"Just be long. Pretty much anything. So here’s how I understand things now that I am no longer the last bear standing. You should buy equities if you believe many European banks and their sovereign paymasters are insolvent. You should buy shares if you put a higher probability than your peers on the odds of a European democracy rejecting the euro over the course of the next few years. You should be long risk assets if you believe China will have lowered its growth rate from 7% to nearer 5% over the course of the next two years. You should be long US equities if you are worried about the failure of Washington to address its fiscal deficits. And you should buy Japanese assets if you fear that Abenomics will fail to restore the fortunes of Japan (which it probably won’t). Hey this is easy… And then it crashed"
- Hugh Hendry
Shinzo Abe secured final passage of a bill granting Japan’s govt sweeping powers to declare state secrets. The Bill won final approval of the measures at about 11:20 p.m. Tokyo time after opposition parties first forced a no-confidence vote in Abe’s govt in the lower house. The first rule of the pending Japan’s Special Secrets Bill is that what will be a secret is secret. The right to know has now been officially superseded by the right of the government to make sure you don’t know what they don’t want you to know. It might all seems like a bad joke, except for the Orwellian nature of the bill and a key Cabinet member expressing his admiration for the Nazis, "just as Germany needed a strong man like Hitler to revive defeated Germany, Japan needs people like Abe to dynamically induce change."
Below some leading economists and financial commentators give their perspective regarding the risks of bail-ins or deposit confiscation. If you manage money in any way, your own or others,it will be prudent to heed their warnings.
Futures Pushed Higher On Weaker Yen, But All Could Change With Today's "Most Important Ever" Jobs NumberSubmitted by Tyler Durden on 12/06/2013 06:58 -0500
The latest "most important payrolls day of all time" day is finally upon us. Of course, this is a ridiculous statement: considering that the average December seasonal adjustment to the actual, unadjusted number is 824K jobs, it will once again be up to the BLS' Arima X 13 goal-seeking, seasonal adjusting software to determine whether the momentum ignition algos send stocks soaring or plunging, especially since the difference between up and down could be as small as 30K jobs. As Deutsche Bank explains: " today's number is probably one where anything above +200k (net of revisions) will lead to a further dip in risk as taper fears intensify and anything less than say +170k will probably see a decent relief rally after a tricky week for markets. Indeed yesterday saw the S&P500 (-0.43%) down for a fifth day - extending a sequence last seen in September." And then consider that nearly 30 times that difference comes from seasonal adjustments and it becomes clear why "farcial" is a far better definition of labor Friday.
JGB Futures prices are dropping in a manner eerily reminiscent of the May period of debacle before the BoJ started to regain control. The catalyst for today's biggest bond price drop in 3 months is Takatoshi Ito's comments demanding the Government Pension fund starting greatly rotating from bonds to stocks: "Now is the right time to sell, while the BOJ is buying.”
*JAPAN'S GPIF NEEDS TO START SELLING BONDS, SHOULD REDUCE LOCAL BONDS TO AS LITTLE AS 35%, RAISE JAPAN STOCK HOLDINGS TO 18% NOW, ITO SAYS
Stocks bounced higher initially but are losing most of those gains as bonds hit low prices of the session (and fears re-arise that the BoJ is not in total control after all). As we warned before, the JGB market is "dead" for all intent and purpose and there is simply not enough liquidity to support any significant selling pressure. JGB 10Y Yields are the highest since Oct 1st.
"There are going to be consequences to central bank balance sheet expansion all over the world," Kyle Bass tells Steven Drobny in his new book, The New House of Money, adding "It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor." The Texan remains concerned at QE's effects on wealth inequality and worries that "at some point this is going to ignite and set cost pressures off." While Gold-in-JPY is his recommended trade for non-clients, his hugely convex trades on Japan's eventual collapse remain as he explains the endgame for his thesis, "won't buy back until JPY is at 350," and fears "the logical conclusion is war."
- Apple, China Mobile Sign Deal to Offer iPhone (WSJ)
- Japan approves $182 billion economic package, doubts remain (Reuters)
- Volcker Rule Won't Allow Banks to Use 'Portfolio Hedging' (WSJ)
- He went, he saw, he achieved nothing: Biden's Trip to Beijing Leaves China Air-Zone Rift Open (WSJ)
- Britain announces sharp upward revision to growth forecasts (Reuters)
- U.S. Airlines to Mortgage-Backed Debt Top List of Best ’14 Bets (BBG)
- Thaksin's homecoming hopes dashed as Thai crisis reignites (Reuters)
- Age of Austerity Nearing End May Boost Global Economy (BBG) - or it may expose that it was just corruption and incompetence at fault all along
- China aims to establish network of high-level FTAs (China Daily)
You know that game involving word association at the psychotherapists? The one where you have to say the first word that springs to mind.
