The consensus - perhaps until today, judging by the performance of Japanese stocks relative to the Yen - is that Abe calling a snap election is bullish, enabling him to re-confirm his mandate to push ahead with uber-dovish devastation of the Japanese economy. However, what few are willing to consider is... what happens if the world's greatest policy madman does not get elected? As the following chart shows, with only 4.4% of Japanese households believing they are better off in the past year, perhaps an unelected Abe is the black swan no one is considering currently...
"QE is a necessary condition for recovery in Europe, but is not sufficient in itself. The question is where does this bridge take us? The eurozone can survive a couple more years of miserable growth, but it can’t go on forever like this before people lose hope. There is political risk almost everywhere."
While hopes of the J-Curve recovery in the deficit are long forgotten in the annals of Goldman Sachs history, silver-lining-seekers will proclaim the very modest beat in tonight's Japanese trade deficit a moral victory for a nation whose economic data has been nothing but abysmal for months. However, the near $1 trillion Yen deficit is the 44th month in a row as exports to US and Europe rose modestly in Yen terms but dropped to China and US in volume terms. USDJPY continues its march higher (now 118.25) but, unfoirtunately for Abe's approval ratings, Japanese stocks continue to languish an implied 1000 points behind - unable to break back above pre-GDP levels... as faith in Kuroda's omnipotence falters.
Seven of the 30 largest U.S. corporations paid more money to their chief executive officers last year than they paid in U.S. federal income taxes, according to a new study by Center for Effective Government and Institute for Policy Studies. As Reuters reports, the study said the seven companies, which in 2013 reported more than $74 billion in combined U.S. pre-tax profits, came out ahead on their taxes, gaining $1.9 billion more than they owed... and at the same time their CEOs were paid - on average - over $17 million each. While some of the firms dispute the findings, the study concludes its findings reflected "deep flaws in our corporate tax system."
Unfortunately, Natixis warns, the same error is being repeated by the Bank of Japan. The starting point of their analysis is the contrarian fact that Japan needs a strong yen. Japanese exports are hardly sensitive to their prices; Japan has a large proportion of "necessary" imports (commodities) whose price rises when the yen weakens. Unfortunately, Natixis warns, the Bank of Japan has just increased the size of its quantitative easing program, which will lead to a steeper depreciation of the yen. The only benefit will be a temporary rise in the Nikkei, an automatic result of the conversion of Japanese companies' results into yen. Nothing more...
Keynesian fiscal policies and central banking regimes have buried the public sectors of most of the world’s major economies in unsustainable debt. Now they propose to double down on more of the same because an entire generation of politicians have been house-trained in permanent fiscal profligacy and endless kicking of the fiscal can down the road. To be sure, in perhaps putting off Japan’s day of fiscal reckoning once again, Prime Minister Abe is proving himself to be a certifiable madman. In short order, however, he will have plenty of company all around the planet.
18 months ago President Obama warned a graduating class to "reject" those that "warn that tyranny always lurking just around the corner." It appears he went full Keyser Soze...
The word "volatile" comes to mind when reflecting on today's cross-asset class action. US equities dumped into and beyond the US open, decoupling entirely from JPY carry, only to reverse perfectly at the European close and recover all the way back to USDJPY right as the FOMC minutes hit. A kneejerk sent stocks higher but that quickly decoupled also and stocks fell. Small Caps underperformed and are back in the negative year-to-date. Treasury yields were volatile, ramping higher into the US open, rallying post, then whipsawing on FOMC minutes to close 3-4bps higher on the day.The USD was flat on the day despite the surge in USDJPY back above 118. Commodities were a mess with a big dump on Swiss Gold polls, rip higher on Russian buying rumors and dropped again on FOMC (oil and copper followed suit). HY Credit was "bidless" and continues to decouple from stocks (along with VIX).
Having noted rather pointedly that "there's a subsidy in the marketplace that's worked out definitely to those that are holding equities," Santelli warns, when The Fed removes it, "it creates a problem for equities." However, when he is asked about the disconnect between the bond market (rates) and what The Fed is telling us, Santelli rightly explodes, lambasting the 'Hatzuis' of the world, "if The Fed hasn't made up its mind" about when and how rates will rise, "how can markets 'price it in'?" ... and the rant ignites from there...
In a nation in which 1 out of every 3 homes is unaffordable, you’d think the primary goal of public policy wouldn’t be to ensure real estate becomes even more out of reach for the average citizen. It’s bad enough that American financial oligarchs have leveraged free money polices of the Federal Reserve to purchase tens of billions of dollars in real estate only to rent it back to people who were kicked out of their homes during the 2008 crisis, but the government is now going out of its way to allow Chinese (and other foreign criminals) to launder money via U.S. property.
Having kneejerked higher, stocks read the most important section of the FOMC Minutes - that they will not be rescued next time - and decided it was time to take some off. This is clearly not acceptable and so USDJPY was leveraged ever higher and just broke 118.00. The problem is... US and Japanese stocks are entirely decoupled from this surge in the momentum igniter...
Instead of reading between the lines of the 28 page FOMC minutes, we have The Wall Street Journal's Jon Hilsenrath to explain to us what we should believe. His message is not dovish. Despite tumult in financial markets, weak economic conditions abroad, and risks that low inflation could drift lower, Hilsenrath notes that the Fed forged ahead with a decision to end the central bank’s bond-buying program because the domestic economy and labor market appeared to be on course for further improvement. Furthermore, officials added a new twist: a debate about whether they should add new information in their official policy statement on how quickly rates will rise once increases commence.
"... members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility."
The Fed minutes can be boiled down to 3 two-word factors: "inflation rate", "economic policy", and "market conditions" - all of which overshadow words like "growth" and "jobs" and "employment"
Having done nothing but rally since the FOMC statement on 10/29 that ended QE, the minutes provide little additional info aside from to note that some participants wanted to drop "considerable time":
- *MANY FED OFFICIALS SAW LIMITED IMPACT FROM GLOBAL SLOWDOWN
- *FED OFFICIALS SAW NEED TO WATCH FOR INFLATION EXPECTATIONS DROP
- *FOMC OPTED NOT TO MENTION FINANCIAL MARKET TURMOIL AFTER DEBATE
If they don't mention, it never happened