Nomura

The main story overnight is without doubt the dramatic plunge in the Yen, which following the breach and trigger of USDJPY 100 stops has been a straight diagonal line to the upper right (or lower for the Yen across all currency crosses) and at last check was approaching 101.50, in turn sending the USD higher in virtually all jurisdictions. However it is not so much the Yen weakness that was surprising - a nation hell bent on doubling its monetary base in two years will do that - but the accelerating response in neighboring countries all of which are seeing Japan as the biggest economic threat suddenly and all are scrambling to respond. Sure enough, midway through the evening session, Sri Lanka cut its reverse repo and repurchase rate to 9% and 7% respectively, promptly followed by Vietnam cutting its own refinancing rate from 8% to 7%, then moving to Thailand where the finance chief Kittiratt called for a rate cut exceeding 25 bps, and more jawboning from South Korea suggesting even more rate cuts from the export-driven country are set to come as it loses trade competitiveness to Japan. Asian financial crisis 2.0 any minute now?

• Gold Bears Defy Rally as Goldman Closes Short Wager (BBG)
• Still stuck on central-bank life support (Reuters)
• Ebbing Inflation Means More Easy Money (BBG)
• So much for socialist wealth redistribution then? François Hollande to woo French business with tax cut (FT)
• Billionaires Flee Havens as Trillions Pursued Offshore (BBG)
• Companies Feel Pinch on Sales in Europe (WSJ)
• Brussels plan will ‘kill off’ money funds (FT)
• Danes as Most-Indebted in World Resist Credit (BBG)
• Syria says prime minister survives Damascus bomb attack (Reuters)
• Syria: Al-Qaeda's battle for control of Assad's chemical weapons plant (Telegraph)
• Nokia Betting on $20 Handset as It Loses Ground on IPhone (BBG)
• Rapid rise of chat apps slims texting cash cow for mobile groups (FT)
• Calgary bitcoin exchange fighting bank backlash in Canada (Calgary Herald)

Those who think back to November 2011 will recall that it wasn't Jon Corzine's wrong way bet on Italian bonds that ultimately led to the bankruptcy of MF Global, well it did in part, but the real Chapter 11 cause was the sudden liquidity shortage due to the way the trades were structured as a Repo To Maturity, where the bank had hoped to collect the carry from the bond coupons, thereby offsetting the nominal repo cost of funding. The kind of deal which is the very definition of collecting pennies in front of a steamroller, as while the funding cost may be tiny and the capital allocated negligible (due to the nearly infinite implied leverage involved when using repo), when the underlying instrument crashes, and the originating counterparty has to fund a massive variation margin shortfall, that is when the shadow transformation cascade triggers an immediate liquidity crisis, which can result in liquidation cascade in a few brief hours. It happened with MF Global, it happened with Lehman too. And, we now learn, it also happened with Italy's most troubled and oldest bank, Monte Paschi (BMPS), whose endless bailouts, political intrigue, depoit runs, and cooked books have all been covered extensively here previously.

The existing (and ongoing) massive expansion of base money into the banking systems of the US, England, and Japan is without precedent. As Nomura's Richard Koo notes, at 16x statutory reserves, the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan. However, it has not, yet. In short, Koo explains, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. There is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact - and Japanese media is on an 'inflation' full-court press currently. The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to 'normal'. If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control.

Following yesterday's most recent Europe-led rout, the market is attempting a modest rebound, driven by the usual carry funding currency pair (EURUSD and USDJPY) levitation, although so far succeeding only modestly with not nearly enough overnight ramp to offset the bulk of yesterday's losses. In a centrally-planned, currency war-waging world, it is sad that only two key FX pairs matter in setting risk levels. But it is beyond hypocritical and highly ironic that according to a draft, the G-20 will affirm a commitment to "avoid weakening their currencies to gain an advantage for their exports." So the G-20 issues a statement saying nobody is doing it, when everyone is, thus making it ok to cheapen your exports into "competitiveness"? In other words, if everyone lies, nobody lies. Of course, also when everyone eases, nobody eases, and the world is back to square one. But that will only become clear eventually.

