Triffin’s Dilemma is that the country that issues the world’s reserve currency will have to choose between:
1 ) running a trade deficit in perpetuity - risking of a loss of confidence in its currency and solvency while the rest of the world enjoys an adequate supply of USDs.
2) running a trade surplus and enjoying an appreciation in the value of the dollar while the rest of the world suffers from a lack of liquidity and collateral.
Either way, there are negative implications for world growth. In the first example – in which the US runs a trade deficit in perpetuity – the US continues to add to its debt and risks undermining its ability to pay off that debt. In the second example – in which the US runs a trade surplus – emerging market currencies are put under pressure by the USD potentially leading to capital outflows, a higher cost of debt, and global financial instability.
- Global makets plunge (Reuters)
- Goodbye Mrs. Watanabe - Japan Sees Worst Developed-Stock Rout as Nikkei 225 Drops (BBG)
- Who could have possibly predicted this - Firms Pinched by Pressure to Hold Down Their Prices (WSJ)
- RBA Shifts to Neutral as It Signals Comfort With Aussie’s Level (BBG)
- Fractures Emerge Between Obama, Congressional Democrats (WSJ)
- Brazil suffers record trade deficit (FT)
- El Salvador fisherman washes up in Marshall Islands after year adrift (Reuters)
- Apple Quietly Builds New Networks (WSJ)
- One-year prison sentence for 21-year-old Twitter user who glorified terrorists (El Pais)
It is still all about the Yen carry which overnight tumbled to the lowest level since November, dragging the Nikkei down by 4.8% which halted its plunge at just overf 14,000, only to stage a modest rebound and carry US equity futures with it, even if it hasn't helped the Dax much which moments ago dropped to session lows and broke its 100 DMA, where carmakers are being especially punished following a downgrade by HSBC of the entire sector. Also overnight the Hang Seng entered an official correction phase (following on from the Nikkei 225 doing the same yesterday) amid global growth concerns and has filtered through to European trade with equities mostly red across the board. Markets have shrugged off news that ECB's Draghi is seeking German support in the bond sterilization debate, something which we forecast would happen a few weeks ago when we pointed out the relentless pace of SMP sterilization failures, with analysts playing down the news as the move would only add a nominal amount of almost EUR 180bln to the Euro-Area financial system. Elsewhere, disappointing earnings from KPN (-4.3%) and ARM holdings (-2.5%) are assisting the downward momentum for their respective sectors.
Show this article to anyone that believes that the economy has actually improved in the last 5 years. On Tuesday evening, the President once again attempted to convince all of us that things have gotten better while he has been in the White House. He quoted a few figures, used some flowery language and made a whole bunch of new promises. And even though he has failed to follow through on his promises time after time, millions upon millions of Americans continue to believe him. To say that his credibility is "strained" would be a massive understatement. No, things have not been getting better in America. In fact, they continue to get even worse. The following are 32 statistics that Obama neglected to mention during the State of the Union address...
There are two major factors that have emerged in the last five years that have sparked a surge in LNG investments. First is the shale gas “revolution” in the United States, which allowed the U.S. to vault to the top spot in the world for natural gas production. This caused prices to crater to below $2 per million Btu (MMBTu) in 2012, down from their 2008 highs above $10/MMBtu. Natural gas became significantly cheaper in the U.S. than nearly everywhere else in the world. The second major event that opened the floodgates for investment in new LNG capacity is the Fukushima nuclear crisis in Japan. Already the largest importer of LNG in the world before the triple meltdown in March 2011, Japan had to ratchet up LNG imports to make up for the power shortfall when it shut nearly all of its 49 gigawatts of nuclear capacity. In 2012, Japan accounted for 37% of total global LNG demand. The future of LNG may indeed be bright, especially when considering that global energy demand has nowhere to go but up. But, investors should be aware of the very large threat that Japanese nuclear reactors present to upstart LNG projects.
- Emerging sell-off hits European shares, lifts yen (Reuters) - but not really if you hit refresh since the latest central bank bailout announcement
- Apple’s Holiday Results to Show Whether Growth Is Back (BBG)
- Israel attacked Syrian base in Latakia, Lebanese media reports (Haaretz)
- Abenomics FTW: Japan Posts Record Annual Trade Deficit as Import Bill Soars (BBG)
- When all else fails, Spain's hope lie in a 16th century saint: Saint “might help Spain out of crisis,” says interior minister (El Pais)
- Global Woes Fail to Send Cash Into U.S. Stocks (WSJ)
- IMF's Lagarde sees eurozone inflation "way below target" (Reuters)
- Minimum wage bills pushed in at least 30 states (AP)
- AT&T Gives Up Right to Offer to Buy Vodafone Within 6 Months (BBG)
As a prelude to the following dismal market update, Japan just posted the largest annual trade deficit ever (ever ever ever) at JPY 11.47 trillion... so much for Abenomics and the magic J-Curve as the year just got worse (not better). With the Nikkei 225 (cash) down over 400 points (as we would have expected given futures action) and back under 15,000; Japanese stocks are at 7-week lows but Japanese credit risk is rapidly accelerating lower at its riskiest in 10-weeks. Japanese government bonds are well bid with yields on the 20Y having dropped to 1.443% - the lowest since April 2013. Away from Japan, the iTraxx Asia index (which tracks credit risk of investment grade corporates) has soared in the last few days to almost 5-month highs. Emerging Market Sovereign CDS are all notably wider with Vietnam and Indonesia topping the relative moves so far (and most at multi-month wides). Chinese repo is stable for now (CDS are wider by 2bps at 7-month wides) but so far, no good, for those believing the contagion in EM FX will remain contained.
