Archive - May 19, 2013

Following an 80% rise off October 2012 lows, Japan's Nikkei 225 nominal price just exceeded that of the Dow Jones Industrial Average for the first time since May 6th 2010. Though the Dow is around 8% above its 2007 all-time highs, the Nikkei remains 16% below its 2007 highs (and over 60% below its 1989 all-time highs). While the Dow is pushing its P/E towards 15x, the Nikkei just passed 28x - quite a 'valuation' difference. JGB futures - though not halted yet - are plunging notably (with JGB yields up 3-4bps). The last time the Nikkei was here a USD bought 95 JPY, now it buys 103... and 10Y Japanese government bonds yielded 1.29% against today's 86bps (compared to 10Y Treasuries 3.5% then and 1.96% now) ... In those three years the Fed has expanded its balance sheet by just over $1 trillion and the BoJ by about $400 billion equivalent.

It has been a tough weekend for the President. First, the CEO of the Associated Press states the government's seizure of AP phone records was "so broad and so secret," among other factors, "that it was an unconstitutional act," adding that it had already had a chilling effect on newsgathering and press freedom. Add to that James Goodale's comments (the leading force behind the release of the Pentagon Papers and first amendment lawyer), that President Obama is "worse for press freedom than Nixon" and things are not going well. But, the problems did not stop there as the Wall Street Journal reports that while President Obama claims not to have been made aware of the IRS indiscretions until May 10th it seems the White House's chief lawyer learned weeks ago that an audit of the IRS likely would show that agency employees inappropriately targeted conservative groups. The President's response so far is that "we’re not going to participate in is a partisan fishing expedition."

With unemployment rates running at all-time record highs across the peripheral European nations and the rise of nationalist (some might say extremist) parties, it remains somewhat surprising that there has not been greater social unrest (yet). The people of Europe are caught in a hinterland of knowing what is best in the long-run but fearing the short-term band-aid ripping pain of exiting the political farce known as the European Union. But some have found a way... There is another way to 'exit' on personal terms from the austerity and pain induced by a centrally planned overlord. Immigration to Germany from Italy, Spain, Greece, and Portugal has 'never' been higher... leaving us wondering - at what point does the free and open exchange of everything in the union gets its share of 'protectionism' from an over-stuffed Germany freezing the import of labor? So it seems that not only is the money (deposits) finding a new home but the people too are moving to where the money is..

Central bankers overshadow the economic data in the week ahead.  

European Union Launches Investigation Into Manipulation of Oil Prices Since 2002

We are so deep inside the centrally-planned, Keynesio-monetarist Twilight zone, that the best we can advise is just laughing at the utterly ridiculous amounts of daily idiocy hitting the tape now on an hourly basis.

Bullish for GDP, foodstamps and BLS scapegoating of the weather as the reason for a weak May jobs report.

Proving  that Japan has learned absolutely nothing from its recent past, it is now preparing to risk yet another Fukushima, just to make sure that Goldman's partners have a fresh year of record bonuses, driven by the BOJ's monetary insanity. Yomiuri Shumbun reports, that just two years after a wholesale shutdown of Japan's nuclear power plants demanded by the people, Japan is once again going to reactivate its nuclear power plants, much to the chagrin of the already massively irradiated local population.

In case the complete disconnect of paper selling from physical hand-over-fist buying (see this chart to explain all the gold activity in Q1 which can be summarized in two words: paper liquidation) were not enough to send the price of precious metals to zero, then news that quite soon gold mining companies in one of the world's largest producers of gold may be going out of business, leading to a collapse in physical product, should be sufficient to really send precious metals well into negative territory. The only question will be if the GDX gets there first. Reuters reports that South Africa's National Union of Mineworkers said it would seek pay rises of up to 60 percent from gold and coal producers, raising the prospect of fresh strikes as firms battle higher costs and falling prices in an already heated labor climate.

Not a moment after someone was slammed with a massive margin call following the hit of 102 USDJPY stops as we noted moments ago, was that same someone(s) forced to dump a whole lot of silver in thin, no volume trading taking out the entire bid stack on what can only be described as "get me the hell out and pay me anything" liquidation, sending the precious metal to just over $20, before yet another round of buying programs kicked in, and sent it right back up, allowing those quick enough to capitalize on some foolish macro trader's blowing up to pocket a huge profit before Japan has even woken up.

