When the head of the IMF "thinks there is some good news," and applauds Japan for its "innovation," it is clear that Christine Lagarde is struggling for positives in this interview with Bloomberg TV. Though she says all the right things, dots-the-i's-and-crosses-the-t's off as a confidence-inspiring global elite should do, the lack of enthusiasm is clear. "I'm deliberately, decisively, desperately optimistic," she exclaims even as she admits that they just downgraded global growth expectations and somewhat slams the US for "blind and blunt" fiscal consolidation, preferring instead "austerity... but not front-loaded." All-in-all, "a bit of work needs to be done," is as good as it gets for now.
- Apple reportedly stops placing Mac component orders (DigiTimes)
- Apple Ordered to Remove Obscene Content From China Store (BBG)
- Texas Ammonia-Plant Blast Kills as Many as 15 People (Reuters)
- Boston Probe Said Focused on Person Dropping Bag at Site (BBG)
- The Chinese cold trade war comes come to roost: US becomes Japan’s top export market (FT)
- Berlusconi, Bersani back Marini in presidential vote (Ansa)
- German parliament backs Cyprus bailout (Reuters)
- China Vows Wider Yuan Movement (WSJ)
- Morgan Stanley Sees Core Earnings Weaken (WSJ)
- Gold Miners Lose $169 Billion as Price Slump Adds ETF Pain (BBG)
- G-20 Draft Affirms Pledge to Avoid Competitive Devaluations (BBG)
- IMF warns on risks of excessive easing (FT)
- The battle for the Swiss soul (Reuters)
With European stocks and bonds, US bonds, commodities and precious metals all hinting at problems, the near-all-time-highs levels of the US equity market remain a mirage. We discussed here whether we had seen 'peak economic recovery' and today we extend that analysis. The point of this exercise is to allow your brain to juxtapose visual data to the ongoing mainstream diatribe of economic recovery. Evidence continues to mount that we have seen the peak of activity for the current economic cycle. The implications of such an occurrence are broad and suggests that the Fed's liquidity driven interventions, and zero interest rate policy, may have well seen the end of their effectiveness.
Mistrust claims of knowledge of contemporaneous activity by Japanese investors. The most recent country specific data is from February. In this context net flows are more important than gross flows. In addition, many observers have ignored/forgotten the high currency hedge ratios on purchases of foreign bonds.
VIX, the market's measure of forward-looking expectations of equity volatility has been hovering at decade lows (and even after yesterday's spike has plunged back once again today). MOVE, the bond market's measure of forward-looking uncertainty is at all-time record lows. As one infamous rates trader said recently, maybe it's early Alzheimers, but we are fairly certain that that last time Implied Volatility was scraping the lows, we did not experience:
- Gold moving almost $250 or over 15% in less than 48 hours;
- A G-3 currency moving over 25% in less than six months;
- A G-3 bond yield moving by 35% in two months;
- The Dow leaping by almost 20% in five months;
- A joint monetary policy as impactful as Volker or the Paris accords.
We can't help but agree.
Yes, there was economic news overnight, such as a Eurozone and UK CPI, both of which came in line with expectations (1.7% and 0.4% respectively), and a German ZEW which confirmed Europe's accelerating deterioration, tumbling from 48.5 to 36.3, far below expectations of a 41.0 print (somehow the huge miss has managed to push the EURUSD up by 60 pips to an overnight high of 1.31 but this is merely the pre-US open manipulation to ramp US equities higher), just as there was news that Angela Merkel's support for a Cyprus bailout is growing (was there an alternative?), and that as part of their ongoing investigation into Italy's repeatedly insolvent Monte Paschi, investigators had seized €1.8 billion worth of assets from Nomura Holdings, and that Spain as usual sold more Bills than expected, driven by oversize Japanese and Pension Fund purchases, but what everyone has been looking for is whether the relentless and record rout in gold is over. For now, it appears that is the case, with gold printing an overnight low of just over $1320 and ramping higher ever since, up 3% so far and rising.
If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It..Submitted by Reggie Middleton on 04/15/2013 10:19 -0500
If this article, in particular its conclusion, doesn't go viral throghout the EU, then the European media, analyst and regulatory community has #FAIED! its denizens!
Ex-Soros Advisor Sells "Almost All" Japan Holdings, Shorts Bonds; Sees Market Crash, Default And HyperinflationSubmitted by Tyler Durden on 04/14/2013 20:24 -0500
Former Soros' Japan advisor Fujimaki takes center stage: “The volatility in the JGB market as well as the fact that there is large selling represent fear among investors,” Fujimaki said. “They are early signs of a larger selloff and we should continue to monitor the moves in the long-term bonds.” Fujimaki said he recently bought put options for Japanese government bonds of various maturities, without elaborating. He continues to hold real estate in Japan and options granting the right to sell the yen against the greenback expiring in less than five years. He also holds assets in U.S. dollars and currencies of other developed nations. "Japan’s finance is sinking into the ocean,” Fujimaki said. “There’s no escape from a market crash in the future when you have such enormous debt.” “By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together. Shirakawa did more than enough and he had good reasons to not do any more,” said Fujimaki. “There will be tremendous side effects from monetary stimulus. QE doesn’t work and has no exit... Things may look rosy for now as stocks rise, but should we see hyper-inflation, JGBs will see a huge selloff, leading to a stock market crash,” said Fujimaki, adding that he sold “almost all” of his Japanese stock holdings some time ago.
