Archive - Aug 2013 - Story

When one thinks how easy it is to fool most people virtually all of the time, one must admit that the central planners, whose only remaining "policy transmission mechanism" is the manipulated stock market, are on to something. As the following chart from Nielsen shows, virtually the entire world is now more optimistic that "their country is in an economic recession" compared to last quarter for the simple reason that stock markets around the globe are much higher despite pervasive economic deterioration. Higher everywhere, except Latin America that is, and lo and behold, that is the only place where pessimism has increased.

That China's housing bubble, the direct result of decades of less than efficient hybrid "capi-munist" capital misallocation, is the largest in the world is known to most. What may come as news is that in its attempt to prevent the wholesale collapse of yet another sector, the Beijing politburo, which these days has a perfect analogue in the "Monetary Mandarins of the Marriner Eccles building", is preparing to blow up the latest and greatest Chinese bubble. We are talking about China's sprawling shipping industry, of course.

• Botulism toxin? There's an apology for that - Fonterra CEO apologizes, sees China dairy curbs lifted within days (Reuters)
• Patent troll-In-Chief strikes again: Veto of Apple Ruling Likely to Upend Big Patent Battles (WSJ)
• Because scapegoating means justice FTW - SEC Gets ‘Shot in the Arm’ With Victory in Tourre Case (BBG)
• Insider-Trading Probe Caught in a Washington Knot (WSJ)
• Miners return to hedging as gold  (FT)
• Toyota’s $37 Billion Cash Pile Means Turning Point for Abenomics (BBG)
• Inside the battle at Germany's Siemens (Reuters)
• ‘One million’ UK workers on zero hours contracts (FT)
• Wag the dog, part 1984: Iran Seen Trying New Path to a Bomb (WSJ)
• Tokyo Cheap to Hong Kong Luring Asian Bargain Hunters (BBG)

Compared to last week's macro-event juggernaut, this week will be an absolute bore, although with a bevy of Fed speakers on deck - both good and bad cops - there will be more than enough catalysts to preserve the "upward channel" scramble in the S&P and the zero volume levitation to new all time daily highs despite the lack of daily bad news. Speaking of Fed speakers, we have Fisher today, Evans’ tomorrow followed by both Plosser and Pianalto on Wednesday.  The key overnight data point was the continuation of July PMIs out of Europe, this time focusing on the service industry. As Goldman summarizes, the Final Euro area Composite PMI for July came in at 50.5, marginally above the Flash reading and consensus expectations (50.4). Relative to the June final reading, this was a sold 1.8pt increase, and building on consecutive increases in the past three months, the July Euro area PMI stands 4.0pts above the March print. Solid increases were observed across all of the EMU4 in July, most notably Italy. The July reading is the highest Euro area PMI level observed since July 2011.

In a somewhat shockingly blunt comment from the mouthpiece of Chinese officialdom, Yao Yudong of the PBoC's monetary policy committee has called for a new Bretton Woods system to strengthen the management of global liquidity. In an article in the China Securities Journal, Yao called for more power to the IMF as international copperation and supervision are needed. While comments seem somewhat barbed towards the rest of the world's currency devaluers, given China's growing physical gold demand and the fixed-exchange-rate peg that 'Bretton Woods' represents, and contrary to prevailing misconceptions that the SDR may be the currency of the future, China just may opt to have its own hard asset backed optionality for the future; suggesting the new 'bancor' would be the barbarous relic (or perhaps worse for the US, the Renminbi). Of course, the writing has been on the wall for China's push to end the dollar reserve supremacy for over two years as we have dutifully noted - since no 'world reserve currency' lasts forever.

Readers by definition are ignorant. We read to quench our ignorance. Readers, in effect, are easy prey for newspapers and the people that own them. Newspapers have a knowledge advantage, an information asymmetry. They know what readers don’t know yet, but want to know. And so they can distort the news or even invent it.

- Julian Assange

Back in 1978, the Chinese politburo enacted the "one-child policy", whose main purpose was to "alleviate social, economic, and environmental problems" in China as a result of the soaring population. According to estimates, the policy prevented more than 250 million births between 1980 and 2000, and 400 million births from about 1979 to 2011. And while not applicable to everyone, in 2007 approximately 35.9% of China's population was subject to a one-child restriction. Regardless of the numbers, things are about to change: with the Chinese economy now having peaked and suddenly finding itself in rapid deceleration with excess credit growth providing virtually no boost to marginal growth, the Chinese government is forced to reexamine 35 years of social policy in order to extract growth from the one place where for nearly 4 decades it had tried to stifle: demographics.  According to the 21st Business Herald which cited sources close to the National Population and Family Planning Commission, China may relax its one-child policy at end-2013 or early-2014 (read end) by allowing families to have two children if at least one parent is from a one-child family.

