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Japanese Stocks Tumble - Down 10% In 2014 Following Record Low China Services PMI
USDJPY opened the evening under 102 with JPY holding its losses until aroun 1700ET when it broke back above the crucial level. S&P futures and USDJPY recoupled for a few hours but are now decoupling faster than the Seahawks and Broncos (S&P -1pt, USDJPY +30 pips). The catalyst for the disconnect (which Japan's Nikkei is also following) was weakness in Chinese data. Following Aussie PMI's lowest print in 5 months, China's Services PMI printed at its lowest on record and its biggest 3 month slide in 16 months. Japan's Nikkei 225 is now down 10% in 2014 and 7 of the last 8 days and 20Y JGB yields are testing 9-month lows.
China Services PMI at its lowest on record...
with the biggest 3-month slide in 16 months...
Which triggered a disconnect between stocks and carry...in US futures...
and the Japanese stocks are now down 10% on the year....
and 20Y yields are testing 9 month lows...
Charts: Bloomberg
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- Jamie Dimon
He made this statement when Congress was grilling him - but did they grill him? - over the Corzine scandal. After the above statement, he shrugged.
C'est Lavie!
With a capital F. Deflation Deflation Deflation. Just like America. The solution? Run to the hills.
On ZH this may seem like a tired debate, but it is worth every penny. Deflation in what you don't need, inflation in what you do. Let's term the term, 'Flation.
Speaking of another need, I'm about to finish my beer!
I'm starting to smell a whiff of the "C" word. Contagion. This time at the nation-state level, not just at a bank level.
Jim Chanos opined that China was on track for a massive economic crisis born of major structural deficiencies (a portion of which are attributable to automation and another to demographics) - which would then inevitably lead to a deep & intractable financial crisis - three years ago.
I don't just read, accept & repeat what anyone writes, regardless of their reputation, credentials (or lack thereof, for that matter); I do my best to challenge the assertions made and find logical errors, inconsistencies or other mistakes in their hypotheses.
In the case of China, I believe Chanos will be proven correct.
Watch for China to attempt to aggressively debase the Yuan despite extreme western (as well as fellow Asian) consternation and threats of retaliatory actions and sanctions, as the only real avenue China has to soften their crash landing is to literally try and float their exporters to the point of "dumping" goods.
In fact, I believe the emerging markets are pretty much all in dire straits at present, that the amount of their shadow debt (whether spoiling commercial/consumer bank loans or bad government debt issuance) will become a black hole from which they can't escape given that the flow, pattern and balance of global trade, especially with respect to export-dependent economies, is changing so rapidly (for the most part, shrinking in real terms) that there their strategy of export market growth that they've relied on for the better part of 16 years will no longer save them from their past massive malinvestments, and that we've now entered an era where the BRIC block will have to sort out their very serious and deeply rooted structural inefficiencies, at the worst possible time - when developed nations will be focused on getting their own very serious economic & financial crises tempered, with their domestic hunger for imports declining precipitously.
We've entered an Era of true Great Moderation in Consumption, especially as compared to the 1994 to 2007 period. Government stimulus will not be able to fill the gaping drop-off in consumption since so many governments are now already indebted at levels that historically are associated with periods of crisis or major wars (Japan is at an official Debt to GDP ratio of 230%, the UK and US are officially above 100%'- likely close to double that in reality -, and the PIIGS+France are probably worse off; the take away is that attempts at further government stimulus willingly serve to further crimp consumer and business consumption, leading into be a net-negative sum game).
I respectfull disagree. China has the equivalent of around $3.5 Trillion in reserves and, in reality, probably around 15-20K Tonnes of Gold. Conversely, The US has....well, not much except debt. A LOT of debt, which is being added to at a rate of about $1 Trillion per year, excluding unfunded commitments. So, actually, where are the fundamental problems?
China also thinks long-term and plans to change the world away from $ hegemony, which it will achieve via a strong Yuan, Gold-backed either explicitly or implicitly, probably the latter. It also wants to change the mix of its economy towards more consumption.
So trying to destroy the Yuan makes no sense and will not happen.
The Saudis have a shitload of reserves - so do the Japanese
Do you think they could ever cash those in? Not on your fucking life buddy.
The US would not allow it --- and if they tried to that would collapse the USD.
Dream on
He who pays the Piper calls the tune.
China is now the world's largest importer of oil and, especially in view of what the Saudis regard as "desertion" by The US, it is quite possible that they will start to accept Yuan in exchange for oil. And there is very little the US can do to prevent it. Once that happens the US is totally fucked because the almighty dollar will immediately lose its "Petrodollar"market and ongoing QE will then result in hyperinflation. Incidentally, less than $1 Trillion of China's reserves is now in Treasuries and the shoe is now on the other foot. If China decided to dump all its Treasuries in short order, who, other than The Fed, would buy them? Either way, hyperinflation would follow.
"The US will never allow it to happen". It's over. Dream on.
