I see Japan as a global aggressor, the country doesn't give a damn about where the chips fall outside of its borders.
The circus continues. For this evening's entertainment, the country's Deputy PM Taro Aso explains the "excessive JPY gain has been corrected," upon which USDJPY instantly strengthens 40 pips reversing all the post-US0-close JPY weakness. Of course, the market reaction was evidently enough for him to swallow his words and 'retract' his comments mere moments later. At the same time, the BOJ declares:
*BOJ MEMBERS AGREED JAPAN'S ECONOMY STOPPED WEAKENING
While their optimism is welcome, facts (as they often do) stand tall in the face of their rhetoric as Japan's Macro index and manufacturing new orders (to name just two recent data points) do not even show second-derivative green shoots. And for the third and final act of this evening's early debacle, 30Y JGB yields have slammed 9bps higher (as JGB Futures prices look set for another halt).
The odds of winning were slim and none. Avoiding embarrassment was the real objective, but then something happened. Momentum changed and the rag-tag bunch of American college hockey players shocked not only the Soviets and their 1980 Big Red Machine, but the entire sports World. When seemingly faced with the impossible, America always perseveres and finds a way to win. After winning the global economic game for the better part of 100 years, America is once again on the ropes and no one is giving her any hopes at winning, or even surviving for that matter. America’s debt levels are disastrous. It has no money to pay future pensions and healthcare. Economic growth is anemic. Meanwhile, more Americans than at any other time in history reply upon food stamps. And to make matters even more dire, it is only the decision to print trillions of new dollar bills that is holding everything together. Just as America’s rock is about to hit its American bottom, you must ask “Do you believe in miracles”? And, the short answer is – yes.
It is hard to make sense of the markets these days. For instance, gold showed no support while the geopolitical situation in Asia deteriorated, Japan embarked in the mother of all monetization programs, and a member nation of what is supposed to be a monetary union was imposed controls on the movement of capital. Or take the case of the Euro, which jumped from $1.2750 to $1.2950 on the day of one of the most confusing and embarrassing press conferences the president of its central bank ever gave. However, in a faraway land, where there is no shadow banking, leverage or even capital markets, economic fundamentals still hold, which can help us, inhabitants of the developed world, visualize a dynamics lost in the shelves of our collective memory. The land we are referring to is Argentina, but not Argentina of 2001. Today, we want to write about Argentina of 2013, and no, we will not discuss their legal battles with Mr. Singer.
Q. What is your view on gold?
Soros: That’s a complicated question. It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore they sold gold. So gold went down together with everything else. Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don’t expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis, no trend on a longer-term basis.
We live in a world that is dislocated, on a different axis, where the economy is doing one thing and the markets are doing something else that is not connected. As political nonsense becomes the world's normal banter; the official language in the Press is little more than printed or spoken noise - all caused by the Fed's outpouring of money into the system. Rational reactions become irrational when confined to an irrational world. The world will return to its senses once again either driven by some "event" or by the Fed beginning some sort of withdrawal. In the meantime the markets are beginning to back-up some as moved by becoming accustomed to the continuing flood of money. It is rather like a fine Bordeaux. One meal, two meals, a week's worth of meals and the experience is marvelous but if you drink it every night for dinner the magic begins to dissipate. It is no longer special; it is something expected, it is just the normal fare.
The week ahead is light on major market moving data releases. From a policy perspective and in light of the recent moves in treasuries, FOMC minutes are likely to be followed by markets. Retail sales in the US are likely to print below consensus both on the headline and on the core metrics. That said, this needs to be seen against the backdrop of first quarter retail consumer spending data surprising to the upside. Producer prices are also likely to come in on the soft side of market expectations. Finally, do not expect large surprises from the U of Michigan consumer confidence.
- Finally the MSM catches up to reality: Workers Stuck in Disability Stunt Economic Recovery (WSJ)
- China opens Aussie dollar direct trading (FT)
- National Bank and Eurobank Fall as Merger Halted (BBG)
- Why Making Europe German Won’t Fix the Crisis - The Bulgarian case study (BBG)
- Nikkei hits new highs as yen slides (FT)
- Housing Prices Are on a Tear, Thanks to the Fed (WSJ)
- Why is Moody's exempt from justice, or the "Big Question in U.S. vs. S&P" (WSJ)
- Central banks move into riskier assets (FT)
- N. Korea May Conduct Joint Missile-Nuclear Tests, South Says (BBG)
- North Korea Pulls Workers From Factories It Runs With South (NYT)
- Illinois pension fix faces political, legal hurdles (Reuters)
- IPO Bankers Become Frogs in Hot Water Amid China Market Halt (BBG)
- Portugal Seeks New Cuts to Stay on Course (WSJ)
A big picture look at the drivers of the global capital markets.