Moments ago, the Census Bureau announced that in October the US trade gap narrowed to $40.6 billion (which still missed expectations of "only" a $40 billion deficit) from an upward revised September deficit of $43 billion, as oil sales boosted exports to record level. Total exports rose to a record $192.7 billion up $3.4 billion from last month's $189.3 billion, while imports rose just $1 billion to $233.3 billion resulting in a $40.6 billion gap. Among the report highlights: October exports of goods and services ($192.7 billion), exports of goods ($135.3 billion), and exports of services ($57.4 billion) were the highest on record; October imports of goods and services ($233.3 billion) were the highest since March 2012 ($234.3 billion); and perhaps the best news for shale fans: October petroleum exports ($12.5 billion) were the highest on record.
It is only fitting that on the morning in which Europe levied the largest cartel fine in history against the criminal syndicate known as "banks", that Goldman Sachs would issue its #6 "Top Trade Recommendation" for 2014 which just happens to be, wait for it, a "long position in large-cap bank indices in the US, Europe and Japan." Supposedly, in a reflexive back and forth that should make one's head spin, this also includes Goldman Sachs (unless they specifically excluded FDIC-insured hedge funds, which we don't think was the case). So is Goldman recommending... itself? Joking aside, this means Goldman is now dumping its bank exposure to muppets.
- EU Fines Financial Institutions Over Fixing Key Benchmarks (Reuters)
- Euro-Area Economic Growth Slows as Exports, Consumption Cool (BBG) - someone has a very loose definition of growth
- Ukraine Officials Scour Globe for Cash as Protests Build (BBG)
- Oops: Franklin Boosted Ukraine Bet to $6 Billion as Selloff Began (BBG)
- Japan Plans 18.6 Trillion Yen Economic Package to Support Growth (BBG) - or about 2 months of POMO
- How Peugeot and France ran out of gas (Reuters)
- Iran threatens to trigger oil price war (FT)
- Abe Vows to Pass Secrecy Law That Hurts Cabinet’s Popularity (BBG)
- Brazil economy turns in worst quarter for 5 years (FT)
- Australia’s Slowdown Suggests RBA May Need to Do More (BBG)
- Biden calls for trust with China amid airspace dispute (Reuters)
While there was a plethora of macro data (starting with some ugly numbers out of Australia which clobbered AUD pairs overnight), China HSBC Services PMI dipping slighlty from 52.6 to 52.5, Final Eurozone PMI Services (printing at 51.2 up from 50.9 and beating expectations of the same on an increase in German PMI numbers from 54.5 to 55.7 and a decline in French PMI from 48.8 to 48.0), Eurozone retail sales declining by 0.2%, on expectations of an unchanged print, and much more (see below), perhaps the most important news of the day came from Japan which many expect will be the source of much more easing in the coming months and thus serve as marginal lever to push global fungible markets higher. However, not only did various BOJ officials for the first time in a while talk down expectations of a QE boost, but the head of the Japan GPIF said that it doesn't need to sell JGBs right now as it would "rock markets" and that instead can achieve its targeted 52% weighing as bonds mature, that it may buy foreign bonds instead to raise weighting to core target (as the Fed buys Japan bonds?), and that it will be very difficult for Japan to hit the BOJ's inflation target in 2 years. Is Japan already getting cold feet on rumors of more QE and did it realize there are only so many assets it can monetize. If so, watch out below on the EURJPY which has now priced in about 700 pips of expected BOJ QE boosting in early 2014.
Although Vice President Joe Biden’s trip to Northeast Asia this week will likely focus on defusing tensions over China’s new Air Defense Identification Zone (ADIZ), this is hardly the only issue plaguing the U.S. in Asia. In general, U.S. Asia policy during the second Obama administration has lacked focus as senior officials have been preoccupied with domestic and other international challenges. Moreover, a number of other issues suggest that the administration continues to give inadequate attention to the Asia-Pacific, and the results it is getting reflect this relative neglect.
Even if you don't have a Nobel Prize, it should be glaringly apparent to anyone with half a brain - the financial markets have been soaring while the overall economy has been stagnating. Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before. We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008. So precisely when will the bubble burst this time? Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point. Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble...
As we explained over two months ago, and as the Fed is no doubt contemplating currently, the primary topic on the agenda of central bankers everywhere and certainly in the Marriner Eccles building, is how to boost inflation expectations as much as possible, preferably without doing a thing and merely jawboning "forward expectations" (or more explicitly through the much discussed nominal GDP targeting) in order to slowly but surely or very rapidly and even more surely, get to the core problem facing the developed world: an untenable mountain of debt, and specifically, inflating it away. Of course, higher rates without a concurrent pick up in economic activity means a stock market tumble, both in developed and emerging countries, as the Taper experiment over the summer showed so vividly, which in turn would crush what many agree is the Fed's only achievement over the past 5 years - creating and nurturing the "wealth effect" resulting from record high asset prices, which provides lubrication for financial conditions and permits the proper functioning of capital markets. Perhaps this is the main concern voiced by JPM's chief US economist Michael Feroli who today has issued an interesting piece titled simply enough: "Raising inflation expectations: a bad idea." Is this the first shot across the bow of a Fed which may announce its first taper as soon as two weeks from today, in order to gradually start pushing inflation expectations higher?