One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date... The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.
European cash equities opened sharply lower this morning following electoral uncertainties arising from various corners of Europe, notably Greece and France. Volumes also remain light as the market closure across the UK reduces the number of participants today. The mainstream political parties from Greece, PASOK and the New Democracy, failed to establish a majority this weekend as voters firmly expressed their discontent with the political establishment, evident in the rise of fringe parties. As such, the leaders of New Democracy and PASOK will now attempt to establish a coalition party with the splinter group Independent Greeks (a party notable for its anti-EU/IMF stance), due to begin as soon as today. The uncertainty in Greece’s future has taken its toll across the markets today, with EUR/USD beginning the session sub-1.3000 and all European equities trading markedly lower throughout most of the morning session. Elsewhere on the political front, Francois Hollande has won the French Presidency and is to be inaugurated on May 15th, as such; participants now look out for any comments regarding the relationship between the new French leader and German Chancellor Merkel. The Spanish government are set to make an announcement on Friday concerning the continuing troubles over the Spanish banking sector, with a government source commenting that the plans will include the creation of a 10- and 15-year ‘bad bank’. Recent trade has seen a recovery across forex and stocks as EUR/USD grinds higher and stock futures move closer to unchanged. Strong German factory orders data has helped the moves off the lowest levels, as demand from outside the Eurozone helps lift the figure above expectations of +0.5% to +2.2% for March.
Irradiation is bullish ... and the glow-in-the-dark thing reduces lighting bills
While Charlie Munger has so far to comment on the 24K content of made in the basement tribalware, he and his partner have made quite a few other statements on items ranging far and wide, during the annual Berkshire Omaha convention, which year after year represents the annual pilgrimage for thousands to a crony capitalist Mecca, and which with the passage of time, has become increasingly more irrelevant. Why? Because with a $58 billion bet (on $37.8 billion in cash and equivalents) that asset prices will go higher, it is rather clear on what side of the 'bail out' argument, and its 'all in' fallback: central planning, Warren Buffett sits.
If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured. Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped. It is said that history doesn't repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress. You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to "level the playing field" and the global economy, already in tatters, will fall off the edge. There is no more timely nor acute example of this growing trend than what is currently going on in France. I refer, of course, to the first round of the presidential election process, scheduled for this weekend.
If you want to know how weak the economy really is all you need to do is look at the 30-year bond. It is one of the best economic indicators available today. If economic conditions are robust then the yield will be rising and vice versa. What the current low levels of yield on 30 year bonds is telling you is that the underlying economy is weak. "The 30-year yield is not at these low levels DUE to the Federal Reserve; but in SPITE OF the Fed," Hunt said. The actions of the Federal Reserve have continued to undermine the economy which is reflected by the low yield of the 30 year bond. The "cancerous" side effects of nonproductive debt are being reflected in real disposable incomes. Just over the last two years real disposable incomes slid from 5% in 2010 and -0.5% in 2012 on a 3-month percentage change at an annual rate basis. This is critically important to understand. While the media remains focused on GDP it is the wrong measure by which to measure the economy. A truly growing economy leads to rises in prosperity. GDP does NOT measure prosperity — it measures spending. It is the measure of real personal incomes that measures prosperity. Prosperity MUST come from rising incomes.
Last week we noted how up to 90% of the European banking system's equity market capital (or ultimate risk buffer) would be wiped out if they were forced to transform (and price risk appropriately) their mis-marked asset base. The market itself has already started to adjust for this possibility (just look at Italian and Spanish bank stocks recently) but it is the similarity of Europe's bursting bubble of credit extension and current balance sheet recession that brings Japan to mind, and, as Barclays notes, if European banks follow the same trajectory as Japanese banks did from their peak in 1993 (as Europe has been since their peak in 2006), then Europe's banks market cap as a percentage of the total market is likely to drop from the current 11% to around 6% within the next year. Combine that with reality with Deutsche Bank's note that Spanish and Portuguese banks (and less so Italy for now) appear perilously short of ECB-eligible collateral, and is it any wonder things are shifting from bad to worse over there as bank recap plans are critical.
Fraud ... What Fraud?
Here is what happened in Europe overnight, and why the market sentiment is already negative in advance of an NFP number which many are watching closely as a miss of expectations will cement the thesis that the US economy has now rolled over and will likely need more nominally dilutive aid from central planners to regain its upward slope:
- Spain Services PMI for April 42.1 – lower than expected. Consensus 45.4. Previous 46.3.
- Italian Services PMI for April 42.3 – lower than expected. Consensus 43.7. Previous 44.3.
- France Services PMI for April 45.2 – lower than expected. Consensus 46.4. Previous 46.4.
- Germany Service PMI for April 52.2 – lower than expected. Consensus 52.6. Previous 52.6.
- Euro-area Service PMI for April 46.9 – lower than expected. Consensus 47.9. Previous 47.9.
And while the data was bad enough to send European stocks and US stock futures lower, the latest meme spreading as the first US traders walk in, is one of reNEWed QE expectations already, if a very weak one for now.
- Japan has 54 nuclear reactors, but as of Saturday, not one of them will be in operation (Guardian)
- US Readies Proposal to Clamp Down on Fracking (Reuters)
- California pension fund (CALSTRS) sues Wal-Mart, alleges bribery (Reuters)
- New Ripples for Gupta Case: Goldman Share Price, Volume Began Climbing Even Before Rajaratnam Trades (WSJ)
- China says blind dissident can apply to study abroad (Reuters)
- China paper calls Chen a U.S. pawn; envoy is a "troublemaker" (Reuters)
- Samsung’s New Galaxy S Phone Raises Heat on Apple Iphone (Bloomberg)
- Draghi predicts 2012 eurozone recovery (FT)
- Tumbling Home Ownership Marks a Return to Normal (Bloomberg)
- Zuckerberg Facebook IPO to Make Him Richer Than Ballmer (Bloomberg)
- SEC probes Chesapeake and its chief (FT)
In this second part of the four-part series describing the state of the Federal Budget, we present 10 charts courtesy of The Heritage Foundation on Federal Revenues. America’s growing tax burden is a drag on the economy and will reach record levels without policy changes.
Likely glowing from his glorious victory (h/t Trish Regan) over Krugman in Bloomberg's recent Paul vs Paul debate, Rep. Ron Paul destroys the central-planning arrogance of Bernanke and his ilk in an Op-Ed released by the FT today.
Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.
As the economy slows, demand for jobs are about to increase, right? After all, it must be true, they just said it in the news!!!
David Einhorn who crushed it this week with huge profits on his short positions in both Herbalife and Green Mountain, finally takes on the ultimate competitor: the Federal Reserve, likening its "strategy" to a Jelly Donut policy, and explains what everyone who has been reading Zero Hedge for the past 3 years knows too well: "I will keep a substantial long exposure to gold -- which serves as a Jelly Donut antidote for my portfolio. While I'd love for our leaders to adopt sensible policies that would reduce the tail risks so that I could sell our gold, one nice thing about gold is that it doesn't even have quarterly conference calls." Or, as Kyle Bass said last year, "Buying Gold Is Just Buying A Put Against The Idiocy Of The Political Cycle. It's That Simple!" Not surprisingly, it is only the idiots out there who still don't get what these two investing luminaries are warning about.