Just in case you were not convinced what a fragile fallacious lie the entire world's status quo has become, the Bank of Japan just provided one more straw on the camel's back of faith-based investing. As Bloomberg reports, BoJ officials are concerned that cooler-than-normal weather triggered by El Nino this summer will curb spending and weigh on an economic rebound. The Japan Meteorological Agency this week forecast a 70% chance El Nino will occur, the highest since its last occurrence in 2009, bringing lower temperatures that could continue through autumn - and, according to Dai-Ichi, could lower growth by as much as 0.9 percentage points. "We can't rule out the potential that the El Nino this summer causes unexpected damage to Japan’s economy," Nagahama said... the first pre-blamed weather forecast from a central bank we are aware of. Of course, given the dismal retail sales data this morning, we suspect a cooler-than-expected summer will be the scapegoat for a lack of economic escape velocity in the US also.
While Asia in general may be slowing now that China's epic debt creation machine is starting to break down, when it comes to trends within Asia not everyone is equal. And nowhere is this more visible than when comparing Japan, that dynamo of Asia in the 1980s and 1990s, and China, that other "New Normal" dynamo which carried the world across the Great Depression chasm. For the best representation of Japan's epic fall from economic relevance and, inversely, China's superpower ascendancy, here is one chart showing how vastly more relevant to Asia China now is compared to Japan just under 20 years ago.
More Reasons QE Is a Dud
China’s placement of the giant state-owned oil rig HD-981 in Block 143 inside Vietnam’s Exclusive Economic Zone (EEZ) on May 2 was unexpected, provocative and illegal. China’s deployment of the rig was provocative because the oil rig was accompanied by as many as 80 ships, including seven People’s Liberation Army Navy warships. When China first announced the deployment of its oil rig, it stated that its operations would terminate on August 15. This provides plenty of time for both sides to orchestrate and manage the confrontation and provide a face saving means for ending the confrontation.
This week markets are likely to focus on a few important data prints in DMs, including Philly Fed in the US (expect solid expansionary territory) and 1Q GDP releases in the Euro area (with upside risks). In DMs, the highlights of the week include [on Monday] Japan’s trade balance data and Australia business conditions; [on Tuesday] US retail sales, CPI in Italy and Sweden; [on Wednesday] US PPI, Euro area IP, CPI in France, Germany and Spain; [on Thursday] US Philly Fed, CPI, capacity utilization, Euro area and Japan GDP; and [on Friday] US Univ. of Michigan Confidence. In the US, we expect Philly Fed to print in solidly expansionary territory (at 14, similar to consensus) and to inaugurate what we call the active data period of the month. We also expect CPI inflation to print at 0.3% mom (similar to consensus), and core CPI inflation at 0.18% mom (slightly above consensus).
East Ukraine may be independent in a result which the Kremlin said it "respects" and hopes for a "civilized implementation" of the referendum results, and which assures further military escalation in the proxy war of east versus west, but stocks are happy to ignore it all again. The reason: a positive close over in Asia (ex-Japan) after China’s State Council pledged to reform markets buoyed demand for risk, although it really is just a follow through to the furious VIX slam in the last hour of US Friday trading, which said otherwise, means buying of US equities was the reason to buy US equities. More importantly and adding to the early spoo euphoria were comments by ECB's Nowotny who said that interest rate cut alone would likely be too little to combat low inflation - suggesting a European QE is coming - also acted as a catalyst for the latest uptick in stocks: when trapped like the ECB and when "guiding" to future activity, if unable to actually execute it, may as well go all the way. End result, Spoos up nearly 0.5% because, well, others are buying spoos.
Any day, week, month, quarter, year now... that J-Curve 'recovery' will come bounding over the horizon and save the Japanese economy from its inevitable death spiral... for now, presented with little comment aside for historical confirmation (as even Goldman Sachs has now given up on hope of a bounce), Japan's largest (seasonally-adjusted) Balance of Payment Trade Deficit ever... For FY2013 as a whole, the current account recorded a surplus of +¥789.9bn but was far lower than the +¥4.2tn in FY2012 and the lowest since comparable records became available in FY1985.
Dispassionate discussion of the near-term forces at work in the foreign exchange market.
And what's in it for you...
It's been a while since we looked at Japan's debt situation. Here is the dire update.
One can’t help but look at the situations transpiring around the globe and hope: things are different this time. The problem is being different puts it right back in line with that other caveat: history doesn’t repeat itself, but it does rhyme. And so lies the most troubling aspect facing not only the U.S. economy, but quite possibly the world as whole. For if things rhyme anything inline with past events in history: We’re all in a dung heap of QE based minutia, with Geo-political ramifications the “intellectual” crowd never contemplated as possible – let alone probable.
The following outlines a solid statistical analysis of every aspect of the gold market, a thoroughly researched and well-presented account of the history of the modern monetary system and a highly original perspective of the growing bubble in debt and credit claims we have experienced since adopting today's system of credit-based money.
If We Don’t Learn Our History … We May Very Well Blow Off Our Own Foot
Some people are either born or nurtured into a time warp and never seem to escape. That’s Janet Yellen’s apparent problem with the “bathtub economics” of the 1960s neo-Keynesians. As has now been apparent for decades, the Great Inflation of the 1970s was a live fire drill that proved Keynesian activism doesn’t work. That particular historic trauma showed that “full employment” and “potential GDP” were imaginary figments from scribblers in Ivy League economics departments—not something that is targetable by the fiscal and monetary authorities or even measureable in a free market economy. Even more crucially, the double digit inflation, faltering growth and repetitive boom and bust macro-cycles of the 1970s and early 1980s proved in spades that interventionist manipulations designed to achieve so-called “full-employment” actually did the opposite—that is, they only amplified economic instability and underperformance as the decade wore on.
The US approach to the Russia/Ukraine situation reflects a serious misunderstanding of the situation. Russia has little choice but to try to raise the price of products it is selling, any way it can. It needs to cut out those who cannot afford its products, including the Ukraine. If Europe increasingly cannot afford its products, Russia needs to find customers who can afford them. There is little chance that the United States is going to be able to help Europe with its natural gas needs in any reasonable timeframe. Our best chance at keeping the global economy “working” for a little longer is to try to keep globalization working as best we can. This will likely require “making nice” to countries we are unhappy with, and putting up with what looks like aggression. Policymakers like to think that the US has more power than it really does, and like to encourage stories suggesting great power in the press. Unfortunately, these stories are not true; we need policymakers who understand our real situation