When all this began, we were reassured that extraordinary balance sheet expansion and the ZIRP environment were merely temporary and only to get us through the short-term emergency. The following chart and table covering the monetary-policy-on-steroids of the Fed, ECB, BoE, and BoJ suggests this is a long-emergency indeed... and the current disconnect between the 'planned' expansion of central bank balance sheets and gold suggests that Cyprus' central bank head may just replace UK's Gordon Brown as the worst market-timer ever.
The lesson from the events of 2007-2008 should have been clear: Boosting GDP with loose money can only lead to short term booms followed by severe busts. A policy of artificially cheapened credit cannot but cause mispricing of risk, misallocation of capital and a deeply dislocated financial infrastructure, all of which will ultimately conspire to bring the fake boom to a screeching halt. The ‘good times’ of the cheap money expansion, largely characterized by windfall profits for the financial industry and the faux prosperity of propped-up financial assets and real estate (largely to be enjoyed by the ‘1 percent’), necessarily end in an almighty hangover. The crisis that commenced in 2007 was therefore a massive opportunity: An opportunity to allow the market to liquidate the accumulated dislocations and to bring the economy back into balance. That opportunity was not taken and is now lost – maybe until the next crisis comes along, which won’t be long. It has become clear in recent years – and even more so in recent months and weeks – that we are moving with increasing speed in the opposite direction: ever more money, cheaper credit, and manipulated markets (there is one notable exception to which I come later). Policy makers have learned nothing. The same mistakes are being repeated and the consequences are going to make 2007/8 look like a picnic.
Perhaps the most underfollowed story of the day is the blatant takeover of the Cypriot Central bank by the ECB, which as we reported earlier, has been ordered to sell their gold by the ECB's Mario Draghi, even though the disposition decision of the "independent" central bank of the now insolvent nation is supposedly theirs. First it was this:
- PANICOS DEMETRIADES SAYS CYPRUS CENTRAL BANK INDEPENDENCE UNDER ATTACK,
- DEMETRIADES SAYS GOVT WANTS TO SELL GOLD WITHOUT CONSULTATION.
And now we learn that not one, not two, but three board members of the central bank have called it a day:
- THIRD BOARD MEMBER OF THE CYPRUS CENTRAL BANK RESIGNS
We are sure there are at least a few more board members who can resign topped off by Panicos himself bailing, before the entire central bank implodes, and there is nobody left in charge of the now obsolete monetary policy apparatus. What happens then: will Goldman appoint a new "technocratic" Board and governor, or will the country finally confirm that all European lies about member bank Independence is just one big lie?
Update, and sure enough: PANICOS DEMETRIADES SAYS CYPRUS CENTRAL BANK INDEPENDENCE UNDER ATTACK. As a reminder, Panicos hold the now obsolete position of head of the Cyprus Central Bank.
As was noted two days ago (so certainly not the news catalyst for today's gold sell off as some are trying to make it appear) as part of its bailout expansion by 35%, Cyprus announced, then refuted, then re-admitted, it would need to fund a portion of the incremental €7 billion in cash demands by selling €400 million, or nearly all 13.9 tons, of its central bank gold. Today, we learn that this demand came from none other than the head of the ECB Mario Draghi. Bloomberg reports: "European Central Bank President Mario Draghi said the profits of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to Cypriot commercial banks."
"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."
Highlights from the pre-leaked minutes, which are along the lines of previous releases, in which there is a hint of an early QE tapering and halt by year end. Here is the key excerpt:
In light of the current review of benefits and costs, one member judged that the pace of purchases should ideally be slowed immediately. A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year. Several others thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end. Two members indicated that purchases might well continue at the current pace at least through the end of the year.
Algos unsure if this means QE may be ending. The answer, of course, is no. But the Fed is doing everything to gauge market impact to increasingly more ominous and harsh language.
Moments ago BOJ's Kuroda hit the tape with remarks that did not make algos very happy:
- KURODA SAYS BOJ HAS DONE WHAT'S NECESSARY AND POSSIBLE FOR NOW
- BOJ'S KURODA PLEDGES ALL NECESSARY STEPS FOR 2% INFLATION
- KURODA SAYS MONETARY POLICY NOT AIMED AT AFFECTING YEN RATE
Algos appear confused: will the BOJ do more to hit the 2% inflation target, or, as the first bullet suggests, is it tapped out? For now, they shoot first and ask questions later, sending the S&P500 carrying USDJPY lower by 60 pips in a matter of milliseconds.