Archive - Mar 31, 2014

Japan is not exporting deflation to the euro area.  Here's why.  And the dollar's role a the major reserve asset remains quite stable despite the perennial forecasts of its demise. 

The surprising surge in popularity of Narendra Modi's party ahead of India's elections (another apparent 'miss' by US intelligence) has left the Obama administration needing to "clean the slate." Only a year after taking office, US ambassador to India Nancy Powell has suddenly resigned her post (following press speculation) as the administration explained "was planned for some time, she will retire to her home in Delaware before the end of May." This appears a clear recognition that a Modi government is likely and a problem for the US who cancelled Modi's visa in 2005 over "severe violations of religious freedom." Another red line coming up?

Being a kleptocratic crook in China is now becoming a higher risk proposition.

"The USA is exhibiting pretty severe signs of that sclerosis in the demented behavior of its leaders in episodes such as the current unnecessary manufactured fiasco over Ukraine to the physical deterioration of our towns, roads, bridges, and all the plastic crap we managed to smear over the mutilated landscape to the comportment of our demoralized, mentally inert, drugged-up, tattoo-bedizened populace of twerking slobs."

As we reported last night, Japan's economy may once again be relapsing into a slowing phase, perversely well in advance of the dreaded sales-tax hike which many expect will catalyze Japan's collapse into another recession as happened the last time Japan had a tax hike, but that doesn't mean its population should be prevented from enjoying the heavily energized local atmosphere buzzing with the hope and promise of imminent paper-based "wealth effects" for those long the daily penNikkeistock rollercoaster.... and just as buzzing with copious gamma rays of course. Which is why for the first time in over three years, since Japan's Fukushima nuclear disaster, residents of a small district 20 km from the wrecked plant are about to be allowed to return home. Because if the honest Japanese government says it is safe, then so it must be.

One of the evils of massive over-financialization is that it enables Wall Street to scalp vast “rents” from the Main Street economy. These zero sum extractions not only bloat the paper wealth of the 1% but also fund a parasitic bubble finance infrastructure that would largely not exist in a world of free market finance and honest money. The infrastructure of bubble finance can be likened to the illegal drug cartels. In that dystopic world, the immense revenue “surplus” from the 1000-fold elevation of drug prices owing to government enforced scarcity finances a giant but uneconomic apparatus of sourcing, transportation, wholesaling, distribution, corruption, coercion, murder and mayhem that would not even exist in a free market. The latter would only need LTL trucking lines and $900 vending machines. In this context, the sprawling empire known as Bloomberg LP is the Juarez Cartel of bubble finance.

In 2009, two Japanese individuals were arrested trying to smuggle $134 billion in US bonds into Switzerland from Italy. In 2012, Italian authorities seized $6 trillion in allegedly fake US bonds from safe-deposit boxes in Zurich (which were purportedly to be used to buy plutonium from Nigerian sources). And now, in 2014, The BBC reports, Italian police have arrested two men who were allegedly trying to deposit trillions of euros in fake bonds in the Vatican bank.

This is no plain modern event with civil unrest erupting because of an interconnected world. These are grassroots uprisings cross-fertilized perhaps from a world contagion yet they often have similarities – corrupt governments. Turkey, Ukraine, Thailand, Venezuela and Bosnia-Herzegovina are all middle-income democracies with elected leaders besieged by people angry at misgovernment, corruption and economic sclerosis. These days it is no longer just dictators who have something to fear from the crowd. This is the promise of Marxism that centralized planning and false promises are coming home and governments are too corrupt and incompetent to deliver what they have claimed for decades.

