Saturday Humor: The Fed Is Hiring

Tyler Durden — Sat, 18 May 2013 17:34:24 +0000

Now that the Federal Reserve has hired every single pennystock trader and momentum-chasing algo in the world (or at least is enjoying Citadel's helping hand in regards to the latter) it is time for the Fed's human resources department to branch out and fill those really important gaping holes.

Great job opportunity! Penetration Tester: rfer.us/FRS5ERsd.

— Federal Reserve Jobs (@FedReserveJobs) May 18, 2013

h/t @shark_wahlberg

Italy's New Government Approval Rating Plummets From 43% To 34% In Three Weeks, Protests Return

Tyler Durden — Sat, 18 May 2013 17:20:16 +0000

It was less than a month ago that the new Italian government of the pseudo-technocrat Letta, of Bilderberg 2012 and Aspen Institute fame, was voted in by a majority of the PD and the PDL parties (the latter agreeing so Berlusconi would get an extension of his much needed political immunity from assorted prison sentences). It may not last too long. As Reuters reports, it took just 20 days for Letta's approval rating to plunge by 25%, dropping from 43% at the start of the month to 34%, according to an SWG institute poll. It would appear the Italian people (unlike their Japanese peers who at least according to government-controlled media data could not be happier with PM Abe, supposedly because of the bubblelicious 50% rise in the Nikkei225 year to date, even though under 20% are actually invested in the stock market making one wonder just how credible polling, and all other data in Japan actually is) don't have Mrs. Watanabe's childish fascination wth soaring stock bubbles, sexy bonds, mini skirts and 2% inflation bras, and instead demand real economic results. Which also means the protests are once again back.

Thousands of people protested in Rome on Saturday against austerity policies and high unemployment, urging new Prime Minister Enrico Letta to focus on creating jobs to help pull the country out of recession.

"We hope that this government will finally start listening to us because we are losing our patience," said Enzo Bernardis, who joined the sea of protesters waving red flags and calling for more workers' rights and better contracts.

Less than a month in power, Letta is trying to hold together an uneasy coalition between his center-left Democratic party and the center-right People of Freedom, led by former prime minister Silvio Berlusconi.

Confidence in the government, cobbled together after inconclusive elections, is already falling, with one poll on Friday by the SWG institute showing its approval rating had dropped to 34 percent from 43 percent at the start of the month.

"We can't wait anymore" and "We need money to live" were among slogans on banners held up by the crowds.

Letta promised to make jobs his top priority when he came to power in April after two months of political deadlock. But several protesters complained he was not sticking to his vow, focusing instead on a property tax reform outlined this week.

The people's chief demand: end that perpetual scapegoat for everything that is wrong in Europe, "austerity" (the same austerity that was never actually implemented but since it distracted from politicians' gross incompetence, it was a handy propaganda tool). The problem, as all those who are even remotely familiar with finance know is that in a Keynesian world, it is all about credit creation - the same credit creation which can no longer take place in Europe for the various reason explained before.

Union leaders said he needed to shift away from the austerity agenda pursued by former Prime Minister Mario Monti, who introduced a range of spending cuts, tax hikes and pension reform to shore up strained public finances.

"We need to start over with more investment. If we don't restart with public and private investments, there will no new jobs," said Maurizio Landini, secretary-general of the left-wing metalworkers union Fiom.

Italy is stuck in its longest recession since quarterly records began in 1970, and jobless rates are close to record highs, with youth unemployment at around 38 percent.

Other protesters were pessimistic that Letta's fragile government would be able to take effective action.

Of course to get "investments", one needs funding, and the problem is that virtually all sovereign bond issuance - for now driven by the BOJ's monetization-facilitated carry trade impulse - is going to indirectly prop up the local insolvent banking system, not to fund public spending. That too will become clear in due course, but for now there is hope.

However, even the hope is running out, leading to the people's, accurate, conclusion:

"This government will last a very short time," said demonstrator Marco Silvani. What we need is a new leftist party that fights for the rights of the people," he said.

Or, in other words, the same left party "solution" that France got and that has managed to crush the local economy to a double-dip recession in just one year.

Auditing The IRS: "Is There Any Limit To The Scope Where You Folks Can Go?"