More of the same this evening as Friday's close not off-the-lows in stocks has seen no dead cat bounce yet in early trading. The 2nd worst trade deficit ever did not help USDJPY which was already sliding lower, back under 102.00 and to 7-week lows. Most of the USDJPY move was catch-down to US and Nikkei futures moves from late-Friday. Once it recoupled (briefly) JPY staged a small fade-back (off USD 102.00 and EUR 139.50) which dragged Gold back off its 2-month highs at $1,280 briefly. However, the rally in JPY carry is having no impact on US equity futures which remain marginally red... a problem for the momentum igniters... Perhaps even worse, the Nikkei is starting to lose its correlation with JPY once again.
As the saying goes, ‘desperate times call for desperate measures.’ The phrase is bandied about so frequently, it’s generally accepted truth. But I have to tell you that I fundamentally disagree with the premise. Desperate times, in fact, call for a complete reset in the way people think. Desperate times call for the most intelligent, effective, least destructive measures. But these sayings aren’t as catchy. This old adage has become a crutch – a way for policymakers to rationalize the idiotic measures they’ve put in place...
Gold Surges On Speculation India May Ease Import Restrictions; China Reports Gold Reserves UnchangedSubmitted by Tyler Durden on 01/23/2014 09:15 -0400
Over the past year India's attempt to impose price controls on gold imports has only achieved one thing: forced citizens to find ever newer and more creative means of smuggling gold. It has gotten so bad Indians are now smuggling the yellow metal through Pakistan, on airplanes, and has now even surpassed the illegal drug trade. Which perhaps is why the biggest news in the commodity space overnight was the appeal by India's Congress party chief, Sonia Gandhi - widow to Rajiv - to the government asking for a cut in the record import duty on gold and for other restrictions to be eased, television channel CNBC Awaaz said citing sources that it did not identify. Reuters adds that "the coalition government, led by Congress, is considering easing restrictions, which include a 10 percent import duty and a rule that says 20 percent of all imports must leave the country as exports, government sources told Reuters earlier this month. India used to be the world's biggest buyer of bullion until the government introduced the curbs in order to contain a record current account deficit."
Any day, month, quarter, year, decade now; Goldman Sachs' mythical J-Curve will arise from the cinder-strewn ashes of Japan's current account. Japanese bond markets are rallying and JPY is weakening modestly after Abe's increasingly disapproved-of government announced the worst balance of payments current account deficit on record. At JPY -592bn vs expectations of JPY -36bbn and its 5th miss in the last 7 months as economists and analysts and pretend portfolio managers just keep getting it wrong. The trade deficit plunged once again, missed expectations once again and printed at the 3rd worst deficit ever with the 16th monthly trade deficit in a row. But apart from that, the Nikkei is -1000 points from the 2013 close highs and apart from rumors of a big bank selling JPY to defend 103, the trend ain't Abe's friend for now...
Despite the surge in prices for NatGas (and record time-of-year prices for gasoline), WTI crude oil prices are stumbling back to $93.50 this morning. Copper is also sliding but the real action - once again - is in Gold and Silver. Following yesterday's flash crash in gold, silver is having a conniption this morning as the 8amET period once again brings volatility. The selling coincided with the smaller-than-expected trade deficit - perhaps indicating indirectly less room for Fed QE? But in this new normal market, do they really need a reason to smack them down. Stocks are not moving as this occurs but bonds and the USD are modestly bid.
Following October's disappointing bounce in the US trade deficit, it was only expected that the November data would come leaps and bounds ahead of the expected $40 billion print, instead sliding 12.9% to $34.3 billion from October's revised $39.3 billion - this was the lowest monthly trade deficit since October 2009. The delta was the result of a modest boost in exports, up $1.7 billion, to a record high of $194.9 billion, compounded by a more pronounced slide in imports, which were $3.4 billion less than October's $232.5 billion. Some other highlights: exports to China climbed to a record high (we certainly expect "matching" Chinese exports to the US to also rise to a record when reported next), while the US petroleum deficit was the lowest since May 2009 thanks to shale.
With Bernanke's term due to expire in January, Jim Rogers warns Mineweb that the Fed-head will be remembered as "the guy who set the stage for the demise of the Central Bank in America. We've had three central banks in America. The first two disappeared. This one's going to disappear too in the next decade." With precious metals, bonds, and stock markets obsessing over Fed actions, Rogers says, in the next 10 years or so, "People will realise that these guys have led us down a terrible path," and collapse is "not a possibility," he adds, "it's a probability."
When newly elected Japanese Prime Minister Shinzo Abe promised new deficit spending and pedal-to-the-metal monetary inflation, the progressive Keynesians were excited. And indeed, debasing the yen seemed to work for a few months, with analysts saying US policymakers should follow Japan’s lead. Yet now Japan’s recovery seems to be collapsing, leading its Cabinet to approve yet another “stimulus” package. Does anyone else have a sense of deja vu?