Archive - Jul 2, 2014 - Story

While numerous massively indebted administrations around the world hope to divert the attention of what's left of their struggling middle class away from its daily impoverished existence and distract it with flashing lights and glitzy animations showing another all time market high on a daily basis, a significantly more important shift taking place behind the scenes is appreciated by very few: the ongoing de-dollarization of the world. For the latest example of how increasingly more countries are setting the stage for the final currency war, we go again to Russia where VOR's  Valentin Mândr??escu explains that slowly but surely the BRICS - that proud Goldman acronym which was conceived to perpetuate the great American way of life by releasing trillions in US-denominated debt in heretofore untapped markets - are morphing into an anti-dollar alliance.

In a QE dominated world - in the Golden Age of the Central Banker - renminbi strengthening has been an unmitigated disaster. Chinese political stability depends on the actual production of actual things by actual people working in actual factories, and the prospects for that real economic growth are made significantly worse the longer the West persists in favoring financial asset inflation and the ossification of a low-growth status quo. While the West may be able to accept, even celebrate, unlimited private wealth – China cannot. Not if it wants to remain a politically unified Great Power. We think this is just the start of a multi-year weakening of the renminbi, a sea change in Chinese monetary policy that will inevitably create broad political tensions with the US and make Japan’s devaluation/inflation course infinitely more difficult to achieve.

All around Asia, PMIs are tumbling. The last few days saw a number of nations' manufacturing PMIs drop with the notable miraculous surge in China (at 2014 highs). Tonight saw the Services PMI side also tumbling with Australia first (at 2014 lows) and Japan fade back to 49 for its 3rd month in contraction. But (unlike the manufacturing side) China 'official' Services PMI faded from its rebound (55 vs 55.5). The drop in Services PMI makes some sense given the 8-month lows in employment indices within the manufacturing PMIs... But then the baffle 'em with total bullshit brigade arrived as Markit/HSBC unveiled their version of Services PMI which jumped to 53.1 - its biggest MoM on record - makes perfect sense.

"Wasn't me..."

Just when you thought things could not get any worse for Abe and his experimentation in monetary policy alchemy... it does. Between surging inflation and stagnant wage growth, real wages for the Japanese fell by their most since the collapse of Lehman. Even the break of a 23-month streak of base wage drops was dismissed by the government as "expected to be revised lower." As Goldman warns, downside economic risks remain high, the J-curve is 'delayed', and with tumbling cabinet approval ratings and soaring personal disapproval ratings, Abe has a major problem on his hands...

It appears it's one of those nights. In a fit of confusion, Australia's Central Bank head Glenn Stevens declared "investors are under-estimating the chance of an AUD decline" only to follow that 'jawboning' up with an explanation that he is trying "to avoid shifting language or jawboning." But then he broke the cardinal rule of central-banking - he told the truth:

*STEVENS: PEOPLE SHOULDN'T ASSUME HOUSE PRICES ALWAYS RISE

But.. but.. but... Ben Bernanke said... The AUD plunged over 50 pips on the news (but like any good central bank non-jawbone is suffering from a short half-life).

Over the past decade, the long-term trends that are destroying jobs in America have accelerated. We have seen countless numbers of jobs shipped overseas, we have seen countless numbers of jobs replaced by technology, we have seen countless numbers of jobs taken by immigrants and we have seen countless numbers of jobs lost to the overall decline of the once great U.S. economy. Unfortunately, even though we can all see this happening, our “leaders” have failed to come up with any solutions. Needless to say, all of this is absolutely eviscerating the middle class. The following are 17 facts that prove that the quality of jobs in America is going down the drain...

Vladimir Putin commented at a German-Russian official function: “We value the accumulated potential of Russian-German relations and the high level of trade and economic cooperation. Germany, one of the European Union leaders, is our most important partner in enhancing peace, global and regional security.” We would contend that we are seeing a decisive shift in the political character of Eurasia as 'continental empires' are starting to challenge the monopoly of 'legal' international violence that the US has exercised for the last 25 years. Such struggles have the potential to become major regional problems, but what is intriguing is the emerging continental alliance between Russia and Germany - a combination of German industrial might and Russian raw materials and military strength would instantly create a colossus.

You know it's bad when... Property developers in two of China’s weakest housing markets are offering to buy back homes in the future above the purchase price in a desperate effort to boost sales as demand slumps. As one analyst understatedly notes, "obviously they’re relatively cash-thirsty," but are under massive pressure not to reduce prices for fear of the signal it would send (that losses were possible). This 'fear' is echoed loudly by the CEO of Komatsu (the world’s second biggest maker of building and mining equipment) who saw said sales in China are falling more steeply than anticipated (20% below expectations) and warned "the impact of China is big."

"Many older workers managed to stay employed during the recession; in fact, the population in age groups 65 and over were the only ones not to see a decline in the employment share from 2005 to 2010 (Figure 3-25)... Remaining employed and delaying retirement was one way of lessening the impact of the stock market decline and subsequent loss in retirement savings."

Janet Yellen is a chatterbox of numbers, but most of them are “noise”. And that’s her term. Yet here is a profoundly important set of numbers that you haven’t heard boo about from Yellen and her mad money printers. To wit, during the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income. That’s right, 95 cents of every dollar they earned - including the huge gains from restructurings, downsizings and job terminations - was flushed right back into the Wall Street casino.

"Clinton Inc. is going to be the most formidable fundraising operation for the Democrats in the history of the country. Period. Exclamation point," is how on Republican lobbyist describes the Bill-and-Hillary show and as WSJ reports, in total, the Clintons raised between $2 billion and $3 billion from all sources, including individual donors, corporate contributors and foreign governments. They have raised more than $1 billion from U.S. companies and industry donors during two decades on the national stage through campaigns, paid speeches and a network of organizations advancing their political and policy goals. Financial Services firms have been one of the single largest sources of money for the Clintons since the 1992 presidential campaign; and the couple's No. 1 Wall Street contributor, giving nearly $5 million - Goldman Sachs.

Last week, Nick Hanauer explained how the pitchforks were out for him and his 'zillionaire' friends' he was right; but his 'solution' is far from correct..."If Hanauer really wants to test out his theory, I propose this to him: shed your billions of dollars and give the money directly to your employees. Drain your bank accounts and give the proceeds to the spend-happy middle class. If consumer demand truly grows the economy, then the profits will come roaring back. Hanauer is right that economic inequality can create resentment. But he doesn’t see the real culprit: a government that insists in meddling in the marketplace. His solutions don’t fix the problem; only exacerbate it."

While the Bank of England's chief economist, Andrew Haldane, admitted that reviving investors’ appetite for risk was one of the forgotten goals of central banks, he notes there are concerns that risk is not being "removed" but changing shape and migrating to more liquid markets but that should not be a problem as "monetary policy can on occasions have a role to play in ensuring against these financial stability risks..." i.e. the market put. His biggest concern is the aggregation of derivatives clearing which could be a "problem from hell" but he notes the future will not be the same as the past as "volatility in financial-market asset prices will be somewhat greater," and that interest rates will not 'normalize' to the levels of the past.

nowhere is it clearer that nothing at all has changed when it comes to crony capitalist behind the scenes muppetry, than in the latest Reuters exclusive of the white glove treatment "evil" BNP got in order to make sure the full wrath of US justice doesn't damage the criminal money launderer too severely. "The New York state banking regulator on Monday separately decided not to pull BNP's banking license in the state, despite a criminal guilty plea, because of the risk it could put BNP out of business."