The Cyprus bail-in laid the ground for a global wealth tax. The next time a crisis hits, savers will be picking up the tab.
America is being run by an unelected gang of essentially self-perpetuating PhDs. The notion of an economics coup d’ etat is not so far-fetched. So the last 35 years have brought the greatest exercise in mission creep ever undertaken by an agency of the state. That explains why the monetary politburo persists in its absurd quest to force more debt into an economy which is already saturated with $59 trillion of the same. To pretend, as does Yellen and most of the monetary politburo that they must plow ahead printing money at lunatic rates because Congress so mandated it, is the height of mendacity. The Fed has seized power and is not about to let go - common sense be damned, and the constitution, too.
Widening income disparity has been a feature of many advanced and developing economies for the past few years and has myriad investment implications. As we noted yesterday, the USA is at levels of income disparity not seen since the roaring 20s (and by some counts worse) but how does that stack up to the rest of the world? Fed fans will be proud to say that once again USA in Number 1... in global income inequality.
Following yesterday's uninspiring 2 Year bond auction, today's 5 Year issuance of $35 billion was a whopper. Because while it was known well in advance that today's closing high yield of 1.715%, which priced through the When Issued of 1.732% by 1.7 bps, would be the highest since May 2011. However, the stunners were all within the internals. First, the Bid To Cover of 2.99 was the highest since September 2012, and an abrupt turn in the recent general downward trend in BTCs - who would have thunk that all it took for greater interest in US paper was higher yields . But it was the takedown where the real shockers lay.
In the land of the free and the home of the entitled, the sad (but true) nature of income inequality's inexorable rise in the past few years has a somewhat more startling impact on the future. With work being punished for the marginal employee and the wealth effect concentrated in the hands of the great and good, the following two charts show clearly the sad fact that those who need to save for the future the most don't (and likely can't) and those with all the income save the most (and thus 'spend' the least). As we noted previously, the rich have the assets and the poor have the debt (and debt is not wealth).
Just last week Goldman noted that February was "the busiest month in the buyback desk's history," so one has to wonder just what management is thinking when the Wall Street Journal reports that corporate insiders are more bearish than they have been at least since 1990. According to this adjusted measure, there have been two prior occasions when the insider ratio got almost as bearish as it is today - early 2007 and early 2011 - and the first came a half a year before the beginning of the worst bear market since the 1930s. Simply put, it seems management teams are using their company's balance sheet as their own personal piggybank.
These Six Euroarea Countries Are In Outright Deflation As Eurozone Inflation Slides To Four Year LowsSubmitted by Tyler Durden on 03/17/2014 11:47 -0400
While the US may be rejoicing its daily stock market all time highs day after day, it may come as a surprise to many that global equity capitalization has hardly performed as impressively compared to its previous records set in mid-2007. In fact, between the last bubble peak, and mid-2013, there has been a $3.86 trillion decline in the value of equities to $53.8 trillion over this six year time period, according to data compiled by Bloomberg. Alas, in a world in which there is no longer even hope for growth without massive debt expansion, there is a cost to keeping global equities stable (and US stocks at record highs): that cost is $30 trillion, or nearly double the GDP of the United States, which is by how much global debt has risen over the same period. Specifically, total global debt has exploded by 40% in just 6 short years from 2007 to 2013, from "only" $70 trillion to over $100 trillion as of mid-2013, according to the BIS' just-released quarterly review.
According to Goldman, the median company’s EV/sales ratio is now the highest in 35 years, surpassing even the dot com bubble.
Despite our insistence that their was nothing new in the BoJ's loan ceiling hike and lack of QE extension (and Goldman's 'this is already priced in' perspective), it still took the machines that are running USDJPY almost 36 hours to figure it out. USDJPY has retraced the entire 100 pip swing and has broken back below the crucial 102.00 level this morning. Time for some more jawboning about the potential for more QE - even as Kuroda insisted last night to the Diet that the government's tax hikes occur (if for no other reason to ensure this does not escalate into the 'monetization miasma' that they fear the market would believe). Of course, as we approach the US open, we would expect the usual ramp-job to lift stocks.
Nearly two months ago, when we commented on the recent string of unprecedented failures by the ECB to sterilize its legacy bond buying operation, the SMP, we commented that "judging by the feverish pace of purchases of every peripheral bond available, is this merely just another indication how little the ECB cares about sterilization, and is just a hint at an upcoming full-blown and unsterilized bond monetization about to be launched by Mario Draghi?" Sure enough at the subsequent February 6 ECB meeting Mario Draghi hinted as much when he said that among the things the ECB was looking at was precisely the "de"sterilizing of the SMP program. However, one stumbling block was getting the Bundebsbank's tacit approval to proceed with this plan which would make the ECB's bond monetization mirror that of the Fed where bonds are purchased on an unsterilized basis. And, as expected, overnight the Bundesbank threw in the towel on sterilization, meaning that the SMP will no longer be sterilized with an announcement divulging just this likely as soon as the next ECB meeting.
Clearly boxed in by the concern that any increase in their QE program will shift sentiment from stimulus to monetization, the BoJ kept the money-printing the same but redirected focus by raising the ceiling on their bank lending facility (from JPY3.5 trillion to JPY 7 trillion). This is being presented to the public as dovish despite the balance sheet recession's debt minimization - not profit-maximization - mantra as was oh so well illustrated by the dismal GDP prints since Abenomics has been in existence. It's not like Japan needs "low-interest" rate loans... are their rates high? Of course, in order to maintain some semblance of hope and belief in this new "common knowledge", USDJPY was smashed higher (running stops over 102.50) and that leveraged Nikkei futures up over 400 points in the space of a few minutes. S&P futures are modestly higher but EM FX is drifting lower. The question on everyon's lips, of course, is - what is the BoJ's half-life?
Get long 'Depends' may be the most befitting headline for tonight's massive macro miss in Japan. For the 3rd quarter in a row, Japanese GDP missed expectations with a meager +1.0% annualized growth (versus a +2.8% expectation), and a tiny 0.3% Q/Q change vs expectations of a 0.7% increase, this is the biggest miss and slowest growth since Abe retook the economic throne after his chronic-diarrhea-prone first attempt to save the nation. No matter how hard they try to spin this, there's no silver lining as consumer and business spending missed expectations notably and the only Tokyo snow fell just last week so long after the quarter was over... and this is before a tax hike that is aimed at showing how fiscally responsible the nation and not simply an insolvent ponzi scheme alive through the good graces of the greater fools of leveraged carry trades.
In a deja vu of yesterday's 10 Year auction, which saw a slide in the Bid To Cover even as the closing yield was well through the When Issued, so today's 30 Year saw a slide in the Bid to Cover (from 2.57 to 2.27, and well below the 2.46 TTM average) even as the closing yield of 3.69% priced through the When Issued by a whopping 1 bp. However, here the comparisons ends, because while in both the 3 and 10 year auctions from earlier this week, there was a surge in the Indirects, this time around the Indirects were more or less in line, rising to 46.0% from 45.3%, if above the 39.4% TTM average, while Dealers took down 40.8%, above the 38.1% in January. Directs ended up holding 13.9%. So a mixed auction overall, as if the market expect the Fed to continue buying the long end on one hand, even as tapering means the 30 Years will be the most convex instrument should tapering indeed mean the monetization of duration ends some time in the summer.
Nine Event Risks for the week ahead: identified, discussed and assessed.