A money-laundering butterfly flaps its wings in China... and the US housing market crashes?
The total tonnage of economic malarkey being shoveled over the American public these days would make the late Dr. Joseph Goebbels (Nazi Minister of “Public Enlightenment and Propaganda”) turn green in his grave with envy. It’s a staggering phenomenon because little about it is conspiratorial; rather, it’s the consensual expression of a public that wants desperately to believe things that are untrue, and an economic leadership equally credulous, unmanned, and avid to furnish the necessary narratives that might preserve their jobs and perqs.
It is no secret that unlike other banks who, while directly intervening in the bond market only manipulate equity prices in relative secrecy (usually via HFT-transacting intermediaries such as Citadel), the Bank of Japan has historically had no problem with buying equities outright, traditionally in the form of REITs and equity-tracking ETFs. Which explains why overnight it was revealed that in order to boost the stock market, pardon, economy, the Bank of Japan is preparing to purchase exchange-traded funds based on the JPX-Nikkei Index 400 as an "option to boost the impact of unprecedented easing," according to people familiar with BOJ discussions.
- Xi Says China Conflict With U.S. Would Be Disaster (BBG)
- Short selling drops to lowest level since Lehman (FT)
- Scoping the new subprime as watchdogs cry 'bubble' (Reuters)
- Carlos Slim to break up América Móvil empire (FT)
- Jury Acquits Rengan Rajaratnam in Insider-Trading Case (WSJ)
- Hamas rockets land deep in Israel as it bombards Gaza Strip (Reuters)
- Hong Kong Buyers Queue for New Homes After Prices Plunge (BBG)
- Rebel Stronghold in Ukraine Braces for Its Showdown (WSJ)
- Tiny Houses Big With U.S. Owners Seeking Economic Freedom (BBG)
- Chinese Cash-Bearing Buyers Drive U.S. Foreign Sales Jump (BBG)
With GM recalling virtually every car it has made since emerging from bankruptcy, another maker of flaming paperweights has quietly managed to slip through the cracks of public attention. So it was perhaps well-timed, if only for GM, that over the weekend we not only learned, but saw footage, of what happens when a Tesla is involved in a Police chase that results in a lamp post crash. Nothing short of complete obliteration. “There were fires after that that broke out,” Eric Martinez said. “I saw the firefighters — like 25 firefighters – standing around the white car with the Jaws of Life.” Martinez added that at one point, explosions could be heard. “We originally thought it was fireworks. Everybody thought it was fireworks that were just exploding,” he said.
What this chart shows is that when it comes to core manufacturing and service trade, that which excludes petroleum, the US trade deficit hit some $49 billion dollars in the month of May, the highest trade deficit ever recorded! In other words, far from doubling US exports, Obama is on pace to make the export segment of the US economy the weakest it has ever been, leading to millions of export-producing jobs gone for ever (but fear not, they will be promptly replaced by part-time jobs). It also means that the collapse in Q1 GDP, much of which was driven by tumbling net exports, will continue as America appear largely unable to pull itself out of its international trade funk, much less doubling its exports.
JPM's latest (and certainly not least) prophecy for the full year GDP: precisely one half of what it expected 6 months ago, or just 1.4%, following a cut to Q2 GDP to 2.5% from 3.0% (which means negative growth for the entire first half, something in a less insane world would be called a recession), while keeping Q3 and Q4 GDP miraculously at 3.0% for both quarters.
- Citigroup 190K
- HSBC 200K
- Goldman Sachs 210K
- UBS 215K
- JP Morgan 220K
- Deutsche Bank 225K
- Bank of America 225K
- Barclays 250K
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...
The boom is unsustainable. Investment and consumption are higher than they would have been in the absence of monetary intervention. As asset bubbles inflate, yields increase, but so do inflation expectations. To dampen inflation expectations, the Fed withdraws stimulus. As soon as asset prices start to fall, yields on heavily leveraged assets are negative. As asset prices decline, increasingly more investors are underwater. Loan defaults rise as mortgage payments adjust up with rising interest rates. When asset bubbles pop, the boom becomes the bust.
One would think that with the economy, allegedly, growing at above-trend rates as Goldman has wagered for the second time in 4 years (the first time Hatzius was dead wrong), with jobs being added at what the BLS would have the market believe is a healthy 200K+ monthly clip, and of course with the S&P500 at record all time highs now on a daily basis, that the US business services sector would be humming along nicely, with little to no slack. One would be wrong: according to the WSJ even with all the alleged economic activity and all post-Lehman job losses having now been recovered, "employers have only reoccupied about 52% of the 142 million square feet that went vacant amid the economic downturn."
here is the punchline, and proof that anything the ECB can and will try to do, will be a complete disaster: Loans to households fell by €42.8bn (its largest decline on record), having risen by €5.1bn in April. This was mainly related to lending for house purchases (which do not count towards banks' allotment in the TLTRO) and took place almost entirely in France.
Anyone curious how real, GAAP EPS performed in the just completed quarter, should look at the chart below. It shows that GAAP EPS (helped by a record amount of corporate buybacks) in the first quarter of 2014 actually dropped 2.2% from Q1 2013 even as Non-GAAP suggested a nearly 5% increase!
Pundits enjoy pointing to NYSE margin debt as an indication of overall system leverage, and how prone to margin calls and liquidations the investor class may be at any given moment. However, in the new normal, in which sophsiticated investors fund themselves via completely different mechanism - mostly involving repo and other shadow banking conduits - margin debt has become a very much irrelevant indicator of overall leverage.