Archive - Aug 6, 2014

Just in case the legacy of Abenomics wasn't clear enough (it should have been after we reported that its legacy is "Japan's Greatest "Misery" In 33 Years"), here is another confirmation that in the New Normal, only bad things happen when you forget to BTFD.

No headlines on the tape for now but suddenly the world wants out of Dollars... (world's FX traders searching for Sikorski and Putin's "sell" button)... It appears led by major JPY buying as someone just puked a huge carry trade (25,000 JPY futures contracts or around $3 billion notional).

Are you prepared?

A few years ago, the definition of "strong banking" was Switzerland; now, not so much. But eager to restore some of its former banking luster, Switzerland has taken note of this and is rapidly positioning itself to become a major center of European RMB trade. Continuing to believe that the dollar is going to maintain its global reserve status is now not only foolish, but financially hazardous. To countries, businesses and individuals. Those who ignore the trend do so at their own peril.

"Suppression of yield and vol induces investors to take on more risk (QE III). The market clings to perception of certainty regarding outcomes, despite the Fed shifting commitment modes from time or level-based to data dependent. This stage of policy should eventually lead to increased uncertainty and risk."  Translation: the TBAC itself - i.e., America's largest banks - whose summary assessment this is, is now actively derisiking.

Last week we noted Russia was considering banning fruit from Europe (as well as various other sanctions retaliations) but this morning Vladimir Putin has come out swinging by signing 'a decree on countermeasures to Western sanctions':

*PUTIN BANS FOOD IMPORTS FROM COUNTRIES SANCTIONING RUSSIA: IFX
*PUTIN ORDERS GOVT TO PREVENT ACCELERATED GROWTH OF FOOD PRICES

So trade wars escalate externally and price controls internally. It appears the US (and Europe) will indeed feel "tangible losses" despite Jack Lew's promises.

Having lost contact with JPY crosses early on, it was left to VIX to be the momentum ignition to run equities back up to the scene of the crime yesterday. US equity indices are close to the levels pre-Sikorski yesterday as VIX is hammered back under 16.

Talking-heads drew "this is not geopolitical risk fears" comfort yesterday that the stock sell-off was not accompanied by a big bid for gold. Today... not so much. Gold and silver have surged since around 8amET (when Ukraine incursion headlines began today from NATO) with the yellow metal up over $20 - its biggest jump since mid-Jun (with futures over $1310).

On the heels of yesterday's comments from Poland's Sikorski, NATO has confirmed there's a risk of Russia sending troops into Ukraine under the 'pretext' of a humanitarian or peacekeeping mission. "We're not going to guess what’s on Russia’s mind, but we can see what Russia is doing on the ground - and that is of great concern," a NATO spokesperson warned, adding, "this is a dangerous situation." Then US SecDef Hagel added, "the threat of Russian incursion in Ukraine is a reality." Russia's response to this warmongering (as Ukraine appears desperate to instigate something before the money runs out) is to blast the disinformation, "reports of troop buildups near the Ukraine border are groundless." It appears we are going to need more YouTube clips...

When it comes to signs of a US "recovery" nothing has been hyped up more than US auto companies reporting improving, in fact soaring, monthly car sales. On the surface this would be great news: with an aging car fleet, US consumers are surely eager to get in the latest and greatest product offering by your favorite bailed out car maker (at least until the recall comes). The only missing link has been consumer disposable income. So with car sales through the roof, the US consumer must be alive and well, right? Wrong, because there is one problem: it is car "sales" not sales. As the chart below from Bank of America proves, virtually all the growth in the US automotive sector in recent years has been the result of a near record surge in car leasing (where as we know subprime rules, so one's credit rating is no longer an issue) not outright buying.

"We have reduced our position in the market in the only account we manage directly… our own retirement funds… to a long position in aluminium still hedged with out-of-the-money puts and some remaining derivative positions. The “news” out of Russia yesterday was sufficient to keep us on the sidelines on balance, wanting to be bullish but unwilling to commit funds when the news is this “un-or-im” balanced, for discretion is always being the far better part of trading valour."

Nearly 80% of Americans have lost faith in the American political system, according to a new Wall Street Journal poll. Despite record highs in stocks (and consumer confidence?) - and a President proclaiming that as victory - 60% of Americans are dissatisfied with the economy and 70% believe the nation is heading in the wrong direction. Who is to blame for this? President Obama's overall approval rating has collapsed to a new low at 40%, with only 42% approving of his handling of the economy. "Americans are cranky, unhappy… It is with everything going on the world," and 57% are pissed off enough to carry a protest sign. But don't worry, as President Obama has reiterated during his tenure, he "will not rest..."

is what would have happened.... 

After years of obfuscation and, simply put, lies; TEPCO has admitted in a new report that more nuclear fuel had melted at the Fukushima nuclear reactor than previously stated. While this is dreadful news, it gets worse, as the report further confirms that despite Abe's promises and TEPCO's state-funded efforts to build ice-walls, it may miss an important deadline binding it to clean radioactive water stored inside the Fukushima nuclear plant. Bloomberg reports officials commenting "we are doing everything we can do," but it appears, that is not enough as tens of thousands of tons of toxic water are expected to remain at the site by the imposed deadline.

Moments ago the BEA reported that the June trade deficit (which is the last month of Q2 GDP) came in $3 billion better than expected, declining from $44.7 billion to $41.5 billion, beating consensus $44.8 billion, as exports increased and imports decreased. The previously published May deficit was $44.4 billion. The goods deficit decreased $3.0 billion from May to $60.3 billion in June; the services surplus increased $0.1 billion from May to $18.7 billion in June. But perhaps most importantly, the trade deficit excluding the shale boom, i.e., America's reduced petroleum import needs which may last for a few more years before shale oil too is exhausted - just printed close to record highs. In other words, US trade ex oil is about as bad as it has ever been!