numerous Sony breakins as well as a recent defacing of an FBI-affiliate, LulzSec, has proven it broke into the Senate's SPARC server and exposed everything that admin chris_vontz@saa.senate.gov apparently was unable to hid sufficiently well. On its website, LulzSecurity left the following preface to the several hundred thousand code-long data dump of everything located in the Senate server: "We don't like the US government very much. Their boats are weak, their lulz are low, and their sites aren't very secure. In an attempt to help them fix their issues, we've decided to donate additional lulz in the form of owning them some more! This is a small, just-for-kicks release of some internal data from Senate.gov - is this an act of war, gentlemen? Problem? - Lulz Security." And what is completely not surprising, following a Dow Jones inquiry, "a Senate representative said she was unaware of any breach of the body's web site." Well it has been breached- anyone curious what is contained in the server can do so here. A cursory investigation does not reveal the exposition of any sensitive data.... This time. Yet one thing LulzSec most certainly acquired was the user/pass combinations of all individuals affiliated with the Senate, and are likely currently actively downloading all their emails. We continue to wonder just how safe the Fed's email server is...

Have €121,000 lying around? Enjoy hiking in smallish central European countries with picturesque villages? Then this deal is for you. While its new European banker overlords are pushing Greece to sell off, pardon, "privatize" the bulk of its most monetizable assets, Austria has already seen the writing on the wall, and in a very proactive step, iss offering to see two mountain peaks in the Austrian Alps. From AP: "Two 2,000-metre (6,500-feet) mountain peaks in eastern Tyrol -- the "Grosse Kinigat" and the "Rosskopf" -- are up for sale for just 121,000 euros ($175,800) for the pair. On its website, Austria's federal real estate company, the Bundesimmobiliengesellschaft or BIG, proudly boasts that the two peaks offer the "most stunning views of the Carnic Alps and are popular destinations for mountain climbers and hikers"." As to why Austria is suddenly scrambling to sell mountains, nobody really knows: ""It's a mystery to me why they're wanting to sell the peaks right now," the mayor of the tiny village of Kartitsch, Josef Ausserlechner, told the Austrian news agency APA. "In Greece, they're selling off islands. In Austria, it's the mountains," he fumed." Lastly, the reason doesn't matter. What is certain is that some Goldman dodecatuple secret shell holding SPV will end up being the buyer. And where Greece and Austria have already ventured, so shall the rest of Europe boldly go very soon as the banking syndicate soon ends up owning literally everything.

What we have now is an economy that is almost entirely driven by Banking Interests so, if we want our markets to be strong, we need to do what is good for the banks. At the moment, that means keeping the Dollar as weak as possible.