Archive - May 2013

It will come as a shock to all of you to know that such daylight robbery is perfectly legal and this has been so for hundreds of years.

Take a good look at the chart of the Nikkei below. Supposedly this is the same chart that the new BOJ head, Haruhiko Kuroda, was looking at when he was responding to Japanese lawmakers during a session of the upper-house budget committee, where he flatly rejected an opposition-party member's argument that the recent rapid rise in the Tokyo stock market is out of line with Japan's real economy. "At this moment I do not think they are in a bubble," Kuroda said. And everyone believes him, just Because central bankers are so good at objectively observing how contained subrpime is big the asset bubbles their ruinous policies create.

Confirming that in a world in which either commercial or central banks have to be constantly be churning out debt, and in a world in which Europe is doing neither (with European commercial loan growth posting sequential declines across the board, and the ECB's balance sheet still declining although likely not for long), "growth" as defined by conventional standards, is impossible, we got today's European Q1 GDP data. Not only was it bad, but it was even worse than most had expected.

• Once a beacon, Obama under fire over civil liberties (Reuters)
• Eurozone in longest recession since birth of currency bloc (FT)
• EU Oil Manipulation Probe Shines Light on Platts Pricing Window (BBG)
• BMWs Cheaper Than Hyundais in Korea as Tariffs Crumble (BBG)
• Stock Boom Isn't a Bubble, Says BOJ's Kuroda (WSJ)
• Struggling France strives to shake off economic gloom (FT)
• JPMorgan investors take heat off Dimon (FT)
• Private-Equity Firms Build Instead of Buy (WSJ)
• Bloomberg Saga Highlights Clash Between Two Worlds (WSJ)
• Bank documents portray Cyprus as Russia's favorite haven (Reuters)
• HSBC Signals 14,000 Jobs Cuts in $3 Billion Savings Plan (BBG)
• Argentines Hold More Than $50 Billion in U.S. Currency (BBG)

So much for Europe's "recovery." In a quarter when the whisper was that some upside surprise would come out of Europe, the biggest overnight data releases, European standalone and consolidated GDPs were yet another flop, missing across the board from Germany (+0.1%, Exp. 0.3%), to France (-0.2%, Exp. 0.1%), to Italy (-0.5%, Exp. -0.4%), and to the entire Eurozone (-0.2%, Exp. 0.1%), As SocGen recapped, the first estimate of eurozone Q1 GDP comes in at -0.2% qoq, below consensus of a 0.1% drop. The economy shrank by 1.0% yoy, the worst rate since Dec-09. The decline of 0.5% qoq in Italy means that the economy has been in recession continuously since Q4-11. A 0.2% qoq drop in France means the economy has ‘double-dipped’, posting a second back-to-back drop in GDP since Q4-08. The increase of 0.1% qoq in Germany was disappointing and shows the economy is not in a position to support demand in the weaker member states (table below shows %q/q changes).

We can picture the scene of abject horror at the revelations the President read about the actions undertaken by what must surely have been a rogue element in the IRS. However, as the AP (ironically) reports, Obama believes some IRS employees failed to apply the law fairly and impartially. The blame, it would seem, is being laid at "lax managers'" feet for allowing this practice to continue for 18 months. Jack Lew has been asked to hold those renegades responsible and to ensure it never happens again - or else. Where's Fabrice Tourre when you need him?

While we have all heard the apocalyptic prognostications by the accented Swiss, and there is little doubt where the Gloom and Doom reside, here is some very unexpected advice on the Boom. Make that the "Boom Boom"... room.

I think it's indicative of a problem when, half-jokingly, the vernacular increasingly being used in the popular media includes: being "Corzined" and "Cyprus'd". The former meaning having your money stolen from or via the equities market, and the latter being theft directly via the banking system.

When is the economic collapse going to happen?  Just open up your eyes and take a look around the globe.  The next wave of the economic collapse may not have reached Wall Street yet, but it is already deeply affecting billions of lives all over the planet.  Much of Europe has already descended into a deep economic depression, very disturbing economic data is coming out of the second and third largest economies on the globe (China and Japan), and in most of the world economic inequality is growing even though 80 percent of the global population already lives on less than $10 a day.  Just because the Dow has been setting brand new all-time records lately does not mean that everything is okay.  Remember, a bubble is always the biggest right before it bursts.  The next major wave of the economic collapse is already sweeping across Europe and Asia and it is going to devastate the United States as well.

