As Putin warned earlier in the week, they do not see the effectiveness of sanctions; but it seems he had something else in mind. By rolling back informal limits on Chinese investment, Putin has opened the door for significant capital inflows from his new best friend... and China has already agree to increase investment. While Putin is careful to note that the Chinese will not be allowed to invest in gold or diamond mining, or hi-tech projects, Russia hopes to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources. Chinese President Xi Jinping and Russian President Vladimir Putin will meet in Shanghai May 20/21 and Chinese officials have already confirmed bilateral cooperation in the areas of investment and finance has made major progress as local currency settlement in two-way trade increases. Forget sanctions, just remove the US from the world trade equation...
As another week passes by the markets have made no real movement in months. News flow, outside of Yellen's testimony, was also rather slow as first quarter's earnings season begins to come to a close. However, there were a few articles that we read this week that we thought you might find interesting as well... from the dangers of hidden leverage (in the re-burgeoning CDO markets) to the history if bubbles (and their lack of logic) and the demise of the US small business.
By far the scariest harbinger revealed by today's JOLTS data is seen when one looks at the openings only for manufacturing jobs, which have now declined for 4 consecutive months: the longest negative stretch in the so-called recovery. The chart clearly shows that the last time we had an identical lack of improvement in manufacturing jobs, the US economy entered a recession, or as we like to call it, a depression, just that month!
In what should be the biggest joke of the day, Bank of America has just released its GDP forecast not for the next several quarter, but making a mockery of the IMF's 2022 Greek GDP forecast, it predicts US growth for the next decade! The punchline: after expecting a surge in growth to 3.4% in 2016, the bailed out bank tapers off its forecast which evens off at 2.2%... some time in 2025. And throughout this period its crack economist team headed by Ethan Harris anticipates precisely.... zero recessions. Indeed, in what will be a first time in history, the US is expected to grow for 16 consecutive years since its last official, NBER-defined recession (which "ended" in the summer of 2009) without entering a recession.
The US approach to the Russia/Ukraine situation reflects a serious misunderstanding of the situation. Russia has little choice but to try to raise the price of products it is selling, any way it can. It needs to cut out those who cannot afford its products, including the Ukraine. If Europe increasingly cannot afford its products, Russia needs to find customers who can afford them. There is little chance that the United States is going to be able to help Europe with its natural gas needs in any reasonable timeframe. Our best chance at keeping the global economy “working” for a little longer is to try to keep globalization working as best we can. This will likely require “making nice” to countries we are unhappy with, and putting up with what looks like aggression. Policymakers like to think that the US has more power than it really does, and like to encourage stories suggesting great power in the press. Unfortunately, these stories are not true; we need policymakers who understand our real situation
...What’s left for the Empire of Chaos is to pray for chaos to keep spreading across Ukraine, thus sapping Moscow’s energy. And all this because the Washington establishment is absolutely terrified of an emerging power in Eurasia. Not one, but two – Russia and China. Worse: strategically aligned. Worse still: bent on integrating Asia and Europe. So feel free to picture a bunch of Washington angry old men hissing like juvenile delinquents: “I don’t like you. I don’t want to talk to you. I want you to die.”
Mario Draghi has gone and done it: "Now that the June meeting is explicitly going to be crucial, not doing anything next month would in our view completely shatter the ECB’s credibility, and trigger a further appreciation in the euro exchange rate" - Deutsche Bank
- China’s Trade Unexpectedly Rises (BBG)
- 'We're already not in Ukraine' - rebel east readies secession vote (Reuters)
- Pro-Russian Separatists in Ukraine Reject Putin's Call to Delay Vote (WSJ)
- Vietnam’s Stocks Post Biggest Loss in Decade on China Tensions (BBG)
- Hedge Funds Extend Their Slide (WSJ)
- Carney Looks to Untested Tools as House Prices Boom (BBG)
- New Draghi Era Seen on Hold at ECB as Euro Area Recovers (BBG)
- Woman With Printer Shows the Digital Ease of Bogus Cash (BBG)
- Regulators See Growing Financial Risks Outside Traditional Banks (WSJ)
Our condolences to students in Arizona, who have seen a near doubling of their college tuition in just 5 short years. In fact our condolences to students in the six states where tuition have risen by more than 60%, in the ten states where it has increased by more than 40%, and in the 29, or more than half of all states, where college tuitions have risen by more than 10 times the Fed's inflation target of 2% per year.
Judging by the narrative promoted after last Friday's idiotically connived jobs report, any job is a good job... however, as The Guardian reports, that does not include a job working for Amazon.com. Quarter after quarter, we highlight the growth in Amazon employees (and death-cross-like plunge in annual sales growth). While Amazon makes no secret of the fact that it relies on seasonal work force, what went unsaid and unnoticed during President Obama's visit last year, was that the Amazon 'employees' would not have jobs or prospects after the holidays. Many of the people in those Amazon warehouses were among the long-term unemployed – shuffling from one temporary job to another to another; and due to this unstable employment, a growing number of them have found themselves living in shelters... 'employed' but homeless (or "the working poor" in America).
With the world (or mostly the Japanese) front-running Draghi's ever-increasing threat of QE in Europe, Spanish and Italian government bond yields have reached levels commensurate with insanity compared to their risk (event and macro). Lower rates are great news right? They encourage growth... as the cost of borrowing drops across the nation's capital assets and the phoenix rises from the flames. Well - as the following 2 charts show - no! The lower rates are not 'trickling down' to real loans and loan creation continues to contract. So, aside from direct lending to SMEs, what exactly will Draghi's direct monetization of peripheral European bonds do aside from provide the leveraged speculators with their willing buyer to take profits (just as it did the last time he decided the time was right to buy bonds).
I do have a heightened sense of alertness to what may be in store should the hubris of the current market run fail to permeate into forecasts and expectation announcements over the coming months.
Economist John Maynard Keynes described the effects of inflation citing Vladimir Ilyich Lenin this way: “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” This is why governments love inflation so much and hate gold.
6 Years After the Financial Crisis Hit, The Big Banks Are Still Committing Massive Crimes
One Wall Street strategist who appears to have thrown in the towel on the entire rising wages debate is none other than BofA's chief economist, Ethan Harris, who in a note released on Friday fires the proverbial shot across the David Rosenberg bow regarding rising wage pressures: "Don't hold your breath."