Japan

Why It Better Not Snow This Winter, In One Chart

It will be the plotline of scary stories parents tell their children for decades to come: in Q1 2014, the US economy was supposed to grow 3%... and then it snowed. This led to a -2% collapse in the world's largest economy. Yes, inconceivably heavy snowfall (in the winter), and frigid temperatures (in the winter), were the reason for a $100+ billion swing in US GDP. Well, as the following chart from DB's Torsten Slok shows, of the roughly $2 trillion in GDP the global economy is expected to grow in 2015, about 90% of that is expected to come from China and the US!

Equity Levitation Stumbles After Second ECB Denial Of Corporate Bond Buying, Report Of 11 Stress Test Failures

If the ultimate goal of yesterday's leak was to push the EUR lower (and stocks higher of course), then the reason why today's second rejection did little to rebound the Euro is because once again, just after Europe's open, Spanish Efe newswire reported that 11 banks from 6 European countries had failed the ECB stress test. Specifically, Efe said Erste, along with banks from Italy, Belgium, Cyprus, Portugal and Greece, had failed the ECB review based on preliminary data, but gave no details of the size of the capital holes at the banks.

How Japanese Hyperinflation Starts (In 1 Chart)

The Japanese Yen's real effective exchange rate (REER) has collapsed to the weakest since 1982, according to Mitsubishi UFJ Morgan Stanley Securities. Simply put, REER is a trade-weighted measure of Yen strength (or weakness) against, in this case, 59 trading partners; and as the nation posts an unprecedented 27th straight month of trade deficits, Bloomberg reports MUFJ indicates "a structural shift" has taken place. As MUFJ chief FX strategist warns, "If the trade deficit doesn’t noticeably narrow from here, the yen’s real effective rate could fall to levels never seen before," and, ominously, "from a supply and demand perspective, yen selling for foreign currency by Japanese importers will just continue endlessly." And Japan becomes Venezuela...

"It's Not Abenomics, It's The Weather" Japanese Econ Minister Admits Growth Is Weak

Amid two (notably female) resignations this weekend (Justice Minister Matushima and Trade Minister Obuchi for alleged misuse of political funds), Abenomics tilt towards women as a pillar of the Japanese recovery is taking yet another blow, removing "one of his ways of distracting people from his less popular policies." However,it is Japan's Economy Minister, Akira Amari, that went full economic retard this weekend - having learned well from his wise American central-planning brethren. Rather than face reality that Abenomics currency devaluation printfest has crushed the consumer beyond all expectations (as we noted since the start and Goldman just admitted), he blames the weather for economic weakness: "including the effects of large typhoons and heavy rains in July and August, Japan’s 3Q economic situation is probably not a strong recovery."

"Either You're The Butcher... Or The Cattle"

The common people are the cattle being led to slaughter. We are kept docile with incessant propaganda from the mainstream media; marketing messages to consume from Madison Avenue; filtered, adjusted, manipulated economic data fed to us by government agencies; an endless supply of iGadgets and other electronic distractions; government education designed to keep us ignorant; 24/7 reality TV on six hundred stations to keep us entertained; corporate toxic processed food to keep us obese and tame; and an endless supply of Wall Street supplied debt to keep us caged in our pens with no hope of escape. The butchers of the deep state have maintained control for decades, but we’re entering a new era.

Houston, We Have A "Fracking" Problem

The problem for a city like Houston (or many others like it), with deep ties to the production and oil, is a "shock" from a supply/demand reversion could bring the economic "boom" quickly to an end. We are certainly not saying that the "wheels are about to come off of the cart." However, we do suggest that there is a potential for a very negative shock in the energy space given the extreme complacency that current exists. History suggests that true "miracles" are few and far between as most tend to just "illusions of hope."