Tyler Durden — Sat, 18 May 2013 16:15:25 +0000

While it does have all the impromptu genuineness of a made for C-Span soap opera, the following exchange between Rep. Mile Kelly (PA) and the IRS' commissioner Miller was the highlight of yesterday's grilling of the IRS by the House Ways and Means committee, because rehearsed or not, it does capture the prevalent sentiment the US public harbors not only toward its tax collectors, but the government in general.

"The IRS can do almost anything they want to anybody they want any time they want. This is very chilling for the American people.... This is a Pandora's box that has been opened. The American people should be outraged and they are. This has nothing to do with political parties - this has to do with highly targeted groups. This reconfirms everything that the American public believes. This is a huge blow to the faith and trust the American people have in their government. Is there any limit to the scope of where you folks can go? Is there there any question that you should have asked: how much money do you have in your wallet, who do you get emails from, whose sign do you put up in your front yard: this ia tax question? The fact that you all can do just about anything you want to anybody: you can put anybody out of business any time you want.... I think the American people have seen what's going on right now in the their government. This is absolutely an overreach and this is an outrage for all Americans."

And while contemplating these questions, let's make government even bigger, and also why has that pesky Second amendment not been overturned yet?

Spot The Odd Continent Out: Total Bank Assets As % Of GDP

Tyler Durden — Sat, 18 May 2013 15:07:21 +0000

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus ust 16% in the US."

Visually, this translates as the following dramatic chart, which shows why Europe no longer has a choice in kicking the can, and what we have said from the very beginning, a Mellonesque asset liquidation of bad "assets" is the only option:

It is in Europe that the biggest debt burden lies, and it is Europe that is desperate for the biggest inflation impulse to purge away the debt in the absence of liquidation, or a spike in asset quality. However, as we showed yesterday with Europe's €500 billion NPL timebomb, the asset quality of Europe's banking sector is imploding at an unprecedented pace, and is correlated most tightly to the surging unemployment in the periphery, which intuitively makes much sense: without jobs, consumers can't pay off their debt.

NPLs:

... compared to unemployment:

This means that the only resolution to a massively overlevered banking sector, where inflation just refuses to arrive and assist in the bad-asset "cleansing", is the start of liability impairment, which will allow the long overdue process of balance sheet restructuring, instead of merely can kicking, to commence. Whether this implies deposit confiscation, well that matters in which country one is, and how many NPLs have been accumulated.

And another problem: the reason why core inflation is gone from Europe is that not only is the hot central bank money not targeting European assets (except for new Japanese Yen chasing after peripheral bonds for as long as there is a carry trade arb, which at this rate won't last long), but because credit creation in the private sector is dead: as the chart below shows, even credit growth in Germany is now negative:

So what is the only option for a continent in which there are simply too many encumbered assets (recall that unlike the US the bulk of credit in Europe is secured - perhaps the starkest difference between the two credit systems) and in which the private sector credit creation pipeline is clogged: simple - the ECB has to join the Fed and the BOJ in monetizing assets, and creating "credit growth" de novo. Alas, as the past three years have shown, when it comes to outright monetization in Europe, not only does it have to be sterilized to appease the (correctly) inflation-weary Germans (i.e., the SMP; the terms of its replacement, the OMT, still technically don't exist), but most likely has to come in the form of a structured debt vehicle or an extended loan, like the ESM or the LTRO.

In fact, none other than former ECB member Lorenzo Bini Smaghi told Goldman's Allison Nathan in a recent interview that QE by the ECB - an outcome most expect once the impact of BOJ QE fizzles - is unlikely. The reason why:

Lorenzo Bini Smaghi: QE in Europe would likely entail the ECB purchasing a representative basket of Euro area government bonds. And so they would probably have to buy large quantities of German and French bonds, rather than the bonds of countries that could use more support; the impact on spreads would not necessarily be in the right direction. So from a technical point of view, the case for QE in Europe is less clear cut.

Needless to say, his outlook on Europe is less than optimistic:

Lorenzo Bini Smaghi: In 15 years I'm a bit more confident because I think the adjustments will have been made. Europe will become more competitive and stronger. So I am a long-term optimist. But I am also a short-term pessimist; the near-term adjustment is maybe a bit too tough and too front-loaded so the next five years are going to be very difficult.

