With the Fed tapering and both China “I don't think the markets are discounting what’s really happening in China,” and Japan’s currencies likely to weaken, the net impact on the U.S. will be deflationary, Kyle Bass warned in a recent presentation. That trend will be accelerated by the improvement in the balance of trade for the U.S., which had its current account deficit shrink due to increased hydrocarbon production. Bass warns, the crucial moment will come when the U.S. reports a sub-6% unemployment rate, meeting the target it has set for normalizing its monetary policy by ending QE and raising rates. He predicted that will come in July. That will be the Fed’s “worst nightmare,” he said. Raising rates would stifle growth and recreate unemployment problems, which would be disastrous politically, according to Bass.
- "May?" New Cold War May Emerge in Ukraine Crisis, Medvedev Says (BBG)
- Wristslaps will be fast and furious: EU Commission charges HSBC, JPMorgan, Credit Agricole with rigging (Reuters)
- Credit Suisse Rises as U.S. Guilty Plea Ends 3-Year Probe (BBG)
- After Martial Law Declaration, Thailand Waits for General's Next Move (WSJ)
- China property slowdown spells trouble for Asia bonds (FT)
- Russia Close to $400 Billion Gas Pipeline Deal in Pivot to China (BBG)
- Dimon-by-the-Sea Shows London Banking’s Engine of Growth (BBG)
- Modi Faces Greece-Sized Snag to Economic Revival (FT)
- U.K. Inflation Accelerates on Airfare Surge (BBG)
From fears of Argentinian devaluations (and a 26-year-old running policy) to Japan's structural collapse; from Europe's false hope to China's bubbles; and from the Fed taper to the US hydrocarbon revolution, Hayman Capital's Kyle Bass provides a broad-based presentation of global risks and opportunities in the clip below. The Q&A is where Bass comes alive and is well worth the price of admission for a hedge fund manager unafraid to discuss the possibility that the status quo is unsustainable. Bass sums it all up perfectly succinctly, "proceed with caution."
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.
Momentum stocks are the absolute best stocks to invest in from a risk and return standpoint, and there are 5 drivers for GM being a momentum stock 2014.
- Yes: Support Builds in Congress for U.S. Strike Against Syria (WSJ)
- No: Boehner backs Obama on Syria, but House leaning toward ‘no’ (The Hill)
- U.S. Congress fight over Syria pits establishment versus upstarts (Reuters)
- Wednesday humor: Japan’s Abe Says Fukushima Will Be Resolved Before 2020 Olympics (BBG)
- Bank of Japan to Consider Further Easing if Sales Tax Hike Goes Ahead (Reuters)
- S&P accuses U.S. Justice Department of filing $5 billion lawsuit against it in "retaliation" for the company's downgrade of America's debt in 2011 (WSJ)
- German Candidates Spar Over Records (WSJ)
- Emerging Nations Save $2.9 Trillion Reserves in Rout (BBG)
- Split Congress Mulls Denial of Military Force Request (BBG)
- Sharp Fall in Overseas Investment By Chinese Firms (WSJ)
- Jorge Lemann: He Is...the World's Most Interesting Billionaire (BusinessWeek)
- Why Amazon Is on a Warehouse Building Spree (BW)
With all eyes fixed on GDP and unemployment data this week (and all their revised and propagandized unreality) for more hints at if (not when) the Fed will Taper; the dismal reality that few seem willing to admit is that it is when (not if) and that the announcement of a "Taper" has nothing to do with the economy. There are three key factors driving this decision: Bernanke's bubble-blowing and bond-market-breaking legacy, the political 'clean slate' his successor needs, and, most importantly, the fear that QE will be discovered for what it is - monetization. As BoJ's Kuroda admitted last night "if QE is seen as financing debt, this could lead to rise in yields." With deficits falling, the Fed's real actions will be exposed (unless QE is tapered) and as Kyle Bass has explained before, it was out of the hands of the BOJ (or The Fed) and entirely up to market psychology.
"China’s direct contribution to global growth is enormous, but perhaps equally as important is its role in generating growth in developed and emerging economies. A slowdown, whether significant or extreme, in the Chinese economy heralds very bad news for asset prices around the world. A growth crisis centered in Asia will further exacerbate the instability and volatility in Japan and have a devastating impact on second derivative marketplaces such as Australia, Brazil and developing markets in South East Asia. The combination of rich valuations and further threats to growth has led us to dramatically reduce risk in the portfolio and actively position ourselves to withstand the uncertainty and instability ahead"
Europe Opens $80 Trillion Shadow Banking Pandora's Box: Will Seek To Collapse Repo "Collateral Chains"Submitted by Tyler Durden on 05/24/2013 10:51 -0400
In what may be the most important story of the day, or maybe year, for a world in which there already is an $11 trillion shortfall in high-quality collateral (and declining every day courtesy of Ben's monetization of Treasury paper) so needed to support the deposit-free liability structures of the shadow banking system (as most recently explained here), Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.
