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Four New Views
Last month we offered three unorthodox views: that the US economy was proving more resilient than many recognized, a skepticism over how much more the yen would weaken on Abenomics, and that "currency wars" were being exaggerated and took our eyes of the real fissures, which are within countries rather than between them as was the case in the 1920s and 1930s.
These views are now more widely shared. Economists have revised up their US GDP forecasts, the yen is trading at its best level in more than a month, and currency wars rheotric has died down.
We take this opportunity to adjust our views.
1. As economists adjusted their forecasts for the US economy, it is more difficult to maintain positive surprises. In addition, there economy appears to be finishing Q1 on a soft note that is likely to carry into Q2, which reinforces the seasonality component to some of the US data. We would still argue that the US economy has proven resilient and in particular, the consumer. It appears that the household de-leveraging process may be ending, which is something that needs to be monitored going forward.
2. One of the reasons that there has not been a stronger reaction to the losses inflicted on the uninsured depositors in Cyprus is because it is not unprecedented. There is a general procedure for insolvency: Management loses their jobs, shareholders lose and then unsecured creditors, followed by senior creditors, and finally uninsured depositors. How deep one has to go depends on several variables, including the capital structure. In effect, there must be enough capital among the shareholders and some (junior) creditors to fully absorb the loss before turning to secured senior creditors and uninsured depositors.
In the US, the most recent example of uninsured depositors being forced to take a loss was in the IndyMac Bank in 2008. Those uninsured depositors lost around half their funds. That was also before the deposit insurance cap was raised to $250,000 from $100,000. There were obviously serious problems in the US financial system at the time, but the loss suffered by uninsured depositors did not cause them or spark a flight of deposits.
3. When investors have been able to look beyond Cyprus, Italian politics seems to be next worry, though of Slovenia is also rivaling for attention. Rather than Italian politics per se, there are some increasingly worrisome signs in the real economy, but also in the financial sector. The March manufacturing PMI (44.5) is the lowest since last August and the forward looking orders slumped since last May. Output and employment are at seven month lows. The general reduction of Target2 imbalances continued into February. The notable exception was in Italy, where its liabilities rose by 28 bln euros, the largest increase in about a year and reverses the improvement over the past six months. In addition, unlike most others countries' central banks, the Bank of Italy increased its borrowing from the ECB for the first time since last July. Without putting too fine of a point on it, these figures point to increasing financial strains in Italy.
4. There are a number of indicators that are warning investors to be cautious about Japan. The big trade for many currency hedge funds, which are off the best start for a year in a decade, has been long Japanese stocks and short the yen. The options market in each is warning that the players are getting increasingly nervous. The premium for (3-month) dollar puts over calls is the largest in over a year as the bulls buy downside protection. The same is generally true of the Nikkei, where investors are buying downside protection.
The Nikkei gapped lower earlier today and was unable to fill the gap, which extends from 12107.40 (today's high) to 12133.00 (Monday's low). The technical tone will weaken if this gap is not filled in the next day or two. The most recent weekly (through March 23) MOF report indicated that the 19-week streak of non-resident equity purchases came to an end. Recent data has shown little impact from the decline in the yen on exports, industrial production, capex plans, or deflation. A recovery in the yen is also consistent with our expectation of softer US economic data, which will prevent new yield advantage for the dollar. Former support for the dollar around JPY93.50 may now act as resistance.
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How about some of this copper that the Illegals are stealing all around America>>>would you accept that too...
You can spend your day reading all this "economic data" - some of which we don't know if it is true or "cooked".
One indicator that does not lie is a market index - we'll consider the Dow Jones.
http://bullandbearmash.com/chart/dow-jones-weekly-plummets-001-208-point...
Market indexes lead, not lag, the economy by about 3 months - this is the underlying reason why the Fed is pumping this thing higher - the MSM grabs on and pumps the public to buy in.
We have insolvent COUNTRIES, massive unemployment, foodstamps to the masses and debt beyond belief and the Dow is in record territory again today. European markets are up 1% today while youth unemployment in Europe is near 50%.
This is how our government serves and protects us - DECEPTION and nothing else.
"Market indexes lead, not lag, the economy by about 3 months - this is the underlying reason why the Fed is pumping this thing higher - the MSM grabs on and pumps the public to buy in."