And to think all of this could have been avoided if the Mellon advice of liquidating bad assets, which have accumulated in massive proportions in Europe (and in the shadow banking system in the US, but that is the topic of a different post), had been heeded, as we suggested, from the very beginning. To quote Andrew Mellon:

The government must keep its hands off and let the slump liquidate itself. Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. When the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. A panic is not altogether a bad thing. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.

Of course, the time for liquidation will come sooner or later, only this time the pain and suffering that will accompany it will be order of magnitude greater than had the system been purged in the dark days following the Lehman collapse.

Why Japan Is Bad For The World

Asia Confidential — Sat, 18 May 2013 15:00:00 +0000

Japan continues to be the world's biggest financial story. The consensus seems to be that the country's extraordinary economic measures are good for both itself and the world. I've detailed previously how Japan's efforts are likely to have terrible domestic economic consequences, whether they succeed or not. Today, I'm going to explore the latter idea: that Yen depreciation will benefit other countries as they'll depreciate their own currencies, which will make their economies more competitive too. This idea, put forward by some serious financial commentators, is laughable as it ignores both history and any sense of simple logic. The implications are worth exploring though as competitive currency devaluations have already begun and are likely accelerate from here.

Better figures, but...

First, let's provide some context by looking at recent events in Japan. Over the past week, Japan released GDP figures for the first quarter of 2013 which showed growth of 0.9% from the previous quarter, versus expectations of a 0.7% rise. Annualised, GDP grew 3.5%, the fastest in a year, and topped a 1% rise in the fourth quarter of last year.

Ironically, Japan 3.5% annualised growth in the first quarter crushed most other developed countries, including the U.S., where there's supposed to be meaningful recovery going on (it recorded 2.5% growth).

Looking under the hood at Japan's figure though, the result wasn't that impressive. That's because the GDP figure is a real figure, rather than a nominal one. Adjusted for a larger than expected GDP deflator (a measure of domestic prices) of -1.2%, nominal GDP grew 0.4% from the previous quarter, less than analyst expectations of 0.5%.

On the positive side though, private consumption and exports did trend up. Consumption rose 0.9%, as expected, and was up for a second consecutive quarter. This suggests that consumers may be buying into Abenomics (the nickname for the Japanese Prime Minister's new policies) and willing to spend more. Exports also contributed 0.4% to GDP as they benefited from a 30% decline in the Yen since November last year.

Separate figures gave contradictory signals as to whether Japanese businesses are buying into Abenomics. Machinery orders in March increased 14% from the prior month, or 2.5% from the previous year. This beat expectations for growth of 3.5% and -4.9% respectively. The machinery orders figures ran counter to earlier numbers which showed capital spending for the first quarter declined 0.7%.

All in all, the economic data show mild improvement. Whether there's a sustained future bounce is the big question. There are two things that will indicate whether Japan's policies are starting to have a real impact: rising inflation and wages. Both haven't happened yet and the latter especially is critical to policy success.

Bond yields spike

The other interesting action of the past week has been in Japan's bond markets. Japanese government bonds (JGBs) have had a spectacular sell-off over the past week. Yields on 10-year JGBs rose by half of its value at one stage. This was despite buying from the Bank of Japan (BoJ) of government bonds ranging from 1 to 10 years to the tune of 1.2 trillion yen (US$12 billion).

The economic bulls argue that rising bond yields mean the economy is starting to normalise and that the Bank of Japan (BoJ) is succeeding in its aim to spur inflation (which will drive yields higher).

The bears suggest that increasing yields are a terrible sign as they mean liquidity in bonds is drying up as the market becomes increasingly controlled by a single buyer, the BoJ.

Either way, the BoJ is now buying 70% of new government debt issuance and that is likely to increase going forward. The government can't allow bond yields to rise as this will mean interest on government debt rises too. Japan is in an unenviable position on this front as interest on government debt already consumes more than 25% of government revenue. A further sharp rise in bond yields will be a disaster.

