- Obama budget defeated 414-0 (Washington Times) yes, the Democrats too...
- German Central Banker: ECB Loans Only Buy Time (AP)
- Baku grants Israel use of its air bases (Jerusalem Times)
- Japan May Understate Deflation, Hampering BOJ, Economist Says (Bloomberg)
- BRICS flay West over IMF reform, monetary policy (Reuters)
- Five Portugal Lenders Downgraded by Moody’s (Bloomberg)
- SEC Registration Captures More Hedge Fund Advisers (Bloomberg)
- EU Nears One-Year Boost in Rescue Fund to $1.3 Trillion (Bloomberg)
- Consumers plot emergency oil release as Saudi decries high prices (Reuters)
- Japan Plans to Draft Stopgap Budget for First Time in 14 Years (Bloomberg)
Yesterday we presented what the balance sheet of the developed, or better known as insolvent, world- recall there was over $21 trillion in excess debt as of 3 years ago, looks like, and the curious to some observation that trillions in liabilities also double up as assets, in what is easily the world's most confounding (to central bankers at least) global circle jerk. After all, one can not inflate liabilities, without also destroying the assets these double count as at the same time. Yet while informative, that chart did not tell us anything we did not already know. However, the next chart we will present today will show a different aspect of the developed world, namely by indicating how the households of the three "richest" economies - Japan, the US and the Euro Area, have invested their money in various financial assets. And while this is merely the asset side of the ledger it shows how distinctly different the approach to capital allocation has been for countries in different stages of growth or ungrowth. What is most notable is the distinct distribution of capital in shares and equities within the three regions: it also shows why a sustained downtick in the US stock market is the deathknell of the modern economic experiment. What is also curious is that the investment of Japanese households into Insurance and Pension reserves, which in turn are then funneled into JGBs, is no larger than the US or European equivalent: it means that the true funding cost of the welfare state is roughly a third of all modern financial assets.
Okay, the coast is clear. Everyone buy PIIGS debt to boost pensioon fund yield -or- Media assisted .gov dis(not "mis")information fails to stand up to arithmetic fact!
Mrs. Watanabe Prepares To Blow The JGB Bubble: Household Holdings Of Japanese Bonds Slide To Lowest In 7 YearsSubmitted by Tyler Durden on 03/28/2012 09:56 -0400
Two days ago we posted a very damning analysis of why Japan is finally facing the dilemma of either a major Yen devaluation, or, far worse, a long-overdue pop in the Japanese Government Bond (JGB) market. As expected, the conventional wisdom was that there is no danger of a JGB collapse as local households just can't get enough of JGBs following 30 years of straight deflation. As even more expected, conventional wisdom always ends up wrong, and this may be the case now. Bloomberg reports that "Finance Minister Jun Azumi’s efforts to get Japan’s households to increase investment in the nation’s debt are failing as holdings of government bonds fall to a seven-year low." Combing through the Japanese quarterly flow of funds report shows something very disturbing - the last bastion of JGB ownership, Japan's households, have started to shift out of bonds, which are now yielding 0.27% for the retail 5 Year bond, and about 1.00% for the 10 year, and are now putting their money straight into mattresses. "Japanese households owned 3.09 percent of domestic bonds in the final quarter of 2011, a decrease from 3.2 percent in the third quarter and the lowest since 2005, Bank of Japan data released March 23 show." And the worst news for any domestically funded ponzi regime: "Mrs. Watanabe” as many are housewives, have instead increased foreign-currency deposits and cash, according to the BOJ data. "It’s a case of retail JGBs not having enough yield,” said Naomi Fink, head of Japan strategy at Jefferies Japan Ltd."Households are accumulating cash and using financial investments to diversify into higher yields and JGBs don’t really provide this." ..."Individual investors are holding cash rather than bonds and other financial assets because they are wary of making risky investments, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo." Needless to say, when even Japanese households have given up, it's game over... for bubbles in both bonds and in "conventional wisdom."
- Greece's Fringe Parties Surge Amid Bailout Ire (WSJ)
- ECB fails to stem reduction in lending (FT)
- More Twists for Spanish Banks (WSJ)
- Banks use ECB cash to buy bonds, lend less to firms (IFR)
- UK still long way off pre-crisis growth – King (Reuters)
- Dublin confident of ECB deal to defer payment (FT)
- Goldman's European derivatives revenue soars (Reuters)
- Japan Faces Tax Battle as DPJ Finishes Plan on Sales Levy (Bloomberg)
- Insurance Mandate Splits US Court (FT)
It is rather surprising that in a world in which anything and everything is only about money, it is next to impossible to find a consolidated balance sheet of the world's insolvent economies (i.e., the developed countries: US, Japan and the Euro Area). So for all those seeking a visual presentation of all the liabilities that have to be inflated away by the central banks (because that's what this is all about), rejoice: the broke world is presented below in its glory. The irony is that the problem would be quite fixable if it weren't for one minor issue: the bulk of the world's assets also happen to be its liabilities! At the end of the day, this may prove to be the fatal flaw in the chairman's attempt to dilute the global liabilities, he will be doing the same with the assets.
