Japan

For those wondering what is causing today's most recent commodities drubbing look no further than the PBOC, which a few minutes ago announced it was hiking the RMB deposit reserve ratio by 50 basis points. Following the hotter than expected CPI print from Tuesday night, this is not unexpected, yet it merely makes the stagflationary outcome even more possible, as aside from inflation all other economic indicators pointed to a sharp slow down. And while China is tightening, Europe, as we predicted, will soon be forced to undo its most recent foolish rate hike, and likely loosen substantially following a crunch in the continent's industrial production. "Production in the 17-member euro area slipped 0.2 percent from February, when it advanced 0.6 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.3 percent, the median of 25 estimates in a Bloomberg News survey showed. Production rose 5.3 from March 2010 after increasing an annual 7.7 percent in February." As a result, the EUR drop is causing the USD to jump yet again, causing futures and commodities to tumble. Simple. Or is it?

Just because 1,000,000,000,000.00 is so 2011, Japan brings you 1,000,000,000,000,000.00 just in time for 2012.

While it will not surprise anyone that Japan, which for the past 3 decades has been a monetary policy basket case caught in what bankers like calling a deflationary spiral (yet which others like Sean Corrigan merely define as prices re-indexing to a fair value absent endless cheap credit crutches), has constantly had to resort to a record loose monetary policy coupled with endless episodes of quantitative easing, some may not know that over the past month Japan has seen its current account balance swell by $250 billion, or nearly half the entire Fed QE2 monetization mandate. And as the BOJ continues to disclose the full extent of the Japanese economic devastation following March 11, we are confident that very soon the most recent episode of Japanese “printing” will surpass the $600 billion that the Fed is injecting into the US economy (in addition to the roughly $250 billion in Treasury bonds monetized by the BOJ each year): an amount roughly 5 times greater than America's when expressed as a ratio of GDP. It is thus no surprise then that Bernanke does not seem too concerned with the purported end of QE – after all money printing is merely moving from developed world point A to developed world point B. And thanks to monetary linkages of “globalization” all this brand new money will once again find its way into speculative assets, and thus, Fed mandate #3 favorite - Russell 2000. Below we provide a closer look at what exactly the current and future, Japanese QEasing will look like.

S&P revises Japan's AA- credit rating outlook to negative. The culprit: the Japan earthquake that just as predicted, has become the scapegoat to excuse another quarter of "non-recurring" EPS misses. And while according to Wall Street the economic devastation is GDP positive, Japan may soon be a single A credit, which of course will send it 10 year bond trading with a 0 yield handle. From S&P: "The negative outlook signals that a downgrade is possible if Japan's public finances weaken further over the next two years in the absence of fiscal consolidation to offset them. We believe that uncertainty over the country's fiscal and economic outlook will lessen over the next six to 24 months. If the government's debt trajectory remains on its current course or begins to erode the nation's external position, the long- and short-term ratings could be lowered. If reconstruction costs place less burden on public finances than we expect–either because of lower outlays or increased revenues to cover them–and the government makes progress in strengthening Japan's fiscal profile, we could revise the outlook back to stable."

While we have yet to independently verify the following piece of news which originally appeared in the April 18 edition of the Asia Pacific Journal, we can see how this could be very true. If so, it has very disturbing implications about the "real" truth behind the Fukushima devastation, because outright censorship, Cease and Desist notices, and preemptive takedowns are always the purvey of the "last resort" crew. To wit: "The project team has begun to send “letters of request” to such organizations as telephone companies, internet providers, cable television stations, and others, demanding that they “take adequate measures based on the guidelines in response to illegal information. ”The measures include erasing any information from internet sites that the authorities deem harmful to public order and morality." Of course, if this directive had been in place from the very beginning, nobody would know any of the truth behind the dire catastrophe (which started at sub-3 Mile Island severity and is now equal if not worse than Chernobyl), which has seen enough coverup and lies to make Stalin look like Wikileaks.