While it's clear that the BoJ can partially control the bond and equity markets (it's buying stocks too), it has less direct control over the currency market. The yen has had an extraordinary tumble since the new government came to office in December. With more money printing to come, the yen is almost certainly heading much lower though. That's despite being clearly oversold in the very short-term.

Yen decline is good for Europe?

A conscious decision to devalue the yen may or may not work in Japan (I've argued the latter for some time). But a related question is whether that decision is good for countries outside Japan.

I have addressed this question briefly before. But I thought it was worth going into some more detail given the issue has garnered more debate over the past month.

In particular, there's been an argument gaining traction in serious economic circles that the yen's decline will be good for other countries as it will force them to print money in order to lower their own currencies and remain economically competitive. This is particularly the case for European exporters, such as Germany, which are being hurt by the rising competitiveness of Japanese exporters due to the lower yen.

U.S. economics professor, Tim Duy, makes the case:

"... this [yen depreciation] is exactly what the global economy needs right now. If Germany and by extension Europe experiences weaker growth, European policymakers will need to respond. And they are not likely to respond by buying Yen to hold its value up. They are likely to respond by stimulating their domestic economy directly via easier monetary policy and, hopefully, easier fiscal policy.

In other words, successful domestically-orientated policy in Japan will have second-round effects that will induce further policy easing [in] Europe. And a good kick in the pants in Europe is exactly what we need right now. Rather than thinking about Japan's policy as triggering "competitive devaluations", think of it as triggering "coordinating global easing."

And an assistant U.S economics professor, David Beckworth, similarly argues:

"The ECB [European Central Bank] may ease to keep the Euro from getting too expensive and in the process shore up European domestic demand. How ironic it would be if Abenomics were to accomplish in the Eurozone that intense human suffering could not: moving the ECB to forcefully act."

I cannot think of a more preposterous and dangerous idea than that being put forward by these seemingly eminent individuals. Let's put aside the idea that countries are made stronger by weakening their currencies, which history has refuted time and time again.

No, let's focus instead on drawing out their argument to its logical conclusion. If Europe abandons austerity (which it has never really pursued) and prints money to significantly weaken its currency, this would start to equalise the competitiveness of the likes of German exporters against Japanese exporters.

In other words, Japan's exporters are gaining global share at the moment vis-à-vis the Europeans due to its lower currency. These gains would reverse if Europe depreciates its own currency.

Naturally, the Japanese wouldn't be happy with this at all. They would print more money to accelerate the depreciation of the yen. The Europeans would again retaliate upon losing export share. And so it would go on. Overall, any gains through currency devaluation would be short-lived.

But that's not the end of it. If you assume that other countries follow Europe in devaluing their own currencies, then the whole world would be after lower currencies. This would be of little benefit to Japan. Put simply, Japan's policies depend on other countries not following their lead.

It's not hard to see a currency fight turning more nasty. If Japan can't gain an advantage from deliberate yen depreciation, it's likely to try other means. Those other means include increased tariffs and/or trade sanctions. Once this happens, global trade would be hit and everyone would lose.

The above discussion has left aside the real reason for Japan's currency deprecation: to import inflation. A declining yen makes imports more expensive, thereby potentially inducing higher inflation. That's what Japan is targeting. I'll leave this issue for another day though.

When does retaliation begin in earnest?

This brings us to the issue of when the rest of the world will begin to react to Japan's policies in earnest. Of course, some countries have already reacted. Recently, South Korea and Australia surprised with interest rate cuts. Switzerland and New Zealand have moved directly to cap their currencies. And Thailand and the Philippines are looking to move soon. It's clear that Japan's weak yen policies are already having a large impact on other countries.

Other major exporting countries such as Germany and China are clearly worried. Both have expressed concerns about Japan's policies as their own respective currencies have strengthened considerably, particularly in yen terms.

If you're like me and expect the yen to continue to decline over the next 12 months, it won't be long before so-called currency wars start to intensify. And unlike the economic ideologues who think that everyone will win when this happens, I think the reality is likely to prove very different.

