Japan

The Fed’s Paint-By-The-Numbers Delusions About The Labor Market

At the end of the day, it is overwhelming clear that the headline jobs number is thoroughly and dangerously misleading because there has been a systematic and relentless deterioration in the quality and value added of the jobs mix beneath the headline. It has no value whatsoever as an index of labor market conditions, labor market slack or even implied GDP growth. The truth is, in an open global economy the quantity of labor utilized by the US economy is a function of its price - not the level of interest rates or the S&P 500. Currently, wage rates on the margin are too high, but the Fed’s ZIRP and money printing campaigns only compound the problem. They permit the government to fund with ultra low-cost bonds and notes a massive transfer payment system that keeps potential productive labor out of the economy, and thereby props up bloated wages rates; and it enables households to carry more debt than would be feasible with honest interest rates and competitively priced wage rates, thereby further inhibiting the labor market adjustments that would be required to actually achieve full employment and sustainable growth.

As QE3 Ends, Fed Reserves Have Biggest Drop Since Start Of QE

While we understand the Fed's desire to pass the monetization baton seamlessly from the end of QE3 in the US, to the expansion of QE in Japan first, and then the launch of public QE by the ECB, things may not be quite as smooth as desired . Because a quick glance at the latest Fed H.4.1 statement reveals something unexpected: in the past 4 weeks, the level of total reserves with Fed banks (i.e., excess reserves created by QE), have seen their biggest plunge since the launch of QE in March of 2009. As of November 5, the total amount of outstanding reserves tumbled to $2.561 trillion, down a whopping $188 billion in the past 4 week, well below the $2.8 trillion recorded in August, and at a level last seen in February 2014.

Sprott Money's picture

Chris Martenson is an economic researcher and futurist, specializing in energy and resource depletion, and co-founder of PeakProsperity.com. As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar, The Crash Course, that interconnected forces in the economy, energy, and the environment that are shaping the future, one that will be defined by increasing challenges as we have known it. Chris’s insights are in high demand by the media as well as academic, civic, and private organizations around the world, including institutions such as the U.N., the U.K. House of Commons, and the U.S. State Legislatures. So with that we’d like to welcome Mr. Chris

US, China Hope To Avert "Military Confrontation"

While Putin was busy laying the groundwork for another major commodity gas pipeline expansion project, one that would make China the largest natural gas client of Gazprom, surpassing Europe and fully concluding Russia's pivot from west to east, US president Obama had slightly less lofty ambitions out of the annual APEC summit in Beijing: coordinating with China's leader Xi Jinping on how to best avoid war, or as the WSJ phrased it "military confrontations." So in order to prevent military conflict in the coming years, China and the US have penned two deals. “It’s incredibly important that we avoid inadvertent escalation and that we don’t find ourselves again having an accidental circumstance lead into something that could precipitate a conflict” said a White House official.

Ukraine Currency Crashes After Senior EU Official Says "The Ukrainians Are Manipulating Us"

Things just got much worse for Ukraine, which has been on life support by its "western allies" ever since the US State Department-coup early in the year. Because those same allies look like they may have had enough.  According to Reuters, some in Brussels are disillusioned by the experience of helping Ukraine. EU generosity in waiving import duties and funding gas supplies from Russia may be being abused, they say. "Some in Ukraine's elite may be colluding with Russia, even as fighting in the east has begun to escalate again. "The Ukrainians are manipulating the EU," a senior EU official involved in negotiations told Reuters, saying the bloc was "waking up" to a need to better defend its own interests."

Are You Expecting A Recession?

Recession is a useless discussion by now. The US is a painted pig, the EU needs to let countries go or they’ll go to war, Japan hung its head in a noose for Halloween and China has its 32nd consecutive month of falling factory-gate prices. Lower oil prices may for now hide some of the pain, but even that is too much for Japan, because of the deflationary effect of even less consumer spending. And it’s that lack of spending that’s everyone’s worst enemy. But you can’t solve that with central bank stimulus. The formerly rich world is loaded with burger flippers, food stamps and underwater homes, and that means less, not more, spending. All ‘formerly rich’ governments have historically unequaled spin doctors on their payroll, so the real numbers across the board are much much worse even then what we are ‘allowed’ to know. And what we do know is already awful once you sweep away the propaganda. You’re only going to be OK as an investor if the Fed continues to hold your hand and lead you softly through the ups and downs. You really think they will? Recession? In your dreams.