TXN which is merely the latest company to post weaker than expected earnings in a quarter which so far has been a major disappointment across the board, also has the dubious distinction of being the first company to blame its outlook cut on Japan:

Outlook

For the second quarter of 2011, TI expects: 

• Revenue:  $3.41 – 3.69 billion
• Earnings per share:  $0.52 – 0.60

This estimate includes a negative impact of about 5 cents for costs resulting from the earthquake and its aftermath in Japan. 

As the street was expecting $0.63 this is not good, but the market will promptly forgive this weakness now that every company will start using the Japanese wildcard.

While we were scouring the latest directives disclosed by the Chinese Ministry of Truth, conveniently leaked on a weekly basis by China Digital Times, we encountered this oddity:

State Council Information Office: Plans for Japanese to Immigrate to Hainan Island, China

April 2, 2011

From the Ninth Bureau of the State Council Information Office: All websites are asked to monitor interactive spaces and immediately delete rumors similar to the following: “Breaking news: Japanese elites discussing plan to emigrate to Hainan Island, China.”

Questions arise: why is China so focused on removing any trace of this rumor? Is it because it is false (probably not the smartest thing, as anyone disseminating it would merely discredit themselves)? Or, perhaps, because it is true?

Land of the Free, Home of the Zapped?

"It’s only stable in the sense that you’re dangling from a cliff hanging by your fingernails. And as the time goes by, each fingernail starts to crack. That’s the situation now."

The purpose of this essay is to address certain common perceptions, or rather misperceptions, about Japan that prevailed before the latest crisis. In particular, I wish to examine the dreaded Ds which have afflicted Japan in recent years: demographics, deficits, deflation and (corporate) decline – to which must now be added (natural) disaster. Do investors in Japanese stocks face yet another lost decade?...There’s little doubt that Japan’s economy is capable of growing again and that returns on investment are capable of improving. All that’s needed is the will. As a nation, Japan has often moved at a painfully slow pace. But few peoples have demonstrated such a capacity for rapid change once they have decided upon it. The Japanese modernized at a blinding pace after the Meiji Restoration of 1866. The same spirit was on display during the reconstruction miracle after the Second World War. It had become fashionable to decry the unadventurous younger generation as stay-at-home “herbivores.” Yet the world’s admiration for the Japanese people has been rekindled by their stoic response to the most recent national catastrophe. If this spirit and sense of unity were directed toward Japan’s economic revival, a third lost decade would surely be averted.

Future's so bright, I gotta wear shades ...

It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are "only" stealing about $1.50 per gallon from each individual person in the industrialized world.

A reader writes us from Japan...

Can you guess what they all have in common?

After dumping thousands of tons of radioactive water in the sea, Japan appears to have been stunned to find that the radioactive content of various fish has surged and is now above just imposed radiation safety thresholds. From Kyodo: "Japan hastily set a legal limit Tuesday for the permitted level of radioactive iodine in seafood as safety concerns spread overseas in the wake of continuing leaks contaminated water into the Pacific Ocean from the crippled Fukushima Daiichi nuclear power plant. The limit of 2,000 bequerels per kilogram set by the Ministry of Health, Labor and Welfare for radioactive iodine in marine products such as fish and shellfish is the same as that already adopted for vegetables, Chief Cabinet Secretary Yukio Edano told a press conference. The imposition of the limit followed the detection by Japanese authorities 4,080 bequerels per kilogram of radioactive iodine in young sand lance caught Friday off Kitaibaraki in Ibaraki Prefecture, which prompted the health ministry to consider setting a limit for fish and clams. Different young sand lance, also caught near Kitaibaraki, were found to be contaminated with 526 bequerels per kilogram of radioactive cesium, exceeding the legal limit of 500 bequerels already set by Japan." And now that Japan has another crisis scenario fall out to deal with, other countries no longer have faith that Japan has any control over the situation and are imposing complete bans on Japanese food imports: first India, and soon everyone else. Expect sushi prices to surge momentarily.