The Flash PMI had already 'warned' of a contractionary print but the final May HSBC Manufacturing PMI is now the lowest in a year at 49.2. The last two months have seen this measure of the Chinese economy plunge at its fastest rate since March 2011. Of course the 'official' data still remains a handsome 50.8 (not contracting at all) but the underlying data of the HSBC/Markit index is just as awful with little in the silver-lining camp to save the day (or night). Employment dropped, new export orders and total orders fell, purchasing activity fell, with only a meager rise in output saving the index from a more precipitous decline. Output prices also plunged (but input prices dropped on the back of cheaper raw materials - particularly base metals) and inventories rose (in a lack of demand manner as opposed to 'if we build it' perspective according to HSBC). So, once again, just as in Q1 2012 (before the reality swoon) China is both expanding and contracting...
Back in 2010 we started an annual series looking at the (re)distribution in the wealth of nations and social classes. What we found then (and what the media keeps rediscovering year after year to its great surprise) is that as a result of global central bank policy, the rich got richer, and the poor kept on getting poorer, even though as we predicted the global political powers would, at least superficially, seek to enforce policies that aimed to reverse this wealth redistribution from the poor to the rich (a doomed policy as the world's legislative powers are largely in the lobby pocket of the world's wealthiest who needless to say are less then willing to enact laws that reduce their wealth and leverage). Now that the topic of wealth distribution (or rather concentration) is once again in vogue, below we present the latest such update looking at a global portrait of household wealth. The bottom line: 29 million, or 0.6% of those with any actual assets under their name, own $87.4 trillion, or 39.3% of all global assets.
Despite a pre-open dump in JPY to try and spark some momentum, things are not going according to Abe's wealth-creation plan in Japan right now. The Nikkei 225 is down over 300 points (over 16% from its highs a week ago) and the broader-based TOPIX is down over 2.1% from Friday's close (down 14% from its highs). Topix Bank and Real Estates indices continue to suffer from high-beta-itis (-3%) but the Oil & Gas sector is now being dragged into the mess too (-3.2%). JGBs are rallying only modestly (yields lower by 1-2bps) in light of this decent selloff in stocks. JPY is now at its highs of the day testing 100.4 and JGB implied volatility is on the rise once again. All things considered... not good.
Because when your primary stated goal is achieving "price stability" through unprecedented intervention, and instead you break the markets (both bonds and stocks) it may be time to reevaluate. As a reminder: "The Bank of Japan, as the central bank of Japan, decides and implements monetary policy with the aim of maintaining price stability. The Bank of Japan Act states that the Bank's monetary policy should be aimed at achieving price stability, thereby contributing to the sound development of the national economy." Instead, you get this...
Breaking: SAC Capital executives are preparing for estimated client withdrawals of $3.5 billion. http://t.co/l2P6Dy8LwX
— Wall Street Journal (@WSJ) June 2, 2013
After giving the world, or at least 99.4% of it (i.e., those non 0.6% who control $87.4 trillion of global assets), hell for the past 8 years, this is Ben Bernanke's conclusion of his speech during the baccalaureate ceremony at Princeton earlier today.
Congratulations, graduates. Give 'em hell.
Straight from the Chairsatan's mouth... Because it wasn't enough for once Princeton economist who has never traded a security in his life to take over the bond (and stock) market, crush the market's primary discounting function, and make an absolute mockery of price discovery for the 5th year running, here comes an entire graduating class of up and coming Chairsatans to perpetuate Bernanke's legacy. One couldn't make this up.
While the divergences and WTF charts of the past few weeks may have intrigued many by their unprecedented nature, we thought the correlation between the following three assets was too good to pass off as merely spurious. The last six months have seen the ratio of palladium-to-gold track incredibly closely with the S&P 500. Fundamentally, this may make some sense. As Citi notes, given gold’s strictly limited supply and zero coupon, it had been a major beneficiary in a ZIRP world where easy money seemingly had no end, whereas given its industrial uses, palladium behaves more like a risk asset than a precious metal. Its biggest source of demand stems from gasoline based catalytic converters, hence it is tied to the strength of the US economy/ risk appetite. We bring it up as we suspect this week's equity market behavior may have many concerned that 'bubbles' do exist - no matter what they are told - and perhaps, as a way to hedge the exuberance, buying gold and selling palladium is a less pernicious method than unwinding the entire market all at once.
Neil Macdonald of the CBC recently did an investigative piece on central bankers and what they’re doing to the world’s economies. Mark Carney was featured heavily. He told Macdonald, “there is no secret cabal orchestrating things,” despite CBC’s own findings earlier in the program. Central bankers around the world meet in Basel, Switzerland for secretive meetings. Of course, central banks have – and have always had – enormous power that remained more-or-less hidden until 2008. A paradigm shift is occurring where a large number of people (particularly young people) are questioning their assumptions. Some of them are even beginning to read economists like Ludwig von Mises and Murray Rothbard. The “economics” of central bankers can now be revealed for what it truly is: statistical propaganda. Not only is the “Keynesian school” of economics unsound – the entire social science is bunk. Only the Austrian tradition can explain economic phenomena in such a way that makes common sense, scientific. Carney is asking us to trust him. This cannot be done. He is not speaking truth; he is speaking nonsense.
