- Greece's Economic Future 'Uncertain,' Creditors Say (WSJ)
- Secret Court's Redefinition of 'Relevant' Empowered Vast NSA Data-Gathering (WSJ)
- Thomson Reuters Halts Early Peeks At Consumer Data (WSJ)
- Larry Summers Circles as Fed Opening Looms (WSJ)
- S&P to Argue Puffery Defense in First Courtroom Test (BBG)
- Geithner joins top table of public speakers with lucrative appearances (FT)
- Losing $317 Billion Makes U.S. Debt Safer for Mizuho to HSBC (BBG)
- Pilot Error Eyed in San Francisco Plane Crash (WSJ)
- Investment group sues U.S. over Fannie, Freddie bailout terms (Reuters)
- Egypt officials 'order closure of Islamist party HQ' (AFP)
- Heinz Kerry Transferred to Boston Hospital for Treatment (BBG) - a boating accident?
Overnight newsflow (which nowadays has zero impact on markets which only care what Ben Bernanke had for dinner) started in Japan where factory orders were reported to have risen the most since December 2011, retail sales climbed, the unemployment rate rose modestly, consumer prices stayed flat compared to a year ago, however real spending plunged -1.6% significantly below the market consensus forecast for +1.3% yoy, marking the first yoy decline in five months. This suggests that households are cutting utility costs more so than the level of increase in prices. By contrast, real spending on clothing and footwear grew sharply by 6.9% yoy (+0.6% in April) marking positive growth for a fourth consecutive month. Simply said, the Japanese reflation continues to be limited by the lack of wage growth even as utility and energy prices are exploding and limiting the potential for core inflation across the board.
Just to confirm that in a world in which China and Russia (and Caracas... and Cuba) are increasingly seen as the paragons of liberty, virtue, and civil rights and the US is slowly but surely sinking into the role of the turnkey totalitarian tyranny antagonist, we just go this from House Intelligence Committee Chairman Mike Rogers: "Edward Snowden's reported choice to fly to Cuba and Venezuela undermines his whistleblower claims... Everyone of those nations is hostile to the United States, the Michigan Republican said on NBC's "Meet the Press" news talk show. "When you think about what he says he wants and what his actions are, it defies logic," said Rogers. Actually, Mike, when "you think about what he says", his actions make all the sense in the world, and certainly validate his "whistleblower claims."
Why did the U.S. government spend 2.6 million dollars to train Chinese prostitutes to drink responsibly? Why did the U.S. government spend $175,587 "to determine if cocaine makes Japanese quail engage in sexually risky behavior"? Why did the U.S. government spend nearly a million dollars on a new soccer field for detainees being held at Guantanamo Bay? This week when we saw that the IRS was about to pay out 70 million dollars in bonuses to their employees and that the U.S. government was going to be leaving 7 billion dollars worth of military equipment behind in Afghanistan, it caused us to reflect on all of the other crazy ways that the government has been wasting our money in recent years. So we decided to go back through my previous articles and put together a list. We call it "The Waste List".
- Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’ (Bloomberg)
- Merkel Critical Of Japan's Credit Policy In Meeting With Abe (Nikkei)
- China Wrestles With Banks' Pleas for Cash (WSJ)
- Biggest protests in 20 years sweep Brazil (Brazil)
- Pena Nieto Confident 75-Year Pemex Oil Monopoly to End This Year (Bloomberg)
- G8 leaders seek common ground on tax (FT)
- Putin faces isolation over Syria as G8 ratchets up pressure (Reuters)
- Former Trader Is Charged in U.K. Libor Probe (WSJ) - yup: it was all one 33 year old trader's fault
- Draghi Says ECB Has ‘Open Mind’ on Non-Standard Measures (BBG)
- Loeb Raises His Sony Stake, Drive for Entertainment IPO (WSJ)
Eventually the money runs out. Much of America was shocked when the city of Detroit defaulted on a $39.7 million debt payment and announced that it was suspending payments on $2.5 billion of unsecured deb. Anyone with half a brain and a calculator could see this coming from a mile away. But people kept foolishly lending money to the city of Detroit, and now many of them are going to get hit really hard. But what Detroit is facing is not really that unique. In fact, Detroit is a perfect example of what the future of America is going to look like. We live in a nation that is rotting, decaying, drowning in debt and racing toward insolvency. Just like Detroit, a day is rapidly approaching when America will not be able to kick the can down the road anymore. Sadly, our politicians don't seem inclined to do anything about it and most of the population seems to think that our exploding national debt is not a significant problem. By the time it becomes clear how wrong they were, it will be far too late to do anything about it.
Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion. But hold on a minute... The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year! The U.S. has been the family that spends more than it earns for many years now. In the short term, spending more than one takes in can work (especially if the Fed just prints new money and gives it to the government to pay its bills). But in the long term, if fundamental changes are not made to the government’s spending habits, financial chaos just starts all over again. Posting a budget deficit year after year is not sustainable. The debt-infested eurozone nations did very much the same; they borrowed to spend. Look where they are now.
Thursdays may be the new Tuesdays (if only this week), but so far Fridays are still just Fridays, and no mysterious overnight levitation is here to open the market 0.5% higher. The Nikkei 225 retraced a fraction of Thursday’s losses overnight as the positive close on Wall Street and a dovish interpretation of Hilsenrath’s WSJ piece yesterday allowed the Japanese indices to recover from the worst levels of the week. USD/JPY has pared Thursday’s bounce and trades lower as the Bank of Japan’s minutes showed one member of the board proposing the advantages of limiting the bank’s QQE program to just two years in order to avoid financial imbalances. Overnight in China, as we warned yesterday, the liquidity situation got even worse, when the PBOC's attempt to drain liquidity failed to sell some 30% of the planned 15 billion yuan in 273-day bills (more on this shortly), leaving the banks screaming Uncle and on the verge of a full-blown liquidity crisis: we expect rumors, and news, of more banks failing to roll over overnight liquidity to hit the tape shortly.
- Citigroup Facing $7 Billion Currency Hit on Dollar, Peabody Says (BBG)
- World has 10 years of shale oil, reports US (FT)
- ECB prepares to defend monetary policy in German court (FT)
- European Stocks Sink to Seven-Week Low as Treasuries Fall (BBG)
- Fitch warns on risks from shadow banking in China (Reuters)
- Obama administration to drop limits on morning-after pill (Reuters)
- ACLU asks spy court to release secret rulings in response to leaks (MSNBC)
- SEC Nets Win in 'Naked Short' Case (WSJ)
- SoftBank Raises Offer for Sprint to $21.6 Billion (WSJ)
- Chinese rocket launch marks giant leap towards space station (FT)
The uncertainty about when the Fed will begin tapering its programme of asset purchases has increased volatility, both pushing and pulling on global financial markets. “at this juncture, the markets are more concerned about tapering than about weak [US and global] growth,” says MIG Bank’s Chief Economist, Luciano Jannelli.
Yes, Government Spooks May Be Listening
Following the State's takeover of Detroit's finances in March, it seems the end is growing 'nigh'er for the troubled city. According to the WSJ, Kevyn Orr, Detroit's emergency manager, plans to call unions and creditors to a meeting in mid-June to lay the groundwork for a bankruptcy within a matter of months. The meeting is designed to restructure the long-struggling city's liabilities of over $17bn and is an attempt to "have a mature and sober discussion" of repayment terms following its delayed payment in April of $226 million on pensions and other obligations. Several unions said they are willing to come to the table, but believe "it's a scare tactic." Up to now, Gov. Snyder and Detroit elected officials have said they want to avoid using bankruptcy (Detroit would be the biggest muni filing ever) to clean up the city's mess. But in recent days, their positions have softened, adding that, "I don't want to go to bankruptcy, but I do know that it is a strong possibility." Mr. Orr's office confirmed it was evaluating the potential sale of prized assets such as the artwork at the Detroit Institute of Art, a collection potentially worth billions.
Everything was going so well in the overnight session, following some mixed Japanese data (stronger than expected production, inline inflation, weaker household spending) which kept the USDJPY 101 tractor beam engaged, and the market stable, until just before 2 am Eastern, when Tokyo professor Takatoshi Ito, formerly a deputy at the finance ministry to the BOJ's Kuroda, said overvaluation of the yen versus the dollar has been corrected, which led to a very unpleasant moment of gravity for the currency pair which somehow drives risk around the world based on what several millions Japanese housewives do in unison. The result was a slide to just 30 pips away from the key 100 support level, below which all hell breaks loose, Abenomics starts being unwound, hedge funds - short the yen and long the Nikkei - have no choice but to unwind once profitable positions, the wealth effect craters, and streams are generally crossed.
First a big caveat: the following comes from CNN, the world's farce leader, so take it with a quarry of salt. That said, CNN's household access is pervasive and when it comes to setting the social mood based on a news report, be it completely fabricated or not, the news organization is second to none. Which may be precisely why it is CNN that is reporting that in Syria - a place just itching for the proverbial match to be struck on a mountain of geopolitical gunpowder involving all the key actors: from the US, to Russia, Europe, China, and of course Israel, said match may have just been lit. To wit: "Syrian state-run television reported Thursday that forces loyal to President Bashar al-Assad killed three Westerners, including an American woman and a British national, who they claim were fighting with the rebels and were found with weapons and maps of government military facilities."
The market’s performance Thursday and Friday are misleading since there is so much destruction in many sectors globally. But the media depends on selling what’s going on with the DJIA. It’s just window dressing for the tourists frankly.