Toyota

Call it the gift that keeps on giving (if one is a corporation that is): the US Tax system, so effective at extracting income tax from America's working class, is just as "effective" at redistributing said income tax at the corporate level. Case in point: News Corp, which after generating $10.4 billion in profits over the past 4 years, and which would have been expected to pay the IRS $3.6 billion at the statutory corporate tax rate, instead received $4.6 billion back from Uncle Sam. Bottom line: Murdoch's corporation had a cash paid tax rate of -46% between 2007 and 2010. The culrpit: two little somethings called Deferred Tax Assets and Net Operating Loss Carry-forwards.

So much for the Japanese renaissance which somehow is supposed to lead to a surge in Q3 US GDP growth. Following yesterday's surprisingly strong factory production growth rate of +5.7% (the second highest in history), every economist (and Joe LaVorgna), was already shifting their strawman from declining energy costs (which are now back to early June levels courtesy of the IEA idiocy), to Japan as the last bastion of growth. Alas, the just released Tankan quarterly index of large manufacturer confidence has confirmed that the rumors of Japan's economic reincarnation have been greatly exaggerated after it dropped by the most since the Lehman collapse, plunging from +6 in March to -9, well below the economist (and Joe LaVorgna) consensus of -7. From Bloomberg: "Forecasts by Panasonic Corp. (6752) and Hitachi Ltd. for weaker earnings have added to signs of depressed demand. Monetary tightening by Asian economies grappling with inflation means that Japanese companies also can’t count on customers within the region for boosting sales. “The global economy is starting to slow, heightening uncertainties about its future direction,” Ryutaro Kono, chief economist at BNP Paribas in Tokyo, said before the report. “The downside risks to China and other emerging economies seem to be on the rise." In other words, the global economic growth is impacting Japan, and it is not the Japanese slowdown that is impairing some mythical global growth story. Of course, by the time the economist (and Joe LaVorgna) pool figures this out, QE 3 will be well on its way.

• Bernanke Public Approval Falls to Lowest (Bloomberg)
• On Governments as Portfolio Managers (El-Erian) - good read on the distinction between good and bad inflation
• Of Wealth and Incomes: Why Americans are so unhappy with this economic recovery (WSJ Editorial)
• Wen Says China Succeeding in Inflation Battle with Price Gains Set to Slow (Bloomberg)
• EU Halts New Greek Backtrack (WSJ)
• Greek Austerity Measures Still Unclear (Market News)
• Greek Default Insurance Costs Drop (WSJ).... yes, sub 1 point profit taking in 20 pts up CDS is now headline worthy
• Feds to Launch Probe of Google (WSJ)
• Italy’s Draghi Appointed to Succeed Trichet as ECB President (Bloomberg)

On a very slow trading day, some big picture observations from Russ Certo of Gleacher: "Good afternoon. The S&P 500 slid for a sixth straight week, its longest swoon since July 2008. The Dow closed below 12,000 for the first time since March, and 6.7% off the highs and has been bantering around all day today. Declining stocks outpaced advancing ones by 4-to-1 ratio on Friday. Stock, money market and muni funds had a weekly net outflows averaging $4.2 billion, $1.1 billion and 141 million respectively, in the latest four weeks. Investment grade corporate issuance fell to its slowest pace of the year last week spooked by a host of global, sovereign and geopolitical items. Just $6.3 billion in new investment grade bonds were sold last week in this climate. The “Sell in May and walk away” mantra is on trader’s minds as last year the Dow receded nearly 14% from late April through early July. Remember the calls to attention to the Hindenburg formations which cast a cloud over markets before they climbed a wall of worry since?"

• US banks to cut Treasuries use (FT)
• Obama Seeks to Win Back Wall Street Cash (NYT)
• Banks battle over US tax law (FT)
• In Greece, Some See a New Lehman (NYT)
• Treasury Strips Emerging as Wall Street Favorite as U.S. Recovery Falters (Bloomberg)
• Lagarde strengthens IMF bid with Indonesia backing (Reuters)
• Why Not Go For 5% Growth? (John Taylor)
• ‘Perfect Storm’ May Threaten Global Economy: Roubini (Bloomberg)
• Powerful quakes rattle New Zealand city, six injured (Reuters)
• Syrian forces take border town as inhabitants flee (Reuters)
• Flawed Titan of the Fed (Newsweek)

The down leg of the “V” is well underway. When does the up leg begin, and when should we start positioning for it? Toyota’s Motor’s stunning year on year decline in domestic sales of -69%. Quantitative easing nearly triple the Federal Reserve’s own recent QE2 efforts on a per capita basis. GDP growth as high as 3% in 2012, taking it to the top of the pack of developed nations. (EW), (FXY), (YCS), (TM), (NSANY), (FANUY), (CAJ), (KMTUY).

Big shots with big money can do as they wish. They can do it tax free. Only in America.