Much has been made of the lack of retail participation in the casino equity market rally of the last few months (and few years for that matter). Whether it is a signal of the individual investor's overly anxious nature and only the pros 'get it' or more likely this is the end of the baby-boomer-driven secular savings and investment bonanza is perhaps more likely as a nation of soon-to-be-retirees rotate from massive-drawdown-inducing stocks (no matter how diversified your group of trees, when the tornado hits the forest, they all fall down) to the relative (low-drawdown) safety (and steady income) of fixed income. Nowhere is this 'its different this time' secular shift more evident than in cumulative fund flows.
All you need to read and some more.
Tokyo Soil – Blanketed With Fukushima Radiation – Would Be Considered “Radioactive Waste” In the United StatesSubmitted by George Washington on 03/27/2012 01:46 -0400
And Number 2 Reactor Running Out of Water ...
Earlier today we presented an extended case by Caixin's Andy Xie, who is now confident that a massive 40% devaluation of the Yen is imminent and inevitable (with dire consequences for regional trading partners), as the opportunity cost, now that the Japanese economy is no longer competitive in the New Normal world (read trade surplus) of delaying what every other central banks has been doing so well (just observe the nominal surge in risk assets at 8 am this morning when Bernanke made it clear more real dilution is coming, as predicted here just yesterday), is the 3 decade long overdue pop in the JGB bond market. Yet as Xie notes, either of these two bubbles popping - the JPY or the JGB - is fraught with danger as both will confirm that three decades of central planning have failed. What is worse, Japan would then become a case study for failed central planning (yes, redundant), everywhere, but nowhere more than in the US. Which in turn, would not be a surprise to most, or at least to those who don't chase dead end momentum trends and heatmapped assets in simplistic hopes of finding a greater fool 1 millisecond into the future. It also would not be a surprise to anyone who sees the following chart from John Lohman which shows the gradual failure of central planning since the second global depression started in 2007 (and offset to date by $7 trillion in central bank private-to-public risk offset), during which time the BOJ has been forced to load up its balance sheet with substantially more assets than its GDP has grown by. Alas, this trend will accelerate which is why with time the exponential chart of central bank balance sheet expansion will only get more "exponential" until it finally pops, bringing with it an end to the truly last bubble. We can only hope we are somewhere far away when that happens.
Chinese Business Media Cautions Japanese Bond Bubble Is Ready To Burst, Anticipates 40% Yen DevaluationSubmitted by Tyler Durden on 03/26/2012 14:50 -0400
It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.
While much heart palpitations are generated every month based on how much of a seasonal adjustment factor is used to fudge US employment, many forget that a much more serious long term issue for the US (assuming anyone cares what happens in the long run) is a far more ominous secular shift in US population - namely the fact that everyone is getting fatter fast, aka America's "obesity epidemic." And according to a just released analysis by BNY ConvergEx' Nicholas Colas, things are about to get much worse, because as the OECD predicts, by 2020 75% of US the population will be obese. What this implies for the tens of trillions in underfunded healthcare "benefits" in the future is all too clear. In the meantime, thanks to today's economic "news", fat people everywhere can get even fatter courtesy of ever freer money from the Chairman, about to be paradropped once more to keep nominal prices high and devalue the dollar even more in the great "race to debase". Our advice - just pretend you are going to college and take out a $100,000 loan, spending it all on Taco Bells. But don't forget to save enough for the latest iPad, and the next latest to be released in a few weeks, ad inf.
- BOJ Crosses Rubicon With Desperate Monetary Policy, Hirano Says (Bloomberg)
- Europe’s bailout bazooka is proving to be a toy gun (FT)
- Monti Signals Spanish Euro Risk as EU to Bolster Firewall (FT)
- Merkel set to allow firewall to rise (FT)
- Banks set to cut $1tn from balance sheets (FT)
- Supreme Court weighs historic healthcare law (Reuters)
- Spain PM denied symbolic austerity boost in local vote (Reuters)
- Anti-war movement stirs in Israel (FT)
- Obama to Ask China to Toughen Korea Line (WSJ)
- Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meeting (Bloomberg)
When the world's central bankers speechified in DC, ironies abounded. But off to the side, Turkey had just floated a plan to grab its people’s gold.