Archive - Apr 2013

Demand for Japanese goods in China have plunged across the board since the Senkaku Islands dispute has led to widespread Chinese boycottts of Japanese products. As the FT reports, the last 12 months have seen shipments to China plunge over 9% to JPY11.3tn. But have no fear, the credit-loving, all-consuming US citizen stepped up to the plate (though we note not enough since Japan's trade balance has crashed anyway) buying cars, car parts, and electrical machinery. Exports to the US have risen over 10% in the last year to JPY11.4tn - now larger than China. This is the first time since May 2009. Clearly the slowdown in the Chinese economy is also exacerbating the problems for Japan but one analyst warns, "this weakness is structural, not cyclical." The IMF's chief economist was hardly optimistic, noting that the US overtaking China was a "big change" in light of a longer-term trend to deeper intra-Asia integration - "I hope the clouds clear soon." We are sure Abe is watching closely as the US economy also rolls over.

Fresh from his humiliating defeat in the Senate to promote his pacifist gun-control agenda yesterday, in the name of the "90%" of course (who apparently need to pick their senatorial representative just a little more effectively), the Nobel Peace Prize winner has decided that guns just may be the right answer when it comes to promoting peace, or least his agenda abroad. WaPo reports that  the Obama administration has ordered additional U.S. troops to Jordan for possible chemical weapons control, humanitarian response or “stability operations” in Syria. "The new troops, a headquarters element of the 1st Armored Division based at Fort Bliss, Tex., will not greatly increase the number of U.S. forces in Jordan. About 150 troops were sent last year to help train Jordanian military and Syrian opposition forces. Some of those troops will remain, and the new arrivals will increase the total to more than 200."

The German stock market, the DAX, has officially taken out its trendline from the June 2012 low when European Central Bank President Mario Draghi promised “unlimited bond buying” to support Europe.

Hardly anyone will be surprised to learn that moments ago we just got the latest disappointing economic indicator for an economy that is clearly accelerating in its deterioration. As expected, the April Philly Fed was the latest economic indicator miss, printing at 1.3, down from last month's 2.0, and below expectations of am increase to 3.0. And while the key New Orders reverted back into negative territory after one brief month positive, it was the other components of the Index that a far more pronounced deterioration, namely the Number of Employees which dumped from 2.7 to -6.8, the biggest drop since May 2012, boding ill for the upcoming April NFP number, as well as the Inventories which plunged from 0.0 to -22.2, which means downward Q1 GDP revisions will be forthcoming from every side momentarily as the Wall Street lemmings are forced to resume trimming their exuberance once more just like in 2012... and 2011... and 2010.

New all-time highs in the DJIA are a rare occurrence generally greeted with strong market emotions. The last few weeks have seen asset-gatherers clambering over each other to appear on TV proclaiming 'victory' and suggesting now is the time to buy stocks or miss out!! However, when one looks at the actual data (as opposed to anecdotes), while the returns one year out are fairly similar (6.72% after setting a new high vs. 7.07% on average over the last 113 years) Barclays finds that it is in the one-quarter time frame that the difference is most stark (-0.40% after setting a new high vs. 1.63% overall). This suggests a bias to profit-taking (and choppy trading) at all-time record highs, as opposed to a moon-shot.

In the six months since the IMF last provided its economic forecasts, the situation in Spain has gone from bad (but sustainable) to worse (and unsustainable). Their current forecasts show no 'peak' in debt-to-gdp ratios at least as far as 2018 with the budget deficit primarily to blame. As Bloomberg Briefs notes, general government primary borrowing, a measure that excludes the cost of paying interest on government debt, was revised up to 7.9% of GDP from 4.5% for 2012. The inability to narrow the budget deficit, surprise surprise, appears partially due to lower real GDP growth forecasts and even then a recent study has found that World Economic Outlook real GDP growth forecasts showed a tendency to systematically exceed outcomes. This phenomenon was particularly prevalent in countries with an IMF-supported program. The IMF warns Spain "will need to undertake unprecedented fiscal efforts to bring their debt ratios to traditional norms," as most countries have never experienced debt levels similar to current ones; and seemed to think a debt restructuring is more likely and will "entail substantial and long-lasting economic and social costs."

