Poland

The winner of a currency war is the country that ends up with the most gold.

A recent article at the BBC discusses the findings of a report by EU Home Affairs commissioner Cecilia Malmstroem on corruption in the EU. According to the report, the cost of corruption in the EU amounts to €120 billion annually. We would submit that it is likely far more than that (in fact, even Ms. Malmstroem herself concurs with this assessment). This is of course what one gets when one installs vast, byzantine bureaucracies and issues a veritable flood of rules and regulations every year. More and more people are needed to administer this unwieldy nightmare of red tape, and naturally the quality of the hires declines over time due to the sheer numbers required. And that is merely what they actually know about...One gets an inkling of how big the problem may really be when considering the case of Greece.

The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).

As the State of the Union address highlighted, both the Russia Federation and the United States have leaders that lean toward various degrees of autocratic government to achieve their agendas.  President Putin rules with an iron fist and treats the legislative branch as an afterthought to use as needed but otherwise ignores.  President Obama declares he will use executive action to get what he wants and quietly uses government agencies to intimidate and stifle his opposition in flagrant abuses of power.  Putin has dismantled the Russian free press and imprisoned vocal opponents.  The majority of the American press does Obama’s bidding for him while the administration puts movie makers in jail. 

Plain vanilla bank runs are as old as fractional reserve banking itself, and usually happen just before or during an economic and financial collapse, when all trust (i.e. credit) in counterparties disappears and it is every man, woman and child, and what meager savings they may have, for themselves. However, when it comes to shadow bank runs, which take place when institutions are so mismatched in interest, credit and/or maturity exposure that something just snaps as it did in the hours after the Lehman collapse, that due to the sheer size of their funding exposure that they promptly grind the system to a halt even before conventional banks can open their doors to the general public, the conventional wisdom is that this is a novel development (and one which is largely misunderstood). It isn't.

Inflation is hot property today, hyperinflation is even hotter! 

Even before the new myRA program was announced, there had been whispers about the need for the US government to assume some risk for US retirement accounts. That's code for forced conversion of private retirement assets into government bonds. As bad as it is to deceive naïve Americans into trading their hard-earned retirement savings for garbage (i.e., Treasury securities), the myRA program potentially represents something far worse... the first step toward the nationalization of existing private retirement accounts.

As if we didn’t know it already! The Western world is the ultimate destination for corruption, pulling a swift one and swiping the valuables from the inside pocket of the guy’s pants standing in front of you as he keeps his beady eye on the economy.

The key events this week are have non-farm payrolls (consensus 181K) and unemployment rate (consensus 6.7%). There is also going to be a number of speeches given by Fed policymakers.  Production surveys from the US (ISM) and other parts of the world are due Monday. We also get trade balance updates from the English-speaking economies - US, UK, Australia and Canada. Finally, keep track on inflation data from Italy and Turkey: the latter is important to track given current high correlation among 'fragile' EM currencies.

The United States’ rapport with the Russian Federation is one of the world’s most important bilateral relationships.  Russia maintains a large nuclear arsenal and is a resurgent player in world affairs. Russia has considered Ukraine to be a vassal for the last five hundred years.  Russian President Putin has routinely referred to Ukraine as a Russian state rather than a free and independent country. How would the United States react if Moscow was able to exert influence over Mexico and install a pro-Russian government? America needs to take off her rose colored glasses and look at the world with a Machiavellian view.  We should decide to intervene in centuries old conflicts only when there are clear American security interests involved.  Unfortunately for the idealistic leaders of American foreign policy, Ukraine does not meet this test.  The Ukrainian people have shown an ability over the two decades to have a natural ability to take matters into their own hands and are quite capable of deciding this issue among themselves. 

The global economy’s glory days are surely over. Yet policymakers continue to focus on short-term demand management in the hope of resurrecting the heady growth rates enjoyed before the 2008-09 financial crisis. This is a mistake. When one analyzes the neo-classical growth factors – labor, capital, and total factor productivity – it is doubtful whether stimulating demand can be sustainable over the longer term, or even serve as an effective short-term policy. Instead, policymakers should focus on removing their economies’ structural and institutional bottlenecks. In advanced markets, these stem largely from a declining and aging population, labor-market rigidities, an unaffordable welfare state, high and distorting taxes, and government indebtedness.

Wondering who will take over the mantle of Treasury bond buyer now that the Fed is stepping away? Curious of the government's next steps towards repression and control of wealth? Wait no longer. As the AP reports, President Obama will unveil a new retirement savings plan tonight that allows first-time savers to buy US Treasury bonds tax-deferred for retirement. Of course, this is not the mandatory IRA that remains somewhat inevitable (as the muddle-through fails) but is certainly a step in the direction we alerted readers to a year ago by which the government generously offers to help manage your retirement savings. Two words spring to mind... remember Poland.

Below is a chart which flags the highest external risk among the 10 most prominent EMs broken down by liquidity (reserves over near-term maturities) on the X-axis and capital flows (current account as % of GDP) on the Y-axis. It should come as no surprise, that Turkey is worst, followed by South Africa, India and Indonesia. China, Korea and Russia have current account surpluses and strong coverage of short-term debt by reserves. Brazil also has high reserve coverage of short-term debt. Mexico and Poland have small current account deficits and healthy reserve coverage, in addition to their IMF Flexible Credit Lines. As for Argentina, forgetabout it.

Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde's call yesterday for moar from Draghi and every other central banker). As Bloomberg's Niraj Shah notes, it's not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.

After last week's economic fireworks, this one will be far more quiet with earnings dominating investors' attention: US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket. On the macro front, this coming week we have two MPC meetings - both in LatAm. For Brazil consensus expects a 25bps hike in the policy rate. For Chile consensus forecasts monetary policy to remain on hold. Among the data releases, one should point out inflation numbers from the US (CPI and PPI), Eurozone, the UK and India. We also have three important US producer and consumer surveys - Empire Manufacturing, Philadelphia Fed (consensus +8.5), and U. of Michigan (consensus 83.5). Among external trade and capital flow stats, we would emphasize US TIC data, as well as current account balances from Japan and Turkey. Finally, the accumulation of FX reserves in China is interesting to track as it provides an indication of CNY appreciation pressure.