Brazil

The Cypriot deposit confiscation has come and gone (and in a parallel world in which the global Bernanke-put never existed and in which bank shareholders were not untouchable, this is precisely how real-time bank restructurings should have taken place), but fears remain that the country's "resolution" mechanism will be the template for future instances of "resolving" insolvent banks. That may or may not be the case: the only way to know for sure is during the next European bank bailout, but one thing is certain - Cyprus was certainly a template when it comes to how a world full of insolvent sovereigns (all engaged in currency warfare), where easing, quantitative or otherwise no longer works to boost the economy, will approach what is the last chance for monetary replenishment - taxation of financial assets, just as we warned first back in 2011. Specifically, Cyprus showed the "template" for confiscating Russian oligarch billionaire "ill-gotten", untaxed cash, which many in Germany demanded should be the quid for ongoing German-funded quo. And here's the rub. There is more where said "ill-gotten" cash has come from. Much more... $32 trillion more.

“… current policies come with a cost even as they act to magically float asset prices higher…, a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing."  Bill Gross, PIMCO

...  Until His Iron Deficiency Goes Away

The highlights from Bill Gross' monthly letter: "The past decade has proved that houses were merely homes and not ATM machines. They were not “good as money.” Likewise, the Fed’s modern day liquid wealth creations such as bonds and stocks may suffer a similar fate at a future bubbled price whether it be 1.50% for a 10-year Treasury or Dow 16,000.... if there are no spending cuts or asset price write-offs, then it’s hard to see how deficits and outstanding debt as a percentage of GDP can ever be reduced....  Current policies come with a cost even as they act to magically float asset prices higher, making many of them to appear “good as money”. And the take away: "PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond. While this Outlook has indeed claimed that Treasuries are money good but not “good money,” they are better than the alternative (cash) as long as central banks and dollar reserve countries (China, Japan) continue to participate....a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing."

Over the years, Jim O'Neill, former Chairman of GSAM, rose to fame for pegging the BRIC acronym (no such luck for the guy who came up with the far more applicable and accurate PIIGS, or STUPIDS, monikers, but that's neither here nor there). O'Neill was correct in suggesting, about a decade ago, that the rise of the middle class in these countries and their purchasing power would prove to be a major driving force in the world economy. O'Neill was wrong in his conclusion as to what the ultimate driver of said purchasing power would be: as it has become all too clear with the entire world drowning in debt (and recently China), it was pure and simply debt. O'Neill was horribly wrong after the Great Financial Crisis when he suggested that it would be the BRIC nation that would push the world out of depression. To the contrary, not only is the world not out of depression as the fourth consecutive year of deteriorating economic data confirms (long since disconnected with the actual capital markets), but it is the wanton money (and bad debt) creation by the central banks of the developed world (as every instance of easing by China has led to an immediate surge of inflation in the domestic market) that has so far allowed the day of reckoning, and waterfall debt liquidations, to take place (and certainly don't look at the stock index performance of China, Brazil, India or Russia). Despite his errors, he has been a good chap having taken much of the abuse piled upon him here at Zero Hedge somewhat stoically, as well as a fervent ManU supporter, certainly at least somewhat of a redeeming quality. Attached please find his final, farewell letter as Chairman of the Goldman Asset Management division, as he moves on to less tentacular pastures.

The week ahead will be driven by the heavy end-of-month data schedule. In addition to the usual key releases like ISM and payrolls and ECB meeting, this week we also get an FOMC meeting - though it will hardly see much more than a nod to the weaker activity data of late. For the ECB meeting a full refi but not a deposit rate cut are priced now.  Outside the FOMC and the ECB meeting there will be focus on the RBI meeting in India, with a 25bp cut priced in response to lower inflation numbers recently.

Despite the many differences between China and the U.S., their basic problems are remarkably similiar: an economy that increasingly serves a tiny Elite, and a political/financial system that is incapable of meaningful reform. Setting aside the latest bird flu outbreak and sagging indicators of growth, China 2.0 is in trouble (with 1.0 being the Communist era of 1949 -1977 and 2.0 being the modernization/globalization era of 1978 - 2013), for it remains overly reliant on unsustainable growth dynamics. Add it all up and you get a clear picture of a government and economy that is incapable of making the kind of structural reforms that are needed to make growth sustainable.