• Boston bomb probe looking at pressure cooker, backpacks (Reuters), Boston Bomb Clues Surface (WSJ) Forensic Investigators Discover Clues to Boston Bombing (BBG)
• China local authority debt ‘out of control’ (FT)
• Gold Wipes $560 Billion From Central Banks as Equities Rally (BBG)... or the same impact a 2% rise in rates would have on the Fed's balance sheet
• More Wall Street leakage: Stock Surge Linked to Lobbyist (WSJ)
• China's bird flu death toll rises to 16, government warns of spread (Reuters)
• Chinese official endorses monetary easing (FT)
• As global price slumps, "Abenomics" risks drive Japan gold bugs (Reuters)
• North Korea rejects US call for talks (FT)
• IMF Renews Push Against Austerity (WSJ)
• India Gains as Gold Plunge Boosts Scope for Rate Cuts (BBG)
• Germany set to approve Cyprus aid (FT)
• Easing Is an Issue as G-20 Meets (WSJ)

• Investigators hunt for clues in marathon bombing (Reuters)
• Investigators scour video, photos for Boston Marathon bomb clues (Reuters)
• 'Act of Terror' Kills at Least Three, Injures About 140 as Bombs Wreak Carnage on Marathon Crowd (WSJ)
• Brent Crude Below $100 (WSJ)
• Slower China Growth Signals Days of Miracles Are Waning (WSJ)
• Central Banks at Ease Limit Risk Political Backlash (BBG)
• Merkel plans to quit midterm, says author (FT)
• Monte Paschi Prosecutors Seize $2.3 Billion of Nomura Assets (Businessweek)
• Treasuries back on investors’ buy lists (FT)
• J.C. Penney Said to Seek Ways to Separate Real Estate for Cash (BBG)
• Climate scientists struggle to explain warming slowdown (Reuters)
• Putin Calls for Stimulus Plan After Recession Alarm (BBG)
• TIPS in Longest Selloff Since ’08 as U.S. Bancorp Cuts (BBG)

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.

We will release the full list of named recipients once we get it, but here is what we now for now, via BBG and CNN:

• EMPLOYEES AT GOLDMAN SACHS, BARCLAYS, JP MORGAN, CITI, NOMURA, UBS, HSBC RECEIVED FED MINUTES EARLY YESTERDAY
• MOST OF THE BANK EMPLOYEES APPEAR TO WORK IN GOVERNMENTAL RELATIONS (Lobbies)
• ABA, SIFMA, SENATE STAFFERS RECEIVED FED MINUTES EARLY
• FED NAMES 154 RECIPIENTS OF EARLY RELEASE OF FOMC MINUTES
• FED MINUTES SENT EARLY TO BANKS, LAW FIRMS, PRIVATE EQUITY
• FED EARLIER SAID RELEASE WENT MAINLY TO CONGRESS, TRADE GROUPS
• NONE OF THE PEOPLE ON THE LIST ALERTED THE FED THAT THEY RECEIVED NONPUBLIC INFO A DAY EARLY

In other words: absolutely everyone who trades risk assets for a living.

For those claiming there is something called a "recovery" underway, perhaps they can point out just where on this chart of Real Disposable Income per capita one can find said recovery. Because we are confused: with the average Real Disposable Income of $32,663 per person, or lower than where it was in December 2006 ($32,729), one may be excused for scratching their head.