This post was originally published at Asia Confidential: http://asiaconf.com/2013/05/17/why-japan-is-bad-for-the-world/

North Korea Launches Three Missiles Into Eastern Sea

Tyler Durden — Sat, 18 May 2013 13:51:56 +0000

Five days ago, when describing the launch of the joint-US, South Korean naval military exercise in the East Sea, we said that "for all his endless posturing, North Korea's Un has done absolutely nothing. And if his inability and unwillingness to translate threats into actions continue, that will pretty much be it for North Korea's hope to even get a few loose pennies as a nuisance factor" be it from the US, Japan, South Korea, or anyone else who is listening. It seems the North Korean leader has taken the hint, and overnight escalated from merely constant jawboning into at least some variant of activity, when he fired three short-range missiles into the sea off the eastern coast of the Korean peninsula on Saturday, "once again stirring tensions that had appeared to ease in the wake of a recent series of bellicose statements directed at South Korea and the U.S."

WSJ reports that in a short briefing, South Korea's defense ministry said Saturday that North Korea had fired two guided missiles into waters off the Korean peninsula in the morning, followed by a third missile in the afternoon.

"In our judgement, the missiles are short-range guided missiles, not mid-range missiles such as the Musudan," defense ministry spokesman Kim Min-seok said. "South Korea's military is on high alert to prepare for any hostile acts from the North following the guided-missile launch today."

This means the launched missile is most likely the appropriately named Nodong:

Is there a reason to be concerned? Hardly, especially for those who have been following the seemingly endlessly escalating rhetoric out of NK, whose only purpose is to extract a nuisance value premium from anyone, just so it shuts up.

Shin Jong-dae, professor at the University of North Korean Studies, said the launches were more likely a means of drawing attention from the international community than a test launch.

"North Korea is an expert at crisis diplomacy or crisis marketing," Mr. Shin said.

Kim Yong-hyun, professor at Dongkuk University's North Korean Studies department, said the North appears to hope that launching missiles will prompt an offer of dialogue from the U.S.

Which is why ignoring the country so far has worked, however like any irrational actor whose only mode of behavior is attempting the same failed action until there is a response (like the Federal Reserve, for example), at some point North Korea, for whom the opportunity cost of actual military escalation is declining with every day it gets no appeasement from the West, may just lash out. Especially if such overt provocations as a US nuclear carrier swimming in its back yard for "naval exercises" continue.

FiNaNCiaL TeRRoRiSM AND PoLiTiCaL SeX MaP...

williambanzai7 — Sat, 18 May 2013 13:37:53 +0000

CBO - US Economy Set to Soar On Obamacare?

Bruce Krasting — Sat, 18 May 2013 12:02:57 +0000

The Congressional Budget Office put conservative economic thinkers on their ass this week. In this Report (pdf), the CBO concluded that the US budget deficit is about to collapse to insignificance. The improvement in the deficit outlook is so large that it has lead liberal thinkers to start calling for more stimulus spending. If it were not for the three scandals brewing for Obama (Benghazigate, IRSgate and APgate) I think there would be calls to spend some more government money.

The CBO assessment of the deficit profile relies on every trick in the book. The assumption is that all of the variables that weigh on the deficit will be improving over the next few years. Tax collections will remain at historically high levels. Government spending will decline as the economy improves. Fannie Mae and Freddie Mac will be kicking $95Bn into the coffers. Social Security will cost less than previously thought, the same favorable result is assumed for both Medicare and Medicaid. And of course, there will be no wars or military incursions that have to be paid for. But, by far, the biggest driver of the reduced deficits will come from a robust economic recovery that is set to occur. This is the CBO forecast for top line GDP growth:

Wow! 6.5% growth is coming our way! Don't worry at all about the endless recession in Europe. Don't consider the rapid slowdown in China either. And please don't worry about the fact that the Fed is going to be taking its foot off the gas over the next 24 months - all that won't make any difference. The USA is set for a spurt of growth not seen for years.

What could the CBO be hanging its hat on when making this bold predictions of rapid economic expansion? I wonder if the CBO is relying on Obamacare to provide the big boost. This is the only significant economic development on the horizon. It will change everything when it's finally implemented. It will result in 32 odd million more people having access to healthcare. And when those people do have health insurance, they will be going to Doctors, getting treatments and medicines. And with those visits and related spending, the economy will get a lift - at least that is the thinking.

