recovery

And The Person Responsible For Japan's Economic Endgame Is... Paul Krugman

There are two words that should strike fear in the hearts of any rational-thinking citizen of the world - Paul Krugman. Wondering why? As Alhambra's Jeff Snider notes, we already know of at least one respect where Krugman (as a stand-in at least for the Keynesian perspective that is somehow still widely shared, especially in the orthodox economist class) has impacted 'stimulus' activity, Sweden. And now his appearance in Japan enabled what Japanese economists call a "historic meeting," as Bloomberg reports that Abe met with the Nobel-prize winner for 40 minutes who "helped the prime minister make up his mind," that delaying the fiscally-responsible tax-hikes was the right thing to do (and increasing QQE) or Japan "wouldn’t escape deflation." Mission Accomplished... and if it fails, moar will be needed and 'capitalism' will be blamed.

Bullard Does It Again, Says Market "Misread" His QE4 Comment

Here we go again. By now everyone, including 2 year old E-trade babies and Atari algos know, that the only reason the market soared from the October 15 bottom, a move which we showed was entirely due to multiple expansion and thus nothing to do with earnings and everything to do with faith in even more free central-planning liquidity (something the PBOC was all too happy to provide overnight), was James Bullard's casual "QE4" hint on Bloomberg TV. And now that the market is at ridiculous all time highs and trading above 19x GAAP PE, far above the level when in September the IMF, the G-20, the BIS and even the Fed all warned of assets bubbles, here is Bullard once again, with a fresh mea culpa and a new attempt to jawbone stocks, only this time back down, because as Dow Jones reports, "Bullard Says Markets Misread Him In October Bond-Buying Dustup."

Frontrunning: November 21

  • They go all in: China’s PBOC Cuts Interest Rates for First Time Since 2012 (BBG)
  • And all in-er: ECB's Draghi throws door to quantitative easing wide open as recovery wanes (Reuters)
  • Global Markets Rally: ECB Head Says Central Bank Is Ready to Expand Stimulus Program After China Cuts Rates (WSJ)
  • Obama unveils U.S. immigration reform, setting up fight with Republicans (Reuters)
  • U.S. increasing non-lethal military aid to Ukraine (Reuters)
  • Russia warns U.S. against arms to Ukraine as Biden due in Kiev (Reuters)
  • Ukraine slashed gold holdings in October, Russia added more - IMF (Reuters)
  • Abe Dissolves Japan’s Lower House of Parliament (WSJ)

In Addition To China, Here Is What Other Central-Banks Moved Overnight Markets

While the biggest news of the day will certainly be China's rate cut (and the Dutch secret gold repatriation but more on the shortly), here is a list of all the other central-banking/planning events which have moved markets overnight, because in the new normal it no longer is about any news or fundamentals, it is all about the destruction of the value of money and the matched increase in nominal asset values.

As The "Sanctions War" Heats Up, Will Putin Play His 'Gold Card'?

The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out. History suggests that financial assets are highly unlikely to preserve investors’ real purchasing power in this inhospitable international environment, due in part to the associated currency crises, which will catalyse at least a partial international remonetisation of gold. Vladimir Putin, under pressure from economic sanctions, may calculate that now is the time to play his ‘gold card’.

US Manufacturing PMI Misses By Most On Record, Lowest Since January

Recovery, we have a problem... November's Flash US Manufacturing PMI printed a 10-month lows 54.7, missing expectation sof 56.3 by the most on record and tumbling for the third month in a row. The last 2 mnths have seen the biggest drop since June 2013 ands as Markit notes, suggests a further drop in GDP growth expectations of only 2.5% in Q4. Output is down for the 3rd straight month and Surprise!! Export market weakness is being blamed... as it seems the US cannot decouple from the rest of the world's slump after all and is - as we have explained numerous times - merely on a lagged cycle. We're gonna need more Fed-fueled subprime-auto-loan malarkey to keep this dream alive.