Those long the Kiwi (NZDUSD) woke up to an unpleasant shock this morning when the pair opened nearly 100 pips lower following news that China and Russia, and likely other countries soon, have halted imports of New Zealand milk powders after Fonterra announced that three batches of whey protein "may have been" contaminated with botulism-causing bacteria: a situation that is a tad more problematic than the diplomatic haggling over genetically modified crops. Since milk powders accounted for a whopping 15% of total New Zealand exports in 2012, it becomes obvious that unless Fonterra, and the NZ government, engage in some prompt damage control, the Kiwi may have much more room to drop as the country's 2013 GDP forecast may be the next thing to go toxic.

The latest subjunctive paraphrase, just released by the US State Department: "Please don't panic... well, actually panic just a little bit, but thanks to the NSA's pervasive snooping activity, in retrospect there will have been no need to panic, as any terror threats will have been promptly eliminated (except for those that sneak through the NSA's dragnet like the Boston bombing of course). So all is well... but not really, which is why we are extending embassy closures for a little more, due to highly specific unspecified threats which we can't reveal. Just know the threats are there. But thanks to the NSA, there is nothing to worry about. Unless there is."

Friday's very disappointing non-farm payroll number may have had zero impact on stocks, which after opening deep in the red, following the latest Fed-induced all day zero volume ramp, closed at the all time highs (because when you can't BTFD you BTFATH), but it sure worked miracles on the 10 Year to keep it from tumbling below the critical 2.75% level (in no small part aided by the rampant momentum ignition manipulation in the 10 Year moments before the BLS released its data). Yet does Friday's move change anything in the Ten-Year Trendline? According to Bank of America technical strategist MacNeil Curry, not at all.

Quantitative easing is nothing but "competitive devaluation," Kyle Bass begins this brief but wide-ranging interview; and while no central bank can explicitly expose the 'beggar thy neighbor' policy, they are well aware (and 'banking on') the fact that secondary or tertiary effects will lead to devaluing their currency. The bottom line, Bass warns, is "when the globe is at 360% credit market debt-to-GDP, there is no real way out." Furthermore, the winds of austerity have already blown (simply put no nation engaged in austerity prospectively - for the nation's betterment - they were forced by the bond markets) and with central bankers now dominant - the Krugman-esque mentality of "let's just keep going," is very much in the driver's seat since politicians now see "no consequence for fiscal profligacy." The average investor, Bass adds, "is at the mercy of the central bank puppeteers," as the Fed's policies are forcing mom-and-pop to "put their money in the wrong place at the wrong time." There will be consequences for that... there is only one way this will end... "and investors should be really careful doing what the central bankers want them to do."

Presented with little comment aside to note that there appears to be another, far more structural, great rotation under way in America.

On Thursday afternoon, there was a disturbance in the Bloomberg headline-generating force, after the world's premier newswire CNN-ed both the news surrounding Sylvio Berlusconi's verdict (announcing he had been cleared when he hadn't, and correcting shortly thereafter), followed promptly by a repeat when minutes later it reported that Goldman's CDO mastermind  - the person on whom all the evils of the housing bubble era have now been scapegoated - Fab Tourre had been cleared, when in reality he had just been found "liable in defrauding investors." We were, however, quite stunned to learn that one day later, the editor who was responsible for misreporting the Tourre news, was unceremoniously fired. But what was truly shocking is that while Pickering was fired for an innocent error, Bloomberg still keeps on its payroll people such as Greg Giroux who on the same day reported the following mindblowing "news"...

Everybody in America wants health care - but most Americans seem to want someone else to pay for it.  In the United States today, the way that our system works is that the hard working, productive members of society pay for the health care of everyone else.  At least under socialism everyone gets the same benefits.  Our system of health care is a very twisted version of socialism where millions upon millions of very hard working people are forced to pay for the health care of others, but often can't afford to purchase decent health insurance for themselves. When you add it all up, the hard working, productive members of society are at least partially subsidizing the health care of well over half of all Americans while having to pay for their own health care at the same time. Needless to say, it isn't too hard to see who is getting the raw end of the deal.