First domestic fiscal policy, and now global monetary policy has become an utter circus:
- G7 OFFICIAL SAYS G7 STATEMENT WAS MISINTERPRETED, STATEMENT SIGNALED CONCERN ABOUT EXCESS MOVES IN JAPANESE YEN
- G-7 OFFICIAL: G-7 CONCERNED ABOUT UNILATERAL GUIDANCE ON YEN
- G7 OFFICIAL SAYS G7 IS CONCERNED ABOUT UNILATERAL GUIDANCE ON THE YEN, JAPAN WILL BE IN SPOTLIGHT AT G20 MEETING IN MOSCOW
We already mocked the G-7's original stupidity... and now they say it was not what they meant. Because what the G-7 clarification really means it that while the G-7 will supposedly "allow the market to set rates", the G-7 was not happy with how the market set rates following the G-7 statement. And... #Ref!
Confused what the earlier released statement by the G-7 means? Fear not, because here comes Goldman with a post-mortem. And just in case anyone puts too much credibility into a few sentences by the world's developed nations (whose viability depends in how quickly each can devalue relative to everyone else) in which they say nothing about what every central bank in the world is actually doing, here is a history of four years of G-7 statements full of "affirmations" and support for an open market exchange policy yet resulting in the current round of global FX war, confirming just how 'effective' the group has been.
The G7 issued a statement that essentially endorses stimulative policies in Japan and elsewhere, but reaffirmed its commitment to market determined exchange rates. This is a green light to buy dollars against the yen and to buy euros.
Janet Yellen Discovers Okun's Law Is Broken, Confused Record Russell 2000 Doesn't Lead To Plunging UnemploymentSubmitted by Tyler Durden on 02/11/2013 13:31 -0500
Moments ago Fed vice-chair Janet Yellen released a speech titled: "A Painfully Slow Recovery for America's Workers: Causes, Implications, and the Federal Reserve's Response." In it, Yellen finally revealed she is on the path to realizing the it is none other than the Fed's own actions that have broken the economic "virtuous cycle", and that Okun's Law - the bedrock behind the Fed's flawed philosophy of assuming more debt -> more GDP -> more jobs, is no longer relevant in the broken "New Normal." In other words, Yellen finally starts to grasp what Zero Hedge readers knew a year ago, when they read, "JP Morgan Finds Obama, And US Central Planning, Has Broken The Economic "Virtuous Cycle."
As the chart below shows, in some 200 years of history, when expressed as a ratio of total sovereign debt to tax revenues, the empirical data as compiled by Reinhart and Rogoff ranges from 2x to 16x. This is shown by the blue bars in the chart below. So where are we in this cycle as the debt clock counts down? As the red bars show, we are in a very uncomfortable place, with Japan now at the highest such ratio in history, well above the highest recorded which always ended up in default, while the US, whose such ratio is over 600%, is above the long-term average of about 520% public debt/revenue. The problem is that every current and subsequent attempt to reflate merely pushes both of these higher, until one day the marginal growth creation of every dollar in new debt becomes negative. How much higher can consolidated global debt go before global GDP is not only no longer growing, but every incremental dollar in debt has a negative impact on GDP, as was the case for the US in the fourth quarter? Keep an eye on global economic growth: if and when the world enters outright recession: the most feared outcome by all central bankers who realize they are out of weapons and their only recourse is much more of the same, that may be cue to quietly leave town.
Everyone is currently worried about inflation with the central banks printing like there is no tomorrow.
The below article, recreated in its grotesque entirety, is a real, serious Op-Ed written by a supposedly real, non page-view trolling, Nobel-prize winning economist, in a serious paper, the New York Times. It can be classified with one word: jaw-dropping:"We’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts. So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do."
The fact that Evans, a man who has called for nothing but more stimulus for more than two years, is now stating point blank that the Fed may end QE before it reaches its target for unemployment is a major warning sign. Do not ignore it.
Turning your growth trade into a value trade is the quintessential sign of a losing trader on Wall Street.
