Archive - Aug 2013

The key overnight events were already discussed previously, but here they are again: the wholesale selloff in Asia (which subsequently shifted to Europe), the accelerating outflows from India (moment ago the SEBI website announced a net INR13.7 billion selling in Indian stocks yesterday and the near record collapse in the Indian Rupee to new record lows, and the ongoing uncertainty over Syria and what it will do to crude prices (if SocGen is right, nothing good). In brief: a market conditioned and habituated to a world in which Bernanke promises "to make everything ok" suddenly finds itself in the throes of uncertainty and following 4 years of dumb trend-following,  has no idea what to do.

Japanese finances are in a shambles and very soon investors are going to run screaming from the Yen and JGB markets.

Let's plan for it. 

UPDATE 2: It would appear Abe got a late-afternoon phone-call to sell some JPY and buy some Indian 10Y bonds... (since Traders have not seen the RBI intervene directly - or thru local banks)

UPDATE 1: Gold (in USD terms) is breaking out... $1428.47 (gold now at a three-and-a-half month high)

From a weak open, the Indian Rupee has now plunged a stunning 3.88% today. This is the largest single-day drop in the Rupee's value since March 1993. The Indian people have lost 30% of their global purchasing power since March 2013 (though those who swapped their paper wealth to gold have seen their purchasing power rise 6% in Rupee terms). With Gold in Rupees having broken to a new all-time high, it would seem the government has little choice but to lease its gold (no matter how vehemntly they deny the fact).

Remember that recently announced leak at Fukushima (which we first noted nearly a month ago), which Tepco promised was nothing really, only to subsequently admit 300 tons of radioactive water was seeping out of the destroyed nuclear power plant daily into the ocean (and everywhere else), a leak which subsequently was raised from a stage 1 to stage 3 in radioactive severity, and that it had for all intents and purposes lost control of the containment process, oh and, by the way, it would no longer lie about how severe the situation truly was? Well, turns out it lied. As Businessweek reports, "the leak at a contaminated water storage tank discovered last week at the Fukushima plant may have continued since last month before it was detected and the tank drained, plant operator Tokyo Electric Power Co. said.

UPDATE 2: INR at 68.00 (-3.25% - biggest single-day drop since Sept 1995) and WTI Crude at $112.00 -- BNP Paribas Cuts India FY14 GDP Est. to 3.7% From 5.2%) -- *INDIA RUPEE DROPS 19.2% THIS YEAR, SET FOR WORST LOSS SINCE '91

UPDATE 1: Indian Rupee has blasted through 67.00 (down 1.75% on the day against the USD) to another new all-time low - a 15% devaluation in the last 21 trading days!!!

World FX, Bond, and equity markets are a sea of red tonight as the plunge in the US markets' day-session extends into AsiaPac. Led by the Philippines (down another stunning 5.4% tonight), equity markets in Thailand, India, and Japan are all struggling hard. Not to be outdone, bond spreads in the usual suspects of Indonesia, Thailand, India, and Taiwan are cracking wider. Most of the FX pressure is being focused tonight on Indonesia as the Rupiah collapses another 1.4% (even as the Indian Rupee opens at 66.90 - a new all-time low). Modest JPY weakness is providing a small lift carry-wise to US futures (Treasuries are unch, gold and silver are modestly higher from the US close) but it is the oil complex that is getting smashed higher. WTI last traded $111.59 (its highest since May 2011) and Brent just broke $117 (the latter typically more critical for US gas prices)..

If SocGen is right in its just released oil price forecast in a "Syrian war world", then the global economy is about to undergo an apoplectic shock the likes of which have not been seen since the summer of 2008, when Lehman brothers had to be taken under to generate the deflationary shock sending crude from $130 to $30 in the matter of days. The French bank's forecast in a nutshell: "Base case scenario: $125 for Brent. We believe that in the coming days, Brent could gain another $5-10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started. In our base case, we assume an attack begins in the next week. Upside scenario: $150 for Brent If the regional spill over results in a significant supply disruption in Iraq or elsewhere (from 0.5 – 2.0 Mb/d), Brent could spike briefly to $150." And if indeed 2008 is coming back with a vengeance, the next question is who will be this year's unlucky Lehman Brothers?

We are often asked to explain both sides' actions since the Diaoyu/Senkakus crisis began in September 2012. The Chinese simply cannot understand why the Abe government is so "stubborn" and isn't willingly trying to repair relations with China, and the Japanese (unsurprisingly) wonder the same thing about the Chinese government. A recent survey of Chinese and Japanese citizens views of each other's countries helps shed light on these issues. The survey found that 92.8% of Chinese respondents hold unfavorable views of Japan, a startling 28% rise from the year before. Similarly, 90.1% of respondents in Japan had an unfavorable or relatively unfavorable view of China, compared with 84.3% last year. For both countries, these figures were higher than in the previous 9 annual surveys conducted. So long as this cycle of mutual ignorance and demonization continues, any efforts for genuine and lasting rapprochement will remain elusive.

Over the weekend we laid out the textual "short guide to the Middle East", today we provide the graphic (visual) version of the dummies guide to the Middle East. Simple, right?

At least 50 people have been killed in two strong explosions that ripped through the Syrian capital, Damascus, in the deadliest attack on the capital since the country's uprising began 14 months ago. The explosions heavily damaged a military intelligence building. The blasts happened at about 7:50 am, when employees are usually arriving at work.

There is a recurring nightmare that is playing out once again in many of the most leveraged asset-classes in the world's so-called 'markets'. The theme is that of an improving US economy which is pointing a normalization of US monetary policy. Good news, right? It would seem not; as Chris Wood's Greed and Fear notes, that the practical reality is that the emerging world, including Asia, will remain vulnerable to further selling so long as markets are anticipating normalisation of American monetary policy and a related strengthening in the US dollar. However, there is a conundrum, if the world was so sure of the relative strength of the American economy, surely the yen should be selling off more against the dollar. For CLSA the real test is yet to come when the new fiscal year in America begins on 1 October and the revival of US economic growth that is so hoped-for, does not materialize... and given the correlation in the chart below, it is clear that there is only thing that matters - the US 10Y rate.

With president Obama taking his role as Warmonger-In-Chief ever more seriously, it is easy to forget that the only important function before the greatest presidential teleprompter reader in history, is that of Socialized Healthcare Provider-in-Comrade. And so today, in the fog of pre-war, the Obama administration released the final rules on the "Individual Mandate" component of Obamacare, which requires most Americans to buy health insurance starting in 2014 or be fined. Specifically, the rules list lay out the amount of penalties that Americans will face if they opt out of socialized healthcare. The WSJ was kind enough to read the Treasury Department release and summarize it as follows.

In the event of a punitive strike or a limited operation to reduce Syrian President Bashar al Assad's chemical weapons delivery capability -- for instance, by targeting key command and control facilities, main air bases and known artillery sites -- the United States already has enough forces positioned to commence operations.

Just a headline from Bloomberg, citing Alarabiya, for now:

• SYRIA EVACUATES TROOPS FROM DAMASCUS MILITARY BASE: ARABIYA

• Syrian army is clearing the 4th Battalion base in Damascus, Arabiya reports, citing activists in the city.

More as we see it.

Murder (acquitted), armed robbery (convicted), kidnapping (convicted), and now foreclosure... It really hasn't been a good decade (or two) for O.J. Simpson. As NYPost reports, after 3 years of non-payment, none other than JPMorgan will foreclose on Simpson's 4,233 square feet, four-bedroom home in Florida. Still, he won't be entirely homeless, he has a 'big house' to share with a few 'friends' for the next 33 years...