• Germany Digs In On Greek Debt Restructuring (Bloomberg)
• Libya emerges as Opec's big winner (FT)
• Athens approves four-year austerity package (FT)
• Germany sticks to demand for Greek bond swap (Reuters)
• Fed said to consider expansion of capital reviews (Bloomberg)
• Ally Financial delaying IPO (Reuters)
• Tokyo Riot Squad to Safeguard Tepco Meeting (Bloomberg)
• Christine Lagarde's victory a "done deal" says IMF rival (Telegraph)
• Jamie Dimon's faulty capital requirement math (Simon Johnson)

There is so much ideological, quasi-religious fanaticism around "free trade" (there is no such thing as "free trade," there are only various permutations of managed trade) and "industrial policy" (every nation has one, explicit or implicit) that it is difficult to make any sense of the many intertwined issues. Ideological purity is not a substitute for knowledge, any more than a superficial admiration of machines equals actually knowing how to assemble, maintain and repair them. As a background context, we might start by noting that Marx outlined how finance capital comes to dominate industrial capital, as industry comes to depend on the credit extended by the banks/finance capital. The key takeaway: if you don't control the banks, then they will end up dominating industrial capital. In the U.S., we have the worst of both worlds: a dominant financial Elite and various cartels (military-industrial, sickcare, agribusiness, etc.) that have captured what little of the Central State that isn't already beholden to financial capital.

Concurrent with last night's Moody's reminder that it is about to downgrade the Japanese economy, which we have long been claiming is the marginal global economic wildcard, we get an exportindustry update from the Japan Automobile Manufacturers Association. In short: April car exports were an unprecedented disaster, with the average exporter seeing a 68% drop Y/Y, with some, such as Toyota plunging from 150,118 to only 31,025 cars in April 2011. And while this would be the ideal environment for US carmakers to grab market share, the fact that many are missing critial Made in Japan components in their supply chain means that there is a broad based supply drop. Which is why tomorrow's update of GM's recent channel stuffing practice will be observed with such interest: if the firm reports yet another increase in the cars parked with dealers, then something in the US carmaking space is seriously wrong two months after this Japanese car export free fall.

Confirming once again that Wall Street economist (and sell side in general) is the most useless profession in the world (though gladly accepting a 7 figures compensation), is the latest data out of Japan which is yet another stunner to most, as nobody, nobody, could have possible predicted that the Japanese economy would literally fall off a cliff in Q1, plunging at a 3.7% rate (down from -3% previously), which is double the consensus print of -1.9%. DOUBLE. And in nominal terms the collapse was simply epic: -5.2%! And yes, this is officially a recession. Of course, anyone reading Zero Hedge would have been perfectly aware of this outcome. 4 short days ago we said: "Increasingly we have come to believe that the real marginal economy over
the next several quarters will be neither that of the contracting US,
nor that of the rapidly tightening, yet still very much inflationary
China, but the (arguably) third largest one: that of Japan." Today our prediction is more than confirmed. And instead of hiding deep in the whatever holes these morlocks cralwed out of, Bloomberg for some inexplicable reason continues to look to their blatantly horrendous opinion. “The negative economic impact from the disaster will be on full display during the second quarter,” Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo, said before the report. “This recession may be deep, but short.” Yeah, sure. Short. We'll just hold our breath. And for it to be short, it means that the BOJ will be forced to print a few hundred trillion in Yen asap (just as we predicted here and here) right? Which in turn means that the USDJPY will surge and shift the Japanese recession even faster over to the US. And yes it means that the turbo print button among the central banks will get the F5 treatment as the second round of currency devaluation completes a lap.

Inflation is “the most pressing problem” facing China, Vice Premier Wang Qishan said at the Washington talks. Hey - they should all move over here - our Fed Chairman says we don't have any inflation at all!

rare - (of a thing) Not found in large numbers and consequently of interest or value.

There is a reason Zero Hedge has been on GM's derriere over the past year in disclosing the firm's not so covert channel stuffing mandate. Just released is the validation:

• GM MAY REDUCE PICKUP PRODUCTION, REUSS SAYS
  
• GM TRUCK INVENTORIES ROSE TO MORE THAN 275,000 AT END OF APRIL

Translation: more furloughs, less tax receipts by Tim Jeethner.

Earlier today, GM posted better than expected April car sales, with total US sales up 26.4% on expectations of 14%. How much of this is due to a Toyota impairment is unclear. What is clear is that channel stuffing at Government Motors, whose Chinese sales are far more important than US sales these days, just hit a new all time record of 577,000, higher than the previous record of 574,000 from March, and 149,000 higher compared to a year ago. The good thing is that GM will never be able to complain about lack of inventory: it now has two and a half months worth of sales equivalent parked on warehouse financed dealer storefronts, in the form of rapidly depreciating autos.