The week ahead brings key leading indicators of global activity. The flash PMI's in China and Euro area will be published on Tuesday. Bloomberg consensus expects the China flash to be slightly lower than the previous reading and that the Euro area flash releases for manufacturing and service activity will rise slightly. In addition, Korean 20-day export data for April will provide a good guide to both the external sector in Korea and the likely momentum of Asian exports more broadly. For the same reasons, Taiwan export orders are worth a look as well.  The week ahead also provides Q1 GDP prints in US, UK, and Korea. Goldman expects US GDP to rise by 3.2%. The Australia CPI print may open the door to an RBA rate cut as soon as May and Japanese CPI is likely to underscore why the BoJ policy has shifted aggressively. Friday also brings an update of the BoJ's outlook, along with the next BoJ meeting (unchanged policy expected).

Caterpillar just can't catch a break. First, in January the firm was punk'd by a Chinese acquisition fraud, forcing the company to write off half of its Q4 earnings. This, of course, in the aftermath of the miss in both Q3 and Q4 earnings. And now we get the latest disappointing news from the firm as Q1 numbers are reported lower across the board.

• Q1 EPS $1.31, Exp $1.38; this includes a tax benefit of $87 million
• Q1 revenue: $13.2 billion, Exp. $13.8 billion
• Guides much lower, with revenue now seen at $57-61 billion, compared to $60-68 billion previously
• CAT forecasts profit per share of $7.00, compared to $7.00-9.00 previously.
• Operating cash flow of $900MM, but all of it generated from net working capital, i.e., inventory liquidation
• And when you can't spend on capex, you spend on buybacks: CAT to extend buyback through 2015

So much for that.

There have been several recent developments that have flown in the face of both neo-liberalism and ordo-liberalism and thrown investors off balance.  Discuss.  

One more domino in the dollar reserve supremacy regime falls. Following the announcement two weeks ago that "Australia And China will Enable Direct Currency Convertibility", which in turn was the culmination of two years of Yuan internationalization efforts as summarized by the following: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", China has now launched yet another feeler to see what the apetite toward its currency is, this time in the heart of the Eurozone: Paris. According to China Daily, as reported by Reuters, "France intends to set up a currency swap line with China to make Paris a major offshore yuan trading hub in Europe, competing against London." As a reminder the BOE and the PBOC announced a currency swap line back in February, in effect linking up the CNY to the GBP. Now it is the EUR's turn.

Getting a second passport is just part of a larger "permanent traveler" strategy. The ideal is to live in one place, have your citizenship in another, your banks and brokers in other jurisdictions, and your business dealings in yet others. That makes it very inconvenient for any one government to control you. You don't want all your eggs in one basket – that just makes it easier for them to grab them all. I understand it may not be easy for most people to structure their affairs that way. That's exactly why most serfs stayed serfs; it was hard and scary to think of anything other than what they were told they should do.

"The crisis isn't over yet," warns Carmen Reinhart, "not in the US and not in Europe." Known for her deep understanding that 'it's never different this time', the Harvard economist drops the truth grenade a number of times in this excellent Der Spiegel interview. Sweeping away the sound and fury of a self-serving Federal Reserve or BoJ, she chides, "no central bank will admit it is keeping rates low to help governments out of their debt crises. But in fact they are bending over backwards to help governments to finance their deficits," and guess what, "this is nothing new in history." After World War II, all countries that had a big debt overhang relied on financial repression to avoid an explicit default. After the war, governments imposed interest rate ceilings for government bonds; but, nowadays, she explains, "monetary policy is doing the job. And with high unemployment and low inflation that doesn't even look suspicious. Only when inflation picks up, which is ultimately going to happen, will it become obvious that central banks have become subservient to governments." Nations "seldom just grow themselves out of debt," as so many believe is possible, "you need a combination of austerity, so that you don't add further to the pile of debt, and higher inflation, which is effectively a subtle form of taxation," with the consequence that people are going to lose their savings. Reinhart succinctly summarizes, "no doubt, our pensions are screwed."

As of later this month, we’ll receive the final picture on China’s U.S. bond sales over late 2011 and early 2012, and the reaction isn’t likely to be much different than it was last year. But, we argue that there’s actually quite a lot to see. Namely, there’s a brand new reason to be concerned about America’s access to foreign capital. In a nutshell, America needs foreigners to be both willing and able to buy its bonds. China is able but much less willing than it used to be. (Treasury data that isn’t shown here suggests its interest in U.S. securities recovered somewhat in late 2012, but remains far short of the levels of two years ago.) Other countries are willing but not nearly as able as China, notwithstanding the sharp increase in purchases in the recent period. And overall, the message in the preliminary TIC data is more worrisome than it may appear on the surface. Should the final report on April 30th confirm the message, consider it a warning of a potentially disastrous future decline in foreign purchases of U.S. debt.

I see Japan as a global aggressor, the country doesn't give a damn about where the chips fall outside of its borders.