The hyper-correlation of Japanese stocks (Bass - The people that buying Japanese stocks, are picking up a dime in front of a bulldozer) and the JPY have led many to believe that Abe's miracle promise will be just the ticket to bring the nation's two-decade slump to an end - a 2% inflation target is all you need. However, in a brief CNBC interview, Kyle Bass explains that not only are 99.9% of people wrong about the crisis (explaining the critical aspect of the abrupt turn of twenty years of the 'procylicality of thought' - that deflation is the norm), but Abe's actions have actually brought forward the date of the "detonation of Japan's Debt Time Bomb. Bass goes on to discuss the US Housing stabilization, European stress, and China's economic opacity (and tensions with Japan), but leaves us with the clear and present danger in Japan that the clock has started on the qualitative shift in participants' minds that the situation is untenable (signs are already among the elite with recent JPY-extricating M&A deals) and "All of the components for this [bomb] to go off 'all of a sudden' are in place." Must watch.
After witnessing the fighting of undeclared never ending wars, passage of freedom destroying legislation like the Patriot Act & NDAA, approval of pork barrel spending to the tune of hundreds of billions, rule by Executive Order, using ZIRP to extract hundreds of billions from senior citizen savers and give it to criminal Wall Street banks, forcing the American people at gunpoint to replenish the Wall Street banks with $700 billion after they had committed the greatest financial fraud in history, and a continuing trampling of the U.S. Constitution, the American people continue to remain willfully ignorant of the truth. The American Dream is dead. We’ve allowed a rich, privileged, elite few to achieve hegemony over our economic and political system with their control of the media and manipulation of our financial markets. They will collapse the country because they will never be satisfied with the amount of wealth and power they’ve accumulated. Their voracious greed will be their downfall.
- Obama's Gun Curbs Face a Slog in Congress (BBG)
- Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
- China Begins to Lose Edge as World's Factory Floor (WSJ)
- EU Car Sales Slump (WSJ)
- Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
- Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
- Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
- Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
- Fed Reports Point to Subdued Economic Growth (WSJ)
- China Set to Exit Slowdown by Boosting Infrastructure (BBG)
- Greece not out of woods, must stick to reforms: finance minister (Reuters)
- Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)
It's been a while since the Syntagma square riotcam was broadcasting live from Athens. After all, despite the ongoing collapse in its economy, where only 3.7 million people have jobs compared to 4.7 million who are unemployed or inactive, the general sentiment was that "austerity" measures have been put on hiatus, and no more tax, pension, or benefits cuts are on the table. That changed last night when Greece was the latest country to become the US, following a tax hike on its highest earners. However, unlike the US, this increase in "rich" taxes is being offset by at least some spending cuts such as tighter control of the budgets of ministries and state utilities, and the reduction of parliamentary employees’ wages in line with cuts to the wages of other civil servants. In other words, it is almost time for the Syntagma square daily pay-per-view daily webcast. The good news, at least for Greece, is that it does not have a debt ceiling to worry about. Then again, when all your debt is zero coupon perpetuals in the hands of the ECB and other "official" institutions, the balance sheet is the last thing you have to worry about. It's the income statement, one where not even all the one-time charges or loan loss reserve releases in the world will do any difference, that suddenly matters far more.
The debt limit was formally reached last week, and we expect the Treasury's ability to borrow to be exhausted by around March 1 (if not before) and while CDS are not flashing red, USA is at near 3-month wides. Like the previous debt limit debate in the summer of 2011, the debate seems likely to be messy, with resolution right around the deadline. That said, like the last debate we would expect the Treasury to prioritize payments if necessary, and Goldman does not believe holders of Treasury securities are at risk of missing interest or principal payments. The debt limit is only one of three upcoming fiscal issues, albeit the most important one. Congress also must address the spending cuts under sequestration, scheduled to take place March 1, and the expiration of temporary spending authority on March 27. While these are technically separate issues, it seems likely that they will be combined, perhaps into one package. This remains a 'very' recurring issue, given our government's spending habits and insistence on its solvency, as we laid out almost two years ago in great detail.
Perhaps it is time for the punditry and the chatterbox media to start considering what happens not when the much anticipated rotation out of bonds and into stocks, which has not happened for 4 years now, and won't, at least not until the government bond bubble finally pops which will only happen when the central banks finally lose control, but what happens if even a tiny amount of the global pension capital allocated to bonds and/or equities, is rotated into gold.