It’s amazing what people can trick themselves into believing and even shout about when you tell them exactly what they want to hear. It was disappointing to see Brad DeLong’s latest defense of Fed policy, which was published this past weekend and trumpeted far and wide by like-minded bloggers. If you take DeLong’s word for it, you would think that the only policy risk that concerns hedge fund managers is a return to full employment. He suggests that these managers criticize existing policy only because they’ve made bad bets that are losing money, while they naively expect the Fed’s “political masters” to bail them out. Well, every one of these claims is blatantly false. DeLong’s story is irresponsible and arrogant, really. And since he flouts the truth in his worst articles and ignores half the picture in much of the rest, we’ll take a stab here at a more balanced summary of the pros and cons of the Fed’s current policies. We’ll try to capture the discussion that’s occurring within the investment community that DeLong ridicules. Firstly, the benefits of existing policies are well understood. Monetary stimulus has certainly contributed to the meager growth of recent years. And jobs that are preserved in the near-term have helped to mitigate the rise in long-term unemployment, which can weigh on the economy for years to come. These are the primary benefits of monetary stimulus, and we don’t recall any hedge fund managers disputing them. But the ultimate success or failure of today’s policies won’t be determined by these benefits alone – there are many delayed effects and unintended consequences. Here are seven long-term risks that aren’t mentioned in DeLong’s article...
As the global economic slump continues central bankers, such as Mario Draghi, and politicians have vowed “to do whatever it takes” to get economies back on track. Such policies while having near term benefits are considered extremely risky in the longer run by many commentators as they could beckon runaway inflation or stagflation, with ruinous results.
Shinzo Abe unleashed his plan with the blessing of the Bank of Japan to begin aggressive government bond purchases. This has led to a massive growth of 60% on the Nikkei and is deflating the yen and boosting their exports.
"The stress is beginning to show," Kyle Bass warns during a wide-ranging interview with Bloomberg TV. "The beginning of the end," is here for Japanese government bonds as he notes that while quantitiavely it is clear they are insolvent, "the qualitative perception of participants is changing." But away from Japan specifically, there is a lot more on the Texan's mind. "Things go from perfectly stable to completely unstable," very quickly; even more so after 20 years of exponential debt build-up and Keynesian cover-ups; and it is this that he warns complacent investors that it is "really important to think about the capital at risk in your strategy." For this reason he prefers to hold gold rather than Treasuries, as, "when you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other than you should maintain a position." His discussion varies from housing's recovery to structured credit liquidity "money is being misallocated by the printing press" and the future of the GSEs, concluding with the rather ominous, "at some point in time, I would much rather would own gold than paper. I just don't know when that time is."
- John Kerry just got happier: Berkshire Hathaway, 3G Buying Heinz for $72.50 a Share, or $28 Billion - ~20% premium to last price (CNBC)
- US Airways, AMR to Merge (WSJ) - can thousands of workers spell "synergies"?
- Draghi, Carney show ascent of "whatever it takes" central bankers (BBG) ... to preserve the Goldman way of life
- Euro zone economy falls deeper than expected into recession (Reuters)
- Soros has made $1 billion betting against the Japanese Yen (WSJ)
- Ex-Analyst at SAC Felt Pressured for Tips (WSJ)
- Desalination Seen Booming at 15% a Year as World Water Dries Up (BBG)
- China's 'Wall' Hits Business (WSJ)
- Israel publishes some details as Australian spy mystery deepens (Reuters)
- Tata Motors Profit Falls 52% (WSJ)
- AB InBev Will Sell Corona Unit to Salvage Modelo Takeover (BBG)
- "Blade Runner" Pistorius charged with murdering girlfriend (Reuters)
- In Ohio and beyond, Obama sees model for manufacturing revival (Reuters)
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
In our first installment of this series we explored the concept of stock to flow in the gold markets being the key driver of supply/demand dynamics, and ultimately its price. Today we are going to explore the paper markets and, importantly, to what degree they distort upwardly the “flow” of the physical gold market. We believe the very existence of paper gold creates the illusion of physical gold flow that does not and physically cannot exist. After all, if flow determines price – and if paper flow simulates physical metal movement to a degree much larger than is possible – doesn’t it then suggest that paper flow creates an artificially low price?
Leveraged systems are based on confidence – confidence in efficient exchanges, confidence in reputable counterparties, and confidence in the rule of law. As we have learned (or should have learned) with the failures of Long Term Capital Management, Lehman Brothers, AIG, Fannie & Freddie, and MF Global – the unwind from a highly leveraged system can be sudden and chaotic. These systems function…until they don’t. CDOs were AAA... until they weren’t. Paper Gold is just like allocated, unambiguously owned physical bullion... until it’s not.