Frontrunning: November 11

  • No Sign of Thaw in Obama’s Brief Encounters With Putin (BBG)
  • Japan Lawmakers Prepare for Snap Elections as Abe Mulls Tax (BBG)
  • Global stocks rise, Brent crude hits four-year low (Reuters)
  • U.S., China to Drop Tariffs on Range of Tech Products (WSJ)
  • ‘Too-Big-to-Fail’ Rule Would Raise Bar for Bank Capital (WSJ) ... and mean even bigger taxpayer bailouts
  • Pot in New York: $100 Ticket. No Charges. No Record. No Nothing (BBG)
  • Microsoft unveils first Lumia smartphone without Nokia name (Reuters)
  • Davos-Man Ackermann Lured to Cyprus Bank by Billionaires (BBG)
  • Alibaba, Apple Talks on Payments Tie-Up Focused on China (WSJ)

Yen Plunges To Fresh 7 Year Lows On New Reuters "Leak"

With the bond market closed today due to Veteran's Day and the correlation and momentum ignition algos about to go berserk without any parental supervision, it was only a matter of time before some "stray" headline sent first the carry pair of choice, i.e., the USDJPY, and subsequently its derivative, the Emini, into the stratosphere. And sure enough, just before 3am Eastern, it was once again Reuters' turn to leak, only this time not about the ECB but Japan, as usual citing an unnamed "government official close to Abe's office", that Prime Minister Shinzo Abe was likely to delay a planned sales tax increase.

  • JAPAN MORE LIKELY TO DELAY SALES TAX INCREASE, REUTERS REPORTS

Which of course is a repeat of what Reuters said 2 days ago but since it came on the weekend, the momentum ignition algos didn't notice. The result was an instant surge in the USDJPY, which shortly thereafter touched on 116.00 the highest level in 7 years, and is up now 200 pips since yesterday as the obliteration of Japan's economy proceeds, in turn pushing European stocks, and shortly, the S&P, higher

Abe Approval Tumbles As Majority Say Japan's "Banzainomics" QE Will Have Negative Effects

"The presence of a big buyer who snaps up securities regardless of yields risks preventing the market from reflecting growth and inflation accurately,” says Shinji Hiramatsu, senior investment manager at Sompo Japan Nipponkoa Asset Management, which oversees the equivalent of $9.8b. “The BOJ’s move on Oct. 31 was favorable for my investment, but made me very concerned about a loss of fiscal discipline." Shockingly, even in the basket case country that is Japan, those who directly benefit from the BOJ's terminal experiment are now openly and vocally slamming it because they know that if continues, the final endgame is now near. It has gotten so bad that Japan's population, living in unseen "misery" has had enough, with more respondents to a recent poll stating that the negative effects of Japan's QE surpass the positive. Perhaps that is why the approval of Abe's cabinet is suddenly crashing.

Deflation Comes Knocking On The Door

For the moment capital markets appear to be adapting to deflation piece-meal. The fall in the gold price is equally detached from economic reality. While it is superficially easy to link a strong dollar to a weak gold price, this line of argument ignores the inevitable systemic and currency risks that arise from an economic slump. The apparent mispricing of gold, equities, bonds and even currencies indicate they are all are ripe for a simultaneous correction, driven by what the economic establishment terms deflation, but more correctly is termed a slump.

Saxobank CIO Warns We're About To See A Full-Scale Currency War

There's increasing risk we'll soon see a "significant paradigm shift" from China in its attitude to the strength of its currency, warns Saxobank CIO and Chief Economist Steen Jakobsen. He says we're about to see a full-scale currency war, notably between China and Japan, two of the world's greatest exporting countries.

Where Will Risk Erupt This Time?

The risks unleashed by central bank funding of massive carry trades, policy-driven devaluations and currency crises have yet to manifest. When they do, we'll rediscover why traders consider the FX market the 800-pound gorilla that stomps on the stock and bond markets without even noticing the squishing sound.

Frontrunning: November 10

  • Obama urges China to be partner in ensuring world order (Reuters)
  • China Sees Itself at Center of New Asian Order (WSJ)
  • Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (BBG)
  • China's Xi, Japan's Abe hold landmark meeting after awkward handshake (Reuters)
  • Revenue Softness Worries Stock Investors (WSJ)
  • How BOJ’s Kuroda Won the Vote for Stimulus Expansion (WSJ)
  • Bonus Season Brings More Pain for Traders (WSJ)
  • Russia’s Military Encounters Risk Clash in Europe (BBG)