Following Friday's epic collapse, snap-back, and circuit-breaker halt in JGB Futures, it appears that investors cannot get enough of Japanese bonds today. From the JPY144.02 close, JGB Futures traded up at the open, oscillated and then gapped higher (on heavy volume) to JPY145.25 before the TSE halted trading once again (on a volatility-based circuit-breaker limit) due to 'rapid price fluctuations. The quadrillion JPY cash JGB market appears very illiquid as we scan the benchmark issues with the 30Y yield higher by 4bps, the 20Y lower by 14bps, and the 10Y lower by 3bps as it appears the futures are the weapon of choice. Since the halt ended, JGB Futures have slipped back notably. It seems pretty evident when and where the BoJ monetization took place but desk chatter was that it was poorly run.
Confused by the day to day happenings in the land of the rising sun, and liquidity tsunami? Don't be, instead read the following series of papers by former SocGen strategist Dylan Grice who predicted everything that is currently happening nearly three years ago. The titles of the enclsed five pieces are self-explanatory especially in light of recent events: "A global fiasco is brewing in Japan", "More on Japan’s brewing fiasco, and some musings on recent pushback", "Fooled by anecdotes: Japan’s coming inflation, JGB toxicity and what to do", "Nikkei 63,000,000? A cheap way to buy Japanese inflation risk" and finally "Buy Japan, and prepare to buy with both hands." Oh, and spoiler alert, Grice doesn't see a Hollywood ending to what is about to happen in Japan.
While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."
"Livid" Top Chinese Economists Call BOJ Decision "Monetary Blackmail", Demand "Currency War" RetaliationSubmitted by Tyler Durden on 04/07/2013 14:25 -0400
The Chinese Central Bank has so far stoically endured the monthly injection of $85 billion in boiling hot money for the past seven months, lovingly delivered by the inhabitants of the Marriner Eccles building, even if it meant a proportionate hawkish response which has pushed the Shanghai Composite red for the year, and having to deal with a property market that is on the verge of another inflationary blow off top. But while the PBOC will grudgingly take this kind of monetary abuse from Bernanke, now that it has to deal with another de novo created $70+ billion in monthly central bank liquidity (poetically called Carry-O-QE by Deutsche's Jim Reid), this time coming from that loathed neighbor and one time invader across the East China Sea, China won't take it any more. As the SCMP reports, "Many of China's top economists are livid at what they view as an effective currency devaluation by Japan and are calling on the People's Bank of China to retaliate by weakening the yuan to defend itself in what they see as a new currency war."
The Fukushima farce continues: a month after a rat (no really) caused the cooling system at the exploded Japanese nuclear power plant to fail, history repeats itself, leading to the second cooling failure in a month. As the NYT reported, "Workers at the stricken Fukushima nuclear power plant who were installing wire nets Friday to keep rats away from a vital cooling system instead tripped that system, causing it to fail for the second time in weeks. Cooling was restored by late evening on Friday, and there was no imminent danger to the 566 nuclear fuel rods stored in the pool, according to the company. It would have taken at least two weeks for the pool to have risen above the safe level of 149 degrees Fahrenheit, Tepco said." Of course, TEPCO would certainly tell the truth to all those it lied to for weeks in March 2011, the same TEPCO where a rat is the weakest link in its meltdown avoidance planning. This time however, TEPCO, credibility and professionalism once again in tatters, was forced to reveal a little more, namely that "radioactive water may have leaked into the ground from a storage tank at Japan's crippled Fukushima Daiichi nuclear power plant in the latest of a series of troubles at the facility."
Rampant inflation, caused by debasement of the currency, government corruption and nanny state corrective action that makes matters worse. Declining trade, caused by wars to control the empire, massive military over-reach and ever increasing spending on the military – funded by increases in taxation on the citizens, especially those least in a position to pay. Sounds familiar? The above, paragraph describes not our present day society but that of the Roman Empire from the 3rd century onwards. However, one could be forgiven for thinking I was describing the faltering western economies of America, Japan and Europe.