Yen

The idea that a weak yen is positive for countries outside Japan is gaining traction. This is preposterous and we'll see why as currency wars soon accelerate.

A look mostly at prices in the currency market and the outlook.   

Aside from light volume there’s no argument with the tape. It’s quite positive but much overbought. Earnings news is beginning to wane leaving less for bulls to respond to. Many previous reliable technical indicators are succumbing to all the money printing. Looking at those markets where QE is not taking place perhaps reveals the real market conditions.

In a day devoid of any A-grade economic data, the stop hunting GETCO USDJPY algos had no choice but to look forward to such reflexive C-grade indicators as the UMich Consumer Confidence index, where the polled "consumers" are confident if the market is up and the market is up if "consumers" are confident. Sure enough, the USDJPY literally exploded by over 50 pips and broke the 103 level (send the Yen derivative, the S&P500 spiking) when moments ago the UMich index posted a hilarious reading of 83.7, the highest since August 2007, up from 76.4, and smashing expectations of 77.9 by the most in... ever. Whether this was driven by a near record low in consumer savings, by the collapse in real wages, by the deteriorating Q1 retail results such as WalMart's showing consumers are out of cash, or if all this was irrelevant as everyone on the UMichigan rolodex was long Tesla is unknown. It just is what it is because in a world in which collapsing economic data leads to a record high "market", one buys first, buys second, then BTFD if there is D, and only then are questions asked.

Parasites must balance their drive to maximize what they extract from their host with the risk of losing everything by killing their host. This is the dilemma of the parasitic partnership of the central state and financial Elites everywhere: to extract the maximum possible in debt payments and taxes without sparking rebellion and revolution. The 30 million whose labor funds the parasitic status quo don't have to rebel; they simply have to stop going to work, stop starting enterprises, stop being productive. They just have to tire of being the host, tire of being debt-serfs, tire of being tax donkeys. The trick to suppressing revolution is to keep debt-tax serfdom bearable. The parasitic Elites are keeping the host going, but at a high cost in resiliency. Let's see how long the host lasts once a crisis hits.

It is only logical that when one of the smarter people in finance warns that he "sees bubbles everywhere" that he should be roundly ignored by those who have no choice but to dance. Because Bernanke and company are still playing the music with the volume on Max, and if not for POMO there is always FOMO. However, if there is any doubt why this "rally is the most hated ever", here are some insights from the Bond King from an interview with Bloomberg TV earlier today: "We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn't mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well."

In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.

The greatest disconnect in the world today is the underlying economies of the world and the markets; all of the markets. This river is wide and getting wider given the money that the central banks are pushing downstream. The flood has reached all of the markets, Real Estate, the banks, many corporations, any and all borrowers with our incredibly low interest rates, but it has had little impact on the Main Streets of the planet. There is, in fact, a bubble of epic proportion.

Take a good look at the chart of the Nikkei below. Supposedly this is the same chart that the new BOJ head, Haruhiko Kuroda, was looking at when he was responding to Japanese lawmakers during a session of the upper-house budget committee, where he flatly rejected an opposition-party member's argument that the recent rapid rise in the Tokyo stock market is out of line with Japan's real economy. "At this moment I do not think they are in a bubble," Kuroda said. And everyone believes him, just Because central bankers are so good at objectively observing how contained subrpime is big the asset bubbles their ruinous policies create.

So much for Europe's "recovery." In a quarter when the whisper was that some upside surprise would come out of Europe, the biggest overnight data releases, European standalone and consolidated GDPs were yet another flop, missing across the board from Germany (+0.1%, Exp. 0.3%), to France (-0.2%, Exp. 0.1%), to Italy (-0.5%, Exp. -0.4%), and to the entire Eurozone (-0.2%, Exp. 0.1%), As SocGen recapped, the first estimate of eurozone Q1 GDP comes in at -0.2% qoq, below consensus of a 0.1% drop. The economy shrank by 1.0% yoy, the worst rate since Dec-09. The decline of 0.5% qoq in Italy means that the economy has been in recession continuously since Q4-11. A 0.2% qoq drop in France means the economy has ‘double-dipped’, posting a second back-to-back drop in GDP since Q4-08. The increase of 0.1% qoq in Germany was disappointing and shows the economy is not in a position to support demand in the weaker member states (table below shows %q/q changes).

I think it's indicative of a problem when, half-jokingly, the vernacular increasingly being used in the popular media includes: being "Corzined" and "Cyprus'd". The former meaning having your money stolen from or via the equities market, and the latter being theft directly via the banking system.

The Nikkei 225 just passed 15,000 for the first time since January 2008 no up over 77% from its November 2012 lows. Even "Mr Yen" is worried...

*SAKAKIBARA SAYS MOVEMENT OF EQUITY PRICES `SOMEWHAT BUBBLY'

But the real story is in bond land. Twice last night Japanese bond futures were saved miraculously from a third day in a row and at the open this evening JGB futures are looking set for another test of the limit down (though being saved for now) - as 10Y yields spike above 90bps (+5.5bps on the day), the highest in 13 months; and 5Y yields jump another 5bps to 45bps - the highest in 22 months. The last 4 days in 5Y JGBs has been the worst in 5 years (since June 2008) and 10Y JGB's worst 4-days in 10 years (since August 2003). USDJPY is holding below 102.00 as it seems for now the JGB weakness is soaking up the inflation threat (as we discussed here). Amid all of this turmoil, JGB implied volatility is collapsing to 4 month lows - which smells a lot like hedges being lifted along with underlying risk unwinds.

Not even the most prodigious and reckless money-printing binge can fix it

As reported earlier, at least one prominent hedge fund manager, Dan Loeb, is very bullish on Sony (or at least has played his cards well enough to buy the stock 50% lower and is using today's ramp to offload to unwitting momentum chasers as he did with Herbalife). Whether he is merely using the opportunity to earn some activism brownie points on the background of the overall levitation of the Japanese stock market, or is genuinely convinced there is upside for Sony remains to be seen. However, anyone who thinks that Japanese corporates have no place to go but up, is kindly urged to take a look at one-time Japanese electronics titan Sharp, which posted a whopping loss of $5.36 billion, the biggest loss in the company's 100 year history.

Can Sony repeat the magic of the Walkman, the Playstation and the Trinitron? Maybe, maybe not not, and judging by the stock price, soaring recently due to the plunge in the Yen which to many implies a ramp in future profitability (the jury is still out on that), it may not have to. However, activist investor Dan Loeb is not waiting. In a letter filed overnight, Third Point announced it has accumulated 64 million shares in the one time electronics and entertainment giant, making it the largest single shareholder of Sony. As a result, Loeb has a suggestion which is to partially (15-20%) spin off Sony Entertainment, in which Third Point would backstop a $1.5-$2 billion rights offering, with the resulting liquidity could go to boost Sony Electronics, as well as push off debt into the newly-created entity, reducing leverage at the parent company. Following this, the company could focus on restructuring Sony Eletronics, where Loeb believes there is untapped value, which could be as large as ¥725/share when factoring in for EURJPY moves. End result, Loeb sees 60% upside in Sony stock. We wish him the best of luck: other firms, such as Warren Lichtenstein's Steel Partners attempts to go activist in Japan in the past decade have largely crashed and burned. Perhaps for Loeb, the time of Abenomics will be different.