There is some evidence that Obamacare is going to ratchet up health spending. The New England Journal of Medicine has done a study on the results of an experiment in Oregon. Some 6,000 people were given access to Medicaid for two years. There was a control group of another 5,000 people who did not get access to health insurance. What did those who won the lottery for the free health benefits do? They went to Doctors of course. The study showed that those with insurance were 2Xs more likely to visit a doctor, and would take twice as many prescription drugs. Obamacare will result in an increase in medical diagnostics; the number of MRI's, X-rays, blood test etc. will increase markedly when free health insurance is available. The cost of all these new medical services will add to GDP, and increase employment in healthcare.

The Oregon study showed that healthcare spending rose by $2,750 for those who had access to Medicaid versus the control group. If these results are applied to all of the 32m people who have no insurance today, it would result in an increase in spending of $90Bn - that comes to 5.5% of GDP. While not all of that spending is going to happen, its pretty clear that Obamacare is going to ramp up the economy by a meaningful amount - a 2% net increase in economic activity is possible.

To the extent that Obamacare is measured as a jobs program it may be considered a "success". More medical spending will be the result. The larger question of what it will do for the health profile of Americans is not at all a sure thing. I was surprised by the conclusions drawn by the Oregon study:

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first two years

The reason why overall health results were not improved for those with insurance was interesting. People who have healthcare available to them often adopt risky behavior. For example, those who had health insurance in the Oregon study were much much more likely to smoke. (10% increase over those that did not have health insurance) This conclusion confirms what has been observed in other situations. When people have seat belts, they think they are safe, so they drive faster. It appears that the same holds true on health related matters.

The pessimist in me says that the roll-out of Obamacare is going to be anything but a success. The state insurance exchanges will not be up and running on time. Getting those 32m people to sign up for Medicaid will not happen at the pace that is currently anticipated. Obamacare will not be the economic stimulus that is hoped for, it won't improve the nations health levels by much, and it's going to cost an absolute bundle in the form of increased taxes. My guess is that in 2-3 years most folks in the country are going to hate Obamacare, but it it will be impossible to get rid of by then.

Dollar Bull Run

Marc To Market — Sat, 18 May 2013 11:42:31 +0000

The US dollar posted strong across the board gains. It is being driven by the anticipation of favorable developments in the US, in the form of a possible slowing of the Fed's asset purchases, and less favorable developments abroad.

While it is technically poised for additional gains, the biggest risk to the dollar comes from Fed Chairman Bernanke's midweek testimony. His commitment to QE and readiness to taper purchases, as others have suggested, will be closely scrutinized. The failure to confirm these growing market ideas, spurred in part by comments from two (non-voting) regional Fed presidents, could prompt some profit-taking on long dollar positions.

While speculation that the Fed may take one of its feet off the accelerator in the next week month helped lift the dollar, other countries are easing policy. There has been even more talk about the ECB adopting a negative deposit rate. Continued sub-50 readings in the flash PMI, due midweek, will heighten the sense that the euro zone continues to contract for the seventh consecutive quarter.

The ongoing decline in the yen is meeting little official resistance. Chinese officials, for example, seem more upset by comments by the mayor of Osaka (which the US also criticized for being "outrageous") then they about the depreciation of the yen. The US Dollar Index has risen 3.7% from the low on May 1 to its best level since 2010, and it recording its best two week run since in a year.

Euro: A large head and shoulders pattern is being carved out. The neckline is seen near the late March and early April lows around $1.2740. Below there is the low from last November near $1.2660, which is just below the $1.2680 retracement objective ($1.2680) of Draghi's OMT induced rally. The measuring objective of the head and shoulders pattern would carry the single currency below $1.20, our year-end target. The euro's 50-day moving average crossed below the 200-day (golden cross) for the first time since last October.

Yen: The pullbacks in the US dollar continue to be shallow. This is not giving the longs any pain and it gives many momentum and trend followers a sense that it is a one way bet, a mindset that often proves dangerous. Support now is seen in the JPY102.35-60 area. Although there are reports of option structures before, many have their sights set on JPY105.

