Nomura

Ask a typical American how the United States got into World War II, and he will almost certainly tell you that the Japanese attacked Pearl Harbor and the Americans fought back. Ask him why the Japanese attacked Pearl Harbor, and he will probably need some time to gather his thoughts. Ask him what the United States did to provoke the Japanese, and he will probably say that the Americans did nothing: we were just minding our own business when the crazy Japanese, completely without justification, mounted a sneak attack on us, catching us totally by surprise in Hawaii on December 7, 1941. Unfortunately, this orthodox view is a tissue of misconceptions.

The Greece impasse set to culminate on Sunday continues to have a massive impact on at least one stock market, unfortunately it is the wrong one, located on a continent which is mostly irrelevant to the future of the Greek people (unless that whole AIIB bailout does take place of course). We are, of course, talking about China which as noted earlier, started off horribly, plunging over 7% with over 1000 stocks hitting 10% limit down, then in the afternoon session mysteriously recovering all losses and even trading slightly higher on the day, before the late selling returned once more, and the Shanghai Composite plunged to close down 5.8%: an unimaginable 20% total roundtrip move!

Because the central government is ultimately responsible for guaranteeing local government debt, and because yields on the new muni bonds are so close to those on treasurys, the newly issued local government bonds are really just treasury bonds, meaning that, in essence, the supply of Chinese government bonds is set to jump by CNY2 trillion in the coming months. If all of the local government debt ends up being refinanced, the end result will be the equivalent on CNY20 trillion in additional treasury supply.

"The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability."

Will global QE carry on forever...the next month may give out some clues..will it be Junemaggedon after we had May-hem??

• Bonds Extend Global Rout as Europe Stocks Slide, Dollar Weakens (BBG)
• Verizon Communications to Buy AOL for $4.4 Billion (BBG)
• Fresh Nepal earthquake kills dozens, triggers panic (Reuters)
• Sen. Shelby to Unveil Legislation Heightening Fed Scrutiny (WSJ)
• Bill Gross: The Amount of Money I'll Give Away 'Is Staggering, Even to Me' (BBG)
• U.S. rejects notion that Gulf rulers snubbing Obama summit (Reuters)... what about AIIB?
• In Asia, Debt Market Gets Tougher (WSJ)
• Iran’s Mahan airline defies sanctions in shadowy aircraft deal (FT)

QUESTIONER: Just a few questions about other countries. A quick clarification on SDR, in January the managing director mentioned there would be an informal board briefing in May. Is that still happening, or has it been pushed back?

MR. RICE: .... the board meeting has been deferred because the work is underway and we'll let you know as soon as that board meeting is scheduled again....

An inauspicious start to China's local government debt swap initiative has the PBoC scrambling to determine the best way to facilitate the successful issuance of new municipal securities as several provinces have reportedly canceled or delayed offerings. Now, the question is whether Chinese LTROs will be enough, or whether outright QE will ultimately be the only option.

While the reality is that nobody has a clue what China's actual gold holdings are, the good news is that the answer is coming. As noted above, Chinese Premier Li Keqiang has asked the head of the International Monetary Fund to include China's yuan currency in its special drawing rights (SDR) basket.  If indeed China is serious about CNY inclusion in the SDR, it will finally have to reveal its cards, which would mean it finally will provide an update, with a 6 year delay, of just what its latest gold holdings are. As such, don't be surprised to wake up one morning to headlines blasting that Chinese gold holdings have gone up by 2x, 3x, 5x or (more x) since 2009, a long-overdue update which will catalyze the next major leg higher in the precious metal. 

• As reported here first a month ago: The $9 Trillion Short That May Send the Dollar Even Higher (BBG)
• As an instant target for foes, Clinton may struggle to get message heard (Reuters)
• Emerging Stocks Rally 11th Day as Aussie Weakens on China (BBG)
• Puerto Rico, Investors Enlist Ex-IMF Officials (WSJ)
• Dollar’s Rise Reshuffles Global Economy (BBG)
• Indonesia eyes regular navy exercises with U.S. in South China Sea (Reuters)
• Banca Monte dei Paschi Breaches Exposure Limits to Nomura (WSJ)
• European Bond Buyers Find Negative Doesn’t Necessarily Mean Bad (BBG)

• Nikkei tops 20,000, Europe hits 15-year high (Reuters)
• GE to sell real estate holdings, sets $50 billion share buyback (Reuters)
• Iran’s Middle Class Plans for Life After a Deal (BBG)
• Walgreens to Close 200 Stores as It Expands Cost Cuts (WSJ)
• Hillary Clinton expected to announce presidential run as soon as this weekend (Reuters)
• It will cost $1.5 billion to keep Deutsche Bank Libor Manipulators out of prison  (USA Today)
• Police Cameras Bring Problems of Their Own (WSJ)
• Obama says concerned China bullying others in South China Sea (Reuters)
• Investors Revive Appetite for Asian Junk Bonds (WSJ)

"It’s like walking in a mine field. Many risks lie ahead of you. Even if you are in the middle class, if something unexpected happens, you could slip into poverty."

• Oil holds around $55 as Iran nuclear talks drag on (Reuters)
• Bob Diamond’s African Banking Venture Runs Into Problems (WSJ)
• Iran Nuclear Talks Resume With Lavrov Saying Deal at Hand (BBG)
• Wal-Mart Ratchets Up Pressure on Suppliers to Cut Prices (WSJ)
• Renegades of Junk: The Rise and Fall of the Drexel Empire (BBG)
• Explosion at Yemen factory kills at least 25: residents, medics (Reuters)
• Macerich Rejects Simon Property’s $16.8 Billion Takeover Bid (WSJ)
• Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (BBG)

There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy. The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.

Mario Draghi is forced to buy "small" amounts of EGBs on first day of QE, casting further doubt on the viability of PSPP. If the ECB is unable to meet its monthly asset purchase targets expect chaos, as the market has spent the last several months front running the program and would be absolutely horrified if DOMO has to be downsized.