That's why I think that April will see a re-coupling of risk to foreign exchange. The 4X hasn't bought the latest ramp in equities to any degree for the last three months but what would be interesting is for the Euro to latch onto this last rampapolooza, carrying the good old "risk pairs" with it, especially the EURJPY.
The last time the Euro traded around 1.28, there were fierce daily battles to deny that level as the Euro scratched higher. For some reason, 1.28 has been their marker and I believe now, of all times, that level will be defended and held at all costs.
Expect some major jawboning event out of Draghi or Merkel very soon that will get the Euro jump-started. Draghi knows it's his last shot at crying wolf, so he'll make it a good one. We have about five weeks.
Because that's when the old saw, "Sell in May and go away," comes in- only this time, the drop will cascade to a bottom some three years from now. As Draghi knows his limits, Wall Street knows their limits, too, and they will use this month to lure in every retail investor who is still on the sidelines. There will be an all-out blitz to move this thing higher before they can't hold it any more.
:D
"There will be an all-out blitz to move this thing higher before they can't hold it any more." - Gee, you think? 85 billion per month, what's to keep Fed from making it 120 billion?
Yes but what I mean to say is that this will be somewhat extra-extraordinary.
Famous last words: "Hey, y'all, check 'is out."
Bankers and financial pricks that are close to the free money spicket add nothing of real fucking value yet have massive compensation, meawhile the average worker's mortgage is about to go from a 30 year term to a 50 and 100 year mortgage. Bankers press a button, everyone else serves them for life and so do their children. What the fuck? roll the motherfucking guillotines already.
indeed....well strown...
"We take this opportunity to adjust our views."
Is that the royal "we", or just the opinion of a single person?
In any case Marc reminds me of the Vicar of Bray, who would adjust his opinions/beliefs to whatever "king may reign", but in Marc's case whatever the latest, fake numbers show.
Alternatively: Marc reminds me of the crowd worshipping the "King with no clothes", because the stock market and government stats, for instance, no longer have anything to do with the real economy.
If, for instance, such bankster 'assets' as mortgage derivatives were marked to the real market of domestic and commercial properties, then the Fed and all client banks would be insolvent.
Setarcos--I don't get your criticism of me. Did I retract my views? I adjust my views as the situaiton evolves. My goal is to try to stay ahead of the market consensus. When that changes, my views have to adjust. I never mentioned mortgage derivatives or what you call "the real market of domestic and commericial properties". To sugggest that I change my views to whatever "king may reign" is baseless and senseless.
Yes, my job is to try to analyze what you say are fake numbers nd have othing to to with the real economy--which means that you have never spent any time investigating how methodology of different economic reports or talked to any of our civil servants in the Bureau of Economic Analysis.
The mere fact that you ask whether I write an an individual or a group shows you do not have your eyes on the ball. The ball in this case are my arguments. You want to talk about me. I want to talk about the argument I present.
I see Tyler and others on this site talk about economic reports and data. Besides the rigor of my arguments and the nature of my conclusions, I do not see what I present as fundamentally different.
This is reminiscent of Nixon's chief of staff, H.R. Haldeman, who needed to backtrack on a previous statement and stated that "that statement is no longer operative." Change it to "that view is no longer operative" and it fits well. We are all, of course, allowed to change our minds when perceived facts change.
Geezer---did I backtrack on a single view? Did not I say that the market came around to our previous views? My views are evolving. If I said that the economy was going to outperform expectations and it did and economists revised up their forecasts, that changes things.
With respect to point number two, the US government (Federal Deposit Insurance Corporation FDIC) is already planning on how to take money out of your savings account in the next financial crisis. The FDIC and the Bank of England have written a joint paper explaining how savings deposits which are said to be guaranteed for the depositor will instead be used to bail out failing banks. Hard to believe.
See an explanation and the paper which proposes this at: http://tiny.cc/z4jcuw
Not any longer hard to believe, sad to say.
Also it is sad to say that if I bought gold and/or silver with my bank savings, it would be very hard to exchange those metals for goods and services.
If I had a retail business I would gladly accept your silver and gold bullion coins as payment. At face value, of course...