Sterling: The upside correction from the mid-March low near $1.4830 has ended decisively. That correction had held a up trend line, which sterling closed below at the start of the week near $1.5350. A convincing break now of $1.5120 area suggests a return to, and likely a break of, this year's low. Sterling has also broken below a trend line connecting the lows of the past three years. This sours the longer-term outlook and warns of a move toward $1.42.

Canadian dollar: The US dollar is flirting with trend line resistance against the Canadian dollar going back to 2011. The year's high was set on March 1 near CAD1.0340. A break of it opens the door for a move toward CAD1.05-CAD1.06.

Australian dollar: The Aussie has fallen out of favor in a big way. It has been aggressively sold-off; the largest decline over a 10-day period in more than a year and a half. It has convincingly broken a trend line drawn off the 2011-2012 lows that came in just above $0.9800. An investment bank called for a move to $0.8000. This corresponds to the 2010 lows and a 61.8% retracment of the post-Lehman rally. It may be a reasonable longer-term objective, and by the OECD's purchasing power parity model, the Australian dollar is almost 30% over-valued. However, given the difficulty in forecasting exchange rates and the substantial risks that are involved, as well as mitigating factors like Australia's triple-A credit rating and a currency that is gaining recognition as a reserve asset, we suggest medium term investors should anticipate half of that move, or $0.8900-$0.9000 and place stops accordingly.

Mexican peso: Over the past year, the Mexican peso has appreciated by 11.5% against the US dollar; making it the strongest among the G7 and liquid emerging market currencies. While we recognize attractive underlying fundamentals, technical factors have made us more cautious. A dollar bottom has been carved out over the past month. The long peso position remains large and a move above MXN12.40 could spur a further dollar short squeeze. A correction could carry the greenback into a MXN12.60-MXN12.80 range.

Observations from the latest CFTC report of the CME currency futures:

1. Participation rose as new gross positions were established across the board, with two minor exceptions, short Canadian dollar and short Mexican peso positions were trimmed.

2. There were 4 substantial (more than 10k contracts) position adjustment and they were all adding to the gross short positions: euro, yen, Swiss franc, and Australian dollar.

3. The 36% rise in gross short Australian dollar positions to a record 75.1k contracts was sufficient to switch the net position to the short side for the first time since last June. Nevertheless, the gross long position remains the second largest among the currency futures, behind the Mexican peso.

4. The gross short euro position is just below 100k contracts. Last June, as the tensions were mounting that led to the Draghi's OMT offer, the gross short position was 250k contracts. The gross short sterling position is approaching the record from March of 105k contract. The price action and the increase in open interest since the CFTC period ended suggests new shorts have been established.

IRS Official In Charge During Tea Party Targeting Now Runs Health Care Office

Tyler Durden — Sat, 18 May 2013 01:57:47 +0000

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

I’d like to say that the following is unbelievable, but it’s not. Unfortunately, it is all too believable.

From ABC:

The Internal Revenue Service official in charge of the tax-exempt organizations at the time when the unit targeted tea party groups now runs the IRS office responsible for the health care legislation.

USA! USA!

Sarah Hall Ingram served as commissioner of the office responsible for tax-exempt organizations between 2009 and 2012. But Ingram has since left that part of the IRS and is now the director of the IRS’ Affordable Care Act office, the IRS confirmed to ABC News today.

Her successor, Joseph Grant, is taking the fall for misdeeds at the scandal-plagued unit between 2010 and 2012. During at least part of that time, Grant served as deputy commissioner of the tax-exempt unit.

Grant announced today that he would retire June 3, despite being appointed as commissioner of the tax-exempt office May 8, a week ago.

“Obamacare empowers the agency that just violated the public’s trust by secretly targeting conservative groups,” Rep. Marlin Stutzman, R-Ind., added. “Even by Washington’s standards, that’s unacceptable.”

Sen. John Cornyn even introduced a bill, the “Keep the IRS Off Your Health Care Act of 2013,” which would prohibit the Secretary of the Treasury, or any delegate, including the IRS, from enforcing the Affordable Care Act.

“Now more than ever, we need to prevent the IRS from having any role in Americans’ health care,” Cornyn, R-Texas, stated. “I do not support Obamacare, and after the events of last week, I cannot support giving the IRS any more responsibility or taxpayer dollars to implement a broken law.”

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