While everyone likes to hate on Cyprus, it is Italy that is the focal point of today's European "omnishambles" that has seen the EURUSD tumble to a five month low as of this writing. First it was economic data that scared investors, with Industrial Sales and Orders tumbling far below expected, posting numbers of -1.3% and -1.4%, respectively, on expectations of an increase. Retail sales were just as ugly, declining by -0.5% in January, on expectations of an unchanged print, with the December 0.2% number revised also into negative territory. Then Bersani, who has been tasked to form a government until tomorrow, said that the possibility of a broad coalition government does not exist, adding that no lasting government is possible without him as a premier, and requesting that Grillo's Five Star party not block his path to government, for which we wish him the best of luck as moments later Five Star ruled out all external support for a broad government and would vote no confidence for Bersani. Then we got news that the Italian financial police has searched the Nomura in Milan in connection with the Monte Paschi case, which means even more skeletons in the closet are about to be uncovered. Finally, Italy just held a 3.5% 5 and 4.5% 10 year bond auction in which the country raised less than the maximum targeted €7 billion, and in which the Bid to Cover on the 5 Year dumping to the lowest since 2002, with bidding quite soft and the yield rising to 3.65% versus 3.59% previously. This has resulted in a blow out in Italian yields by 16 bps to 4.73% compared to 4.705% earlier. End result, as noted yesterday, has been an acceleration in the rush out of the EUR, with the EURUSD sliding to under 1.28 for the first time since November 21, a blow out in Greek bonds with yields pushing up 55 bps to 12.68% and a push for real safety (sorry, not the DJIA) in the form of German 2 Year bonds, which have dipped to -0.018%, the lowest since December, on rising fears that despite endless lies out of its bureaucrats, Europe may not be fixed after all.

Following Nomura's Bob Janjuah's 'wine into water... are we there yet?' note in February, the market has followed his script almost perfectly with a continued push to new highs and a small sell-off that was bought excitedly. While he remains convinced that "in terms of positioning and sentiment, we are 'not there yet'," for his 50% S&P 500 plunge; he does believe Q2 will see a 5-10% dip to 1450 as the shambolic policy responses to Cyprus and the 'cat' that #DieselBoom 'let out the bag' add to increasingly weak global growth data. While this dip will also likely be bought, the bearded bear expects the market's comeuppance to arrive late 2013.

With news this evening that the Cypriot banks will not now be re-opening tomorrow (as perhaps - as we noted earlier - a little more of those precious deposits leaked away during the closures than expected):

 CYPRUS BANKS TO REMAIN CLOSED THROUGH MARCH 27: CENTRAL BANK

We thought it useful to consider Cyprus in relation to the longest bank closures in history. Cyprus has now shutdown its banking system longer than Argentina, Ecuador, and Uruguay and as far as President Anastasiades comments that capital controls are temporary - we can only hope for the depositors sake - that it's not as temporary as Argentina's 120 month 'restrictions' starting in 2001.

U.S. Department of Justice, Airgas, Alternative Investment Group, American Century, America’s Health Insurance Plans, ApexBrasil, Association for Corporate Growth, Bank of America, Bank of New York Mellon, Barclays Services Corporation, BNP Paribas, Capital Research, Citigroup, Deutsche Bank, Fidelity, Franklin Resources, Freddie Mac, Goldman Sachs, Intel, JP Morgan Chase, Microsoft, National Rural Utilities Cooperative Finance Corporation, NMS Group, Oracle, Pension Real Estate Association, Real Estate Roundtable, Reynolds American, Royal Bank of Scotland, Visa, Wells Fargo, Nomura Holdings America, Laurus Funds, Ripplewood Holdings

First it was Walmart letting the truth finally slip last Friday when a leaked memo showed recent sales are a "total disaster." Today, as anyone who has looked at AAPL premarket quotes will surmise, it's Apple's turn, following a report in the FT that FoxConn, the world's largest contract electronics manufacturer, "has imposed a recruitment freeze across almost all of its factories in China 5th as it slows production of Apple's iPhone." It is not an internal memo, but in this particular case actions speak even louder than leaked words: 'The suspension in hiring by China's largest private sector employer, and the biggest assembler of Apple products, is the first search countrywide move since the 2009 downturn, prompted by the financial crisis. It underscores the weakening demand for some Apple products, Which has put pressure on the American company's battered share price. "Currently, none of the plants in mainland China have hiring plans," said Liu Kun, a company spokesman at Foxconn's largest manufacturing facility in the southern Chinese city of Shenzhen." So first Walmart, the world's largest private sector employer with over 2 million workers, and now FoxConn, the world's largest tech-focused employer with 1.2 million workers, is also realizing what a cashless, consumerless "recovery" means, regardless whether it is due to Apple or not. And the markets still continues to wave it off as one off events.