For the first time in naval history, a unmanned stealth drone (the bat-wing X-47B) was launched from an aircraft carrier. As Reuters reports, the launch from the USS George H.W. Bush marks an important step toward expanded use of drones in "providing very long range stealth" capabilities. Seen as a potential answer to the threat of medium-range anti-ship missiles developed by China and Iran; with a range of 2000 nautical miles the X-47B is "strategically very important." Because of its long range and the Navy's need to have it take off and land, day and night, from an aircraft carrier, the X-47B has been designed to operate with far greater autonomy than the remotely piloted aircraft currently in use. That has raised concerns among some organizations worried about the heavy U.S. reliance on drones in warfare and the rising use of autonomous robots by the American military; but Rear Admiral Ted Branch sees it as a "red letter day... we all saw history happen."

Back on April 25, in the aftermath of the latest epic precious metals takedown, we reported that something odd had happened: overnight, total Eligible gold held in the vaults of JPM dropped by 65%, or 260.8k ounces in one day, to a record low of only 141.6K ounces. Contrast that with the 2 million Eligible ounces the JPM vault at the basement of 1 CMP held when it reopened. Since that moment, many were curious if this may not be the start of the proverbial "run on the vault", and whether JPM's COMEX holdings could actually run out, and if so what happens then. And finally: is the dramatic plunge in gold related to any of this (and certainly to the Bundesbank's repatriation of NY Fed gold for the next five years)?  In the ensuing days, JPM's Eligible gold fluctuated in a tight range, until today, when another 22,780 oz were withdrawn from Blythe Masters' metals cellar, bringing JPM's eligible gold to a fresh record low of only 137,377 troy ounces.

But it gets worse...

The Nikkei 225 just passed 15,000 for the first time since January 2008 no up over 77% from its November 2012 lows. Even "Mr Yen" is worried...

*SAKAKIBARA SAYS MOVEMENT OF EQUITY PRICES `SOMEWHAT BUBBLY'

But the real story is in bond land. Twice last night Japanese bond futures were saved miraculously from a third day in a row and at the open this evening JGB futures are looking set for another test of the limit down (though being saved for now) - as 10Y yields spike above 90bps (+5.5bps on the day), the highest in 13 months; and 5Y yields jump another 5bps to 45bps - the highest in 22 months. The last 4 days in 5Y JGBs has been the worst in 5 years (since June 2008) and 10Y JGB's worst 4-days in 10 years (since August 2003). USDJPY is holding below 102.00 as it seems for now the JGB weakness is soaking up the inflation threat (as we discussed here). Amid all of this turmoil, JGB implied volatility is collapsing to 4 month lows - which smells a lot like hedges being lifted along with underlying risk unwinds.

Israel's 25bp cut in its policy rate earlier in the week was the 514th reduction worldwide since June 2007 (and Serbia this morning the 515th). As Bloomberg's Niraj Shah notes, Eastern European countries have made the biggest cuts this year as their economies struggle to grow. With the ECB's cut taking its 'real' rate to -0.7%, Belarus has cut borrowing costs by an impressive 500bps in 2013 (more than any other central bank) followed by Poland and Hungary. As we noted last week, it seems the Einsteinian repetition of failed actions is not a fool's errand, instead it appears the domain of the smartest people in the room - or simply fighting the hot money flow drivers with their own weapon (but as Bernanke told us - its not competitive devaluation if we all do it).

In what may be the strangest story we have seen in a while related to the gold market, it appears $982 million worth of gold has left JFK international airport in New York to some undisclosed location in South Africa.  While it remains unclear what purpose this gold serves, it seems the most likely explanation is to fulfill demand for Krugerrands (South Africa’s popular gold bullion coin) to meet elevated demand in the face of constricted mine production.

Just another "Tepper" Tuesday...