The US is now Japan 2.0 and I do agree that Japan is also fucked. Japan's problems, in fact, go much deeper, including demographics and a "Racial purity"" (Anti-immigration) social mindset.
PS. Your Avatar is a very appropriate name.
I do wonder what would happened if the US decided to pull all military forces for the Gulf as payback for Saudies moving to the yuan. I suspect the place would a fireball in months, and the Chinese lack the means to do anything about it.
You have no idea.
China runs a mercantilist trade policy. Consumption is repressed, savings are forced, export industries are subsidised. Like Japan, South Korea and Taiwan before it.
China's domestic resources cannot support a western style affluence for 1.3 billion people. It is just NOT.GOING.TO.HAPPEN. They need to export now while their population declines. They need jobs and revenue so the CCP can remain in power and enforce the one child policy.
If Americans were able to take a little short term pain, say 5-10 years of economic contraction and austerity, they could crush China like a bug. All it would take is for the dollar to halve in value, and for gasoline to triple in price. But instead Americans are hoisting themselves on their own petard.
"I'm starting to smell a whiff of the "C" word."
The Ben Bernanke is a CUNT. How's that?
"I'm starting to smell a whiff of the "C" word"
Hillary Clinton snagged in Benghazi cover-up:
http://www.wnd.com/2013/03/hillary-clinton-snagged-in-benghazi-cover-up/
Oh, that other "c" word.
Ahhhh...
I'm no Hillary fan, or a fan of the Democrats, or a fan of the Republicans, but come on, WND? I guess the tendency is to go to sources that say what you already believe.
Biflation is the term thats been bandied around ZH from time to time
No, we are all fucked.
Not like Japan. Although the west coast is dealing with some radiation, Japan is dealing with Uranium and Platonium on Toyko rooftops. They are dealing with Fed policy in overdrive. They are dealing with a shrinking population and very little resources.
The consumer economy is fucked, and Japan will feel it harder than anyone.
The Island economies should have been the last to buy into the system, but due to personal greed, they were the first.
Sayonara.
Can you elaborate on "the system"? Thanks.
Get to work Mr. Yellen.
Ol' Yellen is itchin' to get in the fight, but she is just a lonesome economist, and she will rack her brain in her ivory tower for the months to come as stocks fall and gold rises. She will likely increase QE, if just for "the next quarter". But QE won't stop until the Treasury is run dry. When it is, the President's Working Group won't be able to handle the strain.
she wont be able to make a peep until the usual expected end of month statement without making it look like a panic response.
bernanke really put her in the shitter reducing QE by another $10 billion just before he bailed.
How much can we slide/collapse in the next 4 weeks ?
She won't be able to offset a China/Asia crash.
In terms of making banks and large institutions 'whole', yes, she will. In terms of it's real world effects, no, she won't.
Once you realize the basic working assumption is that banks should live on even after human beings have long since passed from the Earth, you have the proper perspective. People only exist because banks do. When your whole life is spent as a hammer, everything looks like a nail.
What you have to ask yourself if China/Asia start pulling vast amounts outta American banks, there is little the Fed can do. Was there not an article on ZH re: economist pulling his monies out of Bank of America before the fact?
Also Bush/Obama underwrote Wall Street after 2008 meltdown (China crash will make that look like nothing), the Fed supplied the liquidity, the meltup from then too now is Bernanke smug parting. The chalice is with Yelland and the chaos will probably kill her. Asia are creditors, the maths are simple, creditors implode yields blowout and it is not beyond the realms that the Fed will take a colossal hit on their holdings. So, the quicker they 'unwind' the better. There must be a lot of people sweating hard in light of EM/Asian economies blowing up.
I rememberer Marc Faber commenting on Schiller's copper short comment when China crashes. Faber is like, 'you wanna short the whole world if China goes'.
You're thinking like somebody who doesn't own a printing press. China dumps bonds, the Fed will buy them faster than they can dump. Unless China can extract US concessions (like Germany does currently from Greece via the ECB), it's a power game, not a financial rules game. Fed capitalization is irrelevant since they can self-recapitalize via the printing press (or, more likely, simply declare that normal balance sheet rules do not apply to them, since nobody really knows that their balance sheet looks like anyway).
We could hammer China's Treasury holdings any time we want- that street goes both ways. They were stupid to buy them (they bought our future promises, basically- an error they are trying desperate to remedy by sucking up all the world's physical gold) as they are currently stupid to peg the Yuan to the USD (a condition they WILL remedy in coming years when they have enough gold). No, China's not going to war- economic, shooting or otherwise with us until they can unlink their future from USTs.
China has massively invested in Japanese debt too.
If Japan is about to blow are you saying they would invest in China?
I would argue they would...will and in fact are going to buy up every Treasury certificate issued.
PERIOD.
They're gonna have to get in line of course.
There is an EXTENSIVE list of countries right now wanting to get ahead of that line.
I will say this as being factually true:
Japan of 2014 is a bit bigger a deal than Thailand, 1998.