The premium that gold buyers in China pay to take immediate delivery of bullion has jumped four-fold in the last six weeks following the gold price 'crash'. As Bloomberg notes, even before the mid-April drop, China's gold imports jumped to a record in the first quarter as domestic demand (776 tons) outweighed domestic supply (403 tons). Images of consumers overwhelming jewelry shops were everywhere but the following chart clarifies just what the suspected gold manipulation did for demand as China's gold premium, while admittedly noisy, jumped from a long-run average of around $7 to over $32! As one analyst notes, the gold "premium is a function of demand and supply, and right now you could interpret the high premium in Shanghai as a sweetener to entice the overseas gold supply to flow into China."
As we are in the final stage of the global bubble, we realize that we often fail to ask the most obvious questions. In this case, as every central banker tells us that his policies are directed to obtain growth, the obvious question is... how do we define economic growth? What is economic growth? Yes, yes, we know that what they do is simply monetize deficits and enable the transfer of wealth between sectors and generations, but there is also an intellectual battlefield, which we should be aware of. What is the view of the central banking cartel on how to grow output? Surprisingly, not via an increase in the marginal productivity of capital, but via the so called wealth effect: As interest rates fall, asset prices increase (it doesn’t matter which assets see their prices rise) and the assets can be used as collateral to leverage a higher than previously possible consumption level. This consumption level will drive output growth, and this increase in output –they believe- will bring about full employment. The wealth effect is mistakenly attributed to Keynes, who actually argued against it. Thus, the central banking cartel has its own interpretation of economic growth and it does not fit any of the 'reality' perspectives presented below.
In a world in which glaringly misreporting factual news no longer generates much more than a shrug, the latest lie reported so often by the mainstream media and various 'expert' pundits it has almost become "the truth", is that that the key missing link to a global recovery - free cash flow, and its derivative, capital expenditures - are now once more rising. After all, corporations can not grow revenue (as confirmed by the most recent reported quarterly earnings) without investing in themselves, and they can't spend for maintenance or growth unless they generate Free Cash Flow: this is simple finance 101. So in order to put this pervasive lie to rest, we present the following chart showing free cash flow and Capex in the developed "G-4" region as a % of world GDP, which have now round-tripped back to 2010 levels, and ask a simple question: what growth?
As Barron's notes in this recent interview, Marc Faber view the world with a skeptical eye, and never hesitates to speak his mind when things don't look quite right. In other words, he would be the first in a crowd to tell you the emperor has no clothes, and has done so early, often, and aptly in the case of numerous investment bubbles. With even the world's bankers now concerned at 'unsustainable bubbles', it is therefore unsurprising that in the discussion below, Faber explains, among other things, the fallacy of the Fed's help "the problem is the money doesn't flow into the system evenly, how with money-printing "the majority loses, and the minority wins," and how, thanks to the further misallocation of capital, "people with assets are all doomed, because prices are grossly inflated globally for stocks and bonds." Faber says he buys gold every month, adding that "I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable."
Just one day after resuming use of the troubled 787 fleet, Japan Airlines has switched to an alternative aircraft after finding a fault with the air pressure sensor that detected overheating in the plane's battery container. JAL 'assures' the public that this is not the same battery issue that the FAA grounded Boeing's fleet for back in January. The problem, as The Telegraph reports, was put down to Boeing's faulty maintenance as two small holes on the 'battery' container - necessary for ventilation - were mistakenly sealed when the 'battery' system was repaired. This is great news for Boeing shareholders of course - from the moment the fleet was grounded in January, shares rallied a remarkably idiotic 39% - so up, up, and away as equity bulls must be hoping for another grounding sometime soon.
About once or twice a month for the past few years, it's been a steady ritual of mine to conduct a Google search for the words "all-time high" and "all-time low". The results provide an interesting big picture perspective on what's happening in the world.
Over three months ago in "South Korea Starts Currency War Rumblings; Has Japan In Its Sights" we showed that the one nation with the biggest sensitivity to Japan's currency-destructive and export-promoting Abenomics policy is its close neighbor, South Korea. With nearly 60% of SK's entire GDP deriving from net exports, every percent drop in its trade balance result in a more than 0.5% hit to GDP: more than any nation in the world. And since South Korea and Japan compete for the same export end markets, there would be no bigger loser in a zero trade sum world than Seoul. However now that Abenomics is in its sixth month, and South Korea's max export pain threshold has been reached, the country no longer will stay silent. As the FT reports, "South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen. In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called “Abenomics” on currency markets."