August 11th, 2013
The UK economy is recovery at its best rate since 2010 today with figures that are released by the British government via the Office for National Statistics (ONS).
Just too many coincidences.
No one can predict accurately at what point slower growth will start producing political turmoil on a scale that’s unprecedented in the China that Deng made, what the magic number is, or even whether there’s an iron connection between economic and political crises. Yet the increase in capital flight from China and soaring applications for American and European residential visas by well-heeled Chinese suggest that the elite is hedging its bets. Some may be overstating things, but the rebalancing camp is too sanguine.This much is certain: China’s leaders are in uncharted waters, and because of the diminishing utility of the established formula for rapid growth their maps may be of questionable value.
Last week we witnessed the almost unprecedented veto intervention in the Apple-Samsung patent debate. Last night, after the market had closed, the hits kept coming for the South Korean company as the Cupertino crushed showed the ITC that Samsung's infringements should mean a sales and import ban in the US. As Reuters reports, the decision is likely to inflame passions in the long-running dispute since the decision will now - once again - go to President Barack Obama, who has 60 days to review them and decide whether to side with the American company that 'donated' $16.5mm to his campaign or the South Korean market-share 'stealer' that only gave $3.7 million in offerings at the altar of hope-and-change. While some are calling foul so soon after the veto, with South Korean government officials 'observing' closely, even the US Trade Representative is against the proposed Samsung ban, citing "competitive conditions and the effect on the US consumer."
There is a known tendency for JPY to appreciate in August. As Citi's FX Technicals group notes, this tendency is particularly strong when the differential between Japanese and US policy rates is less than 2%, and given the current rate gap, JPY is highly likely to rise again this August. USD selling for JPY by Japanese exporters puts larger downward pressure on USD in August than usual, partly since trading is thin because market players are on vacation. However, in recent years the income account surplus has had a larger impact and along with the major Treasury auctions (interest payments and redemptions) there is an appreciable fundamental flow. In addition, the much-watched technicals (considerably more widely followed in Asian FX markets than the US) are not supportive (of either JPY weakness of Nikkei strength) and given the massively crowded trade, for a foreigner who has purchased the Nikkei on a hedged basis (Long Nikkei and Long USD JPY) this trade could become very painful.
In what is as close to saying 'trust us, we're from the government,' as it gets; President Obama's traitor-identifying, blame-pointing, cover-your-assing speech on Friday has done nothing to end the supposedly "critical NSA counter-terrorism tool," from being used on American citizens. People of America should be relieved, as the President stated unequivocally that he is "comfortable that the program is not being abused." If only American citizens were able to see all the moving pieces, Obama implied, they would say "you know what? These [government] folks are following the law," but because the program remains classified, it remains impossible to know what is really going on. Reassuring rhetoric aside, as the AP notes, Obama offered these inspiring words regarding the ongoing concerns that law-abiding citizens may still have beyond his assurances: "I would be worried too, if I weren't inside the government." Another teleprompter-less glimpse of what he really thinks? Perhaps; but for now, the NSA will continue to sweep phone records of all Americans with the possibility of creating similar databases of credit card transactions, hotel records, and Internet searches.
The Department of Justice’s (DOJ) latest civil suit against Bank of America (B of A) is an embarrassment of tragic proportions on multiple dimensions. We're "only" going to explore seven of its epic fails here. The two most obvious fails (except to most of the media, which failed to mention either) are that the DOJ has once again refused to prosecute either the elite bankers or bank that committed what the DOJ describes as massive frauds and that the DOJ has refused to bring even a civil suit against the senior officers of the banks despite filing a complaint that alleges facts showing that those officers committed multiple felonies that made them wealthy by causing massive harm to others. Those two fails should have been the lead in every article about the civil suit. There are many more...
The Chinese demand for gold essentially comes from three segments: (1) the People’s Bank of China; (2); the banking sector; and (3) Chinese citizens. We can count on the Chinese central bank to pursue the same steady course they have been pursuing for a while: buying additional gunpowder by increasing their gold reserves. More importantly, it is very likely that the current forced deleveraging will be accompanied by, for instance, a significant cut in interest rates or a lowering of the reserve requirements to offer the banking sector a helping hand (as the PBOC appears to be folding a little on its hard stance). This could have a major impact on gold. We’ll see why by observing that the bulk of Chinese gold demand comes from its third source: Chinese citizens. China has one of the world's highest saving rates, and the public faces few investment options. With negative real interest rates, in case the PBoC does lower rates to support the banking system, gold seems to be an opportune alternative.
Zen and the art of contamination...
It was only last week that yet another conspiracy theory became fact when we learned, for the first time after nearly three years of lies, that Tepco had been deceitful and wrong with its "all clear" message about Fukushima, and that instead some 300 tons of contaminated, irradiated water had been flowing into the Pacific ocean every day. So now that the opportunity cost of telling more lies is zero, and the radioactive cat is out of the bag, so to say, the news about the absolute, unmitigated disaster that Fukushima is, and will be for decades, are coming fast and furious. Sure enough, moments ago Tepco reported, and Kyodo confirmed, that radioactive water has risen above the protective barrier and is freely leaking into the surrounding environment.
Whether or not BitCoin actually wants to be regarded as an accepted currency, and thus subject to US government regulation, remains to be seen. However, one thing is certain: a currency is not a currency, until it gets its own Bloomberg ticker. Just recall the confusion that followed the appearance of XGD, or the GREEK DRACHMA (POST EURO), BBG currency ticker in June 2012 caused a panic tsunami across Europe when everyone started asking what does Bloomberg know that nobody else does.
Enter XBT Curncy <GO>
Two upcoming events could prove catalysts for a Japanese sovereign debt crisis.
"Mr. Martin-Artajo thought that the market was irrational."
- Permanent Subcommittee on Investigations, US Senate, Report on JPM Whale Trades: A Case History of Derivatives Risks and Abuses, p. 104
Just like Breaking Bad, the most exciting trading drama of 2012 is coming to an end.