Benzinga noted on June 27, 2014 “The demand created by Abenomics, along with the demand rush prior to a hike in consumption tax, is viewed as fleeting by corporations”
With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.
While we have again and again explained why Abenomics is ultimately doomed as you simply cannot print your way to prosperity (a message The Fed appears to be discovering rapidly), when Goldman Sachs unleashes an Abenomics-bashing piece, one has to wonder just what options Abe has left as economic data starts to collapse (and approval ratings drop just as fast). Simply put, as we concluded before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery... Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!"
For a centrally-planned market that has long since lost the ability to discount the future, and certainly respond appropriately to geopolitical events, yesterday was a rough wake up call with a two punch stunner of not only the MH 17 crash pushing the Ukraine escalation into overdrive, but Israel's just as shocking land invasion of Gaza officially marking the start of a ground war, finally dragging global stocks out of their hypnotized slumber and pushing risk broadly lower across the globe, even if the now traditional USDJPY and AUDJPY ramp algos have woken up in the past few minutes and will be eager to pretend as if nothing ever happened.
No one knows how this will play out. We all know on some level that it will not end well, but exactly how and when it will all backfire remains to be seen. We’ve already had two epic Crises in the last 15 years. By the look of things, we’re heading for a third one in the not to distant future.
Here's a two-word summary of why the American healthcare system is fundamentally broken and cannot be fixed with policy tweaks: perverse incentives.
Even if the economy were growing at a faster pace, it wouldn't come close to offsetting the interest payments on our ever-expanding debt. If you want to know why the Status Quo is unsustainable, just look at interest and debt.
As Pepe Escobar explains, way beyond economy and finance, this is essentially about geopolitics - as in emerging powers offering an alternative to the failed Washington consensus. Or, as consensus apologists say, the BRICS may be able to "alleviate challenges" they face from the "international financial system".
Sometimes, with the stock market doing its best imitation of the Energizer bunny, we forget just how extraordinary are the times in which we live. We’ve been lulled to sleep by the relentless and mesmerizing march higher of stocks and all manner of risky assets. Maybe it’s just that having lived through two booms and busts already that people have come to believe that another boom in risky behavior is not just the new normal but the old one as well. And having survived the last two busts, none the wiser apparently, everyone figures we’ll survive the next one too. Maybe. Or maybe people just don’t realize how truly weird things are right now. Some suggest there is no reason prices can’t continue to go higher; however, the supply of greater fools however is not unlimited and at some point reality and rationality will return, likely with a vengeance.
Japan’s GDP may have declined in April and May, implying an overall collapse for Q2 not seen since 2009. Bloomberg's Nowcast estimate suggests that the hope-strewn pre-tax-hike pile up of a +6.7% annualized GDP growth in Q1 will come crashing back to earth as consensus GDP for Q2 is -4.85% and even bigger based on Bloomberg's models. As Bloomberg's Tom Orlik warns, this could take markets by surprise. The good news is that Abe's 3rd arrow has yet to reach escape velocity (any day now); below we highlight the entire package and how it will save the world...
"Excess credit creation is at the heart of much of China’s GDP growth, and why this means that China must choose between a sharp slowdown in GDP growth as credit is constrained, or a continued unsustainable increase in debt. The key point is that we cannot simply put the bad debt behind us once the economy is “reformed” and project growth as if nothing happened. Earlier losses are still unrecognized and hidden in the country’s various balance sheets."
Remember when Japan and Tepco lied it was in control of the Fukushima disaster recovery, when it lied radiation exposure was manageable (when concerned about radiation exposure, just raise the minimum safe dosage), or when it lied that it had any clue what it was doing when it proposed building an "ice wall" to freeze the radioactive ground water below the damanged plant? Turns out it also lied about the impact of Fukushima's radiation not only on locally produced food (which was served to a government official to "prove" its safety), but also on food as far as 20 kilometers away. According to Japan's Asahi, cleanup work at the Fukushima Dai-Ichi nuclear plant in summer last year "may have" contaminated rice harvested from 14 locations in Minamisoma city, more than 20km north of the reactors.
Exactly 50 years ago last month the US Supreme Court ruled on the now famous case of Jacobellis v. Ohio. At stake was whether a French movie with graphic sexual content could be outlawed by the state via its obscenity laws. The court ruled that it could not because the film wasn’t hardcore pornography. How could they tell? In an explanation that has now turned into one of the most famous quotes in court history, Justice Potter Stewart explained that although he could not define exactly what hardcore porn was, “I know it when I see it” Like porn, asset bubbles are also hard to define, but given our economic history, and especially our recent economic history, we know it when we see it, and now we see it everywhere. We all see it. Apparently the only people that don’t see the bubbles are the people creating them.
Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.