Archive - May 10, 2013

The anti-consumerism Degrowth movement is gaining visibility and adherents in Europe. Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita) recognizes that the mindless expansion of mindless consumption fueled by credit and financialization is qualitatively and quantitatively different from positive growth. In a very real way, Degrowth embraces the devolution of paid work and wealth that cannot be reversed. Growth and consumption based on financialization, expanding credit and phantom collateral is unsustainable and will devolve or implode. Rather than pine for what cannot be, it's far healthier to embrace using less of everything and increasing well-being by leveraging the web, the commons and what cannot be commoditized or financialized.

Is high yield the new risk-free asset class...

The Chairman is about to take the lectern to discuss bank structure and competition at the SIFI conference at the Chicago Fed. His prepared remarks are likely to be a little less exciting than the Q&A where the world will be watching for the words "buy, buy, buy", "mission accomplished", or "taper". Charles Evans will be his lead out man. Finally, since Bernanke will be discussing shadow banking, or the source of some $30 trillion in shadow money always ignored by Keynesians, Monetarists and Magic Money Tree (MMT) growers, a topic we have discussed over the past three years, here is the TBAC's own summary on how Modern Money really works.

it is no secret that for years, one of the most useful features of the Bloomberg terminal (if only for other users of Bloomberg), has been the ubiquitous red or green user dot, showing if a given user is online (such as NY Fed Analyst/Trader Kevin Henry before Zero Hedge exposure) or gray i.e., invisible, circle such as Kevin Henry after Zero Hedge exposure. Because to some there is nothing more informative than knowing if the object of their stalking ambitions is currently sitting next to a PC. As it turns out, it is not just clients of Bloomberg that found this functionality useful, but Bloomberg journalists too, who until recently at least, it turns out had much more access than just the "dot" including information on when a subscriber had most recently logged onto the service, when they had first become a subscriber and a tally of the types of functions they were accessing through the terminal. That is, at least until Goldman Sachs complained.

A month ago we pointed out that even as the Chinese credit bubble - at a record 240% of GDP on a consolidated basis - is now clearly out of control, the far more disturbing aspect of China's credit-fueled economy is the ever declining boost to economic growth as a result of every incremental dollar created. Indeed, as the economic response to "credit shock" becomes lower and lower, even as the inflationary impact lingers, the PBOC is caught between a stagnating rock and an inflationary hard place. Nonetheless, there are few options and with the shark-like need to continue growing, or at least moving, in order to prevent collapse, China did precisely what we expected it to do: boost credit growth even more despite the obvious tapering economic impact of such money creation. Sure enough, overnight China reported that its M2 growth accelerated in April from 15.7% in March, to 16.1% on a Y/Y basis: the fastest pace of credit creation in two years. Yes, the PBOC may not be creating money, but the Chinese pseudo-sovereign commercial banks, sure are, and at a pace that puts the rest of the world to shame.

While the extreme volatility associated with the 8amET hour in Gold and Silver trading is no surprise, the strength of the USD (helped by JPY weakness along with pretty much every other major) is slamming WTI crude, Gold, and Silver lower this morning. The Dollar Index move in the last two days is the largest in 16 months; Gold's 2-day drop is the biggest (ex-the crash) in 10 months. "If you consider what is happening in the currency markets and then factor in the demand for the physical delivery of gold there should be some additional note of caution in your evaluation of the markets. Smart money always moves first while dumb money lingers and is baited by those that take advantage of it. A sniff of Fear has returned to the marketplace and Greed may be in the process of giving way."

While German finance minister Schaeuble 'blessed' the French two-year grace-period for 'missing the deficit targets', adding that "he trusts France.. and is aware of its duties and responsibilities," it is his fellow countryman that is making headlines. Though the pains to which the politicians are going to convince an increasingly gullible public that the Franco-German divide is strong, German central bank head Jens Weidmann has strongly criticized French efforts to reduce its budget deficit warning that French delays could damage the credibility of euro-zone rules. The real money man exclaimed, "you can't call that savings, as far as I am concerned," adding that France (as a 'core' member of Europe) must strive to set a positive example, and not "damage their credibility by taking advantage of the built-in flexibility." We have been vehement (here and here) that France is on the cusp of a very serious depression and this 'verbal' pressure from Weidmann will not go down well with France's Moscovici who begged, "we don't want excessive consolidation for our country, we don't want austerity beyond what is necessary," but the broad fear is that France is setting a bad example, "only a question of time before other highly-indebted countries demand concessions."

• PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
• Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
• Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
• China issues new rules targeting wealth management fund pools (RTRS)
• Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
• New York may have to drop claims against BofA over Merrill (RTRS)
• FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
• In eastern Syria oil smugglers benefit from chaos (RTRS)

Now, with a paper trail a mile wide that shows that Irish banks' a) need capital b) regulators flip flop regularly and c) will likely puke assets to deleverage, it's time to start strategizing what to do next...

The main story overnight is without doubt the dramatic plunge in the Yen, which following the breach and trigger of USDJPY 100 stops has been a straight diagonal line to the upper right (or lower for the Yen across all currency crosses) and at last check was approaching 101.50, in turn sending the USD higher in virtually all jurisdictions. However it is not so much the Yen weakness that was surprising - a nation hell bent on doubling its monetary base in two years will do that - but the accelerating response in neighboring countries all of which are seeing Japan as the biggest economic threat suddenly and all are scrambling to respond. Sure enough, midway through the evening session, Sri Lanka cut its reverse repo and repurchase rate to 9% and 7% respectively, promptly followed by Vietnam cutting its own refinancing rate from 8% to 7%, then moving to Thailand where the finance chief Kittiratt called for a rate cut exceeding 25 bps, and more jawboning from South Korea suggesting even more rate cuts from the export-driven country are set to come as it loses trade competitiveness to Japan. Asian financial crisis 2.0 any minute now?

The yen is weak AND the dollar is strong. Two forces at work. Discuss.