China's HSBC Manufacturing PMI has now spent 3 years within 2 points of the crucial '50' demarcation between contraction and expansion but as the following chart shows, something seems 'odd' about the last few months apparent stability. Tonight China HSBC PMI printed a stunning 49.7 crushing the expectation of 48.3 (modestly above last month's 48.1) but still in contraction for the 5th month in a row (the longest contraction since Oct 2012). This was China's biggest spike in PMI in 9 months led by increases in new orders, production, and new export orders... but employment fell to new lows. Japan's Markit PMI also printed in 'contraction' territory for the 2nd month in a row - its first since Abenomics began.
In a well-crafted 688 words published just 5 minutes after the minutes were exposed to the public, the Wall Street Journal's Jon Hilsenrath provides what bullish equity market believers might consider one of his more hawkish commentaries on what the Fed is really thinking. "Federal Reserve officials turned their attention to longer-run issues at their April policy meeting," he noted; adding that discussion of the Fed's "exit strategy" from low interest rates has heated up in recent weeks. His summation - lots of talk, no action... not what the bad-news-is-good-news crowd wants to hear.
- More than 20 dead, doctor says, as anti-China riots spread in Vietnam (Reuters)
- Russia's Gazprom plans Singapore stock exchange listing (Reuters)
- Inside Europe’s Plan Z (FT)
- Ukraine slides deeper toward war as Russia warns to vote (BBG)
- Fast-Food Protests Spread Overseas (NYT)
- BOJ Beat, Officials Could Upgrade Outlook for Capex (WSJ)
- Euro-Zone Economy Shows Weaker-Than -Expected Expansion (WSJ)
- Yahoo to YouTube Ads Spreading Viruses Rile Lawmakers (BBG)
- New York Times Ousts Jill Abramson as Executive Editor, Names Dean Baquet (BBG)
- NYT Publisher Said to Always Have Clashed With Abramson (BBG)
- Google gets take-down requests after European court ruling - source (Reuters)
Headlines were made earlier today as Ireland’s ten year borrowing costs dropped below the UK’s for the first time in six years. Given that it only recently exited a bailout programme and not long ago was mired in the worst crisis in a generation, this is a pretty astonishing turnaround. Nor is Ireland alone. Spain and Italy can now borrow at similar rates to the USA on ten year debt. More broadly, in the past year peripheral countries borrowing costs have plummeted to levels seen before the crisis, or below, as countries begin exiting bailouts and returning to the markets. There are three key factors driving this 'bubble" and five major problems stemming from this seeming nirvana.
... To the astonishment of almost everyone in the room, Angela Merkel began to cry. “Das ist nicht fair.” That is not fair, the German chancellor said angrily, tears welling in her eyes. “Ich bringe mich nicht selbst um.” I am not going to commit suicide. For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking enough to watch Europe’s most powerful and emotionally controlled leader brought to tears....
Could it really be that peripheral countries’ interest rates are plunging and borrowing costs have converged to pre-crisis levels, Greece is issuing debt, and the euro crisis is over forever, but Mario “Whatever-It-Takes” Draghi is musing about starting QE now? Have policymakers lost touch with reality to such a startling degree that they now reach for the QE bottle like it is some 1850s cure-all nostrum, regardless of what is wrong with the patient? All we can imagine is the good doctor, handle bar moustache and full regalia, sitting behind his desk: “You have the vapors? Take this QE, you’ll feel better. Ma’am, you have a little hysteria? QE is just the thing! Sir, this QE will cure that headache! Son, you need some inflation, so QE is just right for you.” There is nothing – we repeat, nothing – that is being done at present to enable Europe to perform better economically, to encourage its unemployed to get off the dole, or to empower its peripheral countries to deal with their underperformance on a sustainable basis.
"Everybody knows interest rates are going to rise." Whether you agree with this premise, or not, is largely irrelevant to this discussion. The current "bullish" mantra is the "great bond bull market is dead, long live the stock market bull." However, is that really the case? When the bond bubble ends this means that bonds will begin to decline, potentially rapidly, in price driving interest rates higher. This is the worst thing that could possible happen.
In one of his most voracious tomes, The Wall Street Journal's Fed-see-er Jon Hilsenrath prepared 726 words and published them in 5 minutes to explain that the Fed's forecasts for Q1 were dismally wrong, that the future will all be rosy, and their forecasts spot on, and that the Taper is steady..."Fed officials acknowledged the first-quarter slowdown was worse than expected by saying activity "slowed sharply." Previously, they had just said activity merely slowed...Still, officials nodded to signs of a pickup in economic activity in March and April, suggesting they aren't too worried about the winter slowdown."
Russia's Deputy Foreign Minister Sergei Ryabkov as come out swinging after US issued a new round of sanctions against citizens and companies of the nation:
- RUSSIA WON'T LET SANCTIONS GO UNANSWERED: INTERFAX
- RUSSIAN DEPUTY FOREIGN MINISTER RYABKOV VOICES "DISGUST" AT WHITE HOUSE STATEMENT ON NEW U.S. SANCTIONS -INTERFAX
As we await the European Union's reaction (which the US has said is imminent... hopefully) it is the blowback from Russia that is most importance - despite constant protestation by talking-heads on mainstream media channels that any sanctions on Russia will have no impact on US business...
While Jay Carney and the White House continue to press their "sell" recommendation on Russian assets, it appears the market is buying the news (after selling the rumor). Russian stocks are ripping higher on "better than expected" sanctions and the Ruble is strengthening notably... So given that the market is signaling these sanctions are clearly weaker than expected, we should certainly not expect any Russia de-escalation soon.
This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time. No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room - it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple - and is a by-product of the Fed’s insane repression of interest rates.
- Russia raises interest rates to 7.5% (FT)
- Shanghai to Allow Raw Material Exchanges in Trade Zone (BBG)
- US, Japan Fail to Clinch Trade Deal (WSJ)
- 'We don't have a magic wand', says ECB's Constancio (Reuters)
- Tokyo Inflation Quickens to Fastest Since 1992 (BBG)
- Demand for Home Loans Plunges (WSJ)
- EU banks urged to grasp chance to raise capital (FT)
That the official rate of inflation doesn't reflect reality is obvious to anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight. So why does the government maintain such a transparently inaccurate and misleading metric? For three reasons.
- J.P. Morgan's Dimon Describes Year of Pain (WSJ)
- SAC Faces a Final Reckoning for 14 Years of Insider Scam (BBG)
- New Standards for $693 Trillion Swaps Market Increase Risk of Blowup (BBG)
- China says no major stimulus planned; March trade weak (Reuters)
- As we said in 2012 would happen: Record Europe Dividends Keep $3 Trillion From Factories (BBG)
- Blame it on the algo: Deutsche Bank Said to Find Improper Communication in FX Case (BBG)
- Coke Sticks to Its Strategy While Soda Sales Slide (WSJ)
- Ukraine’s Rust Belt Faces Ruin as Putin Threatens Imports (BBG)
- RBC Joins Goldman in Suing Clients After Singapore Crash (BBG)
- U.S. House panel to look at aluminum prices, warehousing (Reuters)
- Brooklyn Apartment Rents Jump to a Record as Leases Surge (BBG)
Dr Faber discussed the importance of not owning gold stored in the U.S., the mystery of the Fed gold, why Singapore is safest for gold storage, the risks of bitcoin and how small countries should revert to national currencies. The must watch interview can be watched here ...