The Nikkei is significantly below trend support and the US markets are about to edge sideways over its support. If the US markets can't get a bid and hold it in the next day or two people will question whether BTFD is a good idea anymore. That is a dangerous way for the crowd to think as the markets crack down through support. Be sure you have your popcorn stocked up.
I fail to see how treasuries don't rally and rally MASSIVELY here.
I don't believe there is any connection between equities and the treasury complex...having said that if you can issue debt with impunity the obviously "the sky is the limit" as far as equities are concerned.
I have stated repeatedly "the Fed burst that bubble in 2013" (Apple couldn't have timed their debt offering any better actually. Those who bought that CRAP have been destroyed...but the equity still looks fantastic to me.)
A big rush into dollars is not good for equities in the short term.
Having said that there are a lot of companies worth buying if there is sudden "panic buying" of assets that aren't just in dollars...but actually produce some.
North Dakota energy companies would be on the list.
So would Gulf of Mexico drillers.
I can think of a few utilities that should do great here: Duke, Entergy, WEC, OTTR. Heck even exelon might be worth a look here.
if this really is a true "panic" then obviously you want to be long green energy...which has already had a dramatic run in 2013.
the easiest way to play this would be via wind turbines.
that's General Electric and a "buy one/get one free" type program. (for every turbine bought by a foreign country GE electric gets to buy and deploy one for itself.)
In other words "long humongous wind farms."
Tesla could have another great year.
Hyundai/Kia really could be the big winner in the fuel cell race.
Orbital Sciences.
Microsoft.
PXD.
EOG.
CLR.
Heck even CVX and XOM have said they're not going to pare back what are massive exploration budgets.
The market might continue to sell off but "the worst time to sell is in a panic"...if you call a dollar buying panic an actual "panic."
Obviously you don't want to be shorting dollar denominated debt.
Good luck trying to cover that bet if you are...
There's more to this China and US Treasury angle than meets the slant eye. Remember, China was allowed to be a Direct Bidder for US treasuries in 2012, the only foreign country allowed this. I don't think it was because China had a grand plan to dump treasuries. I think it is more likely that China was just allowed to join TPTB club to protect their own interest. As an export nation, with a currency linked to the dollar, China needs a weak dollar to keep their products cheap. They also need dollars to buy commodities. This circular money maker makes them a perfect candidate to help the Fed keep this Ponzi going because it directly benefits China. China essentially has no assets (raw materials) but a growing consumer army, that eventually will be a Free Shit Army to keep from revolting. They are the pefect addition to the West Oligarchy and a major buffer to Russia and the Middle East Strong Asset clan. I predict all this saber ratteling over N.Korea, now Japan, and soon to be Taiwan will just be a catalyst for a new military agreement between China and the US. They are becoming part of the Western club now just like Nixon and Kissenger wanted.
Bullish for US stocks.
Even more bullish for Europe stocks.
And of course e mini NASDAQ 100 futures are in the green. What else would they be?
Some of us are hoping for a few dead cat bounces.
I am always amused by the debate between inflationists and deflationists because they both seem to ignore the reality of the masses.
If one of two workers in a household lose their job but prices remain stable then in my books the effect is inflationary as far as the household is concerned.
If prices drop but income drops by even more then the effect is also inflationary.
If prices rise but incomes rise by even more then the effect is deflationary.
I know these statements do not fit in with the usual definitions of inflation (increase in money supply) but at the end of the day the effect on the economy and the sum of its households is what matters.
One only has to speak to all those part timers who have had their week cut down even more because of Obamacare to understand what I am saying.
The US had a deflation that lasted from about 1840 to 1910.
To my knowledge this "pricing power" has never been equaled in economic history.
That time frame includes a Civil War financed entirely by fiat money. (The same money we use today actually.)
We also financed World War II under a fiat currency regime although my understanding is there was some concern with inflation then.
I would argue the only problem the USA has right now is that it's Navy is too small and it doesn't have particularly effective armored divisions at present.
Of course if you're good friends with Germany then that's not a problem.
Love the charts here, and especially the LONG-TERM MEGAPHONE chart in another article -- that's one I've been looking at for awhile. It's a WORLD OF DEBT!!! See Video Below:
http://www.youtube.com/watch?v=99xsqxzJnXs
Well so far 3 Bankers off themselves in 3 week. When it gets to 3 a week then you might have both a problem and a solution.
I want to start a drinking game ... 2 fingers for them + 1 for me of single malt Whiskey, everytime they fall faster than Angels can fly. I hope 2014 is just a blur.
Bring it on!
BernankCoin loaned out $200 trillion the last time their bubble went supernova. What's the number for this go round?
This is the true nature of why we are absolutely and totally fucked - most important (and sobering) analysis of the situation not by an economist but a mining engineer http://www.youtube.com/watch?v=TFyTSiCXWEE
If you watch one presentation in 2014 - this should be it
correction is a bitch!
Ergo my wife is a correction.
My mother-in-law is a correction, this why I've firewalled my investments with the wife with an intricate network of options, stops, and so forth.
maybe they will be wacked hard by the carry trade, double whammy