In perhaps the most boring initial claims release in a long time, the DOL revealed that in the week ending April 13, there were 352,000 new unemployment insurance claims, an increase of 4,000 from the prior week (naturally revised higher from 346K to 348K), and a slight miss of expectations of 350K. So far in 2013, there have been 8 misses and 7 beats of the expected claims number. The DOL also added that two states' claims were estimated in the past week: of course, if these were California and Illinois, one would imagine reality to be quite different than what is reported but who really cares about reality any more.

The $20 billion gold futures sale and concentrated selling of gold futures on the COMEX on Friday and Monday is far more likely to be “nefarious” than the gold fixings in London. The CFTC’s track record to date has not been great and regulatory capture remains a real risk with the CFTC seeming to be reluctant to hold Wall Street banks who may be involved in price manipulation in the futures market to account. After the Libor revelations, it is surprising that there is not more scrutiny and hard questions asked of banks and regulators in this regard. Separately, large institutional fund manager Blackrock said that there was “no visible central bank activity” as the gold price plunged.  They said that gold's fundamentals remain strong and that the fall in price was driven by an outflow of "hot money" and that gold prices are now near the marginal cost of new supply which should provide strong support at these levels and lead to higher prices again. 

There's never a good lawyer around when you really need one! With a 96+% (tens of $billions) loss to equity investors, one would think law firms and regulatory bodies would be chomping at the bit for this one!

Probably the most symbolic photo of the day, courtesy of Breaking911, showing a "huge sinkhole in Chicago due to heavy flooding at 96th & Houston. 3 cars in the hole." No further commentary needed.

Yesterday it was headlines from Bini-Smaghi and Weidmann punching the lights out for the Euro (which as we have been saying all along, needs to be lower not higher to promote some glimmer of hope for Europe). Moments ago it was two new headlines, which if not market crushing on their own, show how increasingly precarious Europe is.

• ITALY PARLIAMENT FAILS TO ELECT PRESIDENT IN FIRST BALLOT
• MERKEL FALLS SHORT OF COALITION MAJORITY ON CYPRUS VOTE

In other words, despite hopes that the Italian political chaos would stabilize following a compromise presidential candidate (which we noted earlier today we would believe when we saw), Italy continues to be an ungovernable chaos. As for Germany, Merkel was forced to rely on opposition votes to pass the critical Cyprus rescue package on which she has literally bet the future of Germany and her political career. While not unexpected, this portends poorly for the Chancellor's September reelection chances, especially if the German anti-Euro party continues its recent surge in popularity in the past few weeks.

• Apple reportedly stops placing Mac component orders (DigiTimes)
• Apple Ordered to Remove Obscene Content From China Store (BBG)
• Texas Ammonia-Plant Blast Kills as Many as 15 People (Reuters)
• Boston Probe Said Focused on Person Dropping Bag at Site (BBG)
• The Chinese cold trade war comes come to roost: US becomes Japan’s top export market (FT)
• Berlusconi, Bersani back Marini in presidential vote (Ansa)
• German parliament backs Cyprus bailout (Reuters)
• China Vows Wider Yuan Movement (WSJ)
• Morgan Stanley Sees Core Earnings Weaken (WSJ)
• Gold Miners Lose $169 Billion as Price Slump Adds ETF Pain (BBG)
• G-20 Draft Affirms Pledge to Avoid Competitive Devaluations (BBG)
• IMF warns on risks of excessive easing (FT)
• The battle for the Swiss soul (Reuters)

Following yesterday's most recent Europe-led rout, the market is attempting a modest rebound, driven by the usual carry funding currency pair (EURUSD and USDJPY) levitation, although so far succeeding only modestly with not nearly enough overnight ramp to offset the bulk of yesterday's losses. In a centrally-planned, currency war-waging world, it is sad that only two key FX pairs matter in setting risk levels. But it is beyond hypocritical and highly ironic that according to a draft, the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports." So the G-20 issues a statement saying nobody is doing it, when everyone is, thus making it ok to cheapen your exports into "competitiveness"? In other words, if everyone lies, nobody lies. Of course, also when everyone eases, nobody eases, and the world is back to square one. But that will only become clear eventually.