“Pension money invested in bullion is ‘peanuts’ at the moment,” Toshima said. “If 1 percent of their total assets shift to the metal, the gold market would explode.”
Could not have said it better ourselves.
They say "be careful what you wish for", and they are right. Because, in the neverending story of the American "recovery" which, sadly, never comes (although in its place we keep getting now semiannual iterations of Quantitative Easing), the one recurring theme we hear over and over and over is to wait for the great rotation out of bonds and into stocks. Well, fine. Let it come. The question is what then and what happens to the US economy when rates do, finally and so overdue (for all those sellside analysts and media who have been a broken record on the topic for the past 3 years), go up. To answer just that question, which in a country that is currently at 103% debt/GDP and which will be at 109% by the end of 2013, we have decided to ignore the CBO's farcical models and come up with our own... To answer just that question, which in a country that is currently at 103% debt/GDP and which will be at 109% by the end of 2013, we have decided to ignore the CBO's farcical models and come up with our own. The bottom line: going from just 2% to 3% interest, will result in total 2022 debt rising from $31.4 trillion to $34.1 trillion; while jumping from 2% to just the long term historical average of 5%, would push total 2022 debt to increase by a whopping $9 trillion over the 2% interest rate base case to over $40 trillion in total debt!
If anybody should be labeled a lunatic, it should be the Democrats and those that are encouraging these unsound financial spending policies.
Friday Night Dump: CBO Admits Error, Now Expects Another $600 Billion In Deficits From Obama Tax CutsSubmitted by Tyler Durden on 01/04/2013 18:59 -0400
Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, one amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions). It appears that they just did, after the close, on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.
The USA now has two big drivers of debt.
In broad strokes, this is the official playbook for political leaders in the Western world. Facilitating this is the ongoing monetary easing by the global Central Banks who have collectively pumped $10 trillion into the system since the Great Crisis began. In simple terms, Central Banks provide the glue to hold the system together while politicians meet and negotiate without ever really solving anything.
-If you’re employed, you’re a loser.
To understand this endgame, we need to start with the financial and political basics of wealth and power in the U.S. Put these nine structural dynamics together and the endgame becomes clearly visible: Politically, a Tyranny of the Majority comprised of those who draw direct transfers/benefits from the Federal government, is ruled by the top half-of-1% financial aristocracy who own the majority of income-generating assets. The minority, who pay most of the taxes (the 24.5% between the majority and aristocracy), will see their taxes rise as the aristocracy buys loopholes and exclusions while the bottom 50% pay no income tax. Financially, the Federal government’s spending has outrun the tax revenues being collected. Structurally, Federal expenditures for entitlements (Medicare, Medicaid, Social Security, Veterans Administration, etc.) will rise as Baby Boomers retire en masse over the next 15 years, while tax revenues will stagnate along with earned income. There is no way to square these circles. What few dare admit, much less state publicly, is that the Constitutional limits on the financial Aristocracy and the Tyranny of the Majority have failed.
Why'd the Fed announce QE 4? Three reasons: the US economy is nose-diving again and the Fed is acting preemptively. The Fed is trying to provide increased liquidity going into the fiscal cliff. The Fed is funding the US’s Government massive deficits.
The collapse of the Fiscal Cliff talks should come as no surprise to anyone (except, of course, for all those "expert" political commentators virtually all of whom saw a deal by December 31: a full list of names is forthcoming). The reason: a simple one - a House torn, polarized to a record extreme, and a political environment in which the two parties, in the aftermath of a presidential election humiliating to the GOP, reached unseen before antagonism toward each other. In this context, it was absolutely inevitable that America would see a replica of last summer's debt ceiling collapse, which mandated a market intervention, in the form of a crash, and the wipeout of hundreds of billions in wealth - sadly the only catalyst that both parties and their electorate, understand. We had prefaced this explicitly in early November when we said that "the lame duck congress will posture, prance and pout. And it is a certainty that in the [time] remaining it will get nothing done. Which means, that once again, it will be up to the market, just like last August, just like October of 2008, to implode and to shock Congress into awakening and coming up with a compromise of sorts." Which of course brought us to Thursday night's mini-TARP moment. With all that said, there are those forensic detectives who are addicted to every single political twist and turn, and who are curious just where and when the Fiscal Cliff talks broke down in the past week. In this regard, the WSJ provides a useful timeline.