Goldman's "Top Trade Recommendations For 2015"

  • Top Trade #1: EUR/$ downside via a one-year EUR/$ put spread.
  • Top Trade #2: 10-year US Treasuries above 3% but not below 2% in mid-2015, through cap and floor spreads at zero cost.
  • Top Trade #3: Long a Dec-2015 Eurostoxx 50 ‘bull’ call spread.
  • Top Trade #4: Long US High Yield credit risk via 5-year CDX HY junior mezzanine tranches.
  • Top Trade #5: Long an equity basket of EM crude oil importers (Taiwan, Turkey and India).
  • Top Trade #6: Short CHF/SEK.
  • Top Trade #7: Bearish Copper relative to Nickel, on supply divergence.
  • Top Trade #8: Long US Dollar against a basket of ZAR and HUF.

Frontrunning: November 20

  • Banks Had Unfair Advantage From Commodity Units (Bloomberg)
  • Report Notes Deals Between Goldman, Deutsche and Others Drove Up Aluminum Prices (WSJ)
  • Goldman, Morgan Stanley Commodity Heyday Gone as Units Faulted (BBG) - because when you can no longer manipulate, you move on...
  • Lenders Shift to Help Struggling Student Borrowers (WSJ)
  • Immigrants face major hurdles in signing up to new Obama plan (Reuters)
  • Distressed Debt in China? Ain’t Seen Nothing Yet, Buyers Say (BBG)
  • Banking culture breeds dishonesty, scientific study finds (Reuters)
  • Amazon Robots Get Ready for Christmas (WSJ)

The Eurozone's QE Problem

"QE is a necessary condition for recovery in Europe, but is not sufficient in itself. The question is where does this bridge take us? The eurozone can survive a couple more years of miserable growth, but it can’t go on forever like this before people lose hope. There is political risk almost everywhere."

Japanese Trade Deficit Streak Hits Record 44 Months, Yen & Stocks Decoupling

While hopes of the J-Curve recovery in the deficit are long forgotten in the annals of Goldman Sachs history, silver-lining-seekers will proclaim the very modest beat in tonight's Japanese trade deficit a moral victory for a nation whose economic data has been nothing but abysmal for months. However, the near $1 trillion Yen deficit is the 44th month in a row as exports to US and Europe rose modestly in Yen terms but dropped to China and US in volume terms. USDJPY continues its march higher (now 118.25) but, unfoirtunately for Abe's approval ratings, Japanese stocks continue to languish an implied 1000 points behind - unable to break back above pre-GDP levels... as faith in Kuroda's omnipotence falters.

FOMC Minutes Show Deflation-Wary Fed Not Worried About Global Growth

Having done nothing but rally since the FOMC statement on 10/29 that ended QE, the minutes provide little additional info aside from to note that some participants wanted to drop "considerable time":

  • *MANY FED OFFICIALS SAW LIMITED IMPACT FROM GLOBAL SLOWDOWN
  • *FED OFFICIALS SAW NEED TO WATCH FOR INFLATION EXPECTATIONS DROP
  • *FOMC OPTED NOT TO MENTION FINANCIAL MARKET TURMOIL AFTER DEBATE

If they don't mention, it never happened

Algos - We Have A Problem

For 'years' the US stock market has traded on 'fun-durr-mentals' - tracking USDJPY tick for tick day in day out as algos tickle leveraged currency trades to ignote momentum in US equities and guarantee 'proof' in the recovery. The correlation, however, between USDJPY and stocks (US and Japanese) has begun to deteriorate rapidly since Kuroda unleased Godzilla QQE... and today it is very clear...

All Eyes On The Freefalling Yen Which Just Plunged To Fresh 7 Year Lows

Once again all eyes are on the carry-trade driving Yen, whose avalance into oblivion is picking up speed, and where the formerly unimaginable USDJPY level of 120 as presented here in September, is now looking like this week's business, with the only question how long until Albert Edwards' next target of 145 is hit leading to nuclear currency warfare between Japan, Korea, China and ultimately, the US and Europe. Unfortunately, for Japan, at this point the terminal currency collapse will do nothing to incrementally boost exports or its economy, and the former Japan finmin was on the tape warning again that the Japanese recession will persist as USDJPY over 115 is now hurting Japan, something which should by now have been clear to most.

Why, Despite Its Failure, Abenomics Is "Still Working" For These People, In Quotes

If you were forced to admit that everything you believed about markets and monetary policy was in fact completely fallacious, as this week's Japanese GDP collapse proved of Abenomics and devaluing yourself to prosperity, could you do it? Or would you stick to your blinkered views of the world... The following characters continue to have faith in the self-proclaimed ponzi scheme...