June 13th, 2013
Apple bond buyers, after paying a premium to bathe in the Steve Jobs RDF (Reality Distortion Field), consequently get bathed with a 9% loss within weeks. I suppose an "I told you so" would be inappropriate here?
The Greek national broadcaster ERT situation is nowhere near a resolution, and the nation's political stability remains in the balance with Antonis Samaras’s coalition partners, Evangelos Venizelos of PASOK and Fotis Kouvelis of Democratic Left, appealing to him Wednesday for talks on the future of the TV and radio station, but the premier has so far stood by his decision to close and later reopen ERT, leaving the government’s future in doubt. What is certain to make matters worse is that today, Greek public transport and state services will be disrupted as thousands of workers join a 24-hour snap general strike called on Wednesday by the country’s two main labor unions, GSEE and ADEDY, in protest to ERT's shut down. The claim is that Samaras' unilateral decision was the equivalent of a coup, which of course is not true: one can't overthrow a country in which sovereignty has long since been ceded to the European Commission, and Germany in specific.
- Global shares pummeled, dollar slumps as rout gathers pace (Reuters)
- Hong Kong to Handle NSA Leaker Extradition Based on Law (BBG)
- Lululemon chairman sold $50 million in stock before CEO's surprise departure (Reuters)
- Companies scramble for consumer data (FT)
- Traders Pay for an Early Peek at Key Data (WSJ)
- When innovation dies: Apple looking at bigger iPhone screens, multiple colors (Reuters)
- Washington pushed EU to dilute data protection (FT)
- Japan-U.S. drill to retake remote island kicks off (Japan Times)
- EM economies in danger of overheating, World Bank says (FT)
- Don't forget the Indian crisis: Chidambaram seeks to quell concerns over rupee (FT)
In the brief but tempestuous fight between Abe and the "deflation monster", the latter is now victoriously romping through an irradiated Tokyo, if last night's epic (ongoing) collapse in the Nikkei is any indication: down 6.4%, crushing anyone who listened to Goldman's "buy Nikkei" recommendation which has now been stopped out at a major loss in three days, and now well in bear-market territory, it would appear that a neurotic Mrs. Watanabe is finally with done with daytrading the Pennikkeistock market, and demands Shirakawa's deflationary, triumphal return to finally clam the market. Only this time the Japan's selling tsunami is finally starting to spill, if not to the US just yet (it will) then certainly to Asia, where the Shanghai Composite which was down 2.7%, and is once again well down for the year, and virtually all other Asian stock markets. Except for Pakistan - the Karachi Stock Exchange is an island of stability in the Asian sea of red.
This week, the US Ministry of Propaganda presented a patently absurd gem of a news article in which it equated a growing percentage of US workers quitting their jobs in April as a sign that Americans’ confidence in the US economy is returning.
"I'm neither traitor nor hero. I'm an American," is how Snowden describes himself to the South China Morning Post, but, according to a Reuters/Ipsos poll released today the American people are quite clear...
Ai Weiwei is a Chinese artist and political dissident. Although he collaborated on the construction of Beijing National Stadium for the 2008 Olympics, his criticism of the government later led to his arrest without charges and imprisonment for several months. There are two main takeaways from the following article he wrote for The Guardian. First, he knows what it is like to live in an authoritarian regime with very little freedom or civil liberties. Thus it would be wise to take his warning to heart. Second, he illustrates a key point we have been trying to make for years. All citizens of the world must refuse to allow their respective governments to drag us into a war started by various oligarchs located in distinct geographic locations.
Over the weekend we pointed out one of the more disturbing facets of the Snowden espionage affair: the covert, if massive (and very lucrative) symbiosis between private companies, who have explicitly opened up all private client data contrary to privacy disclosures, and a secretly uber-inquisitive government. We asked: "The reality is that while the NSA, which is a public entity through and through, is allowed and expected to do whatever its superiors tell it (i.e., the White House), how does one justify the complete betrayal of their customers by private corporations such as Verizon and AT&T? This may be the most insidious and toxic symbiosis between the public and private sector in the recent past." But while the quid was finally made public (if known by many long ago), the quo wasn't quite clear. It now is - the answer, as as always, is money. And not just any money, but in this specific case taxpayer money paid to either Google or Amazon by none other than the Central Intelligence Agency, or CIA for short. Lots of it.
