As we explained in great detail recently, the abundance of so-called cash-on-the-sidelines is a fallacy, but even more critically the we showed the belief that these 'IOUs of past economic activity' would immediately translate into efforts to deploy them into future economic activity is also entirely false. Simply put, there is no relationship between corporate cash and subsequent capital expenditure, nor is the level of capital expenditure even well-correlated with the level of real interest rates. At this point, as John Hussman explains, it should be clear that the mere existence of a mountain of IOUs related to past economic activity is not enough to provoke future economic activity. What matters instead is the same thing that always matters: Are the resources of the economy being directed toward productive uses that satisfy the needs of others?
A dispassionate discussion of the major forces impacting the investment climate in the week ahead.
From a strictly empirical perspective, the Keynesian theory is a disaster. Positivism wise, it’s a smoldering train wreck. You would be hard-pressed to comb through historical data and find great instances where government intervention succeeded in lowering employment without creating the conditions for another downturn further down the line. No matter how you spin it, Keynesianism is nothing but snake oil sold to susceptible political figures. Its practitioners feign using the scientific method. But they are driven just as much by logical theory as those haughty Austrian school economists who deduce truth from self-evident axioms. The only difference is that one theory is correct. And if the Keynesians want to keep pulling up data to make their case, they are standing on awfully flimsy ground.
A series of crises, the latest being the ominous developments in the Ukraine and further evidence of disappointing growth in China, have rattled financial markets. Of course, with all major central banks at amazingly easy policy stances, the bet continues to be that the latest uncertainties will also pass. That may be true once again. But, as Abe Gulkowitz lays out in the inimitable style of his The Punch Line letter, one must recognize that many of the serious flaws uncovered in each of the predicaments will linger for years to come and that the policy remedies have at best covered up the fundamental issues without completely resolving them.
With the Japanese stock market fading fast and macro-economic data showing anything but the kinds of inspiring recovery that Abenomics promised, the leaders in Japan have turned to a new meme - that the economy will be fixed when companies start raising their wages. Day after day the mantra is repeated in the hopes that repetition will make it come true and every company that raises wages (by an average of 4 Big Macs per month) is heralded as heroic. But, as The Japan Times reports, the government (in all its newly socialist bravado) has threatened to take the unprecedented step of shaming big "uncooperative" companies that do not raise wages during the annual spring labor talks. Forget minimum wage adjustments, this is pay-by-mandate Maduro-style; we just wonder how Abe will cope when a nation used to 'full' employment sees joblessness surge.
No, Millions of Americans Have NOT Dropped Out of the Labor Force Just Because They’re Retiring Baby BoomersSubmitted by George Washington on 03/15/2014 00:55 -0400
Despite the Happy Talk, Unemployment Is Still High
You can't get blood out of a rock. Traditionally the United States has had a consumer-driven economy, but now years of declining incomes and rising debts are really starting to catch up with us. In order to have an economy that is dependent on consumer spending, you need to have a large middle class. Unfortunately, the U.S. middle class is steadily shrinking, and unless that trend is reversed we are going to see massive economic changes in this country. Incomes are going down, the cost of living is going up, and debts are skyrocketing. The following are 19 signs that the U.S. consumer is tapped out...
“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.”
The core elements of this Fourth Turning continue to propel this Crisis: debt, civic decay, global disorder. Central bankers, politicians, and government bureaucrats have been able to fashion the illusion of recovery and return to normalcy, but their “solutions” are nothing more than smoke and mirrors exacerbating the next bloodier violent stage of this Fourth Turning. The emergencies will become increasingly dire, triggering unforeseen reactions and unintended consequences. The civic fabric of our society will be torn asunder.
It has been a relatively quiet overnight session, aside from the already noted news surrounding China's halt on virtual credit card payments sending Chinese online commerce stocks sliding, where despite an ongoing decline in the USDJPY which has sent the Nikkei plunging by 3.3% (and which is starting to impact Abe whose approval rating dropped in March by a whopping 5.6 points to 48.1% according to a Jiji poll), US equity futures have managed to stay surprisingly strong following yesterday's market tumble. We can only assume this has to do with short covering of positions, because we fail to see how anyone can be so foolhardy to enter risk on ahead of a weekend where the worst case scenario can be an overture to World War III following a Crimean referendum which is assured to result in the formal annexation of the peninsula by Russia.
It seems if you can't beat the digital dickweeds, then you join 'em. Dennis Kneale, infamous for his exclamations regarding bloggers while working for CNBC, has finally been let go by Fox also... these are his tips on how to be unemployed (at age 56!) via his new blog...
Inflation has weakened the yen by 6.8% in the past 12 months… and the cost of living in Japan is now at a five year high.
It was another day of ugly overnight macro data, all of it ouf of China, with industrial production (8.6%, Exp. 9.5%, Last 9.7%), retail sales (11.8%, Exp. 13.5%, Last 13.1%) and fixed asset investment (17.9% YTD vs 19.4% expected) all missing badly and confirming that in a world of deleveraging, the Chinese economy will continue to sputter. Which is precisely what the "bad news is good news" algos needs and why futures levitated overnight: only this time instead of latching on to the USDJPY correlation pair, it was the AUDJPY which surged after Australia - that Chinese economic derivative - posted its third best monthly full-time jobs surge in history! One can be certain that won't last. But for now it has served its purpose and futures are once again green. How much longer will the disconnect between deteriorating global macro conditions and rising global markets continue, nobody knows, but sooner rather than later the central planner punch bowl will be pulled and the moment of price discovery truth will come. It will be a doozy.
The Fed is playing a very dangerous game here. It was way behind the curve on deflation and economic weakness going into the crash of 2008. Today, it continues to worry about deflation when the clear signs show that inflation is already on the rise.
Following a triumvirate of macro misses from AsiaPac (South Korea unemployment surged, Aussie confidence plunged, and Japanese inflation tumbled), the credit concerns running riot through the collateral underlying China's shadow banking system continue to crush Copper (and iron ore) prices. Copper is limit down in Shanghai at its lowest since July 2009 - these size moves have only occurred twice in history (Lehman and the US downgrade). Japanese stocks are ignoring any ramp efforts in USDJPY and US equity futures are fading qucikly with AUDJPY....
Stocks in Europe failed to hold onto early gains and gradually moved into negative territory, albeit minor, as concerns over money markets in China gathered attention yet again after benchmark rates fell to lowest since May 2012. Nevertheless, basic materials outperformed on the sector breakdown, as energy and metal prices rebounded following yesterday’s weaker than expected Chinese data inspired sell off. At the same time, Bunds remained supported by the cautious sentiment, while EUR/USD came under pressure following comments by ECB's Constancio who said that financial markets misinterpreted us a little, can still cut rates and implement QE or buy assets. Going forward, market participants will get to digest the release of the weekly API report after the closing bell on Wall Street and the US Treasury will kick off this week’s issuance with a sale of USD 30bln in 3y notes.