Perhaps in an effort to numb themselves of the daily grind of a delusional dictator amid widespread starvation, North Koreans have turned en masse to the 'bingdu' or ice. As the WSJ notes, a study in the Spring of 2013 found that "Almost every adult in that area (of North Korea) has experienced using ice and not just once," and the author noted that "at least 40% to 50% are seriously addicted to the drug." Unsurprisingly for the closed nation, there is no official data, but as poppy fields disappeared in the nation, meth dealers were quick to step in and 'Heisenberg' the people's needs. Now "doing ice is a social thing; it is a lot of fun," as the 'epidemic' has spread from mid-ranking officials and police officers in 2004-2008 to the general population of students and youth now.
Following yet another rout in Asia overnight, which since shifted over to Europe, US equity futures have stabilized as a result of a modest buying/short-covering spree in the 10 Year which after threatening to blow out in the 2.90% range and above, instead fell back to 2.81%. Yet algos appear confused by the seeming USD weakness in the past few hours (EURUSD just briefly rose over 1.34) and instead of ploughing head first into stock futures have only modestly bid them up and are keeping the DJIA futs just above the sacred to the vacuum tube world 15,000 mark. A lower USDJPY (heavily correlated to the ES) did not help, after it was pushed south by more comments out of Japan that a sales tax hike is inevitable which then also means a lower budget deficit, less monetization, less Japanese QE and all the other waterfall effect the US Fed is slogging through. Keep an eye on the 10 Year and on the USD: which signal wins out will determine whether equities rise or fall, and with speculation about what tomorrow's minutes bring rife, it is anybody's bet whether we get the 10th red close out of 12 in the S&P500.
Confidence leads to spending; spending strengthens the economy; and economic strength buttresses confidence. It’s a circular, self-fulfilling prophesy. Confidence can also fuel market movements. Belief that the price of an asset will rise causes people to buy the asset... making its price rise. This is another way in which confidence is self-fulfilling. But, of course, as Oak Tree Capital's Howard Marks points out, the confidence that underlies economic gains and price increases only has an impact as long as it exists. Once it dies, its effect turns out to be far from permanent. As the economist Herb Stein said, "If something cannot go on forever, it will stop." This is certainly true for confidence and its influence. As far as confidence today, Marks notes significant uncertainty is one of the outstanding characteristics of today’s investing environment. It discourages optimism regarding the future and limits investors’ certainty that the future is knowable and controllable. In other words, it saps confidence. This is a major difference from conditions in the pre-crisis years. In fact, Marks warns he doesn't remember when his list of 'uncertainties' was this long...
While many draw comparisons to 1994's Fed actions, rate rises, and the subsequent economic and equity market performance, UBS' commodity team examines the five main drivers of that mid-90s disinflationary boom and how (or if) they are applicable in the US' current new normal. Their findings "this may be a 1994 redux, but it ain't no 1995 replay," as they note, in fact, it's a bear market waiting to happen. Every one of these processes is deflationary, not disinflationary. And they are self reinforcing. And deflation, in direct contrast to disinflation, is very bad for asset prices (with a serious equity and credit bear-market). So just as we have noted previously any taper will likely eventually lead to an 'un-taper' reflation effort (which will see gold once again strengthen) along with the exposure of the fallacy that the Fed really has become.
- Bernanke Seeks to Divorce QE Tapering From Interest Rates (BBG)
- China launches crackdown on pharmaceutical sector (Reuters)
- Barclays, Traders Fined $487.9 Million by U.S. Regulator (BBG) - or a few days profit
- Barclays to fight $453 million power fine in U.S. court (Reuters)
- When an IPO fails, raise money privately: Ally Said to Weigh Raising $1 Billion to Pass Fed Stress Tests (BBG)
- Bank of England signals retreat from quantitative easing (FT) ... Let's refresh on this headline in 6 months, shall we.
- Russia's Putin puts U.S. ties above Snowden (Reuters)
- Smartphone Upgrades Slow as 'Wow' Factor Fades (WSJ)
- Snowden could leave Moscow airport in next few days (FT)
- New Egypt government may promote welfare, not economic reform (Reuters)
Congress Is Less Popular than Cockroaches, Lice, Root Canals, Colonoscopies, Genghis Khan, Communism, King GeorgeSubmitted by George Washington on 07/14/2013 14:02 -0400
Exactly HOW MUCH do Americans Hate Congress?
NSA Whistleblower: NSA Spying On – and Blackmailing – Top Government Officials and Military OfficersSubmitted by George Washington on 06/20/2013 16:42 -0400
Whether the Japanese government guessed that the 150% annualized surge in the nominal price of their stocks, or 30% devaluation was unsustainable is questionable, but it seems that 'Plan B' is being created. As The Diplomat notes, finding itself in an increasingly complex and hostile security environment, Japan has taken the first steps towards developing a pre-emptive first-strike capability. This is a controversial move in a region that remains wary of a potential return to Japanese militarism.