"Easy come, easy go, when the market is GETCO"

That should be the motto of every momentum trader who decided on Friday to buy the USDJPY just because it was 2pm, and then, when 3:30 pm came around, and the momentum chasing algos woke up, then pat themselves on the back for a "job well done." Because in early trading, before even the Japan open, the USDJPY, following on comments by Japan's econ minister Amari, as noted here earlier, that the days of easy JPY devaluation are over, collapsed by over 120 pips from a closing print of 103.20, and tumbled in a span of second to just under 102, taking out all 102 stops, before the GETCO plunge protection algo team took over and sent the pair back up, however briefly.

Is a $400,000 house with NINJA loan normal? How about a $200,000 REO with missing appliances, a dead yard, a long list of maintenance and no financing? Maybe normal is a $300,000 flip after the flipper fixed everything and colored up the yard, and did some upgrades to the interior. Some may suggest that normal is more like a $300,000 sale with a 5.5% fixed rate and 20% down. Then again, it may be more normal if this $300,000 sale is financed with a 3.5% down FHA loan at 4%. Of course, all of the above is actually referring to the same house. So what is normal? At the moment, we know prices are going up in certain markets, and so are sales. Mortgage rates are higher now than when QE3 started in September 2012. Investors are gobbling up everything in sight in their favored target markets. As an example, they are buying 30% of the houses in Southern California, 38% in Phoenix and 53% in Vegas. First time buyers do not stand a chance. The percentage of home ownership is declining. Are policy makers happy with these results? Are these intended or unintended consequences of public policies?

As if sniffing at the threat the ongoing collapse in JGBs, culminated by Toyota pulling a bond issue on soaring yields, which forced even JPM to come out with an ominously titled piece called the "VaR Shock" driven by the epic plunge in the Yen, Japan's economy minister Akira Amari has hit the wires saying "the yen's excessive strength has been largely "corrected," and further weakness could be harmful, Japan's economy minister said Sunday, suggesting the Japanese government may be happy with the currency's current level. Economy minister Akira Amari, responding to a question on how far the yen should weaken, replied that while he couldn't comment himself, "it's being said that the correction of the strong yen is largely completed. If the yen keeps on weakening a lot more, it will have a negative impact on peoples' lives."" Now the question is will those millions in Mrs. Watanabe housewives suddenly stuck in margin calls scramble to take profit, which could send the USDJPY soundly back into double digit territory, or will the momentum machine, facilitated by Getco's relentless scramble to perpetuate momentum ignition and drift, mean Japan has officially lost control of the Yen, and in a world in which only the BOJ's actions matters, will USDJPY 120 be next, together with the even greater "negative impact on people's lives" such a move would have (but not for those buying apartments at the yet to be built 432 Park).

To those who have already submitted their applications to launder their cash buy an apartment or better yet, have already wired the money to purchase any of the still to be built residences at 432 Park, the 84-story giant that is set to become the tallest residential building in the Western hemisphere, congratulations. Although that is technically inappropriate: for full effect we would have to say "congratulations" in the buyers' native tongue, be it Russian, Mandarin, Spanish or Arabic, because it sure won't be English in the ongoing scramble to park trillions in cash away from a global banking system now hell bent on confiscating it, especially away from Europe's insolvent and massively levered banks as shown yesterday, and in the Cyprus template aftermath, the cleanest dirty shirt has once again emerged as midtown Manhattan real estate just as we said would happen last September. However, to call the emerging, full-blown panic scramble to park cash sight unseen, with zero regard for asking price "a bubble", would a slap in the face of all calm, cool and collected bubbles everywhere. Because any time someone is willing to pay $95 million for a non-duplex one-floor apartment, $44.8 million for a 4-bedroom apartment, $10 million for a two-bedroom, or a paltry $3.9 million for a maid's quarters studio (no really), something far more profound is going on beneath the surface than a simple asset bubble.

Last week, Bill Gross did not mince his words when he said that he now "sees bubbles everywhere" and that "when that stops there will be repercussions" but for now Benny and the Inkjets, not to mention his band of merry statist men, who take from the poor and give to the wealthy, are playing the music on Max, and so one must dance and dance and dance. And after one legacy bond king, it was the turn of that other, ascendant one - Jeff Gundlach - to share his perspectives Bernanke's amazing bubble machine. His response, to nobody's surprise: "there is a bubble in central banking. We are drowning in central banking and quantitative easing.... And it's not ending until there are some negative consequences."