With EURUSD having lost over 2 handles since Draghi began to speak at the press conference, we thought it worth examining just what he did (and did not) say. As Citi's Steven Englander notes, for the ECB it was a twofer. They can claim they are not engaging in currency wars while giving a big wink and nod on monetary policy ease that says 'sell my currency'. Yesterday when they said they were not too worried about currency, they didn't mention that they would sound very dovish on liquidity and monetary policy and stress the EUR's level as a factor in inflation and economic forecasts. So while they did not do the currency war thing, they did the next best thing.
It was a busy session for Chinese "data" (more on the laughable validity of Chinese economic releases shortly), after China released January export and import data, which rose 25% and 28.8% from a year ago respectively. Futures were delighted by the data, until someone pointed out that January 2013 had some five more working days than 2012 due to the calendar shift of the Chinese new year, and that adjusted for this effect exports were a far more modest 12.5% while imports rose only 3.4%. Credit growth in January also rose to a record, with aggregate financing of 2.54 trillion, including new local-currency loans of 1.07 trillion, exceeding forecasts, as China dumped gobs of money into the economy, while somehow quite mystrriously inflation came right on top of the expected 2.0%. The Yen soared overnight following comments from Taro Aso who said that the Yen had depreciated too fast. Heading to Europe, the biggest news so far was the latest ECB LTRO repayment which saw some 21 banks repay €4.992 billion, less than the estimated €7.0 billion. Finally, trading today will be slower than usual as Nemo is finally found in the shape of some 12 inches of snow blanketing the Northeast.
Yesterday we presented a simplistic analysis of why for Japan "This Time Won't Be Different", a preliminary observation so far validated by the just announced Japanese December current account deficit which was not only nearly double the expected 144.2 billion yen, printing at some 264.1 billion yen, but was only the first back-to-back monthly current account deficit since 1985. But perhaps we are wrong and this time Abe will succeed where he, and so many others, have failed before. And, as is now widely understood, perhaps Japan will succeed in finally launching the necessary and sufficient currency war that would be part and parcel of Japans great reflation, as even various G-8 members have recently acknowledged. The question is will it, and when? One attempt at an answer comes from the fine folks at Bienville Capital who have compiled the definitive pros and cons presentation on what Japan must do, and how it will play out, at least if all goes according to plan.
As expected by most, the ECB just announced its three key interest rates unchanged, meaning the surge in the trade- weighted EUR will continue to weigh on European exports.
- Bersani's lead over Berlusconi continues to erode, now just 3.6 Pts, or inside error margin, in Tecne Poll
- Spain gears up for U.S. debt investor meetings (Reuters)
- PBOC Set for Record Weekly Liquidity Injection (WSJ)
- RBS Trader Helped UBS’s Hayes With Libor Bribes, Regulators Say (BBG)
- ECB, Ireland reach bank debt deal (Reuters)
- AMR-US Airways Near Merger Agreement (WSJ)
- Monte Paschi says no more derivatives losses (Reuters) ... remember this
- Harvard’s Gopinath Helps France Beat Euro Straitjacket (BBG) - by sliding into recession?
- Obama Relents on Secret Drone Memo (WSJ)
- Brennan to face questions on interrogations, drones and leaks (Reuters)
- Wall Street Success With Germans Boomerangs (BBG)
- Khamenei rebuffs U.S. offer of direct talks (Reuters)
- Boeing Preps Redesign to Get 787 Flying (WSJ)
It has been another quiet overnight session, with macro data decidedly mixed and "adjusted", because while the key German December Industrial Production number came in sequentially at 0.3% on expectations of a 0.2% rise, it fell more than expected on an unadjusted Y/Y basis, dropping 1.1%, on expectations of just a 0.5% drop. On the other hand, Spain's industrial output not unexpectedly stagnated for a 16th consecutive month, plunging by 6.9% in December in line with expectations, and sliding by a whopping 8.5% Y/Y. In bond auction news, Spain sold some €4.61 billion in 2015, 2018 and 2029 bonds, all pricing with yields substantially higher than recent January auctions, which in turn sent the Spanish 10 Year to 2 month highs of 5.52% after the auction, however it has since regained most of the losses.