Nothing like a solid dose of schizophrenia to start the week, following Chinese PMI news which showed that once again the Chinese economy was both contracting and expanding at the same time. Sure, one can justify it by saying HSBC looks at smaller companies while the official data tracks larger SMEs but the reality is that just like in the US, so China has learned when all else fails, baffle with BS is the best strategy. As a result the media is attributing he drop in European stocks to the weaker than expected China PMI, while the green prints in US futures are due to... stronger than expected China PMI. There were no split-personalities in Japan, however, where Mrs. Watanable's revulsion with recent euphoria led the Nikkei to tumble over 500 points, to closed down another 3.72%, and is now on the verge from a 20% bear market from its May 23 multi-year highs. The fact that the USDJPY reached within 3 pips of the Abenomics "fail" zone of USDJPY 100 didn't help overnight sentiment.
- ‘Cov-lite’ loans soar in dash for yield (FT)
- Cambodian police clash with thousands of garment workers, 23 hurt (Reuters)
- Obama Accepting Sequestration as Deficit Shrinks (BBG)
- Having done nothing to restore confidence in a fragmented market, the SEC turns back to main street fraud (WSJ)
- Europe's austerity-to-growth shift largely semantic (Reuters)
- Germany thwarts EU in China solar fight (FT)
- In EU-China dispute, Beijing warns of trade (FT)
- U.S. Oil Boom Divides OPEC (WSJ)
- Record Cash Sent to Balanced Funds (BBG)
- Hilsenrath: Fed Wrestles With Market Expectations About Pace of QE (WSJ)
- Worse-Than-Cyprus Debt Load Means Caribbean Defaults to Moody’s (BBG)
- States Raise College Budgets After Years of Deep Cuts (WSJ)
- U.K. Banks Cut 189,000 With Employment at Nine-Year Low (BBG)
Use It or Lose It Time for the Constitution and Bill of Rights ...
- Obama's Counsel Was Told of IRS Audit Findings Weeks Ago (WSJ)
- North Korea fires sixth missile in three days (Reuters)
- Enron No Lesson to Traders as EU Probes Oil-Price Manipulation (BBG)
- Don't cry for me, Eurozone: Thinking the Unthinkable - Quitting a Currency (WSJ)
- H-1B Models Strut Into U.S. as Programmers Pray for Help (BBG)
- Gold Bear Bets Reach Record as Soros Cuts Holdings (BBG)
- Yahoo has agreed to pay $1.1 billion for Tumblr (WSJ)
- JPMorgan Holders Led by Chairmen-CEOs to Vote on Dimon (BBG)
- Apple faces grilling over US tax rate (FT)
- Nissan to Sell First Joint Minicar to Expand in Japan Market (BBG)
- Fierce battle for corporate loans sparks US bank risk concerns (FT)
- Microsoft Updates Xbox as Apple to Facebook Gain in Games (BBG)
A quiet day unfolding with just Chicago Fed permadove on the wires today at 1pm, following some early pre-Japan market fireworks in the USDJPY and the silver complex, where a cascade of USDJPY margin calls, sent silver to its lowest in years as someone got carted out feet first following a forced liquidation. This however did not stop the Friday ramp higher in the USDJPY from sending the Nikkei225, in a delayed response, to a level surpassing the Dow Jones Industrial Average for the first time in years. Quiet, however, may be just how the traders at 72 Cummings Point Road like it just in case they can hear the paddy wagons approach, following news that things between the government and SAC Capital are turning from bad to worse and that Stevie Cohen, responsible for up to 10-15% of daily NYSE volume, may be testifying before a grand jury soon. The news itself sent S&P futures briefly lower when it hit last night, showing just how influential the CT hedge fund is for overall market liquidity in a world in which the bulk of market "volume" is algos collecting liquidity rebates and churning liquid stocks back and forth to one another.
Five days ago, when describing the launch of the joint-US, South Korean naval military exercise in the East Sea, we said that "for all his endless posturing, North Korea's Un has done absolutely nothing. And if his inability and unwillingness to translate threats into actions continue, that will pretty much be it for North Korea's hope to even get a few loose pennies as a nuisance factor" be it from the US, Japan, South Korea, or anyone else who is listening. It seems the North Korean leader has taken the hint, and overnight escalated from merely constant jawboning into at least some variant of activity, when he fired three short-range missiles into the sea off the eastern coast of the Korean peninsula on Saturday, "once again stirring tensions that had appeared to ease in the wake of a recent series of bellicose statements directed at South Korea and the U.S."
For all his endless posturing, North Korea's Un has done absolutely nothing. And if his inability and unwillingness to translate threats into actions continue, that will pretty much be it for North Korea's hope to even get a few loose pennies as a nuisance factor. This may be tested in the next 48 hours as South Korea and the US begin two days of joint naval exercises off the country's east coast, involving the nuclear-powered US aircraft carrier CVN 68 Nimitz. Perhaps more informative than North Korea's bluster will be to see what if any reaction China has to a US presence in a hotly contested (with Japan) naval territory.