Overnight, AFP reported that Russian forces have begun a gradual withdrawal from the Ukrainian border, citing a Russian defense ministry official. "In recent days, the Russian forces have been gradually withdrawing from the border," the Ukrainian defence ministry's general staff spokesman Oleksiy Dmytrashkivskiy said in a telephone interview. Moments ago, Reuters confirmed this story:

• RUSSIAN DEFENCE MINISTRY SAYS ONE INFANTRY BATTALION IS WITHDRAWING FROM REGION NEAR UKRAINIAN BORDER - RUSSIAN STATE NEWS AGENCIES

So is Putin de-escalating, and now merely biding his time until the Ukraine elections when the population, suddenly facing 100% price increases in heating costs, capital controls, and a collapsed economy will have to empower the current government to continue the status quo? Or just another headfake to show that even Putin is malleable to "negotiations"? Stay tuned to find out.

As if there was any surprise that Yellen was fundamentally an uber dove, she just confirmed it. Here are the key highlights from her speech from Bloomberg.

• YELLEN SEES `CONSIDERABLE SLACK' IN ECONOMY, LABOR MARKET
• YELLEN SAYS QE TAPER DOESN'T MEAN REDUCED STIMULUS COMMITMENT
• YELLEN SAYS ECONOMY, JOB MARKET `ARE NOT BACK TO NORMAL HEALTH'

And the punchline:

• Pool of 7m people who work part time and want full-time jobs is much larger than should be expected at 6.7% unemployment rate; this is sign that labor conditions are worse than unemployment rate indicates  

However, the only thing that matters for algos is that their interpretation of Yellen is that more stimulus from the Fed, i.e., the long-awaited untaper, may be just around the corner. And stocks surge.

"But it must be the weather", we are sure, will be the cry of a thousand economists whose meterologist forecasts just got torn up. Chicago PMI just missed expectations by the most in a year and tumbled to its lowest since August as it appears knowing what the weather was like in March did nothing for analysts' ability to comprehend the awful reality of the underlying economy. The business barmoter has been falling since October (pre-weather) but this month saw the employment sub-index collapsed to 50 (from 59.3), prices paid dropped, and new orders tumbled to the lowest since August. However, rest assured that all will be well, as the survey reports, "Panellists, though, were optimistic about the future."

Back in October, when European inflation shocked market observers after it tumbled to a then (revised)low of 0.7%, the reaction by the ECB was to shock everyone and lower rates by 25 bps - a completely unexpected move. Earlier today, Europe shocked everyone once again after it reported that annual Eurozone consumer inflation in March tumbled from 0.7% to a paltry 0.5%, the lowest level since November 2009, below already the depressingly low 0.6% forecast, driven primarily by energy costs which tumbled 2.1% courtesy of Japan continuing to export deflation (where are energy costs soaring? Look at the price of natgas in Japan for a hint).

Behold: the "8:30 am" risk repricing catalyst, because sometimes you just have to laugh... of course we also know how this has ended for 10 days in a row too.

As we noted last night, French President Hollande's first election since his gaining power was not going well for the ruling Socialist people. The municipal elections, especially in the South of the country, saw victories for the far-right National Front (FN) party (which is specifically anti-immigration and anti-Europe and often accused of being racist, anti-Semitic, and anti-Muslim) as widespread disappointment with the Socialist Party was clear. However, as The Mail reports, riot police were called in several towns on the south coast to guard the winning right-wing party's offices as "demonstrators are trying to get at the Front representatives and starting fights." Riot police were also out in force in other parts of the country as anti-fascist demonstrators threatened FN candidates with violence.

Overnight, UK property consultancy Knight Frank reported that London property prices rose 7.5% annually, modestly slowing from 8.1% in March 2013, and 11.3% March 2012. Slowing you say? Not really, and certainly not at the high end: "London sales over £1 million accounted for 22% of the £4.7 billion total in the 2012/13 tax year, while sales over £2   million made a 15% contribution. Transaction volumes in both price brackets represent less than 2% and 1% of the total, respectively" Knight Frank reported. But really putting it into perspective is the observation that on the 5 year anniversary of the centrally planned, HFT-rigged market ramp, London real estate prices have risen by a stunning 68% in the 5 years since March 2009.