Archive - Feb 2014 - Story

The strength of the real estate market should not be measured by price appreciation, or the number of new and existing home sales. It should be measured by the support of underlying fundamentals and whether they can help to withstand economic cycles without policy makers having to go hog wild just to avoid a total collapse.

So how healthy is the real estate market today?

Two weeks ago, gold jumped to a then-2014 high, following reports out of India that the head of India's Congress Party, Sonia Gandhi was pushing the government to cut its duty on gold and other restrictions. Today, now that the upward move in gold has finally resumed, it appears that the nation with the world's most draconian gold capital controls, is finally starting to crack under pressure from the people, as well as a surge in gold smuggling via illegal channels to unprecedented levels. Reuters reports that India "will look into relaxing gold imports curbs, but won't let its current account deficit (CAD) balloon, Finance Minister P. Chidambaram said on Monday."

For a plan that culminated with a hijacked plane landing in Geneva, Switzerland, it was anything but a "Swiss watch" execution.

• Venezuela's Lopez says ready for arrest at Tuesday march (Reuters)
• Record Chinese liquidity sends Shanghai Composite back to green for the year (WSJ)
• Deflation Threat Worries G-20 Roiled by Emerging Markets (BBG)
• Neither U.S. nor EU has strategy for Ukraine (Reuters)
• AngloGold Ashanti Chairman Steps Down (WSJ)
• Italy Yields Seen Climbing as Renzi Gets Mandate (BBG)
• Group Led by Starr Near Deal to Buy MultiPlan (WSJ)
• Thai PM under siege, lengthy protests take toll on economy (Reuters)
• The Value of Annoying Co-Workers (WSJ)

After tumbling as low as the 101.30 level overnight on atrocious GDP data, it was the same atrocious GDP data that slowly became the spin needed to push the USDJPY higher as the market became convinced that like everywhere else, bad news is great news and a relapse in the Japanese economy simply means more QE is coming from the BOJ despite the numerous articles here, and elsewhere, explaining why this very well may not be the case. Furthermore, as we noted last night, comments by the chairman of the GPIF panel Takatoshi Ito that the largest Japanese bond pension fund should cut its bond holdings to 40% were used as further "support" to weaken the Yen, and what was completely ignored was the rebuttal by the very head of the GPIF who told the FT that demands were unfair on an institution that has been functionally independent from government since 2006. The FSA “should be doing what they are supposed to be doing, without asking too much from us,” he said, adding that the calls for trillions of yen of bond sales from panel chairman Takatoshi Ito showed he "lacks understanding of the practical issues of this portfolio.” What he understands, however, is that in the failing Japanese mega ponzi scheme, every lie to prop up support in its fading stock market is now critical as all it would take for the second reign of Abe to end is another 10% drop in the Nikkei 225.

"As proud citizens of the ‘Middle Kingdom’ the Chinese feel a strong sense of chosenness and are extremely proud of their ancient and modern achievements. This pride is tempered, however, by the lasting trauma seared into the national conscious as a result of the country’s humiliating experiences at the hands of Western and Japanese imperialism. After suffering a humiliating decline in national strength and status, the Chinese people are unwavering in their commitment to return China to its natural state of glory, thereby achieving the Chinese Dream."

While correlation is not causation, the coincidental timing of the tumble in virtual currencies and the surge in physical (alternative) currencies suggests another great rotation may be occurring... with gold at fresh 3-month highs (and Silve rup 16% in February alone) as Bitcoin presses 3-months lows...

We take certain liberties with the title: we realize that since one is dealing with human individuals, particularly human individuals stuck in an insolvent, soon to re-default nation, stupidity can never peak per se, as the next day will without doubt bring some peak-er instance of even more profound idiocy. However, at this particular moment, this may be it. What happened is that on Friday, Argentina fined supermarket chains including Wal-Mart, the world’s largest retailer, and Carrefour for "failing to maintain adequate stocks of price-controlled goods." This happened after the country shocked everyone in late January by devaluing the peso by 18 percent, effectively wiping out the purchasing power of its population by the same amount and forcing a mad scramble by the population into retail outlets, such as Wal-Mart, where the people were desperate to convert their increasingly more worthless pieces of paper for tangible goods resulting in a "run on the Wal-Mart" and depleting store shelves of virtually all goods, price-controlled or otherwise.

China is now the second largest economy in the world and for the last 30 years China's economy has been growing at an astonishing rate, wowing the world, as spending and investment has been undertaken on a scale never seen before in human history - 30 new airports, 26,000 miles of motorways and a new skyscraper every five days have been built in China in the last five years. But as we (and Michael Pettis, George Soros, and Jim Chanos - among many others) have warned, it is all eerily reminiscent of what happened in the West... the vast majority of it has been built on credit. This has now left the Chinese economy with huge debts and questions over whether much of the money can ever be paid back (spoiler alert: it can't and it won't).

Get long 'Depends' may be the most befitting headline for tonight's massive macro miss in Japan. For the 3rd quarter in a row, Japanese GDP missed expectations with a meager +1.0% annualized growth (versus a +2.8% expectation), and a tiny 0.3% Q/Q change vs expectations of a 0.7% increase, this is the biggest miss and slowest growth since Abe retook the economic throne after his chronic-diarrhea-prone first attempt to save the nation. No matter how hard they try to spin this, there's no silver lining as consumer and business spending missed expectations notably and the only Tokyo snow fell just last week so long after the quarter was over... and this is before a tax hike that is aimed at showing how fiscally responsible the nation and not simply an insolvent ponzi scheme alive through the good graces of the greater fools of leveraged carry trades.

While the only fun-durr-mentals that matter appear to be global central bank liquidity injections (and thus the level of leverage entrusted to the JPY carry trade), the crowd is swayed by truthisms and "common knowledge" memes that recovery is here, that things are improving, that earnings are 'solid', that markets are still cheap, and that historical analogs are different this time. However, with monetary policy at a turning point, we also appear (fundamentally and technically) to be at "the inflection point from self-reinforcing speculation to fragile instability."

As one might expect, the economic decline of a nation into rule by a handful of corrupt oligarchs will have many other negative repercussions. One of these is a loss of civil rights and freedoms that many of us have taken for granted. Reporters Without Borders puts out their Press Freedom Index every year, and the 2014 ranking came out today. It was not a good showing for the USSA. Specifically, the U.S. registered one of the steepest falls of all nations, down 13 slots to the #46 position. As the screen shot shows, just above Haiti and just below Romania.

Global financial and commodity markets are warning that the US Dollar is in for a bout of trouble, warns BofAML's Macneil Curry. Across asset classes, Curry points out that Gold was the first to make its low against the US Dollar, doing so back on Dec-15. The second market to turn against the US Dollar was US Treasuries, with Ten year note futures turning bullish back on Dec-26. Currently, the FX market - most specifically GBP - is breaking out and pressuring the US Dollar. Finally, the Japanese stock market continues to suffer, putting downward pressure on USDJPY and thus US Dollar weakness.

Those campaigning for a substantial jump in the minimum wage all assert that the purpose is to help working families. Unfortunately, careful students of the evidence come to a different conclusion. As Mark Wilson summarized it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” Some workers lose jobs (high minimum-wage states have among the highest unemployment rates); others have hours cut. The least-skilled get competed out of the jobs that remain (e.g., the minimum wage hits teenage employment hardest). It crowds out on-the-job training, impeding workers’ ability to learn their way out of poverty. And those effects are worse in a recession. It also raises costs and prices that workers pay as consumers. How can we explain support for a policy that harms many of those supporters say they wish to help? We explain it by focusing not on low-income workers, but their substitutes.