It is easy to be upset about what is happening all around. The economy is being destroyed, deliberately, by insane economic policies. Incentives to work are being eliminated by punishing work. At the same time rewards are increasing for not working. Not surprisingly we get less of what we penalize (work) and more of what we subsidize (non-work). But, as pained as the economic retrogression is, the loss of freedom is even more disturbing. Economic decline is difficult to convey, although data are useful.The decline of liberty, however, is not easily quantifiable and even more difficult to communicate. Unless government oppression is beaten back, there is no hope for the future. For those who focus on the foolish economic policies, they miss the root cause of all of our problems — oversized, overactive, interventionist, overcontrolling and oppressive government. America will continue to exist and it will eventually be free and prosperous again. But there will be a long period, call it the modern-day Dark Ages, before freedom and prosperity return.
There's blood in the streets - Where's Warren? Levered carry traders are rapidly realizing large crowds and small doors don't mix, even though if they liked the Nikkei at 16,000 they should love it at 12,700. It appears only physical gold traders are those who actually dollar cost average lower, when assets are more affordable. Either way, in Japan:
JAPAN'S NIKKEI 225 FALLS 20% FROM MAY 22 HIGH
JAPAN'S TOPIX INDEX FALLS AS MUCH AS 5.1%
NIKKEI 225 FALLS 6%, EXTENDING LOSSES
S&P Futures are below 1,600
In 2006, 2007, 2008 and 2009 we saw 10Y bond yields surge into June only to peak and turn lower aggressively; and in 2010, 2011 and 2012 we saw a 'mini rally' in yields into June that was not sustained, so, as Citi FX's Tom Fitzpatrick notes, while we regularly hear the mantra for the Equity market of "Sell in May and go away" maybe we should have one for the Bond market - "Buy in June after the swoon."
This evening's price action seems to be reflecting major unwinds occurring. Gappy strength in EUR suggests more repatriation (following the sell US stocks and bonds action we saw in the day-session) and even as JGBs rally modestly, Japanese stocks are getting monkey-hammered. Goldman's always-aware-of-the-risks client base just got 'muppeted' as the Long Sept Nikkei trade was stopped out at 12,700. JPY is bid on the carry unwind and is trading at the day-session lows around 95.00. This is TOPIX's biggest down day in over a week as Tech, Telecoms, and Consumer Goods are all down over 3.5%.
Foreigners are net buyers of Japanese stocks in the most recent week. When they have bene sellers it has been very small amounts. Japanese investors for their part continue to sell foreign assets and at arond the average pace seen over the last several months.
The Bank of England's Andrew Haldane is not a man to mince his words (see here and here) but perhaps the excess truthiness in his latest testimony to British MPs may have many questioning his ability as a central-banker (unable to lie when it is required). "Let's be clear. We've intentionally blown the biggest government bond bubble in history," Haldane said. "We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted." As Canadian Carney steps into the BoE head shoes, it seems Haldane has some (indirect) advice there also, as The Guardian reports his comments that the committee had not been "entirely free" of political interference during the crisis; and that he hoped to "improve decision-making," in a less hierarchical, more diverse, somewhat humbler organization." The "biggest risk to global financial stability... would be a disorderly reversion in the yields of government bonds globally." he said, adding that there had been "shades of that" in recent weeks.
"The opposite of currency wars is not necessarily currency peace; it can easily be interest rate wars," is the warning Citi's Steve Englander sends in a note toda, as EM and DM bond yields have relatively exploded in recent weeks. The backing up of yields represents an increase in risk premium, so this will likely have negative effects on asset markets and the wealth effect abroad as well. It is difficult to explain the magnitude of the yield backup in terms of normal substitution effects, and broadly speaking, if you were to compare the backing up of bond yields with the beta of the underlying economy and asset markets there would be a good correspondence. So, Englander adds, it is fear, not optimism that is driving bond markets.