Frontrunning: October 20

  • Stick to tapering and rates pledge, says Boston Fed chief (FT)
  • Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders (Reuters)
  • Obama makes rare campaign trail appearance, some leave early (Reuters)
  • Japan GPIF to Boost Share Allocation to About 25%, Nikkei Says (BBG)... or three months of POMO
  • Japan Stocks Surge on Report GPIF to Boost Local Shares (BBG)
  • China Growth Seen Slowing Sharply Over Decade (WSJ)
  • Russia, Ukraine Edge Closer to Natural-Gas Deal (WSJ)
  • Leveraged Money Spurs Selloff as Record Treasuries Trade (BBG)
  • After clashes, Hong Kong students, government stand their ground before talks (Reuters)

Equity Futures Open Higher, Retrace 50% Of Losses On USDJPY Kneejerk

UPDATE: A little early to call yet but Fed's Rosengren quoted in FT "QE will end in October unless something dramatic happens" has knocked USDJPY and S&P lower...

More incoherent chatter from Japan about raising Japan's GPIF allocation to "more than 20%, or around 25%" on the basis of Prime Minister Shinzo Abe's 'expert views' have sent USDJPY higher out of the gate and thus S&P 500 futures are tracking - just as they did Friday afternoon - higher. Treasury futures prices are 6 ticks lower (+2.5bps yield) - retraced all the bond-short capitulation gains from Wednesday. S&P futures are 9pts higher - retracing 50% of last week's losses.

Why Abenomics Failed: There Was A "Blind Spot From The Outset", Goldman Apologizes

Ever since Abenomics was announced in late 2012, we have explained very clearly that the whole "shock and awe" approach to stimulating the economy by sending inflation into borderline "hyper" mode was doomed to failure. Very serious sellsiders, economists and pundits disagreed and commended Abe on his second attempt at fixing the country by doing more of what has not only failed to work for 30 years, but made the problem worse and worse. Well, nearly two years later, or roughly the usual delay before the rest of the world catches up to this website's "conspiratorial" ramblings, the leader of the very serious economist crew, none other than Goldman Sachs, formally admits that Abenomics was a failure. So what happened with Abenomics, and why did Goldman, initially a fervent supporter and huge fan - and beneficiary because those trillions in fungible BOJ liquidity injections made their way first and foremost into Goldman year end bonuses  - change its tune so dramatically? Here is the answer from Goldman Sachs.

Deflation Flirts With America

"I see deflation flirting with America." Retail sales equals consumer spending equals velocity of money. And unless the money supply is rising, hardly likely in the taper, less spending is deflation by definition. Forget about PMI and all that kind of data, it’s much simpler than that. Central banks can do all kinds of stuff, but they can’t make us spend our money on things we don’t want or need. Let alone make us borrow to do so. And if we don’t, deflation is an inevitable fact. That doesn’t mean prices for some items won’t go up, but that’s not what counts. It’s about how fast we either spend the money we have – if we have any left – or how much we borrow. And if time is money, then borrowed money is borrowed time. So we really shouldn’t.

Japanese Stocks Tumble After BoJ Bond-Buying Operation Fails For First Time Since Abenomics

Having rotated their attention to the T-bill market in Japan (after demand for the Bank of Japan's cheap loans disappointed policymakers) in an effort to ensure enough freshly printed money was flushed into Japanese markets, the BoJ now has a major problem. For the first time since QQE began, Bloomberg reports the BoJ failed to buy all the bonds they desired. Whether this is investors unwilling to sell (preferring the safe haven than stocks or eu bonds) or that BoJ has soaked up too much of the market (that dealers now call "dead") is unclear. Japanese stocks - led by banks - are sliding as bond-demand sends 5Y yields (13bps) to 18-month lows.

Hyperinflation Doesn't Scare Kuroda But Ex-BoJ Chief Says "Quit While You're Ahead"

Apparently under pressure from some members of Japan's parliament (who are likely being screamed at by the firms and people that bought and voted for them) as they question the possibility of JPY dropping to 170 per USD, BoJ Chief Haruhiko Kuroda proclaimed yesterday that "monetary policy can prevent hyperinflation," but don't worry because he "doesn't think Japan will experience hyperinflation." Well that's a relief because all his other predictions about how well Abenomics would work have been utter failures. Perhaps Kuroda should listen to ex-BoJ chief economist Hideo Hakayawa who stunningly suggested, The BOJ should start paring its unprecedented easing soon or risk hurting people, "it’s important to quit while you’re ahead."