Wall Street Journal
In President Obama's speeches this year, a steady theme has been creating jobs and economic opportunity for Americans. Yet during the more than five years Mr. Obama has been in office, young people have been especially hard-hit by the slow and virtually jobless recovery. On a deeply human level, it's profoundly sad. The message to Obama - "The bottom line on labor: Make something less expensive and businesses will use more of it. Make something more expensive and businesses will use less of it."
“Excessively low interest rates are inflationary because they mean that bonds, stocks, real estate and unincorporated businesses are capitalized at excessively high rates, and will fall in value even though the annual income they pay remains the same, if interest rates rise.” If interest rates were artificially low, it would follow that prevailing investment values are artificially high. I contend that they are, and you may or may not agree. Natural interest rates — free-range, organic, sustainable — are what we need. Hot-house interest rates — the government’s puny, genetically modified kind — are the ones we have.
As each of the following seven towns from history around the world boomed on the back of resource-hungry bubbles, no one could have foreseen (or even believed) that it would ever end... but as the following dismal images show - end it did. Is this the future for North Dakota or Texas? or Silicon Valley? (of course not stupid... it's different this time).
With Abenomics facing severe 'reality check' problems as base wages tumble for the 24th month in a row, inflation surges, and the "Misery Index" soars to 33 year highs, this week's release of the annual report from Japan's Ministry of Health, Labor and Welfare paints a very grim picture of Japan's population problem.
While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only this week that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with. It would appear our fears of global contagion (through various transmission channels) are now coming true as WSJ reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans. As we detailed previously, it appears the day when the Commodity Funding Deals finally end is fast approaching... and as we note below, why that will certainly be a watershed event.
This past week has been all about "anticipation." The markets made little headway during the first half of the week as traders waited in an almost breathless anticipation of the announcement from the European Central Bank. When the news was finally received, investors were initially disappointed but David Tepper stepped into the fray with his ever bullish optimism. The more we read, the clearer it becomes that the world's Central Banks have become caught in a "liquidity trap" which is entirely based on circular logic... Central banks must create asset bubbles in the hopes of stimulating economic activity. When the bubble eventually pops the economic activity evaporates which requires the creation of another asset bubble.
It would appear the Fed, after being angry at itself for creating the "complacency" evident in the markets globally has reached the pinnacle of critically circular logic in its defense of policies that are aimed at financial stability (i.e. prices flat or rising but absolutely not falling). Fed's Williams, a la Greenspan's "a-ha" moment, appears to have realized that investors are not always 'rational' and "bull markets may cause investors to get ‘carried away’ over time and confuse what is a one-time, perhaps transitory, shift in fundamentals for a new paradigm of rising asset prices."
- U.S. sets new import duties on Chinese solar products (Reuters)
- U.S.-China Solar-Products Dispute Heats Up (WSJ)
- China Mulls Offshore Yuan Gold Trade in Free Trade Zone (BBG)
- Insider-Trading Probe Could Snarl a Deal for Icahn (WSJ)
- KCG Holdings Suspects Its Trading Code Was Stolen (WSJ)
- ‘Period. Full Stop’ Is the New ‘At the End of the Day’ (BBG)
- Draghi not so goof for bonds: Investors Flag Risk of ECB Disappointing After Europe Bond Rally (BBG)
- But great for stocks: Equity Traders See Draghi Turning Throttle Up on Rally (BBG)
If yesterday's non-record, red-tick close can be attributed to algos applying the wrong ISM seasonal factor to the day, believing it was Wednesday instead of the permabullish Tuesday, today there is no such excuse, which is why we fully expect the unallowed redness with which futures are currently trading to promptly morph into a non-red color especially with the USDJPY doing it best to ramp to 103.000 levels overnight, stopping out all shorts, and push spoos to fresh record highs. It is an algo world after all. It appears that already record low volatility is being pushed even lower in anticipation of numerous imminent data releases, including today's ADP and Services ISM (first, second and final release), tomorrow's ECB announcement and Friday's payrolls number. Which while good for low volume levitation means bank trading revenues continue to deteriorate forcing banks to pitch M&A deals to clients, which in turn result in even more synergies and more layoffs: because in order to preserve the bottom line, crushing real employment further is perfectly acceptable collateral damage.
Citing "tangible economic benefits," the FAA has decided that the current prohibitions against commercial uses of drones in US skies can be lifted. As WSJ reports, Federal regulators said they are considering exempting a handful of companies working for the film and television industry with proposed rules for small drones are expected to be issued by the end of the year, though they aren't likely to become final until 2015 or later. While law-enforcement agencies already can rely on procedures to obtain FAA approval to fly some of the largest models in designated airspace, this shift by the FAA opens the door to the thousands of drones expected to plague US skies in the next few years.
"The investigators believed it was hard to wiretap Icahn without him finding out because he owned a stake in a telecommunications company through which surveillance might have to be conducted, the Wall Street Journal reported, citing one of its sources."
With Eric Holder suddenly playing hardball with the banks (most notably not US banks), it has not gone unnoticed among the largest European newspapers. The potential $10 billion penalty for BNP Paribas - France's largest bank - for alleged dealings with a sanctioned Iran has been called a "masterful slap," by Le Monde and Le Figaro said the U.S. was making an example of BNP to deflect criticism it had been "lenient with the American banks responsible for the financial crisis." This could make for an awkward week for Obama, not only facing Putin as he visits Europe to celebrate D-Day but as the allies themselves turn on him with France's Hollande likely to raise the matter and, as Bloomberg reports, newly elected National Front party called on the French government to "defend the national interest" in the case.
As Senator Ron Johnson so appropriately blasted, "I'm not sure sanctions had any effect whatsoever other than, you know, the Russians have mocked them," and so it is that the Treasury's (little heard of) "Terrorism and Financial Intelligence" division is preparing to unleash its most deadly weapons yet - an arsenal of financial weaponry aimed at hitting foreign adversaries with limited cost to allies. It appears clear that while the US dropped speech-bombs and sanction-mines, proclaiming the disastrous economic significance of these efforts, Russian stocks soared (vastly outperforming the US) and the Ruble strengthened... and so - as undersecretary David Cohen tells the WSJ, "What we've done over the past 10 years is to create a new method of projecting U.S. power..." e.g. sell non-US stocks (thus buy US stocks).
Dispassionae look at the several events in the week ahead.
June is seasonally a poor month for gold and technical damage means gold could be manipulated lower again before half year end ... As one astute commentator said on Twitter this week, being able to acquire cheaper gold given the state of the world today is "like